COA and LE

Rationalization
During an R12
Upgrade
October 3, 2012
Before we begin……

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Oracle Product Experience

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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

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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
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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

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

Conceptual View of a “Thick vs. Thin” G/L  A “Thick” GL accommodates most, if not
Thick GL
all, of the analytical dimensions as codes
within the General Ledger Code Block. It
Thin GL
has a complex Chart of Accounts to hold
General Ledger
values for a broad variety of purposes
and originations.
Customer Vendor Project Loc Reg
Org Dept Account

Asset Type Order # State Empl …  A “Thin” GL houses few dimensional

elements, typically those used for external
reporting. It’s simple structure leverages
subsidiary ledgers for transactional detail,
Subsidiary
Ledger
Subsidiary Subsidiary
Ledger
and often requires analytical tools for
Ledger
internal reporting. Most companies have
Use GL drill-down and analytical tools to migrated towards a thin GL structure over
get transactional detail the last decade.

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Oracle R12 Architecture: Ledgers

U.S. Germany U.K. India

Each Primary Ledger has it’s own COA, Primary USD EUR GBP INR
Calendar, Currency and Convention, 4C’s Ledger 12/31 12/31 12/31 12/31
GAAP GAAP GAAP GAAP

Reporting Ledger allows view of a Primary Ledger in different Germany U.K.

Reporting USD USD
currency, multiple currencies can be assigned
Currencies 12/31 12/31
GAAP GAAP

Secondary Ledger allows view of Primary Ledger data under U.S. Germany U.K. India
Secondary USD EUR GBP USD
a change in COA, Calendar or Convention.
Ledger 12/31 12/31 12/31 3/31
IFRS IFRS IFRS STAT
Germany U.K.
Reporting Ledger allows view of a Secondary Ledger in
Reporting EUR EUR
different currency, multiple currencies can be assigned
Currencies 12/31 12/31
IFRS IFRS

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

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Legal Entity Rationalization – R12 Integration

Why does this matter to us?

Legal Authorities
 Legal entities are responsible for the following:
 County, State, Local Level
– Tax payments – need tax registrations in order to process
 Agencies, Registrars, Regulators, Taxation, other payments
– Trade between LEs (intercompany required)
Regulates Complies – Ownership of the bank accounts, e.g., the money
– Filing of accounts and reporting out of accounting
Legal Entities – Complying with whatever requires “compliance” in an
 Registered Companies, Partnerships, Funds organization, e.g., legal
How does R12 satisfy?
 Anything with an…Inc., LLC., Ltd., SA., GmBH., Other
 By isolating the legal compliance from management needs,
R12 allows you to track registered companies and enable
Managed and Analyzed by: compliance to flow more easily.
 R12 features around LE setups include:
Management Organizations
– Accounting setup manager
 Divisions, Lines of Business, Cost Centers, Plants, etc.
– E-business tax
 Considered to be decision-making areas within the – Intercompany
business
– Bank model

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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.
Tax Benefits Financial Benefits Compliance Benefits
 Enhanced public perception, i.e.,
 Reduced costs of controller
 Reduced number of tax return filings, overly complex structures may create
functions, (ledger administration,
VAT filings, payroll filings, and other confusion to auditors, lenders, rating
account reconciliations, financial
tax compliance, reporting, and agencies, investors, regulators,
statements, and regulatory filings
disclosure-related costs analysts, etc.
preparation)
 Improved usage of tax attributes  Reduced number of statutory audits
 Improved consistency/transparency
 Reduced transfer pricing complexity, in reporting  Potential reduction of external audit
annual maintenance costs, audit fees
 Reduced costs of maintenance of
risks, etc.
legal and financial records, etc.  Streamlined
 Reduced nexus/permanent governance/simplification
 Reduced monitoring of jurisdictional
establishment risks through
teams, consolidating accounts, sign-  Combined balance sheets,
consolidated control of employee
off reviews, etc. consolidated staffing, systems, which
activities and operations
may lead to and result in more
 Improved liquidity due to reduced
 Improved/simplified structure efficient deal closings, financing,
capital requirements
volume discounts, branding, etc.
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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.

Journal
Entry Setup

Accounting Subledger
Events Balances
GL
Accounting
Journal
Program
Entries
Subledger and Balances
Transactions Journal Entries

Accounting
Configurations
General
Subledger Application SLA
Ledger

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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.

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

Period Company Department Account Product Location ICO Future

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

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.
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GL Account Segment Qualifiers

Cost Center (required): the functional organization where

employees are typically managed Segment Qualifiers are
assigned to one segment
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.

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GL Account Parent-child Relationships

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

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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.

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GL Account Security Rules

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

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GL Intercompany Transactions

 If the balancing segments values are in the same legal entity (intracompany accounting), the automatic balancing process uses
cross­entity 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.

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Legal Entity Setups in R12

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

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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

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Thank you
Presented by:

Christian Hambach, Director,

KPMG LLP

Matthew Mazzoni, Manager,

KPMG LLP
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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.
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