Thought Leadership

Accelerate Month-End Close by Using SAP S/4HANA for Intercompany Reconciliation

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I wanted to provide a preview to my Sapphire session being jointly presented with with Helene and Oyin from Schlumberger on May 18th. In the presentation coming next Thursday, we will provide Schlumberger specific challenges related to Intercompany Reconciliation and how SAP S/4 HANA toolset was used to accelerate the month end close process.

The ultimate dream of an accountant is to NOT have any intercompany reconciliation. All the Accounts Receivable is always reconciled with Accounts Payable.

Gosh, does the above before and after, even sound true. But we can always hope!!

Do you think that the dream of doing your month end close from a golf course (mind you on a Saturday or a Sunday) is closer to reality than it was 20 years ago?

I think so, but we are still only 85% there and as we all know the last 15% is the toughest. And we will probably have to use new innovative technologies like Blockchain or something completely new to replace the accountant. So maybe 2022 or never.

Coming back to 2017, let us try and understand a little bit more about the tools for Intercompany Reconciliation that SAP provides and how you can use them to at least get to 85% or even higher automagically.

But before we understand the tools, let us now understand the problem of Intercompany in general. Most of the Global companies have operations worldwide leading to multiple legal entities which need to transact with each other. So, if Legal Entity A is buying from Legal Entity B, then they need to issue a Sales Order and Purchase Order. And subsequently record the Accounts Receivable and Accounts Payable. Now if everything was perfect, they will always match. But in reality, they don’t. Hence the need for the accountant to step in and do the reconciliation of why these invoices do not match. There are lot of reasons: Interface failed, Invoice got created in different months, Invoice did not have the correct proper price and the list goes on.

One of the key tools available from SAP is Intercompany Reconciliation Tool (affectionately called ICRT). Now ICR tool has been around since ECC days. And does get the basic stuff done. Maybe 60%-70% of the reconciliation can be achieved by using ICRT.

The process schematic in ECC (available since 2007-08) for ICRT is pretty simple as shown below:

  1. Data Selection: This consists of two sub-steps: You select all the documents which are relevant for intercompany reconciliation. The SAP way of making a document relevant is to use Trading Partner as a basic starting point. The second step is to now start using the rules defined previously like Reference Number, Cross Company Code Document number etc to Assign documents together. ICRT assigns a Group number to the documents based on the rules. There is no clearing or any other transactional updates that happen in the system.
  2. Data Storage: This allows you to store the SAP ECC documents in ICRT in Special Purpose Ledger as well as allows the interfacing non-SAP and other Legacy systems to be stored in the ICRT system
  3. Data Presentation and Analysis: This is really a reporting engine which shows you the Assigned/Matched documents, UnAssigned Documents for the two Trading Partners in 3 different panes. Please note that these screens look like and were born a long time ago prior to iPhone
  4. Communication: This allows you to interact with the other company codes by sending them emails and allowing the users to see the same line item which is causing the difference.
  5. Post Corrections: Based on the errors identified as the root-cause is investigated, the corrections are posted in the Sending and Receiving company codes. And the process starts anew in a feedback loop.

Now when S/4 HANA came along, SAP introduced Universal Journal and the promise of Single Version of Truth using ACDOCA table. And the mad rush began to align the processes to S/4 HANA architecture. For intercompany reconciliation tool, that meant that the Data Assignment became automatic. Let us now understand the new process in S/4 HANA:

  1. Data Selection: This process is very similar to SAP ECC and is typically executed in background as a batch job.
  2. Automatic Assignment: As per the current available features in S/4 HANA for AP and AR line items the automatic assignment happens for any of the delta transactions that get posted.
  3. Data Presentation and Analysis: This is really where lot of improvements have been made by providing the user a dashboard which highlights the Open items not matched for Accounts Payable, Receivable. It is more individualized to a user and new improvements have been made and is shown below. This is closer to the iPhone like dashboard which still needs to be improved. Majority of the improvements by SAP are happening in improving the User Experience.
  4. Communication: Users can now communicate directly from the dashboard invoking the previous functionalities
  5. Post Corrections: For the items not reconciled, the users need to fix the error and post corrections which are then automatically assigned based on rules.

SAP ICRT tool in ECC 6.0

SAP ICRT Tool in S/4 HANA

 

 

 

 

 

 

In summary SAP Intercompany Reconciliation tool helps you achieve continuous reconciliation and provide a much better user experience which is aligned to a business role.  In the future roadmap, SAP plans to include the ACDOCA table as the source for reconciling the GL Line items especially for the cases where you need to reconcile Revenue in Company A against the Cost in Company B. That will help us get closer to maybe 90-95% of the issues being caught in the ICRT tool.

To help accelerate the Month End Close we need to move closing tasks to the left. Ideally we need a combination of ICRT tool innovations in S/4 HANA with Closing Cockpit (available since ECC) and Fiori Apps for Closing (available from Simple Finance/S/4 HANA).

Maybe I am dreaming, but in the next 5 years, we will be able to achieve Week End Close and in 10-15 years Day End Close.

I can already imagine the futuristic Cognitive robot who will use the Blockchain data generated at each step to cognitively generate the rules, apply the rules and match the documents on an hourly basis. That will be the day the accountant will need to find a new job or maybe the accountant will be training the robot from the Golf-course!!

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