MODULE 16

FINANCIAL REPORTING AND MANAGEMENT

GLS Reports
 General ledger analysis:
o Listing of transactions
o Allocation of expenses to cost centers
o Comparison of account balances from prior periods
o Trial balances
 Financial statements:
o Balance sheet
o Income statement
o Statement of cash flows
 Managerial reports:
o Analysis of sales
o Analysis of cash
o Analysis of receivables
 Chart of accounts: coded listing of accounts

Potential Risks in the GL/FRS

 Improperly prepared journal entries
  Unposted journal entries
 Debits not equal to credits
 Subsidiary not equal to G/L control accounts
 Inappropriate access to G/L
 Poor audit trail
 Lost or damaged data
 Account balances that are wrong because of unauthorized or incorrect
journal vouchers

GL/FRS Control Issues

 Transaction authorization – journal vouchers must be authorized by a
manager at the source dept
 Segregation of duties – G/L clerks should not:
o Have recordkeeping responsibility for special journals or
subsidiary ledgers
o Prepare journal vouchers
o Have custody of physical assets

GL/FRS Control Issues

 Access Controls:
o Unauthorized access to G/L can result in errors, fraud, and
misrepresentations in financial statements.
o Sarbanes-Oxley requires controls that limit database access to
only authorized individuals.
 Accounting records – trace source documents from inception to
financial statements and vice versa
 Independent verification
o G/L dept. reconciles journal vouchers and summaries
 Two important operational reports used:
o Journal voucher listing – details of each journal voucher posted
to the G/L
o General ledger change report – the effects of journal voucher
postings on G/L accounts
GL/FRS Using Database Technology
 Advantages:
o Immediate update and reconciliation
o Timely, if not real-time, information
 Removes separation of transaction authorization and processing
o Detailed journal voucher listing and account activity reports are a
compensating control
 Centralized access to accounting records
o Passwords and authorization tables as controls

Management Reporting Systems

 Produce financial and nonfinancial information needed by management
to “plan, evaluate, control”
 Usually seen as discretionary reporting
 Can argue that Sarbanes-Oxley requires MRS
o MRS provide a formal means for monitoring the internal controls

Factors That Influence MRS Design

 Management principles
 Management function, level, and decision type
 Problem structure
 Types of management reports
 Responsibility accounting
 Behavioral considerations

Management Principles
 Formalization of tasks:
o Structures the firm around the tasks performed rather than around
individuals’ unique skills
 o Allows specification of the information needed to support the
tasks
 Responsibility and authority:
o Responsibility – obligation to achieve desired results
o Authority – power to make decisions within the limits of the
responsibility
o Delegated by managers to subordinates
o Define the vertical reporting channels through which information
flows
 Span of Control:
o The number of subordinates directly under the managers’ control
o Detailed reports for managers with narrow spans of control
 Management by exception:
o Managers should limit their attention to potential problem areas
o Reports should focus on changes in key factors that are
asymptomatic of potential problems.
 Strategic planning decisions:
o Firm’s goals and objectives
o Scope of business activities
o Organizational structure
o Management philosophy
o Long-term, with broad scope and impact
o Non-recurring, with high degree of uncertainty
o Need highly summarized information
o Require external & internal information sources
 Tactical planning decisions:
o Subordinate to strategic decisions
o Shirt term
o Specific objectives
o Recur often
o Fairly certain outcomes
o Limited impact on the firm
 Management control decisions:
o Using resources as productively as possible in all functional areas
o Evaluating the performance of subordinates against standards
 Measuring performance is difficult because sound decisions with long-
term benefits may negatively impact the short-term bottom line.
 Operational control decisions:
o Deal with routine tasks
o Narrower focus, dependent on details
o Highly structured
o Short time frame
 Three basic elements or steps:
o Set attainable standards
o Evaluate performance
o Take corrective action
 Problem Structure
o Reflects and affects how well decision makers understand and
solve problems
o Elements of problem structure:
 Data
 Procedures
 Objectives
 Management Reports
o Report objectives – reports must have value or information
content
o They should…
 Reduce the level of uncertainty associated with a problem
facing the decision maker
 Influence the behavior of the decision maker in a positive
way
 Report Attributes
o Relevance – useful to decision making
o Summarization – appropriate level of detail
o Exception orientation – identify risks
o Accuracy – free of material errors
o Completeness – essential information
o Timeliness – in time for decisions
o Conciseness – understandable format
ON DEMAND 1. Cash disbursements listing
ON - DEMAND 2. Overtime report
SCHEDULED 3. Customer account history
ON-DEMAND 4. Inventory stock -out report
SCHEDULED 5. Accounts receivable
SCHEDULED 6. Duplicate paycheck report
ON-DEMAND 7. Cash receipts listing
SCHEDULED 8. Machine maintenance report
SCHEDULED 9. Vendor delivery record report
SCHEDULED 10. Journal voucher listing
ON-DEMAND 11. Investment center report
ON - DEMAND 12. Maintenance cost overrun report

1. which statement is not true?

a. Authority refers to an Individual's obligation to achieve desired result
b. If an employee Is given the responsibility for a task, that employee
should be given authority to make decisions within the limits of that task
c. The level of detail provided to an employee Is a function of the
employee's position with the firm
d. All of the above are true
2. which statement Is not true? the manager's span of control
a. Is narrow for routine and repetitive tasks
b. Is related to the number of layers of management
c. Affects the amount of details provided to a manager
d. Can affect employee morale and motivation

3. Short-range planning Involves

a. Setting goals and objectives of the firm
b. planning and production schedule for the next quarter
c. planning the growth of the firm
d. deciding on the degree of diversification among the firm's products

4. long-range planning Involves

a. planning the marketing and promotion for a product
 b. presenting department heads with budgetary goals for the next year
c. preparing a work force utilization budget for the next quarter
d. deciding the optimum size of the firm

5. the level of management that makes tactical planning decisions Is

a. top management
b. middle management
c. operations management
d. front-line management