Monthly Archives: January 2017

Demystifying Legal Entity in Oracle Fusion

Legal Entity is a recognized party in an organization with right and responsibilities given by the legislation. A Legal Entity has the right to:

  • Own properties
  • Right to trade
  • Responsibility to repay debts
  • Responsibility to account for themselves to regulators

You have to define Legal entity for each of the registered companies recognized in law. A legal entity is basically a separate legal identity or in other words, it’s an artificial person that conducts the business for the following reasons:

  • Comply with corporate taxation within local jurisdictions
  • Isolation of one area of business from risks into another area

So, if an organization involved in different types of business activities of procuring and selling, the activities will take place at legal entity level or in the context of legal entity. Because they are registered with authorities. So a legal entity is authorized by those authorities to perform these type business activities on a day to day basis.

Organization Structure

The most common issue faced by most of the businesses and consultants is the Organization structure design. In majority of implementation, the main objective is to make ensure that the structure should compliant from legal perspective and not putting equal attention to make system effective from operational management and accounting perspective, which is the most prevalent reason that most of the implementation projects forced to redesign the organization structure due to various issues they face during the transactional data recording and reporting. Legal entity is the crux of the organization structure as this determines the statutory and country specific (local) reporting needs.

Legal Entity is a juristic person that can enter into contracts, own assets and bank accounts, pay debts, file returns, perform statutory reporting, comply with legal requirements etc. In other words, legal entity is a business entity that is known to exist to the outside world. Internal organizations or divisions are not legal entities themselves, but are just part of it.

The fusion architecture deploys the one-on-one and many-to-one relationship between business unit and legal entity, thereby bringing about the true picture of business unit as a division or mechanism to restrict access and deploy other sub-ledger level controls as opposed to a legal entity that needs to perform statutory & tax reporting. In the fusion architecture, various legal entities could share the same ledger and consequently the same business unit. Both legal entities and business units are associated with the ledger and the relationship between the legal entity and business unit is derived based on the ledger.

If no sub-ledgers are required for a ledger (Eg: Consolidation ledger), there isn’t a need to assign any legal entity to the ledger. So the focus of the Legal entity is more external facing while the other internal reporting entities could be configured as separate balancing segment values within the same legal entity. The structure also provides platform for enhanced intercompany accounting.

Some of the major benefits that could be realized from the fusion Legal entity structure are summarized below:

  • Improved tracking of sub-ledger transactions at legal entity level
  • Simplified statutory compliance by leveraging advanced features
  • Enhanced tax reporting
  • Enhanced audit trail, compliance and control
  • Scalable platform for future initiatives
Legal Entity Relationships
Legal Entity in Transactions

Assets of the enterprise are owned by individual legal entities. Oracle Fusion Financials allow users to enter legal entities on transactions that represent a movement in value or obligation.

For example, the creation of a sales order creates an obligation for the legal entity that books the order to deliver the goods, and an obligation of the purchaser to receive and pay for those goods.

In another example, if you revalued your inventory in a warehouse to account for raw material price increases, the revaluation and revaluation reserves must be reflected in your legal entity’s accounts. In Oracle Fusion Applications, your inventory within an inventory organization is managed by a single business unit and belongs to one legal entity.

Legal Entity and Business Unit

A business unit can process transactions on behalf of one or many legal entities. In some cases the legal entity is explicit on your transactions. For example, a payables invoice has an explicit legal entity field. Your accounts payables department can process supplier invoices on behalf of one or many business units.

In some cases, your legal entity is inferred from your business unit that is processing the transaction, as each business unit has a default legal entity. For example, when a purchase order is placed in a business unit, the default legal entity is legally obligated to the supplier.

Legal Entity and Ledgers

To associate legal entity to the ledger, use the define accounting configuration task list, to specify which ledger a legal entity uses to perform the accounting transaction. You have the option to assign one or more legal entity to ledger using a task called assign legal entities. You can also assign balancing segment to legal entity using a task called assign balancing segment.

Now, you can also assign some balancing segment values to ledger also using the task called assign balancing segment values to ledger.  Balancing segment values assigned to ledger are basically representing the non-legal entity transaction such as adjustments.

Oracle recommended that you should assign balancing segment values to all the legal entities before assigning to the ledgers

Legal Entity and Balancing segments

Accounting for your business or operation means what? Accounting for your operations means you must produce a balanced trial balance sheet and other financial statements by legal entity.

Fusion supports up to three balancing segments. Best practices recommend that one of these segments represents the legal entity to ease the requirement to account for operations to regulatory agencies, tax authorities, and investors.

While transactions that cross balancing segments don’t necessarily cross legal entity boundaries, all transactions that cross legal entity boundaries must cross balancing segments.

Legal and Payroll Structure

While creating the legal entities, we have to identify them as legal employers and payroll statutory units, which make then available for use in Oracle Fusion Human Capital Management (HCM). Based on the organization structure we may have only one legal entity that is also a payroll statutory unit and a legal employer, or we may have multiple legal entities, payroll statutory units, and legal employers.

Legal Employer

A legal employer is a legal entity that employs workers. You define a legal entity as a legal employer in the Oracle Fusion Legal Entity Configurator.

The legal employer is captured at the work relationship level, and all employment terms and assignments within that relationship are automatically with that legal employer.

Legal employer information for worker assignments is also used for reporting purposes.

Payroll Statutory Unit

Payroll statutory units are legal entities that are responsible for paying workers, including the payment of payroll tax and social insurance. A payroll statutory unit can pay and report on payroll tax and social insurance on behalf of one or many legal entities, depending on the structure of your enterprise.

Payroll statutory units enable you to group legal employers so that you can perform statutory calculations at a higher level, such as for United Kingdom (UK) statutory sick pay. In simple cases, a legal employer is also a payroll statutory unit. However, in complex business scenario your organization may have several legal employers under one payroll statutory unit.

Tax Reporting Unit

Use a tax reporting unit to group workers for the purpose of tax and social insurance reporting. A tax reporting unit is the Oracle Fusion Human Capital Management (HCM) version of the legal reporting unit in Oracle Fusion Applications.

To create a tax reporting unit, you use the Oracle Fusion Legal Entity Configurator to define a legal entity as a payroll statutory unit. When you identify a legal entity as a payroll statutory unit, the application transfers the legal reporting units that are associated with that legal entity to Oracle Fusion HCM as tax reporting units. You can then access the tax reporting unit using the Manage Legal Reporting Unit HCM Information task.

If you identify a legal entity as a legal employer only, and not as a payroll statutory unit, you must enter a parent payroll statutory unit. The resulting legal reporting units are transferred to Oracle Fusion HCM as tax reporting units, but as children of the parent payroll statutory unit that you entered, and not the legal entity that you identified as a legal employer.

Creating Users and Assigning Roles – Oracle Fusion

Overview of Oracle Fusion Functional Setup Manager
  • All functional & configuration tasks are set up or performed in Functional Setup Manager which are just like set up pages or form in Oracle application.
  • Setup and maintenance is the area through which we can navigate to FSM in Fusion.

Functional Setup Manager Activities

Before you start with creating implementation projects, using offerings which comprises the functional tasks, the following are prerequisite activities, need to be completed,  for Oracle Fusion Functional Setup Manager:

  • How to Create the First Implementation User
  • Create an Employee
  • How to Assign Roles in OIM (Oracle Identity Manager)

Create the First Implementation User

The very first user you need to create before you can create an Implementation Project is an Implementation User, such as an Application Implementation Consultant. This user must be a superuser.

  1. Login with your fusion login User id and password.
  2. Select Navigator> Setup and Maintenance
  3. In the Search box, enter Create Implementation Users.1 
  4. Press Enter or Click on Magnifying glass.2
  5. Click the Task name, system opens Oracle Identity Manager.3
  6. Click on Administration on the top-right corner of Welcome page4
  7. Click Create User and enter the following:
  • First Name
  • Last Name
  • Email
  • User Login
  • Password
  • Confirm Password
  • Organization- Xellerate Users.
  • User Type: Employee

Click the Save button.

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Assign Roles

  1. Click the Roles tab.
  2. In the Roles tab, the ALL USERS role will already be assigned by default.
  3. Click Assign icon to bring up the window to search for additional roles to add to the user.
  4. In the Display Name field, search on Application Implementation Consultant. Select it and choose the Add button on the bottom right. Click Assign to bring up the window to search for additional roles to add to the user.
  5. Add the following Roles:
  • Administrators
  • Application Administrator
  • Application Developer
  • Application Diagnostics Advanced User
  • Application Implementation Consultant
  • Application Implementation Administrator
  • IT Security Manager
  • Financial Integration Specialist
  • SYSTEM ADMINISTRATORS
  • SYSTEM CONFIGURATION ADMINISTRATORS
  • Human Resource Specialist
  • Line Manager
  • Employee6Close the OIM window and search for Define Synchronization of Users and Roles task.7Click on the task, and run the process called Run Users and Roles Synchronization Process. This is a task in Functional Setup Manager.8Once, the process is succeeded, you must completely log out and log back in with user id created, to see the new roles you can access. You could also run the process from ESS: Retrieve Latest LDAP Changes.

You will now have access to the Manage Users page (Navigator > My Team > Manage Users.) and will also create user directly from here.

You will also get the access to the New Person page (Navigator > My Team > New Person.), and able to add or hire an employee for an organization.

Create an Employee

If you need to perform buyer functions, like, creating supplier, requisitions, purchase order, etc., you need to have a valid employee.

Prerequisite to create an Employee

To create an Employee, you need organization/company for which you hire new employee. Hence, before creating an employee, first you have to create the complete GL structure which comprises:

  • chart of accounts,
  • ledgers,
  • legal entity, and
  • business unit.

Let’s assume that in this case, the organization structure is already in place and start creating or hiring an employee.

How to Create Employee

  1. Login as your user, Select Navigator > My Team > New Person9
  2. Go to Task panel, click on the Hire an Employee link
  3. Select the Legal employer and fill in mandatory fields required.10
  4. Click Next and enter the Personal details11
  5. Click Next
  6. Enter Employee Information – Assign Business Unit12
  7. Click Next
  8. Assign Roles – No need to assign roles at this stage. Use OIM to assign roles.
  9. Click Next
  10. Review the Employee Details entered
  11. Click Submit. Employee created successfully.

How to Assign Roles to Users in OIM (Oracle Identity Manager)

  1.  Login with your fusion login User id and password.
  2. Select Navigator> Setup and Maintenance
  3. In the Search box, enter Create Implementation Users.
  4. Press Enter or Click on Magnifying glass.2
  5. Click the Task name, system opens Oracle Identity Manager.
  6. Click on the Administration link on the top right hand corner of the main page. 4
  7. Enter the keywords in the Search box and press enter or click on arrow, to find an employee or user.
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  8. Click on Employee name, you want to assign roles
  9. Click on Roles tab to assign roles
  10. Click on Assign icon to add roles to the user. 14
  11. In the Display Name field, search for the roles. Select it and click on the Add button on the bottom right, to add selected roles to the user.
  12. Click Assign icon again and add as many Roles as you wish.
  13. Click Reset Password icon on the top left. Enter and confirm your password.
  14. Close the window to close Identity Manager. Close all Browser windows. Launch Fusion Applications again and log in as your new user. You will need to enter a new password, which can be the same.

Note: Whenever you add new roles to your user, then you must run the process called Run Users and Roles Synchronization Process. This is a task in Functional Setup Manager. Then you must completely log out and log back in to see the new roles you can access. You could also run the following process from ESS: Retrieve Latest LDAP Changes. This process is what’s run behind the scenes when you submit the task.

Navigating in Oracle Fusion Applications

Getting Started in Oracle Fusion Applications Activity.

This article will introduce you to Oracle Fusion Applications basic navigation features.

  1. After you sign in, application starts on the Oracle Fusion Applications home page, which contains one or more tabs, or dashboards.1
  2. Use dashboards to navigate to relevant pages and monitor the status of underlying transactions for a particular business domain, for example sales or projects.
  3. The first tab is always the Welcome dashboard. You may have other dashboards, depending on the roles assigned to you.
  4. The global area at the top is always available no matter where you are in Oracle Fusion Applications. Use the global area to navigate and access features that are relevant to any page that you are on.
  5. Click on the Home page icon in the global area. It will take you to the homepage, from where you can navigate to the various applications or tasks, you want to work on.2
  6. You will also use the Navigator icon (3 dashes/rows) on the top-right corner of the page, to access Main Menu where you view all the applications or tasks, you have access to.
  7. You get the About Me and Tools submenus, as well as other submenus. The menu options available are based on the roles assigned to your user. If you are a manager, you also get the My Team3
  8. The menus on the global area provide access to features relevant to any page in Oracle Fusion Applications.
  9. Select the User Login drop down on the far right.4
  10. Click the Setup and Maintenance link to access the Setup and Maintenance page. On this page, you will see all the offerings subscribed for.
  11. Click on the Implementation Projects icon to create the implementation project, which comprises offerings and associated features.5
  12. Repeat Step 9
  13. Click the Applications Help link6
  14. Enter “Journals” in the search box and click on the magnifying glass7
  15. Explore some of the search results.
  16. Close Oracle Fusion Applications Help
  17. Use the Favorites and Recent Items icon (the star) to access pages that you frequently use, without having to remember the navigation sequence. You can perform actions similar to your browser’s favorites feature, such as add, edit, and organize favorites.
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  18. Use the Recent Items tab to return to pages that you recently accessed. The list usually includes but is not limited to pages from a single session.
  19. The Watchlist icon (the flag) contains a set of shortcuts to items that you want to track.
  20. You can click any Watchlist item to navigate to the corresponding page.9
  21. Click the Navigator link (3 rows) in the upper left hand corner which opens the main menu for Oracle Fusion Applications.
  22. Click the General Accounting: Journalslink.
  23. You are taken to the Journals work area.
  24. A work area contains the complete set of tasks, reports, embedded analytics, searches, or other content that you need to accomplish the tasks associated with a business goal. Work areas consist of many regions, or areas.10
  25. As needed, you can resize or collapse the regional or contextual area to dedicate more space to the local area.
  26. The task pane is located on the right side. Depending on the work area, you can search business objects, such as journals, which affects what is displayed in the local area, the middle region where you do your work.
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  27. Click the first Create Journal link in the task pane, to perform the create journal task
  28. You can return to the Oracle Fusion Applications home page at any time by clicking the Home

Oracle Fusion Financials: Primary Ledger, Secondary Ledger, and Reporting Ledger

All businesses or organizations deals with large number of transactions (financials and non-financials) depending upon the size of organization. Financial transaction comprises the transactions which are of financials nature, like purchasing, sales, payment to suppliers, receipt from customers, etc., that impact the organizations book of accounts. This books of accounts referred to as ledger.

A ledger consists of posted balances that represents a set of books for a business unit. Maintaining of ledger is very must in every accounting system, as it keeps record of all the financials transactions on daily basis and provide all information for the preparation of company financial statements.

Ledgers and Subledgers

Sub ledger is the subset of General ledger in the accounting terms. The relation between sub ledger to general ledger is many to one. i.e. there can be multiple sub ledger accounts linked to same general ledger account.

In general terms, General ledger refers to the Chart of Account master and Sub ledger refers to the sub master of accounts which are linked to the main chart of account through posting profiles.

conversion-level

Oracle Fusion Subledgers capture detailed transactional information, such as supplier invoices, customer payments, and asset acquisitions. Oracle Fusion Subledger Accounting is an open and flexible application that defines the accounting rules, generates detailed journal entries for these subledger transactions, and posts these entries to the general ledger with flexible summarization options to provide a clear audit trail.

For example, Company ABC has 100 suppliers which linked to different supplier accounts. Company wants to maintain only one supplier account at chart of account level but at the same time wants separate tracking of transaction details of every supplier account as well. Here company will maintain the details of all the supplier accounts at sub ledger level and link all the sub ledger accounts to the main payable ledger account at general ledger or chart of account level. In this way if company wants to check its net payable balance, it will refer to the main account at chart of account level and if it wants to check the balance of a specific supplier account, it will refer to the sub ledger level.

Ledgers

Primary Ledger

Primary ledger is the main record keeping ledger and a required component in the system configuration. The accounting configuration is uniquely identified by its primary ledger. Primary ledger records transactional balances by using 4C’s. The 4C’s indicates the four pillars of the accounting configuration, that decides which, how, where and when to record each transactional balances. The 4C’s are:

  • Calendar
  • Currency
  • Chart of Accounts
  • Subledger Accounting methods and rules

To determine the number of primary ledgers, your enterprise structure analysis must begin with your financial, legal, and management reporting requirements. For example, if your company has separate subsidiaries in several countries worldwide, enable reporting for each country’s legal authorities by creating multiple primary ledgers that represent each country with the local currency, chart of accounts, calendar, and accounting method.

Secondary Ledger

Generally, big organizations operating globally requires more than one ledger due to the statutory and strategic requirements, referred to as secondary ledger and reporting currency ledger. Each legally authorized company must have only one primary ledger and other ledger required due to strategic requirements is referred to as secondary ledger or reporting currency ledger.

A primary ledger is defined as a ledger where all your day-to-day transactions are performed and you would typically have a secondary ledger to reflect these same transactions in one of the following probable scenarios:

  • Calendar
  • Currency (also called a Reporting currency ledger)
  • Chart of Accounts
  • Subledger Accounting methods and rules

A secondary ledger is one that would, in most cases, replicate the transactions from the primary ledger so that these transactions can be adjusted and can be reported for specific financial or management purposes. The secondary ledger can also have a different accounting basis or a different Chart of Accounts.

There is no defined upper limit to the number of secondary/reporting currency ledgers company may have, though more than three is expected to cause performance issues for data handling.

The secondary ledger (including a reporting ledger) is configured at the same time when you define the primary ledger or can be added later. By default, the first ledger define is termed as primary and then company can attach secondary/reporting ledgers as needed. If the secondary and reporting ledgers are added at this time there is always a benefit as they will all be in sync from the beginning.

As in most cases the reason for attaching the secondary ledgers (and reporting ledgers) is to assist in reporting, it is advised to configure these at the same time.

Reporting Currency Ledger

Reporting Currency Ledger maintain and report subledger and general ledger journal entries or balances in additional currencies. Each primary and secondary ledger is defined with a ledger currency. Reporting currency ledger:

  • Records business transactions and accounting data in additional reporting currency
  • Create, record and close a transaction in the same currency to save the processing and reconciliation time
  • Helps company to conform to local requirements, for example, paying transaction taxes is easier using a local currency.

ledgers

Scenario

Company ABC runs their business from USA, where the currency is USD. ABC operate in many global locations, including India where the currency is INR. Company ABC wants the financial statements to be presented in USD and INR, and their transaction recording happens only in a single currency, i.e. business which operates in India also records transactions in USD only, for the sake of local reporting the reporting alone would be done in INR.

From the look of it, reporting transactions recorded in USD as INR seems to be achieved using Reporting Currency Ledger as this is the basic purpose of the Reporting Currency Ledger.

But the world in which we are doing business is more complex than what we think. When there are multiple countries in which organization is operating, we have to look into various factors and in the current example:

  • both country follows the different accounting calendar cycle, USA follows the accounting period from JAN to DEC, whereas in India the accounting period is from APR to MAR.
  • Chart of Accounts remained the same, hence no change on this front.
  • The accounting entries that would be generated for the reporting ledger should be modifiable, i.e., configurable using Subledger Accounting rules. So we should use a ledger type which allows us to modify the account derivation rules.

Reporting Currency Ledger cannot handle different calendars and will not have an accounting method on its own, it will share the same calendar and accounting method used by Primary Ledger.

So if you are using a reporting ledger in your organization and want to make the system generate accounting entries differently for reporting ledger alone, it is not possible.

So to overcome all this organization will go for secondary ledger with conversion level as Subledger. Secondary ledgers allow to have a different currency, calendar and accounting method which meets the objective and also the transaction will be recorded only once, there is no need for duplication of transaction entry with Secondary ledger, it is only the accounting entries that will be replicated in a different representation.

Next hurdle to choose conversion level. If organization choose journal level conversion, it makes accounting method selection redundant, i.e., if you are going to transfer entries from Primary Ledger to Secondary Ledger, you do not need a subledger accounting method at all, as there are no subledgers that were involved. So to make use of subledger accounting method, organization should opt for subledger level of accounting and made a dedicated accounting method for secondary ledger alone, which now provides the option to the business user to change the accounting for secondary ledger as per their requirement. you can find more information about Oracle fusion financials training here.