Foreign currency valuation

Contoso invoices a Canadian fleet customer in CAD and buys some rotors in EUR. Each document is translated to USD at the rate on the posting date. By month end the rate has moved, so the USD value on the books no longer matches what the item is worth at the period-end rate. Foreign currency valuation revalues those items and balances at the key date rate, posts the difference as an unrealized gain or loss, and keeps the balance sheet honest.

Running it

In SAP S/4HANA the valuation runs with the Perform Foreign Currency Valuation function (program FAGL_FCV), which you can also schedule as a job. You enter the company code, the key date (normally the last day of the period), the valuation area and the scope: open items, balances, or both. Always run it in test mode first. The log shows each item with its old local currency value, the new value at the key date rate, and the difference to post.

The valuation method (configured in transaction OB59) sets the rules: which exchange rate type to use, whether to apply a strict lowest-value principle or always revalue, and whether to post reversals. The accounts for gains and losses come from automatic account determination (transaction OBA1). Before the run, the exchange rates for the key date must be loaded; a missing rate is one of the most common reasons for a failed or wrong valuation.

A worked example

Great Lakes Fleet Services has a Canadian affiliate that Contoso bills in CAD. On May 10 Contoso posts an invoice for CAD 100,000 at 0.73 USD per CAD, so the receivable is USD 73,000. On May 31 the rate is 0.71. The receivable is now worth USD 71,000. Valuation posts a USD 2,000 unrealized loss: debit exchange rate loss, credit a receivables adjustment account (not the customer account itself). The customer's open item keeps its original value; the adjustment sits next to it on the balance sheet.

Reversal or delta

What happens next month depends on the valuation method. In the classic approach the open-item valuation is reversed on the first day of the next period, and the next run values each item from its original amount again. In the delta approach the system remembers the last valuation and posts only the change since the previous run, so no reversal is needed. Both give the same balance at each key date; they differ in the number of documents and how you reconcile. Find out which one your company uses before you design the test, because the expected postings are different. When the item is paid, the realized gain or loss is calculated at clearing.

Valuation runs per valuation area, and each valuation area is linked to an accounting principle and a ledger group. If Contoso keeps a US GAAP leading ledger and an IFRS non-leading ledger, the run may post the same difference to both, or different differences if the principles use different rules. Check each ledger separately; a valuation that posted only to the leading ledger is a defect. In SAP S/4HANA Cloud Public Edition, valuation is set up through advanced valuation, which posts deltas by design.