Wayne SlaterReclaim your Late Nights and Weekends
Defining Consolidation and Close
Too many organizations are still closing their books manually. It is no secret that manual accounting processes are a top frustration for nearly every finance team. The endless spreadsheets, and the late nights and weekends doing repetitious tasks like journal entries, reconciliations, reporting, and variances. Then, it suddenly got more interesting, or more complicated shall I say?
2020 happened and with it a pandemic, a lockdown and now, many of us are working from home. So, on top of everything, we now have distance, and remote communication to further hamper a process that already needed improving. Awesome right?
In today’s world, we have several options when it comes to leveraging the right solution to tackle issues with consolidation and close. Many GL (ERP) systems offer consolidation features to combine financials. Spreadsheets can also be used, but this often requires a lot of manual work.
There’s also purpose-built software that can support financial consolidation, close, and reporting. Corporate Performance Management (CPM) software is one such example of purpose-built software, and many organizations are already using it to streamline their FP&A processes.
CPM software streamlines FP&A by unifying all your financial data and automating mundane processes, giving you the luxury of time back on your side. Some CPM software can also provide robust and provides workflow capabilities to automate mundane financial processes and gives you the luxury of time back on your side. The interesting point here is that some CPM solutions also can provide robust consolidation and close capabilities. For some segments of the market, this might prove quite useful and provide a competitive advantage.
The Consolidation Process
A company’s approach to consolidation can vary depending on the controlling stake the parent company has in each subsidiary. Consolidation accounting is used when the parent has a controlling interest of more than fifty percent, which means that assets, liabilities, revenues, and expenses from subsidiary companies will be combined into the parent company’s financial statement. If a company owns a stake that is less than controlling but still has significant influence over the business, the equity method of account is required.
In the equity method of consolidation, the parent company reports their investment in subsidiaries on their balance sheet, as an asset equal to the purchase price. Once the subsidiary company reports its net income, the parent company reports revenue equal to its share of the subsidiary’s profit, increasing the value of the investment asset and recording the revenue as an increase to retained earnings.
No matter how you do consolidations at your organization, purpose-built consolidation software lets you configure your unique circumstances and integrate them directly within the software.
Consolidation and Close Methods
Here is a breakdown of different methods for consolidation and close:
General Ledger System (ERP)
ERP systems can help you consolidate and close your books, but they can be a hard tool to work with since they cannot fully automate your consolidation, close, and reporting processes. Therefore, much of the close process will still require manual accounting methods and tools like spreadsheets.
Spreadsheets
Spreadsheets are the tool accounting professionals are most familiar with, but they can demand a lot of human work hours, not to mention, focus and patience to assure that the complex process of consolidation and close are running correctly. The process can be very manual and error-prone, especially when more than one system is being used, loading data, and reviewing cells. Resolution can take a long time that could be better spent on planning or forward-looking strategic initiatives like frequent forecasting or even modelling scenarios to reduce your business risk as you plot your course through these unpredictable times.
Consolidation Specific Software
Purpose-built software that automates system-to-system reconciliation is usually used by companies with multiple systems to roll up. A tool focused on consolidation can replace the manual process of comparing multiple ledgers, integrate with different systems, bring data into a unique location, and create workflows. However, consolidation-specific software can get expensive and is sometimes overkill for small to mid-market companies, given they are limited to enhancing the consolidation and close process.
Corporate Performance Management (CPM)
Did you see this coming? Yes, the same software many organizations use to budget and plan can be used, depending on the vendor, to enhance the consolidation and close process. CPM software has much of the same functionality as a consolidation solution, but also offers a holistic finance solution that enables reporting and planning. In terms of the close process, CPM software allows users to create, edit, manage, and report all aspects of journal entries quickly and easily, such as intercompany eliminations and currency conversions. CPM software can also make it easy to apply credit and debit adjustments to support the financial consolidation process.
How You Can Close Faster and More Accurately with CPM
Using a CPM tool like Prophix will simplify collaboration by tracking information as it flows into the software. Prophix helps administrators monitor the consolidation process and report on the status of it at any time. Consolidation with CPM software reduces the length of the financial close cycle and provides more accountability, ownership, and control to the finance team and key stakeholders. Prophix will allow you to automate many processes, such as:
Data Imports
Bringing in data from disparate systems such as your ERP, CRM, HR, and payroll systems can be a huge hassle for each financial close. When using traditional spreadsheets alone, data consolidation of information from disparate systems is often the single most time-consuming task for finance teams.
What if you could automatically pull data from these systems into the same place for each financial close? CPM software can integrate with different ERP, CRM, HR, and payroll systems for a seamless download of all your data into monthly report templates. By automating this data pull, you can save time that can be better used for financial analysis.
Intercompany Eliminations
Intercompany eliminations are used to remove the costs associated with the sale of goods, services, loans, or ownership interest between a parent company and its subsidiaries. Prophix has a solution called Journals Manager, released in the Fall of 2019, that assists with entering and viewing intercompany eliminations. Simply select which entities you would like to enter information for, and the tool has an automatic check to ensure all values balance. Increased security surrounding journal entries also helps facilitate the external audit processes.
Adjustments
If a transaction is posted late, or worse, if a transaction was entered incorrectly, an adjustment will need to be made to reconcile the entry for accurate reporting. With Prophix’s comprehensive data history tracking tool, you can easily see if any values have been adjusted. You can also use Journals Manager to track adjustments between different periods, in the case a transaction was posted to the incorrect period. This saves you time by creating a transparent, visible trail for simpler audits.
Currency Translation Adjustment
Also known as cumulative translation adjustment (CTA), CTA represents the difference in the exchange rates used to convert between the balance sheet and income statement accounts. Since you will be using differing period ending and period average rates, CTA is something that needs to be calculated every financial close. Using CPM software can help you automate this CTA calculation, saving you time and freeing you up to focus on strategic initiatives.
Financial Close Management
Many financial teams cite the improvement of financial close management as a factor in their purchase of a CPM tool. With currency conversions, intercompany eliminations, adjustments and more, it is apparent why financial closes are such a tedious process for many companies. Prophix’s Workflow Manager allows you to streamline your financial close process by scheduling and organizing the different components of the close cycle. You can easily automate your monthly, quarterly, and annual financial close. Workflow Manager can also help with report distribution after all other processes have been completed.
How to Leverage Consolidation and Close with Anomaly Detection
Did you know Prophix can further speed up your close using Artificial Intelligence? Prophix’s Anomaly Detection can quickly analyze financial transactions, providing actionable insights and minimizing financial risk. It leverages the power of Machine Learning to automatically detect and surface unusual transactions and expedite the investigation and resolution of thousands of transactions in near real-time. The power of Artificial Intelligence will allow you to get more speed and accuracy redefining your time windows for close, internal audits, account reconciliations, consolidations, and other financial processes to make them more accurate and less risky than ever before. Instead of relying on someone in finance to find risky transactions, you simply send your data for analysis to the machine thereby enables unknown anomalies and patterns to be automatically detected and surfaced to users. That’s all I’ll say on this right now as I’ll be covering this interesting topic in an up -coming blog.
As we’ve discussed, CPM software is a compelling option to help expedite the consolidation and close process. The same attributes that make CPM software a great planning platform, also make it a terrific close solution.
Having your planning and close process in the same solution gives you a holistic view of the financial state of your business. Prophix not only shrinks planning windows and increases accuracy with data integration and automation, but also applies the same methodology to streamlining financial close.
Prophix’s cloud-based CPM solution is ideal for working remotely, as it’s accessible to anyone on an internet-connected device. Centralized data, automation, and collaboration are accessible to all finance team members, regardless of where they’re working.
With Prophix, you can save time on your planning, consolidation, and close processes. With the additional time, you can shift your focus to strategic initiatives, reduce long days and late nights, and support your business’ success.
Prophix
Ron Massicotte
