SAP Financial Consolidation 10.1, starter kit for IFRS, SP7

Transcription

1 SAP Financial Consolidation 10.1, starter kit for IFRS, SP7 Operating guide 1

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3 Copyright 2018 SAP AG. All rights reserved. SAP, R/3, SAP NetWeaver, Duet, PartnerEdge, ByDesign, SAP Business ByDesign, and other SAP products and services mentioned herein as well as their respective logos are trademarks or registered trademarks of SAP AG in Germany and other countries. Business Objects and the Business Objects logo, BusinessObjects, Crystal Reports, Crystal Decisions, Web Intelligence, Xcelsius, and other Business Objects products and services mentioned herein as well as their respective logos are trademarks or registered trademarks of Business Objects S.A. in the United States and in other countries. Business Objects is an SAP company. All other product and service names mentioned are the trademarks of their respective companies. Data contained in this document serves informational purposes only. National product specifications may vary. These materials are subject to change without notice. These materials are provided by SAP AG and its affiliated companies ("SAP Group") for informational purposes only, without representation or warranty of any kind, and SAP Group shall not be liable for errors or omissions with respect to the materials. The only warranties for SAP Group products and services are those that are set forth in the express warranty statements accompanying such products and services, if any. Nothing herein should be construed as constituting an additional warranty Legal Disclaimer No part of this starter kit may be reproduced or transmitted in any form or for any purpose without the express permission of SAP AG. The information contained herein may be changed without prior notice. Some software products marketed by SAP AG and its distributors contain proprietary software components of other software vendors. The information in this starter kit is proprietary to SAP. No part of this starter kit s content may be reproduced, copied, or transmitted in any form or for any purpose without the express prior permission of SAP AG. This starter kit is not subject to your license agreement or any other agreement with SAP. This starter kit contains only intended content, and pre-customized elements of the SAP product and is not intended to be binding upon SAP to any particular course of business, product strategy, and/or development. Please note that this starter kit is subject to change and may be changed by SAP at any time without notice. SAP assumes no responsibility for errors or omissions in this starter kit. SAP does not warrant the accuracy or completeness of the information, text, pre-configured elements, or other items contained within this starter kit. SAP DOES NOT PROVIDE LEGAL, FINANCIAL OR ACCOUNTING ADVISE OR SERVICES. SAP WILL NOT BE RESPONSIBLE FOR ANY NONCOMPLIANCE OR ADVERSE RESULTS AS A RESULT OF YOUR USE OR RELIANCE ON THE STARTER KIT. THIS STARTER KIT IS PROVIDED WITHOUT A WARRANTY OF ANY KIND, EITHER EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED TO THE IMPLIED WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, OR NON-INFRINGEMENT. SAP SHALL HAVE NO LIABILITY FOR DAMAGES OF ANY KIND INCLUDING WITHOUT LIMITATION DIRECT, SPECIAL, INDIRECT, OR CONSEQUENTIAL DAMAGES THAT MAY RESULT FROM THE USE OF THIS STARTER KIT. THIS LIMITATION SHALL NOT APPLY IN CASES OF INTENT OR GROSS NEGLIGENCE. The statutory liability for personal injury and defective products (under German law) is not affected. SAP has no control over the use of pre-customized elements contained in this starter kit and does not endorse your use of the starter kit nor provide any warranty whatsoever relating to third-party use of the starter kit. 3

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5 Contents Chapter 1 Introduction Presentation Organization Other Documentation Database Structure Flow-Based Consolidation List of Accounting Flows Entering Data in Flows Balancing Flows Chapter 2 Initializing the Consolidation Section Objectives Key Points Suggested Approach Documents to be kept Updating Reporting Units Key Concepts Structure of the Reporting Unit Table Procedure Breakdown by Division Creating Packages Creating a Reporting ID Creating Reporting Sets Sending Opening Packages Entering and Updating Conversion Rates Conversion Rate Tables Conversion Rate Types Entering Conversion Rates Chapter 3 Collecting Data Section Objectives Key Points Suggested Approach Entering Data at Data Entry Site Receiving Packages Loading Data into Packages Publishing Packages Receiving, Checking and Integrating Packages

6 Contents Receiving Packages Running Package Controls Integrating Packages Sending a Given Package Several Times Chapter 4 Consolidation Scope Section Objectives Key Points Suggested Approach Documents to be kept Concepts and Definitions Definitions Defining Scopes Portfolios Creating Portfolios and Portfolio Occurrences Copying a Portfolio Occurrence Controls and Corrections Printing a Portfolio Occurrence Scopes Statutory and Reporting Scopes Creating a Scope Making Changes to a Statutory Scope Manually Specific Cases Hierarchical Scope Printing a Scope Chapter 5 Processing the Data: Key concepts Section Objectives Key Points Suggested Approach Introduction Manual Journal Entries Procedure Defining a Journal Entry Header Audit IDs Converting Data Main Principles YTD and Periodic Conversion Consolidation Processing Defining a Consolidation Running a Consolidation Processing

7 Contents Retrieving and Checking Data Data Retrieval Reports Checking Consolidated Data Chapter 6 Making adjustments to individual accounts Section Objectives Key Points Correcting Package Data Correcting Differences for Net Income N Recommended Solution: Package Processing Other Package Corrections Making Adjustments to Packages Making Fair Value Adjustments Other Adjustments Making IFRS Adjustments Chapter 7 Intercompany Transactions Section Objectives Key Points Suggested Approach Checking Intercompany Declarations Running Intercompany Reconciliations Correcting Differences Elimination of Internal Transactions Elimination of Reciprocal Transactions Dividends Provisions Gains or Losses on Internal Transfer of Assets Chapter 8 Deferred Taxation Section Objectives Key Points Overview Identifying the Bases of Deferred Tax Booking Deferred Tax Accounting for Deferred Tax Chapter 9 Consolidation Entries Section objectives Calculation of Non-controlling Interests Principles

8 Contents Elimination of Investments Principles Converting Consolidated Shareholders' Equity and Investments in Subsidiaries Principles Manual Journal Entries Analysing the changes in the foreign currency exchange reserve for the Group Optional Conversion Process on Investment and Capital/Share Premium Equity Method Principles Booking of Goodwill General principle Specific cases Checking Goodwill of incoming companies Chapter 10 Scope Changes Section Objectives Key Points Overview of the Scope Changes Typology of Scope Changes Scope Changes: Using the Right Flow Events Covered in this Documentation Incoming Entities Preparing the Reporting Cycle Automatic Processing Manual Processing Outgoing Entities Preparing the Reporting Cycle Automatic Processing Manual Processing Chapter 11 Completing the Consolidation Section Objectives Key Points Checking the Statement of Comprehensive Income Overview of the Statement of Comprehensive Income Reports Manual Journal Entries Path between the Statement of Comprehensive Income and the Statement of Changes in Equity Checking the Statement of Changes in Equity Checks Specific to Certain Accounts Checking Variation Flows

9 Contents Performing Detailed Checks for Reporting Units Checking the Statement of Cash Flows Overview of the Statement of Cash Flows Reports Analyzing Differences Manual Journal Entries Checking IFRS adoption

10 Introduction Introduction Presentation Organization The operating guide is organized according to the steps performed in a consolidation processing. Preparing the reporting cycle: This step describes how the consolidation is initialized (see Initializing the Consolidation), how package data is collected (see Collecting Data) and how the Group structure is defined (see Consolidation Scope). Processing the data: This step describes the main concepts (see Processing the Data: Key concepts), how intercompany transactions are eliminated (see Intercompany Transactions), how deferred taxes are computed (see Deferred Taxation) and how technical consolidated journal entries are posted (see Consolidation Entries). Completing the consolidation: in this step the entire consolidation is validated on the basis of the Statement of Changes in Equity and the Cash Flow Statement (see Completing the Consolidation). Each section presents: Key points A detailed approach with references to other sections for more information. Other Documentation The following documentation is available: Product Documentation: This document, available in the application, describes functions and procedures. Configuration Design Documentation: This document offers in-depth knowledge about customizing the database structure. You should refer to this documentation to get detailed information about: using the application for operations and customization purposes. making changes to the setup of the Starter kit. Database Structure All of the information in the database is identified by a set of elements required for storing, processing and retrieving data. These elements are called dimensions. The following dimensions are used in the configuration: Required dimensions All of the data stored in the database must be identified by these dimensions. CATEGORY The configuration provides one category scenario, called A-Actual, to be used for statutory consolidations. DATA ENTRY PERIOD: The date on which the information is entered for all of the defined periods using the following format: YYYY.MM PERIOD: The same value as the data entry period in a statutory consolidation. REPORTING UNIT: The company or Business Unit whose data is being entered. 10

11 Introduction CURRENCY: The currency in which the data is stored. ACCOUNT: The balance sheet and income statement accounts as well as technical accounts for consolidation purposes, for example suspense accounts. FLOW (see Flow-Based Consolidation). AUDIT ID: The ID that identifies the origin of the data for packages, local adjustments, manual journal entries, and automatic journal entries. Analysis dimensions PARTNER: The reporting unit involved in an intercompany transaction. MANAGEMENT UNIT: In-built dimension not used in the starter kit PARTNER MANAGEMENT UNIT: In-built dimension not used in the starter kit. SHARE: The held company in the investment portfolios. COUNTRY: The breakdown of external sales by geographical area. ANALYSIS Used to build the Statements of Cash Flows, Changes in equity, Comprehensive income and thr Country-by-Country Reporting (BEPS). Also used for data entry on a daily basis for flows F20/F40 on Investment, F40 on Issued capital/share premium and F06 on Dividends. Note: These dimensions do not always contain values. Dimensions specific to consolidation processing SCOPE, VARIANT and CONSOLIDATION CURRENCY: These dimensions are used to identify a consolidation definition. Technical dimensions Example JOURNAL ENTRY NUMBER LEDGER ORIGINAL REPORTING UNIT TECHNICAL ORIGIN GEOGRAPHICAL ORIGIN Note: Data for these dimensions is automatically loaded by the application. Reporting unit RU1 has in cash at the end of the 2009 fiscal year. This information, which originates from the data entry package, is stored as follows in the database: Category Data Entry Period Period Reporting unit A RU1 EUR Currency Account Flow Audit ID Amount A2610-Cash on hand F99- Closing PACK01- Package Data For more information on the database structure, see the functional design documentation. Flow-Based Consolidation The flow dimension is used to identify and analyze the changes between the opening and closing balances. The accuracy of automatic processing depends on whether data has been correctly entered in flows. Flows differ according to the account being analyzed

12 Introduction List of Accounting Flows Types of Flow Opening and closing balances correspond respectively to flows F00 and F99. Variation flows can be organized into the following categories: Flows for Current Transactions Income statement Transactions for the income statement are posted in flow Y99. Debt management Movements in debt management items, made up of current assets and liabilities (excluding provisions) and the cash flow are posted in variation flow F15. Example You want to enter an amount of 100 excluding VAT from the sale of goods. In company accounts: Account Debit Credit Sale of goods 100 Accounts receivables 100 In the application: Account Flow Debit Credit P1100 Revenues Y A2210 Trade receivables, Gross F Depreciation, impairment and provisions The balance sheet movements due to depreciation, impairment and provisions are posted using the following flows: F25 - Increase in depreciation F35 - Decrease in depreciation Example You want to enter a gross amount of 100 as allowances for provisions on shares. In the accounting system: Account Debit Credit Depreciation on investment 100 Allowance/depreciation of investments 100 In the application: Account Flow Debit Credit A1812 Investments in subsidiaries, JV and F associates, Impair. P2210 Allowances for provisions on shares Y Equity In equity accounts, shareholders' equity is processed separately from the other items. 12

13 Introduction Movements in shareholders' equity usually originate from: The distribution of dividends (posted in flow F06) The income of the current fiscal year (recorded in F10) The increase or decrease in capital (posted in F40) Movements that come under Other comprehensive income, for example, flow F55 on fair value reserve Other specific operations, like acquisition (flow F20) and disposal (flow F30) of treasury shares Note: In the Equity section of the Balance sheet, there is no specific account for the Net profit of the period. This net profit must be included in account E1610-Retained earnings. Non-current assets and liabilities For the non-current assets and liabilities: Increases are posted in F20. Decreases are posted in F30. Investments in subsidiaries and capital subscription (increase, decrease or creation of capital) are posted in F40. Example You invest in the creation of Company F by subscribing to its capital. During the year, you buy an associate s share for 250. This investment is financed by a bank loan. In the accounting system: Account Debit Credit Investments in subsidiaries Bank loans In the application: Account Flow Debit Credit A1810 Investments in subsidiaries, JV and associates F A1810 Investments in subsidiaries, JV and associates F L1510 Borrowings, Non current F Transfers between items Transfers between balance sheet accounts are recorded in F50-Reclassification. Adjustment to IFRS standards Variations in fair value for financial assets and liabilities are posted in F55-Fair value. Flows for Specific Transactions The flows used for specific transactions are as follows: Changes in accounting policies: The impact on balance sheet items is posted in F09-Change in accounting policies, which must balance (Total Assets = Total Liabilities). Contribution to capital and merger transactions: The impact on balance sheet items, including issue of shares for capital contribution, is posted in F70-Internal mergers. Any impact on the net income for the period is recorded in account P1620-Merger result. 13

14 Introduction Flows Specific to Consolidated Accounts The flows specific to consolidated accounts are generated automatically by the application and are as follows: Effect of foreign exchange rate variations: F80 Effect of variations in scope: F01: Incoming units F02: Change in consolidation method (old). This flow is used as the reverse opening flow for reporting units that change their consolidation method, for example from the equity method to a full or proportionate consolidation or vice versa. F03: Change in consolidation method (new). This flow is used as the incoming flow of the new consolidation method. F04: Change in consolidation rate. This flow records the impact of change in consolidation rate for subsidiaries consolidated using the proportionate or equity method. F92: Change in interest rate. This flow corresponds to the impact of change in Group financial interest on the equity. F98: Outgoing units Entering Data in Flows In Data Entry Packages In the consolidation package, you must enter the closing balance in F99. Flow F15-Net variation is then automatically calculated by subtracting the sum of the opening flow and other movement flows from the closing flow (F99). Flow F15 is used as a control flow that should be analyzed using the relevant variation flows, for all the balance sheet items except: Cash accounts Current assets/liabilities accounts, excluding depreciation, impairment and provisions, for which no detailed analysis by flow, like increase/decrease, is required to build the Statement of cash flows. Example Company A has assets of up to 100 at closing, as compared to 50 at opening. After entering or importing data, the assets variation table should be as follows: ACCOUNTS CODE F00 F99 F20 Increase F30 Decrease F50 Reclass. Other Control (F15) Assets A11xx Movements during the fiscal year correspond to an investment of 80 and a sale of 30. Data should therefore be entered in the schedule as follows: ACCOUNTS CODE F00 F99 F20 Increase F30 Decrease F50 Reclass. Other Control (F15) Assets A11xx In Journal Entries Regardless of whether they are automatic or manual journal entries, they are automatically saved in a movement flow that carries over data to the closing balance of the balance sheet. 14

15 Introduction Balancing Flows Certain flows must be balanced for assets and liabilities/equity. Others must ensure that assets - liabilities = income. Flow F00 Opening F01 Incoming units F03 Change in consolidation method (new) F09 Change in accounting policies F50 Reclassification F70 Internal mergers F80 Currency translation adjustment F99 Closing Assets Liabilities = Equity X X X X X X X Assets - Liabilities = Income (income statement accounts) X (P1620) If these principles are not respected in manual journal entries, then cash flow statements may not be balanced. Data retrieval reports are used to ensure that flows are balanced. 15

16 Initializing the Consolidation Initializing the Consolidation Section Objectives To present all of the tasks required to run a new consolidation processing. Key Points To initialize a new consolidation processing, you should: Update the list of companies and data entry sites Create packages for the data entry period or send opening packages to the subsidiaries Enter the conversion rate for the period Before creating packages or sending packages to subsidiaries, you should add all of the Group's incoming companies to the list of companies. You can manage the list of companies in the Dimension Builder module of the Setup domain. You can manage the opening packages to be sent to subsidiaries and opening balances, if required, in the Reporting Organizer and RU Organizer modules of the Operation domain. Conversion rates for the period can be entered before or after you send the packages to the subsidiaries. For the list of companies, however, you must update it first in order to determine exactly which currencies will be required for the consolidation. Suggested Approach 1. Update the list of companies in the group and the list of data entry sites. 2. Create packages or send opening packages to subsidiaries. 3. Enter conversion rates for the period. Documents to be kept Printout of the conversion rate tables Updating Reporting Units The Reporting Unit is the elementary component of the Group s structure. Each Reporting Unit populates a package. In a statutory consolidation, a Reporting Unit is usually a legal entity, but it can also be a sub-group, a branch, a business unit, or a department. Key Concepts The reporting unit table contains all of the reporting units for which the Group has defined a code, regardless of whether or not they will be consolidated. You can assign a code to companies that are not linked by their capital to the Group. You usually do so in the following cases: When the Group is included in the consolidated accounts of another Group, even though it consolidates data at its own level. By specifying a code for sister or parent companies, you can manage all of the data required for the top level consolidation process (for example, investments and intercompany transactions). 16

17 Initializing the Consolidation When the Group wants to perform breakdowns by partner (customers/suppliers) using consolidated data. The code TP-999-Third parties corresponds to all of the reporting units that do not have a code. You should never delete it. Structure of the Reporting Unit Table A certain amount of information for each Reporting Unit is stored in the database. This information includes characteristics or sub-characteristics. This information is required because it enables the Reporting Unit to be correctly included in the consolidation processing. Currency This identifies the currency in which data is collected. Country This indicates the country in which the Reporting Unit's headquarters are located. This characteristic is used to produce geographical area analysis. Company This is the legal entity to which the Reporting Unit belongs. A Reporting Unit may be its own legal entity. This information is required when the consolidation scope is being defined. Several business units (BUs) may correspond to the split of one legal entity. In that case, all these BUs will have the same Company (corresponding to the Head BU). Purpose This characteristic is used to distinguish between Legal entity, Business unit, Sub-consolidation, Archived, and Technical Reporting Units. Division When your consolidation definition is based on a hierarchical scope, the Division characteristic is used to eliminate intercompany transactions by distinguishing between inter/intra segment transactions during a consolidation processing. Branch This sub-characteristic identifies the branch for each Division. It is used to create a Reporting Unit hierarchy that can be used in the Scope Builder module. The Division characteristic and Branch sub-characteristic share the same reference table. Procedure To add a Reporting Unit (Dimension Builder module, Setup domain) 1. Expand the tree structure to display Data sources > Amounts > RU-Reporting unit. Check that the Load data mode is enabled. 17

18 Initializing the Consolidation 2. Select File > New. In the General tab, enter the code, short description and long description you want to assign to the new reporting unit. In the Properties tab, enter the characteristics and properties for the new reporting unit. 3. Translate the descriptions in the Translate tab. 4. Select File > Save. 5. Select File > Close. Breakdown by Division If you do not translate the descriptions into other languages, then when subsidiaries open the application in a language other than English, they will not be able to see the descriptions of their partners when entering intercompany data. To ensure a correct breakdown by Division/Branch, you should: Create new members in the Division/Branch list. Select the Branch sub-characteristic for each of the divisions. Select the Division characteristic in the Reporting unit table for each of the reporting units. Note: The breakdown by division as proposed in the IFRS Starter kit is based on the following principle: 1 reporting unit = 1 division = 1 branch. If your Group holds companies corresponding to multiple divisions, you have to split the legal entity or entities into several mono-division reporting units. To create a new Division or Branch 1. In the Dimension Builder module of the Setup domain, expand the tree structure to display Reference tables > EN-DIVISION and check that the Load data mode is enabled. 2. Select File New. In the General tab, enter the code, short description and long description you want to assign to the new activity or branch. 3. For a new Division, enter the Branch sub-characteristic in the Properties tab. 4. Select File > Save. 5. Select File > Close. Creating Packages You create packages in three stages: Create a reporting ID in the Reporting Organizer module of the Operation domain. Define the list of reporting units included in the reporting ID in the RU Organizer module of the Operation domain and adapt these settings for some of the reporting units, if needed. Generate the packages on the current site or send packages to another data entry site in the RU Organizer module of the Operation domain. 18

19 Initializing the Consolidation Creating a Reporting ID A Reporting ID consists of: A category, like a type of data to be processed. For example category A for statutory consolidations. A data entry period, for example for the yearly consolidation on 31 December A Reporting ID contains properties that are applied by default to all of the packages included in it, except for changes made individually to the properties of certain Reporting sets (RU Organizer module). In the IFRS Starter kit, the following options must be considered when creating a Reporting ID: Category Scenario The Starter Kit comes with one category scenario: A-Actual, version C-Current. Data Entry Folders In the IFRS Starter kit, two package formats are available: P-A - Package for Actual This package is used when entering data for entities consolidated using the Full or Proportionate consolidation method. P-E - Package for EM companies This is a package dedicated to entities consolidated using the Equity method. The list of accounts to enter is much smaller, including only Equity accounts, Net Income for the period and Dividends paid. In case an EM entity holds subsidiaries, it should be included in the group s consolidated financial statements based on its own sub-consolidated accounts, according to IAS 28. For this reason, some consolidation flows are available in the P-E package schedules. Note: The same folders are available for data entry via both the Windows and Web interfaces. Sets of Controls Two sets of controls have been defined in the starter kit, and correspond to the package formats available for data entry. Depending on which data entry folder you choose, you have to specify the corresponding set of controls (P- A or P-E). Control Level Two control levels can be applied to packages: LEV1 Balance Analysis is used to group together basic accounting controls, such as Assets Liabilities = Equity. The controls checking the breakdown of Investments and Equity by flows also come under LEV1. LEV2 Flow Analysis is used to check that flow analyses are complete. Origin of Opening Balances We recommend that you use data from consolidated tables rather than preconsolidated tables (see Processing the Data: Key concepts) so that the data used for package opening balances is consistent with data from the consolidated opening balances. When several consolidations have been run using different variants, you can choose any variant for the package opening balances, as long as the package data and corrections are identical for all variants. When initializing a consolidation for the first time, the "Opening balance data" option should be disabled. 19

20 Initializing the Consolidation Restrictions Read-only flows: When the opening flow (F00) is selected, data in opening flows cannot be changed in the package. Enable the "Read-only flows only if there is an opening balance" option in order to let incoming reporting units enter their opening balances. Read-only periods: This option is not used in the Starter Kit because category A-Actual has only one period for entering data, identical to the Reporting ID's data entry period. Data entry restrictions: The Starter Kit comes with one default data entry restriction, PACK- STD (Package Standard), that limits the available members for the following dimensions: AC-Account: All the accounts are allowed except archived and consolidation-specific accounts. ANALYSIS (multi-purpose dimension): The reference members available are the dates, used for optional currency translation process. Note: If you decide to apply a Monthly or Quarterly conversion (see YTD and Periodic Conversion), you may need to use a different data entry restriction. For example, PACK-Q2 when you process the quarterly consolidation for June. Creating Reporting Sets When you create a Reporting ID in the Reporting Organizer module of the Operation domain, you also define the general environment for all Reporting Units. Once this is done, you should: Create a reporting set for each reporting unit required to enter data in a package. Validate or update the reporting properties for each reporting unit if required. Besides the properties from the Reporting ID defined in the Reporting Organizer module, the reporting set presents additional properties in the Roadmap tab which are used to define the data entry site, currency and users authorized to access the package in data entry. Sending Opening Packages Two possibilities are offered to enter data in the packages: Entering data at decentralized data entry sites in the Windows interface Note: If you want to use this option, you must first send opening packages by creating a new send task and including the transferable object Opening package. Entering data in packages at central site When data is entered in the package at central site, you do not need to create a send task. You can make the package available directly in the RU Organizer module by right-clicking the reporting set and selecting "Generate Package at Current Site". Note: Detailed information on sending opening packages is available in the application help. Entering and Updating Conversion Rates Conversion Rate Tables Conversion rates are identified by: a rate version a period 20

21 Initializing the Consolidation The rate versions enable you to specify different conversion rates for the same period and therefore simulate different consolidations. You usually use this functionality: To produce temporary accounts when the currency exchange rate is not yet known, for example when publishing data in advance for intercompany transactions. To run simulations using different currency scenarios. In the Starter Kit, two conversion options are available, depending on whether you apply YTD or periodic (Monthly or Quarterly) exchange rates (this will be dealt with in detail in chapter YTD and Periodic Conversion). As a result, two rate versions are available by default: A-YTD and A-PER. You can also create new conversion rate versions. Conversion Rate Types For a given rate version and period, the following conversion rate types are available: ARPP - Average exchange rate, prior period OR - Opening exchange rate, current period AR - Average exchange rate, current period CR - Closing exchange rate, current period Daily-specific rates The ARPP rate type is used only if you apply Monthly or Quarterly conversion (see YTD and Periodic Conversion). Daily-specific rates were created to enable the conversion of paid dividend (F06) at the rate of distribution. Paid dividends are entered by beneficiary and date in the package and converted by default to the average rate or at the rate of the day when entered (see Dividends). Daily rates also enable the conversion of F20/F40 on Investment and Issued capital/share premium, based on daily rates rather than the average rate for the period (see Optional Conversion Process on Investment and Capital/Share Premium ). A report checks the consistency between the analysis by date entered in the package and daily rates entered in the conversion rate table. The conversion rates entered are based on the base currency selected by users for each conversion rate table. This currency has a conversion rate equal to one for all rate types. The choice of this base currency is not related to the currency in which the consolidation is run. However, it would be easier to choose the consolidation currency as the base currency in the case you have to enter specific rates (daily rates or specific rates for incoming and outgoing companies) for companies using the base currency. In that case, If you run consolidations with different consolidation currencies, you would have to create as many conversion rate tables as consolidation currencies. If the consolidation currency is different from the base currency, it is also necessary to enter a specific conversion rate for reporting units using the base currency. This conversion rate should be calculated according to the consolidation currency specific exchange rate (and will not be equal to one). Entering Conversion Rates You can enter conversion rates in one of the following ways: Enter the different rate types in the conversion rate table. Import data from a file (see the product documentation). 21

22 Initializing the Consolidation Calculation Methods Conversion rates can be expressed as follows: Divide: The amounts entered are divided by the conversion rate for the "Certain for uncertain" calculation method. Multiply: The amounts entered are multiplied by the conversion rate for the "Uncertain for certain" calculation method. Example The base currency is USD. Exchange rate for USD and EUR are entered as follows, depending on the calculation method you choose: Currency Divide Multiply USD 1 1 EUR Conversion Rates Specific to Certain Reporting Units You can enter a conversion rate specific to one reporting unit. You use this option for incoming and outgoing companies, for example the opening rate for an incoming reporting unit is the rate applicable at the time it was included in the scope and not the rate applicable on the first day of the data entry period. This is explained in chapter Incoming Entities. Daily Rates To enter daily-specific rates for a given currency you should add columns in the right part of the conversion rate table. The list of additional rate types corresponds to the days of the year. For example, if a particular consolidation event occurred on Sept 14 th, first add the September 14 rate type in the list of available columns, then enter the exchange rate for the relevant currencies at this date. The exchange rate for the pivot currency must always be populated (with a value of 1) for any of the date-specific rate types to ensure a correct conversion process. Besides, if the consolidation currency differs from the pivot currency, you must also populate the exchange rates of the consolidation currency for any of the date-specific rate types. In case you apply periodic conversion, enter daily-specific rates only for the dates included in the period (month or quarter). For example, if you use quarterly conversion, the conversion rate table for Q3 should only include rates for dates from Jul 1 st to Sept 30 th. Indeed, if a consolidation event occurred in Q2 and you entered specific exchange rates for the corresponding date in Q2 conversion rate table, the conversion for F20 or F40 has already been done in the consolidation for Q2 and should not be re-processed in Q3. 22

23 Collecting Data Collecting Data Section Objectives To describe how package data is collected. Key Points At local data entry sites, data is loaded manually into consolidation packages by entering data, or automatically by interfacing with the accounting system or by importing data tables. After the data is entered or imported, controls must be run on packages, which are then published and sent to the consolidation department (in the case where data entry is decentralized). In order for the package data to be included in the consolidation, packages must be integrated into the database. Suggested Approach At data entry site: 1. Receive the opening package sent by the consolidation department (if applicable). 2. Enter or import data to the package. 3. Run controls on the package. 4. Publish the package so that its data is made available to the consolidation department. At the consolidation department: 1. Receive the packages (if applicable). 2. If there are no send conditions, check that the package sent has reached the control level required. If this is not the case, then run controls and correct the errors. 3. Integrate package data into the database. Entering Data at Data Entry Site Receiving Packages To receive packages, perform the following actions: Define an inspection task so that it can detect the objects to be received. If objects are detected by this task, then a new reception task RYYMMDD.000x will be automatically created. Run the reception task. This procedure only applies to the Windows client when the packages are filled out on a decentralized data entry site. In any other case, the packages are directly available on the current site without performing any additional action. 23

24 Collecting Data Loading Data into Packages The procedure to enter or import data into a package and to run package controls is described in detail in the Package Data Entry Guide. Publishing Packages After a package has been filled out, it must be published so that it will be available at the central level when the consolidation is processed. When the data entry is done on a different site from the consolidation site, the publication of a package creates a Send objects task with the package. There are several publication options. To learn more about them, refer to the application help. Receiving, Checking and Integrating Packages Receiving Packages Just like at data entry sites, to receive packages, perform the following actions (see Receiving Packages): Define an inspection task so that it can detect the objects to be received. If objects are detected by this task, then a new reception task RYYMMDD.000x will be automatically created. Run the reception task. Running Package Controls If the "Blocking" option was checked when the packages were created or sent to the subsidiaries, then the control level set must be reached before the subsidiaries can publish or send their packages back to you. However, the send condition is not always required for a reporting process that is carried out for the first time or for incoming entities. For these two cases, you will, however, need to know the control level reached by the package before integrating it. If the package does not comply with the control level set, you will also need to rerun controls in order to obtain details on the errors. Integrating Packages This step is used to integrate packages automatically in the preconsolidated table that will be used when the consolidation is processed. This step is mandatory for running the consolidation processing and must be performed: Once you have received the package and checked that its data is correct. When changes are made to a package which is then published again, if you want these changes to be included in the consolidated accounts. Sending a Given Package Several Times A subsidiary may need to send its package several times to central site if it incrementally corrected or completed its package data. 24

25 Collecting Data If the consolidation department wants to find out which changes were made to the accounting data as compared to the previous version, it can display/print the following schedule for the relevant Reporting Unit: Folder Book Schedule C4 C41 C41-05 Compare local/pre-consolidated data An overall control report (not detailed by elementary accounts) can also be run for all the packages related to one Reporting ID: Folder Book Schedule C4 C41 C41-10 Check integration by Reporting Unit You should consult these schedules before integrating the new version of package data. 25

26 Consolidation Scope Consolidation Scope Section Objectives To define the consolidation scope. Key Points The configuration proposes three ways to define your scope: An automatic mode, where you first enter data in packages, and then generate the portfolio and the scope automatically. A semi-automatic mode, where you first enter data in the portfolio manually, and then generate the scope automatically. A manual mode, where you enter data in the scope manually or copy an existing scope. Before creating the consolidation scope, you should first have updated the list of companies in the Group (see Initializing the Consolidation). This is done in the Scope Builder module of the Operation domain. The Starter Kit offers segment reporting capabilities, based on hierarchical scopes. Suggested Approach 1. Create a portfolio. 2. Load data in the portfolio in one of the following ways: Initialize it using the data collected in the packages. (mode 1) Enter data manually or copy an existing portfolio. (mode 2) 3. Create a scope. 4. Load data in the scope in one of the following ways: Initialize it using the portfolio. (mode 1 and 2) Enter data manually or copy an existing scope. (mode 3) 5. Define the hierarchy to be applied for Reporting Unit Rollup calculations Documents to be kept Printout of the portfolio Printout of the scope Concepts and Definitions Definitions Portfolios A portfolio consists of information about the direct legal investments between companies in the same corporation. It: stores the number of shares and voting rights owned by companies. stores the number of shares and voting rights held by one company in another. 26

27 Consolidation Scope uses shares and voting rights to calculate the direct investment, financial interest and ownership interest of one company in another (see Rates Used). Consolidation Scope The scope shows the following for all of the companies included in it: The consolidation method, like Not consolidated (NC), Full (FC), Proportionate consolidation (PC) and Equity method (EM). The financial interest, ownership interest and consolidation rate. Besides this data displayed at period closing, the application also displays the data from the previous period. This enables you to identify scope changes: Incoming entities (I) Outgoing entities (O) No variation (N) Segment Analyses The segment reporting, especially the Revenue by segment, relies on the Reporting Unit Rollup functionality. It automatically calculates the inter-intra segment eliminations using the hierarchical scope entered in the consolidation definition. Therefore, it is mandatory to define the unit hierarchy to be applied in the Hierarchical scope step; otherwise, the reports dedicated to segment analyses will not retrieve consistent data. Rates Used Direct Shareholding, Financial Interest and Ownership Interest The portfolio refers to three types of rate: Direct shareholding: This represents the percentage of shares a parent company holds in the held company. Financial interest: This represents the percentage of capital that a parent company holds directly or indirectly in the held company. Ownership interest: Example 1 When one company holds another company directly, the ownership interest is the same as the shareholding percentage. When one company holds another one via intermediate companies, the ownership interest is calculated by adding together the direct shareholding percentages held by the companies in which there is an interest greater than 50% (because the default control threshold is 50%). M 60% F1 50% F2 50% Subsidiary Parent company Direct shareholding Financial interest Ownership interest F1 M 60% 60% 60% F2 M F1 50% 50% 80% (1) 50% 100% (2) 50% (1) Percentage of financial interest of M in F2 = 50% (direct) + 60% x 50% (indirect via F1) = 80% (2) Percentage of ownership interest of M in F2 = 50% (direct) + 50% (indirect via F1, as more than 50% of F1 is held) 27

28 Consolidation Scope Example 2 M Subsidiary Parent company Direct shareholding Financial interest Ownership interest 20% F1 M 20% 20% 20% 50% F1 50% F2 M F1 50% 50% 60% (1) 50% 50% (2) 50% F2 (1) Percentage of financial interest of M in F2 = 50% (direct) + 20% x 50% (indirect via F1) = 60% (2) The percentage of F1 in F2 is not taken into account because M's interest in F1 is less than the threshold. Consolidation Rate Besides the financial and ownership interests, scopes also display the consolidation rate. This rate depends on the consolidation method: For a fully consolidated company, it is 100%. For a proportionate consolidation, it represents the share of assets and liabilities (or expenses and income) included in the Group balance sheet (or income statement). It is equal to the sum of all direct shareholdings in the subsidiary held by companies in the scope, after the consolidation rates for the latter have been applied accordingly. For a company consolidated using the equity method, it represents the Group share used to calculate the consolidated value of the investments in associated undertakings. It is calculated in the same way as in a proportionate consolidation. Example 80% 20% M F1 F2 Company Ownership interest Consolidation method Financial interest Consolidation rate F1 80% Full 80% 100% (1) F2 20% Equity method 16% 20% (2) (1) F1 fully consolidated so consolidation rate = 100% (2) Consolidation rate for F2 = direct rate via F1 (20%) x F1 consolidation rate (100%) = 20% Initial Values/Revised Values The number of shares as well as the rates displayed in portfolios and scopes have two different values: Initial value: This is the value calculated by the application using source data when initializing the following automatically: Portfolios (source data = preconsolidated data) Scopes (source data = portfolio) Revised value: You can enter this value manually in a scope or portfolio. If this value exists, then it will take priority over the initial value when applying rates in consolidation processing. Defining Scopes The configuration proposes three ways to define consolidation scopes in order to select which entities are to be consolidated, the consolidation method and rates to be used. You must define the unit hierarchy to be applied, whichever way for defining scopes you choose. Otherwise, consolidations using a set of rules that includes a Reporting Unit Rollup rule cannot be processed. 28

29 Consolidation Scope Automatically Portfolio is automatically generated by loading data entered in consolidation packages: By the subsidiaries in schedule PA2600: This schedule outlines the distribution of capital in number of securities per shareholder (group and third party) after having entered the total amount of capital (account E1110) and the total number of shares (account XE1110). By the shareholder in schedule PA2400: This schedule analyzes the variation in investment securities held, by number (account XA1810). The direct shareholding rate is derived from the total number of capital shares declared by the subsidiary and the number of shares held declared by the parent company or companies. The scope is then generated automatically using the portfolio. This is the surest method because you can check that shares declared by subsidiaries and parent companies correspond, and because the rates for direct shareholding, financial interest, ownership interest and consolidation are calculated automatically. Semi-Automatically In this method, you enter the portfolio manually and then generate the consolidation scope automatically. This method is often used when the consolidation department wants to build the scope before having received all the packages, assuming that legal data is available and up-to-date in the central database. Manually This method consists of loading data in the scope either by entering it manually, or by copying an existing scope. This method is adopted when defining pro forma accounts, or when performing simulations. It does not, however, enable you to check the consistency of the data entered. Portfolios Creating Portfolios and Portfolio Occurrences You manage portfolios in the Scope Builder module of the Operation domain. You enter data in a portfolio in two stages: Create a portfolio with a code and description, and specify a number of settings for loading and calculating rates. This is only mandatory when performing the reporting cycle for the first time. Create a portfolio occurrence in order to enter data for a given data entry period. Properties Tab Voting rights are proportionate to shares Option If you select the "Voting rights are proportionate to shares" option, then the number of shares that you enter are applied automatically to the number of voting rights, which are then used for calculating ownership interest. Moreover, the fields displaying the number of voting rights are grayed out. You can only change this value by changing the value for the number of shares. Therefore, this option is: to be deactivated when you initialize the portfolio with data entered in packages, which is the recommended method, only advisable when portfolio is entered manually, in order to avoid a double keying. 29

30 Consolidation Scope Other Parameters The table below indicates the manner in which you should enter the other Properties tab s parameters when defining either a Portfolio or a Portfolio occurrence. These parameters are required only if you want to initialize the portfolio using the data collected in the packages. Parameter Reporting ID (Category) Reporting ID (Data entry period) Value A Actual [Data entry period of the consolidation] Only available for a portfolio occurrence Period [Same value as Data entry period] X Flow Non-group reporting unit Audit ID filter F99 Closing position TP-999 Third parties AU1-S-R Level S and R, i.e. package origin X Initialization Tab If you want to initialize the Portfolio occurrence using the information collected in the packages, the Initialization tab should be filled out as follows: For declaring capital stock For declaring portfolio Parameter Parent company Subsidiary Shares Voting rights Parent company Subsidiary Shares Voting rights Value SH - Share RU Reporting unit AC1-001 Issued capital Number of stocks AC1-001 Issued capital Number of stocks RU Reporting unit SH - Share AC1-002 Investment in subsidiaries, JV, associates Number of shares AC1-002 Investment in subsidiaries, JV, associates Number of shares Copying a Portfolio Occurrence In the application, you can copy a list of investments from one portfolio occurrence to another, regardless of the other initialization settings. Controls and Corrections Controls of the Investment Control reports are available in the software to check the consistency of portfolio data. The Control reports available are the following: 30

31 Consolidation Scope Investments Greater than 100% This report displays errors coming from stockholdings greater than 100%, for instance, when the total number of shares held is bigger than the share capital declared by the subsidiary or when the sum of direct and indirect stockholding is greater than 100%. We recommend that you print this report using revised data, which is used to generate consolidation scope from portfolio. Missing Capital Stock This report shows the list of reporting units that have not entered the number of shares included in their capital, on the account used for the initialization of the investment. Revised Data/Declarations This report shows the discrepancies between a holding and its subsidiary on revised values. The subsidiary enters in its data package the number of shares by shareholders. The holding enters the number of shares it holds. This report reconciles these two declarations. Note: The Control for declarations report also shows the reconciliation, but on initial values. We recommend that you check the revised values, given that they are used for the initialization of the consolidation scope. Initial Data/Declarations Control The discrepancies displayed in this report between the initial value of the shares and the declared shares indicate that the pre-consolidated data (integrated data packages and manual journal entries) has been modified since the last initialization of the investment. This report should be used only if the portfolio was initialized using the data collected in the packages. Correcting Errors Use one of the following methods to correct errors: Direct correction of the package data It is the easiest way for correcting, but the following steps must strictly be performed: 1. Enter the corrections in the data package. 2. Control and save the data package. 3. Publish and integrate the package. 4. Re-initialize the investment in the portfolio occurrence. This step is critical. When the dialog box Do you want to save your changes appears, click Yes if you want to keep any manual modification you might have made within to the portfolio occurrence. Manual correction of the investment The major drawback of this solution is the fact that the corrections recorded in the investment will not be carried forward on the opening balance of the following year. Printing a Portfolio Occurrence You can customize the display of portfolio occurrence investments on screen or paper by adding, removing and sorting the columns displaying rates, number of shares and voting rights. 31

32 Consolidation Scope Scopes Statutory and Reporting Scopes In the application, you can create two types of scope: Statutory scopes: These scopes must be generated using a portfolio. They cannot be changed without first changing the capital and investment rows in the portfolio. Reporting scopes: These scopes can be created with or without a portfolio and all of their data can be changed directly. The consistency between the basic information (the number of shares and voting rights) and the rates in the scope can only be guaranteed by using statutory scopes. A statutory scope initialized with a portofolio is required for the automatic calculation of goodwill of incoming companies. Indeed, it enables to store all relationships between owner and held companies used by coefficients to generate goodwill. Creating a Scope There are two ways of populating a scope, depending on whether or not you want to use a portfolio. Setting up a Scope using a Portfolio This can be done with a Statutory scope or a Reporting scope. You can specify the settings for the opening scope. The application uses this information to identify the incoming and outgoing reporting units and the rate variations to be used in consolidation processing. When using the built-in unit Rollup functionality, you must define the hierarchy of the Reporting Units in the hierarchical scope step. Note: All reporting units belonging to the scope at opening and closing must be included in the hierarchy so that the Rollup calculations can be performed. Setting up a Scope without a Portfolio This can only be done with a Reporting scope. For each Reporting Unit, all the parameters (consolidation method, rates, and so on) can be entered/modified. You must define the Reporting Unit hierarchy if you want to retrieve consistent segment analyses. If needed, an opening scope can be specified. Making Changes to a Statutory Scope Manually Adding and Deleting Companies It is possible to add a company to the scope. To do this, the modification must be done in the Investments step of the scope. Then, in the Scope step, check the consolidation method and change it if needed. The same method applies when you want to delete a company from the scope. In the Scope step, you need to make sure the consolidation method is Not consolidated (NC). Changing the Consolidation Method Consolidation methods are automatically assigned according to the ownership interest threshold defined in the Initialize using a portfolio step in the scope editor. 32

33 Consolidation Scope If you select the Full Consolidation method, the consolidation rate will automatically be 100%. In the other cases, for example for proportionate or equity methods, however, you must change the consolidation rate manually to ensure that the consolidated accounts are valid. Financial Interest and Ownership Interest In statutory scopes, you cannot change the financial and ownership interests directly. You should therefore change the number of shares and voting rights in the Investments step. Specific Cases Incoming Companies By default, the processing applied to incoming companies uses the financial interest and consolidation rate at closing. You can specify intermediate rates (1) in order to process the incoming transaction in the incoming flow and one subsequent operation (purchase or partial disposal) in a variation flow. Outgoing Companies In the application, you can manage Reporting Units: leaving the scope at the start of the period leaving the scope during the period acquired, merged, at the start of the period acquired, merged during the period By default, an outgoing company is considered as leaving the consolidation at the beginning of the period. To manage the other three cases, select the Incoming/Outgoing tab, and enter the following parameters: If the company is merged with another Reporting Unit in the Group, enter the code of this reporting unit. If the company is outgoing, merged, during the period, you can consolidate its income and expenses until the effective outgoing date. To do this, enter the data entry period corresponding to the package whose data you want to integrate. Opening rates are applied by default to companies outgoing or acquired during the period. If you want to use different rates to calculate the non-controlling interests in the net income for the period, check the "Intermediate rate" option and enter these rates. Hierarchical Scope As mentioned before (see Segment Analyses), some of the segment analyses provided by the IFRS Starter Kit are based on Reporting Unit Rollup rules. Consequently, defining a hierarchical scope is required in order to retrieve consistent segment analysis data. The secondary hierarchy tab is not used in the starter kit. Printing a Scope The procedure is identical to the one described for printing a portfolio occurrence (see above). (1) In the current version of Financial Consolidation, you cannot manage intermediate consolidation rates for companies consolidated using the proportionate method. Therefore, you should enter an intermediate consolidation rate that is equal to the consolidation rate at closing. 33

34 Processing the Data: Key concepts Processing the Data: Key concepts Section Objectives This chapter is the first section that describes how data is processed. It will provide a general overview of the transition made by package data as it is processed to produce the Group's consolidated accounts. Key Points The steps involved in processing package data in order to produce consolidated accounts are: Integrate data from consolidation packages. Enter manual journal entries. Run the consolidation processing to: Integrate package data according to the consolidation method and consolidation rate. Convert amounts in foreign subsidiary accounts. Generate automatic processing. Each type of data is assigned with a different audit ID to facilitate the analysis of the transition from local to consolidated figures. An audit ID is used to: Provide an audit trail for the amount: Data entered in packages is associated with audit ID PACK01 or local adjustment audit IDs Data from automatic processing or manual journal entries is associated with other audit IDs Indicate (in its long description) the purpose of non-package entries, for example PRO20-Elimination of internal provisions - Auto. Besides the audit ID, each data is identified by its technical origin, which is used, for example, to distinguish between automatic processing, manual journal entries, opening balance data. The following sections will present in greater detail how package data is processed automatically and manually: Adjustments to company accounts (see Making adjustments to individual accounts) Checking and eliminating intercompany transactions (see Intercompany Transactions) Posting consolidation journal entries (see Consolidation Entries) Suggested Approach Our approach for checking and analyzing data is closely linked to the methods used by the consolidation department. Regardless of the methods used, we recommend that you use reports available in the application (see Checking Consolidated Data) to check that the consolidated accounts are generated correctly before ensuring that the data meets accounting requirements. 34

35 Processing the Data: Key concepts Introduction Before running a consolidation processing, there are two data sources available: Package data, which corresponds to data entered in packages only, regardless of whether it was entered in data entry schedules or posted by manual journal entry by the subsidiary. Unlike consolidation data, package data is not identified by scope, variant or consolidation currency. To consult this data in the Report Navigator module, you should therefore run data retrieval reports without specifying any variable for the scope, variant and consolidation currency fields. Preconsolidated data, which corresponds to: Package data that is integrated in the central site's database. When you integrate package data, preconsolidated data is generated. Data from manual journal entries posted in the Manual Journal Entries module. Data from automatic journal entries produced by running preconsolidation rules, if these rules have been set up as an enhancement to the current configuration. After running a consolidation processing, there are three levels of consolidated data for each consolidation: Package amounts in the original data entry currency, corresponding to: The previously defined preconsolidated amounts limited to the companies in the scope used in the consolidation definition and to the manual journal entries posted using an audit ID taken into account at the original currency level. Certain automatic journal entries generated by running consolidation rules that are triggered at the original currency level. Automatic journal entries are generated by running a consolidation processing. Depending on the purpose of the automatic journal entry, it may be generated at the local, converted or consolidated level. Converted amounts: This includes all of the package amounts in the original data entry currency that are converted using the consolidation currency The currency conversion is performed during the consolidation processing. The concepts underlying the currency conversion are described in chapter Converting Data. Additionally, this amount level includes the manual journal entries posted using an audit ID taken into account at the converted level and automatic journal entries generated at converted level. Consolidated amounts: This includes all of the data at the converted level after the consolidation rates are applied. The consolidation rates are applied during consolidation processing. This also includes the manual journal entries posted using an audit ID taken into account at consolidated level and automatic journal entries generated at consolidated level. 35

36 Processing the Data: Key concepts Each of the amount levels described above is stored in a separate data table. The relationship between the different amount levels is seen in the following diagram: Enter data in consolidation packages PACKAGE AMOUNTS Integrate packages Enter manual journal entries in the Manual Journal Entries module PRECONSOLIDATED AMOUNTS Run consolidation processing 1 (scope S1, variant 1) Run consolidation processing 2 (scope S2, variant 1) PACKAGE AMOUNTS (Original Currency) CONVERTED AMOUNTS CONSOLIDATED AMOUNTS Convert to consolidation currency Apply consolidation rates PACKAGE AMOUNTS (Original Currency) CONVERTED AMOUNTS CONSOLIDATED AMOUNTS Example: Company A is held by the Group at 50% and consolidated using the proportionate method (consolidation rate = 50%) in scope P1 and fully consolidated in scope P2. Company A enters 100 CUR for Revenues (account: P1100). The average conversion rate for CUR is 0.08 for 1 EUR. Retrieval of the data without scope/variant Account Flow Package Preconsolidated P1100 Y Retrieval of the data with scope/variant Scope Variant Account Flow Original Currency Converted Consolidated S1 1 P1100 Y (=100/0.08) 625 (= x 50%) S2 1 P1100 Y (=100/0.08) (= x 100%) 36

37 Processing the Data: Key concepts Manual Journal Entries Procedure You manage manual journal entries in the Manual Journal Entries module of the Operation domain. Manual journal entries are organized: by reporting ID A reporting ID corresponds to a category and data entry period pair. In the configuration, the category is A. by ledger within the reporting ID Ledgers are created by the accountant depending on requirements and on the method used to organize manual journal entries. You can, for example, have one ledger per type of journal entry, (for example journal entries with the same audit ID, such as goodwill impairment, or correction of package data), or one ledger per reporting unit. You can also use one ledger only to group together all of the journal entries in the consolidation. You define a ledger for: A given environment (package and/or central manual journal entries) A set of audit IDs One or more categories A journal entry can only be posted for one Reporting Unit and one audit ID. Defining a Journal Entry Header When you create a journal entry, the header fields should be filled out as follows Compulsory fields: Reporting Unit: Entity for which the journal entry is posted. Audit ID. Period: The default value is the current data entry period. Journal entry currency: Currency in which the journal entry is posted. The default value is the data entry currency. It can be changed except for certain audit IDs whose journal entries must be in the data entry currency. Note: The Reporting currency field is grayed out and its value is the data entry currency, as defined in the reporting unit table or as specified later in the reporting set. Restrict values to be included: Scope: This is used to restrict the journal entry to the specified scope. If there is no value in this field, then the journal entry is taken into account for all scopes in which the company is consolidated. Variant: This is used to restrict the journal entry to the selected variant. Consolidation currency: This is used to restrict the journal entry to consolidations using a specific currency. When you select certain audit IDs that only accept the consolidation currency, then the value here is identical to the value of the journal entry currency. Parent reporting unit: In this configuration, you should not select a value for this field. 37

38 Processing the Data: Key concepts The controls run on manual journal entries are as follows: Controls to check the global debit/credit balance when the journal entry is posted for balance sheet or income statement accounts. Controls to check the debit/credit balance for flows F00-Opening, F01-Incoming units and F50-Reclassification. Moreover, only valid account/flow pairs are authorized. This is checked when you post a journal entry. Using journal entry templates You can create a new manual journal entry by applying a selected journal entry template. The new manual journal entry will then be generated using the elements defined in the selected template, for instance Audit ID, Currency, reference rows and breakdown rows. Audit IDs Audit IDs are used to identify each item of data in the database. They are used to provide an audit trail for the consolidation cycle by identifying the functional origin of the data. Data entered in the consolidation package Manual journal entries or automatic journal entries generated by the consolidation processing Audit IDs are organized by set. There are 5 existing sets: Local IFRS data: This corresponds to package data (PACK01) and local adjustments to ensure compliance with Group accounting policies (PACK11) or IFRS (PACKIFRS11 and PACKIFRS12). It also includes central corrections of package data (PACK91) or central adjustment to IFRS (PACKIFRS91). Adjustments: Other adjustments made to company accounts using the Manual Journal Entries module. Elimination of reciprocal operations: Elimination of intercompany transactions (such as receivables/payables, income/expenses) which do not have any effect on the consolidated net income, as opposed to the other eliminations described below. Elimination of internal profit: Elimination of the Group s internal profits and losses, such as dividends or gains or losses on disposal of assets. Consolidation entries: Journal entries dedicated to consolidated accounts, like calculation of Noncontrolling interests or elimination of shares. Technical Audit-IDs: Entries used to declare Goodwill or post adjustments on the Statement of cash flows. Specific Audit IDs are available to post Manual journal entries. This enables to distinguish theses Audit IDs from those used by automatic processing when an automated journal entry has been set up. The table below presents all of the audit IDs that you can use to post a central manual journal entry. Note: Their names end with a 1 and sometimes a 2, for example DIV11-Elimination of internal dividends. The Amount level indicates at which level of the consolidated data table the booked amounts are loaded. The Apply Consolidation rate column indicates whether or not the consolidation rate is applied to the booked amounts. 38

39 Processing the Data: Key concepts Name Description Apply consolidation rate Amount level * Local IFRS data PACK91 Package data - Central correction X PK PACKIFRS91 Package data - IFRS central correction X PK Adjustments ADJ91 Other adjustment - Central - Man. X PK ADJIFRS91 IFRS adjustment - Central - Man. X PK FVA11 Fair value for incoming entities (central) - Man. X PK Elimination of reciprocal operations ELIM11 Elimination of intercompany accounts - Man. CONV Elimination of internal profit DIS11 Elim. of internal gain/loss on disposal of assets - Correction of dep - Man. CONV DIV11 Elimination of internal dividends - Man. X CONV DIV21 Currency translation adjust. on dividends - Man. X CONV PRO11 Elimination of internal impairment on investment - Man. X PK PRO21 Elimination of internal provisions - Man. X PK Consolidation entries CONS01 Consolidation entry not splittable CONS CTA01 Currency translation adjustments - Equity - Man. X CONV GW11 Booking of goodwill and bargain purchase - Man. CONS GW21 Currency translation adjust. on goodwill - Man. CONS INV11 Elimination of investments - Man. CONS INV21 Currency translation adjust. on investments - Man. CONS INV31 Adj. on gain/loss on disposal of a subsidiary, JV or associate (Local currency) X PK INV32 Adj. on gain/loss on disposal of a subsidiary, JV or associate (Consolidation currency) X CONV INV41 Elim. impact of equity accounting in local statements - Man X PK NCI11 Calculation of non controlling interests - Correction CONS Technical Audit-IDs GW01 Disclosure of goodwill (gross value & impair.) and bargain purchase - Man. PK CFS01 Consolidated financial statements correction - Man.. CONS * PK : Package data (original currency). Using the Reporting currency of the entity is mandatory CONV : Converted amount CONS : Consolidated amount A journal entry posted on an Audit ID that is loaded at the CONV or CONS amount level must be posted in the consolidation currency. Otherwise, it is not taken into account. 39

40 Processing the Data: Key concepts Converting Data Main Principles Foreign subsidiary accounts are converted using the closing rate method: The closing balances of balance sheet accounts are converted using the closing rate, except for equity and consolidated investments kept at their historical value (see Converting Consolidated Shareholders' Equity and Investments in Subsidiaries). The income statement is converted using the average rate for the period The cash flow statement is based on balance sheet variations which are converted at the average rate for the period The conversion is performed using the consolidation currency as specified in the consolidation definition. The choice of the consolidation currency is not related to the base currency in the conversion rate tables. The base currency is the currency with a value of 1 (see Entering and Updating Conversion Rates). For a given set of data and using the same conversion rate table, you can produce consolidated accounts in different currencies by changing the consolidation currency in the consolidation definition. The conversion difference is calculated automatically and assigned to the Currency translation adjustment flow (F80). This flow corresponds firstly, to the difference between the opening and closing flows for the opening data and secondly, to the difference between the average and closing rates for the period s transactions. Example Extract from the conversion rate table (certain for uncertain 1EUR = x CUR): Currency Closing rate Average rate, current period Average rate, prior period Opening rate EUR CUR Transition from package data to consolidated data (full consolidation method; consolidation in EUR): Account Amount level Currency A1110 Lands and buildings A1110 Lands and buildings A1110 Lands and buildings F00 Opening position F20 Increase/ Purchase F80 Curr. transl. adjustment F99 Closing position Package CUR Converted F80 can also be calculated as follows: EUR 300 (100/0.333) 40 (10/0.25) 210 (difference) 550 (110/0.20) Consolidated EUR Difference between opening and closing rates at opening: (100/0.20) (100/0.333) = 200 Difference between closing and average rates for increase during the period: (10/0.20) (10/0.25) = 10 Total:

41 Processing the Data: Key concepts YTD and Periodic Conversion Two conversion approaches are available in the Starter Kit. The difference lies in the method used to process the movement flows that are converted at average rate. YTD: A unique exchange rate is used for the period running from the beginning of the fiscal year to the closing period. Periodic: A different exchange rate is used for each period, that is, each month or quarter, which enables to convert each periodic movement at the corresponding exchange rate. Regardless of which conversion method you choose, the data entry in the package is still made on a year-to-date basis. The table below shows how to populate the exchange rate table, and highlights the difference between year-to-date and periodic exchange rates. As explained before (see Entering and Updating Conversion Rates), two rate versions (A-YTD and A-PER) are available in the Starter Kit. Data entry period: September 2010 (the fiscal period starts on Jan 1 st ) Consolidation frequency: Quarter Rate type ARPP - Average exch. rate, prior period OR - Opening exch. rate, current period AR - Average exch. rate, current period A-YTD (Year-to-date) [Not used] Rate at Jan 1 st Average rate Jan 1 st to Sept 30 th Rate version A-PER (Periodic) Average rate April 1 st to June 30 th Rate at Jan 1 st Average rate July 1 st to Sept 30 th CR - Closing exch. rate, current period Rate at Sept 30 th Rate at Sept 30 th Different sets of rules have been defined to handle the conversion options (YTD, Monthly or Quarterly). You must always ensure that the Rate table and the Set of rules are you use are consistent (see Defining a Consolidation on page 42) When you decide to apply periodic conversion, the consolidations must be run in the correct order. For instance, when you consolidate on a quarterly basis, you have to run the March 2010 consolidation before running the June 2010 consolidation, otherwise the data for June would not be consistent. Other conversion-related topics: Conversion of equity and investments, including optional conversion process for F20/F40 using a daily rate (see Consolidation Entries), Conversion of the dividends paid (see Dividends). 41

42 Processing the Data: Key concepts Consolidation Processing Defining a Consolidation When creating a consolidation definition, some parameters are specific to the Starter Kit. Properties Tab The set of rules and the conversion rate version should be defined accordingly. The table below shows the different options: Conversion method Conversion rate version Proportionate consolidation 1 Set of rules Year-to-date A-YTD No A-YTD Year-to-date A-YTD Yes A-YTD-PC Monthly A-PER No A-MCT Monthly A-PER Yes A-MCT-PC Quarterly A-PER No A-QCT Quarterly A-PER Yes A-QCT-PC Note: if you opt for a periodic conversion method, the rate table for version A-PER must be populated in a particular manner, that is, as defined before. Additionally, the way to enter periodic exchange rate is not the same depending on your consolidation frequency. Opening Balances Tab The Starter Kit is configured to allow consolidation with opening balances. The opening balances are automatically loaded at the beginning on the consolidation process. You must define which consolidation should be used as Opening balances, the consolidation for the previous fiscal year. The source period should be equal to the data entry period of the consolidation to be used for the opening balance data. The three sets of rules defined above can be used both for consolidation with and without opening balances. Periods Because the A-Actual category is mono-period, no specific parameter should be defined in this tab. Filters When creating a local GAAP consolidation definition, the audit ID filter AU2-IFRS - All except adjustment to IFRS should be selected in order to consolidate only the data stored on the audit IDs included in the filter (all except data stored on IFRS adjustments audit IDs). 1 As a reminder, proportionate consolidation is no more admitted in IFRS for publishable financial statements (IFRS 11 requires the use of the equity method for joint ventures) but may be used for internal reporting purposes. 42

43 Processing the Data: Key concepts Running a Consolidation Processing There are two types of consolidation processing: Full Incremental: This includes only modifications made to packages and manual journal entries, and the packages that were not yet integrated at this time. An incremental processing does not take into account changes made to scopes, conversion rates or tax rates, deletions of packages and changes to the configuration. To include all of these modifications in the consolidation, you should run a full processing. Retrieving and Checking Data Data Retrieval Reports The configuration offers a wide range of retrieval reports in the Report Navigator module which you can use to check, analyze and publish the consolidated data. These reports are organized into five folders: C1 Annual report Publishable financial statements and segment information C2 Analysis Reports for drilling down from the key financial statements C3 Accounting reports Balances, general ledgers and ledgers. C4 Control reports Reports for checking consolidated data and explaining the transition from package to consolidated data. C5 IFRS Adoption Reports for comparing local gaap and IFRS. You can check and publish the data as follows: Check the data using the reports in folders C3, C4. Produce and analyze publishable reports using reports in folders C1 and C2. Checking Consolidated Data This paragraph describes the reports you can use to check that the consolidated data is consistent. These reports are grouped together in folder C4-Control reports and can be divided into three main categories: Consolidation control dashboard (book C-42) Main balances (book C-42) Conversion at spot rate (book C-43) Controls on packages: opening balances, data integration, split by business units (book C-41) 43

44 Processing the Data: Key concepts We recommend that you systematically run the consolidation control dashboard reports after each consolidation processing. In general, errors can originate from: Incorrect or incomplete data entry in packages. In this case, running the package controls in the Package Manager module will enable you to detect and correct the error. Incorrect data entry in the conversion rate table, such as an inconsistency between the opening rate entered for data entry period N and the closing rate of the rate table used for the opening balance data. Manual journal entries that do not comply with the conventions in this configuration. For example, unbalanced flows as described in Balancing Flows (except for F00, F01 and F50 which are checked by automatic controls). 44

45 Processing the Data: Key concepts Consolidation Control Dashboard This report is a dashboard used to validate the consolidation by checking, for the entire Group: That the assets equal the liabilities and equity on the balance sheet That the flow analysis is consistent, e.g. the closing flow is equal to the sum of the opening flow and variation flows, the balance sheet net income (flow F10) is equal to the income figure on the Income statement, the cash flow statement is balanced. That the clearing accounts for balancing consolidation entries are equal to zero or cancel each other out at Group level. You can use either the summarized version (C42-05) or the detailed version (C42-10). If you detect an error, the link in the cell enables you to access the relevant report analyzed by reporting unit or audit ID. These reports are described below. Checking the Main Balances These reports check that: Assets are equal to liabilities in the balance sheet. The net income on the balance sheet is equal to the net income on the income statement. The balance conventions for certain flows are followed. Assets are Equal to Liabilities Run the following report: Folder Book Schedule C4 C42 C42-15 Assets = liabilities by Audit ID This report is used to check that Assets equal Liabilities + Equity at opening and closing, and for the aggregate movements of the fiscal year. It also enables you to check that the sum of the opening and variation flows is equal to the closing flow. This must be the case for every audit ID. If this is not the case, then run the report for the relevant audit IDs by linking from C42-15: Folder Book Schedule C4 C42 C42-20 Assets = liabilities by Reporting Unit The report identifies the relevant reporting units. If the error originates from an audit ID other than PACK01 (package data entry), then link to the following report: Folder Book Schedule C3 C33 C33-05 Debit Credit Ledger for 1 Reporting Unit and 1 Audit ID The report identifies the journal entry numbers that contain errors. You can also run the following report for the relevant Audit ID and Reporting Unit: Folder Book Schedule C3 C33 C33-10 Journal Entries for 1 Reporting Unit and 1 Audit ID 45

46 Processing the Data: Key concepts BS Net Income is Equal to P&L Net Income The following report ensures that the net income of the balance sheet (stored on dedicated flow F10) is equal to the net income of the income statement for every Audit ID: Folder Book Schedule C4 C42 C42-25 Balance Sheet income = P&L income by Audit ID If there are differences, run the following report to identify the relevant Reporting Unit: Folder Book Schedule C4 C42 C42-30 Balance Sheet income = P&L income by Reporting Unit Balancing Flows Run the following report to ensure that the balance conventions have been followed for the flows (see Balancing Flows): Folder Book Schedule C4 C42 C42-35 Flow balance by Audit ID Flow should balance for every audit ID. In case of errors, run the following report by linking to it: Folder Book Schedule C4 C42 C42-40 Flow balance by Reporting Unit This report highlights the reporting units for which flows do not balance. Then link to the following report for these reporting units: Folder Book Schedule C3 C33 C33-05 Debit Credit Ledger for 1 Reporting Unit and 1 Audit ID 46

47 Making adjustments to individual accounts Making adjustments to individual accounts Section Objectives This section outlines: Corrections made to packages Adjustments booked at central site Key Points The manual adjustments described below are based on the following examples: Processing differences for net income N-1 Correcting package data Making fair value adjustments Correcting Package Data Correcting Differences for Net Income N-1 After company accounts have been sent to the Group and used for the consolidation, corrections may need to be performed. As a result, there may be differences between the data sent and the modified data. You can manage these differences in two ways during the next accounting period. The recommended solution consists of taking these differences into account in the consolidation package. The second solution consists of posting these differences in manual journal entries at central site. However, this solution means that there should be no send condition set when sending the package. This is because if the N-1 difference is not processed, this generates a variation flow F15 in net equity and this will prevent the package from being validated. For this reason, the second solution is not recommended and should be reserved for exceptional cases. Regardless of the solution, local and consolidated data will balance only during period N+1. At the closing of N, even if the amount of retained earnings is the same, the calculation of the net income (flow F10) will differ between company and consolidated accounts. Recommended Solution: Package Processing Existing differences in N-1 net income can be processed as follows in the package: The first solution consists of integrating the difference between the provisional N-1 net income and the final N-1 net income in the net income for the period. In this way, the consolidation department does not need to post any manual journal entry. However, it creates a discrepancy between local data and the consolidation package on net income (flow F10). The second solution consists of posting this difference in transfer flow F50 in order to impact both reserves asset and liability items affected by the last journal entries of period N-1. In this way, local data and the consolidation package will both balance at closing. However, this solution requires the consolidation department to book this difference by manual journal entry. These solutions are illustrated below: After the package was sent, a correction was made to Sales. The data entered in the package on 31/12/N-1 and the final data are shown below: 47

48 Making adjustments to individual accounts Accounts Package 31/12/N-1 (1) Final accounts (2) Difference (2) (1) ASSETS A2210 Trade receivables, Gross LIABILITIES E1610 Retained earnings / F L2410 Current income tax liabilities INCOME STATEMENT P1110 Revenues P5010 Income tax expense At period N closing, we assume that: No income has been entered during the period. All of the net income for N-1 was allocated to retained earnings (scenario 1) or distributed (scenario 2). All receivables and debts have been settled. Booking the Difference in Net Income (Solution 1) Data entry in package 31/12/N (scenario 1 no distribution) The package for period N must contain the net income from N-1 that is not taken into account in Group income. The closing balance entered in the package in book P-A10 is shown below: ASSETS Accounts Local 31/12/N Package 31/12/N A2610 Cash on hand = receivables (1100) debts (440) LIABILITIES E1610 Retained earnings INCOME STATEMENT P1110 Revenues P5010 Income tax expense 0-40 Enter data in PA2500 to show variations in net equity: ACCOUNTS CODE F00 F99 F06 F10 F20 F30 F40 F50 F55 Spec. Control Retained earnings E Net equity

49 Making adjustments to individual accounts Data entry in package 31/12/N (scenario 2 distribution of net income) The closing balance entered in the package in book P-A10 is shown below: Accounts Local 31/12/N Package 31/12/N LIABILITIES E1610 Retained earnings 0 0 INCOME STATEMENT P1110 Revenues P5010 Income tax expense 0-40 Enter data in PA2500 to show variations in net equity: ACCOUNTS CODE F00 F99 F06 F10 F20 F30 F40 F50 F55 Spec. Control Retained earnings E Net equity Further remarks When the difference between final net income and local income is spread over small sums in a large number of accounts in the income statement, the Group may authorize its subsidiaries to enter the difference in other operating income/expense account. Processing the Difference in Reclassification Flow F50 (Solution 2) Data entry in package 31/12/N (scenario 1 no distribution) The closing balance shows the company accounts. The impact from the last journal entries for period N-1 is booked in flow F50. Enter data in PA2500 to show variations in net equity: ACCOUNTS CODE F00 F99 F06 F10 F20 F30 F40 F50 F55 Spec. Control Retained earnings E Net equity Enter data in flow F50 in PA3900 to show the impact of specific operations: ACCOUNTS CODE F09 F70 F50 Trade receivables, Gross A Cash on hand A2610 Assets 100 Retained earnings E Current income tax liabilities L Equity and liabilities 100 Data entry in package 31/12/N (scenario 2 distribution of net income) Enter data in PA2500 to show variations in net equity: ACCOUNTS CODE F00 F99 F06 F10 F20 F30 F40 F50 F55 Spec. Control Retained earnings E Net equity Enter data in flow F50 in PA3900 to show the impact of specific operations: 49

50 Making adjustments to individual accounts ACCOUNTS CODE F09 F70 F50 Trade receivables, Gross A Cash on hand A2610 Assets 100 Retained earnings E Current income tax liabilities L Equity and liabilities 100 Journal entry to be posted at central site The subsidiary should provide the consolidation department with information on the difference between the provisional net income and final net income. Once the consolidation department has the breakdown by item, they can then post the following journal entry: Audit ID Account Flow Debit Credit ADJ91 P1110 Revenues Y A2210 Trade receivables, Gross F P5010 Income tax expense Y99 40 L2410 Current income tax liabilities F15 40 A2210 Trade receivables, Gross F L2410 Current income tax liabilities F50 40 E1610 Retained earnings F50 60 If this is not the case, then the journal entry should be posted in an other operating income or expense account: Audit ID Account Flow Debit Credit ADJ91 P1210 Other income Y99 60 A2210 Trade receivables, Gross F A2210 Trade receivables, Gross F L2410 Current income tax liabilities F15 40 L2410 Current income tax liabilities F50 40 E1610 Retained earnings F50 60 Alternative Solution: Manual Journal Entry Posted at Central Site If the difference between the provisional net income and final net income is not processed in the package, this results in the following data (example in scenario 1): Closing balance ASSETS Accounts Package 31/12/N A2610 Cash and cash equivalents 660 LIABILITIES E1610 Retained earnings

51 Making adjustments to individual accounts Enter data in PA2500 to show variations in net equity: ACCOUNTS CODE F00 F99 F06 F10 F20 F30 F40 F50 F55 Spec. Control Retained earnings E Net Equity The package will not be able to reach control level LEV1 because the variation in net equity is not analyzed completely. At central site, the manual journal entry to be posted is as follows: Audit ID Account Flow Debit Credit ADJ91 P1110 Revenues Y P5010 Income tax expense Y99 40 E1610 Retained earnings F15 60 If you do not know the breakdown by item for this difference, then the journal entry should be booked in another operating income or expense account: Audit ID Account Flow Debit Credit ADJ91 P1210 Other income Y99 60 E1610 Retained earnings F15 60 Other Package Corrections Corrections in packages can be divided into several categories: Corrections that should be taken into account in the package opening balance for the next period and which include the following: Errors in packages that do not affect local account, for example Partner errors in intercompany declarations Errors in local accounts that will be taken into account in the final financial statements Errors in adjustments to Group accounting standards Corrections that should not be sent in opening balances to packages for the next period Correction journal entry that affects Group level only, for example Processing of certain intercompany differences (see Intercompany Transactions) Errors in local accounts that will only be taken into account in the N+1 financial statements Corrections to be taken into Account in Package Opening Balances The corrections to be made can be entered directly in the relevant reporting unit's package, using one of the following Audit IDs, depending on what the error is due to: PACK01 Package data PACK11 Local adjustment to Group accounting policies The package should then be validated by controls, published and reintegrated in the database. It is also possible to post at the central level a journal entry that will impact the package s opening balance for the next period. The Audit ID to use is PACK91-Package data - Central correction. It will be transferred automatically to Audit ID PACK01 in the opening balances of next year s package. 51

52 Making adjustments to individual accounts Other Package Corrections Principles If the corrections do not affect the package opening balances for the next period, then they should be posted by manual journal entry using Audit ID ADJ91. Examples Corrections having an impact on net income for the period The company has forgotten to book the sum of 100 from an invoice for the purchase of goods. This expense which is tax deductible is posted in company accounts in period N+1. The journal entry to be posted is as follows: Audit ID Account Flow Debit Credit Partner Debit Credit ADJ91 P1120 Cost of sales Y L2310 Trade payables F L1410 Deferred income tax liability F15 40 P5020 Deferred tax expense Y99 40 Partner analysis: By default, when you post a manual journal entry, transactions are concluded with Third-parties (code TP-999). Transactions between companies within the Group should be declared and the non-group amount is then calculated automatically with the difference. Transfers between items If you need to transfer an item between two accounts in the Income statement or in the Balance sheet, the journal entry to post is as follows: Audit ID Account Flow Debit Credit Partner Debit Credit ADJ91 Pxxxx Income/expense account Y99 X X Pxxxx Income/expense account Y99 X X A/L/Exxx Balance sheet account F50 X X A/L/Exxx Balance sheet account F50 X X Making Adjustments to Packages Making Fair Value Adjustments Principles A fair value adjustment occurs when there is a difference between the accounting value of an incoming entity's assets and their fair value. The fair value adjustments are posted by manual journal entries, based on informati on that is managed separately from the consolidation package. 52

53 Making adjustments to individual accounts Example Scenario When company Z was acquired, a building was valued at whereas its net accounting value was 100. The fair value adjustment was allocated to construction (+900). Construction items are amortized over a period of 30 years according to Group accounting standards i.e. using a yearly allowance of 30 for the revalued share. Manual Journal Entries Fair value adjustment at acquisition date (01/01/N): Audit ID Account Flow Debit Credit FVA11 A1110 Lands and buildings F E1610 Retained earnings F Deferred income tax liability in fair value adjustment = 900 x 40% = 360: Audit ID Account Flow Debit Credit FVA11 E1610 Retained earnings F L1410 Deferred income tax liability F Fair value adjustment: Period depreciation: Audit ID Account Flow Debit Credit FVA11 A1111 Lands and buildings, Dep. F25 30 P1510 Other expenses * Y99 30 * The choice of the P&L account depends on the destination of the depreciation expense. Deferred tax in depreciation of fair value adjustment = 30 x 40% = 12: Audit ID Account Flow Debit Credit FVA11 P5020 Deferred tax expense Y99 12 L1410 Deferred income tax liability F15 12 Presentation by flow Account Flow Audit ID Code Description F01 F10 F15 F25 F99 A1110 Lands and buildings FVA A1111 Lands and buildings, Dep. FVA11 <30> <30> E1610 Retained earnings FVA FVA11 <30> <30> FVA11 <360> <360> FVA L1410 Deferred income tax liability FVA <12> 348 Manual journal entry for booking fair value adjustments Manual journal entry for booking depreciation Manual journal entries for booking deferred taxes 53

54 Making adjustments to individual accounts Other Adjustments Principles The other adjustments include various journal entries that must be posted when the company's accounting methods do not comply with Group policies. These journal entries are booked using Audit ID ADJ91. Example To standardize the period of depreciation for software, journal entries, including deferred tax, should be as follows: Audit ID Account Flow Debit Credit ADJ91 A1441 Computer software, Amort. F20 P1510 Other expenses A1710 Deferred tax assets P5020 Deferred tax expense Y99 F15 Y99 Making IFRS Adjustments Managing IFRS adoption in Financial Consolidation implies being able to move from the local GAAP to IFRS at one date. The starter kit for IFRS proposes a unified reporting model with a unique data entry package in which to enter data according to local GAAP and IFRS and executing multiple consolidations (cf. IFRS Adoption in Consolidated Statements Using SAP Financial Consolidation 7.5, starter kit for IFRS ) Regarding transition period, local accounts are established on the basis of national accounting standards, the entity has to make adjustments in order to ensure compliance with IFRS for the comparative data. In that case, the standard audit ID PACK01 should be used in packages to enter data according to local GAAP. The starter kit provides specific audit IDs to track IFRS adjustments and to allow a full reconciliation between local GAAP and IFRS. These adjustments can be entered at local level in the package or at corporate level by manual journal entries. Two options should be distinguished depending on the way data will be managed after the transition period: - Once the transition period has ended, the end-user decides that IFRS adjustment tracking is no longer needed (IFRS becomes the local standard). In that case, amounts stored in IFRS adjustment audit IDs should be carried forward into PACK01 audit ID, the following year. - If the end-user wants to keep tracking the changes between Local GAAP and IFRS after transition is over, the IFRS adjustment audit ID should still be used. At local level, two audit IDs can be used depending on the option chosen: - PACKIFRS11 Local adjustment to IFRS Amounts collected on this audit ID during the year (Y), will be carried forward into audit ID PACKIFRS11 the year after (Y+1) - PACKIFRS12 Local adjustment to IFRS Package data (Y+1) Amounts collected on this audit ID during the year (Y) will be carried forward into audit ID PACK01 the year after (Y+1). 54

55 Making adjustments to individual accounts Similarly, two audit IDs can be used at corporate level depending on the option chosen: - PACKIFRS91 Package data IFRS central correction Amounts collected in this audit ID during the year (Y), will be carried forward into audit ID PACK01 the year after (Y+1) - ADJIFRS91 IFRS adjustment Central Amounts collected on this audit ID during the year (Y) will be carried forward into audit ID ADJIFRS91 the year after (Y+1) Manual journal entries posted on IFRS adjustment audit IDs will not be taken into account in the local Gaap consolidated data thanks to the audit ID filter initialized in the consolidation definition. It is also possible to book IFRS adjustment at corporate level on standard audit IDs (ADJ91, CTA01, ) and to restrict manual journal entries to IFRS consolidated data by selecting a variant restriction in the manual journal entries. To know more about the IFRS adoption operating process, see IFRS Adoption in Consolidated Statements on in the subsection named Financial Consolidation \ 7.5. Example Revaluation model for property, plant and equipment Scenario Company C uses the cost model for property, plant and equipment in its local accounts. Period N+1, the company adopt IFRS and decides to use the revaluation model for property, plant and equipment as permitted by IAS 16. At opening, lands and buildings are revalued for 600 and during the period for 100. IFRS adjustment at opening should be entered on flow F09 Change in accounting policies to ensure a correct translation of the numbers (opening exchange rate apply to flow F09). For current year IFRS adjustements, the appropriate movement flow should be used (F15, F20, F55 ). A tax rate of 30% applies for deferred tax. In this example, IFRS adoption is managed at corporate level and IFRS adjustment tracking is no longer needed at the end of the transition period. Manual Journal Entries Revaluation of lands and buildings at the beginning of the period N+1 Audit ID Account Flow Debit Credit PACKIFRS91 A1110 Lands and buildings F E1510 Retained earnings F E1511 Income tax on revaluation surplus F L1410 Deferred income tax liability F

56 Making adjustments to individual accounts Revaluation of land and buildings during the period N+1 Audit ID Account Flow Debit Credit PACKIFRS91 A1110 Lands and buildings F E1510 Retained earnings F E1511 Income tax on revaluation surplus F55 30 L1410 Deferred income tax liability F

57 Intercompany Transactions Intercompany Transactions Section Objectives This section outlines: how intercompany declarations can be checked the automatic processing for eliminating intercompany transactions manual journal entries that may be required Key Points Intercompany transactions may be classified as follows: Current acquisition/disposal and borrowing/lending transactions that do not have an impact on Group income. These will be called reciprocal transactions. Transactions that generate internal income such as disposal of assets or payment of dividends. The following are eliminated automatically: reciprocal transactions dividends provisions internal disposal of assets or investments Suggested Approach 1. Run an intercompany reconciliation. 2. Analyze first the balances then the flows for the intercompany reconciliation. 3. Check that internal transactions are eliminated correctly. Checking Intercompany Declarations Running Intercompany Reconciliations You can reconcile intercompany data using the data entered in packages that may be corrected by manual journal entry and then converted to the consolidation currency. 57

58 Intercompany Transactions Reconciliations Balance Sheet GROUP OF ACCOUNTS ASSETS LIABILITIES Non-current receivables/payables Non-current financial assets and liabilities A1620 Receivables on disposal of PPE, NC, Gross A1621 Receivables on disposal of intangible assets, NC, Gross A1622 Receivables on disposal of inv. in subsidiaries, NC, Gross A1623 Receivables on disposal of inv. in other entities, NC, Gross A1624 Receivables on disposal of inv. in other assets, NC, Gross A1630 Other receivables, NC, Gross A1610 Loans and cash advances, Non current, Gross L1310 Debts on purchase of PPE, NC L1311 Debts on purchase of intangible assets, NC L1312 Debts on purchase of inv. in subsidiaries, NC L1313 Debts on purchase of inv. in other entities, NC L1314 Debts on purchase of inv. in other assets, NC L1320 Other payables, NC L1550 Other financial liabilities, Non current Trade receivables / payables A2210 Trade receivables, Gross L2310 Trade payables Current receivables/payables on disposal of assets A2220 Receivables on disposal of PPE, Current, Gross A2221 Receivables on disp. of intangible assets, Current, Gross A2222 Receivables on disp. of inv. in subsidiaries, Current, Gross A2223 Receivables on disp. of inv. in other entit., Current, Gross A2224 Receivables on disp. of inv. in other assets, Current, Gross L2320 Debts on purchase of property, plant and equipment, Current L2321 Debts on purchase of intangible assets, Current L2322 Debts on purchase of investment in subsidiaries, Current L2323 Debts on purchase of investment in other entities, Current L2324 Debts on purchase of investment in other assets, Current Dividends receivable/payable A2230 Dividends receivable L2330 Dividends payable Other receivables/payables A2240 Other receivables, Current, Gross L2340 Other payables, Current Accrued interests receivables/payables Current financial assets and liabilities A2250 Accrued interests on receivables A2440 Loans and cash advances, Current, Gross L2350 Accrued interests on financial liabilities and payables L2570 Other financial liabilities, Current Net Income (Excluding Dividends and Internal Transfer of Assets) GROUP OF ACCOUNTS INCOME EXPENSES Sales / Cost of sales P1110 Revenues P1120 Cost of sales Other operating income and expenses Financial income and expenses P1210 Other income P2120 Interest income P2150 Other financial income P1310 Distribution costs P1410 Administrative expenses P1510 Other expenses P2220 Interest expenses P2230 Other financial expenses 58

59 Intercompany Transactions Internal Transfer of Assets GROUP OF ACCOUNTS Property, plant and equipment Investment property Intangible assets Biological assets Investments Non-current financial assets Current financial assets RELEVANT ASSET ACCOUNTS A1110 Lands and buildings A1120 Tangible exploration and evaluation assets A1130 Fixtures and fittings A1150 Office equipment A1160 Vehicles A1170 Machinery A1180 Other property, plant and equipment A1210 Investment property A1410 Brand names A1420 Intangible exploration and evaluation assets A1430 Mastheads and publishing titles A1440 Computer software A1450 Licences and franchises A1460 Patents, trademarks and other rights A1470 Recipes, formulae, models, designs and prototypes A1490 Other intangible assets A1510 Biological assets A1810 Investments in subsidiaries, JV and associates A1815 Investments measured at equity A1820 Available-for-sale financial assets, Non current A1840 Other financial assets at fair value through profit or loss, NC A1850 Other financial assets at FVTOCI, Non current A1860 Other financial assets at amortized cost, Non current A2410 Available-for-sale financial assets, Current A2430 Other financial assets at FV through profit or loss, Current A2450 Other financial assets at FVTOCI, Current A2460 Other financial assets at amortized cost, Current Dividends GROUP OF ACCOUNTS BENEFICIARY DISTRIBUTOR Dividends received/paid P2140 Dividends XE1610 Dividends paid Prior to Running Intercompany Reconciliations You can run an intercompany reconciliation once you have integrated the consolidation packages and converted the package data from foreign subsidiaries to the consolidation currency. In order to do this, first run a consolidation processing. You can run a consolidation processing: for the Group as described earlier (see Defining a Consolidation) just to convert the data, which requires a shorter processing time To run this simplified processing, create a new consolidation definition (using a specific variant) and select no set of rules in the consolidation definition. 59

60 Intercompany Transactions Displaying Intercompany Reconciliation Reports Intercompany reconciliation reports are grouped together in book C44: Reciprocal transactions Balance sheet C44-10 Balance Sheet reconciliations at closing: Buyer/Seller C44-15 Balance Sheet reconciliations by flow: Buyer/Seller C44-05 Balance Sheet and Profit & Loss reconciliations at closing Income statement C44-20 Profit & Loss reconciliations (threshold > 1) C44-25 Profit & Loss reconciliations: Buyer/Seller Internal income Dividends Disposal of assets Sales of investments C44-40 Reconciliation of internal gains & losses on sale of investment in subsidiaries C44-30 Reconciliation of internal gains & losses & dividends (threshold > 1) C44-35 Reconciliation of internal gains & losses & dividends: Buyer/Seller When you initialize a reconciliation report for a buyer/seller pair (for instance, C44-25) you will find two initialization blocks, with both the Buyer and Seller dimensions in each. This is because in a pair of reporting units, each unit may be both the buyer for one intercompany transactions and the seller for another one. To retrieve all the intercompany reconciliation data for pair (RU1, RU2) in the report, you should initialize the two blocks as follows: Block 1 : Buyer = RU1, Seller = RU2 Block 2 : Buyer = RU2, Seller = RU1 Correcting Differences Principles There are two types of differences arising from intercompany transactions: Differences due to errors made when declaring data in packages. These may or may not affect company accounts. Differences that are justified, like non mature discounted notes and conversion differences. If there is an error in the package, you can correct it in different ways depending on the type of error: A simple declaration error, for example you declare a receivable with partner U1 whereas it should be with partner U2. A declaration error due to an accounting error, for example you forget to book an invoice issued by partner U1, which will be corrected in the final version of the company accounts. An accounting error which will be corrected in the company accounts only in fiscal period N+1. In the first two cases, the correction to be made must be taken into account in the package opening balances for period N+1. It must be performed manually in the package for fiscal period N. If you make corrections directly in the package, it must be validated and then integrated so that the correction can be taken into account (see Integrating Packages). In the last case, the correction will not have any impact on the package opening balances and so should be booked by manual journal entry using audit ID ADJ91. 60

61 Intercompany Transactions Justified differences (discounted notes, conversion differences, etc.) should be booked by manual journal entry using audit ID ADJ91. Examples Invoice that was not Booked Running the reconciliation report The reconciliation of intercompany transactions declared by reporting units U1 and U2 is shown below: Reconciliation rule Buyer Seller Flow Account Audit ID Buyer amount local currency Seller amount local currency Buyer amount converted currency Seller amount converted currency Difference F00 L2310 PACK Reciprocal trade receivables and payables U2 U1 F00 A2210 PACK F15 L2310 PACK F15 A2210 PACK TOTAL Reciprocal gross profit accounts U2 U1 Y99 P1120 PACK Y99 P1110 PACK TOTAL After investigating this report, you see that these differences are due to U2's omission in booking an invoice issued by U1 for the sum of This error is not considered as being significant and will be corrected in U2's company accounts only in fiscal period N+1. Manual journal entries to be posted by U2 The invoice issued by U1 for U2 must be booked in the consolidated accounts: Audit ID Account Flow Debit Credit Partner breakdown Code Debit Credit ADJ91 P1120 Cost of Sales Y U L2310 Trade payables F U This additional expense posted in U2's accounts should lead to the booking of a deferred tax asset (hypothetical tax rate of 40%): Audit ID Account Flow Debit Credit ADJ91 A1710 Deferred tax assets F P5020 Deferred tax expense Y

62 Intercompany Transactions Discounted Notes not yet Matured Running the reconciliation report The reconciliation of intercompany transactions declared by reporting units U1 and U2 is shown below: Reconciliation rule Reciprocal trade receivables and payables Reciprocal gross profit accounts Buyer Seller Flow Account Audit ID U2 U2 U1 U1 Buyer amount local currency Seller amount local currency Buyer amount converted currency F15 L2310 PACK Seller amount converted currency F15 A2210 PACK Difference TOTAL Y99 P1120 PACK Y99 P1110 PACK TOTAL The difference seen in the reconciliation of receivables and debts is due to the fact that U1 has discounted receivables from U2. Manual Journal Entries To balance intercompany declarations, you should post a journal entry for U1: Audit ID Account Flow Debit Credit Partner breakdown Code Debit Credit ADJ91 A2210 Trade receivables, Gross F U L2510 Borrowings, Current F Elimination of Internal Transactions Elimination of Reciprocal Transactions Principles Definition Reciprocal transactions are transactions between companies in the Group (acquisition/disposal or borrowings/lendings) whose elimination will have no impact on the income of the consolidated companies. Summary Relevant companies Amount level Audit IDs taken into account Generated audit IDs Manual audit ID for corrections Full consolidation Converted All audit IDs at converted level except ELIM10 and ELIM11 ELIM10 ELIM11 Description of the Processing Reciprocal accounts and adjustment accounts are eliminated against a link account for partners that are fully consolidated. 62

63 Intercompany Transactions The link accounts are as follows: RELEVANT ELIMINATIONS GROUP OF RECONCILED ACCOUNTS ELIMINATION ACCOUNTS Receivables and payables, Non current Financial assets and liabilities, Non current Receivables and payables Financial assets and liabilities, Current Gross profit Operating profit Financial result A1620 Receivables on disposal of PPE, Non Current, Gross A1621 Receivables on disposal of intangible assets, NC, Gross A1622 Receivables on disposal of inv. in subsidiaries, NC, Gross A1623 Receivables on disposal of inv. in other entities, NC, Gross A1624 Receivables on disposal of inv. in other assets, NC, Gross A1630 Other receivables, Non current, Gross L1310 Debts on purchase of PPE, Non current L1311 Debts on purchase of intangible assets, Non current L1312 Debts on purchase of inv. in subsidiaries, Non current L1313 Debts on purchase of inv. in other entities, Non current L1314 Debts on purchase of inv. in other assets, Non current L1320 Other payables, Non current A1610 Loans and cash advances, Non current, Gross L1550 Other financial liabilities, Non current A2210 Trade receivables, Gross A2220 Receivables on disposal of PPE, Current, Gross A2221 Receivables on disp. of intangible assets, Current, Gross A2222 Receivables on disp. of inv. in subsidiaries, Current, Gross A2223 Receivables on disp. of inv. in other entit., Current, Gross A2224 Receivables on disp. of inv. in other assets, Current, Gross A2230 Dividends receivable A2240 Other receivables, Current, Gross A2250 Accrued interests on receivables L2310 Trade payables L2320 Debts on purchase of property, plant and equipment, Current L2321 Debts on purchase of intangible assets, Current L2322 Debts on purchase of investment in subsidiaries, Current L2323 Debts on purchase of investment in other entities, Current L2324 Debts on purchase of investment in other assets, Current L2330 Dividends payable L2340 Other payables, Current L2350 Accrued interests on financial liabilities and payables A2440 Loans and cash advances, Current, Gross L2570 Other financial liabilities, Current P1110 Revenues P1120 Cost of sales P1210 Other income P1310 Distribution costs P1410 Administrative expenses P1510 Other expenses P2120 Interest income P2150 Other financial income P2220 Interest expenses P2230 Other financial expenses L13CL L15CL L23CL L25CL P11CL P15CL P22CL 63

64 Intercompany Transactions Example Source data Package for U1 schedule PA4110 (in EUR) ACCOUNTS PARTNERS N-1 N Revenues P1110 RU U2 500 Non-Group TP Total Revenues Package for U2 schedule PA4110 (in EUR) ACCOUNTS PARTNERS N-1 N Cost of Sales P1120 RU U1-500 Non-Group TP Total Cost of Sales -800 Automatic journal entries generated U1 P1110 Revenues Audit ID Part. Audit ID Part. U2 P1120 Cost of Sales PACK01 U2 500 PACK01 U1 500 ELIM10 U2 500 ELIM10 U1 500 U1 P11CL - Intercompany eliminations (Cost of Sales) Audit ID Part. Audit ID Part. U2 P11CL - Intercompany eliminations (Cost of Sales) ELIM10 U2 500 ELIM10 U1 500 Balance Intercompany elimination for U1 Intercompany elimination for U2 Performing Checks Run the following reports to check that the link accounts are balanced for the Group: Folder Book Schedule C4 C42 C42-10 Consolidation control dashboard (detail) If this is not the case, then run one of the following reports to identify the relevant reporting units: Folder Book Schedule C4 C42 C42-45 Check clearing accounts for intercompany elimination C42-50 Check clearing accounts for intercompany elimination: buyer/seller 64

65 Intercompany Transactions Dividends Presentation of the Automatic Processing Introduction The automatic processing consists of eliminating the beneficiary's financial income against consolidation reserves. Use the following audit ID: Processing Automatic Audit IDs Manual Audit IDs Elimination of inter-company dividends DIV10 DIV11 Currency translation adjustment on dividends DIV20 DIV21 The following options apply: Dividends paid (flow F06) are converted using the daily exchange rate type corresponding at the date of distribution entered in the package (see Dividends). Dividends are calculated for non-controlling interests based on the opening rate. Collecting Data in the Package Dividends paid: Dividends paid out from net equity are entered in schedule PA2500-Equity statement, using technical account XE1610. Dividends paid are analyzed in greater detail in schedule PA4320-Dividends paid. This schedule presents the dividends paid per beneficiary, including the share paid out to non-group shareholders. By default, dividends paid are converted using the average rate of the period. In order to convert them using the spot rate at the distribution date, the paying company should entered data in schedule PA4330 Dividends paid by beneficiary /date. At central site, daily rate for the dates of distribution should be entered in the conversion rates table. Dividends received: Dividends received are booked in account P2140-Dividends. They are analyzed by partner in schedule PA4310-Dividends Received. Conversion Principles Flow F06-Dividends is converted by default at average rate of the period. If analysis of dividend paid by beneficiary and by date is entered in the package and the corresponding daily rate is populated in the rates table used for the consolidation, then the paid dividend will be converted using the rate at the distribution date. The dividends received (account: P2140) are converted using the average rate for the period like any other item of the Income statement. 65

66 Intercompany Transactions Journal Entries The automated elimination of the internal dividends is processed in two stages: The dividends is eliminated from the Parent s accounts, based on the declaration made by the subsidiary on account XE1610, using Audit ID DIV10: Source data Journal entry generated Debit Credit Subsidiary (distributor): XE1610 Dividends paid - Flow F06 P2140 Dividends Y99 E1610 Retained earnings F06 Then the difference between the dividend received and the dividend paid, for each distributor/beneficiary pair, is eliminated against the Retained earnings, using Audit ID DIV20: Source data Journal entry generated Debit Credit Parent (beneficiary): P2140 Dividends Y99 P2140 Dividends Y99 E1610 Retained earnings F80 * * This amount will be transferred later to the Foreign currency translation reserve by the currency translation adjustment automatic processing. To explain in detail the purpose of this second automated journal entry, we can distinguish several cases depending on the distributor and beneficiary s currency: Reporting currencies * Distributor (D) Beneficiary (B) CCUR Analysis There should not be any conversion difference (provided that the reciprocal declaration match). FCUR1 CCUR Dividend received should be booked in B s accounts using exactly the same rate used to convert flow F06 in D s accounts. If there is a difference, it should be cancelled against the financial result (P2150 Other financial income) by a manual journal entry posted in B s accounts. FCUR1 A conversion difference may originate from converting dividend received at the average rate, while dividend paid is converted at the exact exchange rate. It is transferred to the retained earnings by an automatic journal entry posted on Audit ID DIV20. FCUR1 FCUR2 In this scenario, which combines the two scenarios above, the process should be as follows: 1. Check that the dividend received by B (in FCUR2) corresponds to the dividend paid by D (in FCUR1), converted using the spot rate on F The remaining difference will be transferred to the retained earnings by an automatic journal entry posted on Audit ID DIV20. * CCUR : Consolidation currency FCUR : Foreign currency 66

67 Intercompany Transactions Example Scenario The group holds 100% of F1 and F2, which are foreign subsidiaries located in the same country. The conversion rates for F1 and F2's currency, expressed as certain for uncertain, are as follows: OR Opening rate AR Average rate CR Closing rate Daily rate June 30th * * Spot rate at the date the dividend was decided by the general meeting Data entered by F2 in schedule PA4320-Dividends paid F06 XE1610 Dividends paid 100 To be broken down Parent F1 100 TOTAL 100 Data entered by F2 in schedule PA4330-Dividends paid by beneficiary /date F06 Owner company F1 100 XE1610 Dividend paid To be broken down Transactrion date June 30th 100 TOTAL 100 Data entered by F1 in schedule PA4310-Dividends received N-1 N P2140 Dividends 100 To be broken down Subsidiary F2 100 TOTAL 100 Automatic journal entries generated for F1 P2140 Dividends E1610 Retained earnings PACK (=100 /0.270) DIV DIV DIV20 20 * DIV20 20 Elimination of the dividend received based on the declaration made by F2 (100 CUR / 0.286) Processing the conversion difference between dividends received (100 CUR / 0.270) and dividends paid (100 CUR / = 350) * This amount is transferred later to the Foreign currency translation reserve. Performing Checks Checking Consistency between conversion rate table and analysis by date of paid dividend You can check that daily rates corresponding to analysis by date entered in the packages have been populated by running the following report: Folder Book Schedule C4 C43 C43-05 Checking consistency between analysis by date Daily exchange rate 67

68 Intercompany Transactions The C43-10 report enables you to check the conversion of paid dividends by identifying missing analysis by date of paid dividend and/or missing daily exchange rates. Folder Book Schedule C4 C43 C43-10 Checking the conversion of paid dividend Checking Declarations You can check that the declarations made by the distributor using flow F06 on account XE1610 and by the beneficiary using flow Y99 on account P2140 are reciprocal by running the following reports in book C44: Folder Book Schedule C4 C44 C44-30 Reconciliation of internal gains & losses & dividends (threshold > 1) Checking Elimination Journal Entries Checking the impact on the income statement Run the following report to check that the amounts in account P2140 correspond to dividends received from non-group partners for each reporting unit: Folder Book Schedule C4 C46 C46-15 Elimination of dividends - Impact on P&L This report also enables you to know the amount of the conversion difference that was posted automatically on account P2140, for each beneficiary/distributor pair. Make sure that it is real (justified) conversion difference and that it is not due to another cause, such as an inconsistency in intercompany declarations. Checking the distribution flow for shareholders' equity Run the following report to check that there is no discrepancy between dividends received and paid: Folder Book Schedule C4 C46 C46-20 Elimination of dividends - Check distribution flow (F06) If there are discrepancies, check the rows analyzed by reporting unit pair so that you can identify the origin of the problem. Provisions Automatic Processing Introduction Provisions for consolidated companies are fully eliminated regardless of the: consolidation method of each company, for example the full or proportionate consolidation or equity method. audit ID of the provision, for example the provisions on shares or other provisions. The audit IDs used are as follows: Processing Automatic Audit IDs Manual Audit IDs Elimination of inter-company prov. on shares PRO10 PRO11 Elimination of other inter-company provisions PRO20 PRO21 68

69 Intercompany Transactions Collecting Data in the Package Provisions are broken down by partner in schedules: PA2200: impairment on investments in subsidiaries PA4410: intercompany provisions on bad debts, P4420: intercompany provisions (liabilities). Journal Entries Elimination of intercompany provisions is performed against: The income statement for allowances and write-back flows as well as for variation flow F15. Net equity for the following flows: incoming units (F01), reclassification (F50), change of accounting policies (F09), internal mergers (F70), conversion difference (F80), outgoing units (F98) and the opening flow (F00) for consolidations without opening balances. The table below describes accounts and flows from which processing originates and their counterparty in income: Balance sheet account Balance sheet source flow Income statement account Audit ID A1812 Investments in subsidiaries, JV and associates, Impair. F25/F15 P2210 Allowances for provisions on shares PRO10 A1612 Loans and cash advances, Non current, Allow. A1642 Receivables, Non current, Allow A2212 Trade receivables, Allow. for bad/doubt. debts A2262 Other receivables, Allow. for bad/doubt. debts A2442 Loans and cash advances, Current, Allow. L1230 Legal proceedings provision, Non current L1260 Miscellaneous provisions, Non current L2230 Legal proceedings provision, Current L2260 Miscellaneous provisions, Current F25/F35/F15 P1650 Net internal provision PRO20 F25/F35/F15 P1650 Net internal provision PRO20 Example Source data Schedule PA4420 ACCOUNT/PARTNER Code F00 F99 F25 F35 F50 F60 F70 Control Miscellaneous provisions, Non current L To be broken down RU U2 U Non-Group TP Total Schedule PA2500 ACCOUNTS CODE F00 F99 F05 F10 F20 F30 F40 F50 F55 Spec. Control Retained earnings E Net equity

70 Intercompany Transactions Automatic journal entries generated L1260 Miscellaneous provisions, Non current E1610 Retained earnings PACK PACK PRO PRO PRO20 50 P1650 Net internal provision PACK01 50 PRO20 50 Elimination of provision at opening Elimination of write-back for provision for the period Presentation by flow Account Flow Audit ID Code Description F00 F10 F15 F20 F35 F99/Y99 E1610 Retained earnings PACK01 <300> 50 <250> PRO <50> 50 TOTAL <200> 0 <200> L1260 Miscellaneous provisions, Non current PACK <200> 250 PRO20 <100> 50 <50> TOTAL <150> 200 Total LIABILITIES & EQUITY <150> 0 P1650 Net internal provision PACK01 50 PRO20 <50> If applicable, the deferred tax will be posted by a manual journal entry, as follows: Deferred income tax liability for the elimination of the provision at opening: 100 x 40% = 40 Audit ID Account Flow Debit Credit PRO21 E1610 Retained earnings F00 40 L1410 Deferred income tax liability F00 40 Write-back of deferred income tax liability amounting to 50 x 40% = 20 Audit ID Account Flow Debit Credit PRO21 L1410 Deferred income tax liability F15 20 P5020 Deferred tax expense Y99 20 Performing Checks Open the following reports and identify the provision accounts (assets and liabilities): Folder Book Schedule C3 C31 C31-05 Balance Sheet by Flow 70

71 Intercompany Transactions Then link to the following report: Folder Book Schedule C3 C32 C32-05 General ledger by Audit-ID, partner, JE number (flows) For each account, use the detail by partner or share to check that any intercompany amount is eliminated at 100%. Gains or Losses on Internal Transfer of Assets Presentation of the Automatic Processing Introduction Gains or losses on disposal of assets (tangible, intangible or securities) between consolidated companies are eliminated: At 100% when the buyer and seller are both fully consolidated. Using the consolidation rate of the company that is proportionately consolidated if its partner is a fully consolidated company 2. Using the lowest consolidation rate if both buyer and seller are consolidated using the proportionate method². Collecting Data in the Package Acquisitions and disposal of assets can be analyzed in specific reports: Schedule PA4210 Purchase / Disposal of Property, Plant and Equipment Schedule PA4220 Purchase / Disposal of Investment Property Schedule PA4230 Purchase / Disposal of Intangible Assets Schedule PA4240 Purchase / Disposal of Biological Assets Schedule PA4250 Purchase / Disposal of Financial Assets Schedule PA2300 Purchase / Disposal of investment in subsidiaries In these reports, the seller breaks down amounts by type of asset or by investment row for securities and by buyer: The selling price is entered in flow X01. The gains or losses are calculated based on the amounts declared on flow F30, both on the gross value accounts for tangible, intangible assets and investment property and the accumulated depreciation and impairment accounts. The buyer breaks down amounts by type of asset or by investment row for securities, and by seller, using flow F20. For the purchase/disposal of investment in subsidiaries, an additional, optional schedule is available: PA2350-Purchase/disposal of investment in subsidiaries / Date. Use this schedule if you choose to declare F20 on investment by dates. Journal Entries Gains or losses on internal transfers of assets are eliminated from the income of the seller company. In the buyer company the assets must be recorded at their historical value. The historical value is used in the 2 In the PC sets of rules only 71

72 Intercompany Transactions buyer's accounts to show the same gross value and cumulated depreciation for the asset as in the seller's accounts at the date of disposal. Data entered at seller's Automatic journal entries generated At seller's At buyer's Debit Credit Debit Credit Gross value (F30) A11CL Clearing account - Property, plant and equipment Property, plant and equipment P1610 Gross value account A11CL Depreciation (F30) Impairment (F30) Sales price (X01) P1610 Gains or losses on sale of property, plant and equipment A11CL A11CL Depreciation account Impairment account Gross value account Investment property Gross value (F30) A12CL Clearing account - Investment property P1611 Gross value account A12CL Depreciation (F30) Impairment (F30) Sales price (X01) P1611 Gains or losses on sale of investment property A12CL A12CL Depreciation account Impairment account Gross value account Intangible assets Gross value (F30) A14CL Clearing account - Intangible assets P1612 Gross value account A14CL Depreciation (F30) Impairment (F30) Sales price (X01) P1612 Gains or losses on sale of intangible assets A14CL A14CL Depreciation account Impairment account Gross value account Biological assets Gross value (F30) A15CL Clearing account - Biological assets P1613 Gross value account A15CL Depreciation (F30) Impairment (F30) Sales price (X01) P1613 Gains or losses on sale of biological assets A15CL A15CL Depreciation account Impairment account Gross value account Non-current financial assets Gross value (F30) Sales price (X01) Gross value (F30) Sales price (X01) A18CL Clearing account - Financial assets, Non current P1614 Gains or losses on sale of other assets A24CL Clearing account - Financial assets, Current P1614 Gains or losses on sale of other assets P1614 Gross value account A18CL A18CL A18CL Gross value account Current financial assets P1614 Gross value account A24CL A24CL A24CL Gross value account 72

73 Intercompany Transactions Data entered at seller's Automatic journal entries generated At seller's At buyer's Debit Credit Debit Credit Consolidated investment in subsidiaries, JV and associates Gross value (F30) A181CL Clearing account - Inv. in subsidiaries, JV and associates P1615 Gross value account A181CL Impairment (F30) Sales price (X01) P1615 Gains or losses on sale of shares A181CL A181CL Impairment account Gross value account The audit IDs used are as follows: Processing Automatic audit ID Manual audit ID Elimination of gains and losses on internal transfer of assets Correction of the amort./impairment subsequent to an internal transfer of assets DIS10 DIS11 DIS11 Example Company U1 has sold a building to U2 for 600. In U1 s accounts, this building had a gross value of 900 and an accumulated depreciation of 400 at the date of the internal transfer. Data entered by U1 in schedule P10450 DISPOSAL PURCHASE ACCOUNT/PARTNER CODE Selling price Gross value Depr. Impair. Net book value Gains/ losses Acquisition price Lands and buildings A To be broken down RU U2 U Total Data entered by U2 in schedule P10450 DISPOSAL PURCHASE PARTNER CODE Selling price Gross value Depr. Impair. Net book value Gains/ losses Acquisition price Lands and buildings A To be broken down RU U1 U1 600 Total

74 Intercompany Transactions Automatic journal entries generated U1 P1610 Gains or losses on sale of PPE PACK DIS U1 A11CL Clearing account - PPE U2 A11CL Clearing account - PPE DIS DIS U2 A1110 Lands and buildings U2 A1111 Lands and buildings, Dep. PACK DIS DIS Elimination of gains at seller's Adjustment to asset's historical value at buyer's Presentation by flow Account Reporting Flow Audit ID Code Description unit F00 F10 F20 F30 F50 F99/Y99 A11CL Clearing account - PPE U1 DIS10 <600> 500 <100> U2 DIS <500> 100 A1110 Lands and buildings U1 PACK <900> 0 U1 DIS <900> 0 U2 PACK U2 DIS10 <600> A1111 Lands and buildings, Dep. U1 PACK01 <400> U1 DIS10 <400> U2 DIS10 <400> <400> E1610 Retained earnings U1 PACK U1 DIS10 <100> <100> P1610 Gains or losses on sale of PPE U1 PACK U1 DIS10 <100> Performing Checks Checking Declarations Check that the declarations made by sellers (selling price in technical flow X01) and buyers (purchase price in F20) are reciprocal by running the following report: Folder Book Schedule C C44 C44-30 Reconciliation of internal gains & losses & dividends (threshold > 1) If this report displays any differences due to an error in the breakdown by partner for sales and purchases; the declaration must be corrected directly in the package, which must then be validated and integrated again into the database. Manual Journal Entries When an internal transfer of assets occurs, the depreciation booked in the buyer s accounts must be corrected in order to take due account of the adjustment to historical value in the consolidated accounts. This correction, which lasts all over the asset depreciation period, can be declared in one single manual 74

75 Intercompany Transactions journal entry, which specifies the amount of adjustment which is applicable for each consolidation period till the end of the asset depreciation period. Automatic journal entries are then triggered to correctly account for the adjustment. The manual journal entry must be posted on a dedicated disclosure flow named X02 - Depreciation adjustments of assets acquired internally, which is authorized only for depreciation accounts of the following categories of assets: Property, plant and equipment. Investment property. Intangible assets. Biological assets. Dedicated analysis values representing consolidation periods are available to specify which adjustments need to be accounted for all corresponding accounting periods. For monthly or quarterly consolidations, amounts must be posted on a year to date basis. The P&L account is specified by choosing one unique dedicated analysis value which is assigned with the amount of 1. Example (continued) Following with the previous example, we suppose that: In U2's company accounts, the asset is depreciated over 6 years, with a yearly allowance of 100. In U1's company accounts, the asset would have been depreciated at a rate of 33.33%, with a theoretical allowance of 300 in N and 200 (residual value) in N+1. For the consolidation of fiscal year N, the manual journal entry to be posted for U2 is as follows (assuming that the depreciation of the building comes under Other expenses : Audit ID Account Flow Partner Analysis Debit Credit DIS11 A1111 Lands and buildings, Dep. X02 U1 N 200 U1 N U1 N U1 N U1 N U1 N U1 PL-P On the basis of the previous journal entry, the following automatic journal entry is booked in the consolidation of fiscal year N. Audit ID Account Flow Debit Credit DIS10 A1111 Lands and buildings, Dep. F P1510 Other expenses Y On the basis of the same previous journal entry, the following automatic journal entry is booked in the consolidation of fiscal year N+1. Audit ID Account Flow Debit Credit DIS10 A1111 Lands and buildings, Dep. F P1510 Other expenses Y

76 Intercompany Transactions Then, from N+2 to N+5, the following automatic journal entry is booked in the consolidation. Audit ID Account Flow Debit Credit DIS10 A1111 Lands and buildings, Dep. F P1510 Other expenses Y If the automatic accounting for the depreciation adjustment is no longer needed before the end of the depreciation period (for instance because the asset is transferred to a non-consolidated company), the manual journal entry needs to be reversed in the consolidation period from which the automatic accounting should cease. Example (continued) Following with the previous example, we suppose that: U2 company sells the asset to a non consolidated company at the end of fiscal period N+3. For the consolidation of fiscal year N+4, the manual journal entry to be posted for U2 is as follows (assuming that the depreciation of the building comes under Other expenses : Audit ID Account Flow Partner Analysis Debit Credit DIS11 A1111 Lands and buildings, Dep. X02 U1 N U1 N U1 PL-P Then, in N+4 and N+5, the following additional automatic journal entry is booked in the consolidation, which actually reverses previous automatic entries triggered from the initial manual journal entry posted in fiscal year N. Audit ID Account Flow Debit Credit DIS10 A1111 Lands and buildings, Dep. F P1510 Other expenses Y

77 Deferred Taxation Deferred Taxation Section Objectives This section presents the processing of deferred tax in the Starter kit. Key Points Deferred tax must be entered in the package or booked manually by the consolidation department. There is no automated process applying to deferred tax. Any deferred tax journal entry must be booked on the same Audit ID as the one used to identify the base of deferred tax (or the corresponding Audit ID on which you can book a manual journal entry). Overview Identifying the Bases of Deferred Tax The bases of deferred tax can be split into two categories: Deferred tax based on adjustments already included in the package using Audit ID PACK01 (such as an IFRS adjustment) should be booked in the package Deferred tax based on adjustments posted centrally by automatic or manual journal entries, for example, the elimination of the gain/loss on an internal transfer of assets, should be booked by a manual journal entry. Deferred tax is never booked automatically. Booking Deferred Tax The accounts used to book deferred tax are as follows: Balance sheet Income statement A1710 Deferred tax assets L1410 Deferred income tax liability P5020 Deferred tax expense There is no dedicated Audit ID to book deferred tax. As a general principle, deferred tax should be recorded using the same Audit ID as the one used to record the original carrying amount or automatic/manual journal entry giving rise to the temporary difference. In case the base for deferred tax was generated automatically (for example, the elimination of the gain/loss on an internal transfer of assets; Audit ID: DIS10), use the corresponding Audit ID available for manual journal entries (DIS11 in this specific case). Sometimes this principle may not apply, especially when a deferred tax is booked at the central level, based on a temporary difference that is not recognized in the individual accounts, such as the carryforward of unused tax losses. In this case, you should use Audit ID ADJ91-Other adjustment - Central - Man. Example An invoice issued for the sum of was omitted from F's company accounts. This expense is booked in the consolidated accounts using audit ID ADJ91. 77

78 Deferred Taxation This additional expense posted in F's accounts should lead to the booking of a deferred tax asset (a tax rate of 40% is used in this example): Audit ID Account Flow Debit Credit ADJ91 A1710 Deferred tax assets F P5020 Deferred tax expense Y Accounting for Deferred Tax Variation in Tax Rates According to IFRS standards, the impact of the variation in rates affects income when the original operation also affects income. It affects reserves when the original operation is registered directly in shareholders' equity. When deferred tax is associated with fair value adjustments, the impact of the variation in rates is registered in income. Manual journal entries should be booked in order to register the impact of variation in rates on deferred tax existing at opening. Offsetting Deferred Tax Assets and Liabilities by Reporting Unit Deferred tax assets and liabilities could be offset for a given tax entity if conditions set out in IAS 12 are met. A manual journal entry for offsetting the deferred tax asset and liability balances must be booked to record the net balance as an asset or liability. 78

79 Consolidation Entries Consolidation Entries Section objectives This section presents the manual and automatic journal entries related to the following consolidation topics: calculating non-controlling interests for shareholders' equity booking the share of investments in companies consolidated using the equity method eliminating consolidated shares maintaining the historical conversion rate for shareholders' equity and consolidated shares booking goodwill The audit IDs used are as follows: Audit ID Description Available for manual journal entry CONS01 Consolidation entry not splittable X CONS10 Elimination of subsidiaries' capital and share premium CTA01 Currency translation adjustments - Equity - Man. X CTA10 GW00 GW01 GW10 Currency translation adjustments - Equity - Auto Disclosure of goodwill (gross value & impair.) and bargain purchase Auto Disclosure of goodwill (gross value & impair.) and bargain purchase - Man. Booking of goodwill and bargain purchase - Auto GW11 Booking of goodwill and bargain purchase - Man. X GW20 Currency translation adjust. on goodwill - Auto GW21 Currency translation adjust. on goodwill - Man. X INV10 Elimination of investments - Auto INV11 Elimination of investments - Man. X INV20 Currency translation adjust. on investments - Auto INV21 Currency translation adjust. on investments - Man. X INV31 INV32 Adj. on gain/loss on disposal of a subsidiary, JV or associate (Local currency) Adj. on gain/loss on disposal of a subsidiary, JV or associate (Consolidation currency) NCI11 Calculation of non controlling interests - Correction X NCI-ADJ90 NCI-CTA10 NCI-DIS10 NCI-DIV10 NCI-DIV20 NCI-FVA00 Other adjustment - NCI calc. Currency translation adjustments - Equity - NCI calc. Elim. of internal gain/loss on disposal of assets - NCI calc. Elimination of internal dividends - NCI calc. Currency translation adjust. on dividends - NCI calc. Fair value for incoming entities (central) - NCI calc. X X X 79

80 Consolidation Entries Audit ID NCI-INV30 NCI-INV40 NCI-PACK01 NCI-PACK10 NCI-PKIFRS10 NCI-PKIFRS12 NCI-PKIFRS90 NCI-PACK90 NCI-AJIFRS90 NCI-PRO10 NCI-PRO20 Description Adjustment on gain/loss on disposal of subs. - NCI calc. Elim. impact of equity accounting in local statements - Auto- NCI Package data - NCI calc. Adjustment to Group accounting policies - NCI calc. Adjustment to IFRS - NCI calc. Adjustment to IFRS - NCI calc. Package data - IFRS central correction - NCI calc. Package data - Central correction - NCI calc. IFRS adjustments - NCI calc. Elimination of internal impairment on investments - NCI calc. Elimination of internal provisions - NCI calc. Available for manual journal entry Calculation of Non-controlling Interests Principles The consolidated subsidiaries' shareholders equity is distributed between Group and non-controlling interests. This is done using one of the NCI-xxxx audit IDs, depending on the source Audit ID. The correspondence between source and destination Audit ID can be displayed in Dimension Builder, (reference table: AUDIT-ID; characteristic: SPLIT). In order to retrieve the variation in net equity as required by IAS1, the accounts that store the consolidated subsidiaries shareholders equity are distributed using the following Group and Non-controlling interests accounts: Group equity account NCI equity account E1110 Issued capital * E2010 NCI - Reserves and retained earnings E1210 Share premium * E2010 NCI - Reserves and retained earnings E1410 Revaluation surplus, before tax E2110 NCI - Revaluation surplus before tax E1411 Income tax on revaluation surplus E2111 NCI - Income tax on revaluation surplus E1420 E1421 Remeasurements of defined benefit plans, before tax Income tax on remeasurements of defined benefit plans E2120 E2121 E1430 Non-recyclable hedging reserve, before tax E2130 E1431 E1440 E1441 Income tax on non-recyclable hedging reserve Non-recyclable fair value reserve, before tax Income tax on non-recyclable fair value reserve E2131 E2140 E2141 NCI - Remeasurements of defined benefit plans, before tax NCI - Income tax on remeasurements of defined benefit plans NCI - Non-recyclable hedging reserve, before tax NCI - Income tax on non-recyclable hedging reserve NCI - Non-recyclable fair value reserve, before tax NCI - Income tax on non-recyclable fair value reserve 80

81 Consolidation Entries Group equity account NCI equity account E1450 Financial liabilities at FVTPL credit risk reserve, before tax E2150 NCI - Financial liabilities at FVTPL credit risk reserve, before tax E1451 Income tax on financial liabilities at FVTPL credit risk reserve E2151 NCI - Income tax on financial liabilities at FVTPL credit risk reserve E1510 Foreign currency translation reserve, before tax E2210 NCI - Foreign currency translation reserve, before tax E1511 Income tax on foreign currency translation reserve E2211 NCI - Income tax on foreign currency translation reserve E1520 Recyclable hedging reserve, before tax E2220 NCI Recyclable hedging reserve, before tax E1521 Income tax on recyclable hedging reserve E2221 NCI - Income tax on recyclable hedging reserve E1530 Recyclable fair value reserve, before tax E2230 NCI Recyclable fair value reserve, before tax E1531 Income tax on recyclable fair value reserve E2231 NCI - Income tax on recyclable fair value reserve E1570 Equity component of compound financial instruments E2080 NCI - compound financ. instruments E1610 Retained earnings E2010 NCI - Reserves and retained earnings * These accounts are also transferred to the retained earnings (E1610) for any entity except the group s Parent company. The calculation of non-controlling interests depends on the consolidation rate and the financial interest of the scope. Depending on the flow, the calculation may use the opening or closing rate: Data Flow Rates Shareholders' equity at opening Payment of dividends Effect of changes in accounting policies Net income for the period Variation of capital in number of shares and subscription Impact of reclassification Fair value Effect of internal mergers Impact of variations in conversion rates F00 F06 F09 F10 F40 F50 F55 F70 F80 Opening Closing When the consolidation rate and/or financial interest varies between opening and closing, the effect of this variation is automatically taken into account in specific flows (see Scope Changes). If needed, manual journal entries can be booked to correct the automatic calculation of non-controlling interests: Audit ID Account Flow Debit Credit NCI11 E1xxx Equity attributable to owners of parent Fxx* E2xxx - Non-controlling interests Fxx* *The flow should be selected depending on the operation. For instance,flow F10 should be used to correct the NCI share of the Net Income. Example Scenario Parent company M subscribed to 60% of company F's capital when the latter was created in N. F is fully consolidated on 31/12/N. 81

82 Consolidation Entries Package for F General trial balance on 31/12/N ASSETS Accounts F00 Opening F99 Closing Cash on hand 120 LIABILITIES Issued capital 100 Retained earnings* 20 * This corresponds to the net income for the year. Schedule PA2500 ACCOUNTS CODE F00 F99 F06 F10 F20 F30 F40 F50 F55 Spec. Control Issued capital E Retained earnings E Net equity Automatic journal entries (before eliminating shares) E1110 Issued capital E1610 Retained earnings PACK PACK01 20 NCI-PACK01 40 NCI-PACK01 8 CONS10 60 CONS10 60 A2610 Cash on hand E NCI - Reserves and retained earnings PACK NCI-PACK01 40 NCI-PACK01 Calculation of the non-controlling interests on capital (40% x 100 = 40) Calculation of non-controlling interests in net income: 40% x 20 = 8 Reclassification of capital to retained earnings Presentation by flow Accounts Audit ID F10 F15 F40 F99 A2610 Cash on hand PACK Total ASSETS E1110 Issued capital PACK NCI-PACK01 <40> <40> CONS10 <60> <60> Total 0 0 E1610 Retained earnings PACK NCI-PACK01 <8> <8> CONS Total

83 Consolidation Entries Accounts Audit ID F10 F15 F40 F99 E NCI - Reserves and retained earnings NCI-PACK NCI-PACK Total Total LIABILITIES & EQUITY Control (assets - liabilities = equity) N/A N/A N/A 0K Elimination of Investments Principles Consolidated investments in subsidiaries are eliminated by the parent against account A181OC-Elimination of investment in subsidiaries - Owner company using audit ID INV10. Account A181OC is then balanced in the subsidiary s balance sheet on account A181HC, using the same audit ID INV10. This elimination impacts the subsidiary's reserves (account: E1610-Retained earnings). The calculation of the impact on non-controlling interests is based on the financial interest of the Group in the parent. Example Overview The Group's organization chart is as follows: M F SF 80% 50% 50% of SF is held by F and the rest by a non-group company. SF is consolidated using the proportionate method. The scope of the Group at 31/12/N is as follows: Company Opening method Opening consolidation rate Opening fin. int. Closing method Closing consolidation rate Closing owner. int. Closing fin. int. M FC 100% 100% FC 100% 100% 100% N F FC 100% 80% FC 100% 80% 80% N SF PC 50% 40% PC 50% 50% 40% N Package for M on 31/12/N Trial balance ASSETS Accounts F00 Opening F99 Closing Investments in subsidiaries LIABILITIES Issued capital Variation 83

84 Consolidation Entries Schedule PA2100 Investments in Subsidiaries INVESTMENT IN SUBSIDIARIES Investments in subsidiaries, JV and associates CODE F00 F99 F20 F30 F40 F50 F55 F09 F70 Control A To be broken down 0 0 Subsidiaries, JV & assoc. Code RU F F Total Package for F on 31/12/N Trial Balance ASSETS Accounts F00 Opening F99 Closing Investments in subsidiaries LIABILITIES Issued capital Bank - Non current borrowings Schedule PA2100 Investments in Subsidiaries INVESTMENT IN SUBSIDIARIES CODE F00 F99 F20 F30 F40 F50 F55 F09 F70 Control Investments in subsidiaries, JV and associates A To be broken down 0 0 Subsidiaries, JV & assoc. Code RU SF SF Total Package for SF on 31/12/N Trial Balance ASSETS Accounts F00 Opening F99 Closing Cash on hand LIABILITIES & EQUITY Issued capital Retained earnings 400 Schedule PA2500 ACCOUNTS CODE F00 F99 F05 F10 F20 F30 F40 F50 F55 Spec. Control Issued capital E Retained earnings E Net equity

85 Consolidation Entries Automatic journal entries Company M A1810 Investment in subs. JV and assoc. E1110 Issued capital PACK01 80 PACK01 80 INV10 80 A181OC Elimination of investment in subsidiaries - Owner company INV10 80 Company F A1810 Investment in subs. JV and assoc. E1110 Issued capital PACK PACK INV NCI-PACK01 20 L1510 Borrowings, Non current CONS10 80 PACK INV A181OC Elimination of investment in subsidiaries - Owner company A181HC Elimination of investment in subsidiaries - Held company E1610 Retained earnings INV10 80 CONS10 80 E NCI - Reserves and retained earnings NCI-PACK01 20 INV10 80 Company SF A2610 Cash on hand E1110 Issued capital PACK PACK E1610 Retained earnings NCI-PACK01 CONS A181HC Elimination of investment in subsidiaries - Held company PACK INV NCI-PACK01 CONS10 INV E NCI - Reserves and retained earnings NCI-PACK01 INV

86 Consolidation Entries Local data from SF is consolidated at 50% Calculating NCI in SF's equity: Capital: Group share = 40% x 1000 = 400, NCI = = 100 Net income: Group share = 40% x 400 = 160, NCI = = 40 Reclassification of capital for SF Elimination of SF's shares held by F Impact on Group reserves = <500> x 80% = <400> Impact on NCI = <500> x 20% = <100> Calculating NCI in F s equity: Group share = 80% x 100 = 80, NCI = 20% x 100 = 20 Reclassification of capital for F Elimination of F's shares held by M Impact on Group reserves = <80> x 100% = <80> 86

87 Consolidation Entries Presentation by flow Accounts Audit ID Reporting unit F00 F10 F15 F99 A1810 Investment in subs. JV and assoc. PACK01 M A181HC Elimination of investment in subsidiaries - Held company A181OC Elimination of investment in subsidiaries - Owner company PACK01 F INV10 F <500> <500> INV10 M <80> <80> Total 0 0 INV10 SF <500> <500> INV10 F <80> <80> Total <580> <580> INV10 F INV10 M Total A2610 Cash on hand PACK01 SF Total Total ASSETS E1110 Issued capital PACK01 M PACK01 F PACK01 SF NCI-PACK01 SF <100> <100> CONS10 SF <400> <400> NCI-PACK01 F <20> <20> CONS10 F <80> <80> Total E1610 Retained earnings PACK01 SF NCI-PACK01 SF <40> <40> CONS10 SF INV10 SF <400> <400> CONS10 F INV10 F <80> <80> Total E NCI - Reserves and retained earnings NCI-PACK01 SF NCI-PACK01 SF INV10 SF <100> <100> NCI-PACK01 F Total L1510 Borrowings, Non current PACK01 F Total Total LIABILITIES & EQUITY Control (assets liabilities) OK N/A N/A OK 87

88 Consolidation Entries Converting Consolidated Shareholders' Equity and Investments in Subsidiaries Principles Consolidated shareholders' equity (except Hedging reserves and Fair value reserves) and shares belonging to foreign subsidiaries are maintained at their historical conversion rate. As regards shareholders' equity, the differences between the historical and closing rates are carried over to a specific account for shareholders' equity, E1510-Foreign currency translation reserve, before tax, using audit ID CTA10. The NCI share will then be transferred from account E1510 to account E2210-NCI - Foreign currency translation reserve, before tax, using audit ID NCI-CTA10. The currency translation adjustment of consolidated investments in subsidiaries is triggered with the same approach as the elimination of shares, but the journal entry is posted on dedicated accounts in the equity (E1510 and E2210) and uses the dedicated audit ID INV20-Currency translation adjust. on investments Auto). The automatic processing is based on the conversion difference flow (F80) calculated automatically for all of the balance sheet accounts and, in particular, for shareholders' equity and investment accounts (see Converting Data). Manual Journal Entries When using the application to perform a consolidation for the first time, any opening conversion reserves that exist should be posted by manual journal entry. Conversion differences for shareholders' equity Audit ID Account Flow Debit Credit CTA01 E1xxx Shareholders' equity local accounts F00 E1510 Foreign currency translation reserve, before tax F00 Conversion differences for consolidated investments in subsidiaries Entry posted in the shareholder s accounts Audit ID Account Flow Debit Credit Investments Debit Credit INV21 A1810 Investment in subs. JV and assoc. F00 A B Subs. A B A181OC Elimination of investment in subsidiaries - Owner company F00 B A Subs. B A A B When the historical value of shares is greater than the value converted using the opening rate When the historical value of shares is lesser than the value converted using the opening rate 88

89 Consolidation Entries Entry posted in the subsidiary s accounts Example Overview Audit ID Account Flow Debit Credit Investments Debit Credit INV21 A181HC Elimination of investment in subsidiaries - Held company E1510 Foreign currency translation reserve, before tax E2210 NCI - Foreign currency translation reserve, before tax F00 A B Owner comp. F00 B A Owner comp. F00 * * Owner comp. A When the historical value of shares is greater than the value converted using the opening rate B When the historical value of shares is lesser than the value converted using the opening rate * If applicable, the impact on equity should be split between Group s share and NCI, based on the group s share in the owner company Parent company M created company F in the United States in N-1. F's capital amounts to 100 USD. The conversion rate applicable when the company was created was 1.10 USD for 1 EUR. In M's local accounts, the value of F's shares is therefore 91 EUR (= 100 USD / 1.10). Consolidation is performed for the first time using the application on 31/12/N. The evolution of F's shareholders' equity between its creation date and the opening of period N is presented below: (in USD) Capital Reserves Net income Total 1/1/N Net income N /12/N The evolution of the dollar's conversion rate for the period is as follows: 1/1/N-1 Average N-1 31/12/N-1 Average N 31/12/N 1EUR = The conversion rate table for period N is as follows (certain for uncertain): Currency Closing rate Average rate Opening rate EUR USD Package for M on 31/12/N Trial balance ASSETS Accounts F00 Opening F99 Closing A1810 Investment in subs. JV and assoc A2160 Cash on hand 9 9 LIABILITIES & EQUITY E1110 Issued capital

90 Consolidation Entries Schedule PA2100 Investments in Subsidiaries INVESTMENT IN SUBSIDIARIES CODE F00 F99 F20 F30 F40 F50 F55 F09 F70 Control Investments in subsidiaries, JV and associates A To be broken down 0 0 Subsidiaries, JV & assoc. Code RU SF F Total Package for F on 31/12/N Trial balance (USD) ASSETS Accounts F00 Opening F99 Closing A2160 Cash on hand LIABILITIES & EQUITY E1110 Issued capital E1610 Retained earnings Schedule PA2500 ACCOUNTS CODE F00 F99 F05 F10 F20 F30 F40 F50 F55 Spec. Control Issued capital E Retained earnings E Net equity Manual Journal Entries When the historical data is retrieved, cumulated conversion differences at opening should be restored by manual journal entry. Evaluation of conversion reserves at opening: Analysis of shareholders' equity on 01/01/N Amount in USD N Opening rate Historical rate Difference Definition Rate (EUR) Capital 100 Rate at creation date 1.10 <9> Retained earnings Average N-1 rate Journal entry to be posted: Post the following journal entry in EUR for F: Audit ID Account Flow Debit Credit CTA01 E1110 Issued capital F00 9 E1610 Retained earnings F00 22 E1510 Foreign currency translation reserve, before tax F

91 Consolidation Entries Automatic journal entries generated for F Journal entries that eliminate investments in subsidiaries without any specificity are not presented here: A2610 Cash on hand E1110 Issued capital PACK PACK CTA01 CTA10 CONS E1610 Retained earnings E1510 Foreign currency translation reserve, before tax PACK CTA01 13 CTA01 22 CTA10 25 CTA10 CONS F's local data converted at closing rate Restoring cumulative translation differences at opening for capital and reserves (manual journal entry) Elimination of the period's conversion variation for Issued capital: 100/ /0.90 = 25 Elimination of the period's conversion variation Opening retained earnings: 200/ /1 = 50 Net income for the period: 100/ /0.90 = 14 Total = 64 NCI calculation (N/A because the group holds 100% of F) and transfer of Capital to Retained earnings 91

92 Consolidation Entries Presentation by flow Accounts Audit ID Reporting unit F00 F10 F15 F80 F99 A1810 Investment in subs. JV and assoc. PACK01 M INV10 M <91> <91> Total 0 0 A181HC Elimination of investment in subsidiaries - Held company INV10 F <91> <91> Total <91> <91> A181OC Elimination of investment in subsidiaries - Owner company INV10 M Total A2610 Cash on hand PACK01 M 9 9 PACK01 F Total Total ASSETS E1110 Issued capital PACK01 M E1510 Foreign currency translation reserve, before tax PACK01 F CTA01 F <9> <9> CTA10 F <25> <25> CONS10 F <91> <91> Total CTA01 F <13> <13> CTA10 F Total <13> E1610 Retained earnings PACK01 F INV10 F <91> <91> CTA01 F CTA10 F <64> <64> CONS10 F Total Total LIABILITIES & EQUITY Control (assets liabilities) OK N/A N/A OK OK Analysing the changes in the foreign currency exchange reserve for the Group A report provides an analysis of the impact of changes in conversion rates on the net equity kept at historical value. Folder Book Schedule C4 C46 C46-30 Year-to-date - Analysis of changes in Foreign currency exchange reserve 92

93 Consolidation Entries Optional Conversion Process on Investment and Capital/Share Premium By default, for any B/S account, flows F20-Increase/Purchase and F40-Subscription to capital increase/decrease are converted using the average rate of the period. It is possible to perform a more accurate conversion based on the exact daily rate on the following account/flow combinations: A1810-Investments in subsidiaries, JV and associates or A1815-Investments measured at equity / F20 and F40 E1110-Issued capital / F40, E1210-Share premium / F40. This can be used to handle more easily some consolidation events such as an incoming company in the scope or the subscription to a capital increase. Indeed, the conversion of the amounts entered on these account/flow combinations is done using the specific exchange rate at the date of the event, and you do not need to post manual journal entries to refine conversion. This optional conversion process is based on: An additional detail by date provided in the package for these account/flow combinations. Daily rates entered in the conversion rate table. Data Entry Schedules To enter detail by dates on Investment and Capital/Share premium, use the following schedules, depending on which account/flow combination you want to detail: Account/Flow combination Data entry schedule Link from schedule A1810 or A1815 / F20 A1810 or A1815 / F40 E1110 / F40 E1210 / F40 PA2350 Purchase/disposal of investment in subsidiaries / Date PA2360 Subscriptions to subsidiaries capital increase / Date PA2550 Variations of issued capital and share premium / Date PA2300 Purchase/Disposal of investment in subsidiaries PA2100 Investments in subsidiaries PA2500 Equity statement Note: these schedules must be filled out only by entities using a reporting currency that differs from the consolidation currency. Retrievals The following reports have been configured to check: the consistency of the analysis by date entered in the packages and the daily rates entered in the exchange rate table the conversion at daily rate by identifying missing analysis by date and/or missing daily exchange rates Folder Book Schedule C4 C43 C43-05 Check consistency between Analysis by date - Daily exchange rate C43-15 Checking the conversion of capital increase/decrease C43-20 Checking the conversion of subscription to capital increase C43-25 Checking the conversion of purchase of investments 93

94 Consolidation Entries Example: Subscription to a capital increase Overview Parent company M holds US subsidiary F1 at 100% since it was created. Reporting currency for M and consolidation currency are EUR. On 12/07/N, M subscribes to 100% of an increase in capital made by F1. At this date, the conversion rate for the USD is 1 EUR=1.17 USD. The increase in capital amounts is 100 USD. Suscription by M = 100 USD / 1.17 = 85 EUR. Extract from the conversion rate table for 30/09/N (certain for uncertain 1EUR = x CUR) Currency OR Opening rate AR Average rate, current period CR Closing rate Rate for July 12 EUR USD Package for M on 31/09/N Schedule PA2100 Investments in Subsidiaries INVESTMENT IN SUBSIDIARIES CODE F00 F99 F20 F30 F40 F50 F55 F09 F70 Control Investments in subsidiaries, JV and associates A To be broken down 0 0 Subsidiaries, JV & assoc. Code RU F F Total Package for F on 31/09/N Schedule PA2500 ACCOUNTS CODE F00 F99 F05 F10 F20 F30 F40 F50 F55 Spec. Control Issued capital E Retained earnings E Net equity Schedule PA2550 Variations of issued capital and share premium / Date CODE F40 Issued capital E To be broken down 0 Transaction dates July Total 100 Based on the additional data provided in schedule PA2550 and the exchange rate for July 12 th entered in the exchange rate table, the flow F40 on Investment and Issued capital will be converted at the exact exchange rate, that is If the subscription to the capital increase is made by a subsidiary reporting in a foreign currency, schedule PA2360 is used to detail this subscription by date. Refer to the Data entry guide for further information. 94

95 Consolidation Entries Equity Method Principles Equity method journal entries consist of booking the share of net assets in the account Investments accounted for using equity method. This value is based on the subsidiary's shareholders' equity after taking into account adjustments, eliminations and the consolidation rate of the scope. These journal entries are booked using the original audit IDs, for example package or adjustment. Example Overview The Group's organization chart is as follows: The scope of the Group at 31/12/N is as follows: Company Opening method Opening consolidation rate M F S 80% 20% F Opening fin. int. Closing method Closing consolidation rate Closing owner. int. Closing fin. int. M FC 100% 100% FC 100% 100% 100% N F FC 100% 80% FC 100% 80% 80% N SF EM 20% 16% EM 20% 20% 16% N Variation Package for M on 31/12/N Trial balance ASSETS Accounts F00 Opening F99 Closing A1810 Investment in subs. JV and assoc LIABILITIES E1110 Issued capital Schedule PA2100 Investments in Subsidiaries INVSESTMENT IN SUBSIDIARIES CODE F00 F99 F20 F30 F40 F50 F55 F09 F70 Control Investments in subsidiaries, JV and associates A To be broken down 0 0 Subsidiaries, JV & assoc. Code RU F F Total

96 Consolidation Entries Package for F on 31/12/N Trial balance ASSETS Accounts F00 Opening F99 Closing A1810 Investment in subs. JV and assoc LIABILITIES E1110 Issued capital Schedule PA2100 Investments in Subsidiaries INVESTMENT IN SUBSIDIARIES CODE F00 F99 F20 F30 F40 F50 F55 F09 F70 Control Investments in subsidiaries, JV and associates A To be broken down 0 0 Subsidiaries, JV & assoc. Code RU SF SF Total Package for SF on 31/12/N Schedule PA2500 ACCOUNTS CODE F00 F99 F05 F10 F20 F30 F40 F50 F55 Spec. Control Issued capital E Retained earnings E Net equity Automatic journal entries Company M A1810 Investment in subs. JV and assoc. E1110 Issued capital PACK PACK INV A181OC Elimination of investment in subsidiaries - Owner company INV Company F A1810 Investment in subs. JV and assoc. E1110 Issued capital PACK PACK INV NCI-PACK01 40 CONS

97 Consolidation Entries A181OC Elimination of investment in subsidiaries - Owner company A181HC Elimination of investment in subsidiaries - Held company INV INV E1610 Retained earnings E NCI - Reserves and retained earnings INV NCI-PACK01 40 CONS Company SF A1500 Investments accounted for using equity method E1110 Issued capital 280 PACK E1610 Retained earnings NCI-PACK01 CONS A181HC Elimination of investment in subsidiaries - Held company PACK01 80 INV INV10 NCI-PACK01 CONS10 INV E NCI - Reserves and retained earnings NCI-PACK Booking of investments in associates: At opening: Equity method value = 1000 x 20% = 200 Net income for the period = 400 x 20% = 80 Elimination of SF's shares held by F Impact on Group reserves = <200> x 80% = <160> Impact on NCI = <200> x 20% = <40> Calculating NCI in SF's equity: Capital: Group share = 16% x 1000 = 160, NCI = = 40 Net income: Group share = 16% x 400 = 64, NCI = = 16 Reclassification of capital for SF Elimination of F's shares held by M Impact on Group reserves = <160> x 100% = <160> Calculating NCI in F s equity: Group share = 80% x 200 = 160, NCI = 20% x 200 = 40 Reclassification of capital for F 97

98 Consolidation Entries Presentation by flow Accounts Audit ID Reporting unit F00 F10 F99 A1500 Investments accounted for using equity method PACK01 SF Total A1810 Investment in subs. JV and assoc. PACK01 M PACK01 F INV10 F <200> <200> INV10 M <160> <160> Total 0 0 A181HC Elimination of investment in subsidiaries - Held company A181OC Elimination of investment in subsidiaries - Owner company INV10 SF <200> <200> INV10 F <160> <160> Total <360> <360> INV10 F INV10 M Total Total ASSETS E1110 Issued capital PACK01 M PACK01 F PACK01 SF NCI-PACK01 SF <40> <40> CONS10 SF <160> <160> NCI-PACK01 F <40> <40> CONS10 F <160> <160> Total E1610 Retained earnings PACK01 SF INV10 SF <160> <160> NCI-PACK01 SF <16> <16> CONS10 SF INV10 F <160> <160> CONS10 F Total E NCI - Reserves and retained earnings INV10 SF <40> <40> NCI-PACK01 SF NCI-PACK01 SF NCI-PACK01 F Total Total LIABILITIES & EQUITY Control (assets liabilities) OK N/A OK 98

99 Consolidation Entries Booking of Goodwill General principle Goodwill and bargain purchase are declared on dedicated off-balance accounts. These accounts (XA1300 for bargain purchase, XA1310 for goodwill, XA1312 for impairment) are used to automatically book the goodwill or the bargain purchase in the balance sheet or profit and loss. Automatic declaration For the acquisition of a new subsidiary, joint-venture or associate, the calculation of goodwill or bargain purchase and its declaration on off-balance accounts and flow F01 for incoming entities are done automatically using audit ID GW00 3. This automatic calculation requires a statutory consolidation scope initialized with a portfolio, where all relationships between owner and held companies are managed. Manual declaration For any other event the declaration should be done manually using audit ID GW01. The journal entry is booked for the subsidiary, with a breakdown per share used to identify the owner company. It is entered in the subsidiary s reporting currency. The account for declaring the goodwill uses the same sign convention as its corresponding account in the balance sheet. For instance, wwhen you enter a debit amount for account XA1310, this will generate an increase in goodwill for account A1310. When you enter a credit amount, this will generate a decrease in goodwill for the same account. Example of journal entry: Audit ID Account Flow Debit Credit Share Debit Credit GW01 A B XA13xx-Declared goodwill/bargain purchase analyzed by owner B A X Code of the subsidiary s owner. The journal entry for declaring goodwill is posted in the subsidiary s accounts. The flow to be used in the journal entry depends on the event from which goodwill originates. The account/flow pairs used for goodwill declaration that will trigger the automatic booking of the goodwill or the bargain purchase are listed below, along with the event to which they can be associated: 3 The automatic calculation of goodwill can easily be deactivated by removing the subset of rules 11-GWC from the consolidation set of rule. 99

100 Consolidation Entries Accounts XA1300 (bargain purchase) XA1310 (gross amount) XA1312 (acc. impairment) Flows Corresponding "event" F00 1 st consolidation with the software (recovery of historical data) F01 Incoming entity (acquisition) F03 Business acquisition achieved in stages (EM->FC) or loss of control in a FC that becomes associate F04 Increase in ownership interest in a PC or EM F09 Change in accounting method that impacts goodwill F25 Impairment loss F50 Adjustment during the measurement period F70 For adjustment of goodwill related to an internal merger (but transfer from acquired to acquiring is automatic) Technical amount not entered but generated by the consolidation engine to store the impact of changes in foreign exchange rates F80 F92 Transfer from group to NCI or conversely (equity transactions) Automatic booking The automatic booking of goodwill or bargain purchase is posted in the subsidiary consolidated accounts using audit ID GW10-Booking of goodwill and bargain purchase - Auto. The impact on the consolidated equity is split between Group and Non-controlling interests, based on the group s financial interest in the owner company. Goodwill Goodwill is booked automatically in the consolidated balance sheet based on declarations made on offbalance account. XA1310-Declared goodwill analyzed by owner, Gross. This has an effect on balance sheet account. Impairment of goodwill The account for declaring goodwill impairment is XA1312-Declared goodwill analyzed by owner, Impair. The corresponding account in the balance sheet is A1312-Goodwill, Impair. and in the income statement P1630-Impairment of goodwill. Bargain purchase When a business combination causes a bargain purchase, the corresponding gain is recorded by a manual journal entry on technical account XA1300-Declared bargain purchase analyzed by owner. An automated journal entry will impact the income statement (P1640-Gain on bargain purchase) against the consolidated equity. To make sure that flow F01-Incoming units remains balanced, a clearing account (A13CL-Clearing account - Bargain purchase) is used on both flows F01 and F25. Specific cases Goodwill for EM Entities When a goodwill or a bargain purchase is booked for an entity accounted for using Equity method, the principles described above apply. The only exceptions are as follows: 100

101 Consolidation Entries To comply with IAS28 standard, the gross goodwill and, if applicable, the corresponding impairment, is booked in the balance sheet using account A1500-Investments accounted for using equity method. In other words, the goodwill is not distinguished from the Group s share of the subsidiary s net assets. In the income statement, the impairment of goodwill impacts account P3000-Share of profit (loss) of assoc. & JV accounted for using EM. The same account is used in case a business combination generates bargain purchase. Full Goodwill Method It is possible to account for a business combination by applying the full goodwill method. The manual journal entry is posted with a share detail on TP-999-Third parties. The automated journal entry then impacts account A1310-Goodwill against Non-controlling interests (account E2010-Non-controlling interests - Reserves and retained earnings). Goodwill Conversion For consolidated entities reporting in a foreign currency, any change in the conversion rate impacts the goodwill (A1310), against the foreign currency translation reserves (E1510 for the Group, E2210 for Noncontrolling interests). Checking Goodwill of incoming companies The following report displays the net equity of incoming companies with a detail by audit IDs. You should check that the equity attributable to owners of parent equals zero for each incoming company. Folder Book Report C C46 C Net equity of incoming companies It is possible to drill down to the detailed journal entries for one incoming company reporting unit and one audit ID (Report C33-10). To display goodwill and bargain purchase booked during the period at held companies with the detail of owners companies, you can run the following report: Folder Book Schedule C C46 C Goodwill and bargain purchase of incoming companies From one owner/held company pair, you can drill down to the following report: Folder Book Schedule C C46 C Check calculation of goodwill or bargain purchase This report explains the goodwill calculation for an owner/held company pair. A theoretical goodwill or bargain purchase is calculated from the share of net equity of the held company and the investment acquisition price of the owner company. Data is provided in local currency and consolidation currency with a theoretical calculation of the exchange conversion rate to be compared with the exchange rate entered in the exchange rates table. Theoretical goodwill or bargain purchase calculated in the report can be compared with goodwill or bargain purchase declared on technical accounts (by manual or automatic journal entry). The 2 last reports are initialized with portfolio data. Therefore they can only be retrieved when a statutory consolidation scope initialized with a portfolio has been defined. 101

102 Consolidation Entries Example Scenario 1 The Group's organization chart is as follows: M F SF 90% 80% By acquiring SF on 01/01/N, goodwill amounting to was generated. An impairment of 100 is entered for the period. The group does not apply full goodwill method for this business combination. Manual journal entries to be posted Declaration of goodwill (Auto or manual): Reporting unit Audit ID Account Flow Debit Credit Share Debit Credit SF GW00/ GW01 XA1310-Declared goodwill analyzed by owner, Gross F F Declaration of goodwill impairment for the period: Reporting unit Audit ID Account Flow Debit Credit Share Debit Credit SF GW01 XA1312 Declared goodwill analyzed by owner, Impair. F F 100 Accounting entries generated These journal entries are generated for SF. Balance sheet: A1310 Goodwill E1610 Retained earnings GW GW GW10 90 E2010 NCI - Reserves and retained earnings A1312 Goodwill, Impair. GW GW GW10 10 Income statement: P1630 Impairment of goodwill GW Booking of goodwill: The impact on reserves is allocated between Group and NCI based on the parent's financial interest, i.e. Group share = 90% x 2000 = 1800, NCI = 200. Booking of goodwill impairment. The impact on net income is allocated between Group (90%x100 = 90) and NCI (10%x100 = 10). 102

103 Consolidation Entries Scenario 2 Applying full goodwill method Using the previous example, suppose the Group applies the full goodwill method. Based on the estimated fair value of the Non-controlling interests, the Goodwill attributable to NCI is 250. The journal entry to declare this goodwill should be posted as follows: Reporting unit Audit ID Account Flow Debit Credit Share Debit Credit SF GW01 XA1310-Declared goodwill analyzed by owner, Gross F F XA1310-Declared goodwill analyzed by owner, Gross F TP

104 Scope Changes Scope Changes Section Objectives This section gives an overview of the scope changes and deals in deeper details with the following cases: An entity enters the consolidation scope. An entity exits the consolidation scope. Key Points For incoming units: Specific exchange rates must be entered for an incoming unit. Package data on flow F00 must correspond to the position at the date the subsidiary enters the scope. Fair value adjustment is booked manually using audit ID FVA11. Goodwill or bargain purchase is booked by an automatic journal entry based on a manual or automatic declaration on technical accounts. For outgoing units: Specific exchange rates must be entered for an outgoing unit. Entities can exit the consolidation scope at the opening or during the fiscal year; in this case, they fill out a package in which F99 corresponds to the position at the date of the exit. A manual journal entry must be posted on audit ID INV31 with the local currency or INV32 with the consolidation currency to book the difference between the net gain/loss on disposal in the individual accounts of the owner company and the net gain/loss in the consolidated accounts. Overview of the Scope Changes Typology of Scope Changes Business combinations, defined in IFRS3, and scope changes as they are defined in SAP Financial Consolidation can be summarized as follows: Events Consolidation method * Opening Closing Status in FC (consolidation engine) * Incoming Outgoing entity entity Change in method Change in FC/PC->E E->FC/PC cons. % Comments ACQUISITION Acquisition of a significant influence NC E X Acquisition of a joint-control NC PC X Acquisition of a controlling interest NC FC X 104

105 Scope Changes Events Consolidation method * Opening Closing Status in FC (consolidation engine) * Incoming Outgoing entity entity Change in method Change in FC/PC->E E->FC/PC cons. % Comments Step acquisition (business combinations achieved in stages) E FC X PC FC X LOSS OF CONTROL PC NC X FC PC X With or without retaining a residual interest FC E X E NC X FC NC X EQUITY TRANSACTIONS Transactions with NCI that do not change control FC FC Variation of interest % in the conso scope OTHER OPERATIONS Joint control achieved in stage E PC X Partial disposal of a JV PC E X Increase in parent s ownership interest E PC E PC Variation of interest % in the conso scope * NC: Not consolidated FC: Full consolidation PC: Proportionate consolidation E: Equity method Scope Changes: Using the Right Flow In the IFRS Starter Kit, three flows are dedicated to record investments and disposals of shares in consolidated entities: F20: Increase/Purchase F30: Decrease/Disposal F40: Subscription to capital increase/decrease 105

106 Scope Changes The following table indicates which flow is used in the held entity s equity to deal with the scope change, depending on the flow used in the package and the status of the held entity: Flow used in the package F20 F30 Status of held entity in scope Incoming Change in consolidation method Others (held entity fully consolidated) Others (held entity PC or EM) Outgoing Change in consolidation method Others (held entity fully consolidated) Others (held entity PC or EM) Flow used in held entity s equity F01 (incoming entities) F03 (new method) F92 (increase/decrease in interest rate) F04 (change in consolidation rate) F98 (Outgoing entities) F03 (new method) F92 (increase/decrease in interest rate) F04 (change in consolidation rate) F40 All F40 (capital increase) Events Covered in this Documentation This documentation will cover in detail the two following consolidation events: incoming entities outgoing entities Indeed, these events happen quite frequently in a consolidation; additionally, some of the information presented here (concepts, journal entries, and so on) will be applicable when dealing with other types of scope changes: booking goodwill or bargain purchase, correcting the net gain on disposal of investments. It may also be pointed out that, according to IFRS3, a business combination achieved in stages (E->FC or PC->FC) should be dealt with as if the existing entity had been disposed of, and a new entity (consolidated using Full consolidation) had been acquired. Any manual journal entries posted on a company changing in consolidation methods should be entered with a journal entry restriction (Variant, Scope or Currency) to be accurately taken into account during the consolidation process. Incoming Entities Preparing the Reporting Cycle Updating Exchange Rates The principles for updating the exchange rate table for entities with a foreign reporting currency are described in chapter Entering Conversion Rates. When such an entity enters the scope at a date that is not the beginning of the fiscal year, however, specific exchange rates should be entered for this reporting unit, using the RU-specific rates functionality. The table below shows how to populate the exchange rate table, with the assumption that consolidations are run each quarter, and that the entity enters the scope during Q3. The two options for data conversion are: YTD quarterly 106

107 Scope Changes Rate type ARPP - Average exch. rate, prior period OR - Opening exch. rate, current period AR - Average exch. rate, current period CR - Closing exch. rate, current period Rate version A-YTD (Year-to-date) for Q3* A-PER (Periodic) for Q3* [Not used] [Not used] ** Rate at the acquisition date Average rate between acquisition date and Sept 30 th Rate at Sept 30 th Rate at the acquisition date Average rate between acquisition date and Sept 30 th Rate at Sept 30 th * No RU-specific exchange rates are needed for Q1 and Q2. ** The ARPP rate type is not used because it applies to quarter Q2 during which the entity was not consolidated. If you opt for a periodic conversion, populating the exchange rate for the subsequent period (Q4 in our example) must be done as follows: Rate type ARPP - Average exch. rate, prior period OR - Opening exch. rate, current period AR - Average exch. rate, current period CR - Closing exch. rate, current period Rate version A-PER (Periodic) for Q4 Average rate between acquisition date and Sept 30 th Rate at the acquisition date Average rate between Oct 1 st and Dec 31 st Rate at Dec 31 st You will only enter the daily rate types of the quarter in the periodic conversion.. Consolidation Package The package for an incoming entity should be entered following the principles described in chapter Collecting Data. The opening balances for the balance sheet, however, will not be pre-loaded, and flow F00 must be populated based on the position at the date the entity enters the scope, and the movements will correspond to the variation between that date and the closing date only. As for the income statement, the amounts to enter correspond to the income and expenses over the same period. Consolidation Scope In the consolidation scope, any entity not consolidated at the opening and consolidated at closing, regardless of the consolidation method applied, is identified as an incoming entity. Automatic Processing Consolidation Engine The opening balances of an incoming entity are automatically transferred from flow F00-Opening position to flow F01-Incoming units by the consolidation engine. 107

108 Scope Changes Intercompany Eliminations The incoming entity must declare any intercompany transaction, for example payable/receivable, loan/financial debt, provision, and income/expense, towards the relevant Group s entities. As for the entities that are consolidated at opening, they should make sure that they disclose correctly intercompany data towards the incoming entity. Two situations may occur: The incoming entity was already codified in the list of reporting units at the end of the previous fiscal year, and the counterparts have declared their intercompany transactions with the incoming entity. In this case, intercompany data is automatically eliminated on flow F01-Incoming units. Otherwise, intercompany transactions with the incoming entity are included in the amount declared towards Third-parties (TP-999). In the package, the corresponding amounts should be reclassified on the relevant entity using flow F50. Dividends In this case, intercompany data will be automatically eliminated on flow F50. If you want to refine the analysis by flows on intercompany eliminations, transfer the intercompany declarations from flow F50 to flow F01-Incoming units by a manual journal entry. When dividends are paid by an entity that enters the consolidation scope, one of the following scenarios occurs: If the dividends are paid to the former shareholders, flow F06 on equity is automatically transferred to flow F01, so that the equity on flow F01 is net of dividends. Goodwill is calculated based on this amount, and flow F01 on Group s equity equals zero. If the dividends are paid to the new shareholders, consolidated entities, they are first eliminated on flow F06. Then, two additional automatic journal entries are triggered: In the payer s accounts, flow F06 on equity is transferred to flow F01. In the beneficiary s accounts, the impact of dividends elimination is transferred from flow F06 to flow F01. In both scenarios, after automatic journal entries have been triggered, flow F06 equals zero. Manual Processing Fair Value Adjustment According to IFRS, the assets and liabilities of an incoming entity must be evaluated at their fair value at the acquisition date. In the starter kit, any difference between the value of an asset/liability in the package and its fair value must be posted by a manual journal entry using audit ID FVA11-Fair value for incoming entities (central) - Man. If needed, a deferred tax on the fair value adjustment must be posted, using the same audit ID. Examples of fair value adjustment journal entries are presented in chapter Making Adjustments to Packages. Booking Goodwill The principles for booking goodwill are explained in chapter Booking of Goodwill. 108

109 Scope Changes Outgoing Entities Preparing the Reporting Cycle An entity may exit the consolidation scope when: the Group has transferred control or significant influence on this entity to external shareholders, this entity is merged into another consolidated entity. Consolidation Package Normally, any entity exiting the consolidation scope at a date that is different from the first day of the fiscal year should fill out a consolidation package, detailing all the income/expenses and balance sheet movements that occurred from the beginning of the fiscal year until control was transferred, or the entity was merged. However, getting the corresponding information is not always easy. Provided that this has not a significant impact, the Group has several options: Take the package used for the last interim consolidation, considering that the figures are very similar to the actual figures at the date of the exit. Fill out a package with the exact figures at the date of the exit. Process the exit as if it happened at the beginning of the fiscal year. If you fill out a package, the entity is considered as exiting the scope during the fiscal year. On the contrary, if the impact of the exit corresponds to the closing position of the previous fiscal year, the entity will be considered as exiting the scope at opening. No package is required in this case. Consolidation Scope In the consolidation scope, any entity consolidated at opening and not consolidated at closing is considered as exiting the scope. Depending on which additional information you enter in the scope for this entity, this entity will have one of the four following statuses: Intermediate data entry period Acquiring reporting unit Status Not specified Not specified Outgoing at opening Not specified Specified Outgoing acquired at opening Specified Not specified Outgoing during period Specified Specified Outgoing acquired during period Intermediate Data Entry Period The data entered in this field is used by the consolidation engine to identify which package must be loaded in the consolidation. Examples The entity is disposed of on 15/07/2009. When running the consolidation for 31/12, the Group decides to take the financial position on 30/06 for this entity (which corresponds to the package filled out for the 30/06 consolidation). Intermediate data entry period should be The entity is disposed of on 31/10/2009, and has provided financial statements as of 31/10. These financial statements are used to fill out the package used for consolidation. Intermediate data entry period should be

110 Scope Changes If no intermediate data entry period is entered, no data entry package will be loaded by the consolidation engine and the entity will exit the scope based on the opening balances. Acquiring Reporting Unit This field must be filled out when an internal merger occurs during the fiscal year, to identify the acquiring entity. When an entity is merged into a non-group entity, it is considered a classical exit and the Acquiring reporting unit field must not be entered. DO NOT enter TP-999 in the Acquiring reporting unit field. Updating Exchange Rates When a foreign entity exits the scope, specific exchange rates should be entered for this reporting unit, using the RU-specific rates functionality. The tables below show how to populate the exchange rate table, with the assumption that consolidations are run each quarter. The two options for data conversion are: YTD quarterly Exit at Opening Rate type ARPP - Average exch. rate, prior period OR - Opening exch. rate, current period AR - Average exch. rate, current period CR - Closing exch. rate, current period A-YTD (Year-to-date) for Q1 to Q4 [Not used] Rate at opening (default) Rate at Jan 1 st Rate at opening Rate version A-PER (Periodic) for Q1 [Not specified] Rate at opening (default) Rate at Jan 1 st Rate at opening If you opt for a periodic conversion, populating the exchange rate for the subsequent periods (Q2, Q3 and Q4 in our example) must be done as follows: Rate type ARPP - Average exch. rate, prior period OR - Opening exch. rate, current period AR - Average exch. rate, current period CR - Closing exch. rate, current period Rate version A-PER (Periodic) for Q2, Q3, Q4 Rate at Jan 1 st Rate at Jan 1 st (default) Rate at Jan 1 st Rate at Jan 1 st 110

111 Scope Changes Exit during the Period We assume the entity exits the scope in Q2. No RU-specific exchange rates are needed for Q1. Rate type ARPP - Average exch. rate, prior period OR - Opening exch. rate, current period AR - Average exch. rate, current period CR - Closing exch. rate, current period Rate version A-YTD (Year-to-date) for Q2* A-PER (Periodic) for Q2 [Not used] Average rate Jan 1 st to Mar 31 st Rate at Jan 1 st (default) Rate at Jan 1 st (default) Average rate Jan 1 st to exit date Average rate Apr 1 st to exit date Rate at exit date Rate at exit date * The A-YTD exchange rate tables for Q3 and Q4 will be populated with the same values. If you opt for a periodic conversion, populating the exchange rate for the subsequent periods, Q3 and Q4 in our example, must be done as follows: Rate type ARPP - Average exch. rate, prior period OR - Opening exch. rate, current period AR - Average exch. rate, current period CR - Closing exch. rate, current period Rate version A-PER (Periodic) for Q3 and Q4 Average rate Apr 1 st to exit date Rate at Jan 1 st (default) Average rate Apr 1 st to exit date (same as Q2) Rate at exit date Automatic Processing Consolidation Engine When an entity exits the scope, the consolidation engine reverses all the balance sheet data (assets, liabilities and equity) for this entity. For an entity outgoing at opening, the reversal is triggered on flow F98 based on the opening position (flow F00) for package data, manual journal entries without restrictions, and automatic journal entries. For an entity outgoing during the period, the reversal is triggered on the same flow F98, but based on the opening position (flow F00) plus the movements of the period. In case the entity is merged into another group entity, the same reversal is triggered but on dedicated flow F70. Journal entries with a restriction (Scope and/or Version and/or Consolidation currency) must be reversed manually if required. Intercompany Eliminations The eliminations of reciprocal transactions are reversed when an entity or its counterpart exits the consolidation scope. 111

112 Scope Changes As for the eliminations of internal provisions that were booked towards an entity that exits the scope, they are also reversed automatically. Manual Processing Intercompany Eliminations The elimination of the gain/loss on internal transfer of assets must be reversed by a manual journal entry when an entity or its counterpart exits the consolidation scope. Correcting the Net Gain/Loss on Disposal When an entity exits the scope, the net gain/loss booked in the individual accounts of its owner company does not correspond to the net gain/loss that must appear in the consolidated financial statements. The correction must be booked manually on Audit ID INV31- Adjust. on gain/loss on disposal of a subs., JV or associate (Local currency) or INV32- Adjust. on gain/loss on disposal of a subs., JV or associate (Consolidation currency) 4.The journal entry is posted in the owner entity s accounts, as follows: Audit ID Account Flow Debit Credit Share Debit Credit INV31 E1610 Retained earnings F98 B A Held entity B A P1615 Gains or losses on sale of shares Y99 A B A B When the consolidated gain/loss is lower than in the individual accounts (that is, consolidated reserves are positive) In the case where the consolidated gain/loss is higher than in the individual accounts. 4 INV32 should be used if the holding company of an outgoing company is in foreign currency. In that case the correction of the gain/loss should be booked with the consolidation currency to avoid conversion calculation. 112

113 Completing the Consolidation Completing the Consolidation Section Objectives This section describes the tasks required to complete the consolidated accounts. Key Points You should check the statement of changes in equity (including the statement of comprehensive income) and the consolidated cash flow statement. Checking consolidated shareholders' equity involves: Eliminating subsidiaries' shareholders' equity, like capital or premium package data, should only correspond to consolidated data for the parent company Justifying the variations in the Group's share of net equity The Statement of cash flows is generated automatically using flow analyses of movements in balance sheet items. Discrepancies that appear between analyzed cash movements and actual change in cash in the balance sheet should be corrected. These corrections are booked: In balance sheet accounts for which the flow analysis has not been performed correctly or completely Directly in the line items of the cash flow statement if required Checking the Statement of Comprehensive Income Overview of the Statement of Comprehensive Income Reports The starter kit for IFRS proposes two approaches to present the comprehensive income. A unique report: a statement of comprehensive income including profit and loss and other components of comprehensive income Two reports: a statement of profit or loss and a statement of other comprehensive income The following reports are available: Folder Book Schedule C1 C11 C11-20 Statement of Profit or Loss and Other Comprehensive Income C1 C11 C11-10 Statement of Profit or Loss C1 C11 C11-15 Statement of Other Comprehensive Income Depending on the approach chosen, customers can archive either the statement of comprehensive income or the income statement and the statement of other comprehensive income The detail by Reporting Unit can be displayed with the following reports: Folder Book Schedule C2 C21 C21-10 Statement of Profit or Loss by Reporting unit C2 C21 C21-15 Statement of Other Comprehensive Income by reporting unit 113

114 Completing the Consolidation Additional analysis reports of the Statement of Profit or Loss and of the Statement of Other Comprehensive Income are available. You can access these reports by linking to them from one of the summarized reports above. Folder Book Schedule C2 C22 C22-10 Analysis of line item by account (Statement of Profit or Loss) C2 C22 C22-25 Analysis of line item by reporting unit (Statement of Profit or Loss) C2 C22 C22-30 Analysis of line item by reporting unit (Statement of Other Comprehensive Income) C2 C23 C23-05 Statement of Other Comprehensive Income breakdown Schedule C23-05, in particular, provides details on account/flow pairs for each line item of the SOCI. Manual Journal Entries Manual journal entries can be booked to reclassify line items in the SCI. These journal entries are booked using a dedicated account, XSCI - SCI reclassifications and calculations, flow Y99 and the ANALYSIS dimension to identify the SCI items. There is also one dedicated audit ID for these journal entries: CFS01-Consolidated Financial Statements correction - Man. Double-sided journal entries are posted in SCI line items in order to make adjustments to the Statement of Comprehensive Income. By convention, you enter a debit amount to increase the relevant item and a credit amount to decrease it. For instance, a journal entry should be booked to populate the SCI line item TSCI297 OCI related to noncurrent assets and disposal groups classified as held for sale that may be reclassified to P&L. Other journal entries should remain the exception as it is always preferable to modify the source account/flow combinations. Example The reclassification of Gains (losses) on remeasuring financial assets at FVTOCI, before tax (SCI2210) in OCI related to non-current assets and disposal groups classified as held for sale that may be reclassified to P&L (TSCI297) should be posted as follows: Audit ID Account Flow Analysis (SCI line item) CFS01 XSCI SCI reclassifications and calculations Y99 TSCI297 x SCI2210 Debit Credit x 114

115 Completing the Consolidation Path between the Statement of Comprehensive Income and the Statement of Changes in Equity Statement of comprehensive income Profit for the year 1000 Change in revaluation surplus 200 Other comprehensive income for the year 200 Total comprehensive income for the year 1200 Attributable to: - Owners of the parent Non Controlling interest 240 Amount at 100% = 200 Attributable to owners (80%) = 160 Statement of changes in equity Issued Capital Revaluation Surplus Retained earnings Equity attributable to owners Non Controlling interest Balance at opening Total comprehensive income Checking the Statement of Changes in Equity Checks Specific to Certain Accounts The following Group shareholders' equity accounts should only correspond to data for the parent company: CODE E1110 E1210 E1310 DESCRIPTION Issued capital Share premium Treasury shares Checking Variation Flows Reference Report Check the variation of shareholders' equity by running the following report: Folder Book Schedule C1 C11 C11-30 Statement of Changes in Equity This report displays data for the entire Group or for just one reporting unit. Note: This report provides an aggregated presentation of the accounts and flows. Further details can be obtained using the following report, which displays all the equity accounts and all the flows: Folder Book Schedule C4 C46 C46-05 Statement of changes in consolidated equity and NCI For each account, if needed, you can link to the following report to display a detail by Audit ID and entity: Folder Book Schedule C3 C32 C32-15 General Ledger by Reporting Unit and Audit ID (Flows) 115

116 Completing the Consolidation Types of Flow The flows that analyze net equity movements can be organized into four main categories. Current Movements Current movements in shareholders' equity include net income for the period, distribution of dividends and the effect of changes in conversion rates on the contribution from foreign subsidiaries. Net income for the period is booked in flow F10. The checks to be performed are: Data for flow F10 should only be stored in accounts E1610-Retained earnings and E2010-Noncontrolling interests - Reserves and retained earnings. The sum of accounts E1610 and E2010 for flow F10 should always correspond to the net income of the P&L, stored on account TP000. Dividends paid during the period appear on the flow F06. The checks to be performed are: Flow F06 for Group shareholders' equity must correspond exactly to the distribution of dividends made by the parent company. Flow F06 for the NCI equity accounts should correspond to the dividends paid by consolidated subsidiaries to external shareholders. The effect of changes in conversion rates are shown in F80-Currency Translation Adjustment. In the consolidated accounts, data should be stored on flow F80 only for the accounts related to: Recyclable hedging reserve (E1520, E1521, E2220, E2221), Recyclable fair value reserve (E1530, E1531, E2230, E2231), Foreign currency translation reserve (E1510, E1511, E2210, E2211). Flow F80 should equal zero for any other equity account, due to the conversion process that maintains these accounts at their historical conversion rates. Ad Hoc Operations Ad hoc operations include: Changes in accounting policies (F09) Subscription to capital increase/decrease (F40) Increases or decreases in capital are: Those by the parent company which affect the variation of Group shareholders' equity. Those performed by the subsidiaries. The impact on Group shareholders' equity should be eliminated: When the operation is subscribed to by each shareholder according to the initial investment, the Group share of capital increase corresponds to the investment made, where the increase corresponds to share value. Therefore, flow F40 is balanced for Group shareholders' equity. If it is not the case, flow F40 should be balanced by flow F92-Change in interest rate for Group shareholders' equity. Scope Changes For information on scope changes, see Scope Changes. Other Variations Transfer flow F50 is used to book transfers from one account to another. This flow should be balanced for both the sum of Group shareholders' equity and the sum of Non-controlling interests, excluding accounts E1570-Equity component of compound financial instruments and E2080-NCI- Compound financial 116

117 Completing the Consolidation instruments and basis adjustments in hedging reserves (transfers from reserve to acquired assets). Check that this is the case for every company. The effect of the fair value adjustment of assets and liabilities is displayed in flow F55. Flow F30 is used for reclassification adjustments from recyclable hedging reserves and fair value reserves. Except for specific cases to be analyzed and justified, flow F15 is not used for changes in net equity. Performing Detailed Checks for Reporting Units You should check that the balance sheet controls are valid. These controls ensure that shareholders' equity is produced from valid accounts, flows and audit IDs. You can analyze the contribution of one or several reporting units to shareholders' equity by running the following report: Folder Book Schedule C4 C46 C46-05 Statement of changes in consolidated equity and noncontrolling interest You can link from this schedule to a General ledger by Reporting Unit and Audit ID. It is also possible to display a report detailed by equity accounts (Group and NCI) with a detailed contribution of each reporting unit. Folder Book Schedule C4 C46 C46-10 Check Shareholder's Equity A detailed analysis of net equity is also available for one Reporting Unit: Folder Book Schedule C4 C46 C46-25 Detailed analysis of Net Equity This report enables the validation of net equity impacts at each step of the consolidation process This report gives the detail in rows of the different consolidation entries impacting net equity: adjustment, non controlling interest corrections, elimination of investments and goodwill. For elimination of investments and goodwill, the document provides the detail by holding companies. In columns, the document proposes the validation of the exchange rate and consolidation rate application and of non controlling interests calculation. Control columns are calculated by the difference between the amount calculated in the document (grey column) and the amount calculated during the consolidation process and stored in the consolidated database. Amounts are automatically calculated in the document thanks to exchange, consolidation and interest rates that are retrieved in the three first column of the document. Checking the Statement of Cash Flows Overview of the Statement of Cash Flows Reports The IFRS Starter Kit presents the consolidated statement of cash flows (SCF) using the indirect method. 117

118 Completing the Consolidation The following reports are available: Folder Book Schedule C1 C11 C11-25 Statement of Cash Flows C2 C21 C21-20 Statement of Cash Flows by Reporting Unit The latter explains how differences between analyzed and actual cash movements arise. See Analyzing Differences. Additional analysis reports of the cash flow statement are available. You can access these reports by linking to them from one of the summarized reports. Folder Book Schedule C2 C22 C22-35 Analysis of line item by reporting unit (Statement of Cash Flows) C2 C23 C23-10 Statement of Cash Flows breakdown Schedule C23-10, in particular, provides details on the different account/flow pairs for each line item of the SCF. Analyzing Differences When the cash movement analyzed in the cash flow statement does not correspond to the cash movement in the balance sheet (that is, Closing Opening), the difference is booked in a control row. This row is analyzed in bottom section of report C21-20-Statement of Cash Flows by Reporting Unit. You can discover the source of the difference between the actual and calculated cash movements by the configuration settings defined. All authorized account/flow pairs are carried over to items in the cash flow statement, regardless of whether they are analyzed or control items. For example, variation flow F15 on Issued capital is normally equal to zero for equity accounts. Theoretically, it therefore has no effect on Group cash flow. However, it is included in a control item, SCF9340, so that if it does not equal zero, the difference can immediately be identified. 118

119 Completing the Consolidation The table below describes the reasons why the cash flow statement may not balance: SCF Line item Differences highlighted Differences on scope changes flows SCF9110 Unbalanced flow F01 [a] SCF9120 Unbalanced flow F03 [a] Other unbalanced flows SCF9210 Unbalanced flow F09 [b] SCF9220 Unbalanced flow F50 [b] SCF9230 Unbalanced flow F80 [b] Other differences to be analysed SCF9310 Change in depreciation/amortization to be analysed [c] SCF9320 Change in impairment/ provision to be analysed [c] SCF9330 Change in investing to be analysed [c] SCF9340 Change in financing to be analysed [c] SCF9350 Change in associates to be analysed [d] SCF9360 Business units - Balancing account [e] [a] Assets should be equal to liabilities for flow F01-Incoming units. If this is not the case, then this error originates in package data (a manual journal entry that does not balance on flow F01 cannot be posted). You can identify the Audit ID for which there is an inconsistency by running the following report: Folder Book Schedule C4 C42 C42-35 Flow balance by Audit ID To find out from which company this error originates, run the following report: Folder Book Schedule C4 C42 C42-40 Flow balance by Reporting Unit Run package controls again for this company using the Package Manager module. The same check procedure applies to flow F03-Change in consolidation method (new). On this flow, however, the inconsistency could also originate from a manual journal entry not balanced on this flow. [b] Assets should be equal to liabilities for flows F09, F50 and F80. If there are errors, run the following report: Folder Book Schedule C4 C42 C42-35 Flow balance by Audit ID You can then check the relevant audit IDs. For the relevant reporting unit, run the following report: Folder Book Schedule C4 C42 C42-40 Flow balance by Reporting Unit You can then identify the relevant reporting unit. 119

120 Completing the Consolidation Then run the following ledger containing journal entries posted for this Audit ID/Reporting unit combination. Folder Book Schedule C3 C33 C33-05 Debit Credit Ledger for 1 Reporting Unit and 1 Audit ID You can then identify the journal entry that is causing this error. [c] Changes in non-current accounts as well as depreciation and provision accounts should be broken down into the relevant flows, such as increase/purchase, decrease/disposal, increase in depreciation, and decrease in depreciation. If this is not done, then variation flow F15 will not equal zero for these accounts and the statement of cash flows will not balance. Run the following report: Folder Book Schedule C2 C21 C21-20 Statement of Cash Flows by Reporting Unit In case of error, identify the entities for which cash flow items SCF9310, SCF9320, SCF9330 or SCF9340 do not equal zero, and link to the following report (for the corresponding entities): Folder Book Schedule C2 C23 C23-10 Statement of Cash Flows breakdown You can then identify the accounts for which F15 does not equal zero. For these accounts, run the following report to identify the origin (package, journal entry) of the amounts stored on flow F15: Folder Book Schedule C3 C32 C32-05 General Ledger by Audit ID, Partner, JE number (Flows) [d] Data on flow F15 for account A1500-Investments accounted for using equity method may originate from: a manual journal entry an automatic journal entry when change in net equity for the relevant subsidiary is not completely broken down, that is, F15 does not balance Except in specific cases, F15 is not involved in analyzing investments in associates and should therefore equal zero by being booked against the relevant movement flow. In case of errors, run the following report for account A1500 to identify the relevant Reporting unit and Audit ID: Folder Book Schedule C C32 C32-15 General Ledger by Reporting Unit and Audit ID (Flows) You should then link to the following report for this Reporting unit/audit ID combination, for account A1500: Folder Book Schedule C C32 C32-05 General Ledger by Audit ID, Partner, JE number (Flows) You can then identify the journal entry posted in F15. If needed, you can also open the following schedule for the relevant entity, and focus on the equity accounts for which F15 would not equal zero: Folder Book Schedule C C31 C31-10 Balance Sheet by Flow and Audit ID 120

121 Completing the Consolidation [e] If an error originates from a misuse of the balancing account for Business units (L26BU), run the following report for this account: Folder Book Schedule C C32 C32-15 General Ledger by Reporting Unit and Audit ID (Flows) You should then link to the following report for this Reporting unit/audit ID combination: Folder Book Schedule C C32 C32-05 General Ledger by Audit ID, Partner, JE number (Flows) This enables you to identify the reasons why F15 does not equal zero. Manual Journal Entries Principles Manual journal entries can be booked to reclassify line items in the SCF. These journal entries are booked in a dedicated account, XCFS-CF reclassifications and calculations, using flow Y99 and the ANALYSIS dimension to identify the cash flow items. There is also one dedicated audit ID for these journal entries: CFS01-Consolidated Financial Statement correction - Man. Double-sided journal entries are posted in SCF line items in order to make adjustments to the cash flow statement. By convention, you enter a debit amount to increase the relevant item and a credit amount to decrease it. These journal entries should remain the exception as differences that crop up between analyzed and actual cash movements should normally be corrected through balance sheet flows. In certain cases, however, the Group may want to correct the cash flow statement directly. Any journal entry to correct the SCF directly without modifying the source account/flow combinations should be posted as follows: Audit ID Account Flow Analysis (SCF line item CFS01 XCFS CF reclassifications and calculations Y99 SCFxxx SCFxxx Debit Credit Example A small subsidiary has not entered the breakdown of changes in financial debts. Extract from F's package schedule PA3450: ACCOUNT CODE F00 F99 F15 F50 F55 Spec. Cash on hand A Extract from F's package schedule PA3550: ACCOUNT CODE F00 F99 F20 F30 F50 F55 Spec. Control Borrowings, Non current L Other financial liabilities, Non current L

122 Completing the Consolidation Extract from F s package Schedule PA2500: ACCOUNTS CODE F00 F99 F06 F10 F20 F30 F40 F50 F55 Spec. Control Issued capital E Retained earnings E Net equity F's contribution to the Statement of cash flows: SCF1000 Profit (loss) attributable to owners of the parent -10 TSCF300 Net cash flows from (used in) operating activities -10 SCF5310 SCF5320 TSCF500 Proceeds from borrowings Repayments of borrowings Net cash flows from (used in) financing activities TSCF700 Net increase (decrease) in cash and cash equivalents -10 SCF7100 Cash and cash equivalents at beginning of period 20 SCF7200 Cash and cash equivalents at end of period 50 SCF9340 Change in financing to be analysed 40 TSCF900 Differences to be analysed 40 The Group chooses to balance the Statement of cash flows by classifying the changes in financial debts as Proceeds from borrowings (-20) and Repayments of borrowings (+60). The manual journal entry to correct the SCF is as follows: Audit ID Account Flow Analysis (SCF line item CFS01 XCFS CF reclassifications and calculations Y99 SCF Debit Credit SCF SCF F's contribution to the Statement of cash flows after corrections are made: SCF1000 Profit (loss) attributable to owners of the parent -10 TSCF300 Net cash flows from (used in) operating activities -10 SCF5310 Proceeds from borrowings 60 SCF5320 Repayments of borrowings -20 TSCF500 Net cash flows from (used in) financing activities 40 TSCF700 Net increase (decrease) in cash and cash equivalents 30 SCF7100 Cash and cash equivalents at beginning of period 20 SCF7200 Cash and cash equivalents at end of period 50 SCF9340 Change in financing to be analysed 0 TSCF900 Differences to be analysed 0 122

123 Completing the Consolidation Checking IFRS adoption The starter kit for IFRS provides a complete set of pre-configured reports to ensure a fast and correct reconciliation between local Gaap and IFRS. These reports are grouped together into the folder C5 IFRS Adoption. It includes: Financial statements enabling local Gaap and IFRS consolidated data comparison Balance reconciliation with an analysis by audit IDs of differences between local GAAP and IFRS Analysis reports that allow a complete audit trail of the differences till the journal entry number. All reports should be initialized with two different consolidation versions: the first should be the Local gaap version and the second one the IFRS version. An exception exists for the report C51-05 Statement of Financial Position that requires to initialize the versions both times, first for the opening position and second for the closing position. The correct variables initialization is illustrated below: Local Gaap version IFRS version To know more about the IFRS adoption operating process, see IFRS Adoption in Consolidated Statements on in the section Financial Consolidation \