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ACCA Paper F1 Accountant in Business Class Notes June 2011 © The Accountancy College Ltd, January 2011 All rights res...

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ACCA Paper F1

Accountant in Business Class Notes June 2011

© The Accountancy College Ltd, January 2011 All rights reserved. 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 The Accountancy College Limited.

2

www.studyinteractive.org

Contents PAGE INTRODUCTION TO THE PAPER

5

CHAPTER 1:

RECRUITMENT AND SELECTION

7

CHAPTER 2:

DIVERSITY

15

CHAPTER 3:

TRAINING AND DEVELOPMENT

19

CHAPTER 4:

PERSONAL EFFECTIVENESS

25

CHAPTER 5:

PERFORMANCE APPRAISAL

37

CHAPTER 6:

LEADING PEOPLE

41

CHAPTER 7:

INDIVIDUALS AND GROUPS

57

CHAPTER 8:

MOTIVATING PEOPLE

63

CHAPTER 9:

THE ROLE OF ACCOUNTING

71

CHAPTER 10: THE MACRO-ECONOMIC ENVIRONMENT

91

CHAPTER 11: THE BUSINESS ENVIRONMENT

97

CHAPTER 12: BUSINESS ORGANISATION

105

CHAPTER 13: ORGANISATIONAL CULTURE

115

CHAPTER 14: CORPORATE GOVERNANCE

121

CHAPTER 15: ETHICAL CONSIDERATIONS

125

CHAPTER 16: IT AND SYSTEMS

131

CHAPTER 17: CONTROL AND SECURITY

137

CHAPTER 18: FRAUD

145


3

4


Introduction to the paper


5

IN T R O D U C T I O N T O T H E P A P E R

AIM OF THE PAPER The aim of the paper is to introduce knowledge and understanding of the business and its environment and the influence this has on how organisations are structured and on the role of the accounting and other key business functions in contributing to the efficient, effective and ethical management and development of an organisation and its people and systems.

OUTLINE OF THE SYLLABUS 1.

Business organisation structure, governance and management

2.

Key environmental influences and constraints on business and accounting

3.

History and role of accounting in business

4.

Specific functions of accounting and internal financial control

5.

Leading and managing individuals and teams

6.

Recruiting and developing effective employees.

FORMAT OF THE EXAM PAPER The syllabus is assessed by a two hour computer-based examination. The examination consists of a mixture of 2 mark and 1 mark questions.

FAQS How do I get the most from my course? ●

Try and be seated and pick up your handout by the start of the lecture. This will ensure we have the maximum lecture time. Your course notes will be in divided into chapters, please make sure you bring the relevant chapters with you to class.

●

Manage your time effectively. If you have a busy work schedule use your study planner to catch up. Do not allow yourself to fall behind.

●

If you have any difficulties or questions please do not hesitate to contact me either before the lecture or during the break as most students are in a desperate hurry to leave at the end of the lecture. Alternatively, you can always email me or phone me through our helpline.

●

In the event of an emergency you can come for the same lecture on a corresponding part-time course as all the courses run parallel to each other. It is crucially important that you attend the full course of lectures.

●

Try to read the business section of a decent newspaper at least once a week to get an idea of what is going on in the business world.

●

Practice as many questions as you can. You should aim to have attempted every question in the revision kit at least twice before the exam.

6


Chapter 1

Recruitment and selection


7

CHAPTER 1 – RECRUITMENT AND SELECTION

CHAPTER CONTENTS THE RECRUITMENT AND SELECTION PROCESS ------------------------- 9 THE DIFFERENCE BETWEEN RECRUITMENT AND SELECTION

9

STAGES IN THE RECRUITMENT AND SELECTION PROCESS

9

DETAILED RECRUITMENT STAGES

10

DETAILED SELECTION STAGES

10

POSSIBLE METHODS OF RECRUITMENT ------------------------------- 11 JOB ADVERTISEMENTS

11

RECRUITMENT AGENCIES

11

POSSIBLE METHODS OF SELECTION ----------------------------------- 12

8

INTERVIEWS

12

ASSESSMENT CENTRES

13

REFERENCES

13



THE RECRUITMENT AND SELECTION PROCESS No organisation will be successful without the correct staff. Choosing incorrect staff can result in: ●

Poor quality work

●

Poor morale

●

High staff turnover

●

Wasted time and money in recruiting more staff.

There are a number of ways to obtain the correct staff: ●

Promote from inside the organisation

●

Recruit from outside the organisation.

The difference between recruitment and selection Recruitment is the process of establishing that vacancies exist and communicating these vacancies to an appropriate pool of candidates. (Recruit or promote?) Selection is the process of filtering candidates in order to select the individual best suited to a particular vacancy.

Stages in the recruitment and selection process The first consideration is the type of job to be offered. ●

If the job already exists then it will be important to start with a job analysis

●

If the job requires getting specific tasks done then again a job analysis would be a sensible place to start

●

If the role of the job is likely to change then a person specification may be more appropriate

●

A job analysis will mean looking for someone with particular skills and experience

●

A person specification will mean looking for someone with a particular personality.

Rodgers’ 7 point person specification Rodgers gives a list of 7 qualities that might be important: ●

Physical make-up

●

Attainments

●

General intelligence

●

Special aptitudes

●

Interests

●

Disposition

●

Circumstances.


9


Detailed recruitment stages ●

Gap analysis (if the job does not already exist)

●

Identify vacancies

●

Make decision to recruit

●

Job analysis (if the job is new)

●

Advertise.

Detailed selection stages ●

CVs reviewed

●

Interviews / Assessment centres carried out

●

Selection of candidate

●

Offer letter to candidate

●

Induction.

10



POSSIBLE METHODS OF RECRUITMENT The main two methods of recruitment are either: ●

The organisation doing its own recruitment by placing job adverts

●

The organisation using a recruitment agent to carry out the recruitment.

Job advertisements Jobs should be advertised in an appropriate way. Possible places include: ●

Internet

●

Specialist journals

●

Local press

●

National press.

Job advertisements normally contain the following: ●

Job description

●

Brief overview of the organisation

●

Salary

●

Person specification

●

Contact information.

A variation on this is where the organisation ‘advertises’ at a recruitment fair (this is often used for graduate recruitment).

Recruitment agencies There are two main approaches to using recruitment agencies: ●

Potential candidates go to the agency. The agency then tries to place them in a job.

●

The organisation goes to the agency with a high level role. The agency then tries to find a person to fill that role. This is often referred to as ‘headhunting’.

The advantages of using an agency include: ●

It is less distracting for managers

●

It may be faster

●

Gaining access to all the people on the agency’s books

●

The agency has knowledge of how to recruit staff

●

The agency has knowledge of salaries expected.

Disadvantages of using an agency include: ●

The agency will not know what the organisation is like

●

The agency may recommend people so it can meet its own targets

●

It can be expensive.


11


POSSIBLE METHODS OF SELECTION The main methods of selecting staff are: ●

Application forms / CVs

●

Interviews

●

Aptitude tests

●

Assessment centres.

Whichever method is chosen it is normal to ask the candidate to supply references.

Interviews Interviews are still used as part of the main selection process in most jobs. The reasons for this include: ●

They are flexible enough to allow for different approaches

●

They allow the interviewer to ask questions

●

They allow the interviewer to assess interpersonal skills.

There are a number of difficulties with interviews ●

They are artificial

●

They require the interviewer to be skilled and well-prepared

●

They can lead to the halo effect and cloning

●

They are time consuming.

Types of Interviews: ●

Individual

●

Panel

●

Selection Boards.

12



Assessment centres An assessment centre is NOT a place. An assessment centre is where a variety of selection methods are used to select candidates. These methods include: ●

Interviews

●

Group exercises

●

Role playing

●

Practical tests.

The advantages of using assessment centres instead of just interviews include: ●

They can be used to see how candidates deal with others

●

The candidates can be observed over a longer period of time

●

The candidates can be given practical tasks that reflect the job.

The disadvantages of using assessment centres include: ●

Candidates will do well in some areas and not others

●

It is possible to coach candidates to perform well at practical tests

●

May be expensive.

References There are a number of problems with using references as part of the section process. These include: ●

They may be unsuitable

●

They may be biased

●

They may be too brief.


13


14


Chapter 2

Diversity


15

C H A P T E R 2 – D IV E R S I T Y

CHAPTER CONTENTS EQUAL OPPORTUNITIES ------------------------------------------------ 17 DIVERSITY --------------------------------------------------------------- 18

16

WHAT IS MEANT BY DIVERSITY?

18

DIVERSITY MANAGEMENT

18



EQUAL OPPORTUNITIES Equal opportunities means ensure individuals are treated fairly in the employment process. In other words everyone has the right to be treated fairly at work. In many countries, this is enforced by legislation. For example, in the UK there is the Equality Act 2010 which outlaws discrimination on many grounds, such as sex, race and disability. There are a number of reasons why a company might wish to do more than they are legally obliged to. These include: ●

Feeling they have a moral duty

●

To keep customers happy.

Obviously this is important for recruitment and selection but also includes: ●

Equal opportunities for training

●

Equal opportunities for promotion

●

Equal treatment in times of redundancies.


17


DIVERSITY What is meant by diversity? The idea of diversity means the organisation recognising that people are different and looking for ways to use the different viewpoints this brings. The organisation may try to have a workforce with a variety of: ●

Religions

●

Races

●

Marital status

●

Genders

●

Sexual orientations.

The organisation might try to achieve this through numerical targets.

Diversity management Diversity management means actively encouraging a diverse workforce. There are a number of benefits: ●

More creative ideas

●

More viewpoints considered when making decisions

●

Better understanding of customers

●

Increased chance of being successful in new markets.

18


Chapter 3

Training and development


19

CHAPTER 3 – TRAINING AND DEVELOPMENT

CHAPTER CONTENTS TRAINING AND DEVELOPMENT ---------------------------------------- 21 WHAT IS THE DIFFERENCE BETWEEN TRAINING AND DEVELOPMENT?

21

THE BENEFITS OF TRAINING AND DEVELOPMENT AT WORK

21

THE TRAINING AND DEVELOPMENT PROCESS------------------------ 22

20

METHODS OF EVALUATING TRAINING

22

TYPES OF DEVELOPMENT

22



TRAINING AND DEVELOPMENT What is the development?

difference

between

training

and

Training is: ●

needed so a person can carry out their present job

●

mainly concerned with technical skills

●

usually given by a superior.

Development is: ●

giving a person skills they may use in the future

●

often concerned with soft skills

●

the responsibility of everyone in the organisation.

The benefits of training and development at work Training benefits the organisation since ●

Staff will have more skills

●

More work can be delegated to them

●

They will require less supervision

●

Work should be better quality

●

Customer service should be improved.

Training benefits the individual since ●

Work should be more interesting

●

The individual should have a higher self-esteem

●

The skills will be transferable to other jobs.


21


THE TRAINING AND DEVELOPMENT PROCESS Organisations and individuals will only receive the above benefits if training and development are planned properly. The process is: ●

Assess the training needs of the organisation

●

Decide what the objectives of any training should be

●

Plan how the training will be carried out

●

Deliver the training

●

Evaluate the training.

Methods of evaluating training Training can be evaluated by: ●

Asking trainees what they thought

●

Measuring what trainees have learned

●

Measuring changes in job behaviour after attending training

●

Impact of training on organisational results

●

Impact on training on its value to the organisation.

Types of development The types of development include: Management development

Develop management skills and experience

Career development

Secondments and transfers

Professional development

Following CPD courses from professional bodies

Personal development

To improve competences

Kolb’s experiential learning Kolb suggested that much of our learning comes from experience ●

Experience

provides basis for

●

Observation and reflection

Which we convert into abstract concepts

●

Hypothesis and conceptualisation

Which provides ideas which can be tested

●

Experimentation

Which creates new experiences.

22



Honey and Mumford’s learning styles Learning is the acquisition of knowledge to effect a change in behaviour. Honey and Mumford suggested 4 learning styles that individuals may exhibit ●

Activist – learns through doing

●

Reflector – learns through watching

●

Theorist - learns through understanding theories

●

Pragmatist – learns through applying theories.

Learning Organisation Is an organisation that facilitates the acquiring & sharing of knowledge.


23


24


Chapter 4

Personal effectiveness


25

CHAPTER 4 – PERSONAL EFFECTIVENESS

CHAPTER CONTENTS WHAT IS COMMUNICATION? ------------------------------------------- 27 THE COMMUNICATION PROCESS

27

FORMAL AND INFORMAL COMMUNICATION

27

FEATURES OF EFFECTIVE COMMUNICATION

28

BARRIERS TO EFFECTIVE COMMUNICATION

29

CONSEQUENCES OF INEFFECTIVE COMMUNICATION

29

METHODS AND PATTERNS OF COMMUNICATION -------------------- 30 TECHNIQUES FOR IMPROVING PERSONAL EFFECTIVENESS -------- 32 THE PERSONAL DEVELOPMENT PLAN

32

WHAT IS TIME MANAGEMENT? ----------------------------------------- 33 TOOLS AND METHODS TO ENCOURAGE EFFECTIVE TIME MANAGEMENT

34

HOW IT CAN HELP TIME MANAGEMENT

34

MENTORING, COACHING AND COUNSELLING ------------------------ 35

26

WHAT IS MENTORING

35

WHAT IS COACHING

35

WHAT IS COUNSELLING?

35



WHAT IS COMMUNICATION? A process which involves the exchange of information between people. Communication is an essential process within an organisation. It is used to ●

share ideas

●

give instructions

●

provide feedback

●

address social needs.

The communication process NOISE Sender

Encode

Transmit

Receive

Decode

Feedback

Formal and informal communication Formal communication moves in 3 major directions: ●

Vertical

●

Horizontal or Lateral

●

Diagonal

Formal communication can be in written or verbal form via ●

Meetings

●

Interviews


27


●

Memos

●

Emails

●

Letters

●

Faxes

●

Notices

Informal communication moves in any direction. When used in the organisation it serves mainly as a social tool rather than a means to ensure that tasks are performed. Informal communication includes rumour, gossip and stories, which is often transmitted via the grapevine.

Features of effective communication For communication to be effective, information must be: ●

Understood by the receiver

●

Sent via the appropriate channel

●

exchanged at the appropriate time

●

as detailed as is appropriate

The 5 C’s of Communication – Concise, Complete, Correct, – Courteous & Clear

28



Barriers to effective communication These could include ●

Information overload

●

Inappropriate language

●

Deliberate distortion

●

Lack of time

●

Conflict

●

Fear

Consequences of ineffective communication When communication is ineffective this results in ●

De-motivated staff

●

Poor decision making by management due to insufficient information

●

Staff being unclear about their roles

●

Ideas not being shared

●

Individuals’ social needs not being met


29


METHODS AND PATTERNS OF COMMUNICATION There are several ways in which information can be communicated. These can be categorised as: ●

Verbal

●

Written

●

Visual

●

Body Language.

Within an organisation a number of different communication patterns exist. These patterns can be categorized as centralised and decentralised.

Centralised Communication patterns include –

Wheel

Chain

Y

30



Decentralised Communication patterns include – Circle

All-Channel


31


TECHNIQUES EFFECTIVENESS

FOR

IMPROVING

PERSONAL

There are several techniques which management may use to help employees improve their personal effectiveness. These include personal development plans and effective time management.

The Personal development plan (PDP) This is a structured approach used to help individuals develop new skills and plan their careers. When developing a Personal Development Plan (or PDP) the following should be taken into account: ●

Current role

●

Current strengths and weaknesses (SWOT)

●

Career aspirations.

An effective PDP should enable both the individual and manager to set: ●

Short and Long term objectives

●

Training/development plan.

Any objectives set should be SMART ●

Specific

●

Measurable

●

Achievable

●

Relevant

●

Timebound.

For the personal development plan to be effective management should ensure that regular review and discussions are included in the process. The individual’s performance should be also monitored and measured against the short and long term objectives set. Finally, management must ensure that the individual receives appropriate feedback regularly.

32



WHAT IS TIME MANAGEMENT? The effective and efficient use of time. Time is a unique resource, which cannot be stored or bought in surplus. Therefore everyone concerned should ensure that the best use is made of this scarce resource. Poorly managed time can lead to: ●

Stress

●

Poor quality of work

●

Low productivity

●

Double bookings

●

Missed deadlines.

Ineffective time management can be caused by: ●

Ability

●

Workload

●

Organisational culture

●

Personality

●

Lack of delegation

●

Structure and layout of work place


33


Tools and methods management

to

encourage

effective

time

Some methods used to manage time effectively include prioritisation and scheduling. Tools which can be useful are: ●

Diaries and calendars

●

To do lists

●

Delegation

●

Assertiveness.

How IT can help time management Most organisations use information technology to enable individuals to manage their time, for example electronic time sheets are used by management to provide a check on how people are spending time at work. Software packages are made available in various applications which individuals use to manage their time. Applications such as Microsoft Outlook can be used to create ‘to do’ lists and to manage diaries.

34



MENTORING, COACHING AND COUNSELLING What is mentoring? The process whereby a more experienced member of staff helps a lesser experienced colleague to improve their progress in the organisation. Some organisations assign new employees with a mentor to help smooth their progress on joining. Mentoring provides benefits to both the mentor and the mentee Mentor

Mentee

A new perspective

Access to experience

Challenge to established thinking

A safe way to ask questions

Satisfaction

Access to a network

What is coaching? A process where an individual is provided with assistance and support in setting goals in order to achieve a specific objective/outcome. Coaching is usually carried out on a one to one basis. The coach provides guidance and support but it is up to the individual to set and achieve the goals.

What is counselling? A purposeful relationship in which an individual helps another to help himself. Counselling is non-directive – meaning that the individual being counselled is not told what to do. Instead he/she is given the opportunity to explore various possibilities and find his/her own solutions. A counsellor must have specific skills/abilities, including ●

The ability to observe

●

Sensitivity

●

Empathy

●

Impartiality

●

Discretion.

During counselling the use of open questions is most effective to help draw out the as much information as possible to facilitate the process.


35


36


Chapter 5

Performance appraisal


37

C H A P T E R 5 – P E R F O R M A N C E A P P R A IS A L

CHAPTER CONTENTS PERFORMANCE APPRAISAL --------------------------------------------- 39

38

WHAT IS PERFORMANCE APPRAISAL?

39

THE APPRAISAL INTERVIEW

39

WHY ARE APPRAISALS IMPORTANT?

39

ASSESSING INDIVIDUAL PERFORMANCE

40

ASSESSING THE APPRAISAL PROCESS

40

BARRIERS TO EFFECTIVE APPRAISAL

40

WHAT IS MANAGEMENT?

43



PERFORMANCE APPRAISAL What is performance appraisal? Appraisal is an ongoing process where a manager helps the individual to establish objectives and then measures performance towards those targets. The primary element of the performance appraisal is the appraisal interview but an effective appraisal should also include feedback throughout the appraisal period.

The appraisal interview The appraisal interview provides the opportunity for the individual and manager to discuss ●

The past

●

The present

●

The future.

The results of an effective appraisal interview are ●

Objectives for the coming period

●

Training/development plan

●

Agreement regarding reward/bonus

●

Documentation of the discussion

●

Grading.

Why are appraisals important? Benefits of appraisals include ●

Better communication

●

More feedback for staff

●

Increased recognition

●

Improved control.

Appraisals are an important control mechanism, as it provides an opportunity to assess the performance of individuals within an organisation. Since it is a control system, appraisal can be described as (TARA) ●

Targets

●

Actuals

●

Review

●

Action


39


Assessing individual performance An individual’s performance can be assessed through ●

Achievement of objectives

●

Feedback from internal customers

●

Feedback from external customers

●

Feedback from colleagues

●

Self-appraisal

●

Volume of work achieved

●

Attendance at training courses.

Assessing the appraisal process Assessing the effectiveness the appraisal system can be obtained by looking at ●

Take up of training

●

Improvements in employee satisfaction

●

Improvement in employee effectiveness

●

Feedback from employees

●

Impact on internal recruitment/career planning

●

Cost/Benefit analysis

●

Staff turnover.

A good appraisal system should be (the 4 F’s) ●

Frequent

●

Factual

●

Fair

●

Firm.

Barriers to effective appraisal Some of the barriers to effective appraisal include ●

Lack of structure

●

Lack of preparation

●

Fear of being judged

●

Lack of commitment

●

Lack of understanding

●

Lack of follow up

●

Lack of opportunity to feed back to management

●

Bureaucratic system.

40


Chapter 6

Leading people


41

C H A P T E R 6 – L E A D IN G P E O P L E

CHAPTER CONTENTS LEADING AND MANAGING PEOPLE ------------------------------------ 43 THE CLASSICAL SCHOOL ------------------------------------------------ 44 FAYOL – RULES OF MANAGERIAL CONDUCT

44

TAYLOR – SCIENTIFIC MANAGEMENT

45

THE HUMAN RELATIONS SCHOOL -------------------------------------- 46 THE ROLE OF A MANAGER – DRUCKER

46

THE ROLE OF A MANAGER – MINTZBERG

46

SUPERVISORS

47

AUTHORITY AND RESPONSIBILITY------------------------------------ 48 WHAT IS AUTHORITY?

48

WHAT IS RESPONSIBILITY?

48

WHAT IS DELEGATION?

48

WHAT IS POWER?

48

WHAT IS LEADERSHIP?

49

THEORIES OF LEADERSHIP – TRAIT THEORY ------------------------ 50 THEORIES OF LEADERSHIP – ACTION CENTRED LEADERSHIP ----- 51 THEORIES OF LEADERSHIP – BLAKE AND MOUTON ----------------- 52 THEORIES OF LEADERSHIP – THE ASHRIDGE MODEL --------------- 53 THEORIES OF LEADERSHIP – FIEDLER -------------------------------- 54

42

WHAT IS CONTINGENCY THEORY?

54

WHAT IS SITUATIONAL LEADERSHIP?

54

FUNCTIONAL LEADERS

55

LEADERSHIP AND CHANGE - BENNIS

55

LEADERSHIP AND CHANGE - KOTTER

55

LEADERSHIP AND CHANGE – HEIFETZ

56



LEADING AND MANAGING PEOPLE What is management? Fayol identified 5 management roles which help provide an explanation of what management is. They are: ●

Planning

●

Organising

●

Commanding

●

Controlling

●

Co-ordinating


43


THE CLASSICAL SCHOOL Taylor and Fayol are classical theorists.

Fayol – Rules of managerial conduct Fayol also identified 14 rules of managerial conduct: ●

Division of work

●

Authority

●

Discipline

●

Unity of Command

●

Unity of Direction

●

Subordination of general interests

●

Remuneration

●

Centralisation

●

Scalar chain

●

Order

●

Equity

●

Tenure of personnel

●

Initiative

●

Esprit de corps.

44



Taylor – scientific management Taylor advocated one best way of doing every task: ●

Scientific analysis

●

Identification of ideal method – Specialisation

●

Training

●

Reward – Money as a motivator


45


THE HUMAN RELATIONS SCHOOL The Human Relations School owes much to the work of Elton Mayo, who performed the Hawthorne Experiments.

Several important ideas came out of the Hawthorne Experiments: ●

The importance of groups at work

●

The value of inclusion

●

Motivational Theory.

The role of a manager – Drucker Drucker sees managers as having 5 roles: ●

Setting objectives

●

Organising

●

Motivating and Communicating

●

Establishing yardsticks

●

Developing people.

The role of a manager – Mintzberg Mintzberg identifies 3 types of role that a manager has: Interpersonal Figurehead

Performing legal or ceremonial duties

Leader

Motivating and inspiring

Liaison

Developing networks outside the organisation

Informational Monitor

Collecting, filtering of information

Disseminator

Sharing, communicating information inside the organisation

Spokesperson

Sharing information outside the organisation

46



Decisional Entrepreneur

Looking to the future

Resource Allocator

Deciding between projects

Disturbance Handler

Resolving disputes

Negotiator

Representing the organisation at negotiations

Supervisors Supervisors are the lowest level of management within the organisation. They are sometimes referred to as front line managers or team leaders. They carry out the same roles as managers, but at a lower level. Aside from management responsibilities, supervisors sometimes have operational responsibilities. A supervisor’s main role is to ensure that specified tasks are performed correctly & efficiently by individuals & groups.


47


AUTHORITY AND RESPONSIBILITY What is authority? The right to get others to perform certain actions which comes from an individual’s position in the hierarchy. The 2 main types of authority are: ●

Formal/Line

●

Staff/Functional

What is responsibility? The degree to which an individual can be called to account for their actions. Responsibility is a duty owed and cannot be delegated. Matching authority correspondence.

and

responsibility

is

referred

to

as

the

principle

of

What is delegation? The process which involves a manager passing down authority to a subordinate, but maintaining ultimate responsibility.

What is power? The ability to do things or get things done, regardless of authority. French and Raven identified 5 sources of power: ●

Reward

●

Referent/Charismatic

●

Coercive

●

Expert

●

Legitimate

48



What is leadership? Encouraging others to work willingly towards goals. Leadership is related to the concepts of power and motivation. Managers have authority, leaders have power. Leadership is concerned with setting goals and inspiring people to commit to achievement of organisational goals. A leader is someone “who exercises influence over other people”


49


THEORIES OF LEADERSHIP – TRAIT THEORY Some theorists believe characteristics, such as:

leadership

●

Self assurance

●

Above average intelligence

●

Helicopter factor

●

Entrepreneurial skill

●

Health

●

Above average height (!)

●

Co-operation

●

Tact

●

Courtesy

50

stems

from

having

the

right

traits

or



THEORIES OF LEADERSHIP

LEADERSHIP

–

ACTION

CENTRED

Adair maintains that good leadership is about balancing 3 sets of needs

Task

Team

●

The task

●

The team

●

The Individual


Individual

51


THEORIES OF LEADERSHIP – BLAKE AND MOUTON Blake and Mouton identified 2 variables impacting leadership style:

Team/People

9

0 0

9 Task/Production

Blake and Mouton identified 5 extreme styles: ●

Task Manager

●

Country Club Manager

●

Impoverished Manager

●

Middle Road Manager

●

Team manager.

52



THEORIES OF LEADERSHIP – THE ASHRIDGE MODEL The Ashridge model identifies 4 management styles along a continuum.

Tells

●

Tells

●

Sells

●

Consults

●

Joins


Sells

Consults

Joins

53


THEORIES OF LEADERSHIP – FIEDLER The most appropriate leadership style depends on the situation in which the leader finds himself.

Fiedler noted 3 variables ●

Leader/member relations

●

Task structure

●

Power

These variables combine in a number of ways creating situations which are extremely favourable / unfavourable or moderately favourable / unfavourable -

Leader / member relations

Favourable Leader is liked / respected

Task structure Power

Well structured Leader has power

Unfavourable Leader is not liked / respected Vague and unstructured Leader lacks power

In extreme situations a psychologically distant style is most effective.

In moderate situations a psychologically close style would be most effective.

Fiedler’s theory is an example of contingency theory.

What is contingency theory? There is no one perfect management style to suit all situations. The right style depends on the situation in which the leader finds himself.

What is situational leadership? Situational leadership refers to the ability to adapt leadership style to suit a changing situation.

54



Functional leaders Functional leaders have expert power. They are able to influence other through their knowledge and expertise.

Leadership and change - Bennis Bennis distinguishes between 2 types of leader: ●

Transactional

●

Transformational

He focuses on the need to inspire change rather than impose it.

Leadership and change - Kotter Kotter identifies 6 approaches to managing change: ●

Participation and involvement

●

Education and Communication

●

Facilitation and Support

●

Manipulation and co-optation

●

Negotiation and Agreement

●

Explicit and Implicit Coercion


55


Leadership and change – Heifetz Heifetz suggests that the traditional model was for leaders to have all the answers, make all the decisions and impose change on the workers. Instead he advocates that leaders provide support and guidance to help workers find solutions and implement change themselves. Heifetz identifies 2 types of change: ●

Technical change

●

Adaptive change

When dealing with adaptive change, Heifetz suggests the following approach: ●

Recognition

●

Application of appropriate pressure

●

Focus

●

Ownership

56


Chapter 7

Individuals and groups


57

CHAPTER 7 – INDIVIDUALS AND GROUPS

CHAPTER CONTENTS GROUPS AND TEAMS ---------------------------------------------------- 59 WHAT IS A GROUP?

59

WHAT IS A TEAM?

59

WHY ARE TEAMS USEFUL?

59

TEAM FORMATION ------------------------------------------------------- 60 TEAM ROLES - BELBIN

60

TEAM FORMATION – TUCKMAN

60

TEAM EFFECTIVENESS

61

WHAT IS A COMMITTEE?

61

INDIVIDUALS ------------------------------------------------------------ 62 INDIVIDUAL BEHAVIOUR

58

62



GROUPS AND TEAMS What is a group? “Any collection of people who perceive themselves to be a group.” Attributes of groups: ●

Shared identity

●

Leadership

●

Loyalty

●

A common purpose.

Groups can be either formal or informal.

What is a team? A number of people, who possess complementary skills, and are committed to common goals and purpose, for which they hold themselves accountable.

Why are teams useful? There are a number of benefits to team working: ●

Efficiency

●

Effectiveness

●

Motivation

●

Blending skills

●

Generating ideas

●

Better decision making.

There are also limitations of team working: ●

Conflict

●

Groupthink.


59


TEAM FORMATION Team roles - Belbin When forming a fully functional team, Belbin advocates that members should be able to perform a well balanced mix of roles. These roles are not fixed to one individual member. Members can carry out more than one role. These roles are: ●

Plant

●

Resource investigator

●

Co-ordinator (Leader)

●

Shaper

●

Monitor-Evaluator

●

Team worker

●

Implementer (Company Worker)

●

Completer-Finisher

●

Specialist (Expert).

Team formation – Tuckman Tuckman suggests that groups develop into teams by going through 4 stages: ●

Forming

●

Storming

●

Norming

●

Performing.

60



Other writers have included two additional stages: ●

Dorming

●

Mourning/Adjourning.

Team effectiveness Effectiveness and cohesion usually go together. Cohesion can be increased through: ●

Team size

●

Homogeneity of members

●

External threat

●

Team reward

●

Strong leadership

●

Goal congruence.

Woodcock identifies blockages to effective teamwork. Remove the blockage, and the team will be effective. ●

Inappropriate leadership

●

Unqualified membership

●

Unconstructive climate

●

Unclear objectives

●

Poor achievement

●

Ineffective work methods

●

Insufficient openness

●

Undeveloped individuals

●

Low creative capacity

●

Unconstructive relationships.

What is a committee? A committee is a group of people responsible for a particular issue. A committee could be: ●

Temporary

●

Permanent.

Examples of committees ●

Health and Safety Committee

●

Audit Committee

●

Ethics Committee.


61


INDIVIDUALS Individual behaviour There are a number of factors which influence an individual’s behaviour and performance at work. These include: ●

Attitude – persistent feelings & behaviour tendencies directed towards specific people, ideas, objects etc

●

Intelligence

●

Personality – influences an individual’s behaviour & performance

●

Motivation Level – why people choose to do one thing rather than another

●

Perception – individuals select, organise & interpret the stimuli they receive.

Three types of behaviour that can be demonstrated by an individual: ●

Assertive

●

Aggressive

●

Passive.

62


Chapter 8

Motivating people


63

CHAPTER 8 – MOTIVATING PEOPLE

CHAPTER CONTENTS MOTIVATION ------------------------------------------------------------- 65 WHAT IS MOTIVATION?

65

THEORIES OF MOTIVATION -------------------------------------------- 66 CONTENT THEORY – MASLOW: THE HIERARCHY OF NEEDS

66

CONTENT THEORY – HERZBERG: HYGIENE-MOTIVATION THEORY

67

PROCESS THEORY – VROOM: EXPECTANCY THEORY

67

MCGREGOR: THEORY X AND THEORY Y

68

REWARDS AND INCENTIVES ------------------------------------------- 69

64

INTRINSIC VS EXTRINSIC REWARD

69

REWARD SYSTEMS

69



MOTIVATION What is motivation? The urge to take action to achieve a specific goal. Why is motivation important? Some of the benefits of motivation to the organisation and individual and team include:

The Organisation ●

Increased output

●

Lower staff turnover

●

Better quality of work

●

Greater commitment

●

Less absenteeism

●

Innovation

The Individual ●

Improved morale

●

Greater sense of purpose

●

Improved self esteem

●

More challenging work

The Team Motivation can also improve teamwork, by: ●

Increasing goal congruence

●

Reducing conflict.


65


THEORIES OF MOTIVATION Theories of motivation can be classified into 2 main types: ●

Content Theory – what are the things that motivate people.

●

Process Theory – how can people be motivated.

Content Theory – Maslow: The hierarchy of needs Maslow believed all human beings are driven by a set of needs which can be set in a hierarchy. Individuals become motivated once they have the opportunity to fulfil these needs.

Self-fulfilment Self-actualisation

Ego/Esteem

Social

Safety/Security

Basic/Physiological

●

Basic/Physiological

●

Safety/Security

●

Social

●

Ego/Esteem

●

Self-fulfilment/Self-actualisation

66



Content theory – Herzberg: hygiene-motivation theory Herzberg theory is based on two factors involved in motivation: ●

The need to avoid unpleasantness - hygiene factors

●

The need for personal growth – motivator factors.

The hygiene factors are concerned with the environment and conditions of work. These factors can stop people from being dissatisfied at work, but are not enough to motivate them. The motivator factors are connected to the work itself and help to create job satisfaction which leads to motivation. This theory is also referred to as the Two Factor Theory: hygiene factors and motivator factors.

Process theory – Vroom: expectancy theory Vroom was more interested in the process individuals go through in order to become motivated. He believes that how motivated an individual is to achieve a task depends on the extent to which the results of his efforts will contribute to his personal needs and/or goals. He developed a formula which he believed measured motivation: V

x

E

=

F

V = Valence

E = Expectancy

F = Force of motivation

Vroom believed that the force of an individual’s motivation depends on two factors: ●

Valence: the strength of his preference for a certain outcome/reward

●

Expectancy: the individual’s perception the behaviour will result in the outcome/reward.


67


McGregor: theory X and theory Y Theory X and theory Y relates to the assumptions a manager has about his staff. Theory X assumes people dislike work and responsibility, and will avoid it is possible. As a result: ●

Workers only do what they are told to

●

Workers must be forced to work.

Theory Y assumes people do not dislike work, and can be motivated to seek challenge and responsibility in work. As a result: ●

Workers make their own decisions

●

Workers are self-motivated.

Theories X and Y are assumptions and not actual types of people. However, if a manager treats his employees as if they are Theory X, they will behave like Theory X workers which could result in de-motivation. If a manager treats employees as if Theory Y were true, then their behaviour will change accordingly.

68



REWARDS AND INCENTIVES A reward is A token given to an individual/team in recognition of their success or contribution. A reward can be monetary or non monetary. An incentive is The offer of a reward given to an individual/team in order to motivate them to behave in a way to earn it.

Intrinsic vs extrinsic reward Rewards can be intrinsic or extrinsic: Extrinsic rewards are external to the control of individual and is dependent on the decision of others ●

For example: pay, praise and benefits.

Intrinsic rewards are internal to the individual and arises from performance of the work ●

For example: job status, satisfaction and achievement.

Intrinsic rewards could also be a result of job design ●

Job enrichment

●

Job enlargement

●

Job rotation.

Reward systems A good reward system should ●

Motivate employees

●

Decrease turnover

●

Attract prospective employees

●

Create goal congruence

●

Be fair and objective

●

Encourage innovation.

Examples of reward systems include: ●

Commission

●

Bonus schemes

●

Profit sharing

●

Management by Objective.


69


70


Chapter 9

The role of accounting


71

C H A P T E R 9 – T H E R O L E O F A C C O U N T IN G

CHAPTER CONTENTS THE ROLE OF ACCOUNTING--------------------------------------------- 73 WHAT IS THE ROLE OF THE ACCOUNTING FUNCTION?

73

THE LAW GOVERNING THE ACCOUNTING FUNCTION ---------------- 74 REQUIREMENTS FOR FINANCIAL STATEMENTS

74

HOW ACCOUNTING STANDARDS ARE CREATED

75

THE HISTORY OF ACCOUNTING ---------------------------------------- 76 FINANCIAL ACCOUNTING AND MANAGEMENT ACCOUNTING ------- 77 TREASURY ---------------------------------------------------------------- 78 TAXATION ---------------------------------------------------------------- 79 FINANCIAL SYSTEMS ---------------------------------------------------- 80 FINANCIAL SYSTEMS - PAYROLL

80

FINANCIAL SYSTEMS – INVOICING (SALES)

81

FINANCIAL SYSTEMS – INVOICING (PURCHASES)

82

FINANCIAL SYSTEMS – CREDIT CONTROL

83

FINANCIAL SYSTEMS – CASH

84

FINANCIAL SYSTEMS – WORKING CAPITAL

84

COMPUTERISED SYSTEMS

84

ACCOUNTING AND OTHER BUSINESS FUNCTIONS ------------------- 85 ACCOUNTING AND PRODUCTION

85

ACCOUNTING AND PURCHASING

85

ACCOUNTING AND MARKETING

85

THE MARKETING DEPARTMENT ---------------------------------------- 86 WHAT IS MARKETING?

86

WHAT IS THE MARKETING MIX?

86

HOW DEPARTMENTS FIT TOGETHER – PORTER’S VALUE CHAIN --- 88 OTHER DEPARTMENTS

72

89



THE ROLE OF ACCOUNTING What is the role of the accounting function? The accounting function plays an important role within the organisation. This includes: ●

Establishing financial procedures

●

Implementing financial procedures

●

Monitoring performance.


73


THE LAW GOVERNING THE ACCOUNTING FUNCTION ●

Companies are usually required to submit their accounts to a government regulated department, eg Companies House in the UK.

●

Companies are accountable to the tax authorities in the country in which they are based.

●

Companies are required to retain their accounting records for a minimum period (eg 7 years).

●

Companies may be accountable to industry regulators.

●

Companies may also have to maintain a register of shareholders, or a register of directors.

Requirements for financial statements In the UK, the Companies Act requires financial statements to be true and fair. General requirements regarding the preparation of accounts include: ●

Following accounting standards

●

Following generally accepted best practice

●

Having information of sufficient quality

●

Having information of sufficient quantity

●

Being free from material misstatement.

Directors are responsible for the creation of financial statements. This responsibility is likely to be delegated to the Finance Director and the Finance department. Their production requires co-operation between different areas of the finance team, and may sometimes involve help from an external accounting firm. In order to produce financial statements of sufficient quality it will be necessary to keep a record of transactions throughout the year. Failure to comply with regulations can have serious consequences: ●

Failure to keep accounting records is a criminal offence

●

Failure to present a true and fair view is a criminal offence

●

Inaccurate tax records could lead to tax evasion

●

Poor accounting could lead to a qualified audit report

●

Poor accounting could lead to business failure.

74



How accounting standards are created The International Accounting Standards board (IASB) aims to develop a single set of international financial reporting standards (IFRS). The benefits of IFRSs include ●

No requirement to develop national standards

●

Reassurance for investors

●

Ease of preparation for multi-national companies.

Nearly 100 countries adopt international standards, or amend national standards to bring them in line with their international equivalents. The creation of a standard:

DP

Working Group

Discussion

Public Comment

ED

IFRS


75


THE HISTORY OF ACCOUNTING Accounting records have been kept for centuries

In the15th Century Luca Pacioli created the double entry system

As companies became more prevalent, accounting became more important

The growth in the separation of ownership and control further strengthened the need for good accounting practices

Accounting standards were developed to assist comparison

The increase in financial computer systems saw a reduction in manual bookkeeping

Large multinational companies now look to accountants to provide assistance on many areas of business

76



FINANCIAL ACCOUNTING

ACCOUNTING

AND

Management Accounting

MANAGEMENT

Financial Accounting

Users

Internal

Internal and External

Type of information

Planning Control Decision making

Financial Statements

Regulation

Generally accepted methods of best practice

Accounting standards Companies Act

Time period

Future orientation

Historical


77


TREASURY The treasury function deals with the following: ●

Cash management

●

Financing

●

Foreign currency

●

Tax

78



TAXATION One of the responsibilities within the finance department is calculation of the business tax liability. Businesses will seek to minimise their tax liability, whilst complying with legislation. ●

Tax mitigation

●

Tax avoidance

●

Tax evasion


79


FINANCIAL SYSTEMS A system is a collection of procedures and processes. A system can be manual as well as computerised. Many organisations have a procedures manual which documents all existing systems.

Financial systems - payroll The creation of a standard: Record hours worked

Record overtime worked

Obtain pay rates

Calculate pay

Calculate deductions

Net pay paid to employees

80



Financial systems – invoicing (sales) Order received

Order processed

Goods despatched

Invoice raised

Record in accounts

Payment received


81


Financial systems – invoicing (purchases) Authority to order

Order

Goods received

Invoice received

Invoice recorded

Payment made

82



Financial systems – credit control Receive Order

Credit check

Create customer account

Despatch goods

Invoice goods

Reminder letter(s)/Call(s)

Write off debt


83


Financial systems – cash This relates to payments to and from the bank ●

Receipts from customers

●

Payments to customers

●

Petty cash.

Financial systems – working capital Working capital is the amount of capital available for the day to day running of the organisation. It is made up of ●

Inventory

●

Receivables

●

Cash

●

Payables

Computerised systems Most companies now rely on automated financial systems. There are a variety of “off the shelf” packages available. Some organisations choose to purchase bespoke systems. There are advantages and disadvantages to having automated systems: Advantages

Disadvantages

●

Faster

●

Investment

●

Complex processing

●

Training

●

Human error

●

Corruption

●

Security

●

Not as portable as ledgers

●

Analysis

84



ACCOUNTING AND OTHER BUSINESS FUNCTIONS The accounting function can be of assistance to a number of other functions within the business.

Accounting and production Accounting can provide assistance with: ●

Budgeting

●

Performance measurement

●

Calculation of Overhead Absorption Rates

Accounting and purchasing Accounting can provide assistance with: ●

Budgeting

●

Variance analysis

●

Pricing

●

Payment

Accounting and marketing Accounting can provide assistance with: ●

Budgeting

●

Pricing

●

Market size and share

●

Assessment of campaigns


85


THE MARKETING DEPARTMENT The Marketing department fulfils an important role within the organization.

What is marketing? “The management process which identifies, anticipates and satisfies customer requirements (needs) efficiently and profitably” (Chartered Institute of Marketing).

A key marketing tool is the marketing mix.

What is the marketing mix? A set of controllable variables which can be blended to elicit a response from customers. The Marketing mix takes the form of the 4 Ps. The 4 Ps are: ●

Product

●

Price

●

Place

●

Promotion.

Product The product itself consists of 3 elements: ●

Core product

●

Actual product

●

Augmented product

Price There are 4 issues to consider when pricing a product: ●

Cost

●

Customers

●

Competitors

●

Corporate objectives

86



Promotion There are 5 elements to the promotion mix: ●

Advertising

●

Sales promotion

●

Personal selling

●

Public Relations

●

Direct marketing

Place There are 2 main choices to consider under the heading of place: ●

Selling direct

●

Selling via intermediaries.

Place also relates to all issues concerning the physical location where a product can be purchased and the logistics of distribution.

Marketing supports overall organisational strategy and can be viewed under the same headings as strategic planning: ●

Analysis

●

Choice

●

Implementation


87


HOW DEPARTMENTS FIT TOGETHER – PORTER’S VALUE CHAIN When considering the links between departments within the organisation, it can be useful to use Porter’s Value chain –

Infrastructure Procurement HRM Technology Inbound Logistics

Operations

Outbound Logistics

Sales and Marketing

Service

The Value Chain – Primary Activities ●

Inbound Logistics

●

Operations

●

Outbound Logistics

●

Marketing and Sales

●

Service

The Value Chain – Support Activities ●

Technology

●

HRM

●

Procurement

●

Infrastructure

88



Other departments R&D The R&D department is responsible for the development of new products and the improvement and amendment of existing products.

Admin The administrative function is responsible for the processing of transactions and any other administrative support required.


89


90


Chapter 10

The macro-economic environment


91

CHAPTER 10 – THE MACRO-ECONOMIC ENVIRONMENT

CHAPTER CONTENTS THE MACROECONOMIC ENVIRONMENT ------------------------------- 93 WHAT IS ECONOMICS?

93

WHAT IS MACROECONOMICS?

93

MACROECONOMIC POLICY

93

FISCAL AND MONETARY POLICY

93

MONETARY POLICY

93

FISCAL POLICY

94

DETERMINANTS OF ACTIVITY IN THE ECONOMY -------------------- 95 THE ECONOMIC CYCLE -------------------------------------------------- 96

92



THE MACROECONOMIC ENVIRONMENT What is economics? The study of the production, distribution and consumption of goods and services.

What is macroeconomics? The branch of economics that deals with the performance, structure and behaviour of the economy as a whole.

Macroeconomic factors Macroeconomics is concerned with: ●

The overall demand for goods in the economy

●

The total output of goods in the economy

●

The supply of factors of production

●

National Income

●

National Expenditure

●

Government Policy.

Macroeconomic policy Most governments will have similar macroeconomic aims ●

Economic growth

●

Low inflation

●

Low unemployment

●

Balance of payments.

Fiscal and monetary policy In order to maintain stability adjustments to the economy.

and

encourage

growth,

governments

make

Monetary policy With monetary policy, governments aim to impact the supply of money in the economy and hence spending. Governments have two main tools to affect the money supply: ●

Interest rates

●

Foreign exchange.

Monetary policy is usually described as either expansionary or contractionary ●

Expansionary (to boost the economy).

●

Contractionary (to cool the economy).


93


Fiscal policy Fiscal policy relates to the level of government spending, borrowing and taxation used to manage the economy ●

Government spending

●

Taxation (Direct or indirect)

Fiscal policy is usually described as either expansionary, contractionary or neutral.

94



DETERMINANTS OF ACTIVITY IN THE ECONOMY There are a number of factors which influence the level of activity within the economy: ●

Confidence

●

Aggregate demand

●

Supply of finance

●

Developments in the factors of production

●

Government policy

●

Exchange rate movements


95


THE ECONOMIC CYCLE The economic cycle refers to fluctuations in economic activity over the longer term. The cycle alternates between periods of relatively rapid growth and periods of relative stagnation and decline. Output

Output Recession Depression Recovery

Time Boom

Recession

Depression

The impact of economic issues: ●

Unemployment

●

Inflation

●

Stagnation

●

Growth

●

Balance of payments disequilibrium.

96


Chapter 11

The business environment


97

C H A P T E R 1 1 – T H E B U S IN E S S E N V I R O N M E N T

CHAPTER CONTENTS THE BUSINESS ENVIRONMENT ----------------------------------------- 99 WHAT IS THE ENVIRONMENT?

99

PEST ANALYSIS --------------------------------------------------------- 100 POLITICAL/LEGAL FACTORS

100

SOCIO-CULTURAL FACTORS

101

TECHNOLOGICAL FACTORS

102

COMPETITION----------------------------------------------------------- 103

98



THE BUSINESS ENVIRONMENT What is the environment? The world beyond the boundary of our organisation. Before making any decisions about the future, an organisation needs to understand the environment in which it operates. This can be done via PEST analysis.


99


PEST ANALYSIS Political/Legal Economic Socio-Cultural Technological

Political/legal factors Organisations will need to consider: ●

Legislation

●

Regulation

●

Broader political issues.

This may impact the organisation at a number of levels: ●

Globally (supra-national organisations)

●

Nationally

●

Locally.

Protecting employees – health and safety at work Many countries (including the UK) have legislation in place to protect individuals at work. Employers must provide: ●

Safe entrance and exit to and from workplaces

●

A safe working environment

●

Safe processes

●

Safe equipment

●

Appropriate training

●

Appropriate investigation of accidents/injuries at work.

Employees must: ●

Consider their own safety at work

●

Consider the safety of those around them

●

Comply with safety guidelines at work.

Health and Safety is a legal issue which employers must take seriously. There are other reasons to take Health and Safety seriously: ●

Ethics

●

Motivation

●

Reputation

●

Financial issues eg damages

●

Loss of business.

100



Protecting confidentiality – data protection and data security What is data protection? Organisations may hold information regarding their customers and employees. Data protection relates to the protection of these individuals against the misuse of personal information by the organisation.

The principles of data protection Legislation varies from country to country, but would be likely to cover the following points: ●

Personal data should be acquired and processed lawfully

●

Data should not be used for purposes incompatible with the original collection purpose

●

Data collected should be relevant for the purpose of processing, and should not be excessive

●

Data collected should be accurate, and be kept up to date

●

Data should not be kept for longer than required

●

The organisation should make every effort to protect personal data from unlawful processing, loss, destruction or damage.

What is data security? Data security relates to keeping data safe from corruption, unauthorised access or alteration. There are a number of risks to data security: ●

Physical damage

●

Human damage

●

Operational problems

●

Data corruption.

DAVID & TRACEY – shouldn’t there be a heading ECONOMIC FACTORS? Debbie

Socio-cultural factors Social and cultural influences vary from country to country. Some factors to consider might include: ●

Religion

●

Attitude to globalisation

●

Language

●

Work/life balance

●

Distribution of wealth

●

Population distribution

●

Health


101


●

Life expectancy and age distribution

●

Local ethical issues/values

●

Local tastes/trends.

Sometimes a government may take specific action to address social issues: ●

Health

●

Population structure

●

Housing

●

Employment.

Technological factors Technology can influence many aspects of the organisation: ●

Production methods

●

Marketing and distribution

●

Structure

●

Communication

●

Product development

●

Purchasing.

Technology and the organisational structure Technology has led to an increase in the following: ●

Downsizing

●

Delayering

●

Outsourcing.

Technology and the consumer Technology has changed the way we live: ●

Homeworking

●

On-line shopping

●

On-line banking

●

Distance learning

●

Home entertainment.

102



COMPETITION Competitors are also part of the environment and require analysis. This could be done via Porter’s 5 Forces. The five forces are used to assess the attractiveness, or profit potential within an industry. Once the organisation has identified the risks inherent in the environment, they can take action to mitigate those risks.

The threat of new entrants

The bargaining power of buyers

Rivalry and competition

The bargaining power of suppliers

The threat of substitutes

●

The threat of new entrants (reduced by the existence of barriers to entry)

●

The bargaining power of buyers

●

The bargaining power of suppliers

●

The threat of substitutes

●

Rivalry and competition within the industry (influenced by barriers to exit).

Porter stated that a firm wishing to obtain competitive advantage over its rivals is faced with three options: 1.

Cost Leadership Strategy.

2.

Differentiation Strategy.

3.

Focus Strategy (Cost or Differentiation).


103


104


Chapter 12

Business organisation


105

C H A P T E R 1 2 – B U S IN E S S O R G A N I S A T IO N

CHAPTER CONTENTS BUSINESS ORGANISATIONS AND STRUCTURE ---------------------- 107 WHAT IS AN ORGANISATION?

107

ORGANISATIONAL STRUCTURE

107

INFLUENCES ON ORGANISATIONAL STRUCTURE

108

CENTRALISATION OR DECENTRALISATION?

109

STAKEHOLDERS --------------------------------------------------------- 111 INTERNAL STAKEHOLDERS

111

CONNECTED STAKEHOLDERS

111

EXTERNAL STAKEHOLDERS

112

STAKEHOLDER CONFLICT

112

THE INFORMAL ORGANISATION -------------------------------------- 113

106



BUSINESS ORGANISATIONS AND STRUCTURE What is an organisation? An organisation is a social arrangement for the controlled performance of collective goals. (Buchanan and Huczynski). There are many different types of organisation: ●

Commercial – Profit seeking organisations

●

NFP – Not for Profit organisations like charities or schools

●

Public sector – Government owned organisations or departments

●

Co-operatives – Owned and controlled by the members for the benefit of the members.

Organisational structure Organisations can be arranged in several ways ●

Entrepreneurial/Simple

●

Functional

●

Divisional

●

Matrix.

Entrepreneurial/Simple Boss

Team

Functional Boss

Finance

Sales

Mktg

Divisional Boss

Div 1

Fin

Sales

Div 1

Mktg


Fin

Sales

Div 1

Mktg

Fin

Sales

Mktg

107


Matrix Functions

Divisions

Sales

Mktg

HR

Finance

Div 1 Div 2 Div 3

Influences on organisational structure There are many factors influencing the organisational structure ●

Environment

●

Culture

●

Staff

●

Tasks

●

Span of control

●

Scalar chain

●

Centralisation

Span of control The number of people reporting to one manager. Influences on the span of control: ●

Geographical distribution

●

Ability

●

Personality

●

Support

●


●

Scalar chain.

108



Scalar chain The number of levels in the hierarchy. Long scalar chain + narrow span of control = tall, narrow structure -

Short scalar chain + wide span of control = flat structure -

Centralisation or decentralisation? Who makes the decisions?

Advantages and disadvantages of decentralisation: Advantages: ●

Faster decisions

●

Expert decisions

●

Motivation

●

Development

●

Frees up strategic apex.

Disadvantages: ●

Duplication

●

Comparison

●

Training

●

Inconsistency

●

Dysfunctional decisions.


109


Levels of planning within the organisation Anthony’s hierarchy – 3 levels of planning:

Strategic

● ● ●

Long term Whole organisation Fundamental decisions

Tactical

● ●

Divisions Regions

Operational / Functional

● ● ●

Day to day Functional Short term

The Strategic Planning Process The Rational approach to strategic planning breaks the process down into three distinct steps: 1.

Strategic Analysis

2.

Strategic Choice

3.

Strategic Implementation.

110



STAKEHOLDERS A stakeholder is anyone with an interest in the organisation. Stakeholders can be divided into 3 main groups: ●

Internal

●

Connected

●

External.

Internal stakeholders Stakeholder

Interest

●

Regular pay

Staff

Interesting work Career progression ●

Management

Influence Bonuses Prestige

Connected stakeholders Stakeholder

Interest

●

Quality product

Buyers

Reliable supply Credit terms ●

Suppliers

Timely payment Ongoing relationship

●

Bank

Security of investment Credit rating Regular payment

●

Shareholders

Dividends Capital growth Reputation Future plans


111


External stakeholders Stakeholder

Interest

●

Legislation

Government

Taxation Job creation ●

Local community

Pollution Employment Prosperity

●

Pressure groups

Ethics

●

Industry regulator

Regulation

Stakeholder conflict Sometimes stakeholder interests are in direct conflict, eg: ●

Staff vs Shareholders in relation to possible pay-rises

●

Customers vs Shareholders in relation to product enhancement.

There are a number of methods for dealing with Stakeholder conflict identified by Cyert & March: ●

Sequential attention

●

Satisficing

●

Prioritisation

●

Side payments/compensation.

Stakeholders can be mapped on Mendelow’s Matrix, in terms of their level of interest and power.

112

o

this can be used to track the changing influences between different stakeholder groups over time

o

& can be used to assess the likely impact that a strategy will have on different stakeholder groups.



THE INFORMAL ORGANISATION In addition to a formal organisational structure, informal relationships, power structures and communication networks exist. It can be particularly important to identify the informal organisation when attempting to implement change.


113


114


Chapter 13



115

C H A P T E R 1 3 – O R G A N I S A T IO N A L C U L T U R E

CHAPTER CONTENTS ORGANISATIONAL CULTURE ------------------------------------------ 117

116

WHAT IS ORGANISATIONAL CULTURE?

117

FACTORS INFLUENCING ORGANISATIONAL CULTURE

117

THE LINK BETWEEN LEADERSHIP AND ORGANISATIONAL CULTURE (SCHEIN)

118

THE LINK BETWEEN STRUCTURE AND ORGANISATIONAL CULTURE (HANDY)

118

THE LINK BETWEEN NATIONAL CULTURE AND ORGANISATIONAL CULTURE (HOFSTEDE)

119



ORGANISATIONAL CULTURE What is organisational culture? The way we do things around here. (Handy). The personality of an organisation ●

Values

●

Attitudes

●

Norms

●

Expectations

●

Rituals, routines and symbols.

Factors influencing organisational culture ●

Size

●

Technology

●

History

●

Ownership

●

Diversity

●

Age

●

Structure

●

Leadership


117


The link between leadership and organisational culture (Schein) The original leaders of an organisation create the culture. Subsequent leaders must understand and embody the culture. There are 3 levels of culture that leaders must appreciate: ●

Artefacts

●

Espoused values

●

Basic assumptions (the most difficult to identify and understand)

The link between structure and organisational culture (Handy) Structure is a major influence on culture. Handy popularised 4 cultural types or forms (originally identified by Harrison): ●

The Power culture (usually associated with the entrepreneurial structure)

●

The Role culture (usually associated with the functional structure)

●

The Task culture (usually associated with the matrix structure)

●

The Person culture (for example a doctors’ surgery)

118



The link between national culture and organisational culture (Hofstede) Hofstede believed that national culture can have a huge impact on organisational culture. He identified 5 dimensions along which national cultures tends to vary: ●

Power Distance (High or Low)

●

Uncertainty Avoidance (High or Low)

●

Individualism vs collectivism

●

Masculinity vs Femininity

●

Time Orientation – does the firm think long-term or short-term?

Hofstede is not attempting to stereotype nationalities, but to provide an insight into why behaviour and assumptions might differ across geographical regions. This can be particularly useful when expanding internationally.


119


120


Chapter 14

Corporate governance


121

C H A P T E R 1 4 – E T H I C A L C O N S ID E R A T I O N S

CHAPTER CONTENTS CORPORATE GOVERNANCE AND SOCIAL RESPONSIBILITY -------- 123

122

WHAT IS CORPORATE GOVERNANCE?

123

THE PRINCIPLES OF CORPORATE GOVERNANCE

123

GUIDANCE ON CORPORATE GOVERNANCE

123

THE ROLE OF NEDS

124

WHAT IS SOCIAL RESPONSIBILITY?

124


CHAPTER 14 – CORPORATE GOVERNANCE

CORPORATE GOVERNANCE RESPONSIBILITY

AND

SOCIAL

What is corporate governance? The system by which organisations are directed and controlled. (The Cadbury Report)

Why is corporate governance required? Companies are owned by the shareholders, but run by the board of directors. Corporate governance ensures the company is run in the interests of the shareholders.

The principles of corporate governance The OECD lays out 5 principles of good governance: ●

The rights of shareholders

●

Equitable treatment of shareholders

●

Stakeholder relations

●

Disclosure and transparency

●

The responsibilities of the board.

Guidance on corporate governance All companies incorporated in the UK and listed on the London Stock Exchange (LSE) are required to report on how they have applied the UK Corporate Governance Code. Overseas companies listed on the LSE are required to disclose any significant differences between their application of corporate governance and the guidelines set out in the UK Corporate Governance Code. The UK Corporate Governance Code contains both general principles and specific provisions. Listed companies are required to report on how they have applied the Code, and where they have not complied with the Code, to provide explanations. A key issue in corporate governance is that of balance, eg: ●

The role of Non-executive directors (NEDs)

●

Chairman and chief executive should not be the same person.


123


The role of NEDs Executive directors are involved full-time with the running of the organisation. Non-executive directors devote some of their time to the organisation, but are not part of the executive management team. NEDs will usually be paid fees (eg a daily rate) to reflect the time/responsibility devoted to the organisation. They would not usually be remunerated via share options, as this could impact on their independence. At least half the board (excluding the chairman) should consist of NEDs. NEDs should be independent of the organisation and have an important role to play: ●

Industry expertise

●

Corporate conscience

●

Balance in decision making

●

Insight on corporate governance

●

Remuneration committee (at least 3 NEDs)

●

Audit committee (at least 3 NEDs).

What is social responsibility? Behaviour which stakeholders.

recognises

the

organisation’s

impact

on

society

and

its

More and more organisations are adopting a Stakeholder rather than a Shareholder view. This is further underlined by the OECD recommendation to promote good stakeholder relations. Many organisations attempt to include stakeholders in the decision making process via: ●

Questionnaires

●

Focus groups

●

Analysis of customer feedback

●

Consultation with the local community

●

Formal stakeholder analysis.

Although behaving in a socially responsible way may have an adverse impact on short term profits, it is generally considered to be the right decision for the longer term growth and success of the organisation.

124


Chapter 15

Ethical considerations


125


CHAPTER CONTENTS ETHICAL CONSIDERATIONS ------------------------------------------- 127

126

WHAT IS ETHICS?

127

WHY IS ETHICS IMPORTANT?

127

ETHICS AND THE ORGANISATION

127

ETHICS AND THE INDIVIDUAL

127

APPROACHES TO ETHICS

128

THE ACCA CODE OF ETHICS

129



ETHICAL CONSIDERATIONS What is ethics? That branch of philosophy dealing with values relating to human conduct, with respect to the rightness and wrongness of certain actions and to the goodness and badness of the motives and ends of such actions. The science of right and wrong.

Why is ethics important? As ethical issues become more important to society in general, and an organisation’s customers in particular; organisations need to recognise the value of ethics. An organisation failing to appreciate the importance of ethical issues will be out synch with its customers.

Ethics and the organisation From the organisations point of view, ethical behaviour: ●

Is part of a framework of good corporate governance

●

Could be a way of differentiating an organisation from the competition

●

Can often reassure shareholders

●

Can aid staff motivation.

Ethics and the individual From the customer’s point of view, ethical companies: ●

Conform to customers changing expectations

●

Will often be chosen in preference to unethical companies, despite higher prices.

From the employee’s point of view, ethical companies: ●

Will have an ethical framework in place leading to fewer difficult decisions and personal dilemmas

●

Will often be chosen in preference to unethical companies, with regard to employment.


127


Ethical considerations The moral issues facing and organisation differ from industry to industry – eg: Industry

Ethical Issues

●

Pollution

Manufacturing

Sourcing ●

Pharmaceuticals

Testing Pricing

●

All Industries

Health and Safety Employee welfare

Approaches to ethics Ethics Stakeholder View

Shareholder view Ethics is bad for business

Enlightened self-interest - Comply with the law - Provide employment - Generate wealth

The moral view

Ethics is good for business

Ethics is the right thing to do

- Competitive advantage - Pre-empt legislation - Wider investor base

- Above and beyond the law - Moral duty - Leave the world a better place

As members of the accounting profession we have: ●

A responsibility to influence ethical behaviour at work.

●

A duty to act in the public interest.

What is a profession? Professions as opposed to other occupations have the following characteristics: ●

Theoretical knowledge gained through higher education (ie exams)

●

A governing body (ie the ACCA)

●

An ethical code (OPTIC).

128



The ACCA code of ethics The ACCA code is based on the International Federation of Accountants (IFAC) code of ethics for professional accountants.

Objectivity

Professional behaviour

Technical/Professional competence

Integrity

Confidentiality


129


130


Chapter 16

IT and systems


131

CHAPTER 16 – IT AND SYSTEMS

CHAPTER CONTENTS INFORMATION TECHNOLOGY AND SYSTEMS ------------------------ 133 DATA AND INFORMATION

133

WHAT IS DATA?

133

WHAT IS INFORMATION?

133

SOURCES OF INFORMATION

134

LEVELS OF INFORMATION – ANTHONY’S HIERARCHY

134

WHAT IS A SYSTEM? --------------------------------------------------- 135

132

IT SYSTEM

135

SECURITY OF IT SYSTEMS

136

SPREADSHEETS AND DATABASES

136



INFORMATION TECHNOLOGY AND SYSTEMS Data and information It is important to be able to distinguish between information and data.

What is data? Data is raw facts and figures. Data can be categorised as follows: ●

Continuous

●

Discrete

●

Qualitative

●

Quantitative

●

Primary

●

Secondary

What is information? Information is data which has been processed so that it is meaningful to the individual who receives it. Data processing turns data into information. The qualities of good information: (ACCURATE) ●

Accurate

●

Complete

●

Cost effective

●

Understandable/User friendly


133


●

Relevant

●

Adaptable

●

Timely

●

Easy to use

Sources of information Information can come from a variety of sources, both inside and outside the organisation Internal Financial Record Staff record Invoices Intranet Company brochures Customer records Management Accounts

External Government Statistics Trade publications Newspapers/journals Internet Industry intelligence Competitor Accounts Customers

Levels of information – Anthony’s hierarchy Different information is required at different levels within the organization.

Strategic

● ● ● ●

Longer term Summarised Uncertainty Infrequent

● ● ● ●

Immediate/Shorter term More detailed Greater certainty More frequent

Tactical

Operational / Functional

134



WHAT IS A SYSTEM? A system is a collection of procedure and processes. Systems can be manual as well as automated. There are some advantages to automating a system.

Advantages of automation include: ●

Speed

●

Accuracy

●

Volume

●

Elimination of Human error

●

Complexity

●

Presentation.

IT system There are a variety of IT systems that can be used to provide information within the organization. These include: System ESS MIS

DSS

ES

KWS

OAS

TPS

Description Executive Support System Aids strategic decision making Management Information System Converts data from internal sources into information to aid managers make decisions Decision Support System Supports semi and unstructured decision making Expert System Captures human expertise in a limited area Knowledge Work System Helps to create and facilitate new knowledge into the organisation Office Automation System Helps to increase productivity of data and information workers Transaction Processing Software Performs and records routine transactions


135


Security of IT systems IT systems need to be protected from corruption, unauthorised access or alteration. There are a number of risks to consider: ●

Physical damage

●

Human damage

●

Operational problems

●

Data corruption.

Spreadsheets and databases Spreadsheets are widely used by finance professionals as well as many other people within the organisation, as they ●

are simple to use

●

require little training

●

are widely recognised.

Spreadsheets are more appropriate for the short-term analysis of data, rather than long term storage. For the storage of large volumes of data, a database may be more appropriate.

What is a database? A database is a collection of structured data which can be manipulated.

Benefits of database

Drawbacks of Databases

Avoidance of duplication of data

Data security

One single source of data

Data privacy

Better security

More complex

Greater flexibility in use of data

Costly

Consistency

136


Chapter 17

Control and security


137

CHAPTER 17 –CONTROL AND SECURITY

CHAPTER CONTENTS CONTROL, SECURITY AND AUDIT ------------------------------------- 139 WHAT IS CONTROL?

139

WHAT IS INTERNAL CONTROL?

139

TYPES OF CONTROL

140

AUDITING --------------------------------------------------------------- 142

138

WHAT IS INTERNAL AUDITING?

142

LIMITATIONS OF INTERNAL AUDIT

142

WHAT IS EXTERNAL AUDITING?

142


C H A P T E R 1 7 – C O N T R O L A N D S E C U R IT Y

CONTROL, SECURITY AND AUDIT What is control? Control is a guiding mechanism which encourages people to behave in a particular (goal congruent) way.

What is internal control? Any action undertaken by management to ensure that the goals and objectives set will be achieved. According to Turnbull guidelines the purpose of internal control is to ensure: ●

reliability of financial reporting

●

effectiveness and efficiency of operations

●

compliance with applicable laws and regulations.

●

safeguard Company Assets

●

the prevention and detection of fraud

The internal control framework includes: ●

The control environment

●

The risk assessment and response processes

●

The information systems relevant to financial reporting

●

Control activities

●

Monitoring of controls.


139


Types of control There are several categories of internal control –

●

Administrative and accounting controls

●

Prevent, detect and correct controls

●

Discretionary and non-discretionary controls

●

Voluntary and mandated control

●

Manual and automated controls

●

General and application controls

●

Financial and non-financial controls

140



Internal control is within an organisation is important because it: ●

Improves efficiency and effectiveness

●

Is good corporate governance

●

Is a legal requirement in some countries

●

Could prevent fraud

●

Alters the auditors approach to their work.


141


AUDITING It is important to distinguish between Internal and External auditing.

What is internal auditing? An independent appraisal of the effectiveness of an organisation’s operation and management by its own employees. Internal auditors guide, monitor and attempt to improve processes within an organization. Internal Audit is an important element of the risk management of the organisation and may be required to assess and advise on risk.

Limitations of internal audit ●

Independence

●

Resourcing

These limitations can be mitigated by the introduction of an Audit Committee.

What is external auditing? A periodic examination of the accounting records conducted by an independent third party, to assess whether they have been properly maintained are accurate and comply with established principles, legislation and accounting standards. External auditors will attempt to establish whether the accounts give a true and fair view of the financial state of the organisation. External auditing can act as an additional preventative control measure.

Internal vs external audit Internal Auditor

External Auditor

Employment

Employee

Third party

Requirement

No legal requirement Good Corporate Governance

Legal requirement for: ● Public companies ● Large companies ● Some public bodies

Assist management

Report to shareholders

Financial and operational matters

Financial matters

Role determined by management

Role determined by statutory duty

Scope

142



There are five different types of Audits: ●

Operational

●

Social

●

Management Investigations

●

Systems

●

Transactions.


143


144


Chapter 18

Fraud


145

CHAPTER 18 – FRAUD

CHAPTER CONTENTS IDENTIFYING AND PREVENTING FRAUD ----------------------------- 147

146

WHAT IS FRAUD?

147

THE PREREQUISITES OF FRAUD

147

FACTORS INCREASING THE RISK OF FRAUD

147

PREVENTING FRAUD

147

INTERNAL CONTROLS

148

PERSONNEL POLICIES AND PROCEDURES

148

IMPLICATIONS OF FRAUD

148

ROLE OF MANAGEMENT IN PREVENTING/DETECTING FRAUD

149

ROLE OF INTERNAL AUDIT IN PREVENTING/DETECTING FRAUD

149



IDENTIFYING AND PREVENTING FRAUD What is fraud? Fraud is an intentional act by one or more individuals among management, those charged with governance, employees or third parties, involving the use of deception to obtain an illegal or unjust advantage. (Auditing Practices Board). In the context of the organisation, fraud can occur in one of two categories: ●

Removal of Funds or Assets from the business

●

Intentional misrepresentation of the financial position of the business.

Fraud may be perpetrated by a variety of people: ●

Management

●

Employees

●

Third parties.

The prerequisites of fraud For fraud to occur there must be: ●

Dishonesty

●

Motive

●

Opportunity

Factors increasing the risk of fraud When these factors are present there is a high risk that fraud may occur: ●

Poor control systems

●

Poor control environment

●

Lack of supervision

●

Low morale

●

Unusual transactions

Preventing fraud To prevent fraud the organisation needs to ensure that the following: ●

Adequate internal controls

●

Personnel policies and procedures.


147


Internal controls ●

Physical controls

●

Segregation of duties

●

Authorisation policies

●

Management control

●

Documentation

●

Supervision

●

Whistleblowing

●

Personnel policies

●

Investigation

Personnel policies and procedures Specific personnel controls for the prevention of fraud include: ●

Recruitment process

●

Appraisals

●

Staff development and training

●

Emphasis on Ethics.

Implications of fraud This depends entirely on the scale of the fraud, which can range widely ●

Minor fraud

●

Major fraud

148



Role of management in preventing/detecting fraud Management has a variety of roles to play: ●

The board

●

The audit committee

●

Line management.

Role of internal audit in preventing/detecting fraud Directors decide the exact role of internal audit, however their duties are likely to involve: ●

Testing controls

●

Investigating specific instances of potential fraud.


149

LSBF notes ACCA F1

LSBF class notes ACCA F2

LSBF class notes ACCA F3

F1

ACCA F1 Accountant in Business Key Study Text

Dassault Mirage F1

Mirage F1

ROBES~F1

Asimov, Isaac - F1 - Foundation

ACCA F5

ACCA F4

ACCA P7

ACCA F7 Financial Reporting (INT) Course Notes ACF7CN07 INT

ACCA F9 Financial Management Course Notes ACF9CN07(N)

ACCA. Диплом по МСФО

ACCA. Диплом по МСФО

ACCA. Диплом по МСФО

ACCA Corporate Reporting (INT) Course Notes ACP2CN07 (INT)

ACCA. Диплом по МСФО

ACCA F2 Management Accounting: F2 (Acca Key Study Text)

Bf 109 F1-F4 Flugzeughandbuch

ACCA F6 UK TAXATION (Finance Act 2010)

ACCA - F6 Tax (FA2009): Study Text

ACCA P3 Business analysis Essential text

ACCA - F5 Performance Management: Study Text

ACCA - F5 Performance Management: Study Text

Me 262 A-1 Bedienvorschrift-F1

ACCA - F6 - Taxation FA 2010: Study Text

ACCA F2 Management Accounting Essential text

ACCA - F2 Management Accounting: Study Text

Notes

LSBF notes ACCA F1

LSBF class notes ACCA F2

LSBF class notes ACCA F3

F1

ACCA F1 Accountant in Business Key Study Text

Dassault Mirage F1

Mirage F1

ROBES~F1

Asimov, Isaac - F1 - Foundation

ACCA F5

ACCA F4

ACCA P7

ACCA F7 Financial Reporting (INT) Course Notes ACF7CN07 INT

ACCA F9 Financial Management Course Notes ACF9CN07(N)

ACCA. Диплом по МСФО

ACCA. Диплом по МСФО

ACCA. Диплом по МСФО

ACCA Corporate Reporting (INT) Course Notes ACP2CN07 (INT)

ACCA. Диплом по МСФО

ACCA F2 Management Accounting: F2 (Acca Key Study Text)

Bf 109 F1-F4 Flugzeughandbuch

ACCA F6 UK TAXATION (Finance Act 2010)

ACCA - F6 Tax (FA2009): Study Text

ACCA P3 Business analysis Essential text

ACCA - F5 Performance Management: Study Text

ACCA - F5 Performance Management: Study Text

Me 262 A-1 Bedienvorschrift-F1

ACCA - F6 - Taxation FA 2010: Study Text

ACCA F2 Management Accounting Essential text

ACCA - F2 Management Accounting: Study Text

Notes

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