Revenue Accounting and Reporting (RAR) - Concept and Configuration
Revenue Accounting and Reporting (RAR) - Concept and Configuration
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Madhusudhan T C
September 11, 2020 17 minute read
1. Introduction
RAR is also used to comply with ASC 606 – Revenue from Contracts with Customers.
2. Audience
Consultants/Business Users.
3. Purpose
By analyzing the above data, it is obvious that company B has a good ROI (Return on
Investment) in fact 4.5 times that of company A and is the best place to invest in.
Now we will check some other facts and see if our decision to go with company B will
change?
Other Facts;
• Both Companies had only one contract during the year.
• Company A’s contract is of 10,00,000 and to be delivered in 5 years. Fully invoiced and
amount received upfront. The revenue is recognized only to the extent obligations are
delivered, making it only 2,00,000 for the year.
• Company B’s contract is of 5,00,000 and to be delivered in 5 years. Fully invoiced and
amount received upfront. Revenue is recognized based on the invoicing though the contract is
not fully delivered.
With this new information, it reveals that company A is performing better than the company
B, though the financial figures were misleading. The reason for getting mislead; company B
did not follow the standard accounting principles while recognizing the revenue.
The main purpose why Accounting Standards got framed is to avoid such wrong decision
making based on misleading data.
With Accounting Standards, comparison between two entities is possible when both maintain
the same principle, otherwise proper comparison is not possible. As in our case both
companies observed different accounting principles and the results were extremely
misleading.
IFRS (International Financial Reporting Standard) 15 is one such standard which lays down
the rule to recognize and report Revenue from Contracts with Customers. It specifies how
and when to recognize revenue as well as requiring entities to provide users of financial
statements with more informative, relevant disclosures.
Principles of IFRS 15
Though we will not get into the very details of IFRS 15 – Revenue from Contracts with
Customers, we will understand the crux as SAP’s Revenue Accounting and Reporting (RAR)
is a solution for IFRS 15 requirements.
The main objective of the new standard IFRS 15 is to provide a single, comprehensive
revenue recognition model for all customer contracts, improving comparability within and
across industries and across capital markets.
The principles in the standard will be applied using a five-step model:
Terminologies
It is also good to know some of the IFRS 15 specific words.
Standalone Selling Price; The price at which an entity would sell a good or service
separately to a customer.
Illustrations
Let’s try to understand this 5-step model with an illustration. We will take an example of a
contract from a telecommunication industry, an industry heavily impacted by IFRS 15.
Step 2: Identify all the individual performance obligations within the contract
This contract has two POBs (Performance Obligations) one delivery of device and the second
one providing of data service over the period of 3 months.
Overview
SAP Revenue Accounting and Reporting Component is based on the 5-step model of IFRS
15. In RAR system, data obtained from different source applications are processed to identify
the POB and their recognizable revenue. During the period end, revenue as per IFRS 15 is
recognized along with contract liability / contract asset if any and posted to accounting.
Architecture
Data flow to RAR system from different applications to calculate revenue, contract asset and
contract liability as per IFRS 15. Data can flow to RAR with native integration from SD and
Hybris, and from third party applications using BAdIs.
Following diagram depicts data flow architecture to and within RAR system.
Source Applications
SAP RAR is a standalone application and multiple applications (managing contracts) can be
integrated directly into RAR through the ARL (Adapter Reuse Layer). RAR is compatible
with SAP and Non-SAP applications.
In this approach data is gathered from various source systems, staged and processed in a SAP
RAR compatible language before sending it to RAR.
The information flow from source applications to RAR provides details of Order, Fulfillment
and Invoice of a contract. An order creates a contract in RAR, whereas fulfillment and
invoice update an existing contract.
RAIs (Revenue Accounting Items) in simple terms can be referred to as common language
understandable by RAR system. Data received from all the source applications generate RAIs
(Revenue Accounting Items).
Once Revenue Accounting Items are created, they need to be processed to create/update RA
Contract and POBs (Performance Obligations).
RAIs (Revenue Accounting Items) can be viewed and processed using RAI Monitor
(Transaction FARR_RAI_MON).
There are typically 3 stages/status in RAI processing; Raw, Processable and Processed.
However, few stages can be skipped with integrated approach.
A RAI is created for each line item (Main Item) and corresponding conditions (Condition
Item) for order, fulfillment and invoice.
Successfully processed RAIs will create/update RA Contracts and POBs based on rules set in
BRF+ (Business Rules Framework).
Once Order RAIs (Revenue Accounting Items) are processed, Contract No. and POB No.
gets updated against each of the RAIs.
BRF+ as a standalone application, is not only integrated with RAR but can be integrated with
other SAP applications like CRM, SRM and other custom applications also.
FARR_AP_CA_PROCESS_TEMPLATE
Template for revenue accounting item classes used for the integration of SAP Hybris Billing
(sender component CA).
FARR_AP_CRM_PROCESS_TEMPLATE
Template for revenue accounting item classes used for the integration of SAP Customer
Relationship Management (CRM).
FARR_AP_PROCESS_TEMPLATE
Template for revenue accounting item classes used for the integration of any other sender
component.
FARR_ACC_DETERMINE_TEMPLATE
Template for Account Determination.
Own BRFplus application can be created by copying the appropriate template application
delivered by SAP and maintain installation-specific logic by maintaining the appropriate
decision table entries.
BRF+ applications are assigned in the configuration for POB processing and Account
Determination.
There are Decision Tables in each of these applications for specific purposes which contains
condition columns and result columns. The result column data is identified and sent back to
RAR based on condition columns data received from RAR system.
Following picture depicts input column (in blue) and output columns (in green);
Column ‘Invoiced Amount’ shows POB invoiced till date and column ‘Fulfilled Progress’
shows the status of fulfillment of the POB.
Column ‘Performance Obligation Status’, shows as ‘Completed’ once fully fulfilled and
invoiced, otherwise ‘In Process’.
Calculation of revenue is based on multiple attributes of a POB, which gets partially filled up
by BRF+. Following picture depicts attributes of a POB;
Revenue Accounting Contracts also show Revenue Schedule for each POBs, especially for
Time Based.
Revenue Schedule provides the projection of revenue to be recognized over the period of
contact. It also shows the status of revenue recognized in each period.
SAP Path: Revenue Accountant > Revenue Posting > Revenue Posting Jobs Monitor
SAP Path: Revenue Accountant > Revenue Posting > Calculate Contract Liabilities and
Assets
SAP Path: Revenue Accountant > Revenue Posting > Revenue Posting Run
By clicking on Post, a background job gets created which will post accounting documents.
Before posting, simulation can be done to verify the entries.
The status of the job can be checked using Revenue Posting Jobs Monitor.
SAP Path: Revenue Accountant > Revenue Posting > Revenue Posting Jobs Monitor
Accounting Entries
Accounting entries gets posted from RAR during the period end processing in step 3. We
shall consider the following scenario as the basis to understand the accounting entries;
6. Configuration
In this section some of the important configurations are highlighted. Please note the
configurations here mentioned are not exactly the way it is arranged in FARR_IMG but have
been put in line with the concept/flow discussed in the earlier section.
Source Applications
Step 1: Sender Component
As discussed earlier, RAR can support multiple source applications. The source applications
are defined as sender component.
SPRO Path : Revenue Accounting – Inbound Processing – Revenue Accounting Item
Management – Define Sender Components
Sender Component is assigned to logical system and source document item types.
SAP provides preconfigured interface components that can be used immediately. These
include basic components, which are mandatory for each record type, as well as other
optional components which can be added to a Revenue Accounting Item Class.
SPRO Path : Revenue Accounting – Inbound Processing – Revenue Accounting Items –
Define Interface Components
Assign Structures, Prerequisite Components and Program Enhancements. Also define Key
Fields and assign Components to Class Type and Record Type.
This comes handy if there are issues with the Customizing or the item may be corrupt. The
system then moves these items to a separate table which excludes them from ordinary
processing.
SPRO Path : Revenue Accounting – Inbound Processing – Revenue Accounting Item
Management – Define Exemption Reasons for Revenue Accounting Items
The option to Exempt or Restore RAI is available in Revenue Accounting Items monitor.
This blog does not cover full functionality of SAP RAR. Please refer SAP Help for more
insights.
Assigned Tags
Overview of the Deployment Options for IFRS 15 / ASC 606 Projects for SAP
Customers
By Pete GrahamAug 09, 2017
SAP TechEd
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26 Comments
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Vinay Dhamnani
September 11, 2020 at 8:39 am
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Sandip Kurewar
September 11, 2020 at 9:11 am
What are the basis components are required to activate the RAR.
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Madhusudhan T C
Blog Post Author
September 11, 2020 at 10:01 am
Thanks Sandip 🙂
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Sandip Kurewar
September 11, 2020 at 1:07 pm
Software component version REVREC 130. Instance Revenue Accounting needs at least an
SAP ERP 6.0, Enhancement Package 5 environment and is compatible with all higher
Enhancement Package Stacks. Instance Revenue Accounting always needs to be installed on
top of your Financials system.
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JagadishKumar Bhumireddy
November 20, 2020 at 3:33 pm
Hi Madhu,
I heard that it is in built in S4HANA 1909 and don't need any add-ons. Is that correct? Could
you please share if you have any information on this?
Thanks...
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Jagadheeswara R J Badabagni
May 25, 2021 at 1:14 am
Hi Madhu
Indeed it is a great blog on RAR. I have a providers contract and if I want to create a 100000$
as the total contract value and if I want to recognize every year if I want to recognize 10000$
as revenue every year how will I make it happen at the contract level? Do I need to make a
configuration change for this integration to happen automatically.
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Vineek Gopan
September 11, 2020 at 1:07 pm
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Minakshi Karan
October 1, 2020 at 8:30 pm
Hi Madhusudhan,
Thanks.
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leonardo francisco
October 21, 2020 at 6:14 pm
Hi Madhusudhan T C
I make the configuration of the RAR with SD but i have one problem about the BRF+.
In Decision Table DT_PROCESS_POB i put deferral method T(|Time Base) but is necessary
to use start date how i make this configuration to use some data from Order?
Best Regards
Leonardo
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HI Leonardo,
Please check what is the POB start date you have mentioned as a part of your configuration.
You can mention as POB start date as contract start date. This would help you
Regards
Prasad
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Sajitha Sahajan
November 16, 2020 at 3:43 pm
Good overview Madhu! Very helpful.
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Govindasamy Bhaskaran
November 29, 2020 at 1:48 pm
Hi Madhu,
Very useful and good blog with steps. Thanks for sharing.
Bhaskaran G
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Micheal Mathews
March 15, 2021 at 11:35 am
Hi Madhusudan,
Thanks for sharing the document it is very well explained. I was looking out for this
configuration since a very long time.
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Maitray vaidya
March 29, 2021 at 11:01 am
Dear Madhusudhan,
1. Can we activate SAP recognition based on event such as "shipment end" (VTTK-
DATEN) status instead of goods issue ?
2. Currently we are on SAP ver ECC 6 EhP 8. I understand once the SAP RAR activated
we can't able to reverse it right?
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Hi Maitray vaidya
1. SAP has given some standard out-of-box fulfillment event types, anything beyond this
would be creating your own custom fulfillment types. I think the shipment end is not
part of the standard fulfillment type. so this needs to be done by creating your own
fulfillment type.
2. Yes, The understanding is correct.
Prasad
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Haranadh Kanamarlapudi
April 14, 2021 at 5:13 pm
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Lauren Zhang
April 21, 2021 at 1:59 am
Hi Madhusudhan T C
Could you please let me know what going on with RAR in the S4 Hana Cloud? I see cloud
version has some of the RAR revenue Recognition set up. However, the process or config is
much simple. In Cloud, it is called Revenue recognition configuration. Is it diff thing that
RAR , or it is similar(i saw some posting function is the same as rar is trying to do). If there
is still RAR in Cloud, anything diff from on premises? Any information or link you could
share would be great.
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Prab Gow
July 26, 2021 at 11:27 pm
Very nicely done Madhu. Thanks for sharing your knowledge in a simplistic way.
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Sneha Chudasama
August 10, 2021 at 12:22 am
Hi Madhusudhan T C
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Hello Sir,
We wanted to request your help. Once RAI has been created for the sales order item, we want
to stop user from changing the price in sales order item. Which userexit/BADI can I use?
When the user changes the price in sales order for the item that has RAI created, then we
wanted the system to check if RAI exists. If yes, then given pop up message to user stating
that RAI has been created for this item in RAR and hence no change is possible. Is there
userexit/BADI for it where we can add this validation logic?
Thanks,
Sunilkumar Gopalkrishnan
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Dhanalakshmi Kumar
September 16, 2021 at 7:04 am
Hi Madhu,
Thanks
Dhana
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Karthick Srinivasan
January 19, 2022 at 4:35 am
Hi Madhu,
Is there a straight forward way to get the list of tables involved in RAR.
Thanks,
Karthick Srinivasan
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Harald Alten
February 6, 2022 at 3:13 pm
Hello Madhu,
Your article is very nice and comprehensive. The only thing where I struggle with is at the
beginning: I do not get the point why Company B's situation is unfavorable. Could you please
explain me what you mean with "Revenue is recognized based on the invoicing though the
contract is not fully delivered." The only difference between A and B which I see is that A
goes with the delivered POBs whereas B's revenue recognition goes along with the invoicing.
This can be advantageous if the customer accepts the invoicing.
Best regards,
Harald / Germany
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Madhusudhan T C
Blog Post Author
February 7, 2022 at 8:03 am
Hi Harald,
Thanks for your comments.
This will make it difficult for the investors to evaluate the company and its performance.
Hope this clarifies.
Thanks,
Madhusudhan
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Krishna Moorthy
May 30, 2022 at 9:02 am
Dear Madhusudhan T C,
It is really excellent article to understand basic concept of RAR for beginner and thanks for
your time and efforts dedicated to this article. We wish to continue your effort on this topic.
Thanks.
V.Krishnamoorthy
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