Closing Fixed Assets in R12 - What You Need to Know to Have a Successful Close

Randall P Murray OnPlan Solutions, LLC

Introduction - This paper and presentation discuss some of the ways to have an effective and successful Asset
close in Oracle Release R12. My experience and work effort has been in closing Assets in R12.0.4, however, this paper is also effective for any one new to Oracle Assets and how to be effective in closing the application successfully every month. At OnPlan Solutions, I was part of a team that helped our customer upgrade fro m 11.5.10 to R12.0.4. After upgrading I was with the customer for 18 months of Asset closes, working closely with the users on what to look for, what to do and how to stay within their 2 day close schedule in place for the Asset application. It should be noted, other than project related detail used in Descriptive FlexFields; the client did not have any customizations with Oracle Assets.

Scope We will be reviewing in this paper some of the fo llo wing items of interest to closing Oracle Assets.
What changes from 11.5.10 and what improvements were made over t ime as our experience grew in R12. Ho w we choose to close Assets in R12.0.4. We will discuss some new functionality in R12 Assets and specifically how it impacts the close process. We will spend time on the newly added, dynamic, somet imes frustrating Subledger Accounting functionality and we will discuss how this impacts closing of Assets. Depreciation changes in R12 and how we leveraged these changes for close.

Business Environment - The client is a diverse business with mu ltiple business operations and a large
investment of capital equip ment. There are three major lines of business that make up the client business. Each Line of Business is divided into four regions. They have 2 Corporate Books (US and Canadian operations) with 6 Tax Books to deal with, although the Tax Books are not closed monthly as part of the financial book close. The clients accounting segments include Co mpany, Line of Business, Cost Center, Account, Sub-Account, Intercompany and Project segments. For Depreciat ion expense all segments except Intercompany and Pro ject would be co mpleted, although for Asset and Accumulated Depreciation Co mpany, Line of Business, Account and Sub-Account segments are the only ones used. As stated, fro m AP to Mass Additions table, the client uses a Descriptive FlexField value to track and budget per-capitalized assets. After the Mass Additions is created as an Asset the DFF is the Asset Key for further long-term asset tracking. There are over 250 locations represented by the Company accounting segment with each location having up to 20 cost centers. Some locations have assets that require frequent maintenance and additions to the assets as they build more to a major asset.

Business Requirements - The client requires that Assets be closed within 2 days of month end as part of the
calendar month closing. All mass additions are appropriately charged to projects and reconciled, new assets created and appropriately amort ized or recorded, depreciation expense charged to the correct Co mpany, LOB and Cost Center and the GL updated appropriately. Tax books are only closed once a year, so there is no immed iate need to support or update those books, although as necessary, Corporate Accountants may have to work with the Tax Depart ment align the Assets created in Corporate book with rules established by law or the business management.

COLLABORATE 10

Copyright 2010 by Randall P M urray

Page 1

Period ically new businesses are purchased, or Assets transferred between Locations and Lines of Business, requiring asset updates to be appropriately reconciled and updated before month end close. Of course the in-field communicat ion of these changes are not always timely for the centralized Asset Accountants, so updates to assets may be co mp leted in the months following the actual retirement, transfer or update of the assets. Additionally, IT would provide both Functional knowledge and Technical support to the end users, but other than training on tools such as Web ADI, would not process data for the users. Any Service Requests with Oracle would be worked through complet ion by the IT support group. With the above requirements in place fro m 11.5.10, the business was tasked to formalize a closing process. This would be a something new as there was no previous documented to follow.

Design Alternatives - Prior to Oracle Release 12.0, Oracle Assets Depreciation was only processed at month
end. There were always many updates to be made which required Depreciat ion rollback actions, re-depreciation runs, re-rollback, etc, until all business units agreed to the numbers and Assets could finally be closed. After each run, Senior Divisional Accountants for the business reviewed the numbers before signing off so that Final Depreciat ion could be run. Additionally the accounting was basically all done at one time, requiring immed iate, fast and accurate reconciliation between the subledger and GL during month end close, necessitating some late night activities for the Asset Accountants. In Oracles Release 12, Depreciation no longer required fu ll ro llback activities, Subledger Accounting allowed for accounting to be done periodically and not just on Day 2 of close. However, the accountants were not fully aware of these functions and how to use them to imp rove their month-end activities. We investigated the processes the users used to perform their Asset activities and came up with some o f the following reco mmendations. Obviously they could have stayed with their tried and true 11.5.10 processes, but they were finding it increasingly more d ifficult to stay on the corporate close schedule and complete all their monthly tasks on time. Or they could use some of the new tools of R12 to improve their work. It was decided to work with these new tools, change their activ ities and get back to the standard, clean 2 day close. With these changes they actually cut out more than half day of closing through these improvements. As we see in a mo ment, the users were still reconciling Assets to GL using transactional reports, delaying close. Before proceeding to the close changes that the users adopted to improve close, lets look at some of the R12 functions that Oracle has instituted and how they impact close.

Overvie w of Subledger Accounting Process - Subledger Accounting (SLA) is a co mmon ru le-based

accounting engine used by Oracle products that posts accounting entries into the Oracle General Ledger sourced fro m the subledgers, or allo ws you to manually create entries in the subledger SLA to be then transferred to General Ledger (GL). SLA separates the Accounting entry that will be posted in GL fro m the Accounting Event in the Subledger. For each transaction in the Subledger, an Event is created in SLA. Once that transaction, for example Depreciat ion class, is finalized, the Event becomes Accounted. When all elements have been properly comp leted, the Event is in balance. At some future stage then, the Accounted Event can be transferred to General Ledger for posting to the Balance Sheet and Income Statements. Oracle maintains an SLA Events Model that associates an Event Class with Journal Line Types and Event Types within an Event Entity. Just like 11i, there are still the same Event Types like Depreciation, Asset Transfer, etc that get transferred to GL. Fro m General Ledger, users can drill first into the SLA Event and then as necessary can actually drill back into the Subledger transaction as well. This new architecture keeps the detail transaction

COLLABORATE 10

Copyright 2010 by Randall P M urray

Page 2

informat ion in the subledger, not GL, freeing GL to contain only those accounting elements needed to report, but allo ws for lin kable tools fro m the GL back to the subledger transaction. So how does this impact close? In 11i, the transactions distribution lines represented the actual accounting that was transferred to GL. In Release 12, the distribution lines can actually be changed (note not recommended) in SLA. Those Events as stated above are updatable before being sent to GL. SLA becomes the source of the accounting reconciliations. It is one reason some of the subledger accounting reports that use to be stored in GL are now moved to the subledger. Additionally, any necessary balancing lines for Assets moved from, say one company to another, are now co mpleted in SLA when the Event is accounted. Previously this was done over in GL. An additional issue with this application modification is that reconciliat ion has been significantly changed with this middle process being created. Until the Transfer to General Ledger p rocess has been completed, you will not see your Balances updated. This was a major issue with the client, they were accustomed to seeing immediate impact to their General Ledger so we had to make sure to incorporate this changed functionality within the closing process. However, one benefit that was useful with this tool, is until the transaction is finalized, Create Accounting run in Final mode instead of Draft mode, the users could fix any accounting setups that they may find and post only correct entries to the GL. With SLA co me a couple of new Programs/Reports. You still have to run your Subledger Period Close report, but prior to running that report you run Create Accounting Assets to get those Events discussed above Accounted. When Accounting Asset Events you can also elect to Transfer to GL at that time, or do so later with a separate Transfer program. No w when you run Transactional reports, you no longer are looking at the Distributions, but just the transactions. The Accounting reports are now looking at SLA, GL Journals and GL Balances. These reports no longer display the transactional activity, but just the accounting activity. Accordingly, as stated above, you cannot run these Accounting balance/reconciliation reports, until the Events have been Accounted and transferred to GL.

Overvie w of Depreciation Change - Along with this new Accounting process creating a 3rd tier do deal with
during close, Oracle made a significant change to Asset Depreciation functionality. They made the Rollback of Depreciat ion automated and no longer global in nature. This functionality took several months to be fully understood by the users and how it can benefit month end close. Once it was fully understood we were able to incorporate the functionality change in improving month end close scheduling and timing. The key with this process is that Oracle allo ws Depreciat ion to be run at anytime of the month. Instead of reversing all Depreciation that was once calculated, only those assets that have been modified are ro llbacked, and done so automatically by the system. There is no program to be run by an Asset Manager. There is no waiting for a program to be comp leted. Additionally, at least for the infrastructure in place, Depreciation ran quicker in R12 than it did in 11.5.10. And with rollback occurring on only those Assets that actually have work done to them, when Depreciat ion is run in Final mode, the program may co mplete faster than running just a standard Oracle report. One needs to remember the first noted change above. SLA generates an Event whenever there is an Accounting Action. If Depreciation is run and the Events in Assets are Final accounted in SLA, then you will end up having a Depreciat ion Journal. When you adjust an Asset a reversal depreciation journal will subsequently be created and then a new depreciation journal once you re-run Depreciat ion again. However, if Create Accounting is not run yet, the Event will not change but the accounting lines of that event will be updated based on the effective new Depreciat ion run.

Mass Additions Enhancement Is a third key change that helped the client improve their operations. The
client was often purchasing new businesses and assets had to be loaded with history into Oracle and using some of the new tools here allowed for less manual man ipulation to generate clean assets. Attributes such as Asset Life (key changes often made with this business), depreciation methods, prorate convention (for this client basically only used
COLLABORATE 10 Copyright 2010 by Randall P M urray

Page 3

by the Tax Depart ment, but very key fo r them) really assisted with new asset purchases. And as stated the use of DFFs fro m Payables to Assets or manually added in Assets improved custom reporting functionality.

Configuration Steps The Oracle upgrade process took care of virtually all setups. Categories, Depreciation
Method, Lives all copied fro m 11.5.10. We did not use, but Oracle has a new tool, Configuration Manager that can help guide you through all the Steps of a configuration, or an upgrade to ease your work. One major issue we had early on, however, was that tax lines were not init ially being transferred fro m AP to Assets during the Mass Additions nightly phase. There was a setup change with both standard Tax lines and Self-Assessed Tax lines were not allowed to be transferred. Of course, it did not help that our Tax setups were not done properly in AP either. But once that was fixed, we still needed a setup to allow tax lines to be transferred. A note here, an irritant to the client, tax lines on invoices were auto matically Merged to the associated Invoice line during Mass Additions processing. That is really great when that Invoice line beco mes a singular invoice, but not so great for the customer who had tens to hundreds of invoice lines to be merged into a single asset. The issue is that in R12, a Pro file Items is turned off, and with the SLA architecture in place, the Accounting Class for your taxes needs to be setup. To insure your tax lines interface to Assets please follow these simp le setup steps. First thing you need to do is Navigate to the following location in Payables Super User responsibility N Setup Accounting Setups Subledger Accounting Post-Accounting Programs. In the form that appears, Query for Program Name = Mass Additions Create. Select the Assignment Definit ion Oracle Standard Assignment Code. Select the Copy Assignment to create a new assignment. Enter a new assignment code and assignment name and Save. Go to the Accounting Class Assignments. Create/Insert a new Class Assignment = Non-Recoverable Tax and/or Sales Tax. We set up 2 new ones because of how the new E-Business Tax was setup. So a coordinated effort is needed to get this setup complete. Note: You may have to have your System Ad min istrator set the Profile Option = SLA : Setup User Mode (INTERNA L use only, do not ship) to the Value = Customer. We had to do so in our setup. This allows you to update the Above Accounting Class Assignments. Please see Oracle Note R12 Mass Additions FAQs [ID 730087.1]. This session is not about setting up Oracle Assets for closing so I am not going to discuss the setup of GL or Asset Categories and the associated Accounting Assignments. What I will state is that to improve your close timing and reconciliation activit ies, make sure to have clean and specific Asset Cost, Asset Clearing, Accu mulated Depreciation and CIP accounts setup on your Categories.

Closing Assets Requires a daily over the month view. Do not consider month end closing to be something you
only do at the end of the month. Instead treat each day as a process to get you closer to being closed. As a user, and later in a support role with the users, I tried to treat month end as just another day. R12 changes really allow us to move Assets forward and being proactive in a reactive applicat ion. Oracle has moved the Accounting Analysis report down to the Subledger. No w we can see what can happen to GL before it actually happens. With SLA we can see the Event and Accounting lines before they are transferred to GL, or Asset through Mass Additions.

Complete your Transactions, daily - First on the list of is running Create Mass Additions nightly fro m the
various AP Operating Un its. In the RAC environ ment used at this client, this program had/has a significant performance problem that is still being researched. Several patches applied, but none have worked optimally, so this program was scheduled around other jobs to minimize the performance issues. Review the next morn ing Mass Additions Create Report for what was transferred. The Asset Accountants did not want Payables clerks to determine Categories, so that information was not transferred to Mass Additions table. Instead the appropriate Accountant reviewed their own business transactions and updated the Mass Additions lines appropriately.
COLLABORATE 10 Copyright 2010 by Randall P M urray

Page 4

Daily modify the Mass Additions lines. Merge them, delete them o r change them any way which is appropriate and then set to Post status when ready to create your asset. Make sure at this point to assign your correct Categories, assign Locations, Emp loyees, and Distribution Lines. Distributions are critical for Depreciation and SLA to run properly later. At the end of the week, and sooner as necessary, any Mass Additions lines should be made into Assets. Possibly review any AP Invoice lines not transferred to Mass Additions. Run Account Analysis in AP for your AP Clearing Accounts. Work with the AP staff as appropriate to insure what you need is what you receive nightly. Do any Asset changes as necessary including all Ret irements as they occur.

Get Mass Depreciation out of the Way - With the change in how Depreciation is determined, and the autorollback functionality, you can run Depreciat ion at any time of the month. By running depreciation immediately at the beginning of the month for examp le, you can already have a transactional understanding of your on-going assets and unless you need to modify them, they will be left alone as the month rolls along. If you do run Create Accounting Assets until near the end of the month, should you need to modify one of the previously created assets, there will not be any reversing Journals to deal with, just a modified transaction when rollback and the new Depreciat ion process is run. Additionally, if you run Depreciation for your hundreds to thousands of assets early, every time you run Depreciation again, only those newly created or a handful of modified assets will be touched. The Depreciat ion program will run quickly and generally without issue. Lastly, running early will help you identify any Oracle bugs that require work before the end of the month processing when everyone is so busy, including your IT and Business support personnel.

Run Create Accounting, often, in Draft SLA added this new program. One of the added tools of this
new program is the ability to run this Create Accounting program in Draft format. It can also be run for a part icular Accounting class, say Retirements. Running in Draft format allo ws you to see if you have any errors and work them before they are attempted to be passed to GL, and more importantly, running early in the month, and often, you get to work any issues before it is too late. At this stage you can do some subledger reconciliation if you so desire. For example, if you have run Post Mass Additions and Create Accounting in draft format , you can run an Asset Register report. In the Transactions form, you can View the Accounting that would be generated by the Mass Additions and make sure your clearing account is cleared properly. And every time you run the Create Accounting report, you can see the data, in Detail if you desire, which is a representation of what SLA would be transferring to GL if there are no more changes. All of this is to make one get comfortable with the way of Accounting for Transactions in R12. For me, I am less concerned with balancing at this point, as long as everything is set up correctly, and more concerned that the debits and credits to be generated are accurate for the Assets. Continue to operate daily as appropriate. Do your retirements, transfers and adjustments every day, until you reach the end of the month. Now we repeat the steps, but this time so we can actually close the subledger. Please note that the same order of application close that existed in 11i is the same in R12. Payables, Purchasing, Inventory and Project Accounting need to get closed, with Payables transferring to Assets any all accounted invoice lines. Then we can do the final activit ies necessary in Assets. Review and do any last minute Mass Add Postings. By this time every asset should have been updated. Run Depreciat ion. Again since we have already run Depreciation, the only items picked up at this stage would be any previous assets you needed to modify, and any new assets created. The job could comp lete in just a few minutes. This is not Final Depreciat ion at this stage, but unless an error is found it is everything but Final. Rev iew the Journal Entry Reserve Ledger report. Make sure the numbers are as expected. Run Create Accounting Assets in Final mode with Transfer to Asset flagged as Yes. If all the other runs in Draft parameter have not netted any Accounting Errors, then this run will finally generate the SLA journals and transfer them to GL. After the Journals are Imported and posted to GL such that the GL Balances table is updated, then run your reconciliat ion to GL reports. After all journals are posted, run the Subledger Period Close Exceptions report. Verify for your Corporate book, there are no asset items listed. There may be values listed, we had 6 Tax Books that were never in the same period so for every Mass Addition, Transfer, Adjustment, there were at least 6 entries in this
COLLABORATE 10 Copyright 2010 by Randall P M urray

Page 5

report for the Tax Books. Do not worry about these as we are only concentrating on the Corp Book. Note: that for the following reports, Tax Books must also run the Create Accounting program, but as long as your Book setup does not generate Journals, there should be no postings to the GL. Run the Journal Entry Reserve Ledger and reconcile with the Account Analysis report. Run the Cost, CIP and Reserve Su mmary reports and reconcile to the GL. As necessary run Detail reports and compare to Account Inquiry in GL. Occasionally there are bugs for some of these reports. Mostly there are issues with SLA and these reports so they may not report correctly. Run Responsibility reports depending on the level of your asset distribution across businesses. This step was not utilized because Assets were not assigned to Emp loyees, and the Location was essentially covered in the Chart of Accounts structure with Co mpany, Business Unit and Cost Center values. Once you have done these quick reviews of posted, journals, and no one has made any other changes, you can run the Deprecation with Final close. Run Create Accounting in Final mode once more just to insure no accidental entries have been made, but otherwise Assets is closed.

Conclusion The key to a successful close is to treat the end of the month just like any other day. By processing
your Mass Additions daily, by running Depreciat ion early, reconciling monthly using the reports Oracle provides, Assets can close immed iately after Payables closes.

COLLABORATE 10

Copyright 2010 by Randall P M urray

Page 6