Data flow in the context of revenue accounting

Free excerpt from Practical Guide to SAP FI-RA — Revenue Accounting and Reporting.

To begin our look at the technical treatment of data for this topic, we will use the following example of the data flow for a standard order (or customer contract) in SD, and in particular, in combination with the creation and processing of revenue accounting contracts (see Figure 2.2). The symbols used in the illustration each represent the objects and results from the relevant modules SD, FI-RA, and FI-GL.

We will address details with regard to the installation and the process control settings, as well as further examples from practice, with reference to a system in the following chapters.

Figure 2.2: Data flow (contract and delivery)

1. When Revenue Accounting (FI-RA) is activated, depending on the type of order and the types of items used in the SD document, initially a transfer area for the required data is filled: this is the adapter reuse layer (ARL). In this transfer area, order and contract items, as well as fulfillment and invoice items are separated into categories which, from a technical perspective, are kept in separate classes. Therefore, the standard order created is first put into the class for order items. The revenue accounting items themselves have different statuses depending on the degree of processing (Raw, Processable, Processed).

The data from the transfer area is processed further using transfer programs which are integrated in dialog or in periodically executable batch processing cycles

2. As a result of the data processing, a separate revenue accounting contract with corresponding performance obligations is created in the system.

The detailed characteristics of the contract and performance obligations, which at a later point become separate postings, are first determined from the customizing settings or are derived using rules defined from the BRFplus application via decision tables. The procedure and control parameters used here are described in detail in Section 5.4.

A complete integration of Revenue Accounting (FI-RA) with the SD module is guaranteed by the fact that, within the process described, changes (e.g., prices, deadlines, and extensions) made in an SD document after a successful transfer each lead to the revenue accounting contract created being updated.
3. As mentioned before, a performance obligation in a revenue accounting contract reflects a service previously agreed with the customer and recorded in an SD document taking revenue aspects into account. A revenue posting is subsequently triggered based on the parameters defined in the performance obligation. Various types of fulfillment
can trigger this posting, such as the delivery or the goods issue for a contract. In principle, the following triggering events are differentiated in the system:

• Time-based
• Event-based
• Progress-based (percentage of completion)

In SD itself, the delivery (an event) triggers the creation of a goods issue, which in FI, leads to a stock change posting.

4. This event is also updated directly in the class for fulfillment items in Revenue Accounting (FI-RA) as information with the descriptive parameters.

The related performance obligation is also updated in the revenue accounting contract the next time the periodic transfer programs are executed. A corresponding indicator shows the service agreed with the customer has been fulfilled and that, in accordance with US GAAP, recognized revenue must be reported.

5. A settlement transaction is then used to create the corresponding posting documents in FI. Because the goods issue for the contract takes place before the invoice is issued, the recognized revenue has to be deferred (capitalized) in FI for the balance sheet in an account “Unbilled Receivables”. The additional account assignments derived from the original SD document, such as the profit center or the defined profitability analysis characteristics, are also adopted in the accounting document.

Situations in which the invoice is issued before the actual performance is delivered (e. g., within the scope of a service contract for which invoices are issued quarterly at the beginning of the performance period) are treated in the same way. In these cases, according to ASC 606, the revenue already reported in the profit and loss statement must be reversed and the corresponding revenue surplus shown as a liability in the balance sheet. This information is also derived periodically (monthly) from the performance obligation parameters and posted to FI via settlement.

Accounting standards are changing! Keep reading in Practical Guide to SAP FI-RA by M. Larry McKinney, Reinhard Müller, Frank Rothhaas.

Review the basic legal principles that determine the reporting of revenues and common technical challenges, as well as the legal basis for ASC 606. Walk step-by-step through the revenue recognition process according to ASC 606. Get best practices on how to prepare your system for an implementation and get a list of activities required to implement the Revenue Accounting and Reporting (FI-RA) business add-on in SAP ERP. Identify the three steps required to transition from the old to the new revenue recognition standard. Review the impact of the Business Rule Framework Plus (BRFplus). Get tips and best practices for data consistency and reporting. By using detailed examples, tips, and screenshots, this book covers critical accounting standard topics including:

– ASC 606 statutory requirements
– Integration between SAP SD, PS, FI-RA, and FI-GL
– Troubleshooting data migration challenges
– BRFplus in revenue accounting

Authors M. Larry McKinney, Reinhard Müller, and Frank Rothhaas offer extensive experience in SAP Financials and Controlling projects, with expertise in revenue accounting principles. M. Larry McKinney is an SAP alumnus with more than 20 years of experience implementing and maintaining SAP at Fortune 1000 companies. Reinhard Müller is a partner at Conessent Consulting GmbH, which provides international SAP consulting and software development, and has led international SAP FI/CO template developments and rollouts over the last 20 years. Frank Rothhaas is the managing director of Conessent Consulting GmbH and focuses on the implementation of international accounting principles and the integration of these principles in management and group reporting.