17861_06

7/27/2019 17861_06

http://slidepdf.com/reader/full/1786106 1/32

Chapter 6

6-1

EC-CS Functions

The following is a preliminary functional description of EC-CS. It describesfunctions which are planned for Release 4.0. Some of these functions will bepartially delivered in the first Release 4 versions. The remaining functionswill be implemented soon thereafter.

Installing Sub-Applications/Dimensions

EC-CS can be divided into different ‘dimensions’ based on its multipleapplications. Different departments can use the system in parallel. Commonelements, such as chart of accounts, can be used across departments whilemaster and transaction data are maintained separately. Authorization checksprevent unintended activities across departments.

The benefit of validation checks and analysis across dimensions is neverthelessavailable to reconcile data of internal and external accounting, for example.

Executive Information

System

Central consolidation

Decentralized processing of accounting transactions

EIS

Company

Consolid.

Business area

Consolid.Profit center

Consolid.

FI-GL

FinancialAccounting

User

defined

FI-AA

AssetsAccounting

SD

Sales &Distrib.

CO - PCA

ProfitCenter

Accounting

Profitability

AnalysisConsolid.

CO - PA

Profitabilityanalysis

MM

MaterialsMgmt.

EC-CS Views

Operational SAP Systems

Fig. 6-1: Integrated and ‘Free’ Dimensions

In the context of integration with SAP applications, the following consolidationtypes are supplied as separate dimensions:

Company consolidation

Business area consolidation

Profit center consolidation

Consolidation of profitability analysis

These dimensions can be expanded by any number of user-defined dimensions.

Dimensions

Authorizations

Integrated Dimensions

7/27/2019 17861_06


6 EC-CS Functions

6-2

Maintenance of Master Data for Consolidation Unitsand Consolidation Groups

Consolidation units are the smallest units of a consolidation dimension whichcan have ‘business relations’ with each other and act as ‘organizational units’and business partners. As described in the previous chapter on architecture,these units can be grouped – on multiple levels if required – and arranged inhierarchies with different levels.

EC-CS provides user-friendly maintenance for such units, groups, andhierarchies.

There are three options available at initial set-up:

Manual entry for consolidation units and groups is typically carried outtop-down from a hierarchy display. To create the next hierarchy level,the system provides quick entry of characteristics and descriptions inlist form. This is done through master data update of a representativeand inheritance to the other units.

Fig. 6-2: Entry of Consolidation Hierarchies

If the consolidation units already exist in another non-SAP application,flexible uploading is available to import and update these units.

If these consolidation units coincide with existing organizational unitswithin the operational SAP applications or can be combined with theseunits, the corresponding master data can be referenced. When creatinghierarchies, this may considered as a way to form compositeconsolidation units (for example company/business area).

Manual Entry

Uploading

Reference

7/27/2019 17861_06


EC-CS Functions 6

6-3

If a profit center hierarchy is referenced, the hierarchy information can be

transferred as well as the master data.

Master data contents can be determined at system implementation as afunction of dimensions and levels according to the intended use. Requiredand optional entries are defined at the same time. EC-CS manages both timeand version-dependent master data. The system also offers flexible ‘contactmanagement’ to manage information about the members of organizational

bodies, contacts, and auditors for comprehensive investment controlling.

Fig. 6-3: Master Data for a Consolidation Unit ‘Company’

SAP’s master data expansion techniques let you add customized fieldswhich can be arranged either in standard or user-defined screens. Areporting tool for combined analysis of this master data and transaction datais planned.

Consolidation groups consist of a time and version-dependent listing of thepertaining consolidation units (or other groups), as well as a large amount of other information regarding the type of group ownership. In the context of statutory consolidation at the company level, this can consist of dataconcerning the inclusion type or reasons for non-inclusion.

Since consolidation groups and hierarchies frequently change during ongoingoperations, easy-to-use change methods are important, along with time-basedrepresentation. It must be determined which application will have primarymaintenance responsibility for consolidation units or hierarchies which SAPapplications use in parallel. It must also be determined exactly how thesehierarchies will correspond with those of any other application. A profit centerhierarchy, for example, can be used in operational controlling and as a capital

Contacts

User Fields

Inclusion Type

7/27/2019 17861_06


6 EC-CS Functions

6-4

investment program in investment planning (IM). It can also be used as the

hierarchy of a consolidation group in EC-CS.

EC-CS EC-CS EC-PCAEC-PCA

CO CO

HR-ORG HR-ORG

FI FI

Sub-tree reference Time and version dependent assignment

Master data synchronization

Cost centers

Profitcenter

Coun.Coun.

Comp.Comp. Comp.Comp.

CCodeCCode CCodeCCode

Fig. 6-4: Synchronization with Hierarchies of Other SAP Applications

To synchronize change management, the ‘application in charge’ informsother applications if a change has occurred. Depending on the requirementsfor correspondence, a work flow is triggered to initiate manual or automaticupdating. Manual changes within the hierarchy are supported by graphicaltransfer functions. The system also supports mass changes.

Chart of Accounts, Additional Account Assignments, Comments, andSpecial Financial Reporting Data

EC-CS recognizes structured and unstructured elements as information carriersof consolidated financial statements. The chart of accounts, with its hierarchicallystructurable items, represents the essential part of the structured information.Chapter 5, Architecture, contains some examples. Fixed account assignmentspredetermined by SAP are used to further differentiate an item. The ability toadd installation-specific user fields in the totals record structure of EC-CS isplanned for a later release.

The common characteristic of this structured information is that a value,typically a balance from a certain period, can be carried in up to three currencies.This pertains to a combination of an item and additional account assignments(optional). The line items of operational transactions documenting the balanceare typically not available to the consolidation system due to the sheer volume of data involved.

However, in exceptional cases, a listing of such line items may be desirablefor specific items of financial reporting data. The list can be restricted tosignificant transactions based on amount. Consequently, you can provide

balances for reporting purposes as well as significant single transactions.This can be useful, for example, in statutory reporting for certain balance

Hierarchy Changes

Chart of Accounts

Additional AccountAssignments

Line Items

7/27/2019 17861_06


EC-CS Functions 6

6-5

sheet items, such as appropriations, or for special income statement items,

such as ‘other expenses/income.’ The structure of these line items is alsofixed.

Unstructured information regarding items or combinations of items andadditional account assignments can be stored in the database as text-basedcomments. This data is displayed in reporting as a function of a combinationof period and characteristics.

Besides the structured and unstructured data described above, the systemrecognizes a category of special financial reporting data for specific consoli-dation functions. For the most part, this data is not managed in the summarydatabase as ‘item breakdowns,' but in special reporting tables. This includes,among other items, changes in investment and investee equity, as well asinventory data and data on cost of goods manufactured which are requiredfor elimination of IC profit and loss in a consolidation of investments.

EC-CS delivers as standard extensive, ready-to-use charts of accounts. Thesewill be gradually supplemented by alternative charts which will be specificto a country or an industry. At system introduction, method definitions andreport layouts based on these charts of accounts provide quick access to fulluse of the great variety of system functions. Maintenance transactions to addor update items and additional account assignments make it easy to adaptthe system to individual requirements. Especially if customization consists of only expanding an item by additional detail items, reference techniques can

be used to generate new items and also pass on their use by ‘inheritance.'

Unless other definitions are entered, new items are immediately andidentically used in automated consolidation methods and reports.

This lets you include new items in the reporting process during ongoingoperations to meet changing information requirements.

Data Transfer from SAP Applications

A significant advantage of integrated consolidation is time savings bypreparing and reconciling initial data. This point is made in Chapter 3,

Concept and Benefits of EC-CS Consolidation, which also discusses what isreferred to as consolidation preparations. This is where data is collected inthe operational systems specifically for consolidation purposes. If youconsider the time factor involved in financial statement processing, anintegrated solution at the group’s head office provides double time-savings.

The place of performance for data supply is the recipient’s system. Thereporting unit delivers the data either directly to the consolidation databaseor prepares it so that the staff member in charge of consolidation can receivethe data at the push of a button. Besides periodic data transfer, direct postingto the EC-CS database is also possible and especially useful in centralsystems. With periodic transfer, reporting deadlines and timely ‘transfer’ aremonitored by a ‘closing schedule.’

Comments

Special FinancialReporting Data

Standard Delivery

ConsolidationPreparations

7/27/2019 17861_06


6 EC-CS Functions

6-6

Fig. 6-5: Financial Calendar

Since the local books of the reporting company code include a ledger withthe degree of detail required for consolidation transfer, the actual datatransfer is fast and usually takes only a few minutes. Subsidiaries linkedthrough ALE can execute transfers with similar speed and simplicity.

Another advantage is an exceptionally fast and efficient control process. Areconciliation report compares the incoming data with the original sender

data. If there are any deviations, it generates an easy-to-use exception logwith simple analysis paths. This permits reconciliation between individualand consolidated financial statements which is important to the auditor.

In this context, the discussion must also include the general reconciliation of all the definitions in customizing based on the consolidation guideline and,in particular, the reconciliation between the consolidation chart of accountsand the charts of accounts of the individual financial statements. The chart of accounts can be transferred from the local group chart of accounts at systeminstallation. Subsequent changes in the chart of accounts trigger a work flowto make the necessary updates in the consolidation system or vice versa.

In ALE scenarios, in which some group subsidiaries use separate R/3 systems,the centrally maintained group chart of accounts can be automatically ‘sent’and kept synchronous through the installations.

Control Process

Changes in theChart of Accounts

7/27/2019 17861_06


EC-CS Functions 6

6-7

Direct Data Entry with the Planning Processor

If the reporting group units use forms to report their data or if additionalstatistical information or plan data is to be entered which is not available byother reporting means, SAP R/3 financial reporting data entry is themedium to receive plan data and/or any other financial information.

This entry tool, which is used throughout the SAP accounting system, ischaracterized by the great flexibility in which it can be defined. It providesthe additional advantage of uniform operation to accounting staff memberswho use SAP applications to prepare individual financial statements.

The entry layout is defined through a ‘form painter’ which – comparable to thereport painter – permits almost any row and column arrangement of items andadditional account assignments. Predefined characteristics of a dimension (forexample, transaction types for fixed asset items) can be displayed usingcorresponding ‘sets.’ Others can be dynamically supplemented.

Fig. 6-6: Data Entry with the Planning Processor

Besides the updates of the summary database, ‘entry documents’ can begenerated to document the entry transaction, if required, particularly in thecase of subsequent corrections.

Entry layouts corresponding to the supplied dimensions and chart of accounts are included with standard delivery of the EC-CS system.

Entry Layout

Entry Documents

Standard Delivery

7/27/2019 17861_06


6 EC-CS Functions

6-8

Data Transfer from External SystemsExternal systems are defined as non-SAP applications which supply their datain a form suitable for consolidation purposes directly through a programinterface. EC-CS provides a flexible upload tool which can be defined inCustomizing so that it conforms to the format of the dataset of the sendingapplication. Field position, field length, format, update methods, errorhandling, and characteristics determination can be changed, if required. Thispermits, for example, a conversion into the consolidation unit or theconsolidation chart of accounts number through user-defined rules or tables.

This data transfer method can also be used in combination with one of theother methods. For certain subsidiaries another method can be adequate.

Different transfer methods can be defined for different versions (actual, plan).

As the data is imported, the system checks the validity of the individualvalues. User-friendly log processing makes it easy to update and, if required,correct any incorrect records.

Decentralized PC Entry

EC-CS provides a PC entry module to be used if a group company does not useSAP applications and is not able to employ a direct interface to its ownapplications due to, for example, a lack of required data quality. This application

is based on MS Office products, Access and Excel. It provides special applicationfunctions which SAP supplies as add-ons.

The most important functions of this solution include:

Maintenance of master data in MS Access. This allows downloading of centrally defined master data from EC-CS. It also offers decentralizedmethod of supplementing additional data records for exclusivelydecentralized use.

Form management for reporting requirements. The data entry formdefinitions are downloaded from the SAP system based on the requiredreporting scope.

Data entry is either in MS Access or MS Excel. Excel has the advantage of flexible form layout and superior entry performance.

Flexible Upload

Checking andError Processing

Access/Excel

Master Data

Forms

Data Entry

7/27/2019 17861_06


EC-CS Functions 6

6-9

Fig. 6-7: Data Entry in an Excel Form

For specified items, line items can be added as cumulative entries whilethe normal report typically includes only period balances.

Comments and texts can be entered for any characteristics combinationand transferred with the consolidation report.

Parallel valuation bases lets you report both local and standardizedvalues to the consolidating unit. Standardized data represents localsubsidiary values that have been adjusted to meet a group’s statutoryreporting requirements (US GAAP, for example). Standardized datacan be entered either as a balance or as line items with comments.

Data import from PC files permits automatic data transfer from otherapplications. This data can then be further processed, checked, andtransferred to the consolidation unit as a complete ‘form set.’

Validation checks based on centrally defined rules can be downloadedto MS Access and supplemented by company-specific rules. These must

be verified before data is exported to the consolidation unit. The errorlog provides simple and sophisticated updating capabilities.

Currency translation, based on simple methods, can be used fordecentralized reporting (for example, if data from several countries isentered at one reporting location). However, this function is not meantto replace complex central currency translation at the consolidation unit.

Reporting for the company’s own purposes can be decentralized usingthe entered data, as well as historical data of earlier key dates.

Line Items

Comments

Parallel StandardizedValues

Importing

Checking

Translation

Reporting

7/27/2019 17861_06


6 EC-CS Functions

6-10

Data export to the consolidation system takes place through data carrier

or a direct network connection (RFC). This requires a wide variety of checks, such as whether the data category (dimension, version, key date)matches the currently required report. The EC-CS data monitor indicatesthe receipt of data or indicates and accepts an incoming PC file.

Multilingual texts in the R/3 System, as well as in the interface elementsof the Access/Excel application, permit the reporting units to work intheir own language. It should be noted, however, that MS-Officeapplications generally provide only one language for each installation.

Authorization checks in the decentralized applications are supported both on the application level (EC-CS dimension) and on the level of theconsolidation units to prevent unauthorized access even with

organizational division of responsibilities.

The PC entry program serves the EC-CS consolidation application and otherEC components as well. This ensures uniform data supply to central enterprisecontrolling. A common ‘closing schedule’ controls which data is to be reportedfor which sub-application on which date.

Data Transfer Monitoring

EC-CS controls the consolidation process through a user-friendly ‘monitor.’The incoming report data is first checked for accuracy and completeness. The

actual consolidation process is then triggered and its individual steps aremonitored. The chapter entitled Push-button Consolidation describes theprocess in further detail.

Fig. 6-8: Example of the EC-CS Data Monitor

Export

Languages

Authorization

Report Data

7/27/2019 17861_06


EC-CS Functions 6

6-11

The financial reporting data monitor is called up either for the entire group

or for a given consolidation group. The consolidation group can be brokendown in a ‘tree’ display through the various hierarchy levels all the way tothe consolidation units.

The monitor displays the data transfer method defined for each unit as afunction of version and key-date. A detail screen displays form-dependentexceptions, if any. The available methods, described in the previous chapters,are listed below:

Real-time updating in the same R/3 System

Periodic rollup in the same R/3 System

ALE import from external R/3 Systems

PC file transfer from R/2 Systems

PC file transfer from MS Access

RFC import from MS Access

PC file transfer through flexible uploading from external systems

ALE import from external systems (BAPI)

With integrated transfer from SAP systems, FI or EC/PCA (profit center

accounting) data is transferred depending on the application dimension.

Along with the data transfer method, the monitor displays the status asfollows:

No data present

Data OK (data present and checked)

Data present (but not checked)

Data incomplete (the last import contained errors)

The last status permits jumping to the (archived) error log which is used totrigger corrections, if any, or to return to the status ‘no data.’ If the input file can be corrected centrally, the data can be downloaded into an editor for correctionsand subsequently uploaded. This requires appropriate authorization.

For consolidation units with a status of ‘data present but not checked,’ thevalidation check can be initiated from the monitor.

For an indication as to the completeness of the report, the monitor can beprompted to display statistical information on the number of data recordsreported.

Hierarchy

Data Transfer Method

Status

Error Log

Checking

7/27/2019 17861_06


6 EC-CS Functions

6-12

Especially during the test phase, it may be necessary to delete certain test data.

With corresponding authorization, the delete functions can be triggered fromthe monitor.

Functions to copy data from other periods or versions are useful; forexample, if some units fail to report on time for urgently required periodicfinancial statements and data needs to be copied for the sake of simplicity.These functions are also require special authorization.

Validation Checks and Reconciliation

EC-CS recognizes the following types of validation checks and reconciliations:

Item-related checks based on item characteristics take place when data isentered. It may be specified, for example, that the balance of certainasset items must always be positive, the balance of certain revenue itemsalways negative.

Form-related checks with manual entry in the planning processor orwith decentralized PC entry ensure that there are no inconsistencieswithin the form. It is useful, for example, to perform a zero balancecheck in a balance sheet form.

In contrast to consolidation units, a ‘validation group’ is used to

determine which validation rules are to be verified across forms.Different validation groups can be assigned to different closingfrequencies (year-end closing, month-end closing) or different versions(plan, actual, etc.) or even as a function of the significance of theconsolidation unit.

Reconciliation of the balances of corresponding item groups isessentially a question of intercompany elimination and is discussed in aseparate section.

With standardizing and consolidation entries, validations are used fordocument lines to check whether an (additional) account assignmentcombination is allowed. Validations can also be used to limit the itemsand additional account assignments that can be used in documents.

Validations can be used across dimensions and hierarchies to crosscheck identical values of special items between very differentapplications (for example, external and internal reporting). Referencetables containing the names of the corresponding consolidation units inthe different dimensions/hierarchies can be maintained for thispurpose.

Deleting

Copying

Item

Form

Consolidation Unit

Balance Reconciliation

Document Lines

Additional Account

Assignments

Dimensions

7/27/2019 17861_06


EC-CS Functions 6

6-13

Fig. 6-9: Error Log from a Validation Check

The validations listed above are also used to define the validation rules in

validation groups of validation checks related to the consolidation unit. Thesystem permits the following check formulas:

Comparison of item formulas (for example total assets = total liabilities)

Comparison of item formulas with additional account assignments (forexample, depreciation income statement = fixed assets balance sheetrestricted to transaction type depreciation)

Period comparison of item values (for example, the value of a specific itemmay change by no more than x% with respect to the previous period)

The severity of the check can be defined for each rule and have the character

of a warning or an error. The monitor displays the validation result for allthe rules in the validation group by consolidation unit. The log shows theerror text and the two different values from the comparison formula. Thedata records corresponding to these values can be interactively displayed.Corrections are made by manually changing the values in the planningprocessor or by making manual adjusting entries.

If the incorrect data was transferred automatically, a consolidation staff member can notify the sending staff member of the corrections by automaticmail.

Formulas

Warnings and Errors

Mail

7/27/2019 17861_06


6 EC-CS Functions

6-14

Errors of this kind cannot originate in MS Access where a decentralized check

is performed with the same validation group before the data is exported.

The system performs these checks related to the consolidation unit based on thereported values. It checks again in the consolidation process after standardizingentries or, on the level of the consolidation group, after completion of theconsolidation steps, possibly in conjunction with other validation groups.

Postings

Postings are distinguished from the data transfer methods described above

in that the individual transactions are entered as posting documents. Suchtransactions are typically classified by ‘document types.’

The following are only a few examples of document types displayed instatutory consolidated financial statements:

Standardizing entries for statutory valuation

Elimination of intercompany payables and receivables

Consolidation of investments

The system can generate most of the consolidation entries automatically,

based on predefined methods. Separate document types are used for manualentries. Document types have a number of characteristics and controlfunctions which are defined during system installation:

Valuation of an entry is determined by the document type. The systemdistinguishes:

− between standardizing entries based on the consolidation unit

− elimination entries between two consolidation units made in pairs

− group-related consolidation entries between any number of groupunits

Currency definition for the document type determines whethertransaction, local, and group currencies are carried in parallel.

Item type definitions determine to which items postings can be madewith a given document type.

The assignment of document numbers is controlled by correspondinginternal/external number ranges. The assigned document number canlater be used to redisplay or reverse a posted document. Depending onthe area of application, the transaction can be entered in document formwithout saving the document. In this case, the balance is updated in the

PC Entry

Documents

Document Types

Valuations

Currencies

Postable Items

Document Numbers

7/27/2019 17861_06


EC-CS Functions 6

6-15

summary database but ‘itemization’ is omitted. This option, for which

document numbers are not required, is selected particularly forsimulations and automatically generated entries.

The zero balance check can be switched on or off on the document typelevel. A zero balance check is always useful in the balance sheet and theincome statement, but there can be other calculations where entries areto be posted on ‘one side’ only.

The system posts adjustments to retained earnings in both the balancesheet and income statement automatically, when line items within adocument affect both the balance sheet and income statement.

The system can also automatically post deferred taxes based ontransactions, if this function is specified by the document type. Thecorresponding balance sheet and income statement items aredetermined in Customizing.

With postings across consolidation units, the system automaticallygenerates elimination entries for items of a specific document type.Elimination entries of intercompany payables and receivables will affectthe balance in the balance sheet display within a consolidation unit.

Automatic reversal in the following period can be defined as adocument type characteristic. In this case, the system automatically

generates the corresponding reverse postings in the following period.

Reporting lets you obtain a clear overview of the documents posted, andhow they affected the transaction figures of the summary database (forexample, organized in columns by document type).

Entering a posting transaction is simple. Based on the predefined documenttype, the system prompts you for entry of one or several consolidation unitsto which the posting is to apply. A text field is available for furtherdocumenting the posting. Posting lines are entered as lists and input valuesare checked. If required, the system generates automatic posting lines for theadjustment to net income for the period/retained earnings and for deferredtaxes. The system checks the entire document before saving it (validation). Itconfirms the posting by displaying the assigned document number.

Zero Balance Check

Adjustments to Net Incomefor Period/RetainedEarnings

Deferred Taxes

Elimination Entries

Reversal in theFollowing Period

Reporting

Entry

7/27/2019 17861_06


6 EC-CS Functions

6-16

Fig. 6-10: Entry of a Posting Document

A reference function simplifies the entry of similar documents. This allows

definition of ‘sample documents’ with the desired line and item structure tomake individual postings easier and safer.

For reversals, the number of the original document is used to generate thereversal document. If desired, the two documents can be suppressed inreporting using a reciprocal reference. As a rule, the posting documentswhich are generated by automatic consolidation functions are automaticallydeleted and regenerated if the run is repeated during the same period.

A flexible journal entry report selects the posted documents by all attributesand prints them sorted by groups. Different layout definitions let you selectand sequence the field information to be listed.

Currency Translation

EC-CS provides a ‘currency translation’ consolidation function which covers allthe generally accepted methods. A method definition primarily consists of grouping the translation-relevant items into ‘translation sets’ and assigning atranslation type, an exchange rate indicator, and items for storing translationdifferences. These translation methods are assigned to the foreign consolidationunits. Several methods can be defined and assigned depending on the nature of the foreign subsidiary (compare functional currency concept, FASB 52).

Reference Function; Sample

Documents

Reversal

Journal Entry Report

Methods

7/27/2019 17861_06


EC-CS Functions 6

6-17

The system supports the following currency translation keys:

Standard exchange rates (spot exchange rate, average exchange rate) of the consolidation key date applied to the cumulative annual value

Standard exchange rates applied to the period value (each period istranslated at the corresponding period exchange rate)

Use of historical exchange rates based on year of acquisition

Translation at weighted historical exchange rates from a transactiontype quantization

Use of historical exchange rates from a separate record of changes in

investments or changes in investee equity

Translation from the transaction currency instead of the local currencyat standard exchange rates

Transfer of translated values without revaluation (determining only thetranslation difference at the reporting date exchange rate)

Translation to Group Value = 0 independent of the local value

Translation with customer-specific supplementary logic

The exchange rate indicator, in conjunction with an exchange rate version,

finds the corresponding exchange rates in the central SAP exchange ratetable. Even with high inflation, exchange rate accuracy can be freely defined

by determining any factor between two currency codes (for example 1:1000).Various strategies can be selected for the from-to translation to avoid theneed for updating all currency combinations.

An important topic in currency translation is the treatment of translationdifferences which arise when the items are not all translated at the samerate. The system recognizes what is referred to as ‘default translation’ (forexample, at the exchange rate of the reporting date). The system executes anadditional default translation for all items which use a different currencytranslation key. It shows the resulting difference as a currency translationdifference. To ‘post’ these differences automatically, the system requires thedefinition of the translation difference accounts and any necessary additionalaccount assignment. Reporting lets you analyze the causes for changes in thetranslation differences.

Currency Translation

Keys

Exchange Rate

Indicators

TranslationDifferences

7/27/2019 17861_06


6 EC-CS Functions

6-18

Fig. 6-11: Currency Translation Log

After currency translation, certain values may no longer correspond in

group currency due to the effects of rounding. The system restores this valuecorrespondence (for example total assets = total liabilities) using specialrounding methods and allocates the rounding difference to a correspondingitem.

Differences due to changing to a new standard exchange rate in the newperiod can cause a loss of transparency in balance sheet items. For example,in the case of balance sheet items which may represent a horizontaldevelopment through transaction types, the resulting translation differencescan be represented through special transaction types within the initiatingitem itself instead of through translation difference items. This lets you showthe differences due to different exchange rates in the asset history sheet.

A special system function supports currency devaluation. For this purpose,the new local currency key and ‘inflation rule’ are determined at the turn of the year. A program then converts the balance carried forward of theaffected companies for the specified year.

Rounding

Differences due toDifferent Exchange Rates

Currency Devaluation.

7/27/2019 17861_06


EC-CS Functions 6

6-19

Group Eliminations

Group eliminations consist of all consolidation operations in which partner- based elimination entries are made between corresponding items. In thestatutory financial statements application, this includes:

Elimination of intercompany payables and receivables

Elimination of revenues and expenditures

Elimination of investment income

This may also include ‘one-sided’ transactions in which eliminations arecarried out in only one consolidation unit, but a logical relationship exists toanother unit. This includes examples such as:

Reversal of group internal appropriations

Sales elimination based on cost of sales accounting

This type of elimination is also controlled by a user-defined method definition.Components of this method are:

Two FS item sets each for the corresponding items (for example, areceivables set and a payables set)

Assigned difference items, separately by debit/credit and by currency-related and other causes

Information as to the selection and the account assignment of thedifferential items by transaction types/sub-items

The simplification option ‘offset defined as one-sided’ expects the‘partner breakdown possibly for only one FS item set. It posts theelimination in the partner automatically to the assigned difference item.

The difference strategy lets you determine different ways for theconsolidation unit to assume the difference effect. For example, in theelimination of IC payables and receivables, a determination can be made

that the ‘receivable ’ is always ‘right’ and that the partner must carry thedifference.

Threshold amounts determine up to what amount offset differences areposted automatically, or if they must be adjusted in advance byappropriate corrections.

Application Areas

Method

Differences

Thresholds

7/27/2019 17861_06


6 EC-CS Functions

6-20

Fig. 6-12: Intercompany Reconciliation Through ‘Record Matching’

Intercompany eliminations are a component of both the reconciliation processas well as the consolidation process. The chapter Push Button Consolidationdescribes the latter in more detail. The consolidation process generates and

posts elimination entries.

The reconciliation process finds inconsistencies by comparing intercompanyreports of various reporting units and clearing them as much as possible withinthe available time. Since financial reporting data is typically aggregated byperiod balances and partner units, an analysis is possible only in the operationalsystem based on individual transactions. The SAP FI System uses intercompanyrecord matching to reconcile postings and clear up inconsistencies not only onthe reporting date but continuously, even before the balances are submitted forconsolidation. Consequently, related postings are interactively identified in thereceivables display and matched with the corresponding payables of the partner.If the payables have not yet been posted, a reminder can be sent by electronicmail.

If EC-CS works in the same central system as the operational companycodes, a drilldown can be used from the display of the balance differences tocall up the corresponding line item display for further clarification.

In the context of the reconciliation process described above, the accountingstaff member in charge of consolidation calls up the consolidation balancedisplay for their consolidation group showing the elimination difference foreach pair of consolidation units within the group. Selecting a ‘displaytolerance’ restricts the log to pairs of the highest differences. From this display,additional detail information is obtained by drilldown. The pair of FS item sets(for example, receivables/payables) is displayed with the totals of the twounits. This is followed by a breakdown based on the directions of the

Reconciliation Process andConsolidation Process

Intercompany RecordMatching

FI Line Item Display

Reconciliation Log

7/27/2019 17861_06


EC-CS Functions 6

6-21

reconciliation (Receivable 1 to Payable 2, Payable 1 to Receivable 2). Finally, the

breakdown can be further refined based on items and transaction currencies.

Fig. 6-13: Interunit Elimination Reconciliation Log

The following can be triggered from the log:

Automatic standardizing entries in the amount of the difference

Mail to accounting staff responsible for consolidation

Comments regarding the elimination entries

Elimination of IC Profit/Loss in Inventory

To eliminate intercompany profit/loss in inventory, inventory items are

adjusted by intercompany profit or loss portions, if any. The result in theincome statement is corrected by the same amount. This type of eliminationis essentially controlled from data reporting which includes the followingdata:

Inventory values differentiated by product groups and group vendors.Inventory values can be supplemented by value adjustment, deliverycost, and quantity data.

Cost of goods manufactured or profit/loss percentages, also by productgroups and possibly differentiated by group customers.

On this basis, EC-CS first calculates the adjusted inventory value for each

vendor relationship and product group. The intercompany profit or loss can

Actions

Inventory Values

Percentages or Cost ofGoods Manufactured

7/27/2019 17861_06


6 EC-CS Functions

6-22

now be calculated directly from the adjusted inventory value through a

profit/loss percentage. It can also be calculated using the ‘cost of goodsmanufactured method,’ in which the inventory value is compared with theproduct of quantity and cost of goods manufactured. Since the balance of theprofit/loss elimination of prior years is carried forward, only the net changein the current period is posted to affect net income. Deferred taxes aretypically accrued for this portion.

as percentage:as percentage: profit/loss =profit/loss = Book value * markup %Book value * markup %

in quantities: profit/loss =in quantities: profit/loss = Book value - (quantity * unit cost)Book value - (quantity * unit cost)

CO-PCCO-PCCostingCosting

CO-PACO-PAProfit.Profit.-analysisanalysis

SDSDSalesSales

Inventory mgmt.company

?MMMM

Inventory-Inventory-accountingaccounting

VendorVendorProduct groupProduct group

A B C D EA B C D E

Book valuesBook valuesIncidental expensesIncidental expensesValuationValuationadjustmentadjustmentQuantitiesQuantities

Affiliate 1Affiliate 1


Third-party

vendors

Third-party

vendors

EliminationElimination

? Sales revenuesSales revenuesCost of goods man.Cost of goods sold

Profit loss in %Profit loss in %

CustomersCustomersProduct groupProduct group

A B C D EA B C D E



::

SupplyingSupplying

companycompany

Fig. 6-14: Integration of Elimination of IC Profit/Loss in Inventory

The different inventory values and the data of the cost of goods manufacturedrelated to the product groups are managed in special reporting tables. The resultof the elimination of intercompany profit/loss can first be simulated as pureanalysis through tables. In the actual consolidation process (compare the chapterentitled Push-Button Consolidation), it is converted into the correspondingautomatic postings.

Elimination of IC Profit/Loss in Transferred Assets

It may be necessary to eliminate intercompany profits/losses due to revaluationat acquisition costs in the acquiring company when assets are transferred

between companies. Furthermore, in a group asset history sheet, the transactionis not represented as an asset retirement and acquisition but as a type of transferposting. The increase or decrease in depreciation due the revaluation must becorrected in subsequent years as well.

As with elimination of IC profit/loss in inventory, the elimination process isessentially controlled from the financial reporting data of the group companiesinvolved.

Special Reporting Tables

Acquisition Costs

Depreciation

7/27/2019 17861_06


EC-CS Functions 6

6-23

The selling company reports the asset retirement. It provides a

description of the asset and the depreciation method, as well as thetransferred APC, valuation adjustments, and the realized revenue.

The acquiring company reports the capitalization amount and possibly achange in the depreciation method. The system must establish theconnection with the asset identification of the previous company and thecapitalization amount must correspond with the asset sales revenue of the selling company.

The acquiring company reports whether a previously transferred asset isresold or retired by scrapping so that the elimination transaction is ‘deleted’in the consolidation reporting tables.

FI-AAFI-AA

in year of transferin year of transfer Elim. of profit = Acquis. - net book valueElim. of profit = Acquis. - net book valueElim. of profit = Acquis. & retirements inElim. of profit = Acquis. & retirements inthe asset history sheetthe asset history sheet

in subsequent years:in subsequent years: Depreciation adjustmentDepreciation adjustmentAsset sale to third partiesAsset sale to third partiesResale within the groupResale within the group

Acquisition costsAcquisition costsCumulative depreciationCumulative depreciationDepreciation methodDepreciation methodProceeds

History SheetHistory SheetBeg. Bal.Beg. Bal. Acq.Acq. Ret. Trans.Ret. Trans. End. bal.End. bal.

10001000 ------ 200200 ------ 800800

FI-AAFI-AA

Acquisition amountAcquisition amountDepreciation methodDepreciation method

History SheetHistory SheetBeg. Bal.Beg. Bal. Acq.Acq. Ret.Ret. Trans.Trans. End. balEnd. bal.

------ 300300 ------ ------ 300300

TranferringTranferringcompanycompany

EliminationElimination

ReceivingReceivingcompanycompany

Proceeds

Fig. 6-15: Integration of Elimination of IC Profit/Loss in Transferred Assets

Based on this financial reporting data, EC-CS generates an eliminationdocument in the transfer year. It adjusts the capitalized amount by the

intercompany profit or loss. Moreover, it changes the transaction types for thegroup asset history sheet from retirement and acquisition to transfers. Insubsequent years, a depreciation correction is posted regarding the effect of theintercompany profit/loss until the end of the asset’s useful life or until finalretirement is reported. If the acquiring company changes the depreciationmethod regarding the transfer, a determination is made whether this change inmethod is also to be ‘eliminated.’

Integration of intercompany profit/loss elimination with FI-AA AssetAccounting permits automatic transfer of all or selected transfer postings toEC-CS, either in real time or periodically. FI-AA identifies these transactions

by special transaction types. FI-AA also ensures that the different effects due

to the following can be shown separately in the consolidation .

Data Reporting

Elimination Scope

Integration

7/27/2019 17861_06


6 EC-CS Functions

6-24

Historic currency translation

Difference in capitalization cost between local and group valuation

Different depreciation methods between local and group valuation

Intercompany profits/losses

Automatic Reclassification Postings and Allocations

Automatic reclassification postings are used for a wide variety of applicationareas. These postings represent a combination of complex selection andvariable substitution.

A reclassification rule consists of a selection of consolidation units,items, and additional account assignments. Based on the values of theseselected data records and their degree of detail, two postings each aregenerated:

− The first posting is made either in the triggering item and itsadditional account assignments or in a different characteristics'combination modified by a first ‘substitution rule’ but having thevalue of the triggering item.

− The second posting (to which reclassification is effected) isdetermined by the second substitution rule.

The following examples illustrate this:

Revenues from production for internal requirements and intercompanysales of fixed assets must be reclassified in period accounting to the item‘other capitalized goods/services on own account.’ The triggering itemmay be:

− Asset acquisition with special transaction type

− The item to be credited sales revenue

−The reclassification item ‘other capitalized goods/services on ownaccount’

Reclassification of finished products from individual financialstatement’s view into semifinished products from group’s perspective.

Change in functional area at group level when compared to individualfinancial statements.

Differential Effects

Rules

Examples

7/27/2019 17861_06


EC-CS Functions 6

6-25

Consolidation of InvestmentsExternal/internal consolidation of investments is a consolidation step which istypically required for external consolidation financial statements. However,current thought increasingly holds that:

There should be ‘allocation’ to internal group units and products of theadjustment to net income for the period/retained earnings from theamortization of goodwill

That investment and equity considerations should enter even into profitcenter analysis

To that extent, the following functional description can be applied to internalconsolidation accounting.

No other consolidation type is covered more extensively by laws, regulations,and technical literature than the consolidation of investments. Furthermore,significant differences exist between the various statutory territories (US-GAAP, EU, IAS). These differences are essentially reflected in the methoddefinitions in customizing, as well as in various options provided by EC-CS.

There are different control options for investment consolidation methodsdepending on the inclusion type:

Purchase method

Proportional consolidation

Equity consolidation

The essential determinations for the purchase method are listed below:

The treatment of differences from offsetting the investment book valueagainst the proportional equity in the subsidiary can be represented as‘capitalization of goodwill with scheduled amortization.’ It can also berepresented as ‘offset of retained earnings with/without proportionalelimination.’

Hidden reserves/fair value adjustments can be considered when thedifference is determined. In subsequent consolidations, this may result inadditional depreciation/amortization effects. An example of a hiddenreserve/fair value adjustment could be the revaluation of a fixed asset as aresult of the acquisition of a company.

Statutory Regulations

Inclusion Types

Differences

Hidden Reserves/Fair Value Adjustments

7/27/2019 17861_06


6 EC-CS Functions

6-26

Different methods can be defined to determine shares in equity or

earnings owned by outsiders in multilevel groups.

Appropriation of retained earnings' items can be posted automaticallyeither in the balance sheet or the income statement.

Fig. 6-16: Assignment of Consolidation Methods

The method assignment can either be automatic, as a function of the extent of theinvestment, or manual. With complex investments within step consolidations,the method of consolidation can change from step to step. For example, aconsolidation unit can be consolidation via the equity method in a subgroup and

by the purchase method in the higher level subgroup. The system then generatesthe correct representation on each level.

Consolidation of investments is not only controlled by the assigned method but also influenced by special transactions which are reported either

independently by the participants or across companies. EC-CS recognizesand automatically processes the following transactions:

Acquisition/first consolidation

Step acquisition

Subsequent consolidation

Goodwill amortization and minority interest calculation

Increase in capitalization

Minority interest

Appropriation ofRetained Earnings

Step Consolidation

Transactions

7/27/2019 17861_06


EC-CS Functions 6

6-27

Decrease in capitalization

Transfer (group-internal sale)

Change of method

Partial sale

Divestiture/retirement

Mergers

Different data will be required depending on the transaction. This data isstored in three special reporting tables:

Changes in investments contain not only changes in book value but also, in

particular, changes in the investment percentages and number of shares.

Changes in investee equity show which portion of capital stock isassociated with which transaction and is subject to elimination orminority calculation.

Changes in hidden reserves/fair value adjustments and goodwill from theamortization/depreciation calculation for subsequent consolidations.

The accounting staff member checks the reported transactions for consistencyand, if applicable, the processing sequence within the period. Consequently,they can simulate and check the corresponding consolidation document fromtransaction processing. Access to this information is through the consolidation

of investments report log. A breakdown is possible to any detail all the waydown to the display of the consolidation method parameters.

Fig. 6-17: Updating Transaction Data for Consolidation

Financial Reporting Data

Simulation

7/27/2019 17861_06


6 EC-CS Functions

6-28

In the consolidation process, consolidation of investments is done at the

push of a button. Any incomplete or incorrect posting run can easily bedeleted from the consolidation monitor and restarted after the initial datahas been corrected.

Fig. 6-18: Investment Consolidation Log

Special standard reports are available from this initial data, including thepreparation of a history sheet. In addition, special standard reports areavailable from the summary database. These reports include equity agingreports, net profit and minority interest analysis that show the effects of theconsolidation of investments.

Push-Button Consolidation

EC-CS monitors the consolidation process through a consolidation monitor.Depending on the application area, this process (which can be configured inCustomizing through ‘measure groups’) includes some or all the followingfunctions:

Currency translation

Standardized data validation check

Interunit eliminations

Reclassifications

Push-Button

Consolidation

Standard Reports

Consolidation Monitor

Individual Steps

7/27/2019 17861_06


EC-CS Functions 6

6-29

Elimination of IC profit/loss in inventory

Elimination of IC profit/loss in transferred assets


Step consolidation summary

Validation check based on group values

Printing of preconfigured report package

These functions are executed in part on the level of the consolidation units andpossibly by more than one person. The system lets you configure and display

in the monitor a hierarchical or even networked processing dependency withworkflow techniques and synchronization points, or as a fully automaticsequence.

The rows in the monitor represent the consolidation groups of the differenthierarchy levels and their consolidation units. The columns show the individualfunctions listed above. The processing status (shown below) is displayed in thecells of this matrix.

OK (executed successfully)

OK (not relevant)

Open (planned but not yet executed)

Executed but incorrect

Incorrect execution canceled, open

Invalid due to subsequent changes in the financial reporting data or incustomizing

Additional details pertaining to the cell can be interactively called up. Based onthe columns, the archived processing logs can also be displayed.

Configurability

Processing Status

Details

7/27/2019 17861_06


6 EC-CS Functions

6-30

Elimination Elimination

Validation check Validation check

Action - LogPerform.Date. Action

Customizing

Method definition

Reversal function

Action log

Processing statistics

Push-button start

Log management

Detail Start Reversal Log Meth.

NOTO.KWARN.O.KO.K

OPENOPENERRNOTO.K

O.KO.KO.KO.KO.K

ERRO.KO.K

Datainput

Curr.trans.

Validationcheck

Groupelim.

Consolid.Invest.Group/Unit

Region 1

Comp. C

Comp. B

Comp. A

Version: ActualDate: 12/1997

Dimension: Legal (US-GAAP)Cons. group: World

Translation Translation

Fig. 6-19: Consolidation Monitor

With the appropriate authorization, the processing type corresponding to acolumn can be started or reversed or the sequence of all steps for a row(consolidation group) started.

Instead of this ‘bundled’ push-button consolidation, some organizationsprefer the individual manual start of each process. This allows direct controlover intercompany profit and loss. Importantly, the monitor provides aquick overview of the activities which remain open.

A consolidation process is occasionally invalidated by corrections ondifferent levels. For example, if financial reporting data is subsequentlycorrected, or if methods are modified or reassigned, the consolidation must

be re-executed in its entirety or in part. Changes create signals in theconsolidation monitor to indicate that re-execution is required for entirecolumns, entire rows, or individual cells.

Simulation and Version Concept

Consolidation is frequently repeated under different premises before a finalresult is achieved. However, since financial statements must be completedwithin a given time frame, it is particularly important that the decisionmakers be provided with alternative courses of action within the shortestpossible time. EC-CS places special emphasis on supporting simulations and‘what-if analysis.’ The variation of the premises and the saving of the resultsis done through versions. Versions are also used to represent planning-related data categories, such as:

Reversal

Start

Corrections

What-If Analysis

7/27/2019 17861_06


EC-CS Functions 6

6-31

Actual

Target, forecast

Annual plan

Medium term plan

A version is provided with classifications and attributes to distinguish it. Theavailable three-digit version identification can ‘express’ the scheduleddistinction of the data category and the simulation aspect.

The description below shows how emphasis is placed on simulation within a‘scheduled data category.’

EC-CS distinguishes between consolidation (data) versions and add-onversions. The consolidation data versions, as their name implies, are resultsthat can be displayed and compared in reporting. A data version is alwayscomposed of an local-value-based version and document-type-dependentadd-on versions. In the simplest case, these versions are all identical. If asimulation is only to represent, for example, the effect of a different methodfor consolidation of investments, the existing data version definition can becopied. It needs to be changed only with respect to the document typepertaining to the consolidation of investments. If the consolidation of investments is re-posted under this new version or document type, the finalsimulation result is already achieved. Processing is affected by the ‘add-on’

method which saves time and disk space.

The previously discussed repeat consolidation of investments requires adescription of the changed premises or other selected options. For thispurpose, the system distinguishes between reporting versions and assignmentversions, which can be maintained as alternatives to the original version. Forthe following, different financial reporting data can be carried in parallel:

Local values

Exchange rates

Tax rates for deferred taxes

Changes in investment and investee equity

Changes in profit/ loss of affiliates (equity holdings)

Hidden reserves/fair value adjustments

Data for elimination of IC profit and loss

Decentralized standardizing entries

Data Categories

Data Versions

Add-On Versions

Reporting andAssignment Versions

7/27/2019 17861_06


6 EC-CS Functions

Moreover, method assignments can be made separately for:

Currency translation

Interunit eliminations

Elimination of IC profit and loss


Reclassifications

Validation checks

Consolidation groups and their composition of other groups and units can also be differentiated as a function of time and version. For example, ‘inclusionoptions’ can be simulated.

An important operational requirement is the ‘restatement’ or the display of comparison values from previous periods for the current consolidationgroup of the current period. Depending on the accuracy required and thetype of consolidation group change, this requirement can be met directly inreporting. This is where data of the previous period can be dynamicallyselected together with master data hierarchy information of the currentperiod. In a complex case additional consolidation for the previous periodwith the changed consolidation group will be required. An example of this isif elimination postings are not all made in pairs, as may occur in the

consolidation of investments.

Consolidation GroupVersions

Restatement

http://17861_07.pdf/

http://17861_07.pdf/

http://17861_07.pdf/

http://17861_07.pdf/

http://17861_07.pdf/

http://17861_07.pdf/

http://17861_07.pdf/

http://17861_07.pdf/

http://17861_07.pdf/

http://17861_07.pdf/

http://17861_07.pdf/

http://17861_07.pdf/

http://17861_07.pdf/

http://17861_07.pdf/

http://17861_07.pdf/

http://17861_07.pdf/

http://17861_07.pdf/

http://17861_07.pdf/

http://17861_07.pdf/

http://17861_07.pdf/

http://17861_07.pdf/

http://17861_07.pdf/

http://17861_07.pdf/

http://17861_07.pdf/

http://17861_07.pdf/

http://17861_07.pdf/

http://17861_07.pdf/

http://17861_07.pdf/

http://17861_07.pdf/

http://17861_07.pdf/

http://17861_07.pdf/

http://17861_07.pdf/