1. The Role of the Finance Function Flashcards
What are the four possible forms of commercial organisation?
- Company* (Private)
- Company* (Public)
- Partnership
- Sole trader
* Companies can be multinational
What are the 2 main objectives of not-for-profit organisations?
- Achieving their charitable or social aims
2. Controlling costs
What does the acronym VUCA stand for in the modern business context?
Volatility (business contexts are fast moving)
Uncertainty (cannot predict the future)
Complexity (causes confusion)
Ambiguity (things are not clear or understood)
How does technology contribute to the VUCA context?
V: Technology advances affect the market, the operation and purpose of organisations
U: Advances are not predictable and may be kept confidential to maintain competitive advantage
C: Change can be complex, especially for staff and customers
A: Can cause confusion, different sections of society respond differently
How does competition contribute to the VUCA context?
V: Actions of a competitor affect your business model, and it may take time to adapt and change
U: Unlikely to known what a competitor is going to do, so difficult to plan strategies
C: Can be complex for customers
A: Sheer complexity of competitive markets causes ambiguity in the marketplace
What are the two elements of value that commercial organisations strive to create?
- Profit/ increased share price
2. Resources to enable strategies to be pursued
What are the elements of the perpetual business cycle?
Planning, control and reporting
What are the 3 role groups of the finance function?
Enabling, Shaping and Narrating
What is the enabling role of the finance function?
The finance function enables the creation and preservation of value by organisations through planning, forecasting and enabling the allocation of resources to achieve maximum value
What are the two end products of the enabling role?
Reporting on trends in past information and preparing budgets
What is the shaping role of the finance function?
Management accountants enable the shaping of value creation through performance management and control (comparing actual performance to budgets and taking control actions where deviations and identified)
What 3 ways can the finance department ensure an organisations physical and financial resources are protected and utilised effectively?
- Internal audit
- Ensuring adequate and effective internal controls
- Ensuring production of accurate and complete financial information
What is the narrating role of the finance function?
Recording both daily financial activities (bookkeeping) and preparing legally required annual accounts
Who is the narrated information created by the finance function useful for?
Existing and potential investors, lenders and other creditors in making decisions about providing resources to the entity
What is a stakeholder?
Anyone who can influence an organisation or be influenced by it
What are the 3 groups of stakeholders?
- Internal
- Connected (shareholders, lenders, customers, suppliers - some form of financial relationship)
- External (government, pressure groups, local community)
The first two are primary (have contact) and the third are secondary
What two elements influence the impact that stakeholders have on an organisation?
Their level of power and interest
What are ethics?
A set of moral principles and values that guide behaviour
Which code is the CIMA code of ethics based on?
The International Ethics Standards Board for Accountants (IESBA) Code of Ethics for Professional Accountants
What organisation is the IESBA part of?
The International Federation of Accountants (IFAC)
What is the core message of the CIMA code of ethics?
Accountants should act in the public interest - considering the interests of society as a whole as well as the interests of the accountant or his employer
What are the basic needs of the accountancy profession?
Credibility
Professionalism
Confidence
Provide high quality services
What are the 5 fundamental principles of the CIMA code of ethics?
Confidentiality Integrity Professional Behaviour Objectivity Professional Competence and Due Care
What are the personal qualities required of an accountant?
Reliability Responsibility Respect Timeliness Courtesy
What are the professional qualities required of an accountant?
Scepticism
Accountability
Social responsibility
Independence
What are the organisational values that promote ethical behaviour, as set out in the code of ethics?
Honesty Openness Accountability Respect Trust Empowerment Leadership
What are the 4 main ethical stances an organisation can take?
- Short term shareholder interest
- Long term shareholder interest
- Multiple stakeholder view
- Shaper of society
What is corporate governance?
The system by which companies are directed and controlled - provides the structures and processes to ensure companies are managed in the interests of their owners
What are the aims of corporate governance?
Control (using systems to control)
Oversight (an involved board, with non-execs)
Risks (manage risks appropriately)
Profit maximisation
Objectives
Roles (balanced board)
Active
Telling (communicating with shareholders)
Experience (experience and independence brought by non execs)
What are 5 important characteristics of the structure of the board?
- Range of skills
- Of sufficient size
- Appropriate mix of exec and non exec
- Separate the role of chairman and CEO
Who must follow the UK Corporate Governance Code?
All UK listed companies must either comply with the code, or explain why they are not. All other organisations are encouraged to do so.
What are the 6 key points of the UK Corporate Governance Code?
- Provide entrepreneurial leadership and ensure effective controls in place
- Division of responsibility of chairman and CEO
- Appropriate skills and knowledge of directors
- All directors should submit themselves to annual re-election
- Remuneration should be sufficient but not excessive, and linked to performance. (notice periods of less than 12 months)
- Independent non execs must be independent of the management
What are the three non exec sub committees of the board?
- Nominations
- Remuneration
- Audit
What should the annual report include? (7)
- ‘Comply or explain’
- Explanation of how the board operations
- Details of all directors, exec and non exec
- The work of the nominations committee and performance evaluation of the board
- The responsibilities of the board and the going concern of the company
- How risks have been identified and mitigated
- The work of the audit committee
What is the name of the US corporate governance act?
The Sarbanes-Oxley Act 2002
Is SOX rules or principles based?
Rules based
What are the 4 main elements of SOX?
- Having an audit committee
- External auditors cannot provide any other service
- Internal controls report to be included and certified by CEO and CFO
- Internal controls report attested by independent party
What is CSR?
The ways in which the organisation exceeds the minimum obligations to stakeholders, the responsibilities that they have towards society
What are the 4 approaches to CSR?
- Proactive (take responsibility)
- Reactive (only when prompted to do so)
- Defence (avoids additional obligations)
- Accommodation strategy (different response each time)
What are the 3 core elements of CSR?
- Safeguarding employee health and safety
- Treating employees fairly
- Minimising pollution and negative impacts on the planet
What is corporate citizenship?
The need for businesses to recognise that its responsibilities extend beyond the scope of simple commercial relationships - contribution to society
What are the two ways that one may act in relation to stakeholders? (Donaldson and Preston)
- Normative (driven by ethics and moral duty towards stakeholders)
- Instrumental (based on how it will help the business)
What are the 4 ways in which sustainability can impact operations management?
- Process and product design
- Supplier selection
- Quality and efficiency (reduce waste)
- Cost (rise in some areas and save in others)
What are 5 benefits of good corporate citizenship?
- Build company reputation
- Help employee recruitment, motivation and retention
- Improved investor relations
- Improved competitiveness
- Improved operational efficiency
What are the 5 broad categories of the roles of finance and which role group do they fit into?
- Collate data (enabling/shaping)
- Provide insight (enabling/shaping)
- Communicates insight (narrating)
- Supports implementation of decisions (enabling/shaping)
- Connects different activities to one another (shaping/narrating)
What are the 4 steps in the information to impact framework?
- Information
- Insight
- Influence
- Impact
What are the 5 As? (the activities of the finance professional)
- Assemble - collate data and convert to information
- Analyse - questioning/comparing to give insight
- Advise - communicate to influence
- Apply - assist with execution to create impact
- Acumen - underlying value fed back into the process
What are the 7 main characteristics of good information?
Accurate Complete Clear User friendly Reliable Accessible Timely Effective (cost effective)
