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

The transition to IFRS 18 is not just a question of financial reporting—it is primarily a question of system architecture. For companies that use SAP ERP or S/4HANA, this means a comprehensive transformation of their financial accounting and cost accounting. This article highlights the technical requirements and shows how companies can systematically adapt their SAP systems.

The challenge: From the previous to the new P&L structure

The previous income statement structure under IAS 1 was relatively flexible. Companies could choose between the total cost method and the cost of sales method. The classification of expenses and income was less strictly defined. As a result, charts of accounts and account assignments often grew organically without following a strict logic.

IFRS 18 fundamentally changes this. The four categories of 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 requires a redesign of account assignments, which often entails a review and adjustment of the entire chart of accounts

Step 1: Analysis of the existing chart of accounts

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

Inventory of all accounts: Document all accounts in your SAP system that record income or expenses. This should be done at the detail account level, not just at the account group level.

Classification according to previous categories: Assign each account to the previous P&L structure (e.g., cost of sales, selling expenses, administrative expenses, financial expenses when using the cost of sales method).

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

Review of granularity: Review whether the granularity of the chart of accounts is sufficient to reflect the new IFRS 18 requirements. This is particularly important for companies that use the cost of sales method, as additional information must be disclosed in the notes.

Step 2: New account mapping for IFRS 18 categories

Based on the analysis, you create a new mapping that assigns each account to one of the four IFRS 18 categories. Under certain circumstances, clear categorization may even render turnover accounts obsolete and necessitate the creation of new accounts. This is not trivial, as it requires conceptual decisions.

Operating

The Operating category includes all income and expenses from normal business activities. This typically includes: The challenge is that not all expenses traditionally classified as “administrative expenses” fall under the Operating category under IFRS 18. For example, expenses for the management of investments belong to the Investing category.

• Revenue

• Cost of sales (cost of materials, personnel costs, depreciation of operating equipment)

• Distribution costs

• Administrative costs

• Other operating income and expenses

The challenge lies in the fact that not all expenses traditionally classified as “administrative expenses” fall under the operating category under IFRS 18. For example, expenses for the management of investments fall under the investing category.

Investing

The Investing category is new and includes: This is a significant change. Under IAS 1, these items were often classified under “Other operating income and expenses” or “Finance costs.” Under IFRS 18, they must be clearly assigned to the Investing category.

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

• Income and expenses from investments in securities

• Gains and losses on the sale of investments

• Depreciation and amortization of investments

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

Financing

The Financing category includes:

• Interest income and interest expenses

• Dividend payments

• Gains and losses from foreign currency transactions related to financing

• Expenses for the administration of financingTaxes and Discontinued Operations

Taxes and Discontinued Operations

This category is relatively straightforward and includes income taxes and discontinued operations.

Step 3: Adjusting the cost center logic

The new P&L structure often requires an adjustment of the cost center logic in SAP. This is particularly relevant for companies that perform detailed cost accounting.

Check the cost center hierarchy: Check whether your cost center hierarchy can map the new IFRS 18 categories. You may need to introduce new cost centers for the investing and financing categories.

Adjust cost unit accounting: If you perform cost unit accounting, you need to check how costs are allocated to cost units. This is particularly important if costs from different IFRS 18 categories are allocated to the same cost unit.

Review internal allocations: Check how internal allocations (e.g., from service departments) are carried out. This can have an impact on the classification of costs.

Step 4: Data collection and granularity

The new P&L structure often requires more granular data collection. This is particularly relevant for companies that use the cost of sales method, as additional information must be disclosed in the notes.

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

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

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

Step 5: Reporting tools and reporting processes

Existing reporting tools must be adapted to reflect the new P&L structures. This includes:

Adapting SAP Analytics Cloud (SAC): If you use SAC, you must create new reports that reflect the new IFRS 18 categories. This requires adapting data models and creating new reports.

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

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

Automation of reporting processes: Consider how you can automate reporting processes to improve efficiency and reduce errors.

Step 6: Testing and validation

Before you put the new structures into production, you must test and validate them comprehensively:

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

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

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

Validation against external data: Validate your results against external data, e.g., data from your previous P&L structure, to ensure that the conversion is correct.

Pilot testing: Conduct pilot testing with real data to ensure that everything works

Practical example: Reclassification of income from associates

To illustrate the complexity of this change, let's look at a practical example: income from associates accounted for using the equity method.

Under IAS 1, this income was often classified under “Other operating income” or “Financial expenses.” This depended on the interpretation of the company.

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

1. Identification of all accounts that record income and expenses from associates.

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

3. Adjusting the account assignment to classify these accounts as investing.

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

5. Testing and validating the new structure.

Conclusion: Systemic transformation required

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

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