GENERAL LEDGER &

REPORTING SYSTEMS
INTRODUCTION
GENERAL LEDGER (GL)
• It is the central module of any AIS that organisations cannot do
without.
• This is where all transactions are summarized and reports are prepared
from. The reports are for both internal and external users.
• Management need timely detailed information about results of
operations in their respective areas of responsibility.
• Investors and creditors want regular and timely financial statements to
help them assess the entity’s performance.
• The general ledger produces reports in addition to supporting online
inquiries.
THREATS & CONTROLS –GL &
REPORTING SYSTEMS – Update GL
• Updating of the GL consists of transactions from two sources. The
first comes from the revenue, expenditure and payroll subsystems.
This is normally in a summary journal. The second are non routine
journal transactions from the Treasurer e.g. retirement of debt.
Journal Transactions
Journal entries from the Treasurer are original data entry hence they
require input edit and processing controls to ensure accuracy and
completeness of these transactions.
1. Validity check to ensure the general ledger accounts exist for each
account number in the journal entry.
THREATS & CONTROLS –GL &
REPORTING SYSTEMS
2. Field (format checks) to ensure that the amount field in the journal entry
contains numeric data only.
3. A zero balance check – or the dual concept i.e. total debits equal total credits.
4. Completeness test to ensure that all essential data are entered especially the
origin or source of the journal entry
5. Closed loop verification matching account numbers with account descriptions
to confirm the correct GL account is being accessed.
6. A sign check of the GL account balance once updating is completed to verify
that its indeed a debit or a credit
7. Calculating run to run totals to verify the accuracy of journal voucher batch
processing
THREATS & CONTROLS –GL &
REPORTING SYSTEMS – GENERAL
ISSUES
1. Inaccurate or invalid general ledger data leading to misleading reports that
cause erroneous decisions.
1.1. Data processing integrity controls
1.2 Restrict access to the GL
1.3 Review all changes to GL data
2. Unauthorized disclosure of financial statement information
2.1 Ensure access controls
2.2 Data encryption
3. Loss or destruction of data
3.1 Backup & disaster recovery procedures
THREATS & CONTROLS –GL &
REPORTING SYSTEMS - Updating GL
1. Inaccurate updating of GL
1.1 Data entry processing integrity controls (see under journal above)
1.2. Reconciliations and control reports – trial balance, suspense a/c
1.3 Audit trail creation & review
2. Unauthorized journal entries (remember journals are a major
source of possible fraud)
2.1 Access controls
2.2 Reconciliations and control reports
2.3 Audit trail creation & review
THREATS & CONTROLS –GL &
REPORTING SYSTEMS – Posting Adjusting
Entries
Adjusting entries arise after initial trial balance
1. Inaccurate adjusting entries
1.1 Data entry processing integrity controls
1.2 Spreadsheet error protection controls
1.3 Standard adjusting entries
1.4 Reconciliations and control reports
1.5 Audit trail creation & review
2. Unauthorized adjusting entries
2.1 Access controls
2.2 Reconciliations and control reports
2.3 Audit trail creation & review
THREATS & CONTROLS –GL &
REPORTING SYSTEMS – Posting Adjusting
Entries
Adjusting Entries fall into 5 categories
1. Accruals – events have occurred but cash has not yet been received or
disbursed
2. Deferrals or prepayments – exchange of cash prior to performance e.g. rent,
insurance paid in advance
3. Estimates – portion of expenses expected to occur over a number of
accounting periods e.g. depreciation & credit losses (bad debts)
4. Revaluations – reflect differences between actual & recorded value of an asset
or change in accounting principle
5. Corrections – entries to correct errors found in the GL
THREATS & CONTROLS –GL &
REPORTING SYSTEMS – Preparing
Financial Statements
1. Inaccurate financial statements –
1.1 Processing integrity controls
1.2 Use of packaged software where practicable
1.3 Training staff & experience in applying IFRS
1.4 Audits both internal & external
2. Fraudulent financial reporting
2.1. Audits both internal & external
Awareness of ethical behaviour & standards
THREATS & CONTROLS –GL &
REPORTING SYSTEMS – Production of
Managerial Reports
1. Poorly designed reports & graphs
1.1 Responsibility accounting
1.2 Balanced scorecard
1.3 Training on proper graph design
Balanced Scorecard
This is a concept that provides a multi dimensional approach of
organisational performance unlike many accounting systems that focus
solely on financial performance
THREATS & CONTROLS –GL &
REPORTING SYSTEMS – Balanced
Scorecard (Example)
Dimensional Goals Measure Target 2020 2019
Financial
New revenue streams Sales of new products (000s) 104 103 100
Improve profitability Return on equity (%) 12.5% 12.6% 12.2%
Positive cashflow Cash from operations (000s) 156 185 143
Customer
Improve satisfaction Rating (0 to 100) 95 93 92
Be a preferred supplier % of key customers electronics purchases made from us 20% 20% 18%
Internal Operations
Service quality Orders filled without error (%) 98% 97% 95%
Speed of delivery Order cycle time (days) 10.4 10.5 11.2
Process efficiency Defect rate 1.0% 1.1% 1.05%
PROCESSING INTEGRITY CONTROLS
Processing integrity require that a reliable system should produce information that
is accurate, complete, timely and valid.
Garbage in garbage out (Gigo) emphasizes the importance of input controls. If the
data entered into a system are inaccurate, incomplete and invalid, the output will
be the same.
INPUT STAGE
Has the following threats and risks: - Data that is invalid, unauthorized, incomplete
and inaccurate.
CONTROLS FOR INPUT STAGE
1. Forms design – source documents & other forms should be designed to
minimize errors & omissions. Source documents to be sequentially numbered
PROCESSING INTEGRITY CONTROLS
2. Cancellation & storage of documents – documents input into the system should
be endorsed to avoid being re-entered into the system either by mistake or
fraudulently
3. Authorization & segregation of duties
4. Visual scanning
5. Data entry controls – these are automated data entry controls
• Field check- an edit check that tests whether the characters in the field are of
the correct field. No alphabet in numeric field
• Sign Check – an edit check that verifies that the data in the field have an
appropriate arithmetic sign e.g. quantity ordered should not have negative
PROCESSING INTEGRITY CONTROLS
• Limit Check – an edit check that tests a numerical amount against a fixed value
e.g. weekly hours if 40 to be less or equal to 40
• Range Check – an edit check that tests whether a data item falls within
predetermined upper and lower limits.
• Size Check- an edit check that ensures the input data will fit into the assigned field.
• Completeness Check (or Test) - an edit check that verifies that all data required
have been entered e.g. include shipping address for customer when sale is
processed
• Validity Check – an edit check that compares the ID code or account number in
transaction data with similar data in the master file to verify that the account
exists e.g. inventory item code
PROCESSING INTEGRITY CONTROLS
• Reasonableness Test – an edit check of the logical correctness of
relationships among data items e.g. no overtime is maximum hours
not worked
• Check Digit – ID codes can contain a check digit that is computed
from other digits. Data entry devices can be programmed to perform
check digit verification
All the above data entry tests are used for both batch processing and
on line real time processing. However additional data input controls
differ for the two processing methods.
PROCESSING INTEGRITY CONTROLS
Additional Batch Processing Data Entry Controls
• This works better if transactions are sorted that accounts affected are in
the same sequence as records are sorted in the master file.
• Sequence check – tests whether a transaction file is in the proper
numerical or alphabetical sequence.
• An error log that identifies data input errors (date, cause, problem)
facilitates timely review and resubmission of transactions that cannot
be processed
• Batch totals – calculate the numeric values for a batch of input
records. There are 3 common used batch totals
PROCESSING INTEGRITY CONTROLS
1. Financial total – sums a field that contains monetary values e.g.
amount of sales for a batch of sales transactions
2. Hash total – sums a non financial numeric field e.g. the total
quantity ordered field in a batch of sales transactions
3. Record count – is the number of records in a batch i.e. number of
records processed in a given time.
Additional Online Data Entry Controls
• Prompting – the system requests each input data item and waits for
an acceptable response. It ensures all necessary data are entered
PROCESSING INTEGRITY CONTROLS
• Closed-loop verification – checks the accuracy of input data by using
it to retrieve & display other related information. Example input
account number but system shows name to confirm.

PROCESSING CONTROLS
This ensures that data is processed correctly
• Data Matching - two or more items of data must be matched before
an action can take place. Match invoice with purchase order & GRV
before paying.
PROCESSING INTEGRITY CONTROLS
• File Labels- These need to be checked to ensure that the correct and most current
files are being updated.
• Recalculation of batch totals - Batch totals should be recomputed as each
transaction record is processed
• Cross footing & zero balance test – applies in spreadsheets for the first one and
control accounts for the second one
• Write protection mechanisms These protect against writing or erasing of data files
stored on magnetic media.
• Concurrent update controls – Errors can occur when 2 or more users attempt to
update the same record at the same time. This facility prevent such errors by locking
out one user until the system has finished processing the transaction entered by the
other.
PROCESSING INTEGRITY CONTROLS
OUTPUT CONTROLS
Checking system output provides additional control over processing
integrity
• User review of output – just to check that it is reasonable
• Reconciliation procedures - Reconcile to control reports periodically
• External data reconciliation database totals should periodically be
reconciled with data maintained outside the system
• Data transmission controls – Whenever a receiving device detects a
transmission error it requests the sending device to retransmit that data