Re: [sap-acct] Foreign Currency Valuation - Asset Posting - FAGL_FC_VAL - Foreign Currency Valuation
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 | Posted by ron.roberts (Managing Consultant) on Apr 25 at 3:44 PM |  Mark as helpful |
Hi Sylvia,
I am glad to see that we are in complete agreement on the fixed asset
transaction and fixed asset balance currency valuation issue.
Since your response seems to imply that you are disagreeing with what I have
said, here is a copy of the key portion of my April 15 response to you and
Nikki:
"When you are doing a revaluation of foreign currency transactions within
asset and liability accounts, I agree with you that fixed asset items are
excluded from the period-end revaluation process. However, when revaluing
local currency to group currency, fixed asset local currency balances are
to be revalued just as all other asset and liability balances."
Ron
On Wed, Apr 21, 2010 at 9:23 AM, Sylvia_Langford via sap-acct <
sap-acct@groups.ittoolbox.com> wrote:
> Posted by Sylvia_Langford(Business Analyst)
> on Apr 21 at 9:27 AM
> Hi Ron
> I appreciate the role of this forum is to give guidance on how to use SAP,
> not training in accounting but I feel strongly enough to broach this one
> more time because I believe a lot of folks may blindly accept what has been
> stated as fact. I even had to go back and read FAS 52 before responding
> because what had been said had been put so strongly I was starting to doubt
> myself.
> This is why I urge those who do not understand treatment of foreign
> currency to consult with their accountants and auditors.
> From my accounting background I know for certain that when converting
> foreign currency transactions you do not convert fixed assets, they are
> maintained at the historical rate. (There is a whole different process for
> revaluation of fixed assets if it is deemed appropriate but I am not going
> into that.)
>
> FAS 52 did not change this. It deals with 1. The conversion of foreign
> currency transactions and 2. The translation of foreign currency financial
> statements (for consolidation purposes).
> The rules you are stating below refer to the translation of foreign
> currency financial statements where we translate all the assets and
> liabilities at the month end rate (section 12).
> However, if you look to section 15, it is advising how to treat
> transactions in non-functional currency. The only accounts to be revalued
> are one where "A change
> in exchange rates between the functional currency and the currency in which
> a transaction is denominated increases or decreases the expected amount of
> functional currency cash flows upon settlement of the transaction." In other
> words it is your non-functional currency payables, receivables, loan
> accounts, bank accounts etc. It is not your fixed assets and inventory
> balances resulting from purchases in a non-functional currency.
>
> Kind regards
> Sylvia
>
>
> From: ron.roberts via sap-acct [mailto:sap-acct@groups.ittoolbox.com]
> Sent: 16 April 2010 14:28
> To: Langford, Sylvia
> Subject: Re: [sap-acct] Foreign Currency Valuation - Asset Posting -
> FAGL_FC_VAL - Foreign Currency Valuation
>
> [cid:image001.jpg@01CAE159.52D218C0]
>
> Posted by ron.roberts (Managing Consultant)
> on Apr 16 at 9:32 AM
>
> [cid:~WRD000.jpg]Mark as helpful<
> http://it.toolbox.com/api/ContentVote/3444316/1/1/>
>
> OK, it looks like we have an interesting discussion going on here.
> First, for Sylvia: You are correct in your explanation about where FX
> adjustments post. The first revaluation (transaction to local) is posted to
>
> P&L. Yes, I know there are some exceptions for certain long-term items, but
>
> for the most part, the unrealized FX gain/loss goes to P&L. We agree here.
> Then, the second activity, translation of local balances to group currency,
>
> results in a posting to equity (CTA usually). This second activity, which
> you do in ECCS, can also be done in G/L. In your shop, if this were done in
>
> G/L, there would be no adjustment created in ECCS as the group currency
> balances would already reflect local currency balances at period-end spot
> rate.
>
> Now, Roy. Yes, I have seen some previous responses from you where you state
>
> this belief, so I expected this comment from you. Here are my thoughts: If
> we were doing this prior to FASB 52 (under FASB 8), I would agree with you
> without question. Fixed asset balances were NOT revalued. But in 1981,
> FASB 52 changed that. If you look at the actual pronouncement, paragraph 12
>
> indicates that ALL assets and liabilities are to be revalued.
>
> Here is a copy of an explanation presented by a CPA firm (amper.com):
> "Prior to the adoption of FAS 8, U.S. companies generally translated
> current
> accounts at current exchange rates and noncurrent accounts at historical
> rates. This method was known as the current-noncurrent method and had a
> very
> short-term focus. FAS 8, adopted in 1975, required use of the temporal
> method, which uses the rate in effect at the time each item is recorded
> (different rates for different items). This method was widely criticized
> due
> to the wide variation in earnings that resulted. Six years later, FAS 52
> was
> issued, which mandates the functional currency approach. A key feature of
> this approach is the current rate method, which translates all assets and
> liabilities at the current rate in effect at the time of translation,
> equity
> accounts at historical rates and income statement items at a
> weighted-average rate for the period. "
> I ran the corporate accounting department for a multi-national company for
> almost 20 years and I revalued fixed assets for my foreign subsidiaries.
> Our auditors (Deloitte) reviewed the calculations each year and never had
> any issues.
>
> So, always open for further education, my challenge to you is for you to
> provide some legitimate source that says fixed assets are to be kept at
> historic currency exchange rates.
>
> Enjoy your weekend fellow SAP Accounting folks!
>
>
> On Thu, Apr 15, 2010 at 8:34 AM, ron.roberts via sap-acct <
> sap-acct@groups.ittoolbox.com> wrote:
>
> > Posted by ron.roberts(Managing Consultant)
> > on Apr 15 at 9:55 AM
> > Sylvia and Nikki,
> >
> > Just a comment on US GAAP:
> >
> > When you are doing a revaluation of foreign currency transactions within
> > asset and liability accounts, I agree with you that fixed asset items are
>
> > excluded from the period-end revaluation process. However, when revaluing
>
> > local currency to group currency, fixed asset local currency balances are
>
> > to
> > be revalued just as all other asset and liability balances.
> >
> > If your understanding is different from this, I would be very interested
> in
> >
> > any documentation you can provide that supports your thinking.
> >
> > Thanks
> >
> > On Wed, Apr 14, 2010 at 5:24 PM, Nikki Klein via sap-acct <
> > sap-acct@groups.ittoolbox.com> wrote:
> >
> > > Posted by Nikki Klein
> > > on Apr 14 at 5:25 PM
> > > I have to agree with Sylvia on this. GAAP says that the Asset balance
> > sheet
> > > accounts must not be included in month end FX revaluation, as they are
> > held
> > > at historical rates only. FASB 52 gives a very clear explanation of
> what
> > > must be included and what must be excluded.
> > >
> > > Nikki
> > >
> > > ---------------Original Message---------------
> > > From: Uday Malghan
> > > Sent: Monday, April 12, 2010 4:58 PM
> > > Subject: Foreign Currency Valuation - Asset Posting - FAGL_FC_VAL -
> > Foreign
> > > Currency Valuation
> > >
> > > > We do have presence in Canada and Europe. We maintain local / USD
> group
> >
> > > currency. Accounts payable / Finance posts acquisition / additions /
> > > Transfers to assets at average rate. As part of closing Finance runs
> > > FAGL_FC_VAL - Foreign Currency Valuation at spot rate. Our selection
> > > criteria is all BS accounts and valuate GL Account balances. This works
>
> > > perfectly for all the BS accounts except Asset value and depreciation
> > > reconciliation account. Currency value difference is booked through JE.
>
> > As
> > > we increase number assets in the foreign currency , this becomes big
> > > headache. How should valuate Foreign currency valuation for asset value
>
> > and
> > > depreciation recon account? Are we missing any steps? Appreciate your
> > help.
> > > We are in ECC 6.0 and have implemented new GL. Thanks Uday Malghan
__.____._ I am glad to see that we are in complete agreement on the fixed asset
transaction and fixed asset balance currency valuation issue.
Since your response seems to imply that you are disagreeing with what I have
said, here is a copy of the key portion of my April 15 response to you and
Nikki:
"When you are doing a revaluation of foreign currency transactions within
asset and liability accounts, I agree with you that fixed asset items are
excluded from the period-end revaluation process. However, when revaluing
local currency to group currency, fixed asset local currency balances are
to be revalued just as all other asset and liability balances."
Ron
On Wed, Apr 21, 2010 at 9:23 AM, Sylvia_Langford via sap-acct <
sap-acct@groups.ittoolbox.com> wrote:
> Posted by Sylvia_Langford(Business Analyst)
> on Apr 21 at 9:27 AM
> Hi Ron
> I appreciate the role of this forum is to give guidance on how to use SAP,
> not training in accounting but I feel strongly enough to broach this one
> more time because I believe a lot of folks may blindly accept what has been
> stated as fact. I even had to go back and read FAS 52 before responding
> because what had been said had been put so strongly I was starting to doubt
> myself.
> This is why I urge those who do not understand treatment of foreign
> currency to consult with their accountants and auditors.
> From my accounting background I know for certain that when converting
> foreign currency transactions you do not convert fixed assets, they are
> maintained at the historical rate. (There is a whole different process for
> revaluation of fixed assets if it is deemed appropriate but I am not going
> into that.)
>
> FAS 52 did not change this. It deals with 1. The conversion of foreign
> currency transactions and 2. The translation of foreign currency financial
> statements (for consolidation purposes).
> The rules you are stating below refer to the translation of foreign
> currency financial statements where we translate all the assets and
> liabilities at the month end rate (section 12).
> However, if you look to section 15, it is advising how to treat
> transactions in non-functional currency. The only accounts to be revalued
> are one where "A change
> in exchange rates between the functional currency and the currency in which
> a transaction is denominated increases or decreases the expected amount of
> functional currency cash flows upon settlement of the transaction." In other
> words it is your non-functional currency payables, receivables, loan
> accounts, bank accounts etc. It is not your fixed assets and inventory
> balances resulting from purchases in a non-functional currency.
>
> Kind regards
> Sylvia
>
>
> From: ron.roberts via sap-acct [mailto:sap-acct@groups.ittoolbox.com]
> Sent: 16 April 2010 14:28
> To: Langford, Sylvia
> Subject: Re: [sap-acct] Foreign Currency Valuation - Asset Posting -
> FAGL_FC_VAL - Foreign Currency Valuation
>
> [cid:image001.jpg@01CAE159.52D218C0]
>
> Posted by ron.roberts (Managing Consultant)
> on Apr 16 at 9:32 AM
>
> [cid:~WRD000.jpg]Mark as helpful<
> http://it.toolbox.com/api/ContentVote/3444316/1/1/>
>
> OK, it looks like we have an interesting discussion going on here.
> First, for Sylvia: You are correct in your explanation about where FX
> adjustments post. The first revaluation (transaction to local) is posted to
>
> P&L. Yes, I know there are some exceptions for certain long-term items, but
>
> for the most part, the unrealized FX gain/loss goes to P&L. We agree here.
> Then, the second activity, translation of local balances to group currency,
>
> results in a posting to equity (CTA usually). This second activity, which
> you do in ECCS, can also be done in G/L. In your shop, if this were done in
>
> G/L, there would be no adjustment created in ECCS as the group currency
> balances would already reflect local currency balances at period-end spot
> rate.
>
> Now, Roy. Yes, I have seen some previous responses from you where you state
>
> this belief, so I expected this comment from you. Here are my thoughts: If
> we were doing this prior to FASB 52 (under FASB 8), I would agree with you
> without question. Fixed asset balances were NOT revalued. But in 1981,
> FASB 52 changed that. If you look at the actual pronouncement, paragraph 12
>
> indicates that ALL assets and liabilities are to be revalued.
>
> Here is a copy of an explanation presented by a CPA firm (amper.com):
> "Prior to the adoption of FAS 8, U.S. companies generally translated
> current
> accounts at current exchange rates and noncurrent accounts at historical
> rates. This method was known as the current-noncurrent method and had a
> very
> short-term focus. FAS 8, adopted in 1975, required use of the temporal
> method, which uses the rate in effect at the time each item is recorded
> (different rates for different items). This method was widely criticized
> due
> to the wide variation in earnings that resulted. Six years later, FAS 52
> was
> issued, which mandates the functional currency approach. A key feature of
> this approach is the current rate method, which translates all assets and
> liabilities at the current rate in effect at the time of translation,
> equity
> accounts at historical rates and income statement items at a
> weighted-average rate for the period. "
> I ran the corporate accounting department for a multi-national company for
> almost 20 years and I revalued fixed assets for my foreign subsidiaries.
> Our auditors (Deloitte) reviewed the calculations each year and never had
> any issues.
>
> So, always open for further education, my challenge to you is for you to
> provide some legitimate source that says fixed assets are to be kept at
> historic currency exchange rates.
>
> Enjoy your weekend fellow SAP Accounting folks!
>
>
> On Thu, Apr 15, 2010 at 8:34 AM, ron.roberts via sap-acct <
> sap-acct@groups.ittoolbox.com> wrote:
>
> > Posted by ron.roberts(Managing Consultant)
> > on Apr 15 at 9:55 AM
> > Sylvia and Nikki,
> >
> > Just a comment on US GAAP:
> >
> > When you are doing a revaluation of foreign currency transactions within
> > asset and liability accounts, I agree with you that fixed asset items are
>
> > excluded from the period-end revaluation process. However, when revaluing
>
> > local currency to group currency, fixed asset local currency balances are
>
> > to
> > be revalued just as all other asset and liability balances.
> >
> > If your understanding is different from this, I would be very interested
> in
> >
> > any documentation you can provide that supports your thinking.
> >
> > Thanks
> >
> > On Wed, Apr 14, 2010 at 5:24 PM, Nikki Klein via sap-acct <
> > sap-acct@groups.ittoolbox.com> wrote:
> >
> > > Posted by Nikki Klein
> > > on Apr 14 at 5:25 PM
> > > I have to agree with Sylvia on this. GAAP says that the Asset balance
> > sheet
> > > accounts must not be included in month end FX revaluation, as they are
> > held
> > > at historical rates only. FASB 52 gives a very clear explanation of
> what
> > > must be included and what must be excluded.
> > >
> > > Nikki
> > >
> > > ---------------Original Message---------------
> > > From: Uday Malghan
> > > Sent: Monday, April 12, 2010 4:58 PM
> > > Subject: Foreign Currency Valuation - Asset Posting - FAGL_FC_VAL -
> > Foreign
> > > Currency Valuation
> > >
> > > > We do have presence in Canada and Europe. We maintain local / USD
> group
> >
> > > currency. Accounts payable / Finance posts acquisition / additions /
> > > Transfers to assets at average rate. As part of closing Finance runs
> > > FAGL_FC_VAL - Foreign Currency Valuation at spot rate. Our selection
> > > criteria is all BS accounts and valuate GL Account balances. This works
>
> > > perfectly for all the BS accounts except Asset value and depreciation
> > > reconciliation account. Currency value difference is booked through JE.
>
> > As
> > > we increase number assets in the foreign currency , this becomes big
> > > headache. How should valuate Foreign currency valuation for asset value
>
> > and
> > > depreciation recon account? Are we missing any steps? Appreciate your
> > help.
> > > We are in ECC 6.0 and have implemented new GL. Thanks Uday Malghan
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