B

Currency Translation Simulation

Those of you who have dealt with currency translation and FASB 52 have most likely encountered situations where you needed to perform a currency translation simulation. There could be quite a few business scenarios which require the extra analysis but usually it revolves around situations where currency translation has an impact on the financials and a simulation is necessary to either remove the impact of foreign exchange fluctuations or test the impact of different exchange rates. We will review two scenarios in this section. The first scenario in this section will be to take the current month actual financials and translate it using planning exchange rates instead of actuals. Well use exchange rates stored against the plan category as an example so you can see how it works. In reality, you might use a category member such as Actual_PriorYear etc. This approach is typically used when analyzing the exchange rate impact on the current month results. The second scenario will be performing a currency translation on the current month financials using exchange rates from a different time period. By doing so, you will see how to translate your financial statements with historical rates for kind of a what would have been scenario or a what it may be scenario using future projected exchange rates.

B.1

Currency Translation SimulationUsing Plan Rates

In this first scenario we will take a look at how to perform a currency translation using plan instead of actual exchange rates. As we do this we will compare the results to what we did in Chapter 7 for December 2011 Actuals as a point of reference. The set up for this simulation revolves around the category dimension. In order to translate the December 2011 values with an exchange rate in another category we need to use the FX simulation properties in the category dimension. We will use a new category member called CUR_SIM to capture the results of the simulation in the Legal model. There are five properties in the category dimension that we will use to do this:

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Currency Translation Simulation

1. FX Diff Only this property controls whether the total translation values are posted or only the difference is posted. If it is blank, then the total translation values are posted. If it is Y, then the difference between the Actual and Plan exchange rates in this example are posted. 2. FX Source Data this property is used to identify the category which contains the financial data in the legal model to translate. In our case, this will be ACTUAL. 3. FX Rate Cat this is the category member that identifies which exchange rates in the rate model to use. In our example, we will use PLAN. 4. FX Rate Per this is the month id that identifies which exchange rate to use. This is 12 (December) in our example. 5. FX Rate Yearthis is the year id that identifies which exchange rate to use. This is 2011 in our example. In Figure B.1, you can see the category dimension with the five properties as mentioned.

Figure B.1 Category Dimension to Use Plan Rates

For this simulation, we will again translate from EUR to USD the actual machinery and equipment values stored in the legal model for 2011.12. However this time we will use the Plan and not the Actual exchange rates from the rate model. The exchange rates that well use are shown in Figure B.2. Remember that the EUR 2010.12 rates are used to translate the opening balance for 2011.12 at the END (1.2) rate. We will use the same END rate as we did for Actual. The Plan rates for 2011.12 for AVG and END are just slightly lower (1.45 and 1.25) than the Actual rates (1.50 and 1.30).

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Currency Translation SimulationUsing Plan Rates

B.1

Figure B.2 Plan and Actual Exchange Rates

The currency translation business rule is exactly the same as what you saw in Chapter 7. The FX Restatement data manager package will be used to carry out the translation to USD for December 2011. The only difference is that it will be executed for the Currency Simulation category instead of Actual. The results of the currency translation for both Actual and the Currency Simulation are shown in Figure B.3. Since we already explained how the Actual US Dollar values were calculated in Chapter 7, lets identify how the Currency Simulation US Dollar values were derived. 1. 120,000 the opening balance of 100,000 multiplied by the 1.2 Plan 2010.12 END rate. 2. 29,000 the acquisition of 20,000 multiplied by the 1.45 Plan 2011.12 AVG rate. 3. 5,000 the opening balance of 100,000 multiplied by the change in the END rates for Plan (1.25 1.20). 4. 4,000 the acquisition of 20,000 multiplied by the difference between the END and AVG rates for Plan (1.25 1.45). 5. 150,000 the 120,000 closing balance multiplied by the END Plan rate of 1.25.

Figure B.3 Actual and Currency Simulation Results

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Currency Translation Simulation

In summary, these results show the US Dollar values translated via Plan instead of Actual exchange rates in the Currency Simulation category member. Now lets take a look at how we could use the FX Diff Only category property. In Figure B.3 the total values were posted since the FX Diff Only category property was blank. If the property value is set to Y, then only the difference between the Actual and Plan rates will be posted. Lets test this out. We need to adjust the category dimension first. Ill use a new category member (CUR_SIM_DIFF) to capture the difference. The FX Diff Only property value is Y for the CUR_SIM_DIFF member as you can see in Figure B.4. All of the other FX property values are the same as CUR_SIM.

Figure B.4 Category Dimension Member for the Exchange Rate Difference

Now we can execute currency translation for CUR_SIM and then CUR_SIM_DIFF and that will allow us to report on both the total and the delta effect of the exchange rate changes. In Figure B.5, you can see that the total (CUR_SIM) as well as the differences (CUR_SIM_DIFF) have been calculated. 1. The Opening Balance difference is 0 since the 2010.12 Actual and Plan rates are both 1.2. 2. The Acquisition difference is 1,000 since the Actual is 30,000 and the CUR_ SIM IS 29,000. 3. The Transl Diff OB is 5,000 since the Actual is 10,000 and CUR_SIM is 5,000. 4. The Transl Diff ACQ difference is 0 since both Actual and CUR_SIM are both 4,000. 5. The Closing Balance difference is 6,000 since the Actual is 156,000 and the CUR_SIM is 150,000.

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Currency Translation SimulationUsing Exchange Rates from a Different Time Frame

B.2

Figure B.5 Actual and Currency Simulation Result Total and Difference

Now we can move into the next example which will demonstrate how to perform currency translation with exchange rates from a different time frame.

B.2

Currency Translation SimulationUsing Exchange Rates from a Different Time Frame

The business scenario calls for you to perform a currency translation on the current month financials lets say but we want to use exchange rates from a different time frame. For example, translate your financial statements for December 2012 but use December 2011 actual exchange rates etc. The objective in a case like this is to hold exchange rates constant so you can do an apples to apples comparison of financial results for different time frames. To perform this simulation, the category dimension will again need to be adjusted. Well use the CUR_SIM member in this example to select exchange rates in the rate model for the Plan category, December, and 2012. I am purposely not using the Actual member so as to not affect the normal currency translation. In the category dimension and CUR_SIM member, the only change we need to make is to set the FX Rate Yr to 2012. The category dimension for this simulation is shown in Figure B.6.

Figure B.6 Category Dimension with CUR_SIM Set to Access 2012 Rates

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Currency Translation Simulation

The exchange rate values for the Plan category 2012.12 AVG rate is 1.40 and 1.30 for END as shown in Figure B.7.

Figure B.7 Plan Exchange Rates

When currency translation is executed for December 2011 and the CUR_SIM category, the Actual Local Currency values for December 2011 are translated using Plan rates for December 2012. In addition, the system will automatically use the 2011.12 rate as the prior year end rate to translate the opening balance. You can see the results in Figure B.8.

Figure B.8 Currency Translation Results Using the Plan 2012 Rates

Lets identify how the Currency Simulation US Dollar values were derived. 1. 125,000 the opening balance of 100,000 multiplied by the 1.25 Plan 2011.12 END rate. 2. 28,000 the acquisition of 20,000 multiplied by the 1.40 Plan 2011.12 AVG rate. 3. 5,000 the opening balance of 100,000 multiplied by the change in the END rates for Plan (1.30 1.25). 4. 2,000 the acquisition of 20,000 multiplied by the difference between the END and AVG rates for Plan (1.30 1.40). 5. 156,000 the 120,000 closing balance multiplied by the END Plan rate of 1.30. To recap, we have just shown how to run currency translation for 2011.12 balance sheet values but using rates from a different timeframe.

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