The Evolution From Consolidation to Group Accounting
Background and aim of the study
Efficient and powerful group accounting and the associated software support are becoming an increasingly important success factor in the responsibility of many CFOs. On the one hand, this results from the requirement for the finance function to act quickly and efficiently. However, new requirements are being placed on consolidation that go far beyond the information provided by traditional financial consolidation. Given this background, the aim of this study is to describe the transition from consolidation solutions to group accounting suites – including the current level of progress along this road, as well as the priorities and demands of real-world users.
From consolidation solutions to integrated group accounting
The demand for efficiency, speed and automation is based on both the increasing number of subsidiaries recorded in consolidated financial statements of many companies and increasingly complex regulations governing specific areas of consolidated financial statements, such as income taxes, IFRS 16 and IFRS 17.
In addition to growing requirements in financial consolidation, publicly listed groups are required to provide consolidated information in new areas such as risk management, sustainability and corporate governance at group level, and to meet new technical requirements such as the European Single Electronic Format (ESEF).
The development can be summarized by the fact that more and more companies have to disclose an increasing amount of information at group level. The Corporate Sustainability Reporting Directive (CSRD) is a current example of this. In addition, it is becoming more important for the management to be able to evaluate consolidated information across various dimensions.
This development calls for integrated or unified, powerful software support in group accounting and a departure from isolated solutions spreadsheets. Likewise, organizational changes to improve collaboration between the central (group) finance department and other corporate functions have to be implemented.
Study results – group accounting is a broad area of investment
The results of the study are based on over 200 international responses from a wide range of industries and company sizes. The results can be summarized as follows:
- Increasing requirements in terms of group accounting and reporting are reflected in a high demand for new software solutions. Although the three most commonly used core modules (planning, management reporting and consolidation) are still in focus and even named as top priorities for improvement, investments are planned in all areas of group accounting.
- The “classic” pairing of planning and management reporting is cited by some distance as the combination in most need of improved integration. This shows that despite better software solutions, the integration of group planning, accounting and reporting remains a substantial challenge.
- Microsoft Excel and specialized consolidation tools are still frequently used. An integrated or even unified group controlling solution with an integration level comparable to modern ERP suites is a long way off in most companies.
- Surprisingly, and despite the fragmented use of software, there is a high and balanced level of satisfaction across the various areas of group accounting. Approximately 90 percent rate their consolidation solutions at least as satisfactory.
- Planning with budgeting and forecasting together with management reporting are seen as the two core areas to enhance automation. We see a very high level of planned investment in the automation of planning (66 percent) and management reporting (71 percent).
- Top of the priority list of starting points for improvement is efficient organization with 56 percent, followed by group-wide standardized software (45 percent), which indicates that organizational topics are seen as good opportunities to make progress.
Conclusion and outlook
Even though Microsoft Excel and standalone solutions prevail today, a market for integrated group accounting solutions is expected to emerge. This assessment is based particularly on the requirement to integrate financial and non-financial reporting (e.g., by CSRD). Future-proof reporting calls for enhanced orchestration, traceability and assurance, which is difficult to provide if data originates from different sources in different formats with different calculations.
In view of the increasing demands on consolidation and the study results presented, we believe that the market for consolidation software will change and develop further into integrated or unified group accounting suites.
A view on the leading product providers seems to confirm this: Vendors such as SAP (profitability and performance management), Oracle (tax reporting), OneStream (IFRS 16, ESG, tax) and CCH® Tagetik (IFRS 16,17, compliance) have extended their core consolidation solutions with the goal to build comprehensive group accounting solutions, going far beyond the initial functionality.
We believe that this trend coming from the vendors to target large enterprises will continue to emerge in the mid-market as well, adding group accounting modules to solutions targeting mainly mid-size companies.
- If you are investing in group planning, accounting and reporting modules, looking at integrated or unified solutions is recommended.
- Even if a certain application such as consolidation or planning is your top priority, preparing for integrating further modules will pay off further down the line.
- As with all data and analytics initiatives, well organized data management is at the core and base of all successful implementations. Avoiding silos will reduce the error-proneness and running costs in the medium term.
- Avoid manual workarounds with Excel or reduce them to a minimum.