Working Effectively in Finance

Accountants working within a commercial company will provide:

F - Internal reporting & advice to the directors of financial legislation. 

F - Budget reviews, debtors and credit control. 

F - Preparing year end financial statements. 

F - Taxation requirements for the company. 

F - Internal auditing. 

M - Takes important reports to company directors to aid business decisions. 

M - Works directly with internal managment team.

M - Will likely be qualified as a managment accountant (CIMA.)

Accountants working within a practice may:

- Likely to be qualified as a chartered accountant (E.g, ACA, CIMA.)

- Provide services to clients preapring their end of year accounts for limited companies. 

- Calculating corportion tax. 

- Calculating dividends payable to shareholders & directors. 

- Self - assessment tax returns. 

Specialist services accountants may provide:

- Likely to be qualified as a chartered accountant (ACCA.)

- Auditing. 

- Investment managment. 

- Taxation. 

- Legal. 

Financial Accounting VS Management Accounting

Financial accounting is required to meet statutory requirements and will be based on historical events. 

Management accounting is less formal and is tailored to the needs of the company. It will utilise historic information to make future forecasts or predictions. 

The Role of the Accounting Function:

Sales - Credit checks for new customers, statements & debt reports. 

Purchasing Dept - Inventory reports, how much is owed to suppliers. 

Production - Reporting costs of production, inventory records. 

External - Information to auditors, shareholders, banks, customers & suppliers, regulatory bodies. 

Human Resources - Payroll information & costs. 

Management - Timely reports on costs such as labour, materials and overheads. 

The Accounting Function - Activities 

Sales order processing - (Sales ledger) taking sales orders, producing invoices. 

Purchasing - (Purchase ledger) checking invoices and making payments. 

Cashiering - Recording cash transactions, cash book, petty cash and bank recs. 

Payroll - Maintain records, calculating and processing payroll payments. 

Costing - Reporting to management costs of product or services. 

Inventory - (Stock control) monitoring and re-ordering stock. 

Definitions 

Stakeholders - People and organisations that a business has responsibility to provide a service to.

Solvency - It's the ability of a company to meet short and long term debts as they become due. 

Green Policies - A company policy which details their commitment to preserving the environment. 

Fraud - A dishonest organised or opportunistic criminal deception that involves theft. 

Segregation of Duty - A procedure set out using the reportng lines of the business to define and sperae specific tasks to minimise the risk of errors and fraud. 

Reporting Lines - The line of communication between different levels and departments within a business. 

The Accounts department of a business will recieve information like:

- Production Schedules. 

- Expense claim forms. 

- Time sheets. 

- Invoices to be paid. 

- Changes in staff details. 

The Organisation and its Structure

A good company will introduce an organisational chart to define the structure of hte business. This identifies individual roles, where they fit within the business and who they report to. 

The larger the business, the more likely there will be lines of reporting. 

Solvency

The accounts function plays a key role in keeping a company solvent. An effecient, accurate and up to date accounts system means that a business can very quickly see its position at all times. Knowing key information, the management team can make decisions on the steps to remain solvent. 

Things an Accounts Assistant will do which supports the business in remaining solvent?

- Bank Reconcilliation. 

- Monitoring of bank balances. 

- Sales ledger reconcilliation. 

- Credit control. 

- Monitor long term loans. 

- Supplier statement reconciliaton. 

- Making payments on time. 

What are the steps a business might take to improve solvency?

- Negotiate credit terms with suppliers.

- Chase debts. 

- Charge interest on late payments. 

- Re-negotiable loan terms. 

- Timely, regular reports to management.

- Check solvency of new customers before orders are processed. 

Communication

As a professional it is essential that you display and present information in the most approprite format for its recipient. When communicating and providing financial information it is our responsibility as accounting professionals to ensure that it is:

Complete - Including all data required. 

Accurate - Factually and numerically correct. 

Timely - Delivered at the right time. 

Fit for purpose - Relevant. 

Methods of Communication 

Letters - Formal, often printed and sent via the post.

Email - Electronic, often sent instead of a letter to external recipients. 

Reports - Formal format to communicate financial info with written analysis and conclusion. 

Memo - Internal written document. 

Telephone 

Face to face meetings

Skype/Video conferencing

Scanning/Faxing

Comparison of Information

A regular reuirement for accounting professionals is to provide information which compares certain financial data so that the management can have a picture of how the company is performing. It is common for Excel to be used for calculating and compiling comparisons. 

Comparison with previous periods - Comparing current costs or income with a previous period.

Comparison with corresponding periods - Same periods of popularity will gie an accurate picture of variances. 

Comparison with budgets - Comparing actual costs or income to a budget which will show if there have been any significant increases or decreases. 

Confidentiality

An important consideration when communicating is to observe confidentiality. The data you will be providing to internal or external stakeholders may contain sensitive or personal information. The data protection act protects the confidentiality of information held by individuals which apples to:

Personal data held on a computer - Customers, staff details. 

Paper based files - Holding customer, supplier or employee details. 

Information about customers or suppliers should never be revealed to outsiders. The only exceptions to this rule are instances where money laundering is suspected. 

Any breach of confidential informatin would be seen as gross misconduct. 

Effective working relationships

Attributes that mean you can conduct yourself as an effective employee include:

- Teamwork.

- Communication. 

- Interpersonal skills - people skills. 

- Organisational skills.

'Personal development is about reaching your potential to improve overall employabilit, skills and industry awareness.'

SMART Targets - Specific, Measurable, Achievable, Realistic, Timely. 

Accounting Regulations

VAT Records - Regulated by HMRC 

- A business can register VAT at any time but must register when their turnover exceeds a threshold dictated by HMRC. 

- A trader that is VAT registered is required to submit regular VAT returns to HMRC paying the VAT they have charged to their customers. 

- A business is allowed to deduct the VAT charged to them by suppliers for goods and expenses from the total VAT charged to customers. 

- A registered business must maintain and keep VAT records. 

Types of VAT records?

Customer invoices and credit notes, supplier invoices and credit notes, reciepts, petty cash vouchers, day books, cash book, a VAT account in the double entry bookkeeping system usually called a VAT control.

Retention of Accounting 

Retention of Accounting Records

- A company will adopt its own retention policyfor certian documents. 

- The tax and company laws require business records to be kept safe for at least six years. 

- The reason for keeping records for this long is in case they are required as evidence in a legal case. 

- Once the time has expired for keeping records, they must be deleted and completely destroyed. 

Payroll - Regulated by HMRC 

Payroll Records:

Time sheets, payslips, summary calculations of wages, employee details such as tax code tax deduction, P45 and P60, company benefits paid to employee such as expenses and employee details. 

Payroll records must be:

Secure, confidential, up-to-date, accurate and complete. 

Retention of VAT records

- VAT records should be kept for a minimum of six years.

- HMRC can request to inspect the records at any time. 

- If any fraud or tax avoidance is detected, then the company will need to pay any VAT owing and will be fined by HMRC. 

Regulations for Accounting Records

Types of Information Held:

- Ledger Accounting (held within software)

- Sales Invoice & Credit Notes (SDB & SRDB)

- Cash Book 

- Bank Reconcilliation 

- Supplier Invoices and Credit Notes (PDB & PRDB)

- Petty Cash 

- List of Assets (Asset register)

- Inventory Records

All records kept should be:

- Easily Accessible - For both electronic and physically filed documents, so that they can be found should any queries arise in the future. 

- Complete. 

- Accurate. 

- Up-to-date. 

If an error is detected, such as the VAT being incorrectly recorded or omitted from the accounts, it must be corrected on the next VAT return. 

Regular reconiliation and authorisation procedures should reduce the risk of errors occuring. 

Retention of Payroll Records:

- Payroll records should be kept for a minimum of three years. 

- HMRC can call to inspect the records at any time to check that no fraud or errors have been made. 

- Any fraud or major errors detected can result in repayment of lost tax and a fine. 

Some of the main policies you can expect to find within Accounting:

- Code of Conduct. 

- Health & Safety. 

- Data Protection. 

- Green Policies. 

Code of Conduct

It is an internal document which will be produced by the directors of a business that outlines what is expected of its employees whilst in the workplace in respect of use of internet, mobile phones and alcohol. It also outlines what would happen if the rules were to be broken. It could possibly lead to a disciplinary procedure or dismissal. 

Health & Safety

Any employer who employs over five employees is required by The Health & Safety at Work Act to have a written statement outlining its policies. It is the responsibility of both the employer and the employee to ensure that the working environment is well maintained and risks from potential hazardsare kept to a minimum. 

The main risk encountered by office and accounting staff is poorly positioned workstations and display screens which can cause all types of health hazards. There should be clear guidlines given to staff to ensure their chair, desk height and screen settings are appropriate for their height. The employer should provide extra equipment where necessary such as wrist rests, screen risers and foot rests. 

Data Protection 

It is important that a business upholds confidentiality over the information that it holds for customers, suppliers and employees. 

Any business holding data must provide safeguards to protect the data and only use the data for legitimate business purposes. 

The Data Protection Act is the law that protects the confidentiality of information for individuals. 

The records should be:

Easily Accessible, complete, accurate and up-to-date. 

Security 

The importance of looking after data is crucial to comply with legislation for data protection. This means that we need to make sure we are taking the right steps to implement the utmost security of the business. 

Protection and Prevention

Back-up processes - Done on a daily basis, usually at night to protect losing any work. 

Back-up work in more than one place - If information is stolen or deleted, it can then be recovered from 'another place'.

Computers to be locked/logged off - Will reduce the oppurttunity for people to access information. 

Staff only to access approved websites - Will reduce the likelihood of viruses being introduced to the system. 

Ethics

Ethics are the moral principles that govern a person's behaviour.

The five fundamental principles are:

- Integrity. 

- Objectivity. 

- Professional competence & due care. 

- Confidentiality. 

- Profesional behaviour. 

Threats to Ethical Principles 

Self Interest Threat - Giving a piece of maintenance work to friends company, so that he has mmore work and makes more money. 

Self-Review Threat - Making an error and noticing upon review but not disclosing the error. 

Familiarity Threat - Letting a personal relationship affect your personal judgement. 

Intimidation Threat - A manager of a department is threatening a member of staff. 

Advocacy Threat - Falling behind on work due to othe work taking a priority, covering it up until you can focus on it and hoping that no one notices in the meantime. 

Action if There is a Breach to Ethical Principles

If at any time you feel that there is a potential conflict of interest, it is important that you report the issue to your line manager or supervisor immediatley. 

This will enable them to put the right safeguards in place to reduce the level of risk. 

This could be things like removing an employee from a certain task when dealing with a certain customer, supplier or individual. 

There is a procedure known as 'whistle blowing', which is a method employees can use to report any unethical behaviour they have witnessed. This process, providing the employee is being honest, protects them from being victimised as a result of reporting an issue. 

Ethics 

Integrity - Straightfoward, honest, thruthful and fair dealing. 

Objectivity - Not making biased decisions, do not be influenced by others and identify conflicts of interest. 

Professional Competence & Due Care - Diligent, sound judgement, appreciates own knowledge and CPD. 

Confidentiality - Respect the confidentiality of information held by the business, do not use information for personal advantage, do not share any information with anyone who does not have the right to receive it and only disclose information if the correct authority has been given or there is a legal duty to disclose. 

Ethics

Professional Behaviour - Comply with laws and regulations, uphold the good reputation of the profession and its members, do not bring the profession into disrepute and behave in a manner that is expected. 

Reducing the risk to Ethical Principles

A business will need to make their staff aware of what the ethical principles are and the consequences of failing to behave ethically should be made clear. Along with all the disciplinary procedures that will be followed in the event of a breach. 

Sustainability

Is the ability to meet current needs without comprimising the ability of future generations to meet their own needs. The term describes the need for organisations and individuals to become 'green' and adopt policies which protect the environment, save energy and benefit society as a whole. 

Sustainability is about striking a balance between three major elements:

People - Social. 

Planet - Environment. 

Profit - Economic. 

People 

A business that is sustainable will be keen to support communities local and afar. This could include sponsoring charitable causes or choosing to buy products from deprived areas such as fair trade, this will support the economic growth in other countries. 

Planet 

Adopting 'green' policies such as; turning off lights, using recycled materials in the office such as paper, reducing the amount of printing or sourcing supplies from sustainable suppliers. Other strategies could include a cycle to work incentive or car sharing schemes to reduce their carbon footprint. 

Profit 

If a company is performing well and making profit, then it will need to employ people from the local area which in turn benefits the economic growth in that area. 

Some of the initiatives for sustainability may mean the company will save money. For example, if they are not using as much paper then they are having to buy less. Or if they are using hybrid cars on their company car fleet, then the fuel costs will be lower. 

On the flip side, purchasing recycled products can be more expensive so the company will incur more costs. However, over time a company should reap the rewards as customers recognise the path they are following and will choose to buy those products because they are sustainable. 

CSR 

Larger organisations like to promote themselves to their stakeholders as being 'green' and socially responsible. This is known as Corporate Social Responsibility (CSR), which means that the business contributes to sustainable development by delivering economic, social and environmental benefits for all stakeholders. 

Examples of CSR are as follows:

- Sourcing priducts from renewable resources. 

- Ensuring that the other organisations within the supply chain also actively support sustainability. 

- Reducing CO2 emissions from business premises and delivery vehicles. 

- Donation of a percentage of profits to charities or other local causes. 

Triple Bottom Line Reporting 

A business that has triple bottom line reporting introduces and evaluates the business values in terms of its contribution to the three sustainability elements. Some organisations adopted the TBL framework to evaluate their performance in a broader perspective to create greater business value. 

People - Social variables dealing with community, education, equity, social resources, health, well-being and quality of life. 

Planet - Environmental variables relating to natural resources, water & air quality, energy conservation & land use. 

Profit - Economic variables dealing with the bottom line & cash flow.