The world of finance is rapidly drifting away from manual work in the globalized business environment, the aspect of financial reporting has become complex. Companies must comply with multiple accounting standards that including IND AS (Indian Accounting Standards), IFRS (International Financial Reporting Standards) and GAAP (Generally Accepted Accounting Principles).
The corporate finance teams must also navigate challenges like inter-company eliminations, currency translations and large amounts of data. There are various financial consolidation software platforms that are specifically designed to address these challenges, offering efficient, accurate and easily navigable environment. Here in the blog, we will dwell on four significant benefits of using such platforms, supported by real-world scenarios.
1. Streamlining Financial Consolidation with Automation
Financial consolidation software automation is the process of collecting financial data from multiple sources spread across subsidiaries and business units. The automation eliminates manual data collation, reduces errors in data massaging and accelerates the reporting process.
Example: Imagine handling IND AS Reporting For a large corporate spread across multiple locations globally with subsidiaries in India, the group company must prepare consolidated financial statements comply with IND AS standards. This involves collating data from various systems where the financial data is present, reconciling accounts and ensuring adherence to the specific disclosure requirements per IND AS. Without a financial consolidation tool, this process would be labour-intensive making the people work tirelessly day and night which may be prone to human errors because of fatigue. A software platform like Oracle, BiCXO or SAP can automate this workflow by integrating directly with various data sources, mapping local financial data to pre-existing IND AS templates and highlighting discrepancies on real-time basis. This will ensure faster turnaround time and compliance with regulatory deadlines.
Major Impact area: Automation can minimise interference of error prone by humans and improve the consistency of reporting across various business units.
2. Multi-GAAP and Multi-Standard Compliance
Many companies often operate in multiple jurisdictions each requiring adherence to different accounting standards such as IFRS, US GAAP, or local GAAPs. Financial consolidation software enables companies to generate statements in multiple formats simultaneously catering to varied stakeholders and regulatory requirements.
Example: Most complex of simultaneous reporting for IFRS and US GAAP Consider a company having headquarters in European union with a subsidiary in the United States. While the parent company does operate under IFRS, the subsidiary must comply with US GAAP regulation and keep in note while preparing and should be a dual-compliant statements manually which can lead to misstatements due to different revenue recognition rules and lease accounting methods or goodwill impairments. Financial consolidation software’s like BiCXO will allow companies to create reporting templates for each of the standards. Using predefined rules and mapping as per chat of accounts, the system generates simultaneously both IFRS and US GAAP compliant reports to form a single source of truth. The ability to manage complex adjustments like fair value differences or deferred tax calculations is built into the system that ensuring accuracy for the company.
Major Impact: The dual compliance streamlines reporting while ensuring that both internal and external stakeholders receive compliant and reliable financial information.
3. Efficient Inter-Company Eliminations
A major component of financial consolidation is eliminating inter-company transactions is to avoid double counting. Such inter-company transactions may include sales, loans or shared services between subsidiaries. Manually eliminating is complex and time consuming, especially for corporate organizations with multiple entities, but financial consolidation software simplifies the process.
Example: Inter-Company eliminations in a global conglomerate working manufacturing space with operations in Asia, Europe and North America conducts internal sales between subsidiaries of raw materials and finished goods. These transactions need to be identified and eliminated during consolidation to avoid double accounting of revenues and costs. Using financial consolidation software like BiCXO, the company can automate the elimination process. The software identifies inter-company transactions using standardized identifiers, matches corresponding entries across the group and generates adjustment entries automatically. Advanced features also allow the system to handle complex cases.
Major Impact: Automated inter-company elimination and reducing reconciliation time and enhance the accuracy of consolidated financial statements.
4. Accurate Currency Translation and Consolidation
Multinational corporations generally deal with complexity of consolidating financial data from subsidiaries operating in different currencies. Currency fluctuations, exchange rates, and translation adjustments can complicate reporting. Financial consolidation software handles these intricacies seamlessly.
Example: Consolidating financials with currency translation. A retail company having Headquarter in UK having subsidiaries in Japan, the UK and Brazil must consolidate financials into a single presentation currency, such as GBP, for its annual report. Each subsidiary operates in a different currency and fiscal environment, making manual currency translations cumbersome and error-prone. The parent company can configure exchange rate tables or connect to any exchange rate websites like Bloomberg and apply the translation rules automatically like in BiCXO. The system calculates cumulative translation adjustments (CTA) for equity and tracks the impact of currency fluctuations on revenues and expenses. Additionally, the platform generates reports that separate local currency figures to a consolidated figures, ensuring transparency.
Major Impact: Having accurate currency translation enhances the reliability of consolidated financial data and provides stakeholders with a clearer picture of financial performance.
The financial reporting in a globally a regulated world are immense. Companies must that consolidate data from multiple systems, comply with various accounting standards as described above have to eliminate inter-company transactions and account for currency fluctuations and all the while meeting tight deadlines. Financial consolidation software’s offer robust solutions to address these challenges.
By automating repetitive tasks and ensuring compliance with multiple standards. Facilitating inter-company eliminations and handling multiple currency translations, these tools empower finance teams to focus on strategic analysis rather than manual data massaging. Companies that adopt the financial consolidation platforms like BiCXO experience and enjoy the faster closing cycles, improved data accuracy and greater confidence in their financial reporting. In a world where financial reporting has become increasingly complex, leveraging financial consolidation software is not just a choice it is a necessity. Finally the people are meant lead a peaceful life even in the periods of peak closing cycles.