Apples to Oranges: What is Your Financial Consolidation Comparing?

Transcription

1 Apples to Oranges: What is Your Financial Consolidation Comparing? an eprentise white paper tel: toll-free: web:

2 Author: Helene Abrams eprentise, LLC. All rights reserved. eprentise is a registered trademark of eprentise, LLC. FlexField Express and FlexField are registered trademarks of Sage Implementations, LLC. Oracle, Oracle Applications, and E-Business Suite are registered trademarks of Oracle Corporation. All other company or product names are used for identification only and may be trademarks of their respective owners. Copyright 2016 eprentise, LLC. All rights reserved. Page 2

3 Companies often develop disparate financial systems over time due to a number of business changes: acquisitions, global expansion, and changing regulatory requirements are just a few of them. One aspect of the business that does not change is executive management s need to have a consistent, real-time picture of the consolidated financial performance of the business. Without this information, it is difficult to make informed decisions and lead a growing company in the right direction. Financial consolidation across the enterprise establishes the top-down view of the organization. The methods by which the consolidated data is obtained differ among organizations, usually depending on the size of the organization and what enterprise resource planning (ERP) solution they have in place. Certain ERP systems have built-in or add-on modules, such as Oracle s E-Business Suite Financial Consolidation Hub, to bring together disparate financial information from different parts of the organization to create a consolidated view of the financials of the enterprise. Few companies are able to consolidate their financials using only one method, and even then, the results are not consistent (e.g. the CEO who received 9 different consolidated financial reports with 9 different revenue numbers for the parent organization). The accuracy of the consolidated reports depends on several factors, the most important of which is the consistency and completeness of the source data. If there is a single source for the detailed financials, (rather than several different legacy systems, or several systems integrated together) then it is much easier to combine the results. The more commonly-used methods for obtaining consolidated financial results include a combination of the following approaches: 1. Manual consolidation using spreadsheets. Most companies start with a few spreadsheets to consolidate financials from different parts of an organization who are using different systems, or to perform the first close after an acquisition when there is a very tight timeline. Though the most common, spreadsheets are also the least accurate of all the methods. There are several issues that make spreadsheets the least viable of the solutions for the long term. One worksheet quickly turns into hundreds and thousands of spreadsheets. Because of the large number of links between hundreds of spreadsheets, one inaccuracy may have far reaching consequences. Spreadsheets do not have built in controls, definitions, and standards. It is easy to copy a spreadsheet or values within a spreadsheet and make changes to a formula. It is also easy to interpret the source data differently on different spreadsheets and obtain different results (different lines may be summed or rounded among different spreadsheets). It is extremely difficult to track changes to comply with Sarbanes Oxley, and it is difficult to drill back from the spreadsheets to the source data. The cost is low (requiring little immediate capital investment), but the project scope is deceiving, with too little importance placed on human resources and data quality. 2. Consolidation within the ERP system. In Oracle, a new set of books or ledger is defined. Detail or summary GL data from each of the other sets of books is merged into the consolidated set of books. Creating a consolidated set of books involves creating mapping rules from each set of books or ledger into the new consolidated set of books. A consolidated set of books is the most accurate when the chart of accounts is shared across all sets of books, and the rollup structures are welldefined at the right level of detail so that data is tracked consistently. The ERP system becomes the data repository for summary level business information and consolidated financials. If data is spread across multiple instances or if there are multiple sources for the data, a consolidated set of books does not work as well because consistency is not enforced. The other limitation of a consolidated set of books is that the financials are tracked only at the GL level. It is very difficult to drill down to the different subledgers, and to reconcile the consolidated financials across all E-Business Suite modules. 3. Use of third-party tools for consolidation and reporting. Depending on the tools used, this method often requires making substantial investments in software that is designed specifically for Copyright 2016 eprentise, LLC. All rights reserved. Page 3

4 consolidation reporting purposes. The tools run on top of the database applications, retrieve data from disparate sources, and manipulate the data in their own environment for increased data visibility. Again, the accuracy of third part tools depends on the degree of consistency of the source data and standards for the level of detail from each source. Third party tools such as Hyperion or Clarify rely on the quality of the data, the mapping from the source to the consolidated financials, and on a rigor enforced by a common chart of accounts and standard business processes to provide management with a complete, consistent, and correct view of the consolidated financial operations. Using R12 ledger sets, the organization is able to enforce a degree of consistency by allowing new ledger entries to be created based on user-defined business rules. When the user enters the information once and then generates entries in other ledgers, there is less likelihood of errors. Having a single transaction ledger facilitates drill down into different Oracle modules like Project Accounting, Payables, and Receivables. The detail of each of the transactions can be kept at the subledger level with the primary ledger cumulating the detail from different parts of the organization. If the subledgers and the chart of accounts represent the organization s daily business accurately and at the same level of detail, it is easy to roll up to consolidated financials, and to drill down to individual transactions from the GL. There are a number of steps to follow in order to achieve a successful consolidation and to be sure that you are able to compare apples to apples. 1. Determine the requirements. What levels of financial detail does your organization need for consolidation purposes? What needs to be compared? What is the frequency required for consolidation and reporting? Do different parts of the organization require different levels of financial consolidation? How much history is required to get an accurate consolidated financial picture? Are there legal requirements (for example after an acquisition) that dictate the type of reporting required? 2. Determine the sources of the data. Where do you get the data to meet the requirements from the previous step? Identify where the source gets that data what is the original source of data? Starting from each original source, follow the transactions all the way to the GL and any consolidation process. Make sure that each data item maintains its integrity throughout the entire process and that any changes to the data are well-documented. 3. Make the data sources consistent. Standardize on the level of detail required from each of the subledgers, use common naming standards, and common processes. 4. Design your Chart of Accounts (CoA) accordingly. The Chart(s) of Accounts used by your organization must be able to accommodate the financial data at the level of detail that is needed. Use logical ranges in order to streamline reporting. 5. Create the necessary roll-up groups. Decide how to create the logical buckets for each type of financial data for reporting and reconciliation. 6. Revisit your reporting structures. Make your reports generic enough to allow you to add new accounts, report at a different level of detail, or create a different type of consolidated financial report. Using FSG, creating master row sets allows you to generate different reports without having to rewrite each report. Finally, how do you know if you have a complete, consistent, and correct view of the financial health of the organization? Copyright 2016 eprentise, LLC. All rights reserved. Page 4

5 Curious? For more information, please call eprentise at or visit About eprentise eprentise provides transformation software products that allow growing companies to make their Oracle E-Business Suite (EBS) systems agile enough to support changing business requirements, avoid a reimplementation and lower the total cost of ownership of enterprise resource planning (ERP). While enabling real-time access to complete, consistent and correct data across the enterprise, eprentise software is able to consolidate multiple production instances, change existing configurations such as charts of accounts and calendars, and merge, split or move sets of books, operating units, legal entities, business groups and inventory organizations. Copyright 2016 eprentise, LLC. All rights reserved. Page 5