Welcome to the second installment of our series on Currencies in Workday. In our previous blog, we looked at Currencies in Financial Transactions.
In this blog post, we delve into the crucial concepts of translation and revaluation within Workday Financials, shedding light on their significance in ensuring accurate and compliant financial reporting. As CFOs, financial analysts, and FP&A staff, understanding these mechanisms is paramount for maintaining data integrity and meeting regulatory requirements.
Key Concept 1:
Revaluations adjust the ledger currency value for FX fluctuations as they change over time.
In a multi-currency environment, maintaining accurate balance sheet values necessitates periodic revaluations to account for fluctuations in foreign exchange rates. Revaluations ensure that assets and liabilities denominated in currencies other than the company's ledger currency are accurately stated at their current values. For instance, consider a cash account denominated in Euros for a company with GBP as its ledger currency. As exchange rates fluctuate, the true value of this account in GBP may change. Workday's revaluation functionality enables automatic adjustments at month-end to reflect the accurate GBP equivalent of foreign currency balances, ensuring financial statements present a true and fair view of the company's financial position.
Consider the example of a cash account denominated in EUR for a company having GBP as Ledger Currency. At any given time, the TRUE value of that account is the EUR amount sitting in it. For a single transaction in this account on 4/9, the first entry below will occur, and will calculate a Ledger Amount using the Current rate as of 4/9:
However, the EUR to GBP rate will fluctuate through the end of the month of April, and on 4/30 will be something different (in this case, 0.92 instead of 0.85). Without intervention, a financial statement for this GBP company would value that line of Cash at £425. But due to FX fluctuations, that EUR balance has an actual value of £460 at the end of the month:
The mechanism to restate the GBP balance for month-end is called a Revaluation. Using the Revaluation functionality at month-end, Workday will identify any balances in affected accounts that no longer match to the underlying transactional currency, and post an entry like this to correct it:
These revaluations can be auto-reversing, or not auto-reversing, and can be applied to an entire ending balance or just to periodic activity. This Revaluation step is vital at any financial statement date.
Key Concept 2:
Translating Ledger Currency Amounts for Reporting
In Workday Financials, each transaction persists two crucial amounts to the general ledger: the Transaction Currency amount and the Ledger Currency amount for the company associated with that journal line. Given that companies within a tenant may operate with various Ledger Currencies, consolidating financial data necessitates translating these diverse Ledger Currency amounts into a common currency, known as the Translated Amount.
It's imperative to understand that the Translated Amount is not directly persisted on a journal line in Workday. Instead, it is derived from the Ledger Currency amount. While it's worth noting that recent functionality allows for the existence of two Ledger Currencies, a Primary and an Alternate, the fundamental concept remains the same: translated amounts are calculated based on either the primary or alternate ledger currency, depending on the settings within each individual report.
Consider the same example above: a cash account shows a balance of €500 as of 4/30/2024. With the EUR > USD exchange rate on that date set at 1.1408, the equivalent USD amount should be $570.40.
Workday's translation process involves converting every journal line from the Ledger Amount to USD, utilizing the GBP>USD exchange rate applicable on 4/30. This translation occurs dynamically AT RUNTIME:
Note: It's crucial to emphasize that the translation process disregards the Transaction Amount and Transaction Currency, solely relying on the Ledger Amount as the basis for translation. Therefore, the accuracy of translated values hinges on the presence of revaluations in the general ledger. WITHOUT proper revaluation in the G/L, the translated amounts may be incomplete or incorrect.
This dependency underscores the importance of running revaluations before generating financial statements for a given month. In subsequent posts of this multi-blog series, we'll delve deeper into the complexities of multicurrency translations, particularly how they impact intercompany accounting and consolidations. Additionally, we'll explore best practices for effectively managing these challenges within the Workday platform, ensuring seamless financial reporting and analysis.
Insights and Best Practices:
It's essential to recognize the interdependency between revaluations and translations in Workday Financials. Revaluations provide the foundation for accurate ledger currency amounts, which, in turn, drive the translation process for financial reporting. Therefore, it's imperative to run revaluations before generating financial statements to ensure completeness and correctness in translation.
Stay Tuned
In upcoming posts, we'll explore how multicurrency translations impact intercompany accounting and consolidations. We'll also share best practices for effectively managing these complexities within Workday, empowering finance professionals to navigate financial reporting with ease and efficiency.
Conclusion
Translation and revaluation are integral components of financial management in a multi-currency environment. By understanding these concepts and leveraging Workday's robust functionalities, CFOs, financial analysts, and FP&A staff can ensure accurate reporting, regulatory compliance, and informed decision-making. Stay tuned for more insights and practical tips as we continue our exploration of currencies in Workday Financials.
Author: Brady from Arizona
