Asset Capitalization From Service Entry Sheet 1671

  • In a SAP environment, we are trying to mimic or simulate Three Way Matching Invoice verification, but for what in reality is a Down Payment, for Asset Acquisition, paid for under a Percentage Of Completion basis. We are wondering if Service Entry Sheet Functionality would be proper for such a scenario. Someone in the organization would - once a percentage milestone is reached - enter the ‘service’ as received to authorize payment.
    More specifically, we are wondering what the drawbacks from such an approach could be. Or, alternatively, if someone knows of functionality that could accomplish an Invoice Verification Process of sorts, when we are disbursing based on a calendar schedule, or other criteria not related to the receipt of physical goods.
    We are also wondering what issues or objections could be raised if we decided to implement such an approach, be them regulatory, legal, procedural, etc.
    Any comments ANY, good or bad for or against the above approach are more than welcome.
    Thanks in advance,

  • Apologies, if I have this wrong, as I am not fully up to speed on SAP.
    Is it the timing of the asset recognition you are concerned about, or the lack of supporting documentation if all receipts are recorded directly onto the system?

  • Thank you for your prompt reply.
    I am actualy concerned with the nature or type of the supporting documentation, as you correctly point out.
    I’m wondering what type of exception could be raised by my using a ’ Service Entry Sheet’ to record progress of an ’ Asset Under Construction’.
    Or, alternatively, what would be your recommendation as to what type of process or transaction should I use to approve payments under a ‘Percentage of Completion’ construction contract.
    Thanks again for looking out,

  • I have seen clients tie in their assest under construction to the capital expenses policy by completing a capital expenditure requisition form which would detail the total anticipated spend for the project and would be signed off on intitial approval by various heads of department, finance and senior management.%0A All Service Entry Sheets could then be printed and attached to the paper copy of the requisiton form, together with invoices received to date.%0A the progress of the project should then be monitored on the system by detailing the initial budgeted cost, total costs to date, expected date of completion, % completed to date, and details of any overspend (the assumption would be that overspends would require an addendum to the capex requistition form)%0AI am not sure how they would be recorded on SAP though as I have only seen these tracking reports on Excel, with postings to the ledger being matched to a predetermined capex project number.%0A bear in mind, that your auditors will expect progress to be monitored on a timely basis, and therefore, each time the report is reviewed, it will need to be printed and signed off as evidence of review

  • To tie this in to SOX, I see that there are two controls that need to be evidenced - %0A1) Recording of % complete (asset and liability)%0A2) Authorization for payment of the progress billing by the contractor%0APayment would generally be made later than the recording of the asset and liability and may not always match the recorded liability depending on the terms of the contract. I am not familiar with SAP but, if I recall correctly, our system would record progress payments as they are approved (up to the contract or approved spending amount) with a true-up of % complete performed once/quarter for external reporting purposes only. Whether the authorization is via a signed invoice or an online approval, either should be OK as long as the authorization follows your company policy.

  • Unless you are dealing with a large number of assets on this basis then I would suggest that this is an area where a manual process is likely to be more efficient i.e. the milestones for payment must be defined somewhere (order/contract) and it should be straightforward to match the payment to appropriate supporting documentation.
    I think it is uneccesary effort to try and simulate a 3-way match when this is not the nature of the transaction.
    You should, of course, be able to match order to invoice to proof of ‘receipt’ at the point the asset is finally comissioned.

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