KPMG_CoA_LegalEntities

COA and LE Rationalization During an R12 Upgrade October 3, 2012

© 2012 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. NDPPS 112808

1

Before we begin……


2

KPMG’s Global Reach

AMERICAS

Over 7,000 dedicated

professionals

Total Global Advisory Revenue of $6 Billion

EMEA


professionals

ASPAC


professionals

We offer the benefit of working with a “Big Four” international network of member firms, drawing from the skills and experiences of 145,000 Audit, Tax, and Advisory colleagues across 152 countries

U.S. Advisory • Approximately 7,000 dedicated professionals

• Approximately $1.7B in revenues

• Access to more than 30,000 talented professionals across a worldwide network

• 100+ global methods and toolkits to bring the organization’s vast knowledge to each client


3

Oracle Product Experience

Leading implementer of Oracle BI solutions, including OBI EE and BI Analytic Applications.

One of the 1st to implement Project and HR Analytics 7.9.6

One of the 1st to successfully implement Oracle E-Business R12.

Primary launch partner for v9.2 and foremost implementer of v9.1.

1st to implement HCM v9.1 and 8.9.

Deep experience implementing Oracle EPM solutions, including Hyperion and Essbase.

The 1st to successfully implement HFM Fusion.

A leader in GRC Transformation services.

The 1st to successfully implement Oracle EGRCM 8.6.

A preferred Fusion HCM Partner, one of only 8 selected globally.

KPMG is Oracle certified “Rapid Start Ready on Fusion HCM”

Advanced Specialization Advanced Specialization Advanced Specialization


4

Agenda

What is a General Ledger?

Chart of Accounts Strategies and Principles

Oracle R12 Architecture Overview

Legal Entity Rationalization and Benefits

Subledger Accounting

Wrap-up

Q&A


5

What is a General Ledger?

What the General Ledger is –

The control source for consolidation

The control source for subsidiary ledger information

The source for financial statements

– Balance Sheet, P&L, Trial Balance

A reflection of the financial organization structure of the business

What the General Ledger is not –

An analytical tool

A repository for information that is not being captured elsewhere

The only place to capture data that supports analysis of profitability


6

High-level Reporting Requirements of a General Ledger

A chart of accounts must be able to support operations and reporting for multiple organizational dimensions: Legal External financial statements and legal entities Statutory reporting Business Internal financial statements for divisional and line

of businesses Functional Geographic financials Functional cost financials Product sales and cost of sales


7

Conceptual View of a “Thick vs. Thin” G/L

General Ledger

Thin GL

Thick GL

Subsidiary Ledger

Subsidiary Ledger

Subsidiary Ledger

Use GL drill-down and analytical tools to get transactional detail

Chart of Account Strategies for a “Thick” vs. “Thin” GL

A “Thick” GL accommodates most, if not all, of the analytical dimensions as codes within the General Ledger Code Block. It has a complex Chart of Accounts to hold values for a broad variety of purposes and originations.

A “Thin” GL houses few dimensional elements, typically those used for external reporting. It’s simple structure leverages subsidiary ledgers for transactional detail, and often requires analytical tools for internal reporting. Most companies have migrated towards a thin GL structure over the last decade.

Org Dept Account Customer Vendor Project Loc Reg

Asset Type Order # State Empl …


8

Oracle R12 Architecture: Ledgers

Each Primary Ledger has it’s own COA, Calendar, Currency and Convention, 4C’s

Reporting Ledger allows view of a Primary Ledger in different currency, multiple currencies can be assigned

Secondary Ledger allows view of Primary Ledger data under a change in COA, Calendar or Convention.

Reporting Ledger allows view of a Secondary Ledger in different currency, multiple currencies can be assigned

Country Currency Calendar

Convention

Users can access multiple legal entities and ledgers when logging into Oracle General Ledger using a single responsibility, leading to improved processing efficiency across enterprise.

Primary Ledger

Secondary Ledger

Reporting Currencies

India INR

12/31 GAAP

U.K. GBP 12/31 GAAP

Germany EUR 12/31 GAAP

U.S. USD 12/31 GAAP

U.K. USD 12/31 GAAP

Germany USD 12/31 GAAP

Reporting Currencies

U.K. EUR 12/31 IFRS

Germany EUR 12/31 IFRS

India USD 3/31

STAT

U.K. GBP 12/31 IFRS

Germany EUR 12/31 IFRS

U.S. USD 12/31 IFRS


9

Legal Entity Rationalization – R12 Integration

Why does this matter to us? Legal entities are responsible for the following:

– Tax payments – need tax registrations in order to process payments

– Trade between LEs (intercompany required) – Ownership of the bank accounts, e.g., the money – Filing of accounts and reporting out of accounting – Complying with whatever requires “compliance” in an

organization, e.g., legal How does R12 satisfy? By isolating the legal compliance from management needs,

R12 allows you to track registered companies and enable compliance to flow more easily.

R12 features around LE setups include: – Accounting setup manager – E-business tax – Intercompany – Bank model

Legal Entities

Registered Companies, Partnerships, Funds

Anything with an…Inc., LLC., Ltd., SA., GmBH., Other

Management Organizations

Divisions, Lines of Business, Cost Centers, Plants, etc.

Considered to be decision-making areas within the business

Legal Authorities

County, State, Local Level

Agencies, Registrars, Regulators, Taxation, other

Managed and Analyzed by:

Regulates Complies


10

Legal Entity Rationalization – Benefits

Legal entity rationalization and integration with the new Oracle R12 ledger structure will allow your organization to realize benefits across the tax, financial, and compliance areas of your business.

Reduced costs of controller functions, (ledger administration, account reconciliations, financial statements, and regulatory filings preparation)

Improved consistency/transparency in reporting

Reduced costs of maintenance of legal and financial records, etc.

Reduced monitoring of jurisdictional teams, consolidating accounts, sign-off reviews, etc.

Improved liquidity due to reduced capital requirements

Reduced number of tax return filings, VAT filings, payroll filings, and other tax compliance, reporting, and disclosure-related costs

Improved usage of tax attributes

Reduced transfer pricing complexity, annual maintenance costs, audit risks, etc.

Reduced nexus/permanent establishment risks through consolidated control of employee activities and operations

Improved/simplified structure

Enhanced public perception, i.e., overly complex structures may create confusion to auditors, lenders, rating agencies, investors, regulators, analysts, etc.

Reduced number of statutory audits

Potential reduction of external audit fees

Streamlined governance/simplification

Combined balance sheets, consolidated staffing, systems, which may lead to and result in more efficient deal closings, financing, volume discounts, branding, etc.

Tax Benefits Financial Benefits Compliance Benefits


11

Subledger Accounting (SLA)

Oracle’s Subledger Accounting (SLA) functionality in R12 allows corporations to comply with corporate, local and managerial-level accounting and audit requirements.

SLA rules can be defined by appropriate users which serve to support internal controls and policy, as well as create a streamlined methodology and close process.

SLA

Transactions

Subledger Application

Accounting Configurations

Subledger Balances

Subledger Journal Entries

GL Journal Entries

and Balances

General Ledger

Journal Entry Setup

Accounting Events

Accounting Program


12

Chart of Accounts – Guiding Principles for COA Design

The Chart of Accounts (COA), or Accounting Flexfield (in Oracle terms) is designed to meet a company’s financial reporting requirements: – Profit and Loss, balance sheet, consolidated financial statements.

Keep the design simple. Focus on what is needed to meet financial reporting requirements only. Data required to support analytics should be captured in the subject area subledger and/or data

warehouse. It does not belong in the general ledger. The COA must be scalable. The COA should facilitate ease of data entry. Each segment should have one definition for its use across the business. Broad ranges should be used in each segment to accommodate parenting – “smart numbering”

should be limited as possible. Aggregation of the data should be supported by the use of parenting structures. Although Oracle provides the capability, there should be no dependent segments. Prevent values other than null from starting with “0” to facilitate auto-fill data entry.


13

Purpose of the Code Block Structure

An integrated, enterprise-wide code block structure includes the chart-of-accounts structure, and other elements. The code block elements, including account, capture the key aspects of a transaction. An example of a code block structure follows:

The Code Block describes the following key aspects of a financial transaction: When? – Defines the timing of the work performed Who? – Identifies who performed the work on whose behalf What? – Defines the nature of the work performed How? – Defines the resource used to perform the work Why? – Defines direct transactions related to a businesses core product Where? – Identifies the location where work was performed

Company Department Account Product Location ICO Future Period

What? How? Where? When? Who? Why? Who?

Oracle requires every segment to be populated for every transaction. You can assign one value to auto-fill (e.g., “0000”), or you can hide a segment (but it still exists and is auto-filled), but a full combination is always required and validated.


14

GL Account Segment Qualifiers

Cost Center (required): the functional organization where employees are typically managed

Natural Account (required): the resource used to perform business activities

Balancing Segment (required): the organization that accumulates balance sheet, income statement and intercompany reporting. One or more of these will make up a legal entity.

Intercompany (optional): the organization who had activities performed on their behalf, the provider identified through the balancing segment organization.

Management (optional): the segment for reporting and entry of management adjustments; it can be assigned to any segment except the natural account.

Secondary Tracking (optional): facilitates tracking more detail for year-end closing, translation, and revaluation activities; it can be assigned to any segment except the balancing, intercompany, or natural account segments.

Segment Qualifiers are assigned to one segment


15

GL Account Parent-child Relationships

Parent-child relationships allow you to create hierarchies for reporting and allocations.


16

GL Account Dynamic Insertion and Cross-validation Rules

Oracle allows combinations (all segments of the Chart of Accounts) to be created manually or dynamically. Cross-validation rules are defined to validate each combination as it is potentially created systematically to allow/disallow its creation based on compliance to those rules.


17

GL Account Security Rules

Security rules, assigned to responsibilities, will manage access to using specific values across any Chart of Accounts segment.


18

GL Intercompany Transactions

If the balancing segments values are in the same legal entity (intracompany accounting), the automatic balancing process uses cross-entity balancing rules to generate the balancing accounting entries.

If the balancing segments values are in different legal entities (intercompany accounting), the automatic balancing routine uses intercompany accounts setup to create the balancing accounting lines.

The automatic creation of payables and receivables invoices for intercompany transactions can be configured for local statutory compliance.

The initiator organization is able to create a single batch containing multiple recipient transactions across different ledgers, currencies and calendars, which are automatically submitted to all recipients for approval.


19

Legal Entity Setups in R12

Setup and Maintenance: Legal Entities, Establishments, Jurisdictions, Legal Authorities, Legal Addresses


20

Wrap-Up

What did we learn today?

What a general ledger is and is not

Strategies and principles to guide Chart of Accounts build and efficiency

Overview of the Oracle R12 architecture that can support a successful COA build

Legal entity setups and benefits in R12

Subledger accounting in R12

Thank you

Presented by:

Christian Hambach, Director, KPMG LLP

Matthew Mazzoni, Manager, KPMG LLP


The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International.

Economy & Finance

KPMG_CoA_LegalEntities