ACC 3530 Chapter 18: General Ledger and Reporting System

General Ledger and Reporting System

its primary function is to collect and organize data from the following sources…

• each of the accounting cycle subsystems

• financing and investing activities provided by the treasurer

• budget numbers from the budget department

• adjusting entries from the controller

General Ledger and Reporting System Process

• update general ledger

• post adjusting entries

• prepare financial statements

• produce managerial reports

General Threats to GL and Reporting Cycle

• inaccurate/invalid GL data

• unauthorized disclosure of financial statements

• loss or destruction of data

Process for Updating the GL

• ‘regular’ journal entries come from…

  • accounting subsystems which generally use summary journal entries (e.g. daily, weekly, monthly)

  • the treasurer’s office which provides info for non-routine cash-based journal entries (e.g. investment security sale)

• the journal voucher file that stores all journal entries used to update the GL is a by-product of the posting process, key input to the audit trail

Threats to Updating the GL

• inaccurate updating of GL

• unauthorized journal entries

Data Entry Controls

• validity check

• filed/format check

• zero-balance check

• completeness check

• closed-loop verification

• sign check

• run-to-run totals

Validity Check

verify that GL accounts exist for each account number referenced

Field/Format Check

verify data is numeric

Zero-Balance Check

verify balance of debits and credits

Completeness Check

verify all necessary information is entered, such as account numbers

Closed-Loop Verification

display name associated with account numbers for visual verification

Sign Check

verify that balance is appropriate debit or credit

Run-to-Run Totals

verify previous balance plus batch matches new total

Reconciliation and Control Reports

• trial balance, debits and credits balance in the GL

• compare GL account balance with subsidiary ledger

• verify clearing accounts are zero balance (e.g. un-billed shipments)

Audit Trail

• track down errors identified by reconciliation and control reports

• shows how transactions flow through the system

  • source documents

  • subsidiary ledger

  • general ledger

• restricted access

Types of Adjusting Entries

• accruals

• deferrals

• estimates

• revaluations

• corrections

Accruals

• events that have occurred, but cash is not received or disbursed

• e.g. interest earned, wages payable

Deferrals

• exchange of cash prior to events, i.e. deferred revenue

• e.g. advance payments from customers

Estimates

• portion of expenses over multiple periods

• e.g. depreciation

Revaluations

• difference between actual and recorded value of asset or change in accounting principles

• e.g. write down obsolete inventory

Corrections

counteract errors in the GL

Threats to Posting Adjusting Entries

• inaccurate adjusting entries

• unauthorized adjusting entries

• major risk is that the controller’s office often makes these entries using spreadsheets, i.e. outside the AIS

Regulatory and Tech Developments Affecting Financial Reporting

• understand the systems implications due to the fact that IFRS is different in financial reporting than GAAP

• XBRL specifically used for communicating financial data, required by the SEC for public companies

Inline XBRL

• an open standard that merges HTML and XBRL tags so the same document…

  • is human-readable in a browser

  • contains structured data that’s machine readable

Threats to Preparing Financial Statements

• inaccurate financial statements

• fraudulent financial reporting

Threats to Producing Managerial Reports

• poorly designed reports and graphs

Reporting Controls

• responsibility accounting

• flexible budget

• balanced scorecard

Responsibility Accounting

• relate financial results to those who are accountable

• breakdown by department or area

Flexible Budget

• evaluate against organizational activity instead of raw numbers

• e.g. what if production is 20% higher than expected

Balanced Scorecard

• more than financial numbers

• includes dimensions for…

  • customers/stakeholders

  • internal processes/operations

  • innovation and learning