July 2012 Edition

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Accounting Concepts:

Management and Administration of General Accounting: Remote Accounting Organizations and their Support - Part 4

This is the 4th article in a series about Management and Administration of General Accounting. This material is adapted from The Automated Accounting Systems and Procedures Handbook (John Wiley, New York 1991) Chapter 13.


In larger organizations, separate business units, such as divisions or subsidiaries, may have their own accounting organization.  Although a subsidiary's physical separation from the corporate location does not itself mandate having a separate accounting organization, it is one factor to consider.  Other factors include

• The need to maintain an “arm's length” relationship with the corporate organization.
• The desire for strong, local accounting expertise in that business unit.
• Geographic distance from the central accounting organization.
• Dissimilarity of function: a specific business unit being sufficiently different that it merits its own accounting organization.
• Strategic issues, such as the desire to maintain decentralized, autonomous business units.

Dedicated to the local business unit, the remote accounting department usually reports only by dotted line of authority to the corporate accounting organization.  It reports more directly to the top of the local business unit (Figure 13-2).
Like the corporate accounting organization, the accounting department of a remote business unit also requires an automated general ledger system to efficiently carry out its accounting activities.  To accomplish this, the remote organization may

• Be supported by its own general ledger accounting system, usually running on its own computer.
• Share the general ledger accounting system used by the corporate accounting organization.

Figure 13-3 shows one company's analysis of the important issues surrounding this decision.  The results of any study such as this can vary significantly from one situation to the next.

Dedicated Local General Ledger System.  Many businesses opt for running the divisional general ledger system on a local divisional computer.  Several factors typify these situations:

• The division already has (or plans to obtain) its own computer system for running other accounting and operational applications.
• Interfacing applications, particularly accounts payable, are also run locally.
• The corporate parent exercises a reasonable amount of decentralized control over remote business units.

When these factors are present, there is reasonable assurance that a locally run general ledger system is appropriate.  Often, the larger the business unit, the greater the justification for an independent, locally run general ledger system.

Shared Corporate General Ledger System.  Many companies choose to support remote accounting departments using the corporate general ledger system.  This situation is commonly found in divisions that have characteristics opposite to those described above.  In addition, other factors may create an overriding need for sharing the corporate general ledger system:

• The corporate general ledger system can provide functional requirements that cannot reasonably be achieved through a locally run general ledger system.
• The subsidiary may not be able to support their remote general ledger system in a cost-effective manner, compared with the personnel available to support the corporate general ledger system.

Although combining and consolidating financial information from remote locations can be easier under this approach, this is typically not a deciding issue since consolidation procedures under either approach are not difficult.


Copyright 2012 by Douglas A. Potter, all rights reserved.

About Author:
Doug Potter is the owner of The Newport Consulting Group a professional management consulting organization that provides clients with information systems planning, selection, and implementation services. He can be reached at dpotter@newportconsulting.com or through his Web site, http://www.newportconsulting.com. Note: The contents of this article were excerpted from Mr. Potters book "Automated Accounting Systems and Procedures Handbook" Copyright 1991 by Douglas A. Potter, published by John Wiley & Sons, Inc. New York.

Contact info:
Doug Potter
Newport Consulting Group
Email: dpotter@newportconsulting.com
Website: http://www.newportconsulting.com


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