Designing an Effective Chart of Accounts Structure using Oracle Applications

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Designing an Effective Chart of Accounts
Structure using Oracle Applications

• Richard Byrom
• e-mail richard_at_rpcdata.com

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Agenda

• Presentation assumptions objectives
• Why an effective chart of accounts?
• Some common mistakes
• Proposed methodology for effective design
• Additional tips and ideas
• Conclusion

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Assumptions

• You are either -
• Preparing for a new implementation.
• Presently implementing.
• Have already implemented but could benefit from
  enhancements and improvements.
• You have an approved methodology for implementing
  your system and each of the steps mentioned here
  will fall within the phases being used in your
  implementation methodology.

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Objectives

• To emphasise that building an effective chart of
  accounts is dependant on using the right mix of
  people, processes and technology.
• To give you the techniques and methodologies
  involved in designing a chart of accounts so that
  you can maximise your return on investment.

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Why the need for an effective Chart of Accounts?

• It is the heart of the system into which all
  modules and interfaces flow
• Ease of Use
• Flexibility
• Provides a good foundation for further expansion
  as well as appropriate storage of current and
  historical information
• Provides the basis for timeous management reports
  and financial statements
• To ensure implementation success and continued
  use of the system

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How to empower your organisation
Data
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What happens when you empower your organisation?
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Some common mistakes

• Gather existing chart of accounts and modify to
  incorporate Oracle functionality.
• ONLY the Finance Department designs and
  understands the chart of accounts.
• The implementation partner is made responsible
  for designing the Chart of Accounts.
• No consideration of impact of country, industry
  and organisational factors on reporting
  requirements and Chart of Accounts Structure.
• Past, present and future .
• Inadequate summarisation of data in GL.
  Replication of same data between sub ledgers or
  modules.

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The eternal paradigm
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Proposed Methodology

• Generic Design Issues.
• Issues relating to your country, industry and
  modular setups.
• Take into account Oracle Specific functionality
  that may be useful in the design process.
• Continuous Improvement

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Generic Design Issues

• Begin with the end in mind.
• To begin with the end in mind means to start
  with a clear understanding of your destination.
  It means you know where you are going so that you
  better understand where you are now and so that
  the steps you take are always in the right
  direction Stephen Covey.

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Generic Design Issues Cont.d

• Gather management reports and financial
  statements or design new ones. Then work
  backwards to arrive at your Chart of Accounts
  Layout.
• Consider organisational growth and
  diversification plans be proactive, not
  reactive.
• Start with a basic structure and then enhance.
  However, ensure there is a match between level of
  detail and ability to maintain this - KISS
• Ensure that you work well with your
  implementation partner.
• Use all the tools Oracle Provides you with to
  manage the process ADI, Workflow,Tutor,Alert.
• Develop a set of standards and conventions.

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Generic Design Issues Cont.d

• Team work within the organisation particularly
  important for Multi-site.
• Hold workshops
• Ensure users understand the importance of an
  appropriate design infrastructure.
• Establish procedures for maintenance and update -
  Centralised or decentralised approach.
• Agree on standards and conventions.
• Ensure that the chart of accounts is signed by
  all the parties involved thats one way to
  ensure peoples involvement and acceptance.
• Third party review.

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Country, Industry and Organisation Specific
Considerations

1. Country
2. Type of industry
3. Organisation multi-org, number of
   sites,information types
4. Modules implemented
5. 3rd party Interfaces and systems

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Country Considerations

• Check whether localisations and/or statutory
  accounting requirements affect your chart of
  accounts

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Industry Considerations

• Manufacturing/Services
• XX XXX XXXX XXX XXX
  XXX
• Company Cost Centre Account Product Product
  Line Sub Account
• Distribution (News)
• XX XXXXXX XX XXX XXXX
• Division Account Region Story
  Distribution
• Projects
• XXX XXXXX XXX XXXX XX
• Company Account Department Project
  Project Type

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Organisation Type

• A single company with all offices in one country

• An international company with offices overseas
  but a single reporting structure

• A multinational company with subsidiary
  companies, each with its own reporting and
  management structures

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Modular considerations

• Which modules are being implemented and how do
  they impact the Chart of Accounts

Payroll Human Resources
OracleGeneral Ledger
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Third party interfaces and systems

• Ensure your Chart of Accounts design considers
  the impact of third party interfaces and systems

Payroll Human Resources
OracleGeneral Ledger
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Consider Oracle Capability to meet your
requirements

• Set of Books infrastructure
• Segments and Value Sets
• Cross Validation and security rules
• Aliases
• Statistical Accounts

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Set of Books Infrastructure

• Set of Books consists of your Chart of Accounts,
  Calendar and Functional Currency

Set of books
Functional currency
Chart of accounts structure
Accounting calendar
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Segments

• Definition an area of analysis within your
  business.
• Recommend using 5-7 segments with a spare segment
  for future growth.
• Define each segment name and the order in which
  it appears in such a way that data capture is
  facilitated.

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Value Sets

• Length
• Numeric and alphanumeric
• Security

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Chart of Accounts Values

• Attach a list of valid values to each segment.
• Child Values identify the specific components of
  a segment.
• Parent Values define a hierarchy or summarisation
  of child values.
• Ensure each a/c has appropriate categorisation
  Asset accounts, liability accounts, revenue,
  expense, owners equity

Build a Hierarchical Structure
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Cross Validation

• Cross-validation rules let you control the
  combinations of accounts entered for particular
  segments
• Example 1 ensuring that for all income
  statement accounts a department is specified
  whilst for balance sheet no department is
  specified
• Example 2 - Ensuring that for all revenue
  accounts a product is captured
• The advantage is that posting errors can be
  reduced, however if they are two restrictive then
  posting errors will not be reduced.

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Security Rules

• Allows you to create specific views for certain
  people

ACCOUNT TYPE value set
Value Description
1000 Total Assets 1110 Cash 1120 International
Cash 1200 Accounts Receivable 1220 Other
Receivables 1310 Interest Receivable
CASH ACCOUNTS ONLY security rule
Include 1101 to 1199
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Aliases

• Allows you to develop names that are familiar to
  your organisation

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Statistical Accounts

• Dedicated Statistical Accounts.
• Shared accounts which contain statistical and
  monetary information.

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Constant Renewal

• There will come a time when believe everything
  is finished. That will be the beginning
• Louis Lamour Bestselling Author
• Although certain designs are permanent never be
  happy with your chart of accounts. Always look
  for improvements but maintain a balance.
• This applies particularly to large organisations
  where improvements can be made on cross
  validation, security rules and aliases.
• Make sure any changes are validated in test and
  then copied to production.

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Chart of Accounts suggested maintenance
procedure
Identify Required Change
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Additional Tips

• Spreadsheet template (demo)
• Data Loader for loading your data into Oracle.
  Available at http//www.comstar.co.uk (Also see
  presentation)
• Coding tips
• Ranges and coding
• Make sure you provide for growth.
• Create meaningful patterns within the coding
  structure

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Additional Tips

• Use the Oracle ADI Account Hierarchy editor for
  mass edits and Big Picture View

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Additional tips

• Use auditing tools to establish whether your
  setup is correct
• CRM analysis tool (note 167000.1 Metalink)
• Demonstration

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Conclusions

• Oracle E-business suite provides a highly
  effective mechanism for enabling a powerful chart
  of accounts design.
• Processes outside the system as well as the
  people aspects are equally important in ensuring
  an appropriate COA infrastructure.

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Speaker Information

• Name Richard Byrom
• e-mail richard_at_rpcdata.com
• Company RPC Data Ltd
• Web Site http//www.rpcdata.com