Configuring Currency Translation

Objective

After completing this lesson, you will be able to Configure currency translation.

Configuring Currency Translation

At ABC Corporation, you need to translate local currency values into group currency for some of your companies. Some consolidation units will also use existing group currency values. In addition, you need to confirm that multiple group currencies are available for reporting purposes.

Configuring and Running Currency Translation

Watch the following video to learn how to configure and run currency translation.

Exchange Rate Indicators

At ABC Corporation, you're setting up currency translation for your external companies who are submitting their financial data in local currency.

In preparation for the external companies, you have already imported exchange rates into the currency translation tables in SAP S/4HANA by exchange rate type. Now, you need to map the exchange rate types to the exchange rate indicators in group reporting.

Note

Exchange rate types are assigned to exchange rate indicators by version, year, and period. The exchange rate indicators are used in the translation methods. You can use this design to perform multiple translations with only one translation method. For example, you can use the same translation method for actual as well as plan exchange rates. Or, use a translation method with current exchange rates and constant exchange rates to perform a constant currency analysis.

You can use existing exchange rate indicators or create your own. We are using A - Average Rate and C - Closing Rate in this case.

In the following image, exchange rate indicator A is assigned to the AVG exchange rate type effective from 12.2019 for the U00 special version.

Note

The U00 consolidation version is using the Exchange RatesU00 special version in this case.
How to configure the average Exchange Rate Indicator Assignment

Note

Exchange Rate Type for Spot Rate: An exchange rate type that’s used for when currency translation relies on the spot rate. The spot rate is the currency exchange rate at the time of a posting.

Currency Translation Rate Selection: A selection used to determine a deviating exchange rate that differs from the exchange rate type assigned to the exchange rate indicator.

Use

In the following image, exchange rate indicator C is assigned to the CLO exchange rate type effective from 12.2019 for the U00 special version.

Configure Exchange Rate Indicators

Business Scenario

At ABC Corporation, you need to map your exchange rate indicators to exchange rate types.

What skills will you develop in this practice exercise?

  • Set your global parameters
  • Map the average exchange rate indicator to the AVG exchange rate type
  • Map the closing exchange rate indicator to the CLO exchange rate type
ExerciseStart Exercise

Non-Historic Translation Methods

At ABC Corporation, you need to translate from local into group currency for your external companies. In preparation, you have already imported exchange rates and you’ve mapped the exchange rate types to the exchange rate indicators. Now, you need to configure the currency translation method. We'll get started with the translation of non-historic FS items such as cash, accounts payable, and accounts receivable.

Translation Method - Key Points

  • The currency translation method specifies how the system processes currency translations. This includes translation and rounding differences.
  • The methods are configured according to an accounting standards such as US GAAP and IFRS.
  • Currency translation methods are assigned to consolidation units.
  • Methods consist of sequences. These sequences translate sets of FS Items and transaction types, and execute rounding.
  • The system performs two translations of a balance. The first is at the reference rate. The second is per the rate specified in a translation sequence. Any difference between the two amounts is a translation adjustment.

  • To access currency translation methods, go to group reporting configuration and open Currency Translation for Consolidation → Define Currency Translation Methods.

In the following image, the currency method is displayed:

  • The closing rate is used to calculate the reference amount.
  • The reference amount is used by all sequences in the method.

The fields in the method are defined as follows:

  • Reference exchange rate indicator: The exchange rate indicator is used to determine reference values. The system uses reference values to calculate translation differences.
  • Leading currency in local currency change: This option is only relevant when the local currency of the consolidation unit has been changed and the new local currency is the same as the group currency.
    • Copy Local Currency to Group Currency: Values in the old local currency are translated to the new local currency using the reference exchange rate. These values are then copied to the group currency.
    • Copy Group Currency to Local Currency: Values in the group currency, which already exist in the prior year, are copied to the new local currency. No currency translation is performed.
    • Keep Group Currency Amounts: Values in the old local currency are translated to the new local currency using the reference exchange rate. These values are then copied to the group currency. The system then posts a new record in the group currency value to keep the overall group currency values unchanged. The new record is identified with the currency translation indicator.
  • Validation: The indicator is set by the system after checking the method. 
  • User Name / Date / Time: Name of user who made the last change and when.

In the following image, the sequence to translate opening balances at the prior-year exchange rate is configured:

  1. Select the source values for non-historical opening balance (OPE)
  2. Use the closing rate
  3. Use the prior year-end rate
  4. Translate the year-to-date value at the period rate
  5. Because adjustments are posted to the source FS item, the debit and credit role Items are not needed
  6. Because adjustments are posted to the source FS item, the FS item field is blank as well
  7. Post currency translation adjustments to subitem / transaction type: 980

Currency sequence definitions:

  • Sequence Number: This is a number to uniquely identify a translation/rounding step. A step represents a combination of the currency translation key and exchange rate type. The number does not impact the sequence of processing.
  • Rounding entry: Select to use the sequence for rounding.
  • Selection: The selection object that determines the range of FS Items and subitems that are applicable to the translation step.
  • Exchange rate indicator(ERI): This is used to determine the appropriate exchange rate types and exchange rates from the currency translation rate tables.
  • Prior year exchange rate: This will select the prior-year closing rate for example, can be used to translate balance sheet opening balances.
  • Translation key: Determines the base currency and type of exchange rate to be used. Only 1, 5, and 6 are supported in group reporting)
    • 1 - Translation of cumulative local values at the current period rate. Generally applied to balance sheet items.
    • 5 - Translation of each period at the applicable rate for each period. Generally applied to income statement items and balance sheet movements.
    • 6 - No re-translation of existing group currency values.

    Note

    Translation key 1, 5, and 6 use local currency as the base. Only translation keys 1 and 5 allow posting to the original item.
  • Does not affect earnings: Used to generate a message when the posting of translation differences impacts net income.
  • Temporal Translation Differences: Select this flag if you want to separately store any temporal differences incurred during currency translation.
  • Debit Item Role | Credit Item Role:
    • Debit Item Role: Use the role object to determine the debit FS Item for currency translation adjustments (instead of hard coding the FS Item).
    • Credit Item Role: Use the role object to determine the credit FS Item for currency translation adjustments (instead of hard coding the FS Item).
  • Account assignment:

    • Determine which FS item and sub-items receive translation differences.

    • In the example above, any differences will be received by the original FS item along with subitem 980.

Currency Translation for Movements

In the following image, sequence 020 translates movements using the average rate for each period.

  1. Select the source values for non-historical movements
  2. Use the average rate
  3. Translate the period values at the period rate
  4. Post currency translation adjustments to the source FS item (the Item Role and FS Items are blank)
  5. Post currency translation adjustments to subitem / transaction type: 980.

Currency Translation Keys

Source financial data is translated using combinations of exchange rate indicators and currency translation keys. Exchange rate indicators determine the exchange rates and currency translation keys determine the base currency and calculation procedure.

Customers use different currency translation keys based on several criteria:

  • Type of financial data:
    • BS item balances: use a cumulative approach (1)
    • PL items and BS movements: use a by-period (5) approach
  • Accounting standards
  • Reporting requirements
  • Historical practice
  • Timing of values

The following image displays a numeric example for translation key 1 as compared to 5.

  • Row 7: The reference value is a year-to-date calculation.
  • Row 17: The group currency value is based on year-to-date values for the translation key 1 (cumulative value) and periodic values for translation key 5 (periodic value).
  • Row 22: The currency translation differences results from the calculations 17.
  • Row 30: The total value is the same for both approaches.

Method Check and Activate

After you add sequences to the method, you carry out the following two steps::

  1. Check the method
  2. Mark it as Active

When you check the method, the system reads the latest breakdown categories and looks for inconsistencies such as overlapping FS item ranges when the check is performed. It also checks for missing FS items.

Configure Non-Historic Currency Translation

Business Scenario

Now that you've mapped exchange rate types to exchange rate indicators, you can configure the translation methods. In this phase of the project, you're configuring translation for non-historic balance sheet FS items. This method will translate from local currency to group currency.

What skills will you develop in this practice exercise?

  • Create the method
  • Create the sequence for opening balances
  • Create the sequence for movements
  • Check the method for overlaps
ExerciseStart Exercise

Historic and Income Currency Translation

Historic and Income Related Items - Key Points

  • Historic items include investment, equity, and goodwill
  • Income-related items include current year retained earnings and profit and loss values
  • Currency Translation Adjustments (CTA) for historic and income-related items is posted to CTA FS items and a CTA transaction type.

Historic Opening Balance Translation

In the following image, the sequence to translate historical opening balances is configured:

  1. Select the source values for historical opening balances
  2. The exchange rate indicator is blank when translation key 6 is used
  3. No re-translation of existing group currency values
  4. Post translation differences to the FS item 314800 (determined via FS item role S-CT-DIFF)
  5. Post currency translation adjustments to subitem / transaction type: 980

Key points: Currency Translation Historic Opening Balances

  • If the translation key = 6, then the exchange rate indicator must be blank.
  • The S-CT-BS-HIST-OPE selection object includes transaction type 900 and items with currency translation attribute values of CT-BS-HIST and CT-BS-HIST-OPE.
  • The 172100 investment FS item and the 311000 issued capital item both use CT-BS-HIST.

Historic Movements Translation

In the following image, the sequence to translate historical movements is configured:

  1. Select the source values for historical movements
  2. Use the average rate
  3. Translate the period values at the period rates
  4. Post translation differences to FS item 314800 (determined via FS item role S-CT-DIFF)
  5. Post currency translation adjustments to subitem / transaction type: 980

Current-Year Retained Earnings Translation

In the following image, the sequence to translate retained earnings is configured:

  1. Select the source values for current-year retained earnings
  2. Use the average rate
  3. Translate the period values at the period rates
  4. Post translation differences to the FS item 314800 (determined via FS item role S-CT-DIFF)
  5. Post currency translation adjustments to subitem / transaction type: 980

Key points: Currency Translation Current Year Retained Earnings

  • The S-CT-ANI selection object includes transaction types 902–999 and items with currency translation attribute values of CT-ANI-BS and CT-NCI-NI.
  • CT-ANI-BS is the currency attribute for the current year retained earnings FS item 317000.
  • CT-NCI-NI is the currency attribute for the non-controlling interest net income FS item 321150 NCI Net Income.
  • Current year retained earnings are translated using the average rate for each period.
  • The original account values aren't affected since a currency translation adjustment (CTA) item is assigned.
  • The breakdown category for the 314800 item requires a subitem category of 1.

Net Income Translation

In the following image, the sequence to translate net income is configured:

  1. Select the source values for annual net income
  2. Use the average rate
  3. Translate the period values at the period rates
  4. Post translation differences to the FS item 314800 (determined via FS item role S-CT-DIFF)
  5. Post currency translation adjustments to subitem / transaction type: 980

Key points: Currency Translation Current Year Income

  • The S-CT-PL-AVG selection object includes items with currency translation attribute values of:
    • CT-ANI-PL
    • CT-PL-AVG
  • The profit and loss FS items all have the CT-PL-AVG attribute value.
  • The Net Income Loss 799000 FS item has the CT-ANI-PL attribute value.
  • Income statement items are translated using the average rate by period.
  • The original account values aren't affected since a currency translation adjustment (CTA) item is assigned.
  • The breakdown category for the 314800 item requires a subitem category of 1.

Summary of All Sequences

After you configure all of the sequences, you can view them in the overview screen. You can see how the system translates financial statement values by sequence.

Retain Accounting Group Currency

At ABC Corporation, you want to retain existing group currency values for your SAP S/4HANA companies. To do this, follow these steps:

  1. Create a method with exchange rate indicator *: Reference value = group value.

    By using exchange rate indicator *, the existing group currency value will be used as the reference value.

  2. Add sequences to the method:
    • Exchange rate indicator: blank (since no translation is occurring).
    • Translation key: 6: No re-translation of existing group currency values.

    In the following image, each sequence has a blank value for the exchange rate indicator and 6 for the translation key.

    In the following example, the opening balance sequence is displayed.

  3. Check and activate the method.
  4. Assign the method to consolidation units.

Configure a Method to Retain Accounting Group Currency

Business Scenario

Now that you've configured a method to translate from local currency to group currency, you’ll now create a method to use the accounting group currency without any translation.

What skills will you develop in this practice exercise?

  • Copy an existing method
  • View the sequences
  • Check the method
ExerciseStart Exercise

Assign Currency Methods

You can assign translation methods to consolidation units 2 different ways:

  1. Manually: Use the Define Consolidation Units app.
  2. File upload: Use the Import Consolidation Master Data app.

Note

The assignment is time and version-dependent.

Assign Currency Methods

Business Scenario

Now that you've configured translation methods, you can assign them to the consolidation units.

What skills will you develop in this practice exercise?

Enhance your currency translation skills by assigning your translation methods to your consolidation units.

Note

The United States will use your U##CS method, which retains the accounting group currency. The remaining consolidation units will use the U00CM provided method, which is configured to translate historic, non-historic, and income FS items.
ExerciseStart Exercise

Currency Translation Log

Now that you've configured currency translation, you’re ready to run it. When you run currency translation, the log is useful for debugging your methods and double-checking your configuration.

Columns in the Currency Translation Log:

  1. Translation Method
  2. Sequence
  3. Item Type:
    • CU Currency Translation
    • TO Total
    • DN Difference - Not Affecting Net Income
    • DP Difference - Posting to Trigger
    • DA Difference - Affecting Net Income
    • DS Difference - Affecting Net Income (Statistic)
    • DR Rounding Difference
    • TR Triggering Item
    • DO Journal Entry
    • RJ Reversed Journal Entry
    • MS Message
    • SC Semantic Check
    • UD Uploaded Data
  4. Translation Key: Specified in the sequence.
  5. Exchange Rate: This is the exchange rate determined in the sequence.
  6. LC Amount: Local currency from the source system.
  7. GC Amount = LC Amount x Exchange Rate.
  8. Translation Difference: Reference Amount - GC Amount.
  9. Reference Amount: LC Amount x Reference Exchange Rate.
  10. Reference Exchange Rate Indicator: This is determined in the method.
  11. Reference Exchange Rate:

Run Currency Translation

Business Scenario

Now that your configuration is complete, you can run currency translation and review the results.

What skills will you develop in this practice exercise?

  • Run the currency translation task
  • Create a line item display variant
  • Review the results for a balance sheet non-historic item
  • Review the results for a balance sheet historic item
  • Review the results for an income statement item
  • Review the results when accounting group currency is retained
ExerciseStart Exercise

Currency Translation Components

Now that you have configured and run currency translation, let's identify the components graphically.

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