We started our FPSL-journey on this blog with a post that gave a brief and general overview of SAP S/4HANA for financial products subledger as a product (What is SAP FPSL?). A second post shed light on the product scope and accounting functionality of FPSL (SAP S/4HANA for FPSL: Features & Functionality). This blog post focuses on one of the essentials when it comes to accounting: the chart of accounts (COA).
SAP FPSL – Recap
SAP S/4HANA for financial products subledger (FPSL) is a comprehensive accounting engine and subledger solution for financial products and insurance contracts. SAP FPSL is designed not only for specific institutes but for the entire financial services industries sector and other corporations.
On the one hand, FPSL helps banks, insurances or reinsurance companies to simplify the accounting procedure for the large amount of complex financial products in their books. On the other hand, it also supports i.e. fintechs or corporates to increase the efficiency of their subledger accounting. Moreover – and in contrast to classic AFI and smart AFI – SAP FSPL introduces an entire component specifically designed for the accounting of insurance contracts.
Subledger and General Ledger Accounting both require charts of accounts
Subledger accounting is an integral part of the overall accounting process and seamlessly integrated into the accounting documentation chain. Based on national and international accounting principles (multiple accounting methods and different currencies), SAP FPSL supports the valuation of financial instruments and insurance contracts.
FPSL as a subledger consumes source data from the respective source systems. Within the subledger accounting steps, it creates posting documents and stores them at contract or portfolio level. To connect the dots between the subledger and the general ledger views, FPSL provides a mechanism to aggregate the subledger documents to general ledger documents and transfer them to the general ledger (i.e. SAP ECC, SAP S/4 HANA).
The fact that subledger documents are aggregated to general ledger documents and then transferred to the general ledger requires a clear COA-concept. To connect the two different views (subledger (S/L) vs. general ledger (G/L)), the FPSL-COA-logic comprises two different charts of accounts: the subledger chart of accounts and the general ledger chart of accounts. Let´s have a look at them in the next steps, beginning with the S/L COA and then proceeding with the G/L COA.
Subledger Chart of Accounts
The subledger chart of accounts is a structured register for the creation of subledger posting documents that particularly comprises three predefined financial statement segments.
Subledger Accounts are assigned to subledger account groups (i.e. Receivables/Payables due or Receivables/Payables not due) which are predefined by the SAP Business Content. The S/Ls are also assigned to one specific financial statement segment. The subledger account groups themselves determine which process steps are responsible for updating the account.
Definition of Subledger Account Group
If required, it is possible to edit the assignment of accounting systems and subledger accounts to the financial statement subsegment. It is also possible to create custom-specific financial statement segments.
Subledger Accounts assigned to Subledger Account Group
As well as the financial statement segments structure the subledger chart of accounts, they are themselves structured by the assignment of specific financial statement subsegments.
Financial Statement Subsegments assigned to FS Segment
Since balance sheet reporting is defined by the requirements of the respective accounting principle in use, the assignment of subledger accounts to a financial statement subsegments depends on and may vary based on the relevant accounting principle in use. To be able to report several subledger accounts under one balance sheet item, they can be grouped by assigning one or more S/L accounts (of 1+n S/L account groups) to a financial statement subsegment.
General Ledger Chart of Accounts
Next to the subledger chart of accounts, FPSL comprises the general ledger chart of accounts that is provided by the general ledger (i.e. from SAP S/4 HANA FI-GL). As mentioned above, SAP FPSL combines the subledger and the general ledger point of view by aggregating subledger documents to general ledger documents and transferring them to the general ledger. Therefore, it is essential that the subledger is capable of transferring the complete subledger chart of accounts to the general ledger chart of accounts. SAP FPSL provides this functionality by deriving the relevant General Ledger Account per Subledger Account based on the financial statement subsegment.
General ledgers are created based on a chart of accounts area and an area specific to the company code. In the system, the G/Ls are created as G/L Account master data. COAs can be used for one ore more company codes and while i.e. the account number and name are predefined in the chart of accounts, the currency is specific to the area of the company code. The General Ledger Integration in FPSL provides the possibility of maintaining the General Ledger Chart of Accounts in preparatory steps as well as creation and processing steps.
Since it might be required to make adjustments to the G/L COA such as reducing the number of G/L Accounts in use or consolidate the COA of different companies, SAP FPSL provides the option of preparatory COA steps. They enable you to revise the existing General Ledger Chart of Accounts before you start the G/L Acocunt creation in the system. More specifically, you can for instance edit the COA, assign company codes to COAs or define account groups.
Similarly, the G/L creation and processing step allows you to create G/L accounts in different ways. You can either create them with reference (create them based on an edited copy of G/L accounts from a reference company code), create them via transfer from an external system or create them via copy (i.e. copy a chart of accounts included in the standard system).
FPSL also allows you to use other general ledgers next to the SAP S/4 HANA genreal ledger (FI-GL). In such a case, the relevant COA needed for the subledger accounting can be entered in the system from the general ledger. The general ledger accounts can be entered as well.
Exemplary definition of COA
Exemplary definition of G/L accounts for the created COA
General Ledger Connection
The genereal ledger connection functionality in FPSL bridges the gap between the subledger (FPSL) and the general ledger (i.e. S/4 HANA FI-GL). In the general ledger connection, FPSL aggregates subledger documents that have been created since the last general ledger update based on the predefined general ledger coding block and then sends them to the general ledger (with or without previously persisting the documents in the subledger). From a technical perspective, the connection is enabled by two steps/processes in the system (see also FPSL-illustration above).
To summarize the above in a nutshell: SAP FPSL is a comprehensive accounting engine and subledger solution for financial products and insurance contracts. Subledger accounting is an integral part of the overall accounting process and documentation. To connect the subledger view with the general ledger view, the FPSL-COA-logic comprises two different charts of accounts: the subledger chart of accounts and the general ledger chart of accounts. The subledger chart of accounts is a structured register that comprises three financial statement segments, several financial statement subsegments and account groups. FPSL also comprises general ledger charts of accounts and offers the capability of transferring the complete subledger chart of accounts to the general ledger chart of accounts. It also allows adjustments via preparatory steps and several ways to create the G/L COA. The genereal ledger connection functionality in FPSL bridges the gap between the subledger and the general ledger by aggregating subledger documents and sending them to the general ledger.
Manuel Rauscher is Principal Consultant at ADWEKO International. Since he joined ADWEKO in 2015, he has advised national and international financial services institutes within the sectors automotive, retail and payments. In this blog, he focuses on SAP S/4HANA for Financial Products Subledger (FPSL).