Parallel Currency

Introduction

When a company is created, the user has an option to enable a parallel currency which will result in amounts being calculated and posted in that currency, as well as in the company's accounting currency. Each posting and the resulting balances in the General Ledger and Internal Ledger can then contain amounts in three different currencies, i.e. the transaction currency, the accounting currency and the parallel currency. Parallel currency is not the same as the accounting currency. Rather, it is a complementary currency that runs alongside the national (accounting) currency.

The parallel currency is normally used for either one of two different purposes:

• Representing an alternative accounting currency: This can be very useful if your company is producing most of its business transactions in a currency different to your national currency, hence falling under the functional currency requirements according to IFRS. You can then let your accounting currency represent the national currency, and the parallel currency represent your functional currency.
• Representing a reporting currency: If your company is part of a group of companies which has a group reporting currency different to your national (accounting) currency, the parallel currency can represent that currency.

Presentation of amounts in parallel currency is only available in IFS Financials in several pages e.g. Accounting Rules, General Ledger, Internal Ledger and Fixed Assets, as well as in some pages in Accounts Receivable and Accounts Payable. Most reports in General Ledger and Internal Ledger can either be printed with amounts in accounting currency or parallel currency. This also applies to some reports in Fixed Assets, Accounts Receivable and Accounts Payable. Parallel currency can also be used Business Reporter and by BI tools.

Calculation Methods

In order to support the two main purposes mentioned above, as well as any other type of use, IFS Cloud offers two different calculation methods. They are:

• Transaction currency based calculation
• Accounting currency based calculation

The calculation method should be decided when the parallel currency is activated, which is usually when the company is created. Once the method is selected, it cannot be changed. The difference between the methods is explained below.

Transaction Currency Based Calculations

This method is typically used for the alternative accounting currency purpose, but it can also be used for the reporting purpose. The calculation is carried out as follows:

This is a true parallel calculation, where both the amount in accounting currency and the amount in parallel currency are calculated directly from the amount in transaction currency. The only difference is that separate currency rate types and rates are used. The rate type used for the accounting currency amount calculations should have the accounting currency as reference currency. The rate type used for parallel currency amount calculations should consequentially have the parallel currency as reference currency. The exchange rate which is valid for the relevant voucher date is used for both calculations.

Accounting Currency Based Calculation

This method is typically used for the reporting currency purpose, or any other purpose where calculation precision is of less importance. It is not recommended to use this method for the alternative accounting currency purpose. The calculation is carried out as follows:

This calculation principle is sequential, as opposed to the parallel method in the previous section. It is also referred to as triangulation. The calculation of the amount in accounting currency is done in the same way as in the previous method, i.e. the amount in transaction currency is converted into an amount in accounting currency using a currency rate type which has the accounting currency as reference currency. The calculation of amounts in parallel currency then starts from the amount in accounting currency, using the exchange rate for the parallel currency which is valid for the relevant voucher date. Also here, a rate type which has the accounting currency as reference currency is used. If the transaction currency and the parallel currency are equal, the parallel currency amount is not calculated. The transaction currency amount is instead copied to the parallel currency amount, thus avoiding possible rounding errors.

Limitations

The Parallel Currency functionality is only supported for IFS Financials. Posting transactions originating from modules outside IFS Financials will still get amounts in parallel currency calculated and added to the posting transactions, but no amounts or balances in parallel currency are stored or displayed outside IFS Financials. Each transaction’s amount is converted to a parallel currency amount using the rate valid for the individual voucher date. This will have no practical impact on the profit and loss accounts, but there might be minor remaining balances in parallel currency for balance sheet accounts where no balance exists in accounting currency. Examples of such accounts could be Inventory, Work in Progress, Inventory Goods Received Not Invoiced etc. The Parallel Currency functionality is not supported for country specific functionality which means you must use your national currency as accounting currency to be able to report to Authorities when using country specific functionality.

Enabling Parallel Currency in an Existing Company

Once a company has been created, it is not possible to enable the Parallel Currency functionality directly in the system. This is done deliberately due to a simple reason. There will not be any balances in parallel currency for the time before the Parallel Currency functionality was enabled. By enabling the Parallel Currency functionality from the beginning of a new accounting year, this issue will be solved for the profit and loss accounts, but it will remain for the balance sheet accounts. This can also be overcome by manually entering correct balances in parallel currency for these accounts, using a manual voucher only containing amounts in parallel currency. This voucher should be entered against the last period in the previous year, so the amounts will be included when the closing balances for the previous year are transferred to the opening balances for the new year. However, there will still be issues in the sub-ledgers, e.g. Accounts Receivable, Accounts Payable and Fixed Assets as they all lack a correct value in parallel currency for open invoices and fixed assets which are not fully depreciated.

For similar reasons, it’s not possible to change the calculation principle from Accounting Currency based to Transaction Currency based in an existing company already using the Parallel Currency functionality. Once again it’s the open transactions in the sub-ledgers that lack sufficient information about parallel currency.

Some history to round things off...

The parallel currency option was originally introduced to support the introduction of the euro. During the transition years from the old national currencies to the euro, it allowed the users to view all posted amounts both in their old national currency and euro. This was intended for information purposes only, i.e. getting used to the equivalent euro values. As the exchange rates were fixed between the old national currencies and the euro, there were no issues with remaining balances.