Close In on Improvements for Consolidated Financial Reports
For international companies or those with multiple business entities, consolidation and reporting is a critical step in the period-end close process. A timely and accurate consolidated financial statement is needed not only for management to make informed business decisions, but also for communicating performance to investors and regulators. Unfortunately, preparing consolidated financial reports within an ERP system like Oracle E-Business Suite (EBS) is often complicated and still carries the risk of errors from manual processes.
Most commonly, companies running Oracle EBS use native Oracle tools like Financial Consolidation Hub (FCH) or Global Consolidation System (GCS) to help efficiently create a set of consolidated balances. However, these tools don’t provide a flexible reporting solution for publishing the balances, driving the finance team to manually prepare subsidiary consolidated financial reports in Microsoft Excel and introducing process inefficiency and the potential for error. Even more risky is when companies skip the native Oracle consolidation tools and attempt to consolidate within Excel alone. Here, we’ll look at the challenges of both approaches and how you can address them.
Consolidation Tools Jump (Most) Hurdles
If you work with multiple ledgers, currencies, and chart of accounts structures for a variety of business entities, preparation of consolidated financial reports can be a lengthy process. Oracle FCH and GCS make this situation more efficient with functionality that combines the ledgers for those various entities into a single parent ledger. The tools automatically translate subsidiary ledgers into the primary currency you choose.
Despite the efficiency and accuracy FCH and GCS bring to consolidation of ledgers, their functionality is complex to set up and maintain for many reasons. For example, it’s complicated to map chart of accounts structures for different types of operations, like sales and manufacturing. It’s also difficult to map fiscal accounting calendars across subsidiaries that may prefer July to December for year end. The difficulties in setting up or modifying the setup of these native tools to reflect changing business needs or new entities may result in ongoing costs for IT resources or consulting assistance.
Using Oracle’s consolidation functionality also means you have to rely on the standard reporting capability of the Oracle Financial Statement Generator (FSG) for preparing consolidated financial reports. In essence, reporting from the consolidated parent ledgers is no different from reporting from subsidiary ledgers; the static text-based FSG information is usually exported to Excel and manually formatted as needed for presentation. Also, as you adjust balances in the General Ledger, you have to manually update them in your spreadsheet because the exported data is static. This requires you to repeat time-consuming data import and report formatting steps.
Perilous Consolidation Process Outside of Oracle
Some companies don’t want the headache or cost of implementing and maintaining GCS and FAH outside their normal Oracle configuration, or maybe the tools weren’t included in their Oracle implementation. Whatever the reason, many of these companies choose to consolidate their ledgers in Excel.
Consolidation of subsidiary ledgers in Excel is typically a laborious manual process that consumes valuable human resources. It also introduces significant audit risk due to the manual steps involved and the fact that you are consolidating and reporting multiple ledgers outside the single source of truth—your Oracle system. Excel-based currency translation can introduce further inaccuracies when foreign currency-denoted subsidiary ledgers need converting to the currency of their parent entity prior to consolidation.
Explore Technology Options for Improving Consolidations
A Deloitte report on enabling technologies for the “close, consolidate and report” process noted that the consolidation should include technologies where:
- Input data is populated automatically from source legal entity ledgers into consolidation books
- Eliminations adjustments occur automatically and in a timely manner in the consolidation tool
- Ad hoc analytics occur in real time
Oracle GCS and FAH go a long way in achieving the first two bullets, but real-time ad hoc analysis of consolidated reports can be challenging when using the Oracle FSG. These static FSG reports may not reflect the latest data due to what time/day they were run and won’t let you dig into the details of the consolidated ledgers in real time. The information may also be in your Excel spreadsheet, which also contains static data.
To achieve real-time ad-hoc analysis and sidestep the use of FSG, an Excel add-in is an option that provides immediate access to Oracle data by directly linking to the consolidated ledger. It lets you prepare consolidated financial reports across multiple ledgers, currencies and chart of accounts directly in Excel by using Excel functionality and optional Oracle descriptive flexfield data to perform segment mapping, if configured. You can analyze the details behind the figures in Oracle with a single mouse click from Excel. Also, if you don’t use an Oracle consolidation tool, the Excel add-in supports use of Oracle translated subsidiary ledger balances to help you consolidate multiple ledgers with different currencies into a single report.
As companies evolve in a complex international business environment, fast access to accurate consolidated financial reports is necessary to make the best decisions for driving growth while also reducing risk. To achieve this, it’s important to examine the technologies that make up your consolidation process in case a faster, more accurate report is possible, with less inefficient and error-inducing manual work involved.