First of all I wish to thank everyone for their comments on this topic, but I still have some questions about:
- How the SAP system utilizes exchange rates for conversions.
- How “consolidations” are done in the SAP/IIS system and why a “currency exchange process” is not followed for the consolidations.
Let me first of all review a recent Journal Entry I have recorded in SAP using one currency, how the SAP system converted the currency to record the JE in another currency and how the finished JE looks in the SAP system.
JE Recording
The JE was recorded into a UK localization database where the GBP (British Pound) is used for BOTH the “local” and “system” currencies. The entry was to credit the Electric account of the British branch for USD 500.00 and charge one USA branch for USD 300.00 and another USA branch for USD 200.00 as follows:
JE Entry
The entry in USD (as a foreign currency) in the UK database was:
| | Debit (FC) | Credit (FC) |
Electric | | | USD 500.00 |
Due from BR01 | | USD 300.00 | |
Due from BR02 | | USD 200.00 | |
Since the JE was recorded in a foreign currency in a UK localization, the system calculated the appropriate entries necessary to also record the entry in GBP, so the final entry was:
| | Debit | Credit | Debit (FC) | Credit (FC) |
Electric | | | GBP 298.92 | | USD 500.00 |
Due from BR01 | | GBP 179.35 | | USD 300.00 | |
Due from BR02 | | GBP 119.57 | | USD 200.00 | |
The system used the exchange rate for GBP to USD as listed in the exchange rate from the Admin > Exchange Rates & Indexes. The rate for the appropriate date was 1.6727 (for USD to GBP). So the formula was for this process was:
- in USD / Exchange Rate (1.6727) = Amt. in GBP.
or
USD 500.00 / 1.6727 = GBP 298.92 (and so on for the other USD amts.)
If this scenario is represented graphically, it would be as below:
Consolidations Process
After reading SAP documentation for the IIS on the consolidation topic in:
- SAP version 9.0 Administration Guide (7/4/13)
- SAP version 9.0 Users Guide (5/10/13)
I see the below paragraph in the” SAP B1 User Guide for Version 9.0” (page 119):
Consolidation Source–indicates whether the financial data for consolidation is retrieved from the company in the company’s local currency or in its system currency. Choose an option from the dropdown list. If you choose System Currency, the system assumes that the system currency is same as the consolidation currency (that is – Local Currency Code of the Consolidation Company).
The above comment refers to the Consolidation Setup done as part of the Company Details part of the Intercompany Landscape in the Administration Console. (This is shown below.)
Company Registration and Landscape screen
(See Consol File 2)
Company Details screen for consolidations
(See Consol File 3)
You can select either “System Currency” or “Local Currency” in the “Consolidation Source” box shown above.
Although you are lead to believe that you can select either Local or System currency from the Consolidation Source, this is not technically correct. If you closely read the comments in the User’s Guide for the “Consolidation Source” it is stated that, “ if you choose System Currency, the system assumes that the system currency is same as the consolidation currency (that is – Local Currency Code of the Consolidation Company). As a result of reading this comment you are left to conclude that:
- If you actually want to perform the consolidations process, it has to be done according to the instructions as set out in the User’s Guide:
- You have to select the “System Currency” in the Consolidation Source
- All of the “System Currencies” for all of the participating companies in the IIS have to be set to the same currency
- This has to be the same currency used for the “Local Currency” of the Consolidation company
There is basically no alternative to this process.
- I find the above to be very strange since the way in which the instructions for the Consolidation Source are written you would be lead to believe that you can use “either” the “local currency” or “system currency” to do the consolidations. SAP has not even provided the instructions for a user of IIS to use if they desire to consolidate using the “local currency” option. If two options are possible, then SAP should be providing the instructions for using either option.
- I would like to know why the “Currency Conversion Process” as detailed above cannot be used and applied to the Consolidations process when you are exporting and then importing the Journal Entries (for companies participating in the IIS) into the Consolidation company. This process would work as shown below.
JE Export/Import Process
This example uses the following assumptions:
Original JE recorded into UK database using the GBP for both “local” and “system” currencies.
The entry would be to credit the Electric account of the British branch for GBP 500.00 and charge one USA branch for GBP 300.00 and another USA branch for GBP 200.00 as follows:
JE Entry
The entry in GBP (in UK database) would be:
| | Debit | Credit |
Electric | | | GBP 700.00 |
Due from BR01 | | GBP 500.00 | |
Due from BR02 | | GBP 200.00 | |
Since the JE was recorded in a local currency in a UK localization, the system would record the entry in the appropriate local currency Debit and Credit fields.
When this entry is exported (in GBP) to the Consolidation company (local currency = USD). The import process would recognize the entry as being a “foreign currency” when compared to the local currency being used in the “local currency” of the Consolidation company (which is USD).
When the system recognizes that the incoming JE is in a “foreign” currency, it would then perform the following procedures to record the JE:
- Locate the appropriate exchange rate to be used to convert the GBP amounts from the JE into the “local currency” of the Consolidation company database.
- The JE would then be recorded using the GBP part of incoming entry as the “foreign currency” part of the JE. The system would also record the “converted” USD amounts of the transaction to the regular “Debit” and “Credit” fields of the JE. The entry is shown below.
| | Debit | Credit | Debit (FC) | Credit (FC) |
Electric | | | USD 1170.90 | | GBP 700.00 |
Due from BR01 | | USD 836.36 | | GBP 500.00 | |
Due from BR02 | | USD 334.54 | | GBP 200.00 | |
The system used the exchange rate for GBP to USD as listed in the exchange rate from the Admin > Exchange Rates & Indexes. The rate for the appropriate date was 0.59783 (for GBP to USD). So the formula was for this process was:
- in GBP / Exchange Rate (0.59783) = Amt. in USD.
or
GBP 700.00 / 0.59783 = USD 1170.90Q (and so on for the other USD amts.)
