This series of blogs describes how SAP Financial Consolidation, Starter Kit for IFRS has been configured to meet International Financial Reporting Standards (IFRS). The blogs will help customers achieve legal compliance of IFRS thanks to a detailed explanation of how the main standards listed hereafter have been implemented in the starter kit for IFRS:
- IAS 1 – Presentation of Financial Statements
- IAS 7 – Statement of Cash Flows
- IAS 21 – Effect of Changes in Foreign Exchange Rates
- IAS 28 – Investments in Associates and Joint Ventures
- IFRS 3 – Business Combinations
- IFRS 10 – Consolidated Financial Statements
- IFRS 11 – Joint Arrangements
At the end of the last blog, we will provide a link to the comprehensive document describing how IFRS requirements (including standards that are not addressed in this series of blogs) have been taken into account in SAP Financial Consolidation, starter kit for IFRS.
Let’s get started with an introduction to SAP Financial Consolidation, Starter Kit for IFRS
SAP Financial Consolidation is part of SAP enterprise performance management (EPM) solutions. This product address financial consolidation requirements and can be integrated into both SAP and non-SAP software environments and can load data from any general ledger application. SAP starter kit for IFRS is a complete configuration on top of SAP Financial Consolidation – from data collection to publishing of financial statements – designed to perform, validate and publish a statutory consolidation in accordance with IFRS. Using both product and functional best practices, the starter kit for IFRS ensures optimal performance, better usability and facilitated customer enhancement.
The starter kit for IFRS provides:
- A chart of accounts
- Reports for data entry at local level and data retrieval at the group level, including publishable financial statements
- Controls to validate data entered or loaded into the application
- A comprehensive set of consolidation rules designed to produce consolidated data
The starter kit for IFRS intends to meet the most common business requirements and, conversely, does not address specific ones. In particular, requirements specific to banking and insurance sector are not included in the starter kit. This is also the reason why “industry-specific” standards such as IAS 26 (Accounting and Reporting by Retirement Benefit Plans), IAS 41 (Agriculture), IFRS 4 (Insurance Contracts) and IFRS 6 (Exploration for and Evaluation of Mineral Resources) are not dealt with by the starter kit.
The starter kit is provided to SAP Financial Consolidation customers at no additional charge and can be downloaded from our SAP Help Portal at http://help.sap.com/boepm. This document refers to the starter kit delivered in June 2012 (SP2) available for version 10.0 of SAP Financial Consolidation.
IFRS in the starter kit
IFRS apply equally to consolidated and separate (individual) financial statements, except for some requirements that specifically address one or the other. For example, IFRS 10 is dedicated to consolidated financial statements whereas IAS 27 only addresses separate financial statements.
In practical, the use of IFRS varies from country to country according to local regulations. For example, in the European Union, EU-endorsed IFRS are mandatory for listed companies’ consolidated statements whereas national GAAP usually still apply to individual statements and unlisted sector.
In the starter kit for IFRS, local data, as loaded in packages(*) or after manual adjustments, are supposed to be IFRS compliant. It means that assets and liabilities, revenues, expenses, gains and losses are measured in accordance with IFRS requirements. Consolidation procedures embedded in the starter kit are compliant with IFRS.
(*) In SAP Financial Consolidation, a package is a comprehensive set of data entry schedules that enables consolidated entities to enter their data (individual accounts) at local level.
To put it simple, starter kit compliance with IFRS is achieved in two ways:
- Accounting schemes that derive from IFRS requirements should be provided for in the starter kit
- The consolidation process should comply with IFRS requirements as described in IFRS 10
Regarding accounting schemes, it should be first reminded that no IFRS gives detailed accounting schemes (because there is no IFRS chart of account). However the accounting requirements can – more or less easily – result in accounting schemes.
IAS 18 Revenue requires that, once the recognition criteria are met, the corresponding revenue is recognized and measured at the fair value of the consideration received or receivable. The accounting scheme that can be derived from this requirement would be as follows:
In the starter kit, providing for accounting schemes means that:
- Corresponding accounts exist, and
- Those accounts are linked with appropriate flows in the category scenario.
Continuing the example presented above, the corresponding accounting scheme would be as follows in the starter kit:
Even though starter kit accounting schemes are presented in the form of accounting entries here (for a better understanding), it does not mean that corresponding data should be entered using manual journal entries. Most of them have been booked in local statements and are therefore entered in the packages at local level. The input reports available in the packages are designed to reflect the accounting schemes embedded in the category scenario.
In the next blogs, we will focus on how the Starter kit meets IFRS requirements, standard by standard, starting with IAS 1 (Presentation of Financial Statements).