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SAP Enterprise Performance ManagementNovember 2012

SAP Process toSupport IFRS

The Best-Run Businesses Run SAP™

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SAP Process to Support IFRSStephane Neufcourt, 9 November 2012

SAP strategy is to leverage our core competency in solving business problems to make the worldrun better and improve people’s lives addressing the world’s most pressing challenges of regulatorycomplexity. Compliance with International Financial Reporting Standards (IFRS) being one of themost challenging topics for our customers, this paper aims to summarize SAP process to supportthis financial regulation.

About this article

This article applies to SAP® Enterprise Performance Management version 10.0 products for the financial close, includingSAP® Planning and Consolidation, SAP® Financial Consolidation and SAP® Disclosure Management.

About the author

Part of the overall SAP enterprise performance (EPM) solution management organization, Stephane has a special focus onfinancial close applications such as SAP Planning and Consolidation, Financial Consolidation or SAP DisclosureManagement. Stephane runs a team of application and domain savvy people who develop financial close starter kits thathelp streamline compliance with international financial reporting standards (IFRS) and generally accepted accountingprinciples such as U.S. GAAP. Starter kits are considered as software component and being updated according toregulatory evolution. In addition, Stephane team releases subject matter expert papers and documentation dedicated toCFO/Consolidation managers, such as "Dealing with M&A with SAP consolidation software" or "How financial close starterkits meet IFRS".

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Foreword

The International Financial Reporting Standards (IFRS) are in constant evolution and this is something chief financialofficers need to factor in when producing their enterprise’s financial results. With the globalization of capital markets andG-20 leaders calling on “international accounting bodies to redouble their efforts to achieve a single set of high quality,global accounting standards within the context of their independent standard setting process” it is all but unreasonable toexpect accounting standards will continue to converge globally, leading to changes in national and international financialreporting rules in the decade to come1.

As an enterprise software provider we take this question very seriously. SAP strategy is to leverage our core competency insolving business problems to make the world run better and improve people’s lives addressing the World’s most pressingchallenges of regulatory complexity. We measure our success based on our customers’ success: when our customers win,we win. We are committed to driving business value of our customers; lowering their total cost of ownership (TCO) andhelping them innovate. Our goal is around innovation, value creation, world class user experience, and speed to value.

Our overall strategy applies both to SAP Business Suite2 and SAP enterprise performance management3 (EPM) portfoliosand we would like to explain how we execute on this strategy to better serve our customers from a financial regulationcompliance perspective.

IFRS within SAP are tackled through an end-to-end Financial Close process, as we aim to address international financialregulation holistically, starting from the financial ledger and ending with the filing to stock exchange authorities. As asoftware company we position these regulatory into our technology roadmap and vision which encompasses five marketcategories: Applications, Analytics, HANA, Mobility and Cloud.

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IFRS support, process overview

IFRS is considered holistically within SAP. We are committed to provideyou with software compliant with the international financial regulation.We also take pride of involving our customers and partners in ourstrategy whenever required by a major change in regulatoryrequirements. We support IFRS through a 4-step process.

IASB monitoringFirstly, we closely and constantly monitor the IFRS Foundation and the International Accounting Standards Board (IASB)work plan. From a standard-setting standpoint the IASB “is the independent standard-setting body of the IFRS Foundation.Its members (currently 15 full-time members) are responsible for the development and publication of IFRS, including theIFRS for SMEs and for approving interpretations of IFRS as developed by the IFRS Interpretations Committee (formerlycalled the IFRIC). All meetings of the IASB are held in public and webcast. In fulfilling its standard-setting duties the IASBfollows a thorough, open and transparent due process of which the publication of consultative documents, such asdiscussion papers and exposure drafts, for public comment is an important component. The IASB engages closely withstakeholders around the world, including investors, analysts, regulators, business leaders, accounting standard-settersand the accountancy profession.4”

SAP IFRS taskforceThe IASB monitoring is performed by our SAP IFRS taskforce which comprises 27 members from the SAP Business Suiteand SAP EPM organizations. Its mission is to deliver analysis notes describing foreseen impacts on the products. Thetaskforce focus areas vary according to the IASB work plan; for example in 2012 and 2013 topics such as revenuerecognition, financial statements, consolidation, financial instruments, liabilities, leases or fair value measurement are atthe top of our agenda. We make our analysis papers and notes publicly available through a dedicated IFRS space within ourSAP Community Network on http://scn.sap.com/community/ifrs. As a customer or partner you can therefore provideyour feedbacks and comments at a very early stage in our development process. Here is an example of a paper: IFRSupdate, standards published in 2011.

IFRS-related development & release to customersAt SAP, IFRS-related requirements follow our Product Innovation Lifecycle (PIL) which addresses how regulatoryamendments or new standards are captured, evaluated, and turned into products. The PIL is driven primarily by theportfolio and solution management team – and involves virtually all of our lines of business, including marketing, sales,development, production, consulting, education, and support. The PIL defines how these functional groups work togetherto transform ideas into products that deliver superior customer value, lead the market, fulfill or exceed SAP's commitmentto our customers and rapidly move to volume ramp-up. The PIL encompasses five phases: invent, define, develop, deployand optimize. Real case scenarios including realistic sets of data – from general ledger up to final IFRS XBRL filing – areused to test and validate the enhancements brought to our products. All enhancements are released to customers throughSAP notes. Here is an example for EPM: IASB updates for amendments to IAS 1 and IAS 19.

Support of IFRS-related featuresIFRS within our EPM portfolio is addressed by SAP® Business Planning and Consolidation, SAP® Financial Consolidationand SAP® Disclosure Management. For these products we support IFRS through product features and preconfiguredsoftware entitled “financial close starter kits for IFRS” including an IFRS-based chart of accounts, reports for data entry atlocal level and data retrieval at the group level, including publishable financial statements, controls to validate data enteredor loaded into the application and a comprehensive set of consolidation rules designed to produce consolidated datacompliant with IFRS. The starter kits for IFRS are being enhanced once or twice a year according to the changes inregulation and made available on our SAP Help Portal. You can post your questions or enhancement requests through SAPsupport portal which is your one stop shop for all support and service related needs and where you can access yoursoftware, request license keys, get technical support and find the documentation you need to run your business better.

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IFRS support, financial close process

IFRS apply equally to consolidated and separate (individual) financial statements, except for somerequirements that specifically address one or the other. For example, IFRS 10 is dedicated to consolidatedfinancial statements whereas IAS 27 only addresses separate financial statements. In practice, the use of IFRSvaries from country to country according to local regulations. For example, in the European Union, EU-endorsed IFRS are mandatory for listed companies’ consolidated statements whereas national GAAP usuallystill apply to individual statements and the unlisted sector. In SAP EPM, local data, as loaded in schedules orafter manual adjustments, is supposed to be IFRS compliant. It means that assets and liabilities, revenues,expenses, gains and losses are measured in accordance with IFRS requirements.

General Ledger Financial Consolidation Regulatory Disclosures

In the general ledger(GL), local data isrecorded in nationalGAAP format or in IFRSformat.

Data from the GL is loaded intothe financial consolidationsystem and adjustments areperformed via manual journalentries if the GL is in local GAAP.

The consolidation is then beingprocessed according to IFRS.

Consolidated data is loadedinto the disclosuremanagement system wherethe annual report andeXtensible BusinessReporting Language (XBRL)filing are produced.

IFRS in the financial consolidation systemPart of SAP enterprise performance management (EPM) solutions, SAP Business Planning and Consolidation and SAPFinancial Consolidation software both address financial consolidation requirements, can be integrated into SAP and non-SAP software environments and can load data from any general ledger application. For IFRS related topics we deliver anIFRS component for each of our consolidation software – called “starter kits for IFRS”. The starter kits are a completeconfiguration of the product from data collection to publishing of financial statements and designed to perform, validateand publish a statutory consolidation in accordance with IFRS. Using software and functional best practices, the starterkits ensure optimal performance, better usability and facilitated customer enhancement while streamlining regulatorycompliance.

Each starter kit for IFRS includes a chart of accounts based on the latest IFRS taxonomy, reports for data entry at locallevel and data retrieval at the group level, including publishable financial statements, controls to validate data entered orloaded into the application and a comprehensive set of consolidation rules designed to produce consolidated data. Inaddition our starter kits are accompanied with in-depth documentation explaining how they have been developed to meetIFRS requirements. For more information you can refer to the following documents: How SAP Financial Consolidationstarter kit meets IFRS and How SAP Business Planning and Consolidation starter kit meets IFRS.

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IFRS in the disclosure management systemIn SAP Disclosure Management, consolidated data is synchronized with the financial consolidation system where figureshave been processed in compliance with IFRS. Our starter kit for IFRS component delivers business logic for the “last mileof finance” on top of SAP Disclosure Management and mainly focuses on compliance with IAS 1 Presentation of FinancialStatements and IAS 7 Statement of Cash Flows. The starter kit assists you in setting up your application in order to publishfinancial and non-financial regulatory statements and notes as well as to file the corresponding data in XBRL format. Thestarter kit is based on the IFRS taxonomy as published on March 29th, 2012 by the IASB and includes a predefinedfinancial report designed according to IAS 1 and IAS 7 requirements. In addition, the starter kit addresses U.S. SEC (UnitedStates Securities and Exchange Commission) requirements for Foreign Private Issuers through a pre-built 20-F formtemplate compliant with the EFM (EDGAR® Filer Manual) rules and the IFRS Taxonomy 2012 Guide. For more informationyou can refer to the following document: How SAP Disclosure Management starter kit meets IFRS.

Conclusion

Challenging economic conditions demand that enterprises find new ways to gain a competitive edge. One surefire way toachieve this advantage is to optimize your organization’s business performance. SAP® enterprise performancemanagement solutions and governance, risk, and compliance software are designed to help you meet this objective byaddressing compliance and business risks while closing the gap between strategy and execution.

These SAP applications can deliver tremendous value to organizations seeking to optimize their business efficiencies andimprove performance. Yet deploying these applications so that they deliver maximum value requires careful planning andskill. Not every organization has the expertise and resources needed to conduct an effective application deployment. Infact, some CFOs and financial managers may experience a few avoidable difficulties while configuring and deploying theirsoftware.

SAP solutions can help you gain broader insight and align your strategy with day-to-day business activities while optimizingthe decision making process and improving risk management – regardless of your underlying transactional systems.Enterprise performance management solutions can help you model and optimize processes, strategize and prioritizegoals, plan and execute those strategies, and monitor and analyze your results. Applications designed to addressgovernance, risk, and compliance can help you develop appropriate strategies and policies, identify and respond tochallenges and monitor and remediate any identified risk.

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More information

For more information on IFRS at SAP visit http://scn.sap.com/community/ifrs.

You can also follow our social media dedicated to IFRS:

http://twitter.com/SAP_IFRS_XBRL

http://www.facebook.com/sapifrs

http://www.linkedin.com/groups?mostPopular=&gid=1851849

You can get insight into SAP Business Suite at http://www.sap.com/lines-of-business/finance/business-suite-apps/index.epx.

You can also explore our EPM financial close solutions at http://www.sap.com/solutions/analytics/enterprise-performance-management/financial-close.epx.

ContactStephane NeufcourtDirector, SAP Analytics – Enterprise Performance Managementstephane.neufcourt@sap.comPhone +33 1412 5-3751Mobile +33 6119 9-8543SAP Labs, Levallois92309 Levallois-Perret (France)

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www.sap.com/epm

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Legal disclaimerNo part of the financial close starter kits may be reproduced ortransmitted in any form or for any purpose without the expresspermission of SAP AG. The information contained herein may bechanged without prior notice.Some software products marketed by SAP AG and its distributorscontain proprietary software components of other softwarevendors.The information in the financial close starter kits is proprietary toSAP. No part of the financial close starter kits’ content may bereproduced, copied, or transmitted in any form or for any purposewithout the express prior permission of SAP AG. The financial closestarter kits are not subject to your license agreement or any otheragreement with SAP. This financial close starter kits contains onlyintended content, and pre-customized elements of the SAP®product and is not intended to be binding upon SAP to anyparticular course of business, product strategy, and/ordevelopment. Please note that the financial close starter kits aresubject to change and may be changed by SAP at any time withoutnotice. SAP assumes no responsibility for errors or omissions in thefinancial close starter kits. SAP does not warrant the accuracy orcompleteness of the information, text, pre-configured elements, orother items contained within the financial close starter kits.SAP DOES NOT PROVIDE LEGAL, FINANCIAL OR ACCOUNTINGADVISE OR SERVICES. SAP WILL NOT BE RESPONSIBLE FOR ANYNONCOMPLIANCE OR ADVERSE RESULTS AS A RESULT OF YOURUSE OR RELIANCE ON THE FINANCIAL CLOSE STARTER KITS.THE FINANCIAL CLOSE STARTER KITS ARE PROVIDED WITHOUTA WARRANTY OF ANY KIND, EITHER EXPRESS OR IMPLIED,INCLUDING BUT NOT LIMITED TO THE IMPLIED WARRANTIES OFMERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, ORNON-INFRINGEMENT. SAP SHALL HAVE NO LIABILITY FORDAMAGES OF ANY KIND INCLUDING WITHOUT LIMITATIONDIRECT, SPECIAL, INDIRECT, OR CONSEQUENTIAL DAMAGESTHAT MAY RESULT FROM THE USE OF THE FINANCIAL CLOSESTARTER KITS. THIS LIMITATION SHALL NOT APPLY IN CASES OFINTENT OR GROSS NEGLIGENCE.The statutory liability for personal injury and defective products(under German law) is not affected. SAP has no control over the useof pre-customized elements contained in the financial close starterkit and does not endorse your use of the financial close starter kitsnor provide any warranty whatsoever relating to third-party use ofthe financial close starter kits.The Best-Run Businesses Run SAP™