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General Ledger and Reporting System Process

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General Ledger and Reporting System Process Accounting Information Systems Fourteenth Edition Chapter 16 General Ledger and Reporting System ALWAYS LEARNING Copyright © 2017, 2016, 2015 Pearson Education, Inc. All Rights Reserved Learning Objectives • Describe the activities, information needs, and key decisions made in the general ledger and reporting system, explain the general threats in the cycle, and describe the controls that can be used to mitigate those threats. • Explain the process for updating the general ledger, the threats to that process, and the controls that can be used to mitigate those threats. • Explain the purpose and nature of posting adjusting entries, the threats to that process, and the controls that can be used to mitigate those threats. • Explain the process of preparing financial statements, the threats to that process, the controls that can be used to mitigate those threats, and how IT developments such as XBRL can improve the efficiency and effectiveness of preparing financial statements. • Describe the process for producing various managerial reports, the threats to that process, and how tools like responsibility accounting, the balanced scorecard, and well-designed graphs can help mitigate those threats. Copyright © 2017, 2016, 2015 Pearson Education, Inc. All Rights Reserved General Ledger and Reporting System Process • Update general ledger • Post adjusting entries • Prepare financial statements • Produce managerial reports Copyright © 2017, 2016, 2015 Pearson Education, Inc. All Rights Reserved General Threats Throughout the General Ledger and Reporting Cycle Threats Controls 1. Inaccurate or invalid general ledger data 1 a. Data processing integrity 2. Unauthorized disclosure of financial controls statement b. Restriction of access to G/L 3. Loss or destruction of data c. Review of all changes to G/L data 2 a. Access controls b. Encryption 3 a. Backup and disaster recovery procedures Copyright © 2017, 2016, 2015 Pearson Education, Inc. All Rights Reserved Update General Ledger Threats Controls 1. Inaccurate updating of general ledger 1 a. Data entry processing 2. Unauthorized journal entries integrity controls b. Reconciliations and control reports c. Audit trail creation and review 2 a. Access controls b. Reconciliations and control reports c. Audit trail creation and review Copyright © 2017, 2016, 2015 Pearson Education, Inc. All Rights Reserved Adjusting Entries • Accruals – Made at end of accounting period to reflect events that have occurred but are not in the financial statements (e.g., wages payable) • Deferrals – Made at end of accounting period to reflect exchange of cash prior to performance of related event (e.g., rent) • Estimates – Portion of expenses expected to occur over a number of accounting periods (e.g., depreciation) • Revaluations – Entries made to reflect differences between actual and recorded value of an asset or change in accounting principle • Corrections – Entries made to counteract effects of errors found in the general ledger Copyright © 2017, 2016, 2015 Pearson Education, Inc. All Rights Reserved Post Adjusting Entries Threats Controls 1. Inaccurate adjusting entries 1 a. Data entry processing 2. Unauthorized adjusting entries integrity controls b. Spreadsheet error protection controls c. Standard adjusting entries d. Reconciliations and control reports e. Audit trail creation and review 2 a. Access controls b. Reconciliations and control reports c. Audit trail creation and review Copyright © 2017, 2016, 2015 Pearson Education, Inc. All Rights Reserved Prepare Financial Statements Produce Managerial Reports Threats Controls 1. Inaccurate financial statements 1 a. Processing integrity controls 2. Fraudulent financial reporting b. Use of packaged software 3. Poorly designed reports and graphs c. Training and experience in applying IFRS and XBRL d. Audits 2 a. Audits 3 a. Responsibility accounting b. Balanced scorecard c. Training on proper graph design Copyright © 2017, 2016, 2015 Pearson Education, Inc. All Rights Reserved Regulatory & Technological Developments that Affect Financial Reporting • International Financial Reporting Standards (IFRS) – Understand the systems implications due to the fact that the IFRS is different in financial reporting than Generally Accepted Accounting Principles (GAAP) • eXtensible Business Reporting Language (XBRL) – Specifically used for communicating financial data (required by the Securities and Exchange Commission (SEC) if public company) Copyright © 2017, 2016, 2015 Pearson Education, Inc. All Rights Reserved Managerial Reports & Evaluating Performance • Responsibility accounting – Reporting results based upon managerial responsibilities in an organization • Flexible budget – Budget formula based upon level of activity (e.g., production levels) • Balanced scorecard – Measures financial and nonfinancial performance using four dimensional goals: . Financial . Customer . Internal Operations . Innovation and Learning • Graphs – Data visualization and proper graph design Copyright © 2017, 2016, 2015 Pearson Education, Inc. All Rights Reserved Key Terms • Journal voucher file • Schema • Trial balance • Linkbases • Audit trail • Style sheet • XBRL • Extension taxonomy • Instance document • Responsibility accounting • Element • Flexible budget • Taxonomy • Balanced scorecard Copyright © 2017, 2016, 2015 Pearson Education, Inc. All Rights Reserved .
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