MarZar

Mock Exam One

AAT L3 Business Awareness

Contents Page
Mock practice assessment 3
Revision Notes 23
Solutions to mock practice assessment 42

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 Mock Exam One
1 AAT L3 Business Awareness

Assessment information:
You have 2 hours and 30 minutes to complete this practice assessment.

• This assessment contains 7 tasks and you should attempt to complete every
task.
• Each task is independent. You will not need to refer to your answers to previous
tasks.
• The total number of marks for this assessment is 100.
• Read every task carefully to make sure you understand what is required.
• Where the date is relevant, it is given in the task data.
• Both minus signs and brackets can be used to indicate negative numbers unless
task instructions state otherwise.
• You must use a full stop to indicate a decimal point. For example, write 100.57
not 100,57 or 10057.
• You may use a comma to indicate a number in the thousands, but you don’t have
to. For example, 10000 and 10,000 are both acceptable.
• You will need to double click to enter values into a gapfill or cell within a table.

Exam Note: Task 2, Task 4 and Task 6 of your AAT exam assessment is human (not
computer) marked, therefore assessment results are not released immediately.

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Task 1 (20 marks)

This task is about organisations and ethics for accountants.

(a) Identify whether the following statements about charities are true or false.
(4 marks)

TRUE FALSE

A charity exists for public benefit such as for religious or scientific causes.

A charity pays corporation tax on any profits that it earns.

The Charity Commission is a government body that regulates charities.

A charity is controlled by a Board of Directors and is owned by the general public.

(b) Identify whether the following statements about companies are true or false.
(4 marks)

TRUE FALSE

A board of directors is appointed by the company shareholders.

Shareholders can provide more investment to fund the business.

Shareholders of a company have ‘limited liability’.

No complex legal or accounting regulations govern companies.

(c) Complete the following sentence using the drop down list.
(1 mark)
The department responsible for identifying anticipating and satisfying customer
requirements profitably would be the

Picklist: Finance department, Marketing department, HR department,

IT department.

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You work in a finance department for a large company.
(d) Identify the person that you would most likely contact about the following
information.
(3 marks)

Person

Budget cost allocation for monthly factory

expenses.
Sales credit control and customer collection
problems.

Query regarding the details on a supplier invoice.

Picklist: Payroll manager, Production manager, Purchasing manager, Sales manager.

(e) Match each statement shown below to a fundamental principle of ethics for
AAT members.
(3 marks)

Statement Ethical principle

AAT members should be straightforward, honest and

truthful.

AAT members should comply with relevant laws and

regulations as a minimum requirement.
AAT members should not allow bias, conflicts of interest or
undue influence to override their professional judgement.

Picklist: Confidentiality, Objectivity, Integrity, Professional competence and due care,

Professional behaviour.

(f) Identify whether each business stakeholder is an internal, or external

stakeholder.
(3 marks)
Internal External
Shareholder.
Finance Director.
Employee.

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(g) Match each statement shown below to an element of organisational structure.
(2 marks)

Job tasks are sub-divided into smaller areas for

different workers to perform.
Lines of staff authority that extend from the top to the
bottom of an organisation.

Picklist: span of control, specialisation, chain of command, centralisation.

End of Task

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Task 2 (18 marks)
This task is about analysing the external environment.

MB operates 40 small buses across 25 different routes throughout London, it also runs
a 24-7 fast track service to major airports around London.

The bus industry is a large contributor of greenhouse gases in London. More awareness
of climate change by customers and plans from local authorities to introduce more
“Ultra-Low Emission Zones”, will mean that 15 existing buses will need to be replaced
by MB in the next 2-3 years. If these older buses are not replaced, MB will need to pay
daily congestion charges on certain routes and these routes will become loss making.
Interest rates have been raised by the Bank of England, which means any future cost of
borrowing will be much higher for the company.

Brexit has caused heavy losses of EU drivers that were working for MB and the
company has experienced difficulties recruiting enough bus drivers, wage rates and
diesel prices have risen sharply in the last few months.

Customer lifestyles are rapidly changing with greater focus on the environment and use
of greener transport. 5G technology offered by rivals of MB have played an important
role in getting more passengers to use bus services. MB does not currently provide 5G
services on any of its 40 small buses. Smartphones used by passengers also enable
quicker alternatives for using a bus service e.g. Uber.

People across the country are seeking savings in their everyday life and more people
are working from home, causing a downturn in passenger numbers.

(a) (i) Explain the usefulness of undertaking a PEST analysis for MB.
(2 marks)

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(a) (ii) Explain two threats to MB for each PESTLE category below and give one
recommendation to reduce the risk of each threat you have identified.
(8 marks)
Political

Social

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(b) Identify for each type of partnership shown below, whether all partners, some
partners or no partners have limited liability. (3 marks)

Type of partnership Limited liability

General partnerships

Limited Liability Partnerships (LLP)

Limited Partnerships (LPs)

Picklist: all partners, some partners, no partners.

(c) Identify whether the following statements about a public organisation is true
or false. (2 marks)
TRUE FALSE
A public organisation is normally not-for-profit making and its
purpose is for public (or social) benefit.
A public organisation is ultimately funded by taxation that is
collected by a government.

(d) Complete the following sentence.

(1 mark)
A statutory maximum of partners is allowed in a general partnership,
but many permitted exceptions exist such as for solicitors and accountants.
Picklist: 5, 10, 20, 50.

(e) Identify each type of cyber-attack from each statement provided below.
(2 marks)

Statement Type of cyber-attack

Software that is designed to enter a computer device and send data to a

third-party without the users consent.
A hacker sends out thousands of disguised emails, that may trick recipients
into clicking on a link or attachment that contains a virus.

Picklist: DDoS attack, Blockchain, Phishing, Spyware, Ransomware.

End of Task

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Task 3 (17 marks)
This task is about business structures, technology and data security.

(a) Identify THREE implications of a wider span of control for a manager.

(3 marks)

Managers could be overloaded with a greater number of subordinate requests.

Improved communication between the manager and their subordinates.

Increased career opportunities for subordinates to be promoted and succeed their manager.

A lower headcount for managers could be achieved.

Tighter supervision and control of subordinates by each manager.

Managers could have less time to train and develop their subordinates.

(b) Identify each type of organisational structure explained below.

(3 marks)
Explanation Type of organisation

A distinct business set up within a larger group of companies.

The sub-division of a business into specialised departments.

A project manager coordinating team members who work in different departments.

Picklist: functional, virtual, matrix, divisional, entrepreneurial.

A key principle of GDPR is storage limitation.

(c) Identify TWO internal controls that could help comply with this principle.
(2 marks)

Automatically deleting data kept after a certain time limit.

Periodic review of data kept to ensure it is not held longer than is necessary.

Policies to ensure data controllers handle personal data kept in a fair manner.

Policies to provide reasons why personal data is being kept about an individual.

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(d) Complete the following sentence. (1 mark)
Social engineering is the art of manipulating the of human beings
by creating the right conditions for them to give out confidential information.
Picklist: bank accounts, e-mail accounts, behaviour, computers.

(e) Identify THREE key features of cloud accounting. (3 marks)

Provides blockchain record keeping.

Access to data and information from anywhere.

Eliminates any risk of cyberattacks.

Remote data storage so no backup is required.

Interprets visual information to indicate relationships and trends.

Can display real-time data to a user.

(f) Identify TWO key risks of a cyber-attack. (2 marks)

Improved brand reputation.

Confidentiality of data is breached.

Failure of operations and systems.

Reduction in working capital requirements.

(g) Identify the most likely technology for each statement shown below. (3 marks)
Statement Technology

The capability of a machine to imitate intelligent human behaviour.

A shared ledger that facilitates the process of recording transactions.

Examining data sets to find trends and conclusions about information they contain.

Picklist: blockchain, electronic signatures, AI and machine learning, data analytics.

End of Task

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Task 4 (10 marks)
This task is about ethical and legal compliance.

Exam Notice: Reference material that explains the code of ethics for accountants is
available during the real exam (by clicking on blue links). Please visit the AAT website
and review the two AAT practice assessments to familiarise yourself with its content.
The code of ethics for accountants is not required to be memorised, but will need to be
understood and applied to scenario information provided in your exam.

Safina is an AAT member and works for H&C, a firm of accountants. She has been
assigned to a client, BIK Limited, to work on an audit and assurance assignment for the
client, to review their financial statements for the current year. Whilst working on this
assignment, Safina discovered a significant and material accounting error in the clients
financial accounts in the previous year. The previous year’s financial accounts were
audited last year by Safina and her audit manager at H&C.
Safina raised this matter with her audit manager. The audit manager replied and stated
that the financial accounts from the previous year have already been filed at Companies
House and if the client finds out about the errors, H&C would lose the client and Safina
would lose her job for sure. The audit manager suggested strongly that Safina should
say nothing and take no further action.

(a)(i) Explain the ethical threats for Safina, arising from her managers request.
(2 marks)

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(a)(ii) Explain how Safina would breach her ethical principles, if she followed the
advice of her manager.
(2 marks)

(a)(iii) Explain what actions Safina could take, arising from her managers request.
(2 marks)

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(a)(iv) Explain any future consequences of Safina’s actions, if she followed her
managers request and the previous error is then subsequently discovered by the
senior partner at H&C. (2 marks)

The audit manager has reported the significant error identified to the senior partner at
H&C. BIK Limited is now suing H&C for financial damages for breach of contract and
professional negligence.
(a)(v) Explain what a claim for breach of contract and professional negligence is.
(1 mark)

(a)(vi) Explain what professional indemnity insurance is.

(1 mark)

End of Task

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Task 5 (10 marks)
This task is about the microeconomic environment and sustainability.
Based on the forces of supply and demand for pricing and output in the beef industry.
(a) Identify for each statement below what is most likely to happen to price and
output in the beef industry. (6 marks)

Statement Price Output

An increase in the population of the country.

The market price of chicken decreases.

Farmers face increasing costs to feed and raise their cows.

Picklist: Increase, Decrease, Remains the same.

(b) A fully sustainable business is one that. Choose ONE only. (1 mark)

Consumes natural resources from the environment in a positive way.

Continually improves the welfare of its customers and employees.

Continually improves the welfare of society as a whole.

Consumes natural resources without any negative impact on the environment.

(c) Match each statement shown below to a category included in ‘triple bottom
line’ reporting. (3 marks)
Statement Category

Maximise sales and profits.

Maximise stakeholder welfare.

Minimise harm to the natural environment.

Picklist: Promotion, Planet, Place, Price, Profit, People.

End of Task

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Task 6 (13 marks)
This task is about communication and visualisation.
Three months ago, Janet started up a tea shop in a busy high street within a town
centre, selling hot and cold beverages, hot food, sandwiches, cakes and confectionary.
Janet purchased an electronic cash register for the shop and created five data
classifications to enter and record sales transactions in the cash register. The five data
classifications are:
• Hot beverages.
• Cold beverages.
• Hot food.
• Sandwiches and salads.
• Cakes and confectionary.
For example, if a café late, pot of tea, herbal tea or any other hot drink is sold, the price
of the item is manually entered in the cash register and ‘hot beverages’ is selected as a
data classification.
The first month of trade was in May and was an unusually cold month. June and July
were unusually hot for the time of year. Janet initially recruited two general assistants in
May and a third assistant was recruited in July to help cook and serve hot food.
You have been helping Janet as a friend to improve her record keeping. Janet has
provided you with her analysed cash register sales and a basic cash book for the first
three months of trade. You have entered all the financial data provided into an
accounting software package and have printed off the following report (shown below) for
the first three months of trade.

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Report:
Sales volume (units) July June May

Hot beverages 826 984 1,230

Cold beverages 690 562 354

Hot food 329 475 568

Sandwiches and salads 782 722 677

Cakes and confectionary 499 533 823

Sales (£) July June May

Hot beverages 1,801 2,135 2,620

Cold beverages 2,001 1,118 1,027

Hot food 1,250 1,663 2,857

Sandwiches and salads 2,659 2,708 2,505

Cakes and confectionary 1,547 1,770 2,881

Total 9,258 9,393 11,889

Operating expenses (£) July June May

Ingredients 3,610 3,569 4,280

Light and Heat 655 672 899

Rent and rates 2,650 2,650 2,650

Staff Wages 2,890 2,670 2,050

Depreciation 800 800 800

Total 10,605 10,361 10,679

July June May

Closing bank balance (£) -4,694 -2,242 5,410

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Using the report shown above.
(a)(i) Explain THREE key pieces of information about the sales performance of
Janet’s business for the first three months of trade.
(3 marks)

(a)(ii) Explain ONE key change you would make to improve the sales information
of Janet’s business.
(1 mark)

(a)(iii) Explain TWO key pieces of information about Janet’s business

performance (ignoring sales performance) for the first three months of trade.
(2 marks)

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(a)(iv) Explain TWO examples why you may be sceptical about the integrity of
data provided by Janet. Explain one control for each example that may help
improve the situation in future.
(4 marks)

(b) Identify TWO characteristics of useful information that would most likely
improve, if Janet decides to use a fully digital sales and accounting system.
(2 marks)

Comparable

Consistent

Understandable

Reliable

Timely

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Janet has a tax query and you have agreed to find out more information.
(c) Identify which one of the following is more likely to be a valid source of
information.
(1 mark)

Facebook

Twitter

HMRC

Accounting blog sites

End of Task

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Task 7 (12 marks)
This task is about risk and big data.
HOT HATCH (HH) Limited manufactures very expensive and fast sports cars. The
board of directors of HH have highlighted some major risks for the company and have
chosen a new proposal to manufacture and launch its first ever ‘self-driving’ sports car.
Using the TARA framework for risk management.
(a) Identify the most appropriate strategy to deal with each of the following risks.
You must select all TARA strategies from the picklist shown below.
(4 marks)
Risk Strategy

The increasing environmental concern by drivers is causing rising

demand in the car market for smaller and more economical cars.

A driver or another passenger could be killed or injured, because of

the sheer power of sports cars like those made by HH.

A driver or another passenger could be killed or injured, because of

unknown manufacturing faults at the time when cars are made.

There is high potential that new environmental legislation could mean

that all cars sold, must meet low fuel economy standards, this is
impossible to achieve by HH because of the type of cars they sell.

Picklist: Transfer, Avoid, Reduce, Accept.

(b) Identify the most likely big data characteristic for each way that the new ‘self-
driving’ sports car will perform.
(4 marks)
Characteristics of the HH self driving sports car Big data characteristic

Gigabytes of data are generated by the self-driving car every second.

The self-driving car must collect a wide variety of data from a multitude
of sources and formats e.g. sensors, maps, vehicle health etc.

All data generated by the self-driving car, requires real-time processing

for the car to drive safely.

The self-driving car must constantly learn to send more helpful

information to the driver and change route to avoid traffic delays.

Picklist: Variety, Veracity, Volume, Value, Velocity.

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(c) Identify TWO most likely strategic risks for HH.
(2 marks)

The risk of HH having high levels of business debt.

The risk of a fire or flood at the head office of HH.

The risk of a significant shortage of microchips that will restrict production of HH cars.

The risk that poor quality cars will be manufactured by the production workforce of HH.

The risk that an acquisition by HH of a major supplier to HH proves unsuccessful.

(d) Identify whether each statement below is true or false.

(2 marks)
TRUE FALSE
Risk is the chance of a future outcome occurring, all potential outcomes are
known and the likelihood of each outcome is measurable.

Uncertainty cannot be measured, but gives a high degree of control to a

business over the situation.

End of Task

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 Mock Exam One
1 - Solutions
AAT L3 Business Awareness

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Task 1 - Solutions (20 marks)

(a) Identify whether the following statements about charities are true or false.
(4 marks)

TRUE FALSE

A charity exists for public benefit such as for religious or scientific causes.

A charity pays corporation tax on any profits that it earns.

The Charity Commission is a government body that regulates charities.

A charity is controlled by a Board of Directors and is owned by the general public.

The second statement is false because a charity has tax exempt status, which means it
does not pay tax on any surplus that is earns. The fourth statement is false, a charity is
run by a Board of Trustees, not a Board of Directors (which control a company).
(b) Identify whether the following statements about companies are true or false.
(4 marks)

TRUE FALSE

A board of directors is appointed by the company shareholders.

Shareholders can provide more investment to fund the business.

Shareholders of a company have ‘limited liability’.

No complex legal or accounting regulations govern companies.

The fourth statement is false. The Companies Act is the primary source of company law
that governs companies in the UK. Accounting standards regulate and govern
extensively how company financial statements are prepared and presented.

(c) Complete the following sentence using the drop down list.
(1 mark)
The department responsible for identifying anticipating and satisfying customer
requirements profitably would be the Marketing department.

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(d) Identify the person that you would most likely contact about the following
information.
(3 marks)
Person

Budget cost allocation for monthly factory

Production manager
expenses.
Sales credit control and customer collection
Sales manager
problems.

Query regarding the details on a supplier invoice. Purchasing manager

(e) Match each statement shown below to a fundamental principle of ethics for
AAT members.
(3 marks)
Statement Ethical principle

AAT members should be straightforward, honest and

Integrity
truthful.

AAT members should comply with relevant laws and

Professional behaviour
regulations as a minimum requirement.
AAT members should not allow bias, conflicts of interest or
Objectivity
undue influence to override their professional judgement.

(f) Identify whether each business stakeholder is an internal, or external

stakeholder.
(3 marks)
Internal External
Shareholder.
Finance Director.
Employee.

(g) Match each statement shown below to an element of organisational structure.

(2 marks)

Job tasks are sub-divided into smaller areas for

specialisation
different workers to perform.
Lines of staff authority that extend from the top to the
chain of command
bottom of an organisation.

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Task 2 - Solutions (18 marks)

(a) (i) Explain the usefulness of undertaking a PEST analysis for MB. (2 marks)
Marking guide
• A suggested solution has been provided below.
• Usefulness of PESTLE analysis for MB (1 mark maximum).
• Some application of examples to MB e.g. threats identified include rising wage
rates or fuel costs, or opportunities identified for MD e.g. technologies.
(1 mark maximum for each comment).
• Any other relevant points may be awarded marks.
Suggested solution
PESTLE analysis provides a source of external information that will help senior
management of MB make more effective strategic decisions. (1 mark). It provides early
warning signals about external threats to strategic plans e.g. rising wage and fuel costs,
or replacement of buses. (1 mark). It helps identify new business opportunities quickly
for MB to innovate its strategic plans e.g. 5G technology. (1 mark).
(a) (ii) Explain two threats to MB for each PESTLE category below and give one
recommendation to reduce the risk of each threat you have identified. (8 marks)
Marking guide
• A suggested solution has been provided below.
• Threats identified (maximum 1 mark for each threat identified in each category).
2 marks maximum given for each category for threats.
• Recommendation to reduce each threat identified (maximum 1 mark for each
recommendation).
2 marks maximum given for each category for recommendations.
• Any other relevant points may be awarded marks.

Suggested solution
Political

Threat identified
Local authority decisions are a political factor influencing MB. Plans from local
authorities for more Ultra-Low Emission Zones means that MB will need to replace 15
existing buses in the next 2-3 years, this will be very costly for the company. (1 mark).
Recommendation
MB needs to replace 15 existing buses, by replacing them sooner rather than later, they
could use higher part-exchange values from older buses to fund new ‘cleaner and
greener’ buses. MB could also avoid future interest rate rises if they can enter fixed rate
loan agreements as soon as possible to fund new buses. (1 mark).

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Threat identified
Brexit is a political (or economic) factor influencing MB. Brexit has caused a loss of EU
drivers and MB has experienced difficulties recruiting enough bus drivers. (1 mark).
Recommendation
MB could increase wage rates and offer excellent working conditions to attract more
existing bus drivers. MB could recruit its own trainee bus drivers, as a way of alleviating
future driver shortages. (1 mark).

Social
Threat identified
Greater focus on the environment and use of greener transport by passengers is a
social influence on MB. A key threat to MB because replacement of buses may indicate
that MB is not doing enough to operate a ‘cleaner and greener’ bus service. (1 mark).
Recommendation
Even though expensive, MB could switch to electric or hybrid vehicles. This will help
differentiate the MB brand from its rivals and make its services more appealing for
passengers to use. (1 mark).

Threat identified
Greater use of technology by passengers is a social influence on MB. It is a key threat
to MB because rivals are already using 5G technology. (1 mark).
Recommendation
MB needs to invest in 5G technology and even Apps for customers to view, book and
track their bus journeys in real-time. This will help differentiate the MB brand from its
rivals and make its services more appealing for passengers to use. (1 mark).

(b) Identify for each type of partnership shown below, whether all partners, some
partners or no partners have limited liability.
(3 marks)

Type of partnership Limited liability

General partnerships no partners

Limited Liability Partnerships (LLP) all partners

Limited Partnerships (LPs) some partners

For a general partnership, all partners have ‘unlimited liability’ for any business debts
that cannot be paid. For an LLP, all partners (members) have limited liability and all
partners can be involved in the management of the business. For an LP, at least one
general partner has ‘unlimited liability’ and ‘limited liability’ protection is given only to
‘limited partners’, who cannot be involved in the management of the business.

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(c) Identify whether the following statements about a public organisation is true
or false.
(2 marks)
TRUE FALSE
A public organisation is normally not-for-profit making and its
purpose is for public (or social) benefit.
A public organisation is ultimately funded by taxation that is
collected by a government.

Both statements are true. A public organisation is any organisation that is part of the
public sector (government owned and controlled). The main aim of a public organisation
is to provide services to the general public e.g. the BBC, police, health, education and
social care.
(d) Complete the following sentence.
(1 mark)
A statutory maximum of 20 partners is allowed in a general partnership, but many
permitted exceptions exist such as for solicitors and accountants.

(e) Identify each type of cyber-attack from each statement provided below.
(2 marks)

Statement Type of cyber-attack

Software that is designed to enter a computer device and send data to a

Spyware
third-party without the users consent.
A hacker sends out thousands of disguised emails, that may trick recipients
Phishing
into clicking on a link or attachment that contains a virus.

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Task 3 - Solutions (17 marks)

(a) Identify THREE implications of a wider span of control for a manager.

(3 marks)

Managers could be overloaded with a greater number of subordinate requests.

Improved communication between the manager and their subordinates.

Increased career opportunities for subordinates to be promoted and succeed their manager.

A lower headcount for managers could be achieved.

Tighter supervision and control of subordinates by each manager.

Managers could have less time to train and develop their subordinates.

Span of control means how many sub-ordinates a manager has to plan, control and
delegate work to e.g. the number of subordinates supervised by a single manager.
Span of control is primarily concerned with the number of subordinates that a manager
can efficiently and effectively supervise. A wider span of control will increase the
number of subordinates managed by each manager.
True statements
• Managers could be overloaded with a greater number of subordinate requests.
This may be true because a manager would have more subordinates to manage.
• A lower headcount for managers could be achieved. This may be true because if
more subordinates can be managed by a single manager, then less managers
would be required.
• Managers could have less time to train and develop their subordinates. This may
be true because if more subordinates are managed by each manager, then there
would be less time the manager could spend with each sub-ordinate.

False statements
• Tighter supervision and control of subordinates by each manager. This would be
more likely an implication of narrowing span of control, tighter control would be
achieved by less subordinates being managed.
• Improved communication between the manager and their subordinates. This
would be more likely an implication of narrowing span of control, better
communication could be achieved by less subordinates being managed.
• Increased career opportunities for subordinates to be promoted and succeed
their manager. This would be more likely an implication of narrowing span of
control, less subordinates would increase their chances of succeeding their
manager.

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(b) Identify each type of organisational structure explained below.
(3 marks)
Explanation Type of organisation

A distinct business set up within a larger group of companies. divisional

The sub-division of a business into specialised departments. functional

A project manager coordinating team members who work in different departments. matrix

(c) Identify TWO internal controls that could help comply with this principle.
(2 marks)

Automatically deleting data kept after a certain time limit.

Periodic review of data kept to ensure it is not held longer than is necessary.

Policies to ensure data controllers handle personal data kept in a fair manner.

Policies to provide reasons why personal data is being kept about an individual.

• Storage limitation is one of the key principles of GDPR. It means that a data
controller should only retain personal data for as long as is necessary to fulfil the
specified purpose for why it was processed in the first place. To ensure that
personal data is not kept for longer than is necessary, time limits should be
established and periodic review to erase any redundant data in a safe and
secure manner. GDPR does not set any specific time limits.
• Policies to ensure data controllers handle personal data kept in a fair manner, is
more likely to do with the key principle of ‘lawfulness, fairness and transparency’.
• Policies to provide reasons why personal data is being kept about an individual,
is more likely to do with the key principle of ‘purpose limitation’.

(d) Complete the following sentence. (1 mark)

Social engineering is the art of manipulating the behaviour of human beings by

creating the right conditions for them to give out confidential information.

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(e) Identify THREE key features of cloud accounting.
(3 marks)

Provides blockchain record keeping.

Access to data and information from anywhere.

Eliminates any risk of cyberattacks.

Remote data storage so no backup is required.

Interprets visual information to indicate relationships and trends.

Can display real-time data to a user.

(f) Identify TWO key risks of a cyber-attack.

(2 marks)

Improved brand reputation.

Confidentiality of data is breached.

Failure of operations and systems.

Reduction in working capital requirements.

(g) Identify the most likely technology for each statement shown below.
(3 marks)

Statement Technology

The capability of a machine to imitate intelligent human behaviour. AI and machine learning

A shared ledger that facilitates the process of recording transactions. blockchain

Examining data sets to find trends and conclusions about information they contain. data analytics

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Task 4 - Solutions (10 marks)
(a)(i) Explain the ethical threats for Safina, arising from her managers request.
(2 marks)
Marking guide
• A suggested solution is provided below.
• 1 mark maximum for each ethical threat explained.
• Any other relevant points may be awarded marks.

Suggested solution
• Intimidation. The threat of Safina losing her job is an intimidation threat. The
threat of losing her job may inappropriately influence her judgment or behaviour.
(1 mark).
• Self-interest. The threat that Safina may bend to the managers request, because
she wants to keep her job. Her ‘personal interest’ maybe pursued without any
regard for others. (1 mark).

(a)(ii) Explain how Safina would breach her ethical principles, if she followed the
advice of her manager.
(2 marks)
Marking guide
• A suggested solution is provided below.
• 1 mark maximum for each ethical principle explained.
• Any other relevant points may be awarded marks.

Suggested solution
• Integrity. An obligation for professional accountants to be straightforward and
honest in their professional and business relationships. Safina should be truthful
about the error that she has found. (1 mark).
• Professional behaviour. An obligation for professional accountants to comply with
relevant laws and regulations. Safina would be breaking laws and regulations by
concealing the matter. (1 mark).
(a)(iii) Explain what actions Safina could take, arising from her managers request.
(2 marks)
Marking guide
• A suggested solution is provided below.
• 1 mark maximum for each action explained.
• Any other relevant points may be awarded marks.

32 | P a g e
Suggested solution
• Seek advice confidentially from other relevant managers at H&C (or from the
AAT) before any action is taken. (1 mark).
• Safina should report any unethical behaviour to responsible persons at work e.g.
raise this matter with the senior partner at H&C. If the senior partner refuses to
take any action, then Safina should resign as she needs to avoid being
associated with false information. (1 mark).
• Report the matter using formal internal whistleblowing or ‘speak-out’ procedures
that may be available at H&C for reporting unethical behaviour. (1 mark).

(a)(iv) Explain any future consequences of Safina’s actions, if she followed her
managers request and the previous error is then subsequently discovered by the
senior partner at H&C. (2 marks)

Marking guide
• A suggested solution is provided below.
• 1 mark maximum for each future consequence explained.
• Any other relevant points may be awarded marks.

Suggested solution
• Safina could be reported to the AAT for professional misconduct. This may result
in disciplinary action taken against her e.g. fine, membership suspended or
terminated. (1 mark).
• Internal disciplinary action may be taken against Safina by H&C for her unethical
behaviour e.g. warning, suspension from work, or termination of employment
contact. (1 mark).

(a)(v) Explain what a claim for breach of contract and professional negligence is.
(1 mark)
Marking guide
• A suggested solution is provided below.
• 1 mark maximum to explain a claim for breach of contract and professional
negligence.
• Any other relevant points may be awarded marks.

Suggested solution
A claim for breach of contract and professional negligence can be brought against an
accountant (H&C) by a client (BIK Limited) for illegal or unethical behaviour.
Professional negligence is when a professional accountant fails to perform their
responsibilities to the required standard of a reasonably competent and professional
person e.g. accounting mistakes made that cause a client to suffer financial losses.
(1 mark).

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(a)(vi) Explain what professional indemnity insurance is.
(1 mark)
Marking guide
• A suggested solution is provided below.
• 1 mark maximum to explain professional indemnity insurance.
• Any other relevant points may be awarded marks.

Suggested solution
Professional indemnity insurance is compulsory for H&C who engage in public practice.
Professional indemnity insurance covers or protects an accountant (or firm) against a
claim for loss or damage by a client (or other third party), resulting from negligent
services performed by the accountant (or firm). (1 mark)

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Task 5 - Solutions (10 marks)

(a) Identify for each statement below what is most likely to happen to price and
output in the beef industry.
(6 marks)
Statement Price Output

An increase in the population of the country. Increase Increase

The market price of chicken decreases. Decrease Decrease

Farmers face increasing costs to feed and raise their cows. Increase Decrease

As the population of a country increases, more buyers will exist to buy goods or
services from a market, in this case beef. The effect of an increase in demand (if supply
is unchanged) is to initially create a shortage in the market for beef and this puts
pressure on the market price to rise. As the market price rises, more profit should
incentivise farmers to expand their production of beef and so output will rise.
Chicken is an alternative good that satisfies the same need as beef, it is therefore a
substitute good. If the market price of chicken decreases (encouraging more
consumption of chicken) and the price of beef remained the same, then consumers may
switch to consuming more chicken and less beef. The effect of a decrease in demand
for beef (if supply is unchanged) is to initially create a surplus in the market, which puts
pressure on the market price to fall. As the market price falls, less profit should
incentivise farmers to contract their production of beef and so output will fall.
If business costs rise then less profit is earned and this normally discourages sellers
(farmers) who may cut back on production levels and may even exit the market. The
effect of a decrease in supply (if demand is unchanged) is to initially create a shortage
in the market, which puts pressure on the market price to rise.
(b) A fully sustainable business is one that. Choose ONE only.
(1 mark)

Consumes natural resources from the environment in a positive way.

Continually improves the welfare of its customers and employees.

Continually improves the welfare of society as a whole.

Consumes natural resources without any negative impact on the environment.

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(c) Match each statement shown below to a category included in ‘triple bottom
line’ reporting.
(3 marks)
Statement Category

Maximise sales and profits. Profit

Maximise stakeholder welfare. People

Minimise harm to the natural environment. Planet

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Task 6 - Solutions (13 marks)

(a)(i) Explain THREE key pieces of information about the sales performance of
Janet’s business for the first three months of trade.
(3 marks)
Marking guide
• Suggested solutions are provided below.
• THREE key pieces of information about sales performance (maximum 1 mark for
each piece of key sales information).
• Any other relevant points may be awarded marks.

Suggested solutions

• A significant rise in cold beverages and a significant fall in hot beverages over
the three month trading period. This suggests seasonality of sales in colder and
hotter months. (1 mark).
• The seasonality of sales may also have affected the sale of hot food, cakes and
confectionery, however sale of sandwiches and salads remained fairly stable.
(1 mark).
• A significant fall in total sales (by more than £2,000) over the three month trading
period. This may be due to customer novelty when the shop first opened in May,
but needs further investigation because if it is a continuing trend, this would be
very worrying for Janet’s business. (1 mark).
• Hot food seems to have become a much smaller proportion of total sales (£).
Given the heating cost and recruitment of a third assistant to cook and serve hot
food, it should be reviewed for profitability. (1 mark).

(a)(ii) Explain ONE key change you would make to improve the sales information
of Janet’s business.
(1 mark)
Marking guide
• Suggested solutions are provided below.
• ONE key change to improve sales information (maximum 1 mark).
• Any other relevant points may be awarded marks.

Suggested solutions
• Data entry for the cash register could be modified to give a more detailed and
accurate sales report. For example, rather than just five data classifications, use
a classification for every product sold e.g. not just ‘hot beverages’, use codes
instead for expresso, café late, tea, herbal tea etc. This enables better sales
analysis for popular and unpopular hot drinks sold. Sales codes can also
generate more accurate prices for data entry rather than the cashier manually
entering the price of each item sold. (1 mark).

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 • The sales margin percentage for each product sold will enable Janet to identify
what products generate the greatest profit from her sales generated. It will also
allow unprofitable products to be identified and action taken to either increase
selling price or discontinue the product. (1 mark).

(a)(iii) Explain TWO key pieces of information about Janet’s business

performance (ignoring sales performance) for the first three months of trade.
(2 marks)
Marking guide
• Suggested solutions are provided below.
• TWO key pieces of information about business performance (not sales
performance). Maximum 1 mark each.
• Any other relevant points may be awarded marks.
Suggested solution

• The business bank account is overdrawn and the cash trend overall seems to be
getting worse. Does Janet have an overdraft facility arranged with her bank or
sufficient private funds to cover her future cash position. (1 mark).
• The business earned a small profit in May but incurred losses in June and July.
(1 mark).
• Operating expenses have remained stable, because falling ingredient and
heating costs (variable costs that are driven by sales activity and on a downward
trend) are being replaced with rising staff wages (a fixed cost). (1 mark).

(a)(iv) Explain TWO examples why you may be sceptical about the integrity of
data provided by Janet. Explain one control for each example that may help
improve the situation in future.
(4 marks)
Marking guide
• Suggested solutions are provided below.
• TWO examples of why you may be sceptical (maximum 1 mark for each
example).
• One control for each example (maximum 1 mark for each control).
• Any other relevant points may be awarded marks.
Suggested solution
• The price of each item sold is manually entered in the cash register which may
produce high levels of inaccuracy. One control would be to use a barcode (or
QR code) on a menu for each product sold, the cashier using a machine sensible
device (rather than manual data entry) to enter sales data. This will help improve
the accuracy of sale prices (and sale items) entered and avoid over or under
charging customers. (2 marks).

38 | P a g e
 • The cash book (not bank statements) was used to enter financial data. This data
may not reconcile with the bank statements, so cash balances reported could be
inaccurate due to errors or omissions in the cashbook. One control would be to
reconcile the information in the cash book to the bank statements. This will
improve accuracy of the bank balance reported and therefore the income and
expenses of the business reported. (2 marks).

(b) Identify TWO characteristics of useful information that is more likely to

improve, if Janet decides to use a fully digital accounting system.
(2 marks)

Comparable

Consistent

Understandable

Reliable

Timely

(c) Identify one source of information that is likely to be a valid source of

information.
(1 mark)

Facebook

Twitter

HMRC

Accounting blog sites

39 | P a g e
Task 7 - Solutions (12 marks)
(a) Identify the most appropriate strategy to deal with each of the following risks.
You must select all TARA strategies from the picklist shown below.
(4 marks)
Risk Strategy

The increasing environmental concern by drivers is causing rising

Accept
demand in the car market for smaller and more economical cars.

A driver or another passenger could be killed or injured, because of

Transfer
the sheer power of sports cars like those made by HH.

A driver or another passenger could be killed or injured, because of

Reduce
unknown manufacturing faults at the time when cars are made.

There is high potential that new environmental legislation could mean

that all cars sold, must meet low fuel economy standards, this is Avoid
impossible to achieve by HH because of the type of cars they sell.

• First statement. HH operates in its own niche or segment of the car market (high
performance cars) and so must accept the risk that market conditions may
change.
• Second statement. Sports cars are dangerous and so drivers must be legally
insured in case of third party liability. This is a risk that HH is likely to transfer to
its clients (the driver).
• Third statement. HH would find this risk hard to avoid but should reduce it to an
acceptable level.
• Fourth statement. The new legislation will mean HH will be pretty much out of
business and so they must avoid this risk at all cost.

(b) Identify the most likely big data characteristic for each way that the new ‘self-
driving’ sports car will perform.
(4 marks)
Characteristics of the HH self driving sports car Big data characteristic

Gigabytes of data are generated by the self-driving car every second. Volume

The self-driving car must collect a wide variety of data from a multitude
Variety
of sources and formats e.g. sensors, maps, vehicle health etc.

All data generated by the self-driving car, requires real-time processing

Velocity
for the car to drive safely.

The self-driving car must constantly learn to send more helpful

Value
information to the driver and change route to avoid traffic delays.

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The characteristics of big data
• Volume e.g. the sheer amount of data captured.
• Variety e.g. the ‘diversity’ of multiple sources of data that can be captured.
• Velocity e.g. the sheer ‘speed’ of real-time data processing and analytics.
• Value e.g. that data captured provides value or insight for decision making.
Characteristics did not include veracity e.g. data is trustworthy, complete and accurate.
(c) Identify TWO most likely strategic risks for HH.
(2 marks)

The risk of HH having high levels of business debt.

The risk of a fire or flood at the head office of HH.

The risk of a significant shortage of microchips that will restrict production of HH cars.

The risk that poor quality cars will be manufactured by the production workforce of HH.

The risk that an acquisition by HH of a major supplier to HH proves unsuccessful.

Strategic risk may arise due to adopting the wrong strategy or due to business
(PESTLE) factors changing and having an adverse impact on strategic plans. The risk
of a significant shortage of microchips that will restrict production and an acquisition of a
major supplier that proves unsuccessful, are both strategic risks.
The risk of high levels of business debt is a financial risk e.g. cash-flows are consumed
to pay loan interest and loan repayments, which can leave very little left to distribute
dividends (profits) to shareholders of HH. The risk of a fire or flood is an environmental
(or operational) risk. The risk of poor quality cars made by the workforce is an
operational risk e.g. arising from the operational level or ‘ground level’ that makes, sells
and delivers cars.
(d) Identify whether each statement below is true or false.
(2 marks)
TRUE FALSE
Risk is the chance of a future outcome occurring, all potential outcomes are
known and the likelihood of each outcome is measurable.

Uncertainty cannot be measured, but gives a high degree of control to a

business over the situation.

The first statement is true. Risk is the chance (or probability) of a future outcome
occurring, all potential outcomes are known and the likelihood of each outcome is
measurable. Risk is measurable and gives some degree of control over the situation.
The second statement is false. Uncertainty implies that the chance (or probability) of a
future outcome occurring is unknown, unpredictable or too complex to be measured.
Uncertainty cannot be measured and is uncontrollable.

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1 Revision Notes

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Types of organisation

Liability for Distributing Accounting

Ownership Management Net assets Taxation
debts profits regulations

Sole trader
Unlimited Individual pays
takes drawings
Sole trader Sole trader Sole trader Liability for a Capital income tax on None
from the
sole trader profits earned
business

Individuals pay Each partner

Unlimited
income tax on takes drawings
Partnership Partners Partners Liability for a Capital None
their share of from the
partner
profits earned business

Dividends paid
Company pays
to shareholders Companies Act
Board of Limited Liability corporation tax
Company Shareholders Equity from profits and Accounting
Directors for Shareholders on company
earned by the Standards
profits earned
company

Individuals pay Each partner Partnership Act,

Limited Liability income tax on takes drawings Companies Act
LLP Members Members Capital
for Members their share of from the and Accounting
profits earned business Standards

Charity
Not for profit,
legislation and
Board of Limited Liability earns a surplus
Charity Public benefit Funds Tax Exempt statements of
Trustees for Trustees or incurs a
recommended
deficit
practice

Business stakeholders
A stakeholder can be any organisation or person that has an interest in the business.
• Internal stakeholders are people whose interest is through a direct relationship
with the business (anyone within the business) e.g. employees, management or
directors who work for the business, or shareholders and business owners who
invest directly in the business.
• External stakeholders are people that do not have a direct relationship with the
business (anyone outside the business) e.g. banks, customers, suppliers,
competitors, pressure groups, government, local authorities, local communities,
trade unions, media and the general public.
Types of funding used by businesses
• New capital introduced e.g. money invested (or profits retained) by the owners.
• Bank loans, overdrafts and credit cards.
• Hire purchase.
• Finance lease.
• Working capital e.g. chase customer debts or delay payments to suppliers.
• Sale (disposal) of non-current assets e.g. land, property or machinery.

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Organisational structure
Organisational structure defines how job tasks or activities are formally divided and
coordinated, in order to deliver the organisations goals and objectives.
Elements of organisational structure
• Worker specialisation (division of work).
• Departmentalisation.
• Chain of command.
• Span of control.
• The degree of centralisation (or decentralisation).
• The degree of formalisation.
Hierarchy and span of control
• Hierarchy (scalar chain) e.g. the layers of management and authority.
• Span of control e.g. the number of subordinates supervised by each manager.
Types of organisational structure
• Functional structure e.g. the sub-division of a business into specialised
departments e.g. finance, sales and production.
• Divisional structure e.g. a distinct business set up within a larger group of
companies, to ensure a certain product or market is managed as a separate
business.
• Small (entrepreneurial) structure e.g. limited organisational structure, very few
staff employed and the owner (founder) makes all the key decisions.
• Project-based (matrix) structure e.g. ‘cross functional team work’ to support
team work and collaboration.
The operational, tactical and strategic levels
• Strategic (or corporate) level e.g. concerned with the overall scope and long-
term direction of the organisation, such as holding company (or head office)
within a group, a board of directors in a large company, or the founder (owner) of
a small business.
• Tactical (or managerial) level e.g. concerned with the coordination and control
of operational resources to achieve strategic goals and objectives, such as a
manager of a division in a large group, or a department manager in a large
company.
• Operational (or functional) level e.g. concerned with the routine and regular
nature of running the organisation on a day to day basis, such as department
workers making, selling and delivering products or services.

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Centralised and decentralised control

• Centralisation e.g. concentrates decision making in the hands the strategic

level, such as senior management.
• Decentralisation e.g. delegates decision making to the operational level, such
as production or sales workers.

The finance function

The finance function provides information, support, advice and guidance to both internal
and external stakeholders.
• Managing funds effectively e.g. cash budgets and planning for borrowing.
• Management accounting e.g. budgets, variances and product costings.
• Financial accounting e.g. statutory financial accounts, tax and payroll returns.
• Corporate social responsibility (CSR) e.g. social and environmental reporting.

Corporate governance
Corporate governance refers to a system that directs and controls a board of directors
in a company e.g. rules, practices or processes for behaviour and decision making. The
spirit of good corporate governance is about balancing the needs and interests of all
stakeholders, not just the company’s shareholders.
Risk and uncertainty
• Risk e.g. chance (or probability) of future outcomes are known and measurable
(with some degree of control).
• Uncertainty e.g. chance (or probability) of future outcomes are unknown,
unpredictable or too complex to be measured (or controlled).
Types of business risk
• Strategic risk e.g. risk of pursuing unsuccessful business plans or objectives.
• Financial risk e.g. risk of high levels of business borrowing (debt).
• Operational risk e.g. operational risk of making and delivering the product.
• Reputational risk e.g. risk of poor brand reputation.
• Legal risk e.g. risk of breaches in laws and regulations.
• Economic risk e.g. risk of economic factors.
• Political risk e.g. risk of government factors.
• Technological risk e.g. risk of new and emerging technologies.

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The TARA framework
TARA is a risk management framework which can be used to select a suitable response
for each type of risk identified.
• Transfer risk e.g. the risk is transferred (passed on) to a third party.
• Accept risk e.g. the risk is tolerated and no action is taken to control it.
• Reduce risk e.g. the risk is reduced by taking actions to control it.
• Avoid risk e.g. the risk is avoided by terminating activities likely to cause it.

The PESTLE model

PESTLE analysis identifies external opportunities and threats (risks) for a business. It
provides a source of information to help senior management make more effective
strategic (or marketing) decisions.

• P political factors e.g. decisions by a government such as changing tax rates,

war, terrorism, government corruption, changes in government or political trends.
• E economic factors e.g. risk of macroeconomic factors such as inflation, interest
rates, wage rates, supply of labour, exchange rates, recession and trade barriers.
• S social factors e.g. factors driven by population, demographics (age, income,
religion etc) and society needs, wants and values.
• T technological factors e.g. new emerging technologies that may radically
transform a market.
• L legal factors e.g. new product safety standards, new regulations about
hazardous or dangerous materials, new environmental laws, new employment
laws and GDPR.
• E environmental factors e.g. climate and weather.
Task 2 of your exam will include a written question that may require you to identify and
recognise the impact of PESTLE factors affecting a business, and to recommend
appropriate actions to reduce the risk of threats identified.

46 | P a g e
Government control of an economy
• Monetary policy is any action by a government to influence the money supply or
cost of borrowing (credit) within an economy.
• Fiscal policy is any action by a government to change taxation and/or
government spending directly within an economy.
Both policies influence the amount of national expenditure (demand) for goods and
services within an economy, and in turn affect the rate of unemployment and inflation.

Increase demand Decrease demand

in the economy in the economy

Monetary policy Decrease interest rates Increase interest rates

Decrease taxation Increase taxation

Fiscal policy
Increase government spending Decrease government spending

Types of taxation
• Direct taxes are administered and paid ‘directly’ by the individual (or business)
expected to pay it e.g. income tax, corporation tax and national insurance.
• Indirect taxes are ‘indirectly’ collected from the individual (or business) expected
to pay it e.g. VAT is collected indirectly by a shop (a ‘third party’) on sales made
to its customers and paid over to HMRC, on behalf of its customers.
Functions of a tax system
• Taxation raises money to fund government spending and public services.
• Taxation can discourage consumption of undesirable goods and services.
• Taxation can help redistribute income and wealth within an economy.
• Taxation can be used to ‘fine tune’ an economy.
How exchange rates influence business costs
• If an exchange rate weakens, the price of overseas imports will rise.
• If an exchange rate strengthens, the price of overseas imports will fall.
International trade barriers
• Import tariffs (custom duty) e.g. the price of overseas goods will increase.
• Import quotas e.g. the volume of goods imported is restricted.
• Embargo e.g. zero quota on importing overseas goods.

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The microeconomic environment
A market is any place (physical or virtual) whereby buyers and sellers come into
contact for the purpose of exchanging goods or services.
Supply and demand
The study of supply and demand helps understand how markets determine an
‘equilibrium’ price and quantity sold (output). Equilibrium means ‘balance’ exists
between two opposing forces of supply and demand, market prices and output will be
unchanged.

Price

Supply

P1

Demand

Q1
Quantity sold
Demand
Demand represents the total quantity that buyers are willing and able to purchase at the
existing market price. The law of demand states that if the market price falls, the
quantity demanded (consumed) for a good or service will rise, and vice versa.
Factors that cause changes in demand
• Advertising.
• Population of a country.
• Expectations of buyers.
• Price of substitute goods or services.
• Price of complimentary goods or services.
• Income of buyers (households).
• Tastes and fashion.

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Normal and inferior goods
• Normal goods e.g. demand increases when consumer incomes increase, so
demand and income are positively correlated.
• Inferior goods e.g. demand decreases when consumer incomes increase, so
demand and income are negatively correlated.
Necessity and luxury goods
• Necessity goods e.g. normal goods, but demand ‘does not increase by much’
when consumer incomes increase e.g. cigarettes, alcohol, milk and bread.
• Luxury goods e.g. normal goods, but demand ‘increases significantly’ when
consumer incomes increase e.g. houses, holidays, jewellery and luxury brands.
Supply
Supply represents the total quantity that sellers are willing and able to make (or sell) at
the existing market price. The law of supply states that if the market price rises, the
quantity supplied by sellers will rise, and vice versa.
Factors that cause changes in supply
• Climate (weather).
• Price and availability of factors of production (resources).
• Government taxation and subsidies.
• Goods in joint supply e.g. beef and leather.
• Expectations of sellers.
• Technology.
Influences on the level of competition within a market
Competition is the activity of establishing superiority over rivals in the same market e.g.
gaining more sales, market share or profits.
Factors that influence competition
• Number of sellers and buyers in a market e.g. fewer sellers give concentrated
power to charge higher prices to consumers.
• Barriers to entry e.g. obstacles restrict new sellers from entering the market.
• Product features offered by sellers in a market.
• The availability of information to sellers and buyers in a market e.g. imperfect
information may limit rational choice for consumers.
Barriers to entry
• Patents, trademarks and copyrights.
• Product differentiation.
• Government e.g. nationalisation, licences and regulatory controls.
• High set up costs.
• Economies of scale e.g. large established firms benefit from low unit cost.
• High switching costs (or inconvenience) for a customer.
• Location e.g. monopolisation caused by geographic factors.
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Product differentiation
Product differentiation makes a product stand out to a consumer and distinguish it from
competing alternatives sold by rivals. Product differentiation ‘wins more sales’ and can
allow sellers to charge premium prices.
Examples of product differentiation
• Product design.
• Advertising and distinctive branding.
• After sales support and guarantees.
• Customer relationship management.
Sustainability and the natural environment
Sustainability means that a business can operate without compromising the ability of
future generations to inherit our existing natural resources.
Triple bottom line reporting
• Profit (economic) e.g. maximise sales, profits and cash-flows.
• People (social) e.g. maximise the welfare of stakeholders.
• Planet (environmental) e.g. minimise harm to the natural environment.
Corporate social responsibility (CSR)
A business needs to be aware of the impact of its actions or conduct on society (people)
and how to act in the best interests of stakeholders.
Business ethics
Business ethics is concerned with moral principles or values that guide the right kind of
behaviour or conduct for a business. Business ethics is one aim of corporate social
responsibility.
Principles of ethics for professional accountants
The International Federation of Accountants (IFACs) principles of ethics establishes the
standard of behaviour expected of a professional accountant. The code is principles
based (not rules based) and promotes the ‘spirit of beliefs’ rather than the ‘letter of the
law’. The principles can be remembered using the acronym PIPCO.
• Professional competence and due care e.g. maintain professional knowledge
and skills, and to act diligently when providing professional services.
• Integrity e.g. to be straightforward and honest in professional and business
relationships (transparency, fair dealing and truthfulness).
• Professional behaviour e.g. to comply with relevant laws and regulations, and
avoid any action that discredits the profession.
• Confidentiality e.g. not to disclose private information to a third party, unless
employer or client consent has been given.
• Objectivity e.g. not to compromise professional or business judgment because
of bias, conflict of interest or the undue influence of others.
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Threats to ethical principles
Threats are situations that may compromise compliance to the code of ethics. The
IFAC’s threats can be remembered using the acronym ASSIF.
• Advocacy e.g. an accountant may promote a client or employers position to the
point that their objectivity is compromised, such as promoting shares in a client,
or representing a client in litigation or disputes with third parties.
• Self-review e.g. an accountant should not evaluate the results of a previous
judgment made or service performed, such as issuing an assurance report on the
effectiveness of a financial system they designed or implemented.
• Self-interest e.g. a financial (or other interest) inappropriately influences a
professional accountants judgment or behaviour, such as having a direct
financial interest in a client, or dependence on large fees received from a client.
• Intimidation e.g. an accountant could be deterred from acting objectively
because of actual or perceived pressures, such as being threatened with
litigation, dismissal by a client, or that a future contract will not be awarded.
• Familiarity e.g. an accountant may have a long or close relationship with a client
or employer and be too sympathetic to their interests, or too accepting of their
work, this may include close or immediate family members.
Ethical safeguards
Safeguards are actions or other measures that reduce threats to an acceptable level.
• Safeguards created by the profession, legislation or regulation.
• Safeguards in the work environment.
Stages of ethical conflict resolution
The following factors may be relevant to a resolution process:
• Relevant facts.
• Ethical issues involved.
• Fundamental principles related to the matter in question.
• Established internal procedures.
• Alternative courses of action e.g. refuse to remain associated, or resign.
Reporting unethical behaviour
The code of ethics for professional accountants states an explicit duty for members to
report any breaches of ethical standards. This can be done by making a complaint to
the AAT’s Professional Standards team.
When disciplinary action may be taken
• Breach of the code of ethics.
• Breach of laws or regulations e.g. money laundering regulations.

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Possible penalties imposed by AAT
• Members can be reprimanded and warned about future conduct.
• Members can be fined.
• Members can have their license (or membership) suspended or terminated.
Internal disciplinary procedures may also be brought against the accountant by their
employer for unethical or illegal behaviour. Disciplinary action can include warnings
(held on record), suspension from work or termination of employment contact.
Claims for breach of contract and professional negligence may also be brought against
an accountant by their client for unethical behaviour. Professional indemnity insurance
covers or protects an accountant against claims for loss or damage by clients as a
result of providing negligent services.
Whistleblowing
Whistleblowing is a term used when an employee passes on information concerning a
wrongdoing. Making a disclosure is referred to as ‘blowing the whistle’.
Reasons for whistleblowing
• Discovery of bribery, corruption, fraud or money laundering.
• Reporting criminal offences e.g. health and safety, environmental laws etc.
• Reporting misuse of data e.g. GDPR.
• Reporting someone who is covering up a wrongdoing.
Employers may have internal policies and procedures for employees to report unethical
behaviour (‘internal whistleblowing’ or speak-out procedures).
External whistleblowing
• External whistleblowing is the practice of reporting misconduct to outside
sources, such as the police, newspapers and social media.
• Employees should seek legal advice before blowing the whistle externally.
• Whistle-blowers by law cannot be dismissed or unfairly treated.
Personal grievances about bullying, harassment and discrimination are not covered by
whistleblowing laws, unless the case is of wider concern for the general public.
Money laundering
Money Laundering is a perfect description of how this crime takes place whereby ‘dirty’
(illegal) money is ‘washed’ and ‘mixed’ through a process and comes out finally as
‘clean’ (legal) money. The maximum prison sentence for money laundering is 14 years.
The process of money laundering
• Placement e.g. dirty money is deposited (placed) into the banking system.
• Layering e.g. the money is moved around and ‘all mixed up’.
• Integration (or extraction) e.g. criminal proceeds are paid out to criminals and
can be legitimately spent without incrimination.

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Reporting suspected money laundering
As soon as you know or suspect that a person is engaged in money laundering or
dealing in criminal property, you must submit a suspicious activity report (SAR). Failure
to report suspicion of money laundering carries a maximum penalty of five years
imprisonment. An SAR must be filed normally within 30 days of any potential criminal
activity detected which appears suspicious.
An SAR can be made to an internal money laundering reporting officer (MLRO) if your
organisation has money laundering supervision, or to the National Crime Agency (NCA)
which is a UK government agency that helps fight serious and organised crime.
Information reported in a SAR
• Names, addresses, birth dates, driving licenses, passport numbers, occupation
and phone numbers of all parties involved.
• The identity of the suspects (if known).
• Information and reasonable grounds stated for suspicion of money laundering.
• The location(s) of any laundered property (if known).
• Additional information or other parties connected to the matter.
Protected and authorised disclosure
SARs made to the NCA are either protected or authorised disclosures.
• A protected disclosure is normally how you report suspicious activities and you
are protected against allegations of any breaches of confidentiality.
• An authorised disclosure is for someone who believes they may have engaged in
or are about to engage in money laundering activities, someone may do this as a
defence against money laundering allegations.
Tipping off
You must not say anything to the accused person(s) which may lead to an investigation
being prejudiced. The penalty for telling an individual they are being investigated for
suspected money laundering carries a maximum penalty of five years imprisonment and
an unlimited fine.

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Emerging and developing technologies
• Automation of processes.
• Artificial intelligence (AI) and machine learning.
• Blockchain.
• Electronic filing of documents.
• Electronic signing of documents.
• Data analytics.
Outsourcing and offshoring
• Outsourcing is the contracting out of operations and responsibilities of a specific
business function (or process) to an external and third-party service provider.
• Offshoring is the relocation of a specific business function (or process) to an
overseas country, outside the national boundaries of where the business
normally resides (carried out internally, or by outsourcing to a third party).
Cloud accounting
Cloud accounting means keeping accounting records and storing financial data online,
using the Internet. Information stored in the cloud is encrypted and only people with the
login and password can view data. Some popular examples of cloud software
accounting packages include Xero, QuickBooks and Sage 50cloud.
Benefits of cloud accounting
✓ Reduces the investment cost for accounting software and storage.
✓ Maintenance and upgrades are centrally managed by the service provider.
✓ Remote data storage so no backup is required.
✓ Supportive to the needs of remote or mobile workforces.
✓ Scalability of services to cost effectively support a large number of end users.
✓ Encourages collaboration and interaction with stakeholders, automates
capabilities and gives access to real-time reporting of data and information.
Limitations of cloud accounting
Lack of access if no internet connection.
Privacy and security risks of sensitive or private information being hacked.
High dependency on services and reliability of cloud services.

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The principles of data protection
General Data Protection Regulation (GDPR) gives individuals the right to access
personal data held about them. In addition there are obligations for better data
management and a regime of fines for businesses that do not comply with GDPR.
The key principles of GDPR
Everyone that is responsible for handling personal data (‘data controllers’) must follow
strict rules to ensure their legal obligations under GDPR are fulfilled.
• Lawfulness, fairness and transparency e.g. lawful processing of personal data.
• Purpose limitation e.g. reasons for processing personal data must be known.
• Data minimisation e.g. personal data limited to what is relevant and necessary.
• Accuracy e.g. personal data is kept accurate and up to date.
• Storage limitation e.g. personal data only retained for as long as necessary.
• Integrity and confidentiality e.g. security and confidentiality is maintained.
• Accountability e.g. data controllers must be able to demonstrate compliance.
The rights of data subjects
• To be informed about how their personal data is being used.
• To have access and view their personal data being kept.
• To have any incorrect personal data changed (but not erased).
• To prohibit or restrict (in some cases) storage of their personal data.
The impact of data protection breaches on a business
• Loss of data and information.
• Damage to reputation and brand.
• Financial compensation paid to victims e.g. employees or customers.
• Time and cost of public relations and legal investigations.
• Falling share price (if a public listed company).
• GDPR fines for data breaches.

Cybersecurity
Cybersecurity means using technologies, processes and controls to protect computer
systems or networks from a cyber-attack. A cyber-attack is an attempt by a hacker to
damage, steal or destroy data in a computer system or network.
Malicious software (or ‘malware’) is software that is specifically designed to disrupt,
damage, or gain unauthorised access to a computer system. A virus is a type of
computer code that alters the way a computer operates, it can spread like a virus from
one host to another.

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Examples of cyber-attacks
• Phishing e.g. hackers send out thousands of emails containing a virus.
• Keyboard hijacking e.g. a hacker hijacks a victims keyboard (or mouse).
• Spyware e.g. gathers and sends data to a third-party without a victims consent.
• Ransomware e.g. data files are locked by a hacker and a ransom is demanded.
• DDoS attack (Distributed Denial of Service) e.g. collaborations by multiple users
acting together to overflow traffic to a web server and cause it to crash.
The risks from cyber-attack include damage to reputation and brand, theft of data, fraud,
extortion, fines for GDPR breach and critical meltdown of operations and systems.
Cybersecurity defences
• Policies for strong password protection.
• Educate staff to be vigilant when receiving emails.
• Tighten up physical security in the office.
• Back up files e.g. cloud storage.
• Prepare for cyber-attacks.
• Hire experts to improve controls.
• Firewalls and anti-virus protection software.

Integrity controls
Input controls
Data has been properly authorised and correctly entered in the system.
• Data verification and validation.
• Sequence checks.
• Batch controls.
• Supervision and authorisation.
• Passwords.
• Machine (automated) data entry.
Processing controls
Data has been processed with integrity after it has been entered (input) in the system.
• Batch reconciliations.
• Regular testing.
• Reconciliations with third part evidence.
• Exception reports.
Output controls
Information is viewed only by those authorised and is safeguarded when transmitted.
• Passwords and access levels.
• Information reviews.
• Encryption of data.

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Information
Information is a vital resource for planning, controlling and decision making.
Types of information
• Financial and non-financial.
• Quantitative and qualitative.
• External and internal.
Attributes of good quality information

The ACCURATE criteria is a useful framework for assessing the characteristics of

useful and effective information.
• A Accurate e.g. reliable (not false, incorrect, or misleading).
• C Complete e.g. all that is required by a user is provided.
• C Cost beneficial e.g. the benefits exceed the cost of providing the information.
• U User friendly e.g. presented in a way that a user can understand.
• R Relevant e.g. a user is provided with all that is requested.
• A Authoritative e.g. information is valid, trusted and can be relied upon.
• T Timely e.g. delivered to a user in a timely manner or by an agreed deadline.
• E Easy to use e.g. information is summarised, charts, colour, no jargon etc.
Characteristics of operational, managerial and strategic information

Comparison Strategic Tactical Operational

TIME PERIOD FORECASTING/LONG-TERM HISTORICAL/SHORT-TERM

OBJECTIVITY SUBJECTIVE OBJECTIVE

QUANTIFIABILITY QUALITATIVE QUANTITATIVE

ACCURACY APPROXIMATE ACCURATE

SOURCES OF DATA EXTERNAL INTERNAL

CERTAINTY UNCERTAINTY OF FORECASTING CERTAINTY OF HISTORICAL DATA

COMPLETENESS INCOMPLETE COMPLETE

BREADTH THE BROAD ORGANISATION A SPECIFIC TASK

DETAIL SUMMARISED AND UNSTRUCTURED HIGHLY DETAILED AND STRUCTURED

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Big data
Big data can provide enhanced insight for decision making. It is a complex and costly
process to examine large and varied data sets in order to uncover hidden patterns or
trends. The benefits include the creation of new sales opportunities, highly effective
marketing opportunities, better customer service, reduction in cost and improved
operational efficiency.
The characteristics of big data
• Volume e.g. the sheer amount of data captured.
• Variety e.g. the ‘diversity’ of multiple sources of data that is captured.
• Velocity e.g. the sheer ‘speed’ of data processing in real-time.
• Value e.g. data captured provides value or insight for decision making.
• Veracity e.g. data captured is trustworthy, complete and accurate.

Sources of internal data

• Customer (sales) data e.g. databases or sales teams.
• Emails and documents generated.
• Transaction processing systems e.g. sales, purchases, inventory and payroll.
• Google analytics for website traffic and statistics.

Sources of external big data

• Social media sites like Facebook, Instagram and Twitter.
• Government data e.g. economic data from the Office for National Statistics.
• Google e.g. search queries relating to certain products.
• Customer data e.g. demographic information.
• Weather forecasts.

Visualising information
Visualisation is the visual representation of data which allows a user to see and
understand it in a more intuitive way. It helps a user identify actions, trends,
correlations, patterns or significant anomalies.
Task 6 of your exam will include a written question that may require you to interpret
visual data and to indicate information, relationships and trends, using images, charts,
diagrams, tables, matrices and graphs.
Dashboards support users to make data driven decisions in real-time and are a
powerful way to communicate information and help technically or non-technically
minded staff find quickly the answers they need.

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Communicating information
• Communication is when a sender exchanges information with a recipient.
• Communication mediums include face to face, text, phone call, letter or e-mail.
• Communication can be written, verbal (speaking) or non-verbal (body language).
• Principles of effective communication include being clear, correct, complete,
concrete, concise, considerate and courteous.
• Recognising valid and invalid information and exercising scepticism.
Communication mediums
• Letters, emails and instant messaging.
• Face to face presentations and meetings.
• Telephone calls.
• Intranet, Internet and social media.

Principles to determine an effective communication medium

• The purpose of communication.
• Whether the message is short or complex.
• Confidentiality e.g. to whom information can be disclosed.
• How urgent is the message.
• Does information or feedback need to be gathered.

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