ACCA BT Syllabus C. Business Functions, Regulation and Technology - Formulation implementation and control - Notes ^{1 / 6}

Groups that may have an interest in the financial information:

• Manager of the company: 

  They supervise the activities of the organisation and need this information to plan effectively, take control and forecast future earnings.

• Shareholders of the company: 

  They need to assess how effectively the company is being run.

• Trade contacts: 

  Suppliers need to understand the credit worthiness.

  Customers need to be confident that the company is not going to close down.

• Providers of finance to the company: 

  Banks need this information to approve credit, loans and overdrafts.

• Revenue & Customs: 

  Need to know this information to assess business profits and tax payable by the company.

• Employees of the company: 

  Need to know this information as their future salaries, wages etc depend on the financial stability of the organization.

• Financial analysts and advisers:

  May need this information for their clients.

• Government and their agencies: 

  Government may need this information to assess their allocation of resources and for national statistics.

• The public: 

  Organisations may well have a substantial impact on the local economy or indeed on environmental issues such as pollution.

At the head of each accounting department is usually a finance director

The finance director has a seat upon the board of directors and is responsible for routine accounting and the broader financial policies.

The responsibilities within a large finance/accounting department may be passed down to less senior staff such as:

1. Financial Controller:

   • Routine accounting

   • Providing reports for other departments

   • Cashiers duties and cash control

2. Management Accountant

   This position has equal status to the Financial Controller but with separate responsibilities:

   • Cost accounting

   • Budgets and budgetary control

   • Financial management of projects

3. Treasurer

   • Raising funds by borrowing

   • Investing surplus funds

   • Cash flow control

Strategic management

refers to the art of planning the business at the highest possible level. 

It is the duty of the company’s leader (or leaders) including also the accounting function. 

Strategic management focuses on building a solid underlying structure to a business that will subsequently be fleshed out through the combined efforts of every individual employed with the organisation.

• formulate policy

• implement policy by establishing procedures to be followed

• control performance

Policy formulation

is designed to achieve the organisation’s objectives, so the starting point must be to identify the objectives.  

The purpose of setting objectives is to convert mission into performance targets, create yardsticks to track performance and push the firm to be inventive, intentional and focused.

One can distinguish between two types of objectives:

1. Financial objectives

   – outcomes that relate to improving a firm's financial performance, e.g. to maximise the reported profits after tax, subject to treating each stakeholder group properly.

2. Strategic objectives

   – outcomes that will result in greater competitiveness and stronger long-term market position, e.g. become leader in a new product introduction in the next 5 years ending 2014.

Planning

is the establishment of objectives, and the formulation, evaluation and selection of the policies, strategies, tactics and action required to achieve them.  The planning process is conventionally split into 3 timescales:

• strategic planning

• tactical planning

• operational planning

Once a plan has been adopted, it is then possible to control the activities of the business to seek to achieve the plan’s outcomes. Planning and control are thus interrelated terms.

Control over organisational performance can be achieved by:

1. budgetary control, and

2. the establishment of standards.

A budget is a plan expressed in quantitative (normally financial) terms for either the whole of a business or for the various parts of a business for a specified period of time in the future.

Budgetary control is the establishment of budgets relating the responsibilities of managers to the requirements of a policy, and the continuous comparison of actual with budgeted results.

For example, a company’s sales budget may be drawn up for each quarter of the next calendar year, either in units sold or in money amounts.

As the year goes by the actual sales will be compared with the budgeted sales, and the sales director will be asked to explain any large differences between the two (budget variances).

It is the management accounting section in the accounting function that has particular responsibility for budgeting and standard costing matters.