IFRS and SAP ERP

International Financial Reporting Standards (IFRS) are principles-based Standards, Interpretations and the Framework (1989) adopted by the International Accounting Standards Board (IASB).

What are IFRS accounting policies?

The International Accounting Standards Board (IASB) is an independent, privately-funded accounting standard-setter based in London, England.

Since 2002, the Financial Accounting Standards Board and the International Accounting Standards Board have been working to converge U.S. generally accepted accounting principles and international financial reporting standards. As expected, the project has sparked controversies — particularly in the United States, where many preparers believe U.S. GAAP is the gold standard of accounting rules and should remain intact.

But the international rules have steadily gained U.S. support. In 2007, the Securities and Exchange Commission allowed private foreign issuers to report their results under IFRS without reconciling them to U.S. GAAP. A year later, the American Institute of Certified Public Accountants recognized the IASB as a standard-setter, which in effect allowed U.S. auditors to express opinions on financial statements prepared using IFRS. Meanwhile, at least 120 countries have signed up to replace their local GAAPs with some version of IFRS, and the SEC is contemplating doing the same in the United States. 

What is the impact of IFRS policies on the systems?

It is depends on industry and the characteristics of the particular business.

From the point of view of information technology, higher impacts are:

• Restatement elimination
• Redefining the functional currencies
• Financial derivatives and implicit
• Companies consolidation 

Which IFRS standards have the greatest impact on information systems?

- IFRS 1: First time Adoption of International Financial Reporting Standards

- IAS 1: Presentation of Financial Statements

- IAS 2: Inventories

- IAS 14: Segment Reporting (superseded by IFRS 8 Operating Segments on 1 January 2008)

- IAS 16: Property, Plant and Equipment

- IAS 21: The Effects of Changes in Foreign Exchange Rates

- IAS 27: Consolidated Financial Statements

- IAS 29: Financial Reporting in Hyperinflationary Economies

- IAS 32: Financial Instruments: Presentation (Financial instruments disclosures are in IFRS 7 Financial Instruments: Disclosures and no longer in IAS 32)

- IAS 39: Financial Instruments: Recognition and Measurement 

How to implement IFRS at SAP ERP?

Using SAP New G/L accounting system and with some adjustments to U.S. GAAP financial reporting. 

What are the main objectives of SAP's IFRS project?

• Focus on minimizing the differences between US.S. GAAP and IFRS: Generic identification of differences between U.S. GAAP and IFRS and identify relevant differences for SAP.
• Make adjustments to U.S. GAAP reporting to ease the transition and create harmonized reporting formats
  • Introduction of classified balance sheet structure, focus on minimizing the balance sheet classification differences between U.S. GAAP and IFRS
  • Corresponding changes to presentation of consolidated statement of cash flows and various notes to the consolidated financial statements to conform to the new balance sheet structure. 

What are the accounting structures and processes impacted by IFRS project?

• Additional consolidation processes (IFRS, Segment Reporting)
• Additional accounts and reporting structures (for segment reporting, balance sheet, comprehensive income, fixed asset classes, etc.)
• Additional CO objects to capture IFRS deviations (for differences of personnel expenses like pensions, other benefits or share based payments, etc.)
• New IFRS Accounting Guideline and/or update of U.S. GAAP Accounting Guideline
• Introduction of transaction types for provision development (addition, release, utilization, FX, interest accretion, etc.)
• Automation of certain standard U.S. GAAP / IFRS differences
  • U.S. GAAP requires recognition of services according to proportional performance method
  • Application percentage of completion method: IFRS requires it for service revenues
    • Difference when project is operating at a loss
    • Automation of related accounting entries by expanding the logic for certain sales order types
• Expansion of annual reporting package to include IFRS disclosure obligations 

Given all the recent improvements and the delivery of the New G/L functionality, coupled with the addition of the SAP BusinessObjects solution portfolio, what are SAP’s plans regarding the functionality supporting a single ledger, or classic GL, and special ledgers? Will they be discontinued?

SAP has no plans to discontinue support for the classic GL functionality or the special ledgers. However, the products with these functionalities are now in maintenance mode. This means that during the maintenance period for SAP ERP 6.0, you will receive support for any legal updates or system fixes. However, there will be no further product enhancements or upgrades available. 

What are the project steps for an IFR conversion project?

This is a high-level overview starting with the classic GL functionality in use.

• Currently on an older release based on the SAP R/3® software (4.6c and 4.7):
  • Define customer-specific IFRS requirements
  • Upgrade to SAP ERP 6.0
  • Migrate to New G/L
  • Begin IFRS project
• On SAP ERP 6.0:
  • Define customer-specific IFRS requirements
  • Migrate to New G/L
  • Begin IFRS project
• If you are on SAP ERP 2004:
  • Define customer-specific IFRS requirements
  • Upgrade to SAP ERP 6.0 (suggested)
  • Migrate to New G/L
  • Begin IFRS project 

Starting in January 2012 it will be necessary to present an IFRS compliant balance sheet?

The answer will depend on how your general ledger is configured. Here are some suggested approaches:

• If an IFRS parallel ledger was implemented as a nonleading ledger during the initial configuration of SAP General Ledger, you can use one of the prior year’s accounting periods to make the “delta” (difference) adjustments to provide a restated balance sheet.
• If there was no nonleading ledger (NL) set up during the initial configuration, set up a new NL by using scenario 7 within the GL migration cockpit from SAP. Note: access to the GL migration cockpit and scenario 7 is handled by the GL migration service.
• If your initial setup used the account-based approach, you can make the IFRS adjusting entries using a prior year’s accounting period within the leading ledger.

Based on presentations:

• 'Implementing IFRS at SAP' - Christiane Ohlgart, Head o Subsidiary Accounting team, CFRO Office, SAP AG - Waldorf (Germany), September 2009
• 'Normativas IFRS y SAP ERP' - Robinson Palacios, Product Manager, MC Latin America - Chile, November 2008
• 'Frequently Asked Questions – Converting to the International Financial Reporting Standards'