From revenue recognition through to the treatment of leases – not to mention a raft of sector-specific rules and standards, the compliance burden faced by CFOs is growing year by year. Managing it requires effective internal controls, auditability and of course 100% accuracy.

Added to this, the routine reporting workload remains as relentless as ever. Familiar tasks such as reconciliation and final report preparation continue to consume a huge amount of time. In fact, currently, 87% of finance professionals are still obliged to work overtime in the run-up to the financial close.

Expectations of the finance department are also changing. With high volumes of valuable data at their fingertips, there is growing pressure to put this data to work and to use it to generate solutions to business problems. CFOs themselves are keen to find new ways to add value to their organisations. The trouble is, without streamlining routine operations there is rarely time for finance to contribute more fully and help formulate corporate strategy.

A subledger system integrated with an accounting rules engine can help overcome this deficiency. With this type of technology, transactions can be stored, processed and posted automatically to the general ledger. For the finance department, this means less time spent on manual tasks, increased accuracy and greater compliance with standards. It also frees up internal resources, providing more time to focus upon added value tasks and strategy.

This guide aims to provide an insight into the use of subledger technology, its benefits to the CFO, how it can help address specific compliance requirements and what should be looked for in a subledger.

The general ledger is the foundation of a company’s accounting system. As a key reference point for the finance team and other business insiders, keeping it accurate and up-to-date is essential.

For any large organisation however, hundreds or even thousands of weekly accountable transactions are not unusual. Many will be straightforward, while others will need to be processed in a particular way to comply with internal policies and with general accounting principles and standards.

Manual processing of these transactions can be both resource-intensive and subject to error and therefore an automated subledger approach offers more efficient processing.

Key characteristics of subledger technology:

• The subledger provides a database for logging, storing and processing a subset of double entry accounting records.
• Subledgers can be set up for any areas of the general ledger e.g. accounts payable, accounts receivable, fixed assets, product inventory and purchasing etc.
• An automated system allows multiple subledgers to be connected to the general ledger.
• Transactions are automatically generated and posted to the general ledger.

Transactions however are not always straightforward and it’s not always enough to merely summarise a group of transactions and post them to the general ledger.

This is where a rules engine can help. A rules engine is essentially a software tool that automates the steps that make up a business process. With a subledger solution, you can apply specific rules to determine the way in which transactions are processed (before they are posted to the general ledger) to comply with all relevant accounting principles and standards, internal policies, as well as handling what can often be complex multi-entity, multi-currency calculations. Rules can be set and then applied to ensure transactions are processed correctly.

More effective use of time and resources

Especially in the current climate, businesses demand up-to-date insights and new ideas. From workforce and asset deployment through to analysis of product-line profitability, they need to drive efficiency and identify new commercial opportunities. In all these areas, the CFO has an important role to play.

However, if the finance department is spending time mainly on routine tasks such as transaction processing, reporting and compliance, then there simply isn’t the bandwidth to devote to adding value to the organisation. What can be automated to deliver greater efficiency? This is the key question to be addressed by any finance department seeking to become more strategy-focused.

PwC highlighted the fact that in areas such as management reporting, tax and general accounting, there’s the potential to free up between 30 and 40% of time by introducing automation and process efficiencies. By dramatically reducing the time needed for manual transaction entry and reconciliation, subledger technology goes a long way to help the finance department become a valuable and trusted partner to the business.

Greater consistency and fewer errors

Subledger technology allows transactional data to be processed and automatically posted to the general ledger according to pre-defined rules. With large organisations and groups, it’s especially easy for processing inconsistencies to arise. Through universal rules, processes are rationalised, eliminating manual-entry error and inconsistency, providing increased confidence in the integrity of the financial results.

Enhanced compliance and auditability

Regulations such as IFRS15, IFRS16, IFRS17 and LDTI require finance departments to ‘show their workings’; to have their underlying operational data available for disclosure in order to demonstrate adherence to regulatory standards. Using the right subledger solution, allows drill down to the general ledger at transactional level and provides a full audit trail. Likewise, the rules set for data processing and accounting are transparent and easily verifiable. In the event of any regulator queries a solid foundation for compliance can be easily demonstrated.

An up-to-date financial picture

The COVID-19 pandemic demonstrated how quickly market conditions and expectations can change. The general ledger provides the foundation not only for accounting, but also for rolling budgets and forecasts. To provide the most value, it needs to keep up with what’s happening on the ground. Subledger technology reduces the time and manual input required for transactions to be fed to the general ledger. It helps transform the general ledger from a periodically revised accounting tool into a reliable and up-to-date information asset.

Enabling analytics and generating insight

The subledger’s primary purpose is to allow automated processing and data feeds directly through to the general ledger. But the general ledger doesn’t need to be the only destination for this data. Depending on the specific rules set, the rules engine powering the subledger effectively cleanses transactional data and ensures that data from multiple sources is processed in a consistent manner.

This helps the creation of a ‘ledger-certified’ foundation not just for statutory accounts but also for management reporting and analytics. As well as connecting to the general ledger, a feed can be set up directly from the subledger to data analytics or business intelligence tools of choice.

Aim for seamless integration

Adopting a subledger solution does not have to mean a complete overhaul of your existing technology stack. Millennium Consulting specialises in helping equip you with the type of subledger technology that addresses your specific requirements, while ensuring full integration with existing systems.

Supporting wider transformation initiatives

Compliance is often the primary driver of subledger adoption however organisations may require a more efficient system to handle the increased data processing and calculation burden that the new standard brings. A compliance challenge may also be the springboard to achieve additional business benefits. The subledger provides a way to harness potentially enormous volumes of granular data and provides the opportunity to consider how else this data may be put to work for the purposes of analysis, forecasting and delivering timely business insight.