Consolidation Without Shares

Here is another document from 'BI VPC 6.0' related to Consolidation Without Shares.

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Overview of Finance Intelligence

Finance intelligence provides built in calculation to do financial forecast, financial consolidation, currency conversion, reconciliation and other various finance related tasks.

Companies have both external (financial) accounting system and internal (cost) accounting system. Budgeting, forecasting, management reporting all fall into the internal accounting. Those reports are produced and analyzed by internal accountants, financial analysts, Human Resources or top executives within the company. Statutory reporting is what company publishes to the outside world so that they can see the financial status of the company. This needs to follow specific GAAP (US only) accounting rules. Our financial intelligence feature supports both accounting systems by providing numerous rules templates.

There are three types of models one can create using performance point server:

• Financial Model with Shares: A financial model that requires shares calculation to determine the ownership of entity in a hierarchy. One can use this model to create statutory financial reports for consolidation, doing currency conversion and reconciliation.

• Financial Model without Shares: A financial model that doesn’t require shares calculation. Following scenarios will benefit using such a model:
  • Creating stand alone statutory reports without consolidation.
  • Any internal account reporting such as forecast, budgeting and management reporting.

• Generic Model: A model that usually doesn’t include any financial related information. This normally is used by the Human Resource department to create non financial related reports such as headcount, salary and review reports.

There are two types of assumption models one can create using performance point server:

• Global Assumption Model: An assumption model that can be used to link with the various models.
• Exchange Rate Model: An exchange rate assumption model that is linked with various models for currency conversion purpose.

Overview of Consolidation

What is Consolidation?

Companies have subsidiaries and ownership of other companies need to run consolidation for both internal and external reporting. The general concept of consolidation is to consolidate all children entities to the parent entity, and any transactions took place between companies should be eliminated. If company uses financial model with shares model, FI’s consolidation rules will be used to handle elimination, minority interest and investment related transactions. If company uses financial model without shares, any inter company transaction is 100% elimination and all transactions for children entities will be rolled up to the parent to view.

How Consolidation works in Performance Point Server:

Financial model with shares consolidation: This uses financial model with shares since it requires ownership information which derives from the shares calculation. There are five rules templates for statutory consolidation in FI. They are Inter-company rule for Profit/Loss, Inter-company rule for investment, Inter-company rule for Equity and Inter-company rule for Balance Sheet. One can map a leaf account to the model property that used by the rule. The leaf account will then be used for calculating minority interest, investment and elimination related transactions. Users can also write their own rules to accommodate more statutory requirements. The financial model with shares consolidation only supports one level entity hierarchy, and shares calculation will generate all the ownership information for each entity relative to the parent entity which in term generates a flat hierarchy.

If company A owns 90% of company B, there will be two leaf entities (company B and company A) and one consolidated entity Consol. After shares calculation company A has holding consolidation method and company B has Full consolidation method. Once the method is determined for each entity within the hierarchy, we need to load fact table data for each leaf entity. Consolidation process involves the following three steps:

1. Shares Calculation: To calculate the ownership and control for each sub entity.
2. Reconciliation (optional): To record any difference occurred between inter companies.
3. Consolidation: To record elimination for inter-company transactions based on the type of the accounts, consolidation methods and flow type (for BS accounts only).
4. Currency Conversion (optional): Consolidation can also do currency conversion but it’s optional.

Financial model without shares consolidation: This uses financial model without shares since we assume 100% ownership between parent and child entities. The model property Consolidation Balance Account is used to record the elimination for each account. Non statutory consolidation supports staged hierarchy so that parent entities can have multiple levels. The 100% elimination will take place for all the intercompany transactions.

Consolidation Business Process:

Following is a diagram of Business Process Diagram for leaf level entity (from PM doc):

First customer loads their data into fact table via Input process. If there is any adjustment needed, customer can either manually load data via Manadj process or system can post adjustment via Autoadj process. Reconciliation writes back to fact table via Autoadj process. Consolidation writes back to fact table via Elimination process. Allocation writes back to fact table via ALLOC process. All consolidation rules write back to fact table. After all the adjustments and elimination write back, cube level aggregation will take place via PREALLOC, POSTALLOC and Consolidated process. One can only see cube level aggregation via either excel report or cube browser.

Validation Requirements for Consolidation:

The following validation needs to take place prior to consolidation:

• Ensure time dimension has the member set other than all associated with it
• Ensure Account dimension is associated with the correct hierarchy
• Ensure Entity dimension is associated with the correct hierarchy:
  • Financial model without shares can have staged hierarchy
  • Financial model with shares only supports one level
• Ensure Entity type for consolidation is defined as Legal or Management but not corporate
• Entity types need to following definition:
  • Legal, basically a parent. Use this type if they own any part of another entity
  • Management, basically a child that is not also a parent. Use this type if they do not and cannot own any part of another entity
  • For each of the consolidation points, setup an additional entity, appending “Consol” to the entity name. I.e. “AW Resorts” new entity would be “AW ResortsConsol”. These new Entities will be of TYPE “Corporate”. When consolidations are performed at this level, the system would store the new consolidated data in this new “AW ResortsConsol” entity.
• During data loading, following business rules apply:
  • Only intercompany accounts can be used for intercompany transactions
  • Entity can only load transactions with entity currency
  • One can’t load transaction to non leaf accounts
  • One can’t load transaction to non leaf entity
  • Income Statement accounts should have flow of none, and Balance Sheet accounts should have any flow but none.

Financial Model without Shares Consolidation:

Step by Step:

1. Create Exchange Rate Model
2. Create Financial Model without Shares
3. Set up the following Model Properties
   1. Default Currency – Default currency for currency triangulation.
   2. Reconciliation Balancing Account – Needed for reconciliation
   3. Reconciliation Offset Account – Needed for reconciliation
   4. Consolidation Balance Account – Needed for consolidation
4. Load dimension data.
5. Load exchange rate fact data
6. Load Consolidation fact data
7. Deploy model site.
8. Run Consolidation job.
9. Create excel reports to view the final consolidated results from parent.

Things to verify:

• All model properties should be set.
• If using exchange rate model, the time granularity of the financial model should be higher than or equal to the exchange rate model.
• Account and Entity should have consolidation hierarchies specified for the model
• Be very careful when loading consolidation related data. Validation rules will apply.
• If there is intercompany transaction, intercompany column should be filled for the entity.

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