Rolling out US entities onto a European international SAP S/4HANA template can come with several challenges, both from the perspective of the European project team and the US-based business. As an SAP consultant, it is crucial to understand the key considerations in finance for US localization, and ultimately how to remain compliant with local legal requirements within the SAP S/4HANA template. This article explores the main areas of finance from an SAP consultant’s point of view and the most important questions to ask during the fit-gap analyses or other scoping sessions.
Accounting Principles and Asset Accounting
One of the primary concerns in rolling out US entities onto a European SAP S/4HANA template is introducing new accounting principles. Since this article is focused specifically on a template rollout, we will assume that the leading ledger (0L) has already been determined – most likely following IFRS or the European entity’s local GAAP. Reporting requirements need to be addressed both locally and globally. For instance, US entities may require adherence to US GAAP for local reporting while aligning with IFRS for global consolidation. During fit-gap sessions with key users in the US, you will need to have a solid understanding of their reporting requirements and where they may differ from the accounting principle of the leading ledger.
A prime example of where differences occur is within the Fixed Asset Accounting module (FI-AA), specifically regarding the topic of lease accounting. Beyond gathering information such as the number of active assets in the US entities and depreciation rules on fixed assets, you must also address topics such as leased assets, which require different accounting treatments under IFRS 16 and ASC 842. Refer to this article by KPMG for more detail.
Sales & Use Tax
US sales and use tax is fundamentally different to European Value-added Tax (VAT). In the US, tax rates are based on the location that the goods or services are provided, and are determined at the state, county, city, or local level. This means that there are over 13,000 potential jurisdictions that a company may need to report and remit these taxes to. While SAP provides a standard jurisdiction-based tax procedure (TAXUSJ), an external tax calculation software, provided by companies like Vertex, Avalara, and Thomson Reuters, should be considered if the requirements become too complex.
1099 Reporting
Although US companies do not typically post withholding tax, they are required to track and report payments to 1099-eligible vendors. This is a legal obligation enforced by the IRS. SAP standard configuration through Document and Reporting Compliance (DRC) can be used for capturing these payments and generating annual reports, either through the Run Statutory Reports Fiori app or classical reports in GUI. More information
Bank Accounting
Bank accounting processes can differ greatly between US and European entities and should be discussed in detail to fully identify the needs of the US Business.
Check Payments
Checks are still widely used in the US, unlike in Europe. SAP templates must be enhanced to support check printing, including form development and MICR line formatting.
EFT Payments
For certain electronic payment formats, such as international wire payments, you may be able to leverage existing formats being used globally within the SAP template. There are, however, US-specific payment methods used for domestic payments that should be considered. ACH, or Automated Clearing House, is the most common method of transferring funds between banks within the United States. The SAP standard ACH payment medium format will cover most of what’s needed already, but this will require multiple rounds of testing with the bank to ensure compatibility.
Electronic Bank Statement
US Banks typically provide electronic bank statements in the BAI2 format, which will likely differ from existing configuration with a European SAP template, which may use ISO20022 or MT940 formats. Although BAI2 is standard within the US, it is often the case that the bank can provide electronic statements in other formats. This should be discussed with the bank directly and can save significant effort if they are able to provide electronic bank statements in the format already being used in the global SAP template.
Other Topics
The topics listed above are the most common differences we see in finance when planning the rollout of US-based companies onto a European SAP template, however, this is not a complete list. Depending on the nature of the business, there may be other less common accounting differences. These could be related to revenue recognition (ASC 606 vs. IFRS 15), inventory valuation/costing, and the format or presentation of financial statements. These topics are not seen as frequently, but it is important to do a thorough analysis of the accounting processes to ensure compliance with the company’s global requirements as well as US legal requirements.
Conclusion
Rolling out US entities onto a European international SAP S/4HANA template requires a deep understanding of reporting regulations and tax structures, and how they apply to the operational processes of the business. By addressing these topics in the early scoping phases, SAP consultants and financial leaders can avoid costly rework, ensure compliance, and deliver a rollout that supports both global consistency and local needs.
