SAP

Various regulators across the globe have either mandated, or are in the process of, the transition to IFRS. While some of these regulators are looking at a change from their current rule-based philosophy (such as US GAAP) to the principles-based IFRS, the others are looking at extending their present philosophy to incorporate a more fair value and componentized approach. The effect of this transition will be felt differently across industries, while some such as logistics, media & entertainment etc. might not be drastically impacted, others such as consumer goods, automotive, banking, insurance etc. are expecting major implications. These implications, irrespective of intensity, are expected to impact a company at both the corporate and subsidiary levels, in its methods of valuating various business transactions, current IT transactional system landscape and also the governance and change management of human capital.  

It’s been widely noted that technology can play a key enabler in transition to IFRS. This was further corroborated in a recent whitepaper from PWC & SAP. It suggested, from experience in Australia, Asia and Europe, that companies that had underestimated the involvement of IT in their adoption of IFRS created for themselves a weakened control environment driven by increased risk and cost outlay. A phased landscape upgrade, encompassing a company’s general ledger, sub-ledger and financial consolidation & reporting systems, can provide not only an agile solution for transition but also an opportunity to reassess the current IT strategy supporting the financial processes and policies. 

Transition to IFRS is not only an accounting exercise but also entails additional responsibilities such as dual reporting, audit trail etc. The dual reporting period (for e.g. 2012 – 2014 for US GAAP and IFRS) is to enable historical comparisons between the local GAAP and IFRS prior to the transition, thus allowing companies to reconcile and explain the differences. In order to achieve this, companies can pilot their transition beginning with multi-GAAP reporting using a financial consolidation system while improvising their transactional systems for the final cutover to IFRS.  

Standard ERP applications available from SAP, such as SAP General Ledger, Asset Accounting etc., are capable of provisioning the final cutover for the local close (the final state/ long term solution); while applications from the SAP BusinessObjects stable, such as SAP BPC and SAP BO FC, provide dual reporting capabilities in conjunction with group close/ consolidated reporting functionalities, thus serving as a short term solution for transition to IFRS. The functionalities of the latter-mentioned tools can be extended to incorporate XBRL reporting (available using SAP BO XBRL publishing by UB Matrix) and also to provide preconfigured IFRS compliant content (available using SAP BO IFRS starter kit). 

In order to ascertain the complexities involved we started with a small experiment based on IAS 16 (Property, Plant and equipment) using SAP BPC 7.0 MS. During the course of the development, we extensively utilized functionalities for manual adjustments and business rules alongwith some scripting. The ability to use different hierarchical views or dimensionality allowed us to formulate reports and schedules for different standards (US GAAP and IFRS in our case). At the end of the experiment, we concluded that though this method is easier to implement, than the other approach involving the ledger, it is also poses systemic issues around performance and also falls short in flexibility.  

Well, this ends my discussion for the day. In the next and final post of this blog series, I’ll discuss about XBRL and some other capabilities of the SAP BO financial consolidation offerings.  

Stay Tuned. 

Also, wishing you and your family a very happy new year.