Behavior of Advanced Foreign Currency Valuation af...

KevinSigl

The clearing will not change any existing valuation adjustments posted from Advanced Foreign Currency Valuation. The next valuation run after the clearing will correct existing valuation adjustments. To which account these corrections will be posted depends on the account determination configuration of Advanced Foreign Currency Valuation.

The following sample process incorporates a few valuations runs generating gain and loss FX effects. It shows how the delta posting logic is working.

The clearing is done as part of the Incoming payment (line 10). The last two lines (11 and 12) are generated by the valuation run after the clearing. The accounts used by the different steps are depending on the account configuration. The following chapters explain the configuration and the influence on the result.

Account configuration for exchange rate differences

There are two different configurations for accounts used to post exchange rate differences:

1. Define Rules for Advanced Foreign Currency Valuation (SSCUI ID 105450)
The sub-view ‘Assign G/L Accounts for FCV’ provides the account configuration.

It provides the following four accounts: (1) FX Gain Realized Account, (2) FX Loss Realized Account, (3) FX Gain Unrealized Account and (4) FX Loss Unrealized Account.

In general, there are two accounts for unrealized exchange rate differences and two accounts for realized exchange rate differences: The unrealized accounts are used to post value adjustments from Advanced Foreign Currency Valuation before an open item is cleared. The realized accounts are used to reset existing value adjustments from Advanced Foreign Currency Valuation after an open item is cleared.

2. Automatic Account Determination (SSCUI ID 100297)
Area = Financial Accounting
Subarea = General Ledger Accounting
Process = Define Accounts for Exchange Rate Differences
Transaction Key = KDF (Exchange Rate Dif.: Open Items/GL Acct)

The accounts for ‘Exchange Rate Difference Realized’ are used to post exchange rate differences as a part of clearing. They are not related to Advanced Foreign Currency Valuation. Hence, the account determination needs to be maintained in both SSCUIs.

Influence of account configuration on reporting results

In the following, the posting behavior and methodology of the Advanced Foreign Currency Valuation Run with clearing will be described.

Configuration scenarios

Different account determination settings can lead to different effects on the P&L accounts. With the flexible account determination different business and even country-specific requirements can be met. This, as well as the delta posting methodology will be described with the help of the four following scenarios:

Note: Please be aware, the examples below are only focusing on the gain accounts. The same is applicable to the loss accounts.

Scenario 1: The ‘Realized FX Gain’ account (customizing of the Advanced Foreign Currency Valuation) and the ‘Exchange Rate Difference Realized Gain’ account (customizing for Automatic Account Determination) are identical, but the ‘Unrealized FX Gain’ account (customizing of the Advanced Foreign Currency Valuation) is different.
Scenario 2: The ‘Realized FX Gain’ and the ‘Unrealized FX Gain’ account (customizing of the Advanced Foreign Currency Valuation) are identical, but the ‘Exchange Rate Difference Realized Gain’ account (customizing for Automatic Account Determination) is different.
Scenario 3: The ‘Realized FX Gain’ account, the ‘Unrealized FX Gain’ account (customizing of the Advanced Foreign Currency Valuation) and the ‘Exchange Rate Difference Realized Gain’ account (customizing for Automatic Account Determination) are all identical.
Scenario 4: The ‘Realized FX Gain’ account, the ‘Unrealized FX Gain’ account (customizing of the Advanced Foreign Currency Valuation) and the ‘Exchange Rate Difference Realized Gain’ account (customizing for Automatic Account Determination) are all different.

Explanation of the sample process:

The sample process starts with an outgoing invoice of $ 1.000 (line 1). Because of the exchange rate at posting date (0.7 EUR/USD), EUR 700 were posted onto Receivables 12100000 (dr.) and revenue (cr.).
The Advanced Foreign Currency Valuation run in January 2024 has posted value adjustments for exchange rate differences using the account ‘Unrealized FX Gain’ (line 2). The account ‘Unrealized FX Gain’ was used because the item is still open (not yet cleared).
The clearing was done as part of the Incoming Payment in February 2024 (line 3). The clearing has posted exchange rate differences using the account ‘Exchange Rate Difference Realized Gain’ of Automatic Account Determination.
The Advanced Foreign Currency Valuation run in February 2024 has corrected the existing value adjustments using the account ‘Realized FX Gain’ (line 4). The account ‘Realized FX Gain’ was used because the item is cleared.
In addition this valuation has generated a statistical posting to enable the reporting of the realized exchange rate differences from clearing (line 5).

Reporting results for different configuration scenarios

Scenario 1: The configuration is as follows

FX Gain Unrealized Account: 70200000
FX Gain Realized Account: 72510000
Exchange Rate Difference Realized – Gain: 72510000

The result shows that:

The valuation in January has posted unrealized FX effects on account 70200000.
Exchange Rate Differences from clearing are posted onto account 72510000 (line 3).
The valuation in February has posted the corrections for FX effects from valuation on account 72510000 (line 4).
On account 72510000 the amount of EUR 200 (line 3) will be reduced by EUR – 100 (line 4) to correct the unrealized FX effects that had been posted before (line 2).
The balance on account 70200000 is not zero at the end of the process.

Attention: Evaluate if the change of realized exchange rate differences from clearing by corrections from Advanced Foreign Currency Valuation is meeting the business and acounting requirements. If not, this configuration scenario should not be used.

Scenario 2: The configuration is as follows

FX Gain Unrealized Account: ‘Unrealized FX Gain’ 70200000
FX Gain Realized Account: ‘Unrealized FX Gain’ 70200000
Exchange Rate Difference Realized – Gain: ‘Valuation Gain Exchange Rate Differences’ 72510000

The result shows that:

The valuation in January has posted unrealized FX effects on account 70200000.
The incoming payment has posted realized FX effects on account 72510000 (line 3).
The valuation in February has posted the corrections for FX effects from valuation on account 70200000 (line 4).
On account 72510000 the amount of EUR 200 (line 3) is not changed.
The balance on account 70200000 is zero at the end of the process.

Scenario 3:

Configuration: The configuration is as follows

FX Gain Unrealized Account: 72510000
FX Gain Realized Account: 72510000
Exchange Rate Difference Realized – Gain: 72510000

The result shows that:

The valuation in January has posted unrealized FX effects on account 72510000 (line 2).
The incoming payment has posted realized FX effects on account 72510000 (line 3).
The valuation in February has posted the corrections for FX effects from valuation on account 72510000 (line 4).
The balance on account 72510000 is EUR 200, the same as the realized FX effects from clearing.

Scenario 4:

Configuration:

FX Gain Unrealized Account: 70200000
FX Gain Realized Account: 70100000
Exchange Rate Difference Realized – Gain: 72510000

The result shows that:

The valuation in January has posted unrealized FX effects on account 70200000.
The incoming payment has posted realized FX effects on account 72510000 (line 3).
The valuation in February has posted the corrections for FX effects from valuation on account 70100000 (line 4).
On account 72510000 the amount of EUR 200 (line 3) is not changed.
The balance on account 70200000 is not zero at the end of the process.
The balance on account 70100000 is not zero at the end of the process.