|Oracle Financials Concepts Guide|
Part Number E13424-03
This chapter covers the following topics:
The Oracle E-Business Suite enables fast and efficient business processing, at low cost, for all of your business flows:
Provides volume output of your bookkeeping and paperwork from base transactions to General Ledger.
Displays data on application pages and reports designed to give both executive and middle management the intelligence needed for daily decision making.
Product level document oriented data is stored and secured in operating units by document processing modules. From there, it is accounted for in ledgers and ledger sets that are mapped in different ways based on a system representation of your organization. You can use a chart of accounts to tag the data with characteristics that are important to you.
As discussed in the chapter for Organizational Models in Oracle Financials, ledger balances derive their meaning from four characteristics:
Chart of accounts
We'll examine each of these in detail. The fundamental idea is that a balance on an account at a certain date is expressed in a currency and complies with your definition of that account.
The segments in the chart of accounts can be summarized as follows:
There are three mandatory segments: natural account, balancing segment, and cost center.
The balancing segment reflects organizational units, both legal and management.
The cost center is generally aligned with the department structure used in your human resources application.
Other segments are used for product hierarchies, project codes, or channel analysis - whatever you wish to track.
To make most use of our intercompany functionality, it is advisable to use one segment (not a balancing segment) to mark the corresponding intercompany entity. This will make intercompany reconciliation and elimination easier, both in General Ledger or Financial Consolidation Hub. Validation rules and security rules are created and managed using the various segments.
Oracle Daily Business Intelligence uses the combination of balancing segment and cost center to summarize data in portlets and portals.
All products that perform accounting derive the account code combination identifier (CCID) using Oracle Subledger Accounting and write a full entry for each business event. These entries are optionally summarized and posted on your schedule (for example, can be posted immediately or monthly) to the ledger.
We recommend that you consider a standardized approach to accounting for your organization in the Oracle ledgers by using a global chart of accounts.
A global chart of accounts is a designated account structure format and set of values that all entities in a group will use. Some values within the segments will differ according to local requirements. However, each segment is designated for a specific use and therefore is consistent in its function across all ledgers.
A global chart of account facilitates standard business analysis: apples to apples performance reporting:
Facilitates sharing of ledger services and reduces reporting risk mitigation costs.
Enables account derivation in intercompany and cross legal entity situations.
Eliminates mapping and data rework on consolidation.
When several ledgers share the same chart of accounts, they can be combined into a ledger set. A ledger set can aggregate the results and data of many operations using individual ledgers. You can drill from ledger set balances to transaction data, and you can report on a ledger set as one ledger.
There are several steps that you can take so that your Global Chart of Accounts can be deployed and used in many countries.
Several countries use a mandatory national chart of accounts that specify account numbers or values that you must put in an account segment. Depending on the complexity of your business, we provide several ways to accommodate national charts:
You can create a national chart of accounts that can be deployed in a National or Alternate segment of your Corporate Chart of Accounts, and mapped to the corporate accounts. We provide French and Colombian charts that can be deployed in this way.
You can set up a ledger using your corporate chart of accounts and make it your primary entry book. Use this with a national chart of accounts in a secondary ledger.
Or you can set up a ledger to accommodate the national chart of accounts and make it your primary entry book. Use this with a corporate chart of accounts in a secondary ledger.
In both cases, Oracle Subledger Accounting can populate both ledgers appropriately and simultaneously.
You can create a corporate book using your corporate chart, and use Oracle Financial Consolidation Hub to link and map National bookkeeping to it.
Or you can consider creating a consolidated book using the national chart, and use Oracle Financial Consolidation Hub to link and map your corporate bookkeeping to it.
Ledgers have a definitive currency used to construct the balances and can accommodate an infinite number of transaction denomination currencies. The transactions, activity, or balances can be valued in other currencies in several different and sophisticated ways.
Our currency handling offers flexibility in how you comply with International Accounting Standards (IAS 21) and Financial Accounting Standards (FAS 52):
Both standards define "translation" - converting all balances at various definitions of the current rate - as the method you must use to convert the results of an overseas operation that operates as an investment (independent business) from their accounting currency to the reporting currency.
Both standards define "remeasurement" - certain non-monetary balances are converted at a rate from the day you acquired them - as the method you must use when the overseas operation is tightly integrated with the parent business.
Both standards use the term "functional currency" as the test for integration. When the overseas business shares its functional currency with the parent, it is integrated and must remeasure when its bookkeeping currency is different
The Oracle E-Business Suite provides several ways to obtain a parent currency view of overseas operations. You can choose to deploy them depending on your overseas operation's circumstances:
Translate or remeasure overseas operations in Oracle Financial Consolidation Hub. Financial Consolidation Hub can see the data in many ledgers and includes several currency conversion functions by asset, liability, and income statement balance.
Translate or remeasure ledger balances in a traditional way using Oracle General Ledger. General Ledger Translation stores translation rules that are applied to balances in a ledger.
Translate or remeasure both ledger balances using the reporting currencies feature.
Convert subledger activity, ledger activity, and balances (only) using the reporting currency feature on subledger transactions.
Use the Multiple Ledger feature to create accounting in a different currency and under a different accounting convention.
Together with the General Ledger Currency Revaluation feature, you can configure any of these alternatives to comply with your Generally Accepted Accounting Principles (GAAP) currency circumstances. Revaluation facilitates "truing up" from daily rates to current rates in any ledger, from daily to average if you interpret the standards as preferring an average on the income statement, and adjusting non-monetary assets to appropriate historical rates.
The first two approaches, Translation within Financial Consolidation Hub and General Ledger Translation, are balance based methodologies that you can use in situations where you wish to perform a traditional month end translation as part of the consolidation process.
The third approach, using reporting currencies on ledger balances, provides a very interesting and useful "thick General Ledger" in your parent currency, which provides complete, summarized detail for the overseas operation, without unnecessary detail.
The fourth approach, using reporting currencies on subledger and General Ledger detail, creates currency versions for all transactions in the overseas operation. This is most appropriate when you need to manage the overseas operation closely.
Finally, you can use multiple ledgers to create a ledger that uses a different accounting or a different accounting convention to the original ledger. This provides a very direct remeasurement result. You can use revaluation in such a ledger to bring balances to the current rate. You can also deploy any of the other approaches against the balances in such a reporting ledger.
To accomplish these options, it's useful to discuss currencies using the terms in the following sections.
Transaction currency is the currency of denomination for a transaction document. We sometimes refer to this as the entered currency. When an item is denominated in a currency that is different than the local accounting currency, you might think of this as a "foreign currency" item.
Transactions that are entered in currencies other than the accounting currency are automatically valued and recorded in the accounting currency using conversion rates that are stored in daily rate tables. Gains and losses based on changes in the exchange rates are calculated at settlement. Revaluation is calculated at the various dates on which you need to record unrealized exchange gains.
The currency used for accounting and reporting in a ledger is called "the ledger primary currency", although it is often referred to as the ledger's accounting currency.
A primary ledger interfaces closely with the economy in which the entities that are using that ledger are trading. For example, your local banks issue bank statements that tie to the ledger. You account for local employees' payroll, in local currency, in the primary ledger. Local contractors and vendors are reimbursed in local currency. For these reasons, we recommend that the primary currency of a primary ledger be the local business currency.
Each ledger must be assigned a primary currency. Ledgers that are not primary should also have a primary currency.
You may need to report in additional currencies to satisfy management, legal, and statutory requirements. Reporting currencies represent the data of a ledger in other currencies. Reporting currencies reflect the same chart of accounts, calendar, and accounting convention as the primary ledger.
For each reporting currency, you can maintain accounting data at one of three levels:
Balance Level: General Ledger balances are directly converted from the primary ledger currency to the reporting currency using translation.
Journal Level: Maintains General Ledger journal entries and balances in the reporting currency using the General Ledger Posting Program. Each time a journal is posted in the source ledger, the journal is automatically converted to the respective journal level reporting currency based on the journal conversion rules.
Subledger Level: The Subledger Level is the most detailed of the three levels as it maintains a currency representation of your subledger journals, General Ledger journal entries, and balances.
When using the subledger level reporting currency, you will reflect the subledger accounting rules created using Oracle Subledger Accounting. These rules provide instructions on how to convert subledger data entered into the source ledger to one or more subledger level reporting currencies. We ship seeded rules that you can use.
As a general rule, use reporting currencies rather than secondary ledgers when currency is the only difference between the primary ledger and the view that you need of it.
Tip for Existing Oracle Financials Users
Currency support is substantially improved in Release 12. Multiple Reporting Currencies is replaced with Reporting Currencies and Multiple Ledgers. Other currency features are enhanced.
Balance sheets are snapshots of your assets and liabilities at points in time, and income statements are an analysis of the change in your net wealth between each balance sheet.
Each ledger has an accounting calendar, which represents a period of time in General Ledger, defined by a start and end date. You must design your calendar based on your business and management practice. Manufacturing businesses often use calendars with periods and quarters that end on weekends and are equal, for comparability and standards calculation. Service businesses often use the regular calendar.
You can take into account the legal obligations and business operations within each country. Transaction tax reporting and statutory requirements are factors in the design of most ledger calendars.
Other factors may also need to be considered. For example, there is often a need for one or two adjusting periods at year or quarter end to include General Ledger transfers, account reconciliations, adjusting journals, and other period end specific tasks. Some countries have specific requirements such as a closing journal voucher that can be accommodated in an adjusting period.
All Oracle subledgers depend on the General Ledger calendar. You can associate a common calendar with multiple ledgers.
Ledgers reflect accounting conventions. The balance on your "revenue" account has meaning only insofar as it reflects your definition of revenue. In turn, your definition of revenue will reflect your compliance with your GAAP (for example, International Accounting Standards/International Financial Reporting Standards (IAS/IFRS) or United States GAAP), your statutory and regulatory obligations, and perhaps your transaction tax regulation mandates.
We make it easy to construct meaningful balances by posting to the accounts according to easily articulated and controlled rules that are applied to each subledger transaction. The rules are set up in Oracle Subledger Accounting and are assigned to individual ledgers. Groups of rules can be managed in sets that we call "Accounting Methods".
For those situations where you must comply with both local regulation and a parent GAAP, the rules engine allows you to account for a business transaction using different conventions. This support can be tailored to the complexity of the situation, from automatic adjusting entries in the same ledger through completely populated secondary ledgers.
For example, by using two ledgers with the appropriate conventions, a French firm with a subsidiary in the United States (US), can automatically create local bookkeeping in accordance with US principles (in the US primary ledger), but also simultaneously maintain accounting for the same transactions in accordance with French regulations (in a French secondary ledger).
Tip for Existing Oracle Financials User
Accounting conventions were implicit in earlier releases. In Release 12, they are explicit and managed through Accounting Methods in Oracle Subledger Accounting.
Oracle Subledger Accounting is part of the Oracle E-Business Suite and is an accounting service that:
Derives the appropriate accounts to use for individual business events, such as sales, expenses, purchases, and others.
Is in accordance with accounting rules that you establish in line with your compliance requirements.
By means of a broad toolset, allows you to manage the rules, review their effect, and study their application.
Provides a standard means of posting subledger data to General Ledger.
Provides standardized storage for subledger accounting entries and subledger balances.
Is complete with the appropriate detail and in definable formats as needed for various local compliance reasons.
Oracle Subledger Accounting is an open and flexible service that defines and generates accounting for transactions captured by the transaction processing systems in the Oracle E-Business Suite. Each subledger transaction that requires accounting is represented by a complete and balanced subledger journal entry that is stored according to a common data model.
Subledger Accounting can be used to support transactions processed in non-Oracle systems by using Oracle Financial Services Accounting Hub, a separately licensed product designed to account for non-Oracle input.
Subledger Accounting includes a posting engine that sums the contents of the subledger tables and posts them to the general ledger to provide a clear audit trail.
Tip for Existing Oracle Financials User
The Subledger Accounting service is applicable to all products in Release 12 and succeeds other accounting engines including the Global Accounting Engine and AutoAccounting.
Subledger Accounting provides subledger tables and reports designed for compliance and accounting reconciliation, which replace the "distribution" tables for these purposes. Distribution tables in Receivables, Assets, Projects, and Procurement remain available and are deployed for other purposes.
Each type of transaction in the Oracle Financials subledger products has default "distributions" associated with it, indicating how the transaction is distributed within your business. For example, a sales invoice might be distributed over several revenue accounts. You can edit the distribution defaults at the product level. Distribution tables in Receivables, Assets, Projects, and Procurement are populated by reference to the defaults. The default distributions are used by Subledger Accounting as a basis for the accounting of each transaction and are modified by the Subledger Accounting rules when you use Subledger Accounting to amend the accounting impact of the product-supplied defaults.
Oracle Subledger Accounting develops the accounting for each "accounting event" by applying a rule that you have defined for the event. We call the rules "accounting definitions".
Accounting events represent transactions that have a financial accounting impact and require that accounting information is recorded. Examples of accounting events include issuing an invoice and disposing of an asset.
Accounting events are not comparable to system events and programs that update transaction tables; accounting events are events in the real business sphere. Accounting events are captured when transactions are saved in the subledgers.
An accounting definition, or business rule, is similar to this example: If product 'A' is sold and is shipped to a distributor, then book it to account 'AB' with a description of 'ABC' on the journal entry lines. If the same product 'A' is shipped to a direct customer, then book it to account 'XY' with a description of 'XYZ' on the journal entry lines.
You can use virtually all data captured by the Oracle E-Business Suite as points of reference when drafting a rule. Subledger Accounting rules are date effective. The Oracle E-Business Suite, as shipped, includes rules for standard accrual accounting and for cash accounting. You can customize these rules as required or create your own.
Establishing an accounting method or convention for a ledger entails defining subledger accounting rules and clustering them together. Accounting conventions are set up for both primary and secondary ledgers. All subledgers assigned to a ledger inherit the accounting convention from that ledger.
Note: Refer to the Oracle Subledger Accounting Implementation Guide for a comprehensive description of Subledger Accounting.
Flexible journal entry setup enables users to control every aspect of the subledger journal entries that are generated for a subledger transaction. User defined rules, based on data drawn from the subledger transactions, control which types of journal lines are created, how account numbers (CCIDs or "accounting flexfields") are derived, and the contents of the journal entry descriptions.
Different subledger accounting methods are used to satisfy the conflicting requirements implied by corporate accounting policies, local fiscal regulation, and cash basis or business orientated analysis.
Oracle Subledger Accounting enables you to create multiple accounting representations from a single transaction. Using multiple accounting representations, you can populate more than one ledger with subledger journal entries for a single legal entity's subledger transactions. This is a powerful feature as each accounting representation represents an alternate accounting interpretation of the underlying subledger transaction. Each accounting representation can use different charts of accounts, calendars, currencies, and subledger accounting methods.
Multiple accounting representations enable corporations to design and implement global accounting policies independently from considerations that apply to subsidiaries operating in particular countries, or in highly regulated vertical markets. Corporate accounting policies can therefore be designed and implemented without prior knowledge of the wide range of local fiscal regulation encountered in these countries. Of course, if you don't need complete ledgers for a particular overseas operation, you can use Subledger Accounting rules to design automatic adjusting entries and post them to an adjusting segment.
Consider a situation where local transaction tax regulation requires that the "sales account" reflects all billing, but your GAAP, for example IAS/IFRS, requires that you recognize revenue when the customer accepts the product. You can choose one of the following methods:
Method 1: Same Ledger
The seeded regular Subledger Accounting rule, simplified for illustration purposes, suggests that when issuing a sales invoice, in a specified ledger with one balancing segment:
Receivables are debited
Revenue is credited
For example, assume there is a balancing segment "10", "Division 10". We elect to track our management and GAAP adjustments in balancing segment "99", "Adjusting Division".. We modify the regular rule so that, when issuing a sales invoice:
Receivables in segment 10 are debited
Revenue in segment 10 is credited
Revenue in segment 99 is debited
Deferred revenue in segment 99 is credited
A report accessing all segments except 99 will reflect the local filing status. A report accessing all segments including 99 will reflect the GAAP reporting status.
Method 2: Primary and Secondary Ledger
The seeded regular Subledger Accounting rule, simplified for illustration purposes, suggests that when issuing a sales invoice in a specified ledger:
Receivables are debited
Revenue is credited
For example, assume we have Ledger A, "Country Ledger". We elect to account for the same operation under our GAAP rules in Ledger B, "Corporate Ledger". We modify the regular rule so that, when issuing a sales invoice:
Receivables in Ledger A are debited
Revenue in Ledger A is credited
Receivables in Ledger B are debited
Deferred revenue in Ledger B is credited
A report accessing Ledger A will reflect the local filing status. A report accessing Ledger B will reflect the GAAP reporting status.
Subledger Accounting is a service that is invoked by all subledger products in the Oracle E-Business Suite, and provides a standard approach across products for various tasks and system entities.
There is one simple process for transferring data from a subledger to General Ledger.
General Ledger can, optionally, be updated instantaneously by subledger activity.
Subledger transactions have complete accounting articulation. A complete journal entry is written for each accounting event. Each entry is fully described. All debits and credits in the various currencies are scheduled. The entry is numbered and identified, and correlated with the appropriate documents. The account is fully completed for all segments.
Subledger transactions are stored in standardized subledger accounting tables, similar to old fashioned "day books". This greatly facilitates reporting and data management.
There are many detail Subledger Accounting features that are now available to all products: subledger accounting "formatting" options such as the optional suppression of zero lines, optional presentation of entries as negative debits or credits, and others.
Detailed subledger accounting reports and inquiries that satisfy local fiscal and business requirements for detailed reconciliation between subledger transactions and accounting are provided.
Subledger Accounting uses Oracle XML Publisher extensively. Extracts are made from the Subledger Accounting tables and formatted with XML Protocol (XMLP) templates. For example, specific national day books are supported by an extract and a template delivered with the product.
You set up your accounting in Release 12 of the Oracle E-Business Suite by assigning ledgers to legal entities. In other words, you select the ledger that you want to use to account for a legal entity. We provide an Accounting Setup Manager, where you can define the following for each entity:
Ledgers (primary and secondary)
Currencies (primary and reporting)
Many other options
Tip for Existing Oracle Financials User
The Accounting Setup Manager is a new feature in Release 12.
There are two poles to the legal environment that you might want to reflect in your setup.
In some jurisdictions, such as the United States, you might have many legal entities represented as balancing segments in one ledger.
In other jurisdictions, each legal entity will be required to have a ledger of its own.
Around these poles, several other arrangements are also supported.
Certain authorities are focused on individual entities in the legal system and have drafted regulations that require you to deal with each legal entity as a standalone entity. In this situation, you would assign a legal entity one primary ledger. This is appropriate in the following situations:
If the legal entity operates in a country with strict legislative demands. Legal or statutory rules may require a separate ledger for the legal entity and require the entity to maintain its accounting data separate from other legal entities.
If the legal entity has unique primary ledger attributes. In other words, if a legal entity requires any one of the 4 C's (or any of the ledger processing options) to be different from other legal entities, a different primary ledger is required.
Note: The 4 C's is defined as Chart of Accounts, Calendar, Currency, and accounting Convention.
If the ledger requires unique ledger processing options.
Gapless Document Sequencing
Depending on the regulatory and accounting requirements of the countries in which you operate, it may be necessary to set up document sequencing for applications. Some countries impose strict legal requirements for maintaining a distinct and auditable number range for financial transactions.
In the subledgers, gapless document sequences are maintained at the operating unit level. You can create further granularity by creating them with an entity we call "VAT Source", which you can map to real world entities that are stored in that same operating unit. You cannot create a single sequence that crosses operating units in a subledger product.
This very often drives the creation of an operating unit; you will create operating units in regulated countries that correspond to the entities that need to sequence subledger documents.
In General Ledger, document sequences are generated for transactions at the ledger level, that is, all operating units and all legal entities associated with a given ledger will share available General Ledger numbering sequences. In the rare situation that a local regulatory authority requires gapless General Ledger document sequencing and gapless subledger document sequencing, it may be necessary to maintain a one to one relationship between a legal entity, a ledger, and an operating unit.
You can create secondary ledgers to represent the primary ledger's accounting data in a format that will be consolidated with the parent. If you create ledgers for sequence management purposes, use a ledger set so that you can treat them as one for accounting, adjustment, allocation, reporting, management, and consolidation purposes.
Certain authorities focus on groups of legal entities in the legal system - where they "lift the veil of incorporation" - and have drafted regulations that permit or require you to combine legal entities that you control for compliance purposes in a given jurisdiction. This situation will allow multiple legal entities to be associated with the same primary ledger, that is multiple legal entities can share the ledger attributes (4 C's) and ledger processing options of the primary ledger.
This accounting setup is appropriate when each of the legal entities assigned to the accounting setup meets the following conditions:
Operate in a country that allows multiple legal entities to share the same primary ledger, ledger attributes, and accounting options.
Do not need to use different ledger processing options (such as autonomous document sequencing) for each legal entity.
Do not have tax requirements that are specific to a legal entity.
It is also possible to use accounting setups that have no legal entities and do not establish any legal relationship in respect to the primary ledger for that accounting setup. Use this setup to supplement regular accounting arrangements. For example, you can maintain various ledgers for management reporting or consolidation purposes.
We've reviewed how you can set up local organizations and accounting so that you can comply with local and national rules and regulation.
Of course, it is also important that you manage your businesses and account for them to your shareholders on a worldwide basis. We've described several devices that facilitate the development of information from the locally compliant operations that conform to your management principles and applicable worldwide Generally Accepted Accounting Principles:
Global Chart of Accounts
Adjusting Segment Automation and Accounting Rules
Multiple Ledgers, Ledger Sets, and Accounting Rules
Translation and Remeasurement Techniques
Cross Organization Reporting
You can also use our formal consolidation tools.
We use the term Accounting Consolidation to refer, not only to the process of combining financial results of all entities under the ownership or control of common shareholders to create a single statement of financial results in accordance with your GAAP, but also to the process of creating an overview of your operation for financial and business management and for analysis.
You can accomplish this in multiple ways. Oracle Financials uses three tools to execute an accounting consolidation:
Financial Consolidation Hub
Ledgers and Ledger Sets with Financial Statement Generator
Global Consolidation System
Tip for Existing Oracle Financials User
The Financial Consolidation Hub is a new feature.
In Oracle E-Business Suite Release 12, the standard approach to Financial Consolidation is to use the Oracle Financial Consolidation Hub.
Financial Consolidation Hub is a powerful row and column based consolidation tool, with powerful analytic, elimination, equity, adjusting, and currency features. It uses dimensions and hierarchies used by analytical applications (such as Oracle Enterprise Planning and Budgeting) in the Oracle Corporate Performance Management suite. You choose which dimensions to use for consolidation purposes.
You can automatically "push" some or all of the segments of your Oracle General Ledger chart of accounts into the consolidation dimensions. Segment values and hierarchies are copied into Financial Consolidation Hub.
Financial Consolidation Hub is tightly integrated with General Ledger and the subledgers. For example, inquiries and drill-down from the Financial Consolidation Hub reach all the way through General Ledger and Subledger Accounting to the documents in the subledger products. Financial Consolidation Hub also supports ledgers from other vendors.
Financial Consolidation Hub automatically imports data from the ledgers with minimal setup and displays it in columns by business unit. Updates in General Ledger are automatically reflected in Financial Consolidation Hub. If you have turned on the Subledger Accounting simultaneous ledger posting, updates in the subledgers are also automatically reflected in Financial Consolidation Hub.
Financial Consolidation Hub can serve as a bridge between transactional applications and Corporate Performance Management, pulling together financial data from across an enterprise to enable corporate-level analysis and planning. To this end it is also tightly integrated with Oracle Enterprise Performance Foundation and Oracle Enterprise Planning and Budgeting on the analytical application side.
Oracle Financial Consolidation Hub provides advanced consolidation functionality including:
Automated processing: You can automate as much of the consolidation process as you choose, from initial data submission to final reporting and analysis. Financial Consolidation Hub leverages Oracle Workflow to run an entire consolidation process, including translation and eliminations, as well as sub-consolidations.
Non Oracle sources can be imported directly to Financial Consolidation Hub without creating a "ghost" Oracle ledger first, due to the Financial Consolidation Hub base in the Enterprise Performance Foundation.
Audit entries and drill-downs for every stage of consolidation: The application allows you to audit entries from every stage of the consolidation process for every sub-consolidation, subsidiary, and affiliate.
Sub-consolidations: By executing sub-consolidations at any level, you can review fully consolidated financial statements for any relevant subset of the enterprise in addition to the fully consolidated financials for the entire enterprise.
Partial ownership: Financial Consolidation Hub has automated capabilities for handling partial ownership. You can generally define a single rule for all partially-owned subsidiaries.
Simulations: With Financial Consolidation Hub, you can automatically duplicate a consolidation hierarchy, simulate an acquisition on the new hierarchy, and submit a consolidation for the new hierarchy.
Ledgers aggregate the results of entities that you've mapped to balancing segment values and ledger sets aggregate the content of individual ledgers. Both are de facto consolidations. It is useful to distinguish between the following situations:
Consolidate multiple companies within a single ledger.
Consolidate multiple companies that reside in multiple ledgers on the same application instance.
You first enter the appropriate journal entries to eliminate intercompany transactions and perform any other "adjustments on consolidation" that you need. The totals are then ready for reporting
General Ledger includes a reporting tool, Financial Statement Generator. You can use the Financial Statement Generator to create consolidated financial statements at the parent level.
You can include ledgers that share the same chart of accounts and accounting calendar/period type combination in a ledger set. They do not have to share the same currency or accounting conventions. The ledger set totals the included ledgers just as the ledger totals balancing segments. If the ledgers you have included in the ledger set account for legal entities, you will have aggregated those legal entities.
Aggregation is not formal consolidation. You will need to eliminate the intercompany balances, as you do in a single ledger. You can use General Ledger functionality to create these eliminating entries.
You can aggregate ledgers in a ledger set even when they have different primary currencies, using three techniques:
Translation: Run General Ledger Translation in the subsidiaries' ledger using translation or remeasurement as required, and then define Financial Statement Generator reports across ledgers using the "Translated" currency type.
Reporting Currency: If you use journal or subledger level reporting currencies, you may be able to bypass the translation by directly consolidating the subsidiary reporting currency with your parent ledger.
Secondary Ledger: Map your primary ledger that complies with local accounting requirements to a secondary ledger that shares the corporate chart of accounts, calendar, and currency. Next, include the secondary ledger in the ledger set for consolidation.
Though ledgers and ledger sets with Financial Statement Generators can adequately meet the needs of your enterprise, both Financial Consolidation Hub and Global Consolidation System are more formal.
When your financial data is spread across multiple ledgers that do not share the same chart of accounts and accounting calendar combination or the ledgers are on separate instances, consider using the Global Consolidation System within Oracle General Ledger to consolidate results.
Global Consolidation System uses a "Data Transfer Consolidation" methodology where you move your financial data from diverse ledgers and data sources into a single consolidation parent ledger. You then report on and analyze consolidated financial information from this consolidated ledger. Use the Global Consolidation System in situations where you need to physically move the data to a consolidated location rather than simply report off multiple ledgers in a set.
Global Consolidation System is the traditional consolidation methodology in Oracle Financials. The Global Consolidation System imports, in the form of balance and journal level vouchers, appropriate accounts from the trial balances of subsidiary ledgers. The Global Consolidation System consolidation function includes a number of other features:
Sophisticated consolidation mapping rules to map accounts and specify transfer rules from the subsidiary to the parent. The mapping rules determine how your subsidiary account balances roll up into the parent. As in Financial Consolidation Hub, the ledgers involved in Global Consolidation System do not need to share any attributes.
A workbench to view the consolidation status of your subsidiaries and a Consolidation Hierarchy Viewer to graphically display your consolidation structure.
Automatically generates journal entries to eliminate intercompany balances based on rules you define. This is based on automatic recurring entries that are defined in the General Ledger module.
Use of specialized tools including:
The Interface Data Transformer (IDT). This is a user-friendly tool that makes data import from external feeder systems into Oracle General Ledger and the Global Consolidation System easier and less time consuming.
The State Controller: A color coded navigation tool to guide you through the consolidation process.
The consolidation systems are not mutually exclusive. You can include a Global Consolidation System ledger in a ledger set and incorporate its result in a super set. Financial Consolidation Hub can draw data from ledger sets and from Global Consolidation System ledgers - and the drill-down remains valid.
You can transfer data from a ledger on one instance to another instance for consolidation, either using Global Consolidation System or Financial Consolidation Hub.
Copyright © 2006, 2010, Oracle and/or its affiliates. All rights reserved.