The Accounting Transformation and Budget to Report Process Flows

Oracle University Podcast

In the final episode of this season, hosts Lois Houston and Nikita Abraham, along with Sr. Principal ERP Learning Strategist David Barnacle, dive into the Accounting Transformation process flow, which covers how financial transactions are converted into journal entries and how subledger journal entries are processed through subledger accounting. They also explore the Budget to Report process flow, which focuses on planning, accounting for transactions, and reporting financial information to the appropriate stakeholder. Budget reporting goes a long way in helping businesses take corrective actions and improve their financial performance. Oracle MyLearn: https://mylearn.oracle.com/ Oracle University Learning Community: https://education.oracle.com/ou-community LinkedIn: https://www.linkedin.com/showcase/oracle-university/ X (formerly Twitter): https://twitter.com/Oracle_Edu Special thanks to Arijit Ghosh, David Wright, Radhika Banka, Parvathy Narayan, and the OU Studio Team for helping us create this episode. -------------------------------------------------------- Episode Transcript:

00:00

Welcome to the Oracle University Podcast, the first stop on your cloud journey. During this series of informative podcasts, we’ll bring you foundational training on the most popular Oracle technologies. Let’s get started. 00:26 Nikita: Hello and welcome to the Oracle University Podcast. I’m Nikita Abraham, Principal Technical Editor with Oracle University, and with me is Lois Houston, Director of Innovation Programs. Lois: Hi there! Last week, we had David “Barney” Barnacle, Sr. Principal ERP Learning Strategist, with us, who spoke about Procure to Pay and Asset Acquisition to Retirement, which are two major business processes within the Oracle Financials Business Process Model. Barney is here with us for one last time this season to take us through the last two business processes, Accounting Transformation and Budget to Report. 01:02 Nikita: Welcome back, Barney! Barney: Hi Niki! Hi Lois! Nikita: So Barney, what can you tell us about Accounting Transformation?

Barney: Accounting Transformation is one of the most important business processes in the Oracle Cloud Financials Business Process Model. All our enterprises are required to record their financial transactions, and the Oracle Fusion Cloud: ERP application supports businesses in recording these transactions with the help of best practice life cycles like Invoice to Cash, Procure to Pay, and Asset Acquisition to Retirement. 01:32 Nikita: Everything we’ve discussed in our previous episodes. Barney: Right. Now, Accounting Transformation refers to the process of converting business transactions from Oracle subledgers, or transactions from external source systems, into detailed, auditable journal entries. Source systems are typically industry-specific applications that are either purchased from third parties or built internally within the customer organization. Examples of such systems include core banking applications, insurance policy administration applications, billing applications, and point of sales applications. And to do this transformation, we have a very powerful tool called the Accounting Engine. If the accounting engine is only used in Oracle Cloud Subledgers (for example, Assets, Payables, etc.), then this engine is referred to as the Subledger Accounting Engine.

02:24 Lois: And what does this Subledger Accounting Engine do? Barney: The Subledger Accounting Engine, also known as SLA, is loaded with predefined event models and accounting methods, i.e. the accounting rules. And within this engine, users can also create user-defined accounting methods, i.e. new rules, to achieve multiple financial reporting requirements. The accounting engine’s job is to convert business transactions into auditable and balanced accounting journal entries. 02:55 Lois: Is SLA a separate product?

Barney: SLA is not a separate product itself but is Oracle’s common engine, which caters to the accounting needs of all the Oracle subledgers. Subledger Accounting is a rules-based accounting engine that is centralized for use by all the Oracle Cloud subledgers. 03:13 Nikita: So how does Subledger Accounting work? Barney: When using Oracle Cloud Financials, financial transactions such as invoices or payments are recorded in the Oracle Cloud subledger products, whereas transactions from legacy systems are recorded in Oracle Fusion Cloud Accounting Hub. Each financial transaction has some accounting event type associated with it. For example, creating a customer invoice, adjusting a payment, validating a supplier invoice, and so on. As I was saying earlier, Subledger Accounting has predefined accounting rule sets, also known as accounting methods. And these accounting methods follow industry practices (for example, Standard accruals).

03:53 Nikita: And how do accounting rules work? Barney: The accounting rules pick the accounting event type associated with the business transaction. It uses relevant transaction attributes like Amounts, Currencies, Dates, Customers, or Suppliers. Then, it converts the transactional attributes into balanced and auditable Subledger and ultimately General Ledger journal entries, which may also require the copying or complete creation of account code combinations. 04:19 Lois: Can all the accounting requirements of a business be met with the help of standard accounting methods?

Barney: No, Lois. Sometimes, standard accrual accounting methods don’t meet all the accounting or business requirements. But then subledger accounting can support user-defined accounting methods to generate different accounting entries to support these different regulatory or business requirements. For example, by using a local GAAP. 04:44 Nikita: Barney, can you tell us in more detail the various steps involved in the accounting transformation process?

Barney: So, the first step is to record business transactions using modern business life cycles. As the user processes these transactions, with such actions as create, validate, adjust, delete etc., these actions are recorded as event types. The accounting engine uses these types and the accounting method rules to create detailed subledger journals. It is the accounting rules that take the transaction source attributes, such as amount, date, customer supplier, etc., and converts them into a balanced detailed subledger journal that can be audited. If there are insufficient or incorrect account or no account values within the source transactions, then the account rules, mapping sets, and user-defined formula that can be configured to create the correct account combinations. 05:39 Barney: To create these journals, the create accounting process can be automated to run on a regular basis, typically at least once a day. The Create Accounting process first generates detailed subledger journals in draft or final mode within the SLA data repository. If these SLA journals are in final mode, then they can also be transferred to create summarized or detailed general ledger journals. Once posted, these GL journals update the account balances of all dimensions stored within the GL Essbase cubes. From these account balances, you can create flexible financial reports to meet the requirements of all stakeholders. And the best part is any role that’s assigned SLA privileges can carry out these tasks.

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If you’re already an Oracle MyLearn user, go to MyLearn to join the community. You will need to log in first. If you’ve not yet accessed Oracle MyLearn, visit mylearn.oracle.com and create an account to get started. 06:59 Nikita: Welcome back. So, transactions are created, accounting is generated using the powerful SLA engine, and then when that’s done, organizations can publish their financial reports and submit them to government authorities and their stakeholders, right? So, how do they administer control over their financial planning and spending? And how do organizations create these different reports? 07:23 Barney: Financial reports/statements are key to assessing the financial efficiency and determining the key performance indicators of any organization or enterprise. In Oracle Fusion Cloud, we talk of producing reports across three key axes, the legal, the management, and the functional axis, to match the varying requirements of stakeholders. Some organizations, to drive good financial control, plan and generate budgets and/or forecasts. This is so that they can estimate their revenue and expenses for a specific future period. In fact, some enterprises go much further and use budgetary control and encumbrance accounting to ensure expenditure remains within budgeted control levels per period and they can block further expenditure on items that have spent over planned budgeted amounts. 08:15 Barney: Other enterprises may have a rolling 12-month budget that can be updated at the end of each financial period. Simple to complex budgets or forecasts can be loaded into the GL Essbase cubes and the planned budgeted account balances over a period can easily be compared with actual performance using a variety of financial reporting tools provided by Oracle Cloud. Any budget variance can be used to drive financial control and analysis, while contributing to effective, strategic decision-making. The Oracle Fusion Cloud Budget to Report process focuses on planning, accounting for transactions, and reporting financial information to the appropriate stakeholder. 08:59 Lois: Why is this process so important for organizations? What are the benefits of budget reporting?

Barney: It is a great way to drive financial control by efficiently tracking the company's performance versus the budget or forecast plan. Budget reporting allows an organization to perform frequent comparisons of forecasted and actual results with the purpose of fixing the key deviations. It allows organizations to allocate cash to assets worth the investment, make acquisitions, or create disposals or disinvestment strategies. 09:32 Lois: Barney, what are the key processes within Budget to Report? Barney: Within the Budget to Report processes life cycle, there are three key subprocesses: managing budgets and forecasts, capturing transactions (i.e. account balances), and period close to financial reporting. Accountants will cycle through these three processes on a regular basis, which is typically monthly. Let’s start with the Manage Budgets and Forecasts process. This process refers to the entire cycle of events that start with planning and formulating and ultimately ends with creating budgets and forecasts in the application. Oracle General Ledger simplifies budget and forecast uploads into the system by the use of Excel spreadsheets. 10:15 Barney: Next is the Capture Transactions and Journal Entry process. Financial transactions captured in the subledgers are accounted for via the SLA accounting engine and are converted into detailed subledger and summarized general ledger journals (i.e. the accounting process we have just discussed under SLA). Manual journals can also be created with the use of the user interface or via spreadsheet uploads. The account combinations on these journal lines, once posted, that record the actual account balances, which detail organization revenue, expenditure, taxation, and so on over a period. 10:52 Barney: The Period Close to Financial Reporting process starts with the period closure for each subledger application, ensuring all financial transactions are captured and reported in the correct period. It includes the reconciliation of all key suspense accounts or key accounts (for example, cash balances, tax debtors, liabilities, etc.), special period-end processing, such as foreign currency requirements for revaluation and translations or allocation journals to spread the account distribution of central costs or revenue pools, and the use of consolidation ledgers, with requirements to move currency account balances between ledgers. Finally, from these consolidated, reconciled account balances, a variety of reporting tools can be used to generate the required financial reports/statements for both internal and external stakeholders. 11:42 Barney: Some of these reports will include the comparison of actual versus budgeted values, and any key variances will be used to revise or amend the budgets/forecast plans. We return to where we started with a review or modification of our strategic financial plans. 11:59 Nikita: Barney, what are the key job roles associated with the Budget to Report process? Barney: There are three job roles associated with this process that are predefined as standard by Oracle: General Accountant, Financial Analyst, and General Accounting Manager. The General Accountant manages all financial transactions and revenue, expenses, assets, liability, and equity accounts, and is responsible for recording accounting adjustments, such as accruals, allocations, currency revaluations, and translations. The Financial Analyst analyzes the financial performance of an enterprise or an organization. The General Accounting Manager manages the general accounting functions of an enterprise, including general ledger, subsidiary ledgers. They also manage period close activities. 12:49 Lois: Any final words, Barney, as we conclude this series on ERP Financials business processes? Barney: So, in these last couple of episodes, we discussed the five financial business process life cycles. These processes are collectively known as Record to Report. The Record to Report process includes data extraction, collection, and processing to deliver accurate and timely financial information and enhance decision-making within the organization or enterprise. Using embedded analytics to drive an error-free financial close process, Oracle Fusion Cloud can not only automate and transform the R2R process, but also enable timely, real-time financial performance reporting. 13:37 Nikita: Thank you so much, Barney, for being our guide and taking us through the Oracle Financials Business Process Model. Barney: Thank you. It’s been great being here with both of you. Lois: If you missed any of our earlier episodes with Barney, you should go back and check them out. And if you’re interested in learning more about Oracle’s business process training and getting certified, visit mylearn.oracle.com. Until next time, this is Lois Houston… Nikita: And Nikita Abraham, signing off! 14:03

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