Through the Looking Glass: S/4 HANA Service Manage...

MichaelVollmerServiceMngt · ‎2025 May 06

I am a product expert in the area of S/4 HANA Service Management. In this blog, I would like to share with you some insight into the new feature: Transition to Item-Based Accounting for Productive Customers. This feature is available as of 2023 FPS03 in SAP S/4HANA Cloud Private Edition..

This blog covers the following topics:

History of financial integrations in S/4 HANA Service Management
Transition use case
Motivation
Challenge
Overview of the solution
- Core features
Example setup
Walkthrough of the process with application screenshots, step by step
Restrictions and Outlook
Appendix with completed process setup.

History:

Service Management in the S/4 HANA public cloud release only supports the financial integration with item-based accounting from the start. This is different in the private cloud edition. Here, the financial integration with the account assignment manager already exists in the business suite and has been supported since the previous releases.

Since S/4 HANA private cloud release 2023, Service Management supports the new financial integration to Item-based Accounting as well. However, it is only available for greenfield projects, which means that the integration is only supported for newly set up systems.

Motivation

Item-Based Accounting is the future financial solution and supports exciting new features as follows:

Advanced Execution Order Process
Event-Based Revenue Recognition and TECO status
Planned Cost and Revenue directly displayed in the service contract and service order
Financial Hierarchy on the Service Contract
Business Completion
Service Hierarchy (Collective Accounting)
Intercompany Order
Unplanned Items in the Service Confirmation

Additionally, Item-based Accounting doesn't need an internal order as an additional financial transaction.

So, the big question is how productive customers running Service Management already productive with the old financial integration (account assignment manager with internal order, WBS element or profitability analysis) are going to transition to the new financial integration of Item-Based Accounting.

Until S/4 Hana private cloud release 2023, feature package 3 it was not possible to just switch on Item-Based Accounting in a productive system and work on of the following reasons:

Existing documents could technically not be completed.
Service transaction with new financial integration would be created, but in the old financial integration all cost and revenue from follow-up service orders are posted to an internal order or WBS element of the assigned service contract; with the service order using item-based accounting, this would break the financial reporting of the service contract using internal order or WBS element.
The old existing transaction would use the new financial logic, which would lead to severe inconsistencies.

The Issue with Service Contract Assignment and Financial Reporting

When productive customers activate item-based accounting, their systems already contain service contracts using the old financial integration. Unlike service orders, service contracts normally have a very long life cycle and can be active for several years. The system also contains rather short-lived unfinished stand-alone or follow-up service orders, They might have their follow-up transactions in different phases of the process as well. Last but not least, there could be stand-alone service confirmation using the old financial integration with the account assignment manager.

In the old financial integration, the service orders used the internal order of the assigned service contracts to post cost and revenue so the service contract has a complete overview on profitability.

Due to the issues described above, it means that new service contracts and service orders must work together with old transactions:

An existing service contract using the financial integration with the account assignment manager must be assigned to a new service order using item-based accounting.
An item from a new service contract using new FIN might need to be assigned to an existing service order with old FIN.

Both use case are supported starting with S/4 HANA private cloud release 2023, feature package 3. The first with an automatic settlement rule, and the second only with manual settlement.

The Solution (Key Features)

Now, SAP provides enhancements that support a transition phase from the old financial integration (account assignment manager) to the new financial integration (item-based accounting).

Support to assign service contracts using the old financial integration to service orders items using the new financial integration and vice versa.
Ensure that existing service order transactions that already use a financial integration (account assignment manager or item-based accounting) stay with it and their follow-up transactions use the same financial integration as well.
Provide an automatic settlement rule to settle service orders using new financial integration to service contracts using old financial integration, which supports a complete financial reporting with profitability analysis (CO-PA) on the service contract.
Enable the use for specific features (e.g. unplanned items, fixed price service with an intercompany order, service hierarchy) that normally require item-based accounting to work with a productive, old financial service contract.

Brownfield - with planned cost and revenue (4).png

1. Assign the new service orders to old service contracts.

2. Settle to the existing service contract automatically.

3. To support cost-based CO-PA for the existing service contract in case of I/O or WBS element, the service contract must be settled to profitability segment. This settlement is already in place if cost-based CO-PA is used.

The Automatic Settlement Rule

To have a service order related cost and revenue financial reporting and also still support margin analysis in CO-PA for the service contracts using the old financial accounting, cost and revenue of the service orders items using item-based accounting assigned to these contracts must be settled to the service contract.

This can be done manually but for simpleness and automation, a settlement rule is provided by SAP.

It detects this special case and then settles the actual cost and revenue to the service contracts' accout assignment object (e.g. internal order, WBS element or profitability segment) automatically.

Automatic Settlement - Setup

For this to work the following must be set up in the section Settlement, newly added in the Service IMG.

Define a settlement profile.
Create a strategy sequence for automatic generation of the settlement rule.
- Maintain the settlement profile in the strategy.
- Assign the strategies in the correct priority, include CB1 for this special case.
Assign the strategy sequence to the service order.
Define a substitution rule for the service orders that assigns the settlement profile upon creation of the item-based accounting object.

Define the Settlement Profile

Strategy Sequence

Strategies in the Sequence

Assignment to the Service Transaction

Setting the Settlement Profile via a Substitution Rule

How it Looks in the System

Now let's take a look at the system, how it actually looks like.

We have two service contracts using the old financial integration with the account assignment manager.

The first contract uses an internal order 2000123.

We can take a closer look by navigating to the internal order.

The second service contract is 7000002511.

The WBS element is assigned on item level.

When we create a service order using Item-Based Accounting, both service contracts using the financial integration with the account assignment manager can be assigned to the two service product items.

Both contracts are visible in the Transaction History. You can see on item level that it's Item-based Accounting because the status of the account assignment object is displayed.

The target is to do automatic settlement of the item-based accounting service order to the two service contracts using internal order and WBS element with the old financial integration. For this we need some financial postings.

A follow-up service confirmation is created and completed with both service products taken over. The time sheets and service contracts are displayed in the transaction history.

Using the transaction CATS7 it can be ensured that cost is posted for the time sheets.

Now we create the billing request document and the invoice of the service confirmation so we get as well some revenue.

We can see 1500 Euro revenue for both items.

If we take now a look into the app Manage Settlement Rules - Service Documents, we see a settlement profile is assigned with the respective attributes.

The settlement profile YS0001 is assigned. We can edit the settlement rule and check the details.

For the first item we can see that the receiver for the settlement is the internal order 2000123 which is from the first service contract.

You can see as well the settlement strategy sequence.

For the second item, the receiver is the WBS element WDF2_WBS_01 of the second contract.

This means that if the settlement run during period end close is executed, the complete cost and revenue is settled to the service contracts. hence, the CO-PA reporting for the service contract is intact.

The settlement run can be executed manually by the Run Settlement - Actuals app.

We settle in the first period of 2025 on 01/07/2025.

Showing the item 20 it can be seen that settlement was executed successfully.

Sender information:

Receiver information, the WBS element.

We can check the app Service Actuals that lists the financial data for service transactions in Item-based Accounting. Postings are 0 EURO.

Cost-Based CO-PA: Settlement from Internal Order or WBS Element to Profitability Segment

Now to get cost-based CO-PA data the internal order or WBS element must be settled again to the profitability segment. This is already existing settlement functionality which is then already setup if a customer uses cost-based CO-PA.

To give a complete view, I will run through this settlement process for an WBS element here as well and add an example setup in the appendix section of this blog.

With the app Run Settlement - Actuals we select the cost object type WBS Element and choose our WBS Element WDF2_WBS_01 to settle it.

After we executed the settlement run, the revenue and cost from the WBS element is settled to the profitability element.

The cost-based CO-PA data can be displayed in transaction KE24 Line Item Display - Actual Data.

Choose costing-based after calling the transaction.

The last settlement can be seen by the date and time. I executed this settlement on 01/08/2025 but for the posting date 07/01/2024. Navigate to the accounting and controlling documents to see the respective settled values.

This step completes the financial reporting for cost-based CO-PA.

Restrictions and Outlook

There exist some restrictions that are planned to be worked on in a future release.

The following features are not supported for this transition feature to item-based accounting in S/4HANA private cloud edition 2023, feature package 3:

If you use a service order with item-based accounting, no revenue accounting and reporting (RAR) integration is supported as this belongs to the old financial integration.

This is especially true for the scenario where the service order originates from a solution quote and is part of a sold package. (The solution quote number is sent with the Order Revenue Accounting Item (RAI)). Hence, revenue recognition for bundle products, e.g. to sell a bundle for a server installation with a maintenance contract, is not supported. Customers who are using this RAR scenario are reconvened to continue using the old financial integration.

For a service order item using the financial integration with accounting object manager that is assigned to a service contract using item-based accounting, no automatic settlement rule is provided by SAP. The service order must be settled to the service contract manually.

Execution order items as standard items or a service hierarchy are not allowed to be assigned to a service contract using financial integration with accounting object manager because the settlement does not consider the follow-up PM order cost.
If a service order is using the old financial integration, it’s not allowed to use the item categories that are only supported when item-based accounting is active in the service order. This is because whether a transaction uses old or new financial integration or not is decided on header level. The item categories that are only supported when item-based accounting is active are as follows: execution order items, price items, items with advance shipment and items in a service hierarchy with collective accounting..

Restrictions, Limitations and Outlook

There are some limitations and restrictions that are planned to be resolved in a future release. but you also have to be aware that some features working in the old financial integration are not supported currently with Item-Based Accounting.

One example is the Revenue Accounting and Reporting (RAR) integration. especially if you use the solution quotation with follow-up service orders for sold packages. The solution quote number is sent with the Order Revenue Accounting Item (RAII in this case in the RAR integration and provides with this a special package revenue reporting. Currently Event-Based Revenue Recognition does not provide any comparable functionality. Hence, revenue recognition for bundle products, e.g. to sell a bundle for a server installation with a maintenance contract, is not supported. Customers who are using this RAR scenario are recommended to continue using the old financial integration.

For a service order item using the financial integration with accounting object manager that is assigned to a service contract using item-based accounting, no automatic settlement rule is provided by SAP. The service order must be settled to the service contract manually. It is currently analyzed if for this use case an automatic settlement rule is provided by SAP in a future release.

Execution order items as standard items or a service hierarchy with a execution order sub item are not allowed to be assigned to a service contract using financial integration with accounting object manager. This is because the settlement does not consider the follow-up PM order cost. Currently, only postings from service management transactions is supported to be settled. SAP works currently to solve this restriction with hierarchical settlement in a future release.

If a service order is using the old financial integration, it’s not allowed to use the item categories that are only supported when item-based accounting is active in the service order. This is because whether a transaction uses old or new financial integration or not is decided on header level. The item categories that are only supported when item-based accounting is active are as follows: execution order items, price items, items with advance shipment and items in a service hierarchy with collective accounting. A service transaction can use only one financial integration with its item.

Appendix:

Example Setup for Settlement of WBS Element to Profitability Element

This customizing is needed so cost-based CO-PA can be used as well for the service contracts.

Maintain Settlement Profile

Create Profile ZWBSPS.

Set the parameters as displayed below.

Maintain the Settlement Strategy

Create sequence ZWBS.

Assign the strategy to PSG (profitability segment).

Assign to Internal Order

The order type for the service contract is SAPS.

Example Setup for Internal Order to Profitability Element

Maintain the Settlement Profile

Create the settlement profile as defined below.

Assign Settlement to Internal Order

Add the Settlement Profile to the Internal Order.

Specify Default Settlement Profile for Project Definition

Define Strategy for Settlement Rule

Tips

SAP introduced a new user parameter CRMS4_SRV_CO. If you set it to X (true) in a system using the old financial integration with the account assignment manager, then in S/4 HANA Service Management for your user Item-Based Accounting is switched on. This is especially helpful if you would like to do some testing in the development or quality systems without switching on Item-based Accounting system-wide. Don't use it in the productive system!

Item Category, Settlement Profile and Event-Based Revenue Recognition Customizing for the Transition Use Case

Normally, it is not allowed that an item category which has an Event-Based Revenue Recognition (EBRR) Key customized gets as well a settlement profile assigned. It just makes no sense to realize revenue for an item if I want to settle it anyway. But if Item-Based Accounting is switched on, it is clear that customers want to use the EBRR functionality on the existing items categories and not duplicate there item categories and have separate ones for Item-Based Accounting. So, in case we assign a service order item using Item-Based Accounting to an service contract with the old financial integration and it gets a settlement profile assigned, there is no error if an EBRR key is assigned additionally to this item category.