The Finance Function And Financial Information Flashcards
Four main parts of the finance function
- Recording financial transactions
- Financial reporting (external)
- Management accounting (internal)
- Treasury management (internal)
Documents for recording financial transactions
Books of prime entry
Ledgers
Reconciliations
Elements of financial reporting
Financial statements
Tax
Regulatory information
Elements of management accounts
Costing
Budgeting
Pricing decisions
Investment appraisal
Performance management
Elements of treasury management
Cash, working capital and forex management
Managing financial risks
Raising short, medium and long term finance
Key issue in managing finance function
Assess benefit derived from information produced compared to the cost of deriving it
Business partnering
Members of finance function partnering with other functional areas of the business to add value
Providing advice + support to drive performance rather than just performing routine reporting activities
Purposes of information
- Planning
- Controlling
- Recoding transactions l
- Performance measurement
- Decision making
Issues relating to effective processing of data into information
{CATIVA}
Completeness
Accuracy
Timeliness
Inalterability
Verifiability
Assessability
Verifiability
Clear ‘audit trail’ from data source to information
Assessability
Information produced can be challenged
Transaction processing systems (TPS)
Systems that perform and record routine transactions
Management information systems (MIS)
Systems to provide managers with information to make effective decisions
Data security issues
{A AI CAN}
Authorisation
Availability
Integrity
Confidentiality
Authenticity
Non-repudiation
Data Security: Availability
Information can be readily accessed at all times
Data security: Non-repudiation
Users trust the information produced and the system producing it
2 IT control types
- Physical access controls
- Security and integrity controls
5 Types of security and integrity controls
- Input controls
- Output controls
- Back-up and archiving
- Personell controls
- Segregation of duties controls
4 types of input controls
- Control totals
- Range checks
- Authorisation of source data
- Password controls over input of data
Control total example
Batch of invoices (versus batch total)
Range Check example
No. Hours on time sheet less that 168 hours
2 types of output control
- Control totals
- Follow up error/exception reports
Example of error/exception report follow up
Large overtime payments
Personell controls examples
Careful recruitment
Selection and training of staff
Types of performance measures
Qualitative
Quantitative
2 Types of quantitative performance measure
- Financial (based on sales, profit etc.)
- Non-financial (based on production, activity level etc.)
Common performance measures
- Profitability
- Activity
- Productivity (efficient resource use)
Key profitability measures
- Gross/Net margins
- ROCE
- Investment returns
2 Types of activity measures
- Physical units (No. customers, time taken etc.)
- Monetary values
Productivity measures: The 3 Es
- Economy (control over input costs)
- Effectiveness (output measure against objectives)
- Efficiency (achieving objectives at minimum cost i.e. effectiveness + economy)
E.g. output per employee, no. customers served in an hour
Critical success factors (CSFs)
Product features particularly valued by a group of customers
So company must excel at to outperform competition
Business should measure performance against CSFs
KPIs
Measures to performance level in an area
Target level must be achieved for business to gain competitor advantage (by outperforming competition)
Benchmarking
Establishing targets and comparatives so relative performance can be measured
Performance management process
- Identify CSFs
- Set and measure KPIs
- Benchmark performance
The adoption of what should improve performance?
Best practices
Limitations of financial performance indicators
- Historical information not guaranteed to predict future outcomes
- Often don’t consider external factors
- Can encourage short term decision making
- Easier manipulation (e.g. using accounting policies)
- Doesn’t consider whole picture
Balanced scorecard perspectives
{FIIC the balanced scorecard}
- Financial
- Innovation and learning
- Internal business
- Customer
Sustainability
Ability to meet the needs of the present without compromising the ability to future generations to satisfy their own needs
3 main sustainability issues
- Social (e.g. low pay, lack of diversity)
- Environmental (e.g. pollution)
- Economic (e.g. economic stability, local economy impact, provision of jobs)
Climate change
Risks (legal, technological, market, reputation, physical)
Opportunities (resource efficiency, new energy sources, new products, new markets, resilience)
Disclosure (governance, strategy, risk management, metrics+targets)
Internal control definition
A process designed to provide reasonable assurance in achieving operations, reporting and compliance objectives
5 control processes
- Control environment
- Risk assessment procedures
- Control activities
- Information systems
- Monitoring of controls
Control environment
Culture
Management philosophy
Authority
Segregation of duties
Business ethics
Risk assessment processes
Identifying and responding to risks
E.g. growth, change in technology
Information systems
To produce information to assist with control
2 types of control activities
- Manual
(physical) (e.g. cash in a locked safe) - Programmed
(e.g. checks to ensure management accounts equal financial accounts)
