The degree of desired business area reporting is mostly determined by the procedure that is applied. On the one hand, minimum requirements for reporting on business areas are determined by laws of incorporation and regulations for stock exchange listing that vary from one country to another. On the other hand, internal requirements also determine the degree and content of reporting.

Three typical requirements are described below to help you decide which procedure to use.

The simplest form of business area reporting merely portrays net sales - but without IC sales of merchandise - by business area (= operating area). This requirement has been anchored in EC law (4th directive), so that it is taken into consideration in the individual financial statement as well as the consolidated financial statement.

The following overview shows a sales revenue report by operating areas:

While the transition of company code/business area to consolidation unit is already mandatory for a fully consolidated income statement, in this case a simple transition from company code to company is permissible, and the distribution of business areas among sales revenue items can be solved by using sub-items (transaction types). However, this necessitates keeping separate revenue accounts for group-internal sales. This transition problem is discussed in more detail in conjunction with legal consolidation of companies.

A complete income statement for a business area — using either period costing or the cost of sales method — is one of the most frequent requirements. The FI reporting tools can accomplish this representation if the business area being considered applies to a single company code.

More functionality is needed if, on the other hand, a business area is distributed among multiple company codes, or even among multiple systems within the group. In this case you would need to eliminate, in particular, business transactions which are business area-internal but also span company codes.

You can make the business area a required entry in the field status definition of the G/L accounts. With respect to the automatic generation of postings, the determination of business areas is discussed in a later section.

As with the income statement above, internal business area balance sheets can be generated using tools in the Financial Accounting system FI, if the business area belongs to a single company code. Please refer to the corresponding FI documentation for the procedural steps.

A cross-company code business area balance sheet requires additional eliminations (e.g. payables/receivables) which are supported in consolidation. In addition to those items described for the income statement, the aspects listed below must also be taken into account for consolidated business area balance sheets:

• Payables and Receivables: These are typically managed as ‘open items’ in the subsidiary accounting systems for customers and vendors. From a practical standpoint, however, you do not always want to separate invoices from/to external companies if these invoices refer to multiple business areas and if you do not have to assign the business areas to be debited when settling the open items. Payment media, dunning notices and statements of account would then be unwieldy by all the (internal) details which are irrelevant for the external trading partner. For this reason, the open item file without the business area is periodically broken down among the business areas of the offsetting entries. In addition to the customer and vender reconciliation accounts, the FI account determination provides parallel balance sheet accounts for direct posting. The batch data transfer program reverses the receivables and payables on these accounts using business area ‘blank’ and re-posts them with the ‘correct’ business areas of the offsetting entries into the original documents. The new receivables and payables are broken down for each new key date.

• Liability and Shareholder Equity Accounts: While tangible fixed assets and, sometimes, current assets can be assigned to business areas relatively clearly, this is not necessarily the case with shares of affiliated companies and shareholder equity. It may be necessary to make manual assignments using postings in FI or later in Consolidation.

• Taxes: Automatically generated tax entries are always coded with business area ‘blank.’ These entries are also broken down afterwards in the batch data transfer program already mentioned.

In general, for a business area balance sheet you will want determine for which balance sheet accounts the business area entry will be required for the operator, and on which accounts you want to postpone the manual breakdown of the business area ‘blank’ among the ‘correct’ business areas up to the financial statement reporting date. For receivables and payables as well as taxes, you can have the system transfer the business area ‘blank’ to the appropriate business areas. Other balance sheet accounts must be adjusted manually for business areas.