1
Q
Definition of organisations
A
Social arrangements for the controlled performance of collective goals
2
Q
What does controlled performance mean
A
Organisation has systems and procedures to ensure goals are achieved
3
Q
Why do we need organisations
A
- Share skills and knowledge
- Specialisation - workers can concentrate on a limited set of tasks
- Pool resources
Results in synergy
4
Q
What are commercial organisations
A
Those whose main objective is maximising the wealth of the owners
5
Q
What are the three forms a commercial company can take
A
Sole trader, partnership and limited liability companies
6
Q
A
7
Q
Do partnership companies have a separate legal identity from its owners
A
No
8
Q
What is a private limited company?
A
A small company whose shares cannot be offered to the general public
9
Q
What is a public limited company?
A
A larger business whose shares are offered to the general public.
10
Q
What is an NGO
A
An organisation which doesn’t have profit as its primary goal and isn’t directly linked to the national government
11
Q
What is separation of ownership and control?
A
Where people who own the company aren’t the people who run the company
12
Q
Agency problem
A
When directors run the business in their own interests rather than those of shareholders.
13
Q
What is debt finance
A
Borrowing money
14
Q
What is equity finance
A
Money raised by selling shares or keeping profits instead of paying them out as dividends.
15
Q
Why is long term finance more expensive
A
There are higher levels of risk and uncertainty for the investor
16
Q
Pros of equity finance:
A
There is no minimum level of dividend that must be paid so if profits are low dividends can be suspended whereas with debt finance interest must be paid yearly.
Equity doesn’t require security whereas banks often do require it
17
Q
What is security in terms of debt finance?
A
Something valuable the company pledges to the bank when taking a loan. If the loan cannot be repaid, the bank can take the asset.
18
Q
Pros of debt finance
A
- Interest payments are allowable against tax so this reduces taxable income.
- Doesn’t change ownership
- Lower risk for lenders vs shareholders so they charge a low interest rate whereas shareholders demand high dividends.
19
Q
What are retained earnings
A
When the company keeps its profit instead of paying it out to shareholders in the form of dividends
20
Q
Working capital formula
A
Total of current assets - total current liabilities
21
Q
5 key differences between types of organisations
A
Ownership
Objectives
Sources of funding
Size
Liability - sole traders / partnerships are liable for losses made
22
Q
Businesses handling client money are accountable to what regulatory authorities
A
FCA (financial conduct authority)
PRA (prudential regulation authority);
23
Q
What regulatory authority manages charities?
A
Charity commission
24
Q
What legislation in the UK governs the preparation of company financial statements?
A
The companies act 2006
25
What does CA2006 require:
Financial statements give a true and fair view of the position and performance of the company
26
Who must approve financial statements?
The board of directors
27
What are the 4 types of director:
CEO
Executive director
Non executive director
Chairman of board
28
Who has the authority to enter the company into a contract
The CEO
29
What does an executive director do
Performs a specific role eg finance director
30
What’s a non executive director
Someone who brings outside expertise to the board and contributes an independent view but works part time and isn’t an employee.
31
What’s the role of the chairman of the board?
- Chairs meetings
- Acts as spokesperson for the company
- has casting vote
32
What are the 7 duties of a director:
1. Act within power
2. Promote success of the company
3. Exercise independent judgement
4. Exercise reasonable care, skill and diligence
5. Avoid conflicts of interest
6. Don’t accept benefits from third parties
7. Declare personal interest in a transaction or arrangement the company is considering
33
If a company fails, what are the shareholders liable for?
The amount they invested
34
Perpetual succession
A company continues to exist as a legal entity regardless of changes in its shareholders or directors
35
What must be submitted to the registrar of companies to form a company?
1. Memorandum of association
2. Application for registration
3. Articles of association
4. Accounting records
36
What is the memorandum of association?
A document signed by founders/subscribers stating they agree to become members of the company and take at least one share.
37
What should the application for registration of a company include:
1. Proposed name
2. Whether members will have limited liability
3. Whether company will be public or private
4. Details of office
38
What are the articles of association?
A legal document that governs its internal operations
39
Accounting records should be able to disclose the company’s financial position at intervals of not more than…
6 months
40
How long should accounting records be kept for a private company
3 years
41
How long must a public company keep their accounting records
6 years
42
What is a minority shareholder
Someone with less than 50% control. Most decisions require a majority over 50%.
43
What are resolutions?
Decisions shareholders vote on to approve certain actions by the company
44
What is a derivative claim?
A claim on behalf of the company in relation to a breach of duty, trust and negligence by a director
45
46
A partnership is an … business entity
Unincorporated
47
What is an unincorporated business entity
From a legal perspective, the firm isnt a separate legal entity to the partners, but in accounting they are separate.
48
Unlimited liability
Owners of the business are personally responsible for all the debts of the business. Their personal assets may be used to settle unpaid liabilities.
49
What should a partnership agreement include
1. Share of residual profit
2. Partners salaries
3. Partners authority
50
Difference between residual profit and profit for the year
Residual profit is remaining profit after profit for the year has been adjusted by the appropriations in accordance with the partnership agreement
51
52
Service vs manufacturing organisations
- services are intangible
- services aren’t separated by production and consumption
- services aren’t perishable, unused capacity cannot be stored for future use
- services don’t result in a transfer of ownership
53
54
Working capital
The balance of inventories, payables, receivables and cash
55
What are short term funds
Working capital and overdrafts
56
What is squeezing trade credit
Shortening credit periods given and using the full credit periods received
57
Shareholders rights
1. To be sent a copy of accounts
2. To receive dividends
3. To require directors to call a general meeting
4. To vote on company affairs
5. To be issued a share certificate within 2 months
58
How many directors must a public company have
2
59
Partners in LLPs will only be liable for…
The amount of capital they put into the LLP
60
What is goodwill
The amount by which the market value of the net assets of the partnership exceeds the carrying amount of the net assets
61
When a new partner joins a partnership are they entitled to goodwill created previously?
No
62
Agreement of novation
a three-party contract that replaces an old contract with a new one, substituting an original party (outgoing) with a new party (incoming), who takes on all rights and duties
63
Agreement of demnity
Where continuing partners agree to reimburse retiring partners for any claims made due to partnership debts after the date of retirement
64
Who is a stakeholder?
An individual or group who has an interest in what the organisation does
65
What are the 3 types of stakeholder:
1. Internal
2. Connected
3. External
66
What is a connected stakeholder
Someone who has invested in or has dealings with the firm
67
What is an external stakeholder
Someone with no direct link to the firm eg trade unions and local community
68
Is a shareholder an internal stakeholder or connected stakeholder
Connected
69
What are primary stakeholders
Those that have a contractual relationship with the firm. Any stakeholder that falls into connected or internal categories.
70
Common stakeholder conflicts
Employees vs managers (wages vs profit bonus)
Customers vs shareholders
Public vs shareholders (environment)
71
What model can an organisation use if they are having trouble deciding who the dominant stakeholder is?
Mendelow’s power interest matrix
72
Risk averse stakeholders definition
Aim for the best possible outcome in the worst case scenario
73
Risk seeking stakeholders definition
Aim for the best possible outcome in the best case scenario
74
Risk neutral stakeholders
Ignore the range of outcomes and aim for the highest average outcome
75
Who is likely to have an entrepreneurial structure?
Small businesses in early stages of development
76
What is an entrepreneurial structure
The entrepreneur makes all major decisions.
77
Pros of entrepreneurial structure
Fast decision making
Good control
Responsive to market
78
Cons of entrepreneurial structure
Lack of career structure
Dependent on capabilities of owner
Can’t cope with growth of company
79
What is a functional structure.
When organisations group together employees that undertake similar tasks into departments
80
Pros of functional structure
Economies of scale
Career opportunities
Specialisation
81
Cons of functional structure
Slow - complex communication
Principal agent problem
Conflicts between departments
82
Are shareholders invited to board meetings
No
83
Can written resolutions be proposed by directors
Yes
84
Empire building definition
Empire building is when managers expand their department’s power, staff, or budget to increase their own influence rather than to benefit the organization.
85
What is divisional structure?
Where a company is split into semi‑autonomous divisions—usually based on products, services, or geographic regions—each with its own departments (like marketing, finance, and operations).
86
Shared service approach definition
when a business centralizes common support functions—like HR, IT, finance, or payroll—into one unit that serves all departments or divisions instead of each having their own separate team
87
Pros of divisional structure
Enables growth
Clear responsibility
Easily adapted for diversification
Reduces overload on top management and gives faster decision making for divisional managers
88
Cons of divisional structure
Potential loss of control
Duplication
Loss of goal congruence
Diseconomies of scale
89
What is matrix structure
90
Functional vs divisional structure
A functional structure groups employees by specialist department, while a divisional structure groups them by product or region so each division operates like a mini‑business.
91
What is a matrix structure?
Combination of functional and divisional structures
92
What is scalar chain
The line of authority which can be traced from most senior to most junior
93
What is a managers span of control
Number of people for who they are responsible for
94
Tall organisation
Many levels of management
95
A tall organisation has a … span of control
Narrow
96
Decentralised structure
The authority to take decisions is passed down to people at lower levels
97
Factors impacting decentralisation
Ability of employees
Size of organisation
Predictability of environment
Management style
98
Pros of decentralisation
Senior management free to concentrate on strategy
Local decisions due to local expertise
Motivation due to career path
Flexibility
99
Cons of decentralisation
Loss of control
Poor decisions
Duplication of roles = extra costs (more reporting lines)
100
Strategic planning
Making long term decisions for the entire organisation
101
Business planning
Plans for specific departments
102
Operational planning
Short term planning
103
What is risk?
The chance that future events or results may not be as expected
104
Downside risk
The risk that results may be worse than expected.
105
Risk vs uncertainty
Risk is quantifiable (outcomes have possibilities) whereas uncertainty is unquantifiable
106
Why do companies take risks?
To increase financial return
To gain competitive advantage (not accepting risks leads to follow the leader strategy)
107
Business risk
The risk a business fails
108
Market risk
The risk an organisation fails to adapt to changes in the market
109
Environmental risk
The risk that the organisation fails to adapt to changes in its environment
110
Operational risk
Potential losses that might arise in business operations due to inadequate internal processes, people and systems.
111
Cyber risk
Type of operational risk caused by issues with information technology systems.
112
Ransomware
Software that prevents access to data until a ransom is paid
113
Botnets
Networks of computers which are under the control of an attacker
114
Spyware
Designed to spy on the victim
115
Trojans
Legitimate software that secretly contains malicious software
116
Malvertising
Online advertising that has malicious software written into its code
117
Viruses
Malware that spreads through files and data
118
Reputational risk
Risk people will have a negative opinion of an organisation and share it.
119
Financial risk
Risk of change in the financial condition eq price of goods/interest rate
120
Tara framework - risk management
Transfer (to third party eg insurance )
Avoid
Reduce
Accept
121
Pestle acronym
Political
Economic
Social
Technological
Legal
Environmental:
122
How do political factors impact organisations
Political factors impact organisations by shaping the laws, taxes, and government decisions that affect how they operate and how much they cost to run.
123
Key economic influences on an organisation
Interest rates
Exchange rates
Disposable incomes
Business cycles
Inflation
124
How do social factors influence organisations
Attitudes eg protecting environment and inclusivity
Demographics impact aging population
Tastes (determine product range)
125
How do legal factors influence organisations
Employment laws eg minimum wage
Data protection law
Health and safety laws
Consumer protection laws
126
How do environmental factors influence organisations
Protection of natural resources (can reduce land available/make resources more expensive)
Social conscience
127
Economics definition
The study of how society allocates scarce resources which have alternative uses between competing ends
128
Factors causing a shift in demand curve
Price of other goods
Income
Fashion
Population sizes
Advertising
129
Factors affecting supply of a good
Production costs
Indirect taxes
Production efficiencies
130
Monopolistic competition
A business has many different competitors but each offer a slightly differentiated product
131
Oligopoly
Market is controlled by a small number of organisations
132
Barriers to entry
Economies of scale
Capital costs
Brand loyalty
Patents
Predatory pricing (firms setting their prices really low for the short term to avoid new entrants)
133
Factors influencing competition
Availability of info
Location
Barriers to entry
Product features
Number of sellers and buyers in market
134
What are operations
Activities concerned with the acquisition of raw materials, their conversion into finished products and the supply of that finished product to the customer.
135
Which parts of operations does the finance function interact with
Purchasing and production
136
How does finance function interact with purchasing (suppliers)
Establishing credit terms and advising on prices
Makes the payment
Finance consults purchasing on the budget
137
How does the finance function interact with production
Finance calculates production costs using info from production
Works together to establish balance between cost and quality
Finance identifies inefficiencies in production process
138
How does the finance function interact with sales and marketing
Finance sets the budget and monitors the benefit
Finance has an input into pricing
Finance can provide marketing with info on sales volumes for each product
139
What is a KPI
Key performance indicator
- a measurable value that shows how well a person, team, or organization is achieving important objectives.
140
141
How do HR and finance interact
Finance can provide info on employees efficiency and performance to determine if they deserve a bonus etc and whether the added cost will have an equal benefit eg increased motivation.
142
How does the finance function interact with IT?
143
Information systems definition
Refers to the provision and management of information to support the running of an organisation
144
Information technology definition
The hardware that provides the infrastructure to run the information systems
145
Why do organisations need information systems
To capture and generate the info that managers need for planning, control and decision making.
146
How does finance interact with IT?
Identify appropriate KPI’s
Assemble and analyse this data
Give advice based on this.
147
Examples of IT KPI’s
Ticket response rates
Technology downtime
Time saved using new technology
Revenue generated using new technology
148
How do finance and SCM (supply chain management) interact
SCM and finance work closely because finance’s end‑to‑end view shows how supply chain decisions impact cost, cash flow, and profitability. That broad perspective lets finance act as a trusted advisor to help SCM make smarter, more efficient choices.
149
150
What is created under the partnership act 1980
A general partnership
151
According to mendelow the significance of each stakeholder group depends on what two factors
Power
Level of interest
152
153
What are the three roles of the finance function
To plan and forecast
To control, monitor and manage performance
Financial reporting
154
Sustainable development definition
Development that meets the needs of the present without compromising the ability of the future generations
155
What are the three aspects of sustainable performance
Economic - payment of taxes
Social - not exploiting poor countries
Environmental - not emitting greenhouse gases
156
Benefits of acting sustainably (satisfy customer, supply chain and shareholders)
Consumer - prefers businesses which follow sustainable policies
Supply chain - helps suppliers achieve goals
Shareholders - reducing waste boosts efficiency and profits
157
What is corporate social responsibility
The commitment by businesses to behave ethically and contribute to economic development while improving the quality of life of the workforce
158
What is triple bottom line reporting
a framework that measures a company’s performance in three areas instead of just profit. It expands the traditional “bottom line” to include social and environmental impact alongside financial results.
159
How does including sustainability in risk management process help?
Including sustainability in the risk management process helps organisations anticipate long‑term environmental and social threats
160
Ethics definition
The moral principles which govern a persons behaviour
161
Pros of ethics
Avoid fines
Improved reputation
Attracts customers
Reduces costs
162
Cons of ethics
Increase costs ( raw materials from ethical sources)
Lose profit
163
Principles based approach
A principles‑based approach sets broad, flexible standards that focus on achieving the right outcomes rather than following strict, detailed rules.
164
Self interest threat
When personal gain influences professional judgement
165
Self review threat
Reviewing your own past work can compromise objectivity
166
Advocacy threat
Overly defending a clients position may bias your judgement
167
Familiarity threat
Long standing relationships may to lead to unchecked trust
168
Intimidation threat
Pressure from other may deter fair decision making
169
Businesses often incorporate … principles into their own ethical codes
International federation of accountants
170
How do you deal with ethical conflicts
Clarify the situation
Analyse - have laws/principles been broken
Take action
171
Money laundering definition
Process of exchanging criminally obtained money for clean money
172
3 stages of money laundering
Placement - criminal cash is deposited into banks
Layering - cash is disguised by passing it through complex transactions
Integration - ‘clean’ money is reintroduced into the legitimate economy (invested)
173
Max penalty for failing to report money laundering is …
5 years imprisonment
174
An anti money laundering program should incorporate.
Money laundering risk assessment
Appointment of a money laundering reporting officer
Reporting procedures
175
Where the MLRO does suspect money laundering, the info must be disclosed in a …
Suspicious activity report
176
What info is included on a SAR
Suspects personal info + identification seen
Nature of activities giving rise to suspicion
Another other relevant info eg location of laundered property
177
Protected disclosure
The person raising the concern is protected against allegations of breach of confidentiality
178
Where do the SARs go to
National crime agency
179
What is the max penalty for tipping off a money laundering offender?
2 years imprisonment
180
What is customer due diligence
Checking a customers identity and understanding their activities
181
If an organisation has a turnover of less than …. They may be exempt from applying the full money launderingundering regulationstions
100k
182
What are the 3 elements of CDD for new clients
Verifying clients identification
Identifying beneficial owners
Gather info on purpose and nature of businessness
183
Whistleblowing
Whistleblowing is when someone reports wrongdoing or illegal behaviour inside an organisation to someone who can take action.
184
Examples of AI impacting the finance function
Using predictive models to forecast revenue
Recommend supplier discounts
Improve fraud detection
185
Limitations of AI in accounting systems:
Challenges in integrating AI systems
Not suitable for all problems/tasks
Relies on having sufficient data of high quality
Repeats biases of data
186
What is a blockchain
A blockchain is a digital ledger that records transactions across many computers so the data becomes very difficult to change.
187
In a blockchain, who records the transactions
Everyone involved
188
When a new block is added to the blockchain, it is linked to the previous block using a …
Cryptographic hash
189
What is a cryptographic hash
Something that turns data into a format that can only be read by authorised users
190
Benefits of electronic filing of documents
Reliable backup
24/7 access
Increased productivity
Enhanced customer service
191
Cons of electronic filing of documents
Set up cost
Need to keep software up to date
Risk of data breaches
192
Non repudiation
Proof that someone really carried out an action and cannot later deny it
193
What is the public interest disclosure act
It protects workers who report wrongdoing by giving them legal protection against being dismissed or treated unfairly for whistleblowing.
194
3 steps of data analytics
Collect data
Organise data
Analyse data
195
Offshoring
Relocating some of an organisations functions from one country to another
196
Pros and cons of offshoring
Reduces costs but there can be language barriers
197
Outsourcing
Contracting out aspects of the work of the organisation previously done in house to specialist providers
198
Pros of outsourcing
Improved productivity (experts may use automation)
Frees staff to focus on key business functions
Cost savings
199
Cons of outsourcing
Increased costs
Loss of control
Security concerns
Dependency
200
Cloud computing
Cloud computing is the delivery of computing services over the internet, allowing data to be stored, managed, and processed on remote servers instead of local devices.
201
Public cloud vs private cloud
A public cloud is shared online infrastructure used by many organisations, while a private cloud is dedicated cloud infrastructure used by a single organisation only.
202
Pros of cloud computing
Lower costs
Accessibility
Scalability
Disaster recovery
203
Cons of cloud computing
Security concerns
Less control
Long term cost
204
Cloud accounting
A system whereby users subscribe to an online accounting software which holds accounts data remotely.
205
GDPR stands for
General data protection regulation
206
EU maximum fines if an organisation fails to comply with GDPR
The higher of 20 milllion or 4% of annual turnover
207
UK maximum fines if an organisation fails to comply with GDPR
The higher of 17.5 million or 4% of global turnover
208
Within how many hours should you report a data protection breach
72 hours
209
Should records be kept of data breaches if neither authorities or the individuals concern is required?
Yes
210
Integrity controls
The safeguards that ensure data is protected and accurate
211
Types of integrity controls
Input validation
Backup and recovery
Audit trails (record of changes)
Authorisation controls
212
What is phishing
When criminals craft emails to fool a target into taking harmful action.
213
Denial of service
When hackers stop an online service from working properly by sending so much traffic to a website, making it unavailable to everybody.
214
Man in the middle cyber attacks definition
When attackers impose themselves secretly between the user and a web service they are trying to access
215
Characteristics of good info
Accurate
Complete
Cost effective
Understandable
Relevant
Accessible
Timely
Easy to use
216
Characteristics of management control
Concerned with the effective use of resources to achieve targets set at strategic planning
217
Characteristics of executive information systems
For senior executives at strategic level
User friendly (summaries and visual reports) of external and internal info
218
Characteristics of decision support system
Aids management decisions at tactical level (medium term)
System predicts consequences by modelling scenarios
219
What is an expert system
It’s an AI program that holds specialist knowledge to assist in decision making at operational level
220
Big data
A collection of data which is so large it becomes difficult to store and process
221
Big data characteristics (fives V’s)
Velocity - data is streaming from sources (eg social media) constantly
Volume
Variety - range of formats
Veracity - reliability of the data
Value - usefulness
222
Big data pros
Gain competitive advantage
Improve productivity
Better decision making
223
Big data cons
High costs
Security risks - big data is attractive for cyberattacks
Data quality issues
Complex to manage
224
What is the big data pyramid?
model that shows how raw data is transformed step‑by‑step into meaningful insights and decisions
Data to info to knowledge to wisdom
Value increases as you move up the pyramid
225
What is a matrix table
A table that arranges information in rows and columns so you can compare two or more related sets of data at the same time.
226
What is an area chart
An area chart is a type of graph that shows how a value changes over time, with the space under the line filled in to highlight the size of the change.
227
What are dashboards
A dashboard is a visual display that brings together key information, metrics, and data in one place so managers can monitor performance and make quick decisions.
228
Pros of dashboards
User friendly
Live data
Better and quicker decision making
Fresh insights
Allows for data to have further layers underneath
229
Cons of dashboards
The performance indicators may be distorted by data outliers
AAT Level 3
flashcards
Decks in class (4)
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