If there’s one thing that’s common in all the financial consolidation projects, it’s that all of the projects have a couple of challenges and all of them can be dealt with with some best practices. Following these practices can help you mitigate the risks of fraud and help you manage the projects more efficiently. The financial industry is full of barriers at every step, if there is a way to make financial consolidation easier, then these practices have to be followed.
Best Practices in Financial Consolidation
1) Intercompany Reconciliation
Intercompany Reconciliation is the process of reconciling figures among two legal entities operating under one parent institute when a transaction happens. The transaction results in one legal entity paying the other one under the same name. This is time-consuming, and it also presents huge risks of error and makes you susceptible to transfer pricing issues.
The best practice to bypass this challenge is to apply workflow capabilities and automated matching, reporting, and eliminations which can drastically enhance controls reduce errors and reduce the time for completion by 70%.
2) Data Collection
Almost 80% of all companies with more than $50 million in revenue use Excel spreadsheets during fiscal consolidation. Needless to say, this approach can pose a significant data integrity risk while collecting data. According to a report, 80% of all huge spreadsheets have one big unidentified error. Data collection often requires multiple efforts such as emailing spreadsheets and manual effort to combine data from numerous sources.
Automation is again the answer to this problem too, sending and receiving data should be done using automated solutions thus eliminating the risk of losing data integrity. The solution should also manage the overall process, by using a workflow engine.
3) Equity Reconciliation
Another way that data can be compromised during financial consolidation is the equity reconciliation process. When businesses consolidate by using excel they don’t verify previous data. If such changes are not captured, there will be some errors in the Consolidated Owners Equity section of the financial statement.
To bypass this barrier, the business will need to ensure that the data collection process successfully captures the required level of automated validation routines and workflows that can authenticate if the equity movement reporting is accurate.
4) Historic Eliminations
Most organizations have experienced asset transfers. Transactions following asset transfer are eliminated from the books after a certain time. That’s why the spreadsheets are only as effective as the memory of the person who makes amendments to the documents. If the impacted entities have different rules, this can result in huge error risks.
If you’re wondering about the best practice about this method, then the right way to do things is by using dedicated consolidation platforms and perform automated calculations which can eliminate the risk of error and speed up the whole process.