Spare a thought for the poor souls who handle financials for multi-entity business groups without the help of ERP.
Capturing and consolidating financial data for a multi-entity business group is both burdensome and error-prone. While a multi-entity structure might be legally required for conducting business across multiple geographies, it typically is anything but simple.
That’s because multi-entity consolidation typically involves multiple general ledgers, complex currency conversions, divergent accounting standards and reporting formats, and plenty of copy-paste operations that can quickly introduce subtle inaccuracies or accounting errors. It sucks to handle multi-entity financial consolidation.
That is, unless the business group uses a modern ERP solution such as SAP Cloud ERP. Finance teams that use ERP for financial management shrug off the complexity of multi-entity consolidation because their backend system handles the hard stuff.
Finance teams that use an ERP solution such as SAP Cloud ERP benefit from a universal general ledger that encompasses all transactions across a multi-entity business group.
Instead of maintaining entirely separate tables for the general ledger, cost accounting, profitability analysis, and asset accounting, SAP Cloud ERP stores financial and management accounting data in a single structure. This creates a single source of truth, enables real-time reporting, and drives easier financial management.
This is done by using a separate company code for each entity within the group. Financial data is collected in one place for a consolidated view, but through the use of company codes, it also can be split off for entity-specific reporting, taxation, and compliance functions.
Because each transaction is linked to a specific business entity, accounting and financial management on the entity level can be structured and managed like normal. Each entity can have its own statutory books, its own tax requirements, its own fiscal calendar, its own local currency, and its own accounting standards and business-specific financial reports.
Since these transactions sit within the same centralized financial database that spans the entire group, however, they also can be combined into a consolidated group financial picture. There’s no need for moving transactions and financial data between company ledgers with the potential for errors and manual labor that entails. Instead, financial data sits in one centralized place and is shown, hidden, or adjusted for the required report of the financial function.
Multiple currencies pose no challenge for finance teams that use ERP for financial management, either.
SAP Cloud ERP enables a single financial transaction to be stored simultaneously in multiple currencies for seamless accounting at the individual entity or group level. SAP Cloud ERP can simultaneously be stored in the company’s local currency, a consolidated group currency, a global currency, hard currency in the case of inflationary economies, and freely-defined currencies.
This enables a subsidiary in Asia to invoice in Japanese Yen, maintain its books in Singaporean Dollars and report to the corporate parent in USD. All of this is recorded and reported in the relevant currency values without requiring separate financial ledgers.
Automated exchange rate management helps this magic happen. SAP Cloud ERP maintains exchange rates centrally, and it can import rates from external providers, apply daily, monthly, or custom rates, and track exchange rate differences automatically. It also allows for spot, average, and historical rates.
Further, at the end of a financial period, the ERP system can automatically revalue open receivables and payables, revalue foreign-currency bank accounts, post unrealized gains and losses, and generate audit-ready journal entries.
Accounting standards and compliance requirements vary by jurisdiction, of course. This is handled automatically by SAP Cloud ERP, which can apply different accounting standards and compliance requirements to transactions based on whether they are being reported by an individual business entity or being consolidated in a business group report.
Since each transaction is assigned a company code, the ERP can easily apply the necessary financial logic and organization for the given ledger or report. So multiple accounting standards and compliance regimes can operate simultaneously on the same underlying data without this complexity impacting financial management staff.
The virtue of using a universal general ledger for all entities within a business group also facilitates easier intercompany transactions.
SAP Cloud ERP can automate intercompany transactions such as intercompany sales, shared service charges, internal inventory transfers, and cross-company procurement. This can dramatically reduce manual reconciliation work and effectively eliminate intercompany receivables/payables, internal sales and purchases, internal profits in inventory, and intercompany financing balances.
Because all financial transactions live in the same database and are updated in real-time, this means that a business group also benefits from real-time financial reporting across its various business entities.
At a glance, a finance team can see how each business entity is performing individually and how the group is performing as a whole. Cycle closes can also happen much faster since reconciliation and consolidation take place in real time instead of in batches.
SAP Cloud ERP makes multi-entity consolidation and financial management as easy as single-entity accounting, or easier if you’re still using spreadsheets or point solutions.
Learn how SAP Cloud ERP can improve your organization’s financial management by learning more about the solution or by talking with one of our experienced ERP consultants. You can get your specific questions answered by calling us at (801) 642-0123 or by writing info@nbs-us.com.