assigment for mcs

7/28/2019 Assigment for MCS

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MCS (Management Control System)Date: 04/01/2011

Topic: Cash & Working Capital

Submitted ToSubmitted By

Mr. Praan kaulMukesh Choudhary

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Cash

In common language cash refers to money in the physical form ofcurrency,such as banknotes and coins.

In bookkeeping and finance, cash refers to current assets comprisingcurrency or currency equivalents that can be accessed immediately or near-immediately (as in the case ofmoney market accounts). Cash is seen eitheras a reserve for payments, in case of a structural or incidental negative cashflow or as a way to avoid a downturn on financial markets.

Contents

1Etymology 2History

3See also

4References

5Further reading
http://en.wikipedia.org/wiki/Moneyhttp://en.wikipedia.org/wiki/Currencyhttp://en.wikipedia.org/wiki/Banknotehttp://en.wikipedia.org/wiki/Coinhttp://en.wikipedia.org/wiki/Bookkeepinghttp://en.wikipedia.org/wiki/Financehttp://en.wikipedia.org/wiki/Current_assethttp://en.wikipedia.org/wiki/Money_markethttp://en.wikipedia.org/wiki/Cash_flowhttp://en.wikipedia.org/wiki/Cash_flowhttp://en.wikipedia.org/wiki/Cash#Etymologyhttp://en.wikipedia.org/wiki/Cash#Etymologyhttp://en.wikipedia.org/wiki/Cash#Etymologyhttp://en.wikipedia.org/wiki/Cash#Historyhttp://en.wikipedia.org/wiki/Cash#Historyhttp://en.wikipedia.org/wiki/Cash#Historyhttp://en.wikipedia.org/wiki/Cash#See_alsohttp://en.wikipedia.org/wiki/Cash#See_alsohttp://en.wikipedia.org/wiki/Cash#See_alsohttp://en.wikipedia.org/wiki/Cash#Referenceshttp://en.wikipedia.org/wiki/Cash#Referenceshttp://en.wikipedia.org/wiki/Cash#Referenceshttp://en.wikipedia.org/wiki/Cash#Further_readinghttp://en.wikipedia.org/wiki/Cash#Further_readinghttp://en.wikipedia.org/wiki/Cash#Further_readinghttp://en.wikipedia.org/wiki/Moneyhttp://en.wikipedia.org/wiki/Currencyhttp://en.wikipedia.org/wiki/Banknotehttp://en.wikipedia.org/wiki/Coinhttp://en.wikipedia.org/wiki/Bookkeepinghttp://en.wikipedia.org/wiki/Financehttp://en.wikipedia.org/wiki/Current_assethttp://en.wikipedia.org/wiki/Money_markethttp://en.wikipedia.org/wiki/Cash_flowhttp://en.wikipedia.org/wiki/Cash_flowhttp://en.wikipedia.org/wiki/Cash#Etymologyhttp://en.wikipedia.org/wiki/Cash#Historyhttp://en.wikipedia.org/wiki/Cash#See_alsohttp://en.wikipedia.org/wiki/Cash#Referenceshttp://en.wikipedia.org/wiki/Cash#Further_reading


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Etymology

The word is variously attributed. Some claim that the word "cash" comes

from the modern French word caisse, which means (money) box, from the

Provencal word caissa, from the Italian cassa, from the Latin capsa a

meaning box. In the 18th century, the word passed to refer to the money

instead of the actual box containing it. It might be derived from Malayalam

word Kaash - which means Cash. Another claim is that it was derived from

Tamil word kasu - meaning a coin by East India Company.

"Cash" used as a verb means "to convert to cash"; for example in the

expression "to cash a check".

History

In Western Europe, after the Collapse of the Western Roman Empire, coins

silver jewelry and hacksilver (silver objects hacked into pieces) were fo

centuries the only form of money, until Venetian merchants started usingsilver bars for large transactions in the early Middle Ages. In a separate

development, Venetian merchants started using paper bills, instructing thei

banker to make payments. Similar marked silver bars were in use in lands

where the Venetian merchants had established representative offices. The

Byzantine empire and several states in the Balkan area and Russia also used

marked silver bars for large payments. As the world economy developed and

silver supplies increased, in particular after the colonization of South

America, coins became larger and a standard coin for international paymendeveloped from the 15th century: the Spanish and Spanish colonial coin of8

reales. Its counterpart in gold was the Venetian ducat.

Coin types would compete for markets. By conquering foreign markets, the

issuing rulers would enjoy extra income from seigniorage (the difference

between the value of the coin and the value of the metal the coin was made

of). Successful coin types of high nobility would be copied by lower nobility

for seigniorage. Imitations were usually of a lower weight, undermining the
http://en.wikipedia.org/wiki/French_languagehttp://en.wikipedia.org/wiki/Money_boxhttp://en.wikipedia.org/wiki/Italian_languagehttp://en.wikipedia.org/wiki/Tamil_languagehttp://en.wikipedia.org/wiki/East_India_Companyhttp://en.wikipedia.org/wiki/Collapse_of_the_Western_Roman_Empirehttp://en.wikipedia.org/wiki/Hacksilverhttp://en.wikipedia.org/wiki/Bankhttp://en.wikipedia.org/wiki/Byzantiumhttp://en.wikipedia.org/wiki/Balkanhttp://en.wikipedia.org/wiki/Pesohttp://en.wikipedia.org/wiki/Pesohttp://en.wikipedia.org/wiki/Ducathttp://en.wikipedia.org/wiki/Seignioragehttp://en.wikipedia.org/wiki/French_languagehttp://en.wikipedia.org/wiki/Money_boxhttp://en.wikipedia.org/wiki/Italian_languagehttp://en.wikipedia.org/wiki/Tamil_languagehttp://en.wikipedia.org/wiki/East_India_Companyhttp://en.wikipedia.org/wiki/Collapse_of_the_Western_Roman_Empirehttp://en.wikipedia.org/wiki/Hacksilverhttp://en.wikipedia.org/wiki/Bankhttp://en.wikipedia.org/wiki/Byzantiumhttp://en.wikipedia.org/wiki/Balkanhttp://en.wikipedia.org/wiki/Pesohttp://en.wikipedia.org/wiki/Pesohttp://en.wikipedia.org/wiki/Ducathttp://en.wikipedia.org/wiki/Seigniorage


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popularity of the original. As feudal states coalesced into kingdoms, imitation

of silver types abated, but gold coins, in particular the gold ducat and the

gold florin were still issued as trade coins: coins without a fixed value, going

by weight. Colonial powers also sought to take away market share from

Spain by issuing trade coin equivalents of silver Spanish coins, without much

success.

Initially East India Company coins were minted in England and shipped to the

East. In England over time the word Cash was adopted from the Tami

word Kasu, meaning a coin. East India Company coinage had both Urdu

and English writing on it, to facilitate its use within trade. In 1671 the

directors of The East India Company ordered a mint to be established a

Bombay, known as Bombain. In 1677 this was sanctioned by the Crown, the

coins, having received royal sanction were struck as silver Rupees; the

inscription runs The Rupee of Bombaim, by authority of Charles II.

At about this time coins were also being produced for The East India

Company at the Madras mint. The currency at The Companys Bombay and

Bengal administrative regions was The Rupee. At Madras, however, the

Company's accounts were reckoned in pagodas, fractions, fanams

faluce and cash. This system was maintained until 1818 when the rupee

was adopted as the unit of currency for the Company's operations, the

relation between the two systems being 1 pagoda = 3-91 rupees and 1

rupee = 12 fanams.

Meanwhile, paper money had been developed. At first, it was thought of fo

emergency issues, hence were most popular in the colonies of European

powers. In the 18th century, important paper issues were made in colonie

such as Ceylon and the bordering colonies of Essequibo, Demerara and

Berbice.John Law did pioneering work on banknotes with the Banque Royale

However, the relation between money supply and inflation was sti

imperfectly understood and the bank went under, while its notes became

worthless when they were over-issued. The lessons learned were applied to

the Bank of England, which played a crucial role in financing Wellington'

Peninsular war, against French troops, hamstrung by a metallic Franc de

Germinal.

The ability to create paper money made nation-states responsible for the

management ofinflation, through control of the money supply. It also made

a direct relation between the metal of the coin and its denomination
http://en.wikipedia.org/wiki/Florinhttp://en.wikipedia.org/wiki/Urduhttp://en.wikipedia.org/wiki/Bombayhttp://en.wikipedia.org/wiki/Rupeeshttp://en.wikipedia.org/wiki/Paper_moneyhttp://en.wikipedia.org/wiki/Sri_Lankahttp://en.wikipedia.org/wiki/Essequibo_(colony)http://en.wikipedia.org/wiki/Demerarahttp://en.wikipedia.org/wiki/Berbicehttp://en.wikipedia.org/wiki/John_Law_(economist)http://en.wikipedia.org/wiki/Money_supplyhttp://en.wikipedia.org/wiki/Bank_of_Englandhttp://en.wikipedia.org/wiki/Arthur_Wellesley,_1st_Duke_of_Wellingtonhttp://en.wikipedia.org/wiki/Peninsular_warhttp://en.wikipedia.org/wiki/Inflationhttp://en.wikipedia.org/wiki/Money_supplyhttp://en.wikipedia.org/wiki/Florinhttp://en.wikipedia.org/wiki/Urduhttp://en.wikipedia.org/wiki/Bombayhttp://en.wikipedia.org/wiki/Rupeeshttp://en.wikipedia.org/wiki/Paper_moneyhttp://en.wikipedia.org/wiki/Sri_Lankahttp://en.wikipedia.org/wiki/Essequibo_(colony)http://en.wikipedia.org/wiki/Demerarahttp://en.wikipedia.org/wiki/Berbicehttp://en.wikipedia.org/wiki/John_Law_(economist)http://en.wikipedia.org/wiki/Money_supplyhttp://en.wikipedia.org/wiki/Bank_of_Englandhttp://en.wikipedia.org/wiki/Arthur_Wellesley,_1st_Duke_of_Wellingtonhttp://en.wikipedia.org/wiki/Peninsular_warhttp://en.wikipedia.org/wiki/Inflationhttp://en.wikipedia.org/wiki/Money_supply


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superfluous. From 1816, coins generally became token money, though some

large silver and gold coins remained standard coins until 1927. The firs

world war saw standard coins disappear to a very large extent. Afterwards

standard gold coins, mainly British sovereigns, would still be used in colonie

and less developed economies and silver Maria Theresa thalers dated 1780

would be struck as trade coins for countries in East Asia until 1946 and

possibly later locally.

Cash has now become a very small part of the money supply. Its remaining

role is to provide a form of currency storage and payment for those who do

not wish to take part in other systems, and make small payment

conveniently and promptly, though this latter role is being replaced more

and more frequently by electronic payment systems.


Topic: Inventory



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INVENTORY

Inventory means a list compiled for some formapurpose, such as the details of an estate going to probate, or the contents oa house let furnished. This remains the prime meaning in British English.
http://en.wikipedia.org/wiki/Token_moneyhttp://en.wikipedia.org/wiki/First_world_warhttp://en.wikipedia.org/wiki/First_world_warhttp://en.wikipedia.org/wiki/Sovereign_(British_coin)http://en.wikipedia.org/wiki/Maria_Theresa_thalerhttp://en.wikipedia.org/wiki/Payment_systemhttp://en.wikipedia.org/wiki/Will_(law)http://en.wikipedia.org/wiki/Token_moneyhttp://en.wikipedia.org/wiki/First_world_warhttp://en.wikipedia.org/wiki/First_world_warhttp://en.wikipedia.org/wiki/Sovereign_(British_coin)http://en.wikipedia.org/wiki/Maria_Theresa_thalerhttp://en.wikipedia.org/wiki/Payment_systemhttp://en.wikipedia.org/wiki/Will_(law)


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In the USA and Canada the term has developed from a list of goods andmaterials to the goods and materials themselves, especially those heldavailable in stock by a business; and this has become the primary meaningof the term in North American English, equivalent to the term "stock" inBritish English. In accounting, inventory or stock is considered an asset.

Contents

1Inventory management 2Business inventory

o 2.1The reasons for keeping stock

o 2.2Special terms used in dealing with inventory

o 2.3Typology

o 2.4Inventory examples

2.4.1Manufacturing

3Principle of inventory proportionality

o 3.1Purpose

o 3.2Applications

o 3.3Roots

4High-level inventory management

5Accounting for inventory

o 5.1Financial accounting

o 5.2Role of inventory accounting

o 5.3FIFO vs. LIFO accounting

o 5.4Standard cost accounting

o 5.5Theory of constraints cost accounting

6National accounts

7Distressed inventory

8Inventory credit

9See also

10References
http://en.wikipedia.org/wiki/Good_(economics_and_accounting)http://en.wikipedia.org/wiki/Materialshttp://en.wikipedia.org/wiki/Businesshttp://en.wikipedia.org/wiki/Assethttp://en.wikipedia.org/wiki/Inventory#Inventory_managementhttp://en.wikipedia.org/wiki/Inventory#Inventory_managementhttp://en.wikipedia.org/wiki/Inventory#Inventory_managementhttp://en.wikipedia.org/wiki/Inventory#Business_inventoryhttp://en.wikipedia.org/wiki/Inventory#Business_inventoryhttp://en.wikipedia.org/wiki/Inventory#Business_inventoryhttp://en.wikipedia.org/wiki/Inventory#The_reasons_for_keeping_stockhttp://en.wikipedia.org/wiki/Inventory#The_reasons_for_keeping_stockhttp://en.wikipedia.org/wiki/Inventory#The_reasons_for_keeping_stockhttp://en.wikipedia.org/wiki/Inventory#Special_terms_used_in_dealing_with_inventoryhttp://en.wikipedia.org/wiki/Inventory#Special_terms_used_in_dealing_with_inventoryhttp://en.wikipedia.org/wiki/Inventory#Special_terms_used_in_dealing_with_inventoryhttp://en.wikipedia.org/wiki/Inventory#Typologyhttp://en.wikipedia.org/wiki/Inventory#Typologyhttp://en.wikipedia.org/wiki/Inventory#Typologyhttp://en.wikipedia.org/wiki/Inventory#Inventory_exampleshttp://en.wikipedia.org/wiki/Inventory#Inventory_exampleshttp://en.wikipedia.org/wiki/Inventory#Inventory_exampleshttp://en.wikipedia.org/wiki/Inventory#Manufacturinghttp://en.wikipedia.org/wiki/Inventory#Manufacturinghttp://en.wikipedia.org/wiki/Inventory#Manufacturinghttp://en.wikipedia.org/wiki/Inventory#Principle_of_inventory_proportionalityhttp://en.wikipedia.org/wiki/Inventory#Principle_of_inventory_proportionalityhttp://en.wikipedia.org/wiki/Inventory#Principle_of_inventory_proportionalityhttp://en.wikipedia.org/wiki/Inventory#Purposehttp://en.wikipedia.org/wiki/Inventory#Purposehttp://en.wikipedia.org/wiki/Inventory#Purposehttp://en.wikipedia.org/wiki/Inventory#Applicationshttp://en.wikipedia.org/wiki/Inventory#Applicationshttp://en.wikipedia.org/wiki/Inventory#Applicationshttp://en.wikipedia.org/wiki/Inventory#Rootshttp://en.wikipedia.org/wiki/Inventory#Rootshttp://en.wikipedia.org/wiki/Inventory#Rootshttp://en.wikipedia.org/wiki/Inventory#High-level_inventory_managementhttp://en.wikipedia.org/wiki/Inventory#High-level_inventory_managementhttp://en.wikipedia.org/wiki/Inventory#High-level_inventory_managementhttp://en.wikipedia.org/wiki/Inventory#Accounting_for_inventoryhttp://en.wikipedia.org/wiki/Inventory#Accounting_for_inventoryhttp://en.wikipedia.org/wiki/Inventory#Accounting_for_inventoryhttp://en.wikipedia.org/wiki/Inventory#Financial_accountinghttp://en.wikipedia.org/wiki/Inventory#Financial_accountinghttp://en.wikipedia.org/wiki/Inventory#Financial_accountinghttp://en.wikipedia.org/wiki/Inventory#Role_of_inventory_accountinghttp://en.wikipedia.org/wiki/Inventory#Role_of_inventory_accountinghttp://en.wikipedia.org/wiki/Inventory#Role_of_inventory_accountinghttp://en.wikipedia.org/wiki/Inventory#FIFO_vs._LIFO_accountinghttp://en.wikipedia.org/wiki/Inventory#FIFO_vs._LIFO_accountinghttp://en.wikipedia.org/wiki/Inventory#FIFO_vs._LIFO_accountinghttp://en.wikipedia.org/wiki/Inventory#Standard_cost_accountinghttp://en.wikipedia.org/wiki/Inventory#Standard_cost_accountinghttp://en.wikipedia.org/wiki/Inventory#Standard_cost_accountinghttp://en.wikipedia.org/wiki/Inventory#Theory_of_constraints_cost_accountinghttp://en.wikipedia.org/wiki/Inventory#Theory_of_constraints_cost_accountinghttp://en.wikipedia.org/wiki/Inventory#Theory_of_constraints_cost_accountinghttp://en.wikipedia.org/wiki/Inventory#National_accountshttp://en.wikipedia.org/wiki/Inventory#National_accountshttp://en.wikipedia.org/wiki/Inventory#National_accountshttp://en.wikipedia.org/wiki/Inventory#Distressed_inventoryhttp://en.wikipedia.org/wiki/Inventory#Distressed_inventoryhttp://en.wikipedia.org/wiki/Inventory#Distressed_inventoryhttp://en.wikipedia.org/wiki/Inventory#Inventory_credithttp://en.wikipedia.org/wiki/Inventory#Inventory_credithttp://en.wikipedia.org/wiki/Inventory#Inventory_credithttp://en.wikipedia.org/wiki/Inventory#See_alsohttp://en.wikipedia.org/wiki/Inventory#See_alsohttp://en.wikipedia.org/wiki/Inventory#See_alsohttp://en.wikipedia.org/wiki/Inventory#Referenceshttp://en.wikipedia.org/wiki/Inventory#Referenceshttp://en.wikipedia.org/wiki/Inventory#Referenceshttp://en.wikipedia.org/wiki/Good_(economics_and_accounting)http://en.wikipedia.org/wiki/Materialshttp://en.wikipedia.org/wiki/Businesshttp://en.wikipedia.org/wiki/Assethttp://en.wikipedia.org/wiki/Inventory#Inventory_managementhttp://en.wikipedia.org/wiki/Inventory#Business_inventoryhttp://en.wikipedia.org/wiki/Inventory#The_reasons_for_keeping_stockhttp://en.wikipedia.org/wiki/Inventory#Special_terms_used_in_dealing_with_inventoryhttp://en.wikipedia.org/wiki/Inventory#Typologyhttp://en.wikipedia.org/wiki/Inventory#Inventory_exampleshttp://en.wikipedia.org/wiki/Inventory#Manufacturinghttp://en.wikipedia.org/wiki/Inventory#Principle_of_inventory_proportionalityhttp://en.wikipedia.org/wiki/Inventory#Purposehttp://en.wikipedia.org/wiki/Inventory#Applicationshttp://en.wikipedia.org/wiki/Inventory#Rootshttp://en.wikipedia.org/wiki/Inventory#High-level_inventory_managementhttp://en.wikipedia.org/wiki/Inventory#Accounting_for_inventoryhttp://en.wikipedia.org/wiki/Inventory#Financial_accountinghttp://en.wikipedia.org/wiki/Inventory#Role_of_inventory_accountinghttp://en.wikipedia.org/wiki/Inventory#FIFO_vs._LIFO_accountinghttp://en.wikipedia.org/wiki/Inventory#Standard_cost_accountinghttp://en.wikipedia.org/wiki/Inventory#Theory_of_constraints_cost_accountinghttp://en.wikipedia.org/wiki/Inventory#National_accountshttp://en.wikipedia.org/wiki/Inventory#Distressed_inventoryhttp://en.wikipedia.org/wiki/Inventory#Inventory_credithttp://en.wikipedia.org/wiki/Inventory#See_alsohttp://en.wikipedia.org/wiki/Inventory#References


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11Further reading

Inventory management

Inventory managementis primarily about specifying the size and placemenof stocked goods. Inventory management is required at different locationswithin a facility or within multiple locations of a supply network to protecthe regular and planned course of production against the randomdisturbance of running out of materials or goods. The scope of inventorymanagement also concerns the fine lines between replenishment lead timecarrying costs of inventory, asset management, inventory forecastinginventory valuation, inventory visibility, future inventory price forecastingphysical inventory, available physical space for inventory, qualitymanagement, replenishment, returns and defective goods and demandforecasting. Balancing these competing requirements leads to optima

inventory levels, which is an on-going process as the business needs shifand react to the wider environment.

Inventory management involves a retailer seeking to acquire and maintain aproper merchandise assortment while ordering, shipping, handling, andrelated costs are kept in check.

Systems and processes that identify inventory requirements, set targetsprovide replenishment techniques and report actual and projected inventorystatus.

Handles all functions related to the tracking and management of materialThis would include the monitoring of material moved into and out ostockroom locations and the reconciling of the inventory balances. Also mayinclude ABC analysis, lot tracking, cycle counting support etc.

Management of the inventories, with the primary objective odetermining/controlling stock levels within the physical distribution functionto balance the need for product availability against the need for minimizing

stock holding and handling costs. See inventory proportionality.

Business inventory

The reasons for keeping stock

There are three basic reasons for keeping an inventory:
http://en.wikipedia.org/wiki/Inventory#Further_readinghttp://en.wikipedia.org/wiki/Inventory#Further_readinghttp://en.wikipedia.org/wiki/Inventory#Further_readinghttp://en.wikipedia.org/wiki/ABC_analysishttp://en.wikipedia.org/w/index.php?title=Inventory_proportionality&action=edit&redlink=1http://en.wikipedia.org/wiki/Inventory#Further_readinghttp://en.wikipedia.org/wiki/ABC_analysishttp://en.wikipedia.org/w/index.php?title=Inventory_proportionality&action=edit&redlink=1


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1. Time - The time lags present in the supply chain, from supplier to useat every stage, requires that you maintain certain amounts of inventoryto use in this "lead time."

2. Uncertainty - Inventories are maintained as buffers to meeuncertainties in demand, supply and movements of goods.

3. Economies of scale - Ideal condition of "one unit at a time at a placewhere a user needs it, when he needs it" principle tends to incur lots ocosts in terms of logistics. So bulk buying, movement and storing bringsin economies of scale, thus inventory.

All these stock reasons can apply to any owner or product stage.

Buffer stock is held in individual workstations against the possibilitythat the upstream workstation may be a little delayed in long setup ochange over time. This stock is then used while that changeover ishappening. This stock can be eliminated by tools like SMED.

These classifications apply along the whole Supply chain, not just within afacility or plant.

Where these stocks contain the same or similar items, it is often the workpractice to hold all these stocks mixed together before or after the subprocess to which they relate. This 'reduces' costs. Because they are mixedup together there is no visual reminder to operators of the adjacent subprocesses or line management of the stock, which is due to a particulacause and should be a particular individual's responsibility with inevitable

consequences. Some plants have centralized stock holding across subprocesses, which makes the situation even more acute.

Special terms used in dealing with inventory

Stock Keeping Unit(SKU) is a unique combination of all the componentsthat are assembled into the purchasable item. Therefore, any change inthe packaging or product is a new SKU. This level of detailedspecification assists in managing inventory.

Stock outmeans running out of the inventory of an SKU. [2]

"New old stock" (sometimes abbreviated NOS) is a term used inbusiness to refer to merchandise being offered for sale that wamanufactured long ago but that has never been used. Suchmerchandise may not be produced anymore, and the new old stockmay represent the only market source of a particular item at thepresent time.
http://en.wikipedia.org/wiki/SMEDhttp://en.wikipedia.org/wiki/Supply_chainhttp://en.wikipedia.org/wiki/Line_managementhttp://en.wikipedia.org/wiki/Stock_Keeping_Unithttp://en.wikipedia.org/wiki/Inventory#cite_note-1http://en.wikipedia.org/wiki/New_old_stockhttp://en.wikipedia.org/wiki/SMEDhttp://en.wikipedia.org/wiki/Supply_chainhttp://en.wikipedia.org/wiki/Line_managementhttp://en.wikipedia.org/wiki/Stock_Keeping_Unithttp://en.wikipedia.org/wiki/Inventory#cite_note-1http://en.wikipedia.org/wiki/New_old_stock


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Typology

1. Buffer/safety stock2. Cycle stock (Used in batch processes, it is the available inventory

excluding buffer stock)

3. De-coupling (Buffer stock that is held by both the supplier and the user

4. Anticipation stock (Building up extra stock for periods of increaseddemand - e.g. ice cream for summer)

5. Pipeline stock (Goods still in transit or in the process of distribution have left the factory but not arrived at the customer yet)

Inventory examples

While accountants often discuss inventory in terms of goods for saleorganizations - manufacturers, service-providers and not-for-profits - also

have inventories (fixtures, furniture, supplies, ...) that they do not intend tosell. Manufacturers', distributors', and wholesalers' inventory tends to clustein warehouses. Retailers' inventory may exist in a warehouse or in a shop ostore accessible to customers. Inventories not intended for sale to customersor to clients may be held in any premises an organization uses. Stock ties upcash and, if uncontrolled, it will be impossible to know the actual level ostocks and therefore impossible to control them.

While the reasons for holding stock were covered earlier, mosmanufacturing organizations usually divide their "goods for sale" inventory

into:

Raw materials - materials and components scheduled for use in makinga product.

Work in process, WIP - materials and components that have begun theitransformation to finished goods.

Finished goods - goods ready for sale to customers.

Goods for resale - returned goods that are salable.

For example:

Manufacturing

A canned food manufacturer's materials inventory includes the ingredientto form the foods to be canned, empty cans and their lids (or coils of steel oaluminum for constructing those components), labels, and anything else(solder, glue, ...) that will form part of a finished can. The firm's work inprocess includes those materials from the time of release to the work floo
http://en.wikipedia.org/wiki/Accountanthttp://en.wikipedia.org/wiki/Manufacturerhttp://en.wikipedia.org/wiki/Service_providerhttp://en.wikipedia.org/wiki/Not-for-profithttp://en.wikipedia.org/wiki/Distribution_(business)http://en.wikipedia.org/wiki/Warehousehttp://en.wikipedia.org/wiki/Retailerhttp://en.wikipedia.org/wiki/Retailing#Shops_and_storeshttp://en.wikipedia.org/wiki/Customershttp://en.wikipedia.org/wiki/Consumerhttp://en.wikipedia.org/wiki/Raw_materialshttp://en.wikipedia.org/wiki/Work_in_processhttp://en.wikipedia.org/wiki/Finished_goodshttp://en.wikipedia.org/wiki/Accountanthttp://en.wikipedia.org/wiki/Manufacturerhttp://en.wikipedia.org/wiki/Service_providerhttp://en.wikipedia.org/wiki/Not-for-profithttp://en.wikipedia.org/wiki/Distribution_(business)http://en.wikipedia.org/wiki/Warehousehttp://en.wikipedia.org/wiki/Retailerhttp://en.wikipedia.org/wiki/Retailing#Shops_and_storeshttp://en.wikipedia.org/wiki/Customershttp://en.wikipedia.org/wiki/Consumerhttp://en.wikipedia.org/wiki/Raw_materialshttp://en.wikipedia.org/wiki/Work_in_processhttp://en.wikipedia.org/wiki/Finished_goods


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until they become complete and ready for sale to wholesale or retacustomers. This may be vats of prepared food, filled cans not yet labeled osub-assemblies of food components. It may also include finished cans thaare not yet packaged into cartons or pallets. Its finished good inventoryconsists of all the filled and labeled cans of food in its warehouse that it hasmanufactured and wishes to sell to food distributors (wholesalers), togrocery stores (retailers), and even perhaps to consumers through

arrangements like factory stores and outlet centers.

Examples of case studies are very revealing, and consistently show that theimprovement of inventory management has two parts: the capability of theorganisation to manage inventory, and the way in which it chooses to do soFor example, a company may wish to install a complex inventory systembut unless there is a good understanding of the role of inventory and itsperameters, and an effective business process to support that, the systemcannot bring the necessary benefits to the organisation in isolation.

Typical Inventory Management techniques include Pareto Curve ABCClassification[3] and Economic Order Quantity Management. A morsophisticated method takes these two techniques further, combining certainaspects of each to create The K Curve Methodology. [4] A case study of kcurve[5] benefits to one company shows a successful implementation.

Unnecessary inventory adds enormously to the working capital tied up in thebusiness, as well as the complexity of the supply chain. Reduction andelimination of these inventory 'wait' states is a key concept in Lean. [6] Too

big an inventory reduction too quickly can cause a business to be anorexicThere are well-proven processes and techniques to assist in inventoryplanning and strategy, both at the business overview and part number levelMany of the big MRP/and ERP systems do not offer the necessary inventoryplanning tools within their integrated planning applications.

Definitions (2)

1. A company's merchandise, raw materials, and finished and unfinishedproducts which have not yet been sold. These are considered liquid assetssince they can be converted into cash quite easily. There are various meanof valuing these assets, but to be conservative the lowest value is usuallyused in financial statements

2. The securitiesbought by a broker or dealer in order to resell them. For theperiod that the broker or dealer holds the securities in inventory, he/she ibearing the riskrelated to the securities, which may change in price.
http://en.wikipedia.org/wiki/Factory_outlethttp://en.wikipedia.org/wiki/Inventory#cite_note-2http://en.wikipedia.org/wiki/Inventory#cite_note-3http://en.wikipedia.org/wiki/Inventory#cite_note-4http://en.wikipedia.org/wiki/Inventory#cite_note-5http://www.investorwords.com/992/company.htmlhttp://www.investorwords.com/3042/merchandise.htmlhttp://www.investorwords.com/4048/raw_materials.htmlhttp://www.investorwords.com/3874/product.htmlhttp://www.investorwords.com/7717/sold.htmlhttp://www.businessdictionary.com/definition/liquid-asset.htmlhttp://www.investorwords.com/747/cash.htmlhttp://www.businessdictionary.com/definition/mean.htmlhttp://www.investorwords.com/273/asset.htmlhttp://www.investorwords.com/1037/conservative.htmlhttp://www.investorwords.com/5209/value.htmlhttp://www.investorwords.com/1957/financial_statement.htmlhttp://www.investorwords.com/5954/securities.htmlhttp://www.businessdictionary.com/definition/bought.htmlhttp://www.investorwords.com/584/broker.htmlhttp://www.investorwords.com/1300/dealer.htmlhttp://www.investorwords.com/3495/order.htmlhttp://www.investorwords.com/10903/resell.htmlhttp://www.investorwords.com/3669/period.htmlhttp://www.businessdictionary.com/definition/hold.htmlhttp://www.businessdictionary.com/definition/bearing.htmlhttp://www.investorwords.com/4292/risk.htmlhttp://www.investorwords.com/10870/related.htmlhttp://www.investorwords.com/7046/change.htmlhttp://www.investorwords.com/3807/price.htmlhttp://en.wikipedia.org/wiki/Factory_outlethttp://en.wikipedia.org/wiki/Inventory#cite_note-2http://en.wikipedia.org/wiki/Inventory#cite_note-3http://en.wikipedia.org/wiki/Inventory#cite_note-4http://en.wikipedia.org/wiki/Inventory#cite_note-5http://www.investorwords.com/992/company.htmlhttp://www.investorwords.com/3042/merchandise.htmlhttp://www.investorwords.com/4048/raw_materials.htmlhttp://www.investorwords.com/3874/product.htmlhttp://www.investorwords.com/7717/sold.htmlhttp://www.businessdictionary.com/definition/liquid-asset.htmlhttp://www.investorwords.com/747/cash.htmlhttp://www.businessdictionary.com/definition/mean.htmlhttp://www.investorwords.com/273/asset.htmlhttp://www.investorwords.com/1037/conservative.htmlhttp://www.investorwords.com/5209/value.htmlhttp://www.investorwords.com/1957/financial_statement.htmlhttp://www.investorwords.com/5954/securities.htmlhttp://www.businessdictionary.com/definition/bought.htmlhttp://www.investorwords.com/584/broker.htmlhttp://www.investorwords.com/1300/dealer.htmlhttp://www.investorwords.com/3495/order.htmlhttp://www.investorwords.com/10903/resell.htmlhttp://www.investorwords.com/3669/period.htmlhttp://www.businessdictionary.com/definition/hold.htmlhttp://www.businessdictionary.com/definition/bearing.htmlhttp://www.investorwords.com/4292/risk.htmlhttp://www.investorwords.com/10870/related.htmlhttp://www.investorwords.com/7046/change.htmlhttp://www.investorwords.com/3807/price.html


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Topic: Working Capital



-- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- ---- -- -- -- --

WORKING CAPITAL

Definition

Current assetsminuscurrent liabilities. Working capitalmeasures how much

in liquid assets a company has available to build its business. The number

can be positive or negative, depending on how much debt the company is

carrying. In general, companies that have a lot of working capital will be

more successful since they can expand and improve their operations.
http://www.investorwords.com/1245/current_assets.htmlhttp://www.businessdictionary.com/definition/minus.htmlhttp://www.investorwords.com/1254/current_liabilities.htmlhttp://www.investorwords.com/694/capital.htmlhttp://www.businessdictionary.com/definition/measure.htmlhttp://www.businessdictionary.com/definition/liquid-asset.htmlhttp://www.investorwords.com/992/company.htmlhttp://www.investorwords.com/8894/available.htmlhttp://www.businessdictionary.com/definition/build.htmlhttp://www.investorwords.com/623/business.htmlhttp://www.investorwords.com/10438/number.htmlhttp://www.investorwords.com/10659/positive.htmlhttp://www.investorwords.com/10392/negative.htmlhttp://www.investorwords.com/9376/cut_down_on.htmlhttp://www.investorwords.com/1313/debt.htmlhttp://www.investorwords.com/9816/general.htmlhttp://www.investorwords.com/2899/lot.htmlhttp://www.investorwords.com/9633/expand.htmlhttp://www.businessdictionary.com/definition/improve.htmlhttp://www.investorwords.com/3467/operation.htmlhttp://www.investorwords.com/1245/current_assets.htmlhttp://www.businessdictionary.com/definition/minus.htmlhttp://www.investorwords.com/1254/current_liabilities.htmlhttp://www.investorwords.com/694/capital.htmlhttp://www.businessdictionary.com/definition/measure.htmlhttp://www.businessdictionary.com/definition/liquid-asset.htmlhttp://www.investorwords.com/992/company.htmlhttp://www.investorwords.com/8894/available.htmlhttp://www.businessdictionary.com/definition/build.htmlhttp://www.investorwords.com/623/business.htmlhttp://www.investorwords.com/10438/number.htmlhttp://www.investorwords.com/10659/positive.htmlhttp://www.investorwords.com/10392/negative.htmlhttp://www.investorwords.com/9376/cut_down_on.htmlhttp://www.investorwords.com/1313/debt.htmlhttp://www.investorwords.com/9816/general.htmlhttp://www.investorwords.com/2899/lot.htmlhttp://www.investorwords.com/9633/expand.htmlhttp://www.businessdictionary.com/definition/improve.htmlhttp://www.investorwords.com/3467/operation.html


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Companies with negative working capital may lack the fundsnecessary for

growth. also callednet current assets or current capital.

Working capital (abbreviated WC) is a financial metric which representsoperating liquidity available to a business, organization, or other entity,

including governmental entity. Along with fixed assets such as plant andequipment, working capital is considered a part of operating capital. Networking capital is calculated as current assets minus current liabilities. It is aderivation of working capital, that is commonly used in valuation techniquessuch as DCFs (Discounted cash flows). If current assets are less than currentliabilities, an entity has a working capital deficiency, also called aworking capital deficit.

Working Capital = Current Assets

Net Working Capital = Current Assets Current Liabilities

A company can be endowed with assets and profitability but short ofliquidityif its assets cannot readily be converted into cash. Positive working capital isrequired to ensure that a firm is able to continue its operations and that ithas sufficient funds to satisfy both maturing short-term debt and upcomingoperational expenses. The management of working capital involvesmanaging inventories, accounts receivable and payable and cash.

DefinitionCurrent assetsminuscurrent liabilities. Working capitalmeasures how much

in liquid assets a company has available to build its business. The number

can be positive or negative, depending on how much debt the company is

carrying. In general, companies that have a lot of working capital will be

more successful since they can expand and improve their operations.

Companies with negative working capital may lack the fundsnecessary for

growth. also callednet current assets or current capital.

Working capital (abbreviated WC) is a financial metric which representsoperating liquidity available to a business, organization, or other entity,including governmental entity. Along with fixed assets such as plant andequipment, working capital is considered a part of operating capital. Networking capital is calculated as current assets minus current liabilities. It is aderivation of working capital, that is commonly used in valuation techniques
http://www.investorwords.com/8111/negative_working_capital.htmlhttp://www.investorwords.com/10150/lack.htmlhttp://www.investorwords.com/2130/funds.htmlhttp://www.businessdictionary.com/definition/necessaries.htmlhttp://www.investorwords.com/2258/growth.htmlhttp://www.investorwords.com/3242/net_current_assets.htmlhttp://www.investorwords.com/1246/current_capital.htmlhttp://en.wikipedia.org/wiki/Accounting_liquidityhttp://en.wikipedia.org/wiki/Current_assetshttp://en.wikipedia.org/wiki/Current_liabilitieshttp://en.wikipedia.org/wiki/Assetshttp://en.wikipedia.org/wiki/Profit_(accounting)http://en.wikipedia.org/wiki/Profit_(accounting)http://en.wikipedia.org/wiki/Liquidityhttp://www.investorwords.com/1245/current_assets.htmlhttp://www.businessdictionary.com/definition/minus.htmlhttp://www.investorwords.com/1254/current_liabilities.htmlhttp://www.investorwords.com/694/capital.htmlhttp://www.businessdictionary.com/definition/measure.htmlhttp://www.businessdictionary.com/definition/liquid-asset.htmlhttp://www.investorwords.com/992/company.htmlhttp://www.investorwords.com/8894/available.htmlhttp://www.businessdictionary.com/definition/build.htmlhttp://www.investorwords.com/623/business.htmlhttp://www.investorwords.com/10438/number.htmlhttp://www.investorwords.com/10659/positive.htmlhttp://www.investorwords.com/10392/negative.htmlhttp://www.investorwords.com/9376/cut_down_on.htmlhttp://www.investorwords.com/1313/debt.htmlhttp://www.investorwords.com/9816/general.htmlhttp://www.investorwords.com/2899/lot.htmlhttp://www.investorwords.com/9633/expand.htmlhttp://www.businessdictionary.com/definition/improve.htmlhttp://www.investorwords.com/3467/operation.htmlhttp://www.investorwords.com/8111/negative_working_capital.htmlhttp://www.investorwords.com/10150/lack.htmlhttp://www.investorwords.com/2130/funds.htmlhttp://www.businessdictionary.com/definition/necessaries.htmlhttp://www.investorwords.com/2258/growth.htmlhttp://www.investorwords.com/3242/net_current_assets.htmlhttp://www.investorwords.com/1246/current_capital.htmlhttp://en.wikipedia.org/wiki/Accounting_liquidityhttp://en.wikipedia.org/wiki/Current_assetshttp://en.wikipedia.org/wiki/Current_liabilitieshttp://www.investorwords.com/8111/negative_working_capital.htmlhttp://www.investorwords.com/10150/lack.htmlhttp://www.investorwords.com/2130/funds.htmlhttp://www.businessdictionary.com/definition/necessaries.htmlhttp://www.investorwords.com/2258/growth.htmlhttp://www.investorwords.com/3242/net_current_assets.htmlhttp://www.investorwords.com/1246/current_capital.htmlhttp://en.wikipedia.org/wiki/Accounting_liquidityhttp://en.wikipedia.org/wiki/Current_assetshttp://en.wikipedia.org/wiki/Current_liabilitieshttp://en.wikipedia.org/wiki/Assetshttp://en.wikipedia.org/wiki/Profit_(accounting)http://en.wikipedia.org/wiki/Liquidityhttp://www.investorwords.com/1245/current_assets.htmlhttp://www.businessdictionary.com/definition/minus.htmlhttp://www.investorwords.com/1254/current_liabilities.htmlhttp://www.investorwords.com/694/capital.htmlhttp://www.businessdictionary.com/definition/measure.htmlhttp://www.businessdictionary.com/definition/liquid-asset.htmlhttp://www.investorwords.com/992/company.htmlhttp://www.investorwords.com/8894/available.htmlhttp://www.businessdictionary.com/definition/build.htmlhttp://www.investorwords.com/623/business.htmlhttp://www.investorwords.com/10438/number.htmlhttp://www.investorwords.com/10659/positive.htmlhttp://www.investorwords.com/10392/negative.htmlhttp://www.investorwords.com/9376/cut_down_on.htmlhttp://www.investorwords.com/1313/debt.htmlhttp://www.investorwords.com/9816/general.htmlhttp://www.investorwords.com/2899/lot.htmlhttp://www.investorwords.com/9633/expand.htmlhttp://www.businessdictionary.com/definition/improve.htmlhttp://www.investorwords.com/3467/operation.htmlhttp://www.investorwords.com/8111/negative_working_capital.htmlhttp://www.investorwords.com/10150/lack.htmlhttp://www.investorwords.com/2130/funds.htmlhttp://www.businessdictionary.com/definition/necessaries.htmlhttp://www.investorwords.com/2258/growth.htmlhttp://www.investorwords.com/3242/net_current_assets.htmlhttp://www.investorwords.com/1246/current_capital.htmlhttp://en.wikipedia.org/wiki/Accounting_liquidityhttp://en.wikipedia.org/wiki/Current_assetshttp://en.wikipedia.org/wiki/Current_liabilities


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such as DCFs (Discounted cash flows). If current assets are less than currentliabilities, an entity has a working capital deficiency, also called aworking capital deficit.

Working Capital = Current Assets

Net Working Capital = Current Assets Current Liabilities

A company can be endowed with assets and profitability but short ofliquidityif its assets cannot readily be converted into cash. Positive working capital isrequired to ensure that a firm is able to continue its operations and that ithas sufficient funds to satisfy both maturing short-term debt and upcomingoperational expenses. The management of working capital involvesmanaging inventories, accounts receivable and payable and cash.

Contents

1Calculation 2Working capital management

o 2.1Decision criteria

o 2.2Management of working capital

3See also

Calculation

Current assets and current liabilities include three accounts which areof special importance. These accounts represent the areas of the businesswhere managers have the most direct impact:

accounts receivable (current asset) inventory (current assets), and

accounts payable (current liability)

The current portion ofdebt (payable within 12 months) is critical, because itrepresents a short-term claim to current assets and is often secured by longterm assets. Common types of short-term debt are bank loans and lines ofcredit.

An increase in working capital indicates that the business has eitherincreased current assets (that is has increased its receivables, or othercurrent assets) or has decreased current liabilities, for example has paid ofsome short-term creditors.
http://en.wikipedia.org/wiki/Assetshttp://en.wikipedia.org/wiki/Profit_(accounting)http://en.wikipedia.org/wiki/Liquidityhttp://en.wikipedia.org/wiki/Working_capital#Calculationhttp://en.wikipedia.org/wiki/Working_capital#Calculationhttp://en.wikipedia.org/wiki/Working_capital#Calculationhttp://en.wikipedia.org/wiki/Working_capital#Working_capital_managementhttp://en.wikipedia.org/wiki/Working_capital#Working_capital_managementhttp://en.wikipedia.org/wiki/Working_capital#Working_capital_managementhttp://en.wikipedia.org/wiki/Working_capital#Decision_criteriahttp://en.wikipedia.org/wiki/Working_capital#Decision_criteriahttp://en.wikipedia.org/wiki/Working_capital#Decision_criteriahttp://en.wikipedia.org/wiki/Working_capital#Management_of_working_capitalhttp://en.wikipedia.org/wiki/Working_capital#Management_of_working_capitalhttp://en.wikipedia.org/wiki/Working_capital#Management_of_working_capitalhttp://en.wikipedia.org/wiki/Working_capital#See_alsohttp://en.wikipedia.org/wiki/Working_capital#See_alsohttp://en.wikipedia.org/wiki/Working_capital#See_alsohttp://en.wikipedia.org/wiki/Accounts_receivablehttp://en.wikipedia.org/wiki/Inventoryhttp://en.wikipedia.org/wiki/Accounts_payablehttp://en.wikipedia.org/wiki/Debthttp://en.wikipedia.org/wiki/Current_assetshttp://en.wikipedia.org/wiki/Current_liabilitieshttp://en.wikipedia.org/wiki/Assetshttp://en.wikipedia.org/wiki/Profit_(accounting)http://en.wikipedia.org/wiki/Liquidityhttp://en.wikipedia.org/wiki/Working_capital#Calculationhttp://en.wikipedia.org/wiki/Working_capital#Working_capital_managementhttp://en.wikipedia.org/wiki/Working_capital#Decision_criteriahttp://en.wikipedia.org/wiki/Working_capital#Management_of_working_capitalhttp://en.wikipedia.org/wiki/Working_capital#See_alsohttp://en.wikipedia.org/wiki/Accounts_receivablehttp://en.wikipedia.org/wiki/Inventoryhttp://en.wikipedia.org/wiki/Accounts_payablehttp://en.wikipedia.org/wiki/Debthttp://en.wikipedia.org/wiki/Current_assetshttp://en.wikipedia.org/wiki/Current_liabilities


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Implications on M&A: The common commercial definition of workingcapital for the purpose of a working capital adjustment in an M&Atransaction (i.e. for a working capital adjustment mechanism in a sale andpurchase agreement) is equal to:

Current Assets Current Liabilities excluding deferred tax assets/liabilities,excess cash, surplus assets and/or deposit balances.

Cash balance items often attract a one-for-one purchase price adjustment

Receivables

Receivables may refer to the amount due from individuals and companies.Receivables are claims that are expected to be collected in cash. These arefrequently classified as:

Accounts receivable, one of a series of accounting transactions dealingwith the billing of a customer for goods and services they have ordered

Notes receivable, represents claims for which formal instruments ofcredit are issued as evidence of debt, such as a promissory note. Thecredit instrument normally requires the debtor to pay interest andextends for time periods of 6090 days or longer

Receivables may also refer to:

The Receivables Exchange, an online marketplace where businessesbuy and sell their accounts receivable, through real-time auctions

Receivables turnover ratio, one of the accounting activity ratios, a financialratio.


Topic: Internal audit


http://en.wikipedia.org/wiki/M%26Ahttp://en.wikipedia.org/wiki/Deferred_tax_assetshttp://en.wikipedia.org/wiki/Accounts_receivablehttp://en.wikipedia.org/wiki/Notes_receivablehttp://en.wikipedia.org/wiki/The_Receivables_Exchangehttp://en.wikipedia.org/wiki/Receivables_turnover_ratiohttp://en.wikipedia.org/wiki/M%26Ahttp://en.wikipedia.org/wiki/Deferred_tax_assetshttp://en.wikipedia.org/wiki/Accounts_receivablehttp://en.wikipedia.org/wiki/Notes_receivablehttp://en.wikipedia.org/wiki/The_Receivables_Exchangehttp://en.wikipedia.org/wiki/Receivables_turnover_ratio


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-- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- ---- -- -- -- -- -- -- --

INTERNAL AUDIT

Accountancy: Key Concepts

Accountant Bookkeeping Cash and accrual basis Constant Item Purchasing Power

Accounting Cost of goods sold Debits and credits Double-entry system Fair value

accounting FIFO & LIFO GAAP / International Financial Reporting Standards General

ledger Historical cost Matching principle Revenue recognition Trial balance

Fields of Accounting

Cost, Financial, Forensic, Fund, Management, Tax.

Financial Statements:

Statement of Financial Position Statement of cash flows Statement of changes in

equity Statement of comprehensive income Notes MD&A

Auditing:

Auditor's report Financial audit GAAS / ISA

Internal audit SarbanesOxley Act

Internal auditing is an independent, objective assurance and consulting activitydesigned to add value and improve an organization's operations. It helps an organizationaccomplish its objectives by bringing a systematic, disciplined approach to evaluate andimprove the effectiveness of risk management, control, and governance processes.Professionals called internal auditors are employed by organizations to perform theinternal auditing activity.

The scope of internal auditing within an organization is broad and may involve topics suc

as the efficacy of operations, the reliability of financial reporting, deterring andinvestigating fraud, safeguarding assets, and compliance with laws and regulations.

Internal auditing frequently involves measuring compliance with the entity's policies andprocedures. However, Internal auditors are not responsible for the execution of companyactivities; they advise management and the Board of Directors (or similar oversight bodyregarding how to better execute their responsibilities. As a result of their broad scope ofinvolvement, internal auditors may have a variety of higher educational and professionalbackgrounds.


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Publicly-traded corporations typically have an internal auditing department, led by a ChieAudit Executive ("CAE") who generally reports to the Audit Committee of the Board ofDirectors, with administrative reporting to the Chief Executive Officer.

The profession is unregulated, though there are a number of international standardsetting bodies, an example of which is the Institute of Internal Auditors ("IIA"). The IIA hasestablished Standards for the Professional Practice of Internal Auditing and has over150,000 members representing 165 countries, including approximately 65,000 CertifiedInternal Auditors.

Contents

1. History introduction of internal auditing

2. Organizational independence

3. Role in internal control

4. Role in risk management

5. Role in corporate governance

6. Nature of the internal audit activity

7. Internal audit reports

8. Developing the plan of engagements

9. Best Practices in Internal Auditing

o 9.1 Measuring the internal audit function

o 9.2 Developing and retaining staff

o 9.3 Reporting of critical findings

10.References
http://en.wikipedia.org/wiki/Chief_Audit_Executivehttp://en.wikipedia.org/wiki/Chief_Audit_Executivehttp://en.wikipedia.org/wiki/Board_of_Directorshttp://en.wikipedia.org/wiki/Board_of_Directorshttp://en.wikipedia.org/wiki/Chief_Executive_Officerhttp://en.wikipedia.org/wiki/Institute_of_Internal_Auditorshttp://en.wikipedia.org/wiki/Internal_audit#Role_in_internal_controlhttp://en.wikipedia.org/wiki/Internal_audit#Role_in_corporate_governancehttp://en.wikipedia.org/wiki/Internal_audit#Nature_of_the_internal_audit_activityhttp://en.wikipedia.org/wiki/Internal_audit#Internal_audit_reportshttp://en.wikipedia.org/wiki/Internal_audit#Developing_the_plan_of_engagementshttp://en.wikipedia.org/wiki/Chief_Audit_Executivehttp://en.wikipedia.org/wiki/Chief_Audit_Executivehttp://en.wikipedia.org/wiki/Board_of_Directorshttp://en.wikipedia.org/wiki/Board_of_Directorshttp://en.wikipedia.org/wiki/Chief_Executive_Officerhttp://en.wikipedia.org/wiki/Institute_of_Internal_Auditorshttp://en.wikipedia.org/wiki/Internal_audit#Role_in_internal_controlhttp://en.wikipedia.org/wiki/Internal_audit#Role_in_corporate_governancehttp://en.wikipedia.org/wiki/Internal_audit#Nature_of_the_internal_audit_activityhttp://en.wikipedia.org/wiki/Internal_audit#Internal_audit_reportshttp://en.wikipedia.org/wiki/Internal_audit#Developing_the_plan_of_engagements


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History / Introduction of internal auditing

The Internal Auditing profession evolved steadily with the progress of managementscience after World War II. It is conceptually similar in many ways to financial auditing bypublic accounting firms, quality assurance and banking compliance activities. Much of the

theory underlying internal auditing is derived from management consulting and publicaccounting professions. With the implementation in the United States of the Sarbanes-Oxley Act of 2002, the profession's growth accelerated, as many internal auditors possesthe skills required to help companies meet the requirements of the law.

What is Internal Auditing?

Performed by professionals with an in-depth understanding of the business culture,

systems, and processes, the internal audit activity provides assurance that internal

controls in place are adequate to mitigate the risks, governance processes are effective

and efficient, and organizational goals and objectives are met.

The Institute of Internal Auditors (IIA) has developed the globally accepted definition of

internal auditing, as follows:

Internal Auditing is an independent, objective assurance and consulting activity designed

to add value and improve an organization's operations. It helps an organization

accomplish its objectives by bringing a systematic, disciplined approach to evaluate and

improve the effectiveness of risk management, control, and governance processes.
http://en.wikipedia.org/wiki/Financial_audithttp://en.wikipedia.org/wiki/Sarbanes-Oxley_Acthttp://en.wikipedia.org/wiki/Sarbanes-Oxley_Acthttp://en.wikipedia.org/wiki/Financial_audithttp://en.wikipedia.org/wiki/Sarbanes-Oxley_Acthttp://en.wikipedia.org/wiki/Sarbanes-Oxley_Act


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Independence is established by the organizational and reporting structure. Objectivity is

achieved by an appropriate mind-set. The internal audit activity evaluates risk exposures

relating to the organization's governance, operations and information systems, in relation

to:

Effectiveness and efficiency of operations.

Reliability and integrity of financial and operational information.

Safeguarding of assets.

Compliance with laws, regulations, and contracts.

Based on the results of the risk assessment, the internal auditors evaluate the adequacy

and effectiveness of how risks are identified and managed in the above areas. They also

assess other aspects such as ethics and values within the organization, performance

management, communication of risk and control information within the organization in

order to facilitate a good governance process.

The internal auditors are expected to provide recommendations for improvement in those

areas where opportunities or deficiencies are identified. While management is responsibl

for internal controls, the internal audit activity provides assurance to management and

the audit committee that internal controls are effective and working as intended. The

internal audit activity is led by the chief audit executive (CAE). The CAE delineates the

scope of activities, authority, and independence for internal auditing in a written charter

that is approved by the audit committee.

An effective internal audit activity is a valuable resource for management and the boardor its equivalent, and the audit committee due to its understanding of the organization

and its culture, operations, and risk profile. The objectivity, skills, and knowledge of

competent internal auditors can significantly add value to an organization's internal

control, risk management, and governance processes. Similarly an effective internal audi

activity can provide assurance to other stakeholders such as regulators, employees,

providers of finance, and shareholders.

Organizational independence

To perform their role effectively, internal auditors require organizational independencefrom management, to enable unrestricted evaluation of management activities andpersonnel. Although internal auditors are part of company management and paid by thecompany, the primary customer of internal audit activity is the entity charged withoversight of management's activities. This is typically the Audit Committee, a sub-committee of the Board of Directors. To provide independence, most Chief AuditExecutives report to the Chairperson of the Audit Committee and can only be replacedwith the concurrence of that individual.
http://en.wikipedia.org/wiki/Auditorshttp://en.wikipedia.org/wiki/Chief_Audit_Executive#Organizational_independencehttp://en.wikipedia.org/wiki/Managementhttp://en.wikipedia.org/wiki/Evaluationhttp://en.wikipedia.org/wiki/Audithttp://en.wikipedia.org/wiki/Oversighthttp://en.wikipedia.org/wiki/Audit_Committeehttp://en.wikipedia.org/wiki/Board_of_Directorshttp://en.wikipedia.org/wiki/Chief_Audit_Executivehttp://en.wikipedia.org/wiki/Chief_Audit_Executivehttp://en.wikipedia.org/wiki/Auditorshttp://en.wikipedia.org/wiki/Chief_Audit_Executive#Organizational_independencehttp://en.wikipedia.org/wiki/Managementhttp://en.wikipedia.org/wiki/Evaluationhttp://en.wikipedia.org/wiki/Audithttp://en.wikipedia.org/wiki/Oversighthttp://en.wikipedia.org/wiki/Audit_Committeehttp://en.wikipedia.org/wiki/Board_of_Directorshttp://en.wikipedia.org/wiki/Chief_Audit_Executivehttp://en.wikipedia.org/wiki/Chief_Audit_Executive


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According to the Institute of Internal Auditors, the Internal Auditor's obligation ofIndependence refers to:

1) The reporting line or status of the CAE The Chief Audit Executive must

report to a level within the organization that allows the internal audit activity to

fulfill its responsibilities. The chief audit executive must confirm to the board, at

least annually, the organizational independence of the internal audit activity.

2) Attitude of auditors, procedures of the internal audit department. The

internal audit activity must be free from interference in determining the scope ofinternal auditing, performing work, and communicating results.

3) Communication right. The chief audit executive must communicate and

interact directly with the Board of Directors.

Role in internal control

Internal auditing activity is primarily directed at improving internal control. Under theCOSO Framework, internal control is broadly defined as a process, effected by an entity'sboard of directors, management, and other personnel, designed to provide reasonableassurance regarding the achievement of objectives in the following internal controlcategories:

Effectiveness and efficiency of operations.

Reliability of financial reporting.

Compliance with laws and regulations.

Management is responsible for internal control. Managers establish policies andprocesses to help the organization achieve specific objectives in each of these categoriesInternal auditors perform audits to evaluate whether the policies and processes aredesigned and operating effectively and provide recommendations for improvement.

In the United States, internal auditors may assist management with compliance with theSarbanes-Oxley Act (SOX).

Role in risk management

Internal auditing professional standards require the function to monitor and evaluate theeffectiveness of the organization's Risk management processes. Risk managementrelates to how an organization sets objectives, then identifies, analyzes, and responds tothose risks that could potentially impact its ability to realize its objectives.

Under the COSO enterprise risk management (ERM) Framework, risks fall under strategicoperational, financial reporting, and legal/regulatory categories. Management performsrisk assessment activities as part of the ordinary course of business in each of thesecategories. Examples include: strategic planning, marketing planning, capital planning,budgeting, hedging, incentive payout structure, and credit/lending practices. Sarbanes-
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Oxley regulations also require extensive risk assessment of financial reporting processesCorporate legal counsel often prepares comprehensive assessments of the current andpotential litigation a company faces. Internal auditors may evaluate each of theseactivities, or focus on the processes used by management to report and monitor the risksidentified. For example, internal auditors can advise management regarding the reportingof forward-looking operating measures to the Board, to help identify emerging risks.

In larger organizations, major strategic initiatives are implemented to achieve objectivesand drive changes. As a member of senior management, the Chief Audit Executive (CAE)may participate in status updates on these major initiatives. This places the CAE in theposition to report on many of the major risks the organization faces to the AuditCommittee, or ensure management's reporting is effective for that purpose.

Internal auditors may help companies establish and maintain Enterprise RiskManagement processes] Internal auditors also play an important role in helpingcompanies execute a SOX 404 top-down risk assessment. In these latter two areas,internal auditors typically are part of the project team in an advisory role.

Role in corporate governance

Internal auditing activity as it relates to corporate governance is generally informal,accomplished primarily through participation in meetings and discussions with membersof the Board of Directors. Corporate governance is a combination of processes andorganizational structures implemented by the Board of Directors to inform, direct,manage, and monitor the organization's resources, strategies and policies towards theachievement of the organizations objectives. The internal auditor is often considered oneof the "four pillars" of corporate governance, the other pillars being the Board ofDirectors, management, and the external auditor.

A primary focus area of internal auditing as it relates to corporate governance is helpingthe Audit Committee of the Board of Directors (or equivalent) perform its responsibilitieseffectively. This may include reporting critical internal control problems, informing theCommittee privately on the capabilities of key managers, suggesting questions or topicsfor the Audit Committee's meeting agendas, and coordinating carefully with the externalauditor and management to ensure the Committee receives effective information.

Nature of the internal audit activity

Based on a risk assessment of the organization, internal auditors, management andoversight Boards determine where to focus internal auditing efforts. Internal auditingactivity is generally conducted as one or more discrete projects. A typical internal auditproject involves the following steps:

1. Establish and communicate the scope and objectives for the audit to appropriatemanagement.

2. Develop an understanding of the business area under review. This includesobjectives, measurements, and key transaction types. This involves review ofdocuments and interviews. Flowcharts and narratives may be created if necessary.
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3. Describe the key risks facing the business activities within the scope of the audit.

4. Identify control procedures used to ensure each key risk and transaction type isproperly controlled and monitored.

5. Develop and execute a risk-based sampling and testing approach to determinewhether the most important controls are operating as intended.

6. Report problems identified and negotiate action plans with management to address

the problems.7. Follow-up on reported findings at appropriate intervals. Internal audit departments

maintain a follow-up database for this purpose.

Project length varies based on the complexity of the activity being audited and InternalAudit resources available. Many of the above steps are iterative and may not all occur inthe sequence indicated.

By analyzing and recommending business improvements in critical areas, auditors helpthe organization meet its objectives. In addition to assessing business processes,specialists called Information Technology (IT) Auditors review information technologycontrols.

Internal audit reports

Internal auditors typically issue reports at the end of each audit that summarize theirfindings, recommendations, and any responses or action plans from management. Anaudit report may have an executive summary; a body that includes the specific issues orfindings identified and related recommendations or action plans; and appendix

information such as detailed graphs and charts or process information. Each audit findingwithin the body of the report may contain five elements, sometimes called the "5 C's":

1. Condition: What is the particular problem identified?2. Criteria: What is the standard that was not met? The standard may be a company

policy or other benchmark.

3. Cause: Why did the problem occur?

4. Consequence: What is the risk/negative outcome (or opportunity foregone) becauseof the finding?

5. Corrective action: What should management do about the finding? What have theyagreed to do and by when?

The recommendations in an internal audit report are designed to help the organizationachieve its goals, which may relate to operations, financial reporting or legal/regulatorycompliance. They may relate to effectiveness (i.e., whether goals were met or compliancewith standards was achieved) or efficiency (i.e., whether the outputs were generated withminimum inputs).

Audit findings and recommendations also relate to particular assertions abouttransactions, such as whether the transactions audited were valid or authorized,
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completely processed, accurately valued, processed in the correct time period, andproperly disclosed in financial or operational reporting, among other elements.

Developing the plan of engagements

Internal auditing standards require the development of a plan of audit engagements(projects) based on a risk assessment, updated at least annually. The input of seniormanagement and the Board is typically included in this process. Many departmentsupdate their plan of engagements throughout the year as risks or organizational prioritieschange.

This effort helps ensure the audit activity is aligned with the organizations objectives, byanswering two key questions: First, what goals are the organization trying to accomplishin the upcoming period? Second, how can the Internal Audit Department assist theorganization in achieving these goals?

Internal auditors often conduct a series of interviews of senior management to identify

potential engagements. Changes in people, processes, or systems often generate auditproject ideas. Various documents are reviewed, such as strategic plans, financial reports,consulting studies, etc. Further, the results of prior audits and resolution of open issuesare considered. For example, automated programs such as NEMEA Compliance Centercan collect responses, produce and write standardized compliance reports for anorganization seeking or issuing compliance rules. Even if a business area is important,prior audit work and the nature and status of open issues may render further audit effortunnecessary. If the organization has a formal enterprise risk management (ERM)program, the risks identified therein help limit the amount of separate risk assessmentperformed by Internal Audit.

The preliminary plan of engagements is documented and prioritized. Audit resources andexpertise are then considered and a final plan is presented to senior management andthe Audit Committee. The presentations vary based on the needs of the stakeholders andmay include the following:

Summary of key goals, risks and corresponding major audits, to illustratealignment;

Analyses of audit effort along a variety of dimensions (e.g., by business segment,COSO objective category, IT, Sarbanes-Oxley, vs. prior year, etc.) along withcommentary regarding changes;

Brief description of critical projects identified;

Projects requested but not planned for execution due to prioritization andresources;

Required co-sourcing effort, typically where outside expertise is required or duringpeak periods;

Coordination with other risk functions, such as legal, compliance or insurance, toensure coverage of key organizational risks;

Update on audit staffing levels, experience and certification; and


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Appendix materials, such as planning approach, assumptions (e.g., days per auditoand staffing level) and brief descriptions of all planned audits and relatedprioritization.

Best Practices in Internal Auditing

Measuring the internal audit function

The measurement of the internal audit function can involve a balanced scorecardapproach.[9] Internal audit functions are primarily evaluated based on the quality ofcounsel and information provided to the Audit Committee and top management.However, this is primarily qualitative and therefore difficult to measure. Customersurveys sent to key managers after each audit project or report can be used to measureperformance, with an annual survey to the Audit Committee. Scoring on dimensions suchas professionalism, quality of counsel, timeliness of work product, utility of meetings, andquality of status updates are typical with such surveys. Understanding the expectationsof senior management and the audit committee represent important steps in developinga performance measurement process, as well as how such measures help align the auditfunction with organizational priorities.[10]

Quantitative measures can also be used to measure the functions level of execution andqualifications of its personnel. Key measures include:

Plan completion: This is a measure of the degree to which the annual plan ofengagements is completed, measured at a point in time. This may be measured using thenumber of projects completed, weighted by the planned size of each project, withestimates for projects in-progress. Measured throughout the year, it is compared againstthe percentage of the year elapsed.

Report issuance: This is a measure of the time elapsed from completion of testing toissuance of the final audit report, including managements action plans. This can bemeasured in average days or percentage of reports issued within a certain standard, sucas 30 days. Establishing expectations for the timing of managements response to reportrecommendations is critical. In addition, the scope and degree of change involved in thereports action plans are key variables. For example, a report for a single retail storerequiring only the store managers action might take 35 days to issue. However, a reporconsolidating findings from 20 retail stores, with action plans with national implicationsdetermined by top management, may take 3060 days in complex organizations.

Issue closure: Reported audit findings are often called issues or deficiencies.Professional standards require audit functions to track reported findings to resolution,which effectively requires the maintenance of an issues follow-up database. The numberof days that reported issues remain open, or open after their agreed-upon closure date,are key measures. In addition, reporting database statistics such as the number of issuesopen (unresolved), closed (resolved), and issues opened/closed during a given period areuseful statistics.

Staff qualifications: This can be measured through the percentage of staff withprofessional certifications, graduate degrees, and overall years of experience.
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Staff utilization rate: This is measured as the percentage of time spent on projects, asopposed to administrative time such as training or vacation. Many internal auditdepartments track time by audit project. This is typically captured in a database orspreadsheet.

Staffing level: The number of positions filled relative to the authorized staffing level. Dueto the challenge of finding qualified staff, departments may have rotational programs tobring in management to complete tours in the function or be "guest" auditors. Auditdepartments also "co-source," meaning they obtain contract auditors from serviceproviders.

Developing and retaining staff

Developing and retaining quality professionals is a key concern in the profession.[11] Keymethods for developing and retaining internal audit staff personnel include:

Providing challenging, varied assignments

Ensuring quality supervision

Ensuring staff participates in projects from start to finish, to learn all phases of theaudit process

Providing opportunities to lead (in-charge) projects, starting with more structured

projects such as Sarbanes-Oxley work

Participating on departmental improvement task forces, such as preparation for

quality assurance review

Participating in the recruiting and interviewing process for new hires

Rotating through various audit teams (in larger departments) or audits of variousbusinesses

Providing both outside training (e.g., seminars) and in-house training (e.g.,

company systems) for two weeks/year

Participation in annual risk assessment activities, whether asking key questions or

just taking notes

Reporting of critical findings

The Chief Audit Executive (CAE) typically reports the most critical issues to the Audit

Committee quarterly, along with management's progress towards resolving them. Critica

issues typically have a reasonable likelihood of causing substantial financial or

reputational damage to the company. For particularly complex issues, the responsible
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manager may participate in the discussion. Such reporting is critical to ensure the

function is respected, that the proper "tone at the top" exists in the organization, and to

expedite resolution of such issues. It is a matter of considerable judgment to select

appropriate issues for the Audit Committee's attention and to describe them in the prope

context.

Notes:

STATUTORY VERSUS INTERNAL

Following are the main points of difference between internal audit and statutory audit:

1. Appointment The management of the organization makes the appointment of aninternal auditor. The statutory auditor is appointed by different authorities. First statutoryauditors are appointed by the shareholders in the annual general meeting.

2. Qualification Qualifications of the statutory auditor are prescribed in the companieact, 1956. Essentially a person should be a practicing chartered accountant to beappointed as a statutory auditor. There are no fixed qualification for the position of aninternal auditor.

3. Objects The main object of the statutory audit is to form an opinion on the financiastatement of the organization auditor has to state that whether the financial statementsare showing the true and fair view of the affairs of the organization or not. The mainobject of the internal audit is to detect and prevent the errors and frauds.

4. Scope The scope of the statutory audit is fixed by the companys act 1956. itcan not be changed by mutual consent between the auditor and the management of theaudited business unit. The scope of the internal audit is fixed by the mutual consent ofthe auditor and the management of the unit under audit.

5. Remuneration Remuneration of the statutory auditor is fixed by the appintingauthority, I e in case of first auditors, the auditors the directors fix the Remuneration incase of the subsequent auditors the company in its general meeting fixes the

remunration. In case of internal auditor the management who appoints him fixes hisRemuneration.

6. Report The statutory auditor submits his report to the shareholder of the companyin its general meeting. The internal auditor submits his report to the management of thecompany who is also his appointing authority.

7. Removal The procedure of removal of the statutory auditor is very complex. Onlythe company in the general meeting can remove the auditor. It also has to take thepermission of the central government. The management of the entity can remove internaauditor.


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