Business and Finance Deck Flashcards
1
Q
An organisation is…
A
A social arrangement for the controlled performance of collective goals which has a boundary separating it from its environment.
2
Q
A business is …
A
An organisation that is oriented towards making a profit. It is an entity separate from its owners.
3
Q
Sustainability is…
A
The ability to meet the needs of the present without compromising ability of future generations to meet needs, (Not just environmental).
4
Q
A stakeholder is…
A
someone who has an interest to protect in terms of what the organisation does. All people/ things affected.
5
Q
Business sustainability is…
A
How far a business can operate in a sustainable way, how it should interact with individuals and governments in doing so.
6
Q
Corporate sustainability is…
A
Actions, activities and obligations of business in achieving sustainability.
7
Q
Satisficing is…
A
Creating a satisfactory profit for business.
8
Q
A mission is…
A
The business’ basic function in society. It contains the purpose, strategy, policies and values of the organisation.
9
Q
SMART stands for…
A
Specific, measurable, achievable, relevant, time-bound.
10
Q
Common primary objectives of a business are to…
A
maximise profit, or revenue (different).
11
Q
Management is …
A
getting things done through other people.
12
Q
Power is …
A
the ability to get things done!
13
Q
Coercive power is …
A
the power of physical force/ punishment/ intimidation.
14
Q
What are the 6 types of power?
A
Coercive, Reward/ Resource, Legitimate / position, expert, referent /personal, negative.
15
Q
What is reward/resource power?
A
Power over resources you have.
16
Q
What is legitimate power?
A
Power due to authority and position you have in a business.
17
Q
What is expert power?
A
Power from experience/ qualifications.
18
Q
What is Referent / personal power?
A
Power based on personality / charisma.
19
Q
What is negative power?
A
The power to disrupt operations. (Industrial action, sabotage, refusal to communicate).
20
Q
Authority is…
A
The right to do something, or ask someone to do something and for it to be done.
21
Q
A functional manager…
A
has authority to direct, design, control activities in another department. Hybrid of Line manager and Staff manager.
22
Q
What are the three roles of a manager?
A
Interpersonal (leader for team, linking managers), Informational (relaying and checking data), decisional role (allocate, handle, negotiate, solve).
23
Q
Culture is …
A
The common assumptions, values and beliefs that people share.
24
Q
What is internal process culture?
A
Business looks inward, controlled internal environment, goals known and unchanging, defined procedures. Security and order is staff motivator.
25
What is Rational goal culture?
Goals relate to external requirements. Competition motivates staff.
26
What is systems culture?
External environment is ever-changing, business must be flexible, staff motivate by growth, creativity and variety.
27
What is human relations culture?
Business looks inwards, aims to maintain existence and staff wellbeing. Staff motivated by sense of belonging.
28
What is a model?
Representations of complex realities which can be analysed and passed down.
29
What are Taylors five principles of scientific management?
Find best way to do task, find best person to do it, train the person, give financial incentives to ensure it is done right, give responsibility to plan and organise to manager.
30
What is marketing?
Human activities directed at facilitating and consummating exchanges. or. The process which identifies, anticipates, supplies customer requirements efficiently and profitably.
31
FMCGs are...
Fast moving consumer goods, cheap, high volume, bread etc.
32
Consumer goods are...
Low volume, high value. White goods (fridges) brown goods (cd players, card) soft goods (clothes, linen) services.
33
Marketing mix is...
The set of variables a firm used to produce the desired market response.
34
Marketing mix consists of (p)...
(Quality of) product, price, promotion (method and) place, people, processes, physical evidence. (Last 3 for services)
35
Market segmentation is...
Splitting market into groups that would be targeted differently.
36
Types of business orientation (focus) include...
Sales, production, product, marketing.
37
The three main elements of a product...
Basic product (a car), actual product (Ford Focus), augmented product (with guarantee, 0% interest etc.)
38
Things to consider when taking a product from basic to augmented are...
Quality, packaging, branding, aesthetics, product mix, servicing.
39
The five main promotion techniques are...
Advertising, sales promotion, public relations, direct marketing, personal selling.
40
What are the two main elements in promotion...
Push (ensuring products are available to consumers), pull (persuading ultimate customers to buy)
41
The four v's of operation management.
Volume, variety, variation, visibility.
42
Pure research is...
Research for new knowledge, no obvious commercial or practical end.
43
Applied research is...
Research with practical end in view.
44
Procurement is...
Acquisition of goods at best possible total cost of ownership for business.
45
Lead time is...
Time between placing and delivery of order.
46
The hard and soft approach to human resources management.
Hard relates to resources, soft relates to humans and their soft skills and wellbeing.
47
Success of human management in four c's...
Commitment, competence, congruence, cost-effectiveness.
48
Taylor's Model of scientific management made three assumptions of human behaviour:
People are rational economic animals, People can respond as individuals, People can be treated in a standardised fashion.
49
The conclusions to Taylor's model are:
Main motivator: high wages, Manager's job: tell workers what to do, Workers' jobs: do what they are told and get paid.
50
McGregor's Theory X:
Individuals dislike work, lack ambition, prefer to be led, coercion control and punishment needed, desires security and remuneration!!
51
McGregor's Theory Y:
Physical and mental effort is natural, commitment is driven by rewards, self control and direction is important, people learn to like responsability, intelectual power can be developed.
52
Motivated workers will work:
80-90% of capacity, unmotivated is 30%.
53
Maslows pyramid of needs orders them (top to bottom) - (people work their way up):
Self actualisation needs, status/ego, social, safety, basic.
54
Hezberg believed organisations need to deal with hygene factors and motivating factors...
Hygene factors stop dissatisfaction, motivaiton stops demotivation.
55
Hezbergs hygene factors concern:
Company policy, supervision, salary, relationships, conditions.
56
Hezbergs motivation factors concern:
Achievement, recognition, challenge, responsability, advancement.
57
Belbin thought there were eight key team roles people fell into:
The leader, the shaper, the plant (thought-provoking), the evaluator (critical), resource-investigator, the company worker (turns ideas into specifics), team worker (relaitonships), the finisher (progress chaser).
58
Belbin's team has:
One leader and/or shaper, Equal numbers of plant/evaluators, equal numbers of team and company workers, minimal finishers.
59
The effectiveness of a manager is influenced by:
Authority (rights to control), autonomy (give people freedom), leadership (power in the right way to give positive response).
60
Likert said there were four basic leadership styles...
Exploitative authoritative, benevolent authoritative, consultative, participative.
61
Blake and Mouton created a managerial grid, in the grid managers are ranked on...
their cocncern for people, concern to get the task done.
62
If Cedric designed an IT system and Kara tried to edit the system. The authority Cedric can impose is...
Functional authority.
63
Which two of: Inward looking, flexibility, environment control, outward looking are typical of rational goal culture?
Controlling and outward looking.
64
The main concern for FMCG (fast moving consumer goods) otu of customers, costs, corporate objectives, competitors is...
Competitiors. FMCG are competitive.
65
If four people offer a service to a manager and 1 person offers the same service for same price, the management decisions is about... (out of Marketing, Operations, Finance, HR).
operations management (procurement).
66
In terms of the operational iceberg, which of these is a covert variable affecting organisational behaviour? Political behaviour, Organisaitonal design, Organisational goals, Regulations?
Political behaviour.
67
The model of behaviour that suggests humans want security above all else is...
Theory X
68
What are Mintzbergs six building blocks of a business?
Operating core (operating staff), middle line (middle managers), strategic apex (top managers). Then around outside, support staff (e.g. Catering), techno structure (analysts standardising), and around all, ideology.
69
Coordination mechanisms integrate the following 5 building blocks into a cohesive unit...
Direct supervision, standardisation of work, skills and outputs, mutual adjustments
70
What are Henri Fayols 14 guiding principles of business and hierarchy?
Work division, scalar chain, correspondence of authority and responsibility, centralisation of decision making, unity of command (receiving orders from one person only), unity if direction (one lead/plan for each activity), initiative, subordination of individual interests, discipline, order, stability of personnel, equity, remuneration, esprit de corps.
71
Modern management theorists emphasise values of... (Rather than unity)
Multi-skilling and flexibility of units, structure and deployment of labour to respond to varying needs.
72
The three main ways of communicating the structure of a business are...
Organisation chart, organisation manual, Job description.
73
Mintzbergs building blocks are generally combined to make five different kinds of organisational structure... (Studied more later)
Simple (entrepreneurial), machine beurocracy (functional), professional beurocracy, divisionalised (by product/geography), adhoc/ innovative (matrix).
74
Details of the simple/entrepreneur structure...
Strategic apex core, flexible, quick decision making, restricted in size, lack of career structure, retention of power at top, cannot adapt to unusual new ideas.
75
Details of the functional / bureaucratic structure are...
Technostructure is the key element. Clear lines of authority, jobs grouped by common feature, stable environment, small enterprise, good career opportunities, easy to move up ranks, efficient as functional tasks well known, structure is very rigid and growth is tricky. Slow decisions.
76
Divisionalisation is...
Division of a business into autonomous regions each with separate revenues, expenditures, asset purchase programs.
77
Details of the divisional structure ...
Middle line is the core building block, business split into divisions, sometimes subsidiary's, reporting to group board of directors, each division must have delegated authority - potential for growth - large enough to support needs - challenge, flexible, develops managers, fewer levels, efficient, good management decisions, can cause squabbles with central, interdivisional trading problems.
78
Details of the matrix structure are...
Key building block is the operating core, vertical and lateral lines of communication eg education establishments, may be temporary, dynamic, reflects importance of project to customer, conflicting demands of staff time and resource allocation, dilution of authority.
79
Centralisation is when...
Decision making authority is concentrated in strategic apex. Offers control, decentralisation offers flexibility.
80
A decentralised structure is when...
Authority to make decisions is passed to lower levels of hierachy.
81
Fators that affect the amount of centralisation are...
Leadership style, organisaitonal size, diversification, communication, ability of management, speed of technological advancement, extent of local knowledge needed.
82
A span of control is...
How many people are reporting directly to one person.
83
Urwich held in his comments on the span of control of individuals that...
there needs to be a tight (restricted) span of control. Not too big or too small, limited by manager capabilities, geographical dispersion, nature of problems, support from other departments.
84
A scalar chain is...
the chain of command from most senior to most junior.
85
A tall/flat business is...
Think of the triangle of hierachy and the spans of control. How many people does each manager have supervision over?
86
What are some advantages / disadvantages of tall / flat businesses?
Number of steps on promotion, number of hands work gets passed through, speed of decision making, group size and team participation, opportunities for delegation, how much of an idea managers have of goings on, level of control, cost.
87
What are mechanistic and organic businesses?
Mechanistic are stable, efficient, for slow-changing environments. Organic are flexible, adaptive, suitable for fast-changing environments people follow business mission rather than just loyalty.
88
A bureaucracy is ...
A continuous organisation of official functions bound by rules.
89
A continous organisation...
Doesn't disappear when people leave.
90
Official funcitons are ...
How the business is divided into areas with specified duties, authority given to managers in charge.
91
The characteristics of a bureaucracy are:
Hierachy of roles, specialisation and training, professionality of employment, impersonal nature, rationality, uniformity of task procedures, technical competance, stability.
92
Advantages and disadvantages of a bureaucracy are...
Good for routine tasks, efficient, rigid procedures, slow decision making, conformity, less innovation, slow to change, restricted communication.
93
In a general partnership...
The partnership has no seperate legal identity, all partners share debts if one becomes insolvent,
94
In a limited partnership...
The partnership has no seperate legal identity but one or more partners may have limited liability provided there is one fully liable partner. Limited partners cannot remove capital or be part of management.
95
In limited liability partnerships...
Not too far from Ltd. companies, there is a seperate legal entity, some funding restrictions between general and limited partnerships are relaxed.
96
The difference between a public company and a private company is...
A public company issues shares and securities and is registered under the Companies act. A private company is not.
97
Some advantages / disadvantages of companies and partnerships (audit, records, publicity)...
Partnerships don't have to go through audit, don't have to keep accounting records in any particular format, own assets, don't have to make public any information, don't have perpetual succession (transferal of ownership - shares), don't have to send financial statements to Registrar (unless limited liability), can't offer floating charges.
98
A licensing agreement is...
permission for another company to manufacture or sell a product / use a brand name.
99
A joint venture is...
When a separate business is formed to take a financial stake, management provided.
100
Strategic alliance is...
Eg airlines having alliances to cross book passengers.
101
Som advantages / disadvantages of group structures are... (e.g. parents and subsidiarys)
Fundas and people can be moved easily for tax losses. Failure risk spread, financial reporting is more complex, lots of admin for annual returns, failure of a group company is bad for whole group.
102
Which 3 of Scalar chain, Matrix structure, flexibility, unity of direction, division of work are classical principles of organisational structure according to Fayol?
Scalare chain, Unity of direciton, Division of work.
103
A bureaucracy is suited to a situation where the business environment is...
Static and simple.
104
Which out of a general partnership, limited company, limited liability partnership has limited liability for its debt.
None of them.
105
A franchise is a form of... (joint venture, licensing agreement, strategic alliance, agency)
Licensing agreement.
106
A business strategy is concerned with...
Long-term direction, environment, resources, return.
107
What are Mintzbergs 5 P's of strategy?
A strategic Plan, Ploy (to gain victory), Pattern (from culture of management), Position (in the market), Perspective (how does business see the world?).
108
Strategy can be divided into 3 levels...
Corporate (overall missions, investments, decisions), Business (with SBU's), Functional (How the main functions in each SBU are delivered effectively).
109
An SBU is...
A strategic business unit. A section within a larger business which is responsible for planning, developping, producing and marketing its own produts or services.
110
Strategic management involves...
Taking decisions about scope of activities, long term direction of business, allocation of resources.
111
Formal strategic planning has four stages...
Strategic analysis, strategic choice, implementation of strategies, review and control. It is statement of long term goals with definition of strategies and policies which ensure achievement.
112
Strategic planning has been criticised because...
Human activities are not as rational and logical as expected. Short term environment changes necessitate changes.
113
The emergent approach to strategy planning addresses problems by...
accepting the final goal is unclear, adapting to human needs, evolving continuously and incrementally. The choice and implementation stage ar ecombined.
114
A positioning-based view of strategy planning is...
that forces at work in industry, sector or market are the most important factors. Identifying opportunities in environment.
115
A resource based view of strategy is...
Strategic capabilities are most important, they explain the differences between the businesses and the superior performance over some others. Strategies developped on.
116
In a positioning based view the planning process is...
External and internal analysis, corporate appraisal, decide on goals and objectices, analysing the gap, finding strategic choice, strategic option evaluation, strategic selection.
117
The three kinds of strategies a business should have are...
Competitive strategies, Product - market strategies (where it competes and direction), institutional strategies (method of growth).
118
The "General environment" is...
all political, legal, economic, social/cultural, ecological technological (PESTEL) influences in the country around the business.
119
The "Task environment" is the...
factors of relevance to a business such as competitors, customers, suppliers. (Think of the environments as bubbles around the business that items pass through).
120
A static environment can be described by four Ss...
Static in terms of environmental change, Single product/market, Simple technology, safe.
121
The four D's can describe a dynamic business environment...
Dynamic in terms of speed of change, Diverse in product and market, Difficulty, Dangerous (in terms of ignoring the environment).
122
PESTEL stands for...
Political, Economic, Social/demographic, Technological, Ecological, Legal factors.
123
Porter states that there are five competitive forces that influence the state of competition in an industry as a whole...
New entrants, customers, substitutes, suppliers, industry competitors.
124
Some threats to new entrants into a market include...
Scale of operations, Static markets (competition), Product differentiation of competitiors, investment requirements, access to distribution, cost advantages to existing companies.
125
Entry barriers in a market may be lowered by...
Changes in environment, technological changes, novel disribution channels.
126
Bargaining ability of customers depends on...
How much they will buy, How critical their product is, How they can pass on costs, if the items are specialised, their profitability, ability to bypass supplier, skills of purchasing staff, quality importance.
127
The bargaining power of suppliers depends on...
Other suppliers, threat of new entrants, other customers of suppliers, importance of product, specialised product, switching costs.
128
Brand competitors are...
Compteitors that offer similar things, burger king and mcdonalds.
129
Industry competitors are...
Offering similar products but are different in other ways, like tesco and amazon.
130
Generic competitors are...
competing for the same disposable income... e.g. CD shop and book shop.
131
Form competitors are...
Offering distinct products that satisfy same needs (lighters and matches).
132
Kohler identifies 4 types of reaction to competitor profiles...
Laid back , Tiger, Selective, Stochastic (unpredictable).
133
A position audit...
examines the current state of the entity in respect of resources, competencies, products, systems, organisation, results, returns.
134
The M's that should be reviewd in a resource audit are...
Machinery, Make-up, Management, Management information, Markets, Materials, Men and Women, Methods, Money.
135
A limiting factor or key factor is like...
shortage of supply...
136
The support activities of a value chain include...
Firm infrastructure, Human resource management, Technology department, Procurement...
137
The Primary activities of a value chain are...
Inbound logistics, Operations, Outbound logistics, Marketing and Sales, Service.
138
The vaue chain is...
The sequence of business activities by which in the perspective of the end user, value is added to products.
139
Integrated supply chain management is...
Optimising the activities of businesses working together to produce goods and services.
140
Integrated supply chain management can include...
Reduction in suppliers, reduction in customers for focus, linked computer systems, carefully designed distribution, joint problem solving.
141
Product form is...
The specific type of product... Five door hatchback or two seater sportscar.
142
The product life cycle consists of ...
Introduction, growth, maturity, decline.
143
The BCG (boston consulting group) matrix categorises products based on...
Market growth, market share. INTERNAL ANALYSIS
144
Market share is assessed as a ...
ratio, so higher than 1 indicates that it is market leader.
145
In the BCG matrix, High market share and high Market growth means...
Stars. => Build
146
In the BCG matrix, Low market share and high Market growth means...
Question marks => Build or Harvest
147
In the BCG matrix, High market share and low Market growth means...
Cash cows => Hold or Harvest
148
In the BCG matrix, Low market share and Low Market growth means...
Dogs => Hold or Divest
149
In the BCG matrix, stars...
Require capital expenditure to maintain market position, forgo short term earnings to build market share for promising returns.
150
In the BCG matrix, Cash cows (often used to be stars)...
Need little capital expenditure, generate income, maintain market position or harvest the maximum earnings.
151
In the BCG matrix question marks...
Should they grow or be left? Build or harvest...
152
In the BCG matrix, Dogs (often ex-cash cows)...
Poor return, but may be useful for keeping competitor out, divest (release resources elsewhere) or hold.
153
In terms of BCG matrix a business should be balanced with...
Cash cows providing finance for stars and question marks and a minimum of dogs.
154
The corporate appraisal is...
An analysis of SWOT - the Strengths, weaknesses, opportunities, threats of a business.
155
Mendelow maps stakeholders on a matrix ranked by level of interest and power. (Low or High)
LL => Minimal effort. HL => Keep informed. LH => Keep satisfied. HH => Key Players.
156
A mission is...
A formal document that states the business' basic function in society expressed in terms of how it deals with stakeholders.
157
The GAP analysis analyses..
The difference between the desired future performance level and the expected future performance level. What are the objectives? What would happen if it did nothing to change?
158
Porter believes there are 3 generic competitive strategies...
Cost leadership, differentiation, focus or niche.
159
Cost leadership is...
Producing at lowest cost with latest technologies, minimising overheads, favourable access to supply, operations in cheap countries.
160
Differentiation is...
Provision of a product which industry believes is unique. Breakthrough, Improved, Competitive products.
161
Focus/Niche products...
Provide restriction to part of market, can be cost-focused or differentiation focused.
162
In Ansoff's matrix, existing products in current markets...
you should persue market penetration, maintain or increase market share, secure dominance.
163
In Ansoff's matrix, existing products in new markets...
should persue market development. New geographical areas, package sizes, distribution channels, pricing policies.
164
In Ansoff's matrix, new products in current markets...
should pursue product development. New products and customers, force competitors to innovate, newcomers discouraged.
165
In Ansoff's matrix, new products in new markets...
should pursue diversification, should have clear idea of expectations, prospects of growth, surplus funds should be invested in diversificaiton or to shareholders.
166
In SFA analysis businesses...
Analyse strategies against competitors based on Suitability, Feasability, Acceptability.
167
The plans that should be produced to implement a strategy are...
Strategic plan, business plan, Operational plan.
168
The emergent approach to strategic planning process combines ...
Strategic choice with implementaiton as it is always changing.
169
In a resource based approach to strategic planning, the businesses mission, goals and objectives are determined following stakeholder analysis ...
at the start of the process. (analysis and corporate appraisal stage or following SWOT analysis in corporate appraisal stage is for the planned stratey approach).
170
Competitors exist in the businesses _____ environment.
Task environment.
171
Change in law around a company is a change in ____ and requires ____.
Change in general environment (legal), requires crisis management (longer changes require planning).
172
In Porter's value chain, which of HRM, Procurement, Outbound logistics, Technology are primary activities?
Outbound logisticsm the rest arr secondary support activities.
173
What is the difference between risk and uncertainty?
Risk is the possible variation in an outcome from what is expected to happen. Uncertainty is the inability to predict due to lack of information.
174
The downside / upside risks are...
The risks that something will go badly / well.
175
Pure risk is...
The possibility something will go wrong.
176
Speculative risk is...
The possibility something will go better than expected.
177
A CSF is...
A critical success factors, significant risks create obstacles to these. Particularly valued by groups of customers.
178
Risk appetite is...
The extent to which a business is willing to take on risk.
179
Business risk is...
Related to Strategy, enterprise, product, economic, technology, property.
180
Non-business risk is...
Related to financial risk or operational risk.
181
Financial risk is...
Credit or Market. Credit risk is loss suffered due to default of borrower (they won't pay). Market risk is loss from changes in market price rate.
182
Other ways to break down Financial risk in detail break it into...
Liquidity risk (no cash), gearing risk (high borrowing), default risk (receivables don't pay), Credit risk (credit rating is downgraded), foreign exchange risk, interest rate risk, market risk.
183
Operational risk is...
The risk of a change in value caused by the fact that actual losses incurred for inadequate or failed internal processes, people and systems, or from external events (inc. legal risk) differ from the expected losses.
184
Volatility is...
How the factor to which a business is exposed is likely to alter.
185
The greatest risks occur for a business when...
Exposure is high, Underlying factor is volatile, Impact is severe, probability of occurance is high.
186
When is risk management (analysis and minimise risk) necessary?
Sometimes legally (car insurance), sometimes regulatory, financial institutions e.g. building insurance.
187
A risk-based management approach is required...
for all UK companies listed in FTSE 350 under UK Corporate Governance Code 2012. EU regulations stipulate that a European listed company's financial statements must contain a description of principal risks.
188
The risk management process consists of...
Awareness, assessment, response and control, monitoring and reporting.
189
Identifying risks can be done in two ways...
Top-down (senior managers working out what will happen if don't achieve each CSF) bottom up (group of employees and expert at operational level)
190
Gross risk is...
Combining impact and probability.
191
Some possible responses to risk are...
Avoidance, reduction, sharing, acceptance.
192
A common response for low impact low probability risks is ...
Acceptance
193
A common response for high impact low probability risks is ...
Shared (insurance) or reduced (impact reduced to lower insurance premiums).
194
A common response for low impact high probability risks is ...
Reduction
195
A common response for high impact high probability risks is ...
Control with avoidance, reduction, sharing
196
Crisis management is...
Identifying a crisis, planning a response, confronting and resolving.
197
The three main types of crisis for business are...
Financial crisis, public relations crisis (like bad press), strategic (changes in business environment) crisis.
198
If a business has a large money demand from government and little money expected and small overdraft it could...
Accelerate receipts from customers (offer discounts), decelerate payments, increase short term sales, reduce expenses.
199
Some possible responses to risk are...
Avoidance, reduction, sharing, acceptance.
200
A common response for low impact low probability risks is ...
Acceptance
201
A common response for high impact low probability risks is ...
Shared (insurance) or reduced (impact reduced to lower insurance premiums).
202
A common response for low impact high probability risks is ...
Reduction
203
A common response for high impact high probability risks is ...
Control with avoidance, reduction, sharing
204
Crisis management is...
Identifying a crisis, planning a response, confronting and resolving.
205
The three main types of crisis for business are...
Financial crisis, public relations crisis (like bad press), strategic (changes in business environment) crisis.
206
If a business has a large money demand from government and little money expected and small overdraft it could...
Accelerate receipts from customers (offer discounts), decelerate payments, increase short term sales, reduce expenses.
207
Some possible responses to risk are...
Avoidance, reduction, sharing, acceptance.
208
A common response for low impact low probability risks is ...
Acceptance
209
A common response for high impact low probability risks is ...
Shared (insurance) or reduced (impact reduced to lower insurance premiums).
210
A common response for low impact high probability risks is ...
Reduction
211
A common response for high impact high probability risks is ...
Control with avoidance, reduction, sharing
212
Crisis management is...
Identifying a crisis, planning a response, confronting and resolving.
213
The three main types of crisis for business are...
Financial crisis, public relations crisis (like bad press), strategic (changes in business environment) crisis.
214
If a business has a large money demand from government and little money expected and small overdraft it could...
Accelerate receipts from customers (offer discounts), decelerate payments, increase short term sales, reduce expenses.
215
What is a disaster?...
Business operations or part of them break down leading to potential loss of equipment, data or funds.
216
A long term disaster plan usually consists of...
Standby procedures, recovery procedures, personnel management. Sections: definition of responsibilities, priorities, backup and standby arrangements, communication with staff, public relations, risk assessment.
217
What is COSOs definition of risk?
The possibility that an event will occur and adversely affect the achievement objectives.
218
Which of these is a downside risk: costs might rise, revenue might rise, controls may succeed, quality might improve.
Costs may rise, other are upside risks.
219
If Duamonds plc has had a wide range of returns to shareholders in recent years how volatile and risky are the shares?
Volatile as large variation in profits, therefore higher risk.
220
If staff are oblivious to the risks this is a ... (Business, enterprise, financial, operational risk)
Operational risk
221
Gross risk facing a business is measured by...
Impact x probability
222
Reducing the number of staff on a risky procedure and giving them more training is a response of...
Avoidance and reduction.
223
If a company works in a politically unstable country and has another firm backup its files this is part of the company's...
Disaster recovery plan.
224
Good business information should be ACCURATE which stands for...
Accurate, complete, cost-beneficial, user-targeted, relevant, authoritative (reliable), timely, easy to use.
225
What makes information valuable?
It's source, ease of assimilaiton (is it easy to understand), Accessibility, Relevance.
226
How can you assess the value of information?
If it's not used then it's not valuable, consider the extra benefits from getting it, the extra costs of obtaining it, monthly variance report only generates economoically consequential decisions if there is a control failure, control failures not easy to predict though, economic concequences of decisions not easy to predict.
227
What is a TPS?
Transaction processing system (for routne tasks)
228
What is an MIS?
Managament information system. Converts data from mainly internal sources into information. Regular reports and online access to business current and historical performance.
229
What are the CATIVA requirements for information processing from data to information to be effective?
Completeness, accuracy, timeliness, inalterability, verifiability, assessability.
230
What are the three component parts of a processing system?
Inputs, processes, outputs. Other key characteristics are the environment and the system boundary.
231
What is a system boundary?
It separates the information system from its environment. Interface between systems to allow resources exchange. Eg between processing system and sales system of major suppliers.
232
The EIS or ESS is...
The executive information system or executive support system, database pooling info from internal and external sources, available and easy to use for senior managers.
233
The DSS is...
The decision supprt system, It combines data and anlytical models or data analysis tools to support semi-structured and unstructured decision making.
234
An expert system is...
Captures human expertise in a limited domain of knowledge to allow users to benefit from expert knowledge and information. It is a database with specialised data and rules about what to do and how to interpret given circumstances.
235
What is the KWS?
The knowledge work system. It facilitates the creation and integration of new knowledge into an organisation.
236
What is an OAS?
An office automation system. It increases the productivity of data and information workers.
237
Expert systems in business are for things like...
Legal or tax advice, forecasting, surveilance (when more supermarket tills should be opened), Diagnostic systems, project management, education / training.
238
Expert systems are most useful when...
The problem is well defined, the expert can define some rules by which the problem can be solved, problem can't be solved conventional processing, the expert could be release onto more difficult problems, it is cost-justified.
239
Why would a business use an expert system?
For cost, accessibility, time.
240
What are the qualities of a secure information system?
ACIANA, availability, confidentiality, integrity, authenticity, non-repudiation (not rejected on grounds of fault in system), authorisation.
241
What is the difference between data verification and data validation?
Verification involves ensuring data enterred matches source documents, validation ensures date enterred is not incomplete or unreasonable.
242
Name some people that would use financial information...
Present and potential investors, lenders and payables, employees, customers, suppliers and business partners, government and agencies, public and comunity representatives.
243
Financial information helps uses make decisions amd shows results of management's stewardship, it should be prepared under two assumptions...
Accrual basis of accounting (recorded in period to which they relate), the business is a going concern.
244
What factors affect the business' financial position?
Econoic resources it controls, financial structure, solvency (availability of cash in longer term to meet financial commitments), adaptability.
245
IFRS framework states if financial information is to be useful it must be...
relevant and faithfully represent what it purports to represent. Enhanced if comparable, verifiable, timely and understandable.
246
Fundamental qualitative characteristics are...
The attributes that are fundamental in making information provided in financial statements useful to users. Namely relevance and faithful.
247
Enhancing qualitative characteristics are...
attributes that enhance the fundamental usefulness of information provided in financial statements to users. Namely understandability, comparability, verifiability, timeliness.
248
IFRS states that relevant financial information is capable of making a difference in the decisions made by users if it has...
Predictive or confirmatory value.
249
Relevance of financial information is affected by...
Nature of information (relevance), materiality (would they affect user decisions).
250
A faithful piece of financial information is...
complete, neutral (without bias), free from error.
251
Non-financial information wouldn't be included in financial statements, they may be in Chairman's statement or Director's report. Info may be...
Narrative of major operations, Discussion of business risks and opportunities, Narrative analysis of performance and prospects, management policies.
252
Other extra financial information (not in FS) available to some users may be...
Management info (future plans, budgets, management accounts), banks may get extra access, potential investors if they will invest a lot, suppliers via credit reference agencies, brokers' reports, press reports.
253
If you are unsure weather to allow overtime between 7pm and 9pm for an adviser the information you need is...
Not planning or strategic as it is short term, not day to day so not tactical so it is operational.
254
The value of information is... (measure of scarcity, subjective, undermined if too accessible, independent of source).
Subjective.
255
If there is an usual payment to workers managers hsould first check (payroll, ledger accounts, machine logs, workers).
Payroll first.
256
Bees plc needs to ensure the prices it sets for its consultants are rigourously and accurately prepared, it needs a pricing system as part of its (financial accounting, operations, marketing or HR system).
Marketing.
257
Data verification is a form of... (physical access, output, integrity, security control)
Integrity control.
258
Which is not a primary use of a companys financial information... (government, shareholders, potential investors, lenders).
Government.
259
Management accounting is...
Providing information to assist managers and internal users in decision making. E.g. identifying unit costs of the goods/services.
260
How does the finance funtion support the business objectives?
Transaction processing (sufficient controls?), Providing info to support decisions and measure performance, Ensuring there is finance and cash available.
261
What are future costs and sunk costs?
Future costs haven't been uncurred yet, sunk costs are for resources that have already been acquired.
262
What is marginal costing and contribution?
Marginal costing is the variable cost in unit costs (for unit of inventory excludes fixed costs or shares of overheads), Contribution is the unit selling price less marginal costs.
263
What analytical techniques might an accountant use to help managers answer resource allocation questions...
(CVP) - Cost volume-profit analysis, Breakeven analysis, Contribution analysis, Limiting factor analysis.
264
What is CVP?
Cost-volume-profit analysis. Relationship between cost/ volume/ profit/ sales/ output volume.
265
What is Breakeven analysis?
Application of CVP that supports whether to go ahead with a new product.
266
What is contribution analysis?
A form of sensitivity analysis which means that the business is aware of how sensitive its planned outcome is to changes in any of the variables.
267
When making investment decisions for the longterm what are the two basic decisions?
Does the business have enough long-term funds. Is the long-term investment worthwhile?
268
What are examples of capital inflows and capital outflows?
Inflows: Retained earnings, share issues, new loans or debentures, sales of non-current assets. Outflows: Purchases of non-current assets including investments, repayment of loans, redemption of debentures.
269
What are the most commonly used capital investment appraisal techniques?
Payback method (when will the investment get "paid back"), ARR - Accounting rate of return (what is the rate of return), NPV - (Net present value) and IRR (internal rate of return) - what will be the value in terms of the cash you have now? (Cash flows will arise over time, time value of money, DCF - Discounted cash flow).
270
What steps must be carried out in creating the master budget?
Decide on course of action, communicate to people responsable, Determine the factors that limit the output, prepare budgets for principal budget factor, prepare drafts of other budgets, negotiate budgets with managers, co-ordinate and review all budgets, accept budgets, review budgets over time.
271
What is incremental budgeting?
Take experiences of direct costs and support activities from past year and use these as a base to prepare next year.
272
What is a problem with incremental budgeting?
The costs of non-unit level activities become effectively fixed. (Past inefficiencies perpetuated).
273
What is the ZBB?
Zero-based budgeting to address problems with incremental budgeting, activities are justified and prioritised before decisions are taken relating to amount of resources allocated to each activity.
274
What is the difference between flexible budgeting and rolling budget?
Flexible budgeting is adjusting the budget to reflect actual levels of activity in that period. Flexible budget then compared with actual results via variance analysis. Rolling budget, budgets for months ahead are reviewed and revised so they are relevant to remainder of budget.
275
What is strategic management accounting?
Giving financial information on the business' product markets and competitors costs and cost structures.
276
What are the types of performance measure?
Qualitative and quantitative (consisting of financial measures, non-financial measures - can be incorporated into business wide set or balanced scorecard).
277
What are the three points of reference for measurement of business success?
Profitability (cost and revenue), activity, productivity.
278
What are CSFs?
Critical success factors (may be prices for customers, quality, delivery).
279
What are KPIs?
Key performance indicators (indicate achievement of CSF).
280
What is CR?
Corporate responsibility. (Social, environmental and economic).
281
Give a strategic approach to sustainability management.
Identify business' key sustainability issues, develop strategy and implement good practice, establish governance and accountability, set targets and action plan, measure performance, report.
282
What is the GRI?
Global reporting initiative. Voluntary guidelines for sustainability. (Reduction of energy consumption, no gender discrimination, spending in local suppliers, water usage, protected habitats, anti-corruption, human rights, diversity).
283
What is a balanced scorecard?
Integrated set of performance measures linked to achievement of strategic objectives. Financial performance with other key areas, operational and staff performance, customer satisfaction.
284
What are the four important perspectives looked at in a balance scorecard?
Customers, internal business processes, innovation and learning, financial.
285
According to COSO what are 5 integrated components of effective internal controls?
Control environment, risk assessment, control activities, information and communication, monitoring activities.
286
What does the control environment comprise of?
Integrity and ethical values of business, ability of directors to governance oversight responsibilities, assignment of authority, process of attracting/ retaining competent individuals, rigour of performance measures.
287
Name some control activities.
Approval, authorisation, verification, reconciliation, business performance reviews, segregation of duties.
288
If a company is looking to finance something from retained earnings, equity, loans or some combination, the section of the finance function of the company in use is...
Treasury management section.
289
Number plc is considering a project recommended by its engineers, which of these figures should be ignored when evaluating it? Engineers report, monthly outflows, increased revenues, investment now of 200,000.
Engineers report, it is a sunk cost so shouldn't be considered when evaluating if project should be pursued.
290
A company is considering a substantial investment with high risk, the technique to be used is... (Cash budgeting, discounted cash flow, capital budgeting, payback)
Discounted cash flow (more than payback due to element of risk). Cash budgeting is mainly for working capital, capital budgeting is not a concern as it already knows it will need to raise cash.
291
On the balance scorecard, measures of how quickly employee suggestions are implemented would be included in... (Financial, customer, internal business process or innovation and learning [perspective measures])
Innovation and learning perspective measures.
292
What is the difference between Debt holders and equity holders?
Debt holder, lower risk but lower returns, get interest before equity holders. Equity holders have higher risk but higher returns, they get any profit or loss.
293
Give an example of Immediate, short term, medium term and long term needs for a business.
Immediate: wages, petty expenses. Short term: pay for goods/services bought on credit. Medium term: to increase inventory and receivables, and tax on profits. Long term: pay for non current assets, machinery, buildings.
294
What are the risks to borrowers of short term finance?
Renewal risk (continuously negotiated asfacilities expire, economic conditions). Interest rate risk: Business may be at mercy to short term interest rates.
295
What are aggressive, average, defensive companies?
The more "aggressive", the more short-term credit than equity, perhaps higher profit but higher risk.
296
Why does holding cash or running out of cash have risk?
Running out is obvious - not enough to pay, reduce good will, poor relations. Holding it is risky, consider the opportunity cost of what else could be done with it (investing).
297
What is financial intermediation?
When banks use small amounts from customers to lend to other customets.
298
What are primary banks?
Operate the money transmission service or clearing system. Deal with cheque clearing. They are commercial or retail banks.
299
What are secondary banks?
Wide range of merchant banks, don't take part in clearing system.
300
What is the MPC?
The Monetary Policy Comittee in the bank of England. Lends money to banking sector at base rate set by MPC. MPC decides on base rate to meet inflation targets set for economy.
301
What is the FPC?
The Financial Policy Committee in the Bank of England, tries to remove systematic monetary risk to UK finance system, and to support economic policy of government.
302
What is the twin peaks regulatory regime?
Set up by FSA (financial services authority) - consists of PRA and FCA.
303
What is the PRA?
Prudential Regulation Authority, responsible for prudential regulation and supervision of banks. Secure safety and soundness of firms. Protection for policy holders.
304
What is FCA?
Financial Conduct Authority, responsible for Promoting effective competition, ensuring relevant markets function well, regulating conduct of all financial services firms.
305
What is general clearing?
Cheques or internet transfers outside of faster payments scheme. 3 or 4 day delay before can be drawn upon.
306
What is EFT?
Electronic fund transfer. (e.g. paying with debit card in shops).
307
What is BACS?
Banks automated clearing system. An EFT system that deals with salaries, standing orders, direct debits. Same day debit, credit.
308
What is CHAPS?
Clearing house automated payment system, bank to bank same day UK payment.
309
What is SWIFT?
Society for Worldwide Interbank financial telecommunications. Worldwide financial messaging network. Similar to CHAPS can then happen internationally.
310
What are the four relationships between a bank and a customer?
Receivable/payable (like your bank account), Bailor/bailee (look after property safely). Principal/agent (bank acts as agent when it presents customers cheque to other bank). Mortgager/mortgagee (bank has rights to sell assets if no repayment).
311
What are some duties of a bank in it's "Fiduciary relationship" (acting in good faith).
Must honour cheques, credit cash/cheques, must repay on demand, must comply with customers instructions (direct debit), provide statements, be confidential, report forged signatures, use care and skill, provide reasonable notice if closing account.
312
What are customer duties to the bank?
Draw cheques carefully, report forgeries.
313
What are some rights of a bank?
Charge reasonable charges, use customer money, to be repaid overdran balances, be indemnified against possible losses.
314
What are the money markets?
Vast array of markets that buy/sell different moneys or marketable securities (short term highly liquid investments). Usuall used by banks and local authorities.
315
What are the main finacial instruments traded in the money markets?
Treasury bills (min investment for public of £500,000) - low profit, Deposits, Certificates of deposits, Gilts (longer term gov debt), bonds (debentures and loans of companies), commercial paper (IOUs issued by large companies).
316
What is the capital market?
National and international market where any business can obtain the finance it needs for its short term and long term plans.
317
What are some ways a business can access finance in the capital market?
National stock markets (main market and AIM - Alternative investment market), the banking system, bond markets (for very large organisations), leasing, debt factoring (usually for smaller businesses), international markets.
318
What is a rights issue?
Issue of new shares to existing shareholders. Must be made before a new issue to public. Shareholders can refuse (pre-emption rights).
319
What are some problems with rights issues?
Issues costs, Shareholder reactions to more shares, control of the company.
320
What is share placing?
Most common method of issuing shares, company sells to investment bank who then places shares with clients. It has lower transaction costs but only offers to a narrow pool of investors.
321
How is a public offer made?
Either "Offer for sale" through investment bank then onto investing public or "direct offer" straight to investing public. Expensive as requires advertisement and lawyers to do it properly.
322
What is underwriting?
For a fixed fee usually 1-2%, an institution will purchase any securities not subscribed for by public. Payable even if underwriter isn't called upon to take securities.
323
What is an offer for sale by tender?
Investing public invited to offer what is willing to pay (min price) like an auction. Sold at highest price at which entire issue is sold, or a lower price with tendrs above it only receiving a portion.
324
What are the pros and cons of preference shares?
No voting rights, no rights to excess profits, No dilution of existing shares, fixed dividend. Expensive to issue and finance.
325
What is a premium or standard listing?
Premium lisitngs, companies must meet highest standards of regulation. standard listings have lower requirements.
326
What are pros and cons for smaller companies using lower level markets such as AIM? (shares)
Large source of finance, Improves marketability, improves standing of company, costs run into 100,000, dilution of control, must have traded for 3 years, must answer to other investors, more scrutiny of affairs, listing may not be successful, could get taken over, extra costs of control and reporting systems.
327
What is debt factoring?
Business receives loan finance and insurance (aka non-recourse factoring) so that in event of customer not paying, business doesn't have to repay loan. Insures receivables (IDE), manages running of receivables ledger (good for small businesses).
328
What is a term loan?
Repayment date set on borrowing, not repayable on demand. varying interest rates, arrangement fees, secured against assets, flexible repayment schedules.
329
What is loan stock?
Debt capital in form of securities issued by companies. (aka bonds or debentures). More assurance in what cash will be received.
330
What are the elements of loan stock?
Annual interest is "coupon rate" x nominal value of stock, redemption value, redemption date, recipient.
331
What is a finance lease?
Transfers all risks and rewards of an asset from lessor to lessee. ("Operating lease" is any other kind of lease.)
332
What are some differences between finance leases (F) and operating leases (O)?
F - long-term debt finance, O - short term asset rental. F - for major part of asset life. O - less than useful life. F - Ownership to lessee. O - no ownership change. F - doesn't continue dealing with asset, O does. F - takes on risks and rewards. O - doesnt. F - Cannot be cancelled early. O - sometimes early cancel.
333
What is asset-backed securitisation.
Pooling of small illiquid financial assets, i.e. long term loans to individuals. Assets (inc. right to receive interest) replaced by cash.
334
What are some characteristis of a small growing business that would create financing problems?
No history, lack of management knowledge, small size, no assets to offer as security. Unlisted so more difficult for equity investors to buy/sell shares.
335
What are business angels?
Experienced individuals that invest in startups.
336
What is venture capital?
Provision of risk-bearing capital usually in the form of a participation in equity to companies with high growth potential. More participatory, expect control over business, more percentage of shares (20-49.9%), provides advice, profits from capital gains.
337
What is AIM?
Alternative investment market, less stringent regulations than London Stock Exchange, lower entry costs but cost of listing is still £25,000.
338
As a business grows, what might be the stages in financing?
Personal savings, mortgages, borrowing from bank, borrowings from bank secured by premises of lease, issue shares as Ltd company, possible grant, venture capital, larger loans, business angels, loans/debentures, convert ot plc and float on stock exchange.
339
What are some trading risks?
Physical (loss of goods), Credit (payment default by customer), Trade (customers refusing to pay), liquidity (inability to finance credit from customers).
340
What is a bill of exchange?
Drawn up by seller, sent to buyers bank, accepts obligation to pay bill by signing it. Sell the bill/invoice to a third party at discount rate for cash now.
341
What is a lette rof credit?
International. Exporter gets a risk fre emethod of obtaining payment. Exporter gets immediate payment less discountm buyer gets a period of credit before having to pay. The issuing bank issues th eletter of credit to the buyer. Issuing bank asks UK bank to advise the credit to exporter, advising bank agrees to handle credit.
342
What is export credit insurance?
Insurance against risk of non-payment by foreign customers for export debts.
343
What is the ECGD?
The Export Credits Guarantee Department. Provides long term guarantees to banks on behalf of exporters.
344
Unsecured borrowing is...
Borrowing with no securement on property (like a mortgage). E.g. Credit card or overdrafts.
345
What is capital risk?
risk of losing part or whole of capital invested.
346
What is Shortfall risk?
When there is a financial target and investments fail to meet target.
347
Capital markets in the UK are split into... (stock and bond markets, primary and secondary markets, securuity markets and banks).
Primary and secondary. Securities markets consist of stock and bond markets. Securities and banks make primary capital market.
348
Which of these is not a primary bank? Retail, commercial, merchant or clearing bank?
Merchant - it is secondary.
349
Who is the mortgager or mortgagee in a bank an house owener relationship?
Bank is mortgagee, person is mortgager.
350
What kind of loan is for a fixed amount for a specified period?
A term loan.
351
What is the most widely used financing source to companies?
Retained earnings.
352
True or False, holders of loan stock ar elong term receivables of a company?
False, they are long term payables.
353
Why should a non-current asset not be financed by current liabilities?
When the loan becomes repayable, the company cannot be certain that it will have generated enough profits to repay the loan.
354
What is a professional?
Person who accepts responsability to operate in public interest. "Professes" to have skill resulting from a coherent course of study.
355
The two approaches to defining a code of ethics are...
Compliance-based (firm set of rules) and ethics-based (guidelines that you should follow).
356
The five fundamental principles of professional accountants are...
Integrity, Objectivity, Professional Competence and due care, confidentiality, professional behaviour.
357
Most accountancy activities can be carried out by all, what are the reserved areas which legislation says only certain bodies can carry out?
Statutory audit, Investment business, insolvency, probate.
358
What are the three aspects of an accountants work?
Maintaining control and safeguarding assets (recording, verifying controls, ensure non-executive directors in business are competant), Financial management, financial reporting.
359
What is the IESBA?
International Ethics Standards Board of Accountants.
360
What are the three parts of the IESBA?
General application of code, profesisonal accountants in public practice, professional accountants in business.
361
What is objectivity?
Independence of mind, unbiased, conflict of interest, undue influence of others.
362
What are the key accounting principals?
Accrual basis, Going concern, Double entry bookkeeping, Faithful representation, Substance over form, Materiality, Neutrality, Prudence, Timeliness, Cost versus benefit, consistency, and no offsetting.
363
The two main accounting standards for Uk accountants are...
International standards (IAS) and UK standards.
364
To be eligible to underake an audit you must be...
independent, member of recognised supervisory body, eligible fo rappointment under rules of that body, not officer or employee of company or linked company, not partner of employee.
365
Which accounting principles in the ICAEW code of ethics inderlie the reliance of the public in accountants?
Integrity and Objectivity.
366
For members of the ICAEW audit, investment business and insolvency are... (recognised, regulated, reserved, registered areas)
Regulated.
367
Distinguishing between an expression of opinion and assertion of fact is part of the principal of...
Professional competence and due care.
368
The 5 threats to professional principles are...
Self-interest, Self-review, Advocacy, Familiarity, Intimidation.
369
Capitalising the cost of an NCA which is not owned but monthly payment is made implements the accounting principle of...
Sunstance over form.
370
What is the principle of substance over form?
Take into account the substance and reality of business transactions rather than just legal form. E.g. treat two leases differently wher eone funds the acquisition while the other simply allows use.
371
True or false, the ICAEW code of ethics is compliance based.
False, it is ethics based.
372
True or false, the ICAEW Code of ethics is based on the IESBA code of ethics.
True.
373
What is the CCAB?
Consultive Committee of Accountancy Bodies: ICAEW, ICAS, CAI, ACCA, CIPFA (Chartered institute of Public finance and accountancy).
374
IFAC (International federation of accountants) emphasises the importance of:
Strong international economies, adherance to high-quality profesisonal standards, convergence of standards, speaking out on public interest and public policy issues. Through IESBA code of ethics it encourages adherance to fundamental principles.
375
What should be the aims of regulation of the acocuntancy profession?
Protect the public, Facilitate competition, ensure standards are maintained, be flexible, ensure justice, enforce standards, be transparent.
376
What do effective oversight mechanisms for the accounting standards require?
Independence from profession, knowledge of profesison, significant but non-controlling input, ability to take wide view, authority, good communication, resources. Can be government, regulators, members of profession or public.
377
The FRC is...
Financial reporting council, responsible for overseeing regulatory activities of profesisonal accounting bodies. Should foster an environment where investment can flourish. Develops standards for assurance (ethical and effective).
378
The roles of the FRC are...
Non statutory oversight of accountancy bodies, Statutory oversight of the regulation of statutory auditors, Independent monitoring of quality of auditing function.
379
In audit, the FRC has statutory powers over qualification bodies to...
Recognise or derecognise them, require information from them, serve as enforcement order on them, fine them for not meeting statutory responsabilities.
380
In accountancy the FRC has statutory powers over...
nothing... but can make recommendations on educaiton, CPD, standards, ethics, professional conduct etc.
381
The FRC has two divisions:
The conduct division, the codes and standards division.
382
The FRRP is...
The financial reporting review pannel, makes enquiries into apparent departures from requirements for FS, can seek voluntary remedial action, or court order for remedial action. (Perhaps voluntary withdrawal of FS or correction).
383
The AQR is the...
Audit quality review team of the FRC.
384
The FRC maintains two codes in relation to corporate governance:
UK corporate governance code and stewardship code.
385
The PRA is the...
Prudential Regulation Authority. (Part of the bank of england twin peaks regulatory regime).
386
The UKLA is the...
UK listing authority, issues listing rules for all companies with securities on public exchanges.
387
The financial Ombudsman...
Settles disputes between providers of financial services and customers.
388
The pensions regulator...
regulates work-based pensions, personal pensions are regulated by FSA.
389
The PCD is the...
Professional conduct department of the ICAEW. Implements the disciplinary procedures.
390
The procedure for most complaints is ...
Concilliation (trying to find a practical solution), investigation by the IC (invest. committee), then disciplinary proceedings (by the DC). (With AC - appeal committee).
391
If in breech of regulations, these committees may get involved...
ARC (Audit registration), IBC (Investment business), ILC (Insolvency Lisencing).
392
The IC consists of...
at least 14 people, of whom at least 25% are not chartered accountants. They will decide if there is a case to answer.
393
If there is a case to answer and the member firm has not agreed the complaint is valid there are four options...
No further action (still recorded), Invite the firm or member to accept unpublicised caution (will be in member records), invite firm to consent to an order, refer complaint to disciplinary committee. (IC has no powers to make member firm pay compensation).
394
At a tribunal after a formal complaint the DC has appointed a tribunal of...
3 people (2 accountants, 1 non-accountant).
395
The AC (appeal committee) consists of 5 people:
3 chartered accountants, one non-accountant and a chairman who holds a legal qualification.
396
The forum for discussion of matters affecting all the accountancy bodies in the UK is called... (IFAC, FRC, CCAB, FCA)
CCAB
397
In relation to the self-regulation of the accountancy profession, the most important aspect of the oversight mechanism is that it should be seen to be... (fair, objective, authoritative, independent).
Independent is the most important.
398
The FRC has statutory responsibility for monitoring the quality of...
the audit profession.
399
The body which monitors and acts on departures from requirements for the financial statements is...
The FRRP
400
The body which runs an independent disciplinary process for the acocuntancy profession is...
The FRC
401
The UK listing authority is part of the...
The FCA
402
Statutory monitoring of the quality of audit is effected by...
The FRC
403
If a member is offered a caution by ICAEW's investigation committee this means that...
There will be neither publicity nor a fine but there may be costs to pay.
404
What is governance?
Accountability, transparency, probity, focus on sustainable success. More than management, incorporate ethics, risk, stakeholder protection.
405
What is the agency problem?
Managers not "governing". Not thinking about whom they are seeking to benefi and that they shouldn't harm others.
406
What is agency theory?
The idea that managers are the agents for stakeholders to a company. Ownership and control is seperated,
407
What is corporate governance?
A structured system for the direction and control of a company that specifies distribution rights and responsibilities between stakeholders and has established rules and procedures for making decisions about company affairs.
408
What are some symptones of poor corporate governance?
Domination of board, no involvement of board, inadequate control, lack of supervision, lack of independant scrutiny and contact with shareholders, emphasis on short-term proftit. Misleading FS.
409
What is known as "good practice" in corporate governance?
Risk management, Ethical business strategy, transparency, integrity, probity accountability, reducing conflict.
410
What are the 5 key elements of good corporate governance?
Board of directors, independent, high standard. High quality senior managers. Proactive shareholders. External auditors. Internal auditors who are independant of directors.
411
When are systems more likely to be financed by bank rather than by market based systems?
Households prefer little risk, less access to investments in access, more gov. regulations, banks concentrated and integrate (depositing and insurance), bank lending is important, markets volatile and speculative. More securities with intermediates (pensions, mutual funds). Banks and businesses are close.
412
What is a governance structure?
Se of legal or regulatory methods put in place to ensure effective corporate governance. Two structures: Statures and codes of practice.
413
The OECD Principles are that corporate governance should...
Promote transparency and efficiency, pretect and facilitate shareholders rights, ensure equitable tratement of all shareholders, recognise rights of stakeholders, ensure timely and acurate disclosure of matters, ensure strategic guidance by board.
414
Institutional shareholders...
invest money on behalf of other people. (Insurance companies, pension funds, investment trusts).
415
The two structures for a board of a directors are...
Unitary, responsible for management and reporting. Or dual/supervisory, roles split between management board and supervisory (request info, inspect, review, appoint).
416
What are the statutory requirements for all companies?
Equality for all, no discrimination, freedom of information.
417
Philippa Foster Back identifies these as attributes and behaviours of ethical leaders:
Openness, Courage, Ability to listen, honesty, Fair mindedness.
418
What is an EMS?
Environmental managing system - procedures for compliance with a number of stated environmental policy objective targets.
419
Which standard helps companies adopt environmental performance?
ISO 14001 Environmental Management Standard.
420
The agency problem concerns the misalignment in interests and conflicts between...
Directors and shareholders.
421
With low corporate governance, managers may be able to pursue their own interests because in relation to shareholders they have...
More information and low levels of accountability.
422
In comparison with the corporate and the public policy perspective son corporate governance, the stakeholder perspective places least emphasis on... (Accountability, alignment of interests in stakeholders, good information, efficient use of resources).
Good information.
423
Good practice in corporate governance requires that openness and transparency should be supported by...
disclosure of information.
424
In Japanese, French and German (not UK, US), the biggest source of finance for business is... (bank loans, loans from individuals, retained earnings, capital markets).
Bank loans.
425
The OECD principles of corporate governance require the protection of which two shareholders rights?
the right to vote at general meeting, right to remove/elect a member of the board, right to receive relevant and material information in a timely manner (not all info), right to receive a SHARE of profits, right to have secure method of ownership registration
426
In countries with a dual board structure, the supervisory board is elected by... (shareholders, employees, both, or all above with management of board).
Shareholders and employees only.
427
Business ethics are promarily moulded by the expectation of...
society.
428
Whistleblowers are protected by...
The Publc Interest disclosure act.
429
In terms of the Corporate governance code, the UKLA requires that...
all companies in the FTSE 350 apply the codes main principles and to include in their annual reports a statement (details and extent) of compliance.
430
Departing from compliance with certain supporting principles and provisions of the corporate governance code...
May be justified in particular circumstances.
431
The five sections of the UK Corporate governance code are...
Leadership, effectiveness, accountability, remuneration, relations with shareholders.
432
Details of the UK Corporate governance code: Leadership...
Stategy, review, best interests, meet regularly, annual report, insurance over legal action, division of responsabilities (running company as CEO and chairman [independent] of board should be different), constructive challenge, appraisals (of each other too).
433
Details of the UK Corporate governance code: Effectiveness...
Skill, experience, good size and combination, apppointment by merit and nomination at AGM, committment (other committments discloced). provision for development, timely information, self-evaluation, directors submitted for re-election regularly (first AGM then 3 years).
434
By the UK corporate governance code a director of a board may not be independent if...
Was employee in last 5 years, had a business relationship in last 3, recieves remuneration from company, has close family ties, holds cross dictatorships, has served on board for more than 9 years.
435
In the UK Corporate governance code, what percentage of board should be independent non-executive directors?
At least 50% (same for board nomination committee).
436
Details of the UK Corporate governance code: Accountability...
Board should produce fair, balanced, understandable assessment of company, (interim reports, public reports, FS), risk management, internal control,
437
Details of the audit committee under the UK Corporate governance code...
Board should establish audit committee of at least 3 non-executive directors, at least one member with recent financial experience, should review whistle-blowing procedures, primary responsability for reappointment or removal of external auditors.
438
FTSE 350 companies should put the external audit contract out to tender at least every...
10 years.
439
Details of the UK Corporate governance code: Remuneration
Remunerations should be set to maintain and attract but to avoid upward ratchet of pay with no improvement, No director involved in deciding own remuneration, Remuneration committee of at least 3 ind. non exc directors. Shareholders invited to approve new long-term incentive schemes.
440
If a non-executive director leaves, under the remuneration section of the UK code of corporate governance...
A remuneration report is released stating if he will retain the earnings.
441
Details of the UK Corporate governance code: Shareholder relations.
Dialogue, of governance and strategy, especially at AGM. Posted on website results of resolutions votes. AGM and related papers sent to shareholders at least 20 working days before meeting.
442
An internal control system is...
A system encompassing policies, processes, tasks and behaviours that allow a company to operate effectivley, respond to risks, safeguard assets, ensure liabilities are managed, ensure reporting quality, ensure compliance.
443
What is stewardship?
Accountability of management for the resources entrusted to them as agents of the company's owners.
444
The stewardship code sets out...
How investors should engage with the companies and encourage good stewardship.
445
Principles of the stewardship code are...
Investors should... publicly disclose how they will discharge stewardship responsabilities, have a policy on managing conflicts of interest, monitor investee companies, establish when they will escalate activities to protect shareholder value, be willing to act with other investors, have a clear voting policy, report on stewardship/voting activities.
446
Non-executive directors have a prime role in... (Setting company's strategic aims, providing entrepreneurial leadership, constructively challenging proposals on strategy, determining remuneration levels for non-exec directors)
Constructively challenging proposals on strategy.
447
Trents Chief executive has been appointed by the board as the next chairman, the company consulted major shareholders, the reasons for appointment should be give to shareholders...
At time of appointment and in next annual report.
448
When non-executive directors receive share options as part of remuneration, and as approved by shareholders, these can only be exercised after the non-executive leaves th eboard and then only after...
1 year.
449
Biz plc is on FTSE 350 but will soon reduce size and leave. It has 12 board members including chariman. How many independent non-exec directors should Biz plc have?
6 now so that it can have majority non-exec directors and 2 later.
450
The boards chairman may chair the nomination committee when it is dealing with the appointment of a non-exec director. True or false.
True, only prevented from chairing when dealing with appointment of chairman's successor.
451
The person who must advise the board via the chairman on all corporate governance issues is...
The company secretary
452
Annual re-election in FTSE 350 companies applies to...
All directors
453
In relation to the remuneration committee of a FTSE 350 company a board chairman who was independent at the time of appointment may be one of...
three members but may not chair the committee
454
The audit committee should comprise...
Only independent non-executive directors, at least one of whom should have recent relevant financial experience.
455
Implementing policy for an effective system of internal control is the responsability of...
Managers.
456
To create GDP (gross domestic product), four fators of production are employed, each of which enjoys a return:
Land (rent), Labour (wages), Capital (interest), Entrepreneurship (profit).
457
GDP (gross domestic product) is...
The amount of expenditure incurred by those who purchase the output.
458
The level of national output is...
The aggregate of personal incomes.
459
The role of the government in the national economy is...
a producer (nhs, education), a purcaser, investor (road building), transfer payments from one section of economy to another.
460
Disposable income is...
Income available to individuals after taxes.
461
Consumption by households is affected by...
Changes in disposable income and marginal propensity to consume (MPC), Changes in wealth distribution, government policy, development of new products, interest rates, price expectations.
462
If interest rates are high...
Firms will demand a higher return when appraising investments (less economic growth), individuals will save more,
463
The business cycles/trade cucles are...
The patterns of growth and fall of GDP. The main stages are: Recession, Depression, Recovery, Growth.
464
Inflation is...
Increase in price levels and a decline in the purchasing power of money. (Deflation is opposite).
465
A high level of inflation leads to...
Redistribution of income and wealth, balance of payment effects (exports expensive and imports cheap), price signalling and "noise" (stops price mechanism influencinf allocation of resources), wage bargaining, consumer behaviour (stockpiling).
466
Demand pull inflation is...
Price rises from a persistant excess of demand over supply in economy. Supply can't grow further once all factors reached.
467
Cost push inflation is...
Prices rise from increase in coss of production of goods and services (e.g. imported raw goods or wage increases).
468
The two main causes of demand pull inflation are...
Fiscal (increase in government spending or reduction in taxes), Credit (If levels of credit to customers increase, expenditure less likely to rise).
469
To acheive economic growth and control inflation the macroeconomic policies used by the government are...
Influencing demand in economy with monetary policy (exchange rates, credit availability, supply), Fiscal policy (taxation, public borrowing and spending) or influencing overall supply in economy.
470
Effects of a rise in interest rates would be...
Price of borrowing rises (company spending will fall, reduce inventory, households reduce consumption), exports will be higher than imports, capital inflows (attraction to sterling), reduced demand on economy.
471
The fiscal policy is...
The government's policy on government spending, taxation and borrowing.
472
What is PSNCR?
Public sector net cash requirement (how much gov. spending exceeds borrowing).
473
The fiscal stance can be Neutral, expansionary or contractionary...
Increased taxation and spending => Neutral (income just diverted), Increased borrowing and spending => expansionary. Increased taxation but no more spending (or les sborrowing and spending => Contractionary.
474
Macroeconmic demand-side intervention by government may be harmful:
Inflationary in long run, igh taxes are disincentive, discouraging long-term investment due to uncertainty.
475
Market mechanism is...
The interaction of demand and supply for a particular item.
476
What are substitute goods?
E.g. coke and pepsi... if coke prices rise, more people will buy Pepsi.
477
What are complements?
E.g. holidays and travel insurance... if demand for one rises, so will the other.
478
What is the supply curve and the demand curve?
Demand curve usually slopes down, as demand increases, the price usually drops. Supply curve slopes up, as quantity supplied goes up, the price per unit goes up.
479
The equilibrium price is...
The price of a good at which the volume demanded by the customers and the volume businesses are willing to pay are the same. (Crosspoint of curves)
480
If the equilibrium price does not rule, the market is in...
Disequilibrium.
481
How will an increase in consumer incomes affect the supply/demand graph.
Demand curve to right.
482
How will products going out of fashion affect the supply/demand graph.
Demand curve to left.
483
How will improvement in production technolofy affect the supply/demand graph.
Supply curve to right.
484
How will rise in factor costs affect the supply/demand graph.
Supply curve to left.
485
How will government setting maximum minimum prices on goods affect market?
If maximum is higher than equilibrium, not much affect. If it is lower, create an excess of demand, deters suppliers, black market.
486
Elasticity is...
The extent of a change in demand and/or supply given a change in price.
487
PED is...
Price elasticity demand = change in quantity demanded as percentage of original / change in price as percentage of original (usually negative - ignore minus sign). If less than 1 then inelastic, bigger is elastic demand, 1 is unit elasticity.
488
The income effect...
Is when a rise in price also effects incomes. When bread prices rose in wore people ate more bread. (They couldn't afford other food).
489
The factors affecting the PED are...
Availability of substitutes (more elastic), the time horizon (growth in knowledge of substitutes), competitor pricing, luxuries (more elastic( and necessities, percentage income spent (more elastic), habits.
490
Income elasticity of demand is...
An indicaiton of the responsiveness to changes in household incomes. (% change in quantity demanded / % change in household incomes).
491
Income elasitc goods are...
have IED greater than 1, luxury goods.
492
Income inelastic goods...
have IED between 0 and 1, necessities.
493
If income elasticity is less than 1...
Inferior goods. Demand falls with increased income.
494
Cross elasticity of demand is...
measure of responsiveness of demand for one good to changes in price of another. % change in demand for A / % change in proce of B.
495
Cross elasticity will be positive if...
Two goods are substitutes (tea, coffee)
496
Cross elasticity will be negative if...
Goods are complements (coffee and cafetieres).
497
Cross elasticity will be 0 if...
Goods are unrelated.
498
Price elasticity of supply is...
measure of responsiveness of supply to change in price. % change in quantity supplied / % change in price.
499
If elasticity of supply is 0,
perfectly inelastic, supply curve is vertical line, supply of goods is fixed.
500
Where supply of goods varies proportionaly, price elasticity is...
1. Supply curve has upward slope through origin.
501
Regulatory risk is what type of risk?
Event risk
502
Baker Ltd company sold film cameras. Revenue fell after the invention of the digital camera. What kind of risk is this?
Business risk
503
How does Adding a new machinery and borrowing affect financial risk?
Financial risk increases for both. Machinery will have higher fixed cost
504
Restructuring is a what type of control
Management control
505
Using variance reports to enable managers to take corrective action is a a type of..
Tactical information
506
Range check..
Checks value against a sensible range (ledger usually 5000-9999). Helps with accuracy, NOT completeness
507
Control totals
Checking is total reconciles. Addresses completeness and accuracy
508
Limit checks
Checks digits are under a certain limit.. Accuracy NOT completeness
509
Hash total
System generated total that checks is processing has been performed as intended..accuracy and completeness
510
Competitors, legislation and share price are examples of..
External information
511
Authorization in ACIANA means...
Changes to info can only be made by accountable individuals
512
Non-repudiation means
Information shouldn't be rejected on the grounds of faults in the information system
513
Good quality and valuable info is..
Relevant
514
Ensuring resources are properly controlled or stewardship is part of which finance function?
Recording financial transactions
515
Triple bottom line
Achievement of sustainability goals.. Social, economic, environmental
516
Management account is driven by
Information requirements of managers
517
What type of new shares is usually underwritten?
Rights issue
518
Can you get a new London stock exchange for rights issue?
NO, only for offer for sale, placing, offer for subscription
519
Out of investment in equities, treasury bills, bank deposits, local authority deposits, which is NOT appropriate for using when you have short term cash surplus
Investment of equities- high risk
520
Long term treasury bonds can be sold in a..
Capital market and secondary market
521
Partnership and capital deficiency
Partner have to share deficiency in the ratio of how much capital they contributed (this may be different than the ratio they agreed to share profit and losses)
522
Company secretary must be a member of
ICAEW (or other bodies) as chartered accountant or a solicitor or a barrister.
523
Is disciplinary proceedings, accounting principles it professions interest related to technical competence and professional responsibility?
Professions interest has no impact
524
If a company is unsure if it will suffer penalties from a contract which department will deal with it
Legal services
525
As an accountant if you are in doubt what should you do with asset and liability
Understate assets, overstate liabilities
526
Is encouraging someone to deal insider dealing
Yes
527
In addition to audit and accountancy, FRC also overseas regulation of
Actuarial services
528
Who has power to approve or not approve financial statement and dividends declared in two-tier system?
Supervisory board
529
Germany has unitary or two-tier
Two tier
530
Are non exec responsible for integrity of satisfying himself of financial statement, reporting on company performance, determining remuneration of exec, satisfying that financial controls and risk management are robust?
All EXCEPT report on performance of company, nonexec had to MONITOR reporting, but not actually do it
531
For AGM, which committee chairs should be invited
Audit, remuneration, nomination
532
Chairman CANNOT be member of
Remuneration committee
533
UK Corp governance say directors service contract should not exceed how many years
1 year max
534
If not in FTSE350, how is UK CORP GOV CODE applicable?
You can be flexible with how you apply it. Only mandatory for FTSE350
535
Who is in charge to prevent fraud?
Directors and management. Audit committee job is for the reporting of fraud (whistleblowing)
536
Monopolistic competition
Large number of sellers in market
537
When doing elasticity calculations,
Include the minus sign for the number calculation, but when you are describing the term then ignore the sign.
538
Negative Externalities
Private cost is more than social cost. This is a type of market failure. To fix the government usually taxes
539
In monopoly fixed cost are..
High. Marginal cost are low
540
Perfect competition
Supplier earn normal profits, single selling price, consumer lack influence over market price
541
Reduced interest rates and investment
Investment will be encouraged cause the opportunity cost (of not investing) is reduced
542
Behavior of aggregate supply curve in connection with price, income and employment
Supply-side economy
543
To address lack of equity what does government do
Redistribute wealth
544
How often should the company review risk management and internal control system according to UK CORP GOV ACT
AT LEAST annually
545
Does the data protection act cover expression of opinion about the data subject? Impression of opinion on data subject?
Yes Expression of opinion, NOT impression
546
Criminal Justice act covers
Insider dealing
547
Articles of association are binding contract between...
Company and shareholder
548
Principle budget factor
Should be the item that is limited!
549
When evaluating performance of chairman
Non exec takes into consideration the views of the exec, but exec are not at the meeting
550
Can you be a chairman of two different companies?
Yes but you can't be chief executive cause that is full time
551
What is covenant?
Condition established in loan agreement that imposes requirements on the borrower. Banks often used covenants to improve information provided by borrowers
552
Self regulation is covered under
Professional oversight board
553
Statutory objectives of financial service authority
Public awareness and consumer protection
554
Directors are NOT independent if
Employee for last 5 years, directors for las 9 years, receives higher remuneration than normal director fee, business relationship 3 years, significant shareholder
555
Percentage of directors to attend AGM
100%
556
If factor cost rise what happens to supply curve and demand curve
Demand curve contracts (demand decreases, at higher price), and supply curves moves to left (higher price to make the same quantity)
557
Perfect elasticity in supply will have what type of line
Horizontal
558
Perfectly inelastic in cross demand has what kind of line
Vertical line
559
If director submits inaccurate certificate in connection to financial statement what is the punishment in USA
$5m and 20 years in prison
560
Business regulation by FSA is an example of
Delegates legislation
561
What has more government regulation bank based or market based financial systems?
Bank based
562
Minimum number of shareholders in public company
One, and two directors
563
This finance function has primary responsibility ensuring sound stewardship by manager to the resources entrusted to them
Financial transaction recording, because it ensures revenue, expense, assets and liabilities are recorded correctly so you can ultimately monitor management stewardship
564
If an accountant isn't sure how to treat a transaction and they already consulted the financial reporting standards they should..
Make a judgmental decision with consideration of the ACCOUNTING PRINCIPLES
565
Most important factors for re-appointing external auditors
Objectivity and independence
566
Increasing minimum wage addresses
Inequality
567
Professional conduct directory and audit registration committee are part of
ICAEW
568
Competition commission is concerned with
Competition, regulation and market issues (NOT PUBLIC INTEREST)
569
Homogenous product and small number of companies
Oligopoly
570
Mere compliance to regulation
Regulatory outcome met by passing cost to clients and customers
571
Full compliance to regulation
Behavior is changed and products and process are adjusted (cost ISN'T passed down)
572
Innovation to regulation
Making improvements, above and beyond regulations. More efficient and cost saving
573
Sequence for personal financial management
Establish objectives, establish attitude to risk, establish current individual circumstances, establish current income and expenditure, take action
