What is your functional currency?

by David Haimes (with excerpts from an internal document by Seamus Moran)

Regular readers will probably be used to this answer now… it depends.

In General Ledger 11i your functional currency referred to the currency of your set of books, it was one of your three Cs (Calendar, Currency and Chart of Accounts). In R12 we changed the terminlogy, there is no more set of books that is now renamed Ledger and the Currency of your Ledger is referred to as the Accounting Currency of the Ledger.

This is a subtle change and I’m sure experienced 11i practitioners are still using the term functional currency but you all need to stop because it’s confusing people.

In Financial standards (IAS 21 and FAS 52), Functional Currency is a test for the integration of your overseas and home businesses. If the businesses share a Functional currency, they are integrated, and you must use a financial statement conversion method called “remeasurement”. If the businesses do not share a Functional Currency, they are stand alone, and you must use a financial statement conversion method called “translation”. To determine the Functional currency, there are a series of cash flow related tests: it is an objective, situational determination, and not an optional choice.

Now just because your auditors tell you that your functional currency is Euro, this does not mean that you need to go about the tricky business of changing your Ledger Accounting Currency (or Set of Books functional currency) to Euro. What it means is that you need to remeasure in Euro rather than translate.

To do this re measurement you can use

  1. The GL translation program
  2. A secondary Ledger
  3. A consolidation program such as Hyperion

It is not standard to have your Ledger Accounting currency different to you local currency, you will need to file local statutory reports in local currency, your bank will likely send you statements in local currency etc. so you really need your ledger operating in local currency to handle these easily.

So remember my Ledger Accounting Currency does not have to equal my functional currency.

Author: David Haimes

I'm Senior Director in the Oracle Research and Development Organization, with close to 20 years working in various roles on the development of the Financial Management product suite.  Since the summer of 2016 my focus is exclusively on working with customers and longer-term design work, particularly around next-generation functional and technical architecture. My task is to figure out NOW what the financial management system of the next 3, 5 or more years should look like and start working toward it.  At the moment the majority of my time is spent working on Blockchain or Distributed Ledger Technologies (DLT), leading the effort for all of SaaS applications.  I'm also interested in AI, Machine Learning and new UX and interaction paradigms such as chat bots. I started out in Oracle UK and found my way out to Oracle's Redwood Shores, California HQ in May 2000.  My previous role was product owner for Fusion Accounting Hub, General Ledger, Intercompany and Legal Entity products in Oracle Fusion Financials and eBusiness Suite General Ledger. I have also worked on EMEA Globalizations, Federal and Public Sector Financials, XML Payments and a variety of projects on other products down the years.

9 thoughts on “What is your functional currency?”

  1. What setup books/operating unit do you assign for the following transaction?

    You go to a US website(e.g. Amazon) and order something which gets shipped to Canada. If the item gets sourced from Canada warehouse, will the accounting be in Canadian Setup of books (assuming that each country has their own set of books)? In other words, will the billing address of your credit card really matter?

    Also, does Oracle recommend to have bill_tos in multiple operating units?

    Like

  2. Narayan,

    Your description is mixing up the first party (amazon, the company deploying EBS) and the third party (you with your credit card and bill to address.

    It is up to amazon (within the laws of the countries involved) to decide who sells you the item (Amazon US or amazon CA) and how they deal with moving any goods they need to source between their Legal Entities and hence how they account for it.

    I could write a white paper on this… it’s a complicated subject.

    Like

  3. How does hyperion do remeasure if the base data is not in oracle EBS? I mean, if one of the subsidiary has its books in SAP or some other accounting package and remeasurement needs to be done, how does hyperion handle it especially if some of the accounts need to be converted at Historical rates and there are multiple additions and disposals at different points of time involving different historical rates

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  4. You stated:

    To do this re measurement you can use
    1.The GL translation program

    what is your method of using GL Translation Program to remeasure instead of translate? Is it changing the rate to a period end or corporate rate instead of Period Average and Period End for Translation?

    Like

  5. Hi David,
    Thank you for clarifying the “functional currency” in R12. Could you please specify the steps that we execute to do the re-measurement?

    Thanks, Rosalie

    Like

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