Chapter 7 - The business's finance function

Question 1

What is the role of recording financial transactions in the finance function?

Answer 1

ensuring an accurate record of its revenue, expenses, assets, liabilities and capital

Question 2

What are the 2 dilemmas of business partnering?

Answer 2

• a compromise of objectivity and independence
• a lack of time (divert their time to tasks they feel more comfortable with)

Question 3

What is the structure of the finance function?

Answer 3

Centralized finance function

Question 4

What is the advantage of a centralized finance function?

Answer 4

helpful with the overall management of cash and external reporting

Question 5

What are the disadvantages of centralized finance functions?

Answer 5

• Not helpful with respect to making sure that local operational management get all the information and support they need (internal reporting)
• More problematic when the business operates in global markets (exchange rates and time differences)

Question 6

What are the factors affecting the finance function?

Answer 6

• Business structure
• Organizational structure, size and geographical dispersion
• Markets
• Technology
• History and Ownership
• Its culture

Question 7

Name out types of performance measure

Answer 7

• Qualitative measure
• Quantitative measure

Question 8

What is the characteristic of qualitative measures?

Answer 8

subjective and judgmental, and are not expressed in numerical terms​

Question 9

What is the characteristic of quantitative measures?

Answer 9

objective and based on data that must be reliable. They are expressed in numerical terms

Question 10

What are the forms of quantitative measures?

Answer 10

• Financial measures
• Non-financial measures

Question 11

What are the 3 points of reference for quantitative measurement?

Answer 11

• Profitability
• Activity
• Productivity

Question 12

What is the profitability reference measure?

Answer 12

cost and revenue

Question 13

What is the activity reference measure?

Answer 13

• number of orders
• number of machine breakdown
  (physical numbers, monetary value. time spent)
  => cause costs

Question 14

What is the productivity reference measure?

Answer 14

the quantity of the service or product produced in relation to the resources put in.

Question 15

How to measure profitability?

Answer 15

absolute terms (profit) = revenue - cost
relative terms (profit margin) = (revenue - cost)/ revenue

Question 16

If profit is to be the business’s primary objective, it must be specified in _______. Effectively, this rate can only be determined by examining the ___________ of investing in the business

Answer 16

• quantified terms (specific target rate of profit)
• opportunity cost (the rate of profit available on alternative investments with similar characteristics)

Question 17

What are the 3 criteria to measure resource use?

Answer 17

• Effectiveness
• Economy
• Efficiency

Question 18

What is the economy considered in terms of resource use?

Answer 18

the reduction or containment of cost and can be measured against the target

Question 19

What is the effectiveness considered in terms of resource use?

Answer 19

the measure of achievement and is assessed by reference to objectives

Question 20

What is the efficiency considered in terms of resource use?

Answer 20

being effective at minimum cost or controlling costs without losing operational effectiveness

Question 21

Efficiency is a _____________ effectiveness and economy

Answer 21

combination

Question 22

How to assess whether the objectives of strategic business units (SBUs) or the whole business are being met?

Answer 22

• Productively: what is output relative to what is input?​
• Effectively: how far are targets and objectives achieved?​
• Efficiently: what is the gain that the business has achieved?

Question 23

What is the concern of critical success factors (CSFs)?

Answer 23

concern not only the resources of the business but also the competitive environment in which it operates.

Question 24

Once the business has identified its CSFs and the things it must be good at to succeed, it must identify ____________

Answer 24

key performance indicators (KPIs)

Question 25

What is key performance indicators (KPIs)?

Answer 25

A measure of the level of performance in an area where a target level must be achieved for the business to outperform rivals and achieve competitive advantage.

Question 26

What is benchmarking?

Answer 26

the way of deciding on which KPIs to measure and what targets to set for them

Question 27

What are the 4 specific tasks of the finance function?

Answer 27

1. recording financial transactions 2. management accounting 3. financial reporting 4. treasury management

Question 28

What is the role of financial reporting in the finance function?

Answer 28

Providing information about a business to external users that is useful to them in making decisions and for assessing the stewardship of the business's management.

Question 29

What is the role of management accounting in the finance function?

Answer 29

Providing information to help managers and other internal users in their decision-making, performance measurement, planning, and control activities.

Question 30

What is the role of treasury management in the finance function?

Answer 30

Managing the funds of a business (eg: cash and other working capital items, plus long-term investments, short-term and long-term debt, and equity finance)

Question 31

What is the stewardship theory?

Answer 31

a framework which argues that people are intrinsically motivated to work for others or for organizations to accomplish the tasks and responsibilities with which they have been entrusted.

Question 32

What is a steward?

Answer 32

one who takes on the responsibility of caring for something on behalf of another person or group of people, eg: directors, managers

Question 33

What is business partnering?

Answer 33

the finance function working alongside other business functions rather than being a separate function on their own.

Question 34

What is the main role of business partnering?

Answer 34

Providing advice and support to the other areas of the business

Question 35

What are other roles of business partnering?

Answer 35

- strategy formulation, implementation & communication - commercial decision-making and negotiations - business analysis - sounding board - trusted adviser - critical friend and facilitator.

Question 36

What is the role of the accountant in measuring sustainability and natural capital?

Answer 36

- Responding to uncertainty and risk​ - Developing existing and new markets​ - Innovating processes, products, and services that can provide benefits to society​ - Improving operational efficiency and lowering costs by way of sustainable operations​ - Engaging employees, customers, and suppliers in the drive toward sustainability

Question 37

Name some measure for sustainability and natural capital

Answer 37

- SEE (social, environment, economic) - GRI

Question 38

What are some limitations of financial measures?

Answer 38

- Information problems: out-of-date, historical data, summarized information, symptoms - Comparison problems: trends & different business

Question 39

What is the balanced scorecard?

Answer 39

An integrated set of performance measures linked to the achievement of strategic objectives. ​

Question 40

What are the 4 important perspectives on the balanced scorecard?

Answer 40

- Customer: how do customers see us? eg: satisfaction ratings, returns rate, retention rate - Internal business processes: what we must excel at? eg: product quality, failure rates - Innovation and learning: how we can continue to improve and create value? eg: employee retention rates, time to market for new products - Financial: how do we look in our stakeholders eg: gross margin, net margin, interest cover...

Question 41

What is internal control?

Answer 41

A process, effected by an entity's BOD, management, and other personnel, designed to provide reasonable assurance regarding the achievement of objectives relating to operations, reporting, and compliance.​

Question 42

According to COSO, what are the 5 components of effective internal control?

Answer 42

- Control environment - Risk assessment - Control activities - Information and communication - Monitoring activities