Consolidate in your ERP system

For years, the consolidation process used different layers of the IT landscape. For example, accounting figures were captured in the accounting system and loaded to a business warehouse. There, the same figures were grouped and structured before being consolidated and accessed through EPM packages. With the advent of Group Reporting, that traditional picture is about to change. Indeed, Group Reporting will start consolidating into the transaction system, within SAP's S/4HANA to be specific. We would like to share with you the advantages and disadvantages that this brings with it below.

Real time consolidation

One of the consequences will be that you will have "up-to-date" figures throughout the month, who wouldn't want that? Every booking that is made (automated or not) is immediately processed in the group figures, allowing for sharper monitoring. Unfortunately, this is a little too short. Simply because certain costs and revenues have a monthly character. The rent of the building, salaries, lease costs and so on. All expenses that you suddenly have to book sometime during the month. So a full P&L through the month leads to figures that are not really comparable and therefore do not say much.

Of course, there are certain industries where you could do a daily report based on certain KPIs. Think of companies in retail where daily sales and margin are relevant. Also, bank bookings can contain interesting information for a treasury department. In all fairness, however, it is often the case that alternative systems are already in place. No, the real added value seems to lie in another corner.

Super Fast Close with Group Reporting

Some years ago, many organizations put effort into speeding up the month-end closing process. The main focus was on activities that could take place earlier, making agreements clearer and simpler, and dividing responsibilities properly. On the first point in particular, Group Reporting could make significant strides by enabling various activities to take place earlier. The most obvious is probably to do intercompany reconciliation during the month. This can be monitored centrally and resolved decentrally, and possibly even automated to a large extent. But there are more possibilities.

Thus, corporate control can already perform "controls" during the month to validate whether certain entries have been made as agreed. If necessary, any resulting corrections can be booked during the month. This prevents subsequent entries that would make it necessary to reopen closed periods. In addition, it ensures that your accounting and consolidation system are not out of sync because corrections are made in other periods.

Integration

Those correction entries reflect an advantage where things start to get really interesting: the far-reaching integration. In a traditional set-up, we load bookings first to a central data warehouse and then to a consolidation tool. With this new set-up, everything is in the same system, so the final impact can be seen much faster.

Conversely, this integration provides benefits for analyzing data. If data is not correct at the consolidated level, the analysis can drill down to the actual entry with explanation, name, date and all available details. An additional benefit of the integration, of course, is integrity. Because you are looking directly into the source, everyone sees the same figures. Discussions about "what the correct figures are" are thus a thing of the past.

Unfortunately, we must also add a small note to all these benefits. Actually, all these benefits only come into their own when the entire organization (or at least a significant part) is on one S/4HANA installation. If there are a few companies that don't report directly into S/4HANA, it only involves relatively little time in the month end to take care of those few more companies. However, if they are large parts of the organization, then they need to be connected to the S/4HANA system through Central Finance.

Central Finance is an application offered by SAP to replicate bookings in the S/4HANA system. This replication takes place in real-time, however, involves maintenance in terms of master data mapping. In addition, it also means additional costs in terms of licenses.

Concept to the future

Surely that last comment will hold true for a number of companies. There are plenty of companies that have emerged from mergers and acquisitions and never really had an incentive to harmonize their accounting systems. It is possible that an incentive will now arise to do so. Step by step, then, the scope of S/4HANA increases and the concept of integrated consolidation gets closer and closer.