Name: Configuration Settings for Credit Risk Based Impairment in SAP S/4HANA Cloud - Finance
Uploaded: 2022-9-1
Duration: 422 s
Description: In this Microlearning you will learn the following:- Gain understanding on how to activate Advanced Valuations- Aging increments define time horizon of receivables - Impairment rule is key element in defining setting of impairment process - Financial Statement Version with assigned semantic tags represents crucial for selection of impairment relevant G/L accounts

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<div><div><p>In this Microlearning you will learn the following:</p><p>- Gain understanding on  how to activate Advanced Valuations</p><p>- Aging increments define time horizon of receivables</p>  <p>- Impairment rule is key element in defining setting of impairment process</p>  <p>- Financial Statement Version with assigned semantic tags represents crucial for selection of impairment relevant G/L accounts</p></div></div>

Configuration Settings for Credit Risk Based Impairment in SAP S/4HANA Cloud - Finance

Hello and welcome to this micro learning on SAP S/4HANA  Cloud for Finance. My name is Hrvoje Rihtaric and I am Principal Consultant in the SAP S/4HANA Cloud EMEA team. In this video, I will provide an overview on the configuration settings in Credit Risk-Based Impairment that you need to be aware of during an implementation project. The agenda will cover two parts. First, I want to quickly summarize the main idea behind the Credit Risk-Based Impairment process,  before we will focus on the configuration settings that you need to execute during an implementation. In this part, we will also show settings in the system. International Financial Reporting Standard nine, Expected Credit Loss introduces the requirement for companies to account expected credit losses from contractual relationships with business partners based on current and future economic circumstances. In SAP S/4HANA Cloud expected credit losses of trade receivables are calculated based on provision matrix, where we apply fixed provision rates depending on assessed risk category of a business partner and aging increments represented through a number of days, open items of trading partner are overdue. Credit Risk-Based Impairments are offered as an integrated part of Advanced Valuation capability offered to GL accountants. Now let's take a look on the configuration settings that we need to make. As a first step, we need to activate advanced valuation for accounting principle. This will indicate to the system that for this specific accounting principle, advanced valuation is to be performed during period end closing process. As Credit Risk-Based Impairment is part of advanced valuation, this step enables the process. Afterwards, we need to define aging increments. They are used to place the open item in specific time bracket with respect to its net due date. For example, here we can define increments as overdue 30 to 60 days and item overdue 45 days will be part of this specific increment. As a next step, we can distinguish between gross or net principle for impairment, where we define if impairment is to be applied on the gross or net value of open receivable. Within the rules for valuation, we managed core of the configurations such as semantic tags to define general ledger accounts that should be selected for Credit Risk-Based Impairments. Rules for impairment, where  we definine probability of the default based on the aging increment, general ledger accounts where results will be posted. Assign rules for impairment to accounting principle and assign chart of accounts to accounting principle to connect the GL accounts, semantic tags and accounting principle. Now after we have covered the basics, let's check configuration elements in the system. Within a configuration your solution part of an App Manage Your  Solution, please search for advanced valuation, and look for configuration step, activate advanced valuation. You need to make sure to activate advanced valuation for appropriate accounting principle. Within this step, you can specify ledger and company code within fiscal year and period for the activated advanced valuation. Now search for a configuration element define aging increments for advanced valuation. Within this step, select appropriate aging increment. Please remind it is important that this aging increment belongs to the agent category impairment. Within this step, we define aging increments for the impairment. In our case, we already have predefined aging increments that we will use later on in our process. Within this step, define rules for impairment. We are navigating to the configuration settings of impairment rules. Inside configuration of valuation rule steps, we are selecting impairment increments that we will use to calculate probability of the default. In the area semantic tag, we will assign semantic tags that are relevant for general ledger items in the credit risk impairment process. Only the accounts tagged with semantic tags will be evaluated during Credit Risk-Based Impairment job run. Please note that those semantic tags needs to be assigned to appropriate positions of financial statement versions in the part assign a probability of the default, we will define expected credit loss rate delivered as a percentage and assign it to appropriate increment and credit risk category. Within this configuration, we're enabling calculation of the credit loss for the customer that has overdue items within defined aging increment and that belongs to a certain credit risk category. The calculation of impairment posting will be result of original amount multiplied with percentage or probability of the default. In the last step, assign general ledger accounts. We define general ledger accounts which will be used in impairment posting. For the proposal, which general ledger accounts to use, please check test script of the scope item J58. In the configuration part, assign rules for impairment to accounting principles, we will allocate our variation rule defined in the previous step to the appropriate accounting principle. In the configuration area general ledger, look for the configuration part  assign financial statement version to accounting principle. Here we are assigning accounting principle and operative chart of accounts to the financial statement version. With this configuration step, we're establishing a link between financial statement version items and corresponding semantic tags. And we're determining the general ledger accounts used in the process. Now let's summarize key learnings. Advanced valuations have to be active to utilize Credit Risk-Based Impairments. Aging increments define time horizon of receivables we want to consider in Credit Risk-Based Impairments process. Within rules for impairments, we define aging increments, semantic tags  represented through GL accounts considered in the process, percentage of expected credit loss per impairment increments and risk category and P&L general ledger accounts where we will post calculated impairment loss. Impairment rule must be assigned to accounting principle as well as financial statement version. Semantic tags  defined in rules for impairment must be assigned to relevant financial statement items of selected financial statement version. For more knowledge on SAP S/4HANA Cloud, please check out other open SAP courses and learning journeys under the respective websites. In case that you are interested in gaining information on the process of Credit Risk-Based Impairments in SAP S/4HANA Cloud, please make sure to check related microlearning and SAP Help documentation. Thank you and goodbye.