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What is accounting ?Factors that affect accounting systems?


Transactions are:

  • Recorded in books of prime entry(every transaction has dual effect balances to 0)
  • Analysed and posted to the ledgers
  • Summarised in the financial statements

Aid mgt to planning ,control,decision-making and compliance with statutory regulations.


  • Size (smaller simpler,large comp more elaborate)
  • Type of org: Service business-time employees take on,clien t basis 
  • Org structure


Users of financial st and accounting info

  1. Managers -day to day activities,manage business efficiently
  2. Shareholders of the company (stewardship function,how much profit they can withdraw ect)
  3. Trade contacts-suppliers ,customers
  4. Providers of finance to the company-bank overdraft ,loan
  5. Tax authorities
  6. Employees of the company
  7. Financial analysts and advisers (stockbrokers,credit agencies,journalists)
  8. Government and their agencies (national statistics)
  9. Public (contribution to local economyy,environment)


Qualities of accounting information:

  1. Relevance (satisfy needs of info users)
  2. Objectivity(many decisions maybe based on judgement rather than obj facts,mgt rosy pic to show impressive performance,auditors more prudent view)
  3. Comprehensibility(skimpy,incomplete,too many details)
  4. Timeliness-depends on circumstances eg cashflow frequent ,shareholders accounts annually
  5. Comparability 
  6. Reliability(independently verified)


The structure of accounting functions:

  • Financial controller: 
  1. Routine accounting
  2. Account reports for other dpts
  3. Cashier s duties and cash control
  • Mgt acc:
  1. Cost accounting
  2. Budgets and budgetary control
  3. Financial mgt of projects
  • Treasurer:
  1. Raising funds by borrowing
  2. Investing surplus funds
  3. Cash flow control
  • Internal auditors
  1. Checking compliance with int and ext regul
  2. prevention,detection,avoidance of fraud


Organogram of finance function

Finance director

Treasurer   Financial Controller      Mgt accountant

Cashier        Financial accountant     Cost accountants



Finacial accountants

  1. NCA register
  2. Purchase ledger
  3. Credit control
  4. Debt collerctors
  5. Receivables ledger
  6. Payroll
  7. Financial accounts
  8. Statutory accounts
  9. Sales tax returns
  10. Taxation

Cost accountants:

  1. Inv reporting and valuation
  2. Materials costing
  3. Labour costing /payroll
  4. Exp and overheads costing
  5. Process costing
  6. Budgetary control reports

Mgt accountant

  1. Budget coordination 
  2. Analysis and investigation
  3. Project appraisal



Finacial accounting 

Financial acc:

  • Reporting results and financial position of a business
  • users not involved in day to day running -produces reports for the shareholders
  • Complies with Accounting standards
  • Statutory report monitoring key variables of profitability-liquidity -gearing produces accountong ratios  and absolute info
  • Corrective actions by mgt if results not in line  with the financial plan
  • External reports (Statement of P&L,financial positio,cash flows)



Mgt accounting 

Information for planning and controlling business-internal use

  • Competitor s performance
  • Cost/profit centre performance
  • Desirability of investments
  • Past cost info 
  • Product profitability
  • Sensitivity analysis

Financial performance against plan-difference =variance,report in timely manner and identify reasons


Internal reports:

  • Cost schedules
  • Budgets
  • Variance reports
  • Working capital reports


Role of treasurer

  • Corporate financial obj:
  1. Financial aims and strategies
  2. Financial and treasury policies
  3. Financial and treasury systems
  • Liquidity mgt
  1. Working capital and money transmission mgt
  2. Banking relationships and arrangements
  3. Money arrangement
  • Funding mgt
  1. Funding policies and procedures 
  2. Sources of funds
  3. Types of funds
  • Currency mgt
  1. Exposure policies and procedures
  2. Exchange dealings
  3. Intern monetary economics and exchange regulations
  • Corporate finance:
  1. Rasing share capital and its form
  2. Obtain stock exchange listing,divid policy
  3. Financial info for mgt
  4. M&A
  5. Business sales
  • Asset mgt
  1. If quality and quant meets orgs needs
  2. When replace NCA
  3. Most effective funding for new assets
  4. Maintain asset register and reg audir (if still exist and appropriate value)
  • Related subjects
  1. Effective adm of corporate taxation
  2. Risk mgt and insurance
  3. Pension fund investment mgt


Internall auditors :

  • Company's empl
  • Duties fixed by mgt
  • Investigating accountig sub-systems
  • Audit business operations(obj valid,control info reliable,efficency)


Causes of horizontal conflict:

  1. Difference in goals-mgt align personal goals with startegic plan
  2. Different business functions often differ in personality/culture
  3. Task interdependence;dependence of dpts -relationship mgt
  4. Scarcity of resources
  5. Power distribution
  6. Uncertainty
  7. Reward system

Horiz:between functions and groups


Causes of vertical conflict :

  1. Resource distribution(owners-workf )
  2. Power (lac of power-union ,trials of strength)
  3. Alianation(repetitive jobs -can t identify -attitude of managers )
  4. Politics (emp seeking security/managers control and operate as freely as possible)

Higher levels with those below them


How org politics reveal itself?

  1. Individuals wish to experience victory /avoid defeat -own obj
  2. Disparities of power and influence-events decided by dominant indiv and coalitions
  3. Constant compromise ,reconciling differences
  4. Territory analogy for jealousies and rivalries over boundaries of authorities
  5. Political behavioyr -charact of informal org


Mintzberg-political games:

  1. Games to resist authority
  2. Games to counter this resistance
  3. Games to build power bases 
  4. Games to defeat rivals
  5. Games to change the org


Cost schedules:

  1. Wages and salaries
  2. Dpt costs
  3. Cost of sales
  4. Selling exp
  5. Adm costs


Budgets and forecasts:

  • Costs involved in generating sales,overheads,projected profits
  • cash flow budget -potential issues to arrange overdraft facilities/loans 


Working capital controls 

  1. Inv reports
  2. Receivables
  3. Payables
  4. Cash reports


Which areas of business a head office of a business may cover?

  1. Purchasing
  2. HR
  3. Finance
  4. Sales and mkt
  5. General admin


Effective systems and procedures should ensure that:

  1. Relationships with customers are effectively managed
  2. Relationships with suppliers are effectively managed

  3. Office functions interelate effectevely and are not duplicated


Weeknesses in office procedures may be signalled by:

  1. Arguments over job functions
  2. Missing paperwork
  3. Disputes with customers/suppliers
  4. Goods not delivered



  • Sales and mkt function :market the orgs products and take orders from customers.
  • If new client :more senior level involved if the sale is to be  made by credit
  • Once the goods are despatched the responsibility passes to the accounting dpt-ensure pmt is received



  • Started by purchasing dpt/stores dpt
  • Inventory running low
  • Purchase requisition-authorised then the purchasing dpt will choose the most approprate supplier
  • After responsibility to the acc dpt-arrival of inv-pmt 


Control over transactions/Financial control procedures:

The mgt has to have control over the following areas

  1. Sales on credit to new customers
  2. Purchase of NCA and pmts for exp
  3. Payroll

Financial control procedures ensure that

  1. Financial transactions are properly carried out
  2. The assets of the businesses are safeguarded
  3. Accurate and timely mgt info is provided


Examples of financial control procedures/signal of weekness:


  1. Checks over certain amount-2 sign
  2. Authorisation limits in PO
  3. Authorisation for petty cash and expenses
  4. Effective credit control procedures
  5. Comp security procedures/access levels


  1. Cheques going missing
  2. Excessive bad debts
  3. Customers not paying within cr terms
  4. Suppliers not getting POT
  5. Failure to produce accounts or other reports at the specified time.


Key controls over payroll

  1. Documentation and authorisation of staff changes
  2. Calculation of wages and salaries
  3. Payment of wages and salaries
  4. Authorisation of deductions



Data held on a payroll file

Individual records per employee:

  • Standing  data :
  1. Personal details
  2. Rate of pay
  3. Deductions
  4. Holidays
  • Variable
  1. Gross pay to date
  2. Tax to date
  3. Pension contributions



Payroll inputs/outputs:


  1. Timesheets/bonus(wages based)
  2. Overtime,bonuses ect(salary based)



  1. Payslips
  2. Payroll
  3. Payroll analysis and details for costing purposes
  4. Forms for income tax purp
  5. Coin analysis,cheques,credit transfer forms
  6. Storage media with pmt details for despatch.


Aims of the control system related to payroll:

  1. Setting of wages and salaries(only worked hours paid,authorised)
  2. Recording of wages and salaries(correct recording of salary,deduction)
  3. Payment-(correct empl paid)
  4. Deductions(authorised,paid to tax author)


Payroll control analysis:

  • ​​Setting of wages and salaries
  1. Staffing and SOD
  2. Maint of personal controls
  3. Authorisation(overtime,engagement,discharge,nnon-statutort deductions,advances of pay)
  4. Recording in changes of personel and pay rates
  5. Rec hours worked by time sheets
  6. Review of hours worked
  7. Holiday pay
  8. Answering queries
  9. Review of wages against budget
  • Recording of wages and salar:
  1. Bases for compilation of payroll
  2. Preparation,checking and approval of payroll
  3. Dealing with non routine matters
  • Pmt of cash wages:
  1. ​SOD
  2. Authorisation of wage cheque
  3. Custody of cash
  4. Verification of ID
  5. Recording of distribution
  • PMT of salaries
  1. ​Preparation and signing of cheques,bank transfer
  2. Compare them with payroll
  3. Maintain and reconcile with bank acc
  • Deductions from pay
  1. Main of separate empl records
  2. Reconciliation of total pay and deduction between on  pay day and the next
  3. Surprise cash counts
  4. Comparison against budget
  5. Agreement of gross earn and total tax with income tax returns to HMRC


Most import aims of the control system relating to payables and purchases:

  1. Ordering-authorised ,received,for the comp,authorised suppliers,comp prices
  2. Receipts and invoices:not for pivate purpose,accepted only if ordered and authorised,accurately recorded,credits claimed,GR necessary to establish liability
  3. Accounting:exp authorised and recorded properly,goods received,cr notes received,cut off applied correctly


AP controls

  1. Ordering: certain suppliers,obtain authorisation,prenumbered forms
  2. GR:Compare with PO,condition,check inv,record goods returned
  3. Accounting recording: SOD,Record purchases/returns promptly,Compare SOA,pmt authorised


Controlling sales cycle:


  1. Selling: S OD of credit control,invoic,dispatch-author of credit terms,prenumbered forms
  2. Goods outwards-Author of goods despatched,Condition of goods returned,Signature of deliv notes,Match sales inv-despatch-deliv notes-sales ord
  3. Account/recording-Sod accounting-checking,record sales,receivables stms,customer remittance,review and follow up overdue accounts


Bank reconciliation -differences

  1. Timing difference due to unpresented cheques
  2. Tim diff due to uncredited lodgements(not appear in the bank stm)
  3. Standing orders and direct debits not entered in cash book
  4. Bank charges not entered in cash book
  5. Funds received by transfer and not recorded in cash book.


What are the 3 main steps in controlling pmts:

  • Documentation/evidence of amt ad reason
  • Authorisation
  • Restricting the autority to make the pmt to specified individ


Contemporary dvts in the finance function:

  • Traditional finance function;process driven bureaucracy
  • Trend:Market orientation-focus on cust needs
  • Eg inv appraisal-provides service to other parts of the business wish to buy new asset,mgt reports  to operational mgrs.
  • Cost of finance function might be split equally across dpts or charged each time serv provided


Offshoring-Outsurcing-facilitating factors:

Offshoring: relocation of some part of the business to another country.


Outsourcing:Sub contracting business activities to external providers(same country or oversees)


  • Dvts in technology
  • Communication devices (smartphones ect)



Offshoring :challenges

  1. Currency exchange -economic/polit stability
  2. Loss of skills and jobs
  3. Control from distance and security of sensit info
  4. Cost savings/efficiency improvement slow to accrue/not realised
  5. Cultural,time zones,language


Cox :competences groups

  1. Core :result in comp adv,not outsourced
  2. Complementary; Connected or essential to core comp.;outsourced only to key suppliers with strategic relationship(eg IT)
  3. Residual: not core in any way,can be outsourced(payroll)

also threshold: activities an org must posses to  be a realistic competitor in the market



Quinn and Hilmer:test to identify core competences

  1. Does it allow entry on a number of markets?
  2. Substaintial contribution to customer s perceived benefits of a product?
  3. Difficult for a competitor to copy?



Advantages of outsourcing:

  1. Remove uncertainty about cost-long term contract,fixed price
  2. Long term contract -allow future planning ,focus on core competencies
  3. Savings-supplier economies of scale,reduced headcount,r&D,capital spending
  4. Access to pecialist knowledge and innovations in tech
  5. Increase effectiveness and quality of output (expertise)
  6. Flexibility (demand,switch suppl)


Disadvantages of outsourcing:

  1. Difficulties in negotiating and managing SLA
  2. Cost implications(supplier profit,transaction costs)
  3. Loss of control over quality,continuity of supply
  4. Area of threshold competence;difficult to reacquire,out of touch with new dvts
  5. Risk of confidential info leaked,share with othe r competitors
  6. Damage to empl morale,impact on corporate culture


Shared servicing:

  • Consolidation of transactional activities within a company


  1. Reduced headcount (economies of scale)
  2. Reduction of premices and other overhead
  3. Improvement in quality-knowledge shared
  4. Standard approaches -more consistent mgt of business data


Business process re-enginiring (BPR)

  • Fundamental rethinking 
  • Radical redesign  of business processes
  • to achieve dramatic improvements
  • in critical contemp measures of performance(cost ,quality,service,speed)

The application of BPR :what work and how s best done-processes developed from scratch and deconstructed.


Four themes of BPR and limitations:




Hammer and Champy:

  1. Process orientation(focus on resources,tasks,limits)
  2. Creative use of IT
  3. Ambition
  4. Challenge and break rules


Initiative requires 

  1. sustainable mgt commitment
  2. Realistic scope and expectations
  3. Willingness to change

Much harder task of org process redesign -better use of people (neither redudancies or IT investment)


Finance function as business partner:

  • Adoption of a more commercial action -oriented approach

Areas where finance funct role has deeloped:

  1. Info on business units   projects, products,customers
  2. Business cases for new investments
  3. Helping opetational mgrs to understand info provided
  4. Collaborating in business planningg and budgeting
  5. Designing IS to support oper mgrs.


Problems with business partner mode and Independent bus partner

  • Questioned identification with operational viewpoibts
  • Loss of independence  as they report to oper mgrs as well
  • Too greatly diverted from delivering basic controls and safeguards  fail to protect shareholder and public interest


Co-operation with oper mgrs but also

  • strict controls
  • safeguarding of assets
  • effective reporting

Add value not create,assess and validate ideas related to strategy  -commercial view

Review actual performance -challenge it to minimise understatements