Ensuring accurate GL coding of expenses

Find out interesting insights with Shaun Walker, SOC Compliance Manager, Norfolk Southern

Moderated by Emily, Digital Transformation Consultant at Hyperbots

Don’t want to watch a video? Read the interview transcript below.

Emily: Hi, everyone. This is Emily, and I’m a digital transformation consultant at Hyperbots, Inc. I’m pleased to have Shaun again with us. He is the stock compliance manager at Norfolk Southern, so great to have you on, Sean.

Shaun Walker: Absolutely, thanks for having me.

Emily: Of course. So the topic that we’d be discussing today, Shaun, is ensuring accurate GL coding of expenses. I’d like to begin by asking why it’s so important to ensure that expenses are coded correctly under the right GL codes, and what are the main challenges that companies face in this area.

Shaun Walker: I’d say it’s essential for financial reporting, budgeting, and compliance. It ensures that the financial statements reflect the true state of the company’s finances, which supports better decision-making, compliance, and alignment with regulatory bodies. The main challenge is the volume of expenses, especially in large organizations. There are so many expenses and transactions to go through, which means there’s a risk of human error.

Emily: Got it. Often, what I’ve seen is that sampling is used to check the accuracy of expense coding. Can you explain how sampling works and give examples of its advantages and limitations?

Shaun Walker: Absolutely. As I mentioned, there’s a large amount of transactions, so sampling drills down to the important ones. For example, a company might use a random sampling approach, looking at 5% of all the expense entries rather than all of them. One advantage of the sampling approach is that it’s more cost-effective and time-efficient. However, a limitation is that it may not detect systematic errors or fraud if those errors are not present in the specific transactions sampled.

Emily: Got it, understood. Also, Shaun, how do automation or automation tools in general help in ensuring correct GL coding? What are some examples of their use in companies?

Shaun Walker: Absolutely. Automation tools have predefined rules for certain expense transactions, which reduces the need for the manual process of coding and the associated errors. For example, an ERP system like SAP might automatically categorize all expenses with the heading “hotel” as travel expenses. However, some limitations can be too rigid. For instance, if there’s the word “event” in expense management, some tools might automatically categorize it as marketing, even if it was an internal training session that should have been coded differently.

Emily: Got it. Shaun, what role can AI play in improving the accuracy of expense coding? Can you provide examples of how this is implemented in practice?

Shaun Walker: One technique that AI uses is NLP, which stands for natural language processing. It analyzes transaction descriptions and suggests the most appropriate GL codes. For example, if the description is “client dinner at a restaurant,” AI would correctly code it to entertainment and expenses rather than just food and beverages. AI can also detect anomalies in real-time, helping to catch errors early and maintain accurate records.

Emily: Understood. Just out of curiosity, how can AI help in auditing human-coded expenses, and what are some examples of its effectiveness?

Shaun Walker: AI can learn from historical data to identify what correct coding should look like, comparing it to current entries. It can also flag discrepancies or unusual patterns.

Emily: Got it. Just to round things up, Shaun, one last question: are there any additional benefits of using AI over traditional sampling methods for auditing expenses?

Shaun Walker: The main thing is that humans often do it periodically, like once a month or once a quarter, whereas AI can perform continuous monitoring. AI can detect anomalies immediately, rather than waiting for periodic reviews. It can also analyze a much larger set of data, covering 100% of the expenses, whereas sampling might only cover 5% or less.

Emily: Understood. Got it. Thank you so much, Shaun, for talking to us about GL coding and how accuracy can be maintained. It was great having you, and the discussion was truly insightful. Thank you so much.

Shaun Walker: Absolutely, thanks for having me.

Granularity Levels in the Chart of Accounts(COA)

Find out interesting insights with Claudia Mejia, Managing Director, Ikigai Edge

Moderated by Prad, Financial Technology Consultant at Hyperbots

Don’t want to watch a video? Read the interview transcript below.

Prad: Hey, everyone welcome. I’m Prad from Hyperbots, a financial technology consultant. Welcome, Claudia. Thank you for joining us today to discuss the chart of accounts granularity. So let’s dive right in. Claudia, what practices should a company consider when deciding on the granularity of its chart of accounts?

Claudia Mejia: Hi, Prad, thank you for having me. Happy to be here. Well, let’s talk a little bit about when a company wants to initiate its financial reporting. They need to think very closely about the chart of accounts, right? Some of the factors they need to consider are the size, the complexity, the industry they’re in, and the level of detail they want for reporting and compliance purposes. Large organizations with different business units might want more granular charts, while smaller companies may need simpler COAs.

Prad: That’s a valuable insight. Can you give us some examples of how different levels of granularity might look in practice?

Claudia Mejia: Well, as I mentioned, large organizations may have different levels of detail in their chart of accounts. For example, they might not only want to see revenue and operating expenses by business unit but also have a very granular view. Instead of just marketing expenses, they may want to see specific categories like digital ads, so they can assess the ROI on those investments. In contrast, smaller companies might only need a single line for marketing.

Prad: Those were some great pointers. What are some of the challenges associated with having a very granular chart of accounts?

Claudia Mejia: There has to be a balance. Going too granular can create complexity for the accounting team. It requires more effort to ensure all lines are properly mapped, which increases the risk of data errors and makes financial reporting and compliance more difficult. So, it’s important not to overcomplicate the process.

Prad: On the other hand, what are the downsides of having a COA that isn’t granular enough?

Claudia Mejia: At the end of the day, we want the chart of accounts to provide insights that help us understand the business. If it’s not granular enough, you won’t have a clear picture of the cost drivers or be able to make informed decisions. It’s also important for compliance, especially when auditors review your financials.

Prad: Great point. Are there any industry standards or guidelines companies should follow when structuring their COA?

Claudia Mejia: It depends on the country and the industry. There are frameworks like GAAP, IFRS, and others that companies need to follow based on where they operate. Certain industries, like travel or manufacturing, may have specific standards, but ultimately, it’s essential to understand both operational and compliance needs when structuring the COA.

Prad: Can you shed some light on how AI and automation tools help manage the granularity of charts of accounts?

Claudia Mejia: AI can be incredibly useful in managing a chart of accounts. It can automatically categorize transactions, suggest adjustments, and predict trends. For example, if AI notices certain expenses aren’t being categorized properly, it might recommend adding a new chart of accounts. This reduces the manual effort required by the team and helps ensure accuracy.

Prad: As we near the end of the interview, what advice would you give to companies trying to strike the right balance between too much and too little granularity in their chart of accounts?

Claudia Mejia: I’d advise companies to start by understanding their operations and industry. The chart of accounts shouldn’t be created in isolation by finance alone it needs to be a cross-functional effort. Different departments might interpret categories differently, so everyone must be on the same page about what each category means and why it’s included. Leveraging AI for insights can also be a helpful tool in finding the right balance.

Prad: Finally, how can a well-structured chart of accounts contribute to a company’s overall financial health and strategic goals?

Claudia Mejia: A well-structured chart of accounts enables sound financial reporting and compliance. It helps with budgeting, forecasting, and strategic planning, allowing the company to make informed decisions that drive the business forward. It also ensures smooth audits and contributes to robust financial management, which is crucial for achieving long-term goals.

Prad: Thank you so much, Claudia, for sharing your insights on this critical topic. Finding the right balance in COA granularity can greatly impact an organization’s financial effectiveness and strategic decision-making. Thank you once again.

Claudia Mejia: Thank you, Prad, for having me.

Liabilities in the chart of accounts(COA)

Find out interesting insights with Rick Suri, CFO & Strategic Advisor

Moderated by Emily, Digital Transformation Consultant at Hyperbots

Don’t want to watch a video? Read the interview transcript below.

Emily: Hi, everyone. This is Emily, and I’m a digital transformation consultant at Hyperbots. I’m very pleased to have Rick on the call with me, who has been a CFO for a long time and has been into finance across different business segments, industries, and revenue streams. So happy to have you on the call with us, Rick.

Rick Suri: Thank you for having me. It’s a pleasure to be here.

Emily: Of course. So, Rick, the topic we’d be discussing today is liabilities in the chart of accounts.

Emily: And just to get things started. The 1st question that I have for you is, what role do liabilities play in a company’s chart of accounts, and why is it important to structure them correctly?

Rick Suri: So that’s a very important question, because liabilities are, you know, sums of money or obligations to 3rd parties. They represent an essential part of the business and have a lot of significance for managing the business as well as reporting on its financial health, so correctly structuring the liabilities is a critical topic. And not just for accurately reporting the financial status of the business, but also for internal reporting. It can have implications on lender covenants, and a lot of other financial parameters.

Emily: Got it, understood. So, Rick, would you be able to provide some practical examples of how liabilities differ across various industries, such as manufacturing, retail, or SaaS?

Rick Suri: That’s another great question. So liabilities across different industries would mirror the industry itself. For example, if you’re a manufacturer, you would have accounts payable, and obligations or money owed for raw material purchases and services. For retail, there would be similar obligations for goods that have been bought. In addition, they would be lease liability, and in a SaaS industry, you would have liabilities for deferred revenue, those kinds of expenses, and maybe in certain cases, liabilities for other expenses.

Emily: Got it. So what are the best practices for structuring liabilities in the chart of accounts to ensure clarity and compliance?

Rick Suri: Some of the best practices to ensure clarity and compliance are paying attention to classification. You have long-term liabilities and short-term liabilities, or current liabilities. Within certain long-term liabilities, you would have an obligation to identify the current part of that liability. You would require more specificity like each liability. Some of them may have to be reevaluated, so consistency is important. Just consistency between the way different liabilities are treated across the entity, especially if it’s a multinational or multi-unit entity. This will make consolidation easier. There should also be transparency, meaning liabilities need to be broken out with some degree of specificity, so you’re not clubbing different kinds of liabilities, which makes reporting and analysis easier. Lastly, regular reviews to ensure that the current designation is accurate.

Emily: Got it, understood. What are some of the common mistakes or errors that accountants often make when structuring liabilities in the chart of accounts?

Rick Suri: Common mistakes that I’ve seen include improper classification, the risk of over-aggregation, and not disclosing significant liabilities separately as required under GAAP. You could also encounter redundant accounts, which you obviously want to avoid. Inconsistent terminology is another issue. And perhaps the most significant mistake is omitting certain liabilities.

Emily: Makes sense. So, Rick, how can AI help in improving the accuracy and management of liabilities within the chart of accounts?

Rick Suri: AI, as I like to call it, augmented intelligence, is a powerful tool. It’s rule-based, utilizes machine learning, and offers great benefits. One of the biggest advantages is automatic classification—it can automatically classify liabilities based on examples. It can also help detect anomalies, like unusual patterns in accounts payable. Standardization is another benefit, and AI can drive consistency across the business. The biggest value is predictive analysis, where AI can assist with forecasting, cash flow management, and other financial predictions. Finally, it enables dynamic updates, automatically suggesting changes when certain factors shift.

Emily: That’s really amazing. Can you share a specific example of how AI has been used effectively to manage liabilities in a particular industry?

Rick Suri: I can think of a couple of industries, but let’s take healthcare, for instance. AI has been used to automate the classification of liabilities, like between accounts payable and accrued expenses. It’s used to analyze historical data, detect vendor anomalies, and flag unusual spikes in payments. This has helped healthcare providers better manage their business and flag potential errors or risks.

Emily: Got it. How can companies ensure that their liability accounts remain flexible and adaptable to changes in the business environment?

Rick Suri: The most important thing is continual review. Companies should regularly assess their chart of accounts to ensure they’re not missing any new liabilities and that everything is properly categorized. For example, companies need to break out the current portion of long-term liabilities when appropriate. This process needs to be ongoing to stay aligned with changes in the business environment.

Emily: And just to wind things up, Rick, one final question. What advice would you give to CFOs and finance teams about managing liabilities in the chart of accounts?

Rick Suri: My advice would be to focus on providing consistency, clarity, and accuracy in the reporting of liabilities. Finance teams should embrace automation and AI, which can help with reviewing liabilities regularly and ensuring accurate financial reporting. Leveraging technology will be essential to staying ahead and maintaining high standards.

Emily: Got it. Thank you so much, Rick, for these valuable insights on managing liabilities in the chart of accounts. Having you was truly amazing, and it was a very fruitful discussion. Thank you!

Rick Suri: Thank you for having me. It was a pleasure sharing my thoughts on this topic.

Redundant and Duplicate GL Codes in the Chart of Accounts (COA)

Find out interesting insights with Claudia Mejia, Managing Director, Ikigai Edge

Moderated by Emily, Digital Transformation Consultant at Hyperbots

Don’t want to watch a video? Read the interview transcript below.

Emily: Hi, everyone! This is Emily, and I’m a digital transformation consultant at Hyperbots. I’m happy to have Claudia on the call with me. Who is the managing director at Ikigai. It’s great having you on Claudia.

Claudia Mejia: Hi, Emily, thank you for having me.

Emily: Claudia. The topic we’d be discussing today is redundant and duplicate gl codes in the chart of accounts without, you know, wasting everybody’s time. I’ll just dive right into the 1st question, which is, why do redundant and duplicate gl codes exist in a company’s chart of accounts?

Claudia Mejia: Yeah. Well, I will say that one of the major reasons is the lack of standardization in the creation of the GL Codes. Many companies don’t have a standardized process, or this is a very important process. So some departments might just create codes on their own without a centralized team, a process that directs them how to create them. Another reason why we have redundant, I will say, is mergers and acquisitions. You have 2 different companies that they merged. Now you have 2 charts of accounts, and you need to have a very good process to map the accounts and make sure that you don’t have redundancy when you combine these companies.

Emily: Got it so, Claudia, would you be able to provide some examples of common redundant, or duplicate gl codes that you have encountered?

Claudia Mejia: So some examples that are probably the most common are office supplies. You have, for example, office supplies administrative and calls printing supplies stationary. So a lot of these descriptions are the same. But they’re created multiple times by different departments. And then you have the entries, putting in different accounts. That creates a lot of complexity for teams in the FP. And A when they’re doing reporting, because now we have several accounts that mean the same. Another example is travel expenses, right? If you break it out now too much, then you’re probably not very accurate with the actual expenses. For example, entertainment. You have domestic traveling and international traveling. So sometimes it’s just that simplicity is the best. You can have one line. But if you want to go down to have subcategories. You can be very mindful of what those subcategories should be.

Emily: All right. So moving ahead, Claudia, what are the best practices to avoid creating redundant or duplicate GL codes?

Claudia Mejia: I will say, implementing a chart of account governance framework, basically standardizes the process to who? What is the centralized team that is putting together the codes? Who’s doing it when they’re doing it? how they’re doing it, making sure that they’re out. It’s either quarterly, semi semi-annual to make sure that there are no redundancies with the codes. A centralized team is important, and a system can have the governance of these codes. Make sure also naming conventions. Right? It’s important to make sure that there is a standard, not only for the numbers but also for the descriptions. So now we just don’t have these long descriptions that are not easy to follow and manage from a reporting perspective.

Emily: Got it. So, bringing AI into the equation quickly, how can AI help in identifying and eliminating duplicate or redundant GL codes of the chart of accounts?

Claudia Mejia: Well, AI can understand the descriptions, understand partners, and also make recommendations. So you can use large language models, and to make sure that the chart of accounts is analyzed. And by doing that you can determine which charts of accounts are duplicates and which ones can be consolidated. For example, clustering reclassification. So AI can tell you which accounts are very similar and can be consolidated. For example, marketing, digital marketing, and other types of marketing can be consolidated into one also it can give you semantic similarity detections. So for those descriptions that are very similar can say, Hey, these 2 accounts are very similar you might be able to consolidate. But again, AI provides recommendations, and is very important for that team to follow up. If that recommendation makes sense.

Emily: Got it so just to utilize your expertise, Claudia, how would you recommend implementing an AI solution for a company that is looking to reduce redundancy in its chart of accounts?

Claudia Mejia: Well, you can have AI system solutions that connect with your ERPs and they can have that audit done automatically. Another way to do it, making sure that you follow the policies of the companies is using the large language models like Chatgpt Gemini, but making sure that when you’re loading that data into the system, it follows the company’s privacy for the data and all the policies. But by doing that you can, as a model, basically say, can you analyze my charts of accounts? Tell me which accounts are duplicates. Tell me which ones I can consolidate. You have to be very specific and clear about the prompts. But these models are very good at analyzing this type of data, and they will provide a recommendation that tells you which one you can combine and which ones you can eliminate. So by doing that, you can have that information and move it through a governance team that can decide if these recommendations make sense, and which was which charge of account which goes, can be eliminated, and consolidated and have an audit on that recommendation and make sure that once you have a sign-off from the leaders and the users of the information, then basically, you communicate the changes and make sure that you monitor this information often. Joseph accomplished something that is not seen as an important process, but it is a very important process because it triggers all the financial reporting from there. So if you have a bad setup in your charge of accounts, then your financial reporting can become very complex, and it creates manual efforts from the IFP team and all the reporting teams afterward.

Emily: Got it. Got it. Thank you so much, Claudia, for these insightful answers. It’s clear that you know, with the right tools and best practices. Companies can significantly reduce redundancies and maintain a clean and efficient chart of accounts. So thank you so much for speaking about it. It was great having you.

Claudia Mejia: No, thank you, Emily, as usual.

Structuring asset heads in the Chart of Accounts (COA)

Find out interesting insights with Shaun Walker, CIA, Manager Risk Advisory Services, BDO USA

Moderated by Sherry,  Financial Technology Consultant at Hyperbots

Don’t want to watch a video? Read the interview transcript below.

Sherry: Hello, and welcome to all our viewers on CFO Inside. I am Sherry, a financial technology consultant at Hyperbots, and I’m very excited to have Shaun Walker here with me, who is a seasoned internal audit leader with a wealth of experience in driving risk management, compliance, and governance initiatives across diverse industries. Thank you so much for joining us today, Shaun. Let’s dive right into our discussion on structuring asset heads in the chart of accounts. My first question to you is, can you explain why structuring asset heads correctly in the chart of accounts is critical for a company’s financial management?

Shaun Walker: Sure. So I’d say the main thing is that it directly impacts financial reporting, which influences decision-making and regulatory compliance. Decision-making relates to asset utilization, depreciation, investment needs, and also compliance with accounting standards.

Sherry: And how do asset structures in the chart of accounts vary across different industries? And why is this variation important?

Shaun Walker: Yeah, for example, in a manufacturing company, there will be a lot of fixed assets. In a SaaS company (software as a service), there will be more intellectual property and software. You need to differentiate between those two.

Sherry: To talk about some of the proven methods, what are some best practices for structuring asset heads in the chart of accounts?

Shaun Walker: The main things would be categorizing by liquidity and usage, maintaining consistency across periods to help with trend analysis and comparability, and using detailed sub-categorization to better track depreciation, impairments, and utilization. From an audit perspective, regular reviews are important—periodically updating the chart of accounts to reflect acquisitions, disposals, or changes in accounting standards. Lastly, aligning the asset structure with industry standards ensures relevance and compliance.

Sherry: Drawing from your experience, can you tell us some common mistakes you’ve seen accountants make when structuring asset heads in the chart of accounts?

Shaun Walker: Sure. One common mistake is misclassification, such as placing a long-term asset under current assets. Another issue is the lack of granularity—grouping all assets under one broad category instead of making it more specific. There’s also failure to make updates, incorrect asset valuations (especially for intangibles like goodwill), and inconsistency in categorization, which can reduce the reliability of the data.

Sherry: As AI reshapes the future of finance, how can AI help improve the management of asset structures in the chart of accounts?

Shaun Walker: AI can automate processes, saving time and reducing human error by automatically categorizing assets based on characteristics and usage. It can also evaluate intangibles and continuously monitor asset values, providing real-time updates and ensuring accuracy. AI can detect anomalies, such as sudden changes in asset values or unexpected disposals, and recommend asset allocation or disposal strategies to maximize efficiency.

Sherry: From what you’ve observed in your years in the industry, can you give us an example of how a specific industry could benefit from AI in managing asset heads in the chart of accounts?

Shaun Walker: Sure. In the healthcare industry, for instance, providers deal with a wide range of fixed assets, such as medical equipment, and intangible assets like patient databases. AI can optimize the categorization of these assets, leading to more accurate financial statements, better asset management, and improved financial decision-making.

Sherry: What role does regular review and updating of asset heads play in maintaining an effective chart of accounts, and how can AI assist in this process?

Shaun Walker: Regular review ensures that the chart of accounts accurately reflects the current asset status and values, including acquisitions, disposals, depreciation, and changes in market value. AI can continuously monitor asset data, identify discrepancies, and suggest updates, ensuring the chart of accounts stays accurate and up-to-date.

Sherry: What advice would you give to companies looking to implement AI solutions for managing their asset structures in the chart of accounts?

Shaun Walker: First, understand the challenges in your current asset management and identify areas where AI can add the most value, such as classification, valuation, and anomaly detection. These are crucial for maintaining efficiency and data quality. Regularly assess how AI can support your processes as business needs evolve because AI can adapt along with them.

Sherry: Thank you so much, Shaun, for these valuable insights on managing asset structures in the chart of accounts. This discussion will certainly help many companies optimize their financial management practices using AI.

Shaun Walker: Absolutely, glad to be here. Thanks for inviting me. I enjoyed sharing my expertise. Thank you.

Structuring tax heads in the Chart of Accounts (COA)

Find out interesting insights with John Silverstein, VP of FP&A, XR Extreme Reach

Moderated by Sherry, Financial Technology Consultant at Hyperbots

Don’t want to watch a video? Read the interview transcript below.

Sherry: Hello, and welcome to all our viewers on CFO Insight. I am Sherry, a financial technology consultant at Hyperbots, and I’m very excited to have John Silverstein here with me, who is a seasoned finance executive with over two decades of experience in leadership roles, with expertise across both Fortune 500 companies and high-growth startups. Thank you so much for joining us today, John. We will discuss the critical topic of structuring tax heads in the chart of accounts. To start, could you explain why having a well-structured tax head is important in a company’s startup accounts?

John Silverstein: Yeah, it’s critical to have structured accounts and make sure that it aligns with not just tax but your other areas, as we’ve discussed before. The tax heads in your chart of accounts are essential for several reasons. They ensure that you’re accurately tracking your tax liabilities, recoverable, and expenses, which is critical for your compliance with tax regulations. Additionally, they provide clarity in financial reporting, aid in the reconciliation of tax accounts, and reduce the risk of penalties due to misclassification or errors. Proper structuring also facilitates smoother audits and enhances decision-making by providing clear insights into a company’s tax position.

Sherry: And from your vast experience, can you provide some examples of different tax heads that might be necessary for various industries, like manufacturing, retail, or SaaS?

John Silverstein: Yeah, they all have their nuances. We can talk first about the manufacturing industry, where your tax heads might include sales tax payable, excise duty payables, and customs duty payables. In retail, it’s a little different; you might see sales tax payable, output GST/VAT payable, input recoverable of GST/VAT, and property taxes. So a few different accounts need to be split between the appropriate areas for compliance reasons. Meanwhile, for SaaS companies, relevant tax heads might include service tax payable, and that’s an important distinction. Sometimes you have mixes between your industries based on the companies you work with, where you might have service tax and sales tax and different components of sales tax. So getting compliance right and connecting to a tool, AI can help with this as well. On the SaaS side, you also have withholding tax payable and recoverable. Each industry has its unique challenges, and it gets more challenging as you mix services and manufacturing.

Sherry: In your opinion, what are some of the best practices for structuring tax heads in the chart of accounts?

John Silverstein: Yeah, making sure that it’s organized by nature—like if it’s a tax payable, recoverable, or tax expense. When we were going through specifics on manufacturing, splitting them allows you to easily see which taxes you’re paying. Aggregating and putting just a tax line doesn’t help. The timing and different regulations and compliance you need to meet vary. It also makes it easier to audit if split out.

Sherry: In your journey in the finance industry, what are some common mistakes you’ve seen accountants make when structuring tax heads in the chart of accounts?

John Silverstein: Common mistakes include improperly classifying where you group taxes incorrectly, and mixing sales and property taxes. The key is to split it out into different regulatory bodies. You also want to customize for specific jurisdictions to align with those regulations. It doesn’t necessarily have to be in the chart of accounts, depending on your system and tax systems, but you do need at least the bare minimum of proper classification and grouping. You need the granularity to understand those different types because they’re all calculated differently. Make sure to keep compliance with tax laws, so you don’t have compliance issues. Another common mistake is failing to reconcile your tax liability regularly. This often gets overlooked and is only thought about once a year. It’s much better to work with your tax advisors to book your taxes every month, so you understand your true liability from a working capital standpoint.

Sherry: Adding on to the question, how should federal and state income taxes be structured in the chart of accounts?

John Silverstein: Federal and state income taxes should be structured separately in the chart of accounts, allowing for visible and accurate reporting.  You don’t want to go crazy, though, because all the states are different. You can manage granularity outside the chart of accounts; otherwise, you’ll end up with over 50 tax accounts, which is unmanageable. It’s critical to get the right granularity and split the types of taxes as we discussed earlier. Federal income taxes, state taxes, payables, and liabilities need to be broken out separately for precise tracking of obligations and payments. This separation simplifies the reconciliation of payments and helps you understand when to make those payments, as federal taxes are a little different from state taxes. Additionally, businesses should consider having provisions for deferred tax assets and liabilities. This can vary between federal and state levels, so breaking them out appropriately ensures compliance and accounting standards while providing easy visibility.

Sherry: Since AI is transforming the finance landscape, how can AI help manage and improve the tax structure of a company’s startup accounts?

John Silverstein: AI will significantly enhance the management of your tax structures. Often, even as a CFO, you’re working with outside tax advisors, sending data back and forth. AI can streamline reporting requirements and calculations. It reduces human errors between your tax books and management accounting books. It will help ensure reconciliation and capture the right data for complicated jurisdictions, as well as compliance with tax laws and regulations. AI can go through data to ensure appropriate allocation and compliance while providing suggestions based on learning models. The accuracy will improve, and AI can help detect and correct misclassifications. Additionally, having reporting and analytics on taxes can shed light on often-overlooked areas, helping you better understand tax calculations, which can be quite complex.

Sherry: To dive a little deeper into the previous question, could you provide a specific example of how AI can help a company in a particular industry, like retail or SaaS, better manage its tax structure?

John Silverstein: Sure! For a retail company operating in multiple states, it has complexities in managing sales tax, each with different rates and rules. AI can automate the categorization of transactions based on state and sale, applying the correct tax rates. AI can also help reconcile sales taxes and ensure you’re collecting the correct amounts. If you don’t collect sales tax, recovering it can be challenging. AI can help identify errors and prepare for audits, reducing tax penalties, especially since sales tax complexities can lead to audits from various states. For SaaS companies, AI can determine tax obligations based on where services are delivered and where servers and customers are located, classifying transactions correctly. Real-time compliance reporting is critical, and these industries will benefit greatly.

Sherry: What role does real-time monitoring play in managing tax structures with AI, and why is it beneficial?

John Silverstein: Real-time monitoring allows AI to track changes in tax laws and regulations, instantly reflecting these changes in your chart of accounts.  If something changes and you need to track it differently, AI can prompt you to make those adjustments. Often, tax advisors inform you about upcoming changes, but being proactive is crucial. AI helps identify discrepancies or non-compliance and keeps you informed about your tax liabilities and exposures.

Sherry: What are some future trends you see in the integration of AI with tax management in charts of accounts?

John Silverstein: With a shortage of accountants and tax professionals, AI will play a huge role in automating tasks, optimizing strategies, and predicting tax exposures. AI will manage more complex scenarios, providing companies with precise insights on structuring and jurisdiction changes. For smaller companies, AI can suggest strategies they might not have considered, making tax management more accessible. It will also automate routine tasks for accountants, such as reporting and compliance changes, allowing them to focus on enhancing tax strategies and governance.

Sherry: Thank you so much, John, for these valuable insights on managing tax heads in the chart of accounts. I’m sure our viewers will find your perspective on how AI can transform tax management particularly enlightening.

John Silverstein: Thanks, Sherry.

Constraints on straight-through processing of invoices

Find out interesting insights with Jon Naseath, Co-Founder & Strategic Advisor

Moderated by Sherry, Digital Transformation Consultant at Hyperbots

Don’t want to watch a video? Read the interview transcript below.

Sherry: Hello, and welcome to all our viewers on CFO insights. I am Sherry, a financial technology consultant at Hyperbots, and I’m very excited to have Jon Naseath with me, he is an accomplished executive with expertise in AI machine learning and computer vision driving impactful technology solutions in education, healthcare, and business. Thank you for joining us today, Jon, to discuss straight-through processing of invoices. Now let’s dive right in. Why do you think companies implement constraints on straight-through processing of invoices, even in seemingly straightforward scenarios, like three-way or two-way matching?

Jon Naseath: Yeah, I think the basic answer comes down to trust. The idea that someone’s manually looked at it and verified just gives additional comfort when someone’s not trusting the source data that they’re looking at. I think the short answer is just trust.

Sherry: And in your experience, what are the most common value-based constraints that companies put in place for STP and VI?

Jon Naseath: Yeah, I think usually it comes down to certain dollar amounts. So if it’s a high-volume, low-dollar amount processing, they’ll let those payments go through. But then for bigger ones, they’ll do so like even banks have thresholds of, say, $10,000 for something international. They’ll want additional details about it. I think, though, that doesn’t necessarily mean that you’re safe. I think that there are often situations where someone is going to do something fraudulent, they’ll intentionally do it below that threshold. Quick example: I was talking to a friend of mine, who’s the CEO of a company, and over lunch, he told me about how one of his trusted employees over the last year had been buying products and shipping them to their home for different things that they wanted and using them for personal uses. And it was small amounts here and there, but when they added up, it was very impactful for the company and certainly nothing that was authorized. So I just say be careful of even the small amounts. You need to have good control and be careful around them too.

Sherry: And looking at the industry, how do vendor-specific constraints impact the straight-through processing process? And what factors might lead a company to require manual review for certain vendors?

Jon Naseath: Sure. Different vendors, you know, every vendor is going to run into trouble at some point. Every vendor is going to try to stretch a payment or just pay you late because they can. Even big companies will do that just out of policy. So having a way to review what is there and watching for controls around fraud is important. Even companies with a consistent record of accuracy and reliable payments may have their invoice processed automatically, and you can let those go through. But you need to monitor and kind of give a credit score or credit profile for the different vendors you’re working with.

Sherry: In talking about different obstacles, what are the challenges associated with STP for foreign versus domestic vendors? And how do companies typically address these challenges?

Jon Naseath: Well, one aspect is that foreign companies, may take longer to get paid, or it may take longer when you do pay them. You have to be able to pay via wire, where otherwise you might be able to send a direct payment. So just the processing is different. I wouldn’t say that there’s an increased risk, although some countries, sure, if they’re ones the US has limitations on, you’d want to be careful but your bank will usually not let you send money to those anyway. So as far as straight-through processing, I don’t know that the processes themselves would be very different, but it would just be different risk profiles of the companies individually, as was mentioned before.

Sherry: And can you discuss the differences between contract-based and non-contract-based invoice processing, and how these differences affect the decision to use STP?

Jon Naseath: Sure. With contract-based invoices, you have a contract that defines what you’d be able to then pay on the invoice. If it’s non-contract-based, there might not even be an invoice either, and so there can be situations where a payment needs to be done without a formal invoice or contract. While most would say it’s not possible, I’ve seen situations where this can happen. And there are a lot of scary things happening with AI, where someone mimicked my voice and told a CEO to send a payment. Luckily, we had controls in place to catch it. So, contract control, invoice control, or even keyword control there are bad actors, and companies need to stay ahead of these with good controls.

Sherry: That sounds like quite a challenge, Jon. From what you’ve seen in the industry, how do companies typically handle PO-only matching scenarios? And why might they opt for manual intervention in these cases?

Jon Naseath: With PO-specific invoices, it’s approved, but you still need to verify if the work has been provided. A lot of times POs are done for services, and you end up relying on the project manager to verify that the work has been completed and approved before payment. Hopefully, the program manager stays on top of the project and approves only the work that has been completed and deserves payment.

Sherry: What are the risks associated with processing non-PO and non-GRN invoices? And how can AI help mitigate these risks?

Jon Naseath: With non-GRN and non-PO invoices, the risk is that without proper documentation, it’s easier for fraud to slip through. AI is great at spotting patterns, discrepancies, or things that don’t tie out. I’ve seen situations, where people swap out letters or change small details to make fraudulent payments, look legitimate. AI is much better at catching these subtle fraud attempts than humans.

Sherry: And finally, since AI is a trending topic, how do you see the role of AI evolving in the context of STP, especially with the various constraints we’ve just discussed?

Jon Naseath: AI is great because it can act like someone watching your back, monitoring transactions, and raising red flags when something doesn’t align. AI can help with both preventative and detective controls, identifying things designed to trick humans. In the long term, AI will play a crucial role in safeguarding against inconsistencies and helping businesses process payments more efficiently and securely.

Sherry: Thank you so much for these insightful answers, Jon. It’s clear from this interview that AI offers a promising solution to navigate such complexities.

Jon Naseath: Pleasure.

Dealing with date format variations in financial documents

Find out interesting insights with Claudia Mejia, CFO & Strategic Advisor

Moderated by Sherry, Digital Transformation Consultant at Hyperbots

Don’t want to watch a video? Read the interview transcript below.

Sherry: Hello, and welcome to all our viewers on CFO Insights. I am Sherry, a financial technology consultant at Hyperbots, and I’m very excited to have Claudia Mejia here with me, an experienced finance and operations leader, with over 15 years in finance, operations, project management, and driving businesses towards efficiency, innovation, and strategic growth. Thank you so much for joining us today, Claudia. Date format variations in financial documents can lead to significant challenges in global operations. Let’s delve into this topic with a focus on understanding the issues, best practices, and how AI can help. Could you explain how date formats vary across different financial documents and regions?

Claudia: Hi, Sherry, thank you for having me. Yes, this is an important subject, especially now with the era of AI. I think let’s explain a little bit about how the formats are different across regions. In the United States, we usually use the format of month, date, and year, while in Europe or Latin America, they use the date, month, and year. In Asia, they use year, month, and day. So with all these variations of format, it’s complicated for people in general who manage documents. Data entry becomes complicated and is prone to errors. It’s important to make sure there’s standardization because these inconsistencies can create issues with accuracy and all kinds of consolidation problems.

Sherry: And before we move on to best practices, let’s touch upon the obstacles. What are the primary challenges organizations face when dealing with these variations in date formats?

Claudia: Well, there’s the risk of misinterpretation, right? I can interpret one format as the month, the year, or vice versa. This creates not only payment process issues, but also contractual, legal, and compliance issues. The first step is understanding how we’re going to interpret formats and how we can standardize them in a way that the whole company, especially global companies, can execute properly.

Sherry: From your experience, can you share any real-world examples where date format issues caused significant problems?

Claudia: Yes, for example, in a global company, let’s say a vendor in Europe sends an invoice to be processed using their format. They might put the date first, then the month, then the year, like 8/7/2024. In the United States, we might interpret that as August 7th, while they meant July 8th. This creates late payments, penalties, and issues with cash management, which is crucial for any company. It’s important to ensure there’s standardization across all regions to avoid such issues.

Sherry: To overcome these challenges, what best practices do you recommend for managing date format variations in financial documents?

Claudia: One standardization that’s widely used is the ISO 8601 format, which follows year, month, and day. This eliminates ambiguity. It’s also important to create validation rules in financial systems to correct issues before invoices and documents are fully processed. Training everyone who handles documents, including contracts, is crucial. Educating vendors about the formats your company uses also helps establish standard practices.

Sherry: Since AI is the future, how do you see AI playing a role in addressing these challenges?

Claudia: AI can detect and monitor date formats, automatically correcting them. As systems learn, AI can catch errors before data enters the financial system. AI can also address issues like when people accidentally enter the wrong year, for example. It can correct these mistakes automatically, which is something humans often miss.

Sherry: What are the potential risks if an organization fails to address date format inconsistencies?

Claudia: If companies don’t address this, they risk missing payments or deadlines, which damages trust with vendors. This can create compliance issues, complicate audits, and waste time resolving unnecessary problems, adding no value to the company.

Sherry: Could you share some insights into how AI-driven solutions are currently being used to manage date formats in global financial operations?

Claudia: Many companies use OCR (optical character recognition) to capture data, which is a machine learning technology. AI can learn and predict potential errors, helping to mitigate issues before they arise. AI can also correct problems before the data enters the ERP system, ensuring accuracy.

Sherry: Makes sense. Looking forward, how do you see the role of AI evolving in managing financial document processes, particularly concerning date formats?

Claudia: AI will drive efficiencies in data capture and system learning for document processes. Companies adopting AI will see increased automation, with AI capturing, correcting, and pushing data into ERP systems without human intervention. Human checks can still be incorporated, but AI can handle most tasks end-to-end, which wasn’t possible before because the technology wasn’t advanced enough to learn independently. AI can bring great efficiencies and accuracy, but companies must also maintain proper controls.

Sherry: Thank you so much for being here, Claudia, and for sharing your insights. It’s clear from this conversation that addressing date format variations is crucial for maintaining financial accuracy, and that AI offers promising solutions to these challenges.

Claudia: Thank you very much, Sherry, for having me. It’s always a pleasure.

Managing variability in the chart of accounts

Find out interesting insights with Anthony Peltier, CEO Coast to Coast Finance

Moderated by Pat, Digital Transformation Consultant at Hyperbots

Don’t want to watch a video? Read the interview transcript below.

Pat: Hello, and welcome to CFO Insights by Hyperbots. Welcome to today’s discussion on the variability of the chart of accounts (COA) across different industries, companies, and ERP systems. Joining us is Anthony Peltier, the CEO at Coast to Coast Finance, who will share insights on how the COA can differ, based on several factors. Welcome, Anthony.

Anthony Peltier: Thank you. Glad to be here.

Pat: Alright, so let’s just dive straight in. Can you start by explaining what a chart of accounts is and why it’s essential for organizations?

Anthony Peltier: Yeah. A chart of accounts, or COA, is a list that categorizes all the financial accounts in the general ledger. It serves as a framework for recording and reporting financial transactions. The COA is essential as it provides the structure needed for consistent reporting, compliance, and analysis. It helps ensure that all financial data is captured accurately and can be reported in a way that aligns with both internal and external requirements.

Pat: Alright, that makes sense. How does the structure of the COA vary between different industries?

Anthony Peltier: It varies significantly between industries because each industry has unique reporting needs. For example, a manufacturing company might have raw materials, work in progress (WIP), or finished goods under their cost of goods sold (COGS), while a service company, such as a consulting firm, would have accounts that focus more on labor costs, direct service costs. A retail company may emphasize inventory accounts and sales revenue, while a financial services company might have specialized accounts for interest income, loan loss provisions, and brokerage fees.

Pat: Okay. So we talked about how COA might vary between different industries, but what are some specific examples of how two companies within the same industry might have different COAs altogether?

Anthony Peltier: Sure, even in the same industry, companies can have different charts of accounts based on their business models or operating costs. In the technology industry, a more product-focused company might have detailed accounts for hardware production, software development, and cloud infrastructure, whereas a service-oriented tech company might focus more on support costs, software-as-a-service operations, and professional services. Even two retail companies could differ. One with a brick-and-mortar presence might have detailed accounts for store rent and overhead, while an e-commerce company might emphasize digital marketing and logistics costs.

Pat: What factors typically drive these differences in the COA structure from one company to another within the same industry?

Anthony Peltier: Several factors, like company size, business model, geographic location, and regulatory environment, can drive these differences. For instance, a global company might have a more complex chart of accounts to manage various currencies, tax jurisdictions, and intercompany transactions, whereas a smaller company might have a simpler COA, but still reflective of its focus. Risk appetite, management style, and strategic goals also influence COA structure.

Pat: Could the same company have different charts of accounts for different ERP systems? And if so, why would that be the case?

Anthony Peltier: They could. Different ERP systems might require different COA structures due to specific functionalities and reporting capabilities. One ERP system might be designed to meet local statutory requirements, necessitating a more granular chart of accounts for tax reporting or currency differences. Another ERP, used at a global level, might emphasize standardization and consolidation across geographies, leading to a different COA structure. Variations in ERP configurations and how the systems integrate with other financial tools could also contribute to COA differences.

Pat: What challenges do these differences in the chart of accounts pose for financial reporting and management?

Anthony Peltier: The main challenge is maintaining consistency in financial reporting. If a company has different charts of accounts across business units, consolidating financial statements can become complex and time-consuming. There’s a risk of errors that could affect the accuracy of the reports. Additionally, differing charts of accounts can complicate internal management processes, making it harder to compare performance across divisions or subsidiaries and ensure compliance with accounting standards.

Pat: How can companies manage these challenges and ensure effective financial management?

Anthony Peltier: Companies should aim for a balance between standardization and flexibility. Having a master chart of accounts that can be mapped to different local or business-specific charts allows for consistency while permitting some customization. Regular audits and reconciliations can help ensure alignment leveraging technology like consolidation tools and implementing governance policies is also key. Additionally, continuous communication and training between finance teams across different units are essential for maintaining clarity and coherence.

Pat: Alright, that makes a lot of sense. What trends do you see in how companies are approaching chart of accounts design and management in the future?

Anthony Peltier: There’s a trend toward increased standardization and automation. Companies are looking to simplify and streamline their COAs, enabling faster decision-making. There’s also a move towards global standards, especially for multinational companies, to reduce complexity and improve comparability. AI and machine learning are becoming more prominent in finance, helping companies automatically categorize transactions and even suggesting optimal COA structures. This shift will continue as companies seek greater efficiency and agility in their financial operations.

Pat: Alright, I think that’s very insightful. Thank you so much, Anthony, for sharing these valuable insights on the variability in the chart of accounts and its impact on financial management. It’s clear that the chart of accounts is more than just a list of accounts; it’s a strategic tool that requires careful design and management.

Anthony Peltier: Yeah, thanks for having me. It’s an important topic.

Pat: Thank you so much.

Structuring accrued revenue and accrued expense heads in COA

Find out interesting insights with John Silverstein, VP of FP&A, XR Extreme Reach

Moderated by Sherry, Digital Transformation Consultant at Hyperbots

Don’t want to watch a video? Read the interview transcript below.

Sherry: Hello and welcome to all our viewers on CFO Insights. I’m Sherry, a financial technology consultant at Hyperbots, and I’m very excited to have John Silverstein here with me today. John is a seasoned finance executive with over two decades of experience in leadership roles, working with both Fortune 500 companies and high-growth startups. Thanks so much for joining us, John!

John: Thanks for having me, Sherry. I’m excited to be here.

Sherry: We’re here to talk about structuring accrued revenue and accrued expense accounts in the chart of accounts, understanding common mistakes, and best practices, and how AI can help streamline these processes. Let’s dive right in. John, why is it so important for organizations to properly structure accrued revenue and expenses in their chart of accounts?

John: That’s a great question, Sherry. Proper structuring of accrued revenue and expense accounts is crucial for accurate financial reporting, compliance with accounting standards, and effective decision-making. When these accounts are set up correctly, they provide clear visibility into outstanding revenues and expenses, ensuring that financial statements accurately reflect the organization’s financial position.

Sherry: I see. So, it’s not just about accuracy, but also about supporting strategic planning and cash flow management, right?

John: Exactly. Proper structuring helps with cash flow management, forecasting, and strategic planning. It allows finance teams to have a clear view of what’s coming in and going out, even if it hasn’t been billed or paid yet.

Sherry: That makes a lot of sense. In your opinion, should accrued revenue and expense accounts mirror their respective revenue and expense parts of the chart of accounts? Why or why not?

John: In many cases, yes, it’s beneficial to have accrued revenue and expense accounts mirror their respective revenue and expense parts. This creates a 1-to-1 correspondence, which makes it easier to do things like ratio analysis. When the accounts align, tracking and reporting are simpler, and it’s easier to reconcile because everything ties directly.

Sherry: But I imagine that there’s a balance to strike, right? You don’t want too much granularity in the accounts?

John: Absolutely. The level of granularity should match the organization’s reporting needs. You don’t want to get too granular because, in a typical month-end close, there’s only so much you can focus on. If it’s too detailed, it can be inefficient. Less granularity can often be more effective for the analysis you need.

Sherry: Got it. What are some common mistakes you’ve observed accountants make when setting up accrued revenue and expense accounts?

John: One big mistake I’ve seen is not aligning these accounts properly. For instance, if you don’t break out the accrued revenue and expenses at the right level, it becomes difficult to perform margin analysis or other key financial analyses. Another issue is getting too detailed, which can lead to misclassification or even overwhelm the team with too much data.

Sherry: So it’s about finding that sweet spot’s detailed enough to be useful, but not so detailed that it becomes unmanageable.  

John: Exactly. Also, failing to regularly update and reconcile the accrued accounts is a common pitfall. Timing issues between revenue and expenses can lead to discrepancies, which can snowball into bigger problems.

Sherry: Could you give our viewers an example of how different industries handle accrued revenue and expense accounts?

John: Sure! In manufacturing, for example, accrued revenue might include income from goods that have been shipped but not invoiced yet. Accrued expenses could include wages or utilities that haven’t been billed. In healthcare, accrued revenue often consists of services rendered but not yet billed, while accrued expenses might include medical supplies or contract labor. In SaaS companies, accrued revenue typically involves a subscription service that’s been delivered but not yet invoiced, or it could be prepaid and recognized over time.

Sherry: That’s helpful to understand how it differs by industry. Moving on to best practices, what would you say are the key guidelines for structuring accrued revenue and expense accounts in the chart of accounts?

John: The key is to align the structure of your accounts with both business needs and industry standards. That way, you can make useful comparisons and support decision-making. You also want to balance granularities providing enough detail for meaningful insights without making the accounts overly complex.  

Sherry: And how important is regular reconciliation in this process? Can AI help with that?

John: Regular reconciliation is essential for maintaining accuracy. Without it, you risk having unreconciled items pile up, leading to errors and timing mismatches. AI can enhance this process by automating the matching of accrued items with invoices and highlighting discrepancies. It can speed up the process and reduce manual intervention, which not only saves time but also minimizes errors.

Sherry: That sounds like a huge benefit! Can you share an example where AI helped a company streamline its accrued revenue or expense management?

John: Sure! I worked with a retail company that implemented an AI tool to manage accrued expenses, like utilities and rent. The AI tool automatically categorized and matched the expenses to the correct accrued accounts detected anomalies, and suggested adjustments in real time. This resulted in a 30% reduction in reconciliation time and a significant decrease in errors, which improved the overall accuracy of their financial statements.

Sherry: That’s impressive! What final advice would you give to organizations looking to improve their handling of accrued revenue and expense accounts?

John: My advice would be to regularly review and update the chart of accounts to ensure it aligns with the business’s evolving needs. As business models and pricing structures change, so should the chart of accounts. Also, consider leveraging AI tools to automate and optimize the management of accrued accounts, from classification to reconciliation. And finally, maintain a balance between granularity and usability to ensure that your accounts provide the insights you need for effective decision-making.

Sherry: That’s excellent advice. Thank you so much, John, for joining us today and sharing your insights on structuring accrued revenue and expense accounts. I’m sure our viewers will find your guidance invaluable.

John: Thanks, Sherry! It was a pleasure.