Topic 4 – Financial reporting infrastructure

Study Unit 13: Financial reporting structure

Study unit 13: Financial reporting structure - page 97

2 Staffing level requirements

 

- What are some of the factors influencing the staffing level requirements of the organisations finance team

 

  • The size and structure of the organisation
  • The complexity and volume of transactions processed
  • The complexity and volume of reporting required
  • The integration of the AIS with the operational information systems
  • The number of manual interventions needed
  • The AIS software used

 

Segregation of duties (SOD)

 

The responsibility to perform related tasks is allocated to different people or departments, and is a vital internal control to help reduce the risk of fraud and mistakes.

 

There must always be a supervisor

 

Each AIS will have a user role that has access to all functions in the AIS, including but not limited to.

 

Reconciliations.

 

These should be performed monthly, no matter what the size of the team, and these must be reviewed and signed off by a person other than the person performing the reconciliation – therefor a supervisor would complete this task.

 

And audit trails

 

Each user’s access (including that of the supervisor) to the AIS and actions performed on the AIS must be logged on the AIS audit trail.

 

The supervisor will oversee

 

  • Staff level requirements
  • Development guidelines
  • Planning for the future
  • Logical and consistent accounting formats
  • Feedback to management
  • Reporting sign-off’s

 

3 Chart of Account

 

The CoA in an AIS includes for each general ledger (GL) account a description of the account and a unique account number (primary key) by which it can be identified.

 

3.1 Structure

 

Each organisation must have a well-structured chart of accounts that’s suits the organisations specific business model and IFRS’s and regulatory requirements.

A chart of accounts is similar to the format of the trail balance with the various account numbers and account names being specific

A block of account numbers is assigned to each of the five major categories, leaving gaps between the subcategories in each major category. These gaps are used to expand the subcategories in future, so that they can be stored numerically.

 

3.2 Development Guidelines

 

The organisations business operations and industry.

The CoA should reflect the organisations specific business operations and the industry in which it is operating.

 

The organisations structure.

The GL accounts that are used must fit the organisations structure

 

Reporting detail required.

The GL accounts must be able to populate the organisations required IFRS financial statements, financial management accounts, and the organisations various tax returns, without the need to analyse the transactions in an individual GL account.

 

Plan for the future.

The CoA is not only used for the current financial year, but also for future years

 

Logical.

The CoA must have a logical flow in the major categories, subcategories and the related account number blocks and individual account numbers.

 

Consistent.

The account number structure and format must be consistent between the accounts used.

 

Account description.

The account description should clearly but briefly explain the nature of the GL account.

 

Draft.

Create a draft structure on paper first before implementing it in the AIS.

 

Feedback.

Obtain feedback from the different role players on the draft CoA.

 

Sign-off.

Obtain sign-off from applicable management on the final CoA before implementing it.

(Next Lesson) Study Unit 12: Finance and Investment cycle
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