Managing FX risk within the complex environment of the SAP ERP can feel particularly daunting. From ghost balances haunting transaction processing to currency type misalignment, the road to effective FX risk management is fraught with obstacles. 

Let’s explore the top five technical issues Treasury teams encounter when working in SAP’s ERP, how it impacts FX risk, and how you can make the fix with help from AtlasFX. 

Challenge 1: Revaluation of Monetary Accounts

Technical Issue

The definition of monetary accounts that are subject to revaluation (remeasurement) is fundamental to FX exposure reporting. These GL accounts, configured for automated month-end revaluation, are often incorrectly defined, with irrelevant accounts being included. 

For instance, when new GLs are added to the chart of accounts, the controllership/IT team may routinely add them to the revaluation configuration, “just-in-case.” Alternatively, they may be inherited from legacy systems that were not properly cleansed. These then get rolled out to other company codes in the name of alignment and preserving the template solution in SAP. 

So, other balance sheet accounts like fixed assets, GR/IR, equity and even income statement accounts find their way into the configuration, distorting month-end revaluation as well as the FX exposures that need to be hedged.

FX Risk Management Implications

If the subset of GL Accounts that need to be classified for revaluation is incorrectly defined, the FX exposure reporting will be incorrect.

Fix

AtlasFX reviews the monetary accounts and ensures that only the correct accounts are included. The accounts are applied consistently across all company codes.

Challenge 2: GL Master Data

Technical Issue

A feature of SAP is being able to manage GL account balances in local currency only. This functionality is utilized when companies do not want to update transaction figures per currency and want to permit clearing of similar open items in local currency if the amounts tally (e.g., technical/clearing accounts). 

This is inadvisable for monetary accounts holding FX exposures that need to be hedged. However, this setting in the GL account master data can inadvertently or routinely be selected and rolled out to other company codes and across SAP instances, making it difficult to use for hedging analysis and trade execution. 

To accurately capture balance sheet exposures in such cases, transactional balances in foreign currencies must be reconstructed, which is a painstaking mission when done manually using spreadsheets, or a technically difficult and expensive exercise if building a custom solution.

FX Risk Management Implications

Reporting in transaction currency at a trial balance level will exclude accounts where the ‘report in local currency only’ is selected even if the account is a monetary (revaluing) account.

Fix

It is not possible to simply change the selection of the ‘report in local currency only’; all transactions need to be removed from the account to bring the balance to zero before changing the selection. AtlasFX exposure reports deal with this issue by automatically constructing transactional balances in foreign currencies from the document level.

Challenge 3: Transaction Processing

Technical Issue

Reconstructing foreign currency balances involves a rollercoaster ride of unpleasant surprises resulting from the way transactions were processed. Ghost balances in foreign currency arise due to open items being cleared in local currency, leading to inaccurate data for hedging purposes. 

Even when account balances are zero, their contents may contain unprocessed open items left to accumulate enormous volumes of transactional data over time that burden system performance when drilling down into the database. Furthermore, during retroactive account clearing (instead of daily/monthly automatic clearing runs), there is also a heightened risk of incorrectly realized FX gains and losses being generated. 

Not to be forgotten, manual revaluation journals and those posted en masse from other systems should be included in FX results analytics, along with those automatically posted by the month-end revaluation program.

FX Risk Management Implications

Incorrect reporting of FX exposures, the balance on the account in functional currency may be zero as the clearing of the exposures has been carried out in the functional currency leaving a balance in the account in the transaction currency. These accounts may also be revalued incorrectly as the balance should be zero in transaction currency. Also, manual revaluation journals may contain incorrect amounts for the different currency types.

Fix

AtlasFX reviews accounts, excludes ghost balances from exposure reporting within the platform, and identifies incorrectly posted manual revaluations. The AtlasFX team provides guides for optimally clearing open items.

Challenge 4: Currency Types

Technical Issue

To a lesser degree than the above, but nonetheless prevalent, are issues pertaining to the way currency types are defined in the system. 

The leading ledger should hold: 

• The correct functional currencies of legal entities (company code local currency)
• The reporting currency of the corporation (group currency)
• Other types as required (e.g., hard currency for hyperinflation), with the appropriate basis for calculating FX translations (e.g., transaction currency, local entity currency) 

These are fundamental configuration points that are difficult and expensive to rectify if not done right correctly during the initial setup.

FX Risk Management Implications

Incorrect setup of the currency types may prevent the reporting from identifying the correct currency pair exposure. This should be the functional currency married with the transaction currency. Any errors in the setup may create errors in the identification of exposures, and the revaluation result.

Fix

The AtlasFX team reviews the currency type setup and provides the best practice approach. In circumstances where the setup is incorrect, AtlasFX reporting can identify the correct currency pairings.

Challenge 5: Multiple ERPs

Technical Issue

Organizations can operate multiple ERPs for different locations or business units. 

Navigating complex system landscapes comprising current systems with template solutions, legacy applications, as well as target solutions that are part of transformation projects, is challenging, to put it mildly. Almost inevitably, data integrity issues surface with various discrepancies—from disparate processes, unaligned system configurations, and disharmonized master data, to inconsistencies in how transactional data is ultimately interpreted and used. 

As for data exchange, costly interfaces need to be developed and maintained to support various database structures. Otherwise, Treasury is left with the onerous task of compiling and formatting data in spreadsheets, hopefully without manual errors.

FX Risk Management Implications

The challenges of working in multiple ERPs can lead to delays in reporting, diminished confidence levels in the information available for FX hedging processes, missed exposures and potentially incorrect execution of trades. 

Creating a global view of exposures from multiple ERP sources can take many time-consuming manual steps. Controlling the process in this manual environment can also be very difficult.

Fix

AtlasFX provides full integration, off-the-shelf, for different versions of SAP, including S/4HANA, ECC (New GL), and R/3 (Classic GL). 

Extractor programs, which exist within a registered namespace, ensure reliable data is automatically and consistently captured in SAP, and then securely transferred to AtlasFX via SFTP. This process is seamless and end-to-end, uncovering and working around discrepancies to enable data-driven decision-making. This also affords additional flexibility in reporting and analytics; for example, it can support specifically-requested attributes and even custom-defined fields important to a particular organization can be supported. 

AtlasFX aggregates the data from all the ERP systems, and if there is not a common GL Account hierarchy the combination can be at a level higher than the GL Account (think cash and cash equivalents for cash accounts).

Conclusion

Capturing all relevant scenarios based on specific configurations, master data, and transaction processing in a complex system landscape is tedious and difficult. Ensure that you have the complete and correct data for your FX hedging processes, without hindrance, and let AtlasFX do the heavy lifting for you.