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SAP BPC Financial ConsolidationAgenda

•• Advanced Accounting• Introduction IRS • BPC 10• Business Process Flow BPC 10• Consolidation Framework• Consolidation Monitor• Controls Administration• Controls Monitor – Executing Controls• Journals• Ownership Manager• Configuration: Business Rules, Methods and Consolidation of InvestmentsAccounting Basics

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Accounting Basics 1/11


Account Types•In order to track money within an organization, different types of accounting categories exist. These categories are used to denote if the money is owned or owed by the organization.•three main categories: •Assets, •Liabilities,• Equity

Assets•An Asset is a property of value owned by a business. Physical objects and intangible rights such as money, accounts receivable, merchandise, machinery, buildings, and inventories for sale are common examples of business assets as they have economic value for the owner. Assets Accounts Debit Increase Credit Decrease



•Debt obligations owed to creditors as a result of operations to generate sales revenue. Liabilities represent creditor equity or claims against the assets of the business entity.

•Forms of liabilties:•Current or short term : must be paid within 1> year of the balance sheet date.•Long Term Liabilities: : must be paid within 2 > to more years of the balance sheet date

•Examples current or short term Liability Accounts •Accounts Payable Debit Increase Credit Decrease•Sales Tax Payable•Unearned Revenues•Short Term Notes Payable •Payroll Liabilities •Contingent Liabilities

•Examples long term liabilities•Loans / Notes Payable / Mortgage Payable•Bonds Payable

Liabilities

http://www.learnfinancialaccounting.com/freematerial/curliab/index.htm

http://www.learnfinancialaccounting.com/freematerial/curliab/index.htm



Ownership equity represents claims to assets of a business entity. •There are three basic forms of ownership equity:1.Proprietorship entity financing provided by a sole owner.2.Partnership entity financing provided by two or more owners (partners).3.Corporation a legal entity incorporated under the laws of a state, separate from its owners.

• Capital stock: Financing provided by stockholders (or shareholders) with ownership represented by shares of corporate stock. Each share of stock represents one ownership claim.• Retained earnings: Earnings of the corporation that have been kept in the business after dividends are paid.

Shareholders Equity Accounts Dividends Accounts Debit Decrease Credit Increase Debit Increase Credit Decrease

Equity



Depreciation in accounting terms normally means the devaluation of a fixed asset. •Determining the useful life of a fixed asset is usually much easier then an intangible asset.•Since the useful life of fixed assets is much easier to determine, depreciation is much more common than amortization.•Some Examples of fixed assets: Equipment, Computers, Vehicles, Furniture and Buildings.

•There are several methods of devaluating assets. The most common methods are straight-line and double-declining balance methods.•Straight-line depreciation :•Cost of Asset 10,500 , Salvage Value 500 , Life 5 years•Depreciation Expense per year = 10,500 – 500 = 2000 5

See > IAS 16

Fixed Assets and Depreciation

Year Cost Depreciation expense

Accumulated depreciation

Book value

1 10,500 2000 2000 8,500

2 10,500 2000 4000 6,500

3 10,500 2000 6000 4,500

4 10,500 2000 8000 2,500

5 10,500 2000 10000 500

Basics of Accounting 5/11


•The double-declining balance method ignores salvage value in the initial calculation.•However, depreciation expense will be limited if the calculated amount would result in the book value dropping below the salvage value.•Example : Suppose an asset has a prior book value of $600 and a salvage value of $500. In this case, depreciation expense is limited to the remaining $100 book value in excess of salvage value.•Furthermore ,each year comparisons are made between the declining balance rate calculations and straight-line depreciation of the remaining book value. •A switch to the straight-line calculation is made in the year in which the straight-line calculation exceeds the declining balance rate calculation.DDB rate = 1/Life x 2 = 1/5 x 2 = 40% Declining balance rate depreciation = Beginning of period carrying value x DDB rate

Declining Balance depreciation

Year Declining Balance rate Straight line

1 10,500 x 40% = 4,200 10,500 - 500)/5 = 2,000

2 6,300 x 40% = 2,520 6,300 - 500)/4 = 1,450

3 3,780 x 40% = 1,512 3,780 - 500)/3 = 1,093

4 2,268 x 40% = 907 2,268 - 500)/2 = 884

5 1,361 x 40% = 544 1,361 - 500)/1 = 861

Year Cost Depreciation expense

Accumulated depreciation

Book value

1 10,500 4,200 4,200 6,300

2 10,500 2,520 6,720 3,780

3 10,500 1,512 8,232 2,268

4 10,500 907 9,139 1,361

5 10,500 861 10,000 500



•

• The following is an example of a typical journal asset for depreciation.

• Note: • The journal increase of the expense is transferred to the general ledger.• Expense general ledger totals are then transferred to the income statement at the end of the month• The result is a decrease to net income (income – expense)• Since the result is a decrease in net income, this creates a decrease in the tax liability of the company• The decrease in the asset is transferred to the balance sheet at the end of the month, resulting in a decrease in the

company’s net worth.

In order to understand how amortization and depreciation affects income, it’s important to see how the transaction is posted to the accounting journal.

General Journal

Date Accounting titles Ref Debit Credit

20xxxxJan

Depreciation expens

Asset (fixed or intangible)

1

2

X

X



•Amortization in accounting terms means the devaluation of an intangible asset. •An intangible asset is something of value to a business that does not have a physical presence. •In order to write down an asset, it must have a useful life. •The useful life of an intangible is often difficult to determine.

•Some examples of intangible assets are: Patents, Goodwill, Contracts, License, Trademarks and Franchise

•When the intangible asset is originally purchased the cost should be debited to an asset account. This cost is then "written off" or amortized. Generally trough straight line method.

See > IAS 16 Intangible Assets and Amortization

General Journal

Date Accounting titles Ref Debit Credit

20xxxxJan

Amortization Expense – PatentsPatents

12

X

X



•A system of accounting that recognizes revenue and matches it with the expenses that generated that revenue.

•Unlike other systems of accounting, which recognize revenue and expenses in the order in which they are received, the accrual accounting convention ignores the function of time and only considers what expenses generate what revenues, even if payments have not actually been made.

•Some Examples….

Accrual Accounting



1.Accrual Adjustments

•An accrual Expenses involves a future exchange of cash that must be recorded on the income statement before cash is exchanged•Adjusting entry

•Future exchange of cash

Example: Interest accrued on a loan at the end of the month is $650

Accrued Expenses

Account titles Debit Credit Position

Expense XXX Income Statement

Liability XXX Balance Sheet

Account titles Debit Credit

Liability XXX

Cash XXX


Interest Expense 650

Interest Payable 650



•Accrued revenue refers to revenue that has been incurred but not yet received. •Examples of accrued revenue items might be services you have provided but that have not yet been billed or paid for. The service industries account for a large number of accrued revenue transactions, since quite often services are provided over a week, month, or even year, but aren’t billed until the job is complete.

•One of the most basic concepts of accounting involves determining if an item is an asset or a liability.

•Adjusting entry :

•Future exchange of cash:

•Example: Company A has Performed $500 of services for a customer on account.

Accrued Revenues


Receivable XXX Balance Sheet

Revenue XXX Income Statement


Cash XXX

Receivable XXX


Accounts Receivable 500

Revenue 500



Adjusting Journal Entries

1.Deferral Adjustments• Deferred Expenses

•A deferral involves a past exchange of cash that has initially been recorded on the balance sheet rather than on the income statement. •The name deferral comes about because the recording on the income statement is deferred (postponed) to a later time.

•A deferred expense is initially recorded on the balance sheet as an asset than being immediately expensed. An adjusting entry becomes necessary as the asset is consumed and becomes an expense.•Example : Short term Assets.•Past Exchange of Cash.

•Adjusting entry necessary as the asset is consumed


AssetCash

XXX XXX


Expense Asset

XXX XXX Income statementBalance Sheet



•Revenue cannot be recorded until the income has been earned. Cash received in advance of income realization should be initially recorded in a liability account such as "Unearned Revenue". •An adjusting entry later becomes necessary as the revenue is earned. The liability should be reduced and the revenue recorded.

•Past exchange of cash

•Adjusting entry necessary as revenue is earned

•Example: Adams CPA previously received $500 for bookkeeping services in advance of providing the services. Adams has now earned $300 of the money

Deferred Revenues


CashUnearned Revenue

XXX XXX


Unearned RevenueRevenue

XXX XXX BalanceIncome Statement


Unearned RevenueRevenue

300 300

International Financial Reporting Standards


IFRS

International Financial Reporting Standards (IFRS) are a set of accounting standards developed by the International

Accounting Standards Board (IASB) that is becoming the global standard for the preparation of public company financial

statements.

IFRS was developed in the year 2001 by the International Accounting Standards Board in the public interest to provide a

single set of high quality, understandable and uniform accounting standards.Need of IFRS

To make a common platform for better understanding of accounting, internationally.

Synchronization of accounting standards across the globe.

To create comparable, reliable, and transparent financial statements.

To facilitate greater cross-border capital raising and trade.

To having company-wide one accounting language which have subsidiaries in different countries

International Accounting Standards Board


IASB

International Accounting

Standards Board (IASB)

Based in London

The IASB began operations in 2001 when it succeeded the International

Accounting Standards

CommitteeIt is funded by

contributions from major accounting

firms:

Private financial institutions and

industrial companies

Central and development

banks, national funding regimes

International Financial Reporting Standards 1/2


International Financial Reporting Standards

IFRS 1 First-time Adoption of International

Financial Reporting Standards

IFRS 2 Share-based Payment

IFRS 3 Business Combinations

IFRS 4 Insurance Contracts

IFRS 5 Non-current Assets

Held for Sale and Discontinued Operations

IFRS 6 Exploration for and Evaluation of Mineral Assets

http://www.iasplus.com/standard/ifrs01.htm






International Financial Reporting Standards 2/2


IFRS 7 Financial Instruments: Disclosures

IFRS 8 Operating Segments

IFRS 9 Financial Instruments

IFRS 10 Consolidated

Financial Statements

IFRS 11 Joint Arrangements

IFRS 12 Disclosure of Interests in Other Entities

IFRS 13 Fair Value Measurement








Summary of IFRS Standards 1/13


However, an entity is not a first-time adopter if, in the preceding year, its financial statements asserted:

Compliance with IFRSs even if the auditor's report contained a qualification with respect to conformity with IFRSs. Compliance with both previous GAAP and IFRSs.

IFRS 1 First-time Adoption of International Financial Reporting Standards sets out the procedures that an entity must follow when it adopts IFRSs for the first time as the basis for preparing its general purpose financial statements

A first-time adopter is an entity that, for the first time, makes an explicit and unreserved statement that its general purpose financial

statements comply with IFRSs. (IFRS 1.3)

An entity may be a first-time adopter if, in the preceding year, it prepared IFRS

financial statements for internal management use, as long as those IFRS

financial statements were not made available to owners or external parties such

as investors or creditors.

An entity can also be a first-time adopter if, in the preceding year, its financial

statements: [IFRS 1.3] asserted compliance with some but not all IFRSs, or included only a reconciliation of selected figures from previous GAAP to IFRSs. (Previous GAAP means the GAAP that an entity

followed immediately before adopting to IFRSs.)



IFRS 2 SHARE-BASED PAYMENT• A share-based payment is a transaction in

which the entity receives or acquires goods or services either as consideration for its equity instruments or by incurring liabilities for amounts based on the price of the entity's shares or other equity instruments of the entity.

The accounting requirements for the share-based payment depend on how the transaction will be settled, that is, by the issuance of • Equity• cash• equity or cash

IFRS 2 applies to all entities. There is no exemption for private or smaller entities.

Furthermore, subsidiaries using their parent's or fellow subsidiary's equity as consideration for goods or services are within the scope of the

Standard.



IFRS 3 BUSINESS COMBINATIONS• A business combination is a transaction or event in which an acquirer obtains control of one or more businesses.

• A business is defined as an integrated set of activities and assets that is capable of being conducted and managed for the purpose of

providing a return directly to investors or other owners, members or participants.

Accounting Method for Business Combinations Acquisition method • The acquisition method (called the 'purchase method') is used for all business combinations. (IFRS 3.4)• Steps in applying the acquisition method are: (IFRS 3.5)• Identification of the 'acquirer' – the combining entity that obtains control of the acquiree (IFRS 3.7)• Determination of the 'acquisition date' – the date on which the acquirer obtains control of the acquiree (IFRS 3.8)• Recognition and measurement of the identifiable assets acquired, the liabilities assumed and any non-controlling interest (NCI, formerly

called minority interest) in the acquiree• Recognition and measurement of goodwill or a gain from a bargain purchase



IFRS 4 INSURANCE CONTRACTS

The objective of this IFRS is to specify the financial reporting for insurance contracts by any entity

that issues such contracts (described in this IFRS as an insurer) until the Board completes the

second phase of its project on insurance contracts.

This IFRS requires:

(a) limited improvements to accounting by insurers for

insurance contracts.

(b) disclosure that identifies and explains the amounts in

an insurer’s financial statements arising from

insurance contracts and helps users of those financial

statements understand the amount, timing and

uncertainty of future cash flows from insurance

contracts

The IFRS applies to all insurance contracts (including reinsurance contracts) that an

entity issues and to reinsurance contracts that it holds, except for specified contracts covered by other

IFRSs.

It does not apply to other assets and liabilities of an insurer, such as financial

assets and financial liabilities within the scope of IAS 39

Financial Instruments: Recognition and

Measurement. Furthermore, it does not address accounting

by policyholders.



IFRS 5 Non- current A

sse ts H

eld for Sal e and D

iscontinue d Operation s

•The objective o f this IFRS is to specify the accounting for assets held for sa le, and the presentati on and disclosure of discontinu ed operations .

Disposal G

ro ups

•A

'disposa l group' is a group of assets, possibly w

ith som

e associated liabilities, w

hich an entity intends to dispose of in a single transaction .

•The m

easuremen

t basis required fo r non-curren t assets classified a s held for sa le is applied t o the group as a w

hole, a nd any resulti ng im

pairmen t

loss reduc es the carryin g am

ount of the non-current assets in th e disposal group in th e order of allocation required b y IA

S 36. (IFR S 5.4)

This IFRS Re quires

•(a) assets t hat m

eet the criteria to be classified a s held for sale to be m

easured at the low

er of carrying am

ount and fair value less costs to sell, and depreciatio n on such assets to c ease

•(b) assets t hat m

eet the criteria to be classified a s held for sale to be presented separately on the face of the balance sheet and the results of discontinu ed operations to be presented separately in the incom

e sta tement .



IFRS 6 Exploration for and Evaluation of Mineral Resources

The objective of this IFRS is to specify the financial

reporting for the exploration for and

evaluation of mineral resources.

Exploration and evaluation expenditures are

expenditures incurred by an entity in connection with the exploration for and evaluation of mineral resources before the

technical feasibility and commercial viability of

extracting a mineral resource are demonstrable.

Exploration for and evaluation of mineral

resources is the search for mineral resources, including

minerals, oil, natural gas and similar non-

regenerative resources after the entity has obtained legal rights to explore in a specific

area, as well as the determination of the

technical feasibility and commercial viability of extracting the mineral

resource.

Exploration and evaluation assets are exploration and evaluation expenditures recognized as assets in

accordance with the entity’s accounting policy



IFRS 7 FINANCIAL INSTRUMENTS: DISCLOSURES

The objective of this IFRS is to require entities to provide disclosures in their financial statements that enable users to evaluate: (a) the significance of financial instruments for the entity’s financial position and performance(b) the nature and extent of risks arising from financial instruments to which the entity is exposed during the period and at the reporting date, and how the entity manages those risks. The qualitative disclosures describe management’s objectives, policies and processes for managing those risks. The quantitative disclosures provide information about the extent to which the entity is exposed to risk, based on information provided internally to the entity's key management personnel. Together, these disclosures provide an overview of the entity's use of financial instruments and the exposures to risks they create.

The IFRS 7 applies to all entities, including ;

Entities that have few financial instruments (eg a manufacturer whose only financial instruments are accounts receivable and accounts payable) Entities that have many financial instruments (eg a financial institution most of whose assets and liabilities are financial instruments).



(b) the consolidated

financial statements of a

group with a parent:

• (i) whose debt or equity instruments are traded in a public market (a domestic or foreign stock exchange or an over-the-counter market, including local and regional markets), or

• (ii) that files, or is in the process of filing, the consolidated financial statements with a securities commission or other regulatory organization for the purpose of issuing any class of instruments in a public market.

(a) the separate or individual

financial statements of

an entity:

• (i) whose debt or equity instruments are traded in a public market (a domestic or foreign stock exchange or an over-the-counter market, including local and regional markets), or

• (ii) that files, or is in the process of filing, its financial statements with a securities commission or other regulatory organization for the purpose of issuing any class of instruments in a public market.

This IFRS applies to:

IFRS 8 Operating Segments

• The objective of this IFRS is that an entity shall disclose information to enable users of its financial statements to evaluate the nature and financial effects of the business activities in which it engages and the economic environments in which it operates.



IFRS 9 Financial Instruments• The objective of IFRS 9 is to establish

principles for the financial reporting of financial instruments that will present relevant and useful information to users of financial statements for their assessment of amounts, timing and uncertainty of the entity’s future cash flows.

IFRS 9 contains guidance for:• Recognizing and derecognizing

financial instruments;• Classifying and measuring financial

assets; • Classifying and measuring financial

liabilities.

•

•IFRS 9 Is a 'Work in Progress' and Will Eventually Replace IAS 39 in its Entirety



IFRS 10 CONSOLIDATED FINANCIAL STATEMENTS

•The objective of IFRS 10 is to establish principles for the presentation and preparation of consolidated financial statements when an entity controls one or more other entities.

•The Standard:

•Requires a parent entity (an entity that controls one or more other entities) to present consolidated financial statements

•Defines the principle of control, and establishes control as the basis for consolidation

•Set out how to apply the principle of control to identify whether an investor controls an investee and therefore must consolidate the investee

•Sets out the accounting requirements for the preparation of consolidated financial statements.

•Consolidated financial statements•The financial statements of a group in which the assets, liabilities, equity, income, expenses and cash flows of the parent and its subsidiaries are presented as those of a single economic entity

•Control of an investee•An investor controls an investee when the investor is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee



IFRS 11 JOINT ARRANGEMENTS

•

• Joint arrangements• A joint arrangement is an arrangement of

which two or more parties have joint control.

• characteristics joint arrangement • The parties are bound by a contractual

arrangement.• The contractual arrangement gives two

or more of those parties joint control of the arrangement.

• Joint arrangements are either joint operations or joint ventures.

• A joint operation is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the assets, and obligations for the liabilities, relating to the arrangement. Those parties are called joint operators.

•The Objective of IFRS 11 is that a party to a joint arrangement determines the type of joint arrangement in which it is involved by assessing its rights and obligations and accounts for those rights and obligations in accordance with that type of joint arrangement.

A joint venture is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the arrangement. Those parties are called joint ventures.

Types of joint arrangements

The IASB (International Accounting Standards Board) recently issued IFRS 11 Joint Arrangements that eliminates proportionate consolidation as a method to account for joint ventures.!!



Joint control

Joint control is the contractually agreed sharing

of control of an arrangement, which exists only when decisions about

the relevant activities require the unanimous consent of the parties

sharing control.

Before assessing whether an entity has joint control over an arrangement, an entity first assesses whether the parties, or a group of the

parties, control the arrangement (in accordance with the definition of control

in IFRS 10 Consolidated Financial Statements)




Main changes introduced by IFRS 11



• The objective of IFRS 12 is to require the disclosure of information that enables users of financial statements to evaluate:

• The nature of, and risks associated with, its interests in other entities

• The effects of those interests on its financial position, financial performance and cash flows.

• IFRS 12 is required to be applied by an entity that has an interest in any of the following:

• subsidiaries• joint arrangements (joint operations or joint ventures)• associates• unconsolidated structured entities

IFRS 12 DISCLOSURE OF INTERESTS IN

OTHER ENTITIES



• Objective IFRS 13 :• defines fair value• sets out in a single IFRS a framework for measuring fair value• requires disclosures about fair value measurements.• IFRS 13 applies when another IFRS requires or permits fair value

measurements or disclosures about fair value measurements (and measurements, such as fair value less costs to sell, based on fair value or disclosures about those measurements)

• Except for:• share-based payment transactions within the scope of IFRS

2 Share-based Payment• leasing transactions within the scope of IAS 17 Leases• measurements that have some similarities to fair value but that

are not fair value, such as net realizable value in IAS 2 Inventories or value in use in IAS 36 Impairment of Assets.

• Fair value• The price that would be received to sell an asset or paid to

transfer a liability in an orderly transaction between market participants at the measurement date

IFRS 13 FAIR VALUE MEASUREMENT

Approaches to IFRS Adoption


Three Approaches to IFRS Adoption

Adoption. This approach directly adopts IFRS standards as the accounting norm for preparing financial statements. India, for example, plans to take this approach.

Convergence. This approach adapts local accounting standards so they align with IFRS. Local standards remain the preferred reporting accounting norm, though they might be

updated to reflect IFRS. Australia is taking this approach.Endorsement. This approach allows local governing bodies to incorporate individual IFRS standards into local accounting or GAAP standards. A country using this approach endorses the use of applicable IFRS standards, but keeps local standards as the norm,

without necessarily updating them. This is the approach of the United States

United States Generally Accepted Accounting Principles and Security Exchange Commission

(US GAAP & SEC)


In 2002, the IASB and FASB signed the ‘Norwalk’ agreement, expressing their desire to converge their accounting standards into one commonly used set of standards.

The Securities and Exchange Commission (SEC) designated the FASB as the organization responsible for setting accounting standards for public companies in the U.S.

The Financial Accounting Standards Board (FASB) is a private, not-for-profit organization who developed generally accepted accounting principles (GAAP) within the United States in the public's interest.

Established by FASB

governments.

non-profit organizations,

privately held companies,

publicly traded,

In the U.S. Generally Accepted Accounting Principles are accounting rules used to prepare ,present, and report financial statements for a wide variety of entities, including:

Principles Based vs Rules Based


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The Strengthsof Principle-Based Standards


Principles-based accounting standards can serve the needs for business and public interest.

Complete comparability is never possible in accounting, therefore one should emphasize on explaining key judgments being made.

Principles-based accounting standards need a clear hierarchy of overarching concepts with limited additional guidance.

Rules-based accounting standards add unnecessary complexity.

Principles-based standards provide a comprehensive basis and have the flexibility to deal with new and different situations

In a principles-based system, more responsibility for judgments and explaining judgments of preparers (CFOs) and auditors is necessary.

Resulting from differences in jurisdiction and different cultures around the world, convergence cannot be achieved if the basis is a rules-based approach, since this will be difficult to implement.

The Weaknesses/limitation of Principle-Based Standards


The first limitation is that limited guidance may lead to enforcement difficulties.

Since financial accounting theory lacks an unambiguously clear elaboration of the concept of profit and the goals they are aiming at, lacking guidance will harm earnings quality.

Secondly, several authors determine an inconsistency between the CF and accounting standards, which will hamper a principles-based approach.

An example of an inconsistency is that ‘highly reliable information may have little relevance to users, such as unamortized acquisition, exploration and development costs,

A third limitation of principles-based accounting standards is the ability to use its flexibility for opportunistic behavior.

Since there are no strict descriptions, CFOs may use more aggressive interpretations of their evidence for measuring an accounting event

Finally, Since principles-based standards lack clear application guidance, proving the incorrectness of CFOs assessment is relatively hard.

The Strengthsof Rules-Based Standards


As a rules-based system provides more additional

guidance, financial reports become more comparable

By including rules, both clarity and verifiability

improves

Rules-based standards have a strong

enforceability and are authoritative

Reduced opportunities for earnings management

through judgments (compared to a principles-

based system)

No requirement for a very strong ‘professional

judgment’ on the part of accountants and auditors.

The Weaknesses/limitation of Rules-Based Standards


Rules might be arbitrary and the result of a political

process, causing annual reports that deviate from

their economic reality. On the ‘cookbook’ (Rules Based ) point of view,

companies may structure transactions to meet the specific requirements of

the accounting standards.

Rules-based accounting standards cause an

enormous increase in complexity to apply in

practice.

Can drastically depart from the underlying principle.

Final Limitation of rules-based accounting

standards is the effect of creating ‘seemingly’ comparable financial

reports

If an accounting standard is inappropriately strict,

financial reports of different companies show

exactly comparable approaches, whereas the

day-to-day operations differ enormously

Summary principles based & rules based


Types of accounting standards Principles-based Rules-based Main characteristics

General description Fundamental objectives

Consistent with CF Substance-over-formTrue and fair view override

Specific description (cookbook) Detailed

methods for (almost) all

accounting problems

Exactly clear when and how to apply Form-over-substance

Advantages

More professional judgment Represent

economic reality Reduced opportunities forearnings management through

transaction decisionsMore flexibility to cope with new environmental conditions

Increased comparability Increased

verifiability Reduced opportunities forearnings management through

accounting decisions Improved communication Enforceable and authoritative

Disadvantages

Enforcement difficulties

Inconsistency with application guidance

(Ab)use of flexibility Lack of comparability

Arbitrary

Inconsistent with conceptual framework

Foster creative accounting Seemingly

comparable Cannot be comprehensiveReduce professional judgment Increase in complexity

Some general differences between IFRS and U.S. GAAP


Development costs — These costs can be capitalized under IFRS if certain criteria are met, while it is considered as “expenses” under U.S. GAAP.

Earning-per-Share — Under IFRS, the earning-per-share calculation does not average the individual interim period calculations, whereas under U.S. GAAP the computation averages the individual interim period incremental shares.

Inventory — Under IFRS, LIFO (a historical method of recording the value of inventory, a firm records the last units purchased as the first units sold) cannot be used while under U.S. GAAP, companies have the choice between LIFO and FIFO (is a common method for recording the value of inventory).

Statement of Income — Under IFRS, extraordinary items are not segregated in the income statement, while, under US GAAP, they are shown below the net income.

Consolidation — IFRS favors a control model whereas U.S. GAAP prefers a risks-and-rewards model. Some entities consolidated in accordance with FIN 46(R) may have to be shown separately under IFRS.

IFRS Adoption Around the World


IFRS permitted or required

Convergence plans

U.S. GAAP and/or convergence intended

No/unknown convergence plans

Approximately 120 nations and reporting jurisdictions permit or require IFRS for domestic listed companies.

•Approximately 90 countries have fully conformed with IFRS as promulgated by the IASB and include a statement acknowledging such conformity in audit reports.

IFRS Adoption Around the World 2011

What are the advantages of converting to IFRS?


By adopting IFRS, a business can present its financial statements on the same basis as its foreign

competitors, making comparisons easier.

Furthermore, companies with subsidiaries in countries that require or permit IFRS may be

able to use one accounting language company-wide.

Companies also may need to convert to IFRS if they are a

subsidiary of a foreign company that must use IFRS, or if they

have a foreign investor that must use IFRS.

Companies may also benefit by using IFRS if they wish to

raise capital abroad.

What could be the disadvantages of converting to IFRS?


Despite a belief by some of the inevitability of the global

acceptance of IFRS, others believe that U.S. GAAP is the gold

standard, and that a certain level of quality will be lost with full

acceptance of IFRS.

Certain U.S. issuers without significant customers or

operations outside the United States may resist IFRS because

they may not have a market incentive to prepare IFRS financial

statements.

Because they may believe that the significant costs associated with

adopting IFRS outweigh the benefits.

Summary IFRS and Impact


International Financial Reporting Standards• Methodologies and disclosure requirements for the preparation and presentation of

financial statements.• Set by the International Accounting Standards Board (IASB)

Global adoption of IFRS• 100+ jurisdictions already require or permit IFRS• Including Europe, Russia, Australia, New Zealand,and China (via Hong Kong stock exchange)• Extended to UK public sector from 2010• Canada, India, Thailand and Korea from 2011• Malaysia and Mexico from 2012 Taiwan expected 2012-2014, Japan expected 2016

Major impact in North America• US SEC has already started accepting IFRS-based filings from foreign issuers• Timelines for US adoption range from 2013 to 2015 • Ongoing work to refine and align US GAAP with IFRS• Canada is mandated from 2011

Differing philosophies• IFRS is principles-based (2,500 pages)• US GAAP is rules-based (>25,000 pages)

SAP BPC Financial Consolidation

SAP BusinessObjects EMP 10



SAP BCP 10 NW



Harmonize



SAP BPC 10 Harmonize 1/6



Connect



SAP BPC 10 Connect 1/2



SAP BPC 10 Connect 2/2



Extend



SAP BPC 10 Extend 1/6



Business Process flow BPC 10 1/3

dssd


SAP BPC 10 Consolidation Framework 1/29


Legal Consolidation Requirements

In SAP BPC, a consolidation environment requires at least 3 models:

• Legal Consolidation• Main model containing all financial data• Also contains non-financial data like headcounts, …

• Ownership• Used to manage the organization structure (scopes and sub-scopes)

• Rate• Contains all currency exchange rates

• Intercompany (optional)• Used for Intercompany Matching process (balance level)

Note : Models names are not mandatory



•To create a consolidation environment, add the following minimum models for Consolidation, Rate, and Ownership. Select model options to expose the delivered consolidation relevant functions:

Application Types



To activate business rules :Go to Administration Rules Business RulesSelect the appropriate modelClick on Add/Remove Rule TypesCheck the appropriate Rule Types

Business Rules and Script Logic Content



As specific model options are activated, business rules and script logic files are made available in each of the applications. A list of all delivered functionality is as follows:

Business Rules and Script Logic Content



The following parameters must be set after creating an environment. Most of them are not required for a consolidation, but are a generic system requirement for any new environment. In the Administration console, select Manage All Environments :

Set Template Version => definesthe current version number of thedynamic templates in your application set

Change Status = controlswhether the system is offline ornot ; you can also type in themessage displayed to users whotry to access an model that isoffline

Environment Parameters



Purpose of the LEGAL CONSOLIDATION Model:defines journal template stores the initial (pre-consolidated) trial balance records launches balance carry forward processes ensures data consistency with controls launches currency conversion and consolidation processes reporting for pre/post consolidation financial reports

Legal Consolidation Model



Legal Consolidation Model – Dimensions

A minimum of 9 dimensions are required for the Legal Consolidation model:

1.C_Account (A) – Chart of accounts2.Category (C) - Typical categories would be Budget, Actual, Forecast3.AuditTrail (D) - Tracks the source of data (input, journal adjustments, eliminations…)4.Flow (S) - identifies balance sheet movements (opening, additions, decreases, transfers… and ending balances)5.RptCurrency (R) - Identifies Transaction Currency and Local Currency.6.Scope(G) - Consolidation groups / scopes7.Entity (E)8.Interco (I) - Provides partner information for intercompany eliminations9.Time (T)

Note : Dimensions names are not mandatory



Rates Model – Dimensions The RATES model contains currency exchange rates

• A minimum of 5 dimensions are required for a Rate-Type model :• 1. R_Account (A): This details the different types of rate (Average, End-of-Period, Historical,etc.)• 2.R_Entity (E): This stores multiple tables of rates, if required; otherwise the R_Entity dimension may just be limited to

a unique member, typically named GLOBAL• 3.InputCurrency (R): This stores each applicable local currency (CAN, USD, EUR, etc)• 4.Category (C): – same as Legal Consolidation model• 5.Time (T) : – same as Legal Consolidation model



Ownership Model•Purpose of the OWNERSHIP model:•Stores a time dependent representation of the organization structure of the parent company in transactional data records by directly interfacing with the Dynamic HierarchyEditor functionality.•Stores the consolidation method (METHOD) to use as well as the percentage of consolidation (PCON) , percentage of control (PCTRL) for each of the entities.•Stores the percentage of ownership i.e. POWN.



Ownership Model – Dimensions

• The OWNERSHIP model stores ownership details. A minimum of 6 dimensions are required:• 1.O_Account (A) – provides information on ownership type such as PGROUP, POWN, PCON,• and PCTRL• 2.Category (C) – same as Legal Consolidation model• 3.Entity (E) – same as Legal Consolidation model• 4.Time (T) – same as Legal Consolidation model• 5.Interco (I) – same as Legal Consolidation model• 6.Scope (G) – same as Legal Consolidation model

Note : Dimensions names are not mandatory



Ownership - Model General Settings

Settings Description

- Parent/Child property used for hierarchy of groups

This parameter is used with dynamic hierarchy for legal applications when definingconsolidation hierarchies. The value set here must match the name of property inGROUPS dimension in the legal consolidation application to store the ownershipdata.Value should be PARENT_GROUP.

- Non-interco Member in Ownership

This parameter should be a member ID in the INTERCO dimension in the ownershipmodel if you are using dynamic hierarchies.For example: I_NONE or ThirdParty



Dimensions – Summary The following dimensions are used in the relevant models:



Dimension Types



• Dimension – C_Account Main Properties

Relevant to Consolidation activities



• Dimension – FlowMain Properties




• Dimension – Entity Relevant to Consolidation activities



• Dimension – Interco Relevant to Consolidation activities



• Dimension – AuditTrailProperty




Dimension – Category 1/2



Dimension – Category 2/2



Dimension – Groups / Consolidation Scopes



Dimension – Reporting Currency



Dimension – Time



Ownership Manager

•Purpose :•Provides a web based interface to allow the business user to set up time dependent relationships between various subsidiaries and organizational units.•Each hierarchy is keyed to a specific combination of Category and Time dimension member values.•Provides a convenient table entry to define the consolidation METHOD, PCTRL, POWN and PCON of each individual unit.•The dynamic hierarchy is stored in the Ownership application as transactional records.



FAQ – Consolidation Framework 1/4

•How to setup the consolidation framework in order to keep the investment details like no of shares, investment details also in the BPC system ?

•What is the difference between PCON, PCTRL and POWN

Add the relevant accounts in the O_account dimension : number of issued shares, number of owned shares, with and without voting rightsCreate the corresponding data entry schedule in order to enable users to enter the number of shares owned (using the interco dimension) – data can also be loaded using a flat file, BW cube…Set up the calculation of ownership percentage based on data entered on owned and issued shares

Percent control represents the percentage of an entity based on voting shares thatother entities own, directly or indirectly. It is used to determine the consolidationmethodPercent ownership (also known as the interest percetange) represents the percentage of an entity’s nonvoting shares that other entities own, directly or indirectlyPercent consolidation is the percentage of an entity’s values that consolidate to its parentDirect percent ownership is the percentage of regular nonvoting shares of stock owned by each entity




•What is the difference between PCON, PCTRL and POWN ?

80%

60%

30%

M

F

G

H

• Control percentages : M controls F at 80% ; M controls G at 60%, through F&G, M controls H at 30%.• Ownership percentages : M owns F at 80%, M owns G at 48% (80% * 60%), M owns H at 14% (80% * 60% * 30%)




•What is the difference between elimination entity and consolidation entity? Are they the same?

What happens when we use different entities in place consolidation entity?

Elimination entity will only store eliminations generated by US elimination business rules while the consolidation entity is the entity storing the consolidated results for each group/sub-group

It allows to secure only the entity dimension instead of securing both entity and scope dimensions in case sub-consolidors need to access sub-consolidated Data




•What is the use of the new properties for Entity – Control_Level and Ctrl_currency_not_LC ?

Can we execute the controls at the group level ?

Thanks to the Control Level. So when the controls are executed, only the controlsbelow or equal to the level associated to the entity will be run.property, the administrator can associate a level of required control for each entityThe Ctrl_currency_not_LC enables the controls execution for those entities were data entry are performed directly on a currency, and not on the LC member in the currency dimension

No, controls can only be launched on base entities.

SAP BPC 10 Consolidation Framework


Rules: Controls Summary

You should now be able to:• Identify and create the required models in order to set up a consolidation Environment• Identify and create the required dimensions in each consolidation model• Identify and fill the required properties for each dimension• Identify useful scripts, business rules and data manager packages• Understand the basics of the Ownership Manager

SAP BPC 10 Consolidation Monitor 1/19


Feature or Task Introduction

Consolidation Monitor This feature provides an overview of the whole consolidation process in one single screen. The monitor tracks the following items:

• Status of the controls• Work Status• Execution status for currency conversion• Execution status for consolidation

This feature will be very useful for all the users that need to monitor the progress of the consolidation process (at a group or at a local level), as they have all the information they need on one single screen.



Consolidation Monitor Benefits

Benefits of this feature include:

•Overview of the controls, work status and execution status for currency conversion and consolidation on one single screen•Overview of the progress in the consolidation process for: - Individual entities - Consolidation groups•Currency Conversion and Consolidation can be triggered from that samescreen



Consolidation Monitor Prerequisites

The Consolidation Monitor has the following prerequisites:

• Usage of a Consolidation type Model• Definition of the ownership structure for that period• Definition of work status (for work status display)• Definition of controls (for control display)• Assignment of relevant task profiles



Consolidation Monitor Security

There are two security tasks related to the Consolidation Monitor:•View Consolidation Monitor – provides access to the Consolidation Monitor•Run Consolidation Tasks – provides permission to run the Currency Conversion and the Consolidation from the monitor



Consolidation Monitor Starting Page

The starting page can be divided into 3 sections• Context: Selection of Model, Category, Entity and Consolidation Group• Actions List of possible actions• Status: Details of the status for the selected context



Consolidation Monitor Actions

The following Actions are available (some actions may be grayed out if no entityor a node level is selected)

• Work Status: Open the screen to update work status for the selection• Translate: Runs currency conversion• Consolidate: Runs consolidation• Display Running Processes: Opens a window that shows which processes are• currently running• Reset: Resets execution status for Currency Translation and Consolidation• Refresh: Refreshes the current screen• Show Description: Shows description instead of ID• View Select between a hierarchical and flat view



Consolidation Monitor Work Status

This screen allows one to update the work status for the selected entity

This currently only works on base level entities; work status cannot be set on parent levelsusing the Consolidation Monitor



Consolidation Monito Running Currency Conversion 1/2

The following steps need to be performed in order to execute CurrencyConversion

1.In Consolidation Central Consolidation Monitor, in the scope context area, select the Category, Time and Group dimension members for which you want to run the currency translation.

2. Select the row for the Group or Entity you require and click Translate.



Consolidation Monito Running Currency Conversion 2/2

3. In the Translate dialog box, verify the selected dimension members and choose whether to runFull or Incremental Translation.

4. Click OK.



Consolidation Monitor Running Currency Conversion (Cont’d)

When executing Currency Conversion on a group level (node), the screen shown on the previous slide is displayed. This performs a conversion into group currencies.When Currency Conversion is executed on an Entity level, the following screen is displayed.

This performs a currency conversion into the selected reporting currency. It is also possible to select which Rate Entity to use for this conversion.



Consolidation Monitor Running Consolidation

The following steps need to be performed in order to execute Consolidation

1. In Consolidation Central Consolidation Monitor, in the scope context area, select the Category, Timeand Group dimension members for which you want to run the consolidation

2. Select the row for the Group or Entity you require and click Consolidate.

3.In the Consolidation dialog box, verify the selected dimension members and choose whether to runa full or incremental consolidation

4. Click OK.



Consolidation Monitor Currency Conversion and Consolidation

Please note the following points:

Member in the Entity type dimension of the Rate application needs to be called GLOBAL (in upper case) for the conversion to group currencies to work properly

The respective programs for currency conversion and consolidation are called directly. No logic script is called, therefore no custom calculations can be executed.



Consolidation Monitor Incremental vs. Full

The Currency Conversion and Consolidation programs can be executed in incremental or full mode. The incremental mode will only execute the program for those entities that were changed since the last execution of the program (this is of course much faster than executing the program for all entities)The process works the following way: - Every time data is written-back to the system, a timestamp is written to a separate table to keep track of when the data of an entity has last been updated

- When a program runs in incremental mode, it will check which entity has been modifiedsince it’s last execution and only perform the calculation for those entities, whichsignificantly speeds up the process.



Consolidation Monitor Incremental vs. Full (Cont’d)

The incremental mode only works when data has been updated, it doesnot work in the following cases:

• Rates were changed• Ownership information was changed• Business Rules were changed

The program needs to be run in full mode if one of the cases mentionedabove has occurred.



Consolidation Monitor Display Running Processes

This screen displays the currently running processes and shows the progress of eachprocess (you can select whether you want to see all processes or only your own ones)

If a process has failed, opening this screen will allow this process to be reset (after acertain period), so that it can be executed again.



Consolidation Monitor Reset

Highlight a group or entity and click the Reset button, this will display a screen with thecurrent selection

The Currency Conversion and Consolidation status are then set back to “To be executed”



Consolidation Monitor Status

This screen displays the controls, work status and execution status for CurrencyTranslation and Consolidation

The status is set to Done once the programs were successfully executed.The Currency Translation and Consolidation status are set back to To Be Executed if datais entered (for the Entity were data has been entered)



Consolidation Monitor Status Roll-up

The status on the parent level (for controls, work status, currency translation andconsolidation) is based on the lowest status of the children. There is no status that is storedon the node levels, they are computed when the monitor is displayed.

In the example below, one entity has the status set to To Be Executed and the parentCorporate shows that same status, as it is the lowest status of all it’s children.




You should now be able to:• Navigate the Consolidation monitor functions and features• Explain the status information displayed in the monitor• Execute Currency translation and Consolidation• Describe incremental consolidation

SAP BPC 10 Controls Administration 1/19


Controls

A Control is the individual check of data accuracy and consistency.

Controls replaces the Validation Business rules used in prior version (BPC 7.5). Available only in the NW version. Controls are enabled or disabled at model level.



Business Example

Controls are an essential part of every consolidation application and they might also be useful in

planning application.

They are mainly used to control the consistency of financial data

(for example that a Balance Sheet is balanced or that flow

movements arematching the with the closing

balance)

Controls can be enforced (blocking controls) or just displayed aswarnings, to inform users of

potential problems.



Controls Benefits

Benefits of this feature include:

• Consistency of data• Flexibility• Different level of controls can be defined by entity• Control sets are assigned by Category and Time



Process Overview

The following steps are required to define controls1.Assign Security Tasks related to Controls2.Enable Controls3.Create individual controls (and definition of the level for each control)4.Create Sets of controls (group of controls)5.Assign a set of controls by category and time

On top of that, two more attributes need to be set in the Entity type dimension

1. Define for each entity the level of control that should be applied2. Possibility to bypass controls in Local Currency (if data are loaded in reporting currency

directly)



Pre-Requisites

The following two attributes are required in the Entity type dimension:– CONTROL_LEVEL (1)– CTRL_CURRENCY_NOT_LC (1)

CONTROL_LEVEL• This property controls which level of control is applied for each entity. The following four values are available:• 1 : Basic• 2 : Standard• 3 : Advanced• 4 : Comprehensive• The default value (blank) is equivalent to “4”

CTRL_CURRENCY_NOT_LC– This property controls whether controls should be executed in the reporting currency instead of LC.The following two values are available:o N : Controls are executed in Local Currencyo Y : Controls are executed in the currency defined in the Currency property of the Entity– The default value (blank) is equivalent to “N”



Controls - Security

The following two take tasks are related to Controls from an administration point of view:•Edit Controls definition•View Controls definition



Accessing and Enabling Controls

In the Administration module, expand Rules and select the Controls items

Before Controls can be used, they need to be enabled from the Controls Administration screen



Navigation

From the Controls Main Page, you can access the different components by clicking on the numbers

When a specific component is open, there is always a link on the top right of thescreen for the next step

• In Controls• In Control Sets• In Assignments



Controls – Main Screen

The Main screen for controls can be used to add New controls, Edit or Delete existing controls.

The drop-down box allows to display all controls or to filter them by a Set of controls



Controls – Control Editing (1)

The control definition screen can be split in 2 main sections:•The top of the screen contains the buttons to Save, Close and Validate the control•The header section : specifies the type of control, the threshold and the break-down dimensions•The detail section : specifies which members are compared

Top

Header

Details




The header section

• ID : id for the control, no space allowed• Type : Blocking / Warning. All blocking controls must pass before the work status can be changed• Equation type : type of comparison using the equal, different, bigger and smaller operators• Control Level : Level of this control, linked to the “Control_Level” property of the Entity dimension• Tolerance Threshold o In value : absolute value o In % : percentage is calculated based on the value of the top part

• Breakdown Dimension(s) o Up to 2 dimensions can be specified as break-down dimensions o The control will be executed separately for each member of the break-down dimension. In the example of a break-down by Audit on the member ALL_INPUT, the control will be executed for each member below ALL_INPUT (INPUT and INPUT11) in this example o For a breakdown, the same member must be specified in the top and in the bottom part




The detailed section

• Top Part

o Sign: + or -o Account Member from the Account dimension (parent or base level)o Flow Member from the Flow dimension (parent or base level)o Interco: Member from the Interco dimension (parent or base level)o AuditID Member from the AuditID dimension (parent or base level)o Multiply select multiply or divide (for the Value specified)o Value: value to multiply or divide by

• Bottom Part

o Same column as top parto Year Offset use a different year. Values can be a year (2010) or an offset (+1,-1)o Period: use a different period. Values can be a period (1) or an offset (+1,-1)o Category: use a different category (enter ID of category to use)



Controls - Documents

A document (report or input schedule) can be linked to each control. This willprovide a hyperlink for the user, so that when a control fails, the user can open thatdocument to understand where the issues is coming from

• To set this up, you need to select the document tab

• Then click the Add button and select the type of document, finally select which document to add

• The document then show up in a list



Controls - Example

Below is an example of a control that checks that a Balance Sheet is balanced(with a tolerance of 1) with a breakdown by AuditId (for all AuditId below ALL_INPUT)



Sets of Controls (1)

From the Control Sets screen, click New to create a new set

Enter an ID for the Set (no space allowed)



Sets of Controls (2)

Add or remove controls into your set and click OK to close the window



Assignment of Controls (1)

There are two views available to assign the controls:

• Categories by Time• Control Sets by Time

Categories by Time

Click Category and Time to select members (you can select more than one member at a time)

• Click Show

• Click Edit (on the top left)

• Double click to select the cell you want to define controls sets and click once more to display the dropdown list with all the available control sets and select the appropriate one



Assignment of Controls (2)

Control Sets by Time

• Click Control Sets, Category and Time (you can select more than one member at a time)

• Click Show• Click Edit (on the top left)• Tick the checkbox to decide which controls should be assigned for a Category and Time

• Click Save




You should now be able to:• Understanding the new Controls functionality.• Define controls.• Define control sets and assign controls.• Create and maintain control assignments.

SAP BPC 10 Controls Monitor – Executing Controls 1/20


Controls

A Control is the individual check of data accuracy and consistency.

Controls replaces the Validation Business rules used in prior version (BPC 7.5).

Available only in the NW version.

Controls are enabled or disabled at model level.



Business Example

Controls are an important component mainly in consolidation applicationto ensure proper data quality.

End-users run controls to check their data quality and allow them to fixtheir data. The level of controls might be different by entities and timeperiods.



ControlsPrerequisites

To use the Controls feature from the end-user point of view, the following needs to be defined:

• Controls need to be defined and assigned in the Administration module• For Consolidation type application, ownership structure need to be Maintained• Work Status need to be defined in the Administration Module

Controls replace the validations that were used in the SBOP PC 7.5 release



ControlsSecurity

The following four tasks are related to Controls from an end-user point of view:

• Reset Control Dismissal• Dismiss Blocking Controls• View Control• Run Controls



Process Overview

5. Re-run Controls

4. Correct Data

3. Identify issues in

data

2. Review Controls

1. Run Controls



ControlsSet Context

The selection of the context will define which Category, Time and Groups/Entitiesare displayed in the Control Monitor. Depending on the type of application, the thirdselection box will:

• For Consolidation type application, display the Group type dimension (user selects a group and will get all the sub-groups and entities displayed, according to the definition in the Ownership Manager)

• For Planning type application, display the Entity type dimension (user selects an Entity and will get the selected Entity and all its descendants, according to the hierarchy of the Entity dimension)



ControlsControls Monitor

Controls Monitor indicates for each entity:

• Control Set: Control set that has been assigned for this category and period• Status: Displays status of current control• Level: Level of control applicable for that entity (linked to the CONTROL_LEVEL property)• Number of Blocking: How many blocking controls have failed• Number of Warnings: How many warning controls have failed



ControlsStatus and Type of Controls

The following statuses exist:

• To be executed: Control needs to be run (has not been executed yet or data have changed since last execution)• Passed: Control passed successfully• Failed: Control has failed, data needs to be corrected• Dismissed: Control was forced to pass

There are two types of controls

• Blocking: All blocking controls must pass (or be dismissed) in order to allow a change of the work status. These controls are mandatory.

• Warning: These controls are provided for information only, but they do not block the process.



ControlsLevels

There are four level of controls that can be assigned to an entity. An entity uses all the controls that have been assigned to that level (and above).

Control Levels

1: Basic

2: Standard

3: Advanced

4: Comprehensive (Default)



ControlsControls Monitor

Depending on the type of application, the entities are organized according to the:

• Setup in the Ownership Manager for Consolidation applications• Hierarchy of the Entity dimension for Planning applications

The View drop-down box in the top right corner allows you to select between a hierarchy and a flat view



ControlsExecute Controls

To execute controls, highlight the entity or node and click the Run Controls button

Check the settings for the dimensions, they should be correct as they are taken over from the context



ControlsReview Controls (1)

After the execution, the status and the number of blockings and warnings are updated

Status for node levels are calculated on the fly, the node level will always show the lowest status of all its children.

Highlighting an entity in the top part of the screen displays a list of the failed controls in the bottom part of the screen (details for S000 in this example).



ControlsReview Controls (2)

To get a detailed view of all controls, select the Entity and click the Open Control Results button

This opens a new tab that contains the details



Controls ResultsOverview

ContextActions

DetailsDocument links



Controls ResultsActions

The drop-down box at the top allows to select which controls should be displayed based on their status.

Controls can be run by clicking the Run Controls button and refreshed with the Refresh button.



Controls ResultsDetails

This view contains the detail about all the controls, a drill down can be done on a control by clicking the arrow on the left of the screen

• The breakdown members indicate which member of the break-down dimension is displayed if break-down has been defined for that control

• The Equation and Result columns show the calculation that are performed and the result that is calculated

• The Threshold column indicates the threshold that was defined for that period

• The Type column indicates whether the control is Blocking or Warning

• The Status column indicates if the control has passed, failed or has been dismissed



ControlsLinked Documents (1)

If linked documents has been defined for a control, they can be accessed with the hyperlink at the bottom of the screen.



This will start the EPM add-in and open the selected report. Please note that only the Category, Entity, and Time dimensions are passed to the report, the rest of thedimension need to be set manually in the report itself.

ControlsLinked Documents (2)



ControlsDismissing Controls

There are cases were blocking controls need to be passed, although the data is failing

For example, when there are some last minute corrections and the figuresneed to be published, although all the controls are not passed. For this exceptional case, there is the possibility to force a control to pass by dismissing it.

A blocking control that has failed can be forced to pass, by highlighting the controland clicking the Dismiss block button.

The control then receives the status Dismissed.




You should now be able to:•Navigate the Controls monitor functions and features•Execute Controls•Explain the status information displayed•Describe linked documents

SAP BPC 10 Journals 1/29


The new Journal Template and Features

Accessing the Journal Template

• The journal template is accessed via the web interface and is located in the Administration interface within the Features section:



Accessing the Journal Template (1)

A new journal template can be defined in this Administration section:

An existing journal template can be deleted in this Administration section, but only after all journals entries using that template have been deleted as well:



Accessing the Journal Template (2)All existing journal entries can be deleted in this Administration section:



Accessing the Journal Template (3)Journal parameters can be configured for all journal entries associated with thedefined template:



Journal Template Features (1)Click on the Journal Template name and a new tab opens, revealing the template configuration options:



Journal Template Features (2)Select journal header dimension by highlighting the desired dimension on theMembers screen (left side) and using the arrow buttons to add/remove thedimension into the “Detail Column for Header”(right side):



Journal Template Features (3)The journal template can define how the journal entries will be displayed. •By checking the Balance by Entity option, the journal entries will be sub totaled and checked for balance across each Entity the Balance by Currency works in a similar fashion). •By checking off both “Balance by Entity” and “Balance by Currency”, all combinations of Entity/Currency will be subtotaled and displayed.



Journal Template Features (4)Additional header fields can be added into a journal header by selecting the Additional Headers option. Adding a new additional header object causes a popup to open that allows for the definition of the new header filed which can be text or date specific:



Journal Template Features (5)Define Reopen rules for journals on the “Reopen Rule” tab.

•The reopen rule allows you to identify specific Account(s) (and account properties), Flows, and Interco dimension values to determine source journal entries to be reopened (Source). •The filtering property on the account Source dimension can be selected from the dropdown list provided.

Once reopened, the journal entries can be reposted to a new (Destination) Account, Flow, Interco dimension entry. Sign reversal of the value upon reopening is also available.System validates all entries when attempting to save.



Journal Landing Page (1)

The journal landing page keeps track of how many journal entries have been madeusing the template, if there were any additional journal header items entered, andthe availability of reopen logic for the template.

You may have only one template defined for a selected model:



Journal Landing Page (2)

Journals entries can be enter via the web interface or via the EPM 10 Add in forExcel. When entering a journal via the web interface, navigate to ConsolidationCentral >Journals > New:



Journal Entries (1)

Journals entries can previewed from the Journal Landing Page. Click on any journal entry and its preview is displayed at the bottom:

PREVIEW



Journal Queries:

Two methods available to allow viewing a specific set of journals:

• The context bar: allows the selection either a base member or a node (all leaves will implicitly be used as a filter in that case), or

• Advanced query: which provides to ability to set a detailed filters on any of the journal fields (such as posted date, status, etc…)



Advanced query for Journal Entries

Advanced query: files can be +/- from the query definition, values can be included/excluded, and journal properties can be access via the advanced query tool.

Advanced Query allows end-users to define criteria making it faster and easier to display specific journals

All dimensions and journal options can be used as filters

Filter on text fields “Beginning with…”, “Containing…”, “In List” as well as onDates : “From… To…”



Journal Entries (2)

Journal statuses can be viewed on the journal landing page, as well as date of posting, who posted the document, and modified date/time:

USER

Individual Journals can be opened in separate tabs for easy viewing:



Journal Entries (3)

Access to the Posting/UnPosting, Open/Re-Open, Lock/Unlock functions are allcontrolled by the current status of the Journal

For example, a Saved journal:

For example a Locked journal:



Journal Security

The ability to view, edit, post/unpost, reopen, lock/unlock are all controlled byspecific tasks assignments in BPC security:



Journal Group Management

Journals created via multiple headers are automatically grouped together under a common group id:

Grouped journals can be ungrouped and separated into independent journals.

Actions taken (such as Posting) on one group member will be taken on all groupmembers.



Journal Creation (1)

Journals can be created in multiple ways:

• Single journal entry• Using multiple headers to generate a group of individual journal entries• Using multiple values for various dimension selections in the journal body

Single journal entry has the Multiple Headers and Multiple Value check boxes unchecked:




Using multiple headers will generate a group of individual journal entries with common values but different header selections:

• After checking the Multiple Headers checkbox, select the dimension that will contain the multiple selections.

• A member selection popup box will appear, select one or several dimension members…each member selection will create a separate, but grouped, journal entry upon saving the journal.

• In the example shown, this journal definition will create three grouped journal entries for 2010.JAN, 2010.FEB, and 2010.MAR.




Using multiple values expands the journal entry screen based upon the dimension selected for multiple entry:

The result is an expanded journal entry section allowing separate entries for each of the selected dimension members:

Using multiple values will generate a group of individual journal entries with potentially different values but the same header selection.



Journal Creation – Creating Journal Entries (1)

The journal tab consists of a context menu, option selections, and a three tabjournal entry for data input.




The Journal Entry sub-tab allows the user to directly input journal postings, the system automatically provides a running summary of the accumulated values entered




The Additional Properties sub-tab allows the user to enter and additional property fields defined in the template (See the entry for “Ldate” in the example below)




The Additional Properties date entry option is especially useful in the Banking industry:

DATE SELECT POPUP



Journal Creation – Status

Journals can have one of the following status assignments:

• Saved - journal has been saved but journal entries have not been committed to database• Deleted – journal has been deleted, the system retains this information to prevent any subsequent reuse

of journal ids.• Posted - journal entries have been committed to database• Unposted - - journal entries previously committed to database have been reversed with offsetting

postings made in the database• Locked – journal entries have been posted and the data is locked from any additional changes. Journals

cannot be unposted or deleted with a Locked status.• Unlocked – A locked journal can be unlocked by an administrator with the Lock/Unlock security task

assignment. Unlocking a journal sets its status to posted.



Journal BAdIs (Business Add Ins)

When journal entries are being Saved or Posted, an ABAP based BAdI can betriggered to create additional calculated records.

This journal specific BAdI allows can perform calculations on the journal entries andcan create new records which will be stored and displayed within the journal itself.

The BAdI is delivered empty but can be customized by clients.

A typical BAdI implementation will be able to leverage fields that the journal.lgflogic does not access (additional items, date fields, etc…)



Advanced Journal Balancing

Journal entries are checked dynamically, if an out of balance condition occurs the system will color code the problem area in red highlights:




You should now be able to:•View and create Journal Templates•View and create Journal entries•Use advanced journal query to locate a journal•Understand the automatic balancing features of journals•Create and manage journal groups•Understand journal statuses

Ownership Manager 1/22


What is the Ownership Manager?

The Ownership Manager (formally known as the Dynamic Hierarchy Editor in earlier

versions of BPC) is a transaction data based representation of an organizational

hierarchy as well as defining consolidation parameters.

Time, and Scope. This allows multiple organizational structures to be created to

support dynamic ownership situations (such as acquisitions, divestitures, changes

in existing positions, etc.).The hierarchies created by OM are identified with three keys dimensions: Category,



Ownership Manager - Prerequisites

The ownership manager requires an Ownership model to be defined that is of thetechnical model type “ownership”

Model definition:

The Ownership model must include the following dimensions:

1.Dimension type “A” – provides information on ownership type such as PGROUP, POWN, PCON, and PCTRL

2.Dimension type “C” *3.Dimension type “E” *4.Dimension type “T” *5.Dimension type “I” *6.Dimension type “G”*

*must be the same dimension as used within the Legal (Consolidation) application



Ownership Manager Security TasksAccess to the ownership manager (formally known as the Dynamic Hierarchy Editorin earlier versions of BPC) is controlled via the following three security tasks:



Accessing the Ownership Manager (1)

The ownership manager (formally known as the Dynamic Hierarchy Editor in earlier versions of BPC) is accessed via the web interface and is located on the Start Page within the Consolidation Central node :




Click on the Ownership Manager access link in Consolidation Central to display the ownership definition in the right context screen




The ownership definition screen includes an overview display of the ownership hierarchy, and for each node the “Generated” and/or “Current” consolidation method, the Consolidation Rate (formally PCON), and the Financial Interest Rate (formally POWN) rates to be employed for the selected node :




However, the Ownership Manager uses terms such as “Consolidation Rate” and“Financial Interest Rate”, the data is stored with the same data modeling as in previous versions.For example, Consolidation Rates are stored as PCON values and Financial Interest Rates are stored as POWN values in the database:



Editing the Ownership Hierarchy (1)

Editing opens a new tab titled “Edit Ownership (selected context for Category, Time, and Group)”:




Access existing ,or create new, versions of ownership hierarchies by changing the context selections for the Category, Time, and Group dimensions.




Add/Remove individual Entity values from the Group hierarchy

Context menu provides same functions as in tool bar:




Click on top group node to view summary of all entities entered




Double Click on “current” cells to modify settings:




Ownership hierarchies can be saved

Ownership hierarchies can be copied into a different context:




Click on :Calculate to run internal program that determines the “generated” values for Consolidation Rate and Financial Interests:



Ownership Manager – Calculation Prerequisites (1)

METHOD business rule definitions

1

2

23

3

Copied intoMETHOD_SYS

PCTRL_SYS generatedby the OwnershipCalculation iscompared to theseranges to determineMETHOD_SYS andPCON_SYS

Copied intoPCON_SYS



Ownership Manager – Calculation Prerequisites (2)

Cross Ownership Data: Must beG_NONE

PCTRL isused togeneratePCTRL_SYSwhich is usedin BR ShareRange lookup

Direct Share or Group Share calculationmethod determines how these percentagesare combined to generate PCTRL_SYS andPOWN_SYS (Direct Share method: nomodification; Group Share method:multiply the rates through the hierarchy),

POWN is usedto generatePOWN_SYSwhich is usedto fill theGeneratedFinancialInterest Rate



Ownership Manager - Prerequisites

Ownership Manager Display:

METHOD_SYS METHOD PCON_SYS PCON POWN_SYS POWN

METHOD_SYSis derived fromthe BR sharerange lookup

PCON_SYS isderived from theBR share rangelookup

POWN_SYS is derivedfrom the ultimateownership percentagecalculation using theselected sharemethod (Direct/Group)and the POWN valuesentered in the CrossOwnership Schedule



Ownership Manager

Putting it all together

Method PCON POWN

Method_sys

PCON_sys

POWN_sys

PCTRL_sys

PCTRL

POWN

Optional step

Ownership Manager

Business Rule

Cross Ownership Data



Direct Share Vs. Group Share (1)Example

Consolidation units US, DE, and IN are assigned to consolidation group World for a certain period and category.

Parent unit US holds 60% of the shares in consolidation unit DE and controls the voting rights 60%

Consolidation unit DE holds 80% of the shares in consolidation unit IN and controls the voting rights 80%.

In group World, the Parent unit US is the holding company of unit DE and although US does not directly hold the unit IN, in reality US has control of IN through an “indirect” control via unit DE



Direct Share Vs. Group Share (2)Group Share

Calculation with group share, which only captures the group part of the ownership (in this case the UPO using group share in World for unit IN is 48% (equal to “ 60%” , % of DE owned by US multiplied by “80%” , “% of IN Owned by DE")

Group Share = 60% * 80% = 48%



Direct Share Vs. Group Share (3)Direct Share

UPO with direct share in this case should be inherited based on the DIRECT %of control between the direct parent (US) and the child unit (IN) as the ultimate parent of Group World (US) controls the parent DE.

The UPO with direct share value, in this case for CG1,is 80% NOT 48%.

Direct Share = 80%



Ownership Manager Summary

You should now be able to:•Understand the new Ownership Manager interface•Navigate the Ownership Manager functions and features•Create and maintain Ownership hierarchies•Execute Ownership calculations

Configuration: Business Rules, Methods and Consolidation of Investments


Why consolidated statements?

Consolidated instead of separate financial statements for fair presentation.

The purpose of consolidated financial statements is ;•To present, primarily for the benefit of the owners and creditors of the parent, the results of operations and the financial position of a parent company and all its subsidiaries as if the consolidated group were a single economic entity with one or more branches or divisions

•There is a presumption that consolidated financial statements are more meaningful than separate financial statements and that they are usually necessary for a fair presentation.•For instance, when one of the entities in the consolidated group directly or indirectly has a controlling financial interest in the other entities”

•(FAS 160)(IFRS 10)



Stock investments—investor Accounting and Reporting

Reporting methods

•GAAP & IFRS recognized three Methods Based on Level of Investment

1.Fair value method (FAS 115) (IFRS 13)2. Equity method (APB 18) (IAS 28)3. Consolidated Financial Statements (ARB 51) (IFRS 10) - Acquisition Method (FAS 114R effective 2009) - Purchase method (FAS 141 through 2008) - Pooling of interests method (APB 16 through 6/30/02)

Investor Ownership of the Investee’sShares Outstanding

Fair Value Equity Method Consolidated Financial Statements

0% 20% 50% 100%



Fair value method (FAS 115) (IFRS 13)

•Three categories of investment:1. “Held-to-maturity” debt securities2. “Trading” debt or equity securities3. “Available-for-sale” debt or equity securities•Investments that are either for re-sale (“held-to-maturity” or “trading”) or that are held (“available-for-sale”) with unrecognized gains in losses reported as separate equity item (under other comprehensive income) Dividends recognized as income

•Example journal entries:


Available-for-sale investment XXX XXX

Cash


Cash XXX XXX

Dividend income



Equity method (APB 18) (IAS 28)

A method of accounting by which an equity investment is initially recorded at cost and subsequently adjusted to reflect the investor's share of the net assets of the associate (investee).

•Investments where investor has ability to “significantly influence” investee (APB 18) (IAS 28)•Investor recognizes its share of the earnings or losses of an investee in the periods for which they are reported •Share of the earnings or losses adjusts parent investment and reports the recognized earnings or losses in income.•Cash dividends reduces reversed to avoid double counting

Example journal entries:


Investment in Investee XXX XXX

Cash

Accounts titles Debit Credit

Cash XXX XXX

Investment in investee (for cash dividends)



Consolidated Financial Statements (ARB 51) (IFRS 10 )

•Financial statements are combined between parent and subsidiaries in a common reporting currency (FAS 52)•Intercompany items are eliminated to avoid double counting•Various methods can be used to combine financial statements into one consolidated one such as:1. “Proportional Method” (IFRS)2. “Pooling of Interests”3. “Purchase Method”4. “Acquisition Method”

•Under acquisition method, investment is eliminated against equity and the portion of equity not attributable to parent is created in the equity section as non-controlling interest (FAS 160).Example journal entries:


Capital Stock XXXXXX

XXX

Retained Earnings

Non-Controlling (Minority) Interest


Goodwill XXX XXX

Investment in investee



Influence, control and ownership

•APB Opinion 18 states “The equity method tends to be most appropriate if an investment enables the investor to influence the operating or financial decisions of the investee…Influence tends to be more effective as the investor’s percent of ownership in the voting stock of the investee increases”.• ARB 51 was originally based on majority ownership of voting shares. After Enron FIN 46R, the basis for consolidation was expanded to any enterprise that controls the economic risks and rewards of an investee, regardless of ownership.

Fair Value Equity Method Consolidated Financial Statement

0% ??? ??? 100%



Which methods do we care about in SAP BPC?US GAAP reporting methods

GAAP recognized three Methods Based on Level of Investment

1.Fair value method (FAS 115) (IFRS 13)

2. Equity method (APB 18) (IAS 28)3. Consolidated Financial Statements (ARB 51) (IFRS 10)1. Acquisition Method (FAS 114R effective 2009)2. Purchase method (FAS 141 through 2008)3. Pooling of interests method (APB 16 through 6/30/02)

Handled inGeneral Ledger

Fair Value

Equity Method Consolidated Financial Statements

Handled inGeneral Ledger

0% 20% 50% 100%



POWN, PCON versus PCTRLPercent ownership, percent consolidation versus percent control

• Can flexibly define consolidation on either percent control (PCTRL) or percent ownership (PCON)• Percent consolidation (PCON) is primarily for proportional consolidations (NEW IFRS 11 Joint

Arrangement elimenates proportional consolidation) • Exercises are based on percent ownership (PCON)

Fair Value

Equity Method Consolidated Financial Statements

0% ??? ??? 100%



Consolidation method codesHow consolidation method codes are coded to method types

Method codes are freely configurable but must be assigned to one of thepredefined method types:

1. ‘H’ for parent investors or holding entities2. ‘G’ for subsidiaries that are to be financially consolidated with parent3. ‘E’ for equity method investees



How to navigate therePath to consolidation method types

Navigate to > Administration > Rules > Business Rules > Methods



Equity method versus consolidated statementsDifference between equity method and consolidated financial statements

Equity method does not combine balance sheet and income statements with parent but rather recognizes share of investee income

Investee Income



Equity method business rules Using the equity adjustment type

To reverse equity method investee financial statements a special Adjustment Type in Business Rules is used



How to navigate thereHow to navigate to business rules

Navigate to > Administration > Rules > Business Rules > Eliminations and Adjustments



How to configure business rulesConfiguring the header of an equity method business rule



Understanding intercompany eliminationsIFRS Starter Kit examples of intercompany eliminations

Eliminations are posted against an elimination clearing account for automatic adjustment rules within their own data source

1

3

22

1 3

123



Understanding intercompany eliminations (1)Three types of inter-entity eliminations



Understanding intercompany eliminations (2)Three types of inter-entity eliminations

Business Rule Approach Differences

Automatic Adjustments

Contribution model approach Eliminates trading partner (intercompanydimension) pairs and also handlesconsolidation of investments

US eliminations

Elimination entity or “firstcommon parent”approach

Eliminates trading partner combinationson a common elimination entity

Intercompany Bookings

Subsidiary reconciliationapproach

For reconciliation reporting, copies tradingpartner details onto each entity forsecured reporting purposes



Understanding IC matchingHow to accelerate financial consolidation with peer-to-peer matching

• Designed to enable subsidiaries to do their own intercompany reconciliation with peers to expedite corporate reconciliation

• Copies the trading partner side of eliminations onto the receiving entity for secured reporting purposes

• Designed as a separate application with specific data sources to facilitate intercompany reconciliation

• Consider a separate application for IC matching; facilitates adding additional transaction currency dimension and having separate work status definitions



Understanding consolidation of investmentsIFRS Starter Kit example of consolidation of investment

Elimination and adjustments also handleconsolidation of investments whereinvestments are eliminated against equity

A different configuration of elimination that takesinto account noncontrolling interest (FAS 160)



Business Scenario Example for ExerciseAcquisition and equity method example scenarios

Organizational structure consisting of acquisition/purchase method (fair value and book value assumed to be same) in Europe (German parent owning 80% of UK subsidiary) and equity method in Asia (Japanese parent owning 30% of Australian associate)

Consolidated financial statements that take into account:

1. Europe and Asia is EUR and USD but currency translation exercise is focused on Europe in EUR (where UK subsidiary is in GBP)

1. Intercompany eliminations of receivables and payables and revenue and expenses within Europe as well

S_World

S_Europe

DE 100% UK 80%

S_AisaPac

JP 100% AU 30%



Currency TranslationCumulative translation adjustment example (1)

Financial statements of UK subsidiary is combined with German parent•Balance sheet is translated and month-end spot• Income statement translated at average rate•Retained earnings translated at both historical and average rates causing the balance sheet to be out-of-balance and necessitating an equity plug (i.e. “CTA” or “Currency Translation Adjustment”)

In the exercise, currency translation adjustment is created by one account, Retained Earnings

• Opening retained earnings balance is at an “As-Is” historical rate (group reporting currency values are loaded into the system so the balance is not translated

• Current period retained earnings is translated at an average rate consistent with the income statement (since current period retained earnings of associate equals the earnings or losses of that investee)

• The implied or effective rate of the “As-Is” historical rate just happens to be the same as month-end spot rate (to simplify the exercise example)

• As a result, out-of-balance result is further isolated to current period retained earnings



Currency TranslationCumulative translation adjustment example (2)

CTA calculation is as follows

• Current period retained earnings of 5 is translated at an average rate of 1.5 (equaling 7.50) instead of a closing rate of 1.25 (which would have been 6.25 to keep balance sheet in balance) creating a CTA difference of 1.25 (7.50 – 6.25) for the equity plug



Consolidation of investmentsExample T-Accounts for a hypothetical consolidation of investments

T-accounts highlighting business rules-based investment eliminations with non-controlling interest split

Illustrative example of the flexibility of rules-based financial consolidation where goodwill is written off to reserves



Equity Method – First ConsolidationCost over book value purchase of equity method company

When cost is in excess of book value purchased, the difference must be accounted for in one of two ways:

1. Assets that are undervalued on the investee’s books must amortize fair value differences over the remaining useful life of the asset (lest the assetlife is indefinite)

1. Goodwill remains without adjustment until the investment is disposed or impaired according to FAS 142 (effective Dec 15, 2001 and later)

The exercise scenario illustrates the second approach under 30% ownership1. Investment in associate of 2502. Associate equity of 8003. Proportionate book value of 240 (800 * 30%)4. Cost over book value goodwill of 10 (250 – 240)

Example journal entries

Debit Credit

GoodwillInvestment in investee X X



Key inputs to consolidationRates and ownership stored in separate models

Exchanged rates and Ownership Manager data are stored and referenced via separate models

Consolidation model

Rates Ownership

Reporting model

Drivers and Rates Model

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