Foreign Currency Valuation Using Freely Defined Currencies in SAP S/4HANA
The purpose of this blog post is to explain the business process of performing foreign currency revaluations at a profit center level using freely defined currencies in the ledger. This blog post covers the configuration involved and document posting process of the business scenario.
What do we learn from this blog post?
From this blog post we can understand
- Performing foreign currency revaluation using freely defined currency.
- Reporting for revaluation posted in freely defined currency.
Let’s take an example below.
A Company code is set up in a country for example Colombia which is also its headquarters. It has multiple branches both in Colombia as well as in multiple other countries. In this case the branches (both domestic and foreign locations) are created as profit centers in SAP S/4HANA. Additionally, there is also a requirement to create Branch financial statements. The process of foreign currency revaluation must be performed in the respective branch currency so that a full-fledged branch financial statement can be drawn.
This solution is suited for business organizations which have operations in many countries. The idea here is that is to have an organization structure which can be able to meet international as well as local reporting at branch level eliminating the complexity of managing too many co codes ( and having more profit centers – which can be managed just as master data) and its relevant data.
In our example we will leverage the concept of Freely defined currencies and demonstrate that the foreign currency revaluation can be performed at a profit center level in the freely defined currencies.
What is Forex Revaluation at Branch?
Forex revaluation is the process of revaluation of vendor open items, customer open items, G/L open items and G/L balance in the local currency of the branch (profit center currency which can be set up as a freely definable currency).
For e.g. An organisation is headquartered in one of the countries in South America and it operates in many other countries of the world. The countries where this company have operations are created as profit center in SAP S/4HANA.
These branches also require financial statements in the branch currency to meet the local reporting requirements. In order to generate the financial statement, there are a set of month end and year end activities required to be performed. One of the key activities is to perform forex revaluation in co code currency, group currency and branch currency.
Revaluation in co code currency, group currency & branch currency (profit center currency) are supported in standard SAP S/4HANA solution.
Relevant Configuration Steps for setting up Revaluation in freely defined currency
Define currency type
In this step we set up a freely defined currency as Z3 EUR which we will use to perform revaluation for transactions posting in currencies other than EUR.
Global currency conversion settings
Company Code setting for Ledger
Define valuation method
Under the valuation method, we have to set up the valuation procedure, document type to be used for posting foreign currency valuation, exchange rate type to be used for debit balance and credit balance.
Define valuation area
Valuation area has an assignment to valuation method which determines FX rate type to be used for performing foreign currency valuation.
Here we have defined B1 as a valuation area which will be used to perform revaluation for currency type Z3.
Check assignment of accounting principle to ledger group
Prepare automatic posting for foreign currency valuation
An organisation is headquartered in one of the countries in South America and it operates in many other countries of the world. The countries where this companies have operations are created as profit center in SAP S/4HANA. Let’s take an example for a branch located in Paris where all the transactions are required to be reported in the local currency of this branch.
Co Code head quartered in Colombia – Local currency (COP)
Co Code head quartered in Colombia – Group currency (USD)
Branch located in Paris – branch currency (EUR)
This branch manages transactions in EURO which is the reporting currency of this branch. In order to perform the forex revaluation, vendor invoices were posted in USD. Exchange rate used for this purpose is not realistic, it is just taken as a sample data.
Now we will be executing foreign currency revaluation program for sub-ledger to see the result of revaluation performed in the branch currency.
System performs the revaluation for the vendor invoices posted in USD where the exchange rate used for performing the revaluation is 0.33333 and the system calculated a difference as below.
System posts the revaluation results in freely definable currency Z3 (EUR) only. Below documents are only updated in ACDOCA table as the freely definable currency exist in ACDOCA table.
New GL reports based on ACDOCA table can be used to view transactions posted in branch currency.
Reports such as FAGLL03 and FAGLB03 can be used to view these results. FBL3N will not be useful here as it uses BSEG table for displaying the posted transactions.
Vendor Line Item Display
Below is the report for vendor open item which displays vendor invoices for which revaluation was performed at branch level in the branch currency (EUR).
As demonstrated above, it is possible to perform foreign currency revaluation in currencies other than the company code and group currency. This is done by leveraging the concept of freely defined currencies in the ledger.