Cash Flow Statement in Group Reporting

The Cash Flow Statement is a critical component of each corporate close cycle and holds significant strategic importance for external stakeholders. Ensuring its accuracy is paramount. Certain industries, such as Energy and Utilities (due to infrastructure and equipment complexities), financial services (owing to diverse financial activities), and telecommunications (because of technology upgrades and long-term contracts), particularly face challenges in creating a reliable cash flow statement. However, no organization, regardless of industry, finds it "easy" to prepare an accurate cash flow statement.

Additionally, organizations have multiple workstreams (e.g., Treasury, Capital Structure, Tax) that contribute to the complexity of accurately collecting the data required for the Cash Flow Statement. Consequently, clients are notably enthusiastic about SAP's "out-of-the-box" cash flow statement solution, which can ultimately lead to increased automation, streamlined processes, and enhanced data control and integrity.

While SAP S/4 HANA for Group Reporting (GR) includes a standard Cash Flow report, there are nuances that clients should understand to avoid any unexpected issues. Analytics, including the Cash Flow Statement, are unfortunately often among the last items addressed in a standard project cycle. Maintaining discipline in managing data integrity is crucial, as GR cannot determine allocations for categories (line items, operating, financing, and investing activities) from overall amounts without precise input.

In an optimal SAP ecosystem, local accountants accurately capture movements (such as Balance Sheet movements like changes in PP&E and P&L items like depreciation and amortization) in the general ledger. These movements are then correctly loaded into GR, allowing departments such as Corporate Accounting, Treasury, Capital Structure, Tax, and others to make necessary adjustments directly in GR with a dedicated document type for each workstream. Authorizations ensure that all adjustments are tracked by workstream/user and timestamp.

It is important to note that no two cash flow statements are identical, and each client has unique sets of Info objects and Master Data, often making the pre-delivered standard report obsolete. Furthermore, the "out-of-the-box" Cash Flow Statement advertised by SAP is a web-based Fiori report. Many organizations, including directors and analysts, still rely heavily on Excel-based interfaces for quick calculations and formatting, a critical aspect not sufficiently addressed by standard web-based Fiori reports. Most clients have established formats integrated into their official documentation processes, indicating a preference for custom Excel-based Cash Flow statements, which our company can assist in developing.

GR offers functionalities that can help develop the Cash Flow Statement through “reporting rules” defined by the user. These include a range of mathematical operators to instruct the system on how to compile data for each line item in the Cash Flow Statement. GR's reporting rules provide extensive customization capabilities, including account movements (transaction types), journal entries (document types), consolidation units (company codes), and reverse sign indicators among others.

We are available to assist in identifying and assessing requirements from both functional and technical perspectives. Our goal is to build a Cash Flow Statement that is streamlined, accurate, easy-to-read, and aligned with corporate culture.

Why does SAP S/4 HANA Finance for Group Reporting (GR) need a "release" process when data is real-time?

This topic frequently arises in SAP GR implementation projects. It is often challenging for IT professionals to understand that there remains a "release" task that must be deliberately executed in GR, which releases the data from the general ledger to GR. To their credit, it is counter-intuitive to load data that is live in SAP S/4 HANA, given its notable architectural feature and marketing emphasis on real-time data accessibility. Indeed, the data is live and available in real-time.

Why then does SAP design the data transfer for GR in such a manner?

The intricacies of the corporate close cycle encompass multiple critical functions, addressed effectively through the "Release Universal Journal" task:

·       The "release" functionality serves as a critical control mechanism, ensuring that consolidation tasks (validations, translation, eliminations, etc.) can run without interference while generating auto-postings.

·       Releasing data establishes an audit trail, which is crucial for compliance and regulatory purposes. It documents when the data was finalized (with a timestamp) and who approved it, ensuring transparency and accountability.

·       This process ensures consistency across all local reporting units by guaranteeing that all accountants work with the same dataset.

·       It is important to distinguish between a regular chart of accounts in the general ledger and a consolidated chart of accounts in a consolidation system such as GR. A prevalent example are the Cash accounts. In a G/L Chart of accounts, it is common to find hundreds of cash accounts. For consolidation, detailed cash accounts can hinder performance and complicate research. A consolidated chart of accounts usually has only a few cash accounts. The "release" functionality aggregates data in its initial step, initiating the consolidation cycle.

Why Currency Translation Should Be Done in Group Reporting (GR) Instead of the General Ledger

Often on GR implementation projects, I hear statements like, “We are going to perform the currency translation in the G/L and load group currency directly into GR.”

However, this approach oversimplifies a complex scenario. While experts in corporate accounting recognize the intricacies involved, their insights are frequently overshadowed by IT counterparts who are perceived as the 'experts.'

Here's why currency translation should take place in GR rather than in the G/L:

1)      In the G/L, local currency values of transactions are translated at the daily rate. Realized and unrealized foreign exchange (FX) gains and losses result from this translation and are posted in the P&L."

2)      US GAAP/IFRS, as well as the statement for CASH FLOW, require a different approach when translating local currency to group currency:

a.      Non-Equity Balance Sheet accounts are translated at the end-of-period rate.

b.      Equity accounts are composed of the sum of monthly changes, translated at their respective monthly average rates. While we often refer to the equity section as 'historic,' there is no singular 'historical rate' per se. The historical value is the cumulative sum of each month's activity, translated at the monthly average rate for each period. Therefore, the final balance of the equity accounts cannot be recreated using a one-time historical rate.

To balance the Balance Sheet, the difference between the end-of-period rate and the historical value is posted as a currency translation difference to a dedicated Financial Statement Item (account in GR) in the equity section. This amount can vary from month to month, even if there is no new activity in the equity accounts, due to fluctuations in the end-of-period rate.

c.      Movements on Balance Sheet accounts – The statement of cash flow requires that movements on balance sheet accounts be translated using the monthly average rate. For assets and liabilities, this results in a currency translation difference because the total balance needs to be translated at the end-of-period rate, while the movements are translated at the monthly average rate. The difference between these two values is posted to a dedicated transaction type (movement type) on the account itself.

d.      P&L accounts: All P&L accounts are translated using the monthly average rate. Since this translation method is applied consistently across all P&L accounts, no currency translation differences will be generated.

Also, please see the example below for the correct translation for common stock in the equity section following US GAAP/IFRS.