Chapter 16 The General Ledger and Business Reporting (GL/BR) Process

1. Accounting Information Systems 8e Ulric J. Gelinas and Richard Dull Chapter 16The General Ledger and Business Reporting (GL/BR) Process © 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use

2. Describe how the business processes discussed in Chapters 10 though 15 provide data required for general ledger (GL) updates. Understand how the GL and business reporting capabilities support an organization’s external and internal reporting functions. Understand the limitations of the traditional GL approach in contemporary systems. Analyze control issues and control plans associated the GL and related business reporting extensions. Describe the technological trends and advances in financial reporting. Learning Objectives

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.

4. Functions of GL/BR (Cont’d.) • BR • Preparing general-purpose, external financial statements. • Ensuring that F/S conform to GAAP. • Generating web-based forms. • Generating ad hoc & predetermined business reports.

5. Horizontal Perspective of the GL/BR Process Flow 1. Business processes (feeder processes) send updates to the business reporting department.

6. Horizontal Perspective of the GL/BR Process Flow 2. The treasurer notifies the business reporting department of investing and financing transaction activities.

7. Horizontal Perspective of the GL/BR Process Flow 3. The controller notifies the business reporting department of various adjusting entries.

8. Horizontal Perspective of the GL/BR Process Flow 4. Adjusted trial balance figures are sent from the business reporting manager to the financial reporting officer.

9. Horizontal Perspective of the GL/BR Process Flow 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.

10. Horizontal Perspective of the GL/BR Process Flow 6. The financial reporting officer sends GAAP-based financial statements to the treasurer, controller, and various external constituencies (e.g., owners, potential investors, banks, potential lenders).

11. Horizontal Perspective of the GL/BR Process Flow 7. The managerial reporting officer sends performance reports to various cost centers, profit centers, or investment centers.

12. Responsibility Accounting/Reporting System • Responsibilities of the managerial reporting officer: • Similar to those of the financial reporting officer. • Prepares performance reports comparing actual performance with budgeted expectations.

13. Responsibility Accounting Performance Reporting

14. Horizontal and Vertical Information Flows

15. GL/BR Process: Context Diagram

16. GL/BR Process: Level 0 DFD

17. Coding the GL Chart of Accounts • 1113 Cash in Bank • 1xxx = assets • x1xx = current assets • xx1x = cash accounts • xxx3 = cash in bank • -------------------------------------------------- • 1111 might mean petty cash1112 might mean change fund1121 might mean trade accounts receivable1122 might mean receivables from officers

18. Limitations of the GL Approach • Most GL systems only capture the chart of account number and debit or credit. • Other information about a business event is generally discarded. • After closing, detailed event-level data are purged from the system. • Changing account numbers /account structures raises a problem with comparability.

19. Technology-Enabled Initiatives in Business Reporting • ERP Financial Module Capability • Balanced Scorecard • Business Intelligence • eXtensible Business Reporting Language (XBRL)

20. ERP Financial Module • Wide range of options available. • For security reasons and ease of use, limit user’s access to menu items needed to perform his or her responsibilities. • ERP security can become detailed and complex due to different privilege levels for different users. • Users can be assigned different access levels: view access, write access, entry access, and/or change access.

21. Financial Reporting Menu for Microsoft Dynamics GP

22. Balanced Scorecard • Methodology for assessing organization’s business performance via 4 components: • Financial: Traditional methods of business performance • Internal business processes: Capacity to identify core competencies and assess performance • Customers: How customers perceive the organization in terms of value. • Innovation and improvement activities: How the organization is improving and creating additional value. • 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. • Modules use highly complex analytical techniques to search for relationships that will provide insight for decision making.

24. eXtensible Business Reporting Language (XBRL) • XML-based language consisting of a set of tags used to unify presentation of business reporting information into a single format. • Easily read by almost any software package. • Easily searched by web browsers. • Several regulators have begun accepting or requiring filings be done in XBRL format.

25. An Example of XBRL

26. Section 302 Requires CEO and CFO to certify that financial statements neither contain material untrue facts nor omit material facts and that they have established and evaluated internal controls. Penalty for violation of section 302 up to 20 years prison and $5 million in fines Section 401 Covers disclosures in financial reporting, including “off balance sheet” items. Report should clearly reflect the economic reality of business events. Section 404 Mandates the SEC set rules defining a report on internal control that must be included with annual report. Must include responsibility of management and an attestation to the control relative to internal control. Section 409 Requires rapid and current disclosure of information regarding material changes in financial conditions or operations. The Sarbanes-Oxley Act

27. Current Environment for External Financial Reporting • Users demand immediate information. • For many, email has replaced overnight delivery and fax. • Investors want more information faster. • Sarbanes-Oxley demands “rapid and current” disclosures. • SEC has shortened the time companies have for reporting certain events. • Real-time reporting of events is likely just over horizon. • Continuous assurance (continuous auditing) provides assurance through monitoring automated controls and business events in real or near-real time.