Intercompany Sales of Services - Full flow through Projects

[misrasuman1]

Hi All,

Is there any better way to handle an Intercompany Sales of Service than what is proposed below?

Scenario:

1. Company A (Selling Entity) receives the customer PO and creates Sales Order A

2. Full offload of work to another Company B (Delivering Entity)

3. Our sales team have proposed that there will be an Auto PO created for Company A and auto Sales Order created for Company B. (A new feature of Interco in S4 HANA? Is this correct?). Is there any feature of creating Project B in Company B automatically?

4. My proposal-Company A to set up Project Structure Project A (very basic structure with WBS Milestone assigned to Sales Order A). Company B to set up a different project structure Project B and in more detailed phases tasks as the actual planning and budgeting to happen there with its own Milestones which copied to the Sales Order B.

5. After service confirmation (completion of project tasks in Project B) milestones are confirmed in WBS B when also an automatic notification is sent to the delivering entity. Its upto the Project A to confirm their own milestones based on Milestones and service confirmations from Project B.

6. All actuals are sitting in Project B as they are the one which have carried out the entire work. Revenue Recognition can happen for Company B as it bears both the revenue and the cost.

7. I am not sure of Revenue Recognition in Project A till now and is under discussion and I suppose if it is needed then the cost needs to be transferred from Project B as a FI Interco posting.

Please share your valuable inputs if there is a scope for automating or following a better process.

Regards,

Suman Misra

[Ken_Melching · Accepted solution]

There are several excellent blogs describing intercompany processes.

What is the primary intercompany relationship requirement the customer has defined? Is there simply cost transfer between companies of full blown transfer pricing?

You should not do rev recognition on Project B since it will never invoice the client and that would misstate revenue on your P&L. Company B will only receive intercompany revenue which will be eliminated during financial reporting.

A typical set-up is to do direct cost transfer from company B to the Project A, this allows Project A to invoice the real customer or post revenue recognition. Then use Intercompany RRB at period end to use transfer pricing so Company gets its intercompany revenue.

Read through these blogs:

https://blog.sap-press.com/principles-of-event-based-revenue-recognition-ebrr-in-sap-s4hana?_hsmi=27...

https://blogs.sap.com/2020/06/01/intercompany-cost-allocations-in-s-4hana-cloud/

[misrasuman1 · Accepted solution]

Thanks for the blogs. While I am going through them as the best practices followed in industries we had a call with our client.

For both full flow through and partial flow through there are segregation in business. Here there will be no transfer of costs from the delivering entity to the selling entity project as this is how they operate at present and revenue recognition is done solely in the delivering entity who bears all the cost of execution of the project work.

In the selling entity only billing is done so they don't even want to set up a project.

For even a partial flow scenario where Selling entity does a partial work and the delivering entity the rest of the work again they do not want to accumulate all costs into the selling entity for Finance reporting.

Hence for both these scenarios they want one single project to be set up and with WBS assigned to two different company codes. The first WBS assigned to the SE company code will only be set up with Milestones and assigned to Sales Order A (customer sales order) and the second WBS assigned to DE company code with also Milestones and assigned to Sales Order B (interco sales order) and this WBS will bear all actuals for a full flow.

Likewise for a partial flow individual progress in each of the entities will be tracked through the seperate WBS assigned to seperate co codes but under the same project.

As far as I know there should not be any problem with this set up (though it may not be a best practise the business is following) but let me know your thoughts on this.

[misrasuman1]

I found this link PS Commercial project with engineering in different company code | SAP Community which is what I was looking for. Closing the thread.