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3.4.1 Audit documentation/Working papers..................................................................................................503.4.2 Auditing steps .......................................................................................................................................523.4.3 Audit question list.................................................................................................................................543.4.4 Use of the audit info system .................................................................................................................55

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4.2.1.1 Types of procedures and types of vouchers .....................................................................................594.2.1.2 Tables ...............................................................................................................................................594.2.1.3 Reports..............................................................................................................................................604.2.1.4 Movement type .................................................................................................................................614.2.1.5 Tables ...............................................................................................................................................624.2.1.6 Reports..............................................................................................................................................634.2.1.7 Materials master data set ..................................................................................................................644.2.1.8 Report ...............................................................................................................................................644.2.1.9 Parallel nature of inventorying and valuation...................................................................................64

4.2.2 Goods receiving/invoice receiving offset account................................................................................654.2.2.1 Tables ...............................................................................................................................................664.2.2.2 Reports..............................................................................................................................................664.2.2.3 Handling price differences................................................................................................................664.2.2.4 Tables ...............................................................................................................................................674.2.2.5 Handling differences in quantity ......................................................................................................67

4.2.3 Under-delivery/Over-delivery...............................................................................................................694.2.4 Goods receiving blocked inventory ......................................................................................................704.2.5 Goods receiving/Invoice receiving balance lists...................................................................................714.2.6 Inventory value list ...............................................................................................................................724.2.7 Restoring...............................................................................................................................................734.2.8 Transfer ................................................................................................................................................734.2.9 Qualifications........................................................................................................................................754.2.10 Reports..................................................................................................................................................77

4.2.10.1 Tables ...........................................................................................................................................80

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5.2.3 Payment program..................................................................................................................................925.2.4 Creditor master data .............................................................................................................................935.2.5 Tables ...................................................................................................................................................935.2.6 Reports..................................................................................................................................................945.2.7 Qualifications........................................................................................................................................94

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6.2.3.1 Overview.........................................................................................................................................1056.2.3.2 Area ................................................................................................................................................1066.2.3.3 Method............................................................................................................................................1066.2.3.4 Computer forecasting method ........................................................................................................1076.2.3.5 Implementation of sample audit inventorying................................................................................107

6.2.4 Tables .................................................................................................................................................1096.2.5 Reports................................................................................................................................................1106.2.6 Qualifications......................................................................................................................................111

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�� 2EMHFWLYHV�DQG�UHTXLUHPHQWV�� 7.1.1 Determining acquisition costs and lower of cost or market balance ..................................................1187.1.2 Determining manufacturing costs.......................................................................................................120

7.1.2.1 Raw materials, auxiliary materials, and operational supplies.........................................................1227.1.2.2 Finished products/Unfinished products..........................................................................................123

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7.3.1.1 SAP Facts .......................................................................................................................................1287.3.1.2 Risks ...............................................................................................................................................1287.3.1.3 Auditing steps .................................................................................................................................129

7.3.2 Materials entry and release.................................................................................................................1317.3.2.1 SAP Facts .......................................................................................................................................1317.3.2.2 Risks ...............................................................................................................................................1317.3.2.3 Auditing steps .................................................................................................................................132

7.3.3 Reverse entries in the prior period......................................................................................................1337.3.3.1 SAP Facts .......................................................................................................................................1337.3.3.2 Risks ...............................................................................................................................................134


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7.3.3.3 Auditing steps .................................................................................................................................1347.3.4 Transfer (=restoring with value).........................................................................................................135


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7.4.2 Goods in process of manufacture at target cost..................................................................................1397.4.2.1 SAP Facts .......................................................................................................................................1397.4.2.2 Risks ...............................................................................................................................................1407.4.2.3 Auditing steps .................................................................................................................................140

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7.5.2 Determination of lowest value by range .............................................................................................1477.5.2.1 SAP Facts .......................................................................................................................................1477.5.2.2 Risks ...............................................................................................................................................1497.5.2.3 Auditing steps .................................................................................................................................150

7.5.3 Determination of lowest value by marketability.................................................................................1527.5.3.1 SAP Facts .......................................................................................................................................1527.5.3.2 Risks ...............................................................................................................................................1557.5.3.3 Auditing steps .................................................................................................................................155

7.5.4 LIFO valuation....................................................................................................................................1577.5.4.1 SAP Facts .......................................................................................................................................1577.5.4.2 Risks ...............................................................................................................................................1587.5.4.3 Auditing steps .................................................................................................................................160

7.5.5 FIFO valuation....................................................................................................................................1657.5.5.1 SAP Facts .......................................................................................................................................1657.5.5.2 Risks ...............................................................................................................................................1667.5.5.3 Auditing steps .................................................................................................................................166

7.5.6 Loss-free valuation .............................................................................................................................1677.5.7 Reserves for impending losses ...........................................................................................................167


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0� Introduction

This auditing manual for materials management (MM), release 3.0E in the R/3SAP systems environment, is intended to provide helpful suggestions for auditors,systems auditors, and employees of internal auditing departments of SAP users,regarding approaches to audits of materials management in the SAP R/3environment.

This manual merely provides recommendations, and cannot be taken as a norm orcompulsory guideline. Furthermore, the manual focuses on features specific tomaterials management. As a result, the manual does not address many fields andauditing steps that apply more generally to the inventory sector overall.

Any and all responsibility for the type, scope, and results of external and internalaudits lies with the auditor.

As significant modifications are made, this manual will be updated as necessary insubsequent releases. However, later versions of the manual will not constitute anindependent manual, but will be integrated into the existing SAP R/3 AuditingManual (FI and Basics).

This manual is intended for auditors – primarily systems auditors – withprofessional experience and at least a basic understanding of the SAP system.

The authors are members of a team from the SAP Auditing Working Group, whoare offering the benefit of their experience through this manual.

Copyright 1997:

Ms. Grunewald SAP Aktiengesellschaft, Walldorf

Mr. Filla C&L Deutsche Revision AG, Düsseldorf

Mr. Frettl hr KPMG Deutsche Treuhandgesellschaft AG, Düsseldorf

Mr. Grosser Bansbach Sch bel Br sztl & Partner GmbH, Stuttgart

Mr. Hungerbühler ATAG Ernst & Young, St. Gallen

Mr. Klein Arthur Andersen AG, Eschborn

Dr. Koch Auditor for Tax Consultants, Melle

Mr. Lenczes Schitag Ernst & Young, Stuttgart

Mr. Schiwek SAP Aktiengesellschaft, Walldorf

Mr. Stein KPMG Deutsche Treuhandgesellschaft AG, Düsseldorf


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The authors are responsible for the contents. Ms. Grunewald and Mr. Schiwek,SAP AG, Walldorf, edited this manual.

Further information is provided in the original SAP documentation for the R/3environment.

This work and all of its parts are protected by copyright. Any unauthorized use ofthis work outside the limits of the copyright is improper and punishable by law.This applies particularly to duplication, translation, microfilming, and storage inelectronic systems.


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1� Materials Management in R/3

1.1� Objectives and requirementsA key component of business accounting is that it must provide businessmen (andthird parties) with as up-to-date and accurate a view as possible of the company’sasset position, financial position, and profit situation at all times. Businessaccounting must assist the businessman in management decision making, and itmust do so efficiently – and in keeping with the provisions of the laws of theparticular country. Since this is a manual for internal and external auditors,compliance with the provisions of law is, of course, a primary focus of theexplanations that will follow. Indeed, „true and fair view“ is an internationallyrecognized principle of accounting, and is therefore a component of the provisionsof law in Germany, as well (§264, paragraph 2 HGB [Commercial Code], but onlyfor corporations). Efficiency considerations are the only aspects that will not beaddressed below.

Any software used in accounting must correspond to the provisions of businessand tax law, including the principles of sound accounting [GoB]. Note that onlyGerman legal relationships are examined in this manual. In German law, theprinciples referenced above are essentially contained in §§238ff HGB; in terms oftax law, the wording of §§140ff AO [Tax Code] is now nearly identical to that ofthe Commercial Code, so there is no need to address the tax law separately in thismanual.

We would also like to point out that this manual, in its initial form, deals onlywith management of inventories, and thus does not address procurement ofservices or capital goods (fixed assets).

According to the provisions of the business and tax laws referenced above, boththe individual transaction and the method used to process it must conform to thefollowing conditions:

• The transactions must be recorded (§239, paragraph 2 HGB)- completely,- accurately,- in a timely manner, andin an orderly manner,

and the methods used must ensure that transactions are thus recorded;


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• The transactions must be reproducible (§238, paragraph 1 HGB), whichmeans

that:-an expert third party must be capable of reproducing them within areasonable period of time (§238, paragraph 1 HGB), and-all the supporting documentation needed to understand the accountingdocuments and the method used must be available (§257, paragraph 1);

• The transactions must not be alterable unless the alteration can be reproduced („electronic erasure prohibition,“ §239, paragraph 3 HGB);• The transactions must be secure, i.e., availability and printout capacity, among other things, must be ensured at all times (§239, paragraph 4 and §257, paragraph 3 HGB).

The principle of reproducibility includes such control requirements as proofs ofprogram identity (when a particular version of a particular program was used),proofs of changes made to original data or tables, or of adaptation of the standardto company-specific requirements, etc. In addition, for the inventories sector, thepath of each item (= each part) and each work step, from acquisition to thewarehouse, and from unfinished goods to finished goods to sale, must be able tobe followed physically and in terms of value. The principle of data security alsoimposes requirements on modern software: it must include provisions for dataprotection (access protection method) and data security. As a precautionarycontrol measure, the software must also incorporate an appropriate authorizationfeature, to provide adequate capacity for the effective separation of functions.

Interpretations of these provisions are found in the position statements issued byFAMA (Fachausschuß für moderne Abrechnungssysteme – the TechnicalCommittee for Modern Accounting Systems) of the IDW (Institut derWirtschaftsprüfer – Auditors Institute), and in „Sound Accounting Principles forComputer-Assisted Accounting Systems (GoBS)“ (BStBl [Federal Tax Gazette]1995, I, pp. 738ff.), published by the Federal Ministry of Finance.

In terms of a functional, efficient internal control system (ICS), good softwareshould be expected meet all these requirements through appropriate controls.Examples of auditing steps for this general formal area include:

• retrograde auditing (i.e. starting from the production system) of the regularity of company-specific modifications (name fields, naming conventions transac., objects, programs, tables, types of movement, qualification concepts, etc.), e.g. by means of downloading the appropriate tables as RDIR, and the separately- developed types of movement contained in Table 156*,


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• auditing the system log via the information system, e.g. according to pastSKIP instances, auditing the handling of batch input folders, including those with error status, auditing key record types with internal issuance of recordnumbers for gaps, and

• auditing the complete trace of changes to tables (REC CLIENT map on, logging switch on, evaluation program activated).

These basic statements apply to all areas of the SAP R/3 MM described below.Detailed materials requirements are given in the individual chapters.


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1.2� Organizational Context MM Overview

1.2.1� Overview of MM

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1.2.2� Quantitative inventorying

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1.2.3� Inventorying in terms of value

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The valuation field determines the organizational level at which the materials onhand are accounted for in terms of value.

Depending on the system design, the valuation field is either

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If the SAP calculation (CO-PC) is used, the plant must be selected as the valuationfield.


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1.2.4� Purchasing transactions

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1.2.7� Material valuation process (graphic)

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1.2.8� Valuation upon restoring] (graphic)

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1.2.9� Material price changes

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„Old“ material valuation Price „New“ material valuationPrice: 4.00 changePrice: 4.50Total inventory: 10 units Total inventory: 10unitsTotal value: 40.00 Total value: 45.00

Material price change => revaluation verification

Inventory account [3] Cost/earning revaluation [2]5.00 | | 5.00

A change in the material valuation price is not only a change in original material,but an DFFRXQWLQJ�WUDQVDFWLRQ, as well, in which the total inventory of thevaluation field is revalued.

For a material with price governance 6, it may be necessary to change the currentvaluation price if the escalation price that reflects developments in the cost pricediffers too greatly from the standard price.


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For a material with price governance 9, the current valuation price adjusts to costprices. Therefore, manual price changes are required only in exceptional cases,e.g. when no movement has taken place over a fairly long period of time.

A price change can be handled automatically (using batch input folders), throughthe lower of cost or market principle. In this scenario, the accounting date, andthus the accounting period for these price changes, is determined when theprogram is called in.

In customizing the valuation and allocation of accounts, for each accounting fieldit is determined whether the price changes registered for the previous periodmodify only the previous period price, or the current valuation price, as well.

The standard price 6 can be reset automatically in the materials master data set asof date x, through the plan-product calculation.


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1.2.10� Inventorying process (graphic)

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1.2.11� Bilanzbewertung

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1.3� Incorporating old data

In order to incorporate physical unsold inventory previously tracked in an oldsystem as book inventory in an SAP system, the appropriate material master datasets must be set up prior to transfer, after which the quantities and values areincorporated (after a take-over inventory is performed). Movement type 561(Taking Inventory from Old Systems), which must be utilized here, is of particularimportance because it can endanger compliance with the criteria of regularity if itis improperly handled. While the debit balance entry that it generates is reflectedin the material accounts, the requisite credit counter-entry occurs in an „InventoryCounter-Entry“ account.

Since it must be assumed that the corresponding credit entries and theirprogression have already been represented in the financial accounting, this„account“ is nothing more than a traffic-flow summary of movement type 561. Inother words, by utilizing movement type 561, it is possible to impose one-sidedinfluence on inventories and inventory value while sidestepping an internalcontrol system. This authority undermines the ICS principle that there should beseparation of personnel between the quantitative audit and recording of adelivered batch through stock receipt and the input of its value.

Accordingly, SAP recommends that movement type 561 should be disabled afterthe data is incorporated. As a rule, users do not carry out this disabling step. Infact, movement type 561 is frequently utilized, for example, to show movementsof materials at the client level within a company, or to solve problems in theplanning system that result from entering material reservations.

For preparation of delivery receipts or for inventory expensing, the needsometimes arises for circumventing previous materials reservations since they areno longer relevant at that particular time. In these circumstances, people havefound a way around the problem by making short-term, manual increases in theavailable to promise inventory, increases that are then withdrawn after the outflowof goods is posted. This must be viewed as „bookkeeping without vouchers“,because there is no justifiable, factual reason for making the entry increasing theinventory figure.


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- Is movement type 561 included in the T156* tables?- Who has access to it?- Were entries made using it?- What was the reason for doing so?

It must be determined whether, prior to incorporation materials from the oldsystem, the need for evaluating marketability allowances or inventory coverage inthe old system was weighed, and whether it was carried out. (If there is no accessto movement data in the old system, inventory coverage and marketabilityallowances can be calculated only from the point when they were incorporated.Therefore, by the exact time of transfer, appropriate reference numbers must beprovided for old stock in the new SAP materials master data set.)


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1.4� Account tracking

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Account plan: INTAccounting field: 1000Valuation field: 1000

Valuation Modification Const.: 1000

Movement type: XXXAccounting stringTransaction key-> Account Modification Const.: VBR

Automatic Bookkeeping EntryTransaction: GBB Counter-entryAccount plan: INTValuation Modification Const.: 1000Account Modification Const. VBR ConsumptionValuation class: 3030 Operating supplies

Account debit: 403000Account credit: 403000


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Materials master data set…Valuation class3030...

Various processes in materials management are relevant for accounting purposes.Inventory account numbers for the resulting bookkeeping vouchers are generatedautomatically. Factors influencing automatic account tracking are:

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2� Material Requirements Planning

2.1� Objectives and requirements

In material requirements planning, the amount of material needed continuously orat given intervals is determined through a range of planning methods (based on avariety of procedures). That determination is then converted into orderingrecommendations for Purchasing and Production.

It is at this early stage that appropriate stocking of the inventory (prevention ofoverstocking or inventory deficiencies) and timely availability of materials formanufacturing or delivery orders is determined.

Although nearly no business transactions that require bookkeeping entry or theability to be entered into the books arise during this phase, consequences havingan impact on the annual statement of accounts may be associated with risksrelated to need assessment:

• Owing to underassessment or untimely assessment of need in materialrequirements planning/availability, production delays and shortfalls in salesmay arise – with consequences relating to the need to set aside reserves tocover imminent losses from pending transactions.

• If need is overestimated or is estimated inaccurately in terms of the technicaldemand, supply overruns or unusable materials may pile up in the warehouse– with a resulting impact on valuation (the quantity of materials subject todevaluation increases).

Therefore, a key objective in material requirements planning is to define thequantities needed, in terms of materials and time, as realistically as possible, inorder to minimize inventories while maintaining the capacity to deliver products.To accomplish this objective, it is essential that inventories be managed correctlyin terms of quantity and value, and that ordering and planning data flowing intothe material requirements planning process be managed in terms of quantity,value, and time.


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From an auditing perspective, controls must be placed and maintained on allgoverning systems that directly influence the volume of inventories.

The methods used to balance out contradictory objectives (maintaining lowinventory levels at the same time as a high delivery capacity) must be identifiableand verifiable.

See also the procedural documentation and the history function for customizingparameters, tables, and program versions used, as required for compliance withthe Sound Accounting Principles for Computer-Assisted Accounting Systems[GoBS].

Data on unsold inventory, quantities consumed, ordering data, and basicinformation (parts lists or product structures, delivery times, contingencyinventories, order times, batch sizes, etc.) used in determining need must bemanaged, in compliance with the provisions relating to regularity, so that it can bereproduced; the data must be processed correctly in terms of technical content,quantity, and value.

From an auditing perspective, the functional separation of the order requisitionand ordering areas (specifically the authorization to correct orders) must beascertained and verified.

Complete, unbroken documentary proof must be supplied from need control(planning, requests, orders) and consumption control (inventory shortfalls) as wellas manual processes (following inventory audits) for all order requisitions andneed generators.


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2.2� SAP facts

The methods used to determine need in the context of need-driven planning,

• order point planning• stochastic planning• rhythmic planning

and the batch methods used,

• statistical batches,• periodic batches, and• optimal batches

are, in practice, simple methods that can be used to achieve the stated objectiveswith relatively little outlay.

Preferably therefore, these planning methods are used in areas that do not havetheir own production, or in manufacturing plants, for planning B- and C-parts andoperating supplies.

The type of order recommendation automatically generated during planningdepends on the material’s procurement type. A planning order is generatedbasically for in-house production. For outside production, the planning officer canchoose between target planning orders and order requisitions. If he opts for thetarget planning order, he must follow it up with an additional step to convert itinto an order requisition, and make it available to Purchasing in this form.

The advantage of the second method lies in the additional control (ICSdocumentation) that the planning officer has over order recommendations. In thisinstance, Purchasing can then wait to order the materials until the planning officerhas checked over and negotiated the order recommendation. In the other case, ifthe order recommendation is sent to Purchasing directly and without processing,Purchasing then assumes responsibility for having the materials available and forunsold inventory.

Since materials planning is essentially implemented for each material at the plantlevel, the entire inventory available in the plant (available to promise inventory) isused as the basis for planning. The ordering point and the registration inventoryare taken into consideration in this process.


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However, inventories at individual warehouse locations can be excluded fromplanning, or independently planned. In this case, these inventories are not takeninto consideration in planning at the plant level.

Inventories consigned by suppliers are also included in planning.


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2.2.1� Order point planning

In this method, an order recommendation is generated when the available unsoldinventory falls below the reporting inventory.

The reporting inventory (order point) is comprised of the contingency inventoryand the average demand for materials to be expected during the replacementperiod. Therefore, in determining the reporting inventory, the following itemsmust be taken into consideration:

• the contingency inventory,• consumption to date,• future demand, and• the duration of the replacement period.

The contingency inventory must taken into account any increased materialconsumption during the replacement period, and additional demand from delaysin deliveries. Accordingly, in determining the contingency inventory, the on-timedelivery history of the supplier or manufacturer must be taken into consideration,in addition to prior consumption and future demand.

The reporting inventory and contingency inventory, as central control parametersin order point planning, can be determined manually by the planning officer(manual order point planning), or can be calculated by machine through thesystem (machine order point planning).

The reporting inventory and contingency inventory are entered into the respectivematerials master data set by hand or electronically.

In machine order point planning, the reporting inventory and the contingencyinventory are determined by the integrated forecasting program. In this process,the program uses the service grade as determined by the planning officer and thereplacement period, in addition to previous material consumption values.

Since the forecasting calculation is performed at regular intervals, the reportinginventory and the contingency inventory are adjusted to the respectiveconsumption and delivery situations.

This provides continuous assistance in minimizing inventories.


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The inventorying program handles continual monitoring of the available unsoldinventory. Whenever materials are removed, the program checks to see whetherthe available inventory falls below the reporting inventory level. If it does, aplanning memo is generated for the next planning cycle.

When materials are returned, the program checks to see whether the availableunsold inventory then exceeds the reporting inventory level. If it does, then aplanning memo is produced to cancel excess order recommendations.

If returned materials make planned deliveries of incoming goods unnecessary, arecommendation for cancellation of those deliveries is made.


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2.2.2� Stochastic planning

In contrast to the order point method, in the stochastic planning method theforecasting values for future demand, established by the forecasting program onthe basis of material consumption, are used as the basis for the planning process.

The forecasting calculation is performed at regular intervals. One advantage ofthis approach is that the demand established electronically is constantly adjustedto actual current consumption. The forecast demand is thus reduced by thequantities of materials already removed during the current period, so that parts ofthe predicted demand that have not yet been utilized can be put back into theavailable pool.

The forecasting timeframe (day, week, month, and accounting period) and thenumber of forecasting periods, can be individually determined for each material.

In addition, the distribution of the forecast demand values can be determined on amore refined time scale.

The number of periods to be taken into consideration from forecasting to planningcan be defined, as well.

For each period, net demand budgeting is verified to determine whether theforecast demand is covered by the available unsold inventory and/or the deliveriesof incoming goods planned by Purchasing or Production. If the inventory fallsshort of forecast demand, an order recommendation is generated. If applicable,several requirement quantities, corresponding to the selected batch method, arecombined into one batch.


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2.2.3� Rhythmic planning

This method provides for making materials available at a defined, steady rhythm –deferred by the delivery time.

The method is controlled by the planning characteristic and by specifying theplanning rhythm, the delivery rhythm, and a range profile in the materials masterdata set.

Materials to be made available at a regular rhythm are given a planning date in aplanning memo file. That date corresponds to the next materials availability date.It is set only when a material master data set is created, and is reset later accordingto the planning process.

The system uses the consumption quantities reported by the forecasting programfor the following period and a contingency inventory, if it is included as acustomizing feature.

In calculating material requirements, the system bases its work on the timeinterval between the planning date and the availability date. A check is made todetermine whether the current inventory and the planned incoming goods areadequate for the time period under consideration. Any specified Purchasingprocessing time and/or Receiving processing time is taken into consideration.Demand is thus determined according to the following formula:

,QWHUYDO�IRUHFDVW�YDOXHV (rhythm + Purchasing processing time + planneddelivery time + Receiving processing time)

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The system generates an order recommendation for the amounts determinednecessary.

The rhythmic planning method can be combined with the order point planningmethod. In this case, a reporting inventory level must be set in the material masterdata set. The materials are then made available not only by the availability dateentered in the planning memo file, but also whenever the inventory falls below thereporting level when goods flow out.

By specifying a range profile in the materials master data set, a demand-oriented,dynamic contingency inventory is established on the basis of average dailydemand.


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2.2.4� Batch method

In preparing the order recommendation, the system takes the batch methoddetermined in the materials master data set into consideration.

The following methods are available in the SAP standard system:

• Statistical batch methodThe batch is formed exclusively on the basis of quantity standards in therespective material master data sets. Three calculation criteria are available forthis process:

- exact batch- fixed batch- replenish to maximum inventory.

• Periodic batch methodThe quantities needed for one or more periods are combined to form onebatch. The number can be set at any desired interval:

- daily batch- weekly batch- monthly batch- periods of flexible length.

• Optimal batch methodBy combining several quantities needed into batches, optimum cost is used asthe basis for set batch costs and warehousing costs. The following methods areavailable:

- unit/period adjustment- sliding economic batches- dynamic planning calculation, and- the Groff batch method.

Formulas tailored to the user are also possible.

Batch specification must also be influenced by additional restrictions in thematerials master data set:

- specification of limit values- specification of rounding-off values.


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2.2.5� Qualifications

The following qualifications are available in the context of standard delivery:

MM_D Materials management / Master data

M_MATE_BUK Master data: Accounting fieldM_MATE_LGN Master data: Inventory numberM_MATE_PER Master data (Reverse entry/Interval deferral)M_MATE_STA Master data: Accommodation statusM_MATE_VKO Master data (Sales organization/Distribution

channel)M_MATE_WRK Master data: Plant

MM_D Materials management / Materials availability

M_MIPA_ORG Reduction of backlogsM_MTDI_ORG Organizational levels (Material requirements

planning)M_PLAF_ORG Organizational levels (Planning order

processing)

2.2.6� Reports

RMMVRZ00 Materials listRM07RMAT Materials reservationsRMCBBW00 General analysis of inventory valuesRMCBBW10 Hit list of inventory valuesRMCBIN00 ABC Analysis of Consumption/RequirementsR00LMB15 Suggested values, reservations

2.2.7� Tables

T023 Goods groupsT024D Materials planning officers


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2.3� Risks

In the context of material requirements planning, a range of sources of error maylead to material requirements figures that are inaccurate, either from a technical ora scheduling perspective:

• Inaccurate base data (master data)Inaccurate control content in the base data poses a fundamental impedimentto accurately carrying out the material requirements planning process.

• Inaccurate structural data (parts lists)In reducing the quantity of materials required, inaccurate structural data leadsto incorrect information at subsequent structural levels.

• Inaccurate material requirements data (through cancellation or modificationof orders, calls for materials, or falsified inventory figures)A lack of organizational feedback, or incomplete or delayed flows of vouchersprevent or have a significant negative impact on correcting original materialrequirements values when changes are made in the fundamental planningdata.

The following risks must be taken into consideration as a result of theorganizational and data problem areas outlined above:

1HHG�LV�VHW�GHILQHG�DW�WRR�KLJK�D�OHYHO�

-> Excess inventories-> Coverage is too extensive -> Coverage must be reduced

1HHG�LV�VHW�GHILQHG�DW�WRR�ORZ�D�OHYHO�

-> Delivery power is questionable -> Reserves needed-> Sales are lowered-> Output decreases-> Hardware inventories are too high


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2.4� Auditing steps

2.4.1� Audit documentation/Working papers

In preparation for and performance of the audit, the following evaluations must becompleted and archived:

ICS: -> description of the requirements planning process anddescription of the supply process, including ICScontrols

Mandatory forgeneral audit:

-> no mandatory evaluations

Optional forgeneral audit:

-> analysis of coverage in warehouse inventories(individual items)

-> inventories of order-related materials

System audit: -> documentation of the customizing parametersdocumentation of table contents (modification history)

2.4.2� Auditing steps

The following auditing steps are required in the context of the various kinds ofaudits:

ICS: -> audit of compliance with ICS directives

Mandatory forgeneral audit:

-> no mandatory auditing steps


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Optional forgeneral audit:

-> audit of coverage and planning for devaluation ofmaterials(audit at the item level is necessary, since groupevaluations provide a deceptive average profile foritems with excess coverage and inadequate deliverypower)

-> audit of AB materials for cancelled/reduced orders

-> audit of AB materials for call orders

System audit: -> audit of customizing adjustments (conformity withGoBS [Sound Accounting Principles for Computer-Assisted Accounting Systems])

-> audit of table contents/history (conformity with GoBS[Sound Accounting Principles for Computer-AssistedAccounting Systems])


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2.4.3� Audit question list

The following questions must be answered during the auditing steps:

-> Are the material requirements planning and availability methods familiarand clearly described in the ICS documentation, including controls?

-> Is there a history of the customizing parameters and contents of tables (useof correction and transport systems) for material requirements planningand availability?

-> Is a coverage analysis of warehouse inventories available at the item level?

-> Are inventories of order-related materials recorded separately?

-> Is the order data in use up to date in terms of reorganization? Does the datacontain any fictitious orders?

-> Have periodic variations in consumption been taken into consideration?

-> Is there an individual breakdown by all need generators?

-> Are all interventions by hand documented in availability records?

2.4.4� Using the audit information system

If the audit information system is available, entry via the

• Inventories -> Basic data• Inventories -> Material requirements planning

menu options is recommended.

The following reports are available here:

Requirements planning -> Warehouse coverage analysis-> Order backlog


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3� PURCHASING


Order recommendations from material requirements planning are processed inpurchasing, where they are converted into external orders to suppliers.

During the ordering process, price and value components are taken intoconsideration in the transaction for the first time, in addition to information onquantities. An exorbitant order price results in a pecuniary loss – provided that theinvoice subsequently received is also exorbitant – and, if applicable, may result ina need for devaluation in the annual financial statements (see chapter onValuation).

The actual cost prices, however, do not result in any correction of the basis ofvaluation until the time the invoice is received.

The main auditing objectives are:

• complete information relating to the future drain on liquidity as of theaccounting date, and

• pursuant to §285, no. 3 HGB [Commercial Code], proof of losses fromcontracts owing to lower replacement costs as of the accounting date (§249HGB).

For this reason, the history function must be guaranteed in the area of offer andorder prices (see chapter on Valuation), and must be taken into consideration inthe audit.

Proof of lower replacement costs must be derived from current market prices onthe accounting date, through the supply department.

In determining the future drain on liquidity and the creation of reserves forpotential losses from pending transactions, firm bids from central or distributedcontracts must be taken into consideration, in addition to order liability.


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From the auditing perspective, the following requirements are imposed on theclient’s ordering department:

• Capacity for continuous control of concluded and current inventory processes,with respect to:

SupplierItemOrder quantityPriceConditionsTerms of paymentAccounting

• Proof of all current/concluded contracts with suppliers

• Compliance with/Adherence to the GoBS [Sound Accounting Principles forComputer-Assisted Accounting Systems], GoB [Sound AccountingPrinciples], GoS [Sound Accounting Principles for Data Storage AccountingSystems], and the BDSG [Federal Data Protection Act]

• Proof of control functions within the ICS• Adherence to the principle of separation of functions• (Organizational separation of procurement, goods receipt, and RP)

• Presentation of the function/procedure type schema for the Ordering sub-process

• Proof of open orders (order liability)• Proof of advance payments on orders• Proof of suppliers and conditions• Directory of suppliers (order book)• Proof of orders (order history)• Proof of contracts and delivery schedules

• Proof of current EK negotiations or orders (items, quantities, prices,conditions)

• Proof of changes in order prices/price and conditions history• Accounting controls in direct accounting of goods receipt

• Proof of workflow integration, the customizing parameter, and governancetables (in conformity with GoBS [Sound Accounting Principles forComputer-Assisted Accounting Systems])


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3.2� SAP facts

As a component in materials management, ordering is an element in the processchain,(materials requirement/planning, request/offer, ordering, goodsreceipt/WEK, inventorying, invoice receipt/ invoice verification, outgoingpayment).

In the context of purchasing,

• potential sources of supply are determined and suppliers are selected/allocated,• external procurement of materials and services is handled, and• orders are monitored from delivery of the goods through payment

for order requisitions.

In addition, purchasing has transition points into the overall integrated system,e.g.:

• &RQWUROOLQJ��&2�

Orders for consumable materials and services can be allocated directly to costcenters or orders.

• )LQDQFH�'HSDUWPHQW��),�

Purchasing (purchasing data) oversees supplier master data in cooperationwith the finance department (accounting data).

In allocating an account for orders, purchasing can already determine theparticular account to be charged in the financial accounting.

• 'LVWULEXWLRQ��6'�

Requirements that arise from distribution and that have been transferred topurchasing, can be allocated directly to the customer order at the same timethe order requisition is recorded.


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The following organizational levels are the corporate structures that are significantfor purchasing:

• &OLHQW

Summary of legal, organizational, operational, economic and/oradministrative units

• $FFRXQWLQJ�GLYLVLRQ

Legally independent unit that prepares accounts within a client entity

• 3ODQW

Factory shops within an accounting division

• 3XUFKDVLQJ�RUJDQL]DWLRQ

Organizational unit that provides materials or services for one or more plants,and negotiates general purchasing conditions with suppliers.

• 3XUFKDVHU�JURXS

Organizational subdivision of the employees in purchasing, who areresponsible for operational activities. A purchaser group can also beresponsible for several purchasing organizations.

A plant must be allocated to one or more purchasing organizations. in addition, anallocation to an accounting division must also be provided for a plant.

A purchasing organization can be allocated to one accounting division, or to noaccounting division. If it is not allocated, any purchasing organization canperform procurement for any accounting division. This scenario presumes that theplant for which procurement is being provided is allocated to the purchasingorganization. In this case, allocation to an accounting division must handled whenthe purchase voucher is prepared.


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When the system is set up appropriately, extensive contracts (FHQWUDO�FRQWUDFWV)with advantageous conditions can be negotiated through reference purchasingorganizations with one supplier, from which other purchasing organizationsresponsible for procurement in the plants can call materials.

With the assistance of SAP-ALE, even individual companies that belong to agroup, but each having its own independent SAP system, can use contracts jointly(GLVWULEXWHG�FRQWUDFWV).

When the system is set up appropriately, a purchasing organization can procurematerials for a plant of one supplier/ plant that belongs to another accountingdivision within the same client/group (UHGLVWULEXWLRQ�DFURVV�DFFRXQWLQJ�GLYLVLRQVwith one SD delivery and one invoice).

Number fields: Numbering for purchase vouchers and master data ishandled internally – automatically by the system, orexternally – manually by the user.

Order book: Proof of the source of supply provided for a material, withthe dates of validity during which procurement is possiblefrom these sources of supply. The source of supply is clearlyidentified in order book data fields (supplier, plant, basiccontract position).

Quotas: By establishing quotas, it is possible to distributerequirement quantities among various sources of supplyautomatically.


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The following standard qualification documents are significant in the context ofpurchasing:

MM_E Materials Management/Purchasing

M_ANFR_BSA Request, voucher typeM_ANFR_EKG Request, purchaser groupM_ANFR_EKO Request, purchasing organizationM_ANFR_WRK Request, plant

M_ANGB_BSA Offer, voucher typeM_ANGB_EKG Offer, purchaser groupM_ANGB_EKO Offer, purchasing organizationM_ANGB_WRK Offer, plant

M_BANF_BSA Order requisition, voucher typeM_BANF_EKG Order requisition, purchaser groupM_BANF_EKO Order requisition, purchasing organizationM_BANF_FRG Order requisition, release codeM_BANF_WRK Order requisition, plant

M_BEST_BSA Ordering, voucher typeM_BEST_EKG Ordering, purchaser groupM_BEST_EKO Ordering, purchasing organizationM_BEST_WRK Ordering, plant

M_EINF_EKG Purchasing information system, purchaser groupM_EINF_EKO Purchasing information system, purchasing

organizationM_EINF_WRK Purchasing information system, plant

M_LFM1_EKO Purchasing organization, Supplier master data

M_LIBE_EKO Supplier assessment

M_LPET_BSA Delivery schedule classification, voucher typeM_LPET_EKG Delivery schedule classification, purchaser groupM_LPET_EKO Delivery schedule classification, purchasing

organization


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M_LPET_WRK Delivery schedule classification, plant

M_ORDR_EKO Order book, purchasing organizationM_ORDR_WRK Order book, plant

M_QUOT_WRK Quotas, plant

M_RAHM_BSA Basic contract, voucher typeM_RAHM_EKG Basic contract, purchaser groupM_RAHM_EKO Basic contract, purchasing organizationM_RAHM_WRKBasic contract, plant

V_KONH_EKO Master condition, purchasing organization

3.2.2� Reports

RMKKVZ00 Directory of suppliers

RMMVRZ00 Materials list

3.2.3� Tables

T000 Clients

T001P Plant/Operation

T001W Plant/Branch

T024 Purchasing groups

T024B Processor groups

T024E Purchasing organizations


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3.3� Risks

The following areas can be identified as problem zones in the framework of theordering division:

Organization: Workflow control is switched off or circumvented

Prices Order price incorrect incorrect prices*/Price determination dummy prices (1.00) used*

prices unknown*

Price corrections date critical*

Gross prices imaginary conditions for net prices*

Additional expenses incomplete calculation*planned/not planned

Order price is used for DU price formation (V price)*

* - DU prices (V prices) incorrect/Order liability incorrect

$FFRXQW�DOORFDWLRQ�

Account allocation unverified/changed (ICS) during direct entry, goodsmanagement/FIBU

2UJDQL]DWLRQDO�VWUXFWXUH�

Process chain requirement notification -> procurement request -> release

Process chain -> ordering -> modification -> release -> modification

Process chain -> invoice control -> goods receiving-> order

2UJDQL]DWLRQDO�IORZ�3URFHVVHV�

Pressure to get orders?Use of price lists/catalogues -> gross order prices?Market prices


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3URFXUHPHQW�ULJKWV�

Method for selecting providersEstablishing and observing order value limits

$UFKLYLQJ�+LVWRU\�

Contents/exceptions, archiving conditions

$XWKRUL]DWLRQV�6HSDUDWLRQ�RI�IXQFWLRQV

Establishment and modification of creditor master dataItem/part master dataPricing information/correctionsOrders/modifications


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3.4� Auditing Procedures

3.4.1� Audit documentation/Working papersIn the context of preparing for and performing the audit, the following evaluationsor methodological documentation must be prepared and archived:

ICS: .Description of the ICS components and controls, including proofof implementation.Schema of procedure type, processing.Proof of all order authorizations and user authorizations.Workflow control schema of the processes.Customizing parameters (e.g. price governance).Governance table contents (history)

Mandatory for Order liabilitygeneral audit: .(Sorting/compression/addition) for standard orders/call

orders/contracts.Advance payments on orders.Current offers/current prices; replacement.Additional cost vouchers, purchase parts.Price control evaluations L. Inv., I. EK, periodic DU-EK/V price,

current price_.Price history for sample audits (DU prices).Changes in order prices.Price correction accounts

Optional forgeneral audit: .Order book

.Contracts/delivery schedules/skeleton agreements

.Supplier documentation

.Item documentation

.Documentation on conditions


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.Purchasing data history

.Ordering history

.Calculation schema

System audits: .Documentation on communication paths (EDI).Documentation on communications procedures (EDI).Batch input interfaces.Archiving variants.Application integration


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3.4.2� Auditing steps

The following auditing steps must be performed in the context of various types ofaudits:

ICS: Audit of the procedure type schema (correct debit functions)

Control of authorization structures (separation of functions)(e.g.simultaneous master data + ordering or authorization formodification and release, etc.)

Audit of account allocation for direct postings (e.g. EDMS)

Are the customizing parameters in conformity with the SoundAccounting Principles for Computer-Assisted AccountingSystems?

Does the table history contain all values pursuant to the SoundAccounting Principles for Computer-Assisted AccountingSystems?

Mandatory forgeneral audits: Audit of order liability (including call orders) (completeness,

accurate value content)

Audit of price control evaluations (variations, if any, with respectto limits)

Audit of price history/current prices, trend values

Sample audits of price history (using DU/V prices)

Control of account price differences/ corrections

Is price governance defined comprehensively, and is it constant?

Audit of additional costs (completeness, allocation)

Account modifications in current processing

Option forgeneral audits: Sample audits of the calculation schema


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System audits: Are the batch input interfaces complete and accurate?

Are workflow controls complete and permanent?

EDI used? -> Separate audit needed

Internet used? -> -> Firewall concept?

DMS archiving? -> Compliance with GoSSeparate audit

EIS/DWH used? -> Data synchronicity?

EDMS involved? -> Accounting controls?


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3.4.3� Audit question list

The following audit questions must be clarified in the course of the audit:

ORG: -> Is the structure of the purchasing division maintained? Are thework

processes and the ICS controls clearly defined?

-> Is the separation of functions guaranteed in the purchasing, goodsreceiving, invoice verification (posting) departments?

-> Are the order numbering circuits maintained? Have any gaps ordouble numberings been checked?

-> Have the authorizations for material requirement requisitions beenclarified (origination, production, sales, administration)?

-> Has the responsibility for order releasing and order modificationbeen

clearly established?

Processes: -> Is the inventory audit prior to order modification clearly regulated?

-> Are there are regulations for procuring settlement offers?

-> Has the responsibility for contract negotiations been clarified?

-> Is all order information available to goods receiving?

Objects: -> Is the inventory of open orders followed on an on-going basis, and is it reorganized continuously?


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3.4.4� Use of the audit info system

If the audit info system is available, it is recommended that entry to the system begained through the following menu options:

• Inventories -> basic data• Inventories -> purchasing

The following reports are available through these options:

Basic data -> Purchasers

-> Suppliers

-> Items/materials

-> Conditions

-> Numbering circuits

Purchasing -> Order book

-> Open orders for goods

- totals by deadline

- totals by accounts

- inventory material/order material

-> Open contracts/Contingencies/Call orders


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4� GOODS MOVEMENTS

4.1� Objective and requirements

Goods receiving is, first, the admittance – subject to mandatory recording in theaccounts – of an asset and, secondly, the originating point of a liability – whichmust also be entered into the accounting record. Its mirror image is goodsoutflow, the deduction of an asset – which must be recorded in the accounts – theoriginating point for a claim that must also be recorded in the accounting record.Accurate record keeping of both movements is, therefore, an essential prerequisitefor providing an accurate image of the asset, financial, and earnings position inthe accounting record.

The general principles listed in chapter 1 form the basic requirements for thesoftware. In terms of an effective internal control system, data from purchasingshould be able to be used to control quantity, value, and physical inventory ofincoming goods, and data from sales – i.e. customer orders - for controlling theoutflow of goods. Since it is generally a sensitive area of an ICS, it is particularlyimportant that all variations from the order, with respect to quantity or quality,must be recorded in this area, and must be able to be forwarded to invoiceverification. Integration with quality control, which is gaining in importance inproduction companies, e.g. through the ISO 9000 ff. standards, is desirable.

A price history must be included for evaluation (see also under 7) in the annualaccounts.

Goods received without an order must also be able to be processed; automatedcontrols should be available, under the terms of which these incoming goods aredeemed permissible.

Since the physical tracking of the path of a part, through the warehouses andproduction, and thus determining its physical location at all times, is also animportant precondition for proper inventorying (see Chapter 6), there is a fourthcomponent in addition to quantity, value, and physical characteristics, whichmaterial management software must be capable of handling: the physical locationof the product, i.e. the place where it is being stored. Changed that may be madein physical location must also be able to be tracked, such as restoring, withdrawal,preparation for production, physical incorporation of the part into a semi-finishedproduct, changed in the allocation to a customer order, and other similar changes.Furthermore, inventorying should be able to distinguish among the possible typesof inventory, such as


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standard inventory, reserved inventories, consignment warehouses, inventory fromoutside sources (e.g. in third-party manufacturing), accessories, etc.

However, it must be noted that (at least for the moment), even the best softwarecannot record all these movements automatically, which means that appropriateorganizational precautions must be taken to ensure secure and complete recordingof these processes.

Owing to the material importance of inventories, accurate, timely allocation ofinflows and outflows of goods are of great importance for the cut off date in theannual accounts.


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4.2� SAP Facts

4.2.1� Materials movements

Materials movements, or warehouse movements, are defined as both „external“movements of materials (goods received from third-party sources, outflows ofgoods for customer orders) and „internal“ movements of materials (outflows ofgoods for production, withdrawal of materials for in-house purposes, restoring,and transferring) – these materials being RHB materials, merchandise, andunfinished and finished products.

In SAP materials management, these operational processes that change theinventories are illustrated by the functions of inventorying. In booking amovement of goods in the SAP system, material vouchers and bookkeepingvouchers are generated; as a rule, a bookkeeping voucher (bookkeeping outlook)is created in parallel with the material voucher (warehouse outlook); i.e., avaluation is performed at the same time as the quantitative inventorying process.The inventory accounts affected by a goods movement are adjusted via anautomatic account tracking. Material voucher numbers and bookkeeping vouchernumbers are different, as a rule.

The following vouchers are created, or actions taken, on the basis of bookingincoming goods:

• material voucher• bookkeeping voucher• bill of delivery• inventory adjustment

a) goods receiving -> warehouse

If the goods are delivered for the warehouse, the system increases the totalassessed inventory and the type of inventory (e.g. freely usable inventory) bythe amount delivered. The inventory value is adjusted at the same time.

b) goods receiving -> consumption

If the goods are delivered for consumption, only the consumption statistics areadjusted in the material master data.


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c) goods receiving -> goods receiving blocked inventory

If the received goods are booked in the goods receiving blocked inventory, theinventory remains unchanged. Only in the goods receiving blocked inventoryare the goods directed to the order history.

• Adjustment of the affected inventory accounts

• Adjustment of ordering (order history, order position)

4.2.1.1� Types of procedures and types of vouchers

To make it possible to issue different voucher numbers and to provide forsystematic filing of the vouchers in the voucher data file, material vouchers aredivided into types of procedures and bookkeeping vouchers are divided into typesof vouchers. The procedure and voucher types differentiate the transactions, andgovern the issuance of vouchers. (One numbering circuit is defined for each typeof procedure, for issuing material voucher numbers. One numbering circuit isdefined for each voucher type, for issuing the numbers of the bookkeepingvouchers).

Goods movement Procedure type Voucher typeGoods receiving for purchaseorders

WE WE or WN

Goods receiving for contractorders

WF WE

Outflows of goods, transfers,other inflows of goods

WA WA

Outflows of goods for deliveries WL WL

4.2.1.2� Tables

T003 Voucher types

T003A Voucher types for books with counterbalancing

T003M Procedure types for SAPMM07M/SAPMM07I

T003T Voucher type texts


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4.2.1.3� Reports

ROOKMB10 Materials management voucher types

ROOLMB11 Voucher types / Numbering circuits, goods movements

ROOLMB12 Voucher types / Numbering circuits, goods receiving

ROOLMB13 Voucher types / Numbering circuits, inventory

RSEMBNKR List of numbering circuits (NRV tables)

RSM56000 Display numbering circuit buffer

RSNROBUF Buffer numbering circuit objects

RSNRODS1 Display buffering information of numbering circuit objects

RSSNRODSP Display buffering information of numbering circuit objects

RSSNR0T1 Consistency checking and repair of numbering circuit

intervals


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4.2.1.4� Movement type

Materials movements are distinguished by a three-digit key, the movement type.Among other things, the movement type controls the screen layout, the adjustmentof inventories, account allocation for cost calculation, and account tracking foradjusting the financial record keeping.

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101 Goods receiving for ordering104 Goods receiving blocking status for ordering122 Return delivery to suppliers201 Goods outflow (WA) to cost centers221 Goods outflow to project231 Goods outflow to customer order241 Goods outflow to factory251 Goods outflow to sales261 Goods outflow to order291 Goods outflow for all account allocations321 Release from quality checking551 Goods outflow for scrap321 Release from quality checking451 Returns from customers453 Inventory to inventory transfers501 Goods receiving without order511 No cost delivery521 Internal goods receiving without manufacturing order561 Inventory taking

Outflows of goods are handled in the SAP system through planned and unplannedreservations. A reservation is intended to ensure that a material is available whenit is needed. A distinction is made between automatic (system-generated) andmanual reservations. Automatic reservations cannot be handled directly by theuser.


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Restoring can be handled in a one-step or a two-step process, or through restoringorders. The advantage of the one-step is that the „outflow of goods“ from theissuing center and the „receipt of goods“ at the receiving center can be booked ina single step. However, authorizations are required in this scenario for both theissuing and receiving plants. Since materials that are on the move owing torestoring (restoring inventory) can be monitored only in the two-step process, thismethod is advantageous given the greater time lag between the restoring bookingand the physical performance of restoring the materials.

Material to material transfers assume that both materials are tallied using the samewarehouse quantity units. If the usefulness of a material changes, a transfer mustbe done between the different types of inventories (T156C) (e.g. release fromquality checking).

4.2.1.5� Tables

T030 Fixed account table

T030A Procedure key and allocation to groups

T030B Fixed booking key

T030C Fixed account table, global

T030G Fixed account table – business area apportionment

T030K Account tracking – Governing accounts

T030R Rules for fixed account tracking

T030U Account tracking for balance sheet transfer

T030W Description of the procedure key

T030X Groups of procedure keys

T030Y Description of procedure groups

T156 Movement type

T156B Movement type, image selection

T156C Inventory types and their development

T156F Fields in the quantity string

T156H Help texts relating to movement type

T156K Account allocation fields in field selection

T156M Booking string: quantity

T156N Next movement type


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T156S Movement type: quantity/value booking

T156T Movement type text

T156V Availability table

T156W Booking string: values

T156X Procedure key modification

T006 Measurement units

T006B Allocation of external 3-digit – internal measurement unit

T006C Allocation of external 6-digit – internal measuring unit

T006D Dimensions

T006I ISO codes for measurement units

T006J ISO codes for quantity units, texts

T006M Groupings of quantity units

T006T Texts on dimensions

4.2.1.6� Reports

RLT10010 Evaluation of movements by warehouse type

RLT10050 Evaluation of movements of materials by warehouse type

RM07MGR1 Statistics on goods movements

RM07MGR Statistics on goods movements

RM07RKON Reservations for account allocation

RM07RMAT Display reservations for materials

ROOLMB14 Manual account allocation for goods movement

ROOLMB15 Reports or recommendation values, reservations, materialmovement


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4.2.1.7� Materials master data set

All necessary external and internal information is stored in the materials masterdata set. One key element to note is that data in the A segment is generally masterdata (the material consumption account is indicated here, for example), whileother segments clearly contain movement data. The material value is determinedat the plant level. The fields of a material master data set that are relevant for thispurpose are the valuation price, its allocation to a material account group, and thevaluation procedure, the „price governance“. The price governance reference letter„S“ stands for the standard pricing procedure, through which all quantitymovements are valued with a single „fixed“ valuation price in a materials masterdata set. For a valuation at the average escalation price, the price governance letter„V“ is used. However, a material position can be provided only according to avaluation method in the inventories. Inventory amounts are always handled andvalued in warehouse quantity units. That means that an average escalation price ora standard price always applied for the warehouse quantity unit indicated in thematerial master data set.

4.2.1.8� Report

RM03TD02 Managing the material master data set: Displaying administrativedata

4.2.1.9� Parallel nature of inventorying and valuation

Although at the time the goods are received or are entered into the warehouse awarehouse employee books only quantities into the SAP system, a value-basedadjustment of the inventory takes place in addition to the quantity-basedadjustment for the material, even if no invoice is yet available. In these cases,during the plausibility check upon receipt at the warehouse, the agreed orderposition price is determined for the appropriate order, and is sent along to thegoods receiving/invoice receiving offset account (WE/RE account). This meansthat it is not the invoice, but initially the order price that is used for establishingthe price of the material, and thus also for valuing the service of the goods. Inother words, the recalculation of the average escalation price in the V price fieldof the material master data set is handled in the same way as the adjustment of theorder (open order quantity) and the order obligation, on the basis of the orderprice.

Exception: If received goods are booked in the goods receiving blocked inventory,the inventory remained unchanged; the goods are directed to the order historyonly in the goods receiving blocked inventory status.


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4.2.2� Goods receiving/invoice receiving offset account

The goods receiving/invoice receiving offset account is an intermediate accountbetween the inventory account and the creditor account, in which the goodsreceiving can first be recorded, or the invoice receiving for an order can first berecorded. In the first instance, the booking offsets the invoice, in the secondinstance, the booking of the goods receiving offsets the goods receiving/invoicereceiving offset account.

In booking the receipt of goods, the system performs the following accountmovements: The value of the delivery is credited to the inventory account (netorder price * quantity of gods received), and the goods receiving/invoice receivingoffset account is debited by that amount. With the booking of the with thecorresponding goods receiving or invoice receiving, the balance is then offset inthe goods receiving/invoice receiving account to the debit of the creditor account.

If a later invoice or goods receiving remains outstanding, the balance is not offsetin the good receiving/invoice receiving account; i.e., the system waits for anadditional receipt of goods or an additional invoice that offsets that balance. Ifthat remains outstanding, the goods receiving/invoice receiving offset accountmust be balanced manually. A corresponding function is included in invoiceverification. The goods receiving/invoice receiving account must be maintained atregular intervals.

By booking the receipt of goods, through the goods receiving/invoice receivingoffset account, the recalculation of the average escalation price is handled at thelevel of the material master data set and the order obligation is adjusted, amongother things. The detailed information on the goods receiving/invoice receivingoffset account is needed as of the balance sheet date, in order to incorporated it as„goods in transit“ or „invoice in transit“, and to allocate it to the appropriatebalance sheet items.


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4.2.2.1� Tables

T169 Transaction governance, Invoice verification/ valuation

T169W Booking strings (values) for SAPMM08R

4.2.2.2� Reports

RFWERE00 Analysis of goods receiving/invoice receiving offset accounts and

statement of profits tax

RM07MSAL Goods receiving/invoice receiving balance list

SAPF123W Machine balancing of goods receiving/invoice receiving accounts

RMCBBW00 Overall analysis of inventory values

RMCBBW10 Hit list of inventory values

4.2.2.3� Handling price differences

Since the material was charged according to the order price when the goods werereceived, if there is a difference in the invoice price, the total must be reduced(lower invoice) or increased (higher invoice price) during invoice verification.

The following must be noted in terms of booking:

For materials with an average escalation price, the inventory account can only becharged or credited only in accordance with the actual inventory. If the materialinventory is smaller than the invoice quantity, the inventory account can only becredited or debited with the invoice difference for the actual inventory (inventory* price difference); the remaining amount is booked in a price difference account.

For materials with a standard price, this booking is handled in the „expenditurefrom price difference“ account.


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4.2.2.4� Tables

T169 Transaction governance, invoice verification/ valuation

T169A Booking string: invoice verification

T169B Notifiable order appendix types

T169D Invoice verification: verification of order amounts

T169E Tolerance threshold key

T169F Transaction-dependent recommendation values: invoice

verification

T169G Tolerance thresholds: invoice verification

T169K Recommendation values: account management

T169O Accounting block: fields to be excluded in invoice verification

T169P Invoice verification parameters

T169S Tolerance threshold key

T169V Recommendation values: invoice verification


T169X Procedure texts for invoice verification

4.2.2.5� Handling differences in quantity

When there are differences in quantity between goods receiving and invoicereceiving for an order, a balance shows up in the goods receiving/invoicereceiving offset account:

If the invoiced quantity is greater than the goods receiving quantity, additionalreceipts of goods are expected for that order, through which the balance will beoffset.

If the quantity of goods received is greater than the invoice quantity, additionalinvoices are expected for that order, through which the balance will be offset.

If there are not further receipts of goods or invoices for the order, the goodsreceiving/invoice receiving balance must be offset, e.g. by returning excess goodsreceived to the creditor, discounting the invoice, or by directly offsetting thegoods receiving/invoice receiving offset account. As a general rule, the goodsreceiving/invoice receiving account is balanced


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periodically or at the end of the fiscal year. The offset booking of the goodsreceiving/invoice receiving offset account corresponds to the booking that wasperformed when the invoice was recorded for the order.

• Materials with an average escalation price:

Reverse entry is made in the inventory account, unless there is no inventorycoverage. If the material inventory is smaller than the amount to be offset,only the inventory actually on hand is proportionally credited or debited; theresidual amount is booked in an expense or earnings account.

• Materials with a standard price

Counter-booking is handled in an expense or earnings account.

• Allocated orders

Counter-booking is handled in the cost or fixed-asset account in which theinvoice was booked.


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4.2.3� Under-delivery/Over-delivery

Under-deliveries are essentially permitted in the standard system. In the orderposition, it is also possible to enter a percentage tolerance for under-delivery.

A goods receiving quantity that falls below the under-delivery tolerance thresholdis interpreted as a partial delivery, and is accepted. The system does not issue anywarning message. If the under-delivery falls below the tolerance threshold, thesystem does issue a warning message.

If the under-delivery is not a partial delivery, but a final delivery, the finaldelivery marker must be set.

In the standard system, no over-deliveries are permitted. The system issues anerror message in cases of over-delivery.

If over deliveries are to be permitted, the following data can be used in the order:

• Unlimited marker

If this marker is set, unlimited over-deliveries are permitted. The system doesnot issue any warning messages.

• Over-delivery tolerance threshold

An over-delivery percentage can be entered in ordering. An amount of goodsreceived that is larger than the ordered quantity plus the over-deliverytolerance value, will not be accepted by the system.


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4.2.4� Goods receiving blocked inventory

If deliveries are accepted subject to reservation, they are recorded in „goodsreceiving blocked inventory“ (supplier certification is missing, quality testing isrequired, etc.).

Quantities booked in the goods receiving blocked inventory status are not directedinto the inventory, but are merely maintained in the order history (movement type103, ‘Order to blocked inventory’).

The effects of booking received goods in the goods receiving blocked inventoryformat are as follows:

• Issuance of the material voucher:

If the entire delivery is booked in goods receiving blocked inventory, thematerial voucher serves merely as a report on the receipt of the goods. Formaterial voucher positions that are booked in goods receiving blockedinventory, no booking lines are generated. No bookkeeping voucher is issued.

• Adjustment of the inventory:

When goods are received in goods receiving blocked inventory, neither thetotal evaluated inventory nor an inventory type is adjusted. The goodsreceiving blocked inventory advances to the order history.

• Adjustment of the inventory account:

No values are booked in accounts, because the regular goods receivingprocedure has not occurred.

• Adjustment in ordering:

The quantities booked in goods receiving blocked inventory are adjusted inthe order history, but the outstanding order quantity is not reduced.


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4.2.5� Goods receiving/Invoice receiving balance lists

The report compares the quantity and value of goods received for an order to thequantity and value of the invoice received for that order if the balance of thequantities is not equal to zero. The report is used to provide an overview of thegoods and invoices received when purchasing vouchers are not counterbalanced.

Depending on the settings for the scope of the list, you will obtain the followinglists (environment -> balance statement -> goods receiving/invoice receivingbalance list; RM07NSAL):

• basic list• • summary page

The selected purchasing vouchers are given by supplier in the basic list. Thefollowing details are presented for each purchasing voucher position: positionnumber, order quantity, order quantity units, net price, price unit, order pricequantity unit, material, quantity received, invoice amount, goods receivedvalue, face amount of invoice in the domestic currency, and, if available, thequantities received, the invoice quantity, the value of goods received and theface amount of invoice in domestic currency for additional supply costs.

You can perform various functions starting with the basic list:

• display order history,• • display summary page.

On the summary page, the total value of gods received, the face amounts ofinvoice in domestic currency and, if available, the additional supply costs forall selected purchasing vouchers can be indicated by supplier, by purchasinggroup, and per purchasing organization.

As additional information with respect to the basic list, this summary pagedisplays the difference in value of goods received and the face amount of theinvoice in domestic currency, and the difference in additional supply costs.


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4.2.6� Inventory value list

With this report (environment -> balance statement -> inventory value list), thetotal inventory quantity and the total inventory value at the plant or warehouselevel can be displayed for one or more materials. In addition, the inventoryaccount that is booked with the indicated materials during movements of goods isdetermined.

The balance values are listed by accounting field or inventory account. Thebalance of the inventory account is compared to the inventory value of theindicated material, and the variations in the two sums are evaluated.

You can select the following balance values:

• balance for the current period• balance for the previous period

• balance for the previous year

The basic list provides an overview, for each inventory account, of theinventories of the indicated material at the plant and warehouse level. Fromthis list, you can activate a variety of functions:

• Inventory account balance

By positioning the cursor on the inventory account and Process -> Inventoryaccount balance, you open up a dialogue window in which the balance for theselected inventory account is displayed. The balance of the inventory accountis compared to the inventory value of the indicated material, and the variationbetween the two sums is evaluated. If several materials are indicated, thecumulative sum of the inventory value of all selected materials that are bookedin the selected inventory account is compared to the reported balance, and thedifferences in the two sums are displayed.

• Accounting field balance

By positioning the cursor on the desired accounting field and Process ->Accounting field balance, you obtain the sum of all inventory account in theselected accounting field, and the sum of all inventory values of the materialsin the cumulative inventory accounts. These sums are compared once again,and the positive or negative variations are evaluated.


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4.2.7� Restoring

Restoring in the material management system include physical transportation ofmaterials from:

• plant to plant• storage area to storage area (internal movements)• warehouse to warehouse• storage location to storage location

4.2.8� Transfer

Transfer is done primarily for the following reasons:

• to release inventories from quality control to available inventory

• to transfer inventories from blocked inventory status to quality controlinventory status

• to transfer in-house inventory from available status to quality controlinventory

• to change the material number of a specific material

• to perform a charge separation for available materials

• to transfer special inventories, such as consignment inventories or returns, forexample, in the company’s own inventory

• to change the owner of materials in the warehouse.

Transfers are booked first, then carried out. This means that a transfer order and ashipping order are prepared. When a transfer order is processed, the material caneither remain at its original storage location, or is can be moved to another storageplace within the warehouse.


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Booked transfers can be displayed as a list of transfer orders. Transfer orders –whether open-ended, or completely or partially completed – can be displayed, aswell.


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4.2.9� QualificationsThe following qualifications are contained in the scope of the product distributed:

MM_B Materials Management – Inventorying and Stocktaking

M_ISEG_WDB Stocktaking: booking discrepancies at the plant

M_ISEG_WIB Stocktaking: Stocktaking voucher at the plant

M_ISEG_WZB Stocktaking: counting and booking discrepancies at

the plant

M_ISEG_WZL Stocktaking: counting at the plant

M_MBNK_ALL Materials vouchers: managing the numbering field

M_MRES_BWA Reservations: movement type

M_MRES_WWA Reservations: plant

M_MSEG_BMB Materials vouchers: movement type

M_MSEG_BWA Goods movements: movement type

M_MSEG_BWE Goods receiving for purchase ordering: movement

type

M_MSEG_BWF Goods receiving for orders: movement type

M_MSEG_WMB Materials vouchers: plant

M_MSEG_WWA Goods movements: plant

M_MSEG_WWE Goods receiving for purchase ordering: plant

M_MSEG_WWF Goods receiving for orders: plant

M_SKPF_VGA Sample audits for stocktaking: procedure

M_SKPF_WRK Sample audits for stocktaking: plant

MM_D Materials Management – Materials Planning

M_MIPA_ORG Disposition of arrears

M_MTDI_ORG Organizational levels of material needs planning

M_PLAF_ORG Organizational levels for processing target orders


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MM_G Materials Management – Master Data

M_MATE_BUK Master data: accounting fieldM_MATE_LGN Master data: inventory numberM_MATE_PER Master data: allow reverse entries/ postpone periodsM_MATE_STA Master data: Management statusM_MATE_VKO Master data: Sales organization/ Distribution pathM_MATE_WRK Master data: plant

MM_E Materials Management – Purchasing

M_ANFR_BSA Voucher type in inquiryM_ANFR_EKG Purchaser group in inquiryM_ANFR_EKO Purchasing organization in inquiryM_ANFR_WRK Plant in inquiryM_ANGB_BSA Voucher type in offerM_ANGB_EKG Purchaser group in offerM_ANGB_EKO Purchasing organization in offerM_ANGB_WRK Plant in offerM_BANF_BSA Voucher type in order requisitionM_BANF_EKG Purchaser group in order requisitionM_BANF_EKO Purchasing organization in order requisitionM_BANF_FRG Release code in order requisitionM_BANF_WRK Plant in order requisitionM_BEST_BSA Voucher type in orderM_BEST_EKG Purchaser group in orderM_BEST_EKO Purchasing organization in orderM_BEST_WRK Plant in orderM_EINF_EKG Purchaser group in purchasing info setM_EINF_EKO Purchasing organization in purchasing info setM_EINF_WRK Plant in purchasing info setM_LFM1_EKO Purchasing organization in supplier master dataM_LIBE-EKO Supplier assessment


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M_LPET_BSA Voucher type in delivery schedule classificationM_LPET_EKG Purchaser group in delivery schedule classificationM_LPET_EKO Purchasing organization in delivery schedule

classificationM_LPET_WRK Plant in delivery schedule classificationM_ORDR_EKO Purchasing organization in order bookM_ORDR_WRK Plant in order bookM_QUOT_WRK Plant by quotasM_RAHM_BSA Voucher type in skeleton agreementM_RAHM_EKG Purchaser group in skeleton agreementM_RAHM_EKO Purchasing organization in skeleton agreementM_RAHM_WRK Plant in skeleton agreementV_KONH_EKO Purchasing organization in master data condition

MM_R Materials Management – Invoice Verification

M_RECH_BUK Invoices: accounting fieldM_RECH_SPG Invoices: grounds for blocking

MM_W Materials Management – Valuation and Account Tracking

M_LIFO_MLY Authorization for LIFO assessmentM_NIWE_BIL Authorization for determination of cost or market

value whichever is lowest

4.2.10� Reports

RM07ICHI Stocktaking: List of stocktaking positions with missing materialvoucher position

RM07ICHK Correction program for stocktaking vouchers with incorrectcancellation status

RM07ICHM Stocktaking: list of inventory positions with incorrect quantities inthe material voucher

RM07ICN1 Batch input: set up stocktaking vouchers for cycle countingRM07IDOC Display inventory overviewRM07IE31 Batch input: set up stocktaking vouchers for customer ordersRM07II31 Batch input: set up stocktaking vouchers for standard inventory

RM07II32 Batch input: block material for stocktaking


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RM07II34 Batch input: record numbering with voucher referenceRM07II37 Batch input: write off discrepanciesRM07II38 Batch input: record numbering with voucher reference, book

discrepanciesRM07II39 Batch input: record numbering without voucher referenceRM07II40 Batch input: record numbering without voucher reference, book

discrepancyRM07IINV Display stocktaking date for the materialRM07IK31 Batch input: Set up stocktaking vouchers for supplier consignmentRM07IMAT Display stocktaking vouchers for the materialRM07IO31 Batch input: Set up stocktaking vouchers for supplier orderingRM07IV31 Batch input: set up stocktaking vouchers for customer loanedgoodsRM07IW31 Batch input: set up stocktaking vouchers for customer consignmentRM07MAAU Evaluation for material voucher archivingRM07MBST Warehouse inventory list: balance statementRM07MCHB Inventorying: balancing of inventory value for materials that must

be evaluatedRM07MCHV Display charge utilization certificateRM07MGR1 Statistics on goods movementsRM07MGRU Statistics on goods movementsRM07MKBS Display consignment inventoriesRM07MLBS Display warehouse inventories for the materialRM07MMAT Display material vouchers for the materialRM07MSAL Goods receiving/invoice receiving balance listRM07MSTO Display discounted material vouchersRM07RMAT Display reservations for the materialRM07SINV Display sample audit stocktakingRM07SVOR Batch input: sample audit stocktakingRM07XFLA Set clearing status in stocktaking voucher headerRM08MMAT Display bookkeeping vouchers for the materialRMCBAB10 Hit list of consumption values: selectionRMCBBS10 Hit list, warehouse floor set: selectionRMCBBW10 Hit list, inventory values: selectionRMCBLH10 Hit list, shelf warmers: selectionRMCBRW10 Hit list, range: selectionRMCBUH00 Overall analysis, handling frequency: selectionRMCLAEBL Display modification vouchersRMCTAEBL Display modification vouchersRMIMWAKA Goods catalogue for the Federal Statistical OfficeRMINTRA0 INTRASTAT reports

RMKKVZ00 Supplier list, purchasingRMLIFO00 Valuation at the individual level


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RMLIFO02 Valuation at the pool levelRMLIFO06 Cost or market value whichever-is-lowest adjustmentRMLIFO10 Presentation at the individual levelRMLIFO12 Presentation at the pool levelRMLIFO20 Perform group formationRMLIFO21 Check group formationRMLIFO22 Display group formationRMLIFO30 Build basis layerRMLIFO32 Form voucher extractRMLIFO34 Outside data entry for LIFO valuationRMLIFO36 Accept cost or market value whichever-is-lowest pricesRMLIFO39 Display modification vouchersRMLIFO50 Clear layerRMM00C02 General overview, field modificationsRMMMBEST Inventory overview: accounting field/plant/warehouse/ chargeRMMMDE00 Clear all materials from current clientRMMMFELD Display field history from MM13 (modification voucher history)RMMMMIN00Reset movement data, master data set, current clientRMMMLISTList display of all modified fields from MM13 (modification

voucher history)RMMMPERI Period postponement, master data setRMMR02ST Release blocked invoices: status informationRMMVRZ00 Materials listRMNIWE00 Lowest-value calculation: market pricesRMNIWE10 Lowest-value calculation: rangeRMNIWE20 Lowest-value calculation: marketabilityRMNIWE80 Lowest-value calculation: market price varianceRMNIWE90 Lowest-value calculation: balance sheet value per accountRMOT001K Allocation of the plants to accounting fieldsRMPPOS01 List of previously recorded vouchersRMUTDELE Delete program -> do not startRMVKON00 Obligations from consignment warehouses


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4.2.10.1� Tables

TZUN Rules for constructing the ALLOCATION fieldTZUNT Description of the allocation rulesT000 ClientsT001K Valuation fieldT001L Storage locationT001P Plant/Factory areaT001W Plants/BranchesT001Y Valuation levels for LIFO inventory valuationT003 Voucher typesT003A Voucher types for books with adjustmentsT003T Voucher type textsT004 List of account schedulesT023 Goods groupsT023T Descriptions of goods groupsT024 Purchasing groupsT024B Credit management: processor groupsT024D Materials managersT024E Purchasing organizationsT025 Valuation classesT025T Descriptions of valuation classesT028E Text tables for T028DT028G Allocation, external processes to internal processesT028H Allocation, manual processes to internal processesT028I Text tables for T028HT028J Voucher type for booking ruleT030 Fixed account tablesT030A Procedure key and allocation to groupsT030B Fixed booking keyT030C Fixed account tables, globalT030D Account tracking for price differences in open itemsT030E Account tracking for price differences in open itemsT030F Reserve method for bad debtT030G Fixed account tables – distribution by business areaT030H Account tracking for price differences in open itemsT030K Account tracking, governance accountsT030R Rules for fixed account tracking


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4.3� Risks

If the record of warehouse management processes is not available, or is notavailable in a timely manner, problems may occur in invoice verification,financial accounting, or in production order accounting, for example. In extremecases, these time lags result in the collapse of important operational functions,because given the large time discrepancies between physical and data processingrecords of materials movements, the online inventories no longer correspond tothe physical inventories. Thus, for example, because of a lack of bills of delivery(goods receiving and outflow certificates, commission lists, and other documents),deliveries are not made, and invoices are not prepared.

If the goods receiving/invoice receiving account is not handled at all, or not in atimely fashion, there could be a „base set“ of completed – but not officially ended– transactions, which leads to including inaccurate facts in the annual accounts.

From the organizational methods of purchasing, with respect to enteringinaccurate order prices, risks may arise in relation to valuation at year’s end.

4.3.1� Inadequate separation of functions

If the authorization system and prior and subsequent manual controls are not inplace, the activities in purchasing, goods receiving, inventory management,invoice verification, and inventorying take place independently of each other, andif the existing level of separation of functions does not guarantee the effectivenessof the internal control system, extensive deceitful transactions are possible.

4.3.2� Incorrect delineation of time periods

If recording of good movements and invoices is not handled in the correct period,the annual accounts could be presented inaccurately.

However, if complete and timely recording of processes based on orders does takeplace (materials receiving for orders, or invoice receiving for orders), and if thebookings done through account tracking result in the formation of reverse entriesin the goods receiving/invoice receiving offset account, there is no risk ofpresenting an excessively high or low result.


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4.3.3� Inadequate manual control and adjustment procedures

If there are inadequate preliminary and subsequent control and adjustmentprocedures, under certain circumstances:

• goods receiving blocked inventory may be inaccurately processed (acceptanceof deliveries subject to reservation without firm warehousing), etc.

• errors in the use of movement types may not be discovered, or may bediscovered too late, etc.

• orders, materials, and inventories may be correctly allocated and evaluated.

4.3.4� Goods outflows risks

In the area of goods outflows, the following risks in particular are possible:

• inaccurate entry of prices and payment conditions

• inaccurate credit limit verification

• insufficient adjustment and control system

• reservation errors.


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4.4� Auditing stepsThe auditing organization of goods receiving and invoice verification mustdetermine whether all goods received have been recorded completely, correctly,and in a timely manner, and how the settlement of the obligations arising fromsuch deliveries has been handled in the books.

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The regularity of warehousing management, internal flows of materials, and in-house offsetting in particularly should be examined. The results of thisexamination are used as the basis for assessing the regularity of the stocktakingprocess and the valuation of the finished and unfinished products.

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The monthly warehouse movements must be squared with the accounts in thegeneral bookkeeping department. The squaring and control process must berecorded and examined for error processing.

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4.4.1� Under-delivery/Over-delivery

Are the customizing settings appropriate for handling under-deliveries and over-deliveries? Are the customizing settings adequate for automatically reporting enddelivery markers (setting tolerances)?


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Are they implemented or authorized by the responsible division?

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4.4.2� Goods receiving blocked inventoryIs goods receiving blocked inventory processed in a timely manner?

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Are the goods receiving blocked inventories correctly resolved in the annualaccounts, and allocated to the appropriate period?

4.4.3� Goods receiving/Invoice receiving offset accountThe goods receiving/invoice receiving offset account must be checked formachine-triggered inventory value corrections and the open positions as of thebalance sheet date. Specifically, the management of accounts must also beanalyzed critically.

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4.4.4� Movement types/Account tracking

Have movement types been used that might escape the existing internal controlsystem of the company? These sensitive movement types are present in thoseareas where, for example, incoming goods are booked not on the basis of anexisting order (which has gone through the ICS authorization path in thecompany), but as order-neutral entries.

For example, it is important to verify whether goods movements of the movementtypes 561 (inventory acceptance from the old system), 501 (stock receipt withoutorder), 521 (stock receipt without manufacturing order), and others have beenposted through the company.

In any case, check the account tracking and its history for the related procedurekeys/movement types, and determine, on the basis of these results, how the trafficfigures in offset accounting have changed in the reporting period.

If there are traffic figures for movement type 561, ask why they were used, andcheck the procedures. The balance of the offset account must show as DM 0.00 asof the balance sheet date.

4.4.5� Audits of goods outflows

By verifying the outflows of goods, a determination should be made as to whetherall sold goods have been recorded in the active account, and whethercorresponding charges have been posted.


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The following specific verifications must be performed:

• Verification of the coordination of delivery receipts and sales invoices fromthe viewpoint of whether each delivery resulted in an invoice, and verificationof posting of the claim and outflow of goods in the appropriate period

• voucher/handling of complimentary deliveries• regularity of price breaks

4.4.6� Archiving concept

Check to determine whether there is an archiving concept, and whether it hasalready been implemented.

There are several programs in the SAP system that archive vouchers fromZDUHKRXVH�PDQDJHPHQW. You can use these programs to clear the data base andto keep the data sets ready for future purposes.

The following data can be reorganized:

• transport requirements (reorganization program RLREOB00)• transport orders (RLREOT00)• transfer orders (RLREOU00)• stocktaking acceptance vouchers (RLREOI00)• stocktaking histories (RLREOH00)

In so doing, the user must make the following decisions, or organize the materialsas follows:

1. Which data should be archived or reorganized?

2. Determination of the archiving cycle for the WM data.

3. Test the archiving run or archiving program.

4. Incorporate the program into the job operations.

If optical archiving systems are used, the following guidelines andrecommendations should be followed:


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• letter of the Minister of Finance, regarding the use of optical storage platesystems in accounting, file reference number: IV A 7 – S 0317 – 5/91 datedJuly 8, 1991, printed in Foreign Trade and Payments Ordinance [AWV]publication 08 506, pp. 17f.

• Foreign Trade and Payments Ordinance [AWV] publication 440

The following areas must be examined in detail in optical archiving systems:

• accurate transfer of the original voucher to the storage medium• accurate safekeeping of the storage media.


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5� INVOICE RECEIPT, INVOICE VERIFICATION

5.1� Objectives and requirementsInvoice receipt and invoice verification are the bookkeeping and valuecounterparts of goods receiving and goods verification. Therefore, the foremostobjectives and requirements are the same as those presented in the precedingchapter. The integration of these two areas is an important requirement forsoftware systems. In this area, as in the preceding chapter, it is especiallyimportant that all variances be recorded, so that they and their consequences –involving payment operations in this instance, as well – can be managed. Inaddition, prices must be managed here, as well, and as was the case for goodsreceiving, must be integrated to the greatest extent possible with orders.

Furthermore, there are interfaces here with the creditor area, and to paymenttransactions. Since these are particularly sensitive areas in all businesses, specialattention must be paid to the separation of functions and to the four-eyes principle(e.g. between master data administration and posting, and within divisionsbetween invoice verification and purchasing, as well as creditor bookkeeping andpayment transactions), with corresponding consequences on representingauthorizations in terms of the software.

Complete, consistent and up-to-date creditor master datais essential handling and processing movement data accurately within operationalfunctions (e.g. invoice verification, settlement). When materials management, inparticular, is implemented, the division-specific responsibility for creating andmanaging the master data must be clearly regulated between bookkeeping andpurchasing, in order to prevent inconsistency and redundancy.

Personnel with access to master data must be distinct from personnel with accessto movement data. Master data fields relevant for payment (such as informationon the bank account and the party receiving payment indicated in the voucher)should be monitored according to the four-eyes principle, of through additionalsubsequently compensatory controls. In this context, the number of CpD accounts(which, of course, avoid such separations of functions) should be reduced to aminimum, and monitored separately.

For reasons of regularity, complete and accurate certification of claims andobligations is prescribed. Therefore, incoming invoices must be recorded in atimely fashion. They must be checked to see whether they match orders and goodsreceipts or services. Only those invoices that correspond to ordered and deliveredgoods or services in the correct quantities under the agreed conditions should bepaid. Tolerances for variances are permissible, and can be set in the system.


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SAP offers the ability to pre-record vouchers (in replacement of an invoice receiptbook), provided that invoices are able to be posted not in an up-to-date manner,on the basis of verifications that have not yet taken place.

Payments should be made in a timely manner and taking discount deadlines intoaccount. The four-eyes principle must be maintained for outflows of money. Thiscan be realized either through controlling payment recommendation lists, orthrough an appropriate internal control system in master data management andinvoice releasing.


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5.2� SAP Facts

5.2.1� Overview

Within SAP materials management, the role of invoice verification is to concludethe process of materials procurement, to process invoices that do not originate inthe materials procurement area, and to process credits, whether these be invoicediscounts or rebates.

For invoices that relate to an order, a great deal of information is alreadyavailable, so that the person verifying the invoice usually just has to enter theorder number into the system to pull up the recommended value and the handlinghistory from the system, through the allocation numbers. If there are variancesbetween the order, goods receiving, and the invoice, the system issues a warningfor the user. If the differences fall within preset tolerance thresholds (T169 ff.),SAP allows the invoice to be posted. Otherwise the invoice is automaticallyblocked, and must be released in a separate work step (which is documented by amodification voucher). If the variances are not permissible, the invoice cannot beposted.

Within invoice verification, automatic postings are made for turnover tax,discount offsets, and price variances. Items can be posted only if debit and creditamounts are the same. However, small differences can be tolerated throughcustomized settings; if these are present, the system automatically generates anaccounting line that posts the difference in a neutral expense or revenue account.

For invoices that do not have any reference to an order, reverse entries areprovided manually by the person verifying the invoice. If it happens that thesupplier is not entered in the system, the person verifying the invoice has theopportunity to post the invoice in a CpD account, and to indicate the accountconnection.

By posting the invoice, the average price of the material invoiced is corrected (ifthe price in the invoice varies from the order price), and the order history and dataon the payments to be made are adjusted in the system.

SAP offers to opportunity to pre-record an invoice or credit, i.e. the data in theinvoice/credit is recorded and stored in a voucher – but the voucher is not postedright away. A pre-recorded voucher can be modified as often as desired, and thesystem keeps track of those modifications.


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Only when the final pre-recorded voucher is posted are the usual accountmovements and adjustments made.

Discount agreements can be entered into the creditor master data, or in the order.During invoice verification, the system first accesses the order data, which is thendisplayed and can be overwritten. In net posting, (determined through vouchertype), the respective discount amount is credited directly to the account in whichthe cost is posted. For posting in the inventory account, the material must bevalued at the average escalation price, because, in the standard price, variancessuch as a discount are posted in a price difference account, and are thus entered inthe neutral result, as in gross posting.

5.2.2� Reasons for blocking invoices

Invoice verification distinguishes among four types of variance:

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The quantity indicated in the invoice varies from the difference between thequantity delivered and the quantity already calculated

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The price indicated in the invoice differs from the price indicated in the order

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There is a variance in both price and quantity

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If the price of an order related to another quantity unit than the order quantity,that quantity is referred to as the order price quantity (e.g. order in units, pricein DM/kg). For an order with an order price quantity, the ratio of thequantities is established in order price quantity units and order quantity units.If this ratio varies in the invoice from the ratio upon the receipt of the goods,there is a variance in order price quantities. If the invoice is received beforethe goods, the ratio from the invoice is compared to the ratio from the order.

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A variance in deadline comes about when the due date falls before the deliverydate agreed upon in the order. In the SAP system, the grounds for blocking theinvoice depend on the amount of the invoice position. The product of theamount of the invoice position and the days of variance serves as the basis fordetermining whether the invoice is blocked.


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Thus, lower invoice positions are granted relatively large differences indeadline, whereas higher invoice positions are allowed only very smalldifferences. (In invoices relating to a delivery schedule, there is not deadlineverification because there is no clearly defined delivery date in the deliveryschedule).

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If quality management is active for a particular material, any receipt of suchmaterials is posted in the quality verification inventory. An invoice for thismaterial is blocked until the verification process has been successfullycompleted. If several shipments of goods are received or one order position, averification process is performed for each shipment. So a distinction must bemade in invoice verification between the following two cases:

If a goods receiving-related invoice verification is provided for in the order, theinvoice is blocked if the verification process for the related receipt of goods hasnot yet been completed. If this is not the case, the invoice is blocked if anyverification procedure whatsoever has not been completed for the goods received.If an invoice is posted before the goods are received, however, it is not blockedfor reasons of quality verification. Therefore, it is recommended that workproceed on the basis of quality verification with goods receiving-related invoiceverification. In addition to accurately blocking received goods, an advantage ofthis approach is that an invoice cannot be posted prior to the receipt of the goods,and thus prior to quality verification.

5.2.3� Payment program

The payment program is designed so that both outgoing and incoming paymentscan be handled. These functions are supported for creditors and debtors alike. Theprogram generates payment vouchers, and supplies data for the payment supportprogram. It prints payment lists, payment forms (e.g. checks), and creates datasupports (diskettes, magnetic tapes).

The payment program reports unsettled items, and singles out which items mustbe paid. Basically, it pays items as late as possible without loss of discounts. Theexact time of payment is determined by the configuration of the paymentprogram.


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5.2.4� Creditor master data

To ensure regular posting of invoices, appropriate information is provided fromthe master data (name, address, banking information, payment conditions,payment routes, and account governance data).

For creditors with one-time or infrequent invoicing, the system acknowledges themaster data set for CpD accounts. No customer-specific data is stored there, sincethe account is used for several creditors. The specific data must be entered whenthe invoice is recorded.

5.2.5� Tables

TZUN Rules for constructing the ALLOCATION field

TZUNT Description of the allocation rules

T066 Dynpro selection, invoice verification

T169 Transaction governance, invoice verification/ valuation

T169A Booking string: invoice verification

T169B Notifiable order appendix types

T169D Invoice verification: verification of order amounts

T169E Tolerance threshold key

T169F Transaction-dependent recommendation values: invoice

verification

T169G Tolerance thresholds: invoice verification

T169K Recommendation values: account management

T169O Accounting block: fields to be excluded in invoice verification

T169P Invoice verification parameters

T169S Tolerance threshold key

T169V Recommendation values: invoice verification


T169X Procedure texts for invoice verification


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5.2.6� Reports

RMMR02ST Release blocked invoices: status information

SAPF123W Machine balancing of goods receiving/invoice receiving accounts

RFBNUM10 Double-issued invoice numbers

RFUMD001 Reorganization of discount offset accounts in OP management


MM_R Materials Management – Invoice Verification

M_RECH_BUK Invoices: accounting fieldM_RECH_SPG Invoices: grounds for blocking


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5.3� Risks

Without adequate protection of payment transactions through system plausibilityand machine controls/squaring, and without effective organizational preliminaryand subsequent manual controls, the company may suffer pecuniary loss owing towork errors and/or deceitful transactions.

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Incomplete or incorrect management of creditor master data sets can result incostly reworking, which makes information difficult to track, if it remains at allpossible (see also Chapter 7, modifications of master data). A lack of functionalseparation between alternate access to master data and movement data increasesthe risk of manipulations in creditor data (e.g. account links).

The use of CpD accounts in payment transactions involves additional risks basedon the open-ended input potential in the payment path, payment receiver, and thelack of transparency regarding the opportunities for evaluation (supplier statistics,etc.).

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Without internal company regulations on invoice verification (four-eyes principle,separation of functions, release procedure), there is a risk of double payments (e.g.posting and payment of copies of invoices or reminders), and manipulations (e.g.invoice with service).

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Blocked invoices do not appear on the payment recommendation lists. If nocontrols are in place, of if there is no squaring between the paymentrecommendation and the payment, invoices may be released unnoticed after therecommendation list is released, and make their way into the payment path.


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Based on interviews, descriptions of centers, and organizational charts,information should be assembled regarding which form of operationalorganization the company has selected. Using the documentation on the accessauthorization procedure designed by the company, it should then be determined towhat extent the organizational structure of the company coincides with theauthorization plan.

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In verifying authorizations, it should be determined whether there is functionalseparation within the company between invoice verification/posting/release forpayment. The questions run as follows: Are there employees who canenter/manage creditor master data and post invoices and/or release invoices forpayment? Can employees with system authorizations set these up themselves?

If these functional separations are lacking because several work stages arecombined in the course of payment transactions given the small size of thecompany, questions must be asked regarding corresponding measures in theinternal control system. The questions here are: What verifications does the ICSprovide? Is the four-eyes principle applied for entry and management of creditors,posting and release for payment to a work place, and are plausibility verificationsperformed for the services or invoice amount contained in the invoice for eachcreditor?

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In verification of internal business regulations concerning the establishment andmanagement of creditors, questions must also be asked concerning the handlingof CpD accounts. What work orders are in place? Are CpD accounts controlledseparately? Under what conditions are posting made to CpD accounts?

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The process of preparing and controlling payment recommendation lists andpayment transaction data files must be verified. Are the payment recommendationlists checked prior to payment? If yes, do any errors discovered or modificationsto the recommendation lists correlate with the payments? Are there any rules forsetting and resetting blocking markers? Are there any adjustments between therecommendation inventory total and the payment transaction total?


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How are payment transaction data files safeguarded? Is access to the data file andspool systems possible?

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A check should be made to determine the extent to which double payments canoccur, and what measures the company has put in place to avoid them. Are theirwork instructions for handling copies of invoices and reminders? Are plausibilityverifications set up in the system? Can creditors be entered more than once intothe master data?

5.5� EDI invoice receiptAn automated exchange of business data is possible by means f electronic datainterchange (EDI) (including orders and invoices). The formats of the EDI reportsare in conformity with international standards, such as EDIFACT (Electronic DataInterchange for Administration, Commerce and Transport) or ANSI X12 (U.S.national standard).

There is a three-level EDI architecture within SAP R/3:

• determination of EDI-capable applications, which communicate with the EDIinterface via functional modules.

• EDI interface (definition of receive/send rules)

• connection of EDI subsystems (including conversion and archiving of EDIreports, exchanges of reports) to the EDI interface

Electronically transferred invoices/credit entries with reference to an order canbe recorded automatically in the invoice verification process. Two approachesare available:

• The invoice/credit entry is first stored by invoice preliminary recording, and isthen posted after verification by an employee in charge of this function.

• The invoice/credit entry is posted directly, if no errors appear in it.

Electronically transferred invoices/credit entries without reference to an ordercannot be recorded automatically in the invoice verification process; a function ofthis type is provided only in the finance department.

The rules for recording EDI invoices must be set in customizing the financedepartment.


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Processing EDI invoices in invoice verification depends on whether the invoice ispreliminarily recorded or posted directly.

Two types of errors are possible in recording EDI invoices:

• The system settings for the business partner are incorrect, and must becorrectly appropriately.

• The data transmitted in incorrect. In this case, the party issuing the invoicemust transmit a new invoice.


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5.5.1� EDI Regularity requirements

In accordance with §14, paragraph 4 UstG [Turnover Tax Law], invoices mustexist in documentary form. A written individual statement or a collectivestatement is required for input tax deduction. The individual statement must beable to be squared with the EDI transmission report. This is also true for thecollective statement, which, again, must be able to be squared with the turnover ofthe corresponding transmission period.

The SAP procedures for safeguarding settlement data must be verified in detail:

• completeness of transmission and processing

• accuracy of transmission and processing

• allocation to the appropriate period

• accuracy of table governance

• reproducibility of the data

• compliance with legal and contractual requirements

The objects of this verification are the procedural documentation, the EDIcontract, the log report (completeness of recording, regularity of archiving),customizing – including management of master data, the procedure forrecognizing and handling errors, the authorization concept – includingmanagement of authorization, and the data security procedure.

Since, in accordance with §257 HGB [Commercial Code], the content of businesscorrespondence that has been sent must be able to be kept, the use of EDI doesnot impose any new obligations to keep correspondence on the part of the sender.Special requirements are imposed, therefore, only on the party receiving EDIreports, to the extent that such correspondence contains processes that are subjectto posting.


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In accordance with FAMA [Technical Committee for Modern AccountingSystems] 1/1995, the following requirements must be imposed on the applicationsystem after the EDI report is received:

• „The EDI process must guarantee complete, accurate, timely and verifiableprocessing. The requirement for completeness extends to the number of allbusiness transactions (authorized and subject to documentation) that are to becarried out internally. The user is free to select the procedure, but mustdemonstrate that controls are being implemented.

• Furthermore, it must be ensured that no falsification can be made of thecontent of the report. Timely processing is accomplished if a businesstransaction is processed immediately after it takes place. As little separation intime as possible must exist between the receipt of the EDI report and itsprocessing. Finally, the capacity for auditing includes a description of theprocessing procedure, which enables expert third parties to trace the originand course of business transactions within a reasonable amount of time.“

The invoice documents are recorded via the EDI interface as „interim vouchers“,and designated IDOCs (Intermediate Documents). The special IDOC archivingclass has been created for this purpose, for which the various archiving programscan be used.

According to FAMA 1/1995, no requirements are imposed with respect to aspecific storage format. Archiving of the original EDI report (Original) is notrequired.


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6� STOCKTAKING

6.1� Objectives and requirementsGerman commercial law provides (§240 HGB [Commercial Code]) thatbusinessmen must list their property assets, in other words their inventories, at theclose of each business year in a schedule of expendable stores, and, in preparationof that schedule, that they must perform an inventorying (stocktaking).

The following stocktaking procedures are permissible for this purpose:

• complete physical listing in the form of- perpetual stocktaking (§241, paragraph 2 HGB),- fixed-date stocktaking and expanded fixed-date stocktaking, and- pre- or post-scheduled fixed-date stocktaking (§242, paragraph 3 HGB),

• sample audit stocktaking without complete physical listing (§241 paragraph 1HGB).

Furthermore, for inventories of economically lesser significance, and forquantities and values that remain approximately the same, the creation of a so-called „fixed value“ is permitted, for which a physical listing must be performedonly every three years (§240, paragraph 3 HGB).

We refer the reader to the position taken by the Main Technical Committee (HFA)at the IDW (Auditors Institute), 1/1990 and 1/1981.

With the exception of the sample audit stocktaking, the mathematical andstatistical requirements of which, as a rule, are not covered in standardcommercial software, a modern materials management system must support thesevarious listing methods:

• As described in the preceding chapters, an on-going, accurate inventoryingprocedure must be guaranteed, as a basic condition for determining theestimated quantities.

• The preparation for the physical listing must be supported (e.g. by paymentlists, in which all storage locations and all item numbers, but no estimatedquantities, are presented, through closed numbering circuits of the listingvouchers for reverse movement control, etc.), as must their implementation,and to the greatest possible extent through interfaces with largely automatedlisting procedures such as voucher readers, EAN codes, hand terminals, etc.

• The valuation of the stocktaking (estimated/actual comparison) must bepossible, whereby, during processing and posting of the differences instocktaking, once again attention must be given to the separation offunctions.


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• It must be possible to adjustment book quantities (by quantity and value) in anintegrated way with the actual quantities.

• Specifically for perpetual stocktaking, the completeness of the physical listingmust be supported by machine.

Stocktaking and stocktaking documentation are components of accounting, forwhich the principles of regularity given in §238ff. HGB apply. In planning,implementing, overseeing, and evaluating the inventory, the following principlesmust be applied:

• completeness of the inventorying

• accuracy of the inventorying

1. applicable identification2. reliable determination of quantities and values3. recording of all information relevant for the valuation- cost or production price- quality- condition- technical and economic exploitability- overstocks- financial soundness- availability

• individual listing of the inventories

• verifiability of inventory acceptance

With respect to valuation of the inventory, we refer the reader to the next chapter.


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6.2� SAP Facts

6.2.1� Stocktaking proceduresSAP supports the following methods (or details, see SAP documentation):

• fixed-day stocktaking

• perpetual stocktaking

• sample audit stocktaking

• cycle counting

6.2.2� Stocktaking implementationIn the SAP system, stocktaking occurs at the warehouse level; for each storagelocation, a separate stocktaking voucher is produced. The course of stocktaking issubdivided into:

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• Prepare stocktaking voucher/Stocktaking recording lists

• Block materials for postings

Because of a time lag between posting a goods movement and its physicalimplementation, distortion can arise between the actual warehouse inventory andthe book inventory. Therefore, it is recommended that the materials involved inthe stocktaking be blocked from postings during the stocktaking process. Theposting block is automatically released when the results of the counting have beenentered.

Print and distribute stocktaking voucher/stocktaking recording lists

,QYHQWRU\�FRXQWLQJ

• count stocks on hand

• enter the result of the count in the expression of the stocktaking voucher


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,QYHQWRU\�YDOXDWLRQ

• record the result of the count in the system (at the same time, the date of therecording is noted in the material master data)

• run a recount (preparation of recount vouchers if discrepancies are large)

• offset stocktaking variances

In posting the stocktaking variance, a materials voucher is prepared that reportsthe inventories, as well as a bookkeeping voucher that contains the necessaryaccount movements.

In addition, there is the possibility of combining several stocktaking steps, e.g.posting stocktaking variances without reference to the stocktaking voucher, i.e. ina single step, a stocktaking voucher is set up, the counting is posted, and thestocktaking variance is offset. This type of procedure can influence theeffectiveness of the internal control system with regard to recording processes.

In customizing the inventorying process, for individual user groups, valuetolerances (maximum amount per stocktaking voucher, or voucher position) canbe defined for posting stocktaking variances.


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6.2.3� Sample audit procedures6.2.3.1� Overview

Mathematical and statistical methods are used to perform the sample auditinventory:

• From the inventory units to be inventoried, a random sample to be counted isselected. The scope of the random sample depends on the accuracy probabilitythat is supposed to apply for generalization from individual counts to all theinventory units involved.

• Based on the results of the count posted, a computer forecast is run on all theinventory units involved in the sample audit inventory.

• Of the variance between the computer forecast value and the book value issmall, and if the probability is great that only a very small margin of error ispossible in the computer forecast, the sample audit inventory is consideredsuccessful.

If the sample audit inventory is successful, it is assumed that the estimatedvariances from the book inventory are small enough that they can be disregarded.Only inventories for those elements that were actually counted are corrected in thetraditional stocktaking process; inventories for the remaining inventory unitsremain unchanged.

If a sample audit inventory is not successful, a complete stocktaking must beperformed for the inventory units that were not counted.


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The sample audit inventory can be performed in various ways; these may varyaccording to the following criteria:

• area of the sample audit inventory• method used for the sample audit inventory• computer forecast method

6.2.3.2� Area

The sample audit inventory can be used in the areas of inventorying andwarehouse management. The method in both instances is the same; the onlydifference is in the selection of the objects to be inventoried:

• inventorying; stocktaking proceeds via the selection of materials according tothe plant, the storage location, the type of material, and the type of inventory.

• warehouse management; stocktaking proceeds via the selection of the storageareas, according to storage number and storage type.

6.2.3.3� Method

In both areas, sample audit inventorying – analogous to the traditional stocktakingprocess – can be implemented according to two methods:

• IL[HG�GDWH�VDPSOH�DXGLW�LQYHQWRU\; in fixed-date sample audit inventorying,the counting is done as of a fixed date. Movements in the warehouse, andchanges in the book inventories are not permitted during the stocktakingprocess.

• SHUSHWXDO�VDPSOH�DXGLW�LQYHQWRU\� perpetual sample audit inventorying canbe done over a very long period of time. The data from the sample auditinventorying is updated from time to time to the latest version of the bookinventories. Changes in the book inventories thus flow into the calculations ofthe sample audit inventory.

In the SAP system, there is no distinction between these two methods, either inthe processing steps during implementation, or in the system’s calculationprocedures. In fixed-date sample audit inventorying, however, there must beorganizational guarantees in place to ensure that the book values are not changedduring the sample audit inventory.


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6.2.3.4� Computer forecasting method

Various mathematical methods are possible in terms of the computer forecastingmethod. For now, the SAP system is limited to one method, PHDQ�YDOXHFDOFXODWLRQ.

6.2.3.5� Implementation of sample audit inventorying

When a sample is representative, the relative sample audit error is decisive. If thiserror falls below the maximum value set in the parameters (usually 1%), thesample is representative. Furthermore, additional assessment is recommended.

It is essential for the successful conclusion of a sample audit inventory that thetotal inventory value (estimated value of the sample room and actual value of thecomplete assessment room) vary by a maximum of 2% (standard settings) fromthe book inventory.

The sample audit inventory takes place according to the following processingsteps:

• $OORFDWH�WKH�LQYHQWRU\�OHYHOV

• (VWDEOLVK�WKH�ZDUHKRXVH�WRWDOLW\

The warehouse totality is the amount of all inventory units that belong to a sampleaudit inventory. These inventory units are clearly defined by allocating theinventory levels to a sample audit inventory. The warehouse totality is subdividedinto the sample room and the complete assessment room. The same roomcomprises material classes that later serve to establish layers.

• 'LYLGH�LQWR�OD\HUV

Division into layers is done on the basis of the subdivision into classes.Successive individual classes are comprised of layers.

• &UHDWH�UDQGRP�VDPSOLQJ

In random sampling, a selection is made for each layer of the elements in the layerthat are to be counted.


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• 3HUIRUP�XSGDWH

In the update, the system performs three actions:

1. Read additional posted results of counting

2. Determine changed book inventories and values

3. Determine necessary additional assessments

• 3HUIRUP�FRPSXWHU�IRUHFDVWLQJ�(SAP currently supports the layered meanvalue calculation method).

The principle of the sample audit inventory is based on the fact that the results ofthe count of the randomly selected inventory units are used in a computer forecastfor all inventory units in the sample room. In addition, the results of the countfrom the complete assessment room are incorporated into the overall calculation.From these two results, the system establishes an estimated value for thewarehouse totality from the sample audit inventory.


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6.2.4� Tables

T001K Valuation field

T001L Storage locations

T064A Inventory types for stocktaking

T064B Inventory types and texts for stocktaking

T064F Function codes, stocktaking

T064S Inventory levels for sample audit inventorying

T064T Texts on stocktaking

T150 Order types for stocktaking and related movement types

T150F Order types and associated field in stocktaking

T158I Transaction governance, stocktaking

T159G Standard values for sample audit inventory profile

T159H Long text on sample audit inventory profile

T159I Test data for batch input in inventorying (stocktaking)

T159L Recommended values for inventorying and stocktaking

T322 RM Movement types for offsetting, stocktaking

T320 LVS RM storage location – LVS warehouse number allocation

T320C LVS warehouse number – RM storage location allocation

T321 Allocation, movement type RM-MAT -> movement type RM-LVS

T321D Allocation, movement type RM-LVS-decentralized -> HOSTtransaction


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6.2.5� Reports

RMCBIN00 ABC analysis by consumption or demand

RM07ICN1 Due dates for cycle counting materials

RLI30010 Overview, stocktaking

RLINV010 Selection of storage locations for fixed-date stocktaking

RLINV015 Performing perpetual fixed-date stocktaking

RLINV020 Variance lists by warehouse type

RLINV030 Valuation of stocktaking variances

RLINV040 Progress of stocktaking

RLKOMM00 Composite commissioner lists

RLL03T01 Offsetting variances in RM

RLLB1100 List of TBs by material

RLLD0400 Valuation of the communications vouchers

RLLI0400 Printing stocktaking recording lists for perpetual

stocktaking

RLLI0401 Printing stocktaking recording lists for perpetual

stocktaking

RLLI0500 Displaying stocktaking history at the storage location

RLLI1400 Stocktaking variances

RLLI2001 Stocktaking variances

RLLI2100 Off-setting variances in RM


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M_ISEG_WDB Stocktaking: booking discrepancies at the plant

M_ISEG_WIB Stocktaking: Stocktaking voucher at the plant

M_ISEG_WZB Stocktaking: counting and booking discrepancies at

the plant

M_ISEG_WZL Stocktaking: counting at the plant

M_MBNK_ALL Materials vouchers: managing the numbering field

M_MRES_BWA Reservations: movement type

M_MRES_WWA Reservations: plant


M_MSEG_BWA Goods movements: movement type

M_MSEG_BWE Goods receiving for purchase ordering: movement

type

M_MSEG_BWF Goods receiving for orders: movement type


M_MSEG_WWA Goods movements: plant

M_MSEG_WWE Goods receiving for purchase ordering: plant

M_MSEG_WWF Goods receiving for orders: plant

M_SKPF_VGA Sample audits for stocktaking: procedure

M_SKPF_WRK Sample audits for stocktaking: plant


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6.3� RisksThere is a risk that the following sound accounting principles will not bemaintained, which may lead to errors in the annual result (income statement) andin the balance sheet statement (receivables and payables):

• principle of completeness and accuracy in inventorying• principle of individual listing of stocks• principle of reproducibility of inventory acceptance

A consequence of errors in delineating the period is that the annual result may beincorrectly presented, and receivables and payables may be reported incompletely.

The following risks arise in the sample audit stocktaking procedure:

• incorrect selection of the acceptance or refusal thresholds used for thecomputer forecast (size of the relative sampling error in reference to thesample room).

• error in setting the statistical parameters (accuracy probability, relativestatistical error, relative variance between book value and actual value).

• incorrect layer formation based on insufficient setting of the minimal sample(the SAP system does not have any automatic setting for a minimum samplenumber per layer; rather, establishing the correct setting is left up to the user).

• incorrect setting by the user of the upper threshold value for defining thecomplete recording layer.


Auditing steps:

• What guarantees are in place to ensure that all materials are listed?• Was posting generally blocked while the stocktaking voucher was being

prepared?

%\�VHWWLQJ�WKH�SRVWLQJ�EORFN�LQ�WKH�/RJLVWLFV�PHQX�0DWHULDOV

0DQDJHPHQW�6WRFNWDNLQJ�6HW�VWRFNWDNLQJ�YRXFKHU��!�2WKHU�LQIRUPDWLRQ�


��

3RVWLQJ�EORFN��DOO�PDWHULDOV�PRYHPHQWV�IRU�WKH�PDWHULDOV�WR�EH�LQYHQWRULHG�ZLOO�EH

FXW�RII�

• Have materials movements been posted after stocktaking vouchers aregenerated?

• Assess the completeness and accuracy of acceptance of stocktaking data, andthe evaluation of it.

• Are guarantees in place to ensure that the correct period is delineated? (Auditof period delineation = cut-off auditing)

• How are stocktaking variances handled? (Process, standard application ofmovement types 711 and 712, correct application of movement types,handling via variance interface)

Cut-off auditing is done by balancing the goods receiving or outflow certificatesand the delivery receipts with the corresponding sales or entry invoices-> see audit menu AUDI_VORRÄTE -> AUDI_WARENBEWEGUNGEN‘AUDI_WARENEINGANG’, ‘AUDI_WE_CUT_OFF:

• OBYP_1 Goods receiving/invoice receiving offset accounts

• RFWERE00_1 Cut-off, goods receiving open to now

• RFWERE00_3 Cut-off, goods receiving, from/to

• RFWERE00_2 Cut-off, invoice receiving open to now

• RFWERE00_4 Cut-off, invoice receiving from/to

‘AUDI_WARENAUSGANG’ ‘AUDI_WA_CUT_OFF’


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If the SAP sample audit process is used, the following auditing steps arenecessary:

• &RQWURO�RI�WKH�FRUUHFW�VHWWLQJ�RI�WKH�VWRFNWDNLQJ�SURILOH�LQ�FXVWRPL]DWLRQ

RI�LQYHQWRU\LQJ�VWRFNWDNLQJ.

1. Sample audit stocktaking method2. Computer forecasting method3. Accuracy probability4. Relative statistical error5. Relative variance, book to actual value

• 9HULILFDWLRQ�RI�WKH�LQYHQWRU\�OHYHOV�VHW�XS

Through customizing the stocktaking process, it is possible to set theinventory levels for which sample audit stocktaking is permitted.

From the setting menu for inventorying/stocktaking, you can obtain a list ofall possible inventory levels, by using 3URFHGXUHV��!�6WRFNWDNLQJ��!�6DPSOHDXGLW�VWRFNWDNLQJ��!�,QYHQWRU\�OHYHOV. The inventory levels that should beselected for a sample audit stocktaking procedure must be marked in the„Stlnv zugel.“ [Sample audit stocktaking permitted] column. Since, as a rule,several inventory levels are allocated to one sample audit stocktakingprocedure, „related“ inventory levels can be combined into a group.

• &RQWURO�RI�WKH�FRUUHFW�GHOLQHDWLRQ�DOORFDWLRQ�RI�VDPSOH�URRP�DQG

FRPSOHWH�DVVHVVPHQW�URRP�

The sample room is a part of the warehouse totality; it contains all theinventory units that are involved in the selection of the units to be counted.For the remaining inventory units of the warehouse totality, a completeassessment is necessary; these form the complete assessment room. Thesystem divides the warehouse totality into sample and complete assessmentrooms automatically when the warehouse totality is created.

Five parameters control whether a complete assessment is scheduled for aninventory unit:

- A delete marker is set for the inventory unit in the material master data set.- The book inventory for the inventory unit is zero.


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- The inventory unit has a specific ABC marker.- The price of the material falls above a specified limit.- The value of the inventory unit (material price * quantity) falls

above a specified limit.

• &RQWURO�RI�WKH�SDUDPHWHU�VHWWLQJV�IRU�WKH�DFFHSWDQFH�DQG�UHIXVDO�OLPLWV

IRU�WKH�FRPSXWHU�IRUHFDVWLQJ�SURFHGXUH�

According to SAP documentation, it is initially assumed that the relativesample audit error relating to the same room must be = 1% in order to beabsolutely representative. If this is not the case, additional assessment arerequired. The Main Technical Committee (HFA) of the Auditors Institute, inits document on sample audit inventorying (HFA 1/1981, in the 1990version), set the limit at 2%. Therefore, the sample audit scope in the SAPsystem is, under certain circumstances, higher than is necessary, at least fromthe perspective of the general audit. According to SAP documentation, thesetting at = 1% can be adjusted, in that the relative sample audit error isrelated to the sample room and the complete assessment room. In this way,however, when the proportion of the complete assessment room equals morethan 50% of the total room, it is possible that the requirement of the Bureau ofInternal Revenue (relative sample audit error related to the sample room = 2%)may be avoided; from the requirements of the Foreign Trade and PaymentsOrdinance, Financial Management Board, October 1978.

• &RQWURO�RI�WKH�VWDWLVWLFDO�SDUDPHWHUV�XVHG�

The statistical parameters (accuracy probability, relative statistical error,relative variance between book and actual value) can, according to SAPdocumentation, be set as the user wishes. According to documentation fromHFA, however, the accuracy probability must be at least 95%. Therefore, it isimportant to determine whether this condition is met.

• &RQWURO�RI�WKH�UHJXODU�DQG�VRXQG�FUHDWLRQ�RI�OD\HUV�

According the HFA requirements, the mathematical and statisticalrequirements for layered methods must be met for each layer. Therefore, ineach layer, sufficient samples must be used, i.e. a minimum sample is requiredfor each layer, usually fixed at 30 positions. SAP does not automatically takeinto account a minimum sample per layer; rather, it allows the user to set thenumber of samples. However, if no minimum sample is set by the user, the stocktaking procedure does not fulfill the HFA requirements.


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• 9HULILFDWLRQ�RI�LQYHQWRU\�SRVWLQJV�PDGH�

If the sample audit stocktaking is performed on a fixed date, variancesbetween book inventories and book values as of the planning date and thecurrent date are not permitted. Therefore, the individual procedures fromcreating the warehouse totality up to and including the final updating musttake place soon after each other. Inventory postings must not be made in themeantime, since otherwise the sample audit stocktaking would lead to errors.Therefore, it is important to determine whether inventory postings have beenmade anyway, and what effects those postings may have had on the result ofthe stocktaking procedure.

• &RQWUROOLQJ�FRPSOLDQFH�ZLWK�WKH�VWRFNWDNLQJ�SURFHGXUH�

If any variances between book inventories and book values have turned upbetween the planning date and the current date, under certain circumstancesthe fixed-date stocktaking procedure may not have been followed, and,nonetheless, perpetual sample audit inventorying may have been performed.This has an impact on the allocation of inventory units to layers. In thesecases, it is recommended that the system perform additional assessments. Itmust be determined whether the correct procedure was followed, or if changesmade in the process have resulted in any stocktaking errors.


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7� VALUATION


Under German commercial law, valuation of inventories must be made basicallyat the higher of the acquisition prices (raw materials, auxiliary materials,operating supplies) or manufacturing costs (semi-finished and finished products)(§253, paragraph 1 HGB [Commercial Code] and §255 for determining thatvalue).

The strict lower-value principle also applies to liquid assets, and therefore also forinventories; this means that the individual inventories must be assigned a lowervalue than the acquisition or manufacturing costs, provided that

• a lower exchange price or market price can be determined (§253, paragraph 3,line 1) or

• there is a lower „attributable value“ (§253, paragraph 3, line 2) which plays arole in the area of inventories, particularly with regard to overstocking andobsolete inventories.

In addition, lower values may be used, although this is not mandatory, to takeimpending reductions in value into consideration earlier (§253, paragraph 3, line3) and „in the context of the reasonable judgement of a businessman“ (§253,paragraph 4 HGB). First, since these latter optional determinations do not play alarge role in practice (§253, paragraph 4 is not to be applied to commercialcorporations, pursuant to §279, paragraph 1 HGB), and second, because they arenot automated, no additional analysis of them will be provided here. We will alsonot go into further detail regarding the possibility of fixed or group valuation(§240, paragraphs 3 and 4 HGB) because dealing with the problem is ofsecondary importance.

Against this legislative background, because the valuation of inventories is one ofthe most difficult and most materially significant problems areas in accounting –since considerable investment in controls and the risk of arbitrariness are involved– (the auditor’s Bible, the „ADS“, has 224 pages of commentary on §253 HGBand another 124 pages on §255!) – this is the very area in which software mustmeet the greatest requirements for information content and automated controlcapacity.


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7.1.1� Determining acquisition costs and lower of cost or market balance

A data processing precondition for extensively automated, accurate inventoryvaluation is that the software must provide the ability to store different prices bydate and, where possible, to manage that information automatically. The followingitems are of importance in this respect:

the actual purchase prices (automated),the average price to be determined from those prices (automated),the most recent purchase price for an item (automated), to serve as a control price,andthe lowest purchase price for an item by period (automated), also to serve as acontrol price.

With regard to the actual purchase price – unless an escalating average is provided– the question must be answered as to the prices at which items found in theinventories at the time of stocktaking were acquired. To that end, §256 HGBpermits inventories to be subject to a specific consumption sequence, forsimplification purposes, namely:

the LIFO method (last in – first out)perpetual LIFOperiod LIFOthe FIFO method (first in – first out).

These methods must also be machine supported.

For control and calculation purposes, furthermore, the possibility of using internalprices must also be provided. first, this makes pre- and post-calculations moreeasily comparable, and secondly, errors in recording and other „runaways“ can bereadily monitored (e.g. a replacement part or a repair is posted as an item received,or an item received is posted under an incorrect item numbers, an item is postedwith a high low-quantity or urgent-delivery rate, etc.)

In addition, it is essentially that there be a capacity to use manually administeredprices for inventory valuation, since the lower exchange or market price or„attributable value“ to be used does not usually correspond to any of the pricesthat can be determined from purchasing, as outlined above, which can thus beautomated.


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It is specifically this latter point that imposes the greatest demands on an ICS[internal control system], and thus also on the capacities of a software package.These demands include the following:age grouping and range (based on production planning) of the inventory of eachitem should be able to be determined automatically, and corresponding valuationalgorithms should be capable of being automated,comparisons between the possible prices mentioned above that are as flexible andas detailed as possible for the user, depending on the specific circumstances (i.e.price variance analyses right down to the level of the individual invoice) should bepossible, and, of course, the lowest value adjustment itself should be automated,i.e. determining and using the lowest of the prices discussed above, for each item,for purposes of inventory valuation.

Considerable demands are also placed on reproducibility and history, in thissector, since it must always be possible to determine which item was valued atwhat moment, using which of the possible values.


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7.1.2� Determining manufacturing costs

The following schema applies for determining manufacturing costs:Manufacturing costs per

§255, para. 2 and 3Manufacturing costs per R

33, EstR 1993Inclusion Inclusion

required

allowed

forbidden required

allowed

forbidden

1. Material costs Production material Material overhead

XX

XX

2. Production costs Direct labor costs Production costs incl.

depreciation onproduction facilities

Special individualproduction costs

Special productionoverhead

Interest on outsidecapital used to financeproduction of an asset

X

X

X

X

X

XX

X

X

X

3. Administrative costs

General administrativecosts

Expenditures for socialservices of theoperation

Expenditures forvoluntary socialbenefits payments

Expenditures foroperational old-agepensions

X

X

X

X

X

X

X

X

4. Manufacturing costs

Total 1 through 3


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5. Interest on equitycapital and outsidecapital, if not coveredunder item 2

X X

6. Marketing costs X X

This shows that, except for the cost of production materials, not all manufacturingcost components are derived from materials management itself, but from financialaccounting and other elements of accounting, such as payroll accounting, andspecifically from cost accounting. In addition, for allocation of the individual costelements to individual articles, data from production (parts lists and work plans)are needed. Therefore, as high a degree as possible of integration is of particularimportance for the quality of the software.On the other hand, complete „online integration“ – which is theoretically possible– which, at this point, includes every change in purchase price, everymodification by a committee, every change in wage costs owing to illness, allrepairs, and other variations and other chance events used in determiningmanufacturing costs, is neither rational nor, in the interest of comparable data –desirable (and, in part, also impermissible). As a result, the actual cost is notnormally used in determining manufacturing costs; rather, these costs aredetermined using calculated budget costs. One outcome of this is that, forpurposes of evaluating these budget costs, actual costs must be compared and, ifnecessary, corrected.

Both factors, in combination, place further demands on the reproducibility of theprocess. Documentation and output must provide answers to the followingquestion, among others.


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7.1.2.1� Raw materials, auxiliary materials, and operational supplies

• What is the overall path of a purchased part, physically and in terms ofbookkeeping, from the purchase requisition to allocation of the order?

- How are quantities entered into the system?- How are prices entered into the system?- How is the lowest-value adjustment handled?

• Where can one see whether valuation is done at GIDP, VP, last purchaseprice, or lowest purchase price?

- What systematic approach is then used for valuation, at what price?- Who handles the VP?

• Are large differences between VP, GIDP, last purchase price, and lowestpurchase price analyzed (on-going), and what consequences are drawn fromthat analysis?


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7.1.2.2� Finished products/Unfinished products

0�D�W�H�U�L�D�O�V

• What is the overall path of a purchased part from the warehouse through to thefinished product, physically and in terms of bookkeeping?

• How do target consumption figures (= parts lists) appear in the system?

• How do actual consumption figures appear in the system, and what happenswhen there are discrepancies?

• When is valuation done according to budget costs, and when is valuation doneaccording to actual costs, and at what price?

• How are parts produced in-house entered into the system?

• What is the chain of events when physically identical parts appear sometimesat semi-finished products, and sometimes as purchased parts?

• What is the route from the warehouse to the cost center to the cost unit?

3�U�R�G�X�F�W�L�R�Q��F�R�V�W�V

• What are the overall procedures for calculation, work preparation, andscheduling?

• How does target consumption (= work schedules) appear in the system?

• How does actual consumption appear in the system, and what happens whenthere are discrepancies?

• When is valuation done according to budget costs, and when is valuation doneaccording to actual costs, and at what price?

• What is the route from scheduling to the cost center to the cost unit?


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2�Y�H�U�K�H�D�G��F�R�V�W�V

• What is the actual composition of the overhead costs, i.e. what overhead costsare used in valuation (EstR 33)?

• What quantity units (e.g. machine hours) are there, and what prices?

• How is valuation done, and how are the overhead costs recorded?

• What assessment system is there (BAB)?

• What is the route from the origination of the cost to the cost unit?

The strict lowest-value principle described above also applies to the valuation ofsemi-finished and finished products. Depreciation from the raw materials areamust, therefore, be able to be „passed through“ to the valuation of semi-finishedand finished products. In addition, in the valuation of semi-finished and finishedproducts, the principle of „loss-free valuation“ must be taken into consideration,which requires that the products must be depreciated if the cost that have occurredto date, plus costs still to be anticipated, are not covered by the sales price that canbe obtained:

Sales price./. production costs still to come./. non-operating expenses

./. packaging costs, shipping costs

./. other marketing costs still to come

./. other administrative costs still to come_____________________________________________

= value to be attributed as of the closing date of the financial statement.

The majority of the objectives and requirements described here apply to the areasof (customer) order management and production, as well.


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The following points must also be noted:

• In the area of (customer) order processing, a high degree of integration isimportant, because that department required extensive information from theother areas, particularly from the creditors, production scheduling, and costaccounting departments.

• As described in the previous chapter, there are significant points of interactionbetween production and production control, and between the cost account andvaluation sectors. However, since production control is the most individualarea in production, on the one hand the PPS module of modern softwareshould be as flexible as possible and, on the other hand, the remaining areasshould have clearly defined interfaces to outside (PPS) systems.


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7.2� Basics of valuation in SAP R/3

To understand material valuation, a few basic terms, structures, and procedures inthe SAP R/3 system must first be explained.

7.2.1� Valuation structures

Valuation is governed by the valuation structures in the SAP R/3 system. Thefollowing structure must be distinguished:

• 9DOXDWLRQ�DUHD

Organizational level at which the valuation of materials is made. As analternative, customizing can be used to make an accounting area or a plant thevaluation area.

• 9DOXDWLRQ�FODVV

Materials having similar properties can be combined into valuation classes forbookkeeping purposes. This is done as a function of the type of material,through the allocation of the material in the material master data record. Theinventory account tracking for the respectively material is also handled withthe help of the valuation class.

• 9DOXDWLRQ�W\SH

The valuation type is used for separate valuation. It sets up the criterion bywhich the inventories of a material can be valued separately, such as thepurchase, origin, or condition of the material. One special feature, in theregard, is the valuation type „X“, which makes valuation possible at thecharge level.

• 9DOXDWLRQ�VRUW

The expression of the valuation type in separate valuation is called thevaluation sort. Customizing can be used, for example, to define the valuationsorts „in-house production“ and „purchased from a third party“ for thepurchasing valuation type. In valuation at the charge level, the valuation sortis the individual charge when the goods are received.


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7.2.2� Material and movement types

• 0DWHULDO�W\SHV

Each material is allocated to a material type in the SAP system. The materialtype is used to control what properties a material has in relation to itsvaluation. This includes information on whether a material is managed interms of quantity and/or value, what price governance is used, and thevaluation class to which the material is allocated.

• 0RYHPHQW�W\SHV

Material movements are mapped in the SAP R/3 system via movement types.The movement types govern whether quantity and/or value adjustment of thematerial takes place, whether a posting in the financial books is offset, andwhether a movement is relevant for a LIFO/FIFO valuation.

7.2.3� Price governance

The SAP R/3 system makes a distinction between two types of price governance:

• 6WDQGDUG�SULFH�(price governance marker „S“)All inventory postings are made at the standard price. Variants are posted inprice difference accounts, and adjusted. This makes price controlling possible.

• $YHUDJH�HVFDODWLRQ�SULFH�(price governance marker „V“)All incoming goods are posted at accession values. The price in the materialmaster data record is then adjusted to the respective cost prices, so that pricedifferences occur only in exceptional instances.


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7.3� Changes in materials valuation

Changes in materials valuation can be distinguished, from the perspective of theSAP R/3 system, into automated and manual changes.

Automated changes in material valuation refer mainly to processes in the contextof invoice verification and inventorying, which result in automated postings. Werefer the reader to chapters 4 and 5, where this topic is discussed in detail.

Manual changed, by contrast, make it possible to change material valuationsdirectly, through revaluation of a material, by price changes or materials entry orrelease, and through retirement in the context of stocktaking differences. Withregard to the last of these, we refer the reader to chapter 6.

7.3.1� Price changes7.3.1.1� SAP Facts

In the practice of materials management, it may be necessary, for a variety ofreasons, to change the price of a material manually. This is possible, independentof price governance, both for a future date and for immediate effect. Whenchanges are made for immediate effect, there is also the possibility of postingprice changes in the prior period or in the prior year (in this regard, see sub-point7.3.3 „Reverse entries in the prior period“), in that, when the change is recorded, aposting date from the prior period is entered. Through customizing, furthermore,it is determined whether price changes apply only for the prior period or prioryear, or for the current period, as well. Posting a price change in the system resultsin an adjustment of both the material master data record and the correspondingaccounts in financial accounting, whereby, from the perspective of financialaccounting, an accounting voucher is generated. In terms of bookkeeping, theprice change results, on the one hand, in an inventory posting in the amount of thetotal quantity multiplied by the price difference, and, on the other hand, in arevenue or expense counter-entry.

7.3.1.2� Risks

Using the capacity to make manual entries for price changes, the user can accessthe automatic materials valuation of the SAP R/3 system directly. If this is notdone with the correct facts, or if such access is not factually justified, there is adanger that the material at issue may be incorrectly valued, with all the


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attendant consequences under commercial and tax law. In addition, this type ofaccess may escape any internal control system that may be in place. A system-oriented auditing valuation based on the automated valuation procedure of theSAP R/3 system, can no longer be maintained in such a case.

7.3.1.3� Auditing steps

A basic determination must be made as to whether the manual entry possibilitiesfor price changes are provided organizationally with the client. The urgent needfor such access into the automated materials valuation of the SAP R/3 systemoften arises because of procedural routines within the company (for example,adjusting a standard price or updating an average escalation price for goodsmovements that have been omitted for a long time).

If the ability to make manual entries of price changes is present, the first thing tocheck is what group of individuals is entrusted with this responsibility, takingfunctional separation concerns into consideration. In the SAP R/3 system, pricechanges are handled through the accounting aspect of the material master datarecord. As a result, the following qualifications for materials management –master data, through which the mapping of this functional distribution is handledin the SAP R/3 system, must be examined as a function of the organizational andfunctional structure of the company:


M_MATE_BUK Master data: accounting area

M_MATE_LGN Master data: inventory number

M_MATE_PER Master data: allow reverse entries/ postpone periodsM_MATE_STA Master data: Management status

M_MATE_VKO Master data: Sales organization/ Distribution pathM_MATE_WRK Master data: plant

In addition, a distinction must be made between price changes having a futuredate, and price changes that are for immediate effect. In the first instance, the dateas of which the price is to be valid is entered into the master data, in addition tothe entry of the future price. Additionally, this future price must be activatedexplicitly via a batch input process, so that in addition to the qualificationsspecified above,


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a corresponding batch input qualification is required. It is also important todetermine whether an organization procedure has been implemented that preventserrors in dealing with future prices. For example, price changes may be made onlyat a fixed date.

In the customizing settings, a determination must be made as to whether the pricechange applies only for the prior period or prior year, or for the current period, aswell, and whether this setting corresponds to the provisions of commercial and taxlaw, taking into consideration the organizational details of the client.

The report generating mechanisms of the SAP R/3 system can be used as anadditional internal control mechanism, and for performing audits of individualinstances. On the one hand, the previous price, and the date of the last change, arecontained in the material master data record (menu: 0DWHULDO�PDVWHU�GDWD�UHFRUG

ÄHQYLURQPHQW³��!�Ä'LVSOD\�FKDQJHV³), and on the other hand, the accounts infinancial accounting are adjusted because of the price change, and thecorresponding accounting voucher is generated.(Menu: 9DOXDWLRQ�Ä'HWHUPLQDWLRQ�RI�SULFHV³��!�Ä&KDQJH�SULFH³��!�Ä'LVSOD\“).


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7.3.2� Materials entry and release7.3.2.1� SAP Facts

If the inventory of a material is to be appreciated or depreciated or specificreasons, a debit or credit entry can be posted directly for that material. Theinventory of the material remains unchanged, whereas the value is increased ordecreased. Depending on price governance, this will have varying effects on theaccounts. For standard price governance, the material debit or credit entry isposted in a price difference account, on the one hand, and on the other hand, in anearnings or expenditure account. As a result, there is no revaluation of thematerial. For materials with an average escalation price governance, an inventoryposting is generated by the debit or credit entry of the material. Depending on theinventory range, this posting takes place with the full amount in the inventoryaccount, or is divided proportionally into the inventory account and a pricedifference account.

7.3.2.2� Risks

By using the manual entry capacity for credit or debit entries for a material, theuser, in a manner similar to price changes, can have direct access to the automaticmaterial valuation of the SAP R/3 system. If this is not done with the correct facts,or if such access is not factually justified, there is a danger that the material atissue may be incorrectly valued, with all the attendant consequences undercommercial and tax law. In addition, this type of access may escape any internalcontrol system that may be in place. A system-oriented auditing valuation basedon the automated valuation procedure of the SAP R/3 system, can no longer bemaintained in such a case.


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As was the case for the manual entry capacity for price changes, the first thing todetermine is whether the client has provided an organizational capability forcredit or debit entry of a material. The urgent need to do this may arise because ofcompany-specific circumstances, and should be taken into due consideration inthe assessing the audit results.

A determination must be made as to which of the company’s employees areentrusted with this responsibility, and how this is mapped in the SAP R/3 system,through user qualifications. The following qualifications apply to this scenario:




M_MBNK_ALL Materials vouchers: managing the numbering area

The posting vouchers automatically generated by the system serve as anadditional internal control mechanism, and for auditing individual instances, froman accounting perspective.


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7.3.3� Reverse entries in the prior period7.3.3.1� SAP Facts

At the end of each period, the period shift moves data, among other things, mainlyinventory quantities and values as well as prices and price units, from the currentperiod into the prior period, and the last data from the prior period is used as thestarting data for the period just beginning. If posting into the prior period becomenecessary after the period shift has taken place as a result of specialcircumstances, data for the current period as well as the prior period are adjusted.Accurate management of the permissible posting period in financial account(Table T001B) is one essential condition for a reverse entry, as is the entry of aposting date from the prior period when the posting is made. In terms ofbookkeeping, the same posting procedures as those used in the current prior areused for reverse entries, involving the goods receiving/invoice receiving account.

A fundamental distinction must be made between reverse entries of goodsmovements, which are possibly only in the prior period, and reverse entry ofprocesses from invoice verification, which can be posted in the prior period and inthe final period of the prior year:

In reverse entries of goods movements, the inventory quantity and inventory valuechange in both the prior period and in the current period. Thus, under certaincircumstances, the average escalation price in the prior period and in the currentperiod is also affected.

In reverse entries of invoices, changes in the inventory value may only occur ifprice changes are present for a material having a valuation by average escalationprice. In this case, the inventory value changes in the prior period, and in thecurrent period. If an invoice is posted in the last period of the prior year, a balanceappears in the goods receiving/invoice receiving account, since a reverse entry forthe corresponding goods movement cannot be made in the prior year. The openitems are carried forward as a balance carried forward into the current fiscal year,and must be squared there with the receipt of goods.

Under certain conditions, correction entries are necessary when dealing withreverse entries, which are generated automatically by the SAP R/3 system:


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For materials with a standard price valuation, a correction entry is necessary ifthere is inventory coverage when a variation in standard price for the materialoccurs in the prior period, and a debit entry may result for the inventory account,but this does not apply to the current period. In this case, a correction entry mustbe made for the current period, for accurate inventory valuation (revaluationentry).

7.3.3.2� RisksIn reverse entries in a prior period, subject to the essential conditions specifiedabove, there may be a change in the average escalation price in the prior periodand in the current period. If this material has been consumed in the interim, theremay be variations in valuation between a completed cost accounting (SAP R/3module CO) and materials management. The consumption of the material wasvalued in the cost accounting using the average escalation price prior to thereverse entry. Although an automatic revaluation entry occurs following thereverse entry in materials management, provided that there is inventory coverage,a comparable correction entry is not performed in cost accounting.

7.3.3.3� Auditing stepsThe accurate delineation in financial accounting of the posting periods that arevalid for the accounts in which entries are to be made is an essential condition foraccurate reverse entries in the prior period. This takes place via the tables of thevalid posting periods (T001B), and, if the fiscal year does not coincide with thecalendar year, via the T001Z tables. The settings of these tables must beexamined, particularly with respect to the changeover of the fiscal year. Tablemodification reports must also be included in the examination.

The possibility of accessing the reverse entries in a prior period is governed by thefollowing qualification:


M_MATE_PER Master data: allow reverse entries/ postpone periods

A determination must be made as to which employees have access to thisqualification, and to what extent, and as to whether they are entrusted with thisresponsibility in accordance with their area of responsibility.

In this regard, we refer the reader to the importance of auditing the accuratedelineation of periods (cut-off auditing), as described elsewhere in this document.


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7.3.4� Transfer (=restoring with value)7.3.4.1� SAP Facts

In the SAP system, both restoring and transfers are posted. Transfers are differentfrom restoring procedures in that, as a rule, they do not involve a physicalmovement of goods; rather, the inventory type, charge number, of materialnumber changes, for example. Restoring can take place at three different levels:

• 5HVWRULQJ�IURP�DFFRXQWLQJ�DUHD�WR�DFFRXQWLQJ�DUHD

In restoring from accounting area to accounting area, WZR�DFFRXQWLQJYRXFKHUV are generated for the material voucher:

- an accounting voucher for withdrawal from the warehouse from thesending accounting area, and

- an accounting voucher for entry into the warehouse in the receivingaccounting area.

• 5HVWRULQJ�IURP�SODQW�WR�SODQW

Restoring from plant to plant has an impact on:

- accounting,if both plants are allocated to different valuation areas. This means thatrestoring also results in a value adjustment (inventory value, inventoryaccounts). An accounting voucher is generated for the restoring procedure,along with the material voucher.

- planning, because any change in the plant inventory must be taken intoconsideration by planning.

• UHVWRULQJ�IURP�VWRUDJH�DUHD�WR�VWRUDJH�DUHD��ZLWKLQ�WKH�SODQW�

Restoring from storage area to storage area takes place within a plant. As arule, it is posted without a value, since the restored material remains in thesame plant, and is thus handled with the same valuation data as before. Only ifthe material is separately valued and the valuation type of the materialchanges during the restoring is an accounting voucher generated duringrestoring.


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Any restoring/transfer involves an „outflow of goods“ from the sending locationand a „receipt of goods“ at the receiving location. For restoring, there are basicallythree methods available:

- restoring via a restoring posting in a one-step procedure, the advantage ofwhich is that only a single procedure must be recorded.

- restoring via several restoring entries, in a two-step procedure.

The two-step procedure makes it possible to monitor the inventories thatare „in transit“. After the outflow of goods posting from the sendinglocation, the inventory is „in the process of being restored“ at the receivinglocation, and is managed as such in the system.

- restoring via restoring order.

7.3.4.2� RisksIn practice, the one-step procedure is used almost without exception. Thisorganizational rule points out more or less clearly any weaknesses in thecompany’s own authorization concept, since restoring from plant to plant orbetween accounting areas can only be recorded in the one-step method is there areauthorizations in both plants/accounting areas for the restoring.

Because of the incapacity inherent in the one-step method to monitor inventoriesthat are in transit, particularly if there is a fairly large time lag between therecording of the restoring and its actual implementation, the target and actualinventories of a material may evolve separately, and thus make implementationand accuracy of perpetual stocktaking difficult, for example.

7.3.4.3� Auditing stepsCheck to see whether the authorizations over the accounting area or plant havebeen issued in connection with transfer or restoring movement types.

Check the accounting area offset accounts against each other.

Watch to see whether, for example, in organizations where reference is made toperpetual stocktaking, to see how goods movements generated in the one-stepmethod are taken into consideration just before the time they are recorded.


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7.4� Goods in process of manufacture

Goods in process of manufacture can be reported according to a variety of criteria,to determine costs for orders that have not yet been settled:

• goods in process of manufacture by order (usually in the context of the closeof a period for cost unit accounting)

• goods in process of manufacture for production orders (determination viabalancing ledgers for all orders in the „Production“ object class) (notaddressed here)

Two methods are used for valuation of goods in process of manufacture per order:

• on the basis of actual costs incurred to date (as of release 2.1)• on the basis of goods quantities reported back to date for the individual

processes (target costs)(also starting with release 3.0)

7.4.1� Goods in process of manufacture at actual cost

7.4.1.1� SAP Facts

The value of goods in process of manufacture is determined basically from thedifference between actual costs incurred and actual recouped costs. In detail, thismeans the difference between the debit entries for withdrawal of materials, in-house service offsets, outside services, and overhead, as well as credit entries forgoods received. The determination is done periodically, by order. With the finaldelivery of the ordered lot to the warehouse, the remaining goods in process ofmanufacture are released to inventory, for regular accounting of order costs.

In this regard, if the actual costs incurred to date for the production order are lessthan the credit entry when the goods were received, under specific conditions,reserves may be established for missing costs. This approach involves adetermination of variance or an accounting of variances once the final delivery ismade, and implies that the production order complies with the standard rule forgeneral accounting (PP1).


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In comparison to the methods relating to target costs outlined below,

• the actual postings are, as a rule, not as accurate as those resulting from targetcalculation,

• the determination of goods in process of manufacture cannot be combined inthe same period with a determination of variance and spoilage, and

• actual costs or spoilage and variance cannot be ignored.

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In order to fulfill the voucher function in the FI module subsequently, startingwith release 3.0, the order number is retrieved via the Allocation area when thegoods in process of manufacture are transferred to the FI module.

7.4.1.2� Risks

In the context of system settings (customizing) of product cost controlling, thecomponents of the material and production costs of the goods in process ofmanufacture that must be carried as assets must be determined, in accordancewith the provisions of commercial and tax law that regulate what must, may, andcannot be carried as assets. In addition, the accounting rules for goods in processof manufacture that must be carried as assets must be determined for thecorresponding inventory and inventory modification accounts. Incorrect settingsin customization pose significant risks with respect to material and productioncosts that must, may, or may not be carried as assets. In addition, incorrectaccount tracking may result in irregular allocation of processes to thecorresponding balance sheet accounts.


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Important auditing steps, in addition to accurate knowledge of the respectiveprocedures followed in the business of the SAP user, include inspection of thecustomizing settings referenced above. Furthermore, any questions that may ariseregarding interfaces must be clarified, and must be included in the auditing steps,in accordance with the familiar schema.

7.4.2� Goods in process of manufacture at target cost7.4.2.1� SAP Facts

The value of goods in process of manufacture by production order is calculatedfrom the quantity reported per procedure multiplied by the target costs for theprocedure. Ina manner similar to goods in process of manufacture at actual costs,the determination is made periodically per order. The goods in process ofmanufacture thus established are released once again for delivered materials.

The essential conditions for this method are:

• creating, recording, and releasing the target calculation for materials to beproduced,

• ensuring that the material components are correctly allocated to the processes,and

• ensuring that the target calculation is valid at the time the goods in process ofmanufacture are determined per order.

In the context of periodic determination of variances or accounting of goods inprocess of manufacture, a determination must be made as to whether theproduction order complies with the standard rules for periodic accounting (PP2).

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In order to fulfill the voucher function in the FI module subsequently, startingwith release 3.0, the order number is retrieved via the Allocation area when thegoods in process of manufacture are transferred to the FI module.


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7.4.2.2� Risks

In the context of system settings (customizing) of product cost controlling, thecomponents of the material and production costs of the goods in process ofmanufacture that must be carried as assets must be determined, in accordancewith the provisions of commercial and tax law that regulate what must, may, andcannot be carried as assets. In addition, the accounting rules for goods in processof manufacture that must be carried as assets must be determined for thecorresponding inventory and inventory modification accounts. Incorrect settingsin customization pose significant risks with respect to material and productioncosts that must, may, or may not be carried as assets. In addition, incorrectaccount tracking may result in irregular allocation of processes to thecorresponding balance sheet accounts.


Important auditing steps, in addition to accurate knowledge of the respectiveprocedures followed in the business of the SAP user, include inspection of thecustomizing settings referenced above. Furthermore, any questions that may ariseregarding interfaces must be clarified, and must be included in the auditing steps,in accordance with the familiar schema.


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7.5� Balance sheet valuation

The SAP system offers various methods for determining the price for balancesheets valuation of a material pursuant to tax or commercial law:

• lowest-value determination according to current market prices• lowest-value determination according to marketability• lowest-value determination according to range A distinction is made between a one-stage and a multi-stage method:

• one-stage method In the one-stage method, the lowest value is determined either only accordingto current market prices, or only according to marketability, or according torange.

• multi-stage method In the multi-stage method, the lowest value is determined according to currentmarket prices, coupled with the determination of lowest value according tomarketability or according to range. The discount determined is deductedfrom the result of the determination of the lowest value according to marketprices.

7.5.1� Determination of lowest value by market price7.5.1.1� SAP Facts

To determine the market prices, the system FDQ access the following objects:

• Incoming goods for orders For each material, all ordering procedures are included that meet the followingcriteria: Goods have been received for the order.


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The quantity delivered is in accordance with the quantity ordered. Ordering, the receipt of goods, and the receipt of invoice all fall within therequired time period. All costs incurred have been taken into account for the accession price, includingadditional supplier charges and subsequent charges. The price is calculated fromthe total calculated value divided by the total delivered quantity.

• Orders For each material, the order prices of all orders whose order date falls withinthe required time period are compared. This is independent of whether: - any goods have been received for the order, and - an invoice that differs from the order price has been posted.

• Contracts For each material, the prices of all contracts the terms of which ends in therequired time period or thereafter are compared. This is independent ofwhether orders have already been placed under the contract.

• Purchasing information records

For each material, the prices of all purchasing information records for whichthe date of the last price change falls within the required time period arecompared. Materials that are handled with separate valuation are excepted.For those materials, an independent purchasing information record cannot beestablished for each movement type; the price in the purchasing informationrecord is, therefore, independent from the movement type. Since thedetermination of the lowest market price is handled separately for eachmovement type, it is not meaningful to take the price from the purchasinginformation record.

If information records are to be used as a source for determining the lowestvalue, guarantees must be in place to ensure that they are well managed.


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In determining the lowest value, the system looks for the lowest price from theprice sources for each material.

For materials having separate valuations, the system determines the lowest valuefor each movement type.

For valuation at the valuation area level, an average price is calculated on thebasis of these individual prices and the material inventories.

The result is that the system provides a list of materials showing the lowest prices;if the system cannot determine any current market price, is puts the valuationprice from the prior year or month in the lists.

Furthermore, the result of the lowest-value determination can be adjusted in thematerial master data record, either in the 7D[�ODZ�SULFH�� field or in the&RPPHUFLDO�ODZ�SULFH�� field. If a decision is made to proceed with theadjustment, the system compares the lowest price determined with the valuationprice from the prior year or prior month.

The system enters the following price into the 7D[�ODZ�SULFH�� field or in the&RPPHUFLDO�ODZ�SULFH�� field:

• the lowest determined price, if it is less than the valuation price; or

• the valuation price, if that is less than or equal to the lowest determined price,or if no current market price could be determined.

7.5.1.2� Risks

The automatic lowest value determination according to market prices can lead tomeaningless or incorrect values if the reports and tables on which it is based arenot adapted to the realities of the particular company. The following overviewshows a listing of DOO the reports and tables that are relevant for determining thelowest value, with the emphasis on reports and tables used in determining thelowest price according to market prices:


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5�H�S�R�U�W�V

RMNIWE00 Lowest-value calculation: market prices

RMNIWE10 Lowest-value calculation: range

RMNIWE20 Lowest-value calculation: marketability

RMNIWE80 Lowest-value calculation: market price variance

RMNIWE90 Lowest-value calculation: balance sheet value per account

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TNIW3 Lowest value: voucher types

TNIW4 Lowest value: movement types

TNIW5 Lowest value: devaluation according to range

TNIW6 Lowest value: devaluation for non-marketability

TNIW7 Weighting factors for consumption values (lowest value)

TNIW8 Weighting of inventory quantities (lowest value)

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If information records are to be used as a source for determining the lowest value,guarantees must be in place to ensure that they are well managed.

Incorrect selection in report generation (if a valuation date not close to the balancesheet date is not used).


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In determining the lowest value according to market prices, the system does notcheck to see whether the lowest determined price is „meaningful“. For example,if, in managing an information record by using a number counter, the price isentered as DM 3.90 instead of DM 9.30, the system will use that price as thelowest price, even if the prices from the other price sources and the valuationprice range from DM 9 to DM 10.

For this reason, it is important to verify the lowest determined prices. An essentialcondition for doing that is that the lowest market price has been adjusted in thematerial master data record. You can also have all the materials listed for whichthe difference between the valuation price and the lowest market price is greaterthan a given percentage value.

In order to verify the lowest market prices, proceed as follows:

On the manu screen for valuation, select the following options:%DODQFH�VKHHW�YDOXDWLRQ��!�/RZHVW�YDOXH��!�$GGLWLRQDO�RSWLRQV��!�0DUNHW�SULFH

YDULDWLRQ

You will reach the screen you want.

Then enter the materials for which you want to verify the lowest market prices,and the criteria by which to do so.

• MaterialsEnter the materials for which you want to perform the verification.

If you perform the valuation at the accounting area level, any entries made inthe valuation area field are ignored.

• Valuation prices

Indicate whether you have adjusted the lowest market prices in the 7D[�ODZ

SULFH�� field or in the &RPPHUFLDO�ODZ�SULFH�� field.


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• Threshold value

Indicate how large the minimum percentage variation between the valuationprice and the lowest market price should be for the material to be listed.

Using the 3URJUDP��!�5XQ commands, you will obtain a list of the materials atissue.

The system lists all materials for which the difference between tax or commerciallaw price 1 and the valuation price is greater than the threshold value.

Based on the listed results for the lowest value determination, you can nowdetermine the price sources from which the tax or commercial law price isderived. If applicable, price changes in the appropriate material master datarecords may be necessary.

Furthermore, the regularity of the setting in Table 71,:� ‘Lowest value: vouchertypes’ must be verified (Price source: access to orders).


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7.5.2� Determination of lowest value by range7.5.2.1� SAP Facts

In determining the lowest price by range, the system checks to see whether theprice of a material should be valued on the basis of a large range.

The range of a material is determined as follows:

5DQJH� �DYHUDJH�LQYHQWRU\��DYHUDJH�FRQVXPSWLRQ

To establish the average inventory and consumption, the following factors apply:

The average inventory is a weighted average of:

- prior prior year inventory- prior year inventory- prior prior period inventory- prior period inventory.

Current period inventory (depending on your input, less reserves and plus orderedinventory)

Two calculations are possible for the average consumption:

- the weighted average based on past consumption, or- the weighted average of forecast values that were calculated during the most

recent forecast run

The weighting of inventories and consumption is adjusted through thecustomizing feature.

In calculating the average consumption, the following points must be observed:

• In determining consumption based on past values, consumption of the monthsin the reporting year are included.

• In determining consumption based on forecast values, up to 99 future monthscan be included, starting with the month in which the forecast is made.


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• If there is no consumption, then the range

- is set to maximum, if inventory is present, or- is set to zero, if no inventory is present.

• If, in calculating on the basis of forecast values, there is no forecast data for amaterial, the system sets the range to zero; the percentage discount is alsozero.

For materials with separate valuations, the determination of lowest value by rangeis not performed separately for each movement type, but at the level of thevaluation header record.

Depending on the range, by customizing the valuation as a function of accountingarea and material type, a percentage discount can be set by which the material isdiscounted. The following table shows a possible setting of this value.

Accountingarea

Material type Range(in months)

Percent discount

1 2 5%1 4 10%1 6 15%1 10 20%1 ROH 2 3%1 ROH 3 5%1 ROH 4 7%1 ROH 5 10%1 ROH 8 15%1 ROH 12 25%

For example, if a range of four months is determined for a material of materialtype ROH, the discount is 7%. If the range is not set, the system looks for the nextsmallest value. For a material of material type ROH, and a range of 11 months,the discount for range 8 applies, i.e. 15%. For material types for which nodiscounts are defined, entries are made without material type.

The way in which the lowest price is determined depends on whether the lowest-value determination is handled according to range in one or more stages.


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The lowest value is determined on the basis of the valuation price of the prior yearor prior month:

/RZHVW�SULFH� �YDOXDWLRQ�SULFH�±�GLVFRXQW

Which valuation price is used depends on when you perform the lowest-valuedetermination.

Multi-stage method

The lowest value is determined on the basis of the first price stage of thecommercial law or tax law price in the material master data record:

/RZHVW�SULFH� �WD[�FRPPHUFLDO�ODZ�SULFH��±�GLVFRXQW

The result that the system returns is a list of materials having discount records andthe lowest prices; furthermore, the lowest price can be adjusted in the materialmaster record in the Tax law price 2 field or Commercial law price 2 field.

7.5.2.2� Risks

Risks from accepting old data, because of missing information regarding rangeand marketability.

The automatic lowest-value determination according to range can lead tomeaningless or incorrect value if the reports and tables used as the basis for themare not adapted to the realities of the particular company.


RMNIWE10 Lowest-value calculation: range



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TNIW5 Lowest value: discount by range

TNIW7 Weighting factors for consumption values (lowest value)


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For automatic price changes, the playback date for the batch input folder is thedate as of which the determined valuation price is valid. If the folder is playedback later because of an error, errors may result in the inventory valuation.


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In determining the lowest value by range, the range is determined from theweighted average of the inventory quantities divided by the weighted average ofthe consumption quantities.

How the consumption should be weighted in calculating the range is determinedin the „Weighting of consumption values“ option in the menu:

• consumption determined from materials master data(the months of the reporting year can be included in determining the lowestvalue),

• consumption determine on the basis of forecast data(future months – starting with the month in which the forecast is made – canbe included in determining the lowest value).


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The significance of the month depends on the type of consumption determination,and on the date entered into the &XUUHQW�GDWH field:

• consumption determined from materials master data1 the last month of the reporting year/month of the &XUUHQW�GDWH2 the next-to-last month

etc.

• consumption determine on the basis of forecast data1 the month in which the forecast was made2 the following month

etc.

The corresponding consumption weightings entered for each month in thecustomizing settings must be verified with respect to the regularity of theirdetermination.

How the inventory quantities are weighted in calculating the range is determinedin the „6HW�:HLJKWLQJ�RI�FRQVXPSWLRQ�YDOXHV“ option in the menu.

The following inventory quantities can be taken into consideration, whereby theweighting is entered for each relevant inventory:

- prior prior year inventory

- prior year inventory

- current year inventory

- prior prior period inventory

- prior period inventory.

In the ‘0DQDJH�'LVFRXQW�DFFRUGLQJ�WR�UDQJH¶ customizing menu option, it mustbe determined for each accounting area and for each material type how large thepercentage discount should be for each range.

In each accounting area, the discounts that are entered without indication of amaterial type apply to all material types that are not expressly entered here (seeTable TNIW5 ‘Discount by range’).


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For automatic price changes, a batch input must be generated. In so doing, thedate on which the price change is to be posted must be indicated. As a rule, this isthe date on which the batch-input folder is played back. When this folder isplayed back, the valuation price for each material involved is replaced by thelowest determined price.

7.5.3� Determination of lowest value by marketability7.5.3.1� SAP Facts

In determining the lowest value by marketability, the system checks to seewhether the price of a material should be valued on the basis of non-marketability.

The marketability of a material is determined on the basis of inflows or outflowsof the material, and the current material inventory:

0DUNHWDELOLW\� �7RWDO�TXDQWLW\�RI�LQ�RXWIORZ��PDWHULDO�LQYHQWRU\� ��

The marketability of a material, therefore, indicates as a percentage how manyquantity units have come in or out in relationship to the material inventory.

This percentage is compared to a predetermined percentage value. if thepercentage of inflows or outflows is smaller than the predetermined percentagevalue, the material is considered non-marketable; if it is greater, the material isconsidered marketable.

Marketability can be determined in two ways:

• via the material voucher In this case, the marketability for inflows and outflows gang be examined. Ifyou look at inflows as well as outflows, you will obtain a marketability forinflows and a marketability for outflows. In this case, the material isconsidered non-marketable if one of the two values is less than thepredetermined percentage values.


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• via the material master data

In this case, only outflows are automatically taken into consideration. Thisprocess is considerably less time consuming than determination via materialvouchers.

In determining marketability, the system uses only materials movements that fallwithin the reporting year. Therefore, only data from the current year or from theprior year are taken into consideration. So that non-marketability from previousyears is also utilized in the discount, the discount process runs through a discountmarker, using the following rules:

If a material is classified as non-marketable for one year, the discount marker isincreased by 1.

If a material is classified as marketable for one year, the discount marker is set tozero.

The discount marker, therefore, indicates the number of years that the material isconsidered non-marketable.

For materials having a separate valuation, the lowest-value determination isdifferentiated by marketability:

In determination from material vouchers, marketability is examined separately foreach valuation type. For the valuation header record, an average price iscalculated based on the lowest prices and the inventories of the individualvaluation types.

In determination from materials master data records, marketability is done at thelevel of the valuation header record, and the lowest price is calculated directly.

Through customizing of the valuation, each percentage discount is allocated toeach discount marker as a function of the accounting area and material type.


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Accountingarea

Material type Discount marker Percentage discount

1 1 15%1 2 20%1 3 30%1 4 40%1 5 60%1 ROH 1 20%1 ROH 2 30%1 ROH 3 40%1 ROH 4 50%1 ROH 5 60%

For example, if a new discount marker of 2 is determined for a material ofmaterial type ROH, the discount is 30%. Entries without material types apply tomaterial types for which explicit discounts are not defined.

How the lowest price is determined depends on whether the lowest-valuedetermination is done by marketability in one or more stages.

• One-stage method

The lowest value is calculated on the basis of the valuation price from theprior year or prior month:

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Which valuation price is used depends on when the lowest-pricedetermination was made, and which basis for comparison was selected incalling up the program.

- If the determination is made in the first half of the current year, the systemuses the valuation price from the prior year.


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- If the determination is made in the second half of the current year, thesystem uses the valuation price from the prior period.

• Multi-stage method

The lowest value is determined on the basis of the first price stage of thecommercial or tax law price in the materials master data record:

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The result that the system produces is a list of materials with the discount recordsand the lowest prices; in addition, the lowest price can be adjusted in the materialmaster data record, in the tax law price 2 field, or in the commercial law price 2field.

7.5.3.2� Risks

Internal and external movement types can be used (table setting errors arepossible).

The automatic lowest value determination according to market prices can lead tomeaningless or incorrect values if the reports and tables on which it is based arenot correctly adapted to the realities of the particular company.




The following reports and tables must be checked to ensure that their parametersand values are accurate:


RMNIWE20 Lowest-value calculation: marketability



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TNIW3 Lowest value: voucher types

TNIW4 Lowest value: movement types


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The customizing settings must be checked for the following menu options:

• Determine voucher types

Determination of material voucher types that are taken into consideration indetermining consumption for calculating the lowest value according tomarketability.

• Determine movement types

Determination of movement types that are taken into consideration indetermining consumption (inflows/outflows) for calculating the lowest valueaccording to marketability.

• Manage discount according to non marketability

In this menu item, it is determined for each accounting area and for eachmaterial type how large the percentage discount per discount market shouldbe. In each accounting area, the discounts entered without indication of amaterial type apply to all material types that are not expressly indicated below.


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7.5.4� LIFO valuation7.5.4.1� SAP Facts

There are two possibilities for LIFO valuation in the SAP system:

• Individual LIFO valuation

The materials are valued individually according to the LIFO method.

• Pool LIFO valuation

Similar material or materials having the same function are combined ingroups, called pools, and valued together.

The pool LIFO valuation has advantages over the individual LIFO valuation,because fluctuations in inventory of individual materials can be offset throughother materials, and thus longer-term pools can be constructed. On the other hand,in the pool LIFO valuation approach, it is difficult to set up a pool that ismeaningful and permissible under tax law.

In addition, there are two LIFO methods in the SAP system:

• Quantity LIFO method, and

• Index LIFO method

In the quantity LIFO method, changes in the inventory of a material or pool areconsidered separately for each fiscal year. To that end, the inventory for thematerial or pool at the end of the fiscal year is compared to the total of thequantities that appear in the existing layers. If the inventory at the end of the fiscalyear is larger, a new layer is added for that fiscal year, which contains the quantityand value increase of the material of pool in that fiscal year. If the inventory at theend of the fiscal year is smaller, the previous layers are reduced in sequence,starting with the newest one.


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7.5.4.2� RisksIncorrect customizing settings in the following areas (see IMG: Customizing9DOXDWLRQ�DQG�$FFRXQW�$OORFDWLRQ��!�6HW�/,)2�),)2�PHWKRGV),which may lead to errors in quantity and price determination, and thus anincorrect inventory valuation.

• $VVLJQLQJ�WKH�/,)2�SRROV

(LIFO valuation levels -> can be the accounting area or valuation area,depending on the customizing settings;LIFO pool -> materials that are to be valued jointly in the LIFO valuationmethod are combined via the pool number; base quantity unit, measurementunit text, price unit)

• $OORFDWLRQ�RI�PDWHULDOV�WR�/,)2�SRROV

• $VVLJQLQJ�WKH�EDVLV�IRU�FRPSDULVRQ

Assigning the LIFO valuation levels to be compared for a specific fiscal year,whereby the governance of the quantity comparison is controlled throughspecific marking of the ‘quantity comparison’ field:

- GJE Inventory, end of prior year – Inventory, end of prior prior year

- VOM Inventory, end of prior period – Inventory, end of prior year

- VVM Inventory end of prior prior period – Inventory, end of prior year

The basis of comparison determines:

- which quantities are to be compared in determining the increase ininventory, in the LIFO valuation method, and

- which final inventory is to be valued according to the FIFO method, in theFIFO valuation method.

• 'HWHUPLQLQJ�/,)2�),)2�PRYHPHQWV

For the LIFO and the FIFO methods, the movement types that are relevant forLIFO/FIFO are determined here. All movement types marked as relevant aretaken into consideration in determining any increase in inventory.


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In the standard method, the following movement types are relevant for theLIFO/FIFO methods:

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101 WE Goods receiving for ordering101 WE Goods receiving to factory101 WE Goods receiving to account allocation101 WE Goods receiving to order102 WE Goods receiving to ordering, cancellation102 WE Goods receiving to factory, cancellation102 WE Goods receiving to account allocation, cancellation102 WE Goods receiving to order, cancellation105 WE Goods receiving from blocked inventory105 WE Goods receiving Factory from blocked inventory105 WE Goods receiving Account allocation from blocked

inventory106 WE Goods receiving from blocked inventory, cancellation106 WE Goods receiving, Factory, Blocked inventory,

cancellation106 WE Goods receiving, Account allocation, Blocked

inventory, cancellation121 WE Goods receiving, subsequent offsetting122 WR Return delivery to suppliers122 WR Return delivery to order131 WE Goods receiving to factory131 WE Goods receiving to account allocation132 WE Goods receiving to factory132 WE Goods receiving to account allocation501 WA Goods receiving, Entry without order502 WR Return delivery, Entry without order503 WA Entry to quality verification504 WR Entry to quality verification505 WA Entry blocked506 WR Entry blocked511 WA No-cost delivery512 WR No-cost delivery


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0RYHPHQW�W\SH 'HVFULSWLRQ�RI�WKH�PRYHPHQW�W\SH

521 WA Entry without production order522 WR Entry without production order523 WA Qua. without production order524 WR Qua. without production order525 WA Ges. without production order526 WR Ges. without production order531 WA By-product532 WR By-product561 WA Inventory taking562 WR Inventory taking563 WA Inventory taking, Qua.564 WR Inventory taking, Qua.565 WA Inventory taking, Ges.566 WR Inventory taking, Ges.


The auditor must look at the selected valuation method, and the valuationguidelines that are specific to the company.

• Examining the following customizing settings (applies for the LIFO and FIFOmethods) is particularly important:

• Determining the LIFO/FIFO valuation levels

• Determining the base year

• Determining the final inventory

• Marking the movements that are relevant to LIFO/FIFO

• Marking the materials that are relevant to LIFO/FIFO

• Acceptance of posted data from the fiscal year (relevant only if the LIFO/FIFOsettings were not made directly at the beginning of the fiscal year)


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The following reports are relevant for the LIFO method, and should be checkedfor the regularity of their application and use within the user-specific control andadjustment procedures:

RMLIFO00 Valuation at the individual level

RMLIFO02 Valuation at the pool level

RMLIFO06 Cost or market value whichever-is-lowest adjustment

RMLIFO10 Presentation at the individual level

RMLIFO12 Presentation at the pool level

RMLIFO1A LIFO balance sheet valuation: presentation and analysis

RMLIFO1B LIFO balance sheet valuation: presentation and analysis

RMLIFO1C LIFO balance sheet valuation: presentation and analysis

RMLIFO1D LIFO balance sheet valuation: presentation and analysis

RMLIFO20 Perform group formation

RMLIFO22 Display group formation

RMLIFO30 Build base layer

RMLIFO32 Form voucher extract

RMLIFO34 Outside data entry for LIFO valuation

RMLIFO36 Accept cost or market value whichever-is-lowest prices

RMLIFO39 Display modification vouchers

RMLIFO50 Clear layer

RMLIFOAL Data part to Archive link for LIFO

RMLIFOI0 (not yet explained in release 3.0E)

RMLIFOME Determine conversion factor, quantity units


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Materials that are to be valued according to the LIFO method must be marked inthe material master data record, from the accounting perspective. There are twoways to mark a material for LIFO valuation:

• individual management• collective management (automatic allocation to pool)

The system offers the following control functions:

• 6KRZ�DOORFDWLRQ

• &KHFN�PDWHULDO�PDVWHU�GDWD�UHFRUGV

In the accounting map of the material master data record, the following fields aredisplayed in the ‘LIFO data’ area:

• relevant for LIFO/FIFO, and• LIFO pools.

If the SRRO�/,)2�YDOXDWLRQ has been set, you may need a list of allocationsbetween materials and pools. If you want to display which materials belong towhich pool, proceed as follows:

1. At the valuation menu screen (/RJLVWLFV��!�0DWHULDOV�0DQDJHPHQW��!

9DOXDWLRQ��!�9DOXDWLRQ), select:

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You will arrive at the selection screen.

2. Fill in the selection screen.

3. Using 3URJUDP�5XQ, you will obtain a list of the appropriate pools withthe materials they contain. In addition, the system displays statisticalinformation for you.


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In order to check whether materials master data records must still be managed forLIFO valuation, you can generate the following lists:

• Materials that are marked as not relevant for LIFO, and• Materials not allocated to a pool.

Proceed as follows:

1. At the valuation menu screen, select%DODQFH�VKHHW�YDOXDWLRQ�/,)2�9DOXDWLRQ�*URXS�)RUPDWLRQ�&KHFN�

You will reach the selection screen.

2. Fill in the selection screen.

3. Using 3URJUDP�5XQ, you will obtain the ‘Check pool formation’ lists ofthe appropriate materials, with information on:

- accounting area- valuation area- material number- material type- quantity unit- inventory quantity- inventory value- ‘No Pool’ marker- ‘No LIFO/FIFO marked’ marker

The GJE comparison is used for valuation of the inventory at the end of the fiscalyear. The VOM comparison or the VVM comparison is used to be able to performinterim valuations in the current fiscal year, which are of interest for internalreporting purposes.

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The TXDOLILFDWLRQV relating to compliance with the internal control system (ICS)that, pursuant to the Sound Accounting Principles for Computer-AssistedAccounting Systems (GoBS), must be set up and described (a component of theprocedural documentation), must be examined. Specifically, the implementationof the set-up and operational organization must be checked against the actualfunctional separation put in place. The following qualifications are relevant in thismatter:


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)XQFWLRQV�UHODWLQJ�WR« 4XDOLILFDWLRQ

3ULFH�FKDQJHV F_BKPF_BLA Voucher typesF_BKPF_BUK Accounting areas

0DWHULDOV�HQWU\�UHOHDVH F_BKPF_BLA Voucher typesF_BKPF_BUK Accounting areas

/,)2�YDOXDWLRQ M_LIFO_MLY LIFO valuation/RZHVW�YDOXH�GHWHUPLQDWLRQ M_NIWE_BIL Lowest value determination

The standard version of SAP contains the following profiles for„Valuation/Account Allocation“:

M_BILA_ALL Management qualification for balance sheet valuation

M_BILA_ANZ Display qualification for balance sheet valuation

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7.5.5� FIFO valuation7.5.5.1� SAP Facts

FIFO valuation (first in – first out) assumes that the stocks that were procured ormanufactured first are consumed or sold first. The valuation of the inventoryvalue is thus oriented toward the most recently received items. This results in aninventory valuation using recent prices.

The FIFO method can be used in a number of ways:

• Listing of the FIFO values of specific materials

By implementing the FIFO valuation, the system determines the FIFO valuesof the desired materials. As a result, you obtain a list that contains thefollowing information:the final inventory and the value of the final inventory by material, for theselected period, as well as the FIFO value, and

• Difference with respect to the inventory value the net value on the basis of the lowest-value determination (if you performthe FIFO valuation using the lowest-value comparison) the totals per inventory account for each valuation or accounting area

• the totals per valuation or accounting area lowest-value comparison of the FIFO value after the lowest-valuedetermination is completed In implementing the FIFO valuation, a determination is made as to whether alowest-value comparison should be performed.

• adjustment of the FIFO price (possibly after the lowest-value comparison) inthe materials master data record

In implementing the FIFO valuation, a determination is made as to whetherthe FIFO price should be adjusted in the materials master data record. The Taxlaw valuation price 3 field and the Commercial law valuation price 3 field areavailable for this purpose.


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• Revaluation of the material, i.e. replacing the current value with the FIFOvalue

In implementing the FIFO valuation, a batch-input folder can be generated fora price change. In this case, a date must be assigned, as of which the change isto become effective. The price changes are made when the folder is playedback.

7.5.5.2� Risks

Incorrect customizing settings that lead to errors in determining quantities andprices, and thus to incorrect inventory valuation.


In the FIFO valuation, the following reports are used in the standard method; theymust be checked for the regularity of their composition and use within the user-specific control and adjustment procedures:

RMFIFO00 Balance sheet valuation according to the FIFO method

RMFIFO20 Mark materials (Mark materials as relevant for FIFO)

RMFIFO32 Create voucher extract (Voucher extract for initial construction ofthe MYMP table)

RMFIFO50 Delete valuation data

The ABAP RMFIFO50 performs to a REORG for the following tables:

TMYMP LIFO Period inventories, individual materialTMYML LIFO Material layersTMYPL LIFO Pool layers

The regularity of the REORG implementation must be checked on the basis of thereports generated.

The tables listed below are used for both the LIFO and FIFO methods. Changes inthese tables must be noted in a report (verification of correct use of parameters intable reporting, based on the ‘rec/client’ parameter settings and customizingsettings for reports of changes; see also the SAP BC/FI manual).


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TMYML LIFO Material layersTMYMP LIFO Period inventories, individual materialTMYMS LIFO-relevant materialsTMYPL LIFO Pool layers

7.5.6� Loss-free valuation

The principle of loss-free valuation is based on valuation from the sales marketperspective. The anticipated sales profit must be reduced for loss-free valuation bynon-operating expenses, packing costs, and capital service costs (retrogradevaluation).

The sales market is fundamentally authoritative for unfinished and finishedproducts, and for overstocks of raw materials, auxiliary materials, and operatingsupplies. Both the procurement market and the sales market are authoritative fortrade goods (double authority).

Automatic determination of loss-free valuation is not supported by the SAPsystem, so the usual auditing steps apply in this area, in the context of the generalaudit.

7.5.7� Reserves for impending losses

Reserves for impending losses from pending procurement transactions must becreated if and to the extent that the value of the delivery claims as of the balancesheet date is less than the value of the compensation owed.

If the content of the transaction is the procurement of an asset that must be carriedas an asset, the value of the delivery claim is determined according to theregulations that apply to the valuation of the particular objects; for example, forraw materials, usually according to the (lower) replacement price (see also §249HGB [Civil Code]).


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Reserves must be created in the commercial balance sheet for procurementtransactions regarding liquid asset items, if:

• the value as of the balance sheet date resulting from the exchange or marketprice, or

• the value as of the closing date of the financial statement to be attributed tothe ordered asset items falls below the agreed purchase price (§253 HGB[Commercial Code], paragraph 3, lines 1 and 2).