august month end
TRANSCRIPT
As you are aware, we have undertaken a review of our month end process in relation to Prepaid Expenses.
The review identified a number of changes to improve and provide consistency with the end to end process.
The process going forward beginning from August month end will be :
1. Before month end a report will be e-mailed to the MRA identifying any possible new prepaid expenses in the GL. This will likely reduce the time taken reviewing our GL line by line
2. All new prepaid expenses will be set by up by the MRA in NSF at the start of the prepayment.
3. At month end MRA will click a button to process the amortisation for the month
The benefit of the change will result in more clarity. Each new prepaid expense will go through individually, making any future analysis/identification easier for both the Finance community and the users when drilling to transactions - rather than a bulk figure as certain areas are currently doing. This will also assist our customers understand their expense transactions when accessing their online reports as the description will refer to the specific prepaid expense.
This change applies to any new prepaid expenses only. All existing prepayments currently being processed (using excel & journal upload) will run their course with the current process. In time these will roll off & all prepayments will be follow the new approach.
This new process will be implemented for August month end
January February March April May June July August September October November December
Example: January – $120 subscription for a year
$120
$10 $10 $10 $10 $10 $10 $10 $10 $10 $10 $10 $10
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1. The purchase order is coded to expenses in the P&L at the source
2. At month end, the transactions in the
P&L are investigated line by line to search for possible prepaid expenses
3. An Excel template is filled in to detail the prepaid expense and to calculate the amount to take out of the expense account
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4. The template is also updated to account for prepaid expenses identified in previous months
5. The amount is calculated as the proportion of the payment that is to be expensed in future periods
6. A reversing accrual journal is prepared to take the proportion of the payment that is to be expensed in futureperiods out of the expense line
7. The journals are due to be posted by 1pm on Day 1
A high-level overview of the current process:
The primary opportunities to improve the current process and reduce effort are in the following two areas:
1. Searching through transactions for P&L expense items to identify prepaid expenses
2. Manually preparing, entering and posting journals every month of the life of the prepaid expense
.
– Setup additional purchase order categories specific to prepaid and ensure the coverage of the period is also entered at the
time the order is created
– Create a monthly report which lists vouchers with prepaid expenses categories to be send to MRAs to review, analyse and
prepare the journals detailed below
– Replace the monthly reversing accrual journal with one journal to move the P&L account to balance sheet account and one
journal to the commitment ledger to reflect the amount sitting on the balance sheet
– monthly journals to amortise the expenses based on the number of months the expense covers, an equal and opposite
commitment journal to the amortisation expense journal each month to bring the commitment down
– Diarise in a shared diary the end of the prepaid expenses to ensure a new prepaid expense commences for regular recurring
expenses
– Ensure the necessary information is available to support balance sheet reconciliations
.
• The monthly expense amount of each prepaid item is shown on the ledger as one number,
while in the current process we need to add up the beginning and the end of the month
prepayment journals to the get the figure
• Easier to track on-going/recurring expense and make sure accrued expenses are captured in
the right period
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Report
Example:Acc 6314 - Licence Fees - Software & Websites
$120 for 1 year (January to December)
Journal 1
Dated: JanuaryLedger: ACTUALS(moves the P&L account to balance sheet)
6314 -$1203338 $120
Journal 2
Dated: JanuaryLedger: COMMIT(shows the full cost against the project budget)
6314 $120
Copy Journal 3
February $10March $10April $10May $10June $10July $10August $10September $10October $10November $10December $10
Purchase Order Category
Journal 3
Dated: JanuaryLedger: ACTUALS(reflects amortisation of the prepaid expense for 1/12 of the 1year prepaid expense)
6314 $103338 - $10
Copy Journal 4
February -$10March -$10April -$10May -$10June -$10July -$10August -$10September -$10October -$10November -$10December -$10
Journal 4
Dated: JanuaryLedger: COMMIT(reflects offset of amortisation in commitment ledger
6314 -$10
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Diarise
Provide Supporting Information
Setup more purchase order categories specific to prepaid expenses so FST can select them while
creating the purchase orders (examples are Memberships, Software licence fees, Subscriptions, etc)
Benefits:
• Easy to identify prepaid expenses
• Improved accuracy
• Improved efficiency
A process change is required in FST to select this category - effort would be less than the current effort by MRA teams meaning overall less effort for Finance.
Provide the from and to date in More
Information
Create a monthly report which lists vouchers with prepaid expenses categories to be send to MRAs to
review and prepare journals
Benefits:
• Automatic report providing all prepaid
expenses removes the need to run
transaction listings and search
transactions
• Improve efficiency
Analysis of the expense would still be required by the MRA teams to determine the number of months the expense covers
This would be less effort than the existing process to identify prepaid expenses.
Picks up the details of vouchered purchase orders based on:
1. Pre Paid Expenses categories (NEW)
The benefit of this is that these are definitely prepaid expenses and the period will be
specified
2. Non Pre Paid Expenses categories using specific account codes (list provided)
These will need to be analysed as possible prepaid expenses, however if the process in point
1 is followed these should be exceptions
Replace the monthly reversing accrual journal with :
1. one journal (journal 1) to move the P&L account to balance sheet account in the actual
ledger
2. one journal (journal 2) to the commitment ledger to reflect the amount sitting on the
balance sheet
Benefits:
• Simpler journal creation process
• Easy to setup monthly amortising journals,
created once on initial payment
• The only calculation required is the upfront
amount by the number of months
• Each journal would then have an
appropriate description outlining the nature
for the expense
• Improve efficiency .
Monthly amortisation journals can be setup and modified once by using the copy journal function
Benefits:
• Journals are created upfront and can be
changed if necessary in the future
• MRA will receive alert to submit and post
journals when the period is open
• Provide greater transparency on the nature
of the journal due to the journal description
& consistent amounts each month
• Improve efficiency
An alert will be sent to notify the journal creators to submit and post the journals when the period is open for the future dated journals
1. Create the actuals journal for January (Journal 3)
– Copy journal 3 to create monthly journals to amortise the expenses based on the
number of months the expense covers (in the example we’ve been using this would be from
February to December)
2. Create an equal and opposite commitment journal (journal 4) to the amortisation
expense journal
– Copy journal 4 to create monthly journals to amortise based on the number of
months the expense covers
The full value of the expense will reflect correctly in both project reporting and operation reporting
.
Examples of journals 3 and 4
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Monthly amortisation journals can be setup and modified once by using the copy journal function
– Do this to copy journal 3 and 4
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YTD YTD YTD
Actuals (Ex Adjust)
CommitExpenses
(Actuals + Commit)
6314 6314 6314 3338
Voucher 120
Month 1 0 120 120 120
Month 1 10 110 120 110
Month 2 20 100 120 100
Month 3 30 90 120 90
Month 4 40 80 120 80
Month 5 50 70 120 70
Month 6 60 60 120 60
Month 7 70 50 120 50
Month 8 80 40 120 40
Month 9 90 30 120 30
Month 10 100 20 120 20
Month 11 110 10 120 10
Month 12 120 0 120 0
Diarise the end date of the prepayment where the expense is a regular payment to ensure that the
replacement expense is processed
Benefits:
• prepaid expenses will occur consistently
• Less likelihood of a payment being missed
and a catchup expense being incurred in
future periods (years)
• Recommend utilising local diary management tools to diarise – potentially a
shared MRA calendar in outlook
This will be useful to track when a prepaid expense is due to expire.
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Ensure the necessary information is available to support balance sheet reconciliations
Input enough information in for:
• Audit
• Reporting Drills
• GFC Reporting
Benefits:
• Balance Sheet Reconciliations will continue
to occur as required
.
There is a longer-term opportunity to automate the amortising of prepaid expenses as a later phase of the
underway Purchasing and Payment Request (PPR) function in NSF. The timeline of this new functionality is
estimated to be delivered at Q1 2021
1. The requestor will be asked to select from a list of purchasing categories in their request
2. If the selected category is a prepaid expense, the user will be prompted to enter the number of months the expense covers
3. The system will generate amortising journals automatically
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Remember you may need to prorate depending on your period of time
Example: an annual membership starting on 15 January would require this type of amortisation:
1. January prorated amount
2. February monthly amount
3. March monthly amount
4. April monthly amount
5. May monthly amount
6. June monthly amount
7. July monthly amount
8. August monthly amount
9. September monthly amount
10. October monthly amount
11. November monthly amount
12. December monthly amount
13. January Prorated amount.
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– NSF Prepayment Functionality
Specific prepayment functionality was introduced in a later version of NSF financials. This is one of a limited number of new functions available. An
upgrade to NSF is not in any immediate strategic plans and an alternative solution has been proposed which provides a similar outcome.
– NSF GL Allocation Functionality
NSF provides the ability to create a GL allocation to create journals. In this case the information on the number of months the expense covers is not
immediately available. Hence creation of the journals by the MRA teams is recommended based on a simpler approach.
– NSF Asset Functionality
There is a similarity of prepaid expenses to assets and consideration was given to leveraging this capability. The asset functionality is complex and adds a
number of steps hence this is not recommended as a practical option.
– NSF Recurring Journals
This is not recommended due to the following reasons:
• The process of setup recurring journal requires a model journal to be created and batch job to run to create the journals adding additional complexity
• All the future dated journals will have the same journal ID which complicates search and identification
• Future dated journal will only be visible when the journal is created and make it difficult to make adjustment if required, eg total monthly amortisation amount
does not equal to the total amount .
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