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Chapter 16
General Ledger and Reporting System
Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall 16-1
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.
Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall 16-2
General Ledger and Reporting
Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall 16-3
General Ledger and Reporting
Primary function is to collect and organize The accounting cycle activities Financing activities Investing activities Budget activities Adjustments
Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall 16-4
General Ledger and Reporting General Threats
Inaccurate or invalid general ledger data
Unauthorized disclosure of financial statement
Loss or destruction of data
Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall 16-5
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
Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall 16-6
General Ledger and Reporting Activities
1. Update general ledger
2. Post adjusting entries
3. Prepare financial statements
4. Produce management reports
Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall 16-7
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
Copyright 2012 © Pearson Education, Inc. publishing as Prentice Hall 16-8
Update General Ledger Threats
Inaccurate updating of general ledger
Unauthorized journal entries
Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall 16-9
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
Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall 16-10
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
16-11
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
Copyright 2012 © Pearson Education, Inc. publishing as Prentice Hall 16-12
Post Adjusting Entries Threats
Inaccurate adjusting entries
Unauthorized adjusting entries
Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall 16-13
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
Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall 16-14
Prepare Financial Statements
Closing journal entries
Income statement
Balance sheet
Statement of cash flows
Copyright 2012 © Pearson Education, Inc. publishing as Prentice Hall 16-15
Prepare Financial Statement Threats
Inaccurate financial statements
Fraudulent financial reporting
Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall 16-16
Prepare Financial Statement Controls
Processing integrity controls
Use of packaged software
Training and experience in applying IFRS and XBRL
Audits
Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall 16-17
eXtensible Business Reporting Language (XBRL)
Without With
Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall 16-18
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
Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall 16-19
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
Copyright 2012 © Pearson Education, Inc. publishing as Prentice Hall 16-20
Produce Management Reports Threats
Poorly designed reports and graphs
Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall 16-21
Produce Management Report Controls
Responsibility accounting
Balanced scorecard
Training on proper graph design
Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall 16-22
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
Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall 16-23