Advanced Foreign Currency Valuation in S/4HANA Cloud (Cloud ERP)

[Shakeel_Ahmed]

Purpose of the blog

This blog gives you an understanding about the new feature of Advanced Foreign Currency
Valuation in S/4HANA Cloud, and it will also teach you the differences between the old and
new solution so that you can make the correct decision for your implementation.

Advanced Foreign Currency Valuation

Advanced Foreign Currency Valuation is part of Advanced Valuation in Financial Accounting. Advanced Valuations support you in following accounting standards, for example, IFRS9. The following processes are part of advanced valuation and are realized as job templates in the Schedule General Ledger Jobs app.

1. Post Discounting of Long-Term Assets and Liabilities

1. Advanced Foreign Currency Valuation

1. Post Credit-Risk Based Impairment

1. Post B/S Reclassification

In this blog we will be focussing only on Advanced Foreign Currency Valuation in S/4HANA Public Cloud.

Overview for quick understanding of Advanced FCV

1. No reversal posting in FCV process, values are changed as delta to previous run

1. Only gain and loss accounts are configured for Realized and Unrealised. Simplified account determination. No original (Recon/ banks etc.) and adjustment accounts are required to configure.

1. Posting to original accounts (Recon GL, Bank G/L, Other liability G/L etc.)

1. Grouping rules for valuation of several items. E.g., Grouping = if there is an invoice and it has a debit/credit note also then both will be a group together. There will be one FC valuation posting for the group.

1. Parallel accounting and valuation posting into all currency types

1. Link between valuation journal entry and original journal entry

1. Processing status details per line item – transparency of calculation

1. If you are a new customer or existing customer and about to add new country version to your system using the Central Business Configuration (CBC), please be aware that Advanced Valuation is automatically activated for this new country. If you want to use classic valuations you can always deactivate advanced valuation in the Activate Advanced Valuation configuration item, if you don´t have any postings for that newly added country in our productive system yet.

1. Decision is very crucial to use or not to use Advanced FCV as you cannot go back once you've activated Advanced Valuation in Financial Accounting for a ledger and company code in an accounting principle, and after you've made postings, you can no longer deactivate Advanced Valuation in Financial Accounting for this ledger and company code.

1. Following Accounts are not supported in Advanced FCV:

> GR/IR Account (This Could be concerning if you do not have practice to regrouping of GR/IR account at month end)

>  P&L Accounts (This is Okay)

1. It is part of Scope item J58 (Accounting and Financial Close)

1. You have the option to activate or deactivate at accounting principle level.

1. Advanced Foreign Currency Valuation job template in Schedule General Ledger Jobs is the replacement for (1) Foreign Currency Valuation job template and (2) Perform Foreign Currency Valuation app

1. You would still be able to run Perform Foreign Currency Valuation App in Test Run. You can check report. But When you try to execute it in production run. It will give Error "Advanced Valuation Active; you can no longer use the old report".

1. Below table will help in comparing and deciding for the right option.

This comparison will help in making the decision in choosing the right option for you.
Sr. No.	Base	Classic FCV	Advanced FCV
1	G/L Accounts Need	> G/L Accounts for Realized, Unrealized Gain and Loss Account > G/L Accounts also Balance sheet Adjustment and Target G/Ls > Original G/Ls are not touched with posting for FCV postings	> Only G/L Accounts for Realized, Unrealized Gain and Loss Account > No additional Balance sheet G/L Account required > Posting happens on the original G/Ls (e.g., Accounts Payable, Accounts Receivable, Banks, etc.)
2	Transaction Reversal	> FCV transaction reversal on the first of the next month	> No reversal posting in FCV process > Values are posted as delta to previous run
3	Deactivation	Once Advance valuation is activated for Ledger company code this feature won’t be available in the system	Once the postings are there in production system, then Advanced Foreign Currency Valuation cannot be deactivated.
5	Support latest and future innovation	No	Yes
4	Decision	Compare feature and decide	Decision is very crucial to use or not to use Advanced FCV as you cannot go back once you’ve activated Advanced Valuation in Financial Accounting for a ledger and company code in an accounting principle, and after that you’ve made postings in the production, you can no longer deactivate Advanced Valuation in Financial Accounting for this ledger and company code.
5	Applicable App	> Perform Foreign Currency Valuation app > Schedule General Ledger Jobs app + Job Template: Foreign Currency Valuation	> Schedule General Ledger Jobs app + Job Template: Advanced Foreign Currency Valuation

Configuration for Advanced FCV

Whether you use the Configure Your Solution environment or Central Business Configuration you need to configure following items.

2. Financial Statement Version

Define Financial Statement Versions (ID: 102669)

(You can use an existing financial statement version or create a new one.)

2. Assign Financial Statement Version to Accounting Principle

Assign Financial Statement Versions to Accounting Principles (ID: 103215)

You need to assign a financial statement version. It could be standard delivered or custom created by you.

 

3. Assign Semantic Tags to Financial Statement Versions

Assign Semantic Tags to Financial Statement Versions (102659)

Generally, we use financial tag ‘FX’ which is delivered in standard. However, you can create your own and configure accordingly.

 

4. Advanced Valuation in Financial Accounting is active

Activate Advanced Valuation (ID: 103315)

You can control your activation at Ledger and Company Code combination level.

6. Rules for Advanced Foreign Currency Valuation

Define Rules for Advanced Foreign Currency Valuation (ID: 105450)

Note: Now you only need expense G/Ls configuration for Advanced Foreign currency valuation processes that also means you don’t need to configure on Source and Adjustment G/Ls such as Reconciliation G/Ls, Bank G/Ls etc.

So, how it works?

Financial Statement Version (Create/Use Existing) → Financial Statement Version Assigned to Accounting Principle → Financial Statement is Assigned to Semantic Tag (for Source G/Ls such as Reconciliation G/Ls, Bank G/Ls etc.) → FC Valuation Rule is assigned to Semantic Tag → FC Valuation Rule is assigned to Accounting Principle.

This process helps in finding the G/Ls on which FCV need to be perform.

 

6. Assign Rules for Advanced Foreign Currency Valuation to Accounting Principles

Assign Rules for Foreign Currency Valuation to Accounting Principles (ID: 105451).

 

Currency Concept in Advanced FCV

Settings for Foreign Currency Valuations

Advanced foreign currency valuation uses the document currency for valuations into the functional currency. If you have not defined a functional currency, then the valuation is done into company code currency.

Multicurrency Clearing         

In multi-currency clearing, the cleared postings are balanced out considering the existing foreign currency valuations. These valuations will have amounts only in currencies with open positions remaining.

 

Valuation Method in Advance FCV

1. LOWEST_VALUELowest Value Principle: Valuation is posted only if there is loss situation considering initial values (e.g., invoice value)

1. STRICT_LOWEST_VALUEStrictly Lowest Value Principle: Valuation is posted only if the new valuation has a greater devaluation than the lowest value of valuations in previous periods.

1. ALWAYS_VALUATEAlways Valuate: Valuation is always posted whether loss or gain situation

1. GAIN_ONLYHighest Value Principle: Valuation is only posted if there is gain situation considering initial value (e.g., invoice value)

1. DE_BILMOG_VALUATEGerman Accounting Modernization Act: If you select this rule, the system combines the following rules:

ALWAYS_VALUATE and STRICT_LOWEST_VALUE

All current open items and groups of items with a net due date less than 1 year are always valuated. For noncurrent items with the net due date greater than 1 year, the strictly lowest value principle is applied.

 

Run - Advanced Foreign Currency Valuation

Advanced Foreign Currency Valuation template is run Schedule General Ledger Jobs App.

1. It is grouped transactions of related transactions such Invoice and Credit note and post effective balance to forex valuation posting

1. Transaction posted through Advanced Foreign Currency Valuation template will look like this

3. Document posted through this will not be seen in Manage Supplier Line Items or Manage Customer Line Items app. But it will be seen in Display Line Items in General Ledger app.

4. If you try to run Advanced Foreign Currency Valuation for company code and ledger combination which is not activated, you will get error like below

Schedule a Recurring Job with a Dynamic Valuation Key Date

If you want the system to dynamically calculate the valuation key date in recurring jobs, you must specify this using the recurrence pattern and the dynamic valuation key date or you can schedule as and when you want to run FCV process.

Video on Schedule a Recurring Job

https://cdnapisec.kaltura.com/html5/html5lib/v2.99/mwEmbedFrame.php/p/1921661/uiconf_id/37285991/ent...

 

Sequence of Processes in Advanced Valuations

1. 
   
   
   1. Post Discounting of Long-Term Assets and Liabilities
   
   
   1. Advanced Foreign Currency Valuation
   
   
   1. Post Credit-Risk Based Impairment
   
   
   1. Post B/S Reclassification
   
   
   

 

What happens to Classic Valuation Functions

Once you have activated Advanced Valuation you can no longer use the following apps:

• Perform Foreign Currency Valuation (FAGL_FCV)

• Regroup Receivables / Payables (FAGLF101)

• Perform Further Valuations (F107)

You can also no longer use the following job templates:

• Foreign Currency Valuation

• Regroup Receivables/Payables

• Provisions for Doubtful Receivables

If there are no postings in the productive system, you can deactivate Advanced Valuation in the Activate Advanced Valuation configuration item.

 

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Relevant Blogs

Freely Defined Currency or Additional Currency + Functional Currency in S/4HANA Public Cloud

Balance Sheet Reclassification and Regrouping in S/4HANA Cloud

 

-----END-----

Learn > Share > Grow

 

Stay connected for more such learnings and blogs.

[erpr3]

Good job!

Does the funtion of Advanced Valuations can be available for S4HANA on promise or PCE version? If that, from which version it can be released? And how and where can I find some introduction materials of functions and configration?

Best regards,

[Shakeel_Ahmed]

Hi Chen,

Yes, it is available S/4HANA OP and PCE.  Infact, PCE version always has the same function & feature as S/4HANA OP. There is no separate documentation for PCE.

You can see below link.

https://help.sap.com/docs/SAP_S4HANA_ON-PREMISE/651d8af3ea974ad1a4d74449122c620e/e3f896e4b0af4d1dbf0...

Regards

Shakeel

[erpr3]

Thanks for you, Shakeel !

So, I'd like to know it is available  from S/4HANA OP 2022 now on, right?

More, is there any disadvantage for  the  Advanced Valuations comparatively to classic Valuation?

Best regards

 

[romangao]

Hi，Mr Shakeel，could you give an example of exchange rate differences posted to FX gain realized account or FX loss realized account ?

[Shakeel_Ahmed]

Hi Raman,

Classic FCV or advanced FCV does not post the FX realized gain or loss posting, it will post only unrealized gain or loss.

FX realized gain or loss posting will happen during payment transactions (or sometimes during clearing). and the accounting entry example could be like this for supplier payment case, considering local currency is INR and FC is USD:

 

Dr.| Supplier Account (Recon G/L) | USD 100 | INR 8000

Dr. FC Realized Loss Ac G/L | USD 0.00 | INR 200

Cr. | Bank Account G/L | USD 100 | INR 8200

Hope this helps.

[Shakeel_Ahmed]

Hi Chen,

Yes, it is available Advanced Foreign Currency Valuation | SAP Help Portal

If SAP has come up with some new features and functions that is for sure it would because of below points:

1. New Legal or Accounting Principle Requirement
2. A resolution to some previous pain point
3. Customer demand for this functionality etc.

and new features are always powerful than previous one.

But every customer & implementation is unique you need to evaluate if this function good for your project or not.

Few advantages that coming to my mind are as below:

1. It meets IFRS 9 including other accounting principle reporting requirment.
2. Less G/Ls would be required in COA
3. Easy system maintenance (config) etc.

[MalgorzataS]

Hi, great article.

I have not seen that function in use yet. As there is no reversal posting, and valuation is posted to the original account, is it not a problem now to reconcile open items with reconciliation account balance? Are the valuation postings easy enough to filter out?

 

Best regards

[Shakeel_Ahmed]

Hi Silwa,

 

1. No reversal (delta posting) is an advanced feature. And I believe it is required for some Accounting Principles.


2. Manage Supplier Line Items app and Manage Customer Line Items would not have these posting from Valuation. So, no confusion in these reports. However, this balance can be seen in Display Line Items in General Ledger App for Reconciliation G/L.

Hope this is useful.

Regards

Shakeel

[shreshtha_pareek]

Hi Shakeel,

Thanks for this Blog. I have followed this blog , entries are posted to Loss Exchange GL Account but my Reversal entry is not generated for my Unrealized Loss entry. Please confirm on S4 HANA Cloud Reversal entries would generate or not? or I am missing some configurations. As per below data I have posted my entries for testing.

 

Posted Date	Vendor	Invoice entry	Amount	Currency	Ex. Rate	Payment entry	Ex. Rate at the time of Payment	Posting date
5/5/2023	Domestic	1900000111	500	USD	82	No
10/5/2023	Domestic	1900000112	500	USD	83	1500000051	84	15-05-2023

I have run  the Program for 31/5/2023 date. Please advise to check reversal entries. Thanks in advance.

[Shakeel_Ahmed]

Hi Pareek, New program does not reverse, it post the delta posting in the next month. Pls run complete cycle.

[former_member875023]

Dear Ahmed,

Thank you for sharing this with us.

We have put the process in work (advanced valuation) but as this is a new process and SAP has not provided a lot of documentation, we struggle a little bit, so i was hopping you can give us a small help on it.

Two questions:

1.  When we do the configuration for the advanced valuation, we need to put 4 accounts (2 accounts for realized loss/gain and 2 accounts for unrealized loss/gain accounts).

But when we do a payment or clearing the system doesn't pick the accounts for realized loss/gain so we are forced to put the in OBA1 (KDF key) to work....so what is the point to put accounts for realized loss/gain in advanced valuation if they are not working.

2. What happened when the open item is not clear, let's say i posted an invoice in foreign currency, in begging of march, I do valuation in March, I do valuation in April, I do the payment in middle of May and then I do the valuation of the end of May and is not clearing correctly.

How this need to work? Do you have any example that go to the end to complete this very usful blog that you have written?

Attached a picture for the point 2 to be clearer.

Thanks in advance

Advanced vs classic valuation

 

 

 

 

[caiyu_0819]

Hi Shakeel,

Thanks for this Blog.

When we use Tcode FAGL_FCV for foreign currency valuation,
we can use the G/L Account Balances to valuation bank account.
Can Advanced Foreign Currency Valuation also do this?

As shown in the figure below, G/L Acct. 11001080 Org. Amt in Transaction Currency is 0.
I wish it didn't do Advanced Foreign Currency Valuation.

advanced foreign currency valuation

 

Best regards,

May

[steve_wayland]

Hi Ahmed,

This blog is very helpful. Thank you.  I have a client that runs FAGL_FCV for revaluation of local currency balances for which unrealized gains/losses are posted to P&L. This will work well with Advanced Foreign Currency Valuation. However, we also have non-USD company codes that we run FAGL_FC_TRANS, and the account determination for this is different - the gains and losses are posted to CTA accounts in Equity.

In S/4 Cloud, Advanced Foreign Currency Valuation, how are we meant to handle different account determination requirements for revaluation of Group Currency balances (curr type 30) vs Local (Company Code, curr type 10) balances?

Thanks, Steve

[JoelleGuelpa]

Hi @Shakeel_Ahmed ,

Thanks for your blog!

We agree that FCV does not post the FX realized gain or loss, it will post only unrealized gain or loss.

Question: What is the point of entering realized G/L accounts in the config (Define Rules for Advanced Foreign Currency Valuation (ID: 105450) ? Are they used somewhere/somehow?

Thanks a lot,

Joelle 

[Martina_Manzoli]

H,

thank you for the blog.

Since we are switching from classic to advanced, are now valuation area and methods obsolete?

Thanks

Martina 

[yaswanthkarnam]

Hi @Shakeel_Ahmed ,

Thanks for providing the inputs on Adv FCV, based on your blog we started using this Adv FCV functionality. 

when we are posting a FX Revaluation it is posting with Document type SA, where as in Valuation method we have maintained as SR document type.

Can you please help from where this Document type SA is deriving while posting the Revaluation document in Adv FCV.

[GHhuang]

老师，请问外币评估的凭证为啥多出来两行金额为0的，利润中心和细分都是一样的

[anilsharma]

Hi @Shakeel_Ahmed 

We have run the advance foreign currency valuation in test run, every thing is ok but system also revaluate the cleared items whose realised gain/ loss are booked with  valuation line item type 

(FX Realized Remeasurement. Correction. Gain) we are unable to understand the logic for remeasurement of realized gain/loss.