m freeaccastudymaterial.blogspot.com co ACCA ot and ria FIA l.b log Paper F1 sp Diploma in Accounting ate ym and as tud Business ea cc Accountant in Business (AB/FAB) Study Notes fre *SNF1J15* SNF1J15 ACCA Study Notes F1 AB June 15 freeaccastudymaterial.blogspot.com ot co m freeaccastudymaterial.blogspot.com l.b log sp British library cataloguinginpublication data A catalogue record for this book is available from the British Library. © Kaplan Financial Limited, 2013 ate ria Published by: Kaplan Publishing UK Unit 2 The Business Centre Molly Millars Lane Wokingham Berkshire RG41 2QZ as tud ym The text in this material and any others made available by any Kaplan Group company does not amount to advice on a particular matter and should not be taken as such. No reliance should be placed on the content as the basis for any investment or other decision or in connection with any advice given to third parties. Please consult your appropriate professional adviser as necessary. Kaplan Publishing Limited and all other Kaplan group companies expressly disclaim all liability to any person in respect of any losses or other claims, whether direct, indirect, incidental, consequential or otherwise arising in relation to the use of such materials. Printed and bound in Great Britain. Acknowledgements cc We are grateful to the Association of Chartered Certified Accountants and the Chartered Institute of Management Accountants for permission to reproduce past examination questions. The answers have been prepared by Kaplan Publishing. fre ea 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 Kaplan Publishing. ii KAPLAN PUBLISHING freeaccastudymaterial.blogspot.com Contents Page The business organisation Chapter Business organisation and structure Chapter Organisational culture in business Chapter Information technology and information systems in business 67 Chapter Stakeholders in business organisations 89 Chapter External analysis – political and legal factors 103 Chapter External analysis – economic factors 127 Chapter External analysis – social, environmental and technological factors 189 Chapter Competitive factors 213 Chapter 10 Professional ethics in accounting and business Chapter 11 Governance and social responsibility in business 257 Chapter 12 Law and regulation governing accounting Chapter 13 Accounting and finance functions within business 305 Chapter 14 Financial systems and procedures Chapter 15 The relationship between accounting and other 363 business functions Chapter 16 Audit and financial control Chapter 17 Fraud, fraudulent behaviour, and their prevention 405 in business sp 51 l.b log ria ate ym as tud cc 17 231 285 327 379 Chapter 18 Leadership, management and supervision 427 Chapter 19 Recruitment and selection of employees 455 Chapter 20 Individual, group and team behaviour 485 Chapter 21 Motivating individuals and groups 507 ea fre ot Chapter co m freeaccastudymaterial.blogspot.com iii KAPLAN PUBLISHING freeaccastudymaterial.blogspot.com Chapter 22 Learning and training at work Chapter 23 Review and appraisal of individual performance 553 Chapter 24 Personal effectiveness at work Chapter 25 Communicating in business co 529 m freeaccastudymaterial.blogspot.com ot 575 fre ea cc as tud ym ate ria l.b log sp 603 iv KAPLAN PUBLISHING freeaccastudymaterial.blogspot.com freeaccastudymaterial.blogspot.com chapter m Introduction l.b log sp Paper Introduction ot co fre ea cc as tud ym ate ria v freeaccastudymaterial.blogspot.com freeaccastudymaterial.blogspot.com How to Use the Materials ot co m Introduction sp These Kaplan Publishing learning materials have been carefully designed to make your learning experience as easy as possible and to give you the best chances of success in your examinations. l.b log The product range contains a number of features to help you in the study process. They include: (1) Detailed study guide and syllabus objectives (2) Description of the examination (3) Study skills and revision guidance (5) Question practice ria (4) Complete text or essential text ate The sections on the study guide, the syllabus objectives, the examination and study skills should all be read before you commence your studies. They are designed to familiarise you with the nature and content of the examination and give you tips on how to best to approach your learning. fre ea cc as tud ym The complete text or essential text comprises the main learning materials and gives guidance as to the importance of topics and where other related resources can be found. Each chapter includes: • The learning objectives contained in each chapter, which have been carefully mapped to the examining body's own syllabus learning objectives or outcomes. You should use these to check you have a clear understanding of all the topics on which you might be assessed in the examination • The chapter diagram provides a visual reference for the content in the chapter, giving an overview of the topics and how they link together • The content for each topic area commences with a brief explanation or definition to put the topic into context before covering the topic in detail. You should follow your studying of the content with a review of the illustration/s. These are worked examples which will help you to understand better how to apply the content for the topic vi KAPLAN PUBLISHING freeaccastudymaterial.blogspot.com m freeaccastudymaterial.blogspot.com Test your understanding sections provide an opportunity to assess your understanding of the key topics by applying what you have learned to short questions. Answers can be found at the back of each chapter • Summary diagrams complete each chapter to show the important links between topics and the overall content of the paper. These diagrams should be used to check that you have covered and understood the core topics before moving on • Question practice is provided at the back of each text l.b log sp ot co • Icon Explanations Definition – Key definitions that you will need to learn from the core content. ria Key Point – Identifies topics that are key to success and are often examined. ate Expandable text – Expandable text provides you with additional information about a topic area and may help you gain a better understanding of the core content. Essential text users can access this additional content online (read it where you need further guidance or skip over when you are happy with the topic) ym Illustration – Worked examples help you understand the core content better. as tud Test Your Understanding – Exercises for you to complete to ensure that you have understood the topics just learned. Tricky topic – When reviewing these areas care should be taken and all illustrations and test your understanding exercises should be completed to ensure that the topic is understood. cc For more details about the syllabus and the format of your exam, please see your Complete Text or go online. Online subscribers ea Paper background fre Objectives of the syllabus Core areas of the syllabus vii KAPLAN PUBLISHING freeaccastudymaterial.blogspot.com freeaccastudymaterial.blogspot.com m Introduction co Syllabus objectives and chapter references The examination ot Examination format Computerbased examination (CBE) – tips Preparing to study Three ways of taking notes Revision Further reading l.b log Study skills and revision guidance sp Paperbased examination tips fre ea cc as tud ym ate ria You can find further reading and technical articles under the student section of ACCA’s website. viii KAPLAN PUBLISHING freeaccastudymaterial.blogspot.com freeaccastudymaterial.blogspot.com m chapter ot co l.b log Chapter learning objectives sp The business organisation Upon completion of this chapter you will be able to: • • • • define ‘business organisations’ and explain why they are formed • identify the different types of business organisation: commercial, notforprofit, public sector, nongovernmental organisations, co operatives describe common features of business organisations ria outline how business organisations differ ate list the industrial and commercial sectors in which business organisations operate fre ea cc as tud ym freeaccastudymaterial.blogspot.com freeaccastudymaterial.blogspot.com ot co m The business organisation 1.1 What is a business organisation? sp 1 Business organisations and the reason they are formed l.b log Defining an organisation is difficult as there are many types of organisations which are set up to meet a variety of needs, such as clubs, schools companies, charities and hospitals. What they all have in common is summarised in the definition produced by Buchanan and Huczynski. ria ‘Organisations are social arrangements for the controlled performance of collective goals.’ • • • collective goals ate Note the three key aspects of this definition: social arrangements ym controlled performance What is an organisation? as tud Illustration – Football team A football team can be described as an organisation because: It has a number of players who have come together to play a game The team has an objective (to score more goals than its opponent) To do their job properly, the members have to maintain an internal system of control to get the team to work together. In training they work out tactics so that in play they can rely on the ball being passed to those who can score goals fre ea cc • • • KAPLAN PUBLISHING freeaccastudymaterial.blogspot.com Communicating in business co Effective communication is essential for the organisation as is ensures that: m freeaccastudymaterial.blogspot.com instructions, rules and procedures are properly understood by all employees • • individuals know what is expected of them • • it is easier for managers to plan and control operations more efficiently • increased trust and reduced conflict within the organisation ot • sp there is better coordination between individuals, groups and departments l.b log forming, swapping and testing of ideas is encouraged, improving innovation 4.2 Barriers to effective communication ria Despite the need for effective communication, there are a number of barriers and breakdowns that can occur, causing problems within the organisation. A barrier to communication is anything that stops information from: ate getting to its intended recipient(s) being understood by the recipient(s) and/or being acted on in the manner intended ym • • • Typical communication barriers include: as tud Status differences between receiver and sender can mean that more junior members of staff can be reluctant to pass information upwards for fear of criticism. Language differences or the use of technical or professional jargon can prevent understanding of communications. Conflict between individuals within the organisation may lead to communication being limited or withdrawn between them. fre ea cc Overload – if too much information is communicated at once, the receiver may become overwhelmed and fail to understand what is expected of them. Distance between communicators can be a problem. Typically, individuals will respond more promptly to those nearby! Personal differences between the receiver and sender, such as age, education or priorities may mean that they interpret the information in different ways, causing confusion. 610 KAPLAN PUBLISHING freeaccastudymaterial.blogspot.com freeaccastudymaterial.blogspot.com Test your understanding l.b log sp ot X is a junior manager in his early 40s who joined his company at the age of 16. He sticks to a strict routine, arriving and leaving work punctually. He is married with two children at school. He has always worked in the functional section that he now manages and is the most experienced employee in his particular field. However, he is not familiar with latest developments in information technology and feels swamped by an excess of useless information. He claims that he is, in any case, aware of the information he needs, but his subordinates worry because they notice that he ignores information that does not agree with his opinions. co m chapter 25 ria Y is a young accounting graduate who works in the management information department. She has been promoted quickly to supervisor level, having joined the company a few years ago straight from university. She is single and lives close to the office and often works late because she loves computers and is fascinated by their potential. She frequently and fluently tells anyone willing to listen that the company is old fashioned and needs to be dragged into the twentyfirst century. X hears this, disapproves but does not comment, and carries on in his usual way. ate Although Y and X are located in different buildings on the same site, their work requires them to cooperate regularly. Their relations are getting more and more strained and their work is suffering. Required: ym Identify and describe the barriers to communication between the two colleagues. as tud 4.3 Consequences of ineffective communication If the organisation fails to deal with the barriers to communication, its internal and external communications may become significantly less useful. Lack of downward communication is likely to result in: poor awareness of corporate objectives at lower management levels poor understanding of working instructions and responsibilities cc • • • fre ea poor morale of junior managers because they are not consulted about changes which affect them or their working conditions 611 KAPLAN PUBLISHING freeaccastudymaterial.blogspot.com Communicating in business early warning of troubled areas is not received • • control becomes difficult ot • • • • co Lack of upward communication, including ‘feedback’, has the following undesirable consequences for management: m freeaccastudymaterial.blogspot.com benefit of creative ability in subordinates is lost participation of subordinates is limited introduction of change is difficult l.b log sp need for change is not appreciated because management is isolated from the operation areas Lack of lateral communication often leads to: • • • • divisions in management teams lack of coordination ria rivalry between sections and departments lack of advice and involvement by staff specialists ate Illustration – Communications in the workplace ym Perhaps the best way to think about the way in which communication can go wrong is to consider what good communication would be like: • It would use appropriate language (e.g. no jargon; written so that the intended recipient can understand it) • • • It would go only to who should receive it – not to everyone as tud It would use the right medium to communicate the information The information would get to the recipient in good time for it to be used Taking the above list, it is easy to produce a list of how communications go wrong: Information is omitted or distorted by the sender • Information is presented using an inappropriate medium (e.g. via email rather than in a proper report, or via telephone when faceto face is better) • Information arrives too late, or is incomplete fre ea cc • • Information is misunderstood due to the use of inappropriate jargon or lack of clarity 612 KAPLAN PUBLISHING freeaccastudymaterial.blogspot.com freeaccastudymaterial.blogspot.com m chapter 25 sp These could include: ot In order to avoid these problems, management should first identify any barriers to communication within their organisation and then consider practical ways of dealing with them. co 4.4 Overcoming barriers to communication • • agree and confirm priorities and deadlines for the receipt of information • • • keep communication as simple as possible, avoiding jargon l.b log spend sufficient time ensuring that the information is sent to all the right people confirm that the information sent has been received and understood avoid inconsistent verbal/nonverbal communication, as this tends to confuse the receivers ria Illustration – Communications in the workplace ate A manager is frequently accused of upsetting his staff by the tone of his memos. How can this situation be resolved? as tud ym The manager concerned could spend time reading memos sent by other managers then compare and contrast both the content and tone with that of his own memos. He can call more meetings or speak to staff individually rather than sending memos all the time. He can ask staff, informally, what they dislike about his memos. He can make it clear to staff that the memos are not intended to cause offence. He can ask to, be asked to, or arrange to, attend a short course on communication skills. Although anticipating is preferable to reacting to problems when they occur, this is not always possible. Unexpected difficulties will invariably arise. Example of these include: • • A communication method may be inappropriate for a particular message cc • Unexpected breakdowns of equipment may occur • • Messages may be delayed causing mistrust and suspicion • People may not be available to receive important messages ea fre Receiver(s) may not be in the correct frame of mind to accept a message An official message may be received before a manager has the opportunity to discuss an issue informally with his staff 613 KAPLAN PUBLISHING freeaccastudymaterial.blogspot.com Communicating in business ot co Ultimately, successful communication depends on continuous feedback and monitoring of existing communication systems. Information received from monitoring should be evaluated and findings acted on swiftly. If difficulties are identified these need to be corrected before further damage can occur. m freeaccastudymaterial.blogspot.com sp Test your understanding Five possible barriers to communication are as follows. l.b log (a) The persons communicating might come from very different backgrounds, in terms of work experience and expertise, or socially. Substantial age differences, and lifestyles, can also create barriers to communication (b) The message might be distorted in transmission, e.g. if it has to be transmitted to several people before it reaches the end user ria (c) In a multinational organisation employees might have to overcome a language barrier to communicate with each other (d) If there is information overload, an individual might be given too much information, and be unable to understand the message ym Required: ate (e) Where there is conflict within the organisation, and two individuals or departments are hostile towards each other, communications from one to the other will be treated with suspicion or disbelief as tud Suggest how these five barriers could be overcome. 5 Communication patterns A communication pattern illustrates how individuals communicate with each other within a group or organisation. fre ea cc Leavitt identified five major patterns of communication: wheel (or star), circle, allchannel, chain and ‘Y’. 614 KAPLAN PUBLISHING freeaccastudymaterial.blogspot.com freeaccastudymaterial.blogspot.com These five can be grouped into two main types: l.b log sp ot co m chapter 25 centralised networks – chain, wheel and ‘Y’ – group members have to go through a central person in order to communicate with others. This leads to unequal access to information within the group • decentralised networks – circle and allchannel – information flows freely between members without having to go through a central person ate Leavitt’s main conclusions were that: ria • The wheel is always the fastest way to reach a conclusion, making it ideal for problemsolving. The circle is the slowest • For complex problems, the allchannel is the most likely to reach the best decision • The level of satisfaction for individuals was highest in the circle, fairly high in the allchannel and relatively low in the other, centralised networks. The centralised networks saw high job satisfaction for the central figure, with the remaining members feeling isolated fre ea cc as tud ym • 615 KAPLAN PUBLISHING freeaccastudymaterial.blogspot.com freeaccastudymaterial.blogspot.com m Communicating in business fre ea cc as tud ym ate ria l.b log sp ot co Chapter summary 616 KAPLAN PUBLISHING freeaccastudymaterial.blogspot.com freeaccastudymaterial.blogspot.com m chapter 25 co 6 Practice questions Diagonal B Horizontal C Lateral D Vertical l.b log A sp Misha, on office junior, is asked to send a message to the head of another department. What type of communication is this? ot Test your understanding Test your understanding B Problem solving C Giving instructions D Conflict resolution ate Task coordination ym A ria Which of the following is not usually a purpose of lateral or horizontal communication? Test your understanding A B C Chain Y Allchannel Wheel fre ea cc D as tud Which of the following patterns of communication would be best if a quick decision is needed? 617 KAPLAN PUBLISHING freeaccastudymaterial.blogspot.com freeaccastudymaterial.blogspot.com m Communicating in business co Test your understanding ot Which of the following is a likely consequence of a lack of downward communication within an organisation? Rivalry between sections and departments B Difficulty when introducing change C Poor awareness of corporate objectives at lower levels D Early warning of problems is not received l.b log Test your understanding 10 sp A Communication can be structured in many different ways within organisations, including wheel, circle, allchannel and Y patterns. ria Required: ate (a) Identify which pattern of communication relates to each of the following statements. A This is the fastest way of reaching a conclusion This is the best pattern for dealing with a complex decision C This produces the highest overall level of satisfaction for participants D Along with the wheel, this is an example of a centralised network ym B as tud For each of the following, select ONE of A, B, C or D. (i) Allchannel (ii) Circle (iii) Wheel fre ea cc (iv) Y (0.5 marks each, total = marks) (b) Communication is made up of several key elements. These include: A Encoder B Noise C Receiver D Channel 618 KAPLAN PUBLISHING freeaccastudymaterial.blogspot.com freeaccastudymaterial.blogspot.com ot When producing feedback, the 1 will send a message which signals that they have understood and/or acted upon the information they have been provided. co The following sentences contain gaps which specify the appropriate element of communication. m chapter 25 sp Required: l.b log (i) Select the correct element of communication which appropriately fills gap above (i.e select A, B, C or D) The message may not be fully understood upon receipt, due to interference in the transmission channel, known as 2. (ii) Select the correct element of communication which appropriately fills gap above (i.e select A, B, C or D) (4 marks) fre ea cc as tud ym ate ria (1 mark each, total = marks) 619 KAPLAN PUBLISHING freeaccastudymaterial.blogspot.com freeaccastudymaterial.blogspot.com m Communicating in business co Test your understanding answers ot Test your understanding The correct answers are: sp (i) Diagonal (ii) Horizontal Test your understanding The correct answer is A – True l.b log (iii) Vertical ate ria Vertical and lateral (horizontal) communication flows are associated with hierarchical organisations. Vertical communication flows up and down the scalar chain, from boss to subordinate and from subordinate to boss. Lateral communication flows between colleagues or between different sections and departments. as tud ym Very little formal horizontal communication may occur in an organisation that is managed in an authoritarian style. This is because the manager ‘at the top’ wants to know everything that is happening, and wants to be involved in all decision making. Information must therefore be passed up to the top manager so that decisions can be passed back down to someone else. Test your understanding (1) False – informal communications in the workplace are inevitable and management should recognise it and use it to their advantage (2) True – in the absence of a formal communication system, rumour and gossip will receive too much employee attention and belief cc (3) True – there are circumstances when management can effectively harness the informal system fre ea (4) True 620 KAPLAN PUBLISHING freeaccastudymaterial.blogspot.com freeaccastudymaterial.blogspot.com Test your understanding ot Analysis of the case reveals that there are a variety of reasons for the barriers in communication that exist between X and D. The major reasons are: co m chapter 25 sp Differences in social background; for instance, age, education, marital status, etc. These might result in: • • • failure to understand each others’ point of view, values and priorities • stereotyping each other into specific classes with similar traits and characteristics, e.g. ‘stickinthemud’ l.b log failure to listen to the information the other person is giving lack of shared ‘vocabulary’, which might lead to lack of understanding of the message ate ria X and D are located in different departments and buildings which may mean they do not share the same departmental objectives and may not have the opportunity to meet and discuss their differences facetoface. Communication which is limited to telephone calls prevents access to nonverbal messages, which could provide additional information about each other. Personal barriers may exist which will hinder effective communication. These may be due to: Distrust and feeling threatened by and fearing the computerised systems, which can result in any information provided by the system being viewed with scepticism • D seeing X as an older person who has failed to advance his career, having reached only junior manager, which may result in her talking down to him. On the other hand X may resent D being promoted to supervisor at a relatively young age as tud D resenting X working 9 to 5, and exhibiting a reluctance to become familiar with the computerised system. X may feel that his family commitments do not allow him to give the extra time required to the organisation, in order that he may learn more about the new computer system cc • ym • D’s attitude leading her to make comments which imply criticism of people like X and this could lead to a degree of resentment on the part of X which may also restrict communication fre ea • 621 KAPLAN PUBLISHING freeaccastudymaterial.blogspot.com Communicating in business ot co If the situation described in the question causes personal conflict or antagonism between X and D, then further communication problems can occur: m freeaccastudymaterial.blogspot.com emotions (anger, fear, frustration) will creep into communications and further hinder the transmission of clear information • the receiver of the information will tend to hear what they want to hear in any message and ignore anything they do not want to accept l.b log sp • Test your understanding ate ria (a) When individuals communicating with each other come from different backgrounds, they should be encouraged by management to show consideration for the other person. When an engineer communicates with an accountant, the engineer must be wary of using engineering jargon without explaining it, just as accountants must be careful of using accounting and finance terms that non accountants are unlikely to know. A highlyeducated person, when communicating with someone less educated, should choose his words carefully, so that his message is clear and understandable ym (b) Communication flows should be organised so that there are as few links in the communication chain as possible between the sender of the message and its eventual recipient. Lateral communications should replace unnecessary upward and downward communication flows. Electronic communication systems should contribute towards this aim fre ea cc as tud (c) Language difficulties can be reduced in two ways. First, employees should be given language training as appropriate in another language. Secondly, the organisation should select an official language for all its meetings at a certain level of management and above. In many global corporations, English is the official language 622 KAPLAN PUBLISHING freeaccastudymaterial.blogspot.com freeaccastudymaterial.blogspot.com co ot (d) Information overload can be reduced by improvements in reporting systems. For long reports, there should be a much briefer summary containing all the essential points and recommendations. Control reports should use reporting by exception, and draw attention to performance of an unusual or unexpected nature (such as large variances). Narrative can be summarised into tables and diagrams m chapter 25 l.b log sp (e) Attempts to resolve conflict between individuals or departments should be made by the management in charge of them both. A solution to the problem of conflict is partly an improvement in communications. Management should arrange for more direct contact between individuals in different departments, and should use their interpersonal skills to try to overcome misunderstandings and disagreements Test your understanding ria The correct answer is A Misha is communicating with someone who is in a different department AND at a different level of the hierarchy to her. ym Test your understanding ate Note that horizontal and lateral communication are the same. The correct answer is C as tud Lateral communication refers to communication between individuals at the same level of the organisation’s hierarchy. This means that they will be unlikely to have the authority to give each other orders. The other main purpose of lateral communication is information sharing. cc Test your understanding The correct answer is D fre ea The wheel is always seen as the fastest approach to reaching a conclusion. 623 KAPLAN PUBLISHING freeaccastudymaterial.blogspot.com freeaccastudymaterial.blogspot.com m Communicating in business co Test your understanding The correct answer is C sp ot A tends to be a problem without lateral communication, when different sections of the organisation do not communicate with each other. B and D are problems caused by a lack of upward communication, with managers failing to listen to more junior workers. Test your understanding 10 (a) The correct answers are: (i) B ria (ii) C l.b log C is caused by poor downwards communication, where management fail to communicate with junior staff, leading to a lack of awareness of corporate objectives among the workers. (iii) A ate (iv) D (b) The correct terms were: (i) C – remember that when the feedback is sent, the receiver becomes a sender! fre ea cc as tud ym (ii) B – by definition 624 KAPLAN PUBLISHING freeaccastudymaterial.blogspot.com ... Law and regulation governing accounting Chapter 13 Accounting and finance functions within business 305 Chapter 14 Financial systems and procedures Chapter 15 The relationship between accounting and other ... – production, processing and packaging of foodstuffs Mining – extraction and processing of minerals Finance – this includes banks and other companies that profit through investments and the lending of money to others... business organisation: research and development, purchasing, production, direct service provision, marketing, administration and finance • explain the role of marketing in an organisation: – the definition of marketing – the marketing mix