3588365 - Usage of Advanced Foreign Currency Valuation in Professional Services Projects for WIP adjustment

Professional Services customers, particularly those in regions with significant currency volatility, often establish projects where the project currency is different from the company code currency. Additionally, a second use case for T&E arises when there is a difference between the company code currency and the group currency. Both scenarios can pose challenges since converting the project currency (which is reflected in EBRR journal entries as transaction currency) to the company code and group currency is dependent on the exchange rate type M, using the creation date tied to the project's billing Work Breakdown Structure (WBS) as the conversion date.

For extensive Professional Services projects, there is a need to periodically reassess the WIP/ accrued revenue of these projects to account for potential currency gains or losses due to fluctuations in exchange rates.

SAP S/4HANA Cloud Public Edition

Ways to reevaluate a project for FX gains or losses

Customers can utilize advanced foreign currency valuation (AFCV) periodically to reassess Work in Progress (WIP) or accrued revenues. This method offers several advantages: 

• Posting Currency Differences: The AFCV allows the posting of currency differences directly to the project's WBS billing element. (optional)
• Utilization of Specific P&L Accounts: For WIP revaluation, customers have the option to use dedicated Profit & Loss accounts, distinguishing the revaluation of Accounts Payable (AP) from Accounts Receivable (AR).

AFCV is particularly relevant for projects classified under 'Time & Expense' contracts, where the transaction currency reflects the prices in the project currency.

Currently, a limitation exists in AFCV where the group currency is adjusted based on the aggregated amounts of company code currencies, which include original postings and any adjustments due to currency fluctuations within the company code currency. This adjustment only applies to monetary items. 

Therefor the global currency might not be used for external reporting purpose under certain accounting principles. This limitation will be addressed in a future S/4HANA Cloud Public Edition release.

Use Case 1: For projects where the project currency differs from the company code currency, AFCV evaluates the WIP amount in company code currency by revaluating the aggregated transaction currency amount with current exchange rates. As a result, the WIP amount is adjusted in company code currency posting against the assigned FX adjustment accounts making necessary adjustments to accrued revenue (WIP). 

Use Case 2: There is a requirement to adjust the WIP amounts in group currency based on current exchange rates – independent of if the project currency differs from company code currency. AFCV evaluates the WIP amount in group currency by revaluating the company code currency amount (SSCUI 103379) with current exchange rates.  This approach can help ensure more accurate financial reporting and align with global accounting practices. Utilizing AFCV in this configuration can enhance transparency in financial statements, reflecting real-time currency impacts on group revenues.

Below are screenshots providing simple examples to illustrate the concepts discussed.

Use Case 1 Example: 

• WIP at period-end in transaction currency:  GBP 2400
• Conversion project creation date GBP/EUR/USD 1 : 1
• Conversion at period end GBP/EUR 1 : 0.8, EUR/USD 1 : 1.1

Use Case 2 Example: 

• WIP at period-end in transaction and company code currency: EUR 2400
• Conversion project creation date EUR/USD 1 : 1
• Conversion at period end EUR/USD 1 : 1.1

Attached to this note are steps on running foreign currency valuation.

KBA , FI-GL-GL-G-2CL , Closing Operations / Period-End (Public Cloud) , How To