Page 306 - Accounting Best Practices

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14–4 Use Identical Chart of Accounts for Subsidiaries
accounts are used to create them. If the information in these special accounts is
truly indispensable, they should be left alone.
Though a number of problems have been noted that can arise when the chart
of accounts is streamlined, this is still a best practice immensely worthy of con-
sideration. It is especially useful for older companies with many departments or
subsidiaries, for these have frequently accumulated a large number of stray
accounts over the years that should certainly be researched and eliminated. By
doing so, it is much easier to maintain the general ledger.
Cost: Installation time:

14–4 USE IDENTICAL CHART OF ACCOUNTS
FOR SUBSIDIARIES

If a company has a number of subsidiaries, the general ledger accountant will
have a much more difficult time at the end of the financial reporting period,
because the results of each subsidiary must be translated into the chart of
accounts structure of the corporate parent. This can involve an enormous amount
of work, because the information the subsidiaries send in may be in a chart of
accounts structure that is so different from the one the parent uses that it is a mat-
ter of pure guesswork by the accountant to determine the correct accounts into
which the subsidiary data should be recorded. This is a particularly galling prob-
lem if the subsidiaries are in an entirely different line of business, for this means
that the chart of accounts may be substantially different; thus, consolidating
account numbers is more of a problem if a company acquires disparate compa-
nies, as opposed to acquiring companies that are in the same industry.
There are several variations on the same best practice that will resolve this
problem, as noted in the following bullet points. They range from merely requir-
ing the permission of the corporate parent before a subsidiary alters its chart of
accounts any further to requiring the substitution of the existing chart with the
one the corporate parent uses. The bullet points are listed in ascending order of
conformance, with the least amount of conformance being the easiest to imple-
ment and complete conformance being the most difficult to install. The particular
variation selected may be dependent on the speed with which a company is buy-
ing other companies, since a complete replacement of a chart of accounts can be
a major undertaking and may not be possible if the rate of acquisition is
extremely rapid. The best practice options are as follows:

• Require permission to make account changes. It may be necessary to leave
the current situation alone, perhaps because there are too many subsidiaries
and too few resources available to reset the chart of accounts structure across
all subsidiaries. In this situation, the easiest step is to issue a blanket order to
all subsidiaries that they cannot make further changes to their charts of