Oracle Fusion Applications is an integrated suite of business applications that have been designed to ensure your enterprise can be modeled to meet legal and management objectives. The implementation of Oracle Fusion are affected by the industry, business & accounting policies, business function performed and the facilities. Enterprise structure helps in organizing the business into divisions, business units and departments that should be aligned to the organization strategic objectives. Designing the enterprise structure is the starting point for an implementation, which comprise three fundamental structures:
Recognition in the legal system, provides the ability to buy, sell, own & trade assets and employ people within the jurisdiction in which it is recognized. When company is recognized as legal entity by legal authorities, then the legal entities are also assigned below responsibilities:
- Accountable to the public through statutory and external reporting.
- Always in compliance with the legislation and regulations.
- Pay all taxes.
- Process VAT collection, if applicable.
Normally, an organization creates legal entities to facilitate legal compliance and isolate risk, in broader sense.
For example, an organization with multiple legal entities in United States has to create separate legal entity in United Kingdom to start UK operation. However, a group have a separate legal entity/company for different businesses in the United States, but one legal entity represent all the businesses in the United Kingdom.
Provides high visibility and greater control to the organization, by segregating the multiple businesses by their strategic objective, and measure their performance. Managerial Structure can be framed based on line of business, profit and cost centers, divisions, etc. For example, the FMCG Company segregate their business based on the line of business like, Branded Packaged Foods, Lifestyle Retailing, Personal Care products and many more.
A functional organization structure focus on the people and the business function they performed. Its functional organization which record the effort and expenses on the income statement. Organizations must manage its functional expenses, so that it will not impact the margins. For example, production, sales, human resource and accounting teams are functional organizations which record their functional expenses like research & development, selling, administrative, etc.
The process of creating enterprise structure comprises below activities/tasks, at very basic level.
Legal Jurisdiction and Authorities
To start your company operation or business, the starting point is to register your company with all the legal authorities in the jurisdiction in which you want to conduct your business.
Defining jurisdictions and legal authorities is must have pre-requisite before you create your legal entity. When you create legal entity in fusion financials, it automatically creates legal reporting unit for that legal entity.
A legal entity is a recognized party with rights and responsibilities given by legislation. Define a legal entity for each company recognized in law for which you want to record assets, liabilities, expense and income. A legal entity is also obliged to pay applicable taxes, and eligible to perform intercompany transactions.
The legal environment dictates how the legal entity should perform its financial, legal, and management reporting. They have the responsibility to account for themselves and present financial statements to regulators, tax authorities, and other stakeholders as per the rules specified in the legislation. While configuring your enterprise structure, you always keep in mind that the contracting party on any transaction is always the legal entity. Legal entities are assigned to the accounting configuration, which includes all ledgers.
Legal entities account for themselves in ledgers that keep record of financial accounts. Ledger records transactional balances by using a chart of accounts, accounting calendar, currency, and accounting method. To determine the number of ledgers, you have to determine the enterprise financial, legal, and management reporting requirements. For example, if you have companies that require different account structures or different accounting calendars or different functional currencies to enable reporting to respective legal authorities.
If the enterprise just has sales in different countries, with all results being managed by the enterprise headquarters, creating one primary ledger with multiple balancing segment will serve the purpose of representing each legal entity within a single ledger. Limiting the number of ledgers simplifies reporting from consolidation perspective. Other consideration such as fiscal year end, ownership, and government regulations, also affect the number of ledgers required.
Financial Reporting Structure
Charts of accounts structures, charts of accounts instances, calendars, and currencies are prerequisites to the creation of ledgers in Fusion Financials. Collectively, we refer to these structures as Financials Reporting Structures.
Chart of Accounts comprises accounts that are used to record transactional balances and organize your financial information and reporting.
Calendar in fusion financials used to define fiscal year comprises a full twelve months, which comprises all of the year’s financial information, used to calculate and report the financial position of company to the legal authorities.
Currency is used to enable the legal entity to enter the transactions and record the balances in whatever currency, and the currency assigned to the ledger is used to record the balances in reporting currency.
For example an organization does have operations in United States and Germany. Hence, they have transactions in USD, EURO & DEM. However, in Germany, the company produce their financial statements in EURO or DEM and in United States, the company produce their financial statements in USD.
Business Unit in Fusion financials is nothing but the internal units created within a company that performs various business functions. Generally, the company use business unit to segregate its business portfolio to gain higher visibility and control over the various lines of business. For example, due to some strategic objectives, company required to segregate its export business from the domestic sales. To accomplish this, company will create export and domestic sales line of business as two separate business unit. To achieve its ultimate objective, company will provide autonomy to business unit and has separate manager with responsibility of profit and loss.
In other enterprise software packages, business unit can perform either one or all business functions. But business unit in fusion financials can perform one or many business functions.
A business function represent the business activities which is performed by the people working with business unit. The business functions provided by Fusion financials are:
- Billing and revenue management
- Collections management
- Customer contract management
- Customer payments
- Expense management
- Incentive compensation
- Materials management
- Inventory management
- Order fulfillment orchestration
- Payables invoicing
- Payables payments
- Procurement contract management
- Project accounting
Business functions is nothing but logically indicates the departments within a business unit. People associated with respective business functions or departments are controlled by business unit specific security roles to perform the activities of the assigned business functions or departments only.
Reference Data Set
Reference data set comprises all the tasks associated with business unit and each task is associated with reference data set. It is used to control the setup data values across the various business units. Let’s assume company has separate payment terms for export business and domestic sales business, and require control over these payment terms, so that people working for export business do not have access to payment terms for domestic sales business and vice versa. To achieve this the company will create two reference data set for each business unit and will define the respective payment terms under respective reference data set associated with particular business unit task.
There are a number of factors that differentiate small-business operations from large-business operations, one of which is the implementation of a formal enterprise structure. Enterprise structure is important for any growing company to provide control and clarity on the business operations, company financials and managerial authority. You must set up your enterprise structure using the individual tasks that correspond to each enterprise component.