Keval Patel ID – S32883

BSBFIM601 - Manage finances

ASSESSMENT 4: QUESTIONS AND ANSWERS

1) In your own words, describe responsibility accounting?

Responsibility accounting is based on the assumption that every cost incurred must
be the responsibility of one person somewhere in the company.
For example, the cost of rent can be assigned to the person who negotiates and
signs the lease, while the cost of an employee’s salary is the responsibility of that
person’s direct manager. This concept also applies to the cost of products, for each
component part has a standard cost (as listed in the item master and bill of
materials), which it is the responsibility of the purchasing manager to obtain at the
correct price. Similarly, scrap costs incurred at a machine are the responsibility of
the shift manager.
By using this approach, cost reports can be tailored for each recipient. For
example, the manager of a work cell will receive a financial statement that only
itemizes the costs incurred by that specific cell, whereas the production manager
will receive a different one that itemizes the costs of the entire production
department, and the president will receive one that summarizes the results of the
entire organization.
As you move upward through the organizational structure, it is common to find
fewer responsibility reports being used. For example, each person in a department
may be placed in charge of a separate cost, and so each one receives a report that
itemizes their performance in controlling that cost. However, when the more
complex profit center approach is used, these costs are typically clumped together
into the group of costs that can be directly associated with revenues from a specific
product or product line, which therefore results in fewer profit centers than cost
centers. Then, at the highest level of responsibility center, that of the investment
center, a manager makes investments that may cut across entire product lines, so
that the investment center tends to be reported at a minimal level of an entire
production facility. Thus, there is a natural consolidation in the number of
responsibility reports generated by the accounting department as more complex
forms of responsibility reporting are used.

2) Which of the following statements relating to a budget is not true?

a) It is a detailed plan
b) It is a management tool
c) It provide many of the performance targets used in responsibility
accounting
d) It is prepared on historical basis
e) It identifies certain financial and operating targets
3) Detail 4 different types of budgets, and their purposes.
Budgets help businesses track and manage their resources. Businesses use a variety
of budgets to measure their spending and develop effective strategies for
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maximizing their assets and revenues. The following types of budgets are
commonly used by businesses:
1. Master Budget
A master budget is an aggregate of a company's individual budgets designed to
present a complete picture of its financial activity and health. The master budget
combines factors like sales, operating expenses, assets, and income streams to
allow companies to establish goals and evaluate their overall performance, as well
as that of individual cost centers within the organization. Master budgets are often
used in larger companies to keep all individual managers aligned.
2. Operating Budget
An operating budget is a forecast and analysis of projected income and expenses
over the course of a specified time period. To create an accurate picture, operating
budgets must account for factors such as sales, production, labor costs, materials
costs, overhead, manufacturing costs, and administrative expenses. Operating
budgets are generally created on a weekly, monthly, or yearly basis. A manager
might compare these reports month after month to see if a company is
overspending on supplies.
3. Cash Flow Budget
A cash flow budget is a means of projecting how and when cash comes in and
flows out of a business within a specified time period. It can be useful in helping a
company determine whether it's managing its cash wisely. Cash flow budgets
consider factors such as accounts payable and accounts receivable to assess
whether a company has ample cash on hand to continue operating, the extent to
which it is using its cash productively, and its likelihood of generating cash in the
near future. A construction company, for example, might use its cash flow budget
to determine whether it can start a new building project before getting paid for the
work it has in progress.
4. Financial Budget
A financial budget presents a company's strategy for managing its assets, cash flow,
income, and expenses. A financial budget is used to establish a picture of a
company's financial health and present a comprehensive overview of its spending
relative to revenues from core operations. A software company, for instance, might
use its financial budget to determine its value in the context of a public stock
offering or merger.
5. Static Budget
A static budget is a fixed budget that remains unaltered regardless of changes in
factors such as sales volume or revenue. A plumbing supply company, for example,
might have a static budget in place each year for warehousing and storage,
regardless of how much inventory it moves in and out due to increased or decreased
sales.

4) What information would you require to plan and prepare a budget for a
new business? Detail where this information would come from.
Budgets are one of the most important business financial statements. If planned
and managed well, a budget allows you to monitor the financial impact of your
business decisions and operational plans.
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What is a profit and loss budget?

The profit and loss budget is a summary of expected income and expenses. It is
usually prepared annually although the period can be shorter or longer, depending
on what you are going to use the budget for.
Income and expense information is set against the business operating plans for the
budget period.
Your accountant can help you prepare the budget but you need to understand how
it has been developed. You also need to know how to monitor your business
outcomes against the prepared budget so that you're tracking if your business is
achieving the goals and remaining profitable.
Steps for preparing a profit and loss budget
Start by understanding your business goals and involve key staff. This ensures your
budget is aligned to your goals and is prepared and reviewed by the appropriate
people.
Document and follow a process for preparing an annual budget. Steps could
include:
1. review the approved business operating plan and note all required
activities for the budget period
2. separate activities into existing and new for the new budget period
3. identify and document all assumptions that have been made for the
budget period
4. review prior year's profit and loss statements by regular periods
(monthly, quarterly etc.)
5. prepare the profit and loss budget for the selected period using the
Financial statements template.
Monitor and manage your profit and loss budget
Where the profit and loss statement is prepared on a monthly basis, the budget will
need to be separated into months for the budget period.
Regular monitoring of the budget against actual results provides information on
whether your business is on track to meet the goals you were aiming for when you
first prepared your budget.
When the actual results vary from the budget
At the end of each month, compare the actual results from the profit and loss
statement with the budgeted results. Note and analyse any variances, with
explanations. Categorise all variances as either a 'timing' or 'permanent' variance.
● a timing variance is where the estimated result did not occur but is
still expected to happen at some point in the future
● a permanent variance is where the expected event is not likely to occur
at all.

5) Describe what external factor should be taken into consideration when

planning and preparing a budget.
1. Revenue
Budget predictions are impacted when actual revenue received is not
as much as originally anticipated. External factors negatively affecting
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assumed revenue might include an economic downturn, unexpected

competition causing lowered sales or an inability to sustain the level of
growth needed. Internal factors such as inadequate collections and poor
accounts receivable practices could also impact revenue. Aggressive
projections that assume a high rate of growth or increased revenue have a
much greater potential for inaccuracy than conservative estimates based on
data from previous years.
2. Expenditure
Expenditure may be one of the most difficult areas of the budget to predict.
Increases to health insurance, turnover levels and collective bargaining in
unionized organizations can all change salary and benefits by a significant
margin. In many industries, salary and benefits is more than 50 percent of
the organization's total expenses. Any variance to employee compensation
will have a noticeable impact on budget predictions. Other unanticipated
expenditures may include rent increases, a previously unforeseen need for
overtime and financial audit fees and fines.
3. Market Conditions
The economy and current market conditions can impact the financial
forecast in several ways. Changes to the inflation rate and stock market
conditions directly affect the organization's net worth and its ability to
generate funds or loans. If the company relies heavily on investments as a
funding vehicle, then poor stock market performance will have a direct,
negative effect on budget predictions. Likewise, if the rate of return on
investments outperforms the prediction, then the budget will have a surplus.
4. Legislative Changes
Certain legislative changes have a direct impact on budget projections. In
most cases, businesses will be aware of pending legislation before it takes
effect and can plan accordingly. Sometimes, just the introduction of future
legislation, even if it has not taken effect, will disrupt current budget
projections. An example of this was the introduction of Governmental
Accounting Standards Board (GASB) legislation related to retirement and
other postemployment benefits. Although the legislation did not take effect
immediately, the impact of the future legislation was clear. It immediately
revealed that local governments would have millions of dollars of unfunded
liability under some of the proposed rules. Consequently, the organization's'
bond ratings started to take into account the potential liability and some
were downgraded as a result, hampering ability to borrow money and
directly impacting cash flow. Another example of an immediate legislative
change that impacts budget forecasts is a change to taxation.
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6) Describe the following term in relation to an organization's budgetary

requirements.
a) CAPITAL INVESTMENT
Capital budgeting, or investment appraisal, is the planning process used to
determine whether an organization's long term investments such as new
machinery, replacement of machinery, new plants, new products, and research
development projects are worth the funding of cash through the firm's
capitalization structure (debt, equity or retained earnings). It is the process of
allocating resources for major capital, or investment, expenditures.[1] One of the
primary goals of capital budgeting investments is to increase the value of the firm
to the shareholders.
Many formal methods are used in capital budgeting, including the techniques such
as
● Accounting rate of return
● Average accounting return
● Payback period
● Net present value
● Profitability index
● Internal rate of return
● Modified internal rate of return
● Equivalent annual cost
● Real options valuation
project. Techniques based on accounting earnings and accounting rules are
sometimes used - though economists consider this to be improper - such as the
accounting rate of return, and "return on investment." Simplified and hybrid
methods are used as well, such as payback period and discounted payback period.

b) CAPITAL EXPENDITURE
Capital expenditure, or CapEx, are funds used by a company to acquire or upgrade
physical assets such as property, industrial buildings or equipment. It is often used
to undertake new projects or investments by the firm. This type of outlay is also
made by companies to maintain or increase the scopeof their operations. These
expenditures can include everything from repairing a roof to building, to
purchasing a piece of equipment, or building a brand new factory.
In terms of accounting, an expense is considered to be a capital expenditure when
the asset is a newly purchased capital asset or an investment that improves the
useful life of an existing capital asset. If an expense is a capital expenditure, it
needs to be capitalized. This requires the company to spread the cost of the
expenditure (the fixed cost) over the useful life of the asset. If, however, the
expense is one that maintains the asset at its current condition, the cost is deducted
fully in the year of the expense.
The amount of capital expenditures a company is likely to have depends on the
industry it occupies. Some of the most capital intensive industries have the highest
levels of capital expenditures including oil exploration and production, telecom,
manufacturing and utilities.
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Capital expenditure should not be confused with revenue expenditure or operating

expenses(OPEX). Revenue expenses are shorter-term expenses required to meet the
ongoing operational costs of running a business, and therefore they are essentially
identical to operating expenses. Unlike capital expenditures, revenue expenses can
be fully tax-deducted in the same year in which the expenses occur.
Using Capital Expenditures in Multiples for Relative Valuation
The cash flow to capital expenditure ratio, or CF/CapEX, relates to a company's
ability to acquire long term assets using free cash flow. The cash flow to capital
expenditures ratio will often fluctuate as businesses go through cycles of large and
small capital expenditures. A high multiple is indicative of relative financial
strength. If a company has the financial ability to invest in itself through capital
expenditure, it is easier for the company to grow. It is important to note that this is
an industry specific ratio, and should only be compared to a ratio derived from
another company that has similar CapEx requirements.

c) CASH FLOW
A cash flow budget is a chronological overview of expected income and expenses
over a given period of time. The cash flow budget looks much like the operating
budget. It has many of the same budget lines
Cash in hand
The cash flow budget focuses on the cash (accessible money) that actually can to be
taken out of the cash box or the bank - cash to pay salary or debtors. It also focuses
on cash that is actually received from customers - cash you can see in the cash box
or in a bank statement.
Capital requirement
A cash flow budget shows a company´s monthly capital requirement. Some months
there might be lack of cash to keep the business in operation. If the cash flow
budget shows a lack of money at the end of a month you have to find the money
which is needed. It can be found in different ways:
● You can borrow more money from the bank
● You can make your debtors pay earlier
● You can delay the payment to your suppliers
● You can cut down expenses
● You can postpone larger investments
● You can stop withdrawing money to yourself
● You can introduce "cash on delivery"
● You can combine all of the possibilities
You might need help to cash flow budget
The establishing budget and operating budget are fairly easy to make for “non
accountants”. The cash flow budget is a bit more difficult. There are more unknown
figures to calculate and evaluate. This demands a clear view of the budgets.

d) BREAK EVEN
Break-even analysis entails the calculation and examination of the margin of safety
for an entity based on the revenues collected and associated costs. Analyzing
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different price levels relating to various levels of demand, an entity uses break-even
analysis to determine what level of sales are needed to cover total fixed costs. A
demand-side analysis would give a seller greater insight regarding selling
capabilities.
Break-even analysis is useful in the determination of the level of production or in a
targeted desired sales mix. The analysis is for management’s use only as the metric
and calculations are often not required to be disclosed to external sources such as
investors, regulators or financial institutions. Break-even analysis looks at the level
of fixed costs relative to the profit earned by each additional unit produced and
sold. In general, a company with lower fixed costs will have a lower break-even
point of sale. For example, a company with $0 of fixed costs will automatically
have broken even upon the sale of the first product assuming variable costs do not
exceed sales revenue. However, the accumulation of variable costs will limit the
leverage of the company as these expenses are incurred for each item sold.

e) GROSS PROFIT
Gross profit is a company's total revenue (equivalent to total sales) minus the cost
of goods sold. Gross profit is the profit a company makes after deducting the costs
associated with making and selling its products, or the costs associated with
providing its services. Gross profit will appear on a company's income statement or
can be calculated with this formula:
Gross profit = revenue - cost of goods sold
Also called "gross margin," "sales profit" and "gross income".
Gross profit assesses a company's efficiency at using labor and supplies. The
metric only considers variable costs, that is, costs that fluctuate with the level of
output: materials; direct labor, assuming it is hourly or otherwise dependent on
output levels; commissions for sales staff; credit card fees on customer purchases;
equipment, perhaps including usage-based depreciation; utilities for the production
site; shipping; etc. As generally defined, gross profit does not include fixed costs,
or costs that must be paid regardless of the level of output: rent, advertising,
insurance, salaries for employees not directly involved in production, and office
supplies.
However, it should be noted that a portion of the fixed cost is assigned to each unit
of production under absorption costing, which is required for external reporting
under GAAP. For example, if a factory produces 10,000 widgets in a given period,
and the company pays $30,000 in rent for the building, a cost of $3 would be
attributed to each widget under absorption costing.
Gross profit shouldn't be confused with operating profit, also known as earnings
before interest and tax (EBIT).
Gross profit can be used to calculate the gross profit margin. Expressed as a
percentage, this metric is useful for comparing a company's production efficiency
over time. Simply comparing gross profits from year to year or quarter to quarter
can be misleading, since gross profits can rise while gross margins fall, a worrying
trend that could land a company in hot water. The terminology here can cause some
confusion: "gross margin" can be used to mean either gross profit and gross profit
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margin. Gross profit is expressed as a currency value, gross profit margin as a

percentage. The formula for gross profit margin is:
Gross profit margin = gross profit / revenue = ( revenue - cost of goods sold
) / revenue
Gross profit margins vary greatly by industry. Food and beverage stores and
construction firms have razor-thin gross profit margins, for example, while
the healthcare and banking industries enjoy much larger ones.

f) RISK MANAGEMENT
Risk management is the process of identification, analysis and acceptance or
mitigation of uncertainty in investment decisions. Essentially, risk management
occurs any time an investor or fund manager analyzes and attempts to quantify the
potential for losses in an investment and then takes the appropriate action (or
inaction) given his investment objectives and risk tolerance.
Inadequate risk management can result in severe consequences for companies as
well as individuals. For example, the recession that began in 2008 was largely
caused by the loose credit risk management of financial firms.
Risk management occurs everywhere in the financial world. It occurs when an
investor buys low-risk government bonds over more risky corporate debt, when a
fund manager hedges his currency exposure with currency derivatives and when a
bank performs a credit check on an individual before issuing a personal line of
credit.

7) What is the financial reporting cycles relevant to your industry?

Restaurant Systems - Financial Reporting
Financial Reporting Systems includes everything you do to measure the results of
your restaurant's operations, marketing and people management.
Our financial reporting systems encompass much more than simple accounting,
profit & loss and cash flow. They include a combination of daily, weekly and
monthly reporting and accounting systems to help you track sales and expenses,
identify potential cost-control problems and manage your restaurant more
efficiently.

8) Describe 2 different capital investment evaluation techniques.

Some capital expenditures are selected out of necessity, such as a government
requirement to change the system for discharging environmentally harmful vapors
or to comply with an OSHA requirement. After budgetingfor the required capital
expenditures, companies might use the following techniques for evaluating other
capital expenditures.

Payback. This calculates the number of years it will take to recoup the cash spent
on a project. A criticism of payback is that the time value of money is not
considered and the cash flows over the entire life of the project are not considered.
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Accounting Rate of Return or Return on Investment. This approach looks

at the increase in accounting profit compared to the increased investment. This
approach also ignores the time value of money.

Internal rate of return. This method does consider the time value of money and
looks at the cash flows over the entire life of the project. The technique computes
the rate that will discount the future cash flows to be equal to the cash outlay for the
project.

Net present value. This method discounts the project's future cash flows by a
predetermined rate, such as the targeted or needed rate. If the cash flows discounted
by the targeted rate exceed the cash investment, the project is accepted. That is, the
project provides the targeted return or more.

9) What are the benefit of participative budgeting?

The benefits of participative budgeting include creating budgets that are
more easily achievable and increased morale. This type of budget gives
employees incentive to make sure the company stays within financial
limitations.

Participative budgeting is a budgeting system in which all budget-holding

employees have the opportunity to participate in making their own budgets. Unlike
budgets that are handed down from management, participative budgets are more
realistic in terms of expenditures. Employees also feel more valuable when they
help create their budgets.

To help make participative budgets effective, management provides employees

with guidelines for the company's overall direction and how individual
departments fit into it. Managers also review the budgets and make adjustments
where they are needed to ensure the budgets accurately reflect expenses.
10)What step would you take to effectively implement the budget into a
team environment?
In order to implement the budget into a team environment you need to track
the company as expenses for at least 3 months. Set up meetings with your team
and explain for creating and maintaining the budget.

11) What are INCOTERMS?

The Incoterms rules or International Commercial Terms are a series of pre-defined
commercial terms published by the International Chamber of Commerce (ICC)
relating to international commercial law. They are widely used in International
commercial transactions or procurement processes as the use in international sales
is encouraged by trade councils, courts and international lawyers.[1] A series of
three-letter trade terms related to common contractual sales practices, the
Incoterms rules are intended primarily to clearly communicate the tasks, costs, and
risks
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associated with the transportation and delivery of goods. Incoterms inform sales
contract defining respective obligations, costs, and risks involved in the delivery of
goods from the seller to the buyer. However, it does not constitute contract or
govern law. Also it does not define where titles transfer and does not address the
price payable, currency or credit items.
The Incoterms rules are accepted by governments, legal authorities, and
practitioners worldwide for the interpretation of most commonly used terms in
international trade. They are intended to reduce or remove altogether uncertainties
arising from different interpretation of the rules in different countries. As such they
are regularly incorporated into sales contracts[2] worldwide.
The first work published by the ICC on international trade terms was issued in
1923, with the first edition known as Incoterms published in 1936. the Incoterms
rules were amended in 1953,[3] 1967, 1976, 1980, 1990, and 2000, with the eighth
version— Incoterms 2010 [4]'—having been published on January 1, 2011.
"Incoterms" is a registered trademark of the ICC.

12) Describe the following INCOTERMS codes?

a) Departure (Group
F) FCA - Free
Carrier
FCA – Free Carrier (named places) The seller hands over the goods, cleared for
export, into the custody of the first carrier (named by the buyer) at the named place.
This term is suitable for all modes of transport, including carriage by air, rail, road,
and containerised / multi-modal sea transport. This is the correct "freight collect"
term to use for sea shipments in containers, whether LCL (less than container load)
or FCL (full container load).

b) Main carriage Paid By Seller (Group

G) CIF - Cost, Insurance And Freight
Use of this rule is restricted to goods transported by sea or inland waterway.
In practice it should be used for situations where the seller has direct access to the
vessel for loading, e.g. bulk cargos or non-containerised goods.
For containerised goods, consider ‘Carriage and Insurance Paid CIP’ instead.
Seller arranges and pays for transport to named port. Seller delivers goods,
cleared for export, loaded on board the vessel.
However risk transfers from seller to buyer once the goods have been loaded
on board, i.e. before the main carriage takes place.
Seller also arranges and pays for insurance for the goods for carriage to the named
port.
However as with “Carriage and Insurance Paid To”, the rule only require a
minimum level of cover, which may be commercially unrealistic. Therefore the
level of cover may need to be addressed elsewhere in the commercial agreement.

c) Arrival (Group D)
DAF - Delivered At Frontier
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DAF – Delivered At Frontier (Deliveplace) This term can be used when the goods
are transported by rail and road. The seller pays for transportation to the named
place of delivery at the frontier. The buyer arranges for customs clearance and pays
for transportation from the frontier to his factory. The passing of risk occurs at the
frontier.

13) What is the trades practice act?

Competition and Consumer Act
The main federal law, the Competition and Consumer Act 2010 (CCA), ensures
that trading is fair for your business and your customers.
The CCA covers most aspects of the marketplace: dealings with suppliers,
wholesalers, retailers, competitors and customers. It deals with unfair market
practices, industry codes of practice, mergers and acquisitions of companies,
product safety, collective bargaining, product labelling, price monitoring, and the
regulation of industries such as telecommunications, gas, electricity and airports.
The Australian Competition and Consumer Commission (ACCC) administers the
CCA. It promotes good business practices for a fair and efficient marketplace. Go
to the ACCC for information about federal competition, fair trading and consumer
protection laws.
Fair trading laws in your state or territory
Consumer protection is governed by state and territory laws (in the form of a Fair
Trading Act in most cases). Familiarise yourself with the laws in your region.
See your state or territory fair trading offices for advice on business rights and
obligations under fair trading laws. If you're unsure how fair trading laws apply to
your situation, think about seeking independent legal advice.
Australian Capital Territory
The ACT Office of Regulatory Services administers the ACT Fair Trading Act
1992. Their website provides information on codes of practice and other business
guides for traders.
New South Wales
NSW Fair Trading administers the NSW Fair Trading Act 1987. Fair Trading's
Acceptable business conduct webpage provides business operators with
information about how to trade fairly in New South Wales.
Northern Territory
Consumer Affairs administers the NT Consumer Affairs and Fair Trading Act.
Find information on trader issues such as advertising, business tenancies, disposal
of uncollected goods and product safety.
Queensland
The QLD Office of Fair Trading administers the QLD Fair Trading Act 1989 - PDF
0.4MB. See their website for information on business rights and responsibilities.
South Australia
Consumer and Business Services (CBS) administers the SA Fair Trading Act 1987.
It provides businesses with information on fair trading laws, advertising, handling
complaints and warranties.
Tasmania
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Consumer Affairs and Fair Trading administers the TAS Fair Trading Act
1990. Their website has publications covering many aspects of fair trading.
Victoria
Consumer Affairs Victoria administers the VIC Fair Trading Act 1999. Forms
and publications are available to assist businesses in giving the best deal in the
marketplace.
Western Australia
Department of Commerce administers the WA Fair Trading Act 1987.
The Department of Commerce's Consumer protection business page covers issues
such as product safety, selling goods and services, advertising, promotion and sales
practices and real estate and property.

14) What is the Warsaw Convention?

The Convention for the Unification of certain rules relating to international carriage
by air, commonly known as the Warsaw Convention, is an international convention
which regulates liability for international carriage of persons, luggage, or goods
performed by aircraft for reward.
Originally signed in 1929 in Warsaw (hence the name), it was amended in 1955 at
The Hague, Netherlands, and in 1971 in Guatemala City, Guatemala.[2] United
States courts have held that, at least for some purposes, the Warsaw Convention is
a different instrument from the Warsaw Convention as amended by the Hague
Protocol.

15) What is the World Trade Organisation?

The WTO was born out of the General Agreement on Tariffs and Trade (GATT),
which was established in 1947. A series of trade negotiations, GATT rounds began
at the end of World War II and were aimed at reducing tariffs for the facilitation of
global trade on goods. The rationale for GATT was based on the Most Favored
Nation (MFN) clause, which, when assigned to one country by another, gives the
selected country privileged trading rights. As such, GATT aimed to help all
countries obtain MFN-like status so that no single country would be at a trading
advantage over others.
The WTO replaced GATT as the world's global trading body in 1995, and the
current set of governing rules stems from the Uruguay Round of GATT
negotiations, which took place throughout 1986-1994. GATT trading regulations
established between 1947 and 1994 (and in particular those negotiated during the
Uruguay Round) remain the primary rule book for multilateral trade in goods.
Specific sectors such as agriculture have been addressed, as well as issues dealing
with anti-dumping.
The Uruguay Round also laid the foundations for regulating trade in services. The
General Agreement on Trade in Services (GATS) is the guideline directing
multilateral trade in services. Intellectual property rights were also addressed in the
establishment of regulations protecting the trade and investment of ideas, concepts,
designs, patents, and so forth.
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The purpose of the WTO is to ensure that global trade commences smoothly,
freely and predictably. The WTO creates and embodies the legal ground rules for
global trade among member nations and thus offers a system for international
commerce. The WTO aims to create economic peace and stability in the world
through a multilateral system based on consenting member states (currently there
are slightly more than 140 members) that have ratified the rules of the WTO in
their individual countries as well. This means that WTO rules become a part of a
country's domestic legal system. The rules, therefore, apply to local companies and
nationals in the conduct of business in the international arena. If a company
decides to invest in a foreign country, by, for example, setting up an office in that
country, the rules of the WTO (and hence, a country's local laws) will govern how
that can be done. Theoretically, if a country is a member to the WTO, its local laws
cannot contradict WTO rules and regulations, which currently govern
approximately 97% of all world trade.

16) What are Bilateral and Regional Free Trade Agreements?

On 27 November 2009, the Australian Government requested that the Productivity
Commission undertake a study into the impact of bilateral and regional trade
agreements on trade and investment barriers, and on Australia's trade and economic
performance, including their contribution to efforts to boost Australia's engagement
in the evolving regional economic architecture.
In undertaking the study, the Commission was to consider a broad range of issues,
including the:
● contribution of bilateral and regional trade agreements to reducing trade
and investment barriers and safeguarding against the introduction of new
barriers
● role of such agreements in lending support to the international
trading system and the World Trade Organization
● potential for trade agreements to facilitate adjustment to global
economic developments and to promote regional integration
● impact of trade agreements on Australia's trade and economic performance,
in particular any impact on trade flows, unilateral reform, behind-the-
border barriers, investment returns and productivity growth
● scope for Australia's trade agreements to reduce trade and investment
barriers of trading partners or to promote structural reform and
productivity growth in partner countries.

17) What is meant by financial probity?

Probity and accountability
A public authority must be able to demonstrate to suppliers and the community that
it conducts its procurement activities with high standards of probity and
accountability [1].
Probity requires that a public authority conduct its procurement activities ethically,
honestly and fairly. Elements of a procurement culture that promotes and
demonstrates high standards of probity include the following:
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● Expected behaviours are articulated and enforced.

● Officers involved are skilled, knowledgeable and experienced.
● Appropriate checks and balances are in place at various stages in
the procurement process.
● The concept of conflict of interest is well understood and strategies are
in place to identify and manage potential issues.
● Communication with suppliers is consistent and does not disadvantage
or advantage one supplier over others.
● Officers are not compromised in their ability to act, or to be seen to
act, impartially.
● Confidentiality of supplier information and evaluation processes is
secure. Accountability requires that a public authority be able to publicly account
for its decisions and take responsibility for the achievement of procurement
outcomes. Elements of a procurement culture that promotes and demonstrates a
high level of accountability include the following:
● Responsibility for decisions is readily identifiable.
● Adequate records are maintained to enable external scrutiny of decisions.
● Compliance with Government and State Supply Commission policies.
● Contract award details are made public as required.
● Processes are in place to provide feedback to unsuccessful bidders and
to manage supplier complaints.