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Statutory Consolidations in System 9

Financial Management
Created by: Danny Tijerina
Advanced Technology Group

Table of contents:
Introduction:.....................................................................................................................3
Ownership: .......................................................................................................................5
Organizational hierarchy:.............................................................................................5
Entity Attributes:..........................................................................................................5
Direct method of entering ownership: .........................................................................6
Find System generated accounts:..................................................................................7
Indirect method of entering ownership: .......................................................................8
Calculate Ownership: ...................................................................................................9
Direct v. Indirect Method:..............................................................................................10
Consolidation Methods:.................................................................................................10
Direct method of entering consolidation method: .....................................................12
Account Attributes:....................................................................................................13
Custom Consolidations:.................................................................................................14
Default Consolidation rule: ........................................................................................15
Equity Method: ..........................................................................................................16
Subsidiary Method: ....................................................................................................17
Holding Method: ........................................................................................................18
Default Elimination rule: ...........................................................................................19
OWN20 Equity Pickup: .............................................................................................20
OWN80 Minority Interest:.........................................................................................22
Equity and Investment Elimination: ..........................................................................24
Consolidating Balance Sheet: ....................................................................................27
Check list for Building a Statutory consolidation application:..................................28

Introduction:
The purpose of this white paper is to explain the process and setup of Statutory
Consolidations in System 9 Financial Management.
Statutory consolidations are a normal part of the process in large multinational
organizations. The need to account for complex organizations, such as partial ownership
requiring the calculation of minority interest or partial ownership requiring equity
accounting rules, is a growing requirement. The following will explain the metadata
setup and business rules necessary to meet these requirements.
A Subsidiary is a company owned by another company through the ownership of voting
stock. A company that owns a majority of voting stock and has controlling interest in
another company must include the assets and liabilities of the owned company in its own
balance sheet.
Minority Interest must be calculated and recorded on the balance sheet of a company that
owns a majority interest, more than 50 percent but less than 100 percent, of another
company. Minority interest is a liability owed to the minority owner or owners. For
example: a company that owns 90 percent of another company must record a 10 percent
minority interest on its balance sheet. The offset to the balance sheet entry is an expense
to reduce the net income by the percentage owned by the minority stockholders.
Equity method is for an Entity held, with less than 50% interest but at least 20% interest,
and is NOT consolidated. The Net Income of the Entity is multiplied by the Equity
holding and the result is booked to the P&L and Equity Holding (Balance Sheet Equity
Investment) of the Holding companies books.
Cost method is for an Entity held, with less than 20% interest, and is NOT consolidated.
The Net Income of the Entity is multiplied by the Cost holding and the result is booked to
the Holding companies Balance Sheet in Other Investments. There is no P&L impact.
Holding companies hold the Investments of other entities. The Holding Companies
Equity LIVES and is not eliminated until its parents equity is eliminated.
[PCON] is a system generated account to hold the percent for consolidation. The default
is 100%.
[POWN] is a system generated account to hold the percent for ownership. The default is
100%.
[SharesOwned] a system generated account to hold the number of shares owned. The
default is 0. This controls the percent owned and percent consolidated.

[SharesOutstanding] a system generated account to hold the number of shares


outstanding. The default is 0.
[VotingOwned] a system generated account to hold the number of voting shares owned.
The default is 0. This controls the consolidation method.
[VotingOutstanding] a system generated account to hold the number of shares
outstanding. The default is 0.
[Method] system generated account for input of consolidation method.
[System] is a system generated member list for accounts containing the above accounts.

Ownership:
The following examples will explain the consolidation of subsidiaries that are owned
100%, 80% and 20%. The subsidiary method (100%), subsidiary method with minority
interest (80%) and equity method (20%) will be used. There is no example for the Cost
method.

Organizational hierarchy:

Holding Company Holds investment


OWN80 Full consolidation with 20% minority interest
OWN20 Non consolidated subsidiary with 20% equity pickup
OWNALL Full consolidation with equity elimination

Entity Attributes:
As described above, the Holding company holds an investment in other companies.
System 9 Financial Management provides an attribute setting in the Entities module to
declare a holding company. This feature allows the user to take advantage of built in
functionality for complex consolidations.

Note: The Holding company designation is entered at the parent level. Each parent can
only have one designated Holding Company.
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Direct method of entering ownership:


When entering ownership information you can use the Ownership Management page.
The Parent Company is represented by the point of view Entity and the Subsidiaries are
its children. This is the direct method of inputting data directly to accounts [POWN] and
[PCON].

Note: When entering [PCON] and [POWN] data the default is 100%.
Display options for Ownership Management page:

Find System generated accounts:

Note: To find the System generated accounts, such as [PCON] or [SharesOwned]


you must select the system generated account list [System].

Indirect method of entering ownership:


When entering ownership information the relationship between Subsidiary and Holding
Company is created in data grids. The Holding Company is represented by the ICP
member and the Subsidiary is represented by the point of view entity. This is the indirect
method by inputting data to account s [SharesOwned]\[VotingOwned] and
[SharesOutstanding]\[VotingOutstanding].

Note: In order to use this method the Subsidiary entities must be flagged as IsICP.
Total outstanding is entered into [ICP None]. Shares owned by other entities are
entered into the respective ICP member.
Once data is input into the [SharesOwned]/[VotingOwned]
and
[SharesOutstanding]/[VotingOutstanding] accounts, The amounts for [PCON],
[POWN], [PCTRL] and the Consolidation [Method] can be calculated in the
Ownership Management page within Data Task in the Financial Management web
interface.

The ownership calculations are based on the Consolidation Methods in the metadata.

Calculate Ownership:
To calculate ownership, click on the Calculate Ownership button on the Ownership
Management page within Data Tasks.

Once in this screen you can select the parameters for calculation.
Periods The individual periods of you application
Percent Control Calculate the percentage value for account [PCTRL]
Consolidation Method Calculate the value of 1 for the account [Method] and
appropriate Custom1 member for type of method
Percent Ownership Calculate the value for account [POWN]
Percent Consolidation Calculate the value for account [PCON]
Direct Percent Ownership Calculate value for account [DOWN]
Entities Selection of entity to be calculated
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Direct v. Indirect Method:


When deciding whether to use the Direct Method or the Indirect Method for ownership
the main considerations are as follows:
o How many entities are involved?
o Does the ownership change often?
o Are you calculating ownership manually in a spreadsheet?
If you only have a few entities involved for ownership purposes the Direct Method is
easy and straight forward. If you have a lot of entities involved for ownership purposes
the Indirect Method might be more efficient for the following reasons:
o
o
o
o

Share information can be loaded through a data file


Calculating ownership is more efficient than manual entry
Calculating ownership is more consistent
Manual entry lends itself to errors

Consolidation Methods:

ConsolMethod Defines the name of the method, the name must be unique and can
contain up to 20 characters.
Description Specifies the description for the consolidation method. The description
can contain up to 80 characters, including spaces, and cannot use an ampersand (&).
UsedByCalcRoutine Specifies whether the method is used for the automatic ownership
calculation routine.
IsHoldingMethod Specifies whether the consolidation method is used for the holding
company. This attribute is optional.
ToPercentControlComp Specifies whether the upper boundary of the range of the
percent control is included in the range. If the UsedByCalcRoutine attribute is not
checked this field is optional.
ToPercentControl Specifies the upper boundary for the range for Percent Control.
Used for the ownership calculation routine. Specify a value between 0 and 100.

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PercentConsol Specifies the consolidation percentage applied by the ownership


calculation routine. Specify a value for the percent (such as 100) or one of the following
keywords:
? POWN Percent ownership
? POWNMIN Minority share of percent ownership
Control Specifies the threshold that corresponds to the type of control used by the
calculation routine. Specify one of the following:
? Blank
? No
? Limited
? Full
Note: One of each type of Control must be used when creating ConsolMethods.

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Direct method of entering consolidation method:


When entering consolidation methods you can use the Ownership Management page.
The Parent Company is represented by the point of view entity and the Subsidiaries are
its children. The consolidation methods added in the metadata for ConsolMethods are
listed in a drop down menu.
ConsolMethods in metadata:

Drop down menu in Ownership Management:

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Account Attributes:
Custom consolidation rules are based on a combination of designated accounts and
consolidation methods. Accounts are designated with a User Defined attribute within
the metadata.

In this instance the UD3 attribute is INVEST for the INVESTINSUB account.
In the application used for this demonstration the UD3 attributes for accounts are as
follows:
Account
INVESTINSUB
COMSTOCK
PIC
RECUR

UserDefined3
INVEST
EQUITY
EQUITY
NETINC

Note: Accounts COMSTOCK and PIC have the same UserDefined3 attribute
because they are treated in the same way.

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Custom Consolidations:
When using custom consolidation rules you must create the default consolidation and
intercompany elimination rules.
This must be done because when the
ConsolidationRules flag is activated for an application the default consolidation and
intercompany elimination rules become invalid.
Consolidation rules are created using an Open Data Unit. (For further explanation see
whitepaper on Open Data Unit)

To begin the process variables are set for ease of use:


POwn = HS .Node.POwn("") Percent Ownership for minority interest calculation
Parent = HS .Parent.Member Parent of the current entity being processed
Holding = HS .Parent.Holding(Parent) Holding company of the current parent
Entity = HS .Entity.Member Current point of view entity being processed
PCon = HS .Node.PCon("") Percent consolidation
Method = HS .Node. Method("") Chosen method
PMin = 1 POwn Minority share
PMinRev = POwn 1 Minority share reversed for offset entry

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Default Consolidation rule :


Once the data unit is opened a simple If\Then statement is created to skip any accounts
with a zero value. Open data unit will skip accounts with NoData automatically.
If Data = 0 Then
'skip record
Else
This rule replaces the default consolidation. It consolidates all accounts at the designated
[PCon] or percent consolidation. The amount is pulled from the value member
[Parent Total] and is posted to the value member [Proportion].
Call HS.Con("",PCon,"")
The source for consolidation rules is the current account being processed for the current
point of view entity, scenario, year and period.

HS.Con (Destination POV, Factor, Nature)


Destination POV Point of view where the consolidated data is written
Factor Amount the consolidated amount is multiplied by, this can be a variable or a
number
Nature This is used for audit trails. If a string is entered here the entry will be written
to the database under the Source and Destination transactions, which can be viewed in the
web interface. (Use this feature with caution because it can slow down consolidation
times)
The following section will override the default consolidation for the designated accounts.

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Equity Method:
A Select Case statement is used to filter accounts based on the attribute in the
UserDefined 3 field.
Sets the Case to account attribute for User Defined 3
Select Case HS.Account.UD3(Account)
Select accounts with the attribute of NETINC in the User Defined 3 field (in this
example it is account RECUR)
Case "NETINC"
If the method for the current entity is EQUITY then run the following rule.
If Method = "EQUITY" then
Call HS .Con("E#" & Holding & ".A#EQINCSUB.V#[Elimination],POwn,"EqPickUp")
Call HS .Con("E#" & Holding & ".A#INVESTINSUB.V#[Elimination],POwn*-1,"EqPickUp")

End If 'Method
The rule for the Equity method is designed to do the equity pickup for entity OWN20
and record the amount in the [Elimination] value of the Holding Company.
"E#" & Holding Holding is a variable, established at the beginning of the Sub
Consolidate routine, that represents the Holding Company (as defined by Financial
Management) of the current Parent of the current point of view Entity.
"A#EQINCSUB Represents the account EQINSUB where the elimination entry
will be posted.
"A#INVESTINSUB Represents the account INVESTINSUB where the
elimination entry will be posted.
V#[Elimination] Represents the value member [Elimination] where the
elimination entry will be posted. The value member must be included since the default
value member for HS.Con rules is the value member [Proportion]
POwn Is a variable, established at the beginning of the Sub Consolidate routine that
represents the percent ownership of the current point of view entity.
POwn*-1 Is the offset to POwn.
"EqPickUp" Is the Nature for this rule. Once the consolidation has been run the
entry created by this rule can be viewed in either Source or Destination Transactions via
the Financial Management web interface.
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Note: This rule is run while entity OWN20 is the current point of view entity, however,
the resulting entry is posted to entity HOLDING.

Subsidiary Method:
If the method for the current entity is SUBSIDIARY then run the following rule.
If Method = "SUBSIDIARY" then
Call HS .Con("A# MI.V#[Elimination].I#[ICP None],PMin,"MinInt")
Call HS .Con("A# MIExp.V#[Elimination] .I#[ICP None],-PMin,"MinInt")

End If 'Method
The rule for the Subsidiary method is designed to record Minority Interest for entity
OWN80 and record the amount in the [Elimination] value.
A#MI Represents the balance sheet account for Minority Interest
A#MIExp Represents the income statement account for Minority Interest expense
V#[Elimination] Represents the value member [Elimination] where the elimination
entry will be posted. The value member must be included since the default value member
for HS.Con rules is the value member [Proportion]
PMin Is a variable established at the beginning of the Sub Consolidate routine defined
as ( 1 PCon). This is the minority percent
"MinInt" - Is the Nature for this rule. Once the consolidation has been run the entry
created by this rule can be viewed in either Source or Destination Transactions via the
Financial Management web interface.
Select accounts with the attribute of EQUITY in the User Defined 3 field (in this
example it is accounts COMSTOCK and PIC)
Case "EQUITY"
If the method for the current entity is Subsidiary then run the following rule.
If Method = SUBSIDIARY then
The account is not included in the first line because the rule is reversing the current account
Call HS .Con("V#[Elimination].I#[ICP NONE],-PCon,"Equity")
Call HS .Con("A#ELIMOFFSET.V#[Elimination] ,PCon,"Equity")

End If 'Method

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The rule for the Subsidiary method is designed to reverse the amounts in accounts
COMSTOCK and PIC for entity OWN80 and record the offset in the
[Elimination] value member.
V#[Elimination] It is necessary to include the value [Elimination] since the default
value member for consolidation is [Proportion]
PCon - Percent consolidation
A#ELIMOFFSET It is necessary to record an offsetting amount to balance the entry
within the current entity. The account ELIMOFFSET will zero out at the
consolidated parent level.
"Equity" Is the Nature for this rule. Once the consolidation has been run the entry
created by this rule can be viewed in either Source or Destination Transactions via the
Financial Management web interface.

Holding Method:
If the method for the current entity is Holding then run the following rule.
If Method = HOLDING then
The account is not included in the first line because the rule is reversing the current account
Call HS .Con("V#[Elimination].I#[ICP NONE],-PCon,"Invest")
Call HS .Con("A#ELIMOFFSET.V#[Elimination] ,PCon,"Invest")

End If 'Method
The rule for the Holding method is designed to reverse the amounts in account
INVESTINSUB for entity HOLDING and record the offset in the [Elimination]
value member.
V#[Elimination] It is necessary to include the value [Elimination] since the default
value member for consolidation is [Proportion]
PCon - Percent consolidation
A#ELIMOFFSET It is necessary to record an offsetting amount to balance the entry
within the current entity. The account ELIMOFFSET will zero out at the
consolidated parent level.
"Invest" Is the Nature for this rule. Once the consolidation has been run the entry
created by this rule can be viewed in either Source or Destination Transactions via the
Financial Management web interface.

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Default Elimination rule:

This rule replaces the default elimination. It creates an elimination entry for any account
flagged as IsICP that has a PlugAcct with a value in a valid ICP member which is
a partner of the current point of view Entity under a common parent. (For more detail see
the Intercompany Elimination white paper)
CanEliminate = True CanEliminate is a variable, this statement sets it to True or Yes
The following If statement is set to eliminate any condition that will make CanEliminate
False or No.
If (HS.Account.IsICP(Account) = FALSE) Then Determines whether an account is
flagged IsICP, if False continue
ElseIf (StrComp(ICP, [ICP None], vbTextCompare) = 0) Then Determines if the
value being processed is in the ICP member [ICP None], if False continue
ElseIf (HS.Entity.IsDescendant(Parent,ICP) = False) Then Determines if the ICP
member is a descendant of the current Parent being processed, if False continue
If (Plug = "") Then Determine if the current account is missing the PlugAcct or has a
blank in the PlugAcct field, if False continue
StdElim Is the Nature for this rule. Once the consolidation has been run the entry
created by this rule can be viewed in either Source or Destination Transactions via the
Financial Management web interface.

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OWN20 Equity Pickup:


By right clicking the cell for account RECUR and value [Parent Total] in entity
OWN20 you can see the Destination Transactions.

Notice the Current Entity or point of view entity is OWN20 the Entity to receive
the entry is HOLDING. The Nature is EqPickUp from the custom consolidation
rules.
Note: In Destination Transaction you will see both sides of the entry.

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In the entity HOLDING for account INVESTINSUB and value [Elimination]


you can view the Source Transactions for Equity Pickup from entity OWN20.

Notice line two has a source Entity of OWN20. The source data amount of $20,000
multiplied by the factor -.20 gives the resulting entry of $4,000.
Note: Since the source account RECUR is a liability and the destination account
INVESTINSUB is an asset the sign is reversed automatically by the system.

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OWN80 Minority Interest:


By right clicking the cell for account RECUR and value [Parent Total] in entity
OWN80 you can see the Destination Transactions.

In this instance the Current Entity or point of view entity and the Entity to receive
the entry are both OWN80. The Nature is MinInt from the custom consolidation
rules.
Note: In Destination Transaction you will see both sides of the entry.

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You can view the Source Transactions for entity OWN80 in account MI and
value [Elimination].

The source data amount of $100,000 multiplied by the factor .20 (minority share) gives
the resulting entry of $20,000. The Nature is MinInt from the custom consolidation
rules.

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Equity and Investment Elimination:


The Equity in Entity OWN80, accounts COMSTOCK and PIC, are eliminated
against the Investment in Subsidiary in Entity HOLDING, account INVESTINSUB.
OWN80

Source Transactions for Entity OWN80 for the following accounts:


COMSTOCK

PIC

ELIMOFFSET

Note: The entry to account ELIMOFFSET is to balance (as in a balanced journal


entry) the value member [Elimination] in Entity OWN80 this will be offset by the
investment elimination entry made in Entity HOLDING.
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HOLDING

Source Transactions for Entity HOLDING for the following accounts:


INVESTINSUB

ELIMOFFSET

Note: The entry to account ELIMOFFSET is to balance the value member


[Elimination] in Entity HOLDING this will be offset by the entry made in Entity
OWN80 at the parent level.

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Partial Consolidating Balance Sheet in Web Forms to show consolidating entities before,
eliminations and after elimination entries have been posted
Before Eliminations:

Eliminations:

After Eliminations:

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Consolidating Balance Sheet:

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Check list for Building a Statutory consolidation application:


?
?
?
?
?
?
?
?
?
?
?
?

Make sure ConsolidationRules are flagged with Y in the Application


AppSettings
Create and define your Consolidation Methods in metadata manager under
ConsolMethods
Make sure the accounts you want to include in the custom consolidation rules
have an appropriate User Defined attribute
Create the Sub Consolidate routine in your rules file
Create the default consolidation rule
Create the default elimination rule
Check drop down menu in Ownership Management page or the system
generated member list for Custom 1 [ConsolMethods] to make sure all of your
methods are there
Create grid to enter the shares information (Indirect Method) or go to the
Ownership Management page to enter percent ownership and percent
consolidation (Direct Method)
If you chose the Indirect Method, go to Ownership Management page and run
calculations
If you chose the Direct Method also enter the Consolidation method from the drop
down menu for each entity
Once you run consolidations create a grid to check the Nature for Source
Transactions or Destination Transactions
Check all entities in value [Elimination] to make sure they are in balance

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