SAP Financial Consolidation, starter kit for financial and regulatory reporting for banking, SP5 Configuration Overview
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TABLE OF CONTENTS FOREWORD A. DATA COLLECTION... 5 1. Data entry format... 5 1.1. Account typology... 5 1.2. Naming Convention for Accounts... 5 2. Data Entry Package Configuration... 6 3. Data Entry Principles... 7 3.1. Sign of Indicators... 7 3.2. Order of Package Data Entry... 7 3.3. Breakdown by Flow... 8 3.4. Use of specific flows to collect additional analyses for FINREP purposes... 8 4. Data Package Validation... 9 4.1. Types of Control... 9 4.2. Sets of Controls... 9 4.3. Subsets of Controls... 9 4.4. Main Types of Controls... 9 4.5. Control Levels... 10 B. CONSOLIDATION PROCESS... 11 1. Consolidation Definition... 11 2. Consolidation Processing... 11 3. Configured Automatic Entries... 12 C. ANALYSIS PROCESS... 13 1. Publishable Financial Statements... 13 1.1. IFRS Financial Statements... 13 1.2. FINREP templates... 13 2. Monitoring and Controlling the Consolidation Process... 14 2.1. Accounting reports... 14 2.2. Consolidation Analysis... 14 3. Analysis and Audit Trail... 15 D. RECONCILIATION IFRS VERSUS FINREP CONSOLIDATIONS... 19 3
FOREWORD The starter kit for financial and regulatory reporting for banking is a banking pre-configuration of SAP Financial Consolidation, designed to perform, validate and publish IFRS financial statements and all FINREP reports required by EBA (65 tables). This starter kit provides a configuration to address both IFRS and FINREP requirements in an integrated reporting process: Integrated reporting process IFRS entities only IFRS + FINREP entities Local data collection Local GAAP IFRS reporting PCK01 + FINREP additional information Manual journal entries IFRS adjustments + FINREP adjustments Consolidation scope IFRS version FINREP version Consolidation definition IFRS version FINREP version Retrievals IFRS Financial statements Reconciliation FINREP reporting This document aims to give you an overview of the main design principles used to build the application. It is organized according to the steps performed in a consolidation processing: - Data Collection - Consolidation Process - Analysis Process The last section is dedicated to the reconciliation process between IFRS Financial statements and FINREP reporting. 4
A. DATA COLLECTION 1. Data entry format 1.1. Account typology The chart of accounts is common to IFRS and FINREP reporting in order to ensure the consistency of publishable statements. Each account is assigned an IFRS and a FINREP characteristic. The publishable financial statements use these characteristics to group together accounts either in an IFRS format or in a FINREP format. In the example below, you can see that account A02000 Cash balances at central banks will: - be included in the IFRS Statement of Financial Position in the Cash and cash equivalents line item; - appear in the table 1.1 Asset on row 030 Cash balances at central banks. Assets and Liabilities are classified by product. The income and expenses are classified by nature with a distinction between continuing and non-continuing operations. The use of dimensions such as Product, FINREP Analysis, Country, Fair Value Hierarchy, ISIN has made it possible to limit the number of accounts to 98 accounts for Assets, 111 accounts for Equity and Liabilities and 122 P&L accounts. The chart of accounts is easy to customize according to the group s requirements. 1.2. Naming Convention for Accounts For financial accounts, the first letter of the code enables you to identify the accounting class: A for asset, E for equity, L for liabilities and P for profit and loss (net income). The first letters for subtotal accounts are TA (Assets subtotals), TE (Equity subtotals), TL (Liabilities subtotals), and TP (P&L subtotals). For balance sheet accounts, the second position indicates the product as follows: Code Description Code Description E1xxxx Equity attributable to owners of parent A0xxxx Cash E2xxxx Non-controlling interests A1xxxx Derivatives L1xxxx Derivatives A2xxxx Equity instruments L5xxxx Short positions A3xxxx Debt securities L6xxxx Deposits A4xxxx Loans and advances L7xxxx Debt securities issued A8xxxx Other financial assets ( Fair Value Changes of hedged items, Investments in associates and joint ventures) L8xxxx Other financial liabilities (Fair Value Changes of hedge items) A9xxxx Other non financial assets (tangible / intangible assets, tax and other assets) L9xxxx Other non financial liabilities (Provisions, tax and other liabilities) 5
Accounts of the income statement are classified by nature and named as follows: Code P1xxxx P2xxxx P3xxxx P4xxxx P5xxxx P6xxxx P7xxxx P8xxxx P9xxxx Description of Income Statement blocks Net interest Fees and commissions Gains and Losses Hedge ineffectiveness Other operating income / expense from financial assets/liabilities Other operating income / expense from non financial assets / liabilities Other profits from continuous operations Profit from discontinuous operation Profit or loss attributable to non-controlling interests Example TA00000 Cash and cash balances A01000 A02000 A03000 Cash on hand Cash balances at central banks Other demand deposits 2. Data Entry Package Configuration The data entry package is available in English. It groups together schedules that are used for entering and retrieving data at the reporting unit level. There are two sets of data entry package: - P-A: set dedicated to entities that are required to fill in FINREP analyses in addition to the IFRS reporting - P-A-IFRS: set dedicated to entities required to fill in the IFRS reporting only Three types of schedules exist: Summary schedules, used to guide the data entry and control data Data entry schedules that are grouped into books by type of information: balances, securities and shareholdings, movement analysis for balance sheet items, intercompany transactions, FINREP analyses Data retrieval schedules: IFRS Financial statements, IFRS Notes, FINREP tables, flow balances, control statements 6
Example: Package contents for entities IFRS + FINREP 3. Data Entry Principles 3.1. Sign of Indicators Assets are entered as positive amounts except for amortization and depreciation of assets. These are entered as negative amounts. Liabilities and Equity are entered as positive amounts. Expenses are entered as negative amounts and income figures as positive amounts. 3.2. Order of Package Data Entry A step-by-step approach for entering data is configured in the package thanks to its architecture and the links that have been created between the schedules. The steps are as follows: 1. Enter (manually or importing) the closing balance (balance sheet and income statement) 2. Enter the analysis of securities and shareholding 3. Enter the period movements of the balance sheet items (acquisition, disposal, etc.) 4. Enter intercompany breakdown (reciprocal operations, Internal gains and losses on disposal of assets, dividends, internal provisions) 5. Enter FINREP breakdown 7
3.3. Breakdown by Flow Flow entries allow you to identify variations in the balance sheet between the opening and closing balance and therefore automatically generate the Statement of Cash Flows. The flows available in the package may be classified into two categories: Flows for current transactions (purchase, increase in depreciation, fair value, etc.) Flows for special transactions (changes in accounting policies, internal merger, etc.) 3.4. Use of specific flows to collect additional analyses for FINREP purposes Flow F99 that is used to store carrying amount at closing in the IFRS data entry schedules, is retrieved in FINREP schedules and used with additional flows Txxx to collect FINREP analyses such as breakdown by counterparty sector and country of the counterparty. This configuration ensures the consistency between data entered in IFRS reporting and in FINREP reporting. These technical flows cannot be entered by non-finrep entities, thanks to a Financial Consolidation feature that restricts the access to these flows. 8
4. Data Package Validation 4.1. Types of Control There are two types of control: Blocking controls: if these are not valid, the status of the data package cannot be validated. All these controls must be valid. Non-blocking controls: these controls are simply warnings and do not prevent the data package from being validated. For instance it is possible to enter the number of stocks of investment in subsidiaries and capital in order to generate automatically the portfolio and the scope. This data entry is optional and linked to non-blocking controls. 4.2. Sets of Controls Controls are grouped in the data entry package into sets of controls. Two control sets are configured in the starter kit for financial and regulatory reporting, one for subsidiaries that fill in IFRS and FINREP reporting, and one for the companies that are not required to enter FINREP data. 4.3. Subsets of Controls In the data entry package, the controls are grouped together into subsets, where each subset of controls corresponds to a book of schedules. 4.4. Main Types of Controls Aim Check balances Securities and Shareholdings Flow analysis Intercompany breakdown FINREP analyses Example Assets equal Equity and Liabilities Gross value of assets higher or equal to depreciation and impairment Exhaustive breakdown of investment in subsidiaries by shares Complete analysis of investment in subsidiaries by flows Complete analysis of net equity by flows Data entry of number of shares in capital and in investment in subsidiaries Complete analysis of assets and liabilities by flows The transfer flow must balance Exhaustive breakdown of reciprocal accounts, dividends, gains and losses on disposal of assets and provision by partners Exhaustive breakdown of selected accounts by counterparty FV of unimpaired AFS assets + FV of impaired AFS assets = Carrying amount Exhaustive breakdown by country for non-codified counterparty Other controls from the FINREP validation rules file provided by EBA 9
4.5. Control Levels Each control is linked to a level. The level of control to be reached is set by the team at the central site when the package is generated. 4 levels of control exist in the starter kit for financial and regulatory reporting for banking: 1 Balance Analysis (Income Statement and Balance Sheet) 2 Flow analysis (Income Statement, Balance Sheet by flows) 3 FINREP analysis (consistency between breakdown by country, product and total amount) 4 FINREP analysis (consistency between data entered on FINREP flows e.g. F99 closing flow = T125 carrying amount non impaired assets + T130 carrying amount impaired assets) The control levels check from the minimum level (LEV1: submission of Balance Sheet and Income Statement only) to the maximum level corresponding to a full package (LEV4: complete submission). When level 1 is required to be reached, only the controls attached to level 1 must be valid. 10
B. CONSOLIDATION PROCESS Overview of the consolidation process in SAP Financial Consolidation 1. Consolidation Definition The settings of a consolidation definition are: A category and a data entry period: selection of the data to be consolidated (for example: Actual, 2013.12) A scope A variant A consolidation currency The variant parameter is a technical dimension that allows different consolidation settings to be selected for a given category, a given data period and a given currency: Set of rules (monthly conversion / quarterly conversion / year to date conversion) Scope (pro-forma statements) Exchange rates table (pro-forma statements) Two variants are pre-defined in the starter kit for financial and regulatory reporting for banking: IFRSYTD and FINREPYTD. If needed, these variants can be renamed and new variants can be created. 2. Consolidation Processing Two processing modes exist: full processing and incremental processing. During the course of full processing, the software executes the following steps: Read the scope Load data: data of the period (package data and manual journal entries) and the opening balance, if any Convert package data and manual journal entries Run the rules of the selected set of rules (see below). For incremental processing, the software executes the same steps as described above but only for the manual journal entries recorded since the last consolidation. The conversion of data entered in foreign currency is carried out as follows (using the closing rate method): The closing balance of the balance sheet is converted using closing exchange rates, except for equity and consolidated investments kept at their historical value (calculation and booking of the currency translation adjustment) The net income of the period is converted using average exchange rates Balance sheet movements of the period are converted using the average exchange rates of the period. Depending on the set of rules selected in the consolidation definition and the type of conversion rate filled in in the conversion rate table, periodic or year to date conversion will apply. The configuration handles the following methods of consolidation: full consolidation, proportionate consolidation and the equity method. The scope changes handled by the starter kit for financial and regulatory reporting for banking set of rules are: Acquisitions Loss of control 11
Equity transactions Changes in interest rates of associates and joint-ventures Internal mergers Flows generated during the consolidation process allow you to retrieve changes due to currency translation differences and changes in scope consolidation. These flows make it possible to automatically produce the following financial statements: Statement of Comprehensive Income Statement of Cash Flows Statement of Changes in Equity 3. Configured Automatic Entries The starter kit for financial and regulatory reporting for banking includes a set of rules that enable you to produce consolidated data using data from the data entry packages. This set of rules can be enhanced in order to meet the group s specific accounting policies. The automatic consolidation entries are: Elimination of internal reciprocal operations Elimination of internal provisions Elimination of internal dividends Elimination of internal gains and losses on disposal of assets Goodwill booking Elimination of investment in subsidiaries Calculation of currency translation adjustments Calculation of non-controlling interests In addition to standard consolidation rules, a number of technical rules have been configured in order to: Generate the country dimension for codified counterparty: Indeed, breakdown by country is required in the package only for non-codified counterparty sectors in order to avoid entering data already available in the system. Calculate and store the subtotal accounts Calculate and store line items for the Statement of Other Comprehensive Income, the Statement of Cash Flows and the Statement of Changes in Equity 12
C. ANALYSIS PROCESS 1. Publishable Financial Statements 1.1. IFRS Financial Statements The starter kit for financial and regulatory reporting for banking contains a complete set of financial statements which follow the requirements of IAS1. A Statement of Financial Position in the current/non-current format A Statement of Profit or Loss with an expense classification by nature A Statement of Other Comprehensive Income A Statement of Cash Flows A Statement of Changes in Equity It provides you also with a sample of IFRS disclosures: Notes to the Income statement (Net interest income, fees and commissions ) Notes to the Statement of Financial Position (Financial assets held for trading..) 1.2. FINREP templates The starter kit for financial and regulatory reporting for banking contains a complete set of core and non-core information FINREP templates which follow the EBA requirements (see Appendix). F 01.01 - Balance Sheet Statement - assets F 01.02 - Balance Sheet Statement - liabilities F 01.03 - Balance Sheet Statement - equity F 02.00 - Statement of profit or loss F 03.00 - Statement of changes in equity F 04.01 - Financial assets held for trading F 04.02 - Financial assets designated at fair value through profit or loss F 04.03 - Available-for-sale financial assets F 04.04 - Loans and receivables and held-to-maturity investments F 04.05 - Subordinated financial assets F 05.00 - Breakdown of loans and advances by product F 06.00 - Breakdown of loans and advances to non-financial corporations by NACE codes F 07.00 - Financial assets subject to impairment that are past due or impaired F 08.01 - Breakdown of financial liabilities by product and by counterparty sector F 08.02 - Subordinated financial liabilities F 09.01 - Off-balance sheet exposure: Loans commitments, financial guarantees and other commitments given F 09.02 - Loans commitments, financial guarantees and other commitments received. 13
2. Monitoring and Controlling the Consolidation Process 2.1. Accounting reports The accounting reports (balances, general ledgers, debit-credit ledgers) allow for the analysis of consolidated data by drilling down to the original data. 2.2. Consolidation Analysis The pre-configuration contains reports that enable you to validate each step of the consolidation process: Check packages Check main balances Check conversion Intercompany reconciliations Transition from local to consolidated figures Net Equity, dividends and goodwill 14
EXAMPLE: Consolidation control dashboard 3. Analysis and Audit Trail The starter kit for financial and regulatory reporting for banking contains reports that allow the analysis of consolidated data. Each data item is linked to an audit ID and a journal entry number which makes the audit trail possible. The audit ID allows the accounting origin to be tracked. For instance: The 0PACK01 Package data audit ID tracks data that has been entered in the packages The 3PRO10 audit ID is linked to the elimination of internal impairment on investments 15
With analysis schedules, each line of the Statements of Financial Position and of the Statement of Profit or Loss can be detailed by account, reporting unit or audit ID. EXAMPLE: Analysis of a Statement of Financial Position line by account 16
Each line in the FINREP core information tables, Table F01.01 Assets, Table F01.02 Liabilities, Table F01.03 Liabilities, Table F02.00 Statement of profit or loss can be analysed by entity, account or audit ID EXAMPLE: Analysis of an Asset line item (focus on Debt securities) by account: 17
Each line in the Statement of Other Comprehensive Income, the Statement of Cash Flows and the Statement of Changes in Equity can be analyzed via drill down to identify which account/flow pairs generated the amount. EXAMPLE: Analysis of a Statement of Cash Flows line item (focus on the net cash flows from investing activities): 18
D. RECONCILIATION IFRS VERSUS FINREP CONSOLIDATIONS In order to fasten the reconciliation between FINREP and IFRS data, a three-step approach is proposed, using specific reports: First step: Automatic identification of the differences between the FINREP and the IFRS group structures, sorted by categories of differences - Case 1: Entities not consolidated in IFRS scope - Case 2: Entities not consolidated in FINREP scope - Case 3: Entities consolidated using the proportionate method for FINREP and the equity method for IFRS - Case 4: Entities equivalent in both scopes - Case 5: Other differences Second step: Automatic accounting reconciliation between FINREP and IFRS data sorted by categories of differences 19
You can drill down to further analysis for one account per entity or all accounts for all entities as shown in screenshots below. EXAMPLE: Analysis of differences by case and entity EXAMPLE: Analysis of differences for all accounts by entity for one case: 20
Third step: Automatic validation and justification of most of the differences between the two sets of consolidated data. 21