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Save Time and Close Faster by Automating Financial Consolidation

June 23, 2021 10:18:59 AM CDT

Many companies struggle to generate timely, accurate financial statements. Pressure from senior leaders and investors to get them done quickly is at odds with accounting's responsibility to ensure they're correct. Managing the tension between these two competing priorities is difficult enough when you're only dealing with one company. It's exponentially harder if you need to consolidate results from several different business units to produce a single set of reports.

In the U.S., for instance, publicly-traded companies are required to consolidate results from any business they have more than a 50% stake in, as well as any business they own a smaller share of, but exert "significant influence" over. The same applies to private companies that follow U.S. GAAP. Similar rules apply in other countries as well.

What makes consolidation so challenging is that the data required for reporting is rarely in one place. As businesses expand, they may invest in or acquire other companies. If these other companies are operated as subsidiaries, there's a pretty good chance they'll continue using their existing accounting or ERP system, at least for a while. This make sense for the parent company because it means they don't have to invest in new technology right away. It's also good for the subsidiary because they can continue to function somewhat normally and avoid learning a new system.

It's not so great for the corporate finance team, however. To prepare consolidated financial statements, data must first be exported from each system and converted into a standard format. It then needs to be normalized, meaning the data structure, field names and account codes, for example, must be mapped to one another to ensure like data is combined with like data. These tasks must all be completed before accounting receives it. And only then does the consolidation reporting process really begin. 

Preparing the data is the easy part. What follows is a long, involved process of reviewing account details, allocating overhead costs, identifying and eliminating intercompany transactions, adjusting balances and completing other tasks. Much of this work will be done manually, using spreadsheets, so the risk of errors is significant, especially with so much pressure to work quickly.

Automating data conversion can help address some of these issues, and companies with highly skilled IT staff often develop complex extract, transform and load (ETL) processes for just this reason. This can be a long, involved process, however. And like other forms of integration, software upgrades or other system changes can disrupt the entire process, resulting in costly maintenance. Few organizations have the time or the resources for this.

Fortunately, there is another option for consolidated accounting that is both faster and easier to manage.

 

Consolidation Made Easy

NetSuite automates the consolidation processes, eliminating the challenges of working with multiple accounting and ERP systems by providing a cloud-based financial management solution specifically designed for multi-entity businesses. NetSuite's unified platform stores data centrally. So instead of dealing with multiple sources and formats, corporate accounting teams can work with a single set of data.

With NetSuite, subsidiaries are able to manage accounting in the way that works best for them, with their own chart of accounts, journal entries and workflows. They can use different currencies and accounting rules than the parent organization, and even have different reporting periods.

When a transaction is posted to a subsidiary account, it's also posted to the corresponding account at the headquarters level. NetSuite automatically converts the account code used by the subsidiary to the correct parent account code. Currency conversion, if required, is also done automatically. Everything happens in real time, ensuring accurate, consolidated financial data is available whenever it's needed.

To maintain data integrity, accounting staff at the subsidiary level only have access to the records for their organization. Corporate finance personnel have different requirements, however, so permission-based rules give them access to any information that's appropriate for their role, from summarized results to individual transactions at the subsidiary level. 

The ability to link one subsidiary's sales order to another's purchase request simplifies the reconciliation process. When an intercompany order is invoiced, NetSuite identifies the transaction and automatically posts an elimination journal entry. This not only saves time by ensuring that accounting rules and legal requirements are being adhered to, it reduces the risk of costly fines or other penalties.

Oracle NETSUITE

Written by Oracle NETSUITE