Why group controlling and consolidation are better together

Facts are facts: Group controlling can complement your consolidation department (and vice versa) to improve production of financial information.

The group controller and consolidation manager have two distinct roles in the finance function. However, if you want to improve the quality of work carried out by both, these functions need to communicate and exchange information with one another.

To better understand this trend, let’s first look at the differences between these two functions, and later dive into how they can interact, including:

• Defining the roles and responsibilities of group controller versus consolidation manager
• Differences between group controller and consolidation manager
• Similarities between group controller and consolidation manager
• How the group controller and consolidation manager can work together in partnership

Defining the roles of group controller and consolidation manager

Before we outline the two functions, let’s go over the roles and responsibilities of the stakeholders involved in each.

First, there’s a group controller who is largely responsible for:

• Establishing indicators to ensure the company’s operations align with its financial and non-financial objectives
• Measuring actuals achieved
• Flagging any variances
• Analyzing actual causes

The consolidation manager is responsible for:

• Drawing up the group’s consolidated accounts
• Taking part in the auditing of these accounts carried out by external auditors
• Ensuring that accounts are filed with the relevant authorities
• Managing the valuation rules applicable to all companies within the group

Now that you understand the responsibilities, let’s look at the difference between these two functions.

Differences between group controller and consolidation manager

Reporting frequency

Reporting is typically carried out monthly. Although in some instances, group consolidation is carried out with the same frequency, many groups still consolidate on a half-yearly basis. As a result of frequency and other factors which we will analyze later, when you present your results varies. Reporting requires shorter response times.

Socioeconomic impact

Socioeconomic factors affect these two functions but where the group controller is expected to anticipate their effects, the consolidation manager will attest to, and give evidence of, the impact the situation has on an organization.

Data comparison and variance analysis criteria

The group controller compares actuals against budgets or forecasts. Using these comparisons, they analyze variances and trends, identify possible causes and, in some cases, suggest corrective action. The consolidation manager offers a general overview of consolidated data, compared with the previous financial year-end or the same period in the previous financial year. Variances between periods must be explained in accompanying tables and should be 100% accurate and exhaustive. This data should also undergo external checks by statutory auditors.

Scope of consolidation

For the group controller, the scope of consolidation of the group is first considered from an economic point of view. It is essential to monitor and analyze the performance of those departments and companies with the greatest economic importance across the group. It’s not unusual for reporting frequency to vary according to the size and turnover of the subsidiary. The essential criterion is the ability to state variances and trends compared with budgets and to take the necessary action on a group level. In this case, the limited influence of some companies often excludes small businesses from the detailed analysis of figures reported or even from monthly reporting itself.

On the other hand, the consolidation manager is obligated to include all companies falling within the scope of consolidation or those exceeding the criteria related to the group’s percentage holding of the company in question, especially since the advent of IFRS. They will likely consider it more from the perspective of a legal entity.

Viewpoints and interpreting figures

The method of consolidating these companies also varies, depending on the viewpoint of the group controller or consolidation manager. From an economic perspective, the group controller typically takes companies with the highest economic impact into consideration when preparing budgets and comparing actuals.

It’s the consolidation manager who must then apply the consolidation method based on the group’s percentage of control over the subsidiary. This influences the value of consolidated accounts on the resulting ratios.

Recipients of information

The group controller primarily addresses individuals within the organization who have the intention to provide them with the information required for operational decisions, namely, financial and operational managers and the board of directors.

The consolidation manager will primarily provide information for people external to the organization or its day-to day operational management—such as auditors, shareholders and financial analysts.

The different methods of information control

Going back to our previous point, consolidated data tends to undergo stringent external control and is the subject of a letter of approval of financial statements and of a legal deposit.

The level of detail of information

When analyzing variances against budgeted or forecast data, the group controller needs access to sufficiently detailed information to identify causes and provide evidence of its impact. The group controller also needs to know, for example, the product or products that drew in the lowest sales, the raw materials that were pricier than expected, and which customers ordered less overall. This important information should be far more detailed than required for accounting purposes.

Let’s take a look at multidimensional analysis of accounts.

The consolidation manager needs very detailed information on every single account in the balance sheet as well as the profit and loss account. Each of these accounts require an explanation of change to this account from one period to the next. Additionally, the consolidation manager needs information on the type of operations affecting these accounts during the reporting period. This information could also be legal in nature.

The different types of data analyzed

Group controllers primarily concentrate on EBIT-type operating data, but at a very detailed level to analyze variances and trends. This is also to anticipate the impact of the economic situation on data in future periods.

The consolidation manager will focus more on balance sheet data and changes to it using the profit and loss account as a way to spot any inconsistencies. Furthermore, they will have to handle different operations proper to his function, often poorly understood by the group controller, such as dividends, reduction in the value of stock, internal transfer of stocks, calculation or assignment of goodwill, currency conversion differences, minority interests, deferred taxes, and more.

Adjustments made to the reported data

Processing by the group controller, most typically ‘summation’, may be used for projections, simulations and analysis of variances and trends, giving the individual the ability to identify key areas to work on and to offer solutions.

The consolidation manager carries forward adjustments from the past and adapts subsidiaries’ data to apply the same rules on valuation of accounts to all companies within the group and thus ensure continuity of information. They should also ensure that data related to operations carried out between companies within the group be reconciled to avoid any effects on accounts presented to external bodies. The processing undertaken will be essentially consolidation.

How to approach inter-group data

The group controller’s approach is to isolate this information and analyze the exempted data relating to these transactions. As with the budget, the approach will be to start with a purchase and allocate that same amount to the vendor. In the budget, the expected level of sales will determine the quantities of raw materials necessary for production.

The consolidation manager has the opposite approach. It is generally the vendor, namely the company issuing the invoice, who holds the power and is thereby tasked with allocating the purchase transaction to its counterpart in the ERP. Furthermore, due to the volume of transactions, the impact of currencies and production of capital goods, these processes are often particularly time-consuming for the consolidation accountant and sometimes cause problems for the audit by statutory auditors.

Where for the group controller it is a case of non-relevant information, for the consolidation accountant this information must be well managed by subsidiaries and reported correctly.

Similarities between group controller and consolidation manager

There are similarities between these two functions too. The main aspect is that group controllers and consolidation managers use shared data, even though this information is processed differently and used for different purposes.

How can the group controller and consolidation manager work together in partnership?

The group controller is more often in contact with subsidiaries for purposes such as monthly reporting, budgets, forecasts, and budgetary adjustments. They are, therefore, closer to the different entities within the group. More importantly, this individual has prior knowledge of the facts in comparison to the consolidation manager, enabling them to restate the accounts of subsidiaries and incorporate them in the consolidation process. Consider for example, stock management and valuation, methods of depreciation practiced locally by subsidiaries, intra-group profits achieved as a result of the sale of shares between the group’s companies.

As a result, given that the group controller has more rapid access to this data, the group controller can play a very important role as provider of information compared to his colleague in consolidation.

The consolidation manager must inform the group controller of entries (dividends, provisions, minority interests, depreciation of goodwill, deferred taxes, etc.) which will have an impact on the results and ratios analyzed by the group controller.

These same entries may play a dominant role during transfers of certain group subsidiaries, for example. This is why it’s essential for these two roles to join forces. A mutual understanding of accounting treatment, using software built for transparency, and an exchange of information will all contribute to a more efficient process.

Are you currently considering the implementation of specific actions to improve the quality of your financial data? Consider the power of creating a more effective partnership between group controlling and consolidation accounting in your group. For all the reasons outlined above, you’ll be glad you did.