ACCA

Accountant in Business Mock Exam 1

Answers
(Duration: 3 hours)

LSAM

Paper F1

Mock Exam - 1 (Answers)

ANSWER 1
C A limited liability company is classed as a separate legal entity from its owners. The owners (shareholders) may be different to the managers (Board of Directors). A shareholders liability is limited to their investment.

A partnership is different to a limited company in that there is no separate legal entity.

Sole traders have unlimited liability for business debts as they are classed as the same legal entity as the business.

There is no restriction on the number of partners in a partnership agreement.

ANSWER 2
B It would be good corporate governance if the needs and expectations of all stakeholders were taken into account by the organisations management team, not just the needs of the shareholders.

Audit committees, balanced power on the Board and supervision of staff are all features of good corporate governance.

ANSWER 3
B Psychologically close managers tend to close relations with their subordinates and therefore are people-orientated and prefer informal contact rather than more formal communication methods.

ANSWER 4
C The disseminator transmits factual and value based information to subordinates. The liaison develops and maintains a network of external contacts. The monitor gathers internal and external information relevant to the organisation. The spokesperson communicates to the outside world on the performance and policies of the organisation.

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F1 - Accountant in Business

Mock Exam - 1 (Answers)

ANSWER 5
C Demand would be stimulated as firms and households would have more money after tax for investment / consumption or saving. The increased public expenditure would not be covered by an increase in tax revenue and would therefore have to be financed by increasing government borrowing, the PSNCR.

ANSWER 6
B Responsibility is the duty to perform an action. Influence is a process by which a person can direct or modify the behaviour of another person. Power is the ability to perform an action and in particular to influence others.

ANSWER 7
D According to Herzbergs theory only training is a motivator. The others are all hygiene factors. The absence of which will cause dissatisfaction but there presence will not lead to long term motivation.

ANSWER 8
A The span of control is the number of people for whom a manager is directly responsible. Scalar chain relates to the number of management levels within an organisation.

ANSWER 9
B This is the correct definition of an executive information system. An expert system is a rules based database which allows non experts to access expert information system. A management information system is used to provide reports at a middle management level by summarising information from transaction processing systems. A decision support system is used for making semi-structured decisions.

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F1 - Accountant in Business

Mock Exam - 1 (Answers)

ANSWER 10
B A connected stakeholder is one that has a contractual arrangement with the organisation; a shareholder is such a stakeholder. The government and trade union are external stakeholders A director is an internal stakeholder.

ANSWER 11
C Recession is part of the business cycle when demand for output and therefore employees falls so unemployment rises. A is an example of seasonal unemployment. B is technological unemployment. D is an example of real wage unemployment.

ANSWER 12
D All options could influence the culture of an organisation. History and experiences allow the company to learn from past successes and failures, successes will be built on and failures not repeated. Senior management influence current objectives and ways of working. The person who founded the organisation establishes the basic assumptions and values of the organisation. The technology used and the industry both influence the way an organisation operates.

ANSWER 13
B Process theories explore the process by which individuals come to value, select and explore goals i.e. how people are motivated. Content theories such as Maslows hierarchy of needs and Herzbergs two-factor theory; explore the needs that motivate people to act in certain ways i.e. what motivates people.

ANSWER 14
A Increasing taxation is consistent with contractionary fiscal policy and hence will slow the level of economic activity as households would have to pay more tax and therefore have less disposable income. Firms will also pay more tax and have less retained profits available for investment. Options B and C would expand the economy by increasing the level of business activity.

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F1 - Accountant in Business

Mock Exam - 1 (Answers)

ANSWER 15
A The macro economic policy objectives of most governments are:

(a) (b) (c) (d)

Steady economic growth Low inflation Low unemployment Balance of payments equilibrium

Taxation and interest rates are tools to help governments control economies

ANSWER 16
C It is good corporate governance for internal audit department to report to the audit committee, which should consist of non-executive directors, in order to increase their independence.

ANSWER 17
C Increase in single member households will only impact certain organisations however the other factors are likely to affect most businesses.

Falling birth rates create a skill shortage and an aging population. Increasing diversity has an impact on the HR policies of most businesses. Most businesses have to pay attention to environmental legislation and consumers attitudes.

ANSWER 18
A Porters five forces model identified the following factors that determine the attractiveness of an industry:

Bargaining power of buyers Bargaining power of suppliers Competitive rivalry New entrants to the industry Substitute products or services

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F1 - Accountant in Business

Mock Exam - 1 (Answers)

ANSWER 19
B Under cost leadership competitors quality is matched however the organisation is able to produce the product/service at the lowest cost. In a price sensitive market the organisation is likely to pass this cost advantage on to customers. This means they produce a standard product at the cheapest price.

ANSWER 20
B The statement is false.

The HR department has a wide ranging role in fraud prevention including vetting staff during the recruitment and selection process and setting appropriate reward systems.

ANSWER 21
D Fines, prosecution, difficulties raising finance, a damaged reputation and a qualified audit report are all possible consequences of compliance failure. An unqualified audit report is given when in the auditors opinion the financial statements provide a true and fair impression of the financial position of the organisation.

ANSWER 22
A The statement is true. Many organisations employ lobbyists which is a legal practice. It is not however legal to offer government ministers or civil servants financial incentives.

ANSWER 23
D Fiduciary means of trust. All managers are accountable for their actions.

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F1 - Accountant in Business

Mock Exam - 1 (Answers)

ANSWER 24
D This is one of the aims of internal control as identified by the Turnbull Report. It is impossible to eliminate the possibility of poor judgement; internal control would reduce the possibility. Reporting will never be 100% accurate in part due to subjective accounting policies e.g. depreciation. It is impossible to eliminate the risk of human error; however an aim of internal control is to reduce the risk.

ANSWER 25
D All of the above would raise ethical issues. Materials used impacts on the safety of the product. Quality is a safety issue. Advertising raises issues of truth and manipulation. The treatment and potential exploitation of labour, whether directly employed by a business or its suppliers, is also an ethical issue.

ANSWER 26
C The shareholders are the owners of a limited liability company as they provide the capital for the business.

ANSWER 27
D Other advantages are that they can include specimens of each document referred to and that the flowchart can be accompanied by detailed narrative notes explaining in words the document flows and the checks to be performed at each stage; specific, detailed, instructions for each task help staff to complete their duties on time; sufficient detail enables staff to understand the procedures with minimal supervision and verbal instruction.

ANSWER 28
B Physical access systems are to prevent unauthorised access to a particular area, an example of which is card entry systems. Logical access systems are non-physical access controls involving password-protected access to the data in a system. Back-ups and anti-virus software are not access controls but integrity controls.

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F1 - Accountant in Business

Mock Exam - 1 (Answers)

ANSWER 29
C This is the main aim of accounting.

ANSWER 30
A The key objective of the International Accounting Standards Board (IASB) is to develop a single set of global accounting standards. The IASB replaced the International Accounting Standards Committee in 1990.

The International Financial Reporting Interpretations Committee provides guidance on the use of standards in practice if there is any confusion over a standard or conflict between standards.

The EU has little involvement in developing accounting standards.

ANSWER 31
C Failure to challenge or criticise is not positive in terms of team building as this suggests poor communication. Team members should be able to constructively criticise and speak their minds. Options A, B and D are all associated with successful teams.

ANSWER 32
C The treasury department is responsible for managing an organisations money supply. Tax free profits on investment would increase the money available for future investments.

ANSWER 33
B The statement is false

Overstating overtime is fraudulent as it is a subtle form of theft of funds from an organisation as an individual would be claiming pay for hours not worked.

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F1 - Accountant in Business

Mock Exam - 1 (Answers)

ANSWER 34
A The activity of ensuring there are sufficient raw materials in stock for planned production would be carried out by the accounting and production functions Discussion of advertising and promotion budgets would take place between the marketing and accounting functions Systems design and development to make purchasing easier would involve IT and accounting

ANSWER 35
D If staff and customers are colluding the requirement of a signature on receipt of goods will be the least effective internal control in preventing fraud. Physical security keeps assets under lock and key, authorisation increases checks and sequential numbering prevents documents going missing.

ANSWER 36
B In the wheel all communication goes through one central person. In the Y a message works up a chain until it reaches an individual who is contact with more than one person. In the all channel, communication flows freely between members. In the circle, a message passes from one person to another.

ANSWER 37
A The appraiser told Gerry where he was going wrong but did not give any assistance or guidance to help Gerry improve his future performance. The tell and listen approach encourages input from the individual. The problem solving approach is where the appraiser and appraisee work together to identify problems and jointly find solutions. The 360 degree approach uses feedback from managers, subordinates and peers to review an individuals performance.

ANSWER 38
D Marketing orientation places the customer at the centre of organisational activity. Sales orientation focuses on sales and is associated with aggressive sales techniques. Production orientation focuses on mass production at the lowest cost with little consideration to customers' demand. Product orientation is where management produce goods and services to the best possible quality standards with little consideration for customers' needs and wants.

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F1 - Accountant in Business

Mock Exam - 1 (Answers)

ANSWER 39
B The stages are Observation and Reflection (watching), Abstract conceptualisation (thinking), Active experimentation (doing) and Experience (feeling)

ANSWER 40
C A task culture tends to exist in organisations whose members work in teams with a focus on results rather than processes.

A role culture suits bureaucratic organisations. A power culture is often seen in small entrepreneurial organisations where the owner-manager has all the power and control. A person culture exists in professional partnerships.

ANSWER 41
B Substantive tests substantiate the figures in the accounts. They are used to discover whether figures are correct or complete, not why they are incorrect or incomplete. Option C is the aim of compliance testing. Option D has nothing to do with a financial audit.

ANSWER 42
D Sexual harassment is unwanted conduct of a sexual nature. Victimisation is when a person is penalised because they are involved in a claim of discrimination against an employer. Direct discrimination is when a person or group of people are clearly discriminated against e.g. a job advert stating women can not apply for a job. Indirect discrimination is when a person or group would find it more difficult to meet criteria set by an organisation e.g. a job advert requesting individuals over 6 feet tall suggests women can not apply.

ANSWER 43
C Job descriptions can be restrictive as they outline the elements of the job and therefore may prevent people working flexibly outside of these boundaries. The other options are potential uses of job descriptions as they state the elements of a job.

ANSWER 44
A This statement is true, the Cadbury Committee did describe corporate governance as the system by which companies are directed and controlled

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F1 - Accountant in Business

Mock Exam - 1 (Answers)

ANSWER 45
A B describes imported inflation which can be reduced by policies to strengthen the national currency. C describes demand pull inflation. The solution may be to focus on reducing aggregate demand through tax rises, cuts in government spending and higher interest rates. D describes monetary inflation. The main tool for controlling such inflation is to reduce the growth in the money supply through higher interest rates.

ANSWER 46
D Window dressing could be committed by management, teeming and lading and skimming schemes both by employees.

ANSWER 47
A Internal auditors are accountable to the Board of Directors or, in a bigger company the Audit Committee. They should have no operational responsibilities so that they can remain as independent as possible.

ANSWER 48
B The statement is actually the definition of Selection. Recruitment is the process of generating a supply of possible candidates for positions within an organisation.

ANSWER 49
C The qualities of good information are accurate, complete, cost beneficial, user targeted, relevant, authoritative, timely and easy to use.

ANSWER 50
B The Board of Directors as a whole are responsible for the production of the financial statements.

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F1 - Accountant in Business