Consolidation systems

What are the main drivers of complexity in group consolidation?

From our experience, there are three basic complexity drivers for consolidation. The business model and business transactions that are mapped in accounting and that are torn apart by the legal company structure and the internal responsibility structure are to be mentioned from the business point of view. A mathematician would always describe the overall complexity with the product of all three degrees of complexity, with a special weighting factor for the legal structure. The three complexities are usually given to the responsible person in the consolidation and can hardly be changed from his point of view. Nevertheless, when discussing the control concept among management together with the controlling department, it is always necessary to debate whether and how areas of responsibility should be mapped.  If in doubt, it is always preferable to depict internal areas, such as profit centers, rather than your own legal units. Apart from the administrative component, incentive structures are also much more inflexible, contaminated and usually not precisely definable due to the legal framework.

This given complexity then affects the organization of the group. And here, of course, the complexity and effort can be significantly increased or reduced. This can be done by methodical and content-related definitions as well as by the organizational framework and the general and special software support. And just as accounting in general is at the end of the process and has to deal with all inadequacies, the consolidation system is also available as the last patch for the described topics.

What are the main levers for managing complexity in group consolidation?

Methodical stringency - what is that?

It is clear to every consolidator that the work depends on the identifiability and equality of treatment of the relevant intra- and intercompany incidents. Ultimately, this is the secret of real-time consolidation!

At this point, first of all the joint chart of accounts and the determination of whether to post locally in Group GAAP or according to local law and make a later transition are important. However, clear specifications for master data, e.g. for identifying suitable debtors and creditors, are also very helpful. Especially if the units appear in different roles, e.g. customer-supplier, shareholder, etc., the differentiation under an address or SAP business partner number is very helpful. As a last example, the use of different ledgers for the parallel handling of a business transaction can also be used for elimination of interunit profit in inventories as well as for assets sold in the corporate group.

Organizational stringency - how does it help?

Organizational stringency is fundamental when it comes to the implementation of the group’s methodological specifications in all units. Quite a few groups have excellent ideas and are not able to implement them in order not to restrict the decentralized freedoms of the local managing director. These are mostly misunderstood freedoms. Taking traffic for example - it is clear to most people that the rules make it easier or even possible to live together - and that freedom consists in driving wherever you want. Analogously these rules would be the commercial rules, and business can of course boast excellent business transactions, perfect customer service and excellent products.

Many companies, for example, invest a great deal of effort in solutions to reconcile intercompany invoices just because it is not possible to ensure that all invoices in the group are to be sent by a certain date and then posted in any case - complaints could result in credit notes. In anticipation of the technical support, "posting through" across the legal unit would be highly efficient! And the argument in the family always remains in the end only a pocket question...

Technical support by consolidation systems

The heterogeneity of ERP systems is hindering the management of complexity and is often not economically reducible. Even if content specifications for accounts, business partners, cost centers and profit centers follow uniform guidelines, different systems create interfaces and breaks. Nevertheless, it is obvious that the better the homework mentioned above has been done, the simpler the interfaces for consolidation will be.

However, it is primarily the operational processes that benefit from uniform structures, thus improving the basis for subsequent consolidation. Information can be passed on automatically ensuring consistent processing.