The definition of organizational structure in SAP FICO is the method of representing the financial and controlling structure of a company within SAP. The organizational structure defines how the financial data of a company will be entered, grouped, and reported throughout the company by legal entity and internal responsibility areas. The correct organizational structure allows the financial transactions to comply with all legislative requirements, as well as assist internal management reporting and decision-making. Without a clear organizational structure, financial data may be inconsistent, impossible to reconcile, and may not be a reliable source of information for either statutory or operational purposes.
SAP FICO does not have a single organizational structure; rather, it consists of multiple interrelated units. Each unit represents a distinct business function, and together the units form the base of financial accounting, cost control, and profitability analysis. To build a system that closely follows real-world business processes, one must be familiar with how the different units of the organization interact and work together. SAP FICO Training in Hyderabad at Version IT provides in-depth understanding of organizational structures and their real-world applications.
Organizational Structure in SAP FI
Organizational structures within SAP FI are established to support external reporting commitments and related compliance activities. Organizational units representative of financial transactions processed through SAP FI permit also allow the dependable generation of statutory financial reporting information, such as balance sheets and profit and loss statements. The primary purpose of the organizational unit’s representative of SAP FI is to represent the required structure for external and governmental reporting, rather than the structure developed for internal management.
- Client
Client represents the highest level of the organizational structure for the SAP system and represents the entire corporate entity. This means the client is the supervisor authority over all company codes, users, and configuration settings contained within the client, i.e., a client can be configured to manage multiple company codes through a singular client environment. Clients allow multiple legal entities to operate within a single client environment.
- Company Code
The Company Code represents a single, legally independent entity with complete financial statements prepared for it. Company Codes contain all financial transactions to external parties, such as vendor invoices, customer payments, asset postings, and tax calculations. Each Company code has its own unique Chart of Accounts, Fiscal Year Variant, and Local Currency, making it the most important unit for SAP FI provided in Statutory Reports.
- Business Area
The Business Areas will produce internal financial reports at the segment level for Components of Business, including but not limited to Product Lines, Sales Regions, etc. Although they can be useful to meet internal reporting needs, business area reporting is optional and still available in current SAP implementations. Business area reporting can help in situations where analysis of a significant amount of financial data is needed across multiple Company Codes.
Organizational Structure in SAP CO
SAP CO assists companies with managing internal costs and assessing the performance of those costs while FI is used mainly for the purpose of providing a company the information it may need for legal reporting purposes. While FI is focused on what a company has to report to an external audience, CO is focused on what occurs within the company’s internal business processes and how the costs and revenues are generated from those internal processes. SAP CO defines the various organizational units that allow the management of a company to assess the efficiency of its operations, control the expenses associated with those operations, and measure profitability.
- Controlling Area
The controlling area is the highest level of organizational unit of the SAP CO financial accounting module and is the primary framework for maintaining a cost accounting system for an organization. Each controlling area may be composed of multiple company codes as long they share common operational characteristics such as the chart-of-accounts or fiscal year. This structure allows for analysis of costs across multiple companies and allows for the consolidation of internal reporting.
- Cost Center, Cost Centers
Cost centers represent the department or functional area of a business where the costs are incurred (e.g., finance, production, IT, etc.). Cost centers can be used to track operational expenses, participate in the budgeting process, and analyze variances. By allocating costs to cost centers it allows management to see how much money is being consumed in each area of the business.
- Profit Center
Profit centers can determine an organization’s profitability and strategic investments—not just their cost control. This provides organizations with information about revenues and expenses in the context of business segments; thus, enabling organizations to measure performance internally and strategically plan for their future.
Integration of FI and CO Organizational Units
The key element of SAP FICO is how closely integrated FICO (financial accounting and controlling) is. The integration allows the values for the financial transactions that an organization records externally to be automatically recorded for internal cost/profitability analysis. The success of this integration is dependent on how the various organizational units are related to each other.
- Assignment of Company Code to Controlling Area
To enable cost postings and internal reporting, the company code must be assigned to a controlling area. This assignment is the foundation for FI-CO integration and is required for the consistent flow of data between FI-CO.
- Cost Elements and GL Accounts
The accounts associated with expenses in FI are defined as cost elements in CO; therefore, costs that are recorded in FI can be analysed in CO without any need for additional information or manual adjustments.
- Profit Centre Assignment
Profit centres are assigned at either the master record or transaction level to ensure consistent reporting of both balance sheet and profit and loss items across all organisational dimensions.
Business Importance of Organizational Structure in SAP FICO
A properly organized chart greatly affects the quality and usability of finance data. This organization helps create consistency in the reporting of Statutory with accurate information to help create a better way for management to see financial stats with regards to Revenue, Cost and Profitability, thus making these three areas much more visible to management. With clearer definitions of business structures, these redundancies in reconciliation will be eliminated and reporting will be more effective for having a more consolidated view of an organization’s performance and the resulting accountability to the various departments involved.
With respect to being scalable and adaptable, being organized for growth, mergers and re-organizations will not result in the same degree of re-engineering of the accounting system. Instead, it permits Ed higher levels of adaptation to the new business processes without losing data accuracy and compliance. SAP FICO Online Training with Version IT explains controlling area, cost centers, and profit centers through practical examples.
Conclusion
In summary, it is of utmost importance to understand how different aspects of organizational structure in SAP FICO affect all financial and controlling activities within a company. This understanding will lead to the correct design and implementation of an SAP system in order for the organization to meet the requirements of the Law and meet its Objectives.
