Future Segments in a chart of Account are an insurance policy
Many organizations ask them selves 'how do we design our last chart of Accounts to last for the next 50 years' The fact that it is almost impossible to predict future management and financial reporting over such a long time frame. One approach is too look at pains of the current financial and management reporting system and identify the root cause of the issue. Often times it may be a result of change in business direction that could not be adequately be represented in the chart of Account structure.
For example at one time Banking companies had limited products catering to retail and corporate customers but today you have complex products like derivatives and currency swaps due to globalization. Banks offer various sales channels like "In Branch", "On Line services", "Agent driven services" etc.Over time last 15 years, the internet has given rise to completely new channel of selling. A bank today without business channel segment
would have a difficult time determining profitability by channel. This would lead to expensive workarounds or inadequate reporting or both. The issue could have been avoided with some foresight to add a future segment to the structure. If the bank had a future segment, it could have been redefined as a channel or product segment when the need arose. Other examples where a future segment is useful is when a company expands from one product line to multiple product lines. Consider Oracle when it was once a database company. It now boasts several product lines.
The above examples demonstrate that changes in business direction over time are completely unpredictable. Therefore the leading practice is to define two alphanumeric segments as future segments in your existing chart of accounts
would have a difficult time determining profitability by channel. This would lead to expensive workarounds or inadequate reporting or both. The issue could have been avoided with some foresight to add a future segment to the structure. If the bank had a future segment, it could have been redefined as a channel or product segment when the need arose. Other examples where a future segment is useful is when a company expands from one product line to multiple product lines. Consider Oracle when it was once a database company. It now boasts several product lines.
The above examples demonstrate that changes in business direction over time are completely unpredictable. Therefore the leading practice is to define two alphanumeric segments as future segments in your existing chart of accounts
Thus Future Segments in a chart of account are an insurance policy to be able to provide complete, effective financial reporting information even in the face of major changes in Strategic direction
Comments
Its actually a bad design decision sometimes. There are some US Federal agencies' oracle installations which use upto 15 segments in COA. If you look at those,some are like agency - sub-agency-department etc. These requirements can actually be addressed by better and alternate ways - maybe modelling as multi orgs for eg.
These many segments have come into the picture because legacy oracle systems were not that flexible. So, consultants just added up segments based on their need :) . Nowadays, especially after R12, SLA & Multi Orgs , the need to use additional segments have come down a lot
Posted by: Ajith Prasad | March 4, 2011 11:57 AM
Hi Ajith
Thanks for your valuable opinion and I agree that R12 provides more functionalities like secondary ledgers, management segment and AGIS to resolve some of COA issues.
Still lot of clients especially in banking, insurance domain go for COA restructuring since they may be towards a refresh cycle or to have a thin GL with FAH in picture
And as part of restructuring most of the clients either enable a future segment or use the existing future segment to provide a new business dimension
Posted by: Sachin Chitlange | March 4, 2011 1:33 PM