Accounting in Oracle Treasury

An Oracle White Paper March 2007

TABLE OF CONTENTS
1. Introduction2 2. Setup for Accounting..2 2.1 Setup Company Profiles..5 2.2 Setup System Parameters.5-6 2.3 Setup Journal Entry Actions6-7 2.4 GL Accounts...7 2.5 Intercompany Accounts...7 2.6 Journal Structures8 2.7 Query by GL Account.9-11 2.8 Copy GL Accounts.....12 3. Sample Journal Entry Structures.13-19 4. Accounting Methods..20 5. Accounting Batches20 6. Batch Periods.21 7. Revaluations...21-26 8. Accruals.26-28 9. Daily Journals.28-31 10. Transfer to General Ledger31-34 11. Example Accounting.35-41 12. Automating Accounting Process42-43 13. Hedge Effectiveness Testing..44 13.1 Setup..45-47 13.2 Hedge Eligibility Revaluation..48 13.3 Hedge Item Revaluation.48 13.4 Effectiveness Testing.48-51

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Introduction Financial accounting is concerned with the preparation of financial statements for decision makers such as stockholders, suppliers, banks, government agencies, owners and other stakeholders. The fundamental need for financial accounting is to report the results to interested users. Treasury Management is fast emerging as a specialization in many companies and the accounting function is being delinked from the finance function. Oracle Treasury helps you meet the critical planning, processing, and reporting requirements of global treasury operations. Correctly accounting for treasury transactions is of great importance because of the impact on your organizations financial results. This becomes more pronounced for Treasury as it involves cash flows. Oracle Treasury has the ability to automatically generate accounting entries and pass them seamlessly to Oracle General Ledger. This process comprises the following four steps: 1. 2. 3. 4. Perform revaluations (optional) Generate accruals and amortizations Generate daily journals Transfer journals to General Ledger

You can post journal entries for cash flow amounts (that is, non-revaluation and non-accrual journal entries) on a daily or weekly basis, and post journal entries for your revaluation/accrual deals on a separate timeline. The posting of cash flow amounts does not require performing revaluations or generating accruals prior to generating daily journals. Setup for Accounting Before creating the accounting entries, the following setup needs to be in place. The setup should be complete and correct in all respects to ensure that the accounting is generated comprehensively. Hence it is of utmost importance that the setup is made properly. In this section we will discuss: 1. Setup Company profiles 2. Setup System parameters 3. Setup Journal entry actions Setup Company Profiles Navigate to Setup->Parties->Company profiles form. Use the Parameters tabbed region to set up the parameters for revaluation and accounting rules that apply to the company.

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Here is a brief explanation of the parameters and how they affect accounting. Parameter Accounting Perform Deal Revaluation Value Yes (default) or No. Description Determines whether or not your company must perform Revaluations as part of the accounting process. Choose Yes if you want the company to perform revaluations. Choose No if you do not want the company to perform revaluations.

Accounting Spot, Corporate, Sets the default General Ledger daily exchange rate Exchange Rate Type or custom used by the company. defined rate type. Accounting - Journal Summary Transfer Method (default) or Detail Sets the default method the company uses to transfer their journal entries to General Ledger. If you choose Detail, the transaction details are transferred to General Ledger. If you choose Summary, summary amounts are calculated and transferred to General Ledger.

Accounting - Journal No Change Sets the default method the company uses to Transfer in Closed (default) or Next handle journal entries that fall into a closed period. Period Open If you choose No Change, the transaction details are left as is and are transferred to General Ledger. You must resolve any errors that occur in General

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Ledger. If you choose Next Open, the journal entries are placed in the next open period and then transferred to General Ledger. Accounting - Allow Unbalanced Journal Transfer Yes (default) or No Determines whether or not the company wants to allow users to transfer unbalanced journals to General Ledger. f you choose Yes, the Treasury Journal Transfer process leaves the Treasury journals date unchanged, but transfers to the GL Interface Table the start date of the next open GL period.

Accounting Suspense Account Accounting Trade/Settlement Date Method

Custom defined Sets the default suspense account used the suspense account company uses for suspense journals. Settlement Date Accounting (default) or Trade Date Accounting Determines which deals are eligible to be selected for revaluation and accrual processes. For example, if the parameter is set to Settlement Date Accounting, a deal whose settlement date falls after the revaluation batch end-date is not revalued. If the parameter is set to Trade Date Accounting, the trade (deal) date of your deals is compared against the batch end-date when determining if they are to be included in the batch or not. If the company uses a service provider to reconcile foreign exchange settlements between the company and its counterparties, use this parameter to enter the company's FX Match ID. For example, FXAB12345.

External Subscriber FX Match ID

Unique, userentered, subscriber ID

Interest - Interest Includes

Both Days, First Determines the number of days to be used in the Day, or Last Day interest calculation. The default Interest Includes parameter for your companys deals is populated based on your selection here. Day counting options include: First Day: Interest is charged for the start date but not the maturity date. Last Day: Interest is charged for the maturity date but not the start date. Both Days: Interest is charged for both the start date and the maturity date. Note: First Day and Last Day produces the same interest amount at the time of deal entry; however, with accruals, they may provide different accrual amounts depending on the accrual batch period selection.

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Interest - Interest Rounding

Nearest, Round Determines the rounding method to be used in Down, or Round interest calculation. The default Interest Rounding Up parameter for your companys deals is populated based on your selection here. Sets the default market data set that the company wants to use for revaluation purposes.

Revaluation Default Set Default Market Data (default) or Set custom defined set

Revaluation - Future Exclude (default) This parameter is dependent on the Accounting Dated NI Deal Trade/Settlement Date Method parameter. It Revaluation determines the method the company wants to use to discount negotiable instrument deals with future dated settlement transactions (deals that have a settlement date after the current system date or revaluation date). If the Trade parameter is set to Settlement, then this parameter should be set to No Revaluation before Settlement Date. If the Trade parameter is set to Trade, then this parameter should be set to either Yes Revaluation before Settlement Date to Settlement Date, or to Yes Revaluation before Settlement Date to Revaluation Date. Revaluation - FRA Discount Method Physical Start Determines which date the company wants to use Date or to discount Forward Rate Agreement deals to Revaluation Date calculate gain or loss. You can choose to discount to the deal's physical start date, or to the deal's revaluation date. Settlement Date Determines which date the company wants to use or Revaluation to discount foreign exchange deals to calculate fair Date (default) value. You can choose to discount to the deal's settlement date or to the revaluation date.

Revaluation - FX Discount Method

Setup System Parameters System parameters define settings for the operation and control of Treasury and are usually set at the time of implementation. You can update them after implementation as needed. For the purposes of accounting we review the following parameters. Parameter Accrual Days Adjustment Type Value Forward or Arrears (default). Description Sets the range of dates for accruals to either all dates prior to the accrual date (Forward), or to all dates up to and including the accrual date (Arrears).

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Validation Required for Accounting Settle to Other than Counterparty Bank Account

Yes or No (default). Yes or No (default).

Determines whether the journal process creates journals for validated deals and transactions only or all deals and transactions. If set to Yes, allows settlements to be paid to parties other than the counterparty. Allows settlements to be received from or settled to parties/accounts other than the company accounts. Sets the standard currency used in Treasury

Receive to Other Yes or No Than Company Bank (default). Account Treasury Report Currency Currency short form. USD (default).

Setup Journal Entry Actions The Journal Entry Actions window accessed through the form Setup->System->Journal Entry Actions helps to define the General Ledger accounts that are used to generate accounting entries for each combination of deal type, deal subtype, product type, and portfolio within a company. To ensure a balanced ledger, it is critical that accounts and journals are set up completely and correctly. This screen has the following tabs: 1. GL Accounts. 2. Intercompany Accounts. 3. Journal Structures. 4. Query by GL Account. 5. Copy GL Accounts. GL Accounts The GL Accounts tabbed region is used to define General Ledger accounts for each company. You can add new accounts and review existing accounts, but you cannot change or delete existing accounts in this form. The available General Ledger accounts derive from the set of books associated with the company. If you want to define a new General Ledger account, enter a General Ledger account alias in the GL Account column. Treasury populates the fields with the General Ledger account number and description. In the Treasury Reference field, you can enter your own description to identify this GL account. The Treasury reference that you enter appears alongside the GL account number in the list of values throughout Treasury.

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Intercompany Accounts Intercompany accounts help when the organization has several affiliates and subsidiaries and needs to track transactions from and to these entities. The Intercompany Accounts tabbed region is used to review and update the intercompany accounts for intercompany funding deals within a company. These intercompany accounts are used for intercompany transfers and interest charges. The bank code, currency, account number, and account name of each intercompany funding deal is the counterparty bank account that is used in intercompany deals between the company and the counterparty. In the Principal GL field, enter the General Ledger account that you want to use for posting the principal for that company. In the Interest GL field, enter the General Ledger account that you want to use to posting interest for that company.

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Journal Structures Use the Journal Structures tabbed region is used to set up the actual journal structure. Here you define for each applicable company name, the daily journal entries that you want to generate automatically for each combination of deal type, deal subtype, product type, and portfolio. You must update journal entries whenever you create a new product type or portfolio or when you unauthorize a product type. Firstly query the first Deal Type, Deal Subtype, Product Type and Portfolio combination that you want. If the journal values do not appear for the selected combination, you can copy values from another combination that has the same deal type by placing your cursor in the Date Type field and choosing the Copy Journal Details button. Enter or change the Date Type, Amount Type, and Action Code as required. If you want the journal action to refer to the general ledger number related to the company's cash flow bank account, select the Bank GL check box. Otherwise, enter an account number in the GL Account field. If this is an intercompany funding deal, direct journal actions to either the principal or the interest General Ledger account number by selecting the Prin GL or the Int GL check box. These check boxes are only available for non-accrual and non-revaluation date types. Identify the action as a Debit or Credit. If necessary, enter the effective dates for this journal action. You can enter a future date in the Effective From field to pre-define a journal action. You can use the Effective To field to deactivate a journal action after the date you specify.

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The following is the deal type, date type, amount type combinations allowed for journals structure setup. Deal Type FX Date Types DEALT, VALUE, ROLLPRE REVAL (if company parameter Accounting: Perform Hedge Effectiveness Testing is set to NO) REVAL (if company parameter Accounting: Perform Hedge Effectiveness Testing is set to YES) RECLASS ACCRUAL DEALT, VALUE, SETTLE, PREMIUM, EXPIRY REVAL ACCRUAL REVAL COMENCE, DEALT, SETTLE, REFUND ACCRUAL Amount Types BUY, SELL CCYUNRL, CCYREAL, UNREAL, REAL

CCYUNRL, CCYREAL, UNREAL, REAL, NRECUNR, NRECCYU RECUNRL, RECREAL, RECCYUN, RECCYRE PREMADJ FXOBUY, FXOSELL, PREMIUM REAL, UNREAL, CCYREAL INTADJ CCYREAL PRINFLW, INTSET, TAX, INTRFND INTADJ

FXO

ONC

IG

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Deal Type

Date Types BALANCE, COMENCE, DEALT, INTCOMP, SETTLE REVAL REVAL ACCRUAL COMENCE, DEALT, SETTLE, RATESET ACCRUAL COMENCE, DEALT, SETTLE REVAL ACCRUAL COMENCE, DEALT, MATURE REVAL ACCRUAL REVAL COMENCE, COUPON, DEALT, MATURE ACCRUAL COMENCE, DEALT, MATURE, SETTLE, RATESET REVAL ACCRUAL REVAL COMENCE, DEALT, SETTLE COMENCE, DEALT, EXPIRY, MATURE, PREMIUM, SETTLE ACCRUAL REVAL ACCRUAL COMENCE, DEALT, EXPIRY, MATURE, PREMIUM, SETTLE REVAL ACCRUAL

Amount Types BAL, PRINFLW, COMPOND, INTSET CCYREAL UNREAL, REAL, CCYREAL, CCYUNRL INTADJ INITIAL, PRINFLW, INTSET, INTRFND, TAX, INITIAL INTADJ PRINFLW, INTSET, BALOUT, FACEVAL, SETTLE, WRTEINT, WRTEOFF, WRTEON REAL, UNREAL, EFFINT, INTADJ, DISCREV BALCOM, BAL_FV, COMENCE, INT, INTL_FV, ORIGCOM UNREAL, REAL, CCYREAL CPMADJ, SLDISC, SLPREM, SLUAMD, SLUAMP UNREAL, REALMTM, REALAMC, CCYREAL, CCYAMRL INT, DISC, PREMIUM, COMENCE, INTL_FV, COUPON, BAL_FV, TAX INTADJ SETTLE, FACEVAL UNREAL, REAL, CCYREAL INTADJ CCYREAL, UNREAL, REAL PRINFLW, INTSET, INITIAL, FACEVAL PREMIUM, FACEVAL, SETTLE PREMADJ, SLDISC, SLPREM UNREAL, REAL, CCYREAL PREMADJ, INTADJ FACEVAL, PREMIUM, SETTLE UNREAL, REAL, CCYREAL PREMADJ, INTADJ

TMM

RTMM

NI

BOND

FRA

IRS

BDO

IRO

SWPT N

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Deal Type

Date Types REVAL DEALT, COMENCE, EXPIRY, PREMIUM, SETTLE ACCRUAL REVAL SETTLE BALANCE (date type not available) VALUE DEALT, COMENCE, SETTLE, DIVDAT, PAYMENT REVAL

Amount Types UNREAL, REAL, CCYREAL FACEVAL, PREMIUM, SETTLE INTADJ CCYREAL, CCYUNRL INTSET BAL (amount type not available) AMOUNT COMENCE, DIVEXP, DIVSET UNREAL, REAL, CCYREAL

CA

IAC STOC K

Oracle Treasury creates journal entries for brokerage fees also. Setting up date type-amount type combinations does not do this. There is a screen on the brokerage setup form to assign GL account. This is where the GL accounts for journal entries are determined. The offsetting GL account is derived from the cash GL account on the bank account out of which the fee is settled. Note that brokerage fees are journalized only after they are settled (authorized for settlement). Query by GL Account You can review the deal combinations that were set up for a specific General Ledger account. To do this enter the company code of the company whose General Ledger account you want to review and choose the Query by GL Account tab. The Find GL Accounts window appears. Select a General Ledger account and choose the Find button. The journal entry actions for that General Ledger account appear.

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Copy GL Accounts If you are setting up several companies with similar sets of journals, you can copy a set of journals from a company you have already set up. To copy a general ledger account, enter the company code of the company you are setting up and choose the Copy GL Accounts tab. In the Copy From Company field, select the company that has the journals you want to copy and then choose the Copy Journals button. Update the appropriate General Ledger accounts and the effective dates.

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Sample Journal Entry Structures The following are sample treasury accounting configurations for illustration purposes only. In many cases, the following accounting templates have not been fully tested and may not produce journal entries that are 100% correct. Also, these journal structures may not satisfy your unique accounting requirements or cover all possible scenarios. You should use this only as an example of one possible set up and thoroughly test whatever final configuration you define. Oracle does not intend to imply that following these sample set ups will result in proper accounting entries for your company. Deal Type Subtype IG - Intercompany Funding FUND Bank GL * Prin GL * Int GL

Amount Action Code Date Type Type COMENCE PRINFLW REC COMENCE PRINFLW REC ACCRUAL INTADJ POS ACCRUAL INTADJ POS INTCOMP COMPOND PAY INTCOMP COMPOND PAY SETTLE INTSET PAY SETTLE INTSET PAY REVAL CCYREAL GAIN

* * *

Db/Cr GL Acct Db Cr Db Intercompany Interest Expense Cr Accrued Interest Db Accrued Interest Cr Db Accrued Interest Cr Db

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REVAL REVAL REVAL INTCOMP INTCOMP Deal Type Subtype

CCYREAL GAIN CCYREAL LOSS CCYREAL LOSS COMPOND PAY COMPOND PAY IG - Intercompany Funding INVEST Bank GL *

* *

Cr Db Cr Db Cr

Realized Currency Gain/Loss Realized Currency Gain/Loss

Accrued Interest

Amount Action Code Date Type Type COMENCE PRINFLW PAY COMENCE PRINFLW PAY ACCRUAL INTADJ POS ACCRUAL INTADJ POS INTCOMP COMPOND REC INTCOMP COMPOND REC SETTLE INTSET REC SETTLE INTSET REC REVAL CCYREAL GAIN REVAL CCYREAL GAIN REVAL CCYREAL LOSS REVAL CCYREAL LOSS INTCOMP COMPOND REC INTCOMP COMPOND REC Deal Type Subtype Date Type

Prin GL *

Int GL

* *

* *

Db/Cr GL Acct Db Cr Db Accrued Interest Cr Intercompany Interest Expense Db Cr Accrued Interest Db Cr Accrued Interest Db Realized Currency Gain/Loss Cr Db Cr Realized Currency Gain/Loss Db Accrued Interest Cr

ONC - Short Term Money INVEST Action Bank Code GL POS POS DECRS * DECRS INCRS INCRS * SETTLE * SETTLE COMPGRS COMPGRS GAIN GAIN LOSS LOSS Debit/Credit GL Account DR CR DR CR DR CR DR CR DR CR DR CR DR CR accrued interest receivable Interest Income (short term) Short term investment Short term investment

Amount Type ACCRUAL INTADJ ACCRUAL INTADJ COMMENCE PRINFLW COMMENCE PRINFLW COMMENCE PRINFLW COMMENCE PRINFLW SETTLE INTSET SETTLE INTSET SETTLE INTSET SETTLE INTSET REVAL CCYREAL REVAL CCYREAL REVAL CCYREAL REVAL CCYREAL

accrued interest receivable Interest Income (short term) accrued interest receivable Interest Income (short term) Realized Currency Gain/Loss Realized Currency Gain/Loss Interest Income (short term)

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Deal Type Money) Subtype Date Type

IRS - Interest Rate Swap (Should be similar to TMM - Wholesale Term FUND Action Code GAIN GAIN LOSS LOSS POS POS Bank GL Debit/Credit GL Account Db Cr Db Cr Db Cr Db Cr Db Cr Db Cr Db Cr Db Cr Db Cr Db Cr Liability Account Unrealized Gain/Loss Unrealized Gain/Loss Liability Account Interest Income/Expense Accrued Interest Accrued Interest Clearing Account Liability Account Clearing Account Liability Account Liability Account Liability Account Currency Gain/Loss Currency Gain/Loss Liability Account

Amount Type REVAL UNREAL REVAL UNREAL REVAL UNREAL REVAL UNREAL ACCRUAL INTADJ ACCRUAL INTADJ SETTLE INTSET SETTLE INTSET DEALT INITIAL DEALT INITIAL COMENCE INITIAL COMENCE INITIAL COMENCE PRINFLW COMENCE PRINFLW COMENCE PRINFLW COMENCE PRINFLW REVAL CCYREAL REVAL CCYREAL REVAL CCYREAL REVAL CCYREAL Deal Type Money) Subtype

* INCRSE INCRSE INCRSE INCRSE INCRSE INCRSE DECRSE DECRSE GAIN GAIN LOSS LOSS

* *

IRS - Interest Rate Swap (Should be similar to TMM - Wholesale Term INVEST Action Code GAIN GAIN LOSS LOSS POS POS Bank GL

Amount Date Type Type REVAL UNREAL REVAL UNREAL REVAL UNREAL REVAL UNREAL ACCRUAL INTADJ ACCRUAL INTADJ SETTLE INTSET SETTLE INTSET DEALT INITIAL DEALT INITIAL COMENCE INITIAL

* INCRSE INCRSE INCRSE

Db/Cr Db Cr Db Cr Db Cr Db Cr Db Cr Db

GL Acct Asset Account Unrealized Gain/Loss Unrealized Gain/Loss Asset Account Accrued Interest Interest Income/Expense Accrued Interest Asset Account Clearing Account Clearing Account

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COMENCE INITIAL COMENCE PRINFLW COMENCE PRINFLW COMENCE PRINFLW COMENCE PRINFLW REVAL CCYREAL REVAL CCYREAL REVAL CCYREAL REVAL CCYREAL Deal Type Subtype Date Type DEALT DEALT SETTLE SETTLE DECLARE DECLARE DECLARE DECLARE PAYMENT PAYMENT REVAL REVAL REVAL REVAL REVAL REVAL REVAL REVAL REVAL REVAL REVAL REVAL Deal Type Subtype Date Type DEALT

INCRSE INCRSE INCRSE DECRSE DECRSE GAIN GAIN LOSS LOSS

* * *

Cr Db Cr Db Cr Db Cr Db Cr

Asset Account

Asset Account Asset Account Currency Gain/Loss Currency Gain/Loss Asset Account

Stock - Equity Investments BUY Amount Type COMENCE COMENCE COMENCE COMENCE DIVEXP DIVEXP DIVEXP DIVEXP DIVSET DIVSET UNREAL UNREAL UNREAL UNREAL REAL REAL REAL REAL REAL REAL REAL REAL Action Code Bank GL Debit/Credit GL Account Debit Credit Debit Credit Debit Credit Debit Credit Debit Credit Debit Credit Debit Credit Debit Credit Credit Debit Debit Credit Debit Credit Investments AP Due to Broker AP Due to Broker AR Due from Broker Dividend Revenue Dividend Revenue AR Due from Broker AR Due from Broker Valuation Allowance Unrealized Gain/Loss Unrealized Gain/Loss Valuation Allowance Unrealized Gain (Loss) Valuation Allowance Realized Gain (Loss) Investments Valuation Allowance Unrealized Gain (Loss) Realized Gain (Loss) Investments

* POS POS REV REV * GAIN GAIN LOSS LOSS GAIN GAIN GAIN GAIN LOSS LOSS LOSS LOSS

Stock - Equity Investments SELL Amount Action Type Code COMENCE Bank GL Debit/Credit GL Account Debit AR Due from Broker

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DEALT SETTLE SETTLE Deal Type Subtype Date Type DEALT DEALT DEALT DEALT

COMENCE COMENCE COMENCE

Credit Debit Credit

Investments AR Due from Broker

Bond - Fixed Income Securities BUY Amount Type Action Code INTL_FV INT DISC PREMIUM Bank GL Debit/Credit GL Account Debit Debit Credit Debit Credit Credit Debit Credit Credit Debit Debit Debit Credit Debit Credit Debit Credit Credit Debit Debit Credit Debit Credit Debit Credit * Debit Credit Debit Credit Debit Marketable Securities Accrued Interest Unamort Premium (Disc) - Mkt. Sec Adjunct Unamort Premium (Disc) - Mkt. Sec Adjunct Payable - Due to Broker Unamort Premium (Disc) - Mkt. Sec Adjunct Unamort Premium (Disc) - Mkt. Sec Adjunct Other Income (Expense) Other Income (Expense) Payable - Due to Broker Accrued Interest Interest Income Accrued Interest Receivable - Due from Broker Receivable - Due from Broker Other Income (Expense) Other Income (Expense) Unrealized Gain (Loss) Unrealized Gain (Loss) Unrealized Gain (Loss) Unrealized Gain (Loss) Unamort Premium (Disc) - Mkt. Sec Adjunct Unamort Premium (Disc) - Mkt Sec Adjunct Marketable Securities Receivable - Due from Broker Receivable - Due from Broker Withholding Tax Expense

DEALT COMENCE COMENCE COMENCE ACCRUAL SLDISC ACCRUAL SLPREM

* POS POS

ACCRUAL SLDISC POS ACCRUAL SLPREM POS COMENCE COMENCE ACCRUAL CPMADJ POS ACCRUAL CPMADJ POS COUPON COUPON COUPON COUPON COUPON COUPON COUPON COUPON REVAL <REALAMC> GAIN REVAL <REALAMC> LOSS REVAL <REALAMC> GAIN REVAL <REALAMC> GAIN REVAL <REALAMC> LOSS REVAL <REALAMC> LOSS ACCRUAL <SLUAMD> REV ACCRUAL <SLUAMP> REV MATURE MATURE MATURE MATURE COUPON <BAL_FV> <BAL_FV> <BAL_FV> <BAL_FV> TAX

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COUPON Deal Type Subtype Date Type

TAX

Credit

Accrued Interest

Bond - Fixed Income Securities SELL Amount Action Bank Type Code GL DEALT INTL_FV DEALT INT DEALT COMENCE COMENCE COMENCE * COMENCE COMENCE Deal Type Subtype Date Type

Debit/Credit GL Account Credit Credit Debit Debit Credit Marketable Securities Accrued Interest Receivable - Due from Broker Receivable - Due from Broker

NI - Discounted Securities (example 1) BUY Amount Action Bank Debit/Credit GL Account Type Code GL COMENCE COMENCE Debit Marketable Securities COMENCE COMENCE * Credit ACCRUAL <EFFINT> POS Debit Interest Receivable ACCRUAL <EFFINT> POS Credit Interest Income (Expense) REVAL UNREAL GAIN Debit Marketable Securities: Contra - Gain/Loss REVAL UNREAL GAIN Credit OCI - Gain/Loss REVAL UNREAL LOSS Credit Marketable Securities: Contra - Gain/Loss REVAL UNREAL LOSS Debit OCI - Gain/Loss REVAL REAL GAIN Credit Marketable Securities: Contra - Gain/Loss REVAL REAL GAIN Debit OCI - Gain/Loss REVAL REAL GAIN Credit Other Income (Expense) REVAL REAL LOSS Debit Marketable Securities: Contra - Gain/Loss REVAL REAL LOSS Credit OCI - Gain/Loss REVAL REAL LOSS Debit Other Income (Expense) ACCRUAL <EFFINT> REV Credit Interest Receivable MATURE BAL_FV * Debit MATURE <BALCOM> Credit Marketable Securities Deal Type Subtype Date Type NI - Discounted Securities (example 1) SELL Bank GL * Debit/Credit GL Account Debit

Amount Type Action Code COMENCE COMENCE

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COMENCE <ORIGCON> Deal Type Subtype Date Type

Credit

Marketable Securities

NI - Discounted Securities (example 2) BUY Bank GL * Debit/Credit GL Account Credit Credit Debit Debit Credit Debit Credit Credit Debit Credit Debit Debit Credit Credit Debit Debit Credit

Amount Action Type Code COMENCE COMENCE COMENCE INT COMENCE INTL_FV ACCRUAL <EFFINT> POS ACCRUAL <EFFINT> POS REVAL UNREAL GAIN REVAL REVAL REVAL REVAL REVAL REVAL REVAL REVAL REVAL MATURE MATURE Deal Type Subtype Date Type UNREAL UNREAL UNREAL REAL REAL REAL REAL REAL REAL BAL_FV BAL_FV GAIN LOSS LOSS GAIN LOSS GAIN GAIN LOSS LOSS

Mkt. Securities Contra Unamortized Discount Marketable Securities Mkt. Securities Contra Unamortized Discount Interest Income Mkt. Securities Contra Gain/Loss OCI Gain/Loss Mkt. Securities Contra Gain/Loss OCI Gain/Loss Mkt. Securities Contra Gain/Loss Mkt. Securities Contra Gain/Loss OCI Gain/Loss Other Income (Expense) OCI Gain/Loss Other Income (Expense) Marketable Securities

NI - Discounted Securities (example 2) SELL Bank GL * Debit/Credit GL Account Debit Credit Debit

Amount Type Action Code COMENCE COMENCE COMENCE INTL_FV COMENCE <DISCREV>

Marketable Securities Mkt. Securities Contra Unamortized Discount

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Accounting Methods When running the accounting process you can choose to generate journals of two kinds: Non-Revaluation/Non-Accrual Related Journal Processing Revaluation/Accrual Related Journal Processing "Non-Revaluation/Non-Accrual Related Journals" creates journal entries for "cash" amounts (principal transfers, interest settlements, deposits, etc.). If you select this type in the Batch Source region, then you will be required to enter a Cutoff Date in order to generate journals. A Cutoff Date allows you to specify up until what date you want to journalize "cash" amounts. If you want to capture everything, set this date equal to today's date (futuredating is not allowed). If you set the Cutoff Date equal to, say, March 1, 2003, only those "cash" amounts in the system that are dated March 1, 2003 or prior will be journalized. NonRevaluation/Non-Accrual Related Journal Processing can be run any time and does not go through the revaluation, accrual cycle. The second batch type is called "Revaluation/Accrual Related Journals" and it creates journal entries for all amounts ("cash", revaluation, accrual). The pre-requisite for this type of a journal batch is, thus, the creation of Revaluation and/or Accrual batch. If you select this batch type in the Batch Source region, then you will be required to enter a Batch ID that has been generated when you finished running Revaluation and/or Accruals. Accounting Batches You start the accounting process by creating an accounting batch. An accounting batch consists of a batch ID, a batch period (date range for the transactions included in the batch), and a set of transactions that fall within the batch period. You can create an accounting batch and generate journals in one step for non-revaluation and non-accrual journal entries. If you are performing revaluations and/or generating accruals, then after you create an accounting batch, you must authorize the batch at each step of the accounting process. For example, once you complete revaluations you must authorize the batch before you can begin accruals for that same period. Similarly, the accruals batch must be generated and authorized before you can generate any journals for that date range. You cannot change or delete an authorized accounting batch because it may affect the accounting process. If you have authorized the revaluations and accruals for a batch, you can only delete the batch or make any changes to the revaluations for the batch after you unauthorize both the revaluations and accruals. If you want to make changes to the accruals, you must first unauthorize the accruals. Once a batch has been transferred to General Ledger, you cannot unauthorize, make changes, or delete the batch. The table below lists the statuses that must exist before you can change or delete an accounting batch. For example, if you want to change revaluations for an accounting batch, the batch can have revaluations generated for it but the revaluations cannot be authorized.

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Can Change or Delete an Accounting Batch at . . . Revaluations

Status of Revaluations Generated - Yes Authorized - No

Status of Accruals Generated No Authorized No Generated Yes Authorized No Generated Yes Authorized Yes

Status of Daily Journals Generated - No Transferred - No

Accruals

Generated - Yes Authorized - Yes

Generated - No Transferred - No

Daily Journals

Generated - Yes Authorized - Yes

Generated - Yes Transferred - No

Batch Periods The start and end dates of the batch period are automatically populated based on the end date of the previous batch and the length of the periods that are defined in the company accounting calendar. Typically a period is one month. You can edit the period end date as required. For example, you can create a batch period of one day or two weeks in length. The first time you create a batch, the start date for the batch period is the date of the oldest transaction and the end date is the current system date. The dates covered by batch periods must be consecutive, unique and gapless. Each date must appear in a batch, and the same date cannot appear in two different batches. For example, if you create a batch for the period June 1 to June 15, you cannot create another batch for the period June 1 to June 30, or start the next batch on June 17. Instead, you must either create another batch that covers all of the remaining dates (for example, a batch for June 16 to June 30) or delete the existing batch and create a new batch that covers all of the dates (June 1 to June 30). Revaluations Revaluation is the process of adjusting the rates and prices of your financial instruments to reflect the current market value and calculate the realized or unrealized profit and loss. This is an optional step in the accounting process and is the first step only if the Accounting Perform Deal Revaluations company parameter is set to Yes. If this option is set to No, the accounting process typically starts with Accrual. The rates that you capture to revalue your financial instruments (interest rates, bond and stock prices, foreign exchange spot rates, or volatility rates) are collectively called revaluation rates. Revaluation rates are captured from the Current System Rates window for the specified batch period. To perform revaluations, firstly define the start and end dates for the accounting batch period. Usually this maps to a single month but can encompass a longer period. The Period From cannot be changed but the Period To can be altered. Now click on the button

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Capture Rates. These are the rates you want to use to revalue the batch from the Current System Rates window. Review and adjust the revaluation rates, if required and then select the option Calculate Revaluations. This will calculate your mark-to-market and currency gain or loss revaluations using the GL daily rate. After this the concurrent program Program - Calculate Revaluations (XTRCALRV) is submitted. Check the log file of this program to ensure that the revaluations have been completed successfully. After this click on the Revaluation Details option and you can see the revaluation Details. If any deal has the option Incomplete checked it has failed revaluation and the log will show the reason for the same. You can recalculate revaluations as often as you want. Once all deals are successfully revalued, authorize the revaluations by clicking on the option Authorize. You cannot change revaluations once they are authorized. Refer to the following screenshots for the steps to perform revaluation.

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Financial instruments are revalued using either mark-to-market or currency gain or loss revaluation. Mark to market revaluation calculates the fair value or current replacement cost, for the financial instrument. Currency gain or loss revaluation calculates the value of foreign currency holdings. For example, if you have a foreign currency bank account and the exchange rate fluctuates, you will experience a currency gain or loss. The method of revaluation used depends on the type of financial instrument being revalued. Bond Option (BDO), Bonds (BOND), Equities (STOCK), Foreign Exchange Options (FXO), Foreign Exchange Spot or Forward Deals (FX), Forward Rate Agreements (FRA), Interest Rate Option (IRO), Interest Rate Swap (IRS), Interest Rate Swaption (SWPTN), Negotiable Securities (NI) and Wholesale Term Money (TMM) are revalued using both mark-to-market and the currency gain or loss revaluation. Current Account Balances (CA), Intercompany Transfers (IG) and Short Term Money (ONC) are revalued by calculating only the currency gain or loss. Deal pricing models are predefined for each deal type. You can define new pricing models for any deal type that has a Fair Value pricing model. If the pricing model is fair value, you will need to specify the override value and override type in the revaluation window. Here is the list of the revaluation methods used for each financial instrument in Oracle Treasury.

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Deal Type Bond Option (BDO) Bond (BOND)

Deal Pricing Model Fair Value: User entered fair value. No Revaluation Fair Value: User entered fair value. Market: Calculates the value of the bond using the revaluation rate. (Revaluation Rate/100) * Face value of deal. No Revaluation Face Value: Balance. No Revaluation No Revaluation Fair Value: User entered fair value. Market: Calculates the value of the bond using the revaluation rate. No Revaluation No Revaluation

Current Account Balance (CA) Deal Orders (DO) Equities (STOCK)

Exposures (EXP)

Forward Rate Fair Value: User entered fair value. Agreements (FRA) FRA Discount: Present value of the deal using the contract and implied forward/settlement rate. Note that this pricing model is used for FRA deals priced in Australia or New Zealand dollars. FRA Yield: Present value of the deal using the contract and the implied forward/settlement rate. No Revaluation Foreign Exchange Contracts (FX) Fair Value: User entered fair value. Market-Deal: Compares the current market rate to the transaction rate. GL-Deal: Compares the GL daily exchange rate to the transaction rate. No Revaluation Fair Value: User entered value. Garman Kohlhagen (Modified Black-Scholes) (Hull, John C. Options, Futures, and Other Derivatives. 3rd ed. Prentice Hall, 1997): No Revaluation No Revaluation Face Value: Balance of deal. No Revaluation Fair Value: User entered fair value. Black (Black-76) (Hull, John C. Options, Futures, and Other Derivatives. 3rd ed. Prentice Hall, 1997) No Revaluation

Foreign Exchange Options (FXO)

Interaccount Transfers (IAC) Intercompany Transfers (IG) Interest Rate Options (IRO)

Interest Rate Swaps Fair Value: User entered fair value.

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(IRS)

Discounted: Calculates the net present value of the deal using the discount rates from the yield curve. No Revaluation Fair Value: User entered fair value. Discount: Calculates the value of the deal using the current market discount rates from the yield curve. Note that effective interest is deducted from calculated gain or loss. No Revaluation

Negotiable Securities (NI)

Short Term Money Face Value: Balance of the deal. (ONC) No Revaluation Retail Term Money No Revaluation (RTMM) Interest Rate Fair Value: User entered fair value. Swaption (SWPTN) No Revaluation Wholesale Term Money (TMM) Discounted Cashflow: Calculates the net present value of all future cash flows including principal changes and coupon payments adjusted by the current accrual balance. Fair Value: User entered fair value. No Revaluation

Accruals Use the Accruals window to authorize the accruals for your batch. You can generate amortizations and accruals adjustments, split by revenue and expense, for all money market products. These adjustments include amounts for settling derivatives, such as FRAs and options. Amortization and accruals adjustments are calculated for each batch period, rather than as an accumulating amount for multiple periods. Reversal entries are not required. There are two types of accruals supported by Treasury.

Straight Line Accruals

This type relies on a constant accrual amount and is used to calculate accruals for all deals except discounted security deals.

Effective Interest Accruals

This type relies on a constant accrual rate and is used to calculate accruals for discounted security deals only. Effective interest amortizes the discount on a discounted security deal over the life of the deal so that a constant rate of interest is used. Effective interest accruals are necessary to properly account for discounted securities, especially when a deal is resold. If the discounted security deal is not held until maturity, the proper accounting entries are generated unless the effective interest accruals method is used. The accrual methods calculate the accounting period discount by multiplying the Yield to the Maturity rate at the time of purchase, and by multiplying that to the beginning accounting period cost basis. Accruals is the first mandatory step in the accounting process. If your company set the Accounting - Perform Deal Revaluations company parameter to Yes, then

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you must perform revaluations before you can perform accruals. You cannot perform accruals on individual deals. Instead, you must perform accruals in batches. For each batch that you accrue, you must: 1. 2. 3. 4. Define the start and end dates for the batch, unless the batch is already defined. Create the period adjustments for the accrual. Authorize the accrual for the batch. You can adjust the accruals for a batch up until the point when you transfer your daily journals to General Ledger.

The accrual process involves: 1. Open the accruals form (Accounting->Accruals) 2. Select the Batch ID from the LOV, this is the same as the revaluation Batch ID if you are using revaluations. 3. The Period From and Period To options default automatically here. 4. Select the option Calculate. 5. This triggers a concurrent program, Program - Generate Accruals (XTRCALAC). 6. Once this is successfully completed, you can query the accruals from the form and check the amounts generated. 7. To complete the process click on the button Authorize. You must authorize your accruals before you can proceed to generating daily journals. You can delete period adjustments for a batch until you transfer the daily journals for the batch to General Ledger. Refer to the following screenshots for the steps to perform accruals.

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Daily Journals Use the Daily Journals window to generate the daily journals for an accounting batch, view the generated journal entries, change the dates or GL accounts for your journal entries and reallocate suspense journal entries to a GL account. Daily journals are generated based on the deals in the accounting batch and the journal entry actions that you set up in the Journal Entry Actions window. Daily journals are generated using the transaction foreign currency and set of books currency equivalent. In the "Submit Process to Generate Journals" form, which you see after clicking on the "Generate Journals" button in the "Daily Journals" form, there are two types of journal batches that you can generate. (Note: all accounting in Treasury is done in "batches" that span over a user-defined period of time and cover all eligible deals). The default value is "Generate Non-Revaluation/Non-Accrual Related Journals". To generate Daily Journals: 1. Open the Daily Journals Form (Accounting-Daily Journals) 2. Click on the Button Generate Journals. 3. Select the option Generate Non-Revaluation/Non-Accrual Related Journals or Generate Revaluation/Accrual Related Journals. 4. Choose the cutoff date or Batch Id as per the selection above. 5. Click on Submit. 6. You will now see a prompt: Do you want to submit the process to generate journals Yes/No? Select Yes.

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7. This triggers the concurrent program Program - Revaluation/Accrual Related Journal Processing (XTRJRNAL) if you have chosen Generate Revaluation/Accrual Related Journals. If you chose the option Generate NonRevaluation/Non-Accrual Related Journals, the concurrent program Program Non-Revaluation/Non-Accrual Related Journal Processing (XTRJNLCA) will run. 8. After you generate journal entries, you can use the Maintain/Review Journal Details window to review and update your generated journal entries. Refer to the following screenshots for the steps to generate daily journals.

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Viewing and Correcting Journals

Use the Maintain/Review Journal Details window to view daily journals or change generated journal entries. You can only change generated journal entries for daily journals that have not been transferred to General Ledger. Please note that if you set the Validation Required for Accounting system parameter to Yes, then the accounting batch process only creates journals for validated transactions. The accounting batch log file records the revalued/accrued and non-revalued/non-accrued transactions that are not validated and therefore did not have journal entries created. If the batch creates journal entries for revalued and accrued transactions but related cash transactions are not validated, the log file indicates the creation of unbalanced journal entries. To correct unbalanced journal entries you must rollback the journal entries created, validate the relevant transactions, and run a new accounting batch. Updating the Journal Date is subject to these restrictions: 1. You cannot enter a date on which there is no daily exchange rate available in your company's exchange rate type between the transaction currency and the SOB currency. 2. You cannot enter a date that falls within a closed GL period. If you want to reallocate entries from a company suspense journal to a General Ledger account, use the Suspense Journals window. Transfer to General Ledger After successfully completing all of the steps in the accounting process, transfer your daily journal batches to General Ledger. Before you perform this step, you must ensure that you have entered and verified all accounting changes. Once a batch has been transferred to General Ledger, you cannot unauthorize, make changes, or delete the batch. If a deal changes after you transfer to GL, you must create a reversal and a replacement journal. If your journal batch contains entries with journal dates that fall into a closed GL period, you can optionally post these entries to the next open GL period. If you choose this option, Treasury maintains a record of both the actual journal date and the new posting date. You can choose to allow the transfer of unbalanced journals to GL by setting the company parameter Accounting - Allow Unbalanced Journal Transfer (Yes/No) in the Company Profiles window. Daily journals are transferred to General Ledger in both the transaction currency and the set of books currency equivalent. The rate used to calculate the set of books currency equivalent is drawn from the GLRATES table. This calculation takes place when you generate daily journals. To transfer a journal batch to General Ledger: 1. Open the Daily Journals form (Accounting->Daily Journals) 2. Query or enter the company and journal batch that you want. 1. If you use the Find Journals window to query journals, you can check the Include Transfer box to view batches previously transferred to GL. 2. Review the journals to ensure that they are correct and that you are ready to transfer them to GL.

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3. If your journal batch contains entries with journal dates that fall into a closed GL period, use the Journals in Closed Period poplist to control the posting of these entries. Choose Next Open to post these entries to the next open GL period, or No Change to post these entries with the closed period date. 4. Choose the Transfer Journals button. If you are transferring an unbalanced journal, Treasury displays a warning message. If you set the company parameter Accounting Allow Unbalanced Journal Transfer to Yes, you can allow the transfer of the unbalanced journal. 5. A concurrent process Program - Revaluation/Accrual Related Journal Processing (XTRJRNAL) transfers the accounting batch to General Ledger.

Transferring Options
There are two places in the system where XTR journals can be summarized. First, there is a company level parameter "Accounting - Journal Transfer Method" (Detail or Summary). It should be noted that it only takes effect during journal transfer. Even if the value of the parameter is set to "Summary", the journals that are going to be generated in XTR and be visible in the Daily Journals form will always represent individual deals. In other words, if there are 2 deals in the system that on the same date should each generate a debit to the same GL account, you will see these deals as two separate debit lines in the Daily Journals form. Once you go to the Transfer Journals form and pull up the journal batch, this is when the system will look at the company level parameter and either shows you two separate debits

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(parameter value = Detail) or one single debit for cumulative amount (parameter value = Summary). Whatever you see in the Transfer Journals form will be then transferred to the GL journal interface table. Since you can view XTR journals in Daily Journals form even after the transfer to GL, the transferred journal lines will always be displayed as individual - not summarized - journal entries (even if you transferred them as summary journals). It is important to note that XTR summarizes debit and credit journals separately during transfer using the following parameters: Same journal date Same GL account

So, if the following journals exist in the batch: Dr 100.00 GL# 10 date = Feb 1 Dr 200.00 GL# 10 date = Feb 1 Dr 300.00 GL# 10 date = Feb 1 Cr 22.00 GL# 10 date = Feb 1 Cr 33.00 GL# 10 date = Feb 1 Cr 44.00 GL# 10 date = Feb 2 Total Debits: 600 Total Credits: 99 And this is transferred using the Summary method, in the GL interface table the following is seen after the transfer: Dr 600 GL#10 date = Feb 1 Cr 55 GL#10 date = Feb 1 Cr 44 GL#10 date = Feb 2 Total Debits: 600 Total Credits: 99 Now, when the XTR journals are transferred to GL, they are placed in the GL interface table. Before you can post them, you have to import them from the GL interface table into the main GL table. This is the second place where the journals can be summarized. In the GL journal import form (GL: Journals->Import->Run), there is an option called "Create Summary Journals". If this option is chosen while importing the above mentioned batch, the GL journals will look as follows: Dr 545 GL#10 date = Feb 1 Cr 44 GL#10 date = Feb 2 Total Debits: 545 Total Credits: 44

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This is because GL "Summary", unlike XTR "Summary", means that debits and credits for the same GL account are also netted This example shows how you can have different totals in XTR and GL after the journal transfer. To ensure that the XTR journal is available in GL do the following: For this particular XTR journals batch, take note of all journal entries in the batch on the XTR side (Daily Journals form), their amounts, GL accounts, dates and dr/cr side Group all entries by GL account and for each GL account calculate total debits, total credits and the net of debits and credits. Verify that netting debits and credits for the same GL account results in the calculation of the same total debit and credit amounts that the client sees in GL after import.

If you have already run revaluation and accruals for a month and later enter transactions for a month you will see the following messages that are intended.

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Example Accounting In this example let us take an ONC or short-term money deal and see how the accounting is getting created using the Process of generating Revaluation/Accrual related processing. 1. Setup the Journal Entry Actions (Setup-> System -> Journal Entry Actions)

2. Create an ONC deal Money Market Transactions -> Short Term Money)

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3. Validate (Settlements -> Transaction Validation)

4. Settle the transaction (Settlements -> Settlements)

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5. Run Revaluations (Accounting->Revaluations) and ensure it completes Normal.

6. Run Accruals (Accounting-> Accruals) and ensure it completes Normal.

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7. Submit the process to generate Accrual/Revaluation related journals and ensure it completes Normal.

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8. Once the concurrent program completes, query the Daily Journal screen to see the accounting entries generated for the batch ID (13323) and del (8279).

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9. You can also generate the Non-Revaluation/Non-Accrual related journal entries at any time. Take for example another ONC deal that is created and the same process run for the accounting choosing Non Revaluation/Non-Accrual processing.

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10. Seen here is the snapshot of the accounting entries generated for the transaction as seen in the Daily Journals window.

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Automating Accounting Process A concurrent program Streamline Accounting Process is also available to provide clients with the option of processing Revaluation, Accruals, and Journals for a specific or all companies accessible to the user based on a certain date through to Journal Generation or Journal Transfer. This program allows users to link any or all of the steps together in a sequence and run in a concurrent program, which executes each individual accounting process for the specified company or companies. The Streamline Accounting Process can be run for either a single company or for all the companies available based on the user access level. A separate concurrent request is submitted for each company and a separate concurrent request log gets generated for each company.

Report Parameters
Company this lists all the treasury companies you have access to as defined by the User Access Level. If the field is left blank, the system processes all treasury companies that you have access to. Batch End Date is the batch ending date and the default is the current system date. Start Process From is the starting point for the accounting process. The choices are: Revaluations: Start process from revaluation rates capture. Accruals: Start process from accrual generation. Daily Journals - Generation: Start process from journal generation. Daily Journals - Transfer to GL: Start process from journal process.

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Note: The company parameter Accounting - Perform Deal Revaluation affects the results of the Streamline Accounting Process. If you set the parameter to No, the program would perform no revaluations. End Process After is the ending point for the accounting process. The choices are: Revaluations: End process after revaluation details are authorized. This value can be selected if the Start Process From is Revaluations. Accruals: End process after accrual details are authorized. This value can be selected if the Start Process From is Accruals or Revaluations. Daily Journals - Generation: End process after journals are generated. This value can be selected if the Start Process From is Daily Journals - Generation, Accruals, or Revaluations. Daily Journals - Transfer to GL: End process after journals are transferred. This value can be selected for any of the Start Process From options.

Journals in Closed Periods: Sets the method to handle journal entries that fall into a closed period. This field is enabled only if the End Process After parameter is set to Daily Journals Transfer to GL. The choices are: No change: The transaction details are left as is and are transferred to General Ledger. Next open: The journal entries are placed in the next open period and then transferred to General Ledger.

In Treasury, there is no specific closing process. As there are no pre-defined accounting periods to open and close, whenever the user selects to initiate the accounting processes would be considered day/month-end close. One practice may be to generate journals for the transactions daily or weekly by running Non-Revaluation/Non-Accrual Related Journals and to perform revaluation and accrual calculations and generate journals for them monthly. Another practice may be not to have any daily or weekly process but perform revaluation, accruals, and journals only at month-ends. This could be considered a monthly closing process. However, there is no mechanism in place to enforce this and it is at client discretion. A feature referred to as "Flexible Journals" has been introduced in 11.5.9 (patch 2428924) due to the customer demand to process cash-related journals more frequently than accrual or revaluation related journals. This feature provides the ability to create journal (for Cashrelated amounts only) at any time without the link to the revaluation and accrual batches. In the Flexible Journals feature, you may be able to generate multiple Cash related (Non-accrual / Non-revaluation) batches within the same date (cut off date) provided cash flow transactions are created after the generation and transfer of the earlier batch. System shall pick up any unprocessed transaction since the last run and create a new NR/ NA batch with the same end date. This way multiple transfers could be done within a same day.

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Hedge Effectiveness Testing The crux of the FAS 133 (and its European counterpart IAS 39) is a special accounting treatment of gains and losses of qualifying derivatives. Oracle Treasury from the very beginning was providing support for derivatives, fair value gain/loss calculations (through Revaluation) and flexible accounting setup. Someone who is very well familiar with the requirements of the standards and Oracle Treasury functionality can create a FAS/IAS compliant accounting setup given the three above-mentioned components of the system. However, some of the steps would still have to be performed manually (effectiveness testing and reclassification). Oracle Treasury allows you to view your Oracle AP and AR outstanding exposures real-time and set up relationships to hedge those exposures with FX forwards. Functionality as of release Financials Family Pack E (XTR.L) allows using only FX forwards as hedging instruments. If an FX forward deal is designated as an instrument in a current hedge relationship, cancellation, rollover or predelivery of the deal will result in cancellation of the hedge relationship. Oracle Treasury supports the most important building blocks of IAS39 compliance: markto-market revaluation and breakdown of revaluation results into components such as fair value gain/loss (due to the change in the market price of the instrument) and currency gain/loss (due to the change in the exchange rate between your SOB currency and the currency of the instrument). Oracle Treasury uses internationally accepted pricing models to calculate fair value gains/losses of all the financial instruments supported, derivative and physical alike. Also, Oracle Treasury allows immense flexibility in setting up journal entry structures based on a variety of user-defined groupings such as portfolios (company/LE specific) and product types (system-wide). To differentiate the accounts that the gain/losses of hedge instruments will be booked to, user can set up a portfolio called HEDGE and set up the journal entry actions such that the gain/losses are booked to a set of GL accounts other than the normal/non-hedge accounts. Thus, when hedge deals are saved in this portfolio, the accounting entries will be booked to the desired GL accounts. With the aid of descriptive fields, it is possible to store any user-defined information on individual deals. Also, with the attachment functionality, user can attach any soft-copy document or file to deals or hedge relationships. With the aid of Oracle Discoverer, it is possible to create reports displaying data recorded at the hedge level.

Foreign Exchange Hedge Effectiveness and Accounting Under IAS 39 and FAS 133
This feature helps to support foreign exchange forward hedging of Payables and Receivables as defined by IAS 39 and FAS 133. This new feature expands existing functionality that already allows users to view real-time Payables and Receivables exposures, as well as designate and track related Foreign Exchange forward hedges. Oracle Treasury now also automatically calculates the retrospective effectiveness of these hedges, comparing historical gains or losses of the Foreign Exchange forward contracts to the offsetting losses or gains associated with the underlying exposures being hedged. Oracle Treasury allocates the effective and ineffective portions of these revaluation amounts and can automatically generate proper accounting entries under IAS 39 and FAS 133. This feature also delivers the ability to audit prospective effectiveness testing results, as well as reclassify the effective portion, or deferred, gains and losses back into current period earnings when the underlying exposure is realized.

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Setup Hedging is a strategy designed to reduce financial risk using derivative instruments. A hedge can help lock in profits or limit losses by reducing the volatility of an asset or liability by mitigating the risk of loss. To use this feature: 1. Setup hedge policies that define the exposure sources (known as hedge items) that you want to hedge and the financial instruments (known as hedge instruments) that you want to use to hedge those items using foreign exchange spot/forward deals. This can be done by opening the form Setup->Policies->Hedge Policies.

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2. Setup the hedge strategies that define the reasons that you are hedging your exposures. You can use hedge strategies to define all of the accounting-related reporting information that you require as well as to set up any default information that you want when you create a hedge. . This can be done by opening the form Setup->Policies->Hedge Strategies.

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3. Setup the Hedge Item Accounts in Journal Entry Actions. Access the form through Setup->System->Journal Entry Actions.

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Hedge Eligibility Revaluation

To be eligible for revaluation, the following conditions should be met: 1. Hedge status = other than Cancelled or Designate AND hedge start date <= revaluation batch end date AND revaluation start date <= hedge end/discontinue date 2. Risk type = foreign exchange or fair value 3. Hedge source type = other than XTR 4. Hedge currency = other than the set of books currency of the company 5. Retrospective test method on the hedge is any value other than No Testing 6. Hedge item current amount is not equal to zero. For Hedge Item Revaluation, if time value is excluded on the Hedge Strategy form, then GL Rate model will be used to revalue hedge items (CCYUNRL). If time value is not excluded on the Hedge Strategy form, then forward Rate model will be used to revalue hedge items (UNREAL).

Hedge Item Revaluation

1. Determine the beginning value by converting the current hedge amount into set of books currency amount using the rate on the hedge start date. 2. Determine the ending value by converting the hedge amount into set of books currency amount using the rate for the revaluation end-date or hedge discontinue/end date. 3. Calculate the unrealized gain/loss by subtracting (1) from (2) above. A negative value is a loss; a positive value is a gain.

Effectiveness Testing
In 11.5.10 CU2, prospective and retrospective hedge effectiveness testing are the two new (optional) steps in the accounting process. In order to able to test the effectiveness of the hedge, ensure that the Company Parameter 'Accounting - Perform Hedge Effectiveness Testing' is set to Yes. This form can be accessed by Setup->Parties->Company Profiles>Tab Parameters.

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There are two methods of hedge effectiveness testing available.

Prospective
This is a forward-looking statement that the hedge will remain effective (i.e. regression analysis). In Prospective testing, user can manually enter the result of externally performed test as PASS or FAIL, as well as add any comments related to testing and attach supporting documents.

Retrospective
This is a retrospective looking statement that in the past the hedge was effective (historical gain/loss offset analysis). Here, if the company parameter is set to Yes, this process becomes a required step after revaluations in the accounting batch. This process splits unrealized gain/loss amounts of deals designated as hedge instruments into effective and ineffective amounts according to test results, as well as calculates any reclassification amount. For retrospective testing, there are 5 testing methods that the user can select from at the hedge strategies setup or hedge attributes level: 1. 2. 3. 4. 5. Shortcut/Fully Effective Period Offset Cumulative Offset Manual Entry No testing

For example if the Derivative/Hedge Instrument Gain is $2200 and the Hedge Item Loss is $2000, the effectives is 110% (2200/2000). If the tolerance levels are between 80% and

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120%, this will pass the test as it falls within the range. However, if the effectiveness were at say 50%, the hedge would have failed the effectiveness test. Here the effective part of the gain is $2000 and the ineffective part of the gain is $200. Now Preferential Accounting will be available for effective part of the gain of $2000. The ineffective part of the gain for $200 will be part of the regular accounting (Direct to Current Period Income).

Viewing Effectiveness Testing Results

Treasury provides the feature to view the results of the effectiveness testing for both prospective and retrospective methods. This form can be accessed by View > Hedging > Effectiveness Test Results.

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Prospective

Retrospective

There is no major change in accounting for Treasury in release 12. Sub ledger accounting (SLA) is not applicable to Oracle Treasury.

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Accounting In Oracle Treasury March 2007 Author: Bindu Gopal Rao Oracle Corporation World Headquarters 500 Oracle Parkway Redwood Shores, CA 94065 U.S.A. Worldwide Inquiries: Phone: +1.650.506.7000 Fax: +1.650.506.7200 oracle.com Copyright 2007, Oracle. All rights reserved. This document is provided for information purposes only and the contents hereof are subject to change without notice. This document is not warranted to be error-free, nor subject to any other warranties or conditions, whether expressed orally or implied in law, including implied warranties and conditions of merchantability or fitness for a particular purpose. We specifically disclaim any liability with respect to this document and no contractual obligations are formed either directly or indirectly by this document. This document may not be reproduced or transmitted in any form or by any means, electronic or mechanical, for any purpose, without our prior written permission. Oracle, JD Edwards, and PeopleSoft, are registered trademarks of Oracle Corporation and/or its affiliates. Other names may be trademarks of their respective owners.

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