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Paper F1Paper F1

Accountant in Business (AB)

1. THE BUSINESS ORGANISATION1. THE BUSINESS ORGANISATION

The need for organisationsThe need for organisations

Types of organisationTypes of organisation

Profit seeking organisations Not for profit organisations

Main objective is wealth maximisation which can be expanded into• to continue in existence (survival)• to maintain growth and development• to make a profit

Do not see profit as their main objective• seeking to satisfy particular needs of their members or the sectors of society that they have been set up to benefit• include hospitals, charities, government organisations and mutual organisations

The roles of organisational functions

Planning LevelsPlanning Levels

2. ORGANISATIONAL STRUCTURE2. ORGANISATIONAL STRUCTURE

Different Structural TypesDifferent 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/DecentralisationCentralisation/Decentralisation

Centralised structure Decentralised structure

The upper levels of an organisation’s hierarchy retain the authority to make decisions

The authority to take decisions is passed down to units and people at lower levels. Can lead to extra costs in obtaining informationBetter motivation due to increased training and career path

3. ORGANISATIONAL CULTURE3. ORGANISATIONAL CULTURE

Organisational CultureOrganisational Culture

Handy’s cultural TypesHandy’s cultural Types

Schein – 3 levels of cultureSchein – 3 levels of culture

Hofstede - 5 cultural traitsHofstede - 5 cultural traits

2.LEADERSHIP, MANAGEMENT AND SUPERVISION2.LEADERSHIP, MANAGEMENT AND SUPERVISION

Theories of managementTheories 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

LeadershipLeadership

5. INDIVIDUAL AND GROUP BEHAVIOUR IN BUSINESS ORGANISATIONS

Individual and Group BehaviourIndividual and Group Behaviour

6. TEAM FORMATION, DEVELOPMENT AND MANAGEMENT6. TEAM FORMATION, DEVELOPMENT AND MANAGEMENT

TeamworkTeamwork

• 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 GroupTeam v Group

Team Theories - BelbinTeam 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 - TuckmanTeam theories - Tuckman

7.MOTIVATION7.MOTIVATION

Overview of MotivationOverview 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 MotivationContent 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 needsMaslow’s hierarchy of needs

Herzberg’s two factor theory of motivation

McGregor’s Theory X and YMcGregor’s Theory X and Y

Process TheoriesProcess 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 SchemesIncentive 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 TECHNOLOGY8. INFORMATION TECHNOLOGY

Information and DataInformation 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 informationQualities of good information

ComputerisationComputerisation

• Intranet

• Extranet

• Database

• Spreadsheet

Sources of informationSources 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 systemTypes of information system

9.POLITICAL AND LEGAL FACTORS9.POLITICAL AND LEGAL FACTORS

Political FactorsPolitical 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 FactorsLegal Factors

10. MACROECONOMIC FACTORS10. MACROECONOMIC FACTORS

Economic factorsEconomic 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 CycleTrade 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 termsKey economic terms

• Economic growth

• Inflation

• Unemployment

• Balance of payments

• Fiscal economic policy

• Monetary policy

11. SOCIAL AND TECHNOLOGICAL FACTORS11. SOCIAL AND TECHNOLOGICAL FACTORS

Social FactorsSocial 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 factorsTechnological 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 FACTORS12.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 ForcesPorters 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. STAKEHOLDERS13. STAKEHOLDERS

StakeholdersStakeholders

Mendelow’s stakeholder mapping

14. COMMITTEES IN BUSINESS ORGANISATIONS14. COMMITTEES IN BUSINESS ORGANISATIONS

CommitteesCommittees

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 continuedTypes of Committees continued

• Executive

• Steering

• Work safety

• Ethics

• Audit

• Remuneration

15. BUSINESS ETHICS15. BUSINESS ETHICS

Business ethicsBusiness 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 conductCode of professional conduct

ACCA’s code of ethics:

• Integrity

• Objectivity

• Professional competence and due care

• Confidentiality

• Professional behaviour

16. GOVERNANCE AND SOCIAL RESPONSIBILITY16. GOVERNANCE AND SOCIAL RESPONSIBILITY

Board of DirectorsBoard 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 GovernanceCorporate 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 ResponsibilitySocial 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 ACCOUNTING17. 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 bodiesOther 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 PROFESSION18. 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 functionPurpose 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 FUNCTIONS19. ACCOUNTING AND FINANCE FUNCTIONS

Modern accounting functionModern 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 transactionsRecording of transactions

20. FINANCIAL SYSTEMS AND PROCEDURES20. FINANCIAL SYSTEMS AND PROCEDURES

Financial ProceduresFinancial 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

MarketingMarketing

• 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 MixMarketing Mix

22. INTERNAL AND EXTERNAL AUDIT22. INTERNAL AND EXTERNAL AUDIT

Internal and External AuditInternal 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 the strength of internal controls and protecting the organisation against loss

Provides an opinion to the shareholders on whether the financial statements give a true and fair view

Legal Basis Not a legal requirement, but highly recommended by The Combined Code

Legal requirement for most companies and public bodies

Scope of Work Determined by management

Determined by auditing standards

Approach Evaluates and recommends improvements to controls

Tests items and transactions in the financial statements

Status Company employees Independent accountants

23. INTERNAL FINANCIAL CONTROL23. INTERNAL FINANCIAL CONTROL

Internal ControlsInternal 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 ControlComponents of Internal Control

Categories of Internal ControlCategories of Internal Control

Types of ControlTypes of Control

24. FRAUD24. FRAUD

FraudFraud

• 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 fraudExamples of fraud

Implications of fraudImplications 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 securityIT 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 securityPrinciples 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 SELECTION25. RECRUITMENT AND SELECTION

Recruitment and selectionRecruitment 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 processRecruitment process

Importance of R&S Consequences of poor R&S

• New recruit will be technically competent and able to perform the job

• Effective R&S reduces the need for retraining

• Employee will bring in ideas and enhance productivity

•Candidate will get on well with existing team

•Process will comply with legal requirements reducing employee disputes

• High staff turnover

•Wasted advertising budget

•Loss of management time dealing with unsuitable candidates

•Costs and demoralising effects of dismissal

•Increased workload on existing staff if new recruit makes mistakes

• Potential effect on efficiency of operations

Job AnalysisJob 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 ProcessSelection Process

Selection tools include:

• Interviews

• Tests (e.g. aptitude, proficiency)

• Assessment centres

• References from previous employer

Types of InterviewTypes 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 legislationEqual Opportunities legislation

26. REVIEW AND APPRAISAL OF INDIVIDUAL PERFORMANCE26. REVIEW AND APPRAISAL OF INDIVIDUAL PERFORMANCE

AppraisalAppraisal

• 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 appraisalObjectives of appraisal

From organisational point of view From individual point of view

• Establishes the results staff are expected to deliver•Identifies training and development needs•Encourages communication•Aids personnel planning•Creates a supportive organisational culture

•Determines future promotional activities•Gives recognition for work well done•Serves as a basis for increase in remuneration•Formal opportunity to ask for guidance•Chance to contribute to goal-setting process

Barriers to effective appraisalBarriers 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 LEARNING27. TRAINING, DEVELOPMENT AND LEARNING

LearningLearning

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 WORK28. 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•Unpredictable nature of the job•Having to travel long distances•Bureaucratic procedures•Putting things off

•Be assertive•Distinguish between urgent and important•Multi-task•Focus on effectiveness•Promise yourself a reward on completion

Coaching, counselling and mentoring

29. EFFECTIVE COMMUNICATIONS AND INTERPERSONAL SKILLS29. EFFECTIVE COMMUNICATIONS AND INTERPERSONAL SKILLS

Communication processCommunication process

Effective communicationEffective communication

Barriers to effective communication Ways to overcome the barriers

•Different cultures and languages•Noise and distortion•Information overload•Assumptions and prejudice•Conflict between individuals

•Provide training on cultural awareness•Choose the most effective communication channel•Prioritise and focus•Be open minded•Rise above the differences

Communication patternsCommunication patterns

1. Centralised:

• Wheel

• Chain

2. Decentralised:

• Circle

• All channels

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