Advanced Consolidation and intercompany eliminations

Advanced Consolidation turns the organizations you own in Wafeq into one group. Each month it matches what the members sell to, owe to, and own of each other, eliminates those amounts, and gives you a consolidated profit and loss, balance sheet, and cash flow in one presentation currency. Nothing is done in spreadsheets, and the members' own books never change.

Availability: Advanced Consolidation is part of the Enterprise plan. Our team turns it on and helps you set up your first group.

To access this feature, go to Accounting from the main menu, then select "Consolidation."

Key ideas

Group: the organizations reported together as one economic entity. The organization that creates the group is its owner, usually the parent company.
Members: the organizations in the group. Each member keeps its own books, currency, and period locks.
Presentation currency: the currency all consolidated reports for the group are shown in.
Eliminations: journals that remove intercompany activity, such as a sale from one member to another, a balance one member owes another, or the parent's investment in a subsidiary, so that only business with the outside world remains.
Group ledger: where eliminations and adjustments are posted. They affect only the consolidated reports, never a member's own ledger.

Before you start

Every member must have the same financial year end as the owner.
You must be a user in every organization you want to add.
To see a group, you need permission to view journals in every member. To run and post eliminations, you need permission to edit journals.

Set up a group

Go to Consolidation and choose Create consolidation group. The setup has five steps.

1. Basics

Group name.
Presentation currency: consolidated reports are always shown in this currency.
Start month: the first month the group consolidates.

The presentation currency and start month can't be changed once the group has eliminations or adjustments.

2. Members

Your recorded subsidiaries are added for you, with their ownership percentage. You can search for any other organization you belong to and add it. Each member counts from the date its ownership started, or from the start month.

Full consolidation includes the member's figures line by line.
Excluded keeps the member in the group but leaves it out of the consolidated figures.
If a member leaves the group, set Consolidated until rather than removing it. Months that are already posted keep their journals.

3. Intercompany contacts

Members usually record each other as contacts. For example, the parent's books may have a customer called "Trading Company" that stands for the Trading Company member. Linking these contacts tells Wafeq which transactions are between members. Wafeq suggests links when contacts share a tax number or a name.

4. Elimination rules

Rules decide what each run eliminates. See Elimination rules below.

5. Start period

Run eliminations for the complete months since the start month, or skip this step and run them later from the group.

Elimination rules

Each rule compares two sides for each month. Wafeq adds up each side's total and eliminates what matches. It doesn't pair individual invoices with bills, so a difference is the gap between two totals, not necessarily a missing document.

Intercompany transactions (automatic)

Every group has this rule from the start. It matches sales and purchases between members through their intercompany contacts: the seller's revenue tagged with the buyer's contact against the buyer's expenses tagged with the seller's contact. It also removes the cash that moved between members from the consolidated cash flow. You can turn it off, but it can't be deleted.

This rule doesn't eliminate balances. Add an intercompany balances rule for what members owe each other.

Intercompany balances

Eliminates what two members owe each other. Each side holds one member's receivable and payable accounts with the other member. An account can be limited to lines tagged with a contact that stands for the other member, so one shared receivable account can serve several members. Balances are eliminated as at each month end.

Revenue and expenses

Eliminates revenue against what mirrors it, such as management fees against the other member's fee expense, or recharges and other income and expense pairs booked as journals. When the buyer capitalized what it bought, choose the account where it was capitalized as the other side.

Investment and equity

Eliminates the parent's investment in a subsidiary against the subsidiary's equity.

A goodwill account receives the difference.
If the parent owns less than 100%, choose a non-controlling interest account. It receives the minority's share of the subsidiary's equity, including retained earnings. Ownership comes from the recorded subsidiary relationship.
In a chain, for example a holding company that owns a subsidiary that owns another, add one rule for each parent and subsidiary pair, and add every company to the group.

How differences are handled

Each rule has a Differences setting for months when the two sides don't match:

Leave in consolidated figures: eliminates the smaller side in full and the same amount of the larger side. The gap stays in the consolidated figures as a residual until you explain it.
Post to an account: eliminates both sides in full and posts the gap to the difference account you choose, such as an exchange difference account. With Post differences up to, only gaps up to that amount are posted. Larger gaps, and pairs where one side has nothing, stay in the residual for review.

Close a month

Open the group, go to Periods, and open the month. Each month has four steps.

1. Readiness

Shows whether each member has locked its own books for the month. You can run and post while a member is still open, but its figures may still change.

2. Reconcile

Choose Run eliminations. The run creates draft elimination journals and lists every pair of members each rule matched, with Side A, Side B, the amount eliminated, and the difference. Select a pair to see the member lines behind each side and open the source documents.

When one side has no lines, a contact link is usually missing, or the lines aren't trade between members and belong in a revenue and expenses rule.
When the amounts differ, one member may have booked something the other didn't, booked it in a different month, or booked it at a different exchange rate.
If the books are wrong, correct the entry in that member's books and run the month again. Don't change a rule to absorb a bookkeeping error.
Once a difference is explained, choose Leave difference in consolidated figures. If the amount changes later, the pair comes back for review.
Cash flow pairs need no review. Cash that one member paid to, or received from, someone outside the group rightly stays in the consolidated cash flow.

3. Review journal

Shows the journals the run created: P&L eliminations, Balance eliminations, and Cash flow eliminations. They post to the group ledger, not to member books.

4. Adjustments & post

For anything the rules can't express, choose Add adjustment. An adjustment is a group journal on members' accounts, in the presentation currency, that changes the consolidated figures only. Then post the month so its journals count in the consolidated reports. When the month is final, Lock it. A locked month refuses new runs, adjustments, and membership changes until you unlock it.

To process several months at once, use Catch up to run up to 12 consecutive months, oldest first, and optionally post each one.

When a month goes out of date

If a member's books or the group's setup change after a month is posted, the month shows as out of date. A draft that ran before such a change shows as out of date too. Re-run the month, review it, and choose Post changes. Posting again replaces the month's posted elimination journals.

Consolidated reports

Profit and loss, balance sheet, and cash flow: the group's statements in the presentation currency, with posted eliminations applied. You can also preview them with draft runs and adjustments included.
Eliminations ledger: every elimination and adjustment per member account, with opening, running, and closing balances. This is the audit trail behind the consolidated figures.

Foreign currencies

Members can keep their books in different currencies. Each month, Wafeq translates every member into the presentation currency before eliminating:

Income, expenses, assets, liabilities, and cash flows are translated at that month's month-end exchange rate.
Equity is translated at historical rates. Capital is translated at the rate of the month it was booked, and retained earnings are each month's profit at that month's rate.
The difference between the two is the translation adjustment, shown in the translation reserve in equity.

Two members may record the same intercompany balance at different rates. Any remaining gap appears as a difference on the pair, which you can post to an exchange difference account with Post to an account.

Frequently asked questions

Do eliminations change my members' books?
No. Eliminations and adjustments live in the group ledger and only affect the consolidated reports.

One member recharged an expense to another with a journal, and it shows as one-sided. Why?
The automatic rule only reads lines tagged with an intercompany contact. Either tag the lines with the contact that stands for the other member, or add a revenue and expenses rule for the accounts involved.

A member bought services from another member at cost and capitalized them. What needs eliminating?
Only the intercompany charge itself, through a revenue and expenses rule against the account where it was capitalized. Because there's no markup, the asset's cost to the group is the same. If there is a markup, remove it from the asset with an adjustment.

Can I change the presentation currency or start month later?
Only until the group has its first eliminations or adjustments. After that, both are fixed.

Do I need more than one group?
Usually not. One group per owner organization, containing every company it consolidates, covers most structures, including multi-level ones.