Standardize the Chart of Accounts

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Standardize the Chart of Accounts

A major cause of delays and data entry errors towards the end of the closing process is the mapping of information from each subsidiary’s chart of accounts (COA) into the master COA used by corporate headquarters. The differences between the various COAs can be substantial, making the data transference chore a major one. Some companies accept the differences between COAs and create complex automated consolidation mapping systems, but there is still a risk that a mapping from one subsidiary account to a corporate account will be set up incorrectly, creating incorrect financial results. Also, if subsidiaries are allowed to change their COAs at any time, a considerable effort will be needed to continually ensure that the automated consolidation mapping system is keeping up with these changes.

The solution is to adopt a standardized COA for the entire company. This means visiting all the subsidiaries to determine the need for any variations from a master COA, incorporate these changes if needed, and then creating a company-wide policy to lock down all COAs, with subsequent changes allowed only with permission from the corporate staff. By doing so, the account mapping task is completely eliminated from the list of closing activities, as are any attendant mapping errors. This is a major improvement for the closing process.

Standardizing the COA can be particularly difficult to implement if the subsidiary accounting divisions have considerable autonomy, or if the baseline COA is extremely large (requiring great effort to pare down). In either case, a good long-term solution is to implement a single enterprise resource planning (ERP) system that is used throughout the company, and where access to the COA is locked down and only accessible by the corporate accounting staff.

Podcasts

There are multiple discussions about the fast close in Episodes 16 through 25 of the Accounting Best Practices podcast.