How to improve your financial consolidation process: Best practices and tools

Financial consolidation is an essential process for an organization, especially if it has multiple entities. As a finance manager or executive, it empowers you with a complete understanding of your organization's financial well-being, enabling you to make informed decisions about where to allocate resources and how to plan strategically.

In this article, we’ll explain the key steps in the financial consolidation process, address the common challenges, and provide some best practices to solve them.

Key steps in consolidating financial data 

The process of financial consolidation involves combining the financial statements of multiple entities into a single set of reports. It can be broken down into several distinct steps:

  1. Data Gathering: Involves collecting financial data from all of the entities that will be included in the consolidated financial statements. This data can include balance sheets, income statements, cash flow statements, and other financial reports. This step requires careful attention to detail to ensure that all data is collected accurately and completely.
  2. Data Validation: Involves checking the accuracy and completeness of the data to ensure that it is reliable and can be used for financial reporting purposes. It may involve comparing the financial data to other sources, such as ERP systems or checking data between different statements, to ensure that the data is accurate.
  3. Data Transformation: Involves converting the financial data into a standardized format that can be easily combined with the data from other entities. It may involve adjusting the financial data for differences in accounting methods.
  4. Data Aggregation: Involves combining the financial data from all of the entities into a single set of reports. It may involve aggregating financial data using different conversion methods to convert different local currencies into a specific group currency. It may involve consolidating the financial data using a variety of methods, such as equity or proportional consolidation.
  5. Financial Reporting: Involves preparing consolidated financial statements that present a clear and accurate picture of the financial health of the entire organization. The consolidated financial statements may include balance sheets, income statements, cash flow statements, and other financial reports. It may also involve preparing notes to the financial statements that provide additional information about the consolidated financial statements.

 

The common challenges of financial consolidation 

While essential for businesses, the process of financial consolidation is not without its hurdles, and the lack of a good system can lead to unwanted consequences. Recognizing the common challenges is the first step towards addressing them effectively.

  • Time-consuming process: Financial consolidation can be a lengthy endeavor, especially if it is done manually through endless spreadsheets. This can lead to missed deadlines and less time for financial analysis and strategic planning.
  • Lack of visibility and transparency: Without a centralized system or platform, it can be challenging to have a clear view of all financial data and transactions across different entities. This can lead to errors, oversights, and a general mistrust in the consolidated financial statements’ accuracy and reliability.
  • Inaccurate data: Data discrepancies, whether due to manual errors, system glitches, or miscommunication, can creep into the consolidation process. This can result in misleading financial statements, which can have severe consequences, from misguided business decisions to regulatory penalties.
  • Difficulty in tracking financial performance:  With multiple entities, currencies, and possibly different accounting standards, tracking and comparing financial performance can become complex. Without a clear understanding of each entity’s performance, it’s challenging to make informed strategic decisions or identify areas of concern or opportunity.
  • Compliance issues: Different jurisdictions have varying accounting standards and regulations. Ensuring compliance with all relevant standards during consolidation can be a significant challenge. Non-compliance can lead to legal repercussions, financial penalties, and damage to the company’s reputation.

 

Best practices for financial consolidation

These best practices will help you navigate the consolidation process more smoothly and efficiently:

 

1. Establish a consolidation policy

A well-defined consolidation policy serves as a roadmap for the entire process. It provides clarity on how different accounts and transactions should be treated, ensuring consistency across reporting periods.

Key components of an effective policy:

  • Scope and objective: Clearly define the purpose of the policy and the entities it covers.
  • Accounting standards: Specify the accounting standards to be followed, such as GAAP or IFRS.
  • Treatment of specific items: Provide guidelines on how to handle items like minority interests, intercompany transactions, and foreign currency translations.
  • Review and approval process: Outline the steps for reviewing consolidated statements and the hierarchy of approvals.

 

2. Choose the right accounting software

Modern accounting software automates many of the tedious tasks associated with consolidation, from data aggregation to intercompany eliminations. This not only speeds up the process but also reduces the risk of human errors.

Factors to consider when selecting software:

  • Usability: The software should be user-friendly, with intuitive interfaces and clear workflows.
  • Integration capabilities: It should seamlessly integrate with other financial systems and tools.
  • Scalability: As your organization grows, the software should be able to handle increased data volumes and complexities.
  • Support and training: Ensure the vendor offers robust support and training options.

 

3. Modernize and automate the process

In the digital age, relying solely on spreadsheets and manual entries is both inefficient and risky. Automation tools can handle large data sets, perform calculations in real-time, and ensure data integrity.

Benefits of automation:

  • Efficiency: Automated processes significantly reduce the time required for consolidation.
  • Accuracy: By eliminating manual data entry, the chances of errors are drastically reduced.
  • Compliance: Automation ensures compliance with accounting standards and regulatory requirements, making audits smoother and faster.

 

How IBM Cognos Controller can help you

IBM Cognos Controller stands out as a solution designed to streamline the process of financial consolidation. It’s a powerful tool that not only addresses the common challenges but also optimizes for efficiency and accuracy.

 

Features of IBM Cognos Controller

  • Supports extended financial close: IBM Cognos Controller addresses the extended financial close process in detail. This includes the stages of close, consolidate, report, and file, all within an auditable solution that’s primarily owned by the office of finance.
  • On-cloud deployment option: With the flexibility of on-cloud deployment, IBM Cognos Controller offers the robust functionality of an on-premises solution. This ensures both scalability and adaptability to various business needs.
  • Automated consolidation: The software is designed to automate financial consolidation processes and accounting procedures. The best part? It achieves this without the need for IT intervention, making the financial consolidation process more efficient.
  • Supports local and global standards: IBM Cognos Controller is versatile. It meets almost all global and local consolidation and reporting requirements right out of the box. This includes standards like U.S. GAAP, IFRS, and many others.

 

Benefits of IBM Cognos Controller

  • Reduces close and report times: One of the primary advantages of IBM Cognos Controller is its ability to automate the close process. By simplifying the task of providing certified financial information, it significantly reduces the time required to close and report financial data.
  • Ensures quality without the help of IT: The automation of financial consolidation and accounting procedures enabled by IBM Cognos Controller helps you ensure consistency, accuracy, and efficiency, all without relying on IT assistance.
  • Enhances audit control: IBM Cognos Controller isn’t just about consolidation; it’s also about accountability. The software tracks data flow throughout the consolidation process. Moreover, with built-in workflow and status reporting, it monitors the performance of subsidiary reporting. 

 

Conclusion: equip your finance team with the right tools

Financial consolidation is more than just merging numbers; it’s about gaining clarity, accuracy, and strategic insights. The benefits of having a good process for it are clear: you get accurate reporting, spot risks and opportunities more easily, gain valuable financial insights and maintain regulatory compliance. But without the right approach, challenges can arise.

If you are looking to refine your financial consolidation process, remember the importance of establishing a solid policy, choosing the right software, and embracing modern automation. Tools like the IBM Cognos Controller can be game-changers, so we recommend you give them a try.

 

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Business & Data Analysis
Planning, OLAP & Reporting & Financial consolidation
Data Integration, Data Migration & Data Engineering
Data Governance, Data Quality & Master Data Management
Data Science
DWH models
XBRL point
ConQ Content Analytics
SynQ

I acknowledge that the personal data I submit through this contact form will be used by Poslovna inteligencija d.o.o. to contact me and provide information related to my inquiry/application. I consent to Poslovna inteligencija using my submitted personal data to send newsletters containing information about news, products, and services of Poslovna inteligencija. I also acknowledge that I can unsubscribe from receiving newsletters at any time by clicking the 'Unsubscribe' link in each newsletter. Comprehensive information related to my rights and the use of my personal data can be found in Poslovna inteligencija's Privacy Policy.:
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