Financial Analysis Business Decision Guide and Statements

Question: Discuss about the Financial Analysis for Business Decision Guide and Statements. Answer: Introduction Accounts payable is one of the important processes in the organization.Its proper functioning is necessary for the healthy financial position of the company.It keeps a track of all the purchases and payments made to the suppliers(Hoggett et al, 2014).It builds up the relationship with the suppliers of goods. Internal controls in every business are implied to reduce the risks at an acceptable level. One needs to identify and assess the business risks to decide upon the level of controls required to control it( Loftus et al, 2012).As our company Fruito is both a retailer and a wholesaler, it too faces many kinds of risks. Purpose Of The Report This reports purpose is to identify all the risks which are faced by Fruito and their financial and non financial impact on the business operations. Recommendations are also given regarding the internal controls which can be installed to minimize the risks. Risks Faced And Their Potential Impact OnFruito Inactive Suppliers As noticed many payments have become time barred. They are still open in our accounts.Inactive suppliers increase the risk of fraud. They have the chances of corrupting the master file. Their details such as bank account number,IFSC code, the address may get changed without noticing.In order to prevent this master file should be updated regularly to discover such changes(Beasley et al, 2014). Large Number of Purchases with Small Amounts - A large number of supplier sends a huge number of invoices with small amounts thus increasing the workload and chances of error while entering the same into the system. While recording these entries into the computer system chances of wrong data entry occurs (Loftus et al, 2012). This leads to wrong accounting records of the supplier. In order to reduce this, purchasing department should make necessary arrangements with the supplier to send the monthly invoice instead of small invoices on daily basis. Data Duplication -In many cases when the first name of two different suppliers is same, the system automatically assumes it to be the same supplier. It leads to data duplication. Instances have been notified when wrong bank account number has been picked up by the master file for the specified supplier when payment was supposed to be done. This has led to wrong payments again for which no credit notes have been an issue (Arens et al, 2016). Extent of Master File Contamination -Due to changes in the software and shifting to the latest technologies such as ERP systems can lead to contamination of master file which stores all the data (Beasley et al, 2014). Unnoticed changes can happen without anyones knowledge Recording of Discounts -It has been noticed that discounts have not been accounted for in the books of accounts. Purchases made are for large amounts and payments against them have been done of less amount . The difference in the amount as discount has not been accounted for in the books, thus, misleading the net profit of the company (Hoggett et al, 2014). Stock Records -On many instances, it has been noticed that stock purchased is not recorded properly and no authority is also present for its cross verification. Purchase orders are not properly raised. Audit of stock is also not carried off at regular intervals (Ittelson, 2011). It has led to pilferage of stock. As a result stock in hand and stock in books is not matching against each other. Internal Controls that should be Implemented by Fruit are: Organization Structure -Organization Structure of our company should be such that ones work should be reviewed by another. A single individual shouldnt be responsible for the complete process. A process should be bifurcated into parts to be handled by specialized individuals. Employees work in a process should be complimentary to each other (Hayes et al, 2014). Online Portal for Suppliers -Every supplier should maintain its online portal to keep the transactions easy and transparent. Online portals help in knowing the pending orders to be received and the pending payments (Bragg, 2014).This system can help in cutting down the manual errors and bringing order accuracy. Continuous Monitoring - Continuous Monitoring is also known as the audit in real time. One should keep a close check on all the happenings in the accounts payable process. Orders received and paid should be checked simultaneously. Any discrepancy should be investigated deep into. Adopting more robust governance practices which can strengthen the internal controls of the entity (Arens et al, 2016). Outsourcing to External Agencies -Fruit can outsource its Accounts payable process to firms such as Transparent for accurate processing of the same. This measure can be cost effective and can reduce the chances of errors(Hayes et al, 2014). These companies provide accurate measurement of accounts payable and its comparison with the industry data. They also recommend any improvements needed in the process. It helps in fast collection of undue payments. They follow a very systematic approach and ensures the security of clients data. Providing quality services is their core agenda. References Arens,A.A.,Elder,R.J.,Beasley,M.S.,Hogan,C.E.(2016).Auditing and Assurance Services.UK.Pearson Loftus,J.A.,Leo,K.J., Clark,K.Wise,V.(2012).Understanding Australian Accounting Standards.Melbourne.John Wiley Sons Hoggett,J.,Edwards,L.,Medlin,J.,Chalmers,KMaxfield,J.(2014).Accounting.Melbourne.John Wiley and Sons,9th revised edition Beasley,M.S.,Bucklers,F.A.,Glover,S.M.Pramitt,D.F. (2014).Auditing Cases:An interactive learning approach. UK.Pearson Publishers Hayes,R.,Wallage,P.Gortemaker,H.(2014).Auditing of Financial Statements-Principals of Auditing.UK.Pearson Publishers Bragg,S.M.(2014).Financial Analysis:A Business Decision Guide.Accounting Tools,2nd edition. Collings,S.M.,Loughram,M.(2013).Financial Accounting for Dummies.Melbourne. John Wiley Sons Ittelson,T.R.,(2011).Financial Statements:A step by step guide in understanding and creating Financial Reports.USA.Career pr Inc.