Issue

This document will evaluate the implementation of Universal Parallel Accounting (UPA) in SAP S/4 HANA, assessing its potential to streamline Syensqo’s financial processes, enhance compliance with global accounting standards, improve internal managerial reporting and remove existing pain points.  

Universal Parallel Accounting (UPA) is a solution introduced by SAP in S/4 HANA 2022. It fully aligns and optimizes the parallel accounting capabilities developed by SAP over the years to support compliance with IFRS and other accounting standards. 

Key areas covered in this document:

• Overview & Background
• Technical and functional breakthroughs and comparison
• Constraints and limitation of Universal Parallel Accounting, especially since it is a new SAP solution
• Options
• Recommendation

Activating Universal Parallel Accounting (UPA) at a later stage, once a system is in productive use, requires migration activities that come with their own complexities, especially if the system has been set up in a way that doesn't allow for a seamless migration to UPA. As such it is crucial to consider an activation of UPA from the very beginning in a new implementation or at least have a high degree of UPA readiness incorporated in the initial system build.

Recommendation

The recommendation is to pursue 'Option B - Ensure UPA readiness in the system design but do not switch it on during initial deployment of S/4 HANA'.

The implementation of Universal Parallel Accounting (UPA) in SAP S/4 HANA presents an interesting opportunity for Syensqo to enhance its financial management processes, particularly in managing compliance with multiple accounting standards and parallel valuations.  UPA has the ability to:

• Integrate multi-GAAP support across all SAP modules
• Manage up to ten currencies and valuations across leading as well as non-leading ledgers and SAP modules
• And addresses limitations in the current system, offering streamlined financial processes, reduced manual interventions, and improved accuracy in financial reporting. 

While UPA promises substantial benefits for both Finance as well as IT departments in the organization in the long run, an immediate deployment of the feature is not recommended given it's immature state (introduced in 2022). As UPA is fundamentally changing complex integration points within and beyond the Finance module in S/4 HANA, a number of known limitations of the functionality exist especially with view to support of country-specific solutions (see section 'Constraints') and dated yet widely used Logistics functions such as External Service Procurement or Classic Intercompany Sales processes. In some other less critical areas, SAP hasn't completed the validation of the regression test results for existing functionalities as of yet which poses another risk factor as there may be further unknown constraints that simply haven't been discovered yet. Looking at the extensive roadmap of UPA and the thrust SAP is using to promote UPA, it is expected that these limitations will be addressed by SAP in the nearer future to ensure customers can safely migrate to and use UPA with less risks involved as it further matures in the future provided certain key principles were considered in the initial system and process designs (e.g. ledger and currency design).

Background & Context

Globalization and organizational growth have increased the need for comparative financial reporting across jurisdictions. Traditional systems struggle with multiple accounting standards like IFRS and local GAAP. Universal Parallel Accounting simplifies this by harmonizing valuations and enhancing financial transparency. The following paragraphs will highlight the key innovations that enable this.

• Parallel accounting and valuations
• Multi-currency accounting
• Fixed assets
• Production accounting
• Fiscal year variants

Universal parallel accounting (UPA) is the target design for SAP in S/4 HANA Finance, with an extensive future roadmap. However, as a new solution, it has some limitations (please refer to SAP scope note 3191636) and imposes some constraints on integrated process designs to ensure seamless migration. These constraints will be further assessed in this KDD.  Technically, it represents a non-reversible function with the following primary business use cases in its current version (Note: UPA is an evolving roadmap item from SAP and subject to frequent changes with view to its functionalities and capabilities):

Parallel Accounting and Valuations

Without UPA

Many end-to-end financial processes in a non-UPA S/4 HANA system are designed by SAP to facilitate legal reporting directly from the leading ledger. To achieve regulatory reporting compliance for those processes in non-leading ledgers that follow different accounting standards, additional month-end activities for business users and/or complex system setups and maintenance activities are required.

Typical example for a Financial end-to-end process with such a constraint are Fixed Asset acquisitions via investment measure cost objects such as WBS elements. By default, the values from the leading ledger will be transferred to the non-leading ledgers as well. For non-leading ledgers different capitalization rules may apply in the respective country legislations though. Period-end adjustment postings were therefore oftentimes necessary to account for those differences in the non-leading ledgers. Alternative solutions such as capitalization keys have been introduced by SAP along the way but are cumbersome to maintain in the long run. 

Other examples of parallel valuation include actual activity rate calculation and valuation for non-leading ledgers with different GAAP. These are not supported by default in SAP unless the "Parallel COGM functionality" is activated, which, like UPA, is non-reversible. Additionally, UPA is regarded as the successor to the Parallel COGM functionality.

Traditional programs for Cost allocations only considered values from the leading ledger unless complex solutions are applied. Nevertheless even in the non-UPA S4 the Universal allocation application provides ledger-specific allocations. This becomes even broader now with UPA.

In non-UPA S/4 systems, the Material Ledger allows only three different valuations, creating limitations in aligning the General Ledger with the Material Ledger. This restriction becomes more significant when group valuation is active (See KDD008 - Transfer Pricing) . Group valuation views are treated as separate currency types for each ledger, with a maximum of two group valuation currency types allowed due to integration constraints with the Material Ledger functionality.

With UPA 

Universal Parallel Accounting (UPA) in SAP S/4HANA offers a fully integrated and automated multi-GAAP accounting system across all leading and non-leading ledgers without requiring manual month-end adjustments or complex alternate solutions such as capitalization keys or parallel Cost of goods manufactured (Parallel COGM) functionality. Universal Parallel Accounting, supports up to ten currencies in subledgers, including the material ledger and asset accounting, which extends beyond the traditional limitation of three currencies, enabling more comprehensive financial reporting and analysis. Furthermore, the new architecture enables future innovations like transactional carbon accounting, providing a foundation for sustainability and environmental stewardship reporting.

UPA introduces the ability to calculate and apply standard prices at the ledger level, accommodating various accounting principles like IFRS, local GAAP, and other statutory requirements—functionality not available in earlier SAP versions. It also allows for inventory valuation by ledger, enabling actual costing based on local GAAP where required, or across all ledgers and company codes. Essentially, a material's standard and actual price can vary by ledger, ensuring more accurate financial reporting and compliance with legal requirements.

Moreover, Universal Parallel Accounting, allows the management of multiple ledgers within the Material Ledger. This capability facilitates various valuation views, such as group valuation and legal valuation, within the same organization in a more streamlined manner compared to a non-UPA S/4. (See  KDD008 - Transfer Pricing), 

In summary, the need for complex manual adjustments and custom solutions to achieve integrated end-to-end processes in parallel accounting and valuation is greatly diminished. 

Multi-Currency Accounting

Without UPA

As already mentioned, for many SAP customers operating globally including Syensqo, books need to be kept in multiple currencies to comply with various reporting requirements for operational, management, group, statutory and tax reporting. In non-UPA S/4 HANA systems, a maximum of three currencies can be maintained which are fully integrated with all the accounting (FI) modules (e.g. Fixed Asset Accounting, Tax Accounting), and Controlling (CO) including Material Ledger for inventory valuation. Up to seven additional parallel currencies can now be defined in S/4 HANA as freely-definable currencies (See KDD018 - GAAP Ledgers and Currency Types).

however, these seven additional currencies are non-integrated and can therefore only be used for indicative or partial financial statement reporting.

Typical example which illustrates best the limitation of freely-defined currencies in S/4 HANA are again end-to-end Financial processes such as Fixed Asset acquisitions via investment measure cost objects such as WBS elements. Amounts in freely-defined currencies are re-translated based on the spot rate maintained in the system at the point of cost settlement/asset capitalization. This leads to asset capitalizations which are not based on historic costs and unreconcilable depreciation amounts in those currency types as depreciation is also re-translated each month instead of being based on the original acquisition costs.

With UPA

Compliant Financial Statement reporting possible in up to 10 currencies across all leading and non-leading ledgers defined in the system. UPA supports up to ten currencies in subledgers, including the material ledger and asset accounting. This feature extends beyond the traditional three currencies limitation, allowing for more comprehensive financial reporting and analysis across multiple currencies.

Fixed Asset Accounting

Without UPA

To deal with multi-GAAP and multi-currency reporting requirements in the Fixed Asset Accounting module, an extensive setup of depreciation areas is required to ensure a consistent value flow of historic acquisition costs throughout an asset’s lifecycle.

The general rule of thumb for a consistent value flow update in the Fixed Asset Accounting module prescribes one separate depreciation area for each standard ledger and each fully integrated currency type set up in the Financial Accounting module (please refer to the KDD on ledgers and currency types for further details on the proposed setup in the to-be solution). 

So in a scenario with three standard ledgers and two integrated currency types per ledger as proposed in the to-be solution, a minimum of 6 depreciation areas needs to be set up with a number of configuration activities in the Fixed Asset Accounting module which are depreciation area-specific leading to increased implementation and maintenance efforts.

Moreover, capitalization requirements vary across accounting standards (e.g., local GAAP may capitalize realized exchange rate differences on fixed assets, while IFRS may not). SAP introduced capitalization keys to define ledger-specific rules, but configuring and assigning these to Assets under Construction adds system overhead (e.g., setting up additional G/L accounts or asset classes). This can limit scalability and flexibility, making it harder for businesses to adapt to changes in capitalization scenarios.

With UPA

In a UPA-active S/4 HANA system, the Fixed Asset Accounting module can be set up in a leaner way as all parallel currencies across all ledgers are automatically converted based on historic rates without the need for additional depreciation areas.

With the proposed ledger and currency type setup in the to-be solution, this would result in a base setup for Fixed Asset Accounting of 3 depreciation areas in a system with UPA compared to the 6 depreciation areas minimally required in a non-UPA system or in relative terms a 50% reduction of data footprint and maintenance requirements for the Fixed Asset Accounting module.

Any additional currencies that may be added due to a change in reporting requirements (e.g. consolidated group reporting in USD besides EUR) do not require the introduction of additional depreciation areas in the system, value flows based on historic costs can be consistently handled in the Fixed Asset Accounting for up to 10 currencies with UPA enabled.

UPA also offers a more flexible and scalable approach for handling of capitalization differences between the various accounting standards followed by each ledger set up in the system. In a UPA-active system, settlement rules for Fixed Asset capitalizations can be defined separately for each ledger at the level of the individual Asset under Construction/investment measure which gives the business greater flexibility to respond to changes in the capitalization requirements in the future. This approach also considers period shifts between the leading and non-leading ledgers in case the parallel ledgers follow an alternate fiscal year cycle.

Production Accounting

Without UPA

Overhead Calculation allocates costs from cost centers to manufacturing orders. Next, Work in Process (WIP) calculation is assessing incomplete production to value the work in process. Variance Calculation follows to identify differences between actual and planned costs. The final step is Settlement, where the above events generate accounting entries and the costs are allocated to receiver objects, finalizing production costs for financial reporting. The entire process is part of the month end procedure and ensures that all production costs are properly accounted for and reported, facilitating accurate financial analysis and decision-making.

With UPA

Event-based production order processing in SAP S/4HANA replaces the traditional period-end production accounting approach. This process facilitates parallel valuations of production costs by calculating overheads, Work in Process (WIP), and variances at the ledger level. The event-based production solution, a prerequisite for universal parallel accounting, enables real-time insights and streamlined period-closing processes. To configure event-based production cost posting, you must set up event-based WIP and variance postings.

Upon creating process/productions orders , event-based production cost postings are triggered, enabling the calculation and posting of WIP and variances in real-time. This method eliminates the need for period-end WIP calculations, variance calculations, and revaluations, significantly enhancing the accuracy and efficiency of production cost control​ and therefore financial reporting accuracy.

Alternate Fiscal Year Reporting

Without UPA

In some countries, it is a legal requirement to submit statutory accounts based on a fiscal year cycle which is different from the fiscal year the organization is following at a group level (e.g. India mandates a fiscal year cycle of April-March for statutory submissions). Only one fiscal year cycle can be defined in the Controlling module which is typically following the fiscal year cycle of the group policies. For statutory accounting, this often leads to inaccuracies in end-to-end value flow processes such as Fixed Asset Accounting that require manual adjustments/corrections at period-end.

• Example: See 'Figure 1' below.

With UPA

Fiscal Year variant from all ledgers considered across all processes in Financial Accounting, Controlling and other Finance-integrated modules.

• Example: See 'Figure 1' below.

Figure 1: Example of a multi-ledger cost settlement scenario with alternate fiscal year assignments for ledger '0L' and 'L2'. Settlement Rule  changes in period 7 from 50:50 to 80:20 between cost receiver 1 and 2 for both ledgers. Settlement Run executed for the month of July which is period 7 for ledger '0L' and period 4 for ledger 'L2'

Assumptions

• Syensqo is operating in multiple jurisdictions with different accounting standards and it relies heavily on accurate intercompany reporting.
• The necessary SAP S/4HANA version is available and can accommodate Universal Parallel Accounting. Including the SAP future roadmap releases till go-live.
• Migration from non-reversible business function 'FIN_CO_COGM' (Multiple Valuation for Costs of Goods Manufactured') to UPA supported in the deployed S/4 HANA edition.

Constraints

With UPA being a relatively new product from SAP, it is subject to continuous improvement and capability enhancements as such the constraints listed below are a current snapshot at the time of writing. As per SAP Note 3191636 (version 41 at the time of writing, also attached) the following constraints apply:

Financial Accounting

• Ledgers and Currency Types:
  • UPA does not support mixed valuation ledgers where legal and group valuation currency types are combined in one single ledger. This has been considered in the proposed ledger design for the new S/4 HANA system which was evaluated in KDD018 - GAAP Ledgers and Currency Types.
  • Non-leading ledgers require separate country-specific accounting principles when using UPA. This has also been proposed in the to-be ledger design in S/4 HANA to allow Syensqo to migrate to UPA at any point in time. 
• Fixed Asset Accounting:
  • Integration with Plant Maintenance not supported. Nevertheless, We can still use a soft link by assigning the Fixed Asset to an Equipment record. This approach will maintain a connection to the fixed asset, allowing it to be used for settlement or reporting purposes if needed.
  • Interest Calculation and Posting not supported (Note: This is not required for Syensqo)
  • Management of Independent Assets under Construction not supported (Note: not required for Syensqo)
  • Inflation Accounting not supported (Note: not required for Syensqo)
  • Integration with Flexible RE-FX not supported except for integration with Contract Lifecycle Management for managing IFRS16 Finance leases.

Controlling

• Planning:
  • Classic CO Planning transactions no longer supported by UPA, planning via SAC recommended approach (Note: SAC is preferred planning tool suggested in the KDD on the Financial budgeting and planning deployment approach).
• Overhead Controlling:
  • Indirect Activity Allocation not supported (Note: not required for Syensqo)
  • All CO allocations must be performed via 'Universal Allocation' Fiori app (Note: This is in line with planned to-be design for CO allocations in S/4 HANA)
• Investment Controlling:
  • Limited support of internal orders as investment measures (Note: Internal orders are out-of-scope in the to-be design)
  • Line Item Settlement not supported for investment measure cost objects (Note: As per initial discussion with A2D stream this is not required at Syensqo with a high likelihood)
• Product Cost Controlling:
  • Classic Results Analysis not supported by UPA. As explained in previous paragraph, UPA allows the event based Work in progress.
• Commercial Controlling:
  • Combined Profitability Analysis (Account-based and Costing-based) not supported (Note: out-of-scope for Syensqo)
  • Costing-based Profitability Analysis not supported (Note: out-of-scope for Syensqo)

Materials Management

• Procurement: 
  • SAP began replacing the old Service Procurement functionality 'MM-SRV' with a simplified version called 'Lean Services'. Going forward all new tools and functionality will only support the new 'Lean Services' tools.
  • Pre-existing tools and integration are gradually being switched over to the new 'Lean Services' functions but this takes time.
  • Two key older tools are Plant Maintenance and Transportation Management. Both of these need to purchase services and so currently only utilize MM-SRV for this purpose.
  • UPA as a new tool is NOT compatible with MM-SRV so there is a clash. We cannot use MM-SRV with UPA but we need MM-SRV for PM and TM to work. At this point SAP deployed system updates to make PM work with Lean Services in Q4 2023 and plans to deploy a fix for TM in Q1 2025. This should resolve the clash and allow us to switch to Lean Services for all - but deploying new fixes for complex area will result in relying on tools that are not fully tried and tested. The possibility of issues arising from the immaturity of the Lean Service fixes deployed for TM and and PM should be considered as a potential risk.

Country-specific SAP standard localization functionalities

• Universal Parallel Accounting is currently supported for the following countries in which Syensqo is running operational entities in scope for the S/4 HANA migration: USA, Germany, France and Japan.
• Migration to Universal Parallel Accounting is currently supported for the following country versions: USA, Germany.

Impacts

Infrastructure/Basis

• Activation of non-reversible business function (FINS_PARALLEL_ACCOUNTING_BF) is required.
• Higher volume of SAP note implementations expected for UPA in the beginning as it's still a new product from SAP.

Data Migration/Cleansing

• No immediate impact - statutory accounts in legacy system should be kept up-to-date to allow for direct local GAAP reporting out of the local GAAP ledger in S/4 HANA. 

Other SAP Modules

• All listed under section 'Constraints' (also refer to SAP note SAP Note 3191636 for further details).

Business Rules

• Fixed Assets and Equipment master records cannot be integrated/synchronized.
• Capital expenditures must be settled to Fixed Assets using summary settlement.
• Event based product cost controlling

Options considered

Option A: Implement UPA during initial deployment of S/4 HANA 

Overall, Universal Parallel Accounting in SAP S/4HANA was designed with the intention of offering a robust and highly innovative framework for managing parallel valuations, enhancing currency management, and integrating financial processes. This results in improved compliance, reporting accuracy, and support for future financial innovations. 

The main rationale for proposing this option is to let Syensqo benefit from the advanced capabilities of UPA with regards to parallel valuation and multi-currency accounting/reporting from the very beginning in the new S/4 HANA system. Subsequent activation of UPA will require migration activities and may be complex to realize depending on the defined business process designs across all areas with integration points to Finance.

Option B: Ensure UPA-readiness in system design but do not switch it on during initial deployment of S/4 HANA

With this option, UPA will not be switched on from the very beginning. The process and solution designs in the to-be solution will, however, consider currently known UPA constraints and recommendations to allow for a seamless migration to UPA at a later stage with an advanced level of product maturity.

In the interim, other solutions and reporting alternatives will be implemented in Finance to deal with parallel accounting and multi-currency requirements at Syensqo.

Evaluation

	Weighting (High/Medium/Low)	Option A - Immediate Deployment of UPA	Option B -  Deferred Deployment of UPA	Evaluation - Option A	Evaluation - Option B
Deployment Risk (Score)	High	UPA is a new business function from SAP which was released with S/4 HANA 2022. SAP is releasing the function to selected (pilot) customers only. As such, teething problems could still arise during the testing phases that may pose a risk to the project timeline.	A deferred deployment of UPA de-risks the initial go-lives as it is ruled out that unknown constraints from UPA were never tested during the testing cycles. A deferred deployment of UPA allows the product to further mature from its fledgling stages before it is put into use at Syensqo.	Low	High
Future compatibility	Medium	UPA is the roadmap and target design from SAP for parallel and multi-currency accounting in S/4 HANA. Future innovations from SAP in Finance may only be available to customers with UPA active. With an immediate deployment of UPA, Syensqo would be placed at the forefront of innovation for future product/process improvements in Finance.	A subsequent deployment of UPA requires migration activities. Considerations for a future seamless UPA activation might be overlooked in the initial process designs across the various streams Tools provided by SAP to facilitate the migration to UPA S/4 Finance process and system design is considering all known UPA constraints and requirements to ensure UPA-readiness of the system	High	Medium
Simplification and Standardization	Medium	Immediate deployment of UPA leads to simplified business processes and reduction of manual on- and off-system adjustments to Financial figures at period-end for local GAAP accounting. Simplified system setup for Finance processes potentially leading to lower maintenance efforts and costs. Compatibility of the current version of UPA with view to country-specific functionalities is very limited limiting Syensqo to potentially benefit from SAP standard functionalities to meet localization requirements.	Manual adjustments for local GAAP accounting may still be required, especially in countries with alternate fiscal year requirements. Increased complexity in system setup due to parallel accounting requirements (e.g. additional versions in CO, additional depreciation areas in Fixed Asset Accounting) A separate project will be initiated with its own budget, timeline, resources, and a new project charter, which might overlap with the new S/4 deployments This option gives Syensqo the ability to use, at least in the interim, the full scope of SAP standard localization functions and popular yet dated classic Logistics processes	Medium	Medium
Compliance and reporting	High	With the adoption of universal parallel accounting, a pure ledger approach is introduced where the ledger maintains consistent usage across asset accounting, Controlling, actual costing, and general ledger accounting  Value flows consistently updated across all ledgers and currency types as per system configurations allowing for fully compliant external reporting capabilities out of every ledger and currency type used in the system. The currency and valuation profile become obsolete with the implementation of universal parallel accounting. This means that the Transfer pricing functionality is fully integrated with the Parallel ledgers and no major additional configuration is required. Limited compatibility of UPA with country-specific localization functions provided by SAP	Under certain conditions (e.g. alternate fiscal years used in non-leading ledger), value flows in non-leading ledgers may not always be fully reliable for direct reporting out of the system without manual intervention. Consequently, year-to-date positions in the Balance Sheet may require manual true-up adjustment postings when migrating to UPA at a later stage.	Medium	Medium
Operational efficiency	Medium	Seamless reporting across all ledgers and currencies allows for efficient reporting ouf of the system and supports a quick decision-making process. Early adoption of a new SAP function like UPA may increase Syensqo's dependency on SAP for ongoing support, updates, and bug fixes, which could be risky if the solution encounters significant issues post-deployment.	Deferring UPA means that Syensqo will not immediately benefit from the streamlined processes, reduced manual adjustments, and enhanced financial reporting that UPA offers. This delay could result in continued inefficiencies and higher operational costs in the interim. By not adopting UPA immediately, Syensqo might miss out on positioning itself as a leader in financial process innovation within its industry, potentially impacting its competitive edge, especially in markets that increasingly demand real-time, multi-GAAP compliant financial reporting.	Medium	Medium

Qualitative analysis

Implementing UPA now would put Syensqo at the forefront of technical and process innovation in S/4 HANA Finance but also exposes the company to the full risk of being an early adopter having to deal with known and most importantly unknown product constraints thereby limiting itself in the usage of potentially incompatible SAP standard functionalities. It's immature state poses a significant deployment risk which seems unjustified to be taken by Syensqo given the limited number of pain points the business is currently facing in the area of multi-GAAP accounting and multi-currency accounting that UPA would address. The current constraints and incompatibilities of UPA are expected to decrease over time as it is considered SAP's target design in S/4 HANA Finance with many planned product improvements and innovations laid out in the roadmap published by SAP. As such it is important to consider a potential future activation of UPA in the new system and process designs to allow Syensqo to migrate to UPA seamlessly once the product is deemed fully mature.

See also

Insert links and references to other documents which are relevant when trying to understand this decision and its implications. Other decisions are often impacted, so it's good to list them here with links. Attachments are also possible but dangerous as they are static documents and not updated by their authors.

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