As a result of this chapter, you should be able to: Discuss the difference between translation and valuation. Discuss how accounts and transactions are managed in foreign currencies using exchange rate types. Identify and describe the various types of currencies that can be managed and the functionality of each type. Execute the automated programs used in valuation.
In the system, any currency other than the Country Currency assigned to the Company Code (Local Currency) is a foreign currency. The Local Currency is the currency of the Company Code. It is defined at the time the Company Code is created. Account balances and transaction figures are always available and displayed in local currency for all accounts.
If the proper prerequisites have been established in the system, when a document is posted with amounts in a foreign currency, those amounts are automatically translated into the local currency and are stored in the document.
Before a document can be posted in a foreign currency, the following must be true: Local currency must be defined in the Company Code Global Parameters The foreign currency must be defined in the Currency Code Table A translation ratio must beset between the foreign and local currencies An exchange rate must be defined between the foreign currency and the local currency in the Exchange Rate Table. These topics will be addressed in more detail in the following slides.
The slide above identifies the items that need to be configured in order to use foreign currencies. Each item will be discussed in the next several slides. Currency Codes identify the various currencies that will be used in a particular system by the organization’s Company Codes, Customers and Vendors. It is not necessary to define all possible currencies Exchange Rates identify the relationship between two currencies (e.g., on January 1st, 1999, one USD was equal to 22.694 RUB). The exchange rate is limited to the following extremes (0.00001 - 9999.99999) Rates can be updated as often as needed, either manually or through the use of an outside interface from Reuters or any other service that provides foreign currency exchange rates. The Translation Ratio is used to make simplify the management of extremely large/small exchange rates that may exceed the capabilities of the standard exchange rate.
Exchange Rate Types are used when posting documents in foreign currency for translation purposes and for foreign currency valuations. The standard system uses the following Exchange Rate Types: B (Bank Selling Rate) G (Bank Buying Rate) M (Average Rate) - The default rate type for posting documents. EURO - Used for exchange rates between EU member nation currencies (e.g., DEM:FRF) EURX - Used for exchange rates between an EU member nation currency and a non-member nation currency (e.g. DEM:USD) Note: Euro functionality will be discussed in greater detail later in this chapter. Validity Period - Exchange rates are time dependent. This feature enables the user to change exchange rates while keeping older exchange rates that may still be useful. Quotation Type Indirect Quotation - X units of the “From” currency equal 1 unit of the “To” currency Direct Quotation - 1 unit of the “From” currency equals X units of the “To” currency You may specify the default quotation type for an exchange rate. If an exchange rate appears in red then the opposite quotation type is the default.
Quotation Prefixes may be defined to differentiate direct and indirect quotations during document entry. The default prefixes are: Direct - None Indirect - “/” Example: You want to post a document for 1000 Australian Dollars (AUD). Your local currency is USD. The system is configured to use the direct exchange rate which in this case is 1AUD: 0.59655 USD. At the time of document entry, the system will default the document exchange rate to 0.59655; however, you may enter “/1.67631”. The “/” indicates the exchange rate is an indirect rate. In either case the translation will be 1000 AUD = $596.55. Most currencies use the Direct Exchange Rate as a default; however, some may require the use of one or the other. This setting is configured in the Currency section of the IMG. When creating a document in a foreign currency, the exchange rate defined in the Exchange Rate Table can be overridden by manual entry of an exchange rate directly in the document.
The Currency Translation Ratio identifies the relationship of the units of one currency to the units of another. It enables SAP to process exchange rates that would normally exceed the maximum allowable exchange rate of 9999.99999. Occasionally, translation ratios need to be modified due to dramatic changes in the exchange rates (e.g., Mexico revalued the Peso in the early ‘90s). For this reason, translation ratios are time dependent. When determining which translation ratio to use, the system will look at the exchange rate and use the currency that has one unit (i.e., 1:X or X:1) to determine the “from” currency in the translation ratio table. For example: The Exchange Rate 1 USD:275.92 TRL yields the Translation Ratio 1 USD: 1000 TRL The Exchange Rate 0.36424 USD:1 TRL yields the Translation Ratio 100,000 TRL: 1 USD Note:The Alternate Exchange Rate Type will be discussed during the Euro section of this chapter.
The following techniques can be used to reduce the number of entries in the Exchange Rate Table: Base Currency : if a Base Currency is defined, then exchange rates only need to be established for each foreign currency in relation to the Base Currency. When a foreign currency transaction is entered, the system uses the relationship between the two currencies in the transaction and the Base Currency to determine the exchange rate between the two currencies. Example: DEM = DEM * EUR = 0.29816* FRF EUR FRF * Calculation based on exchange rates in table above. In some countries, such as Mexico, and the EU translation is possible only by using the country currency or EUR as the base. Currency Inversion : enables the system to take when activated only one entry is needed in the Exchange Rate Table for each combination of foreign currencies. Note: Due to the fact that exchange rates can only carry five decimal places, inversion introduces a rounding error. For this reason, it is not recommended that this feature be used. In fact, the EU prohibits its use for transactions involving the EURO.
Transaction Currency is the currency (local or foreign) in which a document is posted. The system automatically maintains a document in the Transaction and Local currency; however, the Local and Transaction Currencies can be the same. Two additional Parallel Currencies are defined at the Company Code level as part of the Company Code Global Parameters. These currencies will be discussed on the next slide. Financial statements can be produced in the parallel currencies if a ledger has been created to store transactions in the parallel currency.
The currency type specifies the role of the currency to be managed in parallel. Examples of currency types are: Group Currency (Currency Type 30) is defaulted from the Client level (Client 000) where a currency must be assigned. If this type is selected as one of the additional currencies to be used, it does not require any entry into a ledger configuration table. Hard Currency (Currency Type 40) is country-specific and used in highly inflationary environments. Index Currency (Currency Type 50) is country-specific and fictitious (e.g., ECU) and used for external reporting such as tax returns. Global Company Currency (Currency Type 60) is used for internal trading partners. Global, Hard and Index currencies require setting up a ledger in FI Configuration to make sure that data is captured for these currencies. The other three currencies available are Transaction, Local, and Group, which come pre-defined in ledger 0.
When creating a document, the amounts in the parallel currencies are calculated automatically using the Exchange Rate Table. Automatic postings of the parallel currencies are stored in the document; however, a Display Variant must be constructed in order to see the various currency values when examining a posted document or a line item. Prior to posting a document, you may examine the additional currencies via the following: Local Currency tab in the Enjoy Posting Display Currency button in the complex posting Exchange rate differences occur in the local currency of the Company Code and in the parallel currencies. The transaction currency is not affected by exchange rate differences.
A document that includes a G/L Account managed in a foreign currency will also contain the amount in the local currency.
History of the Euro 1979: The ECU was established by the European Monetary System (EMS) it consisted of the currency of EMS countries, balanced according to their respective economic weights. The Single Act and the Maastricht Treaty created the following stages toward completion of the Economic and Monetary Union: 1990-1993 (Preparatory stage): Member States make their best effort to coordinate economic and monetary policies. 1994-1998: Member States create The European Monetary Institute (EMI) to improve coordination of monetary policy and to lay the technical ground work for changeover to the single currency. 1 January 1999: Countries that meet convergence criteria will adopt a single currency - the Euro. At this point all participating countries’ currency exchange rates will be set to the Euro. Introduction of the currency will be accomplished by the creation of a European Central Bank (ECB). 1January 2002 to to June 30 2002: Physical currency of member countries will be replaced with Euro dollars.
SAP is delievered with EURO functionality. These are some of the key configuration items: New Currency - EUR New Exchange Rate Types EURO - Used for transactions between EU member nations EURX - Used for transactions between EU member nations and non-member nations Base Currency - EUR becomes the base currency for both EURO and EURX Alternate Exchange Rate Type - translation ratios that reference EU member nation exchange rates must now have EURO or EURX as the alternate type. The alternate rate type will now be used instead of the original rate type (e.g., a transaction that uses Type “M” DEM:FRF exchange rate entry will now use the Type “EURO” exchange rate entry. Exchange Rates - Rates between member nations are fixed as of January 1, 1999 Special translation regulations for the EMU have to be followed Rounding rules (six significant digits) Open Item and Balance Sheet Valuations No inversion calculations Triangulation via the Euro (i.e., no cross rates)
This means that: All exchange rates are defined from the Euro into another currency, not vice versa. All exchange rates are translated using the base currency, not directly. Translation follows the calculation rules given by the EU, no matter which rules are defined in the system for other translations. The exchange rate is fixed. In all applications an error message is displayed if exchange rates are entered that deviate from the fixed exchange rate. See Note 91481 for additional details.
With the advent of the European Union and the single currency used by its member nations, SAP has added functionality that allows currencies to expire after the dual currency phase ends on June 30, 2002. Note: This functionality is not restricted to EU-member nation currencies. You can define date-dependent warning or error messages that occur when objects (e.g., a sales order) reference expiring currencies. These messages can be defined such that they are company code and/or object dependent.
Local Currency - The currency assigned to a Company Code. Foreign Currency - Any currency other than the currency assigned to the Company Code. Translation - The system functionality that automatically converts a foreign currency amount in a document to the Local Currency. Exchange Rate - The factor used to define the equivalent value of one currency to that of another. Exchange Rate Type - A categorization of exchange rates (e.g., average, buying and selling) with different ones being used depending on the transaction being processed. Base Currency - A currency that the system uses as a reference point when determining the exchange rate between two other currencies. The system uses the relationship between the two currencies in the transaction and the Base Currency to determine the exchange rate between the two currencies. Currency Inversion - Functionality used in the Exchange Rate Table to allow the system to determine the “to-from” exchange rate between two currencies based on the “from-to” exchange rate. Transaction Currency - The currency in which a document is posted. Parallel Currencies - Additional currencies specified at the Company Code level into which transactions are translated.
Group Currency - The currency that can be used by Company Codes assigned to a particular client. Hard Currency - A currency defined at the country level that is used in highly inflationary environments. Index Currency - A fictitious currency defined at the country level that is used in highly inflationary environments. Global Company Currency - A currency that is used for internal trading partners entries
SAP FI Currencies | http://sapdocs.info
Chapter 26 Currencies <ul><li>The system provides standard functionality for processing transactions in foreign currencies and valuating transactions and accounts managed in foreign currencies. </li></ul><ul><li>Chapter Objectives </li></ul><ul><ul><li>Provide an understanding of the configuration issues connected with foreign currency functionality in the system. </li></ul></ul><ul><ul><li>Provide an understanding of how transactions posted in foreign currencies can be translated into the local currency. </li></ul></ul><ul><ul><li>Provide an understanding of how open items and account balances are automatically valuated using standard system programs. </li></ul></ul>
<ul><li>= </li></ul><ul><li>= </li></ul>Foreign Currency Country Currency (Company Code) Local Currency Foreign Currency All Others
<ul><li>Sales </li></ul><ul><li>Order </li></ul>Documents Posted in Foreign Currency Invoice Automatic Translation Local Currency
Prerequisites Local Currency Defined in Company Code Translation Ratio Between Foreign and Local Currency Defined Foreign Currency Code Defined Exchange Rate Defined I. II. III. IV.
Currencies and Exchange Rates Translation Ratio Table Exchange Rate Table Currency Codes
Exchange Rate Table Translation Ratio Quotation Type Validity Period Exchange Rate Type
Documents and Exchange Rate Quotations Indirect Exchange Rate Direct Exchange Rate
Base Currency & Inversion DEM EUR divided by FRF EUR Base Currency Desired Rate DEM FRF Inversion 1 DEM EUR Desired Rate EUR DEM
Parallel Currencies Transaction Currency Local Currency Parallel Currencies
<ul><li>Group Currency </li></ul><ul><li>Hard Currency </li></ul><ul><li>Index Currency </li></ul><ul><li>Global Company Currency </li></ul>Parallel Currencies Possible Additional Currencies $
Parallel Currencies Example of Currency Types in a Multinational Corporation: US Germany Mexico Transaction Currency Local Currency Group Currency Hard Currency XXX USD USD XXX DEM USD XXX MXP USD DEM US Group Group Currency USD
<ul><li>Posting in </li></ul><ul><li>ANY CURRENCY </li></ul><ul><li>is possible </li></ul>G/L Account Master Currency Key (Account Currency) The Local Currency A Foreign Currency Posting ONLY in the FOREIGN CURRENCY is possible
Countries Adopting the Euro <ul><ul><li>Germany </li></ul></ul><ul><ul><li>France </li></ul></ul><ul><ul><li>Austria </li></ul></ul><ul><ul><li>Belgium </li></ul></ul><ul><ul><li>Luxembourg </li></ul></ul><ul><ul><li>Netherlands </li></ul></ul><ul><ul><li>Ireland </li></ul></ul><ul><ul><li>Finland </li></ul></ul><ul><ul><li>Portugal </li></ul></ul><ul><ul><li>Spain </li></ul></ul><ul><ul><li>Italy </li></ul></ul>
EURO Configuration Translation Ratio Table Exchange Rate Type Table