Impact of Accounting Currency Changes (Redenomination, Change of Relationship to the Euro, etc.) on the Oracle e-Business Suite
(Doc ID 1455549.1)
Last updated on OCTOBER 18, 2017
Applies to:Oracle Order Management
Oracle General Ledger
Oracle Financials Common Country - Version 11.5 and later
Information in this document applies to any platform.
Impact of a change in national currency on Oracle Applications
From time to time, countries change their national currencies. During the past decade, Venezuela adopted the Bolivar Fuerte, the Sudan replaced the Dinar with the Pound, Romania re-denominated the Leu and Turkey re-denominated the Lira. The implicit currency union in Yugoslavia has been dissolved. Estonia (2010), Slovakia (2009), Slovenia (2007), Malta and Cyprus have also adopted the Euro since the original Euro Zone countries replaced their former national currencies at the turn of the century.
Nations can change their currency by joining or by separating from a currency union, by re-denominating their currency, or by allowing a currency from outside the country to be a de-facto currency. As currency law is drafted nationally, the compliance requirements and changeover processes are different each time.
Joining a Currency Union
When joining a currency union, the rate between the old and the new currency will be established in advance and will be fixed, that is, it will not change. Maintaining the rate without change is often a pre-condition of the currency union. That allows for a certain amount of preparation. The rate is usually decided as being the effective rate on a given date. There may or may not be a transition period; if there is one, the old currency will be considered a unit of the new currency, related to it by an unchanging rate, during that period. After that, the old currency no longer exists, and remains valid only as a reference for pre-union transactions.
European Union treaties require several countries in the EU to join the Euro currency union when their economies have converged with the Euro zone economy.
Redefining a Currency
When re-denominating a currency, the rate between the old and the new is also fixed and does not change, and is often in multiples of 100. The old currency ceases to exist.
Leaving a Currency Union
If a country is leaving a currency union, it may create a new currency with a rate of 1:1 to the union currency on day one of the separation. That rate begins to change immediately. Both the old currency and the new currency continue to exist. As pre-announcing a departure from a currency union can have undesirable effects, it may occur without much notice and suddenly.
Because the union currency and the new national currency continue to exist, and because the systems – both national infrastructure and corporate accounting systems - would be changed after the event, the process is a little different than when joining a union or re-denominating.
Example: Ireland separated from a de-facto currency union with the UK on March 29, 1979, by ceasing to use Sterling and allowing the Irish Pound or Púnt (IEP) to float. The rate between the IEP and the existing Sterling (GBP) started at 1:1, and gradually changed, so that several months later, the rate was 1 IEP = 0.80 GBP. (Note: it was not quite a currency union: rather, Ireland maintained parity between the Irish Pound and the Pound Sterling until that date.)
The ISO 4217 currency committee will establish a new code for the new currency reflecting the country’s two letter ISO code and the first letter of the name of the currency. If the name has already been used, the letter “N” (New) is often used, as in MXN or PLN. As the new and the union currency do not have a fixed rate relationship, the new currency will not be a unit of the currency from which it is separating.
The nation establishing the new currency may or may not regulate how transactions created while the union was in place are to be valued after the break. Normal practice is that existing transactions between residents of the country will be settled at the face value of the documents but in the new currency. Transactions initiated outside the country will be settled at the face value of the document, and in the union currency. Cross border transactions are more difficult to predict.
1. A pre-separation invoice for £1,000 issued in Ireland to an Irish customer was settled as 1,000 IEP, in line with the new currency laws.
2. A pre-separation invoice for £1,000 issued in the UK to an Irish customer was settled as 1,000 GBP, say 1,250 IEP.
3. A pre-separation invoice for £1,000 issued in Ireland to a UK customer was generally settled as 1,000 IEP, say 800 GBP.
Items recorded during the period of currency union at, apparently, 1,000 GPB, had an actual valuation of 1,000 IEP, from all Ireland customers and vendors, and from most UK customers. Payables to UK did have to be settled in GBP. This effect may also be seen in any future separation from a currency union that might occur; or it may not.
In Ireland in 1979, although the Irish and UK Pounds were maintained at par, they were not the same currency, and it was arguable that £1,000 issued in Ireland before March 29, 1979, was not 1,000 GBP but was 1,000 IEP. This argument may not be defensible in today’s currency unions and it may be easier to enforce the denomination of pre-separation foreign receivables in the union currency and collect the face value of the invoice.
In Ireland, prices needed to be amended; and it is possible that any government separating from a currency union will impose price freezes for at least a temporary period, and changing prices may not be possible.
Books and Ledgers are best maintained in the currency in which most transactions recorded in them are denominated, often the local currency. Company or currency law may require that. Transaction tax and other local filing regulations will specify that the national currency be used, and foreign currency items, including the former union currency will need to be converted to it. The driving factor is the cost and difficulty of maintaining books in a currency other than the national currency: transactions processed as foreign currency have more steps and cost more than those processed in local currency.
Example: After the separation from GBP, VAT and company statutory filing in Ireland were most easily done in IEP. (Ireland did accommodate filing in other currencies.) Payments to and collection from local suppliers, customers and employees were most easily processed in IEP.
Action to take when a Country quits a currency union without notice
A separation from a currency union may occur with much notice. It should be anticipated that there will be a delay in updating the accounting system and that such delays will be tolerated by the seceding nation to a reasonable extent.
Example: In Ireland in 1979, Ireland-based companies trading outside Ireland maintained GBP books for a few months after the separation. At a convenient closing date, they closed the GBP books and opened IEP books. As the GBP remained a valid currency, using it for accounting remained viable. Domestic Irish companies relabeled their existing books as IEP books.
Steps customers can take immediately would include:
1. Create the new national currency in your system, that is, define a new currency code and arrange for the inclusion data on rates between the new currency and existing currencies in your rates upload.
a. Example: Companies generally in 1979 added IEP to their currency lists, and obtained rates between the IEP and GBP, USD, JPY, DEM and so on for their rates tables.
2. For a short time, your existing ledger Accounting Currency will remain in the union currency. Enter national currency amounts as Entered Currency, handling them as a new foreign currency temporarily, and maintain – reconcile, report, etc. - your ledger in the union currency until you formally change it from the union currency to the new national currency (Step 5).
a. Example: In Ireland in 1979, your ledger currency would be labeled GBP. You would enter IEP as Entered Currency. You would reconcile your balances as GBP. In consolidation, if, for example, your parent company was American, you would use the GBP to USD rate.
3. Create a foreign currency bank account in your union-currency ledger for the new national currency, and transfer any formerly union-currency cash balances that will become new national currency cash balances into it. You may leave union-currency balances that will remain union currency in their existing bank accounts,
a. Example: An Ireland company in 1979 would create an IEP foreign currency bank account in the GBP Ledger, and transfer and pounds that were on deposit in Ireland to the IEP account. If they had pounds on deposit in Sterling bank accounts not subject to the change, they would leave them in GBP bank accounts.
4. Companies in countries trading with companies in the country that quit the currency union may need set up the new currency, amend their rates load, and review the denomination of open receivables, payables and orders with their customers on vendors in that country. It may be that they don’t change, but in some cases they will.
a. Example: UK companies dealing with Ireland companies were for the most part able to value open items as GBP. However, some items may have been denominated as Ireland currency, and became IEP.
5. Reach out to your Oracle representative to arrange that your ledger and book keeping in that country were switched to the new national currency at a date convenient to you.
a. Example: If you were in Ireland in March 1979, the currency of your ledger and sub-ledgers would be changed from GPB to IEP. An accounting value of IEP at a rate of 1:1 to the GPB will be added to Sub-ledger transactions, facilitating the future settlement process and varying rates. Orders, approval levels, and appropriate other items measured in currency would be identified as IEP. You might have migrated your ledger from GBP to IEP at the end of June, 3 months after the separation of the currencies.
6. Reach out to your Oracle representative to arrange that open orders (sales and purchase) and other items are denominated appropriately.
a. Companies operating in the seceding country may have to re-denominate domestic in-country open items in the new national currency.
b. Depending on the new national currency law, companies outside that country may be able to choose to use the currency-union currency, their own currency, or the new national currency; the change-over law may limit that capability.
i. Example: Ireland companies trading with Ireland companies had to re-denominate from GBP to IEP. UK, US and other non-Ireland companies could chose to continue using the GBP, to use their home currency (USD, DEM, et cetera), or to use the IEP.
Action to take when a Currency change of any kind occurs
Joining a currency union or re-denominating a currency are generally planned events for which a cut-over date will be published, and the actions detailed here can be executed before the event. Severing from a currency is generally a sudden event, done without notice. (Giving notice can have undesirable effects on the national economy.) In that case, the migration will occur after the event, and delays in updating systems and infrastructure are inevitable.
Most changes in national currency will require two sets of actions:
1. You must change your accounting currency so that you can report in the new currency, in compliance with the national regulations.
2. You must change your open orders so that you can invoice and be invoiced in the new money, and you must be able to complete transactions already initiated with appropriate foreign currency gains and losses.
Oracle is pleased to help our customers adapt their systems when a national currency is changed. Oracle EBusiness Suite currency migration utilities are product that is maintained and delivered by Oracle Solution Services India, and have been updated to current versions of Release 12.
Our team of currency experts has helped our customers migrate to new currencies in Turkey, Romania, and Venezuela and have recently completed the Estonian euro and other more recent euro migrations, as well as participating in the original euro migration. All together, the currency migration package they deliver has been deployed on about 2,000 operational sets of books or ledgers since 1999.
There are several elements to the process:
1. The New Currency Business Services (NBS) routines change the appropriate defaulting data, and convert potential transaction data such as open orders, payroll and Human Resource records, or projects from the former currency to the new one.
3. The New Functional Currency (NFC) process changes the currency in which a set of books functions from the former currency to the new one.
All elements are provided together, and are delivered on Release 12. It is recommended but not required that customers on Releases 11.5.10 upgrade to Release 12.
The list of countries that have re-denominated or altered their currencies since World War II includes but is not limited to: Afghanistan, Albania, Angola, Argentina, Austria, Australia, Azerbaijan, Bahrain, Belarus, Belgium, Bulgaria, Chile, China, Croatia, Congo, Cyprus, Estonia, Finland, France, Georgia, both Germanys, Greece, Guinea, Hong Kong, Iceland, Israel, Ireland, Italy, Kyrgyzstan, both Koreas, Laos, Latvia, Lithuania, Malta, Macedonia, Mexico, Moldavia, Morocco, The Netherlands, New Zealand, Nicaragua, Uzbekistan, Paraguay, Peru, Poland, Portugal, Romania (’47 & ’05), Russia, Yugoslavia and successors, Slovenia, Spain, the Sudan, Tunisia, Uganda, Ukraine, Uruguay, Venezuela, Vietnam, and Zaire.
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In this Document
|Impact of a change in national currency on Oracle Applications|
|Joining a Currency Union|
|Redefining a Currency|
|Leaving a Currency Union|
|Action to take when a Country quits a currency union without notice|
|Action to take when a Currency change of any kind occurs|