What is Financial Consolidation?

In financial consolidation you take information from spreadsheets and databases from each company of the group and collect it in one place. When consolidating, you collect data for more companies into one total financial statement.

In short: A consolidated financial statement is how it would look if all companies were one.

Sounds simple, doesn’t it?

It may sound simple but consolidating the financial statements of a group can be a timely and complicated process. It often requires a great deal of focus. In short, you can say that the entire process of consolidation adds no value to the group. Anyway, it is important to be in control, as the mother company is obliged to make consolidated accounts. The total financial status, assets, liabilities, and profit and loss accounts must appear from the consolidated accounts. The subsidiaries that are included in the accounts must also appear clearly. The consolidated accounts, which are prepared by the mother company, must apply to the entire financial year, where the subsidiaries only apply from time of acquisition.

A large task in making the financial consolidation is to eliminate intercompany transactions. It is a demanding task but using a tool for consolidation may help you in the process.

Working with consolidation may be challenging…

Globalisation has caused companies to expand across borders. That makes consolidation even more time-consuming. Companies in different countries also requires time for foreign currency translation across companies. In addition to this, clear rules for the foreign exchange management must be defined. It is essential to determine company currency, group currency, as well as entry exchange rate, average exchange rate and budget rate. Consequently, the actual foreign exchange management may be quite challenging in the comprehensive consolidation operation.

Even if the company only operates within one company, and currency exchange translations thus not relevant, it is still a large and heavy job to collect data, make calculations, and manage intercompany transactions and eliminations. Within consolidation between subsidiaries, one of the most important tasks is elimination of intercompany transactions, and thus leave out these balances. Elimination removes the effect of intercompany transactions, so only the transactions outside the group are included in the consolidated accounts. This is important, as the actual creation of value in a group is made through transactions with companies in the outside world. Intercompany transactions add no value to the group and are therefore not a part of the consolidated accounts.

Working with consolidation and preparing consolidated accounts is often a complex and heavy process that requires skills, overview, and time resources from the employees involved.

Spend time on analysis rather than manual processes

By using a software solution for automating the financial consolidation, you will find that the entire process speeds up. The manual handling of eliminations, foreign exchange management, and additions is replaced by an automated financial consolidation, which reduces the number of errors. Once the number of errors is reduced, it is easier to generate transparency, create overview, and understand the individual eliminations, foreign currency translations etc. A software system handling the financial consolidation for you will most likely bring peace of mind to the entire process, as it is consistent with the relevant accounting legislations.

Would you like to learn more about how InfoSuite can help you to a financial consolidation without errors? Click here to see the exact plan for how we automate the financial consolidation in your business.

Financial consolidation without errors in a few clicks

Did we catch your attention? Would you be interested in saving time and resources in the demanding process of working with the financial consolidation of the group? Give us a call and let us discus how InfoSuite can help.

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