Understanding the many applications of “Reconciliation” – How SAP Financial Close Solutions by BlackLine Complement SAP S/4HANA

If you’ve explored the capabilities of SAP S/4HANA you’ve probably heard that one of its benefits is the elimination of reconciliations. If you’ve seen this and you’re also evaluating SAP Solution Extensions by BlackLine for the financial close, you may be wondering whether companies running SAP S/4HANA would need SAP Financial Close Solutions by BlackLine.

The answer is yes. SAP Financial Close Solutions by BlackLine complement even the most sophisticated SAP solutions like SAP S/4HANA.

The Universal Journal and Reconciliations

SAP S/4HANA simplifies the ERP architecture with the Universal Journal, a table also known as ACDOCA. Specifically, data that was spread and stored across multiple tables including sub-ledgers and totals tables has now converged. The Universal Journal leverages the power of SAP HANA to store all finance transaction data in this single universal journal table, making SAP S/4HANA a exceptionally powerful Financial system.

Previously, this SAP ERP design resulted in the need to reconcile data between these tables to ensure it was not out of sync. For example, sub-ledgers needed to be reconciled to the general ledger. These reconciliations were typically performed manually by Accounting & Finance and were a critical part of month-end activities.

With the single table architecture, SAP S/4HANA eliminates the need to tick and tie, or reconcile, data within the ERP.

Reconciliation vs. Substantiation

While SAP S/4HANA’s reconciliation benefits are noteworthy, the term “reconciliation” can create confusion. Because, when it comes to the financial close, the term reconciliation is typically used in reference to substantiation. When it comes to the balance sheet, companies are required to substantiate their results as of a point in time, typically at month-end or quarter-end. An accountant and an IT person understand the term reconciliation differently.

Substantiation involves multiple processes including reconciliation to underlying systems, as well as validation of the completeness and accuracy of the ending balance which involves more than simply agreeing information within the ERP. Substantiation is the confirmation that an ending balance is appropriate, and more often than not, it requires corroborating information in the general ledger with supporting documentation from outside of the general ledger such as invoices, contracts, or schedules.

Auditors rely heavily on balance sheet substantiation activities to support their activities and opinion. In addition, certification and approval of substantiated account balances satisfies key control considerations under the US Sarbanes Oxley regulations, SOX 404.

SAP Financial Close Solutions by BlackLine Complements SAP S/4HANA

SAP Financial Close Solutions by BlackLine transform the balance sheet substantiation process. Without such a solution, many accounting teams, including those running SAP S/4HANA, rely on a disaggregated, spreadsheet-heavy approach. This makes it difficult to ensure quality and consistency across business units and teams lack visibility to status and errors. They struggle with the manual workload at month-end and the painful audit processes that follow.

SAP provides reports to review transaction details, or line items, within the General Ledger; but neither SAP ECC or SAP S/4HANA are designed to orchestrate, perform, document, and audit the substantiation and review process for these line items. This is why SAP has chosen to partner with BlackLine for this solution. SAP Financial Close Solutions by BlackLine helps automate this end-to-end process by automatically importing data, providing configurable rule based workflows, and auto-certification. It provides assurance to accountants with standardized templates, transparent tasks and real time visibility to discrepancies. Finally, it provides governance with embedded controls, linkage to policies and procedures, and integrated storage of supporting documentation to effectively prepare for audit which is also streamlined with this solution. Rather than manually providing supporting documentation to auditors, you can create “read only access for auditor” to SAP Financial Close Solutions by BlackLine so they can self-serve some of their audit requirements.

Your SAP ERP – whether ECC or S/4HANA – will provide details from the general ledger. BlackLine solutions complement your ERP by providing visibility, standardization, automation, and consistency to a critical component of the financial close.

Elizabeth Milne, Accounting and Financial Close Expert, SAP

Molly Boyle, SAP Solutions Expert, BlackLine