What is Temporal translation and how does HFM handle that?

Hyper-Inflationary translation means you must use what is called ‘Temporal’ as opposed to the common ‘Current’ method (which is out of the box).

Under the temporal rate method, the objective is to measure each subsidiary transaction as though the transaction had been made by the parent. Monetary items (e.g. cash, receivables, inventories carried at market, payables, and long-term debt) are remeasured using the current exchange rate. Other items (e.g. prepaid expenses, inventories carried at cost, fixed assets, and stock) are remeasured using historical exchange rates.

The Temporal Method:

  • Monetary assets and liabilities (cash, liquid securities, accounts payable and receivable, debt) are converted at the current rate of exchange. – default rates in the system .
  • Nonmonetary assets and liabilities (fixed assets and inventory) are translated at historical rates. Thus no accounting capital gains or losses arise from these items. – In HE, I would do this via USD overrides.
  • Income state items are converted at the average exchange rate for the accounting period unless, as in the case of depreciation or cost of inventory sold, they are directly associated with nonmonetary items. In this latter case the historical cost is used for the translation. – Same as above using overrides.
  • Dividends and other distributions are converted at the current rate of exchange at the time they were paid.
  • Under the Temporal-Rate Method the net gain does go into the consolidated income statement but since no fluctuations in the value of fixed assets occur the effect on net income is moderated. Because the Temporal-Rate Method uses different exchange rates for different account items there is a problem in the consistency of the accounts. This is a rule you would add to the impact the expenses, I have seen this in other expenses, or other operating expenses. It is likely they know where they want to this impact.

I can’t imagine doing this with rates in HE. You would need a rate for each entity potentially.

Contributed by:
Peter Fugere, Practice Director
HFM & HE Hyperion Certified
Ranzal & Associates
pfugere@ranzal.com

One thought on “What is Temporal translation and how does HFM handle that?

  1. Hi, Thanks for a nice post. I have some queries.
    What is USD override? does the hyperion expect the user to post both Local currency value and USD value for the same account and thereby override the currency conversion
    Secondly, a non-monetary account is required to be converted by historical rate of exchange. If a holding company increases the equity investment in a subsidiary, how does hyperion track the first investment conversion historical rate and second investment conversion historical rate.
    Third, how does hyperion link the expenses related to non-monetary items to get the same exchange rate for conversion – Depreciation of an asset
    Thanks,
    Naren

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