The US Financial Accounting Standards Board (FASB) requires you to revaluate foreign currency postings in payables and receivables on a monthly basis. Additionally, you must calculate the exchange rate gain or loss between the local currency and group currency exchange rates to make a cumulative translation adjustment (CTA).

Companies running the original method of SAP foreign currency revaluation are not completely FASB 52 compliant. They probably are not getting the correct translation posting from currency type 10 revaluation to their group currency reporting. SAP has introduced a second method using valuation areas. It solves some problems and provides correct reporting, but carries some disadvantages. I developed an undocumented third method of execution through numerous implementations I’ve worked on. It combines the best of both the original method and the recently implemented valuation method. I’ve tested it through mySAP ERP Central Component (ECC) 6.0. I’ll describe these methods and the advantages and disadvantages of each using a sample company with the following currency types: transaction currency is GBP, local/company code currency is EUR, and group currency is USD.

You can define these three currency types at the global company code level in SAP. My example focuses on two of these commonly used currency types: type 10, local (or company) code currency, and type 30, group currency. The issues that I discuss could occur with numerous other currency combinations.

Revaluation as We Knew It (Original Method)

This method of foreign currency revaluation is the most common strategy implemented by companies that have foreign currency open item postings that require revaluation, but it is not FASB 52 compliant. It configures the account assignments in one area that populates table T030H, an account determination table for exchange rate differences.

There is no group currency translation of the local currency valuated amount in this method. Without this translation, the group currency reporting varies, and if the local and group currencies are the same, the reports do not reconcile. For example, if your transaction currency is GBP, your local currency is EUR, and your group currency is USD, a valuated posting of $5 USD at month-end for currency revaluation type 10 posts $0 USD to the group currency (Table 1).

Figure 1 shows the header information for this type of posting for currency type 10 revaluation.

Figure 1

F.05 original method with revaluation type 10 header

Figure 2 shows the FASB 52 tab for currency type 10 revaluation.

Figure 2

F.05 original method: revaluation type 10 FASB 52 tab

SAP calculates the valuated balance for this method of revaluation in a different way than the other methods, but produces the same end result. For the incremental postings, the valuated balance used in the calculation is the current month’s balance at the new exchange rate. For cumulative postings, the valuated balance is calculated by taking the current month’s balance at the new exchange rate less local currency revaluated adjustment posting translated to group currency.

Advantages

This was the original revaluation method implemented by SAP, and is most likely to be the method implemented by your company. Incremental postings, one option of this method, result in faster revaluation execution because they only recalculate from the date of the last month’s posting. If it’s been executed before, it updates the BSEG (accounting document line item) table, the BDIFF and BDIFF2 fields, and SAP documents. You only can use the Balance Sheet Preparation Valuation (BSPV) field with this method of execution (non- valuation areas). If you select the BSPV field, no reversal postings occur and postings are incremental. If you do not select the BSPV field, valuation is cumulative and reversals are posted.

Disadvantages

With this method (incremental or cumulative), there is no local currency to group currency translation (Table 1).

Valuation Areas Implemented by SAP

SAP recently made this FASB-compliant method of foreign currency revaluation available. In this method, currency type 10 revaluation also posts the local currency’s translated balance into group currency. For example, if your transaction currency is GBP, your local currency is EUR, and your group currency is USD, a valuated posting of $5 USD at month-end for currency type 10 revaluation posts $5 USD to the group currency (Table 2).

Figures 3 and 4 show the important fields for this type of posting for currency type 10 revaluation.

Figure 3

F.05 valuation areas: currency type 10 revaluation header

Figure 4

F.05 valuation areas: currency type 10 revaluation FASB 52 tab

Figures 5 and 6 show fields for currency type 30 revaluation.

Figure 5

F.05 valuation areas: currency type 30 revaluation header

Figure 6

F.05 valuation areas: currency type 30 revaluation FASB 52 tab

Your SAP system calculates the valuated balance for this method of revaluation in a different way than the other methods, but produces the same end result. The valuated balance is calculated by adding the original or prior month’s balance to the local currency translated amount that was translated to group currency.

Advantages

This method translates the amount that is revaluated from transaction currency to local currency, to group currency (Table 2).

Disadvantages

This method requires you to complete a separate area of configuration for account assignments that populates table T030HB, an account determination table for exchange rate differences. It also requires a small piece of configuration to define valuation areas that you would use minimally (Figure 7).

Figure 7

Valuation areas configuration

Because the system stores valuation information in the BSIS table under the valuation area, you only can post this method cumulatively (not incrementally). As such, your system cannot distinguish if it’s been executed before and may perform multiple runs if not monitored.

An Alternative Approach

This method uses the best of each of the prior methods. Although you only can post cumulatively with this method, the local currency is translated to group currency during the currency type 10 revaluation and the account assignment configuration remains unchanged.

For example, if your transaction currency is GBP, your local currency is EUR, and your group currency is USD, a valuated posting of $5 USD at month-end for currency type 10 revaluation posts $5 USD to the group currency (Table 3).

Figures 8 and 9 show the important fields for this type of posting for currency type 10 revaluation.

Figure 8

F.05 recommended method: currency type 10 revaluation header

Figure 9

F.05 recommended method: currency type 10 revaluation FASB 52 tab

Figures 10 and 11 show fields for currency type 30 revaluation.

Figure 10

F.05 recommended method: currency type 30 revaluation header

Figure 11

F.05 recommended method: currency type 30 revaluation FASB 52 tab

The system calculates the valuated balance for this method of revaluation in a different way than the other methods, but produces the same end result. The valuated balance is calculated by taking the current month’s balance less the local currency translated amount that was translated to group currency.

Advantages

This method translates the amount that is revaluated from transaction currency to local currency, to group currency (Table 3). It also configures the account assignments in the same area that populates as the first method, in table T030H, an account determination table for exchange rate differences. Thus, you do not need to perform new account assignment configuration. It also is FASB 52 compliant.

Disadvantages

As in the previous method of currency revaluation, this method requires a small piece of configuration to define valuation areas that you may use minimally (Figure 5). The system stores valuation information in the BSIS (index for G/L accounts) table under the valuation area. You only can post this method cumulatively (not incrementally), and as such, your SAP system cannot distinguish if it’s been executed before and may perform multiple runs if not monitored.

Susanne Finke

Susanne Finke has 26 years of business experience and more than 15 years of consulting experience in SAP Financials modules (FI, CO, TR, and AA), with R/3 versions 2.2e through SAP ECC 6.0. She is the author of the book, SAP Foreign Currency Revaluation: FAS 52 and GAAP Requirements (Susanne Finke; Copyright © 2006, ZANN Consulting, LLC., published by John Wiley & Sons, Inc.). She also wrote “Is Your Foreign Currency Revaluation FASB 52 Compliant?”, which was posted to the Financials Expert knowledgebase in October 2006.

You may contact the author at ZANNconsulting@att.net.

If you have comments about this article or publication, or would like to submit an article idea, please contact the editor.