Explaining Bond Management (3WY)

The Bond Management process helps you to manage issued bond as well as bond investment. The functionality helps you to automate labor-intensive processes, such as payment handling and accounting postings, giving you more time to focus on value-added activities. You can manage operational and accounting requirements. The process covers fixed-rate bond, floating-rate bond, and zero-coupon bond.

The scope item 3WY - Bond Management enables you to automate the management of bond issuance and investments, including creation of security account, security class and financial transaction, payments, interest rate fixing, and accounting. You will be in a position to make better operational and strategic decisions using the comprehensive reporting and analysis tools. Also improve internal operational compliance with the help of this scope item functionality.

The key process flows covered by the Bond Management scope item include the creation of a security account and a security class. When the financial transaction is processed the payments and associated general ledger postings are performed.

The process also facilitates the month-end accounting process and the monitoring and reporting on the positions and financial transactions.

Use the Manage Securities Classes (FWZZ) app to create the security class. Set the following characteristics for the general data:

• Product Type 04A is predefined, for fixed-rate bond, floating-rate bond, and zero-coupon bond creation, with entire principal repayment occurs at maturity
• Gen. Sec. Classification: Bond
• Bond Classification The type of issuer and seniority ranking is used to classify fixed-income markets

Set some basic data for the issuer of the bond. This will be taken into account for account posting purpose, such as the following: issuer, currency denomination, and maturity date.

On the Conditions tab, set the Condition Items for the security class. Coupon rate and frequency can be defined here.

With the Create Securities Transaction app, you can perform Bond purchase, sale, placement, or redemption transactions. To do this, four transaction types are predefined:

• 100 Investment: Purchase

• 200 Investment: Sale

• 300 Issue: Placement

• 400 Issue: Redemption

General Valuation Class: The accounting treatment varies with different GVC. For example, a bond could be classified as long-term debt, valuated at amortization cost.

Flow Type: Transaction costs are incurred when bonds are issued or invested, such as legal fees, accounting fees which could be recorded with flow types.

With this feature, you can transfer your securities positions at their book values from one securities account to another using the Execute Securities Account Transfer app. The securities account transfer can affect the general ledger as well as the subledger since, by changing the securities account for a position (= change in the subledger accounting), you can change both the valuation class and the account assignment reference if the target securities account has a different account assignment reference in the position indicator to that of the source securities account (= changes in the general ledger accounts).

You can reverse the securities account transfer using the Reverse Securities Account Transfer app.

The securities account transfer takes the transfer amount at book value from the source securities account and posts it to the target securities account. The system generates the associated flows depending on the position management procedure.

You can display the quantities of the security ID number in the source and target securities account before the securities account transfer. You can display the source and target securities account cash flows including the securities account transfer.

Note

There can not be any fixed, condition-based transactions (such as repayment) after the key date of the securities account transfer for the positions involved.

Execute the Run Accrual / Deferral (TPM44) app to perform the period-end closing tasks for the bond management.

An adjusting entry is necessary at period-end when interest payment date is not as the same as period-end closing date. Scheduled background job with a variety of frequency could be created and executed according to customer specific requirements.

Use the Run Valuation app to perform the key date valuation. The accounting treatment varies with different GVC which maintained in security transaction. With pre-delivered content, bonds could be reported at amortization cost, at fair value through profit or loss, at fair value through other comprehensive income.

The interest payment for the issued bond can be performed with the Execute Debit Position - Manual Debit Position app.

With this feature, you can transfer the units/nominals of a treasury position to another position with different account assignments (such as cost center, WBS element, functional area, profit center). In this internal transfer, the position component values are transferred proportionally according to the transfer category of the target position management procedure.

If you have activated Public Sector Management and use the fund and grant account assignments as differentiation criteria for your treasury positions, the account assignment transfer can also be used to transfer a treasury position from one fund to another or from one grant to another.

Use the app Enter Book Values for Manual Valuation to enter the new book values for treasury positions for a specific key date.

After you have entered the new book values, you can start the valuation of the treasury positions using the Run Valuation app executed with the valuation category Manual Valuation With Reset or Manual Valuation Without Reset.

This valuation categories allows you to write-up or write-down a position to the book values entered in position currency and valuation currency in the Enter Book Values for Manual Valuation app, independent of the valuation rules defined.

The following valuation steps support manual valuation:

• Security valuation
• Foreign currency valuation
• One-step price valuation
• Index valuation

The transfer of the current portion of your long-term liabilities/assets posts the amount of repayments for a treasury position that are due within a certain period (for example, within the next 12 months) to a specific G/L account for balance sheet purposes.

The current portion transfer is executed as an additional valuation step as part of the key date valuation.​ The current portion transfer posting is reset on the next day, regardless of the valuation category.​

To perform these steps, you use the Self-Service Configuration User Interface Define Current Portion Transfer Procedure configuration activity, create a procedure for valuation category 012 Current Portion Transfer by entering the period for calculating the current portion. In addition, assign the exchange rate type for the currency conversion for treasury positions in foreign currencies.​ The valuation category is relevant for the following position management categories:

• Securities/Loans/Money Market Transactions/Listed Options Normal Style (Without Index-Linked Bonds)
• Securities/Loans with Installment Repayment (Without Index-Linked Bonds)

By activating parallel valuation for Bond Management - Group Ledger US GAAP, you can use an additional valuation area besides your operative valuation area to reflect financial positions and investment/financing results in accordance with US Generally Accepted Accounting Principles (US GAAP).

The key process flows covered by the Bond Management Group Ledger US GAAP scope item are the posting of transactions to the parallel ledger of US GAAP. You will be able to run accruals and perform key date valuation for security account class position.

You can also reclassify from long term to short term.

According to the classification of bond issuance, you can use the valuation function to value the positions of bond based on the amortized cost or market price fora given key date in valuation area for US GAAP, and transfer results to corresponding ledger for US GAAP in Financial Accounting (FI).

The key data valuation is performed using the Fiori App Run Valuation TPM1.

By activating parallel valuation for Bond Management - Group Ledger IFRS, you can use an additional valuation area besides your operative valuation area to reflect financial positions and investment and financing results in accordance with International Financial Reporting Standards (IFRS 9) phase I (Classification and Measurement).

The key process flows covered by the Bond Management Group Ledger IFRS scope item are the posting of transactions according to IFRS 9 phase I (Classification and Measurement). You will be able to run key date valuations for security account class position. You can also reclassify from long term to short term.

According to the classification of bond issuance, you can use the valuation function to value the positions of bond based on the amortized cost or market price for a given key date in valuation area for IFRS, and transfer results to corresponding ledger for IFRS in Financial Accounting (FI).

The key data valuation is performed using the Fiori App Run Valuation TPM1.