FINANCIAL REPORTING AND MANAGEMENT REPORTING SYSTEMS

GENERAL LEDGER SYSTEM

JOURNAL VOUCHER - source of input to the general ledger which can be used to represent summaries
of similar transactions or a single unique transaction, identifies the financial amounts and affected general
ledger accounts.

THE GLS DATABASE

GENERAL LEDGER MASTER FILE - is the principal file in the GLS database

-is based on the organization’s published CHART OF ACCOUNTS

GENERAL LEDGER HISTORY FILE - primary purpose is to provide historical financial data for comparative
financial reports

JOURNAL VOUCHER FILE- is the total collection of the journal vouchers processed in the current period

JOURNAL VOUCHER HISTORY FILE- contains journal vouchers for past period

RESPONSIBILITY CENTER FILE- contains the revenues, expenditures, and other resource utilization data
for each responsibility center in the organization

BUDGET MASTER FILE - contains budgeted amounts for revenues, expenditures, and other resources for
responsibility centers.

The Financial Reporting System

• The law dictates management’s responsibility for providing stewardship information to external
parties.

• This reporting obligation is met via the Financial Reporting System (FRS).

Primary recipients of financial statement information:

• external users- stockholders, creditors, and government agencies.

Financial reporting - is the final step in the overall accounting process that begins in the transaction
cycles.

FINANCIAL REPORTING PROCEDURES

1. Capture the transaction 5. Prepare the unadjusted trial balance

2. Record in special journal 6. Make adjusting entries

3. Post to subsidiary ledger 7. Journalize and post adjusting entries

4. Post to general ledger 8. Prepare the adjusted trial balance

9. Prepare the financial statements 11. Prepare the post-closing trial balance

10. Journalize and post the closing entries.

XBRL – REENGINEERING FINANCIAL REPORTING

EXTENSIBLE BUSINESS REPORTING LANGUAGE (XBRL) - 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.

EXTENSIBLE MARKUP LANGUAGE (XML) - metalanguage for describing markup language

CONTROLLING THE FRS

1. TRANSACTION AUTHORIZATION
2. SEGREGATION OF DUTIES
3. ACCESS CONTROL
4. ACCOUNTING RECORDS
5. INDEPENDENT VERIFICATION

The Management Reporting System

• Often called discretionary reporting because it is not mandated, as is financial reporting.

Factors That Influence the MRS

1. management principles; 4. types of management reports;

2. management function, level, and decision 5. responsibility accounting;
type; 6. behavioral considerations.
3. problem structure;
Management Principles - provide insight into management information needs.

• The principles that most directly influence the MRS are formalization of tasks, responsibility and
authority, span of control, and management by exception.

1. Formalization of Tasks - management should structure the firm around the tasks it performs
rather than around individuals with unique skills.
2. Responsibility and Authority - Refers to an individual’s obligation to achieve desired results.
Responsibility is closely related to the principle of authority.
3. Span of Control - A manager’s span of control refers to the number of subordinates directly
under his or her control.
 A firm with a narrow span of control has fewer subordinates reporting directly to managers.
These firms tend to have tall, narrow structures with several layers of management.
 Firms with broad spans of control (more subordinates reporting to each manager) tend to have
wide structures, with fewer levels of management.
4. Management by Exception - It suggests that managers should limit their attention to potential
problem areas (that is, exceptions) rather than being involved with every activity or decision.
Planning function - is concerned with making decisions about the future activities of the organization.
Planning can be long range or short range.

Long-range Planning

 Usually encompasses a period of 1 and 5 years.

 Involves a variety of tasks, including setting the goals and objectives of the firm, planning the
growth and optimum size of the firm.

Short-range Planning

 It involves the implementation of specific plans that are needed to achieve the objectives of the
long-range plan.

Control function- It ensures that the activities of the firm conform to the plan.

CATEGORIES OF PLANNING AND CONTROL DECISION

Strategic planning- made by the top management.

 Setting the goals and objectives of the firm.

 Determining the scope of business activities.
 Determining or modifying the organization’s structure.

Tactical planning- made by the middle management.

 Short term
 More specific
 Recurring
 To accomplish the strategic goal

Managerial control- functions of middle management.

 Motivating managers to use all resources as productively as possible.

 The supervising manager compares the performance of his or her subordinate manager to pre-
established standard.

Operational control- exercised by the operation managers.

 Ensures that the firm operates in accordance with pre-established criteria.

 Concerned with routine tasks of operations.
 Have shorter time frame.

BASIC ELEMENTS OF OPERATIONAL CONTROL

SETTING STANDARDS- Standards are pre-established levels of performance that managers believe are
attainable.
EVALUATING PERFORMANCE- The decision maker compares the performance of the operation in
question against the standard.

TAKING CORRECTIVE ACTION- After comparing the performance to the standard, the manager takes
action to remedy any out-of-control condition.

REPORTS - formal vehicles for conveying information to managers.

The term report tends to imply a written message presented on sheets of paper.

Two Broad Classes of Management Report

1.) Programmed Reporting 2.) Ad Hoc Reporting

Programmed Reporting - it provides information to solve problems that users have anticipated.

Two subclasses of programmed reports:

1. Scheduled reports - The MRS produces scheduled reports according to an established time
frame. This could be daily, weekly, quarterly, and so on.

2. On-demand reports - these reports are triggered by events, not by the passage of time.

Ad Hoc Reporting

• Ad hoc is the latin word for “as the occasion requires”. It means that with this kind of reporting,
users can use their reporting and analysis solution to answer their business questions as the
occasion requires without having to request queries from IT.

• Managers with limited computer background can quickly produce ad hoc reports from a
terminal or PC, without the assistance of data processing professionals.

Data mining

- is the process of selecting, exploring, and modeling large amounts of data to uncover relationships and
global patterns that exist in large databases but are hidden among the vast amount of facts.

RESPONSIBILITY ACCOUNTING - Large part of management reporting.

The flow of information in responsibility systems is both downward and upward through the
information channels.
Setting Financial Goals: The Budget Process
 The budget process helps management achieve its financial objectives by establishing
measurable goals for each organizational segment.

Measuring and Reporting Performance

 Performance measurement and reporting take place at each operational segment in the firm.
This information flows upward as responsibility reports to senior levels of management.

BEHAVIORAL CONSIDERATIONS
Goal Congruence
 Lower-level managers pursuing their own objectives contribute in a positive way to the
objectives of their superiors.

Information Overload

 Information overload occurs when a manager receives more information than he or she can
assimil