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Understanding Currency Translation process in SAP S/4HANA Finance for group reporting

Purpose:

Purpose of this blog post is to understand the currency translation process from the Business and from SAP S/4HANA Finance for group reporting perspective.

What will you learn from this blog post?

From this blog post, you will be able to understand:

  • Overview of currency Translation from Business process side.
  • How SAP S/4HANA Finance for group reporting does currency translation?
  • System set up for currency translation in SAP S/4HANA Finance for group reporting
  • Explanation of currency translation calculation with example.

Overview of Currency translation

In today’s world, most of the companies operate across the globe. Many companies such a coca cola, cisco, SAP etc. operate globally. They might operate directly or through branches or invest in subsidiaries.

When a company has 1 or more subsidiary, it is under legal obligation to prepare the consolidated financial statements (CFS).

There can be 2 cases while preparing the CFS

  • Holding and subsidiary has same reporting currency
  • Holding and subsidiary has different reporting currency

For case 1 it is simple – we can combine the values and prepare CFS. But how to prepare CFS for case 2?

In order to prepare CFS for case 2, we will have to translate the Financial statement of subsidiary company in to Holding company currency and then start the consolidation activities, such as elimination of intercompany transactions, share capital, investments, goodwill calculation etc.

International Accounting Standard has laid down the guidelines on how a foreign subsidiary financial statement needs to be translated in to holding company reporting currency.

During the part of this translations, there might be a chances of rounding differences. These rounding differences are adjusted to Currency Translation Adjustment (CTA) account.

General guidelines on how to do the translation is as below:

Item Trans Type How to Translate

 

Non historic Balance sheet items

Opening The opening balance is translated using the closing rate of the previous year.
Movements The movements of the period are translated using the average rate.
Currency differences The currency difference is recorded on a CTA transc type on the original fs item.

 

 

Historic balance sheet items

The opening balance remains unchanged from the previous year.
The movements of the period are translated using the average rate.
The currency difference is recorded on a CTA transc type and a CTA FS item.

 

Profit & Loss A/Cs

 

Movements

Translation using the average rate.

 

Currency differences

The currency difference is recorded on a CTA ttype and a CTA fs item

SAP S/4HANA Finance for group reporting – Currency Translation

SAP S/4HANA Finance for group reporting is the newest tool embedded in SAP S/4HANA providing statutory as well as managerial financial consolidation capabilities for both On-Premise and Cloud customers. It provides the feature to translate the foreign subsidiary operations to holding company reporting currency values.

SAP S/4HANA Finance for group reporting has given the flexibility of translating the financial statements of consolidation units.

In SAP S/4HANA Finance for group reporting, we have majorly two activities, Data Monitor and Consolidation Monitor. Activities performed under data Monitor and consolidation monitor are called tasks.

Currency translation task is part of Data Monitor.

System set up for currency translation in SAP S/4HANA Finance for group reporting

a) Configuration points for currency translation:

Below screen shot shows the important configuration steps involved with currency translation in group reporting

  1. Define exchange rate indicators – here you define an exchange rate indicator and map the exchange rate type that will be used for this indicator.
  2. Define currency translation methods – We have some pre-delivered translation methods. These methods are assigned to the consolation units.Within this method, it is defined which currency translation attribute will use which exchange rate indicator.

    These currency translation attributes are mapped to the FS items.

  3. Specify translation ratio – This setting is same as that we use for SAP S/4HANA Finance. Here we maintain the translation ratio between different currencies.
  4. Maintain exchange rate – This is same setting as transaction code OB08. Here we maintain the exchange rate for different combination of currencies

Important Master data settings for currency translation

  1. Map FS item to currency translation attribute.

In SAP S/4HANA Finance for group reporting each GL account is mapped to a FS item. This FS item has its own master data settings in the form of different attributes mapped to it i.e. elimination attribute etc.

One such attribute is “Currency Translation”. Based on the currency translation attribute mapped to the FS item, the exchange rate type and exchange rate is identified for translation.

 

      2. Mapping of currency to Consolidation ledger.

    3. Mapping of currency to the consolidation group

      4. Mapping of currency & integration currency to consolidation Unit.

     5. Mapping of translation method to consolidation Unit

         6. Mapping of sender currency for consolidation ledger in consolidation Unit

Currency translation result is determined based on different combination of above master data settings.

Here I have taken 2 different combinations and showed how the settings impact the value for amount in group currency and the currency translation task.

Example 1:

Company code 3010 in SAP S/4HANA Finance is having local currency as AUD & Group currency as SGD. For consolidation purpose it needs the group currency to be AUD.

Consolidation ledger C2
Consolidation Ledger currency AUD
Consolidation group currency AUD
Consolidation unit currency AUD
Sender group currency for consolidation ledger in consolidation unit Local currency

In this case, currency translation task will not execute any translation. Since we have indicated system to use the local currency (i.e. AUD) coming from ACDOCA as consolidation group currency

Hence while executing the release universal journal task in SAP S/4HANA Finance for group reporting system will update the column for amount in group currency

When we execute check the data monitor for currency translation task, we notice that this task is marked as X. This is because values are already available in group currency and no new calculation needs to be done.

Example 2:

Company code 3010 in SAP S/4HANA Finance is having local currency as AUD & Group currency as SGD

For consolidation purpose it needs the group currency to be SGD. Since the group currency in ACDOCA is also SGD we have an option to bring the values of ACDOCA group currency in S/4HANA Group Reporting.

Consolidation ledger C1
Consolidation Ledger currency SGD
Consolidation group currency SGD
Consolidation unit currency AUD
Sender group currency for consolidation ledger in consolidation unit Group currency

While executing the release universal journal task in SAP S/4HANA Finance for group reporting system will update the column for amount in group currency.

However, in this example the currency translation will still take place even though we have for amount in group currency coming from ACDOCA. This is because the consolidation ledger currency is SGD and in group reporting we can have different methods and rates for translation.

Explanation on the calculation of currency translation

A) When sender group currency is blank in consolidation unit.

To explain the calculation, I have taken below set of data:

Consolidation Ledger currency SGD
Consolidation unit currency AUD
Sender currency for the consolidation ledger Blank
PL FS item 652000
BS FS item 111100

Since the “Sender group currency” is blank, while executing the release universal journal task amount in group currency is not updated.

Based on the currency translation attribute mapped to the FS item the exchange rate for the currency translation is determined.

Example 1: FS item 652000 – PL FS item

Data posted in ACDOCU table during release universal journal task for this FS item is as below. Here if you notice the last column there is no value updated, since the sender group currency was set as blank in consolidation unit.

The currency translation for this FS item has given below results.

Currency translation attribute mapped to this FS item is “S-CT-PL-AVG”

Exchange rate indicator for this currency translation attribute is A (AVG rate)

Amount in local and group currency for this FS item after currency translation is as below.

Below table shows how different amounts are calculated during the currency translation task:

Example 2: FS item 111100 – B/S FS item.

Data posted in ACDOCU table during release universal journal task for this FS item is as below. Here if you notice the last column there is no value updated, since the sender group currency was set as blank in consolidation unit.

The currency translation for this FS item has given below results.

Currency translation attribute mapped to this FS item is “S-CT-BS-CLO”

Here the FS item has currency translation elimination as S-CT-BS-CLO . Based on the account assignment configuration setting for the currency translation method selection, the debit and credit posting for the currency translation is updated on the same FS item or different FS item . In the above example for FS item 111100 the account assignment field is blank hence there is a dr  2325335.93 and  cr  2325335.93 to the same FS item where it originated i.e 111100. Hence the balance for this FS item with this account assignment setting is seen to be at closing rate i.e 7906142.18

If you change the account assignment mapping in the currency translation attribute to post to a different FS item system will post the second leg of the adjustment entry to different account. e.g In below screen shot you can see that we have changed the account assignment FS item as 314800. This is for the currency attribute selection for the balance sheet item 111100

Now when we execute the currency translation and check the posting on the FS item 111100 only we don’t see the cr entry since it is now posted to FS item 314800. hence the balance for this FS item is seen as 5580806.25

B. When sender group currency is “group currency” in consolidation unit.

To explain the calculation, I have taken below set of data

Consolidation Ledger currency SGD
Consolidation unit currency AUD
Sender currency for the consolidation ledger Group currency
PL FS item 652000
BS FS item 111100

In this example the “Sender group currency” is set as Group currency. While executing the release universal journal task amount in group currency will be updated with the values from the ACDOCA table.

In this example even though we had the amount in group currency coming from ACDOCA table, currency translation will still be executed since there is difference in the exchange rate in SAP S/4HANA Finance and in SAP S/4HANA Finance for group reporting.

Based on the currency translation attribute mapped to the FS item the exchange rate for the currency translation is determined.

Example 1: FS item 652000 – PL FS item

Data posted in ACDOCU table during release universal journal task for this FS item is as below. Here if you notice the last column amount in group currency is already updated.

The currency translation for this FS item has given below results.

Currency translation attribute mapped to this FS item is “S-CT-PL-AVG”

Exchange rate indicator for this currency translation attribute is A (AVG rate)

Amount in local and group currency for this FS item after currency translation is as below.

Now we shall analyze data only for FS item 652000 with functional area YB75

Here we analyze data only for FS item 652000 with functional area YB85

Example 2: FS item 111100 – B/S FS item.

Data posted in ACDOCU table during release universal journal task for this FS item is as below. Here if you notice the last column amount in group currency is already updated.

 The currency translation for this FS item has given below results.

Currency translation attribute mapped to this FS item is “S-CT-BS-CLO”

Here the FS item has currency translation elimination as S-CT-BS-CLO . As seen above since the account assignment mapped to the currency translation attribute for this FS item 111100 is blank, both dr and cr entry is posted to the originating FS item i.e 111100. Hence , the net total of amount in group currency for this FS item is seen at closing rate i.e 7906142.18

Final note:

From above examples you can notice that amount in group currency varies based on different settings and options that user updates in the master data as well as in the configuration.

This is not an exhaustive list of scenarios however a small attempt to give some insight how currency translation works in SAP S/4HANA Finance for group reporting. Hope this blog post helps you understand the same.

Special mention and thanks

To my colleagues Gayathri & Prasad who helped me with this first blog post.  

 

19 Comments
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    • Hello Vinitha

      As per below scenario. If  I am transferring universal, application should update consolidation ledger  in GC along with LC and TC.  Current translation should be X.

      Consolidation ledger C2
      Consolidation Ledger currency AUD
      Consolidation group currency AUD
      Consolidation unit currency AUD
      Sender group currency for consolidation ledger in consolidation unit Local currency

      This is not  the behavior of 1909. (1) it is not updating col. in GC and (2) currency translation task says  not applicable.

      Could  help me in understanding the real result in 1909.

  • Hi Vinitha

    Superb blog and awesome explanation..

    I have some follow up Qs on the same..

    1. In the last example, the CTA amount is posted and reversed both.. How did that happen?

    The CTA amount was not reversed in 1st example of P&L item.. I am wondering how does the system know it to reverse for BS case and not reverse for PL case

    You said since the currency translation attribute is S-CT-BS-CLO, hence the CTA amount is reversed. For your easy ref, I am quoting the same line below. Is it hard coded in the system that if the attribute value is S-CT-BS-CLO, the CTA amount should be reversed?

    “Here the FS item has currency translation elimination as S-CT-BS-CLO (closing rate). Hence the difference between closing and avg rate is also reversed.”

    2. What is the accounting entry posted in GR upon currency translation? Or does the system just inserts the data records in ACDOCU for currency translation?

    In case it posts a document, can you please let me know the accounting entry together with transaction types

    3. There are two CTA amounts that are posted, one with indicator 1 and one with 4. What’s the purpose of the amount posted with 4? How are both these used in consolidation? I am not getting that clear picture

    4. I had this one Q in my mind. What if I just want to adopt the GC values from ACDOCA for consolidation without any translation in GR? (E.g. Cons Unit = AUD and Cons Group = SGD)

    In your example, you said that even though GC values are available from ACDOCA, still we must run the currency translation in GR since the consolidation ledger currency is SGD.

    Screenshot from the blog:

    My Q is if I want to adopt GC values from ACDOCA w/o any translation in GR, is it possible? Is the only way not run the currency trans task in data monitor?

    Sorry for too many Qs.  

    Regards

    Ajay

    /
    • Hello Ajay,

      I will answer to above queries in parts . Please find below response on Q2 & Q3

      Answer to Q2 :

      Yes. Accounting entries are posted directly in group reporting . You can view them in “display group journal entries “ APP .

      Based on the debit / credit entry difference the translation posting is made. Offsetting FS item, transaction type, sub item etc  is identified from the customization done in the currency translation method  .

      Answer for Q3:

      When the currency translation method is defined you mention a reference rate in customization.

      All the FS item which needs currency translation is first translated to this rate. Indicator 4 is used to identify the same.

      In the consolidation report the total value after currency adjustment will appear. Continuing my example from above blog post, for the 2 FS item that I had taken – translation in SGD will be as below

      Regards

      Vinitha

       

      /
      • Thanq Vinitha. I will wait for further updates from you

        By any chance, for the same example, will you be able to share the screenshot of the accounting entry as well so that we can relate to it easily. ?

    • Hello Ajay,

      Coming back to your q4 – below is my observation

      1. If the consolidation group currency and consolidation unit currency is same then you can adopt the value from ACODCA e.g Consolidation group currency is AUD, Consolidation unit currency is AUD . You set the parameters while defining consolidation unit as local currency for sending local currency and sender group currency .
      2. If the consolidation unit currency and consolidation group currency is different then currency translation will be executed.

      Again above points are based on my limited experience. You can make some test based on different permutation combinations with consolidation group and unit currency .

      For Q1, I am still checking while for balance sheet the amount is reversed. I will come back to you on the same once I have the analysis .

      Thanks & Regards

      Vinitha

      • Hi Ajay

        Your 4 Question>

        I had this one Q in my mind. What if I just want to adopt the GC values from ACDOCA for consolidation without any translation in GR? (E.g. Cons Unit = AUD and Cons Group = SGD)

         

        Answer: You can do this by defining the Corresponding Line/Step in  Currency Translation Method. For example

        <<<Those FS Items/FS Item  with TRANS KEY : 6>>>

        It will be used for Investments and Equity Accounts

         

        Your Q: My Q is if I want to adopt GC values from ACDOCA w/o any translation in GR, is it possible? Is the only way not run the currency trans task in data monitor?

         

        Answer: Yes, it is available. But you have to define method and you might get some very minimal differences of CT .

        ** If you re sure that what ever you collect in ACDOCA ‘s LC with GC is the Final numbers then NO NEED of CT Method and also No Need of CT TASK on DM**

         

        Hope this will helps you

        Thanks

        Venkat

         

         

        • Hello Venkat,

          Thanks for helping with Q4. Only an additional point – Standard method Y0902 is provided for this requirement. This method has translation key 6 as correctly pointed out by you .

           

          Regards

          Vinitha

      • CT Indicator – 4:

        GC Value Ref  – ACDOCA GC Value  Only applies when GC Value is available

        If not then GC value from the source records, the value equals to the GC value calculated at reference rate.

        Thanks

        Venkat

         

  • Hello Vinitha,

    Hope You are doing well.

    I was looking this information and found in your blog and very detail.

    Thanks.

    Anil Thorat

  • Hello Vinitha,

    Appreciate this interactive and informative blog !

    Apologies for my ignorance and a very basic question.

    If we have ACDOCA entries in previous years than 2020(2018, 2019 etc.), how shall we bring them into ACDOCU w/o flexible upload, before we do a currency translation inside document monitor.

    I tried ‘Release Universal Journal’ task from within data monitor, but it only updates those journals posted with posting period 012/2020. Not able to bring journals with previous posting periods.

    Your guidance will be much appreciated!

    Regards.

    • 1.Please make sure you have configured required CU effective Year read from Universal Journal

      2. Again check your CU master data and also Your Config of SAP Group EPORTING Settings CXB3 also

      Thanks

      Venkat

  • Hi,

    Very detailed. Much appreciated. I can see in Data Monitor my translation being recalculated with a CT indicator of 5 but I do not find these new group currencies in any of the reporting. They all have just the original group currencies from the universal journal. Is there a step missing? It looks great in currency translation data monitor step… but I never see these figures again.

     

    Thanks!

    • Hello Williams ,

       

      Please check table ACDOCU to verify if the CT amounts are updated in there. You can use the APP group data analysis to check the amount in group currency .

      Regards

      Vinitha