Chapter 16 The General Ledger and Business Reporting

Chapter 16 The General Ledger and Business Reporting (GL/BR) Process Accounting Information Systems 8 e Ulric J. Gelinas and Richard Dull © 2010 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 • Describe how the business processes discussed in Chapters 10 though 15 provide data required for general ledger (GL) updates. • Understand how the GL and business reporting capabilities support an organization’s external and internal reporting functions. • Understand the limitations of the traditional GL approach in contemporary systems. • Analyze control issues and control plans associated the GL and related business reporting extensions. • Describe the technological trends and advances in financial reporting. 2

Functions of GL/BR • GL – Accumulating data, classifying data by GL accounts, recording data in those accounts. – Fueling FR, BR and other reporting subsystems. Reporting Accumulating Recording Classifying 3

Functions of GL/BR (Cont’d. ) • BR – Preparing generalpurpose, external financial statements. – Ensuring that F/S conform to GAAP. – Generating webbased forms. – Generating ad hoc & predetermined business reports. Reporting Accumulating Recording Classifying 4

Horizontal Perspective of the GL/BR Process Flow 1. Business processes (feeder processes) send updates to the business reporting department. 5

Horizontal Perspective of the GL/BR Process Flow 2. The treasurer notifies the business reporting department of investing and financing transaction activities. 6

Horizontal Perspective of the GL/BR Process Flow 3. The controller notifies the business reporting department of various adjusting entries. 7

Horizontal Perspective of the GL/BR Process Flow 4. Adjusted trial balance figures are sent from the business reporting manager to the financial reporting officer. 8

Horizontal Perspective of the GL/BR Process Flow 5. Actual results are sent from the business reporting manager to the budgeting and managerial reporting managers; the actual results will be one of the inputs used in formulating next period’s budgets. 9

Horizontal Perspective of the GL/BR Process Flow 6. The financial reporting officer sends GAAPbased financial statements to the treasurer, controller, and various external constituencies (e. g. , owners, potential investors, banks, potential lenders). 10

Horizontal Perspective of the GL/BR Process Flow 7. The managerial reporting officer sends performance reports to various cost centers, profit centers, or investment centers. 11

Responsibility Accounting/Reporting System • Responsibilities of the managerial reporting officer: – Similar to those of the financial reporting officer. – Prepares performance reports comparing actual performance with budgeted expectations. 12

Responsibility Accounting Performance Reporting 13

Horizontal and Vertical Information Flows 14

GL/BR Process: Context Diagram 15

GL/BR Process: Level 0 DFD 16

Coding the GL Chart of Accounts • 1113 Cash in Bank – 1 xxx – x 1 xx – xx 1 x – xxx 3 = = assets current assets cash accounts cash in bank • -------------------------– 1111 might mean petty cash 1112 might mean change fund 1121 might mean trade accounts receivable 1122 might mean receivables from officers 17

Limitations of the GL Approach • Most GL systems only capture the chart of account number and debit or credit. • Other information about a business event is generally discarded. • After closing, detailed event-level data are purged from the system. • Changing account numbers /account structures raises a problem with comparability. 18

Technology-Enabled Initiatives in Business Reporting • ERP Financial Module Capability • Balanced Scorecard • Business Intelligence • e. Xtensible Business Reporting Language (XBRL) 19

ERP Financial Module • Wide range of options available. • For security reasons and ease of use, limit user’s access to menu items needed to perform his or her responsibilities. • ERP security can become detailed and complex due to different privilege levels for different users. • Users can be assigned different access levels: view access, write access, entry access, and/or change access. 20

Financial Reporting Menu for Microsoft Dynamics GP 21

Balanced Scorecard • Methodology for assessing organization’s business performance via 4 components: – Financial: Traditional methods of business performance – Internal business processes: Capacity to identify core competencies and assess performance – Customers: How customers perceive the organization in terms of value. – Innovation and improvement activities: How the organization is improving and creating additional value. • Functionality included in applications by all major ERP vendors. 22

Business Intelligence • Integration of statistical and analytical tools with decision support technologies. • Facilitates complex analyses of data warehouses by managers and decision makers. • Modules use highly complex analytical techniques to search for relationships that will provide insight for decision making. 23

e. Xtensible Business Reporting Language (XBRL) • XML-based language consisting of a set of tags used to unify presentation of business reporting information into a single format. • Easily read by almost any software package. • Easily searched by web browsers. • Several regulators have begun accepting or requiring filings be done in XBRL format. 24

An Example of XBRL 25

The Sarbanes-Oxley Act • Section 302 – Requires CEO and CFO to certify that financial statements neither contain material untrue facts nor omit material facts and that they have established and evaluated internal controls. – Penalty for violation of section 302 up to 20 years prison and $5 million in fines • Section 401 – Covers disclosures in financial reporting, including “off balance sheet” items. • Section 404 – Mandates the SEC set rules defining a report on internal control that must be included with annual report. – Must include responsibility of management and an attestation to the control relative to internal control. • Section 409 – Requires rapid and current disclosure of information regarding material changes in financial conditions or operations. – Report should clearly reflect the economic reality of business events. 26

Current Environment for External Financial Reporting • Users demand immediate information. • For many, email has replaced overnight delivery and fax. • Investors want more information faster. • Sarbanes-Oxley demands “rapid and current” disclosures. • SEC has shortened the time companies have for reporting certain events. • Real-time reporting of events is likely just over horizon. • Continuous assurance (continuous auditing) provides assurance through monitoring automated controls and business events in real or near-real time. 27