Dealing with Foreign Currency :Translation

Posted on December 16th, 2007 by Sanjit Anand | Print This Post | Email This Post

Similar to Revaluation, there is another term called 'Translation' , a feature that linked with Foreign Currency transactions in General Ledger.

Translation

Translation is used to translate an entire set of books or balances for a company from the functional currency to a foreign currency.

This feature can translate both actual and budget balances. If the system have enabled average balance processing then the system can translate average balances as well.

Translation is frequently used to prepare financial reports for consolidation into global financial statements.

Translation uses periodic rates and, optionally, historical rates in compliance with FASB52.

FASB stands for Financial Accounting Standards Board which is a group within the Accounting field that issues bulletins on how to account for various financial events.

How does the system translate balances?

As per Metalink Note 1061166.6, FASB52 states that when translating a Trial Balance from one currency to another, the following conventions should be used:

How does the system translate balances?

Assets and liabilities are translated by multiplying the YTD balance by the Period End Rate.

YTD (translated currency) = Rate X YTD (functional currency)

Whereas,revenue and Expense balances are translated using the PTD balance for each period and the corresponding Period Average rate for each period; therefore, translation must be performed for the first period of the fiscal year forward to the period for which translation is required. Rates must also exist in the Period Rates table back to the first period of the fiscal year in which the translation is being performed.

PTD (translated currency) = Rate X PTD (functional currency)

In the Stock and Ownership Equity accounts, historical rates are generally used. but there are certain other special cases requiring the use of Historical rates.

Point that should be noted is EBS GL allows the use of an amount to be used as the translated balance for the account specified rather than calculating the amount using the Historical Rates. This feature allows the translated balance to be calculated outside of the application in lieu of setting up and maintaining the Historical Rates. Historical Rate usage is set up by specifying a range of accounts to use Historical Rate translation. This set-up overrides the above rules for using the Period End and Period Average rates.

Cumulative Translation Adjustment Account

Since the Balance Sheet and the Profit and Loss accounts are being translated using different rates, the translated Trial Balance is no longer in balance. The amount required to bring the foreign Trial Balance back in balance is called the Cumulative Translation Adjustment or CTA. This account is specified in the Set of Books set-up screen. The accounts and the amounts in them are created and populated dynamically when the Translation process get completed successfully.

You should note that CTA is typically a Balance Sheet account, the account type is determined when the account value is defined for the account

Some of the underline report for Translation :

• Historical Rates Execution Report : This is used to review the historical rates, mounts or weighted-average rates you assigned to individual accounts or ranges of accounts.
• Translated Trial Balance Report :This is for reviewing account balances and period activity after running translation.
  

..What happen in Oracle when Translation Run?

Translation is very table-space intensive. When this run its roughly doubling one period of data held in the GL_BALANCES table.

Suggested Reading at Metalink

• How Does the Translation Process Calculate the Translated Amounts? Note 188530.1
• DOES ORACLE APPS COMPLY WITH FASB 52? Note:1061166.6

Related Posts in series for "Dealing with Foreign Currency"

1. Dealing with Foreign Currency : "Revaluation"
2. Dealing with Foreign Currency :"Translation"

1. Dealing with Foreign Currency : “Revaluation”
2. Does the “Year End Close” is different than “Month end close” – Part -1
3. Oracle General Ledger – Major Functions and Features
4. Year End Closing
5. Oracle API Availability -Oracle General Ledger (GL)