IFRS Adoption In Consolidated Statements Part 4
This first series of four blogs is dedicated to handling IFRS adoption for consolidated statements. They provide an overview of a new SAP “How-to guide” called “IFRS Adoption in Consolidated Statements using SAP® BusinessObjectsTM Financial Consolidation, starter kit for IFRS“. The objective is to bring practical guidance to end-users in order to manage successfully all the issues raised by the adoption of IFRSs and to get the maximum benefit from SAP® BusinessObjectsTM Financial Consolidation. The blogs will cover:
- IFRS Adoption In Consolidated Statements – Part 1: Approaches in IFRS adoption
- IFRS Adoption In Consolidated Statements – Part 2: Operating issues to deal with in financial reporting systems.
- IFRS Adoption In Consolidated Statements – Part 3: How to face the challenge – The starter kit for IFRS as a starting point
- Blog #4: How to face the challenge – Key implementation templates – this blog
The previous blogs explained ways to ease the transition between local GAAP and IFRS using SAP® BusinessObjectsTM Financial Consolidation, starter kit for IFRS and how to deal with two models of implementation, a unified reporting or two separate reporting.
In order to optimize SAP® BusinessObjectsTM Financial Consolidation features and starter kit contents and implement an efficient and simple project, we recommend the following configurations and operating processes for whatever model is chosen (unified or separate reporting categories).
To find out more about Starter Kits & Innovations materials, go to the Starter kit for SAP BusinessObjects solutions Wiki
How to face the challenge – Key implementation templates
Managing a unified chart of accounts for the Group
In order to get a unified chart of accounts that meets the needs of both standards, map between the existing IFRS chart of accounts and the local GAAP must be carried out. Keep in mind that the target IFRS chart will become the reference chart of accounts.
- In a simple configuration enhancement, new accounts are inserted in the IFRS hierarchical chart of accounts.
If the two CoA differ strongly, add a new property (characteristic) to the accounts in order to manage the local GAAP account hierarchy (e.g. LOCAL GAAP TOTAL).
Adjusting local accounts
Local accounts are established on the basis of national accounting standards. The entity therefore has to make adjustments in order to ensure compliance with IFRS for the comparative data. In most cases, these IFRS adjustments are already accounted for in the ERP or local accounting system.
The software enables you to enter data at the:
- Local level: Local GAAP data and IFRS adjustments are loaded (from source system)/entered in Package Manager.
- Corporate level: IFRS topside adjustments can be posted in Manual Journal Entries.
In any case, these adjustments must be easily tracked in order to allow a full reconciliation between local GAAP and IFRSs.
Ensuring a comprehensive audit trail for all adjustments
As stated above, the starter kit provides a detailed list of audit IDs to identify operations such as fair value, CTA, investments elimination, etc… that occur during the consolidation process. New audit IDs can be created to track IFRS adjustments. Regarding the number of audit IDs to be created, a precise tracking needs creating several IFRS adjustments audit, an overall tracking just needs a few audit IDs to be created.
Loading or entering IFRS adjustments at the local level:
- Principle: The standard audit ID proposed at the local level in Package Manager is “PACK01”. One or more audit IDs must be created, depending on the level of details needed, to enable the loading or the posting of IFRS adjustments at local level (e.g: IFRSLOC1).
- Managing the “After changeover” period:
Once the transition period has ended, the new IFRS adjustment audit ID (IFRSLOC1) is no longer needed assuming that IFRS becomes the local standard.
The IFRS adjustment audit IDs have to be carried forward into the “standard” audit ID “PACK01” at the end of the changeover period using the “Opening balance audit ID” characteristic.
Topside adjustments at the Corporate level:
- Principle: Two or more audit IDs, depending on the level of detail needed, must be created to enable the Group to book IFRS adjustments at corporate level in Manual Journal Entries (eg: “IFRSCEN1” and “IFRSCEN2”).
- Managing the “After changeover” period:
As in the local level, these audit IDs have to be carried forward as follows:
- § Data enclosed in audit ID “IFRSCEN1” is carried forward into “PACK01”.
- § Data enclosed in audit ID “IFRSCEN2” is carried forward into a central standard audit ID.
We’ll also have to create a filter that will group together the standard audit IDs (excluding IFRS ones) named “LOCALGAAP”. A filter enables you to group together objects such as accounts, flows, audit ids, etc… in order to configure automatic journal entries, reports and other objects.
Performing recurring journal entries automatically at the group level
As seen in the IFRS starter kit description, a set of business rules is provided so that journal entries are automatically posted. If needed, a new set of rules dedicated to local GAAP can be created, but only after you have verified that the existing rules are insufficient for your purposes.
Execute and store multiple consolidations
Execute and store multiple consolidations implies to run several consolidation processing and manage different versions of the scope.
Multiple consolidation versions
During the transition period, the entity will have to support two sets of consolidated data for the same period. To do so, use the version (or variant) dimension in SAP® BusinessObjectsTM Financial Consolidation to sort different consolidated data on a same period. This can be configured as follows:
Several scopes of consolidation
The IFRS consolidation scope may differ from the one defined according to the local GAAP. SAP® BusinessObjectsTM Financial Consolidation allows the entity to create several versions of the consolidation scope for the same period as illustrated below:
Publish reports according to different formats
The starter kit for IFRS offers preconfigured IFRS financial statements. Two other types of reports should be added:
Local GAAP reports:
If local GAAP needs specific financial reports, it will be necessary to configure them in the system.
As explained above, reconciliation between local GAAP and IFRS is mandatory. To enable this reconciliation, specific reports based on consolidation versions and audit ids have to be configured in the system.
As a next step, a complete illustration of the operating process to handle the IFRS adoption is delivered in the full how-to guide “IFRS Adoption in Consolidated Statements”.
Acknowledgements to Fabienne Rojo, Patricia Meteil-Dutartre and Laetitia Lamoureux from the EPM SK&I team for their high contribution to the “How-to guide” paper.
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International Financial Reporting Standards (IFRS)