Financial  consolidation  is  growing  in  importance  due to globalization and the popularity of mergers and acquisitions.   Nowadays it is not uncommon for a mid-sized company to own several legal entities in different states or countries.  

Even when a company’s financial consoldation requirements may not be
very complex, it may still be a very tedous and time consuming and prone to error if done manually in spreadsheets. 

Consolidation can seem very simple—isn’t it just about  adding together a series of accounts from different companies? 

From an accounting professional’s perspective, financial consolidation consists
of a series of processes and several challenges!:

• Extracting data from multiple entities – which may use multiple software systems
• Mapping disparate general ledgers to a common chart of accounts
• Converting data to a common file format for import
• Importing the data from multiple entities that may have different fiscal calendars and Partial ownership
• Multi currency conversion – accounting convention makes currency translation  and the use of historical (or temporal) exchange rates complex .
• Consolidating at multiple hiearchical levels .e g, by region, division,  group
• Intercompany eliminations aking adjustments to the consolidated data
• Producing reports for the consolidated entity
• Multi-level reporting requirements  
• Financial statement reporting
• Taxation consioderations
• Regulatory authorities such as the SEC set  compliance requirement for publically traded companies to report consolidated  results.   
•  In  addition  to  obeying  accounting  standards (such as GAAP or IFRS), these types of consolidations also require an audit trail or a report that explains how source data from subsidiaries has been adjusted to give the consolidated results.
• Management reporting will want to compare numbers across the group on a common basis.

Quite apart from legislated and management reporting, there are other reasons
why companies perform nancial consolidation.  For example:

• Formally  documenting  intercompany  sales  in  a  consolidated  entity
  that trades in multiple countries makes it easier to answer questions
  about transfer pricing and to demonstrate compliance. 
• For  a  holding  company,  there  may  not  be  a  need  to  have  a  separate
  general ledger,  but a need to use the financial consolidation system as the system of record.  An audit trail will meet external audit requirements.
• Future audit fees can be reduced when there are standard end-of-year
  journal  entries  that  have  been  previously  audited  and  approved  by
  external auditors, rather than using spreadsheets that need to be fully
  audited every year. 

Financial consolidation solutions streamline and add value to existing processes and systems. Financial Consolidation is not the same for all companies. Depending on external or legislative reporting requirements and management’s need for information it can be very complex or relatively straightforward.  Its scope and complexity depends on how rigorous the company wants its nancial management to be. 

Before selecting a Financial Consolidation solution, it is important to be clear about your objective of the exercise and what you want as an end result. For example most  ERP  products have limited, relational reporting that cannot give consolidation accountants the  reports  they  need.  Timely automated distribution of reports in a report binder, or powerful what if ad hoc reporiting analysis, or presenting kpis in drill down dashboards are minimum expectations of the modern group CFO .   Limited  reporting functionality  is  often a key reason why many companies export general ledger data to third-party soware for their regular reporting requirements.

Packaged Applications
In  the  1980s,  specialist  software  products  were  first  developed  to  perform
financial  consolidation.    The  market  was  mainly  enterprise  level  companies
with  over  one  billion  dollars  in  revenues.    these  products  have  grown  to
be  very  sophisticated  in  terms  of  the  types  of  calculations  and  accounting
processes they can perform. They also tend to be very expensive, both in terms
of soware licenses and the services required to implement.  They are
outside the budget and technical resoruce of of most midmarket companies.

For group companies a  specialized software, such as Prophix,
is now available.  Prophix is a cost-eective alternative to high end global solutions
and Prophix offers  a  very  attractive  value  proposition  to  automate
processes  for  finance  professionals.   

Financial  consolidation  in Prophix is fully integrated with all other Prophix components such as easy-to-use reporting, data import, data collection, workow, report distribution and ad hoc OLAP querying of data.  Using Prophix, it is not necessary to keep a record of all the transactions in an account that is translated using historical rates. Beginning-of-year balances are sufficient for Prophix to accurately keep track of ongoing account balances for accounts requiring historical exchange rates. This integration lowers costs by minimizing training requirements and lowering the complexity of software installation. typically Prophix implementation time is  1/3 to 1/2 of other solutions.

Prophix is built on the Microsoft platform and has extensions for SharePoint. There are many techncial features built into Prophix to reduce comaplxity for users and their IT departments and I will cover these in a future post.

Spend more time on value added work and less time on tedious tasks

Prophix can create, schedule, design and run business type rules and processes to facilitate consolidation and global data manipulation in one point-and-click interface to eliminate repeatable, recurring processes. The Prophix Process Manager facilitates tasks by automating manual adjustments, such as intercompany eliminations, allocations and minority interest calculations, ensuring data is accurate and up to date.

Consistent completion of data

Prophix provides organizations with a way to bring together financial information from different financial models or general ledgers in order to create a consolidated view of the business. When extensive analysis is necessary, every consolidated number links directly to a single data source, which assures the single version of the truth.

Faster closes

Closing the books quickly is an important event: every month, quarter, and year, yet many challenges stem from the accuracy of reported numbers and business logic used in closing processes. Prophix ensures that the process is consistent and assures fast closes by providing inherent accounting logic, such as debits and credits, ensuring secure workflow processes, and allowing for quick journal adjustments. Adjust data using journal entry templates with support for recurring and auto- reversing entries, create allocations based on any measure, and create repeatable intercompany elimination journal entries to automatically eliminate balances at the correct consolidated levels and generate matching reports.

Adaptability when changes are needed

As regulatory pressures increase and companies are being asked to change structures, processes and policies very quickly, Prophix’s fully integrated, centralized business model supports, controls and manages the change. Adding new reporting hierarchies, entities, currencies, line items, or consolidation processes is within business leaders’ reach

With budget season approaching for most CFOs in the last quarter of the year, and year end cosnolidaiton and reports and audits to follow now is a good time to think about how to streamline your processes.

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