Financial key performance indicators

An accounting firm is an independent legal entity, and it is also recognized to be a profit-making organization. As a business corporation, we should identify and justify relevant financial and non-financial key performance indicators (KPI) to estimate all of the organizational performance and individual performance.

From the first of the view, we can use some financial indicators to express. As follows, the financial control system including four aspects, such as profitability, assets operation ability, debt paying ability and development ability. The main business income reflects the accounting firm’s operating status to a large extent and the Rate of Interest is also a very important key indicator. The rate of interest is a ratio of the accounting profits earned by the business unit divided by the investment assigned to it. The rate of interest is the most commonly used measure because it is easy to calculate, easy to understand, and meaningful in an absolute sense. As a measure of performance, profit is comprehensive and unobtrusive. It includes revenue, cost of human beings, gross margin, promotion of the audit skills, income tax and profit after tax. Auditing cost centers can be measured in monetary terms.

In the Auditing Department, the financial exposure and the legal risk is always exists. Just one of it is financial risk: including financial report distortion risk, assets security threatened risk and the risk of fraud. When most of the auditors audit financial statement, they are not in accordance with the relevant accounting standards and the provisions of the accounting system. So it will lead the financial reports and information disclosure is not complete, inaccurate and timely (Sally, 2003). If the Auditing Department does not make up a relevant assets management system, resulting in lower the value of the assets such as equipment, inventory, securities and other assets. On the one hand, the auditors provide services to keep corporation reputation. On the other hand, auditors themselves use their special power to get unfair or the illegal income.

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In the financial risk, widely collects the index of the information of company profitability, assets operation ability, debt paying ability, development capability, focus on cost accounting, fund settlement and cash management business happened or easy occurrence mistake of business process or link.Secondly, we should focus on some non-financial indicators to express. As we all know, human being resource management use a very efficiency method to evaluate the organizational performance and the individual performance, this is called the Balanced Score Card. The balanced score card is consisting of four aspects: financial, customer, internal business, and learning and growth. The introduction of the balanced score card has changed the defect that most of the firms only used to focus on the index system based on financial indicators. That will lead the enterprise made more focus on some short-time profit and at last sacrifice some long-term interests. At most, use the score card can do favor to managers that they can connect the present organizational action with the firm’s final targets. Every member in corporation communicates with others easily and quickly and it is an excellent link of the organization and individual. #p#分页标题#e#

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From all of the above, we can recognize that the management control system in auditing department has three top strategies: auditing performance maximization strategy, reduction auditing risk strategy, improve the department reputation strategy. (Kim, 2007) After that, the report also identifies and justifies relevant financial and non-financial Key Performance Indicators (KPI) that will be used to assess organizational performance and individual or group performance. On the one hand, the financial indicators such as Rate of Interest and the main business income provide a quantitative determination to help the chief auditor make performance evaluation. On the other hand, the non-financial indicators are also indispensable. The typical balanced score card evaluated the performance in the general. All of this makes a large contribution to build a management control system.

The auditing performance maximization strategy concentrates on cultivating the elite in auditing department, through training employees and builds the new team. This strategy will make full use of the human resources and it will mobilize the enthusiasm of the auditors completely. The behavior will improve the working efficiency greatly of the auditing department. On the contrary, there are some auditors who has not been as elite into the special auditing team will lose their working enthusiasm, at last resulting in a bad influence of the whole team morale.

The reduction auditing risk strategy made the rules and regulations of the auditing department with implement supervision. From this, it will reduce practicing risk in a certain extent. As well, the strategy will improve the accuracy of the audit results and effectiveness. However, building a auditing system must combine the quantitative methods with qualitative methods and system itself will be convincing, or regulations will lose its original meaning and become a dead letter.The third strategy shows that reputation is so important for an accounting firm that the accounting firm as a intermediary institutions must maintain its independence, must be based on the objective and fair principle to conduct audit business. But the auditing department must pay attention to deal with the relationship of the clients and improve reputation at the same time. The department had better know that will lead the firm lose some of the big customers.

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The Auditing Department plays a very important role in an accounting firm. It assumes lots of core assignments such as assets evaluation, internal control, audit of information system, judicial accounting identification and so on. Some relevant activities may lead to a public accounting firm lost its independence, so building a management control system is necessary and emergency. According to the above, it concludes that a good management control system must be a proper communication of a firm’s targets and focus on details as much as possible. (Sheffield, 2007) In addition, control system is objective driven, future oriented and at last make the benefits exceed costs.#p#分页标题#e#

As is known to all, the audit department in accounting firms always take a huge risk and its economic activities related to the reputation of the audited corporation, the public trust of certified public accountants and the own reputation of the accounting firm. Furthermore, four big international accounting firms occupy a large amount of market share that the rest of the accounting firms’ competition is fierce. That is the reason why accounting firms building a management control system.

The management control system aims to achieve the follow goals for the auditing department to provide reasonable assurance: firstly, it should control the risk and make it adapt with the overall targets. (Robert, 2003) Secondly, the management control system will ensure the corporation’s internal and external information communication true and reliable. Thirdly, the system must obey the laws and regulations; this is the control system’s premise. And then product this control system will improve the management benefit and efficiency. Last but not less important than the others, the management control system must contain a crisis management plan if there are some unpredictable risk that should be solved as soon as possible (Colin, 2011). After this, the firm will not suffered heavy losses by the disaster Sexual risk or human error. In auditing, the procedures selected depend on the auditor’s judgment including the assessment of the risks of material misstatement of the financial statements whether due to fraud or error.Most of the corporations use the management control system that based on budgetary control and responsibility accounting during a very long time. And now the management control system in auditing department includes system formulation, implementation and evaluation. The system control can constraint all of the employees and everyone in organization should obey it. Department culture is also a key part of the system because it will make every member in organization has a sense of identity and sense of belonging. Sometimes, incentive measures are indispensable and it can mobilize the enthusiasm and creativity of the employees appropriately. In addition, the auditing department established a management system control that should better do more about fairness and the target's integration and that was the key in all of the system. 

Building the management control system in auditing department can help the chief auditor make good decision, planning future activities, estimate the organization efficiency and provide personal motivation. But we must understand that the personal targets should always keep in touch with the organizational goals. A good management control system not only pays attention to the organization performance but also pay more attention to the growth of the staffs. When all of the person in the auditing department attention to the long-term development of organization, the management control system will run effectively. With the global economic integration, the corporation will face more and more uncertainty in the fierce market competition. In order to survive, the accounting firm should strengthen its internal effective management control system.#p#分页标题#e#

 

Reference:

Colin Scott (2011). Management control system support of initiatives for disruptive students. International Journal of Educational Management Vol. 25.3 pp.213-221

Kim Langfield-Smith (2007). Control systems and strategy: a critical review. Accounting, Organizations and Society, Vol. 22, No. 2, pp. 207-232, 

Robert H. Chenhall (2003). Management control systems design within its organizational context: findings from contingency-based research and directions for the future. Accounting, Organizations and Society, Vol. 28.pp.127–168

Sally K. Widener (2005). An empirical investigation of the relation between the use of strategic human capital and the design of the management control system. Accounting Organizations and Society, Vol. 28.pp.223–248

Sheffield Hallam (2007). Integrated management systems: a single management system solution for project control? Engineering, Construction and Architectural Management Vol. 3, pp232-240

Sally K. Widener (2004). An empirical investigation of the relation between the use of strategic human capital and the design of the management control system. Accounting, Organizations and Society, Vol. 29.pp.377–399