Understanding Parallel Accounting in SAP S/4 HANA

What is Parallel Accounting?

Parallel accounting refers to the practice of preparing financial statements using multiple accounting principles concurrently. This approach enables companies with global operations to comply with the reporting requirements of different jurisdictions or standards-setting bodies, such as International Financial Reporting Standards (IFRS), Generally Accepted Accounting Principles (GAAP), or local Generally Accepted Accounting Principles (Local GAAP).

Why Companies Adopt Parallel Accounting ?

The necessity for parallel accounting arises primarily due to the following reasons:

Regulatory Compliance: Multinational corporations must stick to the accounting regulations of each country in which they operate. These regulations may vary significantly, necessitating the preparation of financial statements in accordance with different accounting standards.

Investor Expectations: Investors and stakeholders often expect companies to provide transparent and comparable financial information. By utilizing parallel accounting, organizations can enhance transparency and facilitate easier comparisons across different reporting frameworks.

Internal Management Needs: Parallel accounting can also serve internal management purposes, enabling companies to assess performance, allocate resources, and make strategic decisions based on standardized financial information tailored to specific jurisdictions or reporting requirements.

Implementing Parallel Accounting in SAP :

Implementing parallel accounting requires careful planning and integration within a company's financial reporting systems. One common method for achieving parallel accounting is through the use of parallel ledgers within SAP. Here's how it works:

Parallel Ledger Configuration: Companies configure their SAP systems to accommodate multiple parallel ledgers, each representing a different set of accounting principles or reporting requirements. For example, a company may maintain one ledger for local GAAP reporting and another for IFRS reporting.

Transactional Processing: Transactions are recorded in the appropriate ledgers based on the relevant accounting standards. For instance, a sales transaction in a foreign subsidiary may be recorded in both the local GAAP ledger and the IFRS ledger, ensuring compliance with both sets of reporting requirements.

Reconciliation and Reporting: Regular reconciliation processes are performed to ensure consistency and accuracy between the parallel ledgers. Financial statements are then generated separately for each ledger, providing stakeholders with insights into the company's financial performance under different accounting frameworks.

Configuration of Parallel Accounting

Path to Configure -

SAP IMG –> Financial Accounting (New) –> General Ledger accounting (New)–> Financial Accounting Global Settings (New) –> Ledgers –> Parallel Accounting –>

STEP 1: Define Accounting Principle

Accounting Principle - are rules that govern how companies record and report their financial data.

Click on New Entries > Enter the Accounting Principle, Name Of Accounting Principle and Save.

STEP 2 : Assign Accounting Principle to Ledger Groups.

Click on new entries > Enter Accounting Principle against Target Ledger Group (or) Update the accounting principle key for assignment of Ledger group and Save.