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© 2011 Wellesley Information Services. All rights reserved. A Simplified Approach for Consolidation of Investments for a Faster Close Dan Sullivan focusSAP

In This Session... What Consolidation of Investments (COI) does What SAP Strategic Enterprise Management – Business Consolidation System (BCS) offers for COI Ways to automate COI in BCS without a full-blown implementation of COI for Direct Shares Reporting relative to both Purchase and Equity methods of COI 2

What We’ll Cover … Introduction Exploring consolidation of investments Reporting with BCS Identifying COI Alternatives Configuring in BCS Wrap-up 3

4 What Does BCS Do? Prepare master data  Chart of accounts  Reporting units  Versions  Etc. Consolidate  Inter-unit (IU) elimination  Inter-unit profit elimination  Consolidation of Investments (COI)  Reclassification  Allocation Collect Consolidate Report TimePrepare Collect reported FS data  Manual entry  File upload  ECC integration  SEM integration Manual posting Validate Currency translation Report  SAP NetWeaver ® BW reporting  SEM-CPM* reporting  Special cons. reports Monitor *CPM = Corporate Performance Management

BCS Functions Available Balance carryforward Data collection Validation of reported data Standardization and top-side adjustments Reconciliation task Change to Consolidation Group Currency translation method Allocation Value Adjustments Inter-unit (IU) elimination Elimination of IU profit/loss in inventory Elimination of profit/loss in transferred assets Consolidation of Investments (COI) Reclassification 5

6 What We’ll Cover … Introduction Exploring consolidation of investments Reporting with BCS Identifying COI Alternatives Configuring in BCS Wrap-up

Accounting Techniques Purchase method  Parent unit has a dominating influence over investee unit; dominating influence exists if parent unit:  Directly or indirectly owns the majority of the investee’s voting rights, or  Is able to exercise such influence due to a contract, the articles of incorporation, and so forth  Financial statements of investee unit are included in their entirety in the consolidated financial statements 7

Accounting Techniques (cont.) Equity method  For subsidiary consolidation units not consolidated using purchase or proportional methods  Financial data of equity unit is not taken into account in the consolidated financial statements  Only changes in stockholders’ equity of equity unit are taken into consideration; these affect, in particular, the investment value stated in the consolidated balance sheet  Equity units are not displayed in reporting 8

Accounting Techniques (cont.) Mutual Stock method  Typically used in management consolidation  The mutual stock method and the purchase method are complementary  Associated with the concept of delta documents – the documents in the lower-level cons group using the purchase method, and those in the cons groups that use the mutual stock method, merely have to be totaled  In management consolidation, the mutual stock method is an alternative to the equity method  Requires fully implemented COI 9

Accounting Techniques (cont.) Proportionate method  SAP COI does not include this method  SAP suggests using reclassification tasks to carry out proportionate consolidation  Collects items of a unit’s balance sheet and income statement into the consolidated statements to the extent of the investor unit’s percentage of ownership in the investee unit, rather than at the full amount 10

Consolidation of Investments: Functions Purchase method activities  First consolidation  Subsequent consolidation  Goodwill amortization  Step acquisition  Partial divestiture  Total divestiture  Indirect increase/decrease  Capital increase with percentage change  Transfers  Indirect transfers 11

12 Consolidation of Investments: Functions (cont.) Equity method activities  First consolidation  Subsequent consolidation  Goodwill amortization Calculation of shares (post shares on statistical items into totals database) Calculation and posting of goodwill Calculation and posting of minority interests Calculation and posting of equity earnings/losses Overall customizing check

13 What We’ll Cover … Introduction Exploring consolidation of investments Reporting with BCS Identifying COI Alternatives Configuring in BCS Wrap-up

14 Key Reporting Capabilities Multi-dimensional consolidated management reporting Consolidated legal reporting Cash flow reporting  Hint: Leverage movement types and statistical accounts to support cash flow reporting Consolidation data is immediately available when data is loaded/processed

15 Key Reporting Capabilities (cont.) Audit trail analysis  To help analyze data submitted for consolidation, use posting levels and document types  Can be further enhanced using SAP NetWeaver BW’s “jump query” capability to drill down to documents underlying consolidation adjustments Drill down to source transactional data for SAP ERP Central Component source systems  Requires proper design of the overall SAP NetWeaver BW data model

16 Key Reporting Capabilities (cont.) All reports can be made available either hosted in Microsoft Excel or via the Web Consolidated financial results can also be presented via Strategy Management and Performance Measurement tools  I.e., using balanced scorecard and management cockpit functionality Read white papers: How to… Set up a SEM-BCS Data Mart in BW and How to… Set up a SEM-BCS MultiCube Scenario in BW  See Resources slide for more information

17 Consolidation Reports Using Virtual Cubes SAP SEM-BCS programs Interpret the totals data read from the basic cube Function module 1 Including selection conditions Basic cube for totals data (Transactional InfoCube) Virtual cube for totals data (Without data; with the same structure as the basic cube) Query Report 4 5

18 Reporting Using Virtual Cubes Virtual cubes in BCS vary from standard SAP NetWeaver BW reporting  Queries written against virtual cubes apply consolidation- specific logic to the data As a general rule, consolidated reports should always be written against the virtual cubes  To ensure that the correct logic is applied Always include and specify a characteristic consolidation group in your queries  This is mandatory in order to return the correct consolidated result  Warning: If you select a consolidation group node from the characteristic consolidation unit, the correct logic will not be applied!

19 Reporting Using Virtual Cubes (cont.) Select the consolidated group from a consolidation group hierarchy, and select the node, not the leaf, for a given group  Why? The node will return the consolidated totals; the leaf simply will return the delta related to that particular node. Consolidated groups are usually time dependent and version dependent  By default, the group’s data will be determined based on its definition at the highest period used in a row, column, or cell for the version of data being selected Make use of the reference period and year to control/override the standard logic for group determination as described above

20 Reporting on Virtual Cubes – Logic Applied Consolidated group is NOT stored in the SAP NetWeaver BW InfoCube, except for posting level 02, 12, 22 and 30 entries  This is very important to understand  The data to be included when a group is run for a report is determined dynamically  Provides much greater flexibility, particularly related to restatement

Reporting on Virtual Cubes – Logic Applied (cont.) Example:  Consolidated group A is selected in a given report for data in Version 100 period 002/2010  From the consolidation configuration, it is determined which units made up the group as of 002/2010  The period of first consolidation/divestiture is checked, and it is determined that units A, B, and C make up the group at that point in time  All are accounted for on the purchase method; therefore, base data (i.e., posting level 00 and 10) would be selected for these units 21 CG-A ABC

22 Reporting on Virtual Cubes – Logic Applied (cont.) Example: (cont.)  The group should only include eliminations among the three companies making up the group  Elimination records from the Totals cube are only selected if both the unit and the partner unit are part of the group (A, B, or C)  COI records specific to group A are then selected  The results are then accumulated, and the results for the consolidated group are returned

23 What We’ll Cover … Introduction Exploring consolidation of investments Reporting with BCS Identifying COI Alternatives Configuring in BCS Wrap-up

COI Alternatives Purchase method only, without COI configuration Both purchase and equity methods, without COI task Fully implemented COI 24

Purchase Method Only, Without COI Configuration Automatic elimination of investment and corresponding subsidiary equity for purchase method Statistical balance for percent of minority share Reclassification to automatically post minority interest No “mysterious” statistical postings No configuration of COI Does not automatically post gains/losses on divestitures 25

Both Purchase and Equity Methods, Without COI Task Automatic elimination of investment and corresponding subsidiary equity for purchase method Statistical balance item for percent of minority share Statistical balance item for percent of equity ownership Reclassification to automatically post minority interest Reclassification to automatically post earnings/losses Equity method subsidiary P&L data must be loaded Equity method subsidiary must be included in consolidation group hierarchy No “mysterious” statistical postings Configuration of COI required to use accounting technique assignment for reporting, but no COI task is used No automatically posting of gains/losses on divestitures 26

27 Fully Implemented COI Automatically posts gains/losses on divestitures Recommended for group shares and complex scenarios Uses “mysterious” statistical postings

28 What We’ll Cover … Introduction Exploring consolidation of investments Reporting with BCS Identifying COI Alternatives Configuring in BCS Wrap-up

Reclassifications Automatic reclassification entries to:  Adjust the financial data reported by consolidation units  Reclassify already-consolidated data  Consolidation group-dependent postings Components  Trigger  Source (optional)  Target  Percentage rate (optional)  Condition (optional) 29

30 Reclassifications (cont.) Inheritance of:  Selection conditions (from trigger to percentage rate; from trigger to condition)  Values (from trigger to source; from trigger to target) Different type of data (with respect to the components)  Transactional data from database (periodic or cumulative values)  Explicit data from method customizing

31 Master Data: Control via Breakdown Categories Maximum set for characteristic transaction type Breakdown check (adjustment of transaction data if breakdown category is changed) Time-dependent breakdown categories

32 Purchase Method Only, Without COI Configuration Elimination of investment and corresponding subsidiary equity for purchase method  One-sided with investment items selected  Investment items must have trading partner  Differences to equity item  Or, two-sided elimination with selection 1 for investment items and selection 2 for equity item(s)  Investment and equity items must have trading partner  Document type  Task  Assign task-to-task hierarchy

33 Purchase Method Only, Without COI Configuration (cont.) Statistical balance item to record balance for percent of minority share  Breakdown to include unit of measure to allow for quantities  Plus additional statistical flow item for offset

34 Purchase Method Only, Without COI Configuration (cont.) Reclassification to automatically post minority interest  Method layout with components  Percentage Rate  Source  Condition  Target

35 Purchase Method Only, Without COI Configuration (cont.) Reclassification to automatically post minority interest (cont.)  Type of Trigger Data  Transaction Data  Cumulative  Incl. Parent/Subsid. = All  Type of Perc.Rate Data  Transaction Data  Key Figure = Quantity  Cumulative  Trigger Characteristic = Statistical balance item to record balance for percent of minority share

36 Purchase Method Only, Without COI Configuration (cont.) Reclassification to automatically post minority interest (cont.)

37 Purchase Method Only, Without COI Configuration (cont.) Reclassification to automatically post minority interest (cont.)  Condition Key Figure of Quantity > 0  Characteristic = Statistical balance item to record balance for percent of minority share

38 Purchase Method Only, Without COI Configuration (cont.) Reclassification to automatically post minority interest (cont.)  Source/Target  Source is Minority Interest P&L Item  Target is Minority Interest Balance Sheet Item  Sub-assignments as needed

39 Purchase Method Only, Without COI Configuration (cont.) Reclassification to automatically post minority interest (cont.)  Document type  Task  Assign task-to-task hierarchy

40 Both Purchase and Equity Methods, Without COI Task Include COI characteristics in BCS databasis  Investee  Acquisition Year  Acquisition Period Generate COI data streams (target and virtual InfoProvider)  Investment Data  Equity Data  Equity Holdings Adjustment Data  Goodwill Data  Activity Numbers  Sequence of Activities  Activity Sorting

Both Purchase and Equity Methods, Without COI Task (cont.) Include COI characteristics in Consolidation Area  Investee  Acquisition Year  Acquisition Period  In Consolidation Area Settings select Consolidation of Investments Exit BCS workbench to enable COI configuration 41

42 Both Purchase and Equity Methods, Without COI Task (cont.) Configure COI  Select Accounting techniques “Purchase” and “Equity”  Global settings, Goodwill in Divestiture of Investments, choose “No or complete Reduction”  Further Settings, select Extraordinary Amortization of Goodwill, Extraordinary Amortization of Negative Goodwill and Negative Stockholders’ Equity, and choose “Global for all”

43 Both Purchase and Equity Methods, Without COI Task (cont.) Configure COI (cont.)

44 Both Purchase and Equity Methods, Without COI Task (cont.) Configure COI (cont.)  Location of values  Read investment data from: Additional Financial Data  Read equity data from: Totals Database  Read equity holdings data from: Reported Equity Data  Calculation base includes all document types

45 Both Purchase and Equity Methods, Without COI Task (cont.) Configure COI (cont.)

46 Both Purchase and Equity Methods, Without COI Task (cont.) Configure COI (cont.)  Create Equity Methods with Direct Shares

47 Both Purchase and Equity Methods, Without COI Task (cont.) Configure COI (cont.)  Create Purchase Method with Direct Shares

48 Both Purchase and Equity Methods, Without COI Task (cont.) Update master data to assign Accounting Technique to all entities  Menu path Process View  Master Data  Accounting Techniques  Assignments are time dependent, so be sure the parameters are set to the correct period/year for the assignment

49 Both Purchase and Equity Methods, Without COI Task (cont.) Elimination of investment and corresponding subsidiary equity for purchase method (same as before) Statistical balance item to record balance for percent of minority share (same as before) Statistical balance item to record balance for percent of equity share (similar to above) Reclassification to automatically post minority interest (same as before) Reclassification to automatically post equity earnings/losses (similar to above)

50 Fully Implemented COI Too much to cover in this session  Handles more complex scenarios  Automatically posts gains/losses on divestitures  Uses “mysterious” statistical postings

51 What We’ll Cover … Introduction Exploring consolidation of investments Reporting with BCS Identifying COI Alternatives Configuring in BCS Wrap-up

52 Resources ec28e a114084/frameset.htm  SAP Help for BCS *  Follow: SAP ERP  SAP ERP Analytics  SEM  Business Consolidation  Media Library  Presentations*  Follow: SAP ERP  SAP ERP Analytics  SEM  Business Consolidation  Media Library  How To’s  How to… Set up a SEM-BCS Data Mart in BW  Search for relevant SAP SEM-BCS topics * Requires login credentials to the SAP Service Marketplace

7 Key Points to Take Home COI is used to recognize the ownership of consolidation units that belong to the consolidation group using different accounting techniques  Purchase method  Equity method Accounting technique specifies to which extent the individual financial statement data of the investee unit is used to produce consolidated financial statements BCS offers several ways to address COI, from simple to complex  Assess requirements for COI and choose the approach that best fits 53

7 Key Points to Take Home (cont.) Research and understand the full capabilities available in support of each consolidation function  Simple solutions may exist to what may initially appear to be complex issues BCS reporting in SAP NetWeaver BW uses virtual cube logic  Which needs to be understood in order to fully leverage the reporting capabilities of SAP NetWeaver BW-based consolidations Ensure that those responsible for reporting clearly understand the logic underlying virtual cube reporting Consolidated reporting leverages the delivered reporting capabilities of SAP NetWeaver BW  E.g., Excel and Web-based reporting 54

55 Your Turn! How to contact me: Dan Sullivan

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