SAP RAR Benefits and Architecture : How it works

Introduction

This blog provides a brief understanding of SAP RAR Benefits and Architecture: How it works,

Overview

In SAP, RAR typically refers to "Revenue Accounting and Recognition." It is a module within SAP S/4HANA designed to handle revenue recognition processes in compliance with various accounting standards, such as IFRS 15 and ASC 606.

RAR helps organizations manage revenue recognition, ensuring accurate and timely accounting for revenue generated from sales transactions.

RAR Benefits

By automating revenue recognition processes, ensuring contract-based accounting, and providing real-time compliance tracking, SAP RAR helps organizations comply with IFRS 15 and ASC 606 efficiently while reducing manual errors and financial risks.

SAP Revenue Accounting and Reporting (RAR) is designed to efficiently manage complex contracts and modifications in compliance with IFRS 15 and ASC 606. It automates key processes, ensuring accurate revenue recognition even in dynamic business scenarios. It also provides real-time revenue insights for finance teams.

 SAP Revenue Accounting and Reporting (RAR) supports complex revenue recognition scenarios, including contract modifications, variable considerations, and cost accounting.

Integration with Sender Components

Technical System Landscape

▪ As of SAP S/4HANA 1809, the former SAP Revenue Accounting and Reporting add-on has become an integral part of SAP S/4HANA

▪ With SAP S/4HANA 1809, the following operational components, or products,   support integration with Revenue Accounting

a.      Sales and Distribution (SD)

b.     Billing and Revenue Innovation Management (BRIM), previously known

        as SAP Hybris Billing      

c.      SAP Customer Relationship Management (CRM)

Integration with Sales and Distribution

As of SAP S/4HANA 1809, this functionality is available as an integral part of SAP S/4HANA.

• You can activate Revenue Accounting for sales order items based on the following

  1. Sales Organization

  2. Sales Document Type

  3. Sales Document Item Category

  
  

• An additional method in BAdI: Sales Order Processing Enhancements (BAdI: FARRIC_BADI_ORDER of enhancement spot FARRIC_SD) enables you to clear the item flag in accordance with the following parameters: Sales Document Type, Sales Organization, Distribution Channel, Division, Company Code to be Billed, Sales Document Item Category, Material Number

• Condition type values and standard fields are transferred to Revenue Accounting for active sales order items.

• you can add fields that aren't standard and then they are transferred to revenue accounting. 

• The data coming to RAR must be in the same format and quality as if it was coming from an SAP solution.   You need to harmonize the following data and settings in both systems: – Company codes, including company code currencies and currency settings – CO-PA configurations, structures, value fields, and operations, if used – Customers and business partners – Accounts and account assignments, profit centers, and business areas.

  
  

Integration of SAP RAR with BRIM

You can integrate Billing and Revenue Innovation Management (BRIM), formerly known as SAP Hybris Billing, with Revenue Accounting.

SAP Billing and Revenue Innovation Management (BRIM) integrates with SAP Revenue Accounting and Reporting (RAR) to manage complex subscription-based, usage-based, and contract-based revenue recognition as per IFRS 15.

• SAP provides the CA (SAP O2C) sender component for integration with Revenue Accounting.

• When SAP CRM, SAP Convergent Invoicing (CI) in SAP ERP, and SAP Convergent Charging (CC) are part of the Offer-to-Cash (O2C) process, the integration with Revenue Accounting is handled entirely through the ERP system.

• The ERP system transmits all necessary data to Revenue Accounting for processing.

 

Integration with CRM

You can integrate SAP Customer Relationship Management (CRM) with Revenue Accounting Classic as follows:

• SAP provides the CRS (SAP CRM Service) component to enable integration with Revenue Accounting.

• The integration flows from CRM through ERP to Revenue Accounting. If the CRM service business transaction is billed in ERP SD, the SD integration component (REVRECSD add-on) must be installed in the ERP system for Revenue Accounting

This architecture supports a five-step model to comply with new revenue recognition regulations:

1.    Identify a contract with a customer

2.    Identify the separate POBs

3.    Determine the transaction price

4.    Allocate the transaction price using the SSP

5.    Recognize revenue when a POB is satisfied,

ARCHITECTURE: How SAP RAR Works,

The figure below shows the high-level architecture of RAR

RAR gathers transactional data from various sources like sales orders, billing, and contracts. RAR is a flexible tool that can easily be integrated with different systems used as data sources. Native integration for RAR is available with some SAP products such as sales and distribution, SAP Billing and Revenue Innovation Management, and SAP Customer Relationship Management (SAP CRM).

You can integrate the SAP S/4HANA revenue accounting and reporting solution with many SAP and non-SAP operational systems. Let us understand how several source systems are connected to revenue accounting and reporting in SAP S/4HANA in order-to-process invoices. All these systems are used as a source for getting data which is later grouped into three categories: order items, fulfilment items, and invoices.

Order items will have all the information needed for contract creation:

Basic data such as customer, start/end date of contract, and so on

Conditions used to determine both the transactional price and the SSP, which will be    used to allocate the transactional price 

An order creates a contract in RAR, whereas fulfilment and invoice update an existing contract.

Adapter Reuse Layer

Data received from source applications generate RAIs (Revenue Accounting Items) to pass the contract information to RAR. SAP applications like SD can be configured to generate RAIs in ARL (Adapter Reuse Layer) automatically.

RAIs (Revenue Accounting Items) in simple terms can be referred to as common language understandable by RAR system. Data received from all the source applications generate RAIs (Revenue Accounting Items).

Once Revenue Accounting Items are created, they need to be processed to create/update RA Contract and POBs (Performance Obligations).RAIs (Revenue Accounting Items) can be viewed and processed using RAI Monitor (Transaction: FARR_RAI_MON).

RAI processing typically consists of three stages or statuses: Raw, Processable, and Processed. However, with an integrated approach, certain stages may be skipped.

Stages/Statuses in RAI Processing:

• Raw: No validation has been performed.

• Processable: Validation checks, such as master data and company code, have been completed.

• Processed: The RAI has been successfully processed, resulting in the creation or update of the corresponding Revenue Accounting Contract.

A RAI is generated for each line item (Main Item) and its associated conditions (Condition Item) for orders, fulfilment, and invoices.

 Select both lines click on process ;

Once data is processed in ARL, it’s checked against rules in Business Rules Framework plus (BRFplus).

Once Order RAIs (Revenue Accounting Items) are processed, Contract No. and POB No. gets updated against each of the RAIs,

based on rules set in BRF+ (Business Rules Framework).

RAR creates revenue contracts and groups contract items into performance obligations (POB).

Business Rules Framework+

BRF+ is an independent application and a key component of the Adapter Reuse Layer (ARL). It is utilized to determine attributes for the Revenue Accounting Contract and Account Determination based on predefined business rules. BRF+ functions both as an API and a User Interface, enabling the definition and execution of business rules.

BRF+ as a standalone application, is not only integrated with RAR but can be integrated with other SAP applications like CRM, SRM and other custom applications also.

You can create a copy of a standard BRF+ template and assign your BRF+ application to your operational systems through IMG activities.

Following BRF+ application templates are delivered by SAP by default;

FARR_AP_SD_PROCESS_TEMPLATE

Template for revenue accounting item classes used for the integration with Sales and Distribution (SD).

FARR_AP_CRM_PROCESS_TEMPLATE

Template for revenue accounting item classes used for the integration of SAP Customer Relationship Management (CRM).

FARR_AP_PROCESS_TEMPLATE

Template for revenue accounting item classes used for the integration of any other sender component.

FARR_ACC_DETERMINE_TEMPLATE

Template for Account Determination.

BRF+ applications are assigned in the configuration for POB processing and Account Determination.

There are Decision Tables in each of these applications for specific purposes which contains condition columns and result columns. The result column data is identified and sent back to RAR based on condition columns data received from RAR system.

The following image illustrates the input column in blue and the output columns in green. 

Below are some of the decision tables available in a BRFplus application:

1.    Updating POB Attributes

2.    Retrieving SSP (Standalone Selling Price) for each POB

3.    Right of Return

4.    Account Determination for Contract Asset

5.    Account Determination for Contract Liability

6.    Account Determination for Recognized Revenue

7.    Account Determination for Rev Adj. Allocation

8.    Account Determination for Deferred Cost

Revenue Accounting Contract and POBs

Revenue Accounting Contracts can be accessed by clicking on the contract number in the RAI Monitor. Each contract includes a list of Performance Obligations (POBs) along with detailed status information for each POB.

Double click on Contract No.

Once Fulfillment or Invoicing is done, respective POBs gets updated.

Calculation of revenue is based on multiple attributes of a POB, which gets partially filled up by BRF+. Following picture depicts attributes of a POB;

Revenue Accounting Contracts also show Revenue Schedule for each POBs, especially for Time Based.

A Revenue Schedule outlines the projected revenue to be recognized over the duration of a contract. It also tracks the status of revenue recognized in each period.

Period End Processing

In Revenue Accounting and Reporting (RAR), 3 step period end closing happens

Step 1 - Transfer Revenue

Purpose: Identifies the revenue to be recognized at the end of the specified period. However, doesn’t post any accounting entries.

SAP Path: Revenue Accountant > Revenue Posting > Transfer Revenue

Transaction code : FARR_REV_Transfer

Fill the details and click on Execute button

By clicking on Execute, a background job gets created.

The status of the job can be checked using Revenue Posting Jobs Monitor.

Step 2 - Calculate Contract Liabilities and Assets

Purpose: Calculates Contract Asset or Liability at the end of the specified period. However, doesn’t post any accounting entries.

SAP Path: Revenue Accountant > Revenue Posting > Calculate Contract Liabilities and Assets

Transaction Code : FARR_REV_Transfer

Enter the details and click on execute

Step 3 - Revenue Posting Run

Purpose: Posts accounting documents based on the calculation done in earlier steps.

SAP Path: Revenue Accountant > Revenue Posting > Revenue Posting Run

Transaction code :FARR_REV_POST

Enter the details 

Run mode should be posting

click on execute.

By clicking on Execute, a background job gets created which will post accounting documents. Before posting, simulation can be done to verify the entries.

The status of the job can be checked using Revenue Posting Jobs Monitor.

SAP Path: Revenue Accountant > Revenue Posting > Revenue Posting Jobs Monitor