sap® financial consolidation 10.1, starter kit for ifrs, sp7

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SAP® Financial Consolidation 10.1, starter kit for IFRS, SP7 Operating guide

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2018-04-27

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Contents Chapter 1 Introduction ........................................................................................................................ 10

Presentation ......................................................................................................................... 10

Organization ................................................................................................................ 10

Other Documentation................................................................................................... 10

Database Structure .............................................................................................................. 10

Flow-Based Consolidation ................................................................................................... 11

List of Accounting Flows .............................................................................................. 12

Entering Data in Flows................................................................................................. 14

Balancing Flows ........................................................................................................... 15

Chapter 2 Initializing the Consolidation ............................................................................................ 16

Section Objectives ....................................................................................................... 16

Key Points .................................................................................................................... 16

Suggested Approach ................................................................................................... 16

Documents to be kept .................................................................................................. 16

Updating Reporting Units ..................................................................................................... 16

Key Concepts .............................................................................................................. 16

Structure of the Reporting Unit Table .......................................................................... 17

Procedure .................................................................................................................... 17

Breakdown by Division ................................................................................................ 18

Creating Packages ............................................................................................................... 18

Creating a Reporting ID ............................................................................................... 19

Creating Reporting Sets .............................................................................................. 20

Sending Opening Packages ........................................................................................ 20

Entering and Updating Conversion Rates ........................................................................... 20

Conversion Rate Tables .............................................................................................. 20

Conversion Rate Types ............................................................................................... 21

Entering Conversion Rates .......................................................................................... 21

Chapter 3 Collecting Data ................................................................................................................... 23


Key Points .................................................................................................................... 23


Entering Data at Data Entry Site .......................................................................................... 23

Receiving Packages .................................................................................................... 23

Loading Data into Packages ........................................................................................ 24

Publishing Packages ................................................................................................... 24

Receiving, Checking and Integrating Packages .................................................................. 24

Contents

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Receiving Packages .................................................................................................... 24

Running Package Controls .......................................................................................... 24

Integrating Packages ................................................................................................... 24

Sending a Given Package Several Times ................................................................... 24

Chapter 4 Consolidation Scope ......................................................................................................... 26


Key Points .................................................................................................................... 26


Documents to be kept .................................................................................................. 26

Concepts and Definitions ..................................................................................................... 26

Definitions .................................................................................................................... 26

Defining Scopes ........................................................................................................... 28

Portfolios .............................................................................................................................. 29

Creating Portfolios and Portfolio Occurrences ............................................................ 29

Copying a Portfolio Occurrence ................................................................................... 30

Controls and Corrections ............................................................................................. 30

Printing a Portfolio Occurrence .................................................................................... 31

Scopes ................................................................................................................................. 32

Statutory and Reporting Scopes .................................................................................. 32

Creating a Scope ......................................................................................................... 32

Making Changes to a Statutory Scope Manually ........................................................ 32

Specific Cases ............................................................................................................. 33

Hierarchical Scope ....................................................................................................... 33

Printing a Scope .......................................................................................................... 33

Chapter 5 Processing the Data: Key concepts ................................................................................. 34


Key Points .................................................................................................................... 34


Introduction .......................................................................................................................... 35

Manual Journal Entries ........................................................................................................ 37

Procedure .................................................................................................................... 37

Defining a Journal Entry Header ................................................................................. 37

Audit IDs ...................................................................................................................... 38

Converting Data ................................................................................................................... 40

Main Principles ............................................................................................................ 40

YTD and Periodic Conversion ..................................................................................... 41

Consolidation Processing .................................................................................................... 42

Defining a Consolidation .............................................................................................. 42

Running a Consolidation Processing........................................................................... 43

Contents

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Retrieving and Checking Data ............................................................................................. 43

Data Retrieval Reports ................................................................................................ 43

Checking Consolidated Data ....................................................................................... 43

Chapter 6 Making adjustments to individual accounts ................................................................... 47


Key Points .................................................................................................................... 47

Correcting Package Data ..................................................................................................... 47

Correcting Differences for Net Income N-1 ................................................................. 47

Recommended Solution: Package Processing ........................................................... 47

Other Package Corrections ......................................................................................... 51

Making Adjustments to Packages ........................................................................................ 52

Making Fair Value Adjustments ................................................................................... 52

Other Adjustments ....................................................................................................... 54

Making IFRS Adjustments ................................................................................................... 54

Chapter 7 Intercompany Transactions .............................................................................................. 57


Key Points .................................................................................................................... 57


Checking Intercompany Declarations .................................................................................. 57

Running Intercompany Reconciliations ....................................................................... 57

Correcting Differences ................................................................................................. 60

Elimination of Internal Transactions ..................................................................................... 62

Elimination of Reciprocal Transactions ....................................................................... 62

Dividends ..................................................................................................................... 65

Provisions .................................................................................................................... 68

Gains or Losses on Internal Transfer of Assets .......................................................... 71

Chapter 8 Deferred Taxation .............................................................................................................. 77


Key Points .................................................................................................................... 77

Overview .............................................................................................................................. 77

Identifying the Bases of Deferred Tax ......................................................................... 77

Booking Deferred Tax .................................................................................................. 77

Accounting for Deferred Tax ........................................................................................ 78

Chapter 9 Consolidation Entries ........................................................................................................ 79

Section objectives ........................................................................................................ 79

Calculation of Non-controlling Interests ............................................................................... 80

Principles ..................................................................................................................... 80

Contents

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Elimination of Investments ................................................................................................... 83

Principles ..................................................................................................................... 83

Converting Consolidated Shareholders' Equity and Investments in Subsidiaries ............... 88

Principles ..................................................................................................................... 88

Manual Journal Entries ................................................................................................ 88

Analysing the changes in the foreign currency exchange reserve for the Group ....... 92

Optional Conversion Process on Investment and Capital/Share Premium ................. 93

Equity Method ...................................................................................................................... 95

Principles ..................................................................................................................... 95

Booking of Goodwill ............................................................................................................. 99

General principle .......................................................................................................... 99

Specific cases ............................................................................................................ 100

Checking Goodwill of incoming companies ............................................................... 101

Chapter 10 Scope Changes ................................................................................................................ 104

Section Objectives ..................................................................................................... 104

Key Points .................................................................................................................. 104

Overview of the Scope Changes ....................................................................................... 104

Typology of Scope Changes ..................................................................................... 104

Scope Changes: Using the Right Flow ...................................................................... 105

Events Covered in this Documentation ..................................................................... 106

Incoming Entities ................................................................................................................ 106

Preparing the Reporting Cycle .................................................................................. 106

Automatic Processing ................................................................................................ 107

Manual Processing .................................................................................................... 108

Outgoing Entities ................................................................................................................ 109

Preparing the Reporting Cycle .................................................................................. 109

Automatic Processing ................................................................................................ 111

Manual Processing .................................................................................................... 112

Chapter 11 Completing the Consolidation ........................................................................................ 113

Section Objectives ..................................................................................................... 113

Key Points .................................................................................................................. 113

Checking the Statement of Comprehensive Income ......................................................... 113

Overview of the Statement of Comprehensive Income Reports ............................... 113

Manual Journal Entries .............................................................................................. 114

Path between the Statement of Comprehensive Income and the Statement of Changes in Equity ...................................................................................................... 115

Checking the Statement of Changes in Equity .................................................................. 115

Checks Specific to Certain Accounts ......................................................................... 115

Checking Variation Flows .......................................................................................... 115

Contents

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Performing Detailed Checks for Reporting Units ....................................................... 117

Checking the Statement of Cash Flows ............................................................................. 117

Overview of the Statement of Cash Flows Reports ................................................... 117

Analyzing Differences ................................................................................................ 118

Manual Journal Entries .............................................................................................. 121

Checking IFRS adoption .................................................................................................... 123

Introduction

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Introduction

Presentation

Organization

The operating guide is organized according to the steps performed in a consolidation processing.

Preparing the reporting cycle: This step describes how the consolidation is initialized (see Initializing the Consolidation), how package data is collected (see Collecting Data) and how the Group structure is defined (see Consolidation Scope).

Processing the data: This step describes the main concepts (see Processing the Data: Key concepts), how intercompany transactions are eliminated (see Intercompany Transactions), how deferred taxes are computed (see Deferred Taxation) and how technical consolidated journal entries are posted (see Consolidation Entries).

Completing the consolidation: in this step the entire consolidation is validated on the basis of the Statement of Changes in Equity and the Cash Flow Statement (see Completing the Consolidation).

Each section presents:

Key points

A detailed approach with references to other sections for more information.

Other Documentation

The following documentation is available:

Product Documentation: This document, available in the application, describes functions and procedures.

Configuration Design Documentation: This document offers in-depth knowledge about customizing the database structure.

You should refer to this documentation to get detailed information about:

using the application for operations and customization purposes.

making changes to the setup of the Starter kit.

Database Structure

All of the information in the database is identified by a set of elements required for storing, processing and retrieving data. These elements are called dimensions.

The following dimensions are used in the configuration:

Required dimensions

All of the data stored in the database must be identified by these dimensions.

CATEGORY The configuration provides one category scenario, called A-Actual, to be used for statutory consolidations.

DATA ENTRY PERIOD: The date on which the information is entered for all of the defined periods using the following format: YYYY.MM

PERIOD: The same value as the data entry period in a statutory consolidation.

REPORTING UNIT: The company or Business Unit whose data is being entered.

Introduction

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CURRENCY: The currency in which the data is stored.

ACCOUNT: The balance sheet and income statement accounts as well as technical accounts for consolidation purposes, for example suspense accounts.

FLOW (see Flow-Based Consolidation).

AUDIT ID: The ID that identifies the origin of the data for packages, local adjustments, manual journal entries, and automatic journal entries.

Analysis dimensions

PARTNER: The reporting unit involved in an intercompany transaction.

MANAGEMENT UNIT: In-built dimension not used in the starter kit

PARTNER MANAGEMENT UNIT: In-built dimension not used in the starter kit.

SHARE: The held company in the investment portfolios.

COUNTRY: The breakdown of external sales by geographical area.

ANALYSIS Used to build the Statements of Cash Flows, Changes in equity, Comprehensive income and thr Country-by-Country Reporting (BEPS). Also used for data entry on a daily basis for flows F20/F40 on Investment, F40 on Issued capital/Share premium and F06 on Dividends.

Note: These dimensions do not always contain values.

Dimensions specific to consolidation processing

SCOPE, VARIANT and CONSOLIDATION CURRENCY: These dimensions are used to identify a consolidation definition.

Technical dimensions

JOURNAL ENTRY NUMBER

LEDGER

ORIGINAL REPORTING UNIT

TECHNICAL ORIGIN

GEOGRAPHICAL ORIGIN

Note: Data for these dimensions is automatically loaded by the application.

Example

Reporting unit RU1 has € 5 000 in cash at the end of the 2009 fiscal year.

This information, which originates from the data entry package, is stored as follows in the database:

Category Data Entry

Period Period

Reporting

unit Currency Account Flow Audit ID Amount

A 2009.12 2009.12 RU1 EUR A2610-Cash

on hand

F99-

Closing

PACK01-

Package Data 5 000

For more information on the database structure, see the functional design documentation.

Flow-Based Consolidation

The flow dimension is used to identify and analyze the changes between the opening and closing balances. The accuracy of automatic processing depends on whether data has been correctly entered in flows. Flows differ according to the account being analyzed.

Introduction

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List of Accounting Flows

Types of Flow

Opening and closing balances correspond respectively to flows F00 and F99. Variation flows can be organized into the following categories:

Flows for Current Transactions

Income statement

Transactions for the income statement are posted in flow Y99.

Debt management

Movements in debt management items, made up of current assets and liabilities (excluding provisions) and the cash flow are posted in variation flow F15.

Example

You want to enter an amount of 100 € excluding VAT from the sale of goods.

In company accounts:

Account Debit Credit

Sale of goods 100

Accounts receivables 100

In the application:

Account Flow Debit Credit

P1100 Revenues Y99 100

A2210 Trade receivables, Gross F15 100

Depreciation, impairment and provisions

The balance sheet movements due to depreciation, impairment and provisions are posted using the following flows:

F25 - Increase in depreciation

F35 - Decrease in depreciation

Example

You want to enter a gross amount of 100 as allowances for provisions on shares.

In the accounting system:


Depreciation on investment 100

Allowance/depreciation of investments 100

In the application:


A1812 Investments in subsidiaries, JV and associates, Impair.

F25 100

P2210 Allowances for provisions on shares Y99 100

Equity

In equity accounts, shareholders' equity is processed separately from the other items.

Introduction

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Movements in shareholders' equity usually originate from:

The distribution of dividends (posted in flow F06)

The income of the current fiscal year (recorded in F10)

The increase or decrease in capital (posted in F40)

Movements that come under “Other comprehensive income”, for example, flow F55 on fair value reserve

Other specific operations, like acquisition (flow F20) and disposal (flow F30) of treasury shares

Note: In the Equity section of the Balance sheet, there is no specific account for the Net profit of the period. This net profit must be included in account E1610-Retained earnings.

Non-current assets and liabilities

For the non-current assets and liabilities:

Increases are posted in F20.

Decreases are posted in F30.

Investments in subsidiaries and capital subscription (increase, decrease or creation of capital) are posted in F40.

Example

You invest in the creation of Company F by subscribing 1 000 to its capital. During the year, you buy an associate’s share for 250. This investment is financed by a bank loan.

In the accounting system:


Investments in subsidiaries 1 250

Bank loans 1 250

In the application:


A1810 Investments in subsidiaries, JV and associates F40 1 000

A1810 Investments in subsidiaries, JV and associates F20 250

L1510 Borrowings, Non current F20 1 250

Transfers between items

Transfers between balance sheet accounts are recorded in F50-Reclassification.

Adjustment to IFRS standards

Variations in fair value for financial assets and liabilities are posted in F55-Fair value.

Flows for Specific Transactions

The flows used for specific transactions are as follows:

Changes in accounting policies: The impact on balance sheet items is posted in F09-Change in accounting policies, which must balance (Total Assets = Total Liabilities) .

Contribution to capital and merger transactions: The impact on balance sheet items, including issue of shares for capital contribution, is posted in F70-Internal mergers. Any impact on the net income for the period is recorded in account P1620-Merger result.

Introduction

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Flows Specific to Consolidated Accounts

The flows specific to consolidated accounts are generated automatically by the application and are as follows:

Effect of foreign exchange rate variations: F80

Effect of variations in scope:

F01: Incoming units

F02: Change in consolidation method (old). This flow is used as the reverse opening flow for reporting units that change their consolidation method, for example from the equity method to a full or proportionate consolidation or vice versa.

F03: Change in consolidation method (new). This flow is used as the incoming flow of the new consolidation method.

F04: Change in consolidation rate. This flow records the impact of change in consolidation rate for subsidiaries consolidated using the proportionate or equity method.

F92: Change in interest rate. This flow corresponds to the impact of change in Group financial interest on the equity.

F98: Outgoing units

Entering Data in Flows

In Data Entry Packages

In the consolidation package, you must enter the closing balance in F99. Flow F15-Net variation is then automatically calculated by subtracting the sum of the opening flow and other movement flows from the closing flow (F99).

Flow F15 is used as a control flow that should be analyzed using the relevant variation flows, for all the balance sheet items except:

Cash accounts

Current assets/liabilities accounts, excluding depreciation, impairment and provisions, for which no detailed analysis by flow, like increase/decrease, is required to build the Statement of cash flows.

Example

Company A has assets of up to 100 at closing, as compared to 50 at opening. After entering or importing data, the assets variation table should be as follows:

ACCOUNTS CODE F00 F99 F20

Increase F30

Decrease F50

Reclass. Other

Control (F15)

Assets A11xx 50 100 50

Movements during the fiscal year correspond to an investment of 80 and a sale of 30. Data should therefore be entered in the schedule as follows:


Increase F30

Decrease F50

Reclass. Other

Control (F15)

Assets A11xx 50 100 80 -30 0

In Journal Entries

Regardless of whether they are automatic or manual journal entries, they are automatically saved in a movement flow that carries over data to the closing balance of the balance sheet.

Introduction

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Balancing Flows

Certain flows must be balanced for assets and liabilities/equity. Others must ensure that assets - liabilities = income.

Flow Assets –Liabilities =

Equity Assets - Liabilities = Income (income statement accounts)

F00 – Opening X

F01 – Incoming units X

F03 – Change in consolidation method (new) X

F09 – Change in accounting policies X

F50 – Reclassification X

F70 – Internal mergers X (P1620)

F80 – Currency translation adjustment X

F99 – Closing X

If these principles are not respected in manual journal entries, then cash flow statements may not be balanced. Data retrieval reports are used to ensure that flows are balanced.

Initializing the Consolidation

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Section Objectives

To present all of the tasks required to run a new consolidation processing.

Key Points

To initialize a new consolidation processing, you should:

Update the list of companies and data entry sites

Create packages for the data entry period or send opening packages to the subsidiaries

Enter the conversion rate for the period

Before creating packages or sending packages to subsidiaries, you should add all of the Group's incoming companies to the list of companies. You can manage the list of companies in the Dimension Builder module of the Setup domain.

You can manage the opening packages to be sent to subsidiaries and opening balances, if required, in the Reporting Organizer and RU Organizer modules of the Operation domain.

Conversion rates for the period can be entered before or after you send the packages to the subsidiaries. For the list of companies, however, you must update it first in order to determine exactly which currencies will be required for the consolidation.

Suggested Approach

1. Update the list of companies in the group and the list of data entry sites.

2. Create packages or send opening packages to subsidiaries.

3. Enter conversion rates for the period.

Documents to be kept

Printout of the conversion rate tables

Updating Reporting Units

The Reporting Unit is the elementary component of the Group’s structure. Each Reporting Unit populates a package.

In a statutory consolidation, a Reporting Unit is usually a legal entity, but it can also be a sub-group, a branch, a business unit, or a department.

Key Concepts

The reporting unit table contains all of the reporting units for which the Group has defined a code, regardless of whether or not they will be consolidated.

You can assign a code to companies that are not linked by their capital to the Group. You usually do so in the following cases:

When the Group is included in the consolidated accounts of another Group, even though it consolidates data at its own level. By specifying a code for sister or parent companies, you can manage all of the data required for the top level consolidation process (for example, investments and intercompany transactions).


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When the Group wants to perform breakdowns by partner (customers/suppliers) using consolidated data.

The code TP-999-Third parties corresponds to all of the reporting units that do not have a code. You should never delete it.

Structure of the Reporting Unit Table

A certain amount of information for each Reporting Unit is stored in the database. This information includes characteristics or sub-characteristics. This information is required because it enables the Reporting Unit to be correctly included in the consolidation processing.

Currency

This identifies the currency in which data is collected.

Country

This indicates the country in which the Reporting Unit's headquarters are located. This characteristic is used to produce geographical area analysis.

Company

This is the legal entity to which the Reporting Unit belongs. A Reporting Unit may be its own legal entity. This information is required when the consolidation scope is being defined.

Several business units (BUs) may correspond to the split of one legal entity. In that case, all these BUs will have the same Company (corresponding to the Head BU).

Purpose

This characteristic is used to distinguish between Legal entity, Business unit, Sub-consolidation, Archived, and Technical Reporting Units.

Division

When your consolidation definition is based on a hierarchical scope, the Division characteristic is used to eliminate intercompany transactions by distinguishing between inter/intra segment transactions during a consolidation processing.

Branch

This sub-characteristic identifies the branch for each Division. It is used to create a Reporting Unit hierarchy that can be used in the Scope Builder module.

The Division characteristic and Branch sub-characteristic share the same reference table.

Procedure

To add a Reporting Unit (Dimension Builder module, Setup domain)

1. Expand the tree structure to display Data sources > Amounts > RU-Reporting unit. Check that the Load data mode is enabled.


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2. Select File > New.

In the General tab, enter the code, short description and long description you want to assign to the new reporting unit.

In the Properties tab, enter the characteristics and properties for the new reporting unit.

3. Translate the descriptions in the Translate tab.

If you do not translate the descriptions into other languages, then when subsidiaries open the application in a language other than English, they will not be able to see the descriptions of their partners when entering intercompany data.

4. Select File > Save.

5. Select File > Close.

Breakdown by Division

To ensure a correct breakdown by Division/Branch, you should:

Create new members in the Division/Branch list.

Select the Branch sub-characteristic for each of the divisions.

Select the Division characteristic in the Reporting unit table for each of the reporting units.

Note: The breakdown by division as proposed in the IFRS Starter kit is based on the following principle: 1 reporting unit = 1 division = 1 branch.

If your Group holds companies corresponding to multiple divisions, you have to split the legal entity or entities into several mono-division reporting units.

To create a new Division or Branch

1. In the Dimension Builder module of the Setup domain, expand the tree structure to display Reference tables > EN-DIVISION and check that the Load data mode is enabled.

2. Select File New.

In the General tab, enter the code, short description and long description you want to assign to the new activity or branch.

3. For a new Division, enter the Branch sub-characteristic in the Properties tab.

4. Select File > Save.

5. Select File > Close.

Creating Packages

You create packages in three stages:

Create a reporting ID in the Reporting Organizer module of the Operation domain.

Define the list of reporting units included in the reporting ID in the RU Organizer module of the Operation domain and adapt these settings for some of the reporting units, if needed.

Generate the packages on the current site or send packages to another data entry site in the RU Organizer module of the Operation domain.


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Creating a Reporting ID

A Reporting ID consists of:

A category, like a type of data to be processed. For example category A for statutory consolidations.

A data entry period, for example 2009.12 for the yearly consolidation on 31 December 2009.

A Reporting ID contains properties that are applied by default to all of the packages included in it, except for changes made individually to the properties of certain Reporting sets (RU Organizer module).

In the IFRS Starter kit, the following options must be considered when creating a Reporting ID:

Category Scenario

The Starter Kit comes with one category scenario: A-Actual, version C-Current.

Data Entry Folders

In the IFRS Starter kit, two package formats are available:

P-A - Package for Actual

This package is used when entering data for entities consolidated using the Full or Proportionate consolidation method.

P-E - Package for EM companies

This is a package dedicated to entities consolidated using the Equity method. The list of accounts to enter is much smaller, including only Equity accounts, Net Income for the period and Dividends paid.

In case an EM entity holds subsidiaries, it should be included in the group’s consolidated financial statements based on its own sub-consolidated accounts, according to IAS 28. For this reason, some consolidation flows are available in the P-E package schedules.

Note: The same folders are available for data entry via both the Windows and Web interfaces.

Sets of Controls

Two sets of controls have been defined in the starter kit, and correspond to the package formats available for data entry.

Depending on which data entry folder you choose, you have to specify the corresponding set of controls (P-A or P-E).

Control Level

Two control levels can be applied to packages:

LEV1 – Balance Analysis is used to group together basic accounting controls, such as Assets – Liabilities = Equity. The controls checking the breakdown of Investments and Equity by flows also come under LEV1.

LEV2 – Flow Analysis is used to check that flow analyses are complete.

Origin of Opening Balances

We recommend that you use data from consolidated tables rather than preconsolidated tables (see Processing the Data: Key concepts) so that the data used for package opening balances is consistent with data from the consolidated opening balances.

When several consolidations have been run using different variants, you can choose any variant for the package opening balances, as long as the package data and corrections are identical for all variants.

When initializing a consolidation for the first time, the "Opening balance data" option should be disabled.


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Restrictions

Read-only flows: When the opening flow (F00) is selected, data in opening flows cannot be changed in the package. Enable the "Read-only flows only if there is an opening balance" option in order to let incoming reporting units enter their opening balances.

Read-only periods: This option is not used in the Starter Kit because category A-Actual has only one period for entering data, identical to the Reporting ID's data entry period.

Data entry restrictions: The Starter Kit comes with one default data entry restriction, PACK-STD (Package – Standard), that limits the available members for the following dimensions:

AC-Account: All the accounts are allowed except archived and consolidation-specific accounts.

ANALYSIS (multi-purpose dimension): The reference members available are the dates, used for optional currency translation process.

Note: If you decide to apply a Monthly or Quarterly conversion (see YTD and Periodic Conversion), you may need to use a different data entry restriction. For example, PACK-Q2 when you process the quarterly consolidation for June.

Creating Reporting Sets

When you create a Reporting ID in the Reporting Organizer module of the Operation domain, you also define the general environment for all Reporting Units. Once this is done, you should:

Create a reporting set for each reporting unit required to enter data in a package.

Validate or update the reporting properties for each reporting unit if required. Besides the properties from the Reporting ID defined in the Reporting Organizer module, the reporting set presents additional properties in the Roadmap tab which are used to define the data entry site, currency and users authorized to access the package in data entry.

Sending Opening Packages

Two possibilities are offered to enter data in the packages:

Entering data at decentralized data entry sites in the Windows interface

Note: If you want to use this option, you must first send opening packages by creating a new send task and including the transferable object “Opening package”.

Entering data in packages at central site

When data is entered in the package at central site, you do not need to create a send task.

You can make the package available directly in the RU Organizer module by right-clicking the reporting set and selecting "Generate Package at Current Site".

Note: Detailed information on sending opening packages is available in the application help.

Entering and Updating Conversion Rates

Conversion Rate Tables

Conversion rates are identified by:

a rate version

a period


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The rate versions enable you to specify different conversion rates for the same period and therefore simulate different consolidations. You usually use this functionality:

To produce temporary accounts when the currency exchange rate is not yet known, for example when publishing data in advance for intercompany transactions.

To run simulations using different currency scenarios.

In the Starter Kit, two conversion options are available, depending on whether you apply YTD or periodic (Monthly or Quarterly) exchange rates (this will be dealt with in detail in chapter YTD and Periodic Conversion). As a result, two rate versions are available by default: A-YTD and A-PER.

You can also create new conversion rate versions.

Conversion Rate Types

For a given rate version and period, the following conversion rate types are available:

ARPP - Average exchange rate, prior period

OR - Opening exchange rate, current period

AR - Average exchange rate, current period

CR - Closing exchange rate, current period

Daily-specific rates

The ARPP rate type is used only if you apply Monthly or Quarterly conversion (see YTD and Periodic Conversion).

Daily-specific rates were created to enable the conversion of paid dividend (F06) at the rate of distribution. Paid dividends are entered by beneficiary and date in the package and converted by default to the average rate or at the rate of the day when entered (see Dividends).

Daily rates also enable the conversion of F20/F40 on Investment and Issued capital/Share premium, based on daily rates rather than the average rate for the period (see Optional Conversion Process on Investment and Capital/Share Premium ).

A report checks the consistency between the analysis by date entered in the package and daily rates entered in the conversion rate table.

The conversion rates entered are based on the base currency selected by users for each conversion rate table. This currency has a conversion rate equal to one for all rate types.

The choice of this base currency is not related to the currency in which the consolidation is run. However, it would be easier to choose the consolidation currency as the base currency in the case you have to enter specific rates (daily rates or specific rates for incoming and outgoing companies) for companies using the base currency. In that case, If you run consolidations with different consolidation currencies, you would have to create as many conversion rate tables as consolidation currencies.

If the consolidation currency is different from the base currency, it is also necessary to enter a specific conversion rate for reporting units using the base currency. This conversion rate should be calculated according to the consolidation currency specific exchange rate (and will not be equal to one).

Entering Conversion Rates

You can enter conversion rates in one of the following ways:

Enter the different rate types in the conversion rate table.

Import data from a file (see the product documentation).


22

Calculation Methods

Conversion rates can be expressed as follows:

Divide: The amounts entered are divided by the conversion rate for the "Certain for uncertain" calculation method.

Multiply: The amounts entered are multiplied by the conversion rate for the "Uncertain for certain" calculation method.

Example

The base currency is USD. Exchange rate for USD and EUR are entered as follows, depending on the calculation method you choose:

Currency Divide Multiply

USD 1 1

EUR 0.67253 1.48692

Conversion Rates Specific to Certain Reporting Units

You can enter a conversion rate specific to one reporting unit. You use this option for incoming and outgoing companies, for example the opening rate for an incoming reporting unit is the rate applicable at the time it was included in the scope and not the rate applicable on the first day of the data entry period. This is explained in chapter Incoming Entities.

Daily Rates

To enter daily-specific rates for a given currency you should add columns in the right part of the conversion rate table. The list of additional rate types corresponds to the days of the year.

For example, if a particular consolidation event occurred on Sept 14th, first add the 09.14-September 14 rate type in the list of available columns, then enter the exchange rate for the relevant currencies at this date.

The exchange rate for the pivot currency must always be populated (with a value of 1) for any of the date-specific rate types to ensure a correct conversion process.

Besides, if the consolidation currency differs from the pivot currency, you must also populate the exchange rates of the consolidation currency for any of the date-specific rate types.

In case you apply periodic conversion, enter daily-specific rates only for the dates included in the period (month or quarter).

For example, if you use quarterly conversion, the conversion rate table for Q3 should only include rates for dates from Jul 1st to Sept 30th. Indeed, if a consolidation event occurred in Q2 and you entered specific exchange rates for the corresponding date in Q2 conversion rate table, the conversion for F20 or F40 has already been done in the consolidation for Q2 and should not be re-processed in Q3.

Collecting Data

23

Collecting Data

Section Objectives

To describe how package data is collected.

Key Points

At local data entry sites, data is loaded manually into consolidation packages by entering data, or automatically by interfacing with the accounting system or by importing data tables.

After the data is entered or imported, controls must be run on packages, which are then published and sent to the consolidation department (in the case where data entry is decentralized).

In order for the package data to be included in the consolidation, packages must be integrated into the database.

Suggested Approach

At data entry site:

1. Receive the opening package sent by the consolidation department (if applicable).

2. Enter or import data to the package.

3. Run controls on the package.

4. Publish the package so that its data is made available to the consolidation department.

At the consolidation department:

1. Receive the packages (if applicable).

2. If there are no send conditions, check that the package sent has reached the control level required. If this is not the case, then run controls and correct the errors.

3. Integrate package data into the database.

Entering Data at Data Entry Site

Receiving Packages

To receive packages, perform the following actions:

Define an inspection task so that it can detect the objects to be received. If objects are detected by this task, then a new reception task RYYMMDD.000x will be automatically created.

Run the reception task.

This procedure only applies to the Windows client when the packages are filled out on a decentralized data entry site. In any other case, the packages are directly available on the current site without performing any additional action.

Collecting Data

24

Loading Data into Packages

The procedure to enter or import data into a package and to run package controls is described in detail in the Package Data Entry Guide.

Publishing Packages

After a package has been filled out, it must be published so that it will be available at the central level when the consolidation is processed.

When the data entry is done on a different site from the consolidation site, the publication of a package creates a “Send objects” task with the package.

There are several publication options. To learn more about them, refer to the application help.

Receiving, Checking and Integrating Packages

Receiving Packages

Just like at data entry sites, to receive packages, perform the following actions (see Receiving Packages):

Define an inspection task so that it can detect the objects to be received. If objects are detected by this task, then a new reception task RYYMMDD.000x will be automatically created.

Run the reception task.

Running Package Controls

If the "Blocking" option was checked when the packages were created or sent to the subsidiaries, then the control level set must be reached before the subsidiaries can publish or send their packages back to you.

However, the send condition is not always required for a reporting process that is carried out for the first time or for incoming entities. For these two cases, you will, however, need to know the control level reached by the package before integrating it. If the package does not comply with the control level set, you will also need to rerun controls in order to obtain details on the errors.

Integrating Packages

This step is used to integrate packages automatically in the preconsolidated table that will be used when the consolidation is processed. This step is mandatory for running the consolidation processing and must be performed:

Once you have received the package and checked that its data is correct.

When changes are made to a package which is then published again, if you want these changes to be included in the consolidated accounts.

Sending a Given Package Several Times

A subsidiary may need to send its package several times to central site if it incrementally corrected or completed its package data.

Collecting Data

25

If the consolidation department wants to find out which changes were made to the accounting data as compared to the previous version, it can display/print the following schedule for the relevant Reporting Unit:

Folder Book Schedule

C4 C41 C41-05 – Compare local/pre-consolidated data

An overall control report (not detailed by elementary accounts) can also be run for all the packages related to one Reporting ID:


C4 C41 C41-10 – Check integration by Reporting Unit

You should consult these schedules before integrating the new version of package data.

Consolidation Scope

26

Consolidation Scope

Section Objectives

To define the consolidation scope.

Key Points

The configuration proposes three ways to define your scope:

An automatic mode, where you first enter data in packages, and then generate the portfolio and the scope automatically.

A semi-automatic mode, where you first enter data in the portfolio manually, and then generate the scope automatically.

A manual mode, where you enter data in the scope manually or copy an existing scope.

Before creating the consolidation scope, you should first have updated the list of companies in the Group (see Initializing the Consolidation). This is done in the Scope Builder module of the Operation domain.

The Starter Kit offers segment reporting capabilities, based on hierarchical scopes.

Suggested Approach

1. Create a portfolio.

2. Load data in the portfolio in one of the following ways:

Initialize it using the data collected in the packages. (mode 1)

Enter data manually or copy an existing portfolio. (mode 2)

3. Create a scope.

4. Load data in the scope in one of the following ways:

Initialize it using the portfolio. (mode 1 and 2)

Enter data manually or copy an existing scope. (mode 3)

5. Define the hierarchy to be applied for Reporting Unit Rollup calculations

Documents to be kept

Printout of the portfolio

Printout of the scope

Concepts and Definitions

Definitions

Portfolios

A portfolio consists of information about the direct legal investments between companies in the same corporation. It:

stores the number of shares and voting rights owned by companies.

stores the number of shares and voting rights held by one company in another.

Consolidation Scope

27

uses shares and voting rights to calculate the direct investment, financial interest and ownership interest of one company in another (see Rates Used).

Consolidation Scope

The scope shows the following for all of the companies included in it:

The consolidation method, like Not consolidated (NC), Full (FC), Proportionate consolidation (PC) and Equity method (EM).

The financial interest, ownership interest and consolidation rate.

Besides this data displayed at period closing, the application also displays the data from the previous period. This enables you to identify scope changes:

Incoming entities (I)

Outgoing entities (O)

No variation (N)

Segment Analyses

The segment reporting, especially the Revenue by segment, relies on the Reporting Unit Rollup functionality. It automatically calculates the inter-intra segment eliminations using the hierarchical scope entered in the consolidation definition. Therefore, it is mandatory to define the unit hierarchy to be applied in the Hierarchical scope step; otherwise, the reports dedicated to segment analyses will not retrieve consistent data.

Rates Used

Direct Shareholding, Financial Interest and Ownership Interest

The portfolio refers to three types of rate:

Direct shareholding: This represents the percentage of shares a parent company holds in the held company.

Financial interest: This represents the percentage of capital that a parent company holds directly or indirectly in the held company.

Ownership interest:

When one company holds another company directly, the ownership interest is the same as the shareholding percentage.

When one company holds another one via intermediate companies, the ownership interest is calculated by adding together the direct shareholding percentages held by the companies in which there is an interest greater than 50% (because the default control threshold is 50%).

Example 1

60%

50%

50%

F2

F1

M

Subsidiary Parent

company Direct

shareholding Financial interest

Ownership interest

F1 M 60% 60% 60%

F2 M

F1

50%

50%

80% (1)

50%

100% (2)

50%

(1) Percentage of financial interest of M in F2 = 50% (direct) + 60% x 50% (indirect via F1) = 80% (2) Percentage of ownership interest of M in F2 = 50% (direct) + 50% (indirect via F1, as more

than 50% of F1 is held)

Consolidation Scope

28

Example 2

20%

50%

50%

F2

F1

M

Subsidiary Parent

company Direct

shareholding Financial interest

Ownership interest

F1 M 20% 20% 20%

F2 M

F1

50%

50%

60% (1)

50%

50% (2)

50%

(1) Percentage of financial interest of M in F2 = 50% (direct) + 20% x 50% (indirect via F1) = 60% (2) The percentage of F1 in F2 is not taken into account because M's interest in F1 is less than

the threshold.

Consolidation Rate

Besides the financial and ownership interests, scopes also display the consolidation rate. This rate depends on the consolidation method:

For a fully consolidated company, it is 100%.

For a proportionate consolidation, it represents the share of assets and liabilities (or expenses and income) included in the Group balance sheet (or income statement). It is equal to the sum of all direct shareholdings in the subsidiary held by companies in the scope, after the consolidation rates for the latter have been applied accordingly.

For a company consolidated using the equity method, it represents the Group share used to calculate the consolidated value of the investments in associated undertakings. It is calculated in the same way as in a proportionate consolidation.

Example

20%

80%

F2

F1

M

Company Ownership

interest Consolidation

method Financial interest

Consolidation rate

F1 80% Full 80% 100% (1)

F2 20% Equity method 16% 20% (2)

(1) F1 fully consolidated so consolidation rate = 100% (2) Consolidation rate for F2 = direct rate via F1 (20%) x F1 consolidation rate (100%) = 20%

Initial Values/Revised Values

The number of shares as well as the rates displayed in portfolios and scopes have two different values:

Initial value: This is the value calculated by the application using source data when initializing the following automatically:

Portfolios (source data = preconsolidated data)

Scopes (source data = portfolio)

Revised value: You can enter this value manually in a scope or portfolio. If this value exists, then it will take priority over the initial value when applying rates in consolidation processing.

Defining Scopes

The configuration proposes three ways to define consolidation scopes in order to select which entities are to be consolidated, the consolidation method and rates to be used.

You must define the unit hierarchy to be applied, whichever way for defining scopes you choose. Otherwise, consolidations using a set of rules that includes a Reporting Unit Rollup rule cannot be processed.

Consolidation Scope

29

Automatically

Portfolio is automatically generated by loading data entered in consolidation packages:

By the subsidiaries in schedule PA2600: This schedule outlines the distribution of capital in number of securities per shareholder (group and third party) after having entered the total amount of capital (account E1110) and the total number of shares (account XE1110).

By the shareholder in schedule PA2400: This schedule analyzes the variation in investment securities held, by number (account XA1810).

The direct shareholding rate is derived from the total number of capital shares declared by the subsidiary and the number of shares held declared by the parent company or companies. The scope is then generated automatically using the portfolio.

This is the surest method because you can check that shares declared by subsidiaries and parent companies correspond, and because the rates for direct shareholding, financial interest, ownership interest and consolidation are calculated automatically.

Semi-Automatically

In this method, you enter the portfolio manually and then generate the consolidation scope automatically.

This method is often used when the consolidation department wants to build the scope before having received all the packages, assuming that legal data is available and up-to-date in the central database.

Manually

This method consists of loading data in the scope either by entering it manually , or by copying an existing scope. This method is adopted when defining pro forma accounts, or when performing simulations. It does not, however, enable you to check the consistency of the data entered.

Portfolios

Creating Portfolios and Portfolio Occurrences

You manage portfolios in the Scope Builder module of the Operation domain. You enter data in a portfolio in two stages:

Create a portfolio with a code and description, and specify a number of settings for loading and calculating rates. This is only mandatory when performing the reporting cycle for the first time.

Create a portfolio occurrence in order to enter data for a given data entry period.

Properties Tab

“Voting rights are proportionate to shares” Option

If you select the "Voting rights are proportionate to shares" option, then the number of shares that you enter are applied automatically to the number of voting rights, which are then used for calculating ownership interest.

Moreover, the fields displaying the number of voting rights are grayed out. You can only change this value by changing the value for the number of shares.

Therefore, this option is:

to be deactivated when you initialize the portfolio with data entered in packages, which is the recommended method,

only advisable when portfolio is entered manually, in order to avoid a double keying.

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30

Other Parameters

The table below indicates the manner in which you should enter the other Properties tab’s parameters when defining either a Portfolio or a Portfolio occurrence. These parameters are required only if you want to initialize the portfolio using the data collected in the packages.

Parameter Value Only available for a portfolio occurrence

Reporting ID (Category) A – Actual

Reporting ID (Data entry period)

[Data entry period of the consolidation]

X

Period [Same value as Data entry period] X

Flow F99 – Closing position

Non-group reporting unit TP-999 – Third parties

Audit ID filter AU1-S-R – Level S and R, i.e.

package origin

Initialization Tab

If you want to initialize the Portfolio occurrence using the information collected in the packages, the Initialization tab should be filled out as follows:

Parameter Value

For declaring

capital stock

Parent company SH - Share

Subsidiary RU – Reporting unit

Shares AC1-001 – Issued capital – Number of stocks

Voting rights AC1-001 – Issued capital – Number of stocks

For declaring

portfolio

Parent company RU – Reporting unit

Subsidiary SH - Share

Shares AC1-002 – Investment in subsidiaries, JV,

associates – Number of shares

Voting rights AC1-002 – Investment in subsidiaries, JV,

associates – Number of shares

Copying a Portfolio Occurrence

In the application, you can copy a list of investments from one portfolio occurrence to another, regardless of the other initialization settings.

Controls and Corrections

Controls of the Investment

Control reports are available in the software to check the consistency of portfolio data. The Control reports available are the following:

Consolidation Scope

31

Investments Greater than 100%

This report displays errors coming from stockholdings greater than 100%, for instance, when the total number of shares held is bigger than the share capital declared by the subsidiary or when the sum of direct and indirect stockholding is greater than 100%. We recommend that you print this report using revised data, which is used to generate consolidation scope from portfolio.

Missing Capital Stock

This report shows the list of reporting units that have not entered the number of shares included in their capital, on the account used for the initialization of the investment.

Revised Data/Declarations

This report shows the discrepancies between a holding and its subsidiary on revised values. The subsidiary enters in its data package the number of shares by shareholders. The holding enters the number of shares it holds. This report reconciles these two declarations.

Note: The “Control for declarations” report also shows the reconciliation, but on initial values. We recommend that you check the revised values, given that they are used for the initialization of the consolidation scope.

Initial Data/Declarations Control

The discrepancies displayed in this report between the initial value of the shares and the declared shares indicate that the pre-consolidated data (integrated data packages and manual journal entries) has been modified since the last initialization of the investment.

This report should be used only if the portfolio was initialized using the data collected in the packages.

Correcting Errors

Use one of the following methods to correct errors:

Direct correction of the package data

It is the easiest way for correcting, but the following steps must strictly be performed:

1. Enter the corrections in the data package.

2. Control and save the data package.

3. Publish and integrate the package.

4. Re-initialize the investment in the portfolio occurrence. This step is critical.

When the dialog box “Do you want to save your changes” appears, click Yes if you want to keep any manual modification you might have made within to the portfolio occurrence.

Manual correction of the investment

The major drawback of this solution is the fact that the corrections recorded in the investment will not be carried forward on the opening balance of the following year.

Printing a Portfolio Occurrence

You can customize the display of portfolio occurrence investments on screen or paper by adding, removing and sorting the columns displaying rates, number of shares and voting rights.

Consolidation Scope

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Scopes

Statutory and Reporting Scopes

In the application, you can create two types of scope:

Statutory scopes: These scopes must be generated using a portfolio. They cannot be changed without first changing the capital and investment rows in the portfolio.

Reporting scopes: These scopes can be created with or without a portfolio and all of their data can be changed directly.

The consistency between the basic information (the number of shares and voting rights) and the rates in the scope can only be guaranteed by using statutory scopes.

A statutory scope initialized with a portofolio is required for the automatic calculation of goodwill of incoming companies. Indeed, it enables to store all relationships between owner and held companies used by coefficients to generate goodwill.

Creating a Scope

There are two ways of populating a scope, depending on whether or not you want to use a portfolio.

Setting up a Scope using a Portfolio

This can be done with a Statutory scope or a Reporting scope.

You can specify the settings for the opening scope. The application uses this information to identify the incoming and outgoing reporting units and the rate variations to be used in consolidation processing.

When using the built-in unit Rollup functionality, you must define the hierarchy of the Reporting Units in the ‘hierarchical scope’ step.

Note: All reporting units belonging to the scope at opening and closing must be included in the hierarchy so that the Rollup calculations can be performed.

Setting up a Scope without a Portfolio

This can only be done with a Reporting scope.

For each Reporting Unit, all the parameters (consolidation method, rates, and so on) can be entered/modified.

You must define the Reporting Unit hierarchy if you want to retrieve consistent segment analyses.

If needed, an opening scope can be specified.

Making Changes to a Statutory Scope Manually

Adding and Deleting Companies

It is possible to add a company to the scope. To do this, the modification must be done in the Investments step of the scope. Then, in the Scope step, check the consolidation method and change it if needed.

The same method applies when you want to delete a company from the scope. In the Scope step, you need to make sure the consolidation method is “Not consolidated (NC)”.

Changing the Consolidation Method

Consolidation methods are automatically assigned according to the ownership interest threshold defined in the “Initialize using a portfolio” step in the scope editor.

Consolidation Scope

33

If you select the “Full Consolidation” method, the consolidation rate will automatically be 100%. In the other cases, for example for proportionate or equity methods, however, you must change the consolidation rate manually to ensure that the consolidated accounts are valid.

Financial Interest and Ownership Interest

In statutory scopes, you cannot change the financial and ownership interests directly. You should therefore change the number of shares and voting rights in the Investments step.

Specific Cases

Incoming Companies

By default, the processing applied to incoming companies uses the financial interest and consolidation rate at closing. You can specify intermediate rates(1) in order to process the incoming transaction in the incoming flow and one subsequent operation (purchase or partial disposal) in a variation flow.

Outgoing Companies

In the application, you can manage Reporting Units:

leaving the scope at the start of the period

leaving the scope during the period

acquired, “merged”, at the start of the period

acquired, “merged” during the period

By default, an outgoing company is considered as leaving the consolidation at the beginning of the period. To manage the other three cases, select the Incoming/Outgoing tab, and enter the following parameters:

If the company is merged with another Reporting Unit in the Group, enter the code of this reporting unit.

If the company is outgoing, “merged”, during the period, you can consolidate its income and expenses until the effective outgoing date. To do this, enter the data entry period corresponding to the package whose data you want to integrate.

Opening rates are applied by default to companies outgoing or acquired during the period. If you want to use different rates to calculate the non-controlling interests in the net income for the period, check the "Intermediate rate" option and enter these rates.

Hierarchical Scope

As mentioned before (see Segment Analyses), some of the segment analyses provided by the IFRS Starter Kit are based on Reporting Unit Rollup rules. Consequently, defining a hierarchical scope is required in order to retrieve consistent segment analysis data. The secondary hierarchy tab is not used in the starter kit.

Printing a Scope

The procedure is identical to the one described for printing a portfolio occurrence (see above).

(1) In the current version of Financial Consolidation, you cannot manage intermediate consolidation rates for companies consolidated using the proportionate method. Therefore, you should enter an intermediate consolidation rate that is equal to the consolidation rate at closing.

Processing the Data: Key concepts

34


Section Objectives

This chapter is the first section that describes how data is processed. It will provide a general overview of the transition made by package data as it is processed to produce the Group's consolidated accounts.

Key Points

The steps involved in processing package data in order to produce consolidated accounts are:

Integrate data from consolidation packages.

Enter manual journal entries.

Run the consolidation processing to:

Integrate package data according to the consolidation method and consolidation rate.

Convert amounts in foreign subsidiary accounts.

Generate automatic processing.

Each type of data is assigned with a different audit ID to facilitate the analysis of the transition from local to consolidated figures. An audit ID is used to:

Provide an audit trail for the amount:

Data entered in packages is associated with audit ID PACK01 or local adjustment audit IDs

Data from automatic processing or manual journal entries is associated with other audit IDs

Indicate (in its long description) the purpose of non-package entries, for example PRO20-Elimination of internal provisions - Auto.

Besides the audit ID, each data is identified by its technical origin, which is used, for example, to distinguish between automatic processing, manual journal entries, opening balance data.

The following sections will present in greater detail how package data is processed automatically and manually:

Adjustments to company accounts (see Making adjustments to individual accounts)

Checking and eliminating intercompany transactions (see Intercompany Transactions)

Posting consolidation journal entries (see Consolidation Entries)

Suggested Approach

Our approach for checking and analyzing data is closely linked to the methods used by the consolidation department.

Regardless of the methods used, we recommend that you use reports available in the application (see Checking Consolidated Data) to check that the consolidated accounts are generated correctly before ensuring that the data meets accounting requirements.


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Introduction

Before running a consolidation processing, there are two data sources available:

Package data, which corresponds to data entered in packages only, regardless of whether it was entered in data entry schedules or posted by manual journal entry by the subsidiary.

Unlike consolidation data, package data is not identified by scope, variant or consolidation currency. To consult this data in the Report Navigator module, you should therefore run data retrieval reports without specifying any variable for the scope, variant and consolidation currency fields.

Preconsolidated data, which corresponds to:

Package data that is integrated in the central site's database. When you integrate package data, preconsolidated data is generated.

Data from manual journal entries posted in the Manual Journal Entries module.

Data from automatic journal entries produced by running preconsolidation rules, if these rules have been set up as an enhancement to the current configuration.

After running a consolidation processing, there are three levels of consolidated data for each consolidation:

Package amounts in the original data entry currency, corresponding to:

The previously defined preconsolidated amounts limited to the companies in the scope used in the consolidation definition and to the manual journal entries posted using an audit ID taken into account at the original currency level.

Certain automatic journal entries generated by running consolidation rules that are triggered at the original currency level.

Automatic journal entries are generated by running a consolidation processing. Depending on the purpose of the automatic journal entry, it may be generated at the local, converted or consolidated level.

Converted amounts:

This includes all of the package amounts in the original data entry currency that are converted using the consolidation currency

The currency conversion is performed during the consolidation processing. The concepts underlying the currency conversion are described in chapter Converting Data.

Additionally, this amount level includes the manual journal entries posted using an audit ID taken into account at the converted level and automatic journal entries generated at converted level.

Consolidated amounts:

This includes all of the data at the converted level after the consolidation rates are applied.

The consolidation rates are applied during consolidation processing.

This also includes the manual journal entries posted using an audit ID taken into account at consolidated level and automatic journal entries generated at consolidated level.


36

Each of the amount levels described above is stored in a separate data table. The relationship between the different amount levels is seen in the following diagram:

Example:

Company A is held by the Group at 50% and consolidated using the proportionate method (consolidation rate = 50%) in scope P1 and fully consolidated in scope P2. Company A enters 100 CUR for Revenues (account: P1100). The average conversion rate for CUR is 0.08 for 1 EUR.

Retrieval of the data without scope/variant

Account Flow Package Preconsolidated

P1100 Y99 100 100

Retrieval of the data with scope/variant

Scope Variant Account Flow Original

Currency Converted Consolidated

S1 1 P1100 Y99 100 1 250 (=100/0.08) 625 (= 1 250 x 50%)

S2 1 P1100 Y99 100 1 250 (=100/0.08) 1 250 (= 1 250 x 100%)

Run consolidation processing 2 (scope S2, variant 1)

Run consolidation processing 1 (scope S1, variant 1)

PACKAGE AMOUNTS

Enter manual journal entries in the Manual Journal Entries module

Apply consolidation

rates

Convert to consolidation

currency

PRECONSOLIDATED AMOUNTS

Enter data in consolidation packages

Integrate packages

PACKAGE AMOUNTS (Original Currency)

CONVERTED AMOUNTS

CONSOLIDATED AMOUNTS

PACKAGE AMOUNTS (Original Currency)

CONVERTED AMOUNTS

CONSOLIDATED AMOUNTS


37

Manual Journal Entries

Procedure

You manage manual journal entries in the Manual Journal Entries module of the Operation domain.

Manual journal entries are organized:

by reporting ID A reporting ID corresponds to a category and data entry period pair. In the configuration, the category is A.

by ledger within the reporting ID

Ledgers are created by the accountant depending on requirements and on the method used to organize manual journal entries. You can, for example, have one ledger per type of journal entry, (for example journal entries with the same audit ID, such as goodwill impairment, or correction of package data), or one ledger per reporting unit. You can also use one ledger only to group together all of the journal entries in the consolidation.

You define a ledger for:

A given environment (package and/or central manual journal entries)

A set of audit IDs

One or more categories

A journal entry can only be posted for one Reporting Unit and one audit ID.

Defining a Journal Entry Header

When you create a journal entry, the header fields should be filled out as follows

Compulsory fields:

Reporting Unit: Entity for which the journal entry is posted.

Audit ID.

Period: The default value is the current data entry period.

Journal entry currency: Currency in which the journal entry is posted. The default value is the data entry currency. It can be changed except for certain audit IDs whose journal entries must be in the data entry currency.

Note: The Reporting currency field is grayed out and its value is the data entry currency, as defined in the reporting unit table or as specified later in the reporting set.

Restrict values to be included:

Scope: This is used to restrict the journal entry to the specified scope. If there is no value in this field, then the journal entry is taken into account for all scopes in which the company is consolidated.

Variant: This is used to restrict the journal entry to the selected variant.

Consolidation currency: This is used to restrict the journal entry to consolidations using a specific currency. When you select certain audit IDs that only accept the consolidation currency, then the value here is identical to the value of the journal entry currency.

Parent reporting unit: In this configuration, you should not select a value for this field.


38

The controls run on manual journal entries are as follows:

Controls to check the global debit/credit balance when the journal entry is posted for balance sheet or income statement accounts.

Controls to check the debit/credit balance for flows F00-Opening, F01-Incoming units and F50-Reclassification.

Moreover, only valid account/flow pairs are authorized. This is checked when you post a journal entry.

Using journal entry templates

You can create a new manual journal entry by applying a selected journal entry template. The new manual journal entry will then be generated using the elements defined in the selected template, for instance Audit ID, Currency, reference rows and breakdown rows.

Audit IDs

Audit IDs are used to identify each item of data in the database. They are used to provide an audit trail for the consolidation cycle by identifying the functional origin of the data.

Data entered in the consolidation package

Manual journal entries or automatic journal entries generated by the consolidation processing

Audit IDs are organized by set. There are 5 existing sets:

Local IFRS data: This corresponds to package data (PACK01) and local adjustments to ensure compliance with Group accounting policies (PACK11) or IFRS (PACKIFRS11 and PACKIFRS12). It also includes central corrections of package data (PACK91) or central adjustment to IFRS (PACKIFRS91).

Adjustments: Other adjustments made to company accounts using the Manual Journal Entries module.

Elimination of reciprocal operations: Elimination of intercompany transactions (such as receivables/payables, income/expenses) which do not have any effect on the consolidated net income, as opposed to the other eliminations described below.

Elimination of internal profit: Elimination of the Group’s internal profits and losses, such as dividends or gains or losses on disposal of assets.

Consolidation entries: Journal entries dedicated to consolidated accounts, like calculation of Non-controlling interests or elimination of shares.

Technical Audit-IDs: Entries used to declare Goodwill or post adjustments on the Statement of cash flows.

Specific Audit IDs are available to post Manual journal entries. This enables to distinguish theses Audit IDs from those used by automatic processing when an automated journal entry has been set up.

The table below presents all of the audit IDs that you can use to post a central manual journal entry.

Note: Their names end with a ‘1’ and sometimes a ‘2’, for example DIV11-Elimination of internal dividends.

The Amount level indicates at which level of the consolidated data table the booked amounts are loaded.

The Apply Consolidation rate column indicates whether or not the consolidation rate is applied to the booked amounts.


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Name Description

Apply

consolidation

rate

Amount

level *

Local IFRS data

PACK91 Package data - Central correction X PK

PACKIFRS91 Package data - IFRS central correction X PK

Adjustments

ADJ91 Other adjustment - Central - Man. X PK

ADJIFRS91 IFRS adjustment - Central - Man. X PK

FVA11 Fair value for incoming entities (central) - Man. X PK

Elimination of reciprocal operations

ELIM11 Elimination of intercompany accounts - Man. CONV

Elimination of internal profit

DIS11 Elim. of internal gain/loss on disposal of assets - Correction of dep -

Man. CONV

DIV11 Elimination of internal dividends - Man. X CONV

DIV21 Currency translation adjust. on dividends - Man. X CONV

PRO11 Elimination of internal impairment on investment - Man. X PK

PRO21 Elimination of internal provisions - Man. X PK

Consolidation entries

CONS01 Consolidation entry not splittable CONS

CTA01 Currency translation adjustments - Equity - Man. X CONV

GW11 Booking of goodwill and bargain purchase - Man. CONS

GW21 Currency translation adjust. on goodwill - Man. CONS

INV11 Elimination of investments - Man. CONS

INV21 Currency translation adjust. on investments - Man. CONS

INV31

Adj. on gain/loss on disposal of a subsidiary, JV or associate (Local

currency) X PK

INV32

Adj. on gain/loss on disposal of a subsidiary, JV or associate

(Consolidation currency) X CONV

INV41 Elim. impact of equity accounting in local statements - Man X PK

NCI11 Calculation of non controlling interests - Correction CONS

Technical Audit-IDs

GW01 Disclosure of goodwill (gross value & impair.) and bargain purchase -

Man. PK

CFS01 Consolidated financial statements correction - Man.. CONS

* PK : Package data (original currency). Using the Reporting currency of the entity is mandatory

CONV : Converted amount

CONS : Consolidated amount

A journal entry posted on an Audit ID that is loaded at the CONV or CONS amount level must be posted in the consolidation currency. Otherwise, it is not taken into account.


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Converting Data

Main Principles

Foreign subsidiary accounts are converted using the closing rate method:

The closing balances of balance sheet accounts are converted using the closing rate, except for equity and consolidated investments kept at their historical value (see Converting Consolidated Shareholders' Equity and Investments in Subsidiaries).

The income statement is converted using the average rate for the period

The cash flow statement is based on balance sheet variations which are converted at the average rate for the period

The conversion is performed using the consolidation currency as specified in the consolidation definition.

The choice of the consolidation currency is not related to the base currency in the conversion rate tables. The base currency is the currency with a value of 1 (see Entering and Updating Conversion Rates).

For a given set of data and using the same conversion rate table, you can produce consolidated accounts in different currencies by changing the consolidation currency in the consolidation definition.

The conversion difference is calculated automatically and assigned to the Currency translation adjustment flow (F80). This flow corresponds firstly, to the difference between the opening and closing flows for the opening data and secondly, to the difference between the average and closing rates for the period’s transactions.

Example

Extract from the conversion rate table (certain for uncertain – 1EUR = x CUR):

Currency Closing rate Average rate, current period

Average rate, prior period

Opening rate

EUR 1 1 1 1

CUR 0.20 0.25 0.286 0.333

Transition from package data to consolidated data (full consolidation method; consolidation in EUR):

Account Amount level Currency F00

Opening position

F20 Increase/ Purchase

F80 Curr. transl. adjustment

F99 Closing position

A1110 – Lands and buildings

Package CUR 100 10 - 110


Converted EUR 300

(100/0.333) 40

(10/0.25) 210

(difference) 550

(110/0.20)


Consolidated EUR 300 40 210 550

F80 can also be calculated as follows:

Difference between opening and closing rates at opening: (100/0.20) – (100/0.333) = 200

Difference between closing and average rates for increase during the period: (10/0.20) – (10/0.25) = 10

Total: 210


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YTD and Periodic Conversion

Two conversion approaches are available in the Starter Kit. The difference lies in the method used to process the movement flows that are converted at average rate.

YTD: A unique exchange rate is used for the period running from the beginning of the fiscal year to the closing period.

Periodic: A different exchange rate is used for each period, that is, each month or quarter, which enables to convert each periodic movement at the corresponding exchange rate.

Regardless of which conversion method you choose, the data entry in the package is still made on a year-to-date basis.

The table below shows how to populate the exchange rate table, and highlights the difference between year-to-date and periodic exchange rates. As explained before (see Entering and Updating Conversion Rates), two rate versions (A-YTD and A-PER) are available in the Starter Kit.

Data entry period: September 2010 (the fiscal period starts on Jan 1st)

Consolidation frequency: Quarter

Rate type Rate version

A-YTD (Year-to-date) A-PER (Periodic)

ARPP - Average exch. rate, prior

period [Not used]

Average rate April 1st

to June 30th

OR - Opening exch. rate, current

period Rate at Jan 1st Rate at Jan 1st

AR - Average exch. rate, current

period

Average rate Jan 1st to

Sept 30th

Average rate July 1st

to Sept 30th

CR - Closing exch. rate, current period Rate at Sept 30th Rate at Sept 30th

Different sets of rules have been defined to handle the conversion options (YTD, Monthly or Quarterly). You must always ensure that the Rate table and the Set of rules are you use are consistent (see Defining a Consolidation on page 42)

When you decide to apply periodic conversion, the consolidations must be run in the correct order. For instance, when you consolidate on a quarterly basis, you have to run the March 2010 consolidation before running the June 2010 consolidation, otherwise the data for June would not be consistent.

Other conversion-related topics:

Conversion of equity and investments, including optional conversion process for F20/F40 using a daily rate (see Consolidation Entries),

Conversion of the dividends paid (see Dividends).


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Consolidation Processing

Defining a Consolidation

When creating a consolidation definition, some parameters are specific to the Starter Kit.

Properties Tab

The set of rules and the conversion rate version should be defined accordingly. The table below shows the different options:

Conversion method Conversion rate version Proportionate

consolidation1 Set of rules

Year-to-date A-YTD No A-YTD

Year-to-date A-YTD Yes A-YTD-PC

Monthly A-PER No A-MCT

Monthly A-PER Yes A-MCT-PC

Quarterly A-PER No A-QCT

Quarterly A-PER Yes A-QCT-PC

Note: if you opt for a periodic conversion method, the rate table for version A-PER must be populated in a particular manner, that is, as defined before. Additionally, the way to enter periodic exchange rate is not the same depending on your consolidation frequency.

Opening Balances Tab

The Starter Kit is configured to allow consolidation with opening balances. The opening balances are automatically loaded at the beginning on the consolidation process.

You must define which consolidation should be used as Opening balances, the consolidation for the previous fiscal year.

The source period should be equal to the data entry period of the consolidation to be used for the opening balance data.

The three sets of rules defined above can be used both for consolidation with and without opening balances.

Periods

Because the A-Actual category is mono-period, no specific parameter should be defined in this tab.

Filters

When creating a “local GAAP” consolidation definition, the audit ID filter “AU2-IFRS - All except adjustment to IFRS” should be selected in order to consolidate only the data stored on the audit IDs included in the filter (all except data stored on IFRS adjustments audit IDs).

1 As a reminder, proportionate consolidation is no more admitted in IFRS for publishable financial statements (IFRS

11 requires the use of the equity method for joint ventures) but may be used for internal reporting purposes.


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Running a Consolidation Processing

There are two types of consolidation processing:

Full

Incremental: This includes only modifications made to packages and manual journal entries, and the packages that were not yet integrated at this time.

An incremental processing does not take into account changes made to scopes, conversion rates or tax rates, deletions of packages and changes to the configuration. To include all of these modifications in the consolidation, you should run a full processing.

Retrieving and Checking Data

Data Retrieval Reports

The configuration offers a wide range of retrieval reports in the Report Navigator module which you can use to check, analyze and publish the consolidated data.

These reports are organized into five folders:

C1 – Annual report

Publishable financial statements and segment information

C2 – Analysis

Reports for drilling down from the key financial statements

C3 – Accounting reports

Balances, general ledgers and ledgers.

C4 – Control reports

Reports for checking consolidated data and explaining the transition from package to consolidated data.

C5 – IFRS Adoption

Reports for comparing local gaap and IFRS.

You can check and publish the data as follows:

Check the data using the reports in folders C3, C4.

Produce and analyze publishable reports using reports in folders C1 and C2.

Checking Consolidated Data

This paragraph describes the reports you can use to check that the consolidated data is consistent.

These reports are grouped together in folder C4-Control reports and can be divided into three main categories:

Consolidation control dashboard (book C-42)

Main balances (book C-42)

Conversion at spot rate (book C-43)

Controls on packages: opening balances, data integration, split by business units (book C-41)


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We recommend that you systematically run the consolidation control dashboard reports after each consolidation processing.

In general, errors can originate from:

Incorrect or incomplete data entry in packages. In this case, running the package controls in the Package Manager module will enable you to detect and correct the error.

Incorrect data entry in the conversion rate table, such as an inconsistency between the opening rate entered for data entry period N and the closing rate of the rate table used for the opening balance data.

Manual journal entries that do not comply with the conventions in this configuration. For example, unbalanced flows as described in Balancing Flows (except for F00, F01 and F50 which are checked by automatic controls).


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Consolidation Control Dashboard

This report is a dashboard used to validate the consolidation by checking, for the entire Group:

That the assets equal the liabilities and equity on the balance sheet

That the flow analysis is consistent, e.g. the closing flow is equal to the sum of the opening flow and variation flows, the balance sheet net income (flow F10) is equal to the income figure on the Income statement, the cash flow statement is balanced.

That the clearing accounts for balancing consolidation entries are equal to zero or cancel each other out at Group level.

You can use either the summarized version (C42-05) or the detailed version (C42-10).

If you detect an error, the link in the cell enables you to access the relevant report analyzed by reporting unit or audit ID. These reports are described below.

Checking the Main Balances

These reports check that:

Assets are equal to liabilities in the balance sheet.

The net income on the balance sheet is equal to the net income on the income statement.

The balance conventions for certain flows are followed.

Assets are Equal to Liabilities

Run the following report:


C4 C42 C42-15 – Assets = liabilities by Audit ID

This report is used to check that Assets equal Liabilities + Equity at opening and closing, and for the aggregate movements of the fiscal year. It also enables you to check that the sum of the opening and variation flows is equal to the closing flow.

This must be the case for every audit ID. If this is not the case, then run the report for the relevant audit IDs by linking from C42-15:


C4 C42 C42-20 – Assets = liabilities by Reporting Unit

The report identifies the relevant reporting units.

If the error originates from an audit ID other than PACK01 (package data entry), then link to the following report:


C3 C33 C33-05 – Debit Credit Ledger for 1 Reporting Unit and 1 Audit ID

The report identifies the journal entry numbers that contain errors.

You can also run the following report for the relevant Audit ID and Reporting Unit:


C3 C33 C33-10 – Journal Entries for 1 Reporting Unit and 1 Audit ID


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BS Net Income is Equal to P&L Net Income

The following report ensures that the net income of the balance sheet (stored on dedicated flow F10) is equal to the net income of the income statement for every Audit ID:


C4 C42 C42-25 – Balance Sheet income = P&L income by Audit ID

If there are differences, run the following report to identify the relevant Reporting Unit:


C4 C42 C42-30 – Balance Sheet income = P&L income by Reporting Unit

Balancing Flows

Run the following report to ensure that the balance conventions have been followed for the flows (see Balancing Flows):


C4 C42 C42-35 – Flow balance by Audit ID

Flow should balance for every audit ID. In case of errors, run the following report by linking to it:


C4 C42 C42-40 – Flow balance by Reporting Unit

This report highlights the reporting units for which flows do not balance.

Then link to the following report for these reporting units:


C3 C33 C33-05 – Debit Credit Ledger for 1 Reporting Unit and 1 Audit ID

Making adjustments to individual accounts

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Making adjustments to individual

accounts

Section Objectives

This section outlines:

Corrections made to packages

Adjustments booked at central site

Key Points

The manual adjustments described below are based on the following examples:

Processing differences for net income N-1

Correcting package data

Making fair value adjustments

Correcting Package Data

Correcting Differences for Net Income N-1

After company accounts have been sent to the Group and used for the consolidation, corrections may need to be performed. As a result, there may be differences between the data sent and the modified data. You can manage these differences in two ways during the next accounting period.

The recommended solution consists of taking these differences into account in the consolidation package. The second solution consists of posting these differences in manual journal entries at central site. However, this solution means that there should be no send condition set when sending the package. This is because if the N-1 difference is not processed, this generates a variation flow F15 in net equity and this will prevent the package from being validated. For this reason, the second solution is not recommended and should be reserved for exceptional cases.

Regardless of the solution, local and consolidated data will balance only during period N+1. At the closing of N, even if the amount of retained earnings is the same, the calculation of the net income (flow F10) will differ between company and consolidated accounts.

Recommended Solution: Package Processing

Existing differences in N-1 net income can be processed as follows in the package:

The first solution consists of integrating the difference between the provisional N-1 net income and the final N-1 net income in the net income for the period. In this way, the consolidation department does not need to post any manual journal entry. However, it creates a discrepancy between local data and the consolidation package on net income (flow F10).

The second solution consists of posting this difference in transfer flow F50 in order to impact both reserves asset and liability items affected by the last journal entries of period N-1. In this way, local data and the consolidation package will both balance at closing. However, this solution requires the consolidation department to book this difference by manual journal entry.

These solutions are illustrated below:

After the package was sent, a correction was made to Sales.

The data entered in the package on 31/12/N-1 and the final data are shown below:


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Accounts Package 31/12/N-1

(1)

Final accounts

(2)

Difference

(2) – (1)

ASSETS

A2210 Trade receivables, Gross 1 000 1 100 + 100

LIABILITIES

E1610 Retained earnings / F10 600 660 + 60

L2410 Current income tax liabilities

400 440 + 40

INCOME STATEMENT

P1110 Revenues 1 000 1 100 + 100

P5010 Income tax expense - 400 - 440 - 40

At period N closing, we assume that:

No income has been entered during the period.

All of the net income for N-1 was allocated to retained earnings (scenario 1) or distributed (scenario 2).

All receivables and debts have been settled.

Booking the Difference in Net Income (Solution 1)

Data entry in package 31/12/N (scenario 1 – no distribution)

The package for period N must contain the net income from N-1 that is not taken into account in Group income.

The closing balance entered in the package in book P-A10 is shown below:

Accounts Local 31/12/N Package 31/12/N

ASSETS

A2610 Cash on hand 660 660 = receivables (1100) – debts (440)

LIABILITIES

E1610 Retained earnings 660 660

INCOME STATEMENT

P1110 Revenues 0 100

P5010 Income tax expense 0 - 40

Enter data in PA2500 to show variations in net equity:

ACCOUNTS CODE F00 F99 F06 F10 F20 F30 F40 F50 F55 Spec. Control

Retained earnings E1610 600 660 60

Net equity 600 660 60


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Data entry in package 31/12/N (scenario 2 – distribution of net income)

The closing balance entered in the package in book P-A10 is shown below:

Accounts Local 31/12/N Package 31/12/N

LIABILITIES


INCOME STATEMENT

P1110 Revenues 0 100

P5010 Income tax expense 0 - 40



Retained earnings E1610 600 0 -660 60

Net equity 600 0 -660 60

Further remarks

When the difference between final net income and local income is spread over small sums in a large number of accounts in the income statement, the Group may authorize its subsidiaries to enter the difference in other operating income/expense account.

Processing the Difference in Reclassification Flow F50 (Solution 2)

Data entry in package 31/12/N (scenario 1 – no distribution)

The closing balance shows the company accounts. The impact from the last journal entries for period N-1 is booked in flow F50.





Enter data in flow F50 in PA3900 to show the impact of specific operations:


Trade receivables, Gross A2210 100

Cash on hand A2610

Assets 100

Retained earnings E1610 60

Current income tax liabilities L2410 40

Equity and liabilities 100

Data entry in package 31/12/N (scenario 2 – distribution of net income)



Retained earnings E1610 600 0 -660 60

Net equity 600 0 -660 60

Enter data in flow F50 in PA3900 to show the impact of specific operations:


50


Trade receivables, Gross A2210 100

Cash on hand A2610

Assets 100

Retained earnings E1610 60

Current income tax liabilities L2410 40

Equity and liabilities 100

Journal entry to be posted at central site

The subsidiary should provide the consolidation department with information on the difference between the provisional net income and final net income. Once the consolidation department has the breakdown by item, they can then post the following journal entry:

Audit ID Account Flow Debit Credit

ADJ91 P1110 Revenues Y99 100


P5010 Income tax expense Y99 40

L2410 Current income tax liabilities F15 40



E1610 Retained earnings F50 60

If this is not the case, then the journal entry should be posted in an other operating income or expense account:


ADJ91 P1210 Other income Y99 60






Alternative Solution: Manual Journal Entry Posted at Central Site

If the difference between the provisional net income and final net income is not processed in the package, this results in the following data (example in scenario 1):

Closing balance

Accounts Package 31/12/N

ASSETS

A2610 Cash and cash equivalents 660

LIABILITIES

E1610 Retained earnings 660


51




Net Equity 600 660 60

The package will not be able to reach control level LEV1 because the variation in net equity is not analyzed completely.

At central site, the manual journal entry to be posted is as follows:


ADJ91 P1110 Revenues Y99 100

P5010 Income tax expense Y99 40


If you do not know the breakdown by item for this difference, then the journal entry should be booked in another operating income or expense account:


ADJ91 P1210 Other income Y99 60


Other Package Corrections

Corrections in packages can be divided into several categories:

Corrections that should be taken into account in the package opening balance for the next period and which include the following:

Errors in packages that do not affect local account, for example Partner errors in intercompany declarations

Errors in local accounts that will be taken into account in the final financial statements

Errors in adjustments to Group accounting standards

Corrections that should not be sent in opening balances to packages for the next period

Correction journal entry that affects Group level only, for example Processing of certain intercompany differences (see Intercompany Transactions)

Errors in local accounts that will only be taken into account in the N+1 financial statements

Corrections to be taken into Account in Package Opening Balances

The corrections to be made can be entered directly in the relevant reporting unit's package, using one of the following Audit IDs, depending on what the error is due to:

PACK01 – Package data

PACK11 – Local adjustment to Group accounting policies

The package should then be validated by controls, published and reintegrated in the database.

It is also possible to post at the central level a journal entry that will impact the package’s opening balance for the next period. The Audit ID to use is PACK91-Package data - Central correction. It will be transferred automatically to Audit ID PACK01 in the opening balances of next year’s package.


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Other Package Corrections

Principles

If the corrections do not affect the package opening balances for the next period, then they should be posted by manual journal entry using Audit ID ADJ91.

Examples

Corrections having an impact on net income for the period

The company has forgotten to book the sum of 100 from an invoice for the purchase of goods. This expense which is tax deductible is posted in company accounts in period N+1.

The journal entry to be posted is as follows:

Audit ID Account Flow Debit Credit Partner Debit Credit

ADJ91 P1120 Cost of sales Y99 100 100

L2310 Trade payables F15 100 100

L1410 Deferred income tax liability F15 40

P5020 Deferred tax expense Y99 40

Partner analysis:

By default, when you post a manual journal entry, transactions are concluded with Third-parties (code TP-999). Transactions between companies within the Group should be declared and the non-Group amount is then calculated automatically with the difference.

Transfers between items

If you need to transfer an item between two accounts in the Income statement or in the Balance sheet, the journal entry to post is as follows:

Audit ID Account Flow Debit Credit Partner Debit Credit

ADJ91 Pxxxx Income/expense account Y99 X X

Pxxxx Income/expense account Y99 X X

A/L/Exxx Balance sheet account F50 X X

A/L/Exxx Balance sheet account F50 X X

Making Adjustments to Packages

Making Fair Value Adjustments

Principles

A fair value adjustment occurs when there is a difference between the accounting value of an incoming entity's assets and their fair value.

The fair value adjustments are posted by manual journal entries, based on informati on that is managed separately from the consolidation package.


53

Example

Scenario

When company Z was acquired, a building was valued at 1 000 whereas its net accounting value was 100. The fair value adjustment was allocated to construction (+900). Construction items are amortized over a period of 30 years according to Group accounting standards i.e. using a yearly allowance of 30 for the revalued share.


Fair value adjustment at acquisition date (01/01/N):


FVA11 A1110 Lands and buildings F01 900


Deferred income tax liability in fair value adjustment = 900 x 40% = 360:


FVA11 E1610 Retained earnings F01 360


Fair value adjustment: Period depreciation:


FVA11 A1111 Lands and buildings, Dep. F25 30

P1510 Other expenses * Y99 30

* The choice of the P&L account depends on the destination of the depreciation expense.

Deferred tax in depreciation of fair value adjustment = 30 x 40% = 12:


FVA11 P5020 Deferred tax expense Y99 12


Presentation by flow

Account Audit ID

Flow

Code Description F01 F10 F15 F25 F99

A1110 Lands and buildings FVA11 900 900

A1111 Lands and buildings, Dep. FVA11 <30> <30>

E1610 Retained earnings FVA11 900 900

FVA11 <30> <30>

FVA11 <360> <360>

FVA11 12 12

L1410 Deferred income tax liability FVA11 360 <12> 348

Manual journal entry for booking fair value adjustments

Manual journal entry for booking depreciation

Manual journal entries for booking deferred taxes


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Other Adjustments

Principles

The other adjustments include various journal entries that must be posted when the company's accounting methods do not comply with Group policies.

These journal entries are booked using Audit ID ADJ91.

Example

To standardize the period of depreciation for software, journal entries, including deferred tax, should be as follows:


ADJ91 A1441 Computer software, Amort. F20

P1510 Other expenses Y99

A1710 Deferred tax assets F15

P5020 Deferred tax expense Y99

Making IFRS Adjustments

Managing IFRS adoption in Financial Consolidation implies being able to move from the local GAAP to IFRS at one date.

The starter kit for IFRS proposes a unified reporting model with a unique data entry package in which to enter data according to local GAAP and IFRS and executing multiple consolidations (cf. “IFRS Adoption in Consolidated Statements Using SAP Financial Consolidation 7.5, starter kit for IFRS”)

Regarding transition period, local accounts are established on the basis of national accounting standards, the entity has to make adjustments in order to ensure compliance with IFRS for the comparative data.

In that case, the standard audit ID “PACK01” should be used in packages to enter data according to local GAAP.

The starter kit provides specific audit IDs to track IFRS adjustments and to allow a full reconciliation between local GAAP and IFRS. These adjustments can be entered at local level in the package or at corporate level by manual journal entries.

Two options should be distinguished depending on the way data will be managed after the transition period:

- Once the transition period has ended, the end-user decides that IFRS adjustment tracking is no

longer needed (IFRS becomes the local standard). In that case, amounts stored in IFRS

adjustment audit IDs should be carried forward into “PACK01” audit ID, the following year.

- If the end-user wants to keep tracking the changes between Local GAAP and IFRS after transition

is over, the IFRS adjustment audit ID should still be used.

At local level, two audit IDs can be used depending on the option chosen:

- “PACKIFRS11” Local adjustment to IFRS

Amounts collected on this audit ID during the year (Y), will be carried forward into audit ID

“PACKIFRS11” the year after (Y+1)

- “PACKIFRS12” Local adjustment to IFRS – Package data (Y+1)

Amounts collected on this audit ID during the year (Y) will be carried forward into audit ID

“PACK01” the year after (Y+1).


55

Similarly, two audit IDs can be used at corporate level depending on the option chosen:

- “PACKIFRS91“ Package data – IFRS central correction

Amounts collected in this audit ID during the year (Y), will be carried forward into audit ID

“PACK01” the year after (Y+1)

- “ADJIFRS91“ IFRS adjustment Central

Amounts collected on this audit ID during the year (Y) will be carried forward into audit ID

“ADJIFRS91” the year after (Y+1)

Manual journal entries posted on IFRS adjustment audit IDs will not be taken into account in the local Gaap consolidated data thanks to the audit ID filter initialized in the consolidation definition.

It is also possible to book IFRS adjustment at corporate level on standard audit IDs (ADJ91, CTA01,…) and to restrict manual journal entries to IFRS consolidated data by selecting a variant restriction in the manual journal entries.

To know more about the IFRS adoption operating process, see “IFRS Adoption in Consolidated Statements” on http://help.sap.com/ in the subsection named “Financial Consolidation \ 7.5”.

Example – Revaluation model for property, plant and equipment

Scenario

Company C uses the cost model for property, plant and equipment in its local accounts.

Period N+1, the company adopt IFRS and decides to use the revaluation model for property, plant and equipment as permitted by IAS 16.

At opening, lands and buildings are revalued for 600€ and during the period for 100€.

IFRS adjustment at opening should be entered on flow F09 “Change in accounting policies” to ensure a correct translation of the numbers (opening exchange rate apply to flow F09).

For current year IFRS adjustements, the appropriate movement flow should be used (F15, F20, F55…).

A tax rate of 30% applies for deferred tax.

In this example, IFRS adoption is managed at corporate level and IFRS adjustment tracking is no longer needed at the end of the transition period.


Revaluation of lands and buildings at the beginning of the period N+1


PACKIFRS91 A1110 Lands and buildings F09 600


E1511 Income tax on revaluation surplus F09 180


http://help.sap.com/


56

Revaluation of land and buildings during the period N+1


PACKIFRS91 A1110 Lands and buildings F55 100


E1511 Income tax on revaluation surplus F55 30


Intercompany Transactions

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Section Objectives

This section outlines:

how intercompany declarations can be checked

the automatic processing for eliminating intercompany transactions

manual journal entries that may be required

Key Points

Intercompany transactions may be classified as follows:

Current acquisition/disposal and borrowing/lending transactions that do not have an impact on Group income. These will be called reciprocal transactions.

Transactions that generate internal income such as disposal of assets or payment of dividends.

The following are eliminated automatically:

reciprocal transactions

dividends

provisions

internal disposal of assets or investments

Suggested Approach

1. Run an intercompany reconciliation.

2. Analyze first the balances then the flows for the intercompany reconciliation.

3. Check that internal transactions are eliminated correctly.

Checking Intercompany Declarations

Running Intercompany Reconciliations

You can reconcile intercompany data using the data entered in packages that may be corrected by manual journal entry and then converted to the consolidation currency.


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Reconciliations

Balance Sheet

GROUP OF ACCOUNTS ASSETS LIABILITIES

Non-current receivables/payables A1620 Receivables on disposal of PPE, NC, Gross

A1621 Receivables on disposal of intangible assets, NC, Gross

A1622 Receivables on disposal of inv. in subsidiaries, NC, Gross

A1623 Receivables on disposal of inv. in other entities, NC, Gross

A1624 Receivables on disposal of inv. in other assets, NC, Gross

A1630 Other receivables, NC, Gross

L1310 Debts on purchase of PPE, NC

L1311 Debts on purchase of intangible assets, NC

L1312 Debts on purchase of inv. in subsidiaries, NC

L1313 Debts on purchase of inv. in other entities, NC

L1314 Debts on purchase of inv. in other assets, NC

L1320 Other payables, NC

Non-current financial assets and liabilities

A1610 Loans and cash advances, Non current, Gross

L1550 Other financial liabilities, Non current

Trade receivables / payables A2210 Trade receivables, Gross L2310 Trade payables

Current receivables/payables on disposal of assets

A2220 Receivables on disposal of PPE, Current, Gross

A2221 Receivables on disp. of intangible assets, Current, Gross

A2222 Receivables on disp. of inv. in subsidiaries, Current, Gross

A2223 Receivables on disp. of inv. in other entit., Current, Gross

A2224 Receivables on disp. of inv. in other assets, Current, Gross

L2320 Debts on purchase of property, plant and equipment, Current

L2321 Debts on purchase of intangible assets, Current

L2322 Debts on purchase of investment in subsidiaries, Current

L2323 Debts on purchase of investment in other entities, Current

L2324 Debts on purchase of investment in other assets, Current

Dividends receivable/payable A2230 Dividends receivable L2330 Dividends payable

Other receivables/payables A2240 Other receivables, Current, Gross L2340 Other payables, Current

Accrued interests receivables/payables

A2250 Accrued interests on receivables L2350 Accrued interests on financial liabilities and payables

Current financial assets and liabilities A2440 Loans and cash advances, Current, Gross

L2570 Other financial liabilities, Current

Net Income (Excluding Dividends and Internal Transfer of Assets)

GROUP OF ACCOUNTS INCOME EXPENSES

Sales / Cost of sales P1110 Revenues P1120 Cost of sales

Other operating income and expenses

P1210 Other income P1310 Distribution costs

P1410 Administrative expenses

P1510 Other expenses

Financial income and expenses P2120 Interest income

P2150 Other financial income

P2220 Interest expenses

P2230 Other financial expenses


59

Internal Transfer of Assets

GROUP OF ACCOUNTS RELEVANT ASSET ACCOUNTS

Property, plant and equipment A1110 Lands and buildings

A1120 Tangible exploration and evaluation assets

A1130 Fixtures and fittings

A1150 Office equipment

A1160 Vehicles

A1170 Machinery

A1180 Other property, plant and equipment

Investment property A1210 Investment property

Intangible assets A1410 Brand names

A1420 Intangible exploration and evaluation assets

A1430 Mastheads and publishing titles

A1440 Computer software

A1450 Licences and franchises

A1460 Patents, trademarks and other rights

A1470 Recipes, formulae, models, designs and prototypes

A1490 Other intangible assets

Biological assets A1510 Biological assets

Investments A1810 Investments in subsidiaries, JV and associates

A1815 Investments measured at equity

Non-current financial assets A1820 Available-for-sale financial assets, Non current

A1840 Other financial assets at fair value through profit or loss, NC

A1850 Other financial assets at FVTOCI, Non current

A1860 Other financial assets at amortized cost, Non current

Current financial assets A2410 Available-for-sale financial assets, Current

A2430 Other financial assets at FV through profit or loss, Current

A2450 Other financial assets at FVTOCI, Current

A2460 Other financial assets at amortized cost, Current

Dividends

GROUP OF ACCOUNTS BENEFICIARY DISTRIBUTOR

Dividends received/paid P2140 Dividends XE1610 Dividends paid

Prior to Running Intercompany Reconciliations

You can run an intercompany reconciliation once you have integrated the consolidation packages and converted the package data from foreign subsidiaries to the consolidation currency. In order to do this, first run a consolidation processing.

You can run a consolidation processing:

for the Group as described earlier (see Defining a Consolidation)

just to convert the data, which requires a shorter processing time

To run this simplified processing, create a new consolidation definition (using a specific variant) and select no set of rules in the consolidation definition.


60

Displaying Intercompany Reconciliation Reports

Intercompany reconciliation reports are grouped together in book C44:

Reciprocal transactions

Balance sheet C44-10 Balance Sheet reconciliations at closing: Buyer/Seller

C44-15 Balance Sheet reconciliations by flow: Buyer/Seller

C44-05 Balance Sheet and Profit & Loss reconciliations at closing

Income statement

C44-20 Profit & Loss reconciliations (threshold > 1)

C44-25 Profit & Loss reconciliations: Buyer/Seller

Internal income Dividends C44-30 Reconciliation of internal gains & losses & dividends (threshold > 1)

C44-35 Reconciliation of internal gains & losses & dividends: Buyer/Seller

Disposal of assets

Sales of investments

C44-40 Reconciliation of internal gains & losses on sale of investment in subsidiaries

When you initialize a reconciliation report for a buyer/seller pair (for instance, C44-25) you will find two initialization blocks, with both the Buyer and Seller dimensions in each. This is because in a pair of reporting units, each unit may be both the buyer for one intercompany transactions and the seller for another one.

To retrieve all the intercompany reconciliation data for pair (RU1, RU2) in the report, you should initialize the two blocks as follows: Block 1 : Buyer = RU1, Seller = RU2 Block 2 : Buyer = RU2, Seller = RU1

Correcting Differences

Principles

There are two types of differences arising from intercompany transactions:

Differences due to errors made when declaring data in packages. These may or may not affect company accounts.

Differences that are justified, like non mature discounted notes and conversion differences.

If there is an error in the package, you can correct it in different ways depending on the type of error:

A simple declaration error, for example you declare a receivable with partner U1 whereas it should be with partner U2.

A declaration error due to an accounting error, for example you forget to book an invoice issued by partner U1, which will be corrected in the final version of the company accounts.

An accounting error which will be corrected in the company accounts only in fiscal period N+1.

In the first two cases, the correction to be made must be taken into account in the package opening balances for period N+1. It must be performed manually in the package for fiscal period N.

If you make corrections directly in the package, it must be validated and then integrated so that the correction can be taken into account (see Integrating Packages).

In the last case, the correction will not have any impact on the package opening balances and so should be booked by manual journal entry using audit ID ADJ91.


61

Justified differences (discounted notes, conversion differences, etc.) should be booked by manual journal entry using audit ID ADJ91.

Examples

Invoice that was not Booked

Running the reconciliation report

The reconciliation of intercompany transactions declared by reporting units U1 and U2 is shown below:

Reconciliation rule

Buyer Seller Flow Account Audit ID

Buyer amount

local currency

Seller amount

local currency

Buyer amount

converted currency

Seller amount

converted currency

Difference

Reciprocal trade

receivables and payables

U2 U1

F00 L2310 PACK01 800 800

F00 A2210 PACK01 800 800

F15 L2310 PACK01 1 000 1 000

F15 A2210 PACK01 3 000 3 000

TOTAL 1 800 3 800 1 800 3 800 2 000

Reciprocal gross profit accounts

U2 U1 Y99 P1120 PACK01 10 000 10 000

Y99 P1110 PACK01 12 000 12 000

TOTAL 10 000 12 000 10 000 12 000 2 000

After investigating this report, you see that these differences are due to U2's omission in booking an invoice issued by U1 for the sum of 2 000. This error is not considered as being significant and will be corrected in U2's company accounts only in fiscal period N+1.

Manual journal entries to be posted by U2

The invoice issued by U1 for U2 must be booked in the consolidated accounts:

Audit ID Account Flow Debit Credit Partner breakdown

Code Debit Credit

ADJ91 P1120 Cost of Sales Y99 2 000 U1 2 000

L2310 Trade payables F15 2 000 U1 2 000

This additional expense posted in U2's accounts should lead to the booking of a deferred tax asset (hypothetical tax rate of 40%):


ADJ91 A1710 Deferred tax assets F15 800



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Discounted Notes not yet Matured

Running the reconciliation report

The reconciliation of intercompany transactions declared by reporting units U1 and U2 is shown below:

Reconciliation rule

Buyer Seller Flow Account Audit ID

Buyer amount

local currency

Seller amount

local currency

Buyer amount

converted currency

Seller amount

converted currency

Difference

Reciprocal trade

receivables and payables

U2 U1 F15 L2310 PACK01 1 000 1 000

F15 A2210 PACK01 0 0

TOTAL 1 000 0 1 000 0 -1 000

Reciprocal gross profit accounts

U2 U1 Y99 P1120 PACK01 12 000 12 000

Y99 P1110 PACK01 12 000 12 000

TOTAL 12 000 12 000 12 000 12 000 0

The difference seen in the reconciliation of receivables and debts is due to the fact that U1 has discounted receivables from U2.


To balance intercompany declarations, you should post a journal entry for U1:

Audit ID Account Flow Debit Credit Partner breakdown

Code Debit Credit

ADJ91 A2210 Trade receivables, Gross F15 1 000 U2 1 000

L2510 Borrowings, Current F15 1 000

Elimination of Internal Transactions

Elimination of Reciprocal Transactions

Principles

Definition

Reciprocal transactions are transactions between companies in the Group (acquisition/disposal or borrowings/lendings) whose elimination will have no impact on the income of the consolidated companies.

Summary

Relevant companies Full consolidation

Amount level Converted

Audit IDs taken into account All audit IDs at converted level except ELIM10 and ELIM11

Generated audit IDs ELIM10

Manual audit ID for corrections ELIM11

Description of the Processing

Reciprocal accounts and adjustment accounts are eliminated against a link account for partners that are fully consolidated.


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The link accounts are as follows:

RELEVANT ELIMINATIONS GROUP OF RECONCILED ACCOUNTS ELIMINATION ACCOUNTS

Receivables and payables, Non current

A1620 Receivables on disposal of PPE, Non Current, Gross

A1621 Receivables on disposal of intangible assets, NC, Gross

A1622 Receivables on disposal of inv. in subsidiaries, NC, Gross

A1623 Receivables on disposal of inv. in other entities, NC, Gross

A1624 Receivables on disposal of inv. in other assets, NC, Gross

A1630 Other receivables, Non current, Gross

L1310 Debts on purchase of PPE, Non current

L1311 Debts on purchase of intangible assets, Non current

L1312 Debts on purchase of inv. in subsidiaries, Non current

L1313 Debts on purchase of inv. in other entities, Non current

L1314 Debts on purchase of inv. in other assets, Non current

L1320 Other payables, Non current

L13CL

Financial assets and liabilities, Non current

A1610 Loans and cash advances, Non current, Gross

L1550 Other financial liabilities, Non current

L15CL

Receivables and payables A2210 Trade receivables, Gross

A2220 Receivables on disposal of PPE, Current, Gross

A2221 Receivables on disp. of intangible assets, Current, Gross

A2222 Receivables on disp. of inv. in subsidiaries, Current, Gross

A2223 Receivables on disp. of inv. in other entit., Current, Gross

A2224 Receivables on disp. of inv. in other assets, Current, Gross

A2230 Dividends receivable

A2240 Other receivables, Current, Gross

A2250 Accrued interests on receivables

L2310 Trade payables

L2320 Debts on purchase of property, plant and equipment, Current

L2321 Debts on purchase of intangible assets, Current

L2322 Debts on purchase of investment in subsidiaries, Current

L2323 Debts on purchase of investment in other entities, Current

L2324 Debts on purchase of investment in other assets, Current

L2330 Dividends payable

L2340 Other payables, Current

L2350 Accrued interests on financial liabilities and payables

L23CL

Financial assets and liabilities, Current

A2440 Loans and cash advances, Current, Gross

L2570 Other financial liabilities, Current

L25CL

Gross profit P1110 Revenues

P1120 Cost of sales

P11CL

Operating profit P1210 Other income

P1310 Distribution costs

P1410 Administrative expenses

P1510 Other expenses

P15CL

Financial result P2120 Interest income

P2150 Other financial income

P2220 Interest expenses

P2230 Other financial expenses

P22CL


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Example

Source data

Package for U1 – schedule PA4110 (in EUR)

ACCOUNTS PARTNERS N-1 N

Revenues P1110

RU U2 500

Non-Group TP-999 2500

Total Revenues 3 000

Package for U2 – schedule PA4110 (in EUR)

ACCOUNTS PARTNERS N-1 N

Cost of Sales P1120

RU U1 - 500

Non-Group TP-999 -300

Total Cost of Sales -800

Automatic journal entries generated

U1 P1110 Revenues U2 P1120 Cost of Sales

Audit ID Part. Audit ID Part.

PACK01 U2 500 PACK01 U1 500

ELIM10 U2 500 ELIM10 U1 500

U1 P11CL - Intercompany eliminations

(Cost of Sales) U2 P11CL - Intercompany eliminations

(Cost of Sales)

Audit ID Part. Audit ID Part.

ELIM10 U2 500 ELIM10 U1 500

Balance 500 500

Intercompany elimination for U1

Intercompany elimination for U2

Performing Checks

Run the following reports to check that the link accounts are balanced for the Group:


C4 C42 C42-10 Consolidation control dashboard (detail)

If this is not the case, then run one of the following reports to identify the relevant reporting units:


C4 C42 C42-45 Check clearing accounts for intercompany elimination

C42-50 Check clearing accounts for intercompany elimination: buyer/seller


65

Dividends

Presentation of the Automatic Processing

Introduction

The automatic processing consists of eliminating the beneficiary's financial income against consolidation reserves.

Use the following audit ID:

Processing Automatic Audit IDs Manual Audit IDs

Elimination of inter-company dividends DIV10 DIV11

Currency translation adjustment on dividends DIV20 DIV21

The following options apply:

Dividends paid (flow F06) are converted using the daily exchange rate type corresponding at the date of distribution entered in the package (see Dividends).

Dividends are calculated for non-controlling interests based on the opening rate.

Collecting Data in the Package

Dividends paid:

Dividends paid out from net equity are entered in schedule PA2500-Equity statement, using technical account XE1610.

Dividends paid are analyzed in greater detail in schedule PA4320-Dividends paid. This schedule presents the dividends paid per beneficiary, including the share paid out to non-Group shareholders.

By default, dividends paid are converted using the average rate of the period. In order to convert them using the spot rate at the distribution date, the paying company should entered data in schedule PA4330 – Dividends paid by beneficiary /date. At central site, daily rate for the dates of distribution should be entered in the conversion rates table.

Dividends received:

Dividends received are booked in account P2140-Dividends. They are analyzed by partner in schedule PA4310-Dividends Received.

Conversion Principles

Flow F06-Dividends is converted by default at average rate of the period. If analysis of dividend paid by beneficiary and by date is entered in the package and the corresponding daily rate is populated in the rates table used for the consolidation, then the paid dividend will be converted using the rate at the distribution date.

The dividends received (account: P2140) are converted using the average rate for the period like any other item of the Income statement.


66

Journal Entries

The automated elimination of the internal dividends is processed in two stages:

The dividends is eliminated from the Parent’s accounts, based on the declaration made by the subsidiary on account XE1610, using Audit ID DIV10:

Source data Journal entry generated

Debit Credit

Subsidiary (distributor):

XE1610 Dividends paid - Flow F06

P2140 Dividends – Y99

E1610 Retained

earnings – F06

Then the difference between the dividend received and the dividend paid, for each distributor/beneficiary pair, is eliminated against the Retained earnings, using Audit ID DIV20:

Source data Journal entry generated

Debit Credit

Parent (beneficiary):



E1610 Retained

earnings – F80 *

* This amount will be transferred later to the Foreign currency translation reserve by the currency

translation adjustment automatic processing.

To explain in detail the purpose of this second automated journal entry, we can distinguish several cases depending on the distributor and beneficiary’s currency:

Reporting currencies * Analysis

Distributor (D) Beneficiary (B)

CCUR There should not be any conversion difference (provided that the reciprocal declaration match).

FCUR1 CCUR

Dividend received should be booked in B’s accounts using exactly the same

rate used to convert flow F06 in D’s accounts.

If there is a difference, it should be cancelled against the financial result

(P2150 Other financial income) by a manual journal entry posted in B’s

accounts.

FCUR1

A conversion difference may originate from converting dividend received at the average rate, while dividend paid is converted at the exact exchange rate.

It is transferred to the retained earnings by an automatic journal entry posted

on Audit ID DIV20.

FCUR1 FCUR2

In this scenario, which combines the two scenarios above, the process should be as follows:

1. Check that the dividend received by B (in FCUR2) corresponds to the

dividend paid by D (in FCUR1), converted using the spot rate on F06.

2. The remaining difference will be transferred to the retained earnings by

an automatic journal entry posted on Audit ID DIV20.

* CCUR : Consolidation currency

FCUR : Foreign currency


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Example

Scenario

The group holds 100% of F1 and F2, which are foreign subsidiaries located in the same country. The conversion rates for F1 and F2's currency, expressed as certain for uncertain, are as follows:

OR

Opening rate

AR

Average rate

CR

Closing rate

Daily rate

June 30th

0.250 0.270 0.200 0.286*

* Spot rate at the date the dividend was decided by the general meeting

Data entered by F2 in schedule PA4320-Dividends paid

F06

XE1610 Dividends paid 100

To be broken down

Parent F1 100

TOTAL 100

Data entered by F2 in schedule PA4330-Dividends paid by beneficiary /date

F06

Owner company F1 100

XE1610 Dividend paid To be broken down

Transactrion date June 30th 100

TOTAL 100

Data entered by F1 in schedule PA4310-Dividends received

N-1 N

P2140 Dividends 100

To be broken down

Subsidiary F2 100

TOTAL 100

Automatic journal entries generated for F1

P2140 Dividends E1610 Retained earnings

PACK01 370 (=100 /0.270) DIV10 350

DIV10 350 DIV20 20 *

DIV20 20

Elimination of the dividend received based on the declaration made by F2 (100 CUR / 0.286)

Processing the conversion difference between dividends received (100 CUR / 0.270) and dividends paid (100 CUR / 0.286 = 350)

* This amount is transferred later to the Foreign currency translation reserve.

Performing Checks

Checking Consistency between conversion rate table and analysis by date of paid dividend

You can check that daily rates corresponding to analysis by date entered in the packages have been populated by running the following report:


C4 C43 C43-05 Checking consistency between analysis by date – Daily exchange rate


68

The C43-10 report enables you to check the conversion of paid dividends by identifying missing analysis by date of paid dividend and/or missing daily exchange rates.


C4 C43 C43-10 Checking the conversion of paid dividend

Checking Declarations

You can check that the declarations made by the distributor using flow F06 on account XE1610 and by the beneficiary using flow Y99 on account P2140 are reciprocal by running the following reports in book C44:


C4 C44 C44-30 Reconciliation of internal gains & losses & dividends (threshold > 1)

Checking Elimination Journal Entries

Checking the impact on the income statement

Run the following report to check that the amounts in account P2140 correspond to dividends received from non-Group partners for each reporting unit:


C4 C46 C46-15 Elimination of dividends - Impact on P&L

This report also enables you to know the amount of the conversion difference that was posted automatically on account P2140, for each beneficiary/distributor pair. Make sure that it is real (justified) conversion difference and that it is not due to another cause, such as an inconsistency in intercompany declarations.

Checking the distribution flow for shareholders' equity

Run the following report to check that there is no discrepancy between dividends received and paid:


C4 C46 C46-20 Elimination of dividends - Check distribution flow (F06)

If there are discrepancies, check the rows analyzed by reporting unit pair so that you can identify the origin of the problem.

Provisions

Automatic Processing

Introduction

Provisions for consolidated companies are fully eliminated regardless of the:

consolidation method of each company, for example the full or proportionate consolidation or equity method.

audit ID of the provision, for example the provisions on shares or other provisions.

The audit IDs used are as follows:

Processing Automatic Audit IDs Manual Audit IDs

Elimination of inter-company prov. on shares PRO10 PRO11

Elimination of other inter-company provisions PRO20 PRO21


69


Provisions are broken down by partner in schedules:

PA2200: impairment on investments in subsidiaries

PA4410: intercompany provisions on bad debts,

P4420: intercompany provisions (liabilities).

Journal Entries

Elimination of intercompany provisions is performed against:

The income statement for allowances and write-back flows as well as for variation flow F15.

Net equity for the following flows: incoming units (F01), reclassification (F50), change of accounting policies (F09), internal mergers (F70), conversion difference (F80), outgoing units (F98) and the opening flow (F00) for consolidations without opening balances.

The table below describes accounts and flows from which processing originates and their counterparty in income:

Balance sheet account Balance sheet source flow

Income statement account Audit ID

A1812 Investments in subsidiaries, JV and associates, Impair.

F25/F15 P2210 Allowances for provisions on shares

PRO10

A1612 Loans and cash advances, Non current, Allow.

A1642 Receivables, Non current, Allow

A2212 Trade receivables, Allow. for bad/doubt. debts

A2262 Other receivables, Allow. for bad/doubt. debts

A2442 Loans and cash advances, Current, Allow.

F25/F35/F15

P1650 Net internal provision PRO20

L1230 Legal proceedings provision, Non current

L1260 Miscellaneous provisions, Non current

L2230 Legal proceedings provision, Current

L2260 Miscellaneous provisions, Current

F25/F35/F15

P1650 Net internal provision PRO20

Example

Source data

Schedule PA4420

ACCOUNT/PARTNER Code F00 F99 F25 F35 F50 F60 F70 Control

Miscellaneous provisions, Non current

L1260 300 250 150 -200

To be broken down

RU U2 U2 100 50 -50

Non-Group TP-999 200 200 150 -150

Total 300 250 150 -200

Schedule PA2500


Retained earnings E1610 -300 -250 50

Net equity -300 -250 50


70


L1260 Miscellaneous provisions, Non current E1610 Retained earnings

PACK01 250 PACK01 300

PRO20 100 PRO20 100

PRO20 50

P1650 Net internal provision

PACK01 50

PRO20 50

Elimination of provision at opening

Elimination of write-back for provision for the period


Account Audit ID

Flow

Code Description F00 F10 F15 F20 F35 F99/Y99

E1610 Retained earnings PACK01 <300> 50 <250>

PRO20 100 <50> 50

TOTAL <200> 0 <200>

L1260 Miscellaneous provisions, Non current

PACK01 300 150 <200> 250

PRO20 <100> 50 <50>

TOTAL 200 150 <150> 200

Total LIABILITIES & EQUITY 0 0 0 150 <150> 0

P1650 Net internal provision PACK01 50

PRO20 <50>

If applicable, the deferred tax will be posted by a manual journal entry, as follows:

Deferred income tax liability for the elimination of the provision at opening: 100 x 40% = 40


PRO21 E1610 Retained earnings F00 40


Write-back of deferred income tax liability amounting to 50 x 40% = 20


PRO21 L1410 Deferred income tax liability F15 20


Performing Checks

Open the following reports and identify the provision accounts (assets and liabilities):


C3 C31 C31-05 Balance Sheet by Flow


71

Then link to the following report:


C3 C32 C32-05 General ledger by Audit-ID, partner, JE number (flows)

For each account, use the detail by partner or share to check that any intercompany amount is eliminated at 100%.

Gains or Losses on Internal Transfer of Assets

Presentation of the Automatic Processing

Introduction

Gains or losses on disposal of assets (tangible, intangible or securities) between consolidated companies are eliminated:

At 100% when the buyer and seller are both fully consolidated.

Using the consolidation rate of the company that is proportionately consolidated if its partner is a fully consolidated company2.

Using the lowest consolidation rate if both buyer and seller are consolidated using the proportionate method².


Acquisitions and disposal of assets can be analyzed in specific reports:

Schedule PA4210 – Purchase / Disposal of Property, Plant and Equipment

Schedule PA4220 – Purchase / Disposal of Investment Property

Schedule PA4230 – Purchase / Disposal of Intangible Assets

Schedule PA4240 – Purchase / Disposal of Biological Assets

Schedule PA4250 – Purchase / Disposal of Financial Assets

Schedule PA2300 – Purchase / Disposal of investment in subsidiaries

In these reports, the seller breaks down amounts by type of asset or by investment row for securities and by buyer:

The selling price is entered in flow X01.

The gains or losses are calculated based on the amounts declared on flow F30, both on the gross value accounts for tangible, intangible assets and investment property and the accumulated depreciation and impairment accounts.

The buyer breaks down amounts by type of asset or by investment row for securities, and by seller, using flow F20.

For the purchase/disposal of investment in subsidiaries, an additional, optional schedule is available: PA2350-Purchase/disposal of investment in subsidiaries / Date. Use this schedule if you choose to declare F20 on investment by dates.

Journal Entries

Gains or losses on internal transfers of assets are eliminated from the income of the seller company. In the buyer company the assets must be recorded at their historical value. The historical value is used in the

2 In the –PC sets of rules only


72

buyer's accounts to show the same gross value and cumulated depreciation for the asset as in the seller's accounts at the date of disposal.

Data entered

at seller's


At seller's At buyer's

Debit Credit Debit Credit

Property, plant and equipment

Gross value (F30) A11CL Clearing account -

Property, plant and

equipment P1610 Gross value account A11CL

Depreciation (F30) P1610 Gains or losses on

sale of property, plant and

equipment A11CL A11CL

Depreciation account

Impairment (F30) Impairment account

Sales price (X01) Gross value account

Investment property


Investment property P1611 Gross value account A12CL

Depreciation (F30)

P1611 Gains or losses on

sale of investment property A12CL A12CL




Intangible assets


Intangible assets P1612 Gross value account A14CL

Depreciation (F30)


sale of intangible assets A14CL A14CL




Biological assets


Biological assets P1613 Gross value account A15CL

Depreciation (F30)


sale of biological assets A15CL A15CL




Non-current financial assets


Financial assets, Non current P1614 Gross value account A18CL

Sales price (X01) P1614 Gains or losses on

sale of other assets A18CL A18CL Gross value account

Current financial assets


Financial assets, Current P1614 Gross value account A24CL

Sales price (X01) P1614 Gains or losses on

sale of other assets A24CL A24CL Gross value account


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Data entered

at seller's


At seller's At buyer's

Debit Credit Debit Credit

Consolidated investment in subsidiaries, JV and associates

Gross value (F30)

A181CL Clearing account -

Inv. in subsidiaries, JV and

associates

P1615 Gross value account A181CL

Impairment (F30) P1615 Gains or losses on

sale of shares A181CL A181CL

Impairment account



Processing Automatic audit ID Manual audit ID

Elimination of gains and losses on internal transfer of assets

DIS10 DIS11

Correction of the amort./impairment subsequent to an internal transfer of assets

DIS11

Example

Company U1 has sold a building to U2 for 600. In U1’s accounts, this building had a gross value of 900 and an accumulated depreciation of 400 at the date of the internal transfer.

Data entered by U1 in schedule P10450

DISPOSAL PURCHASE

ACCOUNT/PARTNER CODE Selling price

Gross value Depr. Impair.

Net book value

Gains/ losses

Acquisition price

Lands and buildings A1110 600 -900 400 -500 100

To be broken down

RU U2 U2 600 -900 400 -500 100

Total 600 -900 400 -500 100

Data entered by U2 in schedule P10450

DISPOSAL PURCHASE

PARTNER CODE Selling price

Gross value Depr. Impair.

Net book value

Gains/ losses

Acquisition price

Lands and buildings A1110 600

To be broken down

RU U1 U1 600

Total 600


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U1 P1610 Gains or losses on sale of PPE

PACK01 100

DIS10 100

U1 A11CL Clearing account - PPE U2 A11CL Clearing account - PPE

DIS10 100 DIS10 100

U2 A1110 Lands and buildings U2 A1111 Lands and buildings, Dep.

PACK01 600 DIS10 400

DIS10 300

Elimination of gains at seller's

Adjustment to asset's historical value at buyer's


Account Reporting unit

Audit ID Flow

Code Description F00 F10 F20 F30 F50 F99/Y99

A11CL Clearing account - PPE U1 DIS10 <600> 500 <100>

U2 DIS10 600 <500> 100

A1110 Lands and buildings U1 PACK01 900 <900> 0

U1 DIS10 900 <900> 0

U2 PACK01 600 600

U2 DIS10 <600> 900 300

A1111 Lands and buildings, Dep. U1 PACK01 <400> 400 0

U1 DIS10 <400> 400 0

U2 DIS10 <400> <400>

E1610 Retained earnings U1 PACK01 100 100

U1 DIS10 <100> <100>

P1610 Gains or losses on sale of PPE U1 PACK01 100

U1 DIS10 <100>

Performing Checks

Checking Declarations

Check that the declarations made by sellers (selling price in technical flow X01) and buyers (purchase price in F20) are reciprocal by running the following report:


C C44 C44-30 Reconciliation of internal gains & losses & dividends (threshold > 1)

If this report displays any differences due to an error in the breakdown by partner for sales and purchases; the declaration must be corrected directly in the package, which must then be validated and integrated again into the database.


When an internal transfer of assets occurs, the depreciation booked in the buyer’s accounts must be corrected in order to take due account of the adjustment to historical value in the consolidated accounts. This correction, which lasts all over the asset depreciation period, can be declared in one single manual


75

journal entry, which specifies the amount of adjustment which is applicable for each consolidation period till the end of the asset depreciation period. Automatic journal entries are then triggered to correctly account for the adjustment.

The manual journal entry must be posted on a dedicated disclosure flow named “X02 - Depreciation adjustments of assets acquired internally”, which is authorized only for depreciation accounts of the following categories of assets:

Property, plant and equipment.

Investment property.

Intangible assets.

Biological assets.

Dedicated analysis values representing consolidation periods are available to specify which adjustments need to be accounted for all corresponding accounting periods. For monthly or quarterly consolidations, amounts must be posted on a year to date basis. The P&L account is specified by choosing one unique dedicated analysis value which is assigned with the amount of 1.

Example (continued)

Following with the previous example, we suppose that:

In U2's company accounts, the asset is depreciated over 6 years, with a yearly allowance of 100.

In U1's company accounts, the asset would have been depreciated at a rate of 33.33%, with a theoretical allowance of 300 in N and 200 (residual value) in N+1.

For the consolidation of fiscal year N, the manual journal entry to be posted for U2 is as follows (assuming that the depreciation of the building comes under ‘Other expenses’:

Audit ID Account Flow Partner Analysis Debit Credit

DIS11 A1111 Lands and buildings, Dep. X02

U1 N 200

U1 N+1 100

U1 N+2 100

U1 N+3 100

U1 N+4 100

U1 N+5 100

U1 PL-P1510 1

On the basis of the previous journal entry, the following automatic journal entry is booked in the consolidation of fiscal year N.


DIS10 A1111 Lands and buildings, Dep. F25 200

P1510 Other expenses Y99 200

On the basis of the same previous journal entry, the following automatic journal entry is booked in the consolidation of fiscal year N+1.





76

Then, from N+2 to N+5, the following automatic journal entry is booked in the consolidation.




If the automatic accounting for the depreciation adjustment is no longer needed before the end of the depreciation period (for instance because the asset is transferred to a non-consolidated company), the manual journal entry needs to be reversed in the consolidation period from which the automatic accounting should cease.

Example (continued)

Following with the previous example, we suppose that:

U2 company sells the asset to a non consolidated company at the end of fiscal period N+3.

For the consolidation of fiscal year N+4, the manual journal entry to be posted for U2 is as follows (assuming that the depreciation of the building comes under ‘Other expenses’:

Audit ID Account Flow Partner Analysis Debit Credit

DIS11 A1111 Lands and buildings, Dep. X02

U1 N+4 100

U1 N+5 100

U1 PL-P1510 1

Then, in N+4 and N+5, the following additional automatic journal entry is booked in the consolidation, which actually reverses previous automatic entries triggered from the initial manual journal entry posted in fiscal year N.




Deferred Taxation

77

Deferred Taxation

Section Objectives

This section presents the processing of deferred tax in the Starter kit.

Key Points

Deferred tax must be entered in the package or booked manually by the consolidation department. There is no automated process applying to deferred tax.

Any deferred tax journal entry must be booked on the same Audit ID as the one used to identify the base of deferred tax (or the corresponding Audit ID on which you can book a manual journal entry).

Overview

Identifying the Bases of Deferred Tax

The bases of deferred tax can be split into two categories:

Deferred tax based on adjustments already included in the package using Audit ID PACK01 (such as an IFRS adjustment) should be booked in the package

Deferred tax based on adjustments posted centrally by automatic or manual journal entries, for example, the elimination of the gain/loss on an internal transfer of assets, should be booked by a manual journal entry. Deferred tax is never booked automatically.

Booking Deferred Tax

The accounts used to book deferred tax are as follows:

Balance sheet A1710 Deferred tax assets

L1410 Deferred income tax liability

Income statement P5020 Deferred tax expense

There is no dedicated Audit ID to book deferred tax. As a general principle, deferred tax should be recorded using the same Audit ID as the one used to record the original carrying amount or automatic/manual journal entry giving rise to the temporary difference.

In case the base for deferred tax was generated automatically (for example, the elimination of the gain/loss on an internal transfer of assets; Audit ID: DIS10), use the corresponding Audit ID available for manual journal entries (DIS11 in this specific case).

Sometimes this principle may not apply, especially when a deferred tax is booked at the central level, based on a temporary difference that is not recognized in the individual accounts, such as the carryforward of unused tax losses. In this case, you should use Audit ID ADJ91-Other adjustment - Central - Man.

Example

An invoice issued for the sum of 1 000 was omitted from F's company accounts. This expense is booked in the consolidated accounts using audit ID ADJ91.

Deferred Taxation

78

This additional expense posted in F's accounts should lead to the booking of a deferred tax asset (a tax rate of 40% is used in this example):


ADJ91 A1710 Deferred tax assets F15 400


Accounting for Deferred Tax

Variation in Tax Rates

According to IFRS standards, the impact of the variation in rates affects income when the original operation also affects income. It affects reserves when the original operation is registered directly in shareholders' equity. When deferred tax is associated with fair value adjustments, the impact of the variation in rates is registered in income.

Manual journal entries should be booked in order to register the impact of variation in rates on deferred tax existing at opening.

Offsetting Deferred Tax Assets and Liabilities by Reporting Unit

Deferred tax assets and liabilities could be offset for a given tax entity if conditions set out in IAS 12 are met.

A manual journal entry for offsetting the deferred tax asset and liability balances must be booked to record the net balance as an asset or liability.

Consolidation Entries

79


Section objectives

This section presents the manual and automatic journal entries related to the following consolidation topics:

calculating non-controlling interests for shareholders' equity

booking the share of investments in companies consolidated using the equity method

eliminating consolidated shares

maintaining the historical conversion rate for shareholders' equity and consolidated shares

booking goodwill


Audit ID Description Available for

manual journal entry

CONS01 Consolidation entry not splittable X

CONS10 Elimination of subsidiaries' capital and share premium

CTA01 Currency translation adjustments - Equity - Man. X

CTA10 Currency translation adjustments - Equity - Auto

GW00 Disclosure of goodwill (gross value & impair.) and bargain purchase – Auto

GW01 Disclosure of goodwill (gross value & impair.) and bargain purchase - Man.

X

GW10 Booking of goodwill and bargain purchase - Auto

GW11 Booking of goodwill and bargain purchase - Man. X

GW20 Currency translation adjust. on goodwill - Auto

GW21 Currency translation adjust. on goodwill - Man. X

INV10 Elimination of investments - Auto

INV11 Elimination of investments - Man. X

INV20 Currency translation adjust. on investments - Auto

INV21 Currency translation adjust. on investments - Man. X

INV31 Adj. on gain/loss on disposal of a subsidiary, JV or associate (Local currency)

X

INV32 Adj. on gain/loss on disposal of a subsidiary, JV or associate (Consolidation currency)

X

NCI11 Calculation of non controlling interests - Correction X

NCI-ADJ90 Other adjustment - NCI calc.

NCI-CTA10 Currency translation adjustments - Equity - NCI calc.

NCI-DIS10 Elim. of internal gain/loss on disposal of assets - NCI calc.

NCI-DIV10 Elimination of internal dividends - NCI calc.

NCI-DIV20 Currency translation adjust. on dividends - NCI calc.

NCI-FVA00 Fair value for incoming entities (central) - NCI calc.


80

Audit ID Description Available for

manual journal entry

NCI-INV30 Adjustment on gain/loss on disposal of subs. - NCI calc.

NCI-INV40 Elim. impact of equity accounting in local statements - Auto- NCI

NCI-PACK01 Package data - NCI calc.

NCI-PACK10 Adjustment to Group accounting policies - NCI calc.

NCI-PKIFRS10 Adjustment to IFRS - NCI calc.

NCI-PKIFRS12 Adjustment to IFRS - NCI calc.

NCI-PKIFRS90 Package data - IFRS central correction - NCI calc.

NCI-PACK90 Package data - Central correction - NCI calc.

NCI-AJIFRS90 IFRS adjustments - NCI calc.

NCI-PRO10 Elimination of internal impairment on investments - NCI calc.

NCI-PRO20 Elimination of internal provisions - NCI calc.

Calculation of Non-controlling Interests

Principles

The consolidated subsidiaries' shareholders’ equity is distributed between Group and non-controlling interests. This is done using one of the NCI-xxxx audit IDs, depending on the source Audit ID. The correspondence between source and destination Audit ID can be displayed in Dimension Builder, (reference table: AUDIT-ID; characteristic: SPLIT).

In order to retrieve the variation in net equity as required by IAS1, the accounts that store the consolidated subsidiaries’ shareholders’ equity are distributed using the following Group and Non-controlling interests accounts:

Group equity account NCI equity account

E1110 Issued capital * E2010 NCI - Reserves and retained earnings

E1210 Share premium * E2010 NCI - Reserves and retained earnings

E1410 Revaluation surplus, before tax E2110 NCI - Revaluation surplus before tax

E1411 Income tax on revaluation surplus E2111 NCI - Income tax on revaluation surplus

E1420 Remeasurements of defined benefit plans,

before tax E2120

NCI - Remeasurements of defined benefit

plans, before tax

E1421 Income tax on remeasurements of defined

benefit plans E2121

NCI - Income tax on remeasurements of

defined benefit plans

E1430 Non-recyclable hedging reserve, before tax E2130 NCI - Non-recyclable hedging reserve, before

tax

E1431 Income tax on non-recyclable hedging

reserve E2131

NCI - Income tax on non-recyclable hedging

reserve

E1440 Non-recyclable fair value reserve, before

tax E2140

NCI - Non-recyclable fair value reserve, before

tax

E1441 Income tax on non-recyclable fair value

reserve E2141

NCI - Income tax on non-recyclable fair value

reserve


81

Group equity account NCI equity account

E1450 Financial liabilities at FVTPL credit risk

reserve, before tax E2150

NCI - Financial liabilities at FVTPL credit risk

reserve, before tax

E1451 Income tax on financial liabilities at FVTPL

credit risk reserve E2151

NCI - Income tax on financial liabilities at

FVTPL credit risk reserve

E1510 Foreign currency translation reserve, before

tax E2210

NCI - Foreign currency translation reserve,

before tax

E1511 Income tax on foreign currency translation

reserve E2211

NCI - Income tax on foreign currency translation

reserve

E1520 Recyclable hedging reserve, before tax E2220 NCI – Recyclable hedging reserve, before tax

E1521 Income tax on recyclable hedging reserve E2221 NCI - Income tax on recyclable hedging reserve

E1530 Recyclable fair value reserve, before tax E2230 NCI – Recyclable fair value reserve, before tax

E1531 Income tax on recyclable fair value reserve E2231 NCI - Income tax on recyclable fair value

reserve

E1570 Equity component of compound financial

instruments E2080 NCI - compound financ. instruments

E1610 Retained earnings E2010 NCI - Reserves and retained earnings

* These accounts are also transferred to the retained earnings (E1610) for any entity except the group’s Parent company.

The calculation of non-controlling interests depends on the consolidation rate and the financial interest of the scope. Depending on the flow, the calculation may use the opening or closing rate:

Data Flow Rates

Shareholders' equity at opening F00

Opening Payment of dividends F06

Effect of changes in accounting policies F09

Net income for the period F10

Closing

Variation of capital in number of shares and subscription F40

Impact of reclassification F50

Fair value F55

Effect of internal mergers F70

Impact of variations in conversion rates F80

When the consolidation rate and/or financial interest varies between opening and closing, the effect of this variation is automatically taken into account in specific flows (see Scope Changes).

If needed, manual journal entries can be booked to correct the automatic calculation of non-controlling interests:


NCI11 E1xxx – Equity attributable to owners of parent Fxx*

E2xxx - Non-controlling interests Fxx*

*The flow should be selected depending on the operation. For instance,flow F10 should be used to correct the NCI share of

the Net Income.

Example

Scenario

Parent company M subscribed to 60% of company F's capital when the latter was created in N. F is fully consolidated on 31/12/N.


82

Package for F

General trial balance on 31/12/N

Accounts F00

Opening F99

Closing

ASSETS

Cash on hand 120

LIABILITIES

Issued capital 100

Retained earnings* 20

* This corresponds to the net income for the year.

Schedule PA2500


Issued capital E1110 100 100

Retained earnings E1610 20 20


Automatic journal entries (before eliminating shares)

E1110 Issued capital E1610 Retained earnings

PACK01 100 PACK01 20

NCI-PACK01 40 NCI-PACK01 8

CONS10 60 CONS10 60

A2610 Cash on hand E2010 - NCI - Reserves and retained earnings

PACK01 120 NCI-PACK01 40

NCI-PACK01 8

Calculation of the non-controlling interests on capital (40% x 100 = 40)

Calculation of non-controlling interests in net income: 40% x 20 = 8

Reclassification of capital to retained earnings


Accounts Audit ID F10 F15 F40 F99

A2610 Cash on hand PACK01 120 120

Total ASSETS 120 120

E1110 Issued capital PACK01 100 100

NCI-PACK01 <40> <40>

CONS10 <60> <60>

Total 0 0

E1610 Retained earnings PACK01 20 20

NCI-PACK01 <8> <8>

CONS10 60 60

Total 12 60 72


83

Accounts Audit ID F10 F15 F40 F99

E2010 - NCI - Reserves and retained earnings

NCI-PACK01 40 40

NCI-PACK01 8 8

Total 8 40 48

Total LIABILITIES & EQUITY 20 100 120

Control (assets - liabilities = equity) N/A N/A N/A 0K

Elimination of Investments

Principles

Consolidated investments in subsidiaries are eliminated by the parent against account A181OC-Elimination of investment in subsidiaries - Owner company using audit ID INV10.

Account A181OC is then balanced in the subsidiary’s balance sheet on account A181HC, using the same audit ID INV10. This elimination impacts the subsidiary's reserves (account: E1610-Retained earnings). The calculation of the impact on non-controlling interests is based on the financial interest of the Group in the parent.

Example

Overview

The Group's organization chart is as follows:

50% of SF is held by F and the rest by a non-Group company. SF is consolidated using the proportionate method.

The scope of the Group at 31/12/N is as follows:

Company Opening method

Opening consolidation

rate

Opening fin. int.

Closing method

Closing consolidation

rate

Closing owner. int.

Closing fin. int. Variation

M FC 100% 100% FC 100% 100% 100% N

F FC 100% 80% FC 100% 80% 80% N

SF PC 50% 40% PC 50% 50% 40% N

Package for M on 31/12/N

Trial balance

Accounts F00

Opening F99

Closing

ASSETS


LIABILITIES

Issued capital 80 80

80%

M F SF

50%


84

Schedule PA2100– Investments in Subsidiaries

INVESTMENT IN SUBSIDIARIES CODE F00 F99 F20 F30 F40 F50 F55 F09 F70 Control

Investments in subsidiaries, JV and associates A1810 80 80

To be broken down 0 0

Subsidiaries, JV & assoc. Code

RU F F 80 80

Total 80 80

Package for F on 31/12/N

Trial Balance

Accounts F00 Opening

F99 Closing

ASSETS


LIABILITIES

Issued capital 100 100

Bank - Non current borrowings 400 400



Investments in subsidiaries, JV and associates

A1810 500 500



RU SF SF 500 500

Total 500 500

Package for SF on 31/12/N

Trial Balance

Accounts F00

Opening F99

Closing

ASSETS

Cash on hand 1 000 1 400

LIABILITIES & EQUITY

Issued capital 1 000 1 000

Retained earnings 400

Schedule PA2500


Issued capital E1110 1 000 1 000


Net equity 1 000 1 400 400


85

Automatic journal entries

Company M

A1810 Investment in subs. JV and assoc. E1110 Issued capital

PACK01 80 PACK01 80

INV10 80

A181OC Elimination of investment in subsidiaries -

Owner company

INV10 80

Company F


PACK01 500 PACK01 100

INV10 500 NCI-PACK01 20

CONS10 80

L1510 Borrowings, Non current

A181OC Elimination of investment in subsidiaries - Owner company

PACK01 400 INV10 500

A181HC Elimination of investment in subsidiaries -

Held company E1610 Retained earnings

INV10 80 CONS10 80

INV10 80


NCI-PACK01 20

Company SF

A2610 Cash on hand E1110 Issued capital

PACK01 700 PACK01 500

NCI-PACK01 100

CONS10 400

E1610 Retained earnings A181HC Elimination of investment in subsidiaries -

Held company

PACK01 200 INV10 500

NCI-PACK01 40

CONS10 400

INV10 400


NCI-PACK01 140

INV10 100


86

Local data from SF is consolidated at 50%

Calculating NCI in SF's equity:

Capital: Group share = 40% x 1000 = 400, NCI = 500 – 400 = 100 Net income: Group share = 40% x 400 = 160, NCI = 200 – 160 = 40

Reclassification of capital for SF

Elimination of SF's shares held by F

Impact on Group reserves = <500> x 80% = <400> Impact on NCI = <500> x 20% = <100>

Calculating NCI in F’s equity: Group share = 80% x 100 = 80, NCI = 20% x 100 = 20

Reclassification of capital for F

Elimination of F's shares held by M

Impact on Group reserves = <80> x 100% = <80>


87


Accounts Audit ID Reporting

unit F00 F10 F15 F99

A1810 Investment in subs. JV and assoc. PACK01 M 80 80

PACK01 F 500 500

INV10 F <500> <500>

INV10 M <80> <80>

Total 0 0

A181HC Elimination of investment in subsidiaries - Held company

INV10 SF <500> <500>

INV10 F <80> <80>

Total <580> <580>


INV10 F 500 500

INV10 M 80 80

Total 580 580

A2610 Cash on hand PACK01 SF 500 200 700

Total 500 200 700

Total ASSETS 500 200 700

E1110 Issued capital PACK01 M 80 80

PACK01 F 100 100

PACK01 SF 500 500

NCI-PACK01 SF <100> <100>

CONS10 SF <400> <400>

NCI-PACK01 F <20> <20>

CONS10 F <80> <80>

Total 80 80

E1610 Retained earnings PACK01 SF 200 200

NCI-PACK01 SF <40> <40>

CONS10 SF 400 400

INV10 SF <400> <400>

CONS10 F 80 80

INV10 F <80> <80>

Total 0 160 160

E2010 - NCI - Reserves and retained earnings NCI-PACK01 SF 100 100

NCI-PACK01 SF 40 40

INV10 SF <100> <100>

NCI-PACK01 F 20 20

Total 20 40 60

L1510 Borrowings, Non current PACK01 F 400 400

Total 400 400


Control (assets – liabilities) OK N/A N/A OK


88

Converting Consolidated Shareholders' Equity and Investments in Subsidiaries

Principles

Consolidated shareholders' equity (except Hedging reserves and Fair value reserves) and shares belonging to foreign subsidiaries are maintained at their historical conversion rate.

As regards shareholders' equity, the differences between the historical and closing rates are carried over to a specific account for shareholders' equity, E1510-Foreign currency translation reserve, before tax, using audit ID CTA10. The NCI share will then be transferred from account E1510 to account E2210-NCI - Foreign currency translation reserve, before tax, using audit ID NCI-CTA10.

The currency translation adjustment of consolidated investments in subsidiaries is triggered with the same approach as the elimination of shares, but the journal entry is posted on dedicated accounts in the equity (E1510 and E2210) and uses the dedicated audit ID INV20-Currency translation adjust. on investments – Auto).

The automatic processing is based on the conversion difference flow (F80) calculated automatically for all of the balance sheet accounts and, in particular, for shareholders' equity and investment accounts (see Converting Data).


When using the application to perform a consolidation for the first time, any opening conversion reserves that exist should be posted by manual journal entry.

Conversion differences for shareholders' equity


CTA01 E1xxx Shareholders' equity local accounts F00

E1510 Foreign currency translation reserve, before tax F00

Conversion differences for consolidated investments in subsidiaries

Entry posted in the shareholder’s accounts

Audit ID Account Flow Debit Credit Investments Debit Credit

INV21 A1810 Investment in subs. JV and assoc. F00 A B Subs. A B


F00 B A Subs. B A

A When the historical value of shares is greater than the value converted using the opening rate

B When the historical value of shares is lesser than the value converted using the opening rate


89

Entry posted in the subsidiary’s accounts

Audit ID Account Flow Debit Credit Investments Debit Credit

INV21 A181HC Elimination of investment in subsidiaries - Held company

F00 A B Owner comp.

E1510 Foreign currency translation reserve, before tax

F00 B A Owner comp.

E2210 NCI - Foreign currency translation reserve, before tax

F00 * * Owner comp.

A When the historical value of shares is greater than the value converted using the opening rate

B When the historical value of shares is lesser than the value converted using the opening rate

* If applicable, the impact on equity should be split between Group’s share and NCI, based on the group’s share in the owner company

Example

Overview

Parent company M created company F in the United States in N-1.

F's capital amounts to 100 USD. The conversion rate applicable when the company was created was 1.10 USD for 1 EUR. In M's local accounts, the value of F's shares is therefore 91 EUR (= 100 USD / 1.10).

Consolidation is performed for the first time using the application on 31/12/N. The evolution of F's shareholders' equity between its creation date and the opening of period N is presented below:

(in USD) Capital Reserves Net income Total

1/1/N-1 100 0 0 100

Net income N-1 200 200

31/12/N-1 100 0 200 300

The evolution of the dollar's conversion rate for the period is as follows:

1/1/N-1 Average N-1 31/12/N-1 Average N 31/12/N

1EUR = 1 0.90 1 0.90 0.80

The conversion rate table for period N is as follows (certain for uncertain):

Currency Closing rate Average rate Opening rate

EUR 1 1 1

USD 0.80 0.90 1


Trial balance


F99 Closing

ASSETS

A1810 Investment in subs. JV and assoc. 91 91

A2160 Cash on hand 9 9


E1110 Issued capital 100 100


90



Investments in subsidiaries, JV and associates

A1810 91 91



RU SF F 91 91

Total 91 91


Trial balance (USD)

Accounts F00

Opening F99

Closing

ASSETS

A2160 Cash on hand 300 400




Schedule PA2500






When the historical data is retrieved, cumulated conversion differences at opening should be restored by manual journal entry.

Evaluation of conversion reserves at opening:

Analysis of shareholders' equity on 01/01/N Amount in USD

N Opening rate

Historical rate Difference

Definition Rate (EUR)

Capital 100 1

Rate at creation date 1.10 <9>

Retained earnings 200 Average N-1 rate 0.90 22

300 13

Journal entry to be posted:

Post the following journal entry in EUR for F:


CTA01 E1110 Issued capital F00 9


E1510 Foreign currency translation reserve, before tax F00 13


91

Automatic journal entries generated for F

Journal entries that eliminate investments in subsidiaries without any specificity are not presented here:

A2610 Cash on hand E1110 Issued capital

PACK01 500 PACK01 125

CTA01 9

CTA10 25

CONS10 91

E1610 Retained earnings E1510 Foreign currency translation reserve, before

tax

PACK01 375 CTA01 13

CTA01 22 CTA10 25

CTA10 64

CONS10 91

F's local data converted at closing rate

Restoring cumulative translation differences at opening for capital and reserves (manual journal entry)

Elimination of the period's conversion variation for Issued capital: 100/0.80 – 100/0.90 = 25

Elimination of the period's conversion variation

Opening retained earnings: 200/0.80 – 200/1 = 50 Net income for the period: 100/0.80 – 100/0.90 = 14 Total = 64

NCI calculation (N/A because the group holds 100% of F) and transfer of Capital to Retained earnings


92



unit F00 F10 F15 F80 F99


INV10 M <91> <91>

Total 0 0


INV10 F <91> <91>

Total <91> <91>


INV10 M 91 91

Total 91 91

A2610 Cash on hand PACK01 M 9 9

PACK01 F 300 111 89 500

Total 309 111 89 509

Total ASSETS 309 111 89 509


PACK01 F 100 25 125

CTA01 F <9> <9>

CTA10 F <25> <25>

CONS10 F <91> <91>

Total 100 0 100

E1510 Foreign currency translation reserve, before tax

CTA01 F <13> <13>

CTA10 F 89 89

Total <13> 89 76

E1610 Retained earnings PACK01 F 200 111 64 375

INV10 F <91> <91>

CTA01 F 22 22

CTA10 F <64> <64>

CONS10 F 91 91

Total 222 111 0 333

Total LIABILITIES & EQUITY 309 111 89 509

Control (assets – liabilities) OK N/A N/A OK OK

Analysing the changes in the foreign currency exchange reserve for the Group

A report provides an analysis of the impact of changes in conversion rates on the net equity kept at historical value.


C4 C46 C46-30 Year-to-date - Analysis of changes in Foreign currency exchange reserve


93

Optional Conversion Process on Investment and Capital/Share Premium

By default, for any B/S account, flows F20-Increase/Purchase and F40-Subscription to capital increase/decrease are converted using the average rate of the period.

It is possible to perform a more accurate conversion based on the exact daily rate on the following account/flow combinations:

A1810-Investments in subsidiaries, JV and associates or A1815-Investments measured at equity / F20 and F40

E1110-Issued capital / F40,

E1210-Share premium / F40.

This can be used to handle more easily some consolidation events such as an incoming company in the scope or the subscription to a capital increase. Indeed, the conversion of the amounts entered on these account/flow combinations is done using the specific exchange rate at the date of the event, and you do not need to post manual journal entries to refine conversion.

This optional conversion process is based on:

An additional detail by date provided in the package for these account/flow combinations.

Daily rates entered in the conversion rate table.

Data Entry Schedules

To enter detail by dates on Investment and Capital/Share premium, use the following schedules, depending on which account/flow combination you want to detail:

Account/Flow

combination Data entry schedule Link from schedule…

A1810 or A1815 /

F20

PA2350 Purchase/disposal of investment in

subsidiaries / Date

PA2300 Purchase/Disposal of

investment in subsidiaries

A1810 or A1815 /

F40

PA2360 Subscriptions to subsidiaries capital

increase / Date PA2100 Investments in subsidiaries

E1110 / F40 PA2550 Variations of issued capital and share

premium / Date PA2500 Equity statement

E1210 / F40

Note: these schedules must be filled out only by entities using a reporting currency that differs from the consolidation currency.

Retrievals

The following reports have been configured to check:

the consistency of the analysis by date entered in the packages and the daily rates entered in the exchange rate table

the conversion at daily rate by identifying missing analysis by date and/or missing daily exchange rates


C4 C43 C43-05 Check consistency between Analysis by date - Daily exchange rate

C43-15 Checking the conversion of capital increase/decrease

C43-20 Checking the conversion of subscription to capital increase

C43-25 Checking the conversion of purchase of investments


94

Example: Subscription to a capital increase

Overview

Parent company M holds US subsidiary F1 at 100% since it was created. Reporting currency for M and consolidation currency are EUR.

On 12/07/N, M subscribes to 100% of an increase in capital made by F1. At this date, the conversion rate for the USD is 1 EUR=1.17 USD. The increase in capital amounts is 100 USD. Suscription by M = 100 USD / 1.17 = 85 EUR.

Extract from the conversion rate table for 30/09/N (certain for uncertain – 1EUR = x CUR)

Currency OR

Opening rate

AR Average rate, current period

CR Closing rate

07.12 Rate for July 12

EUR 1 1 1 1

USD 1.02 1.11 1.20 1.17




Investments in subsidiaries, JV and associates A1810 140 225 85



RU F F 140 225 85

Total 140 225 85


Schedule PA2500


Issued capital E1110 200 300 100


Net equity 350 500 50 100

Schedule PA2550 – Variations of issued capital and share premium / Date

CODE F40

Issued capital E1110 100

To be broken down 0

Transaction dates

07.12 – July 12 100

Total 100

Based on the additional data provided in schedule PA2550 and the exchange rate for July 12th entered in the exchange rate table, the flow F40 on Investment and Issued capital will be converted at the exact exchange rate, that is 1.17.

If the subscription to the capital increase is made by a subsidiary reporting in a foreign currency, schedule PA2360 is used to detail this subscription by date. Refer to the Data entry guide for further information.


95

Equity Method

Principles

Equity method journal entries consist of booking the share of net assets in the account Investments accounted for using equity method. This value is based on the subsidiary's shareholders' equity after taking into account adjustments, eliminations and the consolidation rate of the scope.

These journal entries are booked using the original audit IDs, for example package or adjustment.

Example

Overview


The scope of the Group at 31/12/N is as follows:

Company Opening method

Opening consolidation

rate

Opening fin. int.

Closing method

Closing consolidation

rate

Closing owner.

int.

Closing fin. int.

Variation

M FC 100% 100% FC 100% 100% 100% N

F FC 100% 80% FC 100% 80% 80% N

SF EM 20% 16% EM 20% 20% 16% N


Trial balance


F99 Closing

ASSETS


LIABILITIES



INVSESTMENT IN SUBSIDIARIES CODE F00 F99 F20 F30 F40 F50 F55 F09 F70 Control




RU F F 160 160

Total 160 160

80%

M F SF 20%


96


Trial balance

Accounts F00

Opening F99

Closing

ASSETS


LIABILITIES







RU SF SF 200 200

Total 200 200

Package for SF on 31/12/N

Schedule PA2500


Issued capital E1110 1 000 1 000


Net equity 1 000 1 400 400

Automatic journal entries Company M


PACK01 160 PACK01 160

INV10 160


Owner company

INV10 160

Company F


PACK01 200 PACK01 200


CONS10 160


97


Owner company


INV10 200 INV10 160

E1610 Retained earnings E2010 - NCI - Reserves and retained earnings


CONS10 160

Company SF

A1500 Investments accounted for using equity method

E1110 Issued capital

280 PACK01 200

NCI-PACK01 40

CONS10 160

E1610 Retained earnings A181HC Elimination of investment in subsidiaries -

Held company

PACK01 80 INV10 200

INV10 160

NCI-PACK01 16

CONS10 160


INV10 40

NCI-PACK01 56

Booking of investments in associates:

At opening: Equity method value = 1000 x 20% = 200 Net income for the period = 400 x 20% = 80

Elimination of SF's shares held by F

Impact on Group reserves = <200> x 80% = <160> Impact on NCI = <200> x 20% = <40>

Calculating NCI in SF's equity:

Capital: Group share = 16% x 1000 = 160, NCI = 200 – 160 = 40 Net income: Group share = 16% x 400 = 64, NCI = 80 – 64 = 16

Reclassification of capital for SF

Elimination of F's shares held by M

Impact on Group reserves = <160> x 100% = <160>

Calculating NCI in F’s equity: Group share = 80% x 200 = 160, NCI = 20% x 200 = 40

Reclassification of capital for F


98



unit F00 F10 F99

A1500 Investments accounted for using equity method

PACK01 SF 200 80 280

Total 200 80 280


PACK01 F 200 200

INV10 F <200> <200>

INV10 M <160> <160>

Total 0 0


INV10 SF <200> <200>

INV10 F <160> <160>

Total <360> <360>


INV10 F 200 200

INV10 M 160 160

Total 360 360

Total ASSETS 200 80 280


PACK01 F 200 200

PACK01 SF 200 200

NCI-PACK01 SF <40> <40>

CONS10 SF <160> <160>

NCI-PACK01 F <40> <40>

CONS10 F <160> <160>

Total 160 160

E1610 Retained earnings PACK01 SF 80 80

INV10 SF <160> <160>

NCI-PACK01 SF <16> <16>

CONS10 SF 160 160

INV10 F <160> <160>

CONS10 F 160 160

Total 0 64 64

E2010 - NCI - Reserves and retained earnings INV10 SF <40> <40>

NCI-PACK01 SF 40 40

NCI-PACK01 SF 16 16

NCI-PACK01 F 40 40

Total 40 16 56


Control (assets – liabilities) OK N/A OK


99

Booking of Goodwill

General principle

Goodwill and bargain purchase are declared on dedicated off -balance accounts. These accounts (XA1300 for bargain purchase, XA1310 for goodwill, XA1312 for impairment) are used to automatically book the goodwill or the bargain purchase in the balance sheet o r profit and loss.

Automatic declaration

For the acquisition of a new subsidiary, joint-venture or associate, the calculation of goodwill or bargain purchase and its declaration on off-balance accounts and flow F01 for incoming entities are done automatically using audit ID GW003.

This automatic calculation requires a statutory consolidation scope initialized with a portfolio, where all relationships between owner and held companies are managed.

Manual declaration

For any other event the declaration should be done manually using audit ID GW01.

The journal entry is booked for the subsidiary, with a breakdown per share used to identify the owner company. It is entered in the subsidiary’s reporting currency.

The account for declaring the goodwill uses the same sign convention as its corresponding account in the balance sheet. For instance, wwhen you enter a debit amount for account XA1310, this will generate an increase in goodwill for account A1310. When you enter a credit amount, this will generate a decrease in goodwill for the same account.

Example of journal entry:

Audit ID Account Flow Debit Credit Share Debit Credit

GW01 XA13xx-Declared goodwill/bargain purchase analyzed by owner

B X A X

A Code of the subsidiary’s owner. The journal entry for declaring goodwill is posted in the subsidiary’s accounts.

B The flow to be used in the journal entry depends on the event from which goodwill originates.

The account/flow pairs used for goodwill declaration that will trigger the automatic booking of the goodwill or the bargain purchase are listed below, along with the event to which they can be associated:

3 The automatic calculation of goodwill can easily be deactivated by removing the subset of rules 11-GWC from the consolidation set of rule.


100

XA1300

(bargain

purchase)

XA1310

(gross

amount)

XA1312

(acc.

impairment)

✓ ✓ F00 1st consolidation with the software (recovery of historical data)

✓ ✓ F01 Incoming entity (acquisition)

✓ ✓ F03Business acquisition achieved in stages (EM->FC) or loss of control in a

FC that becomes associate

✓ ✓ F04 Increase in ownership interest in a PC or EM

✓ ✓ F09 Change in accounting method that impacts goodwill

✓ F25 Impairment loss

✓ ✓ F50 Adjustment during the measurement period

✓✓

F70For adjustment of goodwill related to an internal merger (but transfer from

acquired to acquiring is automatic)

✓ ✓ F80

Technical amount not entered but generated by the consolidation engine to

store the impact of changes in foreign exchange rates

✓ ✓ F92 Transfer from group to NCI or conversely (equity transactions)

Accounts

Flows Corresponding "event"

Automatic booking

The automatic booking of goodwill or bargain purchase is posted in the subsidiary consolidated accounts using audit ID GW10-Booking of goodwill and bargain purchase - Auto. The impact on the consolidated equity is split between Group and Non-controlling interests, based on the group’s financial interest in the owner company.

Goodwill

Goodwill is booked automatically in the consolidated balance sheet based on declarations made on off-balance account. XA1310-Declared goodwill analyzed by owner, Gross. This has an effect on balance sheet account.

Impairment of goodwill

The account for declaring goodwill impairment is XA1312-Declared goodwill analyzed by owner, Impair. The corresponding account in the balance sheet is A1312-Goodwill, Impair. and in the income statement P1630-Impairment of goodwill.

Bargain purchase

When a business combination causes a bargain purchase, the corresponding gain is recorded by a manual journal entry on technical account XA1300-Declared bargain purchase analyzed by owner. An automated journal entry will impact the income statement (P1640-Gain on bargain purchase) against the consolidated equity.

To make sure that flow F01-Incoming units remains balanced, a clearing account (A13CL-Clearing account - Bargain purchase) is used on both flows F01 and F25.

Specific cases

Goodwill for EM Entities

When a goodwill or a bargain purchase is booked for an entity accounted for using Equity method, the principles described above apply. The only exceptions are as follows:


101

To comply with IAS28 standard, the gross goodwill and, if applicable, the corresponding impairment, is booked in the balance sheet using account A1500-Investments accounted for using equity method. In other words, the goodwill is not distinguished from the Group’s share of the subsidiary’s net assets.

In the income statement, the impairment of goodwill impacts account P3000-Share of profit (loss) of assoc. & JV accounted for using EM. The same account is used in case a business combination generates bargain purchase.

Full Goodwill Method

It is possible to account for a business combination by applying the full goodwill method. The manual journal entry is posted with a share detail on TP-999-Third parties.

The automated journal entry then impacts account A1310-Goodwill against Non-controlling interests (account E2010-Non-controlling interests - Reserves and retained earnings).

Goodwill Conversion

For consolidated entities reporting in a foreign currency, any change in the conversion rate impacts the goodwill (A1310), against the foreign currency translation reserves (E1510 for the Group, E2210 for Non-controlling interests).

Checking Goodwill of incoming companies

The following report displays the net equity of incoming companies with a detail by audit IDs. You should check that the equity attributable to owners of parent equals zero for each incoming company.

Folder Book Report

C C46 C46-35 - Net equity of incoming companies

It is possible to drill down to the detailed journal entries for one incoming company reporting unit and one audit ID (Report C33-10).

To display goodwill and bargain purchase booked during the period at held companies with the detail of owners companies, you can run the following report:


C C46 C46-40 - Goodwill and bargain purchase of incoming companies

From one owner/held company pair, you can drill down to the following report:


C C46 C46-45 - Check calculation of goodwill or bargain purchase

This report explains the goodwill calculation for an owner/held company pair. A theoretical goodwill or bargain purchase is calculated from the share of net equity of the held company and the investment acquisition price of the owner company. Data is provided in local currency and consolidation currency with a theoretical calculation of the exchange conversion rate to be compared with the exchange rate entered in the exchange rates table. Theoretical goodwill or bargain purchase calculated in the report can be compared with goodwill or bargain purchase declared on technical accounts (by manual or automatic journal entry).

The 2 last reports are initialized with portfolio data. Therefore they can only be retrieved when a statutory consolidation scope initialized with a portfolio has been defined.


102

Example

Scenario 1


By acquiring SF on 01/01/N, goodwill amounting to 2 000 was generated. An impairment of 100 is entered for the period. The group does not apply full goodwill method for this business combination.

Manual journal entries to be posted

Declaration of goodwill (Auto or manual):

Reporting unit


SF GW00/

GW01 XA1310-Declared goodwill analyzed by owner, Gross

F01 2 000 F 2 000

Declaration of goodwill impairment for the period:

Reporting unit Audit ID Account Flow Debit Credit Share Debit Credit

SF GW01 XA1312 Declared goodwill analyzed by owner, Impair. F25 100 F 100

Accounting entries generated

These journal entries are generated for SF.

Balance sheet:

A1310 Goodwill E1610 Retained earnings

GW10 2 000 GW10 1 800

GW10 90

E2010 NCI - Reserves and retained earnings A1312 Goodwill, Impair.

GW10 200 GW10 100

GW10 10

Income statement:

P1630 Impairment of goodwill

GW10 100

Booking of goodwill: The impact on reserves is allocated between Group and NCI based on the

parent's financial interest, i.e. Group share = 90% x 2000 = 1800, NCI = 200.

Booking of goodwill impairment. The impact on net income is allocated between Group (90%x100 =

90) and NCI (10%x100 = 10).

90%

M F SF

80%


103

Scenario 2 – Applying full goodwill method

Using the previous example, suppose the Group applies the full goodwill method. Based on the estimated fair value of the Non-controlling interests, the Goodwill attributable to NCI is 250.

The journal entry to declare this goodwill should be posted as follows:

Reporting unit


SF GW01 XA1310-Declared goodwill analyzed by owner, Gross F01 2 000 F 2 000

XA1310-Declared goodwill analyzed by owner, Gross

F01 250 TP-999 250

Scope Changes

104

Scope Changes

Section Objectives

This section gives an overview of the scope changes and deals in deeper details with the following cases:

An entity enters the consolidation scope.

An entity exits the consolidation scope.

Key Points

For incoming units:

Specific exchange rates must be entered for an incoming unit.

Package data on flow F00 must correspond to the position at the date the subsidiary enters the scope.

Fair value adjustment is booked manually using audit ID FVA11.

Goodwill or bargain purchase is booked by an automatic journal entry based on a manual or automatic declaration on technical accounts.

For outgoing units:

Specific exchange rates must be entered for an outgoing unit.

Entities can exit the consolidation scope at the opening or during the fiscal year; in this case, they fill out a package in which F99 corresponds to the position at the date of the exit.

A manual journal entry must be posted on audit ID INV31 with the local currency or INV32 with the consolidation currency to book the difference between the net gain/loss on disposal in the individual accounts of the owner company and the net gain/loss in the consolidated accounts.

Overview of the Scope Changes

Typology of Scope Changes

Business combinations, defined in IFRS3, and scope changes as they are defined in SAP Financial Consolidation can be summarized as follows:

Events

Consolidation

method * Status in FC (consolidation engine) *

Comments

Opening Closing Incoming

entity

Outgoing

entity

Change in method Change in

cons. % FC/PC->E E->FC/PC

ACQUISITION

Acquisition of a significant

influence NC E X

Acquisition of a joint-control NC PC X

Acquisition of a controlling

interest NC FC X

Scope Changes

105

Events

Consolidation

method * Status in FC (consolidation engine) *

Comments

Opening Closing Incoming

entity

Outgoing

entity

Change in method Change in

cons. % FC/PC->E E->FC/PC

Step acquisition (business

combinations achieved in

stages)

E FC X

PC FC X

LOSS OF CONTROL

With or without retaining a

residual interest

PC NC X

FC PC X

FC E X

E NC X

FC NC X

EQUITY TRANSACTIONS

Transactions with NCI that do

not change control FC FC

Variation of interest %

in the conso scope

OTHER OPERATIONS

Joint control achieved in stage E PC X

Partial disposal of a JV PC E X

Increase in parent’s ownership

interest

E E

PC PC Variation of interest %

in the conso scope

* NC: Not consolidated

FC: Full consolidation

PC: Proportionate consolidation

E: Equity method

Scope Changes: Using the Right Flow

In the IFRS Starter Kit, three flows are dedicated to record investments and disposals of shares in consolidated entities:

F20: Increase/Purchase

F30: Decrease/Disposal

F40: Subscription to capital increase/decrease

Scope Changes

106

The following table indicates which flow is used in the held entity’s equity to deal with the scope change, depending on the flow used in the package and the status of the held entity:

Flow used in

the package Status of held entity in scope Flow used in held entity’s equity

F20

Incoming F01 (incoming entities)

Change in consolidation method F03 (new method)

Others (held entity fully consolidated) F92 (increase/decrease in interest rate)

Others (held entity PC or EM) F04 (change in consolidation rate)

F30

Outgoing F98 (Outgoing entities)

Change in consolidation method F03 (new method)

Others (held entity fully consolidated) F92 (increase/decrease in interest rate)

Others (held entity PC or EM) F04 (change in consolidation rate)

F40 All F40 (capital increase)

Events Covered in this Documentation

This documentation will cover in detail the two following consolidation events:

incoming entities

outgoing entities

Indeed, these events happen quite frequently in a consolidation; additionally, some of the information presented here (concepts, journal entries, and so on) will be applicable when dealing with other types of scope changes: booking goodwill or bargain purchase, correcting the net gain on disposal of investments.

It may also be pointed out that, according to IFRS3, a business combination achieved in stages (E->FC or PC->FC) should be dealt with as if the existing entity had been disposed of, and a new entity (consolidated using Full consolidation) had been acquired.

Any manual journal entries posted on a company changing in consolidation methods should be entered with a journal entry restriction (Variant, Scope or Currency) to be accurately taken into account during the consolidation process.

Incoming Entities

Preparing the Reporting Cycle

Updating Exchange Rates

The principles for updating the exchange rate table for entities with a foreign reporting currency are described in chapter Entering Conversion Rates.

When such an entity enters the scope at a date that is not the beginning of the fiscal year, however, specific exchange rates should be entered for this reporting unit, using the RU-specific rates functionality.

The table below shows how to populate the exchange rate table, with the assumption that consolidations are run each quarter, and that the entity enters the scope during Q3.

The two options for data conversion are:

YTD

quarterly

Scope Changes

107


A-YTD (Year-to-date) for Q3* A-PER (Periodic) for Q3*


period [Not used] [Not used] **


period Rate at the acquisition date Rate at the acquisition date


period

Average rate between

acquisition date and Sept 30th

Average rate between acquisition

date and Sept 30th

CR - Closing exch. rate, current

period Rate at Sept 30th Rate at Sept 30th

* No RU-specific exchange rates are needed for Q1 and Q2.

** The ARPP rate type is not used because it applies to quarter Q2 during which the entity was not consolidated.

If you opt for a periodic conversion, populating the exchange rate for the subsequent period (Q4 in our example) must be done as follows:


A-PER (Periodic) for Q4


period

Average rate between acquisition

date and Sept 30th


period Rate at the acquisition date


period

Average rate between Oct 1st and

Dec 31st


period Rate at Dec 31st

You will only enter the daily rate types of the quarter in the periodic conversion..

Consolidation Package

The package for an incoming entity should be entered following the principles described in chapter Collecting Data.

The opening balances for the balance sheet, however, will not be pre-loaded, and flow F00 must be populated based on the position at the date the entity enters the scope, and the movements will correspond to the variation between that date and the closing date only.

As for the income statement, the amounts to enter correspond to the income and expenses over the same period.

Consolidation Scope

In the consolidation scope, any entity not consolidated at the opening and consolidated at closing, regardless of the consolidation method applied, is identified as an incoming entity.


Consolidation Engine

The opening balances of an incoming entity are automatically transferred from flow F00-Opening position to flow F01-Incoming units by the consolidation engine.

Scope Changes

108

Intercompany Eliminations

The incoming entity must declare any intercompany transaction, for example payable/receivable, loan/financial debt, provision, and income/expense, towards the relevant Group’s entities.

As for the entities that are consolidated at opening, they should make sure that they disclose correctly intercompany data towards the incoming entity. Two situations may occur:

The incoming entity was already codified in the list of reporting units at the end of the previous fiscal year, and the counterparts have declared their intercompany transactions with the incoming entity.

In this case, intercompany data is automatically eliminated on flow F01-Incoming units.

Otherwise, intercompany transactions with the incoming entity are included in the amount declared towards Third-parties (TP-999). In the package, the corresponding amounts should be reclassified on the relevant entity using flow F50.

In this case, intercompany data will be automatically eliminated on flow F50. If you want to refine the analysis by flows on intercompany eliminations, transfer the intercompany declarations from flow F50 to flow F01-Incoming units by a manual journal entry.

Dividends

When dividends are paid by an entity that enters the consolidation scope, one of the following scenarios occurs:

If the dividends are paid to the former shareholders, flow F06 on equity is automatically transferred to flow F01, so that the equity on flow F01 is net of dividends. Goodwill is calculated based on this amount, and flow F01 on Group’s equity equals zero.

If the dividends are paid to the new shareholders, consolidated entities, they are first eliminated on flow F06. Then, two additional automatic journal entries are triggered:

In the payer’s accounts, flow F06 on equity is transferred to flow F01.

In the beneficiary’s accounts, the impact of dividends elimination is transferred from flow F06 to flow F01.

In both scenarios, after automatic journal entries have been triggered, flow F06 equals zero.

Manual Processing

Fair Value Adjustment

According to IFRS, the assets and liabilities of an incoming entity must be evaluated at their fair value at the acquisition date.

In the starter kit, any difference between the value of an asset/liability in the package and its fair value must be posted by a manual journal entry using audit ID FVA11-Fair value for incoming entities (central) - Man.

If needed, a deferred tax on the fair value adjustment must be posted, using the same audit ID.

Examples of fair value adjustment journal entries are presented in chapter Making Adjustments to Packages.

Booking Goodwill

The principles for booking goodwill are explained in chapter Booking of Goodwill.

Scope Changes

109

Outgoing Entities

Preparing the Reporting Cycle

An entity may exit the consolidation scope when:

the Group has transferred control or significant influence on this entity to external shareholders,

this entity is merged into another consolidated entity.

Consolidation Package

Normally, any entity exiting the consolidation scope at a date that is different from the first day of the fiscal year should fill out a consolidation package, detailing all the income/expenses and balance sheet movements that occurred from the beginning of the fiscal year until control was transferred, or the entity was merged.

However, getting the corresponding information is not always easy. Provided that this has not a significant impact, the Group has several options:

Take the package used for the last interim consolidation, considering that the figures are very similar to the actual figures at the date of the exit.

Fill out a package with the exact figures at the date of the exit.

Process the exit as if it happened at the beginning of the fiscal year.

If you fill out a package, the entity is considered as exiting the scope during the fiscal year.

On the contrary, if the impact of the exit corresponds to the closing position of the previous fiscal year, the entity will be considered as exiting the scope at opening. No package is required in this case.

Consolidation Scope

In the consolidation scope, any entity consolidated at opening and not consolidated at closing is considered as exiting the scope.

Depending on which additional information you enter in the scope for this entity, this entity will have one of the four following statuses:

Intermediate data entry period Acquiring reporting unit Status

Not specified Not specified Outgoing at opening

Not specified Specified Outgoing acquired at opening

Specified Not specified Outgoing during period

Specified Specified Outgoing acquired during period

Intermediate Data Entry Period

The data entered in this field is used by the consolidation engine to identify which package must be loaded in the consolidation.

Examples

The entity is disposed of on 15/07/2009. When running the consolidation for 31/12, the Group decides to take the financial position on 30/06 for this entity (which corresponds to the package filled out for the 30/06 consolidation). Intermediate data entry period should be 2009.06.

The entity is disposed of on 31/10/2009, and has provided financial statements as of 31/10. These financial statements are used to fill out the package used for 2009.12 consolidation. Intermediate data entry period should be 2009.12.

Scope Changes

110

If no intermediate data entry period is entered, no data entry package will be loaded by the consolidation engine and the entity will exit the scope based on the opening balances.

Acquiring Reporting Unit

This field must be filled out when an internal merger occurs during the fiscal year, to identify the acquiring entity.

When an entity is merged into a non-group entity, it is considered a classical exit and the Acquiring reporting unit field must not be entered. DO NOT enter TP-999 in the Acquiring reporting unit field.

Updating Exchange Rates

When a foreign entity exits the scope, specific exchange rates should be entered for this reporting unit, using the RU-specific rates functionality.

The tables below show how to populate the exchange rate table, with the assumption that consolidations are run each quarter.

The two options for data conversion are:

YTD

quarterly

Exit at Opening

Rate type

Rate version

A-YTD (Year-to-date) for Q1 to

Q4 A-PER (Periodic) for Q1


period [Not used] [Not specified]


period Rate at opening (default) Rate at opening (default)


period Rate at Jan 1st Rate at Jan 1st


period Rate at opening Rate at opening

If you opt for a periodic conversion, populating the exchange rate for the subsequent periods (Q2, Q3 and Q4 in our example) must be done as follows:


A-PER (Periodic) for Q2, Q3, Q4


period Rate at Jan 1st


period Rate at Jan 1st (default)





Scope Changes

111

Exit during the Period

We assume the entity exits the scope in Q2. No RU-specific exchange rates are needed for Q1.


A-YTD (Year-to-date) for Q2* A-PER (Periodic) for Q2


period [Not used] Average rate Jan 1st to Mar 31st


period Rate at Jan 1st (default) Rate at Jan 1st (default)


period Average rate Jan 1st to exit date Average rate Apr 1st to exit date


period Rate at exit date Rate at exit date

* The A-YTD exchange rate tables for Q3 and Q4 will be populated with the same values.

If you opt for a periodic conversion, populating the exchange rate for the subsequent periods, Q3 and Q4 in our example, must be done as follows:


A-PER (Periodic) for Q3 and Q4


period Average rate Apr 1st to exit date


period Rate at Jan 1st (default)


period

Average rate Apr 1st to exit date

(same as Q2)


period Rate at exit date


Consolidation Engine

When an entity exits the scope, the consolidation engine reverses all the balance sheet data (assets, liabilities and equity) for this entity.

For an entity outgoing at opening, the reversal is triggered on flow F98 based on the opening position (flow F00) for package data, manual journal entries without restrictions, and automatic journal entries.

For an entity outgoing during the period, the reversal is triggered on the same flow F98, but based on the opening position (flow F00) plus the movements of the period.

In case the entity is merged into another group entity, the same reversal is triggered but on dedicated flow F70.

Journal entries with a restriction (Scope and/or Version and/or Consolidation currency) must be reversed manually if required.


The eliminations of reciprocal transactions are reversed when an entity or its counterpart exits the consolidation scope.

Scope Changes

112

As for the eliminations of internal provisions that were booked towards an entity that exits the scope, they are also reversed automatically.

Manual Processing


The elimination of the gain/loss on internal transfer of assets must be reversed by a manual journal entry when an entity or its counterpart exits the consolidation scope.

Correcting the Net Gain/Loss on Disposal

When an entity exits the scope, the net gain/loss booked in the individual accounts of its owner company does not correspond to the net gain/loss that must appear in the consolidated financial statements.

The correction must be booked manually on Audit ID INV31- Adjust. on gain/loss on disposal of a subs., JV or associate (Local currency) or INV32- Adjust. on gain/loss on disposal of a subs., JV or associate (Consolidation currency)4.The journal entry is posted in the owner entity’s accounts, as follows:


INV31 E1610 Retained earnings F98 B A Held entity B A

P1615 Gains or losses on sale of shares Y99 A B

A When the consolidated gain/loss is lower than in the individual accounts (that is, consolidated reserves are positive)

B In the case where the consolidated gain/loss is higher than in the individual accounts.

4 INV32 should be used if the holding company of an outgoing company is in foreign currency. In that case the correction of the

gain/loss should be booked with the consolidation currency to avoid conversion calculation.

Completing the Consolidation

113


Section Objectives

This section describes the tasks required to complete the consolidated accounts.

Key Points

You should check the statement of changes in equity (including the statement of comprehensive income) and the consolidated cash flow statement.

Checking consolidated shareholders' equity involves:

Eliminating subsidiaries' shareholders' equity, like capital or premium package data, should only correspond to consolidated data for the parent company

Justifying the variations in the Group's share of net equity

The Statement of cash flows is generated automatically using flow analyses of movements in balance sheet items. Discrepancies that appear between analyzed cash movements and actual change in cash in the balance sheet should be corrected. These corrections are booked:

In balance sheet accounts for which the flow analysis has not been performed correctly or completely

Directly in the line items of the cash flow statement if required

Checking the Statement of Comprehensive Income

Overview of the Statement of Comprehensive Income Reports

The starter kit for IFRS proposes two approaches to present the comprehensive income.

A unique report: a statement of comprehensive income including profit and loss and other components of comprehensive income

Two reports: a statement of profit or loss and a statement of other comprehensive income

The following reports are available:


C1 C11 C11-20 Statement of Profit or Loss and Other Comprehensive Income

C1 C11 C11-10 Statement of Profit or Loss

C1 C11 C11-15 Statement of Other Comprehensive Income

Depending on the approach chosen, customers can archive either the statement of comprehensive income or the income statement and the statement of other comprehensive income

The detail by Reporting Unit can be displayed with the following reports:


C2 C21 C21-10 Statement of Profit or Loss by Reporting unit

C2 C21 C21-15 Statement of Other Comprehensive Income by reporting unit


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Additional analysis reports of the Statement of Profit or Loss and of the Statement of Other Comprehensive Income are available. You can access these reports by linking to them from one of the summarized reports above.


C2 C22 C22-10 Analysis of line item by account (Statement of Profit or Loss)

C2 C22 C22-25 Analysis of line item by reporting unit (Statement of Profit or Loss)

C2 C22 C22-30 Analysis of line item by reporting unit (Statement of Other Comprehensive Income)

C2 C23 C23-05 Statement of Other Comprehensive Income breakdown

Schedule C23-05, in particular, provides details on account/flow pairs for each line item of the SOCI.


Manual journal entries can be booked to reclassify line items in the SCI.

These journal entries are booked using a dedicated account, XSCI - SCI reclassifications and calculations, flow Y99 and the ANALYSIS dimension to identify the SCI items. There is also one dedicated audit ID for these journal entries: CFS01-Consolidated Financial Statements correction - Man.

Double-sided journal entries are posted in SCI line items in order to make adjustments to the Statement of Comprehensive Income. By convention, you enter a debit amount to increase the relevant item and a credit amount to decrease it.

For instance, a journal entry should be booked to populate the SCI line item TSCI297 OCI related to non-current assets and disposal groups classified as held for sale that may be reclassified to P&L. Other journal entries should remain the exception as it is always preferable to modify the source account/flow combinations.

Example

The reclassification of Gains (losses) on remeasuring financial assets at FVTOCI, before tax (SCI2210) in OCI related to non-current assets and disposal groups classified as held for sale that may be reclassified to P&L (TSCI297) should be posted as follows:

Audit ID Account Flow Analysis (SCI line item)

Debit Credit

CFS01 XSCI – SCI reclassifications and calculations Y99 TSCI297 x

SCI2210 x


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Path between the Statement of Comprehensive Income and the Statement of Changes in Equity

Checking the Statement of Changes in Equity

Checks Specific to Certain Accounts

The following Group shareholders' equity accounts should only correspond to data for the parent company:

CODE DESCRIPTION

E1110 Issued capital

E1210 Share premium

E1310 Treasury shares

Checking Variation Flows

Reference Report

Check the variation of shareholders' equity by running the following report:


C1 C11 C11-30 Statement of Changes in Equity

This report displays data for the entire Group or for just one reporting unit.

Note: This report provides an aggregated presentation of the accounts and flows. Further details can be obtained using the following report, which displays all the equity accounts and all the flows:


C4 C46 C46-05 Statement of changes in consolidated equity and NCI

For each account, if needed, you can link to the following report to display a detail by Audit ID and entity:


C3 C32 C32-15 General Ledger by Reporting Unit and Audit ID (Flows)

Statement of comprehensive income

Profit for the year 1000

Change in revaluation surplus 200

Other comprehensive income for the year 200

Total comprehensive income for the year 1200

Attributable to:

- Owners of the parent 960

- Non Controlling interest 240

Statement of changes in equity

Issued

Capital

Revaluation

Surplus

Retained

earnings

Equity

attributable

to owners

Non

Controlling

interest

Balance at opening … … … … …

Total comprehensive income … 160 800 960 240

Amount at 100% = 200 Attributable to owners (80%) = 160


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Types of Flow

The flows that analyze net equity movements can be organized into four main categories.

Current Movements

Current movements in shareholders' equity include net income for the period, distribution of dividends and the effect of changes in conversion rates on the contribution from foreign subsidiaries.

Net income for the period is booked in flow F10. The checks to be performed are:

Data for flow F10 should only be stored in accounts E1610-Retained earnings and E2010-Non-controlling interests - Reserves and retained earnings.

The sum of accounts E1610 and E2010 for flow F10 should always correspond to the net income of the P&L, stored on account TP000.

Dividends paid during the period appear on the flow F06. The checks to be performed are:

Flow F06 for Group shareholders' equity must correspond exactly to the distribution of dividends made by the parent company.

Flow F06 for the NCI equity accounts should correspond to the dividends paid by consolidated subsidiaries to external shareholders.

The effect of changes in conversion rates are shown in F80-Currency Translation Adjustment. In the consolidated accounts, data should be stored on flow F80 only for the accounts related to:

Recyclable hedging reserve (E1520, E1521, E2220, E2221),

Recyclable fair value reserve (E1530, E1531, E2230, E2231),

Foreign currency translation reserve (E1510, E1511, E2210, E2211).

Flow F80 should equal zero for any other equity account, due to the conversion process that maintains these accounts at their historical conversion rates.

Ad Hoc Operations

Ad hoc operations include:

Changes in accounting policies (F09)

Subscription to capital increase/decrease (F40)

Increases or decreases in capital are:

Those by the parent company which affect the variation of Group shareholders' equity.

Those performed by the subsidiaries. The impact on Group shareholders' equity should be eliminated:

When the operation is subscribed to by each shareholder according to the initial investment, the Group share of capital increase corresponds to the investment made, where the increase corresponds to share value. Therefore, flow F40 is balanced for Group shareholders' equity.

If it is not the case, flow F40 should be balanced by flow F92-Change in interest rate for Group shareholders' equity.

Scope Changes

For information on scope changes, see Scope Changes.

Other Variations

Transfer flow F50 is used to book transfers from one account to another. This flow should be balanced for both the sum of Group shareholders' equity and the sum of Non-controlling interests, excluding accounts E1570-Equity component of compound financial instruments and E2080-NCI- Compound financial


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instruments and basis adjustments in hedging reserves (transfers from reserve to acquired assets). Check that this is the case for every company.

The effect of the fair value adjustment of assets and liabilities is displayed in flow F55. Flow F30 is used for reclassification adjustments from recyclable hedging reserves and fair value reserves.

Except for specific cases to be analyzed and justified, flow F15 is not used for changes in net equity.

Performing Detailed Checks for Reporting Units

You should check that the balance sheet controls are valid. These controls ensure that shareholders' equity is produced from valid accounts, flows and audit IDs.

You can analyze the contribution of one or several reporting units to shareholders' equity by running the following report:


C4 C46 C46-05 Statement of changes in consolidated equity and non-controlling interest

You can link from this schedule to a General ledger by Reporting Unit and Audit ID.

It is also possible to display a report detailed by equity accounts (Group and NCI) with a detailed contribution of each reporting unit.


C4 C46 C46-10 Check Shareholder's Equity

A detailed analysis of net equity is also available for one Reporting Unit:


C4 C46 C46-25 Detailed analysis of Net Equity

This report enables the validation of net equity impacts at each step of the consolidation process

This report gives the detail in rows of the different consolidation entries impacting net equity: adjustment, non controlling interest corrections, elimination of investments and goodwill.

For elimination of investments and goodwill, the document provides the detail by holding companies.

In columns, the document proposes the validation of the exchange rate and consolidation rate application and of non controlling interests calculation.

Control columns are calculated by the difference between the amount calculated in the document (grey column) and the amount calculated during the consolidation process and stored in the consolidated database.

Amounts are automatically calculated in the document thanks to exchange, consolidation and interest rates that are retrieved in the three first column of the document.

Checking the Statement of Cash Flows

Overview of the Statement of Cash Flows Reports

The IFRS Starter Kit presents the consolidated statement of cash flows (SCF) using the indirect method.


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The following reports are available:


C1 C11 C11-25 Statement of Cash Flows

C2 C21 C21-20 Statement of Cash Flows by Reporting Unit

The latter explains how differences between analyzed and actual cash movements arise. See Analyzing Differences.

Additional analysis reports of the cash flow statement are available. You can access these reports by linking to them from one of the summarized reports.


C2 C22 C22-35 Analysis of line item by reporting unit (Statement of Cash Flows)

C2 C23 C23-10 Statement of Cash Flows breakdown

Schedule C23-10, in particular, provides details on the different account/flow pairs for each line item of the SCF.

Analyzing Differences

When the cash movement analyzed in the cash flow statement does not correspond to the cash movement in the balance sheet (that is, Closing – Opening), the difference is booked in a control row. This row is analyzed in bottom section of report C21-20-Statement of Cash Flows by Reporting Unit.

You can discover the source of the difference between the actual and calculated cash movements by the configuration settings defined.

All authorized account/flow pairs are carried over to items in the cash flow statement, regardless of whether they are analyzed or control items.

For example, variation flow F15 on Issued capital is normally equal to zero for equity accounts. Theoretically, it therefore has no effect on Group cash flow. However, it is included in a control item, SCF9340, so that if it does not equal zero, the difference can immediately be identified.


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The table below describes the reasons why the cash flow statement may not balance:

SCF Line item Differences highlighted

Differences on scope changes flows

SCF9110 Unbalanced flow F01 [a]

SCF9120 Unbalanced flow F03 [a]

Other unbalanced flows

SCF9210 Unbalanced flow F09 [b]



Other differences to be analysed

SCF9310 Change in depreciation/amortization to be analysed [c]

SCF9320 Change in impairment/ provision to be analysed [c]

SCF9330 Change in investing to be analysed [c]

SCF9340 Change in financing to be analysed [c]

SCF9350 Change in associates to be analysed [d]

SCF9360 Business units - Balancing account [e]

[a] Assets should be equal to liabilities for flow F01-Incoming units. If this is not the case, then this error originates in package data (a manual journal entry that does not balance on flow F01 cannot be posted).

You can identify the Audit ID for which there is an inconsistency by running the following report:


C4 C42 C42-35 Flow balance by Audit ID

To find out from which company this error originates, run the following report:


C4 C42 C42-40 Flow balance by Reporting Unit

Run package controls again for this company using the Package Manager module.

The same check procedure applies to flow F03-Change in consolidation method (new). On this flow, however, the inconsistency could also originate from a manual journal entry not balanced on this flow.

[b] Assets should be equal to liabilities for flows F09, F50 and F80. If there are errors, run the following report:


C4 C42 C42-35 Flow balance by Audit ID

You can then check the relevant audit IDs.

For the relevant reporting unit, run the following report:


C4 C42 C42-40 Flow balance by Reporting Unit

You can then identify the relevant reporting unit.


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Then run the following ledger containing journal entries posted for this Audit ID/Reporting unit combination.


C3 C33 C33-05 Debit Credit Ledger for 1 Reporting Unit and 1 Audit ID

You can then identify the journal entry that is causing this error.

[c] Changes in non-current accounts as well as depreciation and provision accounts should be broken down into the relevant flows, such as increase/purchase, decrease/disposal, increase in depreciation, and decrease in depreciation.

If this is not done, then variation flow F15 will not equal zero for these accounts and the statement of cash flows will not balance.

Run the following report:


C2 C21 C21-20 Statement of Cash Flows by Reporting Unit

In case of error, identify the entities for which cash flow items SCF9310, SCF9320, SCF9330 or SCF9340 do not equal zero, and link to the following report (for the corresponding entities):


C2 C23 C23-10 Statement of Cash Flows breakdown

You can then identify the accounts for which F15 does not equal zero.

For these accounts, run the following report to identify the origin (package, journal entry) of the amounts stored on flow F15:


C3 C32 C32-05 General Ledger by Audit ID, Partner, JE number (Flows)

[d] Data on flow F15 for account A1500-Investments accounted for using equity method may originate from:

a manual journal entry

an automatic journal entry when change in net equity for the relevant subsidiary is not completely broken down, that is, F15 does not balance

Except in specific cases, F15 is not involved in analyzing investments in associates and should therefore equal zero by being booked against the relevant movement flow.

In case of errors, run the following report for account A1500 to identify the relevant Reporting unit and Audit ID:


C C32 C32-15 General Ledger by Reporting Unit and Audit ID (Flows)

You should then link to the following report for this Reporting unit/Audit ID combination, for account A1500:


C C32 C32-05 General Ledger by Audit ID, Partner, JE number (Flows)

You can then identify the journal entry posted in F15.

If needed, you can also open the following schedule for the relevant entity, and focus on the equity accounts for which F15 would not equal zero:


C C31 C31-10 Balance Sheet by Flow and Audit ID


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[e] If an error originates from a misuse of the balancing account for Business units (L26BU), run the following report for this account:


C C32 C32-15 General Ledger by Reporting Unit and Audit ID (Flows)

You should then link to the following report for this Reporting unit/Audit ID combination:


C C32 C32-05 General Ledger by Audit ID, Partner, JE number (Flows)

This enables you to identify the reasons why F15 does not equal zero.


Principles

Manual journal entries can be booked to reclassify line items in the SCF.

These journal entries are booked in a dedicated account, XCFS-CF reclassifications and calculations, using flow Y99 and the ANALYSIS dimension to identify the cash flow items. There is also one dedicated audit ID for these journal entries: CFS01-Consolidated Financial Statement correction - Man.

Double-sided journal entries are posted in SCF line items in order to make adjustments to the cash flow statement. By convention, you enter a debit amount to increase the relevant item and a credit amount to decrease it.

These journal entries should remain the exception as differences that crop up between analyzed and actual cash movements should normally be corrected through balance sheet flows. In certain cases, however, the Group may want to correct the cash flow statement directly.

Any journal entry to correct the SCF directly without modifying the source account/flow combinations should be posted as follows:

Audit ID Account Flow Analysis (SCF

line item Debit Credit

CFS01 XCFS CF reclassifications and calculations Y99 SCFxxx

SCFxxx

Example

A small subsidiary has not entered the breakdown of changes in financial debts.

Extract from F's package – schedule PA3450:

ACCOUNT CODE F00 F99 F15 F50 F55 Spec.

Cash on hand A2610 20 50 30

Extract from F's package – schedule PA3550:

ACCOUNT CODE F00 F99 F20 F30 F50 F55 Spec. Control

Borrowings, Non current L1510 100 150 50

Other financial liabilities, Non current L1550 10 0 -10


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Extract from F’s package – Schedule PA2500:



Retained earnings E1610 30 20 -10

Net equity 40 30 -10

F's contribution to the Statement of cash flows:

SCF1000 Profit (loss) attributable to owners of the parent -10

TSCF300 Net cash flows from (used in) operating activities -10

SCF5310 Proceeds from borrowings

SCF5320 Repayments of borrowings

TSCF500 Net cash flows from (used in) financing activities

TSCF700 Net increase (decrease) in cash and cash equivalents -10

SCF7100 Cash and cash equivalents at beginning of period 20

SCF7200 Cash and cash equivalents at end of period 50

SCF9340 Change in financing to be analysed 40

TSCF900 Differences to be analysed 40

The Group chooses to balance the Statement of cash flows by classifying the changes in financial debts as Proceeds from borrowings (-20) and Repayments of borrowings (+60).

The manual journal entry to correct the SCF is as follows:

Audit ID Account Flow Analysis (SCF

line item Debit Credit

CFS01 XCFS CF reclassifications and calculations Y99 SCF5310 60

SCF5320 20

SCF9340 40

F's contribution to the Statement of cash flows after corrections are made:

SCF1000 Profit (loss) attributable to owners of the parent -10

TSCF300 Net cash flows from (used in) operating activities -10

SCF5310 Proceeds from borrowings 60

SCF5320 Repayments of borrowings -20

TSCF500 Net cash flows from (used in) financing activities 40

TSCF700 Net increase (decrease) in cash and cash equivalents 30

SCF7100 Cash and cash equivalents at beginning of period 20

SCF7200 Cash and cash equivalents at end of period 50

SCF9340 Change in financing to be analysed 0

TSCF900 Differences to be analysed 0


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Checking IFRS adoption

The starter kit for IFRS provides a complete set of pre-configured reports to ensure a fast and correct reconciliation between local Gaap and IFRS. These reports are grouped together into the folder C5 “IFRS Adoption”. It includes:

Financial statements enabling local Gaap and IFRS consolidated data comparison

Balance reconciliation with an analysis by audit IDs of differences between local GAAP and IFRS

Analysis reports that allow a complete audit trail of the differences till the journal entry number.

All reports should be initialized with two different consolidation versions: the first should be the Local gaap version and the second one the IFRS version.

An exception exists for the report “C51-05 Statement of Financial Position” that requires to initialize the versions both times, first for the opening position and second for the closing position. The correct variables initialization is illustrated below:

To know more about the IFRS adoption operating process, see “IFRS Adoption in Consolidated Statements” on http://help.sap.com/ in the section “Financial Consolidation \ 7.5”.

Local Gaap version

IFRS version

http://help.sap.com/