FINANCIAL
REPORTING AND
MANAGEMENT
REPORTING SYSTEMS
GENERAL
LEDGER
SYSTEM
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GENERAL LEDGER
SYSTEM
A hub connected to the other systems of the firm through
spokes of information flows
Summaries of transactions flow into the GLS and become
sources of input for the management reporting system (MRS)
and financial reporting system (FRS)
The bulk of the flows into the GLS comes from the
transaction processing subsystems
Information also flows from the FRS as feedback into the
GLS 3
THE JOURNAL VOUCHER
The source of input to the general ledger
Identifies the financial amounts and affected general ledger
(GL) accounts
Routine transactions, adjusting entries, and closing entries are
all entered into the GL via journal vouchers
Given that a manager must approve journal vouchers, this
offers a degree of control against unauthorized GL entries
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THE GLS
DATABAS
E
The GLS database includes a variety of files. Whereas these will
vary from firm to firm, the following examples are
representative.
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THE GLS DATABASE
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THE GLS DATABASE
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GENERAL LEDGER MASTER
FILE
principal file in the GLS database
Based on organization’s published chart of accounts
Each record in the GL master is either a separate GL account or
the control account for a corresponding subsidiary ledger in the
transaction processing system
The FRS draws upon the GL master to produce the firm’s
financial statements
The MRS also uses this file to support internal information
reporting 8
GENERAL Has the same format as the GL master
LEDGER Its primary purpose is to provide historical financial data for
HISTORY comparative financial reports
FILE
JOURNAL The total collection of the journal vouchers processed in the
current period
VOUCHER
This file provides a record of all general ledger transactions
FILE and replaces the traditional general journal
JOURNAL Contains journal vouchers for past periods
VOUCHER This historical information supports management’s
stewardship responsibility to account for resource utilization
HISTORY FILE 9
Contains the revenues, expenditures, and other resource
RESPONSIBILI utilization data for each responsibility center in the
organization
TY CENTER
The MRS draws upon these data for input in the
FILE preparation of responsibility reports for management
Contains budgeted amounts for revenues, expenditures, and
other resources for responsibility centers
BUDGET
MASTER FILE These data, in conjunction with the responsibility center file,
are the basis for responsibility accounting
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FINANCIAL
REPORTING
SYSTEM
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FINANCIAL REPORTING
SYSTEM
Much of the information provided takes the form of:
standard financial statements
tax returns
documents required by regulatory agencies such as the Securities and Exchange
Commission (SEC)
Primary recipients of financial statement information are external users such as:
stockholders
creditors
government agencies
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FINANCIAL REPORTING
SYSTEM
Outside users require information that allows them to
observe trends in performance over time and to make
comparisons between different organizations
Financial reporting information must be prepared and
presented by all organizations in a manner that is generally
accepted and understood by external users
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SOPHISTICATED USERS WITH
HOMOGENEOUS INFORMATION NEEDS
Financial statements are targeted at a general audience
They are prepared on the proposition that the audience
comprises sophisticated users with relatively homogeneous
information needs
It is assumed that users of financial reports understand the
conventions and accounting principles that are applied and that
the statements have information content that is useful
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FINANCIAL REPORTING
PROCEDURES
Financial reporting is the final step in the overall accounting process that begins in
the transaction cycles
1. Capture the transaction
2. Record in special journal
3. Post to subsidiary ledger
4. Post to general ledger
5. Prepare the unadjusted trial balance
6. Make adjusting entries
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FINANCIAL REPORTING
PROCEDURES
7. Journalize and post adjusting entries
8. Prepare the adjusted trial balance
9. Prepare the financial statements
10. Journalize and post the closing entries
11. Prepare the post-closing trial balance
The periodic nature of financial reporting in most organizations establishes it as
a batch process
Many organizations, however, have moved to real-time GL updates and FRS
that produce financial statements on short notice 17
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XBRL
Reengineering Financial Reporting
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XML
eXtensible Markup Language
XML
metalanguage
model the data structure of an organization’s
internal database
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XML vs. HTML
most popular markup language
XML vs. HTML
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XBRL
eXtensible Business Reporting Language
XBRL
XML-based language
to provide a standardized financial information
for aggregated reporting of financial data
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XBRL - REPORTING
PROCESS
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Current State of XBRL
Reporting
Controlling
the FRS
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CONTROLLING THE FRS
Defective audit trail
Unauthorized access to GL
GL accounts that are out of balance with
subsidiary accounts
Incorrect GL account balances
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SAS 78/COSO CONTROL
ISSUES
TRANSACTION AUTHORIZATION
SEGREGATION DUTIES
ACCESS CONTROLS
ACCOUNTING RECORDS
INDEPENDENT VERIFICATION
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INTERNAL CONTROL
IMPLICATIONS OF XBRL
TAXONOMY CREATION
TAXONOMY MAPPING ERROR
VALIDATION OF INSTANCE DOCUMENTS
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Management
Reporting
System
Often called as discretionary reporting
Mandated by sox legislation 33
FACTORS THE INFLUENCE
MRS
Management Principles.
Management Functions, Level, and Decision type.
Problem Structure.
Types of Management Reports.
Responsibility Accounting.
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Behavioral Considerations.
MANAGEMENT PRINCIPLES
Formalization of Task
This promotes organization’s performance,
stability, and continued existence and hence
promotes internal control.
IMPLICATIONS: The information must focus
on task rather than the individual performance. 35
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RESPONSIBILITY AND
AUTHORITY
Responsibility is an individual’s obligation to
achieved desired results.
Authority - must grant the authority to make
decisions within the limit of that responsibility.
IMPLICATIONS:
This principle uses the vertical reporting
system.
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SPAN OF CONTROL
Refers to the number of subordinates directly
under his or her control.
Organizational behavior research suggest that
wider spans of control are preferable because they
allow more employee in decision making.
IMPLICATIONS: The different management
approaches require different information.
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MANAGEMENT BY
EXCEPTION
Suggest that managers should limit their attention to
potential problem areas rather than being involved
with every activity decision
IMPLICATIONS: Unnecessary details that may
draw attention away from important facts should be
excluded from reports.
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MANAGEMENT FUNCTION, LEVEL
AND DECISION TYPE
The management functions of planning and control have a
profound effect on the MRS.
Planning function is concerned with making decisions
about the future activities of the organization.
LONG RANGE
SHORT RANGE
Control Function ensures that the activities of the firm
conform to the plan. 41
CATEGORIES OF PLANNING AND
CONTROL DECISIONS
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STRATEGIC PLANNING
DECISIONS
Setting the goals and objective of the firm
Determining the scope of business activities.
Determining and modifying the organization’s
structure.
Setting the management philosophy
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TACTICAL PLANNING
DECISIONS
Subordinated to strategic decisions and are made by the
middle management.
MANAGEMENT CONTROL DECISIONS
Involves motivating managers in all functional areas to
use resources, including materials, personnel and
financial assets, as productively as possible.
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OPERATIONAL CONTROL
DECISIONS
Ensures that the firm operates in accordance with pre
established criteria.
BASIC ELEMENTS:
Setting standards
Performance Evaluation
Taking corrective action
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PROBLEM STRUCTURE
DATA
PROCEDURE
OBJECTIVES
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STRUCTURED PROBLEMS
UNSTRUCTURED
PROBLEMS
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TYPES OF MANAGEMENT
REPORTS
PROGRAMMED REPORTING
Scheduled reports
On-demand reports
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REPORT ATTRIBUTES
RELEVANCE
SUMMARIZATION
EXCEPTION ORIENTATION
ACCURACY
COMPLETENESS
TIMELINESS
CONCISENESS 49
TYPES OF MANAGEMENT
REPORTS
AD HOC REPORTING
Data Mining
Verification Model
Discovery Model
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RESPONSIBILITY
ACCOUNTING
RESPONSIBILITY
ACCOUNTING
Setting Financial Goals: The Budget Process
Measuring and Reporting Performance
Responsibility Centers
Cost Centers
Profit Center
Investments Centers
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BEHAVIORAL
CONSIDERATIONS
BEHAVIORAL
CONSIDERATIONS
Goal Congruence
Information Overload
Inappropriate Performance Measures
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