Managing Organizational Units in Financial Accounting (FI)

In the hierarchy of SAP S/4HANA, a client occupies the highest level.

Each client is an independent unit that contains separate master records, a set of tables, and data. In business terms, the client level corresponds to a corporate group or a group of affiliated companies. Data entered at the client level is valid for all organizational units of the client. In addition, data defined at the client level does not have to be redefined at any other level. Relevant information or data, such as exchange rates, can be entered at the client level.

A company code represents an independent legal accounting entity, such as a company, with independent accounts within a corporate group. Financial statements required by law are created at the company code level. The company code is the minimum structure necessary in SAP S/4HANA (FI).

In an international business, operations are spread across different countries. The governments and tax authorities of each country require that these activities should be represented by a separate legal entity. In such a situation, a separate company code is created for each country.

For every organization that has a financial statement and a profit and loss (P&L) statement, a company code is created and stored in the SAP application.

To log on to the SAP system through the SAP GUI, a user must possess the following elements:

• A client key
• A user master record in the client

In the system hierarchy, a company code is the most important organizational unit of FI.

• To create a company code, copy an existing company code using the Copy, delete, check company code function. This copies the following data:

  • Definition

  • Global parameters

  • Customizing tables

  • General Ledger (G/L) accounts (if desired)

  • Account determination

• To define a company code you need the following data:

  • Four-digit alphanumeric company code key

  • Company name

  • City

  • Country

  • Currency

  • Language

  • Address

• To set global parameters you need the following data:

  • Chart of accounts

  • Fiscal year

  • Company code defaults

Select a four-digit alphanumeric key as the company code key. This key identifies the company code and must be entered whenever you post business transactions or create master data that is specific to the company code.

After this, all you have to do is make the required changes to the new company code.

The Edit Company Code Data function allows you to edit the following objects:

• Address data: The address data is required for correspondence and is recorded on evaluation reports.
• Currency: A currency is required for each company code. Accounts are managed in the company code currency. All other currencies are interpreted as foreign. The system converts the amounts posted in a foreign currency into the company code currency. The currency defined in the company code is known in SAP S/4HANA (FI) as the local currency.
• Language key: A language key enables the system to display texts automatically in the correct language; for example, when issuing checks.
• Country key: A country key specifies the country to be regarded as the home country. The system interprets all other countries as foreign. This is important for business or payment transactions because different forms are required for foreign transactions. The system also supports different address formats for foreign correspondence.

If you need a company code for another country, look for a prepared Best Practice Company Code in S/4HANA. Then, you can copy this Company Code into your new company code. Another option is, to build a copy of the Company Code that is part of your Company template. After this step, you adjust the country-specific settings for this new company code.

The following are the main organizational units in Financial Accounting:

• Profit center:

  A profit center evaluates the success of independent areas that are responsible for costs and revenues within a company. You decide whether you need to create only a profit and loss statement at the profit center level (document splitting not active), or a financial statement (document splitting active) along with it.

• Segment:

  A segment is a division of a company for which you can create financial statements for external reporting. Certain accounting principles, for example U.S. GAAP (SFAS 131) and IFRS (IFRS 8), require companies to perform segment reporting. You can define segments in your SAP system for this purpose and provide information on the financial results of these business segments.

• Company:

  FI records are consolidated at the level of the company. One or more company codes, which are then taken into account for consolidation, can be assigned to a company. A consolidation parent can allocate company IDs to its subsidiaries. For example, one subsidiary may be have 1000 as a company ID, while another may be have 2000. Specifying the company ID helps in business processing, mapping, and showing the relationship within a group.

• Functional area:

  In cost-of-sales accounting, overhead costs are reported according to the functional areas in which they are incurred.

• Business area:

  A business area represents separate areas of operation within an organization and can be used across company codes. A business area is a balancing entity that can create its own set of financial statements, which can be used for internal or external purposes. You can save and evaluate transaction figures for each business area. Examples of business areas include training, consulting, and software development.

The answers to the following questions can help clients to select organizational objects in accounting and use them as templates:

• What is the most important accounting principle used in my enterprise?
• Which accounting principles are used for internal or external figure-reporting in my enterprise?
• Does my company structure its Profit and Loss (P&L) statement according to total costs or cost-of-sales accounting?
• Is my company obliged to issue segment reporting?
• Does my company have to issue a consolidated financial statement?

Each of the topics represents different reporting requirements and the recommended procedures for selecting organizational elements to meet their respective requirements. For example, to report on cost-of-sales accounting, you need to use the functional area.

Customers who wish to draw up a complete financial statements by profit centers or segments have to activate document splitting.