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CIMA - E1 > 2. The Structure and Shape of the Finance Function > Flashcards

2. The Structure and Shape of the Finance Function Flashcards

1
Q

What 3 things should the structure of the finance function facilitate?

A
  1. Control and coordination of resources
  2. Efficiency of production
  3. Innovation
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2
Q

What 7 things might influence the structure of the organisation as a whole?

A
  1. Organisation size
  2. Organisation type
  3. Organisational culture
  4. Wider culture of the organisations environment
  5. Role played by technology
  6. Degree of specialisation
  7. Consideration for environmental impact
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3
Q

What is the name of Mintzberg’s organisational form diagram?

A

An organigram

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4
Q

What are the 5 components of Mintzberg’s organigram?

A
  1. Strategic Apex - source of direction e.g. board
  2. Middle line - convert decisions in to tasks and procedures
  3. Operating core - provide the organisations outputs
  4. Technostructure - design the work, advise the operating core
  5. Support staff - support the operating core
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5
Q

What do the strategic apex seek to do?

A

Control

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6
Q

What do the middle line seek to have?

A

Autonomy

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7
Q

What do the operating core seek to have?

A

Autonomy and mutual working

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8
Q

What do the technostructure seek to do?

A

Standardise through procedures and checking e.g. quality control, compliance

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9
Q

What do support staff seek to have?

A

Recognition that their work is vital

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10
Q

Which element of the organigram is most important in a Simple or Entrepreneurial structure?

A

The strategic apex

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11
Q

Which element of the organigram is most important in a Divisional structure?

A

The middle line

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12
Q

Which element of the organigram is most important in a Professional Bureaucracy?

A

The operating core

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13
Q

Which element of the organigram is most important in a Machine Bureaucracy?

A

The technostructure

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14
Q

Which element of the organigram is most important in an Adhocracy (Functional structure)?

A

The support staff

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15
Q

What are the advantages of centralisation? (4)

A
  1. Experienced people with an overview make decisions
  2. Policies are consistent
  3. Quick decisions can be made
  4. Procedures can be standardised, leading to economies of scale
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16
Q

What are the dis-advantages of centralisation? (2)

A
  1. Reduces input of day to day experts

2. Demoralises branch managers

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17
Q

What are the advantages of decentralisation? (4)

A
  1. Reduces stress of senior managers
  2. Empowers local managers
  3. Better knowledge of local conditions
  4. Groom middle management to take up higher positions
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18
Q

What are the dis-advantages of decentralisation? (2)

A
  1. Reduction in uniformity - may unsettle customers

2. Lack of big picture view

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19
Q

What is the scalar chain?

A

The number of layers of management from the top to the bottom

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20
Q

What is span of control?

A

The number of direct reports controlled by a manager

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21
Q

What are the attributes of a tall organisation? (long scalar chain)

A
  • More managers, with narrower spans of control
  • Can suffer from too many managers (expensive, decisions are slow)
  • Good opportunities for promotion
  • Less time spent on staff management
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22
Q

What are the attributes of a flat organisation? (short scalar chain)

A
  • Few managers, with wide span of control
  • Quick decision making
  • More susceptible to fraud or error
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23
Q

What is an open system?

A

One which is connected to and interacts with its environment, with both controllable and uncontrollable inputs and so predictable and unpredictable outputs.

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24
Q

What is a closed system?

A

One which is isolated from and independent of its environment

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25
Q

How do most organisations operate as systems?

A

As open systems

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26
Q

What is a key example of an open system within an organisation?

A

A public relations department

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27
Q

What is a key example of a closed system within an organisation?

A

An R&D department

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28
Q

What is an organisations boundary-of-control?

A

The limit of its direct jurisdiction

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29
Q

What is an organisations boundary-of-identity?

A

The view of outsiders looking into the organisation

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30
Q

Where in the boundaries of control and identity would an outsourced call centre sit?

A
  • Inside the boundary of identity

- Outside the boundary of control

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31
Q

What is a jobless structure?

A

When an organisation replaces permanent jobs with externalised work arrangements such as casual, temporary and fixed-term contract worker arrangements.

32
Q

What is the aim of a jobless stucture?

A

To increase flexibility

33
Q

What are the common attributes of an entrepreneurial structure?

A
  • New or small organisation
  • One person controls everything
  • Little specialisation or formalisation
  • Founder has the power/creates culture
  • Informal work arrangement
  • Reacts quickly to change
34
Q

What are the common attributes of a functional structure?

A
  • Traditionally based on specialised functions
  • Emphasis on roles rather than individuals
  • Bureaucratic and slow in decision making
35
Q

What are the common attributes of a matrix structure?

A
  • Organised around projects
  • Horizontal communication between individuals rather than upwards through departments
  • Built on flexibility and dual authority
  • Functional versatility
36
Q

What are the common attributes of a divisional structure?

A
  • Largely autonomous divisions with own subculture

- Central HQ limited but can retain some central finance or legal functions

37
Q

What are the common attributes of a geographical structure?

A

An organisation is divided up by geographical region with divisions and departments under the regional umbrellas

38
Q

What are the common attributes of a product structure?

A

An organisation is divided up by different product categories

39
Q

What is a virtual organisation?

A

A collection of small organisations who present as a larger one

40
Q

What is the shape of the traditional hierarchical finance function?

A

A triangle - large number of less qualified people towards the lower end, and CFO at the top

41
Q

What is the role of the financial accounting function?

A

Bookkeeping and reporting formally on past financial performance - narrating the value creation story and providing useful information to external stakeholders

42
Q

What is the role of the management accounting function?

A

Providing managers with useful information about costs, forecasts of costs and of revenues, as well as creation of budgets

43
Q

What is the role of the treasury function?

A

In charge of cash flow management:

  • Calculate tax payments and put into place plans to minimise tax liabilities
  • Evaluating and identifying the most suitable sources of finance
  • Managing interest rate and foreign currency risk
  • Management of working capital, ensuring enough liquid funds
44
Q

What is the role of the internal audit function?

A

Report on management of:

  • Efficiency of operations
  • Reliability of financial reporting
  • Deterring and investigating fraud
  • Safeguarding assets
  • Commenting on compliance
45
Q

Who does the internal audit department report to?

A

The audit committee - NOT the FD

46
Q

Internal audit provides assurance that…

A
  • Internal controls are adequate to mitigate risk

- Governance processes are effective and efficient

47
Q

What do internal controls aim to ensure?

A
  • Efficient and effective operations
  • Compliance with laws and regulations
  • Sound information production
  • Elimination of fraud and abuse
48
Q

What are the 8 features of an effective internal control system?

A 
Organisation (structure/ reporting lines)
Authorisation
Personnel (robust recruitment and training)
Segregation of duties
Physical (locks and passwords etc)
Arithmetic
Supervision
Management (vigilant review)
49
Q

What is an internal check?

A

The check on day to day transactions whereby the work of one person is proved independently or is complementary to the work of another; the objective being the prevention or early detection of errors or fraud

50
Q

What is an internal financial control?

A

Any action taken by management to enhance the likelihood that established objectives and goals will be achieved - planning, organising and directing by management

51
Q

What percentage of tasks do experts calculate can be automated?

A

30% of tasks in 60% of professions

52
Q

In recent years, what shape has the finance function become in many organisations?

A

Diamond

53
Q

What key change has automation brought to the role of the finance function?

A

Become more actively involved in business operations, adopting a commercial and action-orientated approach whilst bringing financial expertise to the management process.

54
Q

Whereas the role of finance used to be very much stewardship, what has automation lead to it becoming?

A

Focused on growth strategies and providing greater support for operational managers

55
Q

Under which approach are the finance department treated as a commodity?

A

The market-oriented approach

56
Q

What affect is automation having on the information to impact framework?

A

Squeezing ‘assemble’ and ‘analyse’, and putting more emphasis on ‘advise’ and ‘apply’

57
Q

What are the four levels of the diamond shaped finance function with reference to the information to impact framework?

A
  1. Top level (Acumen)
  2. Strategic business partnering (Advise/Apply)
  3. Digital centres of excellence (Analyse)
  4. Smart finance factories (Assemble)
58
Q

What is a shared service centre?

A

A separate business unit created within a company to deliver a specific service across the company

  • Operate like a separate business
  • View other departments as customers
  • Aim to gain efficiencies through continuous improvement and utilisation of technology
  • Focus on value creation
59
Q

What are factors for the organisation to consider when off or near shoring?

A
  • Time zones
  • Cultural issues
  • Language barriers
  • Control
  • Standards
  • Communication
  • Travel
60
Q

What are the advantages of outsourcing? (4)

A
  • More independent
  • Likely to have a pool of qualified accountants available
  • Specialists in the service they are providing
  • Cheaper - less recruitment, no down time or training
61
Q

What are the disadvantages of outsourcing? (4)

A
  • Additional control complications
  • Loss of function as a training ground
  • Loss of control
  • Inflexible decision
62
Q

What is a Service Level Agreement?

A

A document detailing the relationship with the outsource partner in order to reduce some of the disadvantages of outsourcing

63
Q

What are the key features of an SLA? (6)

A
  1. Services levels expected
  2. Exit route
  3. Timescale of contract
  4. Software ownership and use conditions
  5. Employment issues
  6. Fee
64
Q

What transaction costs might be involved when outsourcing an activity?

A
  • Finding and selecting a provider

- Monitoring the quality of service

65
Q

What is business process re-engingeering?

A

The fundamental rethinking and radical redesign of business processes to achieve dramatic improvements in critical performance measures (cost, quality, service and speed)

66
Q

What are the responsibilities of the FP&A team?

A

Variance analysis and project projections

67
Q

What are the responsibilities of the PMO team?

A

Support internal decision making and providing investment appraisal (NPVs, IRRs)

68
Q

What are the 4 elements of ‘partnering for value’?

A
  • Providing reliable and relevant information
  • Be flexible
  • Reporting at speed
  • Run efficiently
69
Q

What is the calculation for the Earnings Per Share ratio?

A

Profit (after tax, less preference dividends) / Weighted average number of ordinary shares in issue

70
Q

What is the calculation for the Price Earnings ratio?

A

Share Price / Earnings Per Share

71
Q

What is the calculation for the Dividend Yield percentage?

A

Dividend per share / Current share price x 100

72
Q

What is the calculation for the Financial Gearring percentage?

A

Long term debt / shareholders’ funds x 100

73
Q

What is the calculation for the Gross Margin percentage?

A

Gross Profit / revenue x 100

74
Q

What is the calculation for the Current ratio?

A

Current assets / current liabilities x 100

75
Q

What is the calculation for the Quick ratio?

A

Current assets less inventories / current liabilities x 100

CIMA - E1 (9 decks)

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