Maintain Compliance with the IFRS 15 Revenue Standard with SAP Revenue Accounting and Reporting

  • by Noorul Q. Khan, Consultant, SAP India
  • July 12, 2016
Learn about the changes in the International Accounting Standard Board (IASB) and Financial Accounting Standard Board (FASB)’s International Financial Reporting Standards (IFRS) accounting standard, IFRS 15. From a functional perspective, review the prominent processes and the data accounting flow for SAP Revenue Accounting and Reporting. Discover the capabilities of SAP Revenue Accounting and Reporting and how they can be applied to maintain compliance with IFRS 15.
Learning Objectives

After reading this article, you'll know:

  • How data flows in the SAP system with respect to revenue recognition
  • Key definitions in IFRS and how they are represented in SAP Revenue Accounting and Reporting
  • A five-step model framework for revenue recognition in IFRS 15
  • A list of some reports available in SAP Revenue Accounting and Recognition that are in line with IFRS requirements
Key Concept
A new accounting standard issued by the International Accounting Standard Board (IASB) and Financial Accounting Standard Board (FASB), IFRS 15 - Revenue from contract with customers, will apply to entities with accounting periods beginning or after January 1, 2018 (early adoption is possible). In preparation for this, SAP has introduced a new solution, SAP Revenue Accounting and Reporting, to help organizations comply with the requirements.

With the introduction of a new accounting standard for revenue accounting (IFRS 15) issued by the International Accounting Standard Board (IASB) and Financial Accounting Standard Board (FASB), SAP assessed how best to design a new solution to cover the new requirements. The end result is an application that automates the revenue recognition and accounting process.

SAP Revenue Accounting and Reporting manages revenue recognition from a finance point of view. It decouples operational transactions from accounting so that various operational transactions can be accounted together no matter where the operational data is processed.

Before the introduction of SAP Revenue Accounting and Reporting, SAP had a solution in sales and distribution (SD) called revenue recognition that organizations used to focus on time-based, event-based, or percentage-based revenue recognition. The new solution, SAP Revenue Accounting and Reporting, brings in a lot of flexibility that I describe in later sections.

The necessary details for SD revenue recognition with time-based revenue recognition can be found in Ajay Pande’s article “Revenue Recognition Configuration in SD Is a Key to Compliance.”

Note
Principally, revenues are recognized when they are realized or can be realized, and are earned, no matter when cash is received. There are several checks and considerations to ascertain the event of revenue realization, but that is not in the scope of the article.

A Bird’s Eye View of SAP Revenue Accounting and Reporting

Figure 1 shows how data flows in the SAP system with respect to revenue recognition. It shows that the source module sends data in the adapter reuse layer, which converts it into a revenue accounting item (RAI). The RAI contains all the data from an operational item that is required by the revenue accounting engine. RAI is later converted into revenue contracts that further contain performance obligations.


Figure
Flow in SAP Revenue Accounting and Reporting
 

To place things in perspective, if the source module is SD, it sends the sales order data in the adapter reuse layer. There the data is converted into a container called RAI with all the relevant data, such as material, dates, condition information, customer, or other monetary information.

RAI is converted into a revenue contract, which typically represents the operational document (for example, a sales order). Just as a sales order contains sales line items, a sales contract in revenue accounting contains performance obligations (POBs).

So in the simplest form, one sales order with two line items has one sales contract with two POBs (there can be exceptions to this rule).

At all necessary events or time schedules, the revenue accounting engine reads data from contracts and POBs to pass necessary entries in FI and Profitability Analysis (CO-PA) with respect to revenue recognition.

Noorul Q. Khan

Noorul Q. Khan is a chartered accountant and an SAP certified professional with more than 12 years of total experience, including eight years of consulting experience in SAP FI/CO.

He has been a part of many full-cycle implementations, SAP S/4HANA, audit review, and expert consulting projects as FI/CO lead. He also holds FI/CO expertise in IS-Retail and IS-Auto.

He is a regular SAP education trainer on SA S4HANA Finance and SAP S/4HANA migration projects and also has trained Fortune 500 companies. He is an accomplished FI and CO consultant with expertise on integration with other modules.

He works as a consultant at SAP India (SDC) and lives in Bangalore with his wife and two children.

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Comments

12/24/2016 8:37:19 AM
Shiv

Great article Noorul. Very helpful

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