8 - Operating Levels of Finance Function Flashcards
Financial reporting, mgmt accounting, treasury and internal audit are all linked to which level of the finance diamond structure? What does this mean their role is?
Level 4 = lowest level - smart finance factories.
Role is to generate info & provide prelim insights.
3 insights financial reporting provide
- financial statements
- analyse effect of changes in accounting standards
- Dashboard of financial ratios & impact on share price
3 benefits of financial reporting function
- Accurate draft financial statements = min adj for audit
2. Improved mgmt decisions as impact of decisions on financial statements can be predicted
4 insights mgmt accounting provide.
- Monthly mgmt accounts = analyse variance
- Real-time monitoring of perf
- Budgets and forecast
- Monitor KPIs
1 benefit of mgmt reporting function
Greater insight into perf = better decision making and hence potential for more profit
4 insights provided by treasury function
- Working K reports
- Advice on sources of funding
- Monitor & predict effect of currency & IR changes
- Predict demand for new shares at diff issue prices to determine optimum price.
Do treasury maintain assets?
NO - the relevant department do this themselves once treasury has advised on source of funding for asset.
1 benefit of treasury function
Improved investment decisions - only undertaken beneficial ones = improved LR profits.
4 insights provided by internal audit
- Effectiveness of internal controls
- Prevent and detect fraud
- Effect of changes in bis environ on org
- Analyse & quantify effect of key risks on org
2 benefits of internal audit.
- Improved identification & mgmt of bis risks
2. Less chance of disruptive events -VE impact org
For this chapter, the specialist finance areas relate to which level of diamond finance structure? What does this mean for their role?
Level 3 - digital COEs
Provide further insight to decision makers about value creation and preservation.
FP&A =
help org to set, monitor and evaluate their progress in achieving goals and objectives.
3 main roles of FP&A
- Analysing org perf
- Analyse trends in bis environ
- Predict future trends and perf
Which of the 4 finance activities do FP&A perform?
Contemporary - analysing for insight & advising to influence.
FP&A are able to leverage…
Tech advances e.g. cloud computing, big data, data analytics and data visualisations.
FP&A insight wrt assets
How best to use surplus assets e.g. by investing in projects, increased inventory & payment of dividends.
FP&A insight wrt financial health
overall financial health of org including analysing financial ratios and drivers behind them.
FP&A insight wrt major board decisions
budgeting, forecasting and data analysis
Do FP&A look at past or future perf?
BOTH - analyse past org perf and also budget and forecast for future
FP&A insight wrt products
- which products generate largest portion of net profit?
- which products generate highest and lowest profit margins?
FP&A insight wrt cost
How cost effective each bis area is and what % of financial resources each consumes vs what they generate
FP&A insight wrt budget
Develop master budget for org based on each function’s budget prepared by each area of bis.
Taxation teams role =
Specialist tax experts who provide info and support to bis functions on tax matters.
Aim of tax team
Min risk of non-compliance and create value by lawfully reducing tax liabilities (being tax efficient), controlling when tax is paid and max tax relief/available credit.
5 insights provided by tax team
- Impact of projects and fcast future perf on tax liability
- Monitor $ systems to ensure correct tax treatment
- Predict future tax due to change in regs/laws
- Predict gov changes in future tax
- Identify tax loopholes & legal ops
Project mgmt teams =
Ensure projects are delivered on time, at the right quality and within budget. Involve several stakeholders.
Time, cost, quality triangle refers to…
project mgmt needing to deliver projects on time, within budget and at the right quality.
What do project mgmt team provide to a project?
Communication, teamwork, objectives and resources.
Project mgmt insight wrt plannning
- create project plans: project scope & required resources
- project budget - then monitor and review
Project mgmt insight while project in progress
- communicate progress & predicted completion
2. suggest sequencing of project activities
Project mgmt insight wrt risks
Monitor and mitigate project risks and impacts on bis areas.
Project mgmt insight wrt reviewing
Post-implementation review: lessons learned for wider org.
Project mgmt: stage 1
Initiation = identify need for project and appraised for feasibility
Project mgmt: stage 2
planning = project plan created covering issues such as communication, resources needed, establish measures of success.
Project mgmt: stage 3
executing = project team performs their roles under leadership and coord of project manager.
Project mgmt: stage 4
controlling = progress, cost and perf monitored against project plan and corrective action taken.
Project mgmt: stage 5
Review and close = project signed off and project team disbanded. Project review meeting held.
The cost of a project refers to what type of resources?
Finance and non-financial such as staff time.
Project appraisal team =
analyse the financial and non-financial aspects of potential projects to give go ahead or not.
4 examples of work project appraisal team perform
- Investment appraisals e.g. NPV, payback, IRR
- Estimate and analyse costs & benefits
- Analyse potential non-$ impacts e.g. CSR, environ
- Decision of whether or not to proceed
Which level of diamond structure is business partnering?
Level 2 - strategic business partnering
Which level of diamond structure is strategic partnering for value?
also Level 2 - strategic business partnering
Strategic partnering for value =
Extends concept of bis partnering to most senior levels in org. Senior finance managers embedding themselves with senior bis directors
4 roles of strategic partnering for value
- influence decisions
- support implementation of decisions
- achieve desired impact
- communicate insights to users
Business partnering vs strategic partnering for value
Bis partnering = provide insights to individual functions
Strategic partnering = providing insights to senior leadership to make strategic decisions that affect whole org e.g. whether or not to leave a certain mkt
5 benefits of strategic partnering for value
- Ensure senior leadership has necessary info to make strategic decisions
- being voice of reason - bring risks to attention
- Forward-thinking by monitoring key bis indicators that give advanced warning of potential strategic issues such as econ downturns
- trusted source of info
- Increase agility of org to react to threats and ops by monitoring bis environ.
what’s at level 1 of finance diamond shape?
Strategic leadership (senior finance team)
The strategic leadership team of finance consists of…(2)
- CFO
2. Senior finance mgrs who directly report to them as part of senior finance team.
CFO AKA
finance director
The senior finance team must ensure that…
business partnering works well throughout org - they’re responsible for insights provided by overall finance function.
COEs have enabled significant improvements in…(2)
- Expertise &
- Skill
of the finance team
Senior leadership of the firm refers to…
board of directors
CEO
CFO
May also include highest level of mgmt who report into and support the board directly.
3 attributes of the finance function are…
- Knowledge
- Skill
- Experience
Knowledge =
technical expertise usually provided by achievement of professional qualifications such as CIMA. But it can also be learned as a consequence of performing a role.
Skill =
the ability to perform a role or apply knowledge.
Could have knowledge of what something is and what steps are required to perform a task, but not the skill to actually produce and finish it.
Experience =
Overall familiarity and mastery of a particular area. Culmination of knowledge and skills and how they relate to the real world.
What attribute between a newly qualified accountant and expert differs?
Experience - it is experience that turns the newly qualified accountant (who has skills and knowledge) into an expert who has the respect and trust required for decision makers to listen to their advice.
Attributes in lower levels of finance function & why these workers are important
Lower levels of all attributes
But important to provide the basis of data and info relied upon by more senior employees.
What should finance prioritise out of the 3 attributes?
None - need the right mix between the 3 at each level of the function.
