Chapter 2

Organizational Structure in R/3’s

Financial Accounting System
An effective accounting system includes more than ledgers, accounts, and
documents. Organizational structure is also an essential component.
Structure establishes the parameters for corporate, tax, and management
requirements.

Assigning relevant organizational units by using an explicit or implicit ac- Integration of Financial
count assignment updates the ledgers. It also conveys actual values for the Accounting and Controlling
integrated controlling objects (cost center, order, cost object, profit center)
contained in the R/3 Cost Accounting (CO) application. Moreover, this ap-
proach updates ledgers in the traditional, Anglo-American management
accounting sense through the R/3 FI-SL system.

The depiction of current corporate structure and future strategies has a bea-
ring on how you use the organizational terms in SAP's accounting system:

‰corporate group

‰company

‰company code

‰business area

‰profit center

Company
Company code 2 Company
code 1 code 3 Company
code 5 Company
Company
code 4 code 6
Business

Business
area 4
area 2

Business

Business
Business

Business
Business

Business

area 4

area 4
area 3

area 3
Business

Business
area 2

area 1

area 2

area 1

Company 2

Company 1

Group

Fig. 2-1: Organizational Structures of External Management Accounting

In the simplest case, you represent a company at the national level which has Company Code
no substantial internal reporting requirements as a company code.

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2 Organizational Structure in R/3’s Financial Accounting System

In more complex corporate structures, R/3’s scaling function is used to eit-

her separate or integrate company components. This leads to two general
company concepts--centralized and decentralized.

Centralized Company Management

Company represents a legally autonomous entity, composed of one or more
company codes.

Company code represents the tax law (national) view of the company. Fiscal
calendar, chosen currency, and tax reporting requirements determine the
design of the complete and reconciled tracking system. In the context of a
company, the company code can also represent a foreign operation which
carries inventory.

Business area helps depict internal structures for external segment repor-
ting. You use business area to analyze selected balance sheet items and profit
and loss statements for product divisions or regional structures.

Profit center, with its flexible design, is a controlling term used to depict
internal areas of responsibility. The objects of a company's operating readi-
ness are assigned to profit centers. These objects include cost centers, assets,
materials, and those that measure performance (such as production and cu-
stomer orders). Consequently, areas of responsibility are more detailed than
can be captured by just using the business areas.

Decentralized Corporate Organization

Company is defined according to legal requirements. The company is repre-
sented analogously to the centralized scenario described above.

Company Code, as a self-enclosed system, is also used to represent divisions

in the case of highly autonomous and decentralized business units. These
divisions can then be aggregated to fiscal units by adding up related com-
pany codes. Because the company code feature is a complete and reconciled
calculating tool, it supports technical system classifications of the company
code level at all times.

The SAP R/3 FI application automatically manages business transactions in-

volving more than one company code. The system generates documents for
each company code involved in the transaction.

Business Area and Profit Center are used exactly as described above for
centralized companies.

Distributed Systems (ALE) These business architecture considerations go beyond system and computer
limitations in depicting a company's business processes. Business scenarios
can be distributed. For example, decentralized logistics with a centralized

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 Organizational Structure in R/3’s Financial Accounting System 2

financial accounting system or a decentralized open item basis system with a

centralized treasury system. You can accomplish this using Application Link
Enabling (ALE) among several systems. This allows the accounting system
to retain certain functions that tend to be centralized. The system has a
highly intelligent reconciliation and aggregation process (ledger rollup) to
help avoid redundant data storage.

Consequently, modern accounting systems are not simply tools to assure the
propriety and completeness of the accounting disclosure. They are flexible,
cybernetic systems adaptable to changing business environments.

Corporate Group Reporting

Complex organizations increasingly value having the "big picture." Corpo- Corporate Group
rate group financial statements have grown in importance compared to indi-
vidual statements. Another trend is the need to portray the corporate group
to the public by making conscious balance sheet policy decisions. This may
be at odds with the picture given by individual financial statements.

The corporate group can be broken down into consolidation units. It can be
based on legally autonomous companies as well as on business area seg-
mentation. In centralized companies, data from operative company codes are
typically incorporated directly into the "corporate group ledger." Otherwise,
they are periodically incorporated into this ledger using ALE protocols. This
often involves external data from non-SAP accounting systems. Special tools
are available to capture this data. The ability to regroup corporate groups
and consolidation units is an essential function for internal corporate
reporting. This allows the corporate group ledger to fulfill information needs
in addition to those required by law. This includes meeting the needs of
national or regional distribution companies.

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