Internal Controls and Financial Analysis

Internal Controls and Financial Analysis

1. Internal Controls

   • Seperating Responsibilities
     • Two people's work must agree
     • Allows for one person to check the other's work
   • Custody be Kept Seperate from Accoutning
     • Person who has custody of an asset shouldn't be accounting for it
   • Assets be kept Safely
     • Should be locked up to avoid theft
   • Respobsibilities be Assigned
     • Helps solidify who is responsible in the event of theft
   • Rotating Staff and Mandatory Vacations
     • Helps detect errors
       • Helps to identify fraud
         • Protecting Assets
   • Goals of Internal Controls
     • Safeguard Assets from Theft
     • Promote Efficient use of Resources
     • Prevent and detect errors/fraud
     • Ensure accurate and reliable accounting information

2. Cash Controls

   • Separate Duties
     • Handling cash and recording transactions be done by different people
       • More accurate; less theft
   • Cheques Received in Mail
     • Employee who opens mail should make a list of cheques received each day
   • Deposit Cash Daily
     • Cash deposits should be made daily
       • Minimizes amount of cash in the office
       • No bills or loans be paid with this money
         • Cash receipts will match the bank deposit
   • Make all Payments by Cheque
     • Small payments can be made with petty cash fund
   • Prepare Deposit Slips in Duplicate
     • One copy is for the bank
       • Ensures accurate and reliable information
     • One copy is for the accounting clerk
   • Use Cash Register
     • Provides source document tape
     • Records all transactions
   • Reconcile Bank Accounts Monthly

3. Decision Making

   • Inside the Business
     • Owner
       • Most interested in financial statements
       • Intersted in profit
     • Management
       • Runs the company for the owners and share-holders
       • Use accounting information to make investing and operating decisions
       • Evaluate the company and the employees
     • Employees and Trade Union
       • intersted in company stability
       • Pension funds
       • Employment data
   • Outside the Business
     • Investors
       • Profit margins
       • Sales and volume growth
       • Share prices
       • Capital investments
     • Lenders
       • Cash flow
       • Security of assets
       • A/R A/P ratios
     • Creditors
       • Cash flow
       • A/P A/R ratios
       • Payment history
       • Credit ratings
     • Customers
       • Sales grrowth
       • New products
     • Government
       • Taxation, regulation, contracts and economic management
     • Competitors
       • New products
       • Quality of products
       • Pricing of product
     • Lobby Groups
       • Activities and performance

4. Financial Analysis

   • Trend Analysis
   • Comparative Financial Statements
   • Common Size Analysis
   • Ratios Anallysis

5. Budgeting and Auditing

   • Budgeting
   • Auditing
   • GAAPs