MANY people are eager to manage other people’s finances. If you are given that privilege, then you must demonstrate good stewardship and deliver to the principal more than what was placed into your care. Accounting for an organisation’s finances is a great responsibility.

Planning
Every organisation must have a financial plan. When people do not plan for their finances, they can pass through their hands without them even recognising. Planning requires a significant amount of work, but the effort invested in planning will determine the level of yield for the planners.

You don’t have to wait until the money is in your hands before deciding what to do with it. You must also plan how to maximise the use of the funds that have been entrusted to your care. Organisations may not always have all the funds they need, but they can negotiate to acquire additional funds, which they will be required to repay. When an organisation has accumulated extra funds, they must be put to proper use.

Profits benefit organisations. However, cash plays a greater role and will give organisations many opportunities that profit cannot deliver. Managing the cash-and-bank position of an organisation is never easy, but because these are liquid resources, some procedures must be established to prevent persons from inappropriately using the organisation’s liquid assets. Cashiers do not always understand the importance of their role in relation to the organisation’s finances. Their dishonesty can affect the organisation’s reputation. If caught, they can be placed before the legal system.

Organisations have several ways to grow. However, the organisation can experience financial growth through its savings and investments. When funds are invested, prudent financial decisions must be made. Considering multiple investment options before making a final decision is advisable. A great need for high rewards often entails a higher risk. The time value of money must be considered since a dollar invested today will not have the same value tomorrow. The discounted cash flow, present values, and future values will also be considered in making financial decisions. While planning is good, do not spend too much time on it. Execute the plan and make adjustments along the way so as to maximise the shareholders’ wealth.

Organisations should consider having most of their funds banked as soon as possible. This may allow the organisation to acquire interest. Once banking is done, the organisation must have its employees prepare a bank reconciliation as part of its internal control. When the bank reconciliation is prepared, the organisation can determine if the funds were misappropriated. Every penny that an organisation acquires must be accurately recorded and reconciled between the bank statement and the general ledger (cash book). The organisation has several ways of obtaining finances, and all these must put the organisation in a stronger financial position.

Control
Accounting for an organisation’s finances remains an excellent role for the agent. The principal wants to know how their money was spent, and that can be determined through record-keeping. If you do not keep records, then you may not know when things are done correctly. Record keeping allows for lessons to be learnt over the years and also allows the principal to appoint others to review your performance. Once you have authority, you will have responsibilities. You are required to report on your stewardship over the organisation’s resources.

Those who manage the organisation’s finances require some amount of internal and external financial reporting. Cost accounting remains a key part of planning and reporting. Organisations must know the cost to produce a product or service. When the price is known, a mark-up can be added to allow the organisation to make a profit. Organisations desire to cover their costs at the very least, and any extras will be considered profits. Appointing a cost to a product or service can be done using several methods. Whichever method is chosen, the organisation should remain consistent with its choice unless a great reason to change it exists.

Many managers want to know how the organisation manages the resources that are made available to them. The management accounts will help managers and other internal users make informed decisions that contribute to the organisation’s longevity. Management accounts must be designed to enable multiple users to independently understand how the organisation is performing during a specific period against the budget and the previous year. Control is always necessary whenever a plan is established, and the management accounts provide some amount of internal control.

Organisations do not have to wait until the end of the month or year before assessing their performance. Regular control checks of various reports are essential to help the organisation remain on course. A variance report is another control report that provides information concerning whether the organisation exceeds its plan or falls behind.

External stakeholders want to know what is happening inside the organisation. Those stakeholders will usually receive standardised financial reports that provide them with information about how those who manage the organisation’s resources have performed over a specific period. Some external financial reports can be produced on a quarterly, semiannual, or yearly basis. If investors are confident in the organisation’s economic management, they may even want to invest more in the organisation.

Delegation
Those who have authority must be willing to provide appropriate answers. If they cannot do so, then the principal puts systems in place to obtain accurate answers. Not all persons employed in the organisation may follow all the procedures. However, their actions can adversely affect the organisation. Since the principal is aware of such deviation from the agency theory, measures must be put in place and executed appropriately. Not all shareholders will have the time and knowledge to determine whether the agent has operated according to their fiduciary duty.

Shareholders have the right to appoint independent auditors to review the organisation’s performance. Once this is done, the agent will not operate in isolation, but they will know that they are held accountable to the authority delegated to them. The organisation may establish an internal audit department to ensure its management follows its policies and procedures. The auditors will bring any deviations to the attention of management, allowing them to take corrective action. While external auditors possess different functions from those of internal auditors, they must carry out their assignments without fear of being victimised. When auditors fail to execute their duties, an entire organisation may collapse, with no one warned.

The need to adopt corporate governance is becoming increasingly important. Even some small organisations want to ensure that they comply with international requirements. Corporate governance is not restricted to what the organisation may do to benefit shareholders, but organisations nevertheless have a greater responsibility to many stakeholders. The board of directors helps many organisations and their management by setting strategy and policies. Those who manage the organisation must execute the established methods and report on their performance over a specified period.