Professional Documents
Culture Documents
A. The business organization, its stake holders and the external environment B. Business organization structure, functions and governance C. Accounting and reporting systems, controls and compliance
1. The role of accounting 2. Control, Security and Audit 3. Identifying and preventing fraud
Finance
Sources of finance are available from:
the capital markets (long-term) money markets (short-term) international money and capital markets retained earnings bank loans and overdraft facilities working capital venture capital government grants and tax relief
Accounting
The process of identifying, measuring and communicating economic information to permit informed judgments and decisions by the users of the information (American Accounting Association) Aim to:
assist management in planning, controlling and decision making assist the business functions to achieve objectives assess functional and overall performance assess the performance of directors and managers enable compliance with various statutory requirements,
Basic function
Accounting involves:
capturing and recording numerical transactions (data) analyzing the transactions into a required format presenting the format to a user for appropriate information and action (information)
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Users
Decision Maker
Share holders
Examples of decisions
Buy shares Hold shares Sell Shares Lend money Determine Interest rates Set Product Prices Buy or lease equipments Minimize tax payments
Forms of accounting
Three basic forms of accounting:
management accounting cost accounting financial accounting
Creditors
Plus bookkeeping
Managers
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Financial accounting
Transactions
Finance Director
Daybooks
Financial Accounting Team Management Accounting Team Treasury Team Tax Team
Financial accounting is mainly a method of reporting the results and financial position of a business
Financial Controller
Routine Accounting Providing accounts reports for other departments Cashiers duties and cash control
Treasurer
Raising funds by borrowing (financing) Investing surplus funds on the money market or other investments markets Cash flow control Cash management Financing Foreign currency Tax
Management accounting
Management Accountant
Cost accounting Budget and budgetary control Financial management of projects
Management (or cost) accounting is a management information system which analyses data to provide information as a basis for managerial action. The concern of a management accountant is to present accounting information in the form most helpful to management.
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Management Accounting
Cost accounting Budget and budgetary control CVP, Critical path, Project management Cost scheduling
Treasury Department
Financing (getting finance and managing) Cash flow control Foreign currency management Tax
Is concerned with information for the internal use of management. Emphasizes the future. Emphasizes relevance and flexibility of data. Emphasizes the segments of an organization rather than the organization as a whole. Is not governed by GAAP.
Is concerned with reports made to those outside the organization. Summarizes the financial consequences of past activities. Emphasizes precision and verifiability.
Summarizes data for the entire organization Must follow GAAP since the reports are made to outsiders and are audited. Is required for publicly-held companies and by lenders
Financial Management
Financial management is a separate discipline from both management accounting and financial accounting, although in a small organisation the three roles may be carried out by the same person. The process of managing the financial resources of an organisation, including accounting and financial reporting, budgeting, raising finance, dividend policy and risk management.
Taxation
Tax mitigation Tax avoidance Tax evasion
Auditing
The financial reports must be audited annually by an independent auditor True and fair view of the financial statements of the company
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Unqualified reports
State whether the financial statements are properly drawn up in accordance with the
provisions of the Act so as to give a true and fair view of the companies state of affairs and results of operations Applicable approved accounting standards state whether the accounting and other records and registers required by the Act have been properly kept by the company
Qualified report
Sometimes auditors may disagree with the management on reporting issues In such cases, auditors prepare qualified report stating the matters which they disagree with the management
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Company law
UK Companies Act 2006 or CA 2006 Must to prepare and publish accounts annually
UK Accounting standards
Accounting Standards Committee: (1970 and 1990), SSAPs Accounting Standards Board(ASB): issues standards 'concerned with principles rather than fine details'. Its standards are called Financial Reporting Standards (FRSs). Urgent Issues Task Force (UITF): tackle urgent matters not covered by existing standards
Financial Reporting Review Panel (FRRP): concerned with the examination and questioning of departures from accounting standards by large companies. As per CA 2006, companies must publish notes to accounts stating that accounts are prepared in accordance with the standards
The EU
Since the United Kingdom became a member of the European Union (EU) it has been obliged to comply with legal requirements decided on by the EU. It does this by enacting UK laws to implement EU directives.
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Accounting Standards
International Accounting Standards Committee Foundation (IASCF): Appoint, oversee and raise funds for standard setting procedure International Accounting Standards Board (IASB): Sets the technical agenda, approves standards, exposure drafts and interpretations Standards Advisory Council (SAC): Advises IASB on their agenda and impact of proposed standards to the practical users International Financial Reporting Interpretations Committee (IFRIC): Assists IASB to improve standards, issues interpretations where conflicts in standards occur
Use of IAS
As national requirements, often after a national process As the basis for all or some national requirements As an international benchmark for those countries which develop their own requirements By regulatory authorities for domestic and foreign companies By companies themselves
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Accounting reports, called financial statements, provide summarized information to the owner.
Financial Statements
Statement of comprehensive incomeA summary of the revenue and expenses for a specific period of time. Statement of changes in owners equityA summary of the changes in the owners equity that have occurred during a specific period of time. Statement of financial positionA list of the assets, liabilities, and owners equity as of a specific date. Statement of cash flowsA summary of the cash receipts and disbursements for a specific period of time.
Income statement
Record of income and expenditure over a given period of time Measures the financial performance of the business (Profit/Loss) Managers may require quarterly or monthly reports Helps to determine the past financial performance, predict future performance, and assess the capability of generating future cash flows through reporting of the income and expenses Profitability of the company
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Internal reports
Mostly prepared for managers to help them run the business effectively and make the decisions on daily basis Common reports are:
Cost schedules Budgets Variances
Cost schedules
Future cost Helpful for pricing products Important for cost control purposes Cost schedules can be prepared for wages and salaries, departmental costs, cost of sales, selling expenses and administrative costs
Budgets
Important part of control process Budgets could be prepared for functional areas, departments and business as a whole Purchasing, cash, sales and mater budgets could be prepared
i. ii. iii. iv. v.
vi.
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Variance reports
One reason for preparing budgets is to identify variances The actual and cost schedules could be compared with the budgets Variances could be adverse or favorable Labor variances, material variances
Policies
Authorization policies Formal vs. informal communication depending on size of the organization Policy manual Effective systems and procedures should ensure that:
Relationships with customers are effectively managed Relationships with suppliers are effectively managed Office functions interrelate properly and are not duplicated
Sales
Retail org Shop floor Manufacturing organisation there will normally be a sales and marketing function whose responsibility is to market the organization's products and take orders from customers. Checking credit limits, making sure goods are delivered, dispatch, aiding with invoicing etc..
Purchases
Initiated by either purchasing or store department Checking and updating inventory, making purchase requisition, finding best suppliers, and assist with accounts department
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