Controls Finance


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Controls Finance

  1. 1. Controlling <ul><li>Controlling means ensuring that the organisation is actually achieving the planned objectives. </li></ul><ul><li>Is the process of comparing actual performance with standards and taking any necessary corrective action. </li></ul><ul><li>Is the process of monitoring activities to ensure that they are being accomplished as planned and of correcting any significant deviation. </li></ul>
  2. 2. Purposes of Control: <ul><li>Control helps in </li></ul><ul><ul><li>Adapting to environmental changes </li></ul></ul><ul><ul><li>Limits the accumulation of error </li></ul></ul><ul><ul><li>Cope with the organizational complexity </li></ul></ul><ul><ul><li>Minimising costs </li></ul></ul>
  3. 3. Controlling process <ul><li>The process of CONTROL: </li></ul><ul><li>Steps in the Control Process: </li></ul><ul><li>Establishing standards </li></ul><ul><li>Measuring actual performance </li></ul><ul><li>Comparing performance with standards </li></ul><ul><li>Corrective action </li></ul>
  4. 4. <ul><li>Organisations practice Control in a number of different areas of activities, at different levels of management and the responsibility for management in wide spread. </li></ul><ul><li>- Areas of Control: Physical, Human, information and financial resources. </li></ul><ul><li>- Levels of Control: Strategic, Tactical and Operational controls. </li></ul><ul><li>- Stages of types of Control (based on timing): Feed-forward, Feed-back, and concurrent. </li></ul>
  5. 5. Three stages of Control Inputs Transformation process Output Feed forward control Anticipates problems Concurrent control Corrects problems as they happen Feedback control Corrects problems after they occur
  6. 6. Three stages of control <ul><li>Stages of control or types of control based on timing of control: </li></ul><ul><li>Feed forward control: focuses on preventing anticipated problems since it takes place in advance of actual work activity. </li></ul><ul><li>Concurrent control: takes place while an activity is in process. It regulates ongoing activities that are part of the transformation or conversion process to ensure that they conform to the process standards. </li></ul><ul><li>Feedback control: most popular type which relies on feedback. This takes place after the activity is carried out. It regulates after a product or service has been completed in order to ensure that the final output meets the standards set. Also called post-action control. </li></ul>
  7. 7. Characteristics of Effective controls: <ul><li>Focus on critical control points: </li></ul><ul><li>Integration </li></ul><ul><li>Acceptability </li></ul><ul><li>Timeliness </li></ul><ul><li>Economic feasibility </li></ul><ul><li>Accuracy </li></ul><ul><li>comprehensibility </li></ul>
  8. 8. Qualities of effective controls: <ul><li>Effective: control systems should measure what needs to be measured and controlled. </li></ul><ul><li>Efficient: control systems should be economical and worth their cost. </li></ul><ul><li>Timely: CS should provide the manager the information in time to take corrective action. </li></ul><ul><li>Flexible: CS should be tools, and should be adjustable to changing conditions. </li></ul><ul><li>Understandable: it should be easy to understand and use, and they should provide information in the format desired by the users. </li></ul><ul><li>Tailored: where possible, control systems should deliver to each level of manager the info they need for decisions, at the level of detail appropriate for that level. </li></ul>
  9. 9. Financial Controls <ul><li>Financial control is the control of financial resources as they flow into the organisation,(for ex, revenues, share holder investments etc) are held by the orgn,(ie, working capital, retained earnings) and flow out of the orgn(ie., Salaries, bills payable etc) </li></ul><ul><li>Companies must manager their finance so that revenues are sufficient to cover the cost and in addition, earn profits to the firm’s investors as a return on investment </li></ul>
  10. 10. Kinds of financial controls <ul><li>1.Financial statements </li></ul><ul><ul><ul><li>Balance Sheet: shows the firms financial position at a particular instant in time- a financial “ snapshot” profile of the orgn. </li></ul></ul></ul><ul><ul><ul><li>Income statements: or profit &loss account or revenue & expenses: shows the firm’s financial performance over a period of time (usually three months or a year) </li></ul></ul></ul><ul><ul><ul><li>Cash flow statements : shows where funds come from?(net profit plus depreciation, increased debt, sale of stock, sale of assets) and what they are used for (plant and equipment, debt reduction, stock repurchase, and dividends) </li></ul></ul></ul>
  11. 11. Financial controls: Types <ul><li>2.Ratio analysis </li></ul><ul><ul><ul><li>Four types: 1. Liquidity </li></ul></ul></ul><ul><ul><ul><li>2. leverage </li></ul></ul></ul><ul><ul><ul><li>3. activity </li></ul></ul></ul><ul><ul><ul><li>4. profitability </li></ul></ul></ul><ul><li>3. Financial audits: Audits are investigations of an orgn’s activities to verify their correctness and identify any need for improvement. </li></ul><ul><ul><ul><li>External audits </li></ul></ul></ul><ul><ul><ul><li>Internal audits </li></ul></ul></ul><ul><li>4. Cost accounting </li></ul><ul><ul><ul><li>Standard costing </li></ul></ul></ul><ul><ul><ul><li>Activity-based costing </li></ul></ul></ul><ul><li>5. Budgets </li></ul>
  12. 12. <ul><li>Budgetary control: </li></ul><ul><ul><li>Budget is the most basic and widely used quantitative control technique. It is the statement of planned allocation of resources expressed in financial or numerical terms </li></ul></ul><ul><ul><li>Types </li></ul></ul><ul><ul><ul><li>Capital budgets :is a statement of planned expenditure of funds for facilities and equipment. Also known as capital expenditure budget. </li></ul></ul></ul><ul><ul><ul><li>Operating budgets: is a statement of planned income and expense of a business or a unit. Also known as revenue and expense budget. </li></ul></ul></ul>
  13. 13. <ul><li>Other types of Budgets: </li></ul><ul><ul><li>Fixed budget </li></ul></ul><ul><ul><li>Variable budget </li></ul></ul><ul><ul><li>Time, space, material, and production budgets </li></ul></ul><ul><ul><li>Cash budget and </li></ul></ul><ul><ul><li>Profit budgets </li></ul></ul>
  14. 14. Non –financial Controls: <ul><li>Human Resource Controls </li></ul><ul><li>Management audits </li></ul><ul><li>Human Resource Accounting </li></ul><ul><li>Social controls </li></ul>