Why should organisations collect, file and maintain accurate financial records? To have a record of how the business is running. To determine how the business is sitting financially and to inspire different processes to assist in growing the business. It will also display what money is going where and whether there is any room for alterations in staffing, produce, and marketing. Basically, it is used to anaylse the business as a whole and per section and to determine performance.
Financial statement analysis is the process of examining relationships among financial statement elements and making comparisons with relevant information. There are a variety of tools used to evaluate the significance of financial statement data. Three of the commonly used tools are the ratio analysis, horizontal analysis, and vertical analysis. Ratio analysis is a method of analyzing data to determine the overall financial strength of a business. These ratios are most useful when compared to other ratios such as the comparable ratios of similar businesses or the historical trend of a single business over several business cycles.
The disclosure shows the loss contingency and states the estimate of loss. Before the company issues the financial statement and after the enterprise’s financial statement is done, the company can impair an asset or incur the liability. Disclosure of loss contingencies helps the company to keep its financial statements not being misleading. When the disclosure is necessary, the company must report the loss contingency in financial statements with a given estimate of the mount of loss. Reference Financial Accounting Standards Board (2010).Statement of Financial Accounting Standards No.
GAAP stands for Generally Accepted Accounting Principles. The common set of accounting principles, standards and procedures that companies use to compile their financial statements. GAAP are a combination of authoritative standards (set by policy boards) and simply the commonly accepted ways of recording and reporting accounting information. GAAP are imposed on companies so that investors have a minimum level of consistency in the financial statements they use when analyzing companies for investment purposes. GAAP cover such things as revenue recognition, balance sheet item classification and outstanding share measurements.
It helps for forecasting on making certain financial decisions. The three groups that use these ratios are managers, potential investors or lenders, and stockholders. The reason the managers use these ratios, is to have a closer look and be able to identify situations that need their instant attention with in the firm. Potential investors are lenders used a ratio to determine if they should invest in the company or not. As for stockholders they mainly use this information for forecasting dividends, earnings on the free cash flow.
This is not because I think your knowledge in this area is in any way faulty but I feel it necessary to be thorough. The main goal of financial accounting is to prepare reports for outside sources such as stockholders, investors, or for tax purposes (Financial Accounting. (n.d.). There are a few different financial accounting systems but the most common are Accrual and Cash methods (Financial Accounting. (n.d.).
Though ratio analysis should not be used alone as there are several limitations in the usefulness of their data, they will give general historical information. Managerial decision-making should consider all factors in leveraging their position within their specific industry to excel and continue to generate positive revenue. Financial statements are the driving forces behind understandings a company’s financial position in the market place. Financial statements can effectively communicate what financial decisions have been made, how the bottom line was affected and what are the necessary steps to keep a company in business. Financial statements give the relative fiscal health over a period through interpretation; by identifying corporate strength and effectively examining overall managerial decision-making through ratio analysis.
Generally Accepted Auditing Standards Generally accepted auditing standards are defined as a systematic set of guidelines that are used by auditors when conducting audits for a company’s finances, these standards are used to ensure accuracy, consistency, and verifiability of the auditors reports (Investopedia, 2013). This paper is going to discuss the elements of generally accepted auditing standards and how these standards apply to compliance, financial and operational audits. There will also be discussion about the Sarbanes-Oxley Act of 2002 and the Public Company Accounting Oversight Board (PCAOB) and the effect they have on auditing publicly traded companies, and the requirements that the Sarbanes-Oxley Act and the Public Company Accounting Oversight Board (PCAOB) have placed on auditors. There are ten generally accepted auditing standards that are the most recognized in regards to auditing in the accounting profession. The ten generally accepted auditing standards are broken down into three categories as follows general standards, standards of field work, and standards of reporting.
Quantitative Reasoning Uses in Business A business manager’s toolkit needs to be full of abilities to manage the financial performance, operations, and accounting of an organization. In order for a manager to maintain a secure position in their industry, it is apparent that they have analytical abilities or at least ready access to these abilities. As performance goals rise, stakeholders are more often holding managers to those goals. A thorough understanding of strategies for effectively making decisions in the ever-changing environment of business is essential to a good manager. Sprague defines quantitative analysis as “an analysis technique used in finance, business, and research to assess and understand process behavior with the use of mathematical and statistical modeling.
(AC1.3) Evaluate the factors which influence the nature and structure of accounting systems of Tesco Plc. (Task 1 covers assessment criteria AC1.1, AC1.2 & AC1.3 under LO1)4 Task 2 (LO2: Be able to analyse the management control systems of a business) Scenario: According to the