IFRS Compliance
Ensure IFRS Compliance with Tecxed
In May 2014, the International Financial Reporting Standards (IFRS) Board introduced a new revenue recognition standard, IFRS 15, which changed how companies recognize revenue in their financial statements. This standard, effective from January 1, 2018, requires entities to recognize revenue when the performance obligation is fulfilled. In other words, revenue can be recognized once all benefits are received, and the receiving entity gains control of the asset and can use it.
However, this standard does not apply to leases, insurance contracts, financial instruments, guarantees, and certain non-monetary exchanges. Industries most impacted by this change include telecommunications, high-tech, media, automotive, and construction.
To facilitate compliance, SAP launched the SAP Revenue Accounting and Reporting (RAR) application in 2015 as an add-on solution. If you are using the SAP ERP Financials solution with an active maintenance agreement, you can access this application at no additional cost. The solution automates revenue recognition and accounting, simplifying related tasks. The minimum release requirement to install the RAR solution is ERP 6.05 and above. To enhance the standard billing process, SAP RAR integrates additional data for revenue calculation, ensuring audit compliance through enriched and normalized data.
New IFRS 16 Accounting Standard Compliance with SAP RE-FX
In 2016, the International Accounting Standards Board (IASB) issued IFRS 16, replacing the previously adopted IAS 17 Leasing rules, as well as IFRIC 4, SIC 15, and SIC 27. IFRS 16 compliance became effective for annual reporting periods beginning on or after January 1, 2019, with earlier application permitted (provided IFRS 15 is also applied).
With IFRS 16, financial and operational leases are no longer treated differently from an accounting perspective. This new standard eliminates nearly all "off-balance sheet" accounting for leases. The primary goal is to increase transparency and allow users of financial statements to assess the impact of an organization’s leases on its financial position and cash flow directly from its balance sheet. Lessees are now required to recognize both assets and liabilities arising from leases.
IFRS 17 Compliance for Insurance Companies
With IFRS 17 effective from July 1, 2022, insurance companies have a limited window to implement FPSL (Financial Products Subledger). This timeline is even tighter due to the requirement to run comparative data ahead of the deadline. SAP customers in the financial services sector should initiate their implementation projects as early as possible to ensure compliance.
SAP FPSL: A Solution for Multi-GAAP Compliance
SAP FPSL (Financial Products Subledger) is a multi-GAAP solution designed for the financial services industry. It includes:
- Financial Service Data Platform
- Smart Accounting for Financial Instruments
- Profitability & Performance Management
As a centralized hub, SAP FPSL manages data between operational and finance streams and ensures compliance with multiple GAAPs. Deployed as an add-on to SAP S/4HANA, FPSL is built to handle large data volumes with a simplified core. It is delivered through the streamlined SAP Fiori interface.
FPSL is not limited to insurance companies but also supports the broader financial services sector, including banks, fintech companies, and reinsurance firms. Tecxed helps ensure IFRS 17 compliance by implementing SAP FPSL to meet regulatory requirements efficiently.
Frequently Asked Questions
Is SAP IFRS Compliant?
Yes, SAP software is designed to be IFRS (International Financial Reporting Standards) compliant. SAP has developed comprehensive solutions and functionalities to support organizations in adhering to IFRS requirements for financial reporting.
What is SAP IFRS?
SAP IFRS refers to the capabilities within SAP software that enable organizations to comply with the International Financial Reporting Standards (IFRS). It includes a range of features and functionalities designed to support accurate financial reporting, consolidation, and compliance with IFRS guidelines.
What Are the Four Principles of IFRS?
- Fair Presentation: Financial statements must provide accurate and reliable information about an entity’s financial position and performance.
- Substance Over Form: The economic reality of transactions should take precedence over their legal form.
- Prudence: Exercise caution in uncertainty; assets and income should not be overstated, and liabilities and expenses should not be understated.
- Comparability: Financial statements should be consistent across different periods and entities to allow meaningful comparisons.
What Does IFRS Stand For?
IFRS stands for "International Financial Reporting Standards." It is a comprehensive set of accounting principles and guidelines developed by the International Accounting Standards Board (IASB) to provide a globally recognized framework for financial reporting.
Does SAP Use IFRS?
Yes, SAP supports and facilitates the use of International Financial Reporting Standards (IFRS). SAP software offers a range of functionalities and tools that enable organizations to implement IFRS-compliant financial accounting, reporting, consolidation, and disclosure processes.
TECXED'S PRESENCE
