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GENERAL LEDGER AND REPORTING

GENERAL LEDGER The general ledger and reporting system includes the processes in place to
update general ledger accounts and prepare reports that summarize results of
the organizations activities
One of the primary functions of GLARS is to collect and organize data from:
Each of the accounting cycle subsystems, which provide summary entries related to the
routine activities in those cycles. WHAT IS ACCOUNTING CYCLE ACTIVITIES
The treasurer, who provides entries with respect to non-routine activities such as
transactions with creditors and investors. Financing and investing activities
The budget department, which provides budget numbers. Budget activities
The controller, who provides adjusting entries.Adjustments
GLAR THREATS AND CONTROLS
All general ledger and reporting cycle activities depend on an integrated (general
ledger) database.
THREAT 1: Inaccurate or invalid general ledger data-DEFINE
It can result in misleading reports that cause managers to make erroneous
decisions. Similarly, errors in financial statements provided to creditors, investors and
government agencies can cause those stakeholders to make wrong decisions. In
addition, errors in financial statements and reports provided to external stakeholders
can also results in fines and negative reactions from capital markets.
One way to mitigate the threat of inaccurate or invalid general ledger data is to use
various processing and integrity controls (control 1.1).
To minimize the risk of data input errors when a treasurer and controller make direct
journal entries, it is also important to restrict access to the general ledger (control
1.2) and configure a system so that only authorized employees can make changes to
master data (control 1.3). Thus multifactor authentication should be used to restrict
access to the general ledger. In addition, authorization controls (an access control
matrix and compatibility test) should also be used to limit the functions that each
legitimate user may perform. For example, most managers should be given readonly access to the general ledger otherwise; an unscrupulous manager can conceal
theft of an assets or poor performance by altering information in a general ledger. In
addition, the access control matrix should also be designed to limit functions that can
be performed at various terminals. Adjusting entries, for example, should be allowed
only by terminals in a controllers office. However because such preventive controls
can never be 100% effective, an important detective control is to regularly produce a
report of all changes to the general ledger and review them to verify that the
database remains accurate.
THREAT 2: Unauthorized disclosure of financial statement-DEFINE
The best control procedure for reducing the risk of UDOFS is to use multifactor
authentication and physical security controls to restrict access to a general ledger

to only those employees who need such access to perform their jobs (control
2.1).
Encrypting a database provides additional protection by making information
unintelligible to anyone who succeeds in obtaining unauthorized access to a
database (control 2.2). Encryption also prevents IT employees who do not have
access to an ERP system from using operating system utilities to view sensitive
information. In addition, general ledger data should be encrypted when it is being
transmitted over the internet to other corporate offices, analyst, or government
agencies.
THREAT 3: Loss or destruction of data DEFINE
GENERAL LEDGER REPORTING ACTIVITIES
ACTIVITY 1: Update General Ledger
Updating consists of posting journal entries that originated from two sources:

Example:

Accounting subsystems provide summary entries related to the routine


activities in those cycles.

The treasurer who provides entries with respect to non-routine activities


such as transactions with creditors and investors.

Issuances of or payment of debt and the associated interest.


Issuances of or repurchases of company stock and paying dividends on that

stock

EXPLANATION:

Journal entries are often documented on a form called a journal voucher.

After updating the general ledger, journal entries are stored in a journal voucher file

UPDATE GENERAL LEDGER THREATS:


THREAT 1: Inaccurate updating of general ledger
THREAT 2: Unauthorized journal entries
Unauthorized entries entering the general ledger can either be errors or
fraud. Strong access controls (control 2.1), including multifactor
authentication and compatibility test based on access control matrices,
reduce the risk of unauthorized journal entries. In addition to these
preventive controls, there are two types of detective controls that should
be used to identify inaccurate and unauthorized journal entries:
reconciliations and control reports and maintenance of an adequate audit
trail.
Reconciliations and control reports (control 2.2) can detect whether any
errors were made during the process of updating a general ledger. One
form of reconciliation is the preparation of a trial balance.
o Trial Balance report that list balances of all general ledger
account.
Audit trail (control 2.3) is a traceable path that shows how a transaction
flows through an information system to affect general ledger account
balances. It is an important detective control that provides evidence about
causes of changes in general ledger account balances. The audit trail
facilitates these three tasks:
1. Trace any transaction from its original source document to the
general ledger and to any report or other document using that
data.
2. Trace any item appearing in a report back through the general
ledger to its original source document
3. Trace all changes in general ledger accounts from their beginning
balance to their ending balance
ACTIVITY 2: Post adjusting entries

What are the five basic categories of adjusting entries?

Accruals involves an event that has occurred for which the related cash
flow has not yet taken place.( Accrued revenue and Accrued expense)

Deferrals involves a situation where the cash flow takes place before
the related revenue is earned or the expense is incurred. ( Deferred
revenue and Deferred expense)

Estimates used to recognize expenses that cannot be directly attributed


to a related revenue and must be allocated in a more subjective or
systematic manner. ( Depreciation and Bad debt expense)

Revaluation result from reconciling actual and recorded values of


assets and recording changes in accounting principles.

Corrections involve correction of errors previously made in the general


ledger.

EXPLANATION:
Journal vouchers for adjusting entries should be stored in the journal voucher file.
Once adjusting entries have been recorded, an adjusted trial balance is prepared from
the new balances in the general ledger.
The adjusted trial balance serves as the input for the next step preparation of the
financial statements.
Adjusting entries originate from the controllers office, after the initial trial balance has
been prepared.
POST ADJUSTING ENTRIES THREATS:
THREAT 1: Inaccurate adjusting entries
IAE is a threat that needs to be countered with appropriate controls. This
threat can lead to poor decision-making based on financial performance
reports that contains errors or frauds.
To reduce risk of incorrect input, data entry processing integrity controls
(control 1.1) should be applied. Often, however, adjusting journal entries
are usually calculated in spreadsheets. Therefore it is important to the
various spreadsheet error protection controls (control 1.2) to minimize the
risk of mistakes.

Additional control is provided by creating a standard adjusting entry


(control 1.3) file for recurring adjusting entries made each period, such as
depreciation expense. A standard adjusting entry file improves input
accuracy by eliminating the need to repeatedly key in the same types of
journal entries.
Reconciling journal entries to make sure they balance (control 1.4) as well
as creating an audit trail and reviewing the audit log (control 1.5) need to
be undertaken.
THREAT 2: Unauthorized adjusting entries
Strong access controls (control 2.1) reduce the risk of unauthorized
adjusting entries.
Periodic reconciliations (control 2.2) and audit trails provide a means to
detect unauthorized or inaccurate adjusting entry.
ACTIVITY 3: Prepare financial statements
The income statement is prepared first.
o Prepared using the balances in the revenue, expenses, gain, and
loss accounts listed on the adjusted trial balance.
The balance sheet is prepared next.
o presents the balance in the permanent accounts: assets, liabilities,
owners equity
The cash flows statement is prepared last.
o present changes in cash for the period categorized by: operating,
investing, financing activities
PREPARE FINANCIAL STATEMENTS THREATS:
THREAT 1: Inaccurate financial statements
The data processing integrity controls (control 1.1) for journal entries
combined with the use of packaged software to produce the financial
statements minimizes the risk numerical errors in the data (control 1.2).
However because both IFRS and XBRL (Extensible Business Reporting
Language) requires numerous judgments how to classify information,
there is a risk that financial statements may not accurately represent
results from operations.
THREAT 2: Fraudulent financial reporting
EXTENSIVE BUSSINESS REPORTING LANGUAGE (XBRL)
Instance Document
Contains data from financial statements
Each piece of data in XBRL is an element
Taxonomy
Set of files defining the various elements and the relationships between
them

o
o

A schema
Contains the definitions of every element that could appear in an
instance document

Link bases
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

ACTIVITY 4: Produce management reports


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?
o

General ledger control reports


What are examples of control reports?

lists of journal vouchers by numerical sequence, account number, or date

listing of general ledger account balances

Budgets
What are examples of budgets?

operating budget

capital expenditures budget

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.

PRODUCE MANAGEMENT REPORTS THREATS:


THREAT 1: Poorly designed reports and graphs

BALANCED SCORECARD

A report that provides a multidimensional perspective of organizational


performance

it shows the organizations goals for each of the four dimensions


( financial, customer, internal operations, innovation and learning)
Provides more comprehensive overview of organizational
performance than financial measures alone.

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