Acca BT Course Notes

lOMoARcPSD|19198520
ACCA BT Course Notes
ACCA F1 Practice and Revision Kit by BPP (Association of Chartered Certified

Accountants)
Studocu is not sponsored or endorsed by any college or university

Downloaded by Ngân Kim (kimngan4921@gmail.com)
lOMoARcPSD|19198520
Course Notes
ACCA
Business and Technology (BT)
From September 2020
Tutor details

lOMoARcPSD|19198520
ii I n t ro d u c t i on A C C A BT
No part of this publication may be reproduced, stored in a retrieval system

or transmitted, in any form or by any means, electronic, mechanical,
photocopying, recording or otherwise, without the prior written permission
of First Intuition Ltd.
Any unauthorised reproduction or distribution in any form is strictly

prohibited as breach of copyright and may be punishable by law.
© First Intuition Ltd, 2020
APRIL 2020 RELEASE

lOMoARcPSD|19198520
A C C A BT I n t ro d u c t i on iii
Contents
Page
Introduction i
1 The exam vi
2 Studying Business and Technology vi
1: Organisations, stakeholders and the business environment 1
1 Different types of organisation: 1

2 Stakeholders 2
3 Mendelow’s matrix for prioritising stakeholders: 3
4 PEST analysis 4
5 Employment law 5
6 Data protection 7
7 Health and Safety at Work Act 1974 8
8 Basics of contract law 8
2: The macro-economic environment 11
1 Macro-economic factors 11
3: The micro-economic environment 15
1 Micro-economic factors 15
2 Elasticity of demand 20
3 Perfect competition 23
4 Monopoly 23
5 Social and demographic factors 24
6 Technological factors 24
7 Competitive factors (Porter’s Five forces) 28
8 SWOT Analysis 28
4: Organisational structure 29
1 The formal and informal business organisation 29

2 Direction and management of a company 30
3 Span of control 30
4 Scalar chain 31
5 Centralisation 31
6 Decentralisation 32
7 How to organise a business 32
8 The Anthony hierarchy of roles in an organisation 35
9 Marketing 35
5: Organisational culture and committees 37
1 Organisational culture 37
2 Committees in the business organisation 40
6: Governance and social responsibility 43
1 Governance and social responsibility in business 43

lOMoARcPSD|19198520
iv I n t ro d u c t i on A C C A BT
7: Systems, controls and compliance 47
1 The relationship between accounting and other functions 47

2 Financial accounting 49
3 Management accounting 49
4 Treasury function 49
5 Internal and external auditing and their functions 50
6 Law and regulation governing accounting 50
7 International Accounting Standards 51
8 Financial systems, procedures and IT applications 52
9 IT software applications 53
8: Control, security and audit 55
1 Internal financial control and security within business organisations 55

2 Controls and IT systems 56
9: Identifying and preventing fraud 59
1 Fraud and its prevention in business 59

2 Money laundering 60
10: Leading and managing individuals and teams 63
1 Leadership 63
2 Management 63
3 Supervision 64
4 Fayol (1849-1926) Classical theory of management 64
5 Frederick Taylor (1856 – 1915) Scientific Management 65
6 Elton Mayo 65
7 Mintzberg – the functions of a manager 66
8 Peter Drucker – the functions of a manager (alternative theory) 66
9 Managerial authority and responsibility 66
10 John Adair – Action-centred leadership 67
11 Fred Fiedler (1922 – 2017) The Fiedler contingency model. 67
12 Warren Bennis (1928 – 2014) seven qualities of a leader 68
13 Heifetz – adaptive leadership 68
14 Kotter 69
15 Ashridge Management College ─ four management styles: 69
16 Blake and Mouton’s Managerial Grid 70
17 Recruitment, selection, diversity etc 71
11: Individuals, groups and teams 75
1 Individual and group behaviour in business organisations 75

2 Team formation, development and management 76
3 Bruce Wayne Tuckman 77
4 Motivating individuals and groups 78
5 Maslow’s hierarchy of needs (a content theorist) 79
6 Herzberg’s two factor theory (a content theorist) 79
7 Douglas McGregor's X-Y Theory (a process theorist) 80
8 Viktor Vroom (a process theorist) – expectancy theory 81
12: Training and development and performance appraisal 83
1 Training and learning at work 83

lOMoARcPSD|19198520
A C C A BT I n t ro d u c t i on v
2 Honey and Mumford 83

3 Kolb learning styles 84
4 Role of the human resources department and individual managers in the learning process 86
5 Review and appraisal of individual performance 87
13: Personal effectiveness and communication 91
1 Competency framework 91
2 Techniques for improving effectiveness at work and their benefits 91
3 Barriers to effective time management 92
4 The role of IT in improving personal effectiveness 92
5 Coaching 92
6 Mentoring 93
7 Counselling 93
8 Features of effective communication 93
9 Verbal or oral communication 95
10 Communication patterns 95
14: Professional ethics 97
1 Ethics and accountants: 98

2 Fundamental Principles of the IFAC code (CIPOP) 98
3 Conceptual framework 98
4 Personal qualities required of an accountant: (CTR3) 99
5 Professional qualities required: (SASI) 99
6 Organisational values promoting ethical behaviour 99
7 Ethical conflicts and dilemmas 100
8 Conflict resolution (Ethical dilemmas) 101
Comparison of course notes content with study text 103

lOMoARcPSD|19198520
vi I n t ro d u c t i on A C C A BT
1 The exam
Business and Technology (BT) is a two-hour computer-based examination.
The paper is in two sections. Questions will assess all parts of the syllabus and will test knowledge and
some comprehension or application of this knowledge.
The examination will consist of two sections:
 Section A contains 30 two mark objective test questions and 16 one mark objective questions
(76 marks in total). There is no partial marking in section A.
 Section B contains 6 scenario based multi-task questions; one relating to each area of the
syllabus. Each question is worth 4 marks (24 marks in total). Partial marks are available in
section B.
All questions are compulsory.
The paper has a pass mark of 50%.
2 Studying Business and Technology

Full details of the Business and Technology syllabus can be found on the ACCA website at:
https://www.accaglobal.com/content/dam/acca/global/PDF-
students/fia/studyguides/BT%20syllabus%20and%20study%20guide%202020-21%20FINAL.pdf
These course notes cover the syllabus and include all you need to know to pass the Business and
Technology exam. These notes are supported by a question bank and practice exams.

lOMoARcPSD|19198520
Organisations, stakeholders
and the business environment
According to Richard Daft an organisation is:

 A social entity, i.e. it is made up of people and their relationships with one another
 Goal directed. Human interaction helps to achieve those goals
 A deliberately structured and co-ordinated activity system
 Linked to the external environment
Organisations allow the following:
 People working together produce synergies (efficiencies) for the organisation
 Organisations allow individuals to specialise and build on their strengths
 Knowledge can be shared
1 Different types of organisation:

(a) Commercial ─ a business formed with the intention of generating profit. There are many
possible forms:
 Company (Ltd or plc)
 Partnership
 Sole trader
– It could be a manufacturer, distributor, service provider, retailer, mining or oil
company and so on.
– In smaller organisations the owner may also run the organisation. In larger
organisations, such as plcs, the owners (shareholders) appoint directors to run the
company for them.

lOMoARcPSD|19198520
2 1: O rg an i s at i o n s, s t ake h ol d e rs an d t h e b u s in e s s e n v iro n me n t A C C A BT
(b) Not-for-profit ─ an organisation formed with the intention of providing a service rather than
making a profit e.g. a charity.
(c) Public sector ─ all organisations owned and run by central or local government
e.g. the NHS. These are not necessarily “not for profit” and are not necessarily voluntary.
(d) Non-governmental organisations (NGOs) – an independent voluntary association of people
acting together for some common purpose e.g. The Red Cross.
(e) Co-operative – this is a business owned by its workers who share the profits
e.g. the John Lewis Partnership.
2 Stakeholders
Government Community
Shareholders
Lenders
Interest Management Press/

Groups Media
Employees
Customers
Suppliers
Public Authorities
KEY TERMS
 An internal stakeholder is an individual or group which affects, or can be affected by,
the organisation’s actions. The categories of internal stakeholder are executive
directors/senior managers and employees. In large organisations the managers may or
may not also own the organisation. In smaller organisations the managers are also likely
to own the organisation.
 Connected stakeholders are the organisations shareholders, bankers (providers of debt
finance), customers and suppliers. The examiner says this group includes non-executive
directors.
 External stakeholders are any stakeholder, which are not internal or connected, such as
government and the community.
 External stakeholders are also known as secondary stakeholders, while internal and
connected shareholders might be classed as primary shareholders. They usually have
some sort of contractual relationship with the company
The impact stakeholders have on an organisation depends upon their levels of power and interest.

lOMoARcPSD|19198520
A C C A BT 1: O rg an i s at i o n s, s t ake h ol d e rs an d t h e b u s in e s s e n v iro n me n t 3
3 Mendelow’s matrix for prioritising stakeholders:

High Power Low
High
A C
Involve Consult / Inform
E.g. key customer, active major E.g. Local community, pressure group, local
shareholder, trade unions, secured lender media, local government (may be in box A),
individual shareholders (may be in box D),
supplier, individual customers
Risk of influencing opinion of those in boxes A

and B
Interest
B D
Keep satisfied Ignore?
E.g. Central Government, passive major E.g. Individual householders living nearby
shareholder, national media
Risk of them joining up? This may move them
Risk of movement to A above into box C
Low
Stakeholder Objectives
Directors/Senior Managers Maximise remuneration, security of tenure, maximisation of power and
influence
Employees Maximise remuneration, security of tenure, career development, training
Shareholder Share price maximisation, dividend maximisation, earnings growth,

maintenance of control
Lenders Certainty of payment, security of capital, further loans
Customers VFM, high quality, reliable service, Innovation
Suppliers Certainty of payment, further business
The interaction between different stakeholders will vary depending upon the particular stakeholders
and their objectives.
As can be seen above, different stakeholders will have different objectives and some of these may not
be consistent e.g. maximising the dividend and maximising the directors’ remuneration; the more the
directors are paid, the less that is left to pay out as a dividend.
Cyert and March (the consensus theory of company objectives) argue that objectives emerge as a
consensus of the differing views of the stakeholders of the organisation.

lOMoARcPSD|19198520
4 PEST analysis
PEST analysis is concerned with the “environmental” (i.e. outside world) influences on a business.
The acronym stands for the Political/legal, Economic, Social and Technological issues that could affect
the strategic development of a business.
The examiner may refer to PESTEL. This is PEST with Environmental and Legal tacked on the end.
Identifying PEST influences is a useful way of summarising the external environment in which a
business operates. To be effective, the analysis should be followed up by consideration of how a
business can respond to these influences.
Political / Legal Economic Social Technological
 Environmental  Growth  Income distribution,  Government
regulation and e.g. change in spending on
protection disposable income research
 Taxation (corporate  Monetary policy  Demographics, age  Government and
and consumer) e.g. interest rates, structure of the industry focus on
exchange rates population; gender; technological effort
and money supply family size
 International trade  Government  Labour / social  New discoveries and
regulation spending mobility development
 Consumer  Policy towards  Lifestyle changes  Speed of technology

protection unemployment e.g. Home working, transfer
single households
 Employment law  Taxation  Attitudes to work  Rates of
and leisure technological
obsolescence
 Government  Exchange rates  Education  Energy use and costs

attitude
4.1 Political and legal factors

The political system and government policy affect the organisation in the following ways:
 Setting the legal framework e.g. minimum wage levels
 Managing the economy
Common Law
 The UK Legal system was based largely on judge-made law ("common law" or “case-law”) until
around the seventeenth century.
 Since that time, new laws and law reform have increasingly been brought about through Acts of
Parliament.
Legislation
If created by Acts of Parliament, the law is “primary” legislation. The Courts cannot overrule primary
legislation.

lOMoARcPSD|19198520
Parliamentary sovereignty
Parliament can:
 Repeal earlier legislation
 Overrule case law
 Make new law
Under the Treaty on the Functioning of the EU (TFEU, formerly the Treaty of Rome), Parliament is
obliged to bring UK law into line with the Treaty of Rome and with any directives issued by the
European Union.
The UK is obliged to apply regulations issued by the EU as they have the force of law in member states.
Supranational bodies
A number of supranational organisations and bodies have been created which provide mechanisms
whereby disputes between states may be avoided, discussed or resolved, e.g. through arbitration or
mediation.
Examples include:
 The European Union (EU)
 The United Nations (UN)
 The World Trade Organisation (WTO)
5 Employment law
Law protecting employees built upon the employment contract, which can be oral or written.
The main terms of employment must be supplied to employee within two months of commencing
employment.
Terms should contain the following:
 Names of employee and employer
 Date of commencement
 Job title
 Notice period
 Whether service with a previous employer forms part of the employee’s continuous period of
employment
 Hours of work, including normal working hours
 Holidays and holiday pay
 Arrangements for sick leave, sick pay
 Disciplinary and grievance procedures or reference to where they can be found

lOMoARcPSD|19198520
(a) Common law duties of employee and employer

Employer Employee
Overriding duty of mutual trust and confidence, Fundamental duty of faithful service
including taking reasonable care of employees and
provide a safe system of working. No duty to
protect employee’s property or provide references.
For example For example
 Pay employees  Not to compete with employer
 Indemnify employee against expenses and  Competence to do job
losses incurred in course of employment  Obedience
 Take care of health and safety  Account for money and property received
 Select fit and competent fellow workers during course of employment
 To provide work where employee is paid by  Exercise reasonable skill and care
reference to work done.  Not to delegate duties without permission
(b) Statutory duties

(i) Pay
 Minimum wage
 Itemised payslip
 Statutory sick pay, but not sick pay from employer’s own funds
 Statutory maternity and paternity pay.
(ii) Hours of work
 Working time regulations, 48-hour maximum over a 17-week average, employee
over 18 can opt out in writing.
 Right to request flexible working arrangements, not to be unreasonably refused.
(iii) Discrimination
 Unlawful to discriminate on grounds of age, sex, sexual orientation, marital status,
nationality, race, religion, or disability unless a genuine occupational qualification
exists under the Equality Act 2010.
 Employers must make reasonable adjustments to accommodate disabled
employees taking into account practicality and cost.
 Direct discrimination is the legal term that applies if a person treats someone less
favourably than they would another because of protected characteristic they have
(e.g. race, religion, age and sex).
 Indirect discrimination occurs when an organisation makes a decision, or puts in
place a particular policy or practice, which, on the face of it appears to treat
everyone equally, but which in practice leads to people from a protected group
being treated less favourably than other people.
For example, an employer who requires staff to commit to working from 8pm to
11pm every evening indirectly discriminates against women, who are more likely
to be primary carers of children.
 Victimisation occurs when you treat someone badly because they have made a
claim or complaint of discrimination (under the Equality Act).
 Harassment is when a member of staff behaves inappropriately towards another
member of staff, for example, behaving aggressively or using abusive language.
Employers should protect employees from harassment at work.

lOMoARcPSD|19198520
 'Positive action' means the steps that an employer can take to encourage people
from groups with different needs or with a past track record of disadvantage or
low participation to apply for jobs.
 Positive discrimination is the practice or policy of favouring individuals belonging
to groups which suffer discrimination
(c) Termination of contract
(i) Wrongful dismissal
 If employer breaches contract, e.g. by dismissing employee without giving
sufficient notice, employee can claim damages for breach.
 Damages usually calculated by reference to difference between actual and
contractual notice period.
 No minimum period of employment required.
(ii) Unfair dismissal (minimum 24 months’ employment required)
 To avoid a claim for unfair dismissal the employer must act “reasonably”.
 Reasonableness includes giving reasons for dismissal in writing.
 What constitutes fairness will depend on the size and resources of the employer.
Fair reasons for dismissal include:
 Lack of capability or qualifications e.g. the loss of a driving licence.
 Misconduct, e.g. assault, immorality, habitual drunkenness.
 Redundancy, provided reasons for selection are fair.
 Following fairly applied grievance or disciplinary procedure.
 Failing to carry out a reasonable order from the employer.
Unacceptable reasons for dismissal
 If related to trade union activities  automatically unfair
 Pregnancy  automatically unfair
 Unfair selection for redundancy
(d) Redundancy
 Fair dismissal if employer ceases or intends to cease trading at that location or needs
fewer workers at that location.
 Minimum two years’ service since reaching 18 years of age.
 Not available if employee unreasonably refuses alternative employment offer from employer.
6 Data protection
The Data Protection Act 2018 regulates how personal information is used and protects individuals
from misuse of personal details. It is the UK’s implementation of the EU General Data Protection
Regulation (GDPR).
The Act protects individuals rather than companies and applies to regulated data. It provides a
common-sense set of rules which prohibit the misuse of personal information without stopping it
being used for legitimate or beneficial purposes.

lOMoARcPSD|19198520
Data Protection Principles (taken from the Act)

These require regulated personal information on individuals to be:
 Not kept longer than necessary
 Adequate, relevant and not excessive
 Fairly and lawfully processed and used “NAFPANK”
 Processed and used for limited purposes
 Accurate and up to date
 Not transferred abroad without adequate protection
 Kept secure
Organisations using personal information ('data controllers') must comply with these Principles.
Obtaining access to information

The Act, with some exceptions, gives individuals the right to find out what information is held about
them by organisations. This is known as the 'right of subject access'. On written request, individuals
are entitled to be supplied with a copy of all the information an organisation holds about them.
7 Health and Safety at Work Act 1974

This Act states that it is the duty of employers, as far as it is practicable, to ensure the health, safety
and welfare of employees. This includes:
 Statement of policy
 Insure against risks
 Assess risk
 Adequate information, training and supervision
 Safe systems, equipment and place of work
 Adequate access
 Healthy environment
It is the responsibility of both the individuals within an organisation and the organisation as a whole to
ensure that the laws on data protection, security and health and safety are complied with. Overall
responsibility stays with the directors.
8 Basics of contract law

KEY TERMS
A contract is defined as “an agreement, supported by consideration from both parties, and
made with the intention to be legally binding, by parties who have the legal capacity to
make such an agreement”.
“Agreement” = Offer + Acceptance
The agreement necessary for a contract to exist is normally evidenced by OFFER and
ACCEPTANCE.
Some (but not all) contracts have to be made in writing, e.g. share and land transfers, consumer credit
contracts. Most contracts could be valid even if made orally.
Some contracts may be void (destitute of legal effect) this means no contract exists e.g. contracts in
restraint of trade.

lOMoARcPSD|19198520
Some are voidable (one party can avoid the contract) e.g. contracts with minors for the supply of non-
necessaries.
Some are unenforceable (valid contract but one party cannot force the other to complete the
agreement) e.g. because of a lack of written evidence.
Gratuitous promises are enforceable if they are executed via a deed (a formal document that states it
is a deed and where signatures are witnessed by a third party). Otherwise, promises are only
enforceable if supported by consideration from both parties.
Sale of Goods Act 1979

This Act imposes conditions relating various aspects of the sale agreement, including:
 The seller’s right to sell,
 The condition and fitness for purpose of goods sold,
 Goods sold must correspond to any description of the goods that has been provided.
Consumer Rights Act 2015

This Act gives consumers protection in contracts for sale. Retailers must sell goods to consumers that
are fit for purpose, so retailers must give refunds for faulty items. Note that this is the duty of the
retailer, not the manufacturer of the good. (The retailer would have recourse to the manufacturer
under the terms of their agreement.)

lOMoARcPSD|19198520

lOMoARcPSD|19198520
11
The macro economic

environment
1 Macro-economic factors
Macro-economic policy is the field of economics that studies the behaviour of the aggregate (i.e.
whole) economy. Macro-economics examines economy-wide phenomena such as changes in
unemployment, national income, rate of growth, gross domestic product, inflation and price levels.
The main determinants of the level of business activity in the economy are:
 Market demand
 Cost of finance/interest rates
 Exchange rates
The overall level of business activity directly affects the levels of disposable income enjoyed by
individuals, households and business.
Inflation
Inflation causes the following:
 Redistribution of wealth e.g. from accounts receivable to accounts payable
 Causes particular difficulty for those on fixed incomes
 Makes planning for the long term difficult
 Causes interest rates to rise, to choke demand, and exchange rates to rise, which in turn sucks
in imports and inhibits exports
 Inflation can be “cost-push”, i.e. driven by rising costs, e.g. airline ticket price rises currently
driven by increases in price of aviation fuel, or “demand pull” where resources are insufficient
to meet demand, e.g. almost all commodities at present.

lOMoARcPSD|19198520
12 2: T h e mac ro - e c o no mi c e n v i ro n men t A C C A BT
Unemployment
Unemployment causes the following problems:
 Loss of output
 Loss of human capital
 Social costs e.g. crime
 Increasing burden of welfare payments
 Unemployment can be:
– Structural (declining industry - long term)
– Seasonal (less demand for workers in winter - short term)
– Frictional (short term disconnect, e.g. new generation of graduates, or workers in one
location and jobs in another)
– Cyclical (due to recession as part of economic cycle – long term)
– Technological (caused by changes in technology e.g. self-service checkouts - long term)
Stagnation
Stagnation is zero or negative economic growth. Stagnation causes:
 Lack of investment
 Increase in savings
Balance of payments
The balance of payments refers to the balance between exporting and importing of goods and
services. If a country is importing more than it is exporting then more money is flowing out of the
country (for imports) than is flowing in (for exports).
It is made up of the current account and the capital account.
Current account
The current account records how well the UK is doing in terms of its exports of goods and services
relative to its imports. If the UK is to 'pay its way' in the world over the long term, then it needs to
keep earning enough foreign currency from its exports to pay for its imports. If this is not the case, the
account will be in deficit. In summary, the transactions are:
 Trade in goods
 Trade in services
 Income from employment of UK residents by overseas firms
 Income from capital investment overseas
 Transfers to and from bodies such as the EU
Capital account
The capital account comprises public sector flows into and out of the country, such as government
loans to other countries.
The sum of the balance of payments must be zero (it balances in the way that a trial balance balances).
If we import more than we export we will have to use reserves or borrow to cover the difference and
to make the balance of payments total zero.
When economists do talk about a surplus or deficit in the balance of payments they are referring to a
surplus or deficit in the current account only.
When a country is continually in deficit, it is importing more goods and services than it is exporting.

lOMoARcPSD|19198520
A C C A BT 2: T h e mac ro - e c o no mi c e n v i ro n men t 13
Government policies
Different governments will put a different emphasis on individual policies and use different measures to
achieve these policies, but in general, governments try to achieve the following macroeconomic targets:
 Strengthening business to make the economy more competitive
 Zero inflation
 Balance imports and exports
 Increasing employment opportunities
 Ensuring fairness for families and communities
 Delivering macroeconomic stability to encourage long term planning and investment
 Potential growth is determined by “supply-side” factors, e.g. resources, productivity
 Actual growth is determined by growth in output (supply side) and growth in demand (demand
side)
Fiscal policy covers the Government’s spending and taxes. Taxes affect the amount that companies
and individuals have available for spending. So Government spending and taxation decisions have a
major effect on average demand and output.
Monetary policy is the attempt to regulate the supply of money and the terms and availability of cash.
The broad aim of monetary policy is to achieve price stability by influencing the level of demand in the
economy. (It involves manipulating interest rates and exchange rates.)
Quantitative easing is a relatively unconventional monetary policy where government prints more
money that it can spend. This has the effect of increasing the amount of cash in the economy,
hopefully increasing aggregate demand. It is generally a medium term policy.
Budget Deficit
By running a budget deficit the Government is injecting more money into the economy than it is taking
out. This will help boost aggregate demand and reduce unemployment. Therefore, running a deficit is
known as an ‘expansionary’ strategy.
It is often used when a ‘deflationary gap’ exists in the economy. This occurs when the level of
aggregate demand in the economy is insufficient to lead to full employment.
Budget Surplus
By running a budget surplus the Government is taking money out of the economy, reducing aggregate
demand. This is referred to as a ‘contractionary’ policy.
It is often used when an ‘inflationary gap’ exists in the economy. This occurs when aggregate demand
in the economy is higher than the country can supply which leads to high inflation.
A “positive public sector net cash requirement” indicates a deficit in public finances (negative
requirement indicates a surplus).

lOMoARcPSD|19198520
14 2: T h e mac ro - e c o no mi c e n v i ro n men t A C C A BT

lOMoARcPSD|19198520
15
The micro-economic
environment
1 Micro-economic factors
The market
A “market” can be defined as any mechanism by which potential buyers of a good or service are
brought together with potential sellers of that good or service.
This market could also be for factors of production, such as the labour market dictating the market
wage for a particular group of employees.
Price mechanism
The “price mechanism” is the means by which the decisions of consumers and businesses interact to
determine the allocation of scarce resources between different goods and services. Changes in the
demand or supply send the market price of a good up or down.
Price changes are a signal to consumers and producers to change the quantity bought and sold.
The price mechanism determines what should be produced and who should get it. In this way it can be
said to act as a regulator of demand and an allocator of resources.
Marginal utility
This is the satisfaction gained from consuming one extra unit of a good or service, or the satisfaction
given up from consuming one less. That second cup of coffee never tastes as good as the first.
Rational consumers aim to maximise total utility; this implies that the ratio of marginal utility to
price is equal for each good.

lOMoARcPSD|19198520
16 3: T h e mi c ro -e c o n o mi c e n v i ro n me n t A C C A BT
Demand
If the average price of a Mars Bar was £0.30 each you might be able to make some estimate of how
many you would want and could afford to buy each month. At a lower average price of £0.20 you
might increase your estimate of how many you would purchase.
The Law of Demand simply proposes that as the price of a good falls, the quantity you would be willing
and able to purchase increases, given that everything else remains unchanged.
Demand curve
The demand curve represents the quantities of a good or service that consumers are willing and able
to purchase at various prices.
It is normally drawn as a straight line as this is easier, but in practice, demand curves are normally
curved.
The Law of Demand implies the following with respect to a demand curve (all of these say exactly the
same thing):
 The demand curve is downward sloping (i.e. a negative slope)
 The demand curve shows an inverse relationship between price and quantity demanded.
ILLUSTRATION: DEMAND CURVE
Demand for Mars Bars in a school:

Quantity
Price Demanded
£0.20 400
£0.25 350
£0.30 300
£0.35 250
£0.40 200
£0.45 150
£0.50 100
At a price of £0.50, the demand for Mars Bars is 100 units. As the price falls to £0.20, the quantity
demanded increases to 400 units – an extension of demand.

lOMoARcPSD|19198520
A C C A BT 3: T h e mi c ro -e c o n o mi c e n v i ro n me n t 17
If the price increases from £0.20 to £0.50, the quantity demanded decreases by 300 units – a
contraction of demand.
Be careful with these terms! They relate to movements along the demand curve NOT movements of
the demand curve itself!
Shifts in the demand curve itself

It is possible for demand to increase for all price levels. The following are all considered to be
“conditions of demand”, which would lead to changes in demand at all price levels (i.e. a movement of
the entire demand curve either outwards (increase) or inwards (decrease):
(a) Changing price of a substitute
Substitutes are goods in competitive demand and act as replacements for another product.
A fall in the monthly rental charges of cable companies might cause the demand curve for
British Telecom services to shift to the left as demand for its services decrease.
(b) Changing price of a complement
A complement tends to be bought together with another good. Two complements are said to
be in joint demand. Examples include: fish and chips, DVD players and DVDs, success and hard
work, and so on. A rise in the price of a complement to Good X should cause a fall in the
demand for X.
For example, a decrease in the cost of flights from London Heathrow to New York would cause
an increase in the demand for hotel rooms in New York and also an increase in the demand for
taxi services both in London and New York.
(c) Change in the income of consumers
Most of the things we buy are normal goods, that is, more is bought when income rises. When
an individual's income goes up, their ability to purchase goods and services increases, and this
causes an outward shift in the demand curve.
If income falls, prices of normal goods are likely to fall.
(d) Change in tastes and preferences
Tastes can often be volatile leading to a change in demand. An example would be demand for
British beef during the BSE crisis. Advertising is designed to change the tastes and preferences
of consumers and thereby causes a change in demand.
(e) Changes in interest rates
Many goods are bought on credit using borrowings and therefore the demand for them may be
sensitive to the rate of interest charged by the lender. If the Bank of England decides to raise
interest rates then demand for many goods and services may fall.
A change in any one of these factors will cause the demand curve to shift to the right (increase) or left
(decrease). In other words, at some given price, consumers will be willing and able to purchase either
more or less.
Please note that a rise in the price of a product leads to a movement along the demand curve rather
than a shift in the curve.
Demand is not usually influenced by supply side factors, for example suppliers underestimating
demand.

lOMoARcPSD|19198520
Supply
Supply is the quantity of a good or service that a producer is willing and able to supply onto the market
at a given price in a given time period.
Normally as the market price of a commodity rises, producers will expand their supply onto the
market. There are three main reasons why supply curves for most products slope upwards from left to
right giving a positive relationship between the market price and quantity supplied.
 When the market price rises (for example, following an increase in consumer demand), it
becomes more profitable for businesses to increase their output.
 Higher prices send signals to firms that they can increase their profits by satisfying demand in
the market. When output rises, a firm's costs may rise, therefore a higher price is needed to
justify the extra output and cover these extra costs of production.
 Higher prices make it more profitable for other firms to start producing that product so we may
see new firms entering the market, leading to an increase in supply available for consumers to
buy.
For these reasons we find that more is supplied at a higher price than at a lower price.
Supply curve
The supply curve shows a relationship between the price of a good or service and the quantity a
producer is willing and able to sell in the market. If the price of the good reduces (ceteris paribus)
there will be a movement down the supply curve (contraction) and if the price of the good increases
there will be a movement up the supply curve (extension).
In the short term rational suppliers will not supply goods if the marginal cost of production exceeds
the marginal revenue generated from sales.
This means that in the short term the firm’s marginal cost curve becomes its supply curve because
the firm is willing to supply at marginal cost.
But, rational suppliers will not supply goods if the sale price is less than the average variable cost as
they will not make a profit.
ILLUSTRATION: SUPPLY CURVE
Supply and Mars Bars

Quantity
Price Supplied
£0.20 100
£0.25 150
£0.30 200
£0.35 250
£0.40 300
£0.45 350
£0.50 400

lOMoARcPSD|19198520
Shifts in the supply curve itself

Changes in the price of a good will lead to a contraction or extension of supply (as noted above).
However, changes in other factors may cause the entire supply curve to move to the right (increase in
supply) or the left (decrease in supply). These other factors are referred to as “conditions of supply”
and include the following.
(a) Costs of production
A fall in the costs of production leads to an increase in the supply of a good because the
supply curve shifts downwards and to the right. Lower costs mean that a business can supply
more at each price and still generate the same profits. For example, a firm might benefit from a
reduction in the cost of imported raw materials.
If production costs increase, a business will not be able to supply as much at the same price –
this will cause an inward shift of the supply curve. An example of this would be an inward shift
of supply due to an increase in wage costs.
(b) Changes in production technology
Technology can change very quickly and in industries where the pace of technological change is
rapid we expect to see increases in supply (and therefore lower prices for the consumer).
(c) Government taxes and subsidies
Government intervention in a market can have a major effect on supply. A tax on producers
causes an increase in costs and will cause the supply curve to shift upwards. Less will be
supplied after the tax is introduced.
A subsidy has the same effect as a tax cut. A subsidy will increase supply because a guaranteed
payment from the Government reduces a firm's costs allowing them to produce more output at
a given price. The supply curve shifts downwards and to the right depending on the size of the
subsidy.
(d) Climatic conditions
For agricultural commodities such as coffee, fruit and wheat the climate can exert a great
influence on supply. Favourable weather will produce a bumper harvest and will increase
supply. Unfavourable weather conditions such as a drought will lead to a poor harvest and
decrease supply. These unpredictable changes in climate can have a dramatic effect on market
prices for many agricultural goods.

lOMoARcPSD|19198520
(e) Change in the price of a substitute

A substitute in production is a product that could have been produced using the same
resources. Take the example of barley. An increase in the price of wheat makes wheat growing
more attractive. This may cause farmers to use land to grow wheat and less to grow barley.
The supply of barley will shift to the left.
(f) The number of producers in the market
The number of sellers in a market will affect total market supply. When new firms enter a
market, supply increases and causes downward pressure on the market price. Sometimes
producers may decide to deliberately limit supply by controlling production through the use of
quotas. This is designed to reduce market supply and force the price upwards.
The entry of new firms into a market causes an increase in market supply and normally leads to
a fall in the market price paid by consumers. More firms’ causes an increase in market supply
and expands the range of choice available.
Equilibrium price
Price equilibrium is found where supply and demand are equal. This is the point where both sellers
and buyers are happy with the price and quantity. It is also known as the market clearing price.
If the price is set above the equilibrium price there will be excess supply.
If the legal minimum price is below the equilibrium price, this will have no impact.
The consumer surplus is the difference between what consumers are prepared to pay for a good or
service and the market price of that good or service.
If this minimum price was applied in the labour market, it would be known as a minimum wage and
the surplus would be the equivalent of unemployment, which would be a waste of a factor of
production.
If applied to physical goods, then price floors cause surpluses of products which have to be stored or
destroyed. Within the EU Common Agricultural Policy (CAP) this has over the years resulted in the EU
storing large quantities of food and selling the surplus to countries outside the EU (such as Russia) and
even paying farmers not to grow the product in the first place, but to remove land from agricultural
use.
EXAM FOCUS POINT

The examiner commented after the June 2017 sitting that students struggled with questions
relating to this part of the syllabus, so make sure you have spent adequate time to
understand the issues in this and the next section.
2 Elasticity of demand
Elasticity of demand
When you raise the price of most items, known as normal goods, people will buy less of them. For
example, when one airline raises its price, air passengers may switch to a rival airline.
If the price falls people will buy more of them. For example, the falling price of computers has meant
that increasing numbers of families and businesses have bought them.
Common sense tells us that when prices change, so too will the quantities bought.

lOMoARcPSD|19198520
This relationship is less strong for inferior goods, these are goods for which demand will fall as
household income rises. For example, people in developing countries switch to motor bikes and cars
from bicycles as their income rises.
However, businesses need to have more precise information than this ─ they need to have a clear
measure of how the quantity demanded will change as a result of a price change.
Price elasticity of demand

A very useful measure of the relationship between price and quantity demanded is 'price elasticity of
demand' or PED. Price elasticity of demand is a measure of the percentage change in the quantity of a
good demanded divided by the percentage change in its price. Effectively, it is a measure of how price
sensitive demand for a product is.
We can show this in a simple formula:
(𝑄𝑄2−𝑄𝑄1)
% 𝑐𝑐ℎ𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎 𝑖𝑖𝑎𝑎 𝑞𝑞𝑞𝑞𝑞𝑞 𝑑𝑑𝑎𝑎𝑑𝑑𝑎𝑎𝑎𝑎𝑑𝑑𝑎𝑎𝑑𝑑 �𝑄𝑄1
𝑃𝑃𝑃𝑃𝑃𝑃 = = (𝑃𝑃2−𝑃𝑃1)�
% 𝑐𝑐ℎ𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎 𝑖𝑖𝑎𝑎 𝑝𝑝𝑝𝑝𝑖𝑖𝑐𝑐𝑎𝑎
𝑃𝑃1
ILLUSTRATION: PRICE ELASTICITY OF DEMAND
If a good fell in price by 50%(e.g. from £1 to 50p) and the quantity demanded increased by 100%(e.g.
from 1000 to 2000), we could say that the Point PED is 2.
If a good fell in price by 50%(e.g. from £1 to 50p) and the quantity demanded increased by 25%(e.g.
from 1000 to 1250), we could say that the Point PED is 0.5.
If the PED > 1 the demand for the good is elastic. If the PED < 1 demand is inelastic.
Factors affecting the PED

 The number of close substitutes for a good / uniqueness of the product
The more close substitutes in the market, the more elastic the demand for a product is, because
consumers can more easily switch their demand if the price of one product changes relative to
others in the market. The huge range of package holiday tours and destinations make this a
highly competitive market in terms of pricing – many holiday makers are price sensitive.
 The cost of switching between different products
There may be significant transactions costs involved in switching between different goods and
services. In this case, demand tends to be relatively inelastic. For example, mobile phone service
providers may include penalty clauses in contracts or insist on 12-month contracts being taken
out.
 The degree of necessity or whether the good is a luxury
Goods and services deemed by consumers to be necessities tend to have an inelastic demand
whereas luxuries will tend to have a more elastic demand because consumers can make do
without luxuries when their budgets are stretched. I.e. in an economic recession we can cut
back on discretionary items of spending.
 The % of a consumer’s income allocated to spending on the good
Goods and services that take up a high proportion of a household’s income will tend to have a
more elastic demand than products where large price changes make little or no difference to
someone’s ability to purchase the product.

lOMoARcPSD|19198520
 The time period allowed following a price change

Demand tends to be more price elastic, the longer that we allow consumers to respond to a
price change by varying their purchasing decisions. In the short run, the demand may be
inelastic, because it takes time for consumers both to notice and then to respond to price
fluctuations.
 Whether the good is subject to habitual consumption
When this occurs demand tends to be more inelastic as the consumer becomes much less
sensitive to the price of the good in question. Examples such as cigarettes and alcohol and other
drugs come into this category.
 Peak and off-peak demand
Demand tends to be price inelastic at peak times – a feature that suppliers can take advantage
of when setting higher prices. Demand is more elastic at off-peak times, leading to lower prices
for consumers. Consider these examples: the charges made by car rental firms during the
course of a week, or the cheaper deals available at hotels at weekends and away from the high-
season. Train fares are also higher on Fridays (a peak day for travelling between cities) and also
at peak times during the day.
 The breadth of definition of a good or service
If a good is broadly defined, for example the demand for petrol or meat, demand is often fairly
inelastic. Specific cuts of meat will be more elastic following a price change.
If a firm wanted to increase its market share, a cut in selling price combined with elastic demand
would help.
Income elasticity of demand

This measures how responsive demand is to change in income.
Income elasticity of demand measures the sensitivity of demand to changes in consumer income and
is calculated as:
% ∆ Demand
Income Elasticity of Demand (YED) =
% ∆ Income
Economists make the distinction between:
Normal Goods. These have a positive income elasticity of demand i.e. as income increases demand for
the product increases. Common sense tells you that most goods will have a positive YED. If your
income went up by 20%, what would happen to the number of CDs, clothes, meals out etc that you
bought?
Inferior Goods. These have a negative income elasticity of demand i.e. as income increases demand
for a product decreases. Imagine you were very hard up and had been buying second hand clothing
and the cheapest food possible. What would happen to your demand for these products as your
income went up?
Unlike PED, where the sign is largely ignored, the sign is important for YED as it indicates whether a
good is normal or inferior.
Normal goods + YED
Inferior Goods – YED
Income elasticity of demand depends upon:
(1) The nature of the want fulfilled by the particular commodity and the level of income: food
occupies a smaller proportion of income as income rises, moving from a normal good into
becoming a necessity.

lOMoARcPSD|19198520
(2) The time period: in general demand becomes much more elastic in the long run than in the
short run because spending patterns tend to adjust to income changes with a time lag.
3 Perfect competition
No single producer or consumer has the market power to influence prices.
Perfect competition requires the following conditions be fulfilled. In such a market, prices would
normally move instantaneously to economic equilibrium.
 Atomicity – An atomistic market is one in which there are a large number of small producers
and consumers, each so small that its actions have no significant impact on others. Firms are
price takers, meaning that the market sets the price that they must choose.
 Homogeneity – Goods and services are perfect substitutes; that is, there is no product
differentiation. (All firms sell an identical product at an identical price.)
 Perfect and complete information – All firms and consumers know the prices set by all firms.
 Equal access – All firms have access to production technologies, and resources are mobile.
 Free entry – Any firm may enter or exit the market as it wishes.
 Individual buyers and sellers act independently – The market is such that there is no scope for
groups of buyers and/or sellers to come together with a view to changing the market price
(collusion and cartels are not possible under this market structure).
4 Monopoly
Introduction
A monopoly is where only one supplier of a good or service has no closely competing substitutes.
An example would be a rail operator on a particular route.
Another more theoretical example would be created by a series of mergers to leave one monolithic
supplier. Sky were effectively in this position when they “merged” with BSB in the 1990s and became
the sole supplier of live premiership football.
Sky’s position has subsequently been eroded with legislation insisting that the premiership sells
packages of matches to more than one broadcaster such as BT Sport or the BBC.
A natural monopoly occurs where there is a natural factor that makes it inefficient and too costly to
have new market entrants (e.g. water industry). Other types of monopoly tend to be caused by firms
merging together until there is a dominant player.
A monopoly supplier can earn supernormal profits in both the short run and long run. This is because
of the barriers to entry, e.g. economies of scale, high advertising costs, high capital requirements.
The monopolist charges higher prices than a perfectly competitive firm and produces less output, to
keep prices up. Monopolists are price makers.

lOMoARcPSD|19198520
5 Social and demographic factors

Population affects an organisation’s supply of labour.
Increasing birth rates mean more young people in the labour market and greater longevity means
more elderly people, some of whom will desire at least part time work. It may also affect factors such
as flexible working and approved leave, as people may need to arrange work around factors such as
childcare or care for elderly relatives.
Women are increasing their participation in the labour force. There are also increasing levels of
immigration.
Demographic change: Government response:
Increasing birth rates Encourage birth control
Greater longevity Age discrimination legislation
Personal pension provision
More women in the labour force Sex discrimination legislation
Maternity leave provisions
Immigration Race discrimination legislation
6 Technological factors
(a) Organisations can maintain or increase their level of output but with a reduced workforce /
downsizing, through greater automation. NB automation of basic financial processing is
impacting the finance profession in this way.
(b) Improved management information systems allow the removal of layers of
middle management / delayering.
(c) Outsourcing is the contracting out of specified operations to an external organisation. For
outsourcing to work well a close relationship is required, and this can be enhanced through the
use of technology, although it should be noted that there may be quality issues when
outsourcing. In finance functions, costs are often reduced by the combination of outsourcing
and process automation.
(d) Technological developments such as mobile and cloud computing can also dramatically change
the way the finance department is structured and interacts with the rest of the organisation.
Developments such as artificial intelligence and blockchain may impact the way the finance
department works.
6.1.1 Cloud computing

KEY TERM
Cloud computing is the use of the Internet to carry out processes that were traditionally
done on localised hardware.
A recent and growing trend in computing is the use of the Internet to do things that traditionally were
done using computer hardware owned and maintained in the individual business.
Use of ‘cloud computing’ where the business carries out activity using the Internet reduces the need to
invest in and maintain significant infrastructure.
Other benefits include:

lOMoARcPSD|19198520
 Flexibility (as a result of not having to invest in hardware, IT needs can be flexed more easily to
what is needed at the time)
 Disaster recovery (information is stored in the cloud)
 Ability to collaborate (when using the cloud, individuals all over the world can contribute to the
same document, rather than running parallel versions leading to greater errors)
 Security (the document is accessed by everyone from the same remote place, reducing chances
of loss of physical data in transit or otherwise)
 Environmental friendliness (this links with the flexibility note above – as lack of individual
infrastructure reduces carbon footprint and the energy used fluctuates with the actual needs of
the current time)
 Competitiveness (use of the cloud can give small business advantages enabling them to
compete with bigger businesses)
How finance may use cloud computing

Cloud computing can change the way that finance operates and how it records its activities. It can
enable finance staff to work flexibly and collaboratively, despite geographical distance. For example,
colleagues physically half the globe away from each other can work on the same document, and the
record of those changes is maintained in the cloud.
6.1.2 Process automation

KEY TERM
Process automation is the use of software to carry out low level tasks.
This is where software, effectively robots, is used to perform repetitive, rules-based tasks, meaning
that cost is saved on staff performing similar functions, who can also be repurposed to more
sophisticated value-added tasks.
A key impact on the organisation is cost saving.
Process automation can have a negative impact on staff morale (‘robots taking our jobs’)
 Must be managed sensitively
 May cause redundancies
 However, causes staff to be used in less routine ways, so could be motivating for staff
How finance may use process automation

Examples of finance tasks that can be completed through process automation:
 Processing credit notes
 Sending customer statements
 Performing supplier statement reconciliations
 Basic tax returns
Process automation may add to the role of internal audit, who can be involved in the process of
implementation, and monitoring the levels of controls associated with process automation,
particularly those associated with security – for instance if a robot is opening emails, it would not be
able to judge those which contained viruses, so a level of control would be needed to protect the
organisation.

lOMoARcPSD|19198520
If you are trying to choose a task which could be changed to process automation in an OT –
think about the level of repetition in the task, whether it is based on rules (eg include the
total on the sales ledger for this customer code) or whether judgement is required.
6.1.3 Artificial intelligence

KEY TERM
Artificial intelligence is technology that can be used to make decisions.
Artificial intelligence is not designed to replace or even replicate human intelligence but is in effect ‘a
learning machine’. Such systems have been shown to make effective decisions that can be more
effective than human decision-making systems.
 ‘Decision-making’ is simply the processing of a large amount of data: machines can do this
better than humans can
 Decisions may need to be influenced by factors such as empathy or creativity: machines are
currently less good at this than humans (speaking generally, of course!)
Benefits of machine-learning
 Machines can process considerably more data in determining a decision than humans can –
hence there is a link with big data and how it can be used effectively
 Machines may be able to identify patterns that humans would not (either due to volume of data
– as noted above – or due to the degree of consistency within the pattern)
 Machines do not suffer from human characteristics such as bias, tiredness or boredom!
Limitations
 Ultimately the machine can only work with input data, which is generated from humans and
may contain bias – but the machine cannot identify/edit that out
 On the same basis, the machine may not have access to the appropriate data to make the
decision required
How finance may use artificial intelligence

This is a developing area, as widespread use of artificial intelligence in finance is growing. However,
areas which could be relevant are:
 Forecasting: AI systems may recognise and interpret past patterns to create better budgets and
projections for the future (management accounting)
 Accounting entries: AI systems may enable better ‘coding’ of transactions for accounting
purposes, reducing coding errors and financial misstatements (for example, revenue or capital
expenditure)
 Fraud detection: AI systems may recognise the patterns of ‘normal’ transactions and
‘fraudulent’ transactions better than humans do
Use ‘FAF’ as a little mnemonic to help you remember these uses of AI
KEY TERM
Blockchain is a continuously growing data record.

lOMoARcPSD|19198520
At its simplest level, blockchain is effectively a digital (distributed) ledger which lists transactions in
individual ‘blocks’ and which continues to grow with the addition of subsequent transactions to create
a permanent record. Inherently, removal of a block will show digitally meaning that the digital record
is transparent and accurate.
The most famous use of blockchain is the powering of a digital currency (bit-coin) so that transactions
are recorded, but the currency is digital only – it does not exist in physical terms. However, it can be
used in any area where a permanent, transparent record would be beneficial – for example, voting
records at a country level.
How may finance use blockchain?

At a fundamental level, finance is the recording of day to day transactions. Blockchain could be used to
create a permanent, transparent record of those transactions, in which checking and double-checking
is not required, as the transactions are automatically linked back to the last and next in the chain.
This could save time and therefore cost.
Perhaps more importantly with its transparency, it can add value about the assurance of information
that is being provided. Users of financial information want to be able to trust it, and blockchain
increases the value of the information due to its transparency and accuracy.
Business may essentially become ‘cashless’ which will reduce the risks associated with cash
transactions, but recording of the digital transaction will still be critical.
6.1.4 Big data and data analytics

KEY TERM
Big data is a term given to collections of data that are so large that traditional methods of
data collection are insufficient. Developments in technology have been such that the
amount of data that can be collected has grown exponentially. A good example is the traffic
on social networks or data from financial markets.
 Described using the 4Vs:

 Volume – the amount
 Variety – the sources
 Velocity – the speed at which it changes
 Veracity – its truthfulness
Businesses have recognised the huge potential and strategic significance of big data.
 Information becomes more transparent and more accessible. It becomes more viable to predict
trends, analyse customer behaviour, understand what customers want – and provide it to them
(even before they realise it themselves!).
 It is possible to minimise risk by testing scenarios through knowledge of variables etc.
 There is more potential for customer segmentation, targeted marketing and customisation of
products. Predictive analytics are used by most large retailers to record customers’ shopping
and personal habits in order to target products most effectively. Not only shopping habits are
recorded, but also social network interactions, web searches and other personal information,
stage in life cycle, income etc in order to generate a complete profile.
 Businesses make better decisions by revealing new insights into customer thinking, product
usage and so on. McDonalds uses big data to test the impact of variations in menus by tracking
customer interactions, traffic in its restaurants and ordering patterns.
 It helps develop future products / services with a faster time to market.

lOMoARcPSD|19198520
How finance may use big data

It is likely that finance will have a role to play in collating and interpreting big data as some of the data
will be financial in nature and the finance profession is skilled with data interpretation. It is a
generalisation about ‘finance people’ that they like lots of figures and numbers and only they
understand them.
In the simplest of terms too, finance can use data analytics tools such as data visualisation to enhance
the value of financial information to internal and external users. It may enable clarity in financial
communication, enabling users to see ‘both the wood and the trees’.
Big data is not only relevant to commercial organisations. Its potential applications are wide-ranging:
from analysing political sentiment, to tracking doctors’ prescribing habits, to detecting tax fraud. In
this last example, you can see how big data might be valuable to internal audit in their monitoring or
investigative roles, analysing whether a suspected fraud has occurred, or identifying factors that
suggest one.
7 Competitive factors (Porter’s Five forces)

Professor Michael Porter of Harvard University identified five competitive forces that determine the
long-term attractiveness of an industry from a profitability perspective.
Porter was trying to show why some industries are more profitable than others. Consider petro-
chemicals (very profitable) against second-hand car retailing (far less profitable).
8 SWOT Analysis
Generally shown as a grid split into four sections:
Strengths Internal and relative to the competition
Weaknesses
Opportunities External and potentially relevant for all players in a market,

Threats PEST analysis is a good tool for identifying opportunities and
threats

lOMoARcPSD|19198520
29
Organisational structure
1 The formal and informal business organisation

Informal structure
 Based on the reality of day-to-day interactions between the members of the organisation
 May be different from that which is set out on paper
 Informal structures develop because:
– People find easy and time-saving ways of doing things (work-arounds)
– Patterns of interaction are shaped by friendship groups and other relationships
– People forget what the formal structures are
– It is easier to work with informal structures
Formal structure
 The way the organisation is organised by those with responsibility for managing the
organisation. They create the formal structures that enable the organisation to meet its stated
objectives.
 Formal structures will be set out on paper in the form of organisational charts.

lOMoARcPSD|19198520
30 4: O rg an i s at i o n al s t ru c t u re A C C A BT
2 Direction and management of a company

Every limited company must have at least one director, plcs must have at least two. Directors are
appointed by the shareholders (strictly known as members) to run the company on their behalf.
Directors can also be members.
Directors have a range of responsibilities in areas such as health and safety, tax and employment law.
There are serious penalties for not meeting these responsibilities.
Directors have an equitable fiduciary duty (a duty of the utmost good faith) to look after the interests
of the company.
Directors delegate many activities to managers. Managers implement strategy and apply policy. They
feed information back to directors. Managers are expected to be loyal to the company.
3 Span of control
Means the number of people who report directly to one manager in a hierarchy.
The more people under the control of one manager, the wider the span of control.
Fewer people means a narrower span of control.
The advantages of a narrow span of control are:
 Managers can communicate quickly with the employees under them
 Controlling staff is easier
 Feedback of ideas from the workers will be more effective
 Less management skill required
The advantages of wide span of control are:

 There are fewer layers of management to pass a message through, so the message reaches
more employees faster.
 It costs less money to run a wider span of control because a business does not need to employ
as many managers.

lOMoARcPSD|19198520
A C C A BT 4: O rg an i s at i o n al s t ru c t u re 31
The width of the span of control depends on:

 The type of product being made – products which are easy to make or deliver will need less
supervision and so can have a wider span of control.
 Skills of managers and workers – a more skilful workforce can operate with a wider span of
control because they will need less supervision. A more skilful manager can control a greater
number of staff.
4 Scalar chain
The number of layers of management from the top to the bottom of the organisation.
Tall organisation Flat organisation
Tall organisations (long scalar chain)

 Have more managers with a narrow span of control
 Can suffer from having too many managers
 Expensive to run
 Decisions can take a long time to reach the bottom of the organisation
 Good opportunities for promotion
 Managers do not have to spend as much time managing staff
Flat organisations (short scalar chain)

 Few managers with a wide span of control
 Quick decisions
 More susceptible to fraud or error (Barings Bank was a flat organisation)
5 Centralisation
Senior management make the main decisions and little authority is passed down the organisation.
Advantages
 Experienced people with an overview of the company make decisions
 Ensures policies are consistent throughout the company
 Ensures quick decisions can be made without consultation
 Procedures such as ordering and purchasing can be standardised throughout the company,
leading to economies of scale

lOMoARcPSD|19198520
Disadvantages (mainly advantages of decentralisation)

 Centralisation reduces the input of the day to day experts, e.g. the shop floor staff, into the
firm’s decision making
 Risks demoralising branch managers who may feel mistrusted or powerless.
6 Decentralisation
Decisions are made by junior management as authority is passed down the organisation, thereby
accepting less uniformity in how things are done.
Advantages
 Reduces the stress and burdens of senior management
 Empowers local managers, encouraging them to be more innovative and motivated
 Subordinates may have a better knowledge of local conditions
 Middle management are groomed to take over higher positions
Disadvantages
 Reduction in uniformity may unsettle customers who expect every Sainsbury’s to look the same
and every Big Mac to contain just one slice of gherkin
 Head office can see the big picture, therefore its instructions may prove more profitable than
local manager’s intuition
Summary
Certain functions within a business will always be centralised because of their importance, e.g. legal,
banking, audit.
Decision to allocate budget is likely to be centralised as it affects the whole organisation.
Decision to distribute profits is also taken centrally.
Some delegation is necessary in all firms because the amount of work a senior manager can physically
do is finite.
Even if authority is delegated to a subordinate it is usual for the manager to retain overall responsibility.
7 How to organise a business

(a) Entrepreneurial (spider in a web)
 New or small organisation
 One person controls everything
 Little specialisation or formalisation
 The founder has the power and creates the culture
 Informal work environment
 Reacts quickly to challenges
(b) Functional
 A functionally based structure is organised around different business functions.
 These functions are often categorised as departments or divisions.
 Traditionally based on specialised functions e.g. research and development, purchasing,
production, direct service provision, marketing, administration and finance.
 An emphasis on roles rather than the individuals who fill those roles.
 Tend to be bureaucratic and slow in distributing information.

lOMoARcPSD|19198520
(c) Matrix (a net)

 Organised around projects such as designing, building, marketing and selling a plane.
 Communication tends to be horizontal between individuals, rather than upwards and
downwards between departments.
 The matrix structure is built upon the principles of flexibility and dual authority. It goes
against the classical theory of management that advocates unity of command.
(d) Divisional
 Each division is largely autonomous, with its own subculture. Mars have a pet food
division as well as confectionery.
 Central headquarters or head office will be limited, but typically retains some functions,
e.g. planning, finance, legal services.
(e) Geographical
 An organisation divided up by geographical region, e.g. North America, Europe, with
divisions and departments under the regional umbrella.
(f) Product
 An organisation divided up by different products e.g. Diageo organises its business on the
basis of beers, wines, spirits, food (Haagen Dazs ice-cream).
 Separate departments and divisions under the umbrella of the product.
 A department specialises in one particular area of the business and performs all the
necessary planning, decision-making and control for that area.
Mintzberg’s organigram
Mintzberg described organisational forms using an organigram as follows:
The five components of an organisation need to be in the appropriate balance for the strategy,
environment and culture that they face.
The five components are:
(1) Strategic apex – is the source of direction for the organisation (e.g. board of directors).
They seek to control. This gives a Simple or Entrepreneurial structure.
(2) Middle line – are the middle managers that convert direction into tasks and procedures.
They seek autonomy. This gives rise to what is called a Divisional structure.

lOMoARcPSD|19198520
(3) Operating core – are those that provide the outputs of the organisation. They seek autonomy
and mutual working. This gives rise to what is called a Professional Bureaucracy.
(4) Technostructure – advise the operating core. They seek to standardise through procedures and
checking (e.g. quality control, compliance). This gives rise to what is called a Machine
Bureaucracy.
(5) Support staff – support the operating core. They seek their expertise to be recognised as vital
(e.g. finance, administration). This gives rise to what is called an Adhocracy.
Porter’s value chain

Michael Porter describes the organisation as a “value-creating system”. His “value chain” creates a
birds-eye view of a company:
Margin
Firm Infrastructure
Technology Development
Support
activities Human Resource Management
Procurement
Inbound Operations Outbound Marketing Service

Logistics Logistics & Sales
Primary activities
Primary activities
Taking a manufacturing company as an illustration, the “primary activities” are those directly related
with the input of materials through to the after sales service of the finished goods.
 Inbound logistics. Those activities involved with the physical receipt and storage of inputs. It
includes warehousing, transport and stock control.
 Operations. The conversion of inputs into finished goods in the factory, including assembly and
packaging.
 Outbound logistics. The safe storage and final distribution of the product to customers.
 Marketing and sales. The advertising and promotion of products.
 (After-sales) service. Includes customer support and repair services.
Operations management is concerned with all primary activities except marketing and sales.
Support activities
These are the functions which improve the efficiency and effectiveness of the primary activities.
 Procurement. Purchase of materials, spare parts, machines etc.
 Human resource management. Recruitment, development and retention of staff
 Technology development. Research and development, design.
 Firm infrastructure. General management, legal, finance and accounting.

lOMoARcPSD|19198520
8 The Anthony hierarchy of roles in an organisation

(a) Strategic Level
The strategic roles are Rule Providers, Experts and Advisors
 Rule Providers – establish the rules and make the decisions based upon their experience
and the information provided by the Experts.
 Experts – provide input and analysis to ensure that decisions are made with the best
available information.
 Advisors – Sometimes, extra or specialised information may be required, and the
organisation turns to Advisors for input and advice.
(b) Tactical
The tactical roles are the Guardian and Coordinator roles.
 Coordinators are responsible for implementing decisions.
 Guardians ensure that the decision is implemented within the time and budget specified
at the Strategic Level.
(c) Operational
The operational roles are Provider and Customer.
 Providers are responsible for ensuring that the infrastructure is available to meet the
requirements of:
 The Customers, who are the beneficiaries of the system. The more efficiently and cost-
effectively the Providers supply their services, the less money the organisation spends on
Total Cost of Ownership (TCO).
9 Marketing
KEY TERM
Marketing is the management process which identifies, anticipates and supplies customer
requirements efficiently and profitably (Chartered Institute of Marketing).
The marketing mix (the 4 Ps)

Product covers all aspects of the product, e.g. name, function, styling, technical specification, range of
sizes, packaging, compliance with regulations and standards, fitness for purpose, serviceability,
expected life span, accessories, replacement parts, warranty etc.
Price including aspects such as discounts, discriminatory pricing, (e.g. cinema tickets cheaper in the
daytime, pensioner 10% off days at B&Q), or seasonal pricing, psychological price points (e.g. £9,999
for a car), whether to skim the market by charging a high price initially, or to penetrate the market by
keeping the price low.
Promotion involves how we bring the product to people’s Attention, attract their Interest, stimulate
Desire, and induce Action (The AIDA model).
Place is where the product is sold and how it gets there (distribution channel).

lOMoARcPSD|19198520
In service industries three other ‘P’s are added:

 People i.e. the staff who provide the service
 Processes i.e. how the service is provided
 Physical evidence i.e. the look and feel of where the service is provided from
The linkage between the four elements must be considered, e.g. if charging a high price, the product
must be of good quality and the promotion and distribution outlets (place) must reflect the superior
nature of the product.
The relationship of the marketing plan to the strategic plan

Strategic Plan Marketing Plan
Objectives Need to address the firm as a whole. Cover products and markets only, e.g. sell
Should be SMART. (Specific, Measurable, 5,000 units of X at £20 each.
Agreed, Realistic, Time bound).
Environmental Political, Economic, Social, Technological, More focus on needs of customers, and
analysis customers, suppliers, substitute products, competitor actions.
competitors, barriers to entry etc.
Situational Strengths and weaknesses of the Similar to corporate activity but focus on
analysis organisation, relative to competitors, the marketing department and suite of
Looks at resources available. The examiner products.
says we should carry out a situational
analysis when formulating strategic
objectives.
Gap analysis Identify the gap between where the Focus on particular markets to see if we
current strategy is taking us and where we could be doing better.
want to be.
Strategy Develop strategies to fill the gap, e.g. Identify customer needs, ensure products
launch new products, enter new markets. contain the requisite features, and stress
Rationalise operations by cutting costs. the benefits of the product. Consider the
marketing mix (4 ‘P’s).
Implementation Delegated to appropriate departments Carried out by the marketing department.
and divisions.
Review and Feedback obtained, results measured Have marketing targets been met?
control against targets and process starts again.

lOMoARcPSD|19198520
37
Organisational culture and

committees
1 Organisational culture
Mullins describes culture as the collection of traditions, values, policies, beliefs and attitudes that
constitute a pervasive context for everything we do and think in an organisation.
Schwartz & Davies talk about a pattern of beliefs and expectations shared by the organisation’s
members, and which produce norms which powerfully shape the behaviour of individual and groups in
the organisation.
An organisation’s culture is shaped by a wide range of factors including:
 The founder
 History
 Leadership and management style
 The environment
Schein – determinants of organisational culture

There are three different levels at which culture can be understood:
(1) The first level: The observable, expressed or ‘explicit’ elements of culture.
 Behaviour: norms of personal and interpersonal behaviour, customs and rules about
behaviours that are acceptable or unacceptable.
 Artefacts: concrete expressions such as interior design and dress codes.
 Attitudes: patterns of collective behaviour such as greeting styles, business formalities
and social courtesies.
(2) The second level: Beneath these observable phenomena lie values and beliefs and the
professed culture, which give the behaviours and attitudes their special meaning and
significance.

lOMoARcPSD|19198520
38 5: O rg an i s at i o n al cu l t u re and c o mmi tt e e s A C C A BT
(3) The third level: Beneath values and beliefs lie assumptions; foundational ideas that are no
longer consciously recognised or questioned by the culture, but which ‘programme’ its ways of
thinking and behaving.
Handy – four cultural stereotypes

(1) Power Culture
 Handy described the person at the centre of this “web” as the god “Zeus”
 This person controls the whole organisation
 Power Cultures have few rules and little bureaucracy
 Swift decisions are made
 Dissent is discouraged
 There are succession problems when the spider dies or retires
(2) Role Culture
 In a role culture, the columns shown above represent a very hierarchical structure of an
organisation, with precise job descriptions and clearly delegated authority
 Power derives from a person's position
 Controlled by well-established rules and procedures, role descriptions and authority
definitions
(3) Task Culture
In a task culture, power derives from expertise.

 These cultures often feature the multiple reporting lines of a matrix or “net” structure
 Generalists, rather than specialists, prevail, each with a “can do” attitude

lOMoARcPSD|19198520
A C C A BT 5: O rg an i s at i o n al cu l t u re and c o mmi tt e e s 39
 Can be exploitative (e.g. If it doesn’t get done between 9 and 5, it gets done between 5
and 9)
 Can be stressful
(4) Person Culture
 In a person culture, individuals believe themselves superior to the organisation

 Tend to have strong values about how they will work
 They are very difficult for the organisation to manage
 Examples include consultants, Barrister’s chambers, university professors, government
ministers
Hofstede – international perspectives on culture

Power Distance Index (PDI). Focuses on the degree of equality, or inequality, between people in the
country's society.
 A High Power Distance ranking indicates that inequalities of power have been allowed to grow
within the society. The top “tells” the bottom “does”.
 A Low Power Distance ranking indicates a society that de-emphasises the differences between
citizen's power and wealth. In these societies equality and opportunity for everyone is stressed.
People expect to participate in decision making.
Individualism. Focuses on the degree that society reinforces individual or collective achievement and
interpersonal relationships.
 A High Individualism ranking indicates that individuality and individual rights are paramount
within the society. Task rather than relationship focus. Focus on “I”.
 A Low Individualism ranking typifies collectivist societies with close ties between individuals.
These cultures reinforce extended families and collectives where everyone takes responsibility
for fellow members of their group. Focus on “we”.
Masculinity. Focuses on the degree the society reinforces, or does not reinforce, the traditional
masculine work role model of male achievement, control, and power.
 A High Masculinity ranking indicates the country experiences a high degree of gender
differentiation. In these cultures, assertiveness, competition, achievement and material success
matter.
 A Low Masculinity ranking indicates the country has a low level of differentiation and
discrimination. The focus is on relationships, consensus, and quality of life.
Uncertainty Avoidance Index. Focuses on the level of tolerance for uncertainty and ambiguity within
the society ─ i.e. unstructured situations.
 A High Uncertainty Avoidance ranking indicates the country has a low tolerance for uncertainty
and ambiguity. This creates a rule-oriented society that institutes laws, rules, regulations, and
controls in order to reduce the amount of uncertainty.

lOMoARcPSD|19198520
 A Low Uncertainty Avoidance ranking indicates the country has less concern about ambiguity
and uncertainty and has more tolerance for a variety of opinions. This is reflected in a society
that is less rule-oriented, more readily accepts change, and takes more and greater risks.
Long-Term Orientation. Focuses on the degree the society embraces, or does not embrace, long-term
devotion to traditional, forward thinking values.
 High Long-Term Orientation ranking indicates the country prescribes to the values of long-term
commitments and respect for tradition. This is thought to support a strong work ethic where
long-term rewards are expected as a result of today's hard work. However, business may take
longer to develop in this society, particularly for an "outsider".
 Low Long-Term Orientation ranking indicates the country does not reinforce the concept of
long-term, traditional orientation. In this culture, change occurs more rapidly as long-term
traditions and commitments do not become impediments to change.
2 Committees in the business organisation

The purposes of a committee
 Generate ideas
 Approve plans
 Increase participation
 Bring more experience to bear
 Bring different skill sets together
 Improve representation
 Speed up decisions
 Improve communication
 Save time, e.g. outsiders can present too many managers in one place
Types of committee
The main types of committee used by business organisations are as follows:
 Executive directors
 Remuneration
 Audit
 Nominations
 Health and safety
 Social
 IT steering group

lOMoARcPSD|19198520
A C C A BT 5: O rg an i s at i o n al cu l t u re and c o mmi tt e e s 41
Advantages and disadvantages of committees.

Advantages Disadvantages
 Collective responsibility  Can be slow to make decisions
 Balanced approach  Many man hours wasted
 Range of views  Conflict between members
 More representative (if members drawn from  Too much compromise
different areas of the organisation)  “Strong” members (or extroverts) dominate
 Improved communication proceedings
 Quick decisions  Members distracted from day job
 May be democratic (one member one vote)  Potential conflict of interest between duty to
 Improved co-ordination committee and duty to line task
 Difficult to get all members together at same
time
The roles of the Chairman and Secretary of a committee.
Chair
 Take control
 Allocate an appropriate amount of time to each item on the agenda
 Encourage contributions from all members
 Prevent side tracking
 Ensure agenda is clear
 Ensure all members understand implications of decisions
 Communicate, if appropriate, with outside world
Secretary
 Know, and be able to advise on, terms of reference
 Advise members of deadline for submitting agenda items and committee papers
 Agree agenda and minutes with Chair
 Contact members to advise them of date, time, agenda, papers to be read
 Liaise with Chair just before meeting
 Sit next to Chair
 Ensure meeting is quorate (have sufficient participants to validly transact business) throughout
 Write up minutes, using a consistent and concise style and referencing, clear layout, action
points and persons responsible clearly set out, state date of next meeting
 Send to members promptly and set out deadline for comments on minutes, remind members of
date, time and location of next meeting

lOMoARcPSD|19198520

lOMoARcPSD|19198520
43
Governance and social

responsibility
1 Governance and social responsibility in business

EXAM FOCUS POINT
The examiner comments in exam reports that this can be an area students struggle in. It is
an essential part of your studies, and underpins many future papers that you will be sitting,
so it is important to try and understand the concepts involved and the steps that have been
taken to address perceived issues.
The shareholders are the legal owners of a company and they may also be directors of the same
company and consequently be involved in the control and management. This situation is very common
in private companies.
The shareholders can appoint non-shareholders to manage and control the company on their behalf.
This situation is very common in public companies.
Corporate governance is the system by which companies are directed and controlled. It provides the
structures and processes to ensure companies are managed in the interests of their owners.
The aims of good governance are:
 The management of risk
 To create a framework from which a business will be able to pursue its strategy and objectives
 Clear roles and responsibilities, particularly splitting the roles of Chairman and Chief Executive
 Clear lines of communication with shareholders, e.g. communicate strategic plan
 Good control systems
 Strong, experienced, knowledgeable, independent non-executive directors
 An involved board supervising the activities of the executives
 The maximisation of profit is an aim of corporate governance

lOMoARcPSD|19198520
44 6: G o v e rn an c e a n d s o ci al re s p on s i b il i t y A C C A BT
All UK listed companies must comply with the UK Corporate Governance Code (or explain why they
are not complying) and other organisations are encouraged to do so as well.
The UK Corporate Governance Code covers the following:
 An effective board provides entrepreneurial leadership, and ensures that effective controls are
in place to manage risks. To do this, the board needs to be balanced in terms of the
representation of executive, non-executive, and independent non-executive directors.
 Clear division of responsibilities between Chair and Chief Executive avoids concentrations of
power and encourages balanced decision-making.
 In order to fulfil their roles effectively, all directors need appropriate skills and knowledge,
which should be regularly evaluated and updated.
 All directors should submit themselves for re-election every year.
 Director’s remuneration should be sufficient but not excessive, with an element being linked to
individual and corporate performance. The procedure for setting remuneration should be
formal and transparent. Notice periods should be set at 12 months or less.
 Independent non-executive directors are independent of the management and from any other
relationship that could affect the exercise of impartial judgement. For example, their fee should
be based on the amount of time they commit to the organisation – it should not be linked to
profits.
For key areas involving conflicts of interest, the board should establish sub-committees, made up of
non-execs only, which will report and make proposals to the main board for its approval covering:
 Nomination, (who should be on the board)
 Remuneration and
 Audit
The board must interact effectively with shareholders. Transparency, accountability and timely
provision of good quality information are important in promoting informed dialogue.
Annual reports must convey a fair and balanced view of the organisations performance and should
state:
 Whether the organisation has complied with governance regulations and codes
 Details of all directors that have served during the year
 That the directors have reviewed the effectiveness of internal controls and risk management
 The organisation is a going concern
 The relationships with stakeholders
 Directors of a listed company must produce an operating and financial review
Agency theory
Agency theory assumes that agents, including directors, will act in their own best interests. This means
that organisations must align the interests of the agent with those of the organisation to get the best
performance out of the agent.
Corporate social responsibility (how we look after our stakeholders)

There are four different strategies that organisations can adopt in relation to their social responsibility
objectives:
(1) A proactive strategy where the organisation is prepared to take full responsibility for its actions
e.g. if a fault is discovered, the product is recalled even if this fault is yet to cause any problems
to consumers.

lOMoARcPSD|19198520
A C C A BT 6: G o v e rn an c e an d s o ci al re s p on s i b il i t y 45
(2) A reactive strategy where the organisation only takes responsibility once an external entity
prompts them to do so e.g. if a fault is discovered, the product is not recalled until the public,
government or a consumer group finds out about it.
(3) A defence strategy where the organisation minimises or attempts to avoid any additional
obligations arising from a particular problem e.g. when selling the product, the organisation
stipulates that if a fault is discovered after purchase the product cannot be returned.
(4) An accommodation strategy where the organisation responds differently each time by taking
account (accommodating) of the stakeholders’ view.
Financial Reporting Council Monitors and enforces legal and compliance standards of the accounting
profession.

lOMoARcPSD|19198520
46 6: G o v e rn an c e a n d s o ci al re s p on s i b il i t y A C C A BT

lOMoARcPSD|19198520
47
Systems, controls
and compliance
1 The relationship between accounting and other functions

The relationship between accounting and purchasing/procurement:
Accounting is concerned with:
 Internal controls, e.g. correctly authorised order, invoice matched to the order and a Goods
Received Note (GRN)
 Cost control
 Cash management, including forecasting cash flow
 Hitting budget
 Receiving adequate information from purchasing/procurement
Purchasing/procurement is concerned with:
 Meeting internal customer’s needs
 Maintaining relationship with suppliers
 Autonomy, e.g. not wanting to be controlled by the accountant
 Clear information, e.g. knowing the budget for a project.
Financial considerations in production and production planning

 Cash flow
 Break-even levels
 Payback period
 Fixed/variable costs
 Marginal cost of production
 Opportunity cost
 Minimising waste and costs

lOMoARcPSD|19198520
48 7: Sys t e ms , c o n t ro ls an d c o mp l i an c e A C C A BT
 Maximising profit
 Availability of allowances and grants
 Possible synergies, e.g. tv wo products sharing one production line
 Budgetary control
 Variance analysis
 Exit costs, e.g. de-commissioning, redundancy
 Sensitivity analysis, e.g. what is the impact of a 10% fall in volume?
Financial issues associated with marketing

 Agree objectives with marketing director, e.g. market penetration, market skimming
 Agree financial budget to achieve marketing objectives
 Impose financial controls. Agree policies, such as:
(i) All marketing staff to travel economy class
(ii) Overnight accommodation to cost no more than £100 per night
(iii) Max price for a 30 second TV advert is £25,000.
 Ensure reporting from marketing director, e.g. spend against budget.
Financial costs and benefits of effective service provision

Costs Benefits
 Operating staff salaries  Retain customers
 Supervisors salaries  Improved image
 Training and development  Staff less likely to burn out
 Costs of using initiative  Charge higher prices
 Cost of obtaining user feedback  Win new business
 Premises  Reduce waste, time, etc
 Capital expenditure, (desks, chairs, computers,  May be able to cut expenditure on other
headsets, databases) elements of value chain
The original role of the accounting function was to record financial information.
The overall role of the modern accounting department is helping the organisation to achieve its
financial objectives. The focus is on providing useful information to users.
The functions of the accounting department are as follows:
 Invoicing and collection of debts – sales ledger
 Authorisation of capital and revenue expenditure
 Purchasing/procurement – purchase ledger
 Treasury/cash management
 Payroll
 Budgeting and control
 VAT returns
The accounting function contributes to the formulation of the financial objectives. By setting financial
targets or budgets, it then implements these objectives and controls performance using techniques
such as variance analysis.
An accountant has three main responsibilities:
(1) Collect financial records e.g. receipts, invoices, cheques, and statements.
(2) Maintain the bookkeeping and construct accounts.
(3) Analyse and interpret the information.

lOMoARcPSD|19198520
A C C A BT 7: Sys t e ms , c o n t ro ls an d c o mp l i a n c e 49
Accountancy is a specialist area with its own technical language. As a result, accountants will have to
interpret their findings into a meaningful format. Other managers can then understand the
information and will then be able to work together to plan and set budgets for the year.
2 Financial accounting
Financial accounting is concerned at one level with bookkeeping, i.e. recording daily financial activities,
and at a more advanced level with preparation of the final accounts e.g. the income statement and
Statement of financial position.
Working capital consists of inventories, accounts receivable, cash and accounts payable. The
management of working capital is vital for the long-term success of any business. Too much working
capital is inefficient and so stops investment; too little and the business will not be able to meet its
liabilities and will thus fail. This function is normally performed by the finance function.
3 Management accounting
Management accounting is concerned with providing managers with management information such as
information about costs, and forecasts of future costs and revenues.
 Management accountants record the current costs and revenues and then analyses the
information using various accounting ratios and formulae. The purpose of this analysis is to
identify trends by comparing the results with previous years and budget.
 Any trend, whether positive or negative, could affect the planning for the next year. This
information is then reported up through the organisation to aid decision making.
 Budgets are prepared to translate the organisations objectives into a financial plan. The actual
performance is then compared to this budget and control action is taken when deviations are
identified.
4 Treasury function
The treasury department in a company is essentially in charge of the cash flow management of the
company. The Treasurer should report to the Finance Director.
 Organisations have to pay tax and in order to ensure that the correct amount of tax is paid at
the correct times, the finance or treasury function will calculate the amounts and also put in
place plans to minimise the total tax liabilities.
 Growing businesses will need to raise finance. There are a number of different potential sources
(national and international money and capital markets, banks, governments and venture
capital) and each will need to be evaluated to identify which is the most suitable at that
particular time and for that particular purpose. This function is normally performed by the
treasury function.
 All business involves risk and by taking risks, returns can be earned. However there is no point
taking more risk than is necessary and so the risks need to be managed in order to ensure that
they are minimised. Two common business risks are interest rate and foreign currency risk and
these are managed by the treasury function using derivatives such as futures and options.

lOMoARcPSD|19198520
5 Internal and external auditing and their functions

Internal audit
The internal auditor (who is normally an employee of the company) is given duties by and reports to
management, normally the audit committee (but NOT the Finance Director). Internal audit provides
assurance that:
 Internal controls are adequate to mitigate risks, and
 Governance processes are effective and efficient.
The main functions of the internal auditor are to report to management on:
 Efficiency of operations,
 Reliability of financial reporting,
 Deterring and investigating fraud,
 Safeguarding assets,
 Commenting on compliance with laws and regulations.
External audit
The external auditor is independent of the company and provides an independent examination and
statement of opinion on the truth and fairness of the financial statements. The external auditor is
appointed by the shareholders (although this may be on the basis of a recommendation from the
board of directors).
The main function of the external auditor is to report to the shareholders by expressing an opinion on
whether an entity's financial statements are free of material misstatements. In an unqualified report,
the auditor states that the financial statements present a true and fair view of the organisation’s
position and performance. A qualified report is issued when the financial statements do not fully give a
true and fair view. Normally, external auditors review the entity's information technology control
procedures when assessing its overall internal controls.
EXAM FOCUS POINT

The examiner expects you to be able to distinguish between internal audit roles and external
audit ones.
Examiner’s reports suggest this is an area students find hard, so worth focusing on.
6 Law and regulation governing accounting

Every company has a legal duty to keep accounting records and must prepare annual accounts that
report on the performance and activities of the company during the year.
The period reported on in the accounts is called the financial year.
A more precise term for a financial year is an accounting reference period. The accounting reference
period ends on the accounting reference date (ARD), or a date up to seven days either side of the ARD,
if this is more convenient.
All companies, whether or not they are trading, must keep accounting records.
Generally, accounts must include:
 An income statement
 A statement of financial position signed by a director;
 An auditor’s report signed by the auditor (if appropriate);

lOMoARcPSD|19198520
 A directors' report signed by a director or the secretary of the company;

 Notes to the accounts; and
 Group accounts (if appropriate).
Filing accounts
All limited companies must send their accounts to the Registrar of Companies at Companies House.
The time normally allowed for delivering accounts to Companies House is:
 For a private company, nine months from the ARD;
 For a public company, six months from the ARD.
Obligation to keep accounting records

 All UK limited liability companies are required to keep records of the company's financial
transactions.
 The records MUST be kept by the company for a period of three years if it is a private company
and six years if it is a public company.
Late delivery of accounts
There is an automatic civil penalty for late filing. The amount depends on how late the accounts arrive
and whether the company is private or public.
Failing to deliver accounts on time is a criminal offence, directors may be prosecuted.
For public companies if accounts are filed late there will be a suspension of dealings of securities by
the Stock Exchange.
7 International Accounting Standards

Financial reporting standards aim to improve comparability between different organisations and to
deal with the subjectivity of preparing financial statements.
International standards are produced by the International Accounting Standards Board (IASB).
Objectives of IASB
 Develop global accounting standards, requiring high quality, understandable, comparable and
transparent information in financial statements
 Promote the use and rigorous application of those standards
 Work with national standard-setters to bring about convergence of standards
 International Financial Reporting Standards (IFRSs) set out recognition, measurement,
presentation and disclosure requirements
The body that regulates the UK Accounting and Finance profession is the Audit, Reporting and
Governance Authority (ARGA). This body replaced the Financial Reporting Council (FRC) in 2020. ARGA
is responsible for writing UK accounting standards and for overseeing corporate governance and audit
quality.
International Federation of Accountants (IFAC)

Co-ordinates the accounting profession on a global scale by issuing standards on auditing,
management accounting, ethics, education and training.

lOMoARcPSD|19198520
True and Fair

Ultimately, a set of accounts should show a “true and fair” view. This suggests that they comply with
all of the relevant accounting standards. Sometimes this is described as GAAP (generally accepted
accounting principles).
In exceptional circumstances, a company may prepare accounts which depart from one or more
accounting standards in order to show a more true and fair view than if accounting standards were
followed  this is known as the “true and fair override”.
8 Financial systems, procedures and IT applications

(a) Sales invoicing system should be:
 Easy to use
 Secure
 Allow different access levels for different grades of staff
 Allow segregation of duties
 Quick retrieval of data, including easy printing of invoices and orders
 Quick order processing
 Good storage capacity
 Integrated with web sales, point-of-sale systems, sales ledger, N/L etc
 Capable of producing management reports
 Drill down facility
 Audit trail
 Automatically create prices from price list
 Provide detailed customer information, e.g. name, address, contact details, credit limit,
order history, last contact etc
 Pricing flexibility, e.g. offer discounts based on different criteria
 Multi-language (for international businesses)
 Consolidate multiple orders into one invoice
 Consolidate orders from different parts of a trading group into one invoice
 Run automatic authorisation routines, e.g. credit card validation
(b) Purchase invoice system should prevent:
 Double payment
 Payment without order, invoice, evidence of delivery of goods or service
(c) Payroll system should:
 Meet HMRC requirements for real time information
 Allow for electronic filing of HMRC forms, P11D, P35 etc
 Flexible enough to allow for:
– increases/decreases in numbers of employees
– different pay dates
– weekly and monthly pay dates
 Maintain employee records
 SSP, SMP, working tax credits, pension and PAYE contributions
 Calculate tax, NI etc
 Updateable for changes in legislation etc

lOMoARcPSD|19198520
(d) Credit control system, ideal features

 Single screen containing all relevant customer information, e.g. credit limit, contact
details, outstanding invoices etc
 Enable users to see copy invoices, copy them and send copies to customer electronically
while talking to them on the phone
 Flag transactions as “in dispute”
 Be flexible enough to allow, for example, changes to due date of payment
 Warn when credit limits are exceeded
 Place customers on auto stop
 Generate automatic “chasing” letters
(e) Cash and working capital management system, should be capable of:
 Preparation of detailed cash flow forecasts
 Ensure there is sufficient cash to meet all liabilities as they fall due
 Minimal inventory levels
 Minimal receivables
 Maximum payables
9 IT software applications
(a) Spreadsheet applications (“spreadsheets”) are computer programs that let you create and
manipulate data electronically.
In a spreadsheet, each value sits in a cell. You can define what type of data is in each cell and
how different cells depend on one another.
The relationships between cells are called formulas, and the names of the cells are called labels.
Once you have defined the cells and the formulas for linking them together, you can enter your
data. You can then modify selected values to see how all the other values change accordingly.
This enables you to study various ‘what-if’ scenarios.
There are a number of spreadsheet applications on the market, e.g. Lotus 1-2-3 and Excel. The
more powerful spreadsheet applications support graphics features that enable production of
charts and graphs from the data.
Most spreadsheet applications are multidimensional, meaning one spreadsheet can be linked to
another. A three-dimensional spreadsheet, for example, is like a stack of spreadsheets all
connected by formulas. A change made in one spreadsheet automatically affects other
spreadsheets.
(b) Database systems
A collection of information organised in such a way that a computer program can quickly select
desired pieces of data, i.e. an electronic filing system.
Traditional databases organised by fields, records and files. A field is a single piece of
information; a record is one complete set of fields; and a file is a collection of records.
An alternative concept in database design is known as Hypertext. In a Hypertext database, any
object, whether it is a piece of text, a picture, or a film, can be linked to any other object.
Hypertext databases are particularly useful for organising large amounts of disparate
information, but they are not designed for numerical analysis.

lOMoARcPSD|19198520
To access information from a database, you need a database management system (DBMS). This
is a collection of programs that enables you to enter, organise, and select data in a database.
An Executive Information System (EIS) takes raw data from the underlying records and
summarises them into more useful information for the directors of the company.
Manual system Automated system
 Cost accounting system  Core financial system
 Separate records  Relational database
 Errors impact one document  Errors can be magnified due to relationships
 Human error more likely  Easier to catch errors
 Duplicate information must be entered on  Information automatically filled in
several documents
 Individual has to start a process  Process starts automatically
 Lag time between processing and seeing  Real time processing and output generation
outputs
 Paper files  Electronic records
 Physical security, e.g. locked doors, signatures  Electronic security, e.g. passwords, codes,
on documents firewalls
 Simple to run  Operatives have to be trained
 Risk of damage by fire or flood  Risk of system crash, power failure, inadequate
back up

lOMoARcPSD|19198520
55
Control, security and audit
1 Internal financial control and security within business organisations

Internal controls are mechanisms to ensure objectives are achieved.
Internal control is "everything that helps one achieve one's goals─ or better still, to deal with the risks
that stop one from achieving one's goals."
Internal control is a process, managed by an organisation's board of directors, management and other
personnel, designed to provide reasonable assurance regarding the achievement of effectiveness and
efficiency of operations.
Good controls encourage
 Efficiency and effectiveness
 Compliance with laws and regulations
 Sound information production
 Elimination of fraud and abuse.
Both internal and external auditors will often carry out compliance tests on internal controls to ensure
they are operating correctly. This is because:
 Internal auditors monitor internal controls on behalf of directors to ensure that internal controls
are operating effectively to achieve their aims.
 External auditors want to be sure that the internal control system is capable of producing
financial records that do not contain misstatements or errors.
If external auditors find that control systems are operating effectively, they may be able to reduce the
other type of testing they carry out (substantive testing). Such testing substantiates reported figures
and disclosures. Auditors must always carry out some substantive testing, even if the control system
appears sound. This is due to the limitations of internal controls, such as the fact that individuals can
collude to work round them and commit fraud (see chapter 9).

lOMoARcPSD|19198520
56 8: Co n t ro l , se c u ri t y an d a u d i t A C C A BT
Internal auditors will not just focus on financial controls but all operational controls. Their remit
extends to all controls and they may carry out management audits, efficiency audits and value for
money audits to ensure that controls are working well for the company in all aspects.
External auditors may make use of work of the internal audit department which is relevant to the
external auditors’ objectives, but only if they are satisfied the work is of appropriate quality.
Features of an effective internal control system OAP SPASM or SOAP SPAM
Organisation The organisation’s structure is set out in an organisation chart that clearly sets
out reporting lines
Authorisation All transactions and documents should be signed, by the appropriate person,
e.g. purchase orders, credit notes, cheques, variations in credit limits etc
Personnel The organisation should have robust recruitment and training procedures in
place. It should also provide adequate rewards to its employees
Segregation of duties Where possible duties should be segregated, e.g. One employee raises sales
invoices, another opens the post and banks cheques received
Physical Locks on office doors, passwords on computers, assets tagged etc
Arithmetic Correctly added up, VAT correctly calculated
Supervisory All employees should be supervised, both physically, management by
wandering about, and via a performance review
Management Management should review all information that they receive. Management
vigilance is an important control. Perform reconciliations, document procedures,
and communicate importance of controls. Regularly review procedures
An internal check is defined as the check on day-to-day transactions whereby the work of one person
is proved independently or is complementary to the work of another; the objective being the
prevention or early detection of errors or fraud. An internal check involves dividing work between
individuals or departments. For example, one person banks cheques while another performs a bank
reconciliation.
If an organisation had no internal financial controls it will fail in the same way that driving a car
without holding the steering wheel will result in the car crashing. So internal financial controls are vital
to continued business success.
An internal financial control is any action taken by management to enhance the likelihood that
established objectives and goals will be achieved. Management plans, organises and directs the
performance of sufficient actions to provide reasonable assurance that objectives and goals will be
achieved. Thus, control is the result of proper planning, organising and directing by management.
(Institute of Internal Auditors).
2 Controls and IT systems

Cybersecurity is the protection of IT systems from:
 Theft and/or damage to hardware, software, electronic data
 Disruption or even misdirection of the services the systems provide
These types of breaches could cause significant business problems, both ability to operate and
reputational (as they could result in breach of data law, and customer data would be at risk).
Such protection is provided primarily by software controls (such as virus protection software and
firewalls) but also other general IT controls (see below).

lOMoARcPSD|19198520
A C C A BT 8: Co n t ro l , se c u ri t y an d a u d i t 57
In business and accounting, information technology controls (or IT controls) are specific activities
performed by persons or systems designed to ensure that business objectives are met.
They are a subset of an organisation's internal control.
IT controls are often described in two categories: IT general controls (ITGC) and IT application controls.
ITGC include controls over the IT environment (examples - locked room/appropriate heat conditions),
computer operations (example – virus protection), access to programs and data (examples –
passwords/audit trail records of access), program development and program changes.
IT application controls refer to transaction processing controls, sometimes called "input-processing-
output" controls.

lOMoARcPSD|19198520
58 8: Co n t ro l , se c u ri t y an d a u d i t A C C A BT

lOMoARcPSD|19198520
59
Identifying and preventing

fraud
1 Fraud and its prevention in business

The fraud triangle describes the three factors which often contribute to a fraud taking place. They are:
 Motivation
 Opportunity
 Rationalisation
Circumstances under which fraud is likely to arise in an organisation:
 Hiring disreputable employees (failing to check references etc)
 Lack of supervision
 Lack of adequate controls
 Poor rewards for staff
 High value assets easily accessible
 Lax security
 Opportunities for collusion
 Poor cultural influences
 Lack of moral, principled leadership
 Rules and regulations of organisation unclear
These could all give rise to the elements of the fraud triangle above in different measures.
Fraud is deprivation by deceit and takes two forms, ‘removal of funds or assets’ or ‘the intentional
misrepresentation of the financial position of the organisation’.
Common examples of ‘removal of funds or assets’ are as follows:
 Theft of cash or inventory
 Payroll fraud
 Teeming and lading receipts on the sales ledger (which means stealing funds and then
misallocating subsequent receipts to cover this up)

lOMoARcPSD|19198520
60 9: I d e n t if yi n g and p re v e nt i n g f rau d A C C A BT
 Fictitious customers
 Collusion with customers or suppliers
Common examples of ‘the intentional misrepresentation of the financial position of the organisation’
are as follows:
 Over valuation of inventory
 Not writing off irrecoverable debts
 Fictitious sales
 Manipulation of year end events
 Understating expenses
 Manipulating depreciation
The implications of fraud for the organisation are as follows:
 Loss of assets
 Poor morale
 Loss of reputation for organisation
 Paranoia
 Increased security costs in future
 Loss of privacy for staff
 Restriction of privileges for staff
The role and duties of individual managers in the fraud detection and prevention process.
 Vigilance
 Collective responsibility
 Communication to staff
 Risk assessment
 Cost-benefit analysis
 Create culture and environment in which fraud is discouraged
 Implement strong system of internal controls
 Arrange regular audits of controls
 Adopt zero tolerance approach to fraud
The board of directors is ultimately responsible for the prevention and detection of fraud in an
organisation. In order to do this, directors must:
 Instil good culture/expectations/reduce motivation to commit fraud (prevention)
 Establish good internal controls (prevention and detection)
 Monitor controls (prevention and detection)
2 Money laundering
Money laundering is the process of making the proceeds of crime appear legitimate. For example,
manufacturing and selling Class A drugs and using the cash to buy an executive home in Surrey.
The process usually comprises three distinct phases:
(1) Placement – the initial disposal of the proceeds of criminal activity into an apparently legitimate
business activity or property.
(2) Layering – the transfer of money from business to business, or place to place, in order to
conceal its initial source.
(3) Integration – the culmination of the previous procedures through which the money takes on
the appearance of coming from a legitimate source.

lOMoARcPSD|19198520
A C C A BT 9: I d e n t if yi n g and p re v e nt i n g f rau d 61
There are three offences under the Proceeds of Crime Act 2002.
 Laundering: acquisition, possession or use of the proceeds of crime, tax evasion, or fraud, or
assisting another to retain proceeds. Penalty, up to 14 years in prison and/or a fine.
 Failure to report: Failure to make a “Suspicious Activity Report” (SAR), on a SAR form, disclosing
knowledge or suspicion of money laundering. Report must be made to National Crime Agency
(NCA). Penalty, up to five years in prison and/or a fine.
 Tipping off: Telling subject of a report that SAR has been submitted or warning him that
suspicions have been aroused. Penalty, up to five years in prison and/or a fine.
Please note tax avoidance is legal when using careful tax planning to reduce tax liability BUT tax
evasion is illegal as this is the deliberate misrepresentation of the true state of tax affairs to the tax
authorities to reduce tax liability.
The UK government has recently enacted legislation making it a corporate crime to fail to prevent the
criminal facilitation of tax evasion. This reinforces the requirement for companies to have strong
controls and to monitor them. Such corporate activity would be a defence against this new crime.
Money Laundering Regulations

Affects Lawyers, Accountants, Auditors, Insolvency Practitioners, Estate Agents, Financial Advisors,
Pension Providers etc.
Organisations must:
 Have procedures and accountability for senior managers to identify/prevent money laundering.
 Appoint a senior person to be responsible for compliance with money laundering regulations
(the money laundering compliance principal)
 Educate staff about problem of money laundering.
 Monitor compliance with money laundering regulations by an (internal) independent audit
function
 Report suspicious circumstances.
 Not alert persons who might face investigation.
 Obtain evidence of identity for new clients.
 Keep records of all transactions for five years.

lOMoARcPSD|19198520
62 9: I d e n t if yi n g and p re v e nt i n g f rau d A C C A BT

lOMoARcPSD|19198520
63
10
Leading and managing

individuals and teams
1 Leadership
Leadership involves:
 Asking what and why
 Focusing on people
 Doing the right things
 Developing people
 Inspiring trust
 Having a longer-term perspective
 Challenging the status-quo
 Having an eye on the horizon
 Originating
 Being your own person
2 Management
Management involves:
 Showing originality
 Asking how and when
 Focusing on systems
 Doing things right
 Maintaining
 Relying on control
 Having a short-term perspective
 Accepting the status-quo
 Having an eye on the bottom line
 Imitating
 Emulating the classic good soldier

lOMoARcPSD|19198520
64 10: L e ad i n g a n d man agi n g i n d i v i d u al s a n d t e ams A C C A BT
3 Supervision
Supervision involves:
 The interface between managers and workers
 The lowest level of management
 Working “on the front line”
 Working closely with sub-ordinates
 “Doing” as well as managing
4 Fayol (1849-1926) Classical theory of management

Fayol is one of the most influential contributors to modern concepts of management. He proposed five
primary functions of management:
(1) Planning
(2) Organising
(3) Commanding
(4) Coordinating
(5) Controlling
Fayol believed in top down management, who stressed the importance of “unity of command”, where
instructions flow down and reports flow back up.
Fayol developed “concept of administration” (14 principles of management)
(1) Specialisation of labour.
(2) Authority. The right to give orders and the power to exact obedience.
(3) Discipline. No slacking, or bending of rules. Obedient, respectful workers.
(4) Unity of command. Each employee has one and only one boss.
(5) Unity of direction. A single mind generates a single plan and all play their part in carrying out
that plan.
(6) Subordination of individual interests. When at work, only work things should be pursued or
thought about.
(7) Remuneration. Employees receive fair payment for services, not the minimum the company can
get away with.
(8) Centralisation. Consolidation of management functions. Decisions made at top.
(9) Chain of Superiors (line of authority). Formal chain of command running from top to bottom of
the organisation.
(10) Order. All materials and personnel have a prescribed place in the system.
(11) Equity. Equality of treatment (but not necessarily identical treatment).
(12) Limited turnover of personnel. Lifetime employment for good workers.
(13) Initiative. Thinking out a plan and do what it takes to make it happen.
(14) Team spirit. Harmony, cohesion among personnel. Fayol stated that for promoting team spirit,
the principle of unity of command should be observed and the dangers of divide and rule and
the abuse of written communication should be avoided.

lOMoARcPSD|19198520
A C C A BT 10: L e ad i n g a n d man agi n g i n d i v i d u al s an d t e ams 65
5 Frederick Taylor (1856 – 1915) Scientific Management

Taylor believed:
 Industrial management of his day was amateurish
 Management could be formulated as an academic discipline
 Best results would come from the partnership between a trained
and qualified management and a cooperative and innovative
workforce
 Each side needed the other, and there was no need for trade
unions
Taylor's scientific management consisted of four principles:

 Replace rule-of-thumb work methods with methods based on a scientific study of the tasks.
 Scientifically select, train, and develop each employee rather than passively leaving them to
train themselves.
 "Detailed instruction and supervision of each worker in the performance of that worker's
discrete task".
 Divide work nearly equally between managers and workers, so that the managers apply
scientific management principles to planning the work and the workers actually perform the
tasks.
6 Elton Mayo
Elton Mayo was the founder of the Human Relations Movement and of Industrial Sociology. He carried
out research at the Hawthorne Works of the Western Electric Company in Chicago.
He took a group of six women and segregated them. They altered conditions of work in a number of
ways over a five-year period, and observed the effects on production and the morale of the group.
Over the period, changes such as new payment systems, rest breaks of different sorts and lengths,
varying the length of the working day, and offering food and refreshments were tried.
In almost all cases, productivity improved.
At the end of the experiment, Mayo felt that he had proven his point and closed it down, returning the
women to their original conditions, a six-day week, with long hours and no rest breaks or
refreshments.
Surprisingly, productivity in the group rose to the highest levels yet.
Mayo concluded that:
 The women had felt important because they had been singled out.
 The women had developed good relationships with each other and had been allowed to set
their own work patterns.
 The creation of relationships had made for a much more pleasant working environment.

lOMoARcPSD|19198520
 Work satisfaction must depend, to a large extent, upon:

– The informal social relationships between workers in a group and,
– The social relationships between workers and their bosses.
 The effects of the group should never be underestimated.
The “Hawthorne effect” refers to the change in behaviour or performance which is thought to occur
when people are faced with new or increased attention.
7 Mintzberg – the functions of a manager

Role Tasks Detail
Interpersonal: Figurehead Representing organisation at functions, conferences etc
based on the Leader Hiring, firing, training, motivating staff, aligning individual
manager’s formal and organisational goals
authority
Liaison With peers, as well as sub-ordinates
Informational: Monitoring environment Gathering formal and informal information from the
Based on the environment
manager’s Spokesperson Provide information to internal and external audiences
position in the
info. networks Disseminator Pass on relevant information to subordinates/team members
Decisional: relate Entrepreneur Initiate projects
to the work of the Disturbance handler Take decisions when there is a deviation from the plan
manager’s dept.
Resource allocator Distribute limited resources to achieve objectives
Negotiator Internally and externally
8 Peter Drucker – the functions of a manager (alternative theory)

 Set objectives, quantify targets
 Communicate objectives and targets
 Organise the work into manageable activities
 Allocate tasks
 Motivate staff
 Communicate clearly
 Measure performance against target
 Communicate results
 Develop people by bringing out what is inside them
Drucker emphasised the importance of good communication.
9 Managerial authority and responsibility

Power: the ability to do something (regardless of whether you have authority or not). There are
different types of power:
 Legitimate power – legitimate authority, by virtue of your position in the company
 Person power – power due to your charisma
 Expert power – power due to your valued knowledge on a subject
 Position power – power to your position in the company (i.e. “I’m your boss”)

lOMoARcPSD|19198520
Authority: right to exercise power, or make decisions, to ask someone to do something and expect it
to be done.
Responsibility: the obligation to do something. A manager may delegate authority but that manager
retains overall responsibility for the completion of the task.
“You cannot delegate responsibility”
10 John Adair – Action-centred leadership
Group
Task Individual
Adair is a ‘contingency theorist’ (“it depends”). He states that the most important task of a manager
will depend on the situation the manager faces. For example, in the short term, the need to complete
a task may take priority while at other times the needs of the group or an individual may come to the
fore.
Effective leadership depends on identifying the priority at a particular time and taking action to deal
with the priority.
11 Fred Fiedler (1922 – 2017) The Fiedler contingency model.

Fiedler’s contingency model suggests that the leader’s effectiveness is based on ‘situational
contingency’; that is, a result of interaction of two factors, known as 'leadership style' and 'situational
control'.
Fiedler’s ‘least preferred co-worker’ (LPC) test

The LPC scale asks a leader to think of all the persons with whom he or she has ever worked, and then
to describe the one person with whom he or she worked the least well with. From a scale of 1 to 8, the
leader is asked to describe this person on a series of bipolar scales such as those shown below:
Unfriendly 1 2 3 4 5 6 7 8 Friendly
Uncooperative 1 2 3 4 5 6 7 8 Cooperative
Hostile 1 2 3 4 5 6 7 8 Supportive
Guarded 1 2 3 4 5 6 7 8 Open
The responses to these scales are summed and averaged.
 High LPC score indicates a human relations orientation
 Low LPC score indicates a task orientation
People who are relationship-motivated tend to describe their least preferred co-workers in a more
positive manner. Therefore, they receive higher LPC scores.

lOMoARcPSD|19198520
People who are task-motivated, on the other hand, tend to rate their least preferred co-workers in a
more negative manner.
According to Fiedler, there is no ideal leader. Both low-LPC (task-oriented) and high-LPC (relationship-
oriented) leaders can be effective if their leadership orientation fits the situation.
Task-oriented leadership would be advisable in a crisis. The task-oriented leader who gets things
accomplished proves to be the most successful. If the leader is considerate (relationship-oriented),
he or she may waste time in the crisis worrying about people’s feelings.
The considerate style of leadership is appropriate in a professional environment e.g. when
 Leader-member relations are good,
 The task is unstructured, and
 Position power is weak.
Situations like this exist with research scientists, or surgeons, who do not like superiors to structure
the task for them. They prefer to follow their own creative leads in order to solve problems. In a
situation like this a considerate style of leadership is preferred over the task-oriented.
The ideal state would be a manager who is liked and respected by his or her team and who has the
power to decide the rewards of the team.
12 Warren Bennis (1928 – 2014) seven qualities of a leader

(1) Technical competence: business literacy and grasp of one's field
(2) Conceptual skill: a facility for abstract or strategic thinking
(3) Track record: a history of achieving results
(4) People skills: an ability to communicate, motivate, and delegate
(5) Taste: an ability to identify and cultivate talent
(6) Judgment: making difficult decisions in a short time frame with imperfect data
(7) Character: the qualities that define who we are
Bennis says senior executives seldom lack the first three attributes. He believes the best leaders are
distinguished by their mastery of the softer side: people skills, taste, judgement, and, above all,
character.
13 Heifetz – adaptive leadership

Heifetz states that the main leadership role of managers is to help people face reality and mobilise
them to make changes where necessary. A true leader does not have all the answers but instead
encourages people to tackle tough challenges themselves.
He also suggested that anyone within an organisation may provide some degree of leadership in
certain circumstances i.e. there is no one leader that is perfect in every set of circumstances. This
means that leaders may sometimes simply emerge rather than being formally appointed by the
organisation.

lOMoARcPSD|19198520
14 Kotter
Kotter distinguishes between ‘management’ and ‘leadership’, arguing that they involve two distinct
sets of action.
Management is about coping with complexity: its functions are to do with logic, structure, analysis
and control, and are aimed at producing order, consistency and predictability.
Leadership is about coping with change: its activities include creating a sense of direction,
communicating strategy, and energising, inspiring and motivating others to translate the vision into
action.
Management can be exercised over resources, activities, projects and other non-personal things.
Leadership can only be exercised over people.
15 Ashridge Management College ─ four management styles:

(1) Tells
(2) Sells
(3) Consults
(4) Joins
Subordinates believe most managers “tell” or “sell”. Consistency and a clear style are most important
to subordinates.
Style Characteristics Outcome
Tells Leader makes all decisions  Quick, efficient
(Autocratic)  Largely one-way communication
 Fails to utilise talents of staff
 Demotivating
 Staff not encouraged to use initiative
Sells As above but Leader aims to improve  May improve motivation
(Authoritarian) motivation by explaining why they must  May increase use of initiative
take certain actions  Both marginal!
Consults Leader confers with subordinates,  Increased motivation
(Consultative) considers their views BUT retains final say  Increased ownership of projects
 Greater utilisation of employee
knowledge and talent
 Slower decisions
Joins Decisions made on basis of consensus  Motivating
(Laissez-faire)  Reduces authority of manager
 Difficult to establish consensus.

lOMoARcPSD|19198520
16 Blake and Mouton’s Managerial Grid

Two variables:
 Concern for task
 Concern for people.
Balance between the two is required.
country
club team
9 1.9 9.9
high
8
7 middle
Concern for people
of the
6 road
5 5.5
4
3
task
impoverished
2 manager
Low
1 1.1 9.1
1 2 3 4 5 6 7 8 9
Low Concern for task High
1.1 Impoverished – Manager is lazy, no interest in staff or work

1.9 Country club – Manager enjoys good relationship with staff and attends to their needs but has
little concern for the task
9.1 Task manager / authoritarian – Total focus on achieving the task. Little or no concern for staff
5.5 Middle of road (sometimes called “dampened pendulum”) – Adequate performance
9.9 Team – High work achievement, through working with committed people who have their personal
goals aligned with those of the organisation
Issues
 High concern for staff is not necessarily ideal
 Difficult to place managers accurately on the grid
 There are other environmental influences on managers, e.g. industry, organisation culture, state
of economy, nature of task and character of the staff
 Behaviour may be difficult to change
 May be useful to assign managers with different and complementary strengths to a team.

lOMoARcPSD|19198520
17 Recruitment, selection, diversity etc

Staff are the most important asset in service and knowledge based industries.
The aim of the Human Resource (HR) department is to ensure the organisation has sufficient staff with
the right skills to do the job.
A good system of recruitment and selection is important to ensure fairness and the avoidance of
discrimination in recruitment and selection
Stages:
 Investigate need for new post/replacement, look at opportunities for reorganisation
 Check authority to recruit
 Check the budget exists to recruit, including cost of recruitment
 Consider legislation and company policy on equal opportunities
 Determine overall job purpose and write / update job description
 Identify selection criteria
 Form and brief the recruitment team, ensure they have the right skills and training to enable
them to recruit the right staff.
Recruitment
 Prepare particulars of the job / key duties / reporting responsibilities = “job description”
 Obtain approval for any non-standard procedure, e.g. appointment without first advertising the
job
 Decide how to find applicants, e.g. register of available employees, letters, CV, application
forms, etc
 Check the register of potential employees
 Prepare advert
 Arrange internal advertising (intranet, notice boards, email etc)
 Arrange external advertising (newspaper, trade journals, tube, radio, website, recruitment
consultant etc) Ensure cost is within budget
 Monitor recruitment process
Selection
 Ensure clear procedures for note-taking and record keeping, paying particular attention to data
protection legislation
 Produce a shortlist of candidates
 Request references
 Organise and conduct interviews or other selection methods as appropriate
 Make selection decision
 Inform candidates of outcomes
Human Resources (HR) department

 Planning
 Record keeping
 Environmental scanning
 Advertising

lOMoARcPSD|19198520
 Briefing recruitment consultants

 Compliance with regulations
 Interviewing
Recruitment consultants
 Design adverts
 Attract applicants
 Filter applications by reviewing CVs or conducting first interviews
 Brief the client’s HR department
Internal advertising, notice boards, intranet, email

Advantages: Disadvantages:
 Know candidates  Limited talent pool
 Creates opportunities  Need to replace the recruit
 Quick
External advertising, TV, radio, newspaper, website

 More expensive
 Time consuming
 More risky as we do not know the candidate
Application forms:
 Standardised  Difficult to assess personal qualities
 Can collect factual information  Inflexible
 Cheap  Does not allow follow up questions
Interviews:
Interviews involve a series of “open” and “closed” questions. “Closed” questions (those that can only
be answered with a “yes” or “no”) should be avoided, as should “leading questions” such as “surely
you’d agree that Gordon Brown was a poor Prime Minister?”.
 Direct face-to-face and so non-verbal  Only as good as the interviewer
communication can also be used and assessed
 Allows the establishment of rapport  Rapport can cause a loss of objectivity
 Flexible  Assessment is subjective
 Assess interpersonal and communication skills
Selection testing:
 Can assess proficiency, intelligence, aptitude or  The correlation between the test and ability to
personality do the job is not always strong
 Identify behavioural preferences  Interpretation of test results requires skill
 Standardised  Tests will often contain bias
 Identify character traits

lOMoARcPSD|19198520
Group selection/assessment centres:

 Longer opportunity to study candidates  Time consuming
 Identify management skills  Expensive
 Assess team work impact  Can result in split decisions
Consultants:
 Specialists  Expensive
 Access to wider pool of candidates  Don’t understand our business
 Saves time  Best candidates may be diverted to other clients
 Independent view of candidates  May only care about earning a fee
17.1.1 Purposes of a diversity policy within the human resources plan.

 Ensure compliance with the law (discrimination on grounds of race is illegal. Discrimination is
permissible however if “genuine occupational qualifications” exist, e.g. Mexican waiter in
Mexican restaurant)
 Aim to be a good employer
 Widens potential pool of talent
 Promotes ethicality of organisation
 Ensure compliance with law (discrimination on grounds of sex, age, disability, sexual orientation
are all illegal)
The practical steps that can be taken to ensure the effectiveness of an organisation’s diversity and
equal opportunities policies are:
 Ensure support from the top
 Produce a Code of Practice
 Produce action plans and provide resources to ensure successful implementation
 Monitoring e.g. measuring the male to female ratio

lOMoARcPSD|19198520

lOMoARcPSD|19198520
75
11
Individuals, groups and teams
1 Individual and group behaviour in business organisations

An individual’s behaviour is strongly influenced by their personality. Personality is shaped by a variety of
factors, both inherited and environmental. The main characteristics of individual behaviour are as follows:
 Perception
 Attitudes
 Intelligence
 Role
The main characteristics of group behaviour are as follows:
 Common motives and goals
 A sense of identity
 Loyalty to the group
 Accepted roles
 Established (social rank, dominance) relationships
 Accepted norms and values  “conformity”
 Accepted sanctions if norms are violated
Individuals contribute to organisational success in the following ways:
 A set of skills
 A point of view
 Creative ideas
 Flexibility
A team is a small number of people with complementary skills who are committed to a common
purpose, performance goals and approach for which they hold themselves accountable. Teams
contribute to organisational success by:
 Combining the skills of different individuals
 Exercising self-control
 Generating ideas e.g. team brainstorming

lOMoARcPSD|19198520
76 11: I n d i v i d u al s, g ro u ps a n d t e ams A C C A BT
 Making better evaluated decisions

 Pooling knowledge
2 Team formation, development and management

KEY TERMS
 A group is a collection of individuals who perceive themselves to be a group, or a social
unit of individuals interacting with each other.
 A team is a collection of individuals linked in a common purpose. Teams normally have
members with complementary skills and generate synergy through a coordinated effort
which allows each member to maximise his or her strengths and minimise his or her
weaknesses.
A team will have joint objectives and accountability and will be established by an organisation in order
to undertake either a one-off or on-going task.
Belbin’s eight (later nine) roles in an effective team

Belbin observed business games run at Henley Management College.
An effective team has members that cover eight (later nine) key roles in managing the team and how it
carries out its work.
(1) Plant – A creative, imaginative, unorthodox team-member who solves difficult problems.
although they sometimes situate themselves far from the other team members, they always
come back to present their 'brilliant' idea.
(2) Resource Investigator – Networker for the group. Whatever the team needs, the Resource
Investigator is likely to have someone in their address book who can either provide it or know
someone else who can provide it.
(3) Chairman (1981) / Co-ordinator (1988) – Ensures all members of the team are able to
contribute to discussions and decisions of the team. Concern is for fairness and equity among
team members.
(4) Shaper – Dynamic team-member who loves challenges and thrives on pressure. Possesses the
drive and courage required to overcome obstacles.
(5) Monitor-Evaluator – Sober, strategic and discerning member, tries to see all options and judge
accurately.
(6) Team worker – Ensures interpersonal relationships are maintained. Sensitive to atmospheres
and may be the first to approach another team member who feels excluded.
(7) Company Worker (1981) / Implementer (1988) – Practical thinker who creates systems and
processes that will produce what the team wants. Takes a problem and works out how it can be
practically addressed.
(8) Completer Finisher – Detail person. Spot flaws and gaps and know where the team is in relation
to its schedule. Ensures the quality and timeliness of the output of the team.
(9) Specialist (1988) – Brings 'specialist' knowledge to the team.
Practical implications
Individuals can perform more than one role, therefore a team need not be as many as nine people, but
perhaps there should be at least three or four with a balance across the roles noted above.

lOMoARcPSD|19198520
A C C A BT 11: I n d i v i d u al s, g ro u ps a n d t e ams 77
3 Bruce Wayne Tuckman

(Forming, Storming, Norming, Performing)
Teams go through four distinct developmental stages.
FORMING
 The team meets and learns about the opportunity, challenges, agrees goals and begins to tackle
the tasks.
 Team members tend to behave quite independently.
 Team members are usually on their best behaviour but very focused on self. Mature team
members begin to model appropriate behaviour even at this early phase.
 Sharing the knowledge of the concept of "Teams - Forming, Storming, Norming, Performing" is
extremely helpful to the team.
STORMING
 Different ideas compete for consideration.
 The team addresses issues such as “what problems they are really supposed to solve”.
 Team members open out to each other and confront each other's ideas and perspectives.
 In some cases storming can be resolved quickly but sometimes the team never leaves this stage.
 The maturity of some team members usually determines whether the team will ever move out
of this stage.
(i) Immature team members will begin to demonstrate how much they know and convince
others that their ideas are correct.
(ii) Some team members will focus on minutiae to evade real issues.
 The storming stage can be contentious, unpleasant and even painful to members of the team
who are averse to conflict.
 Tolerance of each team member and their differences needs to be emphasised.
NORMING
 Members adjust behaviour to each other as they develop work habits that make teamwork
seem more natural and fluid.
 Agree rules, values, professional behaviour, shared methods, working tools and even taboos.
 Team members begin to trust each other.
 Motivation increases as the team gets more acquainted with the project.
 Members expected to take more responsibility for making decisions and for their professional
behaviour.
PERFORMING
 High-performing teams are able to function as a unit as they find ways to get the job done
smoothly and effectively without inappropriate conflict or the need for external supervision.
 Team members become interdependent.
 They are motivated and knowledgeable.
 Team members are now competent, autonomous and able to handle the decision-making
process without supervision.
 Dissent is expected and allowed as long as it is channelled through means acceptable to the
team.
 The team will make most of the necessary decisions.

lOMoARcPSD|19198520
Other expressions are mourning (Permanent break up of group), dorming (group has become
complacent about task), adjourning (Finished one task, waiting for next to get going).
Effective team Ineffective team
Absenteeism Low High
Accident rates Low High
Commitment to objectives High Low
Communication within team Free and open Mistrust
Feedback Constructive criticism Undermining
Ideas Shared Kept secret
Individual targets Achieved Not achieved
Interest in decision Active Passive
Job satisfaction High Low
Labour turnover Low High
Motivation High Low
Opinions Consensus Imposed
Output and productivity High Low
Problem solving Causes addressed Only looks at symptoms
Quality of output High Low
Stoppages Low High
Understanding of roles High Low
Understanding of team’s role High Low
To build the team and improve team effectiveness, the organisation can:
 Design reward systems that recognise team rather than individual success
 Clearly setting the objectives of the team
 Selecting appropriate team members
 Providing the necessary resources
4 Motivating individuals and groups

Motivation refers to the initiation, direction, intensity and persistence of behaviour. Motivation is
having the desire and willingness to do something.
A motivated person can be reaching for a long-term goal such as becoming a professional writer or a
more short-term goal like learning how to spell a particular word.
KEY TERMS
 Intrinsic motivation. This is evident when people engage in an activity for its own sake,
without some obvious external incentive present. A hobby is a typical example.
 Extrinsic motivation. Refers to motivation that comes from outside an individual. The
motivating factors are external. These rewards provide satisfaction and pleasure that
the task itself may not provide.

lOMoARcPSD|19198520
An extrinsically motivated person will work on a task even when they have little interest in it because
of the anticipated satisfaction they will get from some reward.
For example:
 Tangible rewards such as increased pay, or promotion, or the avoidance of sanctions.
 Intangible rewards such as praise or public commendation.
5 Maslow’s hierarchy of needs (a content theorist)

Maslow contended that as humans meet 'basic needs', they seek to satisfy successively 'higher needs'
that occupy a set hierarchy.
Self-actualisation
This diagram shows Maslow's

Esteem needs hierarchy of needs, represented as
a pyramid with the more primitive
needs at the bottom.
Social needs Maslow’s theory is a simplistic
“content” theory. It assumes we all
have similar needs and all react in a
Safety needs similar way.
Physiological needs
6 Herzberg’s two factor theory (a content theorist)

Herzberg proposed the Motivation-Hygiene Theory, also known as the two factor theory of job
satisfaction.
Motivation Factors – achievement, recognition, work itself, responsibility, promotion, growth.
Hygiene Factors – pay and benefits, company policy and administration, relationships with co-workers,
physical environment, supervision, status, job security.
 When hygiene factors deteriorate to a level below that which the employee considers
acceptable, then job dissatisfaction ensues.
 When these factors have been satisfied, there will be no dissatisfaction, but neither will there
be significant positive attitude.
People are made dissatisfied by a bad environment, but they are seldom made satisfied by a good
environment.
Herzberg states that the prevention of dissatisfaction is just as important as encouragement of
motivator satisfaction.

lOMoARcPSD|19198520
Hygiene needs are cyclical in nature and come back to a starting point. This leads to the "What have
you done for me lately?" syndrome.
The focus of Herzberg’s theory is on the content of the job, it assumes we are all broadly similar in
what motivates us.
Herzberg suggested three ways of improving job design to make jobs more interesting to the
individual:
(1) Job enrichment: planned, deliberate action to build greater responsibility, breadth and
challenge of work into the job.
(2) Job enlargement: widen job by increasing the number of operations in which an individual is
involved.
(3) Job rotation: planned transfer of individuals from one job to another to increase task variety.
Volvo Trucks introduced ‘cell working’ in 1970’s with a team producing a whole truck rather than the
traditional production line approach. This did not improve productivity, but quality and job satisfaction
both improved significantly.
7 Douglas McGregor's X-Y Theory (a process theorist)

McGregor, an American social psychologist, proposed his famous X-Y theory in his 1960 book 'The
Human Side of Enterprise'.
McGregor maintained that there are two fundamental approaches to managing people.
Theory X ('authoritarian management' style)

The Theory X manager believes:
 The average person dislikes work and will avoid it if he/she can.
 Most people must be forced, with the threat of punishment, to work towards organisational
objectives.
Characteristics of the Theory X manager:
 Results-driven and deadline-driven, to the exclusion of everything else
 Intolerant
 Issues deadlines and ultimatums
 Distant and detached
 Aloof and arrogant
 Shouts
 Issues threats to make people follow instructions
 Demands, never asks
 Does not participate
 Unconcerned about staff welfare, or morale
 One-way communicator
 Poor listener
 Does not thank or praise
 Withholds rewards, and suppresses pay and remunerations levels
 Seeks culprits for failures or shortfalls
 Seeks to apportion blame instead of focusing on learning from the experience
 Takes criticism badly and likely to retaliate if from below or peer group
 Poor at proper delegating – but believes they delegate well

lOMoARcPSD|19198520
Theory Y ('participative management' style)

The Theory Y manager believes:
 Effort in work is as natural as rest and play.
 People will apply self-control and self-direction in the pursuit of organisational objectives,
without external control or the threat of punishment.
 Commitment to objectives is a function of rewards associated with their achievement.
 People usually accept and often seek responsibility.
McGregor thought that managers who tend towards theory X generally get poor results.
Enlightened managers use theory Y that produces better performance, results and allows people to
grow and develop.
8 Viktor Vroom (a process theorist) – expectancy theory

Employees motivated when they believe that:
 Putting in more effort will yield better job performance, and
 Better job performance will lead to organisational rewards, such as an increase in salary or
benefits, and
 These predicted organisational rewards are valued by the employee in question.
Vroom's theory assumes that behaviour results from conscious choices among alternatives whose
purpose it is to maximise pleasure and minimise pain.
Vroom realised that an employee's performance is based on individual factors such as personality,
skills, knowledge, experience and abilities.
Vroom introduced three variables,
 Valence (V)
 Expectancy (E)
 Force (F)
Valence (needs) – refers to the attitude people have in respect to rewards. The intensity of the desire
for rewards causes behaviour. To motivate an employee, one has to find what is individually valued.
Expectancy – refers to individual expectations and levels of confidence about what is achievable (e.g. if
a task is considered too difficult it might not be approached even though the rewards would be highly
valued).
Force (motivation) – effort put in to achieve objectives.
We all have different motivating factors (V). E.g. different people may be motivated by status, power,
cash, excitement, certainty of working hours, tenure at work etc
V×E=F
Vroom says managers must:
 Find out what motivates different individuals,
 Explain how they can achieve their goal,
 Make achievement realistic,
 Provide the reward when the target has been achieved.
If a manager does this, he or she will have a motivated workforce.

lOMoARcPSD|19198520

lOMoARcPSD|19198520
83
12
Training and development

and performance appraisal
1 Training and learning at work

Learning brings many benefits in the workplace:
 Increased productivity
 Improved performance
 Better staff retention
 Higher motivation
 Greater staff flexibility
These in turn allow the organisation to become more competitive.
2 Honey and Mumford

Developed a learning style questionnaire. This self-administered questionnaire determines a person’s
preferred learning style.
Knowing your learning style can accelerate your learning as you undertake activities that best fit your
preferred style.
Knowing your learning style can also help avoid repeating mistakes by undertaking activities that
strengthen other styles. For example, if you tend to “jump in at the deep end”, consider spending time
reflecting on experiences before taking action.
Activists (Do)
 Immerse themselves fully in new experiences
 Enjoy here and now
 Open minded, enthusiastic, flexible
 Act first, consider consequences later
 Seek to centre activity around themselves

lOMoARcPSD|19198520
84 12: T rai n i n g an d d e v e l op me n t and p e rf o rma n c e a p p ra i s a l A C C A BT
Reflectors (Review)
 Stand back and observe
 Cautious, take a back seat
 Collect and analyse data, slow to reach conclusions
 Use information from past, present and immediate observations to maintain a big picture
perspective.
Theorists (Conclude)
 Think through problems logically, value rationality and objectivity
 Assimilate disparate facts into coherent theories
 Disciplined, aiming to fit things into rational order
 Prefer assumptions, principles, theories, models and systems thinking
Pragmatists (Plan)
 Keen to put ideas, theories and techniques into practice
 Search for new ideas and experiment
 Act quickly and confidently on ideas, gets straight to the point
 Are impatient with endless discussion
3 Kolb learning styles

David Kolb's learning styles model and experiential learning theory (ELT).
Kolb's learning theory sets out four distinct learning styles (or preferences), which are based on a four-
stage learning cycle (which might also be interpreted as a 'training cycle').
Kolb says that ideally this process represents a learning cycle or spiral where the learner 'touches all
the bases', i.e. a cycle of experiencing, reflecting, thinking, and acting.
Kolb's model works on two levels –
(1) A four-stage cycle
 Concrete Experience – (CE)
 Reflective Observation – (RO)
 Abstract Conceptualisation – (AC)
 Active Experimentation – (AE)
(2) A four-type definition of learning styles
Each representing the combination of two preferred styles:
 Diverging (CE/RO)
 Assimilating (AC/RO)
 Converging (AC/AE)
 Accommodating (CE/AE)

lOMoARcPSD|19198520
A C C A BT 12: T rai n i n g an d d e v e l op me n t and p e rf o rman c e ap p rai s al 85
Learning styles
Kolb explains that different people naturally prefer a certain single different learning style. Various
factors influence a person's preferred style:
We internally decide whether we wish to do or watch, and at the same time we decide whether to
think or feel. Our learning style is a product of these two choice decisions:
(1) How to approach a task (grasping experience) preferring to (a) watch or (b) do; and,
(2) Emotional response to the experience (transforming experience) preferring to think or feel.
The combination of these two choices produces a preferred learning style.
DOING WATCHING
Active Experimentation Reflective Observation
(AE) (RO)
FEELING
ACCOMMODATING
Concrete Experience DIVERGING (CE/RO)
(CE/AE)
(CE)
THINKING
Abstract CONVERGING (AC/AE) ASSIMILATING (AC/RO)
Conceptualisation (AC)
Here are brief descriptions of the four Kolb learning styles:

(1) Diverging (feeling and watching, CE/RO)
 Able to look at things from different perspectives.
 Sensitive.
 View concrete situations from several different viewpoints.
 Kolb called this style 'Diverging' because these people perform better in situations that
require ideas-generation, for example, brainstorming.

lOMoARcPSD|19198520
 Broad cultural interests and like to gather information.

 Interested in people, imaginative, emotional,
 Prefer to work in groups, to listen with an open mind, and to receive personal feedback.
(2) Assimilating (watching and thinking, AC/RO)
 Concise, logical approach.
 Ideas and concepts are more important than people.
 Require good clear explanation rather than practical opportunity.
 Excel at understanding wide-ranging information and organising it a clear logical format.
 Attracted to logically sound theories.
 Prefer readings, lectures, exploring analytical models, and having time to think things
through.
(3) Converging (doing and thinking AC/AE)
 Solve problems and use learning to find solutions to practical issues.
 Prefer technical tasks.
 Less concerned with people and interpersonal aspects.
 Find practical uses for ideas and theories.
 Experiment with new ideas.
(4) Accommodating (doing and feeling CE/AE)
 'Hands-on'.
 Relies on intuition rather than logic.
 Use other people's analysis.
 Prefer to take a practical, experiential approach.
 Attracted to new challenges and experiences, and to carrying out plans.
 Act on 'gut' instinct rather than logical analysis.
 Work in teams to complete tasks.
 Set targets and work in the field trying different ways to achieve an objective.
The ability to use or 'switch between' different styles is not one that we should assume comes easily or
naturally to many people.
People who have a clear learning style preference, for whatever reason, will tend to learn more
effectively if learning is orientated according to their preference, e.g. people who prefer the
'assimilating' learning style will not be comfortable being thrown in at the deep end without notes and
instructions.
People who prefer to use an 'Accommodating' learning style are likely to become frustrated if they are
forced to read lots of instructions and rules, and are unable to get hands on experience as soon as
possible.
4 Role of the human resources department and individual managers in

the learning process
 Ensure training fits with objectives of organisation
 Assess competence of staff
 Agree objectives with staff
 Provide resources, time, money, space etc
 Feedback on results
 Provide rewards based on achievement
 Monitor progress
 Ensure compliance with company policy, e.g. requirement to attend so many courses a year
 Monitor environment for new training needs

lOMoARcPSD|19198520
 Adopt a fair and balanced approach to allocation of resources

 Communicate need for a trained workforce
 Communicate training opportunities to staff
 Identify “knowledge gaps” and develop strategy to close those gaps
 Identify and develop “high flyers”
 Coaching
 Lead by example by continuing to train and develop personally
The training and development process will normally be linked to the overall strategy for the business.
This process will involve a number of steps:
(1) Identify the skills and competences needed to fulfil the overall strategy
(2) Set objectives for the skills and competences required
(3) Design a programme to meet the objectives
(4) Implement the programme
(5) Check to ensure the objectives have actually been met
According to Armstrong training is the planned and systematic modification of behaviour through
learning events, programmes and instruction which enable individuals to achieve the level of
knowledge, skills and competence to carry out their work effectively.
Development is the growth or realisation of a person’s ability and potential through the provision of
learning and educational experiences.
Education is defined as that knowledge acquired gradually, by learning and instruction. Someone who
is ‘educated’ is regarded as being in possession of particular knowledge or skills, and having gone
through a particular process in order to acquire them.
Benefits of training and development to:
Organisation: Employee:
 Less need for supervision  Increased skills
 Higher morale  Self confidence
 Cheaper than buying in skills  Wider social network
 Increased flexibility  More interesting work
 Improved staff retention  Greater financial rewards
 Improved communications  Better performance
 Strengthened culture  Security within organisation
5 Review and appraisal of individual performance

Aims of a performance assessment, or review scheme:
 Give feedback on performance to employees.
 Identify employee training needs.
 Document criteria used to allocate organisational rewards.
 Form a basis for personnel decisions, e.g. salary increases, promotions, disciplinary actions, etc.
 Provide the opportunity for organisational diagnosis and development.
 Facilitate communication between employee and appraiser.

lOMoARcPSD|19198520
Why performance appraisal is important

 Opportunity to align goals of organisation with those of the employee
 The Hawthorne effect, employees who are noticed perform better
 Good relations with a supervisor is cited as one of the most important drivers of good
performance
 Opportunity to discuss personal development
 Opportunity for supervisor to receive feedback from sub-ordinate and to give feedback to sub-
ordinate
Organisations assess the performance of human resources by using a number of different techniques:
(a) Management by Objectives (MbO)
 Agree objectives, define them precisely, agree how to measure success
 Agree resources required to achieve objectives, including any development needs
 Agree feedback mechanism and milestones to be achieved along the way
 Agree rewards to be earned by the employee for achievement of objectives
MbO is often achieved using set targets. MbO introduced the SMART criteria. Objectives for
MbO must be SMART:
 Specific
 Measurable
 Agreed/achievable
 Realistic/relevant
 Timebound
(b) 360 degree feedback and 360 appraisals
 A 360 degree review should augment the traditional “top down” review.
 360 degree appraisals involve the appraisee receiving feedback from people (named or
anonymous) whose views are considered helpful and relevant.
 The feedback is typically provided on a form showing skills, abilities, attitudinal
behavioural criteria and some sort of scoring or value judgement system.
 The appraisee should also assess themselves using the same feedback instrument or
form.
 360 degree respondents can be the appraisee's peers, managers, subordinates, team
members, other staff, customers, suppliers – i.e. anyone who comes into contact with
the appraisee.
As with anything else, if the CEO and board agree to undertake it first, the system will have much
stronger take-up and credibility.
Performance appraisal aims to obtain better results for the organisation by:
 Setting goals
 Monitoring performance
 Providing feedback
 Improving planning

lOMoARcPSD|19198520
The main purpose of any performance appraisal system is to improve the efficiency of the organisation
by ensuring that the individuals within it are performing to the best of their ability and developing
their potential for improvement. This is achieved by:
 Reward review. Measuring the extent to which an employee is deserving of performance
related bonuses or pay increases
 Performance review. Planning and following-up training and development programmes,
identifying training needs and validating training methods
 Potential review. An aid to planning career development and succession by attempting to
predict the level and type of work the individual will be capable of in the future
There are three requirements for an appraisal process:
(1) The formulation of desired traits and standards against which individuals can be consistently
and objectively assessed.
(2) Managers should utilise a standard framework to record assessments.
(3) Getting the appraiser and appraisee together so that both contribute to the assessment and
plans for improvement and development.
A systematic appraisal system would then include the following stages:
(a) Identification of the criteria for assessment
(b) The preparation by the appraisee’s manager of an appraisal report
(c) An appraisal interview for an exchange of views about the appraisal report
(d) Review of the assessment by the assessor’s own superior, so that the appraisee does not feel
subject to one person’s prejudices
(e) The preparation and implementation of action plans to achieve improvements and changes
agreed
(f) Follow-up to monitor the progress of the action plan
Benefits of performance appraisal to:
Organisation: Employee:
 Get to know employees  Understand organisation goals
 Identify issues that need addressing  Get to know supervisor
 Improved communication  Learn how organisation rates them
 Receive feedback  Give feedback to supervisor
 Explain organisational goals  Discuss development and rewards
A common approach to assessing performance is to use a numerical rating system whereby managers
are asked to score an individual against a number of objectives/attributes. Employees may also be
allowed the opportunity to assess the manager at the same time. This is known as a 360 degree
appraisal.

lOMoARcPSD|19198520
Barriers to effective appraisal: How to overcome barriers:

 Insufficient time set aside  Allocate more time and diarise it, leave gap
afterwards for over-run
 Objectives not clearly defined or linked to  Use SMART. Make notes. Train managers.
organisational objectives Encourage openness
 Objectives not agreed  Use MbO.
 Dishonest feedback from manager  Train managers to conduct honest appraisals.
Improve culture of organisation to promote
openness and honesty
 Management reluctance to conduct appraisal  Commitment from top. Make it an objective of
all managers to conduct appraisals. Rewards
dependent to some extent on conducting good
quality appraisals
 Focus on pay and benefits  Separate pay and performance appraisals
 Employees behave defensively  Train managers and staff in techniques to
overcome defensiveness. Ensure sufficient time
is allocated to stressing positive aspects of
performance and use negative aspects as
opportunity to develop employee.
An appraisal scheme can be evaluated by using the following general criteria:

 Relevance
 Fairness
 Serious intent
 Co-operation
 Efficiency

lOMoARcPSD|19198520
91
13
Personal effectiveness
and communication
1 Competency framework
Competence is the ability to do the job.
Competence can be:
 Behavioural, for example the ability to work within a team,
 Occupational, for example an accountant should be able to produce a set of accounts, or
 Generic, which apply to everyone in the organisation.
2 Techniques for improving effectiveness at work and their benefits

Organisations should have personal staff development plans in place for employees in order to
maximise effectiveness and long term commitment in the workplace.
Approach to formulating a development plan:
 Identify skills and competences needed by organisation
 Prepare a development strategy (Who, why, what, where, when, how?)
 Implement the plan
Role of manager:
 To be alert to the development needs of employees and potential development opportunities.
 Meet with employees to discuss their career and current strengths/ weaknesses.
 Identify new skills that your employees need to develop to allow their continued upward
progress in the organisation and to meet the future challenges that business faces.

lOMoARcPSD|19198520
92 13: P e rs o n al ef f e c ti v e n e s s an d c o mmu ni c at i o n A C C A BT
 Create career development plans.

 Review progress regularly. Amend plan or workload if necessary.
Employer and employees should honour agreements.
3 Barriers to effective time management

External Internal
 Telephone interruptions  Procrastination
 Meetings  Failure to delegate
 Visitors  Unclear objectives
 Socialising  Failure to set priorities
 Lack of information  Crisis management
 Excessive paperwork  Failure to plan
 Communication breakdown  Poor scheduling
 Lack of policies and procedures  Lack of self-discipline
 Lack of competent personnel  Attempting to do too much at once
 Red tape  Lack of relevant skills
4 The role of IT in improving personal effectiveness

IT can be used to improve personal effectiveness in the following ways:
 Improved communication, e.g. email, voicemail, SMS messaging
 Improved navigation, e.g. Satnav
 Better information, e.g. prepare for job interview by googling employer
 Expert management systems
 E-learning
 Video conferencing
5 Coaching
 Experienced person teaches “pupil” how to do something better or well
 Part of the development process
 To be successful:
(i) Consider strengths and weaknesses of pupil and coach
(ii) Set clear goals or targets
(iii) Set milestones
(iv) Set aside specific time for coaching sessions
(v) Find opportunities to put new skill or knowledge into practice
(vi) Plan regular feedback sessions

lOMoARcPSD|19198520
A C C A BT 13: P e rs o n al ef f e c ti v e n e s s an d c o mmu ni c at i o n 93
6 Mentoring
 Long term relationship
 Experienced employee “looks after” new colleague or protégé
 Mentor may be a peer of new colleague
 Role involves advice and help on wide range of topics, many of which will only be indirectly
work related, e.g.
(i) How to dress, what to say, and to whom
(ii) Acceptable time to arrive and leave
(iii) How many smoke breaks one can get away with
(iv) Guidance on complying with other “unwritten rules”
(v) Introducing protégé to other employees (social and work)
(vi) Help with negotiating the political and administrative minefield
(vii) On the job training
(viii) Identifying permissible short cuts and “work-arounds”
7 Counselling
 Non-directive exploration of another person’s issues
 Counsellor must be skilled, particularly at listening
 Review current situation by encouraging employee to talk
 Assist the employee by helping them to decide on a desired outcome
 Help the employee to get to the desired outcome by:
(i) Advising, e.g. considering a range of outcomes
(ii) Helping employee to develop strategies to achieve desired result
8 Features of effective communication

Communication is a two-way process involving the transmission or exchange of information and the
provision of feedback.
Effective communication is an essential component of organisational success whether it is at
interpersonal, inter-group, intra-group, organisational, or external levels.
People in organisations typically spend over 75% of their time in an interpersonal situation.
Feedback can be vertical, horizontal or diagonal
Vertical communication is communication between varied levels of authority in an organisation.
Horizontal communication also known as lateral communication takes place between people of the
same rank (one member of peer group and another and the heads of departments).
Diagonal communication is communication between different structural levels within a business.
Radio signal model
Sender: coded message: decode message: Receiver: Feedback

lOMoARcPSD|19198520
Noise Noise
Message
Sender Receiver
Has idea of Communication Hears mostly
what to say what they want to
medium
and how to hear
say it e.g. face to face
writing, phone
Feedback
The sender is the initiator of the communication.
The message is the information being communicated.
The receiver is the recipient of the information.
Feedback is the communication response from the receiver as a result of receiving the message.
Noise is distraction or interference in the environment in which the communication is being sent.
In order to communicate information the sender needs to encode and the recipient decode the
message. During these processes distortion can occur, normally due to the language and/or medium
being used.
Formal communication is that required by an organisation to plan, co-ordinate and control activities.
Such communication will be resourced and supported by the organisation.
Informal communication supplements the formal system, and is referred to as the grapevine.
Ineffective communication can result in:
 Managers making incorrect decisions
 Interdepartmental co-ordination breaking down
 Individual motivation and effectiveness declining
Effective communication is where information is received:
 By the people who need it
 At the time it is required
 In the right way
 Accurately and completely
 Cost-effectively
The process of transmitting information from an individual (or group) to another is a very complex
process with many potential barriers.
Some of the "meaning" is lost in simple transmission of a message from the sender to the receiver.
This is most obvious in cross-cultural situations where language is an issue. But it is also common
among people of the same culture.
Social psychologists estimate that there is usually a 40-60% loss of meaning in the transmission of
messages from sender to receiver.
It is important to understand that a major part of communication is non-verbal. The non-verbal part
includes such things as body language and tone.

lOMoARcPSD|19198520
A C C A BT 13: P e rs o n al ef f e c ti v e n e s s an d c o mmu ni c at i o n 95
Many sources of noise or interference can enter into the communication process, even when people
know each other well and should understand the sources of error, e.g.:
 Language: The choice of words or language in which a sender encodes a message will influence
the quality of communication
 Misreading body language, tone and other non-verbal forms of communication
 Noisy transmission (unreliable messages, inconsistency)
 Receiver distortion: selective hearing, ignoring non-verbal cues
 Power struggles
 Managers hesitate to be open
 Assumptions, e.g. assuming others see a situation the same as you or have the same feelings as
you
 Distrusted source, erroneous translation, value judgement, state of mind of two people
 Interpersonal relationships: how we perceive communication is affected by the past experience
with the individual
 Organisational relationship: for example, communication from a superior may be perceived
differently than that from a subordinate or peer
 Cultural differences: effective communication requires deciphering of the basic values, motives,
aspirations, and assumptions that operate across geographical lines
9 Verbal or oral communication

This covers both face-to-face communication in the form of meetings and interviews and oral
communication only in the form of telephone calls
Non-verbal communication:
A large percentage (studies suggest over 90%) of the meaning derived from communication comes
from the non-verbal cues that the other person gives. Often a person says one thing but
communicates something totally different through vocal intonation and body language.
10 Communication patterns
A communication pattern describes the channels of communication between people. Leavitt identified
four such patterns for written communication between a five-member team:
(1) The circle. Each member of a group can communicate with only two people.
A B
E C
D
(2) The chain. Similar to the circle however there is a break in the circle resulting in two ends
A B C D E

lOMoARcPSD|19198520
(3) The ’Y’. Similar to the chain however there are now three ends. The individual at the centre
takes on a vital role.
D E
A
(4) The wheel, or star. Similar to the ‘Y’, however there are now four ends. Again, the individual at
the centre takes on a vital role.
A B
E D
(5) “All channel”. This is an informal model where everyone communicates with everyone else.
A B
E C

lOMoARcPSD|19198520
97
14
Professional ethics
Definition – A set of moral principles and values that guide behaviour.

Political/Legal environment
Laws, regulations, standards are necessary for business to flourish, e.g.
 Contracts must be honoured and enforceable
 Bribery and corruption must not be tolerated
 Obeying the law is the minimum expected of a member of society
KEY TERMS
 Grease money. Payments to secure something we are legally entitled to.
 Bribery. Payments to secure something we are not legally entitled to.
Organisations contain a variety of ethical systems which influence behaviour:

 Personal ethics
 Professional ethics
 Organisational culture
 Organisational systems
A profession has its own ethical standards and codes which all members are expected to adhere to.
Other types of occupation may have standards and codes but not for ethics.

lOMoARcPSD|19198520
98 14: P ro f e s s i o n al e t hi c s A C C A BT
1 Ethics and accountants:

 Accountants should consider public interest and social responsibility
 Ethical behaviour helps to maintain the image of accountants generally
 Accountants must be trustworthy
 This improves the employability of accountants
 Accountants should consider the ethical and social implications of decisions rather than
restricting their input to discussing the impact of decisions on the financial statements
 Accountants must display the following characteristics:
– Professionalism. An accountant should be clearly identifiable as a professional person
– Provide high quality services. All services should be carried out to the highest standard of
performance
– Credibility. Information and information systems must be credible
– Confidence. Users of accountants should be able to feel confident that there is a
framework of professional ethics to govern the provision of services.
IFAC (the International Federation of Accountants) emphasises the requirement for accountants to act
in the public interest. This means considering the interests of society as a whole as well as the
interests of the accountant or their employer. IFAC have issued a code of ethics that the ACCA and its
members adhere to.
2 Fundamental Principles of the IFAC code (CIPOP)

Confidentiality – Respect the confidentiality of information. Do not disclose such information to third
parties, either in a business or social situation, unless there is a legal or professional right or duty to
disclose. (Disclosure is called whistle blowing.) Confidential information should not be used for the
personal advantage of the accountant or third parties. The duty of confidentiality extends to staff
working for the accountant.
Integrity – Involves being straightforward and honest in all professional and business relationships.
Professional behaviour – Comply with laws and regulations and avoid any action that discredits the
profession e.g. making unsubstantiated claims of competence or disparaging remarks about other
members of the profession.
Objectivity – Not allowing bias, conflict of interest, or undue influence of others to override
professional or business judgements.
The objectivity of a member is likely to be jeopardised when the fees (for audit and recurring work) for
one client (single company or group) exceeds 10% for listed/public interest companies and 15% for
other companies of the firm’s total fees.
Professional competence and due care – Continuing duty to maintain professional knowledge and
skill.
3 Conceptual framework
The ACCA advocates a conceptual framework to guide ethical behaviour rather than prescriptive rules
as it is impossible to legislate for every situation the accountant may encounter.
Continual personal improvement and life-long learning are at the heart of ACCA membership and are a
condition of membership. All members have an obligation to ensure they are competent.

lOMoARcPSD|19198520
A C C A BT 14: P ro f e s s i o n al e t hi c s 99
4 Personal qualities required of an accountant: (CTR3)

 Courtesy – Accountants should conduct themselves with courtesy and consideration towards all
they come into contact with during the course of performing their work.
 Timeliness – Produce work on time. Arrive on time for work and for meetings.
 Reliability – Work meets professional standards.
 Responsibility – Take ownership of work.
 Respect – Develop constructive relationships. Respect other people’s perspectives.
5 Professional qualities required: (SASI)

 Scepticism – Accountants should question information supplied to them. Where is it from?
Is there supporting evidence? Who supplied it? Why was it supplied?
 Accountability – The accountant is accountable for his own actions and decisions. He should not
pass the buck.
 Social responsibility – Be aware that work may affect the public. For example, accounting profits
may be used by a range of users, including investors, employees, suppliers, customers, HMRC,
prospective investors.
 Independence – Have an independent mind. Produce work that is free from bias and prejudice.
Be seen to be independent. (For example, think carefully before accepting hospitality from
clients or suppliers.)
Accountants are required to identify, evaluate and address threats to compliance with the
fundamental principles.
Consequentialist approach to ethics

This focuses on the consequences which any action might have. Thus, in order to make correct moral
or ethical choices, we have to have some understanding of what will result from our choices.
When we make choices which result in the correct consequences, then we are acting morally; when
we make choices resulting in the incorrect consequences, then we are acting immorally.
 Utilitarianism measures the quality of outcome in terms of the greatest happiness of the
greatest number (“what is best for the majority?”). Consequentialist ethics are therefore
situational and contingent, and not absolute.
 Egoism states that an act is ethically justified if any decision is based on the needs/interests of
the individual making the decision (either for the short or long term). What is best for me?
 Ethical relativism relates to the concept that there are relative rights and wrongs rather than
absolutes. This means that some things that are wrong ethically are less important than others
and this can lead to the acceptance of the practice that ‘anything goes’.
 Pluralism relates to the idea that there are several values which may be equally correct and
fundamental yet in conflict with each other.
6 Organisational values promoting ethical behaviour

Openness: open and clear disclosure of relevant information to stakeholders
Honesty: Tell the truth and avoid misleading stakeholders
Accountability: Individuals have to be accountable for their actions and subject themselves to scrutiny
when carrying out their duties

lOMoARcPSD|19198520
Respect: There should be a culture of respect within the organisation for example to allow different
viewpoints, or to ensure everyone observes the need for meetings to start on time
Trust: The organisation should ensure it is in a position to be trusted by its stakeholders
Empowerment: Empower staff to allow them to behave ethically in all situations.
7 Ethical conflicts and dilemmas

Threats to compliance with fundamental principles
 Self-interest, e.g. having shares in the company…the accountant will lose objectivity
 Self-review, e.g. preparing and checking the same piece of financial information…the
accountant will lose objectivity
 Advocacy, e.g. promoting a supplier company run by family member…the accountant will lose
objectivity
 Familiarity, e.g. appointing family member as a colleague…the accountant will lose objectivity
 Intimidation, e.g. being threatened with dismissal for not following inappropriate orders…the
accountant will lose objectivity
These are all threats to objectivity, and could also result in the accountant losing integrity (for
instance, if personal needs are placed higher than company or client needs). An accountant might also
sometimes experience different conflicts of interest, for example, a friend’s interest against
employer’s interest. Again objectivity will be threatened, and possibly confidentiality if the interest
involves sharing information inappropriately (as would be the case if an accountant gave a friend
private information to enable them to buy shares and benefit from a future rise in share prices).
Safeguards
Safeguards need to reduce the threat. For example, training can reduce the threat, as the accountant
would be aware of possible threats and seek to avoid them. However, this may not be enough in
isolation for many threats, as the threat of loss of integrity still exists (if the accountant chooses to
ignore the training…)
 Education, training and experience requirements for entry to ACCA membership
 CPD requirements (so that the accountant continues to train and understand developing
threats)
 Corporate governance regulations
 Professional standards
 Professional monitoring and disciplinary procedures
 External review by a third party of material produced by the professional accountant
 Reporting systems such that other parties are aware of the possible threat (ie disclosure/whistle
blowing)
 Obtaining advice from suitable parties, such as ACCA or a solicitor
 Sometimes (although usually as a last resort) it may be necessary to resign to adequately
safeguard against a threat to the fundamental principles.
EXAM FOCUS POINT

Examiner’s reports often note that students find understanding these threats and what
safeguards are appropriate to mitigate them difficult. Ensure you think through what these
threats are, what fundamental principles they are threatening and how they could be
managed. Also ensure that you work through as many ethical questions as you can prior to
the exam.

lOMoARcPSD|19198520
A C C A BT 14: P ro f e s s i o n al e t hi c s 101
8 Conflict resolution (Ethical dilemmas)

(a) Examples of conflicts
 Being expected to act contrary to legal or professional standards
 Facilitate unethical or illegal earnings management strategies
 Lie to, or mislead, others, especially auditors and regulators
 Issue reports that misrepresent the facts
(b) Response to ethical dilemmas
(i) Consider the facts, and ethical issues involved
(ii) Consider the fundamental principles related to the situation
(iii) Consider any established internal procedures
(iv) Consider alternative courses of actions
 Consult with line manager, or board, or audit committee
 If unresolved, obtain advice from the ACCA
 Seek legal advice
 Withdraw from the assignment
 Resign

lOMoARcPSD|19198520

lOMoARcPSD|19198520
103
Comparison of course notes

content with study text
The table below shows where topics covered in these course notes are included within the Study
Text. The Study Text provides useful background reading however, please note that we do not think
that you need to read the study text to pass this exam. These course notes should provide all you
need to obtain a pass.
Course Notes Covered in Study Text
Chapter 1: Organisations, stakeholders and the
business environment Chapter 1: The business organisation
1 Different types of organisation
Chapter 5 Stakeholders in business organisations
2 Stakeholders
3 Mendelow’s matrix for prioritising stakeholders
4 PEST analysis Chapter 6: External analysis – political and legal
5 Employment law factors
6 Data protection
7 Health and Safety at Work Act 1974
8 Basics of contract law
Chapter 2: The macro-economic environment Chapter 7: External analysis – economic factors
1 Macro-economic factors
Chapter 3: The micro-economic environment Chapter 7: External analysis – economic factors
1 Micro-economic factors
2 Elasticity of demand
3 Perfect competition
4 Monopoly Chapter 8: External analysis – environmental and
5 Social and demographic factors technological factors
6 Technological factors
7 Competitive factors (Porter’s Five forces)
Chapter 9: Competitive factors
8 SWOT Analysis

lOMoARcPSD|19198520
104 Co mp ari s o n o f c o u rse n o te s c o nt e n t w i t h s t u d y t e xt A C C A BT
Chapter 4: Organisational structure Chapter 2 Business organisation and structure

1 The formal and informal business organisation
2 Direction and management of a company
3 Span of control
4 Scalar chain
5 Centralisation
6 Decentralisation
7 How to organise a business
8 The Anthony hierarchy of roles in an organisation
9 Marketing
Chapter 5: Organisational culture and committees Chapter 3 Organisational culture in business
1 Organisational culture
2 Committees in the business organisation
Chapter 6: Governance and social responsibility Chapter 11: Governance and social responsibility in
1 Governance and social responsibility in business business
Chapter 7: Systems, controls and compliance
1 The relationship between accounting and other Chapter 13: Accounting and finance functions
functions within a business
2 Financial accounting Chapter 15: The relationship between accounting
3 Management accounting and other business functions
4 Treasury function
5 Internal and external auditing and their functions
6 Law and regulation governing accounting
7 International Accounting Standards
8 Financial systems, procedures and IT applications
9 IT software applications
Chapter 12: Law and regulation governing
accounting
Chapter 8: Control, security and audit Chapter 14: Financial systems and procedures
1 Internal financial control and security within Chapter 16: Audit and financial control
business organisations
2 Controls and IT systems
Chapter 9: Identifying and preventing fraud Chapter 17: Fraud, fraudulent behaviour and their
1 Fraud and its prevention in business prevention in business
2 Money laundering

lOMoARcPSD|19198520
A C C A BT Co mp ari s o n o f c o u rse n o te s c o nt e n t w i t h s t u d y t e xt 105
Chapter 10: Leading and managing individuals and Chapter 21: Motivating individuals and groups
teams
1 Leadership
2 Management
3 Supervision
4 Fayol (1849-1926) Classical theory of
management
5 Frederick Taylor (1856 – 1915) Scientific
Management
6 Elton Mayo
7 Mintzberg – the functions of a manager
8 Peter Drucker – the functions of a manager
(alternative theory)
9 Managerial authority and responsibility
10 John Adair – Action-centred leadership
11 Fred Fiedler (1922 – 2017) The Fiedler
contingency model
12 Warren Bennis (1928 – 2014) seven qualities of a
leader
13 Heifetz – adaptive leadership
14 Kotter
15 Ashridge Management College ─ four
management styles
16 Blake and Mouton’s Managerial Grid
17 Recruitment, selection, diversity etc Chapter 19: Recruitment and selection of
employees
Chapter 11: Individuals, groups and teams Chapter 20: Individual, group and team behaviour
1 Individual and group behaviour in business
organisations
2 Team formation, development and management
3 Bruce Wayne Tuckman
4 Motivating individuals and groups
5 Maslow’s hierarchy of needs (a content theorist)
6 Herzberg’s two factor theory (a content theorist)
7 Douglas McGregor's X-Y Theory (a process
theorist)
8 Viktor Vroom (a process theorist) – expectancy
theory
Chapter 12: Training and development and Chapter 22: Learning and training at work
performance appraisal
1 Training and learning at work
2 Honey and Mumford
3 Kolb learning styles
4 Role of the human resources department and
individual managers in the learning process
Chapter 23: Review and appraisal of individual
5 Review and appraisal of individual performance performance

lOMoARcPSD|19198520
106 Co mp ari s o n o f c o u rse n o te s c o nt e n t w i t h s t u d y t e xt A C C A BT
Chapter 13: Personal effectiveness and Chapter 24: Personal effectiveness at work
communication
1 Competency framework
2 Techniques for improving effectiveness at work
and their benefits
3 Barriers to effective time management
4 The role of IT in improving personal effectiveness
5 Coaching
6 Mentoring
7 Counselling
8 Features of effective communication Chapter 25: Communicating in business
9 Verbal or oral communication
10 Communication patterns
Chapter 14: Professional ethics Chapter 10: Professional ethics in accounting and
1 Ethics and accountants: business
2 Fundamental Principles of the IFAC code (CIPOP)
3 Conceptual framework
4 Personal qualities required of an accountant:
(CTR3)
5 Professional qualities required: (SASI)
6 Organisational values promoting ethical
behaviour
7 Ethical conflicts and dilemmas
8 Conflict resolution (Ethical dilemmas)

Acca BT Course Notes

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Acca BT Course Notes

Uploaded by

Copyright:

Available Formats

lOMoARcPSD|19198520

ACCA BT Course Notes

ACCA F1 Practice and Revision Kit by BPP (Association of Chartered Certified

Studocu is not sponsored or endorsed by any college or university

Downloaded by Ngân Kim (kimngan4921@gmail.com)

No part of this publication may be reproduced, stored in a retrieval system

Any unauthorised reproduction or distribution in any form is strictly

© First Intuition Ltd, 2020

APRIL 2020 RELEASE

Downloaded by Ngân Kim (kimngan4921@gmail.com)

1: Organisations, stakeholders and the business environment 1

1 Different types of organisation: 1

2: The macro-economic environment 11

3: The micro-economic environment 15

1 The formal and informal business organisation 29

5: Organisational culture and committees 37

6: Governance and social responsibility 43

1 Governance and social responsibility in business 43

Downloaded by Ngân Kim (kimngan4921@gmail.com)

7: Systems, controls and compliance 47

1 The relationship between accounting and other functions 47

8: Control, security and audit 55

1 Internal financial control and security within business organisations 55

9: Identifying and preventing fraud 59

1 Fraud and its prevention in business 59

10: Leading and managing individuals and teams 63

11: Individuals, groups and teams 75

1 Individual and group behaviour in business organisations 75

12: Training and development and performance appraisal 83

1 Training and learning at work 83

Downloaded by Ngân Kim (kimngan4921@gmail.com)

2 Honey and Mumford 83

13: Personal effectiveness and communication 91

14: Professional ethics 97

1 Ethics and accountants: 98

Comparison of course notes content with study text 103

Downloaded by Ngân Kim (kimngan4921@gmail.com)

2 Studying Business and Technology

Downloaded by Ngân Kim (kimngan4921@gmail.com)

According to Richard Daft an organisation is:

1 Different types of organisation:

Downloaded by Ngân Kim (kimngan4921@gmail.com)

Interest Management Press/

Downloaded by Ngân Kim (kimngan4921@gmail.com)

3 Mendelow’s matrix for prioritising stakeholders:

Risk of influencing opinion of those in boxes A

Employees Maximise remuneration, security of tenure, career development, training

Shareholder Share price maximisation, dividend maximisation, earnings growth,

Lenders Certainty of payment, security of capital, further loans

Customers VFM, high quality, reliable service, Innovation

Suppliers Certainty of payment, further business

Downloaded by Ngân Kim (kimngan4921@gmail.com)

 Consumer  Policy towards  Lifestyle changes  Speed of technology

 Government  Exchange rates  Education  Energy use and costs

4.1 Political and legal factors

Downloaded by Ngân Kim (kimngan4921@gmail.com)

Downloaded by Ngân Kim (kimngan4921@gmail.com)

(a) Common law duties of employee and employer

(b) Statutory duties

Downloaded by Ngân Kim (kimngan4921@gmail.com)

Downloaded by Ngân Kim (kimngan4921@gmail.com)

Data Protection Principles (taken from the Act)

Obtaining access to information