CH7 QB The business' finance function Flashcards
Stewardship of the organisation's financial resources is part of which of its finance function's tasks? A Financial reporting B Recording financial transactions C Treasury management D Management accounting
B Stewardship (ensuring that resources are properly controlled) is part of the finance function's task of recording financial transactions.
Collinson plc is a medium-sized group operating at four locations in the UK. It operates a
centralised finance function and is concerned that the function as a whole is not performing
well. Centralisation of this finance function is least likely to be effective in:
A external reporting to shareholders
B recording financial transactions
C managing cash
D internal reporting to operational managers
D Centralisation of the finance function generally works very well for transaction
recording, external reporting and managing cash, but it is often found to be less useful
in terms of supporting the achievement of organisational objectives when it comes to
internal reporting on performance to operational managers.
Maureen is employed in the finance function of Gralam plc. Her duties are to ensure that
the company always has sufficient funds available to meet both its short-term and long-term
financial requirements. It is clear that Maureen is employed by Gralam plc in its:
A financial reporting section
B management accounting section
C treasury management section
D transaction processing section
C Treasury management (C) is concerned with managing the funds of a business, namely
cash and other working capital items plus long-term investments, short-term and longterm debt and equity finance.
Which three of the following are characteristics of management accounting information
rather than financial reporting information?
A It is both forward looking and historical
B It is governed by statute
C It is primarily used by shareholders
D It is likely to include a statement of cash flows
E It is likely to include a cash flow forecast
F It is likely to include budgetary information
A,E,F
Management accounts are internal accounts used for managing the business. Financial
reporting is regulated by accounting standards and statute (B) and report on historical
results. Financial statements are used by shareholders (C). Therefore, management
accounts can look forward and backwards (A), will probably have a cash flow forecast
(E) – a statement of cash flows is an historical summary of cash flows and forms part of
the financial statements – and will almost certainly have budgetary information (F) to
assist planning.
Harold is an accountant with Farnworth plc. He was asked to join a project team examining
the company’s compliance with both FRC and IASB standards. It appears, therefore, that
Harold has been recruited into this project team to exploit his expertise in:
A financial reporting
B performance measurement
C corporate governance
D information systems
A Financial reporting involves preparing financial information including the financial
statements, tax and regulatory reporting.
Novel plc is establishing its accounting and finance function. The company has been told
there are two purposes of published, audited financial statements. These are to help users
assess how effectively managers are running a business, and to make judgements about the
likely levels of risk and return in the future.
Which of the following user groups of Novel plc’s published, audited financial statements is
most likely to use accounting information for these purposes?
A Community representatives
B Employees
C Shareholders
D Managers
C Managers have stewardship over resources owned by the shareholders, so the
shareholders (C) use the financial statements to assess the quality and effectiveness of
their stewardship. Shareholders own shares (which are risky investments) in the hope of
earning a satisfactory return. Community representatives (A), employees (B) and
managers (D) have other primary interests. SAMPLE PAPER
When a company’s finance function prepares financial statements in accordance with legal
rules and accounting standards, it is engaged in the support activity of:
A record-keeping and stewardship
B planning and control
C external reporting
D internal reporting
C External reporting is financial reporting (C) – producing financial statements which are
used primarily by external users. Record-keeping and stewardship (A) relate to doubleentry bookkeeping; planning/control (B) is not a function of financial statements as they
essentially look back at past financial performance and position. Financial statements
are not primarily aimed at an internal audience (D), which is the role of management
accounting
Mainstream Ltd’s finance director is establishing an effective system in the finance function
for producing management accounting reports. Which issue should be the finance
director’s primary consideration?
A The information needs of the company’s managers
B The need for effective internal control mechanisms
C The need for cost-effectiveness
D The need for effective information security
A Management accounting is driven not by rules or standards but by the need to meet
the information requirements of managers (A) within an organisation who use the
information to plan, control, make decisions and monitor performance. SAMPLE PAPER
Tram plc’s finance function must provide information to management on the company’s
balanced scorecard. This role is undertaken as part of Tram plc’s:
A statutory audit requirement
B financial reporting function
C treasury management process
D performance measurement system
D The balanced scorecard is a performance measurement tool (D) focused on a variety of
performance measures important to a business, rather than purely financial ones.
SAMPLE PAPER
The finance director of Boiled Sweets plc wants to specify the levels of performance that
underpin the company’s control system.
Which three of the following are the main components of the company’s control system?
A Measurement of actual performance and comparison against targets
B Identification of deviations from the plan
C Establishment of standards or targets to express planned performance
D Follow-up action to correct adverse results or to exploit favourable variances
E Measurement of ideal performance
F Devising the plan
A,C,D
Any control system should have these three major components. However, while
identification of deviations from the plan (B) is part of the control process, where there
are deviations from plan a decision has to be made as to whether to adjust the plan
(eg, it was not achievable) or the performance (eg, it was sub-standard) so this stage is
part of the follow-up. Measuring an ideal level of performance (E) is useful but
becomes valuable information only when it is used to identify the planned
performance. Devising a plan (F) is where the whole exercise begins but any plan
needs targets and standards to act as performance indicators.
‘Effectiveness’, ‘economy’ and ‘efficiency’ are often mentioned with reference to resource
use. Match these terms with the definitions below:
1 A reduction or containment of costs
2 Achieving maximum output at minimum cost
3 The measure of achievement by reference to objectives
A 1 = effectiveness 2 = economy 3 = efficiency
B 1 = economy 2 = efficiency 3 = effectiveness
C 1 = efficiency 2 = effectiveness 3 = economy
D 1 = economy 2 = effectiveness 3 = efficiency
B Economy means obtaining the appropriate quantity and quality of inputs at the lowest
cost (1). An activity would not be economic if, for example, there was over-staffing or
failure to purchase materials of requisite quality at the lowest available price. Efficiency
is the relationship between outputs and the resources used to produce those outputs.
An efficient operation produces the maximum output for any given set of resource
inputs (2); or it has minimum inputs for any given quantity and quality of output.
Effectiveness is the measure of achievement and the extent to which objectives have
been attained (3).
Which statement about critical success factors (CSFs) for a business is true?
A Low costs will always be a CSF; high sales revenue will always be a CSF.
B Low costs will always be a CSF; high sales revenue will not always be a CSF.
C Low costs will not always be a CSF; high sales revenue will always be a CSF.
D Low costs will not always be a CSF; high sales revenue will not always be a CSF
D High quality might be more important than costs, high margins might be more
important than revenue. We cannot therefore state that either low costs or high sales
revenue will always be CSFs. SAMPLE PAPER
Three basic approaches to performance measures are measures of economy, efficiency,
and effectiveness. Economy is measured by:
A the amount of resources used for the tasks that have been achieved
B the success in achieving goals and targets
C team member satisfaction and the motivational climate
D the success of the team or work group in controlling its costs
D Economy is measured by the success of the team or work group in controlling its costs
(D). The amount of resources used for the tasks that have been achieved (A) would be
a measure of efficiency. Effectiveness would be measured by the organisation’s
performance in achieving its goals and targets (B). Team member satisfaction and the
motivational climate cannot be used to measure economy (C).
A consultant has made two statements about the primary focus of the users of financial
statements of an entity.
Statement (1) The primary focus of suppliers is on the entity’s risk and return.
Statement (2) The primary focus of shareholders is on the entity’s solvency.
Identify whether each statement is true or false.
A Statement (1) true; Statement (2) false
B Statement (1) false; Statement (2) false
C Statement (1) true; Statement (2) true
D Statement (1) false; Statement (2) true
B Liquidity, not risk and return, is the main concern for the entity’s suppliers.
Risk and return, not solvency, are the main concern of the entity’s shareholders.
SAMPLE PAPER
Which aspects of an organisation's performance with respect to sustainability are measured using 'triple bottom line' measures? A Economy, effectiveness, efficiency B Economic, social, environmental C Profitability, liquidity, investment D Productivity, activity, profitability
B The triple bottom line measures an organisation’s performance in terms of its
achievement of sustainability goals relating to social, economic and environmental
factors.
