Guidelines to Currency Translation in IBM Cognos Controller 4
IBM Confidential
Introduction
Purpose
This document provides guidelines on applying and using currency rates and translation in IBM Cognos Controller.
Applicability
IBM Cognos Controller
Exclusions and Exceptions
There are no known exceptions and exclusions at the time this document was created.
Currency Translation
Currency Codes
IBM Cognos Controller includes different currency codes that must be activated prior to using the codes in the company structures.
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• You define the base currency that other currencies are measured against. If the code does not exist then you have the opportunity to create your own code.
• You must check the active column in order to activate the currency code to be used in the company structures.
• You can multiple or divide local currency by the base currency rates. There is also an option to select the unit, for instance 1=1 or 1=1000 Yen. In regards of base currency Euro, the legal rule is to use divide .
• You can also indicate how many decimals you want for the base currency ( we advise two to avoid rounding differences) and the different local currencies.
Translation method
Data can be translated according to two translation method : the current method and the MNM method (converting monetary accounts in the balance sheet at the closing rate and non-monetary accounts at the historical rate) . Usually method 1 is the current method and method 2 is the MNM method. Per company you define which method you want to use.
Conversion Method
IBM Cognos Controller has the ability to use different rates when calculating the currency translation. The list below is of currency rates that can be used in IBM Cognos Controller:
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• You define for each account and for each conversion method ( 1 and/or 2 ) the rate you want to use.
• Rates B, M, D can be entered in group/data entry/currency rates. You can manually enter the rates or load the rates on a monthly basis using staging tables or flat files.
• Rates, E, F, G rates are historical rates that are entered in group/data entry/historical rates. If no historical rates are entered, the B, M, D rates will be used.
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Fundamental Differences between “I” and “C” Conversion Methods
The C code is supposed to be used when there are no local values at all on the account, most typically for Opening balance of currency translation difference. The calculation of C code is always "detailed", meaning that the translated value is retrieved from the same Journal type and journal number in the Closing balance. For the “I” code you can select if the calculation should be "detailed" or "not detailed" (under General configuration-Translation). The “not detailed” translation retrieves the rate ratio to use from the entire Journal type in the Closing balance. The total will be correct while the different journal numbers may differ depending on how the different journal numbers are translated in the Closing balance. If using the detailed translation, you have to be sure that the same journal number with the same transactions exist both in the Opening and the Closing balance. The best practice is to use the detailed conversion to be sure to get the correct figures in OB per journal. In combination with “do not change journal number” ( general 3 in general configuration) it is not more complicated than not using it. If a journal is missing in OB, you will get a difference anyway in the reconciliation report.
Moreover, both for the I code and the C code, there is a lot of matching done between the Opening and the Closing balance, to find the correct rate ratio (I code) or value (C code) to use for the Opening balance. Matching is done on journal type, journal number (if detailed translation), extended dimensions (if used), counter company + translation currency + counter dimension (if intercompany account). For automatic journals matching is also done on automatic journal type, counter company and the "ktypkonc" concept, meaning the merge of the consolidation type and group. The ktypkonc concept is important if there for example has been structural changes made. In conclusion, there are a lot of things that happen when translating currency with Opening balances. Experience is that a lot of problems with the I code comes from journals that exist in the Closing balance if not copied to the Opening balance. As the translation program calculates a rate ratio from the journals that exist in the Closing balance, this might give a different rate than expected for the Opening balance.
Cumulative Translation Difference.
The cumulative translation adjustment comes into play when the currency method used is Method#1. This method is referred to as the current method of translation financial Statements.
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• All assets and Liabilities of the foreign entity are translated at the current rate on the date of the balance sheet; this preserves the relationship between all the balance sheet items that formerly existed in the foreign currency
• Equity an consolidated investments are translated at Historical Rates
• All revenues and expenses are translated using the average rate. In the case of IBM Cognos Controller it is recommended using the “M” rate and not “D” rate. However, the “D” rate is predominantly used when translated income statement results using period average rate, i.e. monthly average rate.
• Net income balance sheet is converted at the average rate
• Retained Earnings will become a blended rate if it integrates the net income balance sheet
• All specifications are normally converted at average rate (M) or historical rate (F)
In IBM Cognos Controller there are several ways to handle currency translation. Some companies may require that they track the changes in rates within the various specification, i.e. fixed assets, debt, etc. . Some companies will have specifications on all accounts, especially if they want publishing a cash flow statement ( need for all accounts to calculate translation difference which is a non cash movement). Your chart of accounts can be integrated ( the movements are summed up in the main account) or non integrated (the Ending balance is reconciled with the main account)
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Examples with integrated chart of accounts:
For all assets/liabilities accounts with manual movements (integrated)
Account Description comments Acc
type
SUM 1 CTRL CONV.
XXXXXXOBOB A or L +CB J CB I CB
XXXXXX10 change in scope movement indicated in E300 A or L +CB I CB
XXXXXX30 increase can be split in several movements A or L +CB M
XXXXXX40 decrease can be split in several movements A or L +CB M
XXXXXX90 TD Translation diff A or L +CB A CB
XXXXXX CB Main account A or L B
The OB will be converted at the rate of the EB of last year ( I rate), in other words at the closing rate of last year in this case
( K rate could be also used).
The movement change in scope must be converted at the rate of last year.
This movement can be split by type of change in scope ( disposal, acquisition, change in method, change in %)
These movements are calculated automatically via the rule E300 .
The movements of the year are normally converted at the average rate.
The movement translation difference (TD) will have a code A against the main account (CB)The code “A” will calculate the difference between the value of the main account in group currency
For all equity accounts except retained earnings and net income
Account Description comments Acc
type
SUM 1 CTRL CONV. SIGN
CHG
XXXXXXOBOB E +CB J CB I CB
XXXXXX10 change in scope movement indicated in E300 E +CB I CB
XXXXXX30 increase can be split in several movements E +CB F
XXXXXX40 decrease can be split in several movements E +CB F
XXXXXX CB Main account at historical rate E +EQUITY U
XXXXXX90 TD Translation diff E + CTA A CB
The OB will be converted at the rate of the EB of last year ( I rate)
The movement change in scope must be converted at the rate of last year.
This movement can be split by type of change in scope ( disposal, acquisition, change in method, change in %)
These movements are calculated automatically via the rule E300 .
The movements of the year can be converted at the historical rate, if no historical values is indicated it will be converted
at average rate
The movement translation difference (TD) will have a code A against the main account (CB)The code “A” will calculate the difference between the value of the main account in group currency
before the calculation of the translation difference and the summation of the movements multiply by the closing rate.
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For retained earnings including net income of the period
Account Description comments Acc
type
SUM 1 CTRL CONV.
XXXXXXOBOB E +CB J CB I CB
XXXXXX10 change in scope movement indicated in E300 E +CB I CB
XXXXXX20 Dividend paid internal interco account account E +CB L
XXXXXX21 Dividend paid external E +CB L
XXXXXX30 increase can be split in several movements E +CB F
XXXXXX40 decrease can be split in several movements E +CB F
XXXXXX50 Profit for the period sum from P/L* E +CB U
XXXXXX CB Main account E +EQUITY U
XXXXXX90 TD Translation diff E + CTA A CB
The OB will be converted at the rate of the EB of last year ( I rate)
The movement change in scope must be converted at the rate of last year.
This movement can be split by type of change in scope ( disposal, acquisition, change in method, change in %)
These movements are calculated automatically via the rule E300 .
The dividends paid will be converted at average rate of LY (L).
The movements of the year can be converted at the historical rate, if no historical values is indicated it will be converted
at average rate
In a fully integrated chart of accounts the movement profit of the period is the summation of the P/L
As the conversion has been done in the detailed P/L accounts, the currency code U is selected
It can of course be also a data entry movment reconciled with the P/L net income
The movement translation difference (TD) will have a code A against the main account (CB)The code “A” will calculate the difference between the value of the main account in group currency
before the calculation of the translation difference and the summation of the movements multiply by the closing rate.
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Examples with non integrated chart of accounts
For all assets/liabilities with manual movements
Account Description comments Acc
type
SUM 1 CTRL CONV.
XXXXXXOBOB R or S +EB J EB I EB
XXXXXX10 change in scope movement indicated in E300 R or S +EB I EB
XXXXXX30 increase can be split in several movements R or S +EB M
XXXXXX40 decrease can be split in several movements R or S +EB M
XXXXXX90 TD Translation diff R or S + EB A EB
XXXXXXEB EB R or S -DF +CB U
XXXXXX CB Main account A or L +DF B
XXXXXXDF DF Check if CB justified by movementsR U
The OB will be converted at the rate of the EB of last year ( I rate), in other words at the closing rate
of last year in this case ( K rate could be also used).
The movement change in scope must be converted at the rate of last year.
This movement can be split by type of change in scope ( disposal, acquisition, change in method, change in %)
These movements are calculated automatically via the rule E300 .
The movements of the year are normally converted at the average rate.
The movement translation difference (TD) will have a code A against the ending balance (EB)
The code “A” will calculate the difference between the value of the main account at closing rate before the calculation of the translation difference and the summation of the movements.
The DF movement allows to see in the form the difference between the main account (CB)
and the summation of the movements (EB).
Example:
Currency rates register
Translation difference calculation on specification (non integrated):
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. For all equity accounts except net income
Account Description comments Acc
type
SUM 1 CTRL CONV.
XXXXXXOB OB S +EB J EB I EB
XXXXXX10 change in scope movement indicated in E300 S +EB I EB
XXXXXX20 Dividend paid internal interco account account S +EB L
XXXXXX21 Dividend paid external S +EB L
XXXXXX22 transfer from net income movement indicated in Gen Config S +EB L
XXXXXX30 increase can be split in several movements S +EB F
XXXXXX40 decrease can be split in several movements S +EB F
XXXXXXEB EB S -DF +CB U
XXXXXX CB Main account at historical rate E +DF U
XXXXXXDF DF Check if CB justified by movementsS U
XXXXXX90 TD Translation diff E + CTA A EB
The OB will be converted at the rate of the EB of last year ( I rate).
The movement change in scope must be converted at the rate of last year.
This movement can be split by type of change in scope ( disposal, acquisition, change in method and %)
These movements are calculated automatically via the rule E300
The movements 20,21,22 are only for the retained earnings account.
The movement 22 allows to transfer automatically in the automatic journals the net income of the previous year to the retained earnings.
All these movements are converted at the rate of the net income of last year.
Here we use the L rate ( average rate of last year)
The DF movement allows to see in the form the difference between the main account (CB)
and the summation of the movements (EB).
The code “A” will calculate the difference between the value of the main account in group currency
before the calculation of the translation difference and the summation of the movements multiply by the closing rate.
The translation difference (TD) is summed in an equity account “ translation difference on equity” or “ CTA”.
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For net income account
Account Description comments Acc
type
SUM 1 CTRL CONV.
XXXXXXOB OB S +EB J EB I EB
XXXXXX10 change in scope movement indicated in E300 S +EB I EB
XXXXXX22 transfer to retained earningsmovement indicated in Gen Config S +EB L
XXXXXX50 Profit for the period movement indicated in Gen Config S +EB M
XXXXXXEB EB S -DF +CB U
XXXXXX CB Main account at average rate E +DF U
XXXXXXDF DF Check if CB justified by movementsS U
XXXXXX90 TD Translation diff E + CTA A EB
The OB will be converted at the rate of the EB of last year ( I rate).
The movement change in scope must be converted at the rate of last year.
This movement can be split by type of change in scope ( disposal, acquisition, change in method and %)
These movements are calculated automatically via the rule E300
The movement 22 allows to transfer automatically in the automatic journals the net income of the previous year to the retained earnings.
Here we use the L rate ( average rate of last year)
The DF movement allows to see in the form the difference between the main account (CB)
and the summation of the movements (EB).
The translation difference (TD) is summed in an equity account “ translation difference on equity” or “ CTA”.
The code “A” will calculate the difference between the value of the main account in group currency
before the calculation of the translation difference and the summation of the movements multiply by the closing rate.
Short term accounts : net movements ( calculated ).
If a cash flow statement must be set-up, then all balance sheet accounts must be analysed by movements . For the short term accounts,
the net movement of the year will be calculated automatically via the set-up of the account structure.
If needed a manual movement can be set-up .
Account Description comments Acc
type
SUM 1 CTRL CONV.
XXXXXXOB OB T or U -XXXXXX40 J EB I EB
XXXXXX10 change in scope movement indicated in E300 T or U -XXXXXX40 I EB
XXXXXX60 manual movement can be split in several movements T or U -XXXXXX40 M
XXXXXX40 net movement calculated T or U U
XXXXXX90 TDOB Translation diff OB T or U +XXXXXX94 C XXXXXX94
XXXXXX92 TD corr Translation diff corr T or U +XXXXXX94 P XXXXXX
XXXXXX93 TD period Translation diff of the period T or U +XXXXXX94 A XXXXXX40
XXXXXX94 TDCB Translation diff CB T or U -XXXXXX40 U
XXXXXXEB EB T or U +XXXXXX40 U
XXXXXX CB Main account A or L +EB B
Note that you must select the sign change per default field for the movement 40,94 and EB
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Once you have define the currency conversion in the account structure then you will be required to defined the account in the General Configuration > Reconcile 2 tab – see below print screen
The currency difference in General configuration gets a specific account in Equity that you can call rounding difference– this row should always be near 0, since all currency differences have been taken care of through the account structure.
It’s calculated by doing the difference between the values in the assets accounts and the values in the liabilities and P/L accounts.
Note that the best practice is to have a specific account for the rounding on automatic journal. An amount in this account will most of the time indicate that the control tables haven’t been correctly set-up.
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Local vs. Group Currency for investment template
There is an option to activate an automatic journal that will handle the currency translation.
Control table#150 creates an automatic journal with a conversion difference relating to the investments. Automatic journal type 18 is used here.
This automatic journal is useful both when investments are stored in the local currency and when they are stored in the group currency. If you store investments in the local currency, you may need to adjust the value in the account consolidated investment. If you store investments in the group currency, you may need to adjust the share capital. You can also follow up on conversion differences on other equity accounts. In both cases, the original investment by the parent is compared to the acquired amount in local currency converted to the current rate (which rate depends on the coding of the accounts).
A pre-requisite for calculating currency conversion difference in investments is that you enter accurate accounts used in the investment register ("From Accounts" in the control table) in both the company’s local currency and the parent’s currency (or the selected currency if that differs from the parent’s currency).
Define Control Tables - Conversion Differences in Investments
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If you store investments in the local currency, LC, this is where you specify the accounts used for investments. Any conversion differences will be posted to another account, so that the investment accounts do not contain values when the group is consolidated. If you store investments in the group currency, GC, you specify the equity accounts you want to calculate conversion differences on. The share capital account is normally used, but other accounts may also be used.
The following example demonstrates how E150 is set up to handle currency adjustments for the investment account.
You will need to activate and configure E150 in order for it to work properly.
You will then need to define the control table –
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After the control table has been configured with the correct accounts. The data then will flow based on the account structure/currency codes. In this particular example there are no movement extensions or historical rates used on the equity account.
1. Elimination of the investment – the initial investment for this company is recorded as 742,993 or in the parent’s currency. In this particular case the rate used is EURO dollars.
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2. Elimination of the equity – in this case the elimination of equity is based on the common share account only. There could be other accounts that need to be eliminated, so you will need to bare this in mind when you built the original control tables for E150.
The actual calculation based on the account structure is “B” rate or in this case would be
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3. Conversion differences on the investment
The FX/Inv adjustment for the period is calculated in this example the following way:
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-Notes-
• It is important to understand the account structures and currency rates used for equity, investment, etc. The set up will impact on how the E150 Control Table is configured and used.
• If movement accounts/extensions must all be considered when setting up the investment elimination control tables.
• When storing the values in group currency will not take into account any historical values and will always convert your figures at closing rate.
Currency Translation Steps
Currency translation is performed by specific steps in IBM Cognos Controller:
• Currency conversion codes B, M, K, L and N are calculated for all accounts using these.
• Accounts with currency conversion code D are calculated.
• Opening balances, currency conversion codes C and I, are calculated.
• Historical rates, currency conversion codes E, F, and G are calculated.
• The currency conversion differences, currency conversion codes O and P are calculated.
• All accounts are summed to summation accounts.
• Currency conversion code A is calculated.
• All accounts are summed to summation accounts.
• Currency conversion code A2 is calculated.
• All accounts are summed to summation accounts.
• Values are copied from accounts with reconciliation rules to all accounts with the currency conversion codes U, V, X and Z.12. All accounts are summed to summation accounts.
• Currency conversion code A3 is calculated.
• All accounts are summed to summation accounts
• The final currency conversion difference, the balance item, is calculated and booked using the rules in the general configuration
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D-Rate Analysis
IBM Cognos Controller calculates the individual period movements, currency converts them and then accumulates the individual values to arrive at the converted year to date values which are stored in the database tables.
• M-rate is based on yearly average rate. So, depending how the m-rate is determined and how it relates to the d-rate calculation over time it may cause some differences between the translated amount.
