Chapter 1 - Role of the finance function

Question 1

What is the primary objective of a profit seeking organisation?

Answer 1

Maximise owner wealth

Question 2

What is the secondary objective of a profit seeking organisation?

Answer 2

Detailed objectives of how to achieve primary goal

Question 3

What is the primary objective of a non-profit organisation?

Answer 3

Maximise benefit to beneficiaries

Question 4

What is the secondary objective of a non-profit organisation?

Answer 4

• Economy - controlling costs
• Efficiency - achieve objectives at min cost
• Effectiveness - measure of achievement by reference to objectives

Question 5

What are the 3 key roles the finance function plays?

Answer 5

• Enables value creation and preservation
• Shapes how value is created and preserved
• Narrates how value is created and preserved

Question 6

How does the finance function enable value creation and preservation?

Answer 6

• Planning
• Forecasting
• Resource allocation

Question 7

How does the finance function shape how value is created and preserved?

Answer 7

• Performance management
• Control

Question 8

How does the finance function narrate how value is created and preserved?

Answer 8

Financial reporting

Question 9

What are acceptable business ethics?

Answer 9

• Paying staff decent wages
• Good working conditions
• Open and honest
• Use of renewable resources
• Sourcing suppliers carefully
• Paying suppliers in a timely manner

Question 10

How is mendelow’s power interest matrix used?

Answer 10

Used to decide who the dominant stakeholders are

Question 11

Who are internal stakeholders?

Answer 11

• Employees
• Managers/directors

Question 12

Who are connected stakeholders?

Answer 12

• Shareholders
• Customers
• Suppliers
• Finance providers

Question 13

Who are external stakeholders?

Answer 13

• Community at large
• Environmental groups
• Government
• Trade unions

Question 14

Why may employees vs managers be a conflict?

Answer 14

Jobs/wages vs bonus

Question 15

Why may customers vs shareholders be a conflict?

Answer 15

Product/service quality vs profit/dividends

Question 16

Why may general public vs shareholders be a conflict?

Answer 16

Effect on environment vs profits/dividends

Question 17

Why may managers vs shareholders be a conflict?

Answer 17

Independence vs growth by merger/takeover

Question 18

What is corporate social responsibility (CSR)?

Answer 18

Company should be sensitive to needs and wants of stakeholders

Question 19

What can help ensure a firm’s long term future?

Answer 19

• Differentiation
• High caliber staff
• Brand strengthening
• Lower costs
• New market opportunities
• Changing social expectations

Question 20

What is the result of good CSR?

Answer 20

Increase in profitability

Question 21

why is corporate governance required?

Answer 21

Because of the separation between ownership and control

Question 22

What are the symptoms of poor corporate governance?

Answer 22

• Domination of board
• Lack of supervision
• Lack of shareholder contact
• Emphasis of short-term profitability
• Misleading financial statements and info

Question 23

How should the AGM be used?

Answer 23

Used to construct a dialogue with shareholders

Question 24

What must NEDs not be?

Answer 24

• employee for min 5 years
• Material business interest for last 3 years
• Participate in share options
• Close family ties
• Serve as NED for more than 9 years

Question 25

How much of the board should compromise of NEDs?

Answer 25

At least half

Question 26

What do the audit committee do?

Answer 26

• Review work and effectiveness of internal audit function
• Monitor external auditor’s independance
• Short-list potential audit firms when change needed