COA Design Changes, and the Impact on your Ability to Report and Analyze your Business - Emtec, Inc.

Emtec, Inc. Proprietary & Confidential. All rights reserved 2015.
Chart of Accounts Design
May 12, 2015

What We Will Cover…
• Definitions
• Designing the Chart
• Rules and Tips
• Q & A
2

• What can I do to maximize reporting capabilities but
minimize complicated accounting?
• We use the General Ledger for all our reporting
• Our budget process takes so much time to prepare
worksheets
• We could close in five days if we didn’t have all these
consolidations and eliminations offline
• We need to hold managers accountable but they don’t
feel like they have adequate visibility
• We have so many accounts we no longer use
CHART OF ACCOUNTS DESIGN – What We Hear From Clients
3

• Better visibility into financial performance
• Align financial structure with the organizational goals
• Unify accounting across the entire organization
• Allow for a budgeting structure that can scale
• Improved expense accounting
• Logical accounting structure
• Provide a mechanism for future growth
Impacts of a Chart of Accounts Change
4

Definitions

• Foundation for an organization’s financial record keeping system
• Accounting structure that allows an organization to measure
performance of the companies, divisions, departments, sales and
individual goals it represents
• Uniform format for financial measurement of an organization
• Reflects the lowest level of detail desired for financial reporting
• It is the empty scorecard for an organization
Chart of Accounts
6

• Chart of Accounts are defined by separate segments that
are a short hand representation of an entity to be reported.
• Chunking numbers into distinct buckets that represent a
given dimension for easier recollection.
• Allows for a cube look at an organization and measurement
of performance.
• Each segment represents a different view of the financial
information.
• A segment should have a unique purpose.
• Segments are the driving dimensions for financial reporting.
Segmentation
7

Segmentation Example
01
02
1000
2000
3000
100
200
Company Account Cost Center
01.1000.100 01.2000.100 01.3000.100
01.1000.200 01.2000.200 01.3000.200
02.1000.100 02.2000.100 02.3000.100
02.1000.200 02.2000.200 02.3000.200
By segmenting values into distinct dimension, an account can easily be
identified and numerous combination can be created.
8

Parent Child Relationships
OPX
5000
Parents Child
NOP
5200
5100
6000-6999
Parents of
Parent
EXP
Using Parent-Child Relationships, accounts can be grouped for financial
reporting. It will ease the process for consolidations and roll up reporting.
9

Statistical Accounts
• Accounts that represent a statistic that enhance the measurement of
organizational performance
• Examples include Headcount, Square Footage, Quantities, etc.
• Utilizes the dimensions to segment the responsible party for the
segment.
• Visible on Financial Reports
• Allocation basis of shared services. Examples:
- HR costs allocated by % of company headcount
- Facility costs allocated by % of square footage
- IT costs allocated by % of users
10

Designing the Chart

Inputs and Outputs
12

Organizational Structure (HR)
• Departments
• People
• Management
• Responsibilities
• Approvals
Financial Structure
• Budgets
• Costs
• Financial Segregation
• Sales Credit
• Assets
Chart of Account Implications
• Ensure that the chart aligns to both the Organizational and Financial
Structure
• Allows for a financial representation of an organizations budget and
costs
• Allows for managers to measure department performance objectively
• Organizational Roll ups should be mirrored in the Financial Structure
Organizational vs. Financial Structure
13

Why Global?
• Chart of Accounts that can be used by all
• Allows accountability to managers and responsible parties
• Gives one source of financial performance
• Consolidations/Elimination ease  Faster close cycle
• Certain Exceptions:
- Regulatory compliance (FERC)
- Statutory requirements (French chart of accounts)
- Completely separate businesses (Joint Ventures)
Goal : Unify your organization on a shared chart of accounts that is
scalable and provides visibility to the performance of the organization at
all desired levels.
Global Chart of Accounts
14

Listing of Segments typically used by organizations
• Natural Account: Determines Asset, Liability, Equity, Revenue and
Expense
• Company: A legal entity or management entity that requires a
balance sheet
• Cost Center/Department: Organization that incurs expenses
• Profit Center: Organization that is responsible for revenue
generation
• Division/Business Unit: Segment of a company responsible for
both revenue and expenses
• Location: Allows for Revenue and Expense for organizations with
multi-locations
Other segments may include Project, Activity, Intercompany, Product
Line and Future Use
Typical Segments
15

Budgets and Performance Measurement are critical factors in
determining the structure and values.
Budget Factors
Organizational Sales Operational Capital
Management
Structure
Product
Reporting
Material
Cost
% of Revenue
Overhead
Allocations
Territory
Direct
Labor
Asset
Protection
Performance
Measures
International Sourcing Growth Plans
Cost
Containment
Financial
Disclosure
Maintenance Capital Events
SG&A Metrics
Revenue
Growth
Gross Margin
Metrics
New Markets
Budget Factors
16

Overhead
• Company
• Division
• Department
Sales
• Company
• Division
• Location
• Product
Operations
• Company
• Division
• Department
• Location
Capital
• Company
• Division
• Location
Consolidated Budget
Dimensions of different budgets help determine the structure of the
Chart of Accounts.
Chart of Accounts Structure that would support budgeting:
Company / Division / Department / Account / Product / Location
Budget
Segmentation
Budgeting Structure Example
17

Rules and Tips

• Natural Account
- Number your natural account in the order it would appear on a
financial statement
- Utilize a group of numbers at the beginning or end for
Statistical Accounts
• Department: Group departments logically, Operational, Sales,
Back Office, etc.
• Avoid using dependent segments – causes problems in
consolidations and dimension reporting
• Limit the size of a segment to no more than 6 digits, too hard to
remember more than 6
• Limit keystrokes when necessary, 5 digits = 100,000 values
• ALWAYS LEAVE SPACE FOR GROWTH AND CHANGES
Numbering Segments
19

Operational Data
• Costs by Supplier /
Employee
• Liability by expense
• Sales by Item
• Sales by Sales Rep
• Sales by State
• Treasury activity
Financial Data
• Costs by division /
department
• Liability by company
• Sales by product
• Sales by channel
• Sales by location
• Account Balances
General Ledger data should be general. Operational reporting
systems can provide detailed analysis, the chart of accounts should
track information that is provided in Financial Reporting.
Operational vs Financial Data Examples
20

Questions to Ask
• How do you measure performance?
• Who is responsible for budgets?
• What are the business dimensions of your business?
• What are your Legal Entities?
• What is your HR organizational structure?
• What systems utilize the Chart of Accounts?
• How do you measures sales?
• What are your reporting needs?
• How do you allocate costs?
• What Financial information are you currently tracking off-line?
• What can be tracked operational reports as opposed to housing in the
General Ledger?
21

Tips
• Think Globally
• Group a dimension into one segment
• Try not to use one segment for more than one purpose
• Operational Data needs to be reported on in operational reports, not in the General
Ledger
• Use Parent/Child relationships to group segment values
• Statistical accounts should be for those in financial reporting and allocations
• Use contra-accounts for allocations
• Logical grouping of numeric ranges allows for easier report and parent account
maintenance
• Avoid “Smart Numbering” within a segment
• Number segments logically leaving room for growth and changes
• Organizational Structures change – leave space to scale
• Segments determined by the need to see information by A and B and C…
22

Continuous Improvement – Chart of Accounts Change Impacts
We have changed our chart of accounts, what is next?
• Reporting Improvement
- Taking Financial Reports to the next level
- Electronic delivery
- Operational reports enhancements
• Process Improvement
- Creation of budgeting workflows and approvals
- Automated consolidations/eliminations
- Allocation improvement
•Financial Improvement
- Better operating metrics
- Benchmarking
23

73%
YEARS
47serving clients
OUR COMPANY
500dedicated
associates
17
over
years
BEST
PLACES
TO WORK
2012
TECHNOLOGY
EMPOWERED
BUSINESS
SOLUTIONS
“right size provider”
“client for life”
India
Pune
Bangalore
USA
IL, PA, NJ,
GA, VA, MN,
FL
Canada
Toronto
Ottawa
GLOBAL
DELIVERY
OUR SERVICES
87% 14
prior tier 1
consultancies
avg. years
experience
fulltime
employees
OUR PEOPLE
25+
OTHER
PARTNERS
- onshore
- offshore
- nearshore
- blended
managed services
Advisory Applications Cloud Analytics Infrastructure
strategy
governance
process
ERP, HCM, CRM,
app. development,
mobile solutions
applications
infrastructure
enterprise reporting,
predictive analytics,
big data
service management
enterprise infrastructure
end user computing
Business and Technology Empowered

An Exciting Year For Emtec… And Or Clients!
Vertical Focus
• Strategy
• Enterprise
Solutioning
• Management
Consulting
• Line of Business
Expertise
Advisory Services Expansion
Services
GEO
Vertical
SMAC

Emtec Services Align Well
with each stakeholder community
ENTERPRISE
SUITE
SALES &
MARKETING
 360 degree view of the customer
 Sales force automation
 Customer Service
 Marketing Automation
 Customer and Product Data
Management
 BI / Analytics
HCM
 Workforce Planning
 HR Analytics
 Talent Management
 Employee Self-Service
 Performance Management
 Total Compensation
CFO
FINANCE
 Budget & Planning
 Financial Close Mgmt
 Procure to Pay
 SEC Reporting
 Financial Analytics
 Cash Management
OPERATIONS
 Forecasting
 Operational Analytics
 ERP
 Project Costing
TECHNOLOGY
 Advisory Services
 Application Development &
Maintenance services
 Business Intelligence & Big
Data
 Cloud Strategy and
Implementation
 Independent Verification &
Validation
 Infrastructure Services
 Managed Services
 IT Service Management
 Procurement Services
 Business Strategy
 Managed Services & Outsourcing
 Advisory Services
 Analytics
 Governance
POWER
The
of Emtec

THANK YOU FOR YOUR TIME
Please visit us online at www.emtecinc.com
THANK YOU FOR YOUR TIME
Please visit us online at www.emtecinc.com

COA Design Changes, and the Impact on your Ability to Report and Analyze your Business - Emtec, Inc.

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