Determine the difference between Internal and External Reporting

What Do Accountants Do? 2

Terminal Learning Objective Action: Determine the difference between Internal and External Reporting Condition: FM Leaders in a classroom environment working individually and as a member of a small group, using doctrinal and administrative publications, self-study exercises, personal experiences, practical exercises, handouts, and discussion. Standard: With at least 80% accuracy (70% for international learners): Define the 4 Characteristics of Accounting Information Identify the difference between Internal and External Reporting Classify GFEBS Reports as Internal or External 3

What Do Accountants Do? Information Useful Provide ____________ that is _______ to decision makers. Information must be ________. Information must be ________. Reliable Free from bias Verifiable Relevant Will make a difference in the decision Timely – frequency and lag time 4

Who are the Users? Internal External Users may be _________ or ___________. Internal Users are: ____________________. What would Managers and Leaders want to know? Managers and Leaders What types of decisions might they make? What information might they need? Performance measurements Trends for budgeting; Cost per unit of output Compare competing proposals for investments Depends greatly on level of management and type of organization 5 5

Who are the Users? (Cont.) External Users are: _________ ________ _________ _________ ___ _______ Investors, Creditors, Regulators, Legislators, and Citizens What types of decisions might they make? What information might they need? What would External Users (Investors) want to know? Is my investment safe? What return on my investment can I expect? 6

Who are the Users? (Cont.) What would External Users want to know? What would Creditors what to know? Bill paying ability. Will I be paid in full and on time? Does the organization have sufficient assets to cover its debts? Does it have sufficient cash flow? Trends: can the organization continue in the long run? What would Regulators want to know? Is the organization in compliance with applicable laws and regulations? What would Legislators want to know? Legislators need to compare different programs. They will make policy decisions – which programs to fund and how much? What are the outcomes of this program? What would Taxpayers want to know? How is the organization performing overall? How is my tax money being used? 7

External User needs Examining an organization’s performance over time demands ___________. Consistency Assures Users that the information is prepared in the same manner over multiple time periods. Deciding whether to fund competing organizations or programs demands __________ Comparability Assures that the information from all organizations is prepared according to the same set of principles. 8

Consistent Combat Ship 16" guns cruise missiles Landing gates periscope ballistic missiles flight deck submersible hull helicopter pad Torpedo tubes 9

LSA #1 Check on Learning Q1: Which characteristic requires timely information? A1. Q2: Which characteristic requires verifiable information? A2. Q3: Why would users demand consistency? A3. Q1: Which characteristic requires timely information? A1. Relevance Q2: Which characteristic requires verifiable information? A2. Reliability Q3: Why would users demand consistency? A3. To compare performance of an organization over multiple time periods. 10

LSA #1 Summary During this block of instructions, we defined and discussed the 4 characteristics of accounting information, discussed the role and duties of the Accounting Official. We also discussed both Internal and External Users of information and what their needs are. Do you have any questions before continuing with the lesson? 11

Two Sides of the Same Coin External Reporting Managerial Costing required compliance structured audit stable consistency & comparability purpose goal methodology test dynamics user need needed learning customized use responsive continuous improvement required compliance structured audit stable consistency & comparability purpose goal methodology test dynamics user need needed learning customized use responsive continuous improvement required compliance structured audit stable consistency & comparability required compliance structured audit stable consistency & comparability purpose goal methodology test dynamics user need needed learning customized use responsive continuous improvement required compliance structured audit stable consistency & comparability purpose goal methodology test dynamics user need needed learning customized use responsive continuous improvement required compliance structured audit stable consistency & comparability purpose goal methodology test dynamics user need needed learning customized use responsive continuous improvement required compliance structured audit stable consistency & comparability purpose goal methodology test dynamics user need purpose goal methodology test dynamics user need needed learning customized use responsive continuous improvement needed learning customized use responsive continuous improvement 12

Example(s) Why? How? Test of success? Dynamics? Why? How? External Report: Tax Return Internal Report: Checkbook Why? How? Test of success? Dynamics? Why? How? Test of success? Dynamics? 13

Research: System Uses at 59 Federal Organizations reqr costing mgmt control OH allocation pricing 58 59 FGIS 50 51 52 53 54 55 56 57 WVA 41 42 43 36 44 44 45 46 47 48 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 VMSS 34 35 36 37 38 39 40 BLM PBS 14

LSA #2 Check on Learning Q1. What are the basic uses for Cost Accounting systems? A1. Q2. Should all cost systems be the same? A2. Q3. Why or why not? A3. Q1. What are the basic uses for Cost Accounting systems? A1. Required reporting (external), management control, overhead allocation, setting prices. Q2. Should all cost systems be the same? A2. No Q3: Why or why not? A3. Because organizations differ greatly, and the needs of management in those organizations also differs. 15

LSA #2 Summary During this block, we discussed the difference between internal and external reporting as well as identifying how Federal agencies use cost reporting differently. 16

What about GFEBS? General Fund Enterprise Business System Used Army-wide Permits real-time posting of financial transactions Reports costs according to Budget-relevant and non-Budget-relevant Cost Objects Are GFEBS reports Internal or External? 17

Unit Cost Report 18

Unit Cost Report (Cont.) This report shows the actual and planned quantities and actual and planned (average) unit cost for various SKFs (Statistical Key Figures) such as Headcount. 19

Discussion Questions Who would use this report? How might they use it? If you were the Senior Leader of this organization, would you be surprised that your cost per headcount was $78,919.20? What would you want to know about that number? Would this be an Internal or External report for you? 20

LSA #3 Check on Learning Q1. What characteristics would identify a report as internal to an organization? Q2. What characteristics would identify a report as external to an organization? A1. Q1. What characteristics would identify a report as internal to an organization? A1. Elements of information that are RELEVANT to managers’ decision making would be internal to an organization. Relevant elements of information would be defined by the manager. That means that the manager or user specifies how the information should be measured and the format in which it would be reported. Q2. What characteristics would identify a report as external to an organization? A2. Elements of information that are designed for CONSISTENCY and COMPARABILITY for external users would be external. If the elements of information in the report and the format of the report are specified by an external or higher entity, that is a good sign that the report is an EXTERNAL report. A2. 21

LSA #3 Summary Needs for internal cost information are as varied as the organizations themselves External cost reports: Facilitate comparison of organizations by external users Are unlikely to meet internal management information needs 22

TLO Check on Learning Q1. Who are the External Users are? A1. Q2. Examining an organization’s performance over time, this demands what? A2. Q1. Who are the External Users are? A1. Investors, Creditors, Regulators, Legislators and Citizens Q2. Examining an organization’s performance over time, this demands what? A2. Consistency 23

TLO Summary Action: Determine the difference between Internal and External Reporting Condition: FM Leaders in a classroom environment working individually and as a member of a small group, using doctrinal and administrative publications, self-study exercises, personal experiences, practical exercises, handouts, and discussion. Standard: With at least 80% accuracy (70% for international learners): Define the 4 Characteristics of Accounting Information Identify the difference between Internal and External Reporting Classify GFEBS Reports as Internal or External 24

Lesson Summary Determine the difference between Internal and External Reporting is a lesson designed to identify, analyze and explain the purpose/ usage of various reports used in the performance of duties as a Financial Manager. This lesson should also assist Financial Managers with understanding the relationship between GFEBS, the reports the system produces, and how to use the data within the reports. 25

Practical Exercise 26