1. General Ledger and Reporting System
Anup Kumar Saha

2. Learning Objectives
Describe the information processing operations required to update the general ledger and to produce other reports for internal and external users.
Identify the major threats in general ledger and reporting activities, and evaluate the adequacy of various internal control procedures for dealing with them.
Read and explain an integrated enterprise-wide REA data model.
Anup Kumar Saha

3. Learning Objectives
Discuss and design a balanced scorecard for an organization.
Explain the relationship between online transaction processing systems and data warehouses used to support business intelligence.
Understand the implications of new IT developments, such as XBRL, for internal and external reporting.
Anup Kumar Saha

4. Introduction
Linda Spurgeon, AOE’s president & CEO, is not satisfied with the financial reporting capabilities of AOE’s new ERP system.
She has three primary goals:
To develop a Balanced Scorecard in a timely manner.
To speed up trend analysis data on the company’s financial performance.
To lower costs associated with providing financial information to interested external parties on a timely basis.
Anup Kumar Saha

5. Introduction
This chapter discusses the information processing operations involved in updating the general ledger and preparing reports that summarize the results of an organization’s activities.
Anup Kumar Saha

6. Learning Objective 1
Describe the information processing operations required to update the general ledger and to produce other reports for internal and external users.
Anup Kumar Saha

7. General Ledger and Reporting Activities
What are the four basic activities performed in the general ledger and reporting system?
Update the general ledger
Post adjusting entries
Prepare financial statements
Produce managerial reports
Anup Kumar Saha

8. Update The General Ledger (Activity 1)
The first activity in the general ledger system is to update the general ledger.
Updating consists of posting journal entries that originated from two sources:
Accounting subsystems
The treasurer
Anup Kumar Saha

9. Update The General Ledger (Activity 1)
Accounting
subsystems
Journal entry
Journal entry
Treasurer
Journal voucher
General ledger
Anup Kumar Saha

10. Post Adjusting Entries (Activity 2)
The second activity in the general ledger system involves posting various adjusting entries.
Adjusting entries originate from the controller’s office, after the initial trial balance has been prepared.
Anup Kumar Saha

11. Post Adjusting Entries (Activity 2)
What are the five basic categories of adjusting entries?
Accruals (wages payable)
Deferrals (rent, interest, insurance)
Estimates (depreciation)
Revaluation (change in inventory method)
Corrections
Anup Kumar Saha

12. Post Adjusting Entries (Activity 2)
Journal voucher
Adjusting entries
Adjusted trial balance
Prepare
financial
statements
Controller
Financial statements
Anup Kumar Saha

13. Prepare Financial Statements (Activity 3)
The third activity in the general ledger and reporting system involves the preparation of financial statements.
The income statement is prepared first.
The balance sheet is prepared next.
The cash flows statement is prepared last.
Anup Kumar Saha

14. Produce Managerial Reports (Activity 4)
The final activity in the general ledger and reporting system involves the production of various managerial reports.
What are the two main categories of managerial reports?
General ledger control reports
Budgets
Anup Kumar Saha

15. Produce Managerial Reports (Activity 4)
What are examples of control reports?
lists of journal vouchers by numerical sequence, account number, or date
listing of general ledger account balances
What are examples of budgets?
operating budget
capital expenditures budget
Anup Kumar Saha

16. Produce Managerial Reports (Activity 4)
Budgets and performance reports should be developed on the basis of responsibility accounting.
What is responsibility accounting?
It involves reporting financial results on the basis of managerial responsibilities within an organization.
Anup Kumar Saha

17. Learning Objective 2
Identify the major threats in general ledger and reporting activities, and evaluate the adequacy of various internal control procedures for dealing with them.
Anup Kumar Saha

18. Control: Objectives, Threats, and Procedures
What are the control objectives in the general ledger and reporting system?
Updates to the general ledger are properly authorized.
Recorded general ledger transactions are valid.
Valid, authorized general ledger transactions are recorded.
Anup Kumar Saha

19. Control: Objectives, Threats, and Procedures
General ledger transactions are accurately recorded.
General ledger data are safeguarded from loss or theft.
General ledger system activities are performed efficiently and effectively.
Anup Kumar Saha

20. Threats and Controls in the General Ledger and Reporting System
Process/Activity
Threat
Applicable Control Procedures
Updating the general ledger
Errors
Input and processing controls; reconciliations and control reports; audit trail
Access to general ledger
Loss of confidential data and/or concealment of theft
Access controls; audit trail
Loss or destruction of the general ledger
Loss of data and assets
Backup and disaster recovery procedures
Anup Kumar Saha

21. Threat 1: Errors in Updating the General Ledger
Errors made in updating the general ledger can lead to poor decision making based on erroneous information in financial performance reports. Control procedures fall into three categories:
Input edit and processing controls
Reconciliations and control reports
Maintenance of an adequate audit trail
Anup Kumar Saha

22. Input Edit and Processing Controls
There are two sources of journal entries for updating the general ledger:
Summary journal entries from other AIS cycles
Direct entries made by the treasurer or controller
Anup Kumar Saha

23. Input Edit and Processing Controls
Journal entries made by the treasurer and controller are original data entry. Several types of input edit and processing controls are needed to ensure that they are accurate and complete. These are:
Validity Check
Field Checks
Zero-balance checks
Completeness test
Closed-loop verification
Calculation run-to-run totals to verify accuracy of journal voucher batch processing
Standard adjusting entry file for recurring adjusting entries made each period
Sign check
Anup Kumar Saha

24. Reconciliation and Control Report
Reconciliations and control reports can detect if any errors were made during the process of updating the general ledger. Examples include:
Preparation of the trial balance
Comparing the general ledger control account balances to the total balance in the corresponding ledger
Anup Kumar Saha

25. Reconciliation and Control Report
The audit trail is the path of a transaction through the accounting system. The audit trail facilitates these three tasks:
Trace any transaction from its original source document to the general ledger and to any report or other document using that data.
Anup Kumar Saha

26. Reconciliation and Control Report
The audit trail, continued
Trace any item appearing in a report back through the general ledger to its original source document
Trace all changes in general ledger accounts from their beginning balance to their ending balance
Anup Kumar Saha

27. Threat 2: Unauthorized Access to the General Ledger
Unauthorized access to the general ledger can result in confidential data leaks to competitors or corruption of the general ledger. It can also provide a means for concealing the theft of assets.
Anup Kumar Saha

28. Threat 2: Unauthorized Access to the General Ledger
Some controls against this threat are:
User IDs and passwords
Read-only access to the general ledger
System checks of authorization codes for each journal voucher record before posting
Anup Kumar Saha

29. Threat 3: Loss or Destruction of the General Ledger
Adequate backup and disaster recover y procedures must be in place to protect the general ledger. Backup controls include:
Use of internal and external file labels
Performance of regular backup of the general ledger
Anup Kumar Saha

30. Read and explain an integrated enterprise-wide REA data model.
Learning Objective 3
Read and explain an integrated enterprise-wide REA data model.
Anup Kumar Saha

31. Integrated Data Model
An integrated enterprise-wide data model represents a merging of separate data models.
This merging primarily involves linking each resource with the events that increase and decrease that resource.
Anup Kumar Saha

32. Integrated Data Model Cash receipts Cash disbursements Cash (1, 1)
Anup Kumar Saha

33. Integrated Data Model Cash Issue debt Pay employees Issue stock
(1, 1)
Issue
debt
(1, N)
(0, N)
(0, N)
(0, N)
(0, N)
(1, 1)
(1, 1)
(1, 1)
(1, 1)
(1, N)
Pay
employees
Issue
stock
Dividend
payment
Debt
payment
Anup Kumar Saha

34. Benefits of an Integrated Data Model
What are some benefits of an Integrated data model?
Improved support for decision making
Integration of financial and nonfinancial information
Improved internal reporting
Anup Kumar Saha

35. Benefits of an Integrated Data Model
Development of a virtual value chain occurs in three stages.
What are these stages?
Visibility
Mirroring
Building new customer relationships
Anup Kumar Saha

36. Discuss and Design a Balanced Scorecard for an organization.
Learning Objective 4
Discuss and Design a Balanced Scorecard for an organization.
Anup Kumar Saha

37. Balanced Scorecard What is a balanced scorecard?
A report that provides a multidimensional perspective of organizational performance
It contains measures reflecting four perspectives of the organization:
Financial
Customer
Internal operations
Innovation and learning
Anup Kumar Saha

38. Learning Objective 5
Explain the relationship between online transaction processing systems and data warehouses used to support business intelligence.
Anup Kumar Saha

39. Data Warehouses
Data warehouses, which contain both current and historical data, can provide additional support for strategic decision making.
Whereas transaction-processing databases are designed to minimize redundancy, data warehouses purposely build in redundancies in order to maximize query efficiency.
Anup Kumar Saha

40. Data Warehouses
The process of accessing data contained in the data warehouse and using it for strategic decision making is referred to as Business Intelligence.
The two main techniques of business intelligence are:
Online Analytical Processing (OLAP)
Data mining
Anup Kumar Saha

41. Learning Objective 6
Understand the implications of new IT developments, such as XBRL, for internal and external reporting.
Anup Kumar Saha

42. Opportunities for Using Information Technology
The Extensible Business Reporting Language (XBRL) has addressed two problems:
Different requirements for the manner in which information is delivered.
The need for manual reentry of information into standalone decision analysis tools.
Anup Kumar Saha

43. Opportunities for Using Information Technology
XBRL provides two benefits:
It enables organizations to publish information only once using standard XBRL tags.
XBRL tags are interpretable.
Anup Kumar Saha

44. Case Conclusion
What did Stephanie Cromwell and Elizabeth Venko decide?
They decided that AOE needs to switch to an online general ledger system.
They agreed that AOE will first acquire a general ledger package that is built on a relational database.
Anup Kumar Saha

45. End
Anup Kumar Saha