Why parallel accounting

A company reports its results to more than one audience, and those audiences do not always use the same rules. A subsidiary in Germany files statutory accounts under German commercial law, its US parent consolidates under US GAAP, and the group's lenders may want IFRS figures. Most transactions are booked the same way under every principle: a supplier invoice is a supplier invoice. But some are not. Useful lives of assets, provisions, leases, capitalization of development costs and the treatment of certain foreign currency items can all differ. Parallel accounting means keeping books for several accounting principles at the same time, in one system, from the same transactions.

For Contoso, the requirement is simple to state. Contoso reports under US GAAP, which is its main (group) principle. Its owners, a European investment group, consolidate under IFRS and ask for IFRS figures every quarter. Two principles, one company code 1710, one set of business transactions.

Two ways to model it

SAP S/4HANA offers two ways to keep parallel books in the general ledger. In the ledger approach, each accounting principle has its own ledger. Transactions that are the same everywhere post to all ledgers; differences post only to the ledger they belong to. In the accounts approach, there is one ledger and the differences are kept on separate G/L accounts: accounts used by all principles, accounts used only for US GAAP, and accounts used only for IFRS. Each principle's statements are then built from the right set of accounts.

The choice is a design decision

The choice between approaches is made early and is expensive to change. SAP S/4HANA Cloud Public Edition only supports the ledger approach; the accounts approach is an option in Private Edition and on-premise, mainly for customers that used it in SAP ECC. For new implementations the ledger approach is usually the clearer design, because each ledger produces its own complete statements from the same chart of accounts. But a company with very few differences and a long history on the accounts approach may decide to keep it during the move to SAP S/4HANA and change later as a separate project.

Whichever approach you choose, three questions shape the rest of the design. First, which principle is leading? It should be the one the group consolidates on and the one controlling uses for management reporting, because cost and profitability figures in most designs follow the leading ledger. Second, which differences really exist? Ask the accounting policy team for a written list, not a general statement that "IFRS is different." Third, who owns the differences each period? A difference that nobody posts at month end is a difference that silently disappears. For Contoso, Dan owns the policy list, the G/L team posts the adjustments, and the asset accountant owns depreciation area settings. Writing these three answers into the design document saves weeks of argument during testing.