Advice and Information for Finance Professionals

Why is a Traditional GL No Longer Adequate for Creating Management Reporting?

Guest Author

By Bart Stoehr, Senior Director, Product Management, Oracle

In the 2015 Benchmarking the Accounting & Finance Function report, Tyrone Cotie, treasurer of Clearwater Seafoods said, “…no matter how quickly you compile and release historic financial statements, you never make a decision off of them. The challenge for finance is getting timely and accurate analysis that’s forward-looking and helps us make decisions.”

Can the traditional GL provide details to support management decisions? It begs the question, “What is the purpose of the general ledger?” Historically, its purpose was to record an organization’s financial transaction activity and to provide a source for the information required for statutory reporting.

So, how do organizations achieve these external reporting goals and provide management decision support through the GL? Or should the question be, “Is it advisable to have the GL serve as the sole source for these diverse needs?”

Although a noble goal, attempting to add detail to the GL to include categories like customer, product, or markets causes a bloating of the GL, which has been shown to take an efficiency toll on accounting activities like the financial close.

Yet, for many accounting and finance departments, the GL constitutes the central component of their monetary communications—to the point that they make it the only way to collect and report any financial information. Is there a better source than the GL for financial information? Not likely. Is there a better way to assemble decision support information such as profitability and costing? I think so.

What happened to my general ledger?

The article, “What Happened to My ‘General’ Ledger?” (Journal of Corporate Accounting and Finance, September/October 2016) proposes a “Performance Ledger” to serve as the main source for management decision support. This article points out that the GL should remain the primary source of financial data for external reporting, and a feed to the performance ledger. The performance ledger supplements the GL data with appropriate operational statistics and, as needed, sub-ledger details to provide comprehensive cost and profitability results and to populate decision support models. 

Rather than weighing down the GL with details not needed for statutory reporting, holding this data in a performance ledger enables the GL to remain “thin”—performing efficiently while the performance ledger handles the management reporting.

What are some benefits of a thin GL and a performance ledger?

  • Reduced GL maintenance: As the company evolves, fewer maintenance changes are required to the GL. In fact, changes to a few drivers in the performance ledger will usually accomplish the same thing.
  • Quicker close: A thin GL enables a quicker close, since the performance ledger deals with the multitude of allocations needed to generate accurate, detailed profitability and cost analysis and decision-supporting information.
  • Better cost and profitability information: A performance ledger provides greater flexibility to perform multi-stage allocations to reflect the way an organization does business.
  • An open door to financial modeling: A performance ledger environment allows business users to manage a safe sandbox environment for the evaluation of different business options.

In future articles, I will elaborate on the advantages of using a performance ledger to support profitability reporting and analytics. In the meantime, I invite you to learn more about a new performance ledger solution, Oracle Profitability and Cost Management Cloud.

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