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Leveraging the value of Finance data thru MDM

Customer, Product, Employee, Supplier are all familiar domains and prevalent amongst organizations that have initiated their MDM journey. However, when it comes to the Finance or the Chart of Account (CoA) domain, the value of managing this master data domain is quite undermined. The GL Master in the Chart of Accounts area or very often called the CoA master typically contains all information necessary for the valid use of the accounts, for all company codes defined in your system.

In most organizations mappings between accounts are typically done in non-systemic systems or applications viz spreadsheets etc, causing a lot of manual and error-prone work. There is no automated versioning, making it hard to understand what changes were made, when, and by whom. Also, there is no easy way to see departmental view for sales or finance if they want to see a consolidated view by respective departments.

Depending on how large an organization is, it may end up with thousands of accounts to support its operations.

Now of course the CoA data is relatively smaller compared to other types of business-critical data, however it can also pose unique challenges due to its low tolerance level for poor data quality.

Companies in different lines of business will have different looking charts of accounts. For example. the CoA for a retailer will have a lot more references to products and other details as opposed to say an automobiles firm that will have reference to parts.

 So What does a Chart of Accounts do?

It is a means for keeping record of a company's total financial accounts.

 A CoA is a list of all your company’s “accounts,” together in one place providing a birds eye view of every area of the business that spends or makes money. The main account types included under CoA are

  • Assets
  • Liabilities
  • Equity
  • Expenses
  • Income or revenue

 And how does mastering the CoA help organizations. Mastering CoA data allows to:

  • Centralize the creation and distribution of accounts, cost centers, legal entities, etc., in an organization
  • Follow consistent standards across the organization for account management
  • Ensure alignment across divisions and avoid discrepancies in financial reporting to ensure balances are correct in quarterly and year-end reports
  • Gain a granular view of the business and group financial data in different ways during planning and forecasting
  • Ensure the right degree of consistency and alignment
  • Flexibly make changes and streamline account changes across general ledgers
  • Evaluate advanced what-if scenarios during mergers and acquisitions and forecast impact
  • Remove fragmented account management systems as a result of mergers
  • Conduct impact analysis of organizational changes you want to make by creating different versions of hierarchies
  • Ensure sales commissions get paid correctly
  • Connect employees to cost centers
  • Better manage the provisioning process

Approach for setting up a CoA Master:

General Ledger account code maintenance have typically been conducted through ERP applications. There are other records that need to be maintained too, including information that relates to customers, suppliers, materials, banks, and employees.

However by implementing By implementing COA in a Master Data Management (MDM) system, one can manage the accounts as a catalog of hierarchically ordered reference data; CoA leverages hierarchy management capabilities of MDM.

There however is a school of thought that CoA is best managed in ERP applications like those of Oracle, SAP etc. However what one needs to understand is that as much as some of these tools are well equipped at handling specific domains , if one needs an enterprise view and syndication of data to downstream systems for further reporting and analytics MDM is the way to go. And not to mention the governance process around the creation and maintenance of the GL CoA.

 And the Chart of accounts (CoA) master typically connects with the following business entities

  • Company
  • Cost Center
  • Legal Entities
  • Profit Center
  • Departments

The CoA should give anyone who is looking at it a rough idea of the nature of your business by listing all the accounts involved in your company’s day-to-day operations.

More to come on this topic soon.


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