Continuous “Straight Line” Accounting in SAP | HCLTech

Continuous “straight line” accounting in SAP

Continuous “straight line” accounting in SAP
December 17, 2021

Setting your north star to transformation

During my long career, I’ve had the privilege of speaking to many smart finance professionals about their challenges and visions. During these conversations, one common ambition seems to recur with regularity: the desire to remove repetitive, mundane, and manual tasks to allow the staff to focus on higher-level analysis, decision making and supporting the business.  

For sure, business transformation programs offer one way of achieving these ambitions. But another recurring theme in my career is how overused this terminology is -- often to disguise yet another IT project. I remember being aghast when I discovered one much vaunted ‘transformation program’ was simply to install a new version of Windows!

True transformation requires structuring a program around a clear guiding philosophy, under which both business and IT can baseline all decisions. This is needed to ensure the direction is maintained toward true transformation. This blog will discuss one such philosophy – continuous accounting - as applied to SAP.

The dream state I present to finance departments is one of straightening out a bumpy line. A bumpy line that has been the bane of their professional life ever since their very first experiences in accounting.

The bumpy line is the accounting cycle and “nirvana” being a completely straight line:

Traditional accounting model

Traditional

The “Nirvana” Straight Line

Line

Of course,  when presented like this the direction of travel to an efficient business process is obvious, if simplistic. However, if we use this approach as an overarching objective and deploy a few guiding principles, such as those below, the decision-making rules for transformation become clear:

  • Data -- When the accounting process is finished, the business can report directly from resulting data without further manipulation
  • Process -- Process is not disrupted by multiple system breaks or data inconsistency
  • Timing -- Carry out a task when it occurs without queuing up effort

We can then start to see how far SAP has traveled toward an accounting nirvana and where areas for improvement still exist, thus offering opportunities for partners and third parties to help businesses progress to their elusive goal.

Innovations in SAP finance: Your route to accounting nirvana

The analysis below explores the areas of innovation in the SAP Finance offering which, when applied consistently and progressively, will help businesses straighten out that line.

When applied consistently and progressively, the areas of innovation in the SAP Finance offering can help businesses improve processes.

Embrace the universal ledger in SAP S/4HANA

The existence of the universal ledger in SAP S/4HANA is a massive step forward in terms of straightening the process line, immediately removing a number of reconciliation activities from the accountant’s diary. The existence of analytic dimensions in accounting transactions allows profit reporting (margin analysis) to be run from the same data source as financial accounting. An important input for partners during the design phase is to ensure that the analytical data required to generate the analysis for each profit line is defaulted into the transaction. Although, features such as ‘top down distribution’ and ‘universal allocation’ exist, our efficiency principle means we should seek to minimize this activity.

Restore integrated finance processes

SAP broke a finance process flow when it moved consolidation into its business intelligence suite of products. This created an issue not only in terms of efficient process, but also for partners’ resourcing support of that flow. The creation of the Group Reporting functionality in SAP S/4HANA has brought consolidation back into the core finance solution. This allows accounting functions to pursue the principles of continuous accounting and our unbroken efficiency line.

Extend the continuous flow

It is possible to continue the finance value flow from general accounting into consolidation and also for intercompany processes by invoking auto eliminations and allowing a continual consolidation report view throughout the period.

There is not space here to give the SAP Central Finance product justice. But suffice to say SAP Central Finance provides the ability to pass financial documents seamlessly from satellite systems (SAP/ NonSAP), allows the extension of the process chain further back, and optimizes our efficient unbroken process line.

Adopt digital innovations for process efficiency

Incremental improvements to process in time and accuracy can be achieved by utilizing digital innovation tools such as machine learning (ML) and robotic process automation (RPA).

Great advances have been made in the SAP offering to improve the working of the cash cycle and the operation of a centralized finance function. I’ve listed some of these below:

  • Process requests from email – Shared Service Framework – Robotic process automation
  • GRIR reconciliation – Machine learning
  • Cash application managementMachine learning
  • Bank automation – Multibank connectivity and BCM
  • Predictive cash and hedging requirements
  • Accruals managementMachine learning
  • Advanced financial closing – Automation and control – Robotic process automation

The ultimate demonstration of success in this scenario may be a hands-off flow of receivables/payables, including to and from the bank. Prediction and creation of a forward currency requirement and the processing of the resulting financial instrument to accounting would  demonstrate as much as possible the fabled “lights out” treasury function.

Intra-period reporting

The existence of all entries in the universal ledger and the use of continuous processes makes real- time reporting even more possible.

The data flow into consolidation makes some reporting available which previously had to wait for the period end.

Taking real-time reporting a step further, the machine learning functionality can make predictive accounting entries (sales and purchases) into an extension ledger at any point during a period. This can be used in conjunction with the actual financial entries to generate intra-period flash reporting.

Fully integrate non-core processes

Some finance processes may remain outside the core finance functions owing to their specialist or flexible requirements. A good example of these are iterative planning processes using flexible models and scenarios. Yet there are certain control aspects arising from the results of planning that call for their integration back into core financial operations e.g. budget limits and expenditure control.

The strategic planning function for SAP, SAC (SAP Analytics Cloud) is not part of S/4 HANA core, but is being designed to provide the total integration that a fully-fledged finance solution demands.

One of the best demonstrations of this tightly integrated need is in the production costing and operations accounting space. Here, the results of planning play an integral part in the ongoing actual operations activity and through versions can be very iterative throughout a year. Software designed with this type of integration allows for efficient process and contributes to our continuous accounting objective.

Conclusion

The examples discussed above are my thoughts for applying the continuous accounting philosophy to your transformation program, and pulling in elements of the current SAP Finance solution to support your journey to accounting nirvana.

  • A considered approach in applying the key principles can ensure progress to those long-held ambitions I described at the start of this blog:
  • An extremely efficient finance department – Removal of time-consuming manual repetition allowing time for important management and analysis roles
  • The finance department’s objective is to make an entry at the beginning of a process and have it immediately and accurately reflected in reporting
  • A straight through process which seeks to eliminate, as much as possible, intervention between original entry and end of flow reporting

The content of this blog gives examples of how to use SAP Finance software to resolve long standing business problems. Each area of finance innovation can progress the transformation journey and “straighten out the bumpy accounting cycle line”.

For more insight, or to schedule a meeting with me, reach out to .

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