Common Business Requirement

All the foreign currency transactions in the current assets (except stock) and current liabilities have to be revaluated based on the current exchange rates. The revaluation has to be done frequently (e.g., monthly) for countries with significant exchange rate fluctuations whereas the countries with little or no fluctuations will choose not to revaluate the balances or revaluate it less frequently (e.g., quarterly).

The revaluation impact on the P&L should be shown only for the current reporting period and reversed in the beginning of the subsequent month.

Analysis and Design

Updating of Exchange Rate and Exchange Rate Type

The frequency at which the exchange rates are updated depends on the country’s legal requirement and the currency fluctuation.

Various exchange rate types are maintained in the system and most are primarily used for reporting purposes. Depending on legal requirements, additional exchange rate types will be created where necessary.

Exchange rate types applicable to all countries are:

• M: For daily transaction and valuation (average foreign exchange covers / central bank selling)

• B: For central bank selling rate for foreign exchange valuation

• G: For central bank buying rate for foreign exchange valuation

Foreign Currency Revaluation

Revaluation is done for all current assets (except stock) and current liabilities accounts. Foreign currency revaluation will be manually calculated and posted or automatically calculated and posted by SAP. For automatic calculation and posting, the standard valuation method is used. Additional valuation method will be created should there be legal requirements.

Frequency of performing the revaluation depends on legal requirements and currency fluctuation.

Exchange rate differences are posted to a balance sheet adjustment account and to an exchange rate gain/loss account at the end of the each period. , Foreign exchange balance sheet and profit and loss account will be defined according to the vendor and customer reconciliation account and for all the current assets and current liabilities accounts that will be revaluated. Using SAP standard function for automatic calculation and posting:

• For open items One set of posting (balance sheet account and P&L account) is done for each open line item selected for revaluation.

• For non-open item managed items (e.g., bank accounts), the balance in these accounts are revaluated at the end of each month.

When performing foreign currency revaluation, a valuation method needs to be entered. For each country, 3 valuation methods will be set:

• Valuation of Balance

• Open Item Valuation

• Open Item Valuation-Reset

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