Question

Can you help me with the accounting and finance questions?

Accounting and Finance:

1. What are the requirements and characteristics of the company to raise and prepare its financial statements, (i.e. accounting policies, internal rules and regulations, etc.)?

2. What are the important metrics when establishing an operational, sales, etc. budget?

3. What are the users of the accounting information internally and what do they emphasize when analyzing them?

4. What are the users of the external accounting information?

5. What points does management, or the executive committee emphasize when analyzing it and why?

Answer 1

Q1. Requirements and characteristics of the company to raise and prepare its financial statements:

Requirements:

1) Meaning of Financial Statement

In relation to a company, “financial statement” means the collective records of the Balance Sheet, statement of Profit and Loss, Cash Flow Statement, Statement of Changes in Equity (if applicable) and an Explanatory Notes annexed to the Financial Statements. The statements have to be prepared at the end of the financial year and may be kept in electronic form provided they are complete and unaltered. Further, all such statements and books have to be preserved at the companies registered office or any other place that the Board of Directors may decide.

(It is important to note that, cash flow statements are not mandatory for small companies, one person companies and dormant companies).

2) Requirements of Financial Statement

The Financial Statements shall abide with the accounting standards and be in the form as prescribed in Schedule III and shall give a true and fair view of the financial condition of the company. The financial statements shall be disclosed in the annual general meeting.

In case of a holding company, it shall additionally prepare a Consolidated Financial Statement of the Company along with that of its subsidiaries, associates and joint ventures and disclose it at the annual general meeting. The consolidated financial statements have to be prepared in accordance with Schedule III of the Companies Act 2013 which is in line with the revised Schedule IV.

A company is required to attach with its Financial Statements, a separate form AOC-1 in order to file it with the Registrar of Companies.

3) Board Approval

The financial statements including the consolidated financial statement has to be approved and signed as prescribed, by the Board of Directors. It can be signed either by the authorized chairperson of the Board or by at least 2 directors and the appointed company secretary. The Board’s Report and Auditor’s Report are to be attached with the Financial Statement before it is issued.

4) Re-opening of Accounts

The Companies Act 2013 provides for the re-opening or re-casting of the books of accounts pursuant to an order of the Court or Tribunal on an application made by the Central Government, Statutory Authority or any person concerned if, it was found that the earlier accounts were prepared in a fraudulent manner due to the mismanagement of the affairs of the company.

Further, if it appears that the financial statements or board reports are not in compliance with the provisions of this Act, the Company may revise such statement or report with the approval of the Tribunal. Such revised or re-casted reports or statements shall be final.

5) Revision of Accounts and Reports

The Board may pass a resolution to revise the financial statements or books of accounts if, they believe that the statements do not comply with the requirements of Section 129 or Section 134. Such revision can be done for any of the 3 preceding financial years, only after obtaining prior approval of the Tribunal.

The reason for the revision along with the revised statements have to be filed in the Board Report and needs the approval of the board at the annual general meeting. It requires an auditor’s report as well. In the event there is a different auditor, then the revised financial statements have to be accompanied by a consent letter from the auditor who’s work sought to be revised.

Such revised financial reports have to be filed with the Registrar of Companies along with a copy, if any, of the Tribunal.

6) The National Financial Reporting Authority

The Companies Act 2013 provides that, the Central Government may, by notification, constitute the National Financial Reporting Authority with the predominant objective of advising on Accounting Standards (AS) and Auditing Standards (SA) and to monitor, enforce, and oversee the compliance and quality of service of associated professionals.

The National Financial Reporting Authority shall have the power to investigate companies or professionals in the matters of misconduct, order discovery production of books of accounts, summon or enforce attendance, order inspection of books, registers and documents, pass orders. The decisions of the National Financial Reporting Authority are appealable to the Appellate Authority.

7) Accounting Standards

The Central Government may, after consultations with the National Financial Reporting Authority, may prescribe the Accounting Standards to be adopted by the companies in completion of their financial statements.

The following Accounting Standards (AS) are applicable to all companies. The AS-1 for disclosure of accounting policies; the AS-2 for valuation of inventory; the AS-3 for cash flow; the AS-4 for contingencies and events occurring after balance sheet date; AS-5 for net profit or loss for the period; AS-6 for depreciation; the AS-7 for construction contracts; the AS-9 for revenue recognition; the AS-10 for accounting of fixed assets; the AS-11 for the effects of change in forex rates; the AS-12 for government grants; the AS-13 for investments; the AS-14 for amalgamations; the AS-16 for borrowing costs; the AS-17 for segment reporting; the AS-18 for related party transactions; the AS-22 for income taxes; the AS-24 for discontinuing operations and the AS-26 for intangible assets.

In case a company has to prepare consolidated financial statements, the following accounting standards would have to be followed; the AS-21 for consolidated financial statements, the AS-23 for investment in associate companies; the AS-27 for reporting of interest in joint ventures and the AS-25 for interim financial reporting.

8) Board Report & Directors Responsibility Statement

The Board Report shall contain the extract of the Annual Return (MGT-9) as prescribed, the number of board meetings held, the directors responsibility statement, a declaration by Independent Directors regarding their appointment, the company’s policy on the Directors Appointment and Remuneration, explanations by the Board with regard to every reservation or adverse remark made by the Auditor in his Report or the Company Secretary in his Report, particulars of loans and guarantees under section 186, particulars of related party transactions (AOC-2), the state of company’s affairs, statement of material changes affecting the company’s financial position, state with regard to developing and implementing risk management policy and corporate social responsibility policy.

The Directors Responsibility Statement shall contain the details of the accounting standards followed with explanations for material departures, prudent judgments made as to give a true and fair view of the state of affairs of the company, measures taken to maintain adequate accounting records and safeguard assets, and measures taken to ensure compliance with all applicable laws.

9) Right of Members

All members have the rights to receive the copies of financial statements and every report required to annexed with the financial statements at least 21 days before the date of the annual general meeting.

10) Filing of Financial Statements

The financial statements along with prescribed reports have to be filed with the Registrar of Companies within 30 days of the Annual General Meeting.

Characteristics:

The following are all qualitative characteristics of financial statements:

• Understandability: The information must be readily understandable to users of the financial statements. This means that information must be clearly presented, with additional information supplied in the supporting footnotes as needed to assist in clarification.

• Relevance: The information must be relevant to the needs of the users, which is the case when the information influences their economic decisions. This may involve reporting particularly relevant information, or information whose omission or misstatement could influence the economic decisions of users.

• Reliability: The information must be free of material error and bias, and not misleading. Thus, the information should faithfully represent transactions and other events, reflect the underlying substance of events, and prudently represent estimates and uncertainties through proper disclosure.

• Comparability: The information must be comparable to the financial information presented for other accounting periods, so that users can identify trends in the performance and financial position of the reporting entity.

Q2. The important metrics when establishing an operational, sales, budget and etc.,

Role of Sales Operations

Every sales operations professional knows that data matters. The problem is, you’re not sure which data matter or who they matter to. We share 22 sales operations metrics for your to track. You will find them broken out into 4 easy categories: Sales Pipeline, Sales Process, Sales Resource, and Financial.

Most of the time, your sales ops team is running around with their hair on fire. It is one ad-hoc report after another. Some are for sales leadership, some are for finance, but few are directly supporting your sales reps. The fundamental role of sales operations, however, is to improve the sales process, which is in direct support of your sales reps.

To improve the sales process you need to:

1. Measure existing sales process
2. Identify inefficiencies
3. Eliminate friction
4. Measure the result
5. Repeat

Sales Operations Metrics:

Sales Pipeline Metrics

1. Pipeline Forecast – Do you know the expected value of your sales pipeline this quarter? This forecast should be made each quarter and updated at least once per week.
2. Open Opportunities – Your open opportunities represent all of your sales team’s swings.
3. Win Rate – While we hope all swings are hits, your win rate is like your batting average. You need to track it by both count and dollar value.
4. Average Won Amount – This is the average dollar value of all won opportunities. When combined with the open opportunities and win rate you can do some back of the envelope math to determine gross pipeline value.

Sales Process Metrics

1. Days to Won vs Days to Lost – It seems to me that Days to Won should be more than Days to Lost, but that is rarely the case. There is little incentive for a sales rep to update an opportunity as Closed Lost. Days to won are usually defined as Closed Won Date minus Qualified Date.
2. Sales Stages Used – How complex is your sales process? If you have 10 stages, that might be too many. This metric is used to understand which stages are being used, and which are not. Reducing your stages is a great way to reduce friction in your sales process.
3. Sales Time vs Overhead Time – Do you know what proportion of your sales rep’s time is actually selling? You should compare that amount of time to the time they spend on admin tasks and in internal meetings.
4. Marketing Leads vs Sales Originated Leads – What proportion of all leads come from marketing and what portion are sales originated? Sales ops can play a critical role here by ensuring a good handoff from marketing to sales.
5. Lead Response Time – How long does it take your sales team to respond to leads that marketing passes to them? The shorter the better. Make sure you have the process and technology in place to support a fast handoff, especially if there is an inbound SDR team.
6. Close Date Accuracy – You should measure how good your sales reps are at predicting an accurate close date. Usually, reps put the last day of the quarter as the expected close date. Is this true in your organization?
7. Amount Accuracy – Similar to Close Date Accuracy, do your sales reps do a good job estimating an opportunity’s amount? Typically, this value is overestimated, or it is $0.

Sales Resource Metrics

1. Resource Forecast – This forecast is based on your assigned quotas, the tenure of your sales team, and their sales efficiencies. It represents how much value you expect to be delivered from your sales team independent from the pipeline forecast. While this is independent, it should be always be compared to the pipeline forecast.
2. Sales Efficiency – What proportion of quota do you expect your sales team to attain? You should know this by sales position and territory.
3. New Hire Ramp Rate – When you hire a new sales rep they will take a little while to get up to speed. In technology companies, this could be as long as 18 months. The tenure of your sales reps plays a critical role in understanding their Sales Efficiency.
4. Quota Assigned – The amount of assigned quota can be used in conjunction with Sales Efficiency to determine your resource forecast.
5. Sales Rep Turnover – Sales rep turnover is one of the most costly impacts to your business. Typically, turnover is 10% – 20%. You should plan for this and have a strategy in place to hire for these positions before they become vacant.
6. Addressable Market – You should know how much addressable market exists for your sales team. Is it a nascent market, or are you trying to displace competitors? You should know whether to be up-selling your customer base or hunting more net-new opportunities.
7. Territory Assignments – For a sales guy there is nothing better than having a sweet patch. As the sales ops leader, you should weary of this. As you go through territory planning you should you understand the addressable marketing in each territory and make sure there are equitable territory assignments.

Budget:

Budgeting is hard. It requires difficult choices and frequently leaves government leaders open to criticism. What if there was a way to make the budgeting process more engaging, transparent, and straightforward, allowing cities to get ahead of this criticism and defend difficult choices?
It’s called performance-based budgeting: allocating funds based on programmatic results that contribute to organizational goals. Performance-based budgeting uses evidence to maximize the allocation of funds toward government programs that work and away from those that don’t.

The number of submitted budget proposals has been steadily increasing, so Bellevue was looking for a standardized way to evaluate each proposal and analyze the effectiveness of that proposal’s supporting metrics (metrics that enable the City and departments to see if proposals are achieving their expected outcomes). The City settled on six criteria to analyze proposals and metrics: well-rounded family of measures, actionable metrics, outcome-oriented metrics, reliable data sources, appropriate update frequency, and aspirational but realistic targets.

Each city will inevitably approach performance-based budgeting differently, but considering how Bellevue dealt with evaluating budget proposal metrics and defined its metric criteria can provide a foundation for discussion in your city. Let’s dive a little deeper into how Bellevue explained these criteria.

Well-rounded family of measures: A well-rounded family of measures means that there are multiple types of metrics supporting the proposal (e.g., outcome, output, efficiency, and community metrics). Having different types of metrics enables you to determine progress more accurately and get a better sense of what needs to be done or changed to take informed action.

Actionable metrics: Actionable means that departments have the ability to control or influence how these metrics perform. Choosing actionable metrics to support budget proposals encourages departments to be thoughtful about what they’re measuring and promotes accountability in performance.

Outcome-oriented metrics: Outcome-oriented metrics are focused on community priorities and get to the heart of what residents care about and want the city to address.

Reliable data source: A reliable data source is one the city feels confident enough about the quality of the data to release to the public. This could mean that there is a defined process for data collection, a commonly accepted definition of the data, data used in operations, an established quality control process, or that the data may be validated by comparing with third party data source.

Appropriate update frequency: Appropriate update means that data for metrics can be updated frequently enough to be used in decision making. Having data readily available and up-to-date is a necessity for making informed decisions. Not all data points need the same update frequencies. It’s important to think strategically about what the appropriate update frequency is when selecting metrics to track.

Aspirational but realistic targets: Aspirational but realistic targets for metrics should be lofty and encourage effort, but also be an accurate reflection of the department’s goals and where the department wants to go. There are differing views about how to best set targets.

Cities approach performance-based budgeting in a variety of ways tailored to their needs and culture. Bellevue’s leaders recognized the importance of revising the budget proposal evaluation process to coordinate with the City’s priorities and align with the community’s desired outcomes. The City thought strategically about what a good budget proposal looks like and how to tell if the supporting budget proposal metrics make sense. Bellevue recognizes the importance of engaging proposal writers and Results Teams in the revision process and drawing on their expertise. Going forward, Bellevue will continue to revamp and update its performance-based budgeting process through with an annual review and conversations with budget proposal writers and Results Team members.

Q3.Users of the accounting information internally and what do they emphasize when analyzing them:

Internal users (primary users) – If a user of the information is part of the business itself then he/she is considered as one of the internal or primary users of accounting information.

For example, management, owners, employees, etc. The branch of accounting which deals with internal users is called management accounting.

Internal users (primary users) – If a user of the information is part of the business itself then he/she is considered as one of the internal or primary users of accounting information.

For example, management, owners, employees, etc. The branch of accounting which deals with internal users is called management accounting.

They use it for

1. Budgeting, forecasting, analysis & take important financial decisions.

2. Investment decisions, identification of warning and opportunity signals.

3. Taking informed & evaluated decisions.

4. Compliance with all statutory, regulatory, and any other external body.

2. Owners/Partners – Owners are the legal stakeholders of the business and the ultimate signing authority.

They use it for

1. Tracking their investment and monitoring their return on investment.

2. Observing their capital invested and evaluating its upward or downward move.

3. Keeping an eye on the overall well-being of the business.

3. Employees – Full-time & part-time workers. They are essentially on the company’s payroll.

They use it for

1. Checking the overall financial health of the company as it affects their remuneration and job security.

2. Decision making in case of shares based payment such as ESOPs offered by the employers.

3. Examining if the employer is depositing all required funds to the appropriate authorities such as the provident fund, 401(k), etc.

Q4.Users of the external accounting information:

External Users of Accounting Information – (Secondary)

Following are the secondary users of accounting information:

1. Investors – They may be current investors, minority stakeholder, potential future investors, etc.

They use it for

1. Checking how the management is utilizing the equity invested in the business.

2. Decisions related to an increase in investment or to divest from the business.

3. Analyzing their present investment in the business or the overall financial health in case of a potential investor.

2. Lenders – Banks and Non-banking financial companies which provide loans in the form of cash or credit are termed as lenders.

They use it for

1. Evaluation of short-term and long-term financial stability of a business.

2. An insight into the liquidity, profitability, etc. with the help of ratio analysis

3. Assessment of the creditworthiness with the help of financial ratios and scrutiny of the three main financial statements in accounting.

3. Regulatory and Tax Authorities – Regulatory bodies such as the stock exchange & authorities include the govt. along with various statutory and tax departments.

They use it for

1. To keep a check and ensure that the firm is following all required accounting principles, standards, rules & regulations.

2. The ultimate intent is to protect business integrity & safeguard the investors.

3. Tax department as one of the users of accounting information assures accurate tax calculation by the companies.

4. Customers – Are buyers of goods or services and may exist at any stage of a business cycle. They may be producers, manufacturers, retailers, etc.

They use it for

1. Checking the continuous inflow of stock and the pace of overall production.

2. Assessing the financial position of its suppliers which is essential to maintain a stable source of supply.

5. Suppliers – Are the sellers of goods and services.

They use it for

1. Inspecting the credibility of their customers by evaluating their repayment ability.

2. Setting up a credit limit & payment terms with their customers.

6. Public – The general public is also among users of accounting information. They are keen to know the financial health of a business to get a fair idea of the firm’s niche market, business environment, and economic atmosphere of the country.

Q5. Points does management, or the executive committee emphasize when analyzing it :

In the management discussion and analysis (MD&A) section, management will also provide commentary on financial statements, systems and controls, compliance with laws and regulations, and actions it has planned or has taken to address any challenges the company is facing. Management also discusses the upcoming year by outlining future goals and approaches to new projects. The MD&A is an important source of information for analysts and investors who want to review the company’s financial fundamentals and management performance.

• Management discussion and analysis (MD&A) is a section within a company’s annual report or quarterly filing where executives analyze the company’s performance.
• The section can also include a discussion of compliance, risks, and future plans, such as goals and new projects.
• The MD&A section is not audited and represents the thoughts and opinions of management.