Chapter 6, 7, 8, 9 Flashcards
ACCURATE Mnemonic
Used to remember the qualities of good information. Accurate, Complete, Cost effective, User targeted, relevant, authoritative, timely and easy to use
CATIVA Mnemonic
Used to remember the issues related to effective processing of data into information. Completeness, Accurate, Timeliness, Inalterability, verifiability and assess-ability.
Transaction processing system
Systems which perform and record routine transactions
Examples of Transaction processing systems
Finance/accounting systems
HR systems
Manufacturing/production systems
Sales/marketing systems
Management information systems
Systems to produce information allowing managers to make effective decisions
Examples of Management information systems
Executive support systems Decision support systems Expert system Knowledge work system Office automation system
ACIANA mnemonic
Used to assess data security issues. Availability, confidentiality, integrity, authenticity, non reputation and authorisation.
Big data
Datatsets whose size is beyond the ability of typical database software to capture, store, manage and analyse
Key features of Big data (4V’s)
Volume, Veracity, velocity and variety
The internet of things
The growth in smart tech has seen the internet of things become a very significant source of data. Such as home automation and vehicles
Data science
Deals with collecting, preparing, managing, analysing, interpreting and visualising large complex data sets.
Data analytics
The process of extracting value from big data.
Risks of big data, data science and analytics
Storage, Skills, Data dependency and overload
4 main functions of finance
Recording financial transactions
Financial reporting
Management accounts
Treasury management
Recording financial transactions role
Books of prime entry, ledgers and reconciliations
Financial reporting role
Financial statements, tax and regulatory info
Management accounts
costing, budgeting, pricing decisions and performance measurement
Treasury management
Cash, working capital and foreign exchange management. Managing financial risks. Raising short, medium and long term finance.
Business Partnering
Sees members of the finance function partnering with functional areas of the business in a value adding capacity
Common performance measures
Profitability, Activity and Productivity
Economy
Control over input costs
Effectiveness
Output measure (against objectives)
Efficiency
Achieving objectives at a minimum cost (Combination of economy and effectiveness)
Critical success factors
Product features that are particularly valued by a group of customers
Key performance indicators
measures of the level of performance in an area where a target level must be achieved in order for a business to outperform rivals
Benchmarking
Is the establishment of targets and comparatives by which relative performance can be established
Limitations of financial performance indicators
Historical, Internal, short term, easily manipulated and whole picture.
Balanced scorecard approach
Ensures that a mixture of financial and non financial perspectives are considered when selecting performance indicators
Sustainability
Is the ability to meet the needs of the present without compromising the ability of future generations to satisfy their own needs
Internal control
Is a process effected by the entities board of directors, management and other personnel, designed to provide reasonable assurance regarding the achievement of objectives relating to operations, reporting and compliance.
Control processes
Control environment Control activities Maintaining controls IS Risk assessment process
Roles of Financial intermediaries
Making a market Risk Diversification Aggregation Maturity transformation Advice
Financial intermediaries
Bring together investors/lenders with borrowers/users funds. Mirror the real world by providing a relatively risk free lending environment.
Bailor/bailee relationship
Safeguard property
Receivable/payable relationship
Contractually owe each other depending on whether overdrawn or in credit
Principal/agent relationship
Bank acts as agent for the customer. e.g paying a third party sums promised on a customer cheque
Mortgagor/mortgagee relationship
Bank has the right to assets of customer if customer defaults on loan
Fiduciary relationship
banks are expected to act in good faith in its relationship with the customer
Primary bank
involved with Day to day money transmission
Secondary bank
involved with tailored advice to large commercial clients. E.g. a merchant bank
BACS
Bank automated clearing system - deals with salaries, standing orders and direct debits
CHAPS
Clearing home automated payments system. Covers items greater than 10,000
SWIFT
Same as CHAPS but for international transfers
Two main roles of Bank of England
Carrying out monetary policy
Ensuring financial stability
Monetary policy
Lends money to banking sector at the base rate. Banks then lend and borrow money among themselves at rates such as LIBOR which then affects the rates offered to customers
FPC (financial stability) responsibility
To remove systematic risks
PRA (financial stability) responsibility
Prudential regulation and supervision of banks
FCA responsibility
Promote effective competition
Ensuring that relevant markets function well
Money markets
Marketable securities are short term highly liquid investments that are readily convertible to cash
Capital markets
Provides a source of funds
Risk - Debt vs Equity
Debt holders face a lower risk than Equity holders so Debt holders get a lower return
Cost of holding cash
Lost interest on deposits or other investments
Cost of running out of cash
Loss of settlement discounts
Loss of supplier goodwill
poor industrial relations
Winding up of a business
Use of Short term finance
Operational needs of a business including paying for goods, services and wages as they fall due
Use of long term finance
Purchase of NCA and financial growth
Sources of Equity finance
Retained earnings
Rights issue of shares
New issue of shares
Rights issue of shares
Issue of new shares for cash to existing shareholders in proportion to their existing shareholders
Placing (issue of shares)
Most common method of issuing shares when a company first comes onto the market. Shares sold to investment bank who then sells the shares to its clients
Public offers (issue of shares)
Can be sold to investment banks which then sell to general public or can be sold directly to general public.
Underwriting
Institution agreeing to purchase any securities not subscribed by the public
Offer for sale by tender
Minimum price is set.
Sources of Debt finance
Overdraft Debt factoring Term loan Loan stock Leasing
Debt factoring
When a business receives loan finance and insurance, known as non resources factoring, so that in the event that a customer does not pay, the business does not have to repay the loan.
Loan stock
Is debt capital (bonds and Debentures) in the form of securities issued by companies, the government and local authorities
Leasing
Transfers substantially all the risks and rewards of ownership of an asset from the lessor to the lessee
Bills of exchange
Drawn up by exporter and sent to buyers bank. Bank accepts the obligation to pay the bill by signing it
Letters of credit
Exporter receives immediate payment. Buyer gets a period of credit
Export credit insurance
Insurance against the risk of non payment by foreign customers for export debts
Accountancy profession role
Concerned with the measurement, disclosure or provision of assurance about financial information that helps managers, investors , tax authorities and other decision makers make resource allocation decisions
Common attributes of professions
Formal regulatory process Great degree of autonomy Professional values Self regulation Co regulation
The three aspects of the Professional accountants work
Managing control and safeguarding assets
Financial management
Financial reporting
Role of Managing control and safeguarding assets
The professional accountant will seek to ensure that assets are kept safe through complete, timely and accurate recording of transactions
Role of Financial management
Management of all the processes associated with the raising and use of financial resources in business
Role of Financial reporting
The transactions and activities of the business as represented in its accountancy records, must be reported to external stakeholders
Expectations of the accountancy profession
Uphold the ICAEW code of ethics
Be able to identify likely threats to their principles
Be able to safeguard against those threats
