ACCA Paper F1 Accountant in Business Class Notes June 2011 © The Accountancy College Ltd, January 2011 All rights reserved No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior written permission of The Accountancy College Limited www.studyinteractive.org Contents PAGE INTRODUCTION TO THE PAPER CHAPTER 1: RECRUITMENT AND SELECTION CHAPTER 2: DIVERSITY 15 CHAPTER 3: TRAINING AND DEVELOPMENT 19 CHAPTER 4: PERSONAL EFFECTIVENESS 25 CHAPTER 5: PERFORMANCE APPRAISAL 37 CHAPTER 6: LEADING PEOPLE 41 CHAPTER 7: INDIVIDUALS AND GROUPS 57 CHAPTER 8: MOTIVATING PEOPLE 63 CHAPTER 9: THE ROLE OF ACCOUNTING 71 CHAPTER 10: THE MACRO-ECONOMIC ENVIRONMENT 91 CHAPTER 11: THE BUSINESS ENVIRONMENT 97 CHAPTER 12: BUSINESS ORGANISATION 105 CHAPTER 13: ORGANISATIONAL CULTURE 115 CHAPTER 14: CORPORATE GOVERNANCE 121 CHAPTER 15: ETHICAL CONSIDERATIONS 125 CHAPTER 16: IT AND SYSTEMS 131 CHAPTER 17: CONTROL AND SECURITY 137 CHAPTER 18: FRAUD 145 www.studyinteractive.org www.studyinteractive.org Introduction to the paper www.studyinteractive.org IN T R O D U C T I O N T O T H E P A P E R AIM OF THE PAPER The aim of the paper is to introduce knowledge and understanding of the business and its environment and the influence this has on how organisations are structured and on the role of the accounting and other key business functions in contributing to the efficient, effective and ethical management and development of an organisation and its people and systems OUTLINE OF THE SYLLABUS Business organisation structure, governance and management Key environmental influences and constraints on business and accounting History and role of accounting in business Specific functions of accounting and internal financial control Leading and managing individuals and teams Recruiting and developing effective employees FORMAT OF THE EXAM PAPER The syllabus is assessed by a two hour computer-based examination The examination consists of a mixture of mark and mark questions FAQS How I get the most from my course? ● Try and be seated and pick up your handout by the start of the lecture This will ensure we have the maximum lecture time Your course notes will be in divided into chapters, please make sure you bring the relevant chapters with you to class ● Manage your time effectively If you have a busy work schedule use your study planner to catch up Do not allow yourself to fall behind ● If you have any difficulties or questions please not hesitate to contact me either before the lecture or during the break as most students are in a desperate hurry to leave at the end of the lecture Alternatively, you can always email me or phone me through our helpline ● In the event of an emergency you can come for the same lecture on a corresponding part-time course as all the courses run parallel to each other It is crucially important that you attend the full course of lectures ● Try to read the business section of a decent newspaper at least once a week to get an idea of what is going on in the business world ● Practice as many questions as you can You should aim to have attempted every question in the revision kit at least twice before the exam www.studyinteractive.org Chapter Recruitment and selection www.studyinteractive.org CHAPTER – RECRUITMENT AND SELECTION CHAPTER CONTENTS THE RECRUITMENT AND SELECTION PROCESS - THE DIFFERENCE BETWEEN RECRUITMENT AND SELECTION STAGES IN THE RECRUITMENT AND SELECTION PROCESS DETAILED RECRUITMENT STAGES 10 DETAILED SELECTION STAGES 10 POSSIBLE METHODS OF RECRUITMENT - 11 JOB ADVERTISEMENTS 11 RECRUITMENT AGENCIES 11 POSSIBLE METHODS OF SELECTION - 12 INTERVIEWS 12 ASSESSMENT CENTRES 13 REFERENCES 13 www.studyinteractive.org CHAPTER – RECRUITMENT AND SELECTION THE RECRUITMENT AND SELECTION PROCESS No organisation will be successful without the correct staff Choosing incorrect staff can result in: ● Poor quality work ● Poor morale ● High staff turnover ● Wasted time and money in recruiting more staff There are a number of ways to obtain the correct staff: ● Promote from inside the organisation ● Recruit from outside the organisation The difference between recruitment and selection Recruitment is the process of establishing that vacancies exist and communicating these vacancies to an appropriate pool of candidates (Recruit or promote?) Selection is the process of filtering candidates in order to select the individual best suited to a particular vacancy Stages in the recruitment and selection process The first consideration is the type of job to be offered ● If the job already exists then it will be important to start with a job analysis ● If the job requires getting specific tasks done then again a job analysis would be a sensible place to start ● If the role of the job is likely to change then a person specification may be more appropriate ● A job analysis will mean looking for someone with particular skills and experience ● A person specification will mean looking for someone with a particular personality Rodgers’ point person specification Rodgers gives a list of qualities that might be important: ● Physical make-up ● Attainments ● General intelligence ● Special aptitudes ● Interests ● Disposition ● Circumstances www.studyinteractive.org CHAPTER – RECRUITMENT AND SELECTION Detailed recruitment stages ● Gap analysis (if the job does not already exist) ● Identify vacancies ● Make decision to recruit ● Job analysis (if the job is new) ● Advertise Detailed selection stages ● CVs reviewed ● Interviews / Assessment centres carried out ● Selection of candidate ● Offer letter to candidate ● Induction 10 www.studyinteractive.org CHAPTER 16 – IT AND SYSTEMS WHAT IS A SYSTEM? A system is a collection of procedure and processes Systems can be manual as well as automated There are some advantages to automating a system Advantages of automation include: ● Speed ● Accuracy ● Volume ● Elimination of Human error ● Complexity ● Presentation IT system There are a variety of IT systems that can be used to provide information within the organization These include: System ESS MIS DSS ES KWS OAS TPS Description Executive Support System Aids strategic decision making Management Information System Converts data from internal sources into information to aid managers make decisions Decision Support System Supports semi and unstructured decision making Expert System Captures human expertise in a limited area Knowledge Work System Helps to create and facilitate new knowledge into the organisation Office Automation System Helps to increase productivity of data and information workers Transaction Processing Software Performs and records routine transactions www.studyinteractive.org 135 CHAPTER 16 – IT AND SYSTEMS Security of IT systems IT systems need to be protected from corruption, unauthorised access or alteration There are a number of risks to consider: ● Physical damage ● Human damage ● Operational problems ● Data corruption Spreadsheets and databases Spreadsheets are widely used by finance professionals as well as many other people within the organisation, as they ● are simple to use ● require little training ● are widely recognised Spreadsheets are more appropriate for the short-term analysis of data, rather than long term storage For the storage of large volumes of data, a database may be more appropriate What is a database? A database is a collection of structured data which can be manipulated Benefits of database Drawbacks of Databases Avoidance of duplication of data Data security One single source of data Data privacy Better security More complex Greater flexibility in use of data Costly Consistency 136 www.studyinteractive.org Chapter 17 Control and security www.studyinteractive.org 137 CHAPTER 17 –CONTROL AND SECURITY CHAPTER CONTENTS CONTROL, SECURITY AND AUDIT - 139 WHAT IS CONTROL? 139 WHAT IS INTERNAL CONTROL? 139 TYPES OF CONTROL 140 AUDITING - 142 138 WHAT IS INTERNAL AUDITING? 142 LIMITATIONS OF INTERNAL AUDIT 142 WHAT IS EXTERNAL AUDITING? 142 www.studyinteractive.org C H A P T E R – C O N T R O L A N D S E C U R IT Y CONTROL, SECURITY AND AUDIT What is control? Control is a guiding mechanism which encourages people to behave in a particular (goal congruent) way What is internal control? Any action undertaken by management to ensure that the goals and objectives set will be achieved According to Turnbull guidelines the purpose of internal control is to ensure: ● reliability of financial reporting ● effectiveness and efficiency of operations ● compliance with applicable laws and regulations ● safeguard Company Assets ● the prevention and detection of fraud The internal control framework includes: ● The control environment ● The risk assessment and response processes ● The information systems relevant to financial reporting ● Control activities ● Monitoring of controls www.studyinteractive.org 139 CHAPTER 17 –CONTROL AND SECURITY Types of control There are several categories of internal control – ● Administrative and accounting controls ● Prevent, detect and correct controls ● Discretionary and non-discretionary controls ● Voluntary and mandated control ● Manual and automated controls ● General and application controls ● Financial and non-financial controls 140 www.studyinteractive.org C H A P T E R – C O N T R O L A N D S E C U R IT Y Internal control is within an organisation is important because it: ● Improves efficiency and effectiveness ● Is good corporate governance ● Is a legal requirement in some countries ● Could prevent fraud ● Alters the auditors approach to their work www.studyinteractive.org 141 CHAPTER 17 –CONTROL AND SECURITY AUDITING It is important to distinguish between Internal and External auditing What is internal auditing? An independent appraisal of the effectiveness of an organisation’s operation and management by its own employees Internal auditors guide, monitor and attempt to improve processes within an organization Internal Audit is an important element of the risk management of the organisation and may be required to assess and advise on risk Limitations of internal audit ● Independence ● Resourcing These limitations can be mitigated by the introduction of an Audit Committee What is external auditing? A periodic examination of the accounting records conducted by an independent third party, to assess whether they have been properly maintained are accurate and comply with established principles, legislation and accounting standards External auditors will attempt to establish whether the accounts give a true and fair view of the financial state of the organisation External auditing can act as an additional preventative control measure Internal vs external audit Internal Auditor External Auditor Employment Employee Third party Requirement No legal requirement Good Corporate Governance Legal requirement for: ● Public companies ● Large companies ● Some public bodies Assist management Report to shareholders Financial and operational matters Financial matters Role determined by management Role determined by statutory duty Scope 142 www.studyinteractive.org C H A P T E R – C O N T R O L A N D S E C U R IT Y There are five different types of Audits: ● Operational ● Social ● Management Investigations ● Systems ● Transactions www.studyinteractive.org 143 CHAPTER 17 –CONTROL AND SECURITY 144 www.studyinteractive.org Chapter 18 Fraud www.studyinteractive.org 145 CHAPTER 18 – FRAUD CHAPTER CONTENTS IDENTIFYING AND PREVENTING FRAUD - 147 146 WHAT IS FRAUD? 147 THE PREREQUISITES OF FRAUD 147 FACTORS INCREASING THE RISK OF FRAUD 147 PREVENTING FRAUD 147 INTERNAL CONTROLS 148 PERSONNEL POLICIES AND PROCEDURES 148 IMPLICATIONS OF FRAUD 148 ROLE OF MANAGEMENT IN PREVENTING/DETECTING FRAUD 149 ROLE OF INTERNAL AUDIT IN PREVENTING/DETECTING FRAUD 149 www.studyinteractive.org CHAPTER 18 – FRAUD IDENTIFYING AND PREVENTING FRAUD What is fraud? Fraud is an intentional act by one or more individuals among management, those charged with governance, employees or third parties, involving the use of deception to obtain an illegal or unjust advantage (Auditing Practices Board) In the context of the organisation, fraud can occur in one of two categories: ● Removal of Funds or Assets from the business ● Intentional misrepresentation of the financial position of the business Fraud may be perpetrated by a variety of people: ● Management ● Employees ● Third parties The prerequisites of fraud For fraud to occur there must be: ● Dishonesty ● Motive ● Opportunity Factors increasing the risk of fraud When these factors are present there is a high risk that fraud may occur: ● Poor control systems ● Poor control environment ● Lack of supervision ● Low morale ● Unusual transactions Preventing fraud To prevent fraud the organisation needs to ensure that the following: ● Adequate internal controls ● Personnel policies and procedures www.studyinteractive.org 147 CHAPTER 18 – FRAUD Internal controls ● Physical controls ● Segregation of duties ● Authorisation policies ● Management control ● Documentation ● Supervision ● Whistleblowing ● Personnel policies ● Investigation Personnel policies and procedures Specific personnel controls for the prevention of fraud include: ● Recruitment process ● Appraisals ● Staff development and training ● Emphasis on Ethics Implications of fraud This depends entirely on the scale of the fraud, which can range widely ● Minor fraud ● Major fraud 148 www.studyinteractive.org CHAPTER 18 – FRAUD Role of management in preventing/detecting fraud Management has a variety of roles to play: ● The board ● The audit committee ● Line management Role of internal audit in preventing/detecting fraud Directors decide the exact role of internal audit, however their duties are likely to involve: ● Testing controls ● Investigating specific instances of potential fraud www.studyinteractive.org 149 ... evaluating training Training can be evaluated by: ● Asking trainees what they thought ● Measuring what trainees have learned ● Measuring changes in job behaviour after attending training ● Impact... Motivating and inspiring Liaison Developing networks outside the organisation Informational Monitor Collecting, filtering of information Disseminator Sharing, communicating information inside the organisation... Assess the training needs of the organisation ● Decide what the objectives of any training should be ● Plan how the training will be carried out ● Deliver the training ● Evaluate the training Methods