Chapter 16 The General Ledger and Business Reporting

Chapter 16: The General Ledger and Business Reporting (GL/BR) Process Accounting Information Systems, 9 e Gelinas ►Dull ► Wheeler © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Learning Objectives p Describe how the business processes discussed in Chapters 10 though 15 provide data required for general ledger (GL) updates. p Understand how the GL and business reporting (BR) capabilities support an organization’s external and internal reporting functions. p Understand the limitations of the traditional GL approach in contemporary systems. © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Learning Objectives (cont’d) p Analyze control issues and control plans associated the GL and related business reporting extensions. p Describe the technological trends and advances in financial reporting. © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

System Definition and Functions p General ledger and business reporting (GL/BR) process is an interacting structure of people, equipment, activities, and controls that is designed to accomplish both operations and information system functions. p The GL/BR process has fewer operational functions; it focuses mainly on information functions. p The work of the GL/BR process is the processing and communicating of information. © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

General Ledger (GL) Process p General ledger (GL) process comprises the following: n Accumulating data, classifying data by general ledger accounts, and recording data in those accounts. n Fueling the financial reporting, business reporting, and other reporting subsystems by providing the information needed to prepare external and internal reports. In servicing the information needs of managerial reporting, the GL interacts with the budgeting modules © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Business Reporting (BR) Process p Business reporting (BR) process encompasses the following: n Preparing general purpose, external financial statements and ensuring that the external financial statements conform to GAAP. n Generating Web-based forms of key financial statement and related business reporting information for dissemination via the Internet. n Supporting the generation of both ad hoc business reports and predetermined business reports that support operational and strategic decision making. © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Feeder Process p Feeder process: any business process that accumulates business event data that are then communicated to and processed within the GL. Includes: n Those discussed in the earlier business process chapters. n Treasurer because the treasurer furnishes the GL with updates for investing activities and financing activities © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Horizontal Perspective of the GL/BR Process © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Description of Information Flows © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Organizational Setting p Financial reporting officer: possesses expertise in reporting to external parties. p Managerial reporting officer: prepares internal reports to assist management decision making. p Performance reports: prepared by the managerial reporting officer; compare actual performance with budgeted expectations. © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Responsibility Accounting/Reporting System p Responsibility accounting/reporting system: managerial reporting system tied to the hierarchy or chain of responsibility/authority reflected by the firm’s organization chart. p Information is reported upward, the level of detail is filtered, meaning that figures are aggregated (summarized) as they are reported to successive management levels. © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Responsibility Accounting Performance Reporting © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Horizontal and Vertical Information Flows © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

GL/BR Process—Context Diagram © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

GL/BR Process—Level 0 DFD © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Logical System Description p Journal voucher: internal source document used to notify the GL to make an accounting entry. p General ledger master data: contains summarized information of all of an organization’s business event data. p Audit trail: source code field of each GL entry; allows tracing from GL entry back to the feeder system and individual business events that have been aggregated into the GL balances. © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Coding the GL Chart of Accounts p 1113 Cash in Bank: n 1 xxx n x 1 xx n xx 1 x n xxx 3 = = assets current assets cash accounts cash in bank p The following account numbers might be used: n 1111 for petty cash n 1112 for change fund n 1121 for trade accounts receivable n 1122 for receivables from officers © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Limitations of the GL Approach p Most GL systems only capture the chart of account number and debit or credit. p Other information about a business event is generally discarded. p After closing, detailed event-level data are purged from the system. p Changing account numbers /account structures raises a problem with comparability. © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Technology-Enabled Initiatives in Business Reporting p ERP Financial Module Capability p Balanced Scorecard p Business Intelligence p e. Xtensible Business Reporting Language (XBRL) © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

ERP Financial Module p Wide range of options available. p For security reasons and ease of use, limit user’s access to menu items needed to perform his or her responsibilities. p ERP security can become detailed and complex due to different privilege levels for different users. p Users can be assigned different access levels: view access, write access, entry access, and/or change access. © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Financial Reporting Menu for Microsoft Dynamics GP © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Balanced Scorecard p Methodology for assessing organization’s business performance via four components: n Financial: Traditional measures of business performance; shareholders view. n Internal business processes: Capacity to identify core competencies and assess performance. n Customers: How customers perceive the organization in terms of value. n Innovation and improvement activities: How the organization is improving and creating additional value. © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Business Intelligence p Integration of statistical and analytical tools with decision support technologies. p Facilitates complex analyses of data warehouses by managers and decision makers. p Modules use highly complex analytical techniques to search for relationships that will provide insight for decision making. © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

e. Xtensible Business Reporting Language (XBRL) p XML-based language consisting of a set of tags used to unify presentation of business reporting information into a single format. p Easily read by almost any software package. p Easily searched by Web browsers. p Several regulators have begun accepting or requiring filings be done in XBRL format. © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Enabling XBRL p Taxonomy: a group of definitions that together provide meaning to reporting concepts. Enables transfer of information among a variety of systems. p Instance or instance document: XBRL document that contains all information, at a given point in time, including tags, about the occurrence of an item—for example, a trial balance instance document. © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

An Example of XBRL © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Sarbanes-Oxley Act Section 302 p Section 302 requires CEO and CFO to certify that: n Financial statements neither contain material untrue facts nor omit material facts. n They have established and evaluated internal controls for the accounting system that produces the reports. n Penalty for violation of section 302 up to 20 years prison and $5 million in fines. © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Sarbanes-Oxley Act Section 401 p Section 401: n Covers disclosures in financial reporting, including “off balance sheet” items. n Calls for transparent reporting of the economic effect of transactions; reports should clearly reflect the economic reality of business events. © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Sarbanes-Oxley Act Sections 404 and 409 p Section 404: n Mandates the SEC set rules defining a report on internal control that must be included with annual report. n Must include responsibility of management and an attestation to the control relative to internal control evaluation and reporting. p Section 409: n Requires rapid and current disclosure of information regarding material changes in financial conditions or operations. © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

U. S. GAAP and IFRS p Financial Accounting Standards Board (FASB) is the body with the mission of establishing and improving financial accounting and reporting standards (i. e. , GAAP )in the U. S. p International Accounting Standards Board (IASB) is a standard-setting body with the objective of developing globally accepted international financial reporting standards (IFRS). © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

U. S. GAAP and IFRS Convergence p “Convergence” of U. S. GAAP and IFRS implies that the standards will blend together, with differences reconciled, and ultimately we will have one set of standards that can be used worldwide. p U. S. GAAP allows LIFO for inventory, IFRS does not. p IFRS is a topic that can be included on the Uniform CPA Examination. © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Current Environment for External Financial Reporting p Investors want more information faster. p Sarbanes-Oxley demands “rapid and current” disclosures. p SEC has shortened the time companies have for reporting certain events. p Real-time reporting is feasible and facilitated by enterprise systems with data flows to the GL in a real-time manner. © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Current Environment for External Financial Reporting (cont’d) p Continuous assurance (continuous auditing) provides assurance through monitoring automated controls and business events in real or near-real time. p Monitoring accomplished through: n Audit modules in ERP software n Auditor access to data with query tools such as SQL. p Idea is to detect problems quickly to prevent them from recurring or getting larger. © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.