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Balance Restatement vs Detailed Restatement in the Multi-Currency functionality

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Balance Restatement vs Detailed Restatement in the Multi-Currency functionality

This blog looks at all important questions of when to use Balance Restatement and when to use Detailed Restatement when deploying JD Edwards Multi-Currency Functionality.

 

When to use Balance Restatement

Global companies that have international subsidiaries which must maintain their financial books in a local/statutory currency that differs from the parent company’s currency will need to revalue those local books into the parent company’s books.

JD Edwards Balance Restatement functionality can handle this task, but there are challenges that users must resolve to do so effectively.

First, companies can re-run balance restatements as many times as they need to, although it is important to remember that each time this happens, it overrides previous balances.

Companies that need to maintain an equity account or various equity accounts pegged to some historical value will need to do so at the corresponding historical exchange rate. Likewise, they will need to monitor results whenever they re-class the system to calculate Retained Earnings to the historical Retained Earnings account.

For example, if in 2017 a parent company with headquarters in the U.S. made a capital injection in a company located in Canada when the exchange rate was 1.2, they will have entered that historical rate in the Balance Restatement tables. If in 2019, a second capital injection is made and the exchange rate at that time is 1.3, then the company will need to calculate the weighted average exchange rate and update the Balance Restatement tables accordingly.

When to use Detailed Restatement

JD Edwards Detailed Restatement functionality is useful to companies in various scenarios. First, it is useful to companies that must maintain their financial books in multiple currencies at the transaction level.

Second, Detailed Restatement functionality is useful to companies that need to maintain their fixed assets purchased in a foreign currency at a historical value, without revaluing it to current values. Balance Restatement functionally only partially addresses this requirement, so Detailed Restatement presents a valuable alternative.

This is particularly useful for multinational companies with subsidiaries in a high-inflation country. Without detailed restatement, the value of the non-monetary accounts, e.g. fixed assets or inventory, will continue to deteriorate when converted to the consolidation currency. With Detailed Restatement, if an asset in purchased in USD (for example) in a high-inflation country, the value of the asset will remain stable in USD throughout the life of that asset.

Finally, Detailed Restatement is useful to companies that want to maintain their inventory in more than one currency, although it should be noted that the JD Edwards Advanced Stock Valuation module is also needed.

Users should keep in mind that JD Edwards Detailed Restatement functionality does not provide a feature to calculate unrealized gains or losses in the detailed currency restatement. Along those lines, realized FX Gain/Loss calculation is only available for Accounts Payable and Accounts Receivable transactions, not for other General Ledger entries.

Also, maintaining perpetual inventory in a restated currency will require advanced stock valuation. Finally, keep in mind that the process for overriding the historical exchange rate in a journal entry is cumbersome and error-prone.

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