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Paper F1

Accountant in Business (AB)


1. THE BUSINESS
ORGANISATION
The need for organisations
Types of organisation
Profit seeking organisations Not for profit organisations
Main objective is wealth maximisation Do not see profit as their main objective
which can be expanded into • seeking to satisfy particular needs of
• to continue in existence (survival) their members or the sectors of society
• to maintain growth and development that they have been set up to benefit
• to make a profit • include hospitals, charities,
government organisations and mutual
organisations
The roles of organisational
functions
Planning Levels
2. ORGANISATIONAL
STRUCTURE
Different Structural Types
Type Rationale
Entrepreneurial Typical in small owner
managed companies.
Functional Departments are based on
common specialisation. Best
suited to companies operating
in a stable environment with
few products.

Divisional Each product or group of


products set up as a separate
division.
Geographical Activities are grouped
according to location.
Matrix A combination of the
functional and divisional. Dual
reporting lines
Centralisation/Decentralisation
Centralised structure Decentralised structure
The upper levels of an organisation’s The authority to take decisions is
hierarchy retain the authority to make passed down to units and people at
decisions lower levels. Can lead to extra costs in
obtaining information
Better motivation due to increased
training and career path
3. ORGANISATIONAL
CULTURE
Organisational Culture
Handy’s cultural Types
Schein – 3 levels of culture
Hofstede - 5 cultural traits
2.LEADERSHIP, MANAGEMENT
AND SUPERVISION
Theories of management
Authority, responsibility and
power concepts
• Authority is a legitimate right to give
orders
• Responsibility is an obligation placed on
a person to fulfil a task
• Power is an ability to exert influence.
Sources can be legitimate, reward,
coercive, referent or expert
• Delegation is a process of transferring
authority to a subordinate
Leadership
5. INDIVIDUAL AND GROUP
BEHAVIOUR IN BUSINESS
ORGANISATIONS
Individual and Group Behaviour
6. TEAM FORMATION, DEVELOPMENT
AND MANAGEMENT
Teamwork
• A team is a formal group, it has a
leader, a distinctive culture and is
geared towards a final result
• The purpose of a team is to solve
complex problems
• Teams provide synergy, cooperation
and coordination of activities
Team v Group
Team Theories - Belbin
Leader Co-ordinator
Shaper Promotes activity - dominant

Plant Thoughtful and thought


provoking
Monitor evaluator Criticises other ideas
Resource-investigator Extrovert, networker
The company worker Administrator, organiser
The team worker Concerned with relationships
within the groups

The finisher The progress chaser


The expert As required by the project
Team theories - Tuckman
7.MOTIVATION
Overview of Motivation
• Motivation is the internal psychological
process of initiating, energising, directing
and maintaining goal directed behaviour
(Buchanon and Huczynski, 1997)
• It is the urge to achieve goals or the drive
to excel
• Satisfaction on the other hand is about
being content and not seeking new
achievements
Content theories of Motivation
• Maslow’s hierarchy of needs –
individuals have a hierarchy of personal
needs that can be satisfied in a set order
of priority in the workplace
• Herzberg two factor theory – hygiene
factors deal with non-job related
features e.g. working conditions, policies
and procedures. Motivators are mostly
non financial and will encourage people
to work harder
Maslow’s hierarchy of needs
Herzberg’s two factor theory of
motivation
McGregor’s Theory X and Y
Process Theories
• The Vroom expectancy model
• Force = Valence x Expectancy
• Force is the strength of a persons
motivation
• Valence is the strength of an
individual’s preference for an outcome
• Expectancy is the probability of success
Incentive Schemes
• Reward systems should attract and
retain staff, encourage desirable
behaviour and reflect the nature of the
job
• Financial motivators include salary and
bonus
• Non financial motivators include
feedback, participation and autonomy
8. INFORMATION
TECHNOLOGY
Information and Data
• Data is a collection of symbols, raw facts
and transactions that have been
recorded but not yet processed. It could
be quantitative or qualitative
• Information is data that has been
processed in such a way that it becomes
meaningful
• Information is used for decision making
at the strategic, tactical and operational
levels
Qualities of good information
Computerisation
• Intranet
• Extranet
• Database
• Spreadsheet
Sources of information
• Internal information includes customer
records, employee records, inventory
and product specifications
• External information includes invoices,
letters, statements from 3rd parties etc
• External information can also be
obtained through marketing research,
legal updates and government data
Types of information system
9.POLITICAL AND LEGAL
FACTORS
Political Factors
Political environment includes:
• the political system and ideology
• the role of the government in the
economy
• the risk of political instability
• foreign trade relationships
Political systems operate on a global,
national and local level
Legal Factors
10. MACROECONOMIC
FACTORS
Economic factors
• Microeconomics is the study of the
economic behaviour of individual
consumers, firms and industries
• Macroeconomics considers aggregate
behaviour and the study of the sum of
individual economic decisions.
Factors affecting the level of
business activity
• consumer and business confidence in the
economy
• aggregate demand: AD = C + I + G + X – M
• availability of capital
• use of resources such as technology
• government policy on spending and taxation
• exchange rate movements
Trade Cycle
• A series of fluctuations in the rate of
growth of real (inflation adjusted) GDP
over its long-run trend
• Recession
• Depression
• Recovery
• Boom
• Government tries to smooth pattern out
Key economic terms
• Economic growth
• Inflation
• Unemployment
• Balance of payments
• Fiscal economic policy
• Monetary policy
11. SOCIAL AND
TECHNOLOGICAL FACTORS
Social Factors
• Population (e.g. birth rate and growth)
• Wealth (e.g. high disposable income)
• Education (e.g. skilled staff thrive in
knowledge economy)
• Health (e.g. obesity, HIV)
• Cultural trends (social structure, buying
patterns, values, attitudes, tastes)
• Affected by government policy
Technological factors
Impact of technology on:
• organisational structure (e.g.
downsizing, outsourcing)
• products (e.g. sophisticated features)
• production processes (e.g. automation)
• society (e.g. ecommerce, home-
working)
12.COMPETITIVE FACTORS
Competition – Porter’s generic
strategies
• Cost leadership: to become the lowest
cost producer and enjoy a superior
margin
• Differentiation: demanding a premium
for perceived added value of the
product
• Focus: Serving a niche market
Being ‘stuck in the middle’ is a recipe for
disaster
Porters 5 Forces
Porter’s Value Chain – primary
activities
Activity Description
Inbound logistics Receiving, storing and handling raw
materials
Operations Transformation of raw materials into
finished goods
Outbound logistics Storing, distributing and delivering
finished goods to customers
Marketing and sales Market research and the 4 P’s
Service All activities occurring after the point of
sale e.g. training, repair
Porter’s value chain – Support
activities
Activity Description
Firm infrastructure How the firm is organised

Technology How the firm uses


technology
HRM How people contribute to
competitive advantage
Procurement Purchasing, not just limited
to materials
13. STAKEHOLDERS
Stakeholders
Mendelow’s stakeholder
mapping
14. COMMITTEES IN
BUSINESS ORGANISATIONS
Committees
A committee is a group of people officially
delegated to perform a function and
who are given appropriate authority.
Types of committees:
• Ad-hoc
• Standing
• Sub-committee
• Joint
Types of Committees continued
• Executive
• Steering
• Work safety
• Ethics
• Audit
• Remuneration
15. BUSINESS ETHICS
Business ethics
• Ethics is the analysis of right and wrong
and associated responsibility
• Business ethics is the systematic study
of moral matters pertaining to business,
industry or related activities, institutions
or practices and beliefs
• 2 approaches to ethics, either a
compliance-based approach or an
integrity based approach
Code of professional conduct
ACCA’s code of ethics:
• Integrity
• Objectivity
• Professional competence and due care
• Confidentiality
• Professional behaviour
16. GOVERNANCE AND
SOCIAL RESPONSIBILITY
Board of Directors
• At least half of the board should
comprise independent non-executive
directors (NED’s) who do not engage in
day to day execution of management
decisions
• NED’s contribute to strategy formulation,
monitor performance reporting, ensure
robust financial controls and determine
executives remuneration
Corporate Governance
• The system by which companies are
directed and controlled
• UK – Combined Code is principles
based, company must ‘comply or
explain’
• USA – Sarbanes Oxley is rules based
(i.e. law) with personal liability of
company officers
Social Responsibility
• Social responsibility is a duty to all
stakeholders of the company to make
decisions in such a way that takes into
account the interest of the environment
and society as a whole
• Benefits include, attracting customers,
reducing operational risks and retaining
employees
17. LAW AND REGULATION
GOVERNING ACCOUNTING
Regulations covering
accounting function
Responsibility to:
• Companies House (for filing of
accounts)
• Tax Authorities (e.g. HRMC for VAT,
PAYE)
• Financial Services (e.g. stock exchange
for listed co’s)
• Office of national statistics (e.g.
business statistics)
Bodies governing the
accounting function
• International Accounting Standards
Committee foundation, parent entity of:
• International Accounting Standards
Board (IASB)
• International Financial Reporting
Interpretation committee (IFRIC)
• Standards Advisory Council (SAC)
Other bodies
• Accounting Investigation and Discipline
Board (AIDB)
• Financial Reporting Review Panel
(FRRP)
• Professional Oversight Board for
Accountancy (POBA)
• Recognised Supervisory and Qualifying
Bodies (e.g. ACCA, ICAEW)
18. THE ACCOUNTING
PROFESSION
The role of accounting within
the business
• Not a ‘stand alone’ function
• Interacts with other departments and is
one of the central functions of business
• Financial information is a fundamental
requirement in decision making
Purpose of accounting function
• Produces financial information that will
be used to make decisions
• May be produced for users outside the
company e.g. sales invoices, financial
statements
• May be produced for users inside the
company e.g. ledgers, cost information
19. ACCOUNTING AND
FINANCE FUNCTIONS
Modern accounting function
Structure of accounting function:
• Financial Accounting (maintaining
books and records, preparing accounts)
• Management Accounting (appraisal,
budgeting)
• Treasury (cash management, tax
affairs)
• Auditing (reviewing financial reports and
internal controls)
Recording of transactions
20. FINANCIAL SYSTEMS AND
PROCEDURES
Financial Procedures
Stages in:
• Sales cycle
• Purchasing cycle
• Wages cycle
• Cash system
• Inventory system
The purpose of organisational
control
Purpose Why important
Safeguard company’s assets If assets are stolen or damaged the
company will have to spend money to
replace them
Efficiency Inefficient business practices are a
waste of the company’s money
Prevent fraud Fraud means the loss of valuable
resources belonging to the company
Prevent errors Errors can lead to losses in efficiency
(time spent correcting) or a loss of
assets (e.g. paying for goods that
weren’t received)
21. THE RELATIONSHIP OF
ACCOUNTING WITH OTHER
BUSINESS FUNCTIONS
Coordination between accounting
and other business functions
Marketing
• Defined by the Institute of Marketing as
‘the management process that
identifies, anticipates and supplies
customer needs efficiently and
profitably’
• Key emphasis on customer needs
• Marketing research, product
development, distribution and
promotion all important
Marketing Mix
22. INTERNAL AND EXTERNAL
AUDIT
Internal and External Audit
• Internal auditing is an independent
activity, established by management, to
examine and evaluate organisational
risk, management processes and control
systems and make recommendations for
improvements
• External auditing is an independent
examination of the financial statements
to see whether they give a true and fair
view of the company’s affairs
Internal and External Audit -
differences
Internal Audit External Audit
Roles Advises management on Provides an opinion to the
the strength of internal shareholders on whether
controls and protecting the the financial statements
organisation against loss give a true and fair view

Legal Basis Not a legal requirement, Legal requirement for most


but highly recommended companies and public
by The Combined Code bodies
Scope of Work Determined by Determined by auditing
management standards
Approach Evaluates and Tests items and
recommends transactions in the
improvements to controls financial statements
Status Company employees Independent accountants
23. INTERNAL FINANCIAL
CONTROL
Internal Controls
• Internal Control is a process designed
and initiated by management to provide
reasonable assurance about the
achievement of the entity’s objectives
with regards to reliability of financial
reporting, effectiveness and efficiency
of operations and compliance with laws
and regulations. Internal controls are
checks on day to day transactions.
They are managements responsibility.
Components of Internal Control
Categories of Internal Control
Types of Control
24. FRAUD
Fraud
• Fraud is an intentional act involving the
usage of deception to obtain an unjust or
illegal advantage. It is a criminal offence
• Prerequisites include: dishonesty,
motivation and opportunity
• Fraud could be committed by
management, employees or third parties
Examples of fraud
Implications of fraud
• Company collapse
• Adverse publicity
• Reduced profits
• Qualified audit report since financial
statements do not give a true and fair
view
• Distorted performance results make it
hard for managers to make business
decisions
Responsibility for preventing
fraud
IT systems security
Risks to data:
• Human errors
• Technical malfunction (e.g. systems
crash)
• Natural disasters (e.g. fire, flood)
• Sabotage or espionage
• Malicious damage
Principles of data security
• Use individual and complex passwords
• Secure communication channels (e.g.
fire walls)
• Back up information on a regular basis
• Have a contingency plan
• Physical security for documents
• Policy on suspicious emails
25. RECRUITMENT AND
SELECTION
Recruitment and selection
• Recruitment is the process of
generating a supply of possible
candidates for positions within an
organisation
• Selection is choosing from a number of
candidates the one most suitable for the
specified position
Recruitment process
Importance of R&S Consequences of poor R&S
• New recruit will be technically • High staff turnover
competent and able to perform the job
•Wasted advertising budget
• Effective R&S reduces the need for
retraining •Loss of management time dealing with
unsuitable candidates
• Employee will bring in ideas and
enhance productivity •Costs and demoralising effects of
dismissal
•Candidate will get on well with existing
team •Increased workload on existing staff if
new recruit makes mistakes
•Process will comply with legal
requirements reducing employee • Potential effect on efficiency of
disputes operations
Job Analysis
• The process of collecting all relevant
information about the position
• This information is then summarised
into:
1.Job description
2.Person specification
3.Job evaluation
Selection Process
Selection tools include:
• Interviews
• Tests (e.g. aptitude, proficiency)
• Assessment centres
• References from previous employer
Types of Interview
• Face to face
• Successive Interviews
• Group interviews
• Panel interviews
Equal opportunities and
Diversity
• Equal opportunities is normally
delivered through legislation which is
aimed at giving all people an equal
chance to be treated fairly in all aspects
of employment
• Diversity relates to valuing everyone as
an individual and recognising the
differences as contributing factors of
business success
Equal Opportunities legislation
26. REVIEW AND APPRAISAL OF
INDIVIDUAL PERFORMANCE
Appraisal
• Appraisal is a regular and systematic
review of performance and assessment
of potential with an aim of producing an
action programme to develop both work
and individual
• Its purpose is to review performance,
potential and pay
Objectives of appraisal
From organisational point of view From individual point of view
• Establishes the results staff are •Determines future promotional activities
expected to deliver •Gives recognition for work well done
•Identifies training and development •Serves as a basis for increase in
needs remuneration
•Encourages communication •Formal opportunity to ask for guidance
•Aids personnel planning •Chance to contribute to goal-setting
•Creates a supportive organisational process
culture
Barriers to effective appraisal
• Appraisal seen as a confrontation
• Appraisal seen as a judgement
• Appraisal seen as just a chat
• Appraisal seen as bureaucratic ‘form
filling’
• Appraisal just an annual event, no
substance
• Appraisal just looks at recent events,
ignores everything else
Features of an effective
appraisal system
27. TRAINING, DEVELOPMENT
AND LEARNING
Learning
Kolb’s experiential learning
theory
Honey and Mumford’s learning
styles
Training, development and
education
Stages in training and
development
Features of a Learning
Organisation
• adapts to change
• encourages questions and
experimentation
• sees mistakes as part of learning
• supports risk-taking and initiative
• knowledge shared openly and willingly
• people committed to continuous
professional development
28. IMPROVING PERSONAL
EFFECTIVENESS AT WORK
Preparing a personal
development plan
Effective time management -
influences
Barriers to effective time
management

Barriers Ways to overcome barriers

•Frequent interruptions •Be assertive


•Unpredictable nature of the •Distinguish between urgent
job and important
•Having to travel long •Multi-task
distances •Focus on effectiveness
•Bureaucratic procedures •Promise yourself a reward on
•Putting things off completion
Coaching, counselling and
mentoring
29. EFFECTIVE COMMUNICATIONS
AND INTERPERSONAL SKILLS
Communication process
Effective communication
Barriers to effective communication Ways to overcome the barriers
•Different cultures and languages •Provide training on cultural awareness
•Noise and distortion •Choose the most effective
•Information overload communication channel
•Assumptions and prejudice •Prioritise and focus
•Conflict between individuals •Be open minded
•Rise above the differences
Communication patterns
1. Centralised:
• Wheel
• Chain
• Y
2. Decentralised:
• Circle
• All channels