Which consolidation scope or department?
How to organize the scope of consolidation (directly or in tiers)?
One of the first steps in the process is the definition of the consolidation group : How is this done and which entities are to be taken into account? Should the consolidation group be structured centrally or decentrally?
Here are some answers
The representation of the consolidation group can be done directly or in tiers. Both have advantages and disadvantages to be taken into account. Tiered consolidation, for example, is unavoidable when a subgroup has a legal obligation to file consolidated financial statements at its level. The direct approach, on the other hand, allows a much easier view of the contribution of each company to the consolidated whole, which is not the case in the tiered approach where the individual contributor is more opaque. Other elements of the scope of consolidation, such as the existence of cross-shareholdings or circulars, may be decisive in the choice of the latter.
Should the consolidation department be structured centrally or decentrally?
Depending on the size of the group, consolidation may be a dedicated activity involving one or more people. And in some cases, especially in a context of first consolidation, these activities complement the list of responsibilities on already existing positions (CFO, accounting manager, accountant).
In a centralized organization, the consolidation department is responsible for all consolidation operations after receipt of the individual company financial statements, i.e. the restatement of the company financial statements, the identification and reconciliation of intra-group transactions, the preparation of consolidation entries and the preparation of the consolidated financial statements.
Such an organization requires a high level of investment by the consolidation department, but also an optimal knowledge of the corporate accounts of the subsidiaries: the consolidation package must be accurate and complete.
In a decentralized organization, each subsidiary prepares individual financial statements restated to Group standards and manages intra-group transactions. The consolidation department is responsible for making the consolidation entries and preparing the consolidated financial statements.
This approach requires a greater investment in terms of training for the subsidiaries and an information system to manage this decentralization, particularly at the intra-group level. The consolidation department can thus focus on the more technical aspects of consolidation entries, changes in consolidation scope and the publication of financial statements.