Icaew Cfab BTF 2019 Study Guide

The Institute of Chartered Accountants in England and Wales
BUSINESS,
TECHNOLOGY AND
FINANCE
For exams in 2019
Study Guide
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ii ICAEW 2019
Contents
1 Key resources 1
2 Study guide 2
3 Syllabus and learning outcomes 18
4 Technical knowledge grid 22
5 Glossary of terms 31
The Business, Technology and Finance module will provide you with an understanding of how
businesses operate and how finance functions help businesses to achieve their objectives.
ICAEW 2019 Study Guide iii

iv ICAEW 2019
1 Key resources
Whether you're studying the ACA qualification or ICAEW CFAB, with an employer, at university,
independently (self-studying), or via an apprenticeship, we provide a wide range of resources
and services to help you in your studies. They can be found on our website. Be sure to visit the
specific area for your qualification.
ACA students, you can access dedicated exam resources, guidance and information for the ACA
qualification via your dashboard at icaew.com/dashboard.
ICAEW CFAB students, you can find everything you need at icaew.com/cfabstudents.
Syllabus and technical knowledge grids
This gives you the full breakdown of learning outcomes for each module and how your technical
knowledge will grow throughout the qualification.
Study guide
This guides you through your learning process, putting each chapter and topic of the Study
Manual into context and showing what learning outcomes are attached to them.
Exam webinars
The pre-recorded webinars focus on how to approach each exam, plus exam and study tips.
Errata sheets
These are available on our website if we are made aware of a mistake within a Study Manual or
Question Bank once it has been published.
Student support team
Our dedicated student support team is here to help and advise you throughout your studies,
don't hesitate to get in touch. Email studentsupport@icaew.com or call +44 (0)1908 248 250 to
speak to an adviser.
ICAEW 2019 Study Guide 1

2 Study guide
2.1 Help yourself study for your ACA exams

The right approach
1 Develop the right attitude
Believe in yourself Yes, there is a lot to learn. But thousands have

succeeded before and you can too.
Remember why you're doing it You are studying for a good reason: to advance your
career.
2 Focus on the exam
Read through the Syllabus in this This tells you what you are expected to know.
guide
3 The right method
See the whole picture Keeping in mind how all the detail you need to know
fits into the whole picture will help you understand it
better.
 The Practical significance and Working context to
each chapter in the study guide put the material
into context.
 The Learning outcomes and Section overviews in
the study manual show you what you need to
grasp.
Use your own words To absorb the information (and to practise your written
communication skills), you need to put it into your own
words.
 Take notes.
 Answer the questions in each chapter.
 Draw mindmaps.
 Try 'teaching' a subject to a colleague or friend.
Give yourself cues to jog your The Study Manual uses bold to highlight key points.
memory
 Try colour coding with a highlighter pen.
 Write key points on cards.
4 The right recap
Review, review, review Regularly reviewing a topic in summary form can fix it in
your memory. The Study Manual helps you review in
many ways.
 Each Chapter Summary will help you to recall that
study session.
 The Self-test actively tests your grasp of the
essentials.
 Go through the Examples in each chapter a
second or third time.
2 Business, Technology and Finance ICAEW 2019

2.2 Study cycle
The best way to approach the Study Manual is to tackle the chapters in order. We will look in
detail at how to approach each chapter below but as a general guide, taking into account your
individual learning style, you could follow this sequence for each chapter.
Key study steps Activity
Step 1 This topic list is shown in the contents for each chapter and helps you
Topic list navigate each part of the book; each numbered topic is a numbered
section in the chapter.
Step 2 The practical significance and working context sections for each
Introduction chapter, set out in this study guide give you the big picture in terms of
the context of the chapter. The Examination context guidance shows
what the examiners are looking for and tells you why the topics covered
in the chapter need to be studied.
Step 3 Section overviews give you a quick summary of the content of each of
Section overviews the main chapter sections. They can also be used at the end of each
chapter to help you review each chapter quickly.
Step 4 Proceed methodically through each chapter, particularly focusing on
Explanations areas highlighted as significant in the chapter introduction or study
guide.
Step 5 Take brief notes, if you wish. Don't copy out too much. Remember that
Note taking being able to record something yourself is a sign of being able to
understand it. Your notes can be in whatever format you find most
helpful; lists, diagrams, mindmaps.
Step 6 Work through the examples very carefully as they illustrate key
Examples knowledge and techniques.
Step 7 Check yours against the suggested solutions, and make sure you
Answers understand any discrepancies.
Step 8 Review it carefully, to make sure you have grasped the significance of all
Chapter summary the important points in the chapter.
Step 9 Use the Self-test to check how much you have remembered of the
Self-test topics covered.
Step 10 Ensure you have ticked off the Learning outcomes.
Learning outcomes
Moving on...
When you are ready to start revising, you should still refer back to the Study Manual.
 As a source of reference (you should find the index particularly helpful for this).
 As a way to review (the Section overviews, Examination context, Chapter summaries and
Self-test questions help you here).
Remember to keep careful hold of the Study Manual – you will find it invaluable in your work.
2.3 Detailed study guide

Use this schedule and your exam timetable to plan the dates on which you will complete each
study period below.
Revision phase – your revision should be centred around using the questions in the ICAEW
Question Bank.

Study Due
period Practical significance Working context Approach Syllabus references and exam context date
1 Introduction to business As you build up your Read through Chapter 1 of the Study While the material in this chapter is
Appreciating what is meant by exposure to different Manual quickly to obtain the background essentially introductory, questions on
the term 'business' underlies organisations in audit or knowledge of which you must be aware. business objectives will be directly
everything that we study in this other professional Learn the definitions in the chapter, and the examined.
exam and others at Certificate engagements, you will list of stakeholders and their interests. Make
Questions are likely to be set in
and Professional level. begin to see that while sure you are clear about the importance of
multiple choice format, either as a
they vary tremendously in the entity's primary and secondary
Stop and think straight test of knowledge or in a
their operations and objectives as well as the SMART
scenario.
You may or may not already have environment, the characteristics.
personal experience of dealing fundamental features of Essential points are:
Finally work through the self-test questions
with and/or working in a business organisations
carefully to ensure that you have grasped • The definitions of organisations and
business. Whatever your level of remain the same.
the main points in the chapter. businesses
experience, you will find it useful
to address right now some of • Stakeholders and their interests
your preconceptions about
'business': what do you think are • The definitions of natural capital,
the key features of a business? sustainability and corporate
responsibility
To answer this you may like to
think in terms of organisations: • The nature and desirable qualities
what do you think are the key of objectives
features of any organisation? Why The specific syllabus references for this
do organisations come into chapter are: 1a, 1b, 5g.
being? What does an
organisation achieve that could
not be achieved by an individual
working alone? What is different
about a business as opposed to,
say, a charity or a government
department? Who is keen to see
a business succeed? How do they
know when it does so?

Study Due
2 Managing a business As you build up your Read sections 1 to 8 of Chapter 2 quickly to Questions on the nature of
In order to understand how a exposure to different get an idea of the principles at issue when management, business functions and
business works you need to organisations in audit or managing a business, then study each organisational behaviour could all
appreciate how it is managed: other professional section again more slowly, making sure you easily appear in the exam.
what are the roles and tasks of engagements, you will learn the definitions and can distinguish
individual managers, and how do begin to see that while between the concepts of power, authority,
multiple choice format; straight tests of
these fit together to form a they vary tremendously in responsibility, accountability and
knowledge and scenarios are equally
coherent management structure? their operations and delegation. You should learn too the
likely.
environment, the distinctions between the different types of
Stop and think fundamental features of manager, and the four parts of the Essential points are:
You may or may not already have management remain the management process.
• Distinction between power,
personal experience of being same.
Once you are happy with this you should authority, responsibility,
managed, or even of managing
read through sections 9 to 13 on the non- accountability and delegation
other people. Whatever your
level of experience, you will find it finance functions in any business before
• Line, staff, functional and project
useful to address right now some studying each section, and their definitions,
managers, and the management
of your preconceptions about more slowly. Finally you should read at least
hierarchy
'management': what do you think twice through section 14 on organisational
makes a good manager, and behaviour, and then learn the main features • Management process: plan,
what exactly do managers get up of as many of the theories contained in it as organise, control, lead
to? you can. • Marketing, especially the 7P
To answer this you may like to Finally, try the self-test questions at the end elements of the marketing mix
think in terms of what managers of the chapter. • The determinants of behaviour in
set out to achieve and how they organisations, motivation and
work together to get there.
groups
• The determinants of behaviour in
organisations, motivation and
groups
• IT management and the internet of
things
Specific syllabus references are: 1c, d;
7d.

Study Due
3 Organisational and business As you build up your Chapter 3 falls into two parts: organisational Questions on both organisational and
structures exposure to different structure and business structure. Start by business structures could easily appear
When looking at the overall organisations in audit or reading quickly through sections 1 to 5 to in the exam.
other professional get a good grounding in what is meant by
shape of a business there are two Questions are likely to be set in
engagements, you will organisational structure and the key issues
factors to consider: what multiple choice format and in a
begin to see the difference presented. Next work through each of the
organisational structure the scenario context. Knowledge-type
between the structures five sections slowly, making sure you
business takes (is it centralised or questions are also likely, based on
and forms that understand the links between the topics.
decentralised, for instance?), and particular principles, theories or
what business structure it takes (is organisations take.
Next you should read through sections 6 to models.
it a company, or a group of 9 on the legal forms of business structure
companies, say?). Essential points are:
quickly to grasp the basic issues, then go
Getting the right organisational back and study first sole tradership, then • Mintzberg's building blocks
structure is key to operational partnership and then incorporation in turn. • Fayol's classical principles
success, while using the right Once you are happy that you understand
business structure is often central • Mintzberg's types of business
the factors that help determine which
to financial success as well. structure and their features
business structure an entity takes, study
section 10 on the key decision between • Centralisation and decentralisation
Stop and think
trading as a company or partnership. • Business shapes (tall or flat), the
You may already have personal management hierarchy, span of
experience of different business Finish your study of this chapter by reading
through section 11 on the different types of control and scalar chain
structures: you may be employed
alliance very carefully, as this is a key • Definitions and features of sole
by a large partnership, and you
practical topic. traders, partnerships and
may audit large groups of
companies. The structure each companies
Finally work through the self-test questions
business takes is determined by a at the end of the chapter. • Advantages and disadvantages of
variety of factors such as each business structure
regulation, tax efficiency and • Deciding whether to incorporate
history. But whatever its business
structure, its organisational • Types of alliance
structure will be determined by • The effect of technology on
how best it can do business. A structure
global business, for instance, will Specific syllabus references are:
have to make sure that it is 1c, d; 2a, b.
organised so that there is the
optimum balance of local
autonomy and centralised
direction and reporting.

Study Due
4 Introduction to business strategy As you build up your Chapter 4 is key to this syllabus and you Questions on the strategic
exposure to different need to make sure you study the whole of it management process and on the
Every well-managed business
organisations in audit or very carefully indeed. differences between strategies and
should have an overall direction
other professional plans at different levels in the business
or strategy, around which all the Start by reading through sections 1 and 2 at
engagements, you will could easily appear in the exam.
more detailed plans of the least twice, then read carefully through
begin to see the ways in
business are constructed. While section 3, which sets the scene for the rest Questions are likely to be set in
which a business's strategy
the strategic management of the chapter. multiple choice format and in a
drives all its operations.
process is not something that you scenario context. Knowledge-type
Next work your way methodically through
are likely to encounter in practice questions are also likely, based on
each of sections 4 to 9, which follow
early in your training, it is particular principles, theories or
through each part of the strategic planning
something of which you should models.
process. Focus on the essential points listed
be aware as it underlies the
here. Essential points are:
activities of organisations that are
your clients. An understanding of The self-test questions at the end of the • Corporate, business and functional
the process of strategic chapter cover the most important points strategies
management and how it fits into learnt so finish the chapter by working • Strategic planning process
the business's day-to-day through them.
operations also allows you to • PESTEL analysis
appreciate some of the • Porter's five forces
complexities of the situations in
• Competitor analysis
which businesses find
themselves. • Porter's value chain
Stop and think • BCG matrix
What does the word 'strategy' • SWOT analysis

mean to you? Can you identify • Stakeholder mapping
some strategies that you
• Porter's generic competitive
personally have, such as a
strategy to pass your exams? strategies
Think about how you have • Ansoff's matrix
formulated any such strategy, and
• SFA analysis
what you do to keep it on course.
Specific syllabus references are:
1b, e, f, g.

Study Due
5 Introduction to risk management As you build up your There is quite a lot of detail and Questions on risk management could
The effective management of risk exposure to different terminology associated with risk easily appear in the exam.
is a key task in any business and organisations in audit or management so you need to study Chapter
accountants can get heavily other professional 5 relatively slowly; as you proceed, go back
multiple choice format and in a
involved in the process of engagements, you will over what you have covered as often as you
scenario context. Knowledge-type
identifying, measuring and begin to see the ways in can so that you grasp why the concept of
questions are also likely, set on
monitoring risk. Whether a which risk management is risk and its management are so important to
particular principles or definitions.
business thrives or fades is integrated into their business.
determined at least in part by operations. Risk is also an Essential points are:
Read through sections 1 to 7 slowly and
how it manages the risks that important issue in
carefully, focusing on each of the essential • Risk, uncertainty and their effects on
things may go wrong, and how planning audit
points listed here. Sections 4, 5, 6 and 7 are businesses themselves and their
far it exploits its opportunities, engagements.
especially important. Then read through investors
where things go well. Risk In your work as an sections 8 and 9 at least twice: remember
• Attitudes to risk
management is, therefore, not accountant, you must be crisis management and planning for
merely a defensive attempt to mindful to help protect disaster recovery are extreme forms of risk • Risk classifications
avoid losses; it is integral to both your firm and your management. • Cyber risk, cyber attack and cyber
seeking and exploiting clients from cyber risk
Finish the chapter by trying all of the self- security
competitive advantage. In (loss, damage or
addition, effective risk evaluation test questions. • Risk concepts: exposure, volatility,
disruption to information
and management is increasingly technology systems due to impact and probability
becoming a regulatory accidents, breaches of • Definition of risk management
requirement. security, cyber-attacks or
poor systems integrity). • Risk management process
Stop and think
What does the term 'risk' mean to • The risk assessment map
you? Have you considered how • Crisis management
you manage the risks that worry
you most in your life? Do you just • Disaster recovery
accept that we all have to live with Specific syllabus references are: 1h, i;
risk or do you try to find ways to 7c.
minimise how much you would
suffer if a perceived risk actually
happened? These are the issues
that face businesses as well.

Study Due
6 Introduction to financial As you build up your Chapter 6 covers the importance of good Questions on financial information
information exposure to different financial information and of keeping it could easily appear in the exam.
organisations in audit or secure.
The provision and use of financial Questions are likely to be set in
other professional
information lies at the core of the Start by reading through sections 1 and 2 at multiple choice format in a scenario
engagements, you will see
accountant's work. least twice, making sure you understand the context. Knowledge-type questions are
how and why businesses
different types of information and the also likely on particular definitions or
Stop and think need financial information,
different uses to which it can be put. Next principles.
and their attitudes towards
It is all too easy just to accept that read section 3 carefully, learning the
it. Essential points are:
information on a business's ACCURATE mnemonic, then read through
finances is useful. Why is it useful, It is likely that at some sections 4 to 7 at least twice to cover data • Uses and types of information
or rather, what makes it useful? point you will need to (including 'big data', data science and data • Good ACCURATE information
To whom is it useful, and when? demonstrate an ability to analytics, and cloud accounting), intelligent
• Value and cost of information
Where does it come from, and use and manage big data systems and automation, information
how should it be kept? effectively. processing (CATIVA), processing systems • Sources of data, big data, data
(including cloud accounting), distributed science and data analytics
Technology is developing rapidly
ledger technology, digital assets, • Information processing: CATIVA
and impacts all areas of business.
information management and security
An important change is that • Cloud accounting, TPS and MIS
(ACIANA).
businesses have access to ‘big • Information management
data’ which originates from The remainder of Chapter 6 covers financial
• Information security: ACIANA
sources internal and external to information specifically, and contains many
the organisation. links to other parts of the Business, • Intelligent systems, automation,
Technology and Finance syllabus, and distributed ledger technology and
indeed to other parts of the Certificate and digital assets
Professional syllabus. Start by reading • System controls
through sections 8 to 10 quickly once, to
• Users of financial information
get an idea of the issues covered, then go
back and work methodically through each • Information to support decisions
section. • Qualitative characteristics of
The self-test questions at the end of the financial statements
chapter cover the most important points • Limitations of financial information
learnt so finish the chapter by working
through them.
3a, d, e, 7a, b, d.

Study Due
7 The business's finance function As you build up your In Chapter 7 you cover what the business's Questions on the finance function
exposure to different finance function is for and how it sets about could easily appear in the exam.
The role and management of the organisations in audit or its tasks.
finance function is of key Questions are likely to be set in
other professional
importance to any business and Read quickly through sections 1 and 2 for multiple choice format and in a
engagements, you will see
to any accountant involved with context, then study section 3 carefully so scenario context. Knowledge-type
what there is in common in
that business. that you have an overall picture of the questions are also likely, set on
finance functions, and
varied tasks undertaken by the finance particular principles or definitions.
Stop and think where any differences lie.
function in a business, and its typical
Essential points are:
What actually happens in the structure.
finance function of a business, as • Tasks of the finance function
Devote some time to section 4 on
opposed to its marketing, • Structure of the finance function
measuring performance, especially the
production/operations and
different types of measure (financial/non-
human resources functions? How • Measuring performance
financial, quantitative/qualitative,
does the finance function fit in, • Establishing financial control
profitability/activity/ productivity). Make
and how does it support the processes and internal controls
sure you understand what is meant by CSFs
other functions and thereby help
and KPIs, and that you appreciate the role Specific syllabus references are:
the business to achieve its
of performance measurement in natural 1g; 3a, b, c, e, f.
strategic objectives?
capital and sustainability management.
Study the limitations of financial measures
carefully before reading the balanced
scorecard at least twice. Read through
section 5 on establishing financial control
processes and internal controls.
Finally try the self-test questions at the end
of the chapter.

Study Due
8 Business finance The financial health of a Chapter 8 is devoted to the issues faced by Questions on the banking system and
business will be directly businesses when it comes to obtaining sources of finance could easily appear
Businesses have an ongoing impacted by how it funds finance. in the exam.
capital requirement if they are to itself – in particular the
continue to meet the First of all make sure that you study section Questions are likely to be set in
amount of debt used ie, 1 very carefully, on the concepts of risk and
shareholders' objective of multiple choice format and in a
the capital structure return. Next read through section 2 on the
maximising wealth. The implicit scenario context. Knowledge-type
decision. Business finance banking system quickly, then go back and
growth agenda that this creates questions are also likely, set on
is therefore something that make sure you are clear about the roles of
means companies need access to particular principles or definitions.
will enter the working financial intermediation in general and the
sources of finance. context of most Essential points are:
different types of bank in particular. The
Stop and think accountants. four contractual relationships between • Risk v return
banks and their customers are also
Where does a business get its • Types of bank
important, as are the bank's and the
finance from? How does the
customer's duties. • The banker/customer relationships
banking system work, and what is
the nature of a business's Now read quickly through sections 3 and 4 • Duties and rights of banks and
relationship with banks and other on money markets and the capital market customers
lenders? for business finance before focusing your
• Money market instruments
attention on sections 5 and 6 on equity and
debt finance. Read these two sections • Constituents of the capital market
through quickly then study each one slowly • Sources of equity finance
and methodically, making sure you learn
• Sources of debt finance
the different types of finance within each
category, and the occasions when each is • Financing a growing business
most suitable. • Financing exports
You should take the same approach with Specific syllabus references are:
sections 7 and 8 on financing a growing 3g, h, i, j.
business and financing exports.
Now go back one more time over all the
sections you have studied to make sure you
are happy with what you have learned.
Try the self-test questions. These give you a
very good idea of the types of question that
you will encounter in the exam.

Study Due
9 The professional accountant As you progress in your In Chapter 9 we switch to the syllabus area Questions on the professional
career, you are likely to that covers the accountancy profession. accountant will almost certainly appear
In what way do accountants face many challenges and Read through sections 1 and 2 to grasp the in your exam.
support the public interest as well dilemmas that will require main focus of this chapter: the necessity for
as their own? What would Questions are likely to be set in
you to apply your an individual professional accountant to
happen if there was no public multiple choice format and in a
professionalism. show integrity (professional responsibility)
trust in professional accountants? scenario context, though knowledge-
and expertise (technical competence). Then
How far is the standing of the Your working life will be type questions are also likely, on
read through section 3 on the conceptual
profession identified with affected by the pace of particular principles or definitions.
framework and professional responsibility
technical competence, and how technological change. This
and the detail in section 4 on technical Essential points are:
far with 'professionalism'? And is especially true in
competence: learn as much as you can of
when should a professional regards to areas such as • Importance of accountancy
this section.
accountant acknowledge the transactions processing,
Read through section 5 before studying • Professional responsibility
limits of their expertise? assurance and auditing. It
is likely that as a future sections 6 and 7 on accounting principles • The conceptual framework
Working context accountant, your time will and standards. In this exam you need to
• Technical competence
Presumably you entered the be freed up to do more focus on the range of principles and their
accounting profession because value-added work (such as impact on the professional accountant's • Accounting principles
you endorsed its work and its providing advice) rather work.
• Limits of responsibilities
value. There can be many than the more basic You should read sections 8 and 9 together,
challenges and dilemmas in the accountancy functions. to give you a grasp of the varying roles of • Technological impacts on
working context, which will the professional accountant and, perhaps accountants and auditors
become increasingly evident as more importantly, the limits to those roles. Specific syllabus references are:
you widen your exposure to The final section on technology 4a, b, c, 7e.
business environments. developments and the accountancy
profession sets out the impacts technology
has had on both accounting and auditing.
Make sure you are happy with how the
types of technology you have studied will
affect the work that you do.
Finish the chapter by trying the self-test
questions. These give you a very good idea
of the types of question that you will
encounter in the exam.

Study Due
10 Structure and regulation of the Professional training, In Chapter 10 we look at the accountancy Questions on the structure and
accountancy profession professional principles and profession as a whole and the way it is regulation of the profession will almost
accounting principles regulated. Read sections 1 to 4 quickly then certainly appear in your exam.
The position of trust in which the together should ensure again much more carefully, making sure you
public holds accountants means Questions are likely to be set in a
that professional understand the principles behind how and
that there is considerable scope multiple choice format and in a
accountants carry out their why the accountancy profession is
for abuse of trust. As with other scenario context, though knowledge-
roles and tasks to a high regulated; these topics are highly
professions, therefore, the law type questions are also likely on
standard. Regulation helps examinable. You must complete interactive
requires that the activities of particular principles or definitions.
to ensure this, but it is also question 1 and learn the answer, which sets
accountants should be regulated there to 'find out' out the aims of regulation of the Essential points are:
to ensure there is public wrongdoers. In a working accountancy profession. Then study
confidence. • Structure of the accountancy
context, therefore, you section 5 on the regulation of the financial
profession
Stop and think need to be aware of both services industry closely. Next, read through
the requirements of section 6 on disciplinary procedures against • FRC
You are probably well aware that
regulations and the role accountants several times. There is a lot of • Accountancy and audit regulation
both the profession and business
and process for detail here, about both ICAEW's and the
in general are increasingly • Financial services regulation
disciplinary procedures. FRC's disciplinary procedures, which you
subject to regulation, 'oversight'
need to learn. • ICAEW disciplinary procedures
and, some would say,
interference. Why is this so, and The self-test questions at the end of the • FRC disciplinary procedures
how has it affected the profession chapter cover the important points learnt so
and the people in it? finish the chapter by working through them. Specific syllabus references are:
4b, c.

Study Due
11 Governance and ethics As you become more Read through sections 1 to 4 of Chapter 11 Questions on governance and ethics
Governance and ethics have familiar with audit and quickly and then again more slowly, making are almost certain to appear in your
become major issues in recent assurance engagements sure you understand the idea that there is a exam.
years and ones which have a you will see how the need fundamental tension between shareholders
direct impact on many areas in both to support and to and directors that needs to be addressed
multiple choice format in a scenario
which professional accountants report on a business's via corporate governance. Then study
context, though knowledge-type
operate, especially audit and governance is a key part of section 5 very closely, learning the five key
questions are also likely on particular
financial reporting. an accountant's role. You elements of good governance. Next, read
definitions and principles.
will also begin to section 6 on financial systems, making sure
Stop and think appreciate what is meant you can see why the importance of Essential points are:
What does the word 'governance' by professional and institutional shareholders derives from the
• Agency theory: information and
mean to you? How is it different business ethics – and you nature of the UK financial system, and why
accountability
to 'management'? Who governs a may see the effects of low in some other countries banks dominate.
business – shareholders or standards of ethics as well This leads into section 7, where you must • Perspectives on corporate
directors/managers? And who is as high ones! learn the OECD Principles, the distinction governance
it governed for? between unitary and dual board structures, • Symptoms of poor corporate
and the outline of the overall UK governance
governance structure.
• Good practice in corporate
Read very carefully section 8 on business governance: key elements
values and ethics, and the ways in which an
ethical culture can be promoted. Then • Financial systems
attempt the self-test questions at the end of • OECD Principles
the chapter. These give you a good idea of
the types of question you will encounter in • Unitary v dual boards
the exam. • UK governance structure
• Business values, business ethics and
an ethical culture
5a, b, d, g, h.

Study Due
12 Corporate governance The rules on governance In Chapter 12 there is a lot of detail on the Questions on corporate governance
have had a profound effect UK Corporate Governance Code that you are certain to appear in your exam.
Having established that corporate
on both assurance and need to learn, so read through section 1
governance is a good thing, we Questions are likely to be set in
financial reporting in the quickly first and then tackle each sub-
need to consider now how the multiple choice format in a scenario
UK. They have focused section in turn, learning as much detail as
chosen approach in the UK context, though knowledge-type
attention on the you can. Next, tackle section 2: read it
affects directors, managers and questions are also likely on particular
importance of both of through, learning the main principles of the
auditors. definitions and principles.
these fundamental Code as you go.
Stop and think functions of the Essential points are:
Next read section 3 on engaging
How does the need to exercise accountancy profession.
institutional shareholders. You should learn • The UK Corporate Governance
overall control so as to get things the principles of the Stewardship Code, Code
done properly affect a company then read through sections 4 and 5 on the
• Comply or explain
in its day to day operations? What roles of external and internal audit in
would happen if there were no corporate governance. • Main principles of the UK Corporate
specific rules in place for large Governance Code
Don't forget to attempt the self-test
companies?
questions at the end of the chapter. • The Stewardship Code
• Roles of external and internal audit
5c, e, f.

Study Due
13 The economic environment of As your exposure to Chapter 13 covers the economic Questions on the economic
business and finance different businesses environment in which businesses operate. environment will certainly come up in
increases you will Read through section 1 quickly, then focus your exam.
Every business needs to be aware on section 2 on macroeconomics. There is a
appreciate how significant
of the factors in the wider lot to take in here and it is a good idea to Questions will be set in multiple choice
the effect of the economic
macroeconomic environment that spend as long as you can on this section. format, in either a scenario context or
environment is on all areas Now read section 3 to gain an understanding
will affect its operations. as a test of knowledge of key
of enterprise. of the market mechanism (demand and
Understanding the workings of principles.
the market mechanism at a supply) as it applies in the microeconomic
environment, then study section 4 on Essential points are:
microeconomic level is also of
demand very carefully, following through the
huge practical importance, for • Macroeconomics
worked example and making a good
instance in setting prices, attempt at the interactive questions. Make • The role of government, consumers,
approaching the effects of sure you are completely happy with the savers and businesses in the
shortages of key resources, and demand curve and the factors that national economy
knowing when is a good time to determine the level of demand. Next pay the
• The business cycle
invest or divest. same degree of attention to section 5 on
supply and its determinants. Only once you • Inflation
Stop and think are happy with these topics, should you • Government policy on aggregate
What effect do interest rates, study section 6 on the equilibrium price and demand (monetary and fiscal policy)
the various factors that impact on it.
exchange rates, inflation and the • Government supply-side policies
business cycle have on How far is demand affected by the various
factors considered? The answer to this is in • The market mechanism
businesses? What determines
section 7 on elasticity: price and income • Demand
how much we earn and what we
elasticity of demand, cross elasticity of
pay for goods and services? What • Supply
demand, and price elasticity of supply are
would be the effect of a key all important concepts which you must • Equilibrium price
competitor going out of understand and be able to calculate, so • Effects of price regulation
business? How can we decide study this section very closely.
what to do when we have limited • Elasticity concepts and calculations
Read through section 8 on types of market
resources? structure very carefully, learning the • Market structures
characteristics of each type. Then study • Free markets
section 9 on free markets, making sure you
• Market failure
are clear about the arguments for and
against completely unregulated markets, Specific syllabus references are:
and the reasons why markets fail. These are 6a, b, c.
highly examinable topics.

Study Due
14 External regulation of business You may find yourself on In Chapter 14 we return to the principles of You will almost certainly encounter a
an engagement where one regulation, this time in the context of question on business regulation in your
For many people working in
of the key risks is that the businesses rather than the accountancy exam.
business, the practical reality is
company fails to comply profession. Read through section 1 very
that there is a great deal of Exam questions are likely to be set in
with, or even fails to be carefully. It draws together quite a few ideas
regulation of their activities, multiple choice style and in a scenario
aware of, regulations that that we have already seen, such as market
which imposes a burden from context, though knowledge-type
affect it. failure, protection of the public interest and
which they feel little benefit. questions on key points and principles
the nature of regulation. Then study section
are also possible.
Stop and think 2 equally carefully, completing the
interactive questions and making sure you Essential points are:
Why are businesses regulated so
much and what is regulation understand the intended and actual effects
• Why business is regulated
intended to achieve? What does of regulation on business.
• Intended outcomes of regulation
it actually achieve? How are UK We then move on to some specific
businesses affected by examples of government regulation of • Responses to regulation
international regulation? business: of competition (section 3) and of • Regulation of competition
externalities (section 4). Study each of these
sections very carefully before paying • Government intervention in free
equally close attention to section 5, on markets
direct regulation of people engaged in • Insider trading, market abuse,
business activities. market manipulation, fraudulent
Skim through section 6 then pay careful and wrongful trading, directors'
attention to trade in section 7. disqualification, money laundering
Finish by completing the self-test questions • Free trade and protectionism

at the end of the chapter. These give you a Specific syllabus references are:
good idea of the types of question you will 6d, e.
encounter in the exam.

3 Syllabus and learning outcomes
Covered
in chapter
1 Business objectives and functions

Students will be able to identify the general objectives of businesses and the
functions and tasks that businesses perform in order to meet their objectives.
In the assessment, students may be required to:
(a) state the general objectives of businesses; 1
(b) state the general objectives of strategic management and specify the
strategic management process and interrelationship between a business's
vision, mission and strategic objectives; 1, 4
(c) identify the various functional areas within businesses and show how the
functions assist the achievement of business objectives; 2, 3
(d) identify the nature and functions of organisational management, human
resources management and operations management and show how these
are influenced by human behaviour; 2, 3
(e) identify the relationship between a business's overall strategy and its
functional strategies; 4
(f) identify the nature and purpose of strategic plans, business plans and
operational plans; 4
(g) specify how a strategic plan is converted into fully-integrated business and
operational plans; 4, 7
(h) identify the main components of the risk management process and show
how they operate; and 5
(i) identify the key issues in relation to risk and crisis management. 5
2 Business and organisational structures

Students will be able to specify the nature, characteristics, advantages and
disadvantages of different forms of business and organisational structure.
(a) identify the differences between businesses carried out by sole traders,
partnerships, limited liability partnerships, companies, alliances and groups,
and show the advantages and disadvantages of each of these business
structures; and 3
(b) identify different organisational structures and specify their advantages and
disadvantages. 3

Covered
in chapter
3 The role of finance

Students will be able to identify the purpose of financial information produced by businesses,
specify how finance functions support business operations and identify sources and methods of
finances for businesses.
(a) specify the extent to which financial information:
 provides for accountability of management to shareholders and other
stakeholders
 reflects business performance
 is useful to users in making decisions; 6, 7
(b) specify how finance functions support businesses in pursuit of their
objectives; 7
(c) identify the main considerations in establishing and maintaining accounting
and financial reporting functions and financial control processes; 7
(d) identify, in the context of accounting and other systems, the issues
surrounding:
 information processing
 information security
 information management; 6
(e) specify why the management of a business require information about
performance measurement including an entity's sustainability management
and natural capital; 6, 7
(f) identify the accountant's role in preparing and presenting information for
the management of a business; 7
(g) specify the relationship between a business and its bankers and other
providers of financial products; 8
(h) identify the characteristics, terms and conditions and role of alternative
short-, medium- and long-term sources of finance available to different
businesses; and 8
(i) identify the processes by which businesses raise equity, capital and other
long-term finance; 8
(j) identify appropriate methods of financing exports, including:
 bills of exchange
 letters of credit
 export credit insurance 8

Covered
in chapter
4 The role of the accountancy profession

Students will be able to specify the role of the accountancy profession and why the work of the
profession is important.
(a) identify the importance to the public interest of high quality, accurate
financial reporting and assurance; 9
(b) specify the rationale for key parts of the profession's work and the links
between the public interest, technical competence and professional
responsibility, including accounting principles, accounting standards and
sound business management; and 9, 10
(c) specify the key features of the structure of the accountancy profession, the
regulatory framework within which professional accountants work and the
ways in which the accountancy profession interacts with other professions. 9, 10
5 Governance, sustainability, corporate responsibility and ethics

Students will be able to identify the role that governance plays in the management of a business
and specify how a business can promote corporate governance, sustainability, corporate
responsibility and an ethical culture.
(a) state the reasons why governance is needed and identify the role that
governance plays in the management of a business; 11
(b) identify the key stakeholders and their governance needs for a particular
business; 11
(c) identify and show the distinction between the roles and responsibilities of
those charged with corporate governance and those charged with
management, including the basics of the UK's corporate governance code; 12
(d) specify how differences in legal systems and in national and business
cultures affect corporate governance; 11
(e) identify the roles and responsibilities of the members of the executive
board, any supervisory board, the audit committee and others charged with
corporate governance, internal audit and external audit; 12
(f) identify the roles and responsibilities of those responsible within a business
for internal audit and for the external audit relationship; 12
(g) specify the nature of ethics, business ethics, sustainability and corporate
responsibility; and 1, 11
(h) specify the policies and procedures a business should implement in order
to promote an ethical culture. 11

Covered
in chapter
6 External environment
Students will be able to specify the impact on a business of the environment in which it operates
including the potential effects of sustainability issues.
(a) specify the signalling, rewarding and allocating effects of the price
mechanism on business (including the concept of price elasticity); 13
(b) specify the potential types of failure of the market mechanism and their
effects on business; 13
(c) identify the key macroeconomic factors that affect businesses; 13
(d) specify the principal effects of national and international regulation upon
businesses; and 14
(e) show how the needs of different stakeholders in a business (eg, shareholders,
the local community, employees, suppliers, customers) impact upon it. 14
7 Technology
Students will be able to identify key features, benefits and risks of different technologies.
(a) identify the characteristics of big data and the different types and sources of
data; 6
(b) specify uses of data science and data analytics by organisations; 6
(c) specify different types of cyber risk and attack and the steps organisations
can take to improve cyber security; 5
(d) specify the features and uses of cloud accounting, the internet of things,
digital assets and distributed ledger technology; and 2, 6
(e) identify the effect of technology developments, including those relating to
automation and intelligent systems, on the accountancy profession. 9

4 Technical knowledge grid
4.1 Technical knowledge

The tables contained in this section show the technical knowledge in the disciplines of financial
reporting, audit and assurance, business analysis, ethics and taxation covered in the ACA
syllabus by module.
For each individual standard the level of knowledge required in the relevant Certificate and
Professional Level module and at the Advanced Level is shown.
The knowledge levels are defined as follows:
Level D
An awareness of the scope of the standard.
Level C
A general knowledge with a basic understanding of the subject matter and training in its
application thereof sufficient to identify significant issues and evaluate their potential
implications or impact.
Level B
A working knowledge with a broad understanding of the subject matter and a level of
experience in the application thereof sufficient to apply the subject matter in straightforward
circumstances.
Level A
A thorough knowledge with a solid understanding of the subject matter and experience in the
application thereof sufficient to exercise reasonable professional judgement in the application
of the subject matter in those circumstances generally encountered by chartered accountants.
Key to other symbols:
→ The knowledge level reached is assumed to be continued

Business Analysis
Certificate and Professional Levels
Business Strategy
Technology and
and Technology
Advanced Level
Management
Management
Topic
Information
Business,
Financial
Finance
STRATEGIC ANALYSIS
Environmental and market analysis tools
PESTEL analysis C A →
Porter’s five forces C A →
Product life cycle C A →
Boston consulting group matrix C A →
Prices and markets C A →
Competitor analysis C A →
Positional and other analysis tools
Resource audit C A →
Resource-based strategy C A →
Value chain analysis C A →
SWOT analysis C A →
Gap analysis C A →
Marketing analysis C A →
Competitive advantage C A →
Benchmarking C A →
Directional policy matrix B
Business process analysis B A
Strategic risk analysis A →
Balanced scorecard C A →

Business Strategy
Technology and
and Technology
Advanced Level
Management
Management
Topic
Information
Business,
Financial
Finance
STRATEGIC CHOICE
Strategy formulation, evaluation and choice C A →
Business risk management C A →
Financial analysis and data analysis A →
Stakeholder analysis C A →
Objectives and stakeholders’ preferences C A →
Corporate responsibility and sustainability C B A
STRATEGIC IMPLEMENTATION
Business plans C A →
Organisational structure C A →
Information management C B A
Change management A →
Project management A
BUSINESS MANAGEMENT
Performance management C A
Strategic marketing and brand management B A
Corporate Governance C B A
Information strategy B A
Human resource management C A

Business Strategy
Technology and
and Technology
Advanced Level
Management
Management
Topic
Information
Business,
Financial
Finance
COST ANALYSIS FOR DECISION MAKING
Costing
Cost classification A → →
Costing systems – direct, marginal, absorption B → →
Activity based costing (ABC) C → B
Break even analysis B → A
Multi-product break even analysis B
Budgeting and performance management B → A
Pricing
Pricing decisions B A →
Transfer pricing B A →
Decision making techniques
Expected values B A
Relevant cash flows B A
Sensitivity analysis B A
BUSINESS AND SHAREHOLDER VALUE
Valuation Techniques
Income – dividend yield B A
Income – P/E B A
Income – discounted cash flow B A
Asset based measures B A
Options approach B

Business Strategy
Technology and
and Technology
Advanced Level
Management
Management
Topic
Information
Business,
Financial
Finance
Shareholder value
Value based management (VBM) B
Value drivers B A
Shareholder value analysis (SVA) B A
Short and long term growth rates and terminal A

values
Economic profit A
Cash flow return on investment (CFROI) A
Total shareholder return (TSR) A
Market value added (MVA) A
INVESTMENT APPRAISAL AND RISK ANALYSIS
Project appraisal
NPV B A →
IRR B A →
Payback B A →
Relevant cash flows A →
Tax and inflation A →
Replacement Analysis A →
Capital rationing A →
Adjusted present value (APV) A →

Business Strategy
Technology and
and Technology
Advanced Level
Management
Management
Topic
Information
Business,
Financial
Finance
Assessing risk
Project appraisal and sensitivity analysis B A
Project appraisal and simulation B A
Expected values B A
Scenario planning A
Gap analysis B →
Continuous vs. event risk B →
FINANCIAL ANALYSIS
Cost of capital
Cost of equity B A
Cost of debt B A
Cost of preference shares B A
Cost of bank loans B A
Weighted average cost of capital (WACC) B A
Effective interest rates A
Splitting convertibles into equity and debt A

elements
Equity instruments A
Portfolio theory and CAPM
Portfolio theory B A
CAPM B A
APT and MCPM A
CAPM and cost of capital B A
International cost of capital A

Business Strategy
Technology and
and Technology
Advanced Level
Management
Management
Topic
Information
Business,
Financial
Finance
Bonds and fixed interest securities
Bond pricing using NPV A
Yields to maturity A
Duration and price volatility A
Convexity A
Term structure of interest rates A
Corporate borrowing and default risk A
SOURCES OF FINANCE AND FINANCING ARRANGEMENTS
Short, medium and long term sources of finance C A
Loan agreement conditions (warranties; B A

covenants; guarantees)
Raising capital C A
Gearing and capital structure A →
Loan agreements and covenants A →
Dividend policy A →
Financing reconstructions (eg, group B A

reconstruction, spin off, purchase of own shares,
use of distributable profits)
Treasury and working capital management C A
Small and medium company financing B
History of finance C

Business Strategy
Technology and
and Technology
Advanced Level
Management
Management
Topic
Information
Business,
Financial
Finance
FINANCIAL ENGINEERING
Futures, options and swaps
Options B A
Interest rate futures B A
Interest rate options B A
Interest forward rate agreements (FRAs) B A
Interest rate swaps B A
Foreign exchange
Currency forward contracts B A
Currency money market cover B A
Currency options B A
Currency swaps B A
Operational techniques for managing currency B A

risk
Theoretical determinants of foreign exchange B A

rates
Option value
Value of a call and put option C B
Black Scholes option pricing model B
Binomial Option Pricing Model B
Real options C B

Ethics Codes and Standards
Ethics Codes and Standards Level Modules
IESBA Code of Ethics for Professional Certificate Level
Accountants
C/D Accounting
(parts A, B and C and Definitions) B Assurance
C/D Business, Technology and Finance
ICAEW Code of Ethics Law
D
C Management Information
C Principles of Taxation
Professional Level
A Audit and Assurance
B Business Strategy and Technology
B Financial Accounting and Reporting
B/C Financial Management
B Tax Compliance
B Business Planning
Advanced Level
A Corporate Reporting
A Strategic Business Management
A Case Study
FRC Revised Ethical Standard (2016) B Assurance

A Audit and Assurance
Advanced Level
A Corporate Reporting
A Strategic Business Management
A Case Study

5 Glossary
Accountability A person's liability to be called to account for the fulfilment of tasks s/he
has been given by persons with a legitimate interest in the matter
Accountancy The profession of accounting which comprises measurement,
preparation, validation, disclosure, auditing of and provision of
assurance and advisory services on financial information
Accountancy The profession concerned with the measurement, preparation,
profession validation, disclosure, auditing of and provision of assurance and
advisory services about financial information. The profession helps
managers, investors, tax authorities and other decision makers make
resource allocation decisions
Accrual basis of Transactions and other events are recognised when they occur, and not
accounting just when cash is received or paid
Activities The means by which a business creates value in its products (they are
sometimes referred to as value activities)
Allocative efficiency A state of a free market where goods and services that are wanted by
buyers are produced in optimum quantities
Applied research Research which has an obvious commercial or practical end in view
Artificial intelligence The use of computers to do tasks which are thought to require human
(AI) intelligence. It typically refers to tasks such as learning, knowing,
sensing, reasoning, creating things, and generating and understanding
language
Assurance The expression of an opinion or conclusion by a professional
accountant in public practice which is designed to enhance the
confidence of intended users
Audit An expression of an opinion as to whether an entity's financial
statements have been prepared, in all material respects, in accordance
with an applicable financial reporting framework, and thereby give a
'true and fair view'
Authority The right to do something, or to ask someone else to do it and expect it
to be done
Automation Is the creation of technology and its application in order to control and
monitor the production and delivery of goods and services, performing
tasks that were previously decided on and performed by humans
Balanced scorecard An integrated set of performance measures linked to the achievement
of strategic objectives
Benchmarking The establishment, through data gathering, of targets and comparators,
through whose use relative levels of performance (and particularly areas
of underperformance) can be identified. By the adoption of identified
best practices it is hoped that performance will improve
Big data Datasets whose size is beyond the ability of typical database software to
capture, store, manage and analyse
Bill of exchange A document drawn up by the seller (exporter) for a certain sum of
money and sent to the overseas buyer's bank, which guarantees that it
will be paid, so the exporter can then sell (discount) the bill to a third
party in return for cash now
ICAEW 2019 Glossary of terms 31

Bonds See Loan stock
Bureaucracy A continuous organisation of official functions bound by rules
Business An organisation (however small) that is oriented towards making a
profit for its owners so as to maximise their wealth and that can be
regarded as an entity separate from its owners
Business ethics The application of ethical values to business behaviour and functions.
Ethics goes beyond the legal requirements for a business and is,
therefore, about discretionary decisions and behaviour guided by
values
Business risk Risks that arise from the nature of the entity's business, its industry and
the conditions it operates in
Capital market The national and international market in which a business may obtain
the finance it needs for its short-term and long-term plans
Cartel An agreement between businesses not to compete with each other.
The agreement is usually verbal and often informal
Centralised One in which decision-making authority is concentrated in one place,
organisation that is the strategic apex
Cloud computing Cloud computing is a model for enabling ubiquitous, convenient, on-
demand network access to a shared pool of configurable computing
resources (eg, networks, servers, storage, applications, and services)
that can be rapidly provisioned and released with minimal management
effort or service provider interaction
Cloud accounting Cloud accounting is one application of cloud computing. Accountancy
software is provided in the cloud by a service provider
Company A legal entity registered as such under statute
Competitive strategy Taking offensive or defensive actions to create a defendable position in
an industry; to cope successfully with [...] competitive forces and
thereby give a superior return on investment for the business
Complementary goods Goods that tend to be bought and used together, so that an increase in
the demand for one is likely to cause an increase in the demand for the
other
Continuous The business does not disappear if people leave: new people will fill
organisation their shoes
Control activities The actions established through policies and procedures that help
ensure management's directives to mitigate risks to the achievement of
objectives are carried out
Controlling Monitor events, comparing them with the plan and taking remedial
action
Corporate appraisal A critical assessment of the strengths and weaknesses, opportunities
and threats (SWOT analysis) in relation to the internal and
environmental factors affecting an entity in order to establish its
condition before the preparation of the long-term plan

Corporate governance A structured system by which companies are directed and controlled,
that:
 specifies the distribution of rights and responsibilities between
stakeholders, such as the shareholders, the board of directors and
management
 has established rules and procedures for making decisions about
the company's affairs
Corporate The commitment the business makes to its stakeholders to increase its
responsibility positive impacts and decrease its negative ones
Cost drivers Any activity that affects the cost of a product or service
Cost push inflation Price rises resulting from an increase in the costs of production of
goods and services, eg, of imported raw materials or from wage
increases
Cost-focus strategy Providing goods and/or services at lower cost in an industry segment
Credit risk How far the business is exposed to customers not paying
Crisis An unexpected event that threatens the wellbeing of a business, or a
significant disruption to the business and its normal operations which
impacts on its customers, employees, investors and other stakeholders
Crisis management Identifying a crisis, planning a response to the crisis and confronting
and resolving the crisis
Critical success factor Product features that are particularly valued by a group of customers
(CSF) and, therefore, where the organisation must excel to outperform the
competition
Cross elasticity of A measure of the responsiveness of demand for one good to changes
demand in the price of another good
% change in quantity of good A demanded *
% change in the price of good B
*(given no change in the price of A)

Culture The common assumptions, values and beliefs that people share
Cyber attack A deliberate action through the Internet against an organisation with
the intention of causing loss, damage or disruption to activities
Cyber risk Cyber risk is the risk of financial loss, disruption or damage to the
reputation of an organisation from failure of its information technology
systems due to accidents, breach of security, cyber attacks or poor
systems integrity
Cyber security The protection of systems, networks and data in cyberspace; the
procedures used by a business to protect its information system
(hardware, software and information) from damage, disruption, theft or
other loss
Data Distinct pieces of information, which can exist in a variety of forms – as
numbers or text on pieces of paper, as bits or bytes stored in electronic
memory, or as facts stored in a person's mind
Data analytics The process of collecting, organising and analysing large sets of data to
discover patterns and other useful information which an organisation
can use for its future business decisions

Database A structured collection of records or data that is stored in a computer
system along with rules as to the information that will be sought from it,
so that queries may be answered by interrogating the database
Data science Deals with collecting, preparing, managing, analysing, interpreting and
visualising large and complex datasets
Debentures See Loan stock
Debt factoring The business receives loan finance and insurance – known as
non-recourse factoring – so that, in the event that a customer does not
pay, the business does not have to repay the loan
Decision support Combines data and analytical models or data analysis tools to support
system (DSS) both semi-structured and unstructured decision making
Deflation Falling prices generally, which is normally associated with low rates of
growth and recession
Delegation Giving a subordinate responsibility and authority to carry out a given
task, while the manager retains overall responsibility
Demand The quantity of a good that potential purchasers would buy, or attempt
to buy, if the price of the good were at a certain level
Demand pull inflation Price rises resulting from a persistent excess of demand over supply in
the economy as a whole. Supply cannot grow any further once 'full
employment' of factors of production is reached
Development The use of existing scientific and technical knowledge to produce new
(or substantially improved) products or systems, before starting
commercial production operations
Differentiation The provision of a product or service which the industry as a whole
believes to be unique
Differentiation strategy Providing a product or service which the industry as a whole believes to
be unique
Differentiation-focus Providing a differentiated product or service to an industry segment
strategy
Digital asset Any text or media file that is formatted into a binary source and that
includes the right to use it; digital files that do not carry this right are not
considered digital assets
Disaster The business's operations, or a significant part of them, break down for
some reason, leading to potential losses of equipment, data or funds
Disposable income Income available to individuals after payment of personal taxes. It may
be consumed or saved
Distributed ledger Technology that allows people who do not know each other to trust a
technology shared record of events
(blockchain)
Divisionalisation Division of a business into autonomous regions (geographic
divisionalisation) or product businesses (product/brand
divisionalisation), each with its own revenues, expenditures, capital
asset purchase programmes and profit responsibility

Dominant position Where the business is able to behave independently of competitive
pressures, such as other competitors, in that market
Downside risk The possibility that an event will occur and adversely affect the
achievement of objectives
Economies of scale Economies arising within the business from the organisation of
production (internal economies), or attainable by the business because
of the growth of the industry as a whole (external economies)
Economy Reduction or containment of cost
Effectiveness Achievement of objectives
Efficiency Being effective at minimum cost, or controlling costs without losing
operational effectiveness
Elastic demand An increase in price will result in a fall in the quantity demanded such
that total expenditure will fall
Elasticity The extent of a change in demand and/or supply given a change in
price
Embargo Ban on certain imports or exports
Enterprise risk The chance that a strategy will succeed for fail, and therefore whether
the business should have undertaken it in the first place
Environment of a Everything outside its boundaries comprising the physical, the general
business and the task environment
Equilibrium price The price of a good at which the volume demanded by consumers and
the volume businesses are willing to supply are the same
Equity Ordinary shares in the business. Equity shareholders are the owners of
the business and through their voting rights exercise ultimate control
Ethical audit A process which measures the internal and external consistency of a
company's values base
Ethical behaviour Acting in a manner which is perceived to be acceptable in the
circumstances – or 'behaving well'
Ethical culture A business culture where the basic values and beliefs in a company
encourage people within the company to behave ethically
Ethics A system of behaviour which is deemed acceptable in the society or
context under consideration. Ethics tell us 'how to behave'
Exchange rates The price of a currency
Executive support Software that pools data from internal and external sources and makes
system (ESS) or information available to senior managers in an easy-to-use form. ESS
Executive information help senior managers make strategic, unstructured decisions
system (EIS)
Expert system Captures human expertise in a limited domain of knowledge to allow
users to benefit from expert knowledge and information. The computer
system holds specialised data and rules about what to do in, or how to
interpret, a given set of circumstances
Export credit insurance Insurance against the risk of non-payment by foreign customers for
export debts
Exposure The measure of the way in which a business is faced by risks

Externality The difference between the private and the social costs, or benefits,
arising from an activity; a cost or benefit which the market mechanism
fails to take into account because the market responds to purely private
signals. One activity might produce both harmful and beneficial
externalities
Finance lease A lease that transfers substantially all the risks and rewards of ownership
of an asset from the lessor (the finance company or bank) to the lessee
(the business)
Financial capability An individual being able to manage money, keeping track of their
finances, planning ahead, choosing financial products and staying
informed about financial matters
Financial information Information about an entity's activities expressed in monetary terms,
often in the financial report
Financial management The management of all the processes associated with the raising and
use of financial resources in a business
Financial reporting The provision of financial information about an entity to external users
that is useful to them in making decisions and for assessing the
stewardship of the entity's management
Financial risk Risks arising from how the business is financed and from changes in the
financial markets
Fiscal policy The government's policy on government spending, taxation and
borrowing
Flat business One which, in relation to its size, has a small number of hierarchical
levels, normally because there are wide spans of control
Focus (or niche) Involves a restriction of activities to only part of the market (a segment)
through:
 providing goods and/or services at lower cost in that segment
(cost-focus)
 providing a differentiated product or service to that segment
(differentiation-focus)
Free market See Perfect competition
Functional manager A manager with authority, only in certain circumstances, to direct,
design or control activities of another person
Gearing risk Variation in returns due to the relative proportions of borrowings and
equity in the entity's financial structure
General environment All the political, legal, economic, social/cultural, ecological and
technological (PESTEL) influences in the countries a business operates
in
Goal A desired end result
Going concern The business will continue in operation for the foreseeable future
Governance structure The set of legal or regulatory methods put in place in order to ensure
effective corporate governance

Gross risk The potential loss associated with the risk, calculated by combining the
impact and the probability of the risk, before taking any control
measures into account
Gross risk = Probability × Impact
Group A collection of people with a common sense of identity; a common aim
or purpose; existence of group norms (ie, expected/accepted
standards of behaviour) and communication within the group with the
presence of a leader
Human resource The creation, development and maintenance of an effective workforce,
management matching the requirements of the business and responding to the
environment
Impact A measure of the amount of loss if an undesired outcome occurs
Income elasticity of An indication of the responsiveness of demand to changes in
demand household incomes
% change in quantity demanded
% change in household incomes
Industry Comprises those businesses which use a particular competence,

technology, product or service to satisfy customer needs, and which
therefore compete with each other
Inelastic demand An increase in price will still result in a fall in quantity demanded, but
total expenditure will rise
Inferior goods Goods for which demand falls when income rises
Inflation An increase in price levels generally, and a decline in the purchasing
power of money
Information The output of whatever system is used to process data. This may be a
computer system, turning single pieces of data into a report, for
instance
Information The approach that a business takes towards the management of its
management information including planning IS/IT developments, the organisational
environment of IS, control and technology
Information processing Data, once collected, is converted into information for communicating
more widely within the business
Information systems All systems and procedures involved in the collection, storage,
(IS) production and distribution of information
Information The equipment used to capture, store, transmit or present information.
technology IT provides a large part of the information systems infrastructure
Intelligent systems Computer-based systems that represent, reason about and interpret
data. In doing so they learn about the structure of the data, analyse the
data to extract patterns and meaning, derive new information, and
identify strategies and behaviours to act on the results of its analysis
Interest rates The price of money

Internal audit A semi-independent part of the company which monitors the effective
operation of its internal control and risk management systems. Internal
audit is itself a key element of the company's system of internal control
Internal control A process, effected by an entity's board of directors, management and
other personnel, designed to provide reasonable assurance regarding
the achievement of objectives relating to operations, reporting and
compliance (COSO)
Internet A worldwide network that connects computers and other digital devices
allowing data and information to be shared
Internet of things Interrelated computing devices, objects and mechanical and digital
machines which are each uniquely identifiable through their embedded
information technology, and which can transfer data over a network
without requiring human-to-human or human-to computer interaction
Irreversibility Current activities will result in outcomes from which future generations
may not recover at all
Joint venture A separate business formed by two or more other businesses making a
financial stake and providing some management
Key performance A measure of the level of performance in an area where a target level
indicator (KPI) must be achieved in order for the business to outperform rivals and
achieve competitive advantage
Knowledge work Facilitates the creation and integration of new knowledge into an
system (KWS) organisation
Letter of credit A document from the buyer's bank guaranteeing that a seller will
receive payment in full as long as certain delivery conditions have been
met
Licensing agreement Permission from one party to another to manufacture or sell a product,
or to use a brand name
Limiting factor Anything which limits the activity of an entity, such as a shortage of
supply of a resource or a restriction on sales demand at a particular
price
Line manager A manager with authority over a subordinate and the right to ask
him/her to do something
Liquidity risk The likelihood of the business running short of cash
Loan stock Typically fixed interest rate borrowings with a set repayment date. Most
are secured on specific assets or assets in general such that lenders are
protected (in repayment terms) above unsecured payables in a
liquidation. Also referred to as Bonds or Debentures
Management Getting things done through other people
Management Providing information to help managers and other internal users in their
accounting decision-making, performance measurement, planning and control
activities
Management A system which converts data from mainly internal sources into
information system information to enable managers to make timely and effective decisions
(MIS) for planning, directing and controlling the activities for which they are
responsible

Market Comprises the customers or potential customers who have needs which
are satisfied by a product or service
Market failure A situation in which a free market mechanism fails to produce the most
efficient (the 'optimum') allocation of resources
Market imperfection Any situation where actual behaviour in the market differs from what it
would be if there were 'perfect' competition in the market
Market mechanism The interaction of demand and supply for a particular item
Market risk Potential losses resulting from changes in market prices or rates that the
entity itself cannot control but must deal with
Market segmentation The division of the market into homogeneous groups of potential
customers who may be treated similarly for marketing purposes
Market share One entity's sale of a product or service in a specified market expressed
as a percentage of total sales by all entities offering that product or
service
Market structure A description of the number of buyers and sellers in a market for a
particular good, and their relative bargaining power
Marketable securities Short-term highly liquid investments that are readily convertible into
cash. Companies might use them to invest short-term surplus finance
Marketing The management process which identifies, anticipates and supplies
customer requirements efficiently and profitably
Marketing mix The set of controllable marketing variables that a firm blends to
produce the response it wants in the target market
Marketing orientation A marketing-orientated business is one which accepts the needs of
potential customers as the basis for its operations. Its success is seen as
being dependent on developing and marketing products that satisfy
those needs
Mission 'The business's basic function in society' expressed in terms of how it
satisfies its various stakeholders
Mission statement A formal document that states the business's basic function in society
expressed in terms of how it satisfies its stakeholders
Monetary policy Government policies on the money supply, the monetary system,
interest rates, exchange rates and the availability of credit
Money markets A wholesale market that provides financial institutions with a means of
borrowing and investing to deal with short-term fluctuations in their
own assets and liabilities
Monopoly A market with one supplier (or one dominant supplier), many buyers
and high barriers to entering the industry. The supplier can either set
the selling price or determine the quantity supplied, and can earn
supernormal profits
Mortgage A loan, secured on property, given by the mortgagee bank to the
mortgagor borrower
Motivation The degree to which a person wants certain behaviours and chooses to
engage in them

Natural capital The world's stocks of natural assets which include geology, soil, air,
water and all living things.' It is from this natural capital that humans
derive a wide range of services, often called ecosystem services, which
make human life possible
Normal goods Goods for which demand rises when income rises
Objective A statement of what a business seeks to achieve
Offer for sale by The investing public is invited to tender (offer) for shares at the price it
tender is willing to pay. A minimum price, however, is set by the issuing
company and tenders must be at or above the minimum
Office automation A system that increase the productivity of data and information workers
system (OAS)
Official functions The business is divided into areas (eg, operations, marketing) with
specified duties. Authority to carry them out is given to the managers in
charge
Oligopoly A market where there are a few large sellers but many (often small)
buyers, and where there is product differentiation and a high degree of
mutual interdependency
Operating lease Any lease that is not a Finance lease
Operational risk The risk that actual losses, incurred because of inadequate or failed
internal processes, people and systems, or because of external events,
differ from expected losses
Operations Creating as required the goods or services that the business is engaged
management in supplying to customers by being concerned with the design,
implementation and control of the business's processes so that inputs
(materials, labour, other resources, information) are transformed into
output products and services
Ordinary shares Holders of ordinary shares are the owners of the company who exercise
ultimate control through their voting rights, but who carry the highest
level of risk in the company's capital structure
Organisation A social arrangement for the controlled performance of collective goals,
with a boundary separating it from its environment
Organisational The study and understanding of individual and group behaviour in an
behaviour organisational setting in order to help improve organisational
performance and effectiveness
Organisational Formed by the grouping of people into departments or sections and
structure the allocation of responsibility and authority, organisational structure
sets out how the various functions (operations, marketing, human
resources, finance etc,) are formally arranged
Organising Allocating time and effort so that operational objectives, plans and
targets are likely to be met
Overdraft A short-term loan of variable amount up to a limit from a bank, typically
repayable on demand. Interest is charged on a day-to-day basis at a
variable rate

Partnership The relation which subsists between persons carrying on a business in
common with a view of profit
Perfect competition A market where the forces of supply and demand result in an efficient
allocation of economic resources. There is: a large number of
competing suppliers, each with only a small share of the market;
homogeneous products; perfect information about markets and prices
for all; perfect mobility of factors of production, which can be switched
easily from making one type of good into making another; free entry
and exit of suppliers into and out of the market
Planning The establishment of objectives and the formulation, evaluation and
selection of the policies, strategies, tactics and action required to
achieve them. Planning comprises long-term/strategic planning, and
short-term/operational planning
Plans State what should be done to achieve the operational objectives.
Standards and targets specify a desired level of performance
Porter hypothesis Strict regulations trigger discovery and improvements, the innovation
effect
Position Audit Part of the planning process which examines the current state of the
entity in respect of:
 resources of tangible and intangible assets and finance
 its competencies, that is what it has the ability to do well via its
combination of resources, skills, etc
 products, brands and markets
 operating systems such as production and distribution
 internal organisation
 current results
 returns to shareholders
Power The ability to get things done
Preference shares Part of the risk-bearing ownership of the business but, since they are
entitled to their dividends before ordinary shareholders, they carry less
risk. As their return is usually a fixed maximum dividend, they are similar
in many ways to debt
Price elasticity of A measure of the extent of change in demand for a good in response to
demand a change in its price
Change in quantity demanded, as a percentage of original demand
Change in price, as a percentage of original price
Price elasticity of A measure of the responsiveness of supply to a change in price

supply
% change in quantity supplied
% change in price
Private company A company which has not been registered as a public company under
statute. It may not offer its securities to the public at large

Procurement The acquisition of goods and/or services at the best possible total cost
of ownership, in the right quantity and quality, at the right time, in the
right place and from the right source for the direct benefit or use of the
business
Product Anything that can be offered to a market for attention, acquisition, use
or consumption that might satisfy a want or need. It includes physical
objects, services, persons, places, organisations and ideas. Marketers
tend to consider products not as 'things' with 'features' but packages of
'benefits' that satisfy a variety of consumer needs
Product life cycle How a product demonstrates different characteristics of profit and
investment over time. Analysing it enables a business to examine its
portfolio of goods and services as a whole
Product risk The chance that customers will not buy the company's products or
services in the expected quantities
Production Refer to Operations management
management
Productive efficiency A state of a free market where goods and services are produced at the
lowest factor cost
Professional A person who: accepts a responsibility to operate in the public interest;
'professes' to have skill resulting from a coherent course of study and
training based on professional values; and continues to develop and
enhance those skills by experience and continuing professional
education
Professional ethics Identifying ethical dilemmas, understanding the implications and
behaving appropriately in line with a code of behaviour that is accepted
among fellow professionals as being correct
Professional scepticism Assessing information, estimates and explanations critically, with a
questioning mind, and being alert to possible misstatements due to
error or fraud
Project manager A manager with temporary authority over project team members only in
respect of the particular project in progress
Protectionism Legislative and other barriers to free trade
Public company A company whose constitution states that it is public. It may offer its
shares and other securities for sale to the public at large
Public goods Goods whose production is organised by the government
Public interest The legitimate interests of clients, government, financial institutions,
employers, employees, investors, the business and financial community
and others who rely upon the objectivity and integrity of the accounting
profession
Pure research Original research to obtain new scientific or technical knowledge or
understanding, with no obvious commercial or practical end in view
Pure risk See Downside risk
Qualitative Relevance and faithful representation fundamentally make financial
characteristics of information useful to the user; understandability, comparability,
financial information verifiability and timeliness enhance the two fundamental characteristics
Quotas Physical limits on output so that output is set at the social optimum

Recording financial Ensuring that the business has an accurate record of its revenue,
transactions expenses, assets, liabilities and capital
Regulation Any form of state interference with the operation of the free market.
This could involve regulating demand, supply, price, profit, quantity,
quality, entry, exit, information, technology, or any other aspect of
production and consumption in the market
Regulatory compliance Systems or departments in businesses which ensure that people are
aware of and take steps to comply with relevant laws and regulations
Responsibility The obligation a person has to fulfil a task which s/he has been given
Rights issue An issue of new shares for cash to existing shareholders in proportion
to their existing holdings
Risk The possible variation in an outcome from what is expected to happen
Risk appetite The extent to which a business is prepared to take on risks in order to
achieve its objectives
Risk assessment For each risk its nature is considered, and the implications it might have
for the business achieving its objectives; an initial judgement is then
made about the seriousness of the risk
Risk identification Identifying the whole range of possible risks and the likelihood of losses
occurring as a result of these risks
Risk management The identification, analysis and economic control of risks which threaten
the assets or earning capacity of a business
Risk management and A system encompassing the policies, processes, tasks, and behaviours
internal control system in a company that allow it to: operate effectively and efficiently; respond
appropriately to risks; safeguard assets from inappropriate use, loss or
fraud; ensure liabilities are identified and managed; ensure the quality
of internal and external reporting; ensure compliance with applicable
laws and regulations, and internal policies
Risk measurement Identifying the probability (likelihood) of the risk occurring, quantifying
the resultant impact (consequence) and calculating the amount of the
potential loss using expected values for gross risk
Rules A rule defines and specifies a course of action that must be taken under
given circumstances
Scalar chain The chain of command from the most senior to the most junior in an
organisation
Security in information The protection of data from accidental or deliberate threats which
management might cause unauthorised modification, disclosure or destruction of
data, and the protection of the information system from the
degradation or non-availability of services
Segmentation of The division of the market into homogeneous groups of potential
markets customers who may be treated similarly for marketing purposes
Shareholder Procedures designed to ensure that shareholders derive value from
engagement their investments by dealing effectively with concerns over under-
performance
Sole tradership A single proprietor owns the business, taking all the risks and enjoying
all the rewards of the business
Span of control The number of subordinates reporting to one person

Speculative risk See Upside risk
Staff manager A manager with authority to give specialist advice to another person
over whom he/she has no line authority
Stakeholder Literally a person or group of persons who has a stake in the
organisation. This means that they have an interest to protect in respect
of what the organisation does and how it performs
Stewardship Accountability of management for the resources entrusted to them as
agents of the company's owners
Strategic business unit A section, within a larger business, which is responsible for planning,
(SBU) developing, producing and marketing its own products or services
Strategic objectives The primary strategic objective – in the case of a business, to make a
profit for shareholders – plus other major objectives addressed to the
stakeholders
Strategic plan A statement of long-term goals along with a definition of the strategies
and policies which will ensure achievement of these goals
Strategy The direction and scope of an organisation over the long term, which
achieves advantage for the organisation through its configuration of
resources within a changing environment, to meet the needs of markets
and to fulfil stakeholder expectations
Strategy risk The risk of the business choosing the wrong corporate, business or
functional strategy
Substitute goods Goods that are alternatives to each other, so that an increase in the
demand for one is likely to cause a decrease in the demand for another
Supply The quantity of a good that existing suppliers or would-be suppliers
would want to produce for the market at a given price
Supply chain Optimising the activities of businesses working together to produce
management (SCM) goods and services
Sustainability The ability to meet the needs of the present without compromising the
ability of future generations to meet their own needs
System A set of interacting components that operate together to accomplish a
purpose
Tall business One which, in relation to its size, has a large number of levels in its
management heirarchy, normally because there there are narrow spans
of control
Target A desired level of performance
Task environment All the factors of particular relevance to the business, such as its
competitors, customers and suppliers of resources
Term loan A loan – typically but not always from a bank – where the repayment
date (its termination) is set at the time of borrowing and, unlike
overdrafts, they are not repayable on demand, unless the borrower
defaults on repayment

Transaction processing A system which performs, records and processes routine transactions
system (TPS)
Transaction recording Ensuring that the business has an accurate record of its revenue,
expenses, assets, liabilities and capital
Treasury management Managing the funds of a business, namely cash and other working
capital items, plus long-term investments, short-term and long-term
debt, and equity finance
Triple bottom line The business's economic, social and environmental performance
Uncertainty The inability to predict the outcome from an activity due to a lack of
information
Underwriting The process whereby, in exchange for a fixed fee (usually 1–2% of the
total finance to be raised), an institution or group of institutions will
undertake to purchase any securities not subscribed for by the public
Upside risk The possibility that an event will occur and positively affect the
(opportunity) achievement of objectives
Value The difference between what it costs a business to process inputs into
outputs and what it can charge customers for the outputs
Value activities The means by which a business creates value in its products
Value chain The sequence of business activities by which, in the perspective of the
end-user, value is added to the products or services produced by an
entity
Value drivers Elements of a product or service and activities that increase the amount
of value consumers place on it. They are a means of differentiating the
product or service from the competition and may include product
features or intangibles such as branding
Variability Events in the future cannot be predicted with certainty
Venture capital The provision of risk-bearing capital, usually in the form of a
participation in equity, to companies with high growth potential
Virtual organisation An organisation with little if any physical presence, whose staff and
resources are geographically dispersed, linked by the internet and
associated technology
Volatility The range of potential variation in returns


Icaew Cfab BTF 2019 Study Guide

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Icaew Cfab BTF 2019 Study Guide

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The Institute of Chartered Accountants in England and Wales

For exams in 2019

3 Syllabus and learning outcomes 18

4 Technical knowledge grid 22

ICAEW 2019 Study Guide iii

ICAEW 2019 Study Guide 1

2.1 Help yourself study for your ACA exams

Believe in yourself Yes, there is a lot to learn. But thousands have

2 Focus on the exam

3 The right method

4 The right recap

2 Business, Technology and Finance ICAEW 2019

Key study steps Activity

2.3 Detailed study guide

ICAEW 2019 Study Guide 3

4 Business, Technology and Finance ICAEW 2019

ICAEW 2019 Study Guide 5

6 Business, Technology and Finance ICAEW 2019

Stop and think • BCG matrix

What does the word 'strategy' • SWOT analysis

ICAEW 2019 Study Guide 7

8 Business, Technology and Finance ICAEW 2019

ICAEW 2019 Study Guide 9

10 Business, Technology and Finance ICAEW 2019

ICAEW 2019 Study Guide 11

12 Business, Technology and Finance ICAEW 2019

ICAEW 2019 Study Guide 13

14 Business, Technology and Finance ICAEW 2019

ICAEW 2019 Study Guide 15

16 Business, Technology and Finance ICAEW 2019

Finish by completing the self-test questions • Free trade and protectionism

ICAEW 2019 Study Guide 17

1 Business objectives and functions

2 Business and organisational structures

18 Business, Technology and Finance ICAEW 2019

3 The role of finance

ICAEW 2019 Study Guide 19

4 The role of the accountancy profession

5 Governance, sustainability, corporate responsibility and ethics

20 Business, Technology and Finance ICAEW 2019

ICAEW 2019 Study Guide 21

4.1 Technical knowledge

22 Business, Technology and Finance ICAEW 2019

Environmental and market analysis tools

Porter’s five forces C A →

Product life cycle C A →

Boston consulting group matrix C A →

Prices and markets C A →

Positional and other analysis tools

Value chain analysis C A →

Directional policy matrix B

Business process analysis B A

Strategic risk analysis A →

ICAEW 2019 Study Guide 23

Strategy formulation, evaluation and choice C A →

Business risk management C A →

Financial analysis and data analysis A →

Objectives and stakeholders’ preferences C A →

Corporate responsibility and sustainability C B A

Strategic marketing and brand management B A

Human resource management C A

24 Business, Technology and Finance ICAEW 2019

Costing systems – direct, marginal, absorption B → →

Activity based costing (ABC) C → B

Break even analysis B → A

Multi-product break even analysis B