IFRS Reporting from SAP & 1C in Russia

By Oleg Galiulin, Senior SAP Expert and Yuriy Zarya, IT Project Manager
SCHNEIDER GROUP

Choosing an ERP System

Currently, all international companies have to prepare their financial statements according to both International Financial Reporting Standards (IFRS) or Generally Accepted Accounting Principles (GAAP), and local reporting standards of the countries they work in.
In addition, the more their businesses grow, the more complex informational systems are needed. At present there are plenty of IT companies that are ready to provide self-engineered ERP solutions. The changing complexity of a company’s IT needs makes it difficult for a company to choose the ideal ERP system.

Let us consider this problem in a typical example of entering a new market (e.g. Russia). The process usually begins with the launching of a new business unit. When opening a representative or a small branch office, the company does not need to use a heavy IT system as its reporting needs are covered with a light version of ERP software provided by local vendors (e.g. “1C” in Russia). But when business activities grow, and the company opens a Limited Liability Company to engage in complex export/import operations, it needs to use a full-scale IT solution. This solution should:

• Completely consider local accounting and tax requirements.
• Report a clear and confidential view of the current business processes and overall situation in the company.
• Provide quick access to data transactions and required business analytics.

SAP Solution

In this type of case, the typically recommended IT solution is provided by the indisputable leader in business software development – SAP. Among the rich variety of available products, SCHNEIDER GROUP advises businesses to use the so called “best-practice” solution (the “best-practice” stands for “the optimally built” – a new line of solutions based on previous implementations of IT systems by SAP worldwide). This product provides a pre-configured IT system that already complies with Russian legislation. Moreover, functionality can be expanded with special industry enhancements (e.g. retail, production, etc.) without hindering its compatibility with various companies. SAP All-in-One is composed of different blocks (called “modules”) – such as Financial Accounting, Controlling, Banking, Logistics, Assets Management and many others – that provide an opportunity to create a an optimal solution that will satisfy the client’s business needs.

SAP Finance Function

At the same time, the core of each system is comprised of finance and logistics processes. And in this case, SAP provides a clear standardized solution for IFRS reporting that can be used in Russia as well. The non-complex (but highly important) customization of this function includes:

• General FI customization by maintaining parallel ledgers (IFRS and RAS), mapping IFRS and RAS (Russian Accounting Standards) accounts – through IFRS hierarchy creation, IFRS standard reports maintaining, etc.
• Special customization of related modules, which are implemented in the client’s system, e.g. assets
  accounting, leasing and others.

Architecturally, the provided solution is based on a mix of sequential and parallel methods
of accounting. This approach is called “mixed method” as it combines parallel accounting
and periodical transformation (called “data translation”). Therefore, when the financial posting
is made, the relevant data goes either to both financial ledgers (IFRS and RAS) or only to one
of them. This separation is made simple by using different transactions during the posting.

Out of the other benefits that SAP IFRS functionality brings to the client, the following should be
mentioned:

• Flexibility – as various companies can easily adopt their solution to their business needs.
• Fast implementation – as a provided standard solution can be easily localized and scaled.
• Support of corporate business standards – as SAP in many cases is used as a corporate ERP system,
  its implementation from the very beginning in local business units brings compatibility in one stroke, thereby cutting further IT costs.

SAP Management Accounting and Results Analysis

Along with that, SAP All-in-One Finance functionality also provides the company with a flexible managerial and profitability analysis reporting. Highly customizable, flexible, profound solutions for management accounting (with dozens of cost object types, allocation bases and methods to use) provide the opportunity to deliver the most dynamic solution for the company.

It is not possible to make a complete financial report of a company without up-to-date reports on results
analysis. For this purpose, SAP All-in-One Finance provides a special function – CO-PA (Controlling
and Profitability Analysis). This module analyzes profitability by collecting costs and revenues along
with relevant characteristics thereby acting as a strategic and financial reporting tool. Using this,
the management of the company can easily get information on the profit of a certain product in a
certain region by a certain sales person or customer. Such information can be easily aggregated (for
conducting overall analysis) or narrowed down to a certain transaction (if more in depth analysis is
required). For an accelerated implementation, SAP provides a pre-customized module (with the most
commonly used characteristics), so the client could activate this module within the shortest period of
time and with minimum cost.

For all these reasons, if a company decides to run an SAP implementation project (should it be rollout,
upgrade, enhancing, or just support) a skilled IT consultant is needed. A qualified ERP integrator
will choose the most suitable solution for the company’s business, perform implementation, and
control risks. So in the end, the company will get the best solution, which will increase efficiency for
its business.

IFRS Reporting from 1C

Standard 1C solutions for Russia are focused on addressing Russian management and accounting
requirements (RAS). At the same time, all cross border businesses have to prepare their financial
statements according to standards that are different from RAS. Depending on which country
the company’s headquarters are located, it could be IFRS, GAAP, HGB-2, or others (hereinafter, this
collection of foreign accounting standards will be referred to as ‘IFRS reporting’).

IFRS reporting can be prepared from Russian accounting data, but, as the business grows, it will require an increasing amount of manual work. However, to automate this process there are a range of special solutions for IFRS accounting and reporting on the base of Standard 1C solutions.
SCHNEIDER GROUP advises to use “the best practices based” solution ITAN, which combines the most transparent structure inside the 1C platform and compatibility with standard 1C solutions. ITAN uses resources from the RAS database and does not change the default settings of a standard 1C database. The menu of ITAN is accessible within 1C configuration and there is no need to become acquainted with a new program or interface. ITAN uses the standard forms and layout of 1C. The most remarkable features of ITAN are:

• Alternative charts of accounts for corporate/IFRS needs, which can use any currency and are flexible  enough to meet the requirements of individual corporate standards
• Mapping of charts of accounts which define the rules for translation of documents and give an opportunity for flexible allocation
• Translation of postings from RAS to alternative charts of accounts with a flexible schedule for automatic translation: upon posting, for a given period (monthly, daily, every minute)
• Powerful reporting tool which provides easily adaptable individual corporate standards reports. The standard reports include balance sheet, P&L, cash flow, etc.
• Reports by various controlling dimensions, like cost/profit centers, business lines, sales managers, clients, projects, transactions
• Reports can be produced and downloaded in various formats

With experience in many projects which were realized in different countries and on the base of different 1C solutions, we can know how to implement and work with IFRS reporting tools for 1C.
SCHNEIDER GROUP provides you with a full range of services regarding ERP implementation, from a single advice to a full-cycle implementation project.

We at SCHNEIDER GROUP consult and provide our international clients with the back office services they need to expand their business into or within Russia, Kazakhstan, Belarus, Ukraine, Poland and Germany. Our services include accounting outsourcing, tax consulting, import, EPR systems and support in legal matters. To increase their efficiency and profit, we implement and develop modern technology and constantly improve processes and workflows. We have been utilising the very solutions we provide for over a decade among our 500 experts.