piggyback on ifrs demands to enable financial consolidation

]SAPPHIRE ASUG, Orlando

]Piggyback on IFRS Demands to Enable Financial Consolidations

Ed d M i d D id Di Edmund Manrique and David Dixon TekLink International

May17, 2008y ,

CHAVONE JACOBS[ASUG INSTALLATION MEMBER MEMBER SINCE: 2003

COREY PEARSON[ASUG INSTALLATION MEMBER MEMBER SINCE: 2008

ALLAN FISHER[ASUG INSTALLATION MEMBER MEMBER SINCE: 2008

[ Abstract

Your company has decided to be an SAP shop, but you still have many disparate systems. You’re still using an old version y p y gof Hyperion for financial consolidation. You see IFRS demands in your operations globally. This session will describe a strategy to piggyback on IFRS demands to leverage SAP consolidation to piggyback on IFRS demands to leverage SAP consolidation tools for financial and management consolidations, while integrating enterprise performance management and a flexible

f h dd l l enterprise reference architecture to add real value to your organization.

Real Experience. Real Advantage. 2

[ Learning Points

What is IFRS and Why Does It Matter?What are the System Impacts and Options?What are the System Impacts and Options?What are the SAP solutions to consider?


[ IFRS Pop-Quiz

What is IFRS?*:A I Forget Reporting StandardsA. I Forget Reporting StandardsB. Increasingly Fuzzy Reporting StandardsC. International Financial Reporting StandardsC. te at o a a c a epo t g Sta a sD. All The Above

What Does It Matter?A. It Doesn’t.B. It Throws a Big Wrench In All My Information Systems.C. Well, “It Depends”


*Adapted: SAP Insider’s Special Report “An IFRS Fable: The Company That Waited Too Long”

[ A little history...


Source: http://www.theinvestmentprofessional.com/vol_2_no_1/hard-sell-timeline.htmlImage Credit: Mark Andresen

[ IFRS Adoption

More than 100 countries now require or permit the use of IFRSs or are converging with the International Accounting S d d B d' (IASB) d dStandards Board's (IASB) standards.

Require or permit IFRSSeeking convergence or adoptionIncluding Europe, Russia,

Australia, New Zealand, and China (via Hong Kong)Extended to UK public sector from 2010Canada, India, Thailand and Korea from 2011Malaysia and Mexico from y2012Taiwan expected 2012-2014Japan expected 2016


Image Source: http://www.iasb.org/Use+around+the+world/Use+around+the+world.htm

Japan expected 2016

[ U.S. Readiness and Adoption Plans

According to surveys and studies, the majority is not ready


Source: http://www.aicpa.org/Research/StudiesandPapers/Pages/IFRSReadinessSurvey.aspxImage Source: http://www.sdn.sap.com/irj/scn/weblogs?blog=/pub/wlg/17764

[ What will this cost?

The SEC predicts that the largest U.S. registrants that adopt IFRS early would incur about $32 million per company in additional costs for their first IFRS prepared annual reports additional costs for their first IFRS-prepared annual reports. This includes both internal and external costs.KPMG estimates over half of implementation cost is IT related


Image source: http://www.aicpa.org/Research/StudiesandPapers/Pages/IFRSReadinessSurvey.aspx

[ Adoption versus Transition

IFRS 1 (First-Time Adoption) defines the rules of first preparation and offers mandatory and optional exemptionsKey concepts:

Transition Date: Beginning of earliest period for which full comparative information is presentedcomparative information is presentedReporting Date (a.k.a. Adoption): Closing balance sheet date for first IFRS statements (i.e. first IFRS filing)D l R i h d f i d i Dual Reporting: the need for comparative statements during transition

Transition Date Year 1 Transition Date Year 2 Reporting DateTransition Date Year 1(Jan 1, 2013)

Transition Date Year 2(Jan 1, 2014)

Reporting Date(Dec 31, 2015)


[ AICPA Suggested Timeline

AICPA estimates an average 3-5 years is needed to implement


Image source: http://www.ifrs.com/pdf/10414-378_IFRS_IT_White_Paper_WEB_FINAL.pdf

[ Prospective versus Retrospective Approaches


Source: http://www.sdn.sap.com/irj/scn/index?rid=/library/uuid/709e7d45-3ced-2c10-c58e-f24d55e34245&overridelayout=true

[ Learning from the European Experience

Council of the European Union first mandated the conversion from national GAAP reporting to IFRS in 2002 for all members. p g

Many conversions began in 2005 and additional countries later became subject to the same requirement.

E i ll h d l b t t t European companies generally had only about two years to convert to IFRS.

Now suffering consequences (focused on accounting and g q ( greporting quick fixes and deferred business and operations focused solutions) Short-term trade off for complexity and cost of reporting Short-term trade off for complexity and cost of reporting, manual entries and reconciliation in the medium and long term.European experience suggests more time is needed for a more

ti h

Real Experience. Real Advantage.

proactive approach

12

[ Convergence versus Conversion

FASB and IASB are currently working on a convergence project with a 2011 deadline.

FASB is spending 70% of its time on convergence right now*

Definitive SEC decision on whether or not U.S. companies should convert to IFRS is expected in 2011should convert to IFRS is expected in 2011.

IASB2011 2015???

IFRS

Convergence Conversion2011 2015???

FASBD-Date (Deadline and Decision) GAAP


*Source: http://www.complianceweek.com/blog/whitehouse/2010/05/05/fasb-heavily-focused-on-convergence-siegel-says/

[ The “Latest and Greatest” News from the SEC

In February, the SEC:Voted unanimously to continue to move towards IFRS but still

no decision on adoption and no corresponding date set.Didn’t rule out the possibility that issuers may be permitted to choose between the use of IFRS or U.S. GAAP. Indicated that the earliest IFRS could be required is 2015.Reaffirmed that a decision will be made in 2011.A d i i di bli d i i O bAgreed to give more periodic public updates starting in October.Withdrew proposed rules that would have allowed early adoption but would reconsider it later.pDefined a work plan to study impacts and adoption readiness.

AICPA praised the SEC’s “thoughtful and concrete steps” but did th SEC t t d fi iti IFRS d ti d t


did urge the SEC to set a definitive IFRS adoption date.

14

http://www.journalofaccountancy.com/Issues/2010/Apr/20102658

[ Financial Consolidation is itself a Convergence Project...

...and so is financial statement presentation...In 2008 the IASB published an exposure draft of a comprehensive replacement of its consolidation requirementsp qIn 2009 the FASB finalized one aspect of that project that amended and improved US GAAP relating to consolidation of variable interest entities and related disclosures


Image Source: http://www.cfo.com/article.cfm/14457783/c_14457851

[ Real-Life SAP Case Study of Accounting Change Impact

Example impact analysis of a FAS 167 (Amendments to FASB Interpretation 46R) which modifies ASC 810 effective for annual periods beginning after 11/15/09


[ Consolidation Work Plan

FASB and IASB in November determined that their standards for consolidation should include objectives and principles for assessing control that would be applied consistently for all types of entities and produce globally comparable results.co s ste t y o a types o e t t es a p o uce g oba y co pa ab e esu ts.Goal is for a single IFRS on consolidation replacing the IAS 27 Consolidated and Separate Financial Statements and the interpretation SIC-12 Consolidation - Special Purpose Entities that addresses the following:

a revision of the definition of control and related application guidance so that a control model can be applied to all entities. enhanced disclosures about consolidated and unconsolidated entities.

Plan includes the issue of the comprehensive disclosure standard in the second

Estimated publication date M J 2010 2010 2011 2011 2011 M U

Plan includes the issue of the comprehensive disclosure standard in the second quarter of 2010 and a revised consolidation standard in the fourth quarter of 2010.

Consolidation May 2010

June 2010

2010Q3

2010Q4

2011Q1

2011Q2

2011H2+

MoU1 Joint

Consol - Replacement of IAS 27 2 IFRS

Consol - Disclosures about unconsolidated SPEs/structured entities IFRS


Source: http://www.iasb.org/Current+Projects/IASB+Projects/Consolidation/Consolidation.htm

[ Where is the value in adopting IFRS?

Need to make IFRS adoption a defined value opportunity

Real Experience. Real Advantage. 18Source: http://www.aicpa.org/Research/StudiesandPapers/Pages/IFRSReadinessSurvey.aspx

[ Piggyback on IFRS demands?

Consider piggy-backing on IFRS initiatives to modernize your Financial Consolidation system today for these additional y yconsiderations:

Whatever approach is taken (quick fix or long-term) the Financial Consolidation process will be impacted via IFRS (local versus Consolidation process will be impacted via IFRS (local versus group policies, tax, reporting, stakeholders and internal control in addition to IT systems).Add IFRS h d h k h f h Addressing IFRS with spreadsheets or make-shift approaches represents a compliance risk (e.g. Sarbanes-Oxley) as well creates exposure to restatement risks.Represents a one-time opportunity to “get it right” now for future needs – IFRS will not only impact statutory reporting but also planning, budgeting and management reporting.


p g, g g g p g

19

[ Learning Points



[ IFRS and US GAAP Quick Comparison

2,500 pages (IFRS) instead of 25,000+ (US GAAP)Principles-Based Instead of Rules-BasedControversy over whether or not “bright lines” are needed...

IFRS GAAP


[ IFRS Differences and Impact to Transactions

Examples of how IFRS can impact your transactional and reporting systems (next slide)

Real Experience. Real Advantage. 22Source : http://www.ifrs.com/pdf/10414-378_IFRS_IT_White_Paper_WEB_FINAL.pdf

[ IFRS Differences and Impact to Reporting

Real Experience. Real Advantage. 23Source : http://www.ifrs.com/pdf/10414-378_IFRS_IT_White_Paper_WEB_FINAL.pdf

[ Where to make IFRS-based adjustments?

Top-Side Adjustments

Local Adjustments

Embedded into Operations

Sub-Ledger General Ledger Consolidation Reporting

Description Feeder Systems Local Subsidiary Ledgers

Group Ledger Reporting and Analysis Systems

E l FI AA FI LA HR FI GL FI SL EC SEM BCS SAP FC SAP BW BI EPM ExampleApplications

FI-AA, FI-LA, HR, SD, MM, PP

FI-GL, FI-SL, EC-PCA

SEM-BCS, SAP FC, SAP BPC

SAP BW, BI, EPM, XBRL, Excel

Example Impact Asset components, revenue recognition,

Tax reporting, reclassifications

Goodwillimpairment,

New presentation, disclosures

inventory valuation deconsolidation

Solutions Additional configuration

Parallel Ledgers IFRS Starter Kit IFRS Starter Kit


[ Evaluation IFRS adjustment options

Sub-Ledger General Led er Consolidation

Pros Faster close,automation, better

Traceable to subsidiary,

Less implementation effort and impact to

g Ledger

,data integrity, data details for control, reconciliation and management reporting

y,decentralized control, local to group reconciliation

pupstream systems, buys time and is centrally control

g p g

Cons Additional effort and complexity to implement (i.e. “early adoption” of IFRS)

Increased reconciliation effort between sub-systems and group limited

Limited details, errorprone, increased reconciliation difficulty, slows financial close adoption of IFRS) and group, limited

details for reportingslows financial close

Impact Long-term and sustainable

Mid-term withlongevity

Short-term and not sustainable


[ Dual Reporting and Cutover Impact Example

L l GAAP Local GAAP Group GAAP G GAAP

Pre-Transition Phase

Local GAAP Sub-Ledger General

Ledger

Group GAAPConsolidation

Group GAAP Reporting

Sub-LedgerLocal GAAP

General Ledger

Group GAAPConsolidation

Group GAAPReporting

Transition Phase

Group IFRSConsolidation

Group IFRSReporting

???

Local IFRS Sub-Ledger

Local IFRS General L d

Group IFRSConsolidation

Group IFRS Reporting

??????Post-Adoption Phase


Sub Ledger Ledger Consolidation Reporting

[ The Account Perspective

Different grouping approachesThree account ranges (common, leading and non-leading)Three account ranges (common, leading and non leading)Two account ranges (common and leading versus non-leading)Separate account ranges (requires separate value streams)

Different valuations when accounts overlapSame accounting values for same mapped account Different accounting values for same mapped account Different accounting values for same mapped account

US GAAP IFRSAccount Value Account ValueCash and cash equivalents 20,199 Cash and bank balances 20,199Inventories ‐ LIFO 25,364 Inventories ‐ FIFO 31,364

Prepaid expenses and other 8 955


current expenses 8,955Finance lease receivable 198

David Dixon

Oval

David Dixon

Oval

[ The Valuation Perspective

Dovetails with the account perspectiveIn SAP ERP use of duplicative Special Ledger or a parallel ledger In SAP ERP, use of duplicative Special Ledger or a parallel ledger in “new” General Ledger with separate chart of accountsAn alternative is to have separate legal entities (not advised).p g ( )

Legal entities can come into or go out of consolidation scope.

Separated (Duplicative) versus Unified (Additive) Approaches

US GAAP ‐ LIFO IFRS‐ FIFOAccount Value Value

Inventories 25 364 31 364Separated

US GAAP ‐ LIFO IFRS IFRS‐ FIFOAccount Value Adjustment Value

Inventories 25,364 31,364

Unified


Account Value Adjustment ValueInventories 25,364 6,000 31,364

Unified

David Dixon

Oval

David Dixon

Oval

[ Example Reconciliation via Unified Approach


Image source: http://www.aicpa.org/Research/StudiesandPapers/Pages/IFRSReadinessSurvey.aspx

[ Separated and Unified Approaches in General Ledger

Whatever option you choose in your SAP (or non-SAP) general ledger design it will impact your Consolidation design In turn, sub-ledger designs will impact general ledger

SAP R/3SAP R/3

C

mySAP ERP 2004mySAP ERP 2004

Company

SAP ECC 6.0SAP ECC 6.0

Company Cl G l L dCompany Codes

S i l L d

Company Codes

Special Ledgers

Company Codes

Special Ledgers

Classic General Ledger

Special Ledgers

Charts of Accounts

Charts of Accounts

Parallel Ledgers

Charts of Accounts

Parallel


Accounts Parallel Ledgers Ledgers New General Ledger

[ Separated Approach in Financial Consolidation

US GAAP - IFRS = IFRS AdjustmentsSeparate valuationsDifferent dimension ( ) l(category) values

Enables separate charts of accounts and business rulesData is duplicative

Copy local GAAP amounts and top-side adjustments to IFRS valuationIFRS adjustments are entered or loaded (local or top-side)

Possible reconciliation challenges


Image Source: SAPchallenges

[ Unified Approach in Financial Consolidation

Within same valuation Same dimension (category)

US GAAP + IFRS Adjustments = IFRS

valueRequires account-based approach in addition to parallel values (mixed approach)Data is additive

Local GAAP amounts are entered or loadedIFRS adjustments are entered or loaded (local or (top-side)Add the two together for IFRS reporting Image Source:


p g

32

Image Source: SAP

[ Financial Consolidation Solution Design Impacts

H i Fi i l

Most financial consolidation packages now are based on flexibly-designed multi-dimensional databases Image Source: SAP

Hyperion Financial Management while based on a relational database is multidatabase is multi-dimensionally structured (i.e. relational OLAP or relational OLAP or ROLAP)All of SAP’s financial consolidation consolidation options are based on flexibly-defined multi-dimensional


(or OLAP) database

33

[ Data Model Impacts

Key dimensions to consider in designing a multi-dimensional-based financial consolidation solution for IFRS dual-reporting needs are:

Category (e g Category (e.g. Valuation or Ledger)Account (i.e. Chart (of Accounts)Flow (e.g. Sub-Account or T i T )

Image Source: SAP

Transaction Types)Audit ID (DataSource or Type of Entry)Type of Entry)


[ Category Dimension Considerations

Used to distinguish actual data from plan data but can be used for different valuation streamsKey decision is a separated approach to IFRS (different categories or a unified approach to IFRS (same category)Similar in concept to parallel ledgers in SAP ERP


[ Account Dimension Considerations

Similar to GAAP accounts but there will be IFRS differences in presentation format Example IAS1 presentation Example IAS1 presentation differences

Impact of OCIClassification of liabilities on refinancing


Image Source: SAP

[ Flow Dimension Considerations

Breaks down the account movement between opening and closing balances on balance sheet accountsgImportant for tracking and handling currency translation adjustments in equity Image Source: SAP


[ Audit ID Dimension Considerations

Audit ID gives the audit trail from local to consolidated data

After adoption, they would need to balance carry-forward into standard Audit IDS


Image Source: SAP

[ Financial Consolidations is Impacted No Matter What

The key question is whether you can live with top-side adjustments in your existing financial consolidation system

It is “pay me now” or “pay me later” at differing degreesEventually, all systems with any relationship to financials (direct and indirect) will be impacted and need integration reworkand indirect) will be impacted and need integration rework

So, which solution to choose for piggy-backing on IFRS?Strategic Enterprise Management Business Consolidations (i.e. SAP NetWeaver BW-based SEM-BCS)SAP BusinessObjects Business Planning and Consolidation (formerly Outlooksoft)

Version for the Microsoft platformVersion for SAP NetWeaver

SAP BusinessObjects Financial Consolidation


(formerly Cartesis)

39

[ Learning Points



[ EPM Starter Kits

Free pre-delivered content designed to reduce implementation times by up to 80% and reduce design risky p gDesigned to be comprehensive and meet statutory compliance

Reporting examples included

Generic application template that still needs customizing

Starter KitsStarter Kits

Software Business Content

Best Practices Services Total

Solution


[ IFRS Starter Kits

Pre-configured IFRS/GAAP consolidation rules, controls, and calculationsand calculationsExample master data Publishable financial Publishable financial statementsEnd-user documentation

Manual data entry guideConsolidation processes

Pre defined XBRL mappingPre-defined XBRL mappingSome SAP GRC content

Does not yet have pre-defined data mapping


Does not yet have pre defined data mapping and integration to SAP ERP

[ Dual Reporting for IFRS Adoption Support*

Data collection on dedicated audit IDs to differentiate between local GAAP d IFRS d d GAAP and IFRS data entry and adjustmentsAbility to post IFRS-specific journal

i id if entries to identify gapsSeveral pre-built consolidation versions for simulating different

i scenarios Pre-configured reports for comparing local GAAP and IFRSComplete audit trail of the differences between the two standards


*Delivered for SAP BusinessObjects Financial Consolidation Only (At This Time)

[ SEM-BCS is not “Dead”

Follows the same support schedule as ECC 6.0 as part of SAP Business Suite

Support until 2015 with extended support to 2017 in accordance with SAP ERP maintenance strategy with future alignment

IFRS compliance and new functionality is being added and legal IFRS compliance and new functionality is being added and legal changes will be supported

Supports Business Combinations III S SAP

IFRS3 and IAS27 in Q3 2009FASB 141R and 160 on or after December 15, 2008

B t t th t t i di ti f SAP

Image Source: SAP

But not the strategic direction of SAPA mature product that is not being heavily invested inSAP advises net new customers to consider the other solutions


No IFRS Starter Kit is available44

[ SAP BusinessObjects Planning and Consolidation

Attractive alternative to top-side-adjusted spreadsheets

Implementation can be simple or sophisticated as needed

Budgeting planning and forecasting Budgeting, planning and forecasting in same application as consolidationCore component of SAP strategyAvailable on the SAP NetWeaver technical platformIFRS S Ki l il bl i h i f h Mi f

Image Source: SAP

IFRS Starter Kit only available in the version for the Microsoft platform

The version for SAP NetWeaver will come out later this year


yDoes yet not explicitly address IFRS adoption scenarios

[ SAP BusinessObjects Financial Consolidation

High performance financial consolidation application with added functionality to handle “extended” scenarios*C f S * Next slides explain moreCore component of SAP strategyBased on a Microsoft platform

Database can be SQL Server or Database can be SQL Server or Oracle

Also core to SAP strategyStarter Kits support:

IFRSUS GAAP

Image Source: SAP

US GAAPIFRS adoption

Good reference and basis for the SAP BusinessObjects

Real Experience. Real Advantage.46

jPlanning and Consolidation IFRS Starter Kits

[ “Extended” Example Scenarios...

Highly decentralized, heterogeneous environmentsLots of subsidiaries spread out of a geography with complex data preparation and submission processsubmission processWith diverse regional requirements with various submission methods that vary by entity or regionHandling multiple source systems and databasesg p y

Lots of transformations and standardization of data is neededWith the need for significant data W t t e ee o s g ca t ata validation prior to starting consolidation processing when the source cannot be ff ti l lid t deffectively validated


Image Source: SAP

[ ...With Sub-Consolidation Steps...

With sub-consolidations, distributed scenarios become more complex thereby driving the need for a financial consolidation application with “extended” functionalityextended functionality

Image Source: SAP


[The SAP Roadmap as Reference Architecture?

Pre-defined GAAP & IFRS Dashboard/KPIs*ready to use

In grey boxes = starter kits | *= future plans

Note that SAP owns their roadmap – consult SAP for details (shown only as example)

Business Intelligencedashboards

Process Control Risk Management

Group close process Group close process*

XBRL Publishing

US GAAP & IFRS mappingembedded XBRL reporting

fi d

g

pre-built group US GAAP & IFRS Actual

Consolidations

IFRS Budget* IFRS Forecast*

Transition from GAAP to IFRS*

pre-configured consolidation reporting

ledger ERP and

p g pclose controls and

risks monitoring

Financial Information Management

Pre-defined IFRS Local/Group Close Pre-Mapping*ledger ERP and consolidation pre-mapping

Pre-built financial reporting roles & authorizations*


Access Control

Pre built financial reporting roles & authorizations

Image Source: SAP

[Thank you for participatingThank you for participating.

Please remember to complete and return your evaluation form following this session.

For ongoing education on this area of focus, visit the Year-Round Community page at www.asug.com/yrc

Edmund Manrique

[Edmund [email protected] [email protected]


piggyback on ifrs demands to enable financial consolidation

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