The Companies consolidation processes are a frequent challenge that we face with ERP implementations. As an example, some companies have different subsidiary companies in Latin America, for this reason we need to create not only separate entities, but also separate charts of accounts. For example, in Colombia there is a mandatory COA structure that has to be managed to comply with statutory regulations. In short, this is a common request for companies.
There are numerous procedures to properly accomplish company consolidation within Microsoft Dynamics 365 Finance and Operations, such as the usage of additional tools like Management Reporter.
In this article I will focus on the Online Company Consolidation capability in Microsoft Dynamics 365 Finance and Operations and how to efficiently implement it.
What does online consolidation entail?
In order to properly report financials, we need to consolidate multiple charts of accounts across legal entities. Our customers generally have a corporate or Global COA that has been mandated by the home office which will serve as the consolidated financial reporting account.
To be able to utilize Microsoft Dynamics 365 Finance and Operations consolidation feature you must create a consolidation entity for consolidating transactions into the statutory or the global chart of accounts (this will depend on which accounts we want to visualize on reports).
Furthermore, entities will live alongside all the other legal entities within the system.
These are some of the core benefits of using online consolidation:
1. Maintain consistency across multiple countries by posting the original transactions into a global template.
2. Consolidate the legal entity into two different consolidation companies. One consolidation company to support the statutory chart of accounts. Since the transacting legal entity has the same global template, you can be consolidated up for reporting along with other legal entities in the enterprise. This will also support eliminations in the enterprise roll up.
3. By doing the consolidation via online consolidation instead of via MR, the transactions will exist in the consolidated legal entity in Microsoft Dynamics 365 Finance and Operations to feed Power BI and other reporting mechanisms.
We can map the statutory accounts to the global chart of accounts in the consolidation account field (we’ll review this later). When performing the online consolidation, we can select an option to use consolidation accounts. In this order, Microsoft Dynamics 365 Finance and Operations will move the transactions to the accounts setup in the COA for the consolidation company. It is very common to have more than one source account merge into a consolidation account.
How to setup the Online Company Consolidation in Microsoft Dynamics 365 Finance and Operations?
Now that we’ve discussed an overview of online consolidation, we can get into the setup required to properly manage this process within Microsoft Dynamics 365 Finance and Operations.
1. Create consolidation entity
To create a consolidation entity, we have to access in Organization administration > Organizations > Legal entities.
Then we click on New and Mark the company as:
– Use for financial consolidation process.
– Use for financial elimination process (Use this if your company manages intercompany transactions).
Finally, we add the entity into organization hierarchy.
Since this is a legal entity as any other, there are some configurations that we need to do as if it would be a transacting entity:
1. Generate number sequences
First, go to Organization administration > Number sequences > Number sequences. Then, click on Generate and follow the wizard.
2. General ledger parameters
In order to configurate this parameter we have to click on General ledger > Ledger Setup > General ledger parameters. Then, click on Batch transfer rules and change transfer mode to Synchronous. This option allows us to immediately transfer source document subledger journal entries to the general journal.
3. Ledger setup
Initially, we have to click on the consolidation and elimination entity to configure ledger parameters. For this purpose, select General ledger > Ledger Setup > Ledger.
In this scenario, we have to take into consideration the COA we want to report in before setting up the ledger for the consolidation entity. Also, remember Microsoft Dynamics 365 Finance and Operations will create all reports by default with the accounting currency we set up here.
4. Number sequence
Go to the consolidation entity and create a number sequence for elimination journals. We can do this at Organization administration > Number sequences > Number sequences.
5. Journal name
We will use an elimination journal if our companies manage intercompany transactions. This journal will remove the additional entries that were created when posting intercompany transactions. To start with the configuration, we go to General Ledger > Journal Setup > Journal Names and click on New.
6. Accounts for automatic transactions
For the purpose of configurating this parameter, we click on General Ledger > Posting Setup >Accounts for automatic transactions. As soon as we have selected this option, we need to configure accounts for these transaction types:
- Penny difference in reporting currency.
- Error account.
- Penny difference in accounting currency.
- Year-end result.
- Balance account for consolidation differences.
- Profit and loss account for consolidation differences.
7. Consolidation accounts
As a part of the consolidation process, we have to map consolidation accounts to their corresponding statutory account. For our example, we need to consolidate from our local accounts to our global accounts (previously we set up the global COA as the COA to be used in our consolidation company). Thus, we need to select each company we want to consolidate and enter the consolidation account, or our global account.
For this, go to: General Ledger > Chart of accounts > Accounts > Main accounts. Select every account and map to the global COA.
• Global COA:
• Local COA:
At this point, we will have completed our setup of the consolidation legal entity and we are now ready to consolidate our balances.
Next, I’ll show you how the process works:
If you were familiar with the consolidation process in AX 2012, then you’ll be surprised (as I was) to find that we no longer will find the consolidation options within the general ledger module. Instead, we will access to its own separate module.
In first place, we have to click on Consolidations > Consolidate Online.
Here, we will access to the core options to create our consolidations. We have to be very careful when selecting every option to get accurate results.
a. Main account: select the accounts that should be included in the consolidation. If we don’t select an account range, Microsoft Dynamics 365 will show us all charts of accounts.
b. Use consolidation account: if we set this option to Yes, the select consolidation account from field becomes available. In this field, select whether all accounts should be merged to the consolidation account that is set on the Main accounts page, or whether we want to select the account from one of the consolidation account groups.
c. Consolidation period: select the range of dates for the consolidation.
d. Mark the gap for Include actual amount and Rebuild balances during consolidation process.
2. Legal entities: select the legal entities that should be consolidated.
3. Currency translation: On the Currency translation tab, we define the legal entity, account and exchange rate type, and rate. Then, three options are available in the Apply exchange rate from field:
• Consolidation date: we will use the consolidation date to get the exchange rate. This rate is equivalent to the spot or month-end rate. We will see a preview of the rate, but we can’t edit it.
• Transaction date: in this escenario, we will use the date of each transaction to select an exchange rate. This option is most often used for fixed assets and is often referred to as a historical rate. We can’t see a preview of the rate, because there will be many rates for the various transactions in the account range.
• User defined rate: after we select this option, we can enter the exchange rate. This option can be useful for average exchange rates or if we’re consolidating against a fixed exchange rate.
Then click on OK and the consolidation process will begin. It can take several minutes depending on the number of transactions and companies that we need to consolidate.
The main purpose of company consolidations is to be able to properly view reports for several companies combined. In this order, there are several ways in which we can view the results of our consolidation process. So, let’s take a look at a few of them:
1. Trial balance
After the online consolidation process, one example that we can easily use to visualize a consolidated report is the standard Microsoft Dynamics 365 Trial balance.
Go to General ledger > Common > Trial balance
Also, we will visualize a consolidated trial balance for the periods on which consolidations were performed.
2. Consolidation Transactions
In this scenario, we have to click on Consolidations > Consolidation transactions. Here, we will be able to get all entities for which consolidations were performed, as well as all the transactions that were brought over for the consolidated period.
If you follow the steps mentioned above and have a clear vision of what your company requires, I have no doubt that you’ll be able to perform consolidations and create reports without any major issues.
Microsoft Dynamics 365 Finance and Operations has many powerful capabilities for your company to enhance your business processes and operations.
If you require more details about Microsoft Dynamics 365 solutions, feel free to fill out our form and one of our experts will contact you.