Download The General Ledger and Business Reporting

The General Ledger and
Business Reporting (GL/BR)
Process
Accounting Information Systems 7e
Ulric J. Gelinas and Richard Dull
Copyright © 2008 Thomson Southwestern, a part of The Thomson Corporation. Thomson, the Star logo, and
South-Western are trademarks used herein under license.
1
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
2
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
3
Horizontal Perspective of the General
Ledger and Business Reporting Process
Chi ef Fi nanci al Offi cer
T reasurer
Control l er
2. Investing &
Financing
3. Adjusting
Entries
Feeder Processes
1. Business
processes (feeder
processes) send
updates to the
business
reporting
department.
1. Updates
Business
Reporting
5. Actual
Results
Cost/Profit/
Investment
Managers
Budgeting
7. Performance
Reports
Managerial
Reporting
6. G AAP based
Statements
External
Users
4. Adjusted
Trial Balance
Financial
Reporting
4
Horizontal Perspective of the General
Ledger and Business Reporting Process
Chi ef Fi nanci al Offi cer
T reasurer
Control l er
2. Investing &
Financing
3. Adjusting
Entries
Feeder Processes
1. Updates
2. Treasurer
notifies the
business
reporting
department of
investing and
financing
transaction
activities.
Business
Reporting
5. Actual
Results
Cost/Profit/
Investment
Managers
Budgeting
7. Performance
Reports
Managerial
Reporting
6. G AAP based
Statements
External
Users
4. Adjusted
Trial Balance
Financial
Reporting
5
Horizontal Perspective of the General
Ledger and Business Reporting Process
Chi ef Fi nanci al Offi cer
3. Controller
notifies the
business
reporting manager
of various
adjusting entries.
T reasurer
Control l er
2. Investing &
Financing
3. Adjusting
Entries
Feeder Processes
1. Updates
Business
Reporting
5. Actual
Results
Cost/Profit/
Investment
Managers
Budgeting
7. Performance
Reports
Managerial
Reporting
6. G AAP based
Statements
External
Users
4. Adjusted
Trial Balance
Financial
Reporting
6
Horizontal Perspective of the General
Ledger and Business Reporting Process
Chi ef Fi nanci al Offi cer
T reasurer
Control l er
2. Investing &
Financing
3. Adjusting
Entries
Feeder Processes
4. Adjusted trial
balance figures
are sent from the
business
reporting manager
to the financial
reporting officer.
1. Updates
Business
Reporting
5. Actual
Results
Cost/Profit/
Investment
Managers
Budgeting
7. Performance
Reports
Managerial
Reporting
6. G AAP based
Statements
External
Users
4. Adjusted
Trial Balance
Financial
Reporting
7
Horizontal Perspective of the General
Ledger and Business Reporting Process
Chi ef Fi nanci al Offi cer
T reasurer
Control l er
2. Investing &
Financing
3. Adjusting
Entries
Feeder Processes
1. Updates
Business
Reporting
5. Actual
Results
Cost/Profit/
Investment
Managers
Budgeting
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.
7. Performance
Reports
Managerial
Reporting
6. G AAP based
Statements
External
Users
4. Adjusted
Trial Balance
Financial
Reporting
8
Horizontal Perspective of the General
Ledger and Business Reporting Process
Chi ef Fi nanci al Offi cer
T reasurer
Control l er
2. Investing &
Financing
3. Adjusting
Entries
Feeder Processes
1. Updates
Business
Reporting
5. Actual
Results
Cost/Profit/
Investment
Managers
Budgeting
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).
7. Performance
Reports
Managerial
Reporting
6. G AAP based
Statements
External
Users
4. Adjusted
Trial Balance
Financial
Reporting
9
Horizontal Perspective of the General
Ledger and Business Reporting Process
Chi ef Fi nanci al Offi cer
T reasurer
Control l er
2. Investing &
Financing
3. Adjusting
Entries
Feeder Processes
1. Updates
7. The managerial
reporting officer
sends
performance
reports to various
cost centers,
profit centers, or
investment
centers.
Business
Reporting
5. Actual
Results
Cost/Profit/
Investment
Managers
Budgeting
7. Performance
Reports
Managerial
Reporting
6. G AAP based
Statements
External
Users
4. Adjusted
Trial Balance
Financial
Reporting
10
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
11
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
12
Responsibility Accounting
Performance Reporting
13
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
14
Summary of Horizontal and
Vertical Information Flows
15
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
16
GL/BR Process: Context Diagram
• Various
feeder
processes
provide
event
information
• Source of
internal
and
external
financial
reports
17
GL/BR Process: Level 0 DFD
• Detail of
common
GL/BR
processes
18
GL Hierarchical Coding
• 1113 Cash in Bank
– 1xxx
– x1xx
– xx1x
– xxx3
=
=
=
=
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
19
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
20
Technology-enabled Issues in
Business Reporting
•
•
•
•
•
•
FR modules in ERP systems
Balanced Scorecard
Business Intelligence
Business Reporting via the Internet
Public Databases
Object-oriented databases
21
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
22
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
23
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
24
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
25
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
26
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
27
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
28
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
29
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
30