Using GAAP for Cross-Business Triangulation

 

 

 

"When will we ever use this in real life?!"

 

 

 

When I asked my father about Trigonometry, I got a surprisingly tangible answer.  From an elevated vantage point he observed a friendly position come under rocket fire.  He radioed them for a vector, triangulated the source, called in artillery, and put an end to the attack.

Triangulation is a trusted technique employed by the military, civil engineers, etc.  It involves sharing perspective of a focal point between two observers and using the full information to establish a more accurate lay of the land.

We can observe a wide variety of analogous systems extending and generalizing the concept of triangulation.  Human vision accomplishes depth perception using two eyes instead of one.  Juries and arbiters act as objective third parties to bring impartiality to the legal process.  Financial exchanges enable standardization or their contracts by using an agreed upon convention for securities identification (Cusip, ISIN, etc).

In enterprise system design, we often face the challenge of customizing a general system like an ERP or CRM to one or more specific business operations or silos.  Where financial data is concerned, we can take advantage of GAAP to find common ground between disparate operations and thereby establish a shared ubiquitous language.  All US publicly traded companies are required to file according to GAAP, numerous non-domestics use IFRS or their own version of GAAP.

Most individual business silos track activity at the accounting journal level within their own Subledger.  Even where a system or process is not concerned with accounting per se, activity tracking loosely qualifies the system as a subledger.  On a monthly cadence, the financial contribution of this process is aggregated and recorded to the General Ledger.  This is then used to publish financial status to investors, etc.

The presence of accounting standards provides product and engineering with a shared means to facilitate cross operational communication internally or externally.  When sharing information at the General Ledger aggregate level is enough, the transformation of data is already done for us thanks to GAAP and the accounting department.

More nuanced work is necessary where processes and systems need to exchange data at the pre-aggregate level.  However, even in these cases the internal process to aggregate to the GL necessarily exists.  This provides us with a framework to glean a shared understanding of our financial data and its mapping to and from our operations.