Executive decisions push the business in new directions, shift management’s focus to what is mission critical and account for the company’s current position. In order to make the right choices, leaders need a clear understanding of the enterprise’s performance – or, more specifically, an accurate view of its financial data. View the original Blog post: http://www.eprentise.com/blog/financial-standards/optimizing-executive-decision-making-the-role-of-consolidated-financials/ Website: www.eprentise.com Twitter: @eprentise Google+: https://plus.google.com/u/0/+Eprentise/posts Facebook: https://www.facebook.com/eprentise

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Optimizing Executive Decision Making:
The Role of Consolidated Financials
an eprentise white paper

2. Optimizing Executive Decision Making: The Role of Consolidated Financials
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Author: Helene Abrams
Published: June 17, 2014
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3. Optimizing Executive Decision Making: The Role of Consolidated Financials
Executive decisions push the business in new directions, shift management’s focus to what is mission
critical and account for the company’s current position. In order to make the right choices, leaders need a
clear understanding of the enterprise’s performance – or, more specifically, an accurate view of its
financial data.
Corporations implement Enterprise Resource Planning (ERP) systems to reflect their company’s structure
at the time of the project. But in time, disparate financial systems begin to come about, and the ERP
represents the organization’s true function less and less. This leads to issues with financial reporting that
hinder the executive team’s decision-making. Such incongruity can be caused by a number of normal
factors: acquisitions or divestitures, expansion into new global markets, or changing regulatory
requirements, just to name a few.
In order to address the need for clear and correct financial information, different methods of financial
consolidation are instituted to establish a top-down view of the company. Certain ERP systems even have
built-in or add-on modules, such as Oracle’s® E-Business Suite Financial Consolidation Hub, which bring
together disparate financial information from different parts of the organization to create a consolidated
view of the financials for the enterprise. However, most companies are still unable to consolidate their
financials using only one method; and even then, the results are not always consistent. It is not unusual for
a CEO to receive multiple reports, each with different revenue numbers for the parent organization.
Typically, companies will use several consolidation techniques to account for all of the bolted-on modules
and siloed information. The most common methods are explained below:
Manual consolidation using spreadsheets
Most companies start with a few spreadsheets to consolidate financials from different parts of an
organization which use different systems, or to perform the first close after an acquisition when there is a
very narrow timeline. Although spreadsheets are the most common tool used for reporting, they are also
the least reliable and should not be considered a viable long-term solution.
 One worksheet quickly leads to hundreds, if not thousands, of spreadsheets.
 The large number of links between multiple spreadsheets means that a single inaccuracy can have
far-reaching consequences.
 Spreadsheets do not have built-in controls, definitions or standards. It is too easy to copy a
spreadsheet, or the values within a spreadsheet, and make changes to a formula. There is also the
added possibility of interpreting the source data differently from spreadsheet to spreadsheet,
thereby obtaining different results.
 It is extremely difficult to track certain changes, which is necessary to comply with Sarbanes Oxley.
Similarly, it is difficult to drill back from the spreadsheets to the source data.
 The initial cost is low (requiring little immediate capital investment), which makes the use of
spreadsheets as a quick fix so attractive. But in the long-term, the project scope is deceiving, as
too little importance is placed on human resources and data quality.
Consolidation within the ERP system
In Oracle, a new set of books or ledger is defined. Then, detail or summary general ledger (GL) data from
each of the other sets of books is merged into the consolidated set of books. Performing changes to the
ERP like this requires creating mapping rules from each existing set of books or ledger to the new
consolidated set of books.
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4. Optimizing Executive Decision Making: The Role of Consolidated Financials
 A consolidated set of books is the most accurate when the chart of accounts (CoA) is shared
across all sets of books, and the rollup structures are well-defined at the right level of detail so
that data can be tracked consistently.
 The ERP system becomes the data repository for summary level business information and
consolidated financials.
 If data is spread across multiple instances or if there are multiple sources for the data, a
consolidated set of books will not work as well, because consistency is not enforced.
 Other limitations of a consolidated set of books are that financials are tracked only at the GL level,
and it is very difficult to drill-down to the different subledgers and to reconcile the consolidated
financials across all E-Business Suite modules.
Use of third-party tools for consolidation and reporting
Depending on the tools used, this method often requires making substantial investments in software that
is designed specifically for consolidation reporting purposes. The tools run on top of the database
applications, retrieve data from disparate sources, and manipulate the data in their own environment for
increased visibility.
 The accuracy of third party tools depends on the degree of consistency of the source data and
standards for the level of detail from each source.
 Third party tools such as Hyperion or Clarify rely on the quality of the data, the mapping from the
source to the consolidated financials, and on a rigor enforced by a common chart of accounts and
standard business processes to provide management with a complete, consistent and correct
view of the consolidated financial operations.
Despite each of the consolidation methods mentioned, the accuracy of the financial reports realistically
depends on several factors, the most important of which is the consistency and completeness of the
source data. If there is a single source for the detailed financials, (rather than several different legacy
systems, or several systems integrated together) then it is much easier to combine the results.
However, with the introduction of the ledger sets functionality in EBS Release 12 (R12), the organization is
able to enforce a new degree of consistency, by allowing new ledger entries to be created based on user-
defined business rules. When a user enters the information once and then generates entries in other
ledgers, there is a reduced likelihood for error. Having a single transaction ledger facilitates drill-down
into different Oracle modules like Project Accounting, Payables and Receivables. The detail of each of the
transactions can be kept at the subledger level with the primary ledger accumulating details from
different parts of the organization. If the subledgers and the chart of accounts (CoA) represent the
organization’s daily business accurately and at the same level of detail; then, it is easy to roll-up to
consolidated financials, and to drill-down to individual transactions from the GL. There are a number of
steps to follow in order to achieve a successful consolidation and to be sure that one are able to get a
clear top-down view of the organization.
1 Determine the requirements. What level of financial detail does an organization need for
consolidation purposes? What needs to be compared? What is the frequency required for
consolidation and reporting? Do different parts of the organization require different levels of
financial consolidation? How much history is required to get an accurate consolidated financial
picture? Are there legal requirements that dictate the type of reporting required?
2 Determine the sources of the data. Where is the data needed to meet the requirements from
the previous step? Identify where the source gets that data – what is the original source of data?
Starting from each original source, follow the transactions all the way to the GL and any
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5. Optimizing Executive Decision Making: The Role of Consolidated Financials
consolidation process. Make sure that each data item maintains its integrity throughout the entire
process, and that any changes to the data are well-documented.
3 Make the data sources consistent. Standardize on the level of detail required from each of the
subledgers, use common naming standards and common processes.
4 Design the chart of accounts accordingly. The chart(s) of accounts used by an organization
must be able to accommodate the financial data at the level of detail that is needed. Use logical
ranges in order to streamline reporting, and account for any potential future additions.
5 Create the necessary roll-up groups. Decide how to create the logical buckets for each type of
financial data for reporting and reconciliation.
6 Revisit reporting structures. Make reports generic enough to allow for adding new accounts,
report at a different level of detail, or create a different type of consolidated financial report.
Using FSG, creating master row sets allows one to generate different reports without having to
rewrite each report.
Out of all of the aforementioned consolidation methods, taking advantage of the latest ledger sets
feature of R12 is the most promising. If an enterprise is struggling to grow or even stagnating within its
industry, then it may be symptomatic of too many disparate financial systems. Only through consistency
and completeness within the ERP can an enterprise expect accuracy and agility for the executive team.
Curious?
For more information, please call eprentise at 1.888.943.5363 or visit www.eprentise.com.
About eprentise
eprentise provides transformation software products that allow growing companies to make their Oracle® E-Business
Suite (EBS) systems agile enough to support changing business requirements, avoid a reimplementation and lower the
total cost of ownership of enterprise resource planning (ERP). While enabling real-time access to complete, consistent
and correct data across the enterprise, eprentise software is able to consolidate multiple production instances, change
existing configurations such as charts of accounts and calendars, and merge, split or move sets of books, operating
units, legal entities, business groups and inventory organizations.
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