FX Revaluations
What Is FX Revaluation?
FX revaluation is the process of updating balances in functional and reporting currencies to the latest FX rates. The aim of the process is to capture the value of the fluctuating exchange rates and make sure we report that fluctuation in financial statements. This is different from FX conversion which happens on the Journal amounts.
When balances are first created, they use the FX rate applicable to the Posting Date of the Journal using a pre-defined set of FX rates to derive the functional and reporting currency amounts. The aim of the revaluation process is to adjust the FX rates of Journals from balance sheet accounts on an ad-hoc basis that move balances in both functional and reporting currencies as per the FX rate shift to a designated account.
FX revaluation is performed on balances. That is, it is a revaluation of a balance, not an individual Journal.
Why Do We Need to Perform FX Revaluation?
FX revaluation is performed to ensure the accuracy of financial statements and maintain an accurate record of what is owed and due, while factoring in foreign currency exchange rates. In certain situations, FX revaluation may be necessary to comply with tax laws.
If a company performs a financial transaction that involves a foreign currency, they are required to do a revaluation at the end of the given period. This is to ensure that records accurately reflect the realized or unrealized gain or loss, and to comply with the company’s financial reporting requirements.
If revaluation is not performed by the time the books close, a company is at risk of reporting inaccurate financial data.
For example, in the US, FX revaluation is performed to ensure compliance with Foreign Exchange reporting guidance.
The Foreign Exchange reporting guidance was first issued under the Statement of Financial Accounting Standards No. 52 (FAS52) in December 1981 and later updated by the Accounting Standards Codification Topic 830 (ASC830) in March 2013. Based on this guidance, a company is required to report as per these standards, which state that you are required to identify the functional currency of your company’s economic environment (i.e., local currency) which may differ from the reporting currency (i.e., base currency).
Transactions on a company’s books that are not recorded in the functional currency have to be translated to their functional currency equivalent before being translated into their reporting currency equivalent. This is intended to produce the same result as if the transactions were maintained in the functional currency to begin with. Thus, you can report on the foreign exchange exposure between functional and reporting currency as per the standard.
FX Revaluation Process
Input
For FX revaluation process to occur, you need the following data:
GL Account
FX revaluation configuration defines the rules for revaluation, i.e., determining the GL Accounts, Offset Accounts, Rate Sets, Journal Code.
FX revaluation is performed on balances. In order to aggregate balances, you need to define conditions of aggregation. These are defined on the level of Dimension Sets.
The Dimension Sets are assigned to Accounting Basis, which together with Subledger Nodes constitutes the combination to which FX revaluation configurations are assigned.
Revaluation date
You need to choose for which date a revaluation is run, i.e., for which date Fynapse should aggregate balances which will then be re-calculated by the FX revaluation process.
Calculation
FX revaluation is calculated as follows:
Transaction Amount
No revaluation occurs for Transaction Amount. Therefore, Transaction Amount will always appear with “0” value on Journals generated by the FX revaluation process.
Functional Amount
The FX revaluation for functional amounts is calculated as follows:
Transaction Balance @ Specified date * FX Rate @ Specified date - Functional Balance @ Specified date
Where
- FX Rate - is a rate set you defined in the Exchange Rate Entity
- source currency - transaction currency
- target currency - functional currency
Reporting Amount
The FX revaluation for reporting amounts is calculated as follows:
{basic amount for reporting currency} @ Specified date * FX rate @ Specified date - Reporting Amount Balance @ Specified date
Where
- for a reporting amount calculated on the basis of the transaction currency:
{basic amount for the reporting currency}is a balance for the transaction amount- FX rate - the rate set you defined in the Exchange Rate Entity
- the source currency - the transaction currency
- the target currency - the reporting currency
- for the reporting amount calculated on the basis of the functional currency:
{basic amount for the reporting currency}is a balance for the functional amount including a value of functional amount calculated in the point above- FX rate - the rate set you defined in the Exchange Rate Entity
- the source currency - the functional currency
- the target currency - the reporting currency
Output
The FX revaluation process creates Journals for each change in the amount caused by the revaluation process. These Journals are posted to the specified GL and Offset Accounts.
Prior-date changes
If a balance for a prior day/period changes, the FX revaluation for that balance should be re-run (for any dates for which the balance has changed), with the FX revaluation journal(s) posted to the appropriate open date (per the configuration).
Example 1
Prerequisites
Initial State
The following Business Event was sent to Fynapse:
This Business Event generated the following Journals:
Based on these Journals, the following balance was queried for Account 100100:
An FX revaluation process was run on for the following revaluation date: 09/15/2023.
Taking into account the FX rates from the FX rates for 09/15/2023:
The following Journals were created to account for currency fluctuations:
Following the adjustment, balance for account 100100 for 09/15/2023 changed to:
Example 2
A multinational entity with branches in the UK and the US. Sometime ago this company acquired a German entity and the US branch assumed its liabilities and assets in EUR.
Prerequisites
An FX revaluation process was run on for the following revaluation date: 03/02/2023.
Taking into account the FX rates from the FX rates for 03/02/2023:
Balance queried for Account 50550 for 03/02/2023:
After revaluation based on the relevant FX rates, the following changes have to be accounted for:
The following Journals were created to account for currency fluctuations:
Following the adjustment, balance for account Account 50550 for 03/02/2023 changed to:
FX Revaluation Screen
The FX Revaluation screen allows you to perform FX revaluations.
The screen includes:
- The Run button - allows you to run the process
- The Show logs button - redirects you to the RX Revaluation logs screen, where you can browse information about previous FX revaluation runs.
- A grid which comprises:
- Information about Accounting Base and Node combinations and Revaluation configurations assigned to the given combination
- Last run status - the status of the process
- Last run for - the date for which the given revaluation was run
- Last run at - the timestamp for when the revaluation run was started
- Actions - the Actions column allows you to perform the following:
- Rerun - rerun the revaluation for the date in the Last run for column
- Open journals - redirects you to the Journals screen in the Subledger, where the system automatically runs a query based on the Ingestion ID of the Journals which underwent revaluation
- View errors - if a run is unsuccessful, you can view the errors in a pane that opens on the right-hand side of the screen.
Tutorials
How to Run the FX Revaluation Process?
For more details on configuring FX revaluation, refer to Multiple Currencies Configuration.
- Go to Subledger > FX Revaluation.
- Select the Revaluation date.
- Select the Accounting Base/Subledger Node combination for which you want to run the revaluation.
You can run a revaluation for multiple selections.
- Click the Run button to perform FX revaluation.
