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SAP Treasury integration with financial accounting and cash management

Johan Dannestig

Fyrirlestrarheiti

I.  Treasury Applications from SAP, an overview II.  Transaction Manager, integration to FI/CO and CM III.  Demo

Denmark I Iceland I Sweden I UK I www.applicon.com

1 december 2009

I09-12-01 2I I2I

Fyrirlestrarheiti

I.  Treasury Applications from SAP, an overview II.  Transaction Manager, integration to FI/CO and CM III.  Demo

Denmark I Iceland I Sweden I UK I www.applicon.com

1 december 2009

I09-12-01 3I I3I

Today’s business challenges in Financials What are the responsibilities of the CFO?

Ensuring Compliance and Mitigating Risks

Driving Strategy and Growth   Measure Profitability   Control Costs   Define Benchmarks and KPIs   Link Strategy with Execution   Handle Mergers & Acquisitions

  Control Processes Efficiently   Manage Risks   Support Audits

Supporting Excellence in Corporate Operations   Manage Real-Estate   Manage Global Travel Policies   Develop Talents & Leadership

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Gaining Efficiency in Finance   Decrease Cost of Finance   Accelerate Financial Close   Organize Finance Operations Efficiently across the Enterprise

Optimizing Working Capital   Free-up Working Capital   Decrease Day Sales Outstanding   Decrease Bad-debt write-offs

Financial Supply Chain Management and Treasury Applications from SAP

Electronic bill presentment and payment

Credit management Check creditworthiness

Cash and liquidity management

Issue invoice

Finance working capital

Forecast cash

Treasury and risk management

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Dispute management

Resolve disputes

Collect cash

In-house cash

Collections management

Settle & pay

Reconcile

Bank Communication Management

Treasury Applications from SAP

SAP Treasury and Risk Management Manage Financial Risk

Manage Financial Instruments

Risk Analyzers Credit Risk

Market Risk

Portfolio Analyzer

Transaction Manager Hedge Mgt MM

FX

Exposure Mgt DER

DEB

SEC

COM

SAP Bank Communication Management Manage Cash and Liquidity

SAP In-House Cash SAP Cash and Liquidity Management

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SAP In-House Cash Core Functions and Benefits SAP In-House Cash   Central dispatching, routing, and processing of payments   Creation of provided account statements to account holders   Delivery of financial status to cash management   Tracking of payment status

Benefits   Reduce physical cash transfers by internal netting   Reduce number of bank accounts   Save bank fees for bank accounts and payment transactions   Avoid cost for external cross-border payments   Gain more interest keeping cash within the group   Reduce hedging deals concentrating exposure within the group

Denmark I Iceland I Sweden I UK I www.applicon.com

SAP Cash and Liquidity Management Core Functions and Benefits SAP Cash Management   Daily cash position   Liquidity forecast

Benefits

  Electronic bank statements   Currency exposure

  Single, reconciled financial data source

  Disposition

  Enables centralized treasury organization   Flexible planning framework

SAP Liquidity Planner   Liquidity Analyzer as part of SAP ERP

  Natively integrated into SAP environment

  Mid- and long-term liquidity planning

  Adaptable to your organization‘s requirements

  Decentralized access for data entry

  Core SAP ERP component

  Central system for liquidity reporting

Denmark I Iceland I Sweden I UK I www.applicon.com

SAP Bank Communication Management Core Functions and Benefits SAP Bank Communication Management   Batching of payments   Payment approval rules   Digital signature   Payment Monitor   Payment workflow   Integration to SWIFTNet

Benefits   Improve control over payments   Full auditability ensures compliance   Real-time visibility of payment cycle   Reduces time and cost of bank reconciliations   Lower bank integration costs   Complete transparency of payment status

Denmark I Iceland I Sweden I UK I www.applicon.com

SAP Treasury and Risk Management Core Functions and Benefits SAP Transaction Manager   Support of standard financial instruments   Integrated and automated straightthrough processing

SAP Risk Analyzers   State of the art risk management capabilities   Credit Risk Analyzer   Market Risk Analyzer   Portfolio Analyzer

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Benefits  Optimization of hedging and risk management processes through exposure management for operational FX and commodity exposures  Increase transparency by having operational and treasury exposures evaluated for market risk  Comply with legal regulations and compliance requirements

Fyrirlestrarheiti

I.  Treasury Applications from SAP, an overview II.  Transaction Manager, integration to FI/CO and CM III.  Demo

Denmark I Iceland I Sweden I UK I www.applicon.com

1 december 2009

I 09-12-01 11 I I 11 I

SAP Treasury and Risk Management Reporting Ad hoc reporting: Point & click, Unified databases, Position, P&L, Period, CashFlow Reporting tools: SAP Query, ABAP List, and other 3rd party providers, BI Results database: Portfolio Hierarchy, Drilldown, Historic results Management reports: Positions, Performance, Ratios, Compliance Middle office: Risk exposure, Controlling, Compliance, Data export: Excel, Flat files, BI

Credit Risk Analyzer

Market Risk Analyzer

Utilization: Formulas, Credit risk, Settlement risk

Price calculator: NPV, Prices, Sensitivities

Limit management: Limits freely definable, Multidimensional limits

Value at Risk: Varians/covarians, Historic, Monte Carlo

Portfolio Analyzer Yield calculations: Money weighted, Time weighted, Modified Dietz method

Simulate rates: What-if scenario, Relative, Absolute MM

FX

Debt

Derivat.

Fixed deposits Deposits at notice CP Repo

Spot Forward Swaps Options Futures

Bonds Bank loans Commercial paper Facilities

Cap Floor FRA Swaps Options Futures

Securities Bonds Warrants Stocks Certificates Repo Sec. lending

Transaction Manager Front office: Position and deal reporting, Deal capture, Exercise, Dealer slip, Valuation tools, On-line limit check Back office: Standing instructions, Correspondence, Netting, Settlement, Rate fixing (interest, FX), References, Corporate actions, Process monitors Accounting: Flexible accounting determination, Accounting according to many international accounting standards – in parallel, Hedge accounting

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Transaction Management Process Release

Back office

Trading Create order/contract • Exercise/expiration • Give notice • Rollovers • Exercise rights

Settlement/Control   Interest rate adjustment   Netting   References   Confirmation letters   Securities account transfers   Corporate actions

• 

 

User authorization User defined status codes Limit management

Denmark I Iceland I Sweden I UK I www.applicon.com

Accounting Postings   Payment activities   Reversals   Accruals/deferrals   Valuation  

Concept of Cash Management Market information

Trading

Cash management decision

Cash Position

Bank accounts in currency: Account 1 : Account n Total

Payment transactions in transit: - incoming - outgoing

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Liquidity Forecast

Financial investments and borrowings

Subledgers: - A/R - A/P - Purchase orders - Orders

Valuation of Financial Transactions Different legal frameworks use different principles for the valuation of Financial Transactions. This leads to different requirements such as:   Valuation of book value using various methods such as •  Lowest value •  Mark-to-Market •  Amortized Cost

  Different approach to transaction costs •  Costs are included in the book value •  Costs are posted directly to profit and loss account

  Valuation of gain and losses when selling from the position such as •  Average Cost •  Lott accounting principles for example LIFO, FIFO

  Special treatment for hedging transactions   Many companies needs to report according to several frameworks in parallel Denmark I Iceland I Sweden I UK I www.applicon.com

Integration between TRM and GL   In SAP Treasury and Risk Management you use a separate Valuation Area for each accounting principle •  The results of the valuations are calculated separately for each valuation area using a full approach

  Each Valuation Area is assigned to a GL Accounting Principle •  The valuation area “001” should be assigned to the leading ledger in GL •  When TRM generates postings with payment information it ensures that the payment is only made once

  It is possible to have a valuation area in TRM that does not post to the GL •  The results of the valuations are then only available in TRM and meant for internal treasury reporting

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Posting: Account Determination Fixed-term deposit 1 month 3.5%

Sept 1st Oct 1st Oct 1st

1100 1120 + 1200 +

Fixed-term deposit Final repayment Nominal interest

Acct assignment ref. DB000001

1,000,000 1,000,000 3,750

Balance sheet account acc. to account assignment reference

Posting details Flow type

Fxd-term dep. acct 113113 Deposit Final repayment

D 1,000,000

1100 -

Debit Bal.sht

Credit Bank

1120 +

Debit Bank

Credit Bal.sht

1200 +

Debit Bank

Credit Int. earned

Interest earned 273100

Bank clearing acct 113100 C

1,000,000

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FT deposit Nominal int. Final repayment

D 3,750 1,000,000

C 1,000,000

D Nominal interest

C 3,750

Integration between TRM and GL using Parallel Accounts TRM Transaction Manager

General Ledger

Transaction Management Purchase of new bond at the cost of 90€ with a fee of 1€

Valuation Area 001 Valuation rules for bonds: Post fees to P/L Mark-to-Market valuation

Number range 1 Doc. # 1 Doc. # 4

Doc. # 2 Doc. # 5

Bond purchase Valuation

Number range 3

Valuation Area 003 Valuation rules for bonds: Post fees to P/L Lowest value principle

Valuation

Number range 2

Valuation Area 002 Valuation rules for bonds: Activate fees Amortize costs

Bond purchase

Doc. # 3

Bond purchase

Position 1311044 90

Costs 1118500 1

3

Position 2311044

Unreal. 1112200

91

Costs 2118500

Unreal. Dummy Bank 2112200 2299999 91

1

90

…

3

91

Position 3311044

Bank Acc. 1220155

…

1 Costs 3118500 1

Unreal. Dummy Bank 3112200 3299999 91

Valuation

Valuation Area 004 Valuation rules for bonds: Post fees to P/L Mark-to-Market valuation

Treasury Ledger Denmark I Iceland I Sweden I UK I www.applicon.com

Example: Purchase of new zero interest bond at the cost of 90€ with a fee of 1€ At year end the MtM value of the bond is 93€, amortized cost is 1€ at year end

…

Integration between TRM and GL using Parallel Ledgers TRM Transaction Manager

General Ledger

Transaction Management Purchase of new bond at the cost of 90€ with a fee of 1€

Valuation Area 001 Valuation rules for bonds: Post fees to P/L Mark-to-Market valuation

Ledger 1 Doc. # 1 Doc. # 4

Doc. # 2 Doc. # 5

Bond purchase Valuation

Ledger 3

Valuation Area 003 Valuation rules for bonds: Post fees to P/L Lowest value principle

Valuation

Ledger 2

Valuation Area 002 Valuation rules for bonds: Activate fees Amortize costs

Bond purchase

Doc. # 3

Bond purchase

Position 311044 90

Costs 118500 1

3

Position 311044

Unreal. 112200

91

Costs 118500

Unreal. 112200

Dummy Bank 299999 91

1

90

…

3

91

Position 311044

Bank Acc. 220155

…

1 Costs 118500 1

Unreal. 112200

Dummy Bank 299999 91

Valuation

Valuation Area 004 Valuation rules for bonds: Post fees to P/L Mark-to-Market valuation

Treasury Ledger Denmark I Iceland I Sweden I UK I www.applicon.com

Example: Purchase of new zero interest bond at the cost of 90€ with a fee of 1€ At year end the MtM value of the bond is 93€, amortized cost is 1€ at year end

…

Fyrirlestrarheiti

I.  Treasury Applications from SAP, an overview II.  Transaction Manager, integration to FI/CO and CM III.  Demo

Denmark I Iceland I Sweden I UK I www.applicon.com

1 december 2009

09-12-01 I 20 I I 20 I