Financial consolidation is the process of collecting and combining data from different business activities, departments, locations or entities. That data is then consolidated into group-wide financial statements, such as the income statement, balance sheet and cash flow statement.
Closing is when the finance team closes their books. It’s a confirmation that the business has recorded all transactions, reconciled balance sheet accounts, and reviewed incomes and expenses. The finance team will also prepare financial statements and management reports for the leadership team to review in the context of the overall business strategy.
Effectively, each close acts as a regular check or internal audit that all financial transactions are accounted for. This gives a picture of the company’s overall financial position.
Normally, the financial consolidation and close takes place at the end of an accounting period. This could be the end of the month, quarter or calendar or fiscal year. However, one of the benefits of automating this process is that finance teams can produce consolidated accounts quickly and easily at any time.
Consolidated financial statements are a requirement for most large companies. They are an essential high-level overview of the company’s financial performance for management teams, shareholders, investors, lenders and financial journalists. Auditors also use these statements to ensure the organisation is complying with legislation and regulations.
Accurate and timely consolidated financial reporting is about much more than compliance. This data plays a crucial role in ensuring important business decisions are based on evidence rather than gut feel or guesswork. It gives leadership teams a detailed view of, for example, the best and worst-performing business units or products, and can help them to identify risks and opportunities.
Traditionally, financial close and consolidation was a highly complex, manual and time-consuming process – especially for large, multi-entity organisations. The exact process and steps involved would vary across companies, but normally the finance team would need to:
This will include the trial balance data from all subsidiaries and divisions, as well as assets, liabilities, equity, revenue, and expenses. This will be time consuming if that data is stored in multiple general ledgers, perhaps with different Charts of Accounts and in different currencies.
This would be necessary in a multi-entity group with cross-border operations to align all local currencies to the main group currency.
In many group companies, different entities or branches may trade with other parts of the group. In these situations, the finance team needs to take account of any products or services that are bought and sold between different group entities.
The finance team may also have to make manual or automated adjustments. Manual adjustments could be necessary to correct errors or account for last-minute changes. They may also need to deal with duplications on intercompany investments, equity, and dividends, to ensure the figures are consolidated rather than aggregated.
Reporting requirements vary widely between different organisations. However, finance teams are expected to deliver a clear view of the company’s accounts and overall financial position to both internal management and external stakeholders. They may also be required to produce more detailed and granular reports to show financial performance by, for example, region, product line or individual customer.
Many finance teams still use spreadsheets for their financial consolidation processes. That’s probably because they are seen as a low-cost option, with which practically all accountants are familiar and comfortable. However, the downsides of spreadsheets for consolidation are the high risk of errors and duplications during data entry, or when manipulating data across multiple, complex spreadsheets, and the time it takes to collate, verify and present the data in a user-friendly format.
The most common issues with financial consolidation and close are:
The good news is that finance teams can now leave old-fashioned and manual processes and error-prone spreadsheets behind. Financial consolidation software enables you to collate, evaluate and update all your subsidiary information, quickly and accurately. That also means you can consolidate your financial data as often as you wish – there’s no need to wait until month-end to get the figures your leadership team needs to run the business effectively and make good decisions.
Here are just some of the ways financial consolidation software can improve your consolidation and close:
Here are eight key features to look for in financial consolidation software:
AccountsIQ’s financial consolidation software provides all the group financial data you need, in real-time. In addition, you can quickly and easily drill-down to subsidiary level to monitor, analyse and benchmark performance across your group.
Read our blog: How to prepare group consolidated accounts.
Watch our Multi company accounting and consolidation webinar.
Download our report: Untangling the intricacies of group financial management.