Overcoming Eliminations and Consolidation Challenges in Dynamics 365

Introduction

Quarter End financials: 10-Q report is due in a week and it would be 12+ pages to submit with all the highlights of the quarter. But before that, the Consolidated financials must be completed. The intercompany accounts have problems getting reconciled….as usual. Still trying to find the R&D expenditure for Company B2; since the Account # is different than the rest of the companies and the mapping is off on excel; Inventory is off in reconciliation…must be a new item in one of the companies. Headache!

There must be a better system than this! The excel workbook where the elimination & consolidation is done is so large and loaded with formulae that reloading data or changing one row on the account # is almost guaranteed to throw the whole thing off.

The above scenario is typical with Controllers & CFO’s in charge of the books of Multi-national; Conglomerates; Holdig Companies with several different subsidiaries below them that have several inter-company transactions done regularly. It’s one of the most time consuming and complicated – depending on their company, account structure and setup – processes to close a period, month, quarter or year. Some companies, in fact several, use tools outside of their accounting system of record such as excel to manually export the figures and put the numbers together to generate a Financial Statement. This method, while works is prone to so many errors that it takes a large amount of time & effort to review for accuracy. Some of the challenges are

Not all accounts maybe accounted for. As an example, a new intercompany account was added in Company A; however, was not in the Holding Company. This would create a mis-match while consolidation.
If using excel for the consolidation; adding a row for an account in one page may throw the formula off in the consolidation page.

Adding a Business Unit, revenue stream, etc would have to be included in every page in the excel workbook to ensure proper consolidation. Otherwise a whole business unit would risk being left out of the consolidation.

So What kind of System would handle this complicated reporting system? And make the numbers add up? Dynamics 365 Finance & Operations! Here is how..

Eliminations Using Dynamics 365 Finance & Operations

Dynamics 365 Finance & Operations has made the elimination process to come up with an accurate financial report as easy as a click. The initial challenge of setup is made as easy as setting up a Parent (Holding) Company with chart of accounts that include Intercompany accounts with elimination rules such as Due to & Due from accounts.

Organizational Reporting Structure

Dynamics 365 has a feature to build a company’s Organizational structure to streamline the reporting process in grouping & categorizing internal organizations as well as Business Units to make it easy to build corresponding financial reports.

Having the organizational structure in place gives the company a discipline as to how the reporting is designed, processed and followed. How the companies are setup including the hierarchy of their placement would clarify the placement of the business units in the system and the organization of the reports.

What is Elimination?

Elimination, by definition, is the act of recording amounts to remove the effects of inter-company transactions. It is the key element to present accurate consolidated financials. Large multi-national companies, or conglomerates use set processes to remove transactions between their inter-companies to present the net effect.

Chart of Accounts

The best part of Dynamics 365 Finance & Operations is its ability to have one set of Chart of Accounts available to use for all of its companies (Parent & Subsidiaries); as well as items & charges. Adding a Chart of Accounts for a needed intercompany transaction is done once. This account is available in each of the relevant companies ensuring that transactions would be uniform & not missed.

However, there are situations where there are several companies involved each with their own chart of accounts. In these situations, Dynamics 365 Finance & Operations has an excellent multiple solutions; from Consolidating online using specific dedicated accounts to Financial Reporting option which includes multiple account linking and mapping consolidation accounts.

Handling Different Currencies in Elimination

The other common challenge for CFOs and Controllers is the handling of multiple currencies. Some companies are required to report their consolidated Financial Statements in multiple currencies. The Financial Reporting is an ideal option to perform several consolidations in multiple currencies. The elimination accounts would be setup in the different currencies to be able to perform this task. In this scenario the Consolidate Online Option has one reporting currency.

So how did our CFO on the above example do?

“For our situation, gone are the days where reconciling Elimination Accounts was a nightmare. “

All elimination transactions are tracked from one set of databases within the system.
Drilling for the source of a transaction is as easy as one click.
Adding an account or an item is no longer complicated as it can be done once at the parent company level ensuring the availability for all accounts.
Consolidation of Elimination Accounts were grouped for clarity

Appropriate currencies and conversion rates are imported once and available for all relevant companies.

“Company C is in the process of being acquired. Adding the new Company’s COA for consolidation in D365 would be a much-streamlined process this time around. “

Eliminating the challenges of Elimination & Consolidations using D365 was truly magical.