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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