The consolidated financial statement is often equated with periodic report required to be drawn up by large capital groups. However, there is a pool of reports and summaries required within the capital group for the internal needs of monthly reporting, in order to obtain a comprehensive picture of the business. Due to the high flexibility of the SAP Business Planning and Consolidation tool, it can be used both for internal and external reporting, regardless of the standards applied – the solution supports consolidation processes carried out both on the basis of the local regulations and International Financial Reporting Standards.
Familiar environment
Access to SAP BPC is possible via two interfaces – the Web browser and MS Excel sheet. The portal, available in the browser organizes the consolidation process, guides the user through the various stages and provides the supervisor access to the implementation status of tasks. MS Excel is used as an environment for data entry, verification and reporting. SAP BPC is very tightly integrated with Excel. Its presence in the spreadsheet is noticed through an additional toolbar. The behavior of MS Excel – a natural environment for the finance and controlling department – increases the acceptance of solutions among end users and significantly reduces the period of adaptation to the new tool.
Structured process
The complexity of consolidation requires systematizing activities to obtain the consolidated financial statements. Within SAP BPC, it is possible to define and monitor the business process progress consisting of individual activities, define the person responsible and the person verifying, the completion date and economic units taking into consideration. The screenshot below/above presents an example of a business process.
Ownership status
In connection with the implemented business strategy, the composition of the capital group may change – the parent company may acquire or dispose of shares in other units. SAP BPC assigns ownership structure to the corresponding reporting period. The introduction of changes in the ownership structure is not, therefore, the act of configuration, it belongs to periodic activities performed as part of the verification of the data input period. If there is no change, the ownership structure may be copied from the previous period, avoiding double entry of the same data.
Proper exchange rate
If the Group consolidates the statements of subsidiaries of different functional currencies, it is necessary to adjust them to the currency of the consolidated statements of the group. Similarly as in the case of the ownership structure, exchange rates are attributed to the period. Within the framework of a single currency, it is possible to save several exchange rates, for example, the average exchange rate, closing exchange rate, and the conversion rate used for dividends. The application of the appropriate exchange rate is ensured by a set of individually defined rules that allow handling the issue comprehensively.
Input data
The success of the consolidation process is possible only if it is based on relevant data. From a wide range of possible connections with the source systems, the most popular in terms of SAP architecture is the use of data from SAP BW data warehouse or accessing a flat file. The second method is used in cases where certain subsidiaries lack a SAP transactional system.
SAP BPC enables you to preview and modify the imported unit data using reports in MS Excel. Data import is based on the combination of two structures: the ledger accounts of individual units or line items from the individual financial statements with line items of the consolidated financial statements. This attribution is done using MS Excel file, where the user enters the input ID and corresponding line item ID of the consolidated financial statements.
In order to improve the mapping process, it is possible to apply masks – special characters that replace one or more characters, which make it faster to assign individual ID’s. The above solution is characterized by a high flexibility – authorized users are able to add a new ledger account independently or a new line item to the consolidation system, by assigning it in MS Excel file.
Verification of input data
Prior to commencement of the consolidation process, it is recommended to verify the consistency of the data. During import, data will be adjusted to the line item of the consolidated financial statements, existing in SAP BPC, therefore, it is recommended by SAP BPC to check all transactions for consistency. The basic verified values include reconciled mutual settlement balances from commercial and strictly financial transactions or as a result of the acquisition/disposal of assets within the group.
Additionally, it is possible to check the consistency of the individual items with the various elements of the individual statements. The control function can be realized by means of the controls monitor – here, using pre-defined conditions – the system checks the imported data for errors and inconsistencies. Upon detection of irregularities, the user is informed of the condition that has not been met and what range of data the message applies to.
Consolidation in shares
The verification of the input data is followed by the conversion of the individual data to the currency of the consolidated accounts (including exchange differences arising from the conversion). The consolidation process is meant to generate consolidation adjustments in accordance with the pre-defined algorithm. The scope of the automatically generated adjustments may include capital adjustments, exemption of mutual transactions (including dividends), and updates of the value of the minority capital (non-controlling interests).
Indispensable accountant
A wide range of consolidation adjustments possible to automate using SAP BPC will not completely replace the person responsible for the consolidation. Taking into account all possible cases of adjustments would lead to excessive complexity, therefore the system contains repetitive adjustments, based on a large number of input records that require the greatest amount of effort.
Introduction of non-standard adjustments that are incidental or those for which computation require data not available in SAP BPC may be supported by dedicated reports. They are then introduced in the form of manual posting, made by the person responsible for the consolidation process. Maintaining a simple and transparent system of consolidation makes it easier to understand the actions and to search for the causes of potential errors.
History in one place
By definition, consolidation is retrospective – is serves to depict the situation of the capital group arising from past economic events. Thanks to SAP BPC, consolidated financial statements are available for viewing (at the same time being protected from undesired changes) along with the source data, based on which they were prepared.
This fact is so substantial, as shown by economic practice that when you change the auditing company, experts frequently scrutinize the legitimacy of the established adjustments for all previous consolidation periods. A well-documented consolidation system, together with the history of statements minimizes risk associated with potential changes in personnel in the departments responsible for consolidation.
Consolidation package
Most of the solutions used for consolidation are based on the mythical consolidation package. This is the most comprehensive MS Excel file in which the subsidiaries fill out the individual spreadsheets in compliance with the attached instructions. Potential problems arise during update of the input data, performance of individual consolidation stages by the different departments, undesirable changes in calculation formulas, side notes and calculations.
SAP BPC enables you to control the process of consolidation in the event of data revision, allowing the person supervising to repeat the entire or individual steps of the cycle. Configuration dependencies between tasks gives you the ability to conditionally unlock subsequent stages of consolidation. All Excel sheets in SAP BPC are adequately secured– depending on the user’s authorization, he/she sees, or can modify only selected data. To facilitate the system, it provides many formatting options, allowing, among others, to highlight the cells intended for data entry in the entire form.
Even while maintaining a high complexity in the system there is only one current version of consolidation – as opposed to the traditional solutions there is no need to investigate, which files circulating on a shared network drive or in emails are the latest.
Rapid alert system
The consolidation of the financial statements is a complex process, mainly due to its large subjective and objective scope. The very idea of entering consolidation adjustments is simple – it boils down to presenting the result and assets across the group, as if all the companies included in it were in fact one economic unit.
Along with the implementation of the subsequent stages of the consolidation process, the detection of the causes of errors becomes increasingly difficult. To reduce the occurrence of such situations, SAP BPC gives you the ability to track administrative actions (such as modification or approval in the course of business processes) and data changes.
Time benefits
By automating most of the adjustments, the implementation of SAP Business Planning and Consolidation allows to shorten the time required for the implementation of the consolidation. Organizing the process and dividing it into various stages increases the transparency of interdependence, implementation dates, and areas of responsibility.
An important part of the solution is its strong integration with Excel, which allows the financial departments to work in a familiar environment, and the ability to retrieve input data from multiple sources. We also achieve at the same time a guarantee of the flexibility of solutions within the entire capital group. The entire process is enclosed in a peculiar security umbrella, responsible for the control of access to information, which guarantees the tracking of changes, and enforces the behavior of defined approval paths.