Foreign currency revaluation is done to revalue the AP/AR and other GL accounts (e.g. bank GL account) balances in foreign currency in order to bring them to the market value during the month end closing rate. The revaluation will be done for all open items and account balances in foreign currency. The practice of foreign currency revaluation is required as per IAS 21 as well as local GAAP requirement.
It is a practice to revalue the AP/AR and other account balances at month-end rate or closing rate at the last day of the month. Subsequently, these transaction posting is reversed at the first day of the following month.
Figure 1 is a simple illustration of the accounting flow of FX revaluation. Pls. note that the illustrations on the accounting flow are given based on the scenario of having an open payable item transaction currency in USD and the functional currency of the company is in SGD, and the fiscal year of the company is Jan-Dec.
Figure 1. Illustration of accounting flow for FX revaluation
However, for certain countries like Korea and Hungary, it is not allowed to reverse the revaluation to the following year (i.e. 01 Jan XXXX). SAP has provided the Delta Logic Functionality for the Foreign Currency Revaluation. So, how does this delta logic functionality works accounting-wise?
The Delta logic can be activated in SAP configuration. The focus of the document is to explain the accounting flow and FX revaluation execution for this document, but before proceeding we can touch on briefly the basic configuration requirement for Delta Logic. Figure 2 is the activation of Delta Logic in FX revaluation in SAP.
Figure 2. Screenshot of the Delta Posting Logic.
There are several tickbox for the table. Below is the explanation of the configuration as per SAP documentation:
- 1- “+” – If this switch is set, a delta logic is used for the foreign currency valuation.
- 2- “Cl.Date” – If this indicator is set, the clearing date of the valuated item is used for the reversal postings.
- 3- “Mon.Rev.” – Allows the reversal of mid-fiscal year valuation within delta logic. If you set this indicator, you will be able to specify whether the reversal of valuation postings is possible in the Foreign Currency Valuation report in conjunction with the delta logic.
Necessary configuration still needs to be maintained (for example, account determination, GL master data settings, Valuation Areas, and others); the intention of the document is to explain the accounting flow and not serve as a configuration guide.
Upon activation of the Delta Logic activated in FX revaluation, there will be a slight change in the selection screen. That is, two new fields will show to determine whether the revaluation is “Year-End Revaluation” or “Mid-Year Revaluation”. Finance will need to select “Year-End Closing Valuation” for Dec; Select “Mid-Fiscal Year Valuation” for the other months (e.g. Jan – Nov).
Figure 3. Screenshot of the changes in the FX revaluation selection screen for Delta Logic.
To illustrate the accounting flow for Delta Logic, pls. refer to Figure 4 below. At year-end closing, the open AR is revaluated based on Dec 31, 2012 closing rate of @1.30. The revaluation will result to unrealized exchange loss of 50 SGD. Since it is year-end closing, there will be no reversal posting on Jan 1, 2013. Assuming no payment has been received for Jan. The same open item will be revaluated again on Jan 31, 2013 with a new month-end exchange rate of 1.32 SGD.
Figure 4. Illustration of accounting flow for Delta Logic of FX revaluation
SAP system will consider December’s revaluation in calculating the current month revaluation. In the FX revaluation report, finance users will be able to see the following columns:
- Old Revaluation – latest revaluation amount for the open item
- New Revaluation – New revaluation based on current month
- Amount to be Posted – Difference (or Delta) amount
Figure 5 is a screenshot of the FX report and where users can see the difference.
Figure 5. Sample screenshot from SAP of FX revaluation Report
Continuing on the same flow, the subsequent month posting is shown in Figure 6. Since this is not a year-end revaluation, the revaluation will
be reversed on the 01-Feb. The customer made a payment for the invoice @ 1.37 on Feb 15, 2014; the corresponding realized exchange gain of 20 SGD will be posted. Subsequently, at month end revaluation, the reversal posting will be posted accordingly.
Figure 6. Illustration of accounting flow for Delta Logic of FX revaluation (cont)
In SAP FX revaluation report, there will be an icon called “Cleared Items” and within this report, finance will be able to see the reversal of the revaluation for the cleared item (Figure 7).
Figure 7. FX revaluation Screenshot of Cleared Items and its report.
A variant in the accounting flow is that the reversal of unrealized gain/loss for the payable will be posted at the time payment clearing. It can be done also just by selecting the indicator “Cl.Date” in the configuration.
In summary, this is marked improvement from the previous versions of the program. SAP has enhanced flexibility on the features and functionality in order to meet the different legal and reporting for Finance users.