Slide 14.
Chapter 14:
Controllers and Auditors
Merchant, Management Control Systems PowerPoints on the Web, 3rd edition, Pearson Education Limited 2012
Slide 14.2
Corporate financial management roles
Chief Financial Officer
Vice President Finance
Controller
External Financial Reporting
Management Control Systems
Internal Control
Financial reporting and control
Treasurer
Provision of Capital
Money Management
(Capital) Risk Management
Raising and managing capital
Merchant, Management Control Systems PowerPoints on the Web, 3rd edition, Pearson Education Limited 2012
Slide 14.3
The controller function
The controller (or the control department)
Designs and operates information and control systems
For example, supervision of all accounting records
(financial/managerial)
Prepares financial reports to shareholders and external
parties
Prepares and analyzes performance reports and assists
managers by interpreting these reports
Merchant, Management Control Systems PowerPoints on the Web, 3rd edition, Pearson Education Limited 2012
Slide 14.4
The controller function (continued)
The controller (or the control department)
Analyzes program and budget proposals and
consolidates the plans of the various business
segments into an overall annual budget
Supervises internal audit and accounting control
procedures to ensure the validity of information
Performs operational audits
Develops personnel in the controller organization
Merchant, Management Control Systems PowerPoints on the Web, 3rd edition, Pearson Education Limited 2012
Slide 14.5
The treasury function
Entails the control of corporate funds
Provision of capital
Financing
Cash planning
Investor and creditor relationships
Money management
Banking: cash and deposits
A/R, A/P, collections, disbursements
Loans and investments (securities)
(Capital) risk management
Insurance, including employee benefits
Merchant, Management Control Systems PowerPoints on the Web, 3rd edition, Pearson Education Limited 2012
Slide 14.6
The control department
Controller
MIS
Accounting
Managerial
Accounting
Budgeting
Internal
Audit
Administrative
Systems
Special
Projects
Financial
Accounting
Cost Accounting
Inventory Control
Make-or-buy
...
P&L statements
Consolidation
Tax Returns
...
Merchant, Management Control Systems PowerPoints on the Web, 3rd edition, Pearson Education Limited 2012
Slide 14.7
Relation to the line?
What should be the relationship between the corporate
controller and the division controller?
Top Management
President / Vice-Presidents
Corporate Control Department
SBUs / Divisions / Segments / Functional Areas
XYZ
?
Divisional Controller
... ... ...
... ...
Merchant, Management Control Systems PowerPoints on the Web, 3rd edition, Pearson Education Limited 2012
Slide 14.8
Relation to the line? (continued)
The controller function is a staff function
The controller designs and operates the control and
information systems (e.g., control measures)
However, the use of this information remains
the responsibility of line management
The controller can make recommendations for
action to management, but (s)he does not make
nor enforce management decisions
This is not to say that the controller should not be
involved in or have a good knowledge of the business
Merchant, Management Control Systems PowerPoints on the Web, 3rd edition, Pearson Education Limited 2012
Slide 14.9
The business unit controller
Two major responsibilities
1. Management-service responsibility
Help business unit management in the
business decision process
It requires that the business unit controller
becomes actively involved in the local
decision-making process
INVOLVEMENT
Merchant, Management Control Systems PowerPoints on the Web, 3rd edition, Pearson Education Limited 2012
Slide 14.10
Dotted line relationship
Decentralization of the controller function
Dotted-line
Top Management
President / Vice-Presidents
Corporate Control Department
SBUs / Divisions / Segments / Functional Areas
XYZ
Divisional Controller
... ... ...
... ...
Merchant, Management Control Systems PowerPoints on the Web, 3rd edition, Pearson Education Limited 2012
Slide 14.11
The business unit controller
(continued)
2. Financial reporting and internal control
responsibility
Ensure that the financial information from the
business unit is accurate and that internal
control practices conform to corporate policy
and procedures
It requires that the business unit controller
acts as a policeman or local guardian for
the corporate office
INDEPENDENCE
Merchant, Management Control Systems PowerPoints on the Web, 3rd edition, Pearson Education Limited 2012
Slide 14.12
Solid line relationship
Centralization of the controller function
Solid-line
Top Management
President / Vice-Presidents
Corporate Control Department
SBUs / Divisions / Segments / Functional Areas
XYZ
Divisional Controller
... ... ...
... ...
Merchant, Management Control Systems PowerPoints on the Web, 3rd edition, Pearson Education Limited 2012
Slide 14.13
Divided responsibility and loyalty
The business unit controllers job priorities
and loyalties are changed when the reporting
relationship is changed
Centralization of the controllership function
Solid-line with the corporate controller;
Dotted-line with the business unit manager
(staff-relationship)
Emphasis on financial control responsibility
Corporate spy (HQ representative, irritant,
checker, policeman)
Merchant, Management Control Systems PowerPoints on the Web, 3rd edition, Pearson Education Limited 2012
Slide 14.14
Divided responsibility and loyalty (continued)
Decentralization of the controllership function
Dotted-line with the corporate controller;
Solid-line with the business unit manager
Emphasis on management-service responsibility
Business unit ally (trusted assistant, helper)
Merchant, Management Control Systems PowerPoints on the Web, 3rd edition, Pearson Education Limited 2012
Slide 14.15
Factors influencing (de)centralization
Corporates desire to:
Exercise tight control
Implement uniform control systems across
business units or divisions
Achieve economies of scale in control
Speed up the introduction of control changes
or procedures
Merchant, Management Control Systems PowerPoints on the Web, 3rd edition, Pearson Education Limited 2012
Slide 14.16
Relationship with corporate controller?
The corporate controller has functional control
Develop (uniform) control/information systems
Prescribe rules/procedures for the collection of
information
Develop/propose new control techniques for the better
performance of the controllers in the business units
Train controllers (formal courses and informal meetings)
Merchant, Management Control Systems PowerPoints on the Web, 3rd edition, Pearson Education Limited 2012
Slide 14.17
Additional control of the controllers
Internal auditors and audit committees can be
used to oversee the controller function
Personnel / cultural controls (selection and training
of controllers)
Incentive systems that do not create temptation
(e.g., rewards based on performance measures
they can manipulate)
Merchant, Management Control Systems PowerPoints on the Web, 3rd edition, Pearson Education Limited 2012
Slide 14.18
Auditors
The internal audit function operates in staff capacity and
reports high in the organization, at least to the controller
or VP Finance
Financial audits
External auditors
Compliance audits
External/internal auditors
Compliance with laws and rules/administrative policies
Performance audits
External/internal auditors/consultants
Evaluation of the performance of the company, its management,
a department, or a specific activity (+ making recommendations)
Merchant, Management Control Systems PowerPoints on the Web, 3rd edition, Pearson Education Limited 2012
Slide 14.19
Benefits of audits
Add credibility to the information provided to user
groups
Anticipation of the audit increases the motivation
of the individuals involved to act in a legal, ethical
way, and in the best interest of the company and its
owners
Merchant, Management Control Systems PowerPoints on the Web, 3rd edition, Pearson Education Limited 2012