2. Structure of the workbook
Part 1 - The workbook is structured to
provide knowledge component in the first
part including the introduction to the
theoretical aspects of the unit and detailed
description of the unit of competency
knowledge development.
Part 2-The development of your skills
and knowledge which are sectioned to
cover the unit elements and
performance criteria to apply your skills
and knowledge to gain competency for
effective vocational outcomes.
2
3. How to use the workbook
Attempt and
complete
Attempt and complete all the earning activities relevant sections to develop
your competency including use of foundation skills.
Read
Actively read the workbook sections which are sectioned in line with unit
elements and performance criteria to confirm the application of skills and
knowledge related to achieve effective and efficient vocational outcome.
Develop
Then develop your skills and apply skills and knowledge for vocational
outcome
Attempt
Once reading is complete, attempt the review questions to ensure you
develop your knowledge related to knowledge evidence required.
Read
Read the workbook starting with the introduction to the subject of unit of
competency and the details to develop your knowledge application.
Develop First develop your knowledge
3
4. Application of
the unit
• This unit describes the skills and knowledge required to
undertake budgeting, financial forecasting and reporting.
This unit also describes the skills and knowledge required
to allocate and manage resources to achieve the required
outputs for the business unit. It includes contributing to
reviewing financial information, analysing financial risks,
preparing a budget and reporting on financial activity.
• The unit applies to individuals who have managerial
responsibilities which include overseeing the
management of financial and other resources across a
business unit, a series of business units or teams, or an
organisation. It covers all areas of broad financial
management. In a larger organisation this work would be
supported by specialists in financial management.
4
5. Unit Elements
1. Prepare for financial management
2. Establish budgets and allocate funds
3. Report on finances
5
6. Icon Activity/Description Icon Activity/Description
Group Activity (Teamwork)
Group discussions
Teamwork
Written task
Written questioning
Written activities
Report writing
Verbal Questioning
Trainer directs verbal questioning
at learner/s
Presentation
Learner makes presentations
Individual verbal presentation
Learner present learning
Project work
Learner undertakes project work
Role-play
Learner plays an assigned role
Case study
Lerner undertakes a case study
6
7. Introduction
Manage organisational finances
Organizational finances
Organizational leaders and managers have to develop
at least basic skills in financial management.
What are financial plans?
A financial plan is a comprehensive picture of your current
finances, your financial goals and any strategies you've set to
achieve those goals.
7
8. Financial management
Financial Management means planning, organizing, directing and controlling the financial
activities such as procurement and utilization of funds of the enterprise. It means applying
general management principles to financial resources of the enterprise.
Functions of financial management
1. Estimation of capital requirements
2. Determination of capital composition
3. Choice of sources of funds
4. Investment of funds
5. Disposal of surplus
6. Management of cash
7. Financial controls
8
9. Financial planning
Definition, objectives and importance
Financial Planning is the process of estimating the capital required and determining its competition.
It is the process of framing financial policies in relation to procurement, investment and
administration of funds of an enterprise.
Objectives of financial planning
Financial Planning has got many objectives to look forward to:
a. Determining capital requirements- This will depend upon factors like cost of current and fixed
assets, promotional expenses and long- range planning.
b. Determining capital structure- The capital structure is the composition of capital, i.e., the
relative kind and proportion of capital required in the business.
c. Framing financial policies with regards to cash control, lending, borrowings, etc.
d. A finance manager ensures that the scarce financial resources are maximally utilized in the
best possible manner at least cost in order to get maximum returns on investment.
9
10. Importance of financial planning
•Financial Planning is process of framing
objectives, policies, procedures, programmed
and budgets regarding the financial activities of
a concern.
•This ensures effective and adequate financial
and investment policies.
10
11. The role of the finance function in organizational
processes
Role of a financial manager
• Financial activities of an organisation are one of the
most important and complex activities of a firm.
• Therefore, in order to take care of these activities a
financial manager performs all the requisite financial
activities.
• A financial manager is a person who takes care of all
the important financial functions of an organization.
11
12. Following are the main functions of a Financial
Manager:
•Raising of funds
•Allocation of funds
•Profit planning
•Understanding capital markets
12
13. Processes to establish and review profits and losses
from financial statements
Financial statements
A financial statement is a written record of the position and
financial activity of a business. The contents of a financial
statement is a collection of the standard reports; including the
balance sheet, income statement, statement of cash flow, and
statement of retained earnings.
What Is a Financial System?
A financial system is a set of institutions, such as banks,
insurance companies, and stock exchanges, that permit the
exchange of funds.
13
14. Why do I need to produce a financial statement?
Whether you are a small business running from home, a sole
trader, freelancer, or pretty much anything else - financial statements
will help you easily interpret and process your accounting activity.
What is the purpose of a financial statement?
Financial statements have a number of uses, both internally and
externally.
• These statements allow users to gain insight about the current
financial position, growth, resources, and cash flow prospects of a
company.
• Financial statements are also vital for internal purposes as a
measurement tool for the performance and changes of the business.
14
15. Income statement
What is an income statement?
• An income statement shows a company’s revenues
less their costs and expenses over a given period (e.g.,
a financial year or one month).
• An income statement (also commonly known as
a profit & loss statement, or P&L) is an integral
component of a company’s financial statements, along
with other reports such as the balance sheet.
15
16. Income Statement Example
Here is a sample income statement of a service type sole
proprietorship business. Let us name the company Strauss Printing
Services. All amounts are assumed and simplified for illustration
purposes.
16
Strauss Printing Services
Income Statement
For the Year Ended December 31, 2019
Service Revenue $ 160,000
Less: Expenses
Salaries Expense $ 40,000
Supplies Expense 26,100
Rent Expense 20,500
Utilities Expense 11,300
Depreciation Expense 5,000 102,900
17. Profit and Loss Report: Analysis and Interpretation
Basic elements of the profit and loss report are:
1. Revenue (Net Sales)
2. Cost of Goods Sold
3. Gross Profit
4. Operating Expenses
5. Operating Income
6. Other income or expense
7. Income Before Income Taxes
8. Income Taxes
9. Net Income
10.Earnings Per Share
17
18. Profit and loss statement analysis: financial
ratios calculation and interpretation
The income statement of the firm contains information that can be
used for computation of certain financial ratios, which measure firm’s
performance and position over the reporting period.
Gross Margin
Gross Margin = (Net Sales – Costs of Goods Sold) ÷ Net Sales
An alternative formula for this ratio computation is as follows:
Gross Margin = Gross Profit ÷ Net Revenue
18
19. Profit Margin (after taxes)
Profit Margin is a ratio, which measures the amount of profit (after the
deduction of all the expenses and income taxes) per 1 dollar of sales. It
can be computed with the use of the following formula:
Profit Margin = Net Income After Taxes ÷ Net Sales
Earnings Per Share
Earnings per share ratio demonstrates the amount of the net profit of a
company per one share of common stock and can be computed as
follows:
Earnings Per Share = Net Income After Taxes ÷Average Number of
Common Shares Outstanding
19
20. Times Interest Earned
Indicating firm’s debt-paying ability, this ratio measures the income
amount available for covering the future interest expenses. The
computation formula is as follows:
Times Interest Earned = Earnings for the Year before Interest and
Income Tax Expense ÷ Interest Expense for the Year
Return on Stockholders’ Equity (after taxes)
Often simply referred as return on equity, this ratio is widely used
during the performance of the analysis of firm’s profitability.
Return on Stockholders’ Equity (after taxes) = Net Income for the Year
after Taxes ÷ Average Stockholders’ Equity during the Year
20
21. Balance sheet
What is a balance sheet?
A balance sheet is a financial statement that shows
what the business is worth at a given point in time.
How the balance sheet works
The balance sheet has two sides that must be equal or
balance each other out. The logic behind it is simpler
than it seems: a company must pay for its assets by
borrowing money from lenders or through investors.
21
22. Statement of cash flows
What is a cash flow statement?
A statement of cash flows, often called a cash flow statement, is a financial
statement that summarises a business’s cash transactions throughout a given
accounting period.
Organising cash flow statements
When recorded on a cash flow statement, money coming into the business is
recorded as “cash inflow”, whilst money going out from the business is
referred to as “cash outflow”.
1. operating,
2. investing and
3. financing.
22
23. Statement of Owner's Equity
This lesson presents the Statement of Owner's Equity (or
Statement of Changes in Owner's Equity) along with important
points you need to know in preparing and understanding this
report.
Retained earnings
What are retained earnings?
Retained earnings are the accumulated net earnings of a
business’s profits, after accounting for dividends or other
distributions paid to investors.
23
24. Requirements for financial probity
Financial probity means, strict obedience to a code of ethics based on
absolute honesty, especially in commercial (monetary) matters and beyond
legal requirements.
Why is probity necessary?
Probity is necessary to ensure that expenditure of public sector funds is
carried out in accordance with Government requirements; such as achieving
value for money and ensuring that government funds are expended in an
economical, efficient and effective manner.
Who does probity?
There is an important distinction to be made between who "does" probity
and who is responsible for the probity of a process.
24
25. Principles of accounting and financial systems
Accounting principles are the general rules and guidelines that companies
are required to follow when reporting all accounts and financial data.
Why are accounting principles important?
The purpose of having - and following - accounting principles is to be able to
communicate economic information in a language that is acceptable and
understandable from one business to another.
Why are generally accepted accounting principles needed?
GAAP aims to regulate and standardize accountancy practices by providing a
framework to ensure companies and organizations are transparent and
honest in their financial reporting.
25
27. Key functions of financial management software
A financial management system is the methodology and
software that an organization uses to oversee and govern its
income, expenses, and assets with the objectives of
maximizing profits and ensuring sustainability.
There are three main types of financial management systems.
• Financial accounting
• Managerial accounting
• Corporate finance
27
28. 3 key features of any financial management software
•Reporting
•Systems integration
•Functionality
28
29. Key components of a financial budget
Businesses draft financial budget to understand how much capital
they’ll need and at what times for fulfilling short-term and long-
term needs.
Components of a budget
1.Estimated revenue
2.Fixed cost
3.Variable costs
4.One-time expenses
5.Cash flow
6.Profit
29
30. Legislation and conventions relevant to financial
management in organization
Australian Accounting Standards
Australian Accounting Standards are set by the Australian Accounting
Standards Board (AASB), an independent Australian Government
agency.
Financial regulations
• Auditing and Assurance Standards Board
• Australian Accounting Standards Board
• Australian Financial Security Authority
• Australian Prudential Regulation Authority
• Australian Securities and Investments Commission
• Australian Transaction Reports and Analysis Centre
30
31. Licences and permits
State or territory governments manage the licences and permits for the
financial and insurance services industry.
Financial reporting in Australia
Australia aims to promote investor confidence and integrity in the economy,
corporations and in capital markets. A proponent of this is clear and
consistent financial reports prepared in accordance with legislative
requirements.
International financial law
International Financial Law is a framework of rules, standards and practices
that govern international financial markets and transactions.
31
32. Australian Tax Office (ATO) requirements for Goods and Services
Tax, Company Tax, Pay As You Go (PAYG).
GST
Goods and services tax (GST) is a broad-based tax of 10% on
most goods, services and other items sold or consumed in
Australia.
When your goods or services include GST (and when they
don’t)
If you’re registered for GST the goods and services you sell in
Australia generally include GST in the price unless they are
GST-free or input taxed.
32
33. Company tax
Company tax is a tax charged on corporate income in Australia. ... Instead, it
is a particular rate of income tax that only applies to incorporated
businesses.
What is pay as you go PAYG?
Pay As You Go (PAYG) withholding is a system of withholding income tax from
an employee or contractor's salary or wages. The payer of the income
therefore, rather than the recipient of the income, pays the tax directly to
the ATO on behalf of the employee or contractor.
Benefits of PAYG
The PAYG tax system allows employers to vary the amount of tax that is
withheld from employees on each payment instalment, withholding some of
this to anticipate the end of year tax liability.
33
35. Assess reasons for losses or profits identified from
previous financial reports
A financial statement review is a service under which the accountant obtains limited
assurance that there are no material modifications that need to be made to an entity's
financial statements for them to be in conformity with the applicable financial reporting
framework (such as GAAP or IFRS).
Vertical (common-size) analysis of financial statements
Vertical analysis (also known as common-size analysis) is a popular method of financial
statement analysis that shows each item on a statement as a percentage of a base figure
within the statement.
Horizontal analysis
Horizontal analysis (also known as trend analysis) is a financial statement analysis
technique that shows changes in the amounts of corresponding financial statement items
over a period of time.
35
37. Undertake research to review reasons for previous
profit and loss
Undertake research
• Research any nonstandard opinion or report language (place
sample reports from PPC or other sources in the file) — later
the partner will compare this supporting document to the
opinion or report.
• Research any additional reports (e.g., Yellow Book, Single
Audit); place copy of such reports in the file — the partner or
manager will have such reports available for their review.
37
38. Analyze cash flow trends
• One of the best ways to track a business’s health is by analysing
cash flow trends.
• Performing ratio analyses each month will give you a concrete
way to measure how well your business is managing your cash.
• To begin you’ll need a year’s worth of company financial data.
• Then you can create three key ratios from figures on your income
statement.
• These ratios will tell you how long it takes you to collect
payments from customers, how long you take to pay vendors,
and how long your inventory takes to sell.
38
39. Review business plan to establish critical dates and
initiatives
Review business plan to establish critical dates and initiatives that will
require or generate resources in the next financial cycle.
Review your financial position
When reviewing your finances, you might want to consider the following:
• Cash flow
• Working capital
• Cost base
• Borrowing
• Growth
39
40. Analyze cash flow trends
• One of the best ways to track a business’s health is by
analysing cash flow trends. Performing ratio analyses each
month will give you a concrete way to measure how well
your business is managing your cash. To begin you will need
a year’s worth of company financial data.
• Then you can create three key ratios from figures on your
income statement.
• These ratios will tell you how long it takes you to collect
payments from customers, how long you take to pay
vendors, and how long your inventory takes to sell.
40
41. Review statutory requirements for compliance and
liabilities for tax
Taxable period
The Australian tax year runs from 1 July to 30 June. However, a corporation may
apply to adopt a substitute year of income, for example, 1 January to 31 December.
Tax returns
A corporation (including the head company of a tax consolidated group)
lodges/files a tax return under a self-assessment system that allows the ATO to rely
on the information stated on the return.
Payment of tax
A PAYG instalment system applies to companies other than those whose annual tax
is less than AUD 8,000 that are not registered for GST.
41
42. Tax audit process
The Australian tax system for companies is based on self-assessment;
however, the ATO undertakes ongoing compliance activity to ensure
corporations are meeting their tax obligations.
Statute of limitations
Generally, the Commissioner of Taxation may amend an assessment
within four years after the day of which an assessment is given to a
company.
Australian business taxes
Taxes in Australia are administered and collected by the Australian
Taxation Office (ATO), and in some cases state government revenue
offices. 42
43. Company tax
• An Australian resident company is subject to company tax, at
a rate set by the Australian Government.
• A non-resident company is taxed on its Australian source
income at the same rate as a resident company.
Capital Gains Tax
Capital Gains Tax (CGT) applies on any capital gain made
through the disposal of assets. It is paid as part of income tax.
43
44. Goods and Services Tax
The Goods and Services Tax (GST) is a national, broad-based
consumer tax on most goods and services sold or consumed
in Australia.
Payroll Tax
• Payroll tax is a state tax on the wages you pay to
employees.
• It is calculated on the number of wages paid per month
and must be paid if total Australian wages exceed the
exemption threshold in the relevant state or territory.
44
45. Analyze existing software and its suitability for
financial management
Financial management software is the backbone of every
organization and the foundation that helps a company manage
and gain insight into the most important parts of their business.
Selecting suitable software for financial management
While many organizations think that selecting financial software is
merely a process of considering functionality, technology, and cost,
we have found that there are actually eight key areas of decision
criteria to consider as part of your evaluation of new financial
management software.
45
47. Develop budget from previous financial data according to
compliance, organizational and statutory requirements
If an organisation is interested in managing finances effectively, its financial
analysts will likely examine the company's past and current financial
statements.
Ratio Analysis
Ratio analysis compares values within the company from year to year and
against other companies and the industry.
• Capital gearing ratio
• Current assets to equity ratio
• Liquidity ratios
• The debt ratio
47
48. Circulate budgets and confirm managers and supervisors
understand budgets, reporting requirements and
financial delegations
A Financial Delegation is the authority to approve expenditures or enter
into financial commitments on behalf of the organisation. A Financial
Delegation is the approval to purchase goods or services on the
organisation's behalf and is subject to there being an approved budget in
place.
Calculate budgets
A budget is a financial document used to project future income and
expenses. The budgeting process may be carried out by individuals or by
companies to estimate whether the person/ organisation can continue to
operate with its projected income and expenses. A budget is a
microeconomic concept that shows the trade-off made when one good is
exchanged for another.
48
49. Confirm there are no opportunities for
misappropriation of funds
What is misappropriation fraud?
Misappropriation means the wrongful, fraudulent or corrupt use of
other's funds in one's care. Misappropriation commonly refers to
situations in which the offending party has an added measure of
responsibility, such as misconduct by a organisational officials.
Minimising the risk of fraud through the use of controls
There are two broad categories of internal control that counter
fraud:
1.preventive controls
2.detective controls.
49
50. Review profit and loss statements, cash flows and
ageing summaries and revise, where required
Analysing the Balance Sheet
The Balance Sheet show’s a company’s assets, liabilities, and equity at a
specific point in time.
Analysing the Cash Flow Statement
The Statement of Cash Flow shows how much cash a company generated
and consumed over a period of time. It consists of three parts:
• cash from operations
• cash used in investing
• cash from financing
50
51. Aging of Accounts Receivable
The general ledger account Accounts Receivable usually
contains only summary amounts and is referred to as a
control account. The details for the control account—each
credit sale for every customer—is found in the subsidiary
ledger for Accounts Receivable.
Aging used in calculating the allowance
The aging of accounts receivable can also be used to
estimate the credit balance needed in a company's
Allowance for Doubtful Accounts.
51
52. How an A/R aging report works
The primary purpose of an A/R aging report is to keep
track of unpaid customer invoices and the number of
days they have been outstanding.
How to read an A/R aging report
Compared to other accounting reports, the A/R aging
report is fairly easy to understand. Most accounting
software like FreshBooks have both a summary and
detail report that you can run.
52
53. AR Aging report created in FreshBooks.
1. Date: This report includes invoices that are current and past due as of November 3, 2017.
2. Client: This column includes the name of each client.
3. 0-30 days: Invoices in this group are between 0 and 30 days past their due date. In our sample report,
Fred Flintstone has invoices that total $500, and Barney Rubble has outstanding invoices in the
amount of $225 in this group.
4. 31-60 days past due: Invoices in this group are between 31 and 60 days past their due date. In our
example, there are no outstanding invoices in this group.
5. 61-90 days past due: Invoices in this group are between 61 and 90 days past their due date. In our
example, there are no outstanding invoices in this group.
6. 90-plus days past due: Invoices in this group are between 61 and 90 days past their due date. In our
example, there are no outstanding invoices in this group.
7. Total: In this column, we have a subtotal by client, Fred Flintstone ($500) and Barney Rubble ($225).
8. This row subtotals the outstanding invoice amount by aged group: 0-30 days ($725), 31-60 days ($0),
61-90 days ($0), and 90-plus days ($0) and then a total accounts receivable balance of $725.
53
54. Identify discrepancies between agreed and actual
allocations using audit trails
There are four common reasons why actual
expenditure or income will show a variance
against the budget.
1. The cost is more (or less) than budgeted
2. Planned activity did not occur when expected
3. Change in planned activity
4. Error/Omission
54
56. Identify organizational and statutory financial
reporting requirements
Financial reporting
Financial reporting is the disclosure of financial results and related
information to management and external stakeholders (e.g., investors,
customers, regulators) about how a company is performing over a specific
period of time.
Financial reports are usually issued on a quarterly and annual basis and
include the following:
• Balance Sheet or Statement of Financial Position
• Income Statement or Profit and Loss Report
• Statement of Changes in Equity or Statement of Retained Earnings
• Cash Flow Statement
56
57. Structure and format of reports
Financial Statements represent a formal record of the financial
activities of an entity. These are written reports that quantify the
financial strength, performance and liquidity of a company.
Financial Statements reflect the financial effects of business
transactions and events on the entity.
Four types of financial statements
1. Statement of Financial Position
2. Income Statement
3. Cash Flow Statement
4. Statement of Changes in Equity
57
59. Identify and priorities significant issues in
statements for review and decision making
Identify and priorities significant issues in statements,
including comparative financial performances for review and
decision making
The three financial reports that are usually used to make a
business decision are the
1. Balance Sheet,
2. Income Statement
3. Cash Flow statement.
59
60. Financial viability
Viability is defined as the ability to survive. In a
business sense, that ability to survive is ultimately
linked to financial performance and position.
A business is viable where either:
• it is returning a profit that is sufficient to provide a
return to the business owner while also meeting its
commitments to business creditors
• it has sufficient cash resources to sustain itself
through a period when it is not returning a profit.
60
61. Prepare financial recommendations
• The recommendations provided must ultimately be
aimed at improving an organisation’s effectiveness
and financial operations by addressing the core or
underlying issues.
• These recommendations should be considered in light
of internal control measures and prepared
contingency plans.
• The role of the financial analysis performed is to
provide the evidence for the recommendations or
contingencies developed.
61
62. Evaluate effectiveness of financial
management processes
Effective Financial Management gives advice on raising
money for a business, maintaining investor
relationships, accounting, reporting and
communicating effectively with a wide range of
stakeholders, budgeting, forecasting and managing
business costs and cashflow, assessing projects and
buying assets.
62
