ACCA F1 Accountant in Business - 2010 - Study text

Practice questions

9 Formal organisation

List briefly three reasons why formal organisations exist.

10 Schein and culture

(a)

(i) What are the three levels of culture identified by Schein?

(ii) Which of these levels of culture is the most difficult to interpret and

understand?

(iii) Which of these levels of culture is the most difficult to change?

(b) A music publishing company operates from a single office building. Everyone

in the company calls each other by their first name or familiar name. All

meetings between employees or with clients and customers are held in a

cafeteria on the second floor of the building, and there are no meeting rooms

or other meeting spaces.

Which of the three levels of culture, as identified by Schein, do these features

of the company represent?

11 Handy and culture

Charles Handy identified four types of culture that are found in organisations.

Which of these cultures is most likely to exist in each of the following organisations?

Give your reasons.

(a) A large department store with fifteen departments spread across six floors of

a building, with an accounts and administration office.

(b) A rail transport company providing passenger transport services.

(c) A firm of architects specialising in the design of small office buildings: the

founder of the firm is the senior architect, and there are six other junior

architects, none of them partners in the firm.

(d) A software company with a team of eight software experts, providing bespoke

software to corporate and government clients.

(e) A school providing education to children between the ages of 7 and 18.

12 Four cultures

What did Handy mean by ‘cultures’ of an organisation. Briefly describe the four

cultures identified by Handy and give an example of each.

13 Hofstede and culture

Hofstede identified ways or ‘dimensions’ in which the culture in organisations

differs between countries. In each of the following four cases, which of the

dimensions identified by Hofstede would explain the differences in culture between

the two countries?

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(a) In Country A, it is usual for the senior management of stock market

companies to defer major expenditures in order to improve the reported

current year profits. In Country B, it is common for the annual report of major

stock market companies to explain at length the company’s strategies and

commitment to plans for capital expenditure.

(b) In Country C, it is usual for investment banks to pay large annual cash

bonuses to individual bankers on the basis of their performance in the year. In

Country D, it is usual for similar banks to determine annual cash bonuses on

the basis of performance by groups or teams within the bank.

(c) In Country E, a much-praised quality of office workers such as accountants is

an ability to turn up for work on time every day, regardless of difficulties with

transport or weather. In Country F, late arrival at work due to transport

problems is accepted as a normal fact of life, and poor time-keeping does not

matter as long as the work gets done.

(d) In Country G, it is normal practice for decisions to be taken collectively and by

consensus of management and employees. In Country H, it is the usual

business culture for decisions to be taken by the boss without consultation

with anyone else.

14 Stakeholders

(a) Define ‘connected stakeholders’.

(b) Explain at least one way in which each of the following stakeholders might

affect important decisions taken by the board of directors of a large stock

market company.

(i) Employees of the company

(ii) Suppliers

(iii) Customers

(iv) A pressure group or special interest group.

15 Business and professional ethics

(a) Explain the main differences between business ethics and professional ethics

for accountants.

(b) Explain the nature of whistleblowing.

16 Accountant’s behaviour

Scott is a qualified accountant who works for a major manufacturing company. He

was involved in the following incidents recently. For each incident, explain whether

Scott has failed to act properly in accordance with professional accountancy ethics.

If you consider that Scott is in breach of a fundamental ethical principle, state which

principle has been breached.

(a) Scott’s managing director has asked him to prepare a forecast of production

costs for the next three months. As he is preparing the forecast the production

director visits him to discuss the forecast. The production director tells him

Practice questions

that unless Scott can reduce his forecast of costs by about 5%, the production

director will get into serious trouble with the managing director. Scott and the

production director have been good friends for several years, and Scott agrees

to do what he can to reduce the cost forecast.

(b) The chairman of the company has purchased some expensive evening gowns

for his wife at a Paris fashion show. He tells Scott to record the cost of the

evening gowns as a company expense, as the cost of new protective clothing

for workers in the production department. Scott does what he has been told.

(c) The managing director asks Scott if he can construct a spreadsheet model for

analysing costs. Scott has never constructed a spreadsheet model, but he does

not want the managing director to give the work to a junior accountant in the

department. He therefore says that he can construct the spreadsheet. He

thinks that if he takes the work home, his sister will be able to help him: he

knows that she is good with spreadsheets and will probably help him if asked.

(d) Scott attends a party at the weekend where he mentions to a friend that he

thinks his company is getting into serious financial trouble because it is about

to lose a major contract. The friend later mentions his concerns for Scott’s

future to another person at the party, and explains why Scott might be about

to lose his job. The person that the friend speaks to is a senior manager in a

rival company to the company that Scott works for.

17 NEDs

Describe three significant contributions that should be made by independent non-

executive directors to the corporate governance of a major stock market company.

18 Audit committee: true or false?

Explain whether each of the following statements about the audit committee of a

major stock market company is true or false.

(a) Statement 1. An audit committee can instruct the external auditors to insist

that there must be a change of accounting policy in the company’s financial

statements, in a situation where the external auditors are in disagreement

with the company’s finance director.

(b) Statement 2. The audit committee can appoint the external auditors of the

company.

(c) Statement 3. The audit committee can prevent the external auditors from

providing tax advice to the company as non-audit work.

19 Currency risk

In May 2007, the president of Japanese car making company Honda stated that his

company would not expand its production capacity any further at its factory in the

UK. This factory produces Honda cars for the European market. He explained that

the reason for this decision was the currency risk. The company was concerned

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about its competitiveness in the European market. It had a 5% share of the UK cars

market, but only a 1% share of the market in the rest of Europe.

Explain what the company president meant by the ‘currency risk’.

20 Interest rate rise

Explain how a manufacturer of computer games might be affected by a 0.5% rise in

interest rates by the central bank.

21 Monopoly

Explain why monopoly control over a market might be undesirable, and suggest

three ways in which the government might act against monopolies.

22 Ageing population

The UK currently has an ageing population. At some time in the fairly near future,

there will be about twice as many individuals in the UK who are past the normal

age for retirement as there are individuals between 18 and 65 years of age.

Describe the possible consequences of an ageing population for a UK company that

currently employs about 5,000 people.

23 Downsizing and de-layering

(a) Explain the difference between downsizing and de-layering.

(b) Explain the possible connection between outsourcing and downsizing.

24 Personal data

In 2007 Google, owner of the internet search engine, announced that it had plans to

accumulate a comprehensive database about web searches by every individual,

which could be used to analyse their interests and buying preferences. This

announcement provoked a hostile response from internet privacy groups, but

regulators in several countries stated that they had no concerns about data

protection rights.

(a) Define ‘internet privacy’ and explain why Google’s plans might affect internet

privacy.

(b) Define data protection rights and explain why Google’s plans should not

affect these rights.

(c) Suggest three reasons why countries might have data protection laws.

25 Short questions

(a) State whether each of the following statements is True or False.

Statement 1. Health and safety regulations require employers to meet specific

safety requirements in the work place.

Practice questions

Statement 2. Safety requirements in the work place must be reasonable in

view of the risks, allowing for the cost of safety measures.

Statement 3. The employer has the sole responsibility for safety in the work

place.

Statement 4. Health and safety regulations vary between different industries.

(b) Which of the following is the direct concern of fiscal policy? (One answer

only)

A Taxation

B Interest rates

C Unemployment

D Foreign exchange rates

(c) Which of the following increases national income? (More than one answer is

required.)

A Investment

B Taxation

C Imports

D Government spending

E Savings

(d) Health and safety regulations are primarily aimed at protecting:

A The general public

B Visitors to the employer’s work place

C Employees

(e) Brigstock has a large balance of payments deficit and its central bank has very

small foreign currency reserves. Which of the following might be a

consequence of the balance of payments deficit? (More than one answer is

required.)

A Brigstock can no longer afford to pay for its imports.

B Brigstock has to reduce its ownership off foreign assets

C Brigstock will suffer economic stagnation as a consequence of the

balance of payments deficit.

D Brigstock’s currency is likely to increase in value against other

currencies.

E Brigstock is attracting capital from investors in other countries.

26 Five forces

According to Porter, what are the five forces that determine the level of competition

in an industry or a market?

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27 Basic legal requirements

List the basic legal requirements in relation to keeping and submitting proper

accounting records and preparing financial statements.

Explain how a legal requirement might exist for some types of company to prepare

their annual financial statements in accordance with International Financial

Reporting Standards (IFRSs).

28 Consequences

What will be the likely consequences of a failure by a company to keep proper

accounting records, if this failure is discovered by the authorities?

29 Accounting standards

Give three reasons why the accountancy profession regulates itself through the

establishment of accounting standards (financial reporting standards).

30 Credit control

List four elements of the work of a credit control function in a large company.

31 Payroll routines and purchasing routines

(a) List the main elements of regular payroll routines.

(b) Put the following documents in the order in which they are processed during

the purchasing cycle:

1 cheque

2 purchase invoice

3 delivery note

4 material requisition note

5 goods received note

6 purchase order

7 credit note

State when a book-keeper will make accounting entries during the purchasing

cycle.

32 Working capital

A business entity has inventory of $20,000. Its receivables are $18,000 and its

payables are $7,000. It also has $2,000 in cash. How much working capital does it

have?

Practice questions

33 Spreadsheets

(a) List three types of financial statement that might be prepared using a

spreadsheet, and explain how spreadsheets can be useful for the purpose of

financial risk analysis.

(b) A spreadsheet model includes the following values in seven of its cells.

Cell Value

C8 2

D8 7

E8 3

G27 D8/C8

H45 G27*6

J6 H45/E8

J7 J6 + G27

(i) What numerical value will appear in cell J7?

(ii) What numerical value will appear in cell J7 if the value in cell D8 is

changed from 7 to 10?

34 Database

Explain the meaning, in the context of a database system, of the following:

(a) data independence

(b) data integration

(c) data integrity

(d) data redundancy.

35 Accounting function

State which function or section in the accounting department is responsible for each

of the following:

(a) Informing senior management that sales revenue next year must be at least $6

million in order for the company to make a profit.

(b) Recording the receipt of a payment for $2,000 from a customer.

(c) Writing a report that contains a recommendation that the individual who

receives and records purchase invoices from suppliers should not be the same

individual who makes the payments to suppliers.

(d) Arranging with a bank for the purchase of $25,000 at a future date, to pay a

US supplier, at a rate of exchange that is agreed now.

36 Audit

(a) Explain the role of the following in the preparation of a company’s annual

financial statements:

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(1) accounting department

(2) finance director

(3) board of directors

(4) external auditors

(5) internal auditors

(6) audit committee.

(b) A company has external auditors. Explain why it should need internal

auditors in addition to external auditors.

37 Types of internal audit

Explain briefly the different types of audit that might be carried out by internal

auditors.

38 Audit work

(a) Describe briefly the different types of test that are carried out during a

statutory audit by the external auditors.

(b) The external auditors of a company want to test the following items:

(1) the existence of a company’s inventory at the end of its financial year

(2) that the company’s liability to its individual suppliers are correctly

stated for the purpose of preparing the balance sheet.

Suggest a detailed test that might be carried out by the auditors on each of

these items.

(c) Explain what the external auditors should do if they consider an internal

financial control to be weak.

39 Internal control, internal controls and internal checks

(a) Explain the difference between a system of internal control, internal controls

and internal checks.

(b) List the five elements of a system of internal control.

(c) Describe briefly three main types of internal control.

40 IT risks and IT controls

(a) List six of the main threats or risks to an IT system.

(b) Describe briefly the two main types of internal control for IT systems.

41 Fraud

(a) Define fraud

(b) Describe briefly the main types of fraud.

Practice questions

(c) Explain briefly the consequences for a company of the discovery of a major

fraud within its accounting department.

42 Fayol and Mintzberg

(a) List the five main duties of management, as identified by Fayol.

(b) List the roles of management, as stated by Mintzberg.

(c) Suggest (with reasons) which view of the role of management you consider

more realistic.

43 Mayo

What were the main conclusions of Mayo from the Hawthorne experiments?

44 Authority and responsibility

Explain the difference between authority and responsibility.

45 Continuum

Describe Tannenbaum and Schmidt’s continuum of leadership styles, and suggest

how it might have relevance to the practice of management.

46 Action-centred leadership

Describe the main elements of Adair’s concept of action-centred leadership.

47 Hersey and Blanchard

(a) What are the four leadership styles described by Hersey and Blanchard?

(b) Explain the potential relevance of their views to the practice of management.

(c) Explain how the views of Hersey and Blanchard differ from those of Fiedler.

48 Composition of a team

(a) According to Belbin, what was the ideal size of team?

(b) What might happen if the team is missing some of the critical characters or

characteristics identified by Belbin?

49 Increasing a group size

What would be the likely effects, according to Belbin and Tuckman, of increasing

the size of a project team after 18 months from three to nine people?

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50 Participation

(a) In what circumstances is a participative style of leadership more likely to

motivate employees?

(b) In what circumstances is a participative style of leadership unlikely to

motivate employees?

51 Pay as a motivator

Discuss briefly whether pay is a motivator factor that will encourage individuals to

work harder to achieve work objectives or performance targets.

52 Calculus

What are the main elements in the motivational calculus, as described by Handy?

53 Needs theory

Briefly explain motivational needs theory.

54 Blake, Mouton and McGregor

Compare the views about leadership of Blake and Mouton with those of McGregor.

55 Stages

List and describe briefly the stages in the recruitment and selection process, after a

job vacancy has been identified.

56 Application form

Explain briefly how recruitment forms are used in the recruitment and selection

process.

57 Seven point plan

You work for an international company that has extensive business operations in

the UK, France and Germany. You have been interviewing candidates for a vacancy

as junior information technology (IT) manager within the company, based in the

UK.

When you interview each candidate, you record relevant facts and opinions about

the individual under one of seven headings, corresponding to the seven items in

Rodger’s seven-point plan.

Required

State which category applies to each of the following items of information about one

of the candidates.

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