THE CHART OF ACCOUNTS IN THE US - OPTIONS

Please note that the guidance below is not a substitute for professional legal and/or tax advice. Any tax advice contained in the body of this e-mail is not intended or written to be used, and cannot be used, by the recipient for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code or applicable state or local tax law provisions.

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In many countries (not just France), the government mandates the use of a specific chart of accounts. This is done so as to enable all businesses to report their results to the government in a standardized fashion. Unfortunately, that chart of accounts rarely meets the needs of management when it comes to analyzing business performance. As a result, much time  is spent by “Gestion” – a separate department that generates management reporting and corresponding budgets & forecasts after significantly massaging accounting information.

US businesses benefit from less meddling into their operations on the part of their government. As a matter of fact, the US government can only obtain financial results from privately-held businesses by way of tax returns. Those businesses have no obligation to report any other numbers and tax returns are kept by the IRS (the US tax authorities) in the strictest confidence.

NOTE: Public companies, by virtue of being “public”, do not benefit from such privacy and have to report to the SEC (Securities & Exchange Commission), but that is another topic altogether.

That means that each business can design a chart of accounts to meet its own needs first and foremost. This is both a blessing and a daunting task: 

• If properly done, management will benefit from reliable and easy to analyze information for years to come without burdening the "Gestion" department with having to adapt to an unfriendly accounting environment. 
• When done poorly, management will suffer from impractical and sometimes unreliable information for years to come. 

In other words, US businesses have the freedom to design a chart of accounts as well or as poorly as they please, and reap the benefits or suffer the consequences of that freedom.

Understandably, some business owners do not get involved in this sort of minutia. However, a business will be impacted for many years if this is done improperly. Delegating this task to your bookkeeper is rarely a good idea (anyone can claim to be a bookkeeper since there is no certification process). Some accounting software come equipped with pre-established charts of accounts that are presumably tailored to various types of business activities. Although better than nothing, this is rarely an ideal solution. 

If you already have an existing business in France and you have grown accustomed to seeing financial results a certain way through your “Gestion” department, nothing prevents you from molding your US chart of accounts to resemble the accounts that your “Gestion” currently produces for you. Alternatively, designing a chart of accounts from scratch with the help of a CPA (Certified Public Accountant) that understands your business and your informational needs will generally yield the best result.

Note that adapting the resulting financial information to a tax return is the job of the tax preparers. Given that each company develops its own chart of accounts, this can be quite burdensome. In order to somewhat streamline the process, the following should be kept in mind:

• Standard accounting norms for the US should be followed in order to ensure that tax preparers are not misled by the financial information provided to them once a year.
• The chart of accounts should be designed in a way that answers most questions a tax preparer would ask. Short of that, additional work will be required by your accounting team in order to respond to all the tax-preparer’s inquiries.