Everything you need to streamline financial consolidations
Any company with multiple branches is going to face the complexities of financial consolidation sooner or later. Traditionally, it’s not a straightforward process, and the bigger a company gets, the more complicated it can become. Regardless of the size of your operations, there are common challenges and best practices that recur across multiple industries and accounting teams.
Knowledge is power, so this complete guide breaks down the various challenges you will face when it comes to financial consolidations, offering checklists, resources, and steps that will enable you to optimize your administration processes and avoid the usual pitfalls. Learn what to look for in financial consolidation software and familiarize yourself with global accounting standards like IFRS 10 and ASC 810.
Who should read this guide?
Whether you’re an international conglomerate or an expanding local business, this guide is ideal for anyone streamlining financial consolidation and adopting best practices. From global accounting standards to security concerns post-merger, there are resources to help multi-companies at all levels navigate the complexities that come with managing multiple entities.
What exactly is financial consolidation?
The term financial consolidation refers to the requirement for multi-companies or multi-entities to present a consolidated financial statement wherein all subsidiaries report under the umbrella of a parent company.
Regardless of the industry, financial consolidation for multi-companies is required. Whether you are a small, medium or large organization, multi-companies need to consolidate financials for a period end to close their accounting records.
Why is financial consolidation necessary?
- Accurate forecasting and strategic mapping of company goals
- Align entities based on key performance metrics
- Comply with accounting standards ASC 810 and IFRS 10
- Create an accurate picture of overall company health
- Convince stakeholders to make strategic investments
Common financial consolidation challenges
The complications introduced by multiple legal entities go far beyond complying with global accounting standards and touch every facet of your business. Companies struggle to scale without a framework in place, getting bogged down by obsolete processes and the difficulty of trying to align financial statements across multiple companies.
7 key consolidation issues companies face
- Low quality or inaccurate data caused by manual data entry
- Failure to automate consolidation processes
- Using inappropriate tools and systems
- Making adjustments for intercompany transactions
- Changing reporting requirements
- Data manipulation and risk of fraud
- Complications arise between countries
Solving common consolidation issues
Knowing the challenges is essential. However, simply having a list of possible problems can feel overwhelming without solutions, so here’s a list of best financial consolidation practices to help tackle the potential roadblocks. The following resources will help you think of financial consolidation in terms of solutions to the most common challenges.
8 best practices for tackling financial consolidations
- Introduce consistent standards across all reporting and data entry
- Get reports that allow a 360° view of your performance
- Enable your team with continuous training and change management
- Identify and eliminate bottlenecks in the workflow
- Grant the finance team complete administrative powers
- Focus on fast close and reporting cycles for optimum performance
- Stay on top of IFRS and GAAP regulations
- Automate matching, reporting and eliminations for intercompany transactions
Managing intercompany transactions
Intercompany transactions can cause cumbersome workloads. This is true for companies of all sizes, and you must build processes that help you streamline these transactions. Implementing best practices will save time on month-end reporting and reduce the number of errors to correct on the consolidated financial statement. These guidelines will enable you to quickly deal with reconciliations and eliminations while reducing your team’s workload.
Recommended reading: How to improve data management for financial consolidations
Better handle intercompany transactions with these simple guidelines
- Create global policies that include the nitty-gritty of intercompany transactions
- Set up a master data management solution to implement standardized global policies across all intercompany transactions
- Automate transaction matching to speed up reconciliations and eliminations
- Implement continuous close accounting practices
Financial consolidation for mergers and acquisitions
After a merger or acquisition, the first financial statement can be daunting as consolidation processes may not yet be implemented effectively across all new entities. It’s never too soon to start mapping out your strategy, and this blog on post-merger integration gives you a primer on why having a plan in place matters. Preparation is critical for meeting global accounting standards and enabling all entities to provide the relevant reports and data quickly and effectively.
The essential post-merger financial consolidation checklist →
1. Build awareness of the common financial consolidation challenges to avoid them
2. Familiarize your team with the best practices of financial consolidation
3. Align security measures and data protection across all entities
4. Introduce best practices for intercompany transactions
5. Align data management practices across all entities
6. Integrate a centralized ERP specifically for financial consolidation
7. Organize accounting processes in line with global accounting standards
Reduce security risks for financial consolidations as you scale
Whether you’re buying or selling, it’s pertinent that you commit to due diligence to ensure a smooth transition during mergers and acquisitions. Multiple entities can exacerbate the risk of security issues as sensitive data is often consolidated from disparate systems.
Undisclosed security breaches or issues can be costly, resulting in extensive legal battles and hefty fines, all of which can be prevented by simply taking the time to perform a thorough security assessment of all new entities. In the following resources, you’ll find detailed information on the common security issues and ways to reduce the risk of security breaches post-merger.
Resources to help you identify, reduce, and assess common security risks
Comply with IFRS 10 and ASC 810 for financial consolidation
ASC 810 and IFRS 10 are accounting standards that guide companies with multiple entities to remain compliant when consolidating their financials. Whether your company is merging with another, acquiring a smaller company, or expanding into new territories, your team must be fully aware of the guidelines set out under these standards. Below, we’ve provided two short guides that include decision-making trees to help you determine your next steps.
Resources to help you navigate IFRS 10 and ASC 810
Your questions answered (financial consolidation FAQs)
Additional resources answering the most common financial consolidation questions:
Choose the best financial consolidation software
Financial consolidation doesn’t have to be a challenge for companies with multiple entities. Investing in appropriate software can make many of the obstacles negligible. Despite this, many still struggle with obsolete manual processes as they believe they’re cutting costs. However, they end up costing themselves an incredible number of labour hours, bottlenecks, and errors. They can also increase the risk of non-compliance and make ill-informed decisions based on inaccurate data. Software now comes packed with features that help you streamline your consolidation processes and enable consistent reporting.
Recommended reading: Learn how ERPs simplify financial consolidation for multi companies
The essential checklist for financial consolidation software features
- Centralized, cloud-based environment for intercompany transaction processing
- Real-time consolidated reporting
- Enables comprehensive compliance management
- Scalable security features to ensure the protection of all data
- Comprehensive training to enable smooth implementation
Introducing Multi-Entity Management
Keep track of all your legal entities in one centralized system built to solve the complexities of financial consolidation. Streamline intercompany transactions, control security access, and improve workplace efficiency.
By centralizing processes and automating labour-intensive tasks, Multi-Entity Management enables your team to focus on what matters. As a result, you can scale with confidence, knowing your consolidated financial statements are under control.
Benefits of Multi-Entity Management
- Consolidate multiple legal entities in a single instance
- Maintain consistent customer, vendor, item, and fixed asset master data
- Gain greater visibility into corporate performance with real-time reporting
- Add a flexible user-entity security layer
- Create audit-friendly, up-to-date financial reporting
- Increase productivity by streamlining processes
- Eliminate redundant, error-prone tasks