Chapter 6 Flashcards
Who are the recipients of financial statement information?
External Users
They are interested in the performance of the organizations a whole.
Outside users of information
It must be prepared and presented by all organizations in a manner that is generally accepted and understood by external users.
Financial Reporting Information
Enumerate the Financial Reporting Procedures
- Capture the transaction
- Post to General Ledger
- Prepare Unadjusted Trial Balance
- Make adjusting entries
- Journalize and post adjusting entries
- Prepare Adjusting Trial Balance
- Prepare the Financial Statement
- Closing Entries
- Post-closing Trial Balance
It is the internet standard specifically designed for business reporting and information exchange
XBRL or Extensible Business Reporting Language
It is a freely available and global standard for exchanging business information
Extensible Business Reporting Language
It is the financial and operational business reporting offshoot of Extensible Markup Language (XML)
Extensible Business Reporting Language
Enumerate the benefits of XBRL
- Investors will have more time for analysis and insight.
- The influence of XBRL in the financial reporting chain is such that regulatory reporting agencies like the Security Exchange Commission (SEC) are able to receive financial information faster, and hopefully detect and prevent fraud.
Enumerate the Controlling the FRS
- Transaction Authorization
- Segregation of Duties
- Access Controls
- Accounting Records
The entity should be available to classify the important activities, particularly for economic operations. For each activity and significant event, the entity should ensure that documentation is adequate with respect to operations.
Transaction Authorization
The task of updating the general ledger must be separate from all accounting and asset custody responsibility within the organization.
Segregation of Duties
Enumerate what individuals wit access authority to GL accounts should not
1) Have record-keeping responsibility for special journals or subsidiary ledgers.
2) Prepare journal vouchers.
3) Have custody of physical assets.
Unauthorized access to the GL accounts can result in errors, fraud, and misrepresentation in financial statements
Access Control
It must undergo to an audit trail because it facilitates error prevention and correction when the data files are conveniently and logically organized
Accounting Records
Enumerate the 3 Management Reporting System
Provides a formal means for monitoring the function of internal controls.
Applications are discretionary.
Produces the financial and nonfinancial information needed by management to plan and control its business.
6 Factors that influence the MRS
- Management principles
- Management function, level, and decision type
- Problem structure
- Types of management reports
- Responsibility accounting
- Behavioral considerations
4 Management Principles
- Formalization of tasks
- Responsibility and authority
- Span of control
- Management by exception
Under Management Principles, management structures the firm around the tasks it performs rather than around individuals with unique skills.
Formalization of tasks
It allows specification of the information needed to support the tasks
Formalization of tasks
It is an individual’s obligation to achieve desired results
Responsibility
It is an individual’s power to make decisions within the limits of that responsibiity
Authority
Who delegates responsibility and authority downward to subordinates?
Managers
It is the number of subordinates directly under the manager’s control
Span of control
Managers should limit their attention to potential problem areas
Management by exception
Enumerate the Management Function, Level, and Decision Type
- Top Management
- Middle Management
- Operations Management
Enumerate the Problem Structure
- Data
- Procedures
- Objectives
Reports must have value or information content
Report objectives
Enumeration the Types of Management Reports
- Programmed reports
- Ad hoc reports
Enumerate the 2 subclasses of Programmed Reports
a. Scheduled
b. On demand
Under Programmed Reports, it is according to established time frame
Scheduled
Under Programmed Reports, it is triggered by events not by passage of times
On demand
It provide information to solve problems that users have anticipated
Programmed Reports
Reports designed and created on an “as need” basis as situations arise that require new information needs
Ad hoc reports
It implies that every economic event that affects the organization is the responsibility of and can be traced to an individual manager
Responsibility Accounting
Enumerate the 12 Behavioral Considerations
- Goal Congruence
- A carefully structured management reporting system and compensation schemes help to appropriately assign authority and responsibility.
- If compensation measures are not carefully designed, managers may be tempted to engage in actions not optimal for the organization in the long-run.
- Occurs when a manager receives more information than he or she can assimilate.
- Can cause managers to disregard their formal information and rely on informal–probably inferior–cues to help them make decisions.
- Appropriate performance measures
- Stimulate behavior consistent with the objectives of the firm
- Consider all relevant aspects, not just one
- Inappropriate performance measures—examples of adverse effects
- The use of price variance to evaluate a purchasing agent can affect the quality of the items purchased.
- The use of quotas (such as units produced) to evaluate a supervisor can affect quality control, material usage efficiency, labor relations, and plant maintenance.
- The use of profit measures such as ROI, net income, and contribution margin can affect plant investment, employee training, inventory reserve levels, customer satisfaction, and labor relations.
