How does Multi-Company/Multi-Entity Consolidation Work?

Transcription

1 1/12 How does Multi-Company/Multi-Entity Consolidation Work? 1. Introduction 2. Multiple Currencies 3. Pre-Requisites 4. Setting up the Group Company 5. Consolidation Options (inc. Part Ownership) 6. Example 1 - Consolidating Companies with a Single Base Currency 7. Example 2 - Consolidating Companies with Different Base Currencies 8. Example 3 Multi-Level Consolidation of Several Group Companies and their Subsidiaries 9. Manage and Control Currencies at Group Level 10. Manage Departmental Analysis Codes and Extended Business Analysis at Group Level 11. Manage Period End Closures at Group Level 1. Introduction: Although there is a certain level of complexity and effort required to initially set-up and implement Multi-Company Consolidation (and Inter-Company Postings), it should be remembered that this is required once only and thereafter the process is very straight forward in terms of day-to-day processing. The facilities described here are accessed from the Practice, Franchise or Corporate Administration System Layer and require administration privileges to access them. There are, in fact, several Administration System Layers. The one described here is primarily directed at, and for use by, Group Companies or Franchise Holders, with a number of Subsidiaries or Entities, who require Consolidation at Group Company level. The other Administration System Layers are intended for use by Accountancy Practices or Franchisors with multiple Clients to administer and which contain additional features and functions which are only relevant to the Practices management and operation of its Clients. However, all the required functions (for Accountancy Practices, Corporates and Franchisors) are documented in the Article entitled How does the Practice Administration System Layer Work?. And there is also an Administration Layer relating to how the Practice s (or Corporate/ Franchise Holder s) administrative staff deal with their End Users/Clients (See How do I use the Client Administration System Layer to Add End Users and Control their Permissions? ). The reason why this aspect of the system is also referred to as Multi-Entity is because it can also be used by a single Company to operate multiple entities in its organisation such as Locations, Branches or Divisions and treat them as if they were separate company implementations. Of course, such Locations and/or Divisions can be fully accommodated in the standard system by using Analysis Groups and Codes (see also How do I Implement Extended Business Analysis? ), but some Customers may prefer to set up and operate their Locations or Branches as discrete Entities with their own set of Ledgers which can subsequently be brought together using the Multi- Company/Multi-Entity Consolidation facilities of the System. In this example, however, we are going to demonstrate how Three Subsidiary Companies (Renu MediSpa Products Bristol Supply Centre, Renu MediSpa Products Leeds Supply Centre and Renu MediSpa Products Norwich Supply Centre) are consolidated into a Group Company Renu MediSpa Holdings Limited, as follows;

2 2/12 2. Multiple Currencies: Clearly, the first action that must happen is that all three Subsidiary Companies plus the Holding Company must previously have been set up in the System. It s also important that the Holding Company must be set up in the Base Reporting Currency regardless of the Base Currencies of the Subsidiaries. For example, it is entirely feasible to have the subsidiary Companies operating and reporting locally in their own territories, for example, in Sterling and Euros, but consolidated into a Holding Company which reports in US Dollars or Sterling (more about this in Example 2. below). The detail of how Companies are set-up (at the Practice/Corporate Administration level) is documented in the article How does the Practice Administration System Layer Work?. 3. Pre-Requisites: There are several other rules which also must be followed and adhered to; (i) (ii) (iii) (iv) At the very least the list of General Ledger Categories (e.g. Operating Revenues, Direct Costs, Current Assets, etc.) and also the General Ledger Sub Categories (e.g. Payroll Liabilities, Facility Costs, Capital & Equity, etc.) must be common across all the Subsidiary companies and the Holding company. The Accounting Year Ends must be coterminous and the Accounting Periods must have the same Calendar structure. If Extended Business Analysis has also been implemented, then there must be commonality of Analysis Codes and Analysis Groups across all subsidiaries and the Parent company. The Holding Company must have every subsidiary company s Base Currency set up in its own currency table. 4. Setting up the Consolidation Group Company and its Parameters: Having logged into the system with Administration Privileges; Go to Practice Admin. Manage Entity Groups.

3 3/12 This will cause the following Window to be invoked; You must first Click on Create New Group, enter the full name of the Group Company and then Select the Group Company (which you have already created) from the Drop Down List of all the Client Companies under your control as a Practice User or Administrator. You can now go on to nominate the individual subsidiaries belong to the Group Holding Company by Clicking on Add New Entity to Group. This will cause the following Window to be presented; And here you can chose, in turn, from the Drop Down List each of the subsidiary Companies to be included in the Consolidation process. Two other Parameters are also present on this screen;

4 4/12 The percentage ownership of the Subsidiary by the Parent Company and the date from which this ownership applies. Next, you now decide on the Parameters highlighted in the lower left hand side of the screen; 5. Consolidation Options: Consolidate General Ledger: Check this Tick Box if you want the subsidiary General Ledger data to be consolidated into the overall Group Company. It is important that the General Ledger Categories and the General Ledger Sub-Categories exactly match each other across all subsidiaries and parent. Otherwise, the Consolidation process will not function properly as the process will check these tables before each consolidation run in order to ensure compliance. However, it is not necessary to ensure compatibility at the basic GL Code level thereby allowing for differing Charts of Accounts in the subsidiaries, provided they quote a common set of GL Categories and Sub-Categories. If you have implemented Extended Business Analysis, it is quite possible that different Subsidiaries will have different Analysis Groups and Analysis Group structures. There is no need for synchronisation as the system will consolidate all Analysis Codes from all Subsidiaries. Consolidate Sales & Purchases: Select this option if you want Sales and Purchase data to be consolidated into the Group Company. This will facilitate the production of Sales and Purchase Analysis Reports at Group level. Consolidate Statistical Data: Select this option to consolidate Statistical Data up to the Parent Company. 6. Example 1 Consolidating Companies with a Single Base Currency: In this example we are assuming that our three subsidiary companies all have the same Base Currency in this case Pounds Sterling. It s important to note, however, that this does not mean that the trading subsidiaries cannot deal with foreign currencies in their own operating environment only that the base currencies into which the foreign currencies are translated are all Sterling. In this instance it is not necessary to visit the Exchange Rates Tab shown on the previous screen this will be the subject of a second example (see 5. Example 2 below).

5 5/12 Once you are ready to begin the Consolidation process, it is highly recommended that you Click on the Verify Data button first. If there are problems of compatibility between the subsidiaries or between the subsidiaries and the Group, you will be presented with a short report like this; Value 1 shows the value held in Company ID 1 against the nominated Key (Code) in the nominated Table and Value 2 shows the corresponding value in Company ID 2. In this example, there is a small discrepancy in the Sub-Category Descriptions as well as differing Descriptions in the GL Category Tables and missing GL Sub-Categories from some of the Companies. Normally these inconsistencies will only occur the first time you run the verification process as, once corrected, they shouldn t re-occur. However you should always Verify Data on every Consolidation occasion. When you have rectified these issues you should Re-Verify before proceeding to the Consolidate process, which will bring up the following Window regarding progress;

6 6/12 On completion, you will be presented with the following message and you should now close this Window; You can run the Consolidation process as frequently as you like during a Period. Note also that the process will consolidate transactions in all prior open periods and therefore requires a certain amount of caution in regard to Back Posting and the Close Off of Periods. For example, it is quite possible to Consolidate, Report and Publish P & L, Balance Sheet, etc. in the Consolidated entity while the Subsidiary Companies continue to post into a Prior Open Period in their Ledgers. This could then lead to an anomaly as regards the consistency of the Local Reports and the Central Reports. (See 10. below). The following is a composite report of the combination of the three separate subsidiaries Standard Profit & Loss Reports together with the overall Holding Company Standard Profit and Loss Report after Consolidation; 7. Example 2 Consolidating Companies with Different Base Currencies: In this example we are assuming that our four subsidiary companies (France, Italy, USA and Australia) have different base Currencies. The Group Company has Sterling as its Base and Reporting Currency;

7 7/12 You must now ensure that each of the Subsidiary Base Currencies is set up in the Group Holding Company Currency Table. Log in to the Holding Company and Go To Setup Codes Maintenance Currencies. See the Article on How does Foreign Currency Accounting Work? for further information. In the Manage Entity Groups program you should now go to the Exchange Rates Tab. If any of the subsidiary Base Currencies have not been set up in the Holding Company Currency Table, they will not appear in this screen; You must now enter the Period Average Rate of Exchange and the Period End Rate of Exchange for each subsidiary Base Currency in turn as against the Base and Reporting Currency of the Group Holding Company. The Rate of Exchange is 1 Unit of Group Company Currency = xx.xxxxxx Units of

8 8/12 Subsidiary Company (i.e. in this example 1 Pound Sterling buys Australian Dollars using the Average Rate of Exchange). The Period Average Rate of Exchange will be used in the calculation of Period Profit and Loss Reports and the Period End Rate will be used in translating Balance Sheets into the Group Base Currency. As heretofore, you should now Verify Data and when any anomalies have been rectified you can then proceed to Consolidate. It is also recommended that, prior to Consolidation, each Subsidiary Company undergoes a Foreign Exchange Revaluation (Log into the Subsidiary, Go To General GL Journals Foreign Exchange Revaluation Journal) in order to calculate and post Realised and Un-Realised Currency Gains and Losses in each Subsidiary. For further information regarding this functionality, see the Article How does Foreign Currency Accounting Work?. The following is a composite report of the combination of the four Overseas Subsidiaries plus the local Holding Company postings which shows each Companies Profit & Loss together with the overall Holding Company Profit and Loss after Consolidation in the Base Currency;

9 9/12 8. Example 3 Multi-Level Consolidation of Group Companies and Subsidiaries: After you have carried out your basic level Consolidations, you can also further consolidate Group Companies into higher level Group Companies along with further subsidiaries as in this following example; Having firstly set up the new Renu MediSpa International Limited Company using the Client Setup Wizard, you should follow the procedures set out in Paragraph 3. above and add the Renu MediSpa Holdings, Renu MediSpa France, Australia, etc. as entities of Renu MediSpa International Limited as follows; Before Consolidating at this higher level, you should ensure that Renu MediSpa Holdings is Consolidated first (and any other Consolidations that you may have set up at the lower level of the hierarchy) as in Examples 1. and/or 2. above. You should now proceed to Verify Data (as heretofore), and after any anomalies have been sorted out, move on to Consolidation as described in Example 1. above. After Consolidation you can Log into the Renu MediSpa International Holding Company in order to access the many available Reports such as the following example;

10 10/12 9. Manage Currencies at Group Level: Check this option if you wish to centrally manage and control the daily Exchange Rates used by all Companies across the Group; Turning on this facility enables you to only maintain the Exchange Rates in the Group s Currency Exchange Rate Table - and to download and enforce these Exchange Rates onto all the Subsidiary Companies Currency Tables. It prevents the Subsidiary Company Users subsequently editing or changing these Exchange Rates locally in their Currency Tables. However, only those Currencies that

11 11/12 are set up in the Group Consolidation Entity Tables are controlled centrally with the result that there is still scope for Subsidiaries to set up other Currencies for Local Trading and which they can maintain themselves. However, if they do so, it is highly recommended that they undertake a Currency Revaluation prior to a Consolidation (see Paragraph 4. of How does Foreign Currency Accounting Work? ) in order to ensure that these non-centrally controlled currencies are converted at the latest and most accurate exchange rate into the Base Currency of the Subsidiary in question (which is now centrally controlled) before it, in turn, is consolidated at Group level. When you change an Exchange Rate in this Group Currency Table e.g. Sterling to Euro (Sterling being the Consolidation Group Company Base Currency) it will not just change the STG/EUR Rate in the specific Subsidiary/Subsidiaries Currency Tables, but will also change all the other Base Currencies in all the other Subsidiaries in the context of their relationship to Euros by virtue of the change of the foregoing Exchange Rate of Sterling to Euros. For example, if 1.00 = 1.25 and 1.00 = $1.55 then this must necessarily mean in turn that $1.00 = Clearly then, any subsequent change in the relationship between the Sterling and the Euro will also impact on the $ Dollar to Euro relationship also. Similar changes in the relationship between Sterling and the other Base Currencies will also cause modifications to ripple through to the other various inter-currency relationships. Example of Group Company Currency Table before and after; Australian Subsidiary Company Currency Table before and after; Normally, you would expect the decision to maintain Base Currencies centrally would be made in advance of the initial set up of the system for the first time. However, in some cases it may be that this decision might be made subsequent to the continued operation of the system. If this is the case you should be aware that just Checking this Manage Currencies at Group Level will not mean that the Currencies and Exchange Rates will flow upwards from the Currency Table of the Subsidiary Companies into the Group Exchange Currency Table. When you have checked the Tick Box, you must

12 12/12 manually enter the Currencies and Exchange Rates together with the Average and End Period Rates (both Current and Historical) for each Currency centrally. 10. Manage Departmental Analysis Codes and Extended Business Analysis at Group Level: Check this option if you wish to centrally manage and control the Departmental Analysis and Hierarchical Extended Business Analysis centrally from the Group. After that, Analysis Groups and their Members can only be maintained in the Group Consolidation Company. As with Currencies, the Subsidiary Companies will henceforth be denied access to the Setup and Revision of the Analysis Group Tables. However, the subsidiary companies still have control over the Analysis Codes they wish to generate or set up in their own company. After Consolidation, in the Extended Business Analysis Reports for the Group Company, these Reports will be presented in the Currency of the Group Company. For example, if you choose to report on a Subsidiary Company from this section, it will report in the Base Currency of the Group whereas the same Report produced in the Subsidiary Company will show data in the Base Currency of the Subsidiary. 11. Manage Period End Closures at Group Level: This is a further enhancement still undergoing planning. When it becomes available, it will allow the Administrator to Close or maintain Open the Periods of the Group Company and all the Subsidiaries, thus ensuring synchronisation between them. It will remove this responsibility from the individual Subsidiary Companies where it current resides but until such time as this enhancement is implemented, considerable care should be exercised to ensure that Subsidiaries do not attempt to add Transactions in a Period which is already closed centrally or in another subsidiary.