2 Areas To Identify If Your Consolidation Process Is Efficient
2 Areas To Identify If Your Consolidation Process Is EfficientBy Sam Cheo, Managing Director, Sigma Conso Asia
Consolidation can be a time-consuming process. Yet, consolidating is at the heart of your company’s financial communication. It has the potential to give insights to your company’s management to allow them to manage the company’s financial performance before a problem surfaces. Thus, it is crucial for companies to leverage on the consolidation process to create value, rather than see it as an additional redundant step.
Optimizing The Consolidation Process
One of the way to leverage on the consolidation process is to ensure that the process is optimized. With an optimized consolidation process, account closing time can be greatly reduced and enable your company to meet more frequent closing dates (e.g. from quarterly to monthly). With the growing need for centralized reporting and database to aid business decisions, an optimized consolidation process can help your company meet the need for relevant quality business information. In particular, for businesses that are continuing to grow, optimizing your company’s consolidation process will establish a strong foundation to deal with your growing business.
Two Areas In The Consolidation Process That Are Often Inefficient
The consolidation process is broken up into two main categories: (1) Data Collection And Processing and (2) Producing Of Financial Reports.
Data Collection & Processing: Manual Process; Lack Of Standardizations And Data Validation Tools
Data collection refers to the collection and integration of data from multiple sources into a single destination, i.e. from subsidiaries to the parent company. The next step following data collection is to process the data that is collected from the subsidiaries. This includes reconciling intragroup transactions, creating eliminating entries and implementing quality indicators.
The typical suspect of an inefficient consolidation process lies in the way companies collect data from their subsidiaries. While it might seem like a small issue, the lack of a defined set of consolidation charts of accounts could lead to bigger issues. For example, when there isn’t any defined set of rules and formats, additional time will be spent manually translating subsidiaries’ books to fit the GAAP of parent’s books.
To tackle the issue of an inefficient data collection process, a well-defined set of consolidation charts of accounts is the first step towards an optimized consolidation process. This involves designing, setting up and aligning the subsidiary and parent company’s charts of accounts with appropriate mappings. This is where CPM software comes in to play a vital role in the consolidation process.
CPM software prompts users to design the appropriate mappings that need to be followed throughout the consolidation process. With clearly defined rules and steps on how subsidiaries’ accounts map to the parent company’s accounts, automatic entries can be performed for the group level through the CPM software. This reduces the need for manual consolidation. At the same time, CPM software can also provide assurance for the company’s data integrity.
Churning Of Consolidated Reporting: Manual, Instead Of Automation
The final and most important step of the whole consolidation process is to make use of the available financial data to make good business decisions. This involves producing consolidated reports that can meet the company’s internal and external communication. However, given the different needs of different stakeholders, the range of formats required could vary a lot. It might not be as simple as producing ONE consolidated report, but rather a variety of reports to meet the company’s legal and management requirements.
And this is the main area where inefficiency kicks in. A number of companies are still resorting to the manual process of producing their consolidated report every quarter, which can be very inefficient. If the consolidation process is not automated, man-hours need to be spent on reformatting the data into different formats so that different stakeholders will be able to use the financial information for their own needs.
The best way to reduce this inefficiency is to automate the process of producing a consolidated report. With the right corporate performance management (CPM) software, consolidated reports can be produced without additional man-hours spent. Furthermore, stakeholders can choose the relevant information that they want to be included in their respective reports with the click of a button. Overall, this can improve the quality of reporting that is able to meet the needs of the company’s stakeholders.