Is Account based COPA going to replace

costing-based COPA in S/4 Hana?

Written by https://blogs.sap.com/2020/03/07/is-account-based-copa-going-to-
replace-costing-based-copa-in-s-4-hana/
In traditional ECC, although costing-based COPA has lot of shortcoming,
it was recommended as compared to account-based COPA due to its richer
functionality and better reporting capabilities. But this recommendation
is flipped in S/4 HANA.
There are two major shortcomings of Costing based COPA. First, it is difficult
to reconcile with account books due to timing difference between account and
costing-based COPA. Secondly, if the organizations have settlements to COPA,
information are not real time and the COPA reports can be only relied once the
settlement jobs were complete. The second shortcoming was true for both for
costing-based COPA and account-based COPA.
SAP has done few innovations in the account-based COPA in S/4 which has the
potential of replacing costing-based COPA, however still few features of
account-based COPA isn’t available. In this blog, I try to discuss the areas
where account- based COPA is better than Costing based COPA and list down
features of costing-based COPA where are not there in account-based COPA
yet.
However, it is important to understand that account-based COPA is being re-
branded as margin analysis. Margin analysis promises to add some of the
missing features and go beyond what not available in either of the COPA. The
most important feature that I am excited about if adding balance sheet items in
COPA. This is very important if want to do profitability of a revenue project. if
you ask any Project accountant, he/she will say that just having profitability
report for project is not enough, profitability should be analyzed along with
differed revenue (or un-billed revenue).   Margin Analysis is released in cloud
edition 1911 and yet to come to in-premised edition.
1. Splitting the cost of goods sold into various accounts like material, labor,
Overhead etc. Earlier this feature was just in costing-based COPA with value
fields assigned to Cost components.
2. Splitting the price different account as per variance category. Earlier this
feature was just in costing-based COPA where value fields are assigned to
variance categories in PA transfer structure.
3. Real time data flow in COPA without waiting for settlement. New feature
which wasn’t there is either of the COPA. Now it’s just available in account-
based COPA.
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4. Event based Revenue recognition, profitability in COPA without waiting
for RA calculation and settlement. New feature which wasn’t there is either of
the COPA. Now it’s just available in account-based COPA.Functionality which
are found in costing based, missing in account-based COPA yet.
1. Sales order Analysis – You can transfer data from sales to costing based
COPA, however it’s missing in account-based COPA. This is important feature
if you want to do predictive analysis. Or if you are doing planning on basis of
sales order data.
2. Parallel valuation – Costing based COPA allows parallel valuation by
having multiple costing keys. This is also important features if you have two
cost of sales, one on the basis of legal cost and another of the basis of group
cost. This is an important feature especially for multinational organization who
have manufacturing in various countries. And legal cost doesn’t reflect the true
cost for management reporting and is influenced by transfer pricing, tax
holiday etc.
Since they are many topics discussed above, in this blog as first series, I will
focus in detail about splitting of cost of goods sold in various accounts and also
splitting price difference account into various category. I’ll try to discuss about
other areas in future blogs.
The feature is very important for manufacturing organization. Instead of
displaying just one line for cost of sales, in costing-based COPA, value fields
are assigned to cost component structures using costing key. This provide detail
cost of sales. For example, suppose the profit margin is reducing in certain
product lines, the management accounting should be able to tell what let to
increase in cost. Is it increases cost of material or increasing labor rate? This
might help leaders to decide whether they should sub-contract or move the
manufacturing to low cost region where the labor is cheaper? Displaying cost of
sales as a single line is not enough for management reporting.
Now, as per new functionality of S/4 Hana, the Cost of sales GL account is
broken into multiple Cost of sales GL accounts. The assignment to multiple GL
account as per cost component structure.
Configuration
Path: IMG → Financial Accounting (New) → General Ledger Accounting
(New) → Periodic Processing → Integration → Materials Management→
Define Accounts for Splitting the Cost of goods sold. (in my opinion, this
configuration should have been also found in COPA configuration node )
In this screen below, you create splitting scheme and you indicate COGS
account which act the source account.
Figure 1

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Figure 2

Finally, you define the GL account where it will be spitted. Furthermore, one of
the entry below has a default key which is cost element if a cost component is
un-assigned.
Figure 3

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How the posting looks like in accounts ?
Now, material document for outbound delivery creates two accounting as
follows
Figure 4

If we look at the first accounting document, its same old document accounting
document for outbound delivery and the cost of sales account is the source
account as per figure 1.
Figure 5

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The next document is the new document which splits the COST of sales into
granular accounts and clears off the original cost of sales account.
Figure 6

Now, these entry goes to the ACDOCA : Universal Journal Entry Line Items,
which is the base table for account based COPA reporting.
Figure 7

Figure 8
COPA :  KE24 Report on account based COPA

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In addition to account based COPA, this functionality is very important for few
GAAP where scrap variance should be reported in finance books as well and
organization has to do enhancements to get it. Now, getting break of your
variance the key for your net margin analysis. It’s very important to understand
what’s causing variance. This is important in complex industries like car or
aerospace industry where you have well defined BOM and routing and robust
standard cost process. You really want to analyze your variance at granular
level.
Configuration
Path: IMG → Financial Accounting (New) → General Ledger Accounting
(New) → Periodic Processing → Integration → Materials Management→
Define Accounts for Splitting the Cost of Goods Sold
Similarly to the above configuration on the splitting COGS, we define a price
difference splitting profile, where by the combination of cost elements and
variance category, we define the target account.  This concept is very similar to
PA transfer structure, where variance category is used in costing based COPA.
Moreover, there’s flag for default which is very useful if the any of the variance
category and cost element is un-assigned to eliminate errors.
Figure 09

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For simplicity, I’ve just broken the variance account to one target account –
remaining variance. And here the account entry of settlement of the production
order
Figure 10

These entry go to universal general ledger and account based COPA reporting
will be similar to splitting cost of sales.
Definitely, with modifications with account based COPA, SAP is trying to catch
up with costing based COPA. However, certain key features of costing based

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COPA is not available yet. Per SAP, the developments will be in account based
COPA.  And with margin analysis, I hope that we have one solution of
profitability analysis. Having multiple options are very confusing and you may
decide for one solution depending upon your correct requirements. However,
business requirement changes in today’s environment and I hope that we have
one COPA which is a perfect COPA and is scalable. .