CHAPTER 16: THE GENERAL LEDGER AND BUSINESS REPORTING (GL/BR) PROCESS

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1 CHAPTER 16: THE GENERAL LEDGER AND BUSINESS REPORTING (GL/BR) PROCESS (IPP) ACCOUNTING INFORMATION SYSTEMS 11e GELINAS DULL WHEELER HILL certain product or service or otherwise on a password-protected website for classroom use.

2 LEARNING OBJECTIVES Describe how the business processes discussed in Chapters 10 though 15 provide data required for general ledger (GL) updates. Recognize how the GL and business reporting (BR) subsystems support an organization s external and internal reporting functions. Recognize the limitations of the traditional GL approach in contemporary systems.

3 SYSTEM DEFINITION AND FUNCTIONS General ledger and business reporting (GL/BR) process is an interacting structure of people, equipment, activities, and controls that is designed to accomplish both operations and information system functions. The GL/BR process has fewer operational functions; it focuses mainly on information functions. The work of the GL/BR process is the processing and communicating of information.

4 SYSTEM DEFINITION AND FUNCTIONS General ledger (GL) process includes the following: Accumulating data, classifying data by general ledger accounts, and recording data in those accounts. Driving the financial reporting, business reporting, and other reporting subsystems by providing information needed to prepare external and internal reports.

5 SYSTEM DEFINITION AND FUNCTIONS Business reporting (BR) process encompasses the following: Preparing general purpose, external financial statements. Ensuring that the external financial statements conform to GAAP, including appropriate footnote disclosures. Generating Web-based reports of financial statements and related BR information for dissemination via the Internet. Supporting the generation of both ad hoc business reports and predetermined business reports that support operational and strategic decision making.

6 ORGANIZATIONAL SETTING Feeder process is any business process that accumulates business event data that are then communicated to and processed within the GL. Includes: Everything discussed in the earlier business process chapters (OE/S, AR/B/CR, etc.). The treasurer, because they furnish the GL with updates for investing and financing activities.

7 HORIZONTAL PERSPECTIVE OF THE GENERAL LEDGER AND BUSINESS REPORTING PROCESS Managerial reporting officer has responsibilities similar to the financial reporting manager with respect to preparing internal reports used for management decision making. Financial reporting manager possesses expertise in financial reporting to external parties. Performance reports are prepared by the managerial reporting officer and compare actual performance with budgeted expectations. Performance reports are often part of a managerial reporting system known as a responsibility accounting/reporting system because it is tied to the hierarchy or chain of responsibility/authority reflected by the firm s organization chart.

8 HORIZONTAL PERSPECTIVE OF THE GENERAL LEDGER AND BUSINESS REPORTING PROCESS The budgeting department supports the cost, profit, and investment center managers in preparing the budget. Should not actually prepare the budget. Offers technical advice to the operating line managers as they develop budgets for their centers. Responsibility for budget preparation should fall to the operating manager who will be held accountable for budget variations.

9 2018 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. HORIZONTAL PERSPECTIVE OF THE GENERAL LEDGER AND BUSINESS REPORTING PROCESS

10 HORIZONTAL AND VERTICAL INFORMATION FLOWS Vertical Flows GL and other event information flow upward through the hierarchy levels of management Results included in internal performance reports Horizontal flows Events are processed in various operational systems Results included in GL and external business reports

11 DISCUSSION AND ILLUSTRATION Various feeder processes provide event information Source of internal and external financial reports

12 DISCUSSION AND ILLUSTRATION Journal voucher is an internal source document used to notify the GL to make an accounting entry. Should be signed by the person authorized to initiate the entry. With an enterprise system: Will likely be electronic and the person completing the adjustment will enter it directly into the system. The signature will be represented through electronic identification of the individuals with authority to approve the entries (i.e., electronic approval using a pin number).

13 DISCUSSION AND ILLUSTRATION

14 DISCUSSION AND ILLUSTRATION Bubble 1.0 Check business event updates to make sure they come from the correct feeder process (input validity). Ensure no business event updates have been overlooked (input completeness). Verify the debit and credit equality of halves of entries flowing from different systems (input completeness and input accuracy).

15 DISCUSSION AND ILLUSTRATION Bubbles 2.0 through 4.0, plus 6.0, are reminiscent of the bookkeeping/ accounting cycle. Process 4.0: Preparing business reports involves several steps which include preparing a worksheet, drafting financial statement footnotes, and formatting and compiling financial statements into an informative package. Process 6.0 is triggered by a time-based event. Process 5.0 shows how the GL/BR process can fuel other reporting systems that rely on information aggregated in the system.

16 THE GENERAL LEDGER MASTER DATA General ledger master data contains summarized information of all of an organization s business event data. Main inputs consist of transactions from the business event data captured in the various feeder processes.

17 CODING THE GL CHART OF ACCOUNTS The source code field of each GL entry provides a beginning point of reference for developing a proper audit trail. Code allows tracing from GL entry back to the feeder system and individual business events combined into the GL balances. The more sophisticated the data classification and coding scheme used, the broader the range of financial reports that can be produced. The list of accounts and coding is referred to as the Chart of Accounts

18 ERP FINANCIAL MODULE CAPABILITY

19 ERP FINANCIAL MODULE CAPABILITY 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.

20 BUSINESS INTELLIGENCE (SLIDE 1 OF 2) Business intelligence is the transformation of data into information useful for business decision making. Common activities in business intelligence include data analytics, data mining, benchmarking, visualization, and reporting with drill-down capabilities.

21 BUSINESS INTELLIGENCE (SLIDE 2 OF 2) Data analytics uses statistical and other quantitative tools to turn data into useful information. Data mining uses various databases and relates elements from the diverse databases to create information. Benchmarking is comparing an organization s performance metrics to industry standards or comparable selected organizations. Visualization presents data in charts and graphs to emphasize key points. Drilldown takes summary reports (presented in electronic format), and allows the user to explore further levels of detail to determine the key underlying factors.

22 EXTENSIBLE BUSINESS REPORTING LANGUAGE (XBRL) (SLIDE 1 OF 3) extensible Business Reporting Language (XBRL): an XML-based language consisting of a set of tags used to unify the presentation of BR information into a single format that is easily read by most software packages and easily searched by Web browsers. XBRL enhances the searchability and comparability of information among periods and organizations, and enables easy transfer of information among a variety of systems (including those of regulators).

23 FINANCIAL REPORTING FRAUD Financial reporting fraud: Committed on behalf of an organization Not for the personal benefit of the perpetrator(s). Frequently committed to help the organization. The Enron Corp. fraud was a primary participating factor in the passing of the Sarbanes-Oxley Act of The intent of SOX is To protect investors by improving the accuracy and reliability of corporate disclosures made pursuant to the securities laws, and for other purposes.

24 THE SARBANES-OXLEY ACT Section 302 requires the CEO and CFO to certify that financial statements do not contain material untrue facts nor omit material facts, and that accounting internal controls have been established and evaluated. Penalty for violation is up to 20 years prison and $5 million in fines. Section 401 of SOX covers disclosures in financial reporting including off balance sheet financing and calls for transparent reporting of the true economic effect. Section 404 mandates the SEC set rules defining a report on internal control that must be included with the annual report. Section 409 requires rapid and current disclosure of information regarding material changes in financial conditions or operations.