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AN INTRODUCTION TO FINANCIAL MANAGEMENT FOR BOARDS PRESENTED BY OTS MANAGEMENT
AN INTRODUCTION TO FINANCIAL MANAGEMENT <ul><li>What is Financial Management? </li></ul><ul><li>What is my legal responsib...
WHAT IS FINANCIAL MANAGEMENT? <ul><li>What do you think “Financial Management” involves? </li></ul>
WHAT IS FINANCIAL MANAGEMENT? <ul><li>Recording transactions – payments, receipts, bills payable, income collectible (“Kee...
LEGAL RESPONSIBILITY OF BOARDS <ul><li>LEGISLATION </li></ul><ul><ul><li>You are personally responsible for:- </li></ul></...
LEGAL RESPONSIBILITY OF BOARDS <ul><li>CONTRACTS </li></ul><ul><ul><li>When you sign as a Board member you must have Board...
LEGAL RESPONSIBILITY OF BOARDS <ul><li>WHAT ARE FINANCIAL RECORDS? RECOMMENDED - </li></ul><ul><li>General Ledger </li></u...
LEGAL RESPONSIBILITY OF BOARDS <ul><li>What should I do now? </li></ul>
LEGAL RESPONSIBILITY OF BOARDS <ul><li>What should I do now? </li></ul><ul><li>Board should resolve to allow signatories t...
THE FINANCIAL MANAGEMENT CYCLE Ensure up to date financial records are kept Ensure Recommendations dealt with
INTERNAL CONTROLS <ul><li>“ System of controls where checks and balances are automatic” – helps the Board to fulfil their ...
Profit & Loss – Income & Expenditure <ul><li>Same thing, shown different ways </li></ul><ul><ul><li>Profit & Loss Account ...
Period from ? To ? Income Expenditure “ Sundry” Profit? “ Depreciation”
Balance Sheets <ul><li>Summary of Assets and Liabilities on  one given day </li></ul><ul><li>Assets </li></ul><ul><ul><li>...
On one day – 30 th  June 2007 Net worth on that day Capital Items
Case study <ul><li>ABC Corporation starts operations on 1 July 2007 </li></ul><ul><li>You are on the Board </li></ul><ul><...
Case study <ul><li>The Accountant of ABC Corporation starts to process Purchase Orders, Cheques, Wages, and deposits Incom...
Case study <ul><li>The Accountant of ABC Corporation follows systems set up and processes the transactions. She gets to th...
Case study <ul><li>The Accountant of ABC Corporation provides you with the following report:- </li></ul><ul><li>PROFIT & L...
Case study <ul><li>The Accountant of ABC Corporation also provides you with the following balance sheet:- </li></ul><ul><l...
At the end of the year the Accountant for ABC Corporation provides this Profit and Loss Account and on the next page the B...
CASE STUDY
The external Accountant and/or Auditor translates it to look something like this ABC AUDITED FS HANDOUT CASE STUDY
WHAT HAPPENS IN AN AUDIT <ul><li>The Auditor checks systems of Internal Control – and decides if he can rely on them </li>...
AUDITED FINANCIAL STATEMENTS <ul><li>They are “true and fair” </li></ul><ul><li>They are NOT 100% right </li></ul><ul><li>...
WHAT DOES THE BOARD DO AFTER AN AUDIT? <ul><li>Review the Audited Financial Statements before signature </li></ul><ul><li>...
SUMMARY <ul><li>The Board has serious PERSONAL responsibilities </li></ul><ul><li>“ Nobody told me” is not an excuse </li>...
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Financial Management Training For Boards

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Financial Management Training For Boards

  1. 1. AN INTRODUCTION TO FINANCIAL MANAGEMENT FOR BOARDS PRESENTED BY OTS MANAGEMENT
  2. 2. AN INTRODUCTION TO FINANCIAL MANAGEMENT <ul><li>What is Financial Management? </li></ul><ul><li>What is my legal responsibility as a Board member? </li></ul><ul><li>What is the Financial Management cycle? </li></ul><ul><li>What are Internal Controls? </li></ul><ul><li>What is a Profit & Loss or Income & Expenditure Account? </li></ul><ul><li>What is a Balance Sheet? </li></ul><ul><li>Case Study </li></ul><ul><li>What happens in an Audit? </li></ul><ul><li>Summary </li></ul>
  3. 3. WHAT IS FINANCIAL MANAGEMENT? <ul><li>What do you think “Financial Management” involves? </li></ul>
  4. 4. WHAT IS FINANCIAL MANAGEMENT? <ul><li>Recording transactions – payments, receipts, bills payable, income collectible (“Keeping the books”) </li></ul><ul><li>Authorising orders and payments (“Control”) </li></ul><ul><li>Making decisions about assets and liabilities (“Responsible decision-making”) </li></ul><ul><li>Keeping cash and other assets safe (“Security”) </li></ul><ul><li>Ensuring the corporation stays within the law (“Stewardship”) </li></ul><ul><li>Reporting to owners and members (“Reporting”) </li></ul>
  5. 5. LEGAL RESPONSIBILITY OF BOARDS <ul><li>LEGISLATION </li></ul><ul><ul><li>You are personally responsible for:- </li></ul></ul><ul><ul><ul><li>Keeping up to date financial records that </li></ul></ul></ul><ul><ul><ul><ul><li>correctly record and explain transactions </li></ul></ul></ul></ul><ul><ul><ul><ul><li>explain the corporation’s financial position and performance </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Allows True and Fair financial statements to be prepared </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Allows financial statements to be audited if necessary </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Allows the company to obey tax laws </li></ul></ul></ul></ul><ul><ul><li>What does “Responsible” mean? </li></ul></ul><ul><ul><ul><li>The buck stops with you </li></ul></ul></ul><ul><ul><ul><li>“ Nobody told me” is not an excuse </li></ul></ul></ul><ul><ul><li>Maximum Penalty – Fine and Gaol; bankruptcy </li></ul></ul>
  6. 6. LEGAL RESPONSIBILITY OF BOARDS <ul><li>CONTRACTS </li></ul><ul><ul><li>When you sign as a Board member you must have Board approval as recorded or you sign for yourself! </li></ul></ul><ul><ul><li>When you sign contracts you are tying up the corporation to that contract – can you do so? What information do you need? </li></ul></ul><ul><ul><li>Read the contract – are you personally liable? Is the Board, as a group, personally liable? </li></ul></ul><ul><ul><li>“ Nobody told me” is not an excuse </li></ul></ul><ul><ul><li>Penalties – under contract law: personal liability, bankruptcy, jailed for fraud </li></ul></ul>
  7. 7. LEGAL RESPONSIBILITY OF BOARDS <ul><li>WHAT ARE FINANCIAL RECORDS? RECOMMENDED - </li></ul><ul><li>General Ledger </li></ul><ul><li>Cash records </li></ul><ul><li>Debtor and sales records </li></ul><ul><li>Creditor and purchases records </li></ul><ul><li>Wages and superannuation records </li></ul><ul><li>Register of property, plant & equipment </li></ul><ul><li>Inventory records </li></ul><ul><li>Investment records </li></ul><ul><li>Tax returns, BAS returns and so on </li></ul><ul><li>Deeds, Contracts, Agreements </li></ul>
  8. 8. LEGAL RESPONSIBILITY OF BOARDS <ul><li>What should I do now? </li></ul>
  9. 9. LEGAL RESPONSIBILITY OF BOARDS <ul><li>What should I do now? </li></ul><ul><li>Board should resolve to allow signatories to sign cheques, approve orders, sign contracts under prescribed conditions </li></ul><ul><li>Don’t sign unless you are sure - Your duty to ask questions (if you get lies?) </li></ul><ul><li>Board should discuss, understand and approve all contracts </li></ul><ul><li>“ Are records up to date?” </li></ul><ul><li>“ Please explain” </li></ul><ul><li>What does the Accountant or Auditor say? </li></ul>
  10. 10. THE FINANCIAL MANAGEMENT CYCLE Ensure up to date financial records are kept Ensure Recommendations dealt with
  11. 11. INTERNAL CONTROLS <ul><li>“ System of controls where checks and balances are automatic” – helps the Board to fulfil their responsibilities </li></ul><ul><li>Auditors or Systems Consultants advise </li></ul><ul><li>Physical Security </li></ul><ul><li>Separation of Duties </li></ul><ul><li>Authorisation by delegated levels </li></ul><ul><li>Evidence of signatures, dates, authorities </li></ul><ul><li>Why have Internal Controls? </li></ul>
  12. 12. Profit & Loss – Income & Expenditure <ul><li>Same thing, shown different ways </li></ul><ul><ul><li>Profit & Loss Account – generally for a business </li></ul></ul><ul><ul><li>Income & Expenditure Statement – generally for a Not For Profit </li></ul></ul><ul><li>Captures all the Income and all the Expenditure and shows if there is a Profit (Surplus) or Loss (Deficit) in a given time period </li></ul><ul><li>CAPITAL ITEMS </li></ul><ul><ul><li>Accountants do not consider these in Profit & Loss because they keep value over a long time </li></ul></ul><ul><ul><li>NOT in Profit and Loss but in the Balance Sheet as assets </li></ul></ul><ul><ul><li>Depreciation over given time period </li></ul></ul>
  13. 13. Period from ? To ? Income Expenditure “ Sundry” Profit? “ Depreciation”
  14. 14. Balance Sheets <ul><li>Summary of Assets and Liabilities on one given day </li></ul><ul><li>Assets </li></ul><ul><ul><li>Physical Assets </li></ul></ul><ul><ul><li>Intangible Assets </li></ul></ul><ul><ul><li>Cash and Bank </li></ul></ul><ul><ul><li>Debtors </li></ul></ul><ul><li>Liabilities </li></ul><ul><ul><li>Creditors </li></ul></ul><ul><ul><li>Loans </li></ul></ul><ul><li>CURRENT and NON-CURRENT </li></ul><ul><li>Shows what your corporation is worth on that one day if you collect and sell all assets and pay all liabilities </li></ul>
  15. 15. On one day – 30 th June 2007 Net worth on that day Capital Items
  16. 16. Case study <ul><li>ABC Corporation starts operations on 1 July 2007 </li></ul><ul><li>You are on the Board </li></ul><ul><li>The CEO hires an Accountant </li></ul><ul><li>What should you do? </li></ul>
  17. 17. Case study <ul><li>The Accountant of ABC Corporation starts to process Purchase Orders, Cheques, Wages, and deposits Income into the bank </li></ul><ul><li>What should you do? </li></ul>
  18. 18. Case study <ul><li>The Accountant of ABC Corporation follows systems set up and processes the transactions. She gets to the end of the first reporting period </li></ul><ul><li>What should you do? </li></ul>
  19. 19. Case study <ul><li>The Accountant of ABC Corporation provides you with the following report:- </li></ul><ul><li>PROFIT & LOSS – QUARTER 1 Budget </li></ul><ul><li>Income 10,000 10,000 </li></ul><ul><li>Expenses:- </li></ul><ul><li>Rent 2,000 2,000 </li></ul><ul><li>Office Supplies 1,000 2,000 </li></ul><ul><li>Materials 5,000 1,000 </li></ul><ul><li>--------- ---------- </li></ul><ul><li>Total Expenses 8,000 5,000 </li></ul><ul><li>--------- ---------- </li></ul><ul><li>Net Profit 2,000 5,000 </li></ul><ul><li>What should you do? </li></ul>
  20. 20. Case study <ul><li>The Accountant of ABC Corporation also provides you with the following balance sheet:- </li></ul><ul><li>BALANCE SHEET QUARTER 1 </li></ul><ul><li>Cash at Bank 1,000 </li></ul><ul><li>Receivable 9,000 </li></ul><ul><li>-------- </li></ul><ul><li>Total Assets 10,000 </li></ul><ul><li>------- </li></ul><ul><li>Less Liabilities:- </li></ul><ul><li>Payable 8,000 </li></ul><ul><li>--------- </li></ul><ul><li>Total Liabilities 8,000 </li></ul><ul><li>--------- </li></ul><ul><li>Net Assets 2,000 </li></ul><ul><li>What should you do? </li></ul>
  21. 21. At the end of the year the Accountant for ABC Corporation provides this Profit and Loss Account and on the next page the Balance Sheet. These are the year end Financial Statements she will give to the External Accountants/Auditor CASE STUDY
  22. 22. CASE STUDY
  23. 23. The external Accountant and/or Auditor translates it to look something like this ABC AUDITED FS HANDOUT CASE STUDY
  24. 24. WHAT HAPPENS IN AN AUDIT <ul><li>The Auditor checks systems of Internal Control – and decides if he can rely on them </li></ul><ul><li>The Auditor TEST CHECKS important balances to see if:- </li></ul><ul><ul><li>They agree to INDEPENDENT sources </li></ul></ul><ul><ul><li>They represent “true and fair” value </li></ul></ul><ul><ul><li>They are made up of transactions that have been approved and are paid to independent parties </li></ul></ul><ul><ul><li>If they are assets, that they exist </li></ul></ul><ul><li>The Auditor DOES NOT check 100% </li></ul><ul><li>The Auditor DOES NOT start off looking for fraud, only if he becomes suspicious </li></ul><ul><li>The Auditor makes no adjustments to small differences if they are immaterial </li></ul><ul><li>The Auditor expresses an opinion and writes a Management Letter </li></ul>
  25. 25. AUDITED FINANCIAL STATEMENTS <ul><li>They are “true and fair” </li></ul><ul><li>They are NOT 100% right </li></ul><ul><li>The Auditor has given an “Opinion” </li></ul><ul><li>Qualifications are serious! </li></ul><ul><li>Deal with the Management Letter as well! </li></ul>
  26. 26. WHAT DOES THE BOARD DO AFTER AN AUDIT? <ul><li>Review the Audited Financial Statements before signature </li></ul><ul><li>Ask for explanations or a walk-through the numbers </li></ul><ul><li>Go through the Management Letter </li></ul><ul><li>Once satisfied resolve that at least 2 people sign </li></ul><ul><li>Follow up on Audit Qualifications and Management Letter – FOLLOW THROUGH! </li></ul>
  27. 27. SUMMARY <ul><li>The Board has serious PERSONAL responsibilities </li></ul><ul><li>“ Nobody told me” is not an excuse </li></ul><ul><li>It is your responsibility to ask questions until you are satisfied </li></ul><ul><li>Financial management means proper authorisation procedures </li></ul><ul><li>Your responsibility to protect the assets of the corporation – AND THERE ARE HEAVY PENALTIES AT LAW </li></ul>

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