How do the primary financial ments (income ment, balance sheet, and cash flow) tie together The primary financial ments are linked toone another through the various heads. Jointly, these statements provide an insight into the financial performance and financial position of a company to various stakeholders. Some of the ways how these statements tie together are provided below:
The net cash flow from the cash flow statement results in an addition or subtraction in the total figure for cash assets in the balance sheet statement
The net income that is calculated as a difference between revenues and expenses, affects the total equity in the balance sheet statement
The depreciation expense in income statement also offsets the net realizable value of the fixed asset in balance sheet.
The cash flow from operating activities is calculated by taking net income from income statement as the base figure and then applying additions/subtractions in it.
The cash flow from investing activities arises as a direct consequence of buying/ selling fixed assets and securities.
Similarly, cash flow from financing activities results from movements in the assets and liabilities sections of the balance sheet. Incurring a liability might mean obtaining a loan, and this would be shown as a cash inflow from financing activity.
The above provide a few examples of how the three primary financial statements rely on one another to provide comprehensive information to the readers of financial statements.
What are some areas that might require internal controls at your organization (BANK)
A bank is a critical organization since it maintains savings of common people. Hence, it is important to ensure that the internal controls at the bank are adequate to deal with all material risks. Some critical areas where strong controls should be put in place to ensure that the risks are mitigated include the following:
The cash counter where money is exchanged is critical because it directly leads to financial and reputation losses to the bank if controls are compromised. Hence, proper controls like close circuit cameras, currency note counting machines, properly trained cashier and other controls are required to be put in place there.
Another critical area is where the transactions are identified and recorded in the bank’s financial statement. A lack of proper control may result in a transaction being erroneously entered, not entered at all, or other errors. which will have adverse impact on the bank’s financial statements. Hence, periodic testing is required to verify that the controls are working as desired for this area.
Most banks now make use of information systems to develop financial statements. Adequate controls need to be put in place on the use of information systems to ensure that an unauthorized person does not gain access to the classified customer information. and that transactions are not being tampered.
Similarly, there are many other areas like physical security, information availability and correctness, reliability and confidentiality, etc. are required to be analyzed and proper controls need to be put in place to ensure that the risk of financial and/ or reputation loss is minimized.