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What is Financial Consolidation in Accounting?

Financial consolidation is a key component of accounting and financial management. For large companies and groups of companies it is vital in enabling them to get a clear overall picture of their performance and financial situation. FInancial consolidation software is a vital tool for allowing larger and more complex organisations to understand and manage their finances in a more holistic and effective way.
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What is financial consolidation in the accounting industry?

In accounting, financial consolidation generally refers to the process of bringing together the financial information from across all of the segments or subsidiaries of a company or group of companies. This is essential for large multi-national organisations and businesses which have many international branches, or for groups of companies which have a range of subsidiaries. Pulling together data from various entities allows accountants and finance managers to produce reports which can be used to give an accurate and holistic view of a multi-entity group’s finances. Consolidation can be a complicated process, which requires a high degree of accuracy and care to unravel the inevitable complexities of large companies and groups of companies operating in various markets, currencies and jurisdictions.

Key steps in the accounting consolidation process

The financial consolidation process can be done in a variety of ways, with more hands-on manual work by accountancy teams, or using accounting software, which have varying levels of capacity and automation. The most advanced software can complete virtually all of the necessary steps in just a few clicks.

The process of financial consolidation generally involves completing the following steps. 

  1. Collecting data: The initial stages of the consolidation process involve gathering information from various sources across branches, subsidiaries and the parent company. The data collected will be wide in scope, from invoices and accounts payable and loans, overhead costs and staff expenses.
  2. Check transactions are correctly charged: When dealing with accounts payable, payroll expenses, revenues and other financial activity across different entities, it’s essential to make sure that these have all been allocated to the correct subsidiaries and branches to avoid inconsistencies and inaccuracies.
  3. Currency consolidation and conversion: When data has been collected from various sources, the information from overseas subsidiaries and branches is likely to be denominated in local currency. Therefore, automatic and up to date currency conversion is needed. 
  4. Accounting for intercompany loans and transactions: When consolidating data from across a group, accountants often encounter intercompany loans between subsidiaries and parent companies, transactions back and forth between the different entities and the allocation of overhead costs to subsidiaries. All of these balances will need to be eliminated to allow effective consolidation.
  5. Consolidate into financial statements and reports: When all the financial data has been adjusted and consolidateds it can be used to produce reports and financial statements across the whole group or organisation.

Useful softwares and tools for financial consolidation

In the past, multi-entity financial consolidation was often done using large numbers of manually-produced spreadsheets. But this method had many pitfalls and significant potential for human error, and is the source of much frustration for accountants.

The best tool to use for financial consolidation is an effective cloud-based financial management software package. Choosing a more complex and multi-functional package, rather than a basic cloud accounting program, is often the best choice for financial consolidation. A more advanced platform allows for automatic consolidation, smart reports which automatically draw in data from a wider range of sources, and better cross-currency accounting features. 

AccountsIQ financial management software has a high level of capability in all of these areas, with many opportunities to customise its features in order to deal with larger and more complex companies and organisations. In just a few clicks, you can automatically consolidate financial data from across large multi-national and multi-entity groups, businesses and organisations, and produce accurate and highly customisable reports.

Speak to an expert to see how AccountsIQ can transform your finance function

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