Areas where SAP Central Finance can improve its Functionalities

SAP Central Finance is a very efficient method of deployment that is gaining acceptance and popularity very rapidly. It still has areas where it still has limitations and requires updates. In this article, we will see the limitations of SAP Central Finance and its subsequent resolutions.  

Limitations in SAP Central Finance

Many patterns for deploying SAP Central Finance are potentially possible. But often, the chance to leverage a single version of the truth is a missed opportunity in process enablement. This poses some limitations to SAP Central Finance in deployment.

While Central Finance is a part of SAP S/4 HANA, we should direct some attention to understanding the relevant finance processes. One of these relevant processes is the Controlling Process.

You can categorize Management accounting for:-

• Controlling – Managing costs for overhead (Operating Expenses)
• Asset Accounting – Managing costs for investment-related activity (Capital Expenditure)
• CO-PA – Managing profitability for business units based on a range of attributes using Profitability Analysis

Let us learn the limitations of SAP Central Finance one by one in these above-mentioned segments of Management Accounting.

Operational Expenses (OpEx) – Controlling

OpEx represents overhead. It is part of responsible management accounting in any organization.

You may manage these costs in SAP and non-SAP systems across different nomenclatures for objects that capture costs.

For example, cost centers show the main points of capture for such costs as either goods receipts or manual invoices. These events are system-agnostic for SAP Central Finance. This is because the replication process not only captures the debit and credits (that may occur in this process) but also captures the mapping needed for standardized reporting.

SAP Central Finance supports the mapping of the standard SAP cost objects during the replication process. This is because the destination is an SAP S/4HANA system.

You must make the mapping for non-SAP systems according to the naming conventions found in SAP S/4 HANA. As a result, non-SAP line items must contain a separate attribute per cost object.

We assume all systems that generate OpEx are connected to Central Finance in SAP. Hence you can now use standard SAP Fiori apps for spend management for OpEx purposes across the enterprise.

With the power of flexible hierarchies for cost centres and profit centres, real-time analysis becomes more powerful as well.

Read Related: Simultaneous Costing in SAP CO

Where an organization may have used custom attributes to analyze cost, you can also analyse these attributes by adding custom mapping to SAP Central Finance. It also updates the linked SAP Fiori apps for these nonstandard attributes. An example of this is corporate initiatives for cost efficiency.

OpEx however represents just one part of the overall cost management process.

Capital Expenditure (CapEx) – Asset Accounting

Three main methods exist for moving capital expenditure into asset management for SAP S/4 HANA.

First Method – Manual Capitalization.

In this method of Manual Asset Capitalization, you make a manual journal entry in asset accounting or G/L with the correct transaction type. This method tends to ignore logistics movements. Also, we cannot use it often because this method is not considered a best practice.

Second Method – Direct Capitalization

In this method, the direct capitalization of an asset can use a purchase order assignment in procurement that is used in the good receipts. It involves movement between balance sheets only. However, the system will reflect the value instantly into the real asset.

Again, this method is not common for organizations using SAP because it does not consider profit and loss analysis requirements for cost management.

Therefore the best practice to avoid the limitations of SAP Central Finance in this segment is to use a logistics process for all asset purchases. However, do remember to use a cost object with it.

Third Method – Cost Objects

The two most common cost objects in this context are:-

1. Internal orders
2. WBS elements.

Both these objects hold values in the profit and loss account. This allows any user to use complete spend management across OpEx and CapEx in SAP Central Finance. Users can use them for data from all SAP and non-SAP systems. Likewise, the same would apply to assets under construction.

SAP Central Finance, however, does not replicate the asset register. This is because you can carry out only one depreciation run at the business level.

While in a reporting scenario, only G/L level data is held in Central Finance. However, for an operation scenario, both G/L and asset-level, data can be held in Central Finance. Although we must activate the asset management in the Central Finance instance of SAP S/4 HANA. Using best practices for asset capitalization, costs would be posted to WBS elements and replicated in Finance. Depreciation would then only occur within SAP Central Finance.

Also Read: SAP S4 HANA Finance Deployment Options

Profitability Analysis – CO-PA

Account-based CO-PA is the recommended way forward for SAP S/4 HANA. In this scenario, SAP central Finance will by default use account-based CO-PA during the replication process from the source system. However, the sources of data for working out COPA could be from either account-based or costing-based instances. For non-SAP systems, this difference is not an issue because the incoming line item would be reconstructed using the account-based approach.

In SAP S/4 HANA, the account-based model represents a thick ledger. This is completely integrated into the financial accounting line item. Although it contains the attributes that we need for CO-PA.

We should make sure that no reconciliation issues should occur between the G/L and account-based CO-PA for primary postings. You can easily determine the Secondary postings using record types and exclude them from reconciliations. Subsequently, it will reduce month-end effort and reduce the amount of IT support needed.

Generally most lines in CO-PA you can re-create by reconfiguring the source system. Else you may copy the line items as-is from primary postings.

For example, almost all lines unless summarized, contain the relevant attributes to populate account-based COPA from revenue to OpEx for advertising and promotion.

You replicate the cost of sales with the relevant cost that however depends on how the material master has been set up. Here one exception is the customer attribute which is in a goods issue during the order fulfilment process. Currently, it must populate as part of the project activity.

This scenario assumes that you require gross margin analysis in SAP Central Finance CO-PA.

Note that CO-PA requires reconstruction rather than replication and that each project may have specific requirements in the current system setup. You may need a project-based activity to fill any gaps.

You may be interested in: SAP Central Finance System Set-up

What’s Next?

We expect all these limitations of SAP Central Finance to remove soon in the next updates. Since the value of controlling is highly significant in s/4hana, the improvement of these in central finance is required. Similarly, in Asset Accounting and CO-PA, once these will get changed as per user requirements, it will give a great experience to users and benefit businesses.

Watch Video:- SAP Central Finance Training – Overview