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Euro myths and facts

These are characteristic statements from software suppliers on the euro, taken from an article in a recent buyer's guide to accounts software:

  • "There is still no definitive interpretation of EMU compliance for accounting software"
  • "Our development plan is ... subject to the directives from Brussels becoming available in time"
  • "We will comply with EU regulations whenever they come out"
  • "The EU has not settled the issue, but we ... will be ready when they are ready"

The facts are, the rules have been known since 1996 and embodied in Regulation 235 of July 1997. The EU has held workshops such as the meeting on 30 October 1997 with the SIX group of large accounting vendors. There will never be a specification for euro-compliance from Brussels. That will be a matter for the marketplace. In this article I will give pointers to a wide range of information about the euro, to dispel this excuse for procrastination finally. There's nothing more coming from Brussels, folks; get on with it.

The number one source of information for IT people is a thorough and practical article by Pieter Dekker on "PREPARING FINANCIAL INFORMATION SYSTEMS FOR THE EURO" at the ISPO web site. Further web sources are given below {in the box}.

Here in Ireland, the EMU IT Working Group held an open forum in Forbairt, Dublin on 20 November 1997. Forfás are going to issue their own IT guidelines soon. Ask for the Forfás information pack and read the legal framework - it's not that daunting.

Brendan Lawlor of Price Waterhouse in the article mentioned at the start makes the point "Every firm must decide for itself what it is going to do about EMU processing ... It must examine the whole organisation." The strategic preparation must involve the entire company; this is much more than an accounting problem. Don't leave it to the IT people to solve for themselves. With the exception of those readers of "Irish Computer" who are also business managers, "You don't want that. You don't want IT people making business decisions"

The impact on retail systems is pervasive - price displays, labels, pack pricing, bar-codes, sensitive (psychological ) price points, weighing scales, the unit pricing directive, the loss of margin on low unit price items, consumer information, personnel training, adapting cash registers, scanning systems, cash office management, security, and so on. Purchasing price transparency is a major factor in marketing decisions.

Price lists will have to be reviewed. People seem to be making an automatic assumption that everything - price lists, invoices, even statements - will have to be dual priced. The EC leaves it to national legislation, and there is no legislation on this in any country. This is a customer information issue, and it's up to you to decide what to do. I warn of the risks of taking on too much change in systems given that IT resources will be stretched already for Year 2000 conversion.

Plan carefully the synchronisation with your trading partners - consider the effect of time lags in order / delivery / invoicing / payments / statements processing. Plan for user training. Given the very different nature of Y2K & euro, plan together, deliver separately. You could have a "big bang" or a gradual changeover, and take care of the "end of year" considerations. You may have a dependence on external service providers of information systems - e.g. stock exchange feed, bureau services, that will change to the euro on 1/1/1999.

The Year 2000 is a maintenance project with a fixed deadline, no functionality change, requiring regression tests, future date testing, and it has no fallback. The euro is a new functionality project with a three year transition phase requiring requirements testing, and can rely on "no compulsion" as a fallback.

The changeover options are discussed in the Pieter Dekker paper referred to above. There is no point in going through them all here - as far as I am concerned that paper is required reading for anybody dealing with the euro in IT.

Briefly, you have a choice of :

Manual operations : a single currency system and a calculator

Parallel : duplicate systems in IEP and EUR.

Modify your current systems

Replace with a new multi-currency package that can handle the Regulation 235 rules.

Replace with a new Dual base currency package.

Replacing or upgrading packages has other implications. One vendor has stopped selling Windows 3.11 versions of its software, and all future versions will be Windows 95 only and existing clients will be upgraded free of charge; except for their hardware, of course!

Very few current "multi-currency" packages meet the Regulation 235 criteria, as they were designed for the management of floating rates, not a six-digit fixed rate regime. The euro needs more than most multi-currency packages provide. Multi-base-currency packages have been proposed, and may suit some but one size does not fit all.

Every business process is affected by the euro. You should perform a "thought experiment", a simulation of what will happen to your business during the transitional period to see how new requirements might be generated for IT systems. This must cover setting prices, order processing, delivering, invoicing, and payment systems, with the attendant problems in the transition period of when trading partners go through their own E-day. Ask about the euro migration suite your software vendors should provide. This includes database conversion. But beware of mindless automatic conversions; many people seem to be unaware that euro-pricing is more than a simple recalculation, the whole pricing structure may need to be re-based in euros. That's why business involvement is so important.

Easy migration is not, however, likely with spreadsheet applications. Most end-user applications will need painstaking checking to convert, and to avoid double conversion. I have a set of guidelines for preparing spreadsheets now, as they are used, for the day when conversion is required. One of them is "identify the currency unambiguously" - so you know what's converted and what's not!

If the euro is your priority issue, you must change by 1/1/1999 for both Y2K and euro. Those companies who deal mainly with the public will wait until 1/1/2002. Banks will have to decide which of the 40 different kinds of accounts they might have should be offered in euros. IT resources are getting very tight and loyalty bonuses are becoming common.

"Irish Computer" readers are probably in IT management and so can handle some or all of the work themselves. But a typical SME has no IT staff, and accounting staff whose training, maybe 10 years ago, is insufficient for today's increasingly complex regulatory controls. They may have neither the will nor the confidence to learn new skills. Companies near the border with Northern Ireland will have to handle three currencies. Many Irish SMEs use accounting software from the UK - will they be ready? If not, this could be an opportunity for Irish software houses.

The banks will try to move the market from paper to electronic transactions such as the Laser (debit) card and from vending machines to the e-purse. 1 January 2002 really will be "E-day", the date for the introduction of notes and coins. As this is when there is the highest level of cash in circulation and uncleared cheques in Ireland, it is a nightmare for the banks and the worst possible time for the retail trade. The Army will have to be called in to help, and all paper transactions will have to be cleared out of the system before we can flip the switch of the banking system to euro.

You will no doubt be pleased to hear that the Revenue Commissioners have a customer-oriented focus in being prepared to accept payments in either euro or IEP from 1/1/1999.

 


The Business and Accounting Software Developer's Association (BASDA) have a EMU white paper on sale at GBP 50 a copy. Contact: Stephanie Saunders, administrator. Tel +44 1494 678840. Fax +44 1494 680424 Web page http://www.basda.org 

The Tenagra euro2002 discussion list was a mail list set up specifically to explore IT strategies and techniques. It is now replaced by the euro-emu yahoogroup.

You can download  from http://europa.eu.int/ISPO/y2keuro/euroit.htm  the PDF version of the Neaman Bond euro preparation survey of 1046 managers in European companies. their conclusions are that the euro conversion is seen as difficult and confidence is low.

Web sites:

http://www.sysmod.com/eurofaq.htm The euro FAQ from Systems Modelling

http://europa.eu.int/ISPO/y2keuro/euroit.htm  P. Dekker's paper on IT systems

http://europa.eu.int/euro/ EU information web site

http://amue.lf.net Association for the Monetary Union of Europe

http://www.euro.fee.be  Federation of European Accountants

http://www.irlgov.ie/ecbi-euro Ireland's National Changeover plan

http://www.emuaware.forfas.ie Forfás Awareness Campaign

http://www.revenue.ie  Revenue Commissioners



The timetable and regulations

The timetable for the euro is a transition period from 1999 to 2002. It is a unique event in history, when there will be two denominations of legal tender. Philip Hamell of the Euro Changeover Team of the Department of Finance likens the changeover to the euro to Aristotle's theory of "substance" and "accidents" (better known in Ireland as the basis of "transubstantiation"). On 1/1/1999, the pound in your pocket still has the accidents (look and feel) of a pound, but its substance (nature) is changed and is now really the euro.

The principle of "No compulsion, no prohibition" means that nobody will be compelled to use the euro, or prohibited from doing so. This means that agreement - or more likely power relationships - will decide when trading partners agree to use the euro.

The three year transition period means that trading partners can change at different times, leading to a gradual shift in the accounts ledgers from national currency to the euro. Those companies currently operating a single-currency ledger may not appreciate having to use a multi-currency package to make the transition to a single currency! See http://www.sysmod.com/euroex01.htm for a worked example of how a small company might go about this.

The legal framework as far as we are concerned is the Article 235 regulation (Council Regulation 1103/97 of 17 June 1997) which specifies the following:

Article 2: freedom of contract. This means that people are free to agree their own terms independently of this legislation. "Freedom" of course assumes there is no element of coercion from a stronger partner.

Article 4: Conversion and precision, defines that a fixed 6 significant figure conversion rate of 1 euro expressed as each national currency is to be used without rounding or truncation. Only in Ireland (and the UK when they join) will this mean six decimal places. For the Italian lira, for example, it might be 1987.65.

To convert euro to national currency : multiply by the rate.
To convert national currency to euro : divide by the rate.
Inverse rates are not allowed because the inverse of those rates gives a non-terminating decimal, and precision will be lost at some point wherever your numeric precision stops. Whether that makes any practical difference given the size of numbers you have to handle, only you can answer knowing the precision of your language and file structures, and your business data.

The famous "Triangulation" rule is that to convert from one participating currency to another, you must convert via the euro, and round the euro amount to not less than 3 decimal places. Other methods are allowed only if they produce the same result; and that is the let-out clause that software companies will be using. Triangulation is not a matter of government enforcement, national or local, but a matter of dispute resolution/litigation. Unless there is a dispute the method of calculation is not relevant. And it is only relevant where an alternative method, if used, reaches a different result. In Brussels there are certainly no plans to setup a "Triangulation Enforcement Agency". However, at national level there may be consumer protection laws that impose certain additional requirements on parties in a transaction.

Article 5 states that you must round to nearest cent for amounts to be paid; therefore rounding does not apply to other numbers such as unit prices such as a phone charge of .00416p/sec.

There is no law that you must use the euro glyph (symbol).

 


Publications

"Euro-impact" newsletter with 30 pages of business information per month ECU 777 per year. http://www.euro-impact.com Tel +44 171 917 2948  Fax +44 171 439 0262 

The EURO-PAPERS can be seen on the web at http://europa.eu.int/comm/economy_finance

The Euro Papers can be obtained from DG II (without charge) by applying to:

European Commission
Directorate-General for Economic and Financial Affairs
200, rue de la Loi (BU1 0/61)
1049 Brussels, Belgium

 


 
 

 

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Last updated January 03, 2005