‘Consolidation’ simply means the action or process of combining a number of things into a single more effective or coherent whole. However, to finance teams financial consolidation is a well- defined process that includes many complexities.
So what are the key steps in financial consolidation process
Collecting trial balance data (e.g., Assets, Liabilities, Equity, Revenue, and Expense accounts) from multiple systems, locations, contributors and mapping it to a centralised chart of accounts
Consolidating the data following specific accounting rules and guidelines, such as GAAP or International Financial Reporting Standards (IFRS)
Reporting results to internal and external stakeholders
Reports generated by the consolidation process include income statement, balance sheet and statement of cash flows.
It is not just about addition, it is about all the adjustments.
On the surface financial consolidation may present itself as a simple addition of numbers. However, it is more complex. Within financial consolidation specific adjustments need to be meet as the adjustments are being made from subsidiary level to parent company level, this includes the following.
Multi-currency conversion – in Europe alone there exist 11 different currencies over the 28 member nations
Intercompany transactions and balances eliminations
Adjusting journal entries – To reflect the correct position in the budget to which the expenses occurred
Accounting to reflect organisations that are not wholly owned by the parent company