SAP-IFRS-II

Parallel Accounting in SAP ERP
Thomas Jordan / IMS Financials
September 2014
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Agenda
• Reasons for Parallel Accounting
• Basics of Parallel Accounting
• Parallel Accounting in FI
• Parallel Accounting in FI-AA
• Parallel Accounting in MM
• Parallel Accounting in CO
• Some Experiences with Parallel Accounting
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Reasons for Parallel Accounting
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Reasons for Parallel Accounting
Basically multinational companies are facing the challenge that they want to have
internationally comparable figures and have to fulfill legal requirements coming from local
commercial or tax law.
That means:
• Group closing according to IFRS or US-GAAP
• Local closing according to local law
The need to fulfill the requirements of international reporting and local reporting at the
same time leads to the need for parallel accounting
In addition there are countries that require to have more then one accounting principle.
Or a company wants to get Income Tax Accounting and commercial accounting out of one
system

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Parallel Accounting is the Challenge
Important Differences between IFRS & US-GAAP


Topic IFRS US-GAAP
Business Combinations IFRS 3 FAS 141, 142
Fixed assets IAS 16 ARB 43
Employee Benefits IAS 19 FAS 87, 88, 106, 112, 132
Consolidated Financial Statements IAS 27, SIC 12 ARB 51, FAS 94, FIN 46
Associates IAS 28 APB 18, FAS 94
Impairment IAS 36 FAS 142, 144
Provisions IAS 37, IFRIC 1 FAS 5, 143, 146, FIN 14
Intangible Assets IAS 38 FAS 2, 86, 142, SOP 93-7, 98-1, 98-5
Financial Instruments IAS 39, IFRS 7 FAS 107, 115, 133
Investment Property IAS 40 FAS 13, 66, 67
Agriculture IAS 41 SOP 85-3
Source: zfbf Zeitschrift für betriebswirtschaftliche Forschung / Schmalenbachs Business Review
Jahrgang 60 / Dezember 2008
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Basics of Parallel Accounting
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Alternatives of implementing parallel accounting
Local Close SAP R/3
(Classic GL)
SAP ERP
(New GL)
Parallel ledgers X
Parallel accounts X X
Parallel special purpose ledgers X
Parallel company codes X X
Recommended approaches
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Parallel GL Accounts
Items with significant valuation differences are posted to different accounts. Each valuation
has its own set of “pure” accounts.
Common accounts are used where no material valuation differences occur.
It is advisable to have clearly discernable account number ranges or distinguishing digits or
letters to distinguish among sets of accounts.
Since each set must be in balance, extra care must be taken to ensure correct account
determination: establish an accounting guideline!
Common
Accounts
Pure IFRS
Accounts
Pure
Local GAAP
Accounts
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Parallel G/L Accounts
Options for creating charts of accounts
Prefix: Alphanumeric or
numeric
Account Number Suffix
A 0
xxxxxx Common accounts
0
B 1
xxxxxx IFRS accounts
1
C 2
xxxxxx Local accounts
2
IFRS Reporting
0 common accounts and
1 IFRS accounts
Local Reporting
0 common accounts and
2 local accounts
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Parallel G/L Accounts
Local GAAP IFRS
Common Accounts
Fixed Asssets
FC Losses
Vendor
(Payable)
Customer
(Receivable)
B
/
S

P
/
L

FC Gains
Sales
Electricity
Revenue Fix Asset
Retirement
Clearing Account Fix Asset
Retirement
Clearing Account Fix Asset
Retirement
Other Provisions Other Provisions Fixed Assets
FC Losses
Balance
Carryforward
Local Accounts
Balance
Carryforward
Common Accounts

Balance
Carryforward
IFRS Accounts
2 ..…. 0 ..…. 1..….
FC Gains
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Parallel Ledgers
• International accounting principle for example IFRS is primary valuation
represented by the leading ledger.
• Local GAAP books are maintained in an additional non-leading ledger
• Non-leading ledgers can use a different fiscal year variant. (For restrictions on
this, see SAP Note 844029).
• Same Accounts are used for all ledgers
Example:
0L
Leading Ledger
(IFRS)

Z1
Non-Leading
Ledger 1
(Local
GAAP)
Z2
Non-Leading
Ledger 2
(Tax)
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Parallel Ledgers
If no ledger group is specified during document entry: Posting is done to all defined GL ledgers
Specifying a ledger group during document entry -> Posting is done to specific ledgers
Ledger
Group
Ledgers
blank 0L, Z1, Z2
0L 0L
Z1 Z1
Z2 Z2
G1 0L, Z1
G2 0L, Z2
G3 Z1, Z2
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Approach and Valuation - Same approach and valuation
Same approach and valuation
=> One posting to common accounts or in all ledgers
Example: Incoming invoice for external activities





Expenses: Ext. Activities
1) 1000

Payables
1160 1)
Tax
1) 160
One common
posting
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Approach and Valuation - Same approach different valuation

Expenses: Pensions
Local Valuation
2) 1000
Expenses: Pensions
IFRS
3) 500

Accruals
Local Valuation

1000 2)
Accruals
IFRS

500 3)
Two complete
postings,
separately for
each valuation
Same approach but different valuation

=> separate posting to local and IFRS accounts or ledgers

Example: Depreciation or reserves for pensions
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Approach and Valuation - Different Approaches
Financial Leasing
Depreciation
1) 1000
Financial Leasing
1000 1)
Only one
posting
Expense
1) 2000
Provision for Expenses
2000 1) Only one
posting
Different approaches

=> Only one posting to local or IFRS accounts or ledgers

Example: Posting only relevant for IFRS: Financial Leasing
Posting only relevant for local GAAP: Provisions for expenses
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Parallel Accounting in FI
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Parallel Accounting in FI
Parallel accounting is required for example regarding the following topics:

 Foreign currency valuation
 Value adjustments
 List of terms / Reclassifications
 Provisions
 …
Parallel valuation in FI is represented by valuation area. The valuation area has to be
assigned to an accounting principle.
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Parallel Accounting in FI - Foreign Currency Valuation
Receivables, Payables, foreign currency balance sheet accounts may be valuated
differently on the basis of different accounting principles.

• Account approach

• A valuation area is assigned to certain target accounts that belong to the specific
accounting principle.

• The valuation report (Classic G/L -> SAPF100, New G/L -> FAGL_FC_Valuation)
has to be run for each valuation area.

• Ledger approach

• Determination of the ledger group using the assignment of the
valuation area to an accounting principle that is assigned to a target ledger group.

N:1 N:1
Valuation area ----> Accounting principle ----> Ledger group

• The valuation report (FAGL_FC_Valuation) has to be run for each valuation area.
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Parallel Accounting in FI - Flat-Rate Individual Value Adjustment
• Receivables (where applicable, payables) can be valuated differently by number of
days overdue and risk classes in accordance with different accounting principles.
Transaction F107 has to be run for each valuation area.

• Account approach:
• Assignment of different accounts using valuation areas.

• Ledger approach:
• Assignment of ledger group using valuation areas



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Parallel Accounting in FI - Sorting Open Items by Maturity
Receivables (where applicable, payables) can be portrayed by remaining term on
different balance sheet items in accordance with different accounting principles (transfer
posting).
Transaction FAGLF101 in New G/L has to be run for each valuation area.
In Classic G/L transaction F101 has to be run for each valuation area.
• Account approach:
• Assignment of different accounts using valuation areas.

• Ledger approach
• Assignment of ledger group using valuation areas



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Parallel Accounting in FI-AA
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Parallel Accounting in FI-AA - General -
The FI-AA application component portrays parallel accounting using depreciation areas.

• An accounting principle is represented by a depreciation area.
• Different depreciation parameters (such as depreciation method or useful life) are
defined for each depreciation area.
• The depreciation area settings specify whether
• No postings are made
• Asset balances and depreciation are posted
• Only asset balances are posted
• Only depreciation is posted


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Parallel Accounting in “classic” FI-AA - Account Solution
Depreciation
Assets are depreciated using different depreciation rules in accordance with different
accounting principles.

• Customizing:
• One depreciation area is required for each accounting principle
• Separate accounts can be defined for the combination
- chart of depreciation
- chart of accounts
- account determination
- depreciation areas.
Account determination is assigned to the asset class.
For each accounting principle, the depreciation run posts documents to the accounts
defined.
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Parallel Accounting in “classic” FI-AA - Ledger Solution
The FI-AA application component portrays parallel accounting using depreciation areas.
Ledger groups, representing different accounting principles, are assigned to the depreciation
areas. Consequently, postings are made to separate ledgers in FI.
• Customizing: The following depreciation areas need to be set up accordingly:
• Depreciation area 01 is assigned to leading ledger (leading valuation)
• Depreciation areas and derived depreciation areas (delta areas) assigned to Non-
leading ledgers (valuations)
Start date and end date of the fiscal year variant in the depreciation areas in Asset
Accounting need to correspond to the fiscal year variant of the leading ledger.
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Parallel Accounting in “classic” FI-AA - Ledger Solution
Ledger
Group
Ledger
Posting of
Asset
B/S Value
Periodic
Depreciation
Depreciation area 01
(leading)
0L IFRS X X
Depreciation area 30 (non-
leading)
N1 US GAAP - X
Depreciation area 60
(delta area 30-01)
N1 US GAAP X
(1)
-
• The portrayal of parallel valuation requires the depreciation areas listed below.
Delta postings are used.
• The base value of the leading area is transferred to all ledgers, and a second
periodic APC posting corrects the base value in the parallel ledger.
• The derived area (delta area) posts the difference between the leading area and
the non-leading area to the ledger assigned to the non-leading area.
• The following example assumes:
The IFRS ledger is the leading ledger. US GAAP ledger is the non-leading
ledger
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Parallel Accounting in “classic” FI-AA - Ledger Solution
Different APC values reflecting different accounting principles have to be posted to the
ledgers (for example, freight costs need to be capitalized for US GAAP).


FI-AA
FI-GL
IFRS (Leading)
US GAAP
01 IFRS
30 US GAAP
60 30 - 01
…
Postings IFRS US
GAAP
Asset Acquisition 0L N1
Capitalization of Freight
Costs (ledger group-
specific document with
separate transaction type)
-- N1
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Parallel Accounting in “classic” FI-AA - Ledger Solution
Integration with Controlling
Only Depreciation area 01 posts to Controlling
• This is the leading depreciation area
• It posts to the leading ledger
• It posts to Controlling
• Accounts are created as cost elements
• It uses the same accounts as depreciation areas 30 and 60

Ledger Group Ledger
Posting of
Asset
B/S Value
Periodic
Depreciation
Depreciation area 01
(leading)
0L IFRS X X (CO)
Depreciation area 30 (non-
leading)
N1 US GAAP - X
Depreciation area 60
(delta area 30-01)
N1 US GAAP X

-
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Parallel Accounting in “new” FI-AA - Ledger Solution

The new FI-AA solution is available for ECC 6.17 EHP 7 through business function
FIN_AA_PARALLEL_VAL.

The new functionality will bring more flexibility for parallel valuation and more
transparency and simplicity.

See more information on SAP Service Portal:

http://service.sap.com/rkt-erp -> SAP Business Suite -> SAP-ERP -> SAP EHP 7 for
SAP ERP 6.0 -> FI: Financial and Management Accounting).

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Benefits of the new solution:
• Flexibility concerning “Leading Valuation”
• No more hard coupling of depreciation area 01

• Always separate documents per Ledger group (FI-AA)
• Post the values correctly right from the beginning, using multiple parallel documents per
valuation

• Realtime postings per ledger group
• Common understanding of posted document
• Posting to different periods possible (restriction: beginning/end of FY needs to be equal )

• Only one Depreciation Area per Valuation necessary
• No further depreciation areas (Delta areas) necessary to portray a parallel Valuation
Parallel Accounting in “new” FI-AA - Ledger Solution

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Parallel Accounting in “new” FI-AA - Ledger Solution
Assets activated in only some (but not all) accounting principles
In the new architecture:
 Only relevant ledger groups need to be represented on the asset by their
corresponding depreciation areas
 All postings issued within from FIAA will only affect those ledger groups which
are relevant for the involved asset(s).
 P&L postings for all other ledger groups have to be handled manually by the end user
 Behavior during integrated acquisitions:
 Due to the need to balance the technical clearing account, one document for each ledger group
assigned to the chart of depreciation has to be posted
 If a ledger group is not represented on the asset by an area which posts APC online to GL, the
posting will be re-directed to “Account for non-operating expense“ (KTNAIB)
 If no ledger group is represented on the asset by an area which posts APC online to GL, the system
issues an error  can be changed into warning, then statistical areas in FI-AA will be updated
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Parallel Accounting in “new” FI-AA - Ledger Solution
Assets activated in only some (but not all) accounting principles
- New Logic -
In the new architecture (cont’):
 Behavior during integrated retirements:
 For those ledger groups which are not represented on the asset by an area which posts APC online
to GL, the revenue will remain on the manually entered revenue account. The end user might need
to manually transfer this value to a different P&L account
 If no ledger group is represented on the asset by an area which posts APC online to GL, the system
issues an error  can be changed into warning, then statistical areas in FI-AA will be updated
 Behavior during creation of assets:
 Due to the P&L posting of acquisition costs during integrated acquisitions, the system has to check
that no other depreciation area in this ledger group posts depreciation to GL. Otherwise, the
expense amounts in the P&L statement would be doubled over the useful life of the asset
 If such a setup is found, the system issues an error. This can be changed into a warning, e.g. if the
asset is not used for integrated acquisitions
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Parallel Accounting in Material Management
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Parallel Accounting in Material Management
Externally purchased goods
Parallel accounting is possible in the Materials Management (MM) application component.

• Operational stock valuation in MM is done either based on standard price or on moving
average price.
• Parallel valuation is important on balance sheet date. On balance sheet date operational
valuation has to be “corrected”.
• Stocks have to be valuated based on a consumption sequence like FIFO valuation (first
in, first out), lowest value principle or LIFO valuation (last in, first out) according to the
accounting principle.
• This valuation is transferred from MM to FI
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Parallel Accounting in Material Management
Externally purchased goods
Balance Sheet valuation is done by transaction MRN9.
For balance sheet valuation correction technique is used. Corrections are stored to
valuation correction accounts.
• Account Solution
• Customizing: Valuation correction Accounts have to be assigned to a account
modification
• Adequate account modification has to be selected for MRN9
• Ledger Solution
• Customizing: Ledger groups have to be assigned to accounting principle
Valuation correction Accounts have to be assigned to a account
modification
• For each Valuation Run the necessary accounting principle has to be selected
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Parallel Accounting in Material Ledger (actual costing)
In case that Material Ledger is activated a periodic unit price is calculated using the value
flows for the period. (Operational stock valuation with standard price)

• Periodic actual costing run determines single and multilevel costs of all goods for each
period performs revaluation of stock, costs of goods sold and WIP at actual price
according to the leading accounting principle.

• Alternative valuation runs are used to perform revaluation of stock, costs of good sold
and WIP according to non-leading accounting principles using alternative activity rates
and / or alternative material prices.


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Parallel Accounting in Material Ledger (actual costing)
For balance sheet valuation based on actual costs basically the non leading valuation is
done be alternative valuation run (AVR) .
• Account Solution
• Customizing: Valuation correction Accounts have to be assigned to a account
modification
• Classic AVR is used to do the necessary delta postings
• COGM AVR can also be used with adequate BADI (Full Postings)
• Ledger Solution
• Customizing: Ledger groups have to be assigned to accounting principle
For classic AVR Valuation correction Accounts have to be assigned to
a account modification
For COGM AVR only the ledger group has to be assigned to an
accounting principle
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Parallel Accounting in Controlling
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Parallel Accounting in Controlling
Necessity of parallel accounting in CO
• Basically data for controlling should be derived from international comparable
numbers within the group.
• Usually the internationally comparable numbers are represented by the leading
ledger.
• Therefore only the leading ledger should post to CO to have a consistent set of data
all over the group for accounting and management reporting purposes.
• But there are some countries that require actual costs based on their country specific
law.
• Brazil
• Russia
• Turkey
• Also one industry specific regulation in USA is requiring actual costs
• FERC (Federal Energy Regulatory Commission)

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Parallel Accounting in Controlling
Parallel Determination of Costs of Goods Manufactured
• For example Different depreciation values (according to two different accounting principles)
can be transferred into Cost Center Accounting.
• The depreciation costs can be included in the activity rates for the work performed and in
the costs of goods manufactured, both of which are calculated at period close.
• Ledger groups / accounts in FI-GL with inventory values calculated according to two
different valuation methods, can be updated. For example,
• CO Version 0 represents the leading valuation (IFRS) Actual costs are calculated
using the periodic costing run and update inventory values in the leading ledger in FI-
GL.
• Second CO Version represents the local valuation (GAAP), Actual costs are
calculated using an alternative valuation run and update inventory values in the local
ledger in FI-GL.
.
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Parallel Accounting in Controlling
Parallel Determination of Costs of Goods Manufactured
If your leading valuation is based on standard costs and your local valuation based on actual
costs then
• CO Version 0 represents the leading valuation (IFRS) and is used to determine the standard
costs.
• The second CO Version represents the local valuation (GAAP). Here you can use the
periodic costing run to update the inventory values in the local ledger in FI-GL.



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Some Experiences with parallel Accounting
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Experiences
IFRS implementation itself is not the big challenge but implementation of parallel accounting

1. Figure out how many accounting principles have to be implemented
• Local GAAP / IFRS
• Local GAAP / IFRS / Local Taxes
• …
Have in mind whether an additional accounting principle is expected to be implemented in near
future.
Find out which accounting principle should be the leading one.
In most of he cases it makes sense for internationally operating companies to choose the
international principle as the leading one because mainly the leading principle is directly posted
to CO!

© 2014 SAP SE or an SAP affiliate company. All rights reserved. 43

2. Figure out the differences between local GAAP and IFRS that are hitting the customer
Approach:
a) Figure out the basic differences between Local GAAP and IFRS
b) Figure out which differences are hitting the customer
Some basic differences may not hit the specific customer because they are industry specific
(IFRS 6 Insurance Contracts) and therefore irrelevant for the customer
c) Minimize the remaining differences
Often it is possible to minimize differences by using the same approach for the competing
accounting principles
Example:
Stock valuation -> IFRS allows moving average and FIFO
US-GAAP allows LIFO, FIFO and moving average
-> Check whether a valuation with FIFO is possible for the customer
Remark: For US based companies very often componentization of assets is a specific issue




Experiences
IFRS implementation itself is not the big challenge but implementation of parallel accounting
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3. Choose the right solution - Ledger solution vs. Account solution
Rule of thumb:




It is possible to migrate from an account solution to a ledger solution by standard migration tools
(Migration Scenario 8)
There is currently no way to migrate from a ledger solution to an account solution
Experiences
IFRS implementation itself is not the big challenge but implementation of parallel accounting
Accounting
principles
Differences
Big
Differences
Small
2 Ledger solution Account solution
>2 Ledger solution Ledger solution
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Topic Exposure
Draft
Standard
from
Comment
Revenue
Recognition
Replacement IAS
11, IAS 18
Standard
available
since May 28
th

2014
2017 Most important joined project of IASB and FASB, will completely change the
existing world of revenue recognition.

SAP Components: FI, MM, SD, CRM
SAP Comment letter
Leases
Amendments
IAS17
2010/Q3
Re-Exposure
Draft
expected in
H2/2014
2017? The new standard will change the accounting on the lessee side significantly.
It is also expected that leasing of real estate objects will change.

SAP Components: FI
Experiences
IFRS implementation itself is not the big challenge but implementation of parallel accounting

4. Have in mind: IFRS is still changing
Currently IASB and FASB are still working on “big” standards.
Both standards will be valid for IFRS and US-GAAP
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Attention: Parallel Accounting within IFRS !
Reporting according to IFRS and local GAAP.
With the new IFRS regulations, e.g. revenue recognition (effective 2017) and the SEC
requirements to present 2 comparable pre-years, the situation will be as follows:









Similar requirements are expected for the new Leasing standard.

Year Leading RevRec Retrospective view Prospective view
2018 RevRec new (RevRec old comparable)
2017 RevRec new RevRec new RevRec old comparable
2016 RevRec old RevRec new comparable
2015 RevRec old (RevRec new comparable)
2014 RevRec old
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Summary Parallel Accounting in ERP
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Summary Parallel Accounting in ERP

ERP-Area Valuation Term
FI Valuation Area
FI-AA Depriciation Area
MM
Balance Sheet Valuation (MRN9)
Account Modification
Adjustment Postings
ML (only actual costing) Valuation Runs
Account Modification
Adjustment Postings
CO (only actual costing) Second actual version
© 2013 SAP AG or an SAP affiliate company. All rights reserved.
Contact information:

Thomas Jordan
IMS Financials

E: [email protected]