Financial consolidation is a feature you would come to expect as standard within Tier 1 ERPEnterprise Resource Planning software is used by businesses to manage day-to-day activities. offerings and in that regard D365 F&O does not disappoint. However, for many in the industry, Financial Consolidation is one of those areas that you come to know because you’ve had to rather than because it was at the top of your reading list. This post aims to give an overview of the financial consolidation capabilities and some of the key components when looking to configure it for real world applications.
The first thing to note when looking to use the financial consolidation capabilities in D365 F&O is that you must have a legal entity marked as ‘use for financial consolidation process’ otherwise you won’t have access to the following content.
Typically the sole use of a consolidation company is denoted by its name, and as such, although the other operational sub-ledgers are listed in the menu path, it is only the ‘Consolidations’ module that you should be concerned with.
Within D365 Finance you have the capabilities to consolidation within the application (consolidate online), import files from 3rd party finance systems for consolidation (consolidate with import) and export company data for consolidation within a 3rd party application (Export company balances). This blog post will be focusing on the ‘Consolidate Online’ process.
Criteria
When looking to execute or configure the consolidation process, the first screen you encounter will be the consolidation criteria tab. An overview of the key parameters is as follows:
Description – This is the description tagged to the consolidation transactions within the consolidation entity. Although I wouldn’t suggest it become a reporting field due to its free text nature it is worth adding in an relevant description such e.g. January Consolidation.
Main Accounts – This is where you specify your range of main accounts to consolidate. Typically this would be the first and last main account configured in your Group’s chart of accounts.
Use Consolidation Account – This parameter can be used for multiple purposes, e.g. elimination of intercompany trading balances, mapping local to group chart of accounts etc. If this is set to ‘yes’ it will consolidation the balances of a legal entities main accounts to the main account specified within the ‘consolidation account’ on the chart of accounts configured for that ledger. Note – if you choose ‘Yes’ and do not add a consolidation main account the process will skip this step and use the source main account.
Consolidation Period – Often an area which can trip people up as instinct would imply that you are only consolidating your past accounting period. However, this should cover the year to date upon which you plan to consolidate. This is critical when it comes to the currency revaluation aspects, which I will touch on later.
Include actual amounts – Although this may seem like a no-brainer on first inspection it is worth noting that the leger consolidation process can be used to consolidate budget entries as well as actual transactions. This setting, along with the ‘Include budget amounts’ allows you this flexibility.
Rebuild balances during consolidation – This process enables the complete deletion and rebuilding of dimension set balances. For performance gains it is recommended that this actually be run as a separate batch job and not as part of the consolidation process. However, in the above scenario the separate batch job is not configured.
Budget Models – These settings are only relevant if you choosing to consolidation your budget amounts, see above, and allow you to consolidate multiple budget models at once.
From an ongoing/BAU perspective it is only the criteria page that end users will be interacting with and updating, as consolidation settings are saved at an application level for future use. However, for the initial setup additional activities are required.
Financial dimensions
Once set, it is unlikely that this configuration is often changed due to the likely onward reporting dependencies. This screen presents users with all of the active financial dimensions. The segment order column is used to not only specify whether this dimension value should be consolidated, but also in what order on the transaction they should be displayed. This allows the flexibility to both simplify the consolidated transactions i.e. by removing the operational financial dimensions not required for group reporting; and also the ability to standardise your reporting balances where you have variability in your account structures across the group.
Legal entities
This is where you specify the legal entity balances which should be included as part of the consolidation process. If this is a single consolidation tier then all group legal entities will be included here. However, where a multi-layer consolidation process is required this could be a sub-consolidation of a sub-set of legal entities. You can also specify the percentage share of the legal entity balances you wish to consolidate and also where currency conversation differences should be posted (P&L or balance sheet). This latter setting references the accounts for automatic transactions within the ledger setup and will depend on the customer’s reporting requirements, but it is often used to create the revaluation reserve within the balance sheet.
Elimination
It is highly likely that companies who operate a consolidation process will need to eliminate intercompany balances. These could originate from intercompany trading, cash transfers, recharges etc. This section allows users to specify pre-configured elimination rules that will be executed as part of the consolidation process.
Currency translation
Note – This section is only relevant if you are consolidating legal entities with inconsistent ledger accounting currencies.
This section supports compliance with International Accounting Standard (IAS) 21 and allows you to correctly account for the consolidation on foreign currency legal entity balances. Typically this would involve consolidation of the balance sheet at closing rate and the P&L at transaction rate. However, there are obvious exceptions, such as equity transactions (original share captial) which will be at a fixed rate. The above matrices allows you to specify the main account , exchange rate type and exchange rate date to support accurate consolidation of foreign currency balances.
Run in background
As with most recurrent processes within D365 F&O there is the option to execute it as part of a batch process. This not only allows users the flexibility to continue operating with the application while the process is executing, but also allows for the scheduling of common activities.
Hopefully the above has provided some more context to the generic settings and tooltips widely available. I acknowledge that some of the areas above are deeper than this post implies e.g. elimination on consolidation, and will cover that off in future content, but I hope you found this useful and would welcome any feedback and comments.