Why finance transformation starts with the chart of accounts

Why redesign the CoA?

Gaining the visibility needed for financial transformation

Maintaining a singular chart of accounts (CoA) that enables consistent financial reporting across growing businesses is a challenging task for CFOs. Growth strategies such as mergers and acquisitions (M&A) can cause decentralized, complex, and expensive back-office operations, which result in multiple CoAs that must be maintained and integrated across systems. This impacts a finance organization’s operations and business performance.

To add to this, many organizations are still buckling under the financial strain brought on by the pandemic. Real-time data and agile reporting forecasting are not only a matter of competitive advantage, but also of survival. CFOs need a singular and flexible CoA to gain the visibility they need to make strategic decisions and drive financial transformation.

The CFO’s concern

Creating a singular view to reduce costs and improve decision making

M&A transactions impact an organization’s financial statements, accounting systems, taxation, asset valuations, and compliance. Organizations possessing multiple CoAs risk losing track of important financial information.

In addition, since CoA structures are not easily changed in the ERP, finance leaders are forced to find time-consuming workarounds, such as complicated mapping rules, series of applications, and detailed manual spreadsheet analysis. These workarounds increase the costs of finance operations and delay information needed for decision making.

Let’s look at an example here. For a retail company, it is important to know how effective their cash conversion cycle is, particularly during product planning and management of sales channels. A robust CoA can help recognize revenue sources quickly and make informed procurement decisions based on product and location.

Therefore, redesigning the CoA to create a singular view is critical. CFOs and finance leaders can only improve business performance if they can measure financial activity effectively, and the CoA ultimately determines what financial data they will have visibility to measure.

Efficient CoA designs

Designing a CoA that meets business needs

A redesign of the CoA can help organizations optimize and drive value from the finance office. An ideal CoA design should:

• Provide complete visibility into how a business monitors and reports its performance at both a statutory and management level. A well-designed CoA should reduce or even eliminate the need for manual intervention by Financial Planning & Analysis (FP&A) and accounting teams to produce reporting along business segments, product lines, geographies, and cost centers.
• Ensure each account segment provides a unique and independent view of the business with data granularity to run analysis without replicating or combining a view that can be found in a separate segment. This will standardize CoA usage by finance stakeholders across the organization.
• Offer flexibility and scalability to accommodate any changes within or outside the business, such as M&A activity, divestitures, new business segments, centralization, or even decentralization of operations.

Inside-out approach

A data-driven and contextualized approach to prevent business disruption

CFOs looking to redesign and create a flexible and singular CoA that drives financial transformation require an inside-out approach—one that is data-driven, contextualized, and aligns with the business strategy. The key considerations for this approach are:

1. Assess finance maturity

Evaluate the existing ERP systems along process, control, and technology parameters to unearth possible process and reporting bottlenecks that a new CoA design must address.

2. Propose a global CoA design

Conduct a series of cross-functional and collaborative workshops across finance functions to understand how different users leverage the CoA for their business needs. This should include areas such as budgeting, planning, consolidation, reporting, and performance tracking at both statutory and managerial level.

At this phase, a CoA structure that minimizes or eliminates the dependency on manual efforts to meet financial and management needs can be proposed.

3. Conduct value analysis

Outline the business benefits from the new segment structure, hierarchies, and rationalized segment values. The focus should be ensuring the new CoA segment design is mutually exclusive and completely exhaustive—from reporting to monitoring business performance.

Critical business objectives can be segregated to focus on key KPIs or metrics and the CoA’s visibility to them. This analysis also serves to pressure test the flexibility and scalability of the CoA structure for future readiness.

4. Develop an impact assessment

Execute a limited proof of concept of the new CoA across a single business unit to assess the amount of effort required to implement the new structure across the organization. Determine the number of ERPs, business intelligence tools, and other ancillary applications affected by the CoA change.

A review of the connections across these systems opens opportunities to retire eligible upstream and downstream systems, as well as rationalize reports. The impact assessment provides a detailed view into the implementation cost, effort, and cost saving potential for the new CoA by minimizing technology assumptions.

5. Create a roadmap for implementation

Develop an organization-specific roadmap to determine “how”, “where”, and “when” the CoA rollout should take place. Critical questions must be addressed to determine how the new CoA design will be rolled out and integrated with the existing landscape, without disrupting business operations.

Findings from the ERP maturity assessment should help evaluate where—or which system should first house the revamped CoA structure and how data should flow to and from it. The roadmap must also consider how the CoA implementation will fit in with the organization’s overall transformation journey.

A broader enterprise view is necessary to examine cross-program implications and its effects when the rollout takes place. Being sensitive to these considerations will ensure the cost saving potential and value realization is tightly aligned to the rollout strategy.