Hi all,

I would like to understand if you allocate accruals in CT or do you leave them out on purpose?

If you are allocating them, do accrual bookings have the same information granularity as a "real" booking in the general ledger?

My experience is that accruals often do have a lower granularity of booking information. Also, they are often booked on another cost account/element and offsetting cost account/element than the "real" booking they should accrual.

Both, the lower granularity and the change in cost accounts make it kind of hard to allocate accruals out of cost source object.

Hence, we once decided to not include accruals to the allocation for two good reasons:

1. Excluding accruals from the allocation made our model very simple and it reduced complexity. Thus, we were much faster in setting up the model and made it running and maintenance effort are much lower.

2. The comparison of cost is mostly done year over year, not month over month. Over the period of a full year, accruals usually equal out so that they do not matter much for the cost comparison against last year.

Why is the comparison year over year better then month over month? (I could write a whole new article about it...)

To keep it short: e.g. consumption based cloud invoices lead to a hugh difference in the cost base every month. Therefore, why should one compare the cost to last month when the cloud consumption this month was much higher/lower?

In our case we include the accrual bookings in the cost source object, flag the bookings and then exclude the flagged line items from allocation to vendor, labor, fixed assets etc. object.

Doing so, we added a slicer for the accruals to the financial reports. Thus, one can compare the financials with and without accruals.

Happy to hear about your experiences and opinions on that.

We include them.  When your model matched the GL is build confidence and credibility with your stakeholders.  It also forces finance to better clarify the granularity of accruals so driving up transparency.

Ok, was finance booking accruals with the needed granularity from the beginning or where you forcing them to do so after you started the project?

I agree that it increases transparency but is it really required, though? Because you will get the same level of transparency after the real invoice hits your GL, no need for the accrual beforehand in my opinion. Please proof me wrong

Some areas in finance were posting at the right level of granularity but others weren't.  Setting as a requirement improved the overall standard.  It also provides confidence with users that the number they look at matches the GL and forms part of our regular control checks.

@Sasha Dunford, how long did it take your company to change the standard (roughly in months)? And what did you do with the periods where the granularity was not sufficient?

@Christopher Lehr It took us 3 or 4 months and we rebuilt our model to start from the financial year we implemented the change.  We switched off  the prior years and started from the new standard. 

It did help that we took the opportunity to introduce this when we were having a major supplier change - new agreements, services and suppliers - we mandated our requirements as part of the project that implemented the change.

@Sasha Dunford, ok then you had the perfect situation to start from scratch, improve the model and change the processes. Unfortunately, not every company has this opportunity.

What did you do with the accruals before the major change?

The fallout in our model needed us to rebuild so was a necessary step in our evolution.  Before this change, accruals didn't flow through the model.  Measuring the fallout as a monthly KPI got us the support to change the processes and our model.

showing this KPI created some kind of pressure and sense of urgency to do something about it, right?

Absolutely - we set a target that we expected 95% of cost to get through the finance layer so it immediately put the action on our finance team to get to that target, accruals being one of the key culprits.

Hi @Christopher Lehr I have had several configurations where I have looked at this. Generally speaking the decision process on accruals is as follows;

Include them in the Cost Source always so you reconcile to Financial reports. You want to include the accruals in the ITRT object so Cost Source = ITRT, but how do you want to allocate them. The problem is to what extent can you identify the correct method, usually the payroll accruals are processed with the same level of detail as the payroll payments so for internal labour including them is fairly straight forward through the labour model. External labour and Vendor accruals really depend on the process, sometimes there is sufficient detail to capture them in the same way as the payments but if you do not capture 100% of the accruals including the reversals it can lead to highly misleading allocations, so if in doubt I would recommend excluding them and allocating the accruals through the Other Cost Pools object. Using the Other Cost Pools object for the vendor and or external labour accruals means that you maintain the Cost Source = ITRT but you don't adulterate the vendor and labour reports with those potentially misleading allocations.

One other point to note is that over the course of the year the accruals are usually immaterial as the net movement in accruals rarely exceeds 1-2% of the total annual spend.

Hey @Paul Melican,

the immateriality of accruals is the reason, why we decided to exclude them from allocation and simplify the model.

I agree, you would need to have them in cost source to have an alignment in the financial reports but why also in ITRT?

Also, instead of putting them in the OCP and mix it together with some other cost, you could also create a dedicated accruals object to better report on them, if you not necessarily stick to the standard of Apptio.

@Christopher Lehr yes that makes sense I would allocate the to ITRT using the cost centre as the allocation method, can you an additional or the OCP. I would still include them because it just creates unnecessary noise when there is fallout.