The Business's Finance Function

Question 1

What are the four main finance functions?

Answer 1

1. Recording financial transactions
2. Financial reporting
3. Management accounting
4. Treasury management

Question 2

Which finance functions are internal?

Answer 2

1. Management accounting

2. Treasury management

Question 3

Which finance function is external?

Answer 3

Financial reporting

Question 4

Which tasks are involved with recording financial transactions?

Answer 4

1. Books of prime entry
2. Ledgers
3. Reconciliations

Question 5

What tasks are involved with financial reporting?

Answer 5

1. Financial statements
2. Tax
3. Regulatory information

Question 6

What tasks are involved with management accounts?

Answer 6

1. Costing
2. Budgeting
3. Pricing decisions
4. Investment appraisal
5. Performance measurement

Question 7

What tasks are involved with treasury management?

Answer 7

1. Cash management
2. Working capital management
3. Foreign exchange management
4. Managing financial risks
5. Raising finance

Question 8

What are the types of performance measure?

Answer 8

1. Qualitative measures

2. Quantitative measures

Question 9

Define qualitative measures

Answer 9

1. Subjective
2. Judgemental
3. Cannot be expressed in numerical terms

Question 10

Define quantitative measures

Answer 10

1. Objective
2. Based on reliable data
3. Numerical

Question 11

What are the types of quantitative measures?

Answer 11

1. Financial measures

2. Non-financial measures

Question 12

What are financial measures based on?

Answer 12

Sales, profit, etc

Question 13

What are non-financial measures based on?

Answer 13

Production, activity levels, etc

Question 14

What are examples of performance measures?

Answer 14

1. Profitability
2. Activity
3. Productivity

Question 15

Define profitability as a performance measure

Answer 15

1. Comparisons of income generation and associated costs

2. Key measures include gross and net margins, return on capital employed, required returns of investors

Question 16

Define activity as a performance measure

Answer 16

1. Physical units
2. Number of customers
3. Time taken
4. Monetary values

Question 17

Define productivity as a performance measure

Answer 17

Efficient use of resources

Question 18

What are the measures of productivity?

Answer 18

1. Economy
2. Effectiveness
3. Efficiency

Question 19

Define economy as a measure of productivity

Answer 19

Control over input costs

Question 20

Define effectiveness as a measure of productivity

Answer 20

Output measure against objectives

Question 21

Define efficiency as a measure of productivity

Answer 21

Achieving objectives at minimum cost

Question 22

Define critical success factors

Answer 22

Those product features that are particularly valued by a group of customers, and, therefore, where the organisation must excel to outperform the competition

Question 23

Define key performance indicators

Answer 23

Measures of the level of performance in an area where a target level must be achieved in order for the business to outperform rivals and achieve a competitive advantage

Question 24

Define benchmarking

Answer 24

The establishment of targets and comparatives by which relative performance can be established

Question 25

What are the limitations of financial performance indicators?

Answer 25

1. Historical information is not necessarily useful when trying to predict future outcomes 2. FInancial information mostly reports internal performance and does not always consider external factors 3. Can encourage short-term decision-making at the expense of long-term objectives 4. Can be easily manipulated with the use of accounting policies etc 5. Does not consider the whole picture

Question 26

What is the benefit of the balanced scorecard approach?

Answer 26

Ensures that a mixture of financial and non-financial perspectives are considered when selecting performance indicators

Question 27

What are the four perspectives that Kaplan and Norton suggest performance indicators should consider?

Answer 27

1. Financial perspective 2. Internal business perspective 3. Innovation and learning perspective 4. Customer perspective

Question 28

What are the main issues to consider when measuring sustainability?

Answer 28

1. Social 2. Environmental 3. Economic

Question 29

Define internal control

Answer 29

A process, effected by the entity's board of directors, management, and other personnel, designed to provide reasonable assurance regarding the achievement of objectives relating to operations, reporting, and compliance

Question 30

What are the internal control processes?

Answer 30

1. Control environment 2. Risk assessment processes 3. IS 4. Monitoring of controls 5. Control activities

Question 31

What are the features of the control environment?

Answer 31

1. Culture 2. Management philosophy 3. Authority 4. Segregation of duties 5. Business ethics

Question 32

What are the features of risk assessment processes?

Answer 32

1. Identify risks | 2. Respond to risks

Question 33

What are the features of IS?

Answer 33

Produce information to assist with control

Question 34

What are the features of control activities?

Answer 34

Specific manual and physical controls

Question 35

What are the features of the monitoring of controls?

Answer 35

Checking that controls are working as prescribed