Financial Reporting and Audit Report
The calculation of indicators is based on the balance sheet and profit and loss statement. There are two approaches to the calculation of indicators. There is a momentary one, when the calculation is made on the basis of balance sheet data at the end of the period and the calculation for the mean values over the analyzed period. The second option is preferable if, for example, at the end of the month a company makes significant payments. The use of average for the period of values of the settlement account allows it to eliminate the resulting distortion of the liquidity indicator. In process auditing, bookkeeping can also be used to determine the numbers.
Principles of Financial Accounting
The fundamental principles of accounting are a set of principles, concepts, and definitions that enable the identification, estimation, accounting, formation, and transfer of financial information in a clear, consistent, timely and understandable manner. Accounting is a process of using fundamental principles, as a result of which, useful financial information is created. The purpose of financial statements is to provide information on the financial position, activities, and changes in the financial position of the bank, which can be useful to a wide range of users when making important economic decisions.
In order to effectively implement this process, it is necessary to consider the requirements in terms of the transfer of financial information to interested persons. These requirements are usually divided into two categories – the requirements of internal users (bank management) and external users of financial information.
Internal users are interested in the information contained in the financial statements, although they also have access to additional management and financial information that helps them fulfill their planning, decision-making, and control responsibilities.
External users are interested in information about the activities and indicators of the bank and changes in the financial situation, which can be useful for a wide range of users when making economic decisions. Financial reports satisfy the common needs of most users.
Financial strategy covers all aspects of a corporation’s activities, including optimization of fixed and circulating assets, profit distribution, non-cash settlements, tax and pricing policies, and security policies. It is developed within the framework of the strategic financial planning of a corporation and is focused on achieving the specified level of the main parameters of its activities: sales volume, cost price, profitability, financial stability, payment, and price competitiveness.
Financial Ratios and Indicators
The main requirement for the break-even operation of the enterprise in the conditions of market relations is economic and other activities that ensure profitability. The economic measures are aimed at reimbursement of expenses by the received incomes, profit reception for satisfaction of economic and social needs of members of collective and material interests of the proprietor. There are many indicators for engineers and architects for characterizing the activity, in particular, they include gross income, turnover, profit, costs, taxes and other characteristics. For all types of enterprises, the main financial indicators for engineers and architects of the organization and their activities are identified as financial stability, liquidity, profitability and business activity.
To identify the true liquidity index, the indicator dynamics is taken into account which allows not only to determine the financial strength of the firm or its insolvency, but also reveals the critical state of the organization’s finances. Sometimes, the liquidity indicator is low due to an increased demand for the industry’s products. Such an organization has a high degree of solvency, since its capital consists of cash and short-term loans. The dynamics of the main financial indicators demonstrates that the situation looks worse if the organization has working capital only in the form of a large amount of stocked products which are current assets. Their transformation into capital requires a certain time for implementation and availability of the customer base. The main financial indicators of the enterprise, which include liquidity, indicate the state of creditworthiness. The company’s current assets must be sufficient to pay off current short-term loans. In the best position, these values are approximately at the same level. If the enterprise has circulating assets much higher in value than short-term loans, this indicates an inefficient investment of money by the enterprise in current assets. If the amount of working capital is lower than the value of short-term loans, this indicates the pending bankruptcy of the firm.
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