comprehensive guide to parallel accounting

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A Comprehensive Guide for Using SAP General Ledger for Parallel Accounting

Aylin KorkmazAccenture

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What We’ll Cover …

• Parallel accounting overview• Methods available in SAP ERP• Parallel ledger method

Configuration of ledgers and accounting principlesPosting examples using parallel ledgersForeign currency valuation with parallel ledgersParallel Valuation in Asset Accounting

• Assessing the options• Wrap-up

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Parallel Accounting — An Overview

• Many organizations are required to report financial results based on multiple accounting regulations

European-listed companies must report their consolidated financial results according to International Financial ReportingStandards (IFRS)

Canadian, Indian, and Korean listed companies will also be required to report consolidated financial results based on IFRS (conversion dates of 2011) with the United States not far behind (2014)

Companies also listed in the United States or belonging to a US group of companies are required to report according to US Generally Accepted Accounting Principles (US GAAP)

• Parallel accounting is the separation of postings and reporting of financial results based on these various regulations

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Typical Challenges with Parallel Accounting

• Some typical challenges facing organizations when reporting using multiple accounting regulations may include:

Globalization of capital markets and new legislation in many countries Complex calculations required to translate financial statements from one reporting standard to anotherCollection of financial data at source (i.e., ERP systems) for reporting based on other accounting standardsFaster close requirements for organizations create additional risk for errors occurring when developing parallel reporting

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Methods for Parallel Accounting Prior to SAP ERP

• Previous SAP ERP releases provided the following methods to support parallel accounting

Additional company code (also available with SAP ERP)Difference postings made to an additional company codeSAP does not recommend using this approach unless it has already been implemented

Parallel accounts (also available with SAP ERP)Parallel ledgers in Special Purpose Ledger (FI-SL)

Obsolete with SAP ERP

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Parallel Accounting Methods in SAP ERP

• Parallel financial reporting in the general ledger with SAP ERP Financials enables you to meet a number of local and international reporting requirements with two powerful Parallel Accounting methods

Parallel AccountsEnables Parallel Accounting by creating additional general ledger accounts

Parallel LedgersEnables Parallel Accounting by keeping Parallel Ledgers simultaneously in SAP General Ledger according to different accounting regulations

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Method #1 — Parallel Accounts Method

• Postings are made to both common and separate accounts to meet regulatory requirements

• Financial statements are produced based on the various combinations of accounts

Local GAAP Reporting

IFRS Reporting US-GAAP Reporting

US-GAAP onlyAccounts

General Ledger

Common Accounts

IFRS Accounts

Local GAAP Accounts

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Method #2 — Parallel Ledgers Method

• The ledgers are kept in parallel for all group and local postings• All ledgers are updated according to the designated accounting

standards

Local GAAP Reporting

US-GAAP Reporting

IFRS Reporting

Leading Ledger (e.g., IFRS)

Local GAAP Ledger

US GAAP Ledger

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Method #2 — Parallel Ledgers Method (cont.)

• Each ledger represents one of the accounting standardsE.g., the main general ledger represents IFRS (International Financial Reporting Standards), a second represents US GAAP, and a third represents the local accounting standard

• The system posts to all ledgers, unless otherwise specified by the configuration or special posting transactions

Therefore, accounting standard-specific postings are only made to a specific ledger

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Parallel Ledger Method — Leading and Non-Leading Ledgers• Leading ledger

There is only one Leading ledger per client, called 0L by default in SAP ERPLeading ledger reflects the accounting standard that is most commonly used by the organization

• Non-leading ledgersAll other ledgers referred to as non-leading ledgersCompany codes are specifically assignedDifferent fiscal year variant can be assigned

• Leading and non-leading ledgers are defined in customizing

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Set Up Your Ledgers Correctly

• You can define only one leading ledger (0L). Ledger 0L should beset up as your leading valuation.

E.g., US companies should set up 0L as US GAAP ledger, whereas European companies should use 0L for their IFRS valuation

• Local accounting: Normally one ledger is enough for all countries. Don’t create a separate ledger for each country.

Non-leading ledgers are activated for each company code

• Parallel ledgers can increase the data volume in tables, so onlyactivate non-leading ledgers for companies where they are required. (SAP Note 820495 — Data Volume and Parallel Ledgers)

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Define Ledgers for SAP General Ledger Accounting

Only one ledger can be marked as Leading

The GL Ledger Totals Table

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Define Currencies of the Leading Ledger

Currencies used within the Leading Ledger are defined per company code

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Defining and Activating Non-Leading Ledgers

Non-Leading Ledgers can have up to three currenciesOnly currencies defined for the Leading Ledger can be used

An alternative fiscal year variant and posting variant can be assigned to a Non-Leading LedgerLeading Ledger variants are used if these are left blank

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Assign Scenarios and Customer Fields to Ledgers

Assign scenarios to the Leading Ledger to populate the respective dimensions. For example, by assigning scenario FIN_SEGM, segment and partner segment dimensions for Leading Ledger 0L are updated.

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Assign Scenarios and Customer Fields to Ledgers (cont.)

Only assign scenarios to Non-Leading Ledgers for those dimensions you need the system to populateFor example, if segment and profit center dimensions are not relevant for local accounting, do not assign profit center and segmentation scenarios to ledger N1

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Activate Cost of Sales Accounting

By activating Cost of Sales Accounting, the functional areas are derived and updated in the ledgers assigned to the FIN_UKV scenarioYou need to make further settings to derive functional area in postings – e.g., assign functional areas, define substitution rules, etc.

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One ledger in a Ledger Group has to be the Representative Ledger. The representative ledger of a Ledger Group controls the posting period.If the posting period of the Representative Ledger is open, you can post to all ledgers in the Ledger Group, regardless of the status of their posting period.

Define Ledger Groups and Representative Ledger

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Parallel Ledger Method — Posting Example

Scenarios were assigned to the Leading Ledger (0L)

• Vendor invoice posted with transaction FB60

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Parallel Ledger Method — Posting Example (cont.)

Scenarios were not assigned to ledger N1

Scenarios were assigned to the Leading Ledger (0L)

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• GL posting with transaction FB50LYou can post to all ledgers in the specified ledger group

If you do not enter your Ledger Group in special transactions FB50L and FB01L, all ledgers are updated, as with transactions FB50 and FB01

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• GL posting with transaction FB50L (cont.)

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FI-ARFI-AP…SDMMPPPM…

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Ledg

ers

Upd

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Sim

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SAP General Ledger

Leading Ledger (0L)

Non-Leading Ledger

Non-Leading Ledger

Other Non-Leading Ledgers

Postings via new transactions FB01L and FB50LForeign currency Valuation Program FAGL_FC_VALUATION

FI-AA depreciation areas

Onl

y Sp

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edge

rs a

re U

pdat

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IFRS, US GAAP, Local GAAP Reports are based on the corresponding ledger

Integration and Value Flow with the Ledger Method

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Foreign Currency Valuation with Parallel Ledgers

• SAP General Ledger uses FAGL_FC_VALUATION (Transaction FAGL_FC_VAL) program for currency valuation

• The new currency valuation program posts to respective ledgers only

Accounting principles connect valuation areas with their respective ledgers

Valuation areas are defined and assigned to valuation methodsValuation areas are assigned to accounting principles

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Foreign Currency Valuation with Parallel Ledgers (cont.)

• The SAP General Ledger no longer uses the old program SAPF100After activating the SAP General Ledger, an error message will appear if you try to use SAPF100 for foreign currency valuation and translation

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Key Configuration Steps

• Define accounting principles• Assign accounting principles to ledger groups • Define valuation method• Define valuation area and assign to the valuation method• Assign accounting principles to valuation area

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Define Accounting Principles

• Accounting principles represent accounting standards in SAP ERPThey play an important role in connecting standard-specific postings to the relevant ledger

I.e., currency valuation, asset postings, and manual accruals

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Assign Accounting Principles to Ledger Groups

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Define Valuation Method

• Valuation methods are defined for the open items They are used to group together the balance and individual valuation specifications

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Define Valuation Area and Assign to the Valuation Method

• Valuation areas are used to report different valuation approaches and post to different accounts

With this configuration step, you assign the valuation area to the valuation method

In the classic G/L, you select valuation method in the selection screen of the currency valuation program

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Assign Accounting Principles to Valuation Area

• You can use valuation areas to meet the different valuation requirements of the accounting standards

Valuation areas are assigned to accounting principles

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Parallel Valuation in Asset Accounting

• You can set up Asset Accounting to work with parallel ledgers, such as accounting standards

E.g., IFRS, US GAAP, and local GAAP• Valuation differences in various standards are due to multiple, diverse

Asset Accounting requirements, usually in the areas of asset acquisitions, depreciation, and retirement

Depreciation areas are used to provide visibility of these valuation differencesYou assign each depreciation area to a ledger group

For each depreciation area, specify the depreciation terms, useful life, and other parametersThe system then determines depreciation value for each depreciation area, using the rules specifiedThe system posts depreciation and the Acquisition and ProductionCost (APC) values separately for each depreciation area to the assigned ledgers

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Parallel Valuation in Asset Accounting (cont.)

• Assign a ledger group to each posting depreciation areaYou need to define a delta depreciation area to post differencesbetween the main valuation and Parallel Valuation

I.e., the IFRS and Local GAAP valuation

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• To make setup of the depreciation area easier, SAP introduced Parallel Valuation wizard

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• Detailed instructions are provided for each step

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• Specify the depreciation terms, useful life, and other parameters for each depreciation area

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• Detailed instructions are provided for each step

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• Overview of the settings

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Assessing the Options

• Review what your organization currently has in placeHave you already implemented the parallel account method?

Refer for SAP Note 779251 – SAP General Ledger: Parallel accounting

• SAP does not recommend one option over the other, but rather leaves it to each organization to decide which option best fits its needs

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Parallel Accounts Option

• ProsSeparate accounts maintained

Separate retained earnings accounts for each accounting principleSeparate range of accounts can be established to clearly identify the parallel accounting area

Financial statement versionsSeparate structure defined for each accounting principle

PostingsPostings are made in a single ledger within the specific range of accounts

Method is well-known to SAP usersCommon solution in the past to parallel accounting needs

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Parallel Accounts Option (cont.)

• ConsNumber of G/L accounts

Greatly increases the number of accounts in the chartFiscal year variants

Different fiscal year variants across the organization may be difficult to implement using the account option

Additional validationsValidations may be required to ensure no incorrect cross-over postings occur (e.g., US GAAP posting into an IFRS account)

Standard reportsTypically includes all accounts (unless specifically excluded) and may require additional effort to develop specific accounting principle reports

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Parallel Ledgers Option

• ProsG/L accounts

Fewer G/L accounts requiredSame G/L accounts are shared across all ledgers

Fiscal year variantCompany codes with different fiscal year variants assigned to a separate ledger, facilitating consolidated reporting

Posting period variantPostings to ledgers can be separately controlled by assigning a separate posting period variant for the ledger

Carry forwardNo need to maintain separate retained earnings accounts

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Parallel Ledgers Option (cont.)

• Pros (cont.)Currency valuations and translations

Automated postings updated to appropriate ledgers based on the assignment to relevant accounting principles

Adjustment and value postingsAdjustment and value postings, such as reclassification, are automatically posted to the appropriate ledgers

Standard reportsStandard reports are executed by ledger

• ConsThe data volume increases dramatically as a result of maintaining parallel ledgers

Refer to SAP Note 820495

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Resources

• SAP Service Marketplace – http://service.sap.com *SAP Note 779251 – mySAP ERP New general ledger: Parallel accountingSAP Note 820495 – NewGL: Data volume, performance and parallel ledgers

• Financials Expert, www.FinancialsExpertOnline.comAylin Korkmaz, “Streamline Your Parallel Accounting with the New G/L Ledger Solution,” (Financials Expert, April 2006).

• SAP Press Book, Financial Reporting with SAP, Aylin Korkmaz• http://help.sap.com/saphelp_erp2005/helpdata/en/2d/830e405c538f

5ce10000000a155106/frameset.htm

* Requires login credentials to the SAP Service Marketplace

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7 Key Points to Take Home

• SAP ERP offers two methods to support parallel accounting:Parallel AccountsParallel Ledgers

• SAP considers both methods equally appropriate and allows organizations to make the determination as to which option best suits them

• With the Parallel Ledger solution, the Leading Ledger reflects the accounting standard that is most commonly used in an organization

• With the Parallel Ledger solution, the system posts to all ledgers, unless otherwise specified by the configuration or special posting transactions

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7 Key Points to Take Home (cont.)

• Parallel ledgers can increase the data volume in tables, so onlyactivate non-leading ledgers for companies where they are required

• A new currency valuation program is available that facilitates posting to different accounting principles, based on configuration settings

• FI-AA can be configured using a new wizard tool so as to take advantage of the parallel ledgers option

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Your Turn!

How to contact me:Aylin Korkmaz

[email protected]

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DisclaimerSAP, R/3, mySAP, mySAP.com, xApps, xApp, SAP NetWeaver®, Duet™, PartnerEdge, and other SAP products and services mentioned herein as well as their respective logos are trademarks or registered trademarks of SAP AG in Germany and in several other countries all over the world. All other product and service names mentioned are the trademarks of their respective companies. Wellesley Information Services is neither owned nor controlled by SAP.

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