The trade allocation compliance function is getting more visibility as supervisory bodies have intensified their attempts to combat misconduct by firms in trade allocation practices.
Material control refers to the management of acquiring, storing, handling, and using materials to minimize waste and losses while maximizing economy. There are different levels of inventory like maximum, minimum, reorder, and danger levels. Techniques of material control include setting inventory levels, economic order quantity, just-in-time systems, ABC analysis, and VED analysis. Stores are also classified into reorder level, minimum level, maximum level, average level, and danger level based on formulas involving usage, lead times, and other factors.
This document discusses subsidiary books, which are specialized journals used to record specific transaction types. It provides examples of common subsidiary books like cash books, purchase books, sales books, bills receivable books, bills payable books, and petty cash books. Subsidiary books are needed to avoid repetition, provide prompt information, facilitate internal checks, and classify transactions.
Verification involves checking balance sheet items like stock, while vouching involves checking profit and loss items like expenses.
The document then discusses the process for physically verifying different types of assets like cash, inventory, and fixed assets. This involves notifying the client, conducting counts on scheduled dates, preparing reports on findings, reconciling any differences, and getting management approval on adjustments.
Procedures like surprise cash counts, inventory classification methods, and examining fixed asset documents are described. Reasons for excess or deficits in quantities are also covered.
This document discusses correcting errors in accounting records. It explains that there are two types of errors: those that do not affect the trial balance and those that do. Errors that do not affect the trial balance include transposition, omission, reversal of entry, and more. They are corrected by journal entries. Errors that do affect the trial balance require using a suspense account to balance the accounts until the error is identified and corrected. Examples of each type of error and correction method are provided.
El documento describe los conceptos generales del ciclo contable. Explica que 1) las empresas deben presentar estados financieros anualmente que cubran el período contable, 2) el período contable típicamente es de un año pero puede ser más corto para propósitos de administración, y 3) durante el cierre contable se saldan las cuentas y se transfieren los saldos a las cuentas de balance.
The document discusses the different types of cash books used for accounting, including simple, two-column, and three-column cash books. It also discusses petty cash books and the imprest system used for petty cash. Key points include:
- A cash book is both a principal and subsidiary book that records all cash receipts and payments.
- The main types of cash books are the simple, two-column, and three-column cash books, which vary in the number of columns used.
- Petty cash books are used to record small payments, while the imprest system reimburses the petty cashier at the end of each period for a fixed amount.
- Sales made through credit/debit cards
5.01 Meaning of an Account
5.02 Meaning of Debit and Credit
5.03 Classification of Accounts
5.04 Significance of Debit and credit in Accounts
5.05 Journal
5.05.01 Steps and Rules of Journalising
5.05.02 Totaling and Carry Forward.
5.05.03 Simple and Compound Journal Entries
5.06 Opening Entry
5.07 Sub-division of Journal
5.08 Ledger
5.08.01 Meaning
5.08.02 Form of a Ledger
5.08.03 Mechanics of Posting
5.08.04 Balancing of Ledger Accounts
Material control refers to the management of acquiring, storing, handling, and using materials to minimize waste and losses while maximizing economy. There are different levels of inventory like maximum, minimum, reorder, and danger levels. Techniques of material control include setting inventory levels, economic order quantity, just-in-time systems, ABC analysis, and VED analysis. Stores are also classified into reorder level, minimum level, maximum level, average level, and danger level based on formulas involving usage, lead times, and other factors.
This document discusses subsidiary books, which are specialized journals used to record specific transaction types. It provides examples of common subsidiary books like cash books, purchase books, sales books, bills receivable books, bills payable books, and petty cash books. Subsidiary books are needed to avoid repetition, provide prompt information, facilitate internal checks, and classify transactions.
Verification involves checking balance sheet items like stock, while vouching involves checking profit and loss items like expenses.
The document then discusses the process for physically verifying different types of assets like cash, inventory, and fixed assets. This involves notifying the client, conducting counts on scheduled dates, preparing reports on findings, reconciling any differences, and getting management approval on adjustments.
Procedures like surprise cash counts, inventory classification methods, and examining fixed asset documents are described. Reasons for excess or deficits in quantities are also covered.
This document discusses correcting errors in accounting records. It explains that there are two types of errors: those that do not affect the trial balance and those that do. Errors that do not affect the trial balance include transposition, omission, reversal of entry, and more. They are corrected by journal entries. Errors that do affect the trial balance require using a suspense account to balance the accounts until the error is identified and corrected. Examples of each type of error and correction method are provided.
El documento describe los conceptos generales del ciclo contable. Explica que 1) las empresas deben presentar estados financieros anualmente que cubran el período contable, 2) el período contable típicamente es de un año pero puede ser más corto para propósitos de administración, y 3) durante el cierre contable se saldan las cuentas y se transfieren los saldos a las cuentas de balance.
The document discusses the different types of cash books used for accounting, including simple, two-column, and three-column cash books. It also discusses petty cash books and the imprest system used for petty cash. Key points include:
- A cash book is both a principal and subsidiary book that records all cash receipts and payments.
- The main types of cash books are the simple, two-column, and three-column cash books, which vary in the number of columns used.
- Petty cash books are used to record small payments, while the imprest system reimburses the petty cashier at the end of each period for a fixed amount.
- Sales made through credit/debit cards
5.01 Meaning of an Account
5.02 Meaning of Debit and Credit
5.03 Classification of Accounts
5.04 Significance of Debit and credit in Accounts
5.05 Journal
5.05.01 Steps and Rules of Journalising
5.05.02 Totaling and Carry Forward.
5.05.03 Simple and Compound Journal Entries
5.06 Opening Entry
5.07 Sub-division of Journal
5.08 Ledger
5.08.01 Meaning
5.08.02 Form of a Ledger
5.08.03 Mechanics of Posting
5.08.04 Balancing of Ledger Accounts
This document discusses the process of vouching in auditing. It defines vouching as verifying the authenticity and authority of transactions recorded in accounting books by comparing them to supporting documentation. The key types of vouchers and objectives of vouching are ensuring transactions are correctly recorded, supported by evidence, and properly authorized. Vouching is an important audit procedure for examining transactions in cash books, subsidiary books, journals, and ledgers.
The document discusses the purpose of a trial balance and types of accounting errors. It provides examples of correcting different types of errors, including errors of omission, commission, principle, and complete reversal. It explains that correcting entries are made by entering amounts on the opposite side of accounts to reduce balances or the same side to increase balances. Errors can affect the net profit and items in the balance sheet, so corrections may require restating accounts.
Understand the Meaning, Kinds and Advantages of Subsidiary Books.
Know the Purpose, Format, Posting and Balancing of Purchases, Sales, Purchases Return and Sales Return Books.
This document summarizes the perpetual and periodic inventory accounting methods. The perpetual method continuously updates the inventory account for purchases and sales. At any time, the business knows the inventory on hand. The periodic method keeps the inventory account balance unchanged during the year and adjusts it to the physical count at year-end. The cost of goods sold is unknown during the year under the periodic method.
The document provides an overview of transactions and the general journal in accounting. It discusses how every business transaction must be recorded, with at least two accounts affected. While T-accounts have traditionally been used, the general journal allows recording all parts of a transaction together in one place, including the date, debit, credit, and explanation. Advantages include having the complete transaction in one location, reducing errors, and listing transactions chronologically. The accounting cycle process that begins with a transaction and ends with financial statements and closing entries is also summarized. Two sample transactions are provided as examples to record in the general journal.
A cash book is used to record all cash transactions and serves as both a journal and ledger for cash and bank accounts. It has debit and credit sides, with receipts recorded on the debit side and payments on the credit side. The cash book can take different forms depending on the number of accounts recorded, from simple to double or triple column formats. The objectives of a cash book include finding total receipts and payments, ascertaining balances, and verifying cash on hand and in the bank.
The document discusses the four main types of subsidiary books used to record business transactions: purchase book, sales book, purchase return book, and sales return book. Each book is used to record a specific type of credit transaction - purchase book for credit purchases, sales book for credit sales, purchase return book for goods returned to suppliers, and sales return book for goods returned by customers. The document provides the format, ruling, posting process, and purpose of each type of subsidiary book.
El documento proporciona información sobre la realización de auditorías de inventarios y el reconocimiento del costo de ventas. Explica que una auditoría de inventarios es importante para garantizar un correcto control y que los registros contables cuadren con las existencias físicas. También describe los elementos que deben incluirse en el control de inventarios y en el cálculo del costo de ventas, así como los procedimientos y normas de auditoría aplicables a la revisión de inventarios y costo de ventas.
- Subsidiary books are sub-divisions of the journal where transactions of a similar nature are recorded instead of one journal. This includes books like purchases book, sales book, returns book, and cash book.
- Maintaining subsidiary books provides benefits like proper recording of transactions, convenient posting, division of work, and prevention of errors. The cash book specifically shows the cash and bank balances and helps in effective cash management.
- There are different types of cash books - single column for only cash, double column with cash and discount, and three column with cash, discount, and bank columns. Subsidiary books like purchases book and sales book also have specified formats for recording transactions.
Verification and valuation of assets and liabilitiessuganyababu14
The document discusses verification and valuation of assets and liabilities. It describes the auditor's role in verifying the existence, ownership, classification, and valuation of assets and liabilities. Key aspects of verification include examining documentary evidence, testing internal controls, and confirming physical existence, ownership, and proper use of assets. Valuation involves determining the exact value of assets based on original cost, depreciation, and factors like useful life. Specific guidance is provided on verifying types of assets like fixed assets, investments, stock, debtors, creditors, and bills payable.
This is a step by step plan of the auditing work to be performed, specifying the procedure to be followed in the verification of each item in the financial statements, and giving the estimated time required’.
This document proposes a cash book project and provides details about cash books. It discusses the features, objectives, and types of cash books. The main types are simple cash book, double column cash book, triple column cash book, and petty cash book. Simple cash books record receipts on the debit side and payments on the credit side. Double and triple column cash books add additional columns for discounts and bank transactions. The purpose of cash books is to keep accurate records of cash receipts and payments.
La conciliación bancaria es un proceso mediante el cual una empresa confronta los movimientos y saldo de una cuenta bancaria registrados en sus libros contables con la información provista por el extracto bancario, con el fin de identificar diferencias y realizar los ajustes necesarios. Esto implica revisar cheques girados, depósitos, notas de débito, notas de crédito y errores, ya sea de la empresa o el banco, para determinar la causa de cualquier discrepancia entre los saldos.
Credit memos are issued by the organization that sent the original invoice to reduce amounts owed when items are damaged or incorrect quantities are received. Debit memos are issued by the organization receiving an invoice to request a reduction in amounts owed when they were undercharged or overcharged. Both debit memos and credit memos reduce outstanding vendor balances in accounts payable systems, but debit memos are issued by the company to the vendor while credit memos are issued by the vendor to the company. Reasons for debit memos include material rejections or reductions in purchase costs, while credit memos may be issued for increased charges or late payment fees.
Accounting involves recording, classifying, and summarizing financial transactions and events in terms of money to accurately assess the financial resources and position of a business or organization. It is required wherever money is involved to account for financial resources. Accounting includes bookkeeping, which systematically records transactions in monetary terms, as well as financial accounting which prepares financial statements like the income statement and balance sheet to determine profit/loss and the overall financial position of the business.
This document discusses inventory valuation. It defines inventory as assets held for sale, in production, or to be consumed in production or services. There are three main types of inventory: finished goods, work-in-progress, and raw materials/stores. The key methods for valuing inventory are FIFO, LIFO, and weighted average cost. FIFO matches oldest costs to goods sold while LIFO matches newest costs, affecting reported profits. Weighted average smoothes price fluctuations by using average unit costs. The lower of historical cost or net realizable value is the primary valuation standard.
An audit program provides direction for an audit team to properly execute an audit. It contains detailed steps and procedures for the audit team to follow in conducting the audit. The program outlines how to assess the entity's business, allocate work among team members, and estimate timing. It also provides details on evidence, materiality levels, risk tolerance, and measuring evidence sufficiency. The audit program helps ensure important areas are considered, allocates work based on skills, and enhances accountability. However, the program can become rigid and mechanical if it ignores changes or new issues over time.
The document discusses the differences between accrual and cash basis accounting. Accrual accounting records revenue when earned and expenses when incurred, regardless of cash flow. Cash accounting only records transactions when cash is received or paid. Most companies use accrual accounting because it provides a more accurate financial picture by matching revenue to expenses in the appropriate periods, even if no cash has changed hands yet. The document also provides additional details on how and when each method recognizes revenue and expenses.
00 h naaim_assessing_trading_system_health_bandyVic Liu
This document discusses developing robust trading systems and determining optimal position sizing. It describes evaluating a trading system's health and using that to determine position size in a way that maximizes equity growth while keeping drawdown below an acceptable level. The document outlines techniques for backtesting a system using a walk forward approach, estimating future performance distributions through Monte Carlo simulation, and sizing positions to balance growth and risk based on the system's estimated drawdown probabilities. A fully disclosed trading system is used to illustrate the techniques.
The document provides an overview of the equity method of accounting for investments. It discusses three methods used to account for equity investments - the fair value method, consolidation method, and equity method. The equity method is applied when an investor has significant influence over an investee. It involves adjusting the investment account for changes in the investee's equity and accruing the investor's share of the investee's earnings. Special procedures are also outlined for applying the equity method, such as retrospective adjustments when changing to the equity method and deferring unrealized profits on inventory transfers between the investor and investee.
This document discusses the process of vouching in auditing. It defines vouching as verifying the authenticity and authority of transactions recorded in accounting books by comparing them to supporting documentation. The key types of vouchers and objectives of vouching are ensuring transactions are correctly recorded, supported by evidence, and properly authorized. Vouching is an important audit procedure for examining transactions in cash books, subsidiary books, journals, and ledgers.
The document discusses the purpose of a trial balance and types of accounting errors. It provides examples of correcting different types of errors, including errors of omission, commission, principle, and complete reversal. It explains that correcting entries are made by entering amounts on the opposite side of accounts to reduce balances or the same side to increase balances. Errors can affect the net profit and items in the balance sheet, so corrections may require restating accounts.
Understand the Meaning, Kinds and Advantages of Subsidiary Books.
Know the Purpose, Format, Posting and Balancing of Purchases, Sales, Purchases Return and Sales Return Books.
This document summarizes the perpetual and periodic inventory accounting methods. The perpetual method continuously updates the inventory account for purchases and sales. At any time, the business knows the inventory on hand. The periodic method keeps the inventory account balance unchanged during the year and adjusts it to the physical count at year-end. The cost of goods sold is unknown during the year under the periodic method.
The document provides an overview of transactions and the general journal in accounting. It discusses how every business transaction must be recorded, with at least two accounts affected. While T-accounts have traditionally been used, the general journal allows recording all parts of a transaction together in one place, including the date, debit, credit, and explanation. Advantages include having the complete transaction in one location, reducing errors, and listing transactions chronologically. The accounting cycle process that begins with a transaction and ends with financial statements and closing entries is also summarized. Two sample transactions are provided as examples to record in the general journal.
A cash book is used to record all cash transactions and serves as both a journal and ledger for cash and bank accounts. It has debit and credit sides, with receipts recorded on the debit side and payments on the credit side. The cash book can take different forms depending on the number of accounts recorded, from simple to double or triple column formats. The objectives of a cash book include finding total receipts and payments, ascertaining balances, and verifying cash on hand and in the bank.
The document discusses the four main types of subsidiary books used to record business transactions: purchase book, sales book, purchase return book, and sales return book. Each book is used to record a specific type of credit transaction - purchase book for credit purchases, sales book for credit sales, purchase return book for goods returned to suppliers, and sales return book for goods returned by customers. The document provides the format, ruling, posting process, and purpose of each type of subsidiary book.
El documento proporciona información sobre la realización de auditorías de inventarios y el reconocimiento del costo de ventas. Explica que una auditoría de inventarios es importante para garantizar un correcto control y que los registros contables cuadren con las existencias físicas. También describe los elementos que deben incluirse en el control de inventarios y en el cálculo del costo de ventas, así como los procedimientos y normas de auditoría aplicables a la revisión de inventarios y costo de ventas.
- Subsidiary books are sub-divisions of the journal where transactions of a similar nature are recorded instead of one journal. This includes books like purchases book, sales book, returns book, and cash book.
- Maintaining subsidiary books provides benefits like proper recording of transactions, convenient posting, division of work, and prevention of errors. The cash book specifically shows the cash and bank balances and helps in effective cash management.
- There are different types of cash books - single column for only cash, double column with cash and discount, and three column with cash, discount, and bank columns. Subsidiary books like purchases book and sales book also have specified formats for recording transactions.
Verification and valuation of assets and liabilitiessuganyababu14
The document discusses verification and valuation of assets and liabilities. It describes the auditor's role in verifying the existence, ownership, classification, and valuation of assets and liabilities. Key aspects of verification include examining documentary evidence, testing internal controls, and confirming physical existence, ownership, and proper use of assets. Valuation involves determining the exact value of assets based on original cost, depreciation, and factors like useful life. Specific guidance is provided on verifying types of assets like fixed assets, investments, stock, debtors, creditors, and bills payable.
This is a step by step plan of the auditing work to be performed, specifying the procedure to be followed in the verification of each item in the financial statements, and giving the estimated time required’.
This document proposes a cash book project and provides details about cash books. It discusses the features, objectives, and types of cash books. The main types are simple cash book, double column cash book, triple column cash book, and petty cash book. Simple cash books record receipts on the debit side and payments on the credit side. Double and triple column cash books add additional columns for discounts and bank transactions. The purpose of cash books is to keep accurate records of cash receipts and payments.
La conciliación bancaria es un proceso mediante el cual una empresa confronta los movimientos y saldo de una cuenta bancaria registrados en sus libros contables con la información provista por el extracto bancario, con el fin de identificar diferencias y realizar los ajustes necesarios. Esto implica revisar cheques girados, depósitos, notas de débito, notas de crédito y errores, ya sea de la empresa o el banco, para determinar la causa de cualquier discrepancia entre los saldos.
Credit memos are issued by the organization that sent the original invoice to reduce amounts owed when items are damaged or incorrect quantities are received. Debit memos are issued by the organization receiving an invoice to request a reduction in amounts owed when they were undercharged or overcharged. Both debit memos and credit memos reduce outstanding vendor balances in accounts payable systems, but debit memos are issued by the company to the vendor while credit memos are issued by the vendor to the company. Reasons for debit memos include material rejections or reductions in purchase costs, while credit memos may be issued for increased charges or late payment fees.
Accounting involves recording, classifying, and summarizing financial transactions and events in terms of money to accurately assess the financial resources and position of a business or organization. It is required wherever money is involved to account for financial resources. Accounting includes bookkeeping, which systematically records transactions in monetary terms, as well as financial accounting which prepares financial statements like the income statement and balance sheet to determine profit/loss and the overall financial position of the business.
This document discusses inventory valuation. It defines inventory as assets held for sale, in production, or to be consumed in production or services. There are three main types of inventory: finished goods, work-in-progress, and raw materials/stores. The key methods for valuing inventory are FIFO, LIFO, and weighted average cost. FIFO matches oldest costs to goods sold while LIFO matches newest costs, affecting reported profits. Weighted average smoothes price fluctuations by using average unit costs. The lower of historical cost or net realizable value is the primary valuation standard.
An audit program provides direction for an audit team to properly execute an audit. It contains detailed steps and procedures for the audit team to follow in conducting the audit. The program outlines how to assess the entity's business, allocate work among team members, and estimate timing. It also provides details on evidence, materiality levels, risk tolerance, and measuring evidence sufficiency. The audit program helps ensure important areas are considered, allocates work based on skills, and enhances accountability. However, the program can become rigid and mechanical if it ignores changes or new issues over time.
The document discusses the differences between accrual and cash basis accounting. Accrual accounting records revenue when earned and expenses when incurred, regardless of cash flow. Cash accounting only records transactions when cash is received or paid. Most companies use accrual accounting because it provides a more accurate financial picture by matching revenue to expenses in the appropriate periods, even if no cash has changed hands yet. The document also provides additional details on how and when each method recognizes revenue and expenses.
00 h naaim_assessing_trading_system_health_bandyVic Liu
This document discusses developing robust trading systems and determining optimal position sizing. It describes evaluating a trading system's health and using that to determine position size in a way that maximizes equity growth while keeping drawdown below an acceptable level. The document outlines techniques for backtesting a system using a walk forward approach, estimating future performance distributions through Monte Carlo simulation, and sizing positions to balance growth and risk based on the system's estimated drawdown probabilities. A fully disclosed trading system is used to illustrate the techniques.
The document provides an overview of the equity method of accounting for investments. It discusses three methods used to account for equity investments - the fair value method, consolidation method, and equity method. The equity method is applied when an investor has significant influence over an investee. It involves adjusting the investment account for changes in the investee's equity and accruing the investor's share of the investee's earnings. Special procedures are also outlined for applying the equity method, such as retrospective adjustments when changing to the equity method and deferring unrealized profits on inventory transfers between the investor and investee.
This document provides an introduction to financial accounting. It discusses key concepts such as the definition and objectives of accounting, financial statements, and generally accepted accounting principles (GAAP). It also describes the functions and limitations of financial accounting, cost accounting, and management accounting. The main topics covered include the accounting equation, revenue and expense recognition, and the profit and loss statement. The document is the first unit of a course on financial accounting and aims to establish foundational knowledge on the subject.
The corporate treasury department manages a company's cash flows, investments, and financial risks. Its key functions include cash forecasting, monitoring working capital, concentrating cash, making investments, raising funds, hedging risks, maintaining banking relationships, and reporting on finances. Treasury aims to ensure the company has sufficient cash flow while maximizing returns on excess cash through safe investment vehicles and hedging activities. Larger companies typically have a treasurer and dedicated treasury team overseeing these functions.
Today, alternative asset managers are facing ever-increasing scrutiny from both investors and regulatory bodies.
Investors are focused not only on returns, but also on the valuation governance practices of the funds in which
they may invest. The emphasis on transparency of the valuation process, as well as heightened interest around
internal controls, conflicts of interest, and general fund protocols, has increased the importance of funds having
written valuation policies and procedures with a structure in place to monitor and enforce them. This document outlines the best practices in this area.
Equity Portfolio Management Techniques (2)6.pdfDaniel H. Cole
Equity portfolios are a major part of many investors' holdings due to the opportunity to profit from corporate growth. Publicly traded stocks are generally liquid assets. Over time, many analysts become portfolio managers since their goal is to make investment judgments. However, managing equity portfolios requires additional skills like administrative and technical abilities. Daniel H. Cole believes understanding portfolio mechanics is key to creating cohesive collections of portfolios. There are various techniques for valuing companies' equities and managing equity portfolios effectively while considering tax implications. Portfolio models help managers efficiently apply strategies to multiple portfolios at once by adjusting model weightings over time.
Gentlemen Prefer Bonds discusses factors to consider when allocating fixed-income assets. It recommends an actively managed portfolio using multiple investment firms with complementary philosophies to balance risk and returns. The document contrasts active versus passive management, advantages of multiple advisors, and importance of manager experience, philosophy and ability to generate alpha. It emphasizes maximizing portfolio performance within regulatory constraints by allowing managers flexibility and discretion tailored to their expertise.
Requires a high degree of consensus among individuals on a given meas.pdfajantainds23
Requires a high degree of consensus among individuals on a given measurement. The use of
consol dated statements is justified Rationale why plant assets are not reported at liquidation
value. Ensures that all relevant financial information is reported. Indicates that market value
changes subsequent to purchase are not recorded n the accounts. Intangibles are capitalized and
amortized over periods benefited. A company charges its solos commission costs to expense in
the income statement increase in assets less liabilities during the year, after ignoring distributions
to owners and investments by owners Items characterized by service potential or future
economic benefit. Reporting must be done at defined time intervals. An allowance for doubtful
accounts is established. Lower-of-cost-or-market is used to value inventories. Enables investors
and creditors to forecast future bond for the company. Issuance of interim reports is an example
of this quality of accounting information. Arise from activities that constitute the entity\'s
ongoing major or central operations. Ignores the economic consequences of a standard or rule.
Repair tools are expensed and not capitalized when purchased. The dollar is used to report on
financial performance.
Solution
1) Neutrality
2) Full disclosure principle
3) Measurement priciple(historical cost)
4) Periodicity
5) Measurement principle (historical cost).
Requires a high degree of consensus among individuals on a given meas.pdfajantawatchkota
Requires a high degree of consensus among individuals on a given measurement. The use of
consol dated statements is justified Rationale why plant assets are not reported at liquidation
value. Ensures that all relevant financial information is reported. Indicates that market value
changes subsequent to purchase are not recorded n the accounts. Intangibles are capitalized and
amortized over periods benefited. A company charges its solos commission costs to expense in
the income statement increase in assets less liabilities during the year, after ignoring distributions
to owners and investments by owners Items characterized by service potential or future
economic benefit. Reporting must be done at defined time intervals. An allowance for doubtful
accounts is established. Lower-of-cost-or-market is used to value inventories. Enables investors
and creditors to forecast future bond for the company. Issuance of interim reports is an example
of this quality of accounting information. Arise from activities that constitute the entity\'s
ongoing major or central operations. Ignores the economic consequences of a standard or rule.
Repair tools are expensed and not capitalized when purchased. The dollar is used to report on
financial performance.
Solution
1) Neutrality
2) Full disclosure principle
3) Measurement priciple(historical cost)
4) Periodicity
5) Measurement principle (historical cost).
Valuing a business, especially a financial institution, is complex and involves both quantitative and qualitative factors. There is no single correct valuation, as the value depends on the perspective of the buyer and weighting given to various drivers. When valuing banks, traditional methods like cash-free/debt-free and EBIT multiples are inappropriate because interest payments are a major revenue and cost factor. Parties typically use alternatives like applying a multiple to net asset value, valuing financial instruments individually, discounting loan portfolios, and basing value on assets under management. Completion accounts and purchase price adjustments are also common to address volatility between signing and closing deals involving banks.
The document discusses transaction costs incurred when executing investment strategies and how they can negatively impact returns. It defines implementation shortfall as the difference between the theoretical return of a investment strategy and the actual return achieved after accounting for all transaction costs. Investment managers have a fiduciary duty to minimize these costs through a best execution trading process and by utilizing best execution brokers who can provide high-quality executions through low commissions, fast trade times, anonymity, and minimizing market impact. Regularly measuring and disclosing transaction costs allows managers to optimize their broker selection and trading strategies to maximize value for investors.
The document discusses various aspects of working capital and treasury management. It addresses balancing liquidity and profitability when managing elements of working capital like cash, receivables, inventory, and payables. Companies can take aggressive, average, or defensive stances in their working capital approaches, impacting risk and return. Reducing days in the cash operating cycle through inventory, receivables, and payables management can improve liquidity issues. Treasury management involves cash budgeting, financing plans, and cash transmission costs to balance holding versus lacking sufficient cash.
Module - BackgroundTRANSFER PRICING AND RESPONSIBILITY CENTERSIlonaThornburg83
Module - Background
TRANSFER PRICING AND RESPONSIBILITY CENTERS
Modular Learning Objectives
Keep the following objectives in mind as you work through the material in this module:
· Define the role of responsibility accounting.
· Differentiate between controllable and uncontrollable costs.
· Analyze structure of a decentralized organization.
· Define profit centers, cost centers, and investment centers.
· Compute transfer prices.
· Identify three main transfer pricing approaches.
Required Reading
This module covers the role of responsibility accounting and responsibility centers. Explore these topics further while keeping the above six objectives in mind. Click on the three arrows to explore each topic in more detail:
The term responsibility accounting refers to an accounting system that collects, summarizes, and reports accounting data relating to the responsibilities of individual managers. A responsibility accounting system provides information to evaluate each manager on the revenue and expense items over which that manager has primary control (authority to influence).
A responsibility accounting report contains those items controllable by the responsible manager. When both controllable and uncontrollable items are included in the report, accountants should clearly separate the categories. The identification of controllable items is a fundamental task in responsibility accounting and reporting.
To implement responsibility accounting in a company, the business entity must be organized so that responsibility is assignable to individual managers. The various company managers and their lines of authority (and the resulting levels of responsibility) should be fully defined. Not all managers have equal authority and responsibility. The degree of a manager’s authority varies from company to company.
The controllability criterion is crucial to the content of performance reports for each manager. For example, at the department supervisor level, perhaps only direct materials and direct labor cost control are appropriate for measuring performance. A plant manager, however, has the authority to make decisions regarding many other costs not controllable at the supervisory level, such as the salaries of department supervisors. These other costs would be included in the performance evaluation of the store manager, not the supervisor.
Watch this short video to further explain the concept of responsibility accounting. https://www.youtube.com/watch?time_continue=1&v=EsS0socI3I4
Decentralization is the dispersion of decision-making authority among individuals at lower levels of the organization. In other words, the extent of decentralization refers to the degree of control that segment managers have over the revenues, expenses, and assets of their segments. When a segment manager has control over these elements, the investment center concept can be applied to the segment. Thus, the more decentralized the decision-making is in an organization the more appli ...
chapter 8Responsibility Concepts and Sound Decision-Maki.docxchristinemaritza
chapter 8
Responsibility Concepts and Sound
Decision-Making Analytics
Learning Objectives
• Understand concepts in responsibility accounting.
• Be able to provide a framework for rational business decision making, and understand
how to apply these concepts for specific types of situations.
• Apply capital budgeting methods and discounted cash flow concepts.
• Know how to make proper long-term investment decisions.
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waL80281_08_c08_189-212.indd 1 9/25/12 1:03 PM
CHAPTER 8Section 8.1 Responsibility Accounting Concepts
Chapter Outline
8.1 Responsibility Accounting Concepts
Accumulation of Information to Match Centers
Management by Exception
Rational Decision Making
Sunk Costs
8.2 A General Framework for Making Sound Business Decisions
Applying the General Framework to an Example: Bulk Orders
Applying the General Framework to an Example: Offshoring
8.3 Capital Expenditures
Future Value
Annuity
Present Value
8.4 Making Decisions About Long-Term Investments
Net Present Value
Internal Rate of Return
Simpler Capital Budgeting Methods
Recap of Using Capital Budgeting Tools for Decision Making
8.1 Responsibility Accounting Concepts
In general, managers should be held accountable for the results of their decisions and business execution. Without accountability based on performance-related feedback, the
business will not perform at its best, and areas in need of improvement may not be iden-
tified on a timely basis. Business feedback is often based on financial results. You have
already seen how budgets and variances are used to help identify areas for improvement.
Because managers are accountable for their decisions, actions, and outcomes, their perfor-
mance measures should align around the department, product, division, or other business
for which they are responsible. In other words, the attribution of responsibility tends to
follow the organizational structure of the business.
Sometimes, a business has a highly dispersed design, with decisions nested with lower
level managers. Other businesses generate decisions only at the upper levels, and
lower level personnel are basically charged with execution of defined actions. Proper
implementation of responsibility accounting concepts stipulates that performance mea-
sures be aligned with the business organization structure. In other words, accountability
should map to responsibility. Proper design of performance measurement systems there-
fore requires that the management accountant carefully consider the organizational struc-
ture. Sometimes performance measures are only appropriate on an aggregated basis, such
as where the organization is structured as a top–down, command-and-control, central-
ized decision-making entity. As lower level managers are given increased authority, so
too should the accountability system be modified to provide more disaggregated perfor-
mance measures. Although quite logical, this presents measurement challenges.
waL80281_ ...
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The transactional profit split method seeks to establish arm's length outcomes for controlled transactions by splitting profits between associated enterprises based on their contributions. It is particularly useful when compensation cannot be reliably valued by reference to comparable transactions alone. The transactional profit split method may be the most appropriate method when each party makes unique and valuable contributions, the business operations are highly integrated, or the parties share economically significant risks or separately assume closely related risks. It requires detailed information and documentation of how the method was applied.
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2. Trade allocation: Asset managers’ need for a robust Compliance function 2
» Understanding the need for effective
compliance in the trade allocations process
» Best practices to mitigate violations
resulting from trade allocations
» Common types of trade allocation
methodologies
» Present-day workflow management
» Noteworthy regulatory cases
» How can Acuity Knowledge Partners help?
KEY
INSIGHTS
3. Trade allocation: Asset managers’ need for a robust Compliance function 3
Introduction
Asset managers are required to determine, on a day-to-day basis, how to assign
security trades ordered for their funds or client accounts, a process generally
referred to as trade allocation. Trade allocation and the order aggregation process
are carried out by investment advisers/asset managers, where securities traded
have to be re-allocated from a pool account en bloc to various sub-accounts
(tranches) that belong to the same composite/trading strategy.
In order to facilitate the best execution, orders need to be aggregated where: (a) all
orders for the same security and identical execution criteria arriving at the trading
desk are placed at approximately the same time through a block order or (b) orders
that arrive at the dealing desk for the same stock with identical execution criteria
but at different times can also be aggregated/merged if the trade execution for the
first (prior) order has not started (for example, due to the market having not been
opened yet).
Life of a Trade
Trade Processing
Order Management
Trade Allocation
Trade Agreement
Order
(T-n) Day
Execution
T Day
Settlement
T+2 Day / T+3 Days
Clearing
T+1 Day
Reference Source: BNY Mellon
4. Trade allocation: Asset managers’ need for a robust Compliance function 4
Why is trade allocation monitoring required?
Since trade allocations require the breaking down of
aggregated or block trades in the underlying client
accounts being managed by investment advisers, the
firm should make sure that trade allocation practices
carried out are unbiased and egalitarian. There is a
fiduciary duty to make sure a scrupulous compliance
monitoring process is in place, since trade allocation
slip-ups can lead not only to bad investment results
for their client accounts but also draw the wrath of
regulators.
Regulators such as the Securities and Exchange
Commission (SEC) and the Financial Conduct
Authority (FCA) have made a point of enforcing action
against “favouring”, which occurs when the trading
desk allocates trades with advantageous results to
preferred accounts and trades with inferior results
to other clients and/or in uneven proportions. These
trade allocation irregularities are typically found
with investment advisers who manage performance
fee accounts or proprietary or personal employee
accounts alongside non-performance fee accounts.
Also, it makes it tough for clients to detect, as the
advisers ordinarily make the allocations after the
trades have been executed. Regulators are also
against practices such as “quid pro quo”, where the
payment of superior or better commissions receive a
higher amount of allocation.
The SEC uses Section 206 (Prohibited Transactions
by Investment Advisers sub-sections [1] and [2]),
Rule 206(4)-7 (Compliance Policies and Procedures)
of the Investment Advisers Act of 1940 and Section
10 (Manipulative and Deceptive Devices sub-section
[b]) of the Securities Exchange Act of 1934 to impose
fines and penalties against the carrying out of inapt
trading practices. Likewise, the FCA uses Conduct
of Business Sourcebook - Section 11.3 (client order
handling) to enforce regulatory requirements.
Therefore, having a robust and inclusive trade
allocation policy should be an elementary requirement
for a compliance-prudent firm.
In order to make sure trade allocation practices do not
favour anyone, a complete and veracious disclosure of
theallocationpoliciesandpreservationofsatisfactory
books and records are vital, as regulators have, as of
recent, intensified attempts to combat misconduct in
trade allocation practices.
5. Trade allocation: Asset managers’ need for a robust Compliance function 5
Best practices to mitigate violations resulting
from trade allocations
Although regulators do not explicitly provide
instructions on any specific allocation practice
or methodology to be adhered to, a compliance-
conscious firm must consider the below key practices
to avoid trade allocation violations:
1. Clear, unambiguous and complete trade allocation
policies and procedures.
2. A standard allocation methodology (pro-rata
allocation, rotation-based, etc.) for trades.
Even though pro-rata methodology is the most
frequently used, the appropriateness of any
particular method will generally depend on the
investment manager’s trading strategy.
3. Being uniform (for example, not changing
allocation policies on methodology frequently).
4. Disclosing and appropriately communicating to
all parties (clients) on changes being made to
allocation policies/methodologies, etc., since
there have been a number of enforcement actions
by regulators, wherein the advisers do not fully
disclose the activity or changes to their clients.
There should be full disclosure in the adviser’s
Form ADV (Uniform Application for Investment
Adviser Registration).
5. Documenting how trades are being allocated,
especially when the adviser has to make ad
hoc decisions. This is for the purpose of having
supporting documentation to provide facts and
rationale. If documentation is not maintained, it
may cause unnecessary scrutiny from regulators/
auditors, as the details could be forgotten with the
passage of time between when such decisions
are made and when the regulator/auditor inquires
about them.
6. Theadvisershouldnotbeaggregatingtransactions
unless it believes aggregation is consistent with
seeking the best execution and also with the
terms of the adviser’s Investment Management
Agreement with each client participating.
7. Avoiding preferential treatment or cherry picking
by not favouring certain clients in a limited
investment opportunity. In addition, each client
account that participates in an aggregated order
should participate at the average share price for
all the adviser’s transactions in that security, with
the transaction costs shared on a pro-rata basis.
8. Prior to entering into an aggregated order, the
adviser should prepare a written statement,
specifying the participating client accounts and
how it intends to allocate the order among the
client accounts. Also, the adviser’s books and
records should distinctly reveal, for every client
account, the orders that are aggregated and
the securities that are held, bought and sold for
participating accounts.
It is also essential to note that valid exceptions to
deviate from the standard allocation practices are
acceptable – such as odd lot quantity exemption
for the security being purchased, accounts not
participating because they have dissimilar investment
strategies, the Investment Policy Statement having
unique restrictions (for example, not allowing to invest
in “sin” stocks) or the account having considerably
higher or lower cash balances due to subscription or
redemption activities. A partial fill on a block order
would also be a cause for not being able to allocate
certain client accounts on a pro-rata basis.
It would be ideal if the trading, portfolio management
and compliance teams review trade allocation reports
periodically (daily, weekly, monthly, etc.), wherein
the report shows all allocations and any exceptions
with respect to the standard guidelines for the time
period under consideration, so that reviewing this
information and examining the exceptions enables
the firm to identify and resolve any trade errors that
arise from trade allocations in a timely and accurate
manner.
6. Trade allocation: Asset managers’ need for a robust Compliance function 6
Common types of trade allocation
methodologies
There are multiple trade allocation methodology types
that investment advisers can use for allocating for
fully and/or partially filled trades. The suitability would
be subject to the trading strategy being used. Some of
the common ones are as follows.
1. Pro-rata allocation: This is the most widely used
methodology, where trades are allocated on a
proportionate basis. The splitting of allocation
quantity between composite accounts of the
total executed quantity will sum up to constitute
the total. Example: If there are 3 accounts in a
composite, the total executed quantity is 100 units
and the pro-rata allocation is 10/30/60 (based
on the portfolio size of composite accounts),
the allocated quantity among the accounts
will sum back to the total executed quantity.
2. Rotation of accounts: This methodology involves
accounts to be allocated in systematic cycles.
Example: If there are 3 accounts trading in a
composite/trading strategy, during the first
phase of the cycle, Account 1 will receive the
most advantageous fill, Account 2 will receive the
second-most advantageous fill and so on. In the
second phase of the cycle, Account 2 will receive
the most advantageous fill and Account 1 will move
to the end and receive the least advantageous fill.
3. Random allocation: This is generally based on a
computer-generated random order of accounts.
The best price is allocated to the first account on
the computer-generated list and the worst price
is allocated to the account that is last on that list.
4. Highest prices to the highest account
numbers: Accounts are ranked in order of
their account numbers. The highest fill prices
are allocated to the account with the highest
account number. Any “gain” that the higher
numbered account gets on the “sell” orders is
offset by the “loss” it gets on the “buy” orders.
5. Average price: During split fills, the average price
is calculated by the system for every bunched
order, and the average price is thereby assigned
to each allocated contract. This allocation method
offers an unbiased and uniform way of allocating
trades.
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