Managing Multiple GAAPs and Prior Period Adjustments

This chapter provides an overview of managing multiple Generally Accepted Accounting Principles (GAAPs) and discusses how to:

• Manage different GAAPs in one ledger.

• Create adjusting entries in compliance with different GAAPs in one ledger.

• Deal with the implications of multiple GAAPs in one ledger for various processes.

Understanding Multiple GAAPs and Prior Period Adjustments

PeopleSoft software delivers the ability to book accounting transactions according to different and often conflicting accounting principles for one Business Unit in one ledger and to maintain these entries in compliance with the rules of government and regulatory organizations.

This section discusses:

• GAAPs.

• Book codes.

• Prior period adjustments.

GAAPs

GAAPs as determined in one country or jurisdiction often vary from country to country or by self-governing accounting bodies and jurisdictions. Consequently, organizations record and report their operations according to local accounting requirements as well as by rules applicable to parent corporations that are often under the rules of another national jurisdiction.

PeopleSoft software provides the ability to maintain separate ledgers and ledger groups for different accounting principles, record transactions under varying statutory rules using Alternate Account and using MultiBook in PeopleSoft General Ledger and its subsystems for its automatic synchronization capabilities. However, entering separate entries for a transaction in a local ledger of a ledger group is sometimes viewed as less than optimal due to the manual nature of the approach.

PeopleSoft software supports a sometimes much favored method, especially within financial organizations. This method enables you to simultaneously generate in one business unit and ledger all the relevant accounting entries for a transaction that addresses different local and corporate accounting rules.

Book Codes

You can use book codes to simultaneously generate sets of entries to record related transactions according to multiple GAAPs for the same business unit in the same ledger. For example, where local and corporate accounting principles are not compatible, you define a local (L) and a corporate (C) book code. For those situations where requirements are alike, you define a code for both (B). You can attach these book codes to accounts as attributes. This results in separate permutations of accounts and book codes in which you simultaneously record related transactions under local, corporate, or both rules.

You can choose to associate a single book code with one account value. Using this method, a unique account value must be created for each book code. For example, book code C would be associated with account 500001, book code L with account 500002, and book code B with account 500003, to record related amounts in the same ledger but effectively in different books. When you choose this method, book code appears as a read only field on the journal entry page when you enter the account, and book code cannot be modified at time of entry.

PeopleSoft software also provide an Allow Book Code Override option at the installation level on the Account page that enables you to choose book code and account combinations at the time of journal entry. Using this method, you can associate any of your book codes with the same account value to record related amounts in the same ledger—effectively creating separate books in the same ledger while using the same account. The main advantage of this method is that fewer account values are required. You must set up book code defaults for an account; you can then update the book codes by selecting from a drop down list at the time of journal entry.

See Also

Adding Book Code Values

Prior Period Adjustments

Local regulatory rules often specify local deadlines that differ from corporate deadlines. For example, they might require local entities to adjust period balances beyond the deadline specified by rules imposed on the corporate headquarters. This can create what we call a prior period adjustment from the standpoint of the corporate books.

In the classic sense, a prior period adjustment is any adjusting entry made to a closed period for which financial results have been published and usually comes as the result of an audit finding that an adjustment must be made. For this discussion, prior period adjustments are entries that are mandated by local accounting rules that require that certain entries be made to the local books for a specified period of time after corporate books must be closed and not necessarily as the result of an audit finding.

See Also

Defining Accounting Calendars

Managing Different GAAPs in One Ledger

The method described here creates subsets of a ledger and enables you to simultaneously enter transactions to the subsets while maintaining their balances according to the accounting principles applicable to each subset.

To manage different GAAPs in one ledger, use the following components:

• Installation Options (INSTALLATION).

• Book Code (BOOK_CODE).

• Ledger Codes (LEDGER_CODE).

• Adjustment Type (ADJUST_TYPE).

• Open Period Update (OPEN_PERIOD_UPDATE).

• Account (GL_ACCOUNT).

Use the ACCOUNT_CF component interface to load data into the tables for the Account component.

See Enterprise PeopleTools 8.48 PeopleBook: PeopleSoft Setup Manager

This section discusses how to:

• Activate the book code feature using the installation option.

• Enable the adjustment type in user preferences.

• Create book codes to facilitate multiple GAAPs within the same chart of accounts.

• Add book codes as an attribute of an account value.

• Define ledger codes to reflect different accounting rules (GAAPs)

• Define adjustment types.

• Update open periods for ledger codes.

• Select a method to update open periods.

Pages Used to Manage Different GAAPs in One Ledger

Activating the Book Code Feature Using the Installation Option

Access the Installation Options - Overall page.

Enabling the Adjustment Type in User Preferences

Access the User Preferences - General Ledger page:

See Also

Defining General Ledger User Preferences

Creating Book Codes to Facilitate Multiple GAAPs Within the Same Chart of Accounts

You can use the book code ChartField as an attribute to segregate local accounts from corporate accounts when there is divergence in accounting principles and to identify accounts if there is convergence of rules. For example, this table illustrates three possible permutations within one chart of accounts dictated by different accounting rules for a local and a corporate entity.

In this scenario, you record some transactions using the Local Only accounts, others using Corporate Only accounts, and some transactions that are compatible with both local and corporate accounting principles or are so related that they are necessarily recorded using the accounts in the Both category.

Local Only entries must balance within their book code.

Corporate Only entries must balance with other Corporate Only entries (within the Corporate Only book code).

Entries that meet both local and corporate accounting rules must balance with other both entries.

All processes that create balanced journal entries must adhere to these requirements.

See Also

Adding Book Code Values

Adding Book Codes as an Attribute of an Account Value

Access the Account page.

Book Code is a balancing ChartField that you can add as an attribute of the Account ChartField to segregate accounts into various categories within one ledger. In this case it is used to group accounts within one ledger to serve various divisional or GAAP requirements.

See Also

Adding Account Values

Defining Ledger Codes to Reflect Different Accounting Rules (GAAPs)

Access the Ledger Code page.

Use this page to create ledger codes and assign to them the applicable book codes to define subsets that segregate various accounting treatments of transactions.

Define ledger codes in which to group book codes to create subsets of a ledger. Each subset can represent a balance maintained according to accounting principles imposed on either a local or corporate entity. Each ledger code can contain one or more book codes as in this example:

See Also

Using the Balance Sheet Indicator and Book Code

Defining Adjustment Types

Access the Adjustment Type page.

Define an adjustment type for each combination of ledger code and book code that share accounts with other ledger code and book code combinations involving different accounting rules (multiple GAAPs) that specify different rules for different closing dates and prior period adjustments.

See Also

Adding Adjustment Type Values

Updating Open Periods for Ledger Codes

Access the Open Period page.

Note. The Ledger Code and Adjust Type fields only appear if you activated book codes in the Installation Options - Overall page, selected Enter Adjustment Type Journal in the User Preferences - General Ledger page, selected Update Open Periods by Ledger Code on the Ledger For A Unit - Definition page for detail ledgers.

Selecting a Method to Update Open Periods

Access the Ledgers For A Unit - Definition page.

See Also

Adding Adjustment Type Values

Pages Used to Define and Update Open Periods and Adjustment Periods

Creating Adjusting Entries in Compliance With Different GAAPs in One Ledger

To create adjusting entries that comply with multiple GAAPs, use the User Preferences component (OPR_DEFAULT) and the Journal Source component (SOURCE).

Use the OPR_DEFAULT_FIN component interface to load data into the tables for the User Preferences component.

This section provides an overview and discusses how to:

• Deal with journal entry dates outside the open period.

• Create adjustment type journals.

Understanding Prior Period Adjusting Entries in Compliance with Different GAAPs

This section discusses automatic generation of prior period adjusting entries in the context of self-balancing subsets of one ledger that have different applicable GAAPs but use common accounts. Common accounts record common transactions but require special adjusting entries when multiple GAAPs vary in recognition dates and recording principles for these transactions.

For example, different accounting governing bodies for the corporate and local offices of an organization have mandated different accounting deadlines. The corporate deadline for recording prior period activity is no later than the fifth day of the current month. The local deadline for the related division is the fifteenth day of the current month. At the local office on the tenth day of the current month, a transaction is determined to be applicable to the prior month.

For this example, the following book code and ledger code structure has been adopted:

A complete set of regulatory financial statements can be produced by retrieving the Local Only and Both account balances.

Complete corporate financial statements can be produced at headquarters by combining the Corporate Only with the Both account balances.

The following is an example of a simplified tree that could be used for reporting in PeopleSoft n/Vision:

HQ Node (Headquarters or Corporate Balances)

|___B Book Code

|___C Book Code

REG Node (Regulatory or Local Balances)

|___B Book Code

|___L Book Code

Most accounts are in the B category and it is with these accounts that the necessity for this special type of prior period adjustments arises. This is because there are different recording rules for the corporate and local offices that are applicable to the common B accounts. The accounts in the C and L categories are specific to either corporate or local rules and are not directly involved in the adjustment and can be ignored for the purposes of the example.

May is the prior period and June is the current period in this example.

When you choose to update open periods by ledger code rather than by Ledger Group, you must specify an adjustment type value for the ledger code that has the earlier close date:

The following illustrates the progression of entries to properly record a sample transaction for HQ and Reg for May and June of 2004 in their common accounts:

During the processing of the original journal entry for a transaction that involves a prior period adjustment and common B accounts an adjustment journal entry is created by the Journal Post process if a ledger code period is closed while another is still open.

The adjustment journal entry created in the Journal Post process for the closed ledger code period is identical to the original journal entry recording the transaction except for the following:

• The debit and credit (sign) of the amounts as in the original journal entry are reversed.

• An adjustment type ChartField value, specified for the ledger code on the Update Open Periods by Ledger Code page, is appended to the journal lines.

• The adjustment journal entry is automatically set by the system to generate a reversing entry at the beginning of the next period.

Financial statements include the original entry amounts and the adjustment entry amounts having the adjustment type value HQAJ to arrive at correct totals for corporate B account in May. When combined with the May C accounts, they correctly reflect the financial position according to accounting principles applicable to the corporate books.

Local financial statements include in their totals only the original entry B amounts and ignore the corporate amounts having the HQAJ adjustment type. When combined with the L accounts, correct regulatory or local financial statements are produced.

For June, a reversing journal entry is generated by the system for the corporate books having the adjustment type HQAJ. The June totals can then be compiled for corporate as dictated by its applicable accounting principles as well as for the correct June totals for the local books.

Overall Year to date balances are also correctly calculated.

Note. Adjusting entries can be entered manually. However, only users with the Enter adjustment type Journal option enabled on the User Preference - General Ledger page will be able to enter such journal.

See Also

Pages Used to Define and Update Open Periods and Adjustment Periods

Defining Ledgers for a Business Unit

Adding Adjustment Type Values

Adding Book Code Values

Pages Used to Create Adjusting Entries in Compliance with Multiple GAAPs in One Ledger

Dealing with Journal Entry Dates Outside the Open Period

Access the Journal Source - Journal Options page.

Note. Journal Edit does not change the journal entry date for InterUnit journals if a period is closed. Journal Edit errors out the journal entry if the journal entry date is closed for any InterUnit Business Units.

If a transaction journal date is outside the open periods for all applicable GAAPs, it fails in the Journal Edit process unless you elect to have Journal Edit automatically change the journal date to an open period.

Creating Adjustment Type Journals

Access the Journal Entry - Header page.

See Also

Defining General Ledger User Preferences

Setting Overall Installation Options

Dealing with the Implications of Multiple GAAPs in One Ledger for Various Processes

While the many processes that create journal entries need not be concerned about populating adjustment type for the journal line if they correctly populate the header, there are other considerations that must be addressed.

This section discusses how to:

• Define the necessary balancing provisions for various processes.

• Create steps and rules for various processes to maintain separate GAAP balances.

Defining the Necessary Balancing Provisions for Various Processes

The Journal Edit process groups journal entry lines by book code to create separate Edit Suspense, Amount Suspense, Balance Suspense, Currency Rounding Adjustment, InterUnit, and Position Accounting journal entry lines by book code. Adjustment type is also as a Balancing ChartField. Journal lines that are created by Journal Edit for these processes inherit the adjustment type ChartField values from the source lines.

You must add balancing and suspense accounts for these processes for each of the self-balancing subsets of accounts within the ledgers that the book codes and adjustment types define.

See Also

Adding Adjustment Type Values

Adding Book Code Values

Creating Steps and Rules for Various Processes to Maintain Separate GAAP Balances

For some processes you must create separate steps for each book code and adjustment type combination or otherwise setup the processes to prevent combining of different GAAP balances. These processes include:

• Revaluation.

• Translation and Translate Within Ledger.

• Interim and Year End Closing.

• Consolidation.

ADB requires that you create separate Average Daily Balance Rules as follows:

• For local regulatory reporting, select book code values of L (Local), B (Both), and blank adjustment type values.

• For corporate (headquarters) reporting, select book code values of C (Corporate), B (Both), and Adjustment types values of blank combined with any adjustment and reversing entries having applicable adjustment codes.

Archiving does not archive ledgers or journals of open periods. Because accounting periods can be open for one ledger code and closed for another when dealing with multiple GAAPs, this requires careful consideration of archiving actions.

See Also

Associating a Balance Suspense ChartField With an Account Balancing Group