Introducing Consolidation with SAP S/4HANA Finance for Group Reporting

by Piotr Górecki
Rheinwerk Publishing Inc.. (c) 2019. Copying Prohibited.

Reprinted for Michelle S. Tsang, Accenture

michelle.s.tsang@accenture.com

Reprinted with permission as a subscription benefit of Skillport,

All rights reserved. Reproduction and/or distribution in whole or in part in electronic,paper or other forms
without written permission is prohibited.
Introducing Consolidation with SAP S/4HANA Finance for Group Reporting

Chapter 4: Consolidation Preparation

Overview
In this section, we'll provide an overview of key activities in the consolidation preparation process by walking through typical
tasks delivered in the preconfigured content in SAP S/4HANA Finance for group reporting.

In the consolidation process managed with SAP S/4HANA Finance for group reporting, we can identify the following phases:

General preparation steps

Data collection and standardization steps managed with the Data Monitor

Actual consolidation steps managed with the Consolidation Monitor

In this section, we'll focus on data collection and standardization tasks managed with the Data Monitor, but before that, we'll
start with general preparation steps.

4.1 Preparation Steps

Preparation for consolidation starts from initial preparation steps, which include setting the global parameters and defining
exchange rates.

For preparing consolidation in the first period of a fiscal year, you'll additionally need to carry forward balances.

Global Parameters

Before you can start activities in SAP S/4HANA Finance for group reporting, you'll need to set global parameters, which will
allow you to avoid reentering the same parameters each time you access any configuration transaction or business application.
Global parameters are defined in the Set Global Parameters SAP Fiori app shown in Figure 19.

Figure 19: Setting Up Global Parameters Setup for Group Reporting

Global parameters allow you to set defaults for the following objects, which are grouped into three categories:

Organizational units

Consolidation group

Consolidation unit

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Version/time period

Version

Fiscal year

Period

Further settings

Consolidation chart of accounts

Ledger

The parameters related to organizational units are optional, but the remaining parameters are obligatory.

Exchange Rates

Exchange rates are maintained in the Maintain Exchange Rates SAP Fiori app; you'll provide attributes including exchange rate
types, source and target currencies, and exchange rate dates. The date of the exchange rate is the effective valid-from date—
the entered exchange rate is valid until a new entry with the same attributes and a later date is created in the system. This
same exchange rate table is used by other modules in SAP S/4HANA—the only difference is that, for consolidation purposes,
several dedicated exchange rate types exist.

Six exchange rate types for consolidation are predefined in the system:

AVG – Consolidation Monthly Average Rate

AVG1 – Budget Consolidation Monthly Average Rate

AVG2 – Consolidation Simulation Average Rate

CLO – Consolidation Monthly Closing Rate

CLO1 – Budget Consolidation Monthly Closing Rate

CLO2 – Consolidation Simulation Closing Rate

To exchange rate types, you'll assign exchange rate indicators—which in turn are mapped to financial statement items in the
currency translation task.

Exchange rates can be also imported from a CSV file template using the Import Foreign Exchange Rates SAP Fiori app, or you
can develop an ABAP program to import exchange rates directly from a bank.

Balance Carry Forward

This step is required only to prepare consolidation in the first period of a fiscal year. As in the general ledger, you'll need to
carry forward closing balances of financial statement items from the previous fiscal year to the opening balances of the new
fiscal year. You'll perform this operation in a dedicated Balance Carry Forward app, as shown in Figure 20.

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Figure 20: Balance Carry Forward App

The carry forward behavior of financial statement items is driven by the financial statement item's type: Assets (AST) and
liability/equity items (LEQ) are carried forward, but income items (INC), expense items (EXP), and statistical items (STAT) are
not, unless an opposite requirement is specified in the relevant SAP Fiori app.

Two additional SAP Fiori apps help you define special carry forward conditions: the Items to Be Carried Forward app, and the
Items Not to Be Carried Forward app. In these apps, you'll activate carry forward at the subitem category level; define carry
forward for a financial statement item to a different financial statement item (for example, net income to be carried forward to
the retained earnings financial statement item); or request to carry forward balances a P&L financial statement item or carry
forward a statistical financial statement item to the next fiscal year. The same configuration can be performed using SAP
Customizing IMG, as shown in Figure 21.

Figure 21: Configuration of Items to Be Carried Forward

Note If the previous year's financial data changes, then you'll need to execute the balance carry forward task again, in contrast to the analogous
functionality managed in the general ledger, where, after balance carry forward, any additional postings in the previous fiscal year
automatically update the opening balance of the next year.

After completing the initial preparation steps, you can proceed to the remaining preconsolidation steps managed with the Data
Monitor, including collecting data reported by consolidation units and standardizing the data using functionalities provided by

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the Data Monitor.

4.2 Release of Data

Two base methods for transferring data to SAP S/4HANA Finance for group reporting are defined at the consolidation unit
level: Flexible upload or Read from Universal Document. The second option should be selected for consolidation units
that manage their accounting books in the same SAP S/4HANA system in which SAP S/4HANA Finance for group reporting is
located. After finalizing the local-level period-end closing, these units must release the data from the Universal Journal to group
reporting. This functionality provides a structured way for you to manage the process of passing consolidation unit-level data to
group-level consolidation.

Key users from the local consolidated entity can review, approve, and release data for consolidation. Three types of data
release from the Universal Journal exist, as follows:

Period data for selected units

Differences from the previous release of data

Unreleased data from previous periods

At the moment of release, all the released data records get a timestamp; any additional entries or changes after the timestamp
are not taken into account in the current period consolidation. You can release data from the Universal Journal several times,
e.g., after making corrections. With the Reported Financial Data (Difference) function, you can preview the new financial
data that has been posted to the Universal Journal since the previous release of data. We strongly recommend you close the
posting period in SAP S/4HANA Finance before the final release of the Universal Journal to consolidation to avoid any data
discrepancies. However, if any postings are made in the current period in finance after the final release of the Universal
Journal, then this data can be released in the next period and taken into account when preparing consolidated financial
statements for the next period.

After release of the Universal Journal data, you'll need to perform the first technical validation of released data from a
consolidation settings point of view. For example, you'll need to identify missing or incorrect subassignments in the case of
financial statement items for which subassignments are mandatory. We'll discuss validations in more detail in Section 4.9.

4.3 Data Collection

The second data transfer method—Flexible upload—is applicable to consolidation units that manage their accounting books
outside of the Universal Journal in an SAP S/4HANA system—for example, in an existing SAP ERP or in a non-SAP ERP
system. After finalizing the local-level period-end closing, these units must transfer their financial data from their local
accounting systems to SAP S/4HANA Finance for group reporting.

Data collection tasks can be initiated and completed either from the level of the Data Monitor's Data Collection tool, or from the
Flexible Upload of Reported Financial Data SAP Fiori app. You'll need to initiate the file upload, execute the data import, and, at
the end, review the log displaying status information.

Note The template (Flexible_Upload_Template.csv) for uploading financial data to SAP S/4HANA Finance for group reporting is attached to SAP
Note 2659672.

Not only can data be imported from a file, it can also be collected using the API service Reported Financial Data for Group
Reporting – Bulk Import and Update, which imports financial data and updates the Data Collection task status in the Data
Monitor. Another API service, Reported Financial Data for Group Reporting – Receive Confirmation, can receive the status of
imported financial data.

Note As a prerequisite for using the API services we've mentioned, you'll need to configure the connection in SAP S/4HANA Finance for group
reporting (in Customizing, IMG node Map Logical Port with Business System for Reporting Data API).

SAP Best Practices content for the integration with external systems with API services is included in scope item 2U6 (Group Reporting –
External System Integration) at https://rapid.sap.com/bp/#/scopeitems/2U6.

In addition to these data transfer methods, you can also enter data manually. We'll discuss this option in more detail in Section
4.5.

4.4 Net Income Calculation

In this task, we'll calculate net income and post the result to net income financial statement items.

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Collected financial data typically do not balance at the level of the balance sheet and income statement; the total of all the
asset financial statement items (type AST) is not equal to the total of liabilities and equity financial statement items (type LEQ),
and the variance corresponds to the value of net income, which can be calculated as the difference between the sum total of
income financial statement items (type INC) and sum total of expense financial statement items (type EXP).

The net income calculation will generate balancing adjustment postings that will balance out the balance sheet and the income
statement.

Note Before executing the Net Income Calculation task, you'll need to define the balance sheet and P&L financial statement items (and their
subassignments, if required) that will be used to generate adjustment postings. This definition takes place in the configuration transaction
Specify Selected Financial Statement Items for Automatic Posting.

4.5 Manual Postings

The purpose of this task is to manually post journal entries to correct the reported financial data collected in an SAP S/4HANA
Finance for group reporting system.

Each manual posting is performed with a document type. In the system, 36 document types have been predefined, and
additionally, you can configure additional document types in Customizing. The document type allows you to identify the
following characteristics:

Data source (manual posting, automatic posting, upload from file, data from an API service, data from SAP S/4HANA
Group Reporting Data Collection, read from the Universal Journal)

Posting level

Deferred tax handling

Automatic reversal

Currency (local, group)

Manual postings can be initiated either from the level of the Data Monitor (via the Manual Postings task) or by directly
executing the Post Group Journal Entries SAP Fiori app. An example of manual journal entry is shown in Figure 22.

Figure 22: Manual Journal Entry

After entering the header and line item data, you can click Simulate to verify the completeness and correctness of your
posting. You can also click Balance to calculate and enter the amount required to balance the document. The resulting
document can be either posted or saved in a draft form. After saving the draft document, at a later stage, you can either poste
or delete the document.

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Manual documents can be created as copies of already existing documents by clicking Copy. An already existing document
can be reversed with the Reverse link. Documents can be also mass-reversed in the Mass Reversal SAP Fiori app, where
you'll select documents by specifying various selection criteria, for example, consolidation units, tasks, or subassignments.

Not only can you enter documents manually, but they can also be imported from a spreadsheet. You can download one of three
available Microsoft Excel templates directly from the Post Group Journal Entries app:

01 Unit-Dependent Adjustments

02 Two-Sided Elimination

03 Group-Dependent Adjustments

After downloading the template, you'll need to enter header information (including document type, ledger, consolidation chart of
accounts, version, fiscal year, period, consolidation unit) and line item data (including financial statement item and value fields).
The content of header and line items may vary, depending on the version of template, and some fields might be relevant only
for certain document types. After completing the spreadsheet, you'll upload it to the app. In the next step, imported data records
can be verified (Check function) and posted as manual documents.

All the posted documents can be displayed in the Display Group Journal Entries SAP Fiori app, as shown in Figure 23.

Figure 23: Display Group Journal Entries SAP Fiori App

In this SAP Fiori app, for documents of type 0F (Realtime Upload from Accounting), you can drill down to original documents in
the Universal Journal.

Note Document type 39 (Group Shares) is used to define ownership percentage of the subsidiaries in the group. Percentage values are posted to
the statistical financial statement item S00001 (Group Shares [%]). This special type of manual posting should be executed each time the
ownership status changes. In the future, a dedicated monitor will be available for you to maintain the unit ownership information.

4.6 Currency Translation

The main aim of the currency translation task in the Data Monitor is to translate reported financial data from the local currency
of the consolidation unit to the group currency of the consolidation group, in order to enable group consolidation in the group
currency.

The method of currency translation is defined at the level of consolidation unit. As shown in Figure 24, the currency translation
method parameter defines the exchange rate type to be used for translation from the local currency to the group currency (e.g.,
AVG – monthly average rate, CLO – monthly closing rate) and how translation and rounding differences should be posted to
financial statement items.

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Figure 24: Currency Translation Attributes for Group Reporting

In the currency translation method, financial statement items and subitems are selected using selections, which we described
in Section 2.6. Currency translation attributes are assigned to financial statement items, and these attributes define how a
given financial statement item should be treated in the currency translation process.

The currency translation key defines what values will be translated and how: Either cumulative values can be translated with
the rate of current period (YTD), or periodic values can be separately translated using period-specific rates (PER).

Reported financial data might contain figures in foreign currencies; two methods are available for handling this data. You can
either translate values in foreign currencies at the level of the consolidation layer, or you can inherit the exchange rate and
corresponding translation from the original source document from the Universal Journal, to avoid the need for retranslation at
the consolidation layer.

Currency translation differences resulting from the use of different exchange rates can be presented as specific items in the
statement, with specific transaction types. Another functionality supports cleaning currency translation rounding differences
that occur between the translation of single items and the translation of totals.

The currency translation task is executed in the Currency Translation SAP Fiori app or, alternatively, can be called directly from
the Data Monitor. The results of currency translation can be analyzed in the Currency Translation Results Analysis SAP Fiori
app and the Currency Translation Difference Analysis SAP Fiori app, which are available in Local Reports.

4.7 Preparation for Consolidation Group Changes

Acquisitions and divestitures within a consolidation group must be reflected in the consolidation process. If an acquisition or
divestiture takes place in the middle of a fiscal year, the reported and standardized data must be adjusted to ensure that
consolidated financial statements contain only the financial data relevant to fiscal periods when the consolidation unit was part
of the consolidation group.

First, the consolidation year and period and the divestment year and period must be maintained in the Consolidation Group
Hierarchy Change SAP Fiori app under the Assignments tab.

This task is generating adjustment entries related to consolidation group changes with posting level 02 (reported data) or 12
(standardized data):

Acquisitions
In an acquisition, the balance sheet items collected in the first consolidation are reclassified from originally reported
subitems to subitem 901 (incoming units). Revenues and expenses from periods before the first consolidation are
eliminated (reversed) with offsetting postings to financial statement item 799000 (Net Income/Loss). The balance sheet
net income earned before the first consolidation is reclassified to financial statement item 319000 (Net Income – Clearing)
with subitem 901 (incoming units).

Divestitures
In a divestiture, for each balance sheet item, an adjustment reversal posting is performed with posting level 02 to
divestiture subitem 998. For balance sheet net income, the reversal posting is made to financial statement item 319000
(Net Income – Clearing) with subitem 998 (outgoing units).

Adjustments related to changes in the consolidation group structure are executed in the Preparation for Consolidation Group

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Changes SAP Fiori app.

4.8 Interunit Reconciliation

The purpose of this task is to reconcile financial data between consolidation units within a consolidation group. SAP S/4HANA
Finance for group reporting includes a predefined interunit (intercompany) reconciliation report based on the reconciliation
case reporting items structure, which defines groupings of different types of interunit elimination transactions, for example:

Regular receivables and payables

Other receivables and payables

Dividends

Income and expenses

The interunit reconciliation report delivered in SAP S/4HANA Finance for group reporting system is based on a preconfigured
reporting item hierarchy X5 (IC Reconciliation), which can be maintained in the Define Reporting Rules SAP Fiori app.

As a prerequisite for reconciliation, you'll need to define reconciliation thresholds in the Define Interunit Reconciliation
Thresholds SAP Fiori app, as shown in Figure 25. Thresholds are defined for pairs of consolidation units in a given
consolidation version; you can use a wildcard (asterisk) to define thresholds for any values of consolidation units or
reconciliation case. As long as the threshold value is not exceeded, then the system will automatically post eliminating entries.

Interunit reconciliation tasks during the consolidation preparation stage are executed in the Interunit Reconciliation – Subsidiary
View SAP Fiori app. In this report, you'll see the reconciliation amounts and differences in both group and local currencies for
all selected consolidation unit pairs. The report tile in SAP Fiori launchpad displays a key performance indicator (KPI) with the
total number of reconciliation cases where threshold values have been exceeded.

Figure 25: Definition of Threshold Amounts

Note Interunit reconciliation SAP Fiori tile showing a KPI with a numerical value with a minus sign means an error, typically caused by missing
some settings.

An interunit reconciliation task can also be executed within the actual consolidation process and managed in the Consolidation
Monitor, which we'll describe in Section 5.4.

4.9 Data Validation

The new validation engine introduced for the first time in SAP S/4HANA Cloud 1808 is delivered with the SAP Fiori-based user
interface, and this validation engine offers premium performance thanks to how it pushes the validation execution logic to the
SAP HANA database level.

Data validation in the consolidation preparation phase is executed in three steps:

1. Validation of Universal Journals

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2. Validation of reported data

3. Validation of standardized data

You can execute validation tasks either for a single consolidation unit or for a number of consolidation units within a
consolidation group. Validations can be executed as period-end tasks defined in the Data Monitor or the Consolidation Monitor,
can be scheduled periodically as jobs, or can be executed when required on an ad-hoc basis.

Validations of reported and standardized data are executed according to the validation method assigned to a consolidation
unit. A validation method consists of a number of validation rules that define what criteria determine the correctness of financial
data, as shown, for example, in Figure 26.

Figure 26: Validation Rule Definition

A set of predefined validation rules is delivered by SAP with the system, grouped under the validation method SRD1. Some
example rules include the following:

Total assets must be equal to the total liabilities plus total equity.

The net income in the balance sheet must be equal to the net income in the P&L statement.

The gross value of fixed assets must be higher or equal to depreciation.

In addition to the rules delivered by SAP, user-defined rules can also be applied.

Each rule has its own unique ID, short description, and long description. Rule definition consists of three main elements: the
left formula, the right formula, and a comparison operator, as shown in Figure 27.

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Figure 27: Rule Definition: Formula Details and Comparison Operator

You can define tolerance limits for each rule, either as a value or as a percentage. You can also assign a severity control level
to each rule (parameter control level), allowing you to categorize validation failure as information, a warning, or an error.
Failed validation resulting in error causes a hard stop in the consolidation preparation process. You can also define whether
additional comments are required when a validation has failed. In this scenario, the process may proceed, but explanatory
comments must be added.

Note The definition of validation rules is not a part of system configuration.

Rules and methods can be transferred between different system environments (e.g., development, quality, and production) using the Import
and Export Validation Rules/Method SAP Fiori app.

In the last part of this section, we'll discuss different types of validations that can be executed in SAP S/4HANA Finance for
group reporting in more detail.

Validation of Universal Journal Data

The first step—validation of Universal Journals—is performed after the release of data from the Universal Journals to
consolidation and is focused on technical data consistency from the point of view of group reporting. This step can identify
missing or incorrect subassignments for financial statement items. To correct identified errors, you'll make manual postings with
the dedicated document type 01 Manual correction of universal journal in the Post Group Journal Entries SAP Fiori app.

After successfully completing this validation task without errors (message No errors found in the validation of universal
documents), you can proceed to further tasks in the Data Monitor.

Validation of Reported Data

The purpose of this task, executed in the Manage Data Validation Tasks – Reported Data SAP Fiori app, is to validate the
reported financial data in the local currency according to the validation method assigned to a consolidation unit. After the
completed validation check, a detailed validation report will be displayed that presents the results of validation run. Each
validation run can result in one of these three statuses:

Success
All the validation rules have passed. If there were any validation rules that failed, then only with the assigned control level
Warning or Information.

Failed
In the validation run, there were failed validation rules that are assigned to control level Error.

Not Processed
The validation run has not been processed yet.

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In addition to the result status information, the report presents the date and time of the last run; the commenting status
(commented, not required, (partially) missing); and a link to the detailed log. The detailed log presents results for each
individual rule—including rule ID, name, validation result, left value, operator, right value, difference, and tolerance.

Validation of Standardized Data

The last step—validation of standardized data—is focused on validating the financial data in group currency according to the
validation method assigned to a consolidation unit. You'll use the Manage Data Validation Tasks – Standardized Data SAP Fiori
app to execute validation of standardized data. After the completed validation check, a detailed validation report will be
displayed that presents validation results. The possible results, as well as the scope of displayed data and information
drilldown capabilities, are the same as in the validation of reported data step described in the previous section.

After completing all the preconsolidation steps managed with the Data Monitor, the collected, standardized, and validated data
is ready for consolidation. Further consolidation tasks, such as interunit eliminations or data validations, can be performed with
the Consolidation Monitor, which we'll describe in the next section.

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