How to Comply with the Provisions of IFRS while Recording Capital Asset Transactions in SAP ECC 6.0

  • by Harsh Mathur, Senior Consultant, Infosys Limited
  • April 18, 2012
Learn key adjustments that are required to make capital asset management compliant with International Financial Reporting Standards (IFRS). See the changes you need to make in SAP ERP Central Component (SAP ECC) 6.0 while transitioning from US Generally Accepted Accounting Principles (GAAP).
Key Concept
An organization needs to make adjustments in accounting for financial transactions that are treated differently in International Financial Reporting Standards (IFRS) compared with US Generally Accepted Accounting Principles (GAAP) while transitioning to the IFRS principle. These transactions are related to capital assets and adjustments are required in SAP ERP Central Component (SAP ECC) to make accounting for those capital asset transactions IFRS compliant.

Organizations transitioning from US Generally Accepted Accounting Principles (GAAP) to International Financial Reporting Standards (IFRS) that have an SAP system for financials records are required to make adjustments in the SAP FI Asset Accounting (AA) component to comply with IFRS. You need to make those adjustments in asset componentization, major asset overhaul, asset revaluation, asset retirement, lease of an asset, and asset impairment. The changes that I suggest can be made only after the settings prescribed in the previous article titled “Preparatory Settings for IFRS compliance in SAP Capital Asset Management” have been completed.

Asset Componentization

An asset is made up of multiple components, and these components have different useful lives. The asset should be broken down into separate components, and each component should be depreciated as a separate asset. Assets have to be broken down because of their different patterns of benefits and different useful life. This further asset breakdown is required by IFRS unlike US GAAP. Componentization is treated differently in IFRS and US GAAP as shown in Table 1.

Table 1
Compare the treatment of asset componentization

Harsh Mathur

Harsh Mathur is a senior consultant at Infosys Limited, a consulting and IT services major. By qualification he is a chartered accountant and a member of the Institute of Chartered Accountants of India. He carries 10 years of experience with expertise in SAP financials and controlling. He has worked on implementation, upgrade, and support projects for clients primarily in the high-tech industry.

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