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 ?
Filed under: Intercompany, Oracle Financials | Tagged: 11i, ebiz, Legal Entities, Legal Entity, Oracle Applications, Oracle Ebusiness Suite, Oracle Financials, R12
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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
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
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? 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. [...]
[...] 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 [...]
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 ?
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
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/
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
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
[...] David has a good posting on his blog on How to define Legal Entities. [...]
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.
[...] got a comment from Manish, customer who before explaining the problem he was facing wrote: We have taken the [...]
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
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
Hi David,
I am on 11i.
How it can be done in 11i?
Thank You!
Nlesh
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
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.
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.
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.
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
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.
Hi David,
Thank you again.
Nilesh
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.
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
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
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.
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?
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
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.
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
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
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.
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?
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
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.
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 :)
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
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
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
Durga,
Send me an email. This could be a bug, or it could be some other set up.
sent a mail..thanks
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.