General Ledger And Business Reporting (GL/BR) Process Learning Objectives • • • • • • Illustrate how the business processes feed data required for GL updates Explain how GL/BR reporting capabilities support an organization’s external & internal reporting functions Analyze the limitations of the traditional GL approach in contemporary systems Describe how client/server architecture implements GL/BR Analyze control issues and Control plans associated with client/server hardware and software used to implement the GL and related business reporting extensions Evaluate potential problems in operating the GL and possible solutions to those problems GL/BR GL/BR is a Spoke on AIS Wheel • The GL/BR process – Assembles financial information for both internal and external users – Depends on process controls for accuracy and completeness – Relies on pervasive controls for system security – Documentation of effective controls is required by SarbanesOxley Functions of GL/BR • GL – accumulating data, classifying data by GL accounts, recording data in those accounts – fueling FR, BR and other reporting subsystems Reporting Accumulating Recording Classifying Functions of GL/BR, Cont’d • BR – preparing generalpurpose, external financial statements – ensuring that F/S conform to GAAP – generating webbased forms – generating ad hoc & predetermined business reports Reporting Accumulating Recording Classifying GL/BR Horizontal perspective Business process feeders send updates to the business reporting department GL/BR Horizontal perspective Treasurer notifies the business reporting department of investing transaction activities GL/BR Horizontal perspective Treasurer notifies the business reporting department of financing transaction activities GL/BR Horizontal perspective Controller notifies the business reporting department of various adjusting entries GL/BR Horizontal perspective Finalized budget figures are sent to the business reporting department from the budgeting department 10 Summary of Horizontal and Vertical Information Flows • Horizontal flows – Events are processed in various operational systems – Culminates in GL and external business reports • Vertical Flows – GL and other event information flow upward through responsibility accounting system – Culminates in internal performance reports 22 GL/BR Process: Context Diagram • Various feeder processes provide event information • Source of internal and external financial reports 23 GL/BR Process: Level DFD • Detail of common GL/BR processes 24 GL Hierarchical Coding • 1113 Cash in Bank – 1xxx = assets – x1xx = current assets – xx1x = cash accounts – xxx3 = cash in bank • -– 1111 might mean petty cash 1112 might mean change fund 1121 might mean trade accounts receivable 1122 might mean receivables from officers 25 Chart of Accounts • Must be flexible to meet the firm’s financial and managerial reporting needs • For a multi-entity firm, there is need to code for departments, geographical regions, product lines, divisions, and special reporting entities • Should accommodate “rolling up” or consolidating accounts into statements using different forms 26 Technology-enabled Issues in BR • • • • • • FR modules in ERP systems Balanced Scorecard Business Intelligence Business Reporting via the Internet Public Databases Object-oriented databases 27 ERP Financial Module • Many options available for processing business events that affect multiple processes • Not all users not need all these options • For security reasons and for ease of use, we limit the access to menu items to only those needed a user to perform his or her responsibilities • We limit the menu options that appear • We allow a user to have different privilege levels for different information—that is, view access, write access, entry access, and/or change access • Carefully set up the system limitations for that specific user • Each user has their own ID and password 28 Balanced Scorecard • Methodology for assessing organization’s business performance via – – – – Financial Internal business processes Customers Innovation and improvement activities • Functionality included in applications by all major ERP vendors 29 Business Intelligence • Integration of statistical and analytical tools with decision support technologies • Facilitates complex analyses of data warehouses by managers and decision makers • Typical module in ERP systems 30 Extensible Business Reporting Language (XBRL) • XBRL is a form of XML-based language consisting of a set of tags used to unify presentation of business reporting information into a single format • Easily read by many software packages • Can be easily searched by web browsers • Enables easy uploading and downloading of information to other software packages for update, analysis, etc 31 Public Databases • Aid to financial reporting officers in determining BR treatments • National Automated Accounting Research System (NAARS) • The Internet may be viewed as one huge public database 32 IT Control Processes for Workstation-to-Workstation Networks • Typical Controls – – – – – – – – – – Passwords and access controls Access logs kept and reviewed Call back procedures for remote log on Controls on database/file access Controls on level of access/privileges, e.g., read-only file access Diskless workstations Data encryption and digital signatures Removable drives Backup facilities for extended network failures File locking/contention controls 33 Workstations Connected to Servers • Typical Controls – – – – Server logs kept and reviewed Standardized file transfer formats Read-only access to database Front-end workstations process data relieving server – Data entry to event data store and subsequent batch update to database 34 Sarbanes-Oxley Act of 2002 • Section 302 – Requires CEO and CFO to certify that financial statements contain neither material untrue facts nor omit material facts – Penalty for violation of section 302 up to 20 years prison and $5 million in fines • Section 401 – Requires financial statements that clearly reflect the economic reality of business events • Section 404 – Defines report on internal control that must be provided with annual report – Requires management assertion and auditor attestation on internal control effectiveness • Section 409 – Requires rapid and current disclosure of information regarding material changes in financial conditions 35 Current Environment of Financial Reporting • Today’s environment demands rapid access to information – Investors want information sooner – Sarbanes-Oxley demands “rapid and current” disclosures – SEC has shortened the time companies have for reporting certain events – Real-time reporting of events summarized in the GL is just over horizon 36 ... of responsibility accounting 19 Responsibility Accounting Performance Reporting 20 Summary of Horizontal and Vertical Information Flows 21 Summary of Horizontal and Vertical Information Flows... processed in various operational systems – Culminates in GL and external business reports • Vertical Flows – GL and other event information flow upward through responsibility accounting system – Culminates... module in ERP systems 30 Extensible Business Reporting Language (XBRL) • XBRL is a form of XML-based language consisting of a set of tags used to unify presentation of business reporting information