Improving on the Entity Close Process

By Elizabeth Milne, Sr Director, EPM Product Marketing, SAP

Originally published on SAP Analytics, 27 March 2015. Reposted with permission.

As part of our ongoing accounting and financial close series, today we’ll discuss best practices in entity close management.

So far in our blog series, we’ve addressed a number of different things that need to be addressed during the close process. Managing the entity close process is about keeping track of each of these different things that need to happen during the close process.

Many organizations manage this process with a check list, typically in Excel. Each entity within an organization needs to close their books and this involves many steps and often multiple people. Often different parts of an organization will manage subsets of the close, like by division or by geographical location. As such, many excel checklists are used to manage the process. As with most steps of the financial close process, such manual activities are error prone and time consuming. Managing the entity close process is one that can benefit from standardizing, centralizing, and automating.

Peter Drucker said “What gets measure gets managed.” Measuring and monitoring the close process is the best first step in improving the process as a whole. With manual processes like Excel, check lists measuring can be difficult – not impossible, but not necessarily easy. There are several technology tools available, such as SAP Financial closing cockpit, that can help to standardize, centralize, and automate the entity close process.

Let’s walk through four steps of entity close management:

Close Management Graphic

Step One: Plan

Centralizing and standardizing are key to the planning step. Assess all the different checklists that exist in your organization and design templates for each closing process (monthly, quarterly, and annually). Cross referencing each entity’s close process can help identify best (and worst) practices. Templates all may vary by entity type or regional differences. For example, they may handle local tax processes or handle a plant close for different types of manufacturing methods.

Asses all different types of tasks, including the following:

  • Notes to document instructions for manual tasks outside of any system or for sign-off tasks.
  • Calling up a transaction that needs to be executed, such as opening the next period for posting or posting journal entries for accruals
  • Calling up programs that you want to run online, such as a balance sheet report
  • Batch jobs, such as fixed asset depreciation
  • Process flows that include dependencies between programs and system jobs, for example, in product costing where the sequence of calculating work in process (WIP), then calculating variances, then a settlement run for posting the results to the appropriate accounts must be maintained.

Step Two: Execute

Once the plans have been made it’s time to execute. Based off of the templates created in the previous step, now create a task like with absolute dates and start cracking. Automation is a key factor in this step. Evaluate what steps could possibly be automated. Leveraging a scheduling tool such as SAP Central Process Scheduling by Redwood can be extremely valuable to help with automation of tasks. With such tools you can schedule task execution and monitor the results to ensure there were no issues running tasks.

Entity close management tools such as SAP Financial Closing cockpit have the ability to send notifications via e-mail once tasks are complete to streamline the execution of the next step. Additionally, such tools make it easy to track detailed status information on each task (who, what, when).

You can gain access to all system-created documentation (job logs, spool lists, application logs) and users can add additional external documentation to tasks. While you can manually track all these things in an Excel document entity close management tools can securely store all results with comprehensive audit trail.

Step Three: Monitor

By monitoring the entity close closely, you can identify issues, overdue tasks, and resource bottlenecks early in the close cycle before the overall close schedule is impacted. With tools such as SAP Financial Closing cockpit you can drill down on each task to view its status and other details that have been documented about the task. You can use notes and attachments to document any collaboration or the resolution of any issues that you encountered. For automated tasks, such as programs that were run, you can directly access system logs and spool lists from the SAP Financial Closing cockpit without needing to search for them. Plus the system provides a complete audit trail for configuration and execution. You can easily analyze any kind of status change, how often a task was executed, or who added or changed notes and attachments.

Whether leveraging an automated tool or not, creating a graphical dashboard to obtain an overview of the financial close can be a useful way to monitor the close process. You can create key performance indicators (KPIs) and calculate statistics, such as the percent of completion of the close, to allow you to quickly monitor the overall progress across regions and time frames. This enables managers, at head-quarters, shared service centers, or subsidiaries to monitor the closing process on their levels of responsibilities. Being able to monitor effectively helps the whole process run smoothly.

Step Four: Analyze

Being able to effectively analyze the results of a close process with a manual process leveraging Excel can be extremely difficult. Entity close management tools can automatically record the results. By results in this case, I don’t mean the financial statements that are produced by the close process, but the actual time it took to execute each task. You can analyze how long it took to complete each task and also compare it to the plan that you created with how long you expected that task to take.

Having the ability to analyze this makes it easy to identify bottlenecks in the process, and thus areas for improvement. You can also compare across entities and see which entities are closing faster than others and they can then share best practices with each other to improve their close processes. And lastly you can trend performance over time to see where you’re improving and where you’re losing efficiency.

In conclusion, “What gets measured gets managed.” Whether you leverage a manual process or leverage a tool such as SAP Financial Closing cockpit, measuring the close process itself is the first step to improvement.

To view all the blogs in the series, click here.

Elizabeth Bio & Pic

6 Stories to Give You the Finance Buzz at SAPinsider

SAPInsider Financials Logo

It’s going to be a busy time this week for many of my colleagues and the visitors to SAPinsider Financials 2015 in Las Vegas, so I decided to give you my thoughts on some interesting sessions to see, if you’re attending, given that you’re spoilt for choice with such a comprehensive agenda. And I’m bucking the trend with this blog post – because instead of talking about products, I ‘m talking about customers and thought leaders, and in particular the stories that you’ll be able to see and hear at the event this week.

Excited yet? I am! And with good reason, because many valued SAP customers have decided to make the trip to Las Vegas to give an account of their experiences with SAP solutions for Finance…stories of implementation approaches, best practices, and where they have found business benefits.

So for anyone embarking on a software implementation project, or even just considering approaches to solving some of their finance department and process issues, these are key SAPinsider Financials 2015 sessions to attend.

Six in Focus – But Don’t Forget the Rest!

My six focus sessions are chosen not because I know the customer stories particularly well, but rather because they’ll give attendees a good flavor across a range of finance topics. And my apologies to the many other customers not listed here – whose sessions are equally as valuable – but I just couldn’t fit you all into one short blog post.

I would, however, encourage readers attending Financials 2015 to take a look at the many other customer-led sessions at the event this week, as well as those detailed here, just so that you select sessions that will be most relevant to you.

Ready to learn about some of the exciting sessions ahead? Then let’s go:

  1. Keynote address, TODAY, Tue 17 March at 8:30 am – Okay, it’s strictly an SAP-led session, but there’ll be a panel discussion in which thought leaders will be asked to give their view about challenges and opportunities facing CFOs. It’s sure to be an interesting discussion – and let’s face it, no-one wants to miss the keynote!
  2. Sun Products, Wed 18 March at 8:30 am – A session where you should learn some best practice advice on implementing credit, dispute, and collections management.
  3. Velux, Wed 18 March at 10:30 am – I really like the sound of this session, in which you’ll hear how Velux moved from a traditional to “beyond budgeting” approach.
  4. McKesson, Thu 19 March at 8:30 am – For anyone seeking advice on implementing SAP ERP Financials then this is a session for you!
  5. Bentley Systems, Thu 19 March at 1:00 pm – Hear how Bentley Systems automated and shortened the payment processing lifecycle with SAP Bank Communication Management.
  6. Telephone and Data Systems, Thu 19 March at 4:30 pm – This is one for those of you interested in financial consolidations, with particular focus on project planning.

Don’t Be Shy – Get Networking!

All of these customers are attending the event to share their knowledge and experience with you, and I know that if you have questions for them after hearing their sessions that they’ll be delighted to speak with you…so do take advantage of this in the event networking sessions.

And remember to also take a look at the full agenda, so that you can plan your sessions and make the best use of your time. I hope you have an interesting and informative week, and that you return to work buzzing with the excitement of the potential to put in practice what you have learned at the event.

Have a great week!

Improve Intercompany Reconciliation with People, Process and Technology

By Elizabeth Milne, Sr. Director, EPM Product Marketing

Originally posted on SAP Analytics 13 March 2015. Reposted with permission.

As part of our ongoing accounting and financial close series, today we’ll be covering how you can improve your intercompany reconciliation process thus improving your close process.

Intercompany reconciliation can be extremely time-consuming during the close process. Working with people, processes and technology can help improve upon this process. Let’s talk through three steps:

  1. What is intercompany reconciliation?
  2. Two different approaches to process
  3. SAP solutions for intercompany reconciliation 

What Is Intercompany Reconciliation?

In preparation for creating financial reports ,organizations must reconcile activity between its reporting entities. During the consolidation process these amounts must be eliminated so as not to overstate these amounts at the consolidated level.

C2D_Blog5_Image 1

If one entity reports it has a payable with another entity, that entity must record the corresponding receivables. But why, you ask, wouldn’t that be done automatically? Well, in a perfect world it would, but in many organizations it isn’t. Differences may occur for many reasons, including timing of recording transactions, currency exchange rates, or mistakes.

Intercompany Reconciliation Process – The Traditional Approach

Traditionally, corporations will wait until the close of the month when corporate headquarters will collect all intercompany data and run a reconciliation report that matches all entities intercompany activity against each other. Some organizations have consolidation tools that do this, others will do this process manually in Microsoft Excel. Usually this is done at the account level, either at the general ledger (GL) account level or at a summarized intercompany account level.

C2D_Blog5_Image 2

Once the reconciliation report is compiled, it’s then sent back to the individual entities, who then review the report and determine which other entities they don’t agree with, contact them and figure out why they don’t agree. The detail must be reviewed to determine why the discrepancies occurred. This involves going back to the transactional systems and pulling invoices to see which transactions don’t match. Individuals at each of the entities then contact each other by phone or e-mail and decide who will make the corresponding adjustment in order to correct the discrepancy.

Data is then returned back to corporate headquarters for inclusion in the consolidation process. This process is time consuming with manual escalation procedures. It creates a corporate bottleneck with inefficient vertical flow of information.

Intercompany Reconciliation Process – The Peer-To-Peer Approach

This process allows for entities to deal directly with one another in a peer-to-peer fashion. The first key difference is a change in process, with the traditional approach corporate waits until the day of the close (Day 0) to run reconciliation reports to identify discrepancies. With a peer-to-peer approach, entities can start reconciling intercompany balances a week before the close, for example. This shift in the time line removes the reconciliation process from the close’s critical path.

C2D_Blog5_Image 3

In order to facilitate such peer-to-peer interaction, a tool is required to let them share intercompany data. Ideally, such a tool would include the transactional data so that the entities don’t need to go back to the source systems, but can review the detailed level data in a sharing tool. A more manual solution would involve creating a shared server spot where entities could load their data to reconcile; alternatively, there are software solutions available to address such requirements. This new process involves people, process, and technology. Each aspect of the change must be addressed in order to be successful. A new process must be defined, and then shared with the individuals at each entity who oversee intercompany reconciliation. Those people need to embrace the process and execute accordingly. Technology needs to be leveraged to identify the most efficient way to share data.

A peer-to-peer process removes corporate as an obstacle and frees time for central finance staff, allowing for more value-added activities.

SAP Solutions for Intercompany Reconciliation

SAP offers two main solutions:

  1. Intercompany Reconciliation in SAP ERP. This solution is part of the SAP ERP Central Component and thus included in the ERP license.
  2. SAP Intercompany. This solution is part of the SAP Enterprise Performance Management suite. It is included with the license of SAP Financial Consolidation, SAP Business Planning and Consolidation, and the SAP Accounting and Financial Close Bundles.

C2D_Blog5_Image 4

Both solutions can facilitate a peer-to-peer intercompany process that will help provide these benefits:

  • Reliable data – Perform large volumes of balance and invoice matching
  • Faster reporting cycles – Eliminates bottleneck at corporate finance by providing tools to enable business units to resolve differences earlier in the financial close process. The value increases with the number of entities to reconcile.
  • Greater productivity – Resulting in more time for more valuable activities, such as analyzing data and measuring and improving performance

People, processes and technology are all key factors when considering improvement in the close process. All need to be considered dependently to identify the most effective path to success.

Read the other blogs in the accounting and financial close series:

  1. You Want to Improve Your Financial Close Process – Where Do You Start?
  2. The Financial Close and Simple Finance – How Fast Is Fast Enough?
  3. 5 Things to Look for in Lease Accounting Software in Light of New Regulations
  4. 5 Steps to Help Your Organization Prepare for the New Revenue Recognition Standards


5 Steps to Help Your Organization Prepare for the New Revenue Recognition Standards

By Pete Graham, Director, Finance Solutions, SAP

Originally posted on SAP Analytics. Reposted with permission.

As part of our ongoing accounting and financial close series, today we’ll be covering how you can prepare your organization and your financial close process for the upcoming revenue accounting changes expected to become effective on January 1, 2017. The solutions SAP Revenue Accounting and Reporting (in Ramp-Up) and SAP Lease Administration are mentioned.

All companies track and report revenue. Organizations worldwide will need to start complying with new regulations for revenue accounting that have been approved by the FASB and the IASB. This will be a very big change for many companies both public and private.

The burning question is, “What are the best practices to help your organization become ready to meet the approved revenue accounting standards?

SAP had been building accounting software for many years and has a very thorough process for tracking new accounting standards changes around the world.

Here are five things that we have learned on approaching the new revenue accounting standard based on the feedback of the Ramp-Up program for SAP Revenue Accounting and Reporting (for automating and simplifying revenue accounting) and SAP Lease Administration by Nakisa (for documenting the results of technical accounting assessments):

  1. This time things are different – use an iterative approach

The timing and nature of the new revenue accounting standards have yielded a very interesting observation among the involved companies. Those companies taking an iterative approach are making better progress than those taking the “big bang” approach. So, this has led us to the conclusion that this is not a “big bang” project. To be successful, organizations will need to work in iterations across accounting, technology (systems), and people (processes). So, for example, as the accounting teams are working on the technical accounting requirements, the IT teams can be working on portions of the systems based on requirements that are defined to date, and the business owner can be working on identifying the additional new business processes not already defined.

  1. Learn the new accounting standards now

The new revenue recognition standard will have an effective date of January 1, 2017 for most companies in all industries. The new revenue recognition standard will dramatically change the process of revenue recognition.

The upcoming five-step process for revenue recognition must be followed and is a brand new accounting process. So, start preparing now for this standard – it will affect all industries, not just high technology which currently already uses some aspects of the new regulations.

As shown in the picture below, the technical accounting assessment has to be done in advance of implementing any systems. Customers have asked us to provide software, but when they don’t yet have the accounting and parallel reporting requirements finalized, they end up not being able to implement the software. And as explained in #1, this technical accounting assessment will probably be broken down into smaller work segments and iterated with other IT systems and business process work streams.

So our recommendation is to start training your revenue recognition personnel now on the new standard. From my experience, it takes an US GAAP trained accountant about 6-12 months to really get comfortable with an IFRS like standard (i.e. principles based) such as the new revenue accounting standard. We also recommend using an accounting advisor to help accelerate this process as well as provide your organization with a broader set of experience.

For even more information on this topic, make sure to attend the SAPinsider Financials2015 session, “Best practices for customer adoption of the new revenue recognition standard using SAP solutions and services” on March 17 or the expert panel discussion among SAP and several Big 4 firms on March 18 to find out more details and best practices for adopting the new revenue accounting standard.

The implementation overview for the new revenue accounting standard

The implementation overview for the new revenue accounting standard

  1. Excellent collaboration among the stakeholders for a pre-release implementation: IT Corp Fin, Audit

The nature of adopting this new standard is iterative as explained in item 1. In order for companies to successfully navigate the activities and tasks needed to be successful, excellent teamwork and collaboration is needed across IT, corporate finance, and the accounting advisor. We cannot stress this point enough. Teams should be co-located as much as possible with regular check points. Individual teams will of course have to work on certain activities independently, but usually not for very long. The teams will frequently have to communicate their results to the other team members so that the whole team can make progress on the overall project.

  1. The technical accounting assessment has to be completed up-front or in advance of implementing the system or any parts of the system solution

We have had several customers ask for a software solution only to realize that their requirements were’ntt mature enough for a successful software implementation. This brings us to recommendation number 4. The new standard has to be understood and transformed into requirements before any IT system improvements can be made. As noted in item 1, this will probably occur in an iterative approach, and as noted in item 2, an accounting advisor can help accelerate this process.

Moving forward organizations will be required to capture key data from all sales contracts related to revenue with a customer. Revenue recognition, however, can be extremely fluid, especially as contract terms get amended or new performance obligations are added. Judgments and estimates will require periodic updating.

Companies can use SAP Lease Administration by Nakisa to help with recording of the technical accounting assessment.   SAP Lease Administration by Nakisa has been built from the ground up to abstract accounting contracts for regulatory compliance needs and contract portfolio visibility. SAP Lease Administration was recently updated for the new revenue standard so it can act as your single source of truth for all contract attributes including the upcoming five steps for revenue contracts. The result is a global view of revenue contract data in digital format – with all the insight you need to quickly identify the impact on financial statements. It also provides an audit trail on decisions made regarding applying the new five-step process to specific revenue contracts.

  1. Remember that revenue recognition will also have impacts on parallel reporting and on the financial close. Be well prepared to handle such situations in advance.

We have had some customers figure out the technical accounting assessments of the new standard, but then they didn’t have a clear parallel reporting strategy completed. Now, there is some dependency between the two, meaning, choices under the new standard may impact your parallel accounting strategy. But, companies need to be aware of how these choices impact their parallel accounting strategy and consider various options as part of their overall planning.  Our recommendation is to include the parallel reporting considerations and potential impacts up front as soon as possible during your project.

The new standards for revenue recognition are being considered as the biggest accounting change in years. For a smooth transition, early preparation is not only recommended by experts, but crucial for successful compliance.

Start considering your process early to ensure your accounting team can hit the ground running come January 2017.

For more information on how SAP can help, download the whitepaper, “Getting smart about revenue recognition and lease accounting.



Simplifying Finance in an increasingly complex world – outlook on Financials / GRC 2015

SAPInsider Financials Logo

By Henner Schliebs, SAP. Originally posted on SAP Business Trends, 17 February 2015. Reposted with permission.

We all have read the new mantra multiple times: if we simplify everything – we can do anything. This holds true for the finance department more than ever, considering that the use of technology is key to enabling a real-time business process environment. There were some threatening results revealed in a recent study that the CFO magazine has published, like “80% of respondents would need easier to use technology if they’d wanted to meet their growth targets”. So, this latest shift in technology enabling true real-time processes will be the focus topic of this year’s Financials 2015 / GRC 2015 event hosted in Las Vegas in March (Wynn Hotel, 3/17-3/20, follow the discussion #Financials2015).

As there will be hundreds of sessions that show customer success stories, the latest and greatest in financial management, EPM, Analytics, GRC and Ariba solutions I would like to highlight the Simple Finance sessions so that you can build your agenda around those, especially given that any S4/HANA journey will start with Simple Finance:

  1. start with the keynote where Thack Brown will elaborate on the need for speed (aka real-time finance processes) and introduces some external thought leaders to the panel discussions around a modern finance organization. I won’t tell too much when mentioning that Thack will launch another important mile stone of Simple Finance to the public…
  2. one of the most compelling use cases of Simple Finance is the central journal, so this session lead by Carsten Hilker shows you how to non-disruptively start your Simple Finance implementation arriving at one source of the truth
  3. for those in need of a high-level introduction to Simple Finance I’d highly recommend Martin Naraschewski’s session about the roadmap to Simple Finance, where he will elaborate on the needs of a typical finance transformation initiative
  4. one thing that was highly anticipated by you all is more insight into Integrated Business Planning – your unique opportunity to natively connect EPM with your Simple Finance ERP system to allow planning, simulations and scenario modeling directly on your transactional data. Pras Chatterjee off course will show integration to the new Cloud for Planning solution as well
  5. new to the game is the Simple Finance Cash Management solution that is introduced by Christian Mnich, where he will give insights into how to better plan and forecast liquidity based on an integrated process leveraging your ERP / S4HANA system
  6. a dedicated session on the new Accounting solution will provide better understanding of the concepts of the greatest innovation since R/3 building the base for S4HANA. Stefan Karl will guide you through this
  7. want to learn how to get to Simple Finance? Join charming expert Birgit Starmanns and understand what to consider if you want to adopt Simple Finance including advanced predictive finance analytics
  8. join our partner John Steele at Deloitte when he talks about real-time finance processes and the role that HANA plays in this highlighting finance use cases like fast close, financial risk management or finance operations
  9. the experts from TruQua will deliver a thrilling session around the analytics that Simple Finance can provide in form of HANA Live content or via integration of SAP Analytics and EPM solutions. Dave Dixon’s presentation is a good example
  10. finally you’d want to learn about the fast close capabilities of Simple Finance where Stefan Karl walks you through how to become a world’s fastest closing company like SAP

Note there are many “hands-on”-like sessions on the Monday (3/6) as part of the Pre-Conference Workshops that deliver tremendous value for practitioners.

Please be sure this is just the Simple Finance top 10 – please be sure you also learn from customers how SAP Financial Management solutions helped them achieve targets.

Follow the discussion on twitter or facebook or SCN and please share your thoughts.

5 Things to Look for in Lease Accounting Software in Light of New Regulations

By Pete Graham, Director, Finance Solutions, SAP

As part of our ongoing accounting and financial close series, today we’ll be covering Lease Administration

Most companies use leases in some part of their operations or business activities. At the moment, operating leases are reported off balance sheet and disclosed in the notes of the financial statements. Today’s current lease accounting regulations have been stable for years, but that is about to change. Organizations worldwide will need to start complying with new regulations for lease accounting that are being proposed by the FASB and the IASB.

With the new regulations, organizations will be required to capitalize many of these operating leases and record them in their balance sheets as assets and obligations. With these major changes to the accounting standards, the burning question is, “Is your organization ready to meet the proposed leasing regulatory standards?

To ensure they have the information ready and organized to meet and comply, organizations need to start considering how technology can help them prepare. So, what should they look for in software to ensure they meet the new regulations and also benefit from additional costs savings, realized with improved lease administration processes?

The right solution that goes beyond just the regulatory compliance should provide to you and your organization the following characteristics:

  1. Unified database for all lease operations

Organizations should aim to build a comprehensive lease portfolio by centralizing lease data in a single repository. This approach provides excellent access, visibility, and traceability regarding critical issues, such as lease composition, key lifecycle dates, the value of leased assets, and responsible organizational units.

  1. Collaboration during the process of data collection

The right technology should offer the entire organization (not jut a single user) the abilities to track changes and understand who made those. Collaboration tools are essential to empower all stakeholders to easily validate contracts for leased assets and better understand all the associated legal, financial, and business implications.

Collaboration across the enterprise for accurate and validated lease data

Collaboration across the enterprise for accurate and validated lease data

  1. Strategic insight for sound decision-making

Executives need to be able to analyze the financial implications on the business of current and proposed lease accounting regulations, in order to make more informed decisions. Therefore, it’s important to use a tool that can provide rich analytics and visibility into the portfolio composition by different dimensions and provide “what-if” scenario analysis to identify opportunities to efficiently manage leases.

  1. User-friendly interface with minimum training required

The new accounting regulations are approaching fast and many compliance processes are very time consuming. With this in mind, your accounting team needs to be able to hit the ground running with a solution that requires a minimum of training. It’s very important to look for a solution that allows for efficient management of lease administration in a user-friendly, visual format that is easy to learn and use.

  1. A solution that adapts to your business

Integration with your current systems and flexibility to address your specific business are key technical requirements for the right solution. The solution should also enable a smooth transition to the new required processes and controls by the accounting and finance departments.

Make sure to attend the session, “Is your organization ready to meet the proposed leasing regulatory standards?” on March 17 at Financials2015 and stop by the Nakisa booth #325 to evaluate your compliance readiness.

For more information on how SAP can help, download the whitepaper, “Getting smart about revenue recognition and lease accounting.”


Article originally posted on SAP Analytics. Reposted with permission.