Financial Management Blogs by SAP
Get financial management insights from blog posts by SAP experts. Find and share tips on how to increase efficiency, reduce risk, and optimize working capital.
cancel
Showing results for 
Search instead for 
Did you mean: 
former_member230840
Participant
7,786
Change is the name of game and world is ever evolving and so are accounting standards. One such accounting standard is IFRS15 or ASC606 which stipulated the 5-step rule for accounting and reporting for revenue recognition.  IFRS 15 and ASC606 became effective in 2018 for most public companies. Prior to that the accounting standard for the revenue recognition was IAS 18 or ASC 605.

SAP Revenue Accounting and Reporting (RAR) is the on prem solution in SAP ERP, that was introduced to handle the 5-step revenue recognition process as articulated in ASC 606 and IFRS15.  Prior to that SAP Sales and Distribution Revenue Recognition (SAP SD RevRec) was used to defer the revenue in line with IAS18 and ASC 605. RAR was made available as an add-on in SAP ERP. From S/4HANA release 1809 the SAP Revenue Accounting and Reporting add-on has become an integral part of the S/4HANA core.

Thus, RAR can help customers using either SAP ERP or S/4HANA meet the requirements given in ASC 606 or IFRS 15. The development evolution means that while ERP has both SD RevRec and RAR solutions, S/4HANA has only RAR for revenue recognition. This also means that impacted customers using SAP SD RevRec in SAP ERP had the option to plan RAR implementation and migration to meet ASC 606 / IFRS15 requirements as applicable (to ECC or S/4HANA) to the company requirements and business needs.

From solution development perspective, in S/4HANA release 1909 onwards, additional RAR capabilities were released that leverages the functionality and optimizations offered by S/4HANA technology. This updated version of RAR offers functionality such as OCM (Optimized Contract Management) and OIP (Optimized Inbound processing). It also offers Migration that can migrate to RAR OCM with OIP.

What this means for ERP customers who did not switch to SAP RAR after 2018, and who are now planning to move to S/4HANA private edition, is that they need to first implement RAR and then migrate the current revenue recognition related orders to RAR before they start using S/4HANA for revenue recognition for these orders.

There can be multiple approaches of moving to S/4HANA RAR. The two approaches that we will be outlining are:

  • Classic: Implement RAR, and migrate to RAR in ECC before starting the S/4HANA Brownfield conversion project

  • OCM: Start RAR implementation and migration work in parallel to the S/4HANA Brownfield conversion project and plan to go live in S/4HANA at the earliest after the S/4HANA conversion go live. Depending on process complexities there can be 2 sub variants given below

    1. Start the Implementation project work and basic customizing in a copy of the ECC server. Copy the customizing to the copy of converted S/4HANA box when it becomes available and continue the implementation/ migration project work in this copy of converted S/4HANA box. All OCM related configuration, customization, and tests for implementation and migration will be done in this box.

    2. Starting the RAR work in parallel but doing the initial configuration directly in a copy of a converted S/4HANA box




At a high level,

  • Approach 1 i.e. the Classic approach is where RAR is:

    1. Implemented in ECC using Classic Contract management.

    2. The migration is also done using the classic migration program into Classic contract management.

    3. Implementation and migration using this approach has been done for a comparatively longer time and has been followed for many customers.

    4. It is also a clean-cut approach where Brownfield conversion project starts after RAR project is completed and has gone live.

    5. Please note that to use OCM / OIP or other new functionalities a follow-on implementation for OCM would be needed in S/4HANA box



  • Approach 2 i.e. the OCM approach, is for a

    1. customer who is carrying out Brownfield conversion from ECC to S/4HANA and the project team have evaluated and determined that their revenue recognition processes – number and complexity, are such that the RAR implementation and migration project can run in parallel to the conversion project with relevant overlaps to allow for copies of converted S/4HANA boxes to be provided for RAR projects.

    2. In this approach the refactored migration program would be used that would create RAR contracts using OCM (Optimized contract Management) and OIP (Optimized Inbound Processing).

    3. Since Revenue recognition for old orders has the pre-requisite of RAR implementation and migration, RAR related configuration should be moved onto converted S/4HANA box at the earliest possible following conversion go live. The migration plan and approach should be appropriate to meet the customer / business need of revenue recognition as early as possible.




The table below shows the advantages and disadvantages of each of the approach in detail


Options


There are some key assumptions for the options discussed above. The key assumptions for the two approaches are as given below,

  • Approach 1 i.e. the Classic approach:

    • Current exceptions in SD RevRec will be resolved before the start of migration.

    • Differences between CCM and OCM and CIP and OIP are well evaluated



  • Approach 2 i.e. the OCM approach:

    • Brownfield conversion from ECC to S/4HANA is a separate independent project running in parallel to RAR project

    • Timeline alignment between the two projects would depend on individual project complexity. It might be a challenge if extensive custom enhancements are needed for the RAR implementation or migration.

    • Differences between CCM and OCM and CIP and OIP are well evaluated

    • The plan would be to move the RAR configuration in the converted S/4HANA system as early as possible

    • The RAR project team gets a copy of converted S/4HANA boxes for the testing and configuration




Some important links for more information are given below

Migration Guide for SD Revenue Recognition to Revenue Accounting and Reporting

Revenue Accounting and Reporting with SAP S/4HANA 2021: Release Information Note

For further queries or feedback please reach out to Surabhi Dubey or Pete Graham
1 Comment