In 2014 the International Accounting Standards Board (IASB) and the Financial Accounting Standards Board (FASB) jointly issued converged accounting standards on the recognition of revenue from contracts with customers. The IASB’s standard is known as IFRS 15 Revenue from Contracts with Customers.
The core principle of the new standard is to recognize revenue according to the transfer of goods or services to customers in amounts that the company expects to be entitled in exchange for those goods or services. The new standard will also result in enhanced disclosures about revenue, provide guidance for transactions that were not previously addressed comprehensively (for example, service revenue and contract modifications) and improve guidance for multi-element arrangements.
Undoubtedly IFRS 15 marks a major change in financial reporting, but for companies to prepare for and to comply with this new standard major business and IT challenges have to be tackled first. Industries most heavily impacted by this change are for example Telecommunications, High Tech and Professional Services firms.
To help companies manage the transition to the new standard, SAP has introduced SAP Revenue Accounting and Reporting, which is part of the SAP Simple Finance solution portfolio and can be deployed e.g. with SAP S/4HANA. For more information about SAP Revenue Accounting and Reporting please go to www.sap.com/product/financial-mgmt/revenue-recognition.html.
The key question for many companies, however, is how to integrate their existing operational systems for Contract and Order Management, Billing/Invoice, AR Management or Data Warehouses into SAP Revenue Accounting and Reporting. There are 3 main processes to be considered as depicted in the below graphic.
The end-to-end process starts with the data import from the various operational systems (SAP / non-SAP). Based on experience and as confirmed by customers the system landscapes in place tend to be heterogeneous and the systems to be integrated quite many. To ensure flawless follow-up processing a data validation is mandatory.
Next the raw data needs to be transformed following a contract-by-contract, portfolio or hybrid approach. It includes enrichment and aggregation as well as calculation of key figures and handing them over as contract or portfolio performance obligations to
SAP Revenue Accounting and Reporting for revenue allocation according to IFRS 15.
This is all managed by the contract and portfolio hub, which can be delivered as a custom-developed solution by SAP Custom Development.
The need for an IFRS hub arises with operational processes running outside the system where SAP Revenue Accounting is deployed. In addition IFRS15 relevant data for one contract or one portfolio often are managed by more than one system. In other
cases data enrichment logic has to derive data, which is not readily provided by source systems. The hub is characterized by comprehensive configuration capabilities and most importantly provides adequate access and insight for auditors. As business models, business and IT requirements are continuously evolving, the solution can be adapted and extended without the need for substantial new developments.
The Contract and Portfolio hub leverages the capabilities of the SAP Application Interface Framework and seamlessly integrates into SAP Revenue Accounting and Reporting. For more information about the SAP Application Interface Framework please go to www.sap.com/AIF.
The below graphic provides an overview of a SAP Custom Development reference architecture for this process, which is fully aligned with the SAP standard development architecture and roadmap.
Image 2: SAP Architecture Overview
The key differentiators of this reference architecture from other approaches are:
- Integration of multiple data sources (SAP/other)
- Flexibility on import data structure (configurable)
- Easy implementation of data validation (technical & business checks)
- Transparent document flow
- Auditability and traceability for the entire end-to-end process
- Monitoring and error handling for business and technical users
- SAP Standards: Security, Authorization concept, Multi-client
These key differentiators are possible due to use of SAP AIF which takes benefit from not being solely an ETL tool but a user focused application tool. This advantage gets lost if not making use of SAP AIF.
It allows for developing completely new analytical applications and thus creating business value beyond compliance as shown in the following graphic. The examples provided are use cases of the Telecommunications industry.
Image 3: Outlook – Additional Use Cases
SAP Custom Development offers a wide range of services for building custom applications to address unique, often mission-critical, business challenges. Working with customers and SAP Custom Development creates applications that deliver powerful, differentiating solutions. Combined with SAP Custom Development’s comprehensive maintenance offerings and SAP Advisory and Implementation Services it is a fast, low risk way to seize market opportunities and respond dynamically to new business challenges.
For more information visit us at www.sap.com/customdev.