In this post, we will discuss the SAP Exchange Rate and Foreign Currency Valuation functionalities. We will cover the corresponding detailed processes, purpose, configuration, transaction codes, tables, and more. We will focus on simple scenarios / approaches but the overall concept of this post should give you a good understanding of the behavior.
Before we dive into the in-depth process, let us have a high-level introduction. Some of you may be wondering…
What is the difference between exchange rate and foreign currency valuation in SAP?
Exchange Rates go hand in hand with Foreign Currency Valuation. They are within the same theme (under Exchange Rates) but differ in terms of task and purpose. If you notice the image below, we have two columns called “Usual Daily Tasks” and “Month End Close Tasks”.
In a nutshell, Exchange Rates are maintained in SAP and are utilized in daily tasks through the usual financial postings and maintenance of these rates. During financial closing or month end / period end close, we need to perform Foreign Currency Valuation.
- Currency Exchange Rates in SAP
- Configuration and Maintenance of Exchange Rate in SAP
- Foreign Currency Valuation in SAP
- Configuration for SAP Foreign Currency Valuation
- Summary of TCodes, Tables, and Configurations
Currency Exchange Rates in SAP
Realistically, a company may have transactions in different currencies. If a company is based in Europe and purchases from a foreign vendor based in United States, you would expect 2 (two) different currencies involved in the financial transaction.
In this scenario the two currencies are: EUR and USD. SAP in turn should be able to handle this transaction with different currencies through the exchange rate functionality. This is of course considering that the necessary maintenance and configuration is accurately setup in the SAP system.
What is the purpose of exchange rate functionality in SAP? Why do we have to maintain exchange rates in SAP?
3 Purposes for Exchange Rates in SAP
As stated in the Exchange Rate SAP Help Document, there are three purposes:
- Posting and Clearing
- Exchange Rate Differences
- Foreign Currency Valuation
Posting and Clearing
- To translate amounts posted or cleared in foreign currency.
- To check a manually entered exchange rate during posting or clearing.
- You want to see the converted amount of the concerned currencies during posting and clearing.
When you go on a vacation in a foreign country (for example: South Korea) you will most likely check the exchange rate and do a conversion for the items you will pay for in KRW currency to your local currency.
Exchange Rate Differences
- To determine gains or losses from exchange rate differences.
- Exchange rate frequently changes.
- The exchange rate today may not be the same exchange rate tomorrow. Thus, you will expect some differences.
- In turn, SAP should be able to handle those differences.
It is possible that during the time of payment, you may have differences in the amount. It could either be a gain or loss due to exchange rate differences.
Foreign Currency Valuation
- To valuate open items in foreign currency and foreign currency balance sheet accounts as part of the closing operations.
- Recall that we do this during period end close or as part of financial closing tasks.
We will get to this later on.
Configuration and Maintenance of Exchange Rate in SAP
OY03 – Currency Maintenance
You first need to maintain the needed foreign currency (KRW). This also considers that the company’s local currency is maintained as well (EUR). Example provided below on the foreign currency KRW.
Note: Alternative Key for Currency is only utilized in Spain and Belgium. Here you can define a key term for currencies which differ from the currency key and ISO code.
The primary checkbox denotes Primary SAP Currency Code for ISO Code. You may click on the checkbox and press F1 for more information.
OY04 Define Decimal Places for Currency Codes
In case needed, you can define the decimal places for the concerned currency. In our case, we have set it to 0.
OB07 Maintain Currency Translation Exchange Rate Types
Here we defined Exchange Rate Type M for Standard translation at average rate.
- Reference Currency: Currency key which should be used for all foreign currency translation for the exchange rate type in question.
- Buying and Selling rate: Exchange rate type whose average rate is used to determine the buying / selling rate.
- Inverter exchange rate: Indicator that in the case of a missing exchange rate entry in the system for the required translation from one currency into another, the inverted exchange rate relationship may also be used. If KRW to USD is missing, SAP can use USD to KRW.
- Exchange rate type uses special translation model: If you set this indicator it means that the SAP System internal translation modules calculate using a different algorithm. The algorithm has been adjusted to meet the European Monetary Union statutory guidelines. The indicator must be set if the statutory conversion rules agreed by the participating countries in the EMU are to be used.
- Fixed: Describes an exchange rate type that works with fixed exchange rates. Exchange rate fixing affects the application if exchange rates are to be calculated from currency amounts you have entered. Manual input of exchange rate during transaction.
OBBS – Currencies Translation Ratios
We maintain the translation ratios for the purpose of understanding the relationship between currencies. It is maintained per exchange rate type and currency pair.
Inflation impacts the relationships between currencies, so translation ratios are maintained on a time period basis. This maintenance is done way less than the succeeding maintenance of exchange rates as the rates fluctuate daily.
For example, USD to GBP and USD to JPY will have different translation ratios.
- USD to GBP will have a ratio of 1:1 because 1 USD is 0.79 GBP
- USD to JPY will have a ratio of 1:100 because 1 USD is 107.77 JPY
In our case, KRW to EUR will have a ratio of 1:1 because 1 KRW is 0.00074 EUR
IMPORTANT: Pay attention to the validity date of your maintenance. Ensure they are consistent with one another.
OB08 – Currency Exchange Rates
OB08 can also be accessed by S_BCE_68000174. On a high-level note, the concept of exchange rate maintenance would follow the table below.
|Exchange Rate Type||Valid From||From||To|
In the screenshots, you will notice that Ratio (from) and Ratio (to) are greyed out as it is covered in the previous maintenance in OBBS.
You will also notice columns called Indirect quotation and Direct quotation.
IMPORTANT: Pay attention to the validity date of your maintenance. Ensure they are consistent with one another.
Foreign Currency Valuation in SAP
Foreign Currency Valuation or FCV is a necessary step during financial closing. This brings us to the question…
Why do we perform FCV during financial closing?
Recall that the goal of financial closing is to create and finalize the financial statements of a company. Let us consider that Company A is based in Belgium. This means that Company A’s financial statements would show a currency of EUR.
Now, Company A would not be limited to transactions within Belgium. Let us add onto the scenario and say that Company A would have several customers in other countries such as South Korea. As such, you would expect existing transactions in SAP with KRW currency.
At the end of the day (or completion of financial closing), we want to have accurate financial reports denoting accurate amounts for Company A. This also means that the reports would show Company A’s local currency, EUR.
What is covered by Foreign Currency Valuation?
When we execute foreign currency valuation in SAP during financial closing through transaction code FAGL_FCV or F.05, it covers and considers the following scope:
- Open Items in Foreign Currency – Customer Open Items, Vendor Open Items, and GL Open Items
- General Ledger Balance Sheet Accounts in Foreign Currency
Transaction Code FAGL_FCV or Transaction Code F.05
By going to transaction code FAGL_FCV, you will see the screen below.
You can indicate the necessary parameters (through the tabs) to narrow down the scope and/or focus on certain items only. IMPORTANT: Be sure to select “Execute Test Run” first to get an overview of the results.
Valuation Key Date Notes –You can click on the field in SAP and press F1 on your keyboard to read the information.
- Serves as the Key Date for the foreign currency valuation.
- Valuation of Open Items – Foreign currency valuation considers documents that have a posting date before the key date and that have not yet been cleared by the key date. Open item management must be activated for the corresponding account.
- Valuation of G/L Account Balances – Posting period and fiscal year are determined for the specified key date. Foreign currency valuation considers for this period the account balance that is cumulated in the relevant fiscal year. The following dependencies apply:
- If the key date falls in period 12, the balances of special periods 13-16 are also considered.
- In the case of P&L accounts, you can set up the program so that it only considers the current period balance.
Valuation Area Notes – You can click on the field in SAP and press F1 on your keyboard to read the information.
- Valuation Area for FI Year-End Closing
- Valuation areas are used in Financial Accounting for closing preparations. They enable you to use different valuation approaches and post to different accounts.
- CAUTION: In foreign currency valuation, the saved valuation differences are not used to calculate the realized exchange rate differences.
If you are okay with the test results, you can choose from the available options: “Post Valuation Immediately” or “Place Valuation in Batch Input Session”. Ideally, you may want to opt for the Batch Input Session to keep track or have some additional control before posting is final.
In the screenshot below, I entered “MEC_P05_FCV” as the Batch Input Session Name so I can quickly identify which Session to process.
Tip: You can also process the session in foreground so you can visualize what SAP is doing for the valuation posting.
If you need to undo or reset the FCV postings, enter the same parameters and select the “Reset Valuation” checkbox.
For those who are using classical ledger, you can use transaction code F.05 where you will see the sample screen below.
- Valuation Method in this scenario is set to “OPN” which can stand for Open Item Valuation for example.
- Valuation in Currency Type in this scenario is set to “10” which can stand for Company Code currency for example. This would consider Company A’s Company Code 0001 currency of EUR.
Similar to the previous explanation, you can filter out or narrow down you scope according to your need by specifying the values in other tabs such as Open Items, GL Balances, etc. You can also enter a batch input session name to quickly isolate the session in transaction code SM35.
The results would look something like this: You will see the currency, revaluation rate, exchange rate, old difference, new difference, etc.
In the example above you will notice that we are dealing with an Open Vendor Item (thus the KR document type for Vendor Invoice) where we have a new difference of -5.002
For better visualization on the computation refer to the image below:
We basically computed for the difference between the two transaction rates (posting date and the key date). Notice how there is a difference in *exchange rates on May 20, 2020 (posting date) and May 31, 2020 (key date).
*The valuation run will pull the entries from the corresponding exchange rate maintenance (OB08) considering the validity date.
Upon posting, you will see that the Exchange Rate Adjustment should be posted for the concerned exchange rate General Ledger accounts.
Configuration for SAP Foreign Currency Valuation
Define Valuation Methods
OB59 – Define Valuation Methods
SPRO > Financial Accounting (New) > General Ledger Accounting (New) > Periodic Processing > Valuate > Define Valuation Methods
Here you will maintain the valuation method. In our example, we utilized OPN.
Prepare Automatic Postings for Foreign Currency Valuation
OBA1 – Prepare Automatic Postings for Foreign Currency Valuation
Here you need to enter the GL Accounts concerned for the Foreign Currency Valuation run. Once FCV is completed, you will notice that the loss and gain related GL accounts reflected in the posted document/s are pulled from this configuration. Refer to the image below.
If we execute the FCV run for open items under Sample Vendor Account 123533 (Seoul), it will consider the maintained recon. account in its vendor master data – Accounting Information Tab.
Re-adding the image of the posted FCV document for easier comparison on the setup.
Summary of TCodes, Tables, and Configurations
|Note||Transaction Code / Path||Table|
|EXRT||OB08 or S_BCE_68000174||TCURR|
|FCV||SPRO > Financial Accounting (New) > General Ledger Accounting (New) > Periodic Processing > Valuate > Define Valuation Methods or OB59||T044A|
|FCV||SPRO > Financial Accounting (New) > General Ledger Accounting (New) > Periodic Processing > Valuate > Foreign Currency Valuation > Prepare Automatic Postings for Foreign Currency Valuation or OBA1||T030H|
- FAGL_FCV or F.05
I hope this helps. Good luck! 😊