Unraveling the mystery of intercompany eliminations in Hyperion Financial Management (HFM) can be challenging. In this blog post, I hope to provide some clarity into how HFM handles intercompany eliminations. The key players that handle eliminations in HFM are the entity, account, ICP (short for intercompany partner), and value dimensions.
Assume the following example where you have two entities, “South” and “East,” that maintain intercompany transactions with each another. South has a $1,000 receivable with East, while East has a $900 payable with South (note: I am purposely providing a mismatched example to better demonstrate what HFM is doing). These two entities share the same parent, “United States Consolidated.” The web data entry form below displays the transaction entries made in yellow in <Entity Currency>. The Account and ICP dimensions are in the row set, while the Entity and Value dimensions are in the column set.
After making these two intercompany transactions and running a consolidation, HFM displays the following:
For each eliminated transaction, HFM creates both sides of the entry that offset the data value from the intercompany account and the intercompany partner. The first thing HFM does is to automatically produce the offsetting entry between the intercompany account and its ICP.
In the example for the South entity, the Intercompany Receivables account and East ICP has 1,000 <Entity Currency> being offset by -1,000 in [Elimination]:
Similarly, for the East entity, the Intercompany Payables account and South ICP have 900 <Entity Currency> being offset by -900 in [Elimination]:
These [Elimination] entries are not one-sided however, so have no fear that this is a magical plug of some kind! Both entities have a double-sided entry where the values will eliminate. The offsetting entries are booked to the [Elimination] member of Intercompany Plug – BS. This is the common plug account that has been set up for the intercompany balance sheet accounts to share. Notice the offsetting 1,000 and -900 offsets in this plug account:
You might notice that the -900 doesn’t appear to be an offset at all, but HFM presents the data in this manner due to the fact that Intercompany Plug – BS is set up as an asset account, while Intercompany Payables is a liability account. Therefore, HFM knows that it will need to decrease the value in the plug account in order to perform the elimination.
Meanwhile, at the United States Consolidated entity, we can see the net of the intercompany activity results in a balance of 100 in the Intercompany Plug – BS account at [ICP Top]:
Had the transaction entries been made for the same amount the match would net to zero.
Author: Joe Francis, Performance Architects