[S/4HANA Accruals Management] [Cloud version] Purc...

LilingJia · ‎07-13-2021

Hello there! This series blogs about S/4HANA Cloud Accruals Management – Purchase Order Accruals, are created specially for you.

Business users who would like to know the features and logic

Functional Consultants who would like to know the features and logic , and in addition, design based on SSCUI capability

Technical Consultants who would like to know the features and logic , and in addition, extend default logic by leverage the SAP Cloud BAdI capability

The world has seen increasing complexity in business. There are goods/service sold and consumed across time span consume across time span. To reflect an accurate snapshot of financial position, it is important to have a reliable and consistent rule of financial reporting. Consequently, it is important to accurately accrue for both revenue and expense at the end of the reporting period.

With a series of blogs, I plan to debrief the concepts and alongside, walk you through how SAP S/4HANA Accruals Management helps you automate the process. In addition, if there are special rules for a country/industry, these blogs might help you to understand the possible changes you could make within SAP S/4HANA Cloud.

Concept Clarification

Highlights for a few common questions which has been raised tons of times.

1. Accruals vs Provisions

Accruals: A liability, goods and services already delivered where the invoice wasn't received.

Provisions: A liability of uncertain timing or amount. (IAS 37: the likelihood of occurrence of this obligation higher than 50%).

The main differences from my point of view, is certainty of liability

For Accruals, it’s 100% certainty of liability. Because ‘we’ know that the supplier has rendered the service or delivered the goods. So, accruals are often reported as part of trade and other payables.

For Provisions, it is 50% ~ 100% certainty of liability. Because ‘we’ have to ‘puts a certain amount of money aside’ as preparation for the potential (>50% likelihood) consequence of an event in the past. So, provisions are reported separately.

If you want to understand in deeper level, I would recommend the IAS 37 ‘Provisions, Contingent Liabilities and Contingent Assets ‘, which is so far the best I learned to summarize the differences.

2. What is S/4HANA Accruals Management？Why it's important?

With pure manual accruals posting, it is not easy to explain why certain amount is added for what kind of business transactions.

Accrual posting becomes a headache for both accountants and audit.

How to provide and prove this accrual posting?

With SAP S/4HANA Accruals Management, you could find every trace for purchase order accruals posting – WHEN, WHAT & WHY.

With the application Purchase Order Accruals, it is possible to automatically calculate and post purchase order accruals. This new application is based on the (new) S/4HANA Accrual Engine which offers flexible configuration options for calculation and posting of the accruals.

Optional: A review process for the monthly accrual amounts can be activated in the Configuration.

3. Accruals vs S/4HANA Accruals Management

By definition in IFRS, accrual-based accounting means recording accounting transaction in the time period on which they occur - matching revenues against expenses when transactions. In short, there are accrued revenue and accrued expenses.

S/4HANA Accruals Management only focus on accrued expense. Accrued expense is a liability whose timing or amount is uncertain by virtue of the fact that an invoice has not yet been received.

o If you are looking for a solution to automate the accrued revenue, you could explore ‘Event-based Revenue Recognition’.
o Until CE2105 there is only purchase order accruals available in SAP S/4HANA Cloud. There will be more to come in the upcoming releases.