Currency Translation in HFM

Keith Berry US-Analytics

US-Analytics is an industry leading professional services firm focused on helping clients successfully establish and maintain long term Business Intelligence (BI) and Enterprise Performance Management (EPM) applications and programs. BI and EPM Strategy and Processes Custom and packaged BI and EPM Applications Oracle Infrastructure Managed Services and Hosting For over a decade, market leading companies have trusted US-Analytics to solve complex business problems, drive managerial excellence, and deliver operational agility. Learn more at Booth #107 or www.us-analytics.com

Background

12+ Years Hyperion implementation experience Certified in HFM and Essbase Second year at Kscope

Currency Translation 101

Guidance

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

IFRS
IAS 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
Local No change Functional Current Reporting

Local Currency

Local Currency

USD
Temporal

USD

No change

Temporal

Another Currency

Current

Temporal Rate Method

Balance Sheet

Monetary assets and liabilities translated at rates in effect at end of the reporting period Non-monetary assets and liabilities translated at rates in effect when the assets/liabilities were acquired Contributed Capital translated at historical rates RE is difference needed to balance the Balance Sheet

Income Statement

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

Translation 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 time of recognition (spot/average) Average rate for period is usually acceptable No translation gain/loss adjustment to Net Income

Translation Adjustment

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

Current Rate Example

Setup company in EUR by issuing common stock for cash Translate from EUR to USD

EUR - > USD End of Period 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, etc.

Translate from EUR to USD

EUR - > USD Avg Rate = 1.25 EUR - > USD End of Period Rate = 1.40 EUR - > USD Common Stock Historical Rate = 1.33

Current Rate Example

Current Rate Example

Net Asset Position (NAP) = Assets - Liabilities Rate Beginning Net Asset Position X (Current Month EOP Rate - Prior Month EOP Rate) Activity Change in Net Asset Position X (Current Month EOP Rate - Current Month Average 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 (CTA)

HFM usually Current Rate method

HFM Translation Out of the Box

Configuration
Application Currency Accounts defined as CURRENCYRATE Accounts assigned to translate Balance or Flow in Application Settings PVA

PVA Impact on Flow Accounts

PVA
rate x periodic amount YTD is sum of periodic translations

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

Configuration
Each account assigned Account Type

Account Types categorized as Balance or Flow

Balance Asset, Liability Flow Revenue, 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 Direct rate in [None] entity Indirect rate in [None] entity

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

Triangulation through application currency

Triangulation

If specific From/To rate not loaded, HFM will derive rate via the applications 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 Group the data by dimension to make it easier to manage Must pull all data points in a group to access any single point HFM calls these groups subcubes

Subcubes
Subcube

Coordinates

Subcube

Contents

Scenario Year Entity Value

Account ICP Customs Period

View

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

Subcube Types
Two types of subcubes based on the Value Dimension

Currency Subcubes

Base data for the entity Triplet The angle brackets

Node Subcubes

Tracks aggregation and eliminations for an entity into a specific parent The square brackets [Elimination], [Proportion], etc. Currency of the parent (not identified in member name)

Value Dimension

HFM Value Dimension

EMEA

Currency subcube - EMEA

Node subcubes EMEA.France

France

Currency subcube France

[Elimination] [Proportion], Etc.

Node subcubes EMEA.UK Currency subcube UK

UK

GBP Total GBP Adjs GBP

Value Dimension

Node subcubes EMEA.UK

UK

Currency subcube - UK

Value Dimension

Example
Entity UK defined with Default Currency of GBP UK placed in three alternate hierarchies under different parents. Two parents have Default Currency of EUR, the third a Default Currency of USD

EMEA -EUR-

Sales -EUR-

Corp -USD-

UK --GBP

UK --GBP

UK --GBP

EMEA parent, before consolidation

<Entity Currency> pointers to GBP subcube based on entity Default Currency

GBP subcube for entity UK populated

Consolidation of EMEA performed

Before After EUR Total consolidated to parent <Parent Currency> pointers to EUR subcube based on parent Default Currency

EUR subcube for entity UK populated

Sales parent, before consolidation

EUR 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 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 consolidated to parent pointer to USD subcube

USD subcube populated

Recap so far
Value dimension contains placeholders for all currencies The Value dimension will show data for all currently populated currency subcubes <Entity Currency> and <Parent Currency> are pointers to named currency subcubes based on current entity selection

Currency subcube for Default Currency of entity populated by data load Currency subcube for entity in currency of parent populated during consolidation. This data is used in the consolidation to the next level. 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 <Parent Curr Adjs>

Journal booked to <Parent Curr Ads> for UK under EMEA

Manual translate
New currency subcube can also be populated via manual Translate process Any currency defined in the system Supplemental data; not used in consolidation Direct translation of existing subcube
EMEA -EUR-

Consolidation

UK -EUR-

UK -GBP-

Manual

UK -CHF-

Manual Translate
HFM will track and update currency subcubes needed for consolidation It will track status, but not update subcubes created by manual Translate User must manage Impact of additional currencies

Custom Translation Components

Custom Translation

Translation Rules CTA Calculation Historical Rate/Override Process

Sub Translate ()
Executes each time currency subcube is updated
Consolidation Manually Translate Calculate () for source currency member <Entity Currency> Calculate () for and source currency adjs member <Entity Curr Adjs> (if present) Translate () Calculate () for translated currency 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 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 Calculation - Simple

Assumes CTA is difference on Balance Sheet immediately after translation Steps - Calculate Balance account in local currency prior to translation - Translate - Calculate CTA 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 to ensure not 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