FICO

How Do Financial Processes Compare Between SAP ERP and SAP S/4HANA?

SAP S/4HANA Finance is almost ten years old, and with the 2027 deadline to move SAP businesses processes from the existing FI-CO modules fast approaching, now is a great time to understand what SAP S/4HANA Finance brings to the table.

 

In this blog post, we’ll aim to give you a solid foundational knowledge on SAP S/4HANA Finance. We’ll take a look at financial processes as they exist in the world of SAP ERP, see how SAP S/4HANA changes them, introduce you to brand-new features only available in SAP S/4HANA Finance, and discuss the benefits of moving to the solution—there are many beyond the immediacy of the upcoming maintenance deadline!

 

What Is SAP ERP Financials?

SAP ERP Financials was SAP’s main financial and controlling solution up until the advent of SAP S/4HANA Finance. Part of the SAP Enterprise Central Component ERP solution (more commonly referred to as SAP ERP), it focuses on two key areas. The first, financial accounting (abbreviated to FI), lets businesses keep track of their money and other SCM- and sales-related line items in an outward-facing, legal accounting way. The second, management accounting (also known as controlling and abbreviated to CO), helped businesses track and manage their finances internally using business-specific rules. Together, these were referred to as FICO or FI-CO in SAP spheres.

 

SAP originally started out as an accounting software, so these components were highly developed and focused on a number of key areas:

  • Accelerated local and group close through tools like the General Ledger and Closing Cockpit.
  • Increased business insight for management reporting with functionality like profitability analysis and cost-center accounting.
  • Efficient financials processing with end-to-end integration and specialized transaction codes.
  • Improved corporate governance with security, reporting, and whistleblower tools.
  • Enhanced performance management with in-depth analytics, business consolidation tools, and value driver trees.

SAP ERP Financials

 

What is SAP S/4HANA Finance?

SAP S/4HANA Finance is SAP’s latest, flagship financials solution and successor to SAP ERP Financials. First released in 2014, it boasts many process improvements for the financials world, including the introduction of a single source of financial truth, real-time financial close, centralized accounts payable and receivable, predictive accounting, and embedded analytics. It was developed to run off the SAP HANA platform and primarily utilizes the SAP Fiori user interface.

 

SAP S/4HANA Finance can be run either on-premise or in the cloud. On-premise updates are released to solution owners every two years, and every four months for those who run it on the cloud. There is also a third option for using SAP S/4HANA for financial processes only—while performing all other ERP-related tasks on a separate system—called Central Finance.

 

SAP S/4HANA Finance covers the following areas of a business:

  • Financial planning and analysis
  • Accounting and financial close
  • Treasury and financial risk management
  • Finance operations
  • Enterprise risk and compliance management

 

How is SAP S/4HANA Finance Different from SAP ERP Financials?

SAP was clear from the beginning that the “simple” in SAP S/4HANA Finance’s first iteration was multifaceted. Those using the new solution would find not only automatic, up-to-the-minute financial reporting, but a streamlined data model and lightweight architecture.

 

Initial FI-CO functionality improved upon the existing SAP ERP Financials options. This included updated financial planning and analysis, accounting and financial close, treasury and financial risk management, collaborative finance operations, and enterprise risk and compliance management.

 

A comprehensive list of changes is not feasible—hundreds of blog posts dive into specifics such as these, and SAP regularly releases a simplification list of the latest features—but here are some important changes to note.

No More Separated FI and CO Modules

The biggest change between SAP ERP Financials and SAP S/4HANA Finance is that SAP did away with separate components for financial and management accounting. This is possible because SAP created a brand-new ledger, ACDOCA (more on this below), that compiles all financial data into a single source of truth built atop the SAP HANA database. This speeds up the time it takes to reconcile financial data during reporting periods.

Profitability Analysis Defaults Have Changed

In SAP ECC, the default option for profitability analysis was costing-based CO-PA. In SAP S/4HANA, the default is now account-based CO-PA. You still have the ability to run the former option, but it would be in tandem with account-based reporting.

Material Ledger Activation Requirements

It used to be that you could forgo activating the Material Ledger in SAP ERP. With the new suite, however, this is not possible: Material Ledger activation is mandatory. While this may sound like an unnecessary rule, considering SAP S/4HANA also incorporates supply chain management data into the solution, this necessity makes for a more robust ERP solution.

Revenue Recognition Has Been Rebuilt

In SAP ERP, there was a module under Sales and Distribution that focused on the area of revenue recognition. In SAP S/4HANA, this functionality is now under the SAP S/4HANA Revenue Accounting and Reporting module. This solution is up to date on the latest in IFRS standards and simplifies revenue recognition with tools like optimized contract management. Further integration with SAP solutions exists to handle revenue recognition, such as connecting it with SAP Billing and Revenue Innovation Management.

 

New Features in SAP S/4HANA Finance

The advent of SAP S/4HANA Finance marked a significant milestone in the financial realm by introducing the concept of a unified source of truth. This entails consolidating all financial data from various departments, ledgers, and geographical locations. Leveraging the in-memory storage capabilities of SAP HANA, the platform facilitates the instant generation of analytical reports accessible to any authorized personnel—on demand. Consequently, it delivers instant benefits to accountants examining historical and present financial activities, project managers overseeing intricate projects within constrained budgets, and planners harnessing past and current data to project future outcomes.

The Universal Journal

In SAP S/4HANA, the Universal Journal acts as an enterprise-wide pivot table, combining the traditional FI and CO data into a single table called ACDOCA. This makes legal and management accounting go much smoother. While this is a big change compared to what financials professionals were used to, it maintains familiar posting logic.

 

Dive deeper into the Universal Journal in this post.

Predictive Accounting

SAP S/4HANA introduces the concept of predictive accounting, which takes existing sales data and uses it to create estimated forecasts that can help your company plan how to spend money and which products to make. These are housed in a separate extension ledger, so they aren’t accidentally added to legal reporting documents.

 

Predictive Accounting with SAP S/4HANA

 

Learn more about activating and creating an extension ledger for predictive accounting here.

Consolidated Group Reporting

With the power of SAP HANA allowing for more data inputs and faster reporting turnouts, SAP enhanced classic financial consolidation so that it was built around a fully unified framework, covered the entire data flow, connected all data, and was cloud deployable. This allowed SAP S/4HANA to provide a “continuous close” of consolidation—ad hoc reports always up to date and up to the minute.

 

Group Reporting in SAP S/4HANA

 

Learn more about group reporting with SAP S/4HANA in this post.

Efficient Financial Closing

Two tools included with SAP S/4HANA allow companies to complete financial closing in an easier fashion. The first, SAP Financial Closing cockpit for SAP S/4HANA, is an add-on tool that provides a closing template for businesses to follow. This is much like the add-on tool that SAP ERP Financials offered as an add on, but it’s built right into SAP S/4HANA in the new suite.

 

The second tool, SAP S/4HANA Cloud for advanced financial closing is a cloud-only option that connects to on-premise solution(s) and helps you plan, process, and monitor financial closing for multiple instances of SAP S/4HANA running across your business. This comes in handy for large corporations that run different SAP S/4HANA deployment options and hosts around the world.

 

Learn more about these tools here.

SAP Fiori Applications

With the advent of SAP S/4HANA, SAP radically changed the look and feel of the ERP’s user interface. What once was accessed via menu paths and transaction codes can now be opened and run with SAP Fiori applications. These apps gave a lighter feel to the user experience and made it easy to run reports and other key tasks from mobile devices in addition to desktop workstations.

 

Benefits of Moving to SAP S/4HANA for Finance

SAP S/4HANA Finance offers a multitude of benefits, the most important of which we’ve laid out in this post. From the column-based storage of SAP HANA allowing for real-time data recall, to the simplification of functionality through removing redundancies and adding supercharged processes, businesses can gain process improvement and free up employees to do other tasks.

 

It’s clear that SAP S/4HANA Finance provides an upgrade over the older SAP ERP Financials tools. If you haven’t already made the move from SAP ERP (and if you’re reading this article, we assume you fall into this camp), now is the time! SAP will end maintenance on SAP ERP components by the end of the decade, and migration projects can take years to complete depending on the complexity of your business. Invest in your business by investing in the future of finance!

Recommendation

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Beginning your finance transformation? Looking to learn what SAP S/4HANA has to offer? This book is your starting point for SAP S/4HANA Finance! Learn about the suite’s architecture and explore its capabilities for your core finance processes: financial accounting, management accounting, treasury and risk management, planning, consolidation, and close. Unlock enterprise-wide finance reporting, assess your deployment options, and design your finance project with this introductory guide!

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