Lecture 1 Flashcards
Roles and Responsibilities. Financial Practises and Accounts
What is Enronomics?
Enronomics, is a fraudulent accounting technique that involves a parent company making artificial paper only transactions with its subsidiaries to hide losses the
parent company has incurred through business activities.
What is Enronitis?
Enronitis is the nervousness over a company because of
suspected accounting problems.
What is a shell company?
A non-trading company set-up for financial maneuvers.
What is mark-to-market accounting?
Stating forecast/ predicted profits rather than realised profits
What are the main workings of a financial function?
To purchase/invest in assets which should generate cash.
To payback investors who will raise cash and reinvest in the financial function
What are two key financial processes?
Financial Accounting
Financial Planning
What are some of the roles and responsibilities of financial accounting?
Maintain accurate records Sales invoicing Processing of credit and debit notes Management of sales terms Management of price changes Credit control Management of purchase orders Payment of purchase invoices Stock reconciliation Management of petty cash and expenses Provision of statutory accounts
What is included in a principle (annual) statement of accounts?
Directors report Auditors report Profit and loss account Balance sheet Notes of account Cash flow statement (not required by company law)
What is prudence convention?
This promotes caution when assessing value. At all times lower value should be used.
What is objectivity convention?
The need for subjectivity to be eliminated and make sure there is evidence in numbers
What is money measurement convention?
Only include what can be measured in monetary terms. (E.g not happiness of customers etc.)
What is historic cost convention?
Consistency in recording depreciation of assets
What is consistency convention?
Consistency in interpretations for valuation purposes
What is materiality convention?
A certain amount of judgement is allowed when differentiating between assets and materials
Directors demonstrating accountability means?
Directors must demonstrate that measures have been put in place to ensure they make decisions for the greater good
What is contained in the directors report?
A short narrative reviewing key events of the year
What is contained in the auditors report?
Normally just a few lines confirming external auditors have examined reports and found them to be in order
How would you calculate the value of a company?
Subtracting all the debts from the income and the assets.
What does the balance sheet represent?
The value of a business by analysing its assets and liabilities
How would you calculate the profit of a company?
Subtracting the business income (revenue) from its expenses
What does the profit and loss statement represent?
The revenue and expenses of a business over time
Define and explain financial statements?
Accurate evaluation of profit and value.
Profit = business expenses - business income (revenue). Profit and loss statements represent revenues and expenses over a period of time.
Value = (Income+Assets) - debts. Balance sheet represents value by analysing debts and liabilities.
3 Main Responsibilities of the Financial Function ?
Ensuring overall business objectives of the company are met.
Legal and corporate requirements are met.
Maintain standards through effective management of:
- Profit
- Corporate Assets
- Captial Projects
- Strategic Development plans.
3 Key roles in the financial function of a company ?
Briefly describe each role.
Chief Financial Officer (CFO)
- Financial Planning
- Corporate Planning
Treasurer
- cash management
- raising capital
- banking relations
Controller
- financial statements
- accounting
- tax
