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

Chapter 16 The General Ledger and

Business Reporting (GL/BR) Process

Accounting Information Systems 8eUlric J. Gelinas and Richard Dull

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Learning Objectives

• 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.

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Functions of GL/BR

• GL– Accumulating data,

classifying data by GL accounts, recording data in those accounts.

– Fueling FR, BR and other reporting subsystems.

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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.

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Horizontal Perspective of the GL/BR Process

Flow 1.

Business processes (feeder processes) send updates to the business reporting department.

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Horizontal Perspective of the GL/BR Process

Flow 2.

The treasurer notifies the business reporting department of investing and financing transaction activities.

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Horizontal Perspective of the GL/BR Process

Flow 3.

The controller notifies the business reporting department of various adjusting entries.

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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.

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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.

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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).

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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.

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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.

Responsibility Accounting Performance Reporting

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Horizontal and Vertical Information Flows

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GL/BR Process: Context Diagram

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GL/BR Process: Level 0 DFD

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• 1113 Cash in Bank– 1xxx = assets– x1xx = current assets– xx1x = cash accounts– xxx3 = cash in bank

• --------------------------------------------------– 1111 might mean petty cash

1112 might mean change fund1121 might mean trade accounts receivable1122 might mean receivables from officers

Coding the GL Chart of Accounts

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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.

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Technology-Enabled Initiatives in Business Reporting

• ERP Financial Module Capability

• Balanced Scorecard

• Business Intelligence

• eXtensible Business Reporting Language (XBRL)

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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.

Financial Reporting Menu for Microsoft Dynamics GP

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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.

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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.

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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.

An Example of XBRL

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The Sarbanes-Oxley Act • 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.

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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.