Oracle Release 12 - Sub Ledger Accounting

The new Global Architecture with R12 introduced the concept of ledgers each capable of providing differing accounting representations; one ledger for example could conform to IFRS, another to local GAAP.One of the key components is the new sub-ledger functionality.

This generates the actual accounting entries for each ledger dependant upon defined rules. In some respects this is similar to the dual posting in the Global Accounting Engine (AX).

In the above example, a single invoice generates the accounting for the Global COA, and the French statutory COA. The new terminology identifies a Transaction COA and an Accounting COA.
The mechanism to provide this functionality is the Accounting Methods Builder (AMB).

The AMB can derive accounts for individual segments or for the full code combination based upon the rules. This looks to continue the account generator /auto-accounting type functionality which has been used in various applications over the years.

Differing charts of accounts is only one feature of the sub-ledger engine; derivation rules at different levels from journal line to application can be specified, GL summarisation (summary / detail), reversal methods, and reporting sequences are other components. The AMB therefore provides the mechanism to build the rules that may apply for global management accounting, deriving accounting for corporate financial reporting, and individual country tax rules. This looks to be a powerful tool extending beyond the Alternative Accounting Representation functionality currently available in 11.5.7+, replacing the Global Accounting Engine (AX), as well as replacing many of the GL globalisation reports particularly within Europe.
Given the scale and complexity of the Oracle e-Business suite, the Accounting methods Builder looks as if it may become one of the key focus areas of the future.

Oracle Release 12 - Ledgers and Ledger Sets

The organisational structures in release 12 include a new classification of ledgers, and together with ledger sets have the characteristics of sets of books, with the period close taking place at ledger set level.

Oracle outline 3 organisational axis - legal, business and functional.

Ledgers fall on the legal axis, providing a mechanism to record Establishments, Registrations, Jurisdictions, Legal Authorities and Associations. Legal entities own assets, financial transactions and have regulatory obligations. At it’s simplest a legal organisation (including public sector bodies) has a balance sheet, journal entries and some form of company return. Any Oracle set up needs to support these basic requirements.

Equating ledgers to the old sets of books we still have the 3 Cs – Chart of Accounts, Currency and Calendar, with a new C – Accounting Method (ok it needs some imagination).

So what can be considered within the fourth C – Accounting Method?

Country – Statutory charts of accounts have long defined the requirement for different sets of books, however with the use of sub-ledger accounting rules a further dimension is added to country specific requirements.

Jurisdiction – Even within a country there may be more than one set of rules that may necessitate separate ledgers

Case Study: One company found the tax laws between Beijing and Shanghai differed significantly for their organisation so 2 sets of books were deemed to be required.]

Case Study: Specific indirect taxation rules applied to one part of a business so separate sub-ledgers were required to handle that requirement.

Corporate Governance – Directors of a company are legally responsible for the activities of a company. With 11i, the sharing of a set of books can raise questions as to who has overall responsibility.

Case Study: Single set of books shared by 4 balancing entities caused reconciliation, control and responsibility problems. Company directors welcomed own set of books as it improved their control and corporate governance.

In release 12, 4 ledgers –essentially legal entities – and legal associations could solve 12 the problem encountered in the case study.

Accounting Sequencing – Many tax jurisdictions require that a legal entity has it’s own set of accounting sequence numbers, and that all the transactions in a ledger apply to that sequence. This is imperative where accounting entry reports such as the Libro Giornale in Italy, and the Brazilian General Ledger Daily Book. This requirement is common in Southern Europe, Eastern Europe and Latin America, with much of continental Europe looking for distinct sequence numbers.

What release 12 brings is a greater use of the Legal Entity organisational classification than we saw in previous versions. The key features being tax calculations, inter-company balancing and bank ownership at legal entity level.

Oracle R12 Financial Concepts - Organisational Structures

Oracle's new Financial Concepts manual provides a useful and practical overview of the structural elements within release 12.

Getting the structural elements correct within Oracle is a critical success factor for any Oracle system, notably organisational structures and flexfield design, particularly the chart of accounts, as these elements dictate the transactional and information flow through the applications.

In terms of structure, release 12 highlights the concept of system entities building upon the existing organisational classifications with 2 new crucial additions - Government Reporting Legal Entity and Ledger, giving the following "important system entities:

• Business Group and Departments
• Government Reporting Legal Entity (GRLE)
• Legal Entity
• Ledgers
• Operating Unit
• Inventory Organization
• Human Resources Organization

In terms of how these organisations are used, Oracle recommends looking at 3 axis - legal axis, business axis and reporting access.

Looking at the legal axis - business groups hold legislative codes determining what country specific HR / Payroll functionality is used, Government Reporting Legal Entities define which organisations hold contracts of employments, with Ledgers defining the financial legal dimension.

It should be noted that operating units hold transactions relating to a particular legal entity, and inventory is owned by legal entities. Any movement between them being an inter-company transaction.

Business organisations can be defined using HR organisations, the key here is to ensure that employee related transactions can be tied to ledger. A common example in global organisations being an employee who is on secondment may belong to a particular business organisation for business reporting, but his transactions would be required to be processed in the correct legal organisation.

If we equate ledgers to sets of books (SOB), then in terms of organisational structures there is no real change. The replacement of SOB by an organisational classification being an architectural change, though it is recognised that the ledger set up consolidates and develops existing functionality to produce a more comprehensive solution.

The use of Government Legal Reporting Entities is very useful, as it allows business organisations to be flexed to meet the challenges within a business, whilst still allowing for a separate legal employing structure which tens to be a lot less flexible.

One very welcome addition to the Oracle Documentation is the Oracle Financials Concepts Guide Release 12 authored by Seamus Moran. This manual not only outlines the concepts, but provides practical examples and tips for existing Oracle users.

Information: Oracle Documentation Library

http://www.foresightglobal.co.uk/Resources/oracle_R12Resources.htm#Oracle%20Documentation

Oracle Release 12

Oracle's latest version Release 12 was made generally available in January 2007. The release aims to provide greater levels of control and transparency by use of a centralised financial architecture, whilst supporting local regulatory and cultural country specific requirements.

The key messages are:
· Think Globally - using business intelligence and analysis tools
· Work Globally - using the global capabilities of the applications
· Manage Globally - using the latest system architecture and middleware

The focus is on global operations and shared service efficiencies, as well as application specific improvements. One of the most fundamental changes occurs with the new Global Financial Architecture, which introduces 6 Major Initiatives.
· Ledger and Ledger Sets
· Multi-Org Access Control
· Sub-ledger Accounting
· Tax Engine
· Inter-company
· Bank Model

Ledger and Ledger Sets
Ledgers essentially replace Sets of Books, and introduce a 4th C to Calendar, Currency and Chart of Accounts, Accounting Method. The use of ledger sets replaces the Alternative Accounting Representation introduced in 11.5.7, and provides a rule-based mechanism for each ledger, overcoming some of the limitations of the current functionality.
The use of ledger sets streamlines the set up process; a single set of rules could be defined for all IFRS ledgers and attached to each ledger in turn. The local GAAP ledgers having the appropriate country specific rules.


Multi-Org Access Control (MOCA)
Very much aimed at shared service operations, access to operating units (OU) is role based, with a single responsibility able to access multiple OU.


Sub-Ledger Accounting
Sub-ledger accounting supports ledgers by generating the accounting entries for each ledger from a set of event based rules. A single transaction could therefore generate distribution lines for IFRS ledgers and local GAAP ledgers.


Tax Engine
The tax engine generates indirect tax entries based upon pre-defined rules - the 4 P's Parties / Places / Products / Processes. Tax entries are now held in a Tax Transactions repository to streamline reporting.


Inter-company
The Global Inter-company System (GIS), becomes Advanced GIS. The most significant feature being is the generation of invoices between companies, overcoming a major shortfall in existing functionality.


Bank Model
The biggest change to the bank model is that bank accounts are now attached at Legal Entity level rather than Operating Unit in current versions. The capability to pay across operating units is also been introduced. Banks accounts can be shared by applications and can be designed for use by Payables, Receivables and Payroll.