27 Overview to Monthly Valuation and Financial Restatement

This chapter contains these topics:

• Section 27.1, "Objectives,"

• Section 27.2, "Overview."

27.1 Objectives

• To determine the current value of monetary accounts

• To calculate and post unrealized gains or losses on monetary accounts

• To restate account balances into another currency

• To restate account detail into another currency

27.2 Overview

If you work with monetary accounts and foreign currencies, periodically you will need to revalue your open vouchers, open invoices, and monetary accounts to reflect current exchange rates. Typically, as part of month-end processing, you calculate and post unrealized gains and losses due to exchange rate fluctuations.

If you have companies using different currencies, you will need to convert financial information into the currency of your parent company for consolidations. This process is called financial restatement. You can restate amounts into:

• A different currency (for example, Mexican pesos restated into U.S. dollars).

• The same currency using an index at the balance level. This might be useful in preparing budgets.

• A different currency at the transaction (detail) level. This is useful for companies operating in highly inflationary economies.

To eliminate fluctuations in exchange rates for comparing amounts, you might also need to repost transactions using a single exchange rate, as if it applied to all transactions.

Monthly valuation and financial restatement consist of:

• Understanding monetary account valuation

• Calculating unrealized gains and losses on monetary accounts

• Understanding balance currency restatement

• Defining restatement rates

• Working with calculations for balance restatement

• Calculating restated balances

• Understanding detailed currency restatement

• Setting up detailed currency restatement

• Calculating detailed currency restatement

• Working with "as if" currency reposting

27.2.1 What Are the Types of Monthly Valuations?

You can use five different programs to analyze and calculate changes due to currency fluctuations for monthly valuations. Two of the programs provide informational reports, without calculating gain or loss:

• A detail report of open foreign vouchers

• A detail report of open foreign invoices

Three other programs calculate unrealized gain or loss and print a report. For vouchers and invoices, the report also includes realized gain or loss that is calculated at the time of payment or receipt. The available reports are as follows:

• Realized and unrealized gains/losses on vouchers

• Realized and unrealized gains/losses on invoices

• Unrealized gains/losses on monetary accounts

You might want an account to accept only transactions in a specific currency. By assigning a currency code to an account, you make it currency-specific. JD Edwards World calls this type of account a monetary account. Generally, monetary accounts should be accounts that are denominated in currencies other than the domestic currency of your organization. A monetary account can be:

• A bank account

• Other accounts, such as A/P or A/R trade

See Also:

• Printing A/P Standard Reports in the JD Edwards World Accounts Payable Guide,

• Printing A/R Standard Reports in the JD Edwards World Accounts Receivable Guide,

• Chapter 29, "Calculate Unrealized Gains and Losses."

27.2.2 What Are the Types of Financial Restatement?

Balance currency restatement and detailed currency restatement are two different methods for restating into a different currency. "As if" reposting is used for eliminating currency fluctuations.

Type	Description
Balance currency restatement	Restates amounts into another currency used for reporting purposes. Restatement is on a balance level. For example, by restating balances in U.S. dollars to Canadian dollars, you can consolidate reporting with other Canadian companies.
Detailed currency restatement	Enables you to maintain a second set of transactions in a stable currency for reporting purposes. This method is used for companies operating in a highly inflationary economy. Restatement occurs at the detail level and balance level. For example, by restating transactions from Colombian pesos (COP) to U.S. dollars (USD), a Colombian company can generate meaningful comparisons of current to historical sales figures by using the more stable U.S. dollar.
"As if" reposting	Eliminates fluctuations in exchange rates over a period of time for comparisons. For example, by reposting Euro transactions using a single exchange rate, a British company can compare actual income and expenses against budgeted amounts.

27.2.3 Which Ledgers Are Used for Financial Restatement?

When you restate currencies, the system maintains the original and restated amounts of each transaction in one or more of the following ledgers:

Ledger	Description
AA (actual amounts)	A complete chart of accounts in the base (domestic) currency of the company.
AC (consolidation ledger)	A complete or partial chart of accounts containing transactions in the reporting currency. Used for balance currency restatement. (You can use ledger types other than AC.)
AD ("as if" restatement ledger)	A complete chart of accounts containing transactions from the AA ledger with foreign transactions restated at a single exchange rate. Used for "as if" reposting. (You can use ledger types other than AD.)
CA (foreign currency)	A complete or partial chart of accounts containing transactions in foreign currencies. The CA ledger can contain many currencies. Used for foreign transactions.
XA (alternate currency)	A partial or complete chart of accounts in the alternate (stable) currency. Each transaction in the AA ledger is restated into its alternate currency equivalent using the exchange rate effective on the date of the transaction. Used for detailed currency restatement only.
YA (domestic origin)	A partial chart of accounts containing transactions that originated in the domestic currency (AA ledger). The amounts are in the domestic currency. Used for detailed currency restatement only (optional).
ZA (foreign origin)	Partial chart of accounts containing transactions that originated in a foreign currency (CA ledger), restated into the alternate stable currency. Used for detailed currency restatement only (optional).

The YA and ZA ledgers are typically used for reporting, joint ventures, and financial analysis.

The system does not allow currency restatements or reposts to these ledgers:

• AA (actual amounts)

• AZ (cash basis ledger)

• CA (foreign currency)

The system reserves the following ledgers for detailed currency restatement. You cannot use these ledgers for balance currency restatement or "as if" repost.

• XA (alternate stable currency)

• YA (domestic origin)

• ZA (foreign origin)

The following graphic illustrates the three methods and the tables and ledgers involved. In this example, GP is a user-defined ledger type for Generally Accepted Accounting Practices (GAAP) adjustments.

Figure 27-1 Balance Currency Restatement

Description of "Figure 27-1 Balance Currency Restatement"

To display or print a restated currency with the correct number of decimal places, you assign a currency code to a ledger type. Generally, you should assign currency codes to the following ledger types:

• AC (the currency for consolidated reporting)

• XA (the alternate stable currency)

• ZA (the alternate stable currency)

You should not assign currency codes to the following ledger types, for the reasons indicated:

• AA (can contain multiple currencies)

• AD (contains only the domestic currency)

• CA (can contain multiple currencies)

• YA (can contain multiple currencies)

The following shows a consolidation of three companies that operate in different parts of the world. The Colombian company operates in a highly inflationary economy and uses detailed currency restatement.

Figure 27-2 Example: Consolidated Companies with Multiple Currency

Description of "Figure 27-2 Example: Consolidated Companies with Multiple Currency"

27.2.4 What Are the SFAS 52 Requirements?

Statement of Financial Accounting Standard (SFAS) 52 regulates how companies should do reporting that includes foreign currency translations. It contains guidelines for companies to determine their "functional currency" for accounting records and financial statements, as follows:

• Companies operating in an economy with a stable currency generally use their local currency as their functional currency. For this type of company, use the Balance Currency Restatement program to consolidate currencies for reporting.

• Companies operating in highly inflationary economies generally use a currency different from their local currency as their functional currency. The functional currency is typically the U.S. dollar (USD). For this type of company, use the Detailed Currency Restatement program. The AA ledger is the local currency and the XA ledger is the USD.

The Balance Currency Restatement and Detailed Currency Restatement programs meet SFAS 52 requirements.