Page 267 - Accounting Best Practices

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General Best Practices
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• Cost management metrics. Cost management index, improvement in the
index, sales, general, and administrative (SG&A) as a percent of revenue,
and cost of goods sold as a percent of revenue
• Working capital metrics. Cash conversion efficiency, number of days of
working capital, number of days sales outstanding, inventory turns, and
number of days payables outstanding
• Tax efficiency metrics. Effective tax rate and change in effective tax rate

The information provided can also be sorted into smaller groups by access-
ing a list of all companies that are summarized into the metrics when using the
MGFS industry code, clicking on only those companies one wants to include in
the metrics and then recompiling the data. The site also lists company revenues,
in case this is needed for selecting only those companies in a certain size range.
This approach is a fast and easy way to obtain key metrics information for com-
pany reports.
Cost: Installation time:

13–2 CONSOLIDATE ALL ACCOUNTING FUNCTIONS

A company with many locations will frequently have a separate accounting staff
in each location. By doing so, the overall cost of accounting tends to be much
higher than the industry average because there is a great deal of staff duplication.
For example, each location requires its own controller, assistant controller, and
accounting manager. Also, transaction volumes may not be great enough to fill the
time of the accounting staff in each location, leading to underutilized personnel.
Also, the quality of management may vary significantly between locations, resulting
in differences in the level of efficiency, with locations experiencing the same trans-
action volume requiring significantly different volumes in the number of required
accounting staff. Further, with accounting conducted in many locations, a well-run
company must schedule a large number of internal audits in all of those locations
to ensure that procedures are completed in accordance with corporate standards.
Finally, extra labor is needed at corporate headquarters to consolidate all of the
accounting records for financial reporting purposes. This formidable array of inef-
ficiencies results in a significant increase in accounting expenses.
The best practice that resolves this tangled web of accounting problems is to
consolidate all or most of the functions into the smallest possible number of locations.
By doing so, fewer accounting managers are needed, while procedures can be stan-
dardized and enforced much more easily. Also, given the smaller number of locations,
the work of consolidating financial results is much easier. The only case in which
this solution does not work well is if a company has an extremely diversified set of
subsidiaries. For example, the accounting operations of a railroad, an oil refinery,
and a cement plant are so different that consolidating these functions would be