Financial Consolidation

Why the need for financial consolidation?

The needs and requirements for an “Integrated end-to-end Financial Close and Reporting Solution” are ever increasing. According to the US GAAP, an enterprise is required to consolidate all the subsidiaries for which the parents control over 50% of the voting interest.  The parent and its subsidiaries are treated as one management and one economic entity for financial reporting purpose. Per SFAS 94, this includes domestic, foreign, similar, and dissimilar subsidiaries.

Streamlining Financial Consolidation in BPC

Madiba Inc. solution for Financial Consolidation automates and streamlines financial consolidation activities to support a faster close while providing improved regulatory compliance.
The SAP Business Planning and Consolidation solution (BPC) is a critical component of SAP’s EPM (Enterprise Performance Management) portfolio enabling enterprises to consolidate financial information based on the respective accounting standards such as US GAAP, IFRS, etc. This allows the enterprise to report its financial data accurately, timely and consistently.

Legal Consolidation

A key objective for the Legal Consolidation system, to be implemented, is to automate the Legal Consolidations process. Utilizing a SAP BPC based consolidation solution will greatly reduce the amount of manual effort required.

Business Process Flow functionality is utilized to provide an actionable, repeatable framework to guide and track the legal consolidations process. Steps in the process would include, at a minimum, the following:

Drilling down the steps for legal consolidation process

A. Balance Carry Forward

Account balances from previous accounting period are carried forward to next accounting period which ensures that the annual net profit/loss is correctly reported in the balance sheet.

B. Data Upload from Subsidiaries’ Financial Systems

A local (functional) currency (TB) for each legal entity is staged and loaded into BPC via a fully automated (scheduled package load) or manually (i.e. extract file upload) from the legacy systems. Data and Process-level Validations take place to ensure accuracy and integrity of the data loads.

C. Account Transformation

Account Transformation represents a flexible set of Business Rules used to perform calculations for “Retained Earnings”, “Cash Flow”, etc.

D. Currency Translation

This step accounts for foreign currency transactions and operations in financial statements, and is used to translate financial statements into a group currency in the books of the parent company.

E. Inter-company Matching and Elimination

In this step, certain transactions between subsidiaries (i.e. Trading Partners) are being eliminated (e.g. Inter-company AR and AP, Sales and COGS). This step is necessary to avoid inflated group financial statements with profits that are a result of transactions between entities of a corporation.

F. Consolidation of Investments and Cash Flow

In this step, certain transactions between subsidiaries (i.e. Trading Partners) are being eliminated (e.g. Inter-company AR and AP, Sales and COGS). This step is necessary to avoid inflated group financial statements with profits that are a result of transactions between entities of a corporation.

G. Journal Entries

Pre- and post-consolidation Journal entries are performed. Examples include Restricted Stock, PPA, Tax and Corporate adjustments.

H. Consolidation Reports

Consolidation reports are generated and reviewed. Some of the key reports types include: Consolidating, comparative and trending financial statements as well as working capital and cash flow reporting

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