Why Data Aggregation is not Financial Consolidation

In our first blog, Peter Popalis, CPA, CA and Co-Founder of Ascend Partners, and globally recognized expert OneStream architect, explains the important difference between simple aggregation and what a financial platform such as OneStream does in comparison.

Data Aggregation is not Financial Consolidation

Many financial and accounting professionals struggle daily with their financial close and consolidation procedures for one reason: improper financial data aggregation and consolidation. Throughout my years as a professional accountant and architect in both Hyperion Financial Management and OneStream platforms, I have realized the single largest problem for business leaders is the lack of critical data for decision making. It leads to manual financial consolidation adjustments, more time spent working on mechanical items and less time spent on analysis. This is because data aggregation engines were and are generally not designed to be effective financial consolidation and close engines, reducing your ability to have the latest business intelligence.

Financial consolidation and close: the basics

As we start our educational journey and share my knowledge, I just wanted to outline some basic definitions. For professional accountants and finance professionals, financial consolidation and close is not merely the aggregation of financial data. Instead, it is the aggregation of financial reporting data across your entire organization for the purpose of calculations and accounting adjustments to provide a consolidated financial income statement and balance sheet according to various accounting rules and principles (such as GAAP, IFRS and others).

Within this process, many enterprises have to make accounting adjustments across all their business units, including the following steps:

1. Foreign exchange translation
2. Elimination of inter-company transactions and balances
3. Journal entry adjustments
4. Accounting for corporate ownership structures across business units

Within the consolidation process, there are also three methods, including full consolidation, equity method and proportional consolidation, depending on your enterprise's organizational structure.

More importantly, however, is how enterprises go about this consolidation. There are currently three main processes used (excluding a fully manual system, generally outdated now for large organizations). These include:

• A GL System – a general ledger included in most company’s ERP (enterprise resource planning system) software, which can become overly complicated if a company uses multiple ERP systems across its various units.
• Spreadsheets – Excel is the most widely used in my experience, even by large corporations still, yet often causes large labour expenditures and loss of innovative decision-making.
• Purpose-built Financial Software – typically becoming the preferred software system for financial consolidation and close for large enterprises, now offered as a cloud or SaaS (software-as-a-service) option.

There are very few options in the SaaS field that offer a complete consolidation option, instead of just simple data aggregation, as explained below.

Data Aggregation Defined

Data aggregation is often confused with data consolidation, especially in financial software. Data aggregation is simply collecting data from across an organization and presenting it in a summarized format.

However, as completed by most ERP systems, spreadsheets, and even many financial software systems, data aggregation does not typically include built-in frameworks to allow for customized processes for financial consolidation and close. Instead, these data aggregation systems create labour-intensive processes for accountants at the top of the work funnel. After the data has been aggregated, these professionals still have to manually adjust currency, ownership percentages for allocating expenses and revenue, creating large delays in the flow of information.

This delay in critical business information hampers an organization’s decision-makers in being innovative and supporting proactive decisions to compete effectively with their peers.

Review of Current software engines, aggregation vs consolidation

There are several software options available that claim to be full financial consolidation engines. In my experience, very few operate in a space that allows companies to effectively configure the engine to their design needs and operate efficiently in a cloud atmosphere, where most companies want to operate.

The most common operators considered in the consolidation space include:

• OneStream – purpose-built cloud financial and accounting software that provides an extensible framework that allows companies to implement it to their exact needs and standards while still providing full automated business processes. Due to it’s extensible and open framework design, it typically requires expert architects to enable its full capabilities.  
• Oracle or SAP– older legacy systems built before cloud operations that do not entirely fit with the new modalities that most companies require. They also require a complex addition of other software to ensure complete consolidation processes.
• Vena – a smaller mid-market solution that caters to companies that may not need as complex a solution to meeting their financial reporting needs.
• Planful (formerly Host Analytics) – purpose-built financial software that tries to offer both structured and dynamic architecture and reporting, with mixed results. In certain areas, the reporting is too structured, while in other areas users complain the dynamic architecture has a very steep learning curve without the necessary support.
• Anaplan – one of the newest SaaS cloud-based players to arrive, this option on the surface appears to be a robust platform. However, it lacks the true software integration options even for something as simple as Excel import/exports. Users have also complained about its lack of reporting and dashboarding flexibility and customization.

Be sure to check under the hood of your consolidation engine before you purchase this new vehicle of automation. While most of the products above offer some form of accounting automation and data aggregation, most do not provide a consistent and full consolidation engine that allows for critical processes such as alternate hierarchies without IC rules and calculation status notifications.

The OneStream difference

The OneStream platform offers a truly unique product for financial consolidation and close, rather than simple data aggregation, as evidenced by its recent Gartner designation as a ‘Leader’ in the industry. With an extensible coded framework, the platform was developed for the cloud.

These differences can sound small, but when your accounting processes require complex solutions, only the extensible framework of OneStream can live up to the demanding task of providing effective corporate performance management reporting and accounting automation.

I look forward to providing more in-depth commentary on OneStream and its advantages in the months to come.

If you would like more information on OneStream or Ascend Partners, a Onestream Platinum Partner, contact us today.