ERP transformation and the parallel ledger question

Rizwana Tahiri and Chris Rogers say defining your approach to parallel accounting is vital when embedding tax requirements in the core ERP system.

ERP transformation has become a top priority for organisations. Changes in the global landscape, new ways of working and technological innovation are driving the need to redesign business models and processes. This is in turn triggering the need for digital transformation and ERP system upgrades.

What’s more, tax authorities worldwide are embracing digitalisation to collect taxes at the transaction level. Businesses need robust digital solutions to comply with these stringent requirements.

The upshot has been a surge in the adoption of cloud-based ERP technologies, a prime example being the enhanced business suite, SAP S/4 HANA.

From a tax and accounting perspective, updating the ERP system means making some important design decisions – for example:

What will your approach to parallel accounting be?
Will it require parallel ledgers, or will multiple general ledger accounts suffice?
Should you implement a tax ledger within your parallel ledger setup?

To make these choices, your first consideration should be whether to implement a tax ledger – and if so, which type (standalone parallel or extension), and in which jurisdictions. You’re unlikely to need it in all jurisdictions, and can switch it on and off according to local needs.

Rizwana Tahiri

Director, Global Compliance and Transformation, Tax & Legal

KPMG in the UK

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Chris Rogers

Partner, Global Compliance and Transformation, Tax & Legal

KPMG in the UK

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Decision factors

There are a number of aspects to think about when deciding how to approach parallel accounting in your ERP system – including:

Accounting standards

Which sets of principles must you follow in which territories? The most common one in Europe is IFRS, with many different GAAPs in use elsewhere (the US, India, etc.).
Local tax and legal requirements

What nuances do you need to account for, in which jurisdictions? In Poland and Turkey, for instance, there are particular tax requirements that must be reflected in the ledger (like mandatory GL account nomenclature and local language).
Reporting conventions

Some tax authorities have their own naming and numbering conventions – Norway being an example.
Digital submissions

In certain countries (e.g. Germany and Norway), tax returns and reports must be submitted electronically to the tax authorities.
Language stipulations

Many authorities allow tax reporting in English, but a few (such as Turkey) insist on the local language being used.
Your group’s tax year

Differences in how the financial and tax reporting years are defined (for example, in India and Japan) must be considered.

Value, risk, efficiency

Having chosen your preferred approach to parallel accounting, you’ll need to make sure that the ERP system is configured for it.

Tax considerations are often sidelined during ERP transformations. But it’s essential that your voice is heard, and your parallel accounting requirements are fed into the project. Without a seat at the table, you may find that this doesn’t happen.

To make the case, take the time and effort to communicate the value, risks and efficiencies involved to your IT and finance colleagues.

The risks attached to an ERP system not configured to support parallel accounting are enormous. Implementing parallel ledgers in a live environment once the ERP system is rolled out is a cumbersome, and inefficient process.

Non-compliance with tax authority requirements can lead to penalties, and exposure to audits, potentially in multiple jurisdictions. And trying to fix problems once they emerge will be hugely inefficient and expensive.

That’s why parallel accounting must be designed into your ERP transformation upfront.

KPMG’s tax and technology experts can support your upgrade end-to-end. We’ll help you come to the right design decisions, make the business case for them, and build your parallel accounting requirements into the project. And we’ll work with your team to configure and test your ledger within the system.

Please get in touch to find out how we can ensure your transformation delivers value, drives efficiencies and minimises risk.