The international accounting standards are experiencing a global convergence with an expected major effect in North America in the name of International Financial Reporting Standards (IFRS). Canada must adopt IFRS starting in 2011 and if the US Securities and Exchange Commission (SEC) in 2011 votes in favor of IFRS, it will be a staggered switch to IFRS for all US companies in the 2014-2016 time frame. The US SEC has already started accepting IFRS-based filings from foreign issuers.

The adoption of IFRS in other regions such as Europe shows the transition can be expensive (with transition costs ranging from hundreds of thousands to millions per company) and should be thought of as an implementation, not just an accounting project. Change requires a cross-functional team and affects a company’s organization at all levels, as well as its business processes and technology. Technology includes transactional systems (such as SAP General Ledger and subledgers) as well as your company’s analytical and reporting environment. You need to adapt the analytical financial consolidation and reporting environment, playing a key transition enabler role.

While there are some quick-fix solutions on the market to enable IFRS reporting, in the long term SAP users are advised to return to their SAP software and update both the transactional layer and the reporting and analytical layer. The SAP product portfolio addresses these two technology layers in a comprehensive way:

• Transactional layer: SAP ERP Financials fully supports the IFRS requirements
• Financial consolidation and reporting applications: These play a key role in meeting IFRS requirements by enabling organizations to produce consolidated financial statements for legal or statutory reporting. They are deeply integrated into underlying SAP General Ledger and transactional systems (e.g., including SAP ERP, SAP Business Suite, and SAP NetWeaver Business Warehouse [SAP NetWeaver BW]). They also facilitate internal management reporting in accordance with IFRS accounting standards. 

The modern consolidation and reporting applications (i.e., SAP BusinessObjects Financial Consolidation and SAP BusinessObjects Planning and Consolidation) were designed with multiple reporting scenarios in mind. They offer out-of-the-box infrastructure to manage the dual-reporting process in which you can configure the local GAAP and IFRS rules in parallel and with ease. Their key functionality to support IFRS includes:

• Parallel reporting
• Top-side adjustments
• Rules-based environment
• Disclosures and commentary
• Flexible and powerful reporting
• XBRL publishing

To speed up and smooth the transition process to IFRS, SAP has released the starter kits for its consolidation and reporting applications, providing pre-configured IFRS-compliant configuration content. In the consolidation and reporting area, the starter kits are being further developed specifically in accordance with IFRS standards.

I’ll show you how to set up the IFRS starter kit for SAP BusinessObjects Financial Consolidation in an end-to-end fashion. The SAP BusinessObjects Financial Consolidation application, formerly known as Cartesis, is one of the two EPM consolidation applications in the SAP BusinessObjects portfolio. SAP BusinessObjects Financial Consolidation supports extended consolidation requirements, eliminating bottlenecks for a faster close by its processing speed and financial intelligence for faster, more flexible reporting and legal compliance.

You do not have to reinvent the wheel while customizing the SAP BusinessObjects Financial Consolidation application during your transition to IFRS. The starter kit for IFRS is pre-configured with all reports, controls, and rules for performing, validating, and publishing a statutory consolidation in accordance with IFRS standards. I’ll break up the instructions into three sections.

• Download the starter kit configuration file
• Install the configuration in SAP BusinessObjects Financial Consolidation
• Review and adjust configuration content

A financial expert with SAP BusinessObjects Financial Consolidation application administration knowledge could drive the setup with assistance from an SAP BusinessObjects Financial Consolidation system administrator and an SAP BusinessObjects Financial Consolidation application consultant.

Download the Starter Kit Configuration File

The IFRS starter kit for SAP BusinessObjects Financial Consolidation is not a product that you have to buy separately. The starter kit is configuration content you can download if you have a license for the respective version of SAP BusinessObjects Financial Consolidation. To download the configuration file, go to the Support Portal of the SAP Service Marketplace and follow the path https://service.sap.com/support > Download > Support Packages and Patches > Support Packages and Patches - Entry by Application Group > SAP BusinessObjects packages and products > SBOP FINANCIAL CONSOLIDATION > BOBJ FIN.CONS.7.5 SK IFRS ES 1 > #OS INDEPENDENT (Figure 1).

Figure 1

Download the configuration file

Install the Configuration in SAP BusinessObjects Financial Consolidation

After downloading the starter kit file, you can now install the configuration on a Microsoft SQL (MSSQL) or Oracle database engine supported by SAP BusinessObjects Financial Consolidation. The underlying database must be a child (has never received any object) and must be initialized, with its data source working and the database schema created.

I’ll provide you with a basic description of the installation procedure. For more details, you can refer to the respective Installation Guide available via menu path https://service.sap.com/instguides > SAP Business Objects > SAP BusinessObjects Enterprise Performance Management (EPM) > Financial Consolidation > 7.5, or via this link.

You log in as administrator on the application server of SAP BusinessObjects Financial Consolidation. Next, you start the data source associated with the database in exclusive mode, logging off other possible users:

• Launch CtAdmin.msc from the installation directory of the application server
• Under the root node Business Objects Administration (local), expand the node of the data source corresponding to the database
• Right-click the Operation node and select All tasks / Start Data Source in Exclusive Mode from the pop-up menu

Now you can extract all files from the downloaded self-extractable archive SK for IFRS.exe in the server directory in which objects are received (e.g., C:Transfer; the transfer directory is set in the SAP BusinessObjects Financial Consolidation application via the menu path Tools > General Options > Transfer Tab > Network > Configure > Network Mode > Network Configuration).

Next, you create and execute the respective Scan Task in SAP BusinessObjects Financial Consolidation to install the configuration. Log on to SAP BusinessObjects Financial Consolidation to create and activate a scan task in the Tasks view of the application. Follow menu path File > New > Scan Objects > General Tab and enter the code (e.g., SCAN ). In the Tasks tab, select Active, then save and close the task. Now, from the Tasks view, launch the scan task created.

After the successful execution of the Scan task, seven new receive tasks are automatically created: 0001, containing the starter kit configuration and 0002 to 0007, containing sample data. Now you have to execute the receive tasks. Launch the receive tasks in a sequential order by selecting the respective receive task in the list, right-clicking, and choosing the Start command in the contextual menu (Figure 2). The configuration and sample data is now loaded and a task execution log is created.

Figure 2

Launch the receive tasks

You have now installed the starter kit configuration, which is ready for SAP BusinessObjects Financial Consolidation to use. There might be some further finalization steps, including running a specific SQL query, validating the Category scenario, and synchronizing the reporting hierarchy. Refer to the Installation Guide for further details.

Review and Adjust Configuration Content

The configuration content is now installed and activated. All the IFRS-relevant reports, controls, rules, and dimensions are available to you in SAP BusinessObjects Financial Consolidation. I’ll provide you with an overview of the installed content.

To review and adjust the installed configuration content, log on to the desktop of SAP BusinessObjects Financial Consolidation. In the Dimension Builder, you can now see the Account dimension contains a chart of accounts with most common accounts, installed from the starter kit. This chart of accounts is based on final IFRS Taxonomy 2009 published on April 2, 2009. This chart of accounts enables financial statements to be presented following the requirements of IAS 1:

• Assets and liabilities are classified according to the current or non-current distinction
• In the income statement, expenses are classified by function
• This chart of accounts is easy to customize according to the group’s requirements

For financial accounts, the first letter of the code enables you to identify the accounting class: A for asset, E for equity, L for liabilities, and P for profit and loss (net income). The first letter for subtotal accounts is T.

Note
In the starter kit, accounts are created with characteristics or properties to define their behavior throughout the consolidation process (i.e., analysis by flow and position in the account hierarchy).

Next, you can review the installed data package by using the Package Editor transaction. In the Financial Consolidation Desktop, click Package Manager in the Operation domain and select the respective package installed by the starter kit. The package opens in the Package Editor (Figure 3). A package defines how your individual reporting units (e.g., legal entities or business units) enter and retrieve their data based on an information request by the group using manual data entry via data entry schedules or automated data import interfaces.

Figure 3

Review the installed data package

A schedule is a table made up of cells used to enter and retrieve data. The schedules also contain principles for data entry, including the sign of indicators for assets, liabilities, and equity, and expenses and income figures. When the schedule structure allows it, signs are pre-populated to facilitate data entry.

A step-by-step approach for entering data is configured in the package thanks to its architecture and the links that have been created between the schedules. The steps allow entering:

• The closing balance for the balance sheet and income statement
• The analysis of securities and shareholding
• Period movements of the balance sheet items (e.g., acquisition and disposal)
• Intercompany breakdown (e.g., reciprocal operations, internal gains, and losses on disposal of assets, dividends, and internal provisions)

To enable flow consolidation, all flows from the consolidation period are captured. This includes flows for current transactions such as purchase, increase in depreciation, IFRS-specific fair value, and flows for special transactions such as changes in accounting policies and internal merger. Entries allow you to identify variations in the balance sheet between the opening and closing balance and therefore automatically generate the statement of cash flows.

Finally, the package is published by validation by one or multiple persons, transferring the data to the group. The package contains pre-configured preventive controls blocking invalid data from moving forward in the consolidation process (i.e., total assets must equal total liabilities at closing). Two control sets are configured in the starter kit for IFRS: one for subsidiaries and joint ventures, and one for equity method companies. These controls primarily check main balances, gross value of asset against depreciation, analysis by share or partner against the account total, analysis by flow, and consistency between the balance sheet and profit and loss report. You can launch controls on the package level by selecting Action > Validate > Controls in the package editor. If the data is not correct, it is reported together with a link to a document in which the inconsistency is located. Blocking controls must be valid — otherwise, they prevent the data package from being validated. Non-blocking controls are simply warnings (e.g., for optional data entries).

To produce consolidated data based on the data from packages, the starter kit contains a pre-delivered definition of the consolidation process. The consolidation definition includes rules for automatic consolidation entries, scope definition, and currency translation. The consolidation engine handles full consolidation, proportionate consolidation, and equity method as well as the following scope changes: subsidiaries entering or leaving the scope, financial rate variation, and mergers and changes in consolidation method. Two processing modes exist: full processing and incremental processing, which enables last-minute changes.

The settings of a consolidation definition include:

• Category and a data entry period: Selection of the data to be consolidated (e.g., Actual, 2009.12)
• Scope
• Consolidation currency
• Variant as a technical dimension that allows different consolidation settings to be selected for a given category, data period, and currency

The automatic consolidation entries based on IFRS accounting principles (IAS 27, IAS 21, and IFRS 3) are:

• Elimination of intra-group transactions
• Elimination of internal provisions
• Elimination of internal dividends
• Elimination of internal gains/losses
• Goodwill and bargain purchase
• Elimination of investments
• Calculation of currency translation adjustments
• Calculation of non-controlling interests

You can enhance this set of rules to meet the corporate-level specific accounting policies. In addition to standard consolidation rules, a number of technical rules are available as part of the starter kit’s delivered pre-configuration to automatically calculate and store the subtotal accounts, the statement of other comprehensive income line items, the statement of cash flows line items, the statement of changes in equity line items, and segment information.

The pre-configuration is delivered with a complete set of key financial statements based on IAS 1 ready for publishing:

• A statement of financial position with a current and non-current format
• An income statement with an expense classification by function
• A statement of other comprehensive income
• An automatically generated statement of cash flows
• A statement of changes in equity
• Financial statements analyzed by segment (e.g., revenue by segment, revenue by geographical area, and non-current assets by geographical area) 

Each data item in the configuration is linked to an audit ID making the audit trail possible and facilitating the analysis of consolidated data via smart links. Accounting reports such as balances, general ledgers, and journals enable quick drill down to original, detailed data that generate the respective accounting report (Figure 4). A series of analysis schedules give instant access to detail by account, unit, or audit ID for each line of the balance sheet and income statement. Moreover, a control dashboard linked with control reports gives full overview of each step of the consolidation process.

Figure 4

Drill down to detailed data

A consolidation control dashboard linked with control reports gives a full overview of each step of the consolidation process. You can review the consolidations and their statuses at the highest level by clicking Home in the Analysis module (Figure 5). When you click a status in the dashboard, you can review the status details by package and drill down to any control errors. The dashboard contains schedules that enable you to validate each step of the consolidation process:

• Check packages
• Check main balances
• Check conversion
• Perform intercompany reconciliations
• Transition from local to consolidated figures
• Look at net equity and dividends

Figure 5

Consolidation control dashboard

After reviewing the installed pre-configuration, you may customize it to your specific requirements using the dynamic configuration functionality. You can enhance the chart of accounts with company-specific accounts as there is only minimum use of hard coding.

The starter kit uses this implementation principle for a number of configuration items to ensure a dynamic configuration facilitating the integration of new accounts. Other dynamic configuration capabilities (including property initialization in configuration elements, consolidation rules configured using properties or filters, or collection controls based on parent accounts or account properties) enable you to adapt the pre-delivered configuration to your requirements, enabling your company’s smooth and fast transition to IFRS.

Dr. Karol Bliznak

Dr. Karol Bliznak is vice president of the Rapid Innovation Group (RIG) within the mobility division at SAP. He focuses on converging SAP’s strategic innovation categories, such as mobile solutions, SAP HANA, business analytics, and the cloud. He works at the SAP AG headquarters in Walldorf, Germany. He has more than 14 years of SAP experience in business intelligence, mobility and in-memory technologies, enterprise performance management, financial accounting, controlling, governance, risk, and compliance.

You may contact the author at karol.bliznak@sap.com.

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