What is consolidation software?
Financial consolidation software automates and simplifies the process of creating consolidated financial statements.
For large and global organizations, consolidation software imports financial data from all entities. Consolidation software also maps general ledgers to a single chart of accounts and normalizes consolidated data according to regulatory rules and requirements. In the case of global businesses, consolidation software will also roll data up into the group’s common currrency.
Why is consolidation software important?
Consolidation software is essential for larger complex companies.
Excel-based spreadsheets do not facilitate the collaboration large companies need to consolidate vast amounts of data at the legal-entity and group-level.
Consolidation software connects disparate parts of an organization.
Best-in-class consolidation software enables companies with complex ownership structures to define legal entities and reporting units and determine hierarchies.
Consolidation software allows you to compare entity performance.
Consolidation software makes it easier for organizations with complex, global organizational structures to manage multiple currencies, mergers and acquisitions, and accounting standards like IFRS and GAAP and roll data up to the group level. What’s more, consolidation software also gives finance an aggregated view of consolidated data that teams can use to compare entity performance line by line.
What capabilities should consolidation software give you?
Consolidation solutions should give you the ability to:
- Perform intercompany matching and eliminations
- Define control groups between main accounts
- Define legal entities
- Convert currencies and interest rates
- Manage legal structures
- Automatically generate reports
How to use consolidation software?
Consolidation software is most effective when organizations deploy it as a part of a greater corporate disclosure management system. This way, consolidated data is connected to other financial processes. When consolidation, budgeting, planning, modeling, and reporting connect to a single data set, all members of the organization can be sure they’re reporting and strategizing using the most accurate information available to them.
How to improve consolidation:
- Ensure the consolidation software you have uses financial intelligence so you can automate calculations, retain and original convert currency information and interest rates.
- Perform all intercompany eliminations in a single, automated cockpit.
- Get the ability to perform multiple consolidations simultaneously.
- Connect consolidation to all other financial processes, like close, disclosure, reporting, planning, budgeting and forecasting.
- Make sure the consolidation solution you use can be easily configured to match your unique consolidation structure, without custom scripting or heavy IT requirements
What challenges does modern financial consolidation software solve?
Multiple manual data uploads and data exports:
Users of legacy and spreadsheet-based consolidation systems often encounter system fragmentation issues where account data is spread across many internal systems. Consolidating that data becomes a complex manual process of collection, normalization, calculation, and finally reporting. When completed by members of your finance team, each of these transition points exposes information to errors. All it takes is a misplaced decimal point or an extra zero for an error to cascade through consolidation and into regulatory reports.
Modern financial consolidation software, like CCH Tagetik, centralizes data from all sources enterprise-wide, eliminating the need for manual imports, exports and any human intervention during roll-ups and calculations.
Slow processing:
Legacy consolidation systems weren’t built to handle the massive amounts of data coming into today’s organizations. Ultimately, processing currency translations, rolling up sub-consolidations, or reformatting local GAAP to multi-GAAP or IFRS is excruciatingly slow, if not impossible. Heavens forbid last minute changes come through.
Oftentimes, even commonplace tasks — like adding a new ownership structure or a new KPI calculation — need to be custom built and effectively slow down the consolidation system even further.
Eliminating buffering and time spent staring at the spinning wheel, financial consolidation software systems are built with high-powered processing engines that manage massive volumes of data quickly.
One-dimensional reporting:
Legacy and spreadsheet approaches to consolidation hamper efforts to answer spontaneous, high-consequence data questions. That’s because your ability to generate quick data-driven insights is only as good as the data depth you can explore. Access to diverse data sets alone isn’t enough. Without the ability to slice, dice, and drill into granular data that crosses departments, business units, financial and operational lines, the data driving decision making will always be one-dimensional.
Modern consolidation reporting software integrates with reporting functionality so that consolidated data automatically flows into reporting templates. This data should also be explorable. Modern software should provide you access to the granular details to drive performance transparency.
IT maintenance:
As data grows and compliance demands intensify, legacy and spreadsheet-based systems are unequipped to handle the complexity required to manage that volume of information. Legacy systems, in particular, would require IT to step in and modify and build out the software in order to satisfy new requirements. If the product is no longer under maintenance, IT has their work cut out for them.
Modern consolidation software is maintained by the software vendor. Cloud solutions should update automatically with no downtime, no glitches, and no custom patches required.
Misstatements:
Misstatements most often occur when information systems fail to accurately capture business transactions, or when financial reporting processes are not adequately aligned with the requirements in the applicable financial reporting framework. Consolidation has many points that are vulnerable to error:
- New reporting requirements
- Currency translations
- Roll-ups from sub-group to group, child to parent company, one accounting system to the next
Modernized consolidation software reduces the possibility for error by eliminating points of human intervention and data movement. Automation ensures that data is consistent, even as it is aggregated and translated into different currencies.