Consolidation in Oracle Fusion- Part 1

In this training article we will understand the brief overview of Consolidation and the process followed in Fusion Financial Application in order to complete consolidation process. In part 1 we will understand need of consolidation along with types involved and benefits of various method of consolidation used.

In the subsequent parts of Consolidation on Oracle Fusion, we will cover Elimination entries and Financial Management Integration Option in Fusion Applications.

Need of Consolidation:

Consolidation is required to combine or consolidate Accounting and Financial results of multiple companies from multiple Ledgers, Currencies, Calendars & Accounting flexfield structures. Consolidation is a period-end process of combining the financial results of separate subsidiaries with the parent organization to form a single, combined statement of financial results. Consolidation is a year end process when companies prepare their balance sheets.

Types of Consolidation:

Below are brief details of various consolidation methods available-

1. Reporting Only Consolidations- used when subsidiaries and the corporate ledger share the same chart of accounts and calendar.

2. Balance Transfer Consolidations: This type of Consolidation is used when  subsidiaries and the corporate ledger have either or both different charts of accounts and different calendars.

3. Financial Management Consolidations: If there are complex factors in financial consolidation requirements like-

• Complex company structures such as joint ventures, minority interest holdings, partially or fully owned subsidiaries.

• Multiple heterogeneous systems including non general ledger data sources that are required to support non-financial or industry specific metrics, disclosures, and footnote schedules.

Below is diagrammatic overview of Consolidation-

Let us understand first two consolidation methods-

Reporting only Consolidation Method:             

This method is used when-

• All subsidiaries and the corporate ledger share the same calendar.

• One of the subsidiaries has a local chart of accounts and local currency. This subsidiary uses a secondary ledger to record balances in the corporate chart of accounts and the corporate currency.

• One subsidiary has a local currency and uses reporting currency functionality to record balances in the corporate currency.

In this method following tasks are followed-

• Group the ledgers in a ledger set if the ledgers share the same chart of accounts and calendar.

• Translate balances to the corporate currency for ledgers not in the corporate currency.

• Create eliminating entries.

• Report using the ledger set and the corporate currency as reporting parameters to view the consolidated balances.

If each entity's ledger has a different chart of accounts or calendar from the corporate chart of accounts and calendar, a secondary ledger is used to conform to the common chart of accounts and calendar and is included in the consolidation ledger set.

Benefits of Reporting Only Consolidation:

• No need to run additional processes to consolidate unless ledgers have a different currency than the consolidation currency.

• View the consolidated balances anytime. This cannot be done in the Balance Transfer Consolidation method because that method requires a balance transfer be done to achieve consolidation.

• Faster close process.

Balance Transfer Consolidation Method:

In case where multiple subsidiaries and the corporate ledger do not share the same chart of accounts and calendar we can take the help of  Balance Transfer Consolidation method where-

• The subsidiaries use local charts of accounts and currencies. The Corporate ledger uses a corporate chart of accounts and currency.

• The subsidiaries use balance transfers to convert the local balances to the corporate chart of accounts and currency.

We need to follow below steps for Balance transfer consolidation method -

Oracle Fusion supports two method of balance transfer, first when the balance data is transferred from a primary ledger to a balance level secondary ledger assigned to it and the second when the balance data is transferred from one ledger to another without a predefined relationship. In both the cases drill down is possible from the target ledger balances to the source ledger balances, below are some instances-

1. When the source and target ledgers currency is the same, we can drill down on the entered amount from the Journal Lines page or the Journal page in target ledger which resulted from a balance transfer.

2. When the source and target ledgers do not share a ledger currency, it is also necessary to translate the source ledger to the target ledger's ledger currency before transferring balances.

Balance Transfer Consolidation Pros:

• Do not require a standardized chart of accounts and calendar.

• In journal or subledger level reporting currency ledger, translated balances are available from either Reporting Only or Balance Transfer Consolidations.

• Reporting level reporting currency ledger needs to have the translation process run when it has a different currency than the consolidation currency.

Balance Transfer Consolidation Cons:

• Require an additional consolidation ledger to maintain balances or the current parent ledger can serve as the consolidation ledger. By using parent ledger, transfer the subsidiary balances directly into that ledger.

• Needs to run balance translation process if the currency is different from the consolidation currency. Then run the transfer processes to view the consolidated balances.

• Maintain charts of accounts mappings, which can be a labor intensive.

• Outdated balance transfers have to be reversed and posted, and then a new balance transfer is run every time the source ledger's balance changes.

• Requires translation to be run again if ledger currency is different than the consolidation currency.

Anjan Mukerji

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