4 - Digital Technologies & the Finance Function Flashcards
(140 cards)
1
Q
2 ‘core modernisation tools’ + explain
A
Data visualisation & cloud technology
Upgrades to existing systems to improve capability
2
Q
2 ‘exponentials’ + explain
A
Blockchain and data analytics
Create new capabilities and driving finance forward
3
Q
5 ways cloud computing changing structure & working of finance function
A
- Flexible working
- Collaboration
- Software continuously UTD by svc provider = compliance with data protection regs
- Improved integration of software
- Improve data security - cloud provider data expert
4
Q
Cloud accounting =
A
Provision of accountancy software through the cloud. Users log in to process financial transactions and produce mgmt reports in the same way as if the software was installed on own machine.
5
Q
3 examples of cloud accounting
A
QuickBooks, Xero and Sage
6
Q
2 benefits of cloud accounting
A
Supports various finance components to work as a team, mgmt can pull data from system rather than waiting for accounts and reports to be produced.
7
Q
How can internal data help finance?
A
Help identify, quantify and manage risk in an org - particularly good for internal audit function.
8
Q
How can external data help finance?
A
Used by mgmt accounting to support perf mgmt. Variance analysis & then data analysis to explain variances
9
Q
How can big data help financial accounting specifically?
A
Improve quality and relevance of financial info, improve transparency and enhance stakeholder decision making.
10
Q
How can big data help financial reporting specifically?
A
More relevant and useful info that can be used to improve future accounting standards.
11
Q
Does data analysis have to involve big data?
A
NO
12
Q
How is automation impacting finance?
A
Recording & verifying low level transactions –> higher level activities such as producing and analysing reports.
Less time on routine tasks –> more time on value add = more effective use of skills.
13
Q
5 advs to finance of investing in process automation
A
- Focus on value add
- Reduce HC & $
- Increased accuracy, remove human error
- Catalysts to help org adapt & improve response to change
- Position ROI if good systems
14
Q
5 disadvs to finance of investing in process automation
A
- Training costs
- Change mgmt - impact on morale
- Uncertainty over job security
- Systems only as effective as programmer that creates
- Careful mgmt of relationship with IT
15
Q
AI enables…
A
transactions to be processed without input from humans and for humans to be assisted in making decisions.
16
Q
4 ways AI can support finance
A
- Automate simple processes
- Improve fraud detection of abnormal transactions
- Predictive models to fcast costs & rev
- Improved analysis of unstructured data
17
Q
5 benefits of data visu to finance
A
- Richer insights & understanding of perf drivers = finance can add more value
- Tailor to audience
- Accessibility - visual appeal & easily understood
- Real time
- Perf optimisation as clear info allows better decision making & efficient use of resources
18
Q
2 key uses of distributed ledger tech and blockchain
A
- Measuring value of assets
2. Verifying asset ownership & associated transactions
19
Q
In theory, DL tech and blockchain eliminate the need for…
A
Internal audit function as blockchain guarantees authenticity.
20
Q
4 impacts of DL tech and blockchain on finance (not necessarily +VE or -VE)
A
- Security & traceability of transactions may impact how bis records dealings with 3rd parties
- Smart contracts
- Cryptocurrencies not covered by accounting standards - decide how to record e.g. cash, intangible assets, financial instruments?
- Money can cross borders easily - avoid traditional intermediaries like banks & single currency.
21
Q
Define smart contracts
A
Self-executing agreements that use cryptography, digital signatures and secure completion. Certain obligations met –> they automatically execute on particular date/time.
22
Q
Finance can use internet of things to…
A
Collect data and present info (e.g. smartphones linked to org’s info systems for data visu)
23
Q
4 ways mobile tech improves finance efficiency
A
- Scalable - easily expand at low cost
- Comms and flexibility - WFH = save money
- Less paperwork
- Instant visibility - real time
24
Q
Why does 3D printing having little impact on finance?
A
Finance doesn’t produce a physical product.
25
But how does 3D printing affect org's cost base (5 ways) which finance need to be aware of?
1. Increased direct costs - set up cost for 3D printer
2. Cost savings due to waste reduction
3. No overproduction
4. Reduced inventory & very little raw materials need to be held - just in time systems
5. Minimal tooling & set up costs required - printer instead of large production facility.
26
4 aspects of basic digital literacy
1. Create digital content - understand & be skilled in range of digital software.
2. Ensure data safety
3. Comm in a range of digital channels
4. Solve problems created by digital environ
27
3 aspects of technology know-how
1. Understand how digital issues (e.g. cyber security) impact finance
2. Understand how digital tech can disrupts org's bis model & identify possible future disruptions
3. Appreciate need for & apply data privacy and security procedures
28
How do basic digital literacy and technology know how differ?
Basic digital literacy = capability to work in digital environ
Technology know how = sufficient technical knowledge where deeper level of expertise is required.
29
Digital mindset refers to...
A fusion of abilities to confront complexity, work in an agile and creative manner to harness curiosity in order to continuously learn.
30
What's another way we can perceive the digital mindset?
Think of it as seeing the bigger picture and focussing on how tech is changing orgs/society rather than on the individual details of the change.
31
3 aspects of digital mindset + expand on each
1. Dealing with complexity - change unpredictable & rapid
2. Working in creative & agile way - more value add tasks = strategic partner rather than service provider, more bis partnering.
3. Lifelong learning - shelf life of learned knowledge rapidly decreasing
32
CPD standa for...
continuing professional development - relates to lifelong learning aspect of digital mindset
33
Forbes 5 qualities, practices and approaches as being important dimensions of digital mindset.
1. Clear vision on how bis should evolve & supporting practices to get there by empowering others
2. Give up control of change, instead architect the choices of getting there.
3. Sustain & enhance existing bis processes but allow new processes to disrupt status quo
4. Balance between reliance on data & trusting personal instincts when making decisions
5. Both sceptical and open minded - degree of caution with new tech.
34
Change adept org =
Ready and have capability and capacity to deal with change. Lean processes, flexible structures and fwd thinking.
35
Growth mindset =
Person who has desire to continuously learn and develop themselves. View feedback positively and use as op for growth rather than as a threat. Freely give feedback for same reasons.
36
Is AI considered part of automation process?
Yes, to some degree
37
State 4 key components of finance function
1. Financial reporting
2. Management accounting
3. Treasury
4. Internal audit
38
High level description of role of financial reporting
Report results & financial position of bis. Principal function is to satisfy info needs of external users.
39
4 steps involved in preparation of financial statements
Transactions, day to day books, ledger accounts, financial statements.
40
Statutory annual accounts of a company =
aka financial statements
41
Qualified vs unqualified financial statements
Financial statements st min size requirement so audited. Audit report qualified or unqualified if issues arising from accounts.
42
Statement of PnL
Income and costs incurred in the period ending on reporting date resulting in profit or loss.
43
Statement of financial position
assets, liabilities and capital on the reporting date.
44
Statement of cash flow
Cash receipts and payments for period ending on reporting date. Shows is company solvent and areas where cash spent.
45
Earnings per share ratio
EPS = profit after tax / weighted average number of shares in issue
46
Price earnings ratio
PE = share price / EPS
47
What does a high PE ratio indicate?
Investors expect future earnings growth and are prepared to pay more now in return for this. PE tells us how many years hold share for in order to recoup investment - so high PE means expect EPS to grow rapidly as wouldn't want to wait many years to recoup.
48
Dividend yield =
DY = div per share / current share price *100%
| Indicates % return.
49
5 stakeholders financial statements are produced for
1. Gov - tax requirements
2. Managers - to help plan
3. Banks - can org afford repayment?
4. Employees - care about job security & pay
5. Customers & suppliers - impacts purchasing decisions & whether to extend credit
50
Are non-commercial orgs also required to maintain accounts and prepare financial statements?
Yes e.g. charities and clubs
51
Big difference between financial reporting & mgmt accounting functions
Financial reporting = backwards looking
| management accounting = do look back, but also forwards looking
52
High lvl description of mgmt accounting role
Analyse data to provide info as a basis for managerial action. Info Aid planning and controlling of org.
53
Financial reporting vs mgmt accounting: user of info
```
FR = external
MA = internal
```
54
Financial reporting vs mgmt accounting: purpose of info
```
FR = record financial performance
MA = planning, controlling & decision making
```
55
Financial reporting vs mgmt accounting: legal requiremnts
```
FR = statuary format
MA = none
```
56
Financial reporting vs mgmt accounting: format
```
FR = accounting standards and law
MA = set by mgmt
```
57
Financial reporting vs mgmt accounting: nature of info
```
FR = financial mostly
MA = financial + non
```
58
Financial reporting vs mgmt accounting: time period
```
FR = mainly historical
MA = historical + forward looking
```
59
One key role of mgmt accountants is...
Production of monthly mgmt accounts showing financial performance vs plan
60
CRUMPET acronym for why budgets are useful for orgs
Coordination = depts help org achieve objs
Responsibility
Utilisation = better visibility over efficient deployment of resources
Motivation (for mgrs)
Planning = focus mgrs to be fwd looking
Evaluation = reference point for assessing perf
Telling = useful comm tool as breakdown org strategy into operational targets
61
Variance report =
Actual - budget = variance
mgmt accountants then work with relevant depts to explain why.
Then control measures put in place to prevent adverse variances & repeat favourable ones
62
4 business decisions mgmt info can help (apart from decisions based off of variance analysis)
1. Pricing decisions
2. Key factor analysis = in house or outsource?
3. Investment appraisal = accept/reject investment
4. Break-even analysis = how many units sold to cover costs? Good to identify profitable new potential products.
63
High lvl description of role of treasurer
Raising finance + controlling financial resources.
64
Treasury: working capital + liquidity mgmt
Managing org's cashflow cycle to ensure cash is always available when needed.
65
Working capital means + formula
Sum of cash tied up in diff areas.
Working K = current assets - trade payables
= Inventories + trade receivables + cash balances - trade payables
66
Treasury strategy with trade receivables?
Trade receivables - balance risk of slow/non-payment against offering competitive credit terms.
67
Treasury strategy with inventory
Balance need to have adequate supplies vs tying up too much cash
68
Treasury strategy with cash balances
minimise overdraft use, or if cash surplus ensure reasonable return earnt while keeping enough cash to meet current L.
69
Treasury strategy with cash payables
Take longest possible period whilst keeping good supplier relations.
70
Problem with too aggressive working K strategy for cash payables
Delay payments to suppliers as much as possible --> higher prices.
71
Treasury: financial (funding) mgmt role
Sourcing and accessing sources of funds for investment such as new share issues and bank loans.
72
Debt vs equity benefits
Debt = cheaper to arrange and service than equity (as IR historically low & rE > rD), but too much debt brings insolvency risks.
73
Gearing =
LR debt / shareholders' funds * 100%
| Shows proportion of finance sources from debt.
74
Problem with too high gearing level
Future lenders may be put off lending as they view the org as riskier
75
What do the treasury team also manage wrt IR?
Manage IR risk - ensure company does not suffer if IR suddenly rise or fall
76
Treasury: foreign currency mgmt role
Ensure org has access to foreign currency to buy materials from overseas suppliers and is able to convert into home currency.
77
What do treasury try manage wrt foreign currency?
Decide whether and how to hedge forex risk. Minimise exposure to ER losses, perhaps by keeping receipts in diff currencies and using them to pay foreign suppliers,.
78
What do treasury try to manage wrt taxation?
Manage corporate affairs to legally avoid as much tax as possible but ensure still complying with law. But also need to consider public perception if perceived as paying too little tax.
79
Tax evasion vs tax avoidance
```
Evasion = illegal
Avoidance = legal loopholes to avoid tax
```
80
What do treasury try to do wrt cash mgmt?
Prepare cash budgets and arrange overdrafts. Manage day to day cash balance to ensure can meet liabilities.
81
High level description of internal audit function
Employees of the company whose duties are fixed by senior mgmt and who report on effectiveness of internal control systems. They are accountable to the internal audit committee.
82
2 broad roles of internal audit
1. ensure org's rules and policies complied with
| 2. prevent and detect fraud
83
CIMA's definition of internal audit
"An independent appraisal activity established within an org as a service to it. It is a control which functions by examining and evaluating the adequacy and effectiveness of controls; a mgmt tool which analyses the effectiveness of all part of entity's operations and mgmt"
84
Internal audit of accounting & operations description
- Investigate accounting subsystems and ensure transactions recorded correctly & not tampered with
- Assure that business objectives are valid, control info is reliable, and activities effective, efficient & economic
85
How does the role of internal audit extend to the most senior level?
Help set corporate objectives and design and monitor perf measures to ensure these objs are met.
86
What does UK corp gov code say on Internal audit?
If org does not currently have an internal audit function, it should consider on an annual basis whether to create one.
87
Who should review the effectiveness of internal audit function annually?
The board / internal audit committee
88
summarise 5 roles of internal audit
1. Review internal controls & RMS & financial reports
2. Manage data to identify risks
3. Identify methods for prioritising & managing risks
4. Report on effectivness of risk mgmt controls
5. Prevent & detect fraud & intentional misstatements on financial statements
89
Internal auditors are expected to act AS IF they're...
independent to org
90
Internal auditors fearing repercussions of doing their jobs can be mitigated by...
Internal audit committee
91
4 purposes of internal audit
1. Advise those in charge of corp gov on effectiveness of internal controls.
2. Make recommendations to improve deficiencies.
3. Adopt risk-led approach to identify & assess org risks (i.e. focus on greatest risks, not all)
4. Remit of work undertaken determined by mgmt - essentially can be asked to do anything.
92
Is having an internal audit function the law?
NO
93
Fraud is defined as...
Theft by deception
94
Misrepresentation in financial statements refers to...
A specific type of fraud meaning using deception to gain an unjust or illedge advantage
95
Effects of fraud on org
Loss of assets or financial difficulties + fines. reduced confidence of shareholders & collapse of org.
96
3 prerequisites for fraud to occur + explain
1. Dishonesty = lack of integrity/honesty in people
2. Opportunity = weak internal controls
3. Motivation = rewards of fraud > risks
97
Factors that contribute to an increased chance of fraud/misstatement can be split between...
CAUSES of fraud & SYMPTOMS of fraud
98
5 causes of fraud
1. Low staff morale
2. Lack of monitoring/control systems
3. Lack of segregation of duties
4. Unnecessarily complex corporate structure
5. Domination of mgmt by one person/small group
99
3 symptoms of fraud
1. Strange transactions
2. Payments made out of proportion to work done
3. Lavish lifestyles of employees
100
a good design of what kind of systems helps prevent as well as detect fraud?
BUSINESS systems e.g. provide receipts for travel claims so harder to falsify
101
4 limitations of internal audit
1. Lack of independence
2. Org constraints e.g. small firms cannot segregate depts
3. Poorly qualified or experienced staff
4. Self-interest threat - fear of repercussions
102
Farrar sees automation as a means of.... + how are bis processes reimagined?
reskilling people - business processes are reimagined through human machine collaberation
103
Machine only activities =
Machines will always outperform humans. Typically routine activities. Predictions based on logic - rational prediction.
104
Is human intervention needed for machine only activities?
should automate, but humans made be needed to put the output into context and resolve errors.
105
Human only activities =
Humans always outperform machines with tasks that require application of knowledge & finding patterns of interest. Predictions based on high lvl of judgement than making rational predictions.
106
Human machine hybrid activities =
Technology can augment human intelligence to make finance faster, more efficient & productive. Activities can be 'superpowered' because humans bring value to machines by training, programming & maintaining the machines & because machines amplify the work humans can do.
107
3 key impacts of automation on what finance professionals must do
1. Ensure understand what machine can do & limitations
2. Ensure possess human skills which machines lack
3. Ensure highly skilled in areas where machines and humans can work together
108
Automation paradox =
technology takes tasks out of human control = loss of skills in these areas. But then atypical events in future mean automation inadequate, but by then humans deskilled so cannot intervene quickly or easily.
109
The automation paradox can be overcome by...
Ensuring staff have full understanding of how systems work so they can assist the system to overcome problem or perform task manually themselves.
110
5 areas of financial reporting which can be automated
1. downloading bank transactions into accounting system
2. Posting transactions to nominal accounts
3. Reconciling bank, supplier & customer accounts
4. Creating statutory accounts
5. Exception reports to identify errors / areas requiring attention
111
5 areas of mgmt accounting which can be automated
1. Generation of mgmt accounts
2. calc variance / financial ratios
3. Explains - analysis of results & data analytics generating theories
4. Budgeting based on current actuals
5. Forecasting based on assumptions set by humans
112
5 areas of treasury which can be automated
1. Investment appraisal calcs
2. Analysis of financial mkts to predict costs of K
3. 'What if' scenarios to analyse potential outcomes for investments
4. Monitor currencies
5. Cash flow forecasting to identify future requirements and prevent short falls
113
5 areas of internal audit which can be automated
1. Monitoring transactions to identify suspicious ones
2. Testing controls/procedures
3. Simulate cyber attacks
4. Real time feedback on controls in dashboards
5. Vulnerability testing to identify potential weaknesses and bis impacts if occur
114
5 skills that are fundamental to finance professionals in digital tech age
1. Business acumen
2. Analytical skills - add value to data from automated source
3. People skills
4. Leadership
5. Judgement
115
5 moral dimensions of the information age
1. Info rights & obligations (GDPR)
2. Property rights - who owns data held?
3. Accountability & control
4. System quality - what standards?
5. Quality of life
116
6 -VE impacts of tech on quality of life
1. Monitoring of system use by individuals
2. Blurring of boundaries between work-life
3. Dependence & vulnerability to systems
4. Equality - all equal access to tech?
5. Health risks e.g. repetitive strain injury (RSI)
6. Computer crime and abuse
117
State 3 ethical considerations relating to data
1. Date dependence
2. Data mining & storage
3. Data distribution
118
Expand on data dependence ethical consideration
Computer power doubles every 18 months means data proliferate in every day life = very dependent on data and vulnerable to errors + poor data quality has risen.
119
Expand on data mining & storage ethical consideration
Advances in these techniques enables orgs to find much more detailed info on people e.g. credit card info, movie downloads, gov records
120
Expand on data distribution ethical consideration
Advances in networking reduced costs of moving and accessing large databases. Easier to invade privacy and must ensure move data securely.
121
5 reasons ethical and social considerations of data are important
1. Ethical firms gain investor confidence
2. Make customers feel safe & confident data is secure
3. Some customers only buy from ethical companies
4. Builds stakeholder trust & LR sustainability
5. Need to demonstrate awareness of risks associated with data
122
4 key corporate digital responsibility issues
1. Use data responsibly & securely
2. Transparency on how collect & use data
3. Share data with inds to make better decisions
4. Digital inclusion & equity - all society able to benefit
123
Privacy issues in relation to data refer to...
Whether an individual consents to data being collected & whether they have any rights to privacy once it has been stored
124
The UK's Data Protection Act 2018 contains how many principles & rights for individuals?
6 principles
| 8 rights for individuals
125
Lawfulness, fairness & transparency UK data principle
data only held if valid grounds to do so. Can only be used fairly and with transparency from the start.
126
Purpose limitation UK data principle
Individuals made aware of explicit purpose + further consent required if used for another purpose unless legal grounds to do otherwise.
127
Data minimisation UK data principle
Data held must be adequate and relevant for purpose, but not excessive.
128
Accuracy UK data principle
Data held must be accurate and not misleading. Must correct any inaccuracies.
129
Storage limitation UK data principle
Data not held for any longer than necessary for the purpose it was collected for. Justifiable data retention policy needed. delete or anonymise not needed data.
130
Integrity and confidentiality (security) UK data principle
Appropriate security measures
131
To be informed UK data right
Ind informed about how data collected and used. Purpose, retention period, who data shared with. Must be given this info at time when data is collected or within a month if data collected from another source.
132
Access UK data right
Ind has right to request access to data held about them either verbally or in writing. Must be supplied in 1 month & should be free (in most circumstances).
133
Rectification UK data right
Request inaccurate or misleading info to be rectified. Incomplete info to be made complete. Verbal or written request must be complied with in 1 month. Only in limited circumstances can refuse.
134
Erasure UK data right + aka
aka right to be forgotten
Request data to be destroyed - verbally or written.
Right only applies in certain circumstances, reply in 1 month.
135
Restrict processing UK data right
Individuals can have restrictions placed on the processing of data or suppressed entirely. Data can be held but not processed. Right only applies in certain circumstances, reply in 1 month.
136
Data portability UK data right
Request to be sent data so can be used in different service e.g. transfer data between banks.
137
To object UK data right
Object to processing of data. Absolute right to object if data used in connection with direct marketing, for other purposes right may be refused.
138
Automated decision making & profiling UK data right
Right to request human intervention or challenge automated decisions made about them. Ind must also be made aware that it's automated.
139
4 impacts of legal/social issues of tech on corporate digital responsibility
1. Ensure accuracy of data otherwise delete or rectify
2. Allow ind access to data and transfer to other orgs
3. Recognise that expert systems or other tech making automated decisions should include humans intervention.
4. Hold min data for min amount of time beneficial to org as well as ind.
140
5 key areas of developing CDR strategy
1. Digital stewardship - responsible & secure use
2. Customer expectations - transparency & meet rights
3. Giving back - share data w ind/3rd parties.
4. Data value - reward ind for their data.
5. Data inclusion - regardless of skills, tools, ability, everyone should have access to the digital world.
