Author: E.P.M. Starter Kits and Innovations February 2010...February 2010 11 3.2 Parallel Data 3.2.1 Consolidation Scope The consolidation scope groups together all entities that must

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Author: E.P.M. Starter Kits and Innovations

February 2010

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Contents

1 Introduction ................................................................................... 5

2 Approaches in IFRS Adoption ...................................................... 6

2.1 The Transition Approach ....................................................................... 6

2.2 The Convergence Approach ................................................................. 8

3 Operating Issues to deal with in Financial Reporting Systems ............................................................................................ 9

3.1 Different Data Structures ....................................................................... 9

3.1.1 Financial and Non-Financial Indicators ........................................................................ 9

3.1.2 Consolidated Financial Statements ............................................................................ 10

3.2 Parallel Data .......................................................................................... 11

3.2.1 Consolidation Scope ................................................................................................... 11

3.2.2 Adjustments ................................................................................................................ 11

3.2.3 Support of Local GAAP and IFRS Consolidation Data ............................................... 11

3.2.4 Reconcilable Results .................................................................................................. 12

3.3 Switch from Dual Reporting to IFRS ................................................... 13

4 How to face the challenge .......................................................... 14

4.1 The Starter Kit for IFRS as a basis ...................................................... 14

4.1.1 Chart of Accounts ....................................................................................................... 14

4.1.2 Flows ........................................................................................................................... 14

4.1.3 Audit IDs ..................................................................................................................... 15

4.1.4 Automated Consolidation Rules ................................................................................. 15

4.1.5 Data Collection “Package Manager View” .................................................................. 16

4.1.6 Reports “Report Navigator View” ................................................................................ 16

4.2 Unified Reporting Model vs. Separate Reporting Models ................. 17

4.2.1 Unified Reporting ........................................................................................................ 17

4.2.2 Separate Reporting ..................................................................................................... 18

4.2.3 Preferred Solution ....................................................................................................... 19

4.3 Implementation Template .................................................................... 20

4.3.1 Managing a Unified Chart of Accounts for the Group ................................................. 20

4.3.2 Adjusting Local Accounts ............................................................................................ 21

4.3.3 Executing and Storing Multiple Consolidations .......................................................... 23

4.3.4 Publishing Reports According to Different Formats.................................................... 25

IFRS Adoption in Consolidated Statements

4 February 2010

5 Illustration of a Unified Reporting Model .................................. 26

5.1 Data Entry Package in the Package Manager View ........................... 27

5.2 Consolidation Scope in the Scope Builder view ............................... 30

5.3 Manual Entries in Manual Journal Entries View ................................ 31

5.4 Consolidation Processing in the Consolidation View ....................... 33

5.5 Retrievals in the Report Navigator View ............................................ 36

6 Conclusion .................................................................................. 39

Appendix ........................................................................................ 40

1 Introduction

February 2010 5

1 Introduction

Adopting IFRS is one of the most fundamental challenges that companies in many countries will have to deal with over the next few years. According to other publications on this topic, this project creates issues related to local and group accounting policies, financial reporting process, IT systems, internal control and stakeholder’s relations.

This document offers solutions to the issues raised by the adoption of IFRS upon the financial reporting system at the corporate level.

First, we will identify the main ways and consequences that should be handled by countries when adopting IFRS.

Next, we will outline operating issues that can occur in financial reporting systems as a result of the adoption process.

We will then show how SAP® BusinessObjects™ Financial Consolidation and the Starter kit for IFRS can make this transition easier using either a single unified reporting or separate reporting.

Finally, we will illustrate how SAP® BusinessObjects™ Financial Consolidation and the starter kit for IFRS address the IFRS adoption requirements using a single reporting process.

2 Approaches in IFRS Adoption

6 February 2010


IFRS adoption is a fundamental challenge that many countries will face during the next years. Countries that have already announced plans to adopt IFRS are:

- Brazil (from 2010) - Canada, India, Thailand and Korea (from 2011) - Malaysia and Mexico (from 2012) - USA (possibly 2014) - Japan and Taiwan (expected after 2014)

There are two ways of adopting IFRS:

■ The transition approach On a specific day, the local Generally Accepted Accounting Principles (GAAP) is replaced by IFRS. The transition approach results in a “brutal” switch in a period of one year, during which companies have to produce financial reports in both local GAAP and IFRS formats. European countries used this approach in 2005 and Canada will use it in 2011.

■ The convergence approach Domestic GAAP evolves progressively in a prescribed period of time in order to reach full compliance with IFRS. In this second approach, there is no “brutal” switch like for transition; it is a longer process that can ensure a smoother change. Australia, China, Japan and India have chosen this approach.

2.1 The Transition Approach

Countries adopting IFRS using the transition approach must apply IFRS1 “First-time Adoption of International Financial Reporting Standards”. IFRS1 establishes that an entity shall use the retrospective application of IFRS (with some mandatory exceptions and optional exemptions).

The Retrospective method corrects and revises the past data.

For example, an entity that adopts IFRS for the first time in its annual financial statements for the year ending 31 December 2011 prepares the 2011 and 2010 financial statements based on IFRS in force on 31 December 2011, and restates retrospectively the opening balance sheet on 1 January 2010 by applying the IFRS in force on 31 December 2011.


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The following flow chart illustrates the dual reporting necessity (2010) implied by the retrospective approach under IFRS1:


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2.2 The Convergence Approach

The convergence approach is not a dedicated IFRS standard; the operating mode is defined by local regulations. In such a case, there are two primary options:

■ Apply IFRS1 or a local standard equivalent to IFRS1.

For instance, when the Australian GAAP converged to IFRS in 2005, entities had to apply AASB 1 “First-time Adoption of Australian Equivalents to International Financial Reporting Standards”. This standard requires the application of the Retrospective method with exceptions and exemptions such as for IFRS 1.

The convergence approach is spread over a long period of time, and applying the retrospective method on several years may lead the entity to run an iterative process as illustrated below:

■ Apply a local standard using the Prospective method

The Prospective method does not correct or revise the past; it applies the new principles to the current and future periods. The method does not trigger major issues that need highlighting in this document.

When it is a matter of applying these different methods in the financial reporting systems, the retrospective method raises much more issues than the prospective one, because it requires the re-processing of past data.

In next chapters, we will focus on the implementation of the retrospective method according to IFRS1.

3 Operating Issues to deal with in Financial Reporting Systems

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3 Operating Issues to deal with in

Financial Reporting Systems

The issues in the financial reporting system resulting from the application of the retrospective method, which requires the reprocessing of past data, are presented in this chapter grouped into the following categories:

■ Different data structures

■ Parallel data

■ The switch from dual reporting to IFRS

3.1 Different Data Structures

3.1.1 Financial and Non-Financial Indicators

The indicator is a key entry point in a financial reporting system. Indicators are grouped together into a chart of accounts and reflect all of the financial and non-financial information to be published for legal or management purposes.

When comparing local GAAP and IFRS, the following questions are critical:

- How similar are the reporting frameworks? - To what extent do the standards differ?

Local GAAP and IFRS requirements can cause much critical mapping work. The following situations can result:

- indicators common to all reporting standards with same accounting values - indicators common to all reporting standards with different accounting values - indicators specific to each reporting standard

This can be illustrated in the chart below:

After having performed the analysis, we have to choose between the following solutions:

- Charts of accounts are quite similar, which results in a unified chart of accounts. - Charts of accounts are extremely different, which requires separate charts of

accounts.


10 February 2010

3.1.2 Consolidated Financial Statements

The financial reporting system must enable the entity to publish:

- Local GAAP financial statements

- IFRS financial statements

When applying IFRS1, it is mandatory to publish financial statements according to IAS 1 “Presentation of financial statements”. The main requirements are as follows:

- a statement of financial position (balance sheet) at the end of the period with a current and non-current presentation for assets and liabilities

- a statement of comprehensive income for the period (or an income statement and a statement of other comprehensive income)

- a statement of changes in equity for the period

- a statement of cash flows for the period

- and notes

Local GAAP financial statements may differ from IFRS requirements, both on data indicators and on publication format.


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3.2 Parallel Data

3.2.1 Consolidation Scope

The consolidation scope groups together all entities that must be included in the consolidated financial statements. This consolidation scope can change depending on the consistency of the previous-GAAP requirements to those in IAS 27 “Consolidated and Separate Financial Statements”. The concept of control as defined by IAS 27 can differ with old standards, criteria for inclusion of JV and associates, and consolidation methods to apply as well. These differences can lead to discrepancies between the consolidation scope according to the IFRS and local GAAP.

The financial reporting system must enable the entity to manage at least two versions of the consolidation scope for the transition period in order to produce sets of consolidated financial statements for the local GAAP and the IFRS.

3.2.2 Adjustments

When applying IFRS 1, lots of adjustments are required to move from local GAAP to IFRS with four mandatory exceptions and sixteen optional exemptions. These adjustments should be recognized directly in retained earnings or, if appropriate, in another category of equity at the date of transition to IFRS.

The types of adjustments required by IFRS 1 are:

- Recognize all assets and liabilities required by IFRS, such as pension liabilities, deferred tax assets and liabilities, derivative financial instruments, etc.

- Derecognize assets and liabilities not permitted by IFRS, such as general reserves as liabilities, treasury shares as assets, and intangible assets not meeting criteria.

- Reclassify previous GAAP opening balance sheet items into the appropriate IFRS classification, such as financial assets, financial liability or equity, etc.

- Apply IFRS when measuring all recognized assets and liabilities, such as financial instruments, fair value or amortized cost, pension liabilities, provisions, etc.

3.2.3 Support of Local GAAP and IFRS Consolidation Data

The entity will have to maintain consolidated data during the transition period of one or more years according to the different standards.

To produce two sets of consolidated data on a same period, two main approaches can be envisaged:

■ A parallel approach: a model based on a separate management of the amounts for each reporting

■ A combined approach: a model based on an interdependent management of the amounts for each reporting.


12 February 2010

(The amount is entered for “Standard 1” and then “Standard 2 adjustment” is posted. The sum of the two amounts produces the “Standard 2 value”)

Using two reporting frameworks at the same time creates timing issues:

- What is the timetable for producing the accounts for each standard?

- Will we have to collect data for each standard simultaneously or successively?

3.2.4 Reconcilable Results

In order to comply with IFRS 1, the financial reporting system must enable comparison between each reporting standard during the dual reporting period and propose audit trails to improve the understanding of the changes.

An entity shall explain how the transition from GAAP to IFRS affected its reported financial position, financial performance and cash flows (IFRS 1 §23).

- Reconciliations of equity reported under previous GAAP to equity under IFRS both at the date of the opening IFRS balance sheet and the end of the last annual period reported under the previous GAAP (IFRS 1 §24a). (I.e. for an entity adopting IFRSs for the first time in its 31 December 2011 financial statements, the reconciliations would be as of 1 January 2010 and 31 December 2010).

- Reconciliation to its total comprehensive income in accordance with IFRSs for the latest period in the entity’s most recent annual financial statement (IFRS 1 §24b).

- The reconciliations required by §24a and §24 b shall give sufficient detail to enable users to understand the material adjustments to the statement of financial position and statement of comprehensive income. If an entity presented a statement of cash flows under its previous GAAP, it shall also explain the material adjustments to the statement of cash flows.


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3.3 Switch from Dual Reporting to IFRS

Managing an IFRS transition in the financial reporting system implies being able to move from the local GAAP to IFRS at one date.

As we have seen in the §2 examples, at the end of the year 2010 the entity will have to manage and publish a local GAAP set of consolidated data. At the end of the year 2011, the entity will have to manage and publish an IFRS set of consolidated data with 2010 IFRS comparative data.

The financial reporting system must be able to manage this change safely. IFRS adoption will involve the whole organization at both corporate and subsidiary levels (financial accounting, management accounting, tax, IT, and auditors) and can require software and hardware upgrades. This is a huge project for the entity.

Implementing a new financial reporting system enabling clients a smooth transition to IFRS at the lowest cost is key. Subsequent chapters will explain how SAP solutions meet client’s expectations.

4 How to face the challenge

14 February 2010


There are two main solutions to face the challenge of IFRS adoption in SAP® BusinessObjects™ Financial Consolidation, manage:

■ Unified reporting

■ Separate reporting

Whatever solution is chosen, the basis will be the starter kit for IFRS on top of SAP® BusinessObjects™ Financial Consolidation.

4.1 The Starter Kit for IFRS as a basis

SAP offers IFRS 2009 compliant starter kits for EPM solutions configured using product and functional best practices to ensure optimal performance, better usability, and facilitated customer enhancement.

Starter kits are complete configurations, from data collection to publishing of financial statements, prebuilt with input documents, rules, control reports and financial statements for performing, validating and publishing a statutory consolidation in accordance with IFRS.

They facilitate, secure and accelerate the implementation by allowing focusing on deltas and customer specific differences.

4.1.1 Chart of Accounts1

The chart of accounts delivered in the IFRS starter kit offers:

Balance sheet accounts split between current, non-current and gross values, amortization and depreciation, and impairment. Income statement accounts classified by function and dispatched by the following blocks of accounts:

- Gross profit

- Other operating profit

- Financial result

- Tax (current and deferred)

- Profit from discontinued operations

Furthermore, the chart of accounts is built in a way that makes it possible to map accounts with IFRS taxonomy items (XBRL).

4.1.2 Flows2

The use of the flow dimension permits a full and consistent explanation of the changes between the opening and closing balances on balance sheet accounts.

1The list of accounts provided in the IFRS starter kit is available in the appendix of the IFRS starter kit configuration description.

2The list of flows provided in the IFRS starter kit is available in the appendix of the IFRS starter kit configuration description.


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Example illustrating the role of flows in the configuration:

An entity reports PPE for 2 000 CU at the beginning of the year and 2 300 CU at the end of the period. The flows already created in the starter kit show the changes that occurred during the year.

Flow also helps to automatically produce the statement of cash flows and the statement of changes in equity.

4.1.3 Audit IDs3

In order to ensure the audit trail, each amount stored in the database is traced by an audit ID.

For example, at the consolidation level, the entity shows a contribution of 10 000 CU at the end of the

period. In the starter kit, the audit IDs enable the Consolidation department to audit and understand the

breakdown of the amount.

(The consolidated amount, 10 000 CU, comes from 12 000 CU in the local books, increased by 200 CU from a

central adjustment, and reduced by an intercompany elimination of 2 200 CU.)

In summary, the audit ID explains the transition from local to consolidated data.

4.1.4 Automated Consolidation Rules4

The IFRS starter kit provides a set of consolidation rules that automate the posting of entries and accelerate the consolidation process.

The rules facilitate:

- Intercompany elimination (internal provision, internal gains and losses on disposal of assets, reciprocal accounts, and internal dividends)

- Goodwill recognition and impairment

- Elimination of investments in subsidiaries

- Currency translation adjustment

- Calculation of non-controlling interests

- Shares of net equity in associates

3The list of audit Ids provided in the IFRS starter kit is available in the appendix of the IFRS starter kit configuration description.

4The list of autoomated rules provided in the IFRS starter kit is available in the appendix of the IFRS starter kit configuration

description.


16 February 2010

The scope changes managed in the product rely on the consolidation engine, the consolidation scope, and the automated rules. Cases handled are:

- Incoming entities

- Changes in consolidation method/rate

- Internal mergers (at the beginning of the year/during the year)

- Outgoing entities (at the beginning of the year/ during the year)

4.1.5 Data Collection “Package Manager View” 5

Local data can be collected in data entry schedules according to IFRS or the local GAAP in Audit ID PACK01. Subsequently, data can be adjusted by manual journal entries posted in the data entry package.

Package data entry folders are:

- Balance (Income statement, assets, equity & liabilities)

- Securities and shareholdings

- Flow analysis

- Intercompany breakdown

4.1.6 Reports “Report Navigator View”

The starter kit for IFRS contains prebuilt reports that comply with IFRS (IAS1 revised and IAS7):

- Statement of financial position

- Income statement

- Statement of other comprehensive income

- Statement of comprehensive income

- Statement of cash flows

- Statement of changes in equity

The following templates regarding segment information (IFRS 8):

- Revenue by segments & by geographical area

- Non-current assets by geographical area

Several working reports are also available:

- Accounting reports displaying closing balances, general ledgers and ledgers

- Analysis reports

- Control reports

The IFRS starter kit contents can be customized to meet specific requirements.

In the SAP® BusinessObjects™ Financial Consolidation starter kit for IFRS, the company can decide either to set up a unified reporting model or two separate reporting models, depending on the requirements. The principles and consequences are explained in the next section.

5The list of data entry schedules provided in the IFRS starter kit is available in the appendix of the IFRS starter kit configuration

description.


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4.2 Unified Reporting Model vs. Separate Reporting

Models

4.2.1 Unified Reporting

A single reporting model enables the entity to produce financial statements compliant with several standards in one application. In SAP® BusinessObjects™ Financial Consolidation, this option is carried out in a single category.

Data is managed interdependently:

- Local GAAP amounts are entered/loaded.

- IFRS adjustments are entered/loaded.

- Local GAAP and IFRS adjustments are retrieved to get an IFRS valuation.

Local GAAP + IFRS adjustments = IFRS

The chart below illustrates the process that can be handled from the source system to SAP® BusinessObjects™ Financial Consolidation.


18 February 2010

4.2.2 Separate Reporting

A separated reporting model uses two categories. One is dedicated to local GAAP and the other one to IFRS.

This model is based on a parallel approach, explained in §323, where data is not stored together in the database:

- Local GAAP amounts are entered/loaded in the local GAAP category.

- IFRS amounts are entered/loaded in the IFRS category.

- Local GAAP consolidated data is reconciled with IFRS consolidated data.

IFRS – Local GAAP = IFRS adjustments

In such cases, configurations can be drastically different from one category to the other (eg. Chart of accounts) and can lead to difficulties in reconciling local GAAP data and IFRS data.

If the entity decides to implement two separate categories, we recommend loading data in the IFRS category as follows:

- Copy local GAAP amounts in the local GAAP category into the IFRS category.

- Load/enter IFRS adjustments into the IFRS category.

The chart below illustrates the Separate Reporting process:

Warning: This approach implies that configurations of the two categories are perfectly aligned with a common chart of accounts.


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4.2.3 Preferred Solution

When it comes to make a decision and even if both models are convenient, we recommend implementing the unified reporting solution for the following reasons:

It is the most used solution with our SAP BusinessObjects European Union clients.

The implementation time is shorter and easier.

The operating process is faster and less risky.

The reconciliation stage is easier to implement.


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4.3 Implementation Template

In order to optimize SAP® BusinessObjects™ Financial Consolidation features and starter kit contents and implement an efficient and simple project, we recommend the following configurations and operating processes for whatever model is chosen (unified or separate reporting categories).

4.3.1 Managing a Unified Chart of Accounts for the Group

Starter kit for IFRS best practices:

IFRS starter kit chart of accounts is the basis of analysis.

Respect the dynamic configuration by assigning properties and characteristics to accounts. They ensure the correct update of the configuration in input schedules, outputs, and automated rules.

Respect the hierarchical organization of the IFRS chart of accounts used to build dynamically the financial statements.

In order to get a unified chart of accounts that meets the needs of both standards, map between the existing IFRS chart of accounts and the local GAAPmust be carried out.

Keep in mind that the target IFRS chart will become the reference chart of accounts.

- In a simple configuration enhancement, new accounts are inserted in the IFRS hierarchical chart of accounts.

- If the configuration enhancement is to be more complex, add a new property or characteristic to the accounts in order to manage the local GAAP account hierarchy:

Create a local account in the dimension builder view.

Creating an account in the dimension builder view:

Current characteristic values of an account in the starter kit for IFRS

The TOTAL characteristic should be duplicated (LOCAL GAAP TOTAL) in order to retrieve local GAAP sub-totals


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Insert the account in the IFRS chart of accounts hierarchy

Account hierarchy:

The new accounts created for local GAAP purpose must be inserted in the starter kit account hierarchy

4.3.2 Adjusting Local Accounts


Create a comprehensive audit trail for all IFRS adjustments.

Respect the dynamic configuration by assigning properties and characteristics to audit IDs.

Enable the group to post adjustments by manual journal entries or directly in the package schedules

Perform recurring, automatic journal entries at the group level

Local accounts are established on the basis of national accounting standards. The entity therefore has to make adjustments in order to ensure compliance with IFRS for the comparative data. In most cases, these IFRS adjustments are already accounted for in the ERP or in the local accounting system.

SAP® BusinessObjects™ Financial Consolidation enables you to enter data at the:

- Local level (Local GAAP data and IFRS adjustments are loaded/entered in the Package Manager).

- Corporate level (If needed, IFRS Topside adjustments can be posted in Manual Journal Entries).

In any case, these adjustments must be easily tracked in order to allow a full reconciliation between local GAAP and IFRS.

■ Ensuring a Comprehensive Audit Trail for all Adjustments

As stated above, the starter kit provides a detailed list of audit IDs to identify operations such as fair value, CTA, and investment elimination that occur during the consolidation process. New audit IDs can be created to track IFRS adjustments.

Regarding the number of audit IDs to be created, it depends on client’s expectations:

- If a precise tracking is needed to, for example, dispatch fair values, deferred taxes, or employee benefits, several IFRS adjustments audit IDs have to be created.

- If an overall tracking is needed, a few audit IDs can be created as explained below.

■ Loading or Entering IFRS Adjustments at the Local Level

- Principle: The standard audit ID proposed at the local level in Package Manager is “PACK01”. One or more audit IDs must be created, depending on the level of detail needed, to enable the loading (ERP or accounting system) or the posting of IFRS


22 February 2010

adjustments at the local level. Properties defined when creating the audit ID must be carefully assigned to ensure a consistent configuration of the system. As an example, audit ID “IFRSLOC1” has been created to load/post IFRS adjustments at the local level.

- Managing the after changeover period: The IFRS adjustment audit IDs previously created will have a short lifetime, depending on the transition period’s length. Once the period has ended the new audit IDs are no longer needed because IFRS becomes the local standard. For instance, the IFRS adjustment audit ID “IFRSLOC1” should only be used during the transition period in order to reconcile local GAAP and IFRS amounts. At the end of the period of transition, amounts coming from the source ERP or accounting system should be equivalent to those stored at the local level with audit ID “PACK01” in SAP® BusinessObjects™ Financial Consolidation.

The IFRS adjustment audit ID “IFRSLOC1” has to be carried forward into the “standard” audit ID “PACK01” at the end of the changeover period using the Opening balance audit ID property:

Creating IFRSLOC1 audit ID for local adjustment

Level:

This audit ID can only be used in the data entry package.

Opening balance audit ID:

The opening balance audit ID is “PACK01” package data. After the changeover, the data enclosed in audit ID “IFRSLOC1” will be carried forward into audit ID “PACK01”.

■ Topside Adjustments at the Corporate Level

One or several audit IDs, depending on the level of detail needed, must be created to enable the Group to book IFRS adjustments at the corporate level in Manual Journal Entries. As an example, we propose two different audit IDs:

- “IFRSCEN1“ Local adjustment posted at corporate level

- “IFRSCEN2“ Corporate adjustment posted at corporate level

After the changeover, as in the local level, the audit IDs could be carried forward as follows:

- Data enclosed in audit ID “IFRSCEN1” is carried forward into the opening balance of the package data (Package Manager).

- Data enclosed in audit ID “IFRSCEN2” is carried forward into a central standard audit ID.


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The chart below summarizes a management proposition of the new audit ids after the changeover period:

Once the new audit IDs are created, we’ll also have to create a filter of non-IFRS audit IDs named, for instance, “LOCALGAAP”. A filter enables you to group together objects such as accounts, flows, and audit ids, in order to configure automatic journal entries, reports and other objects. The “LOCALGAAP” filter will only group together the standard audit IDs (non-IFRS dedicated ones). The use of this filter is explained in §54 of the document.

■ Performing Recurring Journal Entries Automatically at the Group Level

As seen in the IFRS Starter Kit description (§414), a set of business rules is provided so that journal entries are automatically posted. Optionally, new sets of rules dedicated to local GAAP can be created, but only after you have verified that the existing rules are insufficient for your purposes.

4.3.3 Executing and Storing Multiple Consolidations


Use the consolidation “variants” option to produce different sets of consolidated data.

Manage several versions of the consolidation scopes.

Use dedicated IDs or select “restriction” for the Consolidation variant or consolidation scope version when posting IFRS adjustments

Executing and storing multiple consolidations implies to run several consolidation processing and manage different versions of the consolidation scope.


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■ Multiple Consolidation Versions (required only for a unified reporting model)

During the transition period, the entity will have to support two sets of consolidated data for the same period. To do so, use the Version (or variant) dimension in SAP® BusinessObjects™ Financial Consolidation to sort different consolidated data on a same period.

This can be configured as follows:

Creating two version of consolidation:

IFRS and Local GAAP versions are created in the system in order to segregate consolidated data between Local GAAP and IFRSs

■ Multiple Consolidation Scopes (required only for a unified reporting model)

The IFRS consolidation scope can differ from the one defined according to the local GAAP. SAP® BusinessObjects™ Financial Consolidation allows the entity to create several versions of the consolidation scope for the same period as illustrated below:

Creating a local GAAP scope version for 2010

Creating an IFRS scope version for 2010


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4.3.4 Publishing Reports According to Different Formats

The IFRS Starter Kit offers preconfigured IFRS financial statements. Two other types of reports should be added:

■ Local GAAP reports If local GAAP needs specific financial reports, it will be necessary to configure them in the system.

■ Reconciliation reports As explained above, reconciliation between local GAAP and IFRS is mandatory. To enable this reconciliation, specific reports based on consolidation versions and audit IDs have to be configured in the system. Examples will be given in §55. These documents must enable the group to deliver both legal reconciliation and analysis reports.

On the basis of the above recommendations, we will illustrate a consolidation process in SAP® BusinessObjects™ Financial Consolidation ensuring a smooth IFRS transition.

5 Illustration of a Unified Reporting Model

26 February 2010


This chapter illustrates the operating process to run in SAP® BusinessObjects™ Financial Consolidation for a unified reporting model.

The consolidation process is divided into five stages:

■ Data entry package in the Package Manager view

■ Consolidation scope in the Scope Builder view

■ Manual entries in the Manual Journal Entires view

■ Consolidation in the Consolidation view

■ Retrievals in the Report Navigator view

Each stage will describe the tasks that have to be performed for years 2010 and 2011.

The following chart illustrates the interdependence between each stage and each standard:

The sample IFRS adoption timeline is as follows:

The last consolidation published under local GAAP is December 2010

The first consolidation published under IFRS is December 2011.

The transition period to IFRS is in 2010, adjusting opening and closing data 2010.


February 2010 27

5.1 Data Entry Package in the Package Manager View

2010

Input/load local GAAP data into the data entry package on audit ID “PACK01”

Input/load local IFRS adjustments into the data entry package on audit ID “IFRSLOC1”

2011

Input/load local IFRS data into the data entry package on audit ID “PACK01”

■ Year 2010

In the unified reporting model, there is a unique data entry package in which to enter data according to local GAAP and IFRS.

In SAP® BusinessObjects™ Financial Consolidation, data can be entered in the data entry package at different times and on a specific audit ID in order to ensure data integrity.

For example: entity X enters local GAAP data for December 2010 in the data entry package on the 15th of January 2011. This data must follow the system’s processes, like control data and lock data. The 1st of March, entity X wants to reopen the December 2010 data entry package in order to add IFRS adjustments. If activated, the option described hereafter will allow entity X to post its IFRS adjustments on a specific audit ID with no possibility to modify local GAAP data previously validated.

The “Lock on publication” option has to be configured in the RU Organizer as follows:

Configuration of the 2010 RU Organizer

The RU Organizer enables you to define data entry environment.

In the “Package” tab, the “Lock on publication” is activated selecting “All except adjustments”.

During the transition year, the “PACK01” audit ID will be filled in with local GAAP data and audit ID “IFRSLOC1” with IFRS adjustments. There are two different ways to load/post adjustments in the data entry package:


28 February 2010

Option 1: Via schedules in the package manager on the dedicated audit ID (loading can be automated)

Stage 1: “Via schedules”- local GAAP data

The net income statement for local GAAP data is entered / loaded:

By selecting the local GAAP audit ID “PACK01”

Account P1110 = 12 550 000 CU

Stage 2: “Via schedules”- IFRS adjustment

The net income statement for IFRS adjustments is entered / loaded:

By selecting the IFRS adjustment audit ID “IFRSLOC1”.

Account P1110 = 450 000 CU

Stage 3: “Via schedules”- Retrieve IFRS data

The IFRS net income statement is retrieved:

By selecting all audit ids (local GAAP + IFRS adjustments).

Account P1110 = 13 000 000CU (12 550 000 + 450 000)


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Option 2: Via a manual journal entry at local level in the Package Manager on the dedicated audit ID (manual process)

Via manual entry

Manual journal entry in the Package Manager:

The IFRS adjustment is posted manually on the dedicated audit id “IFRSLOC1”.

The starter kit configuration uses this second option. If the first option is preferred, it has to be activated in the Category Builder options > Journal entries.

Note: To post opening 2010 IFRS adjustments, we recommend inputing data on flow F09 “Change in accounting policies” to ensure a correct translation of the numbers. The opening exchange rate is applied to flow F09. For the current 2010 adjustments, use the appropriate movement flows.

■ Year 2011

As explained in §432, the IFRS adjustments audit ID “IFRSLOC1” has a short lifetime depending of the transition period’s length. Once this period is over, it is not needed anymore as IFRS become the domestic standard. As soon as the RU Organizer is created for 2011, the audit ID “IFRSLOC1” will be automatically carried forward into audit ID “PACK01”.

The opening balance sheet 2011 will aggregate on audit ID “PACK01”:

- Local data at the end of December 2010 entered on audit ID “PACK01”.

- IFRS adjustments at the end of December 2010 entered on audit ID “IFRSLOC1” in the data entry package.

- IFRS adjustments at the end of December 2010 posted at central level on audit ID “IFRSCEN1” (see §52)

2011 RU Organizer cpnfiguration:

select as opening balance data the 2010 consolidated data (IFRS variant)


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5.2 Consolidation Scope in the Scope Builder view

If IFRS leads to discrepancies with local GAAP scope:

2010

Create a consolidation scope version “local GAAP”

Create a consolidation scope version “IFRS”

2011

Create a consolidation scope version “IFRS” with opening scope version “IFRS” (2010)

■ Year 2010

For 2010, two scope versions are created:

- a local GAAP scope

- an IFRS scope

■ Year 2011

Once the transition is complete, the entity no longer needs to maintain two versions of the scope. The IFRS version of the consolidated scope will stand-alone (opening scope is the IFRS 2010 version).

2011 IFRS scope

When creating the 2011 IFRS consolidation scope, select the 2010 IFRS scope as the opening one.


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5.3 Manual Entries in Manual Journal Entries View

2010

Enter local GAAP adjustments by central manual journal entries using the dedicated starter kit audit ID.Create a consolidation scope version “IFRS”

Enter IFRS adjustments by central manual entries audit IDs “IFRSCEN1” or “IFRSCEN2”.

2011

Enter adjustments by central manual journal entries using the standard audit IDs

■ Year 2010

Central manual journal entries can also be used to post IFRS adjustments at corporate level (topside adjustment). When using SAP® BusinessObjects™ Financial Consolidation, there are two different ways to segregate IFRS adjustment manual entries from local GAAP manual entries.

Option 1: Use the newly created audit IDs “IFRSCEN1” or “IFRSCEN2”:

Segregation with audit ID.

The manual journal entry is posted on an IFRS audit id.

As we will see in §54, the manual entries posted on an IFRS audit ID excluded from the local GAAP audit ID filter (LOCGAAP) will never be taken into account in the Local GAAP consolidation.

Option 2: Select a “variant” restriction in the manual journal entry

In some specific cases, there is no other choice but to use existing standard audit IDs to post IFRS adjustments. Manual journal entries can then be taken into account in one consolidation process, using the “Restrict values to be included” option.

Example: “An exception to the basic measurement principle in IFRS 1 using IAS21 accumulated translation reserves”

An entity may elect to recognize all translation adjustments arising on the translation of the financial statements of foreign entities in accumulated profits or losses at the opening IFRS balance sheet date (that is, reset the translation reserve included in equity under previous GAAP to zero). If the entity elects this exemption, the gain or loss on subsequent disposal of the foreign entity will be adjusted only by those accumulated translation adjustments arising after the opening IFRS balance sheet date. If the entity does not elect to apply this exemption, it must restate the translation reserve for all foreign entities since they were acquired or created.

In such case, the adjustment should be posted as follows:


32 February 2010

Segregation with the variant restriction

The manual journal entry is posted on a standard audit ID “CTA01”.

A restriction to the IFRS variant is added.

Selecting “IFRS” to restrict values to be included means that the entry will only be taken into account in the IFRS consolidation.

This variant opportunity of segregating data between local GAAP and IFRS is only available for central manual journal entries. In the data entry package, the only way to segregate is to use one or more dedicated audit IDs for IFRS adjustments. The same applies to the data entry package, an opening IFRS adjustment for 2010, should be posted using the flow F09.

■ Year 2011

IFRS becomes the domestic standard and then the new IFRS adjustments audit IDs are not needed anymore. The 2010 manual journal entries posted on audit ID “IFRSCEN1” will be carried forward to audit ID “PACK01”. The other entries posted on audit ID “IFRSCEN2” will be carried forward to audit ID “ADJ91”.

Audit IDs “IFRSCEN1” and “IFRSCEN2” should be removed from the ledger access. Manual journal entries that have to be posted at corporate level should use the standard audit IDs.


February 2010 33

5.4 Consolidation Processing in the Consolidation

View

2010

Create a “Local GAAP” consolidation definition

Create an “IFRS” consolidation definition.

2011

Create an “IFRS” consolidation definition

The creation of the consolidation definitions is a key point that must be handled carefully.

■ Year 2010

The 2010 Local GAAP consolidation definition is created with the following properties:

2010 Local GAAP consolidation definition – 1/3

General tab

Variant = Local GAAP


Properties tab

Scope version = Local GAAP (not mandatory)

Set of rules: If a Local GAAP dedicated set of rules has been created, it has to be selected here.


34 February 2010


Filters tab

Select the filter “LOCALGAAP”.

All the data stored in the audit IDs ncluded in the filter are consolidated (all except data stored on IFRS adjustments audit IDs)

The 2010 IFRS consolidation definition is created with the following properties:

2010 IFRS consolidation definition – 1/2

General tab

Variant =IFRS


Properties tab

Scope version = IFRS (not mandatory)


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■ Year 2011

2011 is the end of the transition period to IFRS. The company will run an IFRS consolidation and not run the local GAAP consolidation. The IFRS consolidation definition should be setup as follows with the correct opening data:


General tab

Variant =IFRS


Properties tab

Scope version = IFRS


Opening balances

Scope version = IFRS 2010.12


36 February 2010

5.5 Retrievals in the Report Navigator View

2010

Publish “Local GAAP” financial statements

2011

Produce reconciliation reports between Local GAAP and IFRS for 2010.

Publish IFRS financial statements for 2011 vs 2010 comparative data Create an “IFRS” consolidation definition.

The local GAAP financial reports have to be configured in the system. In this section, we will focus on reconciliation reports that could be added. Examples of IFRS financial statements are provided in the appendix.

To achieve the reconciliation, we suggest configuring IFRS financial statements displaying both IFRS and local GAAP data and work analysis reports providing the full audit trail.

IFRS financial statements “Local GAAP versus IFRS” (statement of financial position):

At group level, the statement of financial positions (local GAAP vs IFRS) shows a difference on “PPE “of 1 641€. You can drill down to detailed accounts and audit IDs to explain this amount.


February 2010 37

Work analysis reports displaying the differences by accounts and audit IDs (group and entity level):

The difference on “PPE” comes from entries posted on audit ID “IFRSCEN1” on two accounts:

1091 € Lands & Buildings

550 € Other PPE

These amounts can also be analysed by drilling down to

general ledgers


38 February 2010

Work analysis reports displaying the differences for one account and one entity detailed by audit IDs and journal entry numbers:

The difference of 550 € comes from manual journal entry n°2, posted on

entity S000.

The control row ensures the consistency of the transition between Local GAAP and IFRS amounts.

6 Conclusion

February 2010 39

6 Conclusion

Adoption of IFRS is a major project that requires a strong involvement of the whole company. A significant workload will have to be dedicated by the accounting department in order to register and evaluate the differences between each standard, as well as to simulate and choose between the options proposed in IFRS 1.

For the IFRS Adoption, SAP is convinced that business content combined with software will deliver the complete customer value. The SAP BusinessObjects Financial Consolidation application provides CFOs at the world's largest organizations with the speed, processing power, agility, and breadth of analysis needed to complete financial consolidation and reporting cycles faster. In order to accelerate and secure IFRS Adoption, business content in the “Starter Kit for IFRS” is provided to customers with the SAP BusinessObjects Financial Consolidation application. This combination of software and business content is a key part of IFRS adoption success.

Moreover, IFRS are constantly changing. The SAP BusinessObjects Starter Kits & Innovations Department (SK&I), part of SAP BusinessObjects’ overall Enterprise Performance Management organization, delivers starter kits for IFRS, continuously updated according to changes in regulations and software innovations. This is done through continuous IFRS financial analysis performed by SK&I Department.

To find out more about starter kit documentations, go to SAP service market place (http://help.sap.com/):

FC Starter Kit for IFRS SP1 - Installation

FC Starter Kit for IFRS SP1 - Release note

FC Starter Kit for IFRS SP1 - Data entry guide

FC Starter Kit for IFRS SP1 - Description

FC Starter Kit for IFRS SP1 - Description - Appendix

FC Starter Kit for IFRS SP1 - Design description

http://help.sap.com/

Appendix

40 February 2010

Appendix

IFRS Statement of Financial Position

Appendix

February 2010 41

IFRS STATEMENT OF COMPREHENSIVE INCOME

Appendix

42 February 2010

IFRS Statement of Cash Flows

Appendix

February 2010 43

IFRS Statement of Changes in Equity

Appendix

44 February 2010

Abbreviations, Definitions and Financial Consolidation Views

Acronym Definition

CTA Cumulative translation adjustment

CU Currency

Entity Company, reporting unit, business unit, legal entity

EPM Enterprise Performance Management

Financial reporting system System enabling producing consolidated financial statements.

GAAP Generally Accepted Accounting Principles

IAS International Accounting Standards

IFRS International Financial Reporting Standards

RU Reporting unit

Each view enables the user to access to the functional and configuration objects. Views are grouped together in domains.

Views Domain Use

Analysis Enables the user to retrieve and print reports.

Operation Enables the user to specify general settings of data

entry packages.

Operation Enables the user to customize settings defined in

the Reporting organizer by entity.

Operation Enables the user to enter data in the data entry package at the local level.

Operation Enables the user to enter and post manual journal entries at the central level.

Operation Enables the user to group together the entities

(reporting units) to be included in the consolidation process and to define consolidation methods and rates.

Operation The consolidation view enables the user to create

and run a processing that will produce consolidated data.

Set up Enables the user to create and populate dimensions

like accounts and reporting units.

Set up Enables the user to organize dimension values by

category, for example actual, budget, and forecast.

Set up Enables the user to create rules in order to trigger

automatic journal entries.

Documents

Author: E.P.M. Starter Kits and Innovations February 2010...February 2010 11 3.2 Parallel Data 3.2.1 Consolidation Scope The consolidation scope groups together all entities that must