No business can operate without an efficient supply of finance. It is the lifeblood of all organizations and the common denominator by which most business performance is measured both internally and externally. The accounting and finance department is at the centre of any organization and is responsible for ensuring the efficient financial management and financial controls necessary to support all business activities.
A good finance director needs to understand every aspect of a business so that s/he can develop a financial strategy that will support the business goals. Likewise, as a non-financial manager, it will help you become more effective in your own role if you have an understanding of the various roles of your organization’s accounting and finance department.
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The principal roles of the accounting and finance department, under the overall control of the finance director, can be conveniently grouped into:
This is concerned with keeping account of all transactions, using the double entry bookkeeping system and preparing final accounts suitable for meeting the various regulatory requirements for statutory reporting, the stock exchange and taxation authorities. The person responsible for this function in most medium to large organizations is the financial accountant, who will normally report to the finance director.
Medium- to large-sized organizations may employ a systems accountant, who will analyse the financial information needs of an organization and review existing systems. S/he is responsible for the design and maintenance of financial systems and for providing an interface between the finance and technology/systems departments. Within the accounting and finance function a systems accountant may report to the financial accountant, management accountant or financial director.
Systems accountants are involved in the implementation of change processes within the finance department and may manage new financial systems projects. They may also be required to assist other users of financial information.
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Larger organizations will have a paymaster or payroll manager. In smaller companies this task may be performed by the financial accountant.
In a larger organization budgeting may be carried out by a budget accountant. In a medium-sized company it may be undertaken by the management accountant.
Budgeting is concerned with the financial evaluation of plans and with reporting against this, normally on a monthly basis.
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Management accounting is concerned with the analysis and control of financial information to assist in the day-to-day operations of an organization. Most medium- to large-sized companies will have a management accountant responsible for this function who will report to the financial director.
Management accounting and financial accounting overlap in that management accounting reports are often based upon information derived from the financial accounting records. For example, the ‘actual’ expenditure figures shown in management accounts will be taken from the financial accounting records. Sometimes financial accounting and management accounting are integrated. An example of this would be the fully integrated standard costing system where the financial accounts are structured in such a way as to provide cost and management information directly.
Most large companies will have a taxation department dealing with all tax affairs. In a smaller company this may be handled by the finance director or possibly the financial accountant.
As well as day-to-day taxation management and reporting, all decisions made by a company will have tax implications and these need to be identified and built into the decision-making process and financial plans. Not only does tax have to be accounted for but cash needs to be made available at the right time to pay it to the authorities. Tax does, therefore, affect cash planning and budgets.
Tax evasion is illegal and, in addition, most countries also have anti-avoidance laws. It is the tax department’s responsibility to ensure that all laws are complied with.
There are many aspects of taxation that are open to debate and argument. This is why it is important to understand the taxation implications of business plans. Some companies adopt a more aggressive stance than others when dealing with a taxation authority. Others, often large multinational companies that value global relationships at a government level, may want to be seen as responsible tax citizens and adopt a more conciliatory approach. A large multinational company will have tax managers, some of whom are accountants and others who are lawyers specializing in taxation. Counsel’s opinion will also be sought on aspects of tax law that are unclear.
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Treasury and financial planning
Large corporations will have a treasurer with responsibility for the treasury function. The treasurer will normally report to the financial director. The treasurer is responsible for the efficient provision, investment and use of funds.
Supporting the business strategy
The finance director is a member of the executive team and is responsible for providing a financial environment that supports the business strategy. The right mix of short-term and long-term finance and equity funds needs to be available to meet the organization’s aspirations and to provide the organizational agility needed to benefit from future opportunities. All managers have a primary responsibility to create value, and a primary responsibility of the finance director is to enable them to do this. Accordingly, financial strategy must first and foremost be integrated with the business plan.
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Within the context of the business plan the finance director has a responsibility to create value. This can be done through, for example, obtaining the best possible borrowing rates, cutting/controlling costs, reducing financial risks, improving debt collection, better cash management and many other activities.
All this and more on LBTC’s finance for non finance managers training course.