Function documentationLocal Currency Change for a Consolidation Unit

 

A change of the local currency is primarily necessary in the following cases:

  • A company moves to a different country and reports its financial statements in a different currency.

  • A consolidation unit or an entire country introduces a new reporting currency.

  • A consolidation unit wants to report its financial data in the group currency rather than in the local currency.

When a consolidation unit changes its local currency, this function makes certain that:

  • The balance carryforward data is posted in the new local currency.

  • All entries are posted in the new local currency starting on the closing date which always must be in line with a new fiscal year.

  • Whenever the system needs to access data of previous years, this data is translated into the new currency on an ad hoc basis (ad hoc translation). (Inversions and prior year comparisons need to access prior year data.)

Integration

In contrast to the euro changeover, a local currency change does not abolish the old currency.

Prerequisites

Local currency changes must take place at the beginning of a fiscal year.

The local currency change must be performed before you carry forward the balances or post new data for the new fiscal year. Otherwise the data could become inconsistent.

See also Customizing for a Local Currency Change.

Features

Functions Affected by Local Currency Changes

The following functions are affected by local currency changes:

  • Balance carryforward

    When the currency-bearing consolidation unit changes the attribute value for the local currency, the balance carryforward function needs to translate the values in the old currency into the new currency.

  • Period initialization (task)

    Period initialization inverts documents of prior years. When a local currency changes, the system also needs to translate the prior-year documents to be inverted into the new currency.

  • Other tasks that invert documents

    These are tasks that post automatically and have document types that automatically invert postings of prior periods. (For example, document types for the elimination of interunit payables and receivables are configured to do this.)

    These tasks proceed as in period initialization tasks (discussed earlier).

  • Mass reversal

    Mass reversals proceed as in period initialization tasks (discussed earlier).

  • Consolidation of investments with goodwill in local currency

    If goodwill is carried in the local currency of the investee unit, the goodwill and investment values also need to be translated into the new currency.

  • Validation

    Validations sometimes compare prior year values. Such prior year comparisons may need to access data in the old local currency. In this case, the data needs to be translated into the new local currency.

Currency Translation and Rounding for Local Currency Changes (Customizing Settings)

The local currency key is an attribute of the currency-bearing consolidation unit. The assignment of this attribute is fiscal year dependent.

When the local currency changes, starting in the new fiscal year the new currency is used by all functions that work with local currency values. Therefore, functions that access prior year data (in particular, balance carryforward, period initialization, and other inversion functions) need to react to the local currency change: In most cases the system translates the old currency (located in the data rows) into the new currency (according to the local currency key in the master data of the consolidation unit).

To enable the system to translate prior year values into the new currency on demand, you specify a currency translation method in the Customizing settings for balance carryforwards.

Recommendation Recommendation

For the currency translation method, we recommend that you merely specify a reference translation, rather than a specific translation. The system would not be able to take advantage of all of the functionality in specific translations anyway.

We recommend also that you assign a rounding method to the currency translation method.

End of the recommendation.

You assign the currency translation method to the balance carryforward task. The system then derives the currency translation method that belongs to the consolidation unit from the Customizing settings for the balance carryforward.

The system then applies this currency translation method (along with the assigned rounding method) to a set of data records. As a result, the local currency key and the local currency values are replaced by the new values. If necessary, the system calculates and posts any currency translation or rounding differences.

Balance Carryforward for the Consolidation Unit with the New Local Currency

When a consolidation unit changes its local currency, the balance carryforward function needs to translate the totals data as well as the local currency data of all data streams. The currency translation method to be used for this needs to be assigned to the balance carryforward task.

The balance carryforward function then does the following:

  • The function determines whether there are any consolidation units with the local currency to be changed.

  • The function adds the following information to the balance carryforward task log:

    • Currency translation method

    • Exchange rate

    • Old and new currency keys

    • Old and new local currency values

    • Rounding differences (if incurred)

Balance Carryforward for Totals Data, Investment Data, and Equity Data

As an option, you can assign a rounding method to the currency translation method. This enables the system to post rounding differences depending on which data streams are used. However, in some cases, rounding differences cannot be posted:

  • Totals data : The system stores translated data records in the totals database, including any rounding differences.

  • Investment data : Rounding is not possible for investment data.

  • Equity data: Customizing for the location of equity data offers you various options with different effects on balance carryforwards:

    • Read from totals database: No equity data is carried forward.

    • Read from additional financial data: No rounding differences are posted if the account assignment for rounding differences is not an equity item.

    • Read from totals database and additional financial data: No rounding differences are posted if the account assignment for rounding differences is not an equity item, or if the account assignment is an equity item but this account assignment is read from the totals data.

Special Case: New Local Currency Is Same as Group Currency

You can specify whether the system is to apply special logic if the new local currency is the same as the group currency.

If you do not activate this special logic, translation differences generally occur when the currency is translated into the new local currency.

If you activate this special logic, the system aggregates the group currency values for the new fiscal year in the balance carryforward using the indicator for translation differences and then uses these aggregated group currency values as the local currency values in the new fiscal year. This is only done if the new local currency and group currency keys match. By doing this, you can prevent currency translation differences in this special situation.

When the consolidation of investments is run, the system also adjusts the key figures for goodwill entries in update mode in the first consolidation period of a fiscal year: For any investee units with a new local currency that matches the group currency, the system copies the key figure values for the currency translation (in group currency) to the corresponding original key figures (without translation) in group currency. The system then copies the original key figures in group currency to the corresponding key figures in local currency and initializes the translation key figures (in group currency).

To activate this special logic, you select the Copy Local Currency Values from Group Currency Values indicator in Customizing for balance carryforward tasks.

Treatment of Values in Transaction Currency

The system treats data in transaction currency differently, depending on whether the item has a breakdown by transaction currency:

  • Items with breakdown by transaction currency:

    The values in transaction currency remain unchanged.

  • Items without breakdown by transaction currency:

    After translation, the values in transaction currency are replaced with the default currency:

    • Posting levels 00, 01, 10: Value is replaced by the local currency value.

    • All other posting levels: Value is replaced by the group currency value.

Example

See the section Examples: Local Currency Change.