This chapter covers the following topics:
We've discussed your organization and how you might represent it in the system, and we've discussed how you can account for it. Let's look at those concepts that help you provide common services to the different entities, maintain consistency in practice, and minimize costs in your operation.
Our applications include many features that enable local operations of worldwide companies. We offer localized features in 120 countries, ranging from statutory reporting through transaction tax calculation and filing to local business reporting - all in the core products. Additional support for newer regulations may be available from our consulting organization.
We assume that you are going to rationalize your operations, that is, to centralize certain activities and distribute others. We recommend deployment on a single instance, or at least, on as few instances as possible.
There are several concepts that are important to understand as you design your internal service network.
Operating units store subledger document data for entities that are separated from one another for transaction tax or other reasons.
Subledger users are assigned responsibilities. A responsibility can be attached to one or many operating units as required, using a feature called "Multiple Organizations Access Control". In a shared service center, users who are employees of the shared center's own legal entity, are given access to operating unites that are owned by the legal entities that the center serves. Users at an Ireland Shared Service Center will be employed by an Ireland Legal Entity and have access to operating unites that represent the United Kingdom, France, Germany, and the United States.
More importantly, Multiple Organizations Access Control also enables automated processes to access the relevant operating units permitted for the process.
Intercompany transactions record transfers of goods and services between related legal entities. Transactions between related legal entities must be tracked and documented for financial consolidation, local compliance, and tax reporting purposes.
The Advanced Global Intercompany System is an extensive and complete system integrating several Oracle products and features including Receivables, Payables, Subledger Accounting, and General Ledger. The system generates both Payables and Receivables transactions.
Advanced Global Intercompany System, together with the Supply Chain Event Management module, Enhanced Drop Ship, provides a complete system in support of "Internal Supply Chain". When a customer of one of your subsidiaries places an order, you can then place orders with your warehouses and plants - each of which will be recognized in Procurement and in Order Management appropriately - and transfer the goods from the originating plant to the subsidiary using comprehensive documentation, both commercial and in-house invoices.
The intercompany feature integrates with other Oracle products that impact the intercompany solution:
Legal Entity Configurator, Trading Community Architecture - Identifies trading partners and their relationships, thereby identifying which transactions are intercompany. Trading Community Architecture is the standardized means of defining various parties and their relationships within the Oracle E-Business Suite.
Receivables, Payables, and Subledger Accounting - Intercompany uses Receivables to produce invoices for the initiator. Once the Receivables transaction is completed, the invoice number is then automatically used to create mirror-image invoices in Payables.
Subledger integration is an important feature of intercompany functionality that allows you to create a physical invoice for an intercompany transaction in both Receivables and Payables.
General Ledger - Intercompany transactions that do not require an invoice can be processed directly in General Ledger.
The Intercompany engine also supports the following features:
Centralized Intercompany Accounts Definition: This enables all modules to access accounting definitions in a standardized manner.
Multiple Ledger Batches: Batches of intercompany transactions can be entered and addressed to multiple recipients with no restriction on the chart of accounts, currency, or calendar. Thus, the initiator and the recipients of the intercompany transactions in the batch can all use different ledgers. This is a powerful feature and enables the processing of global intercompany transactions with fewer overheads.
Reconciliation and Reporting: Intercompany provides reconciliation tools to sort out any discrepancies in accounting balances between the intercompany organizations. Using the reconciliation tool, you can view the intercompany out-of-balance accounts, drill down to the details of the subledger accounting and documents. The online reports use XML Publisher technology so the layout is fully customizable and can be downloaded to desktop tools for further analysis.
Desktop Integration: Intercompany transactions can be uploaded using spreadsheets via Oracle Web Applications Desktop Integrator. This feature also allows you to process recurring transactions easily.
The Advanced Global Intercompany System serves as a hub for streamlining intercompany transactions - from creation all the way through their ultimate reconciliation and closing. The application allows companies to comply not only with local regulations, but also with established corporate-wide standards for processing intercompany transactions between subsidiary legal entities.
Tip for Existing Oracle Financials User
The Advanced Global Intercompany System is a substantial redesign of the earlier intercompany system. It exploits legal entity, ledger, and accounting features not previously available and is more tightly integrated with the subledger products.
In addition to Advanced Global Intercompany System, the Oracle E-Business Suite provides intercompany support with standard intercompany balancing in General Ledger journal vouchers and Subledger Accounting. These particular intercompany features are within Oracle General Ledger and Oracle Subledger Accounting; they do not make calls to other modules such as Payables, Receivables, or Procurement:
You can create generic balancing lines against the intercompany accounts that you have defined for specific sources of transactions.
Enhanced intercompany balancing in General Ledger journal vouchers and Subledger Accounting:
You can define separate intercompany accounts to record more detail for your intercompany journals and track intercompany balances.
Clearing Companies:
For certain types of intercompany transactions, you can designate one company to act as the trading partner for all subsidiary companies in the organization. For example, company 01 among your subsidiary companies can provide the accounts payable function for your entire organization. All accounts payable transactions then clear through company 01.
When you create a clearing company like this, you can consolidate the accounts payable activities for the entire company as well as automatically balance multi-company intercompany transactions. Use enhanced intercompany accounting or the intercompany segment to implement the clearing company model and track the amounts that each individual subsidiary owes to each of the other subsidiaries.
Intercompany Segment:
You can create an intercompany segment in your chart of accounts structure that is used to create balanced intercompany journals. Set up the ledger to automatically populate the intercompany segment with the balancing segment value of the trading partner. Intercompany transactions using the intercompany segment provide more detail for reporting and reconciliation.
Intercompany accounts can be represented in multiple ways:
Detailed intercompany account balances are maintained in both the subledger and general ledger. In this mode, intercompany accounts are disclosed in detail in the trial balance.
Detailed intercompany accounts are included in subledgers and a summarized form is transferred and maintained in the general ledger as intercompany control accounts.
Intercompany Clearing Companies as described earlier.
In all cases, a fully automated intercompany system is critical to ensure that all intercompany account totals across the columns are equal to zero. When consolidating financial results, you create eliminating entries to exclude the impact of intercompany transactions.
Automatic intercompany eliminations are accommodated in both the Global Consolidation System and Oracle Financial Consolidation Hub. Both modules can be set up to pick up the intercompany balances, populated by either the intercompany engine or by recurring journal entries, and subsequently eliminate them. This automation can save you days in the close process.
The Global Consolidation System elimination functionality can be deployed in a ledger set environment to enhance the ledger set aggregation and reporting.
Nations, states, and federations around the world derive substantial parts of their income by taxing business transactions. A major part of your operating cost is compliance with various rules and regulations. We help you to meet this obligation by creating a transaction tax engine that facilitates focus of the control issues where your experts are and allows the software to support the tax calculations even at locations far remote from the taxing jurisdiction.
There are many kinds of transaction taxes, including Sales Tax, Value Added Tax (VAT), Goods and Services Taxes (GST), and Customs Duties. Your tax experts will rapidly familiarize themselves with the details of the tax engine. The engine includes the following features:
A database of rules and regulations that are maintained and populated by your experts and advisors as the regulatory environment evolves. This database reflects the taxing jurisdiction: New Hampshire's sales tax rules are quite different from Nevada's.
A database of rates that are updated when the rates are revised. You can buy and import rate changes from rate vendors.
Integration with Trading Community Architecture for your customer details, including the location of the ship-to addresses and integration with your vendor files.
Integration with your operating unit and other organization records for the location of your shipping organizations.
Integration with the product hierarchy for product codes and description.
A subledger product that requires a tax calculation on a business document invokes the engine and supplies it with appropriate data as to customer and vendor, ship-to and ship-from addresses, nature of goods or service providers, and so on. The engine determines the jurisdiction and the taxes involved, and returns the detail to the product to be included on documents.
The engine supports worldwide taxes. In addition to basic sales tax, VAT, and GST, the engine supports:
Use tax
Cross border shipments
Rebates and returns
Tip for Existing Oracle Financials User
The E-Business Tax Engine is new for Release 12. It succeeds the functionality provided by Tax Codes.
While a company may choose to store invoices in different OUs, it should be able to use its money in the bank to service any invoice it owns.
We've modeled our bank account support around this concept. A bank account is owned by a legal entity, accounting for the balance in its ledgers. At the same time, the funds in that account are available to different operating units for assignment to invoices or payable items.
Subledger accounting ensures that all OU transfers are accounted for both legally and accurately. The model supports zero-based balances, notional-zero based balances, and other international bank product offerings.
A shared service user with Multiple Organizations Access Control can select invoices stored in different operating units, combine them into one bank instruction, and send them to the bank for issuance.
Tip for Existing Oracle Financials User
In Release 12, your internal bank accounts are associated with legal entities rather than sets of books or ledgers within ledger sets. This facilitates sharing the bank account over various operating units.
Customer and supplier bank accounts are now in the Trading Community and can be shared.
Ledger sets are used to manage ledgers, including opening and closing of periods and running reports. Ledger sets support adjustments and allocations and specifically support adjusting ledgers. This separation of ledger data and ledger management is designed to support the creation of ledger shared service centers and of moving ledgers into sets that are centrally managed.
XML Publisher facilitates the production of reports using templates applied to extracts. The resulting reports are published in many formats and can be securely distributed electronically in several different ways.
Together, this facilitates the creation of reporting shared service centers. Not only is this a low cost solution to reporting, but it can help to assure that management everywhere is reading from the same page.
Together, these approaches and modules, supported by transactions and process initiatives in individual products, constitute an excellent architecture that you can apply to focus your activity to tightly support the financial functions, while covering the whole organization, and distributing solid decision oriented information.