Corporate financial systems represent the business analysis phase of a company. Large companies -- particularly publicly held companies -- use a financial system to help assess financial performance. In some cases, the corporate financial system is a bridge between accounting and management. Rather than focusing solely on the preparation of financial information, financial systems look to gauge performance and make forecasts.
Many different financial activities fall under the corporate financial system. Budgets, sales forecasts, profitability measurements, cash flow management, financing decisions and capital structure are just a few of the most common. The department’s core purpose is to measure how well the company generates cash and what financing options will result in the best opportunities for growing the business. Individual analysts often make suggestions to management on the best investment opportunities for the company.
The corporate financial system often operates under the responsibility accounting theory. This dictates that a business should place individuals in charge of activities under their direct control. For example, one manager may be responsible for budgeting and cash-flow forecasting. Another manager is over capital structure and another over business valuation. This segregation allows each manager to focus on increasing the value added from their section of the department. The aggregate value added is the result of all managers working together.
Accounting vs. Financial Systems
While accountants can perform financial analysis, their primary job is to record and report information. The corporate financial system uses the information to conduct a risk analysis for the company. This analysis often provides information on how external factors can affect the company’s financial operations. Competition, government regulation, technological changes and other factors may quickly strip the company of its competitive advantage. Business analysts in the corporate financial system will conduct a risk review to determine the scope of these threats.
A separate financial system from a company’s accounting department helps provide a segregation of duties. Business analysts can review accounting information for accuracy and timeliness. This segregation strengthens both the security of financial information and validity of financial processes. Even with this segregation, however, companies still will need to undergo external audits. Audits provide a third-party review of both accounting and financial system processes.
- "Analysis for Financial Managmenet"; Robert C. Higgins; 2009