The Ledger

A digital finance blog

The Ledger

Posted by Sarah Werner

Is your General Ledger under too much pressure?

How an Accounting Hub can take the load off your general ledger and enable efficiency, financial control and consolidation of granular financial data. 

An Accounting Hub can be made up of multiple components including standardized APIs, a financial data store, configurable posting engine, rich subledger and a reporting/extract layer.  Together they provide a configurable, IP-rich solution.  In this post, we go into more depth on the role of a subledger and the value it can offer as part of an Accounting Hub

For many years, the General Ledger (GL) has served as the lynch pin of an organization’s finance operations.  Responsible for holding information about every financial transaction that takes place during the life of a company, it’s used to generate the income statement, balance sheet and any other necessary financial reports. 

But today’s GLs are overburdened and the reasons for this are numerous.  The GL is required to hold too much data. Too many groups within the business are making changes directly in GL with no record of why or how. There are multiple GLs across the business - some still siloed - because of multiple acquisitions. 

An overburdened GL can create issues for an organization.  Inefficient core processes with clunky workaround solutions can open a company up to operational risk and higher cost and resource requirements. And no linkage between balances and source system transactions can mean a lack of understanding about business drivers.   

For example, before implementing an Accounting Hub, one of our clients was manually booking journal entries into the GL.  Without a rich subledger, there was no link between the information in their GL and the transaction detail.  If the finance team wanted to understand the driving factor for an increase in a journal amount, there was literally no way of knowing. 

So how do you ensure your GL isn’t hindering your operations, but is free to play the important role it needs to serve within your organization? 

 

An Accounting Hub with a subledger can offer an answer.  

While Accounting Hubs and subledgers have been around for quite some time, they are garnering renewed interest as organizations grapple with updating and consolidating legacy source systems, data proliferation, complex regulations such as IFRS 17 and the increasing appeal of cloud GL migration. 

Leading technology analyst, Gartner, has also recognized the increasing importance of Accounting Hubs.  Greg Leiter, Senior Director, Analyst for Finance & Operations at Gartner, commented, “Gartner's addition of Accounting Hubs to our view of Financial Technology demonstrates the increased interest we see in subledgers from our end users." 

Aptitude Subledger Accounting Hub helps centralise finance it architecture and take pressure off of the general ledger

 

What is a subledger? 

An accounting subledger is a database or book of accounts used to store a detailed subset of double entry accounting transactions. A subledger contains data at the lowest, most granular level and feeds entries into general ledger(s) - either in the cloud or on premise - for accounting and reporting.  The subledger integrates and retains all transactional and event level detail, providing a linkage point between the source systems where the data originated and the target systems (GL, Analytics & BI solutions, AI tooling, etc.) that can turn that data into reporting and insights.  

A subledger creates an environment where you have the best of both worlds.  

You maintain a centralized accounting hub with all the valuable detail you need while only pushing what you need to the General Ledger, keeping it highly-performant while protecting that valuable traceability from balance to transaction.  

It provides a central point within a finance architecture to retain data, deliver multi-GAAP, multi-entity and/or multi-currency reporting and apply accounting logic.  

The diagram below illustrates how an Accounting Hub with a subledger component can help streamline a finance IT architecture: 

Subledger Diagram - how a subledger can take the pressure off of general ledgers and streamline a finance IT architecture

On the left you see data flowing directly from various source systems into the GL. Data streams coming from these systems likely differ in level of granularity and the regularity with which they are sent to the various target systems.  You have accounting happening in multiple locations which creates reconciling and reporting challenging.   All this makes the reporting process difficult and time consuming – with data & reconciliation issues leading to intensive manual interventions, tactical fixes (delta upon delta) & traceability issues. Any changes must be affected in each system individually, increasing the time required for maintenance and development. 

Mirroring the diagram on the right allows an organization to massively reduce reconciliation issues and manual interventions.  The company has a centralized, accurate, finance-owned accounting hub.  While this certainly reduces cost, time and resource requirements for today’s tasks, an Accounting Hub also provides a launchpad for tomorrow’s technologies, regulatory requirements and digitally driven finance organizations. 

Swiss Re Corporate Solutions is a good example of a global company that has come to realize the benefits of a subledger as they scale their global footprint. The currently installed subledger, included within the Aptitude Accounting Hub, has allowed them to centralize accounting data and address requirements for multi-GAAP reporting.  It’s also helping them address the latest regulatory requirements required by the insurance industry. The resulting end-to-end data lineage will offer multiple benefits, such as a faster close process, a consolidated view of financial data and full control over all accounting calculations and reporting in one place.  

 

Three ways a subledger can help your GL shine: 

Using a subledger to maintain a ‘thin’ General Ledger 

The concept of a ‘thin vs. thick’ GL refers to the various ways of maintaining a General Ledger.  A ‘thick’ company GL is often what happens when more and more accounts, segments, fields and journal entries are added to keep up with the detail required for reporting requests.  Bespoke and complex, the system then becomes clunky and difficult to manage.  

‘Thin’ General Ledgers on the other hand are kept, well, General!  The system is left to do what it’s meant to do which is focus on highly-performant, statutory accounting and reporting as quickly as possible. Granular data can be held in the subledger with summarized balances sent to the GL.   

Support a move to a cloud GL 

The use of cloud General Ledgers is steadily increasing.  CFO.com cited that the market for cloud ERPs will be $28.8 billion in 2022, representing an 8% compound annual growth rate since 2016. While that isn’t necessarily break-neck speed, finance teams are seeing the value of automatic upgrades, reduced maintenance costs and lower Capex requirements.   

One of our clients, a top 5 UK bank, was the first bank to adopt a cloud GL. They knew they wouldn’t be able to store and configure all the data they needed within a cloud GL, so they used the Aptitude Accounting Hub with its established subledger to consolidate and integrate financial data from disparate systems in siloed divisions across the company, centralize accounting and feeding required inputs to the GL while retaining the ability to drill back to the rich detail at any time. 

Consolidate multiple General Ledgers 

At the end of every quarter is your finance team left to merge the reports from multiple GLs across your business into one set of statutory reports? Attempting to collect trial balance data (e.g., Assets, Liabilities, Equity, Revenue, and Expense accounts) from multiple general ledger systems, and manually mapping it to a centralized chart of accounts can introduce complexity, time and risk to any finance department.  Add the specific challenges of local currency and GAAP reporting and the complexity and costs just increase. 

A subledger can provide a centralized place to integrate, enrich and standardize data before generating required reports.  This way, finance know they are using the same set of finance certified data to generate all reporting.  

 

Conclusion  

The Aptitude Accounting Hub is part of a core finance infrastructure for many multi-national companies.  AAH can enhance and replace manual accounting processes, consolidate disparate data sources and improve the performance and usefulness of General Ledgers. An Accounting Hub is the foundation for an efficient finance architecture and a solid control environment.   

Have questions about how an Accounting Hub can better support your business initiatives and General Ledger?  Schedule a walk-though with our experts. 

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