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Consolidations – Consolidation Adjustments

Consolidation Adjustments

When preparing consolidated financial accounts, there are often requirements to make consolidation specific accounting adjustments in order to finalise those accounts. Examples include …

  • unrealised profits on intra-company trading
  • goodwill / fair value adjustments
  • accounting standard adjustments (see specific section below)

Dynamics 365 Finance, Consolidation companies do not allow general journal adjustment postings, or any postings, other than those created by the consolidation processes!

To accommodate consolidation adjustment postings that can not be made at the subsidiary company level, it is necessary to create a ‘consolidation adjustment’ specific company (legal entity) to be included within the consolidation company list, where adjustment postings are made.

Multiple Accounting Standards

It is a common requirement for consolidations to have underling subsidiary companies that operate locally to differing accounting standards e.g. IFRS, local GAAP etc and for the consolidation requirements to include the need to accommodate accounting standard related adjustments at either subsidiary or consolidation level, in order for consolidated financial statements to be properly finalised in the required accounting standard.

Dynamics 365 Finance supports the ability to account and report in two (or more) accounting standards within the general ledger, through an approach referred to as parallel accounting and reporting that is supported by functionality called ‘posting layers’.

All standard Dynamics 365 transactions are posted to the ‘Current’ posting layer, which in effect represents the accounting standard required for local statutory financial reporting submissions.

Any postings made to any layer other than current, typically the ‘operations’ layer, can then be included or excluded as required in inquiries e.g. trial balance and financial report definitions.

Journal Name(s)

The ability to post to any posting layer other than ‘current’ is defined and controlled via financial journal name setup, where the posting layer can be set for any journal name with a journal type of ‘daily’ i.e. for journal names used by general journal functionality.

An accounting standard adjustment specific journal name, with it’s own unique voucher series, number sequence is usually recommended setup to support accounting standard adjustment posting requirements.

Trial Balance Inquiry

The standard trial balance inquiry provides the facility to present balances based on selected posting layers.

To illustrate, if a company makes its statutory accounts submissions based on local GAAP but also needs to submit its accounts to a group or parent company based on IFRS, with IFRS adjustments being posted to the operations posting layer … then the trial balance inquiry provides the facility to inquire on financial balances based on local GAAP or IFRS accounting standards based on posting layer selection.

Further Information

Further information on Consolidated Financial Reporting requirements with accounting standard adjustments is provided as part of the MS Tech Conference recording below.

Note: the video is set to start at the appropriate section of the presentation.