Streamline Data Handling and Improve Financial Reporting | Velosio

Many companies have trouble analyzing accounting data and effectively generating financial reporting. Often, these difficulties can be traced to a Chart of Accounts (COA) which can no longer support the company’s needs.

An ineffective COA usually results from the following:

The original COA design did not allow for future growth. For example, account ranges are not large enough to handle the number of GL accounts within each range, requiring that additional accounts be set up out of sequence.
Care has not been taken in terms of COA maintenance and new GL account setup, resulting in illogical account structures.
Lack of Accounting expertise resulting in the setting up of an improper COA structure.
The company has grown, and the COA can no longer be structured to effectively meet expanded reporting needs such as expense by department, sales tracking by lines of business, or multi-location reporting.
COA accounts and sub-accounts have been used to track detailed information such as projects or events causing the COA to expand beyond a usable structure.

Companies operating on an older or entry-level ERP may not have the capability to effectively address COA-related reporting issues.

As a workaround, they download Trial Balances into a spreadsheet and manually re-organize the data to meet reporting needs. At best, this is a short-term solution. Over time, the process becomes tedious and data accuracy suffers especially when budgets, forecasts, or prior-year reporting are considered.

As the situation worsens over time, the only permanent solution to resolve these issues may be an ERP upgrade.

An ERP tracks financial transactions across two elements, Time, and Type. Transaction time elements are handled using the concept of accounting periods. Accounting periods are usually based on months. Reporting periods can be comprised of weeks, months, quarters, seasons, and years.

Transaction-type elements are handled via the Chart of Accounts (COA). The COA uses GL accounts to separate transactions into general account classifications such as assets, liabilities, equity, revenue and expense. More detailed classification accounts such as salaries, rent, or office supplies are built within each general classification.

The intersection of the time and type dimensions creates accounting data points. These data points are the foundation of all accounting reports.

In more complex companies, the COA can also include sub-classifications such as department, product line, and location. Sub-classification functionality is determined by the ERP used. Many ERPs use a single, multi-segmented account code structure.

Setting up GL accounts is only a portion of building an effective COA. Careful maintenance of the COA is also an important part of the process. COA account number changes, re-naming, balance re-classes, and account disable/ deletion must be completed in an organized manner to ensure COA integrity and correctness.

If these actions are not completed properly, financial reporting errors and accounting data analysis will be negatively impacted.

If you’d like to learn more about charts of accounts building and maintenance, see:

Best Practices For an Effective COA

Full Accounting Report Benefits with Chart of Accounts

Functionality, Measures, and Alerts

Measures and alerts are meant to assist the user in keeping abreast of processing status, identifying anomalies, and ensuring that implemented process controls are being effectively employed. The information below illustrates the interaction between COA functionality, measures, and alerts.

Functionality- ERP GL Chart of Accounts Edits

Measures and Alerts-

New GL accounts setup

GL account edits processed

GL account disabled or deleted

New ERP companies setup

Today, all ERPs support building roles and permissions to control transaction processing and other tasks. This means that with proper permissions assigned, a user can setup, edit, disable or delete GL accounts. Additionally, a user is also able to set up a new company in the ERP.

This functionality should be tightly controlled. If not used properly, it will have a negative impact on the COA and hence on data analysis and financial reporting.

For an elevated level of control, assign COA permissions to a single user such as a senior accountant, accounting manager or the controller. In some cases, though, limiting permissions to a single user is impractical as “out of office” situations can affect timely processing. A better approach might be to assign permissions to more than one user. Assign one user as the primary user, and the other as a backup.

In most instances, setting up a new company in the ERP is an infrequent task. However, depending on the company’s operations (e.g., real estate or franchise) ERP companies may be set up on a regular basis. The permissions allowing a user to set up a new company should always be provisioned to the accounting manager or controller. Setting up companies is much more complex and time-consuming so choosing the right user is important.

Functionality- ERP GL posted journal entries

Measures and Alerts-

Transactions posted to edited GL accounts

Future period transactions un-posted and posted to edited GL accounts

Depending on the GL account edits processed, it may be important to review any transactions posted to the account before and after the edit.

For example, an ERP will not allow a GL account to be deleted until certain conditions are met. As a reference, in Microsoft D365, the following conditions apply:

The account balance must be zero
The fiscal year containing ledger entries of the account must be closed.
The Allow G/L Acc. Deletion Before field must be set on the General Ledger Setup page, and the account must not have ledger entries on or after that date.
If the Check G/L Account Usage field on the General Ledger Setup page is selected, then the account must not be used in any posting groups or posting setup.

As you can see deleting a GL account is not a simple task. While the conditions above primarily control the process, a review of the transactions processed to satisfy the conditions should be reviewed by a senior accounting department team member to ensure correctness.

Use the GL Chart of Accounts editing information described above to identify the GL account. Review the GL account transaction details to ensure correctness. If needed, correct the transactions using GL journal entries.

If you use future processing functionality (e.g., recurring GL entries, GL entries posted to future periods) be sure to review the transactions and if necessary re-class them to another GL account.

If you can, review the tasks needed to complete the edit prior to processing. This will define what needs to be completed and will go a long way in reducing errors and making any review less complicated.

Process Implementation Best Practices

Successfully implementing a new process isn’t always easy. Consider the best practices below to streamline and control new process implementations.

Understand the Process

Be sure that all accounting team members involved in COA maintenance understand the tasks that apply to the applicable processes.
Build and distribute a process document outlining the steps to be completed and any source documents required.
Review the COA maintenance functionality with the applicable accounting team members and assign the proper system permissions as warranted.
Review the communication process related to COA editing requests and approvals with the applicable accounting and other company team members.

Align Resources

Assign specific COA editing tasks to specific accounting team members. Include coverage to support out-of-office situations.
Be sure that any company executives involved in COA editing review and approval processes (especially new companies) are aware of their responsibilities and tasks required (e.g., review and approval).
Assign measures and alert review tasks to the applicable accounting team members.

Improve the Process

Use ERP tools, measures, and alerts to assist in identifying and resolving COA edit issues. Resolve any issues identified as soon as possible.
If the volume warrants, use technology such as data import and export and company templates to streamline the process.

Process Communication

When hiring new accounting team members, be sure to include the applicable process training as a part of their onboarding. If the team member(s) are at a manager level, include any additional tasks. Assign a temporary mentor from accounting (if needed) to ensure that training happens.

Common System Permissions

System permissions and security functionality play a vital role in any ERP process. Using these ERP tools allows the user to set up efficient and controlled processes. Common COA functionality, measures, and alerts examples are displayed in the tables below:

Conclusion

In terms of streamlined and effective reporting, nothing plays a more vital role than a properly defined and organized chart of accounts. Remember, there are two types of ERP reporting; “canned” (out of the box) and user-defined reports built via the report writer. A properly organized COA allows the user to build both report types more efficiently.

Report writers today are so advanced, and the reporting presentation formats so robust, if you have an effective COA downloading Trial Balances into a database or spreadsheet to create the GL reporting should be a thing of the past.

How to Streamline Accounting Data Handling and Improve Financial Reporting