What are specific advantages of implementing a common, productive Chart of Accounts in comparison to have various chart of accounts within the group and mapping them on group level only?
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Senior Financial Analysta year ago
Imagine this, you have BU1 to BU5. Each BU has a Labor GL, in BU1 its 1000, in BU2 its 2000, etc. If you need to move Labor costs from BU1 to BU2 you now have a situation where your entry will look like the following.Dr. BU2 GL 1000, $X
Cr. BU1 GL 2000 $X
At a glance this looks like you're moving costs out of the labor GL and into another GL. Such entries should be flagged by your auditors for further review.
To make things interesting, you now have to maintain a whole series of complex mapping. For example, if someone wants to look at the total labor, that would be a sum of GL 1000 at BU1, GL 2000 at BU2 and the question would be, what will be the Chart of Accounts at the Group Level? The chances of an error may become significant and soon you could have issues in reporting.
There are times when having a different GL structure makes sense and that works when each BU is really different and has very different GLs. There is a strong desire to keep the number of accounts small at each BU and each BU is relatively independent and the company does not consolidate as much. I could see this being the case a company like GE where it operates (or used to Operate) in a wide variety of different industries. GE Finance likely has a very different structure than GE Lightbulbs. Note, I've never worked with GE so my response is more of an educated guess than actual fact.
These days there are fewer conglomerates and most companies have tried to refocus around a particular area where they feel they have a competitive advantage.
So what can you do? I think its best to have ranges. For example you can designate that GL 1100-1199 are for labor, GL 1200-1299 are for benefits etc. Let's say that BU1 has a great deal of labor expenses and wants to see it in detail, BU2 does not. In this case BU1 can have the detail that it needs and BU2 may not "activate" as many GLs. This way if someone in BU2 makes a mistake they won't be able to post to the wrong GL. This will also make consolidation easier and if someone at Upper Level reaches out to someone at the BU Level they can say, "GL 1234 shows a higher/lower than expected balance, what's going on?" They won't have to go to a lookup table to figure out what the GL is or only rely on its classification (labor, etc.)
One other important thing to consider is that you can have "slicers." When I refer to "slicers" I'm referring to things like company code/activity code, etc. Chances are that your ERP provider may have a different term for it than "slicer" and have different ones besides company code/activity code etc.
Where you need to be careful is that a balance has to be struck between detail vs. effort. Often having a great deal of detail means that your staff will have to expend a great deal of effort. Coding an invoice might take 20 minutes if you have to key in a string of "slicers" or other classification codes. This also increases the chances of a mistake. Where and how to strike this balance is important. These days its pretty clear that the data that a business generates is very important, however the value of that data varies based on the effort required to generate, collect and interpret it. The tools that we use have changed and so have many of our processes. In your case I think that your firm could benefit form a good examination of its own internal processes and needs.
I could go on further but I think that I'll stop now.
Internal Audit Specialist in Energy and Utilities6 months ago
Of course, standardizing the CoA makes it easier to ensure the CoA is aligned with statutory laws, regulations, and standards, as well as easier to manage changes to the CoA. But, your group levels, assuming you mean where they reside at a lower organizational level may require a different CoA to meet their statutory requirements. Also, some of your group levels may be affected by joint ventures and other affiliates where you have no control over their mapping of the CoA. If you are trying to fix something you see broken in your organization, perhaps you focus on standardizing how the group accounts are mapped out to the parent CoA, including change management to review and approve the changes.
Another challenge might be to implementing GAAP changes if you are on a non-standardized environment.