SERIES: The questions for a first consolidation: 3 / 4

March 19, 2020

How to manage the impacts and accounting divergences of a first consolidation?

A first consolidation will profoundly transform the company’s finance function. Here is an overview of the impacts and consequences of a first consolidation.

The implementation of a first consolidation has a significant impact on the information system of the Finance function of a group and can allow an optimal reorganization. Given the amount of information to be consolidated but also the number of restatements to be made, the use of Excel will quickly reach its limits, both from a time-wasting point of view and from a security point of view.
When using consolidation software at the expense of Excel for the production of consolidated financial statements, one must be aware of the mass of important and varied information for the preparation of the consolidated financial statements. The use of a simple spreadsheet quickly becomes difficult, especially in the second financial year.

For the integration of social balances, it is necessary to master multiple import formats, particularly in the case of perimeters with foreign companies, and the mastery of correspondence tables between the chart of accounts of subsidiaries and the consolidation chart of accounts.

For the census and reconciliation of intercompany data, this step can become problematic in terms of time. It must therefore be anticipated by setting up dedicated accounts at the level of each subsidiary.

How to manage the discrepancies in the recognition and valuation of the various balance sheet items between local standards and the consolidation reference framework?

An analysis of the relevant valuation rules and accounting methods used for the preparation of the consolidated financial statements at group level must be carried out and result in the creation of a consolidation book.
This book is then used for the transition from the corporate financial statements to the restated corporate financial statements. These restatements may relate to: the harmonisation of valuation methods (e.g. depreciation), but also the application of the preferential methods linked to CRC regulation 99-02 (e.g. accounting for assets acquired under a leasing contract; provisioning for retirement commitments) or the mandatory methods of the IFRS framework (e.g. treatment of investment property).

It is this detailed analysis of valuation rules and accounting methods that will enable the consolidation book to be drawn up:
Setting up a complete consolidation package must include all the basic quantitative data such as the balance sheet (in terms of balances and flows) and the income statement as well as a significant amount of quantitative and qualitative ancillary information that will enable the consolidation department to make consolidation entries (e.g. margin in the event of the disposal of stocks, information on the formation of the tax result for the establishment of proof of tax, etc.).
Finally, the consolidation book will allow the construction of the notes to the financial statements.

How to translate the financial statements of foreign subsidiaries?

The presence of foreign subsidiaries in the consolidation scope also entails the translation of the financial statements of these entities into the consolidation currency.

In each of the regulations, two methods are imposed on the groups according to specific criteria.

  1. Closing rate method for self-sustaining entities
  2. Historical rate method for non-autonomous entities whose local currency is different from the operating currency

Particular attention should be paid to the subsidiaries concerned by the historical rate translation method. This requires very specific monitoring of non-monetary items that must be translated at their historical rate.

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