currencytranslationinhfm-180104064412.pdf

Currency Translation in HFM Keith Berry US-Analytics

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Background 

12+ Years Hyperion implementation experience



Certified in HFM and Essbase

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Second year at Kscope

Currency Translation 101

Guidance US GAAP

● ●

 ASC Topic Topic 830, Foreign Currency Matters (old SFAS 52)

IFRS

● ●

IAS 21,The 21,The Effects of Changes In Foreign Exchange Rates

Some differences in determining functional currency and translating hyperinflationary currencies

Currency Type Definitions • Local Currency ●

Currency where the entity is located

• Functional Currency ●

“Currency of the primary economic environment in which the entity operates”

●

Determined by multiple factors listed in accounting guidance

●

Management judgment

• Reporting/Presentation Currency ●

Currency in which the consolidated entity will report

Translation Methods • Temporal Rate Method ●

 Also called Remeasurement

●

Translate from Local Currency to Functional Currency

●

Translation gain/loss reported as part of Net Income

• Current Rate Method ●

Translate from Functional Currency to Reporting Currency

●

Translation gain/loss reported in Equity

Translation Functional

Local No change

Local Currency

Local Currency

Reporting

Current

USD Temporal

USD

Temporal

 Another Currency

No change

Current

Temporal Rate Method • Balance Sheet ●

Monetary assets and liabilities translated at rates in effect at end of the reporting r eporting period

●

Non-monetary assets and liabilities translated at rates in effec t when the assets/liabilities were acquired

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Contributed Capital translated at historical rates

●

RE is difference needed to balance the Balance Sheet

• Income Statement ● ●

Items related to Balance Bal ance Sheet (e.g. depreciation) use balance sheet rate  All other items at average rate

• Tr Translation anslation Adjustment ●

Translation gain/loss is adjustment booked to Net Income needed to make Beginning RE meet Ending RE

Current Rate Method • Balance Sheet ● ●

 Assets and Liabilities translated at end of period rates Contributed Capital and Retained Earnings translated at historical rates

• Income Statement ● ● ●

Revenue and expenses at rate in effect at tim e of recognition (spot/average)  Average rate for period is usually acceptable No translation gain/loss adjustment to Net Income

• Tr Translation anslation Adjustment ●

Cumulative Translation Adjustment (CTA) booked to Equity section of Balance B alance Sheet to make Beginning RE meet Ending RE

Current Rate Example • Setup company in EUR by issuing common stock for cash • Tr Translate anslate from EUR to USD •

EUR - > USD End of Period Period Rate Rate = 1.33

Current Rate Example

Current Rate Example • Conduct first period of business •

Generate Net Income

•

Establish other Balance Sheet items – •

 Accounts Payable, Accounts Receivable, Inventory Inventory,, etc.

• Tr Translate anslate from EUR to USD •

EUR - > USD Avg Rate Rate = 1.25

•

EUR - > USD End of Period Period Rate Rate = 1.40

•

EUR - > USD Common Stock Stock Historical Historical Rate = 1.33

Current Rate Example

Current Rate Example

Net Asset Position Position (NAP) (NAP) = Assets - Liabili Liabilities ties Rate Beginning Net Asset Position X (Current Month EOP EOP Rate Rate - Prior Month EOP EOP Rate) Rate) Activity Change in Net Asset Position X (Current (Curr ent Month Month EOP Rate - Curren Currentt Month Month Averag Average e Rate)

Recap • Currencies •

Local

•

Functional

•

Reporting/Presentation

• Methods •

•

•

Temporal (Remeasurement) •

Local -> Functional

•

Gain/loss in Net Income

Current Rate •

Functional -> Reporting

•

Gain/loss in Equity E quity (CTA) (CTA)

HFM usually Current Rate method

HFM Translation Out of the Box

Configuration 

 Application Currency

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 Accounts defined as CURRE CURRENCYRA NCYRATE TE

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 Accounts assigned to translate Balance or Flow in Application Settings

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PVA PV A

PVA Impact on Flow Accounts 

PVA –  – rate x periodic amount  – YTD is sum of periodic translations

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Non-PVA  – rate x YTD amount  – Periodic is current YTD less prior YTD

Configuration 



Each account acco unt assigned Account Type

 Account Types categorized as Balance or Flow  – Balance – Asset, Liability  – Flow – Revenue, Expense Expense  – Not Translated – Balance, Flow

Currency Tables • • •

Rates in application defined in metadata Scale Generates members on Value dimension

Default Currency

Translation Tables • • • •

Default location in HFM created for intersection of each currency defined Rates loaded as From/To by period Multiply or Divide Load to global location or specific entity

Default Translation Direct rate in current entity Indirect rate in current entity

Italy.EUR -> Italy.USD Italy.USD -> Italy.EUR

•

Direct rate in [None] entity Indirect ra rate in [N [None] en entity

[None].EUR -> [None].USD [None].USD -> [N [None].EUR

•

Triangulation through application currency

• • •

Triangulation If specific From/To rate not loaded, HFM will derive rate via the application’s base currency

•

Example:

● ● ● ● ● ● ● ●

 Application Currency = EUR GBP -> CHF rate has not been loaded GBP -> EUR EUR -> CHF GBP -> EUR = 1.17 EUR -> CHF = 1.23 GBP -> CHF translated at 1.17 x 1.23 = 1.439

Calculation

HFM Deals With Data in Groups ●

There are too many data points to handle individually

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Group the data by dimension to make it easier to manage

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Must pull all data points in a group to access any single point

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HFM calls these groups “subcubes”

Subcubes ●Subcube

Coordinates

●Subcube

Contents

●

Scenario

●

●

Year 

●

ICP

●

Entity

●

Customs

●

Value

●

Period

●View View –  –

 Account

data stored YTD, YTD, other views (MTD, (MTD, QTD) derived on the the fly

Subcube Types Two types of subcubes based on the Value Dimension Dime nsion ●

●

Currency Subcubes ●

Base data for the entity

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Triplet

●

The angle brackets

Node Subcubes ●

Tracks aggregation aggregation and eliminations for an entity enti ty into a specific parent

●

The square brackets brackets – [Eliminati [Elimination], on], [Proportion [Proportion], ], etc.

●

Currency of the parent (not identified in member name)

Value Dimension

HFM Value Dimension

EMEA

Currency Curre ncy subcube subcube - EMEA

Node subcubes subcubes – EMEA.Fra EMEA.France nce France

UK

Currency Curre ncy subcube subcube – Franc France e

[Elimination] [Proportion], Etc.

Node subcub subcubes es – EMEA.UK

GBP Total GBP Adjs GBP

Currency Curren cy subcube subcube – UK

Value Dimension

Node subcubes subcubes – EME EMEA.UK A.UK

UK

Currenc Cur rency y subcube subcube - UK

Value Dimension

Example 

Entity UK defined with Default Currency of GBP



UK placed in three alternate hierarchies hiera rchies under different parents. Two Two parents have Default Currency of EUR, the third a Default Currency of USD

Sales -EUR-

EMEA -EUR-

UK --GBP

Corp -USD-

UK --GBP

UK --GBP

EMEA parent, before consolidation

pointers to GBP subcube based on entity Default Currency

GBP subcube for entity UK populated

Consolidation of EMEA performed Before

 After  EUR Total Total consolidated to parent pointers to EUR subcube based on parent Default Currency

EUR subcube for entity UK populated

Sales parent, before consolidation EUR Total Total value not yet consolidated to parent

EUR subcube already present from EMEA consolidation GBP subcube (from data load)

Sales parent, after consolidation Before

 After  EUR Total Total consolidated to parent

Corp parent, before consolidation

EUR subcube already present from EMEA consolidation GBP subcube (from data load) No USD subcube data yet

Corp parent, after consolidation USD Total Total consolidated to parent pointer to USD subcube

USD subcube populated

Recap so far  

Value dimension contains placeholders placeholde rs for all currencies

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The Value Value dimension will show data for all currently populated popula ted currency subcubes

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and are pointers to named currency subcubes based on current entity selection

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Currency subcube for Default Currency of entity populated by data load

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Currency subcube for entity in currency of parent populated during consolidation. This data is used in the consolidation to the next level.

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Currency subcube re-used if entity consolidates into two different parents of same currency

Compare to adjustment through [Parent Adjs] Journal booked to [Parent Adjs] for UK under EMEA

Adjustment through Journal booked to • Calcul Calculate ate () for and and source curren currency cy adjs adjs member (if present) present) • Tra ran nslate () () • Cal Calcul culate ate () for for transl translate ated d curre currency ncy  – ICP Report  – EPU

Hs.Trans / Hs.TransPeriodic Hs.Trans("DestPOV "," ","SourcePOV "," ","Rate1","Rate2") ●

Destination ●

 Account, ICP, Customs

● ●

●

●

Writes to all if not specified

Source ●

Full POV

●

If unspecified, Destination POV drives source

Rate ●

Translate at difference between Rate1 and Rate2

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If Rate2 not present, translate at Rate1

Cumulative Hs.Trans "A#A10110", "", "3","1.5“ Hs.Trans "C1#CTA_R", "", "A#EOPRate", "A#EOPRate.P#Prior" Hs.Trans "C1#CTA_A", "", "A#EOPRate", "A#AvgRate"

CTA Calcul Calculation ation - Simp Simple le • •

 Assumes CTA CTA is difference on Balance Sheet immediately after translation Steps - Calcu Calculate late Balance Balance account in local currency currency prior to transl translation ation - Tr Trans anslat late e - Cal Calcula culate te CT CTA A

•

In Sub Calculate () -

How Do I Know When Translation Has Occurred?

Override Process •

Equity accounts translated at historical rates that can vary by entity and account

•

Certain accounts such as Retained Earnings composed of layers requiring different historical rates for each (blended rate)

•

Historical rates vary by entity, but usually do not change by period

•

Complex to build and manage in HFM

•

Historical balances can be updated from source system updated with changes in local currency

Override Process •

Create non-reporting memo accounts to hold post-translated balances • •

Base account name with prefix or suffix  Account type Balance Balance to ensure not translated translated

Override Process Immediately after translation, replace balance with correct historical balance

Drive process from existence of override balances Ensure override POV exactly matches target to ensure data is overwritten