November 2, 2021
Five Good Reasons to Bring Fixed Asset Accounting into SAP S/4HANA
For many years, utilities, energy companies and other asset-intensive businesses on SAP ECC have had to look outside the ERP to manage fixed asset accounting. Some core asset accounting functions were not delivered in the ERP—specifically, to construct, depreciate, and retire assets—so customers had little choice but to run an external asset accounting solution. In this scenario, the typical practice has been to move data from the ERP, into the external solution, and then back again to the ERP for posting to the general ledger.
This design impacted SAP customers in ways that that were not immediately obvious. At first, it seemed like an effective way to get the necessary fixed asset accounting capabilities. But as the years wore on, customizations increased, cost flows in SAP became less transparent, the expense of running fixed asset accounting grew, and the value of the ERP as an integrated solution was eroded.
Given Utegration’s long history of innovation focused on getting the most value from SAP, readers may not be surprised to learn that we’ve taken action to create a better option for managing asset accounting in SAP. Utegration Finance4U® Extended Asset Accounting (EAA) is an SAP-certified solution as integrated with S/4HANA and has been in production since 2019. Finance4U EAA enables all mass property and specific location assets to be managed inside S/4HANA Financials throughout the build-to-retire process, providing customers with an opportunity to replace PowerPlan, Excel or other third-party asset accounting software. For companies planning their move to S/4HANA, it’s important to understand this option during your road mapping phase.
We’re able to offer this solution now because in S/4HANA, SAP has elevated the subledger for fixed assets to post directly to the universal journal (a.k.a., the ACDOCA table). For companies that move their assets into the ERP, the universal journal provides full visibility at the line-item level to Construction Work in Progress (CWIP), Retirement Work in Progress (RWIP), and Plant in Service (PIS) for the first time. Retaining asset accounting in SAP is now not only possible, but also critical to supplying supporting documents and line-item detail to outside auditors and regulators—and with far greater granularity and simplicity than ever before.
As more companies plan their roadmaps to and designs for S/4HANA, they’re evaluating their options to simplify asset accounting processes and technology architecture. Below, we outline five reasons utilities should consider bringing fixed asset accounting back into the ERP with Utegration Finance4U Extended Asset Accounting.
1. Your cost flow will become more transparent when you run fixed asset accounting in SAP.
Companies that rely on an external solution for fixed asset accounting often experience a “dead end” in capital work order transparency. When the settlement of such orders is performed outside the ERP, typically to a big bucket of costs called capital clearing, the external solution sends back to SAP the lump-sum offset but not the supporting details such as the 300 account that was debited for plant in service or the underlying asset(s) that make up the total in the 300 series accounts that are valuable for both internal and external audiences.
Moving assets back into SAP eliminates the capital accounting "dead end." Traceability improves because all costs are in the ERP, enabling easier research and greater responsiveness. SAP users won’t just see a summary in the FERC 101 PIS, 106 CCNC, 107 CWIP and 108 Reserve accounts but rather all of the underlying asset postings to the assets. Plant additions and retirements will be visible in the universal journal. And financial data will be continuously reconciled, minimizing—if not eliminating—the manual intervention typically required to keep an external solution in sync with SAP.
When the capital work orders are charged in the ERP, the settlement rules are automatically applied and the assets automatically created, thus reducing the time it takes to close the books. And because the capitalization process happens inside the ERP, there is no reconciliation to worry about between SAP and an external asset accounting solution. In fact, the subledger stays in constant balance to the general ledger. This is the benefit of keeping the capital spend in the ERP, from creation of the capital work order and settling to an asset in the ERP, not the “dead-end” FERC clearing account that most utilities use today. You don’t have to tolerate the dead-end cost flow model that constrains you today in SAP ECC. You can use the inflection point of moving to S/4HANA to re-think processing all capital line-item postings in the ERP.
2. Performing fixed asset accounting in SAP enables more efficient reporting, makes better use of your team’s time, and requires less support.
When you bring fixed asset accounting transactions back into the ERP, the time to run reports is dramatically reduced—from days to minutes—and no reconciliation is required. Likewise, no special training or costly support is required because your team already knows how to run SAP. What’s more, field personnel can be relieved of accounting responsibilities and focus on what they do best, install and maintain assets.
One of our customers that replaced their external solution with Finance4U Extended Asset Accounting expressed the potential for savings succinctly:
“There is no extra support anymore because there is no extra system anymore—it’s all integrated into S/4HANA. It’s as simple as that.”3. Preparing for and defending rate cases will be easier when you bring fixed asset accounting into SAP.
Given the FERC’s new requirement for utilities and energy companies to file in XBRL format, state PUCs and PSCs are going to have access to FERC Form 1 and 2 data as well as quarterly filings in full digital format. This transparency is going to drive deeper inquiry into test year data than ever before.
Managing your fixed asset accounting with Utegration Finance4U Extended Asset Accounting will increase the accuracy of fixed asset accounting data, which will drive a more accurate rate base and, in turn, a more accurate revenue requirement. By retaining all of the key transactions in the ERP, you’ll also improve cash flow, gain easier access to supporting documents directly in SAP, and reduce regulatory lag. This is especially the case for utility and energy companies that move towards formula rates, which need defensible fixed asset data down to the document level.4. Utegration Finance4U Extended Asset Accounting delivers more accurate depreciation and a faster depreciation process for rate-regulated industries such as gas and electric utilities.
One of the most contentious items in rate case proceedings is depreciation expense for two primary reasons: 1) the way in which it is calculated drives a key variable in determining the revenue requirement; and 2) because depreciation in the revenue requirement returns cash to the regulated entity in the form of rates. Getting depreciation expense right for ratemaking will drive more accurate cash flows for the business. Companies that run external fixed asset accounting solutions spend more time on the depreciation process than necessary due to all the back-and-forth movement of data. Finance4U Extended Asset Accounting provides more cost-effective functionality for depreciation and more granular support and document drill-down for all asset retirements. This results in more accurate cash flow and better rate case support.5. Managing fixed asset accounting in SAP can improve your analytics and decision-making ability.
We commonly hear about reporting challenges from our customers running external fixed asset accounting solutions. Whether it's reporting alone or trying to mash up data from the ERP, the challenge is real and costly to address.
For example, one of our customers previously had to pay a third-party consultant several times per calendar quarter to fulfil report requests. Now that everything is running in S/4HANA with Utegration Finance4U Extended Asset Accounting, the accounting department can query the system on its own, with no assistance from the IT department or from Utegration. Not only does this save a considerable amount of money every year, but also the self-service capability has enabled the customer to make more informed decisions in real time and to look at the complete enterprise picture that includes CAPEX, OPEX, Regulated, and Unregulated views.
In Conclusion: Explore Your Options
Replacing an external fixed asset accounting solution and bringing that functionality into the ERP when you move to SAP S/4HANA is certainly not a decision that you’ll make quickly or without careful consideration. But as the gateway to greater profitability, your fixed asset accounting software should be reevaluated as part of your ERP roadmap. SAP S/4HANA is the catalyst that gives you options that weren’t available before.
As an initial next step, we recommend that all customers running an external solution speak with their teams about their wish list for asset accounting and ask, “If you had a blank slate, what would your system do for you?” Make that list and then give us a call to talk about it. We’ll walk you through what’s possible in S/4 and Utegration Finance4U Extended Asset Accounting, and share our insights from other customers who are also considering their options for a better solution.