Currency Translation in IBM Cognos Controller Guideline

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Currency Translation in IBM Cognos Controller Guideline | Manualzz

Guideline

Currency Translation in IBM

Cognos Controller

Product(s): IBM Cognos Controller

Area of Interest: Financial Management

Currency Translation in IBM Cognos Controller 2

Copyright and Trademarks

Licensed Materials - Property of IBM.

© Copyright IBM Corp. 2009

IBM, the IBM logo, and Cognos are trademarks or registered trademarks of

International Business Machines Corp., registered in many jurisdictions worldwide.

Other product and service names might be trademarks of IBM or other companies. A current list of IBM trademarks is available on the Web at http://www.ibm.com/legal/copytrade.shtml

While every attempt has been made to ensure that the information in this document is accurate and complete, some typographical errors or technical inaccuracies may exist. IBM does not accept responsibility for any kind of loss resulting from the use of information contained in this document. The information contained in this document is subject to change without notice.

This document is maintained by the Best Practices, Product and Technology team.

You can send comments, suggestions, and additions to [email protected]

.

Currency Translation in IBM Cognos Controller 3

Contents

1 INTRODUCTION ............................................................................................ 4

1.1

P

URPOSE

................................................................................................................ 4

1.2

A

PPLICABILITY

......................................................................................................... 4

1.3

E

XCLUSIONS AND

E

XCEPTIONS

..................................................................................... 4

2 CURRENCY TRANSLATION ............................................................................ 4

2.1

C

URRENCY

C

ODES

..................................................................................................... 4

2.2

C

ONVERSION

M

ETHOD

............................................................................................... 5

2.3

F

UNDAMENTAL

D

IFFERENCES BETWEEN

“I”

AND

“C” C

ONVERSION

M

ETHODS

........................... 6

2.4

C

UMULATIVE

T

RANSLATION

A

DJUSTMENT

........................................................................ 7

2.5

L

OCAL VS

.

G

ROUP

C

URRENCY FOR INVESTMENT TEMPLATE

................................................. 13

2.6

C

URRENCY

T

RANSLATION

S

TEPS

................................................................................. 18

2.7

D-R

ATE

A

NALYSIS

.................................................................................................. 19

Currency Translation in IBM Cognos Controller 4

1 Introduction

1.1

Purpose

This document provides guidelines on applying and using currency rates and translation in IBM Cognos Controller.

1.2

Applicability

IBM Cognos Controller

1.3

Exclusions and Exceptions

There are no known exceptions and exclusions at the time this document was created.

2 Currency Translation

2.1

Currency Codes

IBM Cognos Controller includes different currency codes that must be activated prior to using the codes in the company structures.

You define the base currency that other currencies are measured against. If the code does not exist then you have the opportunity to create your own code.

You must check the active column in order to activate the currency code to be used in the company structures.

Currency Translation in IBM Cognos Controller 5

You can multiple or divide local currency by the base currency rates.

There is also an option to select the unit, for instance 1=1 or 1=1000

Yen.

2.2

Conversion Method

IBM Cognos Controller has the ability to use different rates when calculating the currency translation. The list below is of currency rates that can be used in IBM Cognos Controller:

Rates B, M, D can be entered in the currency register. You can manually enter the rates or load the rates on a monthly basis using staging tables or flat files or Business Viewpoint.

Rates, E, F, G rates are historical rates that are loaded into IBM

Cognos Controller using the historical rate register. If no historical rates are entered, the B, M, D rates will be used .

2.3

D-Rate and G-Rate Comparison

Currency Translation in IBM Cognos Controller 6

The D rate makes the calculation when the LC value is 0. This is not a desirable outcome when discovering that something has been booked on the wrong ext. dimension. You get a currency translated value also at the wrong ext. dimension, even though the entered LC value is 0.

Practically, all default values are calculated in the beginning of the currency translation program, which is why you get a translated value according to the

D rate.

2.4

Fundamental Differences between “I” and “C” Conversion Methods

The C code is supposed to be used when there are no local values at all on the account, most typically for Opening balance of currency translation difference. The calculation of C code is always "detailed", meaning that the translated value is retrieved from the same Journal type and journal number in the Closing balance.

For the “I” code you can select if the calculation should be "detailed" or "not detailed" (under General configuration). The “not detailed” translation retrieves the rate ratio to use from the same Journal type in the Closing balance. It’s recommend that the "not detailed" translation is used. The total will be correct while the different journal numbers may differ depending on how the different journal numbers are translated in the Closing balance. If using the detailed translation, you have to be sure that the same journal number with the same transactions exist both in the Opening and the Closing balance, which sometimes is difficult. The best practice is to use the detailed conversion to be sure to get the correct figures in OB per journal. In combination with “do not change journal number” it is not more complicated than not using it. If a journal is missing in OB, you will get a difference anyway. And with the I-rate, it could be more difficult to find out what journal is missing.

Moreover, both for the I code and the C code, there is a lot of matching done between the Opening and the Closing balance, to find the correct rate ratio (I code) or value (C code) to use for the Opening balance. Matching is done on journal type, journal number (if detailed translation), extended dimensions (if used), counter company + translation currency + counter dimension (if intercompany account). For automatic journals matching is also done on automatic journal type, counter company and the "ktypkonc" concept, meaning the merge of the consolidation type and group. The ktypkonc concept is important if there for example has been structural changes made.

In conclusion, there are a lot of things that happen when translating currency with Opening balances. Experience is that a lot of problems with the I code comes from journals that exist in the Closing balance if not copied to the

Opening balance. As the translation program calculates a rate ratio from the journals that exist in the Closing balance, this might give a different rate than expected for the Opening balance.

Currency Translation in IBM Cognos Controller

Please be aware of that when using the C code, Closing balance amounts in translated currency will be copied to the Opening balance also when there is no local amount on the account. This is due to the fact that the C code from the beginning was meant to be used for opening balances of translation differences, for which it does not exist any local value. What might happen when you have structural changes is that the old translated value for the old owning (talking about elimination) might be copied to the opening balance even though you don't have values in the local currency. In these cases it is better to use the I code (with not-detailed translation).

7

2.5

Cumulative Translation Adjustment.

The cumulative translation adjustment comes into play when the currency method used is Method#1. This method is referred to as the current method of translation financial Statements.

All assets and Liabilities of the foreign entity are translated at the current rate on the date of the balance sheet; this preserves the relationship between all the balance sheet items that formerly existed in the foreign currency

Share Capital is translated at Historical Rates

All revenues and expenses are translated using the average rate. In the case of IBM Cognos Controller it is recommended using the “M” rate and not “D” rate. However, the “D” rate is predominantly used when translated income statement results using period average rate, i.e. monthly average rate.

Retained Earnings will become a blended rate

In IBM Cognos Controller there are several ways to handle currency translation. Some companies may require that they track the changes in rates within the various specification, i.e. fixed assets, debt, etc.

Below is an example of Fixed/Intangible Assets being set up to translate base on the code”A”

Currency Translation in IBM Cognos Controller

Currency Method for B303500030

8

Notice the rate in this example is “A” (difference between the closing/average rates and converted amount).

Currency Register:

Currency Translation in IBM Cognos Controller

Goodwill Specification

9

Goodwill FX Calculatiion

The ending, balance sheet rate was 1.1564 and balance sheet rate for 0412 was 1.2354. So, there is FX adjustment of $966.80.

Currency Translation in IBM Cognos Controller 10

There is at least one issue when storing the values in group currency, it’s that

Controller will not take into account any historical values mention and will always convert your figures at closing rate.

Cumulative Translation Account

As part of calculating Cumulative Translation account. There are different ways to setting up and using the translation account. The recommended practice is to use movement extensions/account (See below example)

3600 Cumulative Translation Adjustment

3600010 Opening, Balance

3600020 Additions

3600030

3600040

Other

Manual Adjustment

In this particular example the account will set up as an integrated movement account, which means the ending balance sums up to the main account.

The CTA-movements on all other Equity-accounts, therefore you do not build movements on the CTA-accounts itself. This gives you the possibility to analyze the CTA per Equity-account. The currency difference from E150 gets a separate movement in the currency difference part of Retained earnings.

This model is used in Sweden and Switzerland.

Currency Translation in IBM Cognos Controller

Once you have define the Cumulative Translation Account then you will be required to defined the account in the General Configuration >

Reconcile 2 tab – see below print screen

11

The currency difference in General configuration gets a separate movement in Retained earnings – this row should always be near 0, since all other currency differences have been taken care of through the account structure.

When the system calculates the translation and differences will then be posted to the account in the General configuration.

This particular example all the companies in this company structure all used

Method 1 or the Current Method for translation.

Currency Translation in IBM Cognos Controller

Example 1 – Currency Translation Adjustment

The only difference in this example is the rates used to convert the income statement profit.

12

Currency Translation in IBM Cognos Controller

Actual Foreign Currency Translation

13

2.6

Local vs. Group Currency for investment template

There is an option to activate an automatic journal that will handle the currency translation.

Control table#150 creates an automatic journal with a conversion difference relating to the investments. Automatic journal type 18 is used here.

Currency Translation in IBM Cognos Controller 14

This automatic journal is useful both when investments are stored in the local currency and when they are stored in the group currency. If you store investments in the local currency, you may need to adjust the shareholdings in subsidiaries. If you store investments in the group currency, you may need to adjust the share capital. You can also follow up on conversion differences on other equity accounts. In both cases, the original investment by the parent is compared to the acquired amount in local currency converted to the current rate (which rate depends on the coding of the accounts).

A pre-requisite for calculating currency conversion difference in investments is that you enter accurate accounts used in the investment register ("From

Accounts" in the control table) in both the company’s local currency and the parent’s currency (or the selected currency if that differs from the parent’s currency).

Define Control Tables - Conversion Differences in Investments

If you store investments in the local currency, LC, this is where you specify the accounts used for investments. Any conversion differences will be posted to another account, so that the investment accounts do not contain values when the group is consolidated. If you store investments in the group currency, GC, you specify the equity accounts you want to calculate conversion differences on. The share capital account is normally used, but other accounts may also be used.

The following example demonstrates how E150 is set up to handle currency adjustments for the investment account.

You will need to activate and configure E150 in order for it to work properly.

Currency Translation in IBM Cognos Controller 15

You will then need to define the control table –

Currency Translation in IBM Cognos Controller 16

After the control table has been configured with the correct accounts. The data then will flow based on the account structure/currency codes. In this particular example there are no movement extensions or historical rates used on the equity account.

1.

Elimination of the investment – the initial investment for this company is recorded as 742,993 or in the parent’s currency. In this particular case the rate used is EURO dollars.

2.

Elimination of the equity – in this case the elimination of equity is based on the common share account only. There could be other accounts that need to be eliminated, so you will need to bare this in mind when you built the original control tables for E150.

Currency Translation in IBM Cognos Controller 17

The actual calculation based on the account structure is “B” rate or in this case would be

3.

Conversion differences on the investment

Currency Translation in IBM Cognos Controller

The FX/Inv adjustment for the period is calculated in this example the following way:

18

-Notes-

It is important to understand the account structures and currency rates used for equity, investment, etc. The set up will impact on how the E150 Control Table is configured and used.

If movement accounts/extensions must all be considered when setting up the investment elimination control tables.

When storing the values in group currency will not take into account any historical values and will always convert your figures at closing rate.

2.7

Currency Translation Steps

Currency translation is performed by specific steps in IBM Cognos Controller:

Currency conversion codes B, M, K, L and N are calculated for all accounts using these.

Accounts with currency conversion code D are calculated.

Opening balances, currency conversion codes C and I, are calculated.

Historical rates, currency conversion codes E, F, and G are calculated.

The currency conversion differences, currency conversion codes O and

P are calculated.

All accounts are summed to summation accounts.

Currency conversion code A is calculated.

All accounts are summed to summation accounts.

Currency conversion code A2 is calculated.

All accounts are summed to summation accounts.

Values are copied from accounts with reconciliation rules to all accounts with the currency conversion codes U, V, X and Z.12.

All accounts are summed to summation accounts.

Currency conversion code A3 is calculated.

All accounts are summed to summation accounts

The final currency conversion difference, the balance item, is calculated and booked using the rules in the general configuration

Currency Translation in IBM Cognos Controller 19

2.8

D-Rate Analysis

IBM Cognos Controller calculates the individual period movements, currency converts them and then accumulates the individual values to arrive at the converted year to date values which are stored in the database tables.

M-rate is based on yearly average rate. So, depending how the m-rate is determined and how it relates to the d-rate calculation over time it may cause some differences between the translated amount.

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