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Rational |
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This multi-national organization,
as the name implies provides internet tools and software
solutions for the IT industry. Rational Software management
voiced the same concerns as Texas Instruments with regard
to the implications of a standard Oracle installation.
Rational Software also operates in a streamlined commercial
infrastructure, based on both Commissionaire and Buy/Sell
trading agreements.
As a result Rational had previously implemented its customized
version of a ‘Virtual Operating Unit’.
All orders for the international subsidiaries were entered
into the same Order Entry and Receivables Operating Unit
in Oracle. From here a customisation separated the invoices
into individual streams through the “Transaction
Type” functionality as they were imported into a
single Receivable system. The customization relied
on the manual intervention of the users to identify the
correct trading entity. In addition, the VAT/GST
functions were not automatically provided. Both
issues became increasingly pressing as the international
operations had increased from initially 5 entities to
23 entities across Europe and Asia. User errors
and disputes between entities increased.
During the upgrade to 11I Rational Software management
sought to eliminate these error prone procedures, but
also to automate the accounting procedure between Receivables
and General Ledger. The current accounting practice had
been based on complex spreadsheets using data extracted
from Oracle Receivables, manipulation, and then imported
back into Oracle GL. Although all transactions were
processed through a single Receivables module, each trading
entity was represented by a separate Book in GL. The spreadsheet
process created summary journals that represented all
the implied Inter-Company transactions associated with
the trade sales, as well as more complex transactions
involving deferment and recognition of revenue from license
sales, and assigned them to the appropriate GL Book.
There were a number of concerns about this process. Firstly
there was a conflict between the commercial aspects of
an order (e.g. sales commission) and the legal ownership
of the transaction. Secondly there was a security and
reconciliation issue over what was a semi-manual process,
in which significant manual intervention was often made.
As a result of these issues, the time and effort to perform
and reconcile this process was on the edge of unacceptability.
Rational engaged HVS Ltd, one of the companies closely
involved in the core solution for Texas Instruments. HVS
had been working on providing the Texas Instruments functionality
as an independent ‘Bolt On’ module to work
with the Oracle Application set. In addition to the solutions
implemented for Texas Instruments, Rational required a
facility that would provide an automated replacement for
their spreadsheet based accounting process.
The HVS product, ‘Virtual Trader’ provided
the necessary functionality to operate multiple legal
companies within a single Receivables module. At the centre
of the solution was a method of defining the rules by
which each transaction is assigned to a legal owner. This
ownership is then used to determine all the legal and
fiscal requirements for the transaction, regardless of
any commercial aspects involved.
The product ensured that transactions were numbered sequentially
by legal entity to meet local legal requirements. This
included the ability to separate out transactions and
number sequences for companies with tax registrations
in multiple countries. A relatively simple facility was
included for printing both the trade and inter-company
invoices with titles and headings in preferred languages
based on the customer. This could operate with the standard
Oracle language functionality, but was not reliant upon
it.
The product produced the necessary extracts for producing
the VAT/GST returns for each of the local tax jurisdictions.
These included the tax from the trade transaction, as
well as the implied inter-company transaction.
The Rational trading model was more complex than that
for Texas Instruments, in that not all sales had an implied
inter-company content, and those that did had different
varying commission rates. This was accommodated within
the setup of the ‘Virtual Trader’ product
set.
The inter-company trade is created entirely automatically
off the back of the trade sale. It is only represented
in terms of a printed inter-company sales invoice, and
as journal entries to the appropriate GL Book. These inter-company
transactions are never created inside the Receivable or
Payable sub-ledger. Apart from simplifying the operation
of the sub-ledgers, there is the key advantage that these
inter-company transactions do not need to be closed through
the recording of payments. Rational were able to clear
all their inter-company liabilities with simple net monthly
transactions.
The automated accounting functionality carried out 2 main
activities. Firstly it would automatically direct all
trade sales to the GL Book appropriate to the legal owner
of the source transaction. Secondly it would generate
journals to represent any inter-company trade. The method
of accounting for inter-company trade varies depending
on the type of agreement in force between the shipping
and selling companies, and the agreed rate of inter-company
commission. The functionality provided could accommodate
various trading models, and each trading company was assigned
accordingly.
Rational had a significant amount of revenue from license
sales, the value of which is deferred, and then recognised
on a monthly basis. The automated processing of this as
an implied inter-company event was also handled automatically
by the accounting functionality.
As these related financial transactions were being automatically
generated, all the inter-company transactions were self
balancing. However, reports were provided to reconcile
the GL journals back to Receivables on both total and
company levels.
On going live with this system in August 2001, Rational
closed 23 separate companies with a single period end,
in a single day with 2 members of staff. In future months
they moved a number of the local activities out to the
respective local companies for administrative reasons.
To reduce the period end load even further, they now operate
this process on a weekly basis. They are currently in
the process of rolling this operating procedure into their
new operations within China |
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