SAP BLOG Universal Parallel Accounting – Approach to perform continuous accounting parallelly

This blog is on Universal Parallel Accounting (UPA) that SAP has delivered in SAP S/4HANA 2022 and S/4HANA Cloud private edition. This function has been there from S/4HANA Public Cloud 2105.






Parallel Accounting

The following Scenarios warrant need for parallel accoutning. i.e. one business transaction needs to be represented in Finance parallelly with different valuation rules.

1. Parallel legal valuation – Companies need to follow multiple accounting standards for Group and Local GAAP. This affects inventory valuation, WIP, asset values etc. The accounting system needs to consistently keeps track of the different resulting values per defined multiple accounting standard across the value flow of business processes. This is financial reporting in parallel currency.
2. Deviating fiscal year variants – Companies operating in certain countries require a fiscal year variant for their local financial reporting which is deviating from their fiscal year variant for their central reporting on group level. (e.g. India: April to March, Australia : July to June)
3. Management Consolidated views – For Management Accounting customers need a group view where intercompany profits between trading partners are eliminated in real-time. Or a business unit might be required to view transfers to another business unit treated as an external sale.
4. Multi-currency enablement – Certain Business processes (e.g. asset accounting (depreciation),material ledger, overhead controlling processes) require more than simply a document-wise currency conversion with the current rate. This needs the accounting system to record transactions in multiple currencies by reflecting the historical exchange rate with which the primary process was entered into the system.

SAP’s Parallel Accounting Origin

SAP has supported Parallel Accounting

• even in R/3 with parallel GL accounts
• in ECC6 we had parallel ledgers,

We could design solutions according to different Accounting Principles (IFRS, USA or Local GAAPs. Parallel valuations represented by additional currency types to distinguish a legal valuation from a group valuation or profit center valuation.



However these parallel accounting solutions very not harmonized across the Accounting, since these currencies and ledgers are not consistently supported across the different subledgers. SAP has traditionally done the following

• Asset Accounting used depreciation which in turn
  
  • Were mapped to currency types in classic asset accounting,
  • in New-AA we could map the GL ledger also or go for Parallel GL accounts
• Material / Inventory valuation based on currencies and valuation types.
• Controlling there was any best practice’s but had ample frameworks which we used, mainly CO Version
• In General Ledger traditionally it was Parallel GL account, with New-GL we could use the Ledgers

This inconsistent parallel functions across various subledgers led to redundant and duplicate period-end processing tasks activities to align the Subledgers and General Ledger across local GAAP values. Even with complex configuration, harmonization of these parallel accoutning ledgers accounts or currencies was always a challenge often not possible.



In the past SAP Solutions ECC and S/4HANA until 2021, the parallel ledgers, valuations could never be consolidated end to end. They were SAP module centered and worked differently a few examples are

• Ten currencies supported in Universal Journal, however Controlling processes calculate in object and Controlling Area currency
• Despite having parallel valuation goods issued from inventory to production order posts the same legal valuation cost of consumption to both ledgers
• Asset Accounting was tied to three (3) FI currencies
  
  • Asset Under Construction (AUC) can’t be settled in the final assets based on accounting principles e.g. if components added to assets needs to be treated differently in IFRS & US GAAP.
  • Additional currencies active in the ledger were calculated at current forex rate at the settlement posting, often led to undesired Forex value/effects in follow process such as depreciation or settlement

S/4HANA 2022 – Universal Parallel Accounting (UPA)

SAP with this new functionality UPA provides a harmonized structure for ledgers, currencies & enables to

• Not only post values per ledger and currency, even calculate
• But also enables end-to-end processes all through out the value chain in record to report.

SAP aims to make end to end financial reporting possible and provide full audit trails through consistent information across all ledgers via UPA.



S/4HANA application components that UPA touches upon are :

• General Ledger Accounting
• Asset Accounting
• Overhead Cost Controlling
• Profitability Analysis
• Cost Object Controlling
• Event-Based Revenue Recognition
• Product Cost Planning
• Actual Costing
• Material Subledger
• Investment Management
• Inventory Balance Sheet Valuation

UPA supports localization for USA, Germany, France, Japan, and Romania.



How can UPA change all the inadequacies that former S/4HANA functions such as Parallel Accoutning, valuation couldn’t?

1. Accounting principle is now the main valuation entity throughout universal parallel accounting.
   
   • The settings for ledgers, accounting principles, and currencies are only maintained once in the Financial Accounting Global Settings
   • No redundant configuration in Asset Accounting or other components of universal parallel accounting.
2. UPA supports allocation settlement per ledger i.e. ledger-specific settlement rules
3. In UPA up to ten currencies are calculated and posted in parallel e.g. in Actual Costing
   
   • UPA allows Actual cost rate calculation and actual costing by ledger
4. With UPA Universal Allocation for Overhead calculation is now ledger-enabled.
   
   • Allocations can run per ledger or for multiple ledgers.
   • Allocation rule can defined for a specific ledger all other ledgers using the flexible ledger cycle flag.

1. UPA has enhanced the ability which SAP both ECC and S/4 had,
   
   • Earlier there was ability to create multiple cost estimates for the same material;
   • But now with there is a link to the ledger in the costing type so that correct material prices in the respective ledger when cost estimates are released.

1. UPA allows usage of different material price for valuation of the goods and related movements in each ledger.
   
   • Which provides a basis for variance calculation in Production Accounting and
   • Also calculation of contribution margins in Margin Analysis

1. In UPA tax and commercial prices in the material master are removed. Various balance sheet options are represented as the below valuation alternatives methods and there is a link between the valuation alternative and the respective ledger.
   
   • Lowest value by market price (LVMP),
   • Lowest value by movement rate (LVMR),
   • Inventory balance sheet value (IBSV),
   • Lowest value by range of coverage (LVRC)

1. Event-Based Production Cost Posting is delivered with the Universal Parallel Accounting (UPA) is the prerequisite for using UPA in Production Accounting.

1. UPA complements Group Valuation a separate single valuation ledger which allows for simplified reporting and separate closing of this ledger.
   
   • SAP introduces a Group like approach here intercompany revenue and cost of good sold (COGS) are eliminated in this ledger whenever an intercompany boundary is crossed within the group.
   • E.g. manufacturing plant sells to distribution center or the distribution center sells to a Trading company who trades with the final customer.
2. At cost valuation continues to be supported for the valuation of intercompany goods movements, to ensure that profit in inventory is excluded in the group view.
3. In an intercompany scenario,
   
   • Revenue from intercompany invoice, COGS from intercompany delivery are posted in all ledgers
   • With UPA COGS becomes ledger-dependent.
     
     • In the legal ledger, cost of goods sold are considered and total recognized in the delivering company.
     • In the group valuation ledger an elimination posting removes the intercompany cost of goods sold and posts to a valuation clearing account,.
   • When intercompany invoice is made from the delivering company to the selling company.
     
     • Revenue is recognized in the delivering company in the legal ledger,
     • In the group valuation ledger additional elimination posting is made to remove the intercompany revenue to a valuation clearing account.
4. Fixed Asset Accounting (FAA) in Universal Parallel Accoutning: with UPA the Asset postings are ledger-specific,
   
   • All G/L currencies are supported in Fixed Asset Accoutning i.e. all currencies defined in the ledger settings of the Financial Accounting Global Settings. SAP believes this will allow more parallel currencies in Asset Accounting.
   • Depreciation postings; both manual and automatic are ledger-specific.

1. In UPA all asset postings will happen in the GL universal journal,
   
   • major change is for statistical postings, statistical depreciation areas which earlier stayed in the FAA subledger only.
   • Now there will be currency for all real G/L posting, also for the postings to statistical depreciation areas
   • No foreign currency areas anymore.
2. No more parallel depreciation areas, parallel currencies not mapped using parallel currency areas anymore.
   
   • One depreciation area to manage all currencies in the respective ledger and company code
3. New solution for an alternative fiscal year variant can be used in Asset Accounting. Depreciation areas belonging to the ledger with a non-calendar fiscal year are determined by period and used for asset reporting.
4. With UPA Legacy data transfer also has to be done by ledger now.
5. In the Past Asset Accounting did not support same accounting principle in different ledgers
6. Major customizing change in Asset Accounting
   
   • New entity ‘the valuation view’ needs to be assigned to the accounting principle.
   • Chart of depreciation (CoD) now plays a simpler role in Asset Accounting customizing. CoD merely bundles depreciation keys be assigned to an accounting principle.
   • SAP recommends to define one chart of depreciation for each local accounting principle or local valuation.
7. With UPA the selection and FAA document display happens by ledger.
   
   • On the selection screens of the posting apps, ledger as a selection criterion to restrict a posting to a ledger.
   • The accounting principle is displayed for information purposes only.
   • When displaying a journal entry, when simulating a posting, or adjusting postings on items, transaction also are done by ledger.

Challenges still Present in UPA

1. Universal Parallel Accounting is only available for greenfield customers.
   
   • SAP might come with an approach in the future, we don’t have an official confirmation yet.
   • Even if SAP comes up with a path forward there are challenges for those who have multi-valuation ledgers to move.
2. In UPA; Material valuation currency configuration is made now with “Define Settings for Ledgers and Currency Types”. This makes traditional material ledger currency configuration and the configuration of the currency and valuation profile obsolete. This Change is major from R/3 to S/4HANA 2021, expected to baffle consultants and traditional end users
3. Inventory valuation UPA is not yet reflected in all classic GUI transactions.
   
   • E.g. transaction MM01-3 shows the legal view in the leading ledger / Accounting View.
   • However Material Price Analysis (CKM3N) shows all goods movements and settlements with respect to the ledger.
   • Solution- Goods movements and price changes for material; FIORI app FG228 can be used for the Currency or Valuation field for the ledgers and the various currencies configured for these ledgers, analyzing material price up to ten currencies.
4. Very much like Delta Depreciation Area reconciliation in the Classic Asset Accounting in ECC, now in UPA with Adjust Balance Sheet Accounts – Delta Posting app (transaction MRN9N) one needs the results of the various calculations are used to make balance sheet adjustments at year end might a needed, which takes us backwards away from continuous Accoutning.
5. If UPA is activated, the classic Period-End Production Cost Posting (BEI) solution cannot be used anymore.
   
   • Thus making Product Cost by Order as the only option;
   • Product Cost by Period processes cannot be done, even if SAP provides the otpion will remain challenging.
6. Universal Parallel Accounting does not support settlement to material (WIP, variances and actual costs) but instead SAP offers a completely different approach that posts work in process and production variances with the underlying goods movements and confirmations.
7. Universal Parallel Accounting does not support results analysis and hence also the settlement of results analysis data. SAP’s recommended approach is to move to event-based revenue recognition

SAP Business functions

This business FINS_PARALLEL_ACCOUNTING_BF needs to be activated in S/4HANA for UPA to work. Please find more details in SAP Help – Universal Parallel Accounting



UPA Scope Release SAP Note

Please refer to the below note for more details about UPA, this is the official release note about the function and limitations 3191636 – Universal Parallel Accounting (SAP S/4HANA 2022)



Conclusion

Universal Parallel accoutning approach radically simplifies S/4HANA providing the ability to handle different accounting principles. Eliminates manual work to reflect the different approaches at the period end. I summarize by saying that UPA solves many past problems SAP customers in providing an optimized solution using ledgers and currencies for an end to end Record to Report value chain.

With S/4HANA 2022 this is first release of Universal Parallel Accounting, the delivered scope doesn’t support all possible scenarios. SAP last couple of years have been pushing new areas Event bases processes in manufacturing, Universal Journal for Actuals / Planning and Consolidation. SAP considers UPA as a starting point for future innovation in this space, let us be hopeful this will revolutionize parallel accoutning.

Okumaya devam et...