ProBankManagement Accounting in Financial Institution

Students:• João Gomes• Renato Araújo

Teacher:• Magdalena C.

Lewczuk

Jan 2016

What is a Financial Institution?

• In finance and economics, a financial institution is an institution that provides financial services for its clients or members. One of the most important financial services provided by a financial institution is acting as a financial intermediary. Most financial institutions are regulated by the government.

Types of Financial Institutions

• Depositary institutions – deposit-taking institutions that accept and manage deposits and make loans, including banks, building societies, credit unions, trust companies, and mortgage loan companies;

• Contractual institutions – insurance companies and pension funds; and

• Investment institutions – investment banks, underwriters, brokerage firms.

Organizational Structure Of Financial Institutions

Note: Financial Institutions change their structure over time and across geographical subdivisions to perform the functions of financial system more efficiently

Financial Services

Financial Instruments

ProBank

• Pro Bank is an financial organization with services who offer credit and saving services. Also offer more sophistiticated financial services such as Leasing, Payments and Insurance Services

• The most important in Pro Bank is they don’t dedicated exclusively to low-income costumers, they have the ability to serve their costumers without relying on donor aid

Organizacional StructureGeneral Meeting

Administrative Council

Internacional Strategic

Council

Pay and Pension Council

Executive Committee

Committees and Subcommittees

Audit Committee

Chartered

Accountant

Company Secretary

• Approval of New Products

• Legal Affairs• Costs and

Investments

• Enterprise• Processes and Banking

Services• Human Resources

• Credit

• Risk• Safe

ty

About ProBank• Is an institution whose primary source of profits is through financial

assets transactions• ProBank allow funds to move from people who lack productive

investment opportunities to people who have them• Collect funds from the investors and direct the funds to various

financial services providers in search for those funds• ProBank secret for his success is to maintain a balance between return

and risk• The next objective is growing even more and create a global impact

Activity Based Costing• To control the risks that financial institutions face the ProBank uses

the ABC method• Is a costing methodology that identifies activities in na organization

and assigns the cost of each activity with resources to all products and services according to the actual consumption by each

• ABC emerges as an important strategic tool that helps companies to remain competitive in the advanced technologies environment and diversity of products and customers, such as financial institutions. It also emerged as a powerful tool in the decision

Steps in Development of an ABC System

1. Identify Activities - The organization needs to undertake an in-depth analysis of the operating processes of each responsibility center

2. Assign Resource Costs to Activities - This involves tracing costs to cost objects to determine why the cost occurred. Costs can be categorised in three ways: Direct, Indirect, General/Administration

3. Indentify Outputs - Identify all of the output for which an activity segment performs activities and consumes resource

4. Assign Activity Costs to Outputs - This is done using activity drivers. Activity drivers assign activity costs to outputs (cost objects) based on the consumption or demand for activities

Benefits and Drawbacks of ABCBenefits Drawbacks

ABC provides a more accurate method of costing of products and services

ABC can be difficult and time consuming to collect the data about activities and cost drivers

It allows for a better and more comprehensive understanding of overheads and what causes them to occur

It can be costly to implement, run and manage an ABC system

It makes costly and non-value adding activities more visible, so allowing managers to focus on these areas to reduce or eliminate them

Even in ABC some overhead costs are difficult to assign to products and customers. These costs still have to be arbitrarily applied to products and customers

It supports other management techniques such as continuous improvement, scorecards and performance management.

Volume of Cost Department Unit of Cost

Cost of Activities

Activities Cost H. Resourc

es

Administrative

Financial

Technology

Activities

H. Resources

Administrative

Financial

Technology

Total

Auditory 100 000 40 10 15 60 800 32 000 8 000 12 000 48 000 100 000

Bank Control 100 000 20 30 40 160 439 14 300 8 572 12 858 64 270 100 000

Financial Planning

90 000 120 25 45 80 348 48 260 5 218 12 174 24 348 90 000

Treasury 200 000 1 200 2 000 900 1 000 40 47 060 78 432 35 295 39 213 200 000

Investiment 1 000 000

500 80 000 150 000

500 000 2 685 109 514 205 338

684 463 1 000 000

Strategic Management

500 000 300 450 500 250 333 100 000 150 000 166 667

83 333 500 000

Financial Management Activity

460 000 600 100 000 300 000

100 000 1 552 91 890 275 669

91 889 460 000

Information Management

250 000 70 10 50 80 1190 83 333 11 905 59 524 95 238 250 000

Advertising and Publicity

150 000 90 250 200 20 268 24 107 66 964 53 572 5 357 150 000

Recruiting and Selecting People

90 000 10 20 50 40 615 12 500 18 750 37 500 20 250 90 000

Total 2 940 000

363 097 549 245 870 597

1 157 061

2 940 000

ProBank Activity Based on Cost Calculation

Conclusion• The ABC method is a very good tool because it allows us to analyze

where activities costs must be reduced but always keeping the customer satisfied. Also provides us information on the development of prices and reduces competitiveness of increased costs of the company.

• After reviewing ProBank cost table using the ABC method, we can say that ProBank have many expenses in the technology department, managers should have more attention on this department

• With this work we learn more about financial institutions and their organizational structure but mainly because we get to see how the ABC method is very good for use in a company