UNIT 15: FINANCIAL MANAGEMENT

Unit code M/508/0527

Credit value 15
UNIT 15: FINANCIAL MANAGEMENT

Learning Outcome 2: Analyse financial management principles which are

used to support effective financial strategies.
 THE BASIC SYLLABUS
1 Apply different approaches used to support effective
decision-making.
2 Analyse financial management principles which are
used to support effective financial strategies.
3 Evaluate the role of management accountants and
accounting control systems.
4 Evaluate ways in which financial decision-making
supports sustainable performance.
 LEARNING OUTCOMES
LO 2: Analyse financial management principles which are used to support
effective financial strategies.

M2: Critically analyse the key financial management principles and their
importance in delivering effective financial strategies for long term financial
sustainability.
 OVERVIEW
 Ethics are principles based on doing the right thing. They
are the moral values by which an individual or business
operates. In theory, a business or individual can act ethically
and still attain ultimate success. A history of doing the right
thing can be used as a selling point to heighten a person's
or organization's reputation in the community. Not only are
ethics morally valued, they are backed by legal
repercussions for failure to act within certain guidelines.
 ETHICAL FINANCIAL MANAGMENT
 While Enron and Arthur Anderson are thorough examples of
how an organization may be brought down due to a gross lack
of ethics, it is important to remember that ethics should be
practiced on a day-to-day basis in even the smallest financial
management capacities. Perhaps the most effective way to
ensure adherence to ethical principles on a daily basis is to
consider the needs of all of the organization’s stakeholders,
from employees and vendors to shareholders and CFOs, and
attempt to balance those needs throughout the decision
making process.
 ETHICAL FINANCIAL MANAGEMENT
The study of ethics in the context of financial
management is a relatively new discipline. While
ethical issues have been a factor in business as long
as there has been commerce, the academic study of
ethics in the business setting has only been around
for approximately 40 years.
 ETHICAL FINANCIAL MANAGEMENT
The passing of the Sarbanes-Oxley Act of 2002 was a
direct result of these ethical crises in financial
management. SOX made provisions for the formation
of the Securities and Exchange Commission which
now oversees financial auditors in the United States.
 ETHICAL FINANCIAL MANAGEMENT
The Act also implemented stiffer penalties for fraud
and requires that chief financial officers sign off on
their organization’s financial statements. This places
greater responsibility on the CFO, holding the CFO
directly accountable in cases of fraud.
 ETHICAL FINANCIAL MANAGEMENT
The ethics of a finance manager should be above
approach. This includes more than just acting in an
honest, above-board manner. It means establishing
boundaries that prevent professional and personal
interests from appearing to conflict with the interest of
the employer.
 ETHICAL FINANCIAL MANAGEMENT
A finance manager must provide competent, accurate
and timely information that fairly presents any potential
disclosure issues, such as legal ramifications. The
manager is also ethically responsible for protecting the
confidentiality of the employer and staying within the
boundaries of law.
 ETHICAL DECISIONS
Managers have a duty (in most entities) to aim for
profit. At the same time, modern ethical standards
impose a duty to guard, preserve and enhance the value
of the entity for the good of all touched by it, including
the general public. Large organisations tend to be more
often held to account over this than small ones. In the
area of products and production, managers have
responsibility to ensure that the public and their own
employees are protected from danger.
 ETHICAL DECISIONS
Attempts to increase profitability by cutting costs may
lead to dangerous working conditions or to inadequate
safety standards in products. In the United States,
product liability litigation is so common that this legal
threat may be a more effective deterrent than general
ethical standards.
 ETHICAL DECISIONS
Another ethical problem concerns payments by
companies to government or municipal officials who
have power to help or hinder the payers' operations. In
The Ethics of Corporate Conduct, Clarence Walton
refers to the fine distinctions which exist in this area.
 ETHICAL DECISIONS
(a) Extortion. Foreign officials have been known to
threaten companies with the complete closure of
their local operations unless suitable payments are
made.
(b) Bribery. This refers to payments for services to
which a company is not legally entitled. There are some
fine distinctions to be drawn; for example, some
managers regard political contributions as bribery
 ETHICAL DECISIONS
(c) Grease money. Multinational companies are sometimes
unable to obtain services to which they are legally entitled
because of deliberate stalling by local officials. Cash payments to
the right people may then be enough to oil the machinery of
bureaucracy.
(d) Gifts. In some cultures (such as Japan) gifts are regarded as
an essential part of civilised negotiation, even in circumstances
where to Western eyes they might appear ethically dubious.
Managers operating in such a culture may feel at liberty to
adopt the local customs
 ETHICAL DECISIONS
Business ethics are also relevant to competitive
behaviour. This is because a market can only be free if
competition is, in some basic respects, fair. There is a
distinction between competing aggressively and
competing unethically.
 ETHICAL DECISIONS
Ethical decision-making is influenced by individual and
situational factors. Individual factors include age and gender,
beliefs, education and employment, how much control
individuals believe they have over their own situation and their
personal integrity.
Kohlberg's framework relates to individuals' degree of ethical
maturity; the extent to which they can take their own ethical
decisions. Situational factors include the systems of reward,
authority and bureaucracy, work roles, organisational factors,
and the national and cultural contexts.
 ETHICAL DECISIONS
Businesses are part of society. Society expects its
individuals to behave properly, and similarly expects
companies to operate to certain standards.
Business ethics is important to both the organisation
and the individual.
ETHICAL DECISIONS
 REVIEW QUESTIONS
Briefly explain the main ethical issues that are involved in the following
situations.
(a) Dealing with a repressive authoritarian government abroad
(b) An aggressive advertising campaign
(c) Employee redundancies
(d) Payments or gifts to officials who have the power to help or hinder the
payees' operations
 REFERENCES
Bizfluent.com. (2018). Cite a Website - Cite This For Me. [online] Available
at: https://bizfluent.com/info-7755777-ethics-financial-
management.html [Accessed 20 Feb. 2018].
 Smallbusiness.chron.com. (2018). Business Ethics for a Finance Manager.
[online] Available at: http://smallbusiness.chron.com/business-ethics-
finance-manager-20490.html [Accessed 20 Feb. 2018].
BPP LEARNING MEDIA. (2017). ACCA P2 CORPORATE REPORTING
(INTERNATIONAL & UK). [S.l.]: BPP LEARNING MEDIA.
Media, B. (2010). ACCA Paper P1 Governance, Risk and Ethics -
Professional Accountant Study Text. London: BPP Learning Media.
 REFERENCES
 Kfknowledgebank.kaplan.co.uk. (2018). [online] Available at:
http://kfknowledgebank.kaplan.co.uk/KFKB/Wiki%20Pages/Ethics.aspx
[Accessed 20 Feb. 2018].