GeneralLedgerandFinancial ReportingSyste

General Ledger

1. General ledger and financial reporting system (GLFRS) Prepared by: Erhomosele Osareme (B Sc., M Sc., ACA) Department of Accounting University of Jos Nigeria

2. Content Meaning and scope of GLFRS Functions of the GLFRS Accounting Software Extensible Business Reporting Language(XBRL) Control objectives, threats and procedures Summary and discussion

3. Meaning and scope of glfrs

4. The general ledger A general ledger represents the record-keeping system for a company’s financial data, with debit and credit account records validated by a trial balance. The Ledger the contains a permanent record of all the financial transactions of the entity. It operates using the double entry principle.

5. Financial reporting Financial reporting is a standard accounting practice that uses financial statements to disclose a company’s financial information and activities over a predetermined period of time to users of such information.

6. GLFRS DEFINITION General ledger and financial reporting system is an information system that translates financial events collected by the TPS (Transaction Processing System) into permanent financial information, as well as, store, report and communicate such information to management and other users.

7. FUNCTIONS OF THE glfrs

8. Functions of glfrs The GLFRS is responsible for certain activities within the context of AIS (Accounting Information System). These activities include: Updating the General ledger Posting adjusting entries Preparing financial statements Supporting management information needs

9. Updating the general ledger 1

10. Updating the general ledger Updating the general ledger consists of posting journal entries from two sources : Summary routine transactions from the accounting subsystems . Individual non-routine transactions from the accounting officer (E.g. Issuances or payment of debt and the associated interest ).

11. Updating the general ledger Each journal entry is documented on what is referred to as a journal voucher. The Journal voucher stores essential information about an accounting transaction. The journal vouchers are then collected into what is referred to as a Journal voucher file . The non-adjusted trial balance is then prepared.

12. Updating the general ledger Information captured in the journal voucher may include: Unique identifying number Transaction date Transaction amount Transaction description Authorizing signature, Etc.

13. Posting adjusting entries 2

14. Posting adjusted entries Adjusting journal entries are entries made at the end of the accounting period to add to, subtract from or correct the already existing entries. The purpose of adjusting entries is to comply with the accrual basis of accounting.

15. Posting adjusted entries They are usually made by the chief accounting officer as they are non-routine in nature and critical to the integrity of the accounts . Adjusting journal entries are also documented on journal vouchers and stored in the Journal voucher file.

16. Posting adjusted entries Thereafter , an adjusted trial balance is extracted from the new balances in the ledger accounts . It is the adjusted trial balance that is used to prepare the financial statements.

17. Types of adjusting entries Accruals Deferrals Estimates Re-evaluations Error corrections

18. Types of adjusting entries 1. Accruals: Transactions that have occurred but for which the related cash have not been paid or received. Example- Sales made on credit to customers. 2. Deferrals: Transactions which are yet to occur but for which the related cash has already been paid or received in advance. Example- Rent expense paid in advance.

19. Types of adjusting entries 3. Estimates: Accounting transactions whose amounts cannot be measured precisely and therefore have to be approximated. (E.g. Provisions for bad debts and depreciation). 4. Re-evaluations: Accounting entries made in order to reconcile existing records in the accounts with changes in the substance or form of the relevant items (E.g. revaluation of assets).

20. Types of adjusting entries 5 . Error corrections: Accounting entries that are used to correct misstatements that have been made previously in the accounts. Errors are classified as either those which affect the trial balance or those that do not affect the trial balance.

21. Preparing financial statements 3

22. PREPARING FINANCIAL STATEMENTS Financial statements are prepared from the adjusted trial balance . Financial statements are the authentic records of an entity that convey, to the users, the financial activities of the entity for a specified period. There are 4 main financial statements (IFRS 1).

23. Types of FINANCIAL STATEMENTS Statement of comprehensive income Statement of financial position Statement of changes in equity Statement of cash flows

24. Purpose is to determine the financial performance of the entity over a given period. Offsets the entity’s expenses and losses against its revenue and gains in order to arrive at a net performance measure. Statement of comprehensive income

25. Purpose is to determine the financial position of the entity at the end of a given period. A compilation of all the assets, liabilities and equity of the entity. Assets = Equity + Liabilities Statement of financial position

26. Purpose is to show the movement or changes in the components of Equity during the period. It highlights the contributions and distributions to equity participants. Statement of changes in Equity

27. Purpose is to ascertain the pattern of cash usage by the entity during the period. It shows the proportion of cash utilized in operating, investing and financing activities. Statement of cash flow

28. Regulatory framework for preparation of financial statements Regardless of the GLFRS being manual or computerized, the regulatory framework for preparing financial statements should be taken into consideration. There are basically three levels of regulation for financial statement preparation.

29. Generally Accepted Accounting Principles (GAAP) Accounting standards National laws Regulatory framework

30. Supporting management needs 4

31. Supporting management needs The MRS (Management Reporting System) is largely responsible for taking care of management’s information needs. However, the GLFRS also support management needs via some financial reporting tools.

32. Supporting management needs 1. Budget: routine report generated by the GLFRS for the purpose of financial and strategic planning by management. 2. Ratio analysis: tool that the GLFRS furnishes management with in order to assess the performance of the entity in the areas of profitability, liquidity, gearing, efficiency, investment potential, Etc.

33. Supporting management needs Infographics: Collection of visual representations and minimal text to convey information, data or knowledge quickly and clearly. Examples of infographics include charts, graphs, icons, symbols, pictures, shapes, Etc. Infographics has become a key tool for presentation of financial statements and other information both within and outside corporate cycles.

34. Accounting software

35. Glfrs and Accounting software The GLFRS like other subsystems of the AIS can be manual or computerized. Computerized GLFRS are the trend and future. All activities of the GLFRS are now being executed using accounting software such as Peachtree, Quick books, Etc.

36. Glfrs and Accounting software Accounting software can handle a wide range of accounting functions and activities. This feature makes them suitable for the GLFRS.

37. Glfrs and Accounting software Another stand out feature of Accounting software is the capacity to share financial reports and information over a network.

38. Glfrs and Accounting software Use of accounting software generally results in higher quality of accounting information. Benefits of using accounting software include: Speed Cost saving Accuracy Data integrity Reliability, Etc.

39. Glfrs and Accounting software In spite of its advantages, the use of accounting software also comes with some risks and challenges: Technical knowledge requirement Cyber security issues Technical faults and errors Development costs, Etc.

40. Extensible business reporting language (xbrl)

41. Xbrl – the background Paper based reporting has largely been replaced by digital reporting. However, a drawback with digital reporting is that there are several standards for the exchange of electronic documents, consequently many EDI (Electronic D ata Interchange) systems are not compatible with each other.

42. Xbrl – profile XBRL is an XML based standard that standardizes the preparation, validation, publication, exchange, consumption and analysis of financial info. Created to eliminate multiplicity in EDI standards. Initiated by the American Institute of Certified Public Accountants(AICPA) in 1998.

43. Xbrl – profile XBRL is the open international standard for digital business reporting, managed by a global not for profit consortium, XBRL International. XBRL Consortium has over 600 member organisations drawn from both private and public sectors.

44. Xbrl – profile Used in more than 50 countries by accountants, analysts, data providers, investors, corporations, regulators and governments.

45. Xbrl – how it works XBRL uses tags to identify each piece of financial data, which then allows it to be used programmatically by an XBRL-compatible program . These tags allow financial data to be computer or machine readable; thus, standardizing the preparation and sharing of financial statements and reports.

46. Xbrl – Glossary 1. Taxonomy : Digital dictionary of financial terms. It defines the terms and their interrelationships. 2. Tagging : Process of applying the entity’s unique financial data to an element within the taxonomy. The tagging process is performed during the creation of an instance document .

47. Xbrl – Glossary 3. Instance document: F ile that includes the company specific business reporting information in a structured manner that computers can intelligently recognize and exchange. 4. Rendering : Process of translating instance document into a human readable format using XBRL software.

48. Xbrl – Glossary 5. XBRL Tools: XBRL software used for creating taxonomies, tagging, instance document creation and rendering.

49. Xbrl – benefits Automation High quality information Cost reduction Improved accessibility Inter-operability

50. Xbrl – implication for glfrs XBRL has revolutionized the practice of accounting and financial reporting. Financial information is only as valuable as its quality and XBRL clearly improves the quality of financial reporting. Nonetheless, other factors like size of the business, diversity of stakeholders, Etc.; also play key roles in determining the value of XBRL to an organisation.

51. Control objectives, threats and procedures

52. Control objectives Control in any system is important if it is to accomplish the objectives for which it exists. Controls within the GLFRS are meant to guaranty, to a reasonable extent, the achievement of the goals of the system.

53. Control objectives Why control? Accuracy of accounting records Proper authorization for transactions Timely delivery of relevant reports Compliance with applicable laws and standards Security of entity’s accounting data and records Safeguard of entity’s assets, Etc.

54. Threats and procedures There are potential threats that management must pay attention to while setting up or operating the GLFRS. These threats can prevent the GLFRS from meeting its objectives. Consequently, certain control procedures should be put in place to mitigate these threats.

55. Threats and procedures Threat 1: Errors in updating the general ledger Control procedure Tasks d escription 1. Input controls Date checks Field checks for validity of data entry File and account numbering and labelling Zero- balance checks (debits = credits) Recast account values and totals for accuracy Completeness check Automated task flow Establish conditional data entry protocols

56. Threats and procedures Threat 1: Errors in updating the general ledger Control procedure Tasks d escription 2. Reconciliation and control reporting Prepare bank reconciliation statement periodically Prepare trial balance periodically Prepare debtors , creditors and expenses control reports Suspense account analysis Journal voucher sequencing

57. Threats and procedures Threat 1: Errors in updating the general ledger Control procedure Tasks d escription 3. Audit trail Maintain master and current files Parallel record keeping (manual and digital) Compare backup with existing records Maintain task flow chart Authorization fields included in records and documents

58. Threats and procedures Threat 2: Financial statement fraud Control procedure Tasks d escription 1. Audit Internal audit External audit Maintain data warehouse Cloud storage

59. Threats and procedures Threat 2: Financial statement fraud Control procedure Tasks d escription 2. Internal controls Segregation of duties Authorization and approval thresholds Hardware access restrictions Maintenance and security protocols

60. Threats and procedures Threat 2: Financial statement fraud Control procedure Tasks d escription 3. Forensics User documentation Alarm/warning systems Rules and regulations handbook Organisational chart

61. Threats and procedures Threat 3: Data security risks Control procedure Tasks d escription 1. Back up and recovery Maintain cloud storage Appropriate labelling of storage mediums/tools Maintain multiple backups Always test Back up before storage Schedule back up frequently and consistently

62. Threats and procedures Threat 3: Data security risks Control procedure Tasks d escription 2. Access controls Use of biometrics Physical restrictions (lock and key, vaults) Database restrictions and protocols Maintain log files for all activities User IDs and passwords

63. Threats and procedures Threat 4: Cyber attacks Control procedure Tasks d escription 1. Malware control Install anti-malware programs Set up and regularly update network Firewall Email monitoring and sifting Monitor software updates

64. Threats and procedures Threat 4: Cyber attacks Control procedure Tasks d escription 2. Mole detection Vetting of maintenance personnel Use of IDs and passwords Establish outsourcing protocols Continuous surveillance

65. Threats and procedures Threat 5: Poor performance Control procedure Tasks d escription 1. Performance reporting Prepare performance reports Set up monitoring and evaluation systems Maintain performance comparison dashboard Use multiple performance measurement tools

66. Threats and procedures Threat 5: Poor performance Control procedure Tasks d escription 2. System design and development Implement XBRL Use accounting software Periodic systems testing and maintenance

67. Summary and DISCUSSION The GLFRS is the fulcrum of the accounting process. If we get it right at this stage of the accounting process, we are more likely to provide the kind of quality information required by today’s users . Question: Is the digitalization of the accounting practice a threat to the Accounting profession?

68. Slide title 29 General Ledger and F inancial reporting S ystem (GLFRS) © 2021