MANAGEMENT REPORTING

Management Reporting

The word ‘Report’ consists of two parts. ‘Re’ meaning again and ‘Port’ means to carry. Thus the word means ‘to carry information again’. Reports are always written for an event, which has already occurred.

Objects or Purpose of Reports:

1.    Means of communication: It is a means of communicating information from one who has it to someone that needs the information for carrying out the functions of management. Reports provide information to shareholders creditors, customers, government and general public.

2.    Serve as a record: They provide valuable records for future reference.

3.    Legal requirements: Some reports have to be submitted to fulfill legal requirements. For example: - Annual reports of the company’s accounts must be furnished to shareholders as per company’s act of 1956.

4.    To Develop Public Relations: Reports of the general progress of the business helps in increasing the goodwill and developing public relations.

5.    Basis to measure performance: Work performance reports of employees help the management to measure performance and become the basis for promotion and incentives.

6.    Control purposes: It is on the basis or reports that actions are initiated and instructions are given to improve the performance.

Methods of Reporting

1.    Written Reporting:

Formal financial statements;

Actual figures against budgeted ones.

Comparative accounting statements giving information at different periods of time.

Tabulated Information: For example, sales may be tabulated.

According to different periods of time/ or according to different areas or types of customers.

Accounting Ratios: Rations are useful to analyze financial statements and to understand both long term and short term financial stability and profitability of the concern.

2.    Graphic Reporting: The reports may be presented in the form of charts, diagrams and pictures. The advantage is that a person can have a quick grasp of the trends and the information presented.

3.    Oral Reporting: It may be in the form of   a) Group meeting

b) Conversation with individuals

Oral reporting is helpful only to a limited extent and must be put into writing so that it can be used for decision making by the management.

KINDS OF REPORTS

According to object & purpose:

External Reports: Outsiders interested in the company’s reports may be shareholders, creditors or bankers. The company publishes the ‘Income Statement’ & ‘Balance sheet’ at the end of every financial year and these statements are filed with the Registrar of companies and stock exchange.

Internal Reports: These are meant for different levels of management like the top, middle and lower levels of management. Example of internal reports are periodical reports about profit/ loss and financial position, statement of cash flow and changes in working capital, report about cost of production, production trends, reports of sales, credit collection periods, stock position.

According to Nature:

Enterprise Reports: These are prepared for the concern as a whole and served as a channel of communication with outsiders. These reports may include balance sheet, income statement, income tax return, chairman’s report etc.,

Control Reports: These are two types. The first type is used to judge the performance of the managers and reasons for deviations in performance is also identified. The second type of control reports is used to judge how well a responsibly center has fared as an economic utility.

Investigative Reports: In case a serious problem arises then the causes are studied and analyzed. These reports help the management to analyze the cause of the problem.

According to period:

Routine Reports: These are prepared about the day to day working of the concern. They are periodically sent to various levels of management, on a daily, weekly, monthly or quarterly basis. Routing reports may relate to sales information, production figures, capital expenditure, purchases of raw materials, market rents, labour situations etc.,

Special Reports: These are prepared according to the needs of the situation. Available accounting information may not be sufficient, so data may have to be especially collected. Special reports may deal with Technological changes in the industry.

Market analysis and method of distribution of competitors; Problems of purchase of raw materials; Political development at home and abroad having an impact on business.

According to functions:

Operating Reports: They provide information about the operation of the concern. Operating reports may consist of Control reports, which are intended to spot deviations from the budgeted performance without loss of time so that corrective action can be taken. Information reports which are prepared to provide useful information, which will enable planning and policy formation for the future. Information reports can take the form of trend reports or analytical reports.

Financial Reports: These reports can be either static or dynamic. Balance sheet is an example of a static report, where as cash flow, fund flow statements and other reports showing the financial position as compared to the budgeted one are examples of dynamic reports.

General Principles Of Good Reporting Systems

1.    Proper flow of information: A good reporting system should be such that information flows from the proper place to the right levels of management. Flow of information is a continuous activity and affects al levels of the organization. For example, orders, instructions and plans may flow from the top to the bottom. Reports, grievances, suggestions etc, may flow from bottom to top. Notifications, letters and complaints may flow from outside. Information also flows sideways from one manager to another at the same level through meeting and discussion.

2.     Proper timing: Since reports are used as a controlling, device they should be presented at the earliest after the happening of an event. The time required for the preparation should be minimized.

3.    Accurate Information: The information should be as accurate as possible; otherwise it may result in making the wrong decisions. However, it would be better to have approximate figures at the proper time rather than delayed information prepared accurately.

4.    Basis of comparison: The information supplied through reports will be more useful when it is supplied in comparison with past figures standards set or objectives laid down. The comparison of information with past or budgeted figures will enable the reader to find out trends of variations.

5.    Reports should be clear & simple: The information presented should be relevant, important and presented in a clear manner. Supporting information should be given in the appendix.

6.    Cost: The benefit derived from the reporting system must be at least equivalent to the cost involved.

7.    Evaluation of responsibility: The record of actual performance monitored should be along with standards set to enable the management to assess the performance of different individuals.

Structure of report

Heading

Address

List of contents

Terms of preference

Body of the report

Recommendations

Reference and appendices

Signature

1.    Heading: It should be short, clear and meaningful. It should indicate the subject matter of the report.

2.    Address: The report must be addressed to some person or a body of persons.

3.    List of contents: It is a list of chapters of the report arranged logically along with the page no, on which such contents are to be found.

4.    Terms of preference: It gives the reason for writing the report. Brief description of the problem is stated. The object & scope of the investigation are also given.

5.    Body of the report: Here the facts and data collected are presented. Use of tables, graphs and diagrams can be made here or in the appendix.

6.    Recommendations: This is the summary of the report and consists of conclusions and recommendations. Conclusions are made on the basis.

Illustrative Reports: -

1) Productions manager of Raju Co. Ltd., is experiencing difficulties like power shortage, high labour absenteeism & non-availability of raw material in time. These have caused decline in production. As a management consultant of the company make as in-depth study of these problems and report to the management, suggesting suitable suggestions,

17-12-1999.

Production Manager,

Raju Co. Ltd.,

Bangalore-16.

Dear Sir,

            Reasons for Decline in Production & Suggestions to Improve the same.

            In accordance with the instructions given by production manager, Raju Co. Ltd., we have made an in-depth study for the causes for decline in production & suggestions to remedy the situation.

            Inadequate production and supply of thermal power in the state, which is mainly due to the shortage of coal, required for thermal power generation. Another reason is the short supply of hydroelectric power by the KEB mainly due to failure of monsoon, bad working conditions & inadequate remuneration.

            Non-availability of raw materials due to dependence on just one supplier & also due to general scarcity of raw materials, which is demanded by many competing firms. Also the company does not place orders with suppliers well in time due to lack of coordination between production department, stores department & purchases department.

Suggestions: -

            In our opinion the following suggestions will go a long way to overcome the above problems. Company should have additional source to supplement the present supply of electricity by the installation of generators. High  labor absenteeism tackled by providing better working conditions, higher wages & non-monetary incentives.Non-availability of raw materials can be rectified by ensuring that orders are placed well in advance & there is proper co-ordination between production, stores & purchases department. Installation of effective inventory control method & also finding sources of working capital.

Thanking you,

Yours sincerely

2) Directors of Anitha steel ltd are facing the problem of working capital. They are not in a position to coordinate the inflow or outflow of cash. Examine the existing management of working capital & submit the report to the management on your findings &  recommendations to correct the situation.

OR

3) Inspite of increasing profits of Lata & co for the last three years a company is having a shortage of cash. Due to which, dividends cannot be paid. Draft a report on the management, diagnosing the situation and suggestion appropriate action of redeem the situation.

7/1/2000

Directors

Anitha Steel Co.

Bangalore – 56.

Reasons For Inadequacy Of Working Capital Or Shortage Of Cash

1.    Absence of sound liquidity management i.e., Lack of coordination between inflow and out flow of cash.

2.    Unsound inventory management resulting in huge inventories of poor setting lines, thus blocking capital.

3.    Ineffective credit policy resulting in inefficient recovery process from debtors and huge increase in sundry debtors.

4.    Company is not able to obtain sufficient period of credit from suppliers. Average credit period allowed to debtors is 75 days, where as credit obtained from suppliers is 30 days. This has resulted in shortage of working capital.

Alternative Phrases That May Be Used

Debtor’s turnover ratio indicates that there has been a steady rise in credit sales and poor recovery of debts. The huge amount of o/s debtors has resulted in shortage of working capital and also excessive amount of bad debts.

During the last three years the current ratio of the company has been deteriorating. In 1996-97 it was 1:3:1 and 1997 – 98 it was 1:1:5 & 1998-99 it was 1:2. During the past financial year, current liabilities increased by 30%, current assets increased only by 10%. This deterioration in current ratio has resulted in an actual shortage of working capital or cash.

Investment in fixed assets has been financed partly by working capital. The company has used the entire profits for dividends without creating reserves. These wrong financial policies have resulted in acute shortage of working capital or cash.

Suggestions: -

            Greater emphasis on cash sales & proper inventory management. This will help to reduce the amount of sundry debtors & bad debts.

Proper inventory management will ensure purchase of fast selling lines in the required quantities. Special efforts must be made to dispose existing poor selling lives of goods. Efficient collection debts. The collection department must make efforts to calculate the outstanding amount due from debtors on time. This will ensure timely intimation to them and collection of debts will be faster.

Payment of creditors efforts must be made to obtain sufficient credit period from suppliers that is from the existing 30 days to at least 45 days.

Improving financial policies. The company must pay attention to the creation of reserves instead of disturbing the entire profits by way of dividend. Fixed assets should not be financed from working capital but the company should find other sources of long-term funds. These steps would improve cash management of the company & help to coordinate inflow & also outflow of cash & thus overcome the problem of shortage of working capital.

Thanking you,

Yours sincerely

http://sjecnotes.weebly.com/management-accounting.html