Business Awareness Flashcards

Question

Understanding Businesses (CH1) Where are the main rules governing charities set out?

Answer 1

- **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.

Answer 2

- **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)

Answer 3

- 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)

Answer 4

1. Structure. 2. Common Objectives and team working. 3. Cooperation (Goal congruence). 4. Responsibility, Authority and Division of Work.

Answer 5

Manufacturing Businesses are those organisations that actually make and sell products. E.g. Apple, Volvic, Myprotein, Nike etc.

Answer 6

Service Organisations are those that provide a service to individual customers or clients, or another business. E.g. Consultants, Accountants, Lawyers etc.

Answer 7

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.

Answer 8

- 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.**

Answer 9

- 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**.

Answer 10

- 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.

Answer 11

- 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**.

Answer 12

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

Answer 13

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.

Answer 14

- 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)**.

Answer 15

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

Answer 16

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

Answer 17

**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.

Answer 18

1. Functional 2. Divisional 3. Matrix

Answer 19

* 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.

Answer 20

- A number of **different teams** that each focus on an **individual product or service, or geographical area.**

Answer 21

- 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.

Answer 22

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

Answer 23

- The **size of the organisation**. - The **type of work** that the individuals do (level of complexity of tasks). - The **location** of the staff.

Answer 24

- 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.**

Answer 25

- 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.

Answer 26

- 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.

Answer 27

- 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.

Answer 28

- **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.

Answer 29

- 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.

Answer 30

- 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.

Answer 31

- 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.**

Answer 32

- 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?

Answer 33

- 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?

Answer 34

- Operational level decisions made at this level tend to be **shorter-term** and relate to the**practical 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?

Answer 35

**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).

Answer 36

The possibility of something bad happening.

Answer 37

- 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.

Answer 38

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

Answer 39

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.

Answer 40

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.

Answer 41

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.

Answer 42

**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.

Answer 43

**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.

Answer 44

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

Answer 45

**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.

Answer 46

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

Answer 47

1. Phishing 2. Malware 3. Ransomware 4. Distributed Denial-of-service Attack (DDOS) 5. Spyware 6. Keylogging 7. Password Attack 8. Browser Hijacking

Answer 48

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

Answer 49

- 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.

Answer 50

- Can lead to **loss of sales and profit**, **employees to** **resign** and **reluctance** from suppliers, customers, and investors **to be associated** with the business.

Answer 51

* 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.**

Answer 52

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

Answer 53

- 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.**

Answer 54

1. Transfer 2. Avoid 3. Reduce 4. Accept

Answer 55

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**.

Answer 56

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

Answer 57

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.

Answer 58

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.**

Answer 59

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

Answer 60

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

Answer 61

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

Answer 62

Political Economic Social Technological Environmental Legal

Answer 63

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.

Answer 64

Economic factors refer to **the financial state of the economy**

Answer 65

- **Interest Rates** - **Exchange Rates** - Changes in **Disposable Income** - **Business Cycle** (boom,doom,recession,recovery) - **Inflation**

Answer 66

**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.

Answer 67

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

Answer 68

* 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.

Answer 69

- **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.

Answer 70

• 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.

Answer 71

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.

Answer 72

- Climate change, weather conditions, pollution, availability of resources etc.

Answer 73

* 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.

Answer 74

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

Answer 75

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

Answer 76

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

Answer 77

Goods for which demand increases as income increases. Demand falls as income falls.

Answer 78

These are good for which demand increases as income falls. And demand decreases as income increases. These are usually cheap, “own brand” products.

Answer 79

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.)

Answer 80

**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.

Answer 81

* 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.

Answer 82

An increase in price is shown by a contraction along the demand curve. A decrease in price causes an extension along the demand curve.

Answer 83

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

Answer 84

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.

Answer 85

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.**

Answer 86

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.

Answer 87

**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.

Answer 88

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

Answer 89

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

Answer 90

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

Answer 91

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.

Answer 92

The ability to **last**.

Answer 93

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.**

Answer 94

**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”.

Answer 95

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

Answer 96

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.

Answer 97

- **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**

Answer 98

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

Answer 99

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.

Answer 100

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

Answer 101

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

Answer 102

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

Answer 103

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.**

Answer 104

- 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.**

Answer 105

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

Answer 106

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.**

Answer 107

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

Answer 108

**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.

Answer 109

**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.

Answer 110

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

Answer 111

**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.

Answer 112

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

Answer 113

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

Answer 114

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.

Answer 115

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

Answer 116

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.

Answer 117

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

Answer 118

**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.

Answer 119

• 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.

Answer 120

All of them.

Answer 121

1. Objectivity 2. Professional Behaviour 3. Professional Competence and Due Care

Answer 122

All of them.

Answer 123

1. Integrity 2. Objectivity 3. Confidentiality

Answer 124

Objectivity.

Answer 125

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

Answer 126

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

Answer 127

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

Answer 128

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

Answer 129

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.

Answer 130

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

Answer 131

The accountant should not accept or continue the assignment.

Answer 132

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

Answer 133

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)

Answer 134

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.**

Answer 135

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

Answer 136

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

Answer 137

**A. Bringing the accounting profession into disrepute.** B. Acting in **breach of the rules and regulations of the accountant's professional body.**

Answer 138

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.

Answer 139

- 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.

Answer 140

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.

Answer 141

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

Answer 142

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

Answer 143

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).

Answer 144

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

Answer 145

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

Answer 146

**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).

Answer 147

**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).**

Answer 148

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

Answer 149

- 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.

Answer 150

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.

Answer 151

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

Answer 152

- 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.

Answer 153

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.

Answer 154

**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.

Answer 155

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.

Answer 156

**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.

Answer 157

**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**).

Answer 158

- 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).

Answer 159

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.

Answer 160

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.

Answer 161

**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

Answer 162

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

Answer 163

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

Answer 164

**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.

Answer 165

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

Answer 166

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.**

Answer 167

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

Answer 168

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.

Answer 169

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.

Answer 170

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.

Answer 171

* **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.

Answer 172

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

Answer 173

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?

Answer 174

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.

Answer 175

* 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.

Answer 176

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

Answer 177

- 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.

Answer 178

- **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.

Answer 179

- Language Barriers - Cultural Barriers

Answer 180

- Reduced Costs. - Higher visibility for the business overseas.

Answer 181

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.**

Answer 182

* 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.

Answer 183

- 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.

Answer 184

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

Answer 185

- Reliance on **internet access.** - **Data security.** - **Software requirements.** - **Switching may be difficult.**

Answer 186

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

Answer 187

* **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.

Answer 188

**The Information Commissioner’s Office (ICO).** There is a statutory requirement for every organisation that processes personal information to register with the ICO.

Answer 189

* 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.**

Answer 190

* **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.

Answer 191

**- 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.

Answer 192

**- 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.

Answer 193

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

Answer 194

- **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.

Answer 195

**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.**

Answer 196

• 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.

Answer 197

- 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.**

Answer 198

- 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**.

Answer 199

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.

Answer 200

**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.

Answer 201

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.

Answer 202

* 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.**

Answer 203

**1. Requires highly-skilled data analysts/scientists /engineers** of which there is a lack of + require training which is **costly.** 2. Integrating **large amounts of data in different formats** can be very difficult and can lead to inaccurate/incorrect information. 3. Greater care required to ensure **data protection** principles are adhered to. 4. Greater need for stronger **data security.**

Answer 204

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.

Answer 205

• 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?

Answer 206

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.

Business Awareness Flashcards

(230 cards)