Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

Accounting AAT Level 3 > Business Awareness > Flashcards

Business Awareness Flashcards

1
Q

Understanding Businesses (CH1)

6 Types of Business Organisations

A

• Sole trader
• Partnership
• Limited Liability Partnership (LLP) and Limited Partnership
• Private Limited Company
• Public Limited Company
• Not-for-Profit Organisations

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

Understanding Businesses (CH1)

What is a sole trader?

A
  • A person who runs their own business.
  • Generally a small business.
  • Owners have limited amounts of capital.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

Understanding Businesses (CH1)

Sole Trader Benefits

A
  • Owner has independence.
  • Fewer, if any, employees.
  • Can provide a personal service.
  • Supervision by the owner available at all times.
  • Easy to establish legally.
  • No definitive format for financial statements.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

Understanding Businesses (CH1)

Sole Trader Drawbacks

A
  • Owner has unlimited liability for the debts of the business.
  • Expansion is limited because it can only be achieved by the owner reinvesting profits, or by borrowing from a lender (e.g. bank).
  • Working long hours, lack of holidays
  • If the owner should become ill the work of the business will either slow down or stop altogether.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

Understanding Businesses (CH1)

Traits of a Partnership (Unlimited Liability)

A
  • Normally consist of between 2 and 20 partners.
  • It can be set-up a new business or a logical growth of a sole trader.
  • Financial Statements of a Partnership: SoPL and SoFP
  • Rules are either set out in the Partnership Act 1890 or in a partnership agreement (oral or written) between the partners.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

Understanding Businesses (CH1)

What does the Partnership Agreement include?

A

Partnership Agreement usually covers:

  • Division of profits / losses between partners.
  • Salaries / Commission.
  • Interest allowed on partners’ capital and at what rate.
  • Interest to be charged on partners’ drawings and at what rate.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

Understanding Businesses (CH1)

What is Goodwill?

A

Goodwill is the difference between the value of a business as a whole, and the net value of Its separate assets and liabilities.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

Understanding Businesses (CH1)

Factors that contribute to Goodwill

A
  • Loyal customer base
  • Positive reputation
  • Highly Skilled workforce
  • Successful / Unique product
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

Understanding Businesses (CH1)

Benefits of Partnership (Unlimited Liability)

A
  • Partnerships are cheap and easy to set up.
  • Possibility of increased capital.
  • Individual partners may be able to specialise in particular areas of the business.
  • With more people running the business, there is cover for illness and holidays.
  • Similar type of financial statements as a sole trader.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

Understanding Businesses (CH1)

Drawback of Partnership (Unlimited Liability)

A
  • Decisions may take longer because other partners may need to be consulted.
  • Disagreements among the partners.
  • Each partner is liable in law for the dealings and business debts of the whole business (unless it is a ‘limited liability partnership’ set up under the Limited Liability Partnerships Act 2000).
  • The retirement or death of one partner may adversely affect the running of the business.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

Understanding Businesses (CH1)

What does incorporated mean?

A

A company formed in a legal corporation separated from its owners.

It has 2 main types: Limited Liability Partnerships / Limited Partnerships and Ltd Companies.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

Understanding Businesses (CH1)

Two main types of incorporated company

A
  • Limited Liability Partnerships / Limited Partnerships.
  • Ltd Companies.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

Understanding Businesses (CH1)

Benefits of incorporated status

A
  • Limited liability for owners (members - LLP & shareholders - limited company) - limit to the amount they have invested.
  • Continuing existence of the business as a separate legal entity from its owners
  • Access to finance/capital easier
  • Transfer of ownership generally easier e.g. sale of shares
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

Understanding Businesses (CH1)

Drawbacks of incorporated status

A
  • More complex requirements for setting up the business and higher costs for compliance (record keeping, annual returns etc.)
  • Statutory financial statements required and compliance with accounting standards.
  • Annual Accounts and Confirmation Statement must be submitted to Companies House where they can be viewed by the public.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

Understanding Businesses (CH1)

Traits of Limited Liability Partnerships

A
  • Formed under the Limited Liability Partnership Act 2000.
  • Separate legal entity.
  • Created and incorporated by registration at Companies House.
  • Must be at least 2 members but no upper limit.
  • At least two of the members must be named as ‘designated members’, who accept responsibility for compliance purposes, such as sending information to Companies House.
  • Advisable but not legally required for LLPs to have a Members Agreement.
  • Similar requirements as a limited company such as registration, financial statements (FRS 102) and auditing of its accounts.
  • Confirmation Statement and Annual Accounts must be filed at Companies House by the designated members of the LLP, where it is available for public inspection.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

Understanding Businesses (CH1)

Limited Partnerships

A

Limited Partnership has at least one general partner and one limiled partner.

Limited Partners:
- Have limited liability.
- Do not take part in mangerial decisions.

General Partners:
- Have unlimited liability.
- Responsible for the day-to-day running.

  • Formed for short-term projects e.g. a building project.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

Understanding Businesses (CH1)

Limited Companies

A
  • A limited company is incorporated as a separate legal entity from its owners (shareholders).
  • Therefore registered under the Companies Act 2006 by submitting certain documents to Companies House.
  • The Articles of Association sets out the written rules about running the company by its shareholders, directors and Secretary.
  • Limited companies are run by directors on behalf of shareholders.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

Understanding Businesses (CH1)

Limited Companies - Directors Responsibilities.

A
  • Keep adequate accounting records
  • Submit annual Confirmation Statement
  • Prepare and submit Annual Accounts which comprises of:
    1. SoPL and SoFP
    2. Supporting Notes to the SoPL and SoFP
    3. Directors’ report (past performance and likely future development)
    4. Auditors Reports (Small companies may be exempted)
  • Report annually to the company’s shareholders.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

Understanding Businesses (CH1)

What is a Public Limited Company?

A

Company limited by shares with a certificate of incorporation that states it is a public company.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

Understanding Businesses (CH1)

What are the traits of a Public Limited Company?

A
  • Has issued share capital of over £50,000.
  • At least 2 members (shareholders) and at least 2 directors.
  • Shares can be traded on the Stock Exchange and therefore bought and sold by the public.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
21
Q

Understanding Businesses (CH1)

What is a Private Limited Company?

A

Any company that has not been registered as a public company.
Cannot offer its shares to the public.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
22
Q

Understanding Businesses (CH1)

Traits of a Private Limited Company

A
  • No minimum requirement for issued share capital
  • At least 1 member (shareholder)
  • At least 1 director who may be the sole shareholder.
  • Shares are not traded publicly but are transferable between individuals.
  • However, valuation of shares may be more difficult.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
23
Q

Understanding Businesses (CH1)

What is a Non-for-profit Organisation?

A
  • Not-for-profit organisations (NFPO) are organisations that exists with the motive of not to make profit.
  • Their activities are not for the financial benefit of any individual or board of directors.
  • NFPO includes public sector organisations and charities.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
24
Q

Understanding Businesses (CH1)

What are Public Sector Organisations?

A

Public sector organisations provide all public services in the UK.

It is ‘owned’ by the government and is funded by taxes.

The amount they can spend on their services is allocated to them in a budget.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
25
Q

Understanding Businesses (CH1)

Where are the main rules governing charities set out?

A
  • Charities Act 2011
  • By Charity Commission (regulator) - all charities must be registered with this body.
  • In the Statement of Recommended Practice (SORP) Accounting & Reporting by Charities or FRS 102.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
26
Q

Understanding Businesses (CH1)

Financial statements required for Charities

A
  • Statement of financial activities
  • Statement of financial position
  • Supporting notes to financial statements
  • Trustees’ Annual Report
  • Auditor’s Report (large charities) or independent Examiners Report (medium-sized), Smaller entities exempt).
  • Cash flow statement (required for certain charities)
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
27
Q

Understanding Businesses (CH1)

What are Trustees and Trust Deeds?

A
  • Charities are governed by a trust deed and run by trustees for the public benefit
  • Trust deed is a legal document that sets out the name of the charity, its objects, powers and appointment of trustees.
  • The trust document appoints the trustees and states the terms of the trust, including who the beneficiaries are and the trust property that will be subject to the trust.
  • Annual Return must be filed by the trustees with the Charity Commission (available for public inspection)
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
28
Q

Understanding Businesses (CH1)

4 Common features of Business Organisations

A
  1. Structure.
  2. Common Objectives and team working.
  3. Cooperation (Goal congruence).
  4. Responsibility, Authority and Division of Work.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
29
Q

Understanding Businesses (CH1)

What is a Manufacturing Business?

A

Manufacturing Businesses are those organisations that actually make and sell products.

E.g. Apple, Volvic, Myprotein, Nike etc.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
30
Q

Understanding Businesses (CH1)

What is a Service Business?

A

Service Organisations are those that provide a service to individual customers or clients, or another business.

E.g. Consultants, Accountants, Lawyers etc.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
31
Q

Understanding Businesses (CH1)

4 main differences between a Service and a Manufacturing Business.

A
  1. Intangibility - a service does not provide a physical product, i.e. it cannot be seen, touched, tasted, or smelled.
  2. Inseparable - a service cannot be separated from its consumption by customer, i.e. it is usually consumed at the same time as it is provided.
  3. Perishability - any unused service cannot be stored for future use.
  4. Variability - a service will be tailored to the needs of an individual customer.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
32
Q

Understanding Businesses (CH1)

Funding Sources - Borrowing

A
  • Additional funds raised through the bank - expected to payback with interest.
  • Borrowing is for longer-term investments.
  • Repayment term should be matched to the life of the asset.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
33
Q

Understanding Businesses (CH1)

Funding Sources - New Capital through issuing Shares

A
  • New capital can be introduced to a business by issuing further share capital.
  • Capital is a long-term source of finance and is normally used to invest in business growth.
  • The key advantage is that is does not require interest payments.
  • The key disadvantage is that it will dilute the ownership of the existing shareholders.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
34
Q

Understanding Businesses (CH1)

Funding Sources - Retained Profit (Earnings)

A
  • These are the profits retained in the business.
  • Can be a less expensive way of investing in business growth.
  • As long as the business continues to be profitable, shareholders will be rewarded by future growth in the value of their Investment, and, potentially, higher dividends in the future.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
35
Q

Understanding Businesses (CH1)

Funding Sources - Working Capital

A
  • Working capital is the difference between a business’s current assets and current liabilities, i.e. cash + inventories + receivables — payables.
  • Working capital circulates round the business as things are bought and sold, and payment is made and received, so the amount of working capital changes on a daily basis.
  • The important thing for a business is that the working capital cycle ensures that the business has sufficient funds to pay its payables (suppliers) on time.
  • Working capital may be a suitable method of short-term funding.
  • Working capital should not be used as a longer-term source of funding.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
36
Q

Understanding Businesses (CH1)

What is a Stakeholder?

A

A stakeholder is a person or organisation that has an “interest” in another organisation.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
37
Q

Understanding Businesses (CH1)

Stakeholders’ Attitude to Risk

A

This means the level of risk they are prepared to accept and what they will do if they feel that the level of risk is unacceptably high.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
38
Q

Understanding Businesses (CH1)

Types of Risk

A
  • Some stakeholders will try’ to avoid risk at all costs and will accept a lower return or pay higher prices if this will minimise the risk (risk averse).
  • Other stakeholders will actively seek out riskier options if this will increase the likelihood of a higher return (risk seeking).
  • There are also some that fall somewhere in the middle and are prepared to accept some risk, and this will not be a prime factor in their decision-making process (risk neutral).
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
39
Q

Understanding Businesses (CH1)

What is Risk Appetite?

A

The level of risk you are prepared to accept to achieve your objectives.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
40
Q

Understanding Businesses (CH1)

What is Risk Tolerance?

A

This is how much risk you are able to withstand (i.e. tolerate).

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
41
Q

Understanding Businesses (CH1)

What is Risk Threshold?

A

The level up to which risk is acceptable, this could be quantitied as an amount of money that could be lost if a project fails.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
42
Q

Organisational Structure (CH2)

Three types of Organisational Structure

A
  1. Functional
  2. Divisional
  3. Matrix
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
43
Q

Organisational Structure (CH2)

Functional Structure

A
  • A functional structure divides the business into specialised functions or skills such as production, sales and marketing, finance, and IT.
  • It groups individuals with similar knowledge and expertise together. Work can be carried out quickly and efficiently.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
44
Q

Organisational Structure (CH2)

What is Divisional Structure?

A
  • A number of different teams that each focus on an individual product or service, or geographical area.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
45
Q

Organisational Structure (CH2)

Matrix Structure

A
  • Individuals will work in their own departments as well as working across teams and projects.
  • A business that is developing a new product may set up a project team that includes members from product design, production, marketing, finance, and human resources
  • This team will work together on the project until it is completed before returning to their functional team.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
46
Q

Organisational Structure (CH2)

What is Span of Control?

A

The span of control of the managers within an organisation refers to the number of individuals that they are responsible for.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
47
Q

Organisational Structure (CH2)

Factors affecting Span of Control

A
  • The size of the organisation.
  • The type of work that the individuals do (level of complexity of tasks).
  • The location of the staff.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
48
Q

Organisational Structure (CH2)

Tall Organisational Structure

A
  • A tall organisational structure will typically be organised by function.
  • Long Chain of Command (several layers of management).
  • Clear reporting lines.
  • Narrow span of control.
  • Decision-making often takes longer.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
49
Q

Organisational Structure (CH2)

Flat Organisational Structure

A
  • Fewer levels of management.
  • Wider span of control.
  • Decisions can be made more efficiently as information can pass up and down the chain of command quickly.
  • Less opportunity for promotion and progression.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
50
Q

Organisational Structure (CH2)

Define Governance

A
  • A system that provides a framework for managing organisations.
  • It identifies who can make decisions, who has the authority to act on behalf of the organisation and who is accountable for how an organisation and its people behave and perform.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
51
Q

Organisational Structure (CH2)

What is Corporate Governance?

A
  • Systems put in place by directors to direct and control the way in which the business is operated.
  • This will include setting the business’s strategic aims and objectives and providing the necessary leadership to put them into effect.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
52
Q

Organisational Structure (CH2)

What is Financial Governance?

A
  • This is how the business collects, manages, and controls financial information.
  • It allows the business to monitor the operation of the business and promptly identify where there may be a financial risk.
  • In extreme cases this could be fraud or money laundering.
  • However, it may simply relate to the systems and structures in place that ensure amounts that are owed to the business are collected on time and that amounts owed to suppliers are paid when they are due.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
53
Q

Organisational Structure (CH2)

What is Legal Governance?

A
  • A business must ensure that it complies with the necessary legislation and regulation.
  • Legal governance ensures that this happens by implementing appropriate levels of authorisation together with internal documented processes that individuals must follow to ensure compliance.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
54
Q

Organisational Structure (CH2)

Centralised Control (Top-Down Approach)

A
  • Decision-making rests with the higher tiers of management in the business.
  • Decisions are imposed on staff who will be expected to implement them rather than contribute to the decision-making process.
  • The higher up in the hierarchy someone is, the more influence they have.
  • Higher ups distanced from the ‘coal face’ i.e. they will not have much involvement in the actual activities of the business.
  • Less flexible than a decentralised approach.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
55
Q

Organisational Structure (CH2)

Features of Decentralised Control (Bottom-Up Approach)

A
  • Authority for making decisions is given to lower levels of management.
  • Leads to a more collaborative working atmosphere.
  • Senior management can focus on the key decisions of the business, and its strategy, and leave the day- to-day to departmental managers.
  • However, lower level managers may not have the necessary experience to make ‘good’ decisions or may make decisions that are good for their team rather than for the business as a whole.
  • Could lead to a loss of control.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
56
Q

Organisational Structure (CH2)

Levels of Management - Corporate / Strategic level

A
  • Starting at the top of the organisation, this is where strategic decisions are made that affect the whole organisation; these decisions tend to be long-term.
  • Should the business open another branch? Should it develop a new product? Should it start trading overseas?
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
57
Q

Organisational Structure (CH2)

Levels of Management - Managerial level

A
  • This is the middle level of an organisation’s management. Here the decisions relate to the way that the business should go about achieving its goals.
  • Which product should it produce? Should it reduce the price of a product to remain competitive?
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
58
Q

Organisational Structure (CH2)

Levels of Management - Operational level

A
  • Operational level decisions made at this level tend to be shorter-term and relate to thepractical day-to-day operation of the business.
  • Do staff need to work overtime? When should raw materials be requested from stores? How many items do we need delivered from a supplier this week?
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
59
Q

Organisational Structure (CH2)

The 6 Functions of Business

A

1. Finance
2. Operations / Production: (Setting up credit accounts with suppliers, Inventory control, budgeting).
3. Sales and Marketing: (Pricing, setting rates for services, budgeting, performance indicators).
4. Human Resources (HR): (recruitment costs, staff training and development, pay and benefits).
5. Information Technology (IT): (Investment in IT, data security, performance indicators).
6. Distribution and Logistics: (Inventory management, exporting and importing, performance indicators).

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
60
Q

Organisational Structure (CH2)

What is Risk?

A

The possibility of something bad happening.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
61
Q

Organisational Structure (CH2)

What is the difference between Risk and Uncertainty?

A
  • Risk is the possibility of something happening that has not been planned. The decision-maker in a risky situation will know that there is more than one potential outcome of their decision and will have assessed each possible outcome before deciding to take the risk.
  • Uncertainty refers to situations where the decision-maker either does not know the possible outcomes and/or the probability that they will occur.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
62
Q

Organisational Structure (CH2)

What is Business Risk?

A

A business ‘s vulnerability to factors that could decrease its profits’ or cause the business to fail.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
63
Q

Organisational Structure (CH2)

What is Strategic Risk?

A

Strategic risks are those that arise from the fundamental decisions the directors of the business make about the business’s objectives, or strategies.

-An example of a strategic risk would be for a car manufacturing business to move production of one of its models overseas. This may be a positive move for the business but could result in risks associate with exchange rates, working conditions in different country or changes in the duties on imports and exports.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
64
Q

Organisational Structure (CH2)

What is Financial Risk?

A

Financial risk for a business comes from a change in the financial conditions in which it operates.

  • This might be a change in interest rates that increases the cost of borrowings. If a business heavily relies on loans (i.e. debt) it is referred to as being highly geared. An increase in interest rates will increase the repayments that need to be made by a highly geared business.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
65
Q

Organisational Structure (CH2)

What is Operational Risk?

A

Operational risk is a risk that arises from the way in which an organisation operates its business functions.

  • It focuses on risks arising from the people, systems and processes and the ethical attitude of the organisation.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
66
Q

Organisational Structure (CH2)

What are the three Operational risks?

A

1. Process risk: there will be risks of loss inherent to the processes of a business.

2. People risk: this is the risk from issues caused by the people who work for an organisation.

3. Systems Risk: most organisations are heavily dependent on computer systems in all aspects of their operations. Unless these systems have strong controls built in, there are increased risks that the systems could be used to process fraudulent transactions.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
67
Q

Organisational Structure (CH2)

What is Legal / Regulatory Risk?

A

This is the risk of loss resulting from an organisation failing to comply with legislation and/or regulations.

  • This could be risks relating to health and safety regulations, or breaches of regulations relevant to the industry that the business operates in, resulting in the risk of fines.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
68
Q

Organisational Structure (CH2)

What is Event Risk?

A

Risks which may be present due to an external factor or event that affects the business.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
69
Q

Organisational Structure (CH2)

What are 4 types of Event Risk?

A

1. Physical event risks - the risk of fire or flood which could damage documents or assets, or could interrupt business, are examples of physical risks.
2. Social event risks - using inexpensive labour in certain parts of the world could be exposed to a social event risk if this was reported in a negative fashion as ‘slave labour”.
3. Political event risks - when governments make political decisions such as increasing rates of taxation or introducing environmental legislation, this will have an effect on organisations.
4. Economic event risks - if the Bank of England raises interest rates, this has an impact on the interest rates charged by lenders. This would be an example of an economic event risk for a business that has to pay interest on loans.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
70
Q

Organisational Structure (CH2)

What is Cyber Risk?

A

Any risk associated with financial loss, disruption or damage to the reputation of an organisation from unauthorized use of its systems.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
71
Q

Organisational Structure (CH2)

What are the 8 types of Cyber Risk?

A
  1. Phishing
  2. Malware
  3. Ransomware
  4. Distributed Denial-of-service Attack (DDOS)
  5. Spyware
  6. Keylogging
  7. Password Attack
  8. Browser Hijacking
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
72
Q

Organisational Structure (CH2)

What is Reputational Risk?

A

Reputational Risk is something that threatens the good name of a business, or its reputation.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
73
Q

Organisational Structure (CH2)

What can cause Reputational Risk?

A
  • Can result from the direct actions of the business, the actions of one or more of its employees, or the actions of third parties linked to the business.
  • Can cause loss of sales and profit, employees to resign and reluctance on the part of suppliers, customers, and investors to be associated with the business.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
74
Q

Organisational Structure (CH2)

What can Reputational Risk lead to?

A
  • Can lead to loss of sales and profit, employees to resign and reluctance from suppliers, customers, and investors to be associated with the business.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
75
Q

Organisational Structure (CH2)

How can a business avoid Reputational Risk?

A
  • To avoid reputational risk damage, organisations must have good codes of conduct, strong governance and be transparent in their dealings with customers, suppliers, and employees.
  • In addition to this, the organisation needs to be socially responsible and environmentally conscious.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
76
Q

Organisational Structure (CH2)

What does Risk Management involve?

A

This involves evaluating each risk by deciding the likelihood of the risk actually happening, and the impact on the business if it does.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
77
Q

Organisational Structure (CH2)

How can businesses asses Risk?

A
  • Many organisations will use a risk map, or risk matrix, to assess risk. This is simply a table or chart which plots the impact of the risk on one axis and the likelihood of it materialising on the other.
  • Risks can then be grade by multiplying impact and likelihood.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
78
Q

Organisational Structure (CH2)

Managing Risk - What does TARA stand for?

A
  1. Transfer
  2. Avoid
  3. Reduce
  4. Accept
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
79
Q

Organisational Structure (CH2)

Explain Transfer (TARA)

A

Transfer - if there is a high potential consequence and a low likelihood, the business should transfer part or all of the risk to a third party e.g. insurance.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
80
Q

Organisational Structure (CH2)

Explain Avoid (TARA)

A

If a risk is highly likely and would have a significant adverse impact, the business should look to avoid the risk completely.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
81
Q

Organisational Structure (CH2)

Explain Reduce (TARA)

A

If a risk has a high likelihood and low impact, the business should look to reduce the possibility of it happening and its impact of it if it does.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
82
Q

Organisational Structure (CH2)

Explain Accept (TARA)

A

A business may choose to simply accept that a risk may happen and deal with it when if and when it does.

This would likely only be the case for risks that a both unlikely to happen and not have a significant impact on the business.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
83
Q

The Internal and External Environment (CH3)

What does Internal Environment mean?

A

Internal Environment: refers to all the inlying forces and conditions within the company, which can affect the company’s operations.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
84
Q

The Internal and External Environment (CH3)

What does External Environment mean?

A

External Environment: Major forces outside the organization with that have the potential to affect the organization’s performance, profitability, and functionality.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
85
Q

The Internal and External Environment (CH3)

What is PESTLE?

A

An analysis technique used to understand the impact of external factors on a businesses operations.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
86
Q

The Internal and External Environment (CH3)

What does PESTLE stand for?

A

Political
Economic
Social
Technological
Environmental
Legal

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
87
Q

The Internal and External Environment (CH3)

What are Political factors? (PESTLE)

A

Political factors relate to the extent to which the government influences the economy.

For example:
- Government Policies.
- Taxation.
- Imports and Exports.
- Public spending - expenditure in the public sector by the government.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
88
Q

The Internal and External Environment (CH3)

What are Economic factors? (PESTLE)

A

Economic factors refer to the financial state of the economy

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
89
Q

The Internal and External Environment (CH3)

What are Economic factors affected by? (PESTLE)

A
  • Interest Rates
  • Exchange Rates
  • Changes in Disposable Income
  • Business Cycle (boom,doom,recession,recovery)
  • Inflation
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
90
Q

The Internal and External Environment (CH3)

Explain the two types of Inflation

A

1. Demand-pull inflation - when demand for products and services increases, and businesses cannot meet this demand, this drives the price up.

2. Cost-push inflation - when the supply of goods and services decreases because of an increase in production costs.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
91
Q

The Internal and External Environment (CH3)

What are Social factors? (PESTLE)

A

Social factors relate to demographic, cultural and trend changes in society.

These can include:
* Income levels
* Language and culture
* Religion
* Education
* Family structure
* Age occupations

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
92
Q

The Internal and External Environment (CH3)

What are the positive effects of changes in Technology? (PESTLE)

A
  • Easier access to market through website sales and internet marketing.
  • Computer aided design (CAD) reducing the time it takes between the idea for a new product and its production.
  • Automated production lines which reduce labour costs and increase productivity.
  • Improved safety due to automation of processes.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
93
Q

The Internal and External Environment (CH3)

What are the negative effects of changes in Technology? (PESTLE)

A
  • Products becoming obsolete more quickly meaning inventory of older versions need to be sold more cheaply or written off.
  • More choice for consumers and information on products via the internet mean they can easily switch from one supplier to another.
94
Q

The Internal and External Environment (CH3)

How can Technology impact the structure of a business? (PESTLE)

A

• Global communication has meant that many businesses have decided to locate their support departments, such as customer services and even finance, overseas. By locating these department overseas, businesses can see a significant reduction in costs.

• Business may also decide to outsource elements of their production process to other businesses in the UK or
Overseas. Tech will allow them o remotely monitor production which reduces the risk of quality issues and or delays in supply.

95
Q

The Internal and External Environment (CH3)

What are Legal factors? (PESTLE)

A

Businesses are required to comply with the laws and regulations of the countries in which they operate and/or sell their goods and services.

  1. Health and Safety Law.
  2. Employment Law.
  3. Discrimination Law.
  4. National Minimum Wage Regulations.
  5. Consumer Protection.
  6. Import / Export Law.
96
Q

The Internal and External Environment (CH3)

What are Environmental factors? (PESTLE)

A
  • Climate change, weather conditions, pollution, availability of resources etc.
97
Q

The Internal and External Environment (CH3)

What is the Micro-Economic Environment?

A
  • The micro-economic environment looks at the factors that affect how prices are set between buyers and sellers for good and services. The key factors are supply and demand.
98
Q

The Internal and External Environment (CH3)

What is the Macro-Economic Environment?

A

The macro-economy refers to the economy as a whole and will have a direct impact on the way in which a business operates.

99
Q

The Internal and External Environment (CH3)

Define “Demand”.

A

Demand is the quantity of a good or service which consumers want and are willing and able to pay for.

100
Q

The Internal and External Environment (CH3)

What are the 5 types of goods?

A

• Normal goods
• Inferior goods
• Necessity goods
• Substitute products
• Complements

101
Q

The Internal and External Environment (CH3)

What are Normal Goods?

A

Goods for which demand increases as income increases.

Demand falls as income falls.

102
Q

The Internal and External Environment (CH3)

What are Inferior Goods?

A

These are good for which demand increases as income falls.

And demand decreases as income increases.

These are usually cheap, “own brand” products.

103
Q

The Internal and External Environment (CH3)

What are Necessity Goods?

A

This is a type of good people will buy regardless of a change in income.

They are less sensitive to changes in income and price.

(E.g. Power, water, medicine etc.)

104
Q

The Internal and External Environment (CH3)

What are Substitute Goods?

A

Goods that carry out the same purpose.

  • For example, Coca Cola and Pepsi are substitute products. If the price of one rises this will increase demand for the other, and vice versa.
  • There are always exceptions to this — some people will be prepared to pay more if they prefer the characteristics of one of the two substitutes.
105
Q

The Internal and External Environment (CH3)

What are Complement Goods?

A
  • Complements are goods that must be used together - think vehicles and fuel, or a games console and games.
  • If two goods are complements, a rise in the price of one will cause a fall in the demand for the other, and vice versa.
106
Q

The Internal and External Environment (CH3)

How does the demand curve change with price?

A

An increase in price is shown by a contraction along the demand curve.

A decrease in price causes an extension along the demand curve.

107
Q

The Internal and External Environment (CH3)

Define “Supply”.

A

Supply is the quantity of a good or service which suppliers are willing and able to produce in a given period.

108
Q

The Internal and External Environment (CH3)

How does price affect supply?

A

Although the quantity supplied depends on price, unlike demand, as the price increases supply also increases.

• If we think about this, it is logical as suppliers will be keen to sell more of a product if the price goes up.
Consequently, the supply curve is always sloping upwards.

109
Q

The Internal and External Environment (CH3)

What is the price mechanism?

A

Consumers generally want to pay as low a price as possible, whilst suppliers want to charge as much as possible.

When demand and supply meet, this creates the Equilibrium Price.

The function of the price mechanism is therefore to create the Equilibrium Price.

110
Q

The Internal and External Environment (CH3)

How does Competition affect a market?

A

Generally, the more competition there is in the market for a product or service, the better it is for the consumer.

  • In a market with lots of suppliers, they will all be attempting to attract customers with competitive pricing and high quality goods / services.

However, if there are few competitors in the market there is a danger of complacency on the part of suppliers leading to higher prices and lower quality.

111
Q

The Internal and External Environment (CH3)

What are the 2 microeconomic factors that affect the level of competition in a market?

A

1. Product features: Taste, Brand, Customer Service, Price etc. The more that a supplier is able to
differentiate its product, the fewer competitors it will face in the market.

2. Number of sellers and buyers; if there are more sellers this will result in a more competitive market. If there is one major seller then there may be a monopoly.

112
Q

The Internal and External Environment (CH3)

Name the 5 factors that affect Competition in a market.

A
  1. Product features
  2. Number of sellers and buyers
  3. Barriers to entry
  4. Location
  5. Availability of information
113
Q

The Internal and External Environment (CH3)

Define the term “Barrier-to-entry”.

A

The costs, or other obstacles, that prevent, or deter, new competitors from easily entering the market for a product or service.

114
Q

The Internal and External Environment (CH3)

What are the 4 main Barriers to entry?

A
  1. Legal Barriers
  2. Set-up costs
  3. Brand loyalty
  4. Expertise
115
Q

The Internal and External Environment (CH3)

Explain what is meant by “Availability of information”.

A

This refers to how difficult it is for consumers to find and compare prices.
If it is easy, and the information Is readily avallable, the level of competition increases. However, if the opposite is true, and pricing information is not easily available, competition will decrease.

116
Q

Sustainability (CH4)

Define Sustainability.

A

The ability to last.

117
Q

Sustainability (CH4)

How does the Brundtland Report define Sustainable Development?

A

This report defined sustainable development as: development that meets the needs of the present without compromising the ability of future generations to meet their own needs.

118
Q

Sustainability (CH4)

What are the 3 key components of Sustainable Development in the Brundtland Report?
(The Triple Bottom Line)

A

1. Economic growth: In order for Sustainable Development to happen, the resources to allow it must be available.
However, economic growth should not be pursued at the expense of the other two factors.

2. Environmental Protection: The protection of the environment is key to conserving the world’s resources.

3. Social Equality: This objective of sustainability focuses on the social wellbeing of people.

These are referred to as “The Triple Bottom Line”.

119
Q

Sustainability (CH4)

What is Corporate Social Responsibility (CSR)?

A

Corporate Social Responsibility (CSR) is a self-regulating business model that helps a company be socially accountable to itself, its stakeholders, and the public.

120
Q

Sustainability (CH4)

Why is Corporate Social Responsibility (CSR) important?

A

There is mounting pressure on businesses to be transparent in the way in which they operate and a growing number of organisations are choosing to voluntarily report on their CSR.

While there is no legal requirement to produce a CSR report, businesses are realising that the public and investors are keen to see their attitude to sustainability.

121
Q

Sustainability (CH4)

What are the Responsibilities of accountants regarding Sustainability?

A
  • Public interest duty: Professional accountants have public interest duties to protect society as a whole. They must consider the economic, social and environmental aspects of their work in order to support sustainability and sustainable development.
  • Promoting an ethics-based culture
  • Promoting sustainability
  • Consider Reputational risk - An organisation’s affitude to sustainability will have a direct effect on the reputation of the organisation.
  • Consider the “triple bottom line”
  • Raising Awareness of Sustainability Responsibility
122
Q

Principles of Professional Ethics (CH5)

Define Professional Ethics.

A

The professional ethics of an organisation are the moral principles or standards that govern the conduct of the members of that organisation.

123
Q

Principles of Professional Ethics (CH5)

What do professional accounting bodies base their code of ethics on?

A

All professional accounting bodies including AAT base their code of ethics on the International Ethics Standards Board for Accountants (IESBA) code of ethics.

The AAT code applies to all Fellows, Full, Affiliate and Student Members.

124
Q

Principles of Professional Ethics (CH5)

What are the 5 Fundamental Ethical Principles? (PIPCO)

A
  1. Integrity
  2. Objectivity
  3. Confidentiality
  4. Professional Competence and Due Care
  5. Professional Behaviour

PIPCO.

125
Q

Principles of Professional Ethics (CH5)

What is Integrity? (PIPCO)

A

Quality of being straightforward and honest in all professional and business relationships and when performing professional work.

126
Q

Principles of Professional Ethics (CH5)

What is Objectivity? (PIPCO)

A

Sticking to the facts and not allowing prejudice or bias or influence decision making.

127
Q

Principles of Professional Ethics (CH5)

What is Professional Competence and Due Care? (PIPCO)

A

Maintaining high levels professional knowledge and skill to ensure that a professional service is given.
* Professional Competence: keeping up-to-date with developments in the accounting profession.
* Due Care: - Ensuring that the quality of the work performed meets the high standards expected of the accounting profession.

128
Q

Principles of Professional Ethics (CH5)

What is Confidentiality? (PIPCO)

A
  • Confidential information shall not be used for the personal advantage of the member or third parties.
  • The duty of confidentially extends even after the relationship with employers has ended.
129
Q

Principles of Professional Ethics (CH5)

When is it acceptable to Disclose Confidential Information?

A
  1. When authorised by a client or employer.
  2. When disclosure is required by law.
  3. Where there is a professional duty to disclose.
130
Q

Principles of Professional Ethics (CH5)

When does an accountant have a Professional Duty to Disclose?

A

A. To comply with a quality review of an International Federation of Accountants (IFAC) or other professional bodies.
B. To respond to an inquiry by the professional accounting body or by a regulatory body of an ethical, investigatory or disciplinary nature.
C. To protect the professional interests of the accountant in legal proceedings.
D. To comply with technical standards and ethical requirements.

131
Q

Principles of Professional Ethics (CH5)

What is Professional Behaviour? (PIPCO)

A

Complying with relevant laws and regulations and avoiding any action that brings the profession into disrepute.

132
Q

Principles of Professional Ethics (CH5)

What does Professional Scepticism involve?

A

1. A questioning mind.
2. Being alert to mistakes which may indicate possible error or fraud.
3. Making critical assessment of evidence that is provided.

133
Q

Principles of Professional Ethics (CH5)

When Professional Scepticism important?

A

Where something is vague, or there isn’t enough information to back it up, the accountant must investigate further until they are happy that the information is correct.

Failure to do this may compromise the objectivity of the accountant and leave them open to accusations of bribery or fraud.

134
Q

Principles of Professional Ethics (CH5)

Define Fraud.

A

Fraud can be defined as wrongful or criminal deception intended to result in financial or personal gain.

135
Q

Principles of Professional Ethics (CH5)

What are the “3 classes” of Fraud in the Fraud Act 2006?

A

1.Fraud by false representation - where a person makes any representation which they know to be misleading.

2. Fraud by failing to disclose
information — where a person fails to disclose any information to a third party which he/she has a legal duty to disclose.

3. Fraud by abuse of position — where a person occupies a position where they are expected to safeguard the financial interest of another person, and abuses that position.

136
Q

Principles of Professional Ethics (CH5)

Define Bribery.

A

Bribery - Giving or receiving something of value with the intention of influencing the recipient to do something favourable to the giver of the bribe.

137
Q

Principles of Professional Ethics (CH5)

What are the 4 key Bribery Act offences?

A

• bribing another
• receiving a bribe
• bribing a foreign official
• failing to prevent bribery

138
Q

Principles of Professional Ethics (CH5)

What is the legal consequence of Bribery?

A

The maximum penalty if a person is found guilty of the offence of bribery is 10 years imprisonment and/or an unlimited fine.

There is also the potential for property to be confiscated.

139
Q

Threats and Safeguards to Fundamental Ethical Principles (CH6)

What is a Conceptual Framework?

A

Conceptual Framework - is a set of principles to help accountants to act ethically.

140
Q

Threats and Safeguards to Fundamental Ethical Principles (CH6)

What is a Principle-based Approach?

A

A principles-based approach to ethics requires an accountant evaluate anything that may prevent him/her following the fundamental ethical principles.

  • If the principles are threatened then he/she should put safeguards in place to minimise the threats.
141
Q

Threats and Safeguards to Fundamental Ethical Principles (CH6)

Name the 5 Threats to Ethical Behaviour.

A
  1. Self-Interest
  2. Self-Review
  3. Familiarity
  4. Intimidation
  5. Advocacy
142
Q

Threats and Safeguards to Fundamental Ethical Principles (CH6)

Explain the 5 Threats to Ethical Behaviour.

A

1. Self - interest - These may occur where a financial or other interest will inappropriately influence the accountant’s judgement or behaviour.

2. Self-review - These may occur when an accountant has to re-evaluate a judgement or data that he/she has previously made or produced.

3. Familiarity - These may occur when, because of a close or personal relationship, an accountant becomes too sympathetic to the interests of others.

4. Intimidation - These may occur when an accountant may be deterred from acting objectively because of real or perceived threats.

5. Advocacy - These may occur when an accountant promotes a position or opinion (normally of a client) to the point that his/her objectivity may be compromised in the future.

143
Q

Threats and Safeguards to Fundamental Ethical Principles (CH6)

Where can Safeguards against Threats be found?

A

• legislations or regulations - e.g. Following the GDPR

• The accounting profession - e.g. CPD, Applying the accounting standards

• The business or practice firm- eg. Following organisation’s policies and procedures or code of conduct.

144
Q

Threats and Safeguards to Fundamental Ethical Principles (CH6)

Which Principles can be threatened by Self-Interest?

A

All of them.

145
Q

Threats and Safeguards to Fundamental Ethical Principles (CH6)

Which Principles can be threatened by Self-Review?

A
  1. Objectivity
  2. Professional Behaviour
  3. Professional Competence and Due Care
146
Q

Threats and Safeguards to Fundamental Ethical Principles (CH6)

Which Principles are threatened by Familiarity?

A

All of them.

147
Q

Threats and Safeguards to Fundamental Ethical Principles (CH6)

Which Principles can be threatened by Intimidation?

A
  1. Integrity
  2. Objectivity
  3. Confidentiality
148
Q

Threats and Safeguards to Fundamental Ethical Principles (CH6)

Which Principles are threatened by Advocacy?

A

Objectivity.

149
Q

Threats and Safeguards to Fundamental Ethical Principles (CH6)

Explain the Threat of Self-Interest.

A

These may occur where a financial or other interest will inappropriately influence the accountant’s judgement or behaviour.

150
Q

Threats and Safeguards to Fundamental Ethical Principles (CH6)

Explain the Threat of Self-Review.

A

These may occur when an accountant has to re-evaluate a judgement or data that they has previously made.

151
Q

Threats and Safeguards to Fundamental Ethical Principles (CH6)

Explain the Threat of Familiarity.

A

These may occur when, because of a close or personal relationship, an accountant becomes too sympathetic to the interests of others.

152
Q

Threats and Safeguards to Fundamental Ethical Principles (CH6)

Explain the Threat of Intimidation.

A

These may occur when an accountant may be deterred from acting objectively because of real or perceived threats.

153
Q

Threats and Safeguards to Fundamental Ethical Principles (CH6)

Explain the Threat of Advocacy.

A

These may occur when an accountant promotes a position or opinion (normally of a client) to the point that their objectivity may be compromised in the future.

154
Q

Ethical Conflict and Resorting Unethical Behaviour (CH7)

What are the 2 ways a conflict of interest may arise?

A
  1. Accountant’s own self interest
  2. Interest of accountant’s clients conflicting
    • e.g. Two or more clients been in the same market competing
155
Q

Ethical Conflict and Resorting Unethical Behaviour (CH7)

If a safeguard cannot reduce a threat to the fundamental ethical principles to an acceptable level, what should be done?

A

The accountant should not accept or continue the assignment.

156
Q

Ethical Conflict and Resorting Unethical Behaviour (CH7)

Define Loyalty

A

Loyalty means - being firm and not changing in your support for a person or an organisation, or in your belief in your principles.

157
Q

Ethical Conflict and Resorting Unethical Behaviour (CH7)

What is the process an accountant should follow when trying to resolve an Ethical Conflict?

A
  1. Consider the relevant facts relating to the conflict.
  2. Assess all the ethical issues involved.
  3. The fundamental principles that are involved by the ethical conflict.
  4. Whether there are established internal procedures to deal with the conflict and if so how they can be applied to the situation.
  5. What alternative courses of action are available to the accountant.
  6. Seek advice from others (i.e. professional body or legal advice)
158
Q

Ethical Conflict and Resorting Unethical Behaviour (CH7)

What are the ethical organisational values that should be included in a business’ code of practice?

A
  1. Being transparent with colleagues, customers and suppliers
  2. Reporting financial and regulatory information clearly and on time
  3. Identifying when it is appropriate to accept and give gifts and hospitality.
  4. Paying suppliers a fair price and on time.
  5. Providing fair treatment, decent wages and good working conditions for employees.
  6. Not using / responsibly using social media.
159
Q

Ethical Conflict and Resorting Unethical Behaviour (CH7)

What is the common internal disciplinary procedure?

A
  1. A verbal warning
  2. A written warning
  3. A disciplinary hearing
  4. The opportunity to appeal
  5. Suspension from work
  6. Dismissal
160
Q

Ethical Conflict and Resorting Unethical Behaviour (CH7)

Which Professional bodies can take Disciplinary action for misconduct?

A
  1. Individual accounting bodies
  2. Financial Reporting Council (FRC)
    (the independent disciplinary body for accountants).
161
Q

Ethical Conflict and Resorting Unethical Behaviour (CH7)

What are the 2 main categories of Misconduct?

A

A. Bringing the accounting profession into disrepute.

B. Acting in breach of the rules and regulations of the accountant’s professional body.

162
Q

Ethical Conflict and Resorting Unethical Behaviour (CH7)

What is a Whistleblower?

A

A whistleblower can be defined as: a person who tells someone in authority about misconduct, alleged dishonesty or illegal activity that has or may occur in an organisation.

163
Q

Ethical Conflict and Resorting Unethical Behaviour (CH7)

What important points must an Internal Whistleblower consider beforehand?

A
  • Ensure that he/she knows all the facts surrounding the issue and has evidence to support the facts.
  • Follow the employer’s internal procedures for reporting.
  • Ensure that the situation is fully explained to management.
164
Q

Ethical Conflict and Resorting Unethical Behaviour (CH7)

How are External Whistleblowers protected?

A

Providing a member is acting in good faith when they ‘blow the whistle’ on an employer and so break the duty of confidentiality, he/she will be protected in many situations by the Public Interest Disclosure Act 1998.

165
Q

Ethical Conflict and Resorting Unethical Behaviour (CH7)

Define Liability

A

Liability means having legal responsibility for something with the possibility of having to pay damages.

166
Q

Ethical Conflict and Resorting Unethical Behaviour (CH7)

What is Professional Negligence?

A

When a client suffers a loss due to the fault of the accountant.

167
Q

Ethical Conflict and Resorting Unethical Behaviour (CH7)

What is Professional Indemnity Insurance?

A

Professional Indemnity Insurance - insurance that an accountant takes out to cover any damages they may have to pay a client due to professional negligence (breach in accountant’s duty of care).

168
Q

Money Laundering (CH8)

Define Money Laundering.

A

Moving illegally acquired cash through financial systems so that it appears to be legally acquired.

169
Q

Money Laundering (CH8)

What is Criminal Property?

A

Criminal property is property which was knowingly obtained through criminal means. It may take several forms ingluding money, security, tangible or intangible property.

170
Q

Money Laundering (CH8)

What are the 3 Stages of Money Laundering?

A

1. Placement: Dirty money is introduced into a legitimate financial system (e.g. A Bank account or an Offshore Account).

2. Layering: The money is moved around in lots transactions to conceal the original source and ownership of the funds.

3. Integration: the illegal funds are integrated back into the financial system (i.e. by investing in property and other assets).

171
Q

Money Laundering (CH8)

What are the 3 laws surrounding Money Laundering?

A

1. The Proceeds of Crime Act 2002 (POCA): this sets out the principal money laundering offence and the requirements to report suspicious transactions.

2. The Terrorism Act 2000 (TA): this sets out the principal terrorist financing offences and reporting obligations in similar terms to POCA.

3. The Money Laundering and Terrorist Financing Regulations 2020 (MLR).

172
Q

Money Laundering (CH8)

What is the punishment for Money Laundering in the UK?

A

An unlimited fine and/or a prison sentence of up to 14 years.

173
Q

Money Laundering (CH8)

How should Money Laundering be reported?

A
  • The Proceeds of Crime Act 2002 (POCA) and the Terrorism Act 2000, require accountants to report any suspicion of criminal property to the National Crime Agency (NCA) in a Suspicious Activity Report (SAR).
  • If the organisation has appointed a Money Laundering Reporting Officer (MLRO), the matter should be reported to the MLRO in an internal report.
  • The MLRO will then decide if it needs to be reported to the NCA.
  • The nominated officer should get consent from the NCA to complete the transaction.
  • If it’s not possible to delay the transaction to get consent, the nominated officer should inform the NCA of this when they send their report.
174
Q

Money Laundering (CH8)

What is Terrorist Financing?

A

The provision or collection of funds with the intention or in the knowledge that they should be used in order to carry out any act of terrorism, whether or not those funds are in fact used for that purpose.

175
Q

Money Laundering (CH8)

What is the punishment for Terrorist Financing?

A

Like money laundering the maximum penalty for this offence is an unlimited fine and/or up to 14 years in prison.

176
Q

Money Laundering (CH8)

What should a Suspicious Activity Report (SAR) contain?

A
  • The identity of the suspected person (if known), such as: full name, address, telephone numbers, passport details, date of birth, account details.

• The information on which the suspicion of money laundering is based.

  • The whereabouts of the laundered property if it is known.
  • The details of the person making the report which will normally be the MLRO or sole practitioner.
177
Q

Money Laundering (CH8)

What is Protected Disclosure?

A

Protected Disclosure - This is where any person, not just an accountant, submits a report providing a required disclosure of a suspicion of money laundering.

  • This means that the person is protected against allegations of breach of confidentiality.
178
Q

Money Laundering (CH8)

What is Authorised Disclosure?

A

Authorised Disclosure - Any person, not just an accountant, who realises that they may have engaged or are about to engage in money laundering, should make an authorised disclosure to the appropriate authority.

• The disclosure should be made before the act is carried out (and they have obtained consent for the act from NCA, see required disclosure above), or as soon after the act is done with good reason for the delay.

• This may then provide them with a defence against charges of money laundering.

179
Q

Money Laundering (CH8)

When does an accountant NOT have to report Money Laundering?

A
  1. When the information was not obtained in the course of the accountant’s business, for example during a social occasion.
  2. When the information came about in privileged circumstances, that resulted from the accountant being asked to provide legal advice, expert opinion or services in relation to legal proceedings.
  3. When there is a reasonable excuse for not reporting straightaway. In this case the report must be made as soon as reasonable in the circumstances.
180
Q

Money Laundering (CH8)

What are the 3 Money Laundering Offences?

A

1. Concealing - concealing or disguising criminal property.

2. Arrangement - entering into or becoming concerned with an arrangement relating to criminal property by another person.

3. Acquisition - a person may be guilty of the money laundering offence of acquisition if they acquire, use, or have possession of criminal property.

181
Q

Money Laundering (CH8)

What are the 3 Offences related to Money Laundering under the Proceeds Of Crime Act (POCA)?

A

1. Failure to disclose:
- Maximum penalty of five years imprisonment and/or a fine.

2. Prejudicing an investigation.
- Making a disclosure which is likely to prejudice the investigation.
- Falsifying, concealing or destroying documents relating to the investigation.

3. Tipping Off:
This is where an accountant who knows, or thinks they know, that a report of money laundering has been made to a MIRO, NCA, HMRC or the police, warns the person(s) suspected.
(Maximum 5-years imprisonment and or a fine).

182
Q

Money Laundering (CH8)

Registration with HMRC

A
  • If Money Laundering Regulations apply to a business, it needs to be monitored by a supervisory authority.
  • (e.g. an accountant can be supervised by HMRC, AAT, ACCA etc).
183
Q

Money Laundering (CH8)

What is Due Diligence?

A

Due diligence is defined as: The process of evaluating a prospective business decision by investigating relevant financial, legal, and other important information about the other party.

184
Q

Money Laundering (CH8)

What should Customer Due Diligence include?

A

CDD should include:

  1. Verifying the client’s identity.
  2. If the person who owns the business is the one who runs it. The accountant must ensure they know who the owners are (everyone with over 25% share).
  3. What the client wants from the relationship.
  • Where the accountant is unable to carry out adequate CDD he/she must decline the assignment.
185
Q

New Technology and Data Security (CH9)

What are the Benefits of Automation in Accounting?

A

1. Improved data integrity: the chance of human error is reduced.

2. More time-efficient approval of documents.

3. Greater internal data visibility: the business has easy access to data.

4. Quicker payment from customers

186
Q

New Technology and Data Security (CH9)

What is Artificial Intelligence (AI)?

A

Artificial intelligence (Al), simply, it is the concept of a computer, or machine, being able to simulate the way that humans think and behave.

187
Q

New Technology and Data Security (CH9)

What is Machine Learning?

A

Machine learning is an application of Al that codes computers to learn from data, without being programmed explicitly.

188
Q

New Technology and Data Security (CH9)

What are the benefits of AI and Machine Learning in Accounting?

A

1. Coding of data — automatic coding of invoices, receipts and purchases should lead to accurate and prompt reporting.

2. Audit of information — large amounts of data can be reviewed quickly, and any ‘unusual’ items can be highlighted and investigated.

3. Forecasting future data — Al could use its predicative capabilities to forecast future events. Examples of this might be price changes, movement in exchange rates, or customer buying trends.

4. Analysing complex data — properly developed Al and machine learning can be used to carry out complex analysis, that would require training for finance staff.

189
Q

New Technology and Data Security (CH9)

What is a Blockchain?

A

A Blockchain is a digital ledger of transactions that is shared across an entire network of computers in the particular blockchain.

190
Q

New Technology and Data Security (CH9)

What is the benefit of a Blockchain?

A

Because the information is duplicated and shared across a huge number of users within the blockchain, it means that records of transactions cannot be altered, deleted or destroyed.

191
Q

New Technology and Data Security (CH9)

How does a Blockchain work?

A
  1. A transaction is created.
  2. A block is created to digitally represent the transaction.
  3. The block is distributed to every computer in the network.
  4. Every computer validates the transaction to prove it is authentic.
  5. The now authenticated and complete block is added to the chain.
192
Q

New Technology and Data Security (CH9)

How can a Blockchain be useful in Accounting systems?

A

Blockchain can be very useful in accounting systems by:

  • Providing certainty about the ownership of assets.
  • Maintaining ledgers of accurate information.
  • Reducing costs and improving efficiency by taking on the record keeping so that staff can carry out other work.
193
Q

New Technology and Data Security (CH9)

What are the Benefits of Electronic Filing of Documents?

A

The benefits of electronic filing are:
- Instant access is available to any authorised users, at any time.
- Frees up physical space which can be used for other things, and may save money.
- Reduces the need to make copies of documents as multiple users can access the files.
- Files will be better organised.
- Files are automatically backed up and less susceptible to natural disasters such as fire or flood.
- Productivity will improve as files are more easily accessed.

194
Q

New Technology and Data Security (CH9)

What are the Disadvantages of Electronic Filing of Documents?

A

However, there are some disadvantages of this method of filing:

  • Software used to maintain the filing system will need to be kept up-to-date.
  • There is likely to be a significant initial cost to set up the system.
  • There will be a risk of data breaches which will need to be addressed.
195
Q

New Technology and Data Security (CH9)

What are the 3 methods of signing Documents Electronically?

A
  • Simple electronic signatures: such as scanning a physical signature or using tick boxes with a declaration from th signatory that they agreed to the terms, or similar.
  • Advanced electronic signatures: these will be uniquely linked to the signatory by an electronic identifier. This might be an application on their mobile phone that they need to use in order to validate their signature on an electronic document.
  • Qualified electronic signatures: this is effectively an electronic version of getting the signature witnessed. Similar to an advanced electronic signature, it has the additional security of electronic validation by a third-party trust service provider (TSP) which checks the associated matching criteria and validates the signature.
196
Q

New Technology and Data Security (CH9)

What is Data Analytics?

A

Data analytics is the process of collecting, organising and analysing large amounts of data.

197
Q

New Technology and Data Security (CH9)

Name the 4 types of Data Analytics.

A

The four types of data analytics are:

  1. Descriptive — what has happened in the business?
  2. Diagnostic — why did it happen?
  3. Predictive —what is likely to happen next?
  4. Prescriptive — what action do we need to take now?
198
Q

New Technology and Data Security (CH9)

Explain the 4 types of Data Analytics.

A

The four types of data analytics are:

1. Descriptive — what has happened in the business? This type of data analytics looks and reports on past performance, with no further explanation. For example, a report detailing the monthly sales of each division of the business.

2. Diagnostic — why did it happen? This digs a bit deeper by doing detailed analysis on the causes of things that have happened. A simple example might be analysis of why the sales of each product have changed month on month.

3. Predictive — what is likely to happen next? Predicative data analytics is very important for business to produce accurate forecasts. It uses large volumes of data to make its predications but it important to remember that, like human forecasting, it can never be 100% accurate.

4. Prescriptive — what action do we need to take now? Prescriptive data analytics may use a combination of machine algorithms (complex mathematical tools) and rules set by the business to make recommendations or for problem solving.

199
Q

New Technology and Data Security (CH9)

How is Data Analytics Beneficial in Accounting?

A
  • Its ability to handle large volumes of data quickly can speed up the reporting processes in accounting function so decision-making will be quicker.
  • It may also reduce the risk of fraud as it can identify anomalies in information and then diagnose why these may have happened.
  • Data analytics can also help a business to decide which activities to focus on and prioritise them.
200
Q

New Technology and Data Security (CH9)

What is Outsourcing?

A

Outsourcing: When businesses use a third party to carry out tasks, provide services or handle operations that the business has previously done in-house.

201
Q

New Technology and Data Security (CH9)

What are the Advantages of Outsourcing?

A
  • Potential cost savings, such as lower payroll costs due to reduced staff numbers, reduced training costs, and reduced capital expenditure.
  • Staff time freed up to carry our core operations.
  • Benefitting from the expertise of the business to which the work has been outsourced.
  • The business may no longer need to comply with certain regulations and legislation if it no longer carries out certain operations itself.
202
Q

New Technology and Data Security (CH9)

What are the Disadvantages of Outsourcing?

A
  • May lose expertise.
  • Quality issues if the outsourcing business does not have the same level of skills.
  • Difficulties in moving the work back in-house, should the business want to, at a later date.
  • **Data security **- for example if the outsourcing business needs to see product designs, or have access to confidential business data such as payroll records.
  • May lead to some redundancies.
  • Cost increases.
  • May be a delay in the delivery of the outsourced items, which could disrupt supply.
203
Q

New Technology and Data Security (CH9)

What are the potential obstacles of Offshoring?

A
  • Language Barriers
  • Cultural Barriers
204
Q

New Technology and Data Security (CH9)

What are the potential Advantages of Offshoring?

A
  • Reduced Costs.
  • Higher visibility for the business overseas.
205
Q

New Technology and Data Security (CH9)

What is Offshoring?

A

Offshoring is the relocation of some of the organisation’s operations to another country. This is normally done by businesses in developed countries to less developed counties with the intention of reducing cost.

206
Q

New Technology and Data Security (CH9)

What is Cloud Accounting?

A
  • Cloud accounting is an accounting system that is accessed via the internet, with information stored on remote, secure servers, owned by the system provider. Users will subscribe to the system and all their accounting records will be held in the cloud.
207
Q

New Technology and Data Security (CH9)

What are the features of Cloud Accounting?

A
  • Remote access.
    • Remote data storage.
    • Shared access.
    • Multi-user access.
    • Automated capabilities.
    • Availability of apps/plug-ins/add-ins
    • Interaction with stakeholders - stakeholders packages include a dashboard that allows accounting data to be presented in a clear, easy to understand format.
    • Real-time data - the data held in the cloud accounting system is always up-to-date.
208
Q

New Technology and Data Security (CH9)

Benefits of Cloud Accounting

A

• Lower IT costs.
• Improved sustainability.
• Better security.

209
Q

New Technology and Data Security (CH9)

Drawbacks of Cloud Accounting

A
  • Reliance on internet access.
  • Data security.
  • Software requirements.
  • Switching may be difficult.
210
Q

New Technology and Data Security (CH9)

What is the purpose of The Data Protection Act?

A

The Data Protection Act provides a framework to ensure that personal information is handled properly.

211
Q

New Technology and Data Security (CH9)

What are the Principles of The Data Protection Act?

A
  • Lawfulness, fairness, and transparency
  • Purpose limitation - personal data should be used only for the explicit purpose for which it was given.
  • Data minimisation - personal data that is collected by an organisation should be only what is necessary for the specific purpose.
  • Accuracy - a business that collects personal data is responsible for ensuring that the data is accurate and that it is kept up-to-date.
  • Storage limitation - any personal data stored by a business must not be kept any longer than is necessary.
  • Integrity and Confidentiality - personal data must be kept secure and protected from unauthorised access.
  • Accountability - appropriate measures and records must be in place to prove that it is complying with data processing principles.
212
Q

New Technology and Data Security (CH9)

Who enforces The Data Protection Act?

A

The Information Commissioner’s Office (ICO).

There is a statutory requirement for every organisation that processes personal information to register with the ICO.

213
Q

New Technology and Data Security (CH9)

What are the Penalties for Failing to Comply with the Data Protection Act or the EU General Data Protection Regulations (GDPR) ?

A
  • Maximum fines: greater of 20m Euros or 4% of the organisation’s annual turnover. This applies to UK businesses if they process personal data of EU resident.
  • In the UK the maximum fine for breaches in the processing of UK residents’ personal data is the greater of £17.5 million, or 4% of annual global turnover.
214
Q

New Technology and Data Security (CH9)

Notification to the Information Commissioner’s Office (ICO).

A
  • Notification is the process by which the person controlling the data gives the ICO details about the way in which the company processes data.
  • Failure to notify the ICO could result in a fine if convicted.
  • If an organisation discovers a personal data breach it must report this breach to the relevant supervisory body within 72 hours of becoming aware of it.
215
Q

New Technology and Data Security (CH9)

What Controls should a business have to maintain Information Security?

A

- Accounting systems access levels - passwords that only allow authorised employees to access parts of the system.
- Security controls - such as firewalls to protect access from outside the organisation.
- Integrity controls - computer applications have integrity controls to ensure data is accurate and complete.

216
Q

New Technology and Data Security (CH9)

What are the 3 types of Integrity Controls?

A

- Input controls - provide assurance that transactions are complete and have been properly authorised before they are processed by the system.
- Processing controls - ensure data that is entered into the system is processed properly.
- Output controls - designed to ensure the integrity of the data that is output from the system.

217
Q

New Technology and Data Security (CH9)

What is a Cyber Attack?

A

A cyberattack is a malicious and deliberate attempt by someone outside the organisation to access its information system.

218
Q

New Technology and Data Security (CH9)

What are the 3 main Cybersecurity Measures?

A
  • Firewalls - A barrier between a business’s internal network and the public internet.
  • Antivirus software - Protects against virus attacks by scanning, detecting and deleting viruses from a system.
  • Data encryption - Translates data into another form, or code, so that only authorised users with a ‘decryption key’, or password, can read it.
219
Q

Communicating Information to Stakeholders (CH10)

What are the 8 attributes of Good Quality Information? (A.C.C.U.R.A.T.E.)

A

1. Accurate - free from errors and bias.

2. Complete - nothing missing but not excessive.

3. Cost Effective - its usefulness and value should be greater than the cost of producing it.

4. Understandable - style, format and detail should fit the user’s needs.

5. Relevant - fit for purpose and communicated to the right person.

6. Authoritative - from a reliable source.

7. Timely - provided at the right time.

8. Easy to use.

220
Q

Communicating Information to Stakeholders (CH10)

What is the purpose of the Strategic (Corporate) Level of Management in an Organisation?

A

• Planning the future direction of the business, and setting goals.
• Will need information on the past to make long term decisions.
• Likely to focus more on external information that affects the business (i.e. competitor activities, government policies or economic environment etc)
• Information will be more summarised than detailed.
• It also likely to be required on an ad-hoc basis rather than a regular basis.

221
Q

Communicating Information to Stakeholders (CH10)

What is the purpose of the Managerial (Tactical) Level of Management in an Organisation?

A
  • Translates the Strategic vision into a Tactical Plan.
  • Requires regular, operational information.
  • Information required will mostly be internal.
  • Information will need to be fairly detailed.
222
Q

Communicating Information to Stakeholders (CH10)

What is the purpose of the Operational Level of Management in an Organisation?

A
  • Involved in day-to-day running of the business.
  • Will require explicit, detailed information.
  • Relies on regular, detailed, internal information.
  • Information tends to relate to past events.
223
Q

Communicating Information to Stakeholders (CH10)

What is Big Data?

A

A collection of data which is so large and complex, and which accumulates so quickly, that it is difficult to store, and process using traditional data processing software.

224
Q

Communicating Information to Stakeholders (CH10)

What are the 3 main sources of Big Data?

A

1. Social data comes from tweets, likes, comments, videos etc. Social data provides an insight into the ways customers think and behave.

2. Machine data. This is data from machines such as checkout scanners, smart meters, satellites etc.

3. Transactional data is generated from the daily transactions that take place in a business. Includes data about customers, suppliers, products, prices, locations etc.

225
Q

Communicating Information to Stakeholders (CH10)

What are the 5 Characteristics of Big Data?

A

The 5 V’s:

1. Volume - the sheer volume of big data makes it difficult to analyse.
2. Velocity - because of the volume of big data, the speed (velocity) at which it is processed is important in order for it to be useful to the business.
3. Variety - useful big data will be generated from a variety of sources, both internally and externally.
4. Veracity - value big data needs to be accurate, or truthful. Therefore, it should be obtained from a trusted source, and processed so that any bias, duplication, anomalies, or inconsistencies are removed.
5. Value - big data will only be useful if it can be processed and transformed into useful and valuable information that can then be used to add value to the business.

226
Q

Communicating Information to Stakeholders (CH10)

What are the Benefits of using Big Data?

A
  • Attracting and retaining customers: can identify patterns in consumer behaviour.
  • Focused marketing: Can analyse trends and use this to focus their marketing.
  • Ability to Identify areas of potential risk.
  • Improved business processes: such as inventory management - potential leading to reduced costs.
  • Fraud detection: Better detection of fraudulent transactions.
227
Q

Communicating Information to Stakeholders (CH10)

What are the Limitations of using Big Data?

A

1. Requires highly-skilled data analysts/scientists /engineers of which there is a lack of + require training which is costly.

  1. Integrating large amounts of data in different formats can be very difficult and can lead to inaccurate/incorrect information.
  2. Greater care required to ensure data protection principles are adhered to.
  3. Greater need for stronger data security.
228
Q

Communicating Information to Stakeholders (CH10)

What is Data Visualisation?

A

Data visualisation is the term given to images, diagrams, graphs, tables, matrices and charts that are used to present information in an accessible and usable way.

• Used to summarse and simplity large amounts of complex information, and can be particularly useful for making financial information understandable for non-financial staff.

229
Q

Communicating Information to Stakeholders (CH10)

How should the type of Data Visualisation be chosen?

A

• Choosing the most appropriate form of visualised data will depend on three questions:

  1. Who is it being shown to?
  2. What needs to be shown?
  3. How is it going to be presented?
230
Q

Communicating Information to Stakeholders (CH10)

What are the Benefits of using a Dashboard?

A
  1. The data is easy to understand.
  2. Are customisable - can be personalised to the needs of the business.
  3. Can be produced in real-time, meaning the data is always up-to-date.
  4. If a cloud-based software is used, it can be accessed from any device and location with internet access.

Accounting AAT Level 3 (4 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2024 Bold Learning Solutions. Terms and Conditions