General Ledger And Business Reporting GLBR Process Learning

General Ledger And Business Reporting (GL/BR) Process

Learning Objectives • • • Illustrate how the business processes feed data required for GL updates Explain how GL/BR reporting capabilities support an organization’s external & internal reporting functions Analyze the limitations of the traditional GL approach in contemporary systems Describe how client/server architecture implements GL/BR Analyze control issues and Control plans associated with client/server hardware and software used to implement the GL and related business reporting extensions Evaluate potential problems in operating the GL and possible solutions to those problems GL/BR 2

GL/BR is a Spoke on AIS Wheel • The GL/BR process – Assembles financial information for both internal and external users – Depends on process controls for accuracy and completeness – Relies on pervasive controls for system security – Documentation of effective controls is required by Sarbanes. Oxley 3

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 4

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 5

GL/BR Horizontal perspective 1. Business process feeders send updates to the business reporting department. 6

GL/BR Horizontal perspective 2. Treasurer notifies the business reporting department of investing transaction activities. 7

GL/BR Horizontal perspective 3. Treasurer notifies the business reporting department of financing transaction activities. 8

GL/BR Horizontal perspective 4. Controller notifies the business reporting department of various adjusting entries. 9

GL/BR Horizontal perspective 5. Finalized budget figures are sent to the business reporting department from the budgeting department. 10

GL/BR Horizontal perspective 6. Adjusted trial balance figures are sent from the business reporting department to the financial reporting officer. 11

GL/BR Horizontal perspective 7. Actual and budget figures are sent from the BR department to the budgeting department; the actual results will be one of the inputs used in formulating next period’s budgets. 12

GL/BR Horizontal perspective 8. Actual and budget figures are sent by the business reporting department to the managerial reporting officer. 13

GL/BR Horizontal perspective 9. Financial reporting officer sends GAAPbased financial statements to Treasurer, Controller, and outside parties (owners, banks, SEC) 14

GL/BR Horizontal perspective 10. Managerial reporting officer sends performance reports to various managers. 15

E-Business Angle Operational stores are financial information stored in databases used to create the chart of accounts, GL and financial reports • Manual Reports – The old method of manually preparing financial reports – Financial reports are comprised of text and data from the operational data stores formatted as financial statements – Often data had to be rekeyed for each different report created • XBRL Enabled Reports – Operational store data contains descriptive (semantic) tags – XBRL enabled report reads descriptive tag and merges data into report – Data from one data store can be used to generate many different reports including Web reports without re-keying 16

Integrated Systems Perspective Including ERP • Events summarized automatically by the system eliminating the need for a separate GL process – The GL is simply a report summarizing transactions by account and by date in ascending order • Treasurer still enters investment and financing transactions into treasury module • Controller still enters adjusting entries • Financial reports are generated by the system using ad hoc queries or pre-established reports 17

Internal and External Business Reporting Flows 18

Responsibility Accounting/Reporting System • Duties of managerial reporting officer – Reports to assist internal management decision making – Performance reports comparing actual performance with budgeted performance – Reports are most detailed at lowest levels of management, least detailed at highest levels of management – It ties into the concept of responsibility accounting 19

Responsibility Accounting Performance Reporting 20

Summary of Horizontal and Vertical Information Flows 21

Summary of Horizontal and Vertical Information Flows • Horizontal flows – Events are processed in various operational systems – Culminates in GL and external business reports • Vertical Flows – GL and other event information flow upward through responsibility accounting system – Culminates in internal performance reports 22

GL/BR Process: Context Diagram • Various feeder processes provide event information • Source of internal and external financial reports 23

GL/BR Process: Level 0 DFD • Detail of common GL/BR processes 24

GL Hierarchical Coding • 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 25

Chart of Accounts • Must be flexible to meet the firm’s financial and managerial reporting needs • For a multi-entity firm, there is need to code for departments, geographical regions, product lines, divisions, and special reporting entities • Should accommodate “rolling up” or consolidating accounts into statements using different forms 26

Technology-enabled Issues in BR • • • FR modules in ERP systems Balanced Scorecard Business Intelligence Business Reporting via the Internet Public Databases Object-oriented databases 27

ERP Financial Module • Many options available for processing business events that affect multiple processes • Not all users do not need all these options • For security reasons and for ease of use, we limit the access to menu items to only those needed a user to perform his or her responsibilities • We limit the menu options that appear • We allow a user to have different privilege levels for different information—that is, view access, write access, entry access, and/or change access • Carefully set up the system limitations for that specific user • Each user has their own ID and password 28

Balanced Scorecard • Methodology for assessing organization’s business performance via – Financial – Internal business processes – Customers – Innovation and improvement activities • Functionality included in applications by all major ERP vendors 29

Business Intelligence • Integration of statistical and analytical tools with decision support technologies • Facilitates complex analyses of data warehouses by managers and decision makers • Typical module in ERP systems 30

Extensible Business Reporting Language (XBRL) • XBRL is a form of XML-based language consisting of a set of tags used to unify presentation of business reporting information into a single format • Easily read by many software packages • Can be easily searched by web browsers • Enables easy uploading and downloading of information to other software packages for update, analysis, etc 31

Public Databases • Aid to financial reporting officers in determining BR treatments • National Automated Accounting Research System (NAARS) • The Internet may be viewed as one huge public database 32

IT Control Processes for Workstation-to-Workstation Networks • Typical Controls – – – – – Passwords and access controls Access logs kept and reviewed Call back procedures for remote log on Controls on database/file access Controls on level of access/privileges, e. g. , read-only file access Diskless workstations Data encryption and digital signatures Removable drives Backup facilities for extended network failures File locking/contention controls 33

Workstations Connected to Servers • Typical Controls – – Server logs kept and reviewed Standardized file transfer formats Read-only access to database Front-end workstations process data relieving server – Data entry to event data store and subsequent batch update to database 34

Sarbanes-Oxley Act of 2002 • Section 302 – Requires CEO and CFO to certify that financial statements contain neither material untrue facts nor omit material facts. – Penalty for violation of section 302 up to 20 years prison and $5 million in fines • Section 401 – Requires financial statements that clearly reflect the economic reality of business events • Section 404 – Defines report on internal control that must be provided with annual report – Requires management assertion and auditor attestation on internal control effectiveness • Section 409 – Requires rapid and current disclosure of information regarding material changes in financial conditions 35

Current Environment of Financial Reporting • Today’s environment demands rapid access to information – Investors want information sooner – Sarbanes-Oxley demands “rapid and current” disclosures – SEC has shortened the time companies have for reporting certain events – Real-time reporting of events summarized in the GL is just over horizon 36