Accounting Best Practices, Fifth Edition

14–4. Use Identical Chart of Accounts for Subsidiaries

If a company has a number of subsidiaries, the general ledger accountant will have a much more difficult time at the end of the financial reporting period, because the results of each subsidiary must be translated into the chart of accounts structure of the corporate parent. This can involve an enormous amount of work, because the information the subsidiaries send in may be in a chart of accounts structure that is so different from the one the parent uses that it is a matter of pure guesswork by the accountant to determine the correct accounts into which the subsidiary data should be recorded. This is a particularly galling problem if the subsidiaries are in an entirely different line of business, for this means that the chart of accounts may be substantially different; thus, consolidating account numbers is more of a problem if a company acquires disparate companies, as opposed to acquiring companies that are in the same industry.

There are several variations on the same best practice that will resolve this problem, as noted in the following bullet points. They range from merely requiring the permission of the corporate parent before a subsidiary alters its chart of accounts any further to requiring the substitution of the existing chart with the one the corporate parent uses. The bullet points are listed in ascending order ...