ACCA F1 Course Notes PDF
ACCA F1 Course Notes PDF
ACCA F1 Course Notes PDF
CHAPTER 1
There are different types of organisations, all of which, whether they are profit or
non-profit must concentrate on coordinating the above 3 points (Social Arrangement,
Collective Goals and Control of Performance).
A company goal can only become possible if it is SMART. This is a mnemonic which
stands for:
S – Specific
M – Measurable
A – Attainable
R – Realistic
T – Time based
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1.2 ACCA SYLLABUS GUIDE OUTCOME 2
DESCRIBE THE COMMON FEATURES OF BUSINESS ORGANISATIONS
made up by a group of people who work together for the achievement of set
goals – different people do different things or specialise in one activity
have business strategies to achieve goals/objectives
have a vision and a mission
have a culture which is formed by the organisational values
have structures (such as department, teams and divisions) and a sound
system i.e. systems and procedures
have inputs which are processed and provide an output
have customers besides other stakeholders
Industrial sector includes companies that manufacture parts as well as those that
assemble them into finished products. A number of specific industries fall under the
industrial umbrella, including automotive, aeronautics (aircraft building), textiles,
pharmaceutics, bioengineering and metal casting. Food refineries and packagers
generally fall under the industrial category because of the types of facilities
necessary for production.
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Commercial private sector industries are additionally subdivided in two ways. The
first is how they sell their product. Commercial industries who sell goods to the
general public are called retailers. This includes traditional outlets such as grocery
stores, specialty shops, department stores and drug stores, but also includes online
outlets such as online clothing stores or online book sellers.
Some commercial private sector industries buy from manufacturers and sell to
retailers. These corporations are called wholesalers. Not all commercial industries
involve wholesalers. In some cases, the retailer can buy directly from the
manufacturer. Industries that commonly use wholesalers include manufactured office
supplies and home goods.
Business organisations come in all different shapes and sizes including sole traders,
partnerships and LTD. A Limited company has a separate legal personality from its
owners (shareholders). The latter cannot normally be sued for the debts of the
business unless they have given some personal guarantee. Their risk is generally
restricted to the amount that they have invested in the company when buying the
shares (limited liability).
The owners of a limited company are shareholders. They provide capital and receive
return. Directors are appointed by shareholders to run the company. Executive
directors participate in the daily operations of the organisation and non-executive
directors are invited to join in an advisory capacity to exercise overall guidance.
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1.5.3 Public Sector
Public Sector organisations are owned or run by the government. They are funded
by and accountable to the government. A major challenge that any government
faces is that of balancing their limited resources with a huge demand for public
services.
Hospitals
Armed Forces
Centrally funded agencies
Most schools & Universities
Government Departments
1.5.5 Co-operatives
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KEY POINTS
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1. Objectives or goals must be identified by top managers in a SMART way.
S – specific
M – measurable
A – attainable
R – realistic
T – time based
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QUESTION BANK
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Question 1
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The primary goal in non-profit organisations is the
A. maximisation of profits
B. reward to its employees
C. shareholders' wealth
D. provision of goods/services
Question 2
A. Bank
B. Hospital
C. ACCA
D. Government Department
Question 3
Question 4
Question 5
A. Non-executive directors
B. Stakeholders
C. Shareholders
Question 6
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Which of the following is one of the key aspects of Buchanan and Huczynski's
definition of an organisation?
A. Shared profits
B. Regular reporting
C. Controlled performance
D. Clearly defined structure
Question 7
Which of the following does not fall within the definition of an organisation given by
Buchanan and Huczynski:
A. service companies
B. factories
C. retail companies
D. political parties
E. shareholders in a quoted company
F. charities
G. local councils
H. the army, navy and air force
I. schools
Question 8
How can a business organisation differ from one another? Which one is False
A. Size
B. Technology
C. Have inputs which are processed and provide an output
D. Ownership
Question 9
A. Central Government
B. Local Government
C. Government agencies
D. None of the above.
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ANSWER BANK
1. D
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2. C – A bank is a commercial organisation, government departments fall under
public sector and a hospital can either be private or public.
6. C
7. E
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STAKEHOLDERS IN BUSINESS
ORGANISATIONS
Internal stakeholders
External stakeholders
Connected stakeholders
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2.2 ACCA SYLLABUS GUIDE OUTCOME 2 AND 3
DEFINE INTERNAL, CONNECTED AND EXTERNAL STAKEHOLDERS
AND EXPLAIN THEIR IMPACT ON THE ORGANISATION
IDENTIFY THE MAIN STAKEHOLDER GROUPS AND THE OBJECTIVES
OF EACH GROUP
Employees
Management
Their interests to defend are jobs / careers, money, promotion prospects and
benefits.
External stakeholders have quite diverse objectives and have varying ability to
ensure that the organisation meets its objectives. Some examples of external
stakeholders may include:
Community at large
Environmental pressure groups – pollution etc.
Government – interested in tax and employment opportunities
Trade unions – interested in protecting their members.
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2.3 ACCA SYLLABUS GUIDE OUTCOME 4
EXPLAIN HOW THE DIFFERENT STAKEHOLDERS GROUPS INTERACT
AND HOW THEIR OBJECTIVES MAY CONFLICT WITH ONE ANOTHER
STAKEHOLDERS CONFLICT
By plotting each stakeholder according to the power they have over the organisation
and the interest they have in a particular decision, the dominant stakeholder(s), i.e.
the key players can be identified. The needs of the key players must be considered
during the formulation and evaluation of new strategies. Although the other
stakeholders, besides the key players, may be fairly passive, the managers must be
aware that stakeholder groups can emerge and move from quadrant to quadrant as
a result of specific events, so changing their position in the matrix.
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Potential examples
Power within organisations can be derived in a variety of ways, any of which may
provide an avenue whereby the expectations of an individual or group may influence
company strategies. The following are the normally recognised sources of power:
1. Hierarchy
2. Influence
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KEY NOTES
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organisation does, or an expectation of the organisation.
a. Internal
b. External
c. Connected
3. Internal Stakeholders
4. Connected Stakeholders
5. External Stakeholders
External stakeholders have quite diverse objectives and have varying ability to
ensure that the organisation meets its objectives. E.g. community at large,
environmental pressure groups, government and trade unions.
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QUESTION BANK
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Question 1
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Which of the following would not be described as a connected stakeholder?
A. shareholders
B. customers
C. suppliers
D. managers
Question 2
A. true
B. false
Question 3
If a stakeholder has low interest but high power, then according to Mendelow's matrix
the strategy management should follow in relation to that stakeholder is:
A. minimal effort
B. keep satisfied
C. keep informed
D. fully consider the stakeholder, I.e. a key player
Question 4
A. customer
B. supplier
C. trade union
D. competitor
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ANSWER BANK
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2. A – This can happen as a result of specific events / outcomes.
3. B
CHAPTER 3
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POLITICAL AND LEGAL FACTORS AFFECTING
BUSINESS
The main components that an organisation should study in order to carry out an
external analysis (PEST analysis) are:
Political environment/ Legal environment
Economical environment/ Demographics
Social environment / Environmental environment
Technological environment
1. Simplicity vs Complexity
2. Stability vs Dynamism
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government and policies will affect a society as a whole and will definitely influence
the operations of a market.
Laws come from a number of sources. Common law, parliamentary and government
regulations are derived from it. The legal environment affects all companies, for
example:
Factors Examples
General legal framework Basic ways of doing business, negligence
Criminal law Theft, insider dealing, bribery, deception
Company law Directors & their duties, reporting requirements
Employment law Dismissal, minimum wage, equal opportunities
Health & Safety law Fire precautions, safety procedures
Data protection Use of information about employees/customers
Marketing & Sales Laws to protect consumers
Environment Pollution control, waste disposal
Tax law Corporation tax, income tax, sales tax
SUPRA- NATIONAL
United Nations resolutions (can be either substantive or procedural)
International Court of Justice
Other international agreements that apply to signatories (e.g. The World Trade
Organisation sets rules on trade between member states)
European Parliament
European Courts
NATIONAL
National Governments through Acts of Parliament
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Senior Courts (e.g. House of Lords in UK, The Supreme Court in the USA)
Other major courts through the principles of case law and the setting of
precedents
REGIONAL
Regional/Federal Government (e.g. Welsh assembly in the UK, State
Government in the USA)
Local councils can issue by-laws in many countries (a law that is less
important than a general law or constitutional provision)
3.3.1 Retirement
In the UK, many employees are taking early retirement perhaps as a result of
corporate downsizing but many people still search for work at an older age and there
are pressure groups seeking to ban ageism.
3.3.2 Resignation
People resign for many reasons, personal and occupational. Employees who are
particularly valuable should be encouraged to stay. Particular problems the
employee has been experiencing (example salary) may be solvable, though not
always in the short term. In any case, an exit interview, when the leaver explains the
decision to go, is a valuable source of information.
3.3.3 Dismissal
There are 3 forms of dismissal, by employer, by the employee and a fixed contract
without renewal. The statutory minimum period of notice to be given is determined
by the employee’s length of continuous service in the employer’s service.
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3.4 ACCA SYLLABUS GUIDE OUTCOMES 4
DENTIFY THE PRINCIPLES OF DATA PROTECTION AND SECURITY
There has been a growing concern that the ever-increasing amount of information
about individuals held by organisations could be misused. The fear was that by the
existence of computerised data about an individual, whether correct or incorrect,
could be transferred to unauthorised third parties at high speed and little cost.
In the UK, the current legislation covering that area is the DATA PROTECTION
ACT 1998
The Act has two main aims: (1) to protect individual privacy (and not that of
organizations) (2) to harmonise date protection legislation
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There are several possible risks to data at the place of work. These include:
1. Human error
2. Technical error
3. Catastrophic error
4. Malicious damage
5. dishonesty
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3.6 ACCA SYLLABUS GUIDE OUTCOME 6
RECOGNISE THE RESPONSIBILITY OF THE INDIVIDUAL AND
ORGANISATION FOR COMPLAINCE WITH LAWS ON DATA
PROTECTION, SECURITY AND HEALTH & SAFETY
People should be able to be confident that they will not be exposed to excessive risk
when they are at work. This means that risk and danger must be actively managed.
This is the main reason why security has become so important in today's world.
Data is protected by secured information technology apart from being secured by
law.
The employee also has responsibilities when it comes to health and safety at work.
Consumer protection laws are designed to ensure fair trade competition and the
free flow of truthful information in the marketplace. The laws are designed to prevent
businesses that engage in fraud or specified unfair practices from gaining an
advantage over competitors and may provide additional protection for the weak and
those unable to take care of themselves. Consumer Protection laws are a form of
government regulation which aim to protect the rights of consumers.
Unfair Contract Terms Act 1977 is an act of Parliament of the United Kingdom
which regulates contracts by restricting the operation and legality of some contract
terms. They are intended to provide broad protection for consumers, and business
practices which are likely to distort consumers' decisions regarding their purchases
generally fall within this act. Certain kinds of unfair term can have that distorting
effect, for instance through misleading consumers about their rights.
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Under contract law, the money you give in exchange for the goods is referred to as
the “consideration”. For a contract to take place there must be agreement between
the parties. This requires an offer made by one party and acceptance by the other
party.
An important point about contracts is that they do not have to be written. They do
not even have to be spoken. A customer picking up something in a supermarket and
walking to the checkout is making an offer to the shop, and that offer is implied by
his behaviour.
When one party to a contract fails to carry out his part of the agreement, the other
party can take legal action against him for breach of contract. So if a business has
a customer who is failing to pay, they can take him to court.
When one party makes a misrepresentation to the other, the contract is void.
The Sale of Goods Act 1979 is an act of the Parliament of the United Kingdom
which regulates English contract law and UK commercial law in respect of goods that
are sold and bought. The Sale of Goods Act performs several functions. The Act lays
down a small number of compulsory legal rules, but these restrictions are minimal:
the bulk of the Act is concerned with an array of presumptions and implied terms,
which aim to reflect the commercial expectations in the most commonly agreed sales
contracts. In the absence of contrary agreement these terms will govern a contract
within the Act's remit. The Act applies to contracts where ownership of goods is
transferred or agreed to be transferred for a monetary.
Imagine you are about to enter into a contract for the purchase of some goods.
What might you be concerned about?
You may want the goods delivered for a particular occasion or date
Are the goods stolen, i.e. does the seller have a right to sell the goods?
You would expect the goods to be the same type and quality as the
description or any sample
The goods should be reasonable quality and suitable for their purpose
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KEY POINTS
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1. An external analysis or PEST analysis includes:
P olitical
E conomical
S ocial
T echnological
2. Some laws generated from the Political environment and that may affect an
organisation includes:
Criminal Law
Company Law
Employment Law
Health & Safety Law
Data Protection Law
Laws regarding the Environment
Tax Law
3.
Privacy is the right of the individual to control the use of information about him or
her, including information on financial status; health and lifestyle (ie prevent
unauthorised disclosure).
4.
5. Under contract law, the money you give in exchange for the goods is referred
to as the “consideration”.
6. For a contract to take place, there must be agreement between the parties.
This requires an offer made by one party and acceptance by the other party.
8. When one party to a contract fails to carry out his part of the agreement, the
other party can take legal action against him for breach of contract.
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10. When someone is about to buy something there are things to consider and
so does the law; date, does the seller have a right to sell the goods,
quality as the description, reasonable quality and suitable for their
purpose
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QUESTION BANK
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Question 1
Which of the following types of new legislation would provide greater employment
opportunities in large companies?
Question 2
Which set of environmental factors does a lobby group intend to directly influence?
A. Political
B. Technological
C. Demographic
D. Economic
Question 3
When examining the external environment organisations might use PEST analysis.
What does PEST stand for?
Question 4
A. Internal analysis
B. Micro analysis
C. External analysis
D. Macro analysis
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Question 5
Governments can influence firms through legislation and policy decisions in all
sections of the economy including Law and Order, Schools, Construction, Defense,
Town Planning, Oil, Gas, Coal and Nuclear Power, Agriculture, Planning Permission
and Foreign Policy
Question 6
Question 7
Peter Wong was dancing on his desk one lunch time and tripped, injuring himself.
Who is responsible for the accident?
A. Peter
B. Peter's employer
C. Both Peter and his employer
Question 8
Which type of organisation would have the retail prices it charges to personal
consumers subject to close scrutiny by a regulator?
A. A multinational corporation
B. A multi-divisional conglomerate (a large corporation that has acquired several
other firms engaged in different industries)
C. A national utilities company (national or local monopolies)
D. A financial services provider
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Question 9
A. True
B. False
Question 10
A. All private individuals and corporate entities on whom only regulated data is held
B. All private individuals on whom only regulated data is held
C. All private individuals on whom any data is held
D. All private individuals and corporate entities on whom any data is held
Question 11
Question 12
Personal data shall be accurate and, where necessary, kept up to date. Does this
statement comply with Data Protection Act (UK)?
A. Yes
B. No
Question 13
The process of backing up data and keeping copies off-site in a fire-proof box is an
example of data protection?
A. True
B. False
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Question 14
An employee does not have an obligation to comply with the health & safety act – it
is only the obligation of the employer.
A. True
B. False
Question 15
Jack started a new job today. He is 16 years of age and has no intention to continue
his studies. This is his first job with a building contractor. At 7am sharp he was at
the plant hoping to have some explanation regarding this job. None of the sort
happened, he found himself at a construction site with some other older colleagues
in less than half an hour. At around 3.30pm his boss arrived on site and started
shouting at him since he was not wearing neither a safety shoes nor a helmet. To
make it worse, none of the other employees were wearing such equipment though
they had been instructed by the company in various occasions.
A. Jack
B. The other employees
C. The employer
Section B: As regards to the other employees' case – who is the one to be blamed?
A. Jack
B. The other employees
C. The employer
Question 16
Peter buys an electronic keyboard from his local catalogue store. He pays €199 for
it. He returns to the store the next day complaining that, although the main keys
work, none of the pre-set rhythm bottoms seem to function. He demands an
immediate refund. The sales assistant refuses to give him a refund or take back
the goods, and instead gives him a card with the name and address of the
manufacturer, suggesting that Peter contacts them to obtain a refund or a
replacement.
(a) Was the sales assistant legally justified in refusing to give a refund (Y/N)
(b) Give briefly a reason for your answer
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Question 17
A. True
B. False
Question 18
A. Mining
B. Subject
C. Figure
Question 19
Under which component of PEST analysis would an organisation analyse the media
through which segments of the youth market access new digital music products?
A. Political
B. Economic
C. Social
D. Technological
Question 20
Health and safety regulations cover a range of workplace health and safety issues.
Which of the following is covered by regulations?
A. Handling of chemicals
B. Computers
C. Pregnancy
D. All of the above
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ANSWER BANK
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1. B
3. D
4. C
5. A
6. B
7. A – each and every employee is responsible for his/her health and safety
8. C
9. A
11. B
12. A
13. B
14. B
16. Section A – No / Section B – Contracts of sale are between the buyer and
seller, not between the buyer and the manufacturer
18. B
20. D
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CHAPTER 4
MACRO-ECONOMIC FACTORS
Each of the above questions involve a central macroeconomic concept that affect the
factors of production – land, labour, capital and entrepreneurship. The basic task of
macroeconomics is to study the behaviour of the policy objectives, namely economic
growth, inflation, unemployment and balance of payments and why each matter to
individuals and what the government can do (if anything) to improve macroeconomic
performance.
Thus, one can say that the study of economics can be divided into two –
macroeconomics and microeconomics. Macroeconomics considers aggregate
behaviour, and the study of the sum of individual economic decisions.
Microeconomics is the study of the economic behaviour of individual consumers,
firms and industries.
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4.2 ACCA SYLLABUS GUIDE OUTCOME 2
EXPLAIN THE MAIN DETERMINANTS OF THE LEVEL OF BUSINESS
ACTIVITY IN THE ECONOMY AND HOW VARIATIONS IN THE LEVEL OF
BUSINESS ACTIVITY AFFECT INDIVIDUALS, HOUSEHOLDS AND
BUSINESSES
The economy is rarely in a stable state because of the various changing factors
which influence it. An interesting factor is the multiplier. A multiplier is basically a
factor of proportionality that measures how much an X variable changes in response
to a change in some Y variable.
1. Confidence
When consumers are confident, they tend to demand more whilst higher
business confidence results in higher investment. Confidence is generally put
at a threat when there is political instability, disasters, unemployment and high
inflation.
2. Aggregate Demand
AD = C + I + G + X – M
AD – Aggregate Demand
C – Consumer Spending
I – Investment by firms
G – Government Spending
X – Demand for exports
M – Imports
Balance of Payments
Trade in goods
Trade in services
Income
Transfers.
When journalists on economists speak of the balance of payments they are usually
referring to the deficit or surplus on the current account.
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a) A depreciation of the currency known as devaluation
b) Direct measures to restrict imports, such as tariffs or import quotas or
exchange control regulations
c) Domestic deflation to reduce aggregate demand in the domestic economy
The first two are expenditure switching policies which transfer resources and
expenditure away from imports and towards domestic products while the last is an
expenditure reducing policy.
3. Capital - If firms raise their finance it will result in higher levels of investment.
Lower interest rates will make capital cheaper.
Most developing countries have economies based largely on exports that are
competitive in global markets because of low prices. A case in point nowadays is
China. When those countries’ currency gains in value, they are no longer able to
offer exports to the global market at the same low prices that they planned to. This
may cause importers (of other countries) to look elsewhere, to countries with lower
valued currency resulting in better prices. It may also be the case that the importers
will start ordering less from the said country having an appreciating currency.
Currency appreciation at home means that money made elsewhere won’t stretch as
far in supporting the domestic economy
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4.3 ACCA SYLLABUS GUIDE OUTCOME 3
EXPLAIN THE IMPACT OF ECONOMIC ISSUES ON THE INDIVIDUAL,
THE HOUSEHOLD AND THE BUSINESS
4.3.1 Inflation
The inflation rate is the percentage rate of increase in the economy's average level
of prices. A high inflation rate means that prices on average are rising rapidly, while
a low inflation rate means that prices on average are rising slowly. In inflationary
periods, retired people or those about to retire are those of the biggest losers since
their hard-earned savings will buy less and less as prices go up. While a high
inflation rate harms those who have saved in the past, it helps those who have
borrowed. It is this capricious aspect of inflation, taking from some and giving to
others, that makes people dislike inflation. People want their lives to be predictable,
but inflation throws a monkey wrench into individual decision making, creating
pervasive uncertainty.
One important measure of the general rate of inflation in the UK used over many
years has been the Retail Price Index (RPI). The RPI measures the percentage
changes month by month in the average level of prices of the commodities and
services, including housing costs, purchased by the great majority of households in
the UK. The items of expenditure within the RPI are intended to be a representative
list of items, current prices for which are collected at regular intervals.
Demand pull inflation arises from excess demand over productive capacity of the
economy. It is a situation when demand exceeds supply and prices rise. Demand
pull inflation only exists when unemployment is low.
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Considering the case scenario in the graph above, P1, that is price 1 was the original
price when national income was Y1. When demand pull takes place, the curve AD1
shifts to AD2 since demand increases (too much money chasing too few goods). As
a result, P1 increases to P2 reflecting inflation and Y1 increases to Y2 reflecting an
increase in national income.
When P1 decreases to P3, that means that demand decreased, shifting AD1 to AD3
resulting in a decrease in national income from Y1 to Y3.
In a situation when inflation is rising, demand side policy which is controlled by the
government would focus on reducing aggregate demand through tax rise, cuts in
government spending and higher interest rates. This is done in an effort to
regularise inflation to control it from continuing to rise.
Cost-push inflation
Imported inflation
Cost of import rises regardless of whether there is a high demand for supply, for
example, an increase in oil prices. The same explanation sticks from point no. 2
case scenario.
Monetary inflation
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in the money supply is a symptom of inflation. What happens is that the more supply
in money, the more people will buy thus demand will increase. As a result, if this
increase in demand occurs faster than the expansion in the supply of goods and
services, then, inflation will take place. Monetarists (supply side view) argue that a
good tool to fight such inflation is to decrease the supply of money and increase
interest rates.
Expectations effect
Once inflation has started to rise, there may be “expectational inflation”, that is,
people will start expecting inflation to rise even higher. A general held view of future
inflation therefore, sets for example, wages accordingly. This is known as the wage-
price spiral.
4.3.3 Unemployment
Unemployment rate is the number of jobless individuals who are actively looking for
work divided by the total of those employed and unemployed.
The higher the overall unemployment rate, the harder it is for each individual who
wants to find work. Everyone fears a high unemployment since it raises the chances
that they will be laid off from their present work, will be unable to pay their bills etc.
Category Comments
Real wage Caused when the supply of labour exceeds demand but real wages
unemployment do not fall. Caused by strong trade unions which resist a fall in wages.
Abolishing (put an end to) closed shop agreements and minimum
wage regulations are policies which may be directed at reducing real
wage to market clearing levels.
Frictional Difficulty in matching quickly workers with jobs. Possibly caused by
lack of knowledge of job opportunities. Usually temporary
Seasonal Especially in certain trades as farming etc
Structural Occurs during long-term change in conditions. For example, a long-
term change in a community that relies on one particular industry
Technological A form of structural that occurs then new technology arises.
Cyclical or Matches economic climate trends such as boom, decline, recession
demand- and recovery. Demand for labour fluctuates as demand rises and falls
deficient
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4.3.5 Stagnation or Stagflation
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DESCRIBE THE MAIN TYPES OF ECONOMIC POLICY THAT MAY BE
IMPLEMENTED BY GOVERNMENT AND SUPRA-NATIONAL BODIES
TO MAXIMISE ECONOMIC WELFARE
RECOGNISE THE IMPACT OF FISCAL AND MONETARY POLICY
MEASURES ON THE INDIVIDUAL, THE HOUSEHOLD AND
BUSINESSES
Expenditure
The government spends money both nationally and regionally on such
things as health services, educational, roads, policing. It also provides
commercial incentives to the private sector through grants.
Revenues
To spend the money on public services the government needs an
income. The majority of the income comes from taxes although some
come from direct charges like National Health Service charges. A
regressive tax takes a higher proportion of a poor person’s salary than
a rich person’s. Example - road tax. A proportional tax takes the same
proportion of income in tax from all levels of income. A progressive tax
takes a higher proportion of income in tax as income rises. Example –
Income tax.
Borrowing
Should a governments’ spending exceed its income then it must
borrow. The amount it must borrow is known as the PUBLIC SECTOR
NET CASH REQUIREMENT (PSNCR). This has a profound effect of
the fiscal policy as a whole.
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Should the government use its fiscal policy to influence demand in the
economy then it needs to choose either expenditure changes or tax changes,
as its policy instruments, or a combination of both. The government could:
When the government is running a budget deficit it means that total public
expenditure exceeds revenue. As a result, the government has to borrow
through the issue of government debt. If the government sector is taking in
more revenue than it is spending, there is a budget surplus allowing the
government to repay some of the accumulated debt, of perhaps cut the
burden of tax or raise government expenditure.
Monetary Policy looks at the supply of money, the monetary system, interest
rates, exchange rates and the availability of credit. All of which are highly
important to organisations, households and individuals. Businesses can be
affected by governments' taxation policies outlined within the fiscal policy
AND equally affected by high interest rates set out within the monetary policy.
In the UK, the ultimate objective of monetary policy in recent years has been
principally to reduce the rate of inflation to a sustainable low level. The
intermediate objectives of monetary policy have related to the level of interest
rates, growth in the money supply, the exchange rate of sterling, the
expansion of credit and the growth of national income.
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May cause erratic (sudden) interest rates
Time lag. It takes time to cut government spending!
Time lag before control over money supply alters expectations
There are few reasons why the exchange rate plays an important part of the
monetary policy
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4.4.7 Monetary & Fiscal Policy
____________________________________________________________________
51
_____________________________________________________________
KEY POINTS
__________________
____________________________________________________________________
52
1. Macroeconomics considers aggregate behaviour, and the study of the
sum of individual economic decisions.
8. Those who lend are the ones that tend to loose when inflation takes
place (considering no interest is charged). Thus, those who borrow
are the ones that benefit from inflation cause the purchasing power
today is greater than when the money is returned to the lender.
____________________________________________________________________
53
9. Causes of inflation:
demand pull
cost push
imported
monetary
expectational
____________________________________________________________________
54
_____________________________________________________________
QUESTION BANK
__________________
Question 1
____________________________________________________________________
55
Which of the following is not an objective of macroeconomic policy?
A. Economic growth
B. Control of inflation
C. Lower levels of taxation
D. A balanced balance of payments
Question 2
A. Area
B. Machinery
C. Fixed assets
D. Land
Question 3
Which of the following is not one of the four macroeconomic policy objectives
of governments?
A. economic growth
B. inflation
C. unemployment
D. balance of trade
Question 4
A. Savings
B. Taxation
C. Investment
Question 5
A. True
B. False
____________________________________________________________________
56
Question 6
Which one of the following would cause a fall in the level of aggregate
demand in an economy?
Question 7
You are the Finance Director for ADC Co. Ltd., which is the Maltese agent for
BMW cars. In the last 6 months the mother company has experienced
substantial increases in the prices. As a result the cost per car to ADC Ltd.,
has increased drastically. What will you do in this case?
A. Stop importing
B. Increase prices
C. Keep the prices constant
D. Decrease prices
Question 8
____________________________________________________________________
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Question 9
A. Structural
B. Cyclical
C. Frictional
D. Marginal
Question 10
In an economic environment of high price inflation, those who owe money will
gain and those who are owed money will lose.
A. True
B. False
Question 11
Question 12
____________________________________________________________________
58
Question 13
Question 14
Question 15
____________________________________________________________________
59
Question 16
Northland, Southland, Eastland and Westland are four countries of Asia. The
following economic statistics have been produced for the year 2007.
A. Northland
B. Southland
C. Eastland
D. Westland
Question 17
A. Frictional
B. Structural
C. Cyclical
D. Seasonal
Question 18
Which of the following would cause a fall in the level of aggregate demand in
an economy?
____________________________________________________________________
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Question 19
A. an increase in taxation
B. an increase in interest rates
C. an increase in personal savings
D. an increase in public expenditure
Question 20
Question 21
A. True
B. False
Question 22
Which of the following are the likely consequences of a fall in interest rates?
Question 23
A. True
B. False
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Question 24
Question 25
Question 26
A. levels of immigration
B. rising stock markets
C. exchange rate movements
D. levels of unemployment
Question 27
Fiscal policy refers to the level of public expenditure and to the raising of that
expenditure via taxation; it is usually understood with the context of which of
the following:
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Question 28
Question 29
Question 30
A tax which takes a higher proportion of a poor person’s salary than a rich
person’s is:
A. proportional tax
B. regressive tax
C. progressive tax
D. indirect tax
Question 31
High rates of personal income tax are thought to have a disincentive effect.
This refers to the likelihood that the high rates of tax will:
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Question 32
The government of Malta decides to introduce a new tax, which will involve a
flat rate levy of €300 on every adult of the population. This new tax can be
described as:
A. regressive
B. proportional
C. progressive
D. ad valoren.
Question 33
Which of the following will not be the immediate purpose of a tax measure by
government?
Question 34
Other things remaining equal, an increase in the money supply will tend to
reduce
A. Interest rates
B. The volume of bank overdrafts
C. Liquidity preference
D. Prices and incomes
Question 35
Which of the following is not likely to result from a fall in the exchange rate?
A. A stimulus to exports
B. An increase in the costs of imports
C. Reducing demand for imports
D. A reduction in the rate of domestic inflation.
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_____________________________________________________________
ANSWER BANK
__________________
65
1. C – taxation is a tool not an object
2. D
3. D
4. C
5. A
7. B
8. C
9. A
10. A
11. D
12. B
13. A
14. C
15. A
16. A
17. B
18. C
19. D
20. B
21. B
22. C
23. A
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25. C
26. C
27. D
28. A
29. A
30. B
34. A
35. D – a fall in exchange rate will make it more attractive for importers in
another country and more expensive to import locally. It will also
reduce the rate of domestic inflation.
67
CHAPTER 5
5.1.1 Microeconomics
Microeconomics looks into the individual people and firms within the
economy. It tends to be more scientific in its approach than macro
economics. Analyzing certain aspects of human behavior (including groups
and organizations that have a two-way operation relationship with the
business), microeconomics shows how individuals and firms respond to
changes in price and why they demand what they do at particular price levels.
Utility is the word used to describe the satisfaction or benefit a person gets
from the consumption of goods. Total utility is the total satisfaction that people
derive from spending their income and consuming goods. Marginal utility is
the satisfaction gained from consuming one additional unit of a good or the
satisfaction forgone by consuming one unit less.
68
4. Various sociological factors – creates a shift in the demand curve
5. The consumer’s tastes – creates a shift in the demand curve
A basic economic hypothesis is that the lower the price of a product, the
larger the quantity that will be demanded, other things being equal. This in
fact reflects a downward sloping curve as in below diagram.
A, B and C are points on the demand curve. Each point on the curve reflects
a direct correlation between quantities demanded (Q) and price (P). So, at
point A, the quantity demanded will be Q1 and the price will be P1, and so on.
The demand relationship curve illustrates the negative relationship between
price and quantity demanded. The higher the price of a good the lower the
quantity demanded (A), and the lower the price, the more the good will be in
demand (C).
The amount of a product that firms are able and willing to offer for sale is
called quantity supplied. Supply is a desired flow; how much firms are
willing to sell per period of time, not how much they actually sell.
The quantity of any product that firms will produce and offer for sale is
positively related to the product’s own price, rising when price rises and
falling when price falls. This in fact reflects an upward sloping curve as in
below diagram.
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A, B and C are points on the supply curve. Each point on the curve reflects a
direct correlation between quantities supplied (Q) and price (P). At point B,
the quantity supplied will be Q2 and the price will be P2, and so on.
5.1.4 Equilibrium
When supply and demand are equal (i.e. when the supply function and
demand function intersect) the economy is said to be at equilibrium. At this
point, the allocation of goods is at its most efficient because the amount of
goods being supplied is exactly the same as the amount of goods being
demanded. Thus, everyone is satisfied with the current economic condition.
At the given price, suppliers are selling all the goods that they have produced
and consumers are getting all the goods that they are demanding .
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5.2 ACCA SYLLABUS GUIDE OUTCOME 2
EXPLAIN ELASTICITY OF DEMAND AND THE IMPACT OF SUBSTITUTE
AND COMPLEMENTARY GOODS
If Pizza Hut raises its prices by ten percent, what will happen to its revenues?
The answer depends on how consumers will respond. Will they cut back
purchases a little or a lot? This question of how responsive consumers are to
price changes involves the economic concept of elasticity.
Since demand usually increases when the price falls, and decreases when
the price rises, elasticity has a negative value. However it is usual to ignore
the minus sign and just describe the absolute value of the coefficient.
Example
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Price elasticity of demand is considered to be elastic. When the answer is
greater than 1 (ignore the minus sign).
1. Number of close substitutes within the market - The more (and closer)
substitutes available in the market the more elastic demand will be in
response to a change in price. In this case, the substitution effect will be quite
strong.
Demand for a good is income elastic if income elasticity is greater than 1 and
it is inelastic between 0 and 1.
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Cross elasticity involves a comparison between two products. The concept is
a useful one in the context of considering substitutes and complementary
products.
The short run is a period of time in which the quantity of at least one input is
fixed and the quantities of the other inputs can be varied. The long run is a
period of time in which the quantities of all inputs can be varied. There is no
fixed time that can be marked on the calendar to separate the short run from
the long run. The short run and long run distinction varies from one industry
to another."
The long run is associated with the long run average cost (LRAC) curve in
microeconomic models along which a firm would minimize its average cost
(cost per unit) for each respective long-run quantity of output. Long run
marginal cost (LRMC) is the added cost of providing an additional unit of
commodity from changing capacity level to reach the lowest cost associated
with that extra output. The concept of long-run cost is also used in
determining whether the long-run is expected to induce the firm to remain in
the industry or shut down production.
The long run is a planning and implementation stage. Here a firm may decide
that it needs to produce on a larger scale by building a new plant or adding a
production line. The firm may decide that new technology should be
incorporated into its production process. The firm thus considers all its long-
run production options and selects the optimal combination of inputs and
technology for its long-run purposes.
Long-run decisions are risky because the firm must anticipate what methods
of production will be efficient, not only today, but also for many years in the
future, when the costs of labour and raw materials will no doubt have
changed. The decisions are also risky because the firm must estimate how
73
much output it will want to product. Is the industry to which it belongs
growing or declining? Will new products emerge to render its existing
products less useful than an extrapolation of past sales suggest? Once the
decisions are made and implemented and production begins, the firm is
operating in the short run with fixed and variable inputs.
The short run is the conceptual time period in which at least one factor of
production is fixed in amount and others are variable in amount. Costs that
are fixed, say from existing plant size, have no impact on a firm's short-run
decisions, since only variable costs and revenues affect short-run profits. In
the short run, a firm can raise output by increasing the amount of the variable
factor(s), say labour through overtime.
5.4.2 Monopoly
A monopoly is a market form in which one firm has full control of the market.
5.4.3 Oligopoly
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offers a somewhat more realistic depiction of many common economic
markets. The model best describes markets in which numerous firms supply
products which are each slightly different from that supplied by its
competitors. Examples include automobiles, toothpaste, furnaces (ovens),
restaurant meals, motion pictures, romance novels, wine, beer, cheese,
shaving cream and many more.
75
_____________________________________________________________
KEY POINTS
__________________
76
1. An organisation’s micro environment consists of itself and its current
and potential customers, suppliers and intermediaries. The
competition also has a key influence on the micro environment.
Materials
Money
Men (human resources)
Machines
Management
4. The quantity of any product that firms will produce and offer for sale is
positively related to the product’s own price, rising when price rises
and falling when price falls. This in fact reflects an upward sloping
curve
7. Imperfect competition is when a firm has too much control over the
market of a particular good or service and can therefore charge more
than its real market value. When the market for a certain good or
service does not have a lot of competitors, the few firms control the
market.
77
_____________________________________________________________
QUESTION BANK
__________________
78
Question 1
Question 2
A price ceiling set above the equilibrium market price will result in:
A. Market failure
B. Excess supply over demand
C. Market equilibrium
D. Excess demand over supply
Question 3
Question 4
Which one of the following would normally cause a rightward shift in the
demand curve for a product?
Question 5
If the cost of milk rises, and milk is a major ingredient in yoghurt, then the:
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Question 6
Indicate whether the following will cause a shift in the demand curve for a
normal good, a shift in its supply curve or neither:
(i) An increase in household income
(ii) A rise in wage costs
(iii) A fall in the price of raw materials
(iv) A fall in the price of the goods
Shift in Shift in
demand supply Neither
Question 7
Price
S
P
D
B C D quantity
The government introduces a maximum price P. what effect will this have on
the quantity of good A purchased?
Question 8 D
1
D 2 4
D 3 5 7
6 8
9
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Point 5 represents equilibrium. If the government starts to pay a cash subsidy
to products of the commodity, what will the new equilibrium be?
A. Point 2
B. Point 4
C. Point 6
D. Point 8
Question 9
Price
3
2 1
4
Quantity
A. Equilibrium price
B. Consumer surplus
C. Market supply
D. Market demand
E. Producer surplus
Question 10
Which of the following is not one of the notes performed by prices in a market
economy?
A. A signal to consumers
B. A signal to producers
C. A way of allocating resources between competing uses
D. A way of ensuring a fair distribution of incomes
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_____________________________________________________________
ANSWER BANK
__________________
82
1. C – demand curves express the quantity demanded at each given
market price. Non-price determinants such as income must be held
constant when looking at the effect of price movements in isolation.
6. Shift in Shift in
demand supply Neither
X
x
x
x
9. A– 1
B – 2 some consumers would have paid a higher price
C–3
D–4
E – 5 some suppliers would have sold at lower price
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CHAPTER 6
6.1.1 Population
6.1.2 Wealth
Economic growth often results in higher disposable incomes with the knock
an effect of greater demand for (most) products. The four fastest growing
economies in the world are the “BRIC” - Brazil, Russia, India and China.
84
of the youth population in now literate compared to 70% in the 1980s.
Increasing standards of education and greater access to IT have made the
internet a major channel for selling and advertising.
6.1.4 Health
1. Many countries are finding the demand for housing growing faster than
the population
2. An increasing concern about the ozone layer, testing on animals
3. Many women are back to work
4. Changes in public attitudes towards recycling have resulted in
opportunities for recycling firms
5. Changes in tastes and fashions can have a damaging effect on
organisations that fail to anticipate the changes
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6.2 ACCA SYLLABUS GUIDE OUTCOME 2
DESCRIBE THE IMPACT OF CHANGES IN SOCIAL STRUCTURE,
VALUES, ATTITUDES AND TASTES ON THE ORGANISATION
Impact of Organisations:
Topic Impact
Health & Diet Growing market for
sports related goods
Employee Health
Programmes
New foods – added
vitamins etc
Demand for organic
foods
Women in Work Increase in Part-time
roles
The Sex Discrimination
Act
Equal Pay & Value
Promotion & Seniority
Equal opportunities
Environmental Media coverage fuels
public concern
World Disasters = Public
attention
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6.3 ACCA SYLLABUS GUIDE OUTCOME 3
IDENTIFY AND EXPLAIN THE MEASURES THAT GOVERNMENTS
MAY TAKE IN RESPONSE TO THE MEDIUM AND LONG-TERM
IMPACT OF DEMOGRAPHIC CHANGE
Governments of countries with low birth rates often introduce tax advantages
and other financial incentives to encourage women to have more children.
This is the case scenario in Singapore for example. Another common policy
is to encourage immigration. Both Canada and Australia have been
promoting this for over a decade.
In the South Africa the government has put in place many initiatives to raise
awareness to AIDS and sexual health. The global community is under
greater pressure to provide cheap drugs to help.
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_____________________________________________________________
KEY POINTS
__________________
88
1. Key social and demographic issues include:
population
wealth
education and training
health
social structure, attitudes, values and tastes
2. The four fastest growing economies in the world are the “BRIC” -
Brazil, Russia, India and China.
89
_____________________________________________________________
QUESTION BANK
__________________
90
Question 1
A. True
B. False
Question 2
Which of the following social trends will have a direct impact on businesses?
A. a and b only
B. a and d only
C. b, c and d only
D. a, b, c and d
Question 3
A. USA
B. Russia
C. Japan
Question 4
A. encourage emigration
B. encourage immigration
C. cut completely any children allowances
Question 5
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_____________________________________________________________
ANSWER BANK
__________________
92
1. B – an ageing population occurs when the median age of a country
rises due to rising life expectancy or declining birth rates.
2. C
4. B
5. C
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CHAPTER 7
TECHNOLOGICAL FACTORS
A change in technology has had a major impact on the structure and strategy
of organisations. This has encouraged the flattening of organisational
hierarchies and offering a wider span of control. More and more companies
are “empowering” employees or outsourcing, cutting out the need for middle
management
7.1.1 DOWNSIZING
7.1.2 DELAYERING
Many organizations have recently been delayering. Middle line jobs are
reducing. Organizations are increasing the average span of control, reducing
management levels and becoming flatter. Why? Information technology
reduces the need for middle managers to process information.
7.1.3 OUTSOURCING
94
Confidentially of information or techniques
Competitive advantage
Locked into an unsatisfactory contract
Lethargy (not very productive) towards cost implications
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7.3 ACCA SYLLABUS GUIDE OUTCOME 3
DISCUSS THE TYPES OF INFORMATION TECHNOLOGY AND
INFORMATION SYSTEMS USED BY THE BUSINESS
ORGANISATION
Until the 1960s, the role of information systems was simple transaction
processing, record-keeping, accounting and other electronic data
processing (EDP) applications or transaction processing system (TPS).
Then, another role was added, as the concept of management information
systems (MIS) was conceived. This new role focused on providing
managerial end users with predefined management reports that would give
managers the information they needed for decision-making purposes.
In the 1980s, several new roles for information systems appeared. It became
evident that most top executives did not directly use either the reports of
information reporting systems or the mathematical analytical modeling
capabilities of DSS, so the concept of executive information systems (EIS)
was developed. These information systems attempt to give top executives an
easy way to get the critical information they want, when they want it, tailored
to the formats they prefer. Expert support systems (ESS) and other
knowledge-based systems forged a new role for information systems.
Today, expert systems can serve consultants to users by providing expert
96
advice in limited subject.
Finally, the rapid growth of the Internet, intranets, extranets in the 1990s has
dramatically changed the capabilities of information systems in business.
Such global internet work is revolutionising and supporting business
operations and management of different enterprises.
Accounting Records
HR & Personnel Information
Payroll
Production Information
What data/information?
When?
By who?
What method?
Process, filed and communicated?
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7.5 ACCA SYLLABUS GUIDE OUTCOME 5
DESCRIBE THE MAIN FEATURES OF INFORMATION SYSTEMS
USED WITHIN THE ORGANISATION
98
_____________________________________________________________
KEY POINTS
__________________
99
1. Downsizing takes place when less employees are employed but the
output of the organisation is generally left unchanged. This is held
possible through advanced technology.
10. The main sources of secondary data are internal and external. Internal
sources include accounting records, sales records, employees records
etc. External data can include data from National Statistics Office,
from census and even from newspapers. External sources have
100
become easily achievable after the explosion of the internet.
11. Quantitative data are records that are quantifiable, that is, they are in
number terms. Qualitative data is more detailed and gives an insight
into the quality of the information.
101
_____________________________________________________________
QUESTION BANK
__________________
102
Question 1
A. True
B. False
Question 2
Question 3
A. True
B. False
Question 4
A. true
B. false
Question 5
A. true
B. false
Question 6
A. Certain
B. Produced quickly
C. Inexpensive
D. Relevant
103
Question 7
A. True
B. False
Question 8
A. Qualitative
B. Quantifiable
C. Quantitative
Question 9
A. External
B. Quantifiable
C. Internal
Question 10
The Financial Controller has sent you (Accounts Clerk) an email asking to
draft a report explaining in detail what exactly the “other expenses” stand for.
He asked to have this report printed and ready on his desk by not later than
Monday morning. What is the main information technology needed for this
transaction?
Question 11
104
Question 12
Question 13
__________ systems pool data from internal and external sources and make
information available to senior managers for strategic, unstructured decision
making. Which work or phrase correctly completes the above sentence?
A. Expert
B. Executive Information
C. Management Information
D. Decision Support
Question 14
A company uses a computer system for its middle management that can be
used to assist with working out possible solutions to management problems.
The system includes modelling and forecasting facilities, such as linear
regression analysis and statistical analysis.
A. MIS
B. Expert system
C. EIS
D. DSS
Question 15
A. True
B. False
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_______________________________________________________
ANSWER BANK
__________________
106
1 B – outsourcing means giving out work
5. A
8. C – quantitative - QUANTITY
9. C
10. B
11. B
12. A
13. B
14. D
15. A – it can make organisations more flexible but may also reduce
capacity
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CHAPTER 8
ENVIRONMENTAL FACTORS
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8.3 ACCA SYLLABUS GUIDE OUTCOME 3
IDENTIFY THE BENEFITS OF ECONOMIC SUSTANABILITY TO A
RANGE OF STAKEHOLDERS
109
_____________________________________________________________
KEY POINTS
__________________
110
1. Businesses can mainly affect or be affected by the following:
Air pollution
Water pollution
Soil pollution
Global warning
Ozone Depletion
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CHAPTER 9
COMPETITIVE FACTORS
A manager must begin to think in terms of what the firm can do well and
where it may have deficiencies. Strengths and weaknesses exist internally
within a firm, or in key relationships between the firm and its customers.
SWOT analysis must be customer focused to gain maximum benefit.
Strength is really meaningful only when it is useful in satisfying the needs of a
customer. At this point, the strength becomes a capability.
112
segments. These changes can occur in the rate of overall market growth and
in the competitive, economic, political/legal, technological, or socio-cultural
environments
A Value chain describes the activities of the organisation that add value to
purchased inputs. Primary activities are those involved in the production of
goods or service. Support services supply assistance. The linkages are the
relationships between activities. Managing the value chain, which includes
relationships with suppliers, can be a source of strategic advantage over
competitors in the industry.
The business creates value by ensuring their product (food, effective service
etc) is either more efficient or that they are providing a unique product or
service.
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Porter developed his value chain to determine whether and how a firm's
activities contribute towards its competitive advantage.
Activity Comments
Inbound Logistics Receiving, handling and storing inputs to the production
system, warehousing, transport, inventory control etc
Operations Convert resources into final product. People are also a
resource in service industries
Outbound Logistics Storing the product & distributing products. Packaging,
testing, delivery etc
Marketing & Sales Informing customers about sales, persuading them to buy,
advertising, promotions etc
After Sales Service Installing products, repair, upgrading, spare parts etc
Procurement Buying the resources inputs to the primary activities
Technology Product design, improving processes and/or resource
Development utilisation
Human Resource Recruiting, training, development and rewarding people
Management
Firm Infrastructure Planning, finance, Quality control, Porter believes this can
to of great strategic importance for an organisation
Value Networks
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9.3 ACCA SYLLABUS GUIDE OUTCOME 3
EXPLAIN THE FACTORS OR FORCES THAT INFLUENCE THE
LEVEL OF COMPETITENESS IN AN INDUSTRY OR SECTOR
USING PORTER’S FIVE FORCES MODEL
With this strategy, the objective is to become the lowest-cost producer in the
industry. Many market segments in the industry are supplied with the
emphasis placed on minimising costs. If the achieved selling price can at
least equal (or near) the average for the market, then the lowest-cost
producer will (in theory) enjoy the best profits. This strategy is usually
associated with large-scale businesses offering "standard" products with
relatively little differentiation that are perfectly acceptable to the majority of
customers. Occasionally, a low-cost leader will also discount its product to
maximise sales, particularly if it has a significant cost advantage over the
competition and, in doing so, it can further increase its market share.
9.3.2 Differentiation
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needs and it is rewarded for its uniqueness with a premium price. One can
differentiate in design, brand image, customer service.
9.3.3 Focus
There are two variations to this strategy - a cost focus where a firm seeks a
cost advantage in its target segment and a differentiation focus where a firm
seeks differentiation in its target segment. The target segments must either
have buyers with unusual needs (differentiation focus) or the production and
delivery system that best serves the target segment must differ from that of
others industry segments. A cost focus exploits differences in cost behaviour
in some segments.
Potential Entrants
Threat of
New
Entrants
Bargaining
Power of Industry Competitors
Suppliers
Suppliers Customers
Rivalry among Bargaining
Power of
existing firms
Customers
Threat of
Substitute
Products
of Services
Substitute
Together these forces determine the overall profit potential of the industry.
Looking at an individual firm, its ability to earn higher profit margins will be
determined by whether or not it can manage the 5 forces more effectively
than competitors.
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9.3.5 The threat of new entrants (and barriers to keep them out)
A new entrant into an industry will bring extra capacity and more competition.
The strength of the threat and the new entrant will depend on two things:
Strength of the barriers of entry
The response of existing competitors in the marketplace
Suppliers are able to exert pressure for higher prices however this depends
on several other factors:
1. Are they more than one or two dominant suppliers (charge monopoly
prices)
2. The threat of new entrants
3. Whether the supplier has other customers or substitute products
4. Importance of the suppliers product to the customers business
5. Has the suppliers got a differentiated product
6. Are the switching costs too high
The intensity of competition within the industry will affect the profitability of the
industry. Competitive actions could be:
Price competition
117
Advertising battles
Sales promotion campaigns
Introducing new products
Improving sales aftercare
Providing guarantees or warrants
118
_____________________________________________________________
KEY POINTS
__________________
119
1. Cost leadership has to do with having an objective to become the
lowest-cost producer in the industry.
3. A cost focus where a firm seeks a cost advantage in its target segment
and a differentiation focus where a firm seeks differentiation in its
target segment.
120
_____________________________________________________________
QUESTION BANK
__________________
121
Question 1
Question 2
Porter stated that a firm wishing to obtain a competitive advantage over its
rivals can do so by either through differentiation or cost leadership. Cost
leadership may be achieved by all the following except which one?
A. efficiency improvements
B. economy in purchasing
C. effectiveness in output
D. economies of scale
Question 3
Porter stated that a firm wishing to obtain a competitive advantage over its
rivals can do so by either through differentiation or cost leadership. Which of
the following is a technique of differentiation?
A. improving efficiency
B. economy in purchasing
C. improving customer service
D. removing product features
Question 4
Porter's five forces model identifies external factors that determine the
potential profitability and therefore attractiveness of a particular industry.
Which of the following is one of these forces?
Question 5
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A. cost leadership
B. differentiation
C. price leadership
D. quality leadership
Question 6
Question 7
A. cost focus
B. differentiation
C. diversification
D. differentiation focus
Question 8
A. inbound logistics
B. procurement
C. service
D. marketing and sales
Question 9
Which of the following are ALL primary activities in the value chain?
Question 10
123
A. technology development
B. human resource management
C. procurement
D. firm structure
Question 11
A. True
B. False
Question 12
124
_____________________________________________________________
ANSWER BANK
__________________
125
1. C – A+B+D can all pose challenges to the organisation
2. C
3. C
4. A
5. B
6. D
7. C
8. B
9. A
10. D
11. B
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CHAPTER 10
Such formal relations can be set out in detail with as much precision as is
desired in the form of job specifications and the general nature of their inter-
relations can be set forth in an organisational chart.
Social forces of various types from the wider community outside the business
infiltrate into the organisation and influence the relationships of its members
127
and the way it works. It is obviously important that such informal relations
shall not conflict with those established by the formal structure.
Employee commitment
Knowledge sharing
Speed
Responsiveness
Co-operation
128
_____________________________________________________________
KEY POINTS
129
1. A formal structure is the way an organisation is organised in an effort
to achieve its objectives.
4. Sometimes the informal structure may conflict with the formal one.
Where this is the case, the organisation may become less efficient at
meeting its set objectives. However, in some cases the informal
structure may prove to be more efficient at meeting organisational
objectives because the formal structure was badly set out.
130
_____________________________________________________________
QUESTION BANK
__________________
131
Question 1
Question 2
Question 3
A. Responsibility
B. Authority
C. Influence
D. Power
132
_____________________________________________________________
ANSWER BANK
__________________
133
1. A – information is transmitted internally/externally whilst it is
exchanged formally/informally
2. B
134
CHAPTER 11
Other influences which are equally relevant and possibly more persistent in
determining organisation structure are the type of markets and customers to
which the business sells, the type of product sold and the system of
technology in use, to produce the product.
Strategic Apex – drives the direction of the business through control over
decision-making. Strategic Apex has to do with the top management and
those who make the rules (decision makers)
135
known as the “do-er's”.
Support Staff – support all the companies' activities and provides expertise
and service to the organisation.
The process of dividing and grouping the tasks which have to be performed
into convenient units of management may be termed departmentalisation.
The board of directors and the chief executive must decide on the major
divisions of activity. The heads of each division will then have their own units,
sections, branches or departments.
a. By Product/Division/Department
This method is used when a firm decides to group according to the product in
question. This type of method is mainly used by for example, a department
store which sells soaps, hair products, feet products, makeup and fragrances.
When a variety of products of different types are being manufactured or sold
there is always a danger that some products or lines will receive too little
attention in selling and general promotional activities. This danger can be
met by forming an organisational structure on the basis of product groupings.
Advantages Disadvantages
Accountability Increases the overhead costs
Specialisation Fail to share resources
Co-ordination
136
b. Geographical or by Territory
This method has a great deal in its favour where the organisation is based on
geographically scattered units. For example, the branches of a bank may be
grouped in this way under regional offices. Of great importance is the need
for securing due attention to local factors because a full appreciation is not
always possible at a distance.
Boards
Of
Directors
c. Functional
Advantages Disadvantages
137
Managing
Director
Sales Marketing HR
Director Director Director
d. Matrix
138
e. Entrepreneurial
This type of structure is built around the owner manager and is typical with
small companies in the early stages of their development. The entrepreneur
often has specialist knowledge of the product or service.
f. Customer departmentation
g. Hybrid structures
h. Boundaryless organizations
139
11.1.3 The Shamrock Approach
Interface Workers – low skilled labour that are generally called when needed
for example part-time, seasonal staff – these type of workers are becoming
more dominant and more demanded.
In order to ensure that managers are managing the business in the best
interests of the owners, many safeguards/controls are put in place, which will
lead to, for example, formal organisation structures being set up for an
organisation.
140
A number of factors influence a span of control:
1. Capabilities often limit the span of control (ability/inability to manage
people)
2. Nature of the workload
3. Geographical. If over a wide area this becomes more difficult
4. Subordinates work. If they do a similar tasks
5. Nature of problems. If problems that take a lot of time to sort, it would
suggest a narrow span of control (less people to manage)
6. A good interaction between subordinates would suggest a wide span of
control as they are able to help each other
7. The level of support required
A scalar chain of command refers to all levels between the very top and the
lowest in the hierarchy. Fayol emphasised the need of having reporting
relationships from top executive to the ordinary shop operative or driver,
sensible, clear and understood.
Delayering
This is the process of reducing the number of management levels from the
bottom to the top. Therefore organisations are increasing the average span of
control, reducing management levels and becoming flatter.
Tactical Planning looks at the medium term and is more of a specific nature
than the strategic planning. It looks at the departmental level and specifies
how to use resources.
141
Operational Planning looks at the short term (day to day) and is very
detailed. This type of planning has a main concern of controlling what is set
for the short term.
Centralisation implies that there exists more than one level within an
organisation and that decisions are made only by the highest level.
Therefore, one may say that a centralised organisation has a central authority
and no decisions are made at lower levels.
Advantages of Advantages of
Centralisation Decentralisation
142
11.5 ACCA SYLLABUS GUIDE OUTCOME 5
DESCRIBE THE ROLES AND FUNCTIONS OF THE MAIN
DEPARTMENTS IN A BUSINESS ORGANISATION
11.5.2 Purchasing
Quantity
Quality
Price
Delivery
The main job of the production department is to convert raw materials into
finished goods. They are also after using the methods of production which
are the most efficient for the production in question. This is only made
possible if good planning is conducted prior to the implementation of
production. Costs are to be monitored all the time thus wastage should be
avoided as much as possible
Intangibility
Inseparability (from service provider)
Variability
Ownership (you can never be an owner of a service)
143
11.5.5 Marketing
11.5.6 Administration
11.5.7 Finance
It is important that the finance department has continuous links with the other
departments. The main role of this department, though, is to manage the
finances of an organisation by monitoring income and expenditure. It is also
in charge of preparing the final accounts and to raise finances of the
company. This is generally done by either issuing shares or taking loans.
144
NO – although we all tend to be bombarded with different commercials
through different media channels, marketing is not only sales. The latter is
only the tip of the marketing iceberg.
There are many accepted definitions of marketing and in fact there is no one
unified definition. All the above definitions are correct but because of the
difficulty of incorporating all the facets of marketing into a simple definition
some additional key points are important to be added.
Product
Price
Place
Promotion
145
11.6.4 Product
One might think the key product decision for a manufacturer of floor detergent
is to focus on creating a formula that cleans more effectively. In actuality,
while decisions related to the consumable parts of the product are extremely
important, the TOTAL product consists of more than what is consumed. The
total product offering and the decisions facing the marketer can be broken
down into three key parts:
11.6.5 Price
In order to make a profit, a business should ensure that its products are
priced above their total average cost. In the short-term, it may be acceptable
to price below total cost if this price exceeds the marginal cost of production –
so that the sale still produces a positive contribution to fixed costs.
If the business is a monopolist, then it can set any price. At the other extreme,
if a firm operates under conditions of perfect competition, it has no choice and
must accept the market price. The reality is usually somewhere in between.
In such cases the chosen price needs to be very carefully considered relative
to those of close competitors.
146
Consideration of customer expectations about price must be addressed.
Ideally, a business should attempt to quantify its demand curve to estimate
what volume of sales will be achieved at given prices. Sometimes a
company is not free to price its product at any level it chooses. For example,
there may be price controls that prohibit pricing a product too high. Pricing it
too low may be considered predatory pricing or “dumping” in the case of
international trade. Offering different price for different consumers may violate
laws against price discrimination. Finally, collusion with competitors to fix
prices at an agreed level is illegal in many countries.
4 C's
Cost-plus pricing involves the determination of all fixed and variable costs
associated with products or services. After the total costs attributable to the
product or service have been determined, managers add a desired profit % to
each unit such as a 5 or 10 percent markup. The goal of the cost-oriented
approach is to cover all costs incurred in producing or delivering products or
services and to achieve a targeted level of profit.
Going rate pricing is when a company sets its price of a product according
to the price being charged by competitors offering similar products. This is
generally practised when there is a market leader and the other companies
try and meet his prices. This method can be rather dangerous for small
companies who are trying to compete with bigger companies that enjoy
benefits resulting from economies of scale.
The practice of ‘price skimming’ involves charging a relatively high price for
a short time where a new, innovative, or much-improved product is launched
onto a market. The objective with skimming is to “skim” off customers who
are willing to pay more to have the product sooner; prices are lowered later
when demand from the “early adopters” falls.
Penetration pricing involves the setting of lower, rather than higher prices in
order to achieve a large, if not dominant market share. This strategy is most
often used by businesses wishing to enter a new market or build on a
relatively small market share. This will only be possible where demand for
the product is believed to be highly elastic, i.e. demand is price-sensitive and
either new buyer will be attracted, or existing buyers will buy more of the
product as a result of a low price.
147
Discrimination pricing takes place when a different price is charged either
to different people or else during peak and off-peak. For example, some
public transport services entitle a pensioner to pay a different price than a
person under 61 of age. The dial-up internet charges are higher during peak
hours.
11.6.6 Place
1. Agents
2. Wholesalers
3. Retailers
4. Financial companies
5. Transport companies
11.6.7 Promotion
Personal
Advertising Selling
Marketing
Sales Communications Public
Promotion Mix Relations
Direct
Marketing
148
Personal Selling is an oral presentation in a conversation with one or more
prospective buyers for the purpose of making a sale.
Beyond the 4P's other elements of the marketing mix have come to light
through the work of Kotler amongst others. These include:
People – Process - Physical Evidence
11.6.8 People
11.6.9 Process
Process refers to the system used to assist the organisation in delivering the
service.
149
11.6.10 Physical Evidence
Physical Evidence is the element of the service mix which allows the
consumer again to make judgments on the organisation. Physical evidence is
an essential ingredient of the service mix. Consumers will make perceptions
based on their sight of the service provision which will have an impact on the
organisations perceptual plan of the service.
Marketing Management
Operations/Production Accounting/Finance
Computer Information Systems Research and Development
150
_____________________________________________________________
KEY POINTS
151
1. Henry Mintzberg structured an organisation into 5 levels:
Strategic Apex (top managers who take the decisions)
Middle Line (act between top managers and operating core)
Operating Core (perform daily activities)
Techno Structure (direct operating core in being more efficient)
Support Staff (communicate with the outside world and support
all activities)
152
9. Operational planning is very detailed and has a short term vision.
11. The Marketing Mix or 4P's are product, price, place and promotion.
13. The product is not only what the consumer is consuming. It has to do
with the benefits that the consumer is receiving with purchasing such
product (The Core Product) for example the core product of a car is
the benefit of being independent to go from point A to point B. The
quality and design of the product (The Actual Product) and the
services acquired once a customer purchases the product, such as a
warranty (The Augmented Product).
15. The marketing distribution can be either a direct one or else having
intermediaries in between them.
16. The main tools of a promotional (communication) mix are advertising,
personal selling, public relations (PR), sales promotions and direct
marketing.
17. The main steps in formulating a strategic plan are – Strategic Analysis,
Strategic Choice and Strategic Implementation. It is only in the
implementation stage that marketing will have a plan on its own.
153
_____________________________________________________________
QUESTION BANK
__________________
154
Question 1
Question 2
A. Unity of command
B. Delegation of authority
C. Span of control
D. Division of work
Question 3
Question 4
Question 5
155
Question 6
A. Fast moving
B. Dynamic
C. Stable
D. Unpredictable
Question 7
Question 8
A. Economies of scale
B. Enhanced career opportunities
C. Enables growth
D. Goal congruence
Question 9
A. entrepreneurial
B. matrix
C. divisional
D. geographical
Question 10
A. reliability of supplier
B. state of the art warehouse
C. delivery date
D. reasonable price and good quality
156
Question 11
A. Finance
B. IT
C. Marketing
D. Sales
Question 12
A. Sales orientation
B. Production orientation
C. Product orientation
D. Marketing orientation
Question 13
Question 14
Question 15
157
A. Strategic level
B. Tactical level
C. Operational level
Question 16
A. Strategic level
B. Tactical level
C. Operational level
Question 17
Which of the following is not part of the elements of the marketing mix or
4P's?
A. Product
B. Place
C. Communication
D. Span of Control
E. Distribution
Question 18
Question 19
158
Question 20
Question 21
Question 22
A. Strategic apex
B. Techno-structive
C. Middle line
D. Support staff
Question 23
159
Question 24
Which of the following is NOT one of the main objectives of human resources
management?
A. To obtain the right number and type of skilled employees for the
organisation’s current and future requirements
B. To develop and deploy the organisation’s employees in such a way as to
maximize flexibility and productivity
C. To ensure compliance with the organisation’s social and legal
responsibilities in relation to employees
D. To minimize labour turnover and maximize employee retention witin the
organization.
160
_____________________________________________________________
ANSWER BANK
161
1. B – A refers to operating care
C refers to middle line
D refers to techno-structive
2. A – under a classical approach the boss remains the boss and what
he says goes
3. A
4. A
5. D
6. C
7. D
8. D
9. B
10. B
11. C
12. D
13. C
14. A
15. B
16. C
18. B
19. D
20. A,B,D
21. B
22. B
23. B
162
24. D – minimizing labour turnover and retaining employees is not always
a main objective especially if the organization is after downsizing
163
CHAPTER 12
ORGANISATIONAL CULTURE IN
BUSINESS
If one had to analyse Culture in more detail, one might say that organisational
culture forms in response of two major challenges that confront every
organisation:
The national culture, customs and societal norms of a country also shape the
cultures of organisations operating in it. The dominant values of a national
culture may be reflected in the constraints imposed on organisations by
others. For example, a country's form of government may have a dramatic
impact on how an organisation does business. It is important to mention at
this stage, that culture is not something standard, thus an organisational
culture found in an accountancy firm no. 1 does not mean is the same as the
organisational culture found in an accountancy firm no. 2.
164
3. Diversity – how diverse is the company either in terms of product
range, geographical spread or cultural make-up of its stakeholders
4. Age – how old is the business or the managers of the business – how
experienced are the strategic level decision makers
While all the above cultural levers are important, the characteristics and
configuration of the board and the management team are key elements. To a
very large extent, they control each other, establishing the standards and the
tone. A change in management can have a profound impact on organisational
culture, effectiveness and performance. Good management is often "like the
Abominable Snowman whose footprints are everywhere but who is nowhere
to be seen." (Warren Bennis and Burt Nanus)
Often subtly, through their actions and words, management shape, foster and
evolve an organisation’s culture by pushing or pulling the levers that can
influence it. It is also their responsibility to ultimately dismantle the culture
when it becomes disfunctional. It is the role of leaders to ensure strategic
balance is maintained and to tailor culture so people "think and perceive in
ways that increase the probability that they will see unconventional
opportunities." (Leading the Revolution (In Conversation with Gary Hamel),
Ivey Business Journal, July/August, 2001)
In reality however this is frequently not the case. Many organisations are so
locked within their historical cultures that they cannot see reality for what it
really is. It is difficult to achieve above average performance when confined
by such mental model restraints. In a stable environment this may not be a
major problem. However in today’s rapidly changing world, this reliance on
dated assumptions can easily lead to a terminal illness capable of
devastating an organisation and destroying many individual careers.
165
Schein divided organisation culture into 3 levels:
Artefacts are the aspects of culture that can easily be seen like for example
the way that people dress.
Basic assumptions and values are difficult to identify as they are unseen
and exist mainly at the unconscious level.
In 1972, Harrison classified an organisation into four different types only for
Charles Handy to popularise them by using Greek Gods!
166
Then there was the Apollo (Role Culture) organisation, dominated by rules
and procedures, after Apollo the God of harmony and order. In this version of
culture, people describe their job by its duties, not by its purpose. It is a
bureaucratic organisation, where the structure determines the authority and
responsibility of individuals and there is a strong emphasis on hierarchy and
status.
Athena (Task Culture), the warrior goddess, was the symbol of the project
organization, the culture that dominates consultancies, advertising agencies
and, increasingly, all innovative businesses. In this type of culture, people
describe their position in terms of the results that they are achieving. It is
after accomplishing a task.
Lastly there was the Dionysian (Person) culture, one in which the individual
has the freedom to develop his or her own ideas in the way they want - an
artists' studio, perhaps, or a university. They are hard to manage, these
Dionysian places, but increasingly necessary if you want to employ really
creative people.
Does that mean that any organisation has only four options to choose from
for its style of management?
No. The world is not that simple. In fact every organisation, just like every
individual, is different from every other one, but what they are includes a
different mix of the same four basic cultures. The trouble is that some get
stuck in one of them instead of mixing all four.
Hofstede looked for national differences between more than 100,000 of IBM's
employees in different parts of the world, in an attempt to find aspects of
culture that might influence business behaviour.
167
1. Power distance
168
assertive pole has been called 'masculine' and the modest, caring pole
'feminine'. The women in feminine countries have the same modest, caring
values as the men; in the masculine countries they are somewhat assertive
and competitive, but not as much as the men, so that these countries show a
gap between men's values and women's values.
4. Uncertainty avoidance
169
_____________________________________________________________
KEY NOTES
__________________
170
1. Charles Handy expressed culture as “the way we do things around
here”.
3. The external environment consists of all the factors and forces such as
politics, economy and technology.
171
_____________________________________________________________
QUESTION BANK
__________________
172
Question 1
A. True
B. False
Question 2
A. True
B. False
Question 3
A. 1, 3 and 4
B. 1, 2, 3 and 4
C. 2, 3 and 5
D. 1, 2, 3, 4 and 5
Question 4
Question 5
A. norms of behaviour
B. symbols
C. shared values
D. size of the organisation
173
Question 6
Schein said that leadership and culture were totally divorced from one
another. Is this statement true or false?
A. True
B. False
Question 7
To whom of the 4 Greek Gods was Handy referring when the culture of an
organisation is likely to be focused on individual, that is, the person takes the
central point of the organisation
A. Zeus
B. Apollo
C. Athena
D. Dionysus
Question 8
A. Position-Power
B. Uncertainty avoidance
C. Work-relaxation
D. Task-people
Question 9
A culture where there is one central source of power and few procedures or
rules would be classified by Handy as what sort of culture?
A. Power
B. Role
C. Task
D. Person
Question 10
174
A. Power
B. Role
C. Task
D. Person
Question 11
A. Role
B. Task
C. Power
D. Person
Question 12
Schein argues that those who lead a company in its early days have a
substantial influence on its culture. Is this statement true or false?
A. True
B. False
Question 13
A. Individualistic
B. Collective
C. Low power distance
D. High uncertainty avoidance
Question 14
175
A. Role Culture
B. Power Culture
C. Task Culture
D. Person Culture
Question 15
A. management style
B. leadership
C. influence
D. size of the organisation
Question 16
A. Masculinity – feminity
B. Power distance
C. Individualism – collectivism
D. Uncertainty avoidance
Question 17
A. Power culture
B. Role culture
C. Task culture
D. Existential culture
Question 18
A. True
B. False
176
Question 19
According to Hofstede, the extent to which security, order and control are
preferred to ambiguity and change is called:
A. Masculinity
B. Individualism
C. Power distance
D. Uncertainty avoidance
Question 20
177
_____________________________________________________________
ANSWER BANK
__________________
178
1. A
2. A
3. D
4. B
5. D
6. B
7. D
8. B
9. A
10. A
11. B
12. A
13. C
14. C
15. B
16. A
17. B
19. D
179
CHAPTER 13
The ad hoc committees which are created for a specific reason and
on temporary basis
The formal committees are part of the organisational structure with
specifically delegated duties and authority
Audit committees – review the company's accounting policies and
internal controls, annual financial statements and the audit report with
the company's external auditors
The most common complaint brought against committee work is the amount
of time which it consumes in relation to the results achieved. This is the
same thing as saying that committees are an expensive instrument of
administration. This is because the modern world has far too many of them
and their proceedings are not always successful. Committees proliferate not
only within businesses but also outside in connection with trade associations
and government departments and they make increasing demands upon the
time of managers.
180
Jobs assigned to committees are expected to achieve better results than that
of a single person because of the nature of group decision taking. From this
point of view, therefore, the committee will probably be employed in those
cases where group deliberation and judgement are likely to be of better
quality than that of an individual - “two heads are better than one”.
gather information
disseminate information or instructions – delegating authority to
employees or managers
generate ideas
make or implement decisions – committees may give a voice in the
making of the decisions before being implemented
coordinate the efforts of a number of people from divergent
disciplines – bringing parties together for discussion in the hope of
finding reconciliation
act as a delaying mechanism – and thus achieving time
oversee a function or procedure
181
13.3 ACCA SYLLABUS GUIDE OUTCOME 3
LIST THE ADVANTAGES AND DISADVANTAGES OF COMMITTEES
Advantages Disadvantages
Responsibility for the efficient running of the committee meeting rests with the
chair. While everyone has some responsibility for a well-run meeting, the
chair will, in the end, make the greatest contribution to the success of the
meeting. The chair must ensure that all discussion is orderly, that every
individual has an opportunity to participate and that a decision is made on
each topic before proceeding.
One of the busiest people at the meeting is the secretary. This person is
responsible for taking notes, documenting progress and procedures and
eventually producing a set of minutes that accurately reflects the decisions
made by the committee. The secretary is responsible for having copies of the
laws, policies and previous minutes (in the case of a continuation meeting)
available should members of the committee require them during the course of
the meeting.
182
One must also mention that the work of the secretary is not only during the
meeting. The secretary has different tasks both before and after the meeting.
Before the meeting the secretary must fix the date, book the venue, think for
any refreshments needed and make sure there is also access for people with
disability in case one of the attendants has such a condition. S/he needs to
prepare and issue the agenda and other relevant documents.
After the meeting, the secretary has the role of preparing the minutes and
sending them to all members of the committee after having them signed by
the chair. Responsibility for correspondence rests with the secretary.
183
____________________________________________________________
KEY POINTS
__________________
184
1. A committee is a group of people assigned a task that they are
expected to carry as a group.
5.
185
6.
186
_____________________________________________________________
QUESTION BANK
__________________
187
Question 1
A. True
B. False
Question 2
Question 3
Question 4
Question 5
A. Takes the directors attention away from making strategic decisions about
the company's future
B. Increases the agency problem
C. Increased costs
D. Removes the danger of directors being paid excessive salaries
188
Question 6
The responsibility of the secretary is to make sure that all members of the
committee have a say during a meeting.
A. True
B. False
Question 7
The notes taken by the secretary during a meeting are known as:
A. Executive summary
B. Minutes
C. Seconds
Question 8
It is very important that the chair expresses and influences other members of
the committee whilst they are in a meeting.
A. True
B. False
Question 9
You are convening a meeting. Which one of the following would you be
doing?
Question 10
Since joining the project team, your friend has learned quite a lot about formal
meetings, but she has never come across the term “motion”. One of the
following is your explanation of what a “motion” is when referring to a
meeting.
189
Question 11
A. Joint committee
B. Ad-hoc committee
C. Executive committee
D. Standing committee
190
_____________________________________________________________
ANSWER BANK
__________________
191
1. A – this is one of the advantages of a committee
2. B
4. C
5. C
7. B
9. B
10. D
11. C
192
CHAPTER 14
There are three different views associated with the “ownership” and
“management” of organisations:
This theory looks at the bigger picture. It believes that the management has a
duty of care, not just to the owners of the company but also to the wider
community of interest, or stakeholders.
193
14.2 ACCA SYLLABUS GUIDE OUTCOME 2
DEFINE CORPORATE GOVERNANCE AND SOCIAL
RESPONSIBILITY AND EXPLAIN THEIR IMPORTANCE IN
CONTEMPORARY ORGANISATIONS
194
Cadbury Greenbury Committee Hampel Committee 1996
Committee 1992 1995 (Best Practice)
(Best Practice) (Director’s Remuneration)
The traditional view has been that corporate social responsibility offers no
business benefits, and destroys shareholder value by diverting resources
away from commercial activity. Such traditionalists argue that companies
should operate solely to make money for shareholders and that it is not a
company's role to worry about social responsibilities. Companies pay taxes
to government, and it is governments and charities that should be responsible
for social matters.
This traditional view is losing support amongst all sizes of businesses. The
modern view is that a coherent CSR strategy can offer business benefits by
enabling a company to:
By aligning the company's core values with the values of society, the
company can improve its reputation and ensure it has a long-term future.
195
14.3.1 Balanced Scorecard Approach
The Balanced Scorecard approach emphasises the need to provide the user
of a set of accounts with information which addresses all relevant areas of
performance objectively. This information should include both financial and
non-financial elements, and the usual balanced scorecard approach is to
report performance from four separate perspectives:
financial perspective
customer perspective
internal perspective (internal efficiency)
innovative perspective
Whilst company law refers only to “directors” in general, two types of directors
have emerged. Those who are involved in the day-to-day execution of
management are known as executive directors and those who primarily
only attend board meetings are known as non-executive directors.
The UK’s Higgs report provide a useful summary of the role of non-executive
summary.
196
1. Directors remuneration should be set by independent members of the
board
2. Bonuses etc relate to measurable performance or enhance share
value
3. Full transparency of directors remuneration
The committee also has to take into account the wider picture. So, for
example the package will need to attract, retain and motivate directors of
sufficient quality. There is also a balance between this and the shareholders
interests.
197
14.4.4 PUBLIC OVERSIGHT
The public is a legitimate stakeholder, thus it has the right to know how a
particular company is being governed. One can also mention that the public
has the right to be involved in the governance process of companies. The
most obvious means of public oversight of corporate governance is via the
publication of Annual Reports and Accounts. Companies should also discuss
their plans with their representatives of various stakeholder groups including
journalists and local politicians.
Economic activities often impact those who are not involved in the activity.
For example, a corporation manufacturing automobiles generates pollution
and the cost of this pollution is borne by nearby residents. External costs (or
benefits) arising from economic activities are referred to as externalities.
While firms of any size can create externalities, multinational corporations
can use their political influence to avoid bearing responsibility for significant
external costs.
“Given the close relation between minimizing costs and maximizing profits, it is
natural to assume that an organization that seeks profits and has significant
political power will feel some motivation to use that power to externalize costs,
198
where possible. This motivation may be held in check by ethical considerations, by
regulation, or by a fear of backlash from groups that might harm the organization;
for example, consumer groups, or others who could mobilize effective public
opinion.” (Goodwin, 2003)
The benefits firms obtain from being able to impose externalities and shift
costs to others are difficult to measure in economic terms. The only available
estimate of the total public cost incurred to support the operations of private
corporations was $2.6 trillion for 1994 in the United States.
Refer to technical article “Corporate governance: the board of directors and standing
committees” at the back of the notes
199
_____________________________________________________________
KEY POINTS
__________________
200
1. Separation of ownership and control refers to the situation were
owners and managers are not the same people.
8.
201
non- financial element including innovative, customer and internal
perspectives.
10.
14. Public oversight is the general public that must know what the
organisation is doing. This is generally held possible by reviewing
the publication of Annual Reports and Accounts.
202
_____________________________________________________________
QUESTION BANK
__________________
203
Question 1
A. Authority
B. Power
C. Accountability
Question 2
The agency problem is the name given to the situation where the managers
have to be motivated to act in the best interests of the company as a whole.
Is this statement true or false?
A. True
B. False
Question 3
The separation between ownership and control is only relevant in the context
of limited companies.
A. true
B. false
Question 4
Which of the following would reduce the agency problem in a large quoted
company?
Question 5
A. True
B. False
204
Question 6
A. True
B. False
Question 7
A. true
B. false
Question 8
Question 9
A. True
B. False
Question 10
A. true
B. false
Question 11
A. true
B. false
205
Question 12
Question 13
Question 14
Question 15
206
Question 16
Question 17
Question 18
A. true
B. false
Question 19
Question 20
A. True
B. False
207
Question 21
Question 22
208
_____________________________________________________________
ANSWER BANK
__________________
209
1. A
2. A
3. B
4. B
5. A
6. B
7. B
8. B
9. B
11. A
12. A
13. D
14. D
15. C
16. B
17. A
18. A
19. True
False
21. C
22. B and D
210
CHAPTER 15
211
The production department plans and oversees the production of goods. It
liaises with the accounting department as follows:
212
15.2.1 Budgeting
The accounting department will discuss the likely sales volume of each
product with the marketing department, in order to produce the sales budget.
15.2.2 Advertising
15.2.3 Pricing
The accounting department will have input into the price that is charged.
Often products are priced at cost plus a percentage. Even if the marketing
department determines the price based on market forces they need to consult
with the accounting department to ensure that costs are covered.
This is the hourly rate which the company charges clients. It should be higher
than salary, as it should include a share of overheads, e.g. training and any
profit the company wishes to make. However if the Chargeout rate is too high
customers will not use the service. Many accounting firms base Chargeout
rates for their staff on roughly three times that person’s salary.
213
15.2.8 Problems measuring benefits
Market conditions may mean that the chargeout rate contains a very low
profit element. The company may question whether it is worth carrying out
these services. The problem is that the benefits are intangible and not easy
to measure, but nevertheless real. A company with effective service provision
has happier customers, and happy customers are more likely to buy from the
company in the future, therefore leading to lower selling costs. But it is very
difficult to measure these benefits.
214
_____________________________________________________________
KEY POINTS
__________________
215
1. The purchasing department liaises with the accounting department on
the following:
establishing credit terms
maximum prices to spend
approval of payments
data capture like for example orders
inventory
budgeting
4. There are several issues about which the service departments may
need the input of the accounting department:
Chargeout rates
Estimating costs
Problems measuring benefits
216
_____________________________________________________________
QUESTION BANK
__________________
217
Question 1
A. liaison with suppliers to obtain a credit account and negotiate credit terms
which are acceptable
B. ensuring there are sufficient raw materials in stock for planned production
C. discussion of advertising and promotion budgets
D. systems design and development to make purchasing easier
Question 2
Question 3
Question 4
A. allocation costs
B. budgeting
C. balancing cost and quality
D. approving orders
Question 5
218
A. true
B. false
Question 6
Question 7
A. wages cost
B. number of hours taken
C. foreign exchange rates
D. interest rates
Question 8
Question 9
219
Question 10
A. Credit control
B. Stores manager
C. Accountant
D. Purchasing manager
220
_____________________________________________________________
ANSWER BANK
__________________
221
1. A
2. C
3. C
4. D
5. B
6. D
7. A
8. A
9. D
222
CHAPTER 16
No one really knows who invented accounting, references in the Bible and
the Koran indicate that some form of accounting has existed for centuries.
Since the inception of trade and business, civilization understood the need for
accurate records. What was still lacking were means for standards of
accurate record keeping. Luca Pacioli, a Franciscan monk was the father of
double entry accounting, and set the business world on fire in 1494.
There have been many advances in the field of accounting, and many times
the accountants performing the work have been called upon to provide a
bridge between public trust and government regulation. Some of the more
important milestones in the field of accounting have been the implementation
of income tax laws and the more recent scandals involving corporate fraud.
223
Financial analysts and advisers: May need this information for their clients.
The public: Organisations may well have a substantial impact on the local
economy or indeed on environmental issues such as pollution.
Routine accounting
Providing reports for other departments
Cashiers duties and cash control
16.2.3 Treasurer
1. Financial Accounts
2. Management Accounting
224
3. Capital Projects
Finance Director
Management
Treasurer Financial Controller Accountant
formulate policy
implement policy by establishing procedures to be followed
control performance
225
create yardsticks to track performance and push the firm to be inventive,
intentional and focused.
For example, a company’s sales budget may be drawn up for each quarter of
the next calendar year, either in units sold or in money amounts. As the year
goes by the actual sales will be compared with the budgeted sales, and the
sales director will be asked to explain any large differences between the two
(budget variances). It is the management accounting section in the
accounting function that has particular responsibility for budgeting and
standard costing matters.
226
16.4 ACCA SYLLABUS GUIDE OUTCOME 2
IDENTIFY AND DESCRIBE THE MAIN ACCOUNTING AND
REPORTING FUNCTIONS IN BUSINESS
227
true and fair view.
company law
accounting standards
international accounting standards and statutory requirements
stock exchange requirements
Management Financial
Accounting Accounting
Why information is For internal use, e.g. For external use,
mainly produced managers and employees e.g.
shareholders,
creditors, banks,
government.
Purpose of To aid planning, controlling To record the
information and decision making financial
performance in a
period and the
financial position at
the end of the
period.
228
Breakeven analysis – what products or customer segments are
currently profit making or loss making?
One should appreciate that simply preparing an income statement for the
year, as a financial accountant does, is a valuable exercise in itself, but is of
no immediate help in answering all the above sorts of questions.
Management accountants are needed to address these issues.
229
Once the budgets have been set and agreed for the future period, the control
element of budgetary control is ready to start. This control involves
comparison of the plan in the form of the budget with the actual results
achieved for the budget period. Any significant divergences between the
budgeted and the actual figures should be reported to the appropriate
manager so that any necessary action can be taken.
230
Foreign currency The treasury section will
monitor foreign exchange rates
and try to manage the
company’s affairs so that it
reduces losses due to changes
in foreign exchange rates.
Tax The treasury section will try to
manage the company’s
affairs to legally avoid as much
tax as possible.
One of the roles of the finance function is to calculate the business tax liability
and to mitigate that liability as far as possible within the law.
1. Tax avoidance is the legal use of the rules of the tax regime to one’s
own advantage, in order to reduce the amount of tax payable by
means that are within the law.
2. Tax evasion is the use of illegal means to reduce one’s tax liability, for
example by deliberately misrepresenting the true state of your affairs
to the tax authorities.
While the traditional distinction between tax avoidance and tax evasion is
fairly clear, recent authorities have introduced the idea of tax mitigation to
mean conduct that reduces tax liabilities without frustrating the intentions of
Parliament, while tax avoidance is used to describe schemes which, while
they are legal, are designed to defeat (nullify) the intentions of Parliament.
Thus, once a tax avoidance scheme becomes public knowledge, Parliament
will nearly always step in to change the law in order to stop the scheme from
working.
231
2. calculating the tax liability arising from the profits earned each year,
and paying amounts due to the tax authorities on a timely basis. In
practice, most companies (particularly small companies) will seek the
advice of external tax specialists to help them calculate their annual
tax liability.
The second question is how this €1m required now should be financed.
Perhaps there is a surplus €1m sitting unused in a bank account. It is more
likely that fresh funds will be required, possibly by issuing new shares, or
possibly by raising a loan (e.g. from the bank). There are advantages and
disadvantages of each possibility.
Advantages of issuing new ordinary shares:
Dividends can be suspended if profits are low, whereas interest
payments have to be paid each year.
The bank will typically require security on the company’s assets before
it will advance a loan. Perhaps there are no suitable assets available.
Generally the finance function and the treasury function will work together in
appraising possible investment opportunities and deciding on how they
should be financed.
232
16.6.5 Management of working capital
inventory
trade receivables (amounts due from debtors for sales on credit)
cash balances
trade payables (amounts due to creditors for purchases on credit).
233
16.7.2 External auditing is the independent examination of the
evidence from which the financial statements are derived, in order to give the
reader of those statements confidence as to the truth and fairness of the state
of affairs which they disclose.
The fact that employees of the company know that their work may be
inspected by external auditors may encourage them to document their work
properly and dissuade them from fraud.
234
Scope of work Determined by management. Determined by the
Covers all areas of the auditor in order to
organisation, operational as carry out his
well as financial. statutory duty to
report. Financial
focus.
235
_____________________________________________________________
KEY POINTS
__________________
236
1. Luca Pacioli, a Franciscan monk was the father of the double-entry
system (1494).
7. Treasurer:
Raising funds by borrowing
Investing surplus funds
Cash flow control
237
12. A budget is a plan expressed in quantitative (normally financial) terms
for either the whole of a business or for the various parts of a business
for a specified period of time in the future.
13. Budget variance is the discrepancy between the actual and budgeted
figures.
At the accounting year end of the business, the balance is calculated on each
ledger account, and these balances are taken, with any necessary
adjustments as recorded in the journal, to become the financial statements of
the organisation for the period.
15. 10.A balance sheet statement of financial position at the year end
shows the assets owned and the liabilities owed, and how these net
assets are financed at a particular point in time, for e.g. as at 31 st
December 20xx.
16. An income statement of comprehensive income for the year shows the
revenues earned and the costs incurred, leading to the net profit or
loss arising for the year.
17. A cash flow statement summarises the cash receipts for the year and
the cash payments paid out, to help readers of the accounts to
understand the liquidity of the business.
238
decision-making whilst financial accounting is created to record
financial performance and position at a point in time.
21. Tax avoidance is the legal use of the rules of the tax regime to one’s
own advantage, in order to reduce the amount of tax payable by
means that are within the law.
22.Tax evasion is the use of illegal means to reduce one’s tax liability, for
example by deliberately misrepresenting the true state of your affairs
to the tax authorities.
27. The practice of internal auditing is not enforced by law but a listed
company needs to have at least an annual internal check as required
by the Combined Code of Corporate Governance
239
29. External auditing is the independent examination of the evidence from
which financial statements are derived, to study if the latter disclose a
true and fair view
240
_____________________________________________________________
QUESTION BANK
__________________
241
Question 1
A. a standard
B. a policy
C. a control limit
D. a budget
Question 2
The planning process can be split into three levels. Which one of the
following is incorrect?
A. tactical
B. operational
C. procedure
D. strategic
Question 3
A. true
B. false
Question 4
A. true
B. false
Question 5
A. balance sheet
B. income statement
C. cash flow statement
D. auditors' report
242
Question 6
Question 7
Question 8
A. true
B. false
Question 9
Any significant divergences between the budgeted and the actual figures
should be reported to the ___________ so that any necessary action can be
taken.
A. board of directors
B. treasury manager
C. appropriate manager
D. shareholders
Question 10
243
Question 11
A. true
B. false
Question 12
A. auditing
B. treasury
C. financial accounting
D. production
Question 13
A. true
B. false
Question 14
A. financial accounting
B. management accounting
C. treasury
D. marketing
Question 15
244
Question 16
A. tax avoidance
B. tax evasion
C. overstating deductions in a tax computation to reduce the tax liability
D. understating income in a tax computation to reduce the tax liability
Question 17
The legal duty for a company to pay the correct amount of tax rests with the
tax advisers of the company.
A. true
B. false
Question 18
A. bank overdraft
B. five-year loan
C. thirty-year loan
D. hire purchase
Question 19
McCain Foods is the world’s largest frozen chip manufacturer. Around 45% of
frozen potatoes sold in the UK are made by McCain, making it the clear
market leader. Producing on such a large scale means using a lot of energy
so McCain has set up two projects to reduce the amount of gas and electricity
it has to buy from energy suppliers. The two projects are a wind turbine
system and a wastewater treatment plant. These projects are designed to
produce renewable energy, so are more environmentally sound. One reason
for these innovations is to reduce costs. McCain has ________ that must be
paid whatever the level of production. ____________ like labour and raw
materials are directly linked to the amount of goods produced. The other
reason is to help demonstrate McCain’s corporate _________________.
245
Question 20
Question 21
Question 22
Which one of the following is an example of work the internal auditors might
do in a company?
Question 23
Question 24
246
D. An unavoidable image problem
Question 25
Question 26
A. the directors
B. the audit committee
C. the shareholders
D. all readers of the financial statements
Question 27
A. true
B. false
Question 28
Internal auditors look at the management of all risks faced by a company
(operational risks, strategic risks, etc) whereas external auditors concentrate
on financial risks only.
A. true
B. false
Question 29
A. True
B. False
247
Question 30
Who is responsible for the production of financial statements that give a true
and fair view?
Question 31
The original role of the accounting function was which one of the following?
Question 32
Question 33
A. True
B. False
Question 34
248
Question 35
Question 36
Farrah, Gordon, Helene and Ian work in the finance department of X Co.,
which has separate financial accounting and management accounting
functions. Farrah deals with payroll, the purchase ledger and sales invoicing.
Gordon's duties involve inventory valuation, budgetary control and variance
analysis. Helene deals with fraud prevention and detection, and internal
control. Ian carries out risk assessments, investment appraisals and assists
in projects planning. Which member of the department works in the financial
accounts function?
A. Farrah
B. Gordon
C. Helene
D. Ian
Question 37
A. the accountant
B. the treasury
C. the management accountant
D. the finance director
Question 38
A. production
B. marketing
C. purchasing
D. human resources
249
Question 39
A. production
B. marketing
C. purchasing
D. human resources
Question 40
A. cashier
B. management accounting
C. treasury
D. purchase ledger
Question 41
Celeste works in the accounting department of GHI Limited. She tells you
that he has spent the day preparing a cash flow forecast. In which section
does Celeste work?
A. cashier
B. management accounting
C. treasury
D. purchase ledger
Question 42
Anna works in the accounting department of ABC Limited. She tells you that
he has spent the day reconciling suppliers' statements. In which section
does Anna work?
A. cashier
B. management accounting
C. payroll
D. purchase ledger
Question 43
Boris works in the accounting department of DEF Limited. He tells you that
he has spent the day vetting potential credit customers. In which section
250
does Boris work?
A. cashier
B. management accounting
C. sales ledger
D. purchase ledger
Question 44
Question 45
Question 46
A. Gross profit
B. Net profit
C. Contribution
D. Return on capital
251
_____________________________________________________________
ANSWER BANK
__________________
252
1. D
2. C
4. A
5. D
6. B
7. C
8. B
9. C
11. A
12. B
13. A
14. C
15. A
16. A
18. C
19. C
20. A
21. B
22. A
23. A
24. C
253
25. D
26. C
27. B
28. A
29. B
30. B
31.B
32. C
33.B
34. B
35. C
36. A
37. D
38. B
39. D
40. C
41. B
42. D
43. C
44. B
254
CHAPTER 17
The Companies’ Acts in the UK require that financial statements are prepared
which give a true and fair view, that is, they follow accounting standards,
follow generally-accepted best practice and have information of sufficient
quantity (adequately detailed) and quality (reasonably accurate) to satisfy the
reasonable expectations of the users. Under companies’ legislation,
directors are responsible for producing financial statements which give
a true and fair view.
There could be problems with the tax authorities if records are found to be
incorrect; the tax authorities could investigate, and if the tax paid is too low,
then, the company is guilty of tax evasion, which is a crime. If the poor
255
accounting records means that the financial statements do not give a true
and fair view, and if this is detected by the auditor, the external auditor could
give a qualified audit report. This will damage the company's reputation and
could make it harder to borrow money and to get shareholders to invest.
Poor accounting records could also mean that the company has inadequate
records of receivables and payables. It could therefore fail to collect money
owed from customers which will damage cash flow, and pay suppliers on time
which could lead to suppliers cancelling credit facilities. These issues could
eventually lead to financial difficulties and the company going out of business.
The views expressed on the Discussion Paper (DP) are taken into account in
producing the next draft, known as Exposure Draft (ED). Again public
comment is invited. Finally an IFRS is issued. The IFRS may later be
amended if necessary.
256
(a) to develop, in the public interest, a single set of high quality,
understandable and enforceable global accounting standards that require
high quality, transparent and comparable information in financial statements
and other financial reporting to help participants in the world's capital markets
and other users make economic decisions
(b) to promote the use and rigorous application of those standards; and
(c) in fulfilling the objectives associated with (a) and (b), to take account of, as
appropriate, the special needs of small and medium-sized entities and
emerging economies; and
257
_____________________________________________________________
KEY POINTS
__________________
258
1. Accountability refers to the state of being accountable, liable or
answerable for actions and conduct.
7. If the financial statements do not give a true and fair view, and if this is
detected by the auditor, the external auditor could give a qualified audit
report.
11. The IASB operates under the oversight of the International Accounting
Standards Committee Foundation (IASCF).
259
account in producing the next draft, known as Exposure Draft (ED).
16. The IFRIC gives guidance/interpretation on issues that are not covered
in an accounting standard or where the guidance is conflicting.
260
_____________________________________________________________
QUESTION BANK
__________________
261
Question 1
A. Companies Act
B. Companies House
C. Companies Home
D. Companies Officer
Question 2
Question 3
Question 4
Which of the following is not necessary in order for a company to have proper
accounting records?
Question 5
A. financial reporting
B. taxation
C. management accounting
D. treasury
262
Question 6
A. inventory
B. sales ledger
C. treasury
D. non-current assets
Question 7
Question 8
Question 9
Who is responsible if the financial statements do not give a true and fair
view?
A. the directors
B. the chief executive officer
C. the finance director
D. the auditor
Question 10
263
A. all financial statements will be identical
B. users will be able to compare financial statements more easily
C. financial statements will be in accordance with the law
D. laws around the world will be harmonised
Question 11
Which of the following are consequences of failure to comply with the legal
requirements of maintaining financial records?
a. fines
b. prosecution
c. difficulties raising finance
d. unqualified audit report
e. damaged reputation
f. qualified audit report
A. a, b, e and f only
B. a, b, c and d only
C. a, b, c, d and e only
D. a, b, c, e and f only
Question 12
A. IASB
B. SAC
C. IASCF
D. IFRIC
Question 13
A. IASB
B. SAC
C. IASCF
D. IFRIC
Question 14
A. IASB
B. SAC
C. IASCF
D. IFRIC
264
Question 15
A. IASB
B. SAC
C. IASCF
D. IFRIC
Question 16
A. interpretation
B. exposure draft
C. directive
D. regulation
Question 17
A. interpretation
B. exposure draft
C. discussion paper
Question 18
A. discussion paper
B. legislation
C. recommendation
D. pronouncement
Question 19
A. exposure draft
B. recommendation
C. discussion paper
265
Question 20
Question 21
A. financial reporting
B. corporate reporting
C. external auditing
266
_____________________________________________________________
ANSWER BANK
__________________
267
1. B
2. C
3. D
4. B
5. A
6. C
7. D
8. A
9. A
10. B
11. D
12. A
13. D
14. B
15. C
16. B
17. A
18. A
19. B
20. A
21. B
268
CHAPTER 18
The income statement lists revenues and expenses and calculates the
company's net income or net loss for a period of time. Net income means
total revenues are greater than total expenses. Net loss means total
expenses are greater than total revenues.
The statement of cash flows reports the cash receipts, cash payments, and
the net change in cash resulting from the operating, investing, and financing
activities of a company during the period.
269
18.1.4 Sustainable Integrated Reporting
18.2.2 Budgets
270
_____________________________________________________________
KEY POINTS
__________________
271
1. The income statement lists revenues and expenses and calculates
the company's net income or net loss for a period of time.
272
CHAPTER 19
Accounting systems lay down procedures and guidelines that reflect the
Company’s policies.
273
19.2 ACCA SYLLABUS GUIDE OUTCOMES 2
DESCRIBE THE MAIN FINANCIAL SYSTEMS USED WITHIN AN
ORGANISATION
Features Aims
Ordering All orders for, and expenditure on, goods and services are properly
authorised, and are for goods and services that are actually received
and are for the company
Orders are only made to authorised suppliers
Orders are made at competitive prices
Receipt & Goods/services used only for the organisations purposes
Invoices Goods/services only accepted if ordered & authorised
Goods/services are accurately recorded
Liabilities recognised for all goods/service
Credits for which the business is due are claimed
A receipt is needed to ensure a business establish a liability
Accounting Expenditure is authorised – goods actually received
Expenditure is recorded in the nominal and purchase ledger
Credit notes recorded
Entries made to the correct ledger
Cut-off is applied correctly to the ledger
For sales, businesses want only to give credit to those customers who can
settle their debts. The sales ledger will help track what is owed by each
customer.
274
Features Aims
Ordering & granting of credit Goods/service to only to customers with good credit
ratings
Customers pay promptly
Orders recorded correctly
Orders are fulfilled
Despatch & invoicing Despatches of goods are recorded
Goods/services sold are correctly invoiced
All invoices raise relate to goods/services supplied
Credit notes only given for valid reasons
Recording, accounting & Sales invoiced and recorded
credit control Credit notes issues and recorded
Entries in sales ledger made to the correct ledger
Cut-off applied
Doubtful debtors identified
19.2.2 Payroll
275
19.2.3 Cash & Working Capital
Cash and petty cash and therefore working capital must be regularly
reconciled. The forms of payment to a business could be through:
1. Company cheque
2. Bank transfer
3. Internet transfer
4. Standing order/direct debit
Cash controls must be strict. They should apply to the smallest and the
largest of transactions. The three main steps to applying control over
cash/working capital payments are:
276
19.5 ACCA SYLLABUS GUIDE OUTCOME 5
RECOMMEND IMPROVEMENTS TO ACCOUNTING SYSTEMS TO
PREVENT ERROR AND FRAUD AND TO IMPROVE OVERALL
EFFICIENCY
277
Spreadsheets have many uses within the business arena. From creating
balance sheets, income statements, financial accounts etc but also help
develop an informed and structured decision.
A database has many uses and consists of “pooled” data available to not only
the accounts department but usually the whole organisations.
278
279
_____________________________________________________________
KEY POINTS
__________________
280
1. A system is a group of independent but interrelated elements
comprising of a unified whole, that is, a system is a process for
obtaining an objective.
281
_____________________________________________________________
QUESTION BANK
__________________
282
Question 1
A. a system
B. a policy
C. a procedure
D. a guideline
Question 2
A. a system
B. a policy
C. a procedure
D. a guideline
Question 3
Question 4
283
D. it reduces flexibility
Question 5
Question 6
Which of the following documents would not appear in the purchasing cycle?
A. order
B. invoice
C. time sheet
D. goods received note
Question 7
Question 8
Which of the following is not the name of a document used to record hours
worked?
A. clockcard
B. punchcard
C. watchcard
D. timesheet
Question 9
A. timesheet
B. goods received note
C. requisition
D. voucher
284
Question 10
A. accrual
B. raw materials
C. work-in-progress
D. finished goods
Question 11
A. safeguarding assets
B. preventing fraud
C. avoiding foreign exchange risk
D. efficiency
Question 12
Question 13
Question 14
Question 15
285
A. uniform processing of transactions
B. low capital costs
C. no computer training required
D. system will not crash
Question 16
Question 17
A. capital cost
B. training cost, especially for older staff
C. information easy to analyse
D. systems can crash
Question 18
Question 19
Question 20
286
D. system will not crash
Question 21
Question 22
A. capital cost
B. training cost, especially for older staff
C. information easy to analyse
D. systems can crash
Question 23
Question 24
A. Word document
B. Spreadsheet
C. Calculation sheet
D. Cell document
287
_____________________________________________________________
ANSWER BANK
__________________
288
1. A
2. C
3. A
4. D
5. B
6. C
7. D
8. C
9. D
10. A
11. C
12. A
13. B
14. C
15. A
16. D
17. C
18. A
19. C
20. A
21. D
22. C
23. A
24. B
289
290
CHAPTER 20
291
Components of Internal Control
292
The term ‘internal control’ can refer to any of these five components.
Internal controls are there to prevent risks occurring or to minimise the impact
of risks (i.e. to help prevent things going wrong). Even when controls are in
place documents may still get lost or portable assets may go missing. The
level and extent of internal controls required depend on what the risks are if
such controls fail. It is particularly important that stringent controls exist where
there are associated legal requirements.
293
Most internal controls are of great interest to the external auditor. If internal
controls are believed to be very reliable from the external auditor point of
view, that will mean that the amount of substantive testing (tests to identify
errors and omissions in financial records) of transactions and resultant
balances in the ledger accounts will be reduced.
This requirement is set out more clearly in the Combined Code on Corporate
Governance. Principle C2 of the Code states that: ‘The board should maintain
a sound system of internal control to safeguard shareholders’ investment and
the company’s assets.’
Provision C2.1 of the Code goes on to explain that the board should, at least
annually, conduct a review of the effectiveness of the system of internal
controls and should report to shareholders that they have done so. This
review must cover all material controls, including financial, operational and
compliance controls and risk management systems.
The changes in the nature and extent of significant risks since the last
annual assessment.
The scope of management’s ongoing monitoring of risks, including the
reports management has made to the board and any relevant work by
internal audit.
The incidence of any significant control failings or weaknesses that
have been identified during the year.
294
20.4 ACCA SYLLABUS GUIDE OUTCOMES 5 and 7
IDENTIFY AND DESCRIBE FEATURES FOR PROTECTING THE
SECURITY OF IT SYSTEMS AND SOFTWARE WITHIN BUSINESS
DESCRIBE GENERAL AND APPLICATION SYSTEMS CONTROLS
IN BUSINESS
Detective controls
These are controls that detect if any problems have occurred. They are
designed to pick up errors that have not been prevented. These could be
exception reports that reveal that controls have been circumvented (for
example, large amounts paid without being authorised). Other examples
could include reconciliations, supervision and internal checks.
Corrective controls
These are controls that address any problems that have occurred. Basically,
corrective controls are aimed at restoring the system to its expected state.
Having backup configuration files or hard drive images that can be reloaded
to restore the state are both good examples. So where problems are
identified, the controls ensure that they are properly rectified.
295
Other Classifications
Classifications Details
Types of Audit
3. Transaction audit
4. Social audit
5. Management investigations.
296
_____________________________________________________________
KEY POINTS
__________________
297
1. Internal control is the process designed and effected by management
to provide reasonable assurance on:
reliability of financial reporting
effectiveness and efficiency of operations, and
compliance with applicable laws and regulations
298
10. Preventive controls - preventing risks from occurring
12. Corrective controls – controls that address any problems that have
occurred
299
_____________________________________________________________
QUESTION BANK
__________________
300
Question 1
If a company's internal controls are very well designed, they eliminate the risk
of failing to achieve the company's objectives?
A. true
B. false
Question 2
Question 3
Question 4
Question 5
Which of the following are substantive tests used for in the context of external
audit of financial accounts?
301
Question 6
Question 7
Question 8
A. effective internal controls will reduce the scope of the external audit and
help to moderate audit fees
B. the absence of internal controls will increase the external audit workload
C. reliance on internal controls will reduce the amount of substantive testing
of transactions and resultant balances
D. the absence of internal controls substantially increases the risk of error
and fraud
Question 9
A. true
B. false
Question 10
A. true
B. false
302
Question 11
A. true
B. false
Question 12
Question 13
Question 14
Question 15
Calum works in the internal audit department of Z Co. His duties involve the
identification, evaluation and testing of internal controls. He produces reports
to senior management on these activities. For which type of audit is Calum
responsible?
303
A. operational audit
B. transactions audit
C. social responsibility audit
D. systems audit
Question 16
In order to establish an effective internal control system that will minimise the
prospect of fraud, which one of the following should be considered first?
Question 17
A. physical security
B. authorisation policy
C. sequential numbering of transaction documents
D. requiring signatures to confirm receipt of goods or services
Question 18
A. true
B. false
Question 19
Comparing the actual performance of a business with the budgeted
performance for the period is an example of a control activity.
A. true
B. false
Question 20
304
A. preventative
B. detective
C. corrective
Question 21
Which type of audit is concerned with the evaluation of the internal control of
an organisation?
A. substantive audit
B. systems audit
C. operational audit
D. value for money audit
Question 22
Question 23
Question 24
A. A fraud trial
B. An audit trial
C. A computer trial
D. A password trial
305
_____________________________________________________________
ANSWER BANK
__________________
306
1. B
2. B
3. D
4. B
5. A
6. D
7. B
8. C
9. B
10. B
11. B
12. B
13. A
14. A
15. D
16. B
17. D
18. B
19. A
20. A
21. B
22. B
23. D
24. B
307
308
CHAPTER 21
21.1.3 Factors that might increase the risk of fraud and error:
management domination by one person, or a small group of people
unnecessarily complex corporate structure
high turnover rate of key accounting personnel
personnel who do not take leave/holidays
understaffed accounting department
volatile business environment
inadequate working capital
deteriorating quality of earnings
inadequate segregation of duties
lack of monitoring of control systems
unusual transactions – in cash, or direct to numbered bank accounts
payments for services disproportionate to effort
significant transactions with related parties
Inadequate IT systems.
309
21.2 ACCA SYLLABUS GUIDE OUTCOMES 2 and 3
IDENTIFY DIFFERENT TYPES OF FRAUD IN THE ORGANISATION
EXPLAIN THE IMPLICATIONS OF FRAUD FOR THE
ORGANISATION
310
21.2.1 The possible implications of fraud to the company
311
21.4 ACCA SYLLABUS GUIDE OUTCOME 5
DEFINE THE TERM MONEY LAUNDERING
The biggest source of illicit profits comes from the drugs' trade and it was
drug trafficking that provided the initial catalyst for concerted international
efforts against money laundering. The drugs' industry is a highly cash
intensive business and "in the case of cocaine and heroin the physical
volume of notes received is much larger than the volume of drugs
themselves". In order to rid themselves of this large burden it is necessary to
use the financial services industry and in particular, deposit-taking institutions.
The entry of cash into the financial system, (placement’ stage) is where the
launderer is most vulnerable to detection. Because of the large amounts of
cash involved it is extremely hard to place it into a bank account legitimately
312
"shell" corporations, which exist solely for laundering purposes. The high
daily volume of wire transfers makes it difficult for law enforcement agencies
to trace these transactions.
Transfers to and from the financial system are also under the umbrella of
‘reporting of suspicious transactions’ and this can provide useful information
on the ‘layering’ stage of the money laundering process. The keeping of
comprehensive transaction records (part of the procedures) by financial
organisations provides a useful audit trail and gives useful information on
people and organisations involved in laundering schemes once discovered.
For Accountants, the most worrying aspect of the law on money laundering
relates to the offence of failing to disclose. It is relatively straightforward to
identify actual “knowledge” of money laundering and therefore of the need to
disclose it, but the term “suspicion” of money laundering is not defined. The
nearest there is to a definition is that suspicion is more than mere speculation
but falls short of proof or knowledge. It is a question of judgement.
313
_____________________________________________________________
KEY POINTS
__________________
314
1. Fraud is an intentional act by one or more individuals
315
_____________________________________________________________
QUESTION BANK
__________________
316
Question 1
Question 2
Question 3
A. a deliberate act
B. collusion between two or more persons
C. deception
D. an objective of unfair advantage
Question 4
A. true
B. false
Question 5
A. true
B. false
Question 6
In the context of fraud, teeming and lading is most likely to occur in which
area of operation?
317
A. sales
B. quality control
C. advertising and promotion
D. despatch
Question 7
A. window dressing
B. teeming and lading
C. skimming schemes
D. pyramid schemes
Question 8
Question 9
A. true
B. false
Question 10
Which of the following factors suggests an increased risk of fraud and error in
a company's recording of its transactions?
318
Question 11
Which of the following types of fraud is not carried out by a third party to the
business?
A. 419 fraud
B. Ponzi scheme
C. false billing fraud
D. teeming and lading fraud
Question 12
Question 13
A. economic boom
B. economic recession
Question 14
Which of the following controls should discourage a teeming and lading fraud
from being carried out in the payments received department?
Question 15
A. true
B. false
319
Question 16
Question 17
A. True
B. False
Question 18
A. True
B. False
Question 19
A. True
B. False
Question 20
A. No
B. Yes as it results in removal of assets
C. Yes as it results in intentional misrepresentation of the financial position
of a business
320
Question 21
321
_____________________________________________________________
ANSWER BANK
__________________
322
1. D
2. B
3. B
4. A
5. A
6. A
7. D
8. B
9. B
10. D
11. D
12. B
13. B
14. C
15. B
16. C
17. B
20. C
21. D
323
324
CHAPTER 22
22.1.1 Leadership
22.1.2 Managers
All managers have in common the overall aim of getting things done,
delegating to other people rather than doing everything themselves. It can be
defined as ‘the effective use and coordination of resources such as
capital, plant, materials and labour to achieve defined objectives with
maximum efficiency’.
325
22.1.3 Supervision
planning
organising
326
commanding
coordinating activities
controlling performance
Henri Fayol realised that organisations were becoming more complex and
required their managers to work more professionally. His motivation was to
create a theoretical foundation for an educational program for managers who
lacked formal training in those days. Basing his work on his experience as a
successful managing director of a mining company, he developed generic
'Principles of Management' to help organisations achieve optimum
performance working toward their goals and company objectives.
1. Division of labour
Achieving the maximum efficiency from labour through specialisation across
all aspects of organisation (commercial, financial, security, accounting,
managerial) rather than just focusing purely on areas of technical activities.
2. Establishment of authority
Having the legitimate standing to give orders – linked with responsibility.
3. Enforcement of discipline
Upholding discipline is a core activity when running an organisation, although
its form varies across organisations. Management can sanction employees
with warnings, penalties, demotions or even dismissals.
4. Unity of command
An employee should receive orders from one supervisor only. Dual
command generates tension, confusion and conflict, and results diluted
responsibility and blurred communication.
5. Unity of direction
A common objective for a group of activities is an essential condition to
obtaining unity of action, coordination of strength and the focusing of effort.
327
8. Centralisation
Fayol choose the 'living organism' as metaphor for an organisation when
considering centralisation versus decentralisation. The level of centralisation
is a matter of proportion as is the division of labour.
11. Equity
Equity is the combination of justice and kindness. Managers must constantly
apply the correct balance between equity and discipline.
328
Employee behaviour depends primarily on the social and
organisational circumstances of work.
Leadership style, group cohesion and job satisfaction are major
determinants of the outputs of the working group.
Employees work better if they are given a wide range of tasks to
complete.
Standards set internally by a working group influence employee
attitudes and perspectives more than standards set by management.
The Manager
According to
Drucker
Establish Organise
Yardsticks
Motivate &
Communicate
Henry Mintzberg, on the other hand, identified ten skills which managers
need if they are to develop greater effectiveness, and grouped them together
under three categories, interpersonal, informational and decisional.
329
Interpersonal Example
Figurehead Symbolic role, manager E.g. receiving
obliged to carry out social, visitors
inspirational, legal and and making
ceremonial duties. presentations.
Informational Example
Monitor The manager collects and E.g. reading
sorts out information which reports
is used to build up a and interrogating
general understanding of subordinates.
the organisation and its
environment as a basis for
decision making.
Disseminator To be a disseminator E.g. passing
means to spread the privileged
information widely. information to
subordinates.
330
Decisional Example
Entrepreneur Managers should be E.g. launching a
looking continually for new idea or
problems and introducing
opportunities when procedures such
situations requiring as a cost
improvement are reduction
discovered. programme.
Authority stems from two main sources. In the first place it owes much to the
position which the manager occupies in the hierarchy. It is of course true that
real authority does not come automatically with the entitlement of using a job
title, but it is undeniable that a person can be materially assisted by the
authority and influence associated with his position. Having said this,
however, it must be recognised that the personal qualities of the individual –
his general competence and the confidence which he inspires – are even
more important.
331
Responsibility expresses the obligation a person has to fulfill a task, which he
or she has been given. A person is said to be responsible for a piece of work
when he or she is required to ensure that the work is done. Responsibility is
the obligation to use delegated powers. A very important point that everyone
manager has to consider is that managers and supervisors themselves are
ultimately responsible for the actions of their subordinates; The term
‘accountable’ is often used.
332
22.4 ACCA SYLLABUS GUIDE OUTCOME 4
EXPLAIN THE SITUATIONAL, FUNCTIONAL AND CONTINGENCY
APPROACHES TO LEADERSHIP WITH REFERENCE TO
THEORIES OF ADAIR, FIEDLER, BENNIS, KOTTER AND HEIFETZ
Adair suggests that any leader has to strive to achieve three major
goals while at the same time maintaining a position as an effective
leader.
Individual
Needs
Task
Needs
Group
Setting Objectives Needs
Planning Tasks
Allocating Responsibilities Communication
Setting Performance Team Building
Standards Motivation
Discipline
333
22.4.2 The contingency approach - (Fiedler)
Some of the values used to distinguish between managers and leaders have
also been identified as:
334
others to work at levels beyond more compliance. Only
transformational leadership is said to be able to change
team/organisational cultures and create a new direction. (doing the
right thing)
People resist what they do not understand. People resist what they do not
like. People resist because, “We tried that before and it didn’t work.” People
resist just for the sake of resisting. People resist for many reasons. It is
important to understand the dynamics of resistance and to proactively plan
and deal with such resistance.
Kotter set out the following change approaches to deal with resistance.
Heifetz argues that the role of the leader is to help people face reality and to
mobilise them to make change. Heifetz suggests that the old approach to
leadership was that leaders had the answers, the vision and then needed to
persuade people to sign up for the change. Heifetz believes that leaders
provide direction but do not have to offer definite answers and should
mobilise people to tackle the tough challenges for themselves.
335
Leaders have two choices when resolving a situation:
Robert Blake and Jane Mouton carried out research into managerial
behaviour and observed two basic dimensions of leadership: concern for
production (or task performance) and concern for people. Based on the
results of staff questionnaires, managers can then be plotted on Blake and
Mouton’s grid.
336
Team management: this manager integrates the two areas to foster
working together and high production to produce true team
leadership.
Benefits Drawbacks
The grid shows areas where The grid assumes that
management faults can be leadership style can be
identified and can then categorised into the two
provide the basis for training dimensions and that
and for management results can be plotted on
development. the grid.
As an appraisal and The position of team
management development management is accepted
tool to inform managers that as the best form of
attention to both task and leadership. This may not
people is possible and be practical or indeed
desirable. advisable. In many
Managers can determine how industries, concern for the
they are viewed by their task may be more
subordinates. important than concern for
people, and visa versa
and will always depend on
the individual situation.
22.5.2 Ashridge
Tells (autocratic) – the manager makes all the decisions and issues
337
instructions which must be obeyed without question.
Strengths
Quick decisions can be made when required.
The most efficient type of leadership for highly programmed work.
Weaknesses
Communications are one way, neglecting feedback and potential for
upward communication or team member input.
Does not encourage initiative or commitment from subordinates,
merely compliance
Sells (persuasive) – the manager still makes all the decisions, but believes
that team members must be motivated to accept them in order to carry them
out properly.
Strengths
Team members understand the reason for decisions.
Team members may be more committed.
Team members may be able to function slightly better in the absence
of instruction.
Weaknesses
Communications are still largely one way.
Team members are not necessarily motivated to accept the decision.
It still doesn’t encourage initiative or commitment.
Consults (participative) – the manager confers with the team and takes
their views into account, although still retains the final say.
Strengths
Involves team members in decisions, encouraging motivation through
greater interest and involvement.
Consensus may be reached, enhancing the acceptability of the
decision to team members.
The quality of the decision may benefit from the input of those who do
the work.
Encourages upward communication.
Weaknesses
May take longer to reach decisions (especially if consensus is sought).
Team member input may not enhance the quality of the decision.
Consultation can be a façade for a basic ‘sells’ style.
Joins (democratic) – the leader and the team members make the decision
together on the basis of consensus.
Strengths
Can provide high motivation and commitment from team members.
338
Empowers a team member to take the initiative (e g. in responding
flexibly to customer demands and problems).
Shares other advantages of the ‘consults’ style (especially where team
members can add value).
Weaknesses
May undermine the authority of the manager.
May further lengthen the decision making process.
May reduce the quality of the decision because of the politics of
decision because of the politics of decision making.
339
_____________________________________________________________
KEY POINTS
__________________
340
341
342
4. Scientific/Classical theories of Management include the views of Taylor
and Fayol
343
9. Authority is the right to give orders and may sometimes exert power on
others
15. Heifetz argued that there are two types of choices that the leaders have
infront when they are about to resolve a problem
Technical change
Adaptive change
344
_____________________________________________________________
QUESTION BANK
__________________
345
Question 1
Question 2
A. Control
B. Motivation
C. Communication
D. Compromise
Question 3
Which one of the following statements is closest to the beliefs of the classical
school?
Question 4
Which one of the following statements is closest to the beliefs of the human
relations school?
Question 5
A. True
B. False
346
Question 6
Adrian is the manager of a call centre. Consultants have advised him that by
reorganising his teams to complete highly specific tasks the call centre will be
able to increase the throughput of work significantly, as well as increasing the
number of sales calls made to the public. The reorganisation proposals are
unpopular with many workers, who feel that their jobs will become tedious
and repetitive. The proposal to reorganise the work of the call centre utilises
principles put forward by which school of management thought?
Question 7
A. Communicating
B. Motivating
C. Coordinating
D. Developing
Question 8
A. planning
B. controlling
C. commanding
D. motivating
Question 9
A. Liason
B. Monitor
C. Disseminator
D. Spokesperson
Question 10
347
A. liability to be called to account
B. accountability for actions
C. an obligation owed
Question 11
A. referent
B. reward
C. legitimate
D. expert
Question 12
Which of the following is not one of the five sources or bases of power
identified by French & Raven?
A. reward power
B. referent power
C. hierarchical power
D. legitimate power
Question 13
A supervisor is a person given ______ for planning and controlling the work
of their group.
A. authority
B. autonomy
C. autocracy
Question 14
A. responsibility
B. authority
C. obligation
D. liability
Question 15
348
A. Psychologically Distant Manager
B. Psychologically Close Manager
Question 16
Question 17
A. motivation
B. decision-making
C. peace-keeping
D. recognition
Question 18
A. a and b
B. b and c
C. c only
D. a only
Question 19
A. Authoritarian
B. Autocratic
C. Assertive
349
Question 20
Question 21
350
____________________________________________________________
ANSWER BANK
__________________
351
1. C
2. A
3. B
4. A
5. A
6. C
7. C
8. D
9. C
10. B
11. D
12. C
13. A
14. B
15. A
16. A
17. B
18. B
19. B
20. B
21. A
352
353
CHAPTER 23
Recruiting people who are not suitable for the organisation means they are
likely to be discontented, unlikely to give their best, and end up leaving
voluntarily or involuntarily when their unsuitability becomes evident.
354
Consequences of effective Consequences of poor
recruitment and selection recruitment and selection
The person appointed will:
The process of job analysis starts with realising that there is a need or
requirement of a job. A job specification is a detailed study and description
355
of the tasks that make up the job and the kind of person required to do the
job. A job description will set out how a particular employee will fit into the
organisation. It will therefore need to set out:
356
Internal External
Motivating present employees Obtain specialist skills
Part of career development Inject ‘new blood’ into Company
plan
‘Know’ the staff already But
Candidate understands work
Save time and money May create dissatisfaction in existing
No induction necessary employees
May cost more (higher wage)
Recruitment consultants
357
Choosing advertising media
Methods of selection generally start with the short listing of applicants. The
potential candidates then face a variety of other methods used in the
selection process. These include:
Selection Methods:
Application Forms
Assessment Centres
References
Tests
Interviews
Selection interviews
Interviews are by far the most widely used selection technique. The main
interview options are:
1. Face to face
2. Group Interviews
3. Succession Interviewing
4. Problem Solving
5. Panel Interview
6. Stress
358
Advantages of the interview Disadvantages of the interview
technique Technique
places candidate at ease too brief to ‘get to know’
highly interactive, allowing candidates
flexible question and answers interview is an artificial
opportunities to use situation
nonverbal communication halo effect from initial
opportunities to assess impression
appearance, interpersonal qualitative factors such as
and communication skills motivation, honesty or
Opportunities to evaluate integrity are difficult to
rapport between the assess prejudice –
candidate and the potential stereotyping groups of
colleagues/bosses. people
lack of interviewer
preparation, skill, training
and practice
Subjectivity and bias.
Selection testing
There are two basic types of test:
1. Proficiency and attainment tests are used to measure an individual's
demonstrated competence in particular job related tasks.
2. Psychometric testing measures such psychological factors as aptitude,
intelligence and personality.
Assessment centre
An assessment centre can consist of many processes:
Group discussions
Presentations
Questionnaires
Simulations – an imitation
Games
Speeches
Peer ratings
Self-appraisal
Role-play
359
Written tests
References
ROLES AND
RESPONSIBILITIES
360
23.4 ACCA SYLLABUS GUIDE OUTCOMES 6 to 8
361
than the other. An example would be a condition that a candidate must be of
a particular height.
362
_____________________________________________________________
KEY POINTS
__________________
363
1. Recruitment is the process of generating a supply of possible
candidates for positions within an enterprise.
4. Recruiting people who are not suitable for the organisation means they
are likely to be discontented, unlikely to give their best, and end up
leaving voluntarily or involuntarily when their unsuitability becomes
evident.
6. Job Analysis – the process starts with a detailed study and description
of the tasks that make up the job and the kind of person required to do
the job
13. The concept of diversity embodies the belief that people should be
valued for their difference and variety.
364
14. Equal opportunities describes the idea that everyone in an
organisation should have an equal chance to apply and be selected for
posts, to be trained or promoted and to have employment terminated
fairly.
365
_____________________________________________________________
QUESTION BANK
__________________
366
Question 1
Indicate from the list below which three steps in the selection process will
come before inviting candidates for interviews.
Question 2
Question 3
Question 4
A. True
B. False
Question 5
367
A. willingness to challenge company rules and requirements
B. rarely absent from work on grounds of illness
C. takes pride in belonging to the company
D. content with his remuneration
Question 6
A. True
B. False
Question 7
Question 8
A. intelligence testing
B. personality testing
C. competence testing
D. psychometric testing
Question 9
368
B. screening candidates
C. employee flexibility
D. identifying training needs
Question 10
An accountancy firm has a job vacancy for a receptionist at one of its offices.
Which of the following would be the most suitable medium for the job
advertisement?
A. accountancy journal
B. national newspaper
C. local newspaper
D. the company website
Question 11
Lloyds Co. Ltd introduced flexible working hours to deliver high service levels
to its existing employees in the hope of retaining its staff. They also thought
that implementing flexible working is a cheaper option than recruiting.
A. Yes
B. No
Question 12
Workforce planning is a suitable tool for a business that wants to make sure
that it always has the right employees and skills available.
A. True
B. False
Question 13
Tesco advertises jobs in different ways. First it looks within the business at its
internal ‘talent plan’. This shows which workers are looking to move forward
and develop their skills. Externally it advertises online and in stores, whilst for
more specialist jobs, like pharmacists and bakers, it advertises in specialist
magazines, online or via TV and radio.
Question 14
369
Which of the following is not part of Rodger's 7 point plan for person
specification?
A. special aptitudes
B. impact on other people
C. disposition
D. general intelligence
Question 15
Job analysis is the process of identifying the purpose of the job and its
components parts, and specifying what must be learnt in order for there to be
effective performance.
A. true
B. false
Question 16
A company has advertised for staff who must be at least 1.88 metres tall and
have been in continuous full-time employment for at least 5 years.
Which of the following is the legal term for this unlawful practice?
A. Direct discrimination
B. Indirect discrimination
C. Victimisation
D. Implied discrimination
Question 17
Ms. Abee was an Indian migrant, and is now an Australian citizen. She
alleged that Ms Simpson, a co-worker at ABC Co. Ltd, called her a ”lazy,
black, Indian stupid”, which caused her to be distressed and humiliated,
because all the warehouse employees knew about it. She complained to the
management who ordered an apology and also issued a warning that
dismissal would follow any repetition of the remark.
Ms Abee was dissatisfied, because she believed that the apology was not
genuine, and she therefore refused to accept it. She was of the view that Ms
Simpson’s employment should have been terminated. She also claimed that,
following her complaint, she was not welcomed by other employees,
particularly by her new supervisor who was appointed after her complaint was
made and who was Ms Simpson’s boyfriend.
370
B. direct discrimination, implied discrimination
C. direct discrimination, victimisation
Question 18
James and Liam, both 13 years old, go to a games shop after school. As they
walk in they are told by the store manager to leave their school bags at the
entrance of the shop, pointing to a sign next to the door displaying the shop's
'No school bags allowed inside' policy. Soon afterwards, they notice that a
few older guys wearing business suits have been allowed to bring their bags
into the store.
A. Age
B. Sex
C. Maritial Status
Question 19
Considering the case scenario in question 18. What else could the store
manager have done if he was concerned about theft?
Question 20
A. Interviews
B. References
C. Work sampling
D. Personality tests
Question 21
A. Direct discrimination
B. Indirect discrimination
C. Victimization
371
D. Harassment
_____________________________________________________________
ANSWER BANK
__________________
372
1. A, C and D
2. D
3. A
4. B
5. C
6. A
7. A
8. C
9. C
10. C
11. A
12. A
14. B
15. B
16. B
17. C
18. A
19. D
20. C
21. C
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CHAPTER 24
When you are dealing with other people there are different types of behaviour
that can be adopted.
Being inherently social, people generally do not choose to live or work alone.
Most of their time is spent interacting with others. People are born into a
374
family group, work in groups and play in teams.
One person cannot do everything, but a team can combine all the main areas
of skill and knowledge that are needed for a particular job.
Within organisations there has been an implicit belief that people working as
members of a group or team perform more effectively than if they are
organised as individuals. There are, of course, many work situations where
the group is the best means to get work done, such as:
One of the key points that manager need to grasp is that an effective group is
one which not only achieves its task objectives but satisfies the needs of its
members as well.
For each individual there are many factors that affect behaviour and
performance at work
24.3.1 Motivation
Many of the factors that motivate individuals to perform are social in nature;
groups can bring out the best in people and can be essential for the delivery
of social needs.
24.3.2 Perception
Developing a group means identifying distinct roles for each of its members.
Any individual can have several roles, varying between different groups and
activities. The role adopted will affect the individual’s attitude towards other
375
people.
There is also a “role theory” which suggests that people behave in any
situation according to other people’s expectations of how they should
behave in that situation
Role ambiguity arises when individuals are unsure what role they are to
play, or others are unclear of that person’s role and so hold back cooperation.
If a manager tries to be “friend” with staff, this may create ambiguity and
people will not know where they stand
Role conflict arises, when individuals find a clash between differing roles
that they have adopted. For example, if you have to discipline a member of
staff (in your role of supervisor) with whom you have become informally
friendly (in your role as a sociable person)
Role signs are visible indications of the role. Style of dress and uniform are
clear examples of role signs.
Role set describes the people who support a lead person in a major role, e.g.
the accounts clerk will relate to the accounts manager.
Role models are the individuals you aspire to be like: people you look up to
and model your own behavior on.
376
_____________________________________________________________
KEY POINTS
__________________
377
1. The 3 main types of behaviours are:
assertive
aggressive
passive
378
_____________________________________________________________
QUESTION BANK
__________________
379
Question 1
Which of the following is one of the three main types of behaviour that can be
adopted when dealing with other people?
A. persuasive behaviour
B. demonstrative behaviour
C. appreciative behaviour
D. passive behaviour
Question 2
A. 2 + 2 = 5
B. 2 + 2 = 4
C. nothing
Question 3
Question 4
A. role ambiguity
B. role set
C. role signs
D. role incompatibility
380
_____________________________________________________________
ANSWER BANK
__________________
381
1. D
2. A
3. C
4. D
382
383
CHAPTER 25
In groups:
people accommodate each other
people negotiate
objectives may be modified
the process issues are often covert (hidden)
politics are rife (frequent)
commitment can be high.
384
accountable. The heart of any team is a shared commitment by its members
for combined performance. Goals cannot be achieved without the
cooperation and communication of team members. When a team is formed,
its members must have the right mix of competencies to achieve the team's
goals. Also, its members need to be able to influence how they will work
together to accomplish those goals even if it includes the need of constructive
criticism.
The role team role theory was developed by Meredith Belbin in 1981,
following nine years of study. The Belbin's team role theory has become one
of the most accessible and widely used tools to support team building. The
team roles were designed to define and predict potential success of
management teams, recognising that the strongest teams have a diversity of
characters and personality types. It has been criticised due to its potential
oversimplification. However, when used wisely to gain insight about the
working of the team and identify the team strengths and weaknesses it can
be extremely useful.
Leader Coordinator
Shaper Task leader, extrovert
Plant Thoughtful and thought provoking, ideas
Person
Monitor Criticises others ideas, brings the team
evaluator down to earth
Resource Extrovert, networker, looks for alternative
investigator Solutions
The Company Administrator, organizer
worker
The Team Concerned with relationships within the
worker Groups
The Finisher The progress chaser
The Expert As required by the project
385
including:
Proposing
Supporting
Seeking information
Giving information
Blocking / difficulty stating
Shutting-out behavior
Bringing-in behavior
Testing understanding
Summarizing
Each type of behavior may be appropriate in the right situation at the right
time. A team may be low on some types of contribution and it may be up to
the team leader to adopt behaviors as to provide a balance.
Performing
Productivity
Norming
Cooperation
Storming
Conflict
Forming
Awareness
386
the task realm, intimate, personal opinions are expressed. Thus, this is the
stage of norming.
Finally, the group attains the fourth stage in which interpersonal structure
becomes the tool of task activities. Roles become flexible and functional, and
group energy is channeled into the task. Structural issues have been
resolved, and structure can now become supportive of task performance.
This stage can be labelled as performing. (Tuckman 1965). More recently a
5th stage has been added to Tuckman's original four. Dorming – If a team
remains for a long time in the performing phase, there is a danger that it will
be operating on automatic pilot. Groupthink occurs to the extent that the
group may be unaware of changing circumstances. Instead, maintaing in the
team becomes one of its prime objectives.
• inappropriate leadership
• unqualified membership
• unconstructive climate
• unclear objectives
• poor achievement
• ineffective work methods
• insufficient openness and confrontation
• undeveloped individuals
• low creative capacity
• unconstructive relationships between team members
Peters and Waterman define the five key aspects of successful taskforce
teams as:
The numbers should be small; Inevitably each member will then
represent the interest of their section/ department.
The team should be of limited duration, and exist only to resolve this
particular task.
Membership should be voluntary.
Communication should be informal and unstructured, with little
documentation and no status barriers.
It should be action oriented - The team should finish with a plan for
action
387
25.3.3 Evaluating team effectiveness
388
_____________________________________________________________
KEY POINTS
__________________
389
1.
2.
Teams
share a common goal
enjoy working together
commitment to achieve goals
diverse individuals
loyalty to the project
attain a team spirit.
3. Groups:
people accommodate each other
people negotiate
objectives may be modified
the process issues are often covert
politics are rife
commitment can be high.
390
performing
dorming
8. Team size can substantially affect the dynamics among the members and
the ability to create a sense of mutual accountability.
391
_____________________________________________________________
QUESTION BANK
__________________
392
Question 1
Question 2
Question 3
Which of the following is more likely to occur in the behaviour within a group
rather than a team?
Question 4
Jackie leads an established team of six workers. Last month, two have left to
pursue alternative jobs and one has commenced maternity leave. Three new
staff members have joined Jackie's team.
A. Norming
B. Forming
C. Performing
D. Storming
393
Question 5
A. monitor-evaluator
B. plant
C. resource-investigator
D. company worker
Question 6
Question 7
A. forming
B. storming
C. norming
D. performing
Question 8
Belbin defined 9 roles with a team. Bringing in new contracts, ideas and
394
developments to the group is a description of which role?
A. shaper
B. plant
C. resource investigator
D. team worker
Question 9
According to Belbin “the source of original ideas and proposals” is known as:
A. shaper
B. plant
C. resource investigator
D. team worker
Question 10
A team has been formed to plan the Christmas social event for the company.
One of the members of the team, John, is heard to comment negatively on
other people's ideas. Which of Belbin's roles does he fulfil?
A. the finisher
B. monitor evaluator
C. shaper
D. team worker
Question 11
ABC Limited is a small marketing agency. A group has been formed, chaired
by Nicholas, to work on an advertisement for a new client. Progress on the
advertisement is slow – many ideas are being put forward, but there is a lot of
criticism within the group of other people's ideas. Which of Tuckman's group
stages applies in this case?
A. forming
B. storming
C. norming
D. performing
Question 12
395
B. clear objectives
C. members who do not challenge or criticise
D. regular views of performance
Question 13
The number of members in a team should be small and each member should
represent his own interest and not that of their section/ department.
Is this statement true or false?
A. True
B. False
Question 14
The team should be of limited duration, and exist to resolve a particular task
whilst membership should be voluntary.
A. True
B. False
Question 15
Which of the following is not a criterion for a successful team as per Peters
and Waterman?
A. voluntary membership
B. structured communication
C. action orientated
D. small number
396
_____________________________________________________________
ANSWER BANK
__________________
397
1. C
2. A
3. A
4. B
5. C
6. B
7. B
8. C
9. B
10. B
11. B
12. C
13. B
14. A
15. B
398
399
CHAPTER 26
Motivation represents the forces acting on or within a person that cause the
person to behave in a specific, goal-directed manner. Since motives of
employees affect their productivity, one of management's jobs is to channel
employee motivation effectively toward achieving organisational goals.
However, motivation is not the same as performance. Even the most highly
motivated employees may not be successful in their jobs, especially if they do
not have the competencies needed to perform the jobs or work under
unfavourable job conditions. Although job performance involves more than
motivation, the latter is an important factor in achieving high performance.
In the short run you can have one without the other but in the long run there
is usually congruence. Consider someone working for a very aggressive
manager who constantly shouts at them. They may work very hard to avoid
further abuse from their boss but would probably be looking for another job.
In the longer term the poor working conditions would also dampen their
motivation. From the organisation’s perspective it is highly desirable to
have motivated workers, as they
work harder
make fewer mistakes
generate less waste
provide more feedback
make more suggestions
are more likely to be satisfied with their jobs and
don’t waste time
Teams
Motivation is also important to the efficient running of teams. Apart from the
benefits outlined above, motivated employees are also
more likely to cooperate and put team interests first.
400
Individuals
From an individual’s perspective being motivated should result in:
greater job satisfaction
improved health (less stress)
improved career prospects and
finding the job more interesting.
Maslow proposed that people have five types of needs (as cited in the
diagram above) and when a need is satisfied it no longer motivates a person.
401
26.2.3 Hertzberg's two factor theory of motivation (Content
Theory)
Hygiene factors are concerned with extrinsic factors these are separate from
or external to the job itself and are dependent on the decisions of others.
However, in themselves hygiene factors are not sufficient to result in positive
motivation.
Motivators include
Sense of achievement
Recognition of good work
Increasing levels of responsibility
Career advancement
Attraction of the job itself
The main motivation factors are thus not in the environment but in the
intrinsic value and satisfaction gained from the job itself. Most are non
financial in nature. Fredrick Herzberg defines three ways that management
can attempt to improve staff satisfaction and motivation
402
the job but also increase the workload, leading to delegation of certain
responsibilities to clerks within the department, the cascading effect
enriching other jobs as well.
403
26.2.5 Vroom's Expectancy Model (Process Theory)
The expectancy model holds that individuals know what they desire from
work. They choose activities only after they decide that the activities will
satisfy their needs. An individual believes that effort expended will lead
(expectancy) to some desired level of performance and that this level of
performance will lead (instrumentality) to desired rewards.
Vroom’s theory may be stated as:
404
2. Demonstrate care for employees.
3. Improve company image being seen as a company who is socially
responsible.
4. To encourage desirable behaviour (motivation).
5. Provide a fair and consistent basis for motivating and rewarding
employees.
6. To further company objectives through an externally based fair system.
7. To reward progression or promotion through developed pathways.
8. To recognise the various factors apart from performance such as job
size, contribution, skills and competences.
9. To control salary costs.
An incentive scheme ties pay directly to performance and the reward should
encourage improvements in performance. It can be tied to the performance of
an individual or a team of employees. The scheme should link performance to
organisational goals.
Profit sharing
1. Usually available to a wide group of employees (often company
wide) where payments are made in the light of the overall
profitability of the company.
2. Share issues may be part of the scheme.
405
customers to win extra orders this year to get a bonus, at the expense of next
year’s sales)
Long term incentive schemes will be those that are designed to continually
motivate and deliver organisational objectives.
Short term incentive schemes will be those that motivate in the short term
but do not deliver ongoing motivation and are often achieved at the detriment
of longer term objectives.
406
Refer to technical article “Understanding Hertzberg’s motivation theory”
at the back of the notes.
_____________________________________________________________
KEY POINTS
__________________
407
1. Maslow's hierarchy of needs proposes that once a person has
accomplished a need, then s/he moves forward to the next reachable
need.
408
employees to deliver organisational goals.
_____________________________________________________________
QUESTION BANK
__________________
409
Question 1
A. Sense of achievement
B. Recognition
C. Bonus
D. Interpersonal relationships
Question 2
Which of the following factors can be both a hygiene factor and a motivator
for employees?
A. Pay
B. The quality of management
C. Working conditions
D. The level of responsibility the individual is given
Question 3
A. Company car
B. Extra holiday entitlement
C. On the job training for new recruits
D. Bonus payment
Question 4
A. needs
B. valence
C. opportunity
Question 5
410
B. theory Y people dislike work, need direction and avoid responsibility
C. self actualising people dislike work, need direction and avoid responsibility
D. hygiene factors determine whether people like work, need direction or take
responsibility
Question 6
A. supervision
B. working conditions
C. job security
D. being given responsibility
Question 7
Lo-cost Ltd offers its employees the following conditions as part of their
employment:
A. a, b and c
B. a only
C. a, b and d
D. b only
Question 8
A. content theory
B. process theory
Question 9
411
have a strong interest in achieving that goal.
B. Vroom believes that people will be motivated to achieve a goal if they feel
that they have a high chance of achieving that goal
C. Vroom believes that people will be motivated to achieve a goal if that goal
is easily achieved
D. Vroom believes that people will be motivated to achieve a goal if they
value that goal and if they can see that what they do will help them to
achieve it.
Question 10
Question 11
A. long term
B. short term
412
_____________________________________________________________
ANSWER BANK
__________________
413
1. C
2. A
3. C
4. B
5. A
6. D
7. D
8. B
9. D
10. B
11. A
414
415
CHAPTER 27
416
and personal knowledge, skills and ability, often termed competence, which
members of certain professions require throughout their working lives’.
417
27.2.3 Learning styles – Honey and Mumford
There are different ways of learning and people learn more effectively if they
are aware of their own learning style preferences. Most people exhibit clear
strong preferences for a given learning style. We should not assume that the
ability to use or ‘switch between’ different styles comes easily or naturally to
many people. People who have a clear learning style preference, for
whatever reason, will tend to learn more effectively if learning is geared to
their preference. For instance – according to Kolb:
418
doing things.
419
Planned experiences
Self managed learning.
420
As with all objectives these should have clear, specific, measurable targets in
relation to the behaviour and standard of behaviour in order to achieve a
given level of performance
Evaluating training
A cost-benefit analysis with feedback to improve selection of method and
delivery
421
that organisations that deliberately foster a culture of learning are those that
are on the leading edge of development and change.
422
_____________________________________________________________
KEY POINTS
__________________
423
1. Learning can be defined as “the process of acquiring knowledge
through experience, which leads to a change in behaviour”.
8. David Kolb and Honey & Mumford work around the same set of stages
in the learing cycle
424
10. The Training Process
425
_____________________________________________________________
QUESTION BANK
__________________
426
Question 1
A. Yes
B. No
Question 2
A. Mr. Charles
B. Mr. Arthur
C. Mr. Michael
Question 3
Question 4
David Kolb suggested that classroom learning is false and that actual
learning comes from which of the following?
427
C. real life experiences
D. dreams and other sub-conscious experiences
.
Question 5
A. activistists
B. reflectors
C. theorists
D. pragmatists
Question 6
Which of the following is NOT one of the learning styles postulated by Honey
and Mumford?
A. theorist
B. reflector
C. assimilator
D. pragmatist
Question 7
Role playing exercise using video recording and playback would be most
effective for which type of training?
Question 8
A. True
B. False
Question 9
A. True
428
B. False
Question 10
A. Evaluating training
B. Assessing the physical health
C. Planning the training
D. Identifying training needs
Question 11
A. analysis
B. performance
C. descriptions
D. rotation
429
_____________________________________________________________
ANSWER BANK
__________________
430
1. B
2. B
3. B
4. C
5. C
6. C
7. A
8. A
9. B
10. B
11. C
431
CHAPTER 28
432
difficult because almost all jobs have many dimensions so that performance
appraisal must employ multiple criteria or measures of effectiveness in order
to accurately reflect the actual performance of the employee.
433
team involvement
motivation
commitment to organisational goals
Appraisals have three main purposes. These are often misunderstood. The
first is to measure the extent to which an individual may be awarded a salary
increase compared with his or her peers. This is the reward review
component.
Employees often question the value and usefulness of the time and effort
taken up by an appraisal. However, it establishes key results that an
individual needs to achieve within a time period while also comparing the
individual's performance against a set and established standard. The
employee is not the only beneficiary - the organisation benefits through
identifying employees for promotion, noting areas for individual improvement,
and by using the system as a basis for human resource planning.
434
For an effective performance appraisal, employees must know not only what
is expected of them, but also the reason for doing the job the way they do it,
and how good/bad they are at their work.
The other side of this is that management are fully aware of what the staff are
supposed to be doing and how they are actually doing it. This can be
achieved if performance criteria are established jointly, appropriate on the job
behaviour is mutually understood and the review is a continual process
focused on growth and development. The organisation’s appraisal scheme is
inextricably linked to its control structure:
435
5. identifying and agreeing future goals and targets for improvement,
solutions to problems
6. manager’s own superior reviewing the assessment to establish the
fairness of the procedure
7. agreeing, preparing and implementing action points, plans to
achieve improvements, e.g. training needs
436
employees, in order to raise the discuss future prospects and
general level of efficiency and ambitions.
effectiveness of the work force.
• It is a valuable system for human • An appraisal interview may be
resource planning, and ensuring that used as a basis for considering
employees are ready for promotion, to pay and rewards.
fill
management job vacancies that arise.
• If it is well managed, • Appraisal can be used to
communications can be improved identify and agree measures for
between managers and staff and so further training and
improve working relationships. development, to improve the
employee’s competence.
There have been studies on the effects of appraisal, which show some
negative effects:
criticism had a negative effect on goal achievement
subordinates generally react defensively to criticism during appraisal
interviews
inferior performance resulted from defensive reactions to criticism
repeated criticism had the worst effect on subsequent performance of
individuals who had little self confidence.
437
Appraisal as A traditional ceremony.
an No purpose or worth.
annual event
Appraisal as Frustration at limited appraisal time.
unfinished No belief that issues will be followed up.
business
One of the barriers to effective appraisal was the view of employees that the
annual appraisal was not treated as something important, and that nothing
was done after an appraisal interview had finished.
There must be a system of follow up and feedback.
There may be agreement between the interviewer and the employee in
the appraisal interview about further training that the employee needs,
or ways in which the employee can be developed. These agreements
should be recorded as part of the official record of the appraisal
interview.
The action plan that has been agreed with the employee should be
reported to senior management and the HR department.
The interviewer is normally the manager of the employee. He or she
should follow up the appraisal report and should arrange the training or
development that has been agreed.
At the next appraisal interview, the interviewer and the employee
should discuss whether the agreed training or development was
provided, and what has been its effect.
The appraisal system itself should be assessed and the claims made by
Lockett will need to be addressed to ensure:
Relevance – does the system have a useful purpose and is it relevant
to the needs of both the organisation and the individual?
Fairness – is there reasonable objectivity and standardisation of
criteria throughout the organisation?
Serious intent – is the management committed to the system or has it
been thrust on them by the HR department? Do the appraisers have
training in interviewing and assessment techniques? Is there a
demonstrable link between performance and reward?
Cooperation – is the appraisal a participative, problem solving activity
with the appraisee given time and encouragement to prepare for it to
be able to make a constructive contribution? What type of conclusion
emerges from the process?
Efficiency – is it costly and difficult to administer and does it seem too
time consuming compared with the value of its outcome?
438
1. Firm – managers should be willing to discuss negative as well as
favourable aspects of performance.
2. Factual – subjective aspects should be avoided.
3. Fair – all employees should be treated the same.
4. Frequent – appraisals should be held on a regular basis rather than
when a problem arises.
Tell and Sell - This emphasises the manager’s role as judge, telling
the employee the outcome of the appraisal and where they need to
improve. This approach may be effective with inexperienced
employees, but is unlikely to be well received by someone who feels
they have the capacity to judge their own performance. It is highly
controlling and it is mostly a one-way communication system.
Tell and Listen - The appraiser still takes on the role of judge, passing
on the results of an appraisal which has already been completed, but
then elicits the appraisee’s reactions. This may enable the appraisee
to influence the results, by offering evidence or explanations which
were previously unknown to the appraiser. Certainly this approach is
more likely to involve the appraisee in decisions about how
development needs might be addressed, such as whether they would
prefer to attend a training course or receive such on the job coaching.
Nevertheless, identification of the development need in the first place
remains with the appraiser. Most of the control therefore remains with
the appraiser, but the appraisee is allowed their say within the limits
that the appraiser allows.
439
28.7 ACCA SYLLABUS GUIDE OUTCOME 7
EXPLAIN HOW THE EFFECTIVENESS OF PERFORMANCE
APPRAISAL MAY BE EVALUATED
The process of assessment and staff appraisal should highlight some of the
causes of dissatisfaction, find solutions and remedy them before the
employee becomes disillusioned, looks for another job and resigns.
The causes of staff leaving fall into three categories:
From records, the staff turnover can be calculated by dividing either the total
separations (those leaving the organisation) or the total replacements by the
average number in the workforce, and expressing the result as a percentage.
Examination of this figure may highlight vital information, e.g. poor selection
techniques or poor working conditions.
440
Refer to technical article “Understanding the importance of appraisals”
at the back of the notes
_____________________________________________________________
KEY POINTS
__________________
441
1. An effective appraisal system should include both quantitative and
qualitative measures.
6. The immediate superior is the person best placed to judge how well his
junior has done.
442
9.
443
_____________________________________________________________
QUESTION BANK
__________________
444
Question 1
Beer et al. (1984) suggest four criteria for assessing performance. Which
one takes into consideration the interests of all stakeholders?
A. high commitment
B. high competence
C. cost effectiveness
D. high congruence
Question 2
Astrid had her performance appraisal with her manager today. She was very
dissatisfied since her manager emphasised on her lack of team involvement
even though she proved to be well tuned whenever she is given a task by
herself.
A. Yes
B. No
Question 3
A. True
B. False
Question 4
A. True
B. False
Question 5
445
Is this statement true or false?
A. True
B. False
Question 6
A. Company Director
B. Human Resources Manager
C. Colleagues
D. Immediate superior
Question 7
Appraisal should be done only once a year. Employees should not be given
day-to-day feedback on their performance?
A. True
B. False
Question 8
A. pay
B. working conditions
C. relationships with work mates
D. marriage
Question 9
A. True
B. False
Question 10
Sam was conducting his performance appraisal with his manager. The
manager decided to use his office so that he will not loose sight of the line
production whilst conducting this appraisal. The manager received a call and
446
he had to leave the office. When he came back, after around 5 minutes, he
told Sam that it was nothing urgent. One of the labourers had a headache
and wanted to go home and rest. Eventually they restarted their appraisal
interview after about 3 minutes since they had to repeat much of what had
already been said.
Question 11
The best form of questions to get to know more about a person are:
A. closed questions
B. open-ended questions
Question 12
Question 13
Gerry has just had his performance appraisal. He was told that his work was
unacceptable and if he does not improve in the next two months he will be
dismissed.
Question 14
447
C. it enables the HR Department to gauge an acceptable general pay rise for
staff
D. it monitors the physical and mental health of employees
Question 15
Every year-ending 31st December all staff at ABC Co. Ltd are required to do a
physical stock-taking. They all know that this stock-taking exercise is
followed by an appraisal performance. After the festive holidays they are all
called for a performance interview for which they really do not look forward.
The fact is that they see it as a waste of time considering no follow up action
is taken during the year.
Which are the main appraisal barriers in the case scenario above:
A. appraisal as confrontation
B. appraisal as unfinished business
C. appraisal as chat
D. appraisal as an annual event
Question 16
448
_____________________________________________________________
ANSWER BANK
__________________
449
1. D
2. B
3. A
4. A
5. B
6. D
7. B
8. D
9. B
11.B
12.B
13.A
14.B
15.B and D
16 the appraisal must not be seen as a chance for the manager to act as
judge, jury and counser for the prosecution!
450
451
CHAPTER 29
The first point we have to recognise is that we are the persons responsible for
the effective management of our own time. A good place to start is to set our
goals, missions and overall objectives. We can then plan ahead and
maximise our time by devoting maximum effort to activities which directly
contribute to the achievement of these goals.
452
If you have a list of things to do that are all about equally important, and if you
are sure that the most important things are on the list, then you do not need
to spend any time comparing them. Just start doing one of them, it does not
matter which one. But for most people most of the time, some of the things
are more important than others, so it is worthwhile taking a few minutes to
read over the list and choose the most important to do first.
John Adair in his book “How to manage your time”, suggests that there are 5
problems common to almost all managers.
a) Procrastinating
b) Delegating ineffectively
c) Mismanaging paperwork
d) Holding unnecessary meetings
e) Failing to set priorities
Act (immediately)
Bin (it)
Create (a plan)
Delegate
Culture
Colleague’s Influence
Staff Demands
Individual’s Personality
Individual’s Personal Skills
Nature of Work
Management Style
Internal Barriers
Discipline
Procrastination (Putting off)
Lack of Motivation
External Barriers
Workload Issues
Available Resources
453
Overcome the internal barriers Overcome the external barriers
Be assertive – identify your Do the right thing right –
time wasters and resolve to doing the right thing is
deal with them, learn to say effectiveness; doing things
NO, delegate. right is efficiency. Focus
Identify and make use of your first on effectiveness
personal biorhythms, or ‘up’ (identifying what is the
time and ‘down’ time. right thing to do),
Conquer procrastination – find then concentrate on
out what causes you to put off efficiency (doing it right).
doing something and Eliminate the urgent –
remedy it, e.g. a feeling of urgent tasks with short
inadequacy could be due to term consequences often
lack of information, lack of a get done
particular skill or lack of to the detriment of the
training. important tasks – those
Promise yourself a reward. with long term, goal related
implications.
Break big jobs into little
steps.
Use negotiation to improve
the use of time.
IT Planning Aids:
Integrated software packages like MS Outlook® has the following features for
personal productivity management:
1. A calendar allows users to timetable their activities for the day and
plan meetings with others. It will also be able to generate reminders,
for example when a deadline is approaching, or the date of a meeting.
2. An address book.
3. To do lists.
4. A journal. This can automatically record interactions with people
involved in a project, such as email messages and record and time
actions such as creating and working on files. The journal will keep
track of all of this and is useful both as a record of work done and as a
quick way of finding relevant files and messages without having to
remember where each one is saved.
454
5. A jotter for jotting down notes as quick reminders of questions, ideas,
and so on.
Handheld
455
_____________________________________________________________
KEY POINTS
__________________
456
1. The purpose of time management is to:
plan the best use of time
eliminate wastage
devote time to the really important issues
complete more in the time available
5. Internal Barriers
Discipline
Procrastination
Lack of Motivation
6. External Barriers
Workload Issues
Available Resources
457
_________________________________________________________
QUESTION BANK
__________________
458
Question 1
Question 2
A. use negotiation
B. concentrate on effectiveness
C. concentrate on efficiency
D. promise yourself a reward
Question 3
A. Discipline
B. Work issues
C. Lack of Motivation
D. Procrastination
Question 4
Danny is a team leader who keeps a detailed checklist of his daily tasks, and
ranks them in order of importance and urgency. He only takes phone calls
during particular times of day to avoid interruptions. Even so, at the end of the
day, he has to work late to complete a large number of urgent but low-hard
tasks for the following day. Which of the following is Danny’s weakness?
A. Planning
B. Delegation
C. Focus
D. Amortization
459
Question 5
460
_____________________________________________________________
ANSWER BANK
__________________
461
1. D
2. D
3. B
5. A
462
463
CHAPTER 30
CONSEQUENCES OF INEFFECTIVENESS
AT WORK
It is a tough job balancing the needs of the organisation and the needs of a
team. The main problems resulting in ineffective work include:
uncommitted workforce
unequal participation between workforce
unmotivated workforce
people having different goals and priorities
distorted communication
inadequate training
no job description
lack of team support from management
conflict between team members
464
_____________________________________________________________
KEY POINTS
__________________
465
1. The main problems resulting in ineffective work are:
uncommitted workforce
unequal participation between workforce
unmotivated workforce
people having different goals and priorities
distorted communication
inadequate training
no job description
lack of team support from management
conflict between team members
466
467
CHAPTER 31
468
31.2 ACCA SYLLABUS GUIDE OUTCOME 3
EXPLAIN HOW PERSONAL AND CONTINUOUS PROFESSIONAL
DEVELOPMENT CAN INCREASE PERSONAL EFFECTIVENESS AT
WORK
Personal and professional development opens the door into raised self-
awareness that encourages to take action to change what one does not like
and work on what s/he does really well, so that a person becomes distinctive
and strong in his own self-belief. These are core qualities for leadership at all
levels and for success in any role.
The mentoring process consists of three core activities, which set it apart
from other developmental activities:
469
A mentor is a guide, counsellor, tutor or trainer who:
Through active listening, the use of open questions and clarifications, the
470
counsellor encourages reflection and help the client identify issues and
solutions. Counselling does not involve giving advice or making suggestions.
Stage 2 Set Goals - following the above analysis, personal goals should be
set for the individual. The tasks the person does not do well are examined
and reasons are established. This can take the form of an alternative and
more traditional type of SWOT analysis by examining the person’s strengths
471
and weaknesses. Particular weaknesses should be identified as being the
cause of failure to carry out certain tasks well. This should then inform a
personal set of objectives in order to overcome these weaknesses.
472
_____________________________________________________________
KEY POINTS
__________________
473
1. A personal development plan is a ‘clear developmental action plan for
an individual that incorporates a wide set of developmental
opportunities including formal training’.
4.
474
_____________________________________________________________
QUESTION BANK
__________________
475
Question 1
A. increasing self-confidence
B. self-actualisation (the top level of the Maslow pyramid)
C. increasing self-awareness
D. developing specialist expertise
Question 2
Question 3
A. True
B. False
Question 4
A. specific
B. motivational
C. attainable
D. time bounded
Question 5
A. PEST analysis
B. SWOT analysis
C. PESTEL analysis
D. Environmental scan
476
Question 6
A. True
B. False
Question 7
A. Buddy
B. Counsellor
C. Mentor
D. Instructor
Question 8
Question 9
A. observant
B. sensitive
C. empathetic (sharing feelings)
D. advisory
477
Question 10
Compromise is an example of a:
A. Win-win result
B. Win-lose result
C. Lose-win result
D. Lose-lose result
478
_____________________________________________________________
ANSWER BANK
__________________
479
1. D
2. A
5. B
6. A
7. C
8. A
9. D
480
481
CHAPTER 32
Many people automatically assume that conflict is related to lower group and
organisational performance. This assumption is frequently incorrect. Conflict
can be either constructive or destructive to the function of a group. Levels of
conflict can be either too high or too low. Either extreme hinders
performance. An optimal level is one at which there is enough conflict to
stimulate creativity, allow tensions to be released and initiate the seeds for
change.
482
32.3 ACCA SYLLABUS GUIDE OUTCOME 3
EXPLAIN HOW CONFLICT CAN BE AVOIDED
The issue is minor or only of passing importance and thus not worth
the individual’s time or energy to confront the conflict
The individual does not have enough information to deal effectively
with the conflict at that time
The individual’s power is so low relative to the other person’s that
there is little chance of causing change
Others may resolve the conflict more effectively
2. Bargaining: This technique is best used when both parties have some
sort of idea or solution but simply cannot find common ground. Often a
third party, such as a team leader, is needed to help find the compromise.
Compromise involves give and take on both sides.
483
_____________________________________________________________
KEY POINTS
__________________
484
1. Conflict refers to a process in which one party (person or group)
perceives that its interests are being opposed or negatively affected by
another party. Four primary levels of conflict may be present in
organizations:
i. Intrapersonal conflict
ii. Interpersonal conflict
iii. Intragroup conflict
iv. Intergroup conflict
485
CHAPTER 33
COMMUNICATING IN BUSINESS
486
33.2 ACCA SYLLABUS GUIDE OUTCOME 2 AND 3
IDENTIFY METHODS OF COMMUNICATION USED IN THE
ORGANISATION AND HOW THEY ARE USED
DESCRIBE THE MAIN METHODS AND PATTERNS OF
COMMUNICATION
Five major types have been studied in depth: wheel or the star, circle, all
channels, chain or the line and “Y”
The wheel is always the quickest way to reach a conclusion, and the
circle the slowest.
For complex problems, the all channel is the most likely process to
reach the best decision.
487
The level of satisfaction for individuals is lowest in the circle, fairly high
in the all channel, mixed in the wheel, with the central figures usually
expressing greater satisfaction, and the rest feeling isolated.
Under time pressure the all channels system either restructures, to
become a wheel, or disintegrates.
Strategic Information
Helps senior managers with long term planning and the development
of a strategic plan.
Tactical Information
To help middle management monitor and control the organisation.
Operational Information
To help knowledge and data workers design services/products,
disseminate information and perform routine administrative tasks.
As a consumer you have to deal regularly with the information systems that
support business operations at the many retail stores where you shop. Most
retail shops now use computer-based information systems to help them
record customer purchases, keep track of inventory and evaluate sales
trends. Store operations would grind to a halt without support of such
information systems.
Information systems also help store managers make better decisions and
attempt to gain a strategic competitive advantage. For example, decisions on
what lines of merchandise need to be added or discontinued, or on what kind
of investment they require, are typically made after an analysis provided by
computer-based information systems.
488
33.4 ACCA SYLLABUS GUIDE OUTCOME 5
LIST THE ATTRIBUTES OF GOOD QUALITY INFORMATION
Businesses are often criticised for producing too much information simply
because their information systems can do it. A good way of ensuring
relevance is to closely define the objectives of any information report and
produce information that are ACCURATE.
A – Accurate
C – Complete
C – Cost
U – Understandable
R – Relevant
A – Adaptable
T – Timely
E – Easy to use
Complete – the more complete information is, the more reliable it will be.
Cost – the information should not cost more to obtain than the benefit derived
from it.
489
33.5 ACCA SYLLABUS GUIDE OUCOME 6
EXPLAIN A SIMPLE COMMUNICATION MODEL – SENDER,
MESSAGE, RECEIVER, FEEDBACK AND NOISE
FEEDBACK is when the receiver confirms that the message has been
received and responds to it. This ensures that the information has been
correctly received by the right person and if necessary, acted upon.
490
33.6 ACCA SYLLABUS GUIDE OUTCOME 7
EXPLAIN FORMAL AND INFORMAL COMMUNICATION AND
EXPLAIN THEIR IMPORTANCE IN THE WORKPLACE
491
33.6.2 Informal communication
492
on time and in a state where it can be acted on.
Effective communication will ensure that the right person receives the right
information at the right time.
Unclear Messages
Message Overload
Bad Timing
Jargon
Speed
493
_____________________________________________________________
KEY POINTS
__________________
494
1. Communication is “the interchange of information, ideas, facts and
emotions by two or more persons. It establishes relationships and
makes organising possible”.
2. There are various ways and means used by organisations for the
achievement of their company objectives – effective communication is
definetly one of them.
495
12. The main types of communication :
16. People using the all channels have a fairly high satisfaction.
17. People using the wheel (star) have an average (mixed) satisfaction.
496
_____________________________________________________________
QUESTION BANK
__________________
497
Question 1
Question 2
Question 3
Do you think the method used by the manager to communicate to her staff
was the best one used? If not, which method would have been more
effective? Explain your answer
Question 4
A. sender
B. message
C. receiver
D. distortion
Question 5
498
Question 6
A. True
B. False
Question 7
A. Horizontal communication
B. Diagonal communication
C. Downward communication
D. Upward communication
Question 8
Which of the following is not one of the four of the most important reasons for
lateral communication?
A. task co-ordination
B. problem-solving
C. conflict resolution
D. specifying job instructions
Question 9
A. True
B. False
Question 10
A. lack of direction
B. lack of coordination
C. lack of delegation
D. lack of control
499
Question 11
A. lack of coordination
B. benefits from the creative ability of subordinates
C. poor understanding of working instructions and responsibilities
Question 12
A. The circle
B. The chain
C. The Y
D. The wheel
Question 13
Charlie is the leader of a team which tends to communicate via e-mail. Team
members send all messages to Charlie who checks the content of the
messages and then forwards them on to the other team members if he feels
they need to be made aware of any of the information. Which communication
pattern is Charlie using in the team?
A. The Y
B. The wheel
C. All channels
D. The circle
500
_____________________________________________________________
ANSWER BANK
__________________
501
1a. Sarah Agius
1b. Letter
1c. Employees
3. Face to face interaction would have been better in this case but it
really depends on the no. of employees concerned (which is not
specified in the case question)
6. B
7. B
9. B
10. B
11. C
12. D
13. B
502
CHAPTER 34
Ethical issues in organisations are more common and complex than generally
recognised. Some ethical issues influence the decisions that employees
make daily. Some ethical issues involve factors that blur the distinction
between “right” or “wrong”. As a result employees may experience ethical
dilemma.
There is no simple rule for making ethical decisions but the following points
may act as guidelines or considerations:
Ethical considerations are important for both the organisation and the
individual. The following points highlight some reasons why ethics is very
important for organisations.
503
Employees will not blindly accept orders to act in a manner that they
personally perceive to be unethical
To ensure the development of high standards within the profession, the IFAC
established a code of ethics. These indicate a minimum level of conduct. As a
member the ACCA released there own code of ethics, designed to align to
those of the IFAC (this means that the standards of ACCA are the same as
those of IFAC)
1. Integrity
2. Objectivity
504
professional service based on current developments in practice, legislation
and techniques. Members should act diligently and in accordance with
applicable technical and professional standards when providing professional
services.”
4. Confidentiality
5. Professional behaviour
“Members should comply with relevant laws and regulations and should avoid
any action that discredits the profession.” The ACCA Rulebook goes further,
and states that members should behave with courtesy and consideration
towards all with whom they come into contact in a professional capacity.
The ACCA's Code of Ethics and Conduct is contained in the annual Rulebook
issued by the Association. All registered students, affiliates and members of
the ACCA are required to comply.
All ACCA members must comply with the Fundamentals Principles, whether
or not they are in practice. Members must identify threats to compliance with
the Principles and apply safeguards to eliminate the threat or to reduce it to
an acceptable level such that compliance with the Fundamental Principles is
not compromised
34.3.1 Openness
505
spatial openness, in terms of accessibility like installing facebook, no
separate cabin for executives. This openness combined with willingness to
share results in greater clarity of objectives and free interactions among
people.
34.3.2 Trust
34.3.3 Honesty
34.3.4 Respect
34.3.5 Empowerment
34.3.6 Accountability
506
34.4 ACCA SYLLABUS GUIDE OUTCOME 4
EXPLAIN THE CONCEPT OF ACTING IN THE PUBLIC INTEREST
Acting in the public interest means acting for the common good of the
community. The meaning of ‘the public interest’ is often taken as self-evident.
Proponents and opponents of a proposal can equally and strongly argue that
a particular proposal is, or is not ‘in the public interest’, often leading to
confusion about the application of the term.
Applying different views on: who the public are: what their objectives
should be, what the public actually want, what underlying values
should be applied?
Applying different weighting to various interests that need balancing?
Applying different decision-making processes on, for example, when
individual preferences should be over-ridden; the merits of different
types of incentive; how people will react, etc?
The emerging governance and accountability regime for business and the
professions has become far more concerned with stakeholder interests and
ethical matters than has been the case in the past. Directors, executives and
professional accountants who serve the often conflicting interests of
shareholders directly and public indirectly, must be aware of the public’s new
expectations for businesses and must manage their risks accordingly. This
awareness must be combined with traditional values and incorporated into a
framework for ethical decision making and action.
Selflessness – individuals should act solely in the public interest and not for
personal gain or that of friends and family
Integrity – individuals should avoid actions which would place them under
financial or other obligations whereby the person holding their obligation
could influence their public duties
507
Accountability – individuals are responsible for their own actions and are
accountable to others. They must subject themselves to whatever scrutiny
comes with their office
Honesty – where individuals have private interests which relate to their public
ones, they should declare them and seek to resolve any conflict to protect the
public interest
Leadership – individuals must promote and respect the other six principles
through leadership and example
508
_____________________________________________________________
KEY POINTS
__________________
509
1. Ethics has to do with the rightness or wrongness of decisions.
6.
Selflessness
Integrity
Objectivity
Accountability
Openness
Honesty
Leadership
510
_____________________________________________________________
QUESTION BANK
__________________
511
Question 1
Which of the following is one of the main reasons why ethics is important to
an organisation?
Question 2
A. True
B. False
Question 3
A. directors only
B. sales and marketing employees only
C. qualified accountant employees only
D. all employees
Question 4
Question 5
512
A. maximum number of days off for sickness each year
B. no smoking of cigarettes inside the building
C. employees who meet the public must be smartly dressed
D. no personal use of company photocopying machines without prior
permission from a manager
Question 6
Question 7
ACCA students do not have to comply with either IFAC's or ACCA's code of
ethics?
A. True
B False
Question 8
The IFAC Code of Ethics and the ACCA Code of Ethics and Conduct identify
the same Fundamental Principles to be observed by professional
accountants.
A. True
B. False
513
Question 9
A. the accountant must comply with both the local code and the IFAC Code in
all areas, whichever is stricter
B. the accountant need only comply with the local code
C. the accountant can choose, for each area, which code to follow
D. the accountant must comply with all statutory requirements in the country,
but otherwise is free to take whatever action he chooses, since codes of
conduct are non-statutory
Question 10
A. integrity
B. objectivity
C. confidentiality
D. independence
Question 11
Which of the Fundamental Principles in the IFAC Code of Ethics requires that
“a professional accountant should be straightforward and honest in all
professional and business relationships”?
A. integrity
B. objectivity
C. professional competence
D. professional behaviour
Question 12
514
_____________________________________________________________
ANSWER BANK
__________________
515
1. A – without investors there is clearly no business
2. B
3. D
4. C – discrimination!
6. D
7. B
8. A
9. A
10. D
11. A
516
CHAPTER 35
In pursuing this mission, the IFAC Board has established the IFAC Ethics
Committee to develop and issue, under its own authority, high quality ethical
standards and other pronouncements for professional accountants for use
around the world. This Code of Ethics establishes ethical requirements for
professional accountants.
A member body of IFAC or firm may not apply less stringent standards than
those stated in this Code. However, if a member body or firm is prohibited
from complying with certain parts of this Code by law or regulation, they
should comply with all other parts of this Code. Some jurisdictions may have
requirements and guidance that differs from this Code. Professional
accountants should be aware of those differences and comply with the more
stringent requirements and guidance unless prohibited by law or regulation.
517
35.2 ACCA SYLLABUS GUIDE OUTCOME 2 AND 3
DESCRIBE HOW PROFESSIONAL BODIES AND REGULATIONS
PROMOTE ETHICAL AWARENESS AND PREVENT OR PUNISH
ILLEGAL OR UNETHICAL BEHAVIOUR
RECOGNISE WHEN AND TO WHOM ILLEGAL OR UNETHICAL
CONDUCT BY ANYONE WITHIN OR CONNECTED TO THE
ORGANISATION SHOULD BE REPORTED
An accountancy student should start at an early stage of his career (from time
of studying) to apply ethical considerations in his decisions. The diagram
above shows how a student should develop his skills in ethics starting from
enhancing the ethics knowledge and moving on to developing ethical
sensitivity. Once these criterions are reached, the student / junior accountant
needs to improve ethical judgment and continue to maintain an ongoing
commitment to ethical behaviour.
518
The member bodies of IFAC are professional bodies such as the ACCA, so
IFAC has no direct ability to punish an accountant who acts contrary to the
code. However, IFAC expect the transgressor’s professional body to
investigate the matter and punish the accountant if necessary.
Usually the discipline process begins with a complaint being lodged with the
professional body about the ethical conduct of a member or firm.
Alternatively, the conviction on a legal charge of consequence (example,
fraud) may also trigger the discipline process. The complaint or legal charge
is investigated by staff, and a decision is made to lay a charge or not. Laying
a charge necessitates a hearing to determine guilt or innocence, and the
hearing process can be quite cumbersome (burdensome). When a
professional accountant is found guilty, the details of the case are made
public.
Lynne Paine suggests that ethical decisions are becoming more important
and that there are two approaches to the management of ethics in
organizations:
Reliability – when taking on work, you must ensure that it gets done
and meets professional standards
519
Timeliness – clients and work colleagues rely on you to be on time and
produce work within a specified time frame
520
_____________________________________________________________
KEY POINTS
__________________
521
Reform of the accounting profession has shifted to harmonisation with
global standards worked out under the support of the IASB and IFAC.
These global standards have returned professional accountants to
focus on serving the public interest.
A member body of IFAC or firm may not apply less stringent standards
than those stated in this Code. However, if a member body or firm is
prohibited from complying with certain parts of this Code by law or
regulation, they should comply with all other parts of this Code. Some
jurisdictions may have requirements and guidance that differs from this
Code. Professional accountants should be aware of those differences
and comply with the more stringent requirements and guidance unless
prohibited by law or regulation.
522
CHAPTER 36
There are no universally accepted principles and rules for resolving all the
ethical issues in complex decision-making situations. In addition, individuals
and groups differ over what influences both ethical and unethical behaviours
and decisions.
1. Is it legal?
2. Is it contrary to our company's adopted code of ethics?
3. Is it contrary to any other published official code of ethics like for
example, the ACCA code of ethics and conduct?
4. Would you mind other people knowing what you have decided, for
example, if it was published in tomorrow's newspaper?
5. Who is affected by this decision? Would they regard the decision as
fair?
The rules state that members and firms should not accept or continue
engagements in which there are or are likely to be significant conflicts of
interest between members, firms or clients.
Members should evaluate the threats arising from a conflict of interest and
unless they are insignificant, they should apply safeguards. The test of
whether a treat is significant is whether a reasonable and informed third party
523
having knowledge of all relevant information, would consider the conflict of
interest as likely to affect the judgment of members and firms.
524
_____________________________________________________________
KEY POINTS
__________________
525
1. ACCA members need to be aware that a conflict between members’
and clients’ interests might arise if members compete directly with a
client, or have a joint venture with a company that is in competition
with the client.
526
CHAPTER 37
Corporate code of ethics are designed to provide guidance about the conduct
expected by members in order that the services offered will be of acceptable
quality and the reputation of the company will not be violated. To be effective,
codes of conduct need to blend fundamental principles with a limited number
of specific rules. If a code were drafted to cover all possible problems, it
would be extremely voluminous. Corporate codes of conduct are completely
voluntary. They can take a number of formats and address any issue -
workplace issues and workers' rights being just one possible category. Also,
their implementation depends totally on the company concerned.
Members should:
Act in the public interest,
At all times maintain the good reputation of the profession and its
ability to serve the public interest,
Perform with integrity, objectivity and independence, professional
competence, due care and professional skepticism, and confidentiality,
Not be associated with any misleading information or
misrepresentation
527
Example
Directors, owners and senior management are in the process of realising that
they and their employees need to understand that appropriate ethical values
are to be considered when decisions are being made. Organisational,
professional and personal values provide the framework to decision making,
therefore, it is vital that organisations create an environment or culture where
appropriate shared values are created, understood, fostered and committed
to by all concerned. This cannot be reliably achieved by simply leaving ethics
solely to the judgment of individuals in a workforce of divergent experiences
528
and backgrounds to work out by trial and error. Nor can it be achieved by
simply sending a letter urging employees to be on their best behaviour, or by
just publishing a code of conduct.
529
_____________________________________________________________
KEY POINTS
__________________
530
1. Corporate code of ethics are designed to provide guidance about the
conduct expected by members in order that the services offered will be
of acceptable quality and the reputation of the company will not be
violated.
3. Members should:
Act in the public interest,
At all times maintain the good reputation of the profession and its
ability to serve the public interest,
Perform with integrity, objectivity and independence, professional
competence, due care and professional skepticism, and confidentiality,
Not be associated with any misleading information or
misrepresentation
531
532
CHAPTER 38
(a) Self-interest threat ─ the threat that a financial or other interest will
inappropriately influence the professional accountant’s judgment or
behaviour;
(b) Self-review threat ─ the threat that a professional accountant will not
appropriately evaluate the results of a previous judgment made or service
performed by the professional accountant, or by another individual within the
professional accountant’s firm or employing organisation, on which the
accountant will rely when forming a judgment as part of providing a current
service;
(c) Advocacy threat ─ the threat that a professional accountant will promote a
client’s or employer’s position to the point that the professional accountant’s
objectivity is compromised;
(d) Familiarity threat ─ the threat that due to a long or close relationship with
a client or employer, a professional accountant will be too sympathetic to their
interests or too accepting of their work; and
533
38.2 ACCA SYLLABUS GUIDE OUTCOME 2
OUTLINE SITUATIONS AT WORK WHERE ETHICAL DILEMMA
MAY BE FACED
Most people, most of the time, know the difference between right and wrong.
Ethical dilemmas rarely involve choosing between these two opposing
alternatives. Instead, ethical dilemmas normally arise because there is no
entirely right option. Instead, there are compelling reasons for each of the
alternatives so it is up to the individual to decide which alternative to choose.
Example 1
Answer – there is integrity issue her. Whilst you may have time to include the
information in the management accounts, it is unlikely that you will be able to
check its accuracy as well. Therefore you risk misinforming the finance
director of the month’s sales.
Example 2
During your lunch break, your company’s human resources manager has
asked you for some help. She has recently inherited a considerable sum of
money and would like you to calculate her inheritance tax and capital gains
tax liability. She has also asked you for advice on how she should invest the
money.
Answer – the issues here are professional competence and due care. Unless
you are a tax expert, it is unlikely that you would have sufficient competence
to calculate the tax liabilities. Giving financial advice can be a minefield, and
you may need to be qualified under the financial services regulation before
you could do so.
534
38.2.2 Examples of circumstances that may create self-review threats
include, but are not limited to:
535
38.3 ACCA SYLLABUS GUIDE OUTCOME 3
LIST THE MAIN SAFEGUARDS AGAINST ETHICAL THREATS AND
DILEMMAS
536
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KEY POINTS
__________________
537
1. Threats fall into one or more of the following categories: -
a. Self-interest threat
b. Self-review threat
c. Advocacy threat
d. Familiarity threat
e. Intimidation threat
538
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TECHNICAL ARTICLES
__________________
539