6: The finance function and financial information Flashcards
Describe the four specific and interrelated tasks involved in the finance function
- Recording financial transactions
- Management accounting
- Financial reporting
- Treasury management
What is business partnering?
Involves the finance function working alongside other business functions rather than being a seperate function on their own.
Instead of only reporting on organisational performance, the role of the finance function becomes one of providing advice and support to the other areas of the business
Describe the finance function tree (brackets indicate links to other ICAEW modules)
- Recording financial transactions (AC)
- Management accounting (MI)
- Treasury management (FM & MI)
- Financial reporting (AC & PTX)
Why do businesses need financial information?
For:
- planning
- controlling
- recording financial transactions
- performance measurement
Who are the primary users of financial information?
- Present and potential investors
- Lenders and other payables
Who are other users of financial information?
- Employees
- Customers
- Suppliers and other business partners
- Governments and its agencies, including prudential and market regulators
- The public and community representatives
What are the two fundamental characteristics and four enhancing qualitative characteristics that make up the IFRS Conceptual Framework? (6)
- Relevance
- Faithful representation
- Understandability
- Comparability
- Verifiability
- Timeliness
What factors is relevance affected by?
- The nature of certain items
- The materiality of items
What is meant by standardised and aggregated representation in financial statements?
Financial statements are usually highly standardised in that their overall format and presentation is similar although businesses are very diverse in nature
Financial statements are higly aggregated in that information on a great number of transactions and balances is combined into a few figures
What is meant by backward-looking information?
Financial statements cover a period that has already ended - they are inherently historical and backward looking
What information can be omitted from the financial statements and rather included in the strategic report / Director’s report?
- narrative description of major operations
- discussion of risks
- narrative analysis of business performance
- management policies and how the business is governed and controlled
What is information processing?
Data, once collected, is converted into information for communicating more widely within the business
What is the CATIVA criteria?
- Completeness
- Accuracy
- Timeliness
- Inalterability
- Verifiability
- Assessability
What is a system?
A set of interacting components that operate together to accomplish a purpose
What is a business system?
A collection of people, machines and methods organised to accomplish a set of specific functions
What is information systems, technology and management? (IS, IT and IM)
IS:
- all systems involved in collecting and distributing information
IT:
- the actual equipment used
IM:
- the approach the business takes towards management of information
What is a transaction processing system (TPS) ?
A system which performs, records and processes routine transactions
What is a management information system?
Converts data from mainly internal sources into information.
This information enables managers to make timely and effective decisions for planning, directing, and controlling activities
What is security with regard to information management?
The protection of data from accidental or deliberate threats which might cause unmodified disclosure or destruction of data
What are some risks to data?
- human error
- entering incorrect transactions
- failing to correct terms
- processing the wrong files
- technical error in hardware or software
- deliberate fraud
- malicious damage
- industrial action
- cyber risks and attacks
What are the qualities of a secure information system? (ACIANA) (6)
- Avaliability
- Confidentiality
- Integrity
- Authenticity
- Non-repudiation (not open to being rejected)
- Authorisation
Name some examples of physical access controls to secure data
- Personnel such as security guards
- Door locks
- Keypad systems
- Intruder alarms
- Personal identification numbers (PIN) for staff
List some data integrity controls a system may have
- checking digits
- control totals
- hash totals
- range checks
- limit checks
Types of performance measure (3)
- Qualitative (subjective and judgemental)
Quantitative (based on data)
- financial
- non-financial
Measuring profitability
Profit = revenue - costs
Measured initially in £s in absolute terms but then more meaningfully in relative terms
e.g. net margin of 18% on revenue of £100,000
Measuring resource use: effectiveness, economy, and efficiency
- materials, labour, finance
- physical assets
- intangible assets
- knowledge avaliable to the business
- the way the business is structured
What is a key performance indicator? (KPI)
A measure of the level of performance in an area where a target level must be achieved in order for the business to outperform rivals and achieve competitive advantage
What is benchmarking?
The establishment, through data gathering, of targets and comparators, through whose use relative of performance can be identified
By the adoption of identified best practices, it is hoped that performance will improve
What is meant by a balanced scorecard?
An integrated set of performance measures linked to the achievement of strategic objectives
What are internal controls?
A process, effected by an entity’s board of directors, management or other personnel, desgined to provide reasonable assurance regarding the achievement of objectives relating to operations, reporting and compliance
What is important about the control environment?
The control environment sets the tone of a business and the control consciousness of its people.
It provides discipline and structure
Contains:
- the integrity and ethical values of the business
- ability for directors to carry out governance
- rigour of business performance measures drive accountability for performance
What are control activities?
The actions established through policies and procedures that help management’s directives to mitigate risks to the achievement of objectives are carried out
