SAP Financials Parallel Accounting


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This Document relates to Parallel Accounting in SAP FI.

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SAP Financials Parallel Accounting

  1. 1. SAP FINANCIALS PARALLEL ACCOUNTING SAP KNOWLEDGE SHARING DOCUMENTS SAP IDES DEMO SOLUTION – ERP6 EHP5 Pramila Nagaraj SAP Certified Candidate @ Source One Management Services Pvt. Ltd Bangalore
  2. 2. Parallel Accounting We look at the different accounting standards that organizations must adhere to in order to meet local regulatory requirements, for example European listed companies must report their consolidated financial results according to International Financial Reporting Standards (IFRS), whereas companies listed in the U.S or belonging to a U.S. group of companies are currently required to report according to U.S. Generally Accepted Accounting Principles (U.S. GAAP). IFRS is to become the general standard for all companies across the world, while organizations are transitioning to IFRS, there is a requirement to report in multiple GAAP's (IFRS and local GAAP). This dual reporting period raises additional complications for example U.S. GAAP allows organizations to valuate their inventory using the LIFO (last in first out) principle, which is strictly prohibited in IFRS. Parallel accounting is the separation of postings and the reporting of financial results based on various regulations, parallel accounting considers different business events one or more times using different accounting rules, currencies, fiscal year calendars and chart of accounts, the goal is not to create multiple accounting representations in the forms of different transactions for a single business event, however if you have to create multiple accounting representations SAP ensures that they are linked and reconciliable by recording one transaction in the system and then splitting it in multiple ways for reporting purposes. Parallel accounting can address the below  Complex calculations are required to translate financial statements from one reporting standard to another  The collection of financial data must occur at the source (for example SAP) for reporting based on other accounting standard  New, faster close requirement for organizations create additional risk for errors when developing and executing parallel reports. You should finalize which primary valuation is required by your organization, the key options that you need to compare and analyze are  Local GAAP as primary valuation - this requires monthly reconciliation to IFRS for internal and/or consolidated reporting  IFRS as primary valuation (at least for European HQ companies) - this is what SAP recommends because it provides instant comparability throughout the group and easier aggregation of accounting data Parallel Accounting Approach SAP R/3 Classic General ledger SAP ERP General ledger Recommended Available Available Recommended Parallel Ledgers No n/a Yes Yes (preferred for new installations) Parallel Accounts Yes Yes (preferred) Yes Yes (preferred for existing installations) Parallel Special Purpose Ledgers Yes No Yes No (not recommended for new installations) Parallel Company Codes Yes Strictly no Yes Strictly No  Parallel Ledgers - you create new ledgers to cater for specific GAAP requirements  Parallel Accounts - you create additional G/L accounts to take care of additional GAAP requirements  Parallel special purpose ledgers - you can create new special purpose ledgers to meet the additional GAAP requirements, some clients used the special purpose ledgers to a business characteristic such as plant or region, allowing them to generate balance sheets or profit and loss statements  Parallel company codes - you make additional or difference postings to a new company code that is created specifically for the additional GAAP reporting, SAP does not recommended this approach. Parallel Ledgers When creating multiple leaders one must be the leading ledger (generally this is 0L), the other ledgers are known as non-leading ledgers. Each ledger must be customized to generate financial statements by different GAAP's. Also in asset accounting you assign the correct depreciation areas to the leading and non-leading ledgers. Leading ledgers are automatically assigned to the main depreciation area by default. The leading ledger is updated in real-time for asset accounting transactions, whereas SAP ERP allows a periodic processing option for the depreciation areas that are tied to the non-leading ledger, additionally you can choose for the posting to happen in the non-leading ledger in full or just the delta postings, you can see a diagram of this below
  3. 3. When you initially posting a transaction in the system the original process is recorded in one accounting document for all the different parallel views, meaning that you must enter the transaction using one common interface. This transaction then goes through the SAP ERP RW interface and is enhanced via the document splitting rules and user- defined attributes. The only parallelism that is achieved at this stage is the change in the fiscal year for different ledgers, period sorting and selection criteria. Now that you have posted the initial entry in the system, SAP G/L allows you to modify the posting using periodic processing approach at month-end to tailor the document according to a specific accounting standard, as seen in the diagram below The key subsequent processes which can be tailored for a particular ledger are  period-end allocations  foreign currency valuations  balance carry-forwards  other periodic activities At this stage separate documents are created for each ledger and you can achieve real parallelism of valuation, period sorting and similar functions. Parallel Accounts If you are using SAP version 4.7 and below this method is recommended by SAP, you can have different accounting areas and different general ledger accounts
  4. 4. The above example displays both IFRS and U.S GAAP which are the two accounting standards according to which you need to create financial statements, the two types of additional accounts that you can create are  common accounts - are both for IFRS and GAAP statements, they used be used across accounting principles when there are no material valuation differences.  specific accounts - items with significant valuation differences are posted to different accounts, each accounting principle has its own set of pure accounts, which are accounts that are created specifically for U.S GAAP or IFRS. The common accounts are combined with specific accounts to generate the financial statement. You can add prefixes and suffixes to segregate accounts areas as in the below table Prefix Account Number Suffix A 1 0 Common accounts 0 B 2 1 U.S GAAP accounts 1 C 3 2 IFRS accounts 2 With prefixes you have the option to use either letters or numbers, the first example uses the prefixes A, B and C for the different account groups, this requires considerable effort when posting entries because you are dealing with an alphanumeric account number and it is often difficult to remember an alpha numeric general ledger account number. The example (second column) use numerals as prefixes to all accounts, you may have to convert your chart of accounts if they dont use this standard. The third example shows the common chart of accounts retain a 0 as the prefix, in this case the IFRS and U.S GAAP accounts need to be created again with a new prefix which needs to be appended to all of the accounts. Alternatively, you can create account areas by using a suffix, however it is difficult to convert an already running system and it also becomes difficult to search the general ledger accounts in the from-selection criterion. Parallel Special Purpose Ledgers Special purpose ledgers are not recommended by SAP, however it still good to understand how they work, the special purpose is akin to the non-leading ledgers in SAP General Ledger, the below diagram describes the options your organization has when outlining your parallel requirements using seprate ledgers, these are  Heterogenous approach - in this scenario your main ledger or leading leader carry the local GAAP's whereas the leading GAAP which could be IFRS for European companies is replaced by the special purpose leder, the management reporting does not happen in the leading GAAP  Synchronous approach - in this scenario your main ledger or leading ledger is tied to the leading GAAP whereas the special purpose ledger or non-leading ledger is tied to the local GAAP, management reporting and legal reporting are synchronized with each other The below example shows how the original posting is transformed in the special purpose ledger using the transformation rules and any additional IFRS or leading GAAP postings. These postings can then be used to generate
  5. 5. IFRS GAAP financial statements via the special purpose ledger, however the native general ledger continues generating the local GAAP financial statements from the original postings. Example data entry An asset is created which is purchased from a vendor  DR Assets (B/S) $1000  CR Vendor (B/S) $1000 This is subsequently paid from accounts payable  DR Vendor (B/S) $1000  CR Bank (B/S) $1000 At month-end a depreciation of $50 is posted in the books  CR Asset (B/S) $50  DR Depreciation (P&L) $50 For this transaction the overall accounting entry for the company (in the local GAAP) looks like the following  DR Asset (B/S) $950  DR Decpreciation (P&L) $50  CR Bank (B/S) $1000 However because the companies fiscal year is different in the leading GAAP (which is IFRS) during the transformation of the data, the fiscal period is changed from 1 to 4 for a posting made in April, also during the revaluation program run which is only applicable in IFRS an additional depreciation is posted to the P&L and the asset is revaluated accordingly  DR Depreciation (P&L) $10  CR Revaluation Asset (B/S) $10 Thus in the leading GAAP which is generated from the special purpose ledger we have the following  DR Asset (B/S) $940  DR Depreciation (P&L) $60  CR Bank (B/S) $1000 Parallel Company Codes SAP no longer recommends this approach, again I give you an understanding, the variations in the GAAPs are posted to additional company codes, you can when reporting, combine the additional GAAP company code with the original company code. The reason for using company codes are  It minimizes the number of additional accounts  The valuation differences result only from the fixed assets, financial accounting or manual entries  It gives you the ability to use standard reporting  It means that having a large number of company codes is not a issue You can post to parallel company codes using the following valuation reports  value adjustment  transferring and sorting receivables and payables  foreign currency valuation Parallel Method Summary SAP only recommends two approach the table below details the pros and cons Approach Evaluation Parallel Ledger Parallel Accounts Availability  Available from ECC 5.0 upwards  Can be implemented in all SAP releases
  6. 6. Recommended scenarios  When parallel accounting is likely to have many valuation differences  When the number of additional G/L accounts would not be manageable  When local GAAP's mandate different fiscal years or there is a discrepancy in parent and subsidiary fiscal years  When you are familar with the solution  when the number of G/L accounts is manageable  when different fiscal years do not need to be supported  when there are relatively few valuations differences Pros  You maintain a separate ledger for each accounting principle  you can maintain fiscal year variants in this scenario  the number of accounts is manageable  there is no need to change existing G/L accounts  the standard reporting structure can be used for both leading and parallel ledgers  Data volume does not increase significantly owing to additional accounts  Every valuation method supports the parallel accounts method Cons  Data volume increases owing to additional posting in ledgers  its difficult to generate clean reports satisfying two separate accounting standards from one ledger, unless a nomenclature for account structure is defined  requires the definition of a new account structure for easy reporting Parallel accounting in SAP ERP Components Parallel accounting principles require the system to perform different postings for each accounting principle for each business transaction, we will discuss how various components in SAP ERP support you in generating parallel reporting for your organization, parallel accounting is required for the following topics in financial accounting  Reclassification and sorting of receivables and payables - this is used to reclassify and sort receivables and payables according to custom sort methods  Foreign currency valuation - open items posted in a foreign currency and balance of general ledger accounts managed in foreign currency can be valuated in the system by running the foreign currency valuation program.  Provisions - provisions vary depending on the accounting standard and can be posted manually for cases that require matching invoices with the goods receipt period. I have already discussed provisions in my closing operations section.  Value adjustments - you can manually enter value adjustments for doubtful receivables or automatically post them on the basis of the rules defined in the customizing settings. I have already discussed value adjustments in my closing operations section.  Accurals - you can post accurals manually or by creating recurring entries that post automatically depending on the customiziation, again I have covered accruals (and deferrals) in my closing operations section. The below shows you how to setup parallel accounting the minimum requirements, we will use the IMG to create our accounting principles and assign them to the ledger groups also see Data disk Mobile company for more details , I have a number of accounting principles already defined see below First we create the accounting principles as detailed below using the new entries button Now assign the accounting principles to the ledger groups, you should have something like below You can also view table TACC_PRINCIPLE table for the information
  7. 7. You have to create a number of valuation areas and then assign them to the required accounting principles, you can use the valuation areas for reclassification or sorted list of payables and receivables and also foreign currency valuation Create the valuation areas as detailed below using the new entries button, you can also view table T033 Before we move on lets take a look at the valuation method, using transaction code OB59, the inital screen lists all the valuation methods, double-click to see the screenshot below  lowest value principle - The valuation is only displayed if the valuation difference between the local currency amount and the valued amount is negative. That is, an exchange loss has taken place. The valuation is calculated per item total. Items with invoice reference are viewed together.  strict loweset value principle - The valuation is only displayed if, as a consequence, the new valuation has a greater devaluation and /or a greater revaluation for credit entries than the previous valuation. The valuation is calculated per item total. Items with invoice reference are viewed together.  always valuate - revaluations are also taken into consideration.  revalue only - the system only does a revaluation if applicable but does not do devaluation where there is exchange loss  reset valuation - the open items are evaluated at the acquisition price. This way the valuation difference is set to Zero. The old valuation method is reset. The account determination is reversed; the revenue that arises is posted to the expense account.  post per line item - the system posts per open line item  document type - this is the document type for posting the clearing entry , - vendors and customers are grouped together and then valuated as per the valuation group  balance valuate. - allows you to balance open items per account, group or currency, based on the valuation procedure parameters, this makes more sense if you use this in conjunction with other valuation parameters.  exchange rate determination - here you can maintain the exchange rate type for credit and debit balances, in addition you can define whether the exchange rate type needs to be retrieved from the account balance or from the invoice process.
  8. 8. Now we assign the valuation area to the accounting principle again we use the IMG Select the new entries and fill in the details below To define automatic postings for foreign currency valuation you can use transaction code OBA1, you can configure the general ledger accounts by transaction key and account group, for example by choosing CEX transaction key you define the general ledger accounts that will be posted for exchange rate differences during document splits for currency exchanges. Once you select CEX you just need to maintain the appropriate general ledger accounts. You also need to maintain transaction keys KDB, KDF, KDW, KDZ and RDF. You will also need to make the following assignments in other application areas as detailed below, I am not going to cover these now, you can also see my controlling section for more details in future. Application Area Details Menu Paths FI-AA Assign a ledger group to each valuation area with the ledger group containing the leading ledger for the leading valuation area 01. You do not have to assign accounting principles.
  9. 9. CO Specify the accounting principles for goods in process CO Specify the accounting principles for goods in process The new G/L enables real-time integration with CO, this allows continuous reconciliation of cost elements and expense accounts eliminating the need for subsequent and separate reconciliation runs. Towards real-time integration of CO and FI you first need to define the variants for integration and then assign them to the company codes, the variants will control the manner in which the integration happens between CO and FI. We will use the IMG Then fill in the details below  R-Time Integ:Active - this enables CO documents posted during CO-internal allocations are transferred in real- time to FI  Key Date: Active From - only the CO documents with posting dates equal to or subsequent to the key date entered here are transferred to FI  Acct Deter: Active - the system performs account determination while transferring the CO document to FI, otherwise it makes the CO primary cost elements (from CO document) to post an FI document  Document Type - self explaining  Ledger group (FI) - if you want to post to all the accounts such as the bank clearing or GR/IR clearing which are maintained on an open-item basis  Text - self explaining  Do Not summarize Documents - do not select this if you want the system to transfer individual line items
  10. 10. If you decide to use the rule option in selection of documents lines for real-time integration CO->FI, then you need to create the rules using the below IMG Lastly we assign the real-time variant to each of the company codes Using the new entries button we can assign the real-time variants to the company codes as per below You can define the account determination for each valuation by using the below menu path You can also see ledgers for G/L accounting which explains how to configure leading and non-leading ledgers, ledger groups, additional currencies, valuations, etc. Declaration: This is related to my Practice in Demo System ERP6 EHP5 since after my SAP Certification. I have taken guidance from SAP Expert of UK who had given me full instructions on how to go about with certain configurations in Financials. I have successfully completed one Configuration Cycle.