Customer Submitted Case Studies

Case Study on Currency Conversions for Reporting & Secondary Ledgers

Authors: Rathnavani Anagani Chartered Accountant (Equivalent to CPA of USA) Jayakiran Pidatala Chartered Accountant (Equivalent to CPA of USA)

Contributors: Satyam Computer Services Ltd

About Oracle Customer Submitted Case Studies

Oracle Customer Submitted Case Studies are intended as learning tools and for sharing information or knowledge related to a complex event, process, procedure, or to a series of related events. Each case study is written based upon the experience that the writer/s encountered. Customers should not interpret or use information in these case studies as solutions or recommendations without first contacting Oracle Support. Each Case Study contains a skill level rating. The rating provides an indication of what skill level the reader should have as it relates to the information in the case study. Ratings are:

Expert: significant experience with the subject matter Intermediate: some experience with the subject matter Beginner: little experience with the subject matter

Case Study Abstract

This case study is intended to give the reader an insight into the Currency Representation of transactions in Primary, Reporting Currency & Secondary Ledgers. In this case study we have shared our experiences on account of a pilot project undertaken and the scope of case study is to cover aspects of currency conversions with respect to different Data Conversions Levels for Reporting & Secondary Ledgers. This paper mainly is intended for users new to Reporting & Secondary Ledgers and their methods of conversion, but having basic knowledge on the concepts and conversions for Reporting Set of Books in 11i (intended for foundation and intermediate skill level). We have kept the aspects such as derivation of Accounting Code Combinations (which is dependent on SLA Rules) for Journal entries (in Ledgers) out of the scope of the case study and also currency conversions between Euro related Currencies.

Customer Submitted Case Studies Pre-Analysis Work

Summary
We have outlined some of the concepts, which we have believed to be important understand the currency treatment of transactions in Reporting Currency & Secondary Ledgers. The concepts, which require understanding, are listed as follows: 1) Comparative Analysis of General Ledger Set Ups in 11i & Release 12 2) Conversion Levels for Reporting Currency Ledger 3) Conversion Levels for Secondary Ledger 4) Conversion Options for Reporting Currency & Secondary Ledger Detail
1) COMPARATIVE ANALYSIS OF GENERAL LEDGER SET UPS Basic Concepts in 11i Identical Concepts Brief on Impact of Changes Release 12 Set of Books Ledger Ledger in Release 12 is combination of 4 cs. Chart of Accounts, Currency, Accounting Calendar, Accounting Method1 Primary Set of Books Primary Ledger A Primary Ledger can have unlimited number of Reporting Currencies & Secondary Ledgers associated to it. Reporting Set of Books Reporting Currency Reporting Currency used only in a scenario where the accounting representation differs only in the aspect of Currency. Levels of conversion available Sub ledger, Journal and Balance. Secondary Ledgers This is a new concept, part of release 12, which is used to maintain Additional Accounting Representation different from that of Primary Ledger in any or all of aspects such as Chart of Accounts, Currency, Calendar, and Accounting Method.

1 Accounting Method reflects the Accounting Convention such as Accrual or Cash basis - Represented as Sub Ledger Accounting (SLA) Method in Application. The SLA Method though not mandatory, has to be assigned when data transfer is mandatory from Oracle Sub Modules to Oracle General Ledger.

Customer Submitted Case Studies

2) CONVERSION LEVELS FOR REPORTING CURRENCY LEDGER Conversion Scope of Pre requisites Levels Conversions Enabling Sub ledger Accounting Method for Primary Ledger is Sub ledger Sub ledger Mandatory. Journals, GL Journals & Balances Journal GL Journals & Data Conversion depends on the Journal Conversion Rules and Balances Currency Translation Options set for each of Reporting Currencies. Balances Balances only Translation program has to be run for updating balances in Reporting Currency.

3) CONVERSION LEVELS FOR SECONDARY LEDGER Conversion Scope of Conversions Level Sub ledger Sub ledger Journals, GL Journals & Balances

Pre - requisites
Enabling Sub ledger Accounting Method for Primary & Secondary Ledgers is Mandatory. Data Conversion depends on the Journal Conversion Rules and Currency Translation Options for Secondary Ledger. Data Conversion depends on the Journal Conversion Rules and Currency Translation Options for Secondary Ledger. Consolidation Rules have to be defined & Consolidation Program has to be run for data conversion. The Chart of Accounts, Calendar, and Currency of a Secondary Ledger are in sync with that of Primary Ledger.

Journal

GL Journals & Balances

Balances

Balances only

Adjustments only

Enter Manual Adjustments directly into Secondary Ledger or set the SLA rules such that it transfers only adjustments

Customer Submitted Case Studies

4) CONVERSION OPTIONS FOR LEDGERS Scope of Conversion Options Conversion Options Ledger Retain Retain Transaction Type retains Transaction Conversion Rate Type Transaction used for converting the Transaction Amount ( Foreign Currency Type Amount ) to Primary Ledger (Source Ledger) while converting the transactions to Reporting Currencies & Secondary Ledger. Transaction Amount2 Transaction Conversion Rate Type3 Default Rate 1. Default Conversion Rate Type stores & retrieves the exchange rates Type for converting transactions from Primary Ledgers (Source Ledger) to Reporting Currencies or Secondary Ledger (applicable in scenarios where the Currency of Primary Ledger and Secondary Ledger are different). 2. Default Conversion Type gets applicable only when Retain Transaction Rate Type is set to No. The option for selecting Source Ledger is available only in case of Secondary Ledger and the valid values in this case are limited to Primary Currency and Reporting Currency of Primary Ledger whose conversion is set at Journal Level.

Source Ledger

Transaction Amount is the amount denoted in Transaction Currency. Transaction Currency is the Currency in which the Transaction originates. Transaction Currency need not always necessarily correspond to Currency of Primary Ledger or Secondary Ledger or Reporting Currency. Transaction Conversion Rate Type is the conversion Rate entered at the Transaction Level which stores & retrieves the exchange rates that have to be used for Currency Conversions and becomes mandatory only when the Transaction Currency entered is other than the Primary or Secondary Ledger Currency.
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Customer Submitted Case Studies

CURRENCY CONVERSIONS IN PRIMARY, REPORTING CURRENCY & SECONDARY LEDGERS

Entry of Transactions

Conversion in Primary Ledger

Primary Ledger Transaction Amount * Transaction Conversion Rate Type

Primary Ledger
No

Transaction Currency = Primary Currency

Yes

No Conversion

Conversion in Reporting Currency or Secondary Ledger

Reporting /Secondary Ledger Conversion depends on Retain Transaction Type set

No

Transaction Currency = Reporting Currency or Secondary Ledger Currency

Yes

Reporting /Secondary Ledger No Conversion for Reporting Currency or Secondary Ledger

Reporting & Secondary Ledger Conversion Transaction Amount * Default Conversion Rate Type

Retain Transaction Type Option for Reporting & Secondary Ledger.

If Option is No If Option is Yes

Reporting & Secondary Ledger Conversions Transaction Amount * Transaction Conversion Rate Type 2

1.

Retain Transaction Type will not be much important if the Transaction Conversion Rate Type selected is User. If the Transaction Conversion Rate Type of User is selected for entry of Exchange Rate, conversion into Reporting Currencies or Secondary Ledgers will be a two way conversion, irrespective of value of Retain Transaction Type selected. First conversion will between Foreign Currency Transactions into Primary Currency. Second Conversion will between Primary Currency into Reporting Currency or Secondary Ledgers using the Default Conversion rate type selected for respective ledgers.

Customer Submitted Case Studies Analysis

Detailed Analysis

Reporting Currencies
Reporting Set of Books in 11i has been replaced with Reporting Currencies in Release 12. We have observed that unlimited number of Reporting Currencies could be assigned to Primary Ledgers. Reporting Currencies can be defined at Various Currency Conversion Levels and the valid levels are Balance Level, Subledger Level, and Journal Level. We have understood that Reporting Currencies are required in scenarios where the organizations are required to report transactions in a Currency other than Primary Currency.

Creation of Reporting Currencies

We have followed the below outlined process for creating Reporting Currencies: 1. Reporting Currency Assignment 2. Selection of Reporting Currency & its Conversion Level 3. Completing the Conversion Options for Conversion Level 1. Reporting Currency Assignment As a first step we have assigned Reporting Currency for Primary Ledger. Reporting Currency could be assigned to Primary Ledger while creation of Accounting Representation by selecting Add Reporting Currency Field. Reporting Currency can also be assigned by selecting the Update Option available for Reporting Currencies in Primary Ledger (Accounting Set up Manager).

Assignment of Reporting Currency to Primary Ledger while creating Accounting Representation by selecting Add Reporting Currency Field

Customer Submitted Case Studies

Reporting Currency can also be assigned to Primary Ledger even after Accounting Structure has been saved for Primary Ledger by selecting the Update Option available for Reporting Currencies in Primary Ledger (Accounting Set up Manager).

2. Selection of Reporting Currency & its Conversion Level After performing the above steps, we have selected the required currency from available list of values, in Add Reporting Currencies field.

We have found that the Default Conversion Level is Balance Level and the Conversion Level (Subledger or Journal) has been specifically selected when required. The Reporting Currency name shall be a unique one.

3. Completing the Conversion Options for Conversion Level Each of the Conversion Levels has their own set of Conversion Options which were completed by us. Only on completion of these options, we have found that Reporting Currency is completed in all aspects for data transfer form Primary Ledgers. The conversion options in case of Balance Level are just limited only to Period Rate and Period Average Rates. In case of Sub ledger and Journal Level conversion the options available are enabling Journal approval for manual Journal entries, selecting Retain Transaction Type, Default Conversion Rate Type, error handling Options and Journal Conversion Rules.

Customer Submitted Case Studies

Balance level Reporting Currency The Conversion Options which we have found to be mandatory by us for Balance Level Reporting Currency is the Period Rate Type and Period Average Rate Type.

Sub Ledger and Journal Level Currency Conversion into Reporting Currencies is dealt in two sections 1) Journal Conversion Rules: which as observed by us determines and also restricts the sources and categories under those sources for which conversion shall take place in Reporting Currency. 2) Currency Translation Options: The options Default Currency and Retain Transaction Rate Type determine the conversion at Transaction level in a Reporting Currency.

Customer Submitted Case Studies

Methodology for Conversion: The methodology of conversion as observed by us based on our experiences in pilot Project has been listed as follows:
Balance Level We have found the methodology used by Balance Level Conversion is to convert Primary Ledger Currency Amounts into Balance Level Reporting Currency.

Subledger and Journal Level

Conversion Methodology for Sub ledger and Journal Level as observed by us is as below: 1. Transaction Currency is Primary Currency We have observed that when Transaction Currency equals to Primary Currency then conversion takes place into Reporting Currencies using the Default Conversion Rate Type set for Reporting Currency in Conversion options.

2. Foreign Currency Transactions Transaction Conversion Rate Type other than User When Foreign Currency Transactions were entered and the Transaction Conversion Rate Type used was other than User we have observed that the conversion took place as follows:
- Transaction Currency Amounts into Reporting Currencies, using exchange rates under Transaction Conversion Rate type, if Retain Transaction Rate Type has been set to YES (for transactions originating form Sub ledgers such as Receivables, payables etc.,) - Transaction Currency Amounts into Reporting Currencies, using exchange rates under Default Conversion Rate Type ( Set for Reporting Currency in Conversion Options) , if Retain Transaction Rate Type has been set to NO (for transactions originating form Sub ledgers such as Receivables, payables etc.,)

3. Foreign Currency Transactions Transaction Conversion Rate Type is User

When Foreign Currency Transactions were entered and the Transaction Conversion Rate Type used was User we have observed that the conversion took place as follows: - Primary Currency Amount (Foreign Currency amounts converted into Primary Currency) into Reporting Currency using exchange rates under Default Conversion Rate Type (Set for Reporting Currency in Conversion Options) irrespective of the Retain Transaction Rate Type has been set to NO or YES. (This conversion is also known as Two-Step Conversion).

Customer Submitted Case Studies

Secondary Ledgers
Secondary Ledgers are optional and required in scenarios for maintaining additional Accounting Representation different from that of Primary Ledgers.
Chart of Accounts

If one or more are different when compared to Primary Ledger, then use Secondary Ledger.

Calendar

Accounting Method

Currency

If different only in the aspect of Currency, when compared to that of Primary Ledger or Secondary Ledger, then use Reporting Currencies.

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Customer Submitted Case Studies

Creating Secondary Ledgers

We have listed the process followed by us to Create Secondary Ledgers 1. Adding Secondary Ledger 2. Completing Accounting Options 1. Adding Secondary Ledger

We have assigned the Secondary Ledger to Primary Ledger by entering a unique name for Secondary Ledger and the mandatory 3cs (Chart of Accounts, Calendar, Currency). Accounting Method (4th C) would be mandatory only when there is a requirement to maintain a additional representation using a different accounting method, when compared with Primary Ledger. The data conversion into Secondary Ledger is determined by the conversion level selected by us. The valid conversion levels available are Subledger, Journal, Adjustments, Balance level. 2. Completing Ledger Options After having performed and saving the above structure, Ledger options, Reporting Currencies, Primary to secondary Mapping and sequencing options the Secondary Ledger was ready for maintaining additional data representation .( We have opened the Accounting Periods in the Secondary Ledger for data conversion)

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Customer Submitted Case Studies

Additional Points Considered: 1. We were able to select Sub Ledger level only when an Accounting Method is selected for Primary Ledger as well as the Secondary Ledger. 2. Similarly, we were able to select Adjustment Level only when identical Chart of Accounts, Currency and Calendar have been shared by Primary and Secondary Ledgers. 3. Primary to Secondary Ledger Mapping was mandatory whenever the 3cs (Chart of Accounts, Currency& Calendar) of Secondary Ledger were different from that of Primary Ledger. 4. In case Currency of Secondary ledger is different from that of Primary Ledger, currency conversion is directly proportional to the value entered in the Source Representation field.

Methodology of Conversion
Balance Level When the Currency of Primary & Secondary Ledger is identical, we have observed that - On running the Consolidation Program, Primary Ledger Accounting Balances were transferred to Secondary Ledger. When the Currency of Primary & Secondary Ledger are different we have found that - On creating a Balance Level Secondary Ledger automatically a Reporting Currency, the currency of which equals the Balance Level Secondary Ledger is created and assigned to Primary Ledger. - On running the Consolidation Program Accounting balances of Primary Ledgers Balance Level Reporting Currency are transferred to Balance Level Secondary Ledger.

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Customer Submitted Case Studies

Reporting Currencies for Primary Ledger This picture shows the existing Reporting Currencies for Primary Ledger.

Creation of Balance Level Secondary Ledger We have found that on Creation of Secondary Ledger automatically assignment of Reporting Currency to Primary Ledger is triggered. The currency of this Reporting Currency would match with currency of secondary Ledger.

Reporting Currencies for Primary Ledger after Creation of Balance Level Secondary Ledger This picture shows the automatically assigned Reporting Currency on account of Balance Level Secondary Ledger. Now the Conversion takes place directly from this Reporting Currency into Balance Level Secondary Ledger, on running Consolidation Program .

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Customer Submitted Case Studies Journal Level

Source Representation enabled for a Secondary Ledger is Primary Ledger We have observed that the valid values for Source Representation were Primary Ledger and Journal Level Reporting Currency assigned to Primary Ledger.

1. Foreign Currency Transactions Transaction Conversion Rate Type other than User When Foreign Currency Transactions were entered and the Transaction Conversion Rate Type used was other than User we have observed that the conversion took place as follows Transaction Currency Amount is directly converted into the Currency of Secondary Ledger using exchange rates under Transaction Conversion Rate if Retain Transaction Type is set to Yes. Transaction Currency Amount is directly converted into the Currency of Secondary Ledger using Default Conversion Rate set for Secondary Ledger, if Retain Transaction Type is set to No.

2. Foreign Currency Transactions Transaction Conversion Rate Type is User When Foreign Currency Transactions were entered and the Transaction Conversion Rate Type used was User we have observed that the conversion took place as follows: -Primary Currency Amount (Foreign Currency amounts converted into Primary Currency) into Reporting Currency using the Default Conversion Rate Type (Set for Reporting Currency in Conversion Options) irrespective of the Retain Transaction Rate Type has been set to NO or YES.( Two-Step-Conversion)

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Customer Submitted Case Studies

Source Representation for the Secondary Ledger is Journal Level Reporting Currency of Primary Ledger (possible only when the Currency of Secondary ledger does match with Currency of Journal Level Reporting Currency of Primary Ledger) We have found that when a Journal Level Reporting Currency of Primary Ledger has been assigned as Source Representation, the Default Rate Type and Retain Transaction Type of Journal Level Reporting Currency get Copied automatically and the field cannot be edited. 1. Foreign Currency Transactions Transaction Conversion Rate Type other than User When Foreign Currency Transactions were entered and the Transaction Conversion Rate Type used was other than User we have observed that the conversion took place as follows Transaction Currency Amount is directly converted into the Currency of Journal Level Reporting Currency of Primary Currency using exchange rates under Transaction Conversion Rate if Retain Transaction Type is set to Yes, and this Journal in Reporting Currency is copied into Secondary Ledger.

- Transaction Currency Amount is directly converted into the Currency of Journal Level Reporting Currency of Primary Currency using Default Conversion Rate if Retain Transaction Type is set to No, and the Journal in Reporting Currency is copied into Secondary Ledger. 2. Foreign Currency Transactions Transaction Conversion Rate Type is User When Foreign Currency Transactions were entered and the Transaction Conversion Rate Type used was User we have observed that the conversion took place as follows - Primary Currency Amount (Foreign Currency amounts converted into Primary Currency) into Reporting Currency using the Default Conversion Rate Type (Set for Reporting Currency in Conversion Options) irrespective of the Retain Transaction Rate Type has been set to NO or YES.

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Customer Submitted Case Studies

Subledger Level
As per our inference the values that can be selected in the Source Representation field for this Level of Conversion is always Primary Ledger. Conversion is done as follows: 1. Foreign Currency Transactions Transaction Conversion Rate Type other than User When Foreign Currency Transactions were entered and the Transaction Conversion Rate Type used was other than User we have observed that the conversion took place as follows - Transaction Currency Amount is directly converted into the Currency of Secondary Ledger using Transaction Conversion Rate if Retain Transaction Type is set to YES. - Transaction Currency Amount is directly converted into the Currency of Secondary Ledger using Default Conversion Rate set for Secondary Ledger, if Retain Transaction Type is set to NO. 2. Foreign Currency Transactions Transaction Conversion Rate Type is User When Foreign Currency Transactions were entered and the Transaction Conversion Rate Type used was User we have observed that the conversion took place as follows - Primary Currency Amount (Foreign Currency amounts converted into Primary Currency) into Reporting Currency using the Default Conversion Rate Type (Set for Reporting Currency in Conversion Options) irrespective of the Retain Transaction Rate Type has been set to NO or YES.

Adjustment Level As observed by us there is no aspect of Currency Conversion for this level of conversion due to the following reasons: 1) This Level is only for Adjustments manual or adjustments generated by setting the SLA Rules as such. 2) Mandatory Requirement for this level of conversion is identical Chart of Accounts, Calendar and Currency.

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Customer Submitted Case Studies Conclusion and Learnings

The values of Retain Transaction Type would be considered for Currency Conversion of transactions only in cases of Foreign Currency transactions provided the Transaction Rate Type is any other such as corporate, Spot, but other than user( in which case user can enter any exchange rate for the transaction). If the Transaction Rate Type used is user for Foreign Currency transactions then value of Retain Transaction Type shall not be considered and transactions shall be initially converted into Primary Currency and further the Primary Currency amounts shall be further converted into Reporting Currencies or Secondary Ledgers respectively. For non foreign currency transactions conversion shall be done by taking into account exchange rates (Default Conversion Rate type assigned for Ledgers) for Primary to Reporting Currency or Secondary Ledger.

References
1. Oracle General Ledger User Guide Release 12

2. Oracle Financials Implementation Guide Release 12

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