Introduction into Advanced Foreign Currency Valuat...

KevinSigl · ‎12-05-2023

Introduction

This blog is about the feature Advanced Foreign Currency Valuation as a part of the Advanced Valuation Runs in S/4HANA Public Cloud. Even though this blog is geared towards S/4HANA Public Cloud, SAP is offering the Advanced Valuation Runs for On-Premise (available since OP2022) as well. This blog is basically about to introduce the Advanced Foreign Currency Valuation as a part of the Advanced Valuation runs, what the run as a period-end closing activity is aiming for, what the fundamentals are and will throw a light on the comparison towards Classic Foreign Currency Valuation.

To create a better understanding of Advanced Foreign Currency Valuation and the Advanced Valuation Runs in the context of period-end closing processes some introductory words upfront: The Advanced Foreign Currency Valuation as a part of the Advanced Valuation Runs in Financial Accounting is covering IFRS9. Next to Advanced Foreign Currency Valuation, there are three other runs that build together the Advanced Valuation Runs. The subsequent list is introducing all Advanced Valuation Runs and it shows in which sequence SAP recommends using the Advanced Valuation Runs:

1. Post Discounting of Long-Term Assets and Liabilities

2. Advanced Foreign Currency Valuation

3. Post Credit-Risk-Based Impairment

4. Post B/S Reclassification

All runs are available via job templates in the app ‘Schedule General Ledger Jobs’.

For the Public Cloud SAP will deprecate the Classic Valuation Runs in a future release, which means that Public Cloud customers must use the Advanced Valuation Runs. The functionalities that will be deprecated are:

1. Perform Foreign Currency Valuation

2. Regroup Receivables/Payables

3. Perform Further Valuations

Intention of the Advanced Foreign Currency Valuation

The Advanced Foreign Currency Valuation is used for the valuation of foreign currency transactions considering the exchange rate of the currency of the transaction (document currency) and the functional currency of the entity at the reporting date. The adjustments are posted as exchange rate differences. Next to the valuation of the functional currency, postings includes exchange rate differences for all currencies maintained for the entity.

The applicable international accounting standards for Advanced Foreign Currency Valuation are:

US-GAAP: SFAS 52, FIN 37, EITF 01-5

IFRS: IAS 21, IAS 29, IFRIC22

Fundamentals

In this section, some of the main characteristics and functionalities of the Advanced Foreign Currency (as well as the Advanced Valuation Runs et all) will be described:

Delta Posting Logic

In the Advanced Valuation Runs the delta posting logic is used only. Compared to the Classic Valuation Runs, where customer could choose between reversal posting logic (per default) and delta posting logic, SAPs is focusing on the delta posting logic only. With the delta posting logic only the difference (delta) of the new valuated amount and the total of the original amount and previous adjustments will be posted.

Example: Delta Posting Logic

A more detailed blogpost concerning the delta posting logic can be found here: Explanation of delta posting logic in Advanced Foreign Currency Valuation

Posting onto Valuated Account

One of the main characteristics and innovation highlights compared to the Classic Valuation Runs is, that all Advanced Valuation Runs (not only Advanced Foreign Currency Valuation) are posting onto the reconciliation account maintained in the business partner. The major benefit of this new approach is, that e.g. for the Advanced Valuation Runs, all effects (from Foreign Currency Valuation, from Credit-Risk-Based Impairment, from Discounting) can be found in one account. This reduces the reconciliation and reporting efforts tremendously. Apart from that, the amount of G/L accounts will be reduced which from another point of view reduces the TCO as well.

Analysis Capabilities

After a run, a result list will be created. This contains all the relevant information for those items, that have been handled successfully as well as for those that have not handled successfully. For the successfully handled items, you can see a green status flag, the valuation journal entry created during the run as well as the reason for the posting. This reason can be found in the column with the header ‘Valuation Line Type’. For the erroneous items, the root cause can be found in the column ‘Status’.

Currently, it is possible to analyze the result list in the spool only. More convenient analysis capabilities are planned.

Currency Concept

Advanced Foreign Currency Valuation valuates in functional currency. Next to that, as a big difference compared to the Classic Valuation Runs, Advanced Foreign Currency Valuation does remeasurement for all other currency types.

The configuration in configuration activity ‘Define Currency Settings for Ledgers and Company Codes’ (SSCUI 103379) defines how a currency type is calculated. For every currency type except 00 (document currency) a source currency type must be defined. This configuration activity provides the functional currency for every combination of ledger and company code as well.

Example: Configuration

Example: Result of Adavanced Foreign Currency Valuation

Error Handling via Restart Capability

For Advanced Foreign Currency Valuation as well as for the other runs of the Advanced Valuation Runs, SAP provides the function to handle errors with the restart capability. The users get informed in the result list which items have not been processed successfully as well as why these items haven’t been processed properly. This will not lead to a cancelation of the whole run. For the items processed correctly, a valuation journal entry was created.

After solving the issue for the erroneous items, the application job can be executed again to create valuation journal entries for the remaining items, too.

Account Assignment

There is a specific functionality and configuration to control account assignments. The configuration is provided in configuration activity ‘Define Rules for Determining Account Assignments in G/L Processes’ (SSCUI 104827) and ‘Assign Account Assignment Rules to Advanced Valuations’ (SSCUI 104826).

With account assignment rules, content for additional fields can be provided in the (valuation) journal entries. Examples for fields are cost center, profit center and trading partner. These dimensions can be used e.g., for cost analysis or reporting purposes.

The SAP-delivered rule VALN provides a default configuration for account assignment.

In period-end closing processes like the Advanced Foreign Currency Valuation run, some account assignments in the generated journal entries are required to be the same as they are in the original documents. In other cases, it might be relevant to use the automatic account assignment determination in ‘Manage Default Account Assignments’ configuration activity.

Grouping Rule

With the help of the grouping rule functionality, journal entries will be grouped. Advanced Foreign Currency Valuation posts the valuation difference to a gain or to a loss account depending on the balance of the group of line items. The valuation difference of a single journal entry line item can have a negative value, which means that it represents a loss. However, if the group to which it belongs has an overall positive balance, the valuation difference for this line item is posted to a gain account.

There are two grouping rules provided:

For cleared open items (grouping rule 0PRE)
Every open item which is cleared by the same journal entry will be grouped together. Use the clearing journal entry as part of group ID.

For not cleared open items and non-open items (grouping rule 0FLB)
This grouping rule provides for steps:

Known Restrictions of the Advanced Foreign Currency Valuation Run

Some of the known restrictions of Advanced Foreign Currency Valuation are listed below:

Currently, Advanced Foreign Currency Valuation cannot valuate tax accounts and accounts of the category GR/IR

Valuation postings cannot be made onto an additional adjustment account

As of now, the Advanced Valuation Runs are only posting with document type ‘SA’, but posting with a different document type can be configured by expert configuration.

Differences compared to Classic Foreign Currency Valuation

In this section, some of the major differences compared to the Classic Foreign Currency Valuation are mentioned:

Advanced Valuation Runs are using the delta posting logic only. In the Classic Foreign Currency Valuations, the reversal posting logic is maintained as the default solution, but customers can request via WCR the delta posting logic. For some specific countries delta posting logic is the default for Classic Foreign Currency Valuation.

The Advanced Foreign Currency Valuation (as well as the other Advanced Valuation Runs) are posting onto the valuated accounts (e.g. initial reconciliation accounts) instead of the adjustment account like in the Classic Foreign Currency Valuation.

Whereas in Classic Foreign Currency Valuation, the valuation was done for the configured currency type (and dependent currency types), the Advanced Foreign Currency Valuation always valuate in the Functional Currency but remeasures all the others.

In all Advanced Valuation Runs, the valuation area is not used anymore. The accounting principle will be used instead.

Classic Foreign Currency Valuation could post to several ledgers via a ledger group. Advanced Foreign Currency Valuation posts to one ledger only.

The selection screen for Advanced Foreign Currency Valuation was restructured intensively. The screen is now leaner. In addition to the company code and ledger, the valuation key date needs to be maintained. The Advanced Foreign Currency Valuation Run can be either executed in test run or in update run.

While making the selection screen leaner, the respective configuration activity was empowered. In the configuration, on a valuation rule-based approach the necessary configurations, like tagging of the accounts and the accounts the automatic postings shall be made onto need to be maintained.