Reviewing and evaluating financial management processes - Essay Example

? Finance Reviewing and evaluating financial management processes Part A: Theory Review and Application Answer The constituents of effective financial management process are financial reporting, accounting records and source documents, internal control, budgetary control, allowable costs, cash management and compliance. For example: The financial reporting serve as a tool which is used by the managers in controlling the organisations and monitoring the extent of achieving the management’s objectives. For the financial management process to be effective the managers of the organisation indulges in a variety of accounting and other records of the organisation. This in turn helps to furnish the financial condition of the organisation and projects the result of the operations of the organisation. These includes maintain of the documents and the records along with its retention and maintaining the accounting records in tandem with the administration of the financial assistance programs. The manager is responsible for establishing and maintaining an effective system of internal control for the organisation. The internal control of the organisation is maintained by the application of the control mechanism in the field of control environment of the organisation, accounting records and adopting controlling procedures for the company. The manager takes effective measures in controlling the budgets of the organisation so that the cost does not exceed the estimated budget. The allowable cost helps in determining the allowability, reasonableness and allocability of costs for the managers. Cash management and compliance of the organisation are supervised under the surveillance of the manager of the organisation for better performance.1 Answer 2 The four main financial records are the trading account, the profit and loss account or the income statement, the balance sheet and the cash flow statement of a company. The financial records act as an assisting tool in the effective financial management of the company. These financial records provide accountability, reliability and can even be used as legal evidence while taking decisions regarding the concerned organisation. The financial records are tool which can constrain the individuals from engaging into corrupt practices. Conversely, the financial records can protect an innocent of false accusations. Implementation of the records management control is a must for the effective financial management process of the organisation.2 Answer 3 The purpose of preparing financial performance report for the organisation is to bring forth the core information which would otherwise be obscured, highlighting of significant items and relation between them, enhancing comparability and improving the understandability of the financials of the organisation. Even the stability and the riskiness of the organisation can well be determined from the financial performance report of the organisation.3 Answer 4 A person can verify the accuracy of the financial management report by4: Reviewing the financial documents in a comprehensible manner Monitor the preparation of budget of the organisation Calculate realistic funding needs and identify the appropriate sources Matching available resources to planned activities Establishing a centralized database of information Ensure that all data are consistently reported amongst subsidiaries Making executives accountable for the financial reports by personally verifying their accuracy. For example: The audited financial report of a company projected in the company’s annual report portrays the present financial condition of the company. This annual report is issued for all the stakeholders of the company who takes the decision of investment after going through the financial report of the company audited by some external auditor. Answer 5 The timing of the financial report is as important to the organisation as that of the financial information. Timing has great influence in the financial reporting of an entity which constraint the official information of the organisation to leak out thereby damaging the efficacy of the emerging markets. Timing with respect to the disclosure of the financial reports to the public is an administrative decision taken by the organisation. Timing is an important element for the financial reporting as the disclosure of the report is done based on the reaction of the market to the information already released. The other point of view identifies that the ratios using debt increases the reporting time which occurs due to two reason, i.e., if the indebtment ratio which is the indicator of the financial status of the company, is high, the probability for the failure of the company will tend to rise. Secondly, if the lenders of the company are comparatively high auditing of the debts of the company will consume more time than equity thus delaying the issue of the financial report of the company.5 Answer 6 In order to improve the financial management of the organisation a sound financial management needs to be created, improve the understanding of budget orientation, improve the transparency in the organisation, improve financial as well as administrative management. This improvement was brought about by keeping a close watch at the personnel of the organisation and making them accountable for the assigned job.6 Part B: Case Study Answer 1 Contingency plan than should be adopted by Mike so as to reduce the cost overruns are as follows7: Proper identification of money, material and labor Implementing electronic accounting software to overcome the discrepancy in computation Training provided to other employees of the organisation in the field of analysis so that they can replace their immediate superior when required. This will reduce the hike in the salary that the company is forced to pay. Keep a separate sum of money at present value interest factor of annuity calculation; so, that the increase in the lease over the years does not hamper the usual operations of the company. Implementation of teleconferencing to reduce travelling cost Make budgetary estimation in tandem with the purchase department to reduce unnecessary purchase of products. Capital should be considered under contingency cost for the purchase of machinery, otherwise changing technology may pose problem with the increasing competition. Answer 2 (a) List Process of Documentation Salary and Wages The governing board or such other body authorized by law should establish and approve all the salaries and the wage hour rate on the basis of collective bargaining. On recording the salaries and the wages paid the counter entry should be made for the same to avoid any discrepancy.8 Travel Claim using an employee’s own vehicle When the travel claims are made a certain sum of money should be assigned to the employee. For any amount exceeding the same documentary proof has to be presented which needs to be verified by the company before payment of the excess amount. Ordering Equipment The requirement of new equipment has to be sanctioned from the head of the company before placing the order. Thus the head of the company should verify the urgency of ordering equipment and likewise the entry should be made in the books of accounts of the company. Storage of Source documentation including time frames for storing the records The storage of source documentation including the time frames for storing the records can be maintained by recording the transaction at the time of occurrence. Later revising the documents for the present of the absolute record is necessary. Answer 2 (b) These procedures laid above will help in the improvement of the financial management process because contingency planning is always needs to be improvised to take care of any unwanted happenings in the future. Moreover, proper recording of the transaction with the counter entry of the same will help detect the discrepancy in the financials of the organisation. However, the company should also invest in new machineries only if the requirement arises, or else the money being blocked will be harmful for the progress of the company. Thus the necessary measures have been suggested to overcome the cost overruns of the company.9 Answer 3 Procedures and initiative that could enable Mike to improve financial management of the organization is to encourage and promote the exchange of information related to good financial policies, practices and techniques throughout the organization. Improvement of the financial management hence contributes significantly to efficient and effective planning of the operations of the organization.10 Bibliography “Basic Elements of Financial Management System”. Wisconsin Department of Health Services. Last modified May 1994. http://www.dhs.wisconsin.gov/grants/Administration/FMM/BasicElements.pdf. “Joint Financial Management Improvement Program”. DoD Financial Management Program. Accessed August 7, 2012. http://comptroller.defense.gov/fmr/01/01arch/01_05_May93.pdf. “Understanding and Monitoring the Cost-Determining Factors of Infrastructure Projects”. Accessed August 7, 2012. http://ec.europa.eu/regional_policy/sources/docgener/evaluation/pdf/5_full_en.pdf. Cain Piers & Brech Don. Managing Financial Records. United Kingdom: International Records Management Trust, 1999. http://www.irmt.org/documents/educ_training/public_sector_rec/IRMT_financial_recs.pdf. DiNapoli Thomas P. The Practice of Internal Controls. New York: Division of Local Government and School Accountability, 2010. http://www.osc.state.ny.us/localgov/pubs/lgmg/practiceinternalcontrols.pdf. Dogan Mustafa, Coskun Ender & Celik Orhan. “Is Timing of Financial Reporting Related to Firm Performance? - An Examination on Ise Listed Companies”. International Research Journal of Finance and Economics, no. 7 (2007):221-233. Accessed August 7, 2012. http://www.eurojournals.com/irjfe_12_15.pdf. Galipeau Roger. “Proposal to Improve the Financial and Budget Management of Municipal Jurisdiction”. Government Finance Officers Association. Last modified June 15, 2002. http://www.gfoa.org/downloads/CCIRogers-presentation.pdf. Madura Jeff. International Financial Management. United States: Cengage Learning, 2011. Rasmussen Nils H., Eichorn Christopher J., Barak Corey S. & Prince Toby. Process Improvement for Effective Budgeting and Financial Reporting. United States: John Wiley & Sons, 2003. Rutherford Brian A. An Introduction to Modern Financial Reporting Theory. United Kingdom: SAGE, 2001. Read More