Tuesday, November 20, 2007

How do I define my Legal Entities?

In the real world a Legal Entity (LE) can enter into contracts, own cash (bank accounts), employ people, pay taxes, be sued and simlar. In Oracle Financials Release 12, a whole new product; Legal Entity Configurator, was created to manage them. We allow you to define your real world Legal Entities and then map them to the E-Business Suite objects and structures. Transactions are stamped with an owning (first party) Legal Entity and that will be used to drive tax, accounting, intercompany and Legal Reporting.

So let's look at the relationships LE have to other E-Business suite objects.

1- Accounting Structures

In the General Ledger Set Up a Legal Entity can be mapped to

  • A Single Ledger

  • One or more Balancing Segment Values (aka Company Code) within a ledger.


2 - Operating Unit

There is no explicit mapping of Legal Entity to an OU, the relationship is derived from the ledger assigned to the OU and the Legal Entity mappings to ledgers as detailed above.

So how might you set up your LE in relation to your other set up in financials? There are two implementation models

1:Many

  • LE are mapped to the Balancing Segment Value (BSV, aka Company code) within a Ledger, so multiple LE are accounted for in a ledger.

  • An OU will have one Ledger assigned so transactions for many LE are processed and accounted in a single OU


1:1:1

  • A single LE is mapped to a Ledger

  • An OU will have one Ledger assigned

  • Therefore an OU only has one LE (that meas it is easy to derive the LE given the OU)


So what model should you use?

That depends where the LE are registered.

The 1:M model is recommended and preferred in the US, the 1:1:1 model is recommended for most non US regions.

related post: Can I assign an Operating Unit to Multiple Legal Entities ?

63 comments:

kumar said...

Useful information regarding legal entities in R12, need a bit more clarfication regarding the Operating Unit defining and assigning it to legal entity/ledger[i.e. whether it OU has to be defined from the form based application through HRMS (or) the WEB BASED application through ASM]

Regards
Kumar

davidhaimes said...

The Accounting Setup Manager (ASM) will allow you to 'quick create' a Legal Entity and then map it to your ledger and/or BSVs

The operating Units are still defined in the HRMS forms.

You may also look at the GL data access sets that could imit the bsv that can be used in an OU

Qamer said...

Hi
.
.
Such a peacefull information have putted here .
now i got in R12 wats LE

Thanks

Can I assign an Operating Unit to 2 Legal Entities? « David Haimes Oracle Intercompany Financials Blog said...

[...] Can I assign an Operating Unit to 2 Legal Entities? Posted on December 11, 2007 by davidhaimes The short answer is sort of. Which is not much help to anyone, hopefully you will have a few moments to read on and I can explain myself. This post assumed that you understand the relationship between Legal Entities and Ledgers which I discussed in an earlier post. [...]

Top 5 posts of 2007 « David Haimes Oracle Intercompany Financials Blog said...

[...] There is a similar list to this on the Ebizsig blog based on hits, I gave bonus points to my posts for links to on comments on and the top 5 look like this: 1) How do I define my Legal Entities [...]

Hanimi said...

why oracle has multi-org structure ? what is the importance of it ? how is it related to set of books and other areas of e-business suite ?

Manish said...

Hi,

We have taken the plunge with R12 Financials, GL in particular and your blog is like what the doctor ordered. This post is sort-of related to Intercompany but not quite so I apologize but I am really troubled.

We have 3 ledgers in our GL module –US, Canada and Consolidation. US and Canada are transaction ledgers and Consolidation will be used for consolidating US and Canada for period end reporting. All three ledgers use the same Chart of Accounts and Calendar. US and Consolidation have the ledger currency as USD. Canada has the ledger currency as CAD.

As per the Oracle translation methodology, the Balance Sheet items will be translated at period end rates (except for those with historical rates) and Revenue and expense items will be translated at period average rate if the ‘GL: Income Statement Accounts Revaluation Rule’ is set to PTD (required for FASB-52 reporting) .

As per GAAP, the cash flow statement of Entities which have their base Currency different (Canada) from the consolidating currency (Consolidated) some of the items have to be stated differently from the way they are put up in the consolidated balance sheet. For e.g. the net fixed assets acquired during the period have to be shown at the acquisition rate and the net of the current assets have to be shown at period average rate and not period end rates as done by translation for FASB- 52 requirements. The company needs to generate the consolidated Balance Sheet and Profit and Loss account with the US and Canada transactions as per FASB -52 requirements and the Cash Flow as per GAAP.

I have raised an SR with Oracle wherein they have mentioned that there is no standard way of catering to this requirement. If you have any insights, would appreciate it if you could share with me.

Thanks,

Manish

davidhaimes said...

At a very high level, Multi Org is a way to separate your transactions and set up into buckets called Operating Units (OU).

You can use different set ups for different OU and give different users access to different OU as per your requirements for transaction processing.

Transactions in an OU must be accounted for in the same GL set of books (in R12 called a ledger) so as part of the set up you define that ledger.

I'd suggest checking out the resources at the link below to get more insight into this.
http://davidhaimes.wordpress.com/2008/01/05/useful-oracle-financials-resources/

davidhaimes said...

Manish,

I'll give it some thought and discuss with some other people and get back to you as soon as I can, but it might take a few days

Manish said...

David,

Thanks for replying to my question. I can forward you the SR number also if you need it.

Your insight/feedback is very much appreciated.

Thanks,

Manish

EBS R12 Legal Entity Model « Dylan’s BI Study Notes said...

[...] David has a good posting on his blog on How to define Legal Entities. [...]

David Haimes said...

Manish

The suggestion I got from some GL folks is use a separate account for the asset's historical value vs. current activity, and then you define an historical rate for the historical value. In this case, GL translation will use this historical rate to keep the historical balance at the correct level, and translate the current activity at the current rates.

Why Product Development Should Blog - Part 1 « David Haimes Oracle Intercompany Financials Blog said...

[...] got a comment from Manish, customer who before explaining the problem he was facing wrote: We have taken the [...]

Nilesh said...

Hi David,
I will appreciate your help with the following:

I have a existing Oracle applicttions and need to bring one of the new business on it. The new business will use GL, AP and FA. We will use existing COA. This business will have 3 sets of books (1- tax book, from April to March; 2- Primary book, from July to June; 3- Reporting book, from July to June); All books will have same currency; HOW DO I TRANSFER DATA FROM PRIMARY BOOK INTO TAX AND REPORTING BOOKS EVERY MONTH? IS THERE ANY STANDARD ORACLE PROCESS WHICH CAN BE SCHEDULED?
THE REPORTING BOOK WILL HAVE DIFFERENT DEPRECIATION METHOD SO HOW DO I NOT TRANSFER DEPRECIATION FROM PRIMARY TO REPORTING BOOK AND DO SEPERATE DEPRECIATION IN REPORTING BOOK FOR THE SAME ASSET THAT IS ALSO IN PRIMARY AND TAX BOOK?.
HOW DO I APPRACH ON SETTING THESE NEW SETS OF BOOKS?
Thank you in advance for your help.
Nilesh

David Haimes said...

Hi Nilesh

Are you on R12 or 11i?

On R12 you can have one primary ledger and then create as many secondary ledgers as required so you can get all the accounting representations you require. The secondary ledgers can be at different levels, you can either just have balance levels or you cna have each transactions accounted in the secondary ledger with a completely dedicated set of rules.

This will not require you to do any data transfer Oracle maintains those secondary ledgers for you and events are posted to all ledgers.

Thanks,
David

Nilesh said...

Hi David,
I am on 11i.
How it can be done in 11i?

Thank You!
Nlesh

David Haimes said...

For your tax book - the only difference is the calendar?

For your Asset Book - I think you need to define a different asset book in Fixed Assests and not a different set of books in GL - I am not an expert in Fixed Assests

Nilesh said...

Yes, for the tax book, the only difference is the calendar, it is different from primary book. Reporting book has same calendar as primary book but the depreciation method is different in reporting book.

David Haimes said...

For a secondary ledger in 11i - you could use a consolidation ledger. You can post either the balances or the journal level detail to the consolidation ledger and use an account mapping to determine what accounts it gets posted to in the consolidation ledger.

David Haimes said...

Nilesh a word of warning - when you upgrade to R12 that consolidation ledger would not get upgraded to a secondary ledger, which is probably what you would want - you'd have some consulting work to do there to fix that after the upgrade.

Nilesh said...

Hi David,
For sending to the secondary ledger - Can I do it even though the GL calendar is not the same for Tax and Primary book?
Also, What setup is required/what standard processes can be used to transfer data from primary to secondary books? Can you give me details?

Thank you again for your help.
Nilesh

David Haimes said...

Nilesh

- You use the consolidation functionality to post data to the consolidation ledger and it does not need to have the same Calendar - check the user docs step by step instructions - no point in me repeating that information here.

Nilesh said...

Hi David,
Thank you again.

Nilesh

Rajesh said...

I am a fresher in Oracle financial functional, I read your blogs regularly and they are so helpful to me. Can you explain me or send me sample doc. of BR100 and MD50 for AR,AP and GL. Your kind help is highly appreciated.

David Haimes said...

Rajesh,

Sorry I don't think I could send these even if I had them as it could be Oracle property. If you are working for a consulting firm check with your employer and if they don't have them, then somebody in the firm needs to create them

PS said...

We have a requirement to create balance sheets at different levels (banners) in the company. Right now balance sheet is created at the overall corporate level.



We realize that we will have to prepare some FSG’s at the levels at which we want to report. However the complications are due to the fact that the balance sheet offset entries (impacting Payables, Receivables etc) are made at a corporate level and not at banners (cost center segment) at which we want to report.



For example if we take AP the liability side for invoices is always booked to one cost center 70000 at the corporate level so the detail is not available for the banners.



Any inputs to this problem will be of great help

David Haimes said...

PS

So is the cost center segment your balancing segment?

I would have thought if you do the above then if the liability is at a different cost center you'll always need to create a balancing set of entries to move that liability form 7000 to the other cost center on the journal. Then you can create balance sheets for each cost center.

I think I might be either misunderstanding the question or oversimplifying the problem.

Wirawan said...

Is there any relationship between operating unit and balancing segment? Should it be 1 to 1 relationship or I can have one OU and many BSVs?

David Haimes said...

There is no specific relationship between OU and BSV defined in the system. Apart from the 'transient' relationship as described above.

It is fine to have many BSV processed in a single OU. In the 1:Many case above that is common and very desirable, especially if I want to have shared service center processing where one OU will process transactions for many BSV/LE

Mark Franzoi said...

In 11i we have 1 SOB, 2 LE, 2 OU and 2 BG. Each OU operates as separate payables department and by separating the employees by BG secured each OU to only see and enter expense reports for their employees.
For 12, we want to have one BG for the country, but I'm not clear on the relationship between the BG and OU. I think it's only through the security profile. But how is that enforced is it becuase the employees assignment is assigned an OU. What if the employee had mutliple assignments for different OU, would that mean the employee could be paid through both OU, would that create two home sites in TCA/Suppliers.
Thanks for your help.

David Haimes said...

You are talking specifically about Expenses here I assume.

BG and OU are only related via security group, but expenses does have some nuances and I'l need to check up on your specific question. I'll drop you a mail

Tovia Singer said...

Hi David

Greta blog

I still need to wrap my technical head around as to what an operating unit and legal entity is in terms of the application/business, correct me:

1.legal entity is a classification of an organization, basically its the organization at which tax and reporting occurs?

2.Operating unit is org id specific or ledger specific?
So all organizations are assigned to an operating unit
or operating unit is specific to ap, and another one for ar, another for cm, and anotehr for pa, etc??

Thanks in advance David

David Haimes said...

1. No legal entity exists in the real world and is modeled in Oracle FInancials outside of the HR Organization Model

2. An Operating Unit is just a specific classification of an Organization. You can use(and will want to use) the same OU for different modules, not s diff one for each module.

Bill said...

David,

Could you shed light on the Establishment - I know it is required in eBizTax and that it is automatically created when a LE is created and that 11i upgrades automatically create an establishment for each OU; but what is the deal with these? Are they like GRE/LE used to be or something like that where there is limited use now with more to come later?

Sivakumar said...

Hi David

I am getting basic doubt in R12.

If you see 11i Org Structure in Oracle it is as follows

BG --> SOB --> Legal Entity --> OU --> INV ORG

In R12 all demo and Oracle Presentation shows
BG --> Legal Entity --> Ledger --> OU --> INV ORG

Even if you go through Accounting set up Manager,
first it is asking you to create Legal entity before setting the Ledger. In 11i We define SOB and then we attach to GRE: Legal Entity

R12 Navigation Path: Accounting set up Manager -->
Click on Create accounting set up it goes to Legal entity first before defining ledger.

But if we go through the Oracle Multi org user guide of R12 it shows
BG--> Ledger --> Legal Entity --> OU --> INV ORG

I am confused now. Which is correct in R12

BG--> Ledger --> Legal Entity --> OU --> INV ORG? or

BG --> Legal Entity --> Ledger --> OU --> INV ORG?

According to me one Legal Entity cannot be attached to Multiple Ledger. Also by definition in Accounting set up Manager Legal entity comes first before defining Ledger. So I felt
BG --> Legal Entity --> Ledger --> OU --> INV ORG
is the right model

What is your opinion?

Please respond

Regards
Sivakumar

David Haimes said...

Hi Sivakumar,

Welcome to the blog. Don't be in doubt, you seem to have a decent understanding if R12 but the main point to note is that there is no strict hierarchy of these objects.

A Ledger may have one LE or many LE attached.
An OU may also have one LE or many LE attached.
A BSV may have one LE or many LE
An LE may have many BSV
An LE should be accounted in a single Primary Ledger (of course there may be a number of secondary Ledgers for the same LE).

Don't let the navigation order trick you into thinking there is a hard and fast hierarchical relationship that everything must follow.

Hope this helps.

David Haimes said...

Bill

Establishment is not like GRE/LE don't let the upgrade fool you, they are very specific real world objects which we define.

The term establishment is well known in parts of Europe, the word comes form France where it has a very specific meaning. In the US it is more akin to a branch, if I am a New York based company with a branch Sales office in California then I would create a California Establishment that is going to help eTax figure out what taxes I need to pay.

An establishment is wholly owned by a Legal Entity.

The main use of this is in eTax and some global reports use it too, as for more to come I couldn't answer that :)

Durga said...

David,
Thanks for the wonderful job you are doing.

I saw your update "....An OU may also have one LE or many LE attached...''

'...'There is no explicit mapping of Legal Entity to an OU.."

Does this relation ship occur ONLY through ledger??

If the above statements are true, then what is the necessity to assign the legal entity context to OU while defining the OU either through the hrms form or accounting setup manager.Infact this is mandatory to my knowledge..Pls advise

David Haimes said...

Durga,

You should check out this post

http://davidhaimes.wordpress.com/2007/12/11/can-i-assign-an-operating-unit-to-2-legal-entities/

While setting up an OU you will define a Default Legal Context, the key here is default. This is not the only Legal Entity associated with the OU that can be used on transactions within that OU it is just the default one if the derivation rules cannot find a better match.

Hope this helps
David

Durga said...

Thanks David...

I have one more problem..I have a LE for which a BSV has been assigned..

When I log into AR resp for the OU, then only the BSV attached to LE is visible. But this is not the same case with AP. When I am trying to enter a distribution account all the BSVs are visible.

Pls note that both AR&AP are using the same OU,LE&ledger. I have done this experiment on client's upgraded instance.

Why is this so. I have raised an SR long way back and I am still to hear from oracle on this. Would appreciate any pointers on this.(Oracle confirmed that they are having the same behaviour in their instance, but things are at investigation)

Thanks,Durga

David Haimes said...

Durga,

Send me an email. This could be a bug, or it could be some other set up.

Durga said...

sent a mail..thanks

kishore said...

Hi David,
There is one problem which is unsolved since long, i.e. We have 10 SOBs and all use same Chart of Accounts. There are Six segments and in that two segments are to be SOBS specific they are Location and Analysis. But right now i am finding all the values of 10 SOBs and to select amont them is cumbersome. Please suggest soultion. Waiting for your reply.

Ranjeet said...

Hi David,

In R12 oracle has introduced 'E-Business Tax' as a separate module. If i am upgrading 11i instance to R12 do i need to implement this module in separate.
Client is using GL, AP, AR, FA, CM & PO and their business is spread in different countries (single instance).

If you can share some information regarding 'E-Business Tax' id could be great.

Thanks in Advance
Ranjeet

Albert Verschuuren said...

David,

A small comment to your 1:Many (us) and 1:1:1 (others)

In Europe I see several constructions used :
- For multinationals 1:1:1 (for a AX country )
- For multinationals 1:1:1 (if country has a specific currency)
- For Multinationals within non AX-countries with EUR as
currency we implement
one Ledger : several (LE) : one OU per (LE)

David Haimes said...

Albert,

Thanks for the information, I understand why companies would want to take your third option where possible.

Do you hear of having many LE in the same OU in Europe?

Anil said...

Hi David,

I have been looking at your postings which are quite interesting dealing with various scenarios in Oracle applications.I'm fairly new to Oracle applications and have been trying to find some documentation which can give clear step-by-step setup details in Oracle applications e.g where and which option do we select to create OU/INV ORG?

Thanks in advance
Anil

David Haimes said...

Hi Anil,

These step by step instructions are not what this blog is really about. There are a number of blogs and sites that do lists of set up steps and there are also a number of excellent Oracle Apps training classes that would cover these things.

I hope you'll still stick around and contribute to the discussions.

Thanks
David

Anil said...

Sure.Thanks for your response.

Anil

Ross Charbonne said...

Hi David,

I have been recently assigned the task of revising our intercompany reconciliation procedure. We have peoplesoft 8.4 and a manual reconciliation procedure whereby subsidiary financials are sent to corporate, intercompany balances are analyzed and any major differences brought up to the subs to reconcile. Any suggestions or input would be appreciated.

Ram Naresh said...

Hey David,

Currently am working with US Federal Financials. You have any stuff that could explain its functionality in a higher level?

Regards,
Naresh

Mokhtar said...

hi david
i need ur help in how to setuo intercompany in R12 . i want more description for legal entity and operating unit.
regards
Mokhtar

Dabo said...

Hi David,
My first post - so let me first say how helpful this blog is - great work and keep it up.

Your comment:
"The 1:M model is recommended and preferred in the US, the 1:1:1 model is recommended for most non US regions."
Why? What functionality is impacted?

If I have multiple (say 20) LEs within a non-US country, what is driving the recommendation to setup a separate OU & Ledger per LE. Straight away I can see a maintenance issue for AP supplier sites.

Cheers,
Dabo

Bill said...

For cases where there is a US Ledger with multiple BSVs and One German and One French Ledger with only one LE and one OU each, must all the BSVs (all three share a BSV Value Set) be "assigned" to the ledgers of each so that I/C can work properly allowing the partner's BSV to populate the I/C segment?

Helen said...

Hi David, my question is actually the same as Dabo's but I do not see your reply so I apologize but asking it again.

Also, this is a great blog!!!

Here was the question --

Your comment:
“The 1:M model is recommended and preferred in the US, the 1:1:1 model is recommended for most non US regions.”
Why? What functionality is impacted?

Red1 Kouhail said...

We have to create 3 sets of books (SOB) for 3 branches and we will consolidate to another SOB representing the legal entity (the functional currency is EUR).
Actually, the 3 SOB's haven't the same functional currency (1 =EUR, 2=GBP, 3=EUR).
It means we have to translate in EUR first and then run the conso into the legal entity.
Is it the best way to do? Who can we manage the reconciliation (Legal entity = branch1 & 3 in EUR + branch 2 in GBP ) ?
Does it exist another way to avoid the translation phase by another approach?

Thanks

Red1

Bill said...

Perhaps you could have another MRC SOB for each SOB, where needed, that is in EUR. Then the MRC SOBs will automatically be in EUR and the consolidation process will all be EUR from the MRC SOBs.

Does this sound like something that might work>

Red1 Kouhail said...

Thanks bill, do you have any documentation related to MRC ?.
Thanks

Bill said...

There is quite a bit of documentation - if you have never heard of MRC or read about it, I suggest you start witht the use guide, then look on Metalink for existing white papers, etc. or OneWorld documentation if you have access to that. I would join a user group in your area or by email contact. This is a big subject with decision trees and each choice brings with it different consequences. Not the sort of thing I can just hand over to you and you will understand after one sitting.

David Haimes said...

If you are on R12, this is not MRC you can create a secondary ledger or if you want something more light weight just an additional reporting currency for the different ledgers.

You should really read the Oracle Financials Concepts Guide, Release 12 (Part No. B28873-01).

Other materials are linked from this post.

http://davidhaimes.wordpress.com/2008/01/05/useful-oracle-financials-resources/

Chary said...

If I am using autolockbox API to create receipts in R12, how do I derive operating unit for given Receipt? Remittance Bank account for given receipt is known.

Thanks in advance.

konya sohbet said...

hey thanks very good are you later

Sridevi K said...

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