SBL - Pocket Notes - 2020/2021
Strategic Business Leader
Big Thanks to KAPLAN
Promoter - www.ACCAGlobalBox.com
G
lo
ba
l
ACCA
Bo
x
Downloaded From "http://www.ACCAGlobalBox.com"
Strategic Business Leader (SBL)
AC
C
A
Pocket Notes
www.ACCAGlobalBox.com
Strategic Business Leader (SBL)
A catalogue record for this book is available
from the British Library.
AC
C
A
Published by:
Kaplan Publishing UK
Unit 2 The Business Centre
Molly Millars Lane
Wokingham
Berkshire
RG41 2QZ
ISBN 978-1-78740-650-6
© Kaplan Financial Limited, 2020
Printed and bound in Great Britain.
P.2
Bo
x
G
lo
ba
l
British library
cataloguing-in-publication
data
The text in this material and any others
made available by any Kaplan Group
company does not amount to advice on a
particular matter and should not be taken
as such. No reliance should be placed on
the content as the basis for any investment
or other decision or in connection with any
advice given to third parties. Please consult
your appropriate professional adviser as
necessary. Kaplan Publishing Limited and
all other Kaplan group companies expressly
disclaim all liability to any person in respect
of any losses or other claims, whether
direct, indirect, incidental, consequential or
otherwise arising in relation to the use of
such materials.
All rights reserved. No part of this publication
may be reproduced, stored in a retrieval
system, or transmitted, in any form or
by any means, electronic, mechanical,
photocopying, recording or otherwise,
without the prior written permission of
Kaplan Publishing.
www.ACCAGlobalBox.com
KAPLAN PUBLISHING
Downloaded From "http://www.ACCAGlobalBox.com"
Strategic Business Leader (SBL)
Contents
Introduction to the SBL exam.........................................................................................1
Chapter 2
Concepts of strategy.......................................................................................................7
Chapter 3
Strategic analysis..........................................................................................................13
Chapter 4
Performance analysis...................................................................................................21
Chapter 5
Strategic choice............................................................................................................25
Chapter 6
Methods of strategic development................................................................................31
Chapter 7
Governance general principles.....................................................................................35
Chapter 8
Approaches to governance...........................................................................................47
Chapter 9
Stakeholders and corporate social responsibility.........................................................51
AC
C
A
G
lo
ba
l
Bo
x
Chapter 1
Chapter 10 Effective leadership......................................................................................................55
Chapter 11 The board of directors..................................................................................................61
Chapter 12 Reporting to stakeholders.............................................................................................73
Chapter 13 Management internal control systems and reporting...................................................85
Chapter 14 Audit and compliance...................................................................................................97
KAPLAN PUBLISHING
www.ACCAGlobalBox.com
P.3
Strategic Business Leader (SBL)
Chapter 15 Identification, assessment and measurement of risk.................................................107
Chapter 16 Managing, monitoring and mitigating risk................................................................... 117
Chapter 17 Professionalism, ethical codes and the public interest...............................................129
Bo
x
Chapter 18 Organising for success...............................................................................................143
Chapter 19 e-Business..................................................................................................................151
G
lo
ba
l
Chapter 20 Using IT successfully..................................................................................................159
Chapter 21 e-Marketing.................................................................................................................167
Chapter 22 Project management...................................................................................................173
Chapter 23 Financial decision making..........................................................................................183
Index
P.4
AC
C
A
Chapter 24 Managing strategic change........................................................................................195
......................................................................................................................................I.1
www.ACCAGlobalBox.com
KAPLAN PUBLISHING
Downloaded From "http://www.ACCAGlobalBox.com"
Strategic Business Leader (SBL)
Aim
Main Capabilities
On successful completion of this paper,
candidates should be able to:
AC
C
A
AApply excellent leadership and ethical
skills to set the ‘tone from the top’
and promote a positive culture within
the organisation, adopting a whole
organisation perspective in managing
performance and value creation.
BEvaluate the effectiveness of the
governance and agency system of
an organisation and recognise the
responsibility of the board or other
KAPLAN PUBLISHING
CEvaluate the strategic position of
the organisation against the external
environment and the availability of
internal resources, to identify feasible
strategic options.
G
lo
ba
l
To demonstrate organisational leadership
and senior consultancy or advisory
capabilities and relevant professional skills,
through the context of an integrated case
study.
agents towards their stakeholders,
including the organisation’s social
responsibilities and the reporting
implications.
Bo
x
Syllabus
DAnalyse the risk profile of the
organisation and of any strategic options
identified, within a culture of responsible
risk management.
ESelect and apply appropriate information
technologies and data analytics,
to analyse factors affecting the
organisation’s value chain to identify
strategic opportunities and implement
strategic options within a framework of
robust IT security controls.
www.ACCAGlobalBox.com
P.5
FEvaluate management reporting and
internal control and audit systems to
ensure compliance and the achievement
of organisation’s objectives and the
safeguarding of organisational assets.
The Examination
GApply high level financial techniques
from Skills exams in the planning,
implementation and evaluation of
strategic options and actions.
Bo
x
Strategic Business Leader (SBL)
The examination is based on an integrated
case study containing a number of
assignments which will vary at each
examination.
G
lo
ba
l
These assignments or tasks may require
the candidate to take on different roles,
depending on the situation. The number of
marks allocated to all these assignments or
the sub-parts of these will add up to 100 in
total.
AC
C
A
HEnable success through innovative
thinking, applying best in class strategies
and disruptive technologies in the
management of change; initiating,
leading and organising projects, while
effectively managing talent and other
business resources.
IApply a range of Professional Skills
in addressing requirements within the
Strategic Business Leader examination
and in preparation for, or to support,
current work experience.
P.6
Within the total marks available, there are 20
Professional Skills marks. Usually each task
will contain some professional skills marks
which may vary by examination, depending
on the requirements. All tasks must be
completed.
The examination is of 4 hours duration,
but this includes Reading, Planning and
Reflection time (RPRT). This time can be
used flexibly at any time during the exam.
www.ACCAGlobalBox.com
KAPLAN PUBLISHING
Downloaded From "http://www.ACCAGlobalBox.com"
Strategic Business Leader (SBL)
Varying number of tasks
Total time allowed: 4 hours
Our Quality Co-ordinator will work with our
technical team to verify the error and take
action to ensure it is corrected in future
editions.
AC
C
A
G
lo
ba
l
NB More detail on exam guidance in
Chapter 1
Quality and accuracy are of the utmost
importance to us so if you spot an error in
any of our products, please send an email
to mykaplanreporting@kaplan.com with full
details, or follow the link to the feedback for
in MyKaplan.
Bo
x
Number of marks 100
KAPLAN PUBLISHING
www.ACCAGlobalBox.com
P.7
AC
C
A
G
lo
ba
l
Bo
x
Strategic Business Leader (SBL)
P.8
www.ACCAGlobalBox.com
KAPLAN PUBLISHING
Downloaded From "http://www.ACCAGlobalBox.com"
1
Bo
x
chapter
G
lo
ba
l
Introduction to the SBL exam
In this chapter
• Overview.
• Being a leader.
AC
C
A
• Thinking strategically.
• Communication.
• Commercial acumen.
• Analysis.
• Scepticism.
• Evaluation.
www.ACCAGlobalBox.com
1
Introduction to the SBL exam
Overview
Thinking strategically
Bo
x
Being a leader
G
lo
ba
l
The Strategic Leader
AC
C
A
INTRODUCTION TO THE SBL EXAM
Professional skills
Communication
Commercial acumen
Scepticism
2
Analysis
Evaluation
www.ACCAGlobalBox.com
KAPLAN PUBLISHING
Downloaded From "http://www.ACCAGlobalBox.com"
Chapter 1
Being a leader
Thinking strategically
As a leader, you are expected to be able
to analyse a business situation and provide
and implement appropriate, effective and
sustainable solutions.
Having a strategic perspective means that
you can do the following:
• Set the direction of the whole organisation
and integrate its activities.
G
lo
ba
l
• be clear and focussed, identifying the key
issues in any situation
Bo
x
This means that you can
• Take a long term perspective.
• Look at the whole organisation as well
as individual products /divisions / SBUs.
• analyse and address ethical concerns
AC
C
A
• use technical models and quantitative
analysis to draw out key issues, establish
causality and integrate a wide range of
factors into a coherent argument
• make recommendations that meet the
needs of users and are ‘fit for purpose’.
KAPLAN PUBLISHING
• Consider the views of all stakeholders,
not just shareholders.
• Analyse the organisation’s resources and
define resource requirements.
• Relate the organisation to its
environments.
• Look at gaining a sustainable competitive
advantage.
www.ACCAGlobalBox.com
3
Introduction to the SBL exam
Commercial acumen
Syllabus spec
(a) Demonstrate awareness of
organisational and wider external
factors affecting the work of an
individual or a team in contributing to
the wider organisational objectives.
(b) Use judgement to identify key issues
in determining how to address or
resolve problems and in proposing
and recommending the solutions to be
implemented.
(c) Show insight and perception in
understanding work-related and
organisational issues, including the
management of conflict, demonstrating
acumen in arriving at appropriate
solutions or outcomes.
AC
C
A
G
lo
ba
l
Syllabus spec
(a) Inform concisely, objectively, and
unambiguously, while being sensitive to
cultural differences, using appropriate
media and technology.
(b) Persuade using compelling and logical
arguments demonstrating the ability to
counter argue when appropriate.
(c) Clarify and simplify complex issues to
convey relevant information in a way
that adopts an appropriate tone and is
easily understood by the intended
audience.
Bo
x
Communication
In summary, this means you have to express
yourself clearly and convincingly through the
appropriate medium while being sensitive to
the needs of the intended audience.
4
In summary, this means you have to show
awareness of the wider business and
external factors affecting business, using
commercially sound judgement and insight to
resolve issues and exploit opportunities.
www.ACCAGlobalBox.com
KAPLAN PUBLISHING
Downloaded From "http://www.ACCAGlobalBox.com"
Chapter 1
Scepticism
Syllabus spec
(a) Probe deeply into the underlying
reasons for issues and problems,
beyond what is immediately apparent
from the usual sources and opinions
available.
(b) Question facts, opinions and assertions,
by seeking justifications and obtaining
sufficient evidence for their support and
acceptance.
(c) Challenge information presented
or decisions made, where this is
clearly justified, in a professional
and courteous manner; in the wider
professional, ethical, organisational, or
public interest.
AC
C
A
G
lo
ba
l
Syllabus spec
(a) Investigate relevant information from a
wide range of sources, using a variety
of analytical techniques to establish the
reasons and causes of problems, or to
identify opportunities or solutions.
(b) Enquire of individuals or analyse
appropriate data sources to obtain
suitable evidence to corroborate or
dispute existing beliefs or opinion and
come to appropriate conclusions.
(c) Consider information, evidence and
findings carefully, reflecting on their
implications and how they can be used
in the interests of the department and
wider organisational goals.
Bo
x
Analysis
In summary, this means you have to
thoroughly investigate and research
information from a variety of sources and
logically process it with a view to considering
it for recommending appropriate action.
KAPLAN PUBLISHING
In summary, this means you have to
probe, question and challenge information
and views presented to them, to fully
understand business issues and to establish
facts objectively, based on ethical and
professional values.
www.ACCAGlobalBox.com
5
Introduction to the SBL exam
AC
C
A
G
lo
ba
l
Syllabus spec
(a) Assess and use professional judgement
when considering organisational issues,
problems or when making decisions;
taking into account the implications of
such decisions on the organisation and
those affected.
(b) Estimate trends or make reasoned
forecasts of the implications of external
and internal factors on the organisation,
or of the outcomes of decisions
available to the organisation.
(c) Appraise facts, opinions and findings
objectively, with a view to balancing the
costs, risks, benefits and opportunities,
before making or recommending
solutions or decisions.
In summary, this means you have to
carefully assess situations, proposals
and arguments in a balanced way, using
professional and ethical judgement to predict
future outcomes and consequences as a
basis for sound decision-making.
Bo
x
Evaluation
6
www.ACCAGlobalBox.com
KAPLAN PUBLISHING
Downloaded From "http://www.ACCAGlobalBox.com"
G
lo
ba
l
Concepts of strategy
In this chapter
• Strategic planning.
• The strategic planning process.
• Strategic drift.
AC
C
A
2
Bo
x
chapter
www.ACCAGlobalBox.com
7
Concepts of strategy
Strategic planning
Benefits of strategic planning
Disadvantages of strategic planning
• Time consuming
• Becomes a straightjacket
• Provides direction
• Creates bureaucracy
• Ensures goals are met
• Less relevant in a crisis
G
lo
ba
l
• Can create competitive advantage
Bo
x
• Improves fit with the environment
• Makes best use of scarce resources
AC
C
A
• Ensures plans are properly implemented
8
www.ACCAGlobalBox.com
KAPLAN PUBLISHING
Downloaded From "http://www.ACCAGlobalBox.com"
Chapter 2
The strategic planning process
The 3 stage planning model (Johnson, Scholes & Whittington)
AC
C
A
G
lo
ba
l
Bo
x
Strategic analysis
• External analysis to identify opportunities and threats
• Internal analysis to identify strengths and weaknesses
• Stakeholder analysis to identify key objectives and to assess the power and interest
of different groups
• Gap analysis to identify the difference between desired and expected performance.
Strategic choice
trategies are required to ‘close the gap’
• S
• Competitive strategy – for each business unit
• Directions for growth – which markets/
products should be invested in
• Whether expansion should be achieved by
organic growth, acquisition or some form
of joint arrangement.
KAPLAN PUBLISHING
www.ACCAGlobalBox.com
Strategy into action
(implementation)
• Structuring
• Enabling
• Change
9
Concepts of strategy
AC
C
A
G
lo
ba
l
Bo
x
Strategic drift
10
www.ACCAGlobalBox.com
KAPLAN PUBLISHING
Downloaded From "http://www.ACCAGlobalBox.com"
Chapter 2
To avoid strategic drift:
• assess the environment for changes
• have flexible systems
• have clear understanding of the mission
and objectives
AC
C
A
G
lo
ba
l
• have strong leaders
Bo
x
• break down barriers to change
KAPLAN PUBLISHING
www.ACCAGlobalBox.com
11
AC
C
A
G
lo
ba
l
Bo
x
Concepts of strategy
12
www.ACCAGlobalBox.com
KAPLAN PUBLISHING
Downloaded From "http://www.ACCAGlobalBox.com"
G
lo
ba
l
Strategic analysis
In this chapter
• PESTEL analysis.
• 5 forces analysis.
• Porter’s diamond.
AC
C
A
3
Bo
x
chapter
• Strategic capabilities.
• Value chain analysis.
• SWOT analysis.
www.ACCAGlobalBox.com
13
Strategic analysis
PESTEL analysis
Key strategic use: to analyse potential impacts on future growth
Key factors to consider
Political
Changes to government policy
Economic
Booms or recessions
Social
Changes to taste/fashion
Technological
New hardware/software capabilities
Environmental
Geographic location or use of resources
Legal
Restrictions or extra regulations
AC
C
A
G
lo
ba
l
Bo
x
Area of the model
14
www.ACCAGlobalBox.com
KAPLAN PUBLISHING
Downloaded From "http://www.ACCAGlobalBox.com"
Chapter 3
5 Forces analysis
Key strategic use: to analyse potential impacts on future margins
Bo
x
NEW ENTRANTS
INDUSTRY
COMPETITORS
AC
C
A
SUPPLIERS
Bargaining
power of
suppliers
G
lo
ba
l
Threat of new entrants
Bargaining
power of
buyers
BUYERS
INTENSITY
OF RIVALRY
Threat of new substitutes
SUBSTITUTES
KAPLAN PUBLISHING
www.ACCAGlobalBox.com
15
Strategic analysis
Porter’s diamond
Bo
x
Key strategic use: to analyse potential new foreign markets for expansion
G
lo
ba
l
Factor conditions
• Basic factors: e.g. weather, local raw materials
• Advanced factors: e.g. telecommunications, education system
AC
C
A
Demand conditions
e.g. very demanding
customers
Related and
supporting industries
e.g. world class suppliers
Firm structure, strategy and rivalry
e.g. ownership, intense rivalry
16
www.ACCAGlobalBox.com
KAPLAN PUBLISHING
Downloaded From "http://www.ACCAGlobalBox.com"
Chapter 3
Strategic capabilities
Key strategic use: to analyse the ability to cope with changes in the external environment
Capabilities for competitive
advantage
Unique resources
Competencies
Threshold competencies
Core competencies
AC
C
A
• CSFs, hard to copy
Threshold resources
G
lo
ba
l
• Common with rivals
Bo
x
Resources
Threshold capabilities
KAPLAN PUBLISHING
www.ACCAGlobalBox.com
17
Strategic analysis
Value chain analysis
Key strategic use: to determine the source of competitive (dis)advantage
Infrastructure
Bo
x
Technology
HRM
Procurement
Operations
Outbound
logistics
Marketing
and sales
Profit
Service
AC
C
A
Inbound
logistics
G
lo
ba
l
Support
activities
18
www.ACCAGlobalBox.com
KAPLAN PUBLISHING
Downloaded From "http://www.ACCAGlobalBox.com"
Chapter 3
SWOT Analysis
Bo
x
Key strategic use: to bring together the internal and external analysis in order to understand overall
strategic position
Weaknesses
G
lo
ba
l
Strengths
AC
C
A
SWOT
Opportunities
KAPLAN PUBLISHING
www.ACCAGlobalBox.com
Threats
19
AC
C
A
G
lo
ba
l
Bo
x
Strategic analysis
20
www.ACCAGlobalBox.com
KAPLAN PUBLISHING
Downloaded From "http://www.ACCAGlobalBox.com"
G
lo
ba
l
Performance analysis
In this chapter
• Quantitative analysis.
• Benchmarking.
• Baldrige performance excellence.
AC
C
A
4
Bo
x
chapter
www.ACCAGlobalBox.com
21
Performance analysis
Non-financial data
The quantitative information will typically
include:
Non-financial information will also be
provided in tables, and candidates will
be expected to use and interpret this
information. Such tables will supplement,
and to some extent replace, information
traditionally given in the narrative scenario.
Financial Data
AC
C
A
G
lo
ba
l
Specific marks will be available for
interpreting financial ratios that can be
calculated from the financial data. The
questions will never ask for specific ratios,
but there will always be enough information
to calculate and interpret several financial
ratios. The key will be to choose 3/4 key
ratios and explain the cause of any changes
and the effect that these changes might have
on the organisation.
Bo
x
Quantitative analysis
22
www.ACCAGlobalBox.com
KAPLAN PUBLISHING
Downloaded From "http://www.ACCAGlobalBox.com"
Chapter 4
Benchmarking
• determines where improvements are required
• analyses how high performance is achieved
Bo
x
• uses this information to improve performace levels in processes
Types:
This determines internal best practice
Competitive
This examines the performance of rivals
Activity / best-in-class
This examines the level of performance from
a similar process in a different industry
AC
C
A
G
lo
ba
l
Internal
KAPLAN PUBLISHING
www.ACCAGlobalBox.com
23
Performance analysis
Baldrige performance excellence
1
Leadership
5
Workforce
Focus
G
lo
ba
l
2
Strategic
Planning
Bo
x
Organisational Profile:
Environment, Relationships, and Challenges
AC
C
A
3
Customer and
Market Focus
7
Results
6
Process
Management
4
Measurement, Analysis, and Knowledge Management
24
www.ACCAGlobalBox.com
KAPLAN PUBLISHING
Downloaded From "http://www.ACCAGlobalBox.com"
G
lo
ba
l
Strategic choice
In this chapter
• Competitive strategies.
• Growth strategies.
• Strategy evaluation.
AC
C
A
5
Bo
x
chapter
www.ACCAGlobalBox.com
25
Strategic choice
Competitive strategies
A range of possible competitive positions is provided in the strategy clock:
High
2
Low price
AC
C
A
Perceived
products/
service
benefits
G
lo
ba
l
3
Hybrid
Bo
x
4
Differentiation
1
No frills
5
Focused Differentiation
6
Strategy that will fail
7
Strategy that will fail
8
Strategy that will fail
Low
Low
26
Price
www.ACCAGlobalBox.com
High
KAPLAN PUBLISHING
Downloaded From "http://www.ACCAGlobalBox.com"
Chapter 5
Key elements of successful competitive strategies:
Low cost
CSFs
Key threats
Finding cheaper alternatives
Changes in buyer preferences
Eliminating all waste
Loss of barriers to entry
Economies of scale
Bo
x
No frills
Larger (international?) rivals
A focus on cost reduction
Economies of scale
Loss of brand
Branding
Difficult to achieve
Service levels
Target for all rivals
Innovation
Being copied
Branding
Marketing
New technology which
differentiates
Market knowledge
Recession
Unique product/service
Small market size
G
lo
ba
l
Hybrid
AC
C
A
Differentiation
Focused differentiation
Few barriers
Failing strategies fail because they are beaten by competitive rivals.
KAPLAN PUBLISHING
www.ACCAGlobalBox.com
27
Strategic choice
Growth strategies
These can be derived from the Ansoff matrix:
New product
Market penetration
Product development
– Introduce a new or improved
competitive strategy
Bo
x
Existing market
Existing product
Risks
Risks
ompetitors will react
– C
– U
nknown demand
– C
an lead to stagnation
– C
an harm existing products
Market development
Diversification
AC
C
A
New market
G
lo
ba
l
– B
est used when market is growing
– C
reate new or improved products
– Or copy rivals
arget a new market segment
– T
ew products and markets
– N
– S
trategic alliances are often used
to reduce risks
– C
an be forward, backward,
horizontal or conglomerate
Risks
Risks
uts a strain on capabilities
– P
– V
ery different CSFs
– N
eed new external analysis
– N
eed new external analysis
an reduce flexibility
– C
28
www.ACCAGlobalBox.com
KAPLAN PUBLISHING
Downloaded From "http://www.ACCAGlobalBox.com"
Chapter 5
Johnson, Scholes, Whittington
• Suitability – is the strategy consistent,
both externally and internally?
–– Is the time-scale achievable?
–– Do we have the critical success
factors necessary to implement the
strategy?
AC
C
A
G
lo
ba
l
–– D
oes it give the firm a better fit with
the environment?
–– Portfolio analysis – how do new
products fit with existing ones?
–– Are their synergies with other parts of
the business?
–– Is the timing right?
• Acceptability – is the strategy acceptable
to the stakeholders?
• Feasibility – is the strategy within
the resources and capability of the
organisation?
Bo
x
Strategy evaluation
–– Is the risk acceptable?
–– Is it ethical?
–– How will other stakeholders react?
KAPLAN PUBLISHING
www.ACCAGlobalBox.com
29
AC
C
A
G
lo
ba
l
Bo
x
Strategic choice
30
www.ACCAGlobalBox.com
KAPLAN PUBLISHING
Downloaded From "http://www.ACCAGlobalBox.com"
G
lo
ba
l
Methods of strategic development
In this chapter
• Main methods of development.
• Portfolio analysis.
AC
C
A
6
Bo
x
chapter
www.ACCAGlobalBox.com
31
Methods of strategic development
Start from a zero
base alone
Slow, but risky
32
Acquisition
AC
C
A
Organic growth
G
lo
ba
l
Options
Bo
x
Main methods of development
Buy an existing
business
Quick but
expensive
Joint venture
Strategic Alliance
Partnering
Do it with a partner
Share skills and
costs, but difficult
to agree
www.ACCAGlobalBox.com
Franchise
Allow others to
use the brand
Low cost, but
lose control
KAPLAN PUBLISHING
Downloaded From "http://www.ACCAGlobalBox.com"
Chapter 6
Portfolio analysis
BCG matrix
Market growth
Bo
x
Dog
• T oo small to benefit from
economies of scale
• Market does not justify
further investment
• Divest
Problem-child
• A
ttractive market but too
small to capitalise on it.
• Either invest heavily to gain
market share or get out
• ‘Double or quit’
AC
C
A
G
lo
ba
l
High
Star
• A
ttractive market so have to
reinvest heavily to defend
market share and grow
• Little cash surplus
Market share
KAPLAN PUBLISHING
High
Low
Low
Cash-cow
• Strong position in a low
growth (therefore
unattractive) market
• Little threat from rivals
• Just keep the product ticking
over and collect the cash
www.ACCAGlobalBox.com
33
Methods of strategic development
Ashridge portfolio display
This adapts the BCG idea to public sector
organisations and the axis are “public need
and funding effectiveness” and “value for
money”.
This model looks at the strategic fit between
a parent company and the strategic business
units it manages.
High
Ballast
Heartland
Alien territory
Value trap
Low
AC
C
A
Feel
G
lo
ba
l
Bo
x
Low
High
The public sector portfolio matrix
Benefit
34
www.ACCAGlobalBox.com
KAPLAN PUBLISHING
Downloaded From "http://www.ACCAGlobalBox.com"
G
lo
ba
l
Governance general principles
In this chapter
• Overview of corporate governance.
• Company ownership and control.
• Coverage of governance.
AC
C
A
7
Bo
x
chapter
• Key concepts.
• Purpose and scope of governance.
• Agency Theory.
• Key concepts of Agency Theory.
• Stakeholder Theory.
• Stakeholder claim.
www.ACCAGlobalBox.com
35
Governance general principles
Overview of Corporate Governance
Definition
Objectives
G
lo
ba
l
Bo
x
Purpose
AC
C
A
Corporate
Governance
Key Concepts
Agency Theory
Stakeholders
36
www.ACCAGlobalBox.com
KAPLAN PUBLISHING
Downloaded From "http://www.ACCAGlobalBox.com"
Chapter 7
Company ownership and control?
Bo
x
• Corporate governance is the system by which companies are directed and controlled in the
interests of shareholders and other stakeholders.
Directors
G
lo
ba
l
Shareholders
AC
C
A
Ownership
Objectives
KAPLAN PUBLISHING
=
Control
Objectives
www.ACCAGlobalBox.com
37
Governance general principles
Coverage of governance
G
lo
ba
l
Bo
x
Coverage of governance
Strategic
direction from
board of
directors
38
AC
C
A
Internal to company
Risk
assessment
and response
Control of
operations –
internal control
systems
External to company
Regulatory
framework –
legislation and/
or codes of
practice
www.ACCAGlobalBox.com
Wider social
and ethical
responsibilties
for companies
KAPLAN PUBLISHING
Downloaded From "http://www.ACCAGlobalBox.com"
Chapter 7
Key Concepts
KAPLAN PUBLISHING
Bo
x
Independence
No conflict of
interests for all
directors (exec.
and non-exec.)
G
lo
ba
l
Fairness
Even and ethical
dealing with all
stakeholders
Probity/honesty
Culture of
honesty and
clear sense of
ethical stance
AC
C
A
Transparency
Open and honest
relations with
shareholders/
clear decision
making
Key concepts in
governance
www.ACCAGlobalBox.com
Reputation
Develop and
maintain
personal
reputation and
moral stance
Integrity
Adherence to
strict moral and
ethical code
39
Governance general principles
•
•
40
Bo
x
G
lo
ba
l
•
Innovation
Innovation and
experimentation in
reporting
The business
moves away from
rigid compliance
towards the better
communication of
its individual value
creation story for its
providers of financial
capital
AC
C
A
•
Responsibility
Acceptance of
responsibility for
governance decisions
Clarity or roles
and responsibilities
Judgement
Ability to make
correct decision
from many
conflicting inputs
www.ACCAGlobalBox.com
•
•
•
Accountability
Provision of complete
information to all
stakeholders and
effective risk
management
Scepticism
Scepticism(often referred to
as professional scepticism)
is an attitude which includes
a questioning mind
To provide a critical
assessment of evidence
For example, non-executive
directors apply scepticism
in order to challenge and
scrutinise management
effectively
KAPLAN PUBLISHING
Downloaded From "http://www.ACCAGlobalBox.com"
Chapter 7
Purpose and scope of
governance
The three elements of value for money are:
• Economy = a measure of inputs to achieve
a certain service or level of service.
• to monitor those parties within a company
which control the resources owned by
investors.
• Efficiency = measure of outputs over
inputs.
G
lo
ba
l
• the primary objective of sound corporate
governance is improved corporate
performance and accountability in creating
long term shareholder value.
• Effectiveness = a measure of outputs,
i.e. services/facilities.
Bo
x
For the private sector:
For the public and not for profit sectors:
AC
C
A
• objectives within these organisations are
more complex and conflicting.
• organisations are often appraised
according to the “value for money” (VFM)
that they generate.
–– d
efined as performance of an activity
to simultaneously achieve economy,
efficiency and effectiveness
KAPLAN PUBLISHING
www.ACCAGlobalBox.com
41
Governance general principles
Agency Theory
Bo
x
Agency theory is a group of concepts describing the nature of the agency relationship deriving from
the separation between ownership and control.
On behalf of
AC
C
A
Employs
G
lo
ba
l
Principal
(Shareholders)
Accountable to
Agent
(Directors)
To perform
Task
(Managing
the company)
42
www.ACCAGlobalBox.com
KAPLAN PUBLISHING
Downloaded From "http://www.ACCAGlobalBox.com"
Chapter 7
Essential to understanding agency theory.
• An agent is employed by a principal to
carry out a task on their behalf.
• Agent objectives (such as a desire for
high salary, large bonus and status for
a director) will differ from the principal’s
objectives (wealth maximisation for
shareholders).
• The most important agency costs are the
external audit fee, attending meetings and
reading both annual reports and analyst’s
reports.
G
lo
ba
l
• Agency refers to the relationship between
a principal and their agent.
• Stakeholders are any person or group that
can affect or be affected by the policies or
activities of an organisation.
Bo
x
Key concepts of Agency
Theory
• Agency costs are incurred by principals in
monitoring agency behaviour because of a
lack of trust in the good faith of agents.
AC
C
A
• By accepting to undertake a task on their
behalf, an agent becomes accountable to
the principal by whom they are employed.
• Directors (agents) have a fiduciary
responsibility to the shareholders
(principal) of their organisation (usually
described through company law as
‘operating in the best interests of the
shareholders’).
KAPLAN PUBLISHING
www.ACCAGlobalBox.com
43
Governance general principles
Stakeholder Theory
• The basis for stakeholder theory is that companies are so large and their impact on society so
pervasive that they should discharge accountability to many more sectors of society than solely
their shareholders.
Management AC
C
A
Shareholders G
lo
ba
l
Bo
x
• Stakeholders are not only are affected by the organisation but they also affect the organisation.
Employees Future generations
44
Stakeholders
Community
www.ACCAGlobalBox.com
Customers
Suppliers Government
KAPLAN PUBLISHING
Downloaded From "http://www.ACCAGlobalBox.com"
Chapter 7
There are:
G
lo
ba
l
A stakeholder claim is where a stakeholder
wants something from an organisation.
These claims can be concerned with the
way a stakeholder may want to influence the
activities of an organisation or by the way
they are affected by the organisation.
Bo
x
Stakeholder claim
• Direct claims – made by stakeholders
directly with the organisation and are
unambiguous e.g. trade unions, they have
their own voice.
AC
C
A
• Indirect claims – where the stakeholder
is “voiceless”, e.g. an individual customer
of a large retail organisation or the
environment with the inevitable problem of
interpretation.
KAPLAN PUBLISHING
www.ACCAGlobalBox.com
45
AC
C
A
G
lo
ba
l
Bo
x
Governance general principles
46
www.ACCAGlobalBox.com
KAPLAN PUBLISHING
Downloaded From "http://www.ACCAGlobalBox.com"
G
lo
ba
l
Approaches to governance
In this chapter
• Rules and principles based approaches to corporate
governance.
• Family structures.
AC
C
A
8
Bo
x
chapter
• Insider-dominated structures.
www.ACCAGlobalBox.com
47
Approaches to governance
• A rules-based approach instils the code
into law with appropriate penalties for
transgression.
• global economic and political climate.
Comply or explain
A principles-based code requires the
company to state that it has complied with
the requirements of the code or to explain
why it could not do so in its annual report.
This will leave shareholders to draw their
own conclusions regarding the governance
of the company.
G
lo
ba
l
• A principles-based approach requires the
company to adhere to the spirit rather than
the letter of the code. The company must
either comply with the code or explain
why it has not through reports to the
appropriate body and its shareholders.
• culture and history
• levels of capital inflow or investment
coming into the country
Bo
x
Rules and principles based
approaches to corporate
governance
AC
C
A
Choice of governance regime
The decision as to which approach to use for
a country can be governed by many factors:
• dominant ownership structure (bank,
family or multiple shareholder)
• legal system and its power/ability
• government structure and policies
• state of the economy
48
www.ACCAGlobalBox.com
KAPLAN PUBLISHING
Downloaded From "http://www.ACCAGlobalBox.com"
Chapter 8
Family structures
Problems
A family structure exists where a family has a
controlling number of shares in a company.
• Gene pool – the gene pool of expertise
in owner managers must be questionable
over generations.
• Fewer agency costs – since the family is
directly involved.
• Separation – families separate and this
could be costly in terms of buying out
shareholding and restructuring.
G
lo
ba
l
• Ethics – threats to reputation are threats to
family honour, increases the likely level of
ethical behaviour.
• Feuds – families fight, and this is an
added element of cultural complexity.
Bo
x
Benefits
AC
C
A
• Fewer short-term decisions – wealth
already inherent in such families suggest
long-term growth is a bigger issue.
KAPLAN PUBLISHING
www.ACCAGlobalBox.com
49
Approaches to governance
Insider-dominated structures are where the
listed companies are dominated by a small
group of shareholders.
Benefits:
• Misuse of power i.e. reluctance to employ
outsiders in influential positions and
NED’s.
• The market does not decide or govern
(shareholders cannot exit easily to express
discontent).
G
lo
ba
l
• The agency problem is reduced – i.e.
establish links with owners and managers.
• Opaque operations and lack of
transparency in reporting.
Bo
x
Insider-dominated structures
• Greater access to and potentially lower
cost of capital i.e. smaller base of
shareholders.
• Reluctance of large independent
shareholders to invest.
AC
C
A
• Smaller base of shareholders willing
to take a long term strategic view of
investment.
• Tend to be reluctant until forced to develop
formal governance structures.
• Improved communication and influence
over management.
Problems:
• Lack of minority shareholder protection
(unlike protection in law in outsiderdominated structures).
50
www.ACCAGlobalBox.com
KAPLAN PUBLISHING
Downloaded From "http://www.ACCAGlobalBox.com"
G
lo
ba
l
Stakeholders and corporate social
responsibility
In this chapter
• Social responsibility.
• Social responsiveness.
AC
C
A
9
Bo
x
chapter
• Stakeholder theory.
• Managing stakeholder relations.
• Corporate citizenship.
www.ACCAGlobalBox.com
51
Stakeholders and corporate social responsibility
• Corporation is separate legal entity
therefore has responsibilities to others.
• Work on principle of ‘enlightened selfinterest’ – if make positive contribution to
society this also benefits company.
Social responsiveness
This refers to the capacity of the corporation
to respond to social pressure, and the
manner in which it does so.
Carroll suggested four strategies:
G
lo
ba
l
• Corporate social responsiblity (CSR) refers
to organisations considering and managing
their impact on a variety of stakeholders.
• Integrate CSR into the culture, governance
and strategy development of the company.
Bo
x
Social responsibility
Strategy
Explanation
Reaction
The corporation denies
any responsibility for social
issues.
• The board, must make an authentic, firm,
and public commitment to CSR.
Defence
The corporation admits
responsibility but fights it.
• Determine the critical business objectives
and priorities of the company.
Accommodation
The corporation accepts
responsibility and does
what is demanded of it.
Proaction
The corporation seeks to
go beyond industry norms.
CSR Strategy
AC
C
A
A suggested approach to develop and
pursue CSR strategy is as follows:
• Develop a CSR strategy that will contribute
to the achievement of those objectives.
• Align CSR strategy with the firm’s core
competencies.
52
www.ACCAGlobalBox.com
KAPLAN PUBLISHING
Downloaded From "http://www.ACCAGlobalBox.com"
Chapter 9
G
lo
ba
l
• The capitalist view ‘Customers, suppliers,
shareholders and employees’.
• Stakeholder model view adds
‘Government, civil society and competitors’.
Stakeholder claims = demands that the
stakeholder makes of an organisation.
Low
Who are stakeholders?
Minimal
effort
Keep
informed
Keep
satisfied
Key
players
Power
Stakeholder = any person or group that
can affect or be affected by the policies or
activities of an organisation.
Company focus on key players, then
those to keep satisfied to ensure they do
not become key players.
Bo
x
•
High
Stakeholder theory
AC
C
A
Managing Stakeholder
relations
High
Low
Level of interest
Mendelow’s stakeholder mapping matrix
•
Classifies stakeholders according to
their level of power and interest in the
organisation.
•
Matrix used to determine company’s
action regarding each group.
KAPLAN PUBLISHING
www.ACCAGlobalBox.com
53
Stakeholders and corporate social responsibility
Corporate citizenship
The organisation as a corporate citizen
Corporate citizen = expanded view of corporation in society. Implies corporate accountability.
Bo
x
Corporate accountability = whether the organisation is in some way answerable for the
consequences of its actions beyond its relationship with shareholders.
•
•
•
54
AC
C
A
Government failure
G
lo
ba
l
Reasons for viewing company as corporate citizen
Government may be too slow to legislate against
risks with new products and services.
Other influences e.g. lack of political will, actions of
pressure groups etc. also impede government action.
Company must therefore take responsibility for
safety of products/services.
Corporate power
•
•
•
www.ACCAGlobalBox.com
Over time, companies have
tended to gain more power.
E.g. decisions on where to
locate workforce, privatisation
of ‘old’ state monopolies.
Companies should therefore
use that power responsibly.
KAPLAN PUBLISHING
Downloaded From "http://www.ACCAGlobalBox.com"
G
lo
ba
l
Effective leadership
In this chapter
• The nature and importance of leadership.
• What makes an effective leader?
• Leadership and management.
AC
C
A
10
Bo
x
chapter
• Leadership and culture.
• Entre and Intrapreneurship.
www.ACCAGlobalBox.com
55
Effective leadership
• Buchanan and Huczynski define a leader
as ‘someone who exercises influence over
other people’.
• an attribute or a position, e.g. the
managing director
• a characteristic of a person – a natural
leader
• a category of behaviour.
G
lo
ba
l
• Another definition is: Leadership is an
interpersonal influence directed toward the
achievement of a goal or goals.
Leadership can be viewed from three
standpoints
Bo
x
The nature and importance
of leadership
Three important parts of this definition are
the terms interpersonal, influence, and goal:
AC
C
A
• Interpersonal – means between persons.
Thus, a leader has more than one person
(group) to lead.
• Influence – is the power to affect others.
• Goal – is the end one strives to attain.
Basically, this traditional definition of
leadership says that a leader influences
more than one person towards a goal.
56
www.ACCAGlobalBox.com
KAPLAN PUBLISHING
Downloaded From "http://www.ACCAGlobalBox.com"
Chapter 10
Trait theories
Many great leaders were considered to have:
• physical traits, such as drive, energy,
appearance and height
• social traits, such as co-operation, tact,
courtesy and administrative ability.
Problems with trait theories:
• The essence of leadership style theories
is that a successful leader will exhibit a
pattern of behaviour (i.e. ‘style’) in gaining
the confidence of those they wish to lead.
There are four main management styles:
• Tells (autocratic) – the manager makes
all the decisions and issues instructions
which are to be obeyed without question.
G
lo
ba
l
• personality traits, such as adaptability,
enthusiasm and self-confidence
Behavioural/style theories
Bo
x
What makes an effective
leader?
AC
C
A
• There will always be counter arguments
- one theorist will say a leader should
always be courteous whereas another will
say that a rude and effective leader was
identified.
• Sells (persuasive) – the manager still
makes all the decisions, but believes
that team members must be motivated
to accept them in order to carry them out
properly.
• Consults (participative) – the manager
confers with the team and takes their
views into account, although still retains
the final say.
• Joins (democratic) – the leader and the
team members make the decision together
on the basis of consensus.
KAPLAN PUBLISHING
www.ACCAGlobalBox.com
57
Effective leadership
• Unfortunately, as with trait theories, it
is possible to find counter examples
e.g. Steve Jobs demonstrating the least
effective style (autocratic) but running the
largest technology company in the World.
Contingency/contextual theories
G
lo
ba
l
• The modern consensus is that there is no
one best style of leadership that is equally
effective for all circumstances.
Bo
x
Problems with behavioural theories:
AC
C
A
• A theory that is a mixture of both trait and
contingency is the situational approach.
58
www.ACCAGlobalBox.com
KAPLAN PUBLISHING
Downloaded From "http://www.ACCAGlobalBox.com"
Chapter 10
Leadership and management
Leadership and culture
• A leader can be a manager, but a
manager is not necessarily a leader.
It has been proposed that there are two
types of leaders:
Bo
x
• Transactional leaders tend to be more
passive. They see their relationship with
their followers in terms of a trade.
• Transformational leaders more proactive.
They see their role as inspiring and
motivating others to work at levels beyond
mere compliance.
G
lo
ba
l
• Management is the process of setting and
achieving the goals of the organisation
through the functions of management:
planning, organising, directing (or leading),
and controlling.
• Leadership deals with the interpersonal
aspects of a manager’s job, whereas
planning, organising, and controlling deal
with the administrative aspects.
AC
C
A
• Differentiating between leadership and
management - employees willingly follow
leaders because they want to, not because
they have to.
• Only transformational leadership is said
to be able to change team/organisational
cultures and move them in a new
direction.
• Transformational leadership enhances the
motivation, morale, and job performance
of followers.
NB The distinguishing feature of
transformational leadership is the ability to
bring about significant change.
KAPLAN PUBLISHING
www.ACCAGlobalBox.com
59
Effective leadership
Entre and Intrapreneurship
AC
C
A
G
lo
ba
l
• An intrapreneur is an employee of the
company and does not usually have any
ownership and minimum risk of financial
loss.
Bo
x
• An entrepreneur is an individual that
‘starts-up’ a business, is the owner and
take all of the risk of financial loss.
60
www.ACCAGlobalBox.com
KAPLAN PUBLISHING
Downloaded From "http://www.ACCAGlobalBox.com"
G
lo
ba
l
The board of directors
In this chapter
• Board of directors.
• Non-executive directors.
• NEDs on the board.
AC
C
A
11
Bo
x
chapter
• Chairman and CEO.
• Board committees.
• Remuneration committee.
• Components of directors’ remuneration package.
• Non-executive directors’ remuneration.
www.ACCAGlobalBox.com
61
The board of directors
Roles and Responsibilities
• provide entrepreneurial leadership of the
company
• represent company view and account to
the public
• meet regularly to discharge its duties
effectively.
For listed companies:
• appoint appropriate NEDs
• establish remuneration committee
G
lo
ba
l
• decide on a formal schedule of matters to
be reserved for board decision
• ensure that its obligations to its
shareholders and other stakeholders are
understood and met
Bo
x
Board of directors
• establish nominations committee
• select and appoint the CEO, chairman and
other board members
• assess its own performance and report it
annually to shareholders
AC
C
A
• determine the company’s mission and
purpose (strategic aims)
• set the company’s values and standards
• ensure that the company’s management is
performing its job correctly
• establish appropriate internal controls that
enable risk to be assessed and managed
• establish audit committee
• submit themselves for re-election at
regular intervals.
NB All directors in FTSE 350 companies
should be put forward for re-election every
year.
• ensure that the necessary financial and
human resources are in place for the
company to meet its objectives
62
www.ACCAGlobalBox.com
KAPLAN PUBLISHING
Downloaded From "http://www.ACCAGlobalBox.com"
Chapter 11
Roles and Responsibilities
• Strategy role – challenging strategy,
offering advice and contributing toward
strategic success.
Advantages
• Risk role – ensure adequate system
of internal controls and system of risk
management in place.
AC
C
A
• People role – oversee the appointment and
remuneration of executive directors.
KAPLAN PUBLISHING
Disadvantages
• monitoring role
• unity of the board
• additional
expertise
• quality of NEDs
• enhanced
perception of
company
• liability of the role
G
lo
ba
l
• Scrutinising role – hold executive directors
to account for decisions taken and results
obtained.
NEDs on the board
Bo
x
Non-executive directors
• communication
with stakeholders
• discipline over
strategy
www.ACCAGlobalBox.com
63
The board of directors
Chairman and CEO
Reasons for splitting the role
• ‘A clear division of responsibilities must
exist at the head of the company. No
individual should have unfettered power of
decision.’
• Representation: the chairman is
clearly and solely a representative of
shareholders with no conflict of interest.
• Temptation: reduces the temptation to act
more in self-interest rather than purely in
the interest of shareholders.
G
lo
ba
l
Responsibility of the chairman:
Bo
x
Chairman’s responsibilities
• Accountability: provides a clear path
of accountability for the CEO and the
management team.
• ensure that the board sets and implements
the company’s direction and strategy
effectively
AC
C
A
• act as the company’s lead representative,
explaining aims and policies to the
shareholders.
CEO’s responsibilities
Responsibility of the CEO:
• take responsibility for the performance
of the company, as determined by the
board’s strategy
• report to the chairman and/or board of
directors.
64
Reasons against splitting the role
Unity: the separation of the role creates two
leaders rather than the unity provided by a
single leader.
• Ability: both roles require an intricate
knowledge of the company. It is far easier
to have a single leader with this ability
rather than search for two such individuals.
• Human nature: there will almost inevitably
be conflict between two high- powered
executive offices.
www.ACCAGlobalBox.com
KAPLAN PUBLISHING
Downloaded From "http://www.ACCAGlobalBox.com"
Chapter 11
Nominations committee
Importance of committees
Responsibilities of nominations committee:
Board sub-committees are a generally
accepted part of board operations.
• review regularly the structure, size and
composition of the board and make
recommendations to the board.
Positives:
• consider the balance between executives
and NEDs on the board of directors.
• ensure appropriate management of
diversity to board composition.
G
lo
ba
l
• reduces board workload and enables them
to improve focus on other issues.
Bo
x
Board Committees
• creates structures that can use inherent
expertise to improve decisions in key areas.
• communicates to shareholders that
directors take these issues seriously.
AC
C
A
• increase in shareholder confidence.
• communicates to stakeholders the
importance of remuneration and risk.
• satisfy requirements of the UK Corporate
Governance Code (2018) (or other
governance requirements).
KAPLAN PUBLISHING
• provide an appropriate balance of
power to reduce domination in executive
selection by the CEO/Chairman.
• evaluate the balance of skills, knowledge
and experience of the board.
• full consideration to succession planning
for directors.
• prepare a description of the role and
capabilities required for any particular board
appointment including that of the chairman.
www.ACCAGlobalBox.com
65
The board of directors
• recommendations to the board concerning
the standing for reappointment of
directors.
AC
C
A
G
lo
ba
l
• be seen to operate independently for the
benefit of shareholders.
Bo
x
• identify and nominate for the approval
by the board candidates to fill board
vacancies as and when they arise.
66
www.ACCAGlobalBox.com
KAPLAN PUBLISHING
Downloaded From "http://www.ACCAGlobalBox.com"
Chapter 11
Remuneration committee
Set remuneration for
all executive directors
and chairman
G
lo
ba
l
Determine/
review company
remuneration
policy
Bo
x
The role of the remuneration committee – to have an appropriate reward policy that attracts, retains
and motivates directors to achieve the long-term interests of shareholders.
AC
C
A
Main
activities
Ensure remuneration
is correctly disclosed
in annual report
Demonstrate that
remuneration is set
objectively
KAPLAN PUBLISHING
www.ACCAGlobalBox.com
Ensure
remuneration
reflects
performance
67
The board of directors
• determine and regularly review the
framework, broad policy and specific terms
for the remuneration, terms and conditions
of employment of the chairman, board and
executive directors – including design of
targets and any bonus scheme payments
Bo
x
Responsibilities of the remuneration
committee
G
lo
ba
l
• recommend and monitor the level and
structure of the remuneration of senior
managers
• establish pension provision policy for all
board members
AC
C
A
• set detailed remuneration for all executive
directors and the chairman
• ensure that the executive directors and
key management are fairly rewarded
• the remuneration of the executive directors
and key management is set by individuals
with no personal interest
• agree any compensation for loss of office
of any executive director.
68
www.ACCAGlobalBox.com
KAPLAN PUBLISHING
Downloaded From "http://www.ACCAGlobalBox.com"
Chapter 11
Components of directors’ remuneration package
• Basic salary – e.g. based on the skills required to do the job, individual’s performance and
market rates
• Performance related – e.g. dependent on the achievement of performance measurement criteria
Bo
x
• Pension – only basic salary is pensionable
G
lo
ba
l
• Benefits in kind – e.g. non-wage compensations in addition to their normal wage and salaries
Remuneration
Components
Remuneration level
determined by:
Amount depends on
company resources/
e.g. cash for bonus?
Basic salary
Job description
1
2
3
AC
C
A
Company strategy
KAPLAN PUBLISHING
www.ACCAGlobalBox.com
69
The board of directors
2
3
Judge where to position
remuneration compared
to other companies
Performance related
pay – linked to company
success – short-term
bonus – share options
AC
C
A
G
lo
ba
l
Bo
x
1
70
Not too small – could
lead to lack of
motivation/
underachievement
Not too easily earned
to ensure that directors
to improve performance
Be aware of
remuneration levels in
comparable companies
Pension contributions
Significant proportion
based on performance
related elements
Be aware of pay and
conditions throughout
the company
Benefits in kind
To attract and possibly
motivate if increase
with performance
www.ACCAGlobalBox.com
KAPLAN PUBLISHING
Downloaded From "http://www.ACCAGlobalBox.com"
Chapter 11
• NED remuneration consists of a basic
salary and non-executive directors may
receive share awards.
G
lo
ba
l
• Equity-based remuneration to nonexecutive directors should be fully vested
on the grant date, but still subject to
applicable holding periods.
Bo
x
Non-executive directors’
remuneration
AC
C
A
• Performance measures remuneration
whilst advocated in executive remuneration
packages is not generally supported for
non-executive remuneration.
KAPLAN PUBLISHING
www.ACCAGlobalBox.com
71
AC
C
A
G
lo
ba
l
Bo
x
The board of directors
72
www.ACCAGlobalBox.com
KAPLAN PUBLISHING
Downloaded From "http://www.ACCAGlobalBox.com"
G
lo
ba
l
Reporting to stakeholders
In this chapter
• Institutional investors.
• Institutional shareholder intervention.
• Disclosure – general principles.
AC
C
A
12
Bo
x
chapter
• Sustainability.
• Social and environmental reporting.
• Benefits and drawbacks of social and environmental
reporting.
• Integrated reporting.
• Objectives for integrated reporting.
• How to prepare an integrated report.
• Value creation process.
www.ACCAGlobalBox.com
73
Reporting to stakeholders
Institutional Investors
In the UK there are four types of institutional
investor:
• life assurance companies
• unit trust
AC
C
A
• investment trusts.
G
lo
ba
l
• pension funds
Bo
x
Institutional investors manage funds invested
by individuals.
74
www.ACCAGlobalBox.com
KAPLAN PUBLISHING
Downloaded From "http://www.ACCAGlobalBox.com"
Chapter 12
• Strategy: in terms of products sold,
markets serviced, expansion pursued or
any other aspect of strategic positioning.
• Social responsibility: a failure to
adequately protect or respond to instances
of environmental contamination or other
areas of public concern.
G
lo
ba
l
• Operational performance: in terms of
divisions within the corporate structure that
have persistently under-performed.
• Succession planning: a failure to
adequately balance board composition
or recommendation of replacement
executives without adequate consideration
of the quality of the candidate.
Bo
x
Institutional shareholder
intervention
• Acquisitions and disposals: this might be
in terms of executive decisions that have
been inadequately challenged by NEDs.
AC
C
A
• Remuneration policy: this might relate to
a failure of the remuneration committee to
curtail extreme or self-serving executive
rewards.
• Internal controls: failure in health and
safety, quality control, budgetary control or
IT projects.
KAPLAN PUBLISHING
www.ACCAGlobalBox.com
75
Reporting to stakeholders
• The AGM is seen as the most important,
and perhaps only, opportunity for the
directors to communicate with the
shareholders of the company.
G
lo
ba
l
• As the only legally-required disclosure
to shareholders, the annual report and
accounts are often the only information
shareholders receive from the company.
Bo
x
Disclosure – general
principles
AC
C
A
• General principles of disclosure relate
to the need to create and maintain
communication channels with shareholders
and other stakeholders. This disclosure
becomes the mechanism through which
governance is given transparency.
• Principles of mandatory disclosure discuss
the target for disclosure (particularly
shareholders) and the mechanism
for disclosure (e.g. annual report or
meetings).
76
www.ACCAGlobalBox.com
KAPLAN PUBLISHING
Downloaded From "http://www.ACCAGlobalBox.com"
Chapter 12
• Sustainable development is development
that meets the needs of the present
without compromising the ability of future
generations.
Environmental footprint – an attempt to
evaluate the size of a company’s impact on
the environment in three respects:
AC
C
A
• company’s resource consumption.
• Human Capital – personal health,
knowledge, skills, experience that
individuals have and use to take effective
action.
• Social Capital – networks of people
and the mutually-held knowledge and
skills they have and use in order to take
effective action.
G
lo
ba
l
• Sustainability – an attempt to provide the
best outcomes for the human and natural
environments both now and into the
indefinite future.
Social footprint – evaluates sustainability in
three areas of capital
Bo
x
Sustainability
• harm to the environment brought about by
pollution emissions
• Constructed Capital – material things,
such as tools, technologies, roads, utilities,
infrastructures, etc., that people produce
and use in order to take effective action.
• measurement of the resource consumption
and pollution emissions in terms of harm
to the environment in either qualitative,
quantitative or replacement terms.
KAPLAN PUBLISHING
www.ACCAGlobalBox.com
77
Reporting to stakeholders
Environmental reporting
• The ‘disclosure of information on
environment related issues and
performance by an entity’.
Social reporting
Social reporting is generally context specific,
and typical contents will vary with industry.
For example, the following issues should be
included in a company’s considerations:
Bo
x
Social and environmental
reporting
• human rights issues
• training and employee issues
G
lo
ba
l
It typically contains details of environmental
performance in areas such as:
• work place, occupational health and safety
• measures of emissions (e.g. pollution,
waste and greenhouse gases)
• fair business practices minority and equity
issues.
AC
C
A
• consumption (e.g. of energy, water and
non-renewable mineral deposits).
• fair pay for employees and suppliers
78
www.ACCAGlobalBox.com
KAPLAN PUBLISHING
Downloaded From "http://www.ACCAGlobalBox.com"
Chapter 12
Benefits and drawbacks of social and environmental reporting
Benefits
Drawbacks
Additional cost of reporting systems
Reporting makes companies aware of potential risk to
reputation
Ambiguity of measures used
Employees use this detail in choosing employers
Bo
x
Increasingly important to investors in investment decision
G
lo
ba
l
Influences customer buying decision
Pre-empts potential regulatory intervention
Promotes attention to good corporate governance
Positive impact on share price
AC
C
A
Transparency of information
KAPLAN PUBLISHING
www.ACCAGlobalBox.com
79
Reporting to stakeholders
Integrated reporting
Objectives for integrated
reporting:
G
lo
ba
l
Integrated Reporting demonstrates the
linkages between an organisation’s strategy,
governance and financial performance and
the social, environmental and economic
context within which it operates.
An integrated report is a concise
communication about how an organisation’s
strategy, governance, performance and
prospects, in the context of its external
environment, lead to the creation of value in
the short, medium and long term.
Bo
x
Integrated reporting (<IR>)
AC
C
A
Integrated Reporting can help business
to take more sustainable decisions and
enable investors and other stakeholders
to understand how an organisation is really
performing.
An Integrated Report should be a single
report which is the organisation’s primary
report in most jurisdictions the Annual Report
or equivalent.
Central to Integrated Reporting is the
challenge facing organisations to create and
sustain value inthe short, medium and longer
term.
80
• To improve the quality of information
available to providers of financial capital.
• To provide a more cohesive and efficient
approach to corporate reporting that
draws on different reporting strands and
communicates the full range of activities.
• To enhance accountability and stewardship
for the broad base of capitals (financial,
manufactured, intellectual, human, social
and relationship, and natural.
• To support integrated thinking, decision
making and actions that focus on the
creation of value over the short, medium
and long term.
www.ACCAGlobalBox.com
KAPLAN PUBLISHING
Downloaded From "http://www.ACCAGlobalBox.com"
Chapter 12
These are:
Manufactured capital
Material goods, or fixed assets which
contribute to the production process rather
than being the output itself – e.g. tools,
machines and buildings.
Social capital
This can be described as being concerned
with the institutions that help us maintain
and develop human capital in partnership
with others; e.g. families, communities,
businesses.
AC
C
A
G
lo
ba
l
Intellectual capital
This form of capital can be described as
the value of a company or organisation’s
employee knowledge, business training and
any proprietary information that may provide
the company with a competitive advantage.
Human capital
This can be described as consisting of
people’s health, knowledge, skills and
motivation. Enhancing human capital through
education and training is central.
Bo
x
Five other types of sustainable capital
(NB: Some of the subsets of intellectual
capital include human capital, information
capital, brand awareness and instructional
capital.)
KAPLAN PUBLISHING
Natural capital
This can be described as any stock or flow of
energy and material within the environment
that produces goods and services e.g.
climate regulation, climate change, CO2
emissions.
www.ACCAGlobalBox.com
81
Reporting to stakeholders
How to prepare an
integrated report
• Materiality – Identifying relevant matters
based on their ability to affect value
creation
• Reliability and completeness – should
include all material matters, both positive
and negative, in a balanced way and
without material error
G
lo
ba
l
• Strategic focus and future orientation
– highlighting significant risks,
opportunities and dependencies
flowing from the organisation’s market
position and business model, and giving
the management’s view of how the
organisation balances short, medium and
long term interests.
• Conciseness – should give sufficient
context to understand the organisation’s
strategy, governance and prospects
without being burdened by less relevant
information
Bo
x
The following seven guiding principles
underpin the preparation:
AC
C
A
• Connectivity of information – show a
holistic picture of the combination, interrelatedness and dependencies between
the factors that affect the organisation’s
ability to create value over time.
• Stakeholder relationships – should provide
insight into the nature and quality of the
organisation’s relationships with its key
stakeholders
82
www.ACCAGlobalBox.com
KAPLAN PUBLISHING
Downloaded From "http://www.ACCAGlobalBox.com"
Chapter 12
AC
C
A
G
lo
ba
l
Bo
x
Value creation process
KAPLAN PUBLISHING
www.ACCAGlobalBox.com
83
AC
C
A
G
lo
ba
l
Bo
x
Reporting to stakeholders
84
www.ACCAGlobalBox.com
KAPLAN PUBLISHING
Downloaded From "http://www.ACCAGlobalBox.com"
G
lo
ba
l
Management internal control
systems and reporting
In this chapter
• Internal control systems.
• Internal control roles and responsibilities.
AC
C
A
13
Bo
x
chapter
• Roles and responsibilities in risk management and internal control.
• Internal control definitions.
• Internal control objectives and benefits.
• Sound control systems.
• Effective internal control systems.
• Information flows for management.
• Information characteristics and quality.
• Fraud risk management strategy.
www.ACCAGlobalBox.com
85
Management internal control systems and reporting
Internal control systems
G
lo
ba
l
Bo
x
Responsibilities
AC
C
A
Internal
Control Systems
Definitions
86
Objectives
www.ACCAGlobalBox.com
Sound control
systems
KAPLAN PUBLISHING
Downloaded From "http://www.ACCAGlobalBox.com"
Chapter 13
Internal control roles and responsibilities
AC
C
A
G
lo
ba
l
Bo
x
The board should maintain a
sound system of internal control
to safeguard shareholders’
interests and company assets
Directors should
implement a sound system
of internal controls
KAPLAN PUBLISHING
This system should be
reviewed on a regular basis
(at least annually)
www.ACCAGlobalBox.com
87
Management internal control systems and reporting
Roles and responsibilities in risk management and internal
control
Role
Responsibility
88
Internal auditors
Evaluate the
effectiveness of
internal
controls
• Recommend
improvements
•
Board of directors
Ensuring adequacy
and effectiveness
of internal control
system
• Set corporate
governance policy
•
G
lo
ba
l
Responsibility
CEO
Ultimate
responsibility
for internal
control system
AC
C
A
Role
Bo
x
Many stakeholders involved – not just directors.
Risk
committee
Assists board
in risk
management
obligations
Heads of
business units
Establish specific
internal control
procedures and
policies for
their units
www.ACCAGlobalBox.com
All
employees
Operating and
adhering
to internal
control
procedures
Executive
management
Setting internal
control policies,
and monitoring
effectiveness of
those systems
External
auditors
Advice on
establishing
and
monitoring
internal
controls
KAPLAN PUBLISHING
Downloaded From "http://www.ACCAGlobalBox.com"
Chapter 13
Internal control definitions
• An internal control system – network of
systems established in an organisation
to provide reasonable assurance that
organisational objectives will be achieved
AC
C
A
G
lo
ba
l
• Internal management control – procedures
and policies in place to ensure that
company objectives are achieved
Bo
x
• Controls – attempt to ensure that risks are
minimised.
KAPLAN PUBLISHING
www.ACCAGlobalBox.com
89
Management internal control systems and reporting
Internal control objectives and benefits
Accuracy/
completeness
of accounting
records
90
Objectives
Bo
x
G
lo
ba
l
Prevention/
detection of
fraud/error
Internal
control
system
AC
C
A
Safeguarding
assets
Orderly and
efficient
conduct
of business
Effectiveness
and efficiency
of operations
Reliability
of
financial
reporting
Benefits
Compliance
with laws/
regulations
Timely
preparation
of financial
information
www.ACCAGlobalBox.com
KAPLAN PUBLISHING
Downloaded From "http://www.ACCAGlobalBox.com"
Chapter 13
Sound control systems
Able to respond to
changing risks
within and outside
the company.
G
lo
ba
l
Bo
x
Embedded within
operations and
not treated as a
separate exercise.
AC
C
A
Sound internal
control system
Includes procedures
for reporting
control failings
or weaknesses.
KAPLAN PUBLISHING
www.ACCAGlobalBox.com
91
Management internal control systems and reporting
Effective internal control systems
Reviewing effectiveness of an internal control system (COSO)
•
•
92
C
O
S
O
•
3 Control activities
Policies and procedures ensuring
decisions and instructions of
management carried out
Occur at all levels in an organisation
G
lo
ba
l
•
•
1 Control environment
‘Tone at the top’ or the ethics and
culture of the organisation. Set by
management philosophy and style
2 Risk assessment
Set objectives of organisation
Then for each objective, identify and
assess the risks affecting that objective
Consider internal and external risks
Distinguish between controllable and
uncontrollable risks
AC
C
A
•
Bo
x
Elements of an internal control system
c
l
a
s
s
i
f
i
c
a
t
i
o
n
•
•
•
•
4 Information & communication
Communicate correct information to
correct people so they can carry out
their responsibilities
Need quality information systems
providing internal and external
information
5 Monitoring
Control system must be monitored –
normally by internal audit
www.ACCAGlobalBox.com
KAPLAN PUBLISHING
Downloaded From "http://www.ACCAGlobalBox.com"
Chapter 13
Information flows for management
Three management levels recognised in company.
Each level has responsibilities for internal controls and risk.
1
KAPLAN PUBLISHING
Internal control
responsibilities
Risk
responsibilities
Monitoring
and controlling
organisation
as a whole
Reviewing
internal control
systems to
ensure they
are effective
Assess the
risk outcomes
of different
decisions – also
advised by the
risk committee
2
3
4
G
lo
ba
l
Strategic
Activity
AC
C
A
Management
level
Bo
x
Information systems available to provide required information for each level.
www.ACCAGlobalBox.com
93
Management internal control systems and reporting
Information flows for management – (continued)
2
3
Tactical
Implement
decisions
of strategic
managers: ensure
departments
operating
correctly
Establish
control systems,
remedy control
weaknesses,
inform strategic
management
of control
weaknesses
Advise strategic
managers on
risks identified receive reports on
operational risks
and recommend
risk mitigation
procedures
Operation of
detailed internal
controls – report
weaknesses to
tactical managers
Identify risks at
operational level
and inform tactical
managers
94
G
lo
ba
l
AC
C
A
Operational
Bo
x
1
Controlling dayto-day
operations of the
organisation
www.ACCAGlobalBox.com
4
KAPLAN PUBLISHING
Downloaded From "http://www.ACCAGlobalBox.com"
Chapter 13
Information characteristics and quality
Strategic
→
Operational
Time period
Forecast
→
Historical
Timeliness
Delayed
→
Immediately available
Objectivity
Subjective
→
Objective
Quantifiability
Qualitative
→
Quantitative
Accuracy
Approximate
→
Accurate
Certainty
Uncertain
→
Certain
Completeness
Partial
→
Complete
Breadth
Broad
→
Specific
→
Highly detailed
KAPLAN PUBLISHING
G
lo
ba
l
AC
C
A
Detail
Bo
x
Characteristic
Little detail
www.ACCAGlobalBox.com
95
Management internal control systems and reporting
Fraud risk management
strategy
• Fraud response
Bo
x
A risk management strategy needs to be
developed for fraud.
For example:
An anti-fraud culture
Risk awareness
Whistleblowing
Sound internal control systems
• Fraud detection
• Internal disciplinary action, in accordance
with personnel policies.
• Civil litigation for the recovery of loss.
• Criminal prosecution through the police.
AC
C
A
––
––
––
––
Organisations response to fraud may
include:
G
lo
ba
l
This strategy should include three key
elements:
• Fraud prevention
For example: Dealing with suspected
cases of fraud, theft or corruption via
procedures for evidence-gathering to
assist decision making and subsequently
admissible in any legal action.
For example: performing regular checks,
e.g. stocktaking and cash counts.
96
www.ACCAGlobalBox.com
KAPLAN PUBLISHING
Downloaded From "http://www.ACCAGlobalBox.com"
G
lo
ba
l
Audit and compliance
In this chapter
• The function and importance of internal audit.
• Factors affecting the need for internal audit.
• Auditor independence.
AC
C
A
14
Bo
x
chapter
• Potential ethical threats.
• Audit committee roles.
• Audit committee internal controls.
• Audit committee and internal audit.
• Audit committee and external auditors.
• Reporting on internal controls to shareholders.
www.ACCAGlobalBox.com
97
Audit and compliance
Function and importance of internal audit
Exam focus
Bo
x
Internal audit = an independent appraisal activity established within an organisation as a service to it.
Examining financial
and operating
information
AC
C
A
Reviewing accounting
and internal
control systems
G
lo
ba
l
Main roles/functions of internal audit:
Special investigations,
e.g. into suspected
fraud
Roles of internal
audit department
Assisting with the
identification of
significant risks
Reviewing compliance
with laws and other
external regulations
Reviewing the economy, efficiency and
effectiveness of operations
98
www.ACCAGlobalBox.com
KAPLAN PUBLISHING
Downloaded From "http://www.ACCAGlobalBox.com"
Chapter 14
Need for
internal audit
AC
C
A
Problems with
internal control
systems
Number of employees
(more employees
increases need)
G
lo
ba
l
Scale, diversity and
complexity of company
activities
Bo
x
Factors affecting the need for internal audit
Cost-benefit of department
KAPLAN PUBLISHING
Increase in
unacceptable events
Amount of change in
information systems
Changes in key risks
www.ACCAGlobalBox.com
99
Audit and compliance
Auditor independence
Factors protecting independence
• Internal auditor independent of executive
management.
• Chief internal auditor has access to
Chairman.
G
lo
ba
l
• Chief internal auditor reports to audit
committee.
Bo
x
Internal auditor independence necessary to
ensure work carried out objectively.
AC
C
A
• Audit committee approve appointment and
termination of chief internal auditor.
100
www.ACCAGlobalBox.com
KAPLAN PUBLISHING
Downloaded From "http://www.ACCAGlobalBox.com"
Chapter 14
Potential ethical threats
= threats (real or perceived) to ability of auditor to provide independent opinion.
Threats to auditor
independence
AC
C
A
Advocacy
Auditor promotes
an audit client’s
position or opinion
G
lo
ba
l
Self-interest
Auditor could benefit
from financial interest
in client
Bo
x
Apply to both internal and external audit.
Familiarity
Auditor becomes too
‘friendly’ with client by
working for client for a
number of years
Self-review
Auditor in position of
reviewing work they have
been responsible for
Intimidation
Auditor is subjected
to intimidation
KAPLAN PUBLISHING
www.ACCAGlobalBox.com
101
Audit and compliance
Audit committee roles
Most of the board objectives relating to internal controls will be delegated to the audit
committee.
•
Consists entirely of NEDs – one with recent financial experience.
Bo
x
•
Oversee work of
internal audit
AC
C
A
G
lo
ba
l
Review of internal
control systems
Roles
Monitor integrity of
financial statements
102
www.ACCAGlobalBox.com
Review work of
external audit
KAPLAN PUBLISHING
Downloaded From "http://www.ACCAGlobalBox.com"
Chapter 14
Audit committee and internal controls
Discuss with
management
effectiveness of
internal controls
KAPLAN PUBLISHING
G
lo
ba
l
Bo
x
Review company’s
internal financial
controls
Objectives of
board of directors
regarding
internal controls
Objectives of
audit committee
regarding internal
controls
Review assessments/
effectiveness of internal
control system
Receive reports from
internal audit on tests
of internal controls
AC
C
A
Implement
internal audit
recommendations
re internal
controls
Review company
strategy and risk
appetite
www.ACCAGlobalBox.com
Review company’s
internal control/
risk management
systems
Approve
statements in
annual report re
internal controls
103
Audit and compliance
Audit committee and internal audit
Audit committee role
in overseeing internal
audit function
AC
C
A
Ensure accountable to
the audit committee
Review and assess
the annual internal
audit work plan
G
lo
ba
l
Monitor and assess
effectiveness
Bo
x
Audit committee responsible for overseeing work of internal audit function.
Ensure recommendations
are actioned
104
Check efficiency
www.ACCAGlobalBox.com
Approve the appointment
or termination of head of
internal audit
Preserve independence
KAPLAN PUBLISHING
Downloaded From "http://www.ACCAGlobalBox.com"
Chapter 14
Audit committee and external auditors
Audit committee responsible for oversight of company relations with external auditors.
‘Oversee’ selection
process for new
external auditors
G
lo
ba
l
Recommend to board
appointment of
external auditor
Bo
x
The UK Corporate Governance Code provides recommendations regarding the work of audit
committee and company’s external auditors:
Audit committee
and external
auditors
Approve terms
of engagement/
remuneration of
external auditors
Review scope
of audit with
external auditor
Ensure external
auditors independent
and objective
AC
C
A
Carry out
post-completion
audit review
Review plans for
audit at beginning
of annual audit
KAPLAN PUBLISHING
www.ACCAGlobalBox.com
105
Audit and compliance
Reporting on internal controls to shareholders
Audit committee
and
shareholders
AC
C
A
Sarbanes Oxley
more detailed
legal reporting
requirements
Shareholders right to know
whether internal controls sufficient
to safeguard their investment
G
lo
ba
l
Chair of audit committee
available at AGM for
shareholder questions
To provide shareholders with necessary
information board should conduct an
annual review of internal control systems
106
Bo
x
Important points regarding reporting to shareholders:
Annual report
explains work of
audit committee
Review covers all
material controls and risk
management systems
www.ACCAGlobalBox.com
KAPLAN PUBLISHING
Downloaded From "http://www.ACCAGlobalBox.com"
G
lo
ba
l
Identification, assessment and
measurement of risk
In this chapter
• Risk definition.
• Why incur and manage risk?
AC
C
A
15
Bo
x
chapter
• Risk management and the “as low as reasonably practicable” principles.
• Enterprise risk management.
• COSO ERM framework matrix.
• Risk identification: strategic and operational risks.
• Risk identification: Business risks.
• The concept of related risk factors.
• Risk assessment.
• Risk heat map.
www.ACCAGlobalBox.com
107
Identification, assessment and measurement of risk
Why incur and manage risk?
• Risk can be defined as an unrealised
future loss arising from a present action or
inaction.
Why incur risk?
Incur risk to
G
lo
ba
l
• Risks are the opportunities and dangers
associated with uncertain future events.
Bo
x
Risk definition
AC
C
A
Gain
competitive
advantage
108
Increase
financial
return
Why manage risk?
• Downside risks managed to identify new
risks and changes in existing risks.
• Upside risks identified to make best use of
opportunities.
www.ACCAGlobalBox.com
KAPLAN PUBLISHING
Downloaded From "http://www.ACCAGlobalBox.com"
Chapter 15
Risk management and
the “as low as reasonably
practicable” principles
•
List of
potential risks
Risk
assessment
Prioritised
risk list
Risk
planning
Risk avoidance
and contingency
plans
Risk
monitoring
Risk
audit
G
lo
ba
l
Risk management = process of reducing
adverse consequences by reducing likelihood
of event or its impact.
Risk
identification
Bo
x
Risk management
Process of risk management
Responsibility for risk management
system rests with management.
The As Low As Reasonably Practicable
Principle (ALARP)
Expresses a point at which the cost of
additional risk reduction would be grossly
disproportionate to the benefits achieved.
•
Usually applied to safety critical, high
integrity systems e.g. oil rig.
KAPLAN PUBLISHING
AC
C
A
•
www.ACCAGlobalBox.com
109
Identification, assessment and measurement of risk
Enterprise risk management
(ERM)
• risk management in the context of
business strategy
• the creation of a risk aware culture
G
lo
ba
l
• risk management is everyone’s
responsibility, with the tone set from the
top
Bo
x
Principles of (ERM)
• a comprehensive and holistic approach to
risk management
AC
C
A
• consideration of a broad range of risks
(strategic, financial, operational and
compliance)
• a focused risk management strategy, led
by the board (embedding risk within an
organisation’s culture).
110
www.ACCAGlobalBox.com
KAPLAN PUBLISHING
Downloaded From "http://www.ACCAGlobalBox.com"
Chapter 15
COSO ERM Framework matrix
ST
G
C
GI
IN
AT
ER
OP
RE
G
IN
RT
O
P
CO
Objective Setting
Event Indentification
AC
C
A
Risk Assessment
Risk Response
SUBSIDIARY
BUSINESS UNIT
DIVISIONS
ENTITY-LEVEL
G
lo
ba
l
Internal Environment
CE
IAN
L
MP
Bo
x
TE
RA
Conrol Activities
Information & Communication
Monitoring
KAPLAN PUBLISHING
www.ACCAGlobalBox.com
111
Identification, assessment and measurement of risk
Risk identification: strategic and operational risks
Operational risks
Risks arising from consequences of strategic
decisions
Losses arising from business operations
Arise from strategic positioning of company in
its environment
Arise from inadequate or failed internal
processes
Risks include not enhancing old products and
producing ‘incorrect’ new products
Risks include fraud, quality control failures and
lack of production
Identified and assessed at senior management
level. Managed by risk management strategy
Identified at operational level. Managed by
internal control systems
AC
C
A
G
lo
ba
l
Bo
x
Strategic risks
112
www.ACCAGlobalBox.com
KAPLAN PUBLISHING
Downloaded From "http://www.ACCAGlobalBox.com"
Chapter 15
Risk identification: Business risks
Definition
Credit
Sector
trading in
Inability to
obtain
funds required
Health and
safety,
environment
G
lo
ba
l
Market
AC
C
A
Risks per
ACCA
study guide
Bo
x
Business risks are strategic risks that threaten the health and survival of the whole business.
Lack of
compliance
relevant laws
Liquidity
Insufficient
Legal
Technological
Reputation
Business
probity
Derivatives
Does not
follow relevant
legislation
Products not
incorporate
latest
technology
‘Image’ of
company
suffers
Company
appears
to act
incorrectly
Use of financial
instruments to
improve
accounts
KAPLAN PUBLISHING
Financial
www.ACCAGlobalBox.com
cash to run
business
Gearing
High amounts
of borrowing
113
Identification, assessment and measurement of risk
• Related risks – are risks that vary because
of the presence of another risk or where
two risks have a common cause.
Risk correlation is a particular example of
related risk.
Bo
x
The concept of related risk
factors
G
lo
ba
l
• Positively correlated – risks that are
positively related in that one will fall with
the reduction of the other, and increase
with the rise of the other.
AC
C
A
• Negatively correlated risks are those that
if one rose as the other fell.
114
www.ACCAGlobalBox.com
KAPLAN PUBLISHING
Downloaded From "http://www.ACCAGlobalBox.com"
Chapter 15
Risk assessment
•
Allows risks to be prioritised
•
Risks with high impact and likelihood of
occurrence need urgent attention
Note on terminology:
Impact = severity = hazard
•
Likelihood = probability
High
Low
Impact/consequence
AC
C
A
•
Bo
x
For each risk, shows impact on
organisation and likelihood of risk occurring
G
lo
ba
l
•
Likelihood
Low
High
Risks assessed using ‘risk map’
KAPLAN PUBLISHING
www.ACCAGlobalBox.com
115
Identification, assessment and measurement of risk
5
10
15
High
4
8
12
Medium
3
6
Low
2
4
Negligiable
1
Remote
20
25
Bo
x
Extreme
20
9
12
15
6
8
10
2
3
4
5
Unlikely
Possible
Likely
Probable
>50-90%
>90-100%
G
lo
ba
l
16
AC
C
A
Potential Impact
Risk heat map
Likelihood
% ranges
116
0-10%
>10-25%
>25-50%
www.ACCAGlobalBox.com
KAPLAN PUBLISHING
Downloaded From "http://www.ACCAGlobalBox.com"
G
lo
ba
l
Managing, monitoring
and mitigating risk
In this chapter
• The role of the board in risk management.
• The role of a risk manager.
AC
C
A
16
Bo
x
chapter
• The role of the risk committee.
• Embedding risk.
• Embedding risk in systems.
• Embedding risk in culture.
• Risk mapping.
• Risk management strategies.
• Diversifying risk.
• Risk monitoring.
www.ACCAGlobalBox.com
117
Managing, monitoring and mitigating risk
The role of the board in risk management
Framework for board consideration of risk
Other roles
• Setting risk appetite in
terms of attitude and
capacity.
• Monitoring risk
management plans.
• Determining residual
risk based on costbenefit approach.
118
Risk appetite
How much risk the
business will accept
AC
C
A
• Communicating risk
strategy to company.
Business strategy
What the company will do
Bo
x
• Considering risk at
strategic level and
defining organisation’s
appetite and approach
to risk.
G
lo
ba
l
Main role
Risk attitude
Overall approach
to risk
Risk capacity
Maximum risk
business can accept
www.ACCAGlobalBox.com
Risk strategy
How risks will
be managed
Residual risk
Risk that cannot
be managed KAPLAN PUBLISHING
Downloaded From "http://www.ACCAGlobalBox.com"
Chapter 16
The role of the risk manager
Risk manager
Risk manager = member of risk management committee who reports direct to the board.
Bo
x
Primary role = implementation of risk management policies.
AC
C
A
Work with risk
committee and
board of company
G
lo
ba
l
Identify and evaluate
risks facing company
Implement/ monitor
risk mitigation
strategies
Risk manager
other activities
Develop and
implement risk
management
programmes
KAPLAN PUBLISHING
Assisting external
auditors with
their risk appraisal
activities
www.ACCAGlobalBox.com
Improve risk
management practices
119
Managing, monitoring and mitigating risk
The role of the risk committee
Risk committee
Main aims:
Bo
x
• Raise awareness of risk.
• Ensure processes in place to identify, report and monitor risks.
G
lo
ba
l
• Update company’s risk profile.
Raise risk
awareness
AC
C
A
Risk committee
Establish policies
for risk
management
Implement
processes to monitor
and report risk
Update
company risk
profile and appetite
• The committee will include both executive and non-executive directors, with the majority being
NEDs.
120
www.ACCAGlobalBox.com
KAPLAN PUBLISHING
Downloaded From "http://www.ACCAGlobalBox.com"
Chapter 16
Embedding risk
Process of embedding risk:
Considered at two levels:
• embedding risk in systems
1
Bo
x
• The aim of embedding risk management is
to ensure that it is ‘part of the way we do
business’
2
G
lo
ba
l
Embedding risk in systems
• = ensuring risk management is included
within control systems of an organisation
• Not a separate system – part of overall
control system
AC
C
A
• May be statutory requirement (USA) or
code of practice (UK)
KAPLAN PUBLISHING
Identify controls already
operating in organisation
Monitor controls to
ensure they work
3
Improve/refine controls
as required
4
Document how controls
recorded and tested
(e.g. performance metrics)
www.ACCAGlobalBox.com
121
Managing, monitoring and mitigating risk
Embedding risk in culture
• Risk awareness is a capability of an organisation to be able to recognise risks when they arise,
from whatever source they may come.
Bo
x
Embedding risk awareness
• Risk management being considered ‘normal’ for organisation therefore all employees follow risk
management policies.
G
lo
ba
l
• Risk management culture starts at ‘top’ of company – provides open culture/better risk
management.
Align individual and
organisational goals
AC
C
A
Inform staff of need for
risk management
Not having
a ‘blame’ culture
How to embed
risk management
in culture
Publish success
stories – show
benefit of risk policies
122
Include risk
management
responsibilities in job
description
www.ACCAGlobalBox.com
Use metrics
to provide early
warning of risks
KAPLAN PUBLISHING
Downloaded From "http://www.ACCAGlobalBox.com"
Chapter 16
Risk mapping
Low
Probability /
likelihood
Accept
AC
C
A
Low
Reduce
G
lo
ba
l
High
Bo
x
Impact/consequence
KAPLAN PUBLISHING
www.ACCAGlobalBox.com
High
Avoid
Transfer
123
Managing, monitoring and mitigating risk
Risk management strategies
• Strategies for managing risk = TARA
Risk decreased to zero by avoiding risky areas e.g. withdrawing from business
area. However, risk may be unavoidable – so strategy has limited use
Reduction
Limit exposure to risk or decrease effects of risk should it crystallise
AC
C
A
Avoidance
Acceptance
124
Transfer risk to third party e.g. use of insurance
Bo
x
(or sharing)
G
lo
ba
l
Transference
Accept risk may occur and choose to deal with consequences of risk if it
does occur. Used where adverse impact of risk is minimal
www.ACCAGlobalBox.com
KAPLAN PUBLISHING
Downloaded From "http://www.ACCAGlobalBox.com"
Chapter 16
Further risk management strategies
• Risk avoidance = risk literally avoided.
• Risk retention = risk retained within
organisation.
Bo
x
Diversifying/spreading risk
• Can diversify operations
G
lo
ba
l
• Aim to reduce total risk.
AC
C
A
–– m
ake different products or invest in
different countries.
• Works best where returns are negatively
correlated.
KAPLAN PUBLISHING
www.ACCAGlobalBox.com
125
Managing, monitoring and mitigating risk
Diversifying risk
Related
Development beyond the present
product and market, but still within the
broad confines of the ‘industry’.
AC
C
A
Diversification
G
lo
ba
l
Bo
x
Backward
integration
E.g. Raw
materials
supplier
Unrelated
Development beyond the present
industry into products and/or
markets that may bear no clear
relationship to their
current products.
126
Horizontal integration
E.g. competitor
Forward
integration
E.g.
Distribution
outlet
www.ACCAGlobalBox.com
KAPLAN PUBLISHING
Downloaded From "http://www.ACCAGlobalBox.com"
Chapter 16
Risk monitoring
Risk auditing
• May be obligatory (e.g. Sarbanes-Oxley)
Bo
x
• = provision of independent view of risks and controls in organisation
G
lo
ba
l
• Carried out by internal and/or external audit teams.
AC
C
A
Process for carrying
out internal risk audit
KAPLAN PUBLISHING
Identify risks
Assess risks
Report on inadequately –
controlled risks
Review controls over risk
www.ACCAGlobalBox.com
127
AC
C
A
G
lo
ba
l
Bo
x
Managing, monitoring and mitigating risk
128
www.ACCAGlobalBox.com
KAPLAN PUBLISHING
Downloaded From "http://www.ACCAGlobalBox.com"
G
lo
ba
l
Professionalism, ethical codes
and the public interest
In this chapter
• Profession and professionalism.
• The public interest.
• Accountants and the public interest – role and influence.
AC
C
A
17
Bo
x
chapter
• Corporate codes of ethics.
• Professional codes of ethics.
• Benefits and drawbacks of corporate and professional code of ethics.
• Ethical threats and safeguards.
• Bribery and corruption.
• Ethical conflict.
• Ethical decision making – Tuckers 5 questions.
• Issue and context related factors.
www.ACCAGlobalBox.com
129
Professionalism, ethical codes and the public interest
Profession and
professionalism
Professionalism
Definition
Profession
• Taking action to support the public interest.
Definition
Body of
theory
and
skills
130
AC
C
A
Profession
Adherence
to common
code of
values and
conduct
Views of professionalism
Reactive – noting negative aspects of
accounting and taking action to remove
those aspects e.g. legislation post Enron.
G
lo
ba
l
• A body of theory and knowlege which is
used to support the public interest.
Bo
x
• Acting professionally.
Proactive – seeking out new ways for
accounting to support the public interest e.g.
self-imposed codes of conduct.
Acceptance
of duty to
society
www.ACCAGlobalBox.com
KAPLAN PUBLISHING
Downloaded From "http://www.ACCAGlobalBox.com"
Chapter 17
The public interest
That which supports the good of society as
a whole (as opposed to what serves the
interests of individual members of society or
of specific sectional interest groups).
G
lo
ba
l
• Ethical codes confirm that acting against
the public interest is not appropriate for an
accountant.
Bo
x
Definition
AC
C
A
• When considering whether to disclose
information or not the accountant will need
to evaluate each situation on its merits.
KAPLAN PUBLISHING
www.ACCAGlobalBox.com
131
Professionalism, ethical codes and the public interest
Accountants and the public interest – role and influence
Provision of
services
132
AC
C
A
Influence on
organisations
G
lo
ba
l
Bo
x
Accountancy
Influence in
society
Influence on
distribution of
power and wealth
Act in public
interest
Use of specialist
skills
www.ACCAGlobalBox.com
KAPLAN PUBLISHING
Downloaded From "http://www.ACCAGlobalBox.com"
Chapter 17
Corporate code of ethics
Definition
Bo
x
= application of ethical values to business behaviour.
Suppliers
Wider community
Suppliers attempt to provide
quality goods on time.
Company should pay
invoices promptly, select
suppliers on known criteria
e.g. ‘fair trade’ principles
Company affects society
as a whole. CSR report
explains how company
treats wider community
G
lo
ba
l
Shareholders
Expect fair and proper
return on their investment.
Company should provide
this return and information
on how shareholders
investment managed
AC
C
A
How business ethics affects stakeholders
Business values
Mission statement mentions
• products/services provided
• financial objectives
• role of business in society
KAPLAN PUBLISHING
Employees
Customer relations
How business relates to
employees.
Company recognises employee
rights in areas such as working
conditions, training, health
and safety
Company has responsibility
to produce quality goods/
services at reasonable price
www.ACCAGlobalBox.com
133
Professionalism, ethical codes and the public interest
Professional code of ethics
Contents of code:
Fundamental
principles
Conceptual
framework
Detailed application
States who code
affects, how enforced
Key principles all
members must follow
Explains how ‘spirit’ of
principles applied
Principles applied to
specific situations
G
lo
ba
l
Bo
x
Introduction
Integrity
Members
should be
straightforward
and honest in
all professional/
business
relationships
134
AC
C
A
Fundamental ethical principles
Objectivity
Members do
not allow
bias or
conflict of
interest
in business
judgements
Competence
Duty to
maintain
professional
knowledge
and skill at
appropriate
level
Confidentiality
Information on
clients not
disclosed
without
appropriate
specific
authority
www.ACCAGlobalBox.com
Professional
behaviour
Members must
comply with
relevant laws and
avoid actions
discrediting the
profession
KAPLAN PUBLISHING
Downloaded From "http://www.ACCAGlobalBox.com"
Chapter 17
Benefits and drawbacks of corporate and professional code of
ethics
Drawbacks
Provides framework for conflict resolution
It is only a code – may not fit the precise
ethical issue
Provides guidelines for similar ethical
disputes and methods of resolution
Can be interpreted in different ways which
may appear ethically incorrect to two different
people
Provides boundaries across which it is
ethically incorrect to pass
May be no clear or effective punishment for
breaching the code
AC
C
A
G
lo
ba
l
Bo
x
Benefits
KAPLAN PUBLISHING
www.ACCAGlobalBox.com
135
Professionalism, ethical codes and the public interest
Ethical theats and safeguards
Ethical threats and safeguards
Threats = situation where person tempted not to follow code of ethics
Bo
x
Safeguards = guidance or course of action aimed at reducing or eliminating threats
Main safeguards include:
Work environment
Individual
• Education and training
• Internal control systems
• Compliance with standards
• CPD
• Review procedures
• Mentoring
• Monitoring of work
• Codes of ethics
• Recording contentious issues
• Disciplinary proceedings
• Disciplinary procedures
• Assistance from professional
body
AC
C
A
G
lo
ba
l
Profession
136
www.ACCAGlobalBox.com
KAPLAN PUBLISHING
Downloaded From "http://www.ACCAGlobalBox.com"
Chapter 17
Bribery and corruption
Relevant legislation
• Corruption is bribery and any other
behaviour in relation to persons entrusted
with responsibilities in the public or private
sector which violates their duties and is
aimed at obtaining undue advantages of
any kind for themselves or for others
UK Bribery Act (2010)
• Examples:
–– excessive ‘hospitality’
–– facilitation payments
• it increases risk
Bo
x
–– Offering, promising or giving bribe.
–– Requesting, agreeing to receive or
accepting a bribe.
–– Bribing a foreign public official.
–– A corporate offence of failing to
prevent bribery.
G
lo
ba
l
Corruption and bribery
• 4 offences
AC
C
A
• it is inherently unethical.
KAPLAN PUBLISHING
www.ACCAGlobalBox.com
137
Professionalism, ethical codes and the public interest
Ethical conflict
Factors to take into account in dealing with ethical conflict:
Bo
x
Relevant fundamental
principles
G
lo
ba
l
Ethical issues involved
Obtain detail on
ethical conflict
AC
C
A
Relevant facts
138
Established internal
procedures
Alternative courses
of action
Consider consequences
of each course of action
Decide action
Consider withdraw
from engagement/
assignment
Consult with those charged
with governance
Consult with appropriate
persons in firm
Advice from
professional institute
www.ACCAGlobalBox.com
KAPLAN PUBLISHING
Downloaded From "http://www.ACCAGlobalBox.com"
Chapter 17
Ethical decision making –
Tuckers 5 questions
5 questions against which ethical decisions
can be tested.
• Profitable?
• Legal?
• Fair?
• Right?
G
lo
ba
l
Is decision:
Bo
x
Tucker’s 5 questions
AC
C
A
• Sustainable or environmentally sound?
KAPLAN PUBLISHING
www.ACCAGlobalBox.com
139
Professionalism, ethical codes and the public interest
Issue and context related factors
Ability to make ethical decision depends on:
Bo
x
• issue related factors – how important decision is to decision-maker – factors affect moral
intensity and moral framing.
• context-related factors – how factors relating to issue are viewed.
Fewer people increases
moral intensity
G
lo
ba
l
How many people
affected by action
PROXIMITY
Nearness of decision maker to
people affected by decision
‘closer’ increases moral intensity
AC
C
A
CONCENTRATION
OF EFFECT
TEMPORAL
IMMEDIACY
How soon effects of
decision occur
Short time increases
moral intensity
Factors affecting moral intensity
MAGNITUDE OF
CONSEQUENCE
Extent of harm
caused by poor advice
More harm increases
moral intensity
140
SOCIAL CONSEQUENCES
Extent of agreement ethics of an action
More agreement
increases moral intensity
www.ACCAGlobalBox.com
PROBABILITY OF EFFECT
Likelihood harm/
benefit occurs
More likelihood
increases moral intensity
KAPLAN PUBLISHING
Downloaded From "http://www.ACCAGlobalBox.com"
Chapter 17
Context-related factors:
behaviour rewarded by superiors – even though dubious – will it be continued.
•
co-workers take same action – will it be continued.
Authority
Senior manager
unethical means junior
likely to be also
G
lo
ba
l
System of reward
Rewards based on
achievement may
encourage unethical
decisions
Bo
x
•
Bureaucracy
Follow rules – not
normally consider ethics
of decisions made
AC
C
A
Key contextual factors
Cultural context
Cultures have different
ideas of ‘ethics’
KAPLAN PUBLISHING
Group norms
Follow what peer-group
think is ethical
www.ACCAGlobalBox.com
Work roles
Provides ethical
context e.g. accountants
normally behave ethically
141
AC
C
A
G
lo
ba
l
Bo
x
Professionalism, ethical codes and the public interest
142
www.ACCAGlobalBox.com
KAPLAN PUBLISHING
Downloaded From "http://www.ACCAGlobalBox.com"
G
lo
ba
l
Organising for success
In this chapter
• The link between structure and strategy.
• Main structural types.
• Mintzberg’s building blocks.
AC
C
A
18
Bo
x
chapter
• Boundaryless organisations.
• Business process outsourcing.
• Harmon’s process strategy matrix.
• Business process redesign.
www.ACCAGlobalBox.com
143
Organising for success
The link between structure
and strategy
How structure changes as strategy changes
Bo
x
• More specialisation
• More specialists
• More bureaucracy
How structure can impact on strategy
G
lo
ba
l
• More levels of authority
• The degree of organisational flexibility
AC
C
A
• The level of specialist skills and associated
decision making
• The degree of innovation and knowledge
management
• Developing and supporting CSFs
• The degree of market focus
144
www.ACCAGlobalBox.com
KAPLAN PUBLISHING
Downloaded From "http://www.ACCAGlobalBox.com"
Chapter 18
Main structural types
Functional
• groups together
employees that
undertake
similar task
AC
C
A
Entrepreneurial
• structure is
built around
the owner
manager
G
lo
ba
l
Bo
x
Types of structure
Divisional
• splits
organisation into
several divisions
• either product
based or
geographical
based
Small organisation
KAPLAN PUBLISHING
Matrix
• a combination
of a functional
and a divisional
structure
Large organisation
www.ACCAGlobalBox.com
145
Organising for success
Mintzberg building blocks
As the business and its structure grows, different building blocks develop and can become more
important:
Structure in which they
dominate
Direction
Supervision
Simple
Efficiency
Procedures and
standards
Machine bureaucracy
Strategic apex
Technostructure
G
lo
ba
l
What they want
Bo
x
What they provide
Building block
Proficiency
Expertise and skills
Professional bureaucracy
Middle line
Concentration
Focus and control
Divisional
Support staff
Learning
Help and training
None
AC
C
A
Operating core
Boundaryless organisations
146
•
The hollow structure – where non-core activities are outsourced.
•
The modular structure – where some parts of product production are outsourced.
•
The virtual structure – where the organisation is made up of a collaboration of other
organisational parts.
www.ACCAGlobalBox.com
KAPLAN PUBLISHING
Downloaded From "http://www.ACCAGlobalBox.com"
Chapter 18
Business process outsourcing
Advantages
Disadvantages
•
Improved customer care.
•
Allows management to
focus on core activities.
•
Problems finding a single supplier for complex processes,
resulting in fragmentation.
•
Firms are unwilling to outsource whole processes due to
the strategic significance or security implications of certain
elements.
•
•
•
Inflexible contracts and other problems managing suppliers.
Difficult to reverse and bring in-house again.
Problems measuring performance.
Data security.
AC
C
A
•
Bo
x
Cost savings (currently
the main decision-making
factor).
G
lo
ba
l
•
KAPLAN PUBLISHING
www.ACCAGlobalBox.com
147
Organising for success
Harmon’s process-strategy matrix
148
High
Bo
x
High
•
Outsource
Low
•
Use minimum resources
Undertake process improvement
G
lo
ba
l
•
AC
C
A
Process complexity dynamics
Strategic importance
Low
Must be done but adds little value to
products or services
•
Automate to gain efficiency
Very important to success, high value
added to products or services
www.ACCAGlobalBox.com
KAPLAN PUBLISHING
Downloaded From "http://www.ACCAGlobalBox.com"
Chapter 18
Business process redesign
activities are unnecessary
•
activities are in the wrong order
•
activities are in the wrong swim lane
•
activities are missing
•
activities take too long.
Typical solutions in processes
G
lo
ba
l
•
removing swim lanes
•
removing unnecessary activities
•
combining job roles
•
combining activities
•
reducing handovers between swim lanes
•
changing the order of activities
•
outsourcing activities.
AC
C
A
•
KAPLAN PUBLISHING
Bo
x
Typical causes of problems in processes
www.ACCAGlobalBox.com
149
AC
C
A
G
lo
ba
l
Bo
x
Organising for success
150
www.ACCAGlobalBox.com
KAPLAN PUBLISHING
Downloaded From "http://www.ACCAGlobalBox.com"
G
lo
ba
l
e-Business
In this chapter
• IT – the strategic context.
• Types of e-Business.
• IT Risks.
AC
C
A
19
Bo
x
chapter
• IT Controls.
• Promoting cyber security.
www.ACCAGlobalBox.com
151
e-Business
In the modern environment IT plays a role at
all stages of the strategic planning process.
For example,
• Strategic analysis: IT can help create
business strengths or overcome existing
weaknesses
• New businesses might become
possible. For example, auction sites
and photo-album sites.
• The industry structure can be changed.
For example, in the music business it can
be argued that the large CD publishers
have less power because music can be
self-published on the internet.
G
lo
ba
l
• Strategic choice: IT can help create a
competitive advantage or give access to
new markets
Porter suggests 3 ways IS/IT can
affect industries
Bo
x
IT – the strategic context
AC
C
A
• Strategic implementation: we’ve already
seen how IT plays a role in BPR, for
example.
Therefore we should consider IT at all stages
of the syllabus. For example, we should
incorporate IT influences within the PESTEL,
5 Forces, value chain etc.
152
• IS/IT can provide an organisation with
competitive advantage by providing new
ways of operating. For example, airlines
save money by encouraging internet
bookings.
www.ACCAGlobalBox.com
KAPLAN PUBLISHING
Downloaded From "http://www.ACCAGlobalBox.com"
Chapter 19
Types of e-Business
C2B Business
models, e.g.
Priceline.com
C2C Business
models, e.g.
eBay.com
Bo
x
B2C Business
models, e.g.
Amazon.com
G
lo
ba
l
B2B Business
models, e.g.
VerticalNet
AC
C
A
Exchange initiated by
Consumer
Business
Delivery by
Business
Consumer
Stages of e-business
1
Web presence
2
E-commerce
3
Integrated e-commerce
4
E-business
KAPLAN PUBLISHING
www.ACCAGlobalBox.com
153
e-Business
Barriers to e-business
•
Cost reduction
•
Technophobia
•
Increased revenue
•
Security concerns
•
Better information for control
•
Set-up costs
•
Increased visibility
•
•
Enhanced customer service
•
•
Improved marketing
•
•
Market penetration
•
Enhanced competitive advantage
Bo
x
Benefits of e-business
Running costs
Limited opportunities – type of business
G
lo
ba
l
Limited resources
Customer aversion
AC
C
A
•
154
www.ACCAGlobalBox.com
KAPLAN PUBLISHING
Downloaded From "http://www.ACCAGlobalBox.com"
Chapter 19
IT Risks
Unauthorised access
to systems
KAPLAN PUBLISHING
Viruses
AC
C
A
Hacking
G
lo
ba
l
Bo
x
IT Risks
Code capable of
corrupting data
Hardware
Input errors
Either from
failure or loss
Either deliberate
or accidental
www.ACCAGlobalBox.com
155
e-Business
IT Controls
• personnel
• logical access
• access logging
• physical controls
• hardware security
Application
Software
Network
• authorisation
• supplier selection
• firewalls
• pre-numbered
forms
• retain original disks
• data encryption
• license checking
• virus protection
AC
C
A
General
G
lo
ba
l
Bo
x
IT Controls
• control totals
• output checking
• flow
• back-ups
156
www.ACCAGlobalBox.com
KAPLAN PUBLISHING
Downloaded From "http://www.ACCAGlobalBox.com"
Chapter 19
Promoting cyber security
• Have a written policy.
• Provide ongoing training and assessment.
Bo
x
• Have a dedicated cyber security staff.
• Limit systems access.
AC
C
A
• Automate systems.
G
lo
ba
l
• Limit data volume.
KAPLAN PUBLISHING
www.ACCAGlobalBox.com
157
AC
C
A
G
lo
ba
l
Bo
x
e-Business
158
www.ACCAGlobalBox.com
KAPLAN PUBLISHING
Downloaded From "http://www.ACCAGlobalBox.com"
G
lo
ba
l
Using IT successfully
In this chapter
• Supply chain management.
• Upstream supply chain management.
• Downstream supply chain management.
AC
C
A
20
Bo
x
chapter
• Big data.
• Disruptive technology – Fintech.
• Cloud technology.
www.ACCAGlobalBox.com
159
Using IT successfully
Supply chain management
(SCM)
• re-organisation of processes
• greater use of IT systems
G
lo
ba
l
• providing more information to suppliers
and customers
Bo
x
Supply chain management typically involves:
• more efficient inventory replenishment
• better co-ordination of new product
development
AC
C
A
• promotional activity integrated along the
supply chain
• greater use of outsourcing.
160
www.ACCAGlobalBox.com
KAPLAN PUBLISHING
Downloaded From "http://www.ACCAGlobalBox.com"
Chapter 20
Role of IT in SCM
Pull model
• facilitated a move from push systems
towards pull systems
• products are made to order
• facilitated better interaction with customers
Push model
• production design, quality and volume are
led by the manufacturer
• little product personalisation
AC
C
A
• aims to reduce set-up costs and gain
economies of scale.
KAPLAN PUBLISHING
• often relies on e-commerce (and
e-procurement).
It is now common for companies to use a
combination of push and pull systems.
G
lo
ba
l
• encouraged virtual integration.
• aims to reduce inventory levels and be
more responsive to customer needs
Bo
x
• E-procurement has become a vital part of
SCM
• customers have a greater say
E-commerce creates a much more efficient
supply chain that benefits both customers
and manufacturers. Companies can:
• better serve customer needs
• carry fewer inventories
• send products to market more quickly.
www.ACCAGlobalBox.com
161
Using IT successfully
Upstream supply chain management
E-procurement
Risks
• Reduced labour costs
• Technology risks
• Lower inventories
• Organisational risks – especially staff
resistance
• Better control over product development
• Requires new skills
• Greater choice of supplier
• It can be difficult to integrate different
systems
• Reduced admin
AC
C
A
• Better transaction history
162
• Costs savings fail to materialise
G
lo
ba
l
• Higher sales due to fewer inventory stock
outs
Bo
x
Benefits
• Expensive to set up
www.ACCAGlobalBox.com
KAPLAN PUBLISHING
Downloaded From "http://www.ACCAGlobalBox.com"
Chapter 20
Downstream supply chain management
Benefits
Problems
• Relies on supplier willingness
• Tie-in
• Reaction of distributors/ retailers
• Continual updates
• Move to product orientation
• Differentiation
• Extra admin costs
• Two way communication
• Easily copied
G
lo
ba
l
Bo
x
• Disintermediation
• Users must be representative
• User communities
• Become reactive rather than proactive
• Better market research
• Can increase business risk and exit barriers
• Easier e-marketing
AC
C
A
• Reduced product failure rates
• Customers can define specifications
KAPLAN PUBLISHING
www.ACCAGlobalBox.com
163
Using IT successfully
Big data
Characteristics of big data
• velocity
• variety
• better knowledge of customers
• ability to spot trends earlier
• react before rivals
• proactively meet changing needs
AC
C
A
• identify unsatisfied needs
G
lo
ba
l
Strategic advantages from exploiting big data
Bo
x
• volume
• better market research and e-marketing
• better competitive advantages.
164
www.ACCAGlobalBox.com
KAPLAN PUBLISHING
Downloaded From "http://www.ACCAGlobalBox.com"
Chapter 20
Disruptive technology – Fintech
Potential defences – against Fintech
• Better use of data
• Differentiating
• A frictionless customer experience
• Improving flexibility
• More personalisation of products/services
• Promoting physical presence
• Lack of physical presence costs
• Take legal action
• Access to cheap capital
• Relying on technophobia
G
lo
ba
l
Bo
x
Advantages
• Reacting sooner
AC
C
A
• Launch own disruptive tech
KAPLAN PUBLISHING
www.ACCAGlobalBox.com
165
Using IT successfully
Cloud technology
Advantages
Potential defences
• Reliance on the provider
• Regulatory risks
• Flexibility
• Unauthorised access of data
Bo
x
• Sharing data
• On-demand self service
• More competitive
• Easier scaling
• Back-ups
• Disaster recovery
• Better security
166
AC
C
A
• Reduced maintenance
G
lo
ba
l
• Collaboration
www.ACCAGlobalBox.com
KAPLAN PUBLISHING
Downloaded From "http://www.ACCAGlobalBox.com"
G
lo
ba
l
e-Marketing
In this chapter
• Marketing mix (7P’s).
• The 6I’s.
• e-Branding.
AC
C
A
21
Bo
x
chapter
• Using marketing in e-business.
www.ACCAGlobalBox.com
167
e-Marketing
Marketing mix (7P’s)
Traditional marketing involves finding the
correct mix of the following elements:
Bo
x
• Product.
• Price.
• Place.
G
lo
ba
l
• Promotion.
• People.
• Physical evidence.
• Processes.
168
AC
C
A
E-marketing expands this into three more
areas:
www.ACCAGlobalBox.com
KAPLAN PUBLISHING
Downloaded From "http://www.ACCAGlobalBox.com"
Chapter 21
Integration
Intelligence
Individualisation
Industry structure
Bo
x
Interactivity
G
lo
ba
l
The 6I’s
AC
C
A
E-marketing
Independence
of location
KAPLAN PUBLISHING
www.ACCAGlobalBox.com
169
e-Marketing
e-Branding
Potential e-branding strategies:
• modify an existing brand
• create a new brand
• form a partnership with an existing brand
Bo
x
• match an existing brand
G
lo
ba
l
Differences from traditional branding
• The information needs to be delivered in a
more efficient manner
• It requires a more visual identity
AC
C
A
• It needs to be easier to find
• It can be more interactive
• It can more easily evolve
170
www.ACCAGlobalBox.com
KAPLAN PUBLISHING
Downloaded From "http://www.ACCAGlobalBox.com"
Chapter 21
Using marketing in
e-business
Managing customers
Ensuring that customers keep returning to a
website relies upon:
Acquiring customers
• tangibles
• search engine marketing
Bo
x
• reliability
• online PR
• responsiveness
• online partnerships
G
lo
ba
l
• assurance
• interactive adverts
• empathy
• opt-in emails
Empathy can be improved through:
• viral marketing
• evaluating online behaviour
• personalisation
AC
C
A
• opt-in emails
KAPLAN PUBLISHING
• supporting online communities
• storing and using past transactions
www.ACCAGlobalBox.com
171
AC
C
A
G
lo
ba
l
Bo
x
e-Marketing
172
www.ACCAGlobalBox.com
KAPLAN PUBLISHING
Downloaded From "http://www.ACCAGlobalBox.com"
G
lo
ba
l
Project management
In this chapter
• The project life cycle.
• The business case document.
• Risk analysis.
AC
C
A
22
Bo
x
chapter
• The project plan.
• The project initiation document.
• Key project staff.
• Project control.
• Project review.
www.ACCAGlobalBox.com
173
Project management
The project life cycle
AC
C
A
Completion
G
lo
ba
l
Bo
x
Project life cycle
Control
Initiation
Planning
Execution
174
www.ACCAGlobalBox.com
KAPLAN PUBLISHING
Downloaded From "http://www.ACCAGlobalBox.com"
Chapter 22
The business case document
Reason:
• Strategic analysis
• Explains why project is needed
• Project benefits and costs
• Provides a financial rationale
• Project constraints
• Provides clear boundaries
• Risk analysis
• Managers can be more proactive to risks
Why have a formal document?
• to obtain funding for the project
G
lo
ba
l
Bo
x
Typical contents:
• to compete with other projects for resources
AC
C
A
• to improve planning
• to improve project management.
KAPLAN PUBLISHING
www.ACCAGlobalBox.com
175
Project management
Risk analysis
3 stages:
• Identify risks
Bo
x
• Assess risks
• Manage risks
Likelihood
L
Accept
Reduce
H
Transfer
Avoid
G
lo
ba
l
H
AC
C
A
Impact
L
176
www.ACCAGlobalBox.com
KAPLAN PUBLISHING
Downloaded From "http://www.ACCAGlobalBox.com"
Chapter 22
The project plan
AC
C
A
Exit plans
G
lo
ba
l
Bo
x
Project Plan
Communication
Resources
Detailed schedules
Targets and
measures
KAPLAN PUBLISHING
www.ACCAGlobalBox.com
177
Project management
The project initiation document
Benefits of having this
Clear responsibilities
Lines of authority for decision making
Facilitates responsibility accounting
Detailed schedules
Clear path
Improved efficiency
Targets and measures
Clear control points
Early identification of problems
G
lo
ba
l
More efficient handover
Easier exit for the project team
AC
C
A
Exit plans
Bo
x
What it contains
178
www.ACCAGlobalBox.com
KAPLAN PUBLISHING
Downloaded From "http://www.ACCAGlobalBox.com"
Chapter 22
Key project staff
Project roles
Project sponsor
Providing resources
Approving changes
Communicating organisational goals
Project manager
Building the business case
Executing the plan
Exercising control
Managing team members
G
lo
ba
l
Make business and enabling changes
Follow the plan
AC
C
A
Team members
Bo
x
Project staff
KAPLAN PUBLISHING
www.ACCAGlobalBox.com
179
Project management
Project control
This has 3 stages:
• Test performance at project gateways
• Take control actions if targets aren’t met.
• Fast tracking
• Crashing
• Adding additional resources
• Scope reduction
G
lo
ba
l
Potential control actions:
Bo
x
• Create performance measures and targets
AC
C
A
• Adopting higher risk but potentially more
efficient approaches
• Employee motivation.
180
www.ACCAGlobalBox.com
KAPLAN PUBLISHING
Downloaded From "http://www.ACCAGlobalBox.com"
Chapter 22
Project review
AC
C
A
G
lo
ba
l
Post implementation review (PIR) – reviews
the output from the project.
Bo
x
Post project review (PPR) – reviews the
performance of the project team.
KAPLAN PUBLISHING
www.ACCAGlobalBox.com
181
AC
C
A
G
lo
ba
l
Bo
x
Project management
182
www.ACCAGlobalBox.com
KAPLAN PUBLISHING
Downloaded From "http://www.ACCAGlobalBox.com"
G
lo
ba
l
Financial decision making
In this chapter
• Options for raising finance.
• Other sources.
• Cost accounting.
AC
C
A
23
Bo
x
chapter
• Break even analysis.
• Marginal decision making.
• Investment appraisal.
• Dealing with risk in decision making.
• Budgeting.
• Variance analysis.
www.ACCAGlobalBox.com
183
Financial decision making
Options for raising finance
AC
C
A
Equity
G
lo
ba
l
Internal
Bo
x
Retained cash
Working capital
Existing shareholders
External
New share issue
184
www.ACCAGlobalBox.com
KAPLAN PUBLISHING
Downloaded From "http://www.ACCAGlobalBox.com"
Chapter 23
Debentures
Mortgages
Leasing
Medium Term
AC
C
A
Debt
G
lo
ba
l
Bo
x
Long term
Bank loans
Overdrafts
Short term
Payables
KAPLAN PUBLISHING
www.ACCAGlobalBox.com
185
Financial decision making
Other sources
• Government grants
• Business angels/venture capitalists
• Initial Coin Offering (ICO)
• Availability
• Control
• Cash flow
• Security
• Gearing
• Exit routes
186
AC
C
A
• Cost
G
lo
ba
l
Factors to consider when choosing a source
of finance
Bo
x
• Selling spare assets.
www.ACCAGlobalBox.com
KAPLAN PUBLISHING
Downloaded From "http://www.ACCAGlobalBox.com"
Chapter 23
Cost accounting
• Based on standard costing systems
Key areas:
• Break even analysis
• Project appraisal
• Decision making
• Budgeting
• Variance analysis
KAPLAN PUBLISHING
AC
C
A
• Risk and uncertainty
G
lo
ba
l
• Becoming increasingly out-of-date in
modern manufacturing environments
Bo
x
• May be based on absorption, marginal or
activity based systems
www.ACCAGlobalBox.com
187
Financial decision making
Break even analysis
Margin of safety =
Contribution/unit
Total Fixed Costs
Contribution margin
Budgeted Sales –
Break even sales
Key limitations
• Assumes a constant selling price
AC
C
A
• Ignores (dis)economies of scale
Bo
x
Break even revenue =
Total Fixed Costs
G
lo
ba
l
Break even point =
• Difficult to cope with stepped fixed costs
• Only relevant in the short term.
188
www.ACCAGlobalBox.com
KAPLAN PUBLISHING
Downloaded From "http://www.ACCAGlobalBox.com"
Chapter 23
Marginal decision making
• Accepting/rejecting special orders
• Closing a business unit
• Future
• Incremental
• Cash
Key problems:
G
lo
ba
l
Relevant costs and revenues must satisfy
three criteria:
Bo
x
• Abandoning a project
AC
C
A
• May need to consider opportunity costs
• The accounting (and tax) impact will be
different
KAPLAN PUBLISHING
www.ACCAGlobalBox.com
189
Financial decision making
Investment appraisal
190
Net Present Value (NPV)
How to calculate:
Use a cost of capital and discount factors to discount future cash flows to
give the present value
Best used when:
The project is long and the cost of capital is known
Key advantage:
Gives an absolute estimate of the impact on shareholder wealth
Key disadvantage:
Relies on a reliable cost of capital estimate
Method:
Payback period
How to calculate:
Determine how quickly the original cash injection is recovered
Best used when:
The project is short and/or cash is in short supply
Key advantage:
Provides a minimum target for protect Iife
Key disadvantage:
Requires a target/benchmark
AC
C
A
G
lo
ba
l
Bo
x
Method:
www.ACCAGlobalBox.com
KAPLAN PUBLISHING
Downloaded From "http://www.ACCAGlobalBox.com"
Chapter 23
Accounting Rate of Return (ARR)
How to calculate:
Divide average profits by the initial investment
Best used when:
The project has profit targets to meet
Key advantage:
A simple calculation based on readily available Information
Key disadvantage:
Profits are easily manipulated
Method:
Internal Rate of Return (IRR)
How to calculate:
Determine the cost of capital that provides a zero NPV
Best used when:
The project is long and the cost of capital has not yet be determined
Key advantage:
Tells us the highest acceptable cost of capital
Key disadvantage:
It is not useful for comparing protects
AC
C
A
G
lo
ba
l
Bo
x
Method:
KAPLAN PUBLISHING
www.ACCAGlobalBox.com
191
Financial decision making
An expected value summarises all the
different possible outcomes by calculating a
single weighted average. It is the long run
average (though not necessarily the most
likely result).
Bo
x
Dealing with risk in decision
making
G
lo
ba
l
Complicated scenarios could be represented
as a decision tree. Decision trees force
the decision maker to consider the logical
sequence of events.
AC
C
A
Key limitations:
• Only useful for one-off decisions
• Based on subjective information
• Ignores attitudes to risk
• Does not provide an actual outcome
192
www.ACCAGlobalBox.com
KAPLAN PUBLISHING
Downloaded From "http://www.ACCAGlobalBox.com"
Chapter 23
Budgeting
Effective budgetary control requires:
• clear demarcation between areas of
managerial responsibility
G
lo
ba
l
• budget targets that are challenging yet
achievable
Bo
x
• a serious attitude is taken to the system
• established data collection, analysis and
reporting techniques
• reports aimed at individual managers
• fairly short reporting periods
AC
C
A
• timely variance reports
• action being taken to get operations back
under control if they are shown to be out
of control.
KAPLAN PUBLISHING
www.ACCAGlobalBox.com
193
Financial decision making
Variance analysis
Key components of effective variance
analysis:
• flexing budgets for variable costs
• linking causes to the variance
G
lo
ba
l
• strong procedures for determining whether
to investigate
Bo
x
• allocating responsibility
• keeping up-to-date standards
• including feedforward control to improve
future performance
AC
C
A
• identifying trends which can be
incorporated into strategic plans.
194
www.ACCAGlobalBox.com
KAPLAN PUBLISHING
Downloaded From "http://www.ACCAGlobalBox.com"
G
lo
ba
l
Managing strategic change
In this chapter
• Types of change.
• Influence of culture on change.
• Preparing for change – Lewin.
AC
C
A
24
Bo
x
chapter
• Change management styles.
• The change kaleidoscope.
• POPIT Model.
www.ACCAGlobalBox.com
195
Managing strategic change
Types of change
Extent of change
196
Realignment
Bo
x
Adaptation:
Change undertaken to
realign the way in which
the organisation
operates; implemented
in a series of steps
G
lo
ba
l
Evolution:
Transformational change
implemented gradually through
inter-related initiatives; likely to
be proactive change undertaken
in participation of the need for
future change
Revolution:
Transformational change
that occurs via simultaneous
initiatives on many fronts:
• more likely to be forced
and reactive because of the
changing competitive
conditions that the
organisation is facing
AC
C
A
Speed of change
Big bang
Incremental
Transformation
Reconstruction:
Change undertaken to
realign the way in which the
organisation operates with
many initiatives implemented
simultaneously:
• often forced and reactive
because of a changing
competitive context
www.ACCAGlobalBox.com
KAPLAN PUBLISHING
Downloaded From "http://www.ACCAGlobalBox.com"
Chapter 24
Influence of culture on
change
Preparing for change – Lewin
Lewin suggests that change is achieved in
three stages:
The Cultural Web
•
Routines and rituals
•
Organisational structures
•
Control systems
•
Power structures
•
Symbols
Create the initial motivation to change by
convincing staff of the undesirability of the
present situation.
G
lo
ba
l
Stories
Bo
x
• Unfreeze
•
• Change
Make the necessary changes to strategy,
processes, culture etc.
AC
C
A
• Refreeze
KAPLAN PUBLISHING
Reinforcement of the new pattern of work
or behaviour through rewards, praise, etc.
www.ACCAGlobalBox.com
197
Managing strategic change
Change management styles
Facilitation
and support
G
lo
ba
l
Methods of
overcoming
resistance
AC
C
A
Education and
communication
Bo
x
Participation
Power/
coercion
198
www.ACCAGlobalBox.com
Manipulation and co-optation
Negotiation
KAPLAN PUBLISHING
Downloaded From "http://www.ACCAGlobalBox.com"
Chapter 24
The change kaleidoscope
(Balogun and Hope Hailey)
Contextual features:
Bo
x
• time
• scope
• diversity
• capability
• capacity
• readiness
AC
C
A
• power
G
lo
ba
l
• preservation
KAPLAN PUBLISHING
www.ACCAGlobalBox.com
199
Managing strategic change
Bo
x
POPIT Model
G
lo
ba
l
Organisation
Information
technology
Process
AC
C
A
People
The business system can only be a success if all work together and changes are co-ordinated.
200
www.ACCAGlobalBox.com
KAPLAN PUBLISHING
G
lo
ba
l
AC
C
A
Index
Bo
x
Downloaded From "http://www.ACCAGlobalBox.com"
www.ACCAGlobalBox.com
I.1
Index
B
A
AC
C
A
G
lo
ba
l
Acceptability 29
Accountability 40
Accountants and the public interest 132
Acquisition 32
Advocacy 101
Agency theory 42
Ansoff matrix 28
Ashridge portfolio display 34
As Low As Reasonably Practicable Principle
(ALARP) 109
Audit committee 106
Audit committee and external auditors 105
Audit committee and internal audit 104
Audit committee and internal controls 103
Audit committee roles 102
Auditor independence 100
Baldrige performance excellence 24
Balogun and Hope Hailey 199
BCG matrix 33
Behavioural/style theories 57
Benchmarking 23
Benefits and drawbacks of corporate and
professional code of ethics 135
Benefits and drawbacks of social and
environmental reporting 79
Big data 164
Board committees 65
Board of directors 62
Break even analysis 188
Bribery and corruption 137
Budgeting 193
Business case document 175
Business process outsourcing 147
Business process redesign 149
Business risks 113
Bo
x
5 Forces analysis 15
6Is 169
I.2
www.ACCAGlobalBox.com
KAPLAN PUBLISHING
Downloaded From "http://www.ACCAGlobalBox.com"
Index
D
Dealing with risk in decision making 192
Direct claims 45
Disclosure general principles 76
Disruptive technology 165
Downside risks 108
Downstream supply chain management 163
AC
C
A
G
lo
ba
l
CEO’s responsibilities 64
Chairman and CEO 64
Chairman’s responsibilities 64
Change kaleidoscope 199
Change management styles 198
Cloud technology 166
Competence 134
Competitive strategies 26
Comply or explain 48
Components of directors’ remuneration
package 69
Concentration of effect 140
Conceptual framework 134
Confidentiality 134
Constructed capital 77
Context-related factors 141
Contextual features 199
Contingency/contextual theories 58
Corporate citizen 54
Corporate citizenship 54
Corporate code of ethics 133
COSO ERM framework 111
Cost accounting 187
Coverage of governance 38
CSR Strategy 52
Cultural web 197
Bo
x
C
KAPLAN PUBLISHING
E
e-Branding 170
Economy 41
Effective internal control systems 92
Effectiveness 41
Efficiency 41
Elements of an internal control system 92
Embedding risk 121
Embedding risk awareness 122
Embedding risk in culture 122
www.ACCAGlobalBox.com
I.3
Index
AC
C
A
Factors affecting the need for internal audit
99
Fairness 39
Familiarity 101
Family structures 49
Feasibility 29
Fintech 165
Franchise 32
Fraud detection 96
Fraud prevention 96
Fraud response 96
Fraud risk management strategy 96
Function and importance of internal audit 98
Fundamental principles 134
I.4
Goal 56
Growth strategies 28
H
Bo
x
F
G
Harmon’s process-strategy matrix 148
How to prepare an integrated report 82
Human capital 77, 81
G
lo
ba
l
Enterprise risk management (ERM) 110
Entre and intrapreneurship 60
Environmental footprint 77
E-procurement 162
Ethical conflict 138
Ethical decision making 139
Ethical theats and safeguards 136
I
Importance of committees 65
Independence 39
Indirect claims 45
Influence 56
Information characteristics and quality 95
Information flows for management 93
Initial coin offering (ICO) 186
Innovation 40
Insider-dominated structures 50
Institutional investors 74
Institutional shareholder intervention 75
Integrated reporting 80
www.ACCAGlobalBox.com
KAPLAN PUBLISHING
Downloaded From "http://www.ACCAGlobalBox.com"
Index
K
Bo
x
Key concepts 39
Key concepts of Agency Theory 43
Key project staff 179
L
Leadership and culture 59
Leadership and management 59
J
AC
C
A
G
lo
ba
l
Integrity 39, 134
Intellectual capital 81
Internal audit 98
Internal control definitions 89
Internal control objectives and benefits 90
Internal control roles and responsibilities 87
Internal control systems 86
Interpersonal 56
Intimidation 101
Investment appraisal 190
Issue and context related factors 140
IT 152
IT Controls 156
IT Risks 155
Johnson, Scholes, Whittington 29
Joint venture 32
Judgement 40
KAPLAN PUBLISHING
M
Magnitude of consequence 140
Main structural types 145
Manufactured capital 81
Marginal decision making 189
Marketing mix (7P’s) 168
Mendelow 53
Mendelow’s stakeholder mapping matrix 53
Mintzberg building blocks 146
Moral framing 140
Moral intensity 140
www.ACCAGlobalBox.com
I.5
Index
O
P
AC
C
A
Objectives for integrated reporting 80
Objectivity 134
Operational risks 112
Options for raising finance 184
Organic growth 32
PESTEL analysis 14
POPIT Model 200
Porter’s diamond 16
Portfolio analysis 33
Potential ethical threats 101
Preparing for change – Lewin 197
I.6
G
lo
ba
l
Natural capital 81
Nature and importance of leadership 56
NEDs on the board 63
Nominations committee 65
Non-executive directors 63
Non-executive directors’ remuneration 71
Probability of effect 140
Probity/honesty 39
Process of embedding risk 121
Process of risk management 109
Profession 130
Professional behaviour 134
Professional code of ethics 134
Professionalism 130
Profession and professionalism 130
Project control 180
Project initiation document 178
Project life cycle 174
Project plan 177
Project review 181
Promoting cyber security 157
Proximity 140
Public interest 131
Public sector portfolio matrix 34
Purpose and scope of governance 41
Bo
x
N
Q
Quantitative analysis 22
www.ACCAGlobalBox.com
KAPLAN PUBLISHING
Downloaded From "http://www.ACCAGlobalBox.com"
Index
AC
C
A
G
lo
ba
l
Related risks 114
Remuneration committee 67
Reporting on internal controls to shareholders
106
Reputation 39
Responsibilities of the remuneration
committee 68
Responsibility 40
Risk appetite 118
Risk assessment 115
Risk attitude 118
Risk auditing 127
Risk capacity 118
Risk committee 120
Risk definition 108
Risk heat map 116
Risk identification 112
Risk management 109
Risk management strategies 124
Risk management strategies diversifying risk
126
Risk manager 119
Risk map 115
Risk mapping 123
Risk monitoring 127
Role of the board in risk management 118
Roles and responsibilities in risk
management and internal control 88
Roles of internal
audit department 98
Rules and principles based approaches to
corporate governance 48
Bo
x
R
KAPLAN PUBLISHING
S
Scepticism 40
Self-interest 101
Self-review 101
Social and environmental reporting 78
Social capital 77, 81
Social consequences 140
Social footprint 77
Social responsibility 52
Social responsiveness 52
Sound control systems 91
Stakeholder 53
www.ACCAGlobalBox.com
I.7
Index
T
U
Bo
x
UK Corporate Governance Code 105
Upside risks 108
Upstream supply chain management 162
V
Value chain analysis 18
Value creation process 83
Variance analysis 194
G
lo
ba
l
AC
C
A
Stakeholder claim 45
Stakeholder claims 53
Stakeholder theory 44, 53
Strategic alliance partnering 32
Strategic capabilities 17
Strategic drift 10
Strategic planning 8
Strategic planning process 9
Strategic risks 112
Strategy evaluation 29
Suitability 29
Supply chain management 160
Sustainability 77
Sustainable development 77
SWOT Analysis 19
W
What makes an effective leader? 57
Why incur risk 108
Why manage risk 108
Temporal Immediacy 140
Trait theories 57
Transparency 39
Tucker’s 5 questions 139
Types of change 196
Types of e-Business 153
I.8
www.ACCAGlobalBox.com
KAPLAN PUBLISHING