Currency Translation Using Spot (Current) vs. Historical Exchange Rates 

Features

When changing over the ledger currency to euros, and the local currency of companies or consolidation units to euros, the situation "local = ledger = euro" can occur.

In lieu of the intermediate steps leading to the changeover to "local = ledger = euro", the following scenarios are possible:

  1. local / ledger ® euro / ledger ® euro / euro
  2. local / ledger ® local / euro ® euro / euro
  3. local / ledger ® euro / euro

In a "local = ledger = euro" currency situation, currency translation is, in principal, no longer required.

However, the ‘euro local currency amounts’ and the ‘euro group currency amounts’ initially differ for those financial statement items which, in the past, were translated using historical exchange rates. The law permits companies to choose between keeping the historical amounts or switching over to spot (current) rate translation, that is, identical local and ledger currency amounts. This choice can be made for FI-LC and EC-CS within the Customizing of currency translation.

For various reasons, differences between the local currency and ledger currency amounts can also occur in the following situations:

You need to clear these dissimilarities in the next closing by performing currency translation.

To enable currency translation to work for companies or consolidation units where the local currency equals the ledger currency, the Currency translation if LC = GC indicator was introduced in the method assignments in Releases 3.1I and 4.0B.

In cases where further discussions within this section prompt you to set or reset this indicator, you should always do this by creating a new entry. This ensures that the transaction history is accurately documented.

As soon as the local and ledger currency amounts again become identical, you should reset the indicator to increase system performance by preventing unnecessary currency translation runs.

First currency translation

When dealing with companies or consolidation units in which the local currency equals the ledger currency prior to any euro changeovers, you must perform a currency translation after the first step of a staged changeover, that is, with a scenario ‘local / euro’ or ‘euro / ledger’.

You follow these steps:

  1. You define a simple spot (current) rate method with separate translation entries for the balance sheet and the income statement (no specific translation entries for aging reports, such as the asset history sheet)
  2. You assign this method to the companies or consolidation units.

    3. In EC-CS, you may have to define a new task group which contains currency translation, and assign the new task group to the dimension for no specific time period.

  3. You perform currency translation.

During a simultaneous changeover of local and ledger currencies to euros, the amounts involved are presently not reconciled. Reconciliation of local currency amounts with Financial Accounting data can therefore result in differences between local and ledger currency amounts in euros. This discrepancy is also rectified by currency translation.

Retaining currency translation with spot (current) exchange rates

Companies (or consolidation units), which in the past applied the spot (current) exchange rate when the local currency was not the same as the group currency, may also have differences between their local currency and group currency amounts in euros after a simultaneous or staged changeover of local and ledger currencies. This is the result of:

You need to use the defined spot (current) rate method for the next closing. In order to run be able to run currency translation, you need to set the indicator Currency translation if LC = GC. For the following closing, you deactivate the indicator.

Switching over to spot (current) rate translation

In FI-LC and EC-CS you assign currency translation methods to companies and consolidation units for a specific period of time. The switch from historical exchange rate translation to spot (current) rate translation is therefore a normal function in the Consolidation application. Currency differences that have (or do not have) an effect on net income are reversed with (or without) an effect on net income.

Exchange rates can be switched as part of the euro changeover at two points in time:

In the context of the euro changeover, this procedure amounts to continuing currency translation with spot (current) exchange rates.

In this case, you need to set the indicator Currency translation if LC = GC and then deactivate it for the next closing.

Note that for the spot (current) rate translation method you need to make specifications about how aging reports should be handled. These specifications are not required for first currency translation.

Retaining historical rate translation

If you want to retain historical amounts in ledger currency after the euro changeover, the historical rate translation method must remain assigned. By setting the indicator Currency translation if LC = GC, you specify that translation also takes place if local and ledger currencies are identical.

By setting this indicator, you also ensure that no values are copied from local currency fields into ledger currency fields in the database during data entry, even if the currency key is identical. This enables you to post historical adjustment entries in different local currency and ledger currency amounts, for example.

You only deactivate this indicator once you are sure that you are switching to the spot (current) rate method.