Fundamental Principles and Data Concepts - Dates and Closed Periods

Fundamental Principles and Data Concepts in Reporting

Scope and Purpose

The purpose of this document is to highlight the relationship between data and reporting outcomes.

The scope extends from GL-based reports to object-based transactional reports in context of permissions granted for transactions in prior closed periods and the historical attribute native to most reports in Acumin.

Overview

Acumin's reporting structure includes GL-based reports which are generated from the GL operation of the object as well as object-based transactional, where object information is organized in terms of attribute-based reporting dimensions, such as firm (office), practice group, member etc. set at the member, client and matter levels, in context of dates and other filter options. In both cases the reports are designed to provide information and measures used for analysis and/or decision making.

Acumin's reporting options are based on the same fundamental principles inherent in the application; therefore, the purpose of this document is to provide a platform from which to build an understanding of the reported data. With this conceptual background, the analyst should be in a position to interpret reported results for better and timelier decision making.

The Implication of Dates on Object Based Reporting

Concepts and Fundamentals

Acumin has a wide variety of transactional objects such as time entries, invoices, and receipts. Some objects have related GL operations - for example invoices; in which case the GL operation has an effective date. Other objects do not have related GL operations - for example case notes.

Each transactional object stores a variety of dates. At a minimum each of these objects has a transaction date and a creation date. Those that have accounting related objects – associated GL operations - have an effective date equal to the object's transaction date as well as the date on which the user pressed post.

The time entry object is an exception. As most environments are configured to not generate GL operations for time entries, the object has a posting date but not an effective date.

Other action dates are also tracked, for example the date on which a posted time entry is transferred or modified or the date on which the invoice is cancelled.

The combination of these dates triggers the historical attribute native to Acumin reports. Historical reports measure the activity relating to an object within a period, to re-estate a position based on the dynamic status of the object. The historical position is stated in relation to activity (life cycle of the affected objects). It excludes changes considered corrections or re-statements of the affected transactional object. We include a reference table of the type of corrections and/or re-statements that would cause reports generated for the same period to change from one day to another.

In conclusion, Acumin uses the transaction date to report activity measures justly and without favour. The availability and use of the transaction date within an object for productivity and management reporting, reflects the transaction accurately and fairly as it was at data entry without compromising the integrity of reported results or masking the effect of corrections and re-statements completed afterwards.

The Impact of Dates on Object-based Reporting

To illustrate the power behind "dates" on object-based reporting, we offer a few examples.

Hours Worked;

When a user records time; the time entry object captures the creation date and a transaction date. Once the user posts the time entry record, the object captures the posting date.

A user who has a right to record time with a transaction date is a closed period records a January 14^th 3-hour meeting on August 10^th of the same fiscal year. The hours worked on January 14^th will be reflected in the January hours worked measure as well as any re-printed WIP report with an as at date between January 14^th and August 10^th.

This means that decision makers will have visibility of the tardiness of the time-record and its impact on its collection value. If the hour worked would have shown in the month of August instead of January, decision makers would not have visibility of the financial impact of members recording time today for work completed in priori months. The members' time recorded would consistently show as meeting expectations as long as the total hours recorded was in accordance with pre-set targets - all members would look equal, unfairly masking the effect on cash flow and realization of latent time records.

With the object-based transaction-date model, decision makers can spot those members that are permanently latent with timekeeping records – working for past results - thus negatively affecting the docket to collected cycle, negatively affecting cash flow and realization rates, adding to slippage and opportunity losses as well as increasing the chances of total non-recovery of work completed.

WIP Management;

To remain consistent and provide optimum clarity, Acumin will report the hours worked on January 14^th as WIP effective its transaction date. This means that the WIP position as of January 14^th – generated on August 10^th will be 3 hours higher than the last time the same report was produced; accurately reflecting the previous and erroneous omission of the meeting.

Furthermore, if on September 15^th the authorized user realizes a data entry error and changes the meeting from 3 hours to 0.3 hours, this would constitute a correction (and not a change in activity) therefore if the Aged WIP report is re-stated between January 14^th and August 10^th, the unbilled time would reflect the correct 0.3 hour meeting instead of the incorrect 3 hour one.

If on October 2^nd the authorized user writes-off the unbilled time entry of January 14^th, then the WIP report as of January 31^st and August 31^st – if re-printed – will continue to show the entry as WIP reflecting the corrected 0.3-hour meeting, and only if the WIP report is executed as at October 2^nd or later in the year, will it exclude the time entry as it is written-off (no longer WIP).

If the unbilled time write-off is reversed on November 1^st, as this is considered a correction – this change would result in the Aged WIP as at October 2^nd or later to be reprinted showing the 0.3 meeting as if it would have never been written-off.

In conclusion, WIP re-issued for any as at period will accurately reflect activity on a historical basis. This means that it will list the time entries based on their transaction date accurately reflecting their time element and value, the aging of the record, and in consideration of its status and date of status change (billed, written-off etc.).

Cancellation of an Invoice;

A June 27^th time record created and posted on June 28^th is billed on an invoice with a transaction date of July 5^th but posted on July 6^th. The invoice is then cancelled on August 15^th with a cancellation date also equal to August 15^th. All transactions were for the same fiscal year.

Impact on WIP reports:

• WIP reports generated with an "as at" date between June 27^th and July 4^th – executed on June 28^th or later up-to July 5^th will show the time record, it is unbilled until July 5^th;

• WIP reports generated with an "as at" date between July 5^th and August 14^th – executed on July 6^th or later up-to August 15^th will NOT show the time record it is billed on an invoice dated July 5^th.

• WIP reports generated with an "as at" date between June 27^th and July 4^th and then as at August 15^th or later - executed on August 15^th or later, will show the time record as it became unbilled on August 15^th.

In conclusion, WIP which is re-positioned due to invoice cancellations remains consistent with reporting concepts and fundamental principles in context of its transaction date and activity history. From a practical perspective, this means that decision makers that observe retroactive changes in WIP without corresponding changes in hours worked is likely looking at the results of invoice cancellations on WIP –not indicative of best practices in the fair and consistent billing of work product.

Impact on AR reports:

• AR reports generated with an "as at" date between June 27^th and July 4^th – executed on June 28^th or later up-to July 5^th will NOT reflect the invoice containing the time record – as this is a time record remains unbilled until July 5^th;

• AR reports generated with an "as at" date between July 5^th – up to as at August 14^th – executed on July 6^th or later up-to August 15^th will include the unpaid invoice which includes the time record – as this is a time record that is billed on an invoice dated July 5^th.

• AR reports generated with an "as at" date between August 15^th or later – executed on August 15^th or later will NOT reflect the invoice containing the time record – as this invoice was cancelled on August 15^th.

Unbilled Entry Write-Offs as a Regular Process for Completing the Invoice:

Unbilled entry write-offs are not a desirable invoice preparation methodology.
If the intent is to reflect inefficiency on the part of the timekeeper, the entries should be written down to zero during the invoice-preparation process. If the intent is to reflect bad debt expense, the entries should be invoices at their original values, and the invoice written-off.
The unbilled entry write-off process is intended to facilitate the last part of the matter's life cycle. The unbilled entry WOs should be minimal and always at the end of the life of the matter. In this context they offer a measure of the loss due to problems with the end-of life processes for a matter.

Invoice Cancellation as a Regular Process for Invoice Adjustments:

Invoice cancellations are not a desirable invoice adjustment methodology. Once an invoice is posted and issued to the client, further invoice adjustments should be completed through credit notes and / or supplementary invoices. This maintains a clear audit trail for all users of the information including the client.

They are also not considered best practice by most law-firms the effect of cancelled invoices can be misinterpreted in context of individual performance metrics, creating and unjust platform for assessments and evaluations.

Discussion on Changes Affecting Prior Periods

Unbilled time:

Acumin will reflect the object's final position which will be affected by changes in working member, date, matter, chargeability, time component, rate and value.

Unbilled Disbursements:

Acumin will reflect the object's final position which will be affected by changes in disbursement code, date, matter, chargeability, rate and value.

For most law-firm environments these corrections and re-statements are rare resulting in non-material changes in WIP (UBT and UBD) and the corresponding GL account however major changes may cause the organization to reconsider current policies and procedures for a change in behaviour which would not have been visible with prior systems.

The most common reason for changes in WIP and related GL accounts are due to modifications to time and/or disbursements unbilled records with a transaction with date in a prior closed period.

Although most law-firm clients to allow users to post unbilled time and/or make changes in time-entry chargeability on records with a transaction date in a closed month, similar modifications are generally restricted for closed years.

Modifications to disbursements are generally more restrictive, where unbilled disbursements cannot be posted with a transaction date in closed month as well as a closed year.

The following is a list of transaction types which can generate changes in WIP as well as to the related GL account balances of closed periods.

Transaction types listed which affect disbursements (highlighted in gray), will also have an impact on the corresponding GL master accounts, and depending on the nature of the transactions those used for recovery and/or non-chargeable disbursements. If the disbursements affected by these transaction types have a transaction date a closed fiscal year, the law-firm client will see a difference in the corresponding ending and opening balance of affected accounts from one year to the next.

Transferring the Accounting Impact into the Current Fiscal Year:

As the implied transaction-types are typically subject to accounting control for execution, these changes (if any) should be minor and immaterial, however where a transfer to the current fiscal year of the accounting impact of a permitted transaction affecting a closed fiscal period is required; the authorized end-user can journalize the latter through a prior period journal entry on the last day of the affected fiscal period to reverse the effect of the transaction type followed by a second journal entry on the first day of the new fiscal year to re-state it.

Note to reader:
In addition to entry correction or re-statements made available to authorized-users through the various transaction types listed on the table presented, it is also possible for law-firm clients to experience changes in WIP due to database updates requested over time.
As newly converted Acumin clients become familiar with functionality not previously available within the organization's source application, it is possible for the latter to opt to request database updates (mini conversions) which may result in changes in WIP. Common requests are to convert certain disbursement rates to costs per unit and then to apply special client and or matter disbursement rate changes – both which will have an impact on closed fiscal periods if the database update involves transactions with a transaction date in a closed fiscal period.