Financial Management Capability Model

-- how to evaluate the financial management capability of an organization is a new way to evaluate financial management capability, whether it is for auditors or for the audited organization.

The organization referred to in this paper includes enterprises, institutions, and government agencies or departments.

Here, the author introduces a model of financial management capability in Britain, which can be used as a new evaluation tool for auditors and audited organizations to evaluate the financial management capability of an organization.

In the actual work, the specific financial management methods vary from organization to organization.

Therefore, the first step of the model is to correctly define the key activities of financial management to form a framework for financial management activities.

This framework is divided into three parts: (1) financial information, that is, financial information that needs to be collected and preserved by the organization to ensure its impartiality and timely availability, and can be used to support the normal operation of the business.

(2) financial control, that is, financial affairs that need to be organized and properly observed or implemented.

(3) financial analysis requires the organization to use a systematic approach to analyze financial and operational information to support the decision-making process.

In addition, the framework also includes some control or practices that are not formal control over the entire management framework, but control or practices that have a critical impact on the financial management of a particular organization.

Financial management is an important part of the work done by an organization's financial manager when communicating organizational procedures.

Therefore, financial management should play the following roles: (1) identify and manage financial risks; (2) get timely, accurate and reliable information so as to understand its potential financial implications; (3) provide relevant financial and operational reports; (4) prevent fraud, negligence, violation of financial rules and regulations, and loss of public funds; (5) help organizations to manage financial risks and complete measurement accounting tasks; (6) support strategic objectives and decision-making.

Two, the specific contents of the financial management capability model, and the use of the new financial management capability model, should embody four principles: (1) financial management is working with other components of the organization's effective management framework; it should be used to support the organization to complete its objectives and calculate the cost of its goals; (2) management should be responsible for the establishment and maintenance of financial management capability; (3) not every organization requires the same financial management capability, and the financial management capability of an organization should be compatible with the nature, complexity and possible risks of the organization; (4) financial management activities must conform to the principle of cost effectiveness.

According to the need to gradually strengthen financial management capabilities, a model map is established. The whole financial management process is divided into five stages of asymptotic capability. Each capability stage is composed of a series of related behaviors, and a certain behavior is composed of many objectives. Only when these behaviors are grasped and executed, can the financial management capability be reached.

The capability standard of each stage in this model is the ability level to decide whether an organization is going to be evaluated.

To achieve a specific stage, the organization must meet all the requirements of each stage.

Even if we think that an organization may or may very well be able to reach a capability associated with a certain stage, it can not be recognized that it achieves this ability unless all the standards are consistent.

The five capability stages of the model are: start, control, integration, management and optimization.

The model diagram is as follows: the beginning of (1).

At this stage, the characteristics of an organization's financial management are as follows: no key policy, practice or control framework has been formulated.

Due to the reduction of the required practice, the completion of organizational goals often depends on the independent role of special individuals, which determines the uncertainty of his achievements.

Correspondingly, this stage is different from other stages: the environment that an organization or a model wants to maintain is unstable.

Control (two) control (stage 2).

The focus of the organization is to develop a control framework to provide a stable environment to ensure that control activities are repetitive and continuous.

The control framework includes finance, operation and management control.

When these basic internal controls are run as expected, they will reduce risks and produce complete, accurate financial and operational data.

Through appropriate accounting and management systems, the organization can carry out its basic custodial responsibilities and fulfill its reporting obligations. It has a fair financial and operational data supporting the supervision activities of the plan to ensure sufficient funds to meet pre and cash flow requirements, and meet statutory reporting and internal business reporting requirements.

At this stage, the organization's financial department's primary task is to ensure adequate control of the financial system, to provide accurate, complete and timely financial data, and to provide effective guidance to non-financial departments.

Therefore, managers should play such a role: to achieve basic financial management capabilities.

To achieve this, two aspects need to be considered. One is to make realistic financial plans on the basis of the expected results; the two is to estimate the cost of achieving the result when linked to the operational requirements.

Therefore, this stage of competency standards has the following characteristics: the organization should control around the financial system management; prepare to operate financial plans; supervise or control the operation of financial plans; prepare budget reports; raise funds; issue reports according to statutory requirements; ensure that activities run as expected.

(three) integration (phase 3).

The focus of this stage is on the role pformation of finance.

The role of Finance pforms from traditional scorekeeper to support manager, and the financial task with managers is to develop a financial structure that can provide data and provide cost benefit control to meet the useful needs of managers, such as product information.

At this stage, managers must have a deep understanding of their financial management responsibilities, that is, the financial management at this stage should be a shared responsibility shared by all members of the organization.

The key financial management activities that can help organizations at this stage are: setting up organizational standards for activities and behaviors, evaluating and comparing among similar organizations or units, and establishing links between financial and non-financial data; connecting and integrating finance and operation.

Human resources and information systems, etc.; provide training for financial and non-financial personnel; collect evaluation data at different stages of production; coordinate activities of various functional departments to support operational needs.

At this stage, the organization should do the following things: integrate finance.

Manage systems and data; share and manage risks; provide reliable executive reports on cost, progress and communication; evaluate product or service quality.

(four) management (phase 4).

The capability level of this stage is determined by the ability of the organization to manage financial behavior, which enables the organization to determine the relationship between financial and operational factors based on the quantitative information of ownership and use, thereby affecting the achievement of the established goals.

The knowledge needed to acquire this information comes from the methods of evaluating and managing organizational behavior. These methods include defining the relationship between factors such as cost, quality and communication behavior; evaluating the implementation of the organization in detail; evaluating the difference between the plan and the actual results (such as cost, schedule and quality, etc.), and using these quantitative information to manage related activities and products, managing the information resources of the organization, and making formal decisions with the information needed.

At this stage, the key financial management activities can help organizations identify the relationship between input and output quality and quantify the average level of organizational behavior, quantify information management and control of business processes, manage information resources to support decision makers, provide technical analysis support, monitor results contrary to expected decisions and actions, and provide sufficient information to support decision-making in order to understand potential financial implications beforehand.

(five) optimization (phase 5).

The focus of this phase of the organization lies in continuous improvement.

The role of management is concentrated on the study of historical experience, and has a clear understanding of the future areas of improvement and improvement. The activities involved include: using technological updating and procedural improvement, finding ways to minimize costs, maximizing output or income; finding the best practices, learning from other organizations, looking at the outside world, determining the timing for improvement, evaluating the implementation of the organization and formulating strategic goals for other similar organizations, improving efficiency and consolidating output quality through technological innovation and procedural improvement, developing the expected information that can affect the internal and external participatory changes of organizational activities, and formulating strategic countermeasures for managing these factors.

At this stage, the financial management activities of helping organizations include: making strategic improvement goals; providing strategic anticipation information; analyzing and preventing quality problems; optimizing financial management through process improvement and technological innovation.

In general, the application of the model can be divided into three steps: first, formulate the financial management capability that the organization wants; secondly, evaluate its appropriate capability level; finally, provide guidance for resolving the discrepancy between the required financial management capability and the actual financial management capability of the three organizations.

In order to be consistent with the principle that managers should be responsible for financial management, the application of the model can be further enriched and divided into three steps: first, the organization should analyze how to formulate financial management requirements, which should be related to the middle managers of the organization, because middle managers play a key role in determining the purpose and direction of the organization, as well as in assessing the financial and non-financial risks of the organization.

The purpose of the analysis is to solve the following 3 questions: (1) which financial risks do the organizations face and which must be controlled?

(2) what financial information does the organization need to meet the requirements of internal control accounting?

(3) what financial information needed to support its business policy?

The second step is to develop a complete framework for management control for the organization, including financial management capabilities that determine the organization's needs and commensurate with the responsibilities of the financial department.

Once the financial management requirements have been established in the entire management control framework, the management of the organization will identify possible residual risks and assess the acceptability of these risks.

When these risks are not accepted, their financial management requirements and capabilities should be reconsidered.

The third step is to develop a framework for implementing financial management.

This step involves supervision activities and activities, which ensure that the financial management requirements and financial management capabilities have been balanced and adapted to the risk control needs of the organization.

The key is that any discrepancy from the monitoring must be resolved.

Risk analysis or financial management framework should be amended according to the requirements of the organization.

Although the financial management capability model is based on the environment of western market economy, the author thinks that it is also an important reference for the organization under the socialist market economy in China. Four.

Compared with the traditional evaluation methods, the auditors and the audited organizations in China have the following enlightenments:

(1) from the emphasis on the collection of evidence from mechanic to the evaluation of evidence by emphasizing the ability of comprehensive judgement.

The traditional audit method focuses on the mechanical collection of audit evidence, and the key to apply the model is the ability of the auditor to judge, so that we can draw the correct conclusion and reduce the risk of audit.

(2) pay attention to knowledge updating.

Modern financial management has developed from simple quantitative management to a financial support system for strategic management.

In this system, it needs to provide more non-financial information, and establish the link between financial information and non-financial information.

These changes need to be based on the new concept of financial management.

As auditors evaluating these activities, we should not only see the superficial phenomenon, but also reveal the essence of these phenomena in depth, so as to achieve the audit objectives.

(two) against the audited organization.

(1) correctly positioning the organization's financial management requirements.

According to the principle of cost benefit, not all enterprises must meet the standard of stage 5, but it should be regarded as a long-term goal. Only when they are properly positioned can they have an appropriate evaluation of their financial management ability.

(2) clarify the financial management responsibilities of the management.

Unlike traditional concepts, modern enterprises emphasize the responsibility of financial management, not only financial managers, but also managers.

On this basis, the corresponding internal control and evaluation methods should be established.

(3) attach importance to financial risk and strategic control.

The financial risk management and strategic management of an enterprise determine the future of the organization, especially in the market economic circle.