Introduction
The term financial management refers to organization of monetary resources to achieve desired objectives and maximize companys’ worth while ensuring positive growth. This paper seeks to highlight the four elements of financial management and explain the generally acceptable accounting principles and financial ethical standards. It is evident that the need for proper financial management and adherence to sufficient financial reporting is vital for every organization irrespective of the industries in which they operate.
Financial management
Financial management entails planning, organizing, directing and controlling of financial processes in a firm. Financial resources in the enterprise are therefore managed using generally accepted principles to promote transparency and accountability. It takes into consideration investment decisions by defining allocation of financial resources, e.g. capital budgeting. Financial management deals with issues pertaining to raising finances or capital from a variety of sources for purposes of expansion, growth and new investments.
Objectives of financial management
Control and efficient allocation of resources is aimed at the following:
- Ensure the company invests in safe endeavors.
- Strike a balance in capital structure (i.e. there should be a capital balance between debt and equity).
- Ensure efficient use of financial resources with minimal wastage.
Elements of financial management
The four elements of financial management include planning, controlling, organizing (and directing) and decision making. Planning ensures that finances are available at the required time to satisfy organization needs as they arise periodically.
Planning requires that the company draws up short term as well as long term needs. Short term needs include employee remunerations, payment of utilities, purchases and others. Long term needs include opening new outlets or investing in new options. Financial objectives are also defined in planning.
In controlling, the immediate objective is to ensure that financial goals are being achieved. This is done to identify areas that need monitoring and attention within the organization. Controlling seeks to measure efficiency in the use of assets while determining security of these assets. It also entails examining whether all activities undertaken are as per the organizations’ policies and procedures.
Organizing and directing involves deciding how resources will be allocated having identified the most feasible or viable investment options. Directing ensures that the results of organizing are efficient. Decision making is parallel to planning, organizing, directing and controlling. It allows organizations to choose among available investment options based on specific criteria. Decision making relies on information and mostly relates to issues pertaining financing and investment (Baker & Baker, 2009).
Accepted financial principles and ethical standards
Generally accepted accounting principles include competency, integrity, objectivity and confidentiality. Financial management calls for integrity in terms of honesty and accuracy in disclosure of financial reports.
This implies that professional responsibilities must be carried out without prejudice. Confidentiality means that employees should maintain confidential information and should not disclose any information unless legally required to. Competency is with respect to professional skills and knowledge required to execute financial processes effectively.
Professional duties must be executed while exercising technical, legal and regulatory measures. Furthermore, personnel must be continuously trained to sharpen their skills in the relevant knowledge area (which is financial management). Objectivity calls for responsibility to present reports fairly and objectively while disclosing financial information fully to relevant stakeholders. Objectivity is supported by factual evidence.
Financial ethical standards are vital in guarding a company from financial mismanagement issues. Independence should be observed by employees by ensuring that they are unbiased, objective and display impartiality in all forms of financial reporting. Activities undertaken must not be subjected to managerial pressures which may negatively affect financial management.
Conflict of interest and dealing in deceptive investments should equally be avoided. Financial ethics calls for adherence to regulations established within the financial markets. Financial responsibilities should be carried out with diligence, care and professional competence.
Examples of ethical standards of conduct (from real entities)
Several companies have upheld ethical standards in their financial dealings. Lenovo is one such firm which has drafted and enforced ethics and integrity in the workplace, accuracy of business records and rules pertaining to insider trading and conflict of interest. They have defined financial obligations to comply with laws and regulations, engage in honesty in contracting, fair competition and protection of privacy.
Lenovo’s management reveres integrity which in turn is replicated by employees. Amazon has defined its corporate governance by incorporating aspects of insider trading, conflict of interest, record keeping, reporting and financial integrity. Microsoft has equally enforced a standard of financial ethics that ensures employees exercise integrity and compliance in their duties (Code of Conduct, 2008).
Lenovo is a success story that depicts the need to incorporate financial standards in an organization for the purpose of ensuring productivity and efficiency in company processes. This provides employees with a proper understanding of the need to exercise acceptable financial ethics and follow guidelines provided in policies and procedures. As a result, the work force feels involved and growth is inevitable.
Amazon’s policies reflect the need for conformity to laws and applicable rules. It ensures that internal controls within the company are consistently monitored thereby eliminating the possibility of financial disclosure issues. This ensures reporting reflects a true and fair position of the firm. Employees of Amazon cooperate with set procedures religiously.
Conclusion
In conclusion, organizations must work towards inculcating ethics and acceptable morals in employees to strengthen adherence to set codes of conduct. This ensures that employees exercise responsibility in their dealings with the company. Companies must specify codes and ethics of conduct to govern employee behavior. They should also carry out frequent compliance checks to keep financial management employees on their toes.
References
Baker, J. & Baker, R.W. (2009). Health Care Finance. London, United Kingdom: Jones and Bartlett Publishers.
Code of Conduct: Ethics in our New World Company. (2011). Web.