Director of Accounting Flashcards
What is consolidation?
Financial Consolidation is the process of combining all the financial data of a parent company with that of its subsidiaries (at least 50%) and any other company in which it has a direct operational controlling stake (at least 20%) to present a single set of financial statements for the group that has been adjusted for inter-company transactions, ownership percentage and other legal reporting requirement regarding consolidation.
What are some consolidation rules?
There is actually no legal requirement in the US for Consolidation disclosures but in order to be listed on the NY Stock exchange they insist on companies filing Consolidation Statements following GAAP (And most companies comply).
1- Combined tax returns is filed by the Group when it owns at least 80% of the subsidiaries.
2- 100% of the assets and liabilities from the subsidiaries are carried forward to the Group even if the Group’s ownership share is below 100%. Although Equity shares from the parent company is presented separately from that of minority owners.
3- Similarly, 100% of the subsidiary’s Net Income is included in the I/S even if the group owns less than 100%. It then subtracts any Net income attributed to minority owners to present the NI attributable to the Group.
4- Adjusting entries are passed to exclude inter-company transactions so they do not appear in the Cash Flow, I/S or B/S statements.
How is Consolidation handled by SAP?
1- If there is more than one chart of accounts, operating COA’s will be derived from and GL accounts in the Operating COA for the subsidiaries included in the consolidation will be created with reference to the Group COA.
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Sample of questions to uncover Consolidations requirements are: (Optional Reading)
Q1: Do all companies use the same operating chart of accounts?
Q2: Will a different chart of accounts be used for consolidation purposes?
Q3: Identify legal entities holding minority interest.
Q4: Are goods/services exchanged between your different legal entities?
Q5: Specify the different levels of consolidation (for example, by country, by region).
Q5: Are there any transactions that have to be included, when these segments are consolidated?
Q7: Identify the legal entities that should be excluded from the consolidation process. Please specify why they have to be excluded.
Q8: For which enterprise entities that are not independent legal entities do you require sub-ledgers (accounts payable ledger, accounts receivable ledger, asset accounting and so on)? For example, fixed assets per strategic business unit.).
Q9: Which functions will be performed on a cross-company level?
Consolidation concept according to IFRS:
IFRS: Under the International Financial Reporting Standards (IFRS, formerly known as IAS), the objective of consolidating reporting is to provide information about the resources of a corporate group, claims by others to these resources, and the changes to these resources.With consolidated reports, the interested person is able to study the corporate group as if it were a single economic and legal entity. (For more reading see Consolidation in Bookmarks).
Consolidation concept according to US GAAP:
US GAAP: You need to distinguish between the rules of U.S. GAAP, which apply to all enterprises, and the additional rules for companies required to file reports with the SEC. The following section only discusses the stricter SEC rules.
In the United States , a much greater emphasis is placed on consolidated reporting as opposed to individual financial statements. Consolidated reporting is considered more meaningful.
Investors, existing and potential, use consolidated statements to make investment decisions. Consolidated reports allow investors to study a corporate group as if it were a single economic and legal entity.
Financial statements show the resources of an enterprise, claims by others to those resources, and the changes to those resources. In consolidated statements, this information is not distorted by tax and dividend distribution issues. Thus, stockholder claims to dividends do not result from the disclosure of the annual net income that is distributable, but are based on the board of directors’ declaration of payable dividends.
The accounting principles under U.S. GAAP are dominated by the parent company concept . Under this concept, consolidated statements focus on the stockholders of the parent company – that is, consolidated reports are regarded as an extension of the financial statements of the parent company. Minority stockholders of the subsidiary are regarded as third-party creditors. (More reading see Consolidation in Bookmarks).
What is Variance Analysis? What are examples of that in SAP FI?
This mostly deals with Cost. It is the comparison between planned and actuals. It’s about answering questions like “ why one project cost more than another? Was the project completed within estimates? Were objectives met” etc.
There’s also Sales Variance which looks at planned sales versus actual sales and tries to answer questions about the discrepancies and their causes.
What do you know about us?
1- Blackbaud is a leading provider of software and related services tailored to help non-profits with their fundraising, CRM and analytics.
2- Software like Raiser’s Edge and, a more recent offering, BlackBaud CRM which by themselves with their related services account for about 45% of the company’s total revenues as of 2011. There’s also Luminate for smaller organizations (which integrates with Salesforce).
2- I know that the boarding of new clients is very important because Products come with a perpetual license and clients simply pay an annual fee for updates and maintenance. So timely reports and accurate BI from the company’s system has to be important.
3- In the past 10 years or so, BlackBaud has been active in acquiring other businesses that align with the company’s objectives. I was wondering how are their financials integrated with BlackBaud’s? Were they moved to Blackbaud’s financial systems and managed as a subsidiary or do they operate their own system and their results are simply imported asynchronously?
“"”consolidations” are very important. “”
What question do you have for me?
1- Well, I know that you’ve been making strides in your financial closing-process cutting down the number of days it takes to about 8 business days. I suspect that 8 is still longer than you would like because I’m sure you and other managers would like your reports in your hands earlier in order to make their decisions. So I would like to know what are some things that you think I would be able to help you with in my position if brought on board?
2- Are you satisfied with your SOX compliance? Do you feel like the systems implemented are leveraged well enough to help you do that?
How does SAP handle SOX:
One of SAP’s objective is to reduce businesses’ exposure due to failure of controls, which can be quite costly. It provides multi-layered internal controls and Controls and encourage process automation to increase accuracy and limit human errors like the use of 3-way match so you don’t pay for goods that were never received. Role base access to the system through unique user log-ins, master data governance to name a few.
Document tracking, for example, my current employer tracks all access to company sensitive documents (in the repository), like system configuration documents, and document changes must be approved before they can be saved including creating the change as its own numbered and time stamped version, the old version is archived.
Do you understand the importance of cash flow to an organization in a functional sense? How is it handled by SAP?
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What are GAAP requirements that SAP can help a company meet?
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Walk me through your closing process.
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