FME13-Financial Controllership PDF

FM E13-Financial Controllership Introduction Before a controller can delve into the specifics of the controller job descriptions, it is necessary to determine how the accounting function fits into the rest of the organization. This used to be simple issue; the accounting staff processed trans...

FM E13-Financial Controllership Introduction Before a controller can delve into the specifics of the controller job descriptions, it is necessary to determine how the accounting function fits into the rest of the organization. This used to be simple issue; the accounting staff processed transactions to support business operations. This required a large clerical staff to managed by a small cadre of people trained in underlying techniques for processing those transactions. The role has undergone a vast change in the last few decades, as technological improvements, the level of competition, and a shifting view of management theory have resulted in a startlingly different accounting function. Tasks of the Accounting Function Traditional New accounting New tasks accounting tasks tasks assigned to the accounting function of smaller companies Accounts payable Bartering Computer services transaction transactions systems installation processing and maintenance Accounts receivable Coordination and Hedging and letter transaction consolidation of of credit transactions processing accounting at subsidiaries Asset transaction Currency Internal auditing processing translations programs Tasks of the Accounting Function Traditional New accounting New tasks accounting tasks tasks assigned to the accounting function of smaller companies Debt transaction Margin analysis processing Nonproduct cost analysis Selection implementation, and operation of accounting software and related systems Target costing Role of the Accounting Function 1. The accounting staff finds itself involved in most major decisions. a. Cost accountant. They are expected to serve on product design teams and to let other team members know if new designs will have costs that will meet targeted cost goals. b. Accounting analyst. May be asked by the sales manager to evaluate the profitability of a lease deal being extended to customer. c. Accounts receivable clerk. May work closely with the sales staff to collect overdue invoices from customers. Role of the Accounting Function 2. The role of the accountant has changed processes. is related to When another area of the company changes its operations, which is increasingly common, the accounting staff must devise an alterations to the existing systems for processing transactions that will accommodate those changes. 3. Accountants are trained in implementing controls to ensure that assets are not lost. 4. The accounting deparment must realize that altering its way of doing business is sometimes necessary to support ongoing business relationships. Role of the Controller 1. Manages a few key transaction cycles, monitors assets and delivers financial statements 2. The controller must be highly skilled in interdepartamental dealings. a. Constant interactions with fellow departament head b. Attendance at a swarm meetings c. Issuance of opinions on a variety of topics 3. Must at atleast have a passing knowledge of computer systems, internal auditing, and administrative functions 4. Must know about outsourcing accounting functions and managing in a high-speed growth environment as welll as tax laws. 5. Manage a cluster of highly trained subordinates who are more knowledgeable in specific areas. Impact of Ethics on the Accounting Role Bad accounting practices/ Ethical Failings: 1. Falsified earnings reports 2. Bribery 3. Kickbacks 4. Employee thefts 5. Employee use of company property for personal use 6. Smoothing of financial results Impact of Ethics on the Accounting Example: Role 1. If the controller continually acquiesces to management demands to slightly modify the financial statements, this may eventually lead to larger and larger alterations. 2. Accounting staff does not enforce control over assets, it can indirectly encourage continuing behavior of this kind simply by taking no action. 3. Accounting staff does not closely review employee expense reports for inappropriate expenditures, they will gradually include more expenses in their reports that should not be included. Impact of Ethics on the Accounting Role It is not sufficient to merely say as that the accounting staff must uphold high ethical standards, if the standards are not defined. To avoid this problem, the controller should create and enforce a code of ethics. This document may not originate with controller- chief executive officers (CEOs) prefer to take on this task. However, the controller can certainly push for an ethical code to be developed higher in the organization. Impact of Ethics on the Accounting Role Some topics that include in a code of ethics are: Bidding, negotiating, and performing under government contracts Compliance with antitrust laws Compliance with securities laws and regulations Conflicts of interest Cost consciousness Employee discrimination on any grounds Impact of Ethics on the Accounting Gifts and payments ofRole money Hazardous waste disposal International boycotts Leave for military or other federal service Meals and entertainment Political contributions Preservation of assets Restrictive trade practices Impact of Ethics on the Accounting Standards of conductRole Use of company assets Workplace and product safety The wide range of ethical topics, some going well beyond the financial arena, make it obvious that the CEO really is the best source of this document, rather than the controller, although controller can certainly contribute to those portions relating to financial issues. Controllership is the practice of the established science of control which is the process by which management assures itself that the resources are procured and utilized according to plans in order to achieve the company’s objectives. Basic Functions of Controllership Planning Establish and maintain an integrated plan of operation consistent with the company’s goals and objectives communicated to all levels of managemet with appropriate systems and procedures installed. Control Develop and revise standards against which to measure performance and provide guidance and assistance to other members of management in insuring conformance of actual results to standards. Basic Functions of Controllership Reporting Prepare, analyze and interpret financial results for utilization by management in the decision-making process, evaluate the data with reference to company and unit objectives, prepare and file external reports as required to satisfy government regulartory bodies, shareholders, financial institution, customers, and the general public. Accounting Design, establish, and maintain general and cost accounting systems at all company levels, including corporate, divisional, plant, and unit to properly record all financial transactions in the books of accounts and records in accordance with sound accounting principles with adequate internal control. Basic Functions of Controllership Other Primary Responsibilities Taxes (including interface with the respective taxing authorities and agents Maintain appropriate relationships with internal and external auditors Institute insurance programs, coverage, records, and provisions Develop and maintain systems and procedures Develop record retention programs Supervise assigned treasury functions Institute investor and financial public relations programs Office management What is the job of a Controller? “Controller can be compared to the ship's navigator, who warns the captain of current or foreseeable problem in the shoals of the business environment that lie ahead and on all sides” Controller Provides report for planning and evaluating company activities and provides the information needed to make management decisions. Has responsibility for all financial accounting reports and tax filings with the BIR and other taxing agencies, as well as coordinating the activities of the firm’s external auditors.  Organization Chart for the Controller’s Office Controlle r Financial Budgeting and Financial Analysis and Cost Performance Reporting Special Accounting Reporting Studies Systems Taxation Development Reporting Qualifications of the Controller 1. An excellent technical foundation in accounting and finance with an understanding and thorough knowledge of accounting principles. 2. An understanding of the principles of planning, organizing, and control. 3. A general understanding of the industry in which the company competes and the social, economic, and political forces involved. 4. A thorough understanding of the company, including its technologies, products, policies, objectives, history, organization, and environment. Qualifications of the Controller 5. The ability to communicate with all levels of management and a basic understanding of the other functional problems related to engineering, production, procurement, industrial relations, and marketing. 6. The ability to express ideas clearly in writing or in making informative presentations. 7. The ability to motivate others to achieve positive action and results. Controller’s Responsibities 1. Planning Function- the establishment and maintenance of an integrated plan of operation. There is a responsibility to see that a plan exists and that it is supported by all levels management. The controller’s primary task is to act as the coordinator who assembles and maintains the plan, which results in a statement of forecasted income and expense, as well as a set of supporting schedules and assumptions. Controller’s Responsibities 2. Control Function- is the measurement and correction of performance so that business objectives and plans are accomplished. The controller assists by providing information to the managers of each function, so that they can enforce control-related issues. The controller cannot enforce control issues in other departments, since there is no managerial oversight of those areas, but the controller does correct control-related problems within the accounting function. Controller’s Responsibities 3. Reporting Function- it is essential to make planning and control effective. This encompasses the interpretation of the figures, and the controller’s duty is not discharged until the management actually understands what is being presented. In addition, the controller may be required to report to outside entities, which usually calls for some reformatting of the internal reports. Typical recipients of reports are shareholders, creditors, the general public customers, the SEC, and the BIR Controller’s Responsibities 4. Accounting Function- The systematic recording of financial transaction is often regarded as the principal function of the controller. The controller is expected to apply sound accounting principles and practices within the company, as well as to stay current on the latest technological advances, so that this can be done in the most effective and efficient manner possible. Controller’s Job Description Controller’s Job Description Controller’s Job Description Controller’ s Job Description  Relationship of the Controller In a larger company, there is a clear division of tasks to the CFO between the controller and the CFO. However, there is no clear delineation of these roles in a smaller company because there is usually no CFO. As the company grows, it acquires a CFO, who must then wrestle away some of the controller’s tasks that traditionally belong under the direct responsibility of CFO. This transition can cause some conflict between the controller and the CFO. In a small company, the controller usually handles all financial functions such as setting up and maintaining lines of credit, cash management, determining credit limits, for customers, dealing with investors, handling pension plan investments, and maintaining insurance policies. Relationship of the Controller to The the CFO fact that there is new CFO, doesn’t mean that the controller should quit his career. He may handle the materials management department, administration, human resources and computer services. The CFO position is one with an extreme emphasis on money management, involving such tasks as determining proper investment vehicles for excess cash, dealing with lenders regarding various kinds of debt, making presentations to financial analyst and talking to investors. Managing Explosive Growth In explosive growth environment, the key focus of the accounting staff is on the conservation of cash. This is because a growing company is constantly investing cash in working capital and facilities, leaving cash available for further growth or as a reserve in case of a sudden downturn in company fortunes. The controller plays a major part in conservation. Managing Explosive Growth The following points note the most important areas in which the controller can affect cash flow: Send invoice promptly. It is difficult to collect cash from customer if they have not yet been billed. To avoid this problem, the controller must pay strict attention to the billing process, especially the speed with which invoices are created and sent. Managing Explosive Growth Collect accounts receivable promptly. Increasing the speed of collections also improve cash flow. The controller can do this by adding more staff to the collections effort, concentrating the bulk of the collection effort on the largest overdue invoices, working closely with the sales staff to obtain payments, concentrating on issuing accurate invoices that customers cannot complain about, and tightening the terms of credit being offered: all of these actions will slowly improve the speed of collection. Managing Explosive Growth Minimize mistakes. Customers do not paying their bills on time if they are protesting inaccuracies on the bills. To avoid this payment delay, the controller can focus on ensuring that mistakes are eliminated. This can be done by using constant feedback from the collections staff to fix recurring problems in the customer billing database. Managing Explosive Growth Conduct cost accounting promptly. A growing company must know immediately if it is selling a product that is not returning enough profit; otherwise, it will not spin off enough cash flow to sustain a high rate of growth. The controller can push for rapid costing review of new products, both before they are issued as well as after have been produced for a short time, to see if there are significant variances from expected margins. Managing Explosive Growth These accounting functions all have the most immediate bearing on cash flow. If there is a question of having to allocate resources away from other accounting activities in order to emphasize these cash flow areas, the controller should consider some outsourcing, which will leave more staff time available for these tasks. For example, the payroll function normally handled clerical personnel who are equally capable of becoming involved in billings or cash collections. Managing Explosive Growth If the controller also manages the finance function, the main function is to predict the future cash flows. Why we need to predict future cash flow? An accurate cash flow forecast tells management how much extra cash it will need from outside sources, as well as the timing of that need. A controller should keep a close watch over the risk and return of any investments, in order to maximize the company’s investment while maintaining as low a risk profile as possible. Managing Explosive Growth The controller also manages the computer services function, the key factor is not to let problems with eh computer systems bog down other company operations that are relying on it. What is the importance of this? Computer is a support function that is the linchpin of nearly all transaction processing, and if it is not operational, the company cannot function. A controller may back up the system regularly, as well as make revisions on it. If there is a conversion of hardware to software, the controller must ensure the company must be operational. Managing Explosive Growth The controller also manages the human resource function, the primary focus is to find qualified candidates for the positions. What is the importance of this? Without enough staff, no company has a chance of continuing its growth, so this is absolutely crucial. Since the HR staff is usually overwhelmed by its recruiting work, the controller can ease the work burden by outsourcing other tasks. Managing Explosive Growth This section summarized the controller’s management function in an explosive growth situation. The management goals charge drastically in this environment. For example, the accounting and finance areas most focus on cash management. Computer services to key functional areas must not be interrupted. The human resources staff must focus on recruiting new employees, to the exclusion of any other activities. These are the key controller tasks in an explosive growth environment.