Foreign Currency Valuation

Foreign Currency Valuation in SAP

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

Foreign Currency configuration

Configure Parallel currencies

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

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

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

Define Translation ratios between currencies

Path: SAP NetWeaver – General Settings – Currencies

Always use SAP default

Valuation Method Setup

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

Tcode: OB59

Here define Foreign Currency 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’