Module 3: FRS/MRS, & DBMS
account or the control account for a corresponding
GENERAL LEDGER SYSTEM
 A hub connected to the other systems of the firm through
spokes of information flows
 Summaries of transactions flow into the GLS and become
sources of input for the management reporting system
(MRS) and financial reporting system (FRS)
 The bulk of the flows into the GLS comes from the
transaction processing subsystems
 Information also flows from the FRS as feedback into the
GLS
THE JOURNAL VOUCHER
 The source of input to the general ledger
 Identifies the financial amounts and affected general
ledger (GL) accounts
 Routine transactions, adjusting entries, and closing entries
are all entered into the GL via journal vouchers
 Given that a manager must approve journal vouchers, this
offers a degree of control against unauthorized GL entries
THE GLS DATABASE
The GLS database includes a variety of files. Whereas these
will vary from firm to firm, the following examples are
representative.
GENERAL LEDGER MASTER FILE
 principal file in the GLS database
 Based on organization’s published chart of accounts
 Each record in the GL master is either a separate GL
subsidiary ledger in the transaction processing system
 The FRS draws upon the GL master to produce the firm’s
financial statements
 The MRS also uses this file to support internal
information reporting
GENERAL LEDGER HISTORY FILE
 Has the same format as the GL master
 Its primary purpose is to provide historical financial data
for comparative financial reports
JOURNAL VOUCHER FILE
 The total collection of the journal vouchers processed in
the current period
 This file provides a record of all general ledger
transactions and replaces the traditional general journal
JOURNAL VOUCHER HISTORY FILE
 Contains journal vouchers for past periods
 This historical information supports management’s
stewardship responsibility to account for resource
utilization
RESPONSIBILITY CENTER FILE
 Contains the revenues, expenditures, and other resource
utilization data for each responsibility center in the
organization
 The MRS draws upon these data for input in the
preparation of responsibility reports for management
BUDGET MASTER FILE
 Contains budgeted amounts for revenues, expenditures,
and other resources for responsibility centers
 These data, in conjunction with the responsibility center
file, are the basis for responsibility accounting
 4. Post to general ledger
5. Prepare the unadjusted trial balance
6. Make adjusting entries
7. Journalize and post adjusting entries
8. Prepare the adjusted trial balance
9. Prepare the financial statements
10. Journalize and post the closing entries
11. Prepare the post-closing trial balance

 The periodic nature of financial reporting in most

organizations establishes it as a batch process
FINANCIAL REPORTING SYSTEM  Many organizations, however, have moved to real-time
GL updates and FRS that produce financial statements on
 Much of the information provided takes the form of: short notice
- standard financial statements
- tax returns
- documents required by regulatory agencies such
as the Securities and Exchange Commission
(SEC)
 Primary recipients of financial statement information are
external users such as:
- stockholders
- creditors
- government agencies
 Outside users require information that allows them to
observe trends in performance over time and to make
comparisons between different organizations
 Financial reporting information must be prepared and
presented by all organizations in a manner that is
generally accepted and understood by external users

SOPHISTICATED USERS WITH HOMOGENEOUS

INFORMATION NEEDS

 Financial statements are targeted at a general audience

 They are prepared on the proposition that the audience
comprises sophisticated users with relatively
homogeneous information needs
 It is assumed that users of financial reports understand the
conventions and accounting principles that are applied
and that the statements have information content that is
useful

XML

 eXtensible Markup Language

FINANCIAL REPORTING PROCEDURES
 metalanguage
Financial reporting is the final step in the overall accounting  model the data structure of an organization’s internal
process that begins in the transaction cycles database

1. Capture the transaction XML vs. HTML

2. Record in special journal
3. Post to subsidiary ledger  most popular markup language
  TRANSACTION AUTHORIZATION
 SEGREGATION DUTIES
 ACCESS CONTROLS
 ACCOUNTING RECORDS
 INDEPENDENT VERIFICATION

INTERNAL CONTROL IMPLICATIONS OF XBRL

 TAXONOMY CREATION
 TAXONOMY MAPPING ERROR
 VALIDATION OF INSTANCE DOCUMENTS
XBRL
MANAGEMENT REPORTING SYSTEM
 eXtensible Business Reporting Language
 XML-based language  Often called as discretionary reporting
 to provide a standardized financial information  Mandated by sox legislation
 for aggregated reporting of financial data
FACTORS THE INFLUENCE MRS

 Management Principles.
 Management Functions, Level, and Decision type.
 Problem Structure.
 Types of Management Reports.
 Responsibility Accounting
 Behavioral Considerations

MANAGEMENT PRINCIPLES

XBRL - REPORTING PROCESS Formalization of Task

 This promotes organization’s performance, stability, and

continued existence and hence promotes internal control.
 IMPLICATIONS: The information must focus on task
rather than the individual performance.

Current State of XBRL Reporting

 Controlling the FRS

- Defective audit trail
- Unauthorized access to GL
- GL accounts that are out of balance with subsidiary
accounts
- Incorrect GL account balances RESPONSIBILITY AND AUTHORITY

SAS 78/COSO CONTROL ISSUES  Responsibility is an individual’s obligation to achieved

desired results.
 Authority - must grant the authority to make decisions CATEGORIES OF PLANNING AND CONTROL
within the limit of that responsibility. DECISIONS
 IMPLICATIONS:
o This principle uses the vertical reporting system.

SPAN OF CONTROL

 Refers to the number of subordinates directly under his or

her control.
 Organizational behavior research suggests that wider
spans of control are preferable because they allow more
employees in decision making.
 IMPLICATIONS: The different management approaches
require different information. STRATEGIC PLANNING DECISIONS

 Setting the goals and objective of the firm

 Determining the scope of business activities.
 Determining and modifying the organization’s structure.
 Setting the management philosophy

TACTICAL PLANNING DECISIONS

 Subordinated to strategic decisions and are made by the

middle management.

MANAGEMENT CONTROL DECISIONS

 Involves motivating managers in all functional areas to

use resources, including materials, personnel and financial
assets, as productively as possible.

OPERATIONAL CONTROL DECISIONS

MANAGEMENT BY EXCEPTION  Ensures that the firm operates in accordance with pre-
established criteria.
 Suggest that managers should limit their attention to
potential problem areas rather than being involved with BASIC ELEMENTS:
every activity decision
 Setting standards
 IMPLICATIONS: Unnecessary details that may draw
 Performance Evaluation
attention away from important facts should be excluded
from reports.  Taking corrective action

MANAGEMENT FUNCTION, LEVEL AND DECISION PROBLEM STRUCTURE

TYPE
 DATA
 The management functions of planning and control have a  PROCEDURE
profound effect on the MRS.  OBJECTIVES
o Planning function is concerned with making
STRUCTURED PROBLEMS
decisions about the future activities of the
organization. UNSTRUCTURED PROBLEMS
 LONG RANGE
 SHORT RANGE TYPES OF MANAGEMENT REPORTS
o Control Function ensures that the activities of the
firm conform to the plan. PROGRAMMED REPORTING

 Scheduled reports
 On-demand reports

REPORT ATTRIBUTES

 RELEVANCE
 SUMMARIZATION
 EXCEPTION ORIENTATION
 ACCURACY
 COMPLETENESS
 TIMELINESS
 CONCISENESS

Database Management Systems

TYPES OF MANAGEMENT REPORTS
Overview of the Flat File versus Database Approach
AD HOC REPORTING

 Data Mining
 Verification Model
 Discovery Model

RESPONSIBILITY ACCOUNTING

 Setting Financial Goals: The Budget Process

 Measuring and Reporting Performance
 Responsibility Centers
 Cost Centers
 Profit Center
 Investments Centers

BEHAVIORAL CONSIDERATIONS

 Goal Congruence
 Information Overload
 Inappropriate Performance Measures

Data Redundancy – is a condition created within a database or

data storage technology in which the same piece of data is
held in two separate places.

Three types of data management problems:

 Data Storage
 Data Updating
 Currency of Information
 Task-Data Dependency - “not directly related to data
redundancy”

Flat-File Problems Solved!

Data sharing (the absence of ownership) is the central concept

of the database approach.
 No Data Redundancy - eliminating data redundancy and
reducing storage costs.
 Single Update - This reduces the time and cost of keeping
the database current.
 Current Values - A change any user makes to the database
yields current data values for all other users.
 Task-Data Independence - Users have access to the full
domain of data available to the firm.
Controlling Access to the Database
 The database approach places all the firm’s information
eggs in one basket. It is essential, therefore, to take very
good care of the basket.
Three Conceptual Methods
 Hierarchical;
 Network ; and
 Relational model - The relational model is far more
flexible by allowing users to create new and unique paths
through the database to solve a wider range of business
problems.
“Because of certain conceptual similarities, The Hierarchical
and The Network are termed navigational or structured
model.”
Elements of the Database Environment
Database Management System
 Provides a controlled environment to assist (or prevent)
user access to the database and to efficiently manage the
data resource. Each DBMS model accomplishes these
objectives differently, but some typical features include:
- Program Development
- Backup and Recovery
- Database Usage Reporting
- Database Access
Data Definition Language (DDL)
 is a programming language used to define the physical
database to the DBMS.
 The DDL defines the database on three levels called
views:
- The internal View - presents the physical
arrangement of records in the database.
- The Conceptual View (schema) - represents the
database logically and abstractly, rather than the way
it is physically stored.
- The User View (subschema) - defines how a
particular user sees the portion of the database that he
or she is authorized to access.
DBMS Operation
1. A user program sends a request (call) for data to the
DBMS. The call is written in a special data manipulation
language (discussed later) that is embedded in the user
program.
2. The DBMS analyzes the request by matching the called
data elements against the user view and the conceptual
view. If the data request matches, it is authorized and
processing proceeds to Step 3. If it does not match the
views, access is denied.
3. The DBMS determines the data structure parameters from
the internal view and passes them to the operating system,
which performs the actual data retrieval. Data structure
parameters describe the organization and access method
(an operating system utility program) for retrieving the
requested data.
4. Using the appropriate access method, the operating
system interacts with the disk storage device to retrieve
the data from the physical database.
5. The operating system then stores the data in a main
memory buffer area managed by the DBMS.
6. The DBMS transfers the data to the user’s work location
in main memory. At this point, the user’s program is free
to access and manipulate the data.
7. When processing is complete, Steps 4, 5, and 6 are
reversed to restore the processed data to the database.
Data Manipulation Language (DML) - Is the proprietary
programming language that a particular DBMS uses to
retrieve, process, and store data.
Query Language - The query capability of the DBMS permits
end users and professional programmers to access data in the
database directly without the need for conventional programs.
Database Administrator – Responsible for managing the
database resource.
Organization Interaction of the DBA
The Data Dictionary
 is the creation and maintenance of the data dictionary.
 The data dictionary describes every data element in the
database. This enables all users (and programmers) to
share a common view of the data resource and greatly
facilitates the analysis of user needs.
The Physical Database
 This is the lowest level of the database. The physical
database consists of magnetic spots on magnetic disks.
The other levels of the database (the user view,
conceptual view, and internal view) are abstract
representations of the physical level.
The Relational Database Model
E. F. Codd originally proposed the principles of the relational
model in the late 1960s. The formal model has its foundations
in relational algebra and set theory, which provide the
theoretical basis for most of the data manipulation operations
used.
A system is relational if it:
1. Represents data in the form of two-dimensional tables
such as the database table, called Customer (will be
shown in figure 9-8).
2. Supports the relational algebra functions of restrict,
project, and join.
Entity, Occurrence, and Attributes
 An Entity is anything about which the organization
wishes to capture data. Entities may be physical, such as
inventories, customers, or employees. They may also be
 conceptual, such as sales (to a customer), accounts
receivable (AR), or accounts payable (AP).
 The term Occurrence is used to describe the number of
instances or records that pertain to a specific entity.
 Attributes are the data elements that define an entity.

Associations and Cardinality

 The labeled line connecting two entities in a data model

describes the nature of the association between them. This
association is represented with a verb, such as ships,
requests, or receives.
 Cardinality is the degree of association between two
entities.

Crow’s Foot Technique

The Physical Database Tables

 Are constructed from the data model with each entity in

the model being transformed into a separate physical
table.
 In accordance with convention, we will use the term
record or occurrence rather than tuple.
 Tuple - corresponds approximately to a record in a flat-
file system.
 Properly designed tables possess the following four
characteristics:
1. The value of at least one attribute in each Anomalies
occurrence (row) must be unique. This attribute
is the primary key. The values of the other  Update Anomaly - results from data redundancy in an
(nonkey) attributes in the row need not be unnormalized table.
unique.  Insertion Anomaly
2. All attribute values in any column must be of the  Deletion Anomaly - involves the unintentional deletion of
same class. data from a table.
3. Each column in a given table must be uniquely
named. However, different tables may contain
columns with the same name.
4. Tables must conform to the rules of
normalization. This means they must be free
from structural dependencies including repeating
groups, partial dependencies, and transitive
dependencies.

Linkages between Relational Tables

Normalizing Tables

 The normalization process involves identifying and

removing structural dependencies from the table(s) under
review.

Dependencies - Specifically, these are known as repeating

groups, partial dependencies, and transitive dependencies.

The resulting tables will then meet the two conditions:

Anomalies, Structural Dependencies, and Data
1. All nonkey (data) attributes in the table are dependent on
Normalization
(defined by) the primary key.
Anomalies - tables exhibit negative operational symptoms. 2. All nonkey attributes are independent of the other nonkey
Specifically these are the update anomaly, the insertion attributes.
anomaly, and the deletion anomaly. One or more of these
anomalies will exist in tables that are not normalized or are
normalized at a low level, such as:

 First normal form (1NF); or

 Second normal form (2NF)
 To be free of anomalies, tables must be normalized to the
Third normal form (3NF) level

Negative impact of anomalies

 Candidate entities: Purchasing Agent, Receiving Clerk,
Inventory, Supplier, Inventory Status Report, Purchase Order,
and Receiving Report.

Linking Normalized Tables

 When unnormalized tables are split into multiple 3NF

tables, they need to be linked together via foreign keys so
the data in them can be related and made accessible to - Inventory
users. - Supplier
- Purchase Order
Accountants and Data Normalization
- Receiving Report
 Most accountants will not be responsible for normalizing These will be used to construct a data model and, the physical
an organization’s databases; they should have an database tables.
understanding of the process and be able to determine
whether a table is properly normalized. Construct Data Model Showing Entity Associations

Designing Relational Databases

View Modeling:

1. Identify entities.
2. Construct a data model showing entity associations.
3. Add primary keys and attributes to the model.
4. Normalize the data model and add foreign keys.
5. Construct the physical database.
6. Prepare the user views.

Identify Entities
Key features of a simplified purchasing system:
1. The purchasing agent reviews the inventory status report
for items that need to be reordered.
2. The agent selects a supplier and prepares an online
purchase order.
3. The agent prints a copy of the purchase order and sends it
to the supplier.
4. The supplier ships inventory to the company. Upon its
arrival, the receiving clerk inspects the inventory and
prepares an online receiving report. The computer system
automatically updates the inventory records.
Add Primary Keys and Attributes to the Model
 Add Primary Keys - The analyst should select a primary
key that logically defines the nonkey attributes and
uniquely identifies each occurrence in the entity.
Sometimes this can be accomplished using a simple
sequential code such as an Invoice Number, Check
Number, or Purchase Order number. Sequential codes,
however, are not always efficient or effective keys.
 Add Attributes - Every attribute in an entity should appear
directly or indirectly in one or more user views. Entity
attributes are, therefore, originally derived and modeled
from user views.

Two conditions that need to be met to pass as valid entities:

- Condition 1. An entity must consist of two or more

occurrences.
- Condition 2. An entity must contribute at least one
attribute that is not provided through other entities.

Normalize Data Model and Add Foreign Keys
 Normalization issues that needed resolution are:
1. Repeating Group Data in Purchase Order - The attributes
Part Number, Description, Order Quantity, and Unit Cost
are repeating group data. This means that when a
particular purchase order contains more than one item,
then multiple values will need to be captured for these
attributes.
2. Repeating Group Data in Receiving Report - The
attributes Part Number, Quantity Received, and Condition
Code were removed to a new entity called Rec Report
Item Detail. A COMPOSITE KEY composed of PART
NUMBER and REC REPT NUMBER was assigned.
3. Transitive Dependencies - The Purchase Order and
Receiving Report entities contain attributes that are
redundant with data in the Inventory and Supplier entities.
Prepare the User Views
 The normalized tables should be rich enough to support
the views of all users of the system being modeled. The
PO in Figure 9-23, which could be the data entry screen
for a purchasing clerk, has been constructed from
attributes located in several tables. The fields in the user
view are cross-referenced via circled numbers to the
attributes in the supporting tables.
Global View Integration
- Combining the data needs of all users into a single
schema or enterprise-wide view.
 To facilitate this task, modern Enterprise Resource
Planning (ERP) systems come equipped with a core
schema, normalized tables, and view templates. These
best-practices databases are derived from economic
models that identify commonalities among the data needs
of different organizations.
Databases in a Distributed Environment
 Distributed databases fall into two categories:
1. Partitioned; and
2. Replicated databases
This section examines issues, features, and trade-offs that
should be carefully evaluated in deciding how databases
should be distributed.
Centralized Databases
- Remote users send requests via terminals for data to the
central site, which processes the requests and transmits
the data back to the user. The central site performs the
 functions of a file manager that services the data needs of
the remote users.
Data Currency in a DDP Environment - account balances pass
through a state of temporary inconsistency, in which their
values are incorrectly stated.
“To achieve data currency, simultaneous access to individual
data elements by multiple sites needs to be prevented.”
Database Lockout - this is a software control (usually a
function of the DBMS) that prevents multiple simultaneous
accesses to data
1.
2.
3.
Distributed Databases
 Partitioned Databases - splits the central database into
segments or partitions that are distributed to their primary
users. The advantages of this approach are:
o Storing data at local sites increases users’ control.
o Permitting local access to data and reducing the
volume of data that must be transmitted between sites
improves transaction processing response time.
o Partitioned databases can reduce the potential for
disaster. By having data located at several sites, the
loss of a single site cannot terminate all data
Replicated Databases
processing by the organization.
 Are effective in companies in which there exists a high
 The primary justification for a replicated database is to
 Concurrency Control - is to serialize transactions. This
The Deadlock Phenomenon
A DEADLOCK occurs here because there is mutual
exclusion to data, and the transactions are in a wait state
until the locks are removed. This can result in transactions
being incompletely processed and corruption of the
database.
DEADLOCK RESOLUTION - involves sacrificing one
or more transactions. These must be terminated to
complete the processing of the other transactions in the
deadlock. The preempted transactions must then be
reinitiated. The deadlock resolution software attempts to
minimize the total cost of breaking the deadlock.
Some of the factors that influence this decision are as
follows:
The resources currently invested in the transaction. This
may be measured by the number of updates that the
transaction has already performed and that must be
repeated if the transaction is terminated.
The transaction’s stage of completion. In general,
deadlock resolution software will avoid terminating
transactions that are close to completion.
The number of deadlocks associated with the transaction.
Because terminating the transaction breaks all deadlock
involvement, the software should attempt to terminate
transactions that are part of more than one deadlock.
degree of data sharing but no primary user.
support read-only queries. With data replicated at every
site, data access for query purposes is ensured, and
lockouts and delays because of network traffic are
minimized.
involves labeling each transaction by two criteria.
- First, special software groups transactions into
classes to identify potential conflicts.
- Second, is to time stamp each transaction. Each
time stamp is made unique by incorporating the
site’s identification number.
Distributed Databases and the Accountant

The decision to distribute databases is one that should be

entered into thoughtfully. There are many issues and trade-offs
to consider. Some of the most basic questions to be addressed
are:

 Should the organization’s data be centralized or

distributed?
 If data distribution is desirable, should the databases be
replicated or partitioned?
 If replicated, should the databases be totally replicated or
partially replicated?
 If the database is to be partitioned, how should the data
segments be allocated among the sites?

“The choices involved in each of these questions impact the

organization’s ability to maintain database integrity. The
preservation of audit trails and the accuracy of accounting
records are key concerns. Clearly, these are decisions that the
modern accountant should understand and influence
intelligently.”