General Ledger Accounting Configuration Part 4: Function of currency Key and Exchange Rate Types
In today’s lesson we will learn about functionality of Currency keys and Exchange rate type. You will learn about:
· Currency Key and Exchange rate type
· The basic functions of exchange rates
· How to maintain exchange rate.
Of course we will see related customizing with the help of a business example.
Let us Begin!!!
Currency Key and Exchange rate type
· Every currency used in SAP S/4 HANA must have a currency keys. Most of the currencies are, by default, already defined in the system.
· You can assign a validity date to each currency key defined in the system.
· Different exchange rate types can be defined for different purposes, such as valuation, conversion, translation, and planning. This allows to maintain the exchange rate for a currency type and a combination of two currencies.
· The following exchange rate types are defined by default:
Historical Rate
Bank Selling Rate
Bank Buying Rate
Average rate: This is the most common type used
Rate on a certain key date.
Translation Ratio
This is the relationship between currency conversion. This need to be maintained only once. Since inflation can influence the relationships between currencies, translation ratios are maintained on a time period basis.
Maintaining Exchange Rates
Maintaining Exchange rate is an ongoing task. Report RFTBFF00 can be to transfer external data in file to automatically update the exchange rate table (TCURR) by uploading input file. Considering there is a connection to an external data feed to provide real time exchange rates, report RFTBDF07 and RFTBDF14 can be used to transfer exchange rates. Remote Function Call (RFC) enables direct connection between external system and SAP S/4 HANA.
Direct and Indirect Quotation of Exchange Rates
All SAP S/4HANA applications and functions process exchange rates using one of the following types of quotations:
· Direct: Uses one unit of foreign currency for the local currency.
· Indirect: Uses one unit of local currency for the foreign currency. It affects all the components in which exchange rates are used. It is neither application nor country specific.
The type of quotation used is dependent on the market standard or the individual business transaction.
Direct or Indirect quotation is defined as a standard notation for the exchange rate for each currency pair.
The App Currency Exchange Rate in S/4 HANA is available to maintain exchange rates. It is possible to monitor, create and change currency exchange rates. Another way is to define a worklist and maintain exchange rates using the transaction TCURRMNT
Exchange rates can be entered as direct or indirect quotations. Prefixes can be maintained to differentiate between direct and indirect quotation exchange rates during input and display. The standard setting is valid if no prefix is entered.
These prefixes are:
Scenarios for Usage of prefix for Direct and Indirect Quotations:
Refer to SAP Note 783877 for an overview of FAQs about currency translation.
Managing Currency Types
In Financial Accounting atleast one currency for ledger must be managed. Normally this is the local currency or company code currency. In addition to company code currency, system also record values in document currency. In addition to company code currency, multiple currency types can be assigned to a ledger in S/4 HANA. This assignment is also known as Parallel currencies and is mostly used for different reporting purposes.
For Eg: The company code currency is MXN (Mexican Peso) but it is decided to define and assign a parallel currency EUR to ledger 0L for the company code.
Standard Currency Types
Following are the standard currency types already defined in S/4 HANA
Let us now understand the different currency types.
Document Currency (Type 00): This is also known as transactional currency. This currency type is entered at the time of posting a document. The currency is then translated to company code currency based on the exchange rate maintained in customizing.
Company Code Currency (Type 10): This currency is defined at the company code level at the time of creating a company code. Refer to my previous blog on “Organizational Structure Setup”. This currency type can also be setup as controlling currency if all the company codes assigned to the Controlling area have the same currency. Currency type 11 and 12 (Company Code currency) are used for Transfer pricing. We will learn about this in Transfer Pricing chapter.
Controlling Area Currency (Type 20): This is used when postings from Controlling is posted in Finance. For example settlements. Note: For new implementations it is always recommended to use Currency type 30 in Controlling and FI for the KSL field in ACDOCA. Normally, currency type 20 is not used unless in case of Migration where Currency type 20 was already setup as Controlling area currency.
Group Currency (Type 30): This currency type is defined at the client level. Normally Group holdings are assigned Group currency. The main difference between Currency Type 30 and 20 is that Type 30 is used both in Finance and Controlling, whereas, Type 20 is only used in Controlling. Currency type 31 and 32 are used for transfer pricing. We will learn about this in Transfer Pricing chapter.
Hard Currency & Index Based Currency (Type 40 & 50): These currency types are normally used for countries with high inflation rate. For eg Indonesia. This currency key is maintained when defining a country in Tcode OYO1. If any of these currency types are used as Controlling area currency, then all company codes must either be in same country or the countries must use the same index based currency or Hard currency. For Eg. Mexico and Indonesia are 2 countries with very high inflation rates. If in OYO1, USD is setup as hard currency/ Index currency for both of these countries, then currency type 40 or 50 can be setup as controlling area currency.
Global Company currency (Type 60): The currency key is entered at the time of defining a company in SAP. Normally this is a Group Holding under which multiple company codes are assigned. If Currency Type 60 is defined in Controlling Area, the company codes must belong to the same company or the companies must have the same currency.
CO Object Currency (Type 70): Each CO object such as cost center or internal order may have a currency that is different from the company code currency. When a CO object is created SAP automatically assigns the company code currency as default object currency however this can be changed. The change is only possible if Company code currency is equal to Controlling Area currency.
In addition to these currency types you can define your own currency type depending upon the need. Note: that new currency type should start with Y or Z. For Eg Y1 or Z1.
Define settings for Ledgers and Currency type
This customizing is optional depending upon the business scenario. Let us take a business scenario to understand this customizing
For the month end reporting all transactions in USD to be reported at closing exchange rate of the last month. For this the separate currency and exchange rate type have to be defined in SAP.
Solution:
· Define Exchange rate type EURX and Y1.
Let us first do Exchange rate related customizing
Check Currency Codes
ABAP Platform →General Settings →Currencies →Check Currency Codes
· Click New Entries
Set decimal Places for currency code
ABAP Platform →General Settings →Currencies → Set Decimal Places for currency code
· Click on New entries
Define standard Quotation for Exchange Rate
ABAP Platform →General Settings →Currencies → Define Standard Quotation for Exchange Rate
· Click on New entries
Check Exchange rate Types
ABAP Platform →General Settings →Currencies →Define Standard Quotation for Exchange Rate
· Click New Entries
Define Translation ratio for currency translation
ABAP Platform →General Settings →Currencies → Define Translation ratio for currency translation
· Click New Entries
Enter Exchange Rate
ABAP Platform →General Settings →Currencies →Enter Exchange Rate
This customizing is also optional and may be needed as per the requirements from the client. Considering the business case in previous steps where company want all transactions in USD to be reported in closing exchange rate of last month, we can define the customizing related to new currency and assign it to company code.
Financial Accounting →Financial Accounting Global Settings → Ledgers → Ledger → Define Settings for Ledgers and Currency type
Here you will notice that Currency type 00, 10, 20 and 70 cannot be changed as they are defined as Global currency.
Click on Currency conversion setting to Company code.
Assign the currency type defined to company code under the field Free currency.
Ending
In SAP S/4 HANA Currency configuration is an important step. All currencies in SAP are maintained as per the ISO standards. It is highly advisable to use the standard currency types and currency codes provided by SAP during implementation. Decide carefully which currency should be assigned at Client level, company level, to Company code and to Controllig area. Once the assignment is done and transaction is posted, there is no going back. So, pay good amount of time to understand the Org structure and reporting requirements of the clients in terms of Parallel reporting. There is nothing wrong even if the question had to be asked 2–3 times.
I hope you all enjoyed this learning. Please do not forget to subscribe to the newsletter for future updates. Also, feel free to leave your feedback or comments. If you have any questions, feel free to post them in the comment section and I will try to clarify your doubts. Please support to spread this knowledge to others too. At the end of the Chapter of General Ledger Accounting I will be sharing a configuration document with all the people who have subscribed to my news letter. Don’t forget to click on the Subscribe button.
References:
- SAP Publication
- https://blogs.sap.com/2018/01/02/sap-s4hana-currency-setup/
