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How to arrange an initial consolidation?

Tuesday 04/10/2016
A paper with charts

A consolidation is a process that is not particularly complicated but that does require a level of understanding with respect to reporting and organisation, so that future changes to a group’s structures, staff and the reporting itself are done properly, rapidly and efficiently.

When it comes to a successful consolidation process, good preparation and solid organisation are just as important as inputting figures and producing calculations.

Which preparations are required for a smooth consolidation process?

Which preparations are required for a smooth consolidation process?

Creating a schedule

A consolidation is not implemented just like that – you need time, consultations must take place and decisions must be made that also take future developments into account.

Staff training

Even if the consolidation is wholly or partially outsourced, the process will be much smoother if the staff is kept updated on what information must be provided and its purpose.

Setting the goals

The aim and the approach will depend on the goal to be achieved. If the only intention is to comply with a legal obligation (for example, if the criteria for consolidation are exceeded), or is the aim to extend, on an internal basis, the management reports from an analysis of the results to balance sheet information for the entire group? An external party such as a bank, in the event of a loan application, can also impose certain requirements with regard to the group reporting process.

It is important that these goals are set with a view to the future.

Determining uniform accounting principles

Will the consolidation take place under Belgian generally accepted accounting principles (BGAAP) or is the intention to adopt an international reporting process using standards such as the IFRS rules? Even if you are only working with BGAAP, it must still be determined to what degree the parent company’s fiscal accounting principles deviate from the true economic value.

Determining the group reporting process

Are you sticking with the documented proposal for the BGAAP consolidated annual financial statements, do reports have to be expanded to include management information, or are you opting for an international approach that entails greater flexibility in the accounting plan but also the incorporation of much more information?

Coordinating the intra-group relations

In reality, the coordination of the intra-group relations is only a sub-process of the consolidation, but it can still cause the entire process to fail. One must institute internal coordination procedures with predetermined responsibilities and deadlines.

It is also necessary to impose a degree of discipline so as to guarantee that the entire process runs smoothly.

Choosing between Excel and reporting software

Although smaller companies are happy to use Excel, they must remember that the programme does have its limitations and that it is far less secure than other software. Depending on the group’s complexity (i.e. are there minority interests, a range of subsidiaries working in foreign currencies, or do many changes have to be implemented in order to comply with the group accounting principles?) as well as the frequency of the changes to the group structure, the aim, security and transferability of an Excel process could become very complex.

Setting up, testing and auditing the first consolidation process

In order to limit the stress experienced at the time of releasing official reports, we recommend that the set-up of the Excel file and/or consolidation software is sufficiently tested in advance. A preliminary review by the auditor of the consolidated opening balance sheet is important, not just in respect of the figures but also with regard to the transparency of the process.

‘A good start is half the battle won,’ is very true in this case. Good timing, proper consultation and a solid organisation will mean a happy ending for an initial consolidation process.

More specific information and/or assistance can always be obtained from our consolidation specialists (also see the testimonial from Aminolabs and our range of consolidation workshops and training courses).