ACCA FIA - Accountant in Business (AB) - Teaching Slides - 2019

Foundations in Accountancy / ACCA
Accountant in Business (FAB/AB)

For exams between 1 September 2019 and 31 August 2020
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Key to icons
Syllabus Case study
Technical content Real world example
Question to consider Diagram
Answer Key model
Past exam question Tackling the exam
Answer to past exam Summary

question
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Where does AB fit into the ACCA qualification?
AB provides a foundation for later studies eg:

• Role of accounting – FR and audit
• Control and fraud – audit and professional accountant
• Business environment/economics – business
analysis, finance
• Management and HR – business analysis
• Employment, corporate governance, data
protection, H&S – law and professional accountant
• Ethics – professional accountant and audit
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Syllabus
The business organisation, its stakeholders and the external

A
environment
B Business organisational structure, functions and governance
C Accounting and reporting systems, controls and compliance
D Leading and managing individuals and teams
E Personal effectiveness and communication
F Professional ethics in accounting and business
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Exam format
AB is a two-hour exam
Number of marks
16 × 1 mark objective test questions 16
30 × 2 mark objective test questions 60
6 × 4 mark multiple task questions 24
100
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Exam format – CBE
The question types in the CBE are:
• Multiple choice – choose one answer from 4 options
• Multiple response – select more than one response by clicking the

appropriate tick boxes
• Multiple response matching – select a response to a number of related

statements by choosing one option from a number of drop down menus
• Number entry – key in a numerical response to a question
• Multiple task questions – a series of short questions related to one scenario.

Question formats could include: number entry, drop down lists, multiple
choice, multiple response and hotspots.
It is important to practice all types of questions.
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Tackling the exam
The syllabus for this exam is very broad, which means you need to ensure that
you have a good knowledge of all areas. You can do this by:
• Ensuring that you study all areas of the syllabus

• Practice questions to time (1.2 minutes per mark)
• Practice mixed banks of questions
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Resources available
In addition to your Study Text and Practice & Revision kit you should ensure
that you make use of the following resources:
• Examining team articles – Student Accountant archives

• Examining team reports – ACCA website, explaining common pitfalls and
mistakes made by students
• Specimen exam – the specimen exam for FAB/AB can be found here
https://www.accaglobal.com/uk/en/student/exam-support-resources/funda
mentals-exams-study-resources/f1/pilot-papers.html
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4 key skills to pass AB
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Skill 1
Skill 1 – Learning and understanding the syllabus

content
• AB has a broad syllabus and all questions are
compulsory. This means that it is essential that you
have a broad but detailed knowledge of the syllabus.
Type of knowledge:
1. Practical application – apply knowledge to
straightforward scenarios
2. Theoretical knowledge – knowing the name, content
and purpose of models and theories
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Skill 2
Skill 2 – Time management

• It is important to use your time wisely in the exam to
gain maximum marks
• Don't panic – but stick to 1.2 minutes per mark
• Section A – 90 minutes
• Section B – 30 minutes
• If answer is not obvious, move on and come back if
there is time left
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Skill 3
Skill 3 – Tackling objective test questions (section A)

These are the questions where 1 of 4 options is correct
If you think you know the answer:
1. Read the requirement
2. Locate the correct answer
3. Check the other answers
4. Read the requirement again to ensure you're answering
the correct question
5. Confirm that you have the correct answer
This systematic check will ensure that you do not
throw away marks when you know the answer.
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Skill 3 (cont'd)
Skill 3 – Tackling objective test questions (section A)

If more than one answer appears plausible
1. Read the requirement very carefully
2. Read each option carefully and eliminate any obviously
wrong answers
3. Check the other answers
4. Assess the remaining answers
5. Read the question again and make a decision
If you still don't know, guess – never leave a question
unanswered. You've got a 25% chance of being right!
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Skill 4
Skill 4 – Tackling multi-task questions (section B)

• You don't have to attempt the questions in order as the
answer for one part will not be required for subsequent
parts
• Use the same approach as for OT questions
• Don't be daunted by the volume of information. The
technical knowledge required is similar
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Syllabus Area A
Syllabus Area: The business organisation, its

stakeholders and the external environment
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Chapter 1 • Characteristics of
organisations
Business organisations • Profit v not-for-profit

organisations
and their stakeholders
• Private sector
• Limited companies
• Private v public sector
• Ownership v control
• Private Ltd v Public Limited
companies
• Public sector
• NGOs
• Stakeholders
• Mendelow's power interest
matrix
• Power of stakeholders
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Syllabus learning outcomes
• Purpose of business organisations

• Types of business organisation
• Stakeholder goals and objectives
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What all organisations have in common
An organisation is a ‘social arrangement which pursues

collective goals, which controls its own performance and
which has a boundary separating it from its environment’.
Boundaries can be physical or social.
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Example of different types of organisations
Type Example
Commercial Sinopec
NFP Olympic committee
Public sector Fire service
Charity Save the Children
Trade union All-China Federation of Trade
Unions (ACFTU)
NGOs UNICEF
Accountancy firm KPMG
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Common characteristics of organisations
• Preoccupied with performance and meeting or improving

their standards
• Organisations contain formal, documented systems and
procedures which enable them to control what they do
• Different people do different things, or specialise in one
activity
• They pursue a variety of objectives and goals
• Most organisations obtain inputs (eg materials) and
process them into outputs (eg for others to buy)
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Why do organisations exist?
Organisations can achieve results which individuals cannot

achieve by themselves. Organisations:
• Overcome people's individual limitations, whether
physical or intellectual
• Enable people to specialise
• Save time, because people can work together or do two
aspects of a different task at the same time
• Accumulate and share knowledge
• Enable synergy
Organisations enable people to be more productive.
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How organisations differ
Difference Explanation
Ownership Private sector organisations are owned by
shareholders, whereas public sector organisations are
owned by the government
Control Some businesses are controlled by their owners, but
many are controlled by people working on their behalf.
Some are controlled by regulators or the state
Activity Enormous variety – from farming, to manufacturing to
healthcare services
Profit or non-profit Most businesses exist to make a profit, others to
orientation provide a service (eg the Army)
Legal status Limited companies v partnerships
Size Family business v multinational corporation
Sources of finance Debt v equity
Technology Use of technology will vary depending on type of
company
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What the organisation does
Industry Activity
Agriculture Producing and processing food
Manufacturing Acquiring raw materials and, by the application of
labour and technology, turning them into a product
(eg car)
Extractive/raw Extracting and refining raw materials (eg mining)
materials
Energy Converting resources (eg coal) into another
(eg electricity)
Retailing/distribution Delivering goods to the end consumer
Intellectual production Producing intellectual property eg software,
publishing, films, music etc
Service industries Including retailing, distribution, transport, banking,
accountancy, advertising, education, medicine etc
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Profit v not-for-profit organisations
The main difference is in the primary goals and the

secondary goals that support it.
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Private sector commercial business organisations
Remember profit is the driving force, but there is a choice of

legal structure.
Sole trader Partnership Limited company
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Limited companies
• A limited company has a separate legal personality from its

owners (shareholders).
• Shareholders cannot normally be sued for the debts of the
business.
• Their liability is limited to the amount they have invested.
This is called limited liability.
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Private v public sector
Private sector – organisations not owned or run by central

or local government or government agencies
Public sector – organisations owned or run by central or

local government or government agencies
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Ownership v control
Ownership v control
Limited company
Directors run company on

Shareholders = owners behalf of shareholders
Provide capital & receive
return (dividends)
Limited control over
running of company
Executive Non-executive
directors – run directors –
daily provide advice
operations to board
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Private Ltd v Public Limited companies
Differences Private Limited Public Limited Companies
Companies
Name X Limited X plc
Number of Limited market – sale Large range
shareholders requires consent of
shareholders
Transferability of Common that directors Can be sold to general
shares will hold some/majority of public – often traded on
shares stock exchange
Directors as Founder May hold some shares only
shareholders Family & friends
Venture capitalists
Sources of capital Limited market – sale Same as private co, but
requires consent of also via institutional
shareholders investors and public issues
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Life of a company
Funds raised from family/friends
Start as small family

Need more funds for
business (private Growth
further expansion
company)
Funds raised from

unconnected investors
Expand further and

Growth
achieve advantages
Become a PLC
of a large scale
operation
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Advantages of limited companies
• More money available for investment

• Reduced risk for investors (due to limited liability)
• Separate legal personality (can own property, make
contracts etc)
• Ownership is legally separate from control (investors do
not have to get involved in operations)
• No restrictions on size (some companies have millions of
shareholders)
• Flexibility (brings together capital and enterprise)
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Disadvantages of limited companies
• Legal compliance cost – financial statements must be

audited and published
• Shareholders have little practical power – other than to
sell their shares or vote to sack the directors
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Sinopec
• http://english.sinopec.com/investor_center/ir/Fact_Sheet.s
html
• Listed on Shanghai, Hong Kong and NYSE
• Approx 117,730 million of shares in issue
• Generated net profit 46.47 billion yuan in 2014
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Public sector
• Comprises all organisations owned and run by the

government and local government.
Examples:
• Armed forces
• Schools and universities
• Government departments
• Public services eg street lighting, fire service, police
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Key characteristics of the public sector
• Accountability – ultimately to government

• Funding – raised in three main ways:
1. Raising taxes
2. Making charges
3. Borrowing
• Demand for services – in private sector this will be
determined by price, in public sector demand for services
is practically limitless
• Limited resources – despite huge demand, constraints on
government expenditure mean that resources are limited
and demand cannot always be met
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Advantages of public sector
• Fairness – ensures that everyone has access to services,

regardless of their ability to pay
• Filling the gaps left by the private sectors, eg by providing
public goods like street lighting
• Public interest – can be better served if the state provides
services
• Economies of scale – centralised purchasing power
• Cheaper finance – government backed borrowing is often
cheaper than commercial borrowing rates
• Efficiency – sometimes the public sector is more efficient
than the private sector
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Disadvantages of public sector
• Accountability – inefficiency may be ignored as taxpayers

bear losses
• Interference – politicians may not be familiar with the
operation of a business but still have influence over
decision making processes
• Cost – conflict between economy of operation and
adequacy of service, providing a near perfect service will
be prohibitively expensive
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Non-governmental organisations
Key facts:
• Bodies not directly linked to national government
• No commercial aim
• Social, political or environmental change as its aim
• Not necessarily charities
• Not political parties, despite sometimes having political
aims
• Raise funds and resources (donations, volunteer labour)
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Organisational features of NGOs
• Staffing by volunteers as well as full time paid employees

• Finance from grants or contracts
• Skills in advertising and media relations
• Some kind of national “headquarters”
• Planning and budgeting expertise
• In other words, an efficient level of organisation structure
similar to commercial organisations
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UNICEF
• Carries out work in over 150 countries

• Aims to tackle preventable child deaths
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Co-operative societies and mutual associations
Co-operatives are businesses owned by their workers or

customers, who share the profits.
Common features:
• Open membership
• Democratic control (one member, one vote)
• Distribution of surplus in proportion to purchases
• Promotion of education
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Co-operative
• Provides a range of services

• Owned by 7.2 members (not shareholders)
• http://www.co-operative.coop/about-us/
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Mutual associations
Similar to co-operatives as they are ‘owned’ by members

rather than outside investors.
Credit unions are examples of mutual associations – these

are financial institutions owned and controlled by their
members.
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Stakeholders
Stakeholders are those individuals or groups that, potentially,

have an interest in what the organisation does.
Types:
Internal stakeholders (employees, management)
Connected stakeholders (shareholders, customers,
suppliers, financiers)
External stakeholders (the community, government and
pressure groups)
ICE
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Stakeholders and contractual relationship
Stakeholders can also be classified according to whether

they have a contractual relationship with the organisation.
Does a contractual relationship exist?
Yes No
Primary stakeholder Secondary stakeholder
Internal & Connected External
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Conflict
Conflict can arise between the wants of different stakeholder

groups. For example:
• Shareholder – share price and dividends, through
growing profits
• Directors – bonuses/salaries
• Employees – salary
• Customers – prices
• Suppliers – prices
• Government – taxes and employment
Compromise may be needed to keep all stakeholders happy.
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Supermarket conflict
• Customers want lower prices.

• Employees want higher wages.
• Farmers want higher prices for goods.
• Shareholders want the opposite.
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Mendelow's power interest matrix 1
• Positions stakeholder on a matrix according to the:

1. Power held
2. Likelihood of showing an interest in the organisation's
activities
1+2 = type of relationship
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Mendelow's power interest matrix 2
• D = Key players – strategy must at least be acceptable to

them. These stakeholders may even participate in
decision-making
• C = Keep satisfied – these stakeholders must be treated
with care. Will often be passive, but they are capable of
moving into segment D
• B = Keep informed – these stakeholders
do not have a great ability to influence
strategy, but their view can affect more
powerful stakeholders, eg via lobbying
• A = minimal effort needed here
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Significance of stakeholder groups
• A single stakeholder map is unlikely to be appropriate for

all circumstances – groups can move, especially as new
strategies are considered
Implications for the organisation:
• Corporate governance framework should recognise
stakeholders' levels of interest and power
• Sometimes seek to reposition stakeholders
• Identify key blockers and facilitators of change
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Choices for stakeholders who are not happy
1. Loyalty – do as they are told

2. Exit – eg sell their shares, get a new job
3. Voice – try to change the system
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Exam focus point
In an exam question, you might have to:

• Identify the stakeholder in the situation, or
• Identify what their particular interests are
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Strategic value of stakeholders
The firm can make strategic gains from managing

stakeholder relationships. Studies have revealed the
following correlations:
• Correlation between employee turnover and customer
loyalty (eg reduced staff turnover in service firms
generally results in more repeat business)
• Continuity and stability in relationships with employees,
customers and suppliers is important in enabling
organisations to respond to certain types of change
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Measuring stakeholder satisfaction
• This is hard to do, as many expectations relate to

qualitative rather than quantitative matters.
Stakeholder group Measure
Employees Staff turnover; pay and benefits relative to market
rate; job vacancies
Government Pollution measures; promptness of filing annual
returns; accident rate; energy efficiency
Distributors Share of joint promotions paid for; rate of running
out of inventory
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Specimen exam 1
In order to ensure that the policies of an organisation are

consistent with the public interest, on which of the following
should the directors of a company focus?
A. The long-term welfare of shareholders

B. Compliance with legal requirements and codes of
governance
C. The collective well-being of stakeholders
(1 mark)
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Specimen exam 1 Solution
Answer: C
The board of directors are responsible for the well being of a

wide group of constituencies, including shareholders, but
also employees and other internal, external and connected
stakeholders.
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Specimen exam 2
The following are stakeholders of a business organisation:

1. Managers
2. Customers
3. Executive Directors
4. Suppliers
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Specimen exam 2 (cont'd)
Which of the above are connected stakeholders?

A. 1, 2 and 3
B. 2 and 4
C. 2 and 3
D. 3 and 4
(2 marks)
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Specimen exam Solution
Answer: B
Customers and suppliers deal closely on a transactional

basis with the organisation, but are not internal stakeholders
like managers and executive directors.
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Specimen exam 3
The following are either characteristics of a co-operative or

of a public limited company.
1. Maximising the excess of income over expenditure not a
primary objective
2. Members can vote according to the number of shares
owned
3. Shares can be bought and sold through personal
transactions of the members
4. All members are invited to attend the annual general
meeting and participate in decisions at the meeting
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Which of the above are the characteristics of public limited

companies?
A. 2, 3 and 4
B. 2 and 3 only
C. 2 and 4 only
D. 1 and 4 only
(2 marks)
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Answer: B
Only shareholders have voting power related to the number

of shares that they own. Members of a co-operative
organisation can vote but will only have one vote. Co-
operatives may be owned by members, but ownership
stakes cannot be exchanged between members unless the
members belong to limited companies.
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Specimen exam – Section B
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Specimen exam – Section B Solution
4 (a) ½ mark per correct answer

• Donna & Dietmar = connected
• Management committee = internal
• Building companies = connected
• Local residents = external
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Question
(b) Complete the following sentences about Sport-4-kidz stakeholders, with

reference to Mendelow’s grid.
The local residents exert 1 and should be 2
(i) Select which ONE of the following fills Gap 1:
A high power, low interest
B high power, high interest
C low power, low interest
D low power, high interest
Write down A, B, C or D
(ii) Select which ONE of the following fills Gap 2:
A treated as a key player
B kept satisfied
C kept informed
Write down A, B, C or D
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Solution
Answer to (i) is D and answer to (ii) is C
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Question
The government charity regulator exerts 3 and should be 4

(iii) Select which ONE of the following fills Gap 3:
A high power, low interest
B high power, high interest
C low power, low interest
D low power, high interest
Write down A, B, C, or D.
(iv) Select which ONE of the following fills Gap 4:
A treated as a key player
B kept satisfied
C kept informed
Write down A, B, or C.
Note: The total marks will be split equally between each part. (2 marks)
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Solution
Answer to (iii) is B and answer to (iv) is A
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Article
• Not for profit organisations – part 1

• Not for profit organisations – part 2
http://www.accaglobal.com/gb/en/student/acca-qual-student-j
ourney/qual-resource/acca-qualification/f5/technical-articles/
NFP-organisations.html
NFP-org-pt2.html
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Chapter 1 – Summary 1
Business and organisation

structure
Categories of
Definitions
organisations
• Commercial • Private
• Not for profit • Public
• Public sector • Limited
• Charities • PLC
• Trade unions
• Local authorities
• Non-government
organisations
(NGOs)
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Interests/Power Stakeholders
Mendelow's Categorisation
Matrix
Level of interest
Low High ICE
Internal
High Low
A B
Power
Connected
External
C D
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Chapter 2 • Analysing the business
environment
The business • Johnson & Scholes' approach

to environmental analysis
environment
• The organisation and its
environment
• Analysing uncertainty
• PESTEL analysis
• Key legislation
• Span of control
• Outsourcing
• SWOT analysis
• External appraisal
• Value chain
• Value network
• Porter's Five Forces
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• Political and legal factors affecting business

• Social and demographic factors
• Technological factors (including on the role of the
accountant)
• Environmental factors
• Competitive factors
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Analysing the business environment
• Whatever the overall strategic management method used,

no organisation is likely to achieve its aims if it fails to take
into account the characteristics of the environment in
which it operates.
• The environment is everything that surrounds an
organisation, physically and socially.
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Johnson & Scholes' approach to environmental analysis
Step Process
1 Assess the nature of the environment – is it changing?
2 Identify those influences which have affected the
organisation in the past or which are likely to do so in the
future
3 Prepare a structural analysis identifying the “key forces at
work in the immediate or competitive environment”
Once factors have been identified, ask the following questions:
4 What is the organisation's position in relation to other
organisations?
5 What threats and/or opportunities are posed by the
environment?
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Examining the environment
1. Global/local – some organisations operate worldwide, but
they still have to be sensitive to local conditions. The
amount of exposure to global competition varies from
company to company
2. General/task – split between general (macro)

environment and task (micro) environment.
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The organisation and its environment
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Analysing uncertainty
The amount of uncertainty in the environment can be

assessed by considering simplicity/complexity and
stability/dynamism.
• Simple – few environmental influences and stable: low
uncertainty
• Complex and stable: low to moderate uncertainty
• Simple and unstable: moderate to high uncertainty
• Complex and unstable: high uncertainty
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The changing environment
• Globalisation
• Science and technology (developments in
communications, eg internet and air travel)
• Mergers, acquisitions and strategic alliances
• Increased scrutiny of business decisions, by public and
government
• Increased liberalisation of trade
• Changes in business practices (downsizing, outsourcing
and re-engineering)
• Changes in social and business relationships between
companies and their employees, customers and other
stakeholders
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PESTEL analysis
Framework for generating ideas about the factors influencing

the environment:
Political
Economic
Social
Technological
Environmental
Legal
PESTEL
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Political environment
The political factors impacting on the environment include:

• Degree of government intervention
• Policy direction
• Political risk/stability
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Impact of government
• Porter identified several ways in which the government can

directly affect the economic structure of an industry.
How?
Capacity expansion Tax incentives – eg capital allowances
Location incentives/grants
Demand Customer – eg infrastructure projects
Legislation or tax relief
Emerging industries Promoted or damaged by govt
Entry barriers Quotas/tariffs
Competition Purchasing decisions
Regulations & controls
Infrastructure
Mergers legislation
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International trade
Extra treaties and agreements exist at an international trade

level.
European Union World Trade

(EU) Influences on Organisation
international (WTO)
trade
Organisation for
Economic
Co-operation and
Development
(OECD)
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Legal environment
The legal framework in which organisations operate derives

from:
• Parliamentary legislation
• Government regulations
• Treaty obligations
• Official regulations
• International bodies
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Key legislation
Key legislation for organisations may include:
• Employment law
• Health & safety
• Data protection
• Consumer protection
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Legal framework for employees
Employees in many countries are protected by a range of

laws including the following areas:
• Termination of employment
• Health & safety in the workplace
• Recruitment
• Equal opportunities
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Termination of employment
Employees are afforded a great deal of legal protection in

many countries, meaning that termination of employment
must be treated with great care.
Reasons for termination of employment:
• Retirement
• Resignation
• Dismissal
• Redundancy
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Dismissal
Types of dismissal
Wrongful dismissal Unfair dismissal

Where the employee has Where the employee has
been dismissed and the been dismissed for an
employer has breached arbitrary reason the onus
the terms of the contract is on the employer to
prove that it was a fair
dismissal
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Data protection and security
Privacy – the right of the individual to control the use of

information about him or her, including information on
financial status, health and lifestyle (ie prevent unauthorised
disclosure)
The (UK) Data Protection Act 2018 protects individuals

about whom data is held. Both manual and computerised
information must comply with the Act.
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Reasons for concern about data protection
Fear that information could be misused because

computerised data could be transferred to third parties at
high speed and little cost.
The key risks affecting data are:

• Human error
• Technical malfunction
• Deliberate/malicious action
• Hacking
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Data protection principles
• Personal data – information about a living individual,

including expressions of opinion about him or her. Data
about other organisations is not personal data.
• Data users – organisations or individuals who control the
contents of files of personal data which is processed
automatically
• Data subject – an individual who is the subject of personal
data
• Data controllers determine the purpose and means of
processing personal data.
• Data processors are responsible for processing personal
data on behalf of a controller.
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Principles of data protection
The UK Data Protection Act includes six Data Protection

Principles with which data users must comply.
• Lawfulness, fairness and transparency
• Purpose limitation
• Data minimisation
• Accuracy
• Storage limitation
• Integrity and confidentiality (security)
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Health & safety
Both employees and employers have a duty to maintain

health and safety standards at work for the following
reasons:
• To meet legal obligations
• To minimise the risk of accidents
• To minimise the risk of litigation
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Employees' duties over health & safety
• Take care of themselves and others

• Do not interfere with machinery
• Use all equipment properly
• Inform employer of any potentially dangerous situations
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Health & safety policy
Many employers have a health and safety policy which

details:
• Statement of principles
• Detail of safety procedures
• Compliance with the law
• Instructions on equipment use
• Training requirements
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Office life
Note down anything that strikes you as dangerous and

allocate responsibilities between employer and employee.
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Office life
• Frayed carpets
• Trailing leads, telephone cable and other wires
• Obstacles (boxes, files, open drawers) in gangways
• Standing on swivel chairs
• Lifting heavy items without bending properly
• Slippery or uneven floors
Employers are responsible for ensuring a safe working

environment and employees are responsible for using
equipment safely and reporting any breaches of health and
safety
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What is a contract?
A contract is a legally binding agreement. It must have three

elements to be legally enforceable:
1. Consideration – normally money offered (eg for an
employment contract), but could be a cow, bag of rice or
promise of a service in a case of bartering
2. Offer and acceptance – there must be an offer and
acceptance by the two parties
3. Intention to enter into a legally binding contract –
written or verbal
BPP LEARNING MEDIA

TV purchase
Consider going shopping and coming across a television in

the window of an electrical shop, with a sign saying it costs
$3000. What are the three elements forming a contact which
take place during the transaction?
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TV purchase (cont'd)
Consideration The TV and the customer's money
Offer & acceptance Taking the TV to the till and the store
asking the customer to pay $3000 and
the customer paying the $3000
Intention Unwritten agreement formed when you

take the TV to the till
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Social and demographic trends
Organisations are affected by social and demographic

factors in several ways:
• Labour force – managing HR
• Customers – marketing products which match people's
needs
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Population and the labour market
Education/skills Birth rates/life

available expectancy
Factors affecting the

labour market
Other sources
Demand from other
employers
Organisations will need proper resourcing strategies to make sure their
demand for labour is properly met.
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Demographic variables
The stage of the family lifecycle (FLC) will affect the type of
products which can be marketed to people. It considers
factors such as:
• Age
• Martial status
• Career status & income
• Presence/absence of children
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Cultural trends – health and diet
There have been significant changes in some countries in

attitudes to diet and health:
• Growing market for sports-related goods
• Employee health – employers are concerned with the
effect of ill-health on productivity
• New foods – health food and supplements market has
grown, as has demand for convenience food and organic
food
• Demand for green food production
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Span of control
• Span of control = number of subordinates responsible to a

superior.
• Delayering = removing middle management as a result of
increasing automation and rationalisation
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Factors
Span of control depends on a number of factors:

• Ability of the manager
• Ability of the subordinates
• Nature of the task
• Geographical dispersal of subordinates
• Availability of good quality information to assist decision
making
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Tall and flat example
Stuffy Ltd 1:4 mgmt ratio Chilled-out Ltd 1:16 mgmt ratio
1 MD
1 MD
4
16 16
64 5,460 mgrs 256
256 21,844 mgrs
4,096
1,024
4,096 65,536
16,384
65,536 workers
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Technology and the role of the accountant
• Routine processing (bigger volumes, greater speed,

greater accuracy)
• Digital information and record keeping
• New skills required and new ways of working
• Reliance on IT
• New methods of communication and of providing customer
service
• Interoperability (encourages collaboration across
organisation boundaries) and open systems
• The view of information as a valuable resource
• The view of information as a commodity which can be
bought, sold or exchanged ('information market')
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Outsourcing 1
• Outsourcing is the contracting out of specified operations of

services to an external vendor.
Types of IT outsourcing
Classification Description Example
Ad-hoc Organisation has a short- Employing programmers to
term requirement for a help programme bespoke
skill/service software
Project management Development and installation Accounting system

of a system
Partial Some services are IT hardware maintenance
outsourced
Total An external third party A third party owns and is
provides the majority of the responsible for the IT function
services
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Outsourcing 2
Advantages Disadvantages
Cost savings Loss of control
Access to expertise Impact on quality
Releases capital How flexible, reliable is supplier?
Frees up capacity Potential loss of confidential information
Loss of in house skill
Impact on employees' morale
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Outsourcing 3
• British Airways found that they had to ground flights

following a dispute with their catering company.
• A company's reputation is closely linked to any
outsourcer's activities and reliability.
http://news.bbc.co.uk/1/hi/business/4478346.stm
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SWOT analysis
Convert
Strengths Weakness
Match Remedy
Opportunities
Threats
Convert
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External appraisal – opportunities
Opportunities:
• What opportunities exist in the business environment?
• What is their profit making potential?
• Can the organisation exploit the worthwhile opportunities?
• What is the comparative capability profile of competitors?
• What is the company's comparative performance potential
in this field of opportunity?
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External appraisal – threats
Threats:
• What threats might arise to the company or its business
environment?
• How will competition be affected?
• How will the company be affected?
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Restaurant using a SWOT analysis
SWOT
Resource-based strategies
Positioning-based strategies
Which enable the
Identifying which opportunities
organisation to extend the
are available and what the firm
use of its strengths
has to do to exploit them
Eg use award winning chef to
Eg look for a gap or a niche in
promote restaurant
the market, such as pre-theatre
dinners
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Value chain 1
Firm Infrastructure
Human Resource Management
M
A
R
Technology Development
G
IN
Procurement
Service
Marketing
Operations
Outbound
Inbound
Logistics
Logistics
& Sales
IN
G
R
A
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Value chain 2
• Value activities are the means by which a firm creates

value in its products.
• Margin is the excess that the customer is prepared to pay
over the cost to the firm of obtaining resource inputs and
providing value activities. It represents the value created
by the value activities themselves and the management of
linkages between them.
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Chip shop
• A chip shop sells bag of chips for significantly more than

the cost of the potato and oil.
value
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Primary activities
Activity Comment
Inbound Receiving, handling and storing inputs to the production
logistics system: warehousing, transport, inventory control.
Operations Convert resource inputs into a final product. Resource
(production) inputs are not only materials. People are a resource
especially in service industries.
Outbound Storing the product and its distribution to customers:
logistics packaging, testing, delivery.
Marketing and Informing customers about the product, persuading them to
sales buy it, and enabling them to do so: advertising, promotion.
Service Installing products/the act of performing the service for the
client or customer – and all aspects of post-sales service
delivery.
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Secondary activities
Activity Comment
Procurement Acquire the resource inputs to the primary activities (eg
(purchasing) purchase of materials, subcomponents equipment)
Technology Product design, improving processes and/or resource
development utilisation.
Human Recruiting, training, developing and rewarding people.
resource
management
Firm Planning, finance, quality control: Porter believes they are
infrastructure crucially important to an organisation's strategic capability in
all primary activities.
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Value network
Supplier Value Chains Channel Value Chains Customer Value Chains
Firm's Value
Chain
Competitors' Value Chains
• Linkages connect the activities of the value chain and do

not stop at the organisation's boundaries.
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Porter's Five Forces 1
The competitive environment is structured by five forces.
POTENTIAL
ENTRANTS
INDUSTRY
SUPPLIERS BUYERS
COMPETITORS
SUBSTITUTE
INDUSTRIES
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Porter's Five Forces 2
Uses of the model:

• Understand the inherent attractiveness of an industry
• By understanding the impact of each individual force on an
organisation, actions may be taken to mitigate those
forces
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Porter's Five Forces 3 – components
• Buyer power – this depends on switching costs to change

provider, relative size and number of buyers (often low
individually but higher collectively).
• Supplier power – power to increase prices and reduce
quality. This will depend upon monopoly power, switching
costs and relative size of supplier.
• Competition and rivalry – the inherent rivalry in the
industry between existing firms
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Porter's Five Forces 3 – components (cont'd)
• Substitutes – alternative products or services that satisfy

the same customer need
• Potential entrants – threat posed by a new company
trying to penetrate the market place
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Newspaper substitutes
Wide range of substitutes:

• Online news reports
• Free newspapers
• Television news broadcasts
• Social media eg Twitter
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Specimen exam
The overall average population of a country is directly

dependent on two demographic factors: Birth rate and death
rate.
Assuming equal rates of change, which of the following must
lead to an overall ageing of the population?
Birth rate Death rate
A. Rising Rising
B. Falling Rising
C. Rising Falling
D. Falling Falling
(2 marks)
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Answer: D
The ageing population trend is caused by a decreasing birth

rate and a decreasing mortality rate.
BPP LEARNING MEDIA

Specimen exam
Which of the following is data protection legislation primarily

designed to protect?
A. All private individuals and corporate entities on whom only

regulated data is held
B. All private individuals on whom only regulated date is held
C. All private individuals on whom any data is held
(1 mark)
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Answer: B
Data protection legislation is formulated to protect the

interests of data subjects who are private individuals. Not all
data is regulated.
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The business environment
PESTEL
Political Social Environmental
Economic Technology Legal
Data protection; Health and safety; Employment

law; Consumer protection
BPP LEARNING MEDIA

Porter's 5 forces
• Substitutes
• Potential entrants
Value chain
• Buyer power
• Supplier power
• Competition and FIRM INFRASTRUCTURE
rivalry
TECHNOLOGY DEVELOPMENT
M
A
R
ACTIVITIES
SUPPORT
HUMAN RESOURCE MANAGEMENT
G
IN
PROCUREMENT
INBOUND OUTBOUND MARKETING

OPERATIONS & SALES SERVICE
LOGISTICS LOGISTICS
IN
G
R
A
M
PRIMARY ACTIVITIES
BPP LEARNING MEDIA
Chapter 3 • Circular flow of income
• Factors which affect the
The macro-economic economy
environment • Multiplier effect
• Aggregate demand/supply
• Business cycle
• Inflation
• Unemployment
• Economic growth
• State influences over
organisations
• Fiscal policy
• Functions of taxation
• Types of tax
• Monetary policy
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• Balance of payments
The structure and objectives of the economy

Factors which affect the economy
The determination of national income
The business cycle
Inflation and its consequences
Unemployment
The objective of economic growth
Government policies for managing the economy
Fiscal policy
Monetary policy
The balance of payments
BPP LEARNING MEDIA
Definitions
• Macroeconomics is the study of the aggregated effects of

the decisions of individual economic units (such as
households or businesses). It looks at a complete national
economy, or the international economic system as a
whole.
• Macroeconomic policy describes the policies and actions
a government takes to control economic issues including
economic growth, inflation, employment and trade
performance.
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Circular flow of income – no withdrawals
Factor incomes paid by firms
Productive resources
FIRMS HOUSEHOLDS
Goods and services
Expenditure on goods and services
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Withdrawals & injections into the circular flow of income
• Withdrawals – savings, taxation, import expenditure

• Injections – investment, government spending, export income
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Factors which affect the economy
The economy is rarely stable because of the various changing
factors which influence it.
These include:
• Investment levels
• The multiplier effect
• Inflation
• Savings
• Market confidence
• Interest rates
• Exchange rates
Economists use the business cycle to describe the fluctuating
level of activity in the economy.
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Multiplier effect
• An initial increase in expenditure has a snowball effect –

leading to further and further expenditures in the economy.
• For example government spends money building a new
bridge. The contractors (paid by the government) pay their
sub-contractors and suppliers, and all of these firms also
pay their suppliers and staff. The wages are spent in the
local economy fuelling further demand for goods and
services.
• The new bridge may also stimulate new economic
activity, for example opening up a less accessible area.
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Aggregate demand
• Aggregate demand represents the sum of all of the

demand curves for individuals and businesses in a
country.
• Demand rises as prices fall because people can afford
more.
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Aggregate supply
• Aggregate supply refers to the ability of the economy to

produce goods or services.
• Aggregate supply is positively related to the price level
because a price rise will make more profitable sales and
encourage organisations to increase their output.
• Where aggregate demand curve intersects with aggregate
supply curve, the total demand for goods and services in
the economy is equal to the total supply of goods and
services in the economy = equilibrium of national
income.
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Equilibrium national income
Occurs where aggregate demand equals aggregate supply.

There are two possible equilibria:
1. The level of demand exceeds the productive capabilities
of the economy at full employment, and there is
insufficient output capacity in the economy to meet
demand at current prices. This is known as an
inflationary gap.
2. The other is at a level of employment which is below the
full employment level of national income. The difference
between actual national income and full employment
national income is called a deflationary gap. In order to
create full employment expenditure must increase by
the amount of the deflationary gap.
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Business cycle
A – economy is entering recession phases

B – depression phase
C – recovery phase is beginning
D – boom phase
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Recession/depression
In the recession phase:

• Consumer demand/confidence falls
• Investment projects begin to look unprofitable
• Orders are cut, inventory levels are reduced
• Some companies unable to sell their inventories become
insolvent
If during the recession phase there is a lack of stimulus to
aggregate demand a period of depression will set in.
Recession tends to occur quickly, while recovery is typically

a slower process.
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Recovery/boom
Recovery
• Usually slow to begin due to a general lack of confidence
in the economy
• Governments will look to boost demand (using
fiscal/monetary policy)
• Together with confidence, output, income and employment
rise
• Investment flows into the economy
Once the actual output has risen above the trend line, the
boom phase of the cycle is entered.
Governments seek to stabilise the economic system to avoid
the distortions of a widely fluctuating trade cycle.
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Inflation
• Inflation is the name given to an increase in price levels

generally. It can also manifest in a decline in the
purchasing power of money.
• Note that some inflation is a sign of a healthy/growing
economy. It is only high levels of inflation that represent a
problem.
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Why is inflation a problem?
• Redistribution of income and wealth – those with

economic power tend to gain at the expense of the weak
or those on fixed incomes
• Balance of payments effects – exports become
expensive and imports cheap (eventually exchange rate
will alter)
• Uncertainty of the value of money and prices
• Resource costs of changing prices
• Can lead to hyperinflation where money becomes
worthless
• Economic growth and investment is reduced
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Causes of inflation
• Demand pull factors

• Cost push factors
• Import cost factors
• Expectations
• Excessive growth in the money supply
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Unemployment
• The rate of employment in an economy is calculated as:

Number of unemployed
× 100%
Total workforce
• Unemployment is measured via government statistics.
• If the flow of workers through unemployment is constant
then the size of the unemployed labour force will also be
constant.
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Changes in employment
Flows into unemployment are:

• Members of the workforce becoming unemployed
(redundancies, people quitting, lay-offs)
• People previously out of the workforce (school leavers
without a job, carers and others) rejoining the workforce
without a job
Flows out of unemployment are:
• Unemployed people finding jobs
• Laid-off workers being reemployed
• Unemployed people stopping the search for work
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Consequences of unemployment
• Loss of output
• Loss of human capital
• Increasing inequalities in the distribution of income
• Social costs
• Increased burden of welfare payments
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Long term causes of unemployment
Category Comment/cause
Real wage Supply of labour exceeds demand, but real wages do not
unemployment fall for the labour market to clear. This can be caused by
strong trade unions and minimum wage agreements.
Structural Long term changes to the conditions of the industry
affecting the employment levels. This can be
concentrated in one location if a major employer ceases
business.
Technological When new technology is introduced automation can lead
to falls in employment even when output is rising.
Cyclical or demand During recovery and boom years, there will be high
deficient demand for output and unemployment will be low. The
reverse is true during decline and recession years.
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Short term causes of unemployment
Category Comment/cause
Frictional Difficulty in matching workers with jobs. It is temporary
and only lasts for the period of transition from one job to
the next
Seasonal Pattern of demand throughout the year can cause
fluctuations in the demand for staff, eg tourism and
farming
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Government employment policies
A government has several options to create jobs or reduce

unemployment:
• Spending more money on government staff
• Encouraging growth
• Encouraging training in job skills
• Offering grants to employers
• Encouraging labour mobility
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Economic growth
Economic growth may be measured by increases in real

gross national product (GNP) per head of the population.
Factors which contribute to growth include:
• New investment – eg in infrastructure
• Natural resources – eg minerals
• Labour sources – eg levels of education
• Capital availability – eg from overseas
• Technological processes – eg internet
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Four main objectives of economic policy
1. To achieve economic growth

2. To control price inflation
3. To achieve full employment
4. To achieve a balance between exports and imports
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Policies
• The problem with trying to satisfy one objective is that

this can lead to a problem with another.
• Governments manage these objectives with:
Fiscal policy
Monetary policy
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State influences over organisations
Market demand
Overall economic
G Cost of finance O
policy
O Taxation R
Protection vs Free Trade G
V
Grants, incentives, sponsorship A
Industry policy
E Regulation (eg investor N
Protection, company law)
R I
Entry barriers, capacity
Environment and
N infrastructure Distribution S
policy
Workplace regulation, A
M
Employment law
Social policy T
E Labour supply,
Skills, education I
N Trade promotion, export credits
O
Foreign policy EU and GATT obligations
T N
Export promotion to allies
Aid recipients
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Government influences over commercial decisions
Decision Comment
Output capacity Grants or tax incentives to invest
Competition Forbid or allow takeovers/mergers
Outlaw anti-competitive practices
Opening markets to new entrants
Monopolies Break them up; regulate them
Sales demand Government policy affects demand
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Government influences over operational decisions
Decision Comment
Health and safety Legislation, regulations
Employment Equal opportunities legislation
Consumer Product safety standards
Tax Sales tax, income tax, accounting control
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Fiscal policy 1
What – a method of managing aggregate demand in the

economy
How – annually and set out in the budget
The government can increase demand by:
• Increasing its spending
• Decreasing tax
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Fiscal policy 2
Types of fiscal policy:

• Taxation
• Public borrowing
• Public spending
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Functions of taxation
1. Raise revenues for the government

2. To cause certain products to be priced to take into
account their social costs (eg cigarettes)
3. To redistribute income and wealth
4. To protect industries from foreign competition
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Types of tax
Types of tax
Direct tax
Indirect tax
Paid directly by person
Collected via an
to revenue authority
intermediary (a
Eg income tax
supplier) who passes it
Usually proportional &
on to consumer
unavoidable taxes
Specific =
Ad valorem =
fixed sum per
fixed %
unit
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Monetary policy
A method of influencing aggregate demand in the

economy
Types of policy:
• Money supply
• Monetary systems
• Interest rates
• Exchange rates
• Availability of credit
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Balance of payments 1
Consists of three types of accounts:

Current account:
Trade in goods
Trade in services
Income from residents employed and capital
investment in other countries
Transfers from interest payments and non
government payments to/from bodies in other
countries
Financial account
Capital account
Flows of capital to/from non
Public sector flows of capital
government sector
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Balance of payments 2
• The sum of the balance of payments accounts must

always be zero. This is achieved via the financial account.
• The balance of trade is the surplus or deficit on the current
account only.
Deficit Surplus
Imports > exports Exports > imports
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Rectifying a deficit
A deficit on a current account may be rectified by one or

more of the following measures:
• Depreciation of the currency (devaluation)
• Direct measures to restrict imports, such as tariffs or
quotas
• Domestic deflation to reduce aggregate demand in the
domestic economy
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Specimen exam 1
Martin is an experienced and fully trained shipbuilder, based

in a western European city. Due to significant economic
change in supply and demand conditions for shipbuilding in
Martin's own country, the shipyard he worked for has closed
and he was made redundant. There is no other local demand
for his skills within his own region and he would have to
move to another country to obtain similar employment. He
can only find similar work locally through undertaking at least
a year's retraining in a related engineering field.
BPP LEARNING MEDIA

Which of the following describes the type of unemployment

that Martin has been affected by?
A. Structural unemployment
B. Cyclical unemployment
C. Frictional unemployment
D. Marginal unemployment
(2 marks)
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Answer: A
When someone is made redundant from an industry in

decline where skills cannot be easily transferred, where re-
training might take a long time or where work is not available
in the short term within a reasonable geographic proximity,
this is classed as structural unemployment.
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Specimen exam 2
The following government policies can be used to expand or

slow down the level of economic activity.
1. Taxation
2. Public expenditure
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Which of the following combinations would maximise

expansion of the economy?
A. Increase 1 and increase 2

B. Increase 1 and reduce 2
C. Reduce 1 and increase 2
D. Reduce 1 and reduce 2
(2 marks)
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Answer: C
Increasing taxation leaves individuals with less disposable

income for expenditure within the economy thereby slowing
economic activity. The same effect is caused by a reduction
in government expenditure. Therefore economic activity can
be stimulated by reducing taxation and increasing
government expenditure.
BPP LEARNING MEDIA

Specimen exam 3
In an economic environment of high price inflation, those

who owe money will gain and those who are owed money
will lose.
Is this statement true or false?
A. True
B. False
(1 mark)
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Answer: A
Where price inflation is high the value of money reduces

consistently over time. Those who owe money (debtors)
therefore pay back less capital in real terms, and interest
rates seldom adjust adequately to compensate for this.
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Specimen exam 4
The aggregate level of demand in the economy is made up

of government expenditure, _____________, _______
and net gains from international trade.
Which of the following correctly completes the sentence

above?
1. Savings
2. Taxation
3. Investment
4. Consumption
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A. 1 and 3
B. 2 and 3
C. 3 and 4
D. 1 and 4
(2 marks)
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Answer: C
The components of effective demand in the economy are

consumer spending, investment by enterprises, central and
local government expenditure and the net gains from
international trade.
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Macro-economic
Deficit Surplus environment
Current • Trade in goods

account • Trade in services Terminology
Balance of • Income
+ • Transfers • Equilibrium D=S
payments
• Inflationary gap
Capital
• Deflationary gap
account
• Stagflation
= zero
Government policy
BPP LEARNING MEDIA

Business cycle
Economic Fiscal Monetary
policy policy policy
Phases
• Growth • Revenue • Interest rates
• Inflation • Expenditure • Credit control • Recession
control • Exchange • Depression
• Employment rates • Recovery
• Balance • Boom
imports/
exports
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Taxation Unemployment Inflation

• Real wage • RPI
• Frictional • CPI
Functions • Direct • Seasonal • RPIX
• Indirect • Structural • RPIY
• Revenue • Technological
• Redistribute Causes
• Discourage
• Demand pull
• Cost push
• Import cost
• Expectations
• Excessive
growth in money
supply
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Chapter 4 • Micro environment
• Micro v Macro
• Organisation as a system
Micro economic
• Perfect competition
factors
• Imperfect competition
• Price fixing
• Market mechanism
• The PED
• Income elasticity of demand
• Cross elasticity of demand
• Income distribution and
demand
• Supply
• Short-run supply curve
• Equilibrium price
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The micro environment

The internal and external micro and macro environments
The concepts of a market
The demand schedule
The supply schedule
The equilibrium price
Demand and supply analysis
Maximum and minimum prices
Competition and restrictive practices
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Micro environment – definition
The micro environment refers to the immediate operational

environment. It includes all of the factors which impact
directly on a firm and its activities in relation to a particular
market in which it operates and also any internal aspects of
the organisation which influence the development of a
marketing strategy.
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Micro v Macro
The difference compared to the macro environment is that it

can be controlled to some extent by the organisation.
It includes:
• Suppliers
• Competitors
• Customers
• Stakeholders
• Intermediaries
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Drucker
• Business must generate profits to succeed.

• Drucker (2001) tells us that in order to generate profits it is
necessary to 'create a customer'.
• They operate in market economies – a key feature of
which is competition with other firms for that customer.
• Competition acts as a spur in innovation and marketing
activities, which Drucker holds as the distinguishing
characteristics of a business organisation.
• This is in contrast to a centrally planned economy in which
the State controls production.
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Elements of the micro environment
The micro environment
Customer Suppliers
Firm
Intermediaries Culture Skills Competitors
Organisation Employees
Interest groups
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Micro environment
The micro environment comprises:

Firms the organisation actually does business
with
Firms the organisation could potentially do

business with
• Management will aim to use the marketing mix to convert

potential customers into actual customers.
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Forces which impact on the organisation
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Organisation as a system
The diagram shows how an organisation takes inputs and

transforms them into outputs for consumption.
Cyclical process – those consuming the end output provide
feedback which is used to adapt the inputs selected and the
transformation of future processes.
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Elements
There are four main elements to the system:

1. Inputs
2. Transformational process which occur within the
organisation
3. Outputs
4. Final consumption of outputs
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5 Ms
The 5Ms refer to the inputs that an organisation requires in

order to function:
1. Materials
2. Money
5Ms
3. Men (human resources)
4. Machines
5. Management
Each of these must be carefully employed as it is a valuable
resource which will enable the organisation to meet its goals.
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Mullins (2005)
Mullins noted that organisations may have radically different

goals, procedures, methods of operating, style of
management, systems, structure and behaviour of staff even
within the same industry, but despite this all organisations
need four factors to function:
1. People – behind every action, document written, decision
made there are human interactions
2. Objectives – determine the nature of outputs and how
they are achieved
3. Structure – to channel and co-ordinate efforts
4. Management – to direct and control efforts to pursue
objectives
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Effective strategic management
Effective strategic management is at the core of the

organisation's ability to transform inputs and to be able to
offer a competitive offering of value to customers.
Customer value proposition is the sum of the total benefits

which a vendor promises that a customer will receive in
return for the customer's associated payment.
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Value proposition
Affected by:
Relative performance
Price
Value proposition = what you get for what you pay
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Market – definition
A market can be defined as a situation in which potential

buyers and potential suppliers of a good or service come
together for the purpose of exchange.
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Perfect competition 1
Characteristics:
• Many small (in value) buyers and sellers, which
individually cannot influence the market price
• No barriers to entry or exit, so businesses are free to
enter or leave the market as they wish
• Perfect information such that production methods and
cost structures are identical
• Homogenous (identical) products
• No collusion between buyers or sellers
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Perfect competition 2
Consequences of perfect competition include:

• Suppliers are 'price takers' not 'price makers' – this
means that they can sell as much as they want but only at
the market-determined price.
• All suppliers earn 'normal' profits.
• There is a single selling price.
Example:
Tulip sellers in Amsterdam
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Imperfect competition
• Any market structure which does not meet the conditions

of perfect competition for example, monopolistic
competition
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Characteristics
Characteristics of monopolistic competition:

• Many buyers and sellers
• Some differentiation between products
• Branding of products to achieve differentiation
• Some (but not total) customer loyalty
• Few barriers to entry
• Significant advertising in many cases
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Monopolistic competition
Consequences of monopolistic competition:

• Increases in prices cause loss of some customers
• Only 'normal' profit is earned in the long run
Example:
Hairdresser
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Monopoly
Market has only one product

Or
Firm has very high share of the market
Consequences:
Firm sets its own price, which can lead to 'super-normal'
profits
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Oligopoly
• Occurs when market has a few dominant producers.

These producers will all have a high level of influence and
a high level of knowledge on their competitors' strategies.
Characteristics:
• Complex products
• Differentiation (possibly through branding)
• High barriers to entry
• Significant influence over prices
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Oligopoly example
Example – airlines:
• Virgin
• Emirates
• British Airways
• American Airlines
• Qantas
• Singapore Airlines
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Restrictive practices
As well as 'imperfections' in the market, the market may also
be subject to restrictive or anti-competitive activities,
including:
• Dumping – selling products at a loss
• Exclusive dealing – being bound by contract to only buy
from or sell to one business
• Price fixing – businesses agreeing to sell at same price
• Refusal to deal – refusing to use a certain vendor
• Limit pricing – effectively a monopoly as new entrant
discouraged
• Retail price maintenance – retailer cannot set own price
• Government subsidies – deemed unfair to competitors
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Price fixing
• Manchester United and several leading sportswear firms

who were found guilty of price fixing on football shirts
• http://news.bbc.co.uk/1/hi/business/4565683.stm
• £16 million fine
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Market mechanism
Interaction of demand and supply
Demand
The quantity of goods that
potential customers would buy
V
or attempt to buy, if the price
of the goods was at a certain
level
Supply
The quantity of goods that
existing suppliers or would be
suppliers would want to
produce for the market at a
given price
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What impacts demand?
• Price
• Inter-related goods: substitutes (tea and coffee) and
complements (bread and butter)
• Income levels: normal goods and inferior goods
• Fashion and expectations
• Income distribution
The relationship between demand and price can be shown

graphically via the demand curve.
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Demand schedule – for single customer
At a price of $6 (A), demand is 1 kg, but as the price falls at

G to $2, the quantity demanded increases to 8 kg.
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Market demand
• A market demand curve is similar to the demand curve of

a single household, but it expresses the total expected
quantity of the good that would be demanded by all
consumers together at any given price.
• Market demand curve = sum of all the individual demand

curves
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The PED
Price Elasticity of Demand (PED) is a measure of the extent

of change in market demand for a good in response to a
change in its price.
Percentage change in quantity demanded

It is measured via:
Percentage change in price
PED > 1 elastic

PED <1 inelastic
PED = 1 unit elasticity
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What does the PED mean?
PED > 1 elastic – an increase in price has a proportionally

greater impact on the quantity demanded
PED <1 inelastic – an small increase in the price, has

proportionally less impact on the quantity demanded
PED = 1 unit elasticity
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Elastic good
Occurs where PED > 1

Example
• Luxury goods, eg champagne
Implications
• Increasing the price causes total revenue to fall
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Inelastic good
Occurs where PED < 1

Example
• Necessities, habitual purchases eg petrol
Implications
• Increasing the price causes total revenue and profits to
rise
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Income elasticity of demand
• Income elasticity of demand measures the responsiveness

of demand to changes in household income
• When household income rises people increase demand for
some goods, but also start to demand new goods which
they could not previously afford
% change in quantity demanded

Income elasticity of demand =
% change in income
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Rising income
Assume that your income doubled. How would this affect

your demand for the following items?
1. Inter-city bus travel

2. Rice
3. Sports car
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Summary of income elasticity of demand
Elasticity Value Type of good Example

Negative –ve Inferior Bus travel
Inelastic 0–1 Necessity Basic food stuff
Elastic >1 Luxury Sports cars
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Cross elasticity of demand
Cross elasticity of demand is the responsiveness of quantity

demanded for one good following a change in price of
another.
% change in quantity demanded of good A

Cross elasticity of demand =
% change in the price of good B
*(assuming no change in the price of A)
The cross elasticity of demand depends upon the degree to

which goods are substitutes or complements.
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Summary of cross elasticity of demand
Cross-elasticity Value Example

Perfect complements –1
Complements –ve Bread and butter
Unrelated products 0 Bread and cars
Substitutes +ve White bread and
brown bread
Perfect substitutes 1
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Demand curve for normal and inferior goods
Income
Normal
good
Inferior
good
Quantity demanded
The effect of a rise in household income on demand for an

individual good will depend upon the nature of that good.
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Income distribution and demand
• As well as total income, the distribution of that income will also affect the demand for
items, especially luxury ones.
What do you think might be the demand for swimming pools amongst a population of
five households enjoying total annual income of $1m, if the distribution of income is
either as under assumption 1 or as under assumption 2.
Annual income
Assumption 1 Assumption 2
$ $
Household 1 950,000 200,000
Household 2 12,500 200,000
Household 3 12,500 200,000
Household 4 12,500 200,000
Household 5 12,500 200,000
ANSWER
Under assumption 1, the demand for swimming pools will be confined to household 1.
Even if this household owns three or four properties, the demand for swimming pools is
likely to be less than under assumption 2, where potentially all five households might
want one.
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Shifts of the demand curve
• Occurs when quantity demanded changes when the price

remains constant, for example, due to changing fashions
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Movement to equilibrium
Price Excess Supply

5 Supply
1
Excess Demand Demand
5 15 25 Quantity
Slide 224
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Example – Increase in consumer incomes
Price
S
P 1
P 0
D 1
D 0
Q 0 Q 1
Quantity
Slide 225
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Example – Goods become less fashionable
P 0
P 1
D 0
D 1
Q 1 Q 0
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Supply
Supply refers to the quantity of a good that existing suppliers

or would be suppliers would want to produce for the market
at a given price.
The quantity of goods supplied to a market varies for two

reasons:
1. Existing firms may increase or reduce their output
quantities.
2. Firms may stop producing altogether and leave the
market, or new firms may enter the market.
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Excess supply
• If the quantity that firms want to produce at a given price

exceeds the quantity that households demand, there will
be an excess of supply, with firms competing to win what
sales demand there is.
• Over supply and competition would the be expected to

result in price competition and a fall in prices.
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Short-run supply curve
In the short-run the firm will only supply if the selling price
covers all of the variable costs.
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Short-run supply curve based on cost-plus pricing
This is extended to say that the firm will only supply if it can
generate a profit, ie sell for more than the marginal
production cost.
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Factors influencing the supply quantity
• Costs of making the good

• Prices of other goods
• Expectations of price changes
• Changes in technology
• Other factors eg the weather
Changes in the supply conditions will result in a shift in the

supply curve.
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Shifts in the supply curve
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Equilibrium price
The competitive market process results in an equilibrium

price, which is the price at which market supply and demand
quantities are in balance.
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Specimen exam
Which of the following statements is true in relation to the

average revenue function of a business in a perfect market?
A. It is diagonal
B. It is horizontal
C. It is vertical
(1 mark)
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Answer: B
The demand curve of a company in a perfect market is

horizontal, because they can sell as much as they want at a
given market price and nothing at all at a price set higher
than the prevailing market price.
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Article
• Introduction to microeconomics
ourney/qual-resource/acca-qualification/f1/technical-articles/i
ntroduction-to-microeconomics.html
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Micro-economic factors
Markets Supply Demand
• Perfect • Price • Price

• Monopolistic • Factor conditions • Factor conditions
• Price of other goods • Price of other goods
• Price of related goods • Price of related goods
• Change in technology • Change in technology
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Influences
Equilibrium
Price Elasticity of

Q  Q  P P  Demand
PED =

 2 1   2 1 Cross Elasticity of
 Q   P1  Demand
 1   
Income Elasticity
of Demand
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Syllabus Area B
Syllabus Area: Business organisation

structure, functions and governance
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Chapter 5 • Informal organisation
• Group norms
Business organisation, • Hawthorne Studies
structure and strategy • Mintzberg's organigram

• Functional structure
• Geographic departmentation
• Product/brand departmentation
• Divisionalisation
• Hybrid structures
• Simple structure
• Matrix structure
• Shamrock organisation
• Handy's shamrock
• Levels of strategy & information
• Centralisation and
dencentralisation
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The informal organisation

Organisational structure
Levels of strategy in the organisation
Centralisation and decentralisation
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Informal organisation
An informal organisation always exists alongside the formal

one.
The informal organisation consists of social relationships,

informal communication networks, behavioural norms and
power/influence structures, all of which may 'by-pass' formal
organisational arrangements.
The informal organisation may be detrimental or beneficial to

the organisation, depending on how it is managed.
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Benefits of the informal organisation
• Employee commitment
• Knowledge sharing
• Speed
• Responsiveness
• Co-operation
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Managerial problems of informal organisation
Each of the positive attributes of informal organisation could

easily be detrimental if the power of the informal
organisation is directed towards goals unrelated to, or at
odds with those of the formal organisation.
Problems:
• Cutting corners
• Not acting in a goal congruent manner
• Time consuming
• Informal information may lack accuracy
• Danger of cliques forming
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Minimising problems
• Meeting as many employee needs as possible through the

formal organisation
• Using the informal, charismatic leaders to motivate
workers
• Involving managers themselves in the informal structure so
that they support the breakdown of unhelpful rules and
sharing of information
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Group norms
• A work group often establishes 'norms' or acceptable

levels and methods of behaviour to which all group
members are expected to conform.
• Norms may be reinforced in various ways by the group:

– Identification
– Sanctions
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Hawthorne Studies
• Professor Elton Mayo undertook studies at the Hawthorne

Plant of the Western Electric company.
• The study aimed to establish the impact of lighting
standards on worker productivity.
• As a test some workers were moved into a special room,
with variable lighting conditions.
• Others worked in a room where lighting was kept at normal
standard.
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Hawthorne results and conclusion
• Results – productivity in both rooms shot up every time

the lighting conditions were altered
• Conclusion – informal groups exercise a powerful
influence in the workplace: supervisors and managers
need to take account of social needs if they wish to
secure commitment to organisational goals
• Also showed that people tend to perform better when they
believe they are being treated well and valued – both
groups felt “important” so performance improved
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Mintzberg's organigram
Mintzberg believes all organisations can be analysed into 5

components, according to how they relate to the work of the
organisation and how they prefer to co-ordinate.
Mintzberg (1983)
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Organigram explained 1
Component Job Preferred means of

co-ordination & example
Strategic apex Ensures the organisation Direct supervision
follows its missions, manages Board
the organisation's relationships
with the environment
Operating core People directly involved in the Mutual adjustment;
process of obtaining inputs, standardisation of skill
and converting them into Production line workers
outputs
Middle line Converts the desires of the Standardisation of results
strategic apex into the work Supervisors
done by the operating core
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Organigram explained 2
Component Job Preferred means of

co-ordination & example
Technostructure Analysers determine the best Standardisation of work
way of doing a job processes or outputs
Planners determine outputs (eg Rule makers
quality of output required)
Personnel analysts standardise
skills (eg via training)
Support staff Ancillary services which do not Mutual adjustment
plan or standardise production Canteen
and operate independently of
the operating core
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Functional structure
Board
Human
Marketing Finance Sales Production
resources
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Functional – advantages
• Expertise is pooled as employees work in specialist areas

• Avoids duplication (eg only one management accounts
dept) and enables economies of scale
• Facilitates the recruitment, management and development
of functional specialists
• Complements a centralised business
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Functional – disadvantages
• Focuses on internal processes and inputs, rather than

the customer and outputs, which are what should drive the
business
• Communication problems may arise between factions
• Poor co-ordination can occur, especially in a tall
organisation, where all decisions have to go through senior
management
• Vertical barriers to information and work-flow can be
created. Peters argues that horizontal flow creates better
customer service
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Geographic departmentation
Geographic organisation
Board of
Directors
Regional Regional Regional

Board Board Board
A B C
etc etc
Marketing
Production Finance Personnel
and sales
dept dept dept
dept
etc etc etc
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Geographic advantages
• Local decision making – at the central point of contact

between the organisation and its customers, suppliers or
other stakeholders
• Cheaper to establish area factories/offices than to service
markets from one location (eg reduced costs of transport)
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Geographic – disadvantages
• Duplication – possible losses of economies of scale might

arise.
• Inconsistency – methods or standards may vary between
different areas.
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Product/brand departmentation
Product/brand organisation
Board of
Directors
Data
R&D Finance Personnel
processing
department department department
department
Divisional manager Divisional manager Divisional manager

Product Group A/ Product Group B/ Product Group C/
Brand A Brand B Brand C
Production Marketing Sales Distribution
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Product/brand – advantages
• Accountability – managers can be held accountable for

the profitability of individual products
• Specialisation – can lead to better customer service. For
example, sales staff may be trained to sell a specific
product in which they may develop technical expertise
• Co-ordination – the functional activities to make and sell
each product can be co-ordinated and integrated by the
divisional/product manager
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Product/brand – disadvantages
• Increases overhead costs and the managerial complexity

of the organisation (this may affect its ability to compete)
• Different product divisions may fail to share resources
and customers
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Virgin
Despite disadvantages brand departmentation can be very

successful.
For example – Virgin Group
The brand name creates brand recognition, differentiation
and loyalty.
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Customer departmentation
• An organisation may organise its activities on the basis of

types of customer, or market segment
• Most common in sales departments
• Can distinguish between business customers and
consumers
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Vodafone
Vodafone
• Personal customers offered different terms to business
customers
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Divisionalisation
• In a divisional structure some activities are decentralised

to business units or regions.
Divisionalisation is the division of the

business into autonomous regions of
product businesses, each with its own
revenues, expenditures and capital
asset purchase programmes and
therefore each with its own profit or loss
responsibility.
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Types of divisions
• A subsidiary company under the holding company

• A profit centre or investment centre within a single
company
• A strategic business unit (SBU) within the larger company,
with its own objectives
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Conditions required for successful divisionalisation
Each unit must:

• Have properly delegated authority and be accountable to
head office
• Be large enough to support the quality and quantity of
management needed
• Have potential for growth
• Have scope and challenge in the job for management
• Use 'arm's length transactions' when dealing with each
other
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Advantages of decentralisation
• Focuses the attention of management below “top level” on

business performance
• Reduces the likelihood of unprofitable products and
activities being continued
• Encourages a greater attention to efficiency, lower costs
and higher profits
• Gives more authority to junior managers and so prepares
them for more senior positions
• Reduces the number of levels of management. Top
executives in each division should be able to report directly
to the chief exec of the holding company
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Disadvantages of decentralisation
• In some businesses it is impossible to identify

completely independent products or markets for which
separate divisions can be set up.
• Divisionalisation is only possible at a fairly senior
management level, because there is a limit to how much
discretion can be used in the division of work. For
example every product needs a manufacturing function.
• There may be more resource problems. Many divisions
get their resources from head office in competition with
other divisions.
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Hybrid structures
Organisations are rarely composed of only one type of

organisation.
Hybrid structures involve a mix of functional
departmentation, ensuring specialised attention to key
functions with a mix of elements of:
Product organisation – to suit the needs of the brand or
production technology
Customer organisation – particularly in marketing depts, to
service key accounts
Territorial organisation – especially for sales and distribution
departments to service local marketing in dispersed regions
or countries
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Simple structure
• The strategic apex exerts a pull to the centre leading to a

simple structure, for example sole trader
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Simple structure characteristics
• Small, young organisations – one person (entrepreneur)

makes all decisions (no need for technical/support staff)
• Entrepreneur dominates – as organisation grows they
may lack skills to develop strategies
• Centralisation can lead to too much management
intervention
• Depends on expertise of one person – could lead to
succession crisis
• Suitable for simple, fast moving organisations
• Co-ordination achieved by direct supervision
• Little formalisation
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Stelios and Easyjet
• Stelios started Britain's first budget airline – he ran it very

successfully until the organisation grew too large and he
was unable to delegate decision making. Ultimately he
ended up leaving the organisation to a new senior
management team, who could handle the different
pressures of a larger airline.
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Matrix structure
Functions
Line 1 2 3
Authority
A
Clients B
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Matrix and project organisation
• Bring together different functions or departments for

different contracts
• Employees will have responsibility to client managers
and functional managers
• Used in professional services firms
Eg accountancy firm:
– Departmental managers (eg tax, audit, corporate
finance)
– Client managers
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Advantages of a matrix organisation 1
1. Greater flexibility of
• People – employees develop an attitude geared to
change, and departmental monopolies are broken down
• Workflow and decision making – direct contact between
staff encourages problem solving and big picture
thinking
• Tasks and structure – matrix can be readily amended
once projects are complete
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Advantages of a matrix organisation 2
2. Inter-disciplinary co-operation and a mixing of skills and

expertise, along with improved communication and co-
ordination
3. Motivation and employee development – greater

participation in planning and control decisions
4. Market awareness – more customer focussed
5. Horizontal workflow – bureaucratic obstacles are

removed, and departmental specialisms become less
powerful
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Disadvantages of matrix
• Dual authority – can be conflict between functional

managers and product/project managers. Employees may
also suffer stress of working for two managers with
conflicting demands and ambiguous roles.
• Cost – management posts are added, and extra meetings
are held.
• Slower decision making due to added complexity.
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New organisational structure
With an increased need for flexibility some new structures

have emerged:
• Flat structures
• Horizontal structures
• 'Chunked' and 'unglued' structures
• Output focused structures
• 'Jobless' structures
• Virtual organisations
• Hollow organisations
• Modular organisations
• Boundaryless organisations
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Amazon
Operates as a virtual retailer – without incurring the costs

associated with retail premises
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Shamrock organisation
Handy defines the shamrock organisation as 'a core of

essential executives and workers supported by outside
contractors and part-time help'.
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Handy's shamrock
• Professional core – essential to the continuity and growth

of the organisation. Usually performance related pay.
• Self-employed professionals – hired on a contract, or
project basis. Usually paid in fees for results.
• Contingent workforce – routine jobs, performed by
employees on short contracts, paid hourly.
• Consumers – eg shoppers who pack their own bags.
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Flexibility
• Staff costs respond to supply and demand for different

types of labour.
• Overall personnel numbers can be changed as required.
• Skills available can be modified fairly rapidly and multi-
skilling can be encouraged.
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Organisation shapes
• Shape – scalar chain and span of control together
Tall Flat
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Delayering
• Reducing the number of management levels from top to

bottom has become increasingly common, because:
• IT reduces the need for middle managers to process
information
• Empowerment – allowing front line workers to make
decisions in response to customer needs
• Economy – reduces costs
• Fashion! – delayering has become increasingly popular
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Offshoring
• Similar to outsourcing – but the organisation sends its own

employees overseas, or recruits them locally.
• This reduces costs if it locates in a country where labour
and infrastructure costs are lower, but can result in issues
with culture and language barriers
• Eg – banks offshore their call centres
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Shared services approach
• A single service centre is established to provide a support

function across an organisation
• Although it is part of the organisation the relationship it has
with other parts of the organisation is similar to that of an
external provider
• Should result in lower costs through more efficient use of
resources
• IT and HR are functions this can be applied to
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Levels of strategy & information
Info
Anthony's
hierarchy
Strategic Corporate
Tactical Business - SBU
Operational Functional
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Defining aspects of corporate strategy
Characteristics Comment
Scope of activities Strategy and strategic management impact upon the
whole organisation
Environment The organisation counters threats and exploits
opportunities in the environment
Resources Strategy involves choices about allocating or obtaining
corporate resources now and in future
Values The value systems of people with power in the
organisation influences strategy
Timescale Corporate strategy has a long-term impact
Complexity Corporate strategy involves uncertainty about the future,
integrating the operations of the organisation and
change
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Business strategy
• How an organisation approaches a particular product or

market area
• Types of decisions:
– Segment the market
– Specialise in particularly profitable areas
– Compete by offering a wider range of products
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Functional/operational strategies
Functional/operational strategies deal with specialised

areas of activity:
• Marketing
• Production
• Finance
• Human resource management
• Information systems
• R&D
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Centralisation and decentralisation
A centralised organisation is one in which authority is

concentrated in one place:
Geographical – some functions may be centralised rather
than 'scattered' in different offices, departments or locations
Authority – ability to make decisions v referring decisions
upwards. Decentralisation implies increased delegation and
empowerment
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Pro centralisation
• Decision made at one point and so easier to co-ordinate
• Senior managers can take a wider view of problems and
consequences
• Senior management can balance different interests
• Quality of decisions is (theoretically) higher due to senior
managers' skills and experience
• Possibly cheaper, by reducing number of managers
needed and so lower cost of overheads
• Crisis decisions are taken more quickly at the centre,
without referring back
• Policies, procedures and documentation can be
standardised organisation-wide
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Pro decentralisation
• Avoids overburdening top managers

• Improves motivation of junior managers
• Greater awareness of local issues by decision makers
• Faster decision making, especially important in rapidly
changing markets
• Develops skills of junior managers – supports managerial
succession
• Separate spheres of responsibility can be identified and
this leads to more accountability and better performance
management
• IT enables local decisions to be supported by info from
head office
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Specimen exam 1
The following are examples of business information:

1. Annual forecasts of revenues and costs for a department
2. Product development plans for the next 2–3 years
3. Targets agreed by key managers at their performance
appraisal interviews
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Which of the above would be classified as tactical

information?
A. 1,2 and 3
B. 1 and 3 only
C. 2 and 3 only
(1 mark)
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Answer: B
Annual targets and management forecasts from

performance appraisals indicate medium term planning
horizons which are both tactical in nature, whereas product
development plans for 2–3 years are longer term strategic
options.
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Specimen exam 2
Which of the following is a potential advantage of

decentralisation?
A. Risk reduction in relation to operational decision making

B. More accountability at lower levels
C. Consistency of decision-making across the organisation
(1 mark)
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Answer: B
Decentralisation gives authority to lower levels and gives

more autonomy to individuals and teams. Decentralisation
on the other hand increases risk and there is less control
over individual and group behaviour and decision-making.
Allowing more freedom to act independently leads to less
consistency across the organisation.
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How would you categorise each company? (4 marks)

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• 1 mark
Company A
• Accountancy professional body
• A1 = high power distance dimension
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Specimen exam – Section B Solution (cont'd)
• 1 mark
Company B
• Financial services company
• D1 = high masculinity
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• 1 mark
Company C
• Research & development company
• B2 = low uncertainty avoidance
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• 1 mark
Company D
• Family company
• C2 = low individualism
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Business organisation,
structure and strategy
Anthony's The informal

Structural forms
hierarchy organisation
• Advantages v
Strategic disadvantages
Tactical
Operational
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Mintzberg Scalar chain & Centralisation

Span of control v
• Strategic apex
decentralisation
• Technostructure
• Operating core
• Middle line Flexibility
• Support staff
• Downsizing
Shamrock • Outsourcing
• Delayering
• Core
• Specialist
• Contingent
• Customer Types
Entrepreneurial Functional Matrix Divisional
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Chapter 6 • R&D
• Purchasing
Organisational culture • Production
and committees • Service operations
• Marketing
• Administration
• Finance function
• Financial management v
finance management
• Human resources
• Culture
• Culture and structure
• Contingency approach
• The impact of national culture
• Committees
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What is culture?
Organisation culture
Culture and structure
Committees
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Understanding different functions
Need to understand the role of different functions
Board
Human
Marketing Finance Sales Production
resources
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R&D – types of research
Type Definition Example
Pure Original research to obtain new Understanding genetic
scientific or technical knowledge or code
understanding
No obvious commercial view
Applied Is also original, like pure, but it has a Finding out if an illness is
research specific practical aim or application genetic
Development Using existing scientific and technical Medical trials for a new
knowledge to produce new (or drug to treat the genetic
substantially improved) products or condition
systems prior to starting commercial
productions
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Categories of research
Product research – Process research –

Creating new Improving way
products products and
Developing existing services are
ones delivered to market
Eg – Amazon market
Eg – Amazon Kindle
place
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R&D in practice
• Organisations will often employ specialist staff to conduct

R&D
• Could be separate function/department
• Product divisional organisations may have R&D teams in
each division
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R&D & marketing
• Closely linked to marketing

• Customer needs, as identified by marketing, should be a
vital input into a new product
• R&D might identify possible changes to product
specifications so that a variety of marketing mixes can be
tried out and screened
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Purchasing
• Purchasing makes a major contribution to cost and

quality management in any business and in retail it is a
vital element of strategy.
• Purchasing mix comprises:
Quantity
Price
Quality
Delivery
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Purchasing mix – quantity
Quantity – when deciding on the timing and size of orders

need to get balance right:
• Too little = delays in production will occur if insufficient
inventory
• Too much = costs of holding inventory (eg storage space,
capital tied up, deterioration, risk of theft, insurance etc)
A system of inventory control will set optimum reorder

quantities to ensure the economic order quantities (EOQ)
are obtained.
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Purchasing mix – quality
Need to consult with other departments:

• Production – need to understand quality of inputs
needed for manufacturing process
• Marketing – need to understand quality of goods that is
acceptable to customers
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Purchasing mix – price
Favourable short-term trends in prices may influence the

buying decision, but purchasing should have an eye on best
value over a period of time.
Consider:
• Quality
• Deliver
• Urgency of order
• Inventory-holding requirements
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Purchasing mix – delivery
• The lead time between placing and delivery of an order

can be crucial to efficient inventory control and
production planning.
• Supplier reliability will also be important.
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Production
• The production function plans, organises, directs and

controls the necessary activities to provide products and
services, creating outputs which have added value over
the value of inputs.
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Production flow
• Obtain inputs eg
timber
Add value
eg sawing
Create outputs
eg table
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Production management decisions
Longer-term decisions
• Selection of equipment and processes
• Job design and methods
• Factory location and layout
• Ensuring the right number and skills of employees
Short-term decisions
Running and control, including:
• Labour control and supervision
• Inventory control
• Maintenance
• Quality management
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Relationship with other functions
Production must be integrated with other functions in the

firm:
• Product design is co-ordinated with R&D
• Job design involves consultation with HR
• Quantities notified by sales department
• Approval for new investment will come from the Finance
department
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Service operations
• Services are intangible, cannot be stored, are inherently

variable in quality and nature and their purchase results
do not result in a transfer of property.
• People and processes are key to their successful delivery
• Examples – healthcare, restaurants, tourism, financial
services and education
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Implications of service provision
• Poor quality can lead to widespread distrust of everything

the organisation does
– eg online banking details being leaked
• Reputation – image is important
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Things to get right in service organisations
• Tangibles
• Reliability
• Responsiveness
• Communication
• Credibility
• Security
• Competence
• Courtesy
• Understanding customers' needs
• Access
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Marketing
• The marketing function manages an organisation's

relationships with its customers.
• Defined by the Chartered Institute of Marketing as the
management process which identifies, anticipates and
satisfies customer needs profitably.
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Marketing roles
• Sales support – the emphasis is reactive

• Marketing communications – proactive emphasis
(eg catalogue)
• Operational marketing – marketing to support the
operation including market research, brand development
and CRM
• Strategic marketing – using marketing to contribute
towards the creation of the competitive strategy
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Marketing orientation
Orientation Description
Production orientation 'Customer will buy whatever we produce' – our job is
to make as many as we can
Product orientations, 'Add more features to the product – demand will pick
a variant of production up' – do not actually research what customers want
orientation
Sales orientation Customers are naturally sales resistant so the product
must be sold actively, aggressively and customers
must be persuaded to buy them
Marketing orientation The key task of the organisation is to determine the
needs, want and values of target market and to adapt
the organisation to delivering the desired satisfactions
more effectively and efficiently than its competitors
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Marketing orientation
Market orientation Sales/production orientation
Determine whether product can

Determine customer needs
be made
Invest resources Invest resources
Make product/service Make product
Sell the product/service (Profit via Sell the product (profit via
customer satisfaction) increased turnover)
Market feedback
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Marketing mix 1
• The marketing mix is the set of controllable variables and

their levels that an organisation uses to influence the
target market.
• These variables are known as the 4 Ps:
Product
Price
Place
Promotion
• Remember that organisations need to deliver the product
that the customer wants, whilst still making a profit.
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Marketing mix 2
Product Place
Customer Organisation
buys sells
satisfaction product
Price Promotion
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Product
Product (physical and services) issues include:

• Design (size/shape)
• Features
• Quality and reliability
• Packaging
• Safety
• Ecological friendliness
• What it does
• Image
ie a package of benefits which meets a need or provides a
solution to a problem
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Core and augmented product
• Core product – essential features eg mobile phone has

the ability to make calls and send text messages
• Augmentations – additional benefits eg many mobile
phones can be used for playing music, taking pictures and
surfing the internet
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Product
Product class eg car

Product form
eg hatchback
Brand or
make eg
Toyota
Verso
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Place: distribution
Place
Outlets Logistics
Intermediaries – Direct Management of

wholesaler then distribution warehouses, storage
retailer eg mail order and transportation
eg supermarket
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Direct distribution example
• Dell sells computers direct to its customers – offering

customised laptops at a lower price, because they cut out
the retailer
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Promotion
• Promotion includes all marketing communications by

which the public knows about the product or service
• Promotion is intended to stimulate the potential customer
through four behavioural stages:
Awareness of the product
Interest in the product
Desire to buy
Action: an actual purchase
AIDA
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Types of promotion
• Advertising – newspapers, TV, cinema, internet

• Sales promotion – money off coupons, 2 for 1 offers
• Direct selling – sales personnel
• Public relations – crisis management, obtaining
favourable press coverage
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General Motors – reputational damage
• US car manufacturer General Motors was fined $35m

(£20.8m) for delays in recalling small cars with faulty
ignition switches.
• GM was criticised for its delay in responding the faults,
which are believed to have caused 13 deaths.
• http://www.bbc.co.uk/news/business-27442448
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Price
• Products have to be sold at a price which meets the

organisation’s profit objectives.
It is affected by:
• Cost of production and the mix itself (discounts, interest
free credit etc)
• Demand
• Stage of the product life-cycle
• Image of the product – designer goods have an exclusive
image
• Competition
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Price related to demand
Penetration pricing
Low price to persuade as many people
to buy when product is launched
Eg new magazine
Skimming
Prices set high initially to achieve a high
profit margin per unit from customers
who are prepared to pay for a product
which is substantially different to
competitors
eg iPad
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Service marketing
• In addition, for services, there are three more Ps:

• The people who deliver the service
• The process by which the service is delivered
• The physical evidence of the service
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Segmentation 1
• Market segmentation occurs when the market can be

broken up into different segments, whose customers have
common needs and preferences for products and/or
services.
• Segments can be arranged in any suitable way.
Examples:
• Geography
• Age
• Income levels
• Gender
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Segmentation 2
The Market
Niche and Micro

Mass
Se
Marketing gm
en
ts
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Administration
Administration will often be carried out centrally in one

department.
Consistency Local offices may have to wait

for tasks to be carried out
Security/control Can lead to over reliance on
head office
Head office should have a big A fault or hold up impacts across
picture view the organisation
Economies of scale
Expert employees with defined
career paths
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Finance function
• Raising money – ensuring it is available where needed

• Recording and controlling transactions – eg payroll and
credit control
• Providing information to managers to help them make
decisions
• Reporting to stakeholders such as shareholders and tax
authorities
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Financial management v finance management
Financial management:
• Investment decisions
• Financing decisions
• Dividend decisions
• Operating decisions
Management of finance:
• Handling cash, invoices and other financial documents and
recording transactions in the books of account
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Sources of finance
• Capital markets – long term trading instruments eg

equities and debentures on London Stock Exchange
• Money markets – short-term trading instruments eg bills
of exchange and certificates of deposit
• Retained earnings
• Bank borrowings
• Government sources
• Venture capital
• International money and capital markets
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Financial accounting
Roles
Recording financial Reporting to

transactions shareholders
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Treasury management
Plans and controls the sources and use of funds by the

organisation.
Achieved via:
• Cash budgeting
• Arranging overdraft facilities
• Repaying matured loans
• Comparing actual cash flows to budget
• Cashiers' duties
• Managing foreign currency dealings
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Working capital management
• Working capital management is vital for business success

– companies fail because they run out of money far more
often than because they are not profitable.
Working capital consists of management of:

• Credit control
• Payables
• Inventory
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Management accounting function
Roles:
• Planning – budgets and forecasts
• Decision making
• Control – budget v actual
Success depends upon:

• Quality of information provided
• Whether the information is properly used by other
managers
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Human resources
• Human resource management (HRM) is concerned with

the most effective use of human resources. It deals with
organisation, staffing levels, motivation, employee
relations and employee services.
Why is HRM important?

• To increase productivity
• To enhance group learning
• To reduce staff turnover
• To encourage initiative
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HR cycle
Devanna (1984)
Rewards
Selection Performance Appraisal
Training and
development
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HR cycle explained
• Selection – recruiting people with skills and qualities

required
• Appraisal – sets targets to monitor performance and
identifies training gaps
• Training and development – ensures skills remain up-to-
date
• Reward system – should motivate and ensure valued
staff are retained
• Performance – depends upon how the four components
are co-ordinated
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HR plan
HR plan deals with:

• Recruitments
• Retention
• Downsizing
• Training and retraining to enhance skills base
It is part of the organisation's strategic planning processes.
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Process of HR planning
The process of human resources planning
1. STRATEGIC ANALYSIS
• Of the environment
• Of the organisation's manpower strengths
and weaknesses, opportunities and threats
• Of the organisation's use of employees
• Of the organisation's objectives
2. FORECASTING
• Of internal demand and supply
• Of external supply
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Culture
• Culture – the collective programming of the mind which

distinguishes the members of one category of people from
another (Hofstede)
Elements of culture:
• Observable behaviour
• Underlying values and beliefs which give meaning to the
observable elements
• Hidden assumptions which unconsciously shape values
and beliefs
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Examples of organisational culture
Item Example
Customs Eg business dress
Rituals Company song
Artefacts Staff newsletter
Beliefs and values “The customer is always right”
Symbols Logos
CRABS
Source:
http://rlv.zcache.com.au/cute_little_crab_cartoon_graphic_photo_sculpture-r9f1a4fe5a1684c02a
be072520e4d2963_x7sa6_8byvr_512.jpg
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Influences on culture
• Founder – organisations usually stay true to their original

culture
• History – era in which company was founded (Insurance
companies more traditional than IT companies)
• Leadership & management style
• Organisation's environment
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Culture and structure
• Harrison classified four types of culture, to which Handy

gave the names of Greek deities
Culture Deity Description
Power Zeus Controlled by key figure, with direct power.
Suits small organisations
Role Apollo Classical, rational organisation: bureaucracy – slow
to change
Task Athena Management is directed at outputs – team based
and horizontally structured flexible organisation
Person Dionysus Purpose of organisation is to serve the interests of
the individuals who make it up
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Power culture (web) Zeus
Features
• Central power structure
• Control through trust
• Flexible and reactive
• Eg sole trader
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Role culture (temple) Apollo
Features based around functional 'pillars' (eg finance,

production, sales etc)
• The pillars are likely to be co-ordinated at the top by a
narrow band of senior managers
• Likely to be regulated
and hierarchical
• Eg car manufacturer
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Task culture (net) Athena
Features:
• Job or project orientated
• Team based
• Very adaptable
• Horizontally structured
• Eg accountancy firm
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Person culture (cluster) Dionysus
Features:
• A culture based on self-interest
• Management through facilitation and administration
• Eg barristers' chambers
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Contingency approach
• It is possible for different cultures to occur in different

parts of the same organisation – especially large ones with
many departments and sites.
• This is an example of the 'contingency approach' where

'it all depends'.
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The impact of national culture
• National culture influences organisational culture in various

ways.
• Hofstede model describes four dimensions of culture:
• Power – distance
• Individuality – collectively
• Uncertainty – avoidance
• Masculinity – femininity
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Committees
• Many organisations set up permanent or limited duration

committees to assist the management of the
organisation
Committees can assist in:
• Creating new ideas
• Communications
• Problem solving
• Combining abilities
• Co-ordination between departments
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Types of committee
• Executive – power to govern/administer

• Standing – deal with routine business issues
• Ad hoc – complete a specific task
• Sub committees – relieve a main committee of tasks
• Joint committees – co-ordinate activities
• Management committees – make key organisational
decisions (eg remuneration committee)
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Advantages of committees
• Consolidation of power
• Delegation to the committee
• Creating new ideas
• Communication
• Encourage participation
• Advisory committee (eg audit committee)
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Disadvantages of committees
• Can become too large for constructive action

• Time consuming and expensive
• Delays due to extra layer of decision making
• Incorrect of ineffective decisions
• Apathetic members
• Compromise due to members differing desires
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Specimen exam 1
Which of the following is the main function of marketing?
A. To maximise sales volume

B. To identify and anticipate customer needs
C. To persuade potential customers to convert latent
demands into expenditure
D. To identify suitable outlets for goods and services
supplied
(2 marks)
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Answer: B
The basic principle that underlines marketing is that it is a

management process that identifies and anticipates
customer needs. The other distractors in the question refer
to specific activities undertaken by a marketing function.
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Specimen exam 2
Neill works as the procurement manager of JL Company, a

large services company.
Information provided by Neill is most relevant to which of the

following elements of the marketing mix?
A. Physical evidence
B. Distribution (or place)
C. Price
D. Processes
(2 marks)
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Answer: C
Information on purchase costs of finished good or raw

materials is important in establishing the price of a product.
In terms of the marketing mix, this information is most
relevant to the price element as prices should be set at least
to cover cost and give an acceptable level of profit.
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Specimen exam 3
In a high education teaching organisation an academic

faculty is organised into courses and departments, where
teaching staff report both to course programme managers
and to subject specialists, depending on which course they
teach and upon their particular subject specialism.
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According to Charles Handy's four cultural stereotypes,

which of the following describes the above type of
organisation structure?
A. Role
B. Task
C. Power
D. Person
(2 marks)
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Answer: B
The task culture is appropriate where organisations can

accommodate the flexibility required to adjust management
and team structures to address tasks that must be fulfilled.
This is very common in large consultancy firms.
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Specimen exam 4
In the context of marketing, the 'four Ps' are price,

promotion, _________ and _________.
Which two words correctly complete the above sentence?
1. Product
2. Positioning
3. Place
A. 1 and 3
B. 1 and 2
C. 2 and 3
(1 mark)
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Answer: A
The four Ps are Product, Price, Promotion and Place.
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Article
• The Role of Marketing –
ourney/qual-resource/acca-qualification/f1/technical-articles/t
he-role-of-marketing.html
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Functions
Influences on
organisational culture R&D Finance
• Pure • Raising money
• Applied • Recording
Purchasing • Providing
• Quantity information
Key aspects of The link Nationality • Quality
culture between and culture • Price
• Delivery
Schein Customs culture and Production
Values Rituals structure • Input
Assumptions Artefacts • Process
Observable Beliefs Hofstede • Output
Symbols • Quality
Handy & • Power-distance Service
Harrison • Uncertainty- • SHIP
avoidance Marketing
• Individualism- • 4 Ps
collectivism • 4 orientations
• Masculinity
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Gods of
management
• Zeus
• Apollo Committees
• Athena
• Dionysus • Advantages v
disadvantages
• Functions
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Chapter 7 • Corporate governance
• Agency problem
Corporate governance • Governance principles
and social responsibility • Principles v rules
• Directors and stewardship
• Role of the Board
• Corporate governance codes
• Non-Executive Directors
(NEDs)
• Remuneration committee
• Audit committee
• Reporting on corporate
governance
• Corporate Social Responsibility
(CSR)
• Levels of regulation
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Principles of corporate governance

Developments in corporate governance
Role of the board
Reporting on corporate governance
Corporate social responsibility
Ethics, law, governance and social responsibility
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Corporate governance 1
• Corporate governance – system by which organisations

are directed and controlled by senior officers
• It is an issue for all organisations; commercial and not for
profit
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Corporate governance 2
Based around principles of:

• Integrity – dealing honestly with employees, customers
and all business contacts
• Accountability – being answerable for actions
• Independence – independent people checking the
business is complying with its code of governance
• Good management – best practice guidelines set
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Perspectives on governance
Owners Put their money into the business
Own all of the business assets

Business
Make the decisions for the business
Management Manage the business operations
• Owners and management are not usually the same people

in large organisations.
• Corporate governance issues generally arise from the
separation between ownership and control in
organisations.
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Agency problem
Small organisation eg corner shop owned by Mr Bean
Owner = Mr Bean = Controller / Manager
Interests: the same as person! Therefore no issue.

Larger organisations
Owner = Shareholder v Controller = Managers / Directors
Interests: eg dividends, market value v eg bigger salary & office

Management may follow their own interests rather than the owners. This is
known as the agency problem.
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Governance principles
• Minimise risk
• Ensure adherence to and satisfaction of strategic
objectives
• Fulfil responsibilities to all stakeholders and minimise
potential conflicts of interest
• Establish clear accountability
• Maintain independence – especially of non-executive
directors and auditors
• Provide accurate and timely reporting of
trustworthy/independent financial and operational data
• Encourage proactive involvement of owners/members in
effective management of organisation
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Reasons for corporate governance
Corporate governance has become increasingly high profile

in recent years due to a number of factors including:
• High profile corporate scandals (eg Maxwell, Enron,
WorldCom)
• Increasingly active and international shareholders
• Increasing media scrutiny
• Globalisation highlighting business culture differences
around the world
• Developments in financial reporting
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Principles v rules
• Debate continues as to whether corporate governance

should be rules or principles
RULES
USA – Sarbanes Oxley Act 2002
PRINCIPLES
UK – Hampel report
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Features of poor governance
• Domination by single individual

• Lack of involvement of board
• Lack of adequate control function
• Lack of supervision
• Lack of independent scrutiny
• Lack of contact with shareholders
• Emphasis on short-term profitability
• Misleading accounts and information
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Directors and stewardship
• A director is someone who works for a company and is

charged with the conduct of management of its affairs.
The directors are collectively referred to as the Board of
Directors, who are elected by the shareholders
• Stewardship theory links to corporate governance as it

views the directors as stewards of the company assets on
behalf of the owners
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Role of the Board 1
The Board:
Executive Chief Non-executive

Chairman
Directors Executive Directors
Audit Remuneration
Committee Committee
• Takes major policy and strategic decisions

• Appointments should be administered by a nomination
committee with formal procedures
• Directors should have a mix of skills and their performance
regularly assessed
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Role of the Board 2
The role that should be taken by the Board has been much
debated. It may include major decisions such as:
• Mergers and acquisitions
• Acquisitions and disposals of major assets
• Investments
• Capital projects
• Bank and other borrowings
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Corporate governance codes
Corporate governance codes in a number of countries have

made a number of recommendations in relation to the Board,
including:
• Individual directors should have relevant experience for
the role, which complement each other.
• The Board should receive appropriate information of
sufficient quality in a timely manner, including non-financial
information.
• The performance of the Board and its members should be
assessed annually (eg by shareholders).
• The roles of chairman and chief-executive should be
separated to prevent domination by one person.
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Non-Executive Directors (NEDs)
• NEDs have non management responsibilities

• Act as a balance to executive management
• Advise Board on issues such as strategy, performance,
risk and remuneration of executive directors
• NEDs can broaden the experience and perspective
available to the Board
• Offer reassurance to shareholders and outside parties
• Must be independent of the company, eg no business or
financial connections with the company
• Limited time appointments
• Represented in remuneration and audit committee
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Remuneration Committee
Membership NEDs
Remit Remuneration policy and specific packages for executive directors
and senior management
Key objectives Procedures for determining remuneration are formal and
transparent
Bonuses should arise from achievement of measurable
performance
All Board remuneration benefits are transparent in statutory
accounts
Remuneration packages align the interests of management and
shareholders
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Audit Committee
Membership NEDs, at least one of whom must have relevant financial

experience
Remit Internal controls within the organisation, liaison with external
auditors, oversight of internal auditors
Key objectives An independent channel is available to report any control issues
Resolving any auditor recommendations and
auditor/management disputes
Financial and control systems in place are adequate, including
an effective internal audit function
Adequate risk monitoring is in place
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Reporting on corporate governance
Companies listed on a Stock Exchange may be required to

provide information on corporate governance (eg the
following are a requirement for the London Stock Exchange):
• A narrative statement of how the principles of the
corporate governance code have been applied
• A statement of compliance with the code throughout the
accounting period, or reasons for non-compliance
• Information about the Board of Directors
• Committee reports (eg Audit & Remuneration
Committees)
• A statement of effectiveness of internal controls
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Corporate Social Responsibility (CSR)
• CSR is the idea that organisations have an obligation to

consider the interests of customers, employees,
shareholders, communities and ecological considerations
in all aspects of their operations.
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Approaches to CSR
• Proactive strategy – taking full responsibility for its actions

• Reactive strategy – waiting until there is a public reaction
before amending the company's ways
• Defence strategy – attempting to avoid additional
obligations caused by a particular problem
• Accommodation strategy – accommodating the concerns
of public and governments in a bid to prevent stricter
legislation being introduced
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For CSR
• Power – large companies can be very powerful and as

they are not democratically accountable may infringe on
others' rights if they do not exercise self restraint
• Infrastructure – companies depend upon society's
infrastructure to function
• Externalities – a company's operations may have social
and environmental consequences which they should pay
for eg pollution and environmental damage
• Public relations – adopting CSR can result in a better
image and greater customer and employee loyalty
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Fair trade chocolate – a marketing tool
Source: http://mindthis.ca/wp-content/uploads/2012/06/fair-trade-chocolate-ad.jpg
accessed 26th February 2016
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Against CSR
• Key objective – companies can benefit societies most by

operating efficiently and maximising wealth for
shareholders
• Taxation – companies already fund society's
infrastructures via taxes
• Sovereignty – it should be up to shareholders to donate to
charities if they wish to do so, not for companies
• Payback – companies should already be focused on
anything that will enhance shareholder wealth without
labelling it CSR
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Range of ethical stances
Described by Johnson & Scholes:

Short-term stakeholder interest – the organisation is
responsible for its ethical stance in the short-term interests of
stakeholder, but the government has a wider longer term
remit
Long term stakeholder interest – wider view of ethical
responsibilities
Multiple stakeholder obligations – the organisation accepts
the legitimacy of the expectations of other stakeholders
Shaper of society – demanding role of 'multiple stakeholder
responsibilities' is usually done by public sector
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Levels of regulation
The relationships between law, governance, social responsibility and ethics

Law Corporate Social Ethics
governance responsibility
Rules individuals Publicly listed No regulations. Values and
and companies companies only are Individuals and principles.
must follow. The regulated. Others companies have a Individuals and
minimum level of are encouraged to free choice. companies are
behaviour society follow ' best Some social expected to follow.
allows. practice'. pressure to act in a Adopting an ethical
socially responsible position is down to
manner. free choice.
More regulation, less freedom of choice. Less regulation more freedom of choice.
• In summary law is highly regulated, corporate governance

is less regulated and social responsibility and ethics have
no regulation as adoption is down to free choice
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Effect on corporate behaviour
Law
Pressure for
Society's ethics social
responsibility
EXTERNAL Corporate governance

PRESSURES
(decision of directors)
INTERNAL PRESSURES
Business
Director's needs to
ethics appear socially
Need of responsible
shareholders
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Specimen exam 1
The following are sanctions used against companies for

potentially unlawful actions:
1. Investigation of its financial affairs by a government
department or agency
2. Imposition of a fine by the government's company
registration body
3. Refusal of the external auditor to sign the financial
accounts
4. Suspension of dealings in securities by the stock
exchange
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Which of the above are the consequences of a listed

company failing to file its accounts?
A. 1 and 2
B. 1 and 3
C. 2 and 4
D. 3 and 4
(2 marks)
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Answer: C
The normal sanctions in such a case is that fines are

imposed on companies by the registration body of the
company and, where listed, the company may be delisted by
the stock exchange authorities. Although the option wasn't
included, sanctions against responsible directors may also
be imposed.
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Specimen exam 2
FKT Company is considering the introduction of a code of

ethics following media criticism of its selling practices.
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Which of the following is most important when deciding on

the content of the proposed code of ethics?
A. The minimum acceptable standard of behaviour and

conduct of employees
B. The legal requirements affecting the sales of core
products and services
C. The main issues of concern to customers who have
made complaints
D. The generally accepted standards by other companies
operating in the same sector
(2 marks)
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Answer: A
Compliance with legal requirements may not eliminate

unethical behaviour. The issues of concern to those who
complain may not be fully representative of issues of
concern to customers in general. Other companies in the
sector may not be concerned about ethical behaviour.
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Specimen exam 3
What is the responsibility of a Public Oversight Board?
A. The establishment of detailed rules on internal audit

procedures
B. The commissioning of financial reporting standards
C. The creation of legislation relating to accounting
standards
D. The monitoring and enforcement of legal and compliance
standards
(2 marks)
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Answer: D
The primary aim of a public oversight board is to eliminate or

minimise any actual or potential breaches of legislative
requirements to ensure compliance with regulations
applicable to organisations within their terms of reference.
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Article
• Corporate governance: The Board of Directors and

Standing Committees
corpgovernance.html
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System by which
organisations are
Risk directed and
management controlled
Corporate social
responsibility
Corporate governance
Do organisations
have an obligation
to consider
Agency stakeholders? Ethical stances
Problem
• Due to • S/T stakeholder

separation • L/T stakeholder
between Board Role = 'Stewardship'
• Multiple stakeholder
owner and • Shaper
manager
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Chief
UK experience Directors Chairman Non-executive 'Balance'
executive
directors
• Cadbury 1992 • Targets • Operational/ • Strategic/
• Greenbury 1995 • Performance internal focus external focus
• Hampel 1995
• Combined Code 'Challenge'
1998
• Turnbull 1999
• Higgs 2003
Remuneration Audit
• Smith 2003
committee committee
• Combined Code
• Policy • Internal control

Reporting • Rewards • Internal audit
requirements • Contract terms • Manage external
audit
• Statement of
compliance/non
compliance
• Committee reports
• Statement of
effectiveness of
internal controls
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Syllabus Area C
Syllabus Area: Accounting and reporting

systems, controls and compliance
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Chapter 8 • Purpose of accounting
information
• Recording transactions
The role of accounting
• External reports
• Users of financial statements
• Professional accountancy
bodies
• Financial accounting v
management accounting
• External auditors
• Internal audit department
• The regulatory system
• Effective systems &
procedures
• Integrated accounting software
• Databases
• Spreadsheets
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The purpose of accounting information

Nature, principles and scope of accounting
The regulatory system
Internal and external financial information
Control over business transactions
The main business financial systems
Manual and computerised accounting systems
Databases and spreadsheets
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The purpose of accounting information
• Accounting is a way of recording, analysing and

summarising transactions of a business
• It is used outside the finance function, by other
departments to make decisions
• The accounting system must be adequate to fulfil these
functions
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Recording transactions
Transactions
Recorded in 'books of prime
entry'
Transactions are analysed

& posted to ledgers
Transactions are
summarised in
financial statements
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An appropriate accounting system
Will depend upon:

• Size of the organisation
• Type of organisation
• Structure of organisation
• Legal jurisdiction of the organisation
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History
• Luca Pacioli wrote the first explanation of double entry

bookkeeping in 1494 – his description of the methods was
widely influential
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Double entry
Debit Credit
Every transaction has a dual effect that balances to zero
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External reports
• The information provided by the accounting system will be

used internally and externally.
• Companies will want to avoid sharing too much information
externally, but must produce:
• Statement of profit or loss
• Statement of financial position
• Statement of cashflows
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Users of financial statements and accounting information
• Managers of the company

• Shareholders
• Trade contacts
• Providers of finance
• Tax authorities
• Employees
• Financial analysts and advisors
• Government and their agencies
• The public
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Requirements to prepare accounts
Financial statements have to be produced as a result of

requirements of:
• Law (companies legislation)
• Tax authority requirements
• Banks (if providing finance to the company)
• Employee reports
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Professional accountancy bodies
• Produce accounting standards with which all published

accounts are expected to comply
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Non-commercial undertakings
• It is not only companies that need to prepare accounts.

• Charities and clubs are also required to maintain accounts
and prepare financial statements.
• Donors may wish to scrutinise charity accounts to see
where funds have been spent.
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Qualities of good information
• Accurate – free from error

• Complete – must include all transactions
• Comparable – produced on consistent basis
• Unbiased
• Relevant – for the decision/use
• Appropriately detailed
• Timely
• Easy to use
ACCURATE
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Design of accounting function
• Typically large organisations structure their accounting

functions on the lines of:
FINANCE DIRECTOR
(reports to CEO/Board of
directors)
MANAGEMENT ACCOUNTANT
TREASURER FINANCIAL CONTROLLER
(responsible for cash (responsible for routine
(responsible for budgets/ cost
flow control) accounting)
accounting)
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Financial accounting v management accounting
• External • Forward looking

• Historical • Used to make
• Reports what has decisions internally
happened • Change plans by
looking forward
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External auditors
• The statutory annual accounts of a company, subject to a

minimum size requirement, need to be audited by an
independent qualified person.
• Auditors prepare an audit report.
Qualified –
Unqualified –
Issues in
All fine
accounts
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Internal audit department
• Many organisations also have an internal audit department

• Designed to alleviate the risks of error and fraud
• Checks internal control systems operate effectively
• Reports to audit committee
• Employees of the company
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Other departments and sections
Department Accounts section Relationship
Purchases Payables ledger PD advises PL of purchase orders
Dept (PD) (PL) PD indicates valid invoices
Cashier (C) C informs PD and PL of payment
HR dept Payroll HR dept gives details of wage rates,
starters and leavers to payroll
Sales Dept Receivables ledger SD advises RL of sales order
(SD) (RL) RL might give CC information about
Credit control overdue debts and debtors ageing
(CC)
Operations, Cost accounting Operations give details of movements of
inventory staff inventory so accounts staff can value
controllers inventory and provide costing reports
Senior Financial Produces aggregate information for
management accounting & cost decision making and control throughout
accounting business
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The regulatory system
Factors affecting the regulatory system:

• Company law
• Accounting concepts and individual judgement
• Accounting standards
• European Union
• Other international influences
• Generally accepted accounting practice (GAAP)
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Business transactions
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Effective systems & procedures
Are essential to ensure that:

• Relationships with customers are effectively managed
• Relationships with suppliers are effectively managed
• Office functions interrelate properly and are not duplicated
Policies and procedures may be grouped together into a

policy manual.
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Financial control procedures
Exist to ensure that:

• Transactions are correctly recorded
• Business assets are safeguarded
• Production of accurate and timely information
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Examples of financial control procedures
• Cheques/bank transfers over a certain amount need two

signatures
• Authorisation limits on purchase orders
• Authorisation of expense claims
• Effective credit control procedures
• Effective computer security and access levels
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Weaknesses may be signalled by
• Cash or cheques going missing

• Excessive bad or doubtful debts
• Customers not paying within credit terms
• Suppliers not being paid on time
• Unauthorised purchases being made
• Failure to produce accounts or other reports at the
specified time
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Function
There are a number of functions to be managed within a

business:
• Purchasing
• HR
• Finance
• Sales and marketing
• General administration
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Controlling payroll
Key controls over payroll cover:

• Documentation and authorisation of staff changes
• Calculation of wages and salaries
• Payment of wages and salaries
• Authorisation of deductions
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Payroll system
Outputs:
Inputs into a Payslips
payroll system: Payroll
Clock cards
processing Payroll analysis
Time sheets
Bonus details Income tax reports
Salary systems
Confirmation of
payment
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Payroll controls
Will be needed to ensure the correct amounts are paid to

employees and the tax authorities.
Examples of controls:
• Segregation of duties
• Authorisation to change standing data
• Reconciliations between total pay and deductions
• Comparing budgeted payroll with actual
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Purchases and sales cycle
• Purchasing is an important area to control, especially for

high value items.
• Only properly authorised purchases should be made.
• Documents should be matched at all stages of the
process to ensure the organisation gets what is ordered
and only pays for what it orders and receives.
• The payables ledger makes it possible to know how much
is owed to each supplier.
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Payables ledger system
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Controls over purchasing
Will be based around:

Buying – authorisation
Accounting – recording
Goods inwards – custody
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Ordering control
ORDERING
– Use certain suppliers only

– Obtain authorisation
– Use prenumbered forms
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Goods received
GOODS
RECEIVED
– Compare goods received

note with purchase order
– Check condition of goods
received
– Check supplier invoice
correct
– Record goods returned
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Accounting/recording
ACCOUNTING/
RECORDING
– Segregate duties of
accounting and checking
– Record purchase/returns
promptly
– Compare supplier
statements to payables
ledger
– Check payment properly
authorised
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Sales cycle 1
• Only properly authorised sales should be made.

• Businesses only want to give credit to customers who will
pay their debts.
• Documents should be matched at all stages of the
process to ensure the customer gets what it ordered, is
invoiced for the correct goods and amounts and pays for
what it orders and receives.
• The receivables ledger makes it possible to know how
much is owed by each customer.
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Sales cycle 2
Controls will be based around:

Selling – authorisation
Accounting – recording
Goods outwards – custody
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Receivables ledger system
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Selling controls
SELLING
– Segregate duties of credit

control, invoicing and
despatch
– Obtain authorisation for
credit terms for customers
– Use prenumbered forms
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Goods outwards controls
GOODS
OUTWARDS
– Authorisation of despatch
of goods
– Check condition of goods
returned
– Check signature of
delivery notes
– Match sales invoices with
despatch and delivery
notes and sales order
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Accounting/recording controls
ACCOUNTING/
RECORDING
– Segregate duties of
accounting and checking
– Record sales sequentially
– Match cash receipts to
invoices
– Prepare regular
receivables statements
– Retain customer
remittance advice
– Review and follow up
overdue accounts
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Controlling cash
Controls over cash receipts will include:

• Receipts must be promptly banked
• Records of receipts must be complete
• Loss of receipts through theft or accident must be
prevented
Controls over payments
• Documentary evidence of reason
• Authorisation of payment
• Restricting authority to make payment to specified
individuals
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Bank reconciliations
• Used to compare cash book to the bank statement.

Differences can be classified as:
• Timing differences (payments and receipts)
• Standing orders and direct debits not entered in the cash
book
• Bank charges not entered in cash book
• Funds received by transfer and not recorded in cash book
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Manual v computerised accounting systems
• The principles behind computerised accounting are the

same as those of manual accounting
• Computerised accounting tends to rely on accounting
packages which comprise several modules (eg sales
ledger, purchase ledger)
• Manual systems are usually inferior to computerised
systems
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Disadvantages of manual systems
Disadvantage Comment
Productivity Lower, particularly in routine or operational situations such
as transaction processing
Slower Processing is slower where large volumes of data need to
be dealt with
Risk of errors Greater, especially in repetitive areas, such as payroll
Less accessible Generally restricted to one user at a time
Quality of output Less consistent and not as well designed
Bulk Paper based systems are very bulky to handle and store
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Integrated accounting software
Has automatic links between separate accounting modules
One entry updates others Greater computer memory
needed
Users specify reports Fewer facilities than
specialist modules
Users' workload is
simplified
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Example of an integrated accounting system
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Databases
• A database is a 'pool' of data, which can be used by any

number of applications.
• Its use is not restricted to the accounts department.
Examples:
• Non-current assets database
• Customer database
• Supplier database
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Database approach
* The range of applications which make use of a database will widely, depending on what data is
held in the database files.
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Advantages and disadvantages of databases
No duplication of effort/data Breakdown, especially if
complex
Easy to manage updates Access issues
Conflicts between
departments who use
inconsistent data are
avoided
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Spreadsheet
• Is essentially an electronic piece of paper divided into rows

and columns with a built in pencil, eraser and calculator. It
provides an easy way of performing numeric calculations
• Used in financial accounting and cost accounting
• Used to create financial models
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Spreadsheet extract
A B C D E
1 BUDGETED SALES FIGURES
2 Jan Feb Mar Total
3 £'000 £'000 £'000 £'000
4 North 2,431 3,001 2,189 7,621
5 South 6,532 5,826 6,124 18,482
6 West 895 432 596 1,923
7 Total 9,858 9,259 8,909 28,026
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Specimen exam 1
The major purpose of the International Accounting Standards

Board (IASB) is to ensure consistency in ____________.
(1 mark)
Which two words complete the sentence above?
A. Financial control
B. Corporate reporting
C. External auditing
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Answer: B
The ISAB aims to promote consistency in corporate reporting

by creating financial reporting standards to which major
businesses are expected to adhere.
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Specimen exam 2
The system used by a company to record sales and

purchases is an example of which of the following?
A. A transaction processing system

B. A management information system
C. An office automation system
D. A decision support system
(2 marks)
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Answer: A
A transaction processing system enables all sales and

purchase transactions to be recorded by volume and
category.
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Specimen exam 3
Malachi has been asked by his manager to obtain

information about ABC Company, which is bidding for a
contract offered by Malachi's company in the near future.
The two statements which he will use as his sources are the
statement of financial position (SOFP) and the statement of
profit or loss (SOPL). The information he is required to obtain
is as follows:
1. The equity of the company
2. Operating costs as percentage of turnover
3. Long-term borrowings
4. Liquidity
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Which of the following matches the above items of

information with the financial statements in which they would
be found?
1 2 3 4
A. SOFP SOPL SOPL SOFP
B. SOPL SOFP SOFP SOPL
C. SOPL SOFP SOPL SOFP
D. SOFP SOPL SOFP SOFP
(2 marks)
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Answer: D
The key correctly matches the information required to the

particular financial statement in which they are found.
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ASB IASB
Internal Companies
Users Act
Accounting
External Co Law concepts
Purpose of accounting Nature, principles and

UK Regulatory system
information scope of accounting
• Recording
• Analysing Financial Management Accounting GAAP EU
• Summarising standards
Qualities
• Relevance
• Reliability
• Objectivity
• Completeness 'True and fair view'
Role of Structure
• Timeliness accounting
• Comparability
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Spreadsheets Drawbacks of
manual systems
Manual and computerised Control over business

accounting systems transactions
• Financial controls
Accounting Integrated Databases • Procedures

packages software
• Advantages
• Disadvantages
Modular
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Chapter 9 • Internal controls
• Framework of controls
Control, security and • Types of control
audit • Control procedures
• Internal audit & internal control
• Systems audit
• External audit
• IT systems security and safety
• Integrity
• Input controls
• Data validation controls
• Processing controls
• Output controls
• Back-up controls
• Archiving
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Internal control systems

Internal control environment and procedures
Internal audit and internal control
External audit
IT systems security and safety
Building controls into an information system
Fintech and financial systems
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Internal controls
Should help organisation:

• Counter risks
• Maintain the quality of reporting information
• Comply with laws and regulations
• Provide reasonable assurance that the organisation will
fulfil its objectives
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Framework of controls
• Control environment (culture)

• Control procedures (written down)
• Information and communication processes (monthly
updates)
• Processes monitoring their continual effectiveness
(internal audit)
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Limitations
Inherent limitations of an internal control system:

• Cost v benefits
• Potential for fraud or human error
• Employee collusion
• Bypassing/overriding of controls by management
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Types of control
Control can be split into…
Control Control
environment environment
• Philosophy • Prevent
• Management style • Detect
• Strategy • Correct
• Culture
• Ethical principles
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Elements of a strong control environment
• Clear strategies for dealing with the significant risks

identified
• The company's culture, code of conduct, HR policies and
performance reward systems supporting business
objectives and risk management and internal control
systems
• Senior management commitment fostering climate of trust
• Communication to employees of what is expected of them
and their freedom to act
• People having knowledge, skills and tools to support
achievement of organisation's objectives
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Control procedures
• Physical
• Accounting
• Management
• Supervision
• Organisational structure
• Authorisation and approval
• Personnel
SPAM SOAP
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Classification of control procedures
Classification Detail
Administration Concerned with achieving objectives and implementing
policies
Controls relate to channels of communication and
reporting responsibilities
Accounting Provide accurate accounting records and achieve
accountability
Apply to recording transactions and establishing
responsibilities for records, transactions and assets
Detect Designed to detect errors eg bank reconciliation and
physical inventory count
Correct Designed to minimise and negate the effects of errors
eg computer back-up at the end of the day
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Internal audit and internal control
• Internal audit is part of an internal control system which

assesses the effectiveness of other controls
• Internal auditors' work depends on the scope and priority
of the identified risks.
• They may have to conduct a risk assessment from which
they will recommend an appropriate framework
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Key features of internal audit
Independence
– from whom they are
reviewing
Appraisal
– they review work rather
than doing it
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Work of internal audit department
• Review systems of accounting and internal control

• Examination of information – both financial and operating
• Review of the economy, efficiency and effectiveness of
operations
• Review of compliance
• Review of safeguarding of assets
• Review of implementation of corporate objectives
• Identification of significant business risks, monitoring
overall risk management policy and monitoring risk
management strategies
• Special investigations
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Types of audit
• Operational – monitor management's performance and

are sometimes known as 'management efficiency' or 'value
for money' audits
• Systems – test and evaluate internal controls
• Transactions – aims to detect fraud and uses only
substantive tests
• Social
• Management investigations
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Systems audit
Compliance
Are controls applied as
intended?
Eg do a walk through
Substantive
Are there any errors or
omissions?
Eg test a sample
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Independence
• It is vital that the internal auditor is and is seen to be

independent. This can be a challenge as they are also
employees of the company.
Independence is established by:
• The responsibility structure – report direct to audit
committee
• The auditor's own approach – objective, detached and
honest
• The auditor's mandatory authority – should not implement
new controls or procedures
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Internal audit
The internal audit department plays a

significant part in an organisation's risk
management process.
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External audit
External audit is the regular examination

of the organisation's records by an
independent outside party to ensure that
they have been properly maintained and
give a true and fair view of the entity's
financial state.
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Differences between internal and external audit
Difference Internal External

Reporting to Board of Directors Shareholders
Reason Add value and Express an opinion on
improve organisation's the financial
operations statements
Work relating to Operations of the Financial statements
organisation
Relationship with the Employees of the Independent of the
company company company and its
management
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Co-ordination
• There needs to be co-ordination between the external and

internal auditors to ensure that duplication of work is
minimised.
• If external auditors can rely to an extent on the work of the
internal audit department they will have to do less testing
themselves. To make this judgement they need to
consider:
– Organisational status
– Scope of internal audit functions
– Technical competence
– Due professional care
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Objectives of an internal control system
• To enable management to carry on the business of the

enterprise in an orderly and efficient manner
• To satisfy management that their policies are being
adhered to
• To ensure that assets of the company are safeguarded
• To ensure, as far as possible, that the enterprise maintains
complete and accurate records
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IT systems security and safety
It is important that IT systems secure and protect the data

and information that they process and store.
Security can be classified as:
• Prevention
• Detection
• Deterrence
• Recovery procedures
• Correction procedures
• Threat avoidance
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Physical threats to security
• Could be natural or man made.

• They include fire, flooding, weather, lightning, terrorist
activity or accidental damage
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Physical access control
Seek to prevent intruders accessing the IT system and

include:
• Security staff
• Door locks
• Keypads or card entry systems
• Intruder alarms
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Theft
• Computer theft is an increasing problem as equipment

becomes smaller and more portable.
• The loss of a physical asset is a concern, but the loss of
data stored on the computer may cause a bigger problem.
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Risks to data
• Human error
• Technical error such as malfunctioning hardware or
software
• Natural disasters
• Fraud
• Commercial espionage
• Industrial action
• Cyber attack
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Cyber risk, attack and security
• Cyber risk is a term that covers a number of

organisational risks which are possible consequences of a
cyber-attack.
• Such risks include; financial losses, reputational damage
and operational disruption.
• Cyber-attacks are deliberate attempts to damage an
organisation by using the Internet to take advantage of
poor security controls and system integrity.
• Cyber security is the protection of computer systems
from the risk of cyber-attack through the use of hardware
and software security procedures and controls.
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Examples of cyber attack
• Phishing and pharming

• Hacking
• Distributed denial of service
• Webcam manager
• File hijacking and ransomeware
• Keylogging
• Screenshot manager
• Ad clicker
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Cyber security methods
• Access control
• Boundary firewalls and internet gateways
• Malware and virus protection
• Patch management
• Secure configuration
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Integrity
Data integrity – preserved when data

is the same as in source documents
and has not been accidentally or
intentionally altered, destroyed or
disclosed
Systems integrity – refers to system

operation conforming to the design
specification despite attempts
(deliberate or accidental) to make it
behave incorrectly
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Maintaining integrity
• Data will maintain its integrity if it is complete and not

corrupted
Achieved by:
• Input controls
• Processing controls
• Output controls
• Back-up controls
• Archives
• Password and logical access systems
• Administrative controls
• Audit trail
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Input controls
Aim to ensure accuracy, completeness and validity of

input.
Types:
• Data verification
• Data validation
Examples:
• Check digits
• Control totals
• Hash totals
• Range checks
• Limit checks
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Processing controls
• Should ensure the accuracy and completeness of

processing
• Programmes should be subject to development controls
and to rigorous testing
• Periodic running of test data is also recommended
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Output controls
Output controls should ensure the accuracy, completeness

and security of output.
The following measures are possible:
• Investigation and follow-up of error reports and exception
reports
• Batch controls
• Controls over distribution/copying of output
• Labelling of disks/tapes
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Back-up controls
• Back-up means to make a copy in anticipation of future

failure or corruption. A back-up copy of a file is a
duplicate copy kept separately from the main systems
and only used if the original fails.
Back-up and archive strategy should include:

• A plan and schedule for the regular back-up of critical data
• Archive plans
• A disaster recovery plan that includes off-site storage
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Archiving
• Moving data from primary storage to tape or other portable

media for long-term storage
• Frees up disk space
• Length of time it is kept for will depend upon legal
obligations and other business needs
• Data stored for a long time should be checked periodically
for damage
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Audit trail
• Shows who accessed a system and the operations

performed
• Used to identify errors and detect fraud
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Disaster recovery plan
A disaster recovery plan must provide for:

(a) Standby procedures so that some operations can
be performed while normal services are disrupted
(b) Recovery procedures once the cause of the breakdown
has been discovered or corrected
(c) Human resource management policies to ensure
(a) and (b) are implemented properly
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Fintech and accounting systems 1
• Cloud computing: the provision of computing through the

internet as a consumable service instead of a purchased
product.
• Cloud accounting: the provision of accountancy software
through the cloud.
• Automation: the ability of systems to perform routine
activities and processing of data without the input of a
human.
• Artificial intelligence: the ability of computer systems to
assist a human operator to make business decisions or
help solve problems.
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Fintech and accounting systems 2
• Big data: sets of data of such size that traditional

databases are unable to store, manage or analyse them.
• Data analytics: the collection, management and analysis
of large data sets (such as big data) with the objective of
discovering useful information, such as customer buying
patterns, that an organisation can use for decision making.
• Distributed ledger technology (Blockchain): technology
that allows organisations and individuals who are
unconnected to share an agreed record of events, such as
ownership of an asset.
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Specimen exam 1
What is the primary responsibility of the external auditor?
A. To verify all the financial transactions and supporting

documents of the client
B. To ensure that the client's financial statements are
reasonably accurate and free from bias
C. To report all financial irregularities to the shareholders of
the client
D. To ensure that all the client's financial statements are
prepared and submitted to the relevant authorities on time
(2 marks)
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Answer: B
The external auditor has to ensure that the financial

statements of the organisation truly reflect the activities of
the business in the relevant accounting period. This
assessment should be independent and therefore free from
any subjectivity on the part of the management of the client
organisation.
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Specimen exam 2
The implementation of a budgetary control system in a large

organisation would be the responsibility of the internal
auditor.
Is this statement true or false?
A. True
B. False
(1 mark)
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Answer: B
The implementation of a budgetary control system would be

the responsibility of the financial controller in many
organisations. The internal auditor is not responsible for
implementing systems, but is involved in monitoring the
effectiveness of these systems.
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Specimen exam 3
The following are duties of either internal or external

auditors:
1. Confirming that the financial accounts present a true and
fair view
2. Confirming that there are appropriate policies for
preventing and detecting fraud
3. Confirming that the financial accounts have been prepared
in accordance with legal requirements
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Which of the above are the roles of an external auditor?
A. 2 and 3
B. 1 and 2
C. 1 and 3
(1 mark)
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Answer: C
The external auditor is responsible for ensuring that financial

reports portray a true and fair view and comply with legal
disclosure requirements. External auditors are not
responsible for ensuring that systems exist to prevent fraud.
BPP LEARNING MEDIA

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• Locking the computer = general control
• Password protecting payroll = general control
• Backing up files daily = general control
• IT training to prevent errors = application control
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2 (b) 1 mark per correct answer

• Segregation of duties should prevent fraud and errors in
handling cash as no one individual can record and process
a complete transaction
• Induction and training should be used to make sure that
staff are aware of the heavy sanctions in cases of
dishonesty
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Control, security and audit
Internal control Security Audit
Differences
Procedures Environment IT systems

Internal External
• Philosophy
• Style 'True and fair view'
• Values
• Culture Features Types
• Prevent • Code of conduct
• Detect • Independence • Systems
• Correct • Appraisal • Operational
• Transactions
Tests • Social
• Management
• Compliance
• Substantive
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Segregation Financial controls

Physical • Approved
Authorisation checking
Management • Reconciliation
• Prevention
Supervision • Comparison
• Detection
Organisation
Audit • Deterrence
• Recovery
Personnel
• Correction
• Threat
avoidance
Security Integrity Contingency
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Chapter 10 • Types of fraud
• Intentional misrepresentation
Identifying and • Potential for fraud
preventing fraud • Assessing the risk of fraud
• Detection & prevention
• Fraud officer role
• Whistle blowing
• Fraud response plan
• Investigation procedures
• Responsibility for detecting &
preventing fraud
• Money laundering
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What is fraud?
Potential for fraud
Implications of fraud for the organisation
Systems for detecting and preventing fraud
Responsibility for detecting and preventing fraud
Money laundering
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Types of fraud
Two categories of fraud
Removal of funds or
Misrepresentation
assets from business
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Removal of funds or assets from a business
Theft:
• Theft of cash – employees with access to cash may be
tempted to steal it eg petty cash. Small amounts taken at
intervals may go unnoticed.
• Theft of inventory – employees may pilfer inventory. It
may only be small items (like stationery) and as such may
not be investigated as it is not material. Larger items may
also be taken.
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Payroll fraud
Within or outside payroll department:

• External employees can falsify their timesheet, eg
claiming overtime they have not worked.
• Payroll employees may deliberately miscalculate selected
payslips, by changing hours or pay rates.
• A fictitious member of staff could be added to payroll
list. The fraudster sets up a bank account in the bogus
name and collects the extra cash. This is most feasible in
large organisations where all employees are not personally
known.
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Teeming & lading
• Common sales ledger fraud

• Theft of cash or cheque receipts
• Setting subsequent receipts (not necessarily from the
same customer) against the debt conceals the theft
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Fictitious customers
• Elaborate method of stealing inventory

• Bogus orders are set up
• Goods despatched on credit
• The 'customer' then fails to pay for the goods
• Debt gets written off
Who can do this?

• The employee must have the authority to approve new
customers for credit and have responsibility for taking
goods orders.
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Collusion with customers
• Employees may collude with customers to defraud the

business by manipulating prices or the quality and quantity
of goods despatched
Methods:
• Sales manager could reduce the goods for a cut of the
saving
• Employee writes off debt/issues credit note for financial
reward
• Suppress invoices or under-record quantities of
despatched goods for a reward
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Bogus supply of goods or services
• Senior staff who falsely invoice the firm for goods or

services that were never supplied
• Eg consultancy services
• Authenticity increased by the individual setting up a
personal company that invoices the business
• Difficult to prove
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Paying for goods not received
• Staff may collude with suppliers, who issue invoices for

larger qualities of goods than were actually delivered
• The additional payments are split between the two parties
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Other types of fraud
• Meeting budgets/target performance measures

• Manipulation of bank reconciliations and cash books
• Misuse of pension funds or other assets
• Disposal of assets to employees
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Intentional misrepresentation 1
Aim – overstate profits

Methods:
1. Over-valuation of inventory
• Manipulation of records – miscounting at inventory
counts
• Deliveries to customers may be omitted from the books
• Returns to suppliers may not be recorded
• Obsolete inventory may not be written off but rather held
at cost in the accounts
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2. Irrecoverable debt policy may not be enforced

Aged receivables who are obviously not going to pay
should be written off.
3. Fictitious sales
4. Manipulation of year end events

Known as window dressing – eg sales made just before
the year end can be deliberately over invoiced and credit
notes issued at the start of the new year
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5. Understating expenses
6. Manipulation of depreciation figures – because this does

not have a cash effect, depreciation figures are easily
tampered with.
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Potential for fraud
Dishonesty
All three needed

for fraud to be a
possibility
Motivation Opportunity
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Dishonesty
Individuals pre-disposition or tendency to act in certain ways.

Can arise from:
• Personality factors
• Cultural factors
Basically some people will find it 'easier' to commit fraud

than others.
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Motivation
As well as a general predisposition to act dishonestly, the

individual needs a motivation to do so – they must consider if
it is worth doing, so weigh up:
• Potential rewards
• Potential sanctions
Goals or motives for fraud may be:
• Financial needs or wants (how desperate they are)
• Desire to exert negative power
• Desire to avoid punishment (eg if covered up)
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Opportunity
Even if a person is willing to act dishonestly and has a

motive for doing so they must still find an opportunity or a
loophole in the law or control system that:
• Allows fraudulent activity to go undetected

• Makes the risk of detection less likely
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Assessing the risk of fraud
Signs of high risk fraud include indications of:

• Lack of integrity
• Excessive pressures
• Poor control systems
• Unusual transactions
• Lack of audit evidence
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Factors to consider
Factors to consider
External factors: Internal factors:

Eg Eg
General environment New personnel
Nature of the industry Rapid growth
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Business risk
• Profit levels/margins deviating significantly from the

industry norm – if things seem too good to be true, then
they usually are
• Market opinion – reputation
• Complex structures – more susceptible to fraud because
things get 'lost' in intercompany accounts
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Enron
• Biggest accounting fraud in history

• Company grew from nowhere to 7th largest US company
in just 15 years
• Employed 21,000 people in 40 countries
• Elaborate scam – lied about profits, concealed debts
• Ended in bankruptcy in 2001
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Enron fallout
Repercussions rocked wider business world:

• Factor in Sarbanes-Oxley Act 2002
• Caused dissolution of Arthur Andersen accounting firm
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Personnel risks
Fraud is not usually easy to hide.

Behaviour can give clues:
• Secretive behaviour
• Expensive lifestyles
• Long hours or untaken holiday
• Autocratic management style
• Lack of segregation of duties
• Low staff morale
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IT risks
Organisations are increasingly dependent on computer

systems, but this increases the risk of fraud due to:
• Computer hackers
• Lack of training in management team
• Identifying risks
• Need for ease of access and flexible systems
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Impact on business
• The way in which the organisation is affected depends

upon the type of fraud being carried out:
• Immediate financial implications – lower profits and
returns to shareholders
• Long term effects on company performance – reduction in
working capital which makes it more difficult to trade or
leads to ultimate financial collapse
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Overstating results
If results are overstated the impact is demonstrated by:

• Immediate financial implications
• Long-term effects on company performance
• Intentional misrepresentation of the business's financial
position
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Understating results
If results are understated the impact is demonstrated by:

• Negative publicity
• Legal consequences
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Barings Bank
• http://news.bbc.co.uk/1/hi/business/375259.stm
• Nick Leeson's actions caused the bank to collapse

because of the lack of systems and controls in place
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Systems for preventing fraud
In order to prevent fraud managers must:

• Be aware of the risks and signs of fraud
• Make fraud prevention an integral part of strategy
• Have a control system to detect and investigate fraud
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Reasons for fraud
Management must have an understanding of how and why

frauds might arise:
• Industry specific reasons – eg lower profit margins due
to increased competition may lead to a temptation to
manipulate results
• Business specific reasons – eg extensive authority to
dominate managers, lack of supervision, a strategy which
emphasises results
• Change in circumstances – eg control environment may
become obsolete if a new structure or IT system is
implemented
• Certain areas are higher risk – eg cash sales
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Reasons for poor controls
• Lack of emphasis on compliance

• Lack of understanding of why controls are required
• Staff problems – eg understaffing can lead to shortcuts
• Changes in senior management personnel
• Emphasis on autonomy of operational management may
lead to controls being bypassed
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General prevention policies
• Emphasising ethics
• Personnel controls
• Training and raising awareness
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Prevention of fraud in specific business areas
Controls will be needed in specific areas where a high risk of

fraud has been identified.
Examples include:
• Appropriate documents required for all transactions
• Limitation controls
• Certain actions prohibited eg leaving a computer without
logging off
Internal audit work should concentrate on high risk areas
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Detection & prevention 1
Internal controls will also be used to detect fraud.

Examples include:
• Physical controls
• Authorisation policies
• Customer signatures
• Using words rather than numbers
• Documentation
• Sequential numbering
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Detection & prevention 2
Internal controls will also be used to detect fraud.

Examples include:
• Dating documents
• Standard procedures eg independent checks on existence
of new customers
• Holidays
• Recruitment policies
• Computer security
• Fraud officer
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Everyone's responsibility
Managers and staff should be aware of their responsibilities

to help in detecting fraud.
Fraud detection is also helped by having information readily
available and allowing whistle blowing.
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Responsibility for detecting fraud
Person/team Role & responsibility

Operational Alert for signs of petty fraud
managers Supervising staff
Finance staff Alert for unusual items or trends in data & incomplete
information
Personnel staff Alert for signs of discontent and low morale
Internal audit Ensure systems and controls are thoroughly reviewed

staff May perform surprise visits alongside annual checks
NEDs Act on signs of dishonesty by senior executive
management
Audit committee should review the organisation's
performance
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Fraud officer role
Responsible for:
• Initiating and overseeing fraud investigations
• Implementing the fraud response plan
• Implementing follow-up actions
Should be able to talk confidentially to staff and provide

advice without consulting senior management
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Whistle blowing
• Fraud detection has been increased by legislation

protecting employees who reveal fraud or malpractice in
the workplace
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GSK
• Cheryl Eckard was awarded a $96m settlement after she

exposed contamination problems at GSK's
pharmaceutical manufacturing operations in Puerto Rico.
• She worked as a quality controller and reported
irregularities and a cover-up which led to civil and criminal
prosecutions.
• http://www.theguardian.com/business/2010/oct/27/glaxosm
ithkline-whistleblower-wins-61m
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Fraud response plan
• Organisations should establish a fraud response plan,

setting out how the fraud and possible suspects should be
investigated.
• Quick response may be necessary to prevent records
being falsified. This could involve staff suspension or
changing access.
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Investigation procedures
Should be designed with the following aims in mind:

• Establishing the extent of the loss
• Establishing how the fraud occurred
• Considering who else might have been implicated in the
fraud
• Assessing whether internal controls were not operating
properly or whether they were insufficient to prevent or
identify the fraud
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Responsibility for detecting & preventing fraud
Directors:
• Responsible for the prevention and detection of fraud
External auditors:
• Reasonable expectation of detecting material fraud
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Money laundering
Definition – money laundering constitutes any financial

transactions whose purpose is to conceal the origins of the
proceeds of criminal activity
• Country specific legislation will often be in place

• More onerous legislation will govern the activities of
investment firms and banks
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Money laundering process
Placement – initial disposal of

illegal activity into apparently
legal business activity eg
smurfing
Layering – transfer of money from

business to business to conceal
original source
Integration – now appears as

legitimate money and can be
banked as such
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Typical money laundering scheme
PLACEMENT
LAYERING
Dirty Money Integrates
Into the Financial System
Collection of Dirty Money A TYPICAL
MONEY
LAUNDERING Transfer on
Payment by the Bank
SCHEME ''Y'' of False Account of
Invoice to Company ''X''
Purchase of
Company ''X''
Luxury Assets
Financial Investments
Commercial/Industrial Investments Wire
Transfer
Loan to
Company ''Y''
INTEGRATION Offshore
Bank
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Money laundering legislation
Vienna Convention 1988

• This was the first international agreement to stop the
international effects of money laundering.
• Nations agreed to make it illegal (hence the Criminal
Justice Act 1993 in the UK makes it illegal).
• Key issues: Mutual assistance; Extradition
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Money laundering – international issues
• The nature of money laundering makes it ideal to carry out

internationally, transferring money between countries.
• This can make it difficult to police.
• It is also why it is important that it is illegal in as many countries as
possible.
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Specimen exam 1
In the context of fraud, 'teeming and lading' is most likely to

occur in which area of an operation?
A. Sales
B. Quality control
C. Advertising and promotion
D. Despatch
(2 marks)
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Answer: A
Teeming and lading involves the theft of cash and is a type of

fraud that is carried out by manipulating transactions. There
would be most potential for this fraud within the sales
department where cash may be received and remitted.
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Identifying and
preventing fraud
Money Preventing and detecting

What is fraud?
Laundering fraud
Misrepresentation
• Over-valuation of stock Removal of funds
• Bad debt policy may • Theft of cash • Collusion with customers
not be enforced • Theft of stock • Bogus supply of goods services
• Fictitious sales • Payroll fraud • Paying for goods not received
• Manipulation of year • Teeming and lading • Misuse of pension funds or other
end events assets
• Understating expenses • Fictitious customers • Disposal of assets to employees
• Manipulation of • Manipulation of bank
depreciation figures reconciliations and cash book
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What is the potential

for fraud?
For fraud need: Types of risk:
• Dishonesty • Business Systems
• Motivation • Personnel
• Opportunity • IT Responsibility
Policies General controls

• Ethics (See Chapter 9)
• HR controls
Immediate • Training
Directors Auditors
Overstate issues re:
Longer-term
What are the
implications? Financial
Wrong decisions Internal External
Motivational
Stakeholder
Understate issues re:
Negative PR
Legal
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Syllabus Area D
Syllabus Area: Leading and managing

individuals and teams
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Chapter 11 • Sources of Power (Handy)
• Henri Fayol – 5 functions of
management
Leading and managing
• Fredrick Taylor – scientific management
people
• Human relations school
• Peter Drucker
• Mintzberg – the manager's role
• Trait theory
• Ashridge management styles
• Blake & Mouton's Managerial Grid
• Contingency approaches to leadership
• F E Fiedler
• John Adair – action centred leadership
• Bennis: management v leadership
• Heifetz (1994) – dispersed leadership
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The purpose and process of management

Writers on management
Management and supervision
What is leadership?
Leadership skills and styles
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The purpose and process of management
Management = 'Getting things done through other

people'
• Set objectives
• Monitor progress and results
• Communicate corporate values
• Stewardship
• Looking after stakeholders
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Authority v responsibility
Management take responsibility to organise people and get

things done, using authority and power
Authority v responsibility
Authority – ability to make decision
Responsibility – obligation to perform duties
Authority can be delegated in an organisation, but

responsibility cannot.
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Delegation
Delegation is essential for running an organisation. It also

has other benefits:
• Training – avoids succession crisis as subordinates gain
experience
• Motivation – responsibility is important for job satisfaction
and motivation (Herzberg)
• Assessment – of subordinate's performance
• Decisions – made by people who are closer to the
situation and therefore have more knowledge
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Authority v power
Authority and power flow downwards through the formal

organisation
• Authority = right to do something

• Power = ability to do it
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Weber
Proposed three ways in which people can acquire power:

• Charismatic authority – arises from the personality of the
leader and their ability to inspire devotion
• Traditional authority – rests on established belief in the
importance of tradition and the status it confers
• Rational-legal authority – arises from the working of
accepted normative rules
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Sources of power (Handy)
Power Details
Physical Superior force power
Resource Control over the resources valued by the
individual/group
Coercive Based on fear of punishment
Reward Related to resource, eg power to increase pay
Position/legitimate Associated with particular job (similar to authority)
Expert Based on expertise – only works if others acknowledge
expertise
Referent Personal qualities of individual
Negative Use of disruptive attitudes and behaviour to stop things
from happening
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Power centres
The degree and type of power individuals exploit depends

upon their position in the organisation hierarchy:
Senior management – have coercive and reward powers

Middle managers – reward power, but could also have
expert power and negative power. Their legitimate power
comes from formal job descriptions
Interest groups – wield power in conflict situations eg trade
union
Departmental power – varies according to type of
organisation
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Manager's role in organising work
• Work planning
• Assessing where resources are most usefully allocated
• Project management
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Project management 1
Project management
• A 'project' according to Haynes is:
– An undertaking that has a beginning and an end
– Carried out to meet established goals within cost,
schedule and quality objectives
• Note. Not a continuous, ongoing activity
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Role of the project manager (team management has

many of these aspects)
• Outline planning: strategy, procedures, targets

• Detailed planning: identify tasks, resources
requirements; network analysis for scheduling
• Team-building: establish project identity – multi-functional
(or multi-organisational) if required
• Communication: brief team members, feed back on
progress, reporting, lead meetings
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Role of the project manager (cont'd)
• Co-ordination: Integrate schedules and work flows

• Monitoring and control: Identify and correct departures
from plan
• Problem solving: Interpersonal, task, contingency
• Quality control: Juggle time/cost and quality targets
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Types of projects
Examples of projects
• A construction project (planning → completion)
• Design/development of a new IT system
• Installation of new equipment
• Launch of a new product
• Deliver consultancy report to a client
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Development of management & leadership theory
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Henri Fayol – 5 functions of management
Fayol (1899) suggested that all management revolved

around carrying out five functions:
• Planning
• Organising
• Commanding
• Co-ordinating
• Controlling
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Fredrick Taylor – scientific management
Taylor (1856–1917) argued that managers must take

responsibility for design and performance of jobs at all levels
in the organisation.
Four principles of scientific management:
• Development of the true science of work – with written
down methods and procedures
• Application of scientific techniques to job design
• Scientific selection and development of worker motivation
through financial reward
• Co-operation of management and workers
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Scientific management
Increased productivity Dehumanisation of

& prosperity work
Wage allocation Misuse of work study

based on productivity by management
Workforce care Conflict

programmes
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Human relations school
Main principles:
• Individuals seek more than financial satisfaction from their
job
• Individuals perform better if they are allowed control over
their work
• Group interaction is an important element in determining
the behaviour of an organisation
Theorists:
• Elton Mayo – Hawthorne studies (1880–1949)
• Maslow
• Herzberg
• McGregor
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Human relations conclusions
Conclusions:
• There are benefits in looking after and involving
employees
• Individual workers cannot be treated in isolation but must
be seen as members of a group
• The need to belong to a group and have status within it is
more important that monetary incentives or good physical
conditions
• Supervisors and managers must manage group operations
rather than individuals
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Modern writers on management
• Subsequent writers have taken a more flexible view of

what managers do:
• The search for efficiency continues with work studies and
industrial engineering
• Human relations theory has been expanded through
industrial psychology
• Much writing has focussed on the managers' task
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Peter Drucker – the management process 1
Drucker (1909–2005) believed management had three basic
functions:
1. Managing a business
• Create a customer
• Innovation
2. Managing managers
• Management by objectives
• Proper structure of managers' jobs
• Creating the right spirit in the organisation
• Making provision for the managers of tomorrow
• Arriving at sound principles of organisation structure
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Peter Drucker – the management process 2
3. Managing worker and work

• A manager's performance in all areas of management,
including management of the business, can be
enhanced by a study of the principles of management,
the acquisition of organised knowledge & systematic self
assessment
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Drucker
Drucker suggested that management could also be broken

down into five categories:
• Objective setting
• Work organisation
• Motivation
• Measuring performance and control
• Developing people
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Mintzberg – the manager's role
Mintzberg described managerial roles, arguing that

management is a disjointed, non-systematic activity.
He studied US corporation managers to see how they
actually spent their time.
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Mintzberg
• Concluded three types of managerial role:

1. Interpersonal – Figurehead
– Leader
– Liaison
2. Informational – Monitor
– Spokesperson
– Disseminator
3. Decisional – Entrepreneur
– Disturbance handler
– Resource allocator
– Negotiator
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Management and supervision
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Leadership
Leadership
• 'The activity of influencing people to strive willingly for
group objectives'
• Leadership skills are in demand because of the increasing
need for committed performance, enabling flexibility,
innovation, responsiveness and competitive advantage.
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Leadership v management 1
Leadership:
• Is an interpersonal process
• Is based on power/influence
• Depends on 'followership': conferred from below
• Secures commitment/extra levels of performance
• Involves influencing, persuading, enthusing,
creating/communicating vision for change
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Leadership v management 2
Management:
• Can be exercised over tasks, time, projects, resources
• Is an organisational process
• Is based on authority
• Depends on legitimacy: delegated from above
• Secures compliance/standard levels of performance
• Involves structure, analysis, control activities: planned
inputs → predictable outputs
BPP LEARNING MEDIA

Leadership theories
Leadership theories
• Trait theories ('leaders are born, not made') have been
discredited
• Style theories describe the various preferences or
behavioural styles of managers
• Contingency theory sees effective leadership as being
dependent on circumstances
BPP LEARNING MEDIA

Trait theory
Early theories suggested that there are key qualities to be a

leader:
Leaders are born not made
Key qualities include:
• Intelligence
• Initiative
• Self-assurance
• The helicopter factor – the ability to rise above the
particulars of a situation and perceive it in relation to the
overall environment
BPP LEARNING MEDIA

Criticisms of trait theory
• Possession of all traits becomes an impossible ideal

• Too many exceptions to the rule
• If reduced to the useful minimum they become at best
necessary but not sufficient
• Traits are not well defined and not much use for the
recruitment of leaders
BPP LEARNING MEDIA

Style theories
Ashridge Management College Model identified four styles of

managers:
Tight Loose
Tells Sells Consults Joins

(autocratic) (persuasive) (consultative) (democratic)
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Ashridge management styles
• Tells (autocratic) – leader makes all decisions and issues

instructions which must be obeyed, leading to quick
decisions
• Sells (persuasive) – leader makes all decisions but
believes subordinates have to be motivated to accept
them, meaning although employees are aware of the
reasons for decisions they still cannot make them
• Consults – leader confers with subordinates and takes
their views into account, however leader still has final say
• Joins (democratic) – leader and followers make decisions
via a consensus. This leads to high employee motivation,
but slow decision making
BPP LEARNING MEDIA

Ashridge conclusions
• In an ideal world subordinates preferred 'consults' style

• People led by a 'consults' manager had the most
favourable attitude to work
• Most subordinates felt led by a 'tells' or 'sells' manager
• Consistency more important than style
BPP LEARNING MEDIA

Blake & Mouton's Managerial Grid 1
Considers two basic criteria for leadership:

• Concern for the task being achieved
• Concern for people/staff carrying out the task
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Blake & Mouton's Managerial Grid 2
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Blake & Mouton's classifications
Score Classification Description
1.1 Impoverished Lazy manager with no interest in staff or

work
1.9 Country club Manager is very attentive to staff and
has good relationships, but little attention
to results
9.1 Task management Manager virtually ignores people's needs
as long as the task gets done
5.5 Middle of the Adequate performance through
road/dampened balancing the need to get the job done
pendulum and team morale
9.9 Team High work accomplishment through
'leading' committed people who identify
themselves with organisational aims
BPP LEARNING MEDIA

Contingency approaches to leadership
• No one best style

• Depends on variable factors
• Ability of manager to lead depends on particular situation
• Need to adapt style to situation
Theorists:
• Fiedler
• Adair
BPP LEARNING MEDIA

F E Fiedler
Identified two variables in leadership:
1. Favourability of situation for the manager

• Leader is liked and trusted by group
• Tasks are clearly defined
• Position power of leader is high
2. Proximity of manager to their team

• Psychologically distant managers – maintain distance
from subordinates through formalised roles and
relationships
• Psychologically close managers – closer to team
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Fiedler's conclusion
• Fiedler concluded that group performance is contingent on

matching the leadership style with the degree of
favourableness of the situation
Fiedler (1964)
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John Adair – action centred leadership
Adair (1973)
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Adair conclusions
• Action centred leadership – action in one area impacts

other areas
• Managers must balance attention between all three
Managers need to develop their leadership skills to:
• Energise and support change
• Secure commitment from their staff
• Set direction
• Develop people
BPP LEARNING MEDIA

Bennis: management v leadership
Warren Bennis (1985) suggested specific differences

between the roles of manager and leader
Manager Leader
Administers Innovates
Focuses on short term, Focuses on people and long
control and systems term
'Does things right' (how to 'Does the right thing' (where
get there) are we going?)
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Bennis' competencies displayed by leaders
• Management of attention
• Management of meaning
• Management of trust
• Management of self
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Heifetz (1994) – dispersed leadership
• Recognises social relationships

• Leader has followers – could emerge rather than be
appointed
• Qualities less important than the leadership process
• More sociological and political than traditional
management theories
BPP LEARNING MEDIA

Amazon
14 key principles including:

• Customer obsession
• Dig deep
• Bias for action
• Frugality
• Think big
• http://www.amazon.com/Values-Careers-Homepage/b?ie=
UTF8&node=239365011
BPP LEARNING MEDIA

Specimen exam 1
The leadership style that least acknowledges the contribution

that subordinates have to make is ____________.
(1 mark)
Which word correctly completes the sentence above?
A. Authoritarian
B. Autocratic
C. Assertive
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Answer: B
The Ashridge model identifies four styles: autocratic;

authoritarian; consultative; laissez-faire (or participative).
The first of these is the least participative.
BPP LEARNING MEDIA

Specimen exam 2
Renata has attended a leadership development course in

which she experienced a self-analysis exercise using the
Blake and Mouton managerial grid. The course leader
informed her that the results suggested that Renata
demonstrated a 9:1 leadership style.
What other conclusions may be draw in relation to Renata's

leadership style?
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1. She maximises the involvement of her team

2. She demonstrates little concern for people in the team
3. She balances the needs of the team with the need to
complete the task
4. She is highly focused on achieving the objectives of the
team
A. 1 and 2
B. 2 and 4
C. 1 and 4
D. 2 and 3
(2 marks)
BPP LEARNING MEDIA
Answer: B
The Blake and Mouton managerial grid enables leadership

styles to be categorised on a nine point scale with reference
to concern for production and concern for people. Renata is
therefore highly concerned with the task and much less
interested in her team as individuals.
BPP LEARNING MEDIA

Specimen exam 3
Adrian is the manager of a call centre. Consultants have

advised him that by reorganising his teams to complete
highly specific tasks the call centre will be able to increase
the throughput of work significantly, as well as increasing the
number of sales calls made to the public. The reorganisation
proposals are unpopular with many workers, who feel that
their jobs will become tedious and repetitive.
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The proposal to reorganise the work of the call centre utilises

principles put forward by which school of management
thought?
A. The administrative school

B. The empirical school
C. The scientific school
(1 mark)
BPP LEARNING MEDIA

Answer: C
Scientific management principles consider the ways in which

the factors of production (land, labour, capital and the
entrepreneurial function) can be combined to maximise
efficiency in production. The founding principles are based
on the work of Fredrick Winslow Taylor. The reorganisation
of the call centre follows these principles.
BPP LEARNING MEDIA

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Specimen exam Solution – Section B
1(a) ½ mark per correct answer only

• Drucker = D: the manager of the business has one basic
function – economic performance
• Mayo = B: individuals and group behaviour at work is a
major factor in productivity
• Mintzberg = none
• Taylor = C: management is the development of a true
science of work
BPP LEARNING MEDIA

Specimen exam Solution – Section B
1(b) 1 mark per correct answer

Fayol identified:
• Planning
• Organising
As functions of management
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Article
• Theories of leadership style
heories-leadership.html
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Leading and managing people
Leadership, management Leadership

and supervision theory
• Leader: does the right thing
• Manager: does things right
• Supervisor: day to day Trait theory
The process of management • Personality
Mintzberg Terminology Power Development of

management theory
Interpersonal Authority Physical
Informational Accountability Resource
Decisional Responsibility Position
Delegation Expert
Referent
Negative
BPP LEARNING MEDIA
Late c19th Early c20th 1930s 1950s
Classical Scientific Human Style Contingency

approach management resources theorists theorists
• Henri Fayol • Frederick Taylor • Elton Mayo • Peter Drucker • Fiedler

(POCCC) (4 principles) • Maslow (managing (favourability,
• Herzberg business, proximity)
managers and • Adair
workers) (task, group,
• Ashridge College individual)
(tell, sell, consult,
join)
• Blake/Mouton
grid (below)
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Chapter 12 • Role of HR department
• Mintzberg's three parameters
Recruitment and of job design
selection • Alec Rodger's (1951) Seven
Point Plan
• Systematic approach to
selection
• Selection methods
• Interviews
• Questioning techniques
• Selection tests
• Group selection methods
• References
• Evaluating recruitment &
selection practices
• Improving recruitment &
BPP LEARNING MEDIA selection procedures
Recruitment and selection

Responsibility for recruitment and selection
The recruitment process
Advertising vacancies
A systematic approach to selection
Selection methods in outline
Interviews
Selection testing
Other selection methods
Evaluating recruitment and selection practices
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Recruitment and selection
Aim – to obtain the quantity and quality of employees

needed to form the organisation's objectives
Three main stages:
• Defining the requirements
• Attracting the applicants
• Selecting the right candidates
BPP LEARNING MEDIA

Process
HR planning defines what resources the

organisation needs to meet its objectives
Attract suitable pool of applicants once skills

identified
Select most suitable applicant
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Responsibility for recruitment and selection
Numerous people may be included in selection process:

• Senior managers – for senior positions & HR planning
• HR department
• Line managers – ensuring prospective boss and
candidate could work together
• Recruitment consultants
BPP LEARNING MEDIA

Role of HR department
• Assessing needs (HR planning)

• Maintaining records of people employed
• Keeping in touch with trends in labour market
• Advertising for new employees
• Ensuring compliance with equal opportunities legislation
• Designing application forms
• Liaising with recruitment consultants
• Preliminary interviews and selection testing
BPP LEARNING MEDIA

Recruitment consultants
Organisations may decide to outsource all/part of

recruitment process.
Factors in the outsourcing decision:
• Cost
• Expertise, knowledge and contacts of consultant v co
• Need for impartiality
• Culture of organisation
• Time
• Supply of labour – if specialised role consultants can add
more value
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The process
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Job requisition
• Ensures all vacancies are valid and authorised
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Job analysis
• Determines the requirements for a job

• Job description – outlines the tasks, duties, skills and
knowledge needed
• Person specification – personal attributes required
• Competencies can be used as a means of defining job
description
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Types of information needed
• Purpose of job
• Content of job
• Accountabilities
• Performance criteria
• Responsibility
• Organisational factors – reporting lines
• Development factors – promotional paths
• Environmental factors – working conditions
BPP LEARNING MEDIA

Competencies
Competence area Competence
Intellectual Strategic perspective

Analytical judgement
Planning & organising
Interpersonal Managing staff
Persuasiveness
Interpersonal sensitivity
Oral communication
Assertiveness and decision making
Adaptability Flexibility
Coping with change
Results Initiative
Motivation to achievement
Business sense
BPP LEARNING MEDIA

Mintzberg's three parameters of job design
1. Job specialisations
2. Regulation of behaviour
3. Training
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Job description
• Job title
• Job grade
• Department/section and location
• Wage/salary range
• Function of department and main purpose of job
• Duties and responsibilities
• Specific limits to authority
• Responsible to and for
• Date prepared
• Reference number
BPP LEARNING MEDIA

Alec Rodger's (1951) Seven Point Plan
Background – circumstance/work record

Achievements – qualifications/experience
Disposition – goals/motivation
Physical make-up – appearance/strength/speech
Interests – practical/social
General intelligence – problem solving
Special aptitudes – languages
BPP LEARNING MEDIA

Recruitment policy
Features:
• Internal advertisement policy
• Efficient and courteous processing of applications
• Fair and accurate provision of information to potential
recruits
• Selection of candidates, on the basis of suitability, without
discrimination
• Maybe governed by codes, eg CIPD (Chartered Institute of
Personnel & Development)
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Recruit or promote?
• Availability in the current staff

• Availability in the external labour pool
• Accuracy of selection decisions – internal employee will be
known
• Time for induction
• Staff development
• Fresh blood
BPP LEARNING MEDIA

Qualities of good job advertisement
• Concise
• Attractive
• Positive and honest about the organisation
• Relevant and appropriate to the job applicant
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Advertising media
• In-house – magazine, notice boards, intranet

• Professional or specialist newspapers/magazines
• National newspapers
• Local newspapers
• Local radio, TV and cinema
• Job centres
• School and university careers offices
• Internet
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Systematic approach to selection
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Selection methods
• Interviewing – individual, panels or selection boards

• Selection tests – intelligence, aptitude, personality,
proficiency, medical
• Reference checking
• Work sampling – portfolios, trial periods or exercises
• Group selection methods – assessment centres
BPP LEARNING MEDIA

Interviews
Two way process to:

• Find best person
• Ensure applicants understand the job
• Give best impression of organisation
• Offer fair treatment to all applicants
BPP LEARNING MEDIA

Questioning techniques
Using appropriate questioning styles

• Open: Who? What? How? Why?
• Closed: Did you ...? (Answer: yes or no)
• Probing: But what in particular ...?
• Multiple: How ... and why ...?
• Problem solving: How would you ...?
• Leading: Don't you ...? Surely you ...?
BPP LEARNING MEDIA

Advantages/disadvantages of interviews
Advantages:
• Personal information accessed more easily
• Allows more flexible approach
• Can put applicant on spot
Disadvantages:
• Bias/subjective
• Hard to remember later
• Hard to compare candidates
BPP LEARNING MEDIA

Skills required by an interviewer
• Interview planning
• Control of length and direction of interview
• Ability to evaluate information, probe into facts and to
listen
• Open minded, overcome contagious bias (eg leading
questions or tone) and first impression
BPP LEARNING MEDIA

Selection tests
• Proficiency: Ability to perform specific tasks

• Aptitude: potential to exercise or learn skills
• Intelligence: IQ, mental agility, verbal reasoning
• Personality: Traits and types, introvert, extrovert
• Case studies, role plays and 'in-tray' exercises: ability
to perform in simulated job tasks and situations
BPP LEARNING MEDIA

Problems with selection testing
• Not all jobs are amenable to proficiency testing

• Tests are subject to practice effects: style/content
becomes familiar
• Intelligence is difficult to define: supplement IQ with
emotional intelligence, creativity
• Personality test results are subject to 'faking', as desired
answer is often obvious
• Suffer from time/ability constraints
• All tests require administration and interpretation
• It is very difficult to exclude cultural/gender bias
BPP LEARNING MEDIA

Group selection methods
'Assessment centres' use:

• Role plays
• Case study analysis
• Leaderless group discussion
• Business games
To allow expert analysts to appraise problem-solving and
interpersonal skills which emerge in the group
BPP LEARNING MEDIA

References
Used to verify information provided by candidate

Advantages:
• Independent opinion
• Honest feedback
Disadvantages:
• Bias for/against
• Bland – fear of being sued
BPP LEARNING MEDIA

Evaluating recruitment and selection practices
Recruitment and selection practices can be reviewed in

several ways:
• Performance indicators
• Cost effectiveness
• Monitoring the work force
• Attitude surveys
• Actual individual job performance
BPP LEARNING MEDIA

Improving recruitment and selection procedures
• Improved policies and guidelines

• Establishment of systematic procedures
• Improved training
• Auditing of job advertising
• Widening the range of selection techniques
• Possible use of external recruitment agencies &
consultants
BPP LEARNING MEDIA

Specimen exam 1
In relation to employee selection, which type of testing is

most appropriate for assessing the depth of knowledge of a
candidate, and their ability to apply that knowledge?
A. Intelligence testing
B. Competence testing
C. Psychometric
(1 mark)
BPP LEARNING MEDIA

Answer: B
As the test is needed to test specific skills, competence

testing is most appropriate. Intelligence and psychometric
tests are intended to assess innate ability or psychological
traits, which are more general.
BPP LEARNING MEDIA

Specimen exam 2
A company has advertised for staff who must be at least 1.88

metres tall and have been in continuous full-time
employment for at least five years.
Which of the following is the legal term for this practice?
A. Direct discrimination
B. Indirect discrimination
C. Victimisation
D. Implied discrimination
(2 marks)
BPP LEARNING MEDIA
Answer: B
To discriminate against someone on the grounds of

characteristics which are predominantly associated with their
sex, gender, nationality or religion is illegal. As women are
generally shorter than men, to restrict admission on the
basis of height indirectly discriminates against women. The
other options are either direct discrimination, or other illegal
and undesirable employment practices.
BPP LEARNING MEDIA

Recruitments and selection
Process Recruitment Selection Evaluation of

• Defining • Select most processes
Job requisition
requirements suitable • Performance
• Attracting
Job analysis
Advertising indicators
applicants • Cost
effectiveness
Identify potential Job analysis • Non financial
internal candidates indicators
• Motivation
• Staff turnover
Advertise internally
and externally Description Specification
• Title
Determine selection • Department Background
methods • Salary range Achievements
• Duties Disposition
• Responsibilities Physical
Select Interests
• Responsible
candidates General intelligence
to/for
Special aptitude
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Methods
Interviews Other
• 1:1 • Reference
• Panel check
• Selection • Work sampling
board • Group
selection
Selection (assessment
tests centre)
Approach • Psychometric
• Proficiency
Step 1 Deal with responses to adverts
Step 2 Assess each application against criteria
Step 3 Sort applications
Step 4 Invite candidates for interview
Step 5 Selection testing
Provisional offer
Step 6 Contact applicants
Rejection
BPP LEARNING MEDIA

Chapter 13 • Equal opportunities
• Importance of equal
Diversity and equal opportunities
opportunities • Sexual discrimination
• Racial discrimination
• Disability
• Age discrimination
• Exemptions
• Implementing equal
opportunity policy
• Diversity
BPP LEARNING MEDIA

Discrimination at work
Equal opportunity
The practical implications
Diversity
BPP LEARNING MEDIA

Equal opportunities
Managing people based on:

• Equal access and fair treatment
• Irrespective of gender, race, ethnicity, age, disability,
sexual orientation or religion
Discrimination can occur involving:

• Access to jobs and training
• Promotion, pay, benefits
BPP LEARNING MEDIA

Importance of equal opportunities
Business argument for supporting equal opportunities:

• Ethical and fair
• Good HR practice
• Compliance with legislation
• Wider pool of labour
• Image and reputation
• Discrimination on basis of gender, race or disability are
governed by law
• Others rely upon models of 'good practice'
BPP LEARNING MEDIA

Sexual discrimination
• Some countries regulate so that men and women have the

right to equal pay for work of equal value.
• Sex discrimination act prohibits discrimination on
grounds of sex/marital status in:
• Advertisements
• Recruitment and selection
• Access to training or promotion opportunities
• Disciplinary procedures
• Selection for redundancy or dismissal
BPP LEARNING MEDIA

Racial discrimination
Race relations acts:

• Outlaw certain types of discrimination on grounds of
colour, race or nationality
• Larger public organisations (150+ employees) must have
detailed plans for achieving racial equality
BPP LEARNING MEDIA

Types of discrimination
Direct discrimination
• One interested group is treated less favourably than
another
Indirect discrimination
• Requirements/conditions are imposed, with which a
substantial proportion of the interested group cannot
comply
Victimisation
• A person is penalised for giving information or taking
action in pursuit of a claim of discrimination
BPP LEARNING MEDIA

Disability
Disability
• Physical or mental impairment that has a substantial/long
term adverse effect on ability to carry out normal activities.
• Covering access to: employment opportunities, interview,
selection, training, promotion, dismissal
BPP LEARNING MEDIA

Age discrimination
Age
Age Regulations:
• Prohibit unjustified age discrimination in employment and
training
• Support later retirement and retirement planning
• Remove upper age limits for unfair dismissal and
redundancy rights
BPP LEARNING MEDIA

Exemptions
Harassment
• Threatening, intimidating, offensive, abusive language or
behaviour
Under both sex and race discrimination law, there may be

certain exemptions:
• Genuine occupational qualifications in which discrimination
of a sort may be permitted
• Eg physiology, decency or legal restrictions
BPP LEARNING MEDIA

Implementing equal opportunity policy
• Secure top management support/create accountabilities

• Set up a representative working party to produce a draft
Code of Practice
• Formulate action plans and allocate resources to
publicise/implement policy
• Implement monitoring and review of minority staff
entering/progressing/leaving
• Plan and implement positive action initiatives to
facilitate minority access to opportunities
BPP LEARNING MEDIA

Examples of positive action initiatives
• Use ethnic languages in job ads

• Offer family-friendly working hours/contracts
• Alter premises/equipment to accommodate wheelchair
users, partially-sighted/deaf workers
• Extend 'spouse' benefits to same-sex partners
• Fast-track school leavers and post managerial vacancies
internally, giving more opportunities at lower levels
BPP LEARNING MEDIA

Diversity
'Diversity' concept
• Recognises that 'equal opportunity' categories (gender,
race, age) are crude, irrelevant classifications
• Seeks to recognise more job-relevant, complex ways in
which people differ – personality, working style, needs…
• Managers should facilitate the unique contribution that
each person, not 'category' of person, brings to the team
BPP LEARNING MEDIA

Managing diversity
In order to reflect diversity, a business needs to offer

support for:
• Communication
• Education/training
• Career development
• Recruitment/selection
• Work/life balance
• Tolerance of individual differences
BPP LEARNING MEDIA

Ingham (2003)
The steps in implementing a diversity policy are:

Step 1 Analyse your business environment
Step 2 Define diversity and its business benefits
Step 3 Introduce diversity policy into corporate strategy
Step 4 Embed diversity into core HR processes and system
Step 5 Ensure leaders implement policy
Step 6 Involve staff at all levels
Step 7 Communicate, communicate, communicate
Step 8 Understand your company’s needs
Step 9 Evaluate
BPP LEARNING MEDIA

1. Analyse business environment
Business
environment
Internally – does diversity

of organisation reflect Externally – does the
population in its labour diversity of workforce
market? mirror customer base?
BPP LEARNING MEDIA

2. Define diversity and its business benefits
• Legal, moral and social benefits

• Business benefits – better understanding of market
segments, brand image, attraction and retention of
talented employees
• Employee benefits – more representative workforce
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3. Introduce diversity policy into corporate strategy
• Weave diversity into corporate values and mission

• http://www.hsbc.com/citizenship/diversity-and-inclusion
BPP LEARNING MEDIA

4. Embed diversity
• Diversity should be embedded into core HR processes and

systems
• Review, refocus recruitment and selection, induction,
reward and recognition, career management and
training and development to ensure diversity is present
BPP LEARNING MEDIA

5. Ensure leaders implement policy
• Leaders/top management need to provide commitment

and resources
• Diversity should be a key factor in coaching, awareness
training and development of managers
BPP LEARNING MEDIA

6. Involve staff at all levels
• Educate the workforce through awareness training

• Create a 'diversity handbook'
• Set up diversity working parties and councils
• Establish mentoring schemes
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7. Communicate
• Communicate diversity policy and initiatives clearly

• Internally – updates, briefings, training, intranet pages
• Externally – to boost employer brand and recruitment
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8. Understand your company's needs
• Match resources to the size of organisation and scale of

change needed
• Use diversity consultants for training, advice and support
BPP LEARNING MEDIA

9. Evaluate
Benchmark progress at regular intervals

• Internally – diversity score cards, employee surveys
• Externally – focus groups, customer/supplier surveys
BPP LEARNING MEDIA

British Airways
• Negative publicity can occur if a company fails to take

discrimination seriously.
• British Airways were ordered to change their uniform
regulations after a European Court ruled that employees
should be able to wear symbols of their faith.
• http://www.bbc.co.uk/news/uk-21025332
BPP LEARNING MEDIA

Specimen exam
Which of the following types of new legislation would provide

greater employment opportunities in large companies?
A. New laws on health and safety

B. New laws to prevent discrimination in the workplace
C. New laws making it more difficult to dismiss employees
unfairly
D. New laws on higher compensation for employer breaches
of employment contracts
(2 marks)
BPP LEARNING MEDIA

Answer: B
Equal opportunity policies widen opportunity and enlarge the

potential pool of employees to recruit from. The other options
either indirectly or directly reduce the potential for staff
turnover and therefore limit the number of job vacancies
available at any point in time.
BPP LEARNING MEDIA

Chapter 13 – Summary
Composition of the work force
Diversity and equal reflects population so can
opportunity understand and meet
customer needs
Equal opportunities Equal access Diversity
Preventing Other positive action

discrimination Practical implications
at work
• Recruitment
Practicalities • Selection
UK Legislation • Senior • Education
management • Training
• Equal Pay • Career Development
• Sex Discrimination commitment
• Working party • Communication
– Direct • Work/life balance
– Indirect • Resourcing
– Victimisation • Review
– Harassment • Positive action
• Race Relations
BPP LEARNING MEDIA
Article
• Equal opportunities
students-acca-exams-f1-technical_articles-2944890.html
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Chapter 14 • Individuals
• Personality
Individuals, groups and • Role theory
teams • Groups
• Formal groups
• Informal group
• Teams
• Organising team work
• Belbin's team roles
• Contributions to teams
• Tuckman's stages of team
development
• Building a team
• Evaluating team effectiveness
• Rewarding team performance
BPP LEARNING MEDIA
Individuals
Groups
Teams
Team member roles
Team development
Building a team
Successful teams
BPP LEARNING MEDIA

Individuals
Managers need to understand what motivates individuals

within the groups and teams they control.
Key variables include:
• Perception
• Personality
• Attitude
BPP LEARNING MEDIA

Perception
Perception
How do they
How do they
see their
see the task?
colleagues?
eg hard
Individual eg competent
perception
How do they
see the role?
eg important
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Personality
Personality
Personality
Suitability
types/traits
eg fit the role
eg extrovert
Issues
Compatibility
eg with
colleagues
BPP LEARNING MEDIA

Compatibility
An individual's personality should be compatible with work

requirements in three ways:
• With the task
• With the systems and management culture of the
organisation
• With other personalities in the team
BPP LEARNING MEDIA

Solutions to incompatibility
• Restore compatibility – eg reassign individuals to tasks

more suited to their personality
• Achieve a compromise – get employees to understand
differences and modify their behaviour
• Remove the incompatible personality – last resort
BPP LEARNING MEDIA

Attitude
Attitude
Processes
People
eg having steps
eg in a suit
to follow
Attitudes
towards…
Authority Change
eg the police eg does not like
BPP LEARNING MEDIA

Intelligence
More complex than just IQ – includes:

• Analytical intelligence
• Spatial intelligence
• Practical intelligence
• Intra-personal intelligence – self awareness, self
expression and self control
• Inter-personal intelligence – empathy
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Role theory
• Suggests people behave in a situation according to other

people's expectations of how they should behave in that
situation
• Role = part you play
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Components of role theory
Description Eg
Role set How people relate to you in a Accounts manager at work

particular role Father at home
Role ambiguity If you don't know what role you Teacher v friend
are operating in at given time,
people don't know where they
stand
Role Difficult to perform two roles at Friend (social banter) and boss
incompatibility/ once (needing to discipline)
role conflict
Role sign Indicates role Style of dress/signs of address
Role model Individuals you aspire to be like Boss/leader

and model your behaviour on
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How to deal with role issues
• Facilitate work/life boundaries

• Clarify role expectations and relationships
• Identify positive role models
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Groups
Collection of individuals who perceive themselves as a group

Attributes:
• Sense of identity
• Loyalty to the group
• Purpose and leadership
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Manchester United
Manchester United football fans:

• Sense of identity – replica kits
• Loyalty to the group – want their team to win
• Purpose and leadership – support team
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Formal groups
Eg special committee
• Objectives set by senior management
• Permanent
• Organised according to established structure
and procedures
• Membership decided by management
• Main function is realisation of organisation's aims
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Informal group
• Objectives set by group

• Often temporary, changes when staff leave or join
• Fluid organisation
• Norms and roles allocated by group itself
• Self-selecting membership
• Main aim is survival of group and welfare of members
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Individuals in groups
• People contribute differently in groups

• Group dynamics affect performance
• Groups offer synergy: 2 + 2 = 5
• Group dynamics may also be negative
Blanchard: 'none of us is as smart as all of us'
BPP LEARNING MEDIA

Individuals v group contribution
Individuals contribute: Groups contribute:

A set of skills A mix of skills
Objectives set by managers Some teams set their own
objectives
A point of view Multiple views

Creative ideas related to expertise Creative ideas arising from new
and experience combinations of expertise
'I can't be in 2 places at once' Flexibility as team members can be

deployed in different ways
Limited opportunity for self-criticism Opportunity for exercising self

control
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Teams
• More than a group

• Joint objectives and accountability
• Aim to reach decisions via a consensus
• Useful for decision making, idea generation, project work
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Advantages of teams
• Satisfaction of interpersonal relations

• Satisfaction of participation
• Pooling of skills, knowledge, experience
• Efficient sharing of resources
• Encouraging communication/co-ordination
• Enables flexibility, speed of response
BPP LEARNING MEDIA

Disadvantages of teams
• Team norms restrict flair (and output)

• Team maintenance distracts from task
• Teams take slower decisions than individuals
• Teams take riskier decisions than individuals
BPP LEARNING MEDIA

Organising team work 1
Multi-disciplinary teams
• Bring together individuals from different departments who
each have particular skills or specialisms to pool
knowledge
• Eg – audit team may call upon tax, corporate financial and
other specialists to offer advice to clients
BPP LEARNING MEDIA

Multi-skilled teams
• Bring together individuals who can perform any of the
group's tasks, allowing greater flexibility in the allocation of
roles
• Eg – car manufacturing plant
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Virtual teams
• Bring together individuals working in remote locations
using ICT (information and communications technology)
BPP LEARNING MEDIA

Team member roles
Meredith Belbin (1981) characterised the success mix of

team roles in an effective management team as follows:
Plant
Ideas
Monitor-evaluator
Chairman
Resource Completer
Investigator Finisher
Task
Expert/
specialist
People Team
Shaper
Company
worker worker
BPP LEARNING MEDIA

Belbin's team roles 1
Role & description Team contribution Weakness

Plant Solves difficult problems Ignores details, too
Creative, imaginative, preoccupied to
unorthodox communicate effectively
Resource investigator Explores opportunities, Over-optimistic, loses
Extrovert, enthusiastic, develops contacts interest once initial
communicative enthusiasm has passed
Co-ordinator (chairman) Clarifies goals, promotes Can be seen as
Mature, confident, a good decision making, delegates manipulative, delegates
chairperson well personal work
Shaper Drive and courage to Provokes others, hurts
Challenging, dynamic, overcome obstacles feelings
thrives on pressure
Monitor – Evaluator Sees all options, judges Lacks drive and ability to
Sober, strategic and accurately inspire others, overly critical
discerning
BPP LEARNING MEDIA

Belbin's team roles 2
Role & description Team contribution Weakness

Team worker Listens, builds, averts Indecisive in crunch
Co-operative, mild, friction, calms the waters situations, can easily be
perceptive and diplomatic influenced
Implementer (company Turns ideas into practical Inflexible, slow to respond
worker) actions to new possibilities
Disciplined, reliable,
conservative and efficient
Completer-finisher Searches out errors and Inclined to worry unduly,
Painstaking, conscientious, omissions, delivers on time reluctant to delegate, can
anxious be a nitpicker
Specialist Provides knowledge and Contributes only on a
Single minded, self starting, skills in rare supply narrow front, dwells on
dedicated technicalities, overlooks the
'big picture'
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A balanced team
Ensuring a successful mix of roles within a team is seldom

achieved, due to:
• Lack of understanding
• Lack of time
• People not available
• Misunderstanding task requirements
• Individuals will be naturally inclined to some roles rather
than others
BPP LEARNING MEDIA

Distinction
• Team (process) role – tendency to behave, contribute

and interrelate with others at work in certain ways eg
chairman
• Functional roles – skills and knowledge to do the job

eg accountant
BPP LEARNING MEDIA

Contributions to teams
Rackham & Morgan categorised the contribution people

can make to the team:
• Proposing
• Supporting
• Seeking information
• Giving information
• Blocking/difficulty stating
• Shutting-out behaviour
• Testing understanding
• Summarising
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Tuckman's stages of team development 1
1. Forming
• The group is coming together
• Individuals try to find out about each other and the aims
and norms of the group
2. Storming
• Aims, procedures and roles (including leadership) begin
to be hammered out through more or less open conflict
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Tuckman's stages of team development 2
3. Norming
• The group begins to settle down, reaching agreements
on work-sharing, roles and norms
• Group decision-making begins
4. Performing
• The group is ready to set to work on its task: the process
of formation no longer absorbs attention
• The focus shifts to results
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Added to Tuckman's stages
• Dorming
– A long-standing, steadily-performing group may get cosy
and complacent, and lose its focus on the task
• Mourning/Adjustment
– Once the group has fulfilled its purpose, there may be a
stage of confusion or anxiety as the future is considered
BPP LEARNING MEDIA

Building a team
• A strong team will need a good leader

• Three issues with team building:
1. Team identity
2. Team solidarity
3. Shared objectives
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Evaluating team effectiveness
Criteria for assessing effectiveness:

• Task performance
• Team functioning
• Team member satisfaction
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Rewarding team performance
Reward schemes include:

• Profit sharing
• Gain sharing
• Employee share option schemes
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Specimen exam
Jackie leads an established team of six workers. In the last

month, two have left to pursue alternative jobs and one has
commenced maternity leave. Three new staff members have
joined Jackie's team.
Which one of Tuckman's group stages will now occur?

A. Norming
B. Forming
C. Performing
D. Storming
(2 marks)
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Answer: A
As new members join the group, essentially the group is

reforming which is the start of a new group development
process. The other options are all later stages in group
development as identified by Tuckman.
BPP LEARNING MEDIA

Article
• The importance of teams
eams.html
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Individuals, groups and

teams
Individuals Groups Teams
Definition Types
Factors that affect Types/purpose • Multi discipline

performance in the • Multi skilled
workplace • Formal
• Informal
• Perception
• Attitude
• Personality
BPP LEARNING MEDIA

Successful Team building/ Roles

teams development
• Evaluation • Identify
• Reward • Solidarity
Belbin
• Management • Shared objectives
• 9 roles
• Need a mix
• Can double up
Tuckman
• Forming • Performing
• Storming• Dorming
• Norming • Mourning
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Chapter 15 • What motivates people?
• Morse & Weiss (1955)
Motivating individuals • Morale
and groups • Content theories
• Maslow's hierarchy of needs
• Herzberg's two-factor theory
• Process theories of motivation
• Vroom
• Sources of motivation
• Financial rewards
• Importance of pay
• Performance related pay
• Group bonus schemes
• Profit sharing schemes
• Participation
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Overview of motivation
Content theories of motivation
Process theories of motivation
Choosing a motivational approach
Rewards and incentives
Pay as a motivator
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Motivation
• Motivation is the urge to take action to achieve something

or to avoid something
• If managers understand what motivates their staff they can
actively use this knowledge to get employees to achieve
organisation's objectives
• Clearly about more than money
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Basic assumptions of motivation
Assume that:
• People seek to satisfy needs
• Organisations can offer some of that satisfaction
• Organisations can influence people's behaviour
Meeting needs = job satisfaction + positive attitude to

work
BPP LEARNING MEDIA

Needs
Even the same basic need will cause different people to act
in different ways:
Cook Hunger
healthy Fruit
dinner
Junk Ready
Takeaway
food meal
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Needs and goals
Goals also vary with time, circumstances and other factors
Influences Comments
Childhood Aspiration levels are formed early on

environment/education
Experience Teaches us what to expect from life, ie 'we learn

from our mistakes'
Age and position Career may be very important before having
children, after which perspective changes
Culture Some organisations emphasis the organisation,
whilst in others the emphasis is on the individual
Self-concept What employee think of themselves and their
position is also important
BPP LEARNING MEDIA

Morale
• Military term related to satisfaction

• Low morale implies dissatisfaction
• Dissatisfaction is bad news as can result in:
– Low productivity
– High labour turnover
• Attitude surveys can also be used to indicate workers'
perceptive of job satisfaction
BPP LEARNING MEDIA

Theories of motivation
Motivation theories
How can people be

What motivates
motivated?
people?
PROCESS
CONTENT THEORIES
THEORIES
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Content theories
• Assume people have a set of needs

• Motivate an employee by finding out what their needs are
and offer rewards that satisfy them
Approaches:
• Maslow's hierarchy of needs
• Herzberg's two-factor theory
BPP LEARNING MEDIA

Maslow's hierarchy of needs 1
People are motivated by:
Self-
actualisation
Esteem needs
In order of priority
Love/social needs
Safety needs
Physiological needs
Maslow (1943)
BPP LEARNING MEDIA

Maslow's hierarchy of needs 2
• Each need dominates until it is met

• Self-actualisation can rarely be satisfied
• Needs may be satisfied outside of work
• Not all people want to rise to the top
• Ignores delayed gratification and altruistic behaviour
BPP LEARNING MEDIA

Herzberg's two-factor theory
Hygiene Motivating
Factors Factors
Dissatisfied Satisfied Motivated
Herzberg (1959)
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Herzberg 1
Hygiene factors = satisfiers

• Company policy and administration
• Salary
• Quality of supervision
• Interpersonal relations
• Working conditions
• Job security
BPP LEARNING MEDIA

Herzberg 2
Need for personal growth = Motivator factors

• Status
• Advancement (or opportunities for it)
• Recognition
• Responsibility
• Challenging work
• Sense of achievement
• Growth in the job
BPP LEARNING MEDIA

Herzberg conclusions
Motivation can be increased by:

• Job enlargement
• Job rotation
• Job enrichment
Conclusion – it's what you do that makes you work harder.

The conditions in which you do it don't make you happy, but
can prevent you from fulfilling your potential
BPP LEARNING MEDIA

Criticisms of Herzberg
• An inadequately small sample size – 203 engineers and

accountants
• Limited cultural context – Western professionals
• Impact of job satisfaction has proved difficult to verify
and measure
BPP LEARNING MEDIA

Process theories of motivation
Process theories ask:

• 'How can individuals be motivated?'
• They explore the process through which outcomes
become desirable and are pursued by individuals
Victor Vroom expectancy theory

• Expectancy × valence = force of motivation
BPP LEARNING MEDIA

Vroom
Expectancy
• The strength of the individual's expectation that behaving
in a certain way will result in a given outcome
Valence
• The value that the individual places on the outcome
(whether positive/desired or negative/undesired)
Force of motivation
• The strength of the individual's motivation to behave in a
given way (and the likelihood he will do so)
• High force is only possible if both high Valence and
Expectancy exist
BPP LEARNING MEDIA

Vroom example
Consider your AB exam:

You must want to pass the exam and believe that it is
possible to be motivated to study for it.
BPP LEARNING MEDIA

Managerial implications of process theories
• Intended results should be made clear

• Individuals are more committed to specific goals which
they helped to set
• Immediate and ongoing feedback should be given
• Individuals might set lower standards if they know their
rewards are linked to achieving them
BPP LEARNING MEDIA

Choosing a motivational approach
• McGregor presented two opposing assumptions held by

managers about employees, which affected how they
managed & motivated them
• Theory X – assumes that individuals have an inherent

dislike for work and will avoid it if they can
• Theory Y – asserts that work is as natural as play or rest
• Opposite ends of a continuum
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Theory X
Employee characteristics:
• Prefers to be directed
• Has little ambition
• Is resistant to change
• Gullible
• Must be coerced and controlled
= 'carrot 'n' stick approach'
BPP LEARNING MEDIA

Theory Y
Employee characteristics:
• Self direction
• Self control
• An emphasis on self actualising needs
• Motivated by circumstances of work
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Rewards & incentives
• Reward – given in recognition of success

• Intrinsic reward – related to the job itself, eg loving being a
nurse
• Extrinsic rewards – outside the job, eg financial – you like
the pay, or non-financial – you like the working hours
• Incentive – offer of a reward designed to motivate current
and future performance
BPP LEARNING MEDIA

Sources of motivation
1. Financial rewards
2. Job satisfaction
3. Job design
4. Participation in decision making
BPP LEARNING MEDIA

Financial rewards
• Maslow & Herzberg both recognise money as a means of

satisfying some needs and symbolising worth
BUT
• If you were paid twice as much would you work twice as
hard?
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Importance of pay
Pay is important because:

• It is a major cost for the organisation
• People feel strongly about it
• Legal issue eg minimum wage
• It enables the organisation to attract and retain individuals
with required skills, knowledge and experience
BPP LEARNING MEDIA

How pay is determined
• Job evaluation – based on job content, reflecting the

relative worth of the role
• Fairness – must be perceived to match the level of work
• Negotiated pay scales
• Market rates
• Individual performance in the job
BPP LEARNING MEDIA

Types of reward
• Basic wages
• Overtime payments
• Performance related bonus
• Shares
• Share options
• Benefits in kind eg healthcare
• Pension contributions
• Service contracts and termination payments
BPP LEARNING MEDIA

Performance related pay
• Form of incentive system, awarding extra pay for extra

output or performance
Examples:
• Piecework
• Bonuses for achievement of specific objectives/
outstanding performance
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Benefits of performance related pay
• Improves commitment and capability

• Complements other HR initiatives
• Improves focus on the business's performance objectives
• Encourages two-way communication
• Greater supervisory responsibility
• It recognises achievement when other means are not
available
BPP LEARNING MEDIA

Potential problems of PRP
• Subjectivity of awards for less measurable criteria

(eg teamwork)
• Encouraging short-term focus and target hitting (rather
than improvement)
• Divisive against team working (if awards are individual)
• Difficulties in gaining union acceptance (if perceived to
erode basic pay)
BPP LEARNING MEDIA

Group bonus schemes
• Group bonus schemes can be used to encourage

everyone to work together
• But, get bonus even if you don't pull your weight
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Profit sharing schemes
• Offer employees bonuses directly related to the profits or

value added
• Based on the assumption all employees can contribute to
profit and should care
To be successful:
• Sum should be significant
• Clear and timely link between effort and reward
• Reasonable chance of achieving goal
BPP LEARNING MEDIA

Job satisfaction
Is a key motivator and is achieved through:

• Variety
• Task identity/clarity
• Autonomy/ownership
• Constructive feedback
• Task significance
BPP LEARNING MEDIA

Job design
Job design or redesign can increase motivation:

• Job rotation – moves staff from one job to another to
increase variety
• Job enlargement – widen the number of operations in
which job holder is involved to increase variety
• Job enrichment – making the job more interesting
BPP LEARNING MEDIA

Job enrichment
A job may be enriched by:

• Giving the job holder decision making tasks
• Greater freedom to decide how to do the job
• Encouraging participation
• Regular feedback
BPP LEARNING MEDIA

Participation
Participation works as a motivator if the '5 Cs' are present:

1. Certainty
2. Consistency
3. Clarity
4. Capacity
5. Commitment
BPP LEARNING MEDIA

Specimen exam
Which one of the following statements is correct in relation to

monetary rewards in accordance with Herzberg's two-factor
theory?
A. Pay increases are a powerful long-term motivator

B. Inadequate monetary rewards are a powerful dissatisfier
C. Monetary rewards are more important than non-monetary
rewards
D. Pay can never be used as a motivator
(2 marks)
BPP LEARNING MEDIA

Answer: B
According to Herzberg, money is a hygiene factor (or

dissatisfier). Although it is a powerful short-term motivator, it
is questionable whether each individual increase in monetary
reward will have a major long term effect. According to
Herzberg, 'A reward once given becomes a gift'.
BPP LEARNING MEDIA

John Lewis Partnership
• UK chain store – run as a partnership with all employees

having a stake
• http://
www.telegraph.co.uk/finance/newsbysector/retailandconsu
mer/11455868/John-Lewis-bonus-falls-victim-to-supermark
et-price-war.html
BPP LEARNING MEDIA

Article 1
• Understanding Herzberg's motivation theory
herzbergs-motivation.html
BPP LEARNING MEDIA

Article 2
• Let's get motivated
students-acca-exams-f1-technical_articles-2950961.html
BPP LEARNING MEDIA

Motivating individuals and groups
What is motivation? Rewards and Incentives

'Desire to
take or avoid Key theoretical approaches
action' Reward Using pay
as a
• Intrinsic motivator
Content • Extrinsic
theories • Job
evaluation
What motivates? • PRP
• Bonus
• Profit share
Maslow Self-
Herzberg
actualisation
Esteem needs
• Motivating
Social needs factors
Safety needs • Hygiene
Physiological needs factors
BPP LEARNING MEDIA
Process
theories
Choosing
How can people be motivated? suitable
rewards and
incentives
Vroom • Job design
Theory X/Y • Financial
– McGregor rewards
• Participation –
5Cs
• Job satisfaction
• Feedback
BPP LEARNING MEDIA

Chapter 16 • Approaches to learning theory
• Honey & Mumford (1986) –
Training and Learning styles
development • Classifications of learning style
• The learning cycle: Kolb
• Identifying the need for training
• Learning gap
• Setting training objectives
• Personal development plan
• Steps in personal development
planning
• Training methods
• Induction training
• Responsibility for training &
development
• Hamblin – 5 level model
BPP LEARNING MEDIA
The learning process

Development and training
Training needs and objectives
Training methods
Responsibility for training and development
Evaluating training programmes
Development
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Approaches to learning theory
Approaches
Behaviourist psychology
Cognitive approach –
– relationship between
Interpretation and
stimuli & response to
rationalisation from past
stimuli which causes
experiences
learning
BPP LEARNING MEDIA

Effective training programmes
Design of an effective training programme should assume:

• The individual is motivated to learn
• Clear objectives and standards set, so each task has
some meaning
• Timely relevant feedback on progress
• Positive and negative reinforcement should be judiciously
used
• Active participation is more telling than passive reception
BPP LEARNING MEDIA

Honey & Mumford (1986) – Learning styles
• Found that the way people learn depends upon their

psychological preferences
• Four classifications of learning style
• Knowledge of style favoured by learner helps tailor
learning activities
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Classifications of learning style
• Theorists – seek to understand the underlying concepts,

taking an intellectual and logical approach
• Reflectors – observe and consider phenomena, then act
at their own pace
• Activists – deal with practical active problems, in a hands-
on manner
• Pragmatists – study if there is a direct link to practical
problems (on the job training)
BPP LEARNING MEDIA

The learning cycle: Kolb
1st Stage
(have an
experience)
Concrete
experiences
2nd Stage
(reflect on the
experience)
Apply/test
implications of Observation
concepts in and reflection
new situations
4th Stage
(plan text
steps) Formation of
abstract
concepts and
generations
3rd Stage
(draw conclusions
from the experience)
Kolb (1974)
BPP LEARNING MEDIA

Learning cycle example
1. Experience – sit mock exam

2. Observe and reflect – get 40%, because didn't study all
topics
3. Draw conclusions – need to study entire syllabus
4. Plan next steps – study all topics and sit new mock
5. Experience – get 60% in mock
BPP LEARNING MEDIA

Learning organisation
Facilitates:
• Acquisition and sharing of knowledge
• Learning of all its members
• Continuous and strategic transformation to rapidly
changing market
BPP LEARNING MEDIA

Strengths of learning organisations
• Experimentation – ie tolerate risk that things may go wrong

• Learning from past experience
• Learning from others
• Transferring knowledge quickly and efficiently throughout
the organisation
BPP LEARNING MEDIA

Training & development
In order to achieve their goals, organisations require skilled employees.
This can be achieved through
Training Development Education
Raises Growth of a Knowledge

competence person's ability acquisition
levels in current and potential
position
BPP LEARNING MEDIA

Training & development strategies
Organisations create 'training and development' strategies to tie in

with the overall business strategy by:
Step 1 Identifying required skills and competences
Step 2 Creating development strategy
Step 3 Implementing strategy
BPP LEARNING MEDIA

Benefits of training for the organisation
• Improves productivity of staff

• Reduces accidents and errors at work (at associated
costs)
• Improves motivation and retention of staff
• Improves quality of staff available internally for promotion
• Attracts better staff due to showing commitment and
progression opportunities
• Enables succession planning and career development
• Source of competitive advantage through innovation
• Helps build corporate culture
BPP LEARNING MEDIA

Benefits of training for the employee
• Enhances portfolio of skills

• Psychological benefits – helps self esteem and confidence
in future
• Social benefit – helps satisfy social needs
• The job – helps them to do it successfully
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Systematic approach to training 1
In order to ensure that training meets the real needs of the

organisation, larger firms adopt a systematic approach.
Includes:
• Definition
• Objective setting
• Planning training programmes
• Delivering training programmes
• Evaluating results
BPP LEARNING MEDIA

Systematic approach to training 2
Assessment of training needs

• initial competence of participants Modify if
• required competences necessary
Set training objectives

Modify if
Behaviours – Standards –
necessary
Environments
Design training content Modify if

necessary
Criteria for
measurement
Deliver course
Trainees
Evaluate results Feedback
BPP LEARNING MEDIA

Identifying the need for training
• Obvious and automatic – eg new computer system

• Response to critical incident – eg bad press about
customer service
• Qualitative indicators – eg number of complaints
• Self assessment – eg employee attitude surveys
BPP LEARNING MEDIA

Learning gap
Required competence – present competence = training need
Requirements of the job

Learning gap
(training needed)
Ability/capacity of job holder
BPP LEARNING MEDIA

Determining required competence
• Job analysis
• Skills analysis
• Role analysis
• Existing records
• Competence analysis
BPP LEARNING MEDIA

Setting training objectives
SMART objectives detailing:

• Behaviour – what should the trainee be able to do?
• Standard – to what level of performance?
• Environment – under what conditions? (so that the
performance level is realistic)
• Specific
• Measurable
• Achievable
• Relevant
• Time-bound
BPP LEARNING MEDIA
Example training objective
Training need:
To know more about the Data Protection Act
Learning objective:
The employee will be able to answer four out of every five
queries about the Data Protection Act without having to
search for details
BPP LEARNING MEDIA

Personal development plan
Individuals can incorporate training and development

objectives into a personal development plan.
Purpose of personal development plan:

• Improving performance in the existing job
• Developing future skills
BPP LEARNING MEDIA

Steps in personal development planning 1
1. Analyse the current position – use skills analysis
The aim is to incorporate more of the employees' interests

into their actual roles.
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2. Set goals:
• Cover performance in the existing job
• Future changes in current role
• Move elsewhere in organisation
• Develop specialist expertise
Goals must be SMART
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3. Draw up an action plan to achieve goals, including:

• The objective
• Methods to develop skills
• Timescales for progress review
• Methods of monitoring and reviewing progress
and achievement
BPP LEARNING MEDIA

Training methods
Training methods
Off the job On the job

training training
Courses (internal or external) Coaching

CBT Observation
E learning via internet Job rotation
Case studies/role play Apprenticeships
BPP LEARNING MEDIA

Off the job training 1
Advantages:
• No risk – allows exploration/experimentation
• Focus on learning away from distractions of work
• Standardised training
• May confer status, implying promotion
BPP LEARNING MEDIA

Off the job training 2
Disadvantages
• May not be directly relevant or transferable to the job
and/or content
• May be perceived as a waste of time
• Immediate and relevant feedback may not be available
(eg if delay for exam results)
• Tends to be more theoretical – doesn't suit 'hands on'
learning styles
• May represent a threat – implying inadequacy
BPP LEARNING MEDIA

On the job training 1
Advantages:
• Takes account of job context – high relevance and transfer
of learning
• Suits 'hands on' learning styles – learning by doing
• No adjustment barriers
• Develops working relationships as well as skills
BPP LEARNING MEDIA

On the job training 2
Disadvantages:
• Undesirable aspects of job context – eg corner-cutting
learned
• Doesn't suit 'hands off' learning styles
• Trial and error may be threatening
• Risks of throwing people in at deep end with real
consequences of mistakes
• Distractions and pressures of the workplace may hamper
learning focus
BPP LEARNING MEDIA

Flight simulator
Wouldn't be appropriate for new pilot to practice in a real

aeroplane until they were very competent – risk too high
BPP LEARNING MEDIA

Induction training
Purposes:
• Help new recruits find their bearings
• Begin to socialise new recruits into the culture and norms
of team/organisation
• Support recruits
• Identify training/development needs
• Avoid initial problems at the 'induction crisis' stage of the
employment lifecycle – which may cause employees to
leave prematurely
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Process of induction
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Responsibility for training & development
• Trainee
• HR department or training department
• Line managers
• Training manager
Increasingly, responsibility for training and development is

being devolved to the individual learner in collaboration with
line managers and training providers.
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Responsibility of training manager
• Liaison – with HR and operating departments

• Scheduling – convenient training times
• Needs identification – existing and future skills shortages
• Programme design – developing tailored training
programmes
• Feedback – to trainee, the operating department and HR
• Evaluation – measuring the effectiveness of the training
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Evaluating training programmes
• Evaluation – carry out a cost v benefit analysis

• Validation – observe results of the course and measure
whether training objectives have been identified
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Hamblin – 5 level evaluation model
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Development
Development is wider than just training and includes:

• Work experience
• Guidance, support and counselling
• Education and training
• Planning of the individual's future
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Approaches to development
Include:
• Management development (eg MBA)
• Career development (career paths)
• Professional development (CPD)
• Personal development (more rounded individuals)
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Specimen exam
Role playing exercises using video recording and playback

would be most effective for which type of training?
A. Development of selling skills

B. Regulation and compliance
C. Dissemination of technical knowledge
D. Introduction of new processes or procedures
(2 marks)
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Answer: A
Role playing exercises are most effectively used for skills

development, including sales training. Other common
business applications include effective selection interviewing
and performance appraisal training.
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• Coaching = C: trainee is put under guidance of an
experience employee
• Mentoring = B: longer-term relationship with more
experienced person who encourages career development
• Counselling = A: interview to work through a problem
• Appraising = D: interview to review performance and
identify training needs
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3 (b) 1 mark per correct answer C and G

• Career and personal development
• Providing a role model for an employee
Are both benefits of using mentoring as a form of one-to-one
personal development
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Training and development
Learning/education Training Development

'Knowledge 'Raises 'Growth of
acquisition' competence' individuals'
• Current job • Potential for

future roles
The learning
Process Methods Types
organisation
• Knowledge • Mentoring • Management
transfer • Shadowing • Career
• Tolerance for • Standing in • Professional
risk • Secondment • Personal
• Innovation
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Honey & Benefits Process Evaluation

Mumford Employer Hamblin
Employee
• Theorist • Reduce cost • Skills • Reaction
• Pragmatist • Productivity • Social • Test
• Reflector • Flexibility • Confidence • Behaviour
• Activist • Retention • Impact
• Motivation • Value
Methods
Kolb 1st stage (have
an experience) Off the job On the job
Concrete
experiences
Apply/test
implications of Observation
concepts in new and reflection
situations
Formation of abstract
4th stage (plan 2nd stage
concepts and
next steps) (reflect on the
generalisations
experience)
3rd stage (draw

conclusions
from the
experience)
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Chapter 17 • Performance management
• Elements of appraisal systems
Performance appraisal • The purpose of performance
appraisal
• Formal systems
• Process of performance
management
• Appraisal process
• Self appraisal
• Barriers to effective
performance appraisal
• Appraisal and pay
• 360 degree appraisal
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Performance management and assessment

The purpose of performance appraisal
The process of performance appraisal
Barriers to effective appraisal
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Performance management
• Aims to improve results by managing performance within

an agreed framework of goals, standards and competence
requirements
• Performance management has a wider remit and covers
the whole organisation
• Appraisal is more individual
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Elements of appraisal system
• Reward review – measuring the extent to which employee

deserves bonus or pay increase
• Performance review – for planning and following up
training and development programmes
• Potential review – aid to planning career progression and
succession planning
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The purpose of performance appraisal
• Establishing key results which a job holder needs to

achieve for effective working
• Identifying improvement/training needs
• Identifying performance deserving merit pay awards
• Identifying areas in which work methods, technology and
other factors could better support performance
• Identifying candidates for promotion/succession
• Assessing organisational competences to aid HR planning
• Encouraging communication about performance
• Creating a culture of openness to feedback, problem-
solving and continuous improvement
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Formal systems
Why have a formal system?

• Ongoing informal feedback on performance is an important
part of management
• It makes appraiser and appraisee accountable for their
judgements, responses and actions
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Process of performance management
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Appraisal process
Corporate
plan
Purpose of
appraisal
Identification Assessment Jointly

of (Report) Assessment agreed Follow-up
criteria by (Interview) concrete action
for Manager conclusion
assessment
Job
requirements Employee's
performance
Job Feedback
analysis
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Example appraisal report
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Appraisal techniques
Method Detail
Overall assessment Narrative of manager's judgement
Guided assessment Comments by manager and appraisee under

specific performance elements
Grading Manager applies a numerical grade against

each performance element
Behavioural incident method Success or failure based on critical job

behaviour
Results orientated schemes Assessment against specific measurable
objectives
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Self-appraisal 1
• Occurs where the employee assesses their own

performance against criteria, identifies issues and
discusses with their manager how to resolve them
• Emphasis is development
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Self-appraisal 2
Advantages:
• Saves the manager time
• Increased responsibility to individual
• Reconciles the goals of individual and organisation
• Can increase flexibility (in terms of timing and relevance of
appraisal)
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Self-appraisal 3
Disadvantages:
• People are not the best judges of their own performance
• People may deliberately over (or under) estimate their
performance in order to gain approval or reward
(or conform to group norms)
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Three approaches to appraisal interview
Maier identified three approaches:

1. Tell & sell style
2. Tell & listen style
3. Problem solving style
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Tell & sell
'Tell and sell'

• Deliver assessment and 'sell' (gain acceptance of)
improvement plan
• Requires human relations skills to criticise and motivate
constructively
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Tell & listen
'Tell and listen'

• Deliver assessment and invite response
• More opportunity for counselling
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Problem solving
'Problem-solving'
• Invite employee to identify and discuss work problems,
areas for improvement
• Replaces judgement with collaborative creative thinking
and proactive development
• Preferred by most appraisees
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Follow up procedures
May include:
• Informing appraisees of the results
• Carrying out agreed actions
• Monitoring the appraisee's progress
• Help the appraisee to attain improvement objectives
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Barriers to effective performance appraisal
Lockett – Effective Performance Management identified

reasons why appraisals fail:
• If there is a confrontation
• If it feels like judgement
• If it is just a chat
• If it is just bureaucracy
• If there is unfinished business
• If it is just an annual event
Sometimes they are perceived to be a 'nuisance'.
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Appraisal and pay
• Another problem is the extent to which the appraisal

system is linked to the pay & reward system
• Employees consider favourable appraisals should be
rewarded, but there are drawbacks to this approach:
– Lack of funds available – company needs to perform
well too
– Continuous improvement – should be expected as part
of employee development
– Appraisals consider future plans as well as past
performance
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Alternative appraisal techniques
Upward appraisal – employees get rated by subordinates

Benefits:
• Subordinates have better knowledge of appraisee than the
superior does
• Subordinates rate statistically giving a more balanced view
• More impact from subordinates ratings than those from
superior
Customer appraisal
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360 degree appraisal
360 degree appraisal – collates feedback from a variety of

sources, including:
• Immediate superiors
• Subordinates
• Peers/co-workers
• Customers
• Self appraisal
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Specimen exam
Giles is conducting an appraisal interview with his assistant

Jill. He initially feeds back to Jill areas of strengths and
weaknesses of performance, but then invites Jill to talk about
the job, her aspirations, expectations and problems. He
adopts a non-judgemental approach and offers suggestions
and guidance.
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Specimen exam
This is an example of which approach to performance

appraisal?
A. Tell and sell approach

B. Tell and listen approach
C. Problem solving approach
D. 360 degree approach
(2 marks)
BPP LEARNING MEDIA

Answer: B
The 'tell and listen' approach encourages input from the

individual, promoting participation in the process by the
appraisee.
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Article
• Understanding the importance of appraisals
ourney/qual-resource/acca-qualification/f1/technical-articles/I
mportance-of-appraisals.html
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Performance appraisal
Performance Purpose Appraisal Barriers

Management
Process • Reward review • Confrontation
• Performance • Judgment
• ID
review • Chat
• Agree
• Potential • Bureaucracy
• Plan
review • Annual event
• Manage
• Review
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Methods Types Interview steps Maier's

Approaches
• Overall • Assessment • Prepare
assessment • Self appraisal • Interview • Tell and sell
• Guided • Upward • Agree • Tell and listen
assessment • Customer • Report • Problem-
• Grading • 360° • Follow up solving
• Behavioural
incident
methods
• Results
oriented
schemes
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Syllabus Area E
Syllabus Area: Personal effectiveness and

communication in business
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Chapter 18 • Time management
• Goals
Personal effectiveness • Action plans
and communication • Improving personal
effectiveness
• Competency frameworks
• Coaching, mentoring &
counselling
• Psychosocial functions
• Personal development plans
• Conflict
• Leavitt (1951)
• The 5 Cs of good
communication
• Communication methods
• Non-verbal communication
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Time management
The role of IT
Ineffectiveness at work
Competence frameworks and personal development
Conflict
Communication in the workplace
Formal communication processes
Informal communication channels
Barriers to communication
Communication methods
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Time
• Time is a scarce resource and must be used to the best

effect
• Employees need to add more value per hour than he/she
costs per hour
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Time management
Time management is the process of allocating time to tasks

in the most effective manner.
Effective time management involves attention to:

• Goal or target setting
• Action planning
• Prioritising
• Focus
• Urgency
• Organisation
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Principles of time management
Focus
Goals
Principles of
Organisation effective time
management
Urgency
Action plans
Priorities
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Goals
In order to evaluate whether you have achieved what you set

out to do, goals must be SMART:
Specific
Measurable
Attainable SMART
Realistic
Time-bounded
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Action plans
• Written action plan that sets out how you intend to achieve
your goals
Example
Goal: qualify as an accountant & get a good job
SMART objective: to achieve a score of at least 50% in the ACCA AB
exam by the end of the year
Action Plan: Study timetable setting out which chapters will be covered on
which days
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Time management
• Priorities – decide which tasks are the most important

• Focus – work on one thing at a time until it is finished
• Urgency – do not put off difficult or unpleasant tasks
because they are difficult or unpleasant
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Organisation
Organisation skills can be improved by:

• Plans
• Checklists
• Schedules
• ABCD method of in-tray management
• Organise work in batches
• Take advantage of your natural work patterns
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ABCD in-tray management
ABCD
Act on item immediately

Bin it, if you're sure it is worthless, irrelevant and unnecessary
Create a definite plan for coming back to the item
Delegate it
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Improving time management
• Plan each day

• Produce a longer term plan
• Do not be available to everyone at all times – eg set
'surgery hours' for questions
• Stay in control of telephone and emails
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Prioritisation
Involves ordering tasks based upon:

• Relative consequences of untimely performance
• Importance
• Dependency of other people on tasks
• Urgency
• Defined deadlines, timescales and commitment
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Work planning
Includes:
• Establishing priorities
• Loading, allocation of tasks
• Sequencing of tasks
• Scheduling – estimating the time to complete a task and
working forwards or backwards to determine start or finish
times
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Role of IT
• Digital – information in a coded (binary) form

• Analogue – information which uses continuously variable
signals
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Technology
Technologies which continue to evolve and affect

communication include:
• Modems and digital transmission
• EDI – Electronic Data Interchange
• Mobile communications – phones, laptops, tablets
• Digital networks
• Voicemail systems
• Videoconferencing
• Emails
• Intranet, extranet, internet
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Deciding on communication tool
Choice of communication tool depends on characteristics

of the message.
Including:
• Need for permanent record
• Speed
• Number of participants
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Benefits of IT
• Processing of routine data can be done in bigger volume,

at greater speed and with greater accuracy
• Paperless office
• Increased quality and quantity of information for managers
• Sensitivity analysis easier
• Improved customer service
• Home working easier
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Improving personal effectiveness
• Intranet – used for study modules

• Proprietary systems – eg using webcam to 'attend'
meeting without needing to travel
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Ineffectiveness
Main ways an employee can be ineffective:

• Failing to communicate problems and delays
• Failing to meet deadlines
• Failing to comply with job specifications
• Failing to deliver the exact product needed
BPP LEARNING MEDIA

Competency frameworks
Sets out what an employee:

• Should be able to do
• Ought to know
Can be used:
• For assisting effective recruitment
• As a tool for performance evaluation
• To identify skills gaps
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Coaching, mentoring & counselling
Trainee may
have access to
experienced
employee
A A A
Coach Mentor Counsellor
Provides
targeted Provides long-
Helps the
guidance on term career
trainee to help
how to do a support and
themselves
task for current development
role
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Coaching
Employee is put under the guidance of an experienced employee.

To succeed the following five steps are appropriate:
Step 1 Establish learning targets
Step 2 Plan systematic learning and development programme
Step 3 Identify opportunities to broaden trainee's knowledge and

experience
Step 4 Allow for trainee's strengths and weakness
Step 5 Exchange feedback
BPP LEARNING MEDIA

Mentoring
• Requires a long-term relationship

Differences to coaching:
• Mentor is not usually individual's immediate superior
• Mentoring covers wider range of issues and concerns
• Mentors have both career functions and psychosocial
functions
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Career function of mentor
• Sponsoring within the organisation and providing exposure

at higher levels
• Coaching and influencing progress through appointments
• Protection
• Drawing up personal development plans
• Advice with administrative problems
• Help in tackling projects
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Psychosocial functions
• Creating a sense of acceptance and belonging

• Counselling and friendship
• Providing a role model
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Counselling
• Counselling should be performed by a trained person on a

professional basis to resolve problems or issues in the
workplace.
Examples:
• Motivation
• Management
• Relationships
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Benefits of counselling
Effective counselling is important because it:

• Motivates individuals
• Reduces conflict in the department
• Aids management's understanding of issues
= increased productivity and efficiency
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Three stages in counselling – Egan
• Recognition and understanding

• Empowering/finding solutions
• Resourcing the solutions
The manager should help the employee to recognise and

deal with issues rather than merely provide a solution –
helps people to help themselves.
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Personal development plans
• Action plan for an individual that incorporates a set of developmental
opportunities including formal training
Step 1 Select area for development
Step 2 Set an objective (SMART: Specific, Measurable, Achievable,

Realistic, Time bound)
Step 3 Determine how to move towards objective by research
Step 4 Formulate detailed action
Step 5 Secure agreement to action plan
Step 6 Implement action pan
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Benefits of personal development plan
• Improving performance in an existing job

• Improving skills and competences
• Career development/advancement skills can be identified
• Acquiring transferable skills
• Pursuing personal growth
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Conflict
Conflict can arise from:

• Power and resources are limited
• Individuals and teams have their own goals and priorities
• Personality differences
• Different work methods
BPP LEARNING MEDIA

Managing conflict 1
Between individuals:
• Communicate
• Negotiate
• Separate
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Managing conflict 2
Within team:
• Denial/withdrawal
• Suppression
• Dominance
• Compromise
• Integration/collaboration
• Encourage co-operative behaviour
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Communication in workforce
Communication should be a two-way process required for

planning, co-ordination and control.
Types of communication:
• Giving instructions
• Giving or receiving information
• Exchanging ideas
• Announcing plans
• Comparing actual v plan
• Rules or procedures
• Communication of the organisation structure
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Communication
• Vertical – through the hierarchy (upwards and downwards)

• Horizontal – across the same level
Branch
Manager
Marketing Finance Operation

Manager Manager Manager
B.D.O Cashier Officer
“Horizontal” Communication in a Bank.
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Leavitt (1951)
• Conducted experiments with written communication and

five people, identifying patterns of communication that
exist between group members.
Four types:
• AY
• A wheel
• A circle
• A chain
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AY
• Co-ordinated by the figure where the Y forks into two

• Quick to solve problems
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A wheel
• Central figure has all information to co-ordinate the task

• Communicates only through central figures
• Solves problems the quickest
• Lowest job satisfaction
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A chain
• Each end cannot communicate with the other end

• Each person only communicates with the person next to
them
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A circle
• No obvious leader
• Each person only communicates with the person next to
them
• Slowest to make decisions
• Highest job satisfaction
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Formal communication process
BPP LEARNING MEDIA

Noise
Noise is anything which hinders communication and may

include:
• Physical noise
• Jargon
• Poor explanation
• Emotions
• Not listening
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Feedback
• The process by which the sender checks and the recipient

signals that the message has been received and
understood
BPP LEARNING MEDIA

The 5 Cs of good communication
Concise
Complete
Correct
Courteous
Clear
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Interpersonal skills and communication
Include:
• Rapport building
• Persuasion
• Negotiation
• Conflict resolution
• Empathy
• Listening
• Assertiveness
BPP LEARNING MEDIA

Communication methods
Methods
Oral Written
Face to face meetings Forms

Telephone Notices
Video/web Posters
Conferencing Letters
Meetings Email
Discussions Reports
Presentations Memos
Briefings
BPP LEARNING MEDIA

Non-verbal communication
• Posture
• Expressions
• Eye contact
• Movement
• Silence
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Specimen exam 1
In relation to the management of conflict, which of the

following approaches will maximise the prospect of
consensus?
A. Acceptance
B. Negotiation
C. Avoidance
D. Assertiveness
(2 marks)
BPP LEARNING MEDIA

Answer: B
Negotiation gives the best opportunity for the two sides in a

conflict to converge their positions. The other options either
involve backing down, forcing a position, potentially
increasing conflict, or leaving the issue unresolved.
BPP LEARNING MEDIA

Specimen exam 2
Darragh has been appointed to the management team of a

professional football club. His role includes coaching,
mentoring and counselling young players who have just
signed contracts with the club for the first time.
The following are his main activities:
1. Helping the young players to settle in during their first
week
2. Identifying each player's key skills and encouraging them
to develop new skills
3. Advising the players on addressing personal issues, such
as managing their finances
4. Helping the players to anticipate opponents' reactions
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Which of the following matches the correct role to carry out

in each of the four activities?
A. 1. Mentor 2. Counsellor 3. Coach 4. Counsellor

B. 1. Mentor 2. Coach 3. Counsellor 4. Coach
C. 1. Mentor 2. Coach 3. Counsellor 4. Mentor
D. 1. Counsellor 2. Mentor 3. Coach 4. Counsellor
(2 marks)
BPP LEARNING MEDIA

Answer: B
Mentors usually help staff on broader work related

development, including orientation and induction. Coaches
work on developing specific skills of the job itself, while
counsellors work with people on a personal level, perhaps if
they are having non-work related or emotional problems.
BPP LEARNING MEDIA

Specimen exam 3
Wasim is the Customer Services Manager in a large leisure

park. The forthcoming weekend is going to be the busiest of
the year, as it is a public holiday. Wasim has to cope with
several absentees, leaving him short staffed in public areas
of the park. His manager has told him he expects him to
catch up with some administrative reports that were due last
week. Wasim also has to arrange for six new staff to be
trained, who will be arriving imminently.
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In order to manage his workload most effectively, what

should Wasim do?
A. Prioritise the tasks in relation to the most important

business outcome
B. Deal with the reports that the manager insists be
prepared
C. Train the new recruits
D. Carry out some of the work that the absentees would
normally do
(2 marks)
BPP LEARNING MEDIA

Answer: A
An employee with a range of tasks or objectives to achieve

and pressures to achieve them should always prioritise tasks
in accordance to business importance. Deciding on other
criteria such as pressure applied by colleagues, whether
someone is absent or not or simply because a task is urgent
may damage wider business objectives.
BPP LEARNING MEDIA

Specimen exam 4
Ahmed is preparing his personal development plan. He is

particularly concerned about how others see him.
In order to analyse this aspect of his personal development

plan further Ahmed should consider which of the following?
A. Problems and strengths

B. Strengths and opportunities
C. Strengths and weaknesses
(1 mark)
BPP LEARNING MEDIA

Answer: C
Using SWOT analysis, the way to conduct this analysis

would be for the individual to consider their own strengths
and weaknesses and how the could affect the impression
they give to others. The other options are external factors to
the individual so would not directly affect the opinion that
others would have of that individual.
BPP LEARNING MEDIA

Specimen exam 5
Which pattern of communication is the quickest way to send

a message to all intended recipients?
A. The circle
B. The chain
C. The Y
D. The wheel
(2 marks)
BPP LEARNING MEDIA

Answer: D
The wheel facilitates transmission of the message directly to

all receivers and therefore transmits most quickly.
BPP LEARNING MEDIA

Specimen exam 6
Kelly wants to explain a business problem to Pawel on the

telephone.
Who will be involved in 'encoding' the communication that

takes place?
A. Kelly
B. Pawel
C. Kelly and Pawel
(1 mark)
BPP LEARNING MEDIA

Answer: C
Both parties in a two way communication link will need to

encode messages and both have to decode them for them to
be understood. The other options imply that only one party
encodes messages.
BPP LEARNING MEDIA

Article
• Communicating core values and mission
communicating-core-values-and-mission.html
BPP LEARNING MEDIA

Personal effectiveness and

communication
Organisational systems Personal strategies
Time • SMART
management • ABCD Communication
Goals Focus
Organisation Principles of
effective time Method Types Barriers 5 Cs
management
• Face to • Y • Culture
Action face • Wheel • Misunderstanding
Priorities Urgency
plans • Written • Circle • Bias
• Verbal • Chain • Jargon
• Non-verbal • Noise
BPP LEARNING MEDIA
Personal
Information
development
technology
plans
Step 1 Select area for development • Mobile Coaching,

communications counselling and
Set an objective (SMART: • Voice messaging
Step 2 Specific, Measurable, mentoring
• Video conferencing
Achievable, Realistic, Time • EDI
bound) Trainee may
have access to
Step 3 Determine how to move
towards objective by research
Coach Mentor Counsellor
Step 4 Formulate detailed action

An experienced
Provides long-
employee who Helps the
Step 5 Secure agreement to action plan provides
term career
trainee to help
support and
targeted him/herself
development
guidance
Step 6 Implement action plan
BPP LEARNING MEDIA

Syllabus Area F
Syllabus Area: Professional ethics in

accounting and business
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Chapter 19 • What are ethics?
• Rules, regulations and ethics
Ethical considerations • Corporate governance
concepts
• Management accountability
• Consequence v duty
• Ethical relativism
• The ethical environment
• Accountants and ethics
• IFAC
• Threats to independence
• Professional safeguards
• Conflicts of interest
BPP LEARNING MEDIA

Framework of rules
Management accountability
The ethical environment
Ethics in organisations
Accountants and ethics
A code of ethics for accountants
Ethics in business
Ethical dilemmas
Resolution of ethical conflicts
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What are ethics?
• Set of moral principles

• Guide behaviour
• Inform our perceptions of right and wrong
• Enable society to operate and people to work together
• Apply to organisations and individuals
BPP LEARNING MEDIA

What is right? 1
• Consider the following situations/dilemmas

• Are any of them morally/ethically acceptable?
• How would you justify your choice?
• Choices – yes/no/maybe
BPP LEARNING MEDIA

What is right? 2
Dilemma Yes No Maybe

Senior executives receiving large bonuses despite poor
organisational performance
Driving on the wrong side of the road

Lying to a friend or colleague
Advertising that could be perceived as offensive by
some members of society
Price fixing between competitors

Using cheap sources of labour in third world countries
Speaking abusively to somebody in a call centre
Covering up a situation or withholding information
BPP LEARNING MEDIA

Rules, regulations and ethics
Examples of obligations Consequences of non-

compliance
Law Health & Safety, Anti- Fines (and in extreme cases
discrimination rules, Competition imprisonment), reputational
law damage
Regulations Financial service companies Fines, reputational damage
must adhere to multiple
regulations re advertising,
internal procedures etc.
Some industries are subject to
regulation of price and service
standards, eg telecoms, water,
electricity
Ethics Treatment of staff, customers etc Variable – potentially
reputational damage, loss of
staff loyalty
BPP LEARNING MEDIA

Sources of regulation
A = current behaviour (ie breaking law)
B = desired outcome
BPP LEARNING MEDIA

Journey from A – B
What?
To get to B the company needs to meet legal and non-legal
obligations
How?
Taking maximum care of employees:
Legal – minimum required (eg pay minimum wage)
+
Non-legal regulations (eg pay a premium)
Ethical behaviour is seen as highest level of behaviour

expected by society.
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What do we want?
Better working conditions for all staff
© 2015 Google Inc, used with permission. Google and the Google logo are registered trademarks of Google Inc.
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Fringe benefits to reward staff
Free services provided for Google staff:

• Exercise facilities
• Haircuts
• Dry cleaning and laundry services
• Child care facilities on-site
• Five dedicated medical doctors
• Dogs can be brought to work
• Professional massage therapists
• Pool tables and video games in breakout
areas
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A stress-free working environment
Employees do not work

well when placed under
unnecessary stress…
…such as queuing for

lifts at busy times
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Subsistence allowances for staff
Employees need brain

food to think and be
productive…
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Technology that helps to get the job done
This should be set up

to support the
employee in the
workplace…
…even when it
breaks down and
needs repair
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A culture that promotes innovation
Employees should be
given space to think
and adequate support
in all their work…
…especially for
those 'eureka'
moments!
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Isn't all this expense just a waste of money?
Nasdaq listing for last three years
Source: http://www.nasdaq.com/symbol/goog/stock-chart
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Corporate governance concepts 1
• Fairness: take into account all stakeholders with legitimate

interests
• Transparency: openness, disclosure in financial
statements, press releases, websites
• Independence: need independent non-executive directors
who can monitor without conflicts of interest
• Probity: truth-telling/not misleading
• Responsibility: management responsible for organisation,
corrective action, penalising mismanagement
• Accountability: managers are collectively responsible for
the conduct of an organisation's affairs
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Corporate governance concepts 2
• Reputation: ethical behaviour can increase the value of

the company via good press
• Judgement: making decisions that enhance the prosperity
of the organisation
• Integrity: straightforward dealing and completeness – ie
high moral character is an essential principle of corporate
governance relationships
• Probity: truth-telling/not misleading
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Management accountability
• An organisation's managers are collectively responsible for

the conduct of an organisation's affairs
• They have a fiduciary responsibility (duty of faithful
service)
• Differing views about how far external pressures modify
business objectives:
Stakeholder view
Consensus theory
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Consequence v duty
Consequence approach
Judges actions based on their outcomes, for
example 'the end justifies the means'
Duty approach
Not concerned with consequences but with acting
according to ethical principles, for example
'treat others as you would like to be treated'
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Consequence approach terms
Egoism
• An act is ethically justified if decision-makers pursue short-
term desires or long-term interests (justification for free
market).
Pluralism
• Different views may exist but it should be possible to reach
a consensus; morality is a social phenomenon.
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Ethical relativism
Relativism
• View that there are a wide variety of ethical beliefs and
practices; which one is most appropriate depends on the
circumstances
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Ethics
Ethics
• A set of moral principles to guide behaviour, based upon
concepts of duty (absolute moral rules) and
consequences (outcomes)
• Other considerations are based upon rights to be
respected, and virtues to be cultivated
• Firmness, fairness, objectivity, charity, forethought, loyalty
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The ethical environment 1
• Social attitudes are also significant: work/life balance;

'green' concerns; minorities
• Translated into business objectives for:
• Employees
• Customers
• Suppliers
• Society
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Employees
• Minimum wage
• Job security/satisfaction
• Working conditions
Customers
• Product quality
• Pricing
• Safety
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Suppliers
• Regular orders
• Timely payment
Society
• Pollution control
• Sustainability
• Charity work
• Product quality
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Objective standards
• Cognitivism – objective, universal principles exist and can

be known, ethics can be regarded as absolute
Lack of objective standards
• Non-cognitivism – no possibility of acquiring objective
knowledge of moral principles
• Moral relativism – right and wrong are culturally
determined
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Teleological consequentalist ethics
Teleological consequentalist ethics

• Moral judgements based on outcomes or consequences.
• Utilitarianism means acting for the greatest good to the
greatest number.
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Deontological ethics
Deontological ethics
• Kant stated that acts can be judged in advance by moral
criteria:
• Do what others should be doing
• Treat people as autonomous beings and not as means
to an end
• Act as if acting in accordance with universal laws
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Ethics in organisations
• Organisations will have either a compliance based or

integrity based approach.
• Other influences
• Personal ethics of employees
• Professional ethics (eg ACCA)
• Organisational culture
• Organisational systems (eg mission statements)
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Accountants and ethics
Why accountants should behave ethically

• Laws and regulation
• Upholding of professional standards and qualities
(personal/professional)
• Protection of the public interest
• These principles should be enshrined in a 'Code of

Ethics' or 'Code of Conduct'
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IFAC
• IFAC: International body with own code of ethics (IESBA)

• ACCA's code is aligned with:
• Integrity
• Objectivity
• Professional competence
• Confidentiality
• Professional behaviour via: reliability, responsibility, timeliness,
courtesy, respect
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Personal qualities expected of an accountant
• Reliability
• Responsibility
• Timeliness
• Courtesy
• Respect
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Professional qualities expected of an accountant
• Independence
• Scepticism
• Accountability
• Social responsibility
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Independence
Importance of independence
• Independence promotes:
– Reliability of financial information
– Credibility of financial information
– Value for money of audit
– Credibility of profession
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Threats to independence
Threats to independence
• Self-interest
• Self-review
• Advocacy
• Familiarity
• Intimidation
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Professional safeguards
Professional safeguards
• Entry requirements
• Training requirements
• CPD requirements
• Professional standards
• Professional monitoring
• Disciplinary procedures
• External review
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Safeguards in practice
Safeguards in practice
• Peer review
• Independent consultation
• Partner/staff rotation
• Discussion/disclosure to audit committee
• Reperformance by another firm
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Self interest threat
Employment with assurance client

Close business
relationships
Partner on client board
Financial
interests
Family and personal relationships
Recruitment
SELF-INTEREST THREAT Gifts and hospitality
Loans and guarantees

Lowballing
High % Overdue fees

of fees % of contingent fees
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Self review threat
• Recent service with assurance client

• General other services
• Preparing accounting records and financial statements
• Valuation services
• Tax services
• Internal audit services
• Corporate finance
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Familiarity threat
• Family relationships between client and firm

• Personal relationships between client and firm
• Long association with client
• Recent service with client
• Future employment with client
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Intimidation threat
• Close business relationships

• Family relationships
• Personal relationships
• Staff employed by client
• Litigation
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Advocacy threat
Advocacy threat
• Where accountants take client's part
• Act as their advocate or will only earn fees from client if
successful outcome is achieved (contingent fees)
• Examples include provision of legal service and corporate
finance advice
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Conflicts of interest
• These can arise from accountants acting for clients with

whom they are in dispute, eg over quality of work.
• A conflict can also arise through disputes between two
clients for whom accountants are acting.
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McDonald's
• 1972 Ray Kroc (founder) donated $250k to President

Nixon's re-election fund
• Got in return legislation allowing teens to be paid 20% less
than minimum wage
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Specimen exam 1
In order to discharge their duties ethically, finance directors

must ensure that the information published by their
organisations provides a complete and precise view of the
position of the business without concealing negative aspects
that may distort the reader's perceptions of its position.
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This duty describes which of the following ethical principles?
A. Probity
B. Honesty
C. Independence
D. Objectivity
(2 marks)
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Answer: D
A professional accountant is acting in accordance with

fundamental ethical principles is demonstrating objectivity
when they give a complete and precise view, which by
implication means that negative aspects should not be
concealed or positive aspects be accentuated.
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Specimen exam 2
Which of the following is a purpose of the International

Federation of Accountants?
A. Agreement of legally binding financial reporting standards

across all member accountancy organisations
B. Prevention of international financial crimes, such as
money laundering and insider dealing
C. Promotion of ethical standards in all member
organisations
D. Development of universally applicable detailed rules to
deter inappropriate behaviours
(2 marks)
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Answer: C
IFAC has no legal powers against businesses, nor does it set

financial reporting standards. It is an accounting association
member body which promotes educational and ethical
standards of behaviour amongst its member bodies, through
a code of ethics and behaviour, but does not prescribe
detailed rules on this.
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Specimen exam 3
Linh owns a busy restaurant. She has had complaints from

regular customers about diners failing to control their noisy
and unruly children, which is spoiling their dining experience.
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Which of the following courses of action would be regarded

as a pluralist solution to this problem?
A. Setting aside a separate section of the restaurant for

families with children
B. Not accepting bookings from families with children
C. Advising customers that the restaurant is a family
restaurant before they book
D. Taking no action, assuming that those who complain will
always be a minority
(2 marks)
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Answer: A
The pluralist solution is to cater for the needs of more than

one stakeholder group without seriously compromising the
interests of any individual group. Therefore setting aside a
special areas for families with children while having an adults
only section would achieve this. The other options involve
adversely affecting the rights of one or other group of
stakeholders in some way.
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Specimen exam 4
Professional accountants must demonstrate integrity at all

times.
Which of the following best describes the meaning of
integrity?
A. Applying consistently high moral values

B. Maintaining a neutral and unbiased view on all business
decisions
C. Providing timely and accurate information free from
errors
(1 mark)
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Answer: A
Integrity is about honestly and applying morality to business

and professional behaviour. A person acting with integrity
should not be corruptible. Neutrality in the making of
business decisions does not indicate morality nor does
producing accurate work, which is more about professional
competence.
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½ mark for each

Fundamental principles of ethical behaviour from the IFAC
(IESBA) and ACCA codes of ethics:
• A: Integrity
• E: Professional behaviour
• F: Confidentiality
• H: Objectivity
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½ mark per correct answer – A, C, D, G

Characteristics which distinguish a profession from an
occupation:
• Acting in the public interest
• Ethical codes of conduct
• Governance by association
• Process of certification
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Article
• A question of ethics
question-of-ethics.html
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Ethical
considerations
Consequences
approach
Set of moral
What are ethics?
Duty approach principles
Organisational ethics Professional ethics

Whistle-blowing
Influences Approach Rules-based Framework-based

 Personal ethics
 Culture
 Senior management
 Ethical statement Compliance Integrity
 Professional ethics
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Qualities of a good A code of ethics for

accountant accountants
• Integrity
• Objectivity
• Professional competence
Personal Professional
• Confidentiality
• Reliability • Professional behaviour
• Independence
• Responsibility • Scepticism
• Timeliness • Accountability
• Courtesy
Threats and Safeguards
• Social responsibility
• Respect
• Self interest • CPD
• Self review • Whistle blowing
• Advocacy • Professional disciplinary
• Familiarity structure
• Intimidation • Education and training
• Quality control procedures
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Examining team advice
• Advice from the AB Examining team about tackling the

exam
• http://
www.accaglobal.com/gb/en/student/acca-qual-student-j
ourney/qual-resource/acca-qualification/f1/examiners-re
ports.html
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Specimen exam
• It is important to practice real exam questions

• You should also practice sitting a full two hour exam
before your exam to get a feel for the overall time
pressure and balance of exam
• Link to specimen exams:
https://www.accaglobal.com/uk/en/student/exam-support-resources/funda
mentals-exams-study-resources/f1/pilot-papers.html
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Practice test
• The ACCA have recently made available additional

practice tests for students sitting CBEs.
• More details available here:
• http://www.accaglobal.com/gb/en/student/acca-qual-stu
dent-journey/exams/preparing-for-exams/practice-tests.
html
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Before your exam – practical considerations
• Make sure you know where and when your exam is

• Allow plenty of time to reach exam hall
• Ensure you have your ID and exam entry documents
available
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Copyright notice
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 BPP Learning Media Ltd.
The contents of this book are intended as a guide and not professional advice. Although every effort
has been made to ensure that the contents of this book are correct at the time of going to press, BPP
Learning Media makes no warranty that the information in this book is accurate or complete and accept
no liability for any loss or damage suffered by any person acting or refraining from acting as a result of
the material in this book.
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ACCA FIA - Accountant in Business (AB) - Teaching Slides - 2019

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ACCA FIA - Accountant in Business (AB) - Teaching Slides - 2019

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Foundations in Accountancy / ACCA

Accountant in Business (FAB/AB)

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Syllabus Case study

Technical content Real world example

Question to consider Diagram

Answer Key model

Past exam question Tackling the exam

Answer to past exam Summary

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AB provides a foundation for later studies eg:

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The business organisation, its stakeholders and the external

B Business organisational structure, functions and governance

C Accounting and reporting systems, controls and compliance

D Leading and managing individuals and teams

E Personal effectiveness and communication

F Professional ethics in accounting and business

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The question types in the CBE are:

• Multiple choice – choose one answer from 4 options

• Multiple response – select more than one response by clicking the

• Multiple response matching – select a response to a number of related

• Number entry – key in a numerical response to a question

• Multiple task questions – a series of short questions related to one scenario.

It is important to practice all types of questions.

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• Ensuring that you study all areas of the syllabus

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• Examining team articles – Student Accountant archives

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Skill 1 – Learning and understanding the syllabus

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Skill 2 – Time management

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Skill 3 – Tackling objective test questions (section A)

Skill 3 – Tackling objective test questions (section A)

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Skill 4 – Tackling multi-task questions (section B)

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Syllabus Area: The business organisation, its

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Business organisations • Profit v not-for-profit

• Purpose of business organisations

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An organisation is a ‘social arrangement which pursues

Boundaries can be physical or social.

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• Preoccupied with performance and meeting or improving

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Organisations can achieve results which individuals cannot

Organisations enable people to be more productive.

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The main difference is in the primary goals and the