Chapter 16

General Ledger and Reporting System

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Learning Objectives
Describe the information processing operations required to update the general ledger and to produce reports for internal and external users.
Identify the major threats in general ledger and reporting activities and evaluate the adequacy of various control procedures for dealing with them. Understand the implications of new IT developments, such as XBRL, and changes in external reporting requirements, such as IFRS, for the design and operation of the general ledger and reporting system.

Discuss how tools such as responsibility accounting, balanced scorecards, and graphs can be used to provide information managers need to effectively monitor performance.

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General Ledger and Reporting

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General Ledger and Reporting

Primary function is to collect and organize
The accounting cycle activities Financing activities Investing activities

Budget activities
Adjustments

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General Ledger and Reporting General Threats

Inaccurate or invalid general ledger data
Unauthorized disclosure of financial statement Loss or destruction of data

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General Ledger and Reporting General Controls

Data processing integrity controls
Restriction of access to general ledger Review of all changes to general ledger data

Access controls
Encryption Backup and disaster recovery procedures

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General Ledger and Reporting Activities

1. Update general ledger
2. Post adjusting entries

3. Prepare financial statements

4. Produce management reports

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Update General Ledger

Posting journal entries from:
Accounting subsystems Updated automatically by each of the transaction cycles in chapters 12-15 Treasurer Nonroutine transactions such as issuance or retirement of debt, purchase or sale of investment securities, or acquisition of treasury stock

Journal voucher file Trial balance Audit trail

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Update General Ledger Threats

Inaccurate updating of general ledger
Unauthorized journal entries

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Update General Ledger Controls

Data entry processing integrity controls
Reconciliations and control reports Audit trail creation and review

Access controls
Reconciliations and control reports Audit trail creation and review

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Post Adjusting Entries

Accruals
Events that have occurred but no exchange of cash e.g., interest revenue earned, wages payable

Deferrals
Reflect exchange of cash prior to performance of event e.g., prepaid revenue, prepaid expenses

Estimates
Portion of expense expected to occur over a period of time
e.g., depreciation, bad-debt expense

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Post Adjusting Entries

Revaluations
Reflect differences between actual and book values of assets or changes in accounting principles e.g., inventory adjustments, change in inventory valuation method

Corrections
Correct effects of errors

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Post Adjusting Entries Threats

Inaccurate adjusting entries
Unauthorized adjusting entries

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Post Adjusting Entries Controls

Data entry processing integrity controls
Spreadsheet error protection controls Standard adjusting entries

Reconciliations and control reports

Audit trail creation and review Access controls

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Prepare Financial Statements

Closing journal entries
Income statement Balance sheet

Statement of cash flows

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Prepare Financial Statement Threats

Inaccurate financial statements
Fraudulent financial reporting

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Prepare Financial Statement Controls

Processing integrity controls
Use of packaged software Training and experience in applying IFRS and XBRL

Audits

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eXtensible Business Reporting Language (XBRL)

Without With

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XBRL
Instance Document
Contains data from financial statements
Marked up or tagged with data describing the data

Each piece of data in XBRL is an element

Taxonomy

Set of files defining the various elements and the relationships between them
A schema Contains the definitions of every element that could appear in an instance document

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XBRL
Linkbases
Describes relationships between elements
Reference
Identifies relevant authoritative pronouncements

Calculation
Specifies how to combine elements

Presentation
How to group elements

Label
Associates human-readable labels with elements

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Produce Management Reports Threats

Poorly designed reports and graphs

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Produce Management Report Controls

Responsibility accounting
Balanced scorecard Training on proper graph design

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Balanced Scorecard
A report that provides a multidimensional perspective of organizational performance
Reflecting four perspectives of the organization Financial

Customer
Internal operations Innovation and learning Showing goals and measures Targets Actual

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