Chapter 16:

The General Ledger and

Business Reporting (GL/BR)
Process

Accounting Information Systems,

10th international edition
Gelinas ►Dull ► Wheeler
Learning Objectives
pDescribe how the business processes discussed
in Chapters 10 though 15 provide data required
for general ledger (GL) updates.
pUnderstand how the GL and business reporting
(BR) capabilities support an organization’s
external and internal reporting functions.
pUnderstand the limitations of the traditional GL
approach in contemporary systems.
Learning Objectives (cont’d)
pAnalyze control issues and control plans
associated the GL and related business
reporting extensions.
pDescribe the technological trends and advances
in financial reporting.
System Definition and Functions
pGeneral 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.
pThe GL/BR process has fewer operational
functions; it focuses mainly on information
functions.
pThe work of the GL/BR process is the processing
and communicating of information.
General Ledger (GL) Process
pGeneral ledger (GL) process comprises the
following:
n Accumulating data, classifying data by general
ledger accounts, and recording data in those
accounts.
n Fueling the financial reporting, business reporting,
and other reporting subsystems by providing the
information needed to prepare external and internal
reports. In servicing the information needs of
managerial reporting, the GL interacts with the
budgeting modules
Business Reporting (BR) Process
pBusiness reporting (BR) process encompasses
the following:
n Preparing general purpose, external financial
statements and ensuring that the external financial
statements conform to GAAP.
n Generating Web-based forms of key financial
statement and related business reporting
information for dissemination via the Internet.
n Supporting the generation of both ad hoc business
reports and predetermined business reports that
support operational and strategic decision making.
Feeder Process
pFeeder process: any business process that
accumulates business event data that are then
communicated to and processed within the GL.
Includes:
n Those discussed in the earlier business process
chapters.
n Treasurer because the treasurer furnishes the GL
with updates for investing activities and financing
activities
Horizontal Perspective of the
GL/BR Process
Description of Information Flows
Organizational Setting
pFinancial reporting officer: possesses
expertise in reporting to external parties.
pManagerial reporting officer: prepares internal
reports to assist management decision making.
pPerformance reports: prepared by the
managerial reporting officer; compare actual
performance with budgeted expectations.
Responsibility
Accounting/Reporting System
pResponsibility accounting/reporting system:
managerial reporting system tied to the
hierarchy or chain of responsibility/authority
reflected by the firm’s organization chart.
pInformation is reported upward, the level of
detail is filtered, meaning that figures are
aggregated (summarized) as they are reported
to successive management levels.
Responsibility Accounting
Performance Reporting
Horizontal and Vertical
Information Flows
GL/BR Process—Context Diagram
GL/BR Process—Level 0 DFD
Logical System Description
pJournal voucher: internal source document
used to notify the GL to make an accounting
entry.
pGeneral ledger master data: contains
summarized information of all of an
organization’s business event data.
pAudit trail: source code field of each GL entry;
allows tracing from GL entry back to the feeder
system and individual business events that have
been aggregated into the GL balances.
Coding the GL Chart of Accounts
p1113 Cash in Bank:
n 1xxx = assets
n x1xx = current assets
n xx1x = cash accounts
n xxx3 = cash in bank
pThe following account numbers might be used:
n 1111 for petty cash
n 1112 for change fund
n 1121 for trade accounts receivable
n 1122 for receivables from officers
Limitations of the GL Approach
pMost GL systems only capture the chart of
account number and debit or credit.
pOther information about a business event is
generally discarded.
pAfter closing, detailed event-level data are
purged from the system.
pChanging account numbers /account structures
raises a problem with comparability.
Technology-Enabled Initiatives in
Business Reporting
pERP Financial Module Capability
pBalanced Scorecard
pBusiness Intelligence
peXtensible Business Reporting Language (XBRL)
ERP Financial Module
pWide range of options available.
pFor security reasons and ease of use, limit
user’s access to menu items needed to perform
his or her responsibilities.
pERP security can become detailed and complex
due to different privilege levels for different
users.
pUsers can be assigned different access levels:
view access, write access, entry access, and/or
change access.
Financial Reporting Menu for
Microsoft Dynamics GP
Balanced Scorecard
pMethodology for assessing organization’s
business performance via four components:
n Financial: Traditional measures of business
performance; shareholders view.
n Internal business processes: Capacity to identify
core competencies and assess performance.
n Customers: How customers perceive the
organization in terms of value.
n Innovation and improvement activities: How the
organization is improving and creating additional
value.
Business Intelligence
pIntegration of statistical and analytical tools
with decision support technologies.
pFacilitates complex analyses of data
warehouses by managers and decision makers.
pModules use highly complex analytical
techniques to search for relationships that will
provide insight for decision making.
eXtensible Business Reporting
Language (XBRL)
pXML-based language consisting of a set of tags
used to unify presentation of business reporting
information into a single format.
pEasily read by almost any software package.
pEasily searched by Web browsers.
pSeveral regulators have begun accepting or
requiring filings be done in XBRL format.
Enabling XBRL
pTaxonomy: a group of definitions that together
provide meaning to reporting concepts. Enables
transfer of information among a variety of
systems.
pInstance or instance document: XBRL
document that contains all information, at a
given point in time, including tags, about the
occurrence of an item—for example, a trial
balance instance document.
An Example of XBRL
Sarbanes-Oxley Act Section 302
pSection 302 requires CEO and CFO to certify
that:
n Financial statements neither contain material untrue
facts nor omit material facts.
n They have established and evaluated internal
controls for the accounting system that produces the
reports.
n Penalty for violation of section 302 up to 20 years
prison and $5 million in fines.
Sarbanes-Oxley Act Section 401
pSection 401:
n Covers disclosures in financial reporting, including
“off balance sheet” items.
n Calls for transparent reporting of the economic
effect of transactions; reports should clearly reflect
the economic reality of business events.
Sarbanes-Oxley Act Sections 404
and 409
pSection 404:
n Mandates the SEC set rules defining a report on
internal control that must be included with annual
report.
n Must include responsibility of management and an
attestation to the control relative to internal control
evaluation and reporting.
pSection 409:
n Requires rapid and current disclosure of information
regarding material changes in financial conditions or
operations.
U.S. GAAP and IFRS
pFinancial Accounting Standards Board (FASB) is
the body with the mission of establishing and
improving financial accounting and reporting
standards (i.e., GAAP )in the U.S.
pInternational Accounting Standards Board (IASB)
is a standard-setting body with the objective of
developing globally accepted international
financial reporting standards (IFRS).
U.S. GAAP and IFRS Convergence
p“Convergence” of U.S. GAAP and IFRS implies
that the standards will blend together, with
differences reconciled, and ultimately we will
have one set of standards that can be used
worldwide.
pU.S. GAAP allows LIFO for inventory, IFRS does
not.
pIFRS is a topic that can be included on the
Uniform CPA Examination.
Current Environment for External
Financial Reporting
pInvestors want more information faster.
pSarbanes-Oxley demands “rapid and current”
disclosures.
pSEC has shortened the time companies have for
reporting certain events.
pReal-time reporting is feasible and facilitated
by enterprise systems with data flows to the GL
in a real-time manner.
Current Environment for External
Financial Reporting (cont’d)
pContinuous assurance (continuous auditing)
provides assurance through monitoring
automated controls and business events in real
or near-real time.
pMonitoring accomplished through:
n Audit modules in ERP software
n Auditor access to data with query tools such as SQL.
pIdea is to detect problems quickly to prevent
them from recurring or getting larger.