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Don’t let missing Functional Area be a reason to mess up your Net Income

We all know that Upstream companies involved in the exploration, production and development of crude oil and natural gas have the option of choosing different accounting approaches however preparing and stating the accurate net income in the Net Income Statement is must irrespective of the accounting method or approach being followed.

By definition, Functional Area is an Account assignment characteristic that sorts operating expenses according to functions i.e. we can identify whether salary and wages belongs to production department employees or marketing/sales department employees etc. Typical functional areas in a particular organization could be identified like Production, Marketing and Administration etc. Each industry will have its own operating expenses for example: A major Oil & Gas Upstream company might have the functional area in the form of – Production Expense, Gas Plant, Exploration, Seismic, Dry Hole, Terminals & Rail, Abandonment, Drilling, Corrective Maintenance, Preventive Maintenance, Refurbishment, Pipeline, Marketing etc.

Probably you might have referred my earlier blogs regarding different business scenarios for the Functional Area in Oil & Gas Industry, In case you did not have time, you can still refer them by navigating the following links:

Now let’s look at a different business requirement today:

Business Requirement:

Ideally many organisation use Functional Area in order to prepare their net income and management reporting and its expected that every cost line item with the Profit & Loss must have the Functional Area.

What is the problem here?

Your Net Income Statement can be messed up due to many reasons however missing Functional Areas in the cost object is one of the most critical one.

Reason for this problem.

As per standard sap configurations, Functional Area field is not a mandatory field in the related cost object i.e. Cost Center, Internal order, Network, GL Account, WBS Element, PM Order etc. So in that case there is every possibility that user might miss to specify the functional area during the creation of the cost object.

Can the fact of missing Functional Area be avoided?

In Standard SAP, configurations are possible to auto derive the functional area:

  • For Cost Center, Functional Area can be linked to the cost center category.
  • For any type of Internal Order (PM/PP etc.) or , Functional Area can be linked to the Order Type
  • For Cost Center, Functional Area can be linked to the cost center category.
  • For WBS Element, Functional Area can be linked to the Project Profile.
  • For Network, Functional Area can be linked to the Network Type.

Still as the Functional Area field is not mandatory in the cost objects, there is every possibility that user might delete the value even after it is auto derived (off course only if no business transaction exist with this cost object) or for example, the auto derivation value is not appropriate and it needs to be changed and user has deleted it but not provided the correct one so now its blank and any posting that use this cost object will have the Functional Area field blank in the posting.


There can be two ways to address this problem and achieve this business requirement :

  1. Make the functional area field mandatory in each cost object
  2. Control it through the custom validation.

First Option:

Making the Functional Area field mandatory in each cost object is possible however this might require good amount of work due to typical business requirement & other business reasons. So many organisation does not proceed for this option.

Second Option:

Control the missing Functional Area issue by creating a Validation. – This option looks easy and many organisation use this option.

Now the next question comes which Application Component Validation & What type of Validation:

  • Application Component is Controlling i.e. Application Area – Cost Accounting
  • Validation Type : Line Item Validation. i.e. Call Up Point -1

Let’s look at the Validation details:

Every organisation will have the range of the GL Account that are Profit & Loss Account so we can use the range for the prerequisite.

So the prerequisite of the Validation can be: the GL Account >= XXXXXXX and Object number of real CO account assignment is <> (not equal to) and Functional Area = ‘ ‘ (equal to blank) and if the Check is False then issue the error message i.e. ‘Posting is disallowed without Functional Area’.

Technically the prerequisite can be as follows:

Functional Area Validation.jpg

A custom message class and number might need to be created as required and then it can be linked to this custom Validation.

This issue can be faced in other industries as well and we can address this business requirement in the same way as stated above.

If some documents have already been posted with incorrect Functional Area in your system, then the question becomes how to correct the functional area and for details you can refer the link:  Can we rectify the Functional Area if it is incorrect

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