Azdan visual reference for Financial Consolidation

1. AZDAN VISUAL REFERENCE
ULTIMATE GUIDE
1. STANDALONE FINANCIALS
Standalone financial statements represent the financial position and the
performance of your company alone as a single entity without taking into account
the financial position and the performance of your subsidiaries etc.
First, The standalone financial statements are prepared by integrating the actual
financial data collected from your ERP system. Second, you have to map the chart
of accounts according to the required adjustments that reflects your strategy.
Correspondingly, you can generate your own dashboards, ratios, and KPIs using any
data visualization tool embedded or integrated with your financial consolidation
solution.
2. FOREIGN CURRENCY TRANSLATION
Currency conversion is a core to any corporate performance management
(CPM) system currency. Foreign currency translation is used to convert the
results of a parent company's foreign subsidiaries to its reporting currency.
Thus, the basic steps for your foreign currency translation are:
A. Determine the functional currency of the foreign entity.
B. Remeasure the financial statements of the foreign entity into the
reporting currency of the parent company.
C. Record gains and losses on the translation of currencies.
3. TRANSACTIONS ELIMINTAION
Intercompany elimination refers to the process for removal of transactions
between companies included in a group in the preparation of consolidated
accounts. It is highly recommended to use an automated tool to prevent
complicated manual work.
Consequently, keep in mind the following 3 rules for elimination:
A. Equip all your subsidiaries with a unified financial consolidation system.
B. Deploy a double entry logic in your financial consolidation system.
C. Review and Post journals from a central tool that reflects your
intercompany matrix.
4. Ownership Calculations
Consolidated retained earnings is a component of shareholders equity on a
consolidated balance sheet which represents the accumulated earnings that
accrue to the parent. Unlike the consolidated net income which is primarily
the sum of total net income of the parent and the subsidiary.
Consolidated retained earnings is calculated by adding two figures:
A. the first is the parent’s individual retained earnings
B. the parent’s share in the subsidiary’s post-acquisition retained earnings.
The parent’s individual retained earnings must be adjusted for any
accumulated income that is recognized in the parent's individual financial
statements using cost method or equity method.
5. Financial Consolidation
After calculating the ownership. You are now ready to combine the
financial data from several subsidiaries or business entities within an
organization, and rolling it up to your parent company for consolidated
reporting purposes.
Here are the 3 key steps in the financial consolidation process:
A. Collecting trial balance data (e.g., Assets, Liabilities, Equity, Revenue,
and Expense accounts) from multiple general ledger systems.
B. Mapping them to a centralized chart of accounts
C. Consolidating the data following specific accounting rules and
adjustments, such as GAAP or IFRS
6. Reporting and Analytics
Congratulations! You are in the final step to create insightful analytics and
business intelligence dashboards with a fresh, intuitive user experience for
your standalone and consolidated financial statements.
Don’t implement BI – implement an end-goal.
One of the reasons that BI is difficult to implement is the fact that
businesses often undertake BI without a well-defined idea of what ‘right’
will mean. You have to understand that the role of BI is to convert these
records into information that can be used by decision makers.
WHY YOU ARE READING THIS GUIDE?
At Azdan Business Analytics, we believe that successful enterprise transformation requires setting
strategic direction by experienced business consultants that work hand in hand with your team to
bring your strategic goals to life.
This infographic guide contains 6 steps to streamline your consolidation process. Our consultants
assume that you understand the meaning of financial consolidation and so, they are going to dive
into financial consolidation from an enterprise performance management perspective.
www.azdan.com