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R2R Series Blog #2: How to increase process efficiency in the financial close leveraging SAP’s Modern Finance and Risk Platform

This is Blog #2 in our Record to Report Blog Series. You can find the complete series outlined HERE.

Author: Katharina Reichert, Co-Head of SAP Solution Management Accounting and Central Finance 

Years ago companies leveraged offshore shared service centers and labor cost arbitrage opportunities to lower their cost of finance for a competitive edge. Later the trend changed to the centralization and standardization of the business processes – again to reduce costs and protect their edge. But what will the future look like? What’s next?

We see a clear trend toward process automation and insight generation. This does not necessarily mean that outsourced or centralized finance departments will become relics of the past. The focus on relentless automation will make many regularly recurring tasks obsolete. In addition, the system itself will automatically identify and highlight business insights – faster than analysts combing through data – and push the information to the correct teams. These two innovations combined will re-focus the finance department on providing the scale needed and facts needed to help support the business‘ growing needs – serving as financial consultants and stewards for the business.

SAP’s central modern finance and risk platform enables finance teams to advance along key objectives – achieving steering effectiveness, improving process efficiency and maintaining continuous compliance. This blog post will focus on process efficiency in the entity and corporate financial close – which of course has Financial Accounting at its core.

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Financial accounting is the process of recording business transactions and their legal valuation according to the relevant generally accepted accounting principles (GAAPs). Financial accounting also must ensure the interoperability of financial operations, asset and general ledger accounting.

At the middle of the SAP S/4HANA modern finance and risk platform is the single source of truth – the general ledger that SAP calls the universal journal. This is the ledger which is fed by the record-to-report process. Companies using the universal journal will benefit from:

  • Embedded legal valuation – support for international and local accounting standards

Multinational corporations have the challenge of meeting the requirements of potentially dozens of GAAPs simultaneously. The SAP S/4HANA universal journal supports these requirements from a single journal, with optimized data storage to support flexible reporting.

  • Reduced labor cost – process automation via artificial intelligence

SAP S/4HANA has embedded the latest technologies in our processes so that companies do not have to integrate multiple AI solution providers. Dozens of intelligent robotics process automation (iRPA) bots have been delivered for record-to-report, leveraging stable pre-defined integration points in the sub-processes, for example for journal entry postings. Machine learning capabilities have been added for purchase order accruals calculations, or matching goods and invoice receipts or payables and receivables documents for intercompany reconciliation.

  • Scale to meet growing business needs – reduced need for period-end manual operations and adjustments

Let’s take revenue recognition, for example. Whether the sales process begins with a single sales order, contains multiple elements, or is a solution order comprising products and services, the evaluation of fair value and revenue recognition postings are built into the process. When finance teams evaluate moving to subscription models, they know their processes will scale.

The entity close is a recurring process during which the accounting team verifies and adjusts account balances at period-end to produce financial reports. This information must be shared with management, investors, lenders, and regulatory agencies.

The corporate close, in contrast, must eliminate all intercompany transactions on an inter- and intra-segment basis, consolidate investments, and create group level financial reports. Innovative reporting capabilities help businesses steer their divisions based on advance analytical models.

There are 3 key ways SAP’s central modern finance and risk platform supports the entity and group close:

1) Central finance option leads to faster adoption of process innovations

SAP provides the possibility to bring financial data from multiple source logistics systems into a single SAP S/4HANA platform – standardizing data structures and enabling transparency across the entire business, without necessitating that logistics and production systems are migrated. Companies can benefit from a financial transformation at their own pace with a phased finance-led implementation of SAP S/4HANA.

Beyond building just a reporting platform, however, finance teams can take advantage of the improved intelligent processes in finance, running record-to- report processes on the latest version of SAP S/4HANA. Processes that affect the effort required for the entity close, like revenue recognition, accruals and journal entry postings, goods and invoice receipt reconciliation and intercompany have all been improved in recent releases. In many cases these tasks have been taken off the “critical path” and moved into the period – which is the basis for continuous accounting.

2) Acceleration of closing cycles

SAP provides a centralized closing hub which orchestrates the various tasks involved in the closing processes – either within the platform or across multiple ERP instances in hybrid landscapes. Through scheduling optimization of automated jobs, and workflow for manual tasks, there’s always transparency and visibility into the status of tasks which are behind schedule – in time for a correction – regardless of which system they are running in. The individual jobs themselves have been optimized to take advantage of the in-memory database and universal journal architecture, with some tasks, like the reconciliation of subledgers and ledgers, being eliminated by design. Also, the closing hub includes best practice prescriptive business content for SAP S/4HANA Cloud systems, including jobs that take advantage of machine learning or bots for more automation and cycle acceleration.

3) Improved data quality and process traceability

SAP’s modern finance and risk platform also has new features that support company’s governance and compliance initiatives around the entity and group close. For example, one critical source of errors in many architectures is the ETL process that many companies use for both intercompany as well as the link between entity and group close. With SAP S/4HANA Intercompany Matching and Reconciliation, the intercompany payables and receivables documents from all entities in SAP S/4HANA can be seamlessly matched during the period – supported by business user-defined rules framework or machine learning. And since the SAP S/4HANA architecture has brought consolidation back into the core of the modern finance and risk platform, the handover between entity and group close is smoothed with an aligned data model and process. Additional data quality checks like enhanced data validation can be done at the time of posting origination, not just after the entity close has been completed. This helps to distribute workload continuously and evenly over the accounting period. Process traceability is supported by the drill-through capabilities that allow group and local accountants access to the same detailed data sources.

Conclusion

Finance organizations still have huge automation potential in the financial close. Implementing the financial close processes based on SAP‘s modern finance and risk platform unlocks significant saving potentials by running the financial close based on our simplified architecture and embedded artificial intelligence. With this improvement in efficiency, teams can focus on business steering instead of manually executing closing tasks.

Call to action: To learn more about process efficiency in the Close, join us and customers at the virtual event for Financial Close and Reporting.

Check out the rest of our series:

R2R Series Blog #1: Record to Report Blog Series Kick Off | SAP Blogs

R2R Series Blog #2: How to increase process efficiency in the financial close leveraging SAP’s Modern Finance and Risk Platform | SAP Blogs

R2R Series Blog #3: Why did the accountant cross the road? | SAP Blogs

R2R Series Blog #4: Ignite Your Growth of Bottom Line with SAP S/4HANA GR/IR | SAP Blogs

R2R Series Blog #5: Hard Close, Fast Close, Soft Close and Continuous Accounting | SAP Blogs

R2R Series Blog #6: Build vs Buy – 3rd Party Data Integration for SAP Central Finance | SAP Blogs

R2R Series Blog #7: Market Overview – SAP Contract and Lease Management | SAP Blogs

R2R Series Blog #8: Make your SAP S/4HANA for Central Finance implementation a success | SAP Blogs

 

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