1
Q
Name 6 types of business.
A
Sole Trader
Partnership
LLP/ Limited Partnerships
Private Limited Company
Public Limited Company
Not-for-profit organisation
2
Q
What are the key characteristics of a Sole Trader? (4 marks)
A
The owner is independent and so can run the business however they wish.
Once all business expenses are covered, all profits belong to the owner.
The owner has unlimited liability so any debts of the business may be paid by personal assets.
Financial statements do not have to be sent to companies house.
3
Q
What are the key characteristics of an unlimited liability partnership? (4 marks)
A
A group of 2 to 20 partners who split the p/l.
Each partner is liable for the debts of the whole business not just their share.
The rules of the partnership are governed by the partnership agreement.
The financial statements are not sent to CH.
4
Q
What is a partnership agreement? (4 marks)
A
A partnership agreement defines:
The division of shares
Partners’ Salaries
Interest on capital/drawings
When a partnership agreement is not used, a partnership is governed by The Partnership Act.
5
Q
Define Goodwill
A
The difference between the value of the company and the net assets..
6
Q
What are the key characteristics of an LLP? (5 marks)
A
This is the preferred format for professional businesses such as accountants.
It is set up through legal incorporation.
There must be at least two designated members who are responsible for all legal and accounting requirements.
An annual confirmation statement must be sent to CH.
The final accounts must also be published.
7
Q
What is the difference between an LLP and a limited partnership? (1 mark)
A
They are the same, however a limited partnership has one general partner who has unlimited liability.
8
Q
Key Characteristics of a Ltd company (4 marks)
A
There is no minimum requirement for share capital
At least 1 shareholder
At least 1 director who is not a shareholder
Shares are not traded publicly
9
Q
Key Characteristics of a PLC (4 marks)
A
Minimum of £50,000 share capital
At least 2 shareholders
At least two directors
Shares are traded publicly on the stock exchange
10
Q
What are the advantages of incorporation? ( 4 marks )
A
Liability is limited to the amount that was invested by the shareholder.
Increases credibility of the businesses ( sounds better).
More access to finance
Sale of shares are easier
11
Q
What are the disadvantages of Incorporation? (2 marks)
A
More complex to set up and additional costs for filing/record keeping.
12
Q
How are charities restricted? (5 marks)
A
They must follow charity law
Their purpose must be for public benefit
They are governed by a trust deed
They are run by trustees
They are independent from other organisations.
13
Q
What statements are submitted on the final accounts? (6 marks)
A
Statement of financial activities
Statement of financial position
Cashflow statement
Notes to financial statements
Trustees Annual Report
Auditors Report
14
Q
Name 4 ways to differentiate between a manufacturing and a service business? ( 4 marks )
A
Intangibility
Inseparability
Perishability
Variability
15
Q
Name 5 sources of funding
A
Fundraising
Borrowing
New Capital
Retained Profit
Working Capital
16
Q
Define a stakeholder
A
A person or organisation who has an interest in another organisation.
17
Q
Name 8 stakeholders of a business
A
Customers
Suppliers
Finance Providers
Owners
Government
Employees
Regulatory and Professional bodies
General Public
18
Q
Name 3 attitudes to risk
A
Risk Adverse
Risk Neutral
Risk Seeking
19
Q
Name 3 factors that affect your attitude to risk
A
Risk Appetite
Risk Tolerance
Risk Threshold
20
Q
Define Risk Appetite
A
The level of risk you are willing to accept to achieve your goals
21
Q
Define risk tolerance
A
How much risk you can withstand
22
Q
Define risk threshold
A
The level up to which risk is acceptable
23
Q
Name the 3 common organisational structures
A
Functional
Divisional
Matrix
24
Q
Describe a functional structure. (1 mark)
A
A business is split into groups of specialised skills.
25
Key features of a divisional structure ( 2 marks )
Split into teams to focus on an individual product, service or location.
Each division has its own functional structured team.
26
Describe a matrix structure ( 1 mark )
As well as working in your own department you also work within a project team.
27
Name 3 factors that affect span of control?
Size of the organisation
Type of work the individuals do
Locations of staff
28
Name 4 key features of a tall organisational structure?
Organised by function
Several layers of management
Narrow span of control
Takes more time to make decisions
29
Name 4 key features of a flat organisational structure
Few levels of management
Wide span of control
Decisions made quickly
Staff stagnate
30
Define governance ( 4 marks )
A system that provides a framework for managing organisations. It identifies:
Who can make decisions
Who has authority to act on behalf of the business
Who is accountable for how an organisation and its people behave and perform.
31
Name 3 areas of governance in a business context
Corporate
Financial
Legal
32
Define corporate governance ( 2 marks )
Systems in place to control the way a business is operated such as setting strategic aims
33
Define financial governance ( 2 marks)
Systems in place which monitor the operations of the business and reduce financial risk.
34
Define legal governance
Systems which ensure compliance of legislations and regulations.
35
Key features of centralised control ( 4 marks )
Top-down approach
Decisions made by higher levels of management
Higher levels have more control over direction of business.
Little involvement in activities of business.
36
Name 3 key features of decentralised control.
Day to day decisions made by lower tiers of management
Higher tiers focus on strategic decisions / strategies
Lower tiers may not have much experience therefore quality of decisions may be affected.
37
Name the 3 levels of management
Corporate
Managerial
Operational
38
Name 3 key features of corporate management
Makes strategic decisions
Longer term decisions
Affects whole organisation
39
Define managerial management
Where decisions are made which relate to how an organisation meets it goals.
40
Name 2 key features of operational management
Makes decisions on day to day activities.
These are short term decisions.
41
Define risk
The possibility of something negative happening.
42
What is the difference between risk and uncertainty.
Risk is where the decision has known outcomes whereas uncertainty has unknown outcomes.
43
Define business risk
The vulnerability to factors that could decrease profit or cause failure.
44
Name 5 factors that effect business risk.
Strategic risk
Financial risk
Operational risk
Cyber risk
Reputational risk
45
Name 4 key features of a risk matrix.
It is how business's evaluate risk.
It has impact on one axis.
It has likelihood on the other axis.
Total risk is measured by multiplying impact and likelihood.
46
Name the 4 parts of the TARA framework.
Transfer
Avoid
Reduce
Accept
47
When would you transfer risk?
When there is a high impact but low likelihood.
48
When would you avoid risk?
When there is a high impact and likelihood.
49
When would you reduce risk?
When there is a high likelihood but low impact.
50
When would you accept risk?
When there is a low impact and likelihood.
51
Name the 6 parts of the PESTLE analysis
Political
Economic
Social
Technological
Legal
Environmental
52
Name 4 political factors
Government Policies
Taxation
Imports and Exports
Public Spending
53
Name 5 macro-economic factors
Interest rates
Exchange rates
Changes in disposable income
Business cycles
Inflation
54
Name the 4 elements of the business cycle
Boom
Downturn
Recession
Recovery
55
Name 2 causes of inflation
Demand-pull
Cost-push
56
Name 7 social factors
Income
Language / culture
Religion
Education
Family structure
Age
Occupations
57
Describe the technological factors of the pestle analysis ( 2 marks)
New technology allows for new services to be made.
Makes older services redundant
58
Name 3 legal factors
National minimum wage
Employment law
Import/Export law
59
Describe the environmental factors of the PESTLE analysis ( 3 marks )
As the climate changes, businesses have to research alternative methods of running, so that they can remain sustainable, which increases reputation.
60
Describe the 5 types of goods that are affected by demand and hwo they are affected.
Normal - as income rises, demand rises, so prices rise.
Inferior goods - these are cheaper goods - As income rises, demand falls.
Necessities - demand stays consistent as income varies.
Substitute products - two or more goods which are similar - as one products price increases, the demand of the others increase.
Complement products - Items that must be used together - a rise in price of one reduces the demand for the other
61
Explain how supply varies as price varies ( 2 marks )
As price increases, supply increases, because the supplier will want to sell as much of the item as possible.
62
Name 5 factors that affect competition.
Product differentiability
Number of suppliers or buyers
Barriers to entry
Location
Availability of information
63
What is the Brundtland Report's definition of sustainable development.
Development that meets the need of the present without compromising the future generation's ability to meet their own needs.
64
What are the 3 aspects of the triple bottom line.
Economic growth
Environmental Protection
Social Equality
65
Why would a company produce a Corporate Social Responsibility Report?
Creates a good reputation.
66
Name 5 responsibilities of accountants
Duty to public interest
Promote an ethics-based culture
Promote sustainability
Consider the triple bottom line
Raise awareness of social responsibility.
67
What is the Code of Professional Ethics based of?
The ethical code from the International Ethics Standards Board for Accountants
68
What does the code of professional ethics state that it can do? (3 marks)
Sets out the expected standard for professional behaviour
Helps protect the public interest
Helps maintain AAT's reputation
69
What are the 5 fundamental ethical principles?
Professional Behaviour
Professional Competence and Due Care
Confidentiality
Integrity
Objectivity
70
What are the 3 key points for integrity?
Honesty
Transparency
Fairness
71
What is the definition of objectivity?
Basing opinions of facts rather than personal belief. For us, it means not letting conflicts of interest affect our decisions.
72
What are the 2 key points for objectivity?
Independence
Appearing to be objective
73
Define Professional Competence and due Care
Maintaining professional knowledge and skill at a level that ensures any client receives a professional service based off the developments at the time.
74
How do you keep professional competance
Keep up with all accounting standards and requirements by completing CPD on a regular basis.
75
What does due care mean?
Completing all work with appropriate amount of care to ensure the quality of work meets the high standards expected of accountants.
76
Define the 'duty of confidentiality'
Accountants are obliged to respect the confidentiality of information about a client's or employer's affairs which they gained when completing their professional work.
77
What is the rule on using confidential information?
Accountants must not use or disclose confidential information for their own or a third party's advantage. They must also not appear to use the information.
78
When does the duty of confidentiality end?
The duty extends to the period after the relationship ends.
79
When is disclosure of confidential information acceptable?
When authorised by the client/employer
When required by law
When there is a professional duty to disclose
80
When do you have a professional duty to disclose?
To comply with a quality review from a professional body
To respond to an enquiry from a professional body.
To protect the professional interests of the accountant in legal proceedings.
To comply with the technical and ethical standards and requirements.
81
When is confidential information required by law?
When needed as evidence in a court of law.
When the law has been broken and disclosure is needed to local authorities.
81
Define professional behaviour
Accountants should comply with relevant laws and regulations to avoid any action that would bring the profession into disrepute.
82
What action from the professional bodies can be taken when misconduct takes place?
Complete a written undertaking to refrain from repeating.
Be fined
Be reprimanded
Be declared ineligible for a practicing license
Have license withdrawn
Be suspended from membership
Be expelled from the body.
82
What are the 3 key points regarding professional scepticism.
Having a questioning mind
Being alert to conditions which may indicate misstatement.
Making critical assessment of evidence that is provided.
83
What are the 3 classes of fraud?
Fraud by false classification
Fraud by failing to disclose information.
Fraud by abuse of position
83
Define fraud.
Wrongful or criminal deception aimed to result in financial or personal gain.
84
Define bribery
Giving something of value to someone to influence the recipient in your favour.
85
Name 5 threats to accountants in practice.
Self-interest
Self-review
Familiarity
Intimidation
Advocacy
86
Name 5 causes of self interest
Direct or indirect financial interest in a client or employer.
Loans to or from a client or a PSC of a client.
Holding a financial interest in a joint venture with a client or employees of a client.
Substantial fee income from a single client.
Potential employment by a client.
87
Name 2 causes of the threat of self-review
Finding significant errors that you have made.
Providing other services for the client.
88
Name 4 causes of familiarity.
Having a close personal relationship with the client
A former partner who now works at a client.
Being offered gifts from a client.
When there is a long association between a senior member of the assurance team and the client.
89
Name 5 causes of intimidation.
Threat to dismiss the accountant
Threat to not award a contract
Threat of litigation
Pressure to reduce quality to reduce fees.
Pressure to agree with client as they 'have more experience'.
90
Name 3 causes of advocacy
Going beyond the advisory role and actively speaking on behalf of / in favour of a client.
Promoting shares of a listed entity which is an audit client.
Acting as an advocate on behalf of an assurance client in litigation or disputes with a third party.
91
What should an accountant do if there is a conflict of interest between 2 or more clients.
All possible steps should be taken to minimise the risks, such as using different members of staff.
92
What loyalties does an accountant have?
They have loyalties to their employer and the professional body that they are a part of.
93
What 6 steps could an accountant make to resolve ethical conflicts
Gather all relevant facts
Assess all ethical issues
Identify the fundamental ethical principles under threat
Assess any internal procedures in place
Review any other course of action
Seek advice from others.
94
What 4 options should an accountant choose from if their solutions to fixing a conflict don't work.
Consider resignation
Consult the professional accounting body
Seek legal advice.
Whistle blow
95
What are the 6 key organisational ethical values
Being transparent with colleagues, customers, and suppliers.
Reporting financial and regulatory information clearly and on time.
Being open and honest
Identifying when it is appropriate to give and accept gifts / hospitality.
Paying a supply faire price and on time.
Providing fair treatment, wages, and working conditions.
96
Define whistleblowing
A person who tells someone in authority about misconduct, alleged dishonesty or illegal activity that has or may occur in an organisation.
97
What can makes an employee protected by the Public Interest Disclosure Act when blowing the whistle?
The disclosure is made in good faith
The employee reasonably believes that the info disclosed is true
The employee would otherwise be victimised, or the evidence would be destroyed if not disclosed.
98
Define professional negligence
This is where a client suffers financial loss which can be proven to be the fault of the accountant.
99
Name 4 ways the risk of professional negligence can be reduced
Create a letter of engagement
Agree any changes to the LOE
Any limitations of advice must be written down
If an assignment is too complex, specialist advice should be taken.
100
What type of insurance covers the liability from professional negligence
Professional Indemnity Insurance.
101
Name the 3 stages of money laundering.
Placement
Layering
Integration
102
103
Who should an accountant report suspicions of money laundering to?
The NCA
The MLRO.
104
What is the penalty if convicted of money laundering?
Unlimited fines
Up to 14 years in prison.
105
When disclosure is made of money laundering, does the duty of confidentiality remain?
No, it is a protected disclosure so no action will be taken on allegations of breach of confidentiality.
106
Name the 2 exceptions to duty to report
When the information that bases the suspicion was obtained outside of the accountants course of business.
When the accountant was providing legal advice, expert opinion or services in relation to legal proceedings.
107
What is the penalty for failing to disclose money laundering suspicions.
Up to 5 years in prison and / or a fine.
108
What are the 3 direct money laundering offences?
Concealing criminal property
Arranging money laundering
Acquisition of criminal property.
109
Define tipping off and the penalty which goes with it.
This is where an accountant who knows of a SAR informs the people involved about the report. The maximum penalty is 5 years in prison and a fine.
110
When must an accountant be registered with HMRC
When they are not supervised by a regulated, professional body.
111
Define customer due diligence
This is the process of evaluating a prospective business by investigating the relevant financial, legal, and other important information about the party.
112
Name 6 situations where CDD must be completed.
When a business relationship is established
When special work is completed for non-clients.
When money laundering is suspected.
When there is a doubt of the clients identification
When the circumstances of a client change or are inconsistent.
When there is high risk of money laundering.
113
How long should CDD records be kept.
5 years after the relationship has ended.
114
Name 4 benefits of automation of accounting processes
Improved data integrity
More efficient approval
Greater internal data visibility
Quicker invoicing
115
How can machine learning be used in accounting systems?
Update the ledgers automatically when invoices are scanned in
Coding of data
Audit of information
Forecasting future information
Analysing complex data
116
Describe blockchain accounting
This is a digital ledger which, when a transaction is raised, a block is created and shared across every device in the network. The block has to be accepted by every device before being added to the chain.
117
Name 2 other uses of technology in accounting.
Electronic filing of documents
Signing documents electronically.
118
What can data analytics provide.
What happened?
Why it happened?
What will happen next?
What action is needed?
119
Define outsourcing
When businesses use a third party to carry out tasks for them.
120
Name 3 advantages of outsourcing
Cost savings due to less staff needed
Staff time freed to focus on other tasks.
Benefitting from expertise of third parties
121
Name 3 disadvantages of outsourcing
Threat to data security
Reduction of morale if redundancies are made.
If reliance is placed on one business the cost increases will have a larger effect.
122
Define offshoring
This is the relocation of some operations to another country with the aim of reducing costs.
123
Name 5 features of cloud accounting
Remote access
Remote data storage
Shared access
Automation capabilities
Real time data
124
Name 3 benefits of cloud accounting
Lower IT costs
Improved sustainability
Better security
125
Name 3 disadvantages of cloud accounting
Reliance on internet
Reliance on a third parties data security
Software requirements
126
Name 7 principles of data protection
Lawfulness, fairness and transparency
Purpose limitation
Data minimisation
Accuracy
Storage limitation
Integrity and confidentiality
Accountability.
127
When should a data breach be reported
Immediately after discovery.
128
What 3 controls should a business have to maintain information security
Accounting system access levels
Security controls
Integrity Controls
129
Name the 8 attributes of good quality information
Accurate
Complete
Cost effective
Understandable
Relevant
Authoritative
Timely
Easy to use
130
What is information used for at strategic level.
Information about the past is used to make decisions on the future of the business.
131
What is information used for at managerial level.
Info is used to monitor the businesses progress towards its goals.
132
What is information used at operational level
Info is used to make immediate decisions about the day to day running of the business.
133
Define big data
A collection of data which is so large and complex, and accumulates so quickly, that it is difficult to store and process using standard data processing software.
134
Name 3 sources of big data
Social media
Machine data
Transactional data
135
Name the 5 characteristics of big data.
Volume
Velocity
Variety
Veracity
Value
136
Name 7 benefits of big data
Easier to attract new customers
Focused marketing
Gain a competitive advantage
Identification of areas for potential risk
Faster innovation
Improved business procedures
Fraud detection
137
Name 4 limitations of big data
Lack of knowledge
Difficulties combining data
Data protection
Data security
138
Name 6 ways we can visualise data.
Charts
Images
Diagrams
Matrices
Graphs
Tables
139
Name 3 advantages of having a dashboard on accounting software
Data is easy to understand
They can be customised to suit the needs of the business
Dashboards are produced in real time.
140
Name 8 attributes of professional communication
Clear
Concise
Unambiguous
Complete
Accurate
Timely
Appropriate
In the most suitable format
141
Name 7 appropriate formats for professional communication
Reports
Emails
Letters
Meetings
Telephone calls
Social Media
Intranet and instant messaging
142
Name the 4 types of company which must register through companies house
Limited partnerships
LLP's
Ltd's
PLC's
143
Is it the directors or shareholders which have a say in the running of the busines.
Directors only, the shareholders can only appoint / remove directors and attend the meetings.
144
Name the 7 legal duties of a director
Duty to act within powers
Duty to promote the success of the company
Duty to exercise independent judgement
Duty to exercise reasonable care
Duty to avoid conflicts of interest
Duty to not accept benefits from third parties
Duty to declare interests in proposed transactions.
145
If you are working in business, are you required to report money laundering that you are not involved in, but your colleagues are?
No, but if you were involved you have to make an authorised disclosure.
146
How often must Customer Due Diligence be completed
Regularly
147
List the 4 key bribery offences
Bribing someone, receiving a bribe, bribing a foreign official, failure to prevent bribery.
148
Is a birth certificate likely to be accepted for CDD?
No, as there is no photo to confirm their identity.
149
AAT - Level 3
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Decks in class (5)
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