SEM-BCS and IFRS – Part V
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Consolidation Chart of Accounts
In order to execute Consolidation tasks a uniform chart of FS items is required. This is the basis for reported data of relevant Consolidation Units. What makes the uniform chart of FS especially important is its unique numbering nomenclature which is used for representing the required balances in each (FS) item. The chart of FS items is drawn according to an accounting practice…
The underlying requirements stipulated in IAS 1 are minimum requirements that are expanded further to support decision making by the reporting entity to further accomplish its reporting goal. The IAS 1 determines financial statements reporting according to the principle of liquidity. The improvement project has resulted in extended reporting for minority shareholding of equity and minority participation in the current earnings. The particular differences are especially relevant for those entities that continue to file according to US GAAP in addition to IFRS.
The SAP Consolidation can utilize FS items as drawn in the charts according to statutory, IFRS, and US GAAP requirements. The chart is selected and saved in permanent parameters of a Consolidation Area. There can only be one consolidation chart per Consolidation Area. The standard delivered Consolidation Area is 20 – IFRS that reflects the earnings in the balance sheet and the income statement according to cost of sales.
The structure depth of the chart is not fixed, and can be created into as many levels in a hierarchy as required. The characteristic node type depicted as hierarchy node is equivalent to the totals item. Lower nodes are value items that hold actual values used for data submission, booking, and reporting. The totals items summarize value items for higher level reporting, rolling up into a more aggregated balance. One example is totals item for other business expenses and other business income which are separate balances in a profit and loss statement. For Consolidation Unit data submission and consolidation entry tasks to provide relevant detail, different value items are used that belong to different totals items. The totals item value is derived from hierarchy of all lower level value items. The totals items cannot be used for making consolidation entries.
Item type is selected whether the item belongs to Balance Sheet, Income Statement, or is a statistical item. In case of statistical items, a further differentiation is made if it belongs to a balance or flow type. This differentiation of statistical items is important for bringing balances forward. The type of balance makes the item automatically subject to carry forward. The type of flow requires an additional item entry in the characteristic of function Movement Type. The flow items refer to Income Statement items and also Balance Sheet items of (retained) earnings and dividend distribution. The debit/credit sign allows both manual and automated uploads of values without specifying the sign in the data itself. For example assets and expenses have the sign of ‘+’ (plus).
Concept of Breakdowns (subassignments)
In order to execute elimination tasks or to satisfy business requirements it may become necessary to report not only ending balances as of a certain date, but also to adjust them after that date.
The items thus have to be tested for the need of disclosures in addition to reporting balances only. This applies especially in the area of fixed assets, both tangible and intangible, contingent liabilities, and equity. By assigning a Breakdown Category it is possible to report items in more detail and to reclassify them if necessary.
As already mentioned, additional disclosures can be made for both tangible property, plant, and equipment, and intangible property according to IAS 16 and IAS 38 over a period of time (horizontal scale). To report a note to a financial statement item detailed information is required showing the balance changes over time from the beginning balance to the ending balance. SAP is allowing the Business Consolidation to enable such reporting in which it is utilizing breakdown types in subassignments.
A specific timing configuration setting at the Consolidation Unit master data record is required for first data entry, for both period and year, to determine when the Consolidation Unit’s balances are reported.
Apart from legal requirements of the reporting structure more detail is required to enable performing of systemic eliminations. The main application of breakdowns (subassignments) is the preparation of consolidated financial statements of a single filing entity. Those tasks (intercompany payable and receivable, sales and cost of goods sold, investment income, other gains and losses eliminations) are based on referencing of Partner Units. Items that show internal relationships of an enterprise require an additional subassignment of a Partner Unit. When the matrix functionality is enabled the partner unit needs to be specified for both the legal entity and Profit Center (line of business) partner. For eliminating internal relationships such detail information is required to allow automatic entries allocating amounts among Profit Center lines of business.
Another required breakdowns (subassignment) is the Allocation characteristic. This setting is required for items that are specified in the task of allocation. This breakdown helps better completion of allocating (distributing) values of a Consolidation Unit over multiple Consolidation Units.
In summary, SAP Consolidation differentiates among the following breakdowns:
- Partner Company/PC
- Movement type
- Currency and currency key
- Period and year of first data entry
- Unit of measure
For different management of items with regards to subassignments Breakdown Categories are defined. In configuring the item assign the Breakdown Category which reflects business and system requirements. With that in mind, analyze the chart of Financial Statement items
Comparable items, e.g. short term trade payables or long term trade payables should carry the same breakdowns. In the configuration step you can determine the system behavior whenever there is missing value. You can require manual intervention or assign a default value.
Apart from the delivered breakdowns you can also define your own, e.g. geographic area, product group, or distribution channel. On the one hand, breakdowns are used in consolidation, and on the other hand they enable better analysis of the underlying data. Keep in mind that additional breakdowns have an impact on system performance. With that in mind, we recommend the use of attributes that allow higher flexibility without excessive processing requirements.