Support for the Consolidated Accounts

May 2, 2006 by admin

In the face of increasing globalization, companies are obliged to present internationally comparable financial statements that follow accepted evaluation techniques. Companies listed on the stock exchange must also draw up their financial statements in accordance with International Accounting Standards/ International Financial Reporting Standards (IAS/IFRS). For local accounts departments, this means mapping the IFRS as a second method of reporting alongside the local GAAP, which brings the external and internal Group reporting systems closer together. Basel II and the Sarbanes-Oxley Act also standardize consolidated accounting.
In addition, managers require prompt access to all tax-relevant information. The need to supply high-quality data in a shorter time leads to many companies implementing fast-close projects. This entails shortening the accounting process without loss of quality. However, this can only be realized with an integrated IT solution that maps all the consolidation requirements.

Two solutions to choose from

SAP offers two consolidation solutions. The first is the SAP R/3 module Enterprise Consolidation (EC-CS) that covers most business management requirements such as capital consolidation using standard methods, such as full, at equity or pro rata consolidation. As part of SAP R/3 Enterprise and mySAP ERP, EC-CS will be maintained by SAP until at least 2014. The second is the technically newer Business Consolidation System (BCS), the consolidation component of SAP Strategic Enterprise Management (SAP SEM). SAP SEM-BCS is based on the SAP Business Information Warehouse (SAP BW) and is comparable with EC-CS in its key functions.
Both SAP SEM-BCS and EC-CS fulfill the fundamental requirements of consolidation software. Both solutions support an integrated and transparent mode of operation. The individual financial statements and adjustments are realized through verifiable account entries. This aspect should not be underestimated in relation to transaction auditability and traceability required as part of corporate governance. Both solutions also support differentiated databases for parallel accounting and planned/actual scenarios. The whole consolidation process can be controlled and monitored centrally, because the individual processing steps can be combined in monitors. Monitors are a type of cockpit in which the consolidation steps are arranged chronologically for a hierarchical representation of consolidated companies and units. The current processing status for each measure is displayed. These can also be executed directly in the monitor.

The difference lies in matrix consolidation

The main difference between the two solutions lies in the additional functions of SAP SEM-BCS. Management reporting and legal consolidation can be mapped in a single process in the form of a matrix consolidation. This takes into account various features such as divisions, products or the legal structure of the Group and establishes relationships between different organizational structures such as companies and profit centers. In SAP SEM-BCS therefore, ambiguous structures can be mapped and legal financial statements and management reports drafted in a single combined consolidation process. EC-CS only maps unambiguous structures, thereby enabling a consolidation based on either companies or profit centers.
However, the matrix consolidation places high demands on the quality of the data from the local accounts departments. This data must include information from both the internal and external reporting systems which has been reconciled with each other. Companies must therefore check whether a matrix consolidation is necessary. For example, companies that specialize in a particular field and therefore have relatively straightforward management reporting can usually forego a matrix consolidation. A group of companies with diverse divisions is a different story however. In this case, the complex management reporting makes a matrix consolidation necessary in almost all cases.

Customized data models

A further difference between the two applications is the SAP SEM-BCS database. This uses the SAP BW which enables considerable flexibility and freedom in the design of the data model. Any number of customized features such as market, segment or product can be defined, while, a maximum of five customized features is possible with EC-CS.
The question is, then, what features do companies actually need to consolidate? The aim should be to map an efficient management reporting system within the solution and not to perform a profitability calculation that requires highly differentiated information features such as sales information. In SAP SEM-BCS, this leads to a data model that deviates fundamentally from the standard (business content) and contains differentiation features that are not relevant to consolidation. This increases the granularity in the technical processes, mapping the requirements is more complex and the outlay for implementation and support increases.
The SAP SEM-BCS component also offers better reporting than EC-CS because it utilizes the functionality from SAP BW. However, EC-CS can also be linked to SAP BW to provide the same reporting possibilities.

Less is sometimes more

It is not possible to provide a general recommendation for one of the two consolidation solutions. The deciding factor is always the specific group reporting requirements. It also depends on the emphasis a company places on harmonizing its external and internal reporting systems.
Companies must therefore make their own evaluations of the alternatives. The first and most important step in this analysis is to define the requirements. Once the necessary organizational structures have been examined, it is easy in most cases to identify whether a matrix consolidation can be realized. As well as the structural and content-related requirements such as consolidated accounting or segment reporting, reporting requires particular attention. By asking what information is required in which reports, companies can establish whether the reporting functions of a SAP BW are necessary.
In the second step, the defined requirements are matched with the possibilities offered by EC-CS and SAP SEM-BCS and evaluated. This makes it easier to make a decision from a cost/benefit point of view. In the case of lower ranked requirements, the additional costs often outweigh the benefits. In this instance, less is often more!
If the main priority is legal consolidation or the management reporting requirements are relatively straightforward, EC-CS is usually a worthwhile alternative. Weaknesses in the reporting system can be eliminated by linking to SAP BW. The introduction outlay is also significantly lower than with SAP SEM-BCS. If the data model has to satisfy complex requirements or a matrix consolidation is necessary, however, SAP SEM-BCS is the better option.

Oliver   Meßmann

Oliver Meßmann

Frank  Arnold

Frank Arnold

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