External euro translation in Financials

Legal rules and accounting principles usually do not permit that you change the invoice currency or the amount of registered purchase and sales invoices. Therefore, LN does not change the transaction amounts of open invoices in the Financials database during external euro initialization.

If the invoice currency is an EMU currency, this creates a problem because the EMU currencies actually ceased to exist after the transition. As a result, you cannot generate payment advices, interest invoices, cash forecasts, and so on, in the invoice currency.

External euro translation translates open invoice amounts in EMU currencies to euros before you generate payments, interest invoices, and cash forecast, and before you display or print the amounts. External euro translation does not change the original amounts and currencies that are stored in the database; these remain in EMU currencies.

Enterprises outside the European Union with business partners that use EMU currencies must also use external euro translation to handle open invoice amounts in EMU currencies, after the transition.

External euro translation supports all types of multicurrency systems, including the new standard currency system, and can be used in euro-compliant and non-euro-compliant companies.

The external euro translation functions

External euro translation can be used for these transaction amounts:

  • Open items in Accounts Receivable
  • Open items in Accounts Payable
  • Anticipated payments and receipts in Cash Management
Note: Standing orders are payments to which no invoices are linked. You can modify standing orders and create standing orders with the euro currency when needed. Therefore, external euro translation does not apply to standing order amounts.

For the standard currency system, external euro translation in Financials is not yet supported.

Prerequisites

LN can perform external euro translation of open invoice amounts if these conditions are met:

  • The "EMU Currency" check box is selected for the transaction currency (the invoice currency) in the Currencies (tcmcs0102m000) session.
  • The euro is defined in the Currencies (tcmcs0102m000) session.
  • The euro currency is defined as "Transition Currency" ( LN FP5) or "Euro Currency" (in previous versions) defined in the Companies (tcemm1170m000) session.
  • The currency rates between the euro currency and the company’s home currencies are defined in the Currency Rates (tcmcs0108m000) session.
  • The rate determiner that applies to the invoice amount is not of a Fixed type.

If the rate determiner that applies to the invoice amount is of a Fixed type, the invoice amounts are not translated because the fixed rate can differ from the rates derived from the fixed rates between the EMU currency and the euro.

Amount registration and rate registration in the database

Regarding the external translation process, bear the following in mind:

  • Amount registration in LN

    Transaction amounts are calculated and stored in the database:

    • In the transaction currency
    • In each of the home currencies (note that in the standard currency system, amounts in the reporting home currencies are only stored within the general ledger and the subledgers)
  • The currency rate and the rate factor used to convert the transaction amount to the home-currency amount, as well as and the rate’s effective date are usually stored with the amount, in the same table.

  • Currency rate/rate-factor registration in LN

    Depending on the currency system, the currency rates and the corresponding rate factors listed below are defined in the Currency Rates (tcmcs0108m000) session.

    Currency rates between currencies that are not home currencies are not available:

    • Standard multicurrency system

      The currency rates between the transaction currencies and each of the home currencies, including the reference currency, as well as the currency rates between the local home currencies and the reporting home currencies.

    • Single currency system

      The currency rates between the transaction currencies and the reference currency.

    • Dependent multicurrency system

      The currency rates between the transaction currencies and the reference currency. The currency rates between the reference currency and the other home currencies.

    • Independent multicurrency system

      The currency rates between the transaction currencies and each of the home currencies, including the reference currency.

External euro-translation input

To translate transaction amounts in EMU currencies into euros, external euro translation uses this input data:

  • EMU transaction currency
  • Transaction amount expressed in the reference currency
  • Rate date
  • Rate determiner
  • Exchange-rate type

Translation process

During the external translation process, LN performs these actions:

  • Currency translation

    In the appropriate session or document, replacing the EMU currency code and description with the euro code and description.

  • Amount translation

    Recalculating the invoice amount in euros. The calculation method depends on the company’s currency system. See "Amount translation."

  • Rate and rate factor determination

    Determination of the currency rate and the rate factor used to convert the new invoice amount, in euros, to the home currencies. How the rate and the rate factor are determined depends on the company’s currency system.

Amount translation

Note: External euro translation does not change the original data of the open invoices stored in the database.

The amounts are translated as follows:

  • Euro-compliant single currency and dependent multicurrency systems

    The reference currency is the euro. The translated amount is the transaction amount in the reference currency.

  • One of the home currencies is the euro

    The translated amount is the transaction amount in the home currency that is the euro.

  • Non-euro-compliant systems

    The currency rate between the EMU currency and the euro is not available because the euro is not one of the home currencies.

    The invoice amount in the reference currency is translated to euro, for these reasons:

    • For single currency and dependent multicurrency systems, the reference currency must be used.
    • In independent multicurrency systems, the reference currency is probably the most stable currency.

Rate/Rate factor determination

After translating the invoice amount to euro, the rates and rate factors between the euro and the home currencies are determined.

If the reference currency is not euro, after translating the amount, LN calculates the rate between the transaction amount in euros and the transaction amount in the reference currency instead of taking the rate from the Currency Rates (tcmcs008) table. This is done to avoid revaluation of the transaction amount.

Depending on the selection of the Express in Base Currency check box for the euro currency in the Currencies (tcmcs0102m000) session, LN divides the amount in the euro by the amount in reference currency or the other way around.

The rate and rate factor are determined as follows:

  • Single or dependent multicurrency system

    • The reference currency is the euro

      LN sets the currency rate to 1.0 and the rate factor to 1. The rates between the reference currency and the other home currencies are not affected.

    • The reference currency is not euro

      The rate between the euro and the reference currency is calculated.

  • Independent multicurrency system

    • One of the home currencies is the euro

      LN sets the currency rate to 1.0 and the rate factor to 1. The rates between the euro and the other home currencies are taken from the Currency Rates (tcmcs008) table.

    • None of the home currencies is the euro

      The rate between the euro and the reference currency is calculated. The rates between the euro and the other home currencies are taken from the Currency Rates (tcmcs008) table.