1. The Roles of the Finance Function in Organisations

Question 1

How does the finance function ENABLE how organisations create and preserve value?

Answer 1

Planning
Forecasting
Resource allocation

Question 2

How does the finance function SHAPE how organisations create and preserve value?

Answer 2

Performance management
Control

Question 3

How does the finance function NARRATE how organisations create and preserve value?

Answer 3

Financial reporting

Question 4

The roles of the finance function are constantly changing. What is driving this change?

Answer 4

Continuous changes in technology driven by the 4th industrial revolution

Question 5

What are the two main types of organisation called?

Answer 5

Profit seeking and not-for-profit

Question 6

What is the primary objective of a profit seeking organisation?

Answer 6

Maximisation of the wealth of their owners

Question 7

What is the primary objective of a not-for-profit organisation?

Answer 7

Maximise benefit to beneficiaries

Question 8

What is the definition of value?

Answer 8

Value is the achievement of the specified objective, most economically and at the required standard of quality and reliability

Question 9

What are the five ethical principles in CIMA’s Code of Ethics?

Answer 9

Integrity
Objectivity
Professional competence and due care
Confidentiality
Professional behaviour

Question 10

What is meant by integrity?

Answer 10

Being straightforward, honest and truthful

Question 11

What is meant by objectivity?

Answer 11

Not allowing bias, conflict of interest, or the influence of others to override your professional judgement

Question 12

What is meant by professional competence and due care?

Answer 12

Ongoing commitment to maintain your level of knowledge and skill. Work should be completed carefully, thoroughly and diligently in accordance with relevant standards

Question 13

What is meant by confidentiality?

Answer 13

Do not disclose information without permission

Question 14

What is meant by professional behaviour?

Answer 14

Comply with relevant laws and regulations

Question 15

What are examples of ethical behaviour from a company?

Answer 15

Pay fair wages
Provide good working conditions
Pay suppliers on time
Source supplies carefully
Use renewable sources
Be open and honest with customers

Question 16

How does ethical behaviour maximise shareholder wealth?

Answer 16

Higher sales from customers
Attract and retain best staff
Increased business collaboration
Reduces risk
Avoid reputational damage

Question 17

What is an ethics officer?

Answer 17

Monitor the application of ethical policies and is available to discuss ethical dilemmas with staff

Question 18

Define stakeholder

Answer 18

A group or individual who has an interest in what the organisation does, or an expectation of the organisation

Question 19

What are the three types of stakeholder (and brief definition)?

Answer 19

Internal - Intimately connected to the organisation. E.g. staff, directors
Connected - Invest in or have dealings with. E.g Shareholders, customers
External - Can influence or be influenced. E.g Govt, trade unions

Question 20

What tool can be used to prioritise stakeholders?

Answer 20

Mendelow’s power-interest matrix

Question 21

Draw Mendelow’s power-interest matrix

Answer 21

See page 13 of text book.

Question 22

What is meant by corporate social responsibility?

Answer 22

The idea that a company should be sensitive to the needs and wants of all the stakeholders rather than just the shareholders

Question 23

What do traditionalists argue about CSR?

Answer 23

They argue that a company should operate solely to make money for shareholders and that it is not a company’s role to worry about social responsibilities

Question 24

What is the modern view of CSR?

Answer 24

The modern view is that by aligning a company’s core values with the values of society the company can improve its reputation and ensure a long-term future.

Question 25

How can corporate social responsibility benefit a company?

Answer 25

Differentiation (E.g. no animal testing) High calibre staff (Attract and retain) Strengthen brand (Honest approach) Lower costs (E.g less packaging used) New market opportunities

Question 26

Why is corporate governance needed?

Answer 26

Due to the separation of ownership and control (agency problem)

Question 27

What is the definition of corporate governance?

Answer 27

The set of processes and policies by which a company is directed, administered and controlled. It includes the appropriate role of the board of directors and the auditors of the company

Question 28

What are the symptoms of poor corporate governance?

Answer 28

* Domination of the board by one person or group * No involvement by the board (no regular meetings) * Inadequate control function (no internal audit) * Lack of supervision of employees * Lack of scrutiny by auditors * Lack of contact with shareholders * Focus on short-term profitability * Misleading financial statements

Question 29

What are the rules regarding which companies must comply with the UK Corporate Governance Code?

Answer 29

All companies listed on the london stock exchange must comply with the code and produce a statement confirming their compliance. Smaller companies (not in FTSE 350) can take a more flexible approach

Question 30

UK Corporate Governance Code - What should the board use the AGM for?

Answer 30

The board should use the annual general meeting to construct a dialogue with shareholders

Question 31

What does the UK Corporate Governance Code say about the board?

Answer 31

* Board must be effective * Annual report should identify the holders, number of meetings and attendance, * Emphasises the importance of positive relationships

Question 32

What does the UK Corporate Governance Code say about the roles of Chairman and CEO?

Answer 32

Should be held by separate people to avoid any one individual having too much power Chairman should be independent on appointment

Question 33

What are the rules regarding non-executive directors?

Answer 33

* Should be as independent as possible. * Not been an employee in last 5 years * Not had a material interest in the company for the last 3 years * Not participate in the company's pension scheme, share options, performance related pay * Not have close family ties with directors or senior employees * Not serve as a NED for more than 9 years with same company * Not hold cross directorship * At least half the board should be NED's. Smaller company must have at least 2. * One NED should be appointed "senior independent director". Shareholders can contact to raise matters outside executive channels

Question 34

What are the rules regarding the nomination committee?

Answer 34

*Appointments to the board are made via the nominations committee * Over 50% of nonminations committee should comprise NED's * Appointments should be based on merit and suitability for role * Responsible for effective succession planning

Question 35

What are the rules regarding the remuneration committee?

Answer 35

* No director should be involved in setting their own pay *Remuneration committee is made up of NED's * Chairman can be a member but cannot chair the committee * Chair must have been a committee member for at least 12 months * Remuneration should be sufficient to attract, retain and motivate quality directors but not more than necessary * Significant proportion should be performance related * Should be clear reporting on remuneration

Question 36

What are the rules regarding the audit committee?

Answer 36

* Audit committee consists of independent NED's * Board should review the effectiveness of risk management and internal controls at least annually and report to shareholders * Acts as interface between the board and internal/external auditors * Review the work and effectiveness of internal audit * Monitor external auditors independence and objectivity * Short-list external audit firms when a change is needed * First point of contact for auditors