The Purpose of segments in SAP General Ledger

Posted by Paul Ovigele (http://ovigele.com/the-purpose-of-segments-in-sap-general-ledger/)

Even if you had read the SAP help notes, attended conferences and webinars, talked to experts and searched Google every n ow and then, I wouldn ' t is surprised if you still were isn't clear on the exact purpose of segments.

Let me try to provide some clarity in this topic. Note that I am not speaking on behalf of SAP or anyone else, just on my experience with several clients and the putting to Gether of information that I had garnered from the various sources mentioned above.

First of all let us look at the definition of Segment by SAP:

"Division of a company for which you can create financial statements for external reporting"

This concept is introduced by SAP to satisfy the requirement by the Securities and Exchange Commission (s.e.c.) in the Un ited states and the International Accounting Standards Board (IASB), which stipulates, companies should report Financi Al information by business or geographic area.

In SAP, the one guaranteed-the-creating full financial statements, are to set up the segment as a company code. However, this would mean it codes would need to being created for each business segment, some which themselves would span several company codes. This could leads to a rather cumbersome and complex set up of the company code structure.

Existing SAP objects could go some to facilitating the production of financial statements. They is as follows:

(1) Business Areas:this are the division of a company for which, can create financial statements for external report Ing. By definition, this seems to satisfy the requirement specified by the SEC and IASB. However, for the past decade, there have been talk in SAP circles, that's business areas would cease to being supported by SAP in The future (at the "The future of the" This would happen, is a left-to-be seen);

(2) Profit Centers:this is an organizational unit in accounting that reflects a management-oriented structure of the O Rganization for the purpose of internal control. Profit Centers has transitioned through the years from being part of the controlling module (for Profit and Loss Manageme NT reporting) to being part of the Enterprise controlling module (for p&l as well as certain Balance sheet items) to B Eing part of the ledger (for full financial statement reporting using document splitting).

A question that I had been asked several times is, since there was already II objects that can was used to create Financi Al statements (albeit partially), then "did SAP introduce a brand new object (i.e. segments) to satisfy the segment rep Orting requirement.

The answer, found is, the most SAP customers be using Profit centers and business areas for other purposes (for Exa Mple, I had seen clients using profit centers as cost centers, plants, or Sales areas) and therefore it could be difficult To switch these objects to full financial statement reporting entities. This is particularly relevant in cases where companies has hundreds (or even thousands) of Profit centers/business areas. This is why segments has been introduced so that can has a brand new object which can be used solely for "Segment" Reporting.

One thing that I caution clients on is so they should not think that Segment reporting can only be satisfied by the U SE of segments. In fact, if you is carrying out a brand new SAP implementation I recommend that's use profit centers (along with Docume NT splitting functionality) for segment reporting. I would leave business areas alone, if you is a new company, since (as mentioned above) the future of this functionality is still uncertain.

The Purpose of segments in SAP General Ledger