CURRENCY CONCEPTS IN ORACLE FUSION APPLICATIONS GENERAL LEDGER

This training article will helps to understand various Currency Concepts available in Fusion Applications. The concept is not too different from Oracle E-Business suite. 

Let’s first discuss why we need currency in Oracle Applications-

Currency is one of the “C” while defining Ledger and each Ledger has a ‘Functional Currency’, which is the prime reporting currency for the group of organizations. For every transaction, Oracle stores the amount in Entered Currency (currency of the transaction) and Functional Currency (the equivalent in the Functional Currency of the Ledger).Currency is always associated with Ledger even if its Primary Ledger or Secondary Ledger. 

Account balances can be maintained in Foreign Currencies as well in Functional Currencies. Foreign Currency balances represents the total journals in that particular Foreign (Entered) Currency, whereas the Functional Currency balances represents the sum of journals in all currencies, using the Functional Currency equivalent. So, when a Foreign Currency journal is posted, this helps to update two balances; one for Foreign Currency and one for Functional Currency.

When Foreign Currency transactions in Fusion Accounts Payable or Fusion Account Receivables are transferred to Oracle Fusion General Ledger (transferred from a sub-ledger module to GL) they are created as journals in GL. These journals are in the Entered Currency of the transaction, with the Functional Currency equivalent stored against each line (debit or credit).

There are 3 different currency processes that are performed in Oracle Fusion Applications and these are-

• Conversion
• Revaluation
• Translation

In order to discuss Translation, Revaluation and Conversion, Let’s also understand different currency terms in Oracle Fusion Applications.

Functional Currency-Functional currency refers to the currency in which a Ledger in Oracle is denominated.

Foreign Currency-Any currency other than the functional currency of a Ledger. This is also known as the transaction currency or entered currency.

Cross-Currency Payments-Cross-currency payments are payments made from a bank account in a currency other than the primary currency in which the bank account is denominated.

Conversion

This refers to cross currency transactions that are converted during the accounting transformation to the currency of the ledger in which the transaction takes place. The process includes defining conversion rate types in the Currency Rates Manager Page in the Manage Daily Rates tasks. Then Conversion rate types are assigned to currency rates to convert cross currency amounts to ledger currency.

Following are the predefined Conversion Rate Types available in Oracle Fusion General Ledger- 

• Spot - These rates are entered daily for a specific date range.
• Corporate - When there a minor change in rate for a specific currency over a period of time specified by a particular company.
• User - Rates entered by user while creating multi-currency journal entry for very unstable currencies.  
• EMU Fixed – This predefined conversion rate is used by a specific country for doing transactions with European Union countries.

RevaluationRevaluation is a process that reviews the foreign currency balances for an account and converts them to the functional currency based on the month-end exchange rate. Revaluation is performed on the account balance, not the individual transactions. Any account may be revalued, however, typically only balance sheet accounts whose balances consist of monetary assets or obligations, or open transactions in Oracle Fusion Payables and Oracle Fusion Receivables are revalued. Revaluation records the change in value, due to exchange rate fluctuations, of an asset or liability between the date of the transaction and the date of the financial statement.

The purposes of Revaluation is to "true-up" liability or asset accounts that may be materially understated or overstated at month-end using an exchange rate at month- end. Revaluation is only necessary while the obligation remains unsettled (example the invoice is still unpaid or the receivable uncollected). The Realized Gain/Loss will be recorded at the time the obligation is settled.

Revaluation is typically done for reporting purposes only; therefore, the journal entries produced as a result should be reversed at the beginning of the next period. Revaluation is used to revalue all these transaction at the same rate the foreign subsidiary used to translate their intercompany balance.

Prerequisites for Revaluation process is to define first unrealized gain/loss account and to define a period end rate type along with creation of period end rate for each currency.

Revaluation is used only if we have foreign currency transactions (i.e. Conversion of foreign currency transactions). Revaluation uses the Period Rates Table. The Revaluation Rate is simply 1/Period End Rate.

Revaluation Process

Revaluation is run at the end of each accounting period as part of the close process to revalue balance sheet accounts.

The journal is then reversed at the beginning of the next period.

This process is repeated until the transactions are settled.

The Realized Gain/Loss is recorded in the appropriate subledger and transferred to the Oracle Fusion General Ledger at the time the obligation is settled.

While running Revaluation, General Ledger creates a revaluation batch containing a separate journal entry for each revalued foreign currency.

 

Translation
Translation is a process which convert functional currency balances to foreign currency for actual and budget balances.Translation is used very commonly to prepare financial reports for consolidation of financial statements.This helps to generate output in more stable currencies.Translation can not be run for the first period of a calendar.

Running Translation-Companies runs translation process at the end of the period once all transactions are completed and reconciled. In order to check if the translation process is carried out correctly, Reconciliation of the Cumulative Translation Adjustment (CTA) Account is done.

 Below are steps to follow for reconciliation process for CTA Accounts-

Take the total of P&L (Revenue and Expense) accounts and multiply this amount by the period average rate defined.

Take the total of assets and liabilities and multiply this amount by the period end rate.

Take the total of retained earnings and use the historical amount or multiply by historical rate.

Add 1,2 and 3 together and this should equal the amount in translation adjustment account.

Make sure no other entries are made to the account. Otherwise that has to be reversed in order to reconcile the amount.

Both Translation and Revaluation is done for reporting purpose only.