Within the system, each individual company involved in the consolidation process is called a business unit.
One of the most accurate definitions of financial statements consolidation comes from Accounting Research Bulletin (ARB) 51.
It explains the process’s objective which is “to present, primarily for the benefit of the shareholders and creditors of the parent company, the results of operations, and the financial position of a parent company and its subsidiaries essentially as if the group were a single company with one or more branches or divisions”.
Obviously, in the case of Level 4, a consolidation tool has to be used to process financial data for financial statements consolidation purposes.
Both the standard functionality of Microsoft Dynamics NAV (Level 2) or Consolidated Software (Level 3) can be used as consolidation tools.
Business entities the data of which is to be consolidated (consolidated entities) enter into transactions which should be eliminated from their consolidated financial statement (intercompany eliminations).
This shows how complex financial statements consolidation is if the data comes from disparate systems.
To learn more about the benefits, please read: The levels described briefly above differ substantially both in terms of implementation costs, as well as in terms of benefits.
It should be taken into account that in the case of group reporting, the preparation of consolidated financial statements and month-end close efficiency are critical to the future of the whole organization.
Global companies apply different methods for the preparation of consolidated financial statements. Spreadsheets are the most common and elementary method.