FINANCIAL MANAGERS ROLE

Almost every firm, government agency, and other type of organization employs one or more financial managers. Financial managers oversee the preparation of financial reports, direct investment activities, and implement cash management strategies. Managers also develop strategies and implement the long-term goals of their organization.

The duties of financial managers vary with their specific titles, which include controller, treasurer or finance officer, credit manager, cash manager, risk and insurance manager, and manager of international banking. Controllers direct the preparation of financial reports, such as income statements, balance sheets, and analyses of future earnings or expenses, that summarize and forecast the organization's financial position. Controllers also are in charge of preparing special reports required by regulatory authorities. Often, controllers oversee the accounting, audit, and budget departments. Treasurers and finance officers direct their organization's budgets to meet its financial goals. They oversee the investment of funds, manage associated risks, supervise cash management activities, execute capital-raising strategies to support the firm's expansion, and deal with mergers and acquisitions. Credit managers oversee the firm's issuance of credit, establishing credit-rating criteria, determining credit ceilings, and monitoring the collections of past-due accounts.

Cash managers monitor and control the flow of cash receipts and disbursements to meet the business and investment needs of their firm. For example, cash flow projections are needed to determine whether loans must be obtained to meet cash requirements or whether surplus cash can be invested. Risk and insurance managers oversee programs to minimize risks and losses that might arise from financial transactions and business operations. Insurance managers decide how best to limit a company’s losses by obtaining insurance against risks such as the need to make disability payments for an employee who gets hurt on the job or costs imposed by a lawsuit against the company. Risk managers control financial risk by using hedging and other techniques to limit a company’s exposure to currency or commodity price changes. Managers specializing in international finance develop financial and accounting systems for the banking transactions of multinational organizations. Risk managers are also responsible for calculating and limiting potential operations risk. Operations risk includes a wide range of risks, such as a rogue employee damaging the company’s finances or a hurricane damaging an important factory.
Financial institutions—such as commercial banks, savings and loan associations, credit unions, and mortgage and finance companies—employ additional financial managers who oversee various functions, such as lending, trusts, mortgages, and investments, or programs, including sales, operations, or electronic financial services. These managers may solicit business, authorize loans, and direct the investment of funds, always adhering to Federal and State laws and regulations.
Branch managers of financial institutions administer and manage all of the functions of a branch office. Job duties may include hiring personnel, approving loans and lines of credit, establishing a rapport with the community to attract business, and assisting customers with account problems. Branch mangers also are becoming more oriented toward sales and marketing. As a result, it is important that they have substantial knowledge about the types of products that the bank sells. Financial managers who work for financial institutions must keep abreast of the rapidly growing array of financial services and products.

In addition to the preceding duties, financial managers perform tasks unique to their organization or industry. For example, government financial managers must be experts on the government appropriations and budgeting processes, whereas healthcare financial managers must be knowledgeable about issues surrounding healthcare financing. Moreover, financial managers must be aware of special tax laws and regulations that affect their industry.
Financial managers play an important role in mergers and consolidations and in global expansion and related financing. These areas require extensive, specialized knowledge to reduce risks and maximize profit. Financial managers increasingly are hired on a temporary basis to advise senior managers on these and other matters. In fact, some small firms contract out all their accounting and financial functions to companies that provide such services.

The role of the financial manager, particularly in business, is changing in response to technological advances that have significantly reduced the amount of time it takes to produce financial reports. Technological improvements have made it easier to produce financial reports, and, as a consequence, financial managers now perform more data analysis that allows them to offer senior managers profit-maximizing ideas. They often work on teams, acting as business advisors to top management.
Work environment. Working in comfortable offices, often close to top managers and with departments that develop the financial data those managers need, financial managers typically have direct access to state-of-the-art computer systems and information services. They commonly work long hours, often up to 50 or 60 per week. Financial managers generally are required to attend meetings of financial and economic associations and may travel to visit subsidiary firms or to meet customers.

financial management

Financial Management is concerned with rising of funds and creating value to the assets of the business enterprises by efficient allocation of funds. It is the study of the integration of the flow of funds in the most optimum manner to maximize the returns of a firm by taking proper decisions in utilizing the funds.
Good Financial Management is essential to bring about economic health of business enterprises. Financial management consists of decision making within a firm. It Works in the environment of money and capital markets and is concerned with investment.. Thus the three major interconnected area of finance are-
1. Money and Capital Markets
2. Investment and Portfolio Management
3. Financial Management

Basic Principles of Financial Management

Financial management has certain principles through which it functions. These are discussed below--

1. Risk and Return- Every financial decision has two aspects these are risk and return. Every decision involves a risk. This risk may be broad spectrum or market risk, which is uncontrollable. It can be unsystematic risk, which is specific to the firm and can be controlled.

2. Time value of money- It refers to the mathematics of finance for calculating future values and present values of cash. Time value of money evaluates cash flows expected to be generated at different times. It is the timing of cash flows because money received today is more than the amount received at a future date.

3. Cash flow concept- Financial management is based on the inflows and outflows of cash. It does not deal with non cash items like depreciation, amortization of preliminary expenses; it uses cash revenues and cash expenses to find out the return on its investment.

4. Wealth maximization- Maximization of shareholders wealth considers all cash flows relating to future decisions. It is the concept based on cash flows to measure the economic value of a firm. Profit maximization may be considered as a part of wealth maximization. It can be said that maximization of shareholders wealth is the objective of financial management.


Scope and Function of Financial Management

Financial management is concerned with the integral part of management. It has the role of a Identifying the needs for funds and selecting the sources from which the funds can be obtained and to use the funds in the business effectively by controlling it. The functions of financial management are discussed below-

1. LIQUIDITY OF FUNDS- A Finance Manager has to match inflows and outflows and thus create Liquidity continuously by managing the flow of the funds of the firm continuously. He has to plan the external borrowing by finding out the requirement. He has to ascertain the inbternal

Concepts of financial budgeting

Concepts-regarding Budget are those which helps even a layman, to realize the various budget-related terminologies, as well as the their true meanings. These important concepts regarding budget are basically financial terms which facilitate a better understanding of the budgetary matters. Some of the most important ideas regarding budget are stated and briefly illustrated below:
Budget Deficit: This is a common economic term, normally used to indicate a situation when the expenditures on governmental levels surpass its financial savings. As a matter of fact, Budget Deficits occur when the government does not plan its spendings, after considering the total amount of money it has saved. In case there is a prolonged accumulation of Budget Deficit for several years or centuries, it gives birth to an economic phenomenon called Government Debts. When a country suffers from Government Debts, a considerable portion of the government spendings are then used for the repayment of these debts, having certain maturity. This maturity however, can be re-funded through issuing government bonds. In fact, Budget Deficit is regarded as a flow, while the Government Debts are considered to be stocks. Government Debts are just a aggregate flow of the Budget Deficits. The definition of budgetary deficit essentially follows from that of the Governmental Debt. While the Government Debts are defined as the total amount of money owned by the government, Budget Deficit indicates the amount by which a savings escalates or a Government Debt grows.
Budget Crisis: This indicates a situation where both the executive and the legislature in a Presidential system of government comes to a standstill, and unable to pass a financial budget. This is a common feature of most Presidential form of governments across the world, where only the legislature has the power to pass a financial budget. However, the executive is also empowered to pass a veto, which consists of inadequate votes, sufficient to overrule the decisions taken. The case is somewhat different in a Parliamentary form of government, where the rise of conditions like loss of supply leads to resignations and making of new elections. This however, makes a Budget Crisis to attain the form of a lengthy disagreement and argument. Budget Crisis also emerges when the legislature possesses a suspension date authorized by the country's Constitution, and the financial budget is not passed till the date specified.
To know more on Important Concepts regarding Budget please see the following links:
Budget Planning
Budget Deficit
Budget Surplus

Management accounting

Management accounting- is concerned with the provisions and use of accounting information to managers within organizations, to provide them with the basis to make informed business decisions that will allow them to be better equipped in their management and control functions.
In contrast to financial accountancy information, management accounting information is:
usually confidential and used by management, instead of publicly reported;
forward-looking, instead of historical;
pragmatically computed using extensive management information systems and internal controls, instead of complying with accounting standards.
This is because of the different emphasis: management accounting information is used within an organization, typically for decision-making.
Definition
According to the Chartered Institute of Management Accountants (CIMA), Management Accounting is "the process of identification, measurement, accumulation, analysis, preparation, interpretation and communication of information used by management to plan, evaluate and control within an entity and to assure appropriate use of and accountability for its Resource (economics)resources. Management accounting also comprises the preparation of financial reports for non management groups such as shareholder's, creditor's, regulatory agencies and tax authorities" (CIMA Official Terminology) The American Institute of Certified Public Accountants(AICPA) states that management accounting as practice extends to the following three areas:
Strategic Management—Advancing the role of the management accountant as a strategic partner in the organization.
Performance Management—Developing the practice of business decision-making and managing the performance of the organization.
Risk Management—Contributing to frameworks and practices for identifying, measuring, managing and reporting risks to the achievement of the objectives of the organization.
The Institute of Certified Management Accountants(ICMA), states "A management accountant applies his or her professional knowledge and skill in the preparation and presentation of financial and other decision oriented information in such a way as to assist management in the formulation of policies and in the planning and control of the operation of the undertaking. Management Accountants therefore are seen as the "value-creators" amongst the accountants. They are much more interested in forward looking and taking decisions that will affect the future of the organization, than in the historical recording and compliance (scorekeeping) aspects of the profession. Management accounting knowledge and experience can therefore be obtained from varied fields and functions within an organization, such as information management, treasury, efficiency auditing, marketing, valuation, pricing, logistics, etc."
Aims
Formulating strategystrategies
Planning and constructing business activities
Helps in making decision
Optimal use of Resource (economics)
Supporting financial reports preparation
Safeguarding asset
Traditional vs. innovative management accounting practices
In the late 1980s, accounting practitioners and educators were heavily criticized on the grounds that management accounting practices (and, even more so, the curriculum taught to accounting students) had changed little over the preceding 60 years, despite radical changes in the business environment. Professional accounting institutes, perhaps fearing that management accountants would increasingly be seen as superfluous in business organizations, subsequently devoted considerable resources to the development of a more innovative skills set for management accountants.
The distinction between ‘traditional’ and ‘innovative’ management accounting practices can be illustrated by reference to cost control techniques. Cost accounting is a central method in management accounting, and traditionally, management accountants’ principal technique was variance analysis, which is a systematic approach to the comparison of the actual and budgeted costs of the raw materials and labor used during a production period.
While some form of variance analysis is still used by most manufacturing firms, it nowadays tends to be used in conjunction with innovative techniques such as life cycle cost analysis and activity-based costing, which are designed with specific aspects of the modern business environment in mind. Lifecycle costing recognizes that managers’ ability to influence the cost of manufacturing a product is at its greatest when the product is still at the design stage of its product lifecycle (i.e., before the design has been finalised and production commenced), since small changes to the product design may lead to significant savings in the cost of manufacturing the product. Activity-based costing (ABC) recognizes that, in modern factories, most manufacturing costs are determined by the amount of ‘activities’ (e.g., the number of production runs per month, and the amount of production equipment idle time) and that the key to effective cost control is therefore optimizing the efficiency of these activities. Activity-based accounting is also known as Cause and Effect accounting.
Both lifecycle costing and activity-based costing recognize that, in the typical modern factory, the avoidance of disruptive events (such as machine breakdowns and quality control failures) is of far greater importance than (for example) reducing the costs of raw materials. Activity-based costing also deemphasizes direct labor as a cost driver and concentrates instead on activities that drive costs, such as the provision of a service or the production of a product component.
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An alternative view of management accounting
A very rarely expressed alternative view of management accounting is that it is neither a neutral or benign influence in organizations, rather a mechanism for management control through surveillance. This view locates management accounting specifically in the context of management control theory.
Lean Accounting (accounting for lean enterprise)
In the mid to late 1990s several books were written about accounting in the lean enterprise (companies implementing elements of the Toyota Production System). The term lean accounting was coined during that period. These books contest that traditional accounting methods are better suited for mass production and do not support or measure good business practices in just in time manufacturing and services. The movement reached a tipping point during the 2005 Lean Accounting Summit in Dearborn, MI. 320 individuals attended and discussed the merits of a new approach to accounting in the lean enterprise. 520 individuals attended the 2nd annual conference in 2006.
Resource Consumption Accounting is formally defined as a dynamic, fully integrated, principle-based, and comprehensive management accounting approach that provides managers with decision support information for enterprise optimization. RCA emerged as a management accounting approach around 2000 and was subsequently developed at CAM-I the Consortium for Advanced Manufacturing–International, in a Cost Management Section RCA interest groupin December 2001. After spending the next seven years carefully refining and validating the approach through practical case studies and other research, a group of interested academics and practitioners established the RCA Institute to introduce RCA to the marketplace and raise the standard of management accounting knowledge by encouraging disciplined practices.

Types of Errors-All errors may be classified into the following two categories-
1. Errors affecting Trial Balance means one sided errors
2. Errors not affecting Trial Balance means double sided errors

1. Errors affecting Trial Balance means one sided errors-
If the Trial Balance does not tally, it will indicate that certain errors have been committed which have affected the agreement of the Trial Balance. The accountant will then proceed to find out the Errors and ultimately the errors will be located. Such errors are called Errors Disclosed by Trial Balance.
1. Wrong Casting- If the total of the Cash book or some other Subsidiary Book is wrong; the Trail Balance will not tally. For example, the total of the purchase Book has been added Rs. 1,000 in excess. When this total will be posted to the debit side of the purchase account, it will also show an excess debit of Rs 1,000 and Trial Balance will not tally.
2. Posting to the Wrong side- If instead of posting an amount on the debit side of an account, it is posted on the credit side or vice versa, the Trial Balance will not tally. For example, goods for Rs 2,000 have been purchased from Gopal. If instead of posting the amount on the credit side of Gopal account it is posted to his debit, the debit side of the Trial Balance will exceed the credit by Rs 4,000.
3. Posting of Wrong Amount- The Trial Balance will not tally if the posting in an account is made with an incorrect amount. For example, goods for Rs 600 have been purchased from Mahendra. If it has been correctly entered in the Purchase Book but while posting To Mahendra credit, the amount posted is Rs 60 instead of Rs 600, the Trial Balance will not tally
4. Omission of Posting of One Side of an Entry- For Example, if Rs 500 have been received from Ram and correctly entered in the Cash Book, but if it is omitted to be posted on the credit side of Rams account, the Trial Balance will not tally.
5. Double Posting in a Single Account- For example, if Rs 500 have been received from Shyam Lal and correctly entered in the Cash Book, but if it posted twice on the credit side of Shyam Lal account, the Trial Balance will not tally.
2. Errors not affecting Trial Balance means double sided errors-
Main objective of preparing a Trial Balance is to check the accuracy of the accounts. However, the equality of debit and credit of the Trial Balance does not mean that there are absolutely no errors in the books of accounts. There may be a number of errors which may remain undetected in spite of the agreement of a Trial Balance. As such it is true to say that Trial Balance is not a conclusive proof of the accuracy of the books of accounts. There are certain errors which do not affect the agreement of the Trial Balance. Such errors are called limitations of Trial Balance. These may be discussed as below—

1. Errors of Omission- If a transaction remains altogether unrecorded either in the journal or in subsidiary Books, it will be termed as an error of omission. Such an error will not affect the agreement of a trial balanceas neither the transaction has been entered on the debit side of an account nor on the credit side of any other account.For example suppose goods for rs 2,000 have been sold to Ram on credit and the transaction was omitted to be recorded in the books. The omission will not effect the trial balance.
2. Errors of Commission- If a Wrong amount is entered either in the Journal or in the Susidiary Books, the trial balance will tally because the same amount will be posted in both the account affected by the transaction. For example. sale of goods to Ram on credit for Rs 420 has been entered in the journal as Rs 240. When the entry is posted to Ledgr, Double Entry will be completed with Rs 240, Ram being debited with Rs 240, and sales account being credited with rs 240.
3. Compensating Errors- If the effect of one error is neutralised by the effect of some other error, such errors are called compensating errors. For example, while posting on the debit side of Anil account, Rs 50 are posted istead of Rs 500 and while posting on the debit side of Sunil account Rs 500 are posted instead of Rs 50. These two mistakes will not effect the trial balance.
4. Errors of Principle- When some fundamental principle of Accountancy is violated while recording a transaction the error is termed as error of principle. These errors are committed in those cases where a proper distinction between capital and revenue items is not made.



Financial Statements

Accounting Standards

Accounting Standards
Accounting is an information system and its main aim is to provide financial information to a number of parties such as investors, management, creditors, Government etc. Such information is provided through a set of financial statements namely, profit and loss account and balance sheet. The set of financial statements of enterprises should depict a true and fair view of its operating results and financial position. However that constitutes true and fair view has not been defined either in the companies act, 1956 or in any other statute. Over a period of time a number of Generally Accepted Accounting Principles GAAP in the form of concepts and conventions have been developed and accepted to bring comparability and uniformity in the financial statements of various business entities, But the difficulty is that GAAPalso allow a large number of alternative treatment for the same item. Different organization adopts different policies for same transaction or an enterprise may follow different accounting policies for the same item over different accounting period. As a result the financial statements become inconsistent and incomparable. Hence there is an urgent need to standardize these diverse accounting policies. The International Accounting Standards Committee came into existence on 29th june, 1973 to develop accounting standards. The ICAI and ICWAI of India is associate member of the IASC.

Concepts of Accounting Standards- Accounting standards may be defined as written statements issued from time to time by institutions of accounting professionals, specifying uniform rules or practices for drawing the financial statements

Kohler- defines accounting standards as a mode of conduct imposed on accountants by custom, law or professional body.

Nature of accounting standards-
1. Accounting standards lay down the norms of accounting policies and practices by way of codes to direct as to how the transaction and events should be dealt with in accounts and disclosed in the financial statements.
2. In this way they remove the effect of diverse accounting practices and policies so that financial statement of different business units becomes comparable.
3. They prescribe a preferred accounting treatment from the available set of methods for solving one or more accounting problems.
4. They provide information to the users of financial statements as to the basis on which such statement have been prepared.
Accounting standards specified by the Institute of chartered Accountants under section 211 of the Act 1956-

Section 211 of the companies Act 1956 as amended recently, requires that the profit and loss account and balance sheet of a company shall comply with the accounting standards. For this purpose, the expression accounting standards means the standards of accounting recommended by the Institute Chartered Accounts of India as may be prescribed by the central government.
As on 1st April 2008 there are 29 accounting standards specified by the Institute, compliance of all of which is Mandatory for companies. The following is the list o these standards.
1. AS1, disclosure of Accounting policies
2. AS 2, Valuation of Inventories
3. AS 3, Cash Flow Statement
4. AS 4, Contingencies and Event Occurring after the Balance Sheet
5. AS 5, Net profit or Loss for the period, prior period Items and Changes in Accounting Policies
6. AS 6, Depreciation Accounting
7. AS 7, Accounting for Construction Contracts
8. AS 8, Accounting for Research and Development
9. AS 9, Revenue Recognition
10. AS 10. Accounting for Fixed Assets
11. AS 11, Accounting for the effect of Changes in Foreign Exchange Rates
12. AS 12, Accounting for Government Grants
13. AS 13, Accounting for Investment
14. AS 14, Accounting for Amalgamation
15. AS 15, Treatment of Employee Benefit Schemes in the Financial Statement of Employee.
16. AS 16, Borrowing Costs
17. AS 17, Segment Reporting
18. AS 18, Related party Disclosure
19. AS 19, Lease
20. AS 20, Earning per Share
21. AS 21, Consolidated Financial Statement
22. AS 22, Accounting for Tax and Income
23. AS 23, Accounting for Investment in Association in consolidated Financial Statement.
24. AS 24, Discontinued Operation
25. AS 25, Interim Financial Reporting
26. AS 26, Intangible Assets
27. AS 27, Financial Reporting of Interest in Joint Ventures
28, AS 28, Impairment of Asset
29. AS 29, Provision, Contingent Liabilities and Contingent Asset.

Concepts of account and types of account

MEANING OF ACCOUNT
An account is a summary of the relevant transaction at one place relating to a particular head. It records not only the amount of transaction but effect also.

CLASSIFICATION OF ACCOUNT

The classification of account according to the Traditional Approach is given below

TYPES OF ACCOUNT
a. PERSONAL ACCOUNT

1. Natural person 2. Artificial person 3. Representative personal account


b. IMPERSONAL ACCOUNT
1. Real Account 2. Nominal Account


a. Personal Account- These accounts relate to natural person, artificial person
And representative person.

Natural person means all human beings like – Rams a/c, Shyams a/c

Artificial person – means a person who is not human beings but act as a human beings like- bank name, college name, and organizational name.

Representative person mans to represents particular group like- outstanding salary, prepaid rent


b. IMPERSONAL ACCOUNT

1. Real Account- means those account which has a monetary value or it can be measured in terms of money like all assets, or example- land, plant and machinery, cash in hand etc.

2. Nominal Account- means all expenses and losses, and al income and profit account are coming in Nominal Account. For example wages paid, salary paid tax paid etc.

RULES OF DEBIT AND CREDIT
I. Personal Account
Debit the Receiver
Credit the giver
II. Real Account
Debit what comes in
Credit what goes out
III. Nominal Account
Debit all expenses and losses
Credit all income and profit
Meaning of Accounting-

Traditional Definition
Accounting is the art of recording, classifying, and summarizing in a significant manner and in terms of money, transaction and events which are, in part at least, of a financial character, and interpreting the results there of.AICPA

Modern Definition

The dimension of accounting is much broader than that described above. A widely accepted definition of accounting is given by the American Accounting Association in 1966 which treated accounting as the process of identifying, measuring and communicating economic information to permit informed judgments and decision by the users of accounting information.AAA1966

Meaning of Accountancy
Accountancy refers to systematic knowledge of accounting. It explains how and why all accounting transaction is recorded. It also tells us in what way the accounting information communicate to interested parties.

Meaning of Book Keeping- It is mainly concerned with record keeping of books of accounts. The maintenance of books of account includes the following four activities.
i. Identifying the transactions of financial nature from amongst the various transactions
ii. Measuring the identified transactions in terms of money
iii. Recording the identified transactions in the books of original entry