Legal Entity in R12

Legal Entity:

Legal Entity represents a legal company for which Fiscal and Tax reports are prepared. A Legal Entity can Model to an Enterprise, a Designated Legal unit which is recognized by legal authorities in a country. Legal entity is a business entity that is known to exist to the outside world. Internal organizations or divisions are not legal entities themselves, but are just part of it. In the Multi Organization structure various legal entities could share the same ledger. Both legal entities and operating units are associated with the ledger and the relationship between the legal entity and operating unit is derived based on the ledger.

A legal Entity can be associated to Single Ledger, Multiple Legal Entities can be Associated to a Ledger.

A Legal Entity can be defined using two different Navigations.

• Legal Entity pages of Accounting Setup Manager
• Legal Entity pages in Legal Entity Configurator

The only difference between the above two is that Balancing Segment Value can be assigned to legal entities using Accounting Setup Manager.

How Legal Entity Is Mapped to Different Functionalities in Oracle Application R12:

• Accounting Structures --> Legal Entity is mapped to Balancing Segment Values and Ledgers
• E Business Tax --> Legal entity is used to identify the Jurisdiction and the parties and where they are registered or located to determine the Tax applicability
• Bank Accounts --> In Oracle Applications R12 Legal Entity is the Owner of the particular bank account be it a Internal or Remittance bank account. And can be used by The Operating Unit which shares the same ledger as that of the Owning Legal entity.
• Payables and Receivables -->  the Legal Entity is stamped on the transactions and used to identify the Legal Owner for Legal reporting as well as Tax calculation. The transactions exists within an OU and that OU has a ledger which will account the transactions, if a transaction has more than one LE associated with it then a hierarchy of LE derivation is used to default an LE. Ideally The Legal entity is the owner of that transaction.
• Intercompany Accounts and Intercompany Processing Rules --> Intercompany journals involve balancing segment values that map to different legal entities. These journals are balanced for each legal entity by using their intercompany accounts.

Security Profiles in Oracle Application R12

Security Profiles

Oracle Applications 11i had a limitation where, the Business Personnel’s responsible for a particular business function who had access to multiple organizations had to navigate to individual Organization specific responsibilities for taking action on the transactions. For example: a buyer who can create Purchase orders for multiple organizations will have to Navigate to each operating Unit specific responsibility to create or manage purchasing Documents.

R12 comes as a blessing for such user of Oracle applications where Multi Organization Access control features enabled such users to take action on documents and transactions without navigating between various organizations specific responsibilities. This feature can be implemented using Security Profiles in R12.

Security profiles is a feature in R12 which can be used for grouping the organizations logically such that a set of users can access a Set of Organizations using the responsibility which are assigned with particular Security profile.

There are two types of Security Profiles.

• Security Profile: If it is required to group multiple operating units for the same business group.

• Global Security Profile: If it is required to group multiple operating units for the different business group.

After the security profiles are defined it is required to run the Security List Maintenance program, before assigning the Security profile to the Responsibilities

A Security profile can be assigned to a responsibility by using the MO: Security Profile option.

If you set the MO: Security Profile option, you can also set the MO: Default Operating Unit profile option to specify a default operating unit.

It is important to note that if the MO: Security Profile option is not set for the responsibility it will behave same as R11i.

The MO: Operating Unit profile option still exists in R12 but it should only be used if Multi organization access control is not desired.

HR: Security Profile

Oracle Applications also has HR: Security Profile feature. This profile option is used for defining association between a Business group and the Organizations hierarchy. HR: Security Profile options needs to be setup before defining any new organizations or organization hierarchies under a Business group.

Setting up Inventory Organization in Oracle R12

Setting up Inventory Organization in Oracle R12:

Any Organization which needs to be defined as an Inventory Organization needs to be classified as an Inventory Organization.

Define the Ledger, Legal Entity, and Operating Unit (Optional) for the Inventory organization in the 

accounting Information.

Setup the Inventory Organization Parameter for defining the Control for particular Org. Following Major inventory Organization Related setups can be done in the Inventory Parameter screen.

·        We can define the Organization as an Master Inventory org or we can attach one.

·        The Workday calendar can be defined.

·        Set up Locator Control option

·        Enable the Inventory organization for other peripheral Products such as Ware house management, Landed Cost management, Process Manufacturing etc.

Costing Information

The Costing Information is a vital component of the organization definition. The Costing Organization displayed in the Costing Information tab of Organization Parameters is based on the control level that you set for the item attributes Costing Enabled and Inventory Asset Value. If the control level for these attributes is set to Master, then the item master organization defaults as the costing organization. The current organization is displayed if the control is set to Organization level.

Valuation Accounts :

The Material Account is required for all organizations. Material costs represent the cost of raw material component at the lowest level of the assembly. For asset items, the material account is used as the default requisition account when you create purchase requisitions for Inventory Items.

The Outside Processing Account is used for tracking Outside Processing (OSP) costs. OSP costs represent work performed by a supplier on a discrete job or repetitive schedule.

The Material Overhead Account tracks material overhead or burden costs. These are the costs required to bring items into or out of inventory locations.

The Overhead Account tracks costs related to resource or department overhead.

The Resource Account captures resource costs which are direct service costs required to manufacture products.

The Expense Account is used to record the value of items issued to a non-tracked and/or expense Inventory transactions.

Other Accounts:

This Tab is used for deriving Other accounts which will be used while creation of accounting entries for the transactions such as Purchase price variance, Invoice Price Variance, Inventory Accruals Account etc.

Receiving options:

Setting Up Receiving options is another important setup step while setting up Inventory Organization, Although the receiving options can also be setup while Purchasing Setups.

Setting Up Organization in Oracle Applications R12

Setting Up Organization in Oracle Applications:

An Organization represents a business unit in an Enterprise which has a business need to secure transaction data, Setups and Seed data. It can be a major division, sales office, a department, or a separate company within an enterprise. Since the transaction Information is secured at organization level for the various modules within Oracle applications, A single application responsibility can access, process, and report on data for one or more operating units that is assigned to its Security profile.

An Operating unit can be associated to a Single Legal Entity and Ledger. But multiple operating units can be Associated to a Single Legal entity and Ledger.

Organization can be classified in to a set of system-defined attributes that categorize an organization. Examples

• ·        Business group
• ·        operating unit
• ·        project expenditure organization
• ·        inventory organization
• ·        Human resources organization

Organization in Oracle Applications is an autonomous Business Entity having business activities corresponding either of the below Modules like Receivables, Order Management, Payables, Purchasing, Projects, Inventory.

Navigation to define Organization:

HR Responsibility à Work Structure à Organizations

Organization can also be defined and viewed from the accounting Setup manager as well.

Whenever a New Organization is defined in oracle application it needs to be added appropriately in the Security profile if the Security Profile is a List of Organizations based Security profile and The Security List Maintenance programs needs to be run.

Defining an Operating Unit:

In order to use an Organization for transactions in the Oracle Applications in the Modules like Receivables, Order Management, Payables, Purchasing. It is required to define the Organization as an Operating Unit.

It is Mandatory to decide and Setup the below mentioned Oracle application multi organization entities before we setup an Operating unit.

• ·        Business group
• ·        Ledger
• ·        Legal Entity

Operating unit is an Organization classification and once an organization is defined as an operating Unit the Organization Attributes need to be defined. Before setting UP operating unit below Profile options should be defined so that the Organization gets created under appropriate business group

HR: Business Group at Responsibility Level

HR: Security Profile at Responsibility Level

As mentioned above The Ledger and Legal Entity needs to defined in the organization Information. And this is how the Legal Entity and Ledger are assigned to the Operating Unit.

Also It is important to note that in Oracle Applications R12 the Legal Entity which is Attached in the Organization information screen is the Default legal Context. Transnational

Legal Entities Defined at the ledger level can be used on the basis of the Mapping Defined between the Balancing Segment and Legal Entity as per the Ledger Definition.

Ledger Configuration in Oracle R12 Part -3

In this Article we will look in to the Steps and necessary configurations involved in defining Ledger in Oracle R12

Setting Up Ledger:

Create Legal Entity: If it is required to assign a legal entity, It can be crated and assigned to a Ledger from accounting setup manager.

Assign the Legal Entity to Ledger

Setting Up Ledger Options:,

Before setting up Ledger options Decide up on the values that are required to be entered in the corresponding fields in the Ledger options.

Define Ledger:

While defining the ledger you may use the calendar, Chart of Accounts, Currency and Sub-Ledger Accounting method defined earlier. As part of ledger setup it is mandatory to finalize these values before defining Ledger.

Define Ledger options.

As part of the Ledger options Definition Below mentioned are the Values which needs to be defined which will control how journals and transactions are processed for that ledger hence it is very important to have the values for all the below mentioned Options Decided before setting up the Ledger on the basis of business Functional requirement:

• First Ever Opened Period

• Number of Future Enterable Periods

• Retained Earnings Account

• Sub-ledger accounting method,

• Option to track balances using a secondary segment

• Suspense Account

• Rounding Differences Tracking Account

• Intercompany Balancing option

• Journal Approval

• Journal Entry Tax

• Journal Reversal Criteria Set

• Default Period End Rate Type

• Default Period Average Rate Type

• Cumulative Translation Adjustment Account

• Journal Reconciliation

• Budgetary Control

• Reserve for Encumbrance Account

• Average Balance Processing

• Average Balance Consolidation

• Net Income Account

• Transaction Calendar

If there are legal entities that require any one of the above ledger processing options to be different, then define a separate primary ledger for each legal entity and therefore, a new accounting setup

You will not be able to use the Ledger Unless the Ledger options setup Shows as Complete in the ledger setup Screen.

Ledger Configuration in Oracle R12 Part 2

Accounting Setup Steps:

There are mainly three steps for creation of accounting Setups. Each accounting setup is a grouping of accounting-related setup components as mentioned below.

1.       Create an accounting setup structure.

a.      Create and Assign legal entities

b.      Specify the ledger attributes for the primary ledger.

c.      If Secondary Ledger setup is required, Specify the ledger attributes for secondary ledgers

d.      Assign reporting currencies.

2.       Update accounting options.

a.      Complete ledger options as per the requirement.

b.      Assign balancing segment values to legal entities and Ledger

c.      Define Subledger accounting options.

d.      Define and assign operating units to the primary ledger.

e.      Define relevant intercompany setups including Accounts and Intercompany balancing Rules.

f.       Define sequencing options.

3.       Complete the accounting setup

Review and Complete accounting setups. The status of the accounting setup should be completed before it can be used for the transactions.

Ledger Setup Prerequisites:

In Order to create a Ledger in Oracle Applications in R12, It is required to complete certain Prerequisite setups before creating Ledger.

• ·        Chart of Accounts Setup.
• ·        Calendar and Periods related Setup.
• ·        Legal Entity Setup.
• ·        Currency and Conversion Rate type Setups.
• ·        Subledger Accounting Method Setup.
• Define Account Code Combinations and Values that needs to be setup for Ledger Options. 

Ledgers in Oracle R12 Part -1

Ledger in Oracle Applications R12:

Ledger is a financial reporting entity, which represents an accounting representation for an organization that is accountable in a self-contained way. Ledger is the highest level which impacts accounting. Ledger uses below mentioned components to secure and Manage the transaction information such as Journal entries and Balances) by ledger

·        Chart of accounts

·        Functional currency

·        Accounting calendar

·        Sub-ledger accounting method.

Ledger represents the core of a Company’s financial records where every transaction flows through.  It provides balanced ledger accounting for the accounting entity and serves as a repository of financial information. Multiple Legal entities can be assigned to a Ledger. A Ledger can be associated with multiple Legal Entities and operating Units. Ledger in R12 replaces the Set of Books in 11i Version of Oracle applications.

Accounting Setup Manager:

Accounting Setup manager is a new feature in R12 which is a centralized location for setup and maintenance of common financial components within an accounting setup. The status of the accounting setup should be completed before it can be used for the transactions. Each accounting setup is a grouping of accounting-related setup components.

Below Components can be setup and Maintained using Accounting Setup Manager.

• ·        Legal Entities Setup and Assignment to balancing segments and Ledger.
• ·        Ledger and Ledger options Setup and Maintenance (Primary and Secondary Ledger).
• ·        Operating Unit
• ·        Reporting Currencies
• ·        Intercompany balancing Rules and Intercompany Accounts
• ·        Sequencing (Accounting and Reporting Sequence)

HR Locations in Oracle R12

Defining Locations

Locations are the most basic Entity which is the base for setting up a business in Oracle Applications. Locations are a Shared Entity which can be shared between Oracle Inventory, Purchasing, and Human Resource Modules.

Locations are required for setting up important Entities like

• ·        Business group
• ·        Organization (Including all organizations.)
• ·        Legal Entity

Oracle Applications Modules use locations for requisitions, receiving, shipping, billing, and employee assignments.

Navigation:

HRMS Responsibility à Work Structure à Locations

Locations Flagged as Global locations are available to all defined Business groups in the oracle apps instance. Locations have many to one relationship with Organizations. One Organization can be attached only one Location But one Locations can be attached to Multiple Organization.

It is important to select the options such as Ship-to Site, Bill-to Site Etc. to enable the location to be used for those transactions in future in various Modules in oracle Applications.

Business Groups in Oracle Application R12

This Article talks about the Importance of business group in Multi organization Setups, Definition and necessary setups.

Business group:

The business group is the highest level in the organization structure which represents a consolidated enterprise, a major division, or an operation company. Oracle Applications secures human resources information, including organization definition, by business group.

It is mandatory to define at least one business group for defining Organization structure in Oracle applications.

While Implementation even the predefined business group provided by Oracle application can be used but if we intend to define a business group we also need to consider defining the mandatory HR Flexfileds which we will discuss in this article below.

Business group Can be defined using the Navigation :

HR Super user responsibility àWork Structureà Organizations.

(Organization Type: Business group)

For every business group for Organization setup Business Group profile option at the responsibility level for the new business group needs to Assigned before creating the Organizations as the Default business group is assigned on the basis of this profile

Profile option:

HR: Business Group at Responsibility Level

HR: Security Profile at Responsibility Level

Oracle Human Resources also automatically creates a security profile with the business group name when you define a new business group. Please see the Security Profiles article for further details.

Multiple ledgers can share the same business group if they share the same business group attributes, including HR flexfield structures.

Defining Mandatory HR Key Flexfields.

Here we will see the Mandatory HR Key Flexfields which are required for an Oracle Applications implementation.

These Key flexfields are required to be defined even if the HRMS module is installed in Shared mode, because these Key flexfields are required for defining the Business groups.

Below is the list of the Mandatory Key Flex fields Required.

Human Resource Application Key Flexfields

·        Human resource               -- Job flexfield

·        Human resource               -- Position flexfield

·        Human resource               -- Grade flexfield

·        Human resource               -- Competence Flexfield

Payroll Application Key FlexFields

·        Payroll   -- Cost Allocation Flexfield

·        Payroll   -- People Group Flexfield

Multi Organization Architecture in R12

Chart of Account

Chart of Accounts is actually an Accounting Key Flexfield within General Ledger Application. As chart of accounts Structure is the most important part of accounting setups it is very important to finalize the correct accounting structure (Chart of accounts) before we start accounting setups. It is important to note that once the chart of accounts structure is defined it is not recommended to change it.

Defining of Chart of accounts consists of following main steps.

• Finalize the chart of account Structure
• Creating value sets which can be assigned to various segments of Chart of accounts Structure.
• Defining Accounting Key Flexfield and its Segments.
• Specifying appropriate qualifiers.
• Compiling the Key flex field Definition.
• Defining Values for the value sets.

Finalize the chart of account Structure

it is very important to finalize the correct accounting structure (Chart of accounts) before we start accounting setups. Because once the chart of accounts structure is defined it is not recommended to change it. Analyze the organizational structure and the dimensions of the business before designing the Chart of accounts by carefully evaluating the business needs, design the chart of accounts to take advantage of General Ledger’s flexible tools for recording and reporting the accounting information in the best possible way.

Sample Structure for a three segment Chart of Accounts.

1. Balancing segment
2. Natural Account
3. Cost center

Defining Value sets

Define the value sets for different Segments of the chart of account structure. Value sets determine the attributes of your account segments such as the segment length, value alignment, and value security. Do note that same value sets can be used for multiple segments of COA Structure.

Define the Value sets for the Accounting Flexfield as independent, table, or dependent-type value sets. Refrain from using value sets with a validation type of None, Pair, or Special for the Accounting Flexfield.

Navigation: 

Defining Accounting Key Flexfield and its Segments.

Define the chart of Accounts structure in oracle applications by defining Accounting Flex fields. There can be up to 30 segments for an Accounting Flex Field Structure. We should assign one of the Chart of account segments as Balancing Segment and one of the segment as Natural Account segment as these two are required Segments.

Application: General Ledger

Flexfield Title: Accounting Flexfield.

Navigation:

• Check the Allow Dynamic Insert check Box if it is desired to create the accounting ode combinations dynamically.
• Check the Cross Validate segments checkbox if it is desired to use Cross Validation rules to prevent/ allow creation of some account code combinations.

Define Chart of Account Segments:

Define the chart of account segments as per the structure decided and attaché the corresponding value sets to the segments. It is very important to decide and setup the column as it specifies which Segment it will correspond to in the accounting code combinations. It Determine the appearance of your key Flexfield window, the number and order of the segments, and the segment descriptions.

Specify Accounting Flexfield qualifiers:

Accounting Flex Filed qualifiers specify how different accounting flex filed segments will be used.  By default there are three accounting Flexfield qualifiers.

• Balancing Segment
• Natural Account

A natural account segment contains values representing account types, such as expense, liability, Revenue Etc. This Account type finally specifies the type of the account code Combination.

• Cost Center
• Intercompany
• Management
• Secondary Tracking

We should designate one of the Chart of account segments as Balancing Segment and Natural Account segment each. We can optionally designate other segment as Cost Center, intercompany, management, Secondary tracking. It is mandatory to define a Cost center segment if Oracle Assets or Oracle Projects is supposed to be installed and used.

Compiling the Key flex field Definition.

       Once the Chart of Accounts Structure is defined and the respective qualifiers and Value sets are attached to the segments appropriately. Freeze the Flexfield definition by checking the “Freeze Flexfield Definition” check box. Once the Accounting Flexfield account structure is Freezed in the Key Flexfield Segments window and we start using account numbers in data entry, we should not modify the Flexfield definition. Changing the existing Flexfield structure after Flexfield data has been created can cause serious data inconsistencies.

• Check the Allow Dynamic Insert check Box if it is desired to create the accounting ode combinations dynamically.

Defining Values for the value sets.

Define the Values in the value sets attached to different segments of Chart of accounts Structure so that the corresponding values can be used for the creation of the accounting Code Combination.

Navigation.

Select Allow Budgeting and Allow Posting as per business requirement.

Allow Posting flag confirms that the segment value can be used by the Posting program.

Oracle Receivables does not use the Allow Budgeting option

Natural account segment contains values representing account types, such as expense, liability, Revenue Etc. This Account type finally specifies the type of the account code Combination.