ACADEMY OF FINANCE

ICAEW – CFAB
FINANCIAL ANALYSIS DEPARTMENT
BUSINESS, TECHNOLOGY, AND FINANCE

BUSINESS, TECHNOLOGY AND FINANCE 2

Dr. Vu Duc Kien
 ACADEMY OF FINANCE
ICAEW – CFAB
FINANCIAL ANALYSIS DEPARTMENT
BUSINESS, TECHNOLOGY, AND FINANCE

BUSINESS, TECHNOLOGY AND FINANCE

1. Introduction to business
2. Managing a business
3. Organisational and business structures
4. Introduction to business strategy
5. Introduction to risk management
6. Introduction to financial information

7. The business's finance function

8. Business finance
9. The professional accountant
10. Structure and regulation of the accountancy profession
11. Governance and ethics
12. Corporate governance
13. The economic environment of business and finance
14. External regulation of business
 ACADEMY OF FINANCE
ICAEW – CFAB
FINANCIAL ANALYSIS DEPARTMENT
BUSINESS, TECHNOLOGY, AND FINANCE

INTRODUCTION TO THIS MODULE

- Chapter 7 to Chapter 14
- Computer-based MCQ
- Class time: 45 hours
- Tests: 2 mid-term test. MCQ
- Quiz of each chapter
- Lecturer: Vu Duc Kien
- Email: [email protected]
 ACADEMY OF FINANCE
ICAEW – CFAB
FINANCIAL ANALYSIS DEPARTMENT
BUSINESS, TECHNOLOGY, AND FINANCE

CHAPTER 7: The business’s finance function

Dr. Vu Duc Kien
 ACADEMY OF FINANCE
ICAEW – CFAB
FINANCIAL ANALYSIS DEPARTMENT
BUSINESS, TECHNOLOGY, AND FINANCE

Contents
1. What does the finance function do?
2. The structure of the finance function
3. Managing the finance function
4. Measuring performance
5. Establishing financial control processes and internal controls
 ACADEMY OF FINANCE
ICAEW – CFAB
FINANCIAL ANALYSIS DEPARTMENT
BUSINESS, TECHNOLOGY, AND FINANCE

Learning Objectives
ü Specify how a strategic plan is converted into fully-integrated business and operational plans
ü Specify the role of financial information prepared by businesses in:
ü Providing for accountability of management to stakeholders
ü Reflecting business position and performance
ü Supporting users in making decisions
ü Specify how finance functions support businesses in pursuit of their objectives, including business
partnering
ü Identify the main considerations in establishing and maintaining accounting and financial
reporting functions and financial control processes
ü Specify why the management of a business require information about performance measurement
including an entity’s sustainability management and natural capital
ü Identify the accountant’s role in preparing and presenting information for the management of a
business
 ACADEMY OF FINANCE
ICAEW – CFAB
FINANCIAL ANALYSIS DEPARTMENT
BUSINESS, TECHNOLOGY, AND FINANCE

Syllabus link
üAccounting, Assurance and Management Information at Certificate level;
üFinancial Accounting and Reporting;
üFinancial Management at Professional level and Advanced level.
Assessment context
üMCQ;
üStraight tests of knowledge;
üApplications of knowledge to a scenario
 ACADEMY OF FINANCE
ICAEW – CFAB
FINANCIAL ANALYSIS DEPARTMENT
BUSINESS, TECHNOLOGY, AND FINANCE

1. What does the finance function do?

v 1.1. The tasks of the finance function
vFour specific tasks but interrelated
vRecording financial transactions: ensuring that the business has an accurate
record of its revenue, expenses, assets, liabilities and capital
vManagement accounting: providing information to help managers and other
internal users in their decision-making, performance measurement, planning
and control activities.
vFinancial reporting: providing information about a business to external users
that is useful to them in making decisions and for assessing the stewardship of
the business’s management.
vTreasury management: managing the funds of a business, namely cash and
other working capital items, plus long-term investments, short-term and long-
term debt, and equity finance.
 ACADEMY OF FINANCE
ICAEW – CFAB
FINANCIAL ANALYSIS DEPARTMENT
BUSINESS, TECHNOLOGY, AND FINANCE

1. What does the finance function do?

v 1.1. The tasks of the finance function
vFour specific tasks but interrelated
vQuestion: What is the stewardship of the business’s management?
vA steward: is one who take on the responsibility of caring for something on
behalf of another person or group of people. Therefore, stewards do not
have ownership of what they have responsibility to take care of, but must,
nevertheless, carry out their duties conscientiously since they have to render
account of what they have done.
vStewardship theory: is a framework which argues that people are
intrinsically motivated to work for others or for organizations to accomplish
the tasks and responsibilities with which they have been entrusted.
 ACADEMY OF FINANCE
ICAEW – CFAB
FINANCIAL ANALYSIS DEPARTMENT
BUSINESS, TECHNOLOGY, AND FINANCE

1. What does the finance function do?

v 1.1. The tasks of the finance function
vFour specific tasks but interrelated
vQuestion: Classify the following tasks into 4 categories:
vPlanning ahead by preparing forecasts and budgets
vPreparing and monitoring cash budgets
vTax reporting
vEnsuring that resources are properly controlled
vManaging financial risk
vFund raising
vDetermining sales and transfer prices
vAnalyzing capital investment decisions
 ACADEMY OF FINANCE
ICAEW – CFAB
FINANCIAL ANALYSIS DEPARTMENT
BUSINESS, TECHNOLOGY, AND FINANCE

1. What does the finance function do?

v 1.1. The tasks of the finance function
vFour specific tasks but interrelated
vQuestion: Classify the following tasks into 4 categories:
vPlanning ahead by preparing forecasts and budgets – Mgmt. accounting
vPreparing and monitoring cash budgets - Treasury management
vTax reporting - Financial reporting
vEnsuring that resources are properly controlled - Recording financial
transactions
vManaging financial risk - Treasury management
vFund raising - Treasury management
vDetermining sales and transfer prices - Mgmt. accounting
vAnalyzing capital investment decisions - Mgmt. accounting
 ACADEMY OF FINANCE
ICAEW – CFAB
FINANCIAL ANALYSIS DEPARTMENT
BUSINESS, TECHNOLOGY, AND FINANCE

1. What does the finance function do?

v 1.2. Business partnering – support the pursuit of business
objectives
vBusiness partnering: the finance function working alongside other
business functions rather than being a separate function on their own.
The role of the finance function becomes one of providing advice and
support to the other areas of the business, to help them maximize their
performance.
vThe main role: sources of financial expertise
vOther aspects: strategy formulation, implementation & communication,
commercial decision making and negotiations, business analysis, sounding
board, trusted adviser, critical friend and facilitator.
 ACADEMY OF FINANCE
ICAEW – CFAB
FINANCIAL ANALYSIS DEPARTMENT
BUSINESS, TECHNOLOGY, AND FINANCE

1. What does the finance function do?

v 1.2. Business partnering – support the pursuit of business objectives
vInsight and support provide to specific business areas include:
vMarketing: the drivers of revenue, analysis of sales volumes, and advice on pricing
(price elasticity of demand)
vOperations/production: variance analysis to identify reasons behind increase or
decrease in cost per unit, decision support for new products or closing down
operations
vIT: monitoring KPIs for IT performance
vHR: analysis of payroll costs and productivity of employees
vProcurement: monitoring of supplier performance against service level agreement
vResearch and Development: project appraisal to recommend new areas to research
and develop new products, monitoring and controlling cost against budget
 ACADEMY OF FINANCE
ICAEW – CFAB
FINANCIAL ANALYSIS DEPARTMENT
BUSINESS, TECHNOLOGY, AND FINANCE

1. What does the finance function do?

v 1.2. Business partnering – support the pursuit of business
objectives
vRemember: Keep balance
vTwo dilemma of business partnering:
vThere might be a compromise of objectivity and independence.
vA lack of time: due to the lack of necessary knowledge, skills and attitude to
perform business partnering => divert their time to tasks they feel more
comfortable with.
 ACADEMY OF FINANCE
ICAEW – CFAB
FINANCIAL ANALYSIS DEPARTMENT
BUSINESS, TECHNOLOGY, AND FINANCE

2. The structure of the finance function

v In many businesses, some if not all the finance functions’ tasks
are centralised.
v Advantages and disadvantages of centralised finance function:
vIs helpful with overall management of cash and to external reporting
vNot helpful with respect to making sure that local operational management get
all the information and support they need (internal reporting)
vMore problematic when the business operates in global markets (exchange rates
and time differences)
 ACADEMY OF FINANCE
ICAEW – CFAB
FINANCIAL ANALYSIS DEPARTMENT
BUSINESS, TECHNOLOGY, AND FINANCE

2. The structure of the finance function

 ACADEMY OF FINANCE
ICAEW – CFAB
FINANCIAL ANALYSIS DEPARTMENT
BUSINESS, TECHNOLOGY, AND FINANCE

3. Managing the finance function

v Factors affecting the finance function
vBusiness structure: sole trader, partnership, company
vOrganizational structure, size and geographical dispersion
vMarkets
vTechnology: such as cloud accounting and intelligent system
vHistory and Ownership
vCulture: human relations, open systems, internal process or rational goal
 ACADEMY OF FINANCE
ICAEW – CFAB
FINANCIAL ANALYSIS DEPARTMENT
BUSINESS, TECHNOLOGY, AND FINANCE

3. Managing the finance function

As with any other of the bussiness's function, the finance function needs:
v Planning and control
vForecasting what is needed: the processing, reports, and finance
vEvaluating available resources: qualified staff, robust information systems
vDeveloping objectives, plans and targets
vImplementing the plan and measuring performance
vUsing feedback from measuring performance to make necessary amendments
to the plan
vOrganizing and leading: time and efforts in the finance function need
to be organized so that objectives and targets are met
vDefining what processes, technology and people are required
vAllocating and coordinating work
vGenerating efforts and commitments in finance staff
 ACADEMY OF FINANCE
ICAEW – CFAB
FINANCIAL ANALYSIS DEPARTMENT
BUSINESS, TECHNOLOGY, AND FINANCE

4. Measuring performance
v 4.1. Types of performance measure
vQualitative measure: are subjective and judgmental, and are not
expressed in numerical terms

vQuantitative measures: are objective and based on data which must be

reliable. They are expressed in numerical terms and can be:

vFinancial measures

vNon-financial measures
 ACADEMY OF FINANCE
ICAEW – CFAB
FINANCIAL ANALYSIS DEPARTMENT
BUSINESS, TECHNOLOGY, AND FINANCE

4. Measuring performance
v 4.1. Types of performance measure W michot hang swat
Three points of reference for measurement: Profitability, Activity, Productivity
vProfitability: cost and revenue
vActivity:
vNumber of orders
vNumber of machine breakdown
vCould be in physical numbers, monetary value, or time spent
vProductivity: This is the quantity of the service or product produced in
relation to the resources put in.
vItems processed per hour or per employee
 ACADEMY OF FINANCE
ICAEW – CFAB
FINANCIAL ANALYSIS DEPARTMENT
BUSINESS, TECHNOLOGY, AND FINANCE

4. Measuring performance
v 4.2. Measuring profitability CLN)

vAbsolute terms = Revenue – Costs (thing la he so khe nang sink lo

#
vRelative terms = (Revenue – Costs)/Revenue (profit margin)
n loai PM
vRisk and Return n loai cost
>
-
>

vMust be specified in quantified terms: a specific target rate of profit that

must be set
vOpportunity cost: The rate of profit available on alternative investments
with similar characteristics (risk).

Chico hoi
profit c la chon dtr7
'
,
 ACADEMY OF FINANCE
ICAEW – CFAB
FINANCIAL ANALYSIS DEPARTMENT
BUSINESS, TECHNOLOGY, AND FINANCE

4. Measuring performance (sdung nguon lic)

v 4.3. Measuring resource use: effectiveness, economy and
efficiency
vMaterials
vLabor
vFinance
vPhysical assets
vCompetences
vIntangible assets
vThe way in which the business is structed
vThe knowledge that is available to the business
 ACADEMY OF FINANCE
ICAEW – CFAB
FINANCIAL ANALYSIS DEPARTMENT
BUSINESS, TECHNOLOGY, AND FINANCE

4. Measuring performance
v 4.3. Measuring resource use: effectiveness, economy and
efficiency
vEffectiveness is the measure of achievement and is assessed by reference
to objectives (ket qua so us muctien deta (
vEconomy: reduction or containment of cost Ctieft cost]
vEfficiency means being effective at minimum cost or controlling costs
without losing operational effectiveness. (bquan not CP taoa ? kqua)
-> Efficiency is a combination of effectiveness and economy. ↓
so sank effectiveness a

economy
 ACADEMY OF FINANCE
ICAEW – CFAB
FINANCIAL ANALYSIS DEPARTMENT
BUSINESS, TECHNOLOGY, AND FINANCE

yto'
LCac'cot lo de success (
4. Measuring performance
v 4.4. Measuring critical success factors (CSFs)
vQuestion: What are the CSFs of a business?
vThose product features that are particularly valued by a group of customers
and, therefore, where the organization must excel to outperform the
competition. (Johnson & Scholes, 2002) minh co git biet ? >
-
measure

vCFSs concern not only the resources of the business but also the competitive ~

environment in which it operates. maintain

e.

. Service
g ,
mus gia ,
trai ne Vinfast c gi ma ngta chon ?

focus vao 1 phankhu H

competitiveness
 ACADEMY OF FINANCE
ICAEW – CFAB
FINANCIAL ANALYSIS DEPARTMENT
BUSINESS, TECHNOLOGY, AND FINANCE

4. Measuring performance hieu qua noting chinh

v 4.5. Identifying key performance indicators (KPIs)

vQuestion: What are KPIs of a business?
vA measure of the level of performance in an area where a target level must
be achieved in order for the business to outperform rivals and achieve
competitive advantage.
vBenchmarking: The establishment, through data gathering, of targets and
comparators, through whose use relative levels of performance (and
particularly areas of underperformance) can be identified.
vBy the adoption of identified best practices it is hoped that performance will
improve.
- Con indicators de measure - > KPI la thin do hqua hoting
↓
Muc tin
: chuan (xtink do rghien air sank (
-
Benchmarking , so
 ACADEMY OF FINANCE
ICAEW – CFAB
FINANCIAL ANALYSIS DEPARTMENT
BUSINESS, TECHNOLOGY, AND FINANCE

natural
4. Measuring performance -environmental ,

resources
v 4.6. Measuring sustainability and natural capital
v4.6.1. Accountant’s role
vResponding to uncertainty and risk
vDeveloping existing and new markets
vInnovating processes, products and services that can provide benefits to
society
vImproving operational efficiency and lowering costs by way of sustainable
operations
vEngaging employees, customers and suppliers in the drive towards
sustainability
 ACADEMY OF FINANCE
ICAEW – CFAB
FINANCIAL ANALYSIS DEPARTMENT
BUSINESS, TECHNOLOGY, AND FINANCE

4. Measuring performance (phien bei

rungentigs
v 4.6. Measuring sustainability and natural capital
v4.6.2. Triple bottom line: SEE 3 khia cank can de gtam

E
vSocial: Health and safety, workers' rights, pay and benefits diversity
SEE and equality... CO2 >

vEnvironment: Climate change, pollution, emission levels... net ,

zero

vEconomic: Local economic development, job provision, investment in

innovation... don's gop cho cong dig
cuycap
-
, ,
chi pina ,

v4.6.3. GRI Standards

vGlobal Reporting Initiative (GRI) issued The Sustainability Reporting
Standard.
vA GRI-based report typically includes SEE performance information
vExample: VNM Sustainable Reporting 2020
 ACADEMY OF FINANCE
ICAEW – CFAB
FINANCIAL ANALYSIS DEPARTMENT
BUSINESS, TECHNOLOGY, AND FINANCE

4. Measuring performance (gioi han)

v 4.8. Limitations of financial measures
vInformation problems
vOut of date
(maybe sat link hinh (
vHistorical data = us

chitiet
vSummarized information: financial statements kh ptick i
>
-
a

vSymptoms, not causes (la bien hien not nguyexben (1)

,

vComparison problems: trends & different business

vWith one firm: Changes in price, tech, environment, accounting policies,
Sain[ base year selection
vBetween firms: Different industry, risk profile, accounting policies
 ACADEMY OF FINANCE
ICAEW – CFAB
FINANCIAL ANALYSIS DEPARTMENT
BUSINESS, TECHNOLOGY, AND FINANCE

4. Measuring performance
v 4.9. The balanced scorecard (The diein can = )
vDefinition: An integrated set of performance measures linked to the
achievement of strategic objectives.
vFour important perspectives

In
vCustomer (How do customers see us?): satisfaction ratings, retention rates, returns
rates dank gia output
input (ChatlgSP)
>
-

vInternal business processes (What must we excel at?): product quality, failure rates
vInnovation and learning (How can we continue to improve and create value?):
employee retention rates, time to market for new products Kha hang cai tien'
>
-

vFinancial (How do we look to our shareholders?): gross margin, net margin, return
on capital employed, gearing, interest cover
 ACADEMY OF FINANCE
ICAEW – CFAB
FINANCIAL ANALYSIS DEPARTMENT
BUSINESS, TECHNOLOGY, AND FINANCE

5. Establishing financial control processes and internal

control
v 5.2. What is internal control? Board of Director

vA process, effected by an entity’s BOD, management and other

personnel, designed to provide reasonable assurance regarding the
achievement of objectives relating to operations, reporting and
compliance.
vObjective achievement
vProcess of tasks and activities
vReasonable assurance, not absolute
vAdaptable to structure
 ACADEMY OF FINANCE
ICAEW – CFAB
FINANCIAL ANALYSIS DEPARTMENT
BUSINESS, TECHNOLOGY, AND FINANCE

5. Establishing financial control processes and internal

control
v 5.3. Effective internal control (COSO)
vAccording to COSO, internal control consists of five integrated
components, providing an effective framework for describing and
analyzing the internal control system:
vControl environment

)
vRisk assessment
vControl activities
vInformation and Communication
vMonitoring activities
 ACADEMY OF FINANCE
ICAEW – CFAB
FINANCIAL ANALYSIS DEPARTMENT
BUSINESS, TECHNOLOGY, AND FINANCE

5. Establishing financial control processes and internal control

v 5.3. Effective internal control (COSO)
v5.3.1. Control environment CMA DN)

vSet the tone of a business and the control consciousness of its people. Provide
discipline and structure. The control environment comprises:
vThe integrity and ethical values of the business (ran how DN)
vThe ability of the BOD to carry out its governance oversight responsibilities
vThe organizational structure and assignment of authority and responsibility
vThe process for attracting, developing and retaining competent individuals
vThe rigor of the business’s performance measure, incentives and rewards to
drive accountability for performance
 ACADEMY OF FINANCE
ICAEW – CFAB
FINANCIAL ANALYSIS DEPARTMENT
BUSINESS, TECHNOLOGY, AND FINANCE

5. Establishing financial control processes and internal

control
v 5.3. Effective internal control (COSO)
v5.3.2. Risk assessment (danh gia + 2

vRisk concept: Exposure, Volatility, Impact, Probability

vRisk management: The identification, analysis and economic control of risks
which threaten the assets or earning capacity of a business.
vRisk management process:
vRisk awareness and identification
vRisk assessment and measurement
vRisk response and control
vRisk monitoring and reporting
 ACADEMY OF FINANCE
ICAEW – CFAB
FINANCIAL ANALYSIS DEPARTMENT
BUSINESS, TECHNOLOGY, AND FINANCE

5. Establishing financial control processes and internal

control
v 5.3. Effective internal control (COSO)
v5.3.2. Risk assessment
High High impact, low prob. High impact, high prob.
these risks might be shared using insurance, and at the These risks must be controlled, using avoidance,
same time the impact might be reduced so that insurance reduction and/or sharing
premium are lower
Impact
Low Low impact, Low Prob. Low impact, high prob.
Often these risks are just accepted, as the cost of avoiding, Reduction is the key response here
reducing or sharing them exceeds the benefits

Low High

Probability
 ACADEMY OF FINANCE
ICAEW – CFAB
FINANCIAL ANALYSIS DEPARTMENT
BUSINESS, TECHNOLOGY, AND FINANCE

5. Establishing financial control processes and internal control

v 5.3. Effective internal control (COSO)
v5.3.3. Control activities
vThe actions established through policies and procedures that help ensure
management’s directives to mitigate risks to the achievement of objectives are
carried out.
vApproval
&
vAuthorization
⑪
vVerification
vReconciliation
vBusiness performance reviews
vSegregation of duties *
 ACADEMY OF FINANCE
ICAEW – CFAB
FINANCIAL ANALYSIS DEPARTMENT
BUSINESS, TECHNOLOGY, AND FINANCE

5. Establishing financial control processes and internal

control
v 5.3. Effective internal control (COSO)
v5.3.3. Control activities
vSegregation of duties: is important because an individual can abuse power
if he/she is responsible for a transaction or asset from the beginning to
end.
vExample: buying a car. If only one person had the power to:
vAuthorize its purchase
vRecord the amount of payable/or pay the bill;
vHave custody of the car
 ACADEMY OF FINANCE
ICAEW – CFAB
FINANCIAL ANALYSIS DEPARTMENT
BUSINESS, TECHNOLOGY, AND FINANCE

5. Establishing financial control processes and internal

control
v 5.3. Effective internal control
vInformation and Communication
vMonitoring activities
v5.4. Risk management and internal control (Self-study)