In all my years in accounting, by far the most difficult part of the month end close was the consolidation of entity general ledgers into one group of financial statements. Consolidation in Financial Accounting may best be described as a“ financial reporting technique that helps a firm summarize all operating data under a single set of financial statements in accordance with industry standards, accounting principles and regulations.”
Basically, consolidation means merging different sets of books, often from different ERP systems, into one. For example, a consolidation accountant at a PA-based chemical company may ask country finance managers in France, Mexico and Spain to provide financial statements to be consolidated with the U.S. operating data. This offers the benefit of viewing the whole group's financial information together to see how all companies are doing combined.
And it was a headache! Weeks would pass before we’d be able to generate prior month results to management, results that were often outdated and barely useful to the chief decision makers of the business. Increasingly, global organizations need to integrate data from multiple transactional systems (i.e. Oracle EBS, PeopleSoft, JD Edwards, Great Plains, etc.) with multiple currencies, transition to new international financial reporting standards, and improve the transparency and regulatory compliance procedures, all in a shortened amount of time.
Plus, there was the intercompany elimination part of consolidation. Intercompany elimination refers to the process for removal of transactions between companies included in a group in the preparation of consolidated accounts. Intercompany transactions (sales, services, transfers) must be eliminated in the parent financial statements otherwise a company could be “double-counting” activity. This process also involves a lot of reporting, reconciling and paper chasing to ensure that all intercompany activity is eliminated before companies can be consolidated.
Now, there were always several “tricks of the trade” that companies used to perform the consolidation process, including manually inputting the disparate country data into Excel spreadsheets, and using a master consolidation spreadsheet as the one true “version of the truth”. Or downloading flat files from the different general ledgers and manually inputting or uploading them into the parent company general ledger system. Some companies may have gotten creative and use pivot tables to consolidate into Access or Excel, using complicated lookups and formulas to gather the information into a presentable format.
Regardless of the methods, it became obvious that there are numerous shortcomings to all of these methods, such as:
- Relying on error prone spreadsheets, which can be difficult to audit and tie back to the GL;
- Losing the integrity and sources of account balances from the various general ledgers;
- Becoming overly dependent on one or two consolidation “super users” to write the complex macros often need to consolidate manually;
- Difficulty meeting deadlines as the parent company becomes more and more reliant on local entities closing their books;
- Trying to push through adjustments or allocations to the local entities for certain pass through costs;
- Ensuring that financial statements have been prepared per the proper accounting standard;
- Enduring sky high audit fees as public company audit firms need to increase testing due to difficulty relying on the consolidated financial statements.
We accountants love our Excel, but let’s; face it: Excel is a great personal productivity tool but is not designed for complex calculations, accounting for multiple lines of business and/or entities or complicated consolidations.
The bottom line is, with shortening deadlines, increased regulations, and the need to report meaningful, transparent results to management faster and more accurately, the days of companies using these trick of the trade to consolidate their financial statements is coming to an end. And good riddance!
An automated tool, one capable of proving one version of the truth, with the ability to combine data from various sources, drill into the source of that data, adapt to rapidly changing regulations and produce auditable financial statements. Having myself used the various “trick of the trade” noted above, I’m thrilled to say that there IS a better way: Oracle Hyperion Financial Management (HFM), the number one Reporting and Consolidation tool in the world.
HFM is a comprehensive, Web-based application that delivers global financial consolidation, reporting and analysis in a single, highly scalable software solution. HFM utilizes today's most advanced technology, yet is built to be owned and maintained by the enterprise's finance team.
HFM has financial controls, workflow and best-practices built into the platform to support:
― US GAAP and IFRS Reporting ― Sarbanes Oxley (SOX) Compliance
― Audit Trails and Activity Logs ― Intercompany Consolidation and Elimination
― Foreign Exchange Translations ― Increased visibility into the numbers
In addition to the powerful features provided "out of the box", HFM is also highly configurable to support the complex elimination and allocation requirements specific to your organization.
HFM is a finance-owned, IT-supported system that allows your organization to quickly make changes as conditions warrant but tracks those changes to provide transparency and visibility for auditability. While HFM is a web software application, it also has an add-in with Microsoft Office (called Smartview) which allows users to forecast or budget in Microsoft Excel, an environment which is of course comfortable to most finance users.
Benefits of HFM include:
- Enabling a More Efficient Process, owned and controlled by Finance.
- Ensuring that all data is integrated and validated prior to review by management.
- Automating and improving the timing and efficiency of the month end close.
- Reducing consolidation and reporting cycles by days—or even weeks—simply by eliminating redundant data entry and the need to check and double-check actual results.
- Faster calculation performance – most calculations performed in 4 seconds or less.
- A Workflow feature which ensures timeliness or user preparation and management review.
- Automatic email alerts to remind user of deadlines.
HFM is simple to learn, quick to implement and extremely user friendly, especially with the Smart View Microsoft Office feature. Implementation can take a matter of weeks, and the ROI on the investment is usually positive a few months later. Reduce redundancies, inefficiencies, complexities, and audit fees in your month end close.
To sum up, the old “tricks of trade” for consolidation worked fine, once upon a time, in a smaller, less complex business world with longer deadlines, a limited number of foreign entities, less regulation and less real time reporting capabilities. But times have changed and so you’re your business. The tools for shortening the close, reducing deadlines, automating the elimination and consolidation process, and producing SEC caliber documents in a matter of days are finally here. Take advantage of the best tool available, Oracle Hyperion Financial Management, and simplify the consolidation and reporting process once and for all.
For more information about how you can use Oracle HFM to simply your consolidation and reporting process, contact BizTech, and Oracle Platinum Partner, at 610-592-0600 or email me at timsimkiss@biztech.com
