FINANCIAL CONTROLS AND INFORMATION

Importance of Financial Controls and Financial Information



Importance of Financial Controls and Financial Information

Introduction

Today, all businesses operate in highly sensitive markets and environment and involve higher degree of risks due to increasing complexity. All the factors that contribute in higher uncertainty highlight the need for better financial control system. All the financial controls should be implemented as per business risk. The financial controls play a significant role with regard to business change and in addition, all controls must address forthcoming potential financial, operational and compliance risks. A business with adequately implemented controls is more likely to earn more profits as compare to a company that is poorly controlled. The significance of financial control is represented from the confidence and reliability of the financial information reported to internal auditors and management of any company or business. The strength of financial controls assures safety of organizational assets (PWC, 2012).

It is necessary to document, assess, revise, strengthen and test the implemented financial controls on regular basis. Adequate financial controls result in appropriate and reliable financial reporting and formulate efficient financial management and operations. Internal auditors are liable for assessing financial controls and they should verify and assess all the relevant accounting and financial processes and potential break downs in the system. Strong financial controls prove to be beneficial in detecting and preventing potential frauds and relevant financial and accounting mistakes in financial reporting and management process. Keeping in view the significance of financial reporting and controls, the rest of essay describes the concepts related to financial controls for a limited company operating in UK assumingly.

Discussion

Purpose and Requirements for keeping Financial Records

The basic purpose of financial record keeping is to manage, assess, review and keep track of finances occurring in an organization. In addition, one of the most important functions of this financial record keeping is to provide all necessary information pertaining to finances of a company to creditors and stakeholders. All the relevant financial records must address the status of profit or loss incurred by the company, assets vs. liabilities, allocation of resources, sources of funds, cash inflow and cash outflow, reinvestment of profit, and break up cost of various financial items. It must also ensure the safety and preservation of financial documents. A public limited company is required to retain financial records for at least 6 years from the effective date as per Companies Act 2006.

Basic requirements for keeping records include keeping a cashbook or general ledger that includes all the entries of financial and accounting transactions taking place within the organization. It must mention the accounts, time, date, and amount and debit and credit entries. Making trail balances that consists of sum of all the accounts and involves reconciliation with bank and other resources. All of the above stated two steps must be done via computerized accounting system or software that is updated on regular basis. After preparation of major financial reports like Balance sheets, income statement and statement of cash flows, it must be presented to ...