OVERVIEW

To introduce knowledge and understanding of the business and its environment and the influence this has
on how organization are structured and on the role of the accounting and other key business functions in
contributing to the efficient, effective and the ethical management and development of an organization
and its people and systems

On completion of this module candidates should be able to understand:

RELATIONAL DIAGRAM OF MAIN CAPABLITIES

The business organization, its stakeholders and the external environment (A)

Business organization structure,

functions and governance (B)

Leading and
Accounting and reporting managing
systems, control and compliance (C) individuals and
teams (D)

Personal effectiveness
and communication (E)

Professional ethics in accounting and business (F)

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 LESSON PAGE
CHAPTER 1: THE BUSINESS ORGANISATION, ITS STAKEHOLDERS AND THE EXTERNAL
ENVIRONMENT .................................................................................................................................... 3
LESSON 1: BUSINESS ORGANISATIONS AND THEIR STAKEHOLDERS .................................... 3
LESSON 2: THE BUSINESS ENVIRONMENT ............................................................................ 7
LESSON 3: THE MACROECONOMIC ENVIRONMENT ........................................................... 18
LESSON 4: MICROECONOMIC FACTORS .............................................................................. 26
CHAPTER 2: BUSINESS ORGANISATION STRUCTURE, FUNCTIONS AND GOVERNANCE ................... 31
LESSON 5: BUSINESS ORGANISATION, STRUCTURE AND STRATEGY .................................. 31
LESSON 6: ORGANISATIONAL CULTURE AND COMMITTEES............................................... 38
LESSON 7: CORPORATE GOVERNANCE AND SOCIAL RESPONSIBILITY ................................ 47
CHAPTER 3: ACCOUNTING AND REPORTING SYSTEMS, CONTROLS AND COMPLIANCE .................. 54
LESSON 8: THE ROLE OF ACCOUNTING ............................................................................... 54
LESSON 9: CONTROL, SECURITY AND AUDIT ....................................................................... 65
LESSON 10: IDENTIFYING AND PREVENTING FRAUD .......................................................... 70
CHAPTER 4: LEADING AND MANAGING INDIVIDUALS AND TEAMS ................................................. 75
LESSON 11: LEADING AND MANAGING PEOPLE ................................................................. 75
LESSON 12: RECRUITMENT AND SELECTION ....................................................................... 80
LESSON 13: DIVERSITY AND EQUAL OPPORTUNITIES ......................................................... 85
LESSON 14: INDIVIDUALS, GROUPS AND TEAMS ................................................................ 88
LESSON 15: MOTIVATING INDIVIDUALS AND GROUPS ....................................................... 93
LESSON 16: TRAINING AND DEVELOPMENT ....................................................................... 96
LESSON 17: PERFORMANCE APPRAISAL.............................................................................. 99
CHAPTER 5: PERSONAL EFFECTIVENESS AND COMMUNICATION IN BUSINESS ............................. 102
LESSON 18: PERSONAL EFFECTIVENESS AND COMMUNICATION ..................................... 102
CHAPTER 6: PROFESSIONAL ETHICS IN ACCOUNTING AND BUSINESS ........................................... 108
LESSON 19: ETHICAL CONSIDERATIONS ............................................................................ 108

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 CHAPTER 1: THE BUSINESS ORGANISATION, ITS STAKEHOLDERS AND THE EXTERNAL ENVIRONMENT

LESSON 1: BUSINESS ORGANISATIONS AND THEIR STAKEHOLDERS

LEARNING OUTCOMES
1. Purpose of business organizations
2. Types of business organization
a. Profit vs. not-for profit orientation
b. Private vs. public sector
c. Non-governmental organizations
d. Co-operative societies and mutual associations
3. Stakeholder goals and objectives

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1. THE PURPOSE OF BUSINESS ORGANIZATION
An organization is a social arrangement which
 Pursues collective goals
 Controls own performance
 Has boundary separating from environment
Purpose Differ in Some types of activity
To achieve results  Ownership (private owners, shareholders,  Agriculture
which individuals government)  Manufacturing
cannot achieve by  Control (by owners, people working,  Extractive/raw materials
themselves. government-sponsored regulations)  Energy
 Activity (manufacturing, services)  Retailing/ distribution
 Profit or non – profit orientation  Intellectual production (eg.
 Legal status (sole trader, partnership, limited Software, publishing, films,
company) music)
 Size (from family business to multinational  Service industries
corporation) (advertising, transport,
 Sources of finance (from bank borrowing, education etc.)
government funding, shares issue)
 Technology

2. BUSINESS ORGANIZATION CLASSIFICATION

Types of business organization

Profit (commercial) Private and Non-governmental Co-operative societies and

and not-for profit public mutual associations
(non-profit)

Different goals Different runners Independence Different owners

from government

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3. STAKEHOLDER GOALS AND OBJECTIVES
4.
Stakeholders are those individuals or groups that, potentially, have an interest in what the
organization does

Internal stakeholders Connected stakeholders External stakeholders

E.g. Managers, employees E.g. Shareholders, bankers, E.g. Government,

suppliers, customers interest/pressure group,
professional bodies

Goals: Goals: Goals:

 Job/careers  Shareholder wealth  Tax, jobs, training
 Money (measure by profitability,  Rights
 Promotion market capitalization etc)  Members’ ethics
 Benefits  Risk
 Satisfaction  Security of loan, loan
agreements
 Long-term relationship
 Payment for goods
 Goods as promised
 Future benefits

Primary stakeholders Secondary stakeholders

(have a contractual relationship with the organization) (no contractual relationship
with the organization)

Stakeholder conflict

Between managers and shareholders (maintain corporation as for managerial skills >< enhance
dividend stream and shares value)

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Mendelow suggests that stakeholders may be positioned on a matrix

 Segment D: key players

 Segment C: should be kept satisfied
 Segment B: should be kept informed
 Segment A: minimal effort should be expended

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 LESSON 2: THE BUSINESS ENVIRONMENT

LEARNING OUTCOMES
1. Analyzing the business environment
2. The political and legal environment
3. Employment protection
4. Data protection and security
5. Health and safety
6. Consumer protection
7. Social and demographic trends
8. Cultural trends
9. The impact of technology on organizations
10. Environmental factors
11. Competitive forces
12. Converting resources: the value chain
13. Competitive advantage – Porter’s five forces model

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1. ANALYSING THE BUSINESS ENVIRONMENT
Five steps to analyze the characteristics of the environment:

• Assess environment nature

1
• Identify influences in the past and probably in the future
2
• Identify 'key forces at work in the immediate or competitive environment'
3
• Identify organization’s position in relation to others
4
• Identify threats and opportunities
5

An organization’s environment may be examined in numerous ways

 Global/Local environment
 General/Task environment (general or macro environment covers all those factors influencing all
organizations indirectly, task or micro environment includes those areas which have a direct impact on
the organization)

2. THE POLITICAL AND LEGAL ENVIRONMENT

2.1 The legal environment affecting firms
Factor Example
General legal framework Basic ways of doing business, negligence proceedings
Criminal law Theft, insider dealing, bribery, deception
Company law Directors and their duties, reporting requirements, takeover proceedings,
shareholders' rights, insolvency
Employment law Trade Union recognition, Social Chapter provisions, minimum wage,
unfair dismissal, redundancy, maternity, Equal Opportunities
Health and safety Fire precautions, safety procedures
Data protection Use of information about employees and customers
Marketing and sales Laws to protect consumers (e.g. refunds and replacement, 'cooling off'
period after credit agreements), what is or isn't allowed in advertising
Environment Pollution control, waste disposal
Tax law Corporation tax payment, collection of income tax (PAYE) and National
Insurance contributions, sales tax (VAT)

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2.2 The relationship between government and firm
Government

Affects the economic structure: Influence government policies:

 Capacity (increase or cut firm’s capacity)  Lobbyists (to put firm’s case to individual
 Demand (through legislation, tax reliefs or ministers)
subsidies)  Non-executive directorships
 Divestment and rationalization (especially  Influence public opinion and hence the
in sensitive areas such as defense) legislative agenda, by advertising
 Emerging industries
 Entry barriers (by restricting investment,
tariffs)
 Competition

Firms

2.3 Some other factors

Matters Comment
Political change  National level: Legislation on trading, pricing, dividends, tax,
employment, health, safety
 International level: Direct impact on organizations
Political risk  Risks that invalidate strategies and damage firm
E.g. Wars, political chaos, corruption and nationalization.

International trade  Governed by an extra layer of legislation contained in treaties and

agreements
 Higher level of political risk
The European Union  Free movement of labor, goods and services, and competition
World Trade Organization  Free trade and resolve disputes between trading partners
(WTO)  Best way to promote global economic growth and domestic
prosperity

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3. EMPLOYMENT PROTECTION

All forms of termination of employment must be treated with great care to protect employees

Retirement Resignation Dismissal

 Promotion opportunities for  Leaver explains the decision Three types of dismissal:
younger workers to go in an exit interview  Wrongful dismissal (breaches
 Alternative to redundancy  Period of notice required employment contract, relates
 Unbalanced age structure for the employee to leave to dismissal method)
 Rising pension costs should be set out in  Unfair dismissal (against
employment contract arbitrary dismissal)
 Redundancy (cease to do
business at all or specific area)

4. DATA PROTECTION AND SECURITY

Privacy is the right of the individual not to suffer unauthorized disclosure of information.

Is protected by

The Data Protection Act 1998

1. Personal data shall be processed fairly and lawfully

2. Obtained only for specified and lawful purposes
3. Adequate, relevant and not excessive
4. Accurate and up-to-date
5. Not kept for longer than necessary
6. Processed in accordance with the rights of data subjects
7. Appropriate measures shall be taken against unauthorised use
8. Shall not be transferred to a country where data protection rights are not upheld
The Act also establishes rights for data subjects

 Compensation
 Correction of data
 Access to data held
 Sue (damages)

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5. HEALTH AND SAFETY
Duty of employers Duty of employees
 Create safe work practices with supporting  Take reasonable care of themselves and others
information, instruction, training and  Allow the employer to carry out their duties
supervision (including enforcing safety rules)
 Provide safe and healthy work environment in  Not interfere intentionally or recklessly with any
line with safety policies machinery or equipment
 Maintain standard plant and equipment  Inform employer of any situation which may be a
 Carry out risk assessments, generally in writing, danger
of all work hazards and share hazard and risk  Use all equipment properly
information with other employers
 Implement continuous assessment
 Introduce controls to reduce risks
 Identify employees who are especially at risk.
 Employ competent safety and health advisers.

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6. CONSUMER PROTECTION

Consumers

Is protected by

Contract law Sale of goods

 Money that buyer give in exchange for goods Is subject to the following provisions
is referred to as “consideration”
 Contract made => must be agreement  Effect of delay in performance
between parties  Title, or the seller’s right to sell goods
 Do not to be written, do not even have to be  Description of goods
spoken (eg. Picking up goods in supermarket  Quality of goods
and walking to the checkout)  Fitness of goods for the purpose for which
they are supplied
 Breach of contract => can take to court
 Sale by sample

7. SOCIAL AND DEMOGRAPHIC TRENDS

 Population and the labour market: Population affects an organisation's supply of labour and hence
its policies towards recruiting and managing human resources.
o The changing age structure of the labour force
o Women are increasing their participation in the labour force.
 Implications for employers: Organisations will need proper resourcing strategies to make sure their
demand for labour is properly met.
 Family life cycle: combines information about age, marital status, career status (income), the
presence or absence of children, various stages through which households progress,…
 Social structures and class: divide society according to occupation, income level, education
background and other variables
 Socio-economic position, income and wealth
 Socio-economic status
 Buying patterns

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8. CULTURAL TRENDS
Cultural factors Trend
Health and diet issues  Significant change in attitudes to diet and health
 Increase in vegetarianism, 'green consumerism'.
Impact of health and  Growing market for sports-related goods (running shoes, sporting goods
diet on businesses etc.)
 Employers are concerned with employee health and the effect of ill-health
on productivity
 Health food and supplement market has grown significantly
 Market for new sorts of convenience food
 Organic foods (grown without artificial pesticides, hormones etc.) are more
popular.
Women in work  Increasing part-time working and flexible working
Environmentalism  Increasing concern about businesses' relationship with the natural
environment
- Depletion of natural resources
- Noises and aesthetic impacts
- Residual air and water emissions
- Long-term waste disposal
- Uncompensated health effects
- Change in local quality of life

9. THE IMPACT OF TECHNOLOGY ON ORGANISATIONS

Technology has impact on

Organization structure Employee/employer Others

relationship

 Span of control (number of  Reduced need to follow the  Homeworking and

subordinates responsibilities chain-of-command supervision: Reduced need for
to a superior): Effect of  Information overload actual presence in office
flattening organization  Nature of work (particular true of tasks
hierarchies and widening  Close business relationships involving computers)
spans of control  More flexible working  Outsourcing: Increased trend
 Tall and flat organizations: arrangements in contracting works to
Help provide organization  Greater monitoring and external vendor. It enables
unity and coherency in flat control firms to use highly skilled
and decentralized workforce but lack of timely
organizations control
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 Information system: Creating
centralized and decentralized
systems
10. COMPETITIVE FORCES (Evaluated by SWOT analysis)
10.1 SWOT analysis Internal appraisal

STRENGTH (Should be exploited) WEAKNESS (Should be improved)

 What are your assets?  What areas do you need improvement on?
 What makes you better than your competitors?  What are the things you need to avoid?
 What is the unique thing about your company?  What areas do your competitors have an
 How skilled are your labors? advantage on?
 What are the things that other people say you
do well?

OPPORTUNITIES (Should be exploited) THREATS (Should be anticipated)

 What opportunities exist in the business  What threats might arise to the company or its
environment? business environment?
 What is their inherent profit-making potential?  How will competitors be affected?
 Can the organisation exploit the worthwhile
 How will the company be affected?
opportunities?
 What is the comparative capability profile of
competitors?
 What is the company's comparative
performance potential in this field of
opportunity?

External appraisal

Two stategies

Resource-based strategies Positioning-based strategies

Extend the use of strength Identify opportunities

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10.2. CONVERTING RESOURCES: THE VALUE CHAIN

The value chain describes those activities of the organisation that add value to purchased inputs.

Firm infrastructure

Human resources management

activities
Support

Technology development

Procurement

Inbound Operations Outbound Marketing Service

logistics logistics and sales

Primary activities
 Primary activities are involved in the production of goods and services.
 Support activities provide necessary assistance
 The margin is the excess the customer is prepared to pay over the cost to the firm

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 Activity Comment
Inbound logistics Receiving, handling and storing inputs to the production system:
warehousing, transport, inventory control and so on.
Operations Convert resource inputs into a final product. Resource inputs are not
only materials. People are a resource especially in service industries.
Outbound logistics Storing the product and its distribution to customers: packaging,
testing, delivery and so on.
Marketing and sales Storing the product and its distribution to customers: packaging,
testing, delivery and so on.
After sales service Installing products, repairing them, upgrading them, providing spare
parts and so forth.
Procurement Acquire the resource inputs to the primary activities (eg purchase of
materials, subcomponents equipment).
Technology development Product design, improving processes and/or resource utilisation.
Human resource Recruiting, training, developing and rewarding people.
management
Firm infrastructure Planning, finance, quality control:Porter believes they are crucially
important to an organisation's strategic capability in all primary
activities.

10.3 COMPETITIVE ADVANTAGE – PORTER’S FIVE FORCES MODEL

Five competitive forces influence the state of competition in an industry:

Potential
entrants

Threat of new
entrants
Bargaining power
Industry competitors
of suppliers
Suppliers Potential
Rivalry among existing firms
entrants

Bargaining power of
Threat of substitute
customers
products or service
Substitute

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Facto The threat of The threat The bargaining power The bargaining power The rivalry
rs new from of customers of suppliers amongst
entrants substitute current
products competitors in
the industry
Detai  The  Good or  How much the  Whether there are  Competitive
ls strength of service customer buys just one or two actions:
the barriers produced  How critical the dominant suppliers
to entry. by product is to the  The threat of new - Price
Barriers to another customer's own entrants or competition
entry industry business substitute products - Advertising
discourage which  Switching costs (ie the to the supplier's battles
new satisfies cost of switching industry - Sales
entrants. the same supplier)  Whether the promotion
 The likely customer  Whether the products suppliers have other campaigns
response of needs. are standard items customers outside - Introducing
existing (hence easily copied) the industry new products
competitor or specialised  The importance of for the
s to the  The customer's own the supplier's market
new profitability product to the - Improving
entrant.  Customer's ability to customer's business after-sales
bypass the supplier (or  Whether the supplier service
take over the supplier) has a differentiated - Providing
 The skills of the product which guarantees or
customer purchasing buyers need to warranties
staff, or the price obtain
awareness of  Whether switching
consumers costs for customers
would be high

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 LESSON 3: THE MACRO-ECONOMIC ENVIRONMENT
LEARNING OUTCOMES:

1. The structure and objectives of the economy

2. Factors which affect the economy
3. The determination of national income
4. The business cycle
5. Inflation and its consequences
6. Unemployment
7. Stagnation
8. The objective of economic growth
9. Government policies for managing the economy
a. Fiscal policy
b. Monetary policy
10. The balance of payment

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1. THE STRUCTURE AND OBJECTIVES OF THE ECONOMY
1.1 Definition
Macroeconomics is the study of the aggregated effects of the decisions of individual economic units
(such as households or businesses) by looking at a complete national economy, or the international
economic system as a whole.

1.2 The flow of income and withdrawals and injections into it in the economy

Income (Y)

Households Firms

Consumption (C)

Financial sector
Saving (S) Investment spending (I)

Taxation (T) Government sector Government spending (G)

Import demand (M) Foreign sector Export demand (X)

Note:
 Total sales value of goods produced should equal total expenditure on goods (all goods produced are
also sold)
 Amount of expenditure should equal total income of household

2. FACTORS WHICH AFFECT THE ECONOMY

Changing factors influencing the economy

Investment Multiplier Inflation Savings Confidence Interest Exchange

level effect 19 rates rate
2.1 Multiple effect
Money injection

Increase in national income

Initial increase in expenditure

Snowball
effect
Further and further expenditures

2.2 Aggregate supply and demand

Aggregate supply Aggregate demand
Definition Ability to produce goods and services of Total demand in the economy for goods
the economy and services

Components  Consumer goods  Consumption

 Capital goods  Investment
 Public and merit goods  Government spending
 Traded goods  Net export (exports minus imports)

3. THE DETERMINATION OF NATIONAL INCOME

Aggregate demand = Aggregate supply

Equilibrium national income will be reached

Two possible equilibria

 Full employment  There is unemployment of resources

 Demand exceeds productive capabilities  Demand is below productive capabilities

Inflationary gap Deflationary gap

Insufficient output capacity to meet demand 20 Actual national income is below full
at current price employment level of national income

Stagflation: high unemployment, high inflation, low/negative economic growth

4. THE BUSINESS CYCLE
The business cycle/ the trade cycle
Definition Continual sequence of growth in national income, followed by a slowdown in growth and
then a fall in national income
Four  Recession: Consumer demand falls, business is unprofitable (1)
phases  Depression: Production and employment falls, investment remains low (2)
 Recovery: Output, employment and income begins to rise, new investment is
undertaken (3)
 Boom: Capacity and labor becomes fully utilized, output reaches peak (4)

5. INFLATION AND ITS CONSEQUENCES

Inflation
Definition An increase in price levels generally and a decline in the purchasing power of money
Problems  Redistribution of income and wealth (debts lose ‘real’ value)
with  Balance of payment and exchange rate (exports will become relatively expensive and
inflation imports relatively cheap)
 Uncertainty of the value of money and prices
 Unstable price of resource
 Economic growth, investment and standard of living over the long term
Causes  Demand pull factors: Arises from an excess of aggregate demand over the productive
capacity of the economy
 Cost push factors: Arises from increases in the costs of production
 Import cost factors: Occurs when costs of essential imports rise regardless of whether
or not they are in short supply
 Expectations: Once the rate of inflation has begun to increase, a serious danger of
expectational inflation will occur.
 Excessive growth in the money supply

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6. STAGNATION

Definition: Stagflation is a combination of unacceptably high unemployment, high inflation and

low/negative economic growth

Cause: long-term major increase in costs (a price shock)

Effects: National income fell, and both prices and unemployment rose

7. UNEMPLOYMENT
Unemployment
Definition Unemployment rate is the number of unemployed at any time is measured by
government statistics.
Formula:
Number of unemployed
x 100%
Total workforce

Types  Real wage unemployment: Caused when labor supply exceeds labor demand, but
real wages do not fall for labor market to clear
 Frictional unemployment: Friction in labor market (difficulty in matching quickly
workers with jobs) due to lack of knowledge about job opportunities
 Seasonal unemployment: Occurs in certain industries (building, tourism and
farming etc.)
 Structural unemployment: Occurs where long term changes occur in the
conditions of an industry
 Technological unemployment: A form of structural unemployment, occurs when
new technologies are introduced
 Cyclical or demand-deficient unemployment: Can be long term, government might
reduce by minimizing a recession or to encourage faster economic growth
Consequences  Loss of output
 Loss of human capital
 Increasing inequalities in the distribution of income
 Social costs
 Increased burden of welfare payments

22
 Government’s  Spending more money directly on jobs (hiring more civil servants)
solution  Encouraging growth in private sector (aggregate demand is growing, firms want to
increase output then hiring more labor)
 Encouraging training in job skills
 Offering grant assistance to employers in key regional areas
 Encouraging labor mobility (offering individuals financial assistance with relocation
expenses
 Abolishing closed shop agreements (restrict certain jobs to trade union members)
 Abolishing minimum wage regulations
8. THE OBJECTIVE OF ECONOMIC GROWTH
Economic growth
Definition Increases in the real gross national product (GNP) per head of the population
Types Actual growth Determined by:
 Growth in potential output/ aggregate supply
 Growth in aggregate demand
Potential growth Determined by:
 Increases in amount of resources available (land and raw
materials; labor; capital)
 Increases in productivity of resources (result from
technological progress or changed labor practices)
Affecting  Business confidence in the future: Confidence in the future leads to higher
factors investment, therefore sustained economic growth
 Natural resources: Rate of extraction of natural resources limits growth rate
 Technological progress: creates higher output and develops new products
 External trade: Imports and exports boost investment and growth
Advantages  Better standard of living
Disadvantages  Faster use of natural resources
 Pollution
 Structural unemployment
 Cut in consumption in the short run

23
8.1. Government policies for managing the economy

Macroeconomic policy objectives relate to economic growth, inflation, unemployment and the
balance of payments.

Fiscal policy Monetary policy

Definition: Definition:
Government policy on taxation, public Government policy on money supply,
borrowing and public spending monetary system, interest rates, exchange
rates and the availability of credit

Aim: Aim:
Managing aggregate demand in the economy Influence aggregate demand in the economy

Policy instruments: Policy instruments:

 Expenditure changes  Money supply
 Tax changes  Interest rates
 Exchange rate
 Credit control

Subsidiary support for

24
8.2. The balance of payment

Balance of payment

Current account Capital account

(Visible and invisible sections) (External assets and liabilities transactions)

Four components: Two components:

 Trade in goods  Public sector flows of capital
 Trade in services (E.g. Government loans)
 Income  Financial account
 Transfers (E.g. Direct investment in overseas, flow of
currency, movement of government foreign
Surplus/ Deficit = Surplus/Deficit currency reserves)
(On current account) (On balance of payment)

DEFICIT SURPLUS
Importing more than Exposing more than
exporting importing

Higher borrowings from Invest abroad

abroad Add to official
Selling assets, eg shares reserves

25
 LESSON 4: MICROECONOMIC FACTORS

LEARNING OUTCOMES:
1. The micro environment
2. Internal and external micro and macro environment
3. The concept of a market
4. Demand and supply
5. Maximum and minimum prices
6. Competition and restrictive practice

26
1. THE MICRO ENVIRONMENT
Micro environment

The immediate operational environment

Suppliers Competitors Customers Stakeholders Intermediaries

Those Those Those Those Those connecting

supplying offering paying for investing between different
goods and same goods and money in micro factors
services products in services company
the market

2. INTERNAL AND EXTERNAL MICRO AND MACRO ENVIRONMENTS

Macro environment

Micro environment

Input Organisation Outputs Consumption

Suppliers, customers, competitors, intermediaries, stakeholders

Political forces, economic forces, social forces,

technological forces

3. THE CONCEPT OF A MARKET

3.1. Definition
A market involves the buyers and sellers of a good who influence its price.

27
3.2. Price theory

Market price for goods arrived at through the interaction of demand and supply.

3.3. Utility

 Utility is the pleasure or satisfaction or benefit derived by a person from the consumption of goods.
 Total utility is the total satisfaction that people derive from spending their income and consuming
goods.
 Marginal utility is the satisfaction gained from consuming one additional unit of a good or the
satisfaction forgone by consuming one unit less.

3.4. Customers are rational

 They prefer more to less.
 They will substitute one good for another if the price is right.
 They attempt to maximise total utility from a limited income.
 Marginal utility from a good diminishes as consumption of it increases.
 Quantities purchased will be adjusted until their marginal utilities are equal. If this is not so, it
means that the consumer would actually prefer to consume more of one good and less of another.

4. DEMAND AND SUPPLY

Demand Supply
Definition Quantity of that good or service that Quantity of a good that existing
potential purchasers: suppliers or would-be suppliers:

 Be willing and able to buy  Want to produce for the market

 Attempt to buy
At a given price.
At any possible price.
Curve  Expresses expected total quality of the  Shows the quantity of a good which
good demanded by all consumers would be supplied by producers at a
together at any given price given price
 A demand curve generally slopes down  A supply curve generally slopes down
from left to right. from right to left

28
 Elasticity  Price elasticity of demand  Price elasticity of supply
% change in quantity demanded % change in quantity supplied
% change in price % change in price
 Income elasticity of demand
% change in quantity demanded
% change in price
 Cross elasticity of demand

% change in quantity demanded of good A

% change in price of good B
Factors  Price of good  Costs of making the good
determining  Size of households’ income (income  Prices of other goods
effect)  Expectations of price changes
 Price of substitute goods (substitution  Changes in technology
effect)  Other factors (weather, natural
 Tastes and fashion disasters, industrial disruption)
 Expectations of future price changes
 Distribution of income
Equilibrium Price at which:
price Supply = Demand

5. MAXIMUM PRICE AND MINIMUM PRICE

Maximum price Minimum price
Also called Price ceiling Price floor
Aim Prevent rising in prices of goods Ensure suppliers earn at least
minimum price for each unit of output
sold
Impact when Creates excess demand Creates excess supply
imposed
Example Price ceiling for a good as a part of an The EU Common Agriculture Policy
anti-inflationary economic policy (CAP) set price floor to ensure famers
receive at least minimum price

6. COMPETITION AND RESTRICTIVE PRACTICES

6.1 Types of competition
Type of market/ competition Features
Perfect competition  Many sellers

29
  Same (homogeneous) goods or services
 Easy to enter and exit the market
 Perfect information
 Demand curve is perfectly elastic
Imperfect competition  The most common type
Monopoly  One producer
 Monopoly sets its own market price without control
Oligopoly  Few dominant producers (If there are two => duopoly)
 Complex product differentiation
 Significant barriers to entry
 High level of influence on prices
Monopolistic competition  Many producers
 Product differentiation is used to distinguish
 Fewer barriers to entry or exit than oligopoly

6.2 Restrictive practices

Restrictive/ anti-competitive Meaning
activities
Dumping Selling product at a loss
Exclusive dealing Being bound by contract to only buy from or sell to one
business
Price fixing Two or more businesses agree to sell at the same price
Refusal to deal Businesses refusing to use a certain vendor
Limit pricing Effectively a monopoly which is intended to discourage entry
into the market
Retail price maintenance Reseller cannot set independent price
Government subsidies Deemed to be unfair to competitors

30
 CHAPTER 2: BUSINESS ORGANISATION STRUCTURE, FUNCTIONS AND GOVERNANCE

LESSON 5: BUSINESS ORGANISATION, STRUCTURE AND STRATEGY

LEARNING OUTCOMES:
1. The informal organisation
2. Organisational structure
3. Levels of strategy in the organisation
4. Centralisation and decentralisation

31
1. THE INFORMAL ORGANISATION
1.1 Definition
Organisation

Formal organisation Informal organisation

Business organisation Consists of:

 Social relationship
 Informal communication networks
 Behavioral norms
 Power/influence structures

1.2 Benefits and problems of informal organisation

Benefits Problems
 Employee commitment  Act against organisational interests
Informal  Knowledge sharing of social grouping
organisation  Speed  Inaccurate grapevine
 Responsiveness  Suffering of individuals if excluded
 Co-operation from cliques and networks
 Informal work practices

1.3 Group norms

Possible reaction
Acceptable levels and
methods of behavior Compliance
Group norms Group without real commitment

All members of the

group are expected to Internalisation
conform Full acceptance and identification

Counter-conformity
Reject group or its norm

32
2. ORGANISATIONAL STRUCTURE
2.1 Component, categories and deparmentalisation
Organisation structure

Component Categories Departmentalised on

 Strategic apex: Simple Functional basis

Ensure organisation Centralised, power concentrated at
follows its mission, the strategic apex Separate departments for
manage relationship production, marketing, finance
with environment etc.
Machine bureaucracy
 Operating core:
Relies on good technostructure
Obtain, convert Geographical basis
inputs into outputs
 Middle line: Convert By region or country
Professional bureaucracy
desires of strategic
Based on authority and standard
apex into work done
practices Product basisWorldwide
by operating core
divisions for product
 Technostructure:
Includes analysers, Divisionalised
planners and Middle line translates the demands
personnel of central core to operating core
Matrix basis
 Support staff: Takes
charge of ancillary
Adhocracy Middle line translates the
services.
Task, project based demands of central core to
Research and development is driver operating core

2.2 Types of organisational structures

Types of Features Advantages Disadvantages
structures
Divisional Activities are  Attention of management is  Identifying completely
decentralised to focused below ‘top level’ independent products or
business units or  Unprofitable products and markets is impossible
regions activities are reduced  Divisionalisation is limited
 Lower costs and higher  Resource problems
profits

33
  More authority to junior
managers
 Number of levels of
management is reduced

Hybrid A mix of functional Becomes matrix organisation when mixed with product/
departmentatio customer/ project organisation
with:
 Product  Flexibility of people,  Conflict due to dual
organisation workflow and decision- authority between
 Customer making, tasks and structure functional managers and
organisation  Improvement of other managers
 Geographical communication and co-  Stress of employees from
organisation ordination conflicting demands and
 Motivation and employee ambiguous roles
development  Cost
 Market awareness  Slower decision-making
 Horizontal workflow
Simple The strategic apex  Reflects management’s full  Senior managers might
(Entrepreneurial) expert a pull to knowledge of the operating intervene too much
centralise core and its processes  Risky as being depended on
 Flexible: co-ordination is the expertise of one person
achieved by direct
supervision with few formal
devices
Other new organisation
Name Features
Flat  Lengthen lines of communication and decision-making
 Direct relationship between the organisation's strategic centre and the
operational units serving the customer
Horizontal  Have functional versatility
Chunked and  Team working and decentralisation
unglued  Creating smaller and more flexible units within the overall structure
Output-focused  Focus on results, and customer, instead of internal processes and functions
Jobless  Employee becomes a seller of skills

34
 Virtual  Members are geographically dispersed and the organisation usually only exists
electronically on the internet, without any physical premises
Hollow  All non-core processes and activities are outsourced
Modular  Different elements or components of the product or service the organisation
produces are outsourced to different suppliers
Boundaryless  Remove both the internal barriers that separate the hierarchy levels, different
functions and different departments
 Remove the barriers between the organisation and its suppliers, customers and
competitors

2.3 Some terms to know

Term Definition
Span of control Number of subordinates responsible to a superior
(Span of management)
Tall organisations Organisations with many management level and narrow spans of control
Flat organisations Organisations with fewer management level and wider spans of control
Delayering Reduction of the number of management levels from bottom to top
Outsourcing Sending work to an external organisation
Offshoring Sending work overseas
Shared service approach Approach under which a single service center is established to provide a
support function across an organisation

35
3. LEVELS OF STRATEGY IN THE ORGANISATION

Corporate strategy

Business strategy

Functional/operational strategy

R&D Operations Marketing HRM IT/IS Finance

 Products  Capacity  Orientation  Recruitment  Systems  Sources

 Processes  Process  Marketing mix  Selection  Technology  Uses
 Design techonology  Product  HRD  Management
 Development  Work flows planning  Appraisal
 Testing  Quality  Marketing  Reward
 Outsoucing information
 Segmentation
 Services

Strategies Definition Aspects

Corporate The general direction of the whole  Scope of activities
organisation  Environment
 Resources
 Values
 Timescale
 Complexity
Business How the organisation or its SBUs  Decisions to segment the market
tackle particular markets  Decisions to specialise in
particularly profitable areas
 Decisions to compete by offering
a wider range of products
Functional/operational Specific strategies for different  R&D
departments of the business  Purchasing
 Production

36
  Direct service provision
 Marketing
 Administration
 Finance
 Human resources management
 Information systems

4. CENTRALISATION AND DECENTRALISATION

Criteria Centralisation Decentralisation
Definition Authority is concentrated in one Authority is scattered to many places
place
Aspects Geography Functions are centralised Functions are scattered in different
location
Authority People have to refer decisions Increased delegation, empowerment
upwards to their superiors and autonomy at lower levels of
organisation
Advantages Easy co-ordination of decisions Avoids heavy workloads
Wider view can be taken Improves motivation of junior
Different interests can be balanced managers
Quality of decisions higher (in theory) Greater awareness of local issues
Cheaper to run Greater speed of decision-making
Crisis decisions taken quickly Develops the skills of junior managers
Standardised policies and procedures Controls and direct accountability are
clearer
Use of communication technology
allows local decision making

37
 LESSON 6: ORGANISATIONAL CULTURE AND COMMITTEES

LEARNING OUTCOMES:
1. Organisational departments and functions
2. Culture
a. Definition
b. Organisation culture
c. Culture and structure
3. Committees

38
1. ORGANISATIONAL DEPARTMENTS AND FUNCTIONS

Purchasing Service
operations

Marketing
Research and
development Organisational
departments

Production
Administration

Human
Finance
resources

1.1 Research and development

Features Research and development
Aim Improve products or processes
Relationship  Support the organisation’s strategy
with  Be closely co-ordinated with marketing
whole system
Target Pure research Obtain new knowledge with no obvious commercial or
practice end in the view

Applied research Pure research with specific practical aim or application

Development Use existing knowledge to produce new (or substantially

Categories based on

improved) product or system

Object Product research Create new products, develop existing ones (need to be
carefully controlled)

Process research Improve efficiency of way products are made and delivered.
Includes four aspects:
 Processes: Crucial in service industries
 Productivity: Efficient processes save money and time
 Planning: Plan efficient sequence of projects
 Quality management: Enhance quality

39
1.2 Purchasing
Features Purchasing
Importance in  Cost: Major cost for firms
 Quality: Affects the quality of outputs and the efficiency of the
production function
 Strategy: Most important activities in retailing business
Responsibilities of purchasing  Purchasing inputs for production and administration
manager  Controlling cost
 Liaising with R&D department
 Managing supplier
 Evaluating purchasing alternatives
 Ensuring co-ordination between purchasing and inventory control
Method Purchasing mix:
 Quantity: set optimum reorder levels to ensure economic order
quantities (EOQ)
 Quality: consult with production and marketing department about
the quality of product
 Price: consider the best value over a period of time
 Delivery: Find lead time to ensure efficient inventory control and
production planning
Desired purchasing  Obtains best value for money
 Meets quality targets
 Minimizes inventory-holding costs

1.3 Production
Features Production
Importance in  Plans, organises, directs and controls necessary activities
Aim  Provide products and services which have added value
Activity  Obtaining inputs to production systems
 Adding value by:
- Scheduling jobs on machines
- Assigning labor to jobs
- Controlling product quality
- Improving work methods
- Managing resources to avoid waste
40
  Creating outputs such as finised products and services
Management decisions  Long-term: related to setting up the production organisation
 Short-term: related to the running and control of the organisation
Relationships with other  Product design: with R&D department
departments  Job and workforce design: with Human Resources department
 Quantities to produce: with Sales department
 Available resources: with Finance department
1.4 Service
Features Service
Nature  Intangible
 Inseparability
 Variability
 Ownership
Implications of service  Poor service quality on one occasion leads to widespread distrust
provision  Service have added complexity
 Pricing of services is complicated

1.5 Marketing
Features Marketing
Nature  Manages an organisation’s relationships with its customers
Roles and examples  Sales support: Telesales or tele marketing
 Marketing communications: Providing brochures and catalogues to
support sales forces
 Operational marketing: Marketing research, brand management,
product development and management, corporate and
communications, customer relationship management
 Strategic marketing: Create competitive strategy
Operational activities  Research and analysis
 Contributing to strategy and marketing planning
 Managing brands
 Implementing marketing programs
 Measuring effectiveness
 Managing marketing teams
Orientation  Production orientation: Focus on production process, reduce cost
as much as possible
41
  Product orientation: Focus on quality and features of product
 Sales orientaion: Focus on selling more product
 Marketing orientation: Determine the needs, wants and values of
a target market to satisfy customers more effectively and
efficiently than competitors
Model (Marketing mix)  Aim: Satisfy customer needs
 Consists of four main variables:
- Product
- Place
- Promotion
- Price
 Three more variables for services marketing:
- People
- Processes
- Physical evidence
Some concepts  Marketing segmentation: Break market into different segments
whose customers have common needs and preferences for
products and services
 Mass marketing (Undifferentiated marketing): Business ignores
market segment
 Targeted marketing: Business targets one particular market
segment
 Differentiated marketing: Business target several segments with
different marketing mix strategies.

1.6 Administration
Features Administration
Nature  Centralised: Tasks are carried out at a single central location
Advantages  Provides consistency: same data and information for everybody
 Gives better security/control and easier to enforce standards
 Economies of scale
 Clearly defined career paths for administration staff
Disadvantages  Local offices have to wait
 Relies on head offices
 Possible impact across the organisation if there is a system fault

42
1.7 Finance
Features Finance
Role  Raises money
 Records and controls money-related matter
 Provides information to managers
 Report to stakeholders
Sources of finance  Capital markets
 Money markets
 Retained earnings
 Bank borrowings
 Government sources
 Venture capital
 International money and capital markets
Working capital  Cash
 Accounts receivables
 Accounts payables
 Inventory
Ways to manage  Ensure that resources of finance are available
 Intergrate strategy into budgets
 Establish necessary performance measures
 Establish priorities (aspects which are hard to fulfill)
 Assist in modelling process: Using financial model as a simplified
representations of the business

43
1.8 Human resources (HRM0
Features Human resources management
Deal with effective use of  Organisation
human resources in  Staffing levels
 Motivation
 Employee relations
 Employee services
Objectives  Develop effective human component
 Obtain and develop required human resources
 Use and motivate human resources
 Create and maintain relationships within the organisation
 Other responsibilities
Cycle  Selection: Select people with qualities and skill required
 Performance
 Appraisal: Ensure set targets and objectives; identify skills and
performance gap; provide relevant information to employees
 Training and development: Ensure skills are up to date, relevant
and comparable with competitors
HR planning process  Strategic analysis:
- Environment
- Organisation’s manpower SWOT
- Organisation’s use of employees
- Organisation’s objectives
 Forecasting:
- Internal demand and supply
- External supply

2. CULTURE
2.1 Definition
Culture is the way of behaving and understanding that are shared by a group of people
Elements  First level: Observable/Artefacts/Attitudes behavior
 Second level: Underlie values and beliefs
 Third level: Beneath values and beliefs lie assumptions

44
2.2 Organisation culture
Definition Collection of traditions, values, policies, beliefs and attitudes that constitute a
pervasive context for everything we do and think in an organisation (Mullins)
Manifestations  Beliefs and values Customer is always right
and example
 Behavior ‘Dress down Fridays’ in the City of London
 Artefacts Microsoft encourages communication between employees
 Rituals Salespeople compete with each other to get rewards
 Symbols Logos, dress, make and model of car…
Factors  Founder: Sets up values and assumptions
influencing  History: Is reflected in culture
 Leadership and management style: Conform and perpetuate cultures
 Organisation’s environment
2.3 Culture and structure
Classified by Handy Harrison:
Four types of culture are named after four Greek deities

Zeus Apollo

Power culture Role culture

Power is direct, personal, and informal Authority based on position and function

Athena Dionysus

Task culture Personal culture

Team based, flexible, valuing expertise to get Management is directed at facilitating,

the job done administering

2.4 The impact of national culture

National culture influences organisational culture in various ways:
 Power distance: level of unequal distribution of power
 Uncertainty avoidance: level of ambiguity, uncertain and change in security, order and control
 Individualism/collectivism: level of working style (focus on “I” or “We”)
 Masculinity/femininity: level of distinction in social gender roles

45
3. COMMITTEES
Aspects Committees
Purposes  Creating new idea: Achieved by brainstorming committee or think tank
 Communication: Exchange idea and get feedback before taking decision or to
inform managers about policies, plans, actual results etc.
 Democratic: greater participation in the decision-making process
 Combining activities: use different skills of various members
 Co-ordination: All parties involved take part in decision-making process
 Representation: all relevant interests are involved
 Recommendations: key output from committee process
Types  Executive committees: have power to govern and administer
 Standing committees: deal with routine business
 Ad hoc committees: complete a particular task
 Sub-committees: relieve the parent committee of some works
 Joint committees: co-ordinate activities of two or more committees
 Management committees: executive at a number of level
Advantages  Consolidation of power and authority: make decisions for which individual
authority is insufficient
 Delegation: Delegate responsibility
 Blurring responsibility: No individual is responsible for consequences of
committee decision
 Delay: Gain time to delay decision
Disadvantages  Too large for constructive action
 Time consuming and expensive
 Delays may occur
 Jeopardised operations
 Incorrect or ineffective decisions may be made

46
 LESSON 7: CORPORATE GOVERNANCE AND SOCIAL RESPONSIBILITY

LEARNING OUTCOMES:
1. Organisational departments and functions
2. Developments in corporate governance
3. Role of the board
4. Reporting on corporate governance
5. Corporate social responsibility
6. Ethics, law, governance and social responsibility

47
1. PRINCIPLES OF CORPORATE GOVERNANCE
1.1 Definition
Corporate governance is the system by which organisations are directed and controlled by senior
officers.

1.2 Features
Features

Accountability Interdependence

Being answerable for actions Being answerable for actions

Good management Integrity

Setting best practice guidelines Dealing honestly with employees, customers

and business contacts

1.3 Perspectives on governance

Put their money into business

Owners
Own all the business assets

Not usual the

Business same people
Make decisions for business
Management
Manage business operations

48
There are different view associates with the ownership and management of organisations:

STEWARDSHIP THEORY AGENCY THEORY STAKEHOLDER THEORY

Managers are stewards Managers seek to look Management has a

of the assest after their own interst duty of care to stakeholders
• The management as the • Refers to the • The stakeholder approach takes a
stewards of its assets, charged shareholders as the much more 'organic' view of the
with their employment and 'principal' and those organisation, imbuing it with a 'life' of
deployment. With this approach, managing the company its own, in keeping with the notion of
power is seen to be vested in the (the directors) as their a separate legal
stewards; 'agents'. personage.
• Other interest groups take little • The corporate • Is effectively a development of the
or no part in the running of the governance framework notion of stewardship, stating that
company and receive relevant should ensure the agents to management has a duty of
information via established serves the interests of
care, not just to the owners of the
reporting mechanisms (audited shareholders (rather than
company in terms of maximising
accounts, annual reports, etc) pursuing their own
shareholder value, but also to the
interests).
wider community of interest, or
stakeholders.
2. DEVELOPMENTS IN CORPORATE GOVERNANCE
Features Developments in corporate governance
Driving forces  Increasing internationalisation and globalisation
 The differential treatment of domestic and foreign investors
 Issues concerning financial reporting were focused
 The characteristics of individual countries have a significant influence in the way
corporate governance has developed
 An increasing number of high profile corporate scandals and collapses
Poor corporate governance
Features  Domination by a single individual
 Lack of involvement of board
 Lack of adequate control function
 Lack of supervision
 Lack of contact with shareholders
 Emphasis on short-term profitability
 Misleading accounts and information

Risks  Large losses

 Bankruptcy

49
3. ROLE OF THE BOARD

Policy
The board

Strategic decisions

Director Requirement:

 Have a mix of skills

 Performance is assessed regularly

Appointment is conducted by formal

procedures administered by a
nomination committee.

50
 Position Features/Role
Chairman  Leader of board of directors
 Ensure the efficient and effective operation of the board
 Promote regular attendance at meetings and full involvement
 Decide cope of each meeting
 Ensure all matters are discussed fully

Chief  Leader of the executive team

executive  Be responsible for day-to-day management of the organisation
officer (CEO)  Chair the management committee or executive committee
Company  Chief administrative officer
secretary  Be appointed by the company's directors
 Prepare and file documents such as: Annual returns; financial statements;
director’s report; auditor’s report
 Maintain statutory books and record any charges held on the company assets
 Safeguard legal documents including share certificates, certificates of
incorporation and other official documentation
 Organise board meetings of shareholders and take formal minutes
Executive  Have relevant expertise in industry, company, functional area and governance
directors  Have appropriate training to develop the knowledge and skills required
Non-executive  Not employees of the company
directors  Do not take part in the day-to-day running of the company
 Reduce conflicts of interest between management (including executive directors)
and shareholders
Standing committees
Nomination  Ensure that balance of the board is maintained
committee  Oversee the process for board appointments and make recommendations to the
board
Audit  Liaise with external audit
committees  Supervise internal audit
 Review the annual accounts and internal controls
Remuneration  Establishing remuneration arrangements
committee
Risk  Ensure that there is a formal policy in place and review the arrangements for risk
committee management

51
4. REPORTING ON CORPORATE GOVERNANCE

Four strategies for social responsibility

Proactive Reactive Defence Accommodation strategy

strategy strategy strategy

Recall faulty Continue Minimise or Take responsibility only

products unresolved until attempt to avoid when:
without being the public, additional
forced to government or obligations  Encouragement from
special interest groups
consumer arising from
 Intervention from
groups find out problem. government

5. CORPORATE SOCIAL RESPONSIBILITY

5.1 Strategies for social responsibility

Annual report (fair and balanced view of organisation)

Narrative statement Other statements

 How companies have  Information about the board of directors

applied the principles  Brief report on the remuneration, audit and
Set out in nomination
 Whether or not they Combined  Information about relations with auditors
complied throughout Code  Review of the effectiveness of internal controls,
the accounting period including risk management
with the provisions  Statement on relations and dialogue with
shareholders
 Sustainability report
 Operating and financial review

52
5.2 The stakeholder view
The strong stakeholder view that a range of goals should be pursued besides other social
responsibility

6. ETHICS, LAW, GOVERNANCE AND SOCIAL RESPONSIBILITY

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

53
 CHAPTER 3: ACCOUNTING AND REPORTING SYSTEMS, CONTROLS AND COMPLIANCE

LESSON 8: THE ROLE OF ACCOUNTING

LEARNING OUTCOMES:
1. The purpose of accounting information
2. Nature, principles and scope of accounting
3. The regulatory system
4. Internal and external financial information
5. Control over business transactions
6. The main business financial systems
7. Manual and computerised accounting systems
8. Databases and spreadsheets

54
1. THE PURPOSE OF ACCOUNTING INFORMATION
1.1 Definition
Recording

Accounting is Analysing Transactions of a business.

Summarising

1.2 Three levels of accounting in business

Books of prime entry

Ledger

Financial statement

1.3 Factors affecting accounting system

Factor Example
Size Small business: Large retail business:
 Simple accounting system  Elaborate accounting systems
 Main accounting record will  Cover a large number of
probably be the till roll. product ranges and sites.
Type of organisation Service business: Public sector organisation:
 Need to record the time  Be more concerned with the
employees take on particular monitoring of expenditure
jobs against performance targets
Organisation structure Business managed by area: Functional organisation:
 Accounts will be prepared on  Accounts staff are in a
an area basis separate department

55
1.4 Users of financial statements and accounting information
Users of financial statements and accounting information

Internal users: inside the company External users: outside the company

 Managers: to manage the business  Trade contacts (goods suppliers and customers
efficiently and to take effective control and of the company):
planning decisions - Suppliers: to know about the company's
 Shareholders: to know how profitably ability to pay its debts
management is running the company's - Customers: to know that the company is a
operations and how much profit they can
secure source of supply and is in no danger of
afford
 Employees: to predict the future careers having to close down
and size of their wages and salaries  Providers of finance to the company (bank and
other financial intermediaries): to ensure that
the company is able to keep up with interest
payments and repay the amounts advanced
 Financial analysts and advisers: to give advices to
clients
 Governments and their agencies: to provide a
basis for national statistics.
 The public: to know about its effect on related
matters

1.5 Qualities of good information

Reliable
Comprehensible
Independently Objective
Easy to understand verified
Free from bias

Complete
Relevant Good information
Present a picture
Satisfy the needs of of its economic
information users activities

Comparable Timely

Can be compared with Real-time and

previous period’s 56 updated
information
1.6 Structure of accounting function
Finance director

Treasurer Financial controller Management accountant

Cashier Financial accountants Cost accountants

2. NATURE, PRINCIPLES AND SCOPE OF ACCOUNTING

2.1 Financial accounting and management accounting
Criteria Financial accounting Management accounting
Definition Reporting results and financial position Analysing data of a business
of a business
Concerns with Providing information towards the more Presenting accounting information in
efficient conduct of the business the form most helpful to management
Aim To satisfy the information needs of To provide information as a basis for
persons not involved in the day-to-day managerial action
running of the business
Importance Source of communication with Source of information for policy-making
outsiders and management process

2.2 Financial management

 Separate discipline from both management accounting and financial accounting
 Be responsible for raising finance and controlling financial resources

2.3 Audit
 Role: Investigate financial statement to report whether there is a true and fair view
 Types of auditors:
- External audit: independent person of the company (for company with value above a certain size)
- Internal auditor: employees of the company

57
3. THE REGULATORY SYSTEM
Factors shape
development of
Effect Examples
financial
accounting
Company law Requires companies to prepare Limited companies are required by law
accounts and regulates their form (the UK Companies Act 2006 or CA 2006
and content for example) to prepare and publish
accounts annually.
Accounting Applied by individuals using their  Financial statements are prepared on
concepts and subjective judgement. the basis of a number of fundamental
individual accounting concepts (or accounting
principles as they are called in the UK
judgement
Companies Act 2006)
 Different people comes to different
conclusions and judgements on the
same facts
Accounting Help to eliminate subjectivity. Old UK regime (1970 -1990): Statement of
standards Standard Accounting Practice (SSAPs)
Current UK regime (1990 – now): Financial
Reporting Standards (FRSs)
The European Issues directives on accounting International Accounting Standards Board
Union matters which we must apply. (IASB) aim to harmonise accounting
around the world.
Generally accepted Collects of rules from various Derived from:
accounting practice sources, governing accounting  Company law (mainly CA 2006)
(GAAP)  Accounting standards
 International accounting standards and
statutory requirements in other
countries (particularly the US)
 Stock Exchange requirements

58
4. INTERNAL AND EXTERNAL FINANCIAL INFORMATION
External reports Internal reports
Used for External stakeholders: Internal stakeholders:
 Shareholders  Managers
 Banks  Shareholders
 Suppliers  Employees
 Government
Component Statement Profit or loss Statement Budgets Cost Variance
of financial account of cash schedules reports
position flows
Records  Assets  Income  Sources  Projected  Busines  Difference
 Liabilities  Expenditure of cash sales s between
 Equities  Spent  Costs of spendin budgeted
cash sales g and actual
 Overheads costs
 Projected
profits
Time At a Over a given Over a Weekly/ At regular Once the
particular period given Monthly/ intervals budget has
date period Yearly been agreed

5. CONTROL OVER BUSINESS TRANSACTIONS

Office organisation

Purchasing Human resources Finance Sales and marketing General

administration
5.1 Function of each office
Office Activities Function
Purchasing  Purchasing raw materials for Ensure that:
manufacture  Gaining best deal in terms of rice,
 Purchasing finished goods for service, delivery time and quality
resale  Buying only when needed
Human resources  Hiring Ensure the general welfare of the
 Firing employees
 Training

59
 Finance  Sending invoices Ensure that cash flows is transparent
 Receiving invoices, payments and recorded
 Receiving money
 Making other payment
Sales and marketing  Taking sales orders Ensure that the products and their
 Advertising information is delivered to
 Charging of sales personnel customers
General administration  Secretarial support Ensure that all department co-
 Dealing with telephone queries operates smoothly
 Arranging rent of properties

5.2 Business transactions

Types of transaction

Making Making purchases Paying Paying Purchasing non-

sales expenses employees current assets

Sales and Purchasing Accounting Accounting Accounting function

marketing department function function
function

6. THE MAIN BUSINESS FINANCIAL SYSTEMS

Systems Features Control methods
Payroll  Data:  Recording of changes in personnel and pay
- Standing data: (personal info, rates
rates of pay, deduction etc.)  Recording of hours worked by timesheets,
- Variable date: (gross pay, tax, clocking in and out arrangements
pension contributions)  Review of hours worked
 Inputs: clock cards, timesheets;  Recording of advances of pay
amount of output  Holiday pay arrangements
 Outputs: payslips payroll,  Answering queries
deduction analysis, coin analysis,  Review of wages against budget
cheques, credit transfer forms
Purchases  Inputs: Invoice, returns details,  Ordering
and sales payments - Use certain suppliers only
 Processing: Computer updates - Obtain authorisation
balances to suppliers - Use prenumbered forms
 Good receives
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  Outputs: different reports - Compare goods received note with purchase
order
- Check condition of goods received
- Check supplier invoice correct
- Record goods returns
 Accounting/ recording
- Segregate duties of accounting and checking
- Record purchases/returns promptly
- Compare supplier statements to payable
ledger
- Check payment authorised

Business  Inputs: Sales transactions, credit  Selling

cycle notes, receipts - Segregate duties of credit control, invoicing
 Processing: Computer updates and dispatch
balances to customers - Obtain authorisation
 Outputs: Different reports - Use prenumbered forms
 Goods outwards
- Authorisation of despatch of goods
- Check condition of goods and signature of
delivery notes
- Match sales invoices with despatch and
delivery notes and sales orders
 Accounting/recording
- Record sales sequentially
- Match cash receipts to invoices
- Prepare regular receivables statements
- Review and follow up overdue accounts
Cash Components:  Receipts:
- Bank receipts promptly
 Receipts - Complete record of receipts
 Payments - Prevent loss of receipts through theft or
accident
 Payments
- Obtain evidence of reason of payment
- Authorise the payment
- Restrict the author to actually to make
payment to specified individuals

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7. MANUAL AND COMPUTERISED ACCOUNTING SYSTEMS
Criteria Manual accounting systems Computerised accounting systems
Similarity Familiar ideas of:

 Day books
 Ledger accounts
 Double entry
 Trial balance
 Financial statements
Difference Books of account are visible Books of account are computer files, held
in a computer-sensible form
Trend Computerised systems are more preferred in terms of:
 Productivity
 Speed,
 Accessibility,
 Quality of output,
 Incidence of errors when making corrections

Control is enhanced by an integrated accounting system

A diagram of an integrated accounting system is given below

Decision support
system

Spreadsheet General ledger

facilities module

Executive
information
system

Receivables Payables Payroll module Inventory Non – current

module module module asset

Job costing
module 62
8. DATABASES AND SPREADSHEETS
8.1 Databases
Databases
Definition A pool of data:
 Not restricted to accounts department
 Can be used by any number of applications
Advantages  Can be shared for all users
 Duplicating files in different departments is avoided
 Conflicts between departments who use inconsistent data are avoided
Objectives  Sharing with many people
 Preserving integrity of database
 Providing for operational requirements of all users
 Being capable of evolving
The database approach can also be summarised diagrammatically.

Input data

Database

User queries management Database

system

Application

programs

Sale Branch and Staff payroll Other

applications personnel
analysis etc applications
statistics etc statistics etc

63
8.2 Spreadsheets
Spreadsheets
Definition An electronic piece of paper:
 Divided into rows and columns
 Provides easy way of performing numerical calculations
Uses  Financial accounting : e.g. set up the notes for financial accounts
 Cost accounting: e.g. construction job costing

64
 LESSON 9: CONTROL, SECURITY AND AUDIT

LEARNING OUTCOMES:
1. Internal control systems
2. Audit
a. Internal audit
b. External audit
3. IT systems security and safety
4. Building controls into an information system

65
1. INTERNAL CONTROL SYSTEM
1.1 Internal control system
Internal control system

 Help organisations counter risks

 Maintain the quality of reporting Assure that organisations will fulfill objectives
 Comply with laws and regulations

Control environment Control procedures

Overall context of control Detailed controls in place

Types: Types:

 Administrative and accounting: achieving  Administration: achieving objectives and

organisation’s objectives and providing implementing policies
accurate accounting records to achive  Accounting: providing accurate records and
accountability. achieving accountability
 Prevent, detect and correct errors  Prevent: preventing errors
 Discretionary and non-discretionary: controled  Detect: detecting errors
bu human or automatic system  Correct: minimising and negating effect of
 Voluntary and mandated: Chosen by errors
organisation and required by law/external
authorities
 Manual and automated one-to-one
relationship with human functions or
programmed control procedures

Good internal control system:

 Clearly defined organisation structure

 Adequate internal checks
 Acknowledgement of work done
 Protective devices for physical security
 Transfer of responsibility for goods is recorded in formal documents
 Pre-review
 Clearly defined system for authorising transactions
Limitations:

 Segregation of duties can be avoided by internal collusion

 Authorisation controls can be abused
 Management can often override the controls they have set up themselves
66
1.2 Internal check
Internal check
Features Have a more restricted definition than internal controls
Definition Checks on the day-to-day transactions
Aims  Segregate tasks to individual person
 Create and preserve the records
 Break down routine procedures into separate steps or stages
 Reduce the possibility of fraud and error

2. AUDIT
2.1 Internal audit
Internal audit
Definition An independent appraisal activity established within an organisation
Method Examining and evaluating the adequacy and effectiveness of other controls
Roles Review of:
 Internal control systems
 Risk management
 Legal compliance
 Value for money
Objectives  Review of the accounting and internal control systems
 Examination of financial and operating information
 Review of the economy, efficiency and effectiveness of operations
 Review of compliance with laws, regulations and other external requirements
 Review of the safeguarding of assets
 Review of the implementation of corporate objectives
 Identification of significant business and financial risks
 Special investigations into particular areas. E.g. Suspected fraud
Features  Independence: independent of the line management
 Appraisal: appraisal of operations provides a service to management
Types  Operational audit: concentrate on the outputs of the system, and the efficiency
of the organisation
 Systems audit: based on a testing and evaluation of the internal controls within
an organisation
 Transactions audit
 Social audit
 Management investigations

67
2.2 External audit vs. Internal audit
Internal audit External audit
Reason Add value and improve an organisation's Express an opinion on the financial
operations statements
Reporting to  Board of directors  Shareholders
 Others charged with governance  Members, of a company on the
stewardship of the directors
Relating to Operations of the organisation Financial statements
Relationship Employees of the organisation Independent of the company and its
with the management
company
Relationship Coordination relationship
 External auditors wish to rely on the work of the internal auditors
 External auditors assess the internal audit function:
- Organisational status
- Scope of function
- Technical competence
- Due professional care

3. IT SYSTEMS SECURITY AND SAFETY

3.1 IT security
IT security
Protection of data

Prevention Detection Deterrence

Prevent threats cost Gain access to computer Use discipline to prevent

system information misuse

Recovery Correction Threat avoidance

Contain threat’s Deal with vulnerability Changing the design of the

consequences system

68
3.2 Physical threats
Physical threats

Natural factors Manmade factors

Fire Water Weather Lightning Terrorists Accidental damage

Physical
assess

4. BUILDING CONTROLS INTO AN INFORMATION SYSTEM

Security controls Integrity controls Contingency
controls
Definition Data security: Information Data intergrity: Systems Protection
protection of security: data is the intergrity: from
data from protection same as in system unscheduled
accidental or from source operation interruption of
deliberate degradation or documents and conforming to computing
threats non-availability has not been the design services
of services accidentally or specification
intentionally
altered,
destroyed or
disclosed
Methods  Data protection  Input controls  Using
 Information protection  Processing controls disaster
 Output controls recovery plan
 Back-up controls
 Administrative controls

69
 LESSON 10: IDENTIFYING AND PREVENTING FRAUD

LEARNING OUTCOMES:
1. Fraud
2. Identifying and preventing fraud
3. Money laundering

70
1. FRAUD
Potential for fraud:

 Dishonesty
 Motivation
 Opportunity

Fraud

Removal of funds or assets from a business Intentional misrepresentation of the financial

position of the business

 Theft of cash  Overvaluation of inventory

 Theft of inventory  Irrecoverable debt policy may not be
 Payroll fraud enforced
 Teeming and lading  Fictitious sales
 Fictitious customers  Manipulation of year-end events
 Collusion with customers  Understating expenses
 Bogus supply of goods or services  Manipulation of depreciation figures
 Paying for goods not received
 Meeting budgets/target performance
measures
 Manipulation of bank reconciliations and cash
books
 Misuse of pension funds or other assets
 Disposal of assets to employees

Effects on business

Intermediate effects: Intermediate effects:

 Net asset position is weakened  Financial statements do not give a true and
 Returns to shareholders are likely to fall fair view of the financial situation of the
2.Long-term
DETECTING AND PREVENTING FRAUD
effects: business
2.1 Detectingcannot
 Company fraud operate effectively Long-term effects:
 Collapse 71  Deceiving senior management
 Removal of funds or assets from a business Intentional misrepresentation of the
financial position of the business
 Profits are lower than they should be Overstated results:
 Business has less cash or fewer assets  Retained profits are lower than believed
 Company distribute too much profits to
shareholders
Understated results:
 Returns to investors reduce unnecessarily

2.2 Preventing fraud

Preventing fraud

Prevention policies Controls within business

Ethics Personnel and Segregation of duties Document

training procedures requirements

 Providing information  Insisting that all staff E.g. Employee  Requiring written
of cost and take their full holiday responsible for authorisation by a
management entitlement recording sales orders senior member of
accounting systems  Checking the is different from staff
to all employees information and person responsible  Requiring customers
 Creating personnel references provided for maintaining to inspect and sign
procedures such as by applicants inventory records for receipt of goods
staff meetings, or services
appraisals and exit  Using separate
interviews documents to record
sales order,
despatch, delivery
and invoice details

72
2.3 Investigating fraud

•Establishing the extent of the loss

1

•Identifying reasons
2

•Consider involved people

3

•Assess existing control system

4

•Evolve control system

5

2.4 Potential for fraud

Business risks Personnel risks Computer fraud

 Profit deviating from industry • Secretive behaviour • Computer hackers.
norms • Expensive lifestyles • Lack of training within the
 Market opinion • Long hours or untaken holidays management team.
 Complex group structure • Autocratic management style • Identifying the risks.
 Large organization • Lack of segregation of duties • Need for ease of access and
 Turnover increasing rapidly • Low staff morale flexible systems.

3. MONEY LAUNDERING
3.1 Definition
Money laundering constitutes any financial transactions whose purpose is to conceal the origins of
the proceeds of criminal activity.

73
3.2 Process
Placement Layering Intergration

•Small amount of •Money is •As letigimate

money is banked transfered from funds, money is
in instituitions to business to used for various
avoid suspicion business or place purposes
and anti-money to place to regardless of
laundering conceal original original souce
reporting souce
requirements.

3.3 Three categories of criminal offences

Three categories of criminal offences

Laundering Failure to report Tipping off

Acquisition, possession or Failure to disclose knowledge Disclosing information to any

use of the proceeds of or suspicion of money person if disclosure may
criminal conduct, laundering prejudice an investigation
into, drug trafficking, drug
Assisting another to retain the (Suspicion is more than mere money laundering, terrorist-
proceeds of criminal conduct speculation, but falls short of related activities, or
proof or knowledge) laundering the proceeds of
Concealing, disguising,
converting, transferring or criminal conduct
removing criminal property.

3.4 Penalties
 14 years' imprisonment and/or a fine for knowingly assisting in the laundering of criminal funds
 5 years' imprisonment and/or a fine for failure to report knowledge or the suspicion of money
laundering
 2 years for 'tipping off' a suspected launderer

74
 CHAPTER 4: LEADING AND MANAGING INDIVIDUALS AND TEAMS

LESSON 11: LEADING AND MANAGING PEOPLE

LEARNING OUTCOMES:
1. The purpose and process of management
2. Functions of management
3. The management processes
4. Management and supervision
5. Leadership

75
1. THE PURPOSE AND PROCESS OF MANAGEMENT
1.1 Definition

Management

Using organisation’s resources to meet its goals

Three aspects of management

Authority Accountability Responsibility

Amount of discretion given Liability of a person to Obligation to report to

to person to make decisions discharge duties superiors about job done

1.2 Levels of management

a. Types of power
Power Detail
Physical Power of superior force
Resource Control over resources
Coercive Power based on fear of punishment
Reward Authority to reward to subordinates
Position or legitimate Power associated with a particular job in an organisation.
Expert Power based on expertise
Referent Power lying in the personal qualities of the individual
Negative Use of disruptive attitudes and behavior to stop things from
happening

b. Levels of management
Level of management Type of power Authority in
Senior Coercive and reward Personnel
Middle Reward, expert and negative Own subordinates
Interest groups Conflict situations
Departmental Key strategic contingencies

76
1.3 Role of manager
Key roles of manager

Work planning Resource allocation Project management

Establish work methods and Allocate four resources Foresee contingencies to

practices to ensure (Human, Material, Financial, plan, organise, co-ordinate
predetermined objectives at all and Information) and control activities
levels

2. FUNCTIONS OF MANAGEMENT (according to Henri Fayol)

Function Details
Planning  Determining objectives, and strategies, policies, program and procedures
Organising  Establishing a structure of tasks to achieve organisation’s goals
 Grouping tasks into jobs for individuals or teams
 Allocating jobs to sections and departments
 Delegating authority to carry out the jobs
 Providing systems of information and communication for the co-ordination of
activities
Commanding  Giving instructions to subordinates to carry out tasks
Co-coordinating  Harmonizing the goals and activities of individuals and groups within the
organisation
Controlling  Measuring and correcting the activities of individuals and groups to ensure
accordance with plans

77
3. THE MANAGEMENT PROCESS

• Setting objectives for organisation

1

• Organising the work

2
• Motivating employees
3 • Communicating information to employees

• Measuring jobs
4

• Developing people
5

4. SUPERVISION
Criteria Supervision
Definition Interface between the operational core (non-managerial workers) and
management.
Roles  Front-line manager: dealing with staffing and health and safety at the day-to-
day operational level
 Gatekeeper or filter: communicating between managerial and non-managerial
staff, both upward and downward
 Supervisor monitors and work controllers: controlling day-to-day, frequent and
detailed information

5. LEADERSHIP
Criteria Supervision
Definition  Interpersonal influence
 Securing willing commitment to shared goals
 Creating direction and energy
 Orientation to change
Needed skills  Entrepreneurship: ability to spot business opportunities and mobilise resources
 Interpersonal skills: networking, rapport building, influencing, negotiating,
conflict resolution, listening, counseling, coaching and communicating
assertively
 Decision-making and problem-solving skills

78
  Time management and personal organisation
 Self-development skills: ability to learn continuously from experience
Essential  Judgment  Drive
qualities  Initiative  Human relations skill
 Integrity  Decisiveness
 Foresight  Dependability
 Dedication  Fairness
 Objectivity  Ambition
 Energy  Co-operation
 Emotional stability

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 LESSON 12: RECRUITMENT AND SELECTION

LEARNING OUTCOMES:
1. Overview of recruitment and selection
2. Process of recruitment and selection
a. Recruitment process
b. Selection process
c. Evaluating process
d. Improving process

80
1. OVERVIEW OF RECRUITMENT AND SELECTION
Criteria Recruitment and selection
Definition  Recruitment: Finding applicants
 Selection: Choosing between applicants for jobs
Aim Obtain quantity and quality required to fulfill the objectives of the
organisation
Importance Provide a scarce and crucial resource which must be obtained, retained,
developed and mobilised for organisational success
People involved  Senior managers: recruit and appoint people from within or outside the
organisation for senior positions
 Human resources department: manage recruitment and other human
resources activities
 Line managers:
o In small business: sole responsibility for recruitment
o In larger organisations:

 Notifying vacancies, issuing job requisition

 Advising on skill requirements and attributes required
 Selection interviewing
 Having a final say in the selection decision
 Recruitment consultants: consult during recruitment and selection process

2. PROCESS OF RECRUITMENT AND SELECTION

2.1 Process of recruitment and selection

Defining requirement

Preparing: Attracting applicants

- Job analysis Using different methods to Selecting
reach appropriate sources of
- Job specifications labor Choosing appropriate candidates for the
job

Recruitment Selection

81
2.2 Recruitment process
a. Defining requirement
Defining requirement

Job analysis Job specification

Requirement for a job Skills or competences for a job

Components: Information needed: Criteria for

 Job descriptions  Tasks

 Person specifications  Languages
 Management, supervision
Type of information included:  Communication
 Job descriptions  Meeting attendance
- Job title  Physical factors
- Reporting to  Labor safety
- Subordinates
- Overall purpose of job
- Main activities
- Accountability
 Person specifications
- Personal skills
- Qualifications
- Innate ability
- Motivation
- Personality

b. Attracting applicants: Main method is using advertisement

Job advertisement
Aim Attracting quality applicants and aiding self-selection
Quality  Concise
requirements  Attractive
 Positive and honest about organisation
 Relevant and appropriate to job and applicant
Contents Information about:
 Organisation
 Job
 Conditions affecting job
82
  Qualifications and experience required
 Rewards: salary, benefits, opportunities for training, career development,
aptitudes and knowledge required
 Application process
Means of Types of media:
transporting  Print: newspaper, magazine...
 Electronic: website, email...
 Interpersonal: LinkedIn, Facebook and other social networks

2.3 Selection process

a. Selection steps

• Sending application forms to candidates

1

• Assess apllication against key criteria (qualifications, experience)

2

• Sort applications
3

• Invite candidates for interview

4

• Reinforce interviews with selection testing, if suitable

5

• Review uninterviewed candidates

6 • Classify potential candidates into "successful candidate" or "reserves"

• Send standard letters to unsuccessful applicants

7 • Send holding letter to reserves

• Make provisional offer to successful candidate

8

83
b. Selection methods
Methods Examples
Interviewing  Individual: one-to-one, face-to-face interview (most common method)
 Interview panels: one candidate is interviewed by a panel consisting
two or three people
 Selection boards: large formal panels
Selection tests  Intelligence: memory, quick-thinking ability, logical thinking, problem-
solving skill
 Aptitude: reasoning, spatio-visual ability, perceptual speed and
accuracy, physical ability
 Personality: skills dealing with others, ambition, motivation,
emotional stability
 Proficiency: measure ability to perform tasks
Reference checking  Job references
 Character references
Work sampling  Portfolios
 Trial periods or exercises
Group selection methods  Assessment center

2.4 Evaluating process

Ways of reviewing process Examples
Performance indicators Check time deviation to process an application from standard
Cost effectiveness Check cost of advertising media per application elicited
Monitoring the workforce High staff turnover, absenteeism and other problems reflect poor
recruitment and selection.
Attitude surveys Ask firm’s recruits what they thought of the process
Actual individual job Compare actual performance with expected one
performance

2.5 Improvement process

Ways of improving process:
 Improving policies and guidelines for selectors
 Establishing systematic procedures for all stages of the process
 Improving education and training of selector
 Auditing job advertising content and media
 Widening the organisation's repertoire of selection techniques
 Using external recruitment and selection agencies and consultants

84
 LESSON 13: DIVERSITY AND EQUAL OPPORTUNITIES

LEARNING OUTCOMES:
1. Discrimination and equal opportunities
2. Diversity

85
1. DISCRIMINATION AND EQUAL OPPORTUNITIES
Equal access to benefits and fair treatment

Equal opportunities

Discrimination

Unequal access to benefits and unfair treatment

Direct discrimination Indirect discrimination Victimisation

One interested group is A policy or practice is fair in A person is penalised for

treated less favorably than form, but discriminatory in giving information or taking
another operation action in pursuit

2. DIVERSITY
2.1 Definition
Diversity is the individual difference in an organisation

2.2 Managing diversity

Managing diversity includes:
 Tolerance of individual differences
 Communicating effectively with (and motivating) ethnically diverse workforces
 Managing workers with increasingly diverse family structures and responsibilities
 Managing the adjustments to be made by an increasingly aged workforce
 Managing increasingly diverse career aspirations/patterns, flexible working
 Dealing with differences in literacy, numeracy and qualifications in an international workforce
 Managing co-operative working in ethnically diverse teams
2.3 Managing diversity process

86
 • Analyse your business environment
1
• Define diversity and its business benefits
2
• Introduce diversity policy into corporate strategy
3
• Embed diversity into core HR processes and system
4
• Ensure leaders implement policy
5
• Involve staff at all levels
6
• Communicate internally and externally
7
• Understand your company's needs
8
• Evaluate process
9

87
 LESSON 14: INDIVIDUALS, GROUPS AND TEAMS

LEARNING OUTCOMES:
1. Individuals
2. Groups
3. Teams

Teams

Groups

Individuals

88
1. INDIVIDUALS
Traits Types

Reflects how individual behaves Reflects psychological preferences

Personality

Total pattern of an individual's thoughts,

feelings and behavior

Individuals

Perception Attitudes

Process that brain selects and General standpoint on things based on

organises to make sense of perception, experience and personality
information

Intelligence

 Analytic intelligence: mental agility, logical reasoning and verbal fluency

 Spatial intelligence: the ability to see patterns and connections,
 Practical intelligence: practical aptitude, handiness
 Intrapersonal intelligence: self-awareness, self-expression, self-control, handling
stress
 Interpersonal intelligence: empathy, understanding of the emotional needs of others,
influence, conflict resolution, assertiveness, co-operation

89
2. GROUPS
Criteria Groups
Definition A group is a collection of individuals who perceive themselves as a group.

Features  Sense of identity: define who is in and who is out, who is us and who is them
 Loyalty to the group: acceptance of the norms of behavior and attitudes that
bind the group together and exclude others from it
 Purpose and leadership: express purpose, individuals or sub-groups are
chosen to fulfill goals.
Types  Informal group: include workplace cliques, and networks of people who
regularly get together to exchange information
 Formal group: organised by organisation, responsible for a task
Contribution  A mix of skills
 Some teams can set their own objectives under the corporate framework
 A number of different points of view, enabling a swift overview of different
ways of looking at a problem
 Creative ideas arising from new combinations of expertise
 Flexibility as team members can be deployed in different ways
 Opportunity for exercising control

2.1 Stages of group development

Forming Storming Norming Performing

 Team coming  Open conflict  Settle down

together  Team sets to
among team  Agreements
 Individuals try work to
members about work
execute tasks
to find out each  Changes in sharing,
other original individual
 Unclear objectives requirements
objectives  More realistic and
 Leader has not target and expectations of
emerged trust outputs

90
3. TEAMS
3.1 Teamworking

Controlling activities

Organising work
Conflict in group
Generating ideas
Strength Limitations
Organising work
Decision-making

Pooling knowledge

Teamworking

Multi-discipline teams Multi-skilled teams Virtual teams

People from different People who themselves People working in

departments, pooling the have more than one skill remote locations
skills of specialists

3.2 Team roles

Role Description Team-role contribution Allowable weaknesses

Plant Creative, Solves difficult Ignores details, too

imaginative, problems preoccupied to
unorthodox communicate effectively
Resource Extrovert, Explores opportunities, Over-optimistic, loses
investigator enthusiastic, develops contacts interest once initial
communicative enthusiasm has passed
Co-coordinator Mature, Clarifies goals, Can be seen as
(chairman) confident, a promotes decision- manipulative, delegates
good making, delegates well personal work
chairperson
Shaper Challenging, Has the drive and Can provoke others,
dynamic, courage to overcome hurts people's feelings
thrives on obstacles
pressure

91
 Monitor- Sober, strategic Sees all options, judges Lacks drive and ability to
evaluator and discerning accurately inspire others, overly
critical
Teamworker Co-operative, Listens, builds, averts Indecisive in crunch
mild, friction, calms the situations, can be easily
perceptive and waters influenced
diplomatic
Implementer Disciplined, Turns ideas into Somewhat inflexible,
(company reliable, practical actions slow to respond to new
worker) conservative possibilities
and efficient
Completer- Painstaking, Searches out errors and Inclined to worry
finisher conscientious, omissions, delivers on unduly, reluctant to
anxious time delegate, can be a
nitpicker
Specialist Single-minded, Provides knowledge and Contributes only on a
self-starting, skills in rare supply narrow front, dwells on
dedicated technicalities, overlooks
the 'big picture'

3.3 Building a team

Team identity Team solidarity Shared objects

 Name  Expressing solidarity  Setting out the

 Badge or uniform  Encouraging objectives
 Self-image interpersonal  Giving regular
 Mythology relationships constructive criticism
 Separate space  Dealing with conflict  Offering positive
 Controlling competition reinforcement
 Encouraging competition  Championing the success
with others

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 LESSON 15: MOTIVATING INDIVIDUALS AND GROUPS

LEARNING OUTCOMES:
1. Motivation
2. Rewards and incentives
3. Being a motivator

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1. MOTIVATION
1.1 Motivation, needs and goals
Needs and goals Motivation Action and behavior

Affect

 Childhood Definition: What causes

environment and people to act in a
education certain way.
 Experience
 Age and position
 Culture
 Self-concept

1.2 Theories about motivation

Name Content
Maslow's theory
- Fulfillment of personal
Self-
actualisation
potential
- Interdependence, recognition,
Esteem needs status, respect from others

- Relationships,
Love/Social needs
affection, belonging
- Security, freedom
Safety needs from threat

Physiological - Food, shelter

Herzberg's two- Two needs of people:

factor theory  Avoid unpleasantness
 Personal growth
Vroom's F=VxE
expectancy theory  F (force): strength of the individual's motivation to behave in a particular
way
 V (valence): strength of the individual preference for a given outcome or
reward
 E (expectancy): individual's perception that the behavior will result in the
outcome/ reward
2. REWARDS AND INCENTIVES

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 Token given in recognition of some contribution or success

Incentives

Rewards

Offer or promise of a reward for contribution or success, designed to motivate the individual or
team to behave in such a way as to earn it

Extrinsic rewards Intrinsic rewards

Separate from job, dependent on decisions Arise from the performance of the work
of other itself

3. BEING A MOTIVATOR
A motivator has to

Design job Feedback Participate Be paid based on

 Job simplification  Motivational  Certainty  Job evaluation

 Job enrichment feedback  Consistency  Fairness
 Job enlargement  Developmental  Clarity  Negotiated pay
 Job rotation feedback  Capacity scales
 Job optimisation  Constructive  Commitment  Market rates
feedback  Individual
performance

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 LESSON 16: TRAINING AND DEVELOPMENT

LEARNING OUTCOMES:
1. Learning
2. Development and training

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1. LEARNING
Aspects Learning
Definition  Behaviorist psychology approach: Learning is the formation of new
connections between stimulus and response, on the basis of conditioning
 Cognitive approach: Learning is the process of taking, interpreting and
rationalizing information and modifying responses in the future
Styles  Theorists: understand basic principles base on logical argument
 Reflectors: produce carefully thought-out conclusions after research and
reflection
 Activists: deal with practical, active problems and do not have patience
with theory
 Pragmatists: like study which has direct link to real, practical problems
Cycle
Applying/testing
Concrete
implications in
experience
new situation

Formation of
abtract concepts Observation and
and reflection
generalisations

Simplified:
Act -> Analyse action -> Suggest principles -> Apply principles -> Act
Organisational Definition An organisation that facilitates the learning of all its
learning members
Key  The generation and transfer of knowledge
dimensions  A tolerance for risk and failure as learning
opportunities
 A systematic, ongoing, collective and scientific
approach to problem-solving
Strengths  Experimentation
 Learning from past experience
 Learning from others
 Transferring knowledge quickly and efficiently
throughout the organisation

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2. DEVELOPMENT AND TRAINING

Purpose

 Development: growth of person's ability and potential through

learning and educational experiences
 Training: modification of behavior through learning events to
achieve the level of knowledge, skills and competence to carry
out their work effectively
 Education: acquiring knowledge gradually through learning and
instruction

Training and development process

Step 1: Identified skills and competences needed

Step 2: Draw up development strategy

Step 3: Implement the strategy

Organisation Employee
Benefits
 Minimize costs  Enhance skills
 Increase productivity  Enhance psychological benefits
 Fewer accidents  Enhance social benefit
 Less need for supervision  Do the job better
 Flexible
 Motivate employees
 Build corporate culture

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 LESSON 17: PERFORMANCE APPRAISAL

LEARNING OUTCOMES:
1. Performance management and assessment
2. Performance appraisal

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1. PERFORMANCE MANAGEMENT AND ASSESSMENT

 Agreed framework of goals

 Shared understanding
Performance management
 To manage and develop people

 Identify requirements and competences

 Draw up performance agreement
Process (5 steps)  Draw up performance and development
plan
 Manage performance continually
 Performance review

Part of the system

Performance appraisal

Reward review Performance Potential review

review
Performance Capable work in
bonuses or pay Training needs the future
increases identification prediction

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2. PERFORMANCE APPRAISAL PROCESS
Corporate Purpose of Job Job
plan appraisal requirements analysis

Identification of criteria for assessment

Employee’s
Assessment by manager
performance

Assessment (Interview)

Jointly agreed concrete conclusion

Feedback

Follow-up action

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 CHAPTER 5: PERSONAL EFFECTIVENESS AND COMMUNICATION IN BUSINESS

LESSON 18: PERSONAL EFFECTIVENESS AND COMMUNICATION

LEARNING OUTCOMES:
1. Personal effectiveness
a. Time management
b. Information technology usage
c. Ineffectiveness at work
d. Competence frameworks and personal development
e. Conflict
2. Communication in the workplace
a. Processes
b. Barriers
c. Methods

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1. PERSONAL EFFECTIVENESS
1.1 Time management
Effective time management

Goals (SMART) Focus Priorities Organisation (ABCD method)

Specific Focus on one Do the most  Act intermediately

Measurable thing at a time important thing first  Bin irrelevant and
Attainable unnecessary things
Realistic Action plans Urgency  Create plan for work
Time-bounded  Delegate work for
Show intention No postponement someone else if needed
to achieve goals

Ways to improve

Plan each day Produce a longer- Do not be available to Stay control of the
term plan everyone at all times telephone

1.2 Information technology usage

Tool Advantages Limitations
Conversation No planning needed Easily forgotten
Meeting Opinions are expressed Time-wasting
Presentation Visual aids help the communication process Planning and skill is
required
Telephone Good for communication with no Increased
requirement of permanent written record misunderstanding
Facsimile Reach remote locations quickly Complex images cannot
transmit well
Memorandum Provides permanent record Impersonal
Letter Formal to external communications Slow to arrive
Report Provides permanent, comprehensive written Complex messages may
record be misunderstood

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 Email  Written record with attachment Long messages is not
 Quick appropriate
 Can be forwarded to others
Videoconference Flexible when using computer and video Poor image quality
system
1.3 Ineffectiveness at work
Ineffectiveness

Feature (Failing to) Effects

 Communicate  Potential problems are not identified and

 Meet deadlines dealt with
 Comply with job specifications  Deadlines are not met
 Deliver exact product needed  Customers get angry

1.4 Competence frameworks and personal development

a. Competence frameworks

What employee should be able to do

Sets out
Competence frameworks
What employee ought to know

Advantage:

 Fairer
 Provides a basis for employees to plan their personal development

Disadvantage:

 Hard to develop
 Can become meaningless and difficult to measure

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b. Personal development
Personal development planning process

•Choose carrer for development

1

•Set SMART objective

2

•Determine how to move towards the objectives

3

•Formulate comprehensive and specific action plan

4

•Secure agreement to action plan

5

•Implement the action plan

6

c. Coaching, mentoring and counselling

Coaching: occurs when a trainee is put under the guidance of an experienced employee ('expert')
 Establish learning targets
 Plan a systematic programme
 Identify opportunities
 Take strengths/ limitations into account
 Exchange feedback

Mentoring: is a long-term relationship in which a more experienced person fosters personal and career
development
 Not usually an immediate superior
 Cover a wide range of function
o Career functions
o Psychosocial functions

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 Counselling: 'a purposeful relationship in which one person helps another to help himself.
It is a way of relating and responding to another person so that the person is helped to explore his
thoughts, feelings and behaviour with the aim of reaching a clearer understanding ... of himself or of a
problem, or of the one in relation to the other.'

Organizational uses
The counselling process Situations for counselling
 Preventing under-
performance  Problem recognition • Appraisal • Discipline
 Retaining staff loyalty  Problem • Grievance • Change
 Solving work problems expression/exploration • Redundancy Retirement
 Empowering solution- • Personal/performance
 Developing staff
finding problems
 Controlling conflict
 Resourcing solutions • Traumatic events

2. COMMUNICATION IN WORKPLACE
2.1 Process
Noise

 Information, ideas, Medium Understanding

Coded Decoded
attitudes the message and
channel message
 Desired action message
action required

Sender Distortion Receiver

Distortion

Feedback

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2.2 Barriers
In communication process In communication at work
 Distortion or omission of information by the  Status of information sender and receiver
sender  Jargon: different backgrounds become barrier in
 Non-verbal signs meaning is in doubt talking on a non-specialist's wavelength.
 'Overload' – a person being given too much  Suspicion of empowerment of people
information  Priorities: different in people
 People hearing only what they want  Selective reporting: inaccurate information
 Differences in social, racial or educational  Timing: no immediate use information is
background forgotten
 Conflict between individuals or departments
 Personal difference

2.3 Methods
Communication objective Method
 Generate new ideas Face to
 On the spot feedback face/meetings
 Spread information quickly
Increase commitment and understanding of workforce Team briefing
Reach large membership spread over a wide area Conference
Formal and confidential communication Interview
Face to face communication without travel time Telephone
Transmit information cheaply to a large number of people Noticeboard
External communication/confidential written record Letter
Reach large number of people in several sites/countries Email
Explain complex facts and arguments Report

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 CHAPTER 6: PROFESSIONAL ETHICS IN ACCOUNTING AND BUSINESS

LESSON 19: ETHICAL CONSIDERATIONS

LEARNING OUTCOMES:
1. Framework of rules
2. Management accountability
3. The ethical environment
4. Ethics in organisations
5. Accountants and ethics
6. A code of ethics for accountants
7. Ethics in business

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1. ETHICAL ENVIRONMENT
1.1 Three sources of regulation
Three sources of rules regulating behavior of individuals and businesses

Law Non-legal rules and regulations Ethics

Illegal/ Unethical

Lawful

Meet regulatory
obligations

Ethical

1.2 Corporate governance concepts

Concept Comment
Fairness The directors' deliberations and systems and values that underlie
the company must be balanced
Openness/ Open and clear disclosure of relevant information to shareholders
Transparency and other stakeholders
Probity/ Honesty Telling the truth and not misleading shareholders and other
stakeholders
Responsibility Management accepting the credit or blame for governance
decisions.
Accountability Answerable in some way for the consequences of actions
Reputation Reflected in the share price
Judgment The board making decisions that enhance the prosperity of the
organisation
Integrity Not place under any financial or other obligation to outside
individuals or organisations that might influence them in the
performance of their official duties

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1.3 Ethical principles
Ethics based on

Consequences Duty Rights and virtues

Judges actions by outcomes Governs behavior by Individuals have rights that should
and consequences absolute moral rules not be abused

1.4 Ethical problems facing managers

Ethical problems faced by manager

Extortion Bribery Grease money Gifts

Threaten to Payments for Payment for low- Gift to those whose

information services to which level government higher position to
disclosures for money company is not official to expedite a expedite a
legally entitled business decision, ship business decision, sh
ment, or ipment, or
other transaction other transaction
2. MANAGEMENT ACCOUNTABLITY
An organization’s managers are collectively responsible for the conduct of organization’s affairs; they
have a fiduciary responsibility (duty of faithful service)
 Stakeholder view: A business depends upon appropriate relationships with all groups who have
an interest in what the organisation does. Each stakeholder group has its own objectives so
that a compromise is required
 Consensus theory: Objectives emerge as a consensus of the differing views of shareholders,
managers, employees, customers, suppliers and society at large but they are not all selected or
controlled by management.

3. ETHICS IN ORGANISATIONS
Ethical systems in organisations

Personal ethics Professional ethics Organisation cultures Organisation system

Approaches to managing ethics

Compliance based Integrity based

Ensure that company acts obeys the law, Emphasize on managerial responsibility for
violations are prevented, detected and 110 ethical behavior
punished
4. ETHICS FOR ACCOUNTANT
Personal quality Detail
Reliability Ensure that work gets done and meets professional standards.
Responsibility Take 'ownership' of own work
Timeliness On time and produce work within a specified time frame.
Courtesy Courtesy and consideration towards clients and colleagues
Respect Respect others by developing constructive relationships and recognising the
values and rights of others
Fundamental principles of the ACCA Code of Ethics and Conduct

ACCA members are required to comply with the following fundamental principles.

 Integrity • Confidentiality
 Objectivity • Professional behaviour
 Professional competence and due care

5. ETHICS IN BUSINESS
Elements of business ethics

I Do Best

Individual’s professional Consider how an individual Choose less unpalatable course of

responsibility to act. acts action

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 a. ETHICAL DILEMMAS
Ethical dilemmas

The conflict between

Societal values Corporate values

Personal values Professional values

Solution

Individuals should ask themselves

Transparency Effect Fairness

Do I feel comfortable with Have I considered all parties Would a reasonable

others knowing about my who may be affected by the third party view the
decision, is my decision decision? decision as fair?
defensible?

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