Today for any Company, compliance with financial reporting procedures has become a hallmark of financial transparency in reporting of net profit , Assets and Liabilities e.t.c Companies are striving hard to automate their month end closing processes to ensure timely flow of financial information for the reporting purpose, accurate recognition of expenses and liabilities at the end of month has become extremely important. This ensures that correct P&L is presented to management for every month along with assets and liabilities.
In the context of month end closing, correct estimation and posting of liabilities accrued to third parties which have not yet been charged to Profit and Loss account constitutes an important month end activity for finance department.
There is still a preconceived notion among SAP FICO Consultants that SAP has not provided any feature to leverage the booking of accrued liabilities for the cost related Purchase Orders (External Services PO, Inventory cost POs etc.). However, SAP has introduced an excellent functionality in S/4HANA 1809 release in 2018 which is termed as Purchase Order Accruals to meet accrual related complex business requirements of business.
The future road map of SAP for Accrual Management is to bring all types of accruals whether RE-FX,Leasing Accruals or Manual Accruals into one single platform to benefit from the wonders of S/4HANA single source of truth financial table.
Scope of PO Accruals:
It has been a longstanding requirement from Businesses to automate accrual process especially for the PO related accruals for which accountants in Tamouh and Subsidiaries spend considerable amount of time to evaluate the PO for which SES or cost posting was not done in the accounting period.
Finance department spends a lot of time to manually calculate the PO related accrual amount to be booked then do a JV posting at the end of month to ensure month end closure. This process is prone to errors, time consuming and manual way and it does not link Accruals to their POs.
I will mention below the key areas for which businesses requires PO related accruals posting at the end of month.
- External Services POs with valuated Good receipts
- Inventory POs with Account Assignment Categories like K,F,P etc.
In addition to above there are other business cases as well for which PO accrual process is valid like Inventory (PO with Account Assignment Category K,F,D) or Service POs with Non-Valuated GRs.
Important Note: PO Accrual process is NOT relevant for inventory item which are stocked like raw materials or product purchased as Assets
Business Requirements for PO Accruals:
At the end of every month, accountants are faced with huge problem in calculating the exact amount of accruals to be booked for the POs for which SES (Service entry sheet) was supposed to be booked in the month because services were delivered but SES was not booked. Likewise for the Inventory Cost POs i-e PO with good issuance , there are cases where inventory was consumed directly after receiving goods from Supplier but no MIGO_GI against the PO. Accountants looks up at all such POs at the end of month and computes an estimated amount of Accruals to be booked.
How S/4HANA PO Accrual Functionality Works:
SAP PO Accruals Engine is a fine grained functionality in S/4HANA 1809 that works on three tier approach explained as under;
- Based on the delivery date of PO Line items, system if identifies a delivery date is falling within current month then Accrual Engine assumes that Services for this PO line item have been rendered or Good receipts has been done against PO with account assignment category K,F,P etc. These amounts are stored in an Accrual item type as Planned Cost. SAP has provided standard Accrual item type for it PLNCST which can be found in configuration nodes falling under t code ACEIMG.
- Accrual Engine determines the actual costs that have been booked against PO before the key date of accrual posting which is always the month end .These amounts are stored in the Accrual Engine in an Accrual item type ACTCST that is referred to as Actual Costs.
- At a key date of Accrual Posting, Accrual Engine for PO checks if the there exist any actual cost posting (SES posting) against PO line item for which the delivery is scheduled in the current month, if no costs or partial cost are found then system propose Accrual by Subtracting Planned Cost from Actual Cost. This difference between Planned cost and Actual cost is nothing but a debt to supplier for which cost and liabilities should have been booked in the current month .Accrual Engine stores this Accrual Amount in an Accrual Item Type ACCRL and when posting the accruals entry system inherits all the account assignment from PO like Expense GL and Cost object (cost center, Order, WBS etc. ) automatically.
Accrual Objects and Accrual Sub Objects:
In Accrual Engine , the PO Accrual Engine component is termed as POAC and as soon as a PO is created then depending upon customizing (offline or online creation of PO Accrual) Accrual Object in automatically created in Accrual Engine, the Accrual Object is nothing but a PO number and its line items are regarded as Accrual Sub Object.
Accrual Object for PO is always created with a start and end of life depending on the assignment of Planned Cost Accrual Method to PO Doc type and its classification that if it is delivery schedule (SDELS) based PO or Performance Period (SPERP) PO like Annual Maintenance contract (Framework Orders) which has Validity start date and Validity End Date.
Following Planned Cost Accrual Methods are relevant in the context of this document.
- PLN_DELSCH (Planned Cost Based on the Delivery Schedule): This accrual method evaluates the delivery schedule of the purchase order item. The amount is calculated using the net price entered in the purchase order item. This method assumes that the delivery schedule reflects reality in the sense that goods/services were indeed received at the delivery dates with these quantities. This method is used normally used for routine Service POs for which services are planned to be delivered in a month but are not recurring in nature. In this case start of life of Accrual Object is PO Document Date and End of Life of Accrual Object is Delivery date of PO Line item .
- PLN_LIND_D (Planned costs with linear distribution per day) : This accrual method evaluates the PO planned cost and distributes the net amount of PO linearly (straight line) based on the number of days between start and end date of Accrual Object. This method is suited for Annual Maintenance Contracts or Frame Work Order.
- PLN_LIND_P (Planned costs with linear distribution per period): This method is similar to PLN_LIND_D but only difference is that the accrual amounts are calculated not on a daily basis, but for fiscal periods.
Review & Approval Process(optional):
Accrual amounts calculated in PO accrual engine are just a proposal based on an assumption. As a consequence, it makes sense to review the proposed amount and make necessary adjustments if required to the proposed amount.
Review process allows the accountant/PO owner to set the %age of completion of work in planned cost which system has proposed for the computation of accrual for a period.
Approval of accrual means that Accrual Engine can only post proposed accrual amount for a PO if the approver has granted his approval.
Both steps, review and approval of the periodic accrual amounts can be active simultaneously. In both steps, review as well as approval, the reviewer/approver can adjust the proposed accrual amounts or planned costs for which he required to enter the reason code and add comments.
Customizing & Process Flow:
PO Accruals Customizing can be found in S/4HANA 1809 release version under IMG Node Financial Accounting>>General Ledger Accounting>>Business Transactions>>Accruals Management>>Applications of the Accrual Engine>>Purchase Order Accruals
Above path can directly be reached through T code ACEIMG. I will not go into the detailed customizing, should anyone have questions about customizing , they may ask me in comments, i will try my best to answer them.
Process flow for Purchase Order Accrual Generation is described in the following data flow diagram.
Purchase Order Accrual Process Flow
We will now look into system to simulate above process flow
- A Services Purchase Order has been created with services delivery date as 28.09.2020 and for the purpose of simulation and posting of Accruals we will assume that no SES posting was done for this PO in 09/2020. PO Document date will dictate start of accrual life in this case and service delivery date will determine the end of accrual.
- Accrual Object Creation in Accrual Engine: Accr Object has been created for PO raised with value 12,000 for the month of September 2020, its a Delivery Schedule based Service PO so accrual method assigned to it in config was Planned costs based on delivery schedule PLN_DELSCH. Accrual Object was created automatically because of online mode of configuration
- ACEPROPOSALRUN – Propose Period Amounts: Assuming no SES was posted for the period 09/2020, we are ran proposal of planned values for review and approval purpose for the key date of 30.09.2020, if review and approval process is not active then this step is not needed.
- FACRARVWBU – Review PO Accruals – PO Owners : Proposed amount will now be reviewed either by PO owner or Accountant.
Planned Cost Reviewed for Accrual Posting
- ACEPOSTINGRUN – Periodic Posting Run: I am deliberately skipping approval process as it is not configured in my test client so going directly to the posting of accrual.
If SES for above PO is posted in October 2020 then this Accrual for PO will automatically be reversed, if partial SES is posted then depending on the logic i-e delta or normal , accrual reversal will be generated and revised accrual amount will be proposed, reviewed and then posted. There is no concept of Opening Posting IP transaction type in POAC and only periodic Posting PP and Final Posting FP is used in 1809. In S/4HANA 1909 many new Transaction Types have been introduced to leverage this solution like Utilization Posting UP, Late Utilization Posting UL etc. for which complete excursus can be found in the link given below
If S/4HANA 1909 POAC features are required in 1809 then SAP has provided down-porting OSS notes 2800604 and 2800607 but please apply these notes with due care since these notes change around 5000 ABAP repository objects in 1809 ..
S/4HANA 1909 release has come up with FIORI apps for PO Accruals applications especially for review and approval .
Legacy Data Migration to POAC:
For the legacy PO migrations to PO Accrual Engine (POAC), POAC_MM2ACE_TRANSFER – Transfer MM Purchase Order to ACE will be used. It will automatically created PO accrual Objects with the planned cost, actual cost booked and accrual amounts etc.