Financial Accounting Advisory Services Consolidation tool for an effective consolidation process September 2014
Agenda Consolidation and financial reporting 3 Common challenges 5 Our approach and methodologies 9 Key outputs 19 About EY 21 Page 2
Consolidation and financial reporting This solution has been designed to assist companies to meet their ever-increasing reporting demands. Consolidation can make the reporting process more complicated and can introduce stringent time lines for many organizations. Because financial processes are interlinked with business processes throughout the organization, streamlining reporting and consolidation helps to realize significant benefits in validating data and providing a better audit trail. Page 3
Consolidation and financial reporting (continued) With the help of our consolidation assistance team, we can help you to: Improve the quality of the reporting packages sent by local entities Optimize the processes and links between financial requirements and reporting for management purposes Ensure compliance for regional or subgroup-level consolidations Page 4
Common challenges Page 5
Finding the right solution for you Spreadsheets are of limited use when undertaking a consolidation exercise. Their drawbacks include: Poor audit trail Inconsistency of data Insufficient data protection Significant error and control risks Insufficient follow-up of controls and complex formulas Low level of automation Manual validation and control of package data No ledgers and predefined statements Page 6
Finding the right solution for you (continued) Dedicated consolidation software also brings some significant challenges: It could incur high implementation, license, maintenance and infrastructure costs. It can be oversized compared with the organization s needs. Distribution zones are limited to some countries or areas. Users require training. It can easily become obsolete as technology advances. EY can help develop a controlled consolidation process that means organizations do not have to invest in a consolidation tool or use spreadsheets requiring manual intervention. Page 7
Resulting challenges Competitive marketplace CFOs come under pressure to report accurately and quickly to management and stakeholders. Investors demand more frequent, more rapid and more detailed results from the consolidation process. CFOs are expected to take on the role of business partners and actively support senior management s decision-making. Reporting needs Global organizations need information broken down to regional or branch levels for management purposes, or to comply with local regulations. Data should be reported regularly to the management to be consolidated and compared with budgets and forecasts. Management challenges Faced with increasing demands and limited resources, CFOs constantly look for ways to increase their finance department s efficiency and effectiveness. Integration of new entities, follow-up of purchase price accounting or disposals of entities can put the process at risk if not managed on time. Page 8
Our approach and methodologies Page 9
Our approach Consolidation process 1 2 Streamline and map the chart of accounts Our approach Design the standardized and customized reporting pack Process data in application Generate customized output 3 4 Page 10
Our methodology Designing of input template Coding Mapping Testing Data validation Trial run Design the following standardized input templates to collect information from group entities in standardized manner: Local GAAP and IFRS and US GAAP (balance sheet) compliant template Local GAAP and IFRS and US GAAP (income statements) compliant template Intercompany elimination template Related party template Fixed assets schedule Others (customized as per clients needs), if any Ensure input template takes care of financial statements presentation requirements, including schedules Assign unique codes to each line item of the financial statement in the trial balance and in the standardized template. (This would not be necessary if the group has streamlined chart of accounts with unique GL codes.) Map the input templates with the company s trial balance based on unique codes. Test consolidation exercise. Incorporate a data validation check that will throw errors at the data input stage itself and significantly improve the quality of data inflow from subsidiary companies. Perform a consolidation exercise for any particular prior year to verify results are accurate. Page 11
Sample structure Subsidiary company s input templates Databases Output reports A Ltd. input template B Ltd. input template C Ltd. input template D Ltd. input template E Ltd. input template F Ltd. input template G Ltd. input template Financial statements database Intercompany database Fixed assets database Related party template Consolidated financial statements Subsidiary financial statements Intercompany matrix Fixed assets schedule Related party schedule Page 12
Example automated trial balance (downloaded from client s system) CoCd G/L acct Short text Currency Current year Previous year 1000 20121000 Acc Dep-Bldng INR - - TB may not be in GAAP reporting required format 1000 20121001 Pro.Dep-Temp.Bldng INR - - 1000 20122000 Acc Dep - P & M INR - - 1000 20122001 Acc Dep-HEM Eq INR - - 1000 20123000 Acc Dep-F&F INR - - 1000 20124000 Acc Dep-Office Eq INR - - 1000 20125000 Acc Dep-Veh INR - - 1000 20125001 Acc Dep-Veh Trucks INR - - 1000 20126000 Acc Dep-Comp/DPE INR - - 1000 20126001 Acc Dep-Software INR - - 1000 20127000 Acc Dep- Site/Fld Eq INR - - Page 13
Example designing the standardized input template (in compliance with GAAP reporting requirements i.e., Indian GAAP) Company name Reporting period Func currency APEX code Particulars Head Description CY PY Check - CY Check - PY SPM 31 Dec 13 USD 3A1000 Revenue from ops services services to holding, subsidiaries and related companies - - SPM 31 Dec 13 USD 3A1100 SPM 31 Dec 13 USD 3A1200 SPM 31 Dec 13 USD 3A1300 Revenue from ops Revenue from ops Revenue from ops services services services Construction contracts - - Trading - - Power generation - - To pull data here from TB SPM 31 Dec 13 USD 3A1400 SPM 31 Dec 13 USD 3A2000 Revenue from ops Revenue from ops services services Civil works - - services to others - - Locked cells SPM 31 Dec 13 USD 3A2100 Revenue from ops services Construction contracts - - SPM 31 Dec 13 USD 3A2200 Revenue from ops services Trading - - SPM 31 Dec 13 USD 3A2300 Revenue from ops services Power generation - - SPM 31 Dec 13 USD 3A2400 Revenue from ops services Civil works - - SPM 31 Dec 13 USD 3A3000 SPM 31 Dec 13 USD 3A3100 Revenue from ops Revenue from ops services Other operating revenue Total s,ale of products and services To holding, subsidiaries and related companies - - - - Locked cells Page 14
Example ABC Ltd Page 15
Example customized output different reports Page 16
Example output Indian GAAP financial Page 17
Example output fixed asset report Page 18
Key outputs Page 19
Key outputs Increasing control over consolidation More efficient finance function Each unit sends existing format financials in the local currency to corporate team or saves in a central location. Transmission of the information in a standardized format from each subsidiary to corporate improves the quality of the reporting. Each submitted financial statement is automatically validated for completeness. The time spent checking input templates and working file links is reduced. Users are provided custom templates and validations to enable better performance of accounting tasks. Major calculations are automated, e.g., minority interest, goodwill and cumulative translation adjustments. No manual intervention is required. Reports can be automated to be produced directly from the consolidation, avoiding the use of large spreadsheets and the risk of linking errors. Enhancing rigor and flexibility of reporting Equipping finance with an analytics platform Structured input forms and standard calculations can deliver uniform processes and norms. The approach provides one version of truth to the business. Custom validations on data input ensure that the quality of data and supplementary analysis is assessed and ensured proactively. Changes in the group structure can be accommodated smoothly and a historical snapshot can be taken. It provides formatted financial statements that can be refreshed each reporting period by users. Users can drill down to the source financial statement supported in the tool itself. Text comments can be added to the data within the tool. Page 20
About EY Page 21
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Financial Accounting Advisory Services contacts Pankaj Chadha Partner pankaj.chadha@in.ey.com + 91 124 464 4150 Laure Deshayes Executive DIrector laure.deshayes@fr.ey.com + 33 1 46 93 58 55 Page 23
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