Accounting Processes That Align With And Serve The Business
With Accounting processes, the motto "whatever can be centralized should be centralized" is generally true.
Areas like Payroll, Accounts Payable, Billing, Collections, Travel & Expenses, and Fixed Assets are some of the processes that come to mind here. Also General Accounting and Controllership duties.
But, larger companies present different organizational and process challenges. For a variety of reasons, some accounting processes tend to be aligned tightly with an individual Business Unit, in situations where there are multiple business units. That model provides the best service and needed expertise and connectivity to that Business Unit, and especially makes sense when their processes have sufficient scale in their own right.
In the model we present, Shared Services processes are those where the case for Business Unit specificity is weaker, and centralization stronger. They are transaction processing focused, and ideally more automated. And in some cases the case for outsourcing entirely is quite strong (e.g. Payroll).
General Accounting processes are also centralized in larger companies, but are less transaction processing focused and tend to be less highly automated. Sometimes the Controller organization oversees the shared services processes, along with Treasury and Tax, and sometimes the latter ones are separate, direct-to-CFO groups.
The model presented here is only a general guide, and in no way represents how it is done everywhere. Individual blocks (e.g. Billing) can be in Business Units or Shared Services. And in small companies, there is only one organization, and individuals may wear multiple hats performing these separate processes.
Given that labor cost, both in production/servicing and in SG&A functions, is often the largest element of cost, the process / system to collect, allocate, and analyze labor is important. Factories and service organizations often have time recording systems to track time at a process or task level, which gets costed and used in cost or project accounting and perhaps billing systems.
Key issues:
- Tracking at the "right" level of granularity
- Do SG&A functions track time? Why not?
- Does Payroll drive from time tracking, or are they separate?
- Paid Time Off (sick, vacation, holiday, etc.)
Procurement is not always an Accounting function. It is included here because it sometimes is, and it is an important process for maintaining financial controls. So even if Procurement reports separately, the processes here should require Controller approval.
Key features and issues:
- How are vendors selected?
- Are competitive quotes required?
- Analyzing "apples to apples" cost comparisons
- Vendor Master file adds, maintenance, and controls
- Vendor hierarchies
- Supply Chain risk management
Cost Accounting tends to be Business Unit specific, aligned with the production / service delivery process, and simple or complex depending on product / business circumstances.
Key issues
- Cost method: job / project, standard, or process
- How finitely variable costs are attributed (direct vs. overhead)
- Overhead pools and allocation methods
- Activity Based Costing
- Analyzing cost variances (material, labor, overhead, scrap/rework, etc.)
Order Entry and Billing are separate processes, but sometimes performed by the same groups of people.
Setting up the client order can be very automated (think online catalogs), but sometimes is highly manual, with complex Statements of Work, for instance.
How products / services are defined upfront then has an impact on how they are billed to clients upon delivery. Billing timing might also vary from timing of product/ service delivery and revenue recognition.
Issues here include
- Customer Master File adds, maintenance, and controls
- Customer Hierarchies (e.g. "Walmart" or each Walmart site)
- Definition of Product / Service (and related dis-/aggregation) and price allocation, impacting profitability measurement
- Billing at Consolidated vs. distributed level
- Billing Schedule and differences vs. delivery and revenue recognition
- Sales Taxes or VAT
GAAP accounting rules for Recognition of Revenue is one of the more complex areas of accounting. They were changed several years ago (ASC606), to commonize across industries, but require a multi-step methodology to be employed. This can be simple or complex depending on the simplicity or complexity of product/service definitions and customer contracting approaches.
Key issues here:
- Understanding the customer agreement
- Specifying or dis-aggregating deliverables where there are multiples
- Assigning Value (price) to separate deliverables
- Recognizing Revenue throughout the process of delivering, or upon the completion of deliverables
- Accumulation and analysis of Contract Assets (Deferred Costs) or Liabilities (Deferred Revenue)
- Understanding estimates or assumptions used, and the impact of changes
Payroll is arguably the most important finance process! If workers don't get paid, disgruntlement or work stoppages follow. And while Payroll is sometimes controlled by Human Resources or an outside vendor, there is always an element of Accounting to record payroll entries.
Key issues here can be
- Compliance with national, state/local, company, and union rules regarding pay rates, shifts, overtime, and paid time off.
- Accurate tax withholdings and remittances
- Accurate benefits withholdings and remittances
- Benefits eligibility and length of service record keeping
- Recording payroll entries
- Reconciling time charging to payroll hours
After Payroll, Accounts Payable is usually the second largest channel for disbursements of cash. As such, controls are critical. It is also an external facing process interacting with the supply chain and bringing "customer experience" considerations.
Key issues here can be
- Vendor Master File adds, maintenance, and controls
- Process efficiency and automation in invoice input, matching , and approvals
- Managing "short pays" or deductions
- Early pay discount programs
- Company credit card programs
- Multiple payment channels: check, ACH, cred card, wire, etc.
The process of reimbursing employees for travel and other expenses they incur on behalf of the company is important from a control perspective and "experience" with employees. Further, because of the size of the spend, the process of booking travel is one that some companies choose to centralize through an outside vendor.
Key issues
- Travel or company credit card programs
- Pre-trip approvals
- Preferred travel vendors
- Travel & Expense Policy (allowances and restrictions)
- Process efficiency and automation in Expense Report creation, review, and approval
- Incurring personal expenses while traveling
Customer payments is the life blood for the company, so ensuring prompt collections is an important part of managing working capital. Accounts Receivable is another external facing process, interacting with customers, with the potential to have positive or negative "experiences" for them.
Key issues:
- Customer contact and escalation processes
- Use of third party collectors in that "collections waterfall"
- Close monitoring of A/R aging to minimize past due amounts
- Client "short pays" or deductions
- Bad debt and write-off policies
- Efficiency and automation in applying cash received
Fixed assets are long-lived assets, where the business receives benefit of over multiple years. Some are depreciated and some are not. They are also an important part of cash flow reporting.
Key Features and Issues
- Capital Expenditure approvals
- Depreciation decisions and automation
- Intangible Assets (e.g. intellectual property, customer relationships, and goodwill
- Impairment and end of life accounting
- Prepaid expenses (e.g. annual subscriptions) and amortization are sometimes managed through Fixed Asset subledgers
The General Ledger is where all financial transactions ultimately reside or are summarized. The volume of transactions recorded directly in the general ledger tends to be smaller than the volume recorded in other subledgers described earlier. But they are critical to being able to produce accurate financial statements.
Key elements her
The General Ledger is where all financial transactions ultimately reside or are summarized. The volume of transactions recorded directly in the general ledger tends to be smaller than the volume recorded in other subledgers described earlier. But they are critical to being able to produce accurate financial statements.
Key elements here are
- Maintaining the G/L structures and hierarchies, including chart of accounts, legal entities, departments and business unit hierarchies, projects, products, etc.
- Prepaid Expenses (e.g. annual subscriptions) and Amortization (if not processed in the Fixed Asset subledger)
- Accruals for costs incurred but not invoiced
- Ownership and changes to accounting processes and controls (e.g. SOX)
There are a set of important processes involved in closing the books for an accounting period and producing consolidated financial statements. In global organizations it is important to be able to report results on a US GAAP and country statutory basis.
Key issues here can be
- Closing entries and utilities to close an accounting period
- Inte
There are a set of important processes involved in closing the books for an accounting period and producing consolidated financial statements. In global organizations it is important to be able to report results on a US GAAP and country statutory basis.
Key issues here can be
- Closing entries and utilities to close an accounting period
- Inter-company balances and eliminations
- Cross-entity consolidation
- Processes to book and report (or not) entries to maintain U.S. GAAP and country statutory results.
One of the most important controls to ensure the integrity of transaction processing and accurate financial statements is Account Reconciliations. An Account Reconciliation specifies, describes, and ages, the items making up the balance in the account.
Key issues
- Account Reconciliation standards, definitions, templates, frequency, and review process
- Item aging and action item review
In larger organizations there can be a separate Treasury group tasked with overseeing bank accounts, banking relationships, lender balances and relationships. If not separate, these processes are often managed by the Controller.
Features and issues here:
- Bank Account management
- Company Credit Card program management
- Investments of excess
In larger organizations there can be a separate Treasury group tasked with overseeing bank accounts, banking relationships, lender balances and relationships. If not separate, these processes are often managed by the Controller.
Features and issues here:
- Bank Account management
- Company Credit Card program management
- Investments of excess funds
- Management of debt agreements including lines of credit
- Oversight of lock boxes and other collection tools
- Approval to release payments
Managing taxes is an important Finance and Accounting function. It includes administration and compliance for all forms of taxes paid by the company, including sales and income to all jurisdictions, and also often includes legal entity filings and compliance.
Key Features and Issues
- Legal entity filings and compliance
- Sales Taxes and VAT
- F
Managing taxes is an important Finance and Accounting function. It includes administration and compliance for all forms of taxes paid by the company, including sales and income to all jurisdictions, and also often includes legal entity filings and compliance.
Key Features and Issues
- Legal entity filings and compliance
- Sales Taxes and VAT
- Federal Income Taxes
- Foreign Income Taxes and Filings
- State and Local Income Taxes (SALT)
- Deferred Taxes
- Proactive tax planning to optimize tax exposure
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