All key words

Question 1

Ethics

Answer 1

Can simply be defined as ‘the science of morality’, or ‘the difference between right and wrong’. This extends to ‘doing the right thing when no-one is watching’.

Question 2

Responsible business

Answer 2

An organisations commitment to operating in a way that is economically, socially and environmentally sustainable, and ensuring this prevails while still upholding the interests of its various stakeholders.

Question 3

Confidentiality

Answer 3

Means having a duty to safeguard any information in your possession unless there is a legal or professional duty to disclose.- 1 when permitted by law 2 when permitted by the client or employer 3 when required by law 4 when permitted by a professional duty or right.

Question 4

Integrity

Answer 4

Means that an individual acts in a manner that is honest and straightforward in all professional and business relationships. This extends beyond the work that an accountant produces, and extends to the manner which they conduct themselves.

Question 5

Lifelong learning

Answer 5

‘The concept that an individual never stops learning and should be open to new ideas, decisions, skills and behaviours.

Question 6

Objectivity

Answer 6

Refers to the ability to make judgements and decisions free from bias, and within this the guidelines also make it clear that you are expected to avoid situations that cause a conflict of interest to arise.

Question 7

Professional behaviour

Answer 7

Means not doing anything that will discredit CIMA or the wider accounting profession. This is defined as ‘actions which a reasonable and informed third party having knowledge of all relevant information, would conclude negatively affects the good reputation of the profession’.

Question 8

Professional competence and due care

Answer 8

Means that an accountant should only take on tasks for which they are technically competent to perform. There is also a duty to take reasonable care and remain technically up to date.

Question 9

Professional development

Answer 9

‘The development of personal qualities such as communication skills, assertiveness, time management and relationship building. They are skills that have to be developed by an individual and must come from deep within them.

Question 10

Financial stakeholders

Answer 10

Those groups that would directly suffer if something happened to an organisation, including, shareholders, employees, customers and suppliers.

Question 11

Non-financial stakeholders

Answer 11

Those others interested in how an organisation behaves, including government, media, competition and regulators.

Question 12

Agency theory

Answer 12

Views the managers of an organisation as acting in an agency capacity, seeking to service their own self interest, and looking after the performance of the company only to the extent where this promotes their own interests. This gives rise to the agency problem.

Question 13

Corporate governance

Answer 13

Is the system by which organisations are directed and controlled. Running an organisation of any type requires no specific qualifications, and there is no ‘rule book’, corporate governance aims to fill this gap.

Question 14

Organisations (The three aspects)

Answer 14

1 Collective goals - profit making companies = profit maximisation, not for profit = maximising benefits of its beneficiaries
2 social arrangements - organisations are structured to allow people to work together towards a common goal
3 Controlled performance - systems and procedures will be developed to ensure individual and group collective goals are met

Question 15

Stakeholder theory

Answer 15

Takes a more organic view of an organisation that goes beyond mere stewardship and states that the management has a duty of care not just to the owners, but also to the wider stakeholder community.

Question 16

Stewardship theory

Answer 16

Views the management of an organisation as its stewards, tasked with managing its assets in line with the wishes of the owners.

Question 17

Comply or explain

Answer 17

Means that should a company chose, or be unable to comply with the code, then the instance(s) of non-compliance should be disclosed and explained in the financial statements to satisfy the requirements of the stock market listing rules.

Question 18

Management board

Answer 18

Composed entirely of managers, it is responsible for the day to day running of the business. The supervisory board appoints the management board, and membership of the two boards is mutually exclusive.

Question 19

Supervisory Board

Answer 19

Consisting of workers representatives and stakeholder management representatives. The board has no executive function, although it reviews the company’s direction and strategy and is responsible for safeguarding stakeholder’ interests.

Question 20

Analytical Review

Answer 20

Involves testing large volumes of predictable data by developing an expected balance, comparing to the actual data and reconciling any material differences.

Question 21

External audit

Answer 21

A type of assurance engagement that is carried out by an auditor to give an independent opinion of a set of financial statements.

Question 22

Fair Representation

Answer 22

The auditors report on the company’s financial statements is expressed in terms of truth and fairness. This is generally taken to mean that the financial statements are Factual, Free from bias, Reflect the commercial substance of the business’s transactions.

Question 23

Fraud

Answer 23

Has been legally defined as ‘A false representation of fact, made with the knowledge of its falsity, or without belief in its truth, or recklessly careless, whether it be true or false’.

Question 24

Internal audit

Answer 24

Is an independent appraisal function within an organisation designed to examine and evaluate its activities as a service to the organisation. The objective of internal auditing is to assist members of the organisation in the effective discharge of their responsibilities. To this end, internal auditing furnishes them with analyses, appraisals, recommendations, counsel and information concerning the activities reviewed.

Question 25

Substantive tests

Answer 25

Are those designed to detect material misstatements.

Question 26

Tests of control

Answer 26

Are audit procedures designed to evaluate the operating effectiveness of controls in preventing or detecting or correcting material misstatements.

Question 27

Written representations

Answer 27

Is a written statement provided by management to the auditor in support of other evidence.

Question 28

CSR

Answer 28

Is an organisations obligation to maximise positive stakeholder benefits while minimising the negative effects of its actions.

Question 29

Sustainability

Answer 29

Central to this is the concept of sustainability; developing strategies so that the company only uses resources at a rate that allows them to be replenished, such that the needs of the currency generation can be met without compromising the needs of future generations.

Question 30

Acceptance

Answer 30

Can be defines as ‘the unconditional assent to all of the terms of the offer’, as per Neale v Merrett

Question 31

Agreement

Answer 31

Is made by offer and acceptance

Question 32

Consideration

Answer 32

Both parties must bring something of value to the contract

Question 33

The Contract

Answer 33

May be defined as an agreement which legally binds the parties, or an agreement which the law will recognise and enforce

Question 34

Intention

Answer 34

The parties must have an intention to create legal relations between themselves

Question 35

Invitations to treat

Answer 35

This is merely something that acts as an inducement to encourage another person to make an offer, and is therefore not capable of acceptance itself

Question 36

Offer

Answer 36

An offer to be bound on specific terms, it must be certain.

Question 37

Unenforceable

Answer 37

The contract us valid but performance by one party cannot be enforced.

Question 38

Vitiating factors

Answer 38

Are those that render the contract:

form: some contracts must be made in a particular form
terms: must be properly incorporated into the contract
consent: a misrepresentation made by one party may affect the validity of the contract
legality: the courts will not enforce a contract which is deemed to be illegal or contrary to public policy
capacity: certain bodies can only make contracts within the boundaries of their authority; also generally people lack contractual capacity if they are under the age of 18.

Question 39

Void

Answer 39

There is no contract

Question 40

Voidable

Answer 40

The innocent party can withdraw from the contract

Question 41

Consideration

Answer 41

Can be defined as ‘the element of value in agreement’, and in English law, must be supplied by both parties in order to form a binding contract.

Question 42

Misrepresentations

Answer 42

Can be defined as ‘a false statement of fact made by one party to the other before the contract, and made with a view to inducing the other party to enter into it’.

Question 43

Condition

Answer 43

Is a fundamental part of a contract; breach of a condition gives the innocent party the right to repudiate the contract and claim damages- Poussard v Spiers

Question 44

Express term

Answer 44

One that has been agreed by the parties between them, either orally or in writing, during the information of a contract.

Question 45

Innominate terms

Answer 45

Are those that cannot be classified as a condition or a warranty until the contract has been breached. The tests used to classify the term is whether or not the innocent party ‘loses the whole benefit of the contract’ - Aerial Advertising v Bachelors Peas

Question 46

Implied terms

Answer 46

Are those terms that are not agreed upon by the parties, but are incorporated into the contract in one of the following ways:
1 implied by statute - such as the terms of the Consumer Rights Act 2015
2 Implied by custom - some terms are customary through trade usage - Hutton v Warren
3 Implied by the courts - in order to give business efficacy to an agreement - The Moorcock

Question 47

Constructive dismissal

Answer 47

Occurs when an employee, who has resigned, is able to prove they did so under duress from their employer, and as such, was therefore actually dismissed.

Question 48

Dismissal

Answer 48

Refers to situations where the employer decides to terminate the employment relationship.

Question 49

Summary dismissal

Answer 49

Occurs when the employee is ‘sacked on the spot’ e.g. without any notice.

Question 50

Unfair dismissal

Answer 50

Is a statutory claim made by ‘qualified’ employees who have been ‘unfairly dismissed’.

Question 51

Wrongful dismissal

Answer 51

Is a common law claim that can be made where an employee has been dismissed without justification, often when they have been denied their required notice period.

Question 52

Money laundering

Answer 52

Is the process by which the proceeds of crime, which have illegitimate origins, are converted into assets that appear to be legitimate.

Question 53

Whistleblowing

Answer 53

The name commonly given to workers making a disclosure of wrongdoing (usually) by their employer.

Question 54

Incorporation

Answer 54

An entity that has been created in its own right and is thus known as a ‘corporation’, and is therefore separated in law from its owners.

Question 55

Articles of association

Answer 55

The working part of the constitution that has now absorbed much of the content that used to be the preserve of the memorandum of association. the MOA now merely records the initial subscribers to the company’s share capital.