Operational Problems for the Implementation of Multiple Consolidation Methods


There are three main kinds of consolidation method namely full consolidation method, proportional consolidation method and equity method that a company may use. Each method has its own set of distinctive computational rules and extra work can arise when frequent changes of method are applied to a particular company within a group. Change of methods may be due to following reasons:

 Change in ownership and voting rights

 Change in interpretation and requirements of accounting standards

In accordance with the new accounting standard “IFRS 11 Joint Arrangements” that comes effective on 1st January 2013, the proportional consolidation method will be eliminated for jointly controlled entities but they will still have to include relevant information in the financial statements of its parent company. However, the method of computation can be more complicated than the proportional consolidation method as it is no longer restricted to a share of individual assets, liabilities, income and expenses based on an ownership percentage. In order to reflect the financial information in respect of joint operations, a more sophisticated account allocation method is applied to replace the use of the proportional consolidation method.



Reading accounting standards often provides limited guidance on how to implement the standard from an information system perspective. However, it does provide guidance on how to determine the selection and application of a specific accounting practice. Customers expect any new system to be adaptable to adapt to frequent changes in an accounting practice on a continuing basis without significant investment in the existing financial system.



The accounting practice of FESA Consol can be defined and configured dynamically by the combination and configuration of processing rules, lookup tables and query formulas. FESA Consol can support the full consolidation method, the proportional consolidation method and the equity method. In addition, FESA Consol can support frequent changes in the accounting practice for a group of companies.



Long term costs and risks associated with the implementation and continuity of a new accounting system can be reduced and controlled significantly as the system is able to adapt to changes in the accounting practice on a dynamic basis.