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Formative assessments
Activity 1
[if !supportLists]·         [endif]Assessors must provide clear explanation regarding the standard of work and amount of evidence required.
Participants must conduct research and read materials from other sources in order to answer the questions. Answers that use information from readings must be properly cited and referenced.
Assessors might choose to add assessment tasks or to use alternative assessment tasks.
Assessors must provide clear explanation regarding the standard of work and the amount of evidence required.
[if !supportLists]·         [endif]Planning for financial management
Write a paper of 2,000 words, explaining why it is necessary for all business organisations to have effective financial management systems and explaining how the information held in financial management systems contributes to ongoing business performance and business planning.
Start Working on this one.
Key points that must be covered:
[if !supportLists]o  [endif]these days the financial management systems of businesses will be electronic—this means that a range of data will be collected and put into the system—the system will be used to manage the data and appropriate filing procedures must be followed
[if !supportLists]o  [endif]to ensure accuracy and usability of information appropriate software must be installed, users must receive appropriate training and it is necessary to check existing software and assess its suitability now and with regard to future use
[if !supportLists]o  [endif]systems collect data that can be analysed and used to develop information about business finance—about how well or how poorly the organisation is performing
[if !supportLists]o  [endif]the system must contain accurate and current data and information
[if !supportLists]o  [endif]analyses of data must be appropriate in terms of proposed use
[if !supportLists]o  [endif]data will be used for measurement and for planning purposes
[if !supportLists]o  [endif]data from previous financial periods must be reviewed and analysed when developing new budgets and for forecasting purposes
[if !supportLists]o  [endif]analysis of profits and losses enables businesses to build on areas that are currently profitable, to plan around losses to ensure that they do not have a negative impact on the business and to ensure future losses will be reduced
[if !supportLists]o  [endif]financial data will be used in business and strategic planning
[if !supportLists]o  [endif]by measuring financial performance it becomes possible to control it
[if !supportLists]o  [endif]finances relate to resources—the resources used by the business in order to operate—these include money, time, staff, machinery, equipment, consumables
[if !supportLists]o  [endif]financial data enables assessment of what resources have been used, how they have been used and why they were necessary—it then becomes possible to determine what resources will be used for upcoming financial periods
[if !supportLists]o  [endif]data held in the system will cover things like cash flow and cash flow trends—all businesses need to understand how their cash flow works and how to plan around cash flow
[if !supportLists]o  [endif]businesses must comply with statutory requirements, in particular those associated with the ATO—to do this, and depending on the nature of the business, it is necessary that financial records be kept and that businesses use these records when reporting to the ATO and when making appropriate taxation payments
[if !supportLists]o  [endif]financial records must be available for audit purposes
[if !supportLists]o  [endif]organisational systems must be based on suitable software and work processes
Activity 2
[if !supportLists]·         [endif]Establishing budgets, allocating funds and implementing budgets
Answer each of the following questions in detail:
[if !supportLists]1.  [endif]What is a budget, why is it necessary, how is it used?
[if !supportLists]2.  [endif]How does analysis of previous financial data impact on projected resource estimates and allocations?
[if !supportLists]3.  [endif]How do profit and loss statements, cash flow and aging summaries contribute to new budgets?
[if !supportLists]4.  [endif]How can you ensure that managers and supervisors in the organisation understand the budget and understand their reporting requirements with regard to financial management?
[if !supportLists]5.  [endif]Budgets are used to identify and track discrepancies between agreed and actual allocations. Explain.
[if !supportLists]6.  [endif]How do budgets contribute to analysis of existing financial management approaches?
A full answer will require about 1,500 words.
Assessors need to expect that answers will vary, depending on the participant’s experience, understanding and current work. It is up to each assessor to determine the amount of detail required and the points that must be covered in the answers. Assessors must provide clear explanation regarding the standard of work and amount of evidence required.
Participants should be informed that they must conduct research and read materials from other sources in order to answer the questions. Answers that use information from readings must be properly cited and referenced.
Answers should address and expand on the following:
A budget is a plan—an estimate of income and expenditure for a set period of time. It is used to determine what resources will be required for business operations, what they will be used for and by whom. It balances expenditure against income and indicates targets that the organisation intends to meet.
Planned sales volumes and revenues, resource quantities, costs and expenses, assets, liabilities and cash flows can all contribute to the budget.
Budgets must align closely with the business plan or, for established organisations, their strategic plans—the plans developed to direct the ways in which budget objectives are achieved.
Budgets make it possible to express activities, events, incomings and outgoings in measurable terms. As a measuring tool a budget enables projected expenditure and income to be balanced against actual expenditure and income.
A number of different budgets might be drawn up in an organisation, depending on its size and structure. For example, there might be a sales budget, marketing budget, cost centre budgets, project budgets, revenue, expenditure, and capital budgets.
Previous financial data can be used to determine what areas of operations were successful and which areas require either more attention or change in the future. Previous financial data indicates quantitative performance that can be used for projections. In some organisations, for instance, previous financial data will be used as a basis to determine upcoming stretch targets; that is, 15% higher than for the same period last year.
Profit and loss statements—income statements or statements of financial performance—summarise income and expenses to determine the profit made in a given time period. Profit and loss statements can be developed annually, quarterly or monthly and contribute base data for the budgeting process.
Cash flow statements also contribute to the budgeting process because they focus on the sources and uses of cash through operating, investing and financing activities. They are an important part of the financial plan for a business.
Other data that will contribute to the budget will include debt collectors to inform aging summaries. An Aging Report is a periodic report that categorises accounts receivable according to the length of time an invoice has been outstanding. Accounts receivable aging is a critical management tool as well as an analytic tool that helps determine the financial health of a company’s customers, and therefore the health of their business. It is used in conjunction with profit and loss statements and cash flow statements to inform budget requirements. It also acts to identify how well the business is doing; for instance, if an accounts receivable aging demonstrates that an organisation’s receivables are being collected more slowly than normal, this could be a warning sign that business is slowing down or that the organisation is accepting greater credit risk in its sales practices. These are things that might need to be addressed in the budgeting process.
The budget must be properly and clearly explained to the people who use them. If managers, supervisors and, to a certain extent employees, are not aware of the organisation’s financial goals or they are unaware of the discrepancy between predicted and actual results, then they cannot be expected to comply with budget requirements. When budgets are being developed managers and supervisors will, in many cases, be the direct suppliers of data. Once the budget has been drawn up it is to be distributed to the appropriate people and the projections and the required methods of achieving these projections (strategic plans) should be clearly explained.
Activity 3
[if !supportLists]·         [endif]Reporting on financial performance
Your organisation, which has a number of different cost centres, is conducting an internal audit. You have been asked to act as a project manager to assist with data collection, to provide data, ensure that any other assistance is provided and to collaborate with regard to writing the audit report.
During the year the organisation transacted a number of mergers and acquisitions. You have been asked to pay special attention to the acquisitions and to check the due diligence processes. You also need to determine whether any changes or adjustments need to be made to the current budgets.
Explain what all this means and how you would manage the audit process.
In answering those questions, you will need to also address these questions:
[if !supportLists]1.  [endif]What is an internal financial audit?
[if !supportLists]2.  [endif]How does this help to mitigate the risk of mismanagement of funds?
[if !supportLists]3.  [endif]What data do you think will contribute to the audit and what financial reports might contribute to an audit?
[if !supportLists]4.  [endif]What structure and formats might financial report take?
[if !supportLists]5.  [endif]Are there particular statutory requirements that should be followed?
[if !supportLists]6.  [endif]What does due diligence mean in terms of finances and financial reporting?
[if !supportLists]7.  [endif]Under what circumstances might budgets need to be revised?
[if !supportLists]8.  [endif]To whom might you circulate reports and why would you circulate them to these people?
[if !supportLists]9.  [endif]What reports might be prepared for the ATO?
(At least 1,500 words)
It is up to each assessor to determine the amount of detail required and the points that must be covered in the answers. Assessors must provide clear explanation regarding the amount and standard of work required.
Ensure that participants are aware that they will need to conduct research and read materials in order to answer the questions. Answers that use information from readings must be properly cited and referenced.
The following information can contribute to participant answers.
Auditing and using financial reports
A financial audit is an audit of financial statements from an organisation, to prove the veracity of the statements developed and to ensure that they give a fair and accurate picture. The financial audit might be performed by an external person or body (usually practising accountant—experts in financial reporting) or it might be undertaken internally. Auditing is an assurance function that promotes transparency and accuracy in financial disclosures. It contributes, therefore to reduction of concealed or unscrupulous dealings. It can be used to identify and prioritise significant issues in statements and can also help, because it is a check, to reduce misappropriation of funds.
Financial reports that contribute to the audit will include a balance sheet, an income statement, a statement of changes in equity, a cash flow statement, and notes comprising a summary of significant accounting policies and other explanatory notes—profit and loss statements, cash flows and aging summaries.
The organisation’s annual report can also play a role in the audit process.
The auditor/s make a judgement as to whether the financial report taken as a whole presents a true and fair view of the financial results and position of the organisation and its cash flows, and is in compliance with financial reporting standards and, if applicable, the Corporations Act.
Auditors consider any economic and industry issues that might have affected the business during the reporting period. For each major activity listed in the financial report/s, auditors identify and assess risks which could have a significant impact on the financial position or financial performance, and also some of the measures (internal controls) that the organisation has put in place to mitigate those risks. Based on the risks and controls identified, auditors consider what management has done to ensure the financial report is accurate, and they examine supporting evidence.
Financial reports must be prepared in accordance with organisational and legal requirements and financial reporting standards.
International Standards on Auditing (ISA) issued by the International Auditing and Assurance Standards Board (IAASB) are considered to be the benchmark for audit process. Almost all jurisdictions require auditors to follow the ISA or a local variation of the ISA.
Regardless of whether the audit is internal or external, an audit report will be produced. The report provides details of what is owned and what the organisation owes (in the balance sheet) plus an assessment of profits or losses. It also sets out the opinions of the auditors and this information should become available to the organisation’s shareholders or members. In some cases recommendations regarding future actions will be included in the report.
With some exceptions, all organisations subject to the Corporations Act must have a yearly audit. Other organisations can require or request an audit, depending on their structure and ownership, or for a special purpose.
Due diligence
A due diligence investigation is not an audit; however, due diligence serves to confirm all material facts with regard to a sale—or possibly a purchase. It relates to investigating the care that has been taken before entering into an agreement or transaction with another party, for example, mergers and acquisitions or asset sales/ purchases.
Offers to purchase an asset are usually dependent on the results of due diligence analysis. This includes reviewing all financial records plus anything else deemed material to the sale. Sellers can also perform a due diligence analysis on the buyer. Items that could be considered are the buyer’s ability to purchase/ pay, as well as other conditions that would affect the purchased entity or the seller after the sale has been completed.
A due diligence investigation will look at the historical performance of a business and considers its forecast performance. It actually incorporates a greater scope and investigates reasons for the trends observed in operation results of the company, over a relevant time period and in terms of relevancy for a proposed transaction. It might be used to investigate historical financial results and current financial position; to examine forecast financial results, working capital requirements, employee entitlements provisions, valuation implications, risks and opportunities and taxation implications.
In the context, therefore, of mergers and acquisitions the due diligence process covers a wide range of areas including operations, legal and financial matters. The extent of procedures required under each area is dependent upon the nature of the actual transaction and the size of the company or business operations being acquired.
The benefits of financial due diligence reviews are not limited to merger and acquisition decisions. They can also be useful in assessing the merits of disposing of certain existing business divisions within an organisation. A financial due diligence review is also an essential component of assessing investment requirements for venture capital arrangements.
Summative assessment 1
Question 1
[if !supportLists]·         [endif]These are short answer questions that contribute to the summative assessment.
To answer them you will need to conduct independent research.
Answer all questions in detail.
Answers will each require a minimum of 200 words and a maximum of 500.
Explain financial probity.
Answers must be similar to the following:
Financial probity can be considered in terms of both private and not-for-profit organisations but is primarily used in terms of not-for-profit organisations. The main sources of income for not-for-profit organisations are grants, donations and fundraising. These organisations are benevolent and, in general, working towards providing benefits to the community and society. Regardless of their not-for-profit status good financial management is required to sustain operations and to ensure a constant flow of appropriate resources. Assets must be protected, liabilities acknowledged and dealings must be fair and honest.
Financial probity is the evidence of ethical behaviour, integrity, uprightness and unflinching honesty with regard to financial management and is an essential component of the successful running of a not-for-profit organisation. A good system that supports financial probity manages and monitors the organisation, keeping an eye on the success and failure of operations and interactions. It involves precise recordkeeping, generation of accurate and timely financial statements (balance sheets, income and expenditure statements, cash flow statements, financial ratios etc) plus systems, budgets, forecasting and procedures that support viability.
Question 2
[if !supportLists]·         [endif]Personnel working in the financial services division of a company need to understand and be able to explain principles of accounting and financial systems (Accounting and Financial Information Management Systems—AIS and FIS). What are accounting and financial systems and how do they assist business operations?
Answers should include the following information:
Accounting and financial systems are generally referred to as information systems (AIS and FIS).
An AIS is a system (or series of procedures to be followed) for collecting, storing and processing financial and accounting data (incomings and outgoings) that will be used by decision-makers. The system holding the information will generally be computer based, protected by suitable security software and can be used for tracking quantitative data input and accounting activity and generating reports for use by management.
It is used for the management of data, to support core business processes associated with revenue, expenditure and production transaction cycles and to manage internal controls for business processes.
A FIS accumulates and analyses the financial data used for optimal financial planning and forecasting decisions and outcomes. It helps identify resource requirements, track budgets and support the achievement of an organisation’s financial objectives. It supports all aspects of financial planning and can be used to collate, manage and report on large amounts of market and financial data obtained from worldwide sources.
A FIS will support business processes, electronic commerce and business decision-making. It will hold data and can generate reports for internal use and for submission to the taxation office and other stakeholders.
Financial data analysis can involve trend evaluations, ratio analyses and financial planning modeling.
Predictive analytics could be used to determine what could be expected from a business interaction or transaction that has yet to take place.
Data outputs might include:
[if !supportLists]o  [endif]operating and capital budgets
[if !supportLists]o  [endif]working capital reports
[if !supportLists]o  [endif]accounting reports
[if !supportLists]o  [endif]cash flow forecasts
Question 3
[if !supportLists]·         [endif]List at least 10 forms of legislation and conventions (Australian, international and/or local) that could apply to your work.
Answers must include at least ten instances of legislation such as that relating to:
[if !supportLists]o  [endif]fraud control
[if !supportLists]o  [endif]financial management and accounting regulation
[if !supportLists]o  [endif]procurement rules
[if !supportLists]o  [endif]grant guidelines
[if !supportLists]o  [endif]taxation
[if !supportLists]o  [endif]integrity and transparency
[if !supportLists]o  [endif]Australian and international standards
[if !supportLists]o  [endif]record keeping
[if !supportLists]o  [endif]freedom of information
[if !supportLists]o  [endif]privacy
[if !supportLists]o  [endif]governance
[if !supportLists]o  [endif]electronic transactions
Question 4
[if !supportLists]·         [endif]Explain the requirements for each of the following:
[if !supportLists]1.  [endif]Goods and Services Tax
[if !supportLists]2.  [endif]Company Tax
[if !supportLists]3.  [endif]PAYG
Answers must include the following information:
[if !supportLists]4.   [endif]Goods and Services Tax
The Goods and Services Tax (GST) in Australia is a value added tax of 10% on most goods and services transactions. GST is levied on most transactions in a production process, but is refunded to all parties in the chain of production other than the final consumer.
Companies/ business entities must register for GST if:
[if !supportLists]§  [endif]the business has a GST turnover of $75,000 or more ($150,000 or more for non-profit organisations)
[if !supportLists]§  [endif]it provides taxi travel as part of the business—regardless of GST turnover
All organisations should have an Australian Business Number (ABN), as the ABN is also the GST registration number for the company/ business entity. Registering for GST entitles the company to claim input tax credits for GST paid on items they have bought for business use.
[if !supportLists]5.   [endif]Company tax is charged at a rate of 30% and applies to companies and a range of other business entities. A company’s actual tax liability is worked out when its annual income tax return is assessed.
Companies make PAYG tax instalments for each year and these are credited against the annual tax assessment to determine whether the company owes more tax or is owed a refund.
[if !supportLists]6.   [endif]Pay As You Go (PAYG) applies also to wages paid to employees and is a withholding tax. It is a legal requirement to withhold amounts from employee payment, for income tax purposes. In some cases it might be necessary also to withhold tax payment from other workers, such as contract workers.
Employers must register with the Australian Taxation Office (ATO) before withholding PAYG tax monies. The ATO can provide information on how, from whom, how much and when to withhold tax from employee wage payments.
When dealing business to business, it might also be necessary to withhold amounts from payments to businesses which do not quote their ABN invoices or other relevant documentation.
All withheld amounts must be sent to the ATO.
Summative assessment 2
Project 1
[if !supportLists]·         [endif]1
This is a series of practical and theory activities that will enable you to demonstrate skill and underpinning knowledge—critical aspects for assessment, required skills and knowledge—and produce end products suitable for use in the work place.
Evidence collected as a result of workplace observation will support this.
Address each of these:
For the business in which you work you need to prepare a budget. The budget must align with the business plan.
[if !supportLists]1.  [endif]Describe the business and its core operations.
[if !supportLists]2.  [endif]Explain what data you would use to inform the budget and why this data would be relevant.
[if !supportLists]3.  [endif]Who else would you involve in developing the budget?
[if !supportLists]4.  [endif]Draw up the budget to cover the next financial year.
[if !supportLists]5.  [endif]Explain how the budget would be used to monitor the financial performance of the organisation.
[if !supportLists]6.  [endif]List and explain the application of statutory and legislative requirements as they apply to financial management within a business organisation.
[if !supportLists]7.  [endif]Write a report explaining how the budget that you have developed contributes to financial management.
[if !supportLists]8.  [endif]Present this report verbally in order to demonstrate your communication skills as well as the ability to explain budgets and deal with questions.
[if !supportLists]9.  [endif]Analyse the existing financial management approaches of the organisation. Are there any recommendations you should make and what are they?
[if !supportLists]10.   [endif]What software packages/ programs have you used when developing the budget and how did these assist?
[if !supportLists]o    [endif]the budget—with appropriate explanations about its implementation
[if !supportLists]o    [endif]answers to the questions
[if !supportLists]o    [endif]the report on how the budget contributes to financial management
[if !supportLists]o    [endif]the report on how effective current financial management approaches are
If you are not working develop a scenario for an imaginary business. Describe the business and what it does then address the assessment project questions. The business could be a private or a not-for-profit organisation.
A satisfactory result from this project will show that the participants can:
[if !supportLists]15. [endif]Plan for financial management.
[if !supportLists]16. [endif]Establish budgets and allocate funds.
[if !supportLists]17. [endif]Implement budgets.
[if !supportLists]18. [endif]Report on finances.
It will also show that they can effectively communicate budget requirements to others and can use mathematical skills, at the appropriate level, to read and interpret a range of financial inputs, and develop budgets.
Each project, budget and report will be different as it will be dependent on the local work context or on possibly an imaginary business. If the participant works for a private business it is likely that their financial management procedures will differ from those of participants working in a not-for-profit organisation. The size of the organisation will also impact on how budgets are drawn up and the information that contributes to the budget.
Answers must, however, show that the participant can, within the context of a work place:
[if !supportLists]o  [endif]effectively use data from previous financial years to inform new budgets
[if !supportLists]o  [endif]use previous budget information to establish the areas in which profits and/or losses were generated
[if !supportLists]o  [endif]use profit and loss statement to identify the reasons for previous profits and losses
[if !supportLists]o  [endif]use previous financial data to determine allocations for resources and make informed estimates of new items for inclusion in budget
[if !supportLists]o  [endif]use this information to determine strategies for the next financial year
[if !supportLists]o  [endif]take into consideration business and strategic plans when determining financial milestones
[if !supportLists]o  [endif]use the business plan to establish critical dates and initiatives that will require or generate resources in next financial cycle
[if !supportLists]o  [endif]analyse cash flow trends in the business and any internal or external factors that will impact on them
[if !supportLists]o  [endif]ensure that taxation obligations—compliance and liabilities—are taken into consideration with regard to PAYG and annual tax
[if !supportLists]o  [endif]consider the organisation’s current financial management systems, including its software and processes, to determine ongoing suitability
[if !supportLists]o  [endif]prepare budgets in accordance with organisational requirements and statutory requirements
[if !supportLists]o  [endif]circulate budgets to the appropriate personnel and ensure managers and supervisors are clear about what the budget contains, what their reporting requirements are and any financial delegations
Answers must show that when developing budgets the participant can:
[if !supportLists]o  [endif]identify risk areas
[if !supportLists]o  [endif]check that there are no opportunities for misappropriation of funds
[if !supportLists]o  [endif]check that systems are in place to properly record all financial transactions
[if !supportLists]o  [endif]review profit and loss statements, cash flows and aging summaries and use relevant information
Once the budget is in operation it might be necessary to:
[if !supportLists]o  [endif]organise revisions, as required, to deal with contingencies, changes and/or unexpected opportunities
[if !supportLists]o  [endif]maintain audit trails to ensure accurate tracking and to identify discrepancies between agreed and actual allocations
[if !supportLists]o  [endif]ensure compliance with due diligence
Participants should show that they understand why these things might be necessary.
They must also show that they can:
[if !supportLists]o  [endif]develop budget reports in a structure and format that makes information clear and complied with organisational statutory requirements
[if !supportLists]o  [endif]identify and prioritise significant issues in statements, including comparative financial performances for review and decision-making
[if !supportLists]o  [endif]effectively evaluate the effectiveness of financial management processes, prepare recommendations, based on good research and sound information, to ensure financial viability of the organisation

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