Balance Sheet and Public Sector Reform Essay

Financial control 1.1 Assess the relationship(s) between a financial system or function and other systems or functions in an organisation Answer: Information and records are of critical importance to the functioning and controlling of systems in general, including organisational systems. Given the central importance of information and records to systems operation, including public sector organisations and the societies they exist to govern, we should not be surprised to learn that public sector reform efforts that overlook the information component often fail to meet their immediate objectives and the longer-term goal of establishing a framework for good governance. Efforts to improve the management of public sector records in many countries have been hampered by a gap between the National Archives and the government’s record-creating departments. The result has been that most of the records in the custody of the Archives are over forty years old, while the records in government departments remain unmanaged. Some National Archives have inspecting powers, but there are few professionals trained to manage current records. Moreover, there are rarely systems in place to ensure that semi-current and non-current records are transferred to secure accommodation or appropriately destroyed. The introduction of computerized systems, often a key part of public sector reform projects, is compounding existing record-keeping problems. These computerized systems are using information that may be seriously flawed and based on collapsed paper-based systems. It is because effective management of records is so crucial to achieving public sector reform objectives, which lead to good governance, that restructuring must encompass the management of records. Restructuring of records and archives management processes must be seen as an integral part of the restructuring of core government processes to ensure the success of public sector reform efforts. 1.2 Describe the systems of accounts and financial statements used to control a financial system Answer: Financial statements are the primary means of communicating financial information to parties outside the business organization. The four basic financial statements: Balance Sheet Income Statement Statement of Cash Flows Statement of Retained Earnings ACCOUNTING SYSTEMS In small enterprises there can be different kinds of accounting systems such as external, internal and tax accounting. Annex 3 summarises data per Member State concerning accounting system requirements for small enterprises. On the basis of this data, the following descriptions of accounting systems are given: Internal accounting Internal accounting, also called management accounting is based on the enterprise’s internal accounting procedures and recorded accounting information. Internal accounting is intended for managers within organizations, to provide them with the economic basis to make informed business decisions that would allow them to be better equipped in their management and control functions. For example, managers may want to be able to assess the contribution or the profitability of different products or services that they supply by comparing the revenues and costs that they generate. Unlike external accounting information, internal accounting is usually confidential and it is accessible only to the management. In most cases, small enterprises do not use internal accounting at all due to their size. Internal accounting is normally not governed by national legislation. However, in some Member States internal accounting is compulsory even for small enterprises. External accounting External accounting, also called financial accounting is concerned with the preparation of financial statements for decision makers, such as the owners, suppliers, banks, governments and its agencies, customers and other stakeholders outside the enterprise. External accounting makes use of the accounting information from the internal accounting system. In the preparation of the external accounting, the small enterprise may be governed by local 1.3 Analyse financial information contained in a set of accounts or financial statements Answer: The two main sources of data for financial analysis are a company’s balance sheet and income statement. The balance sheet outlines the financial and physical resources that a company has available for business activities in the future. It is important to note, however, that the balance sheet only lists these resources, and makes no judgment about how well they will be used by management. For this reason, the balance sheet is more useful in analysing a company’s current financial position than its expected performance. The main elements of the balance sheet are assets and liabilities. Assets generally include both current assets (cash or equivalents that will be converted to cash within one year, such as accounts receivable, inventory, and prepaid expenses) and noncurrent assets (assets that are held for more than one year and are used in running the business, including fixed assets like property, plant, and equipment; long-term investments; and intangible assets like patents, copyrights, and goodwill). Both the total amount of assets and the makeup of asset accounts are of interest to financial analysts. The balance sheet also includes two categories of liabilities, current liabilities (debts that will come due within one year, such as accounts payable, short-term loans, and taxes) and long-term debts (debts that are due more than one year from the date of the statement).Liabilities are important to financial analysts because businesses have same obligation to pay their bills regularly as individuals, while business income tends to be less certain. Long-term liabilities are less important to analysts, since they lack the urgency of short-term debts, though their presence does indicate that a company is strong enough to be allowed to borrow money. The balance sheet also commonly includes stock-holders’ equity accounts, which detail the permanent capital of the business. The total equity usually consists of two parts: the money that has been invested by shareholders, and the money that has been retained from profits and reinvested in the business. In general the more equity that is held by a business, the better the ability of the business to borrow additional funds. In contrast to the balance sheet, the income statement provides information about a company’s performance over a certain period of time. Although it does not reveal much about the company’s current financial condition, it does provide indications of its future viability. The main elements of the income statement are revenues earned; expenses incurred, and net profit or loss. Revenues consist mainly of sales, though financial analysts may also note the inclusion of royalties, interest, and extraordinary items. Likewise, operating expenses usually consist primarily of the cost of goods sold, but can also include some unusual items. Net income is the â€Å"bottom line† of the income statement. This figure is the main indicator of a company’s accomplishments over the statement period. Read more: http://www.answers.com/topic/financial-analysis#ixzz1uKymsDuW 2.1 As a manager you need to fully understand your role in the budgetary process. It is the most basic financial planning and control tool. Every manager needs to know what costs are associated with their department, and how in relation are they doing to that budget. You might achieve your departmental goals, but if you go over budget in order to achieve those goals, you create financial problems for the company and jeopardize your own job performance review. In most cases, part of your performance appraisal will be based on whether or not you were within budget for the year. Budgets need to be realistic. You can’t just say at a whim you need 20 new people, just as upper management can’t say you have only $10 for a years’ worth of training classes. Budgets are used to investigate variances, whether you went over or under budget, and address the reasons for the variances. You need to always look at ways to control those variances by controlling costs. By being on top of your budget, you might be able to make changes before it’s too late and you end up having to reduce staff or eliminate a branch of your department. There are basically two types of budgets, a capital expenditure budget and operating budget: 1. Capital expenditure (also known as â€Å"Capex†) relates to costs associated with plant and equipment. This is equipment that generally lasts for more than a year such as a copy machine. 2. Operating budget, which is related to the normal day-to-day operations and expenditures such as payroll, supplies, and miscellaneous. There are two types of budgets within an operating budget, sales budgets and expense budgets:  · Sales budget is associated with comparison and variance of the actual revenue brought with the projected revenue.  · Expense budget applies to all areas incurring operating expenses, including the sales department. This is the budget we will focus on. CASH BUDGET FOR 90 DAYS Beginning cash balance $ 320,000 Add: Estimated collections on accounts receivable750,000 Estimated cash sales 250,000 $1,320,000 Deduct: Estimated payments on accounts payable $ 800,000 Estimated cash expenses 150,000 Contractual payments on long-term debt 150,000 Quarterly dividend 50,000 $1,150,000 Estimated ending cash balance $ 170,000 2.2 Budgetary Control is defined as â€Å"the establishment of budgets, relating the responsibilities of executives to the requirements of a policy, and the continuous comparison of actual with budgeted results either to secure by individual action the objective of that policy or to provide a base for its revision. 2. Salient features: a. Objectives: Determining the objectives to be achieved, over the budget period, and the policy (ies) that might be adopted for the achievement of these ends. b. Activities: Determining the variety of activities that should be undertaken for achievement of the objectives. c. Plans: Drawing up a plan or a scheme of operation in respect of each class of activity, in physical as well as monetary terms for the full budget period and its parts. d. Performance Evaluation: Laying out a system of comparison of actual performance by each person section or department with the relevant budget and determination of causes for the discrepancies, if any. e. Control Action: Ensuring that when the plans are not achieved, corrective actions are taken; And when corrective actions are not possible, ensuring that the plans are revised and objective achieved. Budgetary Control is an integral part of management. It consists in comparisons between the results of actual performance and budgeted performance. Central to this kind of comparison is Standard Costing and Variance Analysis. The purpose of this article is to clarify simply to the leaner, reader, and others peoples who related with accounts, budgets, costing department. 01. Variance Analysis: In a well-run organization the comparison between actual and budget is used as the basis for deciding the appropriate action. This document sets out how the analysis is used to highest effect. The procedure is actually part of the normal control process. Any variation from expected performance, in terms of budgets, where income or expenditure did not occur as expected. Variance analysis is the act of determining the drivers for those variations. Variances are noted and accounted for. A decision can be made to reduce expenses or reallocate resources. This technique greatly reduces the need for comprehensive review cycles. 2.3 Budget and Budgetary control, both at management and operational level looks at the future and lays down what has to be achieved. Control verifies whether or not the plans are understood, and puts into effect corrective measures where deviation or underperformance is occurring. This article â€Å"Techniques of Budgetary Control† examines how budget and budgetary control can impact on the performance of the organizations Techniques: Budgetary Control is an integral part of management. It consists in comparisons between the results of actual performance and budgeted performance. Central to this kind of comparison is Standard Costing and Variance Analysis. The purpose of this article is to clarify simply to the leaner, reader, and others peoples who related with accounts, budgets, costing department. What variance analysis is all about, avoiding pure technicalities and the terminology of accountants? Notice is confined to costs and cost variances in this article. A similar dealing of revenue and revenue variances would also be compulsory to acquire a proper perspective. Following explained The Budgetary Control Techniques 01. Variance Analysis: In a well-run organization the comparison between actual and budget is used as the basis for deciding the appropriate action. This document sets out how the analysis is used to highest effect. The procedure is actually part of the normal control process. Any variation from expected performance, in terms of budgets, where income or expenditure did not occur as expected. Variance analysis is the act of determining the drivers for those variations. Variances are noted and accounted for. A decision can be made to reduce expenses or reallocate resources. This technique greatly reduces the need for comprehensive review cycles.