Accounting Information Systems

Fourteenth Edition

Chapter 16
General Ledger and
Reporting System

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 Learning Objectives
• Describe the activities, information needs, and key decisions made in the
general ledger and reporting system, explain the general threats in the cycle,
and describe the controls that can be used to mitigate those threats.
• Explain the process for updating the general ledger, the threats to that
process, and the controls that can be used to mitigate those threats.
• Explain the purpose and nature of posting adjusting entries, the threats to that
process, and the controls that can be used to mitigate those threats.
• Explain the process of preparing financial statements, the threats to that
process, the controls that can be used to mitigate those threats, and how IT
developments such as XBRL can improve the efficiency and effectiveness of
preparing financial statements.
• Describe the process for producing various managerial reports, the threats to
that process, and how tools like responsibility accounting, the balanced
scorecard, and well-designed graphs can help mitigate those threats.

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 General Ledger and Reporting System
Process
• Update general ledger
• Post adjusting entries
• Prepare financial statements
• Produce managerial reports

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 General Threats Throughout the General
Ledger and Reporting Cycle
Threats Controls
1. Inaccurate or invalid general ledger data 1 a. Data processing integrity
2. Unauthorized disclosure of financial controls
statement b. Restriction of access to G/L
3. Loss or destruction of data c. Review of all changes to G/L
data
2 a. Access controls
b. Encryption
3 a. Backup and disaster recovery
procedures

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 Update General Ledger
Threats Controls
1. Inaccurate updating of general ledger 1 a. Data entry processing
2. Unauthorized journal entries integrity controls
b. Reconciliations and control
reports
c. Audit trail creation and review
2 a. Access controls
b. Reconciliations and control
reports
c. Audit trail creation and review

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 Adjusting Entries
• Accruals
– Made at end of accounting period to reflect events that have occurred but are not in
the financial statements (e.g., wages payable)
• Deferrals
– Made at end of accounting period to reflect exchange of cash prior to performance
of related event (e.g., rent)
• Estimates
– Portion of expenses expected to occur over a number of accounting periods (e.g.,
depreciation)
• Revaluations
– Entries made to reflect differences between actual and recorded value of an asset or
change in accounting principle
• Corrections
– Entries made to counteract effects of errors found in the general ledger

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 Post Adjusting Entries
Threats Controls
1. Inaccurate adjusting entries 1 a. Data entry processing
2. Unauthorized adjusting entries integrity controls
b. Spreadsheet error protection
controls
c. Standard adjusting entries
d. Reconciliations and control
reports
e. Audit trail creation and review
2 a. Access controls
b. Reconciliations and control
reports
c. Audit trail creation and review

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 Prepare Financial Statements
Produce Managerial Reports
Threats Controls
1. Inaccurate financial statements 1 a. Processing integrity controls
2. Fraudulent financial reporting b. Use of packaged software
3. Poorly designed reports and graphs c. Training and experience in
applying IFRS and XBRL
d. Audits
2 a. Audits
3 a. Responsibility accounting
b. Balanced scorecard
c. Training on proper graph
design

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 Regulatory & Technological Developments
that Affect Financial Reporting
• International Financial Reporting Standards (IFRS)
– Understand the systems implications due to the fact that the IFRS
is different in financial reporting than Generally Accepted
Accounting Principles (GAAP)
• eXtensible Business Reporting Language (XBRL)
– Specifically used for communicating financial data (required by the
Securities and Exchange Commission (SEC) if public company)

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 Managerial Reports & Evaluating
Performance
• Responsibility accounting
– Reporting results based upon managerial responsibilities in an
organization
• Flexible budget
– Budget formula based upon level of activity (e.g., production
levels)
• Balanced scorecard
– Measures financial and nonfinancial performance using four
dimensional goals:
 Financial
 Customer
 Internal Operations
 Innovation and Learning
• Graphs
– Data visualization and proper graph design

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 Key Terms
• Journal voucher file • Schema
• Trial balance • Linkbases
• Audit trail • Style sheet
• XBRL • Extension taxonomy
• Instance document • Responsibility accounting
• Element • Flexible budget
• Taxonomy • Balanced scorecard

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