1.Role of the Finance Function Flashcards
(68 cards)
1
Q
Define Organisation
A
- Social Arrangement which pursues collective goals
- Controls its own performance
- Has either physical or social boundaries that separate it from its environment
2
Q
What are the two sectors a developed country can be divided into
A
- Public: owned by state
- Private: businesses owned by individuals or institutions
3
Q
What are the two types of private organisations
A
- Profit Seeking: seek to increase shareholder wealth
-Not for profit: other objectives
4
Q
What are the two types of public organisations?
A
- Those that provide public services eg. hospitals
- State-owned industries
5
Q
What are the two types of profit-seeking organisations
A
- Sole trader/Partnerships
- Companies/Incorporations
6
Q
What are the implications of sole trader or partnership organisations
A
The owner’s private assets and liabilities are not distinguished from the enterprise
7
Q
What are the implications of Companies/Incorporations as profit-seeking organisations
A
The law distinguishes business’ liabilities and profits from the owner
Business capital is provided through the purchase of shares
8
Q
What are the two types of companies
A
- Private: shares can only be traded in private
- Public: shares can be sold publically on stock markets
9
Q
What is meant by multinational corporations
A
Companies large enough to produce in multiple countries by owning or controlling foreign subsidiary
10
Q
What is meant by not-for-profit organisations
A
The main objective is not to profit
EG. Charities, Clubs, Unions, Government services
Organisations still need to be profitable to continue operating
The surplus from business is used to further their objectives
11
Q
What is meant by mutual organisations?
A
A special type of not-for-profit organisation
- Commercial operations owned by members/customers
-Customers benefit from services provided and the surplus
- They can pursue other purposes than maximising trading surplus such as quality of service
12
Q
What are the objectives of public organisations
A
Value for money
E: Economy
E: Efficiency
E: Effectiveness
13
Q
What are the restrictions of public organisations
A
- Purpose is determined by law: objectives are not to do with profit-seeking but to provide efficient public service
- Funding determined by the government: politics, current state of finance and country etc
14
Q
Define Non-Governmental Organisations (NGOs)
A
Private organisations that operate in the public sector eg. providing services to the community/protecting the environment
15
Q
What are the two key features of NGOs
A
- Generating a profit is not the primary goal and is not focused on financial objectives
- Not directly linked to government
16
Q
What are the main types of NGOs
A
- Campaigning NGOs- seek to influence government policy through lobbying and generating public favour
- Operational NGOs- attempt to make a positive impact directly in interested areas
- Quasi- Autonomous non-governmental organisation (QUANGO) - Private organisations that the government has devolved authority for running public services
17
Q
How does organisation type affect finance function
A
- Differences in owners and key stakeholders
- Sources of funding for the organisation
- Overall goals of the organisation
- How performance is measured
- Use and investment in technology
18
Q
How are the purposes of different organisations broken down
A
Vision
Mission
Objectives
19
Q
What is meant by vision
A
The desire future state of the organisation - high level and timeless
- Contained in vision statement
20
Q
What is meant by mission
A
An expression of overall purpose in line with values and expectations of stakeholders
-Set out in mission statement
21
Q
What is meant by objectives
A
Specific targets which are set and control the overall functioning and progress of organisation
- Translate a mission into specific targets
22
Q
What are characteristics of mission statements
A
- States purpose
- States areas of operation
- provides general statement on culture
- act as a guide to develop organisation’s strategy and objectives
23
Q
SMART
What features should objectives have
A
S: specific
M: measurable
A: achievable
R: relevant
T: Time-related
24
Q
PRIME
What functions do objectives have
A
- Planning: define and set out milestones
- Responsibility: define responsibilities of managers
- Integration: support other objectives and be consistent
- Motivation: motivate manaagers for areas of performance
- Evaluation: provide benchmark for performance and control
25
What are the different organisational levels of objectives
Strategic/ Corporate objectives: set overall long term
Tactical objectives: to plan and control individual functions
Operational objectives: day to day performance targets
26
What is meant by critical success factors
How objectives can be broken down into smaller, more specific goals
27
How are CSFs measured
By using Key Performance Indicators(KPIs)
- Can be financial or non financial
- Specific, measurable, used as control
28
What is meant by the digital world and the business environment
Digital world: increasing digitisation of everyday lives
Business environment: everything that surrounds business both physically and socially- split into Macro and Micro levels
29
# PESTEL Model
What is meant by the macro environment
Factors influecing all organisations indirectly
PESTAL model:
- Political nature of government
- Economic health eg. inflation or interest rates
- Social, cultural and other trends
- Technological developments in industry
- Ecological and environmental impact eg. pollution
-Legal requirements and changes
30
# Porter's five forces
What is meant by micro environment
- Factors which have direct impact on organisation
- Porter's Five Forces:
1. Bargaining power of suppliers
2. Bargaining power of customers
3. Threat of new entrants
4. Threat of substitute products or services
5. Rivavlry between Industry Competitors
31
Define technological connectedness
- How data is created, stored, retrieved and synchronised
- Caused rules of business to change and become dynamics
32
What are the 3 consequences of technological connectedness
- Increasing levels of competition: infomred consumers expect same levels
- Communication is faster and easier: reduction in product development and adaptability by others
- Changes to competitors and stakeholders: international environments
33
Explain the concept of value
Concept depends on the type of organisation
eg. profit making: value is measured by increasing shareholder wealth
for not for profit: value might be measured by achievement of objectives
34
How is value for money measured
1. Economy: performing activity for minimum cost
2. Efficiency: performing activity by consuming minimum resources of input
3. Effectiveness: achieving maximum output given the resources of input
35
What are the four basic finance activities which are interconnected according to Fara
1. Assembling information: collecting, cleaning data
2. Analysing Insights: draw patterns
3. Advising to influence: communicating insights to form objectives
4. Applying for Impact: guiding actions to improve
36
According to the white paper what is on Y axis of the finance function value matrix
What finace functions do:
- Sourcing and analysing information
- Communicating and using information
37
According to the white paper what is on X axis of the finance function value matrix
Why finance fuctions performs activities
- To Create value
- To preserve value
38
What are the 4 areas of the finance fuction value matrix
1. Data Integrity: Sourcing and analysis of data to preserve value
2. Stewardship: Communication and use of information to preserve value
3. Value Analysis: sourcing and analysis of data to create value
4. Value Enabling: Communication and use of information to create value
39
Define data integrity
Finance functions acts as a trusted source of managment information
40
Define Value Analysis
The finance function provides insights into the drivers of organisational value
41
Define Stewardship
The finance function is the subject matter expert and contributes to strategic decision making and developing business model
42
Define Value Enabling
The finance function partners with other business functions to use insights and address performance issues and create solutions to create value
43
What are the 5 areas of value that white paper says accountants can bring
- Reporting accuracy
- Partnering and decision support
- Controllership and risk
- Enterprise-wide cost management
- Analysis and insight for high quality data
44
What are the key activites of financial function that enable, shape and narrate value
Enable/Create: planning, forecasting, resource allocation
Shape: performance management, control
Narrate: financial reporting
45
Define corporate governance
System by which companies are directed and controlled
| How directors are held accountable to shareholders
46
What is the principal and the agent in an organisation
Principal: shareholders/owners
Agents: Company directors
47
What are examples of poor corporate governance
- Domination by individual or group
- Lack of involvement of board
- Lack of adequate control function eg. internal committee
- Lack of supervision eg.loss through incompetence, negligence or fraud
- Lack of independent scrutiny of external shareholders
- Lack of contact with shareholders
- Emphasis on short-term profitability
- Misleading accounts and information
48
What are the ultimate risks of poor corporate governance
- Risk of large losses which becomes insolvent and business has to cease trading
49
What are the six principles of corporate governance as defines by the OECD
Principle 1: promote transparent and fair markets and efficient allowcation of reosurces and be consistent with rule of law
Principle 2 : protect and facilitate the exercise of all shareholder rights equally
Principle 3: provide incentives throughout investment chain and stock market functions
Principle 4: recognise the rights of stakeholders
Principle 5: timely and accurate disclosure on material matters regarding finance, performance, ownership and governance
Principle 6: Strategic guidance of company and management by board
50
What are the areas of the UK Corporate governance code
1. Board Leadership and company purpose
2. Division of repsonsbility of chairman and CEO
3. Good evaluation and composition
4. Audit, risk and internal control
5. Remuneration
51
What are features of board leadership as part of UK coporate governance
1. Effective board with chairman, deputy chairman, CEO, senior board members and chair of board committees recognised in annual reports
2. Board shoudl establish company's purpose and values
3. Board should ensure resources are in place for company to meet its purpose
4. Board should meet responsibilities with shareholders
52
What is meant by division of repsonibilities in the UK Corporate governance
- Splitting of CEO and Chairman of board
- CEO should run day to day running of company
- Chairman: runs board
- Mix of executive and non executive directors (independant)
53
What are requirements of Non executive directors
- not have been an employee in the last five years
- no material interes in company for last three years
- not have company share options or performance related compensation
- not have close family senior employees
- cannot service longer than 9 years
- hold cross-directorships
54
What is meant by composition, succesion and evaluation in UK Corporate governance
- Board should be chosen fairly and transparently based on merit and criteria
- Nomination committee: should consist of 50% NED
- Annual evaluations of the composition of the board of diversity and effectiveness
- 50% of board must be NEDs
55
What is meant by audit, risk and internal control in UK Corporate governance
- Formal and transparent policies for internal and external audit functions
- policies to manage risk
- Audit committee: Consisting of only NEDs to monitor financial control and integrity
56
What is meant by remuneration in UK corporate governance
- Directors should not be responsible in deciding their own remuneration
- Remuneration committee: establish and consist of at least 3 NDE
- Helps to prevent agency problem although can be costly
57
What are the two general disclosures listed companies are required to make under UK Coporate governance
- Narrative statement: providing explanations for shareholders to assess principles are applied
- Compliance statement: whether accounting policies were met and if not, why not
58
What reuirements does US Sarbanes-Oxley act corporate governance have
1. Auditor independence: cannot offer financial services apart from taxation, rotation of audit partner every 5 years
2. US Stock exchange regulations
3. Audit committee
4. Internal control report annual
5. Increased Financial disclosures
59
What are advantages and disadvantages of rules based approac
Advantages:
- Consistent application
- Easy to identify breaches
- Rules for specific outcomes
Disadvantages
- Cannot learn every rule
- removes memebr discretion
- long and lengthy
- loopholes
60
What are the advantages and disadvantages of principle/framework approach
Advantages
- Proactive actions and individuality
- Flexibility in complex situations
- Hard to find loopholes
Disadvantages
- Interpretations are subjective
- Potential for inconsistency
- Ambiguity
- Guidelines eventually become rules
61
What are the difference approaches to making ethical decisions
1. Egoistic: look after their own need
2. Pluralistic: consider whether other staekholders are comprimised
3. Absolutist: concerned whether course of action is fundamentally incorrect
4. Consequentialistic: determine course of action by its consequences
5. Utilitarian: maximise overall benefit to society
62
What are CIMA principles of ethics
Integrity: honest and straightforward
Objectivity: avoid bias and prejudice
Confidentiality: not revela information unless legal need
Professional competence and due care : up to date with training and don't do tasks you are not trained to do
Professional behaviour: comply with laws and regulations
63
Define coporate social responsibility
Set of actions which an organisation is not obliged to take but takes anyway for the wellbeing of stakeholders and public
64
What are the 4 Corporate social responsibility strategies according to Carroll and Bucholtz
1. Economic responsibilities: providing return to shareholders, remuneration to staff and value for money to customers
2. Legal responsibilities: expected to follow legislation
3. Ethical responsibilities: to act in a fair and just way
4. Philantrhopic responsibilities: to improve society
65
What are the general corporate social responsibility strategies
1. **Proactive**: organisation is prepared to take full responsibility for action
2. **Reactive**: organisation allows situation to continue until public or government finds out
3. **Defence**: minimising or attempting to avoid additional obligations arising from problem
4. **Accommodation**: organisation takes responsibility when there is encouragement from special interest groups or perception that a failure to act will result in government intervention
66
What are arguments against corporate social responsibility
- business do not have responsibilities
- businesses do not need to have charity as aim
- if managers spend money elsewhere then shareholders money is being used for unauthorised
67
What is corporate digital responsibility
actions organisations do although they do not have to, to protect data and digital devices
68
What are the principles of corporate digital responsibility
1. Digital stewardship: data collected should be used responsibiliy and securely
2. Customer expectations and transparency: open and honest about data collected and shared
3. Digital empowerment: use data to help them to make better decisions
4. Greater digital equity: value of data
5. Digital Inclusion: multiply impact of digital assets for good of society
