Multi-Currency Accounting with SAP S/4HANA

  • by Debasis Panda, Senior Support Engineer, SAP Max Attention, SAP America Inc.
  • June 26, 2017
Learn how to use the SAP multi-currency accounting (MCA) feature in SAP ERP Central Component (ECC) as a part of the normal Business Suite license. It is based on an internationally accepted accounting principle to record foreign currency items, primarily in the banking industry. Furthermore, banks should be able to report their currency exposure or foreign exchange (FX) risk on the position level and the valuation results on a regular basis (daily or monthly).
Learning Objectives

Reading this article, you will learn how to:

  • Maintain and display a market data exchange rate
  • Use multi-currency accounting (MCA) Journal Processing
  • Set up a profit and loss (P&L) lock process
  • Set up a P&L close process
  • Set up a P&L transform process
  • Set up a monetary asset valuation process
  • Set up a spot position valuation process
Key Concept
Multi-currency accounting (MCA) involves the management of all accounts in transaction currency and the valuation of central foreign currency position accounts in the SAP General Ledger rather than in individual balance sheet accounts.

Banks and financial institutions require a common foreign exchange (FX) valuation and position management process. This process enables banks and financial institutions to manage their exposure in foreign currency based on one or multiple positions per currency. The process enables banks and financial institutions to transform their profit and loss (P&L) into a functional currency against which their foreign currency positions are assessed. Using this process, banks and financial institution are also able to valuate currency positions at any given time for all non-functional currencies (transactional, local, group currency).

In multi-currency accounting (MCA) functional currency is the currency against which a legal entity manages position risk. It is based on primary monetary flows in which currency revenue is generated, expenses are incurred, or funding is required. The system translates transaction currency automatically to functional currency, and it is this currency against which all other currency positions are revalued. In the SAP system, the functional currency only exists within MCA and is defined as a proxy to an existing currency type (i.e., company code currency, group currency, and hard currency).

For example, a US financial institution has subsidiaries in Canada and Europe with the group currency as USD. The Canadian subsidiary has local currency as CAD and is dealing with different foreign currencies, such as GBP, EUR, and CHF. The Canadian subsidiary wants to maintain its foreign currency positions exposure into functional currency CAD as a proxy to the local currency of the Canadian subsidiary. Likewise, the Europe subsidiary with local currency as EUR, dealing with foreign currencies GBP, USD, CAD, and CHF, would like to maintain its foreign currency position exposure into functional currency EUR.

MCA in SAP General Ledger Accounting (FI-GL) is available starting with SAP ERP Central Component (ECC) 6.0 enhancement package 6 and can be used with the classic general ledger and the SAP General Ledger. MCA provides enhanced precision in currency conversion of a foreign exchange (FX) rate of 28 digits with 14 of the digits after the decimal place against the current 12 digits with five digits after the decimal.

To enable MCA in your ECC environment, activate the business function (FIN_GL_MCA) by following IMG path SPRO > Activate Business Functions or use transaction code SFW5. This action displays the screen in Figure 1. To activate business function FIN_GL_MCA, select it and click the activate icon (not shown in Figure 1). (This step is completed by the Basis team, as end users do not usually have access to Switch Framework Customizing [transaction code SFW5]).


Figure 1
MCA business function

After activation, the standard MCA configurations, transactions, and tables (GLE_MCA*) appear in your system.

To complete the MCA configuration as per your business needs, follow menu path SPRO > Financial Accounting (New) > General Ledger Accounting (New) > Periodic Processing > Multi Currency Accounting (New). Follow the steps in the SAP Help configuration guide to complete this configuration.

Note
This article is primarily focused on the general guidance and the features of MCA. Readers are advised to go through the SAP Help configuration guide before configuring to meet your business needs. 

Debasis Panda

Debasis Panda is an SAP-certified professional with 13 years of consulting experience in SAP FI/CO. He has been a part of many full cycle implementation projects as FI/CO lead. He works as a senior support engineer in the SAP Max Attention Team (SAP AGS) at SAP North America. He holds an MBA from IBS Hyderabad. He lives with his family in Philadelphia.

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