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
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