Once data from the reporting unit has been accepted at Group Level, then the data for those units that do not report in the Group currency needs to be converted to the Group currency. This is done through a Consolidation Procedure (040 - 03 Translation to Node Currency) which takes the figures in the value cube for Layer 05 (Total Local Currency), applies the appropriate exchange rates and puts the results into Layer 06 (Translation to Group Currency)
The exchange rates to be applied to each Account are determined by Account Attributes which are input by the user (at Group level) through the screen described at section "Set Currency Exchange Rates"
A conversion reserve arises when not all the financial statements are translated from local currency to Group currency at the same exchange rate. It is normal to translate profit and loss accounts at the average exchange rate for the period, and most balance sheet accounts at the closing exchange rate. If the average and closing rates differ, then a conversion reserve figure is required to make the balance sheet balance, being the net profit or loss multiplied by the difference between the closing and average exchange rates.
Similarly a conversion reserve arises due to equity accounts being translated at historical rate (therefore staying the same in Group currency); thus a difference (conversion reserve) arises on translating the balance sheet, being the opening equity values multiplied by the difference between the closing and average exchange rates.
The conversion reserve is handled through special Accounts set up for this purpose at Group level. Three such accounts are set up, one for the conversion difference arising on the P&L, and two for the conversion difference on brought forward capital and reserves, one for the Group interest therein and one for the Minority interest.
The complete management of the Exchange Rate basically requires three distinct steps :
> Set up in the Application General Settings the attribute YTD Exchange rate Y/N: please look at "General Settings"
> Set up the correct Exchange Rate attribute to all the Accounts : please look at Account Settings : Properties
> Set the Exchange Rate described at section "Set Currency Exchange Rates"