5 Step Model of Revenue Recognition in IFRS 15

Transcription

1 Chapter 1 Identify Contract Inbound processing to SAP RAR Step 1 of 5 IFRS 15 ASC606 Revenue Recognition Standard 5 Step Model of Revenue Recognition in IFRS 15 AN INTRODUCTION TO Revenue From Contracts With Customers

2 WHAT IS REVENUE? Under U.S. Generally Accepted Accounting Principles (GAAP) and the Financial Accounting Standard Board (FASB), revenue is recognized when it is realized or realizable and earned. Under International Financial Reporting Standards (IFRS), revenue includes the sale of goods, rendering of services and of an entity s assets use by others (interest, royalties and dividends). The wording between the two standards may be slightly different, but the underlying principle is the same in both frameworks. Revenue is recognized as a result of an entity satisfying its promise to transfer goods or services in a contract with a customer. The distinction between revenue and other income is not always clear. Determining whether a transaction results in the recognition of revenue will depend on the specific products or services provided. Excerpt from ASC and IFRS 15-9 An entity shall account for a contract with a customer... only when all of the following criteria are met: a. The parties to the contract have approved the contract (in writing. orally. or in accordance with other customary business practices) and are committed to perform their respective obligations. b. The entity can identify each party s rights regarding the goods or services to be transferred. c. The entity can identify the payment terms for the goods or services to be transferred. d. The contract has commercial substance (that is. the risk, timing, or amount of the entity s future cash flows is expected to change as a result of the contract). e. It is probable that the entity will collect the consideration to which it will be entitled in exchange for the goods or services that will be transferred to the customer. Step 1: Identify the Contract with a Customer An agreement among two or more parties that creates enforceable rights and obligations, Each party has approved the contract and is committed to perform their respective obligations. Each party s rights regarding the goods or services to be transferred can be identified. The payment terms for the goods or services to be transferred can be identified. The contract has commercial substance; the risk, timing, or amount of the entity s future cash flows is expected to change as a result of the contract. It is probable that the entity will collect the consideration to which it will be entitled in exchange for the goods or services that will transferred to the customer. When determining whether this collectability threshold is met, an entity should consider only the customer s ability and intention to pay that amount of consideration when it is due. 2

3 A contract does not exist if each party can terminate the contract prior to any performance occurring without having to compensate the other party. The parties are committed to perform their obligations All relevant facts and circumstances should be considered to determine whether all parties involved are committed to perform under the contract. The entity can identify each party s rights An entity must be able to identify each party s rights regarding the goods and services promised in the contract to assess its obligations under the contract. The entity can identify the payment terms The payment terms for goods or services must be known before a contract can exist. The contract has commercial substance A contract has commercial substance if the risk, timing, or amount of the entity s future cash flows will change as a result of the contract. Collection of the consideration is probable An entity only applies revenue guidance to contracts when it is probable that the entity will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer. 3

4 INBOUND PROCESSING REVENUE ACCOUNTING ITEMS: CONTRACTS IN SAP SAP TRANSFER OF CONTRACT TO REVENUE ACCOUNTING Once a sales order is created and based on sales organizing the order type and item category, this contract will be sent to the revenue accounting engine to create a revenue contract. An SD integration component listens to SD events and will only send the order or contract item relevant for revenue recognition to SAP RAR (Revenue Accounting and Reporting) to create revenue accounting items. Data sent Revenue account Condition with condition value Sales area Customer information Contract start date Contract end date One RAI (Revenue Accounting Item) for each billing plan 4

5 There will be one revenue accounting contract for each SD Order and the reference will comprise an order number. The reference ID is linked to the order number, which leads to the creation of one Revenue Accounting contract for each SD order. The reference ID can be changed when the transaction with the customer ends. You can customize this by creating a debit or credit memo to generate a new POB (Performance obligation), otherwise updates will apply to the existing order POB. The SAP SD routinely copies Goods Issued and Ordered/ and goods issued can be extended so an activation flag is passed to the subsequent document. INBOUND PROCESSING In SAP ERP SD, an integration component (IC) creates revenue accounting items (RAI) and transfers them to the revenue accounting and reporting RAR application. A revenue accounting item contains all the data from SAP SD items and events that are relevant for revenue accounting. You can configure the structure of revenue accounting items in Revenue Accounting separately for different operational applications. 5

6 The Adapter Re-Use Layer (ARL) receives RAIs and transforms them into revenue accounting contracts and performance obligations. Revenue Accounting Item What is the revenue accounting item? Think of revenue accounting items as line items of sales orders relevant for revenue recognition Revenue accounting items contain source information about these transactions that result in the creation of a revenue accounting contract, performance obligation and order fulfillment in revenue accounting. Revenue Accounting Item class What is a revenue accounting item class? Think of the revenue accounting item class as the technical attributes of revenue accounting items. Database table systems store the revenue accounting items based on the status and record type. Which function module received the revenue accounting items and which function modules save the revenue accounting items in these tables. Revenue accounting item class type What is the revenue accounting item class? The revenue accounting item class type specifies the purpose of the data the class receives. 6

7 The revenue accounting item class type is used internally for structure checks and selections. 01 Order items 02 - Fulfillment items 03 Invoice items RAI (REVENUE ACCOUNTING ITEMS) INTERFACE COMPONENTS Interface components for importing contract information is provided by the Adapter Reuse Layer Interface component, which contains the structure of all fields for processing either optional or mandatory data checks. The revenue accounting information class is created by appropriate interface components and can be enhanced by customizable customer fields. This can be found in IMG under the path Financial Accounting -> Revenue Accounting ->Inbound Processing -> Revenue Accounting Items -> Define Interface Components. SAP SD has predefined names for revenue accounting item classes. 7

8 BASIC FIELDS FOR CONDITIONS Interface component BASIC_CO has basic fields for conditions necessary for revenue accounting items with important selection and management data of each revenue accounting item type condition This interface component is a basic component and is always activated automatically for revenue accounting item class type Order Items and Invoice Items. 8

9 BASIC FIELDS FOR MAIN ITEMS Interface component BASIC_MI has basic fields for conditions for revenue accounting items, with important selection and management data of each revenue accounting item type condition. This interface component is a basic component and is always activated automatically for revenue accounting item class type Order Items and Invoice Items. Basic Fields for Order Items The interface component Basic Fields for Order Items (Main Items) (BASIC_MI01) forms the basis for revenue accounting items resulting from order items. It contains the most important selection data and management data of each revenue accounting item of the revenue accounting class type Order Item. This interface component is a basic component that is always active in each revenue accounting item class type Order Item. It is also relevant for the Main Items record type. If the revenue accounting item class type Order Item is chosen for a revenue accounting item class, additional interface components for record type Conditions are also activated automatically. 9

10 CO-PA FIELDS FOR ORDER ITEMS The interface component CO-PA Fields for Order Items (CO-PA_MI01) includes the fields of the COPACRIT structure, which are used to determine the profitability segment number. This interface component is active when Profitability Analysis (CO-PA) is active in at least one controlling area in the system. It is relevant for revenue accounting items in raw status. If CO- PA is not active in the system, this interface component is not visible and cannot be selected. 10

11 SD FIELDS FOR ORDER ITEMS The interface component SD Fields for Order Items (SD_MI01) forms the basis for revenue accounting items resulting from order items from the source component SD. It contains SD specific selection data and management data of the revenue accounting item of the class type Order Item created in an SAP SD source component. This interface component is used for the revenue accounting item class type Order Item and source component SD. It is also relevant for the Main Items record type. If you use the revenue accounting item class name SD01, the system sets the revenue accounting class type to Order Item and activates the interface component SD_MI01 automatically. 11

12 Set up revenue accounting items class FARR_RAI_CONF is a transaction code to maintain revenue accounting item classes. SAP has not provided any RAI classes. However, there are predefined class names for certain components. Create your classes per your technical requirements, as this setting influences the database table and transfer of data. 12

13 Order item class: Fulfillment delivery item class 13

14 Invoice item class setup Steps to finalize accounting 1. Interface component 2. Add customer fields 3. Indexes for database table 4. Select configuration status 5. Configuration activation After all the above steps are completed you can generate your interface. 14

15 Set Up of RAI Class Continued Click the button Perform Consistency Check for Configuration to check a selected revenue accounting item class. When you call up this transaction, the system only checks the generation status based on the entries made in regards to maintenance for that class. The check focuses on changes and additions to interface components and customer fields indexes If you explicitly check a class, the system performs detailed comparisons, which particularly focus on changes that affect the generated function modules. For more information, see the documentation for the configuration transaction by choosing the pushbutton. 15

16 You can generate interfaces for revenue accounting item classes in Customizing of revenue accounting under Inbound Processing Revenue Accounting Items Generate Interfaces for Revenue Accounting Item Classes or in the configuration transaction FARR_RAI_CONF under Environment Generation. Using the Generate button, the system generates the objects for the interface and the data store of each class. Generation is possible only if the class has the necessary generation status. During the generation process, the system can delete previously generated objects under certain circumstances. This means that a loss of data can occur. The system bases its behavior on the configuration status of the revenue accounting item class: 16

17 In Processing The system completely deletes existing objects and generates them again. In this case, data is lost. Transportable The system completely deletes existing objects and generates them again. In this case, data is lost. Released as Productive If a class is generated for the first time with the status Released as Productive, the system deletes all previously existing objects and generates them again. In this case, data is lost. For all subsequent generations for a class with the status Released as Productive, the system generates only those objects that did not already exist or that have to be adjusted. All data that already existed remains unaffected. The system generates a separate RFC function module for every revenue accounting item class. With this RFC function module, you transfer revenue accounting items for a class to Revenue Accounting (FI-RA). The naming convention for the function modules is /1RA/ZRRS_RAI_ CREATE_API, where ZRRS stands for the four-character name of the class. The generated RFC function module is adapted to the structure of the revenue accounting item class within its parameters. In the standard system, a COMMIT WORK (or ROLLBACK WORK in the case of an error) occurs every time the RFC function module is called up. This means that every RFC function module represents a logical unit of work (LUW) as standard. You can override this in the IV_TEST parameter. See the documentation in the system. 17

18 If the RFC function module is called up, the system writes an application log for processing the transferred revenue accounting items. You can display this application log with the transaction SLG1 for the object FARR and the sub-object CREATE. Configuration Assign Upload Rules to Revenue Accounting Item Classes In this configuration, you will assign upload rules when you transfer RAI items as you would like to see them in the Adapter reuse layer as raw or processable Define Modifiable Fields for Revenue Accounting Items In this configuration, you can define fields to be modified in ARL before a contract is sent to RAR. 18

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