Oracle : Chart of Account : Future Segments : Purpose and Usage


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 accountsThus 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

About these ads

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s