Chart of Accounts for Financial Consolidation

This article continues our series on automating the financial-consolidation process.

A consolidation chart of accounts (CoA) is the backbone of the entire process: every entity’s financial data is “strung” on this framework and subsequently rolled up into group-level figures.

The CoA has to be designed so that every line item required for the primary statements and the accompanying disclosures can be produced from it. In some cases, though, defining this granularity directly in the CoA is impractical; instead, the detail is captured in auxiliary reference lists—for example, for currency, counterparty or bank disclosures.

Management analysis may demand even deeper cuts – say, a drill-down from each shipment right down to individual SKUs. In group reporting, however, such drill-downs are feasible only when the source ledgers of every subsidiary have been standardised at the analytic-dimension level and are stored in a single data hub.

In practice this level of harmonisation is rare. Groups are usually heterogeneous: the subsidiaries sit on different maturity tiers of IT infrastructure and on legacy landscapes. Consequently, our implementations focus on the analytic detail strictly required for IFRS reporting.

For international groups the process is greatly simplified if each account and analytic code can be displayed in the local language.

Functional requirements for a consolidation CoA

1. Hierarchical account structure Lets you roll up sub-accounts into parent accounts of the same nature so that disclosure totals are calculated automatically. E.g. all fixed-asset groups aggregate into the parent account Property, Plant and Equipment.
2. Movement accounts Dedicated accounts that track changes in balance-sheet items during the period for roll-forward notes such as PPE. They support:

– carrying forward closing balances to the opening balance of the new year;

– calculating FX differences when translating functional-currency figures into the presentation currency;

– capturing opening balances on acquisitions or disposals of subsidiaries.

3. Account type flag – Balance Sheet, P&L or Statistical Enables the system to:

– auto-validate that the statements balance;

– generate opening retained earnings when prior-year adjustment data are carried forward;

– tag statistical accounts, e.g. when you run parallel CoAs and need automated reconciliations;

– derive the Cash Flow Statement on statistical accounts by applying consolidation results from the primary accounts.

4. Cross-check attributes Specify which accounts must reconcile with which counterparts, powering automated validations at every stage of the close.
5. Intercompany (IC) flag Identifies IC accounts so that users select IC counterparties, the system matches group-wide IC balances and journals the automatic IC elimination.
6. Investment account flag Allows all historical transactions relating to investments to be stored on a single account.
7. Currency-translation methods – average, closing, historical, opening, or copy prior-year closing – provide fully automated conversion from an unlimited number of functional currencies into the group’s presentation currency (or currencies).

Based on our project portfolio, a well-designed CoA that covers the full set of IFRS consolidated statements for a mid-sized holding typically contains 2,000–3,000 elements.

July 3 at 12:30 PM

Join our free webinar on "Key Considerations in Automating Financial Consolidation" to explore how to:

• Structure your group and chart of accounts effectively
• Handle data collection and multi-currency challenges
• Automate intercompany eliminations, adjustments, and cash flow reporting
• Set the right level of analytics and detail in your system

Register now