Before I show you how to configure the Legal Entity in Fusion Financials, let us first understand the concepts, i.e. what exactly the Legal Entity means in Fusion Financials and how it gets used in the Fusion Applications.

The purpose of this article is to give training to you on all the information that you need to understand and configure the Legal Entities in Oracle Fusion Financials.

Firstly, what is a Legal Entity

Legal entity is an Organization Unit that is registered with the legal governmental authorities, also known as jurisdiction. Jurisdiction generally describes any authority over a certain area. Therefore any company doing business in that area should be registered as a Legal Entity in that Jurisdiction. If you are a consultancy implementing Fusion Financials for a client, then you need to Register your client's legal entities as required by local business requirements in their jurisdictions. During the implementation of Fusion Financials you will be defining jurisdictions and related legal authorities, and then be registering the Legal Entities belonging to those jurisdictions.  

What is the significance of Jurisdictions and Authorities in Fusion General Ledger

Legal Jurisdictions and Authorities are likely only relevant to Oracle Fusion when you need to perform tax calculations, as you would normally do in Oracle Fusion Payables and Oracle Fusion Receivables.

What is Legal Authority in Fusion Financials

This is an government department that collects tax revenues for the government. For example Income tax department in India or HMRC in United Kingdom. Legal authorities are defined in the Oracle Fusion Legal Entity Configurator. Tax authorities are a subset of legal authorities

How do I know how many Legal Entities does my client have for whom I am doing Fusion Financials Implementation?

Typically you will define one legal entity for each registered company. It is common practice that large organisations register multiple legal entities to protect one company from the risks of another within the group, even if those different legal entities operate in the same jurisdiction. The list of legal entities in UK can be searched from this link http://wck2.companieshouse.gov.uk//wcframe?name=accessCompanyInfo. You will be recording assets, liabilities, expenses and income, pay transaction taxes, or perform intercompany trading for Legal Entities. Typically a large organization will have multiple Legal Entities. For example, a Fusion Practices group might have Software Product Development division as one legal entity and Consulting division as another Legal Entity. By doing so, Fusion Practices can isolate the areas of the two businesses from risks in another area.  

In Fusion Financials, the legal entities do the following:

1. Own the assets of the enterprise.

1. Record sales and pay taxes on those sales.

1. Make purchases and incur expenses.

1. Perform other transactions.

What is a Intercompany Transaction

Transactions between any two different legal entities require accounting, and this includes the Legal Entities that belong to the same group company. For example, if Fusion Practices Products sells or leases the products to Fusion Practices Consulting, then this is seen as a transaction between legal entities under common control and is called Intercompany transaction. Such a transaction requires accounting. Transactions that cross legal entities are known as inter company transactions.

Some notes to keep in mind for Legal Entities

Journal Balancing - Credits Equals Debits

Assets and liabilities are owned at legal entity level. This is why the Legal Entity segment in Fusion GL Chart of Accounts will always be a balancing segment, so that every journal has its credits and debits matching at Legal Entity Segment level. You produce a trial balance & balance sheet by legal entity. Oracle Fusion General Ledger supports the use of up to three balancing segments. Best practice is to use the primary balancing segment to hold values that represent legal entities. If you work in very very large company, then you can subdivide legal entities into lower levels for reporting, by using one or two additional balancing segments in your chart of accounts, typically these will be Line of Business or Cost Centre. If you use multiple balancing segments, the total debits and credits must balance, by each balancing segment, for every journal entry. Note - In Fusion General Ledger, you can balance by unto 3 segments. Once you have defined the balancing segments for your ledger, then you cannot change the balancing segments for accounting flex field, because the change is not retrospective. Therefore when you define your ledger, at that time, you must know how many segments in the COA are you going to balance it by.

Grouping Legal Entities in Fusion Financials & relation to Ledger in GL

The division can be combination of legal entities or to fraction part of a single/multiple legal entities.  To represent these divisions, if any, you will create management entity in Fusion Financials. Multiple legal entities can be attached to a GL ledger in Fusion. The Journal Document Number Sequencing is maintained at Ledger Level. Therefore, if your client’s jurisdiction requires a unique GL document sequence number for each Legal Entity, then you must have a one-to-one relation between Fusion GL' Ledger and your Legal Entity

I get confused between Legal Entity definition and the Entity Segment Value in GL Chart of Accounts in Fusion

For every Ledger, you should define a relation between the balancing segment value in GL Chart of Account and the Legal Entity Definition. In other words, the value set values used by Legal Entity Segment in Accounting Flexfield should be mapped to Legal Entity.

What are balancing lines for Legal Entity in Intercompany Transactions

Oracle Fusion Accounting Hub generates balancing lines when within a single journal the Entity Segment value does not have a credit matching to the debit.  In Fusion you have an intercompany transaction screen that allows you to manually create inter company transactions. Alternately you can use  intercompany balancing journal creation, booking changes to intercompany activity by legal entity, to balance and clear intercompany accounts.

Now, how do I create Legal Entity

The steps are listed below

 Search for Address-> Go to Manage Legal Address--> Go to Task--> create New & click ok

Create new

Manage Enterprise configuration-> create New

Anil Passi

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