Financial Consolidation - as simple as 1 - 2 - 3

31 July 2011

Mark Chalfen

Mark Chalfen

Former SAP S/4HANA Global Lead

Following on from my blog that focused on the 3 key finance points for a CFO, one area that is becoming more popular is the topic of Financial consolidation. Organisations that have different Company Codes in different regions, which sell different products and use different systems are presented with a challenge when trying to produce Consolidated Financial reporting. Large Organisations can be spend vast amount of time and effort trying to pull local Financial Statements into a Group Financial Statement.

When measuring suitable processes and solutions a CFO should consider
the following three areas:

  1. Data Accuracy
  2. Ease of use
  3. Speed and flexibility

Some smaller Organisations may not need to invest too much time in Financial Consolidation. If you have a few Company Codes, all sharing a common Chart of Accounts with a single currency then being able to provide an aggregated Financial Statement should be fairly simple. The complexity arises when an Organisation has legal entities that use various currencies, various Chart of Accounts for local reporting, various Financial systems and due to the nature of their business have to report by Segments to be compliant to the various IFRS reporting requirements.

Data Accuracy

This is perhaps the simplest requirement in terms of expectation, however in terms of complexity this is where a process earns its stripes. For large complex Organisations the effort to ensure the accuracy of the data can be very high. When designing and implementing a process it is critical that the team fully understand the final requirements of the consolidated Financial Statement and the true meaning of the data in the various systems. The normal process is to define the Group reporting policy and to try and map the local data to it. To ensure consistent data it is recommended strict controls should be in place around the source (local) data to ensure the data does not change. At times, the benefit can be gained by making changes to the source (local) systems to ensure consistent data and to remove manual re-work within the consolidation process.

Ease of Use

All systems and processes should be designed to provide a positive experience for the end user. Consolidated Financial Statements are produced for the CFO and therefore the reports should be clear and concise. The reports should be easy and quick to generate. This leads into the actual process of consolidating data from various systems and countries. The standard process for large Organisations is to have a month end process that has a set amount of days for local close, and then a few extra days to produce the group close figures, or the Consolidated Financial Statements. By aligning the outputs of the local Financial Statements the effort to consolidate the data for group becomes simpler. Business rules and mapping will normally be required to turn the local data into the group format to ensure the data is both accurate and compliant.

Speed and flexibility

As mentioned before Group Accounting policies will cover when local and group figures need to be submitted by. The consolidation needs to occur in between these dates, so if local close is +5 days and group is +10 days, then the consolidation exercise needs to be done in a 5 day window, assuming the local close is always achieved. Each Organisation will have their own group close processing time, however the CFO would like this to be achieved in the most efficient of processes. If the 5 day Group close can be reduced by 2 days to 3 days, this will allow the CFO to share the Group's period results to the board earlier, allowing them to make better decisions regarding the future direction of the Organisation. The real benefit of a good consolidation process is not around changing the 3 or 5 day group close, but the risk mitigation of not making the agreed day. Normally board meetings are scheduled around the availability of the Group Financial Statements. If the CFO were to attend a senior management meeting with incomplete or inaccurate figures questions would be asked around the performance of the Finance team. Further to this, the Group Financial Statements are published to the city with expected dates. If an Organisation fails to provide accurate figures on the dates they have said they would, the city will react strongly to this, leading to a sharp downward movement of the share price.

Summary

In the world of SAP there are many solutions for Consolidation of Financial Statements. When deciding on a solution the three key success criteria should be considered to ensure a successful outcome. The importance of consolidation should not be over looked, and with new IFRS rules and the size and complexity of Organisations changing all of the time the dependency on a robust consolidation process will become more significant.

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About the author

Mark Chalfen

Former SAP S/4HANA Global Lead

Mark tells it straight - as an ex-boxer, what else would you expect?  Both his knowledge and experience of SAP products allow him to cut to the chase dispelling myths and hearsay.

As a result of working closely with various SAP Finance Product Management teams on product development, Mark understands these products inside out. This depth of understanding has led to him become a ‘thought leader’ in his field; after all, it is not often SAP consultants have helped shape and develop the very product they are selling.

Having such a strong relationship with SAP alongside being an SAP Mentor and Moderator means that Mark has an extensive network within SAP. For clients, this relationship proves to be a huge advantage and leads to configuration issues being resolved rapidly.

Mark has worked on short proof of concepts through to year-long multi-million pound global roll-outs. However, no matter how large or small the project, the true value Mark brings to his work is in the guidance he provides to senior stakeholders. In essence, he assists them to implement more effective processes and drive better behaviours within their finance teams.

Helping organisations transform their business with SAP S/4HANA is Mark’s current focus. The benefits of S/4HANA are numerous, including the simplification of tasks, embedded analytics and improved user engagement. Whilst the eventual move from SAP Business Suite into S/4HANA is inevitable, the journey to it is not always clear. Mark’s ability to understand an organisation’s needs coupled with his deep understanding of S/4HANA provides clarity and eases their transition.

Bluefin and SAP S/4HANA - welcome to the one horse race

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