It’s more than just adding up numbers!
Financial consolidation is a process involving both horizontal and vertical planes. On a vertical plane, it involves
- Collection of data from multiple sources incl manual entry
- Consolidation Process control with documentation/audit trail
- Actual consolidation of financial data incl adjustment entries, inter co eliminations & multi currency translation
- And finally, Reporting, Analysis and Modeling
On a horizontal plane, it starts with
-> Local Consolidation (Forecast and actual results) – moving to
–> Regional Consolidation (Review, Approve, Adjust and Consolidate) – and finally to
—> Central Consolidation (Final adjustments, Publish and Management Reporting)
These vertical and horizontal steps are involved irrespective of the process followed by an enterprise. Unless addressed in a structured manner, financial consolidation process will result in one or more of the the following pain points.
- Long period-end closing cycles
- Errors in financial data collection
- Financial restatements
- Rising audit fees
More so when a company has to grapple with inconsistent account structure, multiple source systems and changing disclosure requirements
Consolidation Approaches
In the consolidation process, depending on the maturity & need, companies use one of the following methods.
Spreadsheet: The most commonly used and especially with macros. The process is driven more by individuals and suffers from multiple drawbacks including lack of audit trails.
General Ledgers: Most of the matured ERP’s offer multiple sets of books within GL to do basic consolidation. While this approach is workable for limited use, it fails due to limited reporting ability, inadequate consolidation capability and inability to integrate with other systems.
Data warehouses and Custom Solutions: Moving up in the maturity ladder, custom solutions scale up to meet many of the requirements. These solutions have evolved more an a custom “Build” and end up addressing specific requirements of the customer.
Packaged Applications: Packaged Applications like Oracle’s Hyperion, SAP’s Business Objects have created financial specific applications to meet complex and sophisticated consolidation needs. Typically, these packaged solutions carry the ability to integrate with multiple source systems, provide complete audit capabilities, address multiple master data and structured to meet multiple financial standards reporting.
Lets look at each of these in little more detail to understand their draw backs.
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