Can I assign an Operating Unit to Multiple Legal Entities?

 The short answer is sort of. Which is not much help to anyone, hopefully you will have a few moments to read on and I can explain myself. This post assumes that you understand the relationship between Legal Entities and Ledgers which I discussed in an earlier post.

In R12, a new Legal Entity Configurator was introduced in financials and Legal Entities defined here are assigned to Ledgers and/or Balancing Segments (Company Codes). However, it is not possible to assign a Financials Legal Entity to an Operating Unit, you can only define a Default Legal Context (DLC) to an Operating Unit. This assignment can cause confusion as it is only possible to assign one DLC, but I can use more than one LE in that Operating Unit. The key word in DLC is default.

Legal Entity Configurator can be accessed via 'Legal Entity Manager' responsibility.

When I am in Payables or Receivables the LE is stamped on the transactions and used to identify the Legal Owner for Legal reporting as well as Tax calculation. The invoice exists within an OU and that OU has a ledger which will account the transactions, if that has more than one LE associated with it then a hierarchy of LE derivation is used to default an LE, the last resort being the DLC.

For example, in AR the Legal Entity derivation hierarchy for transactions is

1.       Transaction Type

2.       Batch Source

Assigning a LE to a transaction type or batch source is optional and only the LE’s mapped to the Ledger associated with the OU are available to assign.

So, in R12 we have much better support for many LE accounted in a single OU as we clearly mark the LE on the transactions.

How do I define my Legal Entities?

In the real world a Legal Entity (LE) can enter into contracts, own cash (bank accounts), employ people, pay taxes, be sued and similar. In Oracle Financials Release 12, a whole new product; Legal Entity Configurator, was created to manage them. We allow you to define your real-world Legal Entities and then map them to the E-Business Suite objects and structures. Transactions are stamped with an owning (first party) Legal Entity and that will be used to drive tax, accounting, intercompany and Legal Reporting.

So, let’s look at the relationships LE have to other E-Business suite objects.

1- Accounting Structures

In the General Ledger Set Up a Legal Entity can be mapped to

·         A Single Ledger

·         One or more Balancing Segment Values (aka Company Code) within a ledger.

2 – Operating Unit

There is no explicit mapping of Legal Entity to an OU, the relationship is derived from the ledger assigned to the OU and the Legal Entity mappings to ledgers as detailed above.

So how might you set up your LE in relation to your other set up in financials? There are two implementation models

1: Many

·         LE are mapped to the Balancing Segment Value (BSV, aka Company code) within a Ledger, so multiple LE are accounted for in a ledger.

·         An OU will have one Ledger assigned so transactions for many LE are processed and accounted in a single OU

1:1:1

·         A single LE is mapped to a Ledger

·         An OU will have one Ledger assigned

·         Therefore, an OU only has one LE (that means it is easy to derive the LE given the OU)

 

So what model should you use?

That depends where the LE are registered.

The 1:M model is recommended and preferred in the US, the 1:1:1 model is recommended for most non-US regions.