Describe organization and legal entities
The first configuration to be completed during a finance and operations apps implementation is the organization. The master and transactional data in finance and operations apps revolves around the organization structure defined in the instance. There are three types of internal organizations: legal entities, operating units, and teams.
Legal entities
Creating a legal entity and preparing it for financial management is the first step of an implementation process.
A legal entity is an organization that has a registered or legislated legal structure. Legal entities can enter into legal contracts and may be required to prepare statements that report on their performance. The country or region that you select for the primary address of the legal entity controls the country-specific and region-specific features available for the legal entity.
Before choosing the country/region for the new legal entity, you need to understand the significance of localization in finance and operations apps.
Some regulatory requirements of certain countries/regions require that finance and operations apps enable or disable certain functionality and features, and even some forms, fields, reports, and inquiries.
A company is a type of legal entity. In Finance, companies are the only kind of legal entity you can create, and every legal entity is associated with a Company ID.
The Company ID field is limited to four alphanumeric characters. Once it is created, it cannot be changed. So, be sure to properly plan for and consider a naming convention prior to creating legal entities in the production environment. Users can access data only for the company that they are currently signed in to and have security access for the roles they belong to.
A search name is an alternate name that can be used to search for this legal entity. One of the best ways to learn about finance and operations apps and be able to successfully implement them is by listening to the story of a customer’s day-to-day operations. You need to be able to gather and convert the customer requirements into test cases and try to match the functionality and configuration of finance and operations apps with the customer’s business processes.
Let’s consider an example. Contoso is an organization that has at least one company or legal entity and has registered its international companies in multiple countries, such as Germany, United States, and France.
Therefore, Contoso is an organization that is a group of people who are working together to carry out a business process or achieve a goal. Organizational hierarchies represent the relationships between the organizations that make up your business. This organization has decided to acquire a business named Adventure Works Cycles. You can create a new legal entity by navigating to the Legal entities page.
Registration IDs
Many countries and regions have different regulations and requirements for recording registration numbers or IDs.
For different countries/regions, there are various location-specific functionalities related to registration numbers provided by different government offices. Examples of registration numbers include employer identification number (EIN), tax identification number (TIN), and European value added tax (VAT) identification (EU VAT ID). This feature provides a unified framework for all countries and regions with consideration of country-specific and region-specific requirements of some European countries/regions.
The Registration category is a country/region registration identifier approved for use in a country/region for tax, customs, and other purposes.
Operating units
An operating unit is an organization that is used to divide the control of economic resources in a business. It helps consolidate the various reporting perspectives based on operational processes.
Types of operating units include cost centers, business units, value streams, departments, and commerce channels.
A cost center is used for the management and operational control of business processes that span legal entities. Managers are accountable for the budgeted and actual expenditure for their defined cost center.
A business unit is used for financial reporting that is based on industries or product lines that an organization serves independently of legal entities. It can be considered as a semi-autonomous unit that can meet a strategic business objective.
A value stream is commonly used in lean manufacturing to control the activities and production flows that are required to supply a product or service to consumers.
A department defines business operations based on functional areas. A department may have profit and loss responsibility and may consist of a group of cost centers.
A commerce channel, which represents a brick and mortar store, an online store, or a call center, is used for the management and operational control of one or more stores within a legal entity or across legal entities.
To associate operating units with financial transactions, you need to configure financial dimensions for the operating units.
To create an operating unit, you need to navigate to the Organizations menu in the Organization administration module. In the Operating unit page, you select the New button and then select the type of operating unit that you want to create. You can select the operating unit type and then the OK button and define the other details of the operating unit, as in the screenshot:
Teams
A team is an organization in which the members share a common responsibility, interest, or objective. Teams cannot be used in organizational hierarchies.
Organizational hierarchy
Organizational hierarchies represent the relationships between the organizations (legal entities and operating units) that drive the business operations. You need to consider the structure of your business while you model organizations and their hierarchy. You need to set up multiple organizational hierarchies to cater to different business operations. You need to define the purposes of the hierarchies, which can link the hierarchy with individual business policies.
You may have a multi-country and multi-region implementation managed by multiple legal entities. For instance, you have some expense policies applicable for a subset of legal entities that are from Asia. You have different expense policies for other legal entities that are from Europe. You can create two business units, one for Asia and one for Europe. You need to create a new organizational hierarchy with Expenditure internal control as the purpose. You will then include the newly created business units in your hierarchy and associate the legal entities with the corresponding business unit. In the expense management module, you can define the expense policies for a business unit. You are not required to create expense policies for each legal entity separately.
Many purposes are already defined in the Organization administration module, including Procurement internal control, Vendor payment internal control, Centralized payment, Budget planning, and Security. The purchase policies for your organization may not follow the same organizational structure. In that case, you need to create a new hierarchy with purpose as Procurement internal control. You can also define multiple purposes for the same hierarchy if the business supports that. Based on the purpose associated with the hierarchy, it can be used in the respective business functions of the finance and operations apps.
You can define organizational hierarchy under the Organizations menu in the Organization administration module. The following screenshot depicts a new organizational hierarchy for the Expense policies, where the purpose is Expenditure internal control.
If you select the View button in the action pane, you will find the organization structure defined in this hierarchy, as in the illustration:
