PUBLIC Smart Accounting SAP SE or an SAP affiliate company. All rights reserved. THE BEST RUN

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1 PUBLIC SAP SE or an SAP affiliate company. All rights reserved. THE BEST RUN

2 Content Accounting Process Model and Book Value Components....6 Financial Instruments Insurance Contracts Central GAAP and Delta GAAP Approach Portfolios Subledger Coding Block Master Data Dimensions and Their Derived Subledger Dimensions Flow Data Dimensions and Their Derived Subledger Dimensions Analytical Control Parameters Calculation Method Dimensions and Their Derived Subledger Dimensions Accounting Dimensions Charts of Accounts Subledger Chart of Accounts G/L Chart of Accounts Processes for Financial Instruments Results Data Day Processing Period-End Processing Year-End Processing Period-Opening Processing Preparatory Processing Tools Processes for Insurance Contracts Results Data Day Processing Period-End Processing Year-End Processing Period-Opening Processing Preparatory Processing Tools Suspense Accounting General Ledger Connection Notes to Financial Statements Determining Fair Value Maturity Grouping P U B L I C Content

3 1.11 Additional Information Going Live with for Financial Instruments Value Added Tax Processing SDL Products Mapped as Structured Products Purchased or Originated Credit Impaired (POCI) Financial Assets Customer Enhancements Change of Legal Entity Content P U B L I C 3

4 1 is a subledger for financial instruments and insurance contracts that integrates seamlessly into the accounting documentation chain. It receives operational flow transactions, documents these at single contract level and supports the valuation and documentation for multiple accounting standards. The positions on the subledger accounts are transferred to the general ledger in an aggregated view at G/L account level. You can use standard interfaces to make all the information from the subledger required for closing accounting periods available for reporting purposes. The following figure illustrates this scenario and contains links to more information: Processes for Financial Instruments [page 47] Processes for Insurance Contracts [page 168] 4 P U B L I C

5 General Ledger Connection [page 249] Results Data Layer (FS-BA-RD) Source Data Layer (FS-BA-SD) has a modular structure and is based on the information-producing processes of operational position-managing systems and the documentation requirements of various accounting principles. is based on a logical accounting process model. This prescribes the functional responsibilities of the individual process steps. The processes are based on the sequence in which the operational systems provide information, and the sequence in which the accounting information and documentation are required. for Financial Instruments and Insurance Contracts for Financial Instruments is used for the accounting of business transactions: Payments and settlements are documented in the form of posting documents. for Insurance Contracts also involves the accounting of business transactions. In addition, the system documents expected cash flows (BECF). Processes in can be subdivided into the following processes: Day Processing You use day processing to register and document operational flow transactions and master data changes. You can run this process multiple times in the course of a day and so stagger the processing of data volumes. Once day processing has been completed, all the prerequisites are fulfilled to reconcile operational feeder systems and the subledger. End-of-Day Processing End-of-day processing follows day processing and comprises the following subprocesses: During end-of-day processing (business transaction) the system generates business transaction-based postings. These are based on the business transactions registered for a posting date. During end-of-day processing (contract) the system updates contracts or securities positions in which master data has been changed. In addition, currency positions are updated due to flow transactions registered during the day in foreign currency. Period-End Processing Before you can execute period-end processing, you need to have completed end-of-day processing. You use period-end processing to update accounting positions based on key dates and to document changes. This means all the prerequisites are fulfilled for closing a reporting period on a key date. You can define the period that period-end processing refers to according to your requirements. The defined period can be a day, a month or a quarter, and includes special periods. Usually processing is based on individual contracts or securities positions. If you need to process crosscontract positions, process steps are available that update these types of accounting balances. Year-End Processing After period-end processing for the last regular period of the fiscal year, you execute year-end processing. You use year-end processing to close and open fiscal years by creating a year-opening balance. You can make corrections within special periods. The system creates year opening positions both for single contracts or securities positions and for cross-contract positions. P U BL IC 5

6 Period-Opening Processing You use period-opening processing to reset documents that were created during period-end processing or end-of-day processing (contract) on the previous day. Related Information Central GAAP and Delta GAAP Approach [page 25] Subledger Coding Block [page 31] Charts of Accounts [page 43] Processes for Financial Instruments [page 47] Processes for Insurance Contracts [page 168] 1.1 Accounting Process Model and Book Value Components is based on an accounting process model that comprises individual process steps, each of which builds on the previous step. Each process step has a clearly defined area of responsibility, which is reflected in the book value components in each case. The process model is defined by generic dimensions that bear no reference to an accounting principle. Therefore, the model is intended to be universally valid. Accounting Process Model and Book Value Components for Financial Instruments [page 6] Accounting Process Model and Book Value Components for Insurance Contracts [page 21] Financial Instruments Dimensions of the Accounting Process Model The process model is defined based on generic dimensions that can be used to logically structure the book value components and related process steps. Operational vs. analytical Operational flow transactions and master data changes originate in the operational source system. This information therefore applies across all accounting principles. Analytical position changes stem from an accounting perspective that is dependent on an accounting principle. The system distinguishes between operational and analytical process steps and book value components. Dependency on the value date The value date for a given posting specifies the date on which the posting amount becomes effective. Correction postings are therefore posted with a value date in the past to ensure the correct value date is 6 P U B L I C

7 set for account settlement. This means that all posting documents that change long-term receivables, accruals and deferrals are value-date-dependent. Event-driven vs. deterministic vs. stochastic This dimension describes how operational flow transactions and analytical value adjustments originate. This can be event-driven, deterministic or stochastic. Event-driven means that a flow transaction or change in value is primarily caused by a business event (for example, a deposit to or disbursement from a checking account). Deterministic means that the documented value changes are foreseeable due to the timeframe involved. For example, when a contract is created it is already known how an accrual or deferral will develop. Stochastic describes value changes that are unforeseeable, such as changes in market price. Book value components The table below displays the most significant book value components in with their respective dependencies on the process model dimensions. Book Value Component Dimension: Operational vs. Analytical Dimension: Dependency on the Value Date Dimension: Event-Driven, Deterministic or Stochastic Unpaid Principal Balance (UPB) Operational Dependent on the value date Event-driven Deferrals Accruals Operational Dependent on the value date Deterministic Deferrals Analytical Dependent on the value date Deterministic Write-Down (Nominal) Analytical Not dependent on the value date Valuation Remnants Analytical Not dependent on the value date Credit Risk Adjustment Analytical Not dependent on the value date Event-driven Deterministic Stochastic Interest Rate Risk Adjustment Analytical Not dependent on the value date Stochastic LCM Adjustment Analytical Not dependent on the value date Fair Value Adjustment Analytical Not dependent on the value date Write-Down Adjustment Analytical Not dependent on the value date Stochastic Stochastic Stochastic In addition to the listed book value components that it manages as subledger accounts in, the system also manages further subledger accounts at contract level that are not part of a book value. Examples of this are P&L accounts (income and expenses) or short-term receivables. In addition, the system manages custom subledger accounts at the granularity level of financial statement entities. Examples of this are in-transit accounts, foreign currency positions and equivalent value positions. P U BL IC 7

8 Assignment of Book Value Components to Process Steps You can assign the book value components to various process steps according to the process model. The graphic below shows this relationship in simplified form; only the most important book value components are displayed. (Special cases that require additional book value components are not taken into account here.) For more information and a detailed overview of the process model, see Processes for Financial Instruments [page 47]. Note More information is linked in the interactive graphic below: Hover over an arrow for a description. Click the arrow for the documentation for relevant process step. Register [page 63] Accrue [page 97] Defer [page 99] Write Down [page 115] Release [page 116] Value TC [page 126] Process Step Book Value Component Register Unpaid Principal Balance (UPB) Deferrals 8 P U B L I C

9 Process Step Accrue Book Value Component Accruals Defer Write Down Release Value TC Deferrals Write-Down (Nominal) Valuation Remnants Credit Risk Adjustment Interest Rate Risk Adjustment LCM Adjustment Fair Value Adjustment Write-Down Adjustment Related Information Processes for Financial Instruments [page 47] Register [page 63] Accrue [page 97] Defer [page 99] Write Down [page 115] Release [page 116] Value TC [page 126] Product Scope Impairment Product Segment Impairment Own Credit Risk POCI Cash on hand Cash balances at central banks Expected cash flow One-year expected loss Lifetime expected loss Imported target value Customer-specific impairment calculation Deposits (credit institutions) Expected cash flow One-year expected loss Lifetime expected loss P U BL IC 9

10 Product Segment Impairment Own Credit Risk POCI Imported target value Customer-specific impairment calculation Checking accounts Expected cash flow One-year expected loss Lifetime expected loss Imported target value Customer-specific impairment calculation Savings accounts Term deposits Derivatives (ETD) Expected cash flow One-year expected loss Lifetime expected loss Imported target value Customer-specific impairment calculation Derivatives (OTC) Expected cash flow One-year expected loss Lifetime expected loss Imported target value Customer-specific impairment calculation Equity instruments Expected cash flow One-year expected loss Lifetime expected loss Imported target value Customer-specific impairment calculation Debt securities Expected cash flow One-year expected loss Lifetime expected loss Imported target value Customer-specific impairment calculation Debt securities (issued) Imported target value Loans and advances Expected cash flow One-year expected loss Lifetime expected loss Expected cash flow Imported target value Customer-specific impairment calculation Financial guarantees Expected cash flow One-year expected loss Lifetime expected loss Imported target value Customer-specific impairment calculation Master agreements Expected cash flow One-year expected loss Lifetime expected loss Imported target value Customer-specific impairment calculation 10 P U B L I C

11 Hedge Accounting Product Segment Hedge Accounting Cash on hand Cash balances at central banks Deposits (credit institutions) Checking accounts Savings accounts Term deposits Derivatives (ETD) Derivatives (OTC) Equity instruments Debt securities Debt securities (issued) Loans and advances Financial guarantees Master agreements Imported target value Imported target value Imported target value Imported target value Imported target value Imported target value Imported target value Imported target value Imported target value Imported target value Imported target value Imported target value Multi-Currency Accounting Product Segment Cash on hand Cash balances at central banks Deposits (credit institutions) Checking accounts Savings accounts Term deposits Derivatives (ETD) Derivatives (OTC) Equity instruments Debt securities Debt securities (issued) Loans and advances Multi-Currency Accounting X X X X X X X X X X X X P U BL IC 11

12 Product Segment Financial guarantees Master agreements Multi-Currency Accounting X X Lot Accounting Product Segment Lot Accounting Cash on hand Cash balances at central banks Deposits (credit institutions) Checking accounts Savings accounts Term deposits Derivatives (ETD) FIFO LIFO HIFO LOFO Derivatives (OTC) Maximum Profit Minimum Profit Import Equity instruments FIFO LIFO HIFO LOFO Maximum Profit Minimum Profit Import Debt securities FIFO LIFO HIFO LOFO Maximum Profit Minimum Profit Import Debt securities (issued FIFO LIFO HIFO LOFO Maximum Profit Minimum Profit Import Loans and advances Financial guarantees Master agreements 12 P U B L I C

13 Manual Adjustment Product Segment Cash on hand Cash balances at central banks Deposits (credit institutions) Checking accounts Savings accounts Term deposits Derivatives (ETD) Derivatives (OTC) Equity instruments Debt securities Debt securities (issued) Loans and advances Financial guarantees Master agreements Manual Adjustment X X X X X X X X X X X X X X Disclosure Product Segment Cash on hand Cash balances at central banks Deposits (credit institutions) Checking accounts Savings accounts Term deposits Derivatives (ETD) Derivatives (OTC) Equity instruments Debt securities Debt securities (issued) Loans and advances Disclosure Maturity grouping Fair value determination Maturity grouping Fair value determination Maturity grouping Fair value determination Maturity grouping Fair value determination Maturity grouping Fair value determination Maturity grouping Fair value determination P U BL IC 13

14 Product Segment Financial guarantees Master agreements Disclosure Maturity grouping Fair value determination Accounting Methodologies Scope per Accounting Methodology Product Segment Amortized Cost Cash on hand Effective-interest-rate-based Straight-line Imported target value Custom methodology Cash balances at central banks Effective-interest-rate-based Straight-line Imported target value Custom methodology Deposits (credit institutions) Effective-interest-rate-based Straight-line Imported target value Custom methodology Checking accounts Effective-interest-rate-based Straight-line Imported target value Custom methodology Savings accounts Effective-interest-rate-based Straight-line Imported target value Custom methodology Term deposits Effective-interest-rate-based Straight-line Imported target value Custom methodology Derivatives (ETD) Effective-interest-rate-based Straight-line Imported target value Custom methodology Derivatives (OTC) Effective-interest-rate-based Straight-line Imported target value Custom methodology Equity instruments Effective-interest-rate-based Straight-line Imported target value Custom methodology Debt securities Effective-interest-rate-based Straight-line Imported target value Custom methodology Debt securities (issued) Effective-interest-rate-based Straight-line Imported target value Custom methodology Loans and advances Effective-interest-rate-based Straight-line Imported target value Custom methodology Financial guarantees Effective-interest-rate-based Straight-line Imported target value Custom methodology 14 P U B L I C

15 Product Segment Amortized Cost Master agreements Effective-interest-rate-based Straight-line Imported target value Custom methodology Product Segment Cash on hand FVTPL Cash flow discounting Imported target value Custom methodology Cash balances at central banks Cash flow discounting Imported target value Custom methodology Deposits (credit institutions) Cash flow discounting Imported target value Custom methodology Checking accounts Cash flow discounting Imported target value Custom methodology Savings accounts Cash flow discounting Imported target value Custom methodology Term deposits Cash flow discounting Imported target value Custom methodology Derivatives (ETD) Cash flow discounting Mark-to-market Imported target value Custom methodology Derivatives (OTC) Cash flow discounting Imported target value Custom methodology Equity instruments Cash flow discounting Mark-to-market Imported target value Custom methodology Debt securities Cash flow discounting Mark-to-market Imported target value Custom methodology Debt securities (issued) Cash flow discounting Mark-to-market Imported target value Custom methodology Loans and advances Cash flow discounting Imported target value Custom methodology Financial guarantees Cash flow discounting Imported target value Custom methodology Master agreements Cash flow discounting Imported target value Custom methodology Product Segment Cash on hand FVTOCI Cash flow discounting P U BL IC 15

16 Product Segment FVTOCI Imported target value Custom methodology Cash balances at central banks Cash flow discounting Imported target value Custom methodology Deposits (credit institutions) Cash flow discounting Imported target value Custom methodology Checking accounts Cash flow discounting Imported target value Custom methodology Savings accounts Cash flow discounting Imported target value Custom methodology Term deposits Cash flow discounting Imported target value Custom methodology Derivatives (ETD) Cash flow discounting Mark-to-market Imported target value Custom methodology Derivatives (OTC) Cash flow discounting Imported target value Custom methodology Equity instruments Cash flow discounting Mark-to-market Imported target value Custom methodology Debt securities Cash flow discounting Mark-to-market Imported target value Custom methodology Debt securities (issued) Cash flow discounting Mark-to-market Imported target value Custom methodology Loans and advances Cash flow discounting Imported target value Custom methodology Financial guarantees Cash flow discounting Imported target value Custom methodology Master agreements Cash flow discounting Imported target value Custom methodology Product Segment Cash on hand Lower-of-Cost-and-Market tpl Cash flow discounting Imported target value Custom methodology Cash balances at central banks Cash flow discounting Imported target value Custom methodology Deposits (credit institutions) Cash flow discounting Imported target value Custom methodology 16 P U B L I C

17 Product Segment Checking accounts Lower-of-Cost-and-Market tpl Cash flow discounting Imported target value Custom methodology Savings accounts Cash flow discounting Imported target value Custom methodology Term deposits Cash flow discounting Imported target value Custom methodology Derivatives (ETD) Cash flow discounting Mark-to-market Imported target value Custom methodology Derivatives (OTC) Cash flow discounting Imported target value Custom methodology Equity instruments Cash flow discounting Mark-to-market Imported target value Custom methodology Debt securities Cash flow discounting Mark-to-market Imported target value Custom methodology Debt securities (issued) Cash flow discounting Mark-to-market Imported target value Custom methodology Loans and advances Cash flow discounting Imported target value Custom methodology Financial guarantees Cash flow discounting Imported target value Custom methodology Master agreements Cash flow discounting Imported target value Custom methodology Product Segment Cash on hand Lower-of-Cost-and-Market toci Cash flow discounting Imported target value Custom methodology Cash balances at central banks Cash flow discounting Imported target value Custom methodology Deposits (credit institutions) Cash flow discounting Imported target value Custom methodology Checking accounts Cash flow discounting Imported target value Custom methodology Savings accounts Cash flow discounting Imported target value Custom methodology Term deposits Cash flow discounting P U BL IC 17

18 Product Segment Lower-of-Cost-and-Market toci Imported target value Custom methodology Derivatives (ETD) Cash flow discounting Mark-to-market Imported target value Custom methodology Derivatives (OTC) Cash flow discounting Imported target value Custom methodology Equity instruments Cash flow discounting Mark-to-market Imported target value Custom methodology Debt securities Cash flow discounting Mark-to-market Imported target value Custom methodology Debt securities (issued) Cash flow discounting Mark-to-market Imported target value Custom methodology Loans and advances Cash flow discounting Imported target value Custom methodology Financial guarantees Cash flow discounting Imported target value Custom methodology Master agreements Cash flow discounting Imported target value Custom methodology Determination of Asset/Liability Status Product Segment Cash on hand Cash balances at central banks Deposits (credit institutions) Checking accounts Savings accounts Term deposits Asset/Liability Status Determination X X X X X X Derivatives (ETD) Derivatives (OTC) X Equity instruments Debt securities Debt securities issued Loans and advances X 18 P U B L I C

19 Product Segment Financial guarantees Master agreements Asset/Liability Status Determination X X Related Information Determination of Asset/Liability Status [page 37] Business Content: Accounting Principles Preconfigured content per Accounting Principle Product Segment IFRS 9 US GAAP Solvency Traditional Accounting Economic Accounting Traditional Accounting Economic Accounting Economic Accounting Cash on hand ACO N/A ACO N/A EVA Cash balances at central banks Deposits (credit institutions) Checking accounts ACO N/A ACO N/A EVA ACO HfT, dfvpl ACO dfvpl EVA ACO HfT, dfvpl ACO dfvpl EVA Savings accounts ACO HfT, dfvpl ACO dfvpl EVA Term deposits ACO HfT, dfvpl ACO dfvpl EVA Derivatives (ETD) N/A HfT, DHA N/A HfT EVA Derivatives (OTC) N/A HfT, DHA N/A HfT EVA Equity instruments N/A HfT, mfvpl, dfvpl, FVOCI N/A HfT, AfS EVA Debt securities ACO mfvpl, dfvpl, FVOCI HtM HfT, AfS EVA Debt securities issued ACO mfvpl, dfvpl, FVOCI HtM HfT, AfS EVA Loans and advances ACO HfT, mfvpl, dfvpl, FVOCI ACO, HfS dfvpl EVA Financial guarantees Master agreements ACO N/A ACO N/A EVA ACO N/A ACO N/A EVA ACO = Amortized Cost P U BL IC 19

20 AfS = Available for Sale dfvpl = designated Fair Value through Profit and Loss DHA = Derivatives - Hedge Accounting EVA = Economic Value Added FVOCI = Fair Value through Other Comprehensive Income HfS = Held for Sale HfT = Held for Trading HtM = Held to Maturity mfvpl = mandatory Fair Value through Profit and Loss Business Content: Accounting Topics Preconfigured Products Product Segment Cash on hand Cash balances at central banks Deposits (credit institutions) Checking accounts Savings accounts Term deposits Products Cash account, bank-internal account Central bank account Nostro account, vostro account Checking account Savings account, savings plan Term deposit Derivatives (ETD) Future Equity future, interest-rate future, FX future Options Equity options, FX options, interest-rate options Derivatives (OTC) Cap, Floor Cap, Floor Forwards Options Swaps Equity forward, FX forward, interestrate forward Credit spread option, equity option, FX option, swaption Cross-currency interest-rate swap, interest-rate swap, credit default swap, mark-to-market swap, total return swap Equity instruments Debt securities Debt securities issued Shares Corporate bond, government bond, convertible bond Corporate bond 20 P U B L I C

21 Product Segment Loans and advances Financial guarantees Master agreements Products Installment loan, mortgage loan, revolving loan, repurchase agreement, securities lending Facility, financial guarantee Master agreement Insurance Contracts Dimensions The process model is defined based on generic dimensions that can be used to logically structure the book value components and related process steps. Uninterpreted vs. interpreted The term uninterpreted is used to describe position changes that are based on best estimate cash flows (BECFs). The BECF is not valuated and is not dependent on any accounting principle. Interpreted, however, describes position changes that are subject to measurement in accordance with a specific accounting standard. Operational vs. analytical Operational flow transactions and master data changes originate in the operational source system. This information therefore applies across all accounting principles. Analytical position changes stem from an accounting perspective that is dependent on an accounting principle. The system distinguishes between operational and analytical process steps and book value components. Dependency on the value date The value date for a given posting specifies the date on which the posting amount becomes effective. Correction postings are therefore posted with a value date in the past to ensure the correct value date is set for account settlement. This means that all posting documents that change long-term receivables and accruals are value-date-dependent. Event-driven vs. deterministic vs. stochastic This dimension describes how operational flow transactions and analytical value adjustments originate. This can be event-driven, deterministic or stochastic. Event-driven means that a flow transaction or change in value is primarily caused by a business event (for example, a premium payment). Deterministic means that the documented value changes are foreseeable due to the timeframe involved. For example, when a contract is created it is already known how an accrual will develop. Stochastic describes value changes that are unforeseeable, such as changes in market price. P U BL IC 21

22 Book value components The table below displays the most significant book value components in for Insurance Contracts with their respective dependencies on the process model dimensions. Dimension: Operational vs. Analytical or Book Value Component Dimension: Interpreted vs. Uninterpreted Dimension: Dependency on the Value Date Dimension: Event-Driven, Deterministic or Stochastic Receivables/Payables Operational Dependent on the value date Event-driven Accrual Operational Dependent on the value date Deterministic Receivable/Payable (Expected) Uninterpreted Not dependent on the value date Event-driven Adjustment (Alternative Cash Flow) Uninterpreted Not dependent on the value date Event-driven Adjustment (Contract Boundaries) Uninterpreted Not dependent on the value date Event-driven Adjustment (New Business) Uninterpreted Not dependent on the value date Event-driven Adjustment (Cash Flow Dates) Uninterpreted Not dependent on the value date Event-driven Adjustment (Inflation) Uninterpreted Not dependent on the value date Event-driven Interest Rate Risk Adjustment (Locked-In) Interpreted Not dependent on the value date Deterministic Inflation Risk Adjustment (Locked-In) Interpreted Not dependent on the value date Deterministic Credit Risk Adjustment (Locked-In) Interpreted Not dependent on the value date Deterministic Liquidity Risk Adjustment (Locked-In) Interpreted Not dependent on the value date Deterministic Other Risk Adjustment (Locked-In) Interpreted Not dependent on the value date Deterministic Prudence Adjustment (Locked-In) Interpreted Not dependent on the value date Deterministic 22 P U B L I C

23 Dimension: Operational vs. Analytical or Book Value Component Dimension: Interpreted vs. Uninterpreted Dimension: Dependency on the Value Date Dimension: Event-Driven, Deterministic or Stochastic Interest Rate Risk Adjustment Interpreted Not dependent on the value date Stochastic Inflation Risk Adjustment Interpreted Not dependent on the value date Credit Risk Adjustment Interpreted Not dependent on the value date Liquidity Risk Adjustment Interpreted Not dependent on the value date Other Risk Adjustment Interpreted Not dependent on the value date Prudence Adjustment Interpreted Not dependent on the value date Margin (Risk Capital Costs) Interpreted Not dependent on the value date Offset (Income UBNI) Interpreted Not dependent on the value date Provisions (Income) Interpreted Not dependent on the value date Stochastic Stochastic Stochastic Stochastic Stochastic Stochastic Stochastic Stochastic Assignment of Book Value Components to Process Steps You can assign the book value components to various process steps according to the process model. The graphic below shows this relationship in simplified form. It uses an insurance contract as an example and includes only the most important book value components. (Special cases that require additional book value components are not taken into account here.) For more information and a detailed overview of the process model, see Processes for Insurance Contracts [page 168]. Note More information is linked in the interactive graphic below: Hover over an arrow for a description. Click the arrow for the documentation for relevant process step. P U BL IC 23

24 Register [page 185] Capture (Central GAAP) [page 191] Accrue [page 200] Capture (Delta GAAP) [page 202] Unwind and Release [page 204] Value TC [page 208] Recognize Profit [page 214] Process Step Book Value Component Register Capture (Central GAAP) Accrue Capture (Delta GAAP) Unpaid Principal Balance (UPB) Receivable/Payable (Expected) Accrual Adjustment (Alternative Cash Flow) Adjustment (Contract Boundaries) Adjustment (New Business) Adjustment (Cash Flow Dates) Adjustment (Inflation) 24 P U B L I C

25 Process Step Book Value Component Unwind and Release Interest Rate Risk Adjustment (Locked-In) Inflation Risk Adjustment (Locked-In) Credit Risk Adjustment (Locked-In) Liquidity Risk Adjustment (Locked-In) Other Risk Adjustment (Locked-In) Prudence Adjustment (Locked-In) Value TC Interest Rate Risk Adjustment Inflation Risk Adjustment Credit Risk Adjustment Liquidity Risk Adjustment Other Risk Adjustment Prudence Adjustment Margin (Risk Capital Costs) Recognize Profit Offset (Income UBNI) Provisions (Income) Related Information Processes for Insurance Contracts [page 168] Register [page 185] Capture (Central GAAP) [page 191] Accrue [page 200] Capture (Delta GAAP) [page 202] Unwind and Release [page 204] Value TC [page 208] Recognize Profit [page 214] 1.2 Central GAAP and Delta GAAP Approach Postings that are processed by a subledger for financial instruments or insurance contracts can be dependent on or independent of the relevant GAAP. follows a central GAAP approach. This means that the system creates cross-gaap postings only once, and GAAP-specific postings once per accounting principle. P U BL IC 25

26 Based on the process model, there are process steps that are purely operational and therefore have no direct reference to an accounting principle. The operational process steps document the flow transactions and value changes across GAAP and using central GAAP documents. Analytical process steps are dependent on an accounting principle. They document their value changes specific to GAAP and in the form of delta GAAP documents because the amounts are usually GAAP-specific. The figure below illustrates the structure of central GAAP and delta GAAP documents, and the interaction between the subledger and the general ledger: A subledger document in consists of a document header and several document line items. A central GAAP document also records a set of GAAP-specific characteristics per line item for each accounting principle. Delta GAAP documents record only one set of characteristics per line item; these characteristics are GAAP-dependent. Central GAAP documents (depicted in yellow in the figure) that are created by the operational Register and Accrue process steps refer to all the accounting principles defined in the system. Delta GAAP documents (depicted in red and green) are created by the analytical process steps for each accounting system. Compatibility with the General Ledger As a subledger, provides data to the general ledger on the basis of general ledger documents. The central GAAP approach also applies to the general ledger documents from. However, the criterion as to whether a document is a central GAAP document or not differs to the criterion for the subledger documents. Only central GAAP subledger documents that have the same general ledger account for all accounting principles result in a central GAAP general ledger document. All other documents are recorded as delta GAAP general ledger documents. 26 P U B L I C

27 The figure below illustrates this context: The general ledger that you want to supply with data must be able to receive central GAAP general ledger documents and delta GAAP general ledger documents. The general ledger depicted serves as an example only. The ledgers in the general ledger can be defined differently. The figure above shows a possible general ledger configuration in which the main ledger records only the central GAAP general ledger documents and the delta ledgers record the delta GAAP general ledger documents. P U BL IC 27

28 Example in T-account view The figure below uses a simplified example to illustrate the central GAAP approach for subledger documents and general ledger documents that are transferred to the general ledger: Abbreviations SLA = subledger account GLA = general ledger account If the general ledger accounts (derived in subledger accounting dependent on GAAP) of a central GAAP document are identical in all accounting principles, this document is assigned to the central GAAP when the general ledger documents are prepared. Otherwise, the system prepares multiple delta GAAP general ledger documents. Related Information General Ledger Connection [page 249] 1.3 Portfolios Financial risks and underwriting risks are not necessarily estimated at the level of an individual financial contract, insurance contract or securities position, but rather at the level of homogenous portfolios for a specific purpose. While their documentation always takes place in accounting, you can define and create portfolios either in accounting (accounting portfolios) or before accounting (for example, actuarial portfolios): 28 P U B L I C

29 If you already create portfolios before accounting, you need to inform the system of how they have been defined and then import the portfolios themselves. If you define portfolios in accounting, you can also enter them there. A portfolio category is assigned to each portfolio in accounting. You use this category to define the purpose of the portfolio and which accounting process steps it is relevant for. You can assign a number of insurance contracts, financial contracts or actuarial portfolios to a portfolio. Actuarial portfolio (portfolio category 1000) Actuarial portfolios are created at the granularity level at which an actuary estimates future cash inflows (for example, premiums) and cash outflows (for example, claims). For this portfolio category, best estimate cash flows are imported and documented in accounting. For insurance accounting, the actuarial portfolio therefore behaves in the same way as a single contract. Note Operational business transactions and reserves ( RBND balances ) that are documented in the Register and Accrue process steps continue to relate to the individual legal contract. The following characteristics are defined in the system. You can add custom characteristics to these: Characteristic Description Must Be Entered /BA1/C11PRDCTR Production Control No /BA1/C55LGENT Legal Entity Yes /BA1/C55PFID Portfolio Yes /BA1/C55PFSTA Portfolio Status No /BA1/C55SRCSYS Source System Yes /BA1/C80ORGUNI Organizational Unit ID Yes /BA1/CIDPSEID Coverage No /BA1/CR4PFCT Portfolio Category Yes Based on the portfolio category, the system identifies that the following process steps for the actuarial portfolio have to be executed: Portfolio Category Capture Capture (Delta GAAP) Unwind and Release Value TC Recognize Profit Value FX Classify 1000 X X X X (X) X X Actuarial Portfolio Note You can run the Recognize Profit process step at the granularity level of the actuarial portfolio if this is required. However, you can also define separate profit recognition portfolios for this. P U BL IC 29

30 The reason for this is that profit recognition portfolios (for example, CSM portfolios in IFRS 17) may not necessarily be subject to the homogeneity criteria that the actuary has applied to the definition of the actuarial portfolios, but they can be subject to regulatory homogeneity criteria. Accounting Portfolios What the portfolios in this group have in common is that they are used purely for accounting purposes (in other words, they solve an accounting problem). Profit recognition portfolio (portfolio category 2070) Profit recognition portfolios (for example, CSM portfolios in IFRS 17) are used to control the recognition of net profits and the determination of the onerousness status for a group of contracts or actuarial portfolios that are defined as homogenous from a regulatory perspective. This portfolio category is therefore only relevant in the Recognize Profit process step: Portfolio Category Capture Capture (Delta GAAP) Unwind and Release Value TC Recognize Profit Value FX Classify 2070 X Profit Recognition For this portfolio category, you also need to assign the corresponding insurance contracts and actuarial portfolios in the system. To create the contractual service margin (CSM) some of the income and expense from assigned contracts needs to be capitalized. This makes information about these essential. Portfolios for asset/liability status determination (portfolio category 2100) Portfolios for determining the asset/liability status (related terms: on-balance-sheet netting, asset and liability offsetting) are used to determine an overall asset/liability status for a group of contracts. Note You can also offset legal contract groups and securities groups in the same way. To do so, you do not need to define separate portfolios but instead specify the legal entity used to create the group (for example, master contract) in the system. Portfolios are used in this context mainly to simplify the provisioning of data. Receivables and payables can usually only be offset if there is a legal basis for doing so. This means that for this portfolio category there is no accounting documentation of the results in the portfolio itself but instead the system triggers a reclassification of all the contracts involved that do not match the common asset/liability status. The determination of the asset/liability status only solves the accounting problem of balance sheet reporting and leads to a balance sheet reduction. Therefore, this portfolio category is relevant only in the Classify process step: 30 P U B L I C

31 Portfolio Category Capture Capture (Delta GAAP) Unwind and Release Value TC Recognize Profit Value FX Classify 2100 X Asset/Liability Status Determination Activities In Customizing for Bank Analyzer under Processes and Methods Portfolios, choose: Actuarial Portfolios Accounting Portfolios Profit Recognition Asset/Liability Status Determination In the respective Define Portfolio Customizing activity, you can display portfolio characteristics and define new characteristics. Related Information Determination of Asset/Liability Status [page 37] 1.4 Subledger Coding Block The definition of the subledger coding block is a prerequisite for the documentation of accounting information in the subledger. In other words, defining the set of characteristics that is to be provided in a posting document. This defines the granularity of accounting. Only characteristics that meet the following requirements can be recorded in a document: The contract ID (financial transaction ID) forms the link to other characteristics of the contract, including the business partner (counterparty). The securities ID (financial transaction ID) forms the link to other characteristics of the security, including the business partner (issuer). The portfolio ID (contract ID) forms the link to other characteristics of the portfolio. The characteristics are part of the general ledger coding block. The characteristics are relevant for the profit and loss statement (pro rata temporis). However, you can still use characteristics that do not meet these criteria for balance sheet reporting purposes when you balance the subledger (multidimensional accounting/reporting). P U BL IC 31

32 The subledger coding block is structured as follows: Master data fine-grained Operational Contract What? Securities Portfolio Loss event Business partner With whom? Where? Organization Who? coarse-grained Analytical (derived) Contract What? Securities Portfolio Loss event Business partner With whom? Where? Organization Who? Control parameters Flow data fine-grained Operational Business transaction Cash flow What? When? How much? coarse-grained Derived in accounting Business transaction Cash flow What? When? How much? Analytical (derived) Control parameters Information requirements of any kind (both internal and external) can be structured on the basis of the following questions: What (kind of product is relevant for this)? Who (manages the contract)? Where (is the contract partner resident)? With whom (was the contract concluded)? 32 P U B L I C

33 Different levels of detail may be required here, ranging from very detailed (for example, retail checking account) to very coarse-grained (for example, demand deposit). While this information is available at the finest granularity level from a contract processing (operational) perspective, coarser-grained views are sufficient for balance sheet reporting (analytically derived). Example From an operational system perspective, the product in question is a retail loan, fixed interest, charge 04/2015 (fine-grained). For balance sheet reporting it is sufficient to categorize it into the product segment Loans (coarse-grained). The business partner for the loan lives at 25 Sample Street, Sampletown in Ireland (finegrained). For balance sheet reporting it is sufficient to categorize the customer as resident in the EU (coarse-grained). Prerequisites You have made the relevant settings in Customizing for Bank Analyzer under Subledger Coding Block. Processes and Methods Subledger Coding Block versus General Ledger Coding Block Due to the difference in granularity between general ledger and subledger only a subset of the subledger coding block is part of the general ledger coding block. This subset is defined in Customizing Master Data Dimensions and Their Derived Subledger Dimensions The master data dimensions include all characteristics that are transferred directly and without being changed from the operational master data (contract, security, portfolio, loss event, business partner, organization) to the subledger coding block. You can view the characteristics predefined as SAP standard values and assign more characteristics, if required, in Customizing under Subledger Coding Block Master Data Definition of Master Data Characteristics. Master data Operational Contract Contract ID Contract node number Product control P U BL IC 33

34 Source system contract Contract status Contract category Securities account category Legal entity Coverage Securities Securities ID Securities node number Instrument type Securities source system Securities status Portfolio Contract ID Product control Source system contract Contract status Contract category Legal entity Onerousness status at initial recognition Coverage Portfolio category Loss event Loss event ID Organization Organizational unit ID The master data dimensions also include all characteristics that were derived from these master data characteristics within accounting. In Customizing under Subledger Coding Block Master Data Derivation from Master Data Characteristics values., you can define derivation rules for the derived characteristics predefined as SAP standard 34 P U B L I C

35 Master data Analytical (derived) Contract Product segment Lifecycle segment Securities Product segment Lifecycle segment Portfolio Product segment Lifecycle segment Organization Profit center Business area Note For financial contracts, the Product Segment subledger coding block characteristic is taken from the product concept of the contract, while for securities the operational product concept of the securities contract is not suitable for this. In this use case, the instrument type of the security is essential (for example, German government bonds are recorded under the product segment 700 Debt Securities) Flow Data Dimensions and Their Derived Subledger Dimensions The flow data dimensions include all characteristics that are transferred directly and without being changed from the operational flow transactions (business transactions and cash flows) to the subledger coding block. Customizing: Subledger Coding Block Flow Data Definition of Flow Transaction Characteristics Define Business Transaction Characteristics: Flow Data Operational Business transaction Business transaction ID Source system BT System date in feeder system Item number Reversal business transaction ID of reversed BT System time in feeder system Document date P U BL IC 35

36 Value date Define Cash Flow Characteristics: Flow data Operational Cash flow Cash flow category Payment category Version number Reset indicator Reset reference Loss event ID Insurance business type Insurance inventory group Tranche start date The flow data dimensions also include all characteristics that were derived from these flow transaction characteristics within accounting. Customizing: Subledger Coding Block Flow Data Derivation from Flow Transaction Characteristics Flow data Derived in accounting Business transaction Posting record Analytical Control Parameters Analytical control parameters are mapped in the system as analytical statuses. You define how contracts, portfolios and securities positions are categorized from an analytical application perspective. Customizing: Subledger Coding Block Analytical Statuses Master data Analytical (derived) Control parameters Accrual status Write-down status Market conformity status Impairment status Holding category 36 P U B L I C

37 Fair value level Onerousness status Asset/liability status Term segment You can display the start values for the following analytical statuses in Customizing for the subledger coding block. The value is set and persisted when a new contract or business transaction for a securities position is registered Accrual status The start value is set to Accruing. Write-down status The start value is set to Not Written Down. Market conformity status The start value is set to Market-Conform. Onerousness status The start value is set to Not Onerous. For actuarial or accounting portfolios, the start value of the onerousness status is taken from the onerousness status on initial recognition (provided there is an entry in this field). You can define the start values of the following analytical statuses in Customizing for the subledger coding block. The start value defined here is set and, with the exception of the asset/liability status, persisted when a contract or securities position is created. The start value of the impairment status is dependent on the accounting principle. A start value can be defined for each accounting system. The start value of the holding category is dependent on the derivation. A start value can be defined for each accounting system. The start value of the fair value level is dependent on the calculation method for the fair value. The start value of the asset/liability status is dependent on the product segment. A start value can be defined for each product segment and optionally for each production control or instrument type. The start value of the term segment is dependent on the accounting system and the product segment Determination of Asset/Liability Status You can also determine the asset/liability status for groups of contracts. In general processing, the system only determines the asset/liability status at the level of the book value of the individual contract, whereas this process enables you to determine the status over several related contracts. P U BL IC 37

38 Contract Groups Financial Contract Groups You can offset contracts against each other, provided that they are legally grouped together (in a master contract, for example) The process determines a common asset/liability status for all contracts that are in an object relationship with a master contract on the balance sheet key date (including the master contract). You can configure which object relationships are to be assigned to the group in Customizing. Example Contracts B, C and D are assigned to master contract A on the balance sheet key date. Before the determination of the asset/liability status, the book values of the individual contracts are as follows: Asset/Liability Status Book Value Book Value Master Contract Assigned Contract (A = Asset, L = Liability) (Transaction Currency) (Functional Currency) Master contract A Master contract A A EUR 100 EUR 100 Contract B A EUR 150 EUR 150 Contract C L EUR -200 EUR -200 Contract D L EUR -75 EUR -75 L EUR -25 EUR -25 Balance Sheet before Determination of Asset/Liability Status Assets Balance sheet item A1 Liabilities Master contract A EUR 100 Balance sheet Contract C EUR -200 Contract B EUR 150 item L1 Contract D EUR -75 Total Assets EUR 250 Total Liabilities EUR -275 Note The system always uses the amount in functional currency to determine the book value. The total book value of the group is therefore EUR -25, which corresponds to the status L (liability). This means that all contracts with the asset / liability status A (asset) need to be reclassified to L. To do this, 38 P U B L I C

39 the system generates analytical decisions for these contracts. These are processed in the Register process step and reclassify master contract A and master contract B in the Classify process step: Asset/Liability Status Book Value Book Value Master Contract Assigned Contract (A = Asset, L = Liability) (Transaction Currency) (Functional Currency) Master contract A Master contract A L EUR 100 EUR 100 Contract B L EUR 150 EUR 150 Contract C L EUR -200 EUR -200 Contract D L EUR -75 EUR -75 L EUR -25 EUR -25 Balance Sheet after Determination of Asset/Liability Status Assets Balance sheet item A1 Liabilities Balance sheet item L1 Master contract A EUR 100 Contract B EUR 150 Contract C EUR -200 Contract D EUR -75 Total Assets EUR 0 Total Liabilities EUR -25 Groups of insurance contracts Unlike for financial contracts, for insurance contracts the group is not defined by object relationships in the Source Data Layer (SDL), but using the reference type and reference external number in the coverage tab of the claim. Apart from this, this type of group is based on the same business logic as the groups of finance contracts. Actuarial portfolios This process also includes the assignment of insurance contracts (and the assigned insurance claims) to actuarial portfolios: If an insurance contract has been assigned to an actuarial portfolio, the system determines the asset/liability status for the actuarial portfolio. Example Asset/Liability Status Book Value Book Value Actuarial Portfolio Insurance Contract Claim (A = Asset, L = Liability) (Transaction Currency) (Functional Currency) Actuarial Portfolio 1 Insurance contract A Insurance contract A A EUR 100 EUR 100 P U BL IC 39

40 Asset/Liability Status Book Value Book Value Actuarial Portfolio Insurance Contract Claim (A = Asset, L = Liability) (Transaction Currency) (Functional Currency) Insurance contract A Insurance contract A Claim B A EUR 150 EUR 150 Claim C L EUR -200 EUR -200 Insurance contract D Insurance contract D L EUR -75 EUR -75 L EUR -25 EUR -25 Balance Sheet before Determination of Asset/Liability Status Assets Liabilities Balance sheet item A1 Insurance contract A EUR 100 Balance sheet item L1 Claim C EUR -200 Claim B EUR 150 Insurance contract D EUR -75 Total Assets EUR 250 Total Liabilities EUR -275 The book value for all of the insurance contracts and claims assigned to the actuarial portfolio A is EUR -25. This means that all of these contracts are to be reported as liabilities: Asset/Liability Status Book Value Book Value Actuarial Portfolio Insurance Contract Claim (A = Asset, L = Liability) (Transaction Currency) (Functional Currency) Actuarial Portfolio 1 Insurance contract A Insurance contract A L EUR 100 EUR 100 Insurance contract A Insurance contract A Claim B L EUR 150 EUR 150 Claim C L EUR -200 EUR -200 Insurance contract D Insurance contract D L EUR -75 EUR -75 L EUR -25 EUR -25 Balance Sheet after Determination of Asset/Liability Status Assets Liabilities Balance sheet item A1 Balance sheet item L1 Insurance contract A EUR 100 Claim B EUR 150 Claim C EUR P U B L I C

41 Assets Liabilities Insurance contract D EUR -75 Total Assets EUR 0 Total Liabilities EUR -25 Prerequisites You have made the following settings in Customizing for Bank Analyzer under Processes and Methods Subledger Coding Block Analytical Statuses Cross-Contract Asset/Liability Status Determination : Define Groups for Determining Asset/Liability Status Here you define which object relationships in the Source Data Layer (SDL) the system takes into account when it selects groups for asset/liability status determination. Methods: Display Methods for Determining Asset/Liability Status You have the option of adjusting the properties of the methods. Derive Methods for Determining Asset/Liability Status Activities To run the process for financial contracts, on the SAP Easy Access screen, choose Bank Analyzer Processes and Methods Subledger Accounting Financial Instruments Preparatory Processing Determine Accounting Status Determine Asset/Liability Status (Financial Contracts). To run the process for insurance contracts, on the SAP Easy Access screen, choose Bank Analyzer Processes and Methods Subledger Accounting Insurance Contracts Preparatory Processing Determine Accounting Status Determine Asset/Liability Status (Insurance Contracts). Related Terms On-balance sheet netting, netting, balance-sheet pooling Related Information Portfolios [page 28] P U BL IC 41

42 1.4.4 Calculation Method Dimensions and Their Derived Subledger Dimensions The calculation method dimensions include all the characteristics that result from the calculation methods. In Customizing under Subledger Coding Block Calculation Methods, you can view and derive the characteristics predefined as SAP standard values for calculation methods, and can assign further characteristics if required. Calculation method characteristic Analytical (derived) Change reason Calculation method Calculation methodology Inflow/outflow indicator Accounting Dimensions The accounting dimensions include all characteristics that are required in the concept of double-entry accounting. You can view the process characteristics predefined as SAP standard values and assign more characteristics, if required, in Customizing under Subledger Coding Block Process Edit Process Characteristics. Flow Data Analytical (derived) Control parameters Document number Document item number Flow type Posting date Posting date of reset Fiscal year Inversion document Subledger account lifecycle stage Lot ID Subledger account Period/fiscal year 42 P U B L I C

43 Process step ID Process category Accounting system Reference to inverted document Reference to parked document Reference to reset document Reset document G/L chart of accounts G/L account Debit/credit indicator Currency of subledger account 1.5 Charts of Accounts Definition From a subledger perspective there are two relevant charts of accounts: the subledger chart of accounts and the general ledger chart of accounts. The subledger chart of accounts has to be transferred to the general ledger chart of accounts. Related Information Subledger Chart of Accounts [page 44] G/L Chart of Accounts [page 46] P U BL IC 43

44 1.5.1 Subledger Chart of Accounts Definition The subledger chart of accounts is a structured directory of all subledger accounts for the production of information and for balance sheet reporting. The financial statement segment is used for the basic structuring of both views. The financial statement segment is used to assign each subledger account either to the balance sheet (assets and liabilities), to the profit and loss statement or to equity. Financial statement segments are predefined by SAP. Prerequisites You make the settings for the subledger chart of accounts in Customizing for Bank Analyzer under and Methods Charts of Accounts Subledger Chart of Accounts. Processes Use Information production Subledger accounts are assigned to subledger account groups for the production of information (as defined by the accounting process model). Subledger account groups determine which process steps are responsible for updating the account balance of the assigned subledger accounts. The cardinality of subledger accounts assigned to a subledger account group is predefined by SAP. Usually, any number of subledger accounts can be assigned to a subledger account group. However, there are use cases in which only a 1:1 or a 1:2 assignment is predefined. Subledger account groups are predefined by SAP and are assigned to one financial statement segment. Example The following subledger accounts are assigned to the subledger account group Accruals: Income: (Accruals: Interest Income (Requested)) (Accruals: Fee Income (Requested)) (Accruals: Premium Income (Requested)) (Accruals: Claim Income (Requested)) (Accruals: Acquis. Costs Income (Requ.)) (Accruals: Profit Sharing Income (Requ.)) (Accruals: Fee Income (Requested)) (Accruals: Premium Income (Requested)) (Accruals: Acquis. Costs Income (Requ.)) (Accrual Fee Income (Requested)) (Accruals: Premium Income (Requested)) 44 P U B L I C

45 (Accruals: Acquis. Costs Income (Requ.)) (Accrual Fee Income (Requested)) The subledger account group can be extended. The balances on the accounts in the subledger account group can only be changed in the Accrue process step. Balance sheet reporting For balance sheet reporting, it is advisable to assign all or some of the subledger accounts of one or more subledger account groups to a financial statement subsegment. This enables you to group a number of subledger accounts for balance sheet reporting so that you can report them in one balance sheet item. Since balance sheet reporting is defined by the guidelines of an accounting principle, the assignment of subledger accounts to a financial statement subsegment depends on the relevant accounting principle applied. If a financial statement subsegment is defined in the same way in all accounting principles, you can also assign one financial statement subsegment to all accounting principles. Financial statement subsegments and the assignment of subledger accounts to financial statement subsegments is predefined by SAP. However, you can create custom financial statement subsegments and/or edit the assignment of accounting principles (accounting systems) and subledger accounts to financial statement subsegments. Example The subledger accounts for the book value (financial statement subsegment 1001 (Book Value) differ in IFRS (net reporting) and HGB (gross reporting). In IFRS the book value comprises the following subledger accounts: Receivables/Payables (Not Due) Accruals: Interest (Debit) Accruals: Fees (Debit) Accruals: Interest (Credit) Accruals: Fees (Credit) Deferrals: Interest Revenue (Debit) Deferrals: Interest Revenue (Credit) Deferrals: Fee Income (Debit) Deferrals: Fee Income (Credit) Deferrals: Interest Expense (Debit) Deferrals: Interest Expense (Credit) Deferrals: Fee Expense (Debit) Deferrals: Fee Expense (Credit) Since accruals and deferrals are reported in separate balance sheet items in German HGB, the book value is defined as follows: Receivables/Payables (Not Due) In HGB, the accruals are assigned to the financial statement subsegments Accruals (Debit) and Accruals (Credit), while the deferrals are assigned to the financial statement subsegments Receivables (Due) and Payables (Due). P U BL IC 45

46 The graphic below illustrates this scenario using financial instruments as an example: Structure of Subledger Chart of Accounts for Selected Subledger Accounts G/L Chart of Accounts Definition The general ledger provides the subledger with the general ledger chart of accounts. The subledger is responsible for the complete transfer of the subledger chart of accounts to the general ledger chart of accounts. Note that a general ledger account (unlike a subledger account) is a concatenation of several subledger dimensions. Example The general ledger account Financial Assets AFS: Debt Instruments is predefined by the general ledger. This general ledger account comprises the following four subledger dimensions (implicit general ledger dimensions): Asset/liability status: asset (financial position) Holding category: AFS (available for sale) Product segment: debt instrument Since this general ledger account is the product-specific balance sheet item, the book value needs to be reported here. 46 P U B L I C

47 Product-specific balance sheet item: financial statement subsegment = book value Prerequisites You make the settings for the chart of accounts in Customizing for Bank Analyzer under Methods Charts of Accounts General Ledger Chart of Accounts. Processes and 1.6 Processes for Financial Instruments The application menu for for Financial Instruments groups the processes that need to be run according to the time of processing. P U BL IC 47

48 Day Processing [page 62] Period-End Processing [page 95] Year-End Processing [page 155] Period-Opening Processing [page 158] Preparatory Processing [page 163] Hover over each box for a description. Click the box for more information. Day Processing Day processing comprises the activities that are usually executed once or multiple times a day. Set Posting Date [page 62] Register [page 63] End-of-Day Processing (Business Transaction) [page 70] End-of-Day Processing (Contract) [page 91] 48 P U B L I C

49 Impairment Attribute Determination (IAD) [page 92] Period-End Processing Period-end processing updates position components to fulfil a balance sheet reporting requirement. For this, you need to define which position components (and the resulting profit and loss statement) need to be provided in updated form for which source systems and for which GAAP, and how frequently this needs to be done. In period-end processing, you can also open and close posting periods. The process steps are as follows: Accrue [page 97] Defer [page 99] Write Down [page 115] Release [page 116] Value TC [page 126] Move and Transform [page 139] Value FX [page 145] Classify [page 148] Adjust [page 151] Close [page 154] Year-End Processing You use year-end processing to open and close fiscal years. Period-end processing is a prerequisite for this. In year-end processing you can execute the Adjust [page 151] process step (period-end processing for special periods). To avoid redundancy, this process step is only incorporated in the menu for period-end processing and not in the year-end processing menu. You can also execute the Carry Forward [page 156] process step (balance carryforward) in year-end processing. You use the balance carryforward function to carry the year-end balance of the current fiscal year forward to the year-opening balance of the new fiscal year (period 00). You execute the process for the last time once you have closed all the periods of the current fiscal year for all process steps. Period-Opening Processing Period-Opening Processing [page 158] resets documents that were created during period-end processing or end-of-day processing (contract) on the previous day. You can also reset manual adjustments. Preparatory Processing Before you execute day processing at the end of the period you have the option of predetermining the accounting status. Before you execute period-end processing you can also predetermine the target values. Related Information Day Processing [page 62] P U BL IC 49

50 Period-End Processing [page 95] Year-End Processing [page 155] Period-Opening Processing [page 158] Preparatory Processing [page 163] Results Data Methodologies for Determining Target Values In for Financial Instruments (Smart AFI), the calculation of a target value for a subledger account and the account assignment (including determination of the difference amount) are separated. You can use different methodologies to calculate the target values for subledger accounts depending on the accounting process step. These methodologies can be grouped according to the pattern described below. Depending on the semantics of the subledger account, the system either determines target values for this subledger account (for example, target value of an accrual item) or it determines target values that are used in accounting to determine the target values for subledger accounts (for example, amortized cost or fair value). Note The system calculates target values in position currency. Assignment of Process Steps and Methodologies Process Step Import Based Parametric Based Based Contract- Cash-Flow- Subledger-Account- Bus.-Transaction- Based Determine Price Gain X X Accrue X (X)* Defer X X X X** X Write Down X (X)* Release X X X X** Value TC Credit Risk X X X X 50 P U B L I C

51 Process Step Import Based Parametric Based Based Contract- Cash-Flow- Subledger-Account- Bus.-Transaction- Based Interest Rate Risk (Hedged) X (X)* Fair Value X X X X Fair Value (Collateral) X (X)* * The realization method is executed automatically if a contract or securities position has the lifecycle segment 40 (Contract End). ** Non-accrual Import methodology For each process step, you can import accounting target values that have already been calculated outside of Smart AFI. For more information, see Importing Results and Granularity [page 57]. Contract-based methodologies In Smart AFI, contract-based methodologies are methodologies that require no further input parameters other than the contractual information (for example, lifecycle segment). You can use the following methods in the process steps: Realization If you apply the realization method, the system clears an existing balance completely. Freeze If you apply the freeze method, the system keeps an existing balance (it is frozen ). Note The system executes the realization method automatically if a contract or securities position has the lifecycle segment 40 (Contract End). P U BL IC 51

52 Parametric methodologies Parametric methodologies group all methods that require various reference parameters for calculation (for example, market prices or probability of default). These parameters are applied to a partial book value or to the balance of a given subledger account (taking scaling into account where required). Specific use cases for this include the following: The one-year expected loss methodology for determining the credit risk adjustment (book value x PD x LGD) The mark-to-market methodology for determining the fair value (amount x market price) Cash-flow-based methodologies Cash-flow-based methodologies group all methods that determine accounting target values based on a cash flow. The key parameters for this approach are as follows: Selection of the relevant cash flow (contractual cash flow, behavioral cash flow, credit-risk-adjusted cash flow) Depending on the target value to be calculated, the interest rate or yield curve used for discounting is either implicitly defined by the system (for example, effective interest rate for determining amortized cost) or you need to explicitly enter it (for example, yield curve for determining fair value). Subledger-account-based methodologies These methodologies calculate target values on subledger accounts by evaluating the balances of the subledger account concerned and of further reference subledger accounts (taking time limits and amountbased limits into account if required). The non-accrual methods are examples of use cases for this. Business-transaction-based methodologies These methodologies are used only for process steps that carry out their interpretation after business transactions have occurred (Determine Price Gain and Defer). The methodologies either amortize businesstransaction-based amounts over a period of time (Defer) or determine accounting price gain effects, taking lot selections into account. 52 P U B L I C

53 Change Reasons Change reasons explain the change in the balance of a subledger account group between two evaluation dates on a balance sheet key date or between two balance sheet key dates. Depending on the methodology you use, the calculators in for Financial Instruments determine the following change reasons: 200: Amortization 400: Catch-Up Adjustment (Business Transaction) 500: Modification (Contractual Cash Flow) You can use change reasons to define offsetting postings in more detail in the profit and loss statement. Note The change reasons provided by a valuation method depend on the context and the method used. For example, if the fair value is determined stochastically the deterministic amortization effects are not reported. Prerequisites In Customizing for the relevant process step under Bank Analyzer Processes and Methods Smart Accounting Process Steps for Financial Instruments [Name of Process Step] Account Assignment, you can view the combinations of subledger accounts provided by SAP for postings in the relevant process step. You can edit these or add your own combinations. If required, you can make more detailed settings for the assignment of accounts for expense and income by specifying change reasons. If you are using cash flow-based methods, also note the following conditions when you define the methods in Customizing: It is not possible to separate change reasons if Any Cash Flow Change has been set as an event for the recalculation of effective interest or if the Suppress One-Time Effects has been selected. Description of Change Reasons Period-based change reasons Period-based change reasons determine the expected changes to a balance over time under constant ( current ) conditions, in advance. Amortization (200) Amortization describes the deterministic change to a target value due only to the time expired under constant conditions (Period-based). Time-based change reasons Unlike the period-based change reasons, the following change reasons are caused by unexpected changes made to the conditions at a given point in time. P U BL IC 53

54 These effects need to be reported according to who caused the change. This can be divided into the following categories: Customer (unilaterally) Bank and customer (bilaterally) Bank (unilaterally) Catch-Up Adjustment (400) A catch-up adjustment effect is the result of a change to the expected constant conditions caused by a change in customer behavior. This change always occurs when the customer behavior differs from the expectations fixed in the contract (such as in the contract cash flow). The customer can make a payment earlier or later than expected, or the payment amount is too high or too low. Moreover, in some cash flows the probability of the customer exercising his contractual rights (such as the option of an unscheduled repayment) is not taken into account. In cash flow-based contracts this change is reflected in the cash flow. In these cases, the change reason arises as a result of the change in the cash flow that is due to a change in customer behavior. Modification (500) A modification effect is the result of a change to the expected constant conditions due to a joint decision taken by both contract parties. This also results in a new contractual cash flow, however the reason needs to be entered separately to that of the catch-up adjustment. Account Assignment For account assignment, you can use all the change reasons that a calculation method can determine. When change reasons are assigned to accounts, you can differentiate between the following patterns: Pattern 1 It is already apparent in the balance sheet subledger whether the change is posted to income or expense (in the process steps Accrue, Defer or Release, for example) Position Account Change Reason Offsetting Account Deferrals: Interest Income (Debit) 500 Modification Income: Modification Deferrals: Interest Income (Debit) All unassigned change reasons Income: Interest (Realized) Pattern 2 The direction of the delta postings (in the process step Write Down, for example) determines whether the postings are to income or expense. 54 P U B L I C

55 Position Account Change Reason Offsetting Account (Income) Offsetting Account (Expense) Write-down (nominal) All unassigned change reasons Income: Write- Down Expense: Write- Down Pattern 3 In addition to the difference mentioned in pattern 2, the accounting methodology in the underlying contract also has to be taken into account. Here a distinction is made between the methodologies that can be used to report through profit and loss and through comprehensive income. This pattern is used in the process step Value Position Account Change Reason Offsetting Account (Income) Offsetting Account (Expense) Offsetting Account (Income OCI) Offsetting Account (Expense OCI) Fair value adjustment All unassigned change reasons Income: Fair Value Adjustment Expense: Fair Value Adjustment Income (OCI): Fair Value Adjustment Expense (OCI): Fair Value Adjustment This entry means that, from the perspective of the offsetting account, changes made on the credit side are posted as follows: To account Income: Fair Value Adjustment, for contracts that have been assigned to a holding category with the accounting methodology Fair Value Through Profit and Loss or LCM Through Profit and Loss. To account Income (OCI): Fair Value Adjustment, for contracts that have been assigned to a holding category with the accounting methodology Fair Value Through Other Comprehensive Income or LCM Through Other Comprehensive Income. Related Information Example: Change Reasons [page 55] Example: Change Reasons The amortized cost for a contract on balance sheet key date t 1 is EUR 90. This is distributed to subledger accounts as follows: Process Step Subledger Account Amount in Transaction Currency Register Receivable (Not Due) EUR P U BL IC 55

56 Process Step Subledger Account Amount in Transaction Currency Accrue Defer Accruals Interest Income (Debit) Deferrals Interest Income (Credit) EUR 5.00 EUR Amortized Cost EUR Between balance sheet key date t 1 and balance sheet key date t 3, a modification in the contractual cash flow occurred on date t 2. The contractual effective interest rate remains the same, leading to a one-time modification effect (EUR 5 in this example). After changes to the accrual item have been deducted, the other changes in amortized cost are due entirely to the passage of time (amortization of the position). Note The selected amounts are random and used only to illustrate the concept. On the following balance sheet key date t 3, the amortized cost is distributed as follows: Process Step Subledger Account Amount in Transaction Currency Register Accrue Defer Receivable (Not Due) Accruals Interest Income (Debit) Deferrals Interest Income (Credit) EUR EUR 6.00 EUR 9.00 Amortized Cost EUR This produces the following result on the subledger account of the deferred item on date t 3 : Subledger Account Balance t 1 Balance t 2 Total Delta (t 1, t 2 ) Modification Amortization Deferral Interest Income (Credit) EUR EUR 9.00 EUR 6.00 EUR 5.00 EUR 1.00 The effect of the modification is to be reported in the profit and loss statement to income account X (modification income, for example). The amortization effect is posted to income account Y (interest income, for example). 56 P U B L I C

57 Importing Results and Granularity You can import results data for using the Data Load Layer (DLL). You can find the import methods in Customizing for the relevant process step under Methodology. Prerequisites You have created RDL result types. You have created RDL result views for results that are stored in a semantic cluster table. Activities Use the Data Load Process of the Data Load Layer (DLL). Results That Can Be Imported RDL Result Type (Description) RDL Result Category Results Category (Description) Import S_SLPD (: Subledger Document) HFSPD 900 (Subledger Document) Not possible S_GLPD (: General Ledger Document) HFSPD 950 (Classification Status/ Holding Category) Not possible S_SCT_STAT (: Analytical Status) HKAAS 080 (Classification Status/ Holding Category) Possible 081 (Impairment Status) Possible (Write-Down Status) Mandatory 083 (Accrual Status) Possible (Asset/Liability Status) Not possible 085 (Market Conformity Status) Mandatory S_SCT_TVAL (: Target Values) HKTVL 005 (Price Gain/Loss) Possible P U BL IC 57

58 RDL Result Type (Description) RDL Result Category Results Category (Description) Import 010 (Accrued Interest (Contract)) Mandatory 015 (Accrued Interest) Mandatory 020 (Deferrals) Possible 025 (Amortized Cost) Possible 035 (Amortized Valuation Costs) 050 (Credit Risk Adjustment) 051 (Interest Rate Risk Adjustment) Possible Possible Possible 070 (Fair Value of Collateral) Mandatory 075 (Fair Value) Mandatory 200 (Statement About Contract Modification) Mandatory 800 (Free Line) Not possible 901 (Maturity Grouping) Possible S_CF (: Cash Flow) HKCFR 250 (Contractual Cash Flow) Mandatory 251 (Behavioral Cash Flow) Mandatory 252 (Credit Risk Adjusted Cash Flow) Mandatory S_SCT_PGD (: Price Gain Determination) S_SCT_IMPR (: Impairment) HKPGD 300 (Lot) Not possible HKIMT 030 (Write-Down (Nominal)) Mandatory 450 (Delinquency) Mandatory 451 (Master Rating) Mandatory 452 (Probability of Default) Mandatory 58 P U B L I C

59 RDL Result Type (Description) RDL Result Category Results Category (Description) Import 453 (Probability of Default (Subportfolio)) Mandatory 454 (Loss Given Default (Contract)) Mandatory 455 (Loss Given Default (Subportfolio)) Mandatory 456 (Credit Conversion Factor (Contract)) Mandatory 457 (Credit Conversion Factor (Subportfolio)) Mandatory 458 (Impairment Processing Mode) Mandatory Legend for the Import column: Not possible: The system is not designed to allow imports and does not support this. Possible: The system allows imports. Alternatively, the results can also be created by processes. If results are imported, the system applies these imported results and does not overwrite them with processes. Mandatory: An import is essential if the result is important. No processes are provided to create these results. Special Features Semantic cluster tables The following results storage locations are semantic cluster tables: Smart AFI: Analytical Status (S_SCT_STAT) Smart AFI: Target Values (S_SCT_TVAL) Smart AFI: Price Gain Determination (S_SCT_PGD) Smart AFI: Impairment (S_SCT_IMPR) Semantic cluster tables can contain several result categories that have semantic aspects in common and are read together in a process. The result categories that are stored together in a sematic cluster table are imported separately according to result category. To import the results categories, you need the RDL results views with a structure that matches the structure of the result category in each case. These RDL result views are provided in the Business Content. P U BL IC 59

60 Granularity of Results The following table displays the granularity of results. Results are expected in Smart Accounting or created by either at the granularity level Financial Contract (or loan, referred to as Contract below), Security or Securities Position (combination of a security and a securities account contract). You can also manage information referring to securities positions at the granularity level Lot. In selected areas allows you to define specific portfolios so that the relevant results can be managed at the granularity level (Sub-)Portfolio). Note the respective granularity level when importing results: RDL Result Type Results Category Granularity S_SLPD (: Subledger Document) S_GLPD (: General Ledger Document) 900 (Subledger Document) Subledger coding block 950 (General Ledger Document) General ledger coding block S_SCT_STAT (: Analytical Status) 080 (Classification Status/Holding Category) Contract or securities position 081 (Impairment Status) Contract or securities position / lot 082 (Write-Down Status) Contract or securities position 083 (Accrual Status) Contract or securities position 084 (Asset/Liability Status) Contract or securities position 085 (Market Conformity Status) Contract or securities position S_SCT_TVAL (: Target Values) 005 (Price Gain/Loss) Business transaction/securities position (Accrued Interest (Contract)) Contract 015 (Accrued Interest) Securities 020 (Deferrals) Contract or securities position / lot 025 (Amortized Cost) Contract or securities position / lot 035 (Amortized Valuation Costs) Contract or securities position / lot 050 (Credit Risk Adjustment) Contract or securities position / lot 051 (Interest Rate Risk Adjustment) Contract or securities position / lot 070 (Fair Value (Collateral)) Contract or securities position / lot 60 P U B L I C

61 RDL Result Type Results Category Granularity (075) (Fair Value) Contract or securities position / lot 200 (Statement About Contract Modification) Contract or securities position 800 (Free Line) Contract 801 (Maturity Grouping) Contract or securities position / lot S_CF (: Cash Flow) 250 (Contractual Cash Flow) Contract or securities position 251 (Behavioral Cash Flow) Contract or securities position 252 (Credit Risk Adjusted Cash Flow) Contract or securities position S_SCT_PGD (: Price Gain Determination) 300 (Lot) S_SCT_IMPR (: Impairment) 030 (Write-Down (Nominal)) Contract or securities position 450 (Delinquency) Contract 451 (Master Rating) Contract or securities position 452 (Probability of Default) Contract or securities position 453 (Probability of Default (Subportfolio)) Subportfolio 454 (Loss Given Default (Contract)) Contract or securities position 455 (Loss Given Default (Subportfolio)) Subportfolio 456 (Loss Given Default (Subportfolio)) Subportfolio 457 (Credit Conversion Factor (Subportfolio)) Subportfolio 458 (Impairment Processing Mode) Contract or securities position 1 Note that the status can either be imported or determined by the Determine Impairment Attributes process (Impairment Attribute Determination = IAD). The IAD can override impairment and deferral statuses that are imported from external sources. You can prevent this by using results category 458 to set the impairment processing mode manually. 2 Price gains/losses are determined at the Business Transaction granularity level. The securities position is managed in the results in addition to the business transaction. P U BL IC 61

62 Related Information Results Data Layer (FS-BA-RD) [page 4] Day Processing Day processing comprises the activities that are usually executed once or multiple times a day. Set Posting Date [page 62] Register Business Transactions [page 64] End-of-Day Processing (Business Transaction) [page 70] Impairment Attribute Determination (IAD) [page 92] End-of-Day Processing (Contract) [page 91] Set Posting Date You use this transaction to define a posting date up to which the processes create posting documents for the specified source systems. For example, the Register process step processes business transactions only up to this posting date. Context Before you register business transactions and master data changes, you need to set a posting date for each source system. This date defines the latest posting date or the latest business record date for business transactions and master data changes that are transferred. The posting date is set as leading in the relevant operational system (source system) (opening of a posting day). By applying this date, accounting can determine whether a newly registered business transaction might be a correction (posting date (business transaction) < posting date (source system)) or whether this can be ruled out (posting date (business transaction) = posting date (source system)). It is also possible to not report the posting date in accounting until a posting date has been completely processed (in the subledger and if required in the general ledger), and required end-of-day and period-end processing has been executed. Therefore, the posting date for each source system must always be earlier than or equal to the posting date in the operational system. The earlier than results only from the requirement outlined previously. 62 P U B L I C

63 Procedure 1. On the SAP Easy Access screen, choose Bank Analyzer Processes and Methods Subledger Accounting Insurance Contracts Day Processing Set Posting Date. 2. Enter the latest posting date required and the source systems. 3. Choose Execute Register You use the Register process step to document in accounting all business transactions imported since the step was last executed and all business transactions not completely or correctly processed in a previous register run. In addition, the system receives master data changes and analytical decisions, and marks the relevant contracts or securities positions for end-of-day processing. Prerequisite for this is that the source system is relevant for. You can schedule the Register process step to run as often as required during a day. Note If you start Register runs for different source systems, you need to take various dependencies into account. For more information, see Dependencies Between Source Systems [page 68]. Prerequisites You have made the settings in Customizing for Bank Analyzer under Processes and Methods Smart Accounting Process Steps for Financial Instruments Register. In Customizing for Bank Analyzer under Processes and Methods Basic Settings Basic Settings Define Source Systems, you have made sure that the source system is relevant for. You have set the posting date. For more information, see Set Posting Date [page 62]. Activities On the SAP Easy Access screen, choose Bank Analyzer Processes and Methods Subledger Accounting Financial Instruments Day Processing Register. P U BL IC 63

64 Register Business Transactions The Register process step transfers operational flow transactions (mapped in the SDL as business transactions) to, and documents these as subledger documents. The system only transfers business transactions to for which the following conditions apply: The posting date of the business transaction is before or the same as the posting date defined for Smart Accounting. The business transaction class of the business transaction is relevant for. Prerequisites In Customizing for Bank Analyzer under Processes and Methods Technical Settings Define Relevant Business Transaction Classes relevant for., you have made sure that the business transaction class is Process Register Business Transactions When the system registers a business transaction, it creates a central GAAP document for each business transaction item. For more information, see Central GAAP Approach [page 25]. The system specifies which subledger account groups are permitted for creating a subledger document in the Register process step. It determines the corresponding posting records with the specific subledger accounts from the business transaction data and the business transaction item. In this way, the system reduces detailed operational information to a few analytical consequences. For more information, see Customizing for Bank Analyzer under Processes and Methods Process Steps for Financial Instruments Register Account Assignment. The system determines the subledger coding block [page 31] based on the following data: Business transaction header and item The first version (valid at the start of the subledger document posting date) of the following: The referenced contract The referenced security The corresponding business partner The corresponding analytical status The system flags the contract or securities position affected by the business transaction item for end-of-day processing on the posting date of the created subledger document. 64 P U B L I C

65 Business Transaction for a Securities Position In addition to registering the business transaction item, during end-of-day processing the Determine Price Gain [page 81] process step determines and documents a potential price gain or loss in the event of a position change. Business Transaction in Foreign Currency If the transaction currency or the position currency in the business transaction item differs from the functional currency, the transaction is a foreign-currency-relevant scenario. The system translates the amounts in foreign currency using the exchange rate available in the system on the posting date of the business transaction and at the time of registration. The following foreign currency constellations are possible: 1. Position currency and transaction currency in the business transaction item are the same but differ from the functional currency. Both subledger accounts of the derived posting record belong to the financial statement segment Balance Sheet: Assets and Liabilities P&L in foreign currency: At least one of the subledger accounts of the derived posting record belongs to the financial statement segment Profit and Loss Statement. 2. Change of payment currency: Position currency and transaction currency in the business transaction item are different. In case 1, the subledger document of the Register process step creates preliminary currency positions. In case 2, the document also creates a preliminary equivalent value position, if required. In end-of-day processing, the Move and Transform process step fixes the exchange rate and posts the amounts to the following accounts: P&L Currency Position Equivalent Value Position For more information, see the posting examples under Move and Transform [page 139]. Reversal Business Transaction only registers reversal business transactions that carry the business transaction items to be reversed. You need to define that these kinds of reversal business transactions are reversal business transactions by value. To do so, you first need to have made the appropriate setting in Customizing for the business transaction class. For more information, see Customizing for Bank Analyzer under Source Data Layer Primary Objects Flow Data Business Transactions Edit Business Transaction Classes. For documentation purposes, the reversal business transaction can optionally contain the reference to the reversed business transaction. The posting date of the reversal business transaction and the posting date of the reversed business transaction can differ. P U BL IC 65

66 The registration of a reversal business transaction follows the same logic as the registration of a business transaction with the following differences: In the document, the system inverts the amount in transaction currency (in other words, it multiplies it by -1) while keeping the debit/credit indicator. (The amounts with a reference to other currencies are determined based on the amount in transaction currency according to the usual schema.) The reversal indicator is set in the document, and if available, the reference to the reversed business transaction. Business Transaction in a Closed Period If the posting date for a business transaction to be registered is in a closed period, the Register process step shifts the posting date of the subledger document to be created to the first day of the first open period for each business transaction item. The posting date of the business transaction remains in the document date of the subledger document from the Register process step for documentation purposes. In all other scenarios, the system creates subledger documents using the procedure as previously described. For more information about opening and closing periods, see Close [page 154]. Error Situations (Suspense Accounting) Business transactions that the Register process step is unable to document correctly remain in the worklist for this process step until they have been processed correctly. For more information, see Suspense Accounting [page 245]. Related Information Central GAAP and Delta GAAP Approach [page 25] Set Posting Date [page 62] Close [page 154] Suspense Accounting [page 245] Register Master Data Changes The Register process step registers master data changes to contract data, securities data, and business partner data (mapped in the SDL as a new master data version). The system only transfers the master data changes to when the business date of the change is before or the same as the posting date set for. For a master data change (to a contract, security, or business partner), the system marks the contracts or securities positions affected by the change for end-of-day processing (contract) on the business record date of the change. For more information, see Master data change in End-of-Day Processing (Contract) [page 91]. 66 P U B L I C

67 Register Analytical Decisions An analytical decision results from a change in an analytical status. The following analytical statuses are relevant: Accrual status Write-down status Market conformity status Impairment status Holding category Fair value level Onerousness status Term segment The change in analytical status is imported or, in the case of the accrual status and the impairment status, it can happen automatically. For more information, see Impairment Attribute Determination (IAD) [page 92]. An analytical decision is dependent on the accounting principle (represented by the accounting system). The Register process step only transfers the analytical decisions to for which the business date of the decision is before or the same as the posting date set for. The system flags the contract or securities position affected by the analytical decision for end-of-day processing for the accounting system of the analytical decision and for the leading accounting system on the business date of the change. For more information, see the Analytical Decision section under End-of-Day Processing (Contract) [page 91] Reregister Business Transactions If you want the system to register a business transaction, a master data change or an analytical decision with a posting date or business record date that is before the current posting date defined for, this is referred to as a correction. When the system registers a master data change or an analytical decision due to a correction, it flags already registered business transaction items for the affected contracts or securities positions to be registered again. This applies more specifically to business transaction items for which the posting date of the corresponding Register subledger document is after the date of the correction and at the same time in an open period. Reregistering business transaction items only has consequences if the master data change or the analytical decision change the subledger coding block. For each affected business transaction item, the system creates an inversion document for the existing subledger document, and creates a subledger document for the business transaction item again. The system then marks the affected contracts or securities for end-of-day processing on the date of the correction. For more information, see End-of-Day Processing [page 91] in the Updating Executed Period-End Process Steps section. P U BL IC 67

68 Related Information Dependencies Between Source Systems [page 68] Dependencies Between Source Systems If you start Register runs in parallel for different source systems, you need to take various dependencies into account. The source systems for the following data can all be different: Business transactions for contracts or securities positions The master data of contracts The master data of securities The master data of the relevant business partners Analytical decisions The Register process step can be executed at the same time in one run for several source systems. Dependencies in parallel Register runs If you have started several Register runs in parallel for different source systems, you need to take various dependencies into account. If you ignore these dependencies, lock conflicts can occur. These conflicts mean that objects are not processed and are put on hold for the next Register run. Lock conflicts for contracts Case 1 Register Run Source System Source System Data Constraints 1 A Business transactions Register runs 1 and 2 should 2 B Contract master data not be started in parallel. Case 2 Register Run Source System Source System Data Constraints 1 A Contract master data Register runs 1 and 2 should not be started in parallel. 2 B Master data for the contract business partner or Analytical decisions 68 P U B L I C

69 Lock conflicts for securities positions Case 1 Register Run Source System Source System Data Constraints 1 A Business transactions Register runs 1 and 2 should not be started in parallel. 2 B Securities account master data or Securities master data or Master data for the securities business partner Case 2 Register Run Source System Source System Data Constraints 1 A Securities account master data Register runs 1 and 2 should not be started in parallel. 2 B Securities master data or Master data for the securities business partner or Analytical decisions Dependencies in reregistration If you register business transactions again, you need to take the following into account regarding the source systems: For contracts: Change to master data of a contract The system reregisters the business transaction items in the same Register run only if you have specified the source system for the business transactions in addition to the source system for the contract master data. Otherwise, the system does not register them until the next run with the source system for the business transactions. Change to master data for a business partner of a contract or of an analytical decision: The system only reregisters the business transaction items in the same run if you have specified the source system for the contract and the source system for the business transactions in addition to the source system for the master data of the business partner in the contract and the source system for the analytical decision. Otherwise, the system does not register the business transaction items again until the relevant subsequent runs. P U BL IC 69

70 For securities: Change to securities account master data: The system reregisters the business transaction items in the same run only if you have specified the source system for the business transactions in addition to the source system for the master data of the securities account. Otherwise, the system does not register them until the next run with the source system for the business transactions. Master data change to a security, the business partner for a security or an analytical decision: The system only reregisters the business transaction items in the same run if you have specified the source system for the securities account and the source system for the business transactions in addition to the source system for the master data of the security, the source system for the master data of the business partner, or the source system for the analytical decision. Otherwise, the system does not reregister the business transaction items until the relevant subsequent runs. Related Information Register [page 63] Register Business Transactions [page 64] Register Master Data Changes [page 66] Register Analytical Decisions [page 67] Reregister Business Transactions [page 67] End-of-Day Processing (Business Transaction) End-of-Day Processing (Business Transaction) generates business transaction-based postings on the basis of the business transactions registered for a posting date, for all accounting systems in a legal entity. It executes specific business transaction-based steps for the processing of business transactions on securities positions. In addition, the currency rates are fixed for the registered FX-relevant business transactions. The following individual steps are run during End of Day Processing (Business Transaction): Define lots Allocate Register postings to lots Determine price gain Move and transform (business transaction) The first three steps are only relevant for securities positions, however you can use the Move and Transform process step for transactions on securities positions and contracts. If a scenario for a securities position (such as a business transaction, master data change or analytical decision) registered by the Register process step is before a business transaction-related step (that has already been executed in End-of-Day Processing (Business Transaction)), the system executes the process step again in End-of-Day Processing (Business Transaction). This only applies to contracts if scenarios are registered that result in a change to the subledger coding block (such as a master data change, or analytical decision) and only applies to the Move and Transform (Business Transaction) process step. 70 P U B L I C

71 The reference value relevant for a registered business transaction is the posting date of the Register subledger document. This means that the system re-executes all the business transaction-related steps for the relevant contract or securities position that were executed on a key date later than the posting date of the Register subledger document. The reference value relevant for a master data change or an analytical decision is the business record date of the change if it is in an open period. Otherwise, it is the first day of the next open period after the change. Prerequisites You have executed the Register process step. The foreign exchange rates have been imported (for example, the day's mid-market rate). Activities On the SAP Easy Access screen, choose Bank Analyzer Processes and Methods Subledger Accounting Financial Instruments Day Processing End-of-Day Processing (Business Transaction). Related Information Determine Price Gain [page 81] Define Lots [page 73] Allocate Register Postings [page 73] Move and Transform (Business Transaction) [page 140] Lot Accounting Lot Accounting is used to document securities positions in accounting. The basis for lot accounting is the division of securities positions into single positions or lots. These lots are built up by inflows to the securities position and reduced by outflows, according to a defined lot selection method. An inflow is a debit posting to a debit position or a credit posting to a credit position; an outflow is a credit posting to a debit position or a debit posting to a credit position. In lot accounting, the posting information generated by Smart AFI for the securities position refers to the lots for the securities position. The system assigns postings to lots when documenting both operational scenarios and calculated analytical amounts. This involves both postings to balance sheet subledger accounts and to subledger accounts for the profit and loss statement. Cross-contract postings are not assigned to a lot. You decide in Customizing whether lot accounting is to be used for a securities position for each accounting standard (and depending on other master data characteristics of the subledger coding block). You use the P U BL IC 71

72 methodology of the price gain determination method derived for the securities position to define whether lot accounting is used. If the method is assigned to the methodology Price Gain Determination by Lot Selection Method, lots are created for the securities position and lot accounting is applied. The assignment of an operational flow transaction to lots depends on the operational sequence of all operational transactions that have been executed for the securities position on a posting day. This means that the assignment of flow transactions to lots is not stable until all operational transactions for the posting day have been registered. (A stable assignment cannot be guaranteed when flow transactions are registered during the day.) Business transaction postings in foreign currencies are fixed with the currency rates valid at the end of the day. The system runs the following steps in End of Day Processing (Business Transaction) to document business transaction postings: Definition and update of lots as a result of position changes (Define Lots) Allocation of register postings to lots (Register (Allocate to Lots)) Documentation of prices gains (Determine Price Gain) Fixing of foreign currency amounts as a result of the registration of business transactions (Register (Move & Transform)) If lot accounting is applied to a securities position, the postings (to subledger accounts at the Contract granularity level) generated by the process steps for End of Day Processing (Contract), Period End Processing (Contract) and Period-Opening Processing (Contract) also refer to lots for the securities position. This also means that the calculators called by the process steps calculate at lot level and, if required, save their results at lot level on the database. If you import a key date value for a securities position or a security (in the case of accrued interest) for documentation in the subledger, the system scales this according to the nominal value or quantity for each lot to the lots for the securities position. The process step documents the key date value to the lots referred to in the subledger documents. In order to determine the impairment status (in connection with the relevant criterion) an initial master rating must be defined for each lot and the impairment status must be determined for each lot. The system manages all other analytical statuses at security position level. When balance carryforwards are created the assignment of balances to lots remains unchanged. Information for Notes to Financial Statements is determined by the relevant processes (Determine Fair Value, Execute Maturity Grouping) at lot level. Related Information End-of-Day Processing (Business Transaction) [page 70] End-of-Day Processing (Contract) [page 91] Period-End Processing [page 95] Carry Forward [page 156] Period-Opening Processing [page 158] Notes to Financial Statements [page 251] 72 P U B L I C

73 Define Lots The Define Lot step determines lot results (Smart AFI Results Category 300 (Lot)), if required, and price gain results (Smart AFI Results Category 005 (Price Gains)) for a position change on a securities position. The system calls the price gain calculator to do this. Related Information Calculation of Price Gains [page 83] Allocate Register Postings The Allocate Register Postings step allocates register postings for a security position to the lot for the security position. Cross-contract register postings are not allocated to lots. The system allocates register postings to lots for securities positions that are handled in lot accounting. (This means that the price gain determination method derived for the securities position belongs to the Price Gain Determination According to Lot Selection Method methodology). An allocation document is created for each register document for each relevant accounting system. The context defined by the business transaction determines which allocation algorithm is applied to a register posting. A distinction is made between the following situations: 1. The business transaction changes a position (the business transaction contains a business transaction item that changes the acquisition value of the securities position) 2. The business transaction does not change a position The register posting to be allocated reduces a short-term receivable The register posting to be allocated does not reduce a short-term receivable (and so could affect a subledger account that does not belong to the subledger account group (Receivables/ Payables (Due)) 3. The business transaction is the reversal of a business transaction described in 1 or 2 For simplicity, the following description assumes that all business transaction items for a business transaction affect the same securities position. Any reversal business transactions that are included are referred to explicitly. Position-changing business transaction In the Define Lots step, the position-changing business transaction item is distributed to the lots based on the lot selection method for the price gain determination. Amount B in position currency for the position-changing business transaction item is partitioned into amounts B i per lot L i. In other words, B = i B i. P U BL IC 73

74 The amount in transaction currency A in the register posting allocated to Lot L i is given by A i = A*B i / B (following the partition above). Non-position-changing business transaction a. Register posting reduces short-term receivable In this case the register posting is made to a subledger account from the subledger account group (Receivables/Payables (Due)) and the related business transaction item has the posting direction Credit. The amount in transaction currency A in the register posting is allocated to the lots in proportion to balance BAL i per lot L i in relation to the total balance BAL of the subledger account for the register posting. Therefore, the following applies to amount A i allocated to lot L i : A i = A*BAL i / BAL. When an overpayment is made (the payment amount is larger than the short-term receivable to be cleared) the overpayment amount is allocated to the lots in the same way as in the following case. b. Register posting does not reduce short-term receivable Amount in transaction currency A in the register posting is allocated to the lots in proportion to quantity (nominal or number of units) Q i per lot L i in relation to the total quantity Q of the securities position. Therefore, the following applies to amount A i allocated to lot i : A i = A*Q i / Q Reversal business transaction In this case there is a register posting for the reversed business transaction that corresponds to the register posting for the reversal business transaction. The allocation document for the register posting for the reversal business transaction is created when the allocation document for the register posting of the reversed business transaction is reset, while retaining the lot assignment. The following information is transferred from the allocation document for the corresponding register posting for the reversed business transaction to the new allocation document: The amounts in transaction currency allocated to the lots multiplied by -1 The debit/credit indicator of the relevant document line item The assignment of the allocated amount to the respective lot Furthermore, the reversal indicator is set in the newly created allocation document Examples of Lot Allocation Business transactions 74 P U B L I C

75 Posting Date Value Date Business Transaction BT Item Transaction Type Position Amount Quantity (Position Change) January 21 January 23 BT1 1 Purchase units 2 Charge (to pay) 1 February 10 February 12 BT2 1 Purchase units 2 Charge (to pay) 1 February 20 February 22 BT3 1 Purchase units 2 Charge (to pay) 1 March 20 March 22 BT4 1 Sale units March 22 March 22 BT5 1 Incoming payment April 4 April 13 BT6 1 Dividends (activated) April 13 April 13 BT7 1 Incoming payment April 13 April 13 BT8 1 Reversal of incoming payment Register documents Date Value Date Business BT Item Reversal Indicator Transaction Transaction Type Transaction Amount Quantity (Position Change) Debit/ Credit Indicator Subledger Account January 21 January 23 BT1 1 Purchase Charge (to pay) units D C Acquisition value In-transit account payment clearing 2 Charge (to pay) -1 1 C D Expense from charges Acquisition value P U BL IC 75

76 Date Value Date Business BT Item Reversal Indicator Transaction Transaction Type Transaction Amount Quantity (Position Change) Debit/ Credit Indicator Subledger Account February 10 February 12 BT2 1 Purchase units D C Acquisition value In-transit account payment clearing 2 Charge (to pay) -1 1 C D Expense from charges Acquisition value February 20 February 22 BT3 1 Purchase units D C Acquisition value In-transit account payment clearing 2 Charge (to pay) -1 1 C D Expense from charges Acquisition value March 20 March 22 BT4 1 Sale units C D Acquisition value Receivable (due) March 22 March 22 BT5 1 Incoming payment C D Receivable (due) In-transit account payment clearing 76 P U B L I C

77 Date Value Date Business BT Item Reversal Indicator Transaction Transaction Type Transaction Amount Quantity (Position Change) Debit/ Credit Indicator Subledger Account April 4 April 13 BT6 1 Dividends (activated) D C Receivable (due) Income from dividends April 13 April 13 BT7 1 Incoming payment C D Receivable (due) In-transit account payment clearing April 13 April 13 BT8 1 X Reversal of incoming payment C D Receivable (due) In-transit account payment clearing Assignment of business transactions to lots (in the relevant accounting system) FIFO Date Business Transaction BT Item Lot ID Quantity BT in Lot Amount BT in Lot January 21 BT units 1000 February 10 BT units 3300 February 20 BT units 6500 March 20 BT units units Allocation documents (in the relevant accounting system) No allocation is made for cross-contract document items (in this case postings to the in-transit account for payment clearing). P U BL IC 77

78 Algorithm for position changing BT items The allocation assigns the business transactions to lots: Business Transac Quantity Debit/ Sub Value Transac Reversal Transac tion (Position Credit ledger Date Date tion BT Item Indicator tion Type Amount Change) Indicator Account Lot ID January 21 January 23 BT1 1 Purchase units C Acquisition value units D Acquisition value 1 February 10 February 12 BT2 1 Purchase units C Acquisition value units D Acquisition value 2 February 20 February 22 BT3 1 Purchase units C Acquisition value units D Acquisition value 3 March 20 March 22 BT4 1 Sale units D Acquisition value units C Acquisition value units C Acquisition value C Receivable (due) 1250 D Receivable (due) 1250 D Receivable (due) 1 2 Algorithm for BT items in business transaction with other position-changing items The system allocates by scaling proportionally based on the assignment of the business transaction to lots. If there is more than one lot, the system allocates only to the lot that belongs to the business transaction. 78 P U B L I C

79 Business Transac Quantity Debit/ Sub Value Transac Reversal Transac tion (Position Credit ledger Date Date tion BT Item Indicator tion Type Amount Change) Indicator Account Lot ID January January BT1 2 Charge units C Expense (to pay) from charges 1 10 units D Expense from charges 1 February February BT2 2 Charge units C Expense (to pay) from charges 1 30 units D Expense from charges 2 February February BT3 2 Charge units C Expense (to pay) from charges 1 50 units D Expense from charges 3 Algorithm for non-position-changing business transaction without reducing short-term receivables The system uses the total current securities position (balance of acquisition value per lot) for the allocation and scales proportionally: Business Transac Quantity Debit/ Sub Value Transac Reversal Transac tion (Position Credit ledger Date Date tion BT Item Indicator tion Type Amount Change) Indicator Account Lot ID April 4 April 13 BT6 Dividends (activated) -70 C Receivable (due) 20 D Receivable (due) 2 50 D Receivable (due) 3 P U BL IC 79

80 Date Value Date Business BT Item Reversal Indicator Transaction Transaction Type Amount Quantity (Position Change) Debit/ Credit Indicator Transaction Subledger Account Lot ID 70 D Income from dividends -20 C Income from dividends -50 C Income from dividends 2 3 Algorithm for reducing short-term receivables The system uses the current balance of short-term receivables for each lot for the allocation and scales proportionally. If an appropriate balance of short-term receivables is no longer available, the remainder is allocated according to algorithm 3. Date Value Date Business BT Item Reversal Indicator Transaction Transaction Type Amount Quantity (Position Change) Debit/ Credit Indicator Transaction Subledger Account Lot ID March 22 March 22 BT5 1 Incoming payment 2500 D Receivable (due) C Receivable (due) C Receivable (due) 1 2 April 13 April 13 BT7 1 Incoming payment 70 D Receivable (due) -20 C Receivable (due) -50 C Receivable (due) P U B L I C

81 Algorithm for reversal business transaction For the allocation of the reversal business transaction, the system reverses the allocation for the reversed business transaction. Business Transac Quantity Debit/ Sub Value Transac Reversal Transac tion (Position Credit ledger Date Date tion BT Item Indicator tion Type Amount Change) Indicator Account Lot ID April 13 April 13 BT8 1 X Incoming payment -70 D Receivable (due) 20 C Receivable (due) 2 50 C Receivable (due) Determine Price Gain The Determine Price Gain process step documents the nominal price gain for a securities position resulting from a position change. The price gain calculator determines the nominal price gain. For a transaction on a securities position, the Register process step posts the purchase price or sale price against the balance sheet subledger account Acquisition Value (Securities). The nominal price gain is posted against the balance sheet subledger account Acquisition Value (Securities) Adjustment. This ensures that the operational quantity Acquisition Value remains reconcilable. The nominal price gain is recognized in profit and loss and posted against the P&L subledger accounts Income: Price (Realized) and Expense: Price (Realized). For a securities position in foreign currency, the system posts the nominal price gain to the preliminary P&L. The Move and Transform [page 139] process step recognizes the nominal price gain in profit and loss. Prerequisites You make the account assignment settings for price gain determination in Customizing for Bank Analyzer under Processes and Methods Process Steps for Financial Instruments Register Account Assignment Determine Price Gain Assign Subledger Accounts. P U BL IC 81

82 Example On January 21, 10 units of security X are purchased in securities account Y at a total price of EUR 1,000. On February 10, 30 units of security X are purchased in securities account Y at a total price of EUR 3,300. On February 20, 50 units of security X are purchased in securities account Y at a total price of EUR 6,500. On March 10, 20 units of security X are sold from securities account Y at a price of EUR 2,500. The resulting price gain of EUR 100 (see example under Calculation of Price Gains Based on the Average Cost Method [page 83]) needs to be entered in the accounts accordingly. This produces the following postings: Day Processing Process Step D/C Subledger Account Position Currency Quantity January 21 Register D Acquisition Value EUR 1, C ITA: Payment Transactions - EUR 1000 February 10 Register D Acquisition Value EUR 3, C ITA: Payment Transactions - EUR 3300 February 20 Register D Acquisition Value EUR 6, C ITA: Payment Transactions - EUR 6,500 March 20 Register C Acquisition value - EUR 2, D Receivables (Due) EUR 2,500 March 20 Determine Price Gain D Acquisition Value Adjustment EUR 100 C Income: Price - EUR 100 Related Information Calculation of Price Gains [page 83] Move and Transform [page 139] 82 P U B L I C

83 Calculation of Price Gains The price gain calculator determines the price gain for a position change on a securities position. The price gain calculator determines the price gain determination method to be used from Customizing, depending on the accounting system (and on other master data characteristics of the subledger coding block). You can use the following methodology to determine the price gain: Price Gain Determination Based on the Average Cost Method Price Gain Determination Based on Lot Selection Method External Import of Price Gain Note Note that it is not possible to change the methodology for a securities position in the system. A change of methodology may be triggered by a change of holding category or subledger coding block characteristic, for example. Note the following additional information if the determination of price gain is based on the average cost method or on the lot selection method: Results of the Price Gain Calculator: In addition to the price gain results, the price gain calculator also determines lot results for the collective position (average cost method) or the lots for the securities position (lot selection method) and updates these from the posting date of the position change onwards. The lot result contains the (average) acquisition value, the nominal value or quantity, and the creation date of the collective position or of the corresponding lot. It represents a nominal view by posting date of the collective position or the lots. You can gain non-nominal views or views by value date by evaluating the balances. The price gain and lot results of the price gain calculator are saved in the Results Data Layer (Smart AFI result categories 005 (price gains) and 300 (lot)). Processing in the System: The system processes the position changes to be settled sorted by posting date of the business transaction. For a given posting date, the system sorts the business transactions in the sequence in which they were created in the operational system. To do so, the system uses the Date and Time fields from the operational system. You, therefore, need to provide these values in the business transaction. Short-Long Transition: If a position change leads to a short-long or a long-short transition, it is broken down into an outflow (that brings the lot quantity down to zero) and an inflow. Reversal of a Position Change: Position changes and reversals of position changes are processed in the same sequence according to the posting date of the business transaction and creation time in the operational system. The price gain for a reversal is determined by resetting the price gain of the reversed business transaction. Reversal chains (reversal of reversals) are not supported. Prerequisites: If a position-changing business transaction is reversed, all of the business transactions for the same financial instrument in the same securities account with a later posting date or operational date, or a later operational time, must be reversed. You need to enter the reference to the reversed business transaction in the reversal business transaction. P U BL IC 83

84 The reversal and the reversed business transaction must have the same source system. Moreover, the item number of the business transaction item in the reversal must be the same as the item number of the reversed business transaction item. Related Information Importing Results and Granularity [page 57] Price Gain Determination Based on the Average Cost Method [page 84] Price Gain Determination Based on the Lot Selection Method [page 86] External Import of Price Gain [page 90] Price Gain Determination Based on the Average Cost Method In Customizing for Bank Analyzer under Processes and Methods Process Steps for Financial Instruments Register Methods Determine Price Gain, you can display the methods for determining price gain based on the average cost method and define the derivation of methods for price gain determination. As part of this methodology, SAP provides the method Average Cost Method (Permanent, LTD). Average cost method Permanent The position considered when determining the price gain is the collective position (defined by the securities account, the security and the position currency). The reference value is the average price per security and per unit in the collective position based on the (average) acquisition value of the collective position. The system determines the potential price gain for each position change. The (average) acquisition value that the price gain calculator uses as the basis for settling a business transaction is taken only from position changes that were processed earlier (from an operational perspective) than the business transaction to be settled (date and time in operational system). Life-to-date (LTD) To determine the price gain, the system always reverts to the last status of the lot since the creation of the collective position. The (average) acquisition value of a collective position is updated as of the creation of the position. There is no periodic balancing. 84 P U B L I C

85 When there is a position change, the lot result of the collective position is updated (on the posting date of the business transaction) as follows: The adjustment of the quantity or nominal value of the lot (collective position) is calculated by adding the quantity or the nominal of the position change (taking the plus/minus sign of the business transaction into account) The adjustment of the lot acquisition value (collective position) is calculated as follows: For an inflow (in other words, a debit posting to a debit position (long position) or a credit posting to a credit position (short position)): By adding the position amount of the position change (taking the plus/minus sign of the business transaction into account) For an outflow (in other words, a credit posting to a debit position or a debit posting to a credit position): By multiplying the quantity/nominal after the change with the existing price per unit The price per unit of the lot (collective position) is calculated by scaling the acquisition value of the lot to the unit in the lot. For an outflow, the price gain is calculated as the difference between the following: Price of the position change Quantity/nominal of the position change multiplied by the existing price per unit of the lot (collective position) The price gain for an inflow is 0. Example On January 21, 10 units of security X are purchased in securities account Y at a total price of EUR 1,000. On February 10, 30 units of security X are purchased in securities account Y at a total price of EUR 3,300. On February 20, 50 units of security X are purchased in securities account Y at a total price of EUR 6,500. On March 10, 20 units of security X are sold from securities account Y at a price of EUR 2,500. A price gain of 100 EUR is created. Date Type of Position Change Quantity (Position Change) Lot ID (Initial) Acquisition Value (Lot) Quantity (Lot) Price per Unit Price Gain January 21 Inflow 10 0 EUR 1, EUR February 10 Inflow 30 0 EUR 4, EUR February 20 Inflow 50 0 EUR 10, EUR P U BL IC 85

86 Date Type of Position Change Quantity (Position Change) Lot ID (Initial) Acquisition Value (Lot) Quantity (Lot) Price per Unit Price Gain March 20 Outflow 20 0 EUR 8,400 ( = EUR 10,800 EUR 20*(10,800/ 90)) 70 EUR 120 EUR 100 ( = EUR 2,500 EUR 20*(10,800/ 90)) Price Gain Determination Based on the Lot Selection Method In Customizing for Bank Analyzer under Processes and Methods Process Steps for Financial Instruments Register Methods Determine Price Gain, you can display the methods for determining price gain based on the lot selection method and define the derivation of methods for price gain determination. Within this methodology SAP provides the following methods: Method Description Procedure First In First Out (Permanent, LTD) FIFO The lots are selected in the sequence in which they were created. The system defines this sequence by sorting by the following fields in the business transaction that generated the lot, in ascending order: Posting Date Date in Operational System Time in Operational System Last In First Out (Permanent, LTD) LIFO The lots generated most recently are selected first (in the same way as FIFO, only sorted in descending order) 86 P U B L I C

87 Method Description Procedure Lowest In First Out (Permanent, LTD) LOFO The lots are selected according to the price per unit for the lot. The lot with the lowest price is selected first Highest In First Out (Permanent, LTD) HIFO The lots are selected according to the price per unit for the lot. The lot with the highest price is selected first Maximum Profit (Permanent, LTD) Maximum Profit The lots are selected according to the book value per unit for the lot. The lot with the lowest book value per unit is selected first. The method aims to attain the largest possible profit Minimum Profit (Permanent, LTD) Minimum Profit The lots are selected according to the book value per unit for the lot. The lot with the highest book value is selected first. The method aims to attain the lowest profit. Methods according to lot selection method The positions considered for the determination of price gain are the lots (defined by securities account, security, position currency and lot ID). Every inflow (a debit posting to a debit position (long position) or a credit posting to a credit position (short position)) generates a new lot. Every outflow (a credit posting to a debit position or a debit posting to a credit position) reduces one or more lots. The reference value is the price per unit for the lot. This is determined from the acquisition value and the nominal value or the quantity of the lot. P U BL IC 87

88 Permanent The system determines the potential price gain for each position change. The acquisition value that the price gain calculator uses as the basis for settling a business transaction is only taken from position changes that were processed earlier (from an operational perspective) than the business transaction to be settled (date and time in operational system). Life-To-Date (LTD) To determine the price gain, the system always reverts to the last status of the lot since the creation of the collective position. The acquisition value of a position is updated from its creation onwards. There is no periodic balancing. Lot ID The lot ID identifies a lot generated by an inflow within a securities position. The system assigns an identical value for each (relevant) accounting system. The lot ID comprises the fiscal year and the lot number, which is taken from the number range /BA1/BRLOT. You make the Customizing settings for the number range for each legal entity under Bank Analyzer Processes and Methods Basic Settings Legal Entity Define Legal Entities. In the Basic Settings choose the Lot Number Range button and use transaction SNRO to set up the buffer size. Lot Status A lot can have the following statuses: 01 Active 02 Used Completely: This status is used for lots with a nominal value /quantity of 0 where the inflow is not reversed. Lots that are used completely are only used for the processing of reversals. 03 Reversed This status is used for lots for which all business transactions are reversed. Reversed lots are no longer considered by the Price Gain Calculator. 04 Not Reversed Completely: This status is used for lots where the inflow has been reversed but that contain outflows that have not yet been reversed. Lots that are not completely reversed are only considered for the processing of reversals. 05 Inactive: This status is used for lots that have become obsolete as a result of a rollback (corrections). Inactive lots are no longer considered by the Price Gain Calculator. Behavior for a Position Change The reference values for determining the lot selection method are: FIFO, LIFO: The lots are selected in the sequence in which they were created. Here the posting date and the date and time in the operational system are relevant. LOFO, HIFO: Price per unit for lot Maximum Profit / Minimum Profit: Book value per unit for lot. To make it possible to compare the lots, the OCI components (fair value and LCM adjustment) and the accrued interest in the book value are not taken into account. 88 P U B L I C

89 When a position is changed, the system updates the lot result on the posting date of the business transaction for every lot changed in accordance with the lot selection method. The lot result is updated as follows: The adjustment to the quantity /nominal for the lot is calculated by adding the quantity /nominal value of the part of the position change that is allocated to the lot (taking the plus/minus sign of the business transaction into account). The adjustment of the lot acquisition value is calculated as follows: For an inflow: By adding the (partial) position amount of the position change (taking the plus/minus sign of the business transaction into account). In this case a new lot is generated. For an outflow: By multiplying the quantity/nominal value after the change with the existing price per unit for the lot, for every reduced lot. The price (per unit) of the lot is calculated by scaling the acquisition value of the lot to the unit in the lot. For an outflow, the price gain is calculated for every reduced lot as the difference between the following: Price of the position change Quantity/nominal value of the position change allocated to the lot multiplied by the existing price per unit of the lot The price gain for an inflow is 0. A price gain result refers to the original position change and the affected lot. In this way the price gain results make the assignment of position changes to lots visible. Note Position changes in the past using method Maximum Profit / Minimum Profit: In an open period: If a business transaction in the past is posted, a rollback is not executed automatically. Therefore, schedule the process steps for end-of day and period-end processing manually for every day to keep the book value up-to-date. For a closed period: Automatic processing is not supported. Example: Lot Selection Method FIFO On January 21, 10 units of security X are purchased in securities account Y at a total price of EUR 1,000. Lot 1 is created. On February 10, 30 units of security X are purchased in securities account Y at a total price of EUR 3,300. Lot 2 is created. On February 20, 50 units of security X are purchased in securities account Y at a total price of EUR 6,500. Lot 3 is created. On March 10, 20 units of security X are sold from securities account Y at a price of EUR 2,500. A price gain of EUR 250 is created for lot 1 and EUR 150 for lot 2. Date Type of Position Change Quantity (Position Change) Lot ID Acquisition Value (Lot) Quantity (Lot) Price per Unit for Lot Price Gain Lot Status January 21 Inflow 10 1 EUR 1, EUR 100 Active February 10 Inflow 30 2 EUR 3, EUR 110 Active P U BL IC 89

90 Type of Po Quantity sition (Position Acquisition Quantity Price per Date Change Change) Lot ID Value (Lot) (Lot) Unit for Lot Price Gain Lot Status February 20 Inflow 50 3 EUR 6, EUR 130 Active March 20 Outflow 10 1 EUR 0 ( = EUR 1,000 EUR 10*(1,000/ 10)) 0 EUR 250 ( = EUR 2,500/20*1 0) EUR 10*(1,000/ 10)) Completely used March 20 Outflow 10 2 EUR 2,200 ( = EUR 3,300 EUR 10*(3,300/ 30)) 20 EUR 110 EUR 150 ( = EUR 2,500/20*1 0) EUR 10*(3,300/ 30)) Active External Import of Price Gain In Customizing for Bank Analyzer under Process Steps for Financial Instruments Register Methods Determine Price Gain You can define the methods for importing price gain. Note The SAP standard value /BA1/5080 must not be imported for characteristic /BA1/C55SRCSYS for the source system. The methodology for the import cannot be used for Lot Accounting. Therefore, the fields relating to lots in result category 005 are not relevant. Note the following: You need to import a price gain (results category 005) that is not equal to 0 with a key date that is the same as the posting date of the business transaction for every position-changing business transaction (including reversals). If no price gain is entered, the system interprets this as 0. If you correct price gains that have been imported incorrectly and have already been posted, you must then reset end-of-day processing (business transaction) (transaction /BA1/BR_PCSTAT_RESET) to ensure that the corrected prices gains are posted. Related Information Importing Results and Granularity [page 57] 90 P U B L I C

91 End-of-Day Processing (Contract) Using a contract-based approach, end-of-day processing reacts to scenarios (such as business transactions, master data changes or analytical decisions) registered by the Register process step in the following ways: 1. Business transaction in foreign currency End-of-day processing executes the Move and Transform process step for FX-relevant business transactions posted by the Register process step. For more information, see Use Case 1 in the Move and Transform documentation. 2. Master data change For a master data change that changes the subledger coding block for the contract or securities position, end-of-day processing closes the period for the contract or securities position for all accounting systems (assigned to the legal entity). It does so by executing appropriate period-end process steps using the subledger coding block before the master data change. As a result, the system assigns the determined contributions to the P&L to the subledger coding block before the master data change. Afterwards, the Classify process step reclassifies the position balances to the updated subledger coding block. For a master data change in a closed period, end-of-day processing does not close the period but simply executes the Classify process step at the start of the first day of the first open period after the master data change. Example At the end of every month the system updates the position components. During the period (for example, on March 15), there is an indirect change to the profit center due to a change in the contract manager. The system needs to assign the calculated amounts for the profit and loss statement that have arisen up to and including March 15 to the old profit center. The new profit center then receives all amounts that arise as of March 16. To enable this, the system executes the process steps of period-end processing in end-of-day processing for the relevant contract only. 3. Analytical decision For an analytical decision (due to a change in analytical status) for a contract or securities position, end-ofday processing closes the period for the accounting system of the analytical decision for the contract or securities position using the subledger coding block before the analytical status change. As a result, the system assigns the P&L contributions determined when the period was closed to the subledger coding block before the analytical status change. You execute end-of-day processing for the leading accounting system (of the relevant legal entity). If the accounting system of the analytical decision is different from the leading accounting system, the system executes only the Accrue process step for the contract or securities position on the date of the analytical decision. End-of-day processing for the accounting system of the analytical decision executes the remaining period-end process steps required for closing the period. In the Classify process step, it then reclassifies the position balances to the updated subledger coding block after the analytical status change. For an analytical decision in a closed period, end-of-day processing does not close the period but simply executes the Classify process step at the start of the first day of the first open period after the analytical decision. 4. Updating executed period-end process steps If a scenario (such as a business transaction, master data change or analytical decision) registered by the Register process step is before a contract-related, period-end process step (that has already been executed in end-of-day processing or period-end processing), the system executes the process step again in end-of-day processing. The system also updates the Move and Transform process step. The reference value relevant for a registered business transaction is the posting date of the Register subledger document. This means the system re-executes all the period-end process steps for the relevant P U BL IC 91

92 contract or securities position that were executed on a key date later than the posting date of the Register subledger document. The reference value relevant for a master data change or an analytical decision is the business record date of the change if it is in an open period. Otherwise, it is the first day of the next open period after the change. Note The system does not update cross-contract period-end processing automatically. We recommend that you execute cross-contract period-end processing again before you close a period. Prerequisites You have run business-transaction-based end-of-day processing. For processing changes to the subledger coding block, you need to provide target values for updating position components beforehand. Activities On the SAP Easy Access screen, choose Bank Analyzer Processes and Methods Subledger Accounting Financial Instruments Day Processing End-of-Day Processing (Contract). Related Information Set Posting Date [page 62] Register [page 63] Period-End Processing [page 95] Move and Transform [page 139] Impairment Attribute Determination (IAD) In the Impairment Attribute Determination (IAD) process, you define the impairment status and accrual status. 92 P U B L I C

93 Prerequisites You have made the following settings in Customizing for Bank Analyzer under Subledger Coding Block Analytical Statuses : Processes and Methods Under Define Accrual Status, you define the threshold values in days past due for determining the accrual status. Under Define Impairment Status, you first define impairment statuses and specify which of the statuses are start values. In further steps, assign the impairment statuses to accounting systems and define the derivation of the statuses by days past due and master rating. Activities Determine Impairment Attributes On the SAP Easy Access screen, choose Bank Analyzer Processes and Methods Subledger Accounting Financial Instruments Day Processing Determine Impairment Attributes. Determine Impairment Attributes Periodically You can also determine impairment attributes for the total position or a subposition periodically. On the SAP Easy Access screen, choose Bank Analyzer Processes and Methods Subledger Accounting Financial Instruments Preparatory Processing Determine Accounting Status Determine Impairment Attributes Periodically. You need to use periodic processing if you are determining the impairment attributes using a relative criterion. To do so, choose the BAdI in Customizing for Bank Analyzer under Processes and Methods Smart Accounting Technical Settings Business Add-Ins (BAdIs) BAdI: Determination of Impairment Status at Subportfolio Level. Process The process is started for a key date. The accrual status and the impairment status are redetermined for contracts for which delinquency bands and/or master ratings have been imported up to this date. Determine accrual status The process determines the accrual status for each accounting system based on the defined threshold value in days past due. Determine impairment status The process determines the impairment status for each accounting system. The criteria for this are the due dates (based on threshold logic) and the master rating. For the master raring, the status can be determined using either absolute or relative criteria (in other words, a downgrade in rating in relation to the initial rating). If there are both days past due and a master rating during an impairment status determination, the system uses the lower quality status as the result. P U BL IC 93

94 Result The IAD process writes the impairment status and accrual status as the result. They are saved only if there has been a change. The IAD process also informs the Register process of an analytical decision (through the status change) by storing the underlying contract or the underlying securities position in the Register worklist. Special Features Retroactive change If rating information or delinquency information is adjusted retroactively, the IAD process updates the status values it has generated. All status values with a key date that is later than the key date of the imported values are redetermined. Status change in closed periods The IAD process determines statuses without taking posting periods into account. Even if the posting period is closed, retroactive changes to impairment statuses or accrual statuses are written for key dates. The resulting posting documents that are created by end-of-day processing are carried forward to the next open period in the posting date dimension. The document date preserves the information about the status change. Determination of initial master rating To enable it to determine the impairment status based on relative changes to the master rating, the system saves the initial master rating. The system does this for contracts when a master rating is first imported, and for securities positions when the first inflow occurs on a securities account. Embedding in processing The IAD process is not integrated into the Smart AFI process controller. The worklist for the process is created at the contract and securities granularity level, and is updated when master ratings or delinquency information (delinquency bands) are imported for the relevant contracts and securities. You can run the process daily or periodically according to your requirements. After the IAD process, you need to execute a Register run for the source system /BA1/IAD so that the status changes generated by the IAD process lead to the required accounting reactions in the latest end-of-day processing on the key date. Overwriting the impairment status You can overwrite the impairment status. To do so, choose the BAdI in Customizing for Bank Analyzer under Processes and Methods Technical Settings Business Add-Ins (BAdIs) BAdI: Overwrite Impairment Status. 94 P U B L I C

95 Related Information Register [page 63] Period-End Processing Period-end processing updates position components to fulfil a balance sheet reporting requirement. For this, you need to define which position components (and the resulting profit and loss statement) need to be provided in updated form for which source systems and for which GAAP, and how frequently this needs to be done. In period-end processing, you can also open and close posting periods. Period-End Processing (Contract) Contract-based period-end processing allows you to execute the following process steps: 1. Accrue 2. Defer 3. Write Down 4. Release 5. Value TC 6. Move and Transform 7. Value FX 8. Classify You can execute only a subset of the process steps for different time periods by choosing the corresponding period closing variants when you execute period-end processing. The process step sequence prescribed in the accounting process model and the dependencies must be adhered to. Period-end processing (cross-contract) Cross-contract period-end processing executes the Value FX step for subledger accounts that are managed at cross-contract granularity level (dimensions of financial statement entities). Subledger accounts that are managed at cross-contract granularity level are suspense accounts. These are created in double-entry bookkeeping when operational flow transactions are documented in accounting between several contracts and/or several source systems. Example In operational system A (loan processing), USD 10,000 is paid out on loan X on posting date March 30 (business transaction 1). P U BL IC 95

96 In operational system B (account processing), this USD 10,000 is credited to checking account Y on posting date April 1 (business transaction 2). The functional currency is EUR. Both business transactions have the same value date. Due to operational inaccuracies, there is a difference in posting dates between the two business transactions. The balance sheet key date is March 31. The following documents are created independently of each other as a result: Document 1 Business transaction 1 March 30 D Loan X USD 10,000 March 30 C Suspense account USD -10,000 Document 2 Business transaction 2 April 1 D Suspense account USD 10,000 April 1 C Checking account Y USD -10,000 On March 31, the suspense account has a credit balance of USD 10,000. This balance is transferred to the foreign currency valuation (Value FX) process step on March 31 with the exchange rate valid on March 31. Prerequisites Period-end processing (contract-based) You have executed end-of-day processing for business transaction and contract up to and including the posting date for period-end processing that you want to execute. Period-end processing (cross-contract) You have executed contract-based period-end processing for all source systems that provide amounts on subledger accounts that are updated in cross-contract period-end processing. Activities To execute contract-based period-end processing, on the SAP Easy Access screen, choose Bank Analyzer Processes and Methods Subledger Accounting Financial Instruments Period-End Processing Period-End Processing (Contract). To execute cross-contract period-end processing, on the SAP Easy Access screen, choose Bank Analyzer Processes and Methods Subledger Accounting Financial Instruments Period-End Processing Period-End Processing (Cross-Contract). 96 P U B L I C

97 Enter the following parameters when you execute the process: Legal entity Accounting system Source system (only for contract-based processing) Posting date Period closing variant Special period You need to enter a special period only if you execute period-end processing on the last day of a fiscal year and your fiscal year variant has special periods. Related Information Processes for Financial Instruments [page 47] Accrue [page 97] Defer [page 99] Write Down [page 115] Release [page 116] Value TC [page 126] Move and Transform [page 139] Value FX [page 145] Classify [page 148] Accrue The Accrue process step documents changes to accruals. The system updates the accounting balance of accruals (subledger account groups and ) for a specified posting date at the granularity level of the individual contract. For securities it updates it at the granularity level of securities position or lot. The system generates subledger documents specifically for the relevant accounting standard. The balance of an accrual belongs to the contract-managing system and must be imported from it. The process step is executed only for the leading accounting system. Prerequisites You have viewed the subledger accounts for the Accrue process step in Customizing for Bank Analyzer under Processes and Methods Process Steps for Financial Instruments Accrue Subledger Chart of Accounts. You have viewed the combination of subledger accounts provided by SAP for postings in the Accrue process step, have edited these, or added your own combinations in Customizing for Bank Analyzer under P U BL IC 97

98 Processes and Methods Process Steps for Financial Instruments Accrue Account Assignment. If required, you have made more detailed settings for the assignment of accounts for expense and income by specifying change reasons. If you are importing several accrual items (/BA1/C55ACCAT) for the same contract you have assigned these to one or more subledger accounts. In Customizing for Bank Analyzer, under Processes and Methods Technical Settings Define Results Storage, you have defined where accrual results ( 010 ) and accrued interest ( 015 ) are stored in the Results Data Layer (RDL). You have imported the relevant accrual items using the Data Load Layer, and stored them in the Results Data Layer. Process To update the accounting balance of an accrual, the system determines the balance from the subledger documents on the relevant subledger accounts (actual value) and compares this to the imported target balance (target value). The difference is documented as a subledger document. Note If you do not import a target value, the system uses 0 as the target balance. Background An accrual is the assignment of future expense or income to the appropriate period in which it is recognized. Reporting income and expense in the correct accounting period is one of the main tasks of accounting. The following example illustrates how the accruals for a time deposit with the following parameters develop: Interest payment at maturity Term: 1 year 100 MU paid into time deposit Interest rate 12 % p.a. Accruals = 1% p.m. = 1 MU per month 98 P U B L I C

99 Based on this data, the accruals develop as illustrated in the figure below (at the end of the term they are cleared by the payment of the interest amount to the customer): At the end of the one-year term, the amortized costs are 112 MU because monthly interest of 1 MU has been posted as accruals. Related Information Period-End Processing [page 95] Central GAAP and Delta GAAP Approach [page 25] SAP Note Change Reasons [page 53] Defer The Defer process step documents changes to deferral items for each contract, securities position or lot. The changes have been posted to the subledger account groups Deferrals Income and Deferrals Expense beforehand in the Register process step. The Defer process step also includes accounting for contracts that have been set to non-accrual (see Non- Accrual [page 110]). One of the key tasks of accounting is to report revenues and expenses in the correct accounting period. The Defer process step is an analytical process step with GAAP-dependent results that are documented as delta GAAP documents. The deferrals are calculated by the deferral calculator. P U BL IC 99

100 Prerequisites In Customizing for Bank Analyzer under Processes and Methods Process Steps for Financial Instruments Defer Account Assignment Assign Subledger Accounts, you have viewed or edited the combinations of subledger accounts for postings in the process step Defer provided by SAP, or have added your own combinations. If required, you have made more detailed settings for the assignment of accounts for expense and income by specifying change reasons. Process 1. To update the accounting balance of a deferral, the system uses the subledger documents in the relevant subledger accounts to determine the current balance before it executes the Defer process step for each deferral. 2. The deferral calculator provides the target value of the deferral. For more information, see Calculation of Deferrals [page 100]. 3. The system calculates the difference between the accounting balance (actual value) and the target value in transaction currency. The difference is documented as a subledger document. The system creates a document only if there has been a change since the last deferral date/time. For a cash-flow-based deferral, the system distributes the time effects and one-time effects in proportion to the balances on the relevant subledger accounts. For more information, see Distribution to Subledger Accounts [page 107]. Note You can view the subledger accounts for the Defer process step in Customizing for Bank Analyzer, under Processes and Methods Process Steps for Financial Instruments Defer Subledger Chart of Accounts. Related Information Period-End Processing [page 95] Central GAAP and Delta GAAP Approach [page 25] Change Reasons [page 53] Lot Accounting [page 71] Calculation of Deferrals In the calculation of deferrals, target values are provided for documenting the Defer process step in accounting. The calculation is carried out by the deferral calculator. 100 P U B L I C

101 Process 1. The deferral calculator checks the lifecycle segment of the contract or security. When the lifecycle segment Contract End (40) is reached, the deferral calculator returns the target value zero. 2. In Customizing, the deferral calculator determines the deferral method to be used based on the accounting system. The following methods are available: Import of deferrals Contract-based deferrals Cash-flow-based deferrals Business-transaction-based deferrals Note If no suitable method has been defined for the import of deferrals, the deferral calculator reverts to a suitable contract-based deferral method. If no suitable contract-based deferral method has been defined either, the deferral calculator searches for a suitable cash-flow-based deferral method. If a suitable cash-flow-based deferral method is also missing, the deferral calculator uses a suitable business-transaction-based deferral method. Result The deferral calculator calculates the new deferral amount and provides the result to the Defer process step. When discounting cash flows using the effective interest rate, the deferral calculator also transfers the totals of one-time effects and of effects from payments that have a value date before and a due date after the evaluation key date. Related Information Defer [page 99] Importing Results and Granularity [page 57] Cash-Flow-Based Deferrals [page 101] Business-Transaction-Based Deferrals [page 109] Cash-Flow-Based Deferrals For cash-flow-based deferrals, the deferral calculator applies the effective interest rate method to calculate the target value of the deferral based on the amortized cost. The following cash flow categories are supported for this: Contractual cash flow P U BL IC 101

102 Behavioral cash flow Credit-risk-adjusted cash flow Prerequisites You are aware of the following standard settings in Customizing for Bank Analyzer under Processes and Methods Process Steps for Financial Instruments Defer Methods Deferrals, and have made your own settings if required: Under Definition Define Methods for Cash Flow-Based Deferral Methods, you can make the following settings: Which validity ranges (minimum and/or maximum interest rates) are permitted for the effective interest rate The underlying cash flow category Whether, apart from a significant modification, only a rollover, also a condition change or any cash flow change triggers a recalculation of the effective interest rate Whether a different interest calendar is used than the one used in the contract Whether a different day count convention is used than the one used in the contract Whether zero distribution is suppressed. In other words, whether the amortized cost is still calculated if no deferral is required (for example, if a financial instrument is issued without premium/discount) Whether time effects and one-time effects are separated Whether, for performance reasons, only the posting date is considered as the discounting date and not the value date of the cash flow in addition. (If the posting date and the value date are identical or if a value date can not be imported from the feeder system, for example.) Whether amounts from documents that have been posted directly to the profit and loss statement are also to be used for the calculation of the effective interest rate for securities. Note that in this case, you need to add the characteristic /BA1/C35TRXTYP (transaction type) as business transaction characteristic to the subledger coding block. Under Derivation Derive Cash-Flow-Based Deferral Methods, you can define the derivation of deferral methods according to accounting system. You can use all the master data characteristics of the subledger coding block for the derivation (for example, product segment, holding category, production control and lifecycle segment). For more information, see the documentation in the Customizing activities in the system. Process 1. The deferral calculator uses the Customizing settings for the effective interest calculation described above to call the method for discounting cash flows using the effective interest rate (see Discounting Cash Flows Using the Effective Interest Rate [page 105]). 2. The method returns the following values: The effective-interest-rate-based net present value The effective-interest-rate-based net present value corresponds to the amortized cost. 102 P U B L I C

103 The total one-time effects arising from cash flow changes for each change reason The total effects from payments with a value date that is before the evaluation key date but a due date that is after the evaluation key date. 3. The deferral calculator calculates the target value of the cash-flow-based deferral for contracts from the amortized cost, the unpaid principal balance (UPB) and the accruals. For securities, the deferral calculator calculates the difference between the amortized cost, the acquisition value adjusted for price gains or losses, and the accruals. Note Any references made below to receivables/payables or UPB in the context of securities refer to the acquisition value adjusted for price gains or losses. The calculation of the target value described can be expressed in the following formula: Calculation of the deferral amount DEF = amount of the cash-flow-based deferral item AC = amortized cost UPB = unpaid principal balance AI = amount of accrual item 4. The deferral calculator transfers the target value of the cash-flow-based deferral and the total of the effects mentioned above to the Defer process step. Background The figure below shows the book value components for UPB, accrual and deferral (negative here) in relation to the amortized cost. P U BL IC 103

104 Example You want to report a loan contract at amortized cost in the balance sheet. For the contract, you charge a discount that is due at the start of the contract and reduces the disbursement amount. Therefore, a deferral over the fixed interest rate period is needed for the discount so that the deferral item amount is zero at the end of the fixed period. The function for cash flow discounting calculates the effective interest rate based on future cash flows (interest, fees and repayment) and on the reduced disbursement amount. Based on the effective interest rate, the system determines the amortized cost and calculates the target value of the deferral item. Related Information Defer [page 99] 104 P U B L I C

105 Discounting Cash Flows Using the Effective Interest Rate The discounting of cash flows using the effective interest rate (EIR) is relevant for the calculation of deferrals and valuation remnants. The system determines the following key figures: Net present value Effective interest rate Total of one-time effects (catch-up adjustment, modification), and the time effects for each change reason Defer: Total effects from payments with a value date that is before but a due date that is after the evaluation key date Relevant Quantity of Payments The quantity of payments for a contract or securities position that are relevant for discounting usually comprises payments that are expected in the future (cash flow) from an evaluation key date perspective. The individual expected payments are gradually replaced on their respective due dates by business transactions from actual payments. Depending on the setting in Customizing, the posting date or the value date in the Defer process step is relevant as the discounting date for the determination of the effective interest rate. In the Release process step the posting date is always relevant. If the value date is relevant for the determination of the effective interest rate, payments (business transactions) that are in the past from an evaluation date perspective are also included in the discounting. At least one of the following conditions must be met: The initial effective interest rate must have been determined. There is a business transaction with a value date in the past. A backdated cash flow is imported. The system includes only payments with a value date that is later than or the same as the start of the current reporting period. Note In the context of discounting of cash flows with the effective interest rate, the term cash flow also includes business transactions to which the conditions listed above apply. Note In the case of contractual and behavioral cash flow categories, on every evaluation key date the system checks whether the imported cash flow matches the balance of the posted unpaid principal balance (UPB). If the check fails, the system distributes the current balance of the deferral or valuation remnant across the fixed interest rate period of the contract using the straight-line method. P U BL IC 105

106 Net Present Value The net present value (NPV) of a cash flow is determined by discounting the cash flow with the effective interest rate (r eff ) to the evaluation key date (t). For the determination of the net present value in day processing and period-end processing, the evaluation key date is included in the calculation. Calculation of Present Value Based on Effective Interest Rate (Continuous Compounding) Note The interest calculation method is crucial for the calculation of the time period between t and time point t i of cash flow CF i (which is after the evaluation key date). Effective Interest Rate The initial effective interest rate is calculated using the following conditional equation at time point t 0 of the first payment: Conditional Equation for Initial Effective Interest Rate If the cash flows changes at time t 1, the system either calculates the one-time effect (catch-up adjustment CUA) or the effective interest rate is recalculated, depending on the settings in Customizing. The one-time effect is calculated as the difference in the present values of the old cash flow and the new cash flow while retaining the effective interest rate. Calculation of the One-Time Effect The following conditional equation is used for the recalculation of the effective interest rate: Conditional Equation for Effective Interest Rate Recalculation Prerequisites In Customizing for Bank Analyzer, under Processes and Methods Technical Settings Define Results Storage, you have set up the results storage for the following result categories: 200 (Statement About Contract Modification) 250 (Contractual Cash Flow) 251 (Behavioral Cash Flow) 106 P U B L I C

107 252 (Credit-Risk-Adjusted Cash Flow) You have ensured that cash flows are imported for contract creation and for every cash flow change (for example, due to a condition change, rollover or unscheduled payment or disbursement). Process 1. The system reads the imported cash flows and checks for the contract or securities position whether an effective interest rate has already been determined for an earlier cash flow version and saved as an interim result. For securities, the system scales the imported cash flow according to the securities position. If no effective interest rate has been calculated before, the system calculates the initial effective interest rate. If an effective interest rate was already calculated before, the system determines which modification type is the basis for the cash flow change. If there is a smaller change (non-significant modification), the system determines which event triggered the cash flow change: If both the valid-from date and the valid-to date for the cash flow have moved, the system assumes that it is a rollover. If only the valid-from date for the cash flow has moved, the system assumes that it is a condition change. If the date information remains the same, the system assumes that it is another cash flow change (for example, a special repayment). For a larger change (significant modification) and a rollover, the system always recalculates the effective interest rate. For a condition change or other cash flow change, the system determines (based on your Customizing settings) whether the effective interest rate needs to be recalculated. If the effective interest rate does not need to be recalculated, the system uses the effective interest rate stored as an interim result. If the effective interest rate needs to be recalculated, the system carries out the following activities: The system calculates the new effective interest rate. It takes into account the day count convention defined in Customizing, if relevant, and the interest calendar to be used. If you have assigned a validity range (minimum and/or maximum interest rate) in Customizing for the calculation of the effective interest rate, the system checks whether the effective interest rate calculated is within this validity range. If this is not the case, the system executes amortization across the fixed interest rate period using the straight-line method, and issues a warning in the process log. 2. If you have made the appropriate settings in Customizing, the system calculates the total of the one-time effects. 3. The system calculates the total effects from payments with a value date that is before but a due date that is after the evaluation key date. 4. The system determines the net present value by discounting the cash flow using the effective interest rate Distribution to Subledger Accounts The system distributes the effects to the relevant subledger accounts in proportion to the balances. If the balances on the relevant subledger accounts are zero, the system posts the effects to the subledger accounts predefined by SAP in the relevant subledger account group. P U BL IC 107

108 Time effect Let us assume that balance D 1 of deferrals or valuation remnants at time t 1 is distributed across the two accounts A and B with the balances A 1 and B 1 ; where A 1 and B 1 are not equal to zero: The new target balance D 2 at time t 2 > t 1 is to be distributed between the two accounts again: This is achieved using the following distribution: Where: To ensure that the individual balances approach zero at the end of the fixed period, the balances are first scaled proportionately to the remaining write-down period. In other words, they are multiplied by the following factor: One-time effect If there is a one-time effect, the system first distributes this proportionately to the amounts to A 1 and B 1, and then distributes the difference remaining (the time effect) with a time factor and proportionately to the amounts. Effect from payments with a value date before but a due date after the evaluation key date The following applies to the Defer process step: If there is an effect from payments with a value date before but a due date after the evaluation key date, the system distributes the effect proportionately to the amounts 108 P U B L I C

109 before it distributes the one-time effect. Based on this result, the system then distributes any one-time effects. It then distributes the time effect Business-Transaction-Based Deferrals For business-transaction-based deferrals, the deferral calculator uses the straight-line method to calculate the target value of the deferral item at the granularity level of the individual business transaction. The deferral calculator aggregates the target value at contract level, and transfers the aggregated target value to the Defer process step. You have the following options for determining the deferral period: From the business transaction The deferral period is imported from the feeder system by the business transaction: The system uses the value date of the business transaction as the start date and the date from the Calculate To characteristic (/BA1/C11CALCT) as the end date. From Contract (start and end of term or fixed interest period) The system reads the deferral period from the contract master data (in other words, from the start and end of the fixed interest period or the contract term). Accounting-Based Since it is not imported or provided from elsewhere, you define the deferral period according to your requirements in accounting by specifying a length and time unit (for example, 1 year). The start date and end date are each included in the calculation. This means that in end-of-day processing and period-end processing deferral for one day already has to be carried out on the first day of the calculation period. The system uses the following formula to calculate business-transaction-based deferrals: DEF = deferral amount k = key date s = start date e = end date Prerequisites You are aware of the standard settings in Customizing for Bank Analyzer under Processes and Methods Process Steps for Financial Instruments Defer, and have made your own settings if required: Under Methods Deferrals Definition Define Business-Transaction-Based Deferral Methods, you can define custom methods with periods that have an accounting origin. P U BL IC 109

110 Under Methods Deferrals Derivation Derive Business-Transaction-Based Deferral Methods, you make settings for the derivation of the deferral methods. Under Account Assignment Assign Subledger Accounts, you can make more detailed settings for the offsetting postings to expense and income accounts and, if necessary, edit the combination of subledger accounts provided by SAP or add your own combinations. Example The following example illustrates how the business-transaction-based deferrals for a checking account with the following parameters develop: Fee of 12 monetary units (MU) paid when account is opened Distribution of the fee over 1 year Deferral = 1 MU per month Based on this data, the deferral develops as illustrated in the figure below: The prepaid fees are broken down pro rata over the remaining term so that the deferrals are reduced from 12 MU to 0 MU Non-Accrual If it is no longer likely that a contract partner will meet their contractual obligations, you can identify contracts and securities positions for non-accrual processing. This means that value date income continues to be collected or invoiced from an operational perspective, but does not need to be reported as income. Note The non-accrual state is purely an accounting status, and is used solely to control the profit and loss statement. From an operational system perspective, receivables due can continue to be recognized as debit entries in spite of delinquency. 110 P U B L I C

111 In Smart AFI, the non-accrual state is determined by the analytical Accrual Status. Under for Financial Instruments Subledger Coding Block Analytical Status Define Accrual Status, you can assign each accounting system a threshold value for the accrual status in days past due. Since the accrual status is set based on accounting system, the non-accrual method cannot be applied until the first GAAP-dependent process step runs; in other words, the Defer process step. The non-accrual methodology of the Defer process step offsets value date income items generated in the Register, Accrue and Defer process steps by transferring them to the corresponding offset accounts. Note For the sake of simplicity, the deferral methods of the Defer process step are also not affected by this status in the system. The non-accrual method also clears the value date income that has arisen there. Example A borrower has been in arrears with the payment of a loan installment for more than 90 days. For the accounting principle IFRS 9, there is now an objective indicator that the customer will also not pay further loan installments. From an operational perspective, the customer is invoiced with all further loan installments and charged with interest on arrears if applicable. However, from a financial reporting perspective these interest debit entries should not be recognized in profit or loss because it cannot be expected that these open items will be paid. In financial reporting, this is referred to as applying the non-accrual method. On September 14, a debit entry of EUR 10 is made for interest on a loan, and is capitalized against the receivable. The contract has been in default for 65 days, meaning that under US GAAP it is treated as non-accruing, while under IFRS it has not yet reached this status. In the Register process step, the debit entries are first transferred to accounting for all accounting systems. Process Step D/C Subledger Account Amount Accounting Systems Register D Receivables/Payables (Not Due) EUR 10 All C Income Interest EUR -10 Note that the Register process step runs for all accounting systems (central GAAP) and therefore has no specific knowledge about GAAP-specific decisions. For US GAAP, this value date income is now offset in the Defer process step. Process Step D/C Subledger Account Amount Accounting Systems Defer D Income Interest EUR 10 US GAAP C Offset Interest Income EUR -10 For the value date non-accrual method, the system uses the subledger account group Offset (Income) Under Non-Accruing. The accounts in this subledger account group are balance sheet P U BL IC 111

112 accounts. This means that rather than an increase in a value date income, they represent a reduction in a balance sheet asset. You can decide whether the financial statement subsegment of the book value or a due item is reduced. Prerequisites You have assigned an income account to an offset account in Customizing under for Financial Instruments Charts of Accounts Subledger Chart of Accounts Profit and Loss Statement Assign Income Accounts and Offset Accounts. You can assign one offset account from subledger account group to every income account from the subledger account group This enables you to determine which offset account you want to post the value date income to. Methodology You define the non-accrual methods under for Financial Instruments Process Steps Defer Methodology Non-Accrual Definition of Non-Accrual Methods Define Non-Accrual Methods. You define the rules for deriving non-accrual methods according to the relevant accounting standard under for Financial Instruments Process Steps Defer Methodology Non-Accrual Derivation of Non-Accrual Methods Derive Non-Accrual Methods. In the non-accrual methods, you can define the following properties for each offset account: Analysis period for the income postings relevant for non-accrual processing. Limit for the balance of the offset account (for example, an upper limit of zero and if required the balance of the assigned reference account). We provide the following methods with the following properties: Method Period Offset Account Limit Cost Recovery Method Non-accrual period None Cash Method Reporting period Reference account balance Cost Recovery Method In the cost recovery method, all value date income for the current fiscal year with the accrual status Non- Accruing is transferred to the respective offset account assigned to the income account. This means that in the non-accrual state, no value date income is recorded in the profit and loss statement, and the balance sheet asset is reduced. Cash Method In the cash method, value date income for the current fiscal year (reporting period) is transferred to the offset account assigned to the corresponding income account. The system limits the balance of the offset account 112 P U B L I C

113 using the balance of a reference account from the subledger account group (Receivables/Payables (Due)). As a result, only value date income for which there is an outstanding receivable is transferred to the offset account. Value date income for which there are no more open receivables, remains in the profit and loss statement (unlike in the cost recovery method). Example On April 1, a loan of EUR 10,000 is disbursed. Each month, EUR 50 interest is due. The borrower does not pay the incurred interest receivable, and by June 30 is more than 90 days in arrears. However, from a financial reporting perspective it is not accurate to continue to recognize this interest debit entry of EUR 150 in profit and loss because it cannot be assumed that these open interest receivables will be paid. Since the borrower has been in arrears for more than 90 days, the accrual status changes from Accruing to Non-Accruing based on the settings made in Customizing. As a result, the position components are reclassified to the new status value Non-Accruing in the Classify process step. The contract is now in the non-accrual state. How the system then handles interest income 1 depends on which non-accrual method you have defined in Customizing. The table below compares the cost recovery method and the cash method. Cost Recovery Method Cash Method Customizing settings: Period: Non-Accrual Period Offset limit: none Customizing settings: Period: Reporting Period Offset limit: Balance of Reference Subledger Account In the next Defer step after the accrual status changes to Non-Accruing and before the debit posting for the next interest receivable, interest income is affected in the following way: EUR 150 is reclassified from the account Income: Interest to the account Offset Interest Income. The interest income posted to date remains in the profit and loss statement. The system reconciles the Income: Interest account with the Receivables (Due): Interest account. Since no payments have been received, EUR 150 is reclassified from the Income: Interest account to the Offset Interest Income account. In the following three months, EUR 50 interest is due each month. In the non-accrual state, this means that by September 30 interest income of a further EUR 150 has been collected and an open interest receivable of a further EUR 150 has been built up. The customer pays EUR 100. In the next Defer step and before the debit posting for the next interest receivable, interest income is affected as follows: P U BL IC 113

114 Cost Recovery Method Cash Method The payment by the customer is not taken into account in this method. This means the EUR 150 collected in the nonaccrual state is posted from the Income: Interest account to the Offset Interest Income account. The reconciliation of the Income: Interest account and the Receivables (Due): Interest account means that as a result of the payment of EUR 100 the receivables due are reduced to EUR 200. The target balance of the Offset Interest Income account is limited by the balance of the account Receivables (Due): Interest at EUR 200. As a result, a further EUR 50 is reclassified from the Income: Interest account to the Offset Interest Income account, while EUR 100 remains on the account according to the payment made. 1 For simplicity s sake, only interest receivables are taken into consideration in this example. Other receivables and payments related to them have not been taken into account. Behavior While Status is Accruing When the status is Accruing, the target balance of the offset accounts is zero. This ensures that if the accrual status switches from Non-Accruing back to Accruing, previously accumulated amounts on offset accounts are recognized through profit and loss in any subsequent period-end processing due to their non-accruing status. The amounts are recognized by posting against the same revenue account that was used to post against the offset account. Behavior with Foreign Currency If foreign currency is used, the P&L accounts and the preliminary P&L accounts are taken into account for the non-accrual method. The postings are first made between the preliminary P&L accounts and the assigned offset accounts. The Move and Transform [page 139] process step then posts the income from the preliminary P&L accounts to the P&L accounts. Related Information Move and Transform [page 139] 114 P U B L I C

115 Write Down The Write Down process step documents changes to the nominal write-down at individual contract level. The system reads the target balance for the nominal write-down amount from the Results Data Layer (RDL). A nominal write-down is an analytical write-down on the long-term receivables without an operational waiver of debt repayments. This means that for reporting purposes the long-term receivables are reduced but not the operational receivables due from customers. The Write Down process step is an analytical process step with GAAP-dependent results that are documented as delta GAAP documents. Prerequisites In Smart AFI, you have defined where nominal write-downs are stored in the RDL. In Customizing for Bank Analyzer under Processes and Methods Technical Settings Define Results Storage, you have assigned the results data area and the corresponding result types to the Smart AFI result category 030 (Nominal Write-Down). You have imported the nominal write-down of the relevant contract using the Data Load Layer and stored it in the RDL. In Customizing for Bank Analyzer under Processes and Methods Process Steps for Financial Instruments Write Down Account Assignment Assign Subledger Accounts, you have viewed or edited the combinations of subledger accounts for postings in the process step Write Down provided by SAP, or have added your own combinations. If required, you have made more detailed settings for the assignment of accounts for expense and income by specifying change reasons. Process To update the nominal write-down, the system determines the previous day's balance for the nominal writedown from the posting documents on the subledger account (subledger account group ). The system determines the delta between the posting date-based balance (actual value) and the target value (provided by importing it to the RDL) in position currency, and records this as an accounting document. If the delta is negative, the result is expense; otherwise the result is income. The system creates a document only if there has been a change compared to the last time a calculation took place. Note Due to the two-dimensional versioning of the results storage, the nominal write-down for a contract applies until a new target balance is imported. If you want to reset a write-down, you therefore need to explicitly import zero. P U BL IC 115

116 Related Information Change Reasons [page 53] Release The Release process step documents changes to the amortized valuation cost. These changes have been posted to the subledger account group (Valuation Remnants (Income)) or (Valuation Remnants (Expense)) beforehand by a reclassification in the Classify process step. In the Release process step, the non-accrual method is also applied to contracts. One of the key tasks of accounting is to report revenues and expenses in the correct accounting period. The Release process step is an analytical process step with GAAP-dependent results that are documented as delta GAAP documents. The valuation remnants are calculated by the release calculator. Prerequisites In Customizing for Bank Analyzer, under Processes and Methods Process Steps for Financial Instruments Release Account Assignment you can view the combinations of subledger accounts provided by SAP for postings in the Release process step. You can edit these or add your own combinations. If required, you can make more detailed settings for the assignment of accounts for expense and income by specifying change reasons. Process 1. To update the accounting balance of valuation remnants, the system uses the subledger documents in the relevant subledger accounts to determine the current balance before it executes the Release process step for each valuation remnant. 2. The release calculator provides the target values for the valuation remnants. 3. The system calculates the difference between the accounting balance (actual value) and the target value in transaction currency. The difference is documented as a subledger document. The system only creates a document if there has been a change since the last calculation. For a cash-flow-based calculation of valuation remnants, the system distributes the time effects and onetime effects in proportion to the balances on the subledger account for valuation remnants within the assigned subledger account group. Note You can view the subledger accounts for the Release process step in Customizing for Bank Analyzer, under Processes and Methods Process Steps for Financial Instruments Release Subledger Chart of Accounts. 116 P U B L I C

117 Related Information Release of Valuation Remnants [page 117] Distribution to Subledger Accounts [page 124] Non-Accrual [page 125] Change Reasons [page 53] Release of Valuation Remnants During the release of valuation remnants, target values are provided for documenting the Release process step in accounting. The calculation is carried out by the release calculator: 1. The release calculator checks the lifecycle segment of the contract or securities position. When the lifecycle segment Contract End (40) is reached, the release calculator returns the target value zero. 2. The release calculator determines the method to be used to release the valuation remnants in Customizing, depending on the accounting system. The following methodologies are available: Import of amortized valuation cost Contract-based release of valuation remnants Cash-flow-based release of valuation remnants Result The release calculator calculates the new amount and provides the result to the Release process step. When discounting cash flows using the effective interest rate, the release calculator also transfers the totals of onetime effects. Related Information Importing Results and Granularity [page 57] Cash-Flow-Based Release of Valuation Remnants [page 118] P U BL IC 117

118 Cash-Flow-Based Release of Valuation Remnants For the cash-flow-based release of valuation remnants, the release calculator applies the effective interest rate method to calculate the target value of the valuation remnants based on the amortized valuation cost. Prerequisites You are aware of the following standard settings in Customizing for Bank Analyzer under Processes and Methods Process Steps for Financial Instruments Release Methods Release of Valuation Remnants, and have made your own settings if required: In the Customizing activity Define Methods for Cash Flow-Based Release of Valuation Remnants, you can define the following: Whether only a rollover or also a condition change or any cash flow change triggers a recalculation of the effective interest rate. Whether a different day count convention is used than the one used in the contract Whether a different interest calendar is used than the one used in the contract Whether time effects and one-time effects are separated Which validity ranges (minimum and/or maximum interest rates) are permitted for the effective interest rate Note In the Release process step, zero distribution is always suppressed. This means the system performs a calculation only if valuations have been transferred to valuation remnants in the Classify step. In the Customizing activity Derive Methods for Release of Valuation Remnants you make settings for the derivation of the methods according to accounting system. You can use all the master data characteristics of the subledger coding block for the derivation (for example, product segment, holding category, production control and lifecycle segment). For more information, see the documentation in the Customizing activities in the system. Process 1. The release calculator uses the Customizing settings for the effective interest rate described above to call the method for discounting cash flows using the effective interest rate. 2. The method returns the following values: The effective-interest-rate-based net present value This value is the amortized valuation cost. The total one-time effects arising from cash flow changes 3. The release calculator calculates the target value of the cash-flow-based valuation remnants for contracts as the difference between the balances of amortized valuation cost and the balances of receivables/ payables (UPB), accruals and deferrals, and valuation remnants. 118 P U B L I C

119 Note Any references made below to receivables/payables or UPB in the context of securities refer to the acquisition value adjusted for price gains or losses. The calculation of the target value described can be expressed in the following formula: VC = UPB + DEF + AI + VR = AC + VR Abbreviation VC UPB DEF AI VR AC Description Amortized valuation cost Unpaid principal balance Amount of the cash-flow-based deferral item Amount of accrual item Valuation remnants Amortized cost 4. The release calculator transfers the target value of the cash-flow-based valuation remnants and the total of the effects mentioned above to the Release process step. Amortized valuation cost The concept of amortized valuation cost is required if a change in an analytical status that influences valuation (for example, holding category) means that you no longer want to continue to use a valuation approach. At the same time, you want to keep the book value that is valid at the time of the change, and you want to switch to valuation at amortized cost or amortized valuation cost. The system calculates the amortized valuation cost by discounting the contractual cash flow to the book value at the time of the reclassification. The effective interest rate calculated here is kept for use in further processing. P U BL IC 119

120 The figure below shows the book value components for UPB, accrual and deferral (negative here) in relation to the amortized cost, and the valuation remnants in relation to the amortized valuation cost: Example A contract is recognized at fair value through profit or loss. The legal receivable is EUR 100 at time t 0, while the fair value is EUR 95. The fair value is the result of discounting the future cash flows with the risk-free yield curve at time t 0 at 5%. From an accounting perspective, this produces the following balances: Subledger Account Receivables/Payables (Not Due) Fair value adjustment Balance EUR 100 EUR -5 Note For simplicity s sake, this example assumes that all other book value components (accruals and deferrals, write-down) are At the end of the day, the contract is reclassified to the Amortized Cost valuation approach, and the current book value is kept. In other words there is an outflow of EUR 95 from the Fair Value valuation approach and an inflow to the Amortized Cost valuation approach. At time t 0, this book value represents the initial amortized valuation cost that is to be recognized in profit or loss over the remaining term of the contract. The interest rate used for this in the example is the risk-free yield curve of 5%. The balances after reclassification are as follows: Subledger Account Receivables/Payables (Not Due) Balance EUR P U B L I C

121 Subledger Account Val. Remnants: Fair Value Adj. Income Balance EUR -5 The old fair value adjustment has been transferred to valuation remnants for fair value adjustment, and the underlying interest rate has been fixed. The amortized valuation costs now define the book value and are amortized using the effective interest rate in the Release process step when period-end processing is run. The system uses the discounting of the underlying cash flow and the fixed interest rate for this amortization. At the next period end, this would result in a target balance of EUR on amortized valuation cost if the discounted cash flow method is used. This would result in the following posting record: Val. Remnants: Fair Value Adj. Income Debit EUR Income: Interest (Realized) Credit EUR This results in the following balances: Subledger Account Receivables/Payables (Not Due) Val. Remnants: Fair Value Adj. Income Balance EUR 100 EUR Related Information Discounting Cash Flows Using the Effective Interest Rate [page 121] Discounting Cash Flows Using the Effective Interest Rate The discounting of cash flows using the effective interest rate (EIR) is relevant for the calculation of deferrals and valuation remnants. The system determines the following key figures: Net present value Effective interest rate Total of one-time effects (catch-up adjustment, modification), and the time effects for each change reason Defer: Total effects from payments with a value date that is before but a due date that is after the evaluation key date P U BL IC 121

122 Relevant Quantity of Payments The quantity of payments for a contract or securities position that are relevant for discounting usually comprises payments that are expected in the future (cash flow) from an evaluation key date perspective. The individual expected payments are gradually replaced on their respective due dates by business transactions from actual payments. Depending on the setting in Customizing, the posting date or the value date in the Defer process step is relevant as the discounting date for the determination of the effective interest rate. In the Release process step the posting date is always relevant. If the value date is relevant for the determination of the effective interest rate, payments (business transactions) that are in the past from an evaluation date perspective are also included in the discounting. At least one of the following conditions must be met: The initial effective interest rate must have been determined. There is a business transaction with a value date in the past. A backdated cash flow is imported. The system includes only payments with a value date that is later than or the same as the start of the current reporting period. Note In the context of discounting of cash flows with the effective interest rate, the term cash flow also includes business transactions to which the conditions listed above apply. Note In the case of contractual and behavioral cash flow categories, on every evaluation key date the system checks whether the imported cash flow matches the balance of the posted unpaid principal balance (UPB). If the check fails, the system distributes the current balance of the deferral or valuation remnant across the fixed interest rate period of the contract using the straight-line method. Net Present Value The net present value (NPV) of a cash flow is determined by discounting the cash flow with the effective interest rate (r eff ) to the evaluation key date (t). For the determination of the net present value in day processing and period-end processing, the evaluation key date is included in the calculation. Calculation of Present Value Based on Effective Interest Rate (Continuous Compounding) Note The interest calculation method is crucial for the calculation of the time period between t and time point t i of cash flow CF i (which is after the evaluation key date). 122 P U B L I C

123 Effective Interest Rate The initial effective interest rate is calculated using the following conditional equation at time point t 0 of the first payment: Conditional Equation for Initial Effective Interest Rate If the cash flows changes at time t 1, the system either calculates the one-time effect (catch-up adjustment CUA) or the effective interest rate is recalculated, depending on the settings in Customizing. The one-time effect is calculated as the difference in the present values of the old cash flow and the new cash flow while retaining the effective interest rate. Calculation of the One-Time Effect The following conditional equation is used for the recalculation of the effective interest rate: Prerequisites Conditional Equation for Effective Interest Rate Recalculation In Customizing for Bank Analyzer, under Processes and Methods Technical Settings Define Results Storage, you have set up the results storage for the following result categories: 200 (Statement About Contract Modification) 250 (Contractual Cash Flow) 251 (Behavioral Cash Flow) 252 (Credit-Risk-Adjusted Cash Flow) You have ensured that cash flows are imported for contract creation and for every cash flow change (for example, due to a condition change, rollover or unscheduled payment or disbursement). Process 1. The system reads the imported cash flows and checks for the contract or securities position whether an effective interest rate has already been determined for an earlier cash flow version and saved as an interim result. For securities, the system scales the imported cash flow according to the securities position. If no effective interest rate has been calculated before, the system calculates the initial effective interest rate. If an effective interest rate was already calculated before, the system determines which modification type is the basis for the cash flow change. If there is a smaller change (non-significant modification), the system determines which event triggered the cash flow change: If both the valid-from date and the valid-to date for the cash flow have moved, the system assumes that it is a rollover. P U BL IC 123

124 If only the valid-from date for the cash flow has moved, the system assumes that it is a condition change. If the date information remains the same, the system assumes that it is another cash flow change (for example, a special repayment). For a larger change (significant modification) and a rollover, the system always recalculates the effective interest rate. For a condition change or other cash flow change, the system determines (based on your Customizing settings) whether the effective interest rate needs to be recalculated. If the effective interest rate does not need to be recalculated, the system uses the effective interest rate stored as an interim result. If the effective interest rate needs to be recalculated, the system carries out the following activities: The system calculates the new effective interest rate. It takes into account the day count convention defined in Customizing, if relevant, and the interest calendar to be used. If you have assigned a validity range (minimum and/or maximum interest rate) in Customizing for the calculation of the effective interest rate, the system checks whether the effective interest rate calculated is within this validity range. If this is not the case, the system executes amortization across the fixed interest rate period using the straight-line method, and issues a warning in the process log. 2. If you have made the appropriate settings in Customizing, the system calculates the total of the one-time effects. 3. The system calculates the total effects from payments with a value date that is before but a due date that is after the evaluation key date. 4. The system determines the net present value by discounting the cash flow using the effective interest rate Distribution to Subledger Accounts The system distributes the effects to the relevant subledger accounts in proportion to the balances. If the balances on the relevant subledger accounts are zero, the system posts the effects to the subledger accounts predefined by SAP in the relevant subledger account group. Time effect Let us assume that balance D 1 of deferrals or valuation remnants at time t 1 is distributed across the two accounts A and B with the balances A 1 and B 1 ; where A 1 and B 1 are not equal to zero: The new target balance D 2 at time t 2 > t 1 is to be distributed between the two accounts again: This is achieved using the following distribution: 124 P U B L I C

125 Where: To ensure that the individual balances approach zero at the end of the fixed period, the balances are first scaled proportionately to the remaining write-down period. In other words, they are multiplied by the following factor: One-time effect If there is a one-time effect, the system first distributes this proportionately to the amounts to A 1 and B 1, and then distributes the difference remaining (the time effect) with a time factor and proportionately to the amounts. Effect from payments with a value date before but a due date after the evaluation key date The following applies to the Defer process step: If there is an effect from payments with a value date before but a due date after the evaluation key date, the system distributes the effect proportionately to the amounts before it distributes the one-time effect. Based on this result, the system then distributes any one-time effects. It then distributes the time effect Non-Accrual If it is no longer likely that a contract partner will meet their contractual obligations, you can set contracts and securities positions to Non-Accrual. You can use the following method for non-accrual for the process step Release. Method Period Offset Account Limit Cost Recovery Method Non-Accrual None For more information see the documentation for non-accrual for the Defer process step. P U BL IC 125

126 Related Information Non-Accrual [page 110] Value TC The Value TC process step documents changes to the valuation of a position. This applies to the following values: Credit risk Interest rate risk Fair value Target value after economic write-down The Value TC process step is an analytical process step with GAAP-dependent results that are documented as delta GAAP documents. Interest Rate Risk The target value Interest Rate Risk (Hedged) can be imported for the portion of a position relating to the hedged interest rate risk. Changes to the target value are documented in the balance sheet subledger account (Interest Rate Risk Adjustment (Hedged)). Credit Risk The system determines target values for different credit risk categories. Changes to these target values are documented in the following balance sheet subledger accounts: Credit Risk Category Subledger Account Description of Subledger Account Credit Risk from Book Value Credit Risk Adjustment Credit Risk from Free Line Provision: Risk Adjustment (Free Line) Credit Risk from Receivables (Due) Credit Risk Adj. (Receivables (Due)) Own Credit Risk from Book Value Own Credit Risk Adjustment The target values are determined by the impairment calculator. For more information, see the application documentation linked below. 126 P U B L I C

127 Fair Value The book value for a position that is subject to the accounting methodology "fair value through profit and loss" or "fair value directly in equity" is adjusted to the fair value. The book value for a position that is subject to the accounting methodology "LCM through profit and loss" or "LCM directly in equity is adjusted to the fair value, if this is smaller. To this end, the fair value calculator determines the fair value. For more information, see the application documentation linked below. The residual position component Fair Value Adjustment or LCM Adjustment documents the values in accounting. These values are the result of the fair value minus the balances on the book value components before fair value adjustment or LCM adjustment. The corresponding balance sheet subledger account is (Fair Value Adjustment) or (LCM Adjustment). Target Value After Economic Write-Down The book value for a contract that is subject to the accounting methodology "Amortized Cost" and that is at the same time "Partially Economically Written Down" or "Fully Written Down is adjusted to the fair value of the collateral to be used. The Fair Value of Collateral needs to be imported as the target value for this. The residual position component Write-Down Adjustment documents the values in accounting. This component is the result of the fair value of the collateral minus the balances on the book value components before the write-down adjustment. The corresponding balance sheet subledger account is (Write- Down Adjustment). Account Assignment The offsetting account for a valuation change documented in a balance sheet subledger account can be defined depending on the plus/minus sign of the change amount to be posted and on the accounting methodology. This can specifically help you to control whether any income or expense that occurs is recognized through profit and loss or directly in equity. Related Information Determining Credit Risk Adjustment [page 128] Determination of Fair Value [page 135] Determining the Target Value After Economic Write-Down [page 138] P U BL IC 127

128 Determining Credit Risk Adjustment The impairment calculator provides target values for documenting credit risk in the Value TC process step in accounting. The determination of the credit risk involves assessing the risk that arises from a deterioration in the credit standing of the counterparty or from the counterparty defaulting. The following credit risk categories and methodologies for determining credit risk are supported for Smart Accounting for Financial Instruments (Smart AFI): Credit Risk Category Methodology Import of credit risk Contract-based determination of credit risk One-year expected loss Lifetime expected loss Expected cash flow Credit risk from book value Credit risk from free line Credit risk from short-term receivables X X X X X X X X X X X Own credit risk from book value X X If the calculation of the lifetime expected loss fails, the system tries to calculate the one-year expected loss. Significance The system uses threshold values to determine which contracts are significant in terms of determining credit risk. You can define threshold values for the unpaid principal balance (UPB) or for the free line. The higher of these two values is decisive for determining the significance. To determine the credit risk for significant contracts, you can use a different method than for determining credit risk for contracts that are not significant. Scenarios When determining credit risk adjustment you can differentiate between different credit risk scenarios, for example between an upside, downside and base scenario. For each scenario you need to import the corresponding probability of default, loss rates and credit conversion factors for the calculation of risk provision. You can assign each credit risk scenario to one or more scenario groups but you must define a probability of occurrence for each scenario. The sum of the occurrence probabilities in a scenario group must be P U B L I C

129 The result of the Credit Risk Adjustment is the weighted average based on the occurrence probability, calculated from the risk adjustment results from each scenario. Both the scenario-specific results and the weighted average are stored in the Results Data Layer (RDL). The system uses the weighted average for the documentation in accounting and you can use the scenario-specific impairment results for reporting purposes. Prerequisites You have made the settings in Customizing for Bank Analyzer under Processes and Methods Smart Accounting Process Steps for Financial Instruments Value TC Methods Adjustment for Risks Credit Risk : Under Define Significant Contracts, you define the threshold value for determining the significance of contracts. Under Subportfolios you create your own subportfolio IDs for each subportfolio category and define the derivation. Under Scenarios you can define credit risk scenarios and credit risk scenario groups, and their derivation. You can view the methods for the respective methodology and if required create custom methods and define how these are derived. Analytical statuses (impairment status and accrual status) are available in the Results Data Layer (RDL), which are used to derive the method. You can either determine these statuses using the /BA1/BR_IAD (Determine Impairment Attributes) process or import them using the Data Load Layer. When you determine the credit risk for the balance-sheet part of a contract, the current book value before valuation must be available. This value is determined by the Smart AFI process steps that precede the Value TC process step. Result The impairment calculator provides the new credit risk amount for the Value TC process step. Related Information Importing Results and Granularity [page 57] Methodology for One-Year Expected Loss [page 130] Methodology for Lifetime Expected Loss [page 131] Expected Cash Flow Methodology [page 134] P U BL IC 129

130 Methodology for One-Year Expected Loss You use this methodology to enter the expected losses for payment defaults within the next 12 months. The following formula is used as the basis for determining credit risk adjustment: One-Year EL = EAD x LGD x PD Exposure at default (EAD) is the expected amount of receivables at the time of default. It includes current amounts receivable and the expected future utilization by the borrower for the off-balance-sheet part of the receivable. The exposure at default is defined differently depending on the risk provision category: For Counterparty Risk from Book Value, it is the book value before risk provision on the key date of the credit risk determination. For Counterparty Risk from Free Line, it is the free line (for example, for checking accounts, the external credit line minus the utilization) multiplied by the credit conversion factor on the key date of the credit risk determination. For Counterparty Risk from Short-Term Receivables, it is the balance of short-term receivables on the key date of the credit risk determination. Loss Given Default (LGD) is the loss given default based on the exposure at default. Probability of Default (PD) is the default probability of a counterparty in relation to a given time unit; in this case for a period of one year as of the calculation key date. Prerequisites The probability of default (PD) and loss given default (LGD) have been imported for each time bucket, either on the basis of contracts or at portfolio level. If these risk parameters are not available at contract level, the system uses the parameters at portfolio level. Note The loss given default (LGD) for securities always refers to the underlying nominal value, therefore these amounts must be scaled to the actual acquisition cost/amortized cost (the book value before risk provision). In the case of securities, an expectation of the counterparty risk is factored into the purchase price and this should not be taken into consideration twice. The loss rate is scaled at position level using the following formula: Abbreviation LGD POS Nom LGD FI BV Description Loss given default (position) Nominal amount Loss given default (financial instrument) Book value 130 P U B L I C

131 The prerequisite for this is that the nominal amount and the book value of the financial instrument are also available in addition to the imported LGD FI. If the system cannot read the nominal amount from the balances, it determines the total nominal amount from the nominal amount per unit (from the instrument data) and the number of units (from the balances). Example Time t 0 : A security with nominal value EUR 100 is purchased at a price of EUR 40 and carried at amortized cost. Time t 1 : The amortized costs are EUR 41. The LGD is 75% of the nominal value, so a loss of EUR -75 is expected for a security with a nominal value of EUR 100. Therefore the recoverable amount is EUR 25 per EUR 100 nominal value. The impairment (IMP) at time t 1 is calculated in the one-year expected loss methodology as follows: IMP = 1 x (EUR 41 x LGD POS ) LGD POS = 1 (100 x (1 0.75) / 41) = 39 % IMP = EUR 16 When you calculate the impairment for the off-balance-sheet part of the contract, you have imported the credit conversion factor (CCF) as a percentage to the Results Data Layer (RDL). See also the prerequisites under Adjustment for Credit Risk. Related Information Determining Credit Risk Adjustment [page 128] Methodology for Lifetime Expected Loss You use this methodology to enter all the losses expected over the entire term of the contract. A default can occur at any time during the term of the contract. The following formula is used as the basis for determining credit risk adjustment: The formula refers to a predefined maturity band t 0 < t 1 <... < t n with a time bucket structure that does not overlap and can be configured t k-1 t < t k ; (k = 1,..., n). P U BL IC 131

132 This time bucket structure applies to all transactions in the application area of the formula. t 0 is the valuation key date. Please ensure that you select a sufficiently high value for t n so that no cash flows occur after this point in time. If cash flows do still occur after t n, the system discounts them to the time t n. PD k is defined as the marginal probability that the borrower will default in the kth time bucket [t k-1,t k ). The marginal PD k in the kth time bucket is, in turn, the difference in the cumulated probability of default between the periods [0.t k ) und [0.t k-1 ). When data is imported, you therefore need to ensure that the time structure of the cumulated probability of default is available for the predefined time bucket structure of the maturity band. You also need to import the loss given default (LGD k ) according to the time bucket structure from the maturity band. The method determines the loss given default for each time bucket as the product of LGD k and PD k. The exposure at default (EAD k ) is the amount likely to default in the kth time bucket. The system uses the loss given default and the EAD k to determine the expected loss amount per time bucket. The credit risk according to the Lifetime Expected Loss approach is the total of the expected loss amounts across all time buckets that were previously discounted to time t 0 with the effective interest rate. The system uses the effective interest rate from the amortized cost calculation for this. For cash-flow-based transactions, the impairment calculator can calculate the EAD k for each time bucket as the net present value of the future cash flows. The impairment calculator reads the cash flows from the Results Data Layer (RDL), where you have previously imported them. Which cash flows the system reads from the RDL depends on the settings you have made for the cash flow category in the method definition in Customizing. If you have not defined a cash flow category, the system uses cash flow category 250 ( Contractual Cash Flow ) by default. Otherwise, it uses the cash flow category that has been defined, for example, 251 ( Behavioral Cash Flow ). Note The exposure at default of the first time bucket is the book value before risk provision. Prerequisites The probability of default (PD) and loss given default (LGD) have been imported for each time bucket, either on the basis of contracts or at portfolio level. If these risk parameters are not available at contract level, the system uses the parameters at portfolio level. Note The loss given default (LGD) for securities always refers to the underlying nominal value, therefore these amounts must be scaled to the actual acquisition cost/amortized cost (the book value before risk provision). In the case of securities, an expectation of the counterparty risk is factored into the purchase price and this should not be taken into consideration twice. The loss rate is scaled at position level using the following formula: 132 P U B L I C

133 Abbreviation LGD POS Nom LGD FI BV Description Loss given default (position) Nominal amount Loss given default (financial instrument) Book value The prerequisite for this is that the nominal amount and the book value of the financial instrument are also available in addition to the imported LGD FI. If the system cannot read the nominal amount from the balances, it determines the total nominal amount from the nominal amount per unit (from the instrument data) and the number of units (from the balances). Example Time t 0 : A security with nominal value EUR 100 is purchased at a price of EUR 40 and carried at amortized cost. Time t 1 : The amortized costs are EUR 41. The LGD is 75% of the nominal value, so a loss of EUR -75 is expected for a security with a nominal value of EUR 100. Therefore the recoverable amount is EUR 25 per EUR 100 nominal value. The impairment (IMP) at time t 1 is calculated in the lifetime expected loss methodology as follows: IMP = 1 x (EUR 41 x LGD POS ) LGD POS = 1 (100 x (1 0.75) / 41) = 39 % IMP = EUR 16 To discount the expected losses for each time bucket, the system needs the contractual effective interest rate. For products that are measured at amortized cost, the system reads the effective interest rate from the results of the Release process step and if this is not possible, from the results of the Defer process step. If there is no effective interest rate available here either, the system attempts to read it from the calculation base data for the Release process step and then from the calculation base data for the Defer process step. If the system is unable to determine the effective interest rate, it applies the methodology for One-Year Expected Loss instead of the Lifetime Expected Loss methodology. See also the prerequisites under Determining Credit Risk Adjustment. Related Information Determining Credit Risk Adjustment [page 128] P U BL IC 133

134 Expected Cash Flow Methodology This methodology uses an expected cash flow that has been re-estimated (usually due to a default occurring) to determine the credit risk adjustment. This cash flow comprises only future capital flows arising from the liquidation of underlying collateral for the contract. Background For contracts or securities for which it is assumed that there will no longer be any future capital flows from a debtor to fulfil their contractual obligations, it also no longer makes sense from an accounting perspective to use this cash flow (and the resulting book value) for determining the credit risk adjustment. From an accounting perspective, these contracts can be identified by the fact that they have the impairment status 3 (Default). In these cases, you can use a risk-adjusted expected cash flow that contains only future capital flows from the liquidation of explicit underlying collateral for the contract or from implicit collateral. In practice, an estimate of this kind of credit risk-adjusted expected cash flow usually only takes place if the bank considers the underlying contract to be a significant receivable. To determine the credit risk adjustment, when the method is changed to this approach, the system uses the contractual effective interest rate that had been used until then for determining the amortized cost (book value before risk provision). This ensures that by changing to the credit-risk-adjusted expected cash flow a one-off difference (net present value of credit-risk-adjusted ECF and net present value of contractual cash flow) can be recognized directly through profit and loss. However, in any further valuations, the system applies the effective interest rate, which is still valid (unwinding). Note If the contract is reported at amortized cost in the balance sheet at the time of the method change, the system uses this effective interest rate. If no effective interest rate is available (for example, because the contract has until now been reported nominally), you can import an effective interest rate. Calculation The following formula is used as the basis for determining credit risk adjustment: 134 P U B L I C

135 In this methodology, the credit risk adjustment (IMP) is calculated as the difference between the balance of the book value components for the determination of risk provision (BBVC IMP ) and the net present value of the expected cash flow (ECF) that is discounted on the key date (t) using the effective interest rate (EIR): This methodology is applied to risk provision category 01 (Counterparty Risk from Book Value) if a transaction or impairment case has the impairment status 104 (POCI) or impairment status 103 (Stage 3 [Default]) and is significant. The system does not support the determination of the credit-risk-adjusted cash flow for the off-balance sheet part of contracts. Prerequisites You have imported the expected cash flow for a contract with cash flow category 252 (Credit-Risk-Adjusted Cash Flow) to the Data Load Layer (DLL). To discount the expected cash flow, the contractual effective interest rate is required. For products that are measured at amortized cost, the system determines the effective interest rate as follows: If there is no effective interest rate in the calculation base data for credit risk determination, the system reads the interest rate from the results of the Release process step. If this is also not possible, it reads it from the results of the Defer process step. You can import the effective interest rate to the target values of the Defer process step. See also the prerequisites under Adjustment for Credit Risk. Related Information Determining Credit Risk Adjustment [page 128] Determination of Fair Value The fair value calculator provides target values that are used to document fair value in accounting for contracts and securities positions in the Value TC process step. In Customizing, the fair value calculator identifies which method to use to determine the fair value depending on the accounting system. The following methodologies are available: Import Contract-based determination Mark-to-market determination (for securities only) Cash-flow-based determination P U BL IC 135

136 Prerequisites You have made the following settings in Customizing for Bank Analyzer under Process Steps for Financial Instruments Value TC Methods Fair Value : You have viewed the methods for the relevant methodology and created custom methods if required. You have defined derivation rules. Result The fair value calculator provides the new fair value for the Value TC process step. Related Information Methodologies for Determining Target Values [page 50] Importing Results and Granularity [page 57] Mark-to-Market Determination [page 136] Cash-Flow-Based Determination [page 137] Mark-to-Market Determination In the mark-to-market determination of fair value, the fair value calculator scales the market prices according to the securities position. Prerequisites You have completed the Customizing activities under Prices for Financial Instruments and have created read strategies in the Customizing activity Edit Customizing for Security Prices in Customizing under Financial Services Foundation Market Data. You have imported market prices in the market data (BS_FND_MKD). You can import the market prices by legal entity both without accrued interest (clean price) and with accrued interest (dirty price). In order to do so, you must have set the search sequence in the read strategy accordingly using the Price Including/ Excluding Accrued Interest indicator in the Customizing activity Edit Customizing for Security Prices. If you import the market prices without accrued interest, you need to import the accrued interest additionally using the Smart AFI results category 015 (Accrued Interest) in the Results Data Layer. In Customizing for Bank Analyzer under Processes and Methods Basic Settings Legal Entity Define Legal Entities read strategies assigned. Depending on the read strategy, the fair 136 P U B L I C

137 value calculator reads only the imported market prices or the imported market prices with the imported accrued interest. The fair value calculator calculates the market price with interest accrual from the market price and the accrued interest. Related Information Market Data Cash-Flow-Based Determination To determine the fair value based on cash flows (mark-to-model determination), the fair value calculator calculates the target value by discounting cash flows based on the market interest rates of the relevant yield curve. For securities, the system scales the imported cash flow according to the securities position. For the cash-flow-based determination of the fair value, the due date is relevant. Cash-flow-based determination of the fair value Key FFV= full fair value CF (cash flow) i = cash flow on date t i DF i = discounting factor on date t i from given yield curve P U BL IC 137

138 Prerequisites In Customizing for market data (BS-FND-MKD) under Interest Rates Edit Reference Interest Rates and Yield Curves, you have defined yield curve types and imported interest rates for the reference interest rates. You are aware of the settings provided by SAP in Customizing for Bank Analyzer under Process Steps for Financial Instruments Value TC Methods Fair Value, and have made your own settings as required. You have also selected a cash flow category (contractual, behavioral or credit-risk-adjusted) and entered a yield curve type. Related Information Yield Curves Determining the Target Value After Economic Write-Down If a contract is in the liquidation phase of the deposited collateral due to a paying contract partner defaulting, some accounting principles require that the book value of the balance sheet item is written down to the fair value of the collateral. We provide the following subledger account that records the difference between the previous book value and the fair value of the deposited collateral: Write-Down Adjustment Prerequisites A contract can only be written down to the fair value of the underlying collateral if it is legally already in the liquidation phase. In other words, there are no more accounting valuation components that result from contractual agreements. The write-down status of the contract is 04 - Partially Economically Written Down. The valuation approach for the contract is Acquisition Cost/Amortized Cost. Note If the write-down status of the contract is 03 - Fully Written Down, the system writes off the book value to the target balance P U B L I C

139 Interaction with other components Other residual valuation components (fair value adjustment, LCM adjustment): The system writes down to the fair value of the collateral only in the valuation approach Acquisition Cost/ Amortized Cost. This means from both a business perspective and a technical perspective that you cannot record further residual valuation components at the same time with a balance that is not equal to zero. Nominal write-down: Depending on the accounting principle, only one write-down approach can be applied to a contract. In other words, it is written down either nominally or economically. Calculation The system calculates the write-down adjustment as follows: Write-down adjustment = fair value of the collateral book value before economic write-down The book value before economic write-down is defined by all the book value components, with the exception of the residual book value components. Example A contract is in the liquidation phase, the outstanding debt is EUR 100, all other accounting components have a value of EUR 0. The imported fair value of the underlying collateral is EUR 25. This results in the following balances: Position Account Description Balance Receivables/Payables (Not Due) EUR Write-Down Adjustment EUR -75 The target value after economic write-down, and thus the new book value, is EUR Move and Transform The process step Move and Transform covers two use cases: The Move and Transform (Business Transaction) [page 140] process step involves the same-day fixing of foreign currency amounts for business transactions based on the exchange rates valid at the end of the day. The Move and Transform (Contract) [page 144] process step involves the periodic fixing of the calculated results. P U BL IC 139

140 Prerequisites You can display the settings for this process step in Customizing for Bank Analyzer, under Processes and Methods Process Steps for Financial Instruments Move and Transform. Make settings for the period closing variants in Customizing for Bank Analyzer, under Processes and Methods Process Steps for Financial Instruments Basic Settings Define Period Closing Variants. Related Information Register [page 63] Move and Transform (Business Transaction) [page 140] Move and Transform (Contract) [page 144] End-of-Day Processing (Business Transaction) [page 70] Period-End Processing [page 95] Move and Transform (Business Transaction) The Move and Transform (Business Transaction) process step involves the same-day fixing of foreign currency amounts for business transactions based on the exchange rates valid at the end of the day. The system processes the data during end-of-day processing. The following cases are possible: 1. The Register process step registers business transactions that contribute to the profit and loss statement, and that have a transaction currency that differs from the functional currency. You want the system to fix these contributions on the same day. Since the exchange rate valid at the end of the day is not yet known during the Register run, the system posts these contributions to the preliminary P&L. After the exchange rates have been imported, end-of-day processing fixes the foreign currency amounts with the required exchange rate and posts the amount to the P&L. 2. The Register process step registers business transactions with payments in a transaction currency that differs from the contract currency (payment currency change). Since the exchange rate valid at the end of the day is not yet known during the Register run, the system posts the amounts in foreign currency to a preliminary currency position. After the day's mid-market rates have been imported, end-of-day processing fixes the required exchange rate and creates the currency position. The following examples illustrate the posting logic. The functional currency is EUR. Example P&L Business transaction Contract currency 100 USD 140 P U B L I C

141 Transaction currency 100 USD Exchange Rates Exchange rate on January 21 (start of day) Exchange rate on January 21 (end of day) USD 1.00 EUR 0.80 USD 1.00 EUR 0.90 Process Step D/C Subledger Account Transaction Currency Functional Currency January 21 (day processing) Register D Unpaid Principal Balance (UPB) USD 100 EUR 80 January 21 (day processing) Register C Unremitted Interest Income USD -100 EUR -80 January 21 (end of day) Move and Transform D Unremitted Interest Income USD 100 EUR 90 January 21 (end of day) Move and Transform C Currency Position Income Statement USD -100 EUR -90 January 21 (end of day) Move and Transform C Interest Income EUR -90 EUR -90 January 21 (end of day) Move and Transform D Equivalent Value USD EUR 90 EUR 90 In this example, it is assumed that the posting record derived for the business transaction in the Register process step contains the subledger accounts Unpaid Principal Balance (UPB) and Interest Income. Since the subledger account Interest Income is a P&L account, and since the transaction amount differs from the functional currency, the system replaces the subledger account Interest Income in the Register process step with the corresponding preliminary subledger account Unremitted Interest Income. In the Move and Transform process step, the system makes a transfer posting from the preliminary currency positions to the currency positions. The system also creates the equivalent values. Example Change of payment currency For the payment currency change, it is assumed that the posting record derived for the business transaction in the Register process step contains the subledger accounts Unpaid Principal Balance (UPB) and In-Transit. Since the transaction currency differs from the contract currency (payment currency change), the Register process step also creates preliminary currency positions. In the Move and Transform process step, the system makes a transfer posting from the preliminary currency positions to the currency positions. The system also creates the equivalent values. P U BL IC 141

142 In Customizing, under Bank Analyzer Processes and Methods Process Steps for Financial Instruments Basic Settings Define Accounting System, you can specify the currency exchange methodology for each accounting system. You can choose between the leading currency approach and the implicit fee. Business transaction Contract currency 100 USD Transaction currency 66 GBP Exchange Rates Exchange rate on January 21 (start of day) Exchange rate on January 21 (end of day) USD 1.00 EUR 0.80 GBP 1.00 EUR 1.20 USD 1.00 EUR 0.90 GBP 1.00 EUR 1.30 Leading currency In this approach, the system determines the leading currency from the contract currency and transaction currency in the business transaction, and translates only the leading currency amount into the equivalent value in functional currency. It then also uses this equivalent value as the equivalent value for the amount in the non-leading currency. Process Step D/C Subledger Account Transaction Currency Functional Currency January 21 (day processing) Register D Unpaid Principal Balance (UPB) USD 100 EUR 80 January 21 (day processing) Register C Preliminary Currency Position USD -100 EUR -80 January 21 (day processing) Register C In-Transit GBP -66 EUR January 21 (day processing) Register D Preliminary Currency Position GBP 66 EUR January 21 (end of day) Move and Transform D Preliminary Currency Position USD 100 EUR 90 January 21 (end of day) Move and Transform C Currency Position Balance Sheet USD -100 EUR -90 January 21 (end of day) Move and Transform C Preliminary Currency Position GBP -66 EUR P U B L I C

143 Process Step D/C Subledger Account Transaction Currency Functional Currency January 21 (end of day) Move and Transform D Currency Position Balance Sheet GBP 66 EUR 90 January 21 (end of day) Move and Transform D Equivalent Value USD EUR 90 EUR 90 January 21 (end of day) Move and Transform C Equivalent Value GBP EUR -90 EUR -90 Implicit fee In this approach, the system does not determine a leading currency. It translates each currency separately. This results in a difference, which the system records as an implicit fee. Process Step D/C Subledger Account Transaction Currency Functional Currency January 21 (day processing) Register D Unpaid Principal Balance (UPB) USD 100 EUR 80 January 21 (day processing) Register C Preliminary Currency Position USD -100 EUR -80 January 21 (day processing) Register C In-Transit GBP -66 EUR January 21 (day processing) Register D Preliminary Currency Position GBP 66 EUR January 21 (end of day) Move and Transform D Preliminary Currency Position USD 100 EUR 90 January 21 (end of day) Move and Transform C Currency Position Balance Sheet USD -100 EUR -90 January 21 (end of day) Move and Transform C Preliminary Currency Position GBP -66 EUR January 21 (end of day) Move and Transform D Currency Position Balance Sheet GBP 66 EUR January 21 (end of day) Move and Transform D Equivalent Value USD EUR 90 EUR 90 January 21 (end of day) Move and Transform C Equivalent Value GBP EUR EUR P U BL IC 143

144 Process Step D/C Subledger Account Transaction Currency Functional Currency January 21 (end of day) Move and Transform C Implicit Fee EUR EUR Move and Transform (Contract) In the Move and Transform process step, the system periodically fixes the calculated results. The system processes the data in period-end processing if there is profit or loss in a foreign currency; in other words, if the transaction currency (TC) is not the same as the functional currency (FC). You can reset the fixing of unrealized profits from period-end processing during period-opening processing. For more information about resetting postings from the Move and Transform process step, see Period-Opening Processing [page 158]. The following example explains the posting logic. The functional currency is EUR. Example Period-end processing Exchange Rates September 30 USD 1.00 EUR 0.90 Process Step D/C Subledger Account Transaction Currency Functional Currency September 30 Accrue D Accruals: Interest USD 100 EUR 90 September 30 Accrue C Income: Unrealized Interest (Preliminary) USD -100 EUR -90 September 30 Move and Transform D Income: Unrealized Interest (Preliminary) USD 100 EUR 90 September 30 Move and Transform C Currency Position Income Statement USD -100 EUR -90 September 30 Move and Transform C Income: Interest (Unrealized) EUR -90 EUR P U B L I C

145 Process Step D/C Subledger Account Transaction Currency Functional Currency September 30 Move and Transform D Equivalent Value USD EUR 90 EUR 90 In this example, the Accrue process step posts to the subledger account Income: Unrealized Interest (Preliminary). It is assumed that there has been no further posting on this subledger account, meaning that the balance is USD 100. In the Move and Transform process step, the system makes a transfer posting with this balance from the preliminary subledger account Income: Unrealized Interest (Preliminary) to the subledger account Income: Interest (Unrealized) based on the exchange rates valid at the end of the day. The system also creates the currency position and the corresponding equivalent value Value FX The Value FX process step revalues the amounts in functional currency and all other local currencies using the valid exchange rate on the balance sheet key date. It also collects the delta for the existing balance in the foreign exchange result. To adjust the functional currency, the system uses all the subledger account balances held in a currency other than the functional currency. To adjust the local currency, the system uses all the subledger accounts in the balance sheet. The Value FX process step is available both at the contract granularity level and at the cross-contract granularity level (dimensions of financial statement entities). At the contract granularity level, it is executed in end-of-day processing and period-end processing. Only contract-based subledger documents are included in the balances used in the process step. At the cross-contract granularity level, it is executed in cross-contract period-end processing. Only crosscontract subledger documents are included in the balances used in the process step. Prerequisites You can display the settings for the Value FX process step in Customizing for Bank Analyzer under and Methods Process Steps for Financial Instruments Value FX. Processes P U BL IC 145

146 Example This example illustrates the foreign currency valuation of balance sheet items (monetary asset revaluation (MAR)) and of currency positions: Exchange Rates January 29 (end of day) USD 1.00 EUR 0.80 January 30 (end of day) USD 1.00 EUR 0.90 January 31 (end of day) USD 1.00 EUR 1.00 The system runs the following valuations: (At the end of the period, the exchange rate changes to EUR 1.00, meaning that the system needs to make adjustments to the balance sheet item.) Process Step Process Step Details Posting Record Subledger Account Transaction Currency Functional Currency January 30 (day processing) Register D Unpaid Principal Balance (UPB) USD 100 EUR 80 January 30 (day processing) Register C Unremitted Interest Income USD -100 EUR -80 January 30 (end of day) Move and Transform Move D Unremitted Interest Income USD 100 EUR 90 January 30 (end of day) Move and Transform Move C Currency Position Income Statement USD -100 EUR -90 January 30 (end of day) Move and Transform Transform C Interest Income EUR -90 EUR -90 January 30 (end of day) Move and Transform Transform D Equivalent Value USD EUR 90 EUR 90 January 31 (period end) Value FX Balance sheet item adjustment D Unpaid Principal Balance (UPB) USD 0 EUR 20 January 31 (period end) Value FX Balance sheet item adjustment C Currency Gain USD 0 EUR P U B L I C

147 Process Step Process Step Details Posting Record Subledger Account Transaction Currency Functional Currency January 31 (period end) Value FX Balance sheet item adjustment C Unremitted Interest Income USD 0 EUR -10 January 31 (period end) Value FX Balance sheet item adjustment D Currency Gain USD 0 EUR 10 January 31 (period end) Value FX (Cross- Contract) Currency position adjustment C Currency Position Income Statement USD 0 EUR -10 January 31 (period end) Value FX (Cross- Contract) Currency position adjustment D Currency Gain USD 0 EUR 10 January 31 (period end) Value FX (Cross- Contract) Equivalent value adjustment D Equivalent Value USD EUR 10 EUR 10 January 31 (period end) Value FX (Cross- Contract) Equivalent value adjustment C Currency Gain EUR -10 EUR -10 At the end of the period, there is a balance on the UPB account and on the unremitted interest income account that is relevant for the foreign currency valuation of balance sheet items. From an overall balance sheet perspective, the foreign exchange result from the adjustment of the equivalent value is the only relevant result. The results of the monetary asset revaluation (MAR) and of the currency positions are of an explanatory nature and add up to zero (apart from rounding effects). Related Information Register [page 63] Move and Transform [page 139] P U BL IC 147

148 Classify If one or more subledger coding block characteristics changes, the Classify process step ensures that the balances of balance sheet subledger accounts of the granularity level Contract or Securities Position are reclassified from the old subledger coding block to the new subledger coding block. In the subledger coding block, this affects changes to the following characteristics: Contract characteristics Securities characteristics Business partner characteristics Characteristics derived from contract characteristics, securities characteristics and business partner characteristics Derived characteristics for the organization Analytical status Classify - End-of-Day Processing If changes to contract characteristics, securities characteristics, business partner characteristics or the analytical status are registered in the Register process step, the system executes the Classify step for the date of the change (in an open period) in end-of-day processing. Changes to derived characteristics only result in the Classify step being executed in end-of-day processing if the change has been caused by a change to contract characteristics, securities characteristics or business partner characteristics that has already been registered. All other changes are not considered until the next period-end processing. Note If you change the legal entity, please refer to the information in Change of Legal Entity [page 264] Classify - Period-End Processing. In period-end processing, the system reclassifies to a new subledger coding block if the asset/liability status of an analytical status changes. The status is determined based on the book value in functional currency. Note If a dimension of a financial statement entity changes in the subledger coding block, the system reclassifies using a cross-contract reclassification account. This ensures a closed debit/credit loop for each dimension of financial statement entities. Prerequisites You can display the settings for the Classify process step in Customizing for Bank Analyzer under Processes and Methods Process Steps for Financial Instruments Classify. In Customizing for Bank Analyzer, you define the default value for the asset/liability status and the periodic redetermination of the asset/liability status under Processes and Methods Subledger Coding Block Analytical Status Define Asset/Liability Status. 148 P U B L I C

149 Example On March 30, the balance-sheet subledger account Receivables/Payables has a debit balance of EUR 100, which is assigned to the subledger dimension Organizational Unit Y: Subledger Account D/C Balance in Transaction Currency Organizational Unit Receivables/payables D EUR 100 Y The change in organizational unit for the contract causes this dimension to change to Z and a reclassification of the balance with the following posting: Subledger Account D/C Amount in Transaction Currency Organizational Unit Receivables/payables C EUR -100 Y Receivables/payables D EUR 100 Z If the change in organizational unit from Y to Z leads to a change in profit center from A to B and if the profit center is a dimension of a financial statement entity, the following postings are made: Subledger Account D/C Amount in Transaction Currency Organizational Unit Profit Center Receivables/payables C EUR -100 Y A Reclassification account Reclassification account D EUR 100 A C EUR -100 B Receivables/payables D EUR 100 Z B Related Information Subledger Coding Block [page 31] Different Target Account for Changes to the Analytical Status [page 150] P U BL IC 149

150 Different Target Account for Changes to the Analytical Status If the market conformity status, the impairment status or the holding category changes, you can determine a different target account for the reclassification posting. You do this in Customizing under Bank Analyzer Processes and Methods for Financial Instruments Process Steps Classify Account Assignment Assign Different Carryforward Accounts (When Status Changes). Note If the contracts have a credit balance in the subledger account group Receivables/Payables (Not Due) or, in the case of securities, in the subledger account groups Receivables/Payables (Not Due) and Acquisition Val. (Securities) Adjustment, you choose the Target Account (Expense). In all other cases choose Target Account (Income). Note If the market conformity status and the holding category are both changed on the same day, you determine the target account as if only the holding category had changed. Example A bank holds securities for trading purposes. A corresponding securities position is assigned to the holding category Held for Trading (HFT). The balance of the securities position on Acquisition Value and Acquisition Value Adjustment is a debit balance and the balance-sheet subledger account Fair Value Adjustment has a credit balance of EUR 20 on March 30. Balance in Transaction Subledger Account D/C Currency Holding Category Fair Value Adjustment C EUR -20 HFT The bank decides on a different business model and no longer wants to hold the securities for trading purposes but to keep them on the portfolio permanently. This means that the analytical status of the Holding Category changes from Held for Trading (HFT) to Amortized Cost (ACO) and the balance is reclassified from Fair Value Adjustment to the target account Valuation Remnants FVA Income: Amount in Transaction Subledger Account D/C Currency Holding Category Fair Value Adjustment D EUR 20 HFT Valuation Remnants: FVA Income C EUR -20 ACO 150 P U B L I C

151 Adjust In the Adjust process step, you can first manually make preliminary entries for contract-related or crosscontract value adjustments to balances, and then post them using a release workflow. You can reset the manual postings during period-opening processing, if necessary. Example Manual postings can be required if data (for example, for interest settlement) from the feeder system is not imported in time for period-end processing. The Adjust process step is an analytical process step with GAAP-dependent results that are documented as preliminary delta GAAP documents. The system documents the manual postings in the following subledger accounts, by default: Subledger account (subledger account group , analytical) Subledger account (subledger account group , interpreted) You can create any number of custom subledger accounts for the subledger account groups listed. You can create a subledger account for manual postings for every individual book value component, for example. In the general ledger transfer and balance sheet reporting, you can consider documents for regular subledger accounts and documents for subledger accounts for manual postings together for each book value component. You can make manual postings within regular posting periods, or, if you are using a fiscal year variant with special periods, at the end of the year in special periods. Released manual adjustments are included automatically from the next posting date when the following process steps are run: Value FX Classify Carry Forward Note If you want to make a backdated manual posting, you need to run the process steps listed above again as required during period-end processing or year-end processing. Manual postings are not taken into account in the other process steps for period-end processing. Entry Prerequisites In Customizing for Bank Analyzer under Processes and Methods Basic Settings Legal Entity Define Legal Entities under Basic Settings, you have defined and assigned number ranges for manual postings. P U BL IC 151

152 In Customizing for Bank Analyzer under Processes and Methods Technical Settings Define Results Storage, you have set up the results storage for the result category 905 (Preliminary Subledger Document). On the SAP Easy Access screen under Bank Analyzer Processes and Methods Subledger Accounting for Financial Instruments or Insurance Contracts, under Period-End Processing Open and Close Posting Periods you have opened the relevant posting period for manual postings in each case. Procedure 1. On the SAP Easy Access screen, choose Bank Analyzer Processes and Methods Subledger Accounting. 2. Choose Financial Instruments or Insurance Contracts and then Period-End Processing Manual Posting (Contract) or Period-End Processing Manual Posting (Cross-Contract). The initial screen appears. 3. Enter at least the legal entity, an accounting system, and the posting date. 4. Choose Execute. The system displays a detail screen. 5. Enter a posting date for the reset so that you are able to reset the manual posting later in period-opening processing. The posting date for the reset must be at least one day after the current posting date. 6. Enter at least the following accounts for each debit and credit item: A subledger account from the subledger account groups for manual adjustments listed above A profit and loss account An equity account 7. Enter the posting amount in transaction currency for each debit and credit item. You can also distribute the posting amount over more than one account. The system converts the amounts into different currencies. 8. If you want the system to determine the corresponding general ledger accounts and enter these automatically, choose Derive G/L Accounts. 9. To execute the Move and Transform process step and post amounts in foreign currency to preliminary currency positions, choose Move and Transform. 10. Save your entries. The system performs consistency checks for your entries. For example, it checks whether the balance of debit and credit is zero and that the debit/credit indicator is assigned correctly. The system then generates a preliminary document and stores it in the Results Data Layer (RDL) with the result category The system starts a release workflow. Release Prerequisites Workflow Template In Customizing for Bank Analyzer, under Processes and Methods either Process Steps for Financial Instruments or Process Steps for Insurance Contracts under Adjust Derive Workflow for Release of Manual Postings, you have determined whether the release is completed in one step (principle of dual control), two steps (principle of triple control) or three steps (principle of quadruple control). SAP provides a workflow framework (WS ) and three subworkflow templates (WS , WS , WS ). You have defined which of the subworkflow templates from 152 P U B L I C

153 the workflow framework the system is to derive at runtime. This derivation depends on the legal entity and, optionally, on the characteristics of the document header and the total of the debit amounts in functional currency. Event Linking On the SAP Easy Access screen, under Business Workflow Administration Event Manager Type linkages (transaction: SWETYPV) you have entered the event linkage for the following event with the following values: Object category CL Object type /BA1/CL_AL_BR_ADJ_DOC_REL_WF Event SEND_TO_RELEASE Receiver type WS Receiver function module SWW_WI_CREATE_VIA_EVENT_IBF For more information, see. Workflow The releaser can display the preliminary document for manual value adjustment in the SAP Business Workplace (SBWP) and release or reject it. It is not possible to change the data of the preliminary document. As soon as the release is completed, the system generates a final document with a new document number and stores this in the RDL with the result category 900 (Subledger Document). The final document contains a reference to the preliminary document. Note If the posting date is in a period that is already closed, the system uses the first date of the next open period as the posting date. Reset Procedure 1. On the SAP Easy Access screen, choose Bank Analyzer Processes and Methods for Financial Instruments or Insurance Contracts, Period-Opening Processing Reset Manual Posting. 2. Specify at least the legal entity and the evaluation key date. For more selection critieria, choose Dynamic Selections. 3. Choose Execute. The system selects all of the released manual postings where the reset date (which you specified when you made the preliminary entry) is before or the same as the evaluation key date. 4. The system inverts the amounts of the manual postings and uses the reset date as the posting date. The system also generates a reset document with a new document number and stores this in the RDL with result category 900. The reset document contains a reference to the final document for the manual posting. P U BL IC 153

154 Related Information Close You can use the Close process step to open and close posting periods (including special periods) for each legal entity. Prerequisites If you use the Financial Accounting (FI) component, make sure that you have defined the relevant periods there. In Customizing for Bank Analyzer under Processes and Methods Basic Settings, you have defined at least one fiscal year variant, one accounting system and one legal entity in the following Customizing activities: Define Fiscal Year Variant Define Accounting Systems Define Legal Entities Context You can open and close posting periods for intraday processing (Process Steps Register and Capture (for insurance contracts), for period-end processing, and for the Adjust process step (manual adjustments) separately. This enables you to ensure that after a period is closed for intraday processing, operational flow transactions and master data changes no longer affect period-end processing. In the same way, after the period for the period-end processing has been closed, the adjustments made in the individual process steps in period-end processing no longer affect the manual adjustments. Procedure 1. On the SAP Easy Access screen, choose Bank Analyzer Processes and Methods Subledger Accounting. Then, under Financial Instruments or Insurance Contracts, choose Period-End Processing Open and Close Posting Periods. 2. Choose a legal entity. 3. To open periods, specify one time period each for the following processes/process steps by entering a lower limit for the period with fiscal year and an upper limit for the period with fiscal year: Intraday processing 154 P U B L I C

155 Period-end processing Manual adjustments 4. Note the following: Your settings for the fiscal year and the number of periods must be aligned with the settings you make in the Customizing activity Define Fiscal Year Variant. Intraday processing can be used within the posting periods. Period-end processing and manual adjustments can be used within the posting periods and/or the special periods. 5. To close a period, change the lower limit for the period, and if required the corresponding fiscal year, so that the year you want to close is no longer in the period. Caution You should reopen closed periods in exceptional cases only. Results Once a period is closed, no further postings are possible in the period. This means that the accounting-relevant documentation is carried forward to the first posting date of the next open period. The value date is not affected by this shift. For traceability and reconciliation purposes, the original posting date from the operational business transaction remains as the document date in the document when operational flow transactions and master data changes are registered. Example Initial situation: The posting periods through are open for registering, while the periods through are open for period-end processing. Due to an error in the operational system, a business transaction with posting date and value date is imported with a delay. Consequence: The Register process step documents the transaction with posting date , document date and value date If any currency translations are required, the exchange rates valid on are also used. Balances up to are included in period-end processing, which is executed on This means that the retroactively entered business transaction is not included in the period Special case period 00: Period 00 cannot be opened or closed by the Close process step because only the Carry Forward process step posts to this period Year-End Processing You use year-end processing to open and close fiscal years. Period-end processing is a prerequisite for this. Year-end processing comprises period-end processing for special periods (Adjust process step) and the balance carryforward function (Carry Forward process step): You use the Adjust process step to make automated adjustments at the end of the fiscal year in special periods. P U BL IC 155

156 You use the Carry Forward process step to carry the annual balance sheet forward to the new fiscal year (period 00 ). Note that neither the Carry Forward process step nor the Adjust process step automatically react to adjustments. Since the preceding posting periods must already be closed there is no need for an automated adjustment function in the system here. You can use the Carry Forward process step to manually make a selective correction. Prerequisites Before you can use period-end processing for a special period, you must have closed the corresponding preceding period (or special period). Activities To execute period-end processing for special periods, on the SAP Easy Access screen, choose Bank Analyzer Processes and Methods Subledger Accounting Financial Instruments Period-End Processing Period-End Processing (Contract) or Period-End Processing (Cross-Contract). Enter the special period you want to process. To execute the balance carryforward function, on the SAP Easy Access screen, choose Bank Analyzer Processes and Methods Subledger Accounting Financial Instruments Year-End Processing Balance Carryforward (Contract) or Balance Carryforward (Cross-Contract). Related Information Carry Forward [page 156] Period-End Processing [page 95] Processes for Financial Instruments [page 47] Carry Forward In the Carry Forward process step, you carry the year-end balance forward to the year-opening balance. The Carry Forward process step carries balances of balance-sheet subledger accounts for the closed fiscal year (including special periods) forward to the first day of the following fiscal year (period 00), and posts this against retained earnings. The process step is executed for each accounting principle, with the main GAAP carrying forward operational (central GAAP) and analytical (delta GAAP) subledger account balances. For non-leading accounting principles, 156 P U B L I C

157 the Carry Forward process step includes only balances for analytical subledger accounts. Carry Forward is divided into a contract-based and a cross-contract process step. The granularity of the cross-contract subledger accounts is based on the financial statement entities. Year-end closing (including the creation of a year-opening balance sheet) is carried out separately in both the subledger and in the general ledger. This means that the subledger documents of the year-opening period 00 are not taken into account by the general ledger connection. The figure below shows the balance carryforward function in. (Note that this is a simplified representation that does not include special periods, for example). Balance Carryforward Prerequisites You can display the settings for the Carry Forward process step in Customizing for Bank Analyzer under Processes and Methods Process Steps for Financial Instruments Carry Forward. Special Features In the balance carryforward process, the currency position Profit and Loss Statement is carried forward to the currency position Reserve. Year-opening positions in foreign currency (transaction currency functional currency) are carried forward against Preliminary Retained Earnings. If there are postings with value dates in the future on the subledger accounts on the last day of the old fiscal year, the balance carryforwards are carried out such that these value dates are preserved. You can execute the Carry Forward process step more than once for a fiscal year. If there have been changes to the year-opening position, the postings from the previous execution are inverted. P U BL IC 157

158 The Carry Forward process step does not react automatically to retroactive changes. If the balances change on the last day of the fiscal year after the Carry Forward process step has been executed, you need to execute the process again. Only the initial positions that have been changed are re-documented in accounting. Documents that have already been written are inverted, and new documents are written for the initial positions that have changed. After these changes, you can execute the contract-related process selectively for changed contracts. You then need to execute the corresponding cross-contract process so that the balance carryforward is also updated for cross-contract positions. We recommend that you execute the Carry Forward process step as soon as all regular periods of the fiscal year are completed. The Carry Forward process step is a prerequisite for processing in the new fiscal year. You should execute the Carry Forward process step again after completion of all special periods Period-Opening Processing Period-opening processing resets documents that were created during period-end processing or end-of-day processing (contract) on the previous day. The following processes are involved: Accrue [page 97] Defer [page 99] Write Down [page 115] Release [page 116] Value TC [page 126] Move and Transform [page 139] Value FX [page 145] You can also reset manual adjustments. For more information, see Adjust [page 151]. You can use the reset of period-end process steps for the following purposes: 1. To report the recognition in profit and loss of the adjustment of valuation postings by comparing with a valid reference value at a designated point in time: Your choice of reference value combined with the execution of period-opening processing, for example, gives you the following options for displaying recognition in profit and loss: Reference Value and Time Display of Recognition in Profit and Loss Execution of Period-Opening Processing Last adjustment posting Permanent None Initial recognition in balance sheet Life-to-date Daily Last adjustment posting in prior period Period-to-date Daily, except at the end of periods 158 P U B L I C

159 Reference Value and Time Display of Recognition in Profit and Loss Execution of Period-Opening Processing Last adjustment posting in preceding quarter Quarter-to-date Daily, except at the end of quarters First adjustment posting of current year Life-to-date Daily, except at the end of years 2. Fixing of foreign exchange rates for unrealized profit and loss amounts in a foreign currency at designated points in time: Frequency of Exchange Rate Fixing Execution of Period-Opening Processing Daily For each period Quarterly Annually None Daily, except at the end of periods Daily, except at the end of quarters Daily, except at the end of years Period-Opening Processing (Contract) You use the period closing variant to specify for which process steps reset postings are created. The characteristic values of the subledger coding block valid at the start of the reset day are included in the reset document. Period-Opening Processing (Cross-Contract) The resetting of documents from period-end processing (cross-contract) applies only to the Value FX process step run by period-opening processing (cross-contract). Reset Manual Adjustment You use this to reset manual adjustments. Activities For contract-related changes, on the SAP Easy Access screen, choose Bank Analyzer Processes and Methods Subledger Accounting Financial Instruments Period-Opening Processing Period-Opening Processing (Contract). For cross-contract period-opening tasks, on the SAP Easy Access screen, choose Bank Analyzer Processes and Methods Subledger Accounting Financial Instruments Period-Opening Processing Period-Opening Processing (Cross-Contract). P U BL IC 159

160 For resetting manual adjustments, on the SAP Easy Access screen, choose Bank Analyzer Processes and Methods Subledger Accounting Financial Instruments Period-Opening Processing Reset Manual Adjustments. Example You want the accounting contributions to the profit and loss statement to be finally fixed only at the end of the quarter. However, reports still need to be created at the end of each month Postings at the end of the period (February 28) a) On February 28, the accruals are USD 10; the exchange rate on this date is 0.8. Based on these parameters, the Accrue process step creates the following posting: a) Posting Date Subledger Account Debit/Credit (D/C) Amount in Transaction Currency Amount in Functional Currency February 28 Accruals: Interest D USD 10 EUR 8 Income: Unrealized Interest (Preliminary) C USD -10 EUR -8 b) Since March 28 is a balance sheet key date, the unremitted interest income needs to be transferred to interest income (Move and Transform process step): b) Posting Date Subledger Account Debit/Credit (D/C) Amount in Transaction Currency Amount in Functional Currency February 28 Income: Unrealized Interest (Preliminary) D USD 10 EUR 8 Currency Position Income Statement C USD -10 EUR -8 Equivalent Value USD D EUR 8 EUR 8 Income: Interest (Unrealized) C EUR -8 EUR P U B L I C

161 c) Due to a business decision that there is to be no final fixing within a quarter, the system resets this posting during the period-opening process on March 1: c) Posting Date Subledger Account Debit/Credit (D/C) Amount in Transaction Currency Amount in Functional Currency March 1 Income: Unrealized Interest (Preliminary) D USD -10 EUR -8 Currency Position Income Statement C USD 10 EUR 8 Equivalent Value USD D EUR -8 EUR -8 Income: Interest (Unrealized) C EUR 8 EUR 8 Postings at the end of the quarter on March 31 d) At the end of the next period, there is a delta of USD 1 (target balance USD 11) on Accruals; the exchange rate on March 31 is 0.9: d) Posting Date Subledger Account Debit/Credit (D/C) Amount in Transaction Currency Amount in Functional Currency March 31 Accruals: Interest D USD 1 EUR 0.9 Income: Unrealized Interest (Preliminary) C USD -1 EUR -0.9 e) Before the Move and Transform process step is executed, there is a balance of USD -11 on Income: Unrealized Interest (Preliminary). This is now fixed with the exchange rate on March 31 (0.9) in the net interest income: e) Posting Date Subledger Account Debit/Credit (D/C) Amount in Transaction Currency Amount in Functional Currency February 28 Income: Unrealized Interest (Preliminary) D USD 11 EUR 9.90 Currency Position Income Statement C USD -11 EUR P U BL IC 161

162 e) Posting Date Subledger Account Debit/Credit (D/C) Amount in Transaction Currency Amount in Functional Currency Equivalent Value USD Income: Interest (Unrealized) D EUR 9.90 EUR 9.90 C EUR EUR This results in an interest income of EUR 9.90 on March 31, and no foreign exchange result. Due to the business decision outlined above, the system no longer performs a reset on April 1. Result in the event of a different business decision If the business decision was to execute the final fixing at the end of each month, you would not execute the reset (c) and there would be a shift between the interest income and the foreign exchange result: Key Date Amount in Foreign Currency Contribution to Net Interest Income in EUR February 28 USD -10 EUR -8 March 31 USD -1 EUR Net interest income for the fiscal year EUR The difference of EUR -1 in comparison to the quarterly fixing is added to the foreign exchange result. Related Information Accrue [page 97] Defer [page 99] Write Down [page 115] Release [page 116] Value TC [page 126] Move and Transform [page 139] Value FX [page 145] 162 P U B L I C

163 1.6.6 Preparatory Processing Before you execute day processing at the end of the period you have the option of predetermining the accounting status. Before you execute period-end processing you can also predetermine the target values. Determine Accounting Status For more information, see the section Determine Impairment Attributes Periodically under Impairment Attribute Determination (IAD) [page 92]. For more information about the determination of the asset/liability status for financial contracts, see Determination of Asset/Liability Status [page 37] Determine Target Values You have the following options on the SAP Easy Access screen, under Bank Analyzer Processes and Methods Subledger Accounting Financial Instruments Preparatory Processing Determine Target Values : Determine Amortized Cost Determine Amortized Valuation Cost Determine Adjustment for Credit Risk Determine Fair Value You can use the predetermination of target values for validation purposes or within a release process, for example. The system calls the calculators used during period-end processing. No postings are made, however the target values are stored in the Results Data Layer using the following Smart AFI result categories: 020 Deferrals 025 Amortized Cost 035 Amortized Valuation Costs 050 Credit Risk Adjustment 075 Fair Value Make sure that you execute the process steps in the sequence specified below. Use the same parameters in each case and use period-closing variants. 1. Execute the process steps for day processing 2. Execute period-end processing with the period-closing variant for the process step Accrue 3. Predetermine the target value for amortized cost (if required) 4. Execute period-end processing with the period closing variants for the process steps Defer and Write Down 5. Predetermine the target value for amortized valuation cost (if required) 6. Execute period-end processing with the period closing variant for the process step Release 7. Predetermine the target value for credit risk adjustment (if required) 8. Predetermine the target value for fair value (if required) P U BL IC 163

164 9. Execute period-end processing with the period closing variants for the following process steps Value TC, Move and Transform, Value FX, Classify and Carry Forward Related Information Calculation of Deferrals [page 100] Release of Valuation Remnants [page 117] Determining Credit Risk Adjustment [page 128] Determination of Fair Value [page 135] Tools Include Contracts in Day Processing Again The correction report Include Contracts in Day Processing Again allows you to reprocess contracts and securities positions that have already been successfully processed in day processing and in period-end processing. Reprocessing can be required in the following cases: The configuration has been changed and you now want to use it for business transactions and positions that have already been processed. At the time of initial processing target values (such as accruals or risk provision amounts ) had not been imported or were imported incorrectly. You can use the Reset Status Values checkbox to restrict reprocessing to the process steps of period-end processing or, in addition, to reprocess the documents entered in the Register process step. Note If you select the checkbox, the system also runs the Classify process step at the start of the day. This reclassifies the balance sheet before processing, if required, to ensure a consistent starting point. Activities To execute the report, on the SAP Easy Access screen, choose Bank Analyzer Processes and Methods Subledger Accounting Financial Instruments Tools Include Contracts in Day Processing Again. The report selects all of the contracts that meet the dynamic selection and the selection parameters that you specified on the report screen. For each contract selected, the report determines the processing status of the contract or the combination of contract and financial instrument again and updates the processing status for the specified posting date on the database accordingly. 164 P U B L I C

165 If the Reset Status Values checkbox has been selected, the system sets status 01 (new). If it has not been selected, it sets status 02 (to be consolidated). When the report is executed the selected contracts are processed in end-of-day processing again, even if there is no external event (such as a backdated master data change). Note If the processing status new (01) is set, you must execute the Register process step again before end-of-day processing, so that the business transactions are also registered again as of the chosen posting date Exclude Business Transactions from Reprocessing The correction report Exclude Registered Business Transactions from Processing allows you to exclude business transactions from being processed again by the Register process step. Accessing the registration table in this way is advisable in the following cases: A business transaction has been included in the Register process step for the sake of completeness, however it is incorrect, even though the configuration has been corrected or necessary information (such as exchange rates) has been provided subsequently. The business transactions have the processing status 01 ( Suspense Account Posting ). Consequence: As a result, this business transaction can only be posted to a suspense account. A business transaction has been imported in a form that does not allow for the creation of a posting record with debit/credit parity. Example A business transaction has been imported by mistake, in which the amounts in the payment currency and position currency are in the same currency but the individual amounts differ. These business transactions have processing status 10 (Reregister). Consequence: In this case accounting documents cannot be generated for the business transaction. This needs to be considered during reconciliation. The report can only be run in online mode which means that the user must confirm the deletion. This restricts the maximum number of data records that can be deleted. To run the report, on the SAP Easy Access screen, choose Bank Analyzer Processes and Methods Smart Accounting Subledger Accounting Financial Instruments Tools or Bank Analyzer Processes and Methods Subledger Accounting Insurance Contracts Tools. Call the Exclude Business Transactions from Reprocessing transaction. P U BL IC 165

166 Clean Up General Ledger Document Management You can use the Clean Up General Ledger Document Management report to remove data records from status management for the general ledger connection and so limit the size of the status management table. You can only delete data records under the following conditions: The status data for the general ledger account documents from the Results Data Layer (RDL) belongs to a fiscal year that has already closed. The RDL general ledger account documents related to the status data have already been sent to the general ledger successfully or the failed attempt to send documents has been confirmed in the Postprocessing Office with the status Sending Canceled. The report deletes the status data only if the corresponding RDL general ledger documents have already been deleted using SAP Information Lifecycle Management. To run the report, on the SAP Easy Access screen, choose Bank Analyzer Processes and Methods Smart Accounting Subledger Accounting Financial Instruments Tools or Bank Analyzer Processes and Methods Subledger Accounting Insurance Contracts Tools. Call the Clean Up General Ledger Document Management transaction Destroy Process Controller Data The Destroy Process Controller Data report allows you to delete data records from the Process Controller s status management (for example, for data protection reasons or to reduce the data volume). Prerequisites You can delete data records under the following conditions: You can only delete entries from closed periods if there are no earlier open periods. The contract has already expired. You can determine when a contract is considered expired from the end of the contract term in the Source Data layer (SDL). The contract is active but there is another entry in the Process Controller on a later date than the posting date in the destruction report. Context To delete, you use the data destruction object /BA1/RBR_PROC_CTRL and proceed as follows: 166 P U B L I C

167 Procedure 1. On the SAP Easy Access screen, choose Bank Analyzer Processes and Methods Subledger Accounting Financial Instruments Tools or Bank Analyzer Processes and Methods Subledger Accounting Insurance Contracts Tools. Call the Destroy Process Controller Data transaction. 2. Choose the Destroy pushbutton. 3. On the selection screen, choose an existing variant or create a new variant. The system processes variants based on the report /BA1/RBR_PROC_CTRL_DES. In a variant, you can limit deletion to various Process Controller contract attributes: Accounting system, legal entity and posting date are mandatory. You can also define whether only expired contracts or all active contracts are deleted. 4. Enter a start date and spool parameters (background printing parameters). 5. Finally, choose F8 or the Schedule Job pushbutton to schedule the destruction run. Results When the run is completed, you can view the logs either in the data destruction object or in the CVPM process monitor for the process /BA1/RBR_PROC_CTRL_DESTRUCT. Note Do not execute the process /BA1/RBR_PROC_CTRL_DESTRUCT directly because the connection to the data destruction run can be lost Invert Period-End Processing You can reset contract-related and cross-contract period-end processing. To do so, on the SAP Easy Access screen, choose Bank Analyzer Processes and Methods Smart Accounting Subledger Accounting Financial Instruments Tools : Invert Period-End Processing (Contract-Based) or Invert Period-End Processing (Cross-Contract) Both transactions generate inversion documents, which reset the effects of period-end processing. P U BL IC 167

168 Start Process Monitor In the process monitor you can analyze runs for analytical processes in for Financial Instruments and Insurance Contracts. This process monitor has the same functions as the process monitor in the Calculation and Valuation Process Manager (CVPM) but provides selection parameters that are specific to, such as the legal entity and accounting system. Under Additional Parameters, you can use keywords to restrict your search - for example, the ID of a source system. To start the Process Monitor, on the SAP Easy Access screen, choose Bank Analyzer Processes and Methods Subledger Accounting Financial Instruments or Bank Analyzer Processes and Methods Subledger Accounting Insurance Contracts : Call the Start Process Monitor transaction. For more information about the prerequisites and features of both process monitors, see the documentation for the CVPM process monitor. Related Information CVPM Process Monitor 1.7 Processes for Insurance Contracts The application menu for groups the processes that need to be run according to the time of processing. 168 P U B L I C

169 #unique_3/unique_3_connect_42_subsection-im1 [page 169] #unique_3/unique_3_connect_42_subsection-im2 [page 170] #unique_3/unique_3_connect_42_subsection-im3 [page 170] #unique_3/unique_3_connect_42_subsection-im4 [page 170] #unique_3/unique_3_connect_42_subsection-im5 [page 170] Hover over each box for a description. Click the box for more information. Day processing Day processing comprises the activities that are usually executed once or multiple times a day. The steps are as follows: Set Posting Date [page 184] Register [page 185] Capture (Central GAAP) [page 191] P U BL IC 169

170 End-of-Day Processing (Business Transaction) [page 192] Move and Transform (Business Transaction) [page 140] End-of-Day Processing (Contract) [page 197] Period-end processing Period-end processing updates position components to fulfil a balance sheet reporting requirement. For this, you need to define which position components (and the resulting profit and loss statement) need to be provided in updated form for which source systems and for which GAAP, and how frequently this needs to be done. In period-end processing, you can also open and close posting periods. The process steps are as follows: Accrue [page 200] Capture (Central GAAP) [page 191] Capture (Delta GAAP) [page 202] Unwind and Release [page 204] Value TC [page 208] Recognize Profit [page 214] Move and Transform [page 217] Value FX [page 223] Classify [page 226] Adjust [page 151] Close [page 154] Year-end processing You use year-end processing to open and close fiscal years. Period-end processing is a prerequisite for this. Year-end processing comprises period-end processing for special periods (Adjust process step) and the balance carryforward function (Carry Forward process step): Adjust [page 151]: You use the Adjust process step to make automated or manual adjustments at the end of the fiscal year in special periods. Carry Forward [page 235]: You use the Carry Forward process step to carry the annual balance sheet forward to the new fiscal year (period 00). Period-opening processing Period-Opening Processing [page 236] resets documents that were created during period-end processing or end-of-day processing (contract) on the previous day. You can also reset manual adjustments. Preparatory processing In the Recognize Profit process step, as a preparatory step, you can determine the accounting status and calculate deferred profit. 170 P U B L I C

171 Related Information Day Processing [page 184] Period-End Processing [page 199] Year-End Processing [page 234] Period-Opening Processing [page 236] Preparatory Processing [page 241] Results Data Methodologies for Determining Target Values In, the calculation of a target value for a subledger account and the account assignment (including determination of the difference amount) are separated. You can use different methodologies to calculate the target values for subledger accounts depending on the accounting process step. These methodologies can be grouped according to the pattern described below. Depending on the semantics of the subledger account, the system either determines target values for this subledger account (for example, target value of an accrual item), change reasons and the related (cumulated) deltas, or it determines target values that are used in accounting to determine the target values for subledger accounts (for example, amortized cost or fair value). Note The system calculates target values in position currency. Assignment of Process Steps and Methodologies Process Step Import Based Parametric Based Based Contract- Cash-Flow- Subledger-Account- Bus.-Transaction- Based Factor -Based Register Capture x Accrue x (x) Capture (Delta GAAP) x x P U BL IC 171

172 Process Step Import Based Parametric Based Based Contract- Cash-Flow- Subledger-Account- Bus.-Transaction- Based Factor -Based Unwind and Release Risk Adjustment Interest Rate Risk x x x x Inflation Risk x x x Credit Risk x x x Liquidity Risk x x x x x x Other Risks Prudence Principle x x x x x x x x Value TC See above Margins Risk Adjustment Cost-of-Capital Margin x x x x Recognize Profit x x x x Import methodology For each process step, you can import accounting target values that have already been calculated outside of. For more information, see Importing Results and Granularity [page 177]. 172 P U B L I C

173 Contract-based methodologies In, contract-based methodologies are methodologies that require no further input parameters other than the contractual information (for example, lifecycle segment). You can use the following methods in the process steps: Realization If you apply the realization method, the system clears an existing balance completely. Freeze If you apply the freeze method, the system keeps an existing balance (it is frozen ). Note The system executes the realization method automatically if a contract or securities position has the lifecycle segment 40 (Contract End). Parametric methodologies Parametric methodologies group all methods that require various reference parameters for calculation (for example, market prices or probability of default). These parameters are applied to a partial book value or to the balance of a given subledger account (taking scaling into account where required). Specific use cases for this include the following: The one-year expected loss methodology for determining the credit risk adjustment (book value x PD x LGD) The mark-to-market methodology for determining the fair value (amount x market price) Cash-flow-based methodologies Cash-flow-based methodologies group all methods that determine accounting target values based on a cash flow. The key parameters for this approach are as follows: Selection of the relevant cash flow (contractual cash flow, behavioral cash flow, credit-risk-adjusted cash flow) Depending on the target value to be calculated, the interest rate or yield curve used for discounting is either implicitly defined by the system (for example, effective interest rate for determining amortized cost) or you need to explicitly enter it (for example, yield curve for determining fair value). P U BL IC 173

174 Subledger-account-based methodologies These methodologies calculate target values on subledger accounts by evaluating the balances of the subledger account concerned and of further reference subledger accounts (taking time limits and amountbased limits into account if required). Business-transaction-based methodologies These methodologies are used only for process steps that carry out their interpretation after business transactions have occurred. The methodologies either amortize business-transaction-based amounts over a period of time or determine accounting price gain effects, taking lot selections into account Change Reasons Change reasons explain the change in the balance of a subledger account or subledger account group between two evaluation dates on a balance sheet key date or between two balance sheet key dates. Change reasons are used mainly to create a detailed change analysis. In other words, they explain how and why the value of a balance sheet reporting item has changed over a given period. Change reasons can be divided into categories according to the following pattern: Change Reason Category ID Description Initial Recognition 100 Initial Recognition 101 Initial Recognition (Reclassification) 105 Initial Recognition (Contract Boundaries) Time Recognition 200 Unwinding/Amortization Experience Recognition 405 Expected Flow Transaction (Expected Cash Flow) 505 Experience Variance (Model-Driven) 506 Experience Variance (Contract-Based) Update Recognition 600 Assumption Change (Underwriting Risk) 601 Assumption Change (Investment Risks) 605 Methodology Change 300 Subsequent Measurement 825 Subsequent Measurement (Local Currency) Derecognition 800 Derecognition 174 P U B L I C

175 Change Reason Category ID Description 801 Derecognition (Reclassification) Previous Recognition 001 Balance Carryforward Prerequisites In Customizing for the relevant process step under Bank Analyzer Processes and Methods Smart Accounting Process Steps for Insurance Contracts [Name of Process Step] Account Assignment, you can view the combinations of subledger accounts provided by SAP for postings in the relevant process step. You can edit these or add your own combinations. Initial Recognition / Derecognition The Initial Recognition category is used to define the initial recognition of an asset or liability in a balance sheet item. The Derecognition category describes the removal of an asset or liability from the balance sheet. The initial recognition in a balance sheet item can be attributed to the following three use cases: Origin ID Change Reason Description Contract management/processing 100 Initial Recognition Is the result of the purchase or inflow of an asset or a liability. Accounting 101 Initial Recognition (Reclassification) 105 Initial Recognition (Contract Boundaries) Is the result of the inflow of an existing asset or a liability during a change of balance sheet reporting item. In insurance accounting, this is the result of the delayed initial recognition of expected cash inflows and cash outflows based on cash flow filtering. For derecognition, the contract boundaries use case is not relevant: Origin ID Change Reason Description Contract management/processing 800 Derecognition Is a result of the sale or end of an asset or a liability. Accounting 801 Derecognition (Reclassification) Is the result of the outflow of an existing asset or liability during a change of balance sheet reporting item. P U BL IC 175

176 Time Recognition Amortization describes the deterministic change to a target value due only to the time expired under constant conditions (period-based): Origin ID Change Reason Accounting 200 Unwinding/Amortization Experience Recognition Experience Recognition groups all change reasons that describe the change in value of a balance sheet item due to the occurrence of events (empirical values): Origin ID Change Reason Description Actuarial services 405 Expected Flow Transaction (Expected Cash Flow) Actuarial services 505 Experience Variance (Model- Driven) Customer behavior 506 Experience Variance (Contract-Based) Expected payment, expected transition to "Due" or expected transition to "Reported" of claims, premiums or other payment categories Adjustment of the model to create a best estimate cash flow based on empirical values. Adjustment of the best estimate cash flow due to the difference between the actual cash inflows/outflows, transitions to Due or transitions to Reported from the expected cash inflows/ outflows, transitions to Due or transitions to Reported. Update Recognition Update Recognition groups all change reasons that describe the change in value of a balance sheet item due to the occurrence of events that either change the volume of a risk or the price for an existing risk: 176 P U B L I C

177 Origin ID Change Reason Description Actuarial services 600 Assumption Change (Underwriting Risk) 601 Assumption Change (Investment Risks) Re-estimation of the volume of a best estimate cash flow based on the re-estimation of the underlying underwriting risk Re-estimation of the volume of a best estimate cash flow based on the re-estimation of the underlying investment risk 605 Methodology Change Re-estimation of the volume of a best estimate cash flow based on a new projection method Accounting 300 Subsequent Measurement Is the result of using the current market price (for example, market yield curve) 825 Subsequent Measurement (Local Currency) Is the result of using current exchange rates for the valuation of an existing balance sheet item Previous Recognition Previous Recognition describes the transfer of balance sheet items from previous fiscal years to the new fiscal year (balance carryforward) Importing Results and Granularity You can import results data for using the Data Load Layer (DLL). You can import results data for using the Data Load Layer (DLL). You can find the import methods in Customizing for the relevant process step under Methodology. Prerequisites You have created RDL result types. You have created RDL result views for results that are stored in a semantic cluster table. P U BL IC 177

178 Activities Use the Data Load Process of the Data Load Layer (DLL). Results That Can Be Imported RDL Result Type (Description) RDL Result Category Results Category (Description) Import Granularity _S_SLPD (Subledger Document) HFSPD 900 (Subledger Document) Not possible Subledger coding block _S_GLPD (General Ledger Document) HFSPD 950 (Classification Status/Holding Category) Not possible General ledger coding block _S_SCT_STS (Analytical Statuses) HKAAS 080 (Classification Status/Holding Category) Possible Contract or securities position 081 (Impairment Status) Possible 1 Contract or securities position / lot 082 (Write-Down Status) Mandatory Contract or securities position 083 (Accrual Status) Possible 1 Contract or securities position 084 (Asset/Liability Status) Not possible Contract or securities position 085 (Market Conformity Status) Mandatory Contract or securities position 086 (Fair Value Level) Possible Contract or securities position 087 (Term Segment) Possible Contract or securities position _S_SCT_STE (Analytical Statuses (Expectation-Based)) HKEAS 090 (Onerousness Status) Possible Profit recognition portfolio, actuarial portfolio, contract 178 P U B L I C

179 RDL Result Type (Description) RDL Result Category Results Category (Description) Import Granularity _S_SCT_TVE Target Values (Expectation- Based) HKETV 100 (Provision (Receivables/Payables)) 102 (BECF Adjustment (Locked-In Assumptions)) Possible Possible Actuarial portfolio, contract Actuarial portfolio, contract 104 (BECF Offset Amount (Contract Boundaries)) Possible Actuarial portfolio, contract 106 (BECF Offset Amount (New Business)) Possible Actuarial portfolio, contract 108 (BECF Offset Amount (Lifecycle)) Possible Actuarial portfolio, contract 110 (BECF Offset Amount (Inflation)) Possible Actuarial portfolio, contract 116 (Amortized Present Value (Risk- Free)) Possible Actuarial portfolio, contract 117 (Amortized Present Value (Inflation-Adj.)) Possible Actuarial portfolio, contract 118 (Amortized Present Value (Cred.- Rsk.Adj.)) Possible Actuarial portfolio, contract 119 (Amortized Present Value (Liq. Risk-Adj.)) Possible Actuarial portfolio, contract 120 (Amortized Present Value (Risk- Adjusted)) Possible Actuarial portfolio, contract 121 (Amortized Present Value (Prudence-Adj.)) Possible Actuarial portfolio, contract 130 (Present Value (Risk-Free)) Possible Actuarial portfolio, contract P U BL IC 179

180 RDL Result Type (Description) RDL Result Category Results Category (Description) Import Granularity Possible Actuarial portfolio, contract 132 (Present Value Possible Actuarial portfolio, contract 133 (Present Value 131 (Present Value (Inflation-Adjusted)) (Credit-Risk-Adjusted)) (Liquidity-Risk-Adjusted)) Possible Actuarial portfolio, contract 134 (Present Value (Risk-Adjusted)) Possible Actuarial portfolio, contract 135 (Present Value (Prudence-Adjusted)) Possible Actuarial portfolio, contract 140 (Cost-of-Capital Margin) Possible Actuarial portfolio, contract 150 (Deferred Profit) Possible Profit recognition portfolio, actuarial portfolio, contract 151 (Loss Component) Possible Profit recognition portfolio, actuarial portfolio, contract 152 (Premium Deficiency Reserve) Possible Profit recognition portfolio, actuarial portfolio, contract _S_SCT_TVL (Target Values) HKTVL (for result categories 010 and 015 also HKTVR) 005 (Price Gain/Loss) Possible Business transaction/ securities position (Accrual) Mandatory Contract 015 (Accrued Interest) Mandatory Securities 020 (Deferrals) Possible Contract or securities position / lot 025 (Amortized Cost) Possible Contract or securities position / lot 035 (Amortized Valuation Costs) Possible Contract or securities position / lot 180 P U B L I C

181 RDL Result Type (Description) RDL Result Category Results Category (Description) Import Granularity 050 (Credit Risk Adjustment) Possible Contract or securities position / lot 051 (Interest Rate Risk Adjustment) Possible Contract or securities position / lot 070 (Fair Value of Collateral) 075 (Fair Value) Mandatory Possible Contract or securities position / lot Contract or securities position / lot 200 (Statement About Contract Modification) Mandatory Contract or securities position / lot 800 (Free Line) Possible Contract 901 (Maturity Grouping) Possible Contract or securities position / lot S_CF (Cash Flow) HKCFR 250 (Contractual Cash Flow) Mandatory Contract or securities position 251 (Behavioral Cash Flow) Mandatory Contract or securities position 252 (Credit-Risk-Adjusted Cash Flow) Mandatory Contract or securities position S_BECF (Best Estimate Cash Flow) HKRIC 253 (Best Estimate Cash Flow) Mandatory Actuarial portfolio, contract 254 (Best Estimate Cash Flow (Locked- In)) Mandatory Actuarial portfolio, contract _S_SCT_PGD (Price Gain Determination) HKPGD 300 (Lot) Not possible Securities position/lot _S_SCT_IMP (Impairment) HKIMT 030 (Write-Down (Nominal)) Mandatory Contract or securities position 450 (Delinquency) Mandatory Contract 451 (Master Rating) Mandatory Contract or securities position P U BL IC 181

182 RDL Result Type (Description) RDL Result Category Results Category (Description) Import Granularity 452 (Probability of Default) Mandatory Contract or securities position 453 (Probability of Default (Subportfolio)) Mandatory Subportfolio 454 (Loss Given Default (Contract)) Mandatory Contract or securities position 455 (Loss Given Default (Subportfolio)) Mandatory Subportfolio 456 (Credit Conversion Factor (Contract)) Mandatory Subportfolio 457 (Credit Conversion Factor (Subportfolio)) Mandatory Subportfolio 458 (Impairment Processing Mode) Not possible Contract or securities position _S_SCR (Capital Requirement) HKRCR 530 (Predicted Solvency Capital) Possible Actuarial portfolio, contract _S_RT_PAD (PAD Rates) HKCFA 531 (Rates (Prudence Adjustment)) Possible Actuarial portfolio, contract _S_SCT_PRG (Deferred Profit) HKEPR 550 (Distribution Rate) Possible Actuarial portfolio, contract 551 (Interest Rate) Possible Actuarial portfolio, contract S_EPS (Profit Recognition Pattern) HKEPS 552 (Profit Recognition Pattern) Mandatory Actuarial portfolio, contract _S_SCT_PFA (Contract Portfolio Assignment) HKAPA 600 (Contract Portfolio Assignment) Mandatory Portfolio, contract or securities position _S_SCT_PFD (Portfolio Definition) HKAPD 601 (Portfolio Definition: Accounting Systems) Mandatory Portfolio 602 (Portfolio Definition: Deferred Profit) Mandatory Portfolio 182 P U B L I C

183 RDL Result Type (Description) RDL Result Category Results Category (Description) Import Granularity 603 (Portfolio Defini- Mandatory Portfolio tion: Actuarial Portf.) 604 (Portfolio Defini- Mandatory Portfolio tion: Asset/Liability Determination) _S_PSLPD (Prelimi HFSPD 905 (Preliminary Sub Not possible Contract or securities nary Subledger Docu ledger Document) position ment) Legend for the Import column: Not possible: The system is not designed to allow imports and does not support this. Possible: The system allows imports. Alternatively, the results can also be created by processes. If results are imported, the system applies these imported results and does not overwrite them with processes. Mandatory: An import is essential if the result is important. No processes are provided to create these results. Legend for the Granularity column: Results are expected in or created by Smart AFI either at the granularity level Financial Contract (or loan, referred to as Contract below), Security or Securities Position (combination of a security and a securities account contract). You can also manage information referring to securities positions at the granularity level Lot. In selected areas, Smart AFI allows you to define specific portfolios so that the relevant results can be managed at the granularity level (Portfolio) or (Subportfolio). 1 Note that the status can either be imported or determined by the Determine Impairment Attributes process (Impairment Attribute Determination = IAD). The IAD can override impairment and deferral statuses that are imported from external sources. You can prevent this by using results category 458 to set the impairment processing mode manually. 2 Price gains/losses are determined at the Business Transaction granularity level. The securities position is managed in the results in addition to the business transaction. Special Features Semantic cluster tables The following results storage locations are semantic cluster tables: Smart AFI: Analytical Status (_S_SCT_STAT) Smart AFI: Target Values (_S_SCT_TVAL) P U BL IC 183

184 Smart AFI: Price Gain Determination (_S_SCT_PGD) Smart AFI: Impairment (_S_SCT_IMP) Semantic cluster tables can contain several result categories that have semantic aspects in common and are read together in a process. The result categories that are stored together in a semantic cluster table are imported separately according to result category. To import the results categories, you need the RDL results views with a structure that matches the structure of the result category in each case. These RDL result views are provided in the Business Content. Related Information Results Data Layer (FS-BA-RD) Day Processing Day processing comprises the activities that are usually executed once or multiple times a day: Set Posting Date [page 184] Register [page 185] Capture (Central GAAP) [page 191] End-of-Day Processing (Business Transaction) [page 192] End-of-Day Processing (Contract) [page 197] Set Posting Date You use this transaction to define a posting date up to which the processes create posting documents for the specified source systems. For example, the Register process step processes business transactions only up to this posting date. Context Before you register business transactions and master data changes, you need to set a posting date for each source system. This date defines the latest posting date or the latest business record date for business transactions and master data changes that are transferred. The posting date is set as leading in the relevant operational system (source system) (opening of a posting day). By applying this date, accounting can determine whether a newly registered business transaction might be a correction (posting date (business transaction) < posting date (source system)) or whether this can be ruled out (posting date (business transaction) = posting date (source system)). It is also possible to not report the posting date in accounting until a posting date has been completely processed (in the subledger and if required in the general ledger), and required end-of-day and period-end 184 P U B L I C

185 processing has been executed. Therefore, the posting date for each source system must always be earlier than or equal to the posting date in the operational system. The earlier than results only from the requirement outlined previously. Procedure 1. On the SAP Easy Access screen, choose Bank Analyzer Processes and Methods Subledger Accounting Insurance Contracts Day Processing Set Posting Date. 2. Enter the latest posting date required and the source systems. 3. Choose Execute Register You use the Register process step to document in accounting all business transactions imported since it was last executed and all business transactions not completely or correctly processed in a previous register run. In addition, the system receives master data changes and analytical decisions, and marks the relevant contracts for end-of-day processing. Prerequisite for this is that the source system is relevant for Smart Accounting. You can schedule the Register process step to run as often as required during a day. Note If you start Register runs for different source systems, you need to take various dependencies into account. For more information, see Dependencies Between Source Systems [page 189]. Prerequisites You have made the settings in Customizing for Bank Analyzer under Processes and Methods Smart Accounting Process Steps for Insurance Contracts Register. In Customizing for Bank Analyzer under Processes and Methods Basic Settings Basic Settings Define Source Systems, you have made sure that the source system is relevant for. You have set the posting date. For more information, see Set Posting Date [page 184]. Activities On the SAP Easy Access screen, choose Bank Analyzer Processes and Methods Subledger Accounting Insurance Contracts Day Processing Register. P U BL IC 185

186 Register Business Transactions The Register process step transfers operational flow transactions (mapped in the SDL as business transactions) to, and documents these as subledger documents. The system only transfers business transactions to for which the following conditions apply: The posting date of the business transaction is before or the same as the posting date defined for Smart Accounting. The business transaction class of the business transaction is relevant for. Prerequisites In Customizing for Bank Analyzer under Processes and Methods Technical Settings Define Relevant Business Transaction Classes relevant for., you have made sure that the business transaction class is Process Register Business Transactions When the system registers a business transaction, it creates a central GAAP document for each business transaction item. For more information, see Central GAAP Approach [page 25]. The system specifies which subledger account groups are permitted for creating a subledger document in the Register process step. It determines the corresponding posting records with the specific subledger accounts from the business transaction data and the business transaction item. In this way, the system reduces detailed operational information to a few analytical consequences. For more information, see Customizing for Bank Analyzer under Processes and Methods Process Steps for Insurance Contracts Register Account Assignment. The system determines the subledger coding block [page 31] based on the following data: Business transaction header and item The first version (valid at the start of the subledger document posting date) of the following: The referenced contract The corresponding business partner The corresponding analytical status The system flags the contract affected by the business transaction item for end-of-day processing on the posting date of the created subledger document. Business Transaction in Foreign Currency If the transaction currency or the position currency in the business transaction item differs from the functional currency, the transaction is a foreign-currency-relevant scenario. The system translates the amounts in foreign currency using the exchange rate available in the system on the posting date of the business transaction and at the time of registration. 186 P U B L I C

187 The following foreign currency constellations are possible: 1. Position currency and transaction currency in the business transaction item are the same but differ from the functional currency. Both subledger accounts of the derived posting record belong to the financial statement segment Balance Sheet: Assets and Liabilities P&L in foreign currency: At least one of the subledger accounts of the derived posting record belongs to the financial statement segment Profit and Loss Statement. 2. Change of payment currency: Position currency and transaction currency in the business transaction item are different. In case 1, the subledger document of the Register process step creates preliminary currency positions. In case 2, the document also creates a preliminary equivalent value position, if required. In end-of-day processing (business transaction), the Move and Transform process step fixes the exchange rate and posts the amounts to the following accounts: P&L Currency Position Equivalent Value Position For more information, see the posting examples under Move and Transform [page 217]. Reversal Business Transaction only registers reversal business transactions that carry the business transaction items to be reversed. You need to define that these kinds of reversal business transactions are reversal business transactions by value. To do so, you first need to have made the appropriate setting in Customizing for the business transaction class. For more information, see Customizing for Bank Analyzer under Source Data Layer Primary Objects Flow Data Business Transactions Edit Business Transaction Classes. For documentation purposes, the reversal business transaction can optionally contain the reference to the reversed business transaction. The posting date of the reversal business transaction and the posting date of the reversed business transaction can differ. The registration of a reversal business transaction follows the same logic as the registration of a business transaction with the following differences: In the document, the system inverts the amount in transaction currency (in other words, it multiplies it by -1) while keeping the debit/credit indicator. (The amounts with a reference to other currencies are determined based on the amount in transaction currency according to the usual schema.) The reversal indicator is set in the document, and if available, the reference to the reversed business transaction. Business Transaction in a Closed Period If the posting date for a business transaction to be registered is in a closed period, the Register process step shifts the posting date of the subledger document to be created to the first day of the first open period for each business transaction item. The posting date of the business transaction remains in the document date of the subledger document from the Register process step for documentation purposes. In all other scenarios, the system creates subledger documents using the procedure as previously described. P U BL IC 187

188 For more information about opening and closing periods, see Close [page 232]. Error Situations (Suspense Accounting) Business transactions that the Register process step is unable to document correctly remain in the worklist for this process step until they have been processed correctly. For more information, see Suspense Accounting [page 245]. Related Information Central GAAP and Delta GAAP Approach [page 25] Register Master Data Changes The Register process step registers master data changes to contract and business partner data (mapped in the SDL as a new master data version) or in the portfolio created (mapped in the RDL). The system only transfers the master data changes to when the business date of the change is before or the same as the posting date set for. When a master data change is registered, the system marks the contracts or portfolios affected by the change for end-of-day processing (contract) on the business date of the change. For more information, see Master Data Change in End-of-Day Processing (Contract) [page 197] Register Analytical Decisions An analytical decision results from a change in an analytical status. The analytical statuses are as follows: Accrual status Write-down status Market conformity status Impairment status Holding category Fair value level Onerousness status Asset/liability status Term segment The change in analytical status is imported and, in the case of the onerousness status, term segment and the fair value level, it can also happen automatically. The asset/liability status is determined by the system. An analytical decision is dependent on the accounting principle (represented by the accounting system). 188 P U B L I C

189 The Register process step only transfers the analytical decisions to for which the business date of the decision is before or the same as the posting date set for. The system flags the contract, securities position or portfolio affected by the analytical decision for end-of-day processing for the accounting system of the analytical decision and for the leading accounting system on the business date of the change. For more information, see the Analytical Decision section under End-of-Day Processing (Contract) [page 197] Reregister Business Transactions If you want the system to register a business transaction, a master data change or an analytical decision with a posting date or business record date that is before the current posting date defined for, this is referred to as a correction. When the system registers a master data change or an analytical decision due to a correction, it flags already registered business transaction items for the affected contracts to be registered again. This applies more specifically to business transaction items for which the posting date of the corresponding Register subledger document is after the date of the correction and at the same time in an open period. Reregistering business transaction items only has consequences if the master data change or the analytical decision change the subledger coding block. For each affected business transaction item, the system creates an inversion document for the existing subledger document, and creates a subledger document for the business transaction item again. The system then marks the affected contracts for end-of-day processing on the date of the correction. For more information, see the Updating Executed Period-End Process Steps section under End-of-Day Processing (Contract) [page 197]. Related Information Dependencies Between Source Systems [page 189] Exclude Business Transactions from Reprocessing [page 243] Dependencies Between Source Systems If you start Register runs in parallel for different source systems, you need to take various dependencies into account. The source systems for the following data can all be different: Business transactions for contracts or securities positions Contract master data Portfolio master data P U BL IC 189

190 Master data for the relevant business partners Analytical decisions The Register process step can be executed at the same time in one run for several source systems. Dependencies in parallel Register runs If you have started several Register runs in parallel for different source systems, you need to take various dependencies into account. If you ignore these dependencies, lock conflicts can occur. These conflicts mean that objects are not processed and are put on hold for the next Register run. Lock conflicts for contracts Case 1 Register Run Source System Source System Data Constraints 1 A Business transactions Register runs 1 and 2 should 2 B Contract master data not be started in parallel. Case 2 Register Run Source System Source System Data Constraints 1 A Master data for the contract or portfolio Register runs 1 and 2 should not be started in parallel. 2 B Master data for the contract business partner or Analytical decisions Dependencies in reregistration If you register business transactions again, you need to take the following into account regarding the source systems: Change to master data of a contract The system reregisters the business transaction items in the same Register run only if you have specified the source system for the business transactions in addition to the source system for the contract master data. Otherwise, the system does not register them until the next run with the source system for the business transactions. Change to master data for a business partner of a contract or of an analytical decision: The system only reregisters the business transaction items in the same run if you have specified the following: the source system for the contract and the source system for the business transactions in addition to the source system for the master data of the business partner in the contract, and the source 190 P U B L I C

191 system for the analytical decision. Otherwise, the system does not register the business transaction items again until the relevant subsequent runs Capture (Central GAAP) The Capture (Central GAAP) process step is used to document actuarial expectations in accounting in the form of a best estimate cash flow (BECF). The process step reacts to the entry, update or reversal of a best estimate cash flow. Best estimate cash flow (BECF) The BECF contains all future expected payments for a payment category (premium, for example). It is not valuated and is not dependent on any accounting principle. You can view the payment categories and create your own, if required in Customizing for Bank Analyzer under Processes and Methods General Calculation and Valuation Methods Estimated Cash Flows for Insurance Products Define Cash Flow Payment Category. For more information about preparing the estimated cash flow, see Estimated Cash Flows for Insurance Products. The BECF comprises several cash flow items. The system separates these cash flow items according to whether they are expected, incurred, reported, due, or settled. This results in the following BECF lifecycle stages that map the complete lifecycle of a payment: Lifecycle Stage Description Example: Premium UBNI IBNR RBND DBNS STTL Ultimate but not incurred Incurred but not reported Reported but not due Due but not settled Settled The expected premium payment for an insurance contract. The insurer s entitlement to the premium payment begins. The premium payment has been invoiced. The premium payment is due but has not yet been paid. The premium has been paid. The system creates central GAAP posting documents from the cash flow items as a result. Prerequisites You have imported results. Importing Results and Granularity [page 177]. You have made the settings in Customizing for Bank Analyzer under Processes and Methods Smart Accounting Process Steps for Insurance Contracts Capture (Central GAAP). P U BL IC 191

192 You have run the Set Posting Date [page 184] transaction. Activities On the SAP Easy Access screen, choose Bank Analyzer Processes and Methods Subledger Accounting Insurance Contracts Day Processing Capture (Central GAAP). Related Information Capture (Delta GAAP) [page 202] End-of-Day Processing (Business Transaction) End-of-Day Processing (Business Transaction) generates business transaction-based postings on the basis of the business transactions registered for a posting date, for all accounting systems in a legal entity. The Move and Transform (Business Transaction) process step fixes the currency rates for registered FX-relevant business transactions. This process step is used for transactions on securities positions and contracts. If a scenario for a securities position (such as a business transaction, master data change or analytical decision) registered by the Register process step is before the Move and Transform (Business Transaction) step that has already been executed in End-of-Day Processing (Business Transaction), the system executes the process step again in End-of-Day Processing (Business Transaction). For contracts, this only applies if the system registers scenarios that result in a change to the subledger coding block (such as a master data change, or analytical decision). The reference value relevant for a registered business transaction is the posting date of the Register subledger document. This means that the system re-runs all the business transaction-related steps for the relevant contract or securities position that were run on a key date later than the posting date of the Register subledger document. The reference value relevant for a master data change or an analytical decision is the business record date of the change if it is in an open period. Otherwise, it is the first day of the next open period after the change. Prerequisites You have executed the Register process step. The foreign exchange rates have been imported (for example, the day's mid-market rate). 192 P U B L I C

193 Activities On the SAP Easy Access screen, choose Bank Analyzer Processes and Methods Subledger Accounting Insurance Contracts Day Processing End-of-Day Processing (Business Transaction). Related Information Move and Transform (Business Transaction) [page 193] Move and Transform (Business Transaction) The Move and Transform (Business Transaction) process step involves the same-day fixing of foreign currency amounts for business transactions based on the exchange rates valid at the end of the day. The system processes the data during end-of-day processing. The following cases are possible: 1. The Register process step registers business transactions that contribute to the profit and loss statement and that have a transaction currency that differs from the functional currency. You want the system to fix these contributions on the same day. Since the exchange rate valid at the end of the day is not yet known during the Register run, the system posts these contributions to the preliminary P&L. After the exchange rates have been imported, end-of-day processing fixes the foreign currency amounts with the required exchange rate and posts the amount to the P&L. 2. The Register process step registers business transactions with payments in a transaction currency that differs from the contract currency (payment currency change). Since the exchange rate valid at the end of the day is not yet known during the Register run, the system posts the amounts in foreign currency to a preliminary currency position. After the day's mid-market rates have been imported, end-of-day processing fixes the required exchange rate and creates the currency position. The following examples illustrate the posting logic. The functional currency is EUR. Example P&L Business transaction Contract currency 100 USD Transaction currency 100 USD Exchange Rates Exchange rate on January 21 (start of day) USD 1.00 EUR 0.80 P U BL IC 193

194 Exchange Rates Exchange rate on January 21 (end of day) USD 1.00 EUR 0.90 Process Step D/C Subledger Account Transaction Currency Functional Currency January 21 (day processing) Register D Unpaid Principal Balance (UPB) USD 100 EUR 80 January 21 (day processing) Register C Unremitted Interest Income USD -100 EUR -80 January 21 (end of day) Move and Transform D Unremitted Interest Income USD 100 EUR 90 January 21 (end of day) Move and Transform C Currency Position Income Statement USD -100 EUR -90 January 21 (end of day) Move and Transform C Interest Income EUR -90 EUR -90 January 21 (end of day) Move and Transform D Equivalent Value USD EUR 90 EUR 90 In this example, it is assumed that the posting record derived for the business transaction in the Register process step contains the subledger accounts Unpaid Principal Balance (UPB) and Interest Income. Since the subledger account Interest Income is a P&L account, and since the transaction amount differs from the functional currency, the system replaces the subledger account Interest Income in the Register process step with the corresponding preliminary subledger account Unremitted Interest Income. In the Move and Transform process step, the system makes a transfer posting from the preliminary currency positions to the currency positions. The system also creates the equivalent values. Example Change of payment currency For the payment currency change, it is assumed that the posting record derived for the business transaction in the Register process step contains the subledger accounts Unpaid Principal Balance (UPB) and In-Transit. Since the transaction currency differs from the contract currency (payment currency change), the Register process step also creates preliminary currency positions. In the Move and Transform process step, the system makes a transfer posting from the preliminary currency positions to the currency positions. The system also creates the equivalent values. In Customizing under Bank Analyzer Processes and Methods Basic Settings Accounting System Define Accounting System, you can specify the currency exchange methodology for each accounting system. You can choose between the leading currency approach and the implicit fee. 194 P U B L I C

195 Business transaction Contract currency 100 USD Transaction currency 66 GBP Exchange Rates Exchange rate on January 21 (start of day) Exchange rate on January 21 (end of day) USD 1.00 EUR 0.80 GBP 1.00 EUR 1.20 USD 1.00 EUR 0.90 GBP 1.00 EUR 1.30 Leading currency In this approach, the system determines the leading currency from the contract currency and transaction currency in the business transaction, and translates only the leading currency amount into the equivalent value in functional currency. It then also uses this equivalent value as the equivalent value for the amount in the non-leading currency. Process Step D/C Subledger Account Transaction Currency Functional Currency January 21 (day processing) Register D Unpaid Principal Balance (UPB) USD 100 EUR 80 January 21 (day processing) Register C Preliminary Currency Position USD -100 EUR -80 January 21 (day processing) Register C In-Transit GBP -66 EUR January 21 (day processing) Register D Preliminary Currency Position GBP 66 EUR January 21 (end of day) Move and Transform D Preliminary Currency Position USD 100 EUR 90 January 21 (end of day) Move and Transform C Currency Position Balance Sheet USD -100 EUR -90 January 21 (end of day) Move and Transform C Preliminary Currency Position GBP -66 EUR -90 January 21 (end of day) Move and Transform D Currency Position Balance Sheet GBP 66 EUR 90 January 21 (end of day) Move and Transform D Equivalent Value USD EUR 90 EUR 90 P U BL IC 195

196 Process Step D/C Subledger Account Transaction Currency Functional Currency January 21 (end of day) Move and Transform C Equivalent Value GBP EUR -90 EUR -90 Implicit fee In this approach, the system does not determine a leading currency. It translates each currency separately. This results in a difference, which the system records as an implicit fee. Process Step D/C Subledger Account Transaction Currency Functional Currency January 21 (day processing) Register D Unpaid Principal Balance (UPB) USD 100 EUR 80 January 21 (day processing) Register C Preliminary Currency Position USD -100 EUR -80 January 21 (day processing) Register C In-Transit GBP -66 EUR January 21 (day processing) Register D Preliminary Currency Position GBP 66 EUR January 21 (end of day) Move and Transform D Preliminary Currency Position USD 100 EUR 90 January 21 (end of day) Move and Transform C Currency Position Balance Sheet USD -100 EUR -90 January 21 (end of day) Move and Transform C Preliminary Currency Position GBP -66 EUR January 21 (end of day) Move and Transform D Currency Position Balance Sheet GBP 66 EUR January 21 (end of day) Move and Transform D Equivalent Value USD EUR 90 EUR 90 January 21 (end of day) Move and Transform C Equivalent Value GBP EUR EUR January 21 (end of day) Move and Transform C Implicit Fee EUR EUR P U B L I C

197 End-of-Day Processing (Contract) In contract-related processing, end-of-day processing reacts to new and changed best estimate cash flows (BECF) that were registered in the Capture (Central GAAP) process step. 1. Recognizing best estimate cash flows Provided that you have defined the appropriate change drivers as triggers for end-of-day processing in Customizing (see Prerequisites ), the system marks the relevant contracts for end-of-day processing on the same posting date. During end-of-day processing the system runs all process steps from Capture (Delta GAAP) to Value FX. If income or expense has been entered in foreign currency, the system then runs the Move and Transform process step. For more information, see the contract-related Move and Transform documentation. 2. Master data change For a master data change that changes the subledger coding block for the insurance contract, end-of-day processing closes the period for the contract for all accounting systems (assigned to the legal entity). It does so by executing appropriate period-end process steps using the subledger coding block before the master data change. As a result, the system assigns the determined contributions to the profit and loss statement (P&L) to the subledger coding block before the master data change. Afterwards, the Classify process step reclassifies the position balances to the updated subledger coding block. For a master data change in a closed period, end-of-day processing does not close the period but simply executes the Classify process step at the start of the first day of the first open period after the master data change. Example At the end of every month the system updates the position components. During the period (for example, on March 15), there is an indirect change to the profit center due to a change in the contract manager. The system needs to assign the calculated amounts for the profit and loss statement that have arisen up to and including March 15 to the old profit center. The new profit center then receives all amounts that arise as of March 16. To enable this, the system executes the process steps of period-end processing in end-of-day processing for the relevant contract only. 3. Analytical decision For an analytical decision (due to a change in analytical status) for a contract, end-of-day processing closes the period for the accounting system of the analytical decision for the contract using the subledger coding block before the analytical status change. As a result, the system assigns the P&L contributions determined when the period was closed to the subledger coding block before the analytical status change. You first run end-of-day processing for the leading accounting system (of the relevant legal entity). If the accounting system of the analytical decision is the same as the accounting system of the legal entity, the system executes all of end-of-day processing up to the Recognize Profit step. If the accounting system of the analytical decision is not the same as the leading accounting system of the legal entity, the system executes only the Accrue and Capture (Central GAAP) steps for the contract on the date of the analytical decision. End-of-day processing for the (non-leading) accounting system of the analytical decision executes the remaining period-end process steps required for closing the period. In the Classify process step, it then reclassifies the position balances to the updated subledger coding block after the analytical status change. For an analytical decision in a closed period, end-of-day processing does not close the period but simply executes the Classify process step at the start of the first day of the first open period after the analytical decision. P U BL IC 197

198 4. Updating executed period-end process steps (correction scenario) If a scenario (BECF) registered by the Capture (Central GAAP) process step is before a contract-related, period-end process step (that has already been executed in end-of-day processing or period-end processing), the system executes the process step again in end-of-day processing. The reference value relevant for a registered BECF and an analytical decision is the key date; for a master data change the business date of the change is relevant. The system derives the posting date from these reference values. If the period is closed, the system moves the posting date to the first day of the next open period, but not the date of the subledger document. The system re-runs all the period-end process steps for the relevant contract that were executed on a key date later than or the same as the posting date of the Capture subledger document. Note The system does not update cross-contract period-end processing automatically. We recommend that you execute cross-contract period-end processing again before you close a period. Prerequisites The Capture (Central GAAP) process step has been run on an event-driven basis. Business-transaction-based end-of-day processing has been run. If you want the registration of new or changed cash flows (BECF) to trigger end-of-day processing, you need to activate the relevant change drivers in Customizing for Bank Analyzer under Processes and Methods Process Steps for Insurance Contracts Basic Settings Define Change Drivers for End-of-Day Processing. For changes to the subledger coding block, the following applies: If you do not want the system to calculate target values but want to import them, you also need to ensure that you provide target values for updating position components for the day of the update. Activities On the SAP Easy Access screen, choose Bank Analyzer Processes and Methods Subledger Accounting Insurance Contracts Day Processing End-of-Day Processing (Contract). Related Information Capture (Central GAAP) [page 191] Period-End Processing [page 199] Move and Transform (Contract) [page 222] 198 P U B L I C

199 1.7.3 Period-End Processing Period-end processing updates position components to fulfil a balance sheet reporting requirement. For this, you need to define which position components (and the resulting profit and loss statement) need to be provided in updated form for which source systems and for which GAAP, and how frequently this needs to be done. In period-end processing, you can also open and close posting periods. Period-End Processing (Contract) Contract-based period-end processing allows you to execute the following process steps: 1. Accrue 2. Capture (Central GAAP) / periodic 3. Capture (Delta GAAP) 4. Unwind and Release 5. Value TC 6. Recognize Profit 7. Move and Transform 8. Value FX 9. Classify Period-End Processing (Cross-Contract) Cross-contract period-end processing executes the Value FX step for subledger accounts that are managed at cross-contract granularity level (dimensions of financial statement entities). Subledger accounts that are managed at cross-contract granularity level are suspense accounts. These are created in double-entry bookkeeping when operational flow transactions are documented in accounting between several contracts and/or several source systems. Prerequisites Period-end processing (contract-based) You have executed end-of-day processing for the business transaction and contract up to and including the posting date for the period-end processing that you want to execute. Period-end processing (cross-contract) You have executed contract-based period-end processing for all source systems that provide amounts on subledger accounts that are updated in cross-contract period-end processing. P U BL IC 199

200 Activities To execute contract-based period-end processing, on the SAP Easy Access screen, choose Bank Analyzer Processes and Methods Subledger Accounting Insurance Contracts Period-End Processing Period-End Processing (Contract). To execute cross-contract period-end processing, on the SAP Easy Access screen, choose Bank Analyzer Processes and Methods Subledger Accounting Insurance Contracts Period-End Processing Period-End Processing (Cross-Contract). Enter the following parameters when you execute the process: Legal entity Accounting system Source system (only for contract-based processing) Posting date Period closing variant Special period You need to enter a special period only if you execute period-end processing on the last day of a fiscal year and your fiscal year variant has special periods. Related Information Processes for Insurance Contracts [page 168] Accrue [page 97] Capture (Central GAAP) [page 191] Capture (Delta GAAP) [page 202] Unwind and Release [page 204] Value TC [page 208] Move and Transform [page 217] Value FX [page 223] Classify [page 226] Accrue The Accrue process step documents changes to accruals for financial contracts and changes to individual claim reserves for insurance contracts. For insurance contracts, the changes are documented at actuarial granularity level. The system updates the accounting balance of accruals (subledger account groups and ) for a specified posting date at the granularity level of the individual contract. For securities it updates it at the granularity level of securities position or lot. The system generates subledger documents specifically for the 200 P U B L I C

201 relevant accounting standard. The balance of an accrual belongs to the contract-managing system and must be imported from it. You also have the option of creating custom methods for this process step. The process step is only executed for the leading accounting system. Prerequisites You have viewed the methods for the Accrue process step or have created custom methods and have defined how they are derived in Customizing for Bank Analyzer under Processes and Methods Smart Accounting Process Steps for Insurance Contracts Accrue Methods. You have viewed the subledger accounts for the Accrue process step in Customizing for Bank Analyzer under Processes and Methods Process Steps for Insurance Contracts Accrue Subledger Chart of Accounts. You have viewed the combination of subledger accounts provided by SAP for postings in the Accrue process step, have edited these, or added your own combinations in Customizing for Bank Analyzer under Processes and Methods Process Steps for Insurance Contracts Accrue Account Assignment. If required, you have made more detailed settings for the assignment of accounts for expense and income by specifying change reasons. If you are importing several accrual items (/BA1/C55ACCAT) for the same contract, you have assigned these to one or more subledger accounts. In Customizing for Bank Analyzer, under Processes and Methods Technical Settings Define Results Storage, you have defined where accrual results ( 010 ) and accrued interest ( 015 ) are stored in the Results Data Layer (RDL). You have imported the relevant accrual items using the Data Load Layer, and stored them in the Results Data Layer. Process To update the accounting balance of an accrual, the system determines the balance from the subledger documents on the relevant subledger accounts (actual value) and compares this to the imported target balance (target value). The difference is documented as a subledger document. Note If you do not import a target value, the system uses 0 as the target balance. Background An accrual is the assignment of future expense or income to the appropriate period in which it is recognized. Reporting income and expense in the correct accounting period is one of the main tasks of accounting. P U BL IC 201

202 The following example illustrates how the accruals for a time deposit with the following parameters develop: Interest payment at maturity Term: 1 year 100 MU paid into time deposit Interest rate 12 % p.a. Accruals = 1% p.m. = 1 MU per month Based on this data, the accruals develop as illustrated in the figure below (at the end of the term they are cleared by the payment of the interest amount to the customer): At the end of the one-year term, the total of accrual items and long term receivables is 112 MU because interest of 12 GE (1 MU per month) has been posted. Related Information Period-End Processing [page 199] Central GAAP and Delta GAAP Approach [page 25] SAP Note Change Reasons [page 174] Capture (Delta GAAP) The Capture (Delta GAAP) process step adjusts a best estimate cash flow (BECF) to meet the requirements of specific accounting principles (GAAPs). To do so, the system applies GAAP-specific time filters and risk adjustments to the BECF that was created beforehand in the Capture (Central GAAP) process step. This adjusted BECF is then used in the subsequent steps as the basis for the cash-flow-based calculation methods. 202 P U B L I C

203 Prerequisites The process step Capture (Central GAAP) has been run and best estimate cash flows are available. You have made settings in Customizing for Bank Analyzer under Processes and Methods Process Steps for Insurance Contracts Capture (Delta GAAP) : Under Methods you have viewed the methods for the Capture (Delta GAAP) process step, and if necessary enhanced these or created custom methods. Under Capture Groups you have defined combinations of methods for the Capture (Delta GAAP) process step and how they are commonly derived. Under Subledger Chart of Accounts, you have viewed the subledger accounts for the process step Capture (Delta GAAP), if necessary. Under Account Assignment, you have viewed the combinations of subledger accounts for postings in the Capture (Delta GAAP) process step that are provided by SAP and, if necessary, edited these or added custom combinations. If required, you have made more detailed settings for the assignment of accounts for expense and income by specifying change reasons. Methodologies You can use the cash flow-based determination method to determine target values in the Capture (Delta GAAP) process step: Use an Alternative Cash Flow The calculation method provided by SAP for the use of an alternative cash flow defines the result category for all methods for the Capture (Delta GAAP) process step. This result category groups the result types for which results are to be stored for each accounting system. The Capture (Delta GAAP) process step uses the current best estimate cash flow (result category 253) by default. If you derive the method for using an alternative cash flow, the system uses the best estimate cash flow that is based on the locked-in actuarial assumptions at the time the contract was concluded or on subsequent changes in actuarial expectations (result category 254). Filter by Contract Boundaries The calculation methods provided by SAP filter items out of the best estimate cash flow, based on contract boundaries. This means you can exclude cash flow items that belong to unconfirmed coverage periods or coverage periods that have not started. To enable this, the system evaluates the fields Start of Next Coverage Period and/or Confirmation of Next Coverage Period in the BECF. The Use Maximum Due Date checkbox in Customizing defines whether the subsequent coverage period is visible early in the balance sheet as soon as a premium is set to settled or due in the current coverage period. The system only evaluates this field for premium payments. Filter New Business The calculation methods provided by SAP filter items out of the best estimate cash flow in the following cases: P U BL IC 203

204 An expected contract has not yet been concluded on the evaluation key date. A contract has been concluded but premiums have not yet been paid on the evaluation key date. This allows you to exclude premiums, claims and all other expected payments that relate to contracts that have not yet been concluded at the time of your evaluation (expected new business). The system evaluates the Inception of Underlying Contract field in the BECF. Take Lifecycle Stages into Account The calculation methods provided by SAP define as of which lifecycle stage a cash flow item appears on the balance sheet. The system does not register the transition to the new lifecycle stage as initial recognition until a cash flow item reaches the date defined in the method (for example, due date). In the preceding lifecycle stages, the system processes the item in the usual way. However, the Recognize Profit process step ensures that the item does not appear on the balance sheet. To enable this, the system evaluates the fields Incurred Date, Reported Date, Due Date or Settled Date in the BECF. For more information about the lifecycle stages of expected payments, see Capture (Central GAAP) [page 191]. Inflation Adjustment The calculation method provided by SAP adjusts the amounts of the best estimate cash flow for inflation. You define the inflation index used for this in the legal entity. The method applies the inflation index to all the cash flow items and posts the difference as inflation adjustment Unwind and Release The process step Unwind and Release documents adjustments for risks and for prudence. During the cashflow-based determination of adjustments to the best estimate cash flow (BECF), the market data that was valid at initial recognition is locked-in and, depending on Customizing settings, is only updated for specific change reasons. In the Value TC process step, however, the cash-flow-based determination of adjustments uses the current market data. The Unwind and Release process step is an analytical process step with GAAP-dependent results that are documented as delta GAAP documents. The calculators for individual risks and the prudence principle provide the target values for the accounting documentation of adjustments. To do so, the calculators determine the methodology to be used in Customizing, depending on the accounting system. 204 P U B L I C

205 Prerequisites You have made the following settings in Customizing for Bank Analyzer under Process Steps for Insurance Contracts Unwind and Release : Processes and Methods Under Methods Adjustment for Risks or Adjustment for Prudence you have viewed the methods provided by SAP for the relevant methodology and have edited the properties, if required. If necessary, you have added custom methods. You have defined derivation rules under Derive Methods. Under Account Assignment Assign Subledger Accounts, you have viewed the combinations of subledger accounts for postings in the Unwind and Release process step that are provided by SAP and, if necessary, edited these or added custom combinations. Under Technical Settings Define Results Storage you have set up the results storage for the following result categories: 116(Amortized Present Value (Risk-Free)) 117(Amortized Present Value (Inflation Risk-Adjusted)) 118(Amortized Present Value (Credit Risk-Adjusted)) 119(Amortized Present Value (Liquidity Risk-Adjusted)) 120(Amortized Present Value (Risk-Adjusted)) 121(Amortized Present Value (Prudence-Adjusted)) Determination of Adjustment for Risks The following methodologies are available for determining adjustment for risks: Import Contract-based determination Cash-flow-based determination Custom determination Interest rate risk Adjustments are documented on the balance sheet subledger account (Interest Rate Risk Adjustment (Locked-In)). Inflation risk Adjustments are documented on the balance sheet subledger account (Inflation Risk Adjustment (Locked-In)). Credit risk Adjustments are documented in the balance sheet subledger account (Credit Risk Adjustment (Locked-In)). Liquidity risk Adjustments are documented on the balance sheet subledger account (Liquidity Risk Adjustment (Locked-In)). P U BL IC 205

206 Other risks Adjustments are documented on the balance sheet subledger account (Other Risk Adjustment (Locked-In)). Determination of Adjustments for Prudence The following methodologies are available for determining adjustments for prudence: Import Contract-based determination Cash-flow-based determination Custom determination Adjustments for prudence are documented on the balance sheet subledger account (Prudence Adjustment (Locked-In)). Account Assignment You can define the offsetting account for an adjustment documented on a balance sheet subledger account more specifically as an expense or income account by specifying payment categories and change reasons. Related Information Cash-Flow-Based Determination of Adjustments [page 206] Cash-Flow-Based Determination of Adjustments For the cash-flow-based determination of adjustments for risks and for prudence, the system calculates the target value (net present value) by discounting the best estimate cash flow (BECF) using the discount factor of the relevant forward yield curve in the market data. The following data is relevant for creating the forward yield curve in the market data: Market data area of legal entity Yield curve type (depending on the payment category) Validity date Horizon date Currency Different yield curve types are used to represent the individual risks and the principle of prudence. You can use spread curve types and composite yield curve types for this. 206 P U B L I C

207 Prerequisites In Customizing for Market Data (BS-FND-MKD) under Interest, you have made settings in the Customizing activity Edit Reference Interest Rates and Yield Curves, and if required the Customizing activities Edit Spread Curve Types and Edit Composite Yield Curve Types. You have taken note of the following settings provided by SAP in Customizing for Bank Analyzer under Processes and Methods Processes for Insurance Contracts Unwind and Release or Value TC under Methods, and have made your own settings or created custom methods if required: Under Adjustment for Risks and Adjustment for Prudence in the Customizing activity Define Methods for Cash-Flow-Based Determination under Properties, you can specify the following for each method: Whether the system uses the incurred date, reported date, due date or settled date as the discounting date For the Value TC process step, whether the system uses the current posting date, the start of the current posting period or the start of the current fiscal year as the validity date in the market data For each method under Properties Yield Curves you can define for each payment category which yield curve type is used for determining the discount factor in the market data or whether no discounting is applied (Do Not Discount checkbox). Note If you do not enter a payment category, your settings apply to all payment categories for which you have not made a specific entry. In the Unwind and Release process step under Properties Change Reasons, you can also define for each method which of the following change reasons triggers a change in the validity date used in the market data: 505 (Experience Variance (Model-Driven)) 506 (Experience Variance (Contract-Based)) 600 (Assumption Change (Underwriting Risks)) 601 (Assumption Change (Investment Risk)) 605 (Methodology Change) In Customizing for Bank Analyzer under Processes and Methods Results Data Layer Basic Settings Edit Results Data Area and Edit Data Structures in Results Data Area, you have defined the results storage for BECFs. In Customizing for Bank Analyzer under Processes and Methods Technical Settings Define Results Storage, you have set up the results storage for the following result categories: 253 (Best Estimate Cash Flow) 254 (Best Estimate Cash Flow (Locked-In)) For more information, see the documentation in the Customizing activities in the system. P U BL IC 207

208 Process The procedure for creating the forward yield curve differs for the process steps Unwind and Release and Value TC as follows: Unwind and Release The system first uses the date of initial recognition (change reasons 100 (Initial Recognition) and 105 (Initial Recognition (Contract Boundaries)) as the validity date. When a BECF change occurs that triggers a new validity date based on your Customizing settings, the system uses the date of the new BECF version as the new validity date. Value TC Depending on your Customizing settings, the system always uses either the current posting date, the start of the current posting period or the start of the current fiscal year as the validity date. Since the adjustments are made during end-of-day processing, the horizon date is one day after the evaluation key date (t). The evaluation key date is therefore part of the calculation. The system uses the forward yield curve and the discounting date (t i ) to determine the discount factor for the relevant due date. Depending on your Customizing settings, the system uses the incurred date, reported date, due date or settled date as the basis for the discounting date. The system then calculates the net present value (NPV) by discounting the BECF with the discount factor (DF) of the forward yield curve using the following formula: Related Information Yield Curves Value TC The process step value TC documents adjustments for risks and for prudence. Depending on Customizing settings, the system uses current or periodically updated market data for the cash-flow-based determination of adjustments to the best estimate cash flow (BECF). In addition, the process step documents the margin for the regulatory cost of capital. The Value TC process step is an analytical process step with GAAP-dependent results that are documented as delta GAAP documents. The calculators for individual risks, the prudence principle, and the margin provide the target values for the accounting documentation. To do so, the calculators determine the methodology to be used in Customizing, depending on the accounting system. 208 P U B L I C

209 Prerequisites You have made the following settings in Customizing for Bank Analyzer under Process Steps for Insurance Contracts Value TC : Processes and Methods Under Methods Adjustment for Risks or Adjustment for Prudence or Margins you have viewed the methods provided by SAP for the relevant methodology and have edited the properties, if required. If necessary, you have added custom methods. You have defined derivation rules under Derive Methods. Under Account Assignment Assign Subledger Accounts, you have viewed the combinations of subledger accounts for postings in the Value TC process step that are provided by SAP and, if necessary, edited these or added custom combinations. Under Technical Settings Define Results Storage you have set up the results storage for the following result categories: 130(Present Value (Risk-Free)) 131(Present Value (Inflation Risk-Adjusted)) 132(Present Value (Credit Risk-Adjusted)) 133(Present Value (Liquidity Risk-Adjusted)) 134(Present Value (Risk -Adjusted)) 135(Present Value (Adjusted for Prudence)) 140(Cost-of Capital Margin) Determination of Adjustment for Risks The following methodologies are available for determining adjustment for risks: Import Contract-based determination Cash-flow-based determination Custom determination Interest rate risk Adjustments are documented on the balance sheet subledger account (Interest Rate Risk Adjustment). Inflation Risk Adjustments are documented on the balance sheet subledger account (Inflation Risk Adjustment). Credit risk Adjustments are documented on the balance sheet subledger account (Credit Risk Adjustment) document. Liquidity risk Adjustments are documented on the balance sheet subledger account (Liquidity Risk Adjustment). P U BL IC 209

210 Other risks Adjustments are documented on the balance sheet subledger account (Other Risk Adjustment). Determination of Adjustments for Prudence The following methodologies are available for determining adjustments for prudence: Import Contract-based determination Cash-flow-based determination Custom determination Adjustments for prudence are documented on the balance sheet subledger account (Prudence Adjustment). Determination of Margins The following methodologies are available for determining margins: Import Contract-based determination Cost-of-capital methods Custom determination The margin for regulatory cost-of-capital is documented on the balance sheet subledger account (Margin (Risk Capital Costs) Account Assignment You can define the offsetting account for an adjustment documented on a balance sheet subledger account depending on the valuation approach. This can specifically help you to control whether any income or expense that occurs is recognized through profit and loss or directly in equity. If required, you can make more detailed settings for the assignment of accounts for expense and income by specifying payment categories and change reasons. Related Information Cash-Flow-Based Determination of Adjustments [page 206] Determination of Margins [page 213] 210 P U B L I C

211 Cash-Flow-Based Determination of Adjustments For the cash-flow-based determination of adjustments for risks and for prudence, the system calculates the target value (net present value) by discounting the best estimate cash flow (BECF) using the discount factor of the relevant forward yield curve in the market data. The following data is relevant for creating the forward yield curve in the market data: Market data area of legal entity Yield curve type (depending on the payment category) Validity date Horizon date Currency Different yield curve types are used to represent the individual risks and the principle of prudence. You can use spread curve types and composite yield curve types for this. Prerequisites In Customizing for Market Data (BS-FND-MKD) under Interest, you have made settings in the Customizing activity Edit Reference Interest Rates and Yield Curves, and if required the Customizing activities Edit Spread Curve Types and Edit Composite Yield Curve Types. You have taken note of the following settings provided by SAP in Customizing for Bank Analyzer under Processes and Methods Processes for Insurance Contracts Unwind and Release or Value TC under Methods, and have made your own settings or created custom methods if required: Under Adjustment for Risks and Adjustment for Prudence in the Customizing activity Define Methods for Cash-Flow-Based Determination under Properties, you can specify the following for each method: Whether the system uses the incurred date, reported date, due date or settled date as the discounting date For the Value TC process step, whether the system uses the current posting date, the start of the current posting period or the start of the current fiscal year as the validity date in the market data For each method under Properties Yield Curves you can define for each payment category which yield curve type is used for determining the discount factor in the market data or whether no discounting is applied (Do Not Discount checkbox). Note If you do not enter a payment category, your settings apply to all payment categories for which you have not made a specific entry. In the Unwind and Release process step under Properties Change Reasons, you can also define for each method which of the following change reasons triggers a change in the validity date used in the market data: 505 (Experience Variance (Model-Driven)) 506 (Experience Variance (Contract-Based)) 600 (Assumption Change (Underwriting Risks)) P U BL IC 211

212 601 (Assumption Change (Investment Risk)) 605 (Methodology Change) In Customizing for Bank Analyzer under Processes and Methods Results Data Layer Basic Settings Edit Results Data Area and Edit Data Structures in Results Data Area, you have defined the results storage for BECFs. In Customizing for Bank Analyzer under Processes and Methods Technical Settings Define Results Storage, you have set up the results storage for the following result categories: 253 (Best Estimate Cash Flow) 254 (Best Estimate Cash Flow (Locked-In)) For more information, see the documentation in the Customizing activities in the system. Process The procedure for creating the forward yield curve differs for the process steps Unwind and Release and Value TC as follows: Unwind and Release The system first uses the date of initial recognition (change reasons 100 (Initial Recognition) and 105 (Initial Recognition (Contract Boundaries)) as the validity date. When a BECF change occurs that triggers a new validity date based on your Customizing settings, the system uses the date of the new BECF version as the new validity date. Value TC Depending on your Customizing settings, the system always uses either the current posting date, the start of the current posting period or the start of the current fiscal year as the validity date. Since the adjustments are made during end-of-day processing, the horizon date is one day after the evaluation key date (t). The evaluation key date is therefore part of the calculation. The system uses the forward yield curve and the discounting date (t i ) to determine the discount factor for the relevant due date. Depending on your Customizing settings, the system uses the incurred date, reported date, due date or settled date as the basis for the discounting date. The system then calculates the net present value (NPV) by discounting the BECF with the discount factor (DF) of the forward yield curve using the following formula: Related Information Yield Curves 212 P U B L I C

213 Determination of Margins In the Value TC process step, you can determine the margin for the regulatory cost of capital. Prerequisites You have created yield curves for the types SCAP (cost-of-capital) and SGOV (government bond yield curves (risk-free)) in the market data. In Customizing, choose Financial Services Foundation Market Data Interest Edit Reference Interest Rates and Yield Curves. You have imported a risk capital vector to the Results Data Layer (RDL). For further prerequisites, see Value TC [page 208]. Cost-of-Capital Methods An insurance company creates underwriting reserves for expected payments to be made to the policyholder in accordance with the insurance contract. To meet regulatory requirements, you attribute a risk margin to the best estimate value of these reserves. The margin can be determined using a cost-of-capital approach. This margin for the regulatory cost of capital is the present value of the opportunity costs for the equity of the insurance company. The insurance company incurs opportunity costs (costs for lost interest profit) because it must invest a part of the premium income received in low-risk investments; it is not permitted to invest at its discretion. The system calculates the margin for the regulatory cost of capital according to the following formula: RC rc k-1 R rc k-1,k R k-1,k d t,k Risk capital vector Risk cost-of-capital rate Interest rate (risk-free) Discount factor (risk-free) The system multiplies the risk capital vector (the projected solvency capital over the life of the entire cash flow) with the difference between the following interest rates: the risk cost-of-capital rate (determined from the costof-capital curve) and the interest rate determined from the risk-free yield curve. The result is multiplied by the discount factor from the risk-free yield curve. P U BL IC 213

214 Recognize Profit The Recognize Profit process step documents deferred profit and its recognition. The following processes are run: 1. Calculate Deferred Profit: You can calculate deferred profit at portfolio or at contract level. If you calculate at portfolio level, the system first calculates the deferred profit at individual contract level and then totals this at portfolio level. A separate calculator run is required. In order to do so, you need to have run all previous processes for the contract source system successfully. If you calculate at contract granularity, a separate calculator run is not required. You can call the calculator on the fly from the Recognize Profit step. See also the Methods for Cash-Flow-Based Determination of Deferred Profit section. On the SAP Easy Access screen, choose Bank Analyzer Processes and Methods Subledger Accounting Insurance Contracts Preparatory Processing Determine Target Values Calculate Deferred Profit. 2. Define Onerousness Status: When you calculate deferred profit at portfolio level, the system determines the onerousness status at portfolio level, based on the deferred profit, and transfers this to contract level. When you calculate deferred profit at contract level the system uses the deferred profit from the contract. To determine the onerousness status, the system evaluates the loss component for a net profit reserve (the contractual service margin CSM, for example), and the premium deficiency reserve for a gross profit reserve (unearned premium reserve and deferred acquisition costs, for example). On the SAP Easy Access screen, choose Bank Analyzer Processes and Methods Subledger Accounting Insurance Contracts Preparatory Processing Determine Accounting Status Determine Onerousness Status. 3. Document Deferred Profit: The deferred profit is documented in accounting. In other words, posting documents are created. The system either creates deferred profit by capitalizing income or expense (by removing from P&L) or releases the profit reserve (by posting to P&L). Note If you are using actuarial portfolios in accounting, the system handles these in the same way as contracts here. Prerequisites In Customizing for Bank Analyzer under Process Steps for Insurance Contracts Recognize Profit Methods you have defined methods for import and cash-flow based determination and derived methods for the release of deferred profit. If you want to calculate and document at portfolio level, you need to have defined a profit recognition portfolio. The portfolio definition and the assignments of the portfolio to contracts and an accounting system need to be imported in the RDL. 214 P U B L I C

215 Methods for cash flow-based determination of deferred profit The methods for cash flow-based determination of deferred profit are defined in Customizing under Smart Accounting Process Steps for Insurance Contracts Recognize Profit Methods Define Methods for Cash- Flow-Based Determination. Deferred net profit, portfolio-based (methods and ) Capitalizes and offsets expected profit and expense for premiums, claims, and acquisition costs for a portfolio of insurance contracts. At initial recognition, the profit amount must be zero. To achieve this, you create a reserve for the net profit. If the amount of the net profit reserve is positive, the portfolio is not onerous. (In this case, the net profit reserve corresponds to the contractual service margin (CSM), according to IFRS.) If the amount of the net profit reserve is negative, the portfolio is onerous. (In this case, the net profit reserve corresponds to a loss component, according to IFRS.) The system only posts positive net profit reserves in the Recognize Profit step. Method uses the general measurement model (GMM). General Measurement Model Method uses the Variable Fee Approach (VFA). Note You can define in Customizing whether the system is to calculate and document at the granularity level of portfolio or contract. If you choose portfolio level, the system first calculates interest on a contract basis, this is then deferred over time and then totaled at portfolio granularity level. You can use the Profit Recognition Portfolio to do this. Deferred gross profit/costs, portfolio-based (method) and contract-based (method) Capitalizes and offsets expected profit and costs and creates reserves, separated according to payment category. If the sum of all gross profit/costs created is larger than the net amount of future expenditure, the portfolio or the contract is not onerous. P U BL IC 215

216 If the amount of future expenditure is larger than the total amount of all the gross profit/costs created, an additional premium deficiency reserve needs to be created. However, you can specify that a different reserve is reduced first. The system posts the gross profit/cost reserves and the premium deficiency amount in the Recognize Profit step. Simplified Approach (Premium Allocation Approach under IFRS, for example) and Premium Deficiency Reserve If you have specified an interest rate, interest is calculated for the deferred profit at the locked-in rate and the distribution rate is applied. As a result, the reserves are released gradually and are posted to the profit and loss statement. Methods for contract-based determination of deferred profit The methods for contract-based determination of deferred profit are defined in Customizing under Accounting Process Steps for Insurance Contracts Recognize Profit Methods Define Methods for Contract-Based Determination. SAP provides the method Offset UBNI The method is run for contracts for which the simplified Smart valuation approach applies. The method capitalizes the following postings for a contract that are expected but not yet incurred: Income (Preliminary) Income (Preliminary) Expense (Preliminary) Expense (Preliminary) Income (OCI) (Preliminary) 216 P U B L I C

217 Expense (OCI) (Preliminary) Income (OCI) Expense (OCI) Income Income Expense Expense The system excludes the postings generated by the Move and Transform process step. The system does not write target values for these reserves. The postings are made to the subledger account Offset UBNI keeping the original change reason and transaction currency. UBNI Capitalization In accordance with the simplified valuation approach, future payments may not be shown. Therefore, the UBNI items, UBNI balance sheet items and UBNI P&L items are capitalized and offset to zero. The simplified valuation approach only considers the time from incurred onwards, however the system still documents UBNI amounts to allow for comparisons with other valuation approaches. Related Information Change Reasons [page 174] Move and Transform The process step Move and Transform covers two use cases: P U BL IC 217

218 The Move and Transform (Business Transaction) [page 218] process step involves the same-day fixing of foreign currency amounts for business transactions based on the exchange rates valid at the end of the day. The Move and Transform (Contract) [page 222] process step involves the periodic fixing of the calculated results. Prerequisites You can display the settings for this process step in Customizing for Bank Analyzer under Processes and Methods Process Steps for Insurance Contracts Move and Transform. Make settings for the period closing variants in Customizing for Bank Analyzer under Processes and Methods Process Steps for Insurance Contracts Basic Settings Define Period Closing Variants Move and Transform (Business Transaction) The Move and Transform (Business Transaction) process step involves the same-day fixing of foreign currency amounts for business transactions based on the exchange rates valid at the end of the day. The system processes the data during end-of-day processing. The following cases are possible: 1. The Register process step registers business transactions that contribute to the profit and loss statement and that have a transaction currency that differs from the functional currency. You want the system to fix these contributions on the same day. Since the exchange rate valid at the end of the day is not yet known during the Register run, the system posts these contributions to the preliminary P&L. After the exchange rates have been imported, end-of-day processing fixes the foreign currency amounts with the required exchange rate and posts the amount to the P&L. 2. The Register process step registers business transactions with payments in a transaction currency that differs from the contract currency (payment currency change). Since the exchange rate valid at the end of the day is not yet known during the Register run, the system posts the amounts in foreign currency to a preliminary currency position. After the day's mid-market rates have been imported, end-of-day processing fixes the required exchange rate and creates the currency position. The following examples illustrate the posting logic. The functional currency is EUR. Example P&L Business transaction Contract currency 100 USD Transaction currency 100 USD 218 P U B L I C

219 Exchange Rates Exchange rate on January 21 (start of day) Exchange rate on January 21 (end of day) USD 1.00 EUR 0.80 USD 1.00 EUR 0.90 Process Step D/C Subledger Account Transaction Currency Functional Currency January 21 (day processing) Register D Unpaid Principal Balance (UPB) USD 100 EUR 80 January 21 (day processing) Register C Unremitted Interest Income USD -100 EUR -80 January 21 (end of day) Move and Transform D Unremitted Interest Income USD 100 EUR 90 January 21 (end of day) Move and Transform C Currency Position Income Statement USD -100 EUR -90 January 21 (end of day) Move and Transform C Interest Income EUR -90 EUR -90 January 21 (end of day) Move and Transform D Equivalent Value USD EUR 90 EUR 90 In this example, it is assumed that the posting record derived for the business transaction in the Register process step contains the subledger accounts Unpaid Principal Balance (UPB) and Interest Income. Since the subledger account Interest Income is a P&L account, and since the transaction amount differs from the functional currency, the system replaces the subledger account Interest Income in the Register process step with the corresponding preliminary subledger account Unremitted Interest Income. In the Move and Transform process step, the system makes a transfer posting from the preliminary currency positions to the currency positions. The system also creates the equivalent values. Example Change of payment currency For the payment currency change, it is assumed that the posting record derived for the business transaction in the Register process step contains the subledger accounts Unpaid Principal Balance (UPB) and In-Transit. Since the transaction currency differs from the contract currency (payment currency change), the Register process step also creates preliminary currency positions. In the Move and Transform process step, the system makes a transfer posting from the preliminary currency positions to the currency positions. The system also creates the equivalent values. P U BL IC 219

220 In Customizing under Bank Analyzer Processes and Methods Basic Settings Accounting System Define Accounting System, you can specify the currency exchange methodology for each accounting system. You can choose between the leading currency approach and the implicit fee. Business transaction Contract currency 100 USD Transaction currency 66 GBP Exchange Rates Exchange rate on January 21 (start of day) Exchange rate on January 21 (end of day) USD 1.00 EUR 0.80 GBP 1.00 EUR 1.20 USD 1.00 EUR 0.90 GBP 1.00 EUR 1.30 Leading currency In this approach, the system determines the leading currency from the contract currency and transaction currency in the business transaction, and translates only the leading currency amount into the equivalent value in functional currency. It then also uses this equivalent value as the equivalent value for the amount in the non-leading currency. Process Step D/C Subledger Account Transaction Currency Functional Currency January 21 (day processing) Register D Unpaid Principal Balance (UPB) USD 100 EUR 80 January 21 (day processing) Register C Preliminary Currency Position USD -100 EUR -80 January 21 (day processing) Register C In-Transit GBP -66 EUR January 21 (day processing) Register D Preliminary Currency Position GBP 66 EUR January 21 (end of day) Move and Transform D Preliminary Currency Position USD 100 EUR 90 January 21 (end of day) Move and Transform C Currency Position Balance Sheet USD -100 EUR -90 January 21 (end of day) Move and Transform C Preliminary Currency Position GBP -66 EUR P U B L I C

221 Process Step D/C Subledger Account Transaction Currency Functional Currency January 21 (end of day) Move and Transform D Currency Position Balance Sheet GBP 66 EUR 90 January 21 (end of day) Move and Transform D Equivalent Value USD EUR 90 EUR 90 January 21 (end of day) Move and Transform C Equivalent Value GBP EUR -90 EUR -90 Implicit fee In this approach, the system does not determine a leading currency. It translates each currency separately. This results in a difference, which the system records as an implicit fee. Process Step D/C Subledger Account Transaction Currency Functional Currency January 21 (day processing) Register D Unpaid Principal Balance (UPB) USD 100 EUR 80 January 21 (day processing) Register C Preliminary Currency Position USD -100 EUR -80 January 21 (day processing) Register C In-Transit GBP -66 EUR January 21 (day processing) Register D Preliminary Currency Position GBP 66 EUR January 21 (end of day) Move and Transform D Preliminary Currency Position USD 100 EUR 90 January 21 (end of day) Move and Transform C Currency Position Balance Sheet USD -100 EUR -90 January 21 (end of day) Move and Transform C Preliminary Currency Position GBP -66 EUR January 21 (end of day) Move and Transform D Currency Position Balance Sheet GBP 66 EUR January 21 (end of day) Move and Transform D Equivalent Value USD EUR 90 EUR 90 January 21 (end of day) Move and Transform C Equivalent Value GBP EUR EUR P U BL IC 221

222 Process Step D/C Subledger Account Transaction Currency Functional Currency January 21 (end of day) Move and Transform C Implicit Fee EUR EUR Move and Transform (Contract) In the Move and Transform process step, the system periodically fixes the calculated results. The system processes the data in period-end processing if there is profit or loss in a foreign currency; in other words, if the transaction currency (TC) is not the same as the functional currency (FC). You can reset the fixing of unrealized profits from period-end processing during period-opening processing. For more information about resetting postings from the Move and Transform process step, see Period-Opening Processing [page 236]. The following example explains the posting logic. The functional currency is EUR. Example Period-end processing Exchange Rates September 30 USD 1.00 EUR 0.90 Process Step D/C Subledger Account Transaction Currency Functional Currency September 30 Accrue D Accruals: Interest USD 100 EUR 90 September 30 Accrue C Income: Unrealized Interest (Preliminary) USD -100 EUR -90 September 30 Move and Transform D Income: Unrealized Interest (Preliminary) USD 100 EUR 90 September 30 Move and Transform C Currency Position Income Statement USD -100 EUR -90 September 30 Move and Transform C Income: Interest (Unrealized) EUR -90 EUR P U B L I C

223 Process Step D/C Subledger Account Transaction Currency Functional Currency September 30 Move and Transform D Equivalent Value USD EUR 90 EUR 90 In this example, the Accrue process step posts to the subledger account Income: Unrealized Interest (Preliminary). It is assumed that there has been no further posting on this subledger account, meaning that the balance is USD 100. In the Move and Transform process step, the system makes a transfer posting with this balance from the preliminary subledger account Income: Unrealized Interest (Preliminary) to the subledger account Income: Interest (Unrealized) based on the exchange rates valid at the end of the day. The system also creates the currency position and the corresponding equivalent value Value FX The Value FX process step revalues the amounts in functional currency and all other local currencies using the valid exchange rate on the balance sheet key date. It also collects the delta for the existing balance in the foreign exchange result. To adjust the functional currency, the system uses all the subledger account balances held in a currency other than the functional currency. To adjust the local currency, the system uses all the subledger accounts in the balance sheet. The Value FX process step is available both at the contract granularity level and at the cross-contract granularity level (dimensions of financial statement entities). At the contract granularity level, it is run in end-of-day processing and period-end processing. Only contractbased subledger documents are included in the balances used in the process step. At the cross-contract granularity level, it is run in cross-contract period-end processing. Only cross-contract subledger documents are included in the balances used in the process step. Prerequisites You can display the settings for the Value FX process step in Customizing for Bank Analyzer under and Methods Process Steps for Insurance Contracts Value FX. Processes P U BL IC 223

224 Example This example illustrates the foreign currency valuation of balance sheet items (monetary asset revaluation (MAR)) and of currency positions: Exchange Rates January 29 (end of day) USD 1.00 EUR 0.80 January 30 (end of day) USD 1.00 EUR 0.90 January 31 (end of day) USD 1.00 EUR 1.00 The system runs the following valuations: (At the end of the period, the exchange rate changes to EUR 1.00, meaning that the system needs to make adjustments to the balance sheet item.) Process Step Process Step Details Posting Record Subledger Account Transaction Currency Functional Currency January 30 (day processing) Register D Unpaid Principal Balance (UPB) USD 100 EUR 80 January 30 (day processing) Register C Unremitted Interest Income USD -100 EUR -80 January 30 (end of day) Move and Transform Move D Unremitted Interest Income USD 100 EUR 90 January 30 (end of day) Move and Transform Move C Currency Position Income Statement USD -100 EUR -90 January 30 (end of day) Move and Transform Transform C Interest Income EUR -90 EUR -90 January 30 (end of day) Move and Transform Transform D Equivalent Value USD EUR 90 EUR 90 January 31 (period end) Value FX Balance sheet item adjustment D Unpaid Principal Balance (UPB) USD 0 EUR 20 January 31 (period end) Value FX Balance sheet item adjustment C Currency Gain USD 0 EUR P U B L I C

225 Process Step Process Step Details Posting Record Subledger Account Transaction Currency Functional Currency January 31 (period end) Value FX Balance sheet item adjustment C Unremitted Interest Income USD 0 EUR -10 January 31 (period end) Value FX Balance sheet item adjustment D Currency Gain USD 0 EUR 10 January 31 (period end) Value FX (Cross- Contract) Currency position adjustment C Currency Position Income Statement USD 0 EUR -10 January 31 (period end) Value FX (Cross- Contract) Currency position adjustment D Currency Gain USD 0 EUR 10 January 31 (period end) Value FX (Cross- Contract) Equivalent value adjustment D Equivalent Value USD EUR 10 EUR 10 January 31 (period end) Value FX (Cross- Contract) Equivalent value adjustment C Currency Gain EUR -10 EUR -10 At the end of the period, there is a balance on the UPB account and on the unremitted interest income account that is relevant for the foreign currency valuation of balance sheet items. From an overall balance sheet perspective, the foreign exchange result from the adjustment of the equivalent value is the only relevant result. The results of the monetary asset revaluation (MAR) and of the currency positions are of an explanatory nature and add up to zero (apart from rounding effects). Related Information Register [page 185] Move and Transform [page 217] P U BL IC 225

226 Classify If one or more subledger coding block characteristics changes, the Classify process step ensures that the balances of balance sheet subledger accounts of the granularity level Contract are reclassified from the old subledger coding block to the new subledger coding block. In the subledger coding block, this affects changes to the following characteristics: Master data characteristics Characteristics derived from master data characteristics Analytical statuses Classify - End-of-Day Processing If changes to master data characteristics or the analytical status are registered in the Register process step, the system executes the Classify step for the date of the change (in an open period) in end-of-day processing. Changes to derived characteristics only result in the Classify step being executed in end-of-day processing if the change has been caused by a master data change that has already been registered. All other changes are not considered until the next period-end processing. Note If a dimension of a financial statement entity changes in the subledger coding block, the system reclassifies using a cross-contract reclassification account. This ensures a closed debit/credit loop for each dimension of financial statement entities. If you change the legal entity, please refer to the information in Change of Legal Entity [page 264] Classify - Period-End Processing: The Classify process step updates the asset/liability status, provided periodic redetermination is set and the status has not already been updated for a group of insurance contracts in Preparatory Processing. The change in asset/liability status leads to a reclassification to the new subledger coding block. Prerequisites You can display the settings for the Classify process step in Customizing for Bank Analyzer under Processes and Methods Process Steps for Insurance Contracts Classify. In Customizing for Bank Analyzer, you define the default value for the asset/liability status and the periodic redetermination of the asset/liability status under Processes and Methods Subledger Coding Block Analytical Status Define Asset/Liability Status. 226 P U B L I C

227 Example On March 30, the balance-sheet subledger account Receivables/Payables has a debit balance of EUR 100, which is assigned to the subledger dimension Organizational Unit Y: Subledger Account D/C Balance in Transaction Currency Organizational Unit Receivables/Payables D EUR 100 Y The change in organizational unit for the contract causes this dimension to change to Z and a reclassification of the balance with the following posting: Subledger Account D/C Amount in Transaction Currency Organizational Unit Receivables/Payables C EUR -100 Y Receivables/Payables D EUR 100 Z If the change in organizational unit from Y to Z leads to a change in profit center from A to B and if the profit center is a dimension of a financial statement entity, the following postings are made: Subledger Account D/C Amount in Transaction Currency Organizational Unit Profit Center Receivables/Payables C EUR -100 Y A Reclassification account Reclassification account D EUR 100 A C EUR -100 B Receivables/Payables D EUR 100 Z B Related Information Subledger Coding Block [page 31] Preparatory Processing [page 241] P U BL IC 227

228 Determination of Asset/Liability Reclassification Asset/liability reclassification methods Under Processes for Insurance Contracts Classify Methods, you can view and derive the various methods for asset/liability reclassification. The system supports different levels of granularity for calculation and documentation: The granularity level of the calculation specifies at which granularity level the system reads the book value for determining the asset/liability status. The granularity level of the documentation specifies at which granularity level the asset/liability status is persisted and, if required, a reclassification posting takes place. Method Granularity Level of Calculation Granularity Level of Documentation in Document Note Contract Partial contract Partial contract Partial contract The system determines the asset/liability status based on whether the book value is positive or negative. If this value changes from positive to negative or vice versa, the balances are reclassified to the new asset/liability status Contract Contract Contract (zeroization) Partial contract (zeroization) The system keeps the asset/ liability status stable. In cases where the asset/liability Partial contract Partial contract (zeroization) status changes, the sys tem sets the balances to zero. An offset posting is made to the Reclassification Adjustment account so that the asset/liability status is reflected in whether the book value is positive or negative (including the offset posting). Zeroization Some accounting principles (for example, US GAAP) stipulate that insurance contracts are classified as liabilities. The zeroization principle ensures that insurance contracts are not reclassified as assets (for example, in the phase in which premium payments have been made but claim payments are not yet due). Zeroization takes place if the book value s positive/negative status does not match the asset/liability status that you have defined at the granularity level of the product segment or production control in Customizing for the asset/liability status. If this is the case, the book value is set to zero and an offset posting to the 228 P U B L I C

229 Reclassification Adjustment account is created such that the book value (including Reclassification Adjustment) is zero. If there is already a balance on Reclassification Adjustment, this is always adjusted such that the book value (including Reclassification Adjustment) is zero. Method change If you change the method for determining the asset/liability status, note the following points: If you change the method from without zeroization to with zeroization, the system uses the start value for the asset/liability status defined in Customizing; it does not use the last valid value. If you change the method from with zeroization to without zeroization, the system clears the balance on the offset account Reclassification Adjustment against P&L Adjust In the Adjust process step, you can first manually make preliminary entries for contract-related or crosscontract value adjustments to balances, and then post them using a release workflow. You can reset the manual postings during period-opening processing, if necessary. Example Manual postings can be required if data (for example, for interest settlement) from the feeder system is not imported in time for period-end processing. The Adjust process step is an analytical process step with GAAP-dependent results that are documented as preliminary delta GAAP documents. The system documents the manual postings in the following subledger accounts, by default: Subledger account (subledger account group , analytical) Subledger account (subledger account group , interpreted) You can create any number of custom subledger accounts for the subledger account groups listed. You can create a subledger account for manual postings for every individual book value component, for example. In the general ledger transfer and balance sheet reporting, you can consider documents for regular subledger accounts and documents for subledger accounts for manual postings together for each book value component. You can make manual postings within regular posting periods, or, if you are using a fiscal year variant with special periods, at the end of the year in special periods. Released manual adjustments are included automatically from the next posting date when the following process steps are run: Value FX Classify Carry Forward Note If you want to make a backdated manual posting, you need to run the process steps listed above again as required during period-end processing or year-end processing. P U BL IC 229

230 Manual postings are not taken into account in the other process steps for period-end processing. Entry Prerequisites In Customizing for Bank Analyzer under Processes and Methods Basic Settings Legal Entity Define Legal Entities under Basic Settings, you have defined and assigned number ranges for manual postings. In Customizing for Bank Analyzer under Processes and Methods Technical Settings Define Results Storage, you have set up the results storage for the result category 905 (Preliminary Subledger Document). On the SAP Easy Access screen under Bank Analyzer Processes and Methods Subledger Accounting for Financial Instruments or Insurance Contracts, under Period-End Processing Open and Close Posting Periods you have opened the relevant posting period for manual postings in each case. Procedure 1. On the SAP Easy Access screen, choose Bank Analyzer Processes and Methods Subledger Accounting. 2. Choose Financial Instruments or Insurance Contracts and then Period-End Processing Manual Posting (Contract) or Period-End Processing Manual Posting (Cross-Contract). The initial screen appears. 3. Enter at least the legal entity, an accounting system, and the posting date. 4. Choose Execute. The system displays a detail screen. 5. Enter a posting date for the reset so that you are able to reset the manual posting later in period-opening processing. The posting date for the reset must be at least one day after the current posting date. 6. Enter at least the following accounts for each debit and credit item: A subledger account from the subledger account groups for manual adjustments listed above A profit and loss account An equity account 7. Enter the posting amount in transaction currency for each debit and credit item. You can also distribute the posting amount over more than one account. The system converts the amounts into different currencies. 8. If you want the system to determine the corresponding general ledger accounts and enter these automatically, choose Derive G/L Accounts. 9. To execute the Move and Transform process step and post amounts in foreign currency to preliminary currency positions, choose Move and Transform. 10. Save your entries. The system performs consistency checks for your entries. For example, it checks whether the balance of debit and credit is zero and that the debit/credit indicator is assigned correctly. The system then generates a preliminary document and stores it in the Results Data Layer (RDL) with the result category The system starts a release workflow. 230 P U B L I C

231 Release Prerequisites Workflow Template In Customizing for Bank Analyzer, under Processes and Methods either Process Steps for Financial Instruments or Process Steps for Insurance Contracts under Adjust Derive Workflow for Release of Manual Postings, you have determined whether the release is completed in one step (principle of dual control), two steps (principle of triple control) or three steps (principle of quadruple control). SAP provides a workflow framework (WS ) and three subworkflow templates (WS , WS , WS ). You have defined which of the subworkflow templates from the workflow framework the system is to derive at runtime. This derivation depends on the legal entity and, optionally, on the characteristics of the document header and the total of the debit amounts in functional currency. Event Linking On the SAP Easy Access screen, under Business Workflow Administration Event Manager Type linkages (transaction: SWETYPV) you have entered the event linkage for the following event with the following values: Object category CL Object type /BA1/CL_AL_BR_ADJ_DOC_REL_WF Event SEND_TO_RELEASE Receiver type WS Receiver function module SWW_WI_CREATE_VIA_EVENT_IBF For more information, see. Workflow The releaser can display the preliminary document for manual value adjustment in the SAP Business Workplace (SBWP) and release or reject it. It is not possible to change the data of the preliminary document. As soon as the release is completed, the system generates a final document with a new document number and stores this in the RDL with the result category 900 (Subledger Document). The final document contains a reference to the preliminary document. Note If the posting date is in a period that is already closed, the system uses the first date of the next open period as the posting date. P U BL IC 231

232 Reset Procedure 1. On the SAP Easy Access screen, choose Bank Analyzer Processes and Methods for Financial Instruments or Insurance Contracts, Period-Opening Processing Reset Manual Posting. 2. Specify at least the legal entity and the evaluation key date. For more selection critieria, choose Dynamic Selections. 3. Choose Execute. The system selects all of the released manual postings where the reset date (which you specified when you made the preliminary entry) is before or the same as the evaluation key date. 4. The system inverts the amounts of the manual postings and uses the reset date as the posting date. The system also generates a reset document with a new document number and stores this in the RDL with result category 900. The reset document contains a reference to the final document for the manual posting. Related Information Close You can use the Close process step to open and close posting periods (including special periods) for each legal entity. Prerequisites If you use the Financial Accounting (FI) component, make sure that you have defined the relevant periods there. In Customizing for Bank Analyzer under Processes and Methods Basic Settings, you have defined at least one fiscal year variant, one accounting system and one legal entity in the following Customizing activities: Define Fiscal Year Variant Define Accounting Systems Define Legal Entities Context You can open and close posting periods for intraday processing (Process Steps Register and Capture (for insurance contracts), for period-end processing, and for the Adjust process step (manual adjustments) separately. This enables you to ensure that after a period is closed for intraday processing, operational flow 232 P U B L I C

233 transactions and master data changes no longer affect period-end processing. In the same way, after the period for the period-end processing has been closed, the adjustments made in the individual process steps in period-end processing no longer affect the manual adjustments. Procedure 1. On the SAP Easy Access screen, choose Bank Analyzer Processes and Methods Subledger Accounting. Then, under Financial Instruments or Insurance Contracts, choose Period-End Processing Open and Close Posting Periods. 2. Choose a legal entity. 3. To open periods, specify one time period each for the following processes/process steps by entering a lower limit for the period with fiscal year and an upper limit for the period with fiscal year: Intraday processing Period-end processing Manual adjustments 4. Note the following: Your settings for the fiscal year and the number of periods must be aligned with the settings you make in the Customizing activity Define Fiscal Year Variant. Intraday processing can be used within the posting periods. Period-end processing and manual adjustments can be used within the posting periods and/or the special periods. 5. To close a period, change the lower limit for the period, and if required the corresponding fiscal year, so that the year you want to close is no longer in the period. Caution You should reopen closed periods in exceptional cases only. Results Once a period is closed, no further postings are possible in the period. This means that the accounting-relevant documentation is carried forward to the first posting date of the next open period. The value date is not affected by this shift. For traceability and reconciliation purposes, the original posting date from the operational business transaction remains as the document date in the document when operational flow transactions and master data changes are registered. Example Initial situation: The posting periods through are open for registering, while the periods through are open for period-end processing. Due to an error in the operational system, a business transaction with posting date and value date is imported with a delay. Consequence: The Register process step documents the transaction with posting date , document date and value date If any currency translations are required, the exchange rates valid on are also used. Balances up to are included in period-end P U BL IC 233

234 processing, which is executed on This means that the retroactively entered business transaction is not included in the period Special case period 00: Period 00 cannot be opened or closed by the Close process step because only the Carry Forward process step posts to this period Year-End Processing You use year-end processing to open and close fiscal years. Period-end processing is a prerequisite for this. Year-end processing comprises period-end processing for special periods (Adjust process step) and the balance carryforward function (Carry Forward process step): You use the Adjust process step to make automated or manual adjustments at the end of the fiscal year in special periods. You use the Carry Forward process step to carry the year-end balance forward to the new fiscal year (period 00 ). Note that neither the Carry Forward process step nor the Adjust process step automatically react to adjustments. Since the preceding posting periods must already be closed there is no need for an automated adjustment function in the system here. You can use the Carry Forward process step to manually make a selective correction. Prerequisites Before you can use period-end processing for a special period, you must have closed the corresponding preceding period (or special period). Activities To execute period-end processing for special periods, on the SAP Easy Access screen, choose Bank Analyzer Processes and Methods Subledger Accounting Insurance Contracts Period-End Processing Period-End Processing (Contract) or Period-End Processing (Cross-Contract). Enter the special period you want to process. To execute the balance carryforward function, on the SAP Easy Access screen, choose Bank Analyzer Processes and Methods Subledger Accounting Insurance Contracts Year-End Processing Balance Carryforward (Contract) or Balance Carryforward (Cross-Contract). 234 P U B L I C

235 Related Information Carry Forward [page 235] Period-End Processing [page 199] Processes for Insurance Contracts [page 168] Carry Forward In the Carry Forward process step, you carry the year-end balance forward to the year-opening balance. The balances of balance-sheet subledger accounts for the closed fiscal year (including special periods) are carried forward to the first day of the following fiscal year (period 00), and posted against retained earnings. The process step is executed for each accounting principle. The leading accounting principle carries forward analytical subledger balances that have not been interpreted (central GAAP), and analytical subledger account balances that have been interpreted (delta GAAP). For non-leading accounting principles, the system only includes balances for analytical interpreted subledger accounts. The Carry Forward process step is divided into a contract-based step and a cross-contract step. The granularity of the cross-contract subledger accounts is based on the financial statement entities. Year-end closing (including the creation of a year-opening balance sheet) is carried out separately in both the subledger and in the general ledger. This means that the subledger documents of the year-opening period 00 are not taken into account by the general ledger connection. The following figure illustrates the balance carryforward. Note that this is a simplified representation that does not include special periods, for example. Balance carryforward P U BL IC 235