Topic 4
General ledger
and Financial
Reporting
Systems
James A. Hall, Accounting Information Systems, 10th Edition. © 2019
Cengage. All Rights Reserved. May not be scanned, copied or
duplicated, or posted to a publicly accessible website, in whole or in part.
Learning Objectives
• Understand the operational features of the general ledger
system (GLS), financial reporting system (FRS), and
management reporting system (MRS).
• Understand the factors that influence the design of the
MRS.
• Be familiar with the financial reporting issues surrounding
XBRL.
• Be familiar with data analytics concepts and techniques.
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The General Ledger System
• The GLS is a hub connected to the other systems of the
firm through information flows.
• Transaction cycles process individual events that are
recorded in special journals and subsidiary accounts.
• Summaries of these transactions flow into the GLS and
become sources of input for the MRS and FRS.
• Information also flows from the FRS as feedback into the
GLS.
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Relationship of GLS to Other Information
Subsystems
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THE JOURNAL VOUCHER
• The source of input to the general ledger is the journal
voucher.
• A journal voucher identifies the financial amounts and
affected general ledger (GL) accounts.
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Journal Voucher Record Layout for a General
Ledger Master File
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May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 6
THE GLS DATABASE
• The GLS database includes a variety of files:
• General ledger master
• Chart of accounts
• General ledger history file
• Journal voucher file
• Journal voucher history file
• Responsibility center file
• Budget master file
James A. Hall, Accounting Information Systems, 10th Edition. © 2019 Cengage. All Rights Reserved.
May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 7
GLS Database
• General ledger master file Journal voucher history file
• principal file in the GLS Contaims journal
database and is based on vouchers of past periods
chart of accounts for audit trail
Responsibility center file
• General ledger history file Contains the revenues
• provides historical financial (profit), expenditures
data for comparative (cost) and other resource
reports utilization data for each
• Journal voucher file responsibility centers
Budget master file
• the total collection of
budget data by
journal vouchers processed
in the current period responsibility centers for
MRSwebsite, in whole or in part.
James A. Hall, Accounting Information Systems, 10th Edition. © 2019 Cengage. All Rights Reserved.
May not be scanned, copied or duplicated, or posted to a publicly accessible
Record Layout for a General Ledger Master File
James A. Hall, Accounting Information Systems, 10th Edition. © 2019 Cengage. All Rights Reserved.
May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 9
DATA CODING SCHEMES
• Data coding involves creating simple numeric or
alphabetic codes to represent complex economic
phenomena that facilitate efficient data processing.
James A. Hall, Accounting Information Systems, 10th Edition. © 2019 Cengage. All Rights Reserved.
May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 10
A SYSTEM WITHOUT CODES
• Business organizations process large volumes of
transactions that are similar in their basic attributes.
• Uncoded entry takes a great deal of recording space, is
time-consuming to record, and is obviously prone to many
types of errors.
James A. Hall, Accounting Information Systems, 10th Edition. © 2019 Cengage. All Rights Reserved.
May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 11
A SYSTEM WITH CODES
• Advantages of data coding in AIS are:
1. Concisely representing large amounts of complex
information that would otherwise be unmanageable.
2. Providing a means of accountability over the
completeness of the transactions processed.
3. Identifying unique transactions and accounts within a
file.
4. Supporting the audit function by providing an effective
audit trail.
James A. Hall, Accounting Information Systems, 10th Edition. © 2019 Cengage. All Rights Reserved.
May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 12
NUMERIC AND ALPHABETIC CODING
SCHEMES
• Sequential Codes
• Sequential codes are codes that represent items in some
sequential order (ascending or descending).
• Commonly used to pre-number source documents – sales
orders, purchase orders, checks, receiving reports
Example: 001, 002,…..,010.
• Advantages:
• Allows the system to track each transaction processed and
to identify any out-of-sequence documents.
• Alerts management on missing or misplaced transaction.
• Disadvantages:
• arbitrary information
• hard to make changes and insertions-renumbering
James A. Hall, Accounting Information Systems, 10th Edition. © 2019 Cengage. All Rights Reserved.
May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 13
NUMERIC AND ALPHABETIC CODING
SCHEMES (continued)
• Block Codes
• A numeric block code is a coding scheme that assigns
ranges of values to specific attributes such as account
classifications.
• Used for chart of accounts which is the basis for the general
ledger eg: 100 (CA), 200 (FA)
• A chart of accounts is a listing of an organization’s
accounts showing the account number and name - assets,
equities, revenues and expenses .
• ADVANTAGES
• Allows for the insertion of new codes within a block without
having to reorganize the entire coding structure
• DISADVANTAGES
• Arbitrary information – less meaningful
James A. Hall, Accounting Information Systems, 10th Edition. © 2019 Cengage. All Rights Reserved.
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Chart of Accounts
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May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 15
NUMERIC AND ALPHABETIC CODING
SCHEMES (continued)
• Group Codes
• Group codes are used to represent complex items or events
involving two or more pieces of related data.
Store Number Dept. Number Item NumberSalesperson
04 09 476214 99
A coding scheme used to track sales.
• ADVANTAGES
• Facilitate the presentation of large amounts of diverse data.
• Allow complex data structures to be represented in a
hierarchical form that is logical and more easily remembered
by humans.
• Permit detailed analysis and reporting both within an item
class and across different classes of items.
James A. Hall, Accounting Information Systems, 10th Edition. © 2019 Cengage. All Rights Reserved.
May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 16
NUMERIC AND ALPHABETIC CODING
SCHEMES (continued)
• Group Codes
• DISADVANTAGES
• Overused – due to presentation of diverse
information.
James A. Hall, Accounting Information Systems, 10th Edition. © 2019 Cengage. All Rights Reserved.
May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 17
NUMERIC AND ALPHABETIC CODING
SCHEMES (continued)
• Alphabetic Codes
• Alphabetic codes are alphabetic characters assigned
sequentially.
Eg: AA..AB, A100..A200
• May be used to represent large numbers of items; the
number of possible represents per space is 26
• ADVANTAGES: Alphanumeric codes are codes that allow
the use of pure alphabetic characters embedded within
numeric codes.
• DISADVANTAGES
• Difficult to rationalize the meaning of codes that have been
sequentially assigned.
• Sorting records that are coded alphabetically tend to be
more difficult for users.
James A. Hall, Accounting Information Systems, 10th Edition. © 2019 Cengage. All Rights Reserved.
May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 18
NUMERIC AND ALPHABETIC CODING
SCHEMES (continued)
• Mnemonic Codes
• Mnemonic codes are alphabetic characters in the
form of acronyms and other combinations that convey
meaning.
• Alphabetic characters in the form of acronyms and
other combinations that convey meaning
• Advantage:
• Do not require the user to memorize the meaning; the
code itself conveys a high degree of information
BKAS, BKAF, KL, KT
• Disadvantage:
• Limited in their ability to represent items within a
class.
James A. Hall, Accounting Information Systems, 10th Edition. © 2019 Cengage. All Rights Reserved.
May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 19
GLS PROCEDURES
• The Financial Reporting System (FRS)
• The law dictates management’s responsibility for providing
stewardship information to external parties.
• Much of the information provided takes the form of standard
financial statements, tax returns, and documents required by
regulatory agencies such as the Securities and Exchange
Commission (SEC).
• The primary recipients of financial statement information are
external users, such as stockholders, creditors, and
government agencies.
• FRS includes all activities related to processing of
economic transaction so as to prepare financial and other
reports.
James A. Hall, Accounting Information Systems, 10th Edition. © 2019 Cengage. All Rights Reserved.
May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 20
SOPHISTICATED USERS
• Because the community of external users is vast and their
individual information needs may vary, financial
statements are targeted at a general audience.
• Sophisticated users are users of financial reports who
understand the conventions and accounting principles that
are applied and that the statements have information
content that is useful.
James A. Hall, Accounting Information Systems, 10th Edition. © 2019 Cengage. All Rights Reserved.
May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 21
FINANCIAL REPORTING PROCEDURES
• Financial reporting is the final step in the overall
accounting process that begins in the transaction cycles.
From this point, the following steps occur:
1 Capture the transaction - Within each transaction cycle,
transactions are recorded in the appropriate transaction file
2 Record in special journal - Each transaction is entered into
journal
3 Post to subsidiary ledger - The details of each transaction are
posted to the subsidiary accounts
4 Post to general ledger - JVs are prepared and posted to the
general ledger accounts
5 Prepare the unadjusted trial balance - The ending balance of
each account in the general ledger is listed in trial balance
based on its normal balance and the total balance of debit and
credit is calculated
6 Make adjusting entries - accruals and deferrals
James A. Hall, Accounting Information Systems, 10th Edition. © 2019 Cengage. All Rights Reserved.
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FINANCIAL REPORTING PROCEDURES
7. Journalize and post adjusting entries - prepare JVs for the
adjusting entries and post to the appropriate accounts in the
general ledger
8 Prepare the adjusted trial balance - a trial balance that
contains all entries that should be reflected in the financial
statements is prepared
9 Prepare the financial statements - Statement of
Comprehensive Income, Statement of Financial Position and
Statement of Cash Flows are prepared using the adjusted trial
balance
10 Journalize and post the closing entries - prepare JVs for
entries that close out the Statement of Comprehensive income
accounts and transfer the profit or loss to retained earnings.
These entries are posted to the general ledger
11 Prepare the post-closing trial balance – prepare a trial
balance that contain only the Statement of Financial Position
accounts to indicate the balances being carries forward to the
next accounting period
James A. Hall, Accounting Information Systems, 10th Edition. © 2019 Cengage. All Rights Reserved.
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Financial Reporting Process
James A. Hall, Accounting Information Systems, 10th Edition. © 2019 Cengage. All Rights Reserved.
May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 24
Real-Time General Ledger and Financial Reporting
System
James A. Hall, Accounting Information Systems, 10th Edition. © 2019 Cengage. All Rights Reserved.
May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 25
XBRL—Reengineering Financial Reporting
• XBRL (extensible Business Reporting Language) is an
XML-based language that was designed to provide the
financial community with a standardized method for
preparing, publishing, and automatically exchanging
financial information, including financial statements of
publicly held companies.
• The objective of XBRL is to facilitate the publication,
exchange, and processing of financial and business
information.
James A. Hall, Accounting Information Systems, 10th Edition. © 2019 Cengage. All Rights Reserved.
May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 26
XML (extensible Markup Language)
• XML is a metalanguage for describing markup languages.
• XML can be used to model the data structure of an
organization’s internal database.
James A. Hall, Accounting Information Systems, 10th Edition. © 2019 Cengage. All Rights Reserved.
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Comparison of HTML and XML Documents
James A. Hall, Accounting Information Systems, 10th Edition. © 2019 Cengage. All Rights Reserved.
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XBRL
• XBRL taxonomy are classification schemes that are
compliant with the XBRL Specifications to accomplish a
specific information exchange or reporting objective such
as filing with the Securities and Exchange Commission.
• XBRL instance documents (the actual financial reports)
are the mapping of the organization’s internal data to
XBRL taxonomy elements.
James A. Hall, Accounting Information Systems, 10th Edition. © 2019 Cengage. All Rights Reserved.
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Overview of XBRL Reporting Process
James A. Hall, Accounting Information Systems, 10th Edition. © 2019 Cengage. All Rights Reserved.
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Internal Corporate Database
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GL to Taxonomy Mapper
James A. Hall, Accounting Information Systems, 10th Edition. © 2019 Cengage. All Rights Reserved.
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Database Structure with XBRL Tag
James A. Hall, Accounting Information Systems, 10th Edition. © 2019 Cengage. All Rights Reserved.
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XBRL Instance Document
James A. Hall, Accounting Information Systems, 10th Edition. © 2019 Cengage. All Rights Reserved.
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Benefits of XBRL
• Time saving - using XBRL for financial statement data
compilation can save a lot of time.
• Cost saving - using XBRL, can be cost effective because it can
be done by one or two employees, it doesn't require a mass
population to accomplish the task. .
• Reduce Errors - XBRL can less your work load and helps in
making the report process more accurate. It reduces error and
remove the miscommunication with your clients also due to the
fact of transparency.
• Transparency - for any compilation process, transparency is most
important. It gives you the opportunities to track data from the
original source.
• Improve efficiency - analyze your data with more accuracy and
without errors. With XBRL, it allows you to tag data not only based
on number, but on topic as well.
James A. Hall, Accounting Information Systems, 10th Edition. © 2019 Cengage. All Rights Reserved.
May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 35
Controlling the GL/FRS
• SOX legislation requires that management design and
implement controls over the financial reporting process.
• Potential risks to the FRS include the following:
1. A defective audit trail
2. Unauthorized access to the general ledger
3. GL accounts that are out of balance with subsidiary accounts
4. Incorrect GL account balances because of unauthorized or
incorrect journal vouchers
James A. Hall, Accounting Information Systems, 10th Edition. © 2019 Cengage. All Rights Reserved.
May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 36
COSO CONTROL ISSUES
• Transaction Authorization
• It is vital to the integrity of the accounting records that
the journal vouchers be properly authorized by a
responsible manager at the source department
• Segregation of Duties
• The task of updating the general ledger must be separate
from all accounting and asset custody responsibilities within
the organization. Therefore, individuals with access
authority to GL accounts should not:
1. Have recordkeeping responsibility for special journals or
subsidiary ledgers
2. Prepare journal vouchers
3. Have custody of physical asset
James A. Hall, Accounting Information Systems, 10th Edition. © 2019 Cengage. All Rights Reserved.
May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 37
COSO CONTROL ISSUES
• Access Controls
• direct - journal vouchers should only be posted by
authorized individuals
• indirect - source documents should be prenumbered and a
log kept
• Accounting Records
• should be able to trace a source document from its inception
to its impact of the financial statements and vice-versa
• Independent Verification
• journal vouchers and summaries are reconciled by the
general ledger department.
• Two important operational reports used:
• The journal voucher listing is a listing that provides relevant
details about each journal voucher received by the GL/FRS.
• The general ledger change report presents the effects of
journal voucher transactions on the general ledger
accounts.
James A. Hall, Accounting Information Systems, 10th Edition. © 2019 Cengage. All Rights Reserved.
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Journal Voucher Listing
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General Ledger Change Report
James A. Hall, Accounting Information Systems, 10th Edition. © 2019 Cengage. All Rights Reserved.
May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 40
COSO CONTROL ISSUES
• IT Application Controls
• Input/Process/Output Controls serve the same
objectives in the GLS as in transaction
processing applications, however…
• Automated direct postings to the GL deserve
special notice because these bypass human
reconciliation and journal voucher review.
– Risk of systematic application logic errors.
– Application integrity must be ensured through
effective systems development/program
change.
James A. Hall, Accounting Information Systems, 10th Edition. © 2019 Cengage. All Rights Reserved.
May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 41
INTERNAL CONTROL IMPLICATIONS OF XBRL
• Taxonomy Creation: incorrect taxonomy results in invalid
mapping that may cause material misrepresentation of
financial data
• Taxonomy Mapping Error: ensure that appropriate
taxonomy and tags have been applied
• Validation of Instance Documents: impact on auditor
responsibility as a consequence of real-time distribution of
financial statements
James A. Hall, Accounting Information Systems, 10th Edition. © 2019 Cengage. All Rights Reserved.
May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 42
The Management Reporting System (MRS)
• MRS produces special-purpose reports and
information for internal use
• Management reporting is often called discretionary
reporting because it is not mandated, as is financial
reporting.
• An MRS that directs management’s attention to
problems on a timely basis promotes effective
management and thus supports the organization’s
business objectives.
James A. Hall, Accounting Information Systems, 10th Edition. © 2019 Cengage. All Rights Reserved.
May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 43
FACTORS THAT INFLUENCE THE MRS
• Management Principles
• The formalization of tasks is the subdivision of organizational
areas into tasks that represent full-time job positions. An
organizational chart shows typical job positions in a
manufacturing firm.
• Responsibility refers to an individual’s obligation to achieve
desired results. Authority is the right to make decisions
pertaining to areas of responsibility.
• Span of control refers to the number of subordinates directly
under a manager’s control.
• The principle of management by exception is a concept that
managers should limit their attention to potential problem areas
rather than being involved with every activity or decision.
James A. Hall, Accounting Information Systems, 10th Edition. © 2019 Cengage. All Rights Reserved.
May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 44
• Span of control:
• the number of subordinates directly under the manager’s control
• detailed reports for managers with narrow spans of control
• summarized information for managers with broad spans of control
Narrow Span of Control Wide Span of Control
Figure 8-15
James A. Hall, Accounting Information Systems, 10th Edition. © 2019 Cengage. All Rights Reserved.
May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
