Prepared By – Jeetendra Singh
Certified S/4 FICO and CFIN Professional
Parallel Accounting - Why and How
Parallel Accounting
Why do big companies have to deal with parallel accounting/parallel
valuation?
In a globalized world, it is becoming more and more important to compare companies on
basis of their (annual) financial statements.
It is not enough to publish financial statements only on basis of international accepted
accounting standards but also on the basis of local accounting principles; because local
accounting principles are still necessary in many countries. And companies have to meet
both demands.
Example of Local Accounting Principles:
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US GAAP: Accounting principles in the United States
UK GAAP: Accounting principles in the United Kingdom
HK FRS: Japanese accounting principles
HGB: German accounting principles/German law code
Indian GAAP: accounting principles in India
International Accounting principles:
IFRS : International Financial Reporting Standard is published by International
Accounting Standard Board and is most accepted accounting principle.
The philosophy of the IFRS is to supply true and fair information about a company.
In doing so, the basic principles of IFRS are true and Fair view and fair value approach.
The IFRS tries to achieve this information by a lot of singular cases which are
embedded in a framework of general rules: A so called code- based law.
Important:
Anglo American accounting principles are usually case based law, but the basic principles
behind are also true and fair view and fair value approach. That means that in a lot of
topics, example US GAAP and IFRS are very similar or even identical.
European accounting principles, in contrast, often follow other main principles. Example
Creditor Protections and prudence principle So the gap between local accounting principles
and the IFRS is much bigger. .
Prepared By – Jeetendra Singh
Certified S/4 FICO and CFIN Professional
How can SAP ERP fulfil the requirement of parallel accounting/valuations?
The answer to that question depends on the used general ledger.
If new G/L accounting is used than 2 options.
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The accounting solution.
The Ledger solution
If Classic G/L accounting than there is only 1 possibility
• The accounting Solution
Note.
SAP generally considered. The Ledger solution and the account solution as equal.
Complete or delta - What is the difference?
Assume any (Period end) accounting issue that has to be balanced with parallel values.
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According to IFRS. With €5000 and
According to local accounting standard with €7000
In any case. We will have to post 2 documents.
Complete posting. Means to post one document(The international one) with an amount
of €5000. And the other, the local one with €7000.
Delta posting Means we first have to decide which valuation is basis. “Historically
grown”, Let's assume it should be the local one.
So, the first document is posted with the amount of €7000
In a second document we only will post the difference. And amount of € -2000 has to be
entered.
Note:
SAP clearly recommends complete documents.
If you decide to use Delta documents, you will get a mixture of delta and complete
documents. Because SAP programs such as the foreign currency valuation run and the
depreciation run are not able to post Delta values.
Moreover, Delta postings are only possible with manual transactions.
Prepared By – Jeetendra Singh
Certified S/4 FICO and CFIN Professional
Accounts Solution
Working of accounts solution In general:
Business example.
When SAP company is using a parallel valuation and decided to run account solution; To correctly
reproduce the business cases in the system, The company Must understand that valuation
differences will be stored on different FI accounts.
Accounts Solution for Parallel Valuation:
A company that decides to use the account solution for parallel valuation have to use additional
GL accounts to report the differences.
Means only accounts which represent valuation differences have to be newly created. A lot of
accounts, called shared accounts will stay the same and will still be used as before.
Shared accounts example.
• Receivables.
Payables.
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• Cash and bank accounts.
• More or less all expense and revenue accounts.
Shared Account Posting Example
Vendor invoice of spare Parts will look the same no matter if you have implemented parallel
accounting or not.
The same accounts are posted.
Reason. There are no valuation differences between the different accounting principles.
Prepared By – Jeetendra Singh
Certified S/4 FICO and CFIN Professional
Parallel accounting: Typical Period end processes with valuation differences
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(Manual) posting of provisions.
Valuation of postings in foreign currency.
Valuation of adjustment of doubtful receivables.
Valuation of fixed assets.
Posting of depreciation in asset accounting.
Assumption:
Locally we are allowed to depreciate an asset. With APC = €20,000. Over 5 years, useful life.
The accounting records. At the end of one year looks like.
Ordinary depreciation (Expense) account with €4000.
To
Accumulated depreciation (ADP) Account with €4000.
If an international accounting principle allows depreciations over 4 years, then accounting record
at the end of the one year's look like
Ordinary depreciation expense account with €5000
to
accumulated depreciation ADP account with €5000
Note: To avoid wrong values/balances these amounts can not be posted to the same accounts.
Prepared By – Jeetendra Singh
Certified S/4 FICO and CFIN Professional
Illustration of the Asset Acquisition with Vendor and depriciation
Prepared By – Jeetendra Singh
Certified S/4 FICO and CFIN Professional
Ledger Solutions
If a company has to map a parallel valuation and decides to run the ledger solutions. Valuation
differences will be post in the different FI ledgers.
Basic:
In every client, exactly one leading ledger is used to post by all company codes.
• The leading ledger therefore should be used to reflect international accounting principles.
• Only leading ledger is integrated with CO in the standard system.
Additional Non-leading ledger can be defined with in the general ledger.
• The local reporting principles like USGAAP, HGB, UKGAAP, Indian GAAP can be mapped
using non leading ledgers by different company codes.
• Tax ledger can also be mapped as a non-leading ledger.
All ledgers work with the same accounts, valuation differences are stored at different ledgers
not at the different accounts.
Prepared By – Jeetendra Singh
Certified S/4 FICO and CFIN Professional
To better understand Parallel Valuation difference in the account and Ledger Approach lets see
foreign currency Valuation.
What is FCV - Foreign Currency Valuation?
Open Item managed G/L accounts, customer and Vendor Open Items posted in a
foreign currency need to be valuated.
Assume that International Accounting Principles follows Always Evaluate procedure which
means item to be valuated in the BS is with the exchange rate of the current valuation date –
no matter if that means valuation profit or valuation losses.
And the local accounting principle follows Lowest Value Principle means Asset entry is only
valuated if new valuation is less than the previous value and Liability entry is only valuated if
valuated amount is higher than the previous valuation.
In this business case, vendor invoice of 1000 USD is posted with EUR/USD exchange rate = 0.80
and FCV runs is done with the EUR/USD exchange rate = 1.00.
Accounts Solution
Different accounts as per accounting Principles
Ledger Solution:
Same accounts with different Ledgers
Prepared By – Jeetendra Singh
Certified S/4 FICO and CFIN Professional
Hope this documents helps you to understand Overview of Parallel Accounting, how is this
implemented in the SAP and its few use cases for developing the understanding.
Happy Learning and Keep Growing