CA(SA) - Reporting Magic - THE CHART OF ACCOUNTS.
Clive Kaplan CA(SA)
👊Top-Rated Executive/Leadership/Career Coaching | Seasoned Business & Corporate Executive (over 25 years of hands-on experience, largely in the listed company environment)
When I was in Corporate the one thing that irritated me the most was not being able to get the reports I wanted. I.T. always had some excuse as to why they could not extract the information. In my wonderings I was lucky enough to meet up with a cum laude PhD* in structural engineering (which is about as far away as you can get from basic accountancy).
Being a really clever guy, he thought in a structured matrix like all brilliant people. He astounded me with his knowledge of business I.T. configurations. Somehow he was able to throw light on a subject that for me was complex and mind-boggling.
One of the important aspects that I latched onto was this - the reason why computer systems cannot give the correct information was not about software or hardware obsolescence. It was more about the configuration of the system and specifically about how the chart of accounts was set up. This, according to the esteemed Doctor, was one of the major reasons why IT systems fail to deliver effective reporting.
Is it that simple?
Well . . . . . yes.
And the reason is so basic that you have to blush! In the past, every time I ever set up a chart of accounts I kept it simple - I spent very little time thinking it through. And, if you think about it logically, a system cannot put information in a report if the information is unavailable. From an IT perspective, data bases and master files are the places where information is stored and accessed. But from an accounting perspective the best and easiest way to extract information is via the ledger. Accordingly a cleverly designed chart of accounts can be a powerful source of information gathering and reporting.
A common example is repairs and maintenance. For a number of reasons it is valuable to split out these costs in as much detail as possible. You might want tax deductible and non-tax deductible. Or you might want different categories like building repairs and machine repairs, office equipment repairs and vehicle repairs the only way you can access the information is to get accountants to manually analyze the information.
The more detailed your chart of accounts, the more effective your reporting, QED!
* Dr James Robertson
(Originally Published on February 16, 2016)
Corporate Finance Expert | Tech-Driven Strategist | Empowering Business Growth through M&A, Financial Innovation & Digital Transformation
5yI spent many years implementing accounting systems and for me the chart of accounts is the absolute foundation of any system. A well thought through chart of accounts that is easily understood is key. Three other aspects that are key, 1. a schedule with each account and a short description outlining the types of transactions that should be posted to it. This should be shared with everyone working with the chart of accounts - they should be quizzed and tested on the chart. The naming conventions on the accounts should be clear and descriptive so as to avoid misallocations. 2. there is an art to creating a chart that has enough detail but is not too big. I've seen charts with millions of accounts and they aren't great to work with. Sub ledgers have an important place in reporting detail. Detail that should most often not filter through into your chart of accounts. 3. Given a static company structure your chart of accounts should also be relatively static. Don't unnecessarily add new accounts. If you do before you know it you will have hoards of useless or redundant accounts that have not gone through the rigor of thought every account addition should go through - this impacts the quality of reports you can produce.
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