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August 25, 2010

Demystifying Legal Entity in Oracle R12 Architecture

Design of the Organization structure is the common issue faced by most business houses. The structure should not only be compliant from legal perspective but should also be effective from operational management and accounting perspective. Legal entity is the crux of the organization structure as this determines the statutory and country specific (local) reporting needs.

Legal Entity is a juristic person that can enter into contracts, own assets and bank accounts, pay debts, file returns, perform statutory reporting, comply with legal requirements etc. In other words, 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.

Once the Organization structure is determined, the same needs to be configured in the Application used for financial accounting as well, such that all relationships between various components of the Organization structure are captured appropriately. The new Oracle E-Business Suite R12 architecture brings about the significant role of legal entities within the organization structure and provides enhanced features for security, flexibility, reporting, compliance, accounting and control.

The R12 architecture breaks the one-on-one relationship that existed between operating unit and legal entity in the earlier releases, thereby bringing about the true picture of operating unit as a division or mechanism to restrict access and deploy other sub-ledger level controls as opposed to an entity that needs to perform statutory & tax reporting. In the new architecture, various legal entities could share the same ledger and consequently the same operating unit. 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.

Ability to store the registered address for the legal entity as also the names of directors and officers associated with the entity exists in R12. The architecture is also flexible to accommodate assignment of single legal entity or multiple legal entities to a ledger. If no sub-ledgers are required for a ledger (Eg: Consolidation ledger), there isn't a need to assign any legal entity to the ledger. So the focus of the Legal entity is more external facing while the other internal reporting entities could be configured as separate balancing segment values within the same legal entity. The structure also provides platform for enhanced intercompany accounting.

Some of the major benefits that could be realized from the R12 Legal entity structure are summarized below:

  • Improved tracking of sub-ledger transactions at legal entity level
  • Simplified statutory compliance by leveraging advanced features in Oracle R12
  • Enhanced tax reporting
  • Enhanced audit trail, compliance and control
  • Scalable platform for future initiatives


Join us at Oracle OpenWorld 2010 for answers to these questions and more:

  • How does the new R12 Legal Entity concept fit within the multi-org structure?
  • What are the various business considerations that drive the Legal entity structure?
  • What are the enhanced multi-dimensional reporting capabilities with the Legal Entity structure?
  • What is the impact of the Legal Entity structure on sub-ledgers, General Ledger, Tax and accounting?


If you are at the OOW we are pleased to invite you for the session:

Demystifying the Legal Entity in Oracle E-Business Suite 12

Schedule :   Monday, September 20, 12:30-13:30 PST

Venue      :   Moscone Center West L2, Room 2006


Also meet us at Booth No. 1701, Moscone Center South, OOW 2010.

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 - Sowmya Trikkur and Hitesh Madan

Sowmya Trikkur is a Principal Consultant at Infosys and has over 12 years experience in the industry. She provides process, domain and package consulting and has extensive experience in the implementation, upgrade and support of Oracle Financials.

Hitesh Madan is a Lead Consultant at Infosys and has over 8 years experience in the industry. He provides functional expertise on Oracle Financials and has worked on different industry verticals.


August 6, 2010

Be prepared to weather the next storm - Enterprise Risk Management (ERM)

In the crisis just gone by, newer and complex financial products, ameba like organizations cause of heightened pace of M&A and ever changing relationships between different types of risks resulted in broken models, violated assumptions and ineffective risk management just when it was needed most. Couple it with continuously evolving regulatory requirements, an Enterprise Risk Management (ERM) is needed which can align risk function with strategic business imperatives, create a common language of risk and facilitate optimal levels of risk.

An ERM as we know helps in solving the eternal dilemma of decentralization versus centralization of Risk. While decentralization helps in letting risk managed by people who understand it best aka line managers across difference line of businesses, it also creates a risk of letting them stretch beyond permissible limits to achieve their short term targets. Now, one would argue that a perfectly defined incentive management, the one that encourages long term sustained profitability over short term volatile profits, is the key to address these issues. True but not completely and that I will leave for another day.

Coming to the other side, centralized risk management is a much better choice as it is a top down approach, it helps in aligning business objectives with risk management, but the apparent beauty of the solution ends here. While conceptually it looks good, practically it's impossible to calculate risk from bottom to top and distribute it top to down. Not because one doesn't have models to do that but because no model are not correct in all situations and one only comes to know the failure of these models in hindsight. Sure, one can back test each and every model for its validity but in financial world we have seen historical data are of not much use as crisis situation always comes with a new face.

So like in almost walks of life, solution lies in the middle not extremes. ERM precisely does that. While it encompasses all types of risk in all corners of any organizations, it also creates a framework of its optimal distribution.

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