Chapter 16
What is XBRL and why are accountants so excited about it
Old method is to print on paper...in order to be useful would have to enter the data into excel and then analyze it with some sort of formula...nowadays publish report in a digital format, and that allows just to copy and paste into excel, but what's even better is if the number on the digital files already tag (and this is what XBRL does)...a way that you can actually search and find things...through like a google search...preassigned labels or tags...can just use excel to populate labeled amounts...?...report itself is just a file...for example all the companies assets, total assets have same label/name...rather than using formula just have a chart of names to plug in with the labels?...searchable format because everything has labels on it XBRL: eXtensible Business Reporting Language is a variant of XML (eXtensible Markup Language) specifically designed for use in communicating the content of financial data XBRL: Revolutionizing the Reporting Process...it is a programming language designed specifically to facilitate the communication of business information. The SEC requires U.S. public companies to use XBRL when submitting their filings...prior to XBRL, preparers had to manually create reports in various formats for different users. Although those reports were then sent electronically to users, the recipients then had to reenter the data into their own systems in order to manipulate it...inefficient and prone to error...with XBRL preparers encode the data and transmit it electronically in various formats to users, who can directly analyze it. Thus, XBRL saves time and reduces the chances for data entry errors...Without XBRL, electronic documents, regardless of format (text, HTML, PDF, etc.) were essentially just digital version of paper reports. Humans could read the data, but computers could not automatically process it until the recipient manually entered it in the appropriate format. XBRL changes that by encoding information about what a particular data item means so that other computer programs can understand what to do with it...can annotate a number in a spreadsheet to indicate it represents sales for a particular time period, following U.S. GAAP and measured in U.S. dollars XBRL Process and Terminology: The XBRL file containing the tagged data that is delivered to users is called an instance document Instance Document: An XBRL file that contains tagged data The instance document contains facts about specific financial statement line items, including their values and contextual information such as the measurement unit (dollars, euros, yuans, etc.) and whether the value is for a specific point in time (e.g., a balance sheet item) or a period of time (e.g., an income statement item). Each specific data item in an XBRL document is called an element Element: A specific data item in an XBRL instance document, such as a financial statement line item An element's specific value is displayed in an instance document between tags. Angle brackets are used to identify tags. Two tags are used for each element. First tag presents the element name inside a pair of angle brackets; second tag also uses a pair of angle brackets but precedes the element name with a slash. Additional info is needed to properly interpret that value, such as the monetary units used to measure net sales and the time period during which those sales occurred. That context info is also presented in the instance document between tags...An instance document is created by applying a taxonomy to a set of data Taxonomy: A set of XBRL files that defines elements and the relationships among them A taxonomy is a set of files that defines the various elements and relationships between them. One part of the taxonomy is called the schema Schema: An XBRL file that defines every element that appears in a specific instance document ...which is a file that contains definitions of every element that could appear in an instance document. The following are some of the basic attributes used to define each element:...Attribute information is enclosed within tags. Thus, to continue our example, the schema would contain the following portion of a definition of the Net Sales element:...The taxonomy also includes a set of files called linkbases... Linkbases: One or more XBRL files that define the relationships among elements found in a specific instance document ...which define the relationships among elements in a specific instance document. Important linkbases include the following:...information in an XBRL taxonomy is used to tag the data and create a a set of separate instance documents, one for each reporting year. Instance documents, however, contain only the data values. Another document, called the style sheet... Style Sheet: An XBRL file that provides instructions on how to display (render) an instance document on either a computer screen or printed report ...provides the instructions on how to appropriately display (render) the content of an instance document, either on a computer screen or in a printed report XBRL benefits internal and external reporting....internal benefits because data can be exported from the basic ERP system in a format that managers can import directly into a variety of applications, saving time and eliminating errors arising from having to manually reenter data The Accountant's Role: Accountants should play a major role in all phases of producing XBRL reports...choosing appropriate taxonomy...standard taxonomies created for different countries and industries...however, standard taxonomies cannot cover every possible situation...sometimes unique to organization...in such cases, accountants can create new tags to more accurately present information about the organization's business activities. These new tags create what is called an extension taxonomy. This ability to modify XBRL is why it is referred to as an extensible language Extension Taxonomy: A set of custom XBRL tags to define elements unique to the reporting organization that are not part of the standard generally accepted taxonomies for that industry Accountants also likely to use software to apply the taxonomy (and any extensions) to tag their organization's data, create instance documents, and then validate those instance documents before they are submitted...also typically participate in creating style sheets to ensure info is displayed appropriately
What is a balanced scorecard -- know key sections
Not in slides...book page 486...balanced scorecard...just in MC...different measurements/benchmarks you can create to determine success for a business are not just financial...behavioral science type thing...be able to measure customer satisfaction...analysis of relationship you have with others...? look outside and inside...balanced scorecard...develop a reporting system for all four categories...know key sections...financial...customer...internal operations...innovation...know categories and basic concept A management report that measures four dimensions of performance: financial, internal operations, innovation and learning, and customer perspectives of the organization One problem with the reports produced by many accounting systems is that the reports too narrowly focus on just one dimension of performance: that reflected in the financial statements. Balanced scorecards attempt to solve that problem. A balanced scorecard is a report that provides a multidimensional perspective of organizational performance. As shown in Table 16-2, a balanced scorecard contains measures reflecting four perspectives of the organization: financial, customer, operations, and innovation and learning. Financial section contains lagging indicators of past performance, whereas the other three sections provide leading indicators about likely future performance. For each dimension, the balanced scorecard shows the organization's goals and specific measures that reflect performance in attaining those goals. Together, the four dimensions of the balanced scorecard provide a much more comprehensive overview of organizational performance than that provided by financial measures alone Many organizations make the mistake of setting targets that reflect industry benchmark values. The problem with such an approach is that the organization's aspirations and, hence, its performance are limited by its competitors' performance. Although industry benchmarks may provide a useful reference point, management should set targets that take into consideration the organization's unique strengths and weaknesses Customers are key to achieving financial goals...in turn, meeting those customer-oriented goals requires efficiently and effectively performing internal business processes. Consequently, the internal operations perspective portion of AOE's balanced scorecard focuses on those activities most likely to directly affect customer perceptions...finally, top management acknowledged the importance of developing new products and training its workforce to continuously improve results Measures in innovation and learning, internal operations, and customer perspective portions of the balanced scorecard can be thought of as leading indicators of financial measures of the organization's strategy...cause and effect with financial measures If improvements in one perspective do not generate expected improvements in other areas in subsequent time periods, top management must reevaluate and probably revise hypotheses about the determinants of organizational success Accountants and systems professionals should participate in the development of a balanced scorecard...can help management chose most appropriate measures for tracking achievement of goals top management specifies...also can provide input on the feasibility of collecting the data that would be require to implement various proposed measures Although the balanced scorecard was initially developed as a strategic management tool, it can also be used as a vehicle to better manage enterprise risk by incorporating appropriate risk-based goals and measures in the various dimensions...can be used as one tool to monitor and evaluate an organization's controls and risk management program
What are the relationships of the specialized journals to the general journal and the subsidiary ledgers to the general ledger
Use totals of specialized journals to update the general ledger...specialized journals (use totals to update general ledger)...general journal (prepare or record adjusting entries...which are nonrecurring, don't happen frequently...and subsidiary ledgers (provides detail of general ledger accounts) Transaction data are often recorded in a journal before they are entered into a ledger. A journal entry shows the accounts and amounts to be debited and credited. A general journal is used to record infrequent or nonroutine transactions, such as loan payments and end-of-period adjusting and closing entries. A specialized journal records large numbers of repetitive transactions such as sales, cash receipts, and cash disbursements Cumulative accounting information is stored in general and subsidiary ledgers. A general ledger contains summary-level data for every asset, liability, equity, revenue, and expense account. A subsidiary ledger contains detailed data for any general ledger account with many individual subaccounts
What is an audit trail
Another one from chapter two...just the link of source documents to accounting records...use some sort of numbering system for source documents A path that allows a transaction to be traced through a data processing system from point of origin to output or backwards from output to point of origin The audit trail is a traceable path that shows how a transaction flows through the information system to affect general ledger account balances. It is an important detective control that provides evidence about the causes of changes in general ledger account balances A properly designed audit trail provides the ability to perform the following tasks: 1) Trace any transaction from its original source document (whether paper or electronic) to the journal entry that updated the general ledger and to any report or other document using that data. This provides a means to verify that all authorized transactions were recorded 2) Trace any item appearing in a report back through the general ledger to its original source document (whether paper or electronic). This provides a means to verify that all recorded transactions were indeed authorized and that they were recorded correctly In legacy accounting systems, the journal voucher file is an important part of the audit trail, providing information about the source of all entries made to update the general ledger. The same capability is provided by the business workflow features in ERP systems, which make it easy to trace every step performed in processing a transaction. The usefulness of the audit trail depends on its integrity. Therefore, it is important to periodically make backups of all audit trail components and to control access...etc...
What are the key processes in a general ledger system
From slides....Update general ledger, post adjusting entries, prepare financial statements, and prepare the management reports Update General Ledger: The first activity in the general ledger system (circle 1.0) is updating the general ledger...Updating consists of posting journal entries that originate from two sources: 1) Accounting subsystems. Each of the accounting subsystems described in Chapters 12 through 15 creates a journal entry to update the general ledger. In theory, general ledger could be update for each individual transaction. In practice, however, the various accounting subsystems usually update the general ledger by means of summary journal entries that represent the results of all transactions that occurred during a given period of time (day, week, month). 2)Treasurer. The treasurer's office provides information for journal entries to update the general ledger for nonroutine transactions such as the issuance or retirement of debt, the purchase or sale of investment securities, or the acquisition of treasury stock Post Adjusting Entries: The second activity in the general ledger system is posting various adjusting entries...Adjusting entries originate from the controller's office, after the initial trial balance has been prepared. Adjusting entries fall into five basic categories... Prepare Financial Statements: The third activity in the general ledger and reporting system is preparing financial statements...Most organizations "close the books" to produce financial statements both monthly and annually. A closing journal entry zeroes out all revenue and expense accounts in the adjusted trial balance and transfer the net income (or loss) to retained earnings. The income statement summarizes performance for a period of time (usually either a month or a year)...balance sheet, cash flows...etc.. Produce Managerial Reports: The fourth activity in the general ledger and reporting system is to produce various managerial reports, including budgets. ERP systems can produce a number of budgets to help managers plan and evaluate performance...operating budget, capital expenditures budget, cash flow budgets...In addition to budgets, the inquiry processing capabilities of ERP systems enable managers to easily create an almost unlimited number of performance reports....examples...accountants should understand how to use the flexible reporting and graphing capabilities of ERP systems so that they can add value by suggesting alternative ways to organize and analyze data
What is a chart of accounts
List of general ledger accounts...actually defined in chapter 2 A listing of all the numbers assigned to balance sheet and income statement accounts. The account numbers allow transaction data to be coded, classified, and entered into the proper accounts. They also facilitate financial statement and report preparation
What is the general ledger and reporting system designed for
Not designed to prepare transactions...to summarize transactions, store them, and prepare reports The general ledger and reporting system plays a central role in the company's AIS. Its primary role is to collect and organize data from the following sources: Each of the accounting cycle subsystems described in chapters 12 through 15 provides information about regular transactions The treasurer provided information about financing and investing activities, such as the issuance or retirement of debt and equity instruments and the purchase or sale of investment securities The budget department provides budget numbers The controller provides adjusting entries
What are adjusting entries, why are they done, what are the different types
Slide 16-6...accruals (all add things...revenues, expenses, assets, liabilities, etc.), deferrals (decrease assets, decrease liabilities...previous transaction is now updated for change or time expiration), estimates (depreciation, bad debt, etc...), revaluations (abandonment of cost accounting, modifying value...?), corrections (just mistakes you made)....know what's meant by each one of these terms for MC...why they are done is to apply accrual accounting, which is another way of saying you're following the rules of GAAP Post Adjusting Entries: The second activity in the general ledger system is posting various adjusting entries...Adjusting entries originate from the controller's office, after the initial trial balance has been prepared. Adjusting entries fall into five basic categories: 1) Accruals: are entries at the end of the accounting period to reflect events that have occurred but for which cash has not yet been received or disbursed. Examples include the recording of interest revenue earned and wages payable 2) Deferrals: are entries made at the end of the accounting period to reflect the exchange of cash prior to performance of the related event. Examples include recognizing advance payments from customers as a liability and recording certain payments (e.g., rent, interest, and insurance) as prepaid assets 3)Estimates: are entries that reflect a portion of expenses expected to occur over a number of accounting periods. Examples include depreciation and bad-debt expenses 4) Revaluations: are entries made to reflect either the differences between the actual and recorded value of an asset or a change in accounting principle. Examples include a change in the method used to value inventory, reducing the value of inventory to reflect obsolescence, or adjusting inventory records to reflect the results noted during a physical count of inventory 5) Corrections: are entries made to counteract the effects of errors found in the general ledger Information about these adjusting entries is also stored in the journal voucher file. After all adjusting entries have been posted, an adjusted trial balance is prepared. The adjusted trial balance serves as the input to the next step in the general ledger and financial reporting cycle, the preparation of financial statements
Know what a data warehouse is, what are the advantages
Storage of prior year(s)? records...searchable...sortable......advantages? two s? accessible? Very large databases containing detailed and summarized data for a number of years that are used for analysis rather than transaction processes...complement transaction processing databases by supporting strategic decision making...updated periodically....purposefully redundant for query efficiency Searchable Sortable Accessible?
