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.

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12+ Years Hyperion implementation experience

Certified in HFM and Essbase

Second year at Kscope

Background

Currency Translation 101

● 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

Guidance

• 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

Currency Type Definitions

• 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 Methods

Translation

Local Currency

USD

USD

Local Currency

Another Currency

No change

Temporal

Temporal

Current

Current

No change

Local Functional Reporting

• 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

Temporal Rate Method

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

RateBeginning Net Asset Position X(Current Month EOP Rate - Prior Month EOP Rate)

ActivityChange 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

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

Currency Tables

Default Currency

• 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

Translation Tables

• Direct rate in current entity Italy.EUR -> Italy.USD• Indirect rate in current entity Italy.USD -> Italy.EUR

• Direct rate in [None] entity [None].EUR -> [None].USD• Indirect rate in [None] entity [None].USD -> [None].EUR

• Triangulation through application currency

Default Translation

• 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

Triangulation

Calculation

● 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”

HFM Deals With Data in Groups

●Subcube Contents● Account

● ICP

● Customs

● Period

●Subcube Coordinates● Scenario

● Year

● Entity

● Value

Subcubes

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

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)

Subcube Types

Value Dimension

GBP TotalGBP AdjsGBP

France

UK

Node subcubes – EMEA.UK

Currency subcube – UK

EMEA

Node subcubes – EMEA.France

Currency subcube – France

Currency subcube - EMEA

HFM Value Dimension

[Elimination][Proportion], Etc.

Value Dimension

Node subcubes – EMEA.UK

Currency subcube - UK

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

UK--GBP

EMEA-EUR-

UK--GBP

Sales-EUR-

UK--GBP

Corp-USD-

EMEA parent, before consolidation

GBP subcube for entity UK populated

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

Consolidation of EMEA performed

EUR subcube for entity UK populated

Before After

<Parent Currency> pointers to EUR subcube based on parent Default Currency

EUR Total consolidated to parent

Sales parent, before consolidation

GBP subcube (from data load)

EUR subcube already present from EMEA consolidation

EUR Total value not yet consolidated to parent

Sales parent, after consolidation

EUR Total consolidated to parent

Before After

Corp parent, before consolidation

GBP subcube (from data load)

EUR subcube already present from EMEA consolidation

No USD subcube data yet

Corp parent, after consolidation

USD subcube populated

USD Total consolidated to parent

pointer to USD subcube

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

UK-EUR-

UK-GBP-

EMEA-EUR-

UK-CHF-

Consolidation

Manual

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

• Translation Rules

• CTA Calculation

• Historical Rate/Override Process

Custom Translation

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("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"

Hs.Trans / Hs.TransPeriodic

• 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 () -

CTA Calculation - Simple

How Do I Know When Translation Has Occurred?

• 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

Override Process

Drive process from existence of override balances

Ensure override POV exactly matches target to ensure data is overwritten