Topic: General Posts

Subject: Request for advice/input: question on charts of accounts
Steven Swagel
Member: 2001
Posts:2
Submitted on 12-08-15 8:14 pm
Message:

Dear fellow Feng'ers,


 


I'm looking for advice/viewpoints/comments on an accounting question related to the structure of charts of accounts.


 


I was recently appointed the head of finance for a $60M technology services company.  The company was created by the merger of two companies, one in California and the other in New York.  At the time of the merger--7 years ago--the companies were using different accounting systems and had different charts of accounts (COAs).  The California company (which is comprised of 2 legal entities), migrated onto the accounting software of the New York company (which is comprised of 3 legal entities).  However, there was no standardization of the COA across the 5 legal entities of the combined company.  The result is that our company now operates with 2 completely different COAs (1 for California and 1 for New York).  In fact, the two coasts have maintained many disparate processes and accounting methodologies, so that they operate almost like two different companies in many respects.


 


When I was appointed in July, one of the first initiatives I pushed for was a restructuring of our COAs, so that all 5 entities would be operating under a single, standardized COA structure.  This was met with substantial resistance from the two Controllers (1 for California and 1 for New York), both of whom report to me.  These Controllers have been with the company for 18+ years, however they are not trained accountants and, I believe, do not understand the importance and repercussions of many technical accounting issues.  For the Controllers, changing our COAs represents a lot of additional work and change to the way they've been operating for 18+ years, so they are against it.  I have had to convince the two owners (and the other senior managers) of the importance of having a standardized COA across our 5 entities, but this has not been so easy to do.  This is partially because they don't understand the issues and partially because I find it difficult to articulate the reasons why this is important.  For me, it's so obvious and basic, yet I find it difficult to explain it in a way that is clear for non accounting people.


 


The reasons I have put forward are:


 


1.  Extracting data for reports is difficult because we have to create a separate mapping of the COA for each entity


 


2.  It creates problems for integrating our finance system with another mission critical system we use


 


Does anyone have experience with this issue?  Can you give me your point of view on how important it is to have COAs across a company's entities that are either standardized or at least use the same general structure?  Is it important or am I wrong and, in fact, it doesn't really matter even if the company's entities have COAs that are completely different and don't even follow the same general structure?


 


Thank you in advance for your input and advice.


 


Sincerely,


Steven Swagel

 
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Replies
John Veloski
Member: 2014
Posts: 12

Subject: Re:Request for advice/input: question on charts of accounts

Submitted on 12-09-15 1:53 pm.
Message:

Hi Steven,


So as I'm understanding this, these two Controllers, who are not really accountants, would rather have you do all the extra work as opposed to their doing it?  And they report to you?  Pretty much of a no-brainer on what needs to be done.


My basic thrust is that what happens if the company doubles in size or volume?  How much extra work will there be then.  I've always subscribed to the action plan of making things as simple as possiible and anticipating what's likely to happen 2-4 years down the line and consequently, what tools do you need to be putting in place now in order to deal with the upcoming changes.  Having a standard COA is probably the simplest item there is and one of the most important.  How much extra work is necessary now with deal with this and does it result in needing to hire an extra person or will it going forward.  How much extra are you paying in audit fees or will you be paying because of this?  How much pain is there is not getting timely or revelant information.


To me, accounting has only two purposes.  First is to satisify all the statutory reporting requirements (IRS, GAAP financials, etc.).  The other, and most important, is to provide information to be used in making decisions.  If you can't slice and dice how the accounting system provides this information, then you're going to be looking for a new position all too soon.


I don't mean to sound like Atila the Hun, but personally, I won't be asking the two Controllers to deal with this.  I would be asking them how they're going to deal with the change and why haven't they done anything sooner.  If you want to have a well-run company, this is literally the first step.  Otherwise it will always be a hinderance and will only get worse.


Good luck,


John


 


 


 


 

 
John Giolli
Member: 2007
Posts: 1

Subject: Re:Request for advice/input: question on charts of accounts

Submitted on 12-10-15 8:47 am.
Message:

I think in a medium to large enterprise, it is very important to be standardized on not only the COA but also policies and procedures, close calendars etc so you can get consistent information and consolidation will be easier.  Keep plowing through the pushback.


 


John

 
Paul Malen
Member: 2006
Posts: 14

Subject: Re:Request for advice/input: question on charts of accounts

Submitted on 12-15-15 6:02 pm.
Message:

Steven


Maybe spin it a different way.  As part of their development plan and succession plan, train them or walk them through the difficulties that you are enountering with two different COAs.  Then ask them "how are we going to fix this, or what ways can you suggest that might make this easier?" Guide them with pointed questions to lead them to a common COA. That way it will be their idea to change it and not yours.  Give them credit and move forward.  I have a change management template that can assist with this if you are interested.


 


Regards


Paul Malen


 

 
Ramiro Ortiz
Member: 2012
Posts: 4

Subject: Re:Request for advice/input: question on charts of accounts

Submitted on 12-26-15 6:31 pm.
Message:

You could also quantify the time and effort required to normalize the finanical data for reporting and for conducting variance analysis or other research needed.  I have found that once you have these 2 items then you can compute the cost to your organization and make a better case for change. As with the previous posts, standardizing policies and procedures across the organization enhances controls and provides consistency of your financial data.

 
Tom Meola
Member: 2005
Posts: 1

Subject: Re:Request for advice/input: question on charts of accounts

Submitted on 12-28-15 8:28 am.
Message:

Possibly the answer lies in utilizing XBRL as a conversion tool so that oncde the COA's are mapped you can run combined reports much like the SEC would do if these wre separate reporting companies. Also, another tool is a cube manager such as Hyperion or the like with a new COA taht is mapped from the other systems or COA's. It requires constant updating but once configured easy to maintain and a basis for creationg the single COA eventually in your primary syste,


 


I ran multiple COA's for a maajor national and international credit card company. One running on Oracle and Sap. I used Hyperion and XBRL as the convincing solution. Mlore than happy to consult with you.

 
Rashad Shamim
Member: 2013
Posts: 5

Subject: Re:Request for advice/input: question on charts of accounts

Submitted on 02-08-16 6:10 am.
Message:

Hi Steven


Following on from John Giolli’s comment, I believe it is very important.


 


I really like your approach of going to the owners - starting at the top level, taking a top down approach to this problem will help. This is because it seems to be a change management issue as well as an accounting question. Getting buy-in from the top level can be hugely beneficial with change management.


 


And I empathise in terms of getting owners to understand the issues. I have been through a similar problem as part of a system implementation. For me the issue was that the owner did not get what a CoA was all about. So I created a slide deck to illustrate the issue. This deck showed the effect of a poorly / well designed CoA on hypothetical businesses.


 


Explaining how a CoA can have an impact - in terms tackling a business problem meant that the language I could use was familiar to the business owner, and was not technical.


 


Here is a link to my slides if you are interested further. I hope they are helpful. I welcome any feedback.


http://rashadshamim42.blogspot.co.uk/

 
Eunie Min
Member: 2014
Posts: 1

Subject: Re:Request for advice/input: question on charts of accounts

Submitted on 02-23-16 4:21 pm.
Message:

Hi Steven.


This is a typical problem when you are brought in to extend the current 'business as usual' enviroment, standards, processes up to a professional level.  What is critical from the start is to convince the owners that current ways of doing things won't help prepare them for growth in the future years.  You are going to have to accept and learn to navigate around the resistence from below (even if you have to govern by fiat), but you are going to have to convince your bosses that what you are doing is best for the company going forward.


If you are spending 80% of the time trying to map and figure out the accuracy of your numbers, there will be very little strategic help you can provide to the owners, which is the reason, I assume, they hired you.


I realize this is easier said than done.  But you must assert authority from the beginning. Volunteer to help the Controllers to transition to one COA by authorizing temp help. In any case, this sounds like a problem that will get worse, if you don't define the new landscape upfront.


Good luck.


Eunie

 
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