Consolidations where subsidiary companies operate and account in different currencies to that of the group or parent company and as a result have a requirement for appropriate currency translation as part of the consolidation process and / or consolidated financial statement production is common to many organisations.
Dynamics 365 Finance provides extensive multi-currency capabilities that include full support for consolidations with multi-currency translation requirements through both the Consolidate Online and Financial Reporting consolidation options, which are fully outlined in the sections below.
In terms of approach, an organisation can opt to either …
- utilise General Ledger consolidations functionality and specifically the consolidate online process, with financial reporter definitions sourcing balances from the consolidation company
- not use the General Ledger consolidations functionality and maximise use of financial reporter extended functionality included cross-company and multi-currency capabilities to generate consolidated financial statements
- use a combination of both areas of functional capabilities to support all aspects of financial consolidation requirements.
The following blog post was issued by Microsoft in April 2019 as further guidance
Dynamics 365 Finance, General Ledger voucher transactions hold separate transaction values for transaction currency, local accounting currency and optional secondary reporting currency.
The Consolidate Online process creates voucher transactions in the consolidation company based on voucher transactions in the source subsidiary companies, based on an aggregation of legal entity, posting date and main account / financial dimension value combination.
Traditionally, the accounting currency value of the aggregated source voucher transactions becomes the transaction currency value of the resulting voucher transaction created in the consolidation company.
With the advent of dual currency capabilities the consolidate online function can now be set to either reference accounting currency or reporting currency values from the source subsidiary companies general ledgers. This capability is dependent upon the enablement of the ‘ Enable dual currency functionality in general ledger consolidation’ feature.
The accounting currency value for the resulting voucher transaction created in the consolidation company is populated based on the accounting currency assigned to the ledger setup of that company and calculated by sourcing the exchange rate between the consolidation companies accounting currency and the source subsidiary companies accounting (or reporting) currency, and by applying the ‘exchange rate type’ and ‘apply exchange rate from’ settings specified on the currency translation tab at run time.
With the advent of dual currency capabilities, the secondary reporting currency value for the resulting voucher transaction created in the consolidation company is populated based on the reporting currency assigned to the ledger setup of that company and calculated by sourcing the exchange rate between the consolidation companies reporting currency and the source subsidiary companies accounting (or reporting) currency, and by applying the ‘exchange rate type’ and ‘apply exchange rate from’ settings specified on the currency translation tab at run time.
Currency Revaluation in a Consolidation Company
When you consolidate data from one accounting currency to another, you must still run currency revaluation if there is a change in exchange rates, so that your account balances are correctly revalued. When you originally consolidate the data, use the Currency translation tab to select the initial exchange rates to for translation during the consolidation process. After a new exchange rate is entered (for example, in the next month), you must revalue the account balances. The unrealized gains or losses are then updated accordingly, based on the new exchange rate and date.
Further information including an illustrative example is provided on the following Microsoft Docs entry …
If you opt to create Consolidated Financial Statements using Financial Reporter without Dynamics 365 Finance having consolidation companies setup and without using the consolidate online functionality, where subsidiary companies have differing local accounting (or reporting) currencies to the values that are required to be reported in on the consolidated financial statement, then the following capabilities are available.
- financial report definition – sourcing reporting currency values. most applicable if all subsidiary companies are setup and operate with the same secondary reporting currency.
- financial report definition – currency translation during report generation from local accounting currency to specified currency e.g. specified by report column
- financial report viewer – dynamic currency translation from reported currency value to currency selected in report viewer
Financial Report Definition – Specified Currency
Financial Report definitions provide the facility to specify which currency, values are to be reported in.
The screenshot below shows an example column definition for a consolidated financial statement that reports subsidiary company balances side by side, showing how the currency that values are to be reported in, can be specified using the ‘currency display’ option, which can be set to source either accounting currency or reporting currency values from the specified subsidiary company, or source the accounting currency values from the specified subsidiary company and translate them to the selected currency during report generation.
Financial Report Viewer – Dynamic Currency Translation
Financial Report viewer provides the facility to dynamically translate the currency values in the initially generated report output, to any currency available for selection in the report viewer.
GL Main Account Setup
The currency translation capabilities illustrated above are partly dependent upon the exchange rate type and currency translation type settings on the GL main account, financial reporting tab, with the latter having the following four options …
– This method is used most often for profit and loss accounts, and it uses the formula (exchange rate * days in effect)/days in period.
– This is an alternative method for profit and loss accounts, and it uses the formula Total of exchange rates/Number of exchange rates.
– This method is used most often for balance sheet accounts. The exchange rate used is the rate on or before the date of the report or column in Financial Reporter.
– This method is used for fixed assets accounts. The exchange rate used is the rate on the day the asset was acquired. If a rate is not entered for that date, the rate used is the previously entered rate closest to the asset acquisition date.
Currency Translation Adjustment
Any Consolidated Balance Sheet report definition that has a currency translation requirement and utilises a mix of currency translation types as outlined above, will lead to a report output that does not balance.
This is addressed by the currency translation adjustment (CTA) capability that financial reporter can calculate and output in two ways …
- use the Rounding Adjustments dialog in the row definitions
- create a single line that includes all accounts and use it to calculate the CTA.
Further information related to financial consolidations, multiple accounting currencies and the capabilities outlined are provided via the following URL’s …
The following video is a recording of a Microsoft Tech Conference 2017 deep dive session on Dynamics 365 Consolidation capabilities that includes extensive coverage on the topic of multi-currency requirements