As I’ve mentioned in many previous articles, I’ve always believed that implementing SAP Finance Enterprise solutions is more than just working on SPRO configurations and writing tech/functional specs, it is equally important to lay down a finance roadmap by tapping into core accounting principles that serve as the guiding star in converting the Finance department from a cost center to a “value-centre”. 🌠
Having had the opportunity of working with multiple clients in designing and delivering SAP Finance Enterprise solutions, for me, focusing on these 5 Accounting principles has helped in delivering SAP Finance Implementations that have made a difference.
🚚 Inventory Accounting
SAP's Material Ledger functionality can be used to capture multi-currency, multiple valuation approaches, and actual costing. Setting up material costing with real-time updates to calculate standard costs, could help you ensure your inventory valuations can be used to forecast product profit margins, etc. The ability to push the assignment of overhead costs based on actual activities helps to identify the true cost of your inventory down to the granular level. There have been instances where we’ve hit the maximum number of cost components (20max) aiming to provide granular level details for cost management accountants.
🧮 Accounting Methods & Standard:
A good knowledge of IFRS, AASB, and IAS will help to enforce a consistent accounting method and practices across all business units and subsidiaries. This comes in very handy when preparing group and consolidated reporting using SAP BPC or other recon/reporting tools such as Hyperion, Blackline, etc. Not to forget that consistency enables meaningful financial analysis and benchmarking, which helps to compare like-with-like aiding insightful decision-making across the business. In the retail domain, the ability to compare like-by-like stores/centers helps to improve efficiency and plan expansions accordingly.
💶 Multi-currency:
If setting up SAP to handle multi-currency transactions, make sure to setup the functionalities like SAP MCA and parallel ledger with different currencies, which will help to track and report currency conversion and revaluation as per relevant accounting standards (e.g., IAS 21) and help enterprise to be ahead on potential unrealized gains/losses and plan accordingly.
📇Accrual Accounting:
In an SAP Finance implementation, accrual accounting ensures that revenue and expenses are recognized when earned or incurred, even if cash hasn't been exchanged. This principle is crucial for working capital management, allowing accurate tracking of outstanding invoices, payables, and receivables. Setting up internal systems to capture, calculate, and deliver these accruals in a timely value will make a world of difference.
and a favorite of mine has always been “Working Capital Management” 📈 as this truly helps an organization's financial health.
Developing SAP’s standard functionalities to streamline AR processes, and optimize AP processes with SAP Invoice Management and auto payment based on liquidity needs and cash management strategies of the enterprises could help directly impact the WCM health of an entity. Using SAP’s cash application to focus on identifying key drivers on WCM strategies and develop reporting of WC ratios such as Acid test, Current Asset, etc, will help achieve hidden value in the process.
However, it's crucial to acknowledge that while these prospects are enticing, their viability varies across clients due to their distinct SAP landscapes, versions, and integration setups. This reality underscores the importance of addressing potential prerequisites in other areas before fully unlocking the potential of SAP Finance. The guiding principle remains clear: progress incrementally toward a more promising future.
Though these are items that are exciting to explore and implement as a Finance architect, their viability varies across clients due to their distinct SAP landscapes, versions, and integration setups. The reality is that there might be potential prerequisites in other areas to be addressed first, before embarking on exploring all that SAP Finance has to offer. The guiding principle remains clear: progress incrementally toward converting finance as a “value-center”. 💎
