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Finance Blog | 8 January 2018

Financial consolidation as a function in the finance world

Financial consolidation

‘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

Tools for Financial Consolidation

In mid-sized to large organisations the process of financial consolidation is predominantly handled by the finance team with the supervision of the financial controller and ultimately overseen by the CFO.

Historically financial consolidation was performed manually, however in the current climate there are several types of software tools used to support financial consolidation and reporting.

General ledger System – this works best if an organisation is using 1 ERP across the group, if there are additional other systems across the group the ability to collect data from other subsidiaries /locations and consolidate it.

Spreadsheets – Whilst these are regularly the tool of choice by finance teams, they are not inherently designed to support complex processes that accurate and timely financial consolidation requires. Loading data into a spreadsheet is a manual process and across multiple tabs within a work book the spreadsheet becomes difficult to navigate effectively. Additionally spreadsheets don’t provide audit trails regarding changes to financial results.

Purpose built consolidation tools – dedicated tools that are built specifically for financial consolidation are designed to integrate data for multi sources, with full audit trails and security, many have the ability to cope with multi-currency and multi- language entries. Historically these systems where deployed in online data centres they are now evolving and are available as cloud or SaaS offerings.

New standards of compliance, increased transparency and traceability of financial data are putting ever greater pressure on the time available in each reporting cycle. Consolidation reporting transforms data into consolidated financial information through automated processes to increase the speed and reliability of financial reporting. It enables, for example, the ability to compare and reconcile between management and statutory reporting; consolidate according to any accounting and reporting standards; and analyse information according to legal & internal management structures.