THE FINANCIAL REPORTING SYSTEM AND THE MANAGEMENT REPORTINGSYSTEM Flashcards
part 6
Financial Reporting Procedures
- Capture the transaction
- Post to General Ledger
- Prepare Unadjusted Trial Balance
- Make adjusting entries
- Journalize and post adj. entries
- Prepare adjusting Trial Balance
- Prepare the Financial Statement
- Closing entries
- Post-closing Trial Balance.
primary recipients of financial statement information are:
external users such as;
-stockholders
-creditors,
-government agencies.
define the XBRL(Extensible Business Reporting Language)
-Is the Internet standard specifically designed for business reporting and information exchange.
-Is a freely available and global standard for exchanging business information.
-Extensible business reporting language (XBRL) is the financial and operational business
reporting offshoot of Extensible Markup Language (XML)
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.
Controlling the Financial Reporting System (FRS)
- Transaction Authorization
- Segregation of Duties
- Access Controls
- Accounting Records
in segregation of duties
individuals with access authority to General Ledger accounts should not:
- Have record-keeping responsibility for special journals or subsidiary ledgers.
- Prepare journal vouchers.
- Have custody of physical assets.
Factors That Influence the MRS
● Management principles
● Management function, level, and decision type
● Problem structure
● Types of management reports
● Responsibility accounting
● Behavioral considerations
Management Principles
- Formalization of tasks
- Responsibility and authority
- Span of control
- Management by exception
Management Function, Level, and Decision Type
● Top Management- Strategic Planning
● Middle Management- Tactical Planning
● Operations Management- Operational Control
● Operations
Elements of problem structure
● data
● procedures
● objectives
Types of Management Reports
- Programmed reports
- Ad hoc reports
2 subclasses of Programmed Reports
a. Scheduled- according to established time frame
b. On demand- triggered by events not by passage of times
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.
true or false:
Generally speaking, outside users of
information are interested in the performance of the organization s a whole. Given the nature
of these needs, financial reporting information must be prepared and presented by all
organizations in a manner that is generally accepted and understood by external users.
true
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
rrue or false:
in Transaction Authorization
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. Documentation doesn’t need to be complete, but should be accurate and in
accordance with the structures and policies of the management.
false, it should be complete and accurate
Unauthorized access to the GL accounts can result in errors, fraud, and misrepresentations in
financial statements.
Access Controls
Accounting records must undergo to an audit trail because it facilitates error prevention and
correction when the data files are conveniently and logically organized.
Accounting Records
-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.
Management Reporting System
● Management structures the firm around the tasks it performs rather than around
individuals with unique skills.
● It allows specification of the information needed to support the tasks.
Formalization of tasks
● Responsibility is an individual’s obligation to achieve desired results.
● Authority is an individual’s power to make decisions within the limits of that
responsibility.
● Managers delegate responsibility and authority downward to subordinates
Responsibility and authority
● 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.
Span of control
● Managers should limit their attention to potential problem areas.
● Reports should focus on changes in key factors that are asymptomatic of potential
problems.
Management by exception
