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February 5, 2007

Oracle E-Business Suite R12 Financials Architecture Changes

Oracle E-Business Suite R12 contains some major architectural changes in the Financials section, that for once aren’t about technology and more about serving up some new compliance functionality that multi-national customers will be find useful. The new features that fundamentally change the way compliance is addressed include:

• Legal Entity
• Ledger Sets
• Accounting Engine
• Transaction Based Taxes
• Inter-company Accounting
• Multi-Organization Access Control

The Legal Entity in Oracle eBS Release 11i and prior corresponded to the Operating Unit Government reporting entity/Legal entity (GRE/LE) used by HRMS in defining payroll and HR jurisdictional requirements. The Set of Books was also mapped to the GRE/LE. This imposed a limit on how to structures that could be modeled with this approach. The rule for Global Financials is 1-1-1, which created problems in accounting, transaction flows and compliance when the legal rules and business operations were not monolithic or top-down.

A new implementation of this compliance concept in Oracle eBS is defined as the system ‘Legal Entity’ corresponds with an independently identifiable ‘legal person’ – a public company, a private business or limited partnership, a trust, a not-for-profit, a government or a non-government organization (NGO) - that can operate as if it were a real person in conducting business transactions. Along with this new business object comes some basic functionality that helps to migrates the old GRE/LE concept buried in the Operating Unit and more functionality through flexible accounting rules, tax rules, and some basic legal rules.

In consequence, formalizing the LE releases the Operating Units (OU) from acting as surrogates for real world ‘Legal Entities’ as in prior releases (when it was called a GRE/LE). The Operating Unit, however, retains its primary role in managing user access. The Legal Entity now manages the local jurisdiction requirements. This arrangement helps best practices like Shared Services to be rolled out more easily.

In separating the legal requirements from operational requirements at the transaction level, the transaction flows are now able to apply legal requirements based on the Legal Entity context (found in the relative juxtaposition of the First and Third Party contexts) while allowing the security context (within limits) to be set by the OUs assigned to Responsibility used to access the transaction flow. I’ll look at some of the advantages and disadvantages of this approach in more detail in future blogs.

All of this is nicely described in the Oracle E-Business Suite ‘Financials Concepts Manual’ (120fincg.pdf) and also introduces some tools such as the ‘system Legal Entity Configurator’ to allow the user to properly choose the right configurations (or closest thereto) to support local compliance needs.

Also note that some good diagrams are also evident in the Oracle E-Business Suite R12 Financial Concepts document, which explain visually how the various functional components (Legal Entity versus business organizations) relate to a multi-country implementation scenario.

To be Continued….

Posted by alexfiteni at February 5, 2007 8:43 PM

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