Internal audit is and self-governing assessment function established by the management of an organisation for the review of the internal control system as a service to the organisation. It separately examines, evaluates and reports on the sufficiency of internal control as a involvement to the correct, economic and successful use of resources Scope of Internal Auditing The possibility of internal auditing currently embraces wider concepts of community governance: risk and power – recognizing that organize exists within an organization basically to manage risk and advance valuable governance . The most significant vary is that the internal auditors are estimated to modify their mindset: from faultfinders to advisers. Internal auditors should take care of the auditee as their consumer. As with a client, the internal auditor should obviously communicate with the auditee, engage management in the audit development process, consider organizational risks that are prospective areas of audit anxiety, work with Continue reading
Financial Management Tools
Types of Costing Systems
Some costs are direct while others are indirect, direct costs can be identified to a specific products but indirect costs which are not identifiable to specific products, need to be allocated on some objective and rational basis for product costing and pricing which can be justifiable to customers. Costing systems are the systematic allocation of cost to products. It can be used for planning, decision making and control purpose as well. Budgeted figures are used for costing of products as actual prices are not known at time when prices are decided. Important Types of Costing Systems 1. Absorption Costing System Absorption costing system is the method of allocating overheads (Fixed and variable) to products based on pre-determined absorption rate. To find the pre-determined rate total budgeted overhead cost is divided by activity level. The basis on which costs are allocated are subjective and difficult to justify. Absorption costing system gives Continue reading
Statement of Cash Flows
The statement of cash flows is one of three very important financial reports that managers and investors look at when analyzing a company’s past or present financial status. The balance sheet and the income statement are the other two reports. All of these reports are very important in running a successful business, but the statement of cash flows is the most important. It is like the blood of a company since it would not survive successfully without it. Cash on hand can actually be much more important than income, profits, assets, and liabilities put together, especially in the early stages of any company. The statement of cash flows tells us how much cash we have on hand after all costs are met. It shows how much cash we started with and how much we pay out. There are two parts to the statement of cash flows which are the top Continue reading
Zero Based Budgeting
Traditional budgeting starts with previous year expenditure level as a base and then discussion is focused on certain “additions” or “cuts” to be made in the previous year spending. The top management finally gives its approval after hearing the arguments for and against the “additions and “cuts”. In Zero Based Budgeting (ZBB) reference, is not made to previous level of spending. A convincing case is made for each decision unit to justify the budget allotment for that unit during that period. Zero Based Budgeting differs from traditional budgeting on many points and following tire a few points of difference between the two systems of budgeting: Traditional Budgeting Vs Zero Based Budgeting Traditional budgeting is accounting-oriented and mainly lays its emphasis in previous year expenditure. Zero Based Budgeting is decision-oriented and makes all projects and programmes old and new to complete for scarce resources. In traditional budgeting, past expenditure forms the Continue reading
Important Perspectives on Asset Securitization
Asset securitization is the transformation of a mix of illiquid individual loans that are combined into relatively similar pools and transformed into highly liquid bonds traded in securities markets and usually, when securities are backed by non-mortgage loans, they are referred to as asset-backed securities (ABS). Securities issued exclusively against credit and loans with mortgage guarantees are referred to as mortgage-backed securities (MBS). Assets like ABS, MBS and it likes are now widely spread in fixed income portfolios at both the institutional and individual investor level. Although the largest and most well known example of asset securitization is the residential mortgage market. The dealings of asset securitization transactions vary, the typical transaction involves the sale by a bank or financial institution (who are called originator) of certain assets on its balance sheet to a trust, corporation or a separate entity, called special purpose vehicle (SPV). Thus, through the asset securitization Continue reading
Different Types of Securitized Instruments
Pass Through Certificates and Pay Through Certificates There is no uniform name for the securities issued by the special purpose vehicle (SPV) as such securities take different forms. These securities could either represent a direct claim of the investors on all that the SPV collects from the receivables transferred to it: in this case, the securities are called pass through certificates as they imply certificates of proportional beneficial interest in the assets held by the SPV. Alternatively, the SPV might be re-configuring the cash flows by reinvesting it, so as to pay to the investors on fixed dates, not matching with the dates on which the transferred receivables are collected by the SPV. In this case, the securities held by the investors are called pay through certificates. 1. Pass Through Certificates In case of pass through certificates payments to investors depend upon the cash flow from the assets backing such Continue reading