1. Chapter 16 General Ledger and Reporting System Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall 16-1

2. Learning Objectives  Describe the information processing operations required to update the general ledger and to produce reports for internal and external users.  Identify the major threats in general ledger and reporting activities and evaluate the adequacy of various control procedures for dealing with them.  Understand the implications of new IT developments, such as XBRL, and changes in external reporting requirements, such as IFRS, for the design and operation of the general ledger and reporting system.  Discuss how tools such as responsibility accounting, balanced scorecards, and graphs can be used to provide information managers need to effectively monitor performance. Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall 16-2

3. General Ledger and Reporting Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall 16-3

4. General Ledger and Reporting  Primary function is to collect and organize  The accounting cycle activities  Financing activities  Investing activities  Budget activities  Adjustments Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall 16-4

5. General Ledger and Reporting General Threats  Inaccurate or invalid general ledger data  Unauthorized disclosure of financial statement  Loss or destruction of data Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall 16-5

6. General Ledger and Reporting General Controls  Data processing integrity controls  Restriction of access to general ledger  Review of all changes to general ledger data  Access controls  Encryption  Backup and disaster recovery procedures Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall 16-6

7. General Ledger and Reporting Activities 1.Update general ledger 2.Post adjusting entries 3.Prepare financial statements 4.Produce management reports Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall 16-7

8. Update General Ledger  Posting journal entries from:  Accounting subsystems  Updated automatically by each of the transaction cycles in chapters 12-15  Treasurer  Nonroutine transactions such as issuance or retirement of debt, purchase or sale of investment securities, or acquisition of treasury stock  Journal voucher file  Trial balance  Audit trail Copyright 2012 © Pearson Education, Inc. publishing as Prentice Hall 16-8

9. Update General Ledger Threats  Inaccurate updating of general ledger  Unauthorized journal entries Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall 16-9

10. Update General Ledger Controls  Data entry processing integrity controls  Reconciliations and control reports  Audit trail creation and review  Access controls  Reconciliations and control reports  Audit trail creation and review Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall 16-10

11. Post Adjusting Entries  Accruals  Events that have occurred but no exchange of cash  e.g., interest revenue earned, wages payable  Deferrals  Reflect exchange of cash prior to performance of event  e.g., prepaid revenue, prepaid expenses  Estimates  Portion of expense expected to occur over a period of time  e.g., depreciation, bad-debt expense 16-11

12. Post Adjusting Entries  Revaluations  Reflect differences between actual and book values of assets or changes in accounting principles  e.g., inventory adjustments, change in inventory valuation method  Corrections  Correct effects of errors Copyright 2012 © Pearson Education, Inc. publishing as Prentice Hall 16-12

13. Post Adjusting Entries Threats  Inaccurate adjusting entries  Unauthorized adjusting entries Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall 16-13

14. Post Adjusting Entries Controls  Data entry processing integrity controls  Spreadsheet error protection controls  Standard adjusting entries  Reconciliations and control reports  Audit trail creation and review  Access controls Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall 16-14

15. Prepare Financial Statements  Closing journal entries  Income statement  Balance sheet  Statement of cash flows Copyright 2012 © Pearson Education, Inc. publishing as Prentice Hall 16-15

16. Prepare Financial Statement Threats  Inaccurate financial statements  Fraudulent financial reporting Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall 16-16

17. Prepare Financial Statement Controls  Processing integrity controls  Use of packaged software  Training and experience in applying IFRS and XBRL  Audits Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall 16-17

18. eXtensible Business Reporting Language (XBRL) Without With Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall 16-18

19. XBRL  Instance Document  Contains data from financial statements  Marked up or tagged with data describing the data  Each piece of data in XBRL is an element  Taxonomy  Set of files defining the various elements and the relationships between them  A schema  Contains the definitions of every element that could appear in an instance document Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall 16-19

20. XBRL  Linkbases  Describes relationships between elements  Reference  Identifies relevant authoritative pronouncements  Calculation  Specifies how to combine elements  Presentation  How to group elements  Label  Associates human-readable labels with elements Copyright 2012 © Pearson Education, Inc. publishing as Prentice Hall 16-20

21. Produce Management Reports Threats  Poorly designed reports and graphs Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall 16-21

22. Produce Management Report Controls  Responsibility accounting  Balanced scorecard  Training on proper graph design Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall 16-22

23. Balanced Scorecard  A report that provides a multidimensional perspective of organizational performance  Reflecting four perspectives of the organization  Financial  Customer  Internal operations  Innovation and learning  Showing goals and measures  Targets  Actual Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall 16-23