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3 common mistakes in group consolidation – and how to avoid them

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As a CFO, there are a few things that are good to watch out for when it comes time for group consolidation. We talked to John Valfridsson – founder of Insiktsekonomen and specialist in group consolidation – about common mistakes and how to avoid them.

In this article you can read about:

We came in contact with John Valfridsson about a year ago when he was looking for a system that could streamline board work, standardize document management and make it easier for companies to understand their finances and improve their financial control. Since then, we have had the privilege of working together and taking advantage of his knowledge and experience in finance, accounting and group consolidation.

In this article, you will find his tips on how to avoid common mistakes that he sees companies make in group consolidation.

What mistakes are common to make in group consolidation and how to avoid them?

“First of all, we have to note that consolidated financial statements differ greatly depending on the structure of the Group. The most common mistakes therefore depend a lot on whether it is a small Swedish group or large international, and on the company’s understanding of consolidated financial statements.

For CFOs and boards, however, there are a few things that are good to watch out for and are recurring problems, John says.

1. No or poorly structured processes

Challenge:

Consolidated financial statements are relatively simple as long as the underlying reporting is clear. However, by far the most common and biggest mistake is that companies do not have processes or a clear structure in place in the accounting, which complicates the consolidated financial statements.

It has not defined how the companies that are part of the group should report and what their structure needs to look like to facilitate consolidation.

Often there is also a discrepancy between the level of detail that the organization expects and the one that the companies plan and structure their financial data according to.

The lack of structure and processes can contribute to companies needing to start their work by trying to analyze and correct reported figures and look for information that is not already in place.

The specialist gives his best tips: How to succeed with your group consolidation

Solution:

Start from your needs regarding consolidation and the information needed to make the consolidated financial statements. It can be an advantage to go back to the previous period and think about what was possibly not available when you made the financial statements that would facilitate the next period.

Define clear processes and structures based on this and ensure that they are complied with at each month’s financial statements. Never take shortcuts at the group level, instead correct the errors in the source and refine the process.

Dare to be firm in your follow-up and in communication with those who handle your accounting. Be sure that those who work with accounting understand each part of the process, why each part is important and how each part affects the end result.

It is common for the current accounting to be handled by accounting firms, but the requirements still need to be the same.

2. Poor communication with accounting firm abroad

Challenge:

As an international group, it is common that you do not succeed in creating clear and good communication with the local accounting firm. There is a risk that those who work at the firm do not understand what your company is trying to achieve and have tried to define in the closing process in relation to their regular closing process.

Solution:

If you work at an international group, it is important to ensure that the accounting firm you choose abroad really understands and has expertise in group accounting as a concept. International regulations mean that the rules regarding consolidated financial statements look quite similar in different countries. The important thing is therefore to create a good contact with a counterparty who has the level of knowledge needed for you to easily communicate about what it is you and your company need.

Try to initiate and maintain communication with an account manager at the accounting firm who understands consolidated financial statements. It does not have to be the person who then handles the ongoing accounting, the account manager can in turn talk to the employees about how the accounting needs to be handled. Make sure that the accounting firm has worked with similar clients before you start a collaboration. And don’t forget to take references!

Do you want to know more about how to create accurate consolidated financial statements and consolidation? Watch our free webinar.

3. Too late checks in the consolidation process

Challenge:

Many companies discover errors in connection with the preparation of consolidated financial statements. This may include changes in equity that are detected late in the consolidation process. Often these errors mean that you need to go back in time to understand what created the problem, which makes the process stressful and that you need to spend more time than you really have on solving problems instead of analyzing results and creating value for end users.

Solution:

Use system support to continuously reconcile the most important sub-items of your group consolidation (for example, equity in a legal entity in each currency and the effect of group eliminations on equity). Do not wait until the end to check, but do it as early as possible on the parts included. If you discover differences, first focus on understanding what went wrong and refine the process so that it does not happen again. Once you have done that, you can then correct the error.

John Valfridsson

More about John Valfridsson

John has a master’s degree in economics and after his studies worked as an accountant at Ernst & Young (“EY”) in Stockholm. He became a chartered accountant at the age of 22 and then worked for a number of years as an accounting specialist at the internationally fast-growing group Snow Software. Today he works as a finance manager at Fort Knox Storage and also runs the Insight Economist; a consulting firm that offers qualified advice in finance – and group consolidation specifically.

John has worked practically with group consolidation for the past seven years and has throughout his career worked with companies that prepare consolidated financial statements. Thanks to his experience from different accounting standards and groups of different sizes, he has a good understanding of many of the most common problems that CFOs encounter in connection with their consolidated financial statements.

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