Unlock valuethrough yourChart of AccountsAugust 2012
Unlocking the valueinherent in your Chartof Accounts (COA)is not just an exercisefor technical accountantsto labour over. Many leadingfinance functions will attest,the COA can drive realbusiness benefits.2
IntroductionA poorly designed COA can hamper your organisation’sability to drive value through performance insightsMany organisations start their COA redesign journeywith a very narrow focus and a lack of awarenessof the broader downstream implications. For thoseconsidering, or already on the COA redesign journey,this paper outlines eight key steps organisations cantake to create a COA that delivers real value to thebusiness.The eight key steps are:1. Understand how the COA deliversperformance insights2. Get more out of your COA3. Listen to the business – not every answercan be found in the COA4. Leverage technology – but put thebusiness first5. Keep regulators happy and your financeteam engaged6. Incorporate the needs of your globalbusinesses7. Consider the governance model8. Involve the business in designing the COAIn this paper, we highlight the experiences of threelarge, multinational clients that undertook a majorgeneral ledger replacement, including two thatredesigned their global COA. Structuring the COAto measure the performance objectives of theorganisation is a priority that should be high on theCFO’s agenda.Unlock the power of your Chart of Accounts June 20121
Common COA-related challengesCommon COA-related issues faced byorganisations, and which often driveextensive manual work and ‘Band-Aid’solutions: Business units within the company have differentCOAs and different reporting priorities Reports don’t produce the information theorganisation needs to properly run the business ormeet tax and/or regulatory needs General ledger accounts aren’t used consistentlyacross the organisation, reducing the effectivenessof reporting and consolidation The COA has not kept up to date with changes inbusiness models and the statutory and regulatoryenvironment There is a lack of flexibility to integrate mergersand acquisitions It is not clear who owns the COA or hasresponsibility for maintaining it The COA has limited scalability to support changingbusiness models and organisational restructures COA processes and policies are poorly defined There is limited use of sub-ledger systems forlow-level analysis There is no link between key performanceindicators and the COA There is a lack of training on the COA and poormanagement of COA changes.2If these challenges sound familiar, it may be time foryour organisation to re-evaluate its COA. To ensureyou maximise the return on investment in any majorsystems upgrade or new implementation, keep inmind the eight steps to a well-designed COA we haveoutlined in the following pages.
Our client case studiesIn this paper, we refer to the experiences of threeorganisations that redesigned their COA. The followingis a brief overview of each organisation.Client 1This global bank provides retail, corporate and investment banking servicesat more than 2,000 offices worldwide. Services include personal savings andchecking accounts, brokerage and trust services. The company also offersasset management (including mutual funds) and investment banking servicessuch as underwriting and mergers and acquisitions advice. The bank hasbeen expanding its Asian, Caribbean and Latin American businesses.Client 2This banking and financial services provider is based in Australia,but operates globally. It employs more than 50,000 people. The bank offersaccounts, credit cards, home and personal loans and insurance services.Client 3This global technology company designs and develops visualisation solutionsfor a variety of professional markets, including medical imaging, media andentertainment, infrastructure and utilities, traffic and transportation, defenseand security, education and training and corporate AV. It has its own facilitiesfor sales and marketing, customer support, R&D and manufacturing inEurope, North America and Asia Pacific.Unlock the power of your Chart of Accounts June 20123
Eights steps to a well-designedChart of Accounts1. Understand how the COAdelivers performance insightsOur point of viewIn a COA redesign, the CFO is often not thefirst person the project team thinks to consult.However, a COA redesign can create many issuesfor the CFO. Problems with data integrity andinformation consistency can be driven by variousissues, but are often attributable to deficiencies inthe COA. The Finance organisation often has toextensively manipulate data to drive insights intothe organisation’s performance and deliver decisionsupport to the business.Additionally, answering questions from external auditorsand regulatory bodies continues to be a top priority.According to the Deloitte CFO Survey for Q4 2011,over half of CFOs reported an increase in the levelof analysis requested from their boards as a result ofeconomic uncertainty (see Figure 1 below).Figure 1How have the general levels of economic uncertaintyimpacted the demands of your board and itscommittees on the CFO and finance function?Source: Deloitte CFO Survey, Q4 201159%More analysis requestedIncreased reporting40%Deeper understandingof debt and financingissues required40%Deeper questioning onthe financial statementsMore frequent informalinteraction with theAudit CommitteeNo change433%22%18%With 40% of CFOs also indicating that reportingdemands have increased, the need to understandthe organisation’s financial health and performanceis a top priority. To enable this, the COA needs to berecognised as the hub through which data is pulled,posted and calculated by any number of groupsacross the organisation.A well-designed COA supports all of theorganisation’s information, reporting and accountingneeds, and is built on a foundation of consistentdefinitions for business attributes and data elements.The CFO needs to be at the front and centre of COAredesign initiatives.Client storyFor two of our clients, involving the CFO in globalCOA redesigns was a critical success factor.The CFOs took the opportunity to shape theinformation that the new COA would deliver,in tandem with a reporting strategy. Their role wascritical on two fronts: signing off on the standarduse and definition of each financial dimensionin the COA structure; and aligning the businessaccountability model with the future design. In bothof these case studies, the CFO sponsored the COAredesign effort and demanded high accountabilityfrom the CFOs of each business unit, includingthe sign-off of the final design for their respectivebusiness units. In each case, the CFO was pivotal inaligning inconsistent views, challenging accountabilityand embedding their strategic view of the businessinto the COA design.Key takeaways Ensure the CFO sponsors the redesign and is visiblyactive in key design decisions Have the CFO and business unit and/or countryCFOs iron out the key definitions and use of theCOA structure Embed the CFO’s strategic view and desiredaccountability model for the organisation intothe new COA design Have the CFO sign off on the final COA design.
2. Get more out of your COAOur point of viewCOA redesign efforts are often seen as a way to cleanup and rationalise the existing chart. They are alsosometimes misconstrued as a mapping exercise thatattempts to create a ‘single’ COA by linking manysource systems to a group ledger. While rationalisingand deleting duplicate and unused values supportsthe development of a future state COA, it does notexpose all the pain points in the chart.An example is when a single COA code block –such as cost centre values, which are used to defineorganisation structures and accountability – is alsoused to capture customer segments and productgroups to support reporting. Typically, this is anindication that the COA is not meeting businessneeds or that information gaps exist impactingdecision making.In addition to setting key design principles for thefuture state chart, organisations should review thechart’s current state to understand the informationneeds of the business. Although reducing the depthof the chart is a primary goal, the addition of moresegments, driven by information requirements,can transform an organisation’s ability to analyseits data through a multi-dimensional lens.In complex organisations, stakeholders continuouslyseek more information to understand the ‘story’behind the numbers. Redesigns should be viewedas an opportunity to revisit the organisation’sinformation needs. A continuous review cycle througha strong governance structure can help maintain thehealth of the COA. Deloitte recommends that theCOA is reviewed every three to five years to ensure itremains relevant to the business.Client storyClient #1 initially viewed the rationalisation ofhundreds of values in its account structure asequivalent to creating a new COA. While this wastrue in a technical sense, the organisation couldhave missed a significant opportunity to refresh theCOA to meet its changed information requirements.Although streamlining and rationalising values in theaccount structure would have enhanced the clarity,ease of use and simplicity of the COA, this approachdid not consider that the business had recentlymoved to a segment and region matrix structure.The COA held disparate definitions of segments,where products and customer definitions werecomingled in a single chart block. Furthermore,it ignored the growing demands of local regulatoryand statutory bodies. The COA had lost its relevanceand was heavily amended to support the burgeoningneeds of the organisation’s global footprint.Streamlining duplicate and unused values wouldhave provided additional clarity, but this benefitwould have been short-lived as new valuesmushroomed to meet other information gaps.Key takeaways Start with a study of your current COA but don’tstop there Interview your information stakeholders(corporate tax, financial planning and analysis,treasury, business unit managers) to understandtheir pain points. Start by asking ‘who needs whatinformation and how?’ Uncover areas in the chart where a single segmentis used for multiple purposes. This will revealinformation requirements that are not being metin the chart, and ensure adherence to a leadingpractice of using single purpose code blocks,where each code block has a single use anda clear definition Review new values requested in the pastsix months to identify emerging businessrequirements.Unlock the power of your Chart of Accounts June 20125
3. Listen to the business – not everyanswer can be found in the COAOur point of viewA multi-dimensional COA that provides greaterperformance and analytical insights needs to bebalanced with not overburdening the generalledger (GL). A ‘thick’ GL can extend the closeprocess, with a greater number of segments to posttransactions to, or more reconciliation of variancesduring period end. On the other hand, pullinginformation from outside the ledger can make itinaccurate, inefficient and hard to manage; causesystem performance challenges; and result in highmaintenance costs. Sub-ledgers should be used totrack detailed transactional information, which canfacilitate in-depth analysis and reconciliation.Typically, these key questions need to be asked whenredesigning the COA:1. What is the purpose of the GL? Should it be usedonly for statutory financial reporting?2. How much data will be in the GL?3. Do we develop a single global COA?4. What are the legal requirements for theorganisation based on its countries of operation?5. What are the organisation structure complexitiesthat have to be taken into account in the design?Answering these questions and considering thefollowing points will help you understand how ‘thick’or ‘thin’ the GL needs to be.6Thick ledger: The GL is the central repositoryfor financial, management and, in some cases,operational reporting. Data is detailed in the GL,with several dimensions of information incorporatedinto the COA to facilitate most reporting needs.Thin ledger: The GL holds summary-level financialdata required for statutory reporting only. A reportingand business analytics solution (data mart) providesfocused management and operational reporting.Data marts rely on sub-ledgers to gather detaileddata and additional dimensions of information.Management ledger: This is a ledger that reconcilesback to the financial books and records butcontains data at a more granular level than the GL.It predominantly supports management reportingand some external reporting.It is important to remember that the code blockstructure varies in each organisation, based on driverssuch as the scope of information to be addressedthe application architecture and the underlyingsoftware solution.Once the design questions have been answered,ensure that you involve the financial reporting andthe financial planning and analysis teams to identifythe information that needs to be considered in thefuture state design.
Client storyThe existing COA of a large bank supported itsstatutory reporting requirements but did not meet allmanagement reporting requirements. The bank askedtwo questions of its group and business unit CFOs:‘What are we using the GL for; and what reportingwill the GL enable?’ The CFOs determined that the GLwould be the ‘book of record’ and the bank decidedthat the ledger would enable statutory, regulatory(where it made sense to do so) and high-levelmanagement reporting. With this vision established,the bank took the opportunity to ensure its GLincorporated a recent realignment in its segmentationaccountability from product to customer relationship.This was a major consideration in the design of thecode block and, in particular, the creation ofmulti-dimensional values in its COA segmentstructure, such as lines of business and products.Key takeaways Establish key design guiding principles by asking:– Do we design a t