Managing Group Consolidation

This document presents an overview of how to consolidate the accounts of various units in a multinational company using M3 Group Consolidation.

Subsidiary operations are run according to their own rules and regulations. This means that a subsidiary can use its own chart of accounts and currency, and follow the regulations and laws of the country where it operates. A subsidiary can be wholly or partially owned by the parent company, also called the consolidation company.

In this documentation, the term parent company is used for all companies or divisions receiving transactions as a result of the consolidation. The term subsidiary is used for all companies or divisions that deliver transactions, regardless of whether they are operating companies or just created for reporting purposes.

Outcome

The selected legal and non-legal units are consolidated:

Note: Non-legal units are operating units within a company that act as independent units although they are legally considered a single unit.
  • The subsidiaries' balance sheets and income statements are converted and consolidated into one income statement and one balance sheet based on the parent company's chart of accounts.
  • Different sections of the chart of accounts are converted at different exchange rates. The difference between the balance sheet and the income statement is automatically recorded in a user-defined account in the parent company.
  • Transactions between subsidiaries are deleted so that the group balance sheet and income statement show external revenues only.
  • If the subsidiary is only partially owned by the parent company, all balances per account group are consolidated in relation to the owner share. The entire balance of the subsidiary is consolidated and an automatic reservation is made for the minority interest in the profit.
  • Consolidations are displayed per period and subsidiary, along with the number of the voucher that has updated the parent company's general ledger.

Based on the group consolidation, the parent company can:

  • Review the performance of each subsidiary using M3 General Ledger and M3 Report Generator
  • Finalize and submit consolidated accounts
  • Develop strategies and plans to become more profitable.

Refer to the respective subordinate document for a description.

Before you start

  • The corporation must have well-defined rules, routines and policies for group consolidation.
  • If the parent company has its own financial operations, usually a separate reporting company is created instead of consolidating the wholly owned subsidiaries directly into the parent company's books. The reporting company is created as a regular company in M3 BE, but only configured for M3 General Ledger, the M3 Report Generator and M3 Group Consolidation.
  • All subsidiaries are registered as separate companies or divisions in M3 BE.
  • The configuration described in Enabling M3 Group Consolidation must be done.

Follow These Steps

Outline

  1. Create Consolidation Proposal for Subsidiary

    As part of the corporation's periodic routines (usually each month) the subsidiary creates a consolidation proposal with external transactions from its general ledger or budget to consolidate in 'Consolidation Proposal. Create/Transfer' (GMS200).

    The proposal is based on the period and range of accounting dates the subsidiary selects. The selected period is the period according to the parent company's period table. The accounting dates are the start and end dates for transactions at the subsidiary to be included in the transfer.

  2. Verify Consolidation Proposal

    The subsidiary reviews the consolidation proposal, either on screen in (GMS200) or by printing it.

  3. Adjust Figures

    The subsidiary can adjust the consolidation proposal by entering journal vouchers in 'Journal Voucher. Open' (GLS100) before creating a new proposal.

  4. Transfer Consolidation Transactions to Parent Company

    When the subsidiary approves the proposal in (GMS200), the result is immediately available to the parent company, provided that the two use the same database. All transactions in the subsidiary's general ledger that are part of the transfer are flagged as being consolidated and cannot be included in a new proposal.

    In some cases, the parent company creates the transfer since it normally owns any rules for account conversion.

  5. Update General Ledger of Parent Company

    The parent company updates its general ledger with the received transactions in 'Consolidation Proposal. Update' (GMS320).

  6. Follow Up Consolidation

    The parent company verifies that all the subsidiaries have sent their consolidation transactions for the current reporting period by checking the list of reporting subsidiaries that is displayed in (GMS320) against the number of the journal voucher created.

    To verify the accuracy of the transactions, the parent company can view and analyze results and consolidated information from the entire organization in one currency in its general ledger.

    Since all consolidation transactions carry the ID of the subsidiary in one of its accounting dimensions – often accounting dimension 7 – the parent company can use a balance key in M3 General Ledger and M3 Report Generator to analyze the results. A central user at the parent company can easily switch from the consolidating company's records to the subsidiary's records using programs such as 'GL Balance File. Display' (GLS215), 'General Ledger. Display Transactions' (GLS210).

    The parent company can also create a financial report in 'Report. Open' (RGS600) with a column for each subsidiary as a way of checking the accuracy of transfer, late adjustments and so on.

    Once the consolidation of the subsidiaries is complete, the parent company can process its own consolidation.

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