Question

WEEK 6 DISCUSSION 2

ANSWER TWO OF THE FOLLOWING QUESTIONS:

1: Do private or not-for-profit organizations need to be concerned about auditing and fraud? Discuss the similarities and differences with public, for-profit companies.

2: Explain the importance of separation (or segregation) of duties in regards to financial and security controls. Provide additional examples.

3: Explain the different components of a financial balance sheet. Include how this is important for security.

Answer 1

The question asks to solve any two question, I have solved 1 and 3. 1.) Though private or non-profit organizations in many countries are normally not required to get their financial statement audited as compared to public companies which are mandatory to get their balance sheet audited before filing with the exchange and regulator. Private or non-profit organizations should get their balance sheet audited at least once a year. The idea behind auditing is to make sure that their financial statement reflects the true picture of the financial health of the organization and there is no sudden shock of financial fraud because that will negatively Impact the image of the company. There are many similarities between the private and public companies whether they are operating for profit or not, that is a different scenario. Both are set up with the certain objective which they have to achieve, for some companies maximizing shareholder value might be the criteria, for some achieving social objective like education for girl child may be an objective. For profit companies raise money from the market or their shareholders while non profit companies raise money from donations from several parties to achieve their goal. The management structure is also similar, both these types of structure are headed by the people that may be called chief executives. There are also different departments in these both types of organization. The difference is mainly that for-profit organization focuses on profit maximization while non-profit organization focuses on achieving social goals. 3.) Broadly the balance sheet is divided into two parts, assets and liabilities. The balance sheet equation is Total assets = Total equity + Total liability. The assets side of the balance sheet consist of current assets as well as non-current assets. Both these types of assets are used to generate revenues for the company. Current asset consists of assets which are short term in nature like accounts receivable, cash, inventory, marketable securities and other liquid assets. Non-current assets are like property, plant and equipment, intangible assets such as patent and long-term investments. Equity is that portion of balance sheet which is either contributed by the shareholders of the company or are retained earnings from the profits. Liabilities are the amount which are owed to the outsider. Liabilities can be short term in nature as well as long term in nature. Short term liabilities are like accounts payable and long-term liabilities can be in the form of bonds, loans or debentures. Balance sheet structure is important from the perspective of the security point of view because it gives a broad idea as to what is the capital structure, whether the cash is sufficient to meet its obligation, whether the company is using its assets justifiably? Balance sheet provides a snapshot of the financial position of the company at a point of time.