engleski

Internal audit activity as a support in liquidity risk management

Requirements, responsibilities and auditing approach have been significantly altered from the beginning of the development of modern internal audit to the present. Authors, researchers, professional associations and organizations related to internal audit, which also includes users of internal audit services and especially the management, are preoccupied with future expectations and required shifts in development of internal audit. Internal audit function has to be able to respond to the increasingly complex requirements of internal and external users of information. Nowadays, especially emphasized are expectations from internal audit in context of its active involvement in creation of added value by generating information necessary for identification, understanding and risk assessment. There is a requirement to ensure valid information foundation by providing analysis results, assessment, recommendations and advises for management to ensure successful risk reduction. Interest and priority of internal audit function in context of managing liquidity risk, as an important component of total financial risk. This is transferring internal audit goals to assessment and analysis of important items from financial statements. Precondition for managing liquidity risk successfully includes company’s ability to obtain cash. Main focus of this research is to direct importance of individual accrual and cash basis items related to ability of companies to manage it receivables. There is several definition of liquidity. One of them includes defining liquidity as company’s ability to pay off its existing due liabilities. In that context, liquidity can be outlined as state of sufficient short term liabilities coverage by using quick liquid assets. Fact remains that lack of liquidity represents structural problem for every company and with its negative effects it is a common phenomenon in Croatia. Considering that, liquidity is in focus of numerous researcher and institutions during last several decades. Technique of liquidity analysis includes using instruments and procedures of financial statement analysis. Research objective includes correlation analysis of realized cash inflows from a receivables and on the other hand accrual items used for calculating those receivables turnover ratio, in example of Croatian companies. Research results involve determination of a relevance of an accrual items comparing to cash basis in context of evaluating the liquidity risk. Comparison, descriptive and analysis method will be used within this research. Paper will result with the comparative review and the coherence between an accrual and a cash basis from aspect of managing the liquidity risk and the possibilities for using those results within an internal financial audit.

The internal audit function; liquidity risk evaluation; financial ratios; accrual basis; cash basis

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