Moderated by Emily, Digital Transformation Consultant at Hyperbots
Emily: Hi, everyone. This is Emily, and I’m a digital transformation consultant at Hyperbots. I’m very pleased to have you on the call with me, who is the VP of FP&A and taxes at Extreme Reach. Thank you so much for joining us today, John. It’s great to have you.
John Silverstein: Thank you for having me.
Emily: So, John, we are here to discuss the best practices and common challenges related to GL coding and the chart of accounts in SAP, especially when dealing with multiple legal entities across different countries. So let’s just dive right in. Why is it important for an organization to have a well-structured GL coding scheme in SAP?
John Silverstein: Yeah, thank you. It’s really important to have structured GL coding and controls around it because it provides a standardized way, as you said, for multiple legal entities across the globe. If you have different structures, it’s going to be impossible for systems to know what’s in those different entities, and consolidations become very difficult. This structure enables clear financial reporting, reduces reliance on mapping tables, and ensures more consistency across the globe. You’ll also have accurate decision-making, as it helps avoid confusion between different types of accounts. Additionally, it ensures compliance with local and international accounting standards. A consistent coding scheme also allows for quicker consolidation of financial statements. Without it, taxes and audits can become quite complicated.
Emily: Got it, understood. Moving forward, what are some of the best practices you would recommend for designing a GL coding structure in SAP?
John Silverstein: The biggest thing is consistency. Ideally, you want one chart of accounts from a global standpoint, with rules and descriptions that everyone can use. This consistency should apply across the globe, not just within one legal entity. At the same time, you need granularity—maintaining an appropriate level of GL codes to categorize your assets, liabilities, and expenses properly. For example, using consistent standards like 1,100 for cash or 1,200 for accounts receivable. This helps roll up financials smoothly without overcomplicating the structure. You also need to align the structure with business needs, which can be challenging. Don’t use GL accounts for everything. Sometimes, companies confuse GL accounts with cost centers or product codes, making things unnecessarily complex. For instance, if you’re a retail company with multiple sales channels, separate revenue accounts for each channel, like online sales versus in-store sales, help track profitability more accurately. It’s also crucial to regularly review and update the coding structure to meet business requirements, especially as new lines of business or clients emerge. I’m currently working on a project to clean up our chart of accounts to ensure it’s updated and reflects our business structure properly. Automation and validation within SAP can further reduce errors, especially through the automatic allocation of expenses to the correct cost centers.
Emily: Thank you so much for that answer. It adds a lot of value. What are some of the common errors or mistakes companies make when managing their GL coding structure?
John Silverstein: A common mistake is using different coding or number schemas across entities. Sometimes, even within one entity, you see inconsistent number schemas. For example, marketing expenses might be coded differently across departments, which can create confusion during consolidation. Another mistake is overcomplicating the GL structure, such as creating a GL account for every vendor or customer to track profitability. This is not scalable, especially as the business grows. Using dimensions like cost centers or product codes to map out profitability is much more effective. Improper account mapping is also common. Travel expenses, for instance, may be scattered across different categories like car rentals, creating unnecessary confusion. Duplicate accounts are another issue; it’s common to see multiple office expense accounts or consulting fees that should be consolidated. Neglecting legal requirements, such as VAT accounts in European countries, can also lead to non-compliance.
Emily: Got it. How do you handle multiple legal entities of the same company in different countries from a GL coding perspective?
John Silverstein: You need to assign unique company codes for each legal entity in SAP, which allows for separate ledgers and easier consolidation. For example, you might use US01 for the US entity and UK01 for the UK entity. Ensuring that the codes are consistent is critical for proper roll-up and reporting. Multiple charts of accounts are necessary for local statutory compliance, but there should be a group chart of accounts for consolidation. For instance, cash might be represented as 1,000 across all entities, but VAT receivables might be specific to the UK, and sales tax receivables might apply to the US. Intercompany transactions also need to be managed carefully with distinct GL codes for intercompany payables and receivables. Automation through SAP’s intercompany reconciliation tools helps minimize errors.
Emily: Got it. Can you also provide an example of how a company can ensure compliance and accuracy when dealing with multiple currencies across different entities?
John Silverstein: Sure. Let’s say a US-based company has subsidiaries in the UK and Japan. SAP can handle transactions in local currencies, such as GBP and JPY, and simultaneously record them in group currency (USD) and possibly a global currency like EUR. This allows for consistent financial reporting at a consolidated level while ensuring local compliance.
SAP’s foreign currency valuation tools help adjust GL balances according to current exchange rates. For instance, if the Japanese subsidiary records a sale in JPY, SAP can convert that into USD for group reporting and automatically adjust balances for exchange rate fluctuations.
Emily: That makes sense. So, how can AI help prevent common mistakes in GL coding for SAP?
John Silverstein: AI can help in several ways. It can automate data entry, ensuring consistency and accuracy while reducing human errors. AI can learn from past transactions and suggest GL codes for new ones, improving over time with continuous learning. Anomaly detection is another big area—AI can flag transactions that don’t align with established patterns or rules. For example, if a travel expense is coded to an unusual account, AI can alert the user immediately. Natural Language Processing (NLP) tools also help categorize documents like invoices and receipts, automatically assigning them to the correct GL accounts. This is particularly helpful when dealing with diverse formats and languages. Predictive analytics can help forecast potential errors based on historical data, and continuous learning means that AI will get better at detecting and correcting errors over time.
Emily: Got it. What strategies would you suggest for aligning GL coding practices across multiple countries while ensuring compliance with local regulations?
John Silverstein: Centralize the group chart of accounts, but allow for local flexibility to meet statutory requirements. This means having a global chart of accounts for consolidation while still letting local entities maintain country-specific charts for regulatory compliance. SAP’s localization features, like country-specific tax codes, can help meet regulatory requirements. Standardizing processes across the organization, such as using consistent templates for financial reporting, is also essential. Regular training and reviews are crucial to keep up with changes in business needs, regulations, and technology. Maintaining clear communication between global and local finance teams ensures alignment across the board. At some scale. So you need to make sure that the technology changes. So you need to ensure that people know what they’re using. They’re not using the old versions of all your software and technology that you have out there.
Emily: Got it. And just to wind things up. One last question, John. So how does a well-structured GL coding scheme contribute to faster financial reporting and better decision-making overall?
John Silverstein: Yeah. So this is you. If you screw up the GL coding, you sometimes can’t report on things until you’re done with consolidations and going through mapping tools and all this other stuff, it gets very complex. And you end up catching errors during the close process, or too late in the process that you can’t, that you end up going back and forth. It adds days and unnecessary work. During your close process, your data will be inconsistent. You’re gonna make mistakes, and you’re gonna catch these too late. Is a big part of it. So, one of the most critical things you can do is to make sure that you are consistent and the automated reporting, if it’s manual reporting today and there are inconsistencies all the time, you end up doing corrections all the time, and then your accounting is not correct. So if you don’t do this right, you’re gonna make mistakes, and it can cause restatements, even in tax restatements and all that stuff as well. So very critical.
Emily: Got it. Got it. Thank you so much, John, for joining us today again. It was an insightful discussion, you know, talking to you about the chart of accounts and the GL coding for SAP in particular. So thank you so much for joining us.
John Silverstein: Yeah, no problem.
