Statutory reporting requires the presentation of consolidated financial statements. Consolidated financial statements are the "Financial statements of a group in which the assets, liabilities, equity, income, expenses and cash flows of the parent (company) and its subsidiaries are presented as those of a single economic entity" (IAS 27, IFRS 10). So consolidated results are the aggregation of the results of the reporting company (a legal entity) and the companies that it owns either directly or indirectly (all of which are legal companies). Notably, consolidated results are NOT the aggregation of the previously consolidated results of other holding companies.
Financial Consolidation and Close provides for a consolidation process through a combination of the Entity, Consolidation and Currency dimensions. The structure of the organization in the Entity dimension can be represented in a multi-level hierarchy. When this is the case, the consolidated results at any parent member that is not the immediate parent of the legal entities, must generate the same results as if the member was the immediate parent of those legal entities.
Data is introduced to entities in an Entity Input Consolidation dimension member, at Entity Currency. Entity Input is a child of Entity Total and has two siblings, Entity Consolidation and Elimination Adjustments, but these siblings are only valid at a Parent Entity level.
In a multi-currency application for all entities with one or more parents, the data in each of the children of Entity Total is translated to Parent Currency. If the currency of the Parent Entity is the same as that of the Entity, then an exchange rate of 1 is applied. Otherwise, either the Average Exchange Rate or the Ending Exchange Rate is applied depending on whether the Time Balance property of the account is Flow or Balance respectively. The translated data is posted to the Parent Currency member for each of the base members of Entity Total.
Entity Total / Parent Currency aggregated data then provides the source data for consolidation to the contribution to the Parent entity. All data is proportionalized to the Proportion Consolidation dimension member. A factor (multiplier) is applied to each data value. The factor applied is the Consolidation % defined for the specific Entity / Parent combination. All data at Entity Total / Parent Currency is proportionalized except for the Opening Balance Movement dimension member. Opening Balance is always carried forward from the Closing Balance of the prior reporting period for each level in the Entity / Consolidation / Currency dimensions. Note that the prior period from which the Closing Balance is drawn is dependent on the reporting view. For the Periodic View, for example, Opening Balance is drawn from the Closing Balance of the prior period / month, while for the Quarterly View, Opening Balance is drawn from the Closing Balance of the prior quarter.
In addition to proportionalization, some Entity Total / Parent Currency data is eliminated or adjusted as required by consolidation logic. Any data that is required to create elimination or adjustment entries is multiplied by an appropriate factor and posted to the Elimination Consolidation dimension member. Multiple elimination and adjustment entries will usually be created from the Entity Total / Parent Currency source entries, and will be grouped into balanced sets of entries, constituting a Consolidation Journal entry.
Proportion and Elimination data then aggregates to the Contribution member. Additional data can be entered to the Contribution Input member and aggregates with Contribution to the top level Consolidation dimension member, Contribution Total. Contribution Total of each Entity/Parent combination then aggregates with Contribution Total of sibling entities into Entity Consolidation/Entity Total of the parent entity.