STUDY GUIDE CONTEMPORARY BUSINESS ISSUES

Question 1.1 What types of activities or roles could a professional accountant provide to improve productivity for an organisation? Professional accountants can provide several roles in improving productivity, including: data capture Both of physical and monetary flows, to enable an accurate view of current operations Analysis Both of financial and non-financial information, to enable identification of activity drivers Performance measurement Includes establishing benchmarks and measuring progress towards goals and targets Process redesign By applying process improvement tools to identify inefficiencies and bottlenecks, and reconfiguring activities Resource control Through budgeting and forecasting, as well as designing and implementing internal controls Question 1.2 For each of the characteristics listed in Table 1.1 (i.e. organisation, strategy, customer/community, financial, governance, work force and information technology processes), list one example of the type of strategic advice that professional accountants may be able to provide. There is a wide range of business advisory services that professional accountants may be able to provide, including: Organisation • Legal structure (sole trader, partnership, trust, company). • Succession planning. Strategy • Business planning process, including linking budgets to organisational objectives. • External environment information and analysis. • Specific growth strategies (acquisition, joint venture, partnership). • Performance measurement systems design, evaluation and implementation. Customer/Community • Customer profitability and segmentation. • Sustainability improvements and reporting. Financial • Capital structures and sources of funding. • wealth maximisation strategies (dividends, buy-backs, reinvestment). • Finance function (budgeting, payroll, accounts payable/receivable, inventory, taxation, reporting). • Costing and pricing, and leasing versus purchasing of assets. Governance • Governance structures (board composition, committees). • Independent director role. • Risk management and internal controls. Work force • Organisational structures (in-house, outsource). • Performance measures and links to remuneration. iT processes • Management information systems (reviews, scoping, implementation, testing). • Project management services. Question 1.3 Do you believe professional accountants are well placed to provide strategic advisory services (outside the traditional areas of cost accounting, financial accounting and taxation) to organisations? Justify your position. Professional accountants, both internal and external to organisations, are well placed to provide strategic advisory services to organisations for a number of reasons, including the following: • The professional approach of the accountant—such as having a service ideal, honesty, integrity and not acting in their own self-interest. • The technical abilities of accountants are based on a systematic body of theory and knowledge. They have gone through rigorous education and training, which provides a base level of knowledge that leads to competence in delivery of services. • Many technical skills are transferable—for example, the technical requirements of an audit (including setting the scope, determining the approach to sampling, and obtaining and reviewing data) are often similar, despite the reviewed data being of a different nature (i.e. physical measures instead of financial measures). • Accountants are often exposed to the whole of an organisation—finance, sales, marketing, human resources, IT, legal, production, logistics and after-sales services. This knowledge is invaluable when assessing the impact of potential decisions across different parts of an organisation, as well as its industry supply chain. • Accountants are often exposed to several industries, and similar problems that arise in different organisations. The ability to transfer their knowledge of how similar problems have been resolved provides a valuable resource to clients who may have never experienced such problems. Question 1.4 ‘The business advisory industry thrives during periods of business change and hardship’ (iFAC 2008, p. 26). Explain why this may be the case. In periods of change and hardship, many organisations realise that they cannot continue operating as they have done previously. Business models that worked in the good times may not be relevant when times get tougher. Many organisations find that, in difficult times, there are additional pressures from: • shareholders—to continue generating sufficient returns; • employees—to provide tolerable working conditions and guarantee security of work; • suppliers—to increase/maintain orders and margins; and • customers—who are buying less, and on reduced margins. In addition, regulatory changes (e.g. new licensing regimes or new taxes) and changes in community expectations (e.g. relating to the environment) can also have a significant impact on organisations. Organisations may not have sufficient resources or expertise to solve the underlying issues, or make the required changes, and so typically request assistance from external sources. By obtaining that expertise externally, both the adviser and the organisation should benefit. Question 1.5 1. Soft skills, especially communication skills, networking and the ability to manage relationships, are extremely important to progress to senior roles in accounting/finance. At the CFO level, how important do you think it is to be technically competent in the finance role, compared to actually managing the finance role? Explain your reasoning. 2. A contemporary business and social issue is maintaining work–life balance. What risks does an accountant providing strategic advice face in this area? 3. in the CFO role, how important do you think it is to: (a) know the organisation and the products/services it offers? (b) be passionate about the products/services the organisation offers? Explain your reasoning. 1. There are two main ways of perceiving the CFO role. One is that it is a management role, which oversees a technical function. The key skills involved would focus on managing a team of people and difficult deadlines, making significant financial decisions and being able to interact with both internal and external stakeholders, including banks, regulators, shareholders, consumers and employees. People and project management skills could be seen as equally important as technical competence. However, the second (and more appropriate) view is that, in most situations, it is likely that the CFO needs to be technically qualified. while the technical specialists within the function would provide the technical skill, there is still a need for the CFO to be knowledgeable and competent. A technical understanding of what is being performed by subordinates is essential to properly managing the function. If you do not know what is expected of your team in terms of technical requirements, time, and regulations, then it will be difficult for you to properly understand and manage the area. 2. Along with the benefits of acting in an advisory role, there are also some potential pitfalls. Hitting tight deadlines for important issues (and possibly across multiple clients) can lead to difficulties in finding time and balance with non-work activities. Such deadlines were traditionally compliance-based and reflected the end-of-month/year processes. Being locked in well in advance, and being somewhat repetitive, these activities could be planned for. However, strategic advisory services can take place at any time through the course of the year, and the volume or extent of the workload may not be as easily planned. Important areas of consideration to maintain work–life balance include: – planning and booking leave in advance; – planning work schedules and work pipelines into the future; – maintaining a time log and reviewing hours worked to monitor fatigue; – not overcommitting (either with the number of clients or the number/size of engagements); and – having access to temporary support services and backup personnel as needed. 3. The CFO has a dual role of manager with technical expertise. The purely technical role of ensuring the correct recording, reporting and communicating of results must be combined with the broader ‘manager’ role. where the CFO is providing strategic advice as to products, services, prices, organisational structure, business planning and overall strategy, it is important for the CFO to be both knowledgeable about the inner workings of the organisation and also a proud supporter of the product offering. what may be more important than passion for a specific product or service is that the needs of the customer are properly satisfied and the financial position of the organisation is strong and under control. Question 1.6