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11.04.2007 General News

Re-Denomination Of The Cedi - Is The Value Really The Same?

Currency re-denomination is the process of reducing the face value of a currency, so that e.g. 10,000 of the old currency is equated to ¢1.

The Bank of Ghana has announced a cedi re-denomination exercise starting from July 2007.

This will be achieved by setting ten thousand cedis to one new Ghana Cedi (GH¢), which will be equivalent to one hundred Ghana pesewas (Gp). That is ¢10,000=GH¢1=100Gp.

New notes and coins will be issued to replace the existing notes and coins over a period of at least six months.

The bank identified the following as the reasons for re-denomination. The current note regime places significant burden on the economy. Such as high transaction costs, general inconvenience and high risks involved in carrying loads of currency for transaction purposes.

Also identified is the problem of increasing difficulties in maintaining bookkeeping and statistical records and ensuring compatibility with data processing software, and the strain on the payments system, particularly the ATMs.

The bank has as a result of this exercise embarked on a massive campaign to educate the public with its popular slogan “The value is the same”.

Indeed the value is the same when you buy or sell things and when you withdraw money and as such there will be no effect on what money in the pocket can buy.

However, for many organisations, such transactions must be recorded in some sort of computerised accounting system. The question then is; will computerised applications used for recording accounting transactions understand the difference between the cedi and the New Ghana Cedi?

Generally, computers have been programmed to process whatever data fed into it by users so long as validation rules have not been broken and hence the popular saying “garbage in garbage out”.

This implies that the “The value will not be the same” when it comes to processing transactions in computerised accounting systems if nothing is done during the re-denomination period.

The following are some of the areas where questions must be raised with regards to the cedi re-denomination in an organisation:

- Currency type in the accounting software;

- General Ledger Balances and Budgets;

- Transactional History;

- Stores Sub Systems in accounting software;

- Purchase Orders Sub Systems in accounting software;

- Payroll Sub Systems in accounting software ;

- Fixed assets Sub Systems in accounting software;

- Scripts for importing and exporting files;

- Interfaces – any application that import data from or export data to the main business software, e.g. electronic fund transfer (EFT) or payroll software and

- Rounding – How many decimal places are to be used.

Accounting software

One of the main issues to be considered is whether a new currency is to be set up in the system. If a new currency is to be created, then first of all, the user should ensure that their application has multi-currency features.

It will also require changes to any master and live data that quotes the existing Ghana cedi as its currency. Given that Bank of Ghana will revert to the existing cedi sign after the re-denomination process, setting up new currency may not be the best option.

Ledgers

The cedi re-denomination will have a direct impact on the ledgers in many accounting software. Generally the following modules in accounting software will be affected:

• Payroll

• Projects

• Accounts Receivable

• Accounts Payable

• Inventory

• Fixed Assets

Transactional History

The Bank of Ghana's guideline requires that financial statements are prepared to June 30, 2007 and thereafter the balances are converted to the new Ghana cedi.

On spreadsheet, such conversions may take some few minutes but in a computerised accounting system, account balances cannot be easily changed or converted.

This may at times require the need to set up a new currency and if the system does not have multi-currency features then the task may not be as easy as it seems.

Even if success is achieved then in future it is going to be very difficult to trace transaction history whenever there is dispute.

Stores (inventory) Balances

Stores balances are the result of additions to stocks and sales or issues from stock. These values are usually based on the prices of the items listed and the quantity available at any point in time.

If the purchases, sales and issues from stock based on the new Ghana cedi is mixed with the old one, the stock at the end of June 2007 the accounts will be meaningless.

The Bank of Ghana's guideline implies that all stores (inventory) balances must be converted to the new Ghana cedi.

Changes to stock balances in computerized systems may affect the price. If the stock prices are changed instead, it can affect all those stock bought on the same day even if they have been sold or issued to production.

Article by Joe Adjei

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