Chapter 16General Ledger and Reporting System

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General Ledger and Reporting

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General Ledger and Reporting

Primary function is to collect and organize The accounting cycle activities

Each accounting subsystem provides information about regular transaction.

Financing activities Investing activities

The treasurer provides information about financing and investing activities, such as the issuance or retirement of debt and equity instruments and the purchase or sale of investment securities.

Budget activities Provided by budget department

Adjustments The controller provides adjusting entries

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General Ledger and Reporting Activities

1. Update general ledger

2. Post adjusting entries

3. Prepare financial statements

4. Produce management reports

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Basic activities performed in the general ledger and reporting cycle

General Ledger and Reporting General Threats

Inaccurate or invalid general ledger data

Unauthorized disclosure of financial statement

Unauthorized disclosure of financial statement

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General Ledger and Reporting General Controls

Inaccurate or invalid general ledger data Data processing integrity controls Restriction of access to general ledger Review of all changes to general ledger data

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General Ledger and Reporting General Controls

Unauthorized disclosure of financial statement Access controls Encryption

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General Ledger and Reporting General Controls

Loss or destruction of data

Backup and disaster recovery procedures

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Update General Ledger

Posting journal entries that originate from two sources: Accounting subsystems.

By means of summary journal entries Treasurer

Update general ledger for non routine transactions

Journal voucher file – contains the information that would be found in the general journal in a manual accounting system. Date of the entry, debit, credit, and amount.

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Update General Ledger

The following types of input edit and processing controls are needed to ensure that the entries are accurate and complete1. A validity check – to ensure that general ledger accounts

exist for each account number referenced in a journal entry.

2. Field (format) checks - to ensure that the amount field in the journal entry contains only numeric data.

3. A zero-balance check - to verify the total debits equal total credits in a journal entry.

4. A completeness test - to ensure that all pertinent data are entered, especially the source of the journal entry.

5. Closed-loop verification - matching account numbers with account descriptions, to ensure that the correct general ledger account is being accessed.

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Update General Ledger

The following types of input edit and processing controls are needed to ensure that the entries are accurate and complete6. A sign check – of the general ledger account balance,

once updating is completed, to verify that the balance is of the appropriate nature (debit or credit)

7. Calculating run-to-run totals – to verify the accuracy of journal voucher batch processing

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Update General Ledger

Reconciliations and control reports Trial balance Control account balances & subsidiary balances total Close all temporary accounts (including suspense or

clearing accounts)

The audit trail Trace any transaction from its original source document

(whether paper or electronic) to the journal entry that updated the general ledger and to any report or other document using the data. This provides a means to verify that all authorized transactions were recorded.

Trace any item appearing in a report back through the general ledger to its original source document (whether paper or electronic). This provides a means to verity that all recorded transactions were indeed authorized and that they were recorded correctly. 16-12

Update General Ledger Threats

Inaccurate updating of general ledger

Unauthorized journal entries

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Update General Ledger controls

Inaccurate updating of general ledger Data entry processing integrity controls Reconciliations and control reports Audit trail creation and review

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Update General Ledger controls

Unauthorized journal entries Access controls Reconciliations and control reports Audit trail creation and review

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Post Adjusting Entries Threats

Inaccurate adjusting entries

Unauthorized adjusting entries

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Post Adjusting Entries controls

Inaccurate adjusting entries Data entry processing integrity controls Spreadsheet error protection controls Standard adjusting entries Reconciliations and control reports Audit trail creation and review

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Post Adjusting Entries controls

Unauthorized adjusting entries Access controls Reconciliations and control reports Audit trail creation and review

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Prepare Financial Statement Threats

Inaccurate financial statements

Fraudulent financial reporting

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Prepare Financial Statement controls

Inaccurate financial statements Processing integrity controls Use of packaged software Training and experience in applying IFRS and XBRL

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Prepare Financial Statement controls

Fraudulent financial reporting Audits

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eXtensible Business Reporting Language (XBRL)

Without With

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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

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

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Produce Management Reports Threats

Poorly designed reports and graphs

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Produce Management Report Controls

Responsibility accounting

Balanced scorecard

Training on proper graph design

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Balanced Scorecard

A report that provides a multidimensional perspective of organizational performance (example: page 499) Reflecting four perspectives of the organization

Financial Customer Internal operations Innovation and learning

Showing goals and measures Targets Actual

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