SAP FI/CO transformation: charts of accounts, mappings and system adaptations for IFRS 18

The challenge: from the previous to the new income statement structure

The previous income statement structure under IAS 1 was relatively flexible. Companies could choose between the nature-of-expense method (GKV) and the cost-of-sales method (UKV). The classification of expenses and income was less strictly prescribed. As a result, charts of accounts and account assignments had often grown organically, without following a strict logic.

IFRS 18 changes this fundamentally. The four categories Operating, Investing, Financing and Taxes/Discontinued Operations are not optional: every item in the income statement must be clearly assigned to one of these categories. This calls for a redesign of the account assignment, which often entails a review and adjustment of the entire chart of accounts.

Step 1: analysing the existing chart of accounts

The first step is a comprehensive analysis of the existing chart of accounts. This includes:

Taking stock of all accounts: Document all accounts in your SAP system that record income or expenses. This should be done at the level of the individual account, not just at the level of account groups.

Classification by previous categories: Assign each account to the previous income statement structure (for example cost of sales, distribution costs, administrative expenses, finance expenses when applying the cost-of-sales method).

Identifying special cases: Identify accounts that record transactions which must be classified differently under IFRS 18. This includes, for example, accounts for income and expenses from associated companies, accounts for interest and dividends, and accounts for gains and losses from investments.

Reviewing granularity: Check whether the granularity of the chart of accounts is sufficient to represent the new IFRS 18 requirements. This is particularly important for companies that apply the cost-of-sales method, since additional information must be disclosed in the notes here.

Step 2: new account mapping for the IFRS 18 categories

Based on the analysis, you create a new mapping that assigns each account to one of the four IFRS 18 categories. In some cases, the clear categorisation may even render straddling accounts obsolete and make the creation of new accounts necessary. This is not trivial, as it requires conceptual decisions.

Operating

The Operating category covers all income and expenses from normal business activities. This typically includes:

• Revenue

• Cost of sales (material costs, personnel costs, depreciation of operating assets)

• Distribution costs

• Administrative expenses

• Other operating income and expenses

Investing

The Investing category is new and includes:

• Income and expenses from associated companies and joint ventures (accounted for using the equity method)

• Income and expenses from investments in securities

• Gains and losses from the sale of investments

• Depreciation of investments

This is a significant change. Under IAS 1, these items were often classified under “other operating income and expenses” or “finance expenses”. Under IFRS 18, they must be clearly assigned to the Investing category.

Financing

The Financing category covers:

• Interest income and interest expenses

• Dividend payments

• Gains and losses from foreign currency transactions that are financing-related

• Expenses for the administration of financing

Taxes and Discontinued Operations

This category is relatively clear and covers income taxes and discontinued operations.

Step 3: adjusting the cost centre logic

The new income statement structure often also requires an adjustment of the cost centre logic in SAP. This is particularly relevant for companies that carry out detailed cost accounting.

Reviewing the cost centre hierarchy: Check whether your cost centre hierarchy can represent the new IFRS 18 categories. You may need to introduce new cost centres for the Investing and Financing categories.

Adjusting cost object accounting: If you carry out cost object accounting, you need to review how costs are allocated to cost objects. This is particularly important when costs from different IFRS 18 categories are allocated to the same cost object.

Reviewing internal allocations: Check how internal allocations (for example from service departments) are carried out. This can have implications for the classification of costs.

Step 4: data capture and granularity

The new income statement structure often requires more granular data capture. This is particularly relevant for companies that apply the cost-of-sales method, since additional information must be disclosed in the notes here.

Reviewing the capture logic: Check how data is captured in SAP. You may need to introduce additional capture fields or classifications in order to meet the new IFRS 18 requirements.

Automating capture processes: Consider how you can automate capture processes in order to improve data quality and reduce manual effort.

Introducing validation rules: Introduce validation rules to ensure that data is captured correctly. This can include automatic checks that prevent data from being classified into the wrong category.

Step 5: reporting tools and reporting processes

The existing reporting tools must be adapted to represent the new income statement structures. This includes:

Adjusting SAP Analytics Cloud (SAC): If you use SAC, you need to create new reports that represent the new IFRS 18 categories. This requires the adjustment of data models and the creation of new reports.

Adjusting SAP BI (Business Intelligence): If you use SAP BI, you need to create new queries and reports that represent the new categories.

Adjusting Excel-based reports: Many companies still use Excel-based reports. These must be adapted to represent the new categories.

Automating reporting processes: Consider how you can automate reporting processes in order to improve efficiency and reduce errors.

Step 6: testing and validation

Before you take the new structures into production, you need to test and validate comprehensively:

Unit tests: Test individual components, such as the account assignment or the reporting logic.

Integration tests: Test the integration between various systems and processes.

End-to-end tests: Test complete process flows from data entry through to report creation.

Validation against external data: Validate your results against external data, for example against data from your previous income statement structure, to ensure that the conversion is correct.

Piloting: Carry out a pilot with real data to make sure that everything works.

Practical example: reclassifying income from associated companies

To illustrate the complexity of this transition, let us consider a practical example: income from associated companies that is accounted for using the equity method.

Under IAS 1, this income was often classified under “other operating income” or “finance expenses”. This depended on the company’s interpretation.

Under IFRS 18, this income must be clearly assigned to the Investing category. This requires:

1. Identifying all accounts that record income and expenses from associated companies.

2. Reviewing how these accounts are currently presented in the income statement.

3. Adjusting the account assignment to assign these accounts to the Investing category.

4. Checking whether the reporting tools can represent this reclassification.

5. Testing and validating the new structure.

Conclusion: a systemic transformation is required

The transition to IFRS 18 is not just a question of account assignment: it is a systemic transformation that affects all levels of the SAP FI/CO landscape. Companies that approach this transformation systematically and adapt their systems thoroughly will not only ensure compliance, but also improve their financial reporting and modernise their systems.

The investment in this transformation is considerable, but the benefits are long-term. A modern, IFRS 18-compliant SAP landscape will form the foundation for an agile, data-driven finance function.