In a corporation, the local close is for the legal subsidiaries (company codes) to meet their own local accounting standards in their local currency. For example, a US subsidiary prepares financial reports that meet US GAAP(generally accepted accounting principles) accounting requirements in USD.
On the other hand, the corporate close process involves the preparation of consolidated financial statements in the group currency with values that reflect group accounting standards. Of course, the local close occurs before the group close.
One of the key advantages of group reporting is that the local and group close can take place in the same SAP S/4HANA system with the same user interfaces.
Ownership structure of ABC Corporation
As part of the course scenario, we’ll use the following ownership structure for the ABC Corporation:
From a consolidation of investments perspective, the corporate holding company (Germany) owns 100% of the Belgium subsidiary. The Belgium subsidiary owns 75% of the French subsidiary and so on. Because Belgium owns more than 50% of France, Belgium is the controlling parent and the relevant accounting is referred to as the purchase method. Therefore, there will be some adjusting entries for the investment, the goodwill, and the non-controlling interest to consolidate the French balance sheet and income statement into the Corporation's financial statements.
In addition, because several regions are involved, there is also a need to provide consolidated financial statements using multiple accounting standards such as US GAAP (Generally Accepted Accounting Principles) and IFRS (International Financial Reporting Standards). Group reporting can use versions to accomplish this.