Companies often want to separate currency-related elimination differences from other elimination differences during a month-end closing. This process is often required in preparation for consolidated financial statements for statutory or operational reporting. In the absence of an automated process, accounting or reporting managers can find the manual breakdown of elimination difference into currency-related differences and other differences to be time-consuming. Automating this process not only accelerates the financial close process but also eliminates the chances of manual introduction of inaccuracy in financial statements. I show you out-of-the-box functionality in SAP Enterprise Controlling Consolidation System (EC-CS) that allows you to accomplish this process. (This functionality comes delivered in EC-CS as part of the accounting module.)

Common Reasons for Elimination Differences

Intercompany transactions can lead to misinterpretation of consolidated financial statements; thus, they should be eliminated from consolidated financial statements. The process of intercompany elimination between trading partners may result in elimination differences. These elimination differences could stem from a variety of sources. Some notable sources leading to elimination differences are:

1. The trading partners post intercompany transactions in different periods. For example, an intercompany payable transaction for $10,000 is booked by Partner A in June 2011 and an intercompany receivable transaction for $10,000 is booked by Partner B in July 2011. Consequently, an intercompany difference of $10,000 would result when intercompany elimination is run for June for the two trading partners.
2. The trading partners may be using different methods of accounting, and they may record the trading partner activity differently, leading to differences during elimination.
3. One of the trading partners makes an error in posting.
4. Exchange rate fluctuations when functional currency of the trading partners is not the same. The trading partners may book an intercompany transaction in the transaction currency, but report the transaction in a different group currency for consolidation. Differences could result in such group values owing to exchange rate fluctuations even when the amount booked in the original transaction currency was the same.

Elimination differences resulting from causes that are not due to exchange rate fluctuations may need to be indentified depending on various reporting needs. The total elimination difference may have to be split into two components: differences owing to exchange rate fluctuations and differences that are not due to exchange rate fluctuations.

Table 1 shows an intercompany transaction between two trading partners that leads to elimination differences. The example shows how the elimination difference is made up of two components.

Table 1

An example of an intercompany transaction

In the example in Table 1, the elimination difference of $190 is actually made up of differences owing to currency and other differences (Table 2).

Table 1

An example of an intercompany transaction

Configure Splitting for Intercompany Elimination Difference

Follow IMG menu path Enterprise Controlling > Consolidation > Consolidation Functions > Automatic Posting > Interunit Elimination > Define Methods. Highlight the relevant method and double-click the Further control options folder (Figure 1). Select the Split differences check box (Figure 2) and set an exchange rate indicator to be used as a reference exchange rate indicator when elimination differences are split.

Figure 1

Select method for interunit elimination

Figure 2

Elimination methods

Set financial statement items for capturing the elimination differences owing to currency and other factors. Double-click the FS item sets folder and click the Currency-related differences (Figure 3) and Other differences (Figure 4) tabs.

Figure 3

Elimination methods for currency-related differences

Figure 4

Elimination methods for other differences

The financial statement items included in eliminations should at a minimum have transaction currency and trading partner as required for any posting to such financial statement items. During intercompany elimination execution, the system uses the trading partner information in the financial statement line items of the posted document to determine the elimination differences between trading partners. The transaction currency information in the financial statement line item is required to determine the elimination difference owing to exchange rate fluctuation. Use transaction CX14 or follow menu path SAP menu > Accounting > Enterprise Controlling > Consolidation > Master Data > FS Items > Change.

Change the breakdown category for the financial statement item so that Partner Unit (also called Trading partner) and Transaction currency (Trans.currency) are required breakdowns. This step ensures that Trading partner and transaction currency data is required for posting to the financial statement item being changed (Figure 5).

Figure 5

Change breakdown category for financial statement item

Ensure that the elimination document type posts elimination entries in both the transaction currency and the group currency. You can complete this step by changing the settings of the document type of the elimination document if necessary. Follow IMG menu path Enterprise Controlling > Consolidation > Consolidation Functions > Automatic Posting > Interunit Elimination > Define Document Types to bring up the screen in Figure 6. Select the relevant elimination document type and double-click to display the configuration for the document type.

Figure 6

Select the document type to change

Ensure that the Post in transaction currency and Post in group currency check boxes are checked (Figure 7). If the checkbox Post in transaction currency is not checked, intercompany elimination execution fails as the system is not able to post the breakdown of the elimination difference to the Other Differences financial statement item in the transaction currency. The checkbox Post in local currency may be checked or unchecked depending on the business needs, and it does not affect the breakdown of the elimination differences.

Figure 7

Check the Post in transaction currency indicator

Execute the Intercompany Elimination

You can execute the intercompany elimination in several different ways:

1. Execute interunit elimination from the SAP standard menu by using transaction CX54 or by following menu path SAP menu > Accounting > Enterprise Controlling > Consolidation > Consolidation > Automatic Posting > CX54 – Interunit Elimination.
2. Execute intercompany elimination from the consolidation monitor. To bring up the consolidation monitor, use transaction CX20 or follow menu path SAP menu > SAP menu > Accounting > Enterprise Controlling > Consolidation > Consolidation > CX20 – Monitor. The consolidation monitor is displayed upon execution (Figure 8). Right-click the icon in the I/U pay/rec column and select Update from the context menu.  

Figure 8

The consolidation monitor

     3. You can execute intercompany elimination from the consolidation monitor by executing all the tasks in succession under the consolidation monitor (Figure 9). Go to the consolidation monitor and execute all the tasks in succession without stopping by first selecting the consolidation group by clicking it and then executing the menu option Run successive tasks w/o stop from the Menu bar menu option Tasks > Bundle.

Figure 9

Execute elimination from the consolidation monitor by running successive tasks

Upon intercompany elimination execution, using any of the aforementioned methods, the intercompany elimination now splits the elimination difference into differences owing to currency and other differences. The balances of financial statement items to be eliminated are compared in transaction currency and group currency. The elimination difference in the transaction currency is converted into group currency using the exchange rate determined from the setup in the elimination control parameters. This difference is posted to the Other differences financial statement item.

The difference between group currency elimination difference and Other differences is posted to the Currency-related differences financial statement item. The elimination report is generated by the system upon successful completion of the elimination execution. The report shows the elimination difference breakdown (Figure 10) for the Financial Statement Item (10420500) and the associated elimination document (Figure 11) where the elimination difference of $190 has been split in two separate financial statement items: 

1. $90 credited  to 30430200 as Other differences
2. $100 credited to 30420000 as Currency-related differences

Figure 10

Elimination difference split

Figure 11

Elimination split

The intercompany elimination difference has thus been successfully split into two separate components — Currency-related differences and Other differences.