Dear,
I’ve worked as SAP consultant for 18 years, in many areas like Finance, Controlling, Transactional and Analytical Banking, Data-warehousing, etc.; and one of the first lessons I learned is that SAP is about integrated processes that must be modelled from an End to End perspective.
There’re many ways of modelling a process, but there’s always an optimal modelization, and finding it requires looking at all its implications from an End to End perspective.
Some time ago, I was requested by a customer to make a proposal for covering IFRS-8 reporting regulatory requirements.
http://www.ifrs.org/IFRSs/Documents/IFRS8en.pdf
Simplifying, IFRS-8 main requirement for a corporate is disclosing financial information about their operating segments, products and services, the geographical areas in which they operate, and their major customers. Typically, an operating (or business) segment must involve around 10% of the company income, assets, etc.
We have two functional elements in SAP (including Bank Analyzer) that potentially support the IFRS-8 financial regulatory reporting requirements.
The first option is the profit centre; SAP Bank Analyzer and SAP Enterprise Core Components, support the complete disclosure of the accounting position of a Profit Centre (Balance Sheet and Profit/Losses). This makes Profit Centre Accounting a suitable candidate for building IFRS-8 reporting requirements.
On the other hand, SAP also offers another functional element for covering IFRS-8 regulatory requirements; the Business Segment. Business Segments Accounting is also available in Bank Analyzer and in SAP-ECC, and it also provides with the capacity of disclosing the Financial Statements of the Business Segments.
If both Profit Centre and Business Segments Accounting provide the functionalities of IFRS-8, can we use indistinctly one or the other?
Not really, a more detailed analysis can help on detecting the advantages of one approach in front of the other.
Profit Centre Accounting is an Internal Management Accounting functionality, which gives the answer of how well or bad, the company’s areas of responsibility are performing. The final objective is taking corrective measures for improving the performance, and incentivating with bonuses the managers with better performance.
On the other hand, Business Segments Accounting is oriented to provide external financial disclosure (typically IFRS-8), but as IFRS-8 requirements literally refer to “internal management reports”, the overlapping with Profit Centre Accounting can become confusing.
Some hints for helping on the decision of implementing Profit Centre Accounting, Business Segments Accounting or both.
Bank Analyzer standard delivery of Internal costs calculation is done on Profit Centre level; Funding Costs, Standard Process costs, Standard Capital costs, etc. are initially calculated in Profit Centre level.
Profit Centre Accounting provides a full valuation approach of the company performance, including Transfer Prices for representing the internal valuation of intra-group transactions. The Transfer Prices of these intra-group transactions can differ of the market invoicing prices. It can be sensitive to report this information in the audited IFRS-8 financial statements.
Additionally, as Business Segments are required for reporting those operations involving more than 10% of the company income, the number of business segments is typically around (or less) than 10.
And as Profit Centres represent areas of responsibility whose performance must be estimated, their typical number can be hundreds, or even thousands in big Financial Institutions.
We can discuss about the effort of building the double reporting framework of Profit Centre Accounting and Business Segments accounting, but SAP gives some tools to reduce the necessary customizing activities. We’ll talk about them in a future post.
K. Regards,
Ferran.
I’ve worked as SAP consultant for 18 years, in many areas like Finance, Controlling, Transactional and Analytical Banking, Data-warehousing, etc.; and one of the first lessons I learned is that SAP is about integrated processes that must be modelled from an End to End perspective.
There’re many ways of modelling a process, but there’s always an optimal modelization, and finding it requires looking at all its implications from an End to End perspective.
Some time ago, I was requested by a customer to make a proposal for covering IFRS-8 reporting regulatory requirements.
http://www.ifrs.org/IFRSs/Documents/IFRS8en.pdf
Simplifying, IFRS-8 main requirement for a corporate is disclosing financial information about their operating segments, products and services, the geographical areas in which they operate, and their major customers. Typically, an operating (or business) segment must involve around 10% of the company income, assets, etc.
We have two functional elements in SAP (including Bank Analyzer) that potentially support the IFRS-8 financial regulatory reporting requirements.
The first option is the profit centre; SAP Bank Analyzer and SAP Enterprise Core Components, support the complete disclosure of the accounting position of a Profit Centre (Balance Sheet and Profit/Losses). This makes Profit Centre Accounting a suitable candidate for building IFRS-8 reporting requirements.
On the other hand, SAP also offers another functional element for covering IFRS-8 regulatory requirements; the Business Segment. Business Segments Accounting is also available in Bank Analyzer and in SAP-ECC, and it also provides with the capacity of disclosing the Financial Statements of the Business Segments.
If both Profit Centre and Business Segments Accounting provide the functionalities of IFRS-8, can we use indistinctly one or the other?
Not really, a more detailed analysis can help on detecting the advantages of one approach in front of the other.
Profit Centre Accounting is an Internal Management Accounting functionality, which gives the answer of how well or bad, the company’s areas of responsibility are performing. The final objective is taking corrective measures for improving the performance, and incentivating with bonuses the managers with better performance.
On the other hand, Business Segments Accounting is oriented to provide external financial disclosure (typically IFRS-8), but as IFRS-8 requirements literally refer to “internal management reports”, the overlapping with Profit Centre Accounting can become confusing.
Some hints for helping on the decision of implementing Profit Centre Accounting, Business Segments Accounting or both.
Bank Analyzer standard delivery of Internal costs calculation is done on Profit Centre level; Funding Costs, Standard Process costs, Standard Capital costs, etc. are initially calculated in Profit Centre level.
Profit Centre Accounting provides a full valuation approach of the company performance, including Transfer Prices for representing the internal valuation of intra-group transactions. The Transfer Prices of these intra-group transactions can differ of the market invoicing prices. It can be sensitive to report this information in the audited IFRS-8 financial statements.
Additionally, as Business Segments are required for reporting those operations involving more than 10% of the company income, the number of business segments is typically around (or less) than 10.
And as Profit Centres represent areas of responsibility whose performance must be estimated, their typical number can be hundreds, or even thousands in big Financial Institutions.
We can discuss about the effort of building the double reporting framework of Profit Centre Accounting and Business Segments accounting, but SAP gives some tools to reduce the necessary customizing activities. We’ll talk about them in a future post.
K. Regards,
Ferran.
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