The well-known challenges of using multiple ERP-systems (and chart of accounts) and how to fix it – even in a plain vanilla spreadsheet consolidation setup

The challenge of using multiple ERP systems for your consolidation

One of the biggest challenges group finance professionals run into in consolidation is the use of different ERP systems in different entities of the consolidated group. So, if you are one of those stuck in this situation before you do anything else read this blog and learn how you deal with the issue and work around it.

Why did you end up in this situation, to begin with?

First, let´s start by looking into why so many in group finance end up in this challenge and, why most didn’t foresee this in the first place and made sure to steer away. Well, here’s a guess:

When you set up your accounts in your different entities, you have a couple of obvious options, to begin with:

1) You copy/paste the chart of accounts from one entity to another. Easy, and you ensure the same chart of accounts in the different entities.

2) You ask your local accounting department to set up your chart of accounts. Here, you often ensure compliance with local requirements, because of the involvement of subject matter experts. Certain countries have particular mandatory requirements for a chart of accounts, and you don’t want to be non-compliant from day one, of course.

Either way, things often have a habit of o changing over time!

Even if you went for option 1 above, where you copy/paste the chart of accounts from one entity to another, you see additions, changes, or deletions of accounts, and in a few years’ time, chances are that the chart of accounts will look quite different from the outset.

The trouble with local chart of accounts!

Local chart of accounts are convenient when complying with local requirements. If you asked a local controller, auditor or advisor to help you set up the chart of accounts, you get exactly that local subject matter expertise, which makes it easy to set up your statutory financial statements, your local taxable income statement and other types of local reporting.

However, for consolidation purposes, you may be looking for something completely different: here, it is the accounting principles and structure of the parent company, which guide the requirements. Revenue or cost in the consolidated accounts may mean something completely different than revenue or cost in local, statutory financials.

Let´s look at two examples to illustrate this point:

  • A factory preparing local financial statements with a profit and loss account showing Sales, Cost of Goods Sold; Selling, General and Administrative Costs (SG&A), Depreciation, etc. is considered a mere Production entity in the consolidated financial statements, with all costs going to Cost of Goods Sold, and all sales are eliminated anyway (as intercompany sales). Really, this is an example of the difference between organizing the profit or loss statement by function of expenses.

  • Are losses or gains on investments included under Financial items, or under Other Comprehensive Income? Here, you would often see differences in classification between entity financial statements and consolidated financial statements.

Multiple examples can also be found in the elimination process: intercompany balances are offset, goodwill is reclassified, intercompany transactions reversed, etc.

The easy solution

Certain ERP systems allow duplicate account numbers;

  • one set of account numbers for local, statutory accounting
  • one set for the consolidation process and the consolidated financial statements.   

However, you may not be that fortunate, especially if you didn’t go for that somewhat expensive ERP system.

So how do you ease your consolidation, if you are stuck with a different set of accounts without looking at another (expensive) ERP system?

1) Acknowledge that you simply have different sets, and then use a consolidation tool that corrects the accounting IN (and not BEFORE) the consolidation process.

2) Accept that it’s a never-ending story to maintain aligned charts of accounts and to balance local requirements with the requirements in the consolidation.

3) Build your consolidation on top of your ERP with a consolidation software.

In this way, you can have as many different sets of accounts as you have reporting entities, and still come out with the right consolidation. You simply map whatever local set of accounts to where they belong in the consolidation, and then you upload ERP data straight into the consolidation software: your mapping will make sure that everything ends up in the right place in the consolidation!

Of course, you may add, change, or delete an account now and then, but then simply map the added account as well – it’s a one-off step you need to take; after that everything is back in place. When using Konsolidator as a consolidation solution on top of your ERP system it will let you know immediately, if an account is not mapped anywhere, or has been deleted.

Even if your group is not that big, the advantages of a system outweigh the costs, even compared to a plain vanilla spreadsheet consolidation setup which we most often see that small groups start out with (until it becomes too complex). Especially for SME’s who only does the consolidation once a year, that makes it even more difficult to remember those different sets of numbers and therefore even more relevant with a standardized tool to support the consolidation. A consolidation tool will help you overcome those difficulties which – by the way – are even bigger when having to work with different ERP systems and different chart of accounts in all entities.
Why not get started on a formalized structure today, and get a quick preview of how this can look in Konsolidator.