Classical Economic View

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Global economic environment for multinational (national) companies are the sets of national economic environment where they operate. International allies, treaty and policies regarding PESTEL environment are global economic factors. E.g. European Union, WTO members implement General Agreement on Tariffs and Trade (GATT). Multinational companies move from one country to another in search of political stability, raw material, cheap labor, knowledge and market.

National Economic studies combined behaviour of population of a nation and the government's public policy. It represents nation's (PESTEL) cultural composition, political situation, legal structure, economic growth and technological adaptation.

Managerial macro-economics is the study of Classical view (do nothing), Keynesianism (demand side) and Monetarism (Supply side).

Classical view: Classical economics view markets as incredibly powerful and efficient mechanisms that could not be improved upon by any intervention; as a consequence, they strongly urged laissez-faire policy by the government – that the government should leave the economy alone and let it work properly. Economy is capable of achieving the natural level of Gross Development Product (GDP), which is the real GDP that is obtained when the economy's resources are fully employed. It is based on two firmly held beliefs. (1) Say's Law states economy is always capable of demanding all of the output that workers and firms choose to produce i.e. supply creates its own demand (2) Flexible interest rates, wages and prices stands to justify Say's Law. I.e. in free economy if, saving increases interest rate decreases and investment increases and if saving decreased interest rate increases and investment decreases. Or if, expenses is not sufficient to purchase all of the production, there will be cutback in production prices and wages, reducing producers costs and adjusting the supply sufficient to consume. Classical economic assumes that (market is highly competitive) economy operates at full employment most of the time and any unemployment in economy is voluntary.

Background to the modern Period 1900-1945

Audit

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Understanding different types of audit:

Public Sector Audit - audit of state owned enterprises by public sector auditors. Responsible for strengthening public sector accountability, governance and transparency.

Tax Audit - to access accuracy of tax return filed by the company.

Statutory Audit / External Audit / Financial Audit - examines truth and fairness of financial statement and provides independent opinion.  

Forensic Audit - investigation audit to detect fraud, insider trading, money laundering, insurance claim and professional negligence.

Environmental Audit - assessment of environmental and social footprint. E.g. verification of CO2 emission

Value for Money Audit / Performance Audit - assessment of economy, efficiency and effectiveness of organisation's use of resources. Mostly relevant to public sector and not-for profit organisations.

Information System Audit - assessment of control relevant to IT infrastructure within an organisation.

Internal Audit / Operational Audit - monitors effectiveness of internal control and compliance.

Compliance Audit - assessment of compliance with law and regulations.

Internal Audit vs. External Audit

	Internal Audit	External Audit
Role	Advise	Opinion
Legal basis	Not-required	Required
Scope	All area	Statutory financial focus
Approach	Risk based Test operation	Risk based Test underlying
Responsibility	Advice and recommendation	Form opinion

Introduction to Audit - Types of Audit

Marketing

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UK's Chartered Institute of Marketing is 'the management process responsible for identifying, anticipating and satisfying customer needs profitably.'

Customer of buyer bargaining power is studied earlier Porter's five forces. Here we see who the customers are and how are they segmented. Firstly, the world's population is the biggest set of customer any organisation can acquire and retain.

Start with a simple question. Are all those individuals and families from Asia and Africa living under poverty and earning couple of dollars a day are customers for a company producing smart-phones worth hundreds of dollars. Or ask why Apple (iPhone) launched 5c. Alternatively, is privileged upper class individual / family, a customer for street fast food owner? See not only individuals are customers. One organisation in supply chain can be the customer and other the producer. Government can also be the customer and it is always a supplier of infrastructure required by the organisation. Understanding these variables help simplify the concept of market, customer and their needs.

Considering points discussed above organisations define their position and area in the market. This activity is called market segmentation. Traditionally market is segmented using geography (country, region), demography (age, sex), psychograph (lifestyle, attitude) and behaviour (loyalty, comparison in price and features).

Marketing mix is the set of controllable variables that the firm can use to influence the buyer responses (Kotler). These variables are commonly grouped into four classes.

McCarthy 4 P's of market mix: Product, Price, Promotion and Place / Distribution. The table below lists some variables within each class.

Product	Price	Promotion	Place/Distribution
Features Quality Service Look Packaging Brand	Level Discount Allowances Payment terms	Advertisement Publicity (selection of product location in store- e.g. in front of entry gate) Personal selling Sales promotion (Buy 2 get 1 free)	Distribution channel Outlet location Inventory location Distribution coverage

Product: Goods or services which address consumer needs.

Price: Company's acceptable exchangeable monetary value to product offered in market.

Place: The way producer reaches the buyers.

Promotion: Activities which create awareness about existence of product in market.

ACCA Article: The role of marketing

http://en.wikipedia.org/wiki/Marketing_mix

Financial System, Procedure and Control

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Financial system and management systems are used to record transactions and activities. The procurement system records purchases, sale system records sales, payroll system records wage and perks paid to employees, cash system records receipt and payment and inventory system records stocks of raw material and finished goods. Operating of these systems follows specific pattern. One action triggers another action and so there are defined policies and procedures to operate the system.

Defined policies and procedures in operating system help to minimize errors and mistakes, increase efficiency of users and organizes action and activities. Operators/staffs follow guidelines and instruction for operation. These measures are not sufficient to control fraud and irregularities. For such, control mechanisms are implemented. Controls system helps to safeguard company's assets and prevent fraud.

A specific financial process may compose of many follow up activities. For example: transaction process stage may compose of 'entry set-up review and approval', 'transaction review and approval', 'transaction verification', 'post-transaction report review', 'reconciliation' and 'balance analysis'. At each stage of financial process, there are one or more risks (errors and frauds), that could prevent the process from completing successfully. Appropriate control standards like authorization, segregation of duties and supervision and reconciliation help improve the process.

To manage risk of financial transaction processing failure, manual and/or automated control procedures are implemented at key stages of the process. Manual control procedures include; Transaction initiation review and approval - of expense reimbursement and transfer of expenditure, Asset receipt verification - review and approval of a receiving report, Post transaction review - of general ledger account, payroll report and purchase card transaction, Balance reconciliation - reconciliation account and Balance analysis - review of balances and re-calculations. Automated control procedures include; System access and function - password, Data input - format checking and maximum character, Data validation - account code validation and Data processing - Automatic posting of invoice to ledger.

Financial Transaction Control Procedures Guide

Accounting and Finance Functions

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Financial Statements (accounting) provides information about firm's historical performance. On the other hand, finance functions are activities and events happening in present and future. Financial analyst forecast future based on past results. Then, what are these activities and what they bring to the firm? Finance or money in organisation stands for liquidity - sufficient holding of money, profitability - power to invest to earn profit and credibility to lenders, which attracts cheep funds. Finance manager focus in balancing liquidity and profitability to maintain credibility.

Statement of Cash Flow represents liquidity and Income Statement represents profitability. Cash flow is divided into three parts. Operating Cash flow deals with the changes in working capital, Financing cash flow deals with issue and repayment of equity and debt, and Investment cash flow accounts cash received by dumping/disposal of assets or cash paid on acquisition. Income statement helps analyze the underlying cost of production to reach gross profit and operational cost to calculate net profit and derives residual profit available for distribution to owner. Finance professionals forecast and project future position and formulate policies and strategies to reduce likely trade-off between liquidity and profitability.

Finance function include debt strategy (new application, renew and repayment of debt), currency management (hedging risk exposed to foreign trade), working capital management (management of current assets and current liabilities), investment appraisal (acceptance or rejection of new project), risk management (project specific and industry specific) and internal financial position. Finance officer use different mathematical and statistical tools. Payoff table, probability, beta values, standard deviation and ratio analysis are some of them.

This way financial officer recast prospective statements taking account of inflation, demand, rising price, change in interest rate and other items influenced by risk and uncertainty. It also facilitates in strategic, tactical and operational planning. Any change in plan and process finally affects financial statements. Thus, accounting and finance are integrated functions of business organisation.