Chp 16 General Ledger And Reporting Sys
CHAPTER 16
GENERAL LEDGER AND REPORTING SYSTEM
SUGGESTED ANSWERS TO DISCUSSION QUESTIONS
16.1 Although XBRL facilitates the electronic exchange of financial information, some external users do not think it goes far enough. They would like access to the entire general ledger, not just to XBRL-tagged financial reports that summarize general ledger accounts. Should companies provide external users with such access? Why or why not?
No, companies should not provide access to their general ledger. Providing external users access to a company’s general ledger opens the company up to significant competitive and financial risk.
16.2 How can responsibility accounting and flexible budgets improve morale?
Responsibility accounting improves morale by holding managers accountable only for the activities over which they have control. In this way, they are not unfairly “punished” for poor performance that they could not alter.
Flexible budgeting enables more accurate interpretation of deviations from budget. For example, if activity levels are higher than planned, then costs should also increase. Therefore, costs higher than the original budget may not be “bad” if they have risen at a rate less than or equal to the proportionate increase in activity.
16.3 Why is the audit trail an important control? The audit trail is a detective control used to verify the accuracy and completeness of transaction processing. Tracing a set of source documents forward through the journal entries that updated the general ledger verifies that the transactions were actually recorded. Tracing changes in general ledger accounts back to source documents provides a way to verify that the transactions did indeed occur and that they were recorded correctly.
Although an accounting system should employ a variety of processing integrity controls to prevent errors from occurring, preventive controls are never 100% effective. Therefore, they need to be supplemented with detective
GENERAL LEDGER AND REPORTING SYSTEM
SUGGESTED ANSWERS TO DISCUSSION QUESTIONS
16.1 Although XBRL facilitates the electronic exchange of financial information, some external users do not think it goes far enough. They would like access to the entire general ledger, not just to XBRL-tagged financial reports that summarize general ledger accounts. Should companies provide external users with such access? Why or why not?
No, companies should not provide access to their general ledger. Providing external users access to a company’s general ledger opens the company up to significant competitive and financial risk.
16.2 How can responsibility accounting and flexible budgets improve morale?
Responsibility accounting improves morale by holding managers accountable only for the activities over which they have control. In this way, they are not unfairly “punished” for poor performance that they could not alter.
Flexible budgeting enables more accurate interpretation of deviations from budget. For example, if activity levels are higher than planned, then costs should also increase. Therefore, costs higher than the original budget may not be “bad” if they have risen at a rate less than or equal to the proportionate increase in activity.
16.3 Why is the audit trail an important control? The audit trail is a detective control used to verify the accuracy and completeness of transaction processing. Tracing a set of source documents forward through the journal entries that updated the general ledger verifies that the transactions were actually recorded. Tracing changes in general ledger accounts back to source documents provides a way to verify that the transactions did indeed occur and that they were recorded correctly.
Although an accounting system should employ a variety of processing integrity controls to prevent errors from occurring, preventive controls are never 100% effective. Therefore, they need to be supplemented with detective