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Release 12 : Legal Entity uptake

Posted on December 7th, 2007 by Sanjit Anand |Print This Post Print This Post |Email This Post Email This Post

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We are well aware of some of Oracle E-Business Suite R12 Architectural changes in the Financials section like:

Let’s uptake to Legal Entity:

Financial books defined as “A Legal Entity is an entity identified through the registration with the legal authority.”

That’s means ,In this compliance world and in Oracle system it corresponds closely and 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.

What is meant for with LE?

  • Can get the the right to:
    • Own property weather its is assets or inventory or receivable
    • Trade (borrow, sell, buy, incur expenses, employ)
  • And the responsibility to:
    • Repay debt (liabilities, equity)
    • Pay Taxes
    • Account for themselves (legal reports, audits)

Note for R11i with respect to R12

Release 11i GRE/LEs will be upgraded as Release 12 Legal Entities.

Release 11i Operating Units and Inventory orgs will be upgraded as Establishments.

One Legal Entity can have several establishments.

  • In Release 12 there is no specific link between Operating Units and Legal Entities where as in R11 it was.
  • The Legal Entity is linked to a Ledger and the Operating unit is also linked to a Ledger.
  • Every Release 12 transaction must be associated with both an Operating Unit and a Legal Entity.
  • The Legal Entity is also required for e-Business Tax to establish which taxes will be applicable to the transaction.

The New Model called " LEA(Legal Entity Architecture)"

Legal Entity architecture, which is new in this release, provides users with the ability to model an enterprise’s legal organizational structure and define rules and attributes specific to legal entities.

Bank Account whether its is remittance bank or internal bank is now owned by the Legal Entity instead of Operating Unit, and can be used by any of the Operating Units sharing the same Ledger as that Legal Entity.

lemodel

As marked (dotted red line) in above figure the relationship between legal Entity and Operating Unit is no more active. This concept allows Operating Units to be governed by more than one jurisdiction, but the accounting is still performed in a single ledger.

Multiple Legal Entities can be associated with a single Ledger, allowing the LEs to share the same ledger and chart of accounts, calendar and currency. Each LE points to one Ledger.

Multiple Operating Units can also be associated with a single Ledger. Each OU points to only on Ledger.

Thanks to David, who pointed out last week regarding Bank Uptake in LE side in reference to my old post. Check his post for further information.

Take a note; in R12 EBS multiple legal entities can be associated with a single Ledger, allowing the LEs to share the same ledger and chart of accounts, calendar and currency. Each LE points to one Ledger. Multiple Operating Units can also be associated with a single Ledger. Each OU points to only on Ledger.

Where it affects:

"Most of the Financial Application Products"

Cash Management (Bank)

As discussed in earlier, in Release 12 Bank Accounts are owned by Legal Entities and can be accessed by multiple Operating Units.

As we know in 11i the Bank Accounts were Operating Unit Specific.

For all Internal Banks should be assigned to a Legal Entity.

Receivables:

Now all REC activity must have a legal owner, so Legal Entity is stamped on every transaction. Receivables activity such as transaction whether credit memo or debit memo or invoice must have stamps on it and receipt header with the Legal Entity information.

Because there can be multiple legal entities using the same ledger, it may be necessary for the user to assign the LE. Each transaction can only belong to one Legal Entity, so when multiple legal entities exist, either the system or the user will assign the LE.

  • Transaction

The defaulting hierarchy for a transaction comes from the setup of the Transaction Type and Transaction Batch Source. Receivables will look first to the Transaction type. If a LE has not been assigned, then Receivables will look to the Batch Source. The assignment of the LE to the Transaction Type and Transaction Batch Source is option, so if Receivables cannot find a default LE, then it is up to the user to provide the LE value.

  • Receipts

The LE defaulting for receipts works differently than transactions.

Let’s look at how defaulting occurs for the Receipt Header.
As we know , internal Bank Accounts is not owned by legal entities instead of operating units, so LE defaults from internal (remittance) bank account.

The Receipt Method in Receivables has the bank account assignment, which determines what bank account gets assigned to the receipt.

Take a note in version 11 the receipt Method was called the Payment Method. Now in Release 12 this featured with same name “Payment Method” now used by new application called Oracle Payments. Therefore in AR, you will now see a Receipt Method, which is part of receipt setup; and Payment Method, which is part of Payments setup.Once the bank account is assigned to a receipt header, this information can be used to find the appropriate LE.Because the LE comes from only one source, the bank account, there is no special setup to be performed in Receivables.Defaulting of the single LE always occurs, so the user does not need to assign or update LE on receipts.

How LE affects receipts and there applications and refunds

We seen the receipts inherit the LE from the bank account weather its is manual, Automatic, Lockbox and Post Quick Cash Programs.There is no way that user can change the value.

Receipt application across Legal Entities is allowed if the receipt and transactions are in same OU and Sub Ledgers Accounting will performed by inter-company accounting for cross-LE receipt applications or cross-LE receipt clearing.

SLA will create inter-company accounting as long as LE is setup as one of the CCID (Account Code Combination) segment derivation sources in SLA.

Payable

Invoices and Payments indicate the operating unit and the legal entity owner of the transaction. The legal entity can be used as selection criteria when preparing pay runs.

Projects

As we know in 11i in EBS maintains the default legal context on the Operating Unit. There is not much impact in Projects model. Earlier in 11i we used to consider the Legal Entity of the Operating Unit as the Legal Entity of the Projects Transactions. Now the Legal Entity attached at the Default Legal Context of the Operating Unit is the Legal Entity of the Projects Transactions.

So the Legal Entity of the Projects expenditure transactions will be the Legal Entity attached at the Default Legal Context of the Expenditure Operating Unit and the Legal Entity of the Project will be the Legal Entity attached at the Default Legal Context of the Project owning operating unit.

LE and TCA

Legal Entity is still dependent on TCA. A party (supplier, customer, bank, student etc) is an entity that can enter into business relationships. As we know the Oracle TCA's model supports four types of parties: organization, person, group, and party relationship. Under the TCA model, Parties (including Legal Entities) exist just once in our E-business Suite system for single maintenance and consistency. Legal Entities will be stored in TCA as Parties of party type 'ORGANIZATION'. A Legal Profile, containing specific Legal Entity attributes, will be associated to the TCA Party. In addition, other TCA components will be used for Addresses, Contacts, Party Information, etc.

Where to do the setup

There should be no confusion.

May be , some may think if this is just extension of GRE/LE from old version , then Why this required to do set up from both ASM and HR in R12?

In R12 ,it is separate the legal entity from the GRE which is a HR organization. We did not link the 2 entities together as they serve 2 different purposes altogether.

The HR model does not look at the new Legal Entity model. It continues to use the GRE/LE as a legal entity. So the HR requirement can be achieved using the HR organization of type GRE/LE.

Therefore, Legal Entities do have to be set up in both ASM and HR in R12.

Hope this sound interesting for new change in Financial Architecture.

Suggested Reading

  1. Oracle Financials Concepts Guide,Release 12(Part No. B28873-01)
  2. David Haimes Blog : How do I define my Legal Entities?
  3. Release 12 Financial Applications RCD

Related Posts

Posted in Functional, Oracle Legal Entity Configurator, R12, Release12 | 16 Comments »Email This Post Email This Post | Print This Post Print This Post

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16 Responses
  1. Ram Ganesh Says:

    Hi saw the article on the legal entity architecture. It was quite useful one.However it requires osme additional explanation on the following issues.

    Default Legal Context – impact on localisations like India Localisations.
    2. How to define this Default Legal Context and have this attached to the Primary Ledger in Release 12.

    with best regards

  2. Sanjit Anand Says:

    hello ram, thanks for such a nice word.Here is the answer of your queries:

    Default Legal Context – impact on localisations like India Localisations.
    >>>Frankly speaking, I am not fully aware of any impact of localistaion like India and few APAC countires like Taiwan and Indonesia. But I donot think
    it would be ay major impact from legal point. Still advice to have a look on Release document for APAC.

    2. How to define this Default Legal Context and have this attached to the Primary Ledger in Release 12.
    >>>> you can do setup as below:
    1.First you need to define the Legal Entity in the Accounting Setups,
    2.secondly you need to attach your Legal Entity to the Ledger in Accounting Setups in General Ledger and

    This can be done from ae new page introduced in General Ledger. You need to navigate to the menu Setup : Financials : Accounting Setup Manager and then selecting the Accounting Setups.
    3.Third you need to attach the appropriate Legal Entity at the Default Legal Context in the Operating Unit Information

  3. David Haimes Says:

    Nice article, with more detail than I have gone into in my blog.

    I would also recommend this post which talks about assigning OU and DLC

    http://davidhaimes.wordpress.com/2007/12/11/can-i-assign-an-operating-unit-to-2-legal-entities/

    Regarding Localizations, check the individual localization manual and if you don’t get a good answer there let me know and I can follow up.

    I know that EMEA (JE/JG) Localizations make extensive use of the new LE on the reporting and other feature they have.

  4. EBS R12 Legal Entity Model « Dylan’s BI Study Notes Says:

    […] you can read Release 12:  Legal Entity Uptake from the OracleApps Epicenter […]

  5. Ram Says:

    I need to create one legal entity with territory and country as Saudi arabia. I dont find SA in the LOV. Can some one help me.

  6. Sanjit Anand Says:

    you need to go to System Administrator Responsibility> go to Profile options> select the application
    name as General Ledger> then select the user by your user> in the profile choose
    , change the default country to Saudi Arabia.

    Switch Responsibility to General Ledger ,go to the Accounting Setup Manager and retest your issue.

    hope you will get LOV now.
    Incase if not getting , let me know, have other way araound

  7. Nisar Wangde Says:

    Hi sanjit,

    I followed the steps for assigning territories but it still does not show in the LOV. Any help will be highly appreciated.

  8. “Business Group” in EBS Says:

    […] architecture. Understanding this is important for non HRMS consultant as in R12 Finance the new legal Entity architecture is equally […]

  9. Vasanth Says:

    Hi all,

    Can any of you please explain how to set up Inter company accounts in R12, where each leagal entity is associated with a separate balancing segment.

    Thanks
    Vasanth

  10. Sanjit Anand Says:

    hey , just take a look on Dave’s blog.
    http://davidhaimes.wordpress.com/2008/01/28/defining-intracompany-balancing-rules/

    in case , if you still need help ,do let me know.
    Regards
    sanjit

  11. A Visitor Says:

    You mentioned that “the relationship between legal Entity and Operating Unit is no more active.” Isn’t this a little misleading? While it is true that the relationship between old R11 HR Legal Entities and Operating Units no longer exists I believe a new type of relationship between R12 XLE Legal Entity Parties and HR Operating units exists in the XLE_ENTITY_PROFILES table.

  12. Sanjit Anand Says:

    Here is what i writen, which is correct.

    As marked (dotted red line) in above figure the relationship between legal Entity and Operating Unit is no more active. This concept allows Operating Units to be governed by more than one jurisdiction, but the accounting is still performed in a single ledger.

    Thats true,this is slightly confusing if you are thinking in same way that LE/GRE was modeled in same way in previous version.In r12 the legal entity is the same that we mean in 11i from the Org point of view. But this works a bit differently in R12 in the light of a new R12 setup.

    You try this query and see the desired value

    select .... 
    FROM XLE_LOOKUPS leEtb , 
         FND_TERRITORIES_VL ft,  
         XLE_ENTITY_PROFILES xlep, 
         HR_LOCATIONS loc, 
         XLE_REGISTRATIONS xlr, 
         HZ_PARTIES hp, 
         HZ_GEOGRAPHIES hg, 
         XLE_JURISDICTIONS_VL j 
    WHERE leetb.lookup_type = 'XLE_LEGAL_TYPE'          
    AND   leetb.lookup_code = 'LEGAL_ENTITY'            
    AND   ft.territory_code = loc.country              
    AND   xlr.source_table  = 'XLE_ENTITY_PROFILES'    
    AND   xlr.source_id     = xlep.LEGAL_ENTITY_ID    
    AND   xlr.location_id   = loc.location_id(+)      
    AND   hp.party_id       = xlep.party_id          
    AND   hg.geography_id   = xlep.geography_id      
    AND   j.geography_id    = hg.geography_id       
    AND   j.jurisdiction_id = xlr.jurisdiction_id   
    AND   j.identifying_flag = 'Y'
     

    select * from xle_entity_profiles where name like

    SELECT legal_entity_id , name FROM 
        apps.xle_entity_profiles xep , 
        apps.xle_registrations xr , 
        hr_locations hl , 
        hz_geographies b , 
        hz_parties hp 
       WHERE xep.geography_id = b.geography_id AND 
                 xr.location_id = hl.location_id AND 
                 xr.source_id = xep.legal_entity_id AND 
                 xr.identifying_flag='Y' AND 
                 xr.source_table = 'XLE_ENTITY_PROFILES' AND 
                 SYSDATE BETWEEN xr.effective_from and NVL(xr.effective_to , SYSDATE) AND 
                xep.transacting_entity_flag = 'Y' AND 
                hp.party_id = xep.party_id 
    

    The whole things is bit changed from org_id which is nothing but legal_entity_id.

    Legal Entity Manager -> Legal Entity Configurator –> Create Legal Entity

    where user create a new legal entity through accounting setup manager. you will get rows in xle_entity_profiles table.

    Hope this will helps.

  13. A Visitor Says:

    Please ignore my last post. I thought the values in XLE_ENTITY_PROFILES.LEGAL_ENTITY_ID were foreign keys to HR_ALL_ORGANIZATION_UNITS.ORGANIZATION_ID.
    It turns out that this is most likely an illusion.

    The values in LEGAL_ENTITY_ID for rows created during our R11-R12 migration happen to match the ORGANIZATION_ID values they were based on, but if you create a new LE its LEGAL_ENTITY_ID value does *not* match anything in HR_ALL_ORGANIZATION_UNITS.

    The similarity appears to be a confusing, unfortunate artifact of the migration process. Hopefully this note helps others avoid that trap.

  14. Sanjit Anand Says:

    thats true

    Thanks for keep posted.
    ~sanjit

  15. ahmed Says:

    territory problem i have the same issue regarding defining the legal entity i cant find the territory of “kuwait” in the LOV can you help?

  16. Shubhrojit Ghosh Says:

    hi,

    you need to create a territory from Legal Entity Administrator>Jurisdiction and create a new jurisdiction with Legislative Category as Income tax.
    The Country Name which you select while creating the Territory would be available in the LOV while creating the Legal Entity.

    Thanks,
    Shubhrojit

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