SAP Foreign Currency Valuation

FASB 52: is issued by US accounting standard board. It provides guidance on financial reporting of companies operating in foreign countries

• Functional Currency: Currency of the economic environment in which the entity operates. In case of SAP functional currency is generally company code / local currency of the entity (In this case company Code). All assets, liabilities and operations of foreign entity should be measured in functional currency
• Group Currency: This is the currency of the parent company.
• Foreign Currency transactions: These are transactions in a currency other than the functional currency of the company code
• Unrealized foreign currency gain/ loss: Receivables/ Payables in foreign currency have to be reported in-group currency at exchange rate on month end. Difference between group currency and company code currency exchange rate on transaction date and month end is posted as profit/ gain from foreign currency revaluation. This is than reversed at the beginning of the next month
• Realized Gain / Loss: These are gain or loss due to exchange rate difference when actual payment made to vendor or cash received from customers.

Now let’s configure and test foreign currency valuation in SAP

Main topics covered in this tutorial are as below

s.no	Topics
1	Configure Parallel currencies
2	Enter exchange rates
3	Define New Exchange Rate Type
4	Specify Exchange Rate type to be used
5	Specify whether Direct or Indirect quote has to be used
6	Define Translation ratios
7	Valuation Method Setup
8	Define Valuation Area
9	Assign valuation area to accounting principles
10	Automatic account determination for open item exchange rate differences
11	Additional Settings to display valuation differences in FBL1N/ FBL5N
12	Month End Foreign currency revaluation and end user postings
13	Post a foreign transaction vendor Invoice
14	Update Exchange Rate in transaction code OB08
15	Run and analyze Month end foreign currency valuation

 

Configure Parallel currencies in SAP

Transaction code: OB22

1^st Local Currency

Srce curr. : Translation is taking transaction currency as base. We can also select translation using first local currency as base

Exchange Rate Type: M. this exchange rate type will be used for currency translation at the time of monthly valuation and also when posting FI documents in a currency other than company code currency

 

Enter Exchange Rate for Exchange Rate type ‘M’

Tcode: OB08

System will use the latest exchange rate

 

Define New Exchange Rate Type in sap

Path: SAP Net weaver – General Settings – Currencies – Check Exchange Rate Type

Indicator that in the case of a missing exchange rate entry in the system for the required translation from one currency into another, the inverted exchange rate relationship may also be used

 

Specify Exchange Rate Type to be used by Vendor Invoice

Tcode: OBA7

We can specify the exchange rate type to be used by a specific document type ( KR) in transaction code OBA7

Let us change it to ‘M’

 

Specify whether Direct Quote or Indirect quote is to be used

Path: SAP NetWeaver – General Settings – Currencies – Define Standard quotation for exchange rate

 

Define Translation ratios between foreign currencies in sap

Path: SAP NetWeaver – General Settings – Currencies

Always use SAP default

 

SAP Foreign Currency Valuation method setup 

Path: SPRO- Financial Accounting (New) – General Ledger Accounting (New) – Periodic Processing – Valuate – Define Valuation Methods

Tcode: OB59

Here define Valuation method for Open Items

Valuation Procedure:

• Lowest Value Principle: If selected valuation is done only if the exchange rate difference results in exchange rate loss. Valuation posted only if giving negative result
• Always evaluate: Exchange rate difference always posted whether gain or loss
• Revalue Only: The opposite of the first one, valuation is only posted when positive

 

Define Valuation Area

Path: SPRO- Financial Accounting (New) – General Ledger Accounting (New) – Periodic Processing – Valuate- Define Valuation Areas

Define valuation area for closing operations

Assign Valuation method defined in last step to the valuation area

 

Assign Valuation Area (RM/RU) to accounting principles

Path: SPRO- Financial Accounting (New) – General Ledger Accounting (New) – Periodic Processing- Assign valuation area to accounting principles

 

Account Determination for Open Item Exchange rate differences

Path: SPRO- Financial Accounting (New) – General Ledger Accounting (New) – Periodic Processing – Valuate- Foreign Currency Valuation – Automatic Posting for foreign currency valuation

Tcode: OBA1

Select transaction ‘KDF’

Here we have Customer / Vendor reconciliation accounts. For these automatic postings at time of foreign currency, revaluation must be specified

Vendor Master: XK03

Account Determination Open Item: OBA1

 

Additional Settings to display valuation differences in FBL1N/ FBL5N

Tcode: OB_9

These fields must also be defined as special fields in the line item display (table T021S – see note 984305 for more details

 

SAP Foreign Currency Valuation : Month end process

Tcode: FAGL_FC_VAL

 

Post a foreign transaction vendor Invoice FB60

Company Code: 0100

Functional / Co. code currency: GBP

So, if document posted in EUR => Foreign currency transaction

• EUR : Document Currency
• GBP/LC: Functional / Company Code currency
• EUR/LC2: Group Currency
• USD/LC3: Hard Currency

Exchange Rate used and validation- Document Header

Table TCURR

Transaction code: OB08

 

Update Exchange rate in OB08

Let us update exchange rate from EUR to GBP to .9

Tcode: OB08

 

Run month end foreign currency valuation

Tcode: FAGL_FC_VAL

 

SAP Finance online course

For detailed, step-by-step instructions on Foreign Currency Valuation, follow along with my video tutorial below