Definition of Control
Control
50% of the outstanding votes plus one vote.
Related Terms:
the additional value inherent in the control interest as contrasted to a minority interest, which reflects its power of control
an amount or percentage deducted from a pro rata share of the value of 100% of an equity interest in a business, to reflect the absence of some or all of the powers of control.
A service that provides for a single presentation of checks each day (typically in
the early part of the day).
A foreign corporation whose voting stock is more than 50% owned
by U.S. stockholders, each of whom owns at least 10% of the voting power.
The corporate manager responsible for the firm's accounting activities.
Highlights the fact that return on assets (ROA) can be expressed in terms
of the profit margin and asset turnover.
Governmental restrictions on the purchase of foreign currencies by domestic citizens or
on the purchase of the local domestic currency by foreigners.
The management of a firm's costs and expenses in order to control them in relation to
budgeted amounts.
Various forms of controls imposed by a government on the purchase/sale of
foreign currencies by residents or on the purchase/sale of local currency by nonresidents.
A self-funding, self-hedged series of transactions that generally utilize mortgage
securities as the primary assets.
The process of ensuring that actual financial results are in line with targets – see variance
analysis.
The profit made by a division after deducting only those expenses that can be controlled by the
divisional manager and ignoring those expenses that are outside the divisional manager’s control.
The process of either reducing costs while maintaining the same level of productivity or maintaining costs while increasing productivity.
An account maintained in the general ledger that holds the balance without the detail. The detail is maintained in a subsidiary ledger.
Refers to forms used and procedures
established by a business—beyond what would be required for the
record-keeping function of accounting—that are designed to prevent
errors and fraud. Two examples of internal controls are (1) requiring a
second signature by someone higher in the organization to approve a
transaction in excess of a certain dollar amount and (2) giving customers
printed receipts as proof of sale. Other examples of internal
control procedures are restricting entry and exit routes of employees,
requiring all employees to take their vacations and assigning another
person to do their jobs while they are away, surveillance cameras, surprise
counts of cash and inventory, and rotation of duties. Internal controls
should be cost-effective; the cost of a control should be less than
the potential loss that is prevented. The guiding principle for designing
internal accounting controls is to deter and detect errors and dishonesty.
The best internal controls in the world cannot prevent most fraud
by high-level managers who take advantage of their positions of trust
and authority.
management control
This is difficult to define in a few words—indeed, an
entire chapter is devoted to the topic (Chapter 17). The essence of management
control is “keeping a close watch on everything.” Anything can
go wrong and get out of control. Management control can be thought of
as the follow-through on decisions to ensure that the actual outcomes
happen according to purposes and goals of the management decisions
that set things in motion. Managers depend on feedback control reports
that contain very detailed information. The level of detail and range of
information in these control reports is very different from the summarylevel
information reported in external income statements.
control chart
a graphical presentation of the results of a
specified activity; it indicates the upper and lower control
limits and those results that are out of control
controllable cost
a cost over which a manager has the ability to authorize incurrence or directly influence magnitude
controllable variance
the budget variance of the two variance approach to analyzing overhead variances
controller
the chief accountant (in a corporation) who is responsible
for maintaining and reporting on both the cost
and financial sets of accounts but does not handle or negotiate
changes in actual resources
controlling
the process of exerting managerial influence on
operations so that they conform to previously prepared plans
cost control system
a logical structure of formal and/or informal
activities designed to analyze and evaluate how well
expenditures are managed during a period
internal control
any measure used by management to protect
assets, promote the accuracy of records, ensure adherence
to company policies, or promote operational efficiency;
the totality of all internal controls represents the
internal control system
management control system (MCS)
an information system that helps managers gather information about actual organizational occurrences, make comparisons against plans,
effect changes when they are necessary, and communicate
among appropriate parties; it should serve to guide organizations
in designing and implementing strategies so that
organizational goals and objectives are achieved
noncontrollable variance
the fixed overhead volume variance;
it is computed as part of the two-variance approach to overhead analysis
quality control
the implementation of all practices and policies
designed to eliminate poor quality and variability in the
production or service process; it places the primary responsibility
for quality at the source of the product or service
statistical process control (SPC)
the use of control techniques that are based on the theory that a process has natural variations in it over time, but uncommon variations
are typically the points at which the process produces "errors", which can be defective goods or poor service
controller
Officer responsible for budgeting, accounting, and auditing.
Wage/Price Controls
An incomes policy in which wages and prices are constrained by law not to rise by more than a specified percentage.
Immigration Reform and Control Act of 1986
A federal Act requiring all employers having at least four employees to verify the identity and employment
eligibility of all regular, temporary, casual, and student employees.
Configuration control
Verifying that a delivered product matches authorizing
engineering documentation. This also refers to engineering changes made subsequent
to the initial product release.
Cutoff control
A procedure for ensuring that transaction processing is completed
before the commencement of cycle counting.
Shelf life control
Deliberate usage of the oldest items first, in order to avoid exceeding
a component or product’s shelf life.
Visual control
The visual inspection of inventory levels, enabled by the use of
designated locations and standard containers.
CARs (cumulative abnormal returns)
a measure used in academic finance articles to measure the excess returns an investor would have received over a particular time period if he or she were invested in a particular stock.
This is typically used in control and takeover studies, where stockholders are paid a premium for being taken over. Starting some time period before the takeover (often five days before the first announced bid, but sometimes a longer period), the researchers calculate the actual daily stock returns for the target firm and subtract out the expected market returns (usually calculated using the firm’s beta and applying it to overall market movements during the time period under observation).
The excess actual return over the capital asset pricing model-determined expected return market is called an ‘‘abnormal return.’’ The cumulation of the daily abnormal returns over the time period under observation is the CAR. The term CAR(-5, 0) means the CAR calculated from five days before the
announcement to the day of announcement. The CAR(-1, 0) is a control premium, although Mergerstat generally uses the stock price five days before announcement rather than one day before announcement as the denominator in its control premium calculation. However, the CAR for any period other than (-1, 0) is not mathematically equivalent to a control premium.
fractional interest discount
the combined discounts for lack of control and marketability. g the constant growth rate in cash flows or net income used in the ADF, Gordon model, or present value factor.
Blocked currency
A currency that is not freely convertible to other currencies due to exchange controls.
BONDPAR
A system that monitors and evaluates the performance of a fixed-income portfolio , as well as the
individual securities held in the portfolio. BONDPAR decomposes the return into those elements beyond the
manager's control--such as the interest rate environment and client-imposed duration policy constraints--and
those that the management process contributes to, such as interest rate management, sector/quality allocations,
and individual bond selection.
Buyout
Purchase of a controlling interest (or percent of shares) of a company's stock. A leveraged buy-out is
done with borrowed money.
Convertibility
The degree of freedom to exchange a currency without government restrictions or controls.
Discretionary account
Accounts over which an individual or organization, other than the person in whose
name the account is carried, exercises trading authority or control.
Except for opinion
An auditor's opinion reflecting the fact that the auditor was unable to audit certain areas
of the company's operations because of restrictions imposed by management or other conditions beyond the
auditor's control.
Floor trader
A member who generally trades only for his own account, for an account controlled by him or
who has such a trade made for him. Also referred to as a "local".
Force majeure risk
The risk that there will be an interruption of operations for a prolonged period after a
project finance project has been completed due to fire, flood, storm, or some other factor beyond the control
of the project's sponsors.
Foreign direct investment (FDI)
The acquisition abroad of physical assets such as plant and equipment, with
operating control residing in the parent corporation.
Holding company
A corporation that owns enough voting stock in another firm to control management and
operations by influencing or electing its board of directors.
Look-thru
A method for calculating U.S. taxes owed on income from controlled foreign corporations that
was introduced by the Tax Reform Act of 1986.
Payable through drafts
A method of making payment that is used to maintain control over payments made
on behalf of the firm by personnel in noncentral locations. The payer's bank delivers the payable through draft
to the payer, which must approve it and return it to the bank before payment can be received.
Performance shares
Shares of stock given to managers on the basis of performance as measured by earnings
per share and similar criteria. A control device used by shareholders to tie management to the self-interest of
shareholders.
Policy asset allocation
A long-term asset allocation method, in which the investor seeks to assess an
appropriate long-term "normal" asset mix that represents an ideal blend of controlled risk and enhanced
return.
Proxy contest
A battle for the control of a firm in which the dissident group seeks, from the firm's other
shareholders, the right to vote those shareholder's shares in favor of the dissident group's slate of directors.
Also called proxy fight.
Takeover
General term referring to transfer of control of a firm from one group of shareholder's to another
group of shareholders.
Time premium
Also called time value, the amount by which the option price exceeds its intrinsic value. The
value of an option beyond its current exercise value representing the optionholder's control until expiration,
the risk of the underlying asset, and the riskless return.
RATIO OF DEBT TO STOCKHOLDERS’ EQUITY
A ratio that shows which group—creditors or stockholders—has the biggest stake in or the most control of a company:
(Total liabilities) / (Stockholders’ equity)
Cost centre
A division or unit of an organization that is responsible for controlling costs.
Flexible budget
A method of budgetary control that flexes, i.e. adjusts the original budget by applying standard
prices and costs per unit to the actual production volume.
Unavoidable cost
A cost that cannot be influenced at the business unit level but is controllable at the corporate level.
Variance analysis
A method of budgetary control that compares actual performance against plan, investigates the causes of the variance and takes corrective action to ensure that targets are achieved.
Subsidiary ledger
An accounting record giving the detailed transactions in an account; the subtotals of the debits and credits are posted to the control account maintained in the general ledger. It helps to keep the general ledger free of clutter.
accounting
A broad, all-inclusive term that refers to the methods and procedures
of financial record keeping by a business (or any entity); it also
refers to the main functions and purposes of record keeping, which are
to assist in the operations of the entity, to provide necessary information
to managers for making decisions and exercising control, to measure
profit, to comply with income and other tax laws, and to prepare financial
reports.
financial reports and statements
Financial means having to do with
money and economic wealth. Statement means a formal presentation.
Financial reports are printed and a copy is sent to each owner and each
major lender of the business. Most public corporations make their financial
reports available on a web site, so all or part of the financial report
can be downloaded by anyone. Businesses prepare three primary financial
statements: the statement of financial condition, or balance sheet;
the statement of cash flows; and the income statement. These three key
financial statements constitute the core of the periodic financial reports
that are distributed outside a business to its shareowners and lenders.
Financial reports also include footnotes to the financial statements and
much other information. Financial statements are prepared according to
generally accepted accounting principles (GAAP), which are the authoritative
rules that govern the measurement of net income and the reporting
of profit-making activities, financial condition, and cash flows.
Internal financial statements, although based on the same profit
accounting methods, report more information to managers for decision
making and control. Sometimes, financial statements are called simply
financials.
gross margin, or gross profit
This first-line measure of profit
equals sales revenue less cost of goods sold. This is profit before operating
expenses and interest and income tax expenses are deducted. Financial
reporting standards require that gross margin be reported in
external income statements. Gross margin is a key variable in management
profit reports for decision making and control. Gross margin
doesn’t apply to service businesses that don’t sell products.
profit module
This concept refers to a separate source of revenue and
profit within a business organization, which should be identified for
management analysis and control. A profit module may focus on one
product or a cluster of products. Profit in this context is not the final, bottom-
line net income of the business as a whole. Rather, other measures
of profit are used for management analysis and decision-making purposes—
such as gross margin, contribution margin, or operating profit
(earnings before interest and income tax).
appraisal cost
a quality control cost incurred for monitoring
or inspection; compensates for mistakes not eliminated
through prevention activities
budget variance
the difference between total actual overhead
and budgeted overhead based on standard hours allowed
for the production achieved during the period; computed
as part of two-variance overhead analysis; also
referred to as the controllable variance
centralization
a management style that exists when top management
makes most decisions and controls most activities
of the organizational units from the company’s central headquarters
computer-aided manufacturing (CAM)
the use of computers to control production processes through numerically
controlled (NC) machines, robots, and automated assembly systems
cost center
a responsibility center in which the manager has
the authority to incur costs and is evaluated on the basis
of how well costs are controlled
cost management system (CMS)
a set of formal methods
developed for planning and controlling an organization’s
cost-generating activities relative to its goals and objectives
cost object anything to which costs attach or are related
critical success factors (CSF)
any item (such as quality, customer
service, efficiency, cost control, or responsiveness
to change) so important that, without it, the organization
would cease to exist
defective unit
a unit that has been rejected at a control inspection
point for failure to meet appropriate standards of
quality or designated product specifications; can be economically
reworked and sold through normal distribution channels
environmental constraint
any limitation on strategy options
caused by external cultural, fiscal, legal/regulatory,
or political situations; a limiting factor that is not under the
direct control of an organization’s management; tend to be
fairly long-run in nature
expected standard
standard set at a level that reflects what
is actually expected to occur in the future period; it anticipates
future waste and inefficiencies and allows for them;
is of limited value for control and performance evaluation purposes
failure cost
a quality control cost associated with goods or
services that have been found not to conform or perform
to the required standards as well as all related costs (such
as that of the complaint department); it may be internal or
external
flexible manufacturing system (FMS)
a production system in which a single factory manufactures numerous variations
of products through the use of computer-controlled
robots
focused factory arrangement
an arrangement in which a
vendor (which may be an external party or an internal corporate
division) agrees to provide a limited number of
products according to specifications or to perform a limited
number of unique services to a company that is typically
operating on a just-in-time system
Foreign Corrupt Practices Act (FCPA)
a law passed by U.S. Congress in 1977 that makes it illegal for a U.S. company to engage in various “questionable” foreign payments and
makes it mandatory for a U.S. company to maintain accurate
accounting records and a reasonable system of internal
control
inspection time
the time taken to perform quality control activities
investment center
a responsibility center in which the manager
is responsible for generating revenues and planning
and controlling expenses and has the authority to acquire,
dispose of, and use plant assets to earn the highest rate
of return feasible on those assets within the confines and
to the support of the organization’s goals
ISO 9000
a comprehensive series of international quality standards
that define the various design, material procurement,
production, quality-control, and delivery requirements and
procedures necessary to produce quality products and services
management information system (MIS)
a structure of interrelated elements that collects, organizes, and communicates
data to managers so they may plan, control, evaluate
performance, and make decisions; the emphasis of the
MIS is on internal demands for information rather than external
demands; some or all of the MIS may be computerized
for ease of access to information, reliability of input
and processing, and ability to simulate outcomes of
alternative situations
procurement card
a card given to selected employees as a
means of securing greater control over spending and eliminating
the paper-based purchase authorization process
profit center
a responsibility center in which managers are responsible for generating revenues and planning and controlling all expenses
quality audit
a review of product design activities (although
not for individual products), manufacturing processes and controls, quality documentation and records, and management philosophy
responsibility accounting system
an accounting information system for successively higher-level managers about the performance of segments or subunits under the control
of each specific manager
responsibility center
a cost object under the control of a manager
responsibility report
a report that reflects the revenues and/or costs under the control of a particular unit manager
revenue center
a responsibility center for which a manager is accountable only for the generation of revenues and has no control over setting selling prices, or budgeting or incurring costs
spoiled unit
a unit that is rejected at a control inspection
point for failure to meet appropriate standards of quality
or designated product specifications; it cannot be economically
reworked to be brought up to standard
standard
a model or budget against which actual results are
compared and evaluated; a benchmark or norm used for
planning and control purposes
supply-chain management
the cooperative strategic planning,
controlling, and problem solving by a company and
its vendors and customers to conduct efficient and effective
transfers of goods and services within the supply chain
takeover
the acquisition of managerial control of the corporation
by an outside or inside investor; control is achieved
by acquiring enough stock and stockholder votes to control
the board of directors and management
total quality management (TQM)
a structural system for creating organization-wide participation in planning and implementing a continuous improvement process that exceeds
the expectations of the customer/client; the application
of quality principles to all company endeavors; it is also known as total quality control
volume variance
a fixed overhead variance that represents
the difference between budgeted fixed overhead and fixed
overhead applied to production of the period; is also referred
to as the noncontrollable variance
Consolidation
A summarization of the financial statements of a parent company and
those of its subsidiaries over which it has voting control of common stock.
Merger
The combination of two or more entities into a single entity, usually with one
of the original entities retaining control.
Parent company
A company that retains control over one or more other companies.
Subsidiary company
A company that is controlled by another company through ownership
of the majority of its voting stock.
chief financial officer (CFO)
Officer who oversees the treasurer and controller and sets overall financial strategy.
Central Bank
A public agency responsible for regulating and controlling an economy's monetary and financial institutions. It is the sole money-issuing authority.
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