The Effects of Inflation

Global inflation affects us all. Some countries are more affected, others less, but we are all definitely affected. It is almost normal, as the months go by, to see how the values of goods and services increase in price—not to mention the impact on the level of business activity, shortages of raw materials and the risk of recession in some countries. Inflation occurs in most countries to a greater or lesser degree. In some cases, it is manageable. Yet in other cases, it becomes uncontrollable to the point of having to make inflation adjustments in accounting in SAP, for example. Places like Argentina, Turkey, Zimbabwe, Venezuela, Lebanon, Syria, and Sudan have annual inflation of over 80%, making the business climate very difficult. Some specialists say we will have to live with inflation for up to 10 years. Daily operations in SAP are affected by this phenomenon through price adjustments of goods and services, cost increases, the daily update of interest rates and, in some countries, the adjustment for inflation in accounting, materials, and fixed assets.

Interest Rates

Constant inflation means that we must be more aware of the different interest rates also. This is a standard SAP functionality, in which values must be entered every day, either manually or automatically. The daily entry of interest rates is carried out manually from transactions OB83, OT25, S_ALR_87008537, or S_ALR_87002678. The data is stored in all these cases in table T056P. In this table, you must fill in the name of the interest rate, the effective date, and the rate itself. Before this, we must define in the customizing the name of the specific interest rate. Once defined, we must manually complete the values for each of these rates in the day-to-day from the previously mentioned transactions. The rates entered into this transaction will be the ones used in each of our TRM processes previously defined for this purpose, each one with its corresponding interest rates. To automate this task and not run the risk of entering erroneous data, this process can also be done from transaction TBD4 as a nightly job. We saw this recently for automating your different Exchange Rates, but selecting the "Interest Rates" option instead of “Currencies” in this case.   Having previously contracted the corresponding service, the different interest rates can be updated daily in a fully automatic way by simply scheduling this transaction. In this case, the customizing is also very simple. This job is scheduled to be executed automatically every night, which will populate the T056P table (the same that is updated manually from the previously mentioned transactions) based on what we define. This leaves the interest rates available to be used in the different financial processes that we need in our day-to-day work.

Inflation Accounting

For specific countries where inflation is constant and reaches considerable figures, it is necessary to make the inflation adjustment for G/L accounts, fixed assets, and materials, according to international accounting principles at year-end. This is not a common task in SAP, and few consultants and users are familiar with the specific process. Each country has its rules, particularities, and indexes to carry out the adjustments. These must be provided officially by the tax authority of each country. The configuration of each method has its singularities, but where you must spend more time and attention is in the user testing. The key to this process is testing. Since these specific programs are seldom used in the different SAP installations, it could be possible that you have to make many adjustments to the customizing or ask SAP to review any of the programs involved. The country-specific indexes must be entered from transaction S_ALR_87003624. Each country has its specific transactions for executing the process. In the case of Argentina, there is the transaction J1AI for the adjustment of Fixed Assets and FJA1 for the adjustment of G/L Accounts. There are specific notes for each country, such as 2671437 for Argentina, where the process and the issues to be considered for this process are explained. In the case of configuration, it is always recommended to work with a local consultant in each country. They will know the regulations, the customizing in SAP and have experience in the Inflation Adjustment process for that country. It is not simple, it is sensitive, and each country has its particularities.