Statutory consolidation and reporting: unified consolidation
By Allen White, Sigma Conso co-founder & Administrator
Since the 1990s, most groups have tried more or less successfully to unify their statutory accounting and their reporting within the same software, often with barely concealed uneasiness, in order to more easily reconcile projections and reality.
Although consolidation software now handles this dual difficulty fairly well… the unease subsists.
We believe that the issue is not at the software level, but with the groups which don’t necessarily work with the objectivity and rigour required because resources have to be allocated to reconcile numbers from different sources. Is this the case?
A few observations will provide a better illustration than a long explanation of the true difficulties that groups we recently met with, consciously or unconsciously, create for themselves.
- Statutory consolidation provides each company with the consolidation method it needs, but reporting has a preference for proportional integration of the entire perimeter.
- In reporting, charges and currency income for the month are converted using a rate for the month then accumulated whereas in statutory consolidation these same amounts are first accumulated in currency then converted using an average annual amount. The two transactions are obviously not commutative and this surprises some people!
- Reporting doesn’t include all of the statutory consolidation adjustments, but manages adjustments that statutory consolidation ignores.
- Reporting frequently uses aggregates whereas statutory consolidation requires more detail. Is this a reason to work from two different chart of accounts?
- The perimeters of statutory consolidation and reporting aren’t always matching sets.
- Reporting uses business units. In this case, does grouping the business units of a legal entity really provide its numbers as used at the statutory consolidation level?
- Statutory consolidation is established according to IFRS rules, but certain companies in the perimeter use non-IFRS standards for their forecasts.
- While statutory consolidation applies the usual rules rigorously, notably the calculation of third-party interest and currency conversion differences, reporting doesn’t always include this level of detail.
So, can statutory consolidation and reporting be reconciled? As surprising as it may seem, there are many examples of this type. The challenge for unified consolidation over the coming years is no longer to improve consolidation software. What sophisticated solution could software provide to such irrational situations? Once again, whether we are talking about statutory consolidation or reporting, or both in a unified vision, it isn’t up to the software to unify. The information system must provide unified structure, content and processing.
This is a matter for group organisation, a major change in habits and cultural changes. It is no longer a purely technical problem which makes it much more difficult. However, success will result from this change in mentality.
Articles in the “Future of Consolidation” series:
- The structure of the data to consolidate and processing in consolidation
- The reconciliation of intercompany balances: is there hope?
- IFRS and local GAAP
- Statutory consolidation and reporting: unified consolidation
- Group structure
- Financial communication
- Impact of future technological changes on consolidation