How to Create a Consolidated Trial Balance in Engagement

A consolidated trial balance combines the financial accounts of a parent company and its subsidiaries into a single, comprehensive financial overview. This process presents a unified financial picture of a group of related entities, as if they were one economic unit. Businesses utilize this consolidated view for accurate financial reporting, strategic planning, and compliance with accounting standards. This article guides you through creating a consolidated trial balance within Engagement.

Setting Up for Consolidation in Engagement

Before consolidating in Engagement, prepare individual client files. Each subsidiary’s trial balance must be set up and accessible in Engagement, often by importing data from various accounting systems.

To begin, establish a master client record within Engagement that will serve as the parent entity for the consolidation. This master record acts as the central hub where all subsidiary data will converge. The master client’s fiscal year-end and reporting period frequency must align with all subsidiary entities. Inconsistencies in these dates can prevent the successful inclusion of subsidiary data.

Next, integrate the individual subsidiary client files into the Engagement system. This involves importing trial balance data from external accounting software, such as QuickBooks or Sage, into each subsidiary engagement. Engagement provides an Import Conversion Wizard for this purpose, allowing you to select the source accounting file and map its data to the Engagement trial balance. When importing, you can choose to append or overwrite existing chart of accounts and balances.

Standardizing the chart of accounts across all entities is important for consolidation. While Engagement can consolidate by account number, grouping, or tax code, consistent account descriptions and groupings across subsidiaries are highly recommended. If different entities use the same account number but with varying descriptions, Engagement uses the description from the primary engagement listed in the setup. It is advisable to map accounts to common grouping lists to ensure proper aggregation during consolidation.

Engagement allows firms to define a core account within the chart of accounts mask, which is used to accumulate and report consolidated totals. This core account can be positioned anywhere in the mask and helps maintain consistency in financial reporting.

When setting up the consolidated engagement, you must specify its structure as “Consolidated” within Engagement Manager. This designation enables the software’s consolidation features and allows for the display of each subsidiary’s balances, total subsidiary balances, eliminating journal entries, and final consolidated balances. Up to 100 subsidiary engagements can be added to a single consolidated engagement, and tiered consolidations are also supported for more complex organizational structures.

Performing the Consolidation Process

After setting up individual subsidiary engagements and the master consolidated engagement, execute the consolidation in Engagement.

To begin the consolidation, navigate to the trial balance section of your designated parent engagement within Engagement. Access the consolidation function, found under a “Data” or “Trial Balance” tab, then select “Consolidate.” If multiple consolidated trial balances exist within the binder, select the specific one intended to hold the aggregated information.

Next, you will add the prepared individual subsidiary engagements to the consolidation. This involves selecting each subsidiary’s trial balance from a list of available engagements within the binder. The order in which you add these subsidiaries will dictate their appearance in the consolidated trial balance display and subsequent reports. Engagement allows you to consolidate based on various methods, including groups, subgroups, or detailed account numbers, which influences how accounts are combined.

Inputting and managing intercompany elimination entries directly within the software’s consolidation module is important. Intercompany transactions, such as sales, loans, or expenses between related entities, must be eliminated to present the financial statements as if the group were a single economic unit. Failure to eliminate these transactions would inflate the consolidated financial results.

Engagement facilitates the entry of these elimination journal entries. While general adjusting entries are made at the subsidiary level, specific elimination entries for consolidation are recorded directly within the consolidated engagement. These entries are designed to cancel out the effects of intercompany dealings, ensuring that only transactions with external third parties are reflected in the consolidated trial balance. For example, if one subsidiary sold goods to another, the intercompany revenue and cost of goods sold would be eliminated.

After adding subsidiaries and entering elimination entries, you will then generate the consolidated trial balance. Engagement aggregates the balances from all selected subsidiaries and applies the recorded elimination entries to produce a single, unified trial balance. This output displays columns for each subsidiary, a pre-consolidation total, the elimination adjustments, and the final consolidated balance. The software provides real-time updates for consolidated balances as changes are made in subsidiary data, though a reconsolidation step may be needed to reflect all changes.

Reviewing and Finalizing the Consolidated Trial Balance

After generating the consolidated trial balance in Engagement, review it for accuracy and completeness. This review phase involves scrutinizing the aggregated data, identifying any discrepancies, and making necessary post-consolidation adjustments.

Begin by examining the consolidated trial balance for any unexpected balances or omissions. Pay close attention to accounts that should have been eliminated, such as intercompany receivables and payables, to confirm they are correctly zeroed out or reduced to reflect external balances. Engagement allows for customized views of the trial balance, enabling you to display specific columns for subsidiaries, pre-consolidation totals, eliminations, and final consolidated amounts, which aids in this detailed review.

If discrepancies are identified, a diagnostic tool within Engagement can assist in pinpointing the source of the issue. For instance, the software may indicate if a reconsolidation is needed due to recent changes in subsidiary data, ensuring you are always working with the most current information. All adjusting journal entries that impact the subsidiary’s individual financial statements must be made at the subsidiary level before consolidating.

Post-consolidation adjustments, if required, are entered directly into the consolidated engagement, particularly for elimination entries. These adjustments help refine the consolidated figures and resolve any remaining imbalances after the initial consolidation. The system is designed to allow for these specific adjustments to be recorded, ensuring the final consolidated trial balance adheres to accounting principles.

Once the consolidated trial balance is deemed accurate, it can be utilized for further reporting and analysis directly within Engagement. The software allows for the generation of consolidated financial statements, such as the balance sheet, income statement, and cash flow statement, derived directly from the consolidated trial balance data. These statements provide a comprehensive financial overview of the entire group.

Additionally, the consolidated trial balance data can be exported for use in other applications, such as tax preparation software or advanced analytical tools. This export functionality ensures seamless integration with other financial processes and allows for deeper analysis or specialized reporting outside of Engagement. The ability to generate comparative columns with prior period data also aids in trend analysis and performance evaluation.