Audit and economical analysis

4. Financial Analysis: internal and external financial analysis

 

Due to the lack of formalities on the financial analysis, traditional routes can be used to organize it.

Typically, clear rules and procedures set out in official accounting for accounting or auditing (internal, external) serve as the basis for organizing this process.

In particular, the article 11 of the new edition of the Accounting Law "On Accounting" establishes accounting and reporting of the head of the accounting subject and compiles the right of the head of the accounting subject.⁷ These rights include:

Creating an accounting service under the head of an accounting service or using a contractual accounting service;

On a contractual basis to maintain the accounting records to a specialized organization (audit organizations, tax consultants' organizations and other organizations that provide for accounting services);

Accounting shall be maintained independently.

These procedures of accounting and bookkeeping can be directly related to economic analysis.

It is desirable to form an internal financial analysis and formulate an external financial analysis.

External financial analysis will allow the study of the financial condition of business entities on the basis of financial reporting forms reflecting limited information and will not allow disclosing all the secrets of the company's achievements. This analysis is carried out by stakeholders, interested in business activities, owners or government agencies, who are unable to access the internal information base.

Important aspects of external financial analysis are:

- a large number of subjects and information users;

- the diversity and diversity of inquiries;

- normative rules of reporting and reporting, definition of official specifics of the analysis ;

- the analysis should be based solely on the information contained in the financial statement forms;

- limited analytical issues;

- the maximum exposure to the results of the analysis of the results of business activity for information users.

The main aspects of external financial analysis are the analysis of the business assets, capital and liabilities changes, solvency and liquidity, financial condition and sustainability, market and business activity, financial and economic capacity, economic strength and weakness, profitability and profitability current and private equity, determination of the company's economic rating.

Internal financial analysis differs from the external financial analysis by the internal scrutiny of the organization, its employees, and the scope of the sampling. The scope of the internal financial analysis and the scope of the study covered are broader than the external financial analysis. Its information base can include not only financial reports but all sources of financial accounting and extra-budgetary resources. Scope of the issues can be determined based on the interests of managers and analysts. The characteristics of this type of analysis can be explained by the following aspects.

The peculiarities of the internal financial analysis:

- narrow band of subjects;

- the results of the survey are focused exclusively on internal requirements, business management;

- high availability of a wide range of information in carrying out financial analysis;

- access to unobservable methods, in conjunction with standardized methodologies for the interpretation of specific regulations (s);

- the ability to conduct a deep financial analysis on the preparation of clear management decisions;

- organization of analytical work based on the requirements of the device.

The content of the financial analysis is structured into a full range of financial analysis and thematic financial analysis

Complete financial analysis is a complex study of all aspects of financial activity of the enterprise. Thematic analysis highlights the particular aspects of the financial activity of the enterprise and the study of its axes. The subject of thematic financial analysis is the following: issues of effective use of assets, optimal utilization of certain sources of financing of assets, solvency and financial sustainability, optimal investment activity, financial disruption of capital.

The financial analysis includes a complete (one-fiscal) financial analysis of business entities, an analysis of the financial condition of separate units and units (based on economic responsibility centers), as well as the analysis of separate financial processes.⁸

The financial analysis for the transition period is structured into prior, current, and prospective types of analysis.