ICAEW BTF Question Bank 2023

The Institute of Chartered Accountants in England and Wales
Business, Technology
and Finance
Question Bank
For exams in 2023
icaew.com
Business, Technology and Finance
The Institute of Chartered Accountants in England and Wales
ISBN: 978-1-0355-0172-4
Previous ISBN: 978-1-5097-3898-4
e-ISBN: 978-1-0355-0551-7
First edition 2007
Sixteenth edition 2022
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© ICAEW 2022
Contents
The following questions are exam-standard. Unless told otherwise, these questions are the style,
content and format that you can expect in your exam.
Title Page
Question Answer
1 Introduction to business 1 105
2 Managing a business 7 109
3 Organisational and business structures 13 113
4 Introduction to business strategy 19 119
5 Introduction to risk management 25 123
6 The finance function and financial information 35 129
7 Business finance 43 135
8 The accountancy profession 51 141
9 Governance and ethics 55 145
10 Corporate governance 61 149
11 The economic environment of business and finance 67 153
12 External regulation of business 75 159
13 Data analysis 79 163
14 Developments in technology 85 167
15 Practice exam 91 171
Appendix: Mock Exam guidance notes 181
ICAEW 2023 Contents iii

Exam
This exam will consist of 50 questions with equal marks, adding up to 100 marks.
The questions are of the following types:
• Multiple-choice – select 1 from 4 options A, B, C or D (see Chapter 1 Q2)
• Multiple-response – select 2 or more responses from 4 or more options (see Chapter 1 Q7)
In this Question Bank you will select only one option per question unless told otherwise.
Our website has the latest information, guidance and exclusive resources to help you prepare for this
exam. Find everything you need, from exam webinars, sample exams, errata sheets and the syllabus
to examiner- and tutor-written articles at icaew.com/examresources if you are studying the ACA and
icaew.com/cfabstudents if you are studying ICAEW CFAB.
iv Business, Technology and Finance ICAEW 2023

Professional skills
Professional skills are essential to accountancy and your development of them is embedded
throughout the ACA qualification. The level of competency in each of the professional skills areas
required to pass each module exam increases as ACA trainees progress upwards through each Level
of the ACA qualification.
The professional skills embedded throughout this Question Bank provide the opportunity to develop
the knowledge and professional skills required to successfully pass the exam for this module.
During your question practice, remain mindful that you should be demonstrating each of the four
professional skills within your answers. You are advised to familiarise yourself with the full ACA
professional skills development grids which can be found at icaew.com/examresources.
The following advice will help you demonstrate each of the professional skills when completing your
answers to questions in this Question Bank.
Questions in the Business, Technology and Finance module are rapid fire, plus they can be complex
and test the syllabus in a non-sequential order, so each one requires a good skillset to answer
correctly. Below are the key skills required in the Business, Technology and Finance exam that you
will need to master.
Professional skills focus: Assimilating and using information
The Business, Technology and Finance exam requires you to attempt 50 questions in 90 minutes,
meaning you have 108 seconds for each question. Being disciplined, reading both the scenario and
the requirement carefully and keeping track of time will mean that you work effectively within time
constraints which should offer you the best chance of passing.
Some questions will ask you which models should be used for a particular purpose. Others may
require you to apply the models you have learned to a mini scenario – for example, stating which of
the quadrants in the Boston Consulting Group matrix a product belongs to, or what type of authority
a manager is displaying. It is important therefore to know the models in your study text well.
Professional skills focus: Applying judgement
You may need to use judgement in some questions - for example, deciding on how great the impact
of a particular risk is, so practising questions is the key to passing these types of questions. Questions
may also test your awareness of ethical, public interest and regulatory issues, so it is important to
know the parts of the syllabus that deal with these, particularly those relating to the professional
accountant and ethics.
Professional skills focus: Concluding, recommending and communicating
Some questions may require you to determine the best option, or course of action in a particular
case. Such questions will test your technical knowledge, so it is important to ensure that this is sound.
ICAEW 2023 Introduction v

vi Business, Technology and Finance ICAEW 2023
Question Bank
viii Business, Technology and Finance ICAEW 2023
Chapter 1: Introduction to business
1 What are the primary objectives of profit-oriented and non-profit oriented organisations?
Option Profit-oriented organisation Non-profit oriented organisation
1 Output of goods/services Minimise costs
2 Output of goods/services Provision of goods/services
3 Maximisation of wealth Minimise costs
4 Maximisation of wealth Provision of goods/services
A Option 1
B Option 2
C Option 3
D Option 4
LO 1a
2 At the Annual General Meeting (AGM) of Vortex plc, a major shareholder claimed that the company
was suffering from the symptoms of ‘satisficing’. In the context of corporate objectives, ‘satisficing’
means that:
A managers seek to make satisfactory profits rather than maximise wealth
B managers seek to keep all stakeholders satisfied
C owners seek to meet a satisfactory level of corporate responsibility obligations
D owners seek to make satisfactory profits
LO 1a
3 Joe, the Managing Director of Gargoyle Ltd, has set a primary objective of growth in profits for the
company. He aims to concentrate on product development to support this objective. Identify
whether the following will be suitable secondary objectives to achieve the growth in profits via
product development.
(1) Bringing in new products
(2) Reducing labour turnover
(3) Investing in research and development
A 1 and 2 only
B 2 and 3 only
C 1 and 3 only
D 1, 2 and 3
LO 1a
4 Maximising the wealth of its shareholders is the stated goal of Avernanche plc. The company’s
objectives have been expressed as a hierarchy of primary and secondary objectives. Identify which of
the following is most likely to be Avernanche plc’s primary business objective.
A To increase the annual profit after tax by 125% in the next 10 years
B To introduce an average of two new products each year for the next six years
C To double the share price within the next 10 years
D To become the market leader in four market segments within the next 10 years
LO 1a
ICAEW 2023 1: Introduction to business 1

5 A major shareholder has stated that for three years the directors of Barrington plc have run the
company in a manner designed solely to increase their prestige in the business community.
According to William Baumol, this is most likely to be shown in the directors’ aim to:
A maximise wealth
B maximise sales revenue
C minimise costs
D minimise social impact
LO 1a
6 To establish whether a particular organisation should be classified as a business or not, it is necessary

to enquire about the nature of its:
A primary objective
B mission
C vision
D secondary objective
LO 1a, 1b
7 The primary objective of ABC Car Rental Ltd is as follows: “We aim to be the fastest growing
company with the highest profit margin in the global vehicle rental and leasing business.”
One of its secondary objectives is: “To increase our market share for global family car rentals to 20%
within a reasonable time.”
Requirement
Which three components of the SMART acronym are present in the company’s secondary objective?
A S
B M
C A
D R
E T
LO 1a
8 For a business, which two of the following would be classified as secondary objectives?
A The business’s market share target for next year
B The business’s productivity improvement target for next year
C The business’s mission statement
D The business’s financial objective of shareholder wealth maximisation
E The business’s vision
LO 1a, 1b
9 A major airline, FlotAir plc, has been drawing up a mission statement.

Requirement
Which three of the following items could be expected in it?
A We will double profits in three years
B We will encourage diversity in the workplace
2 Business, Technology and Finance ICAEW 2023

C We intend to be the best airline in the world
D We aim to give excellent customer service
E We intend to take over XYZ airlines
F We intend to have a 30% market share on the London to New York route
LO 1a, 1b
10 Two of Sunshine Tours plc’s stakeholder groups are putting the company under pressure to improve
its return on investment.
Requirement
These are most likely to comprise which two of the following groups?
A Shareholders
B Customers
C Bankers
D Suppliers
E Employees
LO 1a, 4d
11 Mandrake plc processes waste for local authorities. It has stated that it seeks to provide “our
shareholders with increased value, our customers with value for money, our employees with secure
and interesting jobs and the public with safe and sustainable waste disposal.”
Requirement
This is analysed below into four statements. Identify which is Mandrake plc’s primary business
objective.
A To provide our shareholders with increased value
B To provide our customers with value for money
C To provide our employees with secure and interesting jobs
D To provide the public with safe and environmentally sustainable waste disposal
LO 1a
12 Daycare is a charity that funds nursery places for children whose parents are both unemployed. On
its website, the organisation states that it continually needs to raise funds that can be reinvested to
produce an on-going income to fund its activities. It also seeks to provide daycare for all families who
need its support and that it will never turn a family in need away.
A business adviser has made two statements:
Statement (1): The primary objective of Daycare is to maximise profit.
Statement (2): The secondary objective of Daycare is the funding of nursery places.
Requirement
Identify whether each statement is accurate.
A Statement (1) accurate; Statement (2) inaccurate
B Statement (1) inaccurate; Statement (2) inaccurate
C Statement (1) accurate; Statement (2) accurate
D Statement (1) inaccurate; Statement (2) accurate
LO 1a, 1b

13 At its recent AGM, the shareholders of Boron plc voted by a small majority to accept a small
dividend. At the meeting many shareholders said that they accepted the dividend because the
company’s profits were low, but were very unhappy with the return because the company’s financial
statements showed a large increase in revenue.
Requirement
Which of the following describes what is most likely to be happening at Boron plc?
A Revenue maximising
B Profit satisficing
C Profit maximising
D Revenue satisficing
LO 1a, 1b
14 Which of the following statements relating to Environmental, Social and Governance (ESG) objectives
is true:
A If businesses are only interested in maximising the wealth of shareholders, they should ignore
ESG objectives
B Businesses should only adopt ESG objectives if the costs are less than the fines of poor ESG
behaviour
C Even where shareholders are only interested in maximising their wealth, the value of a business
over the longer term is enhanced by good ESG practices
D ESG is likely to reduce the wealth of shareholders due to higher costs, but the owners have a
moral obligation to embrace good ESG performance
LO 1a, 1b
15 To what does the term ‘triple bottom line’ refer?

A Operating profit, Profit before tax, Profit after tax
B Profits, Planet, People
C Profit after tax, Net cash flows for the year, Changes in equity
D Corporate profits, Business Unit profits, Departmental profits
LO 1a, 4h
16 Sportylook is a global retailer of fashionable sportswear clothes. The company reports on its
environmental, social and economic sustainability in a sustainability report. The company outsources
the manufacture of many of its products to suppliers in certain countries where labour costs are
lower. There is concern that some of Sportylook’s suppliers in these countries use child labour and
pay very low wages to all workers.
Requirement
What social responsibility does Sportylook have for the behaviour of its suppliers?
A Sportylook has no responsibility for the behaviour of its suppliers
B Sportylook has a responsibility for the behaviour of its suppliers, and should require suppliers to
comply with its own social standards
C Sportylook should attempt to persuade its supplier of the need to treat employees fairly, but
then leave it up to the supplier to decide if it wishes to comply with this request
D Sportylook should recognise that different countries have different cultures, and while the use of
child labour might be frowned on at home, it is acceptable in some countries
Lo 1a, 1b, 4h

17 The following statements have been made about the relevance of climate change to organisations:
(1) Climate change leads to extreme weather conditions, such as floods and droughts, and these
can damage businesses assets and threaten the safety of its employees
(2) Laws and regulations that aim to limit climate change can cause additional costs to organisations
(3) Organisations that emit large quantities of greenhouse gasses, and therefore contribute to
climate change, are increasingly suffering from reputational damage
Requirement
Which of the above statements are true?
A 1 and 2 only
B 2 and 3 only
C 1 and 3 only
D 1, 2 and 3
LO1b, 4h
18 Quench, a manufacturer of soft drinks has decided to stop using plastic bottles and instead use glass
bottles for all of its products. Each used bottle returned by customers to a retailer gives customers
10p off their next bottle of Quench. The bottles are returned by the retailer to Quench, who washes
and sterilises them before using them again.
Requirement
In the 4Rs model, which R is this an example of?
A Reduce
B Reuse
C Recycle
D Replace
LO1a, 4h

Chapter 2: Managing a business
1 Hu Song works for Premidian plc. Because of his personal stature and credibility, he has strong
support from owners, employees and customers for his application to be a senior manager. He
generates strong feelings of loyalty and commitment among the people that currently work for him.
They know that he has great capabilities and should progress in the company.
Requirement
Hu Song appears to exhibit which kind of power?
A Legitimate power
B Referent power
C Coercive power
D Expert power
LO 1d
2 Amanda is a Regional Lending Manager with a major international bank. She has the authority to
lend up to £1 million on an unsecured basis to any single corporate customer without reference to
the bank’s head office. What sort of power does Amanda have?
A Referent power
B Expert power
C Legitimate power
D Reward power
LO 1d
3 Cerise can authorise her own travel expenses up to £1,000. Cerise will soon travel abroad on
business, and she has a choice between flying economy class for £350 or flying business class for
£1,050. Cerise is an old friend of the company’s travel administrator, Malcolm, who arranges
bookings. She persuades him to book the business class seat. This is an example of Cerise
exercising:
A authority without power
B power without authority
C delegation of authority
D power with authority
LO 1d
4 Michael is a Senior Manager working for Chirac plc. He decides to delegate completion of an
internal report to one of his subordinates. In doing this, Michael is transferring to the subordinate:
A authority, responsibility and power
B authority, accountability and power
C responsibility and authority
D power, responsibility and accountability
LO 1d
5 Pamela is a Line Manager in the accounting function of Holland plc. This means that Pamela has line
authority:
A over a subordinate down the chain of command
B to give specialist advice, but not the right to insist the advice is followed
ICAEW 2023 2: Managing a business 7

C over a project team’s function
D in certain areas over another department
LO 1d
6 Which of the following managers is operating as a functional manager?

A A human resources manager suggesting aptitude tests for managers to use when recruiting
B An IT manager setting out rules for internet and email use
C A manager setting targets for the workforce
D A product manager asking IT and marketing staff to help with a big product launch
LO 1d
7 Andrew is a Manager in Fortwarren plc. He has to re-arrange a staff rota after a staff member fell ill.
According to Henry Mintzberg, this forms part of Andrew’s:
A decisional role
B interpersonal role
C disseminator role
D informational role
LO 1d
8 Charlize is a Manager at Tordos Ltd. She complains to a friend that all she does is attend meetings
along with other managers in the company, and represent her team at conferences. In terms of Henry
Mintzberg’s managerial roles, Charlize is describing her:
A decisional role
C disseminator role
D informational role
LO 1d
9 Tristam plc has recently established a new project team. The team agreed clear objectives and
performance measures for the project in hand at a meeting last week. At today’s weekly progress
meeting there were many arguments about which roles would be undertaken by which members of
staff. From this, it is clear that the project team is at which stage of group development?
A Forming
B Storming
C Norming
D Performing
LO 1d
10 A management consultant has identified that Samp plc’s organisational culture is outward-looking
but controlling. Samp plc is, therefore:
A an internal process culture
B a rational goal culture
C an open systems culture
D a human relations culture
LO 1d

11 Malcolm is a Marketing Manager with Stone plc. The Marketing Director has primary responsibility
for the company’s overall marketing strategies, but Malcolm has day-to-day responsibility for all
aspects of the company’s marketing mix. This means that Malcolm will be responsible for:
A a set of variables that he manages in order to achieve a desired response from the company’s
various target markets
B budgets setting out the volumes to be sold to the company’s various target markets
C the sets of different features and benefits that are present in the company’s range of products
D the types of advertising used by a firm to reach and influence its various target markets
LO 1c
12 In terms of authority, which of the following is the best description of a staff function?
A A situation where a person is entitled to command another
B A function that is carried out only at head office
C A situation where a person can give advice and guidance to another
D A function that is carried out locally only
LO 1d
13 In terms of the organisational iceberg, which three of the following are classified as covert variables
affecting organisational behaviour in a company?
A Formal goals
B Attitudes
C Underlying competencies and skills
D Organisation design
E Communication patterns
LO 1d
14 Hamid is the managing director of Welldean Ltd, a small company selling aromatherapy products. He
has read about the benefits of market segmentation with regard to both competitive strategy and
resource allocation. Adoption of market segmentation by Welldean Ltd would mean that:
A the company would sell to only one section of the market
B the market is broken down into several different sections
C the company sees the aromatherapy market as homogeneous
D the competitive scope of the company would be narrow
LO 1c
15 Manton plc has decided to support the launch of its latest product by means of a major television
advertising campaign. This is an example of:
A pull promotion
B push promotion
C a combination of pull and push promotion
D personal selling
LO 1c
16 The process of dividing a market into homogeneous groups of potential customers who may be
treated similarly for marketing purposes is called:
A market research

B mass marketing
C marketing mix
D market segmentation
LO 1d
17 The main influences on a business’s pricing are:

A place, price, promotion and product
B volume, variety, variation in demand and visibility
C costs, competitors, customers and corporate objectives
D people, processes and physical evidence
LO 1d
18 Harris plc has capital-intensive operations, with specialisation of work and well-established systems.
Each month its operations manager is required to produce more items than in previous periods.
Using the four Vs model, Harris plc’s operations manager is expected to manage:
A high volume and high unit costs
B high volume and low unit costs
C low volume and low unit costs
D low volume and high unit costs
LO 1d
19 Research into products which have obvious commercial or practical use is called:
A market research
B pure research
C applied research
D process research
LO 1d
20 What are the four elements of the procurement mix?

A Price, product, place, promotion
B Quantity, quality, price, lead time
C Volume, variety, variation in demand and visibility
D Costs, competitors, customers and corporate objectives
LO 1d
21 Wesley is a General Manager with Chain Ltd. The company is restructuring and Wesley will have a
larger team of staff reporting to him. Wesley is trying to persuade the Managing Director that he
does not want to delegate more of his work but the Managing Director has responded by telling
Wesley about the advantages of delegating.
Requirement
Which of the following is an advantage for Wesley of delegating?
A Wesley can give more focus to those tasks that require his management experience
B Wesley can ask other people to do the tasks that he finds boring
C Wesley can spend less time supervising
D Wesley’s team will enjoy having more work to do
LO 1d

22 The HD5000 is a state of the art TV and audio system. The makers of the HD5000 have decided
against advertising the system and instead the marketing team has focussed its efforts on negotiating
with shops and online retailers to stock the product, by persuading them that consumers would be
attracted to their store if they sold it.
Requirement
Which of the following techniques is the marketing team using?
A Pull marketing technique
B Digital marketing technique
C Push marketing technique
D Direct marketing technique
LO 1c, 1d
23 Trews Ltd manufactures clothes, which it then sells to a number of major retailers as well as directly to
consumers (through its own website).
Requirement
Which of the following is part of Trews Ltd’s upstream supply chain?
A Orders received from retailers
B Deliveries of raw materials used to make the clothes
C Trews Ltd’s online advertising and marketing campaigns
D Distribution of clothes from Trews Ltd’s warehouse to the retailers
LO 1c
24 The Managing Director of Birdot is concerned about the company’s procurement function, because
production of Birdot’s product recently had to be halted because it had run out of a key component
used in the production process.
Requirement
Birdot’s problems are most likely to be the result of it failing to achieve which two of the following
‘rights’ of procurement?
(1) Right quality
(2) Right time
(3) Right quantity
(4) Right price
A 1 and 2
B 1 and 3
C 2 and 3
D 2 and 4
LO 1c

Chapter 3: Organisational and business
structures
1 Identify which of the following statements about an organisation chart for Ginger plc are true.
(1) The chart will show the degree of decentralisation in Ginger plc
(2) The chart will show the span of control in Ginger plc
(3) The chart will show the scalar chain in Ginger plc
A 1 and 2 only
B 2 and 3 only
C 1 and 3 only
D 1, 2 and 3
LO 2b
2 Lan plc trains bankers. It has been established for over 30 years. Lan plc has a large operating core
which consists of all the well-qualified lecturing staff. They need to keep their teaching material
constantly updated to reflect current issues in the complex banking industry, and to ensure that the
company’s courses remain competitive. The lecturers are supported by a large administrative team
which follows procedures to ensure the smooth delivery of courses.
Requirement
Which of the following organisational structures does Lan plc have?
A Entrepreneurial
B Machine bureaucracy
C Professional bureaucracy
D Divisionalised
LO 2b
3 Identify which three of the following are Henry Mintzberg’s building blocks of an organisation.
A Support staff
B Middle line
C Functional division
D Scalar chain
E Ideology
F Matrix structure
LO 2b
4 Jane’s job description at Glue Pot plc states that her role is part of the company’s technostructure.
According to Henry Mintzberg, a technostructure:
A ensures that an organisation follows its mission
B provides ancillary services
C standardises work processes
D controls the work of the operating core
LO 2b
ICAEW 2023 3: Organisational and business structures 13

5 Benton plc is a machine bureaucracy. Which of the following characteristics is the company most
likely to exhibit?
A The technostructure exerts a pull towards standardised processes
B The operating core exerts a pull towards standardised skills
C The middle line exerts a pull towards fragmentation
D The support staff exert a pull towards collaboration
LO 2b
6 Justin works for Edwinstone plc. He is part of a project team developing a large construction site. The
team has a matrix structure with employees from many different departments working on this project.
Requirement
Which of the following basic principles of organisational structure is necessarily contravened by this
type of structure?
A Authority and responsibility
B Subordination of individual interests
C Unity of command
D Division of work
LO 1d, 2b
7 The Chief Executive of Acton plc has identified problems caused by the centralised nature of the
company’s decision-making processes. These have led to accusations from staff and some customers
that the company is increasingly slow and unresponsive. The Chief Executive wants to increase the
amount of decentralised decision-making over the next year.
Requirement
Which three of the following characteristics of Acton plc are likely to increase the amount of
decentralisation that is possible?
A The authoritarian style of its management
B Its well-skilled workforce
C Its large size
D The slow pace of technological change in its markets
E The effectiveness of communication across the company
LO 1d, 2b
8 In terms of structure, Platlet plc is a wide, flat organisation.

Which three of the following characteristics is the company most likely to exhibit?
A A greater need to delegate
B Higher administration and overhead costs
C Many opportunities for promotion
D Better communication between the strategic apex and operating core
E Large spans of control
F Slow decision making
LO 1d, 2b
9 Logical Computing Ltd adopts a wide, flat organisational structure. Which of the following is likely to
present problems for the company?
A Ensuring enough face-to-face contact takes place between superiors and staff members

B High management overhead costs
C Internal communication
D Superiors not delegating enough work to staff
LO 1d, 2b
10 Which three of the following are characteristics of limited companies?

A Perpetual succession
B Separate legal personality
C Financial statements can remain private
D Simple withdrawal of capital
E The company’s liability is limited
F Regulation under the Companies Act 2006
LO 2a
11 Tom Burns and G M Stalker classified organisations as ‘mechanistic’ or ‘organic’. Which of the
following is an appropriate description of a mechanistic organisation?
A Commitment to organisation’s mission
B Network structure of control
C Relatively flexible job descriptions
D Suitable for slow moving environments
LO 1d, 2b
12 Protin plc has a modern manufacturing operation. It uses components manufactured by suppliers
and sub-contractors all over the world to assemble finished goods to customer specifications in its
assembly plant. Operations managers are technically competent and their competence within the
area of their expertise is rarely questioned. There is a high degree of specialisation of labour.
Procedures ensure that, whoever carries out tasks, they are executed in the same way each time.
Requirement
From this description of Protin plc, identify which of the following statements about the company are
likely to be true.
(1) Innovation is suppressed.
(2) Employees are concerned with completing the task efficiently, rather than with how the task can
be improved upon for the benefit of the organisation.
(3) Everyone in the organisation finds it easy to learn from their mistakes.
A Statements 1 and 2
B Statements 2 and 3
C Statements 1 and 3
D Statements 1, 2 and 3
LO 1c, 2b
13 Imperiax Ltd wishes to expand abroad. It has agreed with a foreign manufacturer of a
complementary product to market both products jointly in both countries. What method of
expansion has Imperiax Ltd adopted?
A A group structure
B A joint venture
C A strategic alliance

D A licensing agreement
LO 2a
14 Angela is a Sole Trader who currently employs one person. Her business, Markstat, performs
statistical analysis for market research companies. Workloads are increasing rapidly and Angela has
realised that she now needs to employ three more people. This will require new office premises plus
new furniture and equipment. Markstat operates in a highly competitive sector.
Requirement
Identify which two of the following factors are disadvantages of Markstat’s current business structure
in this context.
A A floating charge cannot be used to secure borrowing
B Angela’s liability is unlimited
C The business’s liability is unlimited
D Financial statements do not have to be filed with the Registrar of Companies
E The stringent legal rules that apply to the business’s constitution
LO 2a
15 Rumbert plc is a large group listed in the UK. It has a head office in London and strategic business
units (SBUs) spread throughout the world. Only overall strategic direction, research and
development, and consolidated financial reporting are provided by London. All SBUs manage their
own marketing and operations, and report directly to regional centres which provide all other forms
of functional support. Rumbert Insurance is an SBU operating in South Africa and reporting to the
Rumbert Southern Africa regional centre. It provides home and car insurance direct to consumers.
Requirement
Which of the following areas of functional support would be provided to Rumbert Insurance by the
Rumbert Southern Africa regional centre?
A Sales management
B Financial reporting for the London Stock Exchange
C Periodic management accounts
D Research and development
LO 2b
16 Which of the following business structures necessarily have a legal identity separate from that of its
owner(s)?
(1) A strategic alliance between a limited company and a limited liability partnership
(2) A limited liability partnership
(3) A registered company
A 1 and 2 only
B 2 and 3 only
C 1 and 3 only
D 1, 2 and 3
LO 2b
17 Mr Dafinone is a Sole Trader who works alone, maintaining and repairing IT systems. He works 60
hours per week. He wants to take on a major new maintenance and repair contract for a local
hospital’s operating theatre. This will require at least 60 working hours each week. It will be extremely
profitable if he can acquire the necessary equipment.

Requirement
Which of the following statements about his sole trader status is true?
A It prevents him from employing staff to help with the contract.
B It gives him personal liability for any failure of his in relation to the hospital IT system.
C It prevents him from obtaining a loan to obtain the equipment.
D It allows him to issue shares in his business to friends and family.
LO 2a
18 Pliar Ltd is considering a number of business structures to market a new product with Secateur Ltd’s
help. Which of the following business structures is a joint venture?
A Buy Secateur Ltd and market the product through that company
B Form a project team with employees of both Secateur Ltd and Pliar Ltd and market the product
through that team
C With Secateur Ltd as equal partner, form Plicateur Ltd and market the product through that
company
D Sell Secateur Ltd the right to market the product in return for a percentage of the revenues
LO 2a
19 Jacinta works in the Human Resources department of Huff plc. She is preparing a job description for
a new vacancy for an accounts payable assistant in the finance function.
Requirement
Which three of the following items would be included in the job description that Jacinta is
preparing?
A Duties and responsibilities of the role
B Job title
C Organisation chart showing all positions within Huff plc
D Huff plc’s health and safety policy
E Pay grade
LO 1d
20 The organisational structure for Grenestede Ltd is flat compared to many businesses. There are only
three levels in its hierarchy, directors, managers and workers.
Requirement
Which of the following is an advantage of this type of organisational structure to Grenestede Ltd?
A Greater opportunity to delegate
B Narrower spans of control
C More participation in decision making
D Improved management training
LO 2b
21 Which of the following business structures necessarily has a legal identity separate from that of its
owner(s)?
A a joint venture between two limited liability companies
B a general partnership
C a limited liability partnership

D a strategic alliance
LO 2a

Chapter 4: Introduction to business strategy
1 In the home computer market, laptop computers are an example of a:
A product form
B brand
C product class
D generic product
LO 1c, 1e
2 Nevin works for Dorchester plc. Nevin’s manager has asked him to undertake an internal analysis of
the company as part of a strategic planning review.
Requirement
Which three of the following analytical techniques will be useful in this context?
A Value chain analysis
B Porter’s five forces analysis
C The BCG Matrix
D PESTEL analysis
E Analysis of distinctive competencies
F Ansoff’s Matrix
LO 1e
3 Sharma is carrying out a PESTEL analysis for her employer, Decron plc. During her research Sharma
has realised the ageing of the UK’s population is a potentially important strategic issue for the
company. In which section of her analysis should Sharma record this matter?
A P
B S
C T
D L
LO 1e
4 The Marketing Director of Birstall plc is formulating whether one of the company’s products, which is
aimed at a small niche market, should be differentiated from its close competitors. At this stage she is
unsure how such differentiation would be achieved in practice. The decision on whether to
differentiate or not is a decision concerning the company’s:
A functional strategy
B business strategy
C competitive strategy
D product/market strategy
LO 1e
5 Cassion plc has entered a market and achieved a reasonably dominant position in just under a year.
Cassion plc is pleased that the threat of new entrants into the market seems to be relatively low.
Requirement
Which of the following factors is most likely to have contributed towards this situation?
A Low initial capital costs
ICAEW 2023 4: Introduction to business strategy 19

B A customer base consisting of a few large customers
C A highly competitive supplier market
D The market is for services rather than manufacturing
LO 1e
Option Encourages new entrants Erects a barrier to new entrants
1 High competition Low capital costs
2 A monopoly supplier of a vital High competition

component
3 One large customer A monopoly supplier of a vital

component
4 Low competition High capital costs
With regard to Porter’s Five Forces Analysis and new entrants into a market, which of the following
pairs of statements is correct?
A 1
B 2
C 3
D 4
LO 1e
7 In the past a major stakeholder in Justin plc has exerted considerable influence over the
environmental impact of the company’s manufacturing operations. Specifically, a production facility
was temporarily closed down for three weeks as a result of one recent campaign orchestrated by this
stakeholder. The stakeholder writes regularly to the company’s chairman about a range of
environmental issues involving the company.
Requirement
In terms of Mendelow’s matrix which of the following strategies should Justin plc pursue for this
stakeholder?
A Keep this stakeholder informed at all times about the company
B Keep this stakeholder satisfied with regard to the company and its strategies
C Take minimum effort with regard to this stakeholder as he always complains
D Treat this stakeholder as a key player when formulating future strategies
LO 1e, 5e
8 Seago plc provides exclusive scuba-diving holidays for people over 60 years of age. In terms of
Michael Porter’s generic competitive strategies, this represents a strategy of:
A differentiation
B cost leadership
C cost focus
D differentiation focus
LO 1e

9 Martin is a Product Manager with Mangrove plc. He is preparing an assessment for the company’s
directors of each of the company’s product lines. In preparing his assessment, Martin is making use
of the BCG matrix. He has classified one particular product, the Pluton, as having a low market share
in a high growth market. Martin should recommend to the directors that, with regard to the Pluton,
the company should pursue:
A either a hold or a divest strategy
B either a hold or a harvest strategy
C either a build or a harvest strategy
D a build strategy
LO 1b, 1e
10 Nextron plc manufactures washing machines. It has a 20% share of the UK market. The company
wants to increase its revenues so has decided to add tumble dryers to its range of products. In terms
of Ansoff’s matrix, this represents a growth strategy of:
A market penetration
B market development
C product development
D diversification
LO 1e
11 The board of directors of Swinson plc is evaluating whether to pursue a new strategic option for a
major strategic business unit. The final decision should be judged against which three of the
following criteria?
A A cost of entry test
B An acceptability test
C A suitability test
D A feasibility test
E An attractiveness test
F A payoffs test
LO 1e
12 Arto plc manufactures the Zulon. The Zulon’s dominant market share has continued for over five
years, but market growth has now almost ceased. Zulon’s product manager does not believe that the
product merits further significant financial support. In terms of the BCG matrix, which of the following
strategies should the product manager recommend?
A Hold
B Harvest
C Divest
D Build
LO 1e
13 Which of the following statements about a product life cycle diagram is true?
A The life cycle diagram predicts when the decline phase will start
B Sales growth always follows the introduction of a product
C Profits are normally highest during the maturity phase
D The mature phase usually lasts about 10 years
LO 1c, 1e

14 Millward Ltd sells garden sheds. It has a number of local competitors who regularly use price cuts
and other sales promotions to win business. Its competitors have noticed that Millward Ltd responds
to price cuts by matching prices and then launching a leafleting campaign to houses in the local
area. In terms of Philip Kotler’s competitor reaction profiles, Millward Ltd is:
A laid back
B a tiger
C selective
D stochastic
LO 1e
15 Manson Ltd aims to pursue a differentiation strategy for its Portex sliding-door product.
Requirement
Which three of the following will form part of this strategy?
A Action to minimise labour and overhead costs
B Action to improve productivity
C Improved product features and benefits
D Promotion of the Portex brand
E Use of higher quality materials in the manufacturing process
LO 1c, 1e
16 Glenway Ltd sells package holidays from a chain of retail outlets. Brantham Ltd sells new and used
cars from a chain of car dealerships. Glenway Ltd and Brantham Ltd are:
A brand competitors
B industry competitors
C generic competitors
D form competitors
LO 1c, 1e
17 Hairdooz Ltd operates a large chain of hairdressing salons. Peter, a Management Consultant, has
undertaken a review of the company’s activities in providing its services to customers. In terms of
Porter’s Value Chain, Peter has been asked to focus on the primary activities of the company. Peter
will, therefore, be analysing which three of the following?
A Inbound logistics
B Procurement
C Firm infrastructure
D Marketing and sales
E Service
LO 1e
18 A consultant has told Nag plc’s board that the strategic planning process should result in a strategic
plan, a business plan and an operational plan. The consultant gave the board two definitions.
Definition 1: A business plan sets out the markets the business intends to serve, how it will serve each
market and what finance is required
Definition 2: A strategic plan sets out how overall objectives are to be achieved, by specifying what is
expected from specific functions, stores and departments

Requirement
Are these definitions accurate or inaccurate?
Option Definition 1 Definition 2
1 Accurate Inaccurate
2 Inaccurate Inaccurate
3 Accurate Accurate
3 Inaccurate Accurate
A Option 1
B Option 2
C Option 3
D Option 4
LO 1e
19 Simian plc operates in the financial services sector. Its marketing director is developing the firm’s
marketing plan. An external marketing consultant has recommended that the PESTEL framework
should be used as part of this process.
Requirement
Which of the following statements correctly describes the reason why the PESTEL framework might
prove useful?
A It will identify Simian plc’s strengths and weaknesses
B It will allow a detailed analysis of the structure of the financial services industry
C It will act as a detailed checklist to assist in understanding the different influences in Simian plc’s
environment
D It will help to identify the relative levels of interest and power of Simian plc’s stakeholders
LO 1e
20 Asif plc is a large supermarket chain which manages all its distribution internally. Each of the 120
stores is a profit centre. As part of its strategy development process, Asif plc has identified the
following two strategies.
Strategy (1): Offer its distribution capability from warehouse to stores as a service to other
supermarkets
Strategy (2): Train some store staff in the handling of personal safety issues
Requirement
Identify whether each strategy is a corporate strategy.
A Strategy (1): A corporate strategy; Strategy (2): Not a corporate strategy
B Strategy (1): Not a corporate strategy; Strategy (2): Not a corporate strategy
C Strategy (1): A corporate strategy; Strategy (2): A corporate strategy
D Strategy (1): Not a corporate strategy; Strategy (2): A corporate strategy
LO 1e
21 The specialist services division of Klaxon plc uses highly-qualified professional staff to provide its
government-accredited service to its customers. The company has prepared a draft Five Forces
Analysis. The following two statements are included in the draft analysis:

Statement (1): Government subsidies for existing providers will be removed, so there will be
increased rivalry
Statement (2): Two key customers of the specialist service will merge, so there will be increased
rivalry
Requirement
LO 1e
22 Simone, the strategy director of Principle plc recently undertook a review of a number of the
company’s product lines using the BCG matrix to develop recommendations. For one particular
product, ZD737, the model recommended that a ‘harvest’ or a ‘hold’ strategy should be adopted.
Requirement
Which of the following did the BCG matrix classify the ZD737 as?
A A dog
B A question mark
C A cash cow
D A star
LO 1e

Chapter 5: Introduction to risk management
1 In terms of financial risk, credit risk is:
A economic loss due to the default of a customer
B risk of choosing the wrong strategy
C risk that customers do not buy the company’s products in the expected quantities
D exposure to economic loss due to changes in market prices or rates
LO 1f
2 A highly geared company’s financial risk is most likely to increase when it increases its:
A operations
B geographical reach
C borrowings
D share capital
LO 1f
3 The strategy director of Milton plc is assessing a project that he may recommend to the board of
directors. He is concerned about the risk-averse attitude of the board to similar projects in the past.
In terms of risk, risk aversion is a measurement of:
A the probability of risk arising
B project uncertainty
C the impact of risk
D appetite for risk
LO 1f
4 The following statements have been made in relation to risk and uncertainty.
Statement (1): Risk is the variation in an outcome.
Statement (2): Uncertainty denotes the inability to predict an outcome.
Requirement
Identify whether each statement is true or false.
A Statement (1) true; Statement (2) false
B Statement (1) false; Statement (2) false
C Statement (1) true; Statement (2) true
D Statement (1) false; Statement (2) true
LO 1f
5 Norman Ltd developed a new product for use in the home improvement market. Tests on the
product proved successful although in extreme conditions the product was very flammable. The
company decided not to launch the product. In response to the risks highlighted in the product tests,
this decision is an example of managing risk through:
A risk avoidance
B risk reduction
C risk transfer
D risk acceptance
LO 1f
ICAEW 2023 5: Introduction to risk management 25

6 The following statements have been made about risk attitudes.
Statement (1): A risk-seeking attitude means that an investment should not be undertaken if there is
an alternative investment offering a higher risk.
Statement (2): A risk neutral attitude means an investment should not be undertaken if there is an
alternative investment offering a lower return.
Requirement
LO 1f
7 Jenny is a Risk Manager at Fortune Ltd. She is investigating the potential gross risk arising from a
decision to incorporate lower quality materials into the production process for one of the company’s
key products. In assessing potential gross risk Jenny needs to take account of the:
A level of exposure and probability of occurrence
B potential loss and probability of occurrence
C potential loss and level of volatility
D level of exposure and level of volatility
LO 1f
8 Smertin and Jones is a firm providing advice on all aspects of personal finance. Their industry is
heavily regulated. A newspaper article predicts that private medical insurance, a further area of the
firm’s business, may become subject to new regulatory requirements from next year. This possibility
is an example of:
A business risk
B financial risk
C event risk
D market risk
LO 1f
9 A project will yield either a profit of £100,000 or a loss of £50,000. The profit will arise with a
probability of 0.8 and the loss will arise with a probability of 0.2. The project contains:
A uncertainty only
B risk only
C both uncertainty and risk
D neither risk nor uncertainty
LO 1f
10 A risk-minimising investor has the following four investment opportunities.

Which two of the four investments will the investor possibly choose?

Risk
+ Investment 1
+ Investment 2
+ Investment 3
+ Investment 4
Return
A Investments 2 and 4
B Investments 1 and 4
C Investments 2 and 3
D Investments 3 and 4
LO 1f
11 Which of the following is the best definition of the risk concept of ‘exposure’?
A How the factor to which a company is exposed is likely to alter
B The amount of the loss if the undesired outcome occurs
C The measure of the way in which a business is faced by risks
D The likelihood that the undesirable outcome occurs
LO 1f
12 Which of the following sequences represents the order in which an organisation should respond to
risk?
A Reduction, avoidance, sharing (or transfer), acceptance (or retention)
B Avoidance, reduction, sharing (or transfer), acceptance (or retention)
C Reduction, sharing (or transfer), avoidance, acceptance (or retention)
D Avoidance, sharing (or transfer), reduction, acceptance (or retention)
LO 1f
13 Briggs plc analysed a risk faced by its Scarborough division on a risk map. It concluded that the
matter has a low impact but there is a high probability of its occurrence. Which of the following risk
responses is most appropriate?
A Risk avoidance
B Risk reduction
C Risk transfer
D Risk acceptance
LO 1f
14 An organisation responds to an identified risk by restructuring. Which category of control has it

used?
A Physical controls

B System controls
C Management controls
D Financial controls
LO 1f
15 Grenville Ltd is renewing its buildings and contents insurance policy for its factories. In terms of risk
management, this is an example of:
A risk avoidance
B risk reduction
C risk transfer
D risk retention
LO 1f
16 What type of risk includes process risk, people risk and event risk?
A Operational risk
B Financial risk
C Business risk
D Strategy risk
LO 1f
17 For many years, Manley plc’s main source of revenue was the sale of 8mm colour films for cameras.
This source of revenue fell sharply after the introduction of digital cameras. In relation to the success
of digital cameras, Manley plc was the victim of:
A operational risk
B financial risk
C business risk
D market risk
LO 1f
18 A company has automated production and this resulted in redundancies of some employees paid on
an hourly basis (ie, variable labour). The company borrowed heavily to finance the purchase of the
machinery needed. The effects of these changes on the company’s financial risk are that:
A both changes (machinery and borrowing) increase the company’s financial risk
B automation increases financial risk, borrowing decreases it
C automation decreases financial risk, borrowing increases it
D both changes (machinery and borrowing) decrease the company’s financial risk
LO 1f
19 Matrix Ltd has recently failed to supply raw materials in line with the terms of its contract with
Banfield plc. As a result, Banfield plc has had to delay the delivery of products to a major customer.
For Banfield plc, the failure of Matrix Ltd to meet its contractual obligations is an example of:
A financial risk
B product risk
C business risk
D event risk
LO 1f

20 In which order should the following aspects of the risk management process take place?
1 Risk response and control
2 Risk analysis and measurement
3 Risk awareness and identification
4 Risk monitoring and reporting
A 1, 2, 4, 3
B 3, 2, 1, 4
C 2, 3, 1, 4
D 4, 2, 1, 3
LO 1f
21 Candle plc is concerned about the risk management of its information systems function. Its systems
director has suggested wholly outsourcing information systems management to a third-party
provider. This action would be a form of:
A risk reduction
B risk transfer
C risk avoidance
D risk retention
LO 1f
22 Which of the following risks faced by Lump plc should be classified as business risk?
A Product risk
B Event risk
C Process risk
D Financial risk
LO 1f
23 Hammer plc makes a range of agricultural machines and other agricultural equipment for sale in its
home market. Hammer plc has a large share of this market, but it has several competitors who sell
similar machinery.
Requirement
Which of the following would normally be classified as an operational risk for Hammer plc?
A The risk that the Production Director will be recruited by Tiller plc, a key competitor
B The risk that a new type of irrigation system will fail to find a large enough market
C The risk of competitors moving their production overseas and being able to cut costs
D The risk of resource depletion, meaning that new sources of metal will have to be found
LO 1f
24 St Stephen’s Hospital has an electricity generator on standby at all times. The purpose of the
generator is to provide an electricity supply to the hospital’s operating theatres and life support
machines in the event of a power cut.
Requirement
The electricity generator forms part of St Stephen’s Hospital’s:
A crisis management

B disaster prevention
C operational planning
D strategic planning
LO 1g
25 Greenwood Ltd is a wholesaler of coffee. The business has contracts with all the major coffee chains
to supply coffee beans and fixes the price it charges them every month. Greenwood Ltd buys the
coffee beans on the international coffee market for which it pays the market price on the day of
purchase.
Requirement
The process of buying and selling coffee beans presents which of the following risks to Greenwood
Ltd?
A Credit risk
B Strategy risk
C Product risk
D Market risk
LO 1f
26 An investor has been offered the opportunity to invest in four projects. The investor has assessed the
level of risk associated with each project, alongside the expected return.
Requirement
Assuming that the investor is risk averse, which two investments from the following list will they
select?
Investment Risk (standard deviation) Expected return on investment
1 8% 12%
2 6% 11%
3 7% 11%
4 5% 10%
A Investment 1 and Investment 2

B Investment 1 and Investment 3
C Investment 2 and Investment 4
D Investment 3 and Investment 4
LO 1f
27 According to the report produced by ICSA Solutions – Building a resilient organisation – which of the
following are potential problems to successfully building a resilient organisation?
(1) Directors delegate delivery of resilience policies and procedures to operational managers
(2) Business functions focus specifically on resilience programmes for their own areas
A Neither of them
B 1 only
C 2 only
D Both 1 and 2
LO 1g

28 Abdullah owns a clothes shop in a busy town centre. The shop is open six days per week. Last week,
Abdullah’s sales were as follows:
Monday 2,500
Tuesday 2,700
Wednesday 3,000
Thursday 3,500
Friday 3,500
Saturday 4,000
Requirement
What was the median value of Abdullah’s daily sales last week?
A £3,000
B £3,200
C £3,250
D £3,500
LO 3f
29 Which two of the following statements is true of the median?

A It can be distorted by very large or very small exceptional values.
B It may not return a value that is the same as an actual value in the data set.
C It takes into account all the data in the data set.
D It is difficult to identify in large data sets as the values have to be ordered.
LO 3f
30 Which of the following measures of central tendency can be used when the data is qualitative rather
than quantitative?
A Mean
B Median
C Mode
D Standard deviation
LO 3f
31 Which two of the following are advantages of the mean?

A it is widely understood
B it is not distorted by outliers
C it takes into account the values of all items in the data set
D it always takes a value that is the same as an actual value in the data set
LO 3f
32 The marketing department has estimated the following sales volume for a new product for the
following year:

Probability Sales volume
Worst case 0.2 2,200
Most likely 0.5 2.600
Best case 0.3 2,700
Requirement
What is the expected value of sales volume?
A 2,450
B 2,500
C 2,550
D 2,600
LO 3f
33 The management accountant has recorded daily production in the factory for the last year. She has
calculated that the mean daily production was 10,000 units, with a variance of 400 units.
Requirement
What was the coefficient of variation?
A 0.2%
B 4%
C 20 units
D 400 units
LO 3f
34 The board of Theta Ltd has to choose which of two new products to launch next year, as they only
have sufficient production capacity to launch one. Projected daily contribution of the two products,
are as follows:
Product A Product B
Mean contribution £6,000 £5,000
Standard deviation £100 £90
Coefficient of variation 1.67% 1.80%
Requirement
Which of the following statements is correct?
A product B should be launched as it has a lower risk
B product A should be launched as it has a higher return in spite of the higher risk
C product A should be launched as it has a higher return and a lower risk
D it is not clear which product should be launched without more detail about the risk preferences
of Theta Ltd
LO 3f
35 An investor has been offered two possible investments – Investment A and Investment B. Details of
the historic average returns and standard deviation of each investment are as follows:

Investment A Investment B
Average return 5% 20%
Coefficient of variation 0% 5%
The investor has selected Investment B.

Requirement
The investor has selected Investment B.
Which of the following approaches to risk could the investor be said to have demonstrated?
(1) A risk averse
(2) A risk neutral approach
(3) A risk seeking approach
A 1 only
B 2 only
C 3 only
D (2) and (3)
LO 3f
36 The risk committee has identified a new risk relating to the potential damage that would be suffered
in a catastrophic event. The calculation of the gross risk is as follows:
Impact Probability Gross risk

A £1,000,000 1% £ 10,000
A loss of more than £500,000 would seriously threaten the survival of the company.
Requirement
Which of the following would be the most appropriate way to deal with the risk?
A Accept it as the gross risk is quite low
B Insure the risk as the potential impact is high
C Avoid the activities that create the risk as the potential impact is high
D Take actions that could reduce the probability of the event occurring
LO 1f
37 Which two of the following statements about the normal distribution are correct?
A the mean is less than the median, which is less than the mode
B the distribution is a continuous distribution
C the closer a range of values is to the mean, the higher is the probability of that range of values
occurring
D 99% of values lie within one standard deviation above and one standard deviation below the
mean
LO 3f
38 A distribution is left skewed (negatively skewed). Which statement is correct?

A The mean is lower than the median, which is lower than the mode.
B The mean is higher than the median, which is higher than the mode.
C The median is lower than the mean, which is lower than the mode.
D The median is higher than the mean, which is higher than the mode.
LO 3f

39 A manufacturing company identifies health and safety risks in all of its operational sites. If the cost of
reducing those risks further is considered to be reasonable, then action is taken to reduce them. If
the cost of reducing the risks is disproportionate given the reduction of risk that would be achieved,
then the action is not taken.
Requirement
What is this approach to risk management referred to as?
A ALARP
B Avoidance
C Transfer
D Accept
LO 1f

Chapter 6: The finance function and financial
information
1 Collinson plc is a medium-sized group operating at four locations in the UK. It operates a centralised
finance function and is concerned that the function as a whole is not performing well. Centralisation
of this finance function is least likely to be effective in:
A external reporting to shareholders
B recording financial transactions
C managing cash
D internal reporting to operational managers
LO 3a, 3b
2 Maureen is employed in the finance function of Gralam plc. Her duties are to ensure that the
company always has sufficient funds available to meet both its short-term and long-term financial
requirements. It is clear that Maureen is employed by Gralam plc in its:
A financial reporting section
B management accounting section
C treasury management section
D transaction processing section
LO 3a, 3e
3 Which three of the following are characteristics of management accounting information rather than
financial reporting information?
A It is both forward looking and historical
B It is governed by statute
C It is primarily used by shareholders
D It is likely to include a statement of cash flows
E It is likely to include a cash flow forecast
F It is likely to include budgetary information
LO 3a
4 Harold is an accountant with Farnworth plc. He was asked to join a project team examining the
company’s compliance with both FRC and IASB standards. It appears, therefore, that Harold has been
recruited into this project team to exploit his expertise in:
A financial reporting
B performance measurement
C corporate governance
D information systems
LO 3a
5 Novel plc is establishing its accounting and finance function. The company has been told there are
two purposes of published, audited financial statements. These are to help users assess how
effectively managers are running a business, and to make judgements about the likely levels of risk
and return in the future.
ICAEW 2023 6: The finance function and financial information 35

Requirement
Which of the following user groups of Novel plc’s published, audited financial statements is most
likely to use accounting information for these purposes?
A Community representatives
B Employees
C Shareholders
D Managers
LO 3a, 3b
6 When a company’s finance function prepares financial statements in accordance with legal rules and
accounting standards, it is engaged in the support activity of:
A record-keeping and stewardship
B planning and control
C external reporting
D internal reporting
LO 3a
7 Mainstream Ltd’s finance director is establishing an effective system in the finance function for
producing management accounting reports. Which issue should be the finance director’s primary
consideration?
A The information needs of the company’s managers
B The need for effective internal control mechanisms
C The need for cost-effectiveness
D The need for effective information security
LO 3a, 3e
8 Tram plc’s finance function must provide information to management on the company’s balanced
scorecard. This role is undertaken as part of Tram plc’s:
A statutory audit requirement
B financial reporting function
C treasury management process
D performance measurement system
LO 3a, 3d
9 ‘Effectiveness’, ‘economy’ and ‘efficiency’ are often mentioned with reference to resource use. Match
these terms with the definitions below:
(1) A reduction or containment of costs
(2) Achieving maximum output at minimum cost
(3) The measure of achievement by reference to objectives
A 1 = effectiveness; 2 = economy; 3 = efficiency
B 1 = economy; 2 = efficiency; 3 = effectiveness
C 1 = efficiency; 2 = effectiveness; 3 = economy
D 1 = economy; 2 = effectiveness; 3 = efficiency
LO 3d

10 Which statement about critical success factors (CSFs) for a business is true?
A Low costs will always be a CSF; high sales revenue will always be a CSF.
B Low costs will always be a CSF; high sales revenue will not always be a CSF.
C Low costs will not always be a CSF; high sales revenue will always be a CSF.
D Low costs will not always be a CSF; high sales revenue will not always be a CSF.
LO 1a, 3d
11 Three basic approaches to performance measures are measures of economy, efficiency, and
effectiveness. Economy is measured by:
A the amount of resources used for the tasks that have been achieved
B the success in achieving goals and targets
C team member satisfaction and the motivational climate
D the success of the team or work group in controlling its costs
LO 3d
12 A consultant has made two statements about the primary focus of the users of financial statements of
an entity.
Statement (1): The primary focus of suppliers is on the entity’s risk and return.
Statement (2): The primary focus of shareholders is on the entity’s solvency.
Requirement
LO 3a, 3d, 3f
13 Tom works in the finance function of Bateman Ltd, which trades with many companies around the
world. His duties involve managing the company’s foreign exchange requirements. From this it can
be seen that Tom is employed by Bateman Ltd in its finance function’s:
A financial reporting section
B management accounting section
D financial transaction recording section
LO 3a, 3b
14 Chinward Ltd manufactures garden furniture from recycled wood and wishes to apply the
sustainability reporting standards issued by the Global Reporting Initiative (GRI) in its sustainability
reporting.
Statement (1): Under the environmental section of the report, the company should identify the total
weight of wood used in the manufacture of its products in the financial period.
Statement (2): Under the social section of the report, the company should identify the number of new
workers employed in the financial period by age, gender and region.
Requirement

LO 3d
15 Historically, the role of the finance function at Delbin plc has been viewed primarily in terms of
reporting and control. However, the senior management team at Delbin plc are keen for the finance
function to have more of a role as a business partner.
Requirement
In which of the following should members of the finance function expect to become increasingly
involved as a result of the business partnering role?
(1) Formulating strategies
(2) Commercial decision making and negotiations
(3) Provision of accurate accounting information.
A 1 and 2 only
B 1 and 3 only
C 2 and 3 only
D 1, 2 and 3
LO 3a
16 Which two of the following encourage organisations to improve reporting of their economic,
environmental and social impact?
A The International Accounting Standards Board (IASB)
B The Task Force on Climate-related Financial Disclosures (TCFD)
C Global Reporting Initiative (GRI) standards
D The Climate Disclosure Standards Board framework (CDSB)
E The Triple Bottom Line approach
LO 3d, 3e
17 A factory emits greenhouse gasses which are currently within government limits. The finance director
is concerned that changes in legislation may be introduced soon that would reduce the amount of
greenhouse gasses that the company is allowed to emit, leading to a requirement to invest in new
machinery or reducing production to reduce pollution.
Requirement
In terms of the Task Force on Climate-related Financial Disclosure categories of risk from climate
change, what is the risk that the finance director is concerned about an example of?
A Physical
B Market
C Policy and legal
D Technology
LO 3d, 3f
18 Moreton plc produces monthly variance reports for all its production managers. These show the
extent and cause of all variances from the company’s production plans. The reports enable managers
to take corrective action during the following month. In terms of financial information, these reports
can be classified as:

A planning information
B operational information
C tactical information
D strategic information
LO 3a, 3c
19 The area outside an information system boundary is known as the:

A location
B setting
C context
D environment
LO 3c
20 The directors of Royguard plc have recently decided to establish an extensive management
information system within one of its subsidiaries. In arriving at this decision, the directors were likely
to have been conscious that the subsidiary’s operations were largely characterised by:
A structured decisions
B unstructured decisions
C non-programmable decisions
D non-routine decisions
LO 3d
21 The information systems manager of Detrex plc wants all data input into the company’s databases to
be complete and accurate. As part of his information management role, he makes use of range
checks. The use of range checks should help to deliver:
A completeness only
B accuracy only
C both accuracy and completeness
D neither accuracy nor completeness
LO 3d
22 The manager of Hettie plc’s information systems wants all data input into the company’s databases to
be accurate and complete. As part of her information management role, she makes use of control
totals. The use of control totals should help to deliver:
A accuracy only
B completeness only
D neither accuracy nor completeness
LO 3c
23 Ranger plc’s information systems manager wants all data on the company’s databases to be the same
as their sources and not to have been accidentally or deliberately altered, destroyed or disclosed. His
concern, therefore, is with:
A data accuracy
B data integrity
C data authenticity

D data completeness
LO 3c
24 Zing plc’s information system automatically maintains a log of user activity. This log contains details
of identity, log-on and log-off times and details of processing carried out and access attempts made.
All transactions are tagged to identify the person responsible for that processing. The log-on details
of the user determine processing access.
Requirement
Which three of the following control objectives does this system effectively address?
A prevention
B detection
C deterrence
D correction
E accuracy
F completeness
LO 3c
25 Which of the following statements concerning management information systems and transaction
processing systems is correct?
A A management information system is likely to be the foundation of a transaction processing
system.
B Management information systems and transaction processing systems are usually independent.
C Management information systems and transaction processing systems are synonymous.
D A transaction processing system is likely to be the foundation of a management information
system.
LO 3c
26 Which of the following characteristics relates to strategic information as opposed to operational

information?
A often based on estimates
B often very detailed
C mostly very accurate
D usually routine
LO 3a, 3c
27 The depreciation policies adopted by Plumtree Ltd have not changed for the past five years.
According to the IFRS Conceptual Framework, this supports the qualitative characteristic for its
financial information of:
A understandability
B relevance
C timeliness
D comparability
LO 3a, 3c

28 As a result of reading the financial statements of Tatra plc, Michaela decided to increase her
shareholding in the company. In terms of the IFRS Conceptual Framework, this confirms that the
information in Tatra plc’s financial statements was:
A positive
B timely
C material
D relevant
LO 3a
29 Changes to Merrick Ltd’s transaction processing system can only be made by people who are
accountable for the changes. This contributes towards which one of the essential qualities of a secure
information system?
A confidentiality
B integrity
C non-repudiation
D authorisation
LO 3c
30 Each month the Business School at Newtown University receives financial performance data for the
previous month. Each month the senior managers of the Business School complain that they cannot
rely on this information as it contains errors. The information, therefore, is often ignored by
managers. In terms of the qualities of a secure information system, the actions of the managers show
that the system lacks the quality of:
A confidentiality
B availability
C non-repudiation
D authorisation
LO 3c
31 Which of the following issues are key in relation to information processing in a company’s accounting
systems?
Issue 1: Completeness
Issue 2: Non-repudiation
Issue 3: Verifiability
A Issues 1 and 2 only
B Issues 2 and 3 only
C Issues 1 and 3 only
D Issues 1, 2 and 3
LO 3a, 3c
32 In relation to users of financial information, which of the following statements is true?

A External users evaluate the performance of a company’s management using management
accounting.
B Financial reporting provides information to managers and people outside the company, such as
investors.
C Management accounting provides information to managers and people outside the company,
such as investors.

D Financial reporting generates confidential information for internal decision makers such as
executives and management.
LO 3a
33 The IFRS conceptual Framework states that, to support the effective working of capital markets for
the benefit of businesses, financial statements must have which two fundamental qualitative
characteristics?
A Understandability
B Relevance
C Faithfulness of representation
D Comparability
E Timeliness
F Verifiability
LO 3a
34 Russell is an accountant working for Forsell plc. He has made the following points concerning
financial statements. Which of Russell’s points is true?
A Financial statements are used mainly by management.
B Financial statements are used by parties internal to the business only.
C Financial statements are used only by investors.
D Financial statements are used by investors, payables (creditors) and management.
LO 3a
35 Which of the following definitions best describes the characteristic of integrity in relation to the
security of data and information systems?
A Data can be accessed as and when required, by authorised people
B Data stored in the system is the same as its sources and has not been altered or corrupted
C Data is obtained from reliable and verifiable sources
D Data cannot be accessed by anyone who does not have the right to see it
LO 3c

Chapter 7: Business finance
1 A family-owned removals company has liquidity problems and needs an injection of funds. From the
following list identify which would be classified as a source of short-term finance for this company.
A Share capital
B Bank loan
C Factoring
D Commercial mortgage
LO 3h, 3i
2 A consultant has made the following statements concerning each possible relationship between a
bank and its customer.
Statement (1): In the fiduciary relationship the bank is expected to act with good faith towards the
customer.
Statement (2): In the mortgagor/mortgagee relationship the bank asks the customer to secure a loan
with a charge over the customer’s liabilities.
Statement (3): In the bailor/bailee relationship the bank accepts the customer’s property for storage
and undertakes to take reasonable care to safeguard it against loss or damage.
Requirement
Identify which of the statements about these relationships are true.
A Statements (1) and (2) only
B Statements (2) and (3) only
C Statements (1) and (3) only
D Statements (1), (2) and (3)
LO 3g
3 The directors at Landsaver plc want to raise long-term finance by issuing shares in the company. They
have been told that the way to do this is ‘by accessing the market’ but they are not sure what this
means. A market where new securities are bought and sold for the first time is known as:
A a futures market
B a secondary capital market
C a primary capital market
D a money market
LO 3h
4 A consultant has made the following statements about venture capital.

Statement (1): Venture capitalists may realise their investment by selling their shares following
flotation on the stock exchange.
Statement (2): Venture capitalists never sit on the board of a company.
Statement (3): Venture capitalists normally expect a company’s existing owners to bear a substantial
part of the risk.
Requirement
Which of the statements are true?
ICAEW 2023 7: Business finance 43

LO 3h
5 The following is a definition of what type of market?

‘A short-term wholesale market for securities maturing in one year, such as certificates of deposit,
treasury bills and commercial paper.’
A Capital market
B The London Stock Exchange
C AIM (Alternative Investment Market)
D Money market
LO 3h, 3i
6 Which of the following is an example of an institutional investor?

A The Bank of England
B The Financial Reporting Council
C The Financial Conduct Authority
D A unit trust
LO 3h, 3i
7 In which of the following projects would a venture capital organisation be least likely to invest?
A A business start-up
B A management buyout
C Renovation of a production facility
D A rapidly growing company, looking to expand into new markets
LO 3h, 3i
8 Which of the following forms of new share issues would normally be underwritten?
A Introduction
B Offer for sale by tender
C Placing
D Rights issue
LO 3i
9 Grid plc wants to be listed on the London Stock Exchange. An adviser has stated that the following
are methods by which a company can obtain a new London Stock Exchange listing for its shares.
Method 1: Offer for sale
Method 2: Placing
Method 3: Rights issue
Method 4: Offer for subscription
Requirement
Which of these methods are available to Grid plc?
A Methods 1, 2 and 3 only
B Methods 2, 3 and 4 only

C Methods 1, 2 and 4 only
D Methods 1, 3 and 4 only
LO 3i
10 Which of the following is a function of financial regulators?

A The provision of financial advice and information to businesses
B Reduction of risk for clients via aggregation of funds
C Maturity transformation
D Prudential control of financial institutions
LO 3h, 3i
11 Which of the following is an advantage to the shareholders of a company that is obtaining a listing
on the London Stock Exchange?
A disclosure requirements are reduced
B larger dividends can be paid
C shares become more readily marketable
D the company becomes entitled to put ‘plc’ (public limited company) after its name
LO 3h, 3i
12 Which type of finance should be used to fund an increase in inventory?

A immediate finance
B short-term finance
C medium-term finance
D long-term finance
LO 3h
13 Which of the following is the source of finance which a company can draw on most easily in practice?
A cash generated from retained earnings
B new share issues
C rights issues
D bank borrowings
LO 3h, 3i
14 All of the following statements about leases are correct, except one. Which is the exception?
A The lease period can be less than the useful life of the asset.
B Lessees may be liable to pay interest on the lease.
C The lessee owns the asset outright from the time of purchase.
D Lessors may be responsible for repairs and maintenance on the asset being leased.
LO 3h, 3i
15 Which of the following statements about venture capital is most valid?

A Venture capital is a low risk and low return form of finance.
B Companies listed on major stock exchanges normally use venture capital to raise new finance.
C Venture capital can be appropriate for a management buyout.

D Venture capital normally takes the form of debt finance.
LO 3h, 3i
16 Which of the following is a source of long-term finance?

A Trade credit from suppliers
B Bank overdraft
C Factoring of trade debts
D Mortgage on property
LO 3h, 3i
17 What is the following statement a definition of?

‘A document issued by a bank on behalf of a customer, authorising a person to draw money to a
specified amount from its branches or correspondents, usually in another country, when the
conditions set out in the document have been met.’
A Bill of exchange
B Export guarantee
C Payment gateway
D Letter of credit
LO 3j
18 Which of the following services is least likely to be offered by a factoring company to its client?
A Provision of finance by advancing 80% of invoice value immediately, and the remainder on
settlement of the debt by the client’s customer
B Taking over responsibility for administration of the client’s sales ledger
C Deciding what credit limits the client should give customers
D Taking over responsibility for irrecoverable debts
LO 3h, 3i
19 Ken plc’s new building programme is likely to start within the next 90 days, but the precise start date
and timing of the cash flows are still uncertain. The company has £150,000 available in cash in
anticipation of the investment. Which of the following is the least appropriate use of the funds in the
interim period?
A Investment in equities
B Treasury bills
C Bank deposits
D Local authority deposits
LO 3h, 3i
20 Which of the following contractual relationships between a bank and a customer concerns the bank
accepting customer property for storage in its safe deposit?
A Receivables/payables
B Principal/agent
C Bailor/bailee
D Mortgagor/mortgagee
LO 3g

21 Which of the following sources of finance involves the business requesting a specific sum of money
from individuals, usually via the internet?
A Alternative investment market
B Business angels
C Venture capital
D Crowdfunding
LO 3h
22 Financial instruments with maturities of less than one year are traded in the:
A equity market
B capital market
C money market
D fixed-income market
LO 3h, 3i
23 A consultant has stated that a 30-year Treasury bond issued in the last year can be sold in four
different categories of market.
(1) The money market
(2) The capital market
(3) The primary market
(4) The secondary market
Requirement
Which of these markets are available for the sale?
A 1 and 3 only
B 1 and 4 only
C 2 and 3 only
D 2 and 4 only
LO 3h, 3i
24 Sunita Ltd has the choice of two investments carrying similar levels of risk. One is short-term and the
other is a long-term bond. Sunita Ltd should expect the interest on the longer-term bond to be:
A normally higher
B lower
C normally the same
D impossible to tell
LO 3f, 3h
25 Which part of the Bank of England is responsible for the stability and resilience of the UK’s financial
system as a whole?
A Financial Conduct Authority
B Monetary Policy Committee
C Financial Policy Committee
D Prudential Regulation Authority
LO 3g

26 Adventurous plc has recently sent goods to its first non-UK customer but has taken out insurance
because it is worried about the possibility of payment default. What type of risk does such a non-
payment represent?
A Physical risk
B Credit risk
C Trade risk
D Liquidity risk
LO 3j
27 Cinq plc has been offered support by a commercial organisation in respect of its receivables ledger.
Under the offer, Cinq plc will pay the commercial organisation a premium and in return the
commercial organisation will pay Cinq plc the value of customer debt if it becomes irrecoverable.
Requirement
What service is the commercial organisation offering Cinq plc?
A Non-recourse debt factoring
B Finance against sales
C Receivables insurance
D Receivables management
LO 3h
28 Lion plc is seeking to raise debt finance. It is planning to offer a series of £10,000 loan stock to
investors. The loan stock will each be redeemed at £9,500 and attracts 5% interest per annum.
Requirement
Which of the following statements concerning the loan stock is correct?
A It is a floating rate note which is redeemed at a £500 premium.
B It is a bond which is redeemed at a £500 premium.
C It is a floating rate note which is redeemed at a £500 discount.
D It is a bond which is redeemed at a £500 discount.
LO 3h
29 Which two of the following statements about the Green Bond Principles are true?
A It should be stated in the legal documentation that the proceeds of issuing the bond will be
used for projects that should provide clear environmental benefits.
B The finance should only be used for climate change mitigation or climate change adaptation.
C There must be an external review of the bond to ensure that it complies with the Green Bond
Principles.
D The proceeds from the issue of the bond should be kept in a separate account or tracked by the
issuer.
E The bond should be traded on the green exchange in Luxembourg.
LO 3h, 3i
30 The following extract has been taken from the statement of financial position of a manufacturing
company:

£
Inventory 20,000
Trade receivables 21,000
Cash and cash equivalents 5,000
Total current assets 46,000
Total assets 46,000
Current liabilities
Trade payables 15,000
Tax payable 4,000
Total current liabilities 19,000
Requirement
What best describes the approach taken to managing the financing of its current assets?
A Aggressive
B Neutral
C Defensive
D Efficient
LO 3h

Chapter 8: The accountancy profession
1 The objective of the accountancy profession can best be described as:
A providing financial information about an entity to external users, which is useful to them in
making economic decisions and for assessing the stewardship of the entity’s management
B measurement, disclosure or provision of assurance about financial information that helps
managers, investors, tax authorities and other decision makers make resource allocation
decisions
C identifying, measuring, accumulating, analysing, preparing, interpreting and communicating
information used by management to plan, evaluate and control an entity and to assure
appropriate use of and accountability for its resources
D managing all the processes associated with the raising and use of financial resources in a
business
LO 4a
2 Which of the following element is least likely to characterise a profession?

A Restrictions on membership to ensure the skill and competence of members
B A high degree of autonomy and independence
C Core values are established which members are expected to maintain
D The profession’s rules and regulations are established solely by government legislation
LO 4a
3 Professions often set out codes of ethics and conduct. These are an example of which common
attribute of professions?
A Professional values
B Self-regulation
C Co-regulation
D Formal regulatory process
LO 4a
4 Legislation requires certain activities to be carried out by members of bodies that are ‘recognised
professional regulators’.
Requirement
Which three of the following activities are included in such requirements?
A Insolvency
B Management consultancy
C Investment business
D Taxation
E Payroll
F Statutory audit
LO 4b
5 Paula recently established her own accountancy practice from small retail premises in Hightown. She
operates as a sole trader. Paula passed the last of her ICAEW examinations last month although she is
not yet permitted to offer statutory audit, insolvency, investment business or probate services. She
has already been successful in attracting several clients to her new practice. She has not yet become
ICAEW 2023 8: The accountancy profession 51

a member of ICAEW but she is registered with an approved body for supervision under the money
laundering regulations.
Which of the following statements is correct?
Requirement
A Paula cannot call herself an accountant.
B ICAEW can legally stop Paula from practising as a sole trader.
C Paula can offer any accountancy services she considers appropriate.
D Paula can offer any accountancy services except those in the reserved areas.
LO 4b
6 In relation to which of the following does the Financial Reporting Council have statutory powers?
A Regulation of the auditing profession
B Professional discipline of accountants
C Registration of students into the accountancy profession
D Continuing professional education and development
LO 4b
7 Upholding professional ethics is a key part of being a professional accountant. Which of the
following duties of an accountant only applies to those employed in the public sector?
A Protect the public interest
B Apply laws and regulations
C Protect the profession’s reputation and standing
D Protect taxpayers’ money
LO 4b
8 Chris runs his own printing company. He is experiencing financial difficulties and some of his credit
suppliers are threatening to take him to court. He needs some advice and has seen an advertisement
in his local paper for an accountancy service that is much cheaper than he expected. He calls the
accountant to check that the price is not a misprint and is surprised at some of the answers he is
given to his questions.
The accountant made the following statements to Chris.
Statement (1): Anyone is free to advertise as an ‘accountant’ and offer the full range of accountancy
services, with no exceptions.
Statement (2): ICAEW members are open to competition from anyone, whether professionally
qualified or not, who chooses to enter the market.
Statement (3): There is no legal requirement for an accountant to be a paid-up member of one of the
CCAB bodies.
Which of the following statements are true?
Requirement
A (1) and (2) only
B (2) and (3) only
C (1) and (3) only
D (1), (2) and (3)
LO 4b
9 The following statements have been made about the purpose of regulating professions.

Statement (1): Regulation of professions should protect the public from being misled or from
suffering from abuse of power through knowledge or monopoly.
Statement (2): Regulation of professions should protect the profession’s vested interests from
competition in order to maintain public trust.
Requirement
LO 4a, 4b
10 The financial statements of Anson plc, a listed company, depart from relevant accounting standards
and the provisions of the Companies Act 2006. The company is likely to be referred to which of the
following regulatory bodies?
A The Prudential Regulation Authority
B The Financial Conduct Authority
C ICAEW
D The Financial Reporting Council
LO 4b
11 The following statements concern the role of the ICAEW.

Statement (1): The CCAB has delegated the responsibility for determining the eligibility to practice of
all accountants to the ICAEW.
Statement (2): The ICAEW is only responsible for discipline in respect of ICAEW members.
Requirement
LO 4a, 4b
12 Who is responsible for supervising member firms of the ICAEW in respect of anti-money laundering?
A The Financial Conduct Authority (FCA)
B The ICAEW
C The Office of Professional Body AML Supervision (OPBAS)
D HMRC
LO 4b
13 The following are potential actions that could be taken to help reduce climate change:
(1) Persuading organisations to take steps to tackle climate change
(2) Helping organisations to manage the significant risks that climate change brings
(3) Setting targets relating to climate change, comparing actual performance against targets and
interpreting the results

Requirement
Which of the following actions might accountants be expected to play?
A 1 and 2 only
B 2 and 3 only
C 1 and 3 only
D 1, 2 and 3
LO 4h
14 Solutions to sustainability can be divided into solutions based on regulation and solutions based on
market forces.
Requirement
Which one of the following is an example of a solution based on market forces?
A Taxes and tariffs such as pollution taxes
B Green finance strategies such as green bonds
C Grants to help organisations reduce their carbon emissions
D Audits of sustainability reports to meet mandatory reporting requirements
LO 4h

Chapter 9: Governance and ethics
1 In a market-based financial system, the financial system will be characterised by:
A comparatively more government regulation than a bank-based system
B comparatively less close relationships between banks and businesses than in a bank-based
system
C comparatively more risk averse households than in a bank-based system
D households with less access to investment in physical assets than in a bank-based system
LO 4f
2 In the country of Zanadu, the population has a risk seeking attitude towards financial matters.
Zanadu’s financial system is likely to be:
A a market-based system
B a stakeholder system
C a bank-based system
D a public policy system
LO 4f
3 Under a unitary board structure, a company’s board of directors is responsible for both management
of the business and reporting to:
A the non-executive directors
B the supervisory board
C the company’s employees
D the company’s shareholders
LO 4e
4 The agency problem is behind the need for sound corporate governance. The ‘principal’ in this
agency relationship is:
A customers as a body
B shareholders as a body
C managers as a body
D directors as a body
LO 4c
5 A consultant has made the following statements, which he maintains are drawn from the definition of
corporate governance in the OECD’s Principles of Corporate Governance.
Statement (1): Corporate governance comprises the practices and procedures for ensuring that a
company is run in such a way that it achieves its objectives.
Statement (2): Corporate governance is a set of relationships between a company’s management, its
board, its shareholders and other stakeholders.
Requirement
Which two of the following are principles in the Wates Principles?
A Statement (1) matches; Statement (2) does not match
B Statement (1) does not match; Statement (2) does not match
C Statement (1) matches; Statement (2) matches
ICAEW 2023 9: Governance and ethics 55

D Statement (1) does not match; Statement (2) matches
LO 4c
6 A financial system comprises which three of the following?

A Governance structures
B Intermediaries
C Securities
D Markets
E Regulators
LO 4c
7 Woolmer plc adopts corporate responsibility as a key element in its strategies. This will mean that the
company seeks to:
A meet the minimum obligations it owes to stakeholders
B exceed the minimum obligations it owes to stakeholders
C meet the minimum obligations it owes to shareholders
D exceed the minimum obligations it owes to shareholders
LO 4h
8 In seeking to address the problem of the separation of ownership and control, corporate governance
attempts to align the interests of which two of the following stakeholders?
A Investors
B Employees
C Regulators
D Managers
E Auditors
LO 4d
9 The stewardship approach to corporate governance requires directors of limited companies:

A to act at all times in the best interests of the company
B to allow shareholders to see detailed accounting records on request
C to hold regular monthly meetings to answer shareholders’ questions
D to consult the shareholders over difficult management decisions
LO 4g
10 The board of directors of Lake plc is concerned that the current chief executive’s actions are
undermining the ethical culture at the company. She fails to listen to the concerns of managers about
unfair treatment of suppliers, and she has failed to learn from a recent scandal in which the company
was fined for data protection breaches.
Requirement
To improve the ethical culture at Lake plc, which of the following is the most important action for the
board to take?
A Draft a corporate code of ethics for Lake plc’s employees
B Rewrite Lake plc’s policies regarding suppliers and customers
C Demonstrate leadership by encouraging Lake plc’s chief executive to be more open

D Brief shareholders more fully about Lake plc’s incentive scheme for managers
LO 4i
11 Protea plc manufactures sporting equipment for leisure centres. The Chair is Jonathan Potter, and the
Chief Executive is his daughter Elise. All of the directors receive bonuses based on annual profits.
The company’s sales are made by individual salespeople who routinely bypass the company’s strict
credit check procedures. A number of irrecoverable debts have arisen in the current year that would
have affected profitability and the share price, if the Finance Director had not manipulated the
accounts.
Requirement
From this information, what are the likely corporate governance issues at Protea plc?
A Domination by a small group
B Emphasis on short-term profitability
C Lack of supervision of employees
D All of the above
LO 4c, 4i
12 Which of the following is a list of the five key elements of good corporate governance?
A Board of directors, senior management, employees, external auditors, internal auditors
B Senior management, shareholders, employees, external auditors, lenders
C Board of directors, senior management, shareholders, external auditors, internal auditors
D Senior management, stakeholders, internal auditors, employees, government regulators
LO 4d
13 Ultra Zeta AG is a company based in Germany. The business has a dual board structure for its Board
of Directors.
Requirement
Which of the following types of board forms part of the company’s board structure?
A Unitary board
B Supervisory board
C Non-executive board
D Executive board
LO 4f, 4g
14 The national culture in the country of Erewhon is characterised by a high ‘power distance’ score, and
an acceptance that power is distributed unequally, and concentrated in the hands of a small number
of key individuals.
By contrast, the country of Wenland has a lower ‘power distance’ score, and people strive to get
power distributed more evenly.
The following statements have been made:
(1) The corporate governance code in Erewhon prohibits the role of CEO and chair being
combined, but the code in Wenland permits this.
(2) The corporate governance code in Wenland requires a higher proportion of independent NEDs
on the board than the code in Erewhon does.

Requirement
Based on the ‘power distance’ scores of the two countries, identify if each of the above statements is
likely to be true or false.
A Statement 1 = True; Statement 2 = True
B Statement 1 = True; Statement 2 = False
C Statement 1 = False; Statement 2 = True
D Statement 1 = False; Statement 2 = False
LO 4f
15 Which of the following statements about whistle-blowing is/are true?

(1) Whistle-blowing involves the disclosure by an employee of illegal or unethical behaviour in the
workplace.
(2) Employees should always report concerns about unethical behaviour to their line manager in the
first instance.
A Neither of them
B 1 only
C 2 only
D Both of them
LO 4i
16 Which three of the following are core aspects of South Africa’s King Report?
A Good corporate citizenship
B Equality
C Leadership
D Sustainability
E Responsibility
LO 4c
17 Goldenwood plc is a multinational company that makes sweets and sugary drinks targeted at
children between the ages of 4 and 8 years old. The company regularly advertises its products
during prime time children’s television programmes and on popular YouTube channels with high
numbers of child subscribers. In recent weeks, the company has received adverse publicity because
of its targeting of young children which has been branded as ‘unethical’.
Requirement
Which business function is impacted by this ethical issue?
A Operations
B Procurement
C Human Resources
D Marketing
LO 1c, 4i
18 Which two of the following are principles in the Wates Principles?

A Board composition
B Board committees
C Director responsibilities

D Protection of minority shareholders
E Reporting and transparency
LO 4f
19 Which two statements about the Wates Principles are true?

A They are mandatory for all private companies with a turnover of £200 million or more.
B They use a “apply or explain” approach.
C The code requires the board to establish oversight for the identification and mitigation of risks.
D They consist of five principles.
E They can be used by companies with a premium listing instead of the UK corporate governance
code.
LO 4f
20 The following are potential aims for sustainability:

(1) End poverty
(2) Fight inequality
(3) Stop climate change
Requirement
Which of the aims above are overall aims of the UN Global Goals for sustainable development?
A 1 and 2 only
B 2 and 3 only
C 1 and 3 only
D 1, 2 and 3
LO 4h

Chapter 10: Corporate governance
1 Jacob has just been appointed as a Non-executive Director of Pulsemania plc, a premium listed
company. A consultant told him that under the UK Corporate Governance Code he has the following
responsibilities as a non-executive director.
Responsibility 1: Appointing and removing executive directors
Responsibility 2: Reporting on the performance of the company
Responsibility 3: Holding executive directors to account for their performance
Responsibility 4: Developing and implementing internal controls
Which of the points listed by the consultant correctly identify Jacob’s responsibilities as a non-
executive director?
Requirement
A 1 and 2
B 2 and 3
C 1 and 3
D 2 and 4
LO 4e, 4g
2 The chair of Raygold plc, a premium listed company, is considering which of the company’s non-
executive directors can be classified as independent. Even if a non-executive director has worked as
an employee for the company in the past, they may still be classified as independent if the period of
employment finished at least:
A two years ago
B three years ago
C four years ago
D five years ago
LO 4e, 4g
3 Jumpers plc has just obtained a premium listing on the London Stock Exchange. A consultant has
made the following two statements about the company and the UK Corporate Governance Code.
Statement (1): As Jumpers plc has a premium listing, the Listing Rules mean that the Code applies so
the company must never depart from any of its requirements.
Statement (2): If Jumpers plc had joined the FTSE 100, compliance with the Code would be a
statutory requirement.
Requirement
LO 4e
4 According to the UK Corporate Governance Code, a company should seek to improve corporate
governance by ensuring that:
A the chair and chief executive are the same individual in order to avoid confusion over who has
responsibility for running the company
ICAEW 2023 10: Corporate governance 61

B the chair and chief executive are different individuals in order to prevent one person having too
much power within the company
C the chair and chief executive are different individuals in case one dies or becomes incapacitated
by ill health
D the company chairman does not take up outside directorships
LO 4e
5 The UK Corporate Governance Code contains principles for the level and make-up of directors’
remuneration. A consultant has listed the following as being among these principles.
Principle 1: Only basic salary should be pensionable
Principle 2: Directors should not be rewarded for poor performance
Principle 3: Obtain the auditor’s approval of the remuneration set
Which of the points listed by the consultant correctly reflect the principles and provisions of the UK
Corporate Governance Code?
Requirement
A 1 and 2 only
B 2 and 3 only
C 1 and 3 only
D 1, 2 and 3
LO 4e
6 The board of directors of Kempton plc, a premium listed company, is considering the membership of
its remuneration committee. In this regard, which statement is true?
A The chair of the board must be one of the members of the remuneration committee.
B The chair of the board may be both a member and chair of the remuneration committee.
C The chair of the board may be a member but cannot chair the remuneration committee.
D The chair of the board cannot be a member of the remuneration committee.
LO 4e
7 Which statement about the requirements of the UK Corporate Governance Code is true?
A Non-executive directors of premium listed companies, once appointed, only need to be
submitted for re-election every three years.
B In annual and half-yearly financial statements, the board should state whether it considers it is
appropriate to adopt the going concern basis of accounting.
C Directors’ notice or service contracts should not exceed three years.
D The annual report should state the company’s business model but its strategy for delivering the
objectives of the company may remain confidential.
LO 4e
8 Flange plc is a small premium listed company. As a minimum, how many directors are required for its
audit committee?
A One
B Two
C Three
D Four
LO 4e

9 According to the UK Corporate Governance Code, which of the following is responsible for making
recommendations in regard to the appointment, reappointment and removal of the external
auditors?
A The nomination committee
B The remuneration committee
C The audit committee
D The non-executive directors
LO 4e
10 Merton plc is a small premium listed company. As a consequence, the company:

A must comply with all the requirements of the UK Corporate Governance Code
B is governed by other corporate governance regulations than the UK Corporate Governance
Code
C can be flexible in how it applies the UK Corporate Governance Code
D is not affected by the requirements of the UK Corporate Governance Code
LO 4e
11 In relation to the fundamental accounting principles directors are expected to report in the
company’s annual financial statements on:
A the going concern status of the company
B the materiality of specific company transactions
C the accruals approach to accounting in the company
D the consistency of treatment of particular items or transactions by the company
LO 4e, 4g
12 Hilditch plc is currently creating a list of potential members of its audit committee. Under the UK
Corporate Governance Code, the list must comprise only:
A independent non-executive directors who all have recent and relevant financial experience
B independent non-executive directors with at least one who has recent and relevant financial
experience
C non-executive directors with recent and relevant financial experience
D executive directors with at least one who has recent and relevant financial experience
LO 4e, 4g
13 Under the requirements of the UK Corporate Governance Code, who is responsible for monitoring a
company’s risk management and internal control systems?
A The executive directors only
B The non-executive directors only
C The entire board of directors
D The audit committee
LO 5c, 5e, 5f
14 Megan is a full-time Executive Director of Rifkind plc, a premium listed company. She does not
currently hold any non-executive directorships in any other companies. The executive directors of
Carnforth plc, another premium listed company, have asked Megan to become a non-executive

director of Carnforth plc in addition to her existing role with Rifkind plc. The guidance provided by
the UK Corporate Governance Code means that:
A Megan will be allowed to accept the offer
B Megan will not be allowed to accept the offer
C Megan will only be allowed to accept the offer if she buys shares in both companies
D Megan will only be allowed to accept the offer if the non-executive directors of both companies
agree
LO 4e
15 Cheshunt plc is considering the re-appointment of its external (statutory) auditors. Which of the
following is responsible for appointing the external auditors?
A The nomination committee
C The board of directors
D The audit committee
LO 4e
16 Sheila is a non-executive director Forton plc, a premium listed company. According to the UK
Corporate Governance Code, which of the following statements about her remuneration is correct?
A Her remuneration should reflect her expertise
B Sheila should decide her remuneration in conjunction with the remuneration committee
C Her remuneration should reflect her time commitment and responsibilities
D Her remuneration is negotiated with the remuneration committee and may include performance
related elements and share options
LO 4e
17 With regard to the board of directors of a premium listed company (excluding the chairman), the UK
Corporate Governance Code requires that the proportion who are independent non-executive
directors should be:
A between 10% and 24%
B between 25% and 39%
C between 40% and 49%
D 50% or over
LO 4e
18 Fox plc, a premium listed company, has engaged its external (statutory) auditors to provide the
company with consultancy services. Which entity would usually be expected to examine the
implications of this engagement?
A The board of directors
D The non-executive directors
LO 4g
19 The appointment of suitably qualified, independent external (statutory) auditors is the decision of a
listed company’s:

A shareholders
B audit committee
C board of directors
D finance director
LO 4g
20 Sumatra plc operates its own internal audit function. It chooses not to make use of an external
supplier for these services. It is therefore vital that the company has arrangements to ensure that
there is no compromise of the:
A independence of the internal auditors
B integrity of information security systems
C stewardship of directors
D rigour of financial reporting processes
LO 4g
21 Vidal is the Chief Executive of Plainton plc, a premium listed company. His fellow directors want him
to replace the company’s existing Chair, who is due to retire shortly. They also want him to stay as
Chief Executive for the first year of his chairship, while a new Chief Executive is sought.
The guidance in the UK Corporate Governance Code recommends that:
Requirement
A Vidal should assume both roles concurrently subject to consultation with major shareholders
B Vidal should not assume both roles concurrently nor go on to be the company’s Chair
C Vidal can assume both roles concurrently subject to the board setting out their reasons at the
time of appointment and in the next annual report
D Vidal can only assume both roles concurrently if the non-executive directors of the company
agree
LO 4e, 4g
22 Shona has just been appointed as a Director of Impala plc. Following her appointment, she will be
subject to election by shareholders:
A at the first AGM after her appointment and then at intervals of no more than three years after that
B at the first AGM after her appointment and then at intervals of no more than two years after that
C only at the first AGM after her appointment
D at every AGM
LO 4e
23 Zyntec plc is a listed company that has recently had an external audit. As well as whether the financial
statements give a ‘true and fair view’ of the company’s performance and financial position, which of
the following will the external auditors have reported on?
A The experience and ability of the chief finance officer
B Whether the staff in the finance function are compliant with CPD requirements
C The company’s compliance with the UK Corporate Governance Code
D The standard of the work performed by the internal audit function
LO 4g

24 The ability to meet the needs of the present without compromising the ability of future generations
to meet their own needs is best described as:
A corporate responsibility
B sustainability
C business ethics
D natural capital
LO 4h
25 Sustainability is about the long-term use of both tangible and intangible resources. Green plc
manufactures customised furniture for customers from recycled materials.
Requirement
Which two of the following represent intangible resources of Green plc?
A The design expertise of its employees
B Stationery supplies to the factory office
C Recycled timber received from suppliers
D Its reputation in the community
E Its head office premises
LO 4h

Chapter 11: The economic environment of
business and finance
1 Anu manufactures pieces of classic furniture. Anu predicts that ‘if people’s incomes rise next year,
then the demand for my furniture will increase’.
Requirement
The accuracy of Anu’s prediction depends on whether the pieces of furniture he produces:
A are normal goods
B have few substitutes
C have many complements
D have few complements
LO 5a
2 Potatoes are a Giffen good. An increase in the price of potatoes will cause:
A an increase in demand for potatoes
B a decrease in demand for substitutes for potatoes
C a decrease in demand for potatoes
D an increase in demand for substitutes for potatoes
LO 5a
3 Y is a complement of X in consumption. An increase in the price of Y will:

A increase the demand for Y and decrease the demand for X
B decrease the demand for Y and increase the demand for Y
C increase the demand for both Y and X
D decrease the demand for both Y and X
LO 6a
4 A brand of cheese is an inferior good. A consultant has made two statements about the cheese.
Statement (1): Demand for the cheese will rise as incomes rise.
Statement (2): Demand for the cheese only exists because of the effects of advertising.
Requirement
LO 5a
5 The market for a product is a natural monopoly. Production of the product must be associated with:
A high marginal costs
B low marginal costs
C economies of scope acting as a barrier to entry
ICAEW 2023 11: The economic environment of business and finance 67

D low fixed costs
LO 5b
6 The cross elasticity of demand between the Terra product and the Nova product is zero. The two
products are:
A complements
B substitutes
C veblen goods
D unrelated
LO 5a
7 The UK government has recently imposed a maximum price on Pratex which is set at a lower level
than its equilibrium price. In future, therefore, it can be expected that there will be:
A excess supply of the product
B excess demand for the product
C no effect on supply but an increase in demand
D no effect on demand but a decrease in supply
LO 5a, 5b
8 An analyst with Lanes plc has drawn a supply curve for one of the company’s major products, the
Ledo. The curve is a vertical straight line. This indicates that supply of the Ledo is:
A perfectly inelastic
B of unitary elasticity
C perfectly elastic
D one
LO 5a
9 There has been a significant rise in factor costs for the Tempo product during recent months. It can
be expected that there will be:
A a contraction in demand and supply
B an expansion in demand and supply
C a contraction in demand and an expansion in supply
D an expansion in demand and a contraction in supply
LO 5a
10 In the market for the Optica product competitors do not compete through price. Instead, they spend
substantial sums of money on raising consumer awareness through advertising. There is some
differentiation between products, often achieved through branding. There are many buyers and
sellers in the market for the product.
Requirement
The market for the Optica product is characterised as:
A monopolistic competition
B oligopoly
C perfect competition

D monopoly
LO 5b
11 Which three of the following are associated with conditions of perfect competition?
A Suppliers are price-makers
B Suppliers earn ‘normal’ profits
C Consumers lack influence over market price
D Differentiated products
E A single selling price
LO 5b
12 Gromet plc has been able to achieve significant external economies of scale. This indicates that the
market for the company’s only product has been:
A static, so forcing the company to achieve economies of scale in production
B growing, so enabling the economies of scale to be achieved
C contracting, so enabling the company to cut costs in distribution
D volatile, meaning that internal economies of scale were unattainable
LO 5b
13 If the price of a particular product is £9.00 per unit, on average 150 units of the product are sold per
month. At a price of £10.00 per unit, on average 110 units per month are sold. The price elasticity of
demand for the product is:
A –0.42
B –2.40
C –0.27
D –0.11
LO 5a
14 The minimum price for a good is set by the government above the current free market equilibrium
price.
Requirement
What will be the effect (if any) on demand for and supply of the good in the short term?
A Demand for the good will fall; supply of the good will rise
B Demand for the good will rise; supply of the good will fall
C Both demand for and supply of the good will rise
D There will be no effect on either demand for or supply of the good
LO 5a, 5b
15 Bench Ltd produces chairs. An economist predicts that, if average incomes rise next year, demand for
the chairs will increase in direct proportion to the rise in incomes (assuming all other factors remain
unchanged).
Requirement
The accuracy of the economist’s prediction depends on whether the chairs:
A are normal goods
B have many complementary goods

C have few complementary goods
D have few substitutes
LO 5a
16 The basic economic problem facing all national economies is:

A maximising economic growth
B unemployment
C inflation
D allocating scarce resources
LO 5c
17 Which of the following is regarded by economists as a factor of production?

A Demand
B Enterprise
C Supply
D Innovation
LO 5c
18 Which of the following is a source of economies of scale?

A The introduction of a new product
B Bulk buying
C The use of skills in production
D Cost savings resulting from new production techniques
LO 5c
19 The marginal propensity to consume measures:

A the relationship between changes in consumption and changes in consumer utility
B the proportion of household incomes spent on consumer goods
C the proportion of total national income spent on consumer goods
D the relationship between changes in income and changes in consumption
LO 5c
20 Which of the following is the correct sequence in a business cycle?

A Boom, Recession, Depression, Recovery
B Recession, Recovery, Boom, Depression
C Boom, Recovery, Recession, Depression
D Recovery, Recession, Depression, Boom
LO 5c
21 The recession phase of the business cycle will normally be accompanied by all of the following
except:
A a rise in the rate of inflation

B a fall in the level of national output

C an improvement in the trade balance
D a rise in the level of unemployment
LO 5c
22 The government may seek to reduce the rate of demand-pull inflation by any of the following means
except:
A reducing interest rates
B increasing VAT
C applying more stringent controls over bank lending
D reducing public expenditure
LO 5c
23 Which of the following would lead to demand pull inflation?

A Rising import prices
B Increase in wages
C Increases in indirect taxation
D High consumer expenditure such that aggregate demand exceeds aggregate supply
LO 5c
24 Which of the following are effects of reduced interest rates?

(1) Consumer spending will increase
(2) Business investment will be encouraged
(3) Saving will increase
A 1 only
B 1 and 2 only
C 2 and 3 only
D 1, 2 and 3
LO 5c
25 Which of the following is a fiscal policy measure by government?

A To raise short-term interest rates in the money markets
B To support the exchange rate for the country’s currency
C To control growth in the money supply
D To alter rates of taxation
LO 5c
26 ‘Supply side’ economics concerns:

A the behaviour of the microeconomic supply curve
B the supply of factors of production in response to changing levels of factor rewards
C the behaviour of the aggregate supply curve in connection with the levels of prices, incomes and
employment
D the effect that an increase in the supply of money has on inflation
LO 5c

27 If the government wishes to increase consumer spending, it should increase the rate of:
A income tax
B corporation tax
C import duties
D social security payments
LO 5c
28 Changes in the supply of a product which arise due to reduced costs of its manufacture will be
represented on the product’s supply curve by:
A a shift to the right in the supply curve
B a shift to the left in the supply curve
C movements along the supply curve
D none of these
LO 5a
29 Pinewood Ltd produces two complementary products, the Buggle and the Chine.
Requirement
Which of the following describes the cross elasticity of demand between the two products?
A Negative
B Indeterminate
C Zero
D Positive
LO 5a
30 The government of Zeeland is concerned about demand pull inflation.

Requirement
Which of the following statements describes the impact and cause of demand pull inflation on
Zeeland’s economy?
A Price rises because of persistent excess of supply over demand in the economy as a whole.
B Price rises because of persistent excess of demand over supply in the economy as a whole.
C Price falls because of persistent excess of supply over demand in the economy as a whole.
D Price falls because of persistent excess of demand over supply in the economy as a whole.
LO 5c
31 What does quantitative easing involve?

A increasing quotas for the imports of certain products
B increasing government borrowing and increasing government spending
C buying government bonds from the private sector to increase liquidity
D issuing more bank notes and coins into the economy to increase the money supply
LO 5c
32 Under what circumstances is quantitative easing most likely to be used?

A interest rates are high and liquidity in the system is low
B interest rates are high and liquidity in the system is high

C interest rates are low and liquidity in the system is low
D interest rates are low and liquidity in the system is high
LO 5c
33 Which statement best reflects recent government policy in the UK over the past decade?
A low inflation combined with an expansionary fiscal policy
B low inflation combined with a neutral fiscal policy
C high inflation combined with an expansionary fiscal policy
D high inflation combined with a neutral fiscal policy
LO 5c

Chapter 12: External regulation of business
1 The government has intervened to impose a limit on businesses’ carbon emissions. This is an
example of regulation designed to address market failure caused by:
A asymmetric information
B equity
C market imperfection
D externalities
LO 5b, 5d
2 The government has passed regulations to change how car hire companies check whether hirers are
licensed to drive in the UK. Speedy Hire plc is a major player in the UK car hire business. In
anticipation of the new regulations the company implemented procedures which exceeded the
requirements of the regulations. Speedy Hire plc’s response to the new regulations was:
A innovation
B entrenchment
C mere compliance
D full compliance
LO 5d
3 Ferndale plc is a multinational company. It has been charged with collusive behaviour in its UK
operations. If found guilty, the company could, amongst other sanctions, receive a fine of:
A up to 10% of annual worldwide revenues
B up to 10% of annual UK revenues
C up to 20% of annual worldwide revenues
D up to 20% of annual UK revenues
LO 5d
4 Government intervention in a market economy can lead to an increase in economic welfare if:
A it sets a good’s maximum price above its equilibrium price
B the market mechanism has failed to allow for externalities
C it sets a good’s minimum price above its equilibrium price
D the demand for inferior goods rises as incomes increase
LO 5b, 5d
5 The Fenno product is manufactured in the UK but is also imported into the UK from France. The UK
government has recently decided to apply an import quota on imports of the product from France.
The quota is below the current level of imports. This action will have the effect of:
A only French suppliers suffering a lower price
B both UK and French suppliers suffering a lower price
C only UK suppliers enjoying a higher price
D both UK and French suppliers enjoying a higher price
LO 5d
ICAEW 2023 12: External regulation of business 75

6 Anti-monopoly legislation is an example of government intervention to address market failure
caused by:
A market imperfection
B externality
C asymmetric information
D inequity
LO 5b, 5d
7 Competition legislation prohibits conduct that damages competition, including abuse by a business
of its dominant position. Which three of the following are types of conduct that will be considered as
an abuse if the business is in a dominant position?
A Imposing transfer pricing
B Limiting production markets or technical developments to the prejudice of consumers
C Applying different trading conditions to equivalent transactions, thereby placing certain parties
at a competitive disadvantage
D Attaching unrelated supplementary conditions to contracts
E Providing public goods on behalf of the government
LO 5b, 5d
8 In which of the following circumstances would a cartel be most likely to operate?

A A market with a undifferentiated product and a large number of producers
B A market with differentiated products and few producers
C A market with a large number of producers and where demand for the product is inelastic
D A market with few producers and an undifferentiated product
LO 5b, 5d
9 The benefit of anti-monopoly enforcement is that:

A it encourages firms to engage in research, which leads to new products being produced
B it deters firms from engaging in collusion, price-fixing and deceptive advertising
C it forces firms to produce efficiently
D the revenue from fines can be used for socially worthwhile causes
LO 5b, 5d
10 Anti-monopoly laws are based on the proposition that the best way to achieve efficiency and avoid
excessive prices is through:
A regulation
B increased competition
C public ownership
D oligopoly
LO 5b, 5d
11 The following statements have been made about anti-monopoly legislation and market regulation.
Statement (1): Anti-monopoly legislation compensates for lack of competition, and market regulation
promotes competition.
Statement (2): Anti-monopoly legislation promotes competition and market regulation compensates
for lack of competition.

Statement (3) Anti-monopoly legislation and market regulation promote competition.
Are these statements true or false?
Option Statement (1) Statement (2) Statement (3)
1 True False True
2 True False False
3 False True True
4 False True False
Requirement
A Option 1
B Option 2
C Option 3
D Option 4
LO 5b, 5d
12 Measures taken by government to redistribute wealth are a form of intervention aimed at addressing
problems concerned with:
A asymmetric information
B market imperfection
C lack of equity
D externalities
LO 5b, 5d
13 Two large listed companies recently colluded with each other to fix the price of a product they both
sell in the UK market. Collusion of this type is an example of market failure due to:
A inequality of resources
B external costs
C market power
D resource immobility
LO 5b, 5d
14 Jerome is a director of Newport plc, a listed company. During the year he made a loan to his sister
Jane, out of company funds that has not yet been repaid. When asked by the external auditors about
this, Jerome said that it is unlikely that Jane can repay the money because she has been experiencing
financial difficulties for several years.
Statement (1): Jerome has committed the offence of market manipulation under the Financial
Services Act 2012.
Statement (2): Jerome could be disqualified as a director under the Company Directors
Disqualification Act 1986.
Requirement
' Statement (1) false; Statement (2) true /2G

15 The government of Myland was unhappy with the prices charged to customers for mobile data by
mobile phone operators and recently conducted a review into the industry. The review
recommended that prices should be regulated and capped at a maximum daily price that is below
the market price.
The impact of this pricing rule on market failure is best described as:
Requirement
A failing to address market failure because there is no impact on the price charged
B influencing the demand for and supply of mobile data
C persuading mobile phone operators to reduce their prices
D taking control of the mobile phone industry
LO 5d
16 The government of Dryland wishes to encourage more people to eat fruit and vegetables. Currently,
the price of fruit and vegetables are high in comparison to people’s incomes and so the government
is seeking ways of increasing supply from producers to lower the price people pay.
Which of the following methods should the government use to increase supply of fruit and
vegetables?
Requirement
A Increasing indirect taxation on fruit and vegetables
B Paying subsidies to fruit and vegetable producers
C Persuading producers to lower their prices
D Set a maximum price for fruit and vegetables
LO 5a, 5d

Chapter 13: Data analysis
1 A company correctly records and analyses all its sales transactions. At the end of each month, a
report is produced for the sales director listing details of every sales transaction: customer, products,
quantities and prices. Which of the following describes the quality of the report’s data and
information?
A good quality of data, but poor quality of information
B good quality of both data and information
C poor quality of data, but good quality of information
D poor quality of both data and information
LO 6a
2 Big Dave Ltd collects data about customers and what they buy as well as certain items of personal
information. It analyses this data to identify relationships between the different variables, such as
what products appeal most to people of certain age groups.
Requirement
What type of analysis is this an example of?
A Descriptive statistics
B Exploratory data analysis
C Confirmatory data analysis
D Relativity analysis
LO 6a
3 Which of the following is the best description of professional scepticism?

A All information should be challenged, and should be assumed to be incorrect until it has been
proved otherwise.
B Forecasts that appear optimistic should be ignored, while forecasts that are pessimistic should
be assumed to be correct.
C Assessing the information critically, being alert to possible misstatements due to error and fraud.
D Refusing to accept that information is correct until it has been certified by a qualified accountant.
LO 6a
4 A schools inspector sits in on classes and makes an assessment of the teacher. The teacher is given a
grade from 1 to 5 where 5 is excellent and 1 is inadequate. Without realising that she is doing this,
the inspector tends to give more generous grades to teachers of maths and science, and lower
grades to teachers of arts and humanities. Before becoming an inspector, she was a science teacher.
Requirement
What type of bias is the inspector introducing into her rankings?
A survivorship bias
B cognitive bias
C observer bias
D self-selection bias
LO 6c
5 An external auditor is auditing the accuracy of purchase invoices in the accounting system of a client.
The auditor has formulated a hypothesis that errors occur in 2% of invoices. A sample of 30 invoices
ICAEW 2023 13: Data analysis 79

was taken, and errors occurred in 3% of these. This was not considered to be significantly different
from the hypothesis, and the auditor concluded that errors occur in 2% of invoices.
Subsequently, the internal auditors checked all of the invoices entered into the system for the
previous year and identified an error rate of 4%.
Requirement
What type of error did the external auditor make in concluding that the error rate was 2%?
A a type I error
B a type II error
C omitted variable bias
D selection bias
LO 6c
6 A data analyst at a major retail chain has performed some analysis in which he has calculated the
mean monthly expenditure, and the average number of visits per month by the chain’s customers.
The information was prepared by using details of credit and debit card payments to enable the
analyst to track all purchases made by a particular customer. Approximately 60% of purchases in the
stores are made using credit and debit cards, and the analyst claims to have tracked the purchases of
10% of card users.
Requirement
In evaluating the statistics produced by the analyst, which of the following conclusion would you
reach?
A Given that 10% of the card users were used in the sample, the statistics are likely to be
representative of the population.
B The data in the sample may suffer from selection bias so it should be recognised that the
statistics may not be an accurate reflection of the whole population.
C Since only a sample of customers was used, the data analysis is likely to be wrong and should
therefore be ignored.
D The data in the sample suffers from omitted variable bias so it should be recognised that the
LO 6b
7 The directors of a business have asked you to prepare a presentation in which you provide an
overview of the trends in sales over the last 10 years. The company has three main product lines.
Requirement
Which type of chart would be most useful for providing a good overview of the trends in sales over
the last 10 years?
A A clustered bar chart
B A component bar chart
C A pie chart
D A line chart
LO 6b
8 Arkwright Ltd analyses huge quantities of data about a wide variety of issues from a wide variety of
sources. Arkwright Ltd is seeking competitive advantage from:
A its transaction processing system
B big data
C cybersecurity

D its strategic planning process
LO 6a, 6e
9 The ability to stream big data into an organisation’s systems in real time is an example of which
feature of big data?
A Volume
B Veracity
C Velocity
D Variety
LO 6e
10 Which of the following features of big data concerns the fact that data sets contain anomalies and
errors?
A Veracity
B Variety
C Volume
D Velocity
LO 6e
11 Big Data analytics typically involves the analysis of unstructured data. Which of the following is an
example of unstructured data for a company that operates a chain of coffee shops?
A Spreadsheet analysis of the purchase of new chairs for store refurbishments
B Data tables showing monthly sales figures at each store
C A table of supplier names and addresses
D Email communications between a customer and the marketing department
LO 6a
12 Data science has great importance to big data and data analytics.
Statement (1) Data science deals with analysing and interpreting data rather than how it is collected.
Statement (2) One objective of data science is to extract value from data.
Requirement
LO 6f
13 Finax plc is a credit referencing organisation. It collects data on the credit transactions of millions of
people and commercial organisations worldwide. Vertex Ltd has an arrangement with Finax plc to
access its store of big data so that it can make decisions on whether to extend credit to new
customers.
Requirement
Which type of big data does Finax plc supply?
A Created big data

B Provoked big data
C Transacted big data
D Compiled big data
LO 6a
14 There are several sources of big data available to business organisations.

Statement (1): Open data is data primarily sourced from public sector data, such as transport data
and government financial data.
Statement (2): Human-sourced data is primarily from social networks, emails and text messages.
Requirement
LO 6a
15 The characteristic that determines whether information is both of good quality and valuable is:
A accuracy
B accessibility
C timeliness
D relevance
LO 6a
16 Last year Rillet Ltd invested in a new information system to collect and analyse big data in regards to
the sale of one its products. Once collected and analysed, the information was then reported to the
board of directors. The directors were so happy with the system that it was expanded to report on all
of the company’s products. However, for one of the products, an error in the system meant that a
pattern in regards to sales was identified that did not actually exist. As a consequence, the directors
made a business decision that made a substantial loss.
Requirement
Which of the following risks of big data does this describe?
A Information overload
B Workforce skills
C Data dependency
D Data security
LO 6c, 6e
17 The following statements about using spreadsheets in the budgeting process have been made:
(1) The budgets of the different departments can be easily consolidated into a budget for the whole
organisation
(2) Spreadsheets ensure that no errors occur in calculations
(3) Budget templates can be used to help department managers prepare their budgets
Requirement
Which of the statements above are correct?

A 1 and 2 only
B 2 and 3 only
C 1 and 3 only
D 1, 2 and 3
LO 6d
18 The ICAEW has issued a guidance document ‘Principles of good spreadsheet practice’.
Requirement
Which of the following is an aim of the ICAEW principles of good spreadsheet practice?
A To provide detailed guidance about spreadsheet design
B To reduce the amount of time wasted by poor spreadsheet design
C To provide detailed guidance on the use of formulae in spreadsheets
D To provide detailed guidance on formatting spreadsheets
LO 6d
19 The following statements about spreadsheet practice have been made

(1) Never embed in a formula a number that might change or need to be changed
(2) Keep formulae as short and simple as practicable
(3) Have a formula for the calculation of an important value in several different cells to ensure that
the calculation is not lost
Requirement
Which of the above statements are consistent with the ICAEW ‘Principles of good spreadsheet
practice?’
A 1 and 2 only
B 2 and 3 only
C 1 and 3 only
D 1, 2 and 3
LO 6d
20 The following are principles of good spreadsheet practice:

(1) Build in checks, controls and alerts from the outset
(2) Include an ‘About’ or ‘Welcome’ sheet to document the spreadsheet
(3) Separate and clearly identify inputs, workings and outputs
Requirement
Which of the principles above can reduce the problems that occur when a spreadsheet is inherited
by a new user?
A 1 and 2 only
B 2 and 3 only
C 1 and 3 only
D 1, 2 and 3
LO 6d
21 Data Analysts often use samples taken from a population in order to find out more about that
population. A sample should be representative.

Requirement
Which of the following best describes the meaning of a representative sample?
A A sample where the size of the sample is greater than 30 items
B A sample that includes data from all sub classes of the population
C A sample that reflects characteristics of the population as a whole
D A sample that is chosen randomly
LO 6b
22 A market research company wishes to select a sample of voters to call ahead of a local election. The
company has obtained a copy of the electoral register for the local area, which contains the names of
all individuals who are entitled to vote. All individuals have been assigned a register number, starting
from 0001, and there are approximately 10,000 individuals on the register.
The market research company uses a random number generator to generate a number (n) between
0 and 500. The first individual chosen for the sample will be the individual with the register number n.
Subsequent individuals are chosen by choosing the individual whose register number is 500 higher
than the previous individual (ie, the second individual will have a register number equal to n + 500,
the third n+ 1,000 etc). In this way, the market research company aims to select a sample of 20
individuals from the local area.
Requirement
Which method of sampling is this an example of?
A Stratified sampling
B Simple random sampling
C Cluster sampling
D Systematic sampling
LO 6b

Chapter 14: Developments in technology
1 Digital contracts and technology that records transactions are of great relevance to the modern-day
accountant.
Statement (1): Self-verifying smart contracts invoke the automatic execution of defined rules to
securely hold and transfer legal title to an asset and how to account for it.
Statement (2): Distributed ledger technology and triple entry bookkeeping allow every accounting
transaction recorded by an entity to be posted to a public ledger.
Requirement
LO 6h
2 Which type of cyber-attack involves criminals recording what a user types onto their keyboard?
A Phishing
B Keylogging
C Ad clicker
D Screenshot manager
LO 6g
3 Amos Green, the financial controller of Little Ltd, recently received an email that appeared to be from
the company’s bank. It instructed Amos to click on a link and confirm some of the company’s security
information. Just days later, Amos noticed that money had been transferred unexpectedly out of
Little Ltd’s bank account.
Requirement
Of which of the following cyber-attacks is Little Ltd a victim?
A File hijacking
B Webcam manager
C Phishing
D Keylogging
LO 6g
4 FromUsToYou plc is a courier company that promises to deliver parcels to consumers only when the
consumer is home. A consultant has made the following statements about the types of risk which
face FromUsToYou plc.
Statement (1) A competitor could deliberately breach our methods of communicating with both
consumers and courier drivers online, in order to disrupt our services and cause us embarrassment.
Statement (2) A courier driver could mislay her tablet computer, which contains sensitive data about
our customers.
Requirement
Identify whether each statement is an accurate description of cyber risk.
ICAEW 2023 14: Developments in technology 85

LO 6g
5 A cyber security consultant has listed the following actions that a small to medium-sized business can
take to reduce the risk of cyber-attack:
Action 1: Implement access controls
Action 2: Install internet gateways
Action 3: Use patch management software
Requirement
Which of these actions are included in the UK government’s Cyber Essentials scheme?
A Actions 1 and 2 only
B Actions 2 and 3 only
C Actions 1 and 3 only
D Actions 1, 2 and 3
LO 6g
6 Hannon Ltd in an online retailer. The company has recently suffered a cyber-attack which resulted in
the company’s website being overwhelmed with vast amounts of traffic which caused it to crash.
Requirement
Which of the following best describes the type of attack Hannon Ltd has suffered?
A Distributed denial of service attack
B Hacking
C Phishing
D Keylogging
LO 6g
7 Which two of the following are suggested by the National Crime Agency to reduce the risk of cyber-
attacks?
A Encourage staff to use the same password for different systems to ensure they do not forget
their passwords
B Install updates to software and operating systems regularly
C Avoid using password management apps
D Use two factor authentication methods at log in
E Monitor unusual activities on the system using data analytics
LO 6g
8 Rees Ltd uses data analytics to enhance transparency. Insights into which of the following are
provided for Rees Ltd by using data analytics in this way?
A customer buying patterns
B customer needs
C new products and services
D risk identification
LO 6a, 6f

9 Many companies’ accounting systems automatically download bank transactions from the banks’
own systems. The accountant then has to record the credit side of cash receipts and the debit side of
cash payments.
Bob Ltd has an accounting system that ‘guesses’ where the credit and debit sides of bank
transactions should be recorded based on past experience of transactions with similar references.
The accountant at Bob Ltd only has to confirm that the system has the correct transaction by clicking
a ‘confirm’ button, or changing the account if the accounting system has guessed the wrong account.
The transaction is then recorded.
Requirement
What is the process by which Bob Ltd’s accounting system guesses where the payments and receipts
should be recorded an example of?
A data analytics
B machine learning
C automation
D audit analytics
LO 6i
10 Which of the following is a disadvantage for a small business, of using cloud accounting?
A It is expensive, difficult and time-consuming for the business to upgrade cloud accounting
software.
B Only one person in the business can have access to the cloud accounting software at any one
time.
C Accounting data has to be moved from computer to computer manually by the business’s
finance function employees.
D The small business relies completely on the security and backup measures of the provider of the
cloud accounting software.
LO 6h
11 Priya is investigating the use of cloud accounting for her employer, Withit plc. She has discovered
that accounting information stored in the cloud can be added to or accessed from anywhere, using
any device with an internet connection. She is making a recommendation to her managers on the
use of cloud accounting which contains the following statements.
Statement (1): With the adoption of cloud accounting, Withit’s project managers at client sites can
check whether a payment has been received.
Statement (2): With the adoption of cloud accounting, accounts staff will have the ability to work from
home.
Requirement
LO 6h
12 A system that allows people who do not know each other to trust a shared record of events is an
example of which type of technology?
A distributed ledger

B cloud computing
C internet of things
D data analytics
LO 6h
13 Tech Ltd has invented a device that allows the temperature controller of the user’s home to be
adjusted automatically by an app on their smartphone, using data about the weather.
Requirement
Of which of the following types of technology is this an example?
B cloud computing
D data analytics
LO 6h
14 Distributed ledger technology and advanced accounting systems may have impacts on the work of
the auditor.
Statement (1): The rate of technological change, such as with distributed ledger technology, is so fast
that auditing regulations in regards to the audit of transactions are now irrelevant.
Statement (2): The use of advanced accounting software reduces the need for auditors to audit
transactions and verify the ownership of assets.
Requirement
LO 6h, 6i
15 Software and other modern technologies used by businesses that provide automated and improved
financial services is referred to as what?
A Cognitive technologies
B Internet of things
C Crypto currencies
D Fintech
LO 6h
16 A retail company has developed a sophisticated analytics system to predict what products will
become more and more popular. The system involves a computer model that learns from the data,
identifying new relationships between different variables used in making predictions, so that the
predictions are becoming more and more accurate.
Requirement
What type of technology is the company using?
A Machine learning
B Robotic process automation

C An expert system
D Blockchain
LO 6h, 6i

Chapter 15: Practice exam
1 Organisations can be defined or described in various ways.
Requirement
Which three of the following are the key characteristics that are shared by all organisations?
A Synergy
B Social arrangement
C Collective goals
D Specialisation
E Controlled performance
F Exchange of goods and services
LO 1a
2 Cruciform is a charity providing medical services in South America. The Chief Executive is preparing
a brochure which outlines the services provided by the charity. In the brochure, the Chief Executive
states that the charity wants to be the largest global provider of charitable medical services by 20X5.
Requirement
By highlighting this, the Chief Executive is stressing the charity’s:
A vision
B mission
C primary objective
D secondary objective
LO 1a, 1b
3 The directors of Gordon Ltd have recently appointed two members of its unionised workforce to an
internal committee. The committee makes suggestions to the company’s main board of directors
about all aspects of the company’s strategies and policies.
Requirement
These appointments illustrate the company’s concern for which stakeholder?
A Lenders
B Suppliers
C Customers
D Trade unions
LO 1a. 5e
4 Karen is a General Manager with Websellers Ltd. The company is restructuring. Karen is trying to
persuade the Managing Director to set up a separate marketing department within the new
structure.
Requirement
Which of the following statements that she has made is true?
A Marketing is the principal function of the company.

B All the different business functions should blend to achieve customer satisfaction.
C A company cannot practise marketing without a marketing department.
ICAEW 2023 Chapter 15: Practice exam 91

D ‘Advertising’ is synonymous with ‘marketing’.
LO 1c
5 Alain is a Manager with Glasnow Ltd. He always looks for opportunities to praise his subordinates
and takes great pleasure in promoting staff who perform well.
Requirement
As far as his subordinates are concerned, Alain’s actions meet their:
A self-actualisation needs
B status/ego needs
C social needs
D safety needs
LO 1d
6 Humberts is a restaurant that specialises in Mediterranean cuisine with a modern style. It has recently
employed Juan, a marketing consultant, to review the service customers receive when they have a
meal.
Requirement
Which three aspects of the marketing mix will Juan consider when reviewing the restaurant’s service
to customers, and which would he not consider when reviewing the marketing mix for a product?
A Place
B People
C Promotion
D Price
E Processes
F Product
G Physical evidence
LO 1c
7 Martina is a Human Resources Manager with Wardman Ltd. She is working on a project to increase
the spans of control of managers in the company’s largest subsidiary. She needs to identify any
factors about the subsidiary that indicate increases in spans of control are possible.
Requirement
Which of the following factors identified by Martina suggests that increased spans of control are
possible?
A Subordinates carry out very similar tasks
B Subordinates are geographically dispersed
C Frequent, time-consuming problems arise
D Managers are engaged in large amounts of non-supervisory work
LO 2b
8 Romulus Ltd and Remus Ltd have recently agreed to cooperate to exploit the possibilities that both
companies have in a particular overseas market. No separate company has been established for this
purpose because the companies’ Chief Executives, who have known each other for many years, have
agreed matters informally.
Requirement
This arrangement is an example of a:

A licensing agreement
B joint venture
C strategic alliance
D group structure
LO 2a
9 Aiysha works in a factory that makes televisions. Her manager, Delia, sets a target for how many
televisions the team needs to assemble per week. These targets flow from Delia’s own objectives
which are set by the directors.
Requirement
Which part of the organisation does Aiysha work for?
A The middle line
B The strategic apex
C The technostructure
D The operating core
LO 1c, 2a
10 The board of directors of Waterfall plc, a highly geared construction company, is evaluating whether
to invest in the building of a new reservoir. This would represent a new strategic direction for
Waterfall plc.
Requirement
Which of the following features of this strategic decision indicates a lack of feasibility?
A The investment carries a high level of risk for Waterfall plc
B The new reservoir is not expected to increase shareholder wealth in the short term
C Waterfall plc has access to funds of £23 million but the reservoir will cost £40 million
D The environmental impact of the new reservoir has been criticised by local community groups
LO 1b
11 Hightech Ltd is based in the west of England where it manufactures and sells high quality PCs. There
are many competitors in the personal computer industry, from international and national business
through to local computer shops across the regions. Price cuts and other sales promotions to win
business are used regularly by its competitors, but Hightech Ltd sets its own prices rather than
following what its competitors do.
Requirement
What type of competitor is Hightech Ltd?
A A stochastic competitor
B A selective competitor
C A tiger competitor
D A laid-back competitor
LO 1b, 1e
12 How is cyber risk classified?

A As a strategy risk
B As an operational risk
C As a financial risk

D As an enterprise risk
LO 1f
13 Stewardship of the organisation’s financial resources is part of which of its finance function’s tasks?
A Financial reporting
B Recording financial transactions
C Treasury management
D Management accounting
LO 3a, 3b
14 The finance director of Boiled Sweets plc wants to specify the levels of performance that underpin
the company’s control system.
Requirement
Which three of the following are the main components of the company’s control system?
A Measurement of actual performance and comparison against targets
B Identification of deviations from the plan
C Establishment of standards or targets to express planned performance
D Follow-up action to correct adverse results or to exploit favourable variances
E Measurement of ideal performance
F Devising the plan
LO 3b
15 Which aspects of an organisation’s performance with respect to sustainability are measured using
‘triple bottom line’ measures?
A Economy, effectiveness, efficiency
B Economic, social, environmental
C Profitability, liquidity, investment
D Productivity, activity, profitability
LO 3d, 4i
16 Which three of the following are components of the COSO internal control framework?
A Information and communication
B Control environment
C Internal audit
D Project management
E Monitoring activities
LO 3b
17 GoodGreen plc prides itself on the environmentally friendly nature of its operations. It applies the
triple bottom line approach to the reporting of its performance.
Statement (1): The social aspect of the triple bottom line measures issues such as diversity and
equality in respect of the company’s workers.
Statement (2): The economic aspect to the triple bottom line measures issues such as the eradication
of bribery, fraud and money laundering.

Requirement
LO 3d, 4i
18 Any person who brings together providers and users of finance, whether as broker or principal, is
known as:
A a business angel
B a venture capitalist
C an investment banker
D a financial intermediary
LO 3g, 3h
19 A consultant has made the following statements about an overdraft facility.

Statement (1): Interest is paid on the full facility.
Statement (2): Legal documentation is minimal in comparison with other types of loan.
Statement (3): The facility is repayable on demand.
Statement (4): Assets are not normally required as security.
Requirement
Which of these statements are true?
A Statements (1), (2) and (3) only
B Statements (2), (3) and (4) only
C Statements (1), (2) and (4) only
D Statements (1), (3) and (4) only
LO 3h
20 Which of the following trading risks faced by a business is the inability to finance the credit given to
customers?
A Physical risk
B Liquidity risk
C Trade risk
D Credit risk
LO 1f
21 The age of the population of Westland is negatively skewed. The median age is 55 years, while the
mode is 62 years. Which of the following statements about the mean age of the population is
correct?
A The mean age is less than 55 years.
B The mean age is between 55 and 62 years.
C The mean age is greater than 62 years.
D The mean could be within any of the ranges specified in A to C.
LO 3f

22 Which of the following measures of spread is most useful when comparing the risk of two data sets,
where the values of the data in the first set are much smaller than the values of the data in the second
set?
A range
B coefficient of variation
C standard deviation
D variance
LO 3f
23 Having a questioning mind, and being alert to the possibility of misstatement in financial statements
due to error or fraud, are features of a professional accountant’s:
A professional ethics
B professional behaviour
C professional scepticism
D professional competence
LO 4a, 6a
24 In both bank-based and market-based financial systems, financial intermediation is of increased

importance because of its ability to address the market imperfection of:
A monopoly
B asymmetric information
C trade barriers
D tariffs and quotas
LO 5b, 5d
25 Chris runs his own printing company. He is experiencing financial difficulties and some of his credit
suppliers are threatening to take him to court. He needs some advice and has seen an advertisement
in his local paper for an accountancy service that is much cheaper than he expected. He calls the
accountant to check that the price is not a misprint and is surprised at some of the answers he is
given to his questions.
The accountant made the following statements to Chris.
Statement (1): Anyone is free to advertise as an ‘accountant’ and offer the full range of accountancy
Statement (2): ICAEW members are open to competition from anyone, whether professionally
Statement (3): There is no legal requirement for an accountant to be a paid-up member of one of the
CCAB bodies.
Which of the following statements are true?
Requirement
A (1) and (2) only
B (2) and (3) only
C (1) and (3) only
D (1), (2) and (3)
LO 4b

26 The principal factor affecting the nature of business ethics over time is:
A the expectations of society
B the values of senior management
C company policies
D government regulation
LO 4h
27 Which of the following is one of the five OECD Principles of Corporate Governance?
A promote transparent and fair financial reporting
B support the rights of shareholders
C treat major shareholders equitably
D ensure real time, accurate disclosure and transparency
LO 4c, 4f
28 The ability of markets to allocate resources efficiently within a financial system is often restricted by
market imperfections.
Requirement
Which three of the following are market imperfections associated with financial markets?
A Lack of codes of practice
B Information asymmetry
C Transaction costs
D Lack of regulation
E Insider dealing
LO 5b
29 The body responsible for promoting high standards of corporate governance in the UK is the:
A FRC
B OECD
C CCAB
D Bank of England
LO 4b, 4e
30 The board of directors of Lake plc is concerned that the current chief executive’s actions are
undermining the ethical culture at the company. She fails to listen to the concerns of managers about
unfair treatment of suppliers, and she has failed to learn from a recent scandal in which the company
was fined for data protection breaches.
Requirement
To improve the ethical culture at Lake plc, which of the following is the most important action for the
board to take?
A draft a corporate code of ethics for Lake plc’s employees
B rewrite Lake plc’s policies regarding suppliers and customers
C demonstrate leadership by encouraging Lake plc’s chief executive to be more open
D brief shareholders more fully about Lake plc’s incentive scheme for managers
LO 4c, 4d, 4g
ICAEW 2023 &KDSWHU3UDFWLFHH[DP 97

31 Jemson plc, a premium listed company, wishes to comply with the principles and provisions of the
UK Corporate governance code. The company has 10 directors, including the chair. The chair is a
non-executive director.
Requirement
In order to comply with the provisions of the UK corporate governance code, how many non-
executive directors (excluding the chair) must Jemson plc have?
A three
B four
C five
D six
LO 4d, 4e
32 The Wates Principles include six principles and provide guidance for each principle
Requirement
Which of the following statements is true of companies that adopt the Wates principles?
A They must apply the principles and explain any departure from the guidance.
B They must apply the principles and explain how they have applied them. They do not need to
follow the guidance.
C They must apply the principles or explain any departure from them. They do not need to follow
the guidance.
D They must apply the principles and explain how they have applied them. They must explain any
departure from the guidance.
LO 4c, 4e
33 A market trader has noticed that when the price of cakes rises, consumers tend to buy more biscuits
instead.
Requirement
The effect operating here is:
A the income effect
B the diminishing marginal utility effect
C the substitution effect
D the price elasticity of demand
LO 5a
34 Which of the following are examples of complementary goods?

A Milk and orange juice
B Pepsi and Coca-Cola
C French fries and tomato sauce
D Lamb and beef
LO 5a
35 Redium is a normal good which has become increasingly unfashionable during the past year.
Requirement
What changes to supply, demand and market price will this change in tastes have created?
A No impact on the demand curve, but a fall in market price and a fall in quantity supplied

B A shift in the demand curve to the right, a fall in market price and a fall in quantity supplied
C A shift in the demand curve to the left, a fall in market price and a fall in quantity supplied
D No impact on the demand curve, no impact on the supply curve but a fall in market price
LO 5a
36 Which of the following is an example of government intervention to correct a market failure?

A An increase in corporation tax during an economic boom
B An increase in the rate of value added tax (VAT) on all goods and services
C The taxation of goods with negative externalities
D The taxation of Giffen goods
LO 5b, 5d
37 The price of Yellands has fallen by 4%. Over the same period demand for Dellows, where there has
been no price change, has risen by 6.5%.
Requirement
The cross elasticity of demand between the two products is:
A –1.625
B –0.620
C 1.625
D 0.620
LO 5a
38 Economists in Zedland believe that the country’s economy is entering a recovery phase.
Requirement
Which of the following features of the Zedland economy would support this view?
A Rising levels of demand being met by increased production
B Rising levels of demand being met by price increases
C Capacity and labour being fully utilised
D Bottlenecks occurring in industries which are unable to meet demand
LO 5c
39 The government may place an additional tax on cigarettes to raise revenue for healthcare spending.
The demand for cigarettes is price inelastic.
Requirement
Which of the following statements is true?
A The tax on cigarettes may not raise as much additional revenue as anticipated because the
demand for cigarettes is likely to become more elastic over time.
B The tax will not raise much additional revenue in the short term or the long term because
demand is price inelastic.
C No additional tax revenue will be raised because sellers of cigarettes will lower their price by the
amount of the tax so the price of cigarettes to consumers will not change.
D This will raise additional revenue in the short term and the long term because there are no
substitutes for cigarettes.
LO 5d

40 Webcraft plc has a dominant position in its markets. It has received notice that it is being investigated
under Chapter 1 of the Competition Act 1998.
The following activities have been colluded in by Webcraft plc.
Activity 1: Limiting production markets
Activity 2: Agreeing with another organisation to limit competition
Activity 3: Restricting technical developments
Requirement
Which of the activities may, individually, have given rise to such a notice?
A Activity 1 only
B Activity 2 only
C Activity 3 only
D Activities 1, 2 and 3
LO 5b, 5d
41 Distributed denial of service (DDoS) attacks are used to bring down a business’ website by
overwhelming it with a wave of internet traffic.
Requirement
Which of the following are used to create the wave of internet traffic in such an attack?
A Netbots
B Netdrops
C Botdrops
D Botnets
LO 6g
42 A hospital has recently been the victim of a cyber-attack. While investigating the causes and
consequences of the attack, the hospital’s board identified that old versions of software were being
used in its administrative systems, which made them more vulnerable to attack.
Requirement
Which of the following would have been most effective in helping the hospital protect itself from the
attack in this scenario?
A Firewalls
B Access control
C Encryption
D Patch management
LO 6g
43 The chief executive of Table plc is not convinced about the usefulness of much of the information in
the company’s financial statements. He makes three statements about the specific characteristics of
the information that he believes may undermine its usefulness.
Statement (1): It lacks timeliness
Statement (2): A high level of regulation applies to it
Statement (3): It contains a high level of aggregation
Requirement
Which of these statements identify characteristics that are likely to undermine the information’s
usefulness?

LO 3a
44 An information system combines data and analytical models to help with semi-structured and
unstructured problem solving of an operational nature.
Requirement
This is called:
A an expert support system
B a decision support system
C a knowledge work system
D an office automation system
LO 3c, 6a
45 Compared with operations management, which of the following is a characteristic that is unique to
big data?
A Volume
B Variety
C Velocity
D Visibility
LO 6e
46 Which three of the following are ways in which data analytics of big data can create value for a
business?
A Risk management
B Innovation
C Development of corporate mission
D Change management
E Performance improvement
F Creation of HR policies
LO 6e, 6f
47 Modern businesses may create digital assets and earn revenue by licensing other organisations to
use them.
Statement (1): Watermarks can be used to protect the security of digital assets.
Statement (2): Once a user has obtained a licence to use a digital asset they are free to use or
distribute the asset as they wish.
Requirement


LO 6h
48 Which of the following is an organisation least likely to achieve as a result of using big data and data
analytics?
A More precisely targeted marketing messages
B Faster processing of high volume, routine transactions
C More effective decision making in relation to inventories and pricing
D A better understanding of customer’s buying patterns
LO 6e, 6f
49 Vifpost is a logistics company that delivers parcels for corporate clients. It uses the latest Radio
Frequency Identification (RFID) technology to track its packages.
Requirement
Which of the following most accurately describes the type of technology Vifpost is using to help track
its packages?
A Artificial Intelligence
B Big data
C Expert systems
D Internet of Things
LO 6h

Answer Bank
Chapter 1: Introduction to business
1 Correct answer(s):
D Option 4
Profit-oriented organisations should aim to maximise shareholder wealth. Non-profit oriented
organisations, such as charities, should aim to provide goods and/or services.
A managers seek to make satisfactory profits rather than maximise wealth
Satisficing is when managers are not maximising wealth for owners (which they should in fact be
doing) but are merely making enough profits to keep owners satisfied. Beyond that they simply
choose to pursue their own management objectives. This is the classic agency problem caused by
the separation of ownership and control.
C 1 and 3 only
Listed under the broad heading of product development, Joe might choose to: bring in new
products; develop a product range; invest in research and development; provide products of a
certain quality at a certain price level. If he was concentrating on employees and management to
support his primary objective, then he might aim to reduce labour turnover.
C To double the share price within the next 10 years
Doubling the share price within the next 10 years is most likely to be the primary business objective.
The other three options would be typical secondary objectives for Avernanche plc in pursuit of the
primary objective.
B maximise sales revenue
William Baumol argued that businesses act to maximise sales revenue if managers are rewarded on
the basis of the size of the organisation rather than its profitability or relative performance.
A primary objective
Organisations whose primary objective is to make profits for their owners are classified as
businesses.
A S
B M
D R
S = specific; M = measurable; A = achievable; R = relevant; T = time-bound
The secondary objective is: specific (market share is a manageable feature of the company);
measurable (20% is a quantifiable yardstick of attainment). All of this is relevant to the business. The
objective is not time-bound because ‘a reasonable time’ does not set a specific time frame. Had it

said that the objective should be met within, say, three years then it would have been. There is no
information about whether the secondary objective is achievable.
A The business’s market share target for next year
B The business’s productivity improvement target for next year
The mission statement and vision are general expressions of the business’s basic function and
planned future status. Shareholder wealth maximisation would rank as the primary objective of any
organisation classified as a business.
B We will encourage diversity in the workplace
C We intend to be the best airline in the world
D We aim to give excellent customer service
A mission statement should answer the following fundamental questions: What is our business? What
is our value to the customer? What do we want our business to become? What should our business
be? A and F are numerical targets and more likely to be secondary objectives; E is a detailed tactic.
A Shareholders
C Bankers
The two groups most likely to put the company under pressure to improve its return on investment
are shareholders and bankers. Customers want products of a certain quality at a reasonable price;
suppliers are interested in regular orders in return for reliable delivery and good service; and
employees’ objectives include job security, good conditions of work and job satisfaction.
A To provide our shareholders with increased value
The primary business objective of a profit-seeking company is the maximisation of shareholder
wealth (A). The other statements are secondary objectives that will be pursued in support of this
primary objective.
Daycare is clearly a charity, therefore the funding of nursery places is its primary objective. As a non-
profit making organisation it does not seek to maximise profit.
A Revenue maximising
Revenue maximisation is where a business acts to maximise revenue (not necessarily profit or wealth)
in order to maintain or increase its market share, ensure survival, and discourage competition. Having
a large increase in revenue but low profit indicates that the business is maximising revenue at the
expense of profit. There is no satisficing because the shareholders are unhappy with the return.

C Even where shareholders are only interested in maximising their wealth, the value of a business
over the longer term is enhanced by good ESG practices
While ESG may involve additional costs to businesses, many investors now avoid businesses with a
poor ESG record. Having a good ESG record therefore may increase the value of a company over the
longer term as it will lead to higher share prices, even though there may be higher costs. Thus even if
shareholders are only interested in maximising their wealth, they adopt good ESG practices. (C) is
therefore correct.
B Profits, Planet, People
The triple bottom line was one of the first attempts to develop a reporting framework that focused on
a wider range of issues than simply profit. The three bottom lines are Profits, Planet and People.
B Sportylook has a responsibility for the behaviour of its suppliers, and should require suppliers to
comply with its own social standards
Big companies such as Sportylook have considerable influence over their suppliers and should
therefore require its suppliers to behave to the same standards as is considered acceptable by
Sportylook itself. Turning a blind eye to the activities of suppliers would not only be morally
unacceptable, but it would also harm Sportylook’s own reputation.
D 1, 2 and 3
All the statements are correct.
B Reuse
The bottles are reused.

Chapter 2: Managing a business
B Referent power
Referent power (B) is individual power based on identification with, admiration of or respect for the
individual. This can be summed up as power based on force of personality. Legitimate power (A) is
based on agreement and commonly held values which allow one person to have power over another
person. It normally arises from position and derives from our cultural system of rights, obligations
and duties in which a ‘position’ is accepted by people as being legitimate. Coercive power (C)
enables a person to mediate punishments for others: for example, to dismiss, suspend or reprimand
them, or make them carry out unpleasant tasks. Expert power (D) is based upon one person
perceiving that the other person has expert knowledge of a given subject (often based on
possession of formal qualifications) and is a recognised authority in a given situation.
C Legitimate power
The company’s procedures allow the manager to authorise lending up to £1 million. This is legitimate
power (C) – power given by her position and bank procedures. Referent power (A) – sometimes
called personal power – is capable of influencing the behaviour of others. Trust, respect, charm and
enthusiasm are all attributes that allow us to influence people without apparently imposing on them.
Expert power (B) is the power that belongs to an individual because of his/her expertise. Reward
power is power to grant promotion or pay increases (D).
B power without authority
Authority is the exercise of power for the proper purpose. Booking the business class seat is not
within Cerise’s authority, but she has had the power to persuade Malcolm nevertheless to book the
seat. Delegation of authority (C) occurs where superior gives to a subordinate the discretion to make
decisions within a certain sphere of influence.
C responsibility and authority
Accountability cannot be delegated so B and D are incorrect. Some power must be transferred by
delegation if the person is to be able to accomplish the task for which they have been given authority
and responsibility.
Delegation embraces both authority and responsibility. Authority can be delegated readily, but many
problems of delegation stem from failure to provide the necessary information and resources in
order to achieve expected results, or from failure to delegate sufficient power for subordinates to
fulfil their responsibilities.
A over a subordinate down the chain of command
Line authority refers to the relationship that exists between a manager and his/her direct staff, and
occurs in most organisations. This line runs in an uninterrupted series of steps and is based on the
scalar chain principle of hierarchy in which there is a clear line of authority from the top of the
organisation to the bottom. Essentially, the scalar chain is used to implement decision making and
the issue of instructions.

B An IT manager setting out rules for internet and email use
A functional relationship means that a manager has authority in certain areas over another
department. The IT manager could have functional authority over all other departments when
defining rules for internet and email use. C is a line manager; D is a project manager; and A is a staff
manager.
A decisional role
Mintzberg’s managerial roles are interpersonal, informational and decisional. This is a simple
decision (A) for Andrew. The disseminator role (C) would form part of the informational role (D) and
involves distributing information to staff, either as fact or as information involving some interpretation
and integration. The interpersonal role (B) relates to such matters as listening to employees or giving
feedback.
Charlize is describing her interpersonal role (B) as a manager – representing her team in her capacity
as their leader as well as interacting with managers of other teams within the company.
B Storming
The forming stage (A) is associated primarily with seeking to define the purpose of the group
(achieved at last week’s meeting), but the storming stage (B) is where conflict first arises, particularly
concerning competition for chosen roles. Once such conflicts have been addressed, the group will
norm (C) and then, hopefully, perform (D).
B a rational goal culture
According to Robert E Quinn, when an organisational culture is outward-looking and high on control,
it is termed a ‘rational goal’ culture (B). An internal process culture (A) is one in which the business
looks inwards, aiming to make its internal environment stable and controlled. Goals are known and
unchanging, and there are defined methods, rules and procedures governing all activities. Security,
stability and order motivate staff. In an open systems culture (C) the external environment is a source
of energy and opportunity, but it is ever-changing and unpredictable. The business must be highly
flexible and open to new ideas, so is very adaptable in structure. Staff are motivated by growth,
creativity and variety. In a human relations culture (D) the business looks inwards, aiming to maintain
its existence and the well-being of staff. Staff are motivated by a sense of belonging.
A a set of variables that he manages in order to achieve a desired response from the company’s
various target markets
The marketing mix comprises four variables (A): product, price, promotion and place. The marketing
mix is not the same as the sales mix (B) nor is it the same as the communications mix (D). It is also a
broader concept than mere product features and benefits (C).
C A situation where a person can give advice and guidance to another

A staff function is one in which authority arises in giving specialist advice to another manager or
department over which you have no line authority (C) and, therefore, no authority to make or
influence decisions in that other department.
B Attitudes
C Underlying competencies and skills
E Communication patterns
Attitudes, underlying competencies and skills, as well as communication patterns, are all classified as
covert variables in the model. Formal goals (A) and organisation design (D) are overt variables.
B the market is broken down into several different sections
Market segmentation means that the market can be broken down into several sections (B) using
segmentation bases such as age and gender. You can practice market segmentation and then target
all the segments of the market (A) with a broad competitive scope (D). Markets are segmented into
homogenous (ie, distinct) groups of customers, each of them likely to react differently to a particular
marketing mix. The fact that there are homogeneous sections within the total market, implies that the
total market is heterogeneous rather than homogenous (C).
A pull promotion
TV advertising is addressed to consumers to ‘pull’ them in and encourage them to demand the
goods (A). A push promotion (B) involves convincing trade intermediary channel members to ‘push’
the product through the distribution channels to the ultimate consumer via promotions and personal
selling efforts. The company promotes the product through a reseller who in turn promotes it to yet
another reseller or the final consumer. Trade promotion objectives are to persuade retailers or
wholesalers to carry a brand, give a brand shelf space, promote a brand in advertising, and/or push a
brand to final consumers. Car dealers often provide a good example of a combination of pull and
push promotions (C). If you pay attention to car dealers’ advertising, you will often hear them speak
of cash-back offers and dealer incentives. Personal selling (D) involves the use of a sales force to
support a push strategy (encouraging intermediaries to buy the product) or a pull strategy (where
the role of the sales force may be limited to supporting retailers and providing after-sales service).
D market segmentation
Dividing a market into homogeneous groups of potential customers who may be treated similarly for
marketing purposes is the process of market segmentation (D). The marketing mix comprises the 4
or the 7 Ps, while mass marketing means not dividing the market up at all. Market research is the
process of finding out more about a particular market or market segment.
C costs, competitors, customers and corporate objectives
The main influences are costs, competitors, customers and corporate objectives (C). The concepts in
(A) and (D) are those of the marketing mix, while those in (B) relate to operations management.
B high volume and low unit costs

High volume lends itself to Harris plc’s capital-intensive operation, with specialisation of work and
well-established systems for getting the work done. Unit costs should therefore be low (B).
C applied research
Research into products which have obvious commercial or practical use is called applied research
(C). Market research (A) is into the market itself, not the product, while process research (D) is into
processes rather than products. The aim of pure research (B) is to obtain new scientific or technical
knowledge or understanding. There is no obvious commercial or practical end in view.
B Quantity, quality, price, lead time
The four elements of the procurement mix are quantity, quality, price and lead time (B). Price,
product, place and promotion (A) are the four elements of the product marketing mix, while volume,
variety, variation in demand and visibility (C) are the four Vs of operations management. Costs,
competitors, customers and corporate objectives (D) are the four Cs of pricing.
A Wesley can give more focus to those tasks that require his management experience
Wesley will be able to devote more time to managerial tasks. Even though it may be true that he can
delegate the ‘boring’ tasks, this is unlikely to be a real advantage as it may lead to a demotivated
team if staff are given what they perceive as the undesirable tasks. Having a larger team to delegate
to may mean that Wesley does more supervising, not less. It is not necessarily true that Wesley’s team
will enjoy having more work to do – it is the nature of the work that they are given that will make the
delegation effective for Wesley in improving their job satisfaction and motivation.
C Push marketing technique
The marketing team is ‘pushing’ the HD5000 onto retailers by persuading them to sell it.
B Deliveries of raw materials used to make the clothes
The upstream supply chain relates to an organisation’s suppliers (and, in turn, their suppliers), to
provide the materials and other inputs required for the production process.
Activities relating to customers and the marketing and distribution of finished products comprise the
downstream supply chain, rather than the upstream.
C 2 and 3
The fact that Birdot ran out of a key component suggests it had failed to order sufficient quantities of
the component, and/or that it had not ordered them in time for them to be available when required.
Problems with quality and price would not directly affect the availability of the component in this way.

Chapter 3: Organisational and business
structures
B 2 and 3 only
The degree of decentralisation is a measure of how power and authority are passed down an
organisation. This is not shown on an organisation chart, which concentrates on the shape of the
organisation. The span of control refers to the number of subordinates working for a superior, while
the scalar chain is the formal arrangement of authority or the organisation hierarchy. Both are shown
on the chart.
C Professional bureaucracy
A professional bureaucracy (C) will hire trained specialists who are all imbued with the skills and
values of the profession. The operating core is the key part because it will have an elaborate support
staff to service it and the work is too complex to be standardised by a technostructure. The
entrepreneurial structure (A) is characteristic of small, young organisations revolving round a single
entrepreneur or small management team. A machine bureaucracy (B) works on a sophisticated and
well-tuned set of rules and procedures. The technostructure is the key part of this structure. There is
strong emphasis on the division of labour and authority is hierarchical. A divisional structure (D) is
where the middle line seeks as much autonomy for itself as possible. It exerts a pull to split into small
self-managed units with autonomy given to managers lower down the line.
A Support staff
B Middle line
E Ideology
The support staff (A) carry out the ancillary activities that are neither part of the core nor the
technostructure. Support staff have no role in the direct activities of the organisation: these activities
include such things as catering and public relations. The middle line (B) represents that part of the
organisation where the middle managers operate. Its role is to turn the instructions of the strategic
apex into activities for the operating core. The ideology (E) is what binds the organisation together. It
represents the organisational values and beliefs, which provide a common focus for all the other
elements.
Functional division (C) and matrix (F) structures are both types of organisational structure, and scalar
chain (D) is the reporting chain.
C standardises work processes
The function of the technostructure is to standardise work processes (C), for example by producing
technical specifications and procedures manuals. The strategic apex, which represents the higher
management of the organisation, will ensure the organisation follows its mission (A). The support
staff provide ancillary services (B) to the operating core. The middle line, representing the managers
between the operating core and the strategic apex, will control the work of the operating core (D).
A The technostructure exerts a pull towards standardised processes

Machine bureaucracy depends primarily on the standardisation of its operating work processes (A)
for coordination. Because of that the technostructure, which houses the analysts (technocrats) who
do the standardising, emerges as the key part of the structure. When the operating core exerts a pull
towards standardised skills (B), it is generally a professional bureaucracy. In a divisionalised structure,
a good deal of power is delegated to market-based units in the middle line (C), whose efforts are
coordinated by the standardisation of outputs through the extensive use of performance control
systems. Adhocracy coordinates primarily by mutual adjustment among all of its parts, calling
especially for the collaboration of its support staff (D).
C Unity of command
A matrix structure would involve employees within the project team having responsibility to more
than one superior – for example, a functional supervisor and a project leader. This breaks the
principle of unity of command (C), which holds that any employee should have to report to, or
receive orders from, only one boss. There is no reason why a matrix structure should contravene the
principle of authority and responsibility (A) as employees can be given both in such a structure.
Similarly, subordination of individual interests (B) – the principle that the interest of one or more
employees should not prevail over that of the general interest of the organisation – would apply to a
matrix structure, like any other. Division of work is the principle that work should be allocated
rationally, based on specialisation. This principle is not contravened by a matrix structure, particularly
in a project-based environment, where work is likely to be allocated based on each member’s
specialisation.
B Its well-skilled workforce
C Its large size
E The effectiveness of communication across the company
Decentralisation depends on workforce ability (B), company size (C) – the larger the organisation, the
harder it is to centralise – and effective communication (E), which is an essential ingredient of
effective delegation. Centralisation and decentralisation refer to the extent to which authority for
decision making is either retained at the top of the organisation or delegated to lower levels.
If the management style is authoritarian (A), the organisation will be more centralised.
Slow technological change (D) means that there is little need to decentralise. Lower-level managers
do not need to be familiar with changing technology.
A A greater need to delegate
D Better communication between the strategic apex and operating core
E Large spans of control
A wide, flat organisation implies looking after many subordinates, so delegation will be called upon
frequently (A). The vertical flow of information between the top and bottom of the company follows a
shorter, more efficient route in a wide, flat organisation (D), so communication is likely to be
improved. Looking after many employees implies large spans of control (E).
The features you would expect to see in a tall narrow organisation are higher administration and
overhead costs (B) to support the many levels within the structure; many opportunities for promotion
(C) because there are more rungs in the ladder to the top; and slow decision making (F) because the
management structure requires more coordination and consultation before decisions are taken.

A Ensuring enough face-to-face contact takes place between superiors and staff members
If there are many subordinates to supervise, as there would be in a wide, flat organisation, it can be
difficult to give each enough individual time (A). High management overhead costs (B), internal
communication difficulties (C) and superiors not delegating enough work to staff (D) are problems
associated with tall, narrow organisational structures.
A Perpetual succession
B Separate legal personality
F Regulation under the Companies Act 2006
If a shareholder dies, their shares are transferred to another person without any effect on the
company at all – this is known as ‘perpetual succession’ (A). A limited company is legally distinct from
its owners – it has a separate legal identity (B). Limited companies, both private and public, are
subject to stringent regulations governing the keeping of accounting records, the filing of financial
statements with the Registrar and, in the case of larger companies, the requirement to have an audit
(F). Withdrawal of capital (D) is relatively difficult as it provides a buffer for creditors. A limited
company’s liability is unlimited (E) – it is the liability of the owners (shareholders) that is limited.
Because financial statements are filed, they are not private (C).
D Suitable for slow moving environments
Mechanistic organisations are machine-like and efficient at performing the same task over and over,
implying a slow-moving environment (D). Organic organisations are flexible and adaptable (like a
living organism), implying they are suitable for dynamic environments. Employees working for a
mechanistic organisation are expected to obey superiors, whereas for those working for an organic
organisation, commitment to mission is more highly valued than loyalty as such. In terms of structure
of control, the network structure is more prevalent in organic organisations as is the relatively flexible
job descriptions. Precise job descriptions and hierarchical structure of control are typical features of a
mechanistic organisation.
A Statements 1 and 2
The company could be described as a bureaucracy or mechanistic organisation. As well as
innovation being suppressed (Statement A), this type of structure can inhibit creativity, initiative and
openness to new ideas and ways of doing things. People would certainly be concerned with
completing the task efficiently (Statement B) – task specification and efficiency is a feature of a
bureaucratic design. Jobs are generally broken down into narrow areas of work/responsibility so as
to secure the benefits of specialisation. In bureaucracies it is hard to learn from mistakes (Statement
C) due to the lack of feedback (especially upwards).
C A strategic alliance
A strategic alliance (C) is fairly informal cooperation. A group structure (A) implies one company
owning one or more subsidiaries, while a joint venture (B) implies that a third-party business is set up
and owned by the joint venturers. A licensing agreement (D) involves giving permission to another
company to manufacture or sell a product, or to use a brand name. In this circumstance, there is no
new separate legal company, as would be expected for a joint venture, and no evidence of a
licensing agreement. The two companies have instead agreed to enter into a loose and probably
short-term strategic alliance.

A A floating charge cannot be used to secure borrowing
B Angela’s liability is unlimited
A floating charge (which gives lenders security for their loan) cannot be created over the business of
a sole trader (A), but it can be over the assets of a limited company. This could hinder her ability to
raise finance. Currently, Angela has unlimited liability (B) and with the increasing financial
commitments of the business it might be better for her personally to seek limited liability, though the
business will still have unlimited liability for its own debts (C). As a sole trader, the business’s liability
is not distinct from her own. Filing financial statements with the Registrar of Companies (D), and the
rules that apply to the business’s constitution (E), do not apply to Angela as she is not operating as a
company.
C Periodic management accounts
Sales management is part of both marketing and operations, so would be handled by Rumbert
Insurance itself, not by the Regional Office. Financial reporting, and research and development, are
centralised at Head Office so again would not be provided by the Regional Office. Periodic
management accounts would be provided by the Regional Office as they are neither
marketing/operations, nor are they related to strategic direction, R&D or consolidated financial
reporting.
B 2 and 3 only
A strategic alliance – No separate legal identity
A limited liability partnership – Separate legal identity
A registered company – Separate legal identity
A strategic alliance is an informal or weak contractual agreement between parties or a minority cross-
shareholding arrangement, neither of which imply a separate legal identity from the owners. Both
companies and limited liability partnerships are separate legal entities.
B It gives him personal liability for any failure of his in relation to the hospital IT system.
It prevents him from employing staff False
It gives him personal liability for any failure True
It prevents him from obtaining a loan False
It allows him to issue shares in his business to friends and family False
As a sole trader he can raise loans and employ staff so neither of these statements is true. He cannot
issue shares to anyone as there is no limited company, so this statement is false. As a sole trader he
does have the disadvantage of personal liability.
C With Secateur Ltd as equal partner, form Plicateur Ltd and market the product through that
company
Buy Secateur Ltd – Group structure
Form a project team – Strategic alliance
With Secateur Ltd as equal partner – Joint venture

Sell Secateur Ltd the rights to market – Licensing agreement
Purchasing the company will make it part of a group; forming a project team is a form of strategic
alliance, while selling Secateur the marketing rights in return for a fee is a licensing agreement.
Plicateur Ltd would be a separate legal entity owned 50:50 by the two companies and this is the
most usual form of joint venture. A strategic alliance is more informal.
A Duties and responsibilities of the role
B Job title
E Pay grade
The organisation chart of Huff plc, and its health and safety policy, will not be included in a job
description for a particular role but are more likely to be included in the company’s organisation
manual or staff handbook.
A Greater opportunity to delegate
B, C and D are advantages of a tall organisational structure. These have smaller groups which aid
participative decision making. They provide more stages in the career ladder for employees to work
through which improves training. In a tall hierarchy, the span of control is narrowed for managers. In
a flat structure, the span of control for managers is wider which increases the number of staff they can
delegate work to. SAMPLE EXAM 2
C a limited liability partnership
Only the limited liability partnership (C) necessarily exists as an entity separate from its owners. A
general partnership (B) is not a separate legal entity from the partners. A joint venture between two
limited liability companies (A) is usually a limited company but does not necessarily have to be
established in that way. A strategic alliance (D) is an informal contractual or minority cross
shareholding arrangement. Normally no separate company is formed.

Chapter 4: Introduction to business strategy
A product form
Laptop or desktop computers are both examples of product form (A). Home computers would be
referred to as either a product class or a generic product (C and D) since those two terms can be
used interchangeably. A particular manufacturer’s brand version of a home computer would be B.
A Value chain analysis
C The BCG Matrix
E Analysis of distinctive competencies
Options B and D are methods of analysing the company’s external environment – B analyses the task
(or market) environment, whilst D analyses the macro environment. F is a means of assessing
potential growth strategies of the company.
B S
Age is a demographic factor that falls under the Social aspect of PESTEL analysis (B). P = political, T =
technological, L = legal.
C competitive strategy
Competitive strategy (C) is concerned with how the business will compete in terms of source of
competitive advantage (cost or differentiation) and extent of competitive scope (broad or narrow). A
functional strategy (A) would be concerned with the role of the marketing function itself within the
company. Business strategy (B) is concerned in particular with how the marketing mix would be
adjusted in due course if a competitive strategy of differentiation was decided upon. Product/market
strategy (D) is concerned with how the business will grow (Ansoff’s Matrix).
B A customer base consisting of a few large customers
The relatively concentrated customer base (B) means that existing players have a distinct advantage,
and it also gives the customers higher bargaining power, so makes the sector less attractive to new
entrants. Low initial capital costs (A) reduce risk in a project by decreasing the break-even point,
allowing time to build up a large customer base. This can encourage new entrants. C may increase
rivalry but it does not affect new entrants; D has no effect.
D 4
Low levels of competition in an industry make it more attractive for new entrants. High capital costs
involve risk and fund raising challenges which can act as a barrier to new entrants.
D Treat this stakeholder as a key player when formulating future strategies

In terms of Mendelow’s matrix, this stakeholder clearly possesses both a high level of interest in the
company’s affairs and a high level of power (influence) over them. In such circumstances, the
recommended strategy is one of treating the stakeholder concerned as a key player.
D differentiation focus
The exclusivity of the holidays indicates an emphasis on generating competitive advantage through
differentiation rather than low cost, whilst their specialist nature and precise target market (age 60+)
indicate a focus strategy rather than a broad competitive scope.
C either a build or a harvest strategy
With a low market share of a high growth market, the Pluton would be classified as a Question mark
within the BCG matrix, for which the possible recommended strategies are Build or Harvest. Option A
relates to a Dog, option B to a Cash Cow and option D to a Star.
C product development
The company is introducing a new product but clearly targeted at the same market as its existing
products, hence growth by means of product development.
B An acceptability test
C A suitability test
D A feasibility test
Gerry Johnson and Kevan Scholes recommend evaluating strategies against the following criteria:
Suitability – does the strategy fit the strengths, objectives and image of the company?
Feasibility – does the company have the necessary resources to pursue the strategy effectively?
Acceptability – is the strategy acceptable to the company’s stakeholders?
B Harvest
With a high market share in a low/no growth market, the Zulon is clearly a Cash Cow. The two
strategy options are Hold (which implies continuing to support the product financially to maintain its
position) or Harvest (which implies running down investment in the product and just managing the
product for cash flow during its final years). The product manager appears to rule out the Hold
strategy (withdraw investment), hence Harvest is the key (B).
C Profits are normally highest during the maturity phase
The maturity phase is the phase during which profits from the product are usually maximised (C). The
decline phase starts after the maturity phase ends, but the diagram will not predict when that will be
(A). Sales growth is never guaranteed – the introduction could be a flop (B). There is a vast range of
mature phase lengths and it cannot be said that they are usually 10 years (D).

B a tiger
Millward Ltd is consistently aggressive in its responses to competitor actions – a ‘tiger’ reaction
profile (B).
C Improved product features and benefits
D Promotion of the Portex brand
E Use of higher quality materials in the manufacturing process
Differentiation means distinguishing your products and services from competitors’ offerings in ways
that target customers will value. Therefore, better products using superior component parts (E),
distinctive branding (D) and improved features and benefits (C) can all help. Options A and B would
most likely underpin a competitive strategy based on low cost rather than differentiation.
C generic competitors
The companies offer distinctly different products that satisfy different needs but which are highly
likely to be competing for the same disposable income. They are, therefore, generic competitors (C).
A Inbound logistics
D Marketing and sales
E Service
B and C are both support activities in the value chain model.
A Option 1
A business plan sets out the market(s) to be served, how they will be served and the finance required,
so Definition 1 is accurate. A strategic plan sets out the business’s overall objectives and how to
achieve them, but it is the operational plan which specifies what is expected of each function in a
business, so Definition 2 is inaccurate.
C It will act as a detailed checklist to assist in understanding the different influences in Simian plc’s
environment
A PESTEL analysis (C) reveals the key influences in the organisation’s macro-environment (rather than
its market or task environment). Strengths and weaknesses (A) would be revealed by a SWOT
analysis; the structure of an industry would be revealed by a Five Forces Analysis (B); and helping to
identify the relative levels of interest and power (D) refers to stakeholder mapping.
A Strategy (1): A corporate strategy; Strategy (2): Not a corporate strategy
Training store staff is very much an operational issue that does not constitute a corporate strategy,
but offering its capability to other supermarkets is a fundamental long-term ‘directional’ decision
which commits the company’s resources.

A concentration of customers will increase rivalry since the power of customers is thereby increased.
Removal of government subsidies creates a more level playing field amongst competitors hence also
increasing rivalry.
C A cash cow
Harvest or hold are the specific strategy options for a product classified as a cash cow. Note that
harvest or build apply to a product classified as a question mark.

Chapter 5: Introduction to risk management
A economic loss due to the default of a customer
Option B Is strategy risk; C Is product risk and D is market risk.
C borrowings
In a highly geared company, the higher the proportion of borrowings the greater the financial risk. If
business activity falls, the company may not be able to meet its interest payments.
D appetite for risk
Appetite for risk (D) is the extent to which you are willing to take on risk. Being risk averse means that
you prefer to take the investment with the lowest risk.
Risk is the variation in an outcome while uncertainty denotes the inability to predict an outcome (due
to a lack of information).
A risk avoidance
By not going ahead the company is simply avoiding the risk (A). Risk reduction (B) would imply
taking action to prevent any chance of the product catching fire; risk acceptance (D) would imply
doing nothing and proceeding to launch the product; risk transfer (C) might imply taking out liability
insurance or selling the product on the basis of no liability in the event of fire.
If there are two investments offering different risks, a risk-seeking investor will always prefer the one
with the higher risk. If there are two investments offering different returns, a risk neutral investor will
always prefer the one with the higher return, not a lower return, regardless of the risk.
B potential loss and probability of occurrence
Gross risk is a function of the loss or impact and its probability, before any control measures are
implemented.
C event risk
This is a regulatory (or legal) risk, which is a form of event risk.

B risk only
All the outcomes and the probability of them occurring are known. As a result, there is no
uncertainty, only risk.
D Investments 3 and 4
A risk averse investor will always choose the lowest risk investments, whatever their potential return.
C The measure of the way in which a business is faced by risks
Risk exposure is simply the measure of the way a business is faced by risks, whether financial,
business, event etc.
B Avoidance, reduction, sharing (or transfer), acceptance (or retention)
First the company should see if the risk can be avoided; if not, it should try to reduce it; having
reduced it as far as is feasible, it should explore the possibilities for sharing the risk (eg, using
insurance). Finally, it must accept the remaining risk.
B Risk reduction
Where a risk falls into the low impact, high probability quadrant of the risk map the most appropriate
response is risk reduction, focusing on reducing the likelihood of the adverse event occurring.
C Management controls
Management controls include all aspects of management that ensure the business is properly
planned, controlled and led, including the organisation’s structure.
C risk transfer
Insurance transfers risk (C). In return for an insurance premium, the insurance company agrees to
take on an agreed proportion of the financial burden of a risk.
A Operational risk
These risks are to do with the operations of the business – a process going wrong, a valued
employee leaving, a regulation being broken.
C business risk

The nature of the imaging business changed through new technology bringing innovations. The
company’s main business radically fell because of this: it suffered product risk, a form of business
risk.
A both changes (machinery and borrowing) increase the company’s financial risk
Both changes (machinery and borrowing) increase the company’s liquidity risk, a type of financial
risk, as they increase the amounts (fixed overheads and interest) that have to be paid however much
revenue is achieved. They both mean that the company is more exposed if there is a downturn in
demand for its products.
D event risk
The failure of a participant in the business’s supply chain to honour their contractual obligations is
classified as systemic risk which is a specific type of event risk.
B 3, 2, 1, 4
Following risk awareness and identification (3), the risk manager analyses and measures the risk (2)
and assesses how it can be responded to and controlled (1). The risk is then monitored and reported
(4).
B risk transfer
The risk is transferred to the outsource provider (B). Outsourcing does not necessarily reduce the
probability or impact (A), and the risk still exists, so it is not avoided (C). Clearly the company is not
retaining the risk by outsourcing (D).
A Product risk
Business risk arises from the nature of the business, its operations and the conditions it operates in;
this includes strategy, enterprise and product risks. Financial risk and operational risk, which includes
event and process risks, are separate types of risk.
A The risk that the Production Director will be recruited by Tiller plc, a key competitor
The risk of the Production Director moving to a competitor is the only example here of operational
risk. The other options relate to strategic risk.
A crisis management
A power cut would cause a major breakdown in the running of the hospital and could cause loss of
life if life support machines or operating theatres lose power. Therefore it is a crisis. Crisis
management concerns identifying a crisis, planning a response to the crisis and confronting and
resolving the crisis. The generator shows that the hospital has identified a crisis (lack of electricity)
and has planned, confronted and provided a resolution to the crisis (the generator). This means that
the generator is part of the hospital’s crisis management.

A disaster (such as a power cut) is a major crisis or event which causes a breakdown in the
organisation’s operations. The generator cannot prevent the power cut but helps the hospital deal
with and manage the impact of it.
D Market risk
Market risk the exposure to potential loss that results from changes in market prices or rates.
Greenwood Ltd faces market risk because it fixes the price it sells the coffee beans for but buys the
coffee beans at whatever the market price is on the day of purchase. The company will face a loss if
the price it pays for the coffee beans is greater than the price it has agreed to sell them on for.
C Investment 2 and Investment 4
A risk averse investor, or a risk averse organisation, will prefer investments that offer greater certainty
(ie lower risk), even though these potentially offer lower returns than other less certain (ie higher risk)
alternatives.
Although Investment 1 offers the highest potential return, it also has the highest level of risk;
therefore it will not be attractive to a risk averse investor. Investments 2 and 3 offer the same potential
level of return. However, because Investment 2 involves lower risk, the investor will choose
Investment 2 ahead of Investment 3. Although Investment 4 offers the lowest potential level of return,
it presents the lowest risk, and therefore will be attractive to a risk averse investor.
D Both 1 and 2
Lack of input from senior management and directors (Statement 1) presents potential problems
because the operational managers to whom work is delegated may not fully understand what is
required or the urgency of the task at hand.
Although it is important for business functions to identify key issues within their area, successful
resilience programmes also require collaboration across an organisation (eg sharing information
between functions, which can allow synergies to be created). If each function focuses solely on their
own area (Statement 2) this collaboration and sharing of ideas will not be achieved.
C £3,250
The median value is the middle value. Since there is an even number of data points, the amount half-
way between the third and fourth value is taken, being (3,000 + 3,500)/2 = £3,250.
B It may not return a value that is the same as an actual value in the data set.
D It is difficult to identify in large data sets as the values have to be ordered.
The median is the middle value in a set of data. Its value is not dependent on the other values in the
data set, so A and C are incorrect.
C Mode
The mode is the most frequently occurring data value. It can be applied to qualitative data such as
the most popular colour. The standard deviation is not a measure of central tendency, but is a
measure of dispersion.

A it is widely understood
C it takes into account the values of all items in the data set
The mean is distorted by outliers, so B is incorrect. The mean may not take a value that is the same as
an actual value in the data set, so D is incorrect. A and C are correct.
C 2,550
The expected value is calculated by taking the sum of each value multiplied by its probability: (2,200
× 0.2) + (2,600 × 0.5) + (2,700 × 0.3) = £2,550.
A 0.2%
The coefficient of variation is the standard deviation divided by the mean.
The standard deviation is the square root of the variance.
400 = 20
20
Coefficient of variation is therefore = 0.002 = 0.2%
10,000
C product A should be launched as it has a higher return and a lower risk
Coefficient of variation is a more meaningful statistic for comparing the risk than the standard
deviation as it relates the standard deviation to the value of the data, represented by the mean.
Based on this, product A has less risk associated with it than product B. Product A also has a higher
return than product B.
A is incorrect as the risks of product B are higher than product A as based on the coefficient of
variation.
B is incorrect as it suggests that product A has a higher risk.
D is incorrect: Product A would be preferred regardless of the risk preferences (a higher return for a
lower risk).
D (2) and (3)
The investor has chosen the riskier of the two investments, so cannot be said to be risk averse. The
investor may be risk neutral – which means that she has ignored the risk entirely. Alternatively, the
investor may be a risk seeker, which means that she prefers investments with higher risks. From the
decision taken it is not possible to eliminate either of these, so D is the correct answer.
B Insure the risk as the potential impact is high
The risk has a high potential impact, but a low probability of occurrence, so transferring the risk using
insurance is the most appropriate.
Accepting the risk is dangerous. Although gross risk is low, the impact is hidden because the
probability is low. However, the risk could lead to a loss of £1,000,000 which is higher than the

£500,000 point that would threaten the survival of the company. (The chance of your home being
destroyed by fire is extremely low, fortunately, but you have probably insured it).
Avoiding the activities that create the risk is likely to be overkill, given the low probability of the
event.
Taking actions that could reduce the probability of the event occurring would not make much
difference, as the probability is already very low (1%).
B the distribution is a continuous distribution
C the closer a range of values is to the mean, the higher is the probability of that range of values
occurring
In a normal distribution, the mean = the median = the mode, so A is not correct.
B is correct – the distribution can be used to assess the probability of values occurring within a
particular range, but not for the probability of a discrete value occurring.
C is correct. The bell shape of the curve means that a higher portion of values are found closer to the
mean.
D is incorrect. You should be aware that approximately 68% of values lie within one standard
deviation above and one standard deviation below (actual value is 68.2%). Approximately 95% lie
within 2 standard deviation above and two standard deviations below the mean (actual value is
95.4%). Approximately 99% lie within 3 standard deviations either side of the mean (actual value is
99.7%).
A The mean is lower than the median, which is lower than the mode.
A left-skewed (negatively skewed) distribution has the majority of values concentrated on the right-
hand side of the distribution. There are fewer values on the left-hand side of the distribution but
these are more spread out, so the curve has a long left-hand tail but appears to lean slightly to the
right. The mode typically occurs at the highest point in the distribution, and typically the median is to
the left of the mode (so it has a lower value than the mode) and the mean is to the left of the median
(so it has a lower value than both the mode and the median). Thus answer A is correct. B describes a
right skewed (positively skewed) distribution. C and D are not typical of either distribution.
A ALARP
This approach represents ALARP, which stands for ‘as low as reasonably practicable’. If actions to
reduce risk exist which are reasonably practicable, then those actions should be taken. If the actions
to reduce the risk are disproportionate given the reduction in risk achieved, then the actions are not
taken.

Chapter 6: The finance function and financial
information
D internal reporting to operational managers
Centralisation of the finance function generally works very well for transaction recording, external
reporting and managing cash, but it is often found to be less useful in terms of supporting the
achievement of organisational objectives when it comes to internal reporting on performance to
operational managers.
Treasury management (C) is concerned with 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.
A It is both forward looking and historical
E It is likely to include a cash flow forecast
F It is likely to include budgetary information
Management accounts are internal accounts used for managing the business. Financial reporting is
regulated by accounting standards and statute (B) and report on historical results. Financial
statements are used by shareholders (C). Therefore, management accounts can look forward and
backwards (A), will probably have a cash flow forecast (E) – a statement of cash flows is an historical
summary of cash flows and forms part of the financial statements – and will almost certainly have
budgetary information (F) to assist planning.
A financial reporting
Financial reporting involves preparing financial information including the financial statements, tax
and regulatory reporting.
C Shareholders
Managers have stewardship over resources owned by the shareholders, so the shareholders (C) use
the financial statements to assess the quality and effectiveness of their stewardship. Shareholders
own shares (which are risky investments) in the hope of earning a satisfactory return. Community
representatives (A), employees (B) and managers (D) have other primary interests.
C external reporting
External reporting is financial reporting (C) – producing financial statements which are used primarily
by external users. Record-keeping and stewardship (A) relate to double-entry bookkeeping;
planning/control (B) is not a function of financial statements as they essentially look back at past
financial performance and position. Financial statements are not primarily aimed at an internal
audience (D), which is the role of management accounting.

A The information needs of the company’s managers
Management accounting is driven not by rules or standards but by the need to meet the information
requirements of managers (A) within an organisation who use the information to plan, control, make
decisions and monitor performance.
D performance measurement system
The balanced scorecard is a performance measurement tool (D) focused on a variety of performance
measures important to a business, rather than purely financial ones.
B 1 = economy; 2 = efficiency; 3 = effectiveness
Economy means obtaining the appropriate quantity and quality of inputs at the lowest cost (1). An
activity would not be economic if, for example, there was over-staffing or failure to purchase
materials of requisite quality at the lowest available price. Efficiency is the relationship between
outputs and the resources used to produce those outputs. An efficient operation produces the
maximum output for any given set of resource inputs (2); or it has minimum inputs for any given
quantity and quality of output. Effectiveness is the measure of achievement and the extent to which
objectives have been attained (3).
D Low costs will not always be a CSF; high sales revenue will not always be a CSF.
High quality might be more important than costs, high margins might be more important than
revenue. We cannot therefore state that either low costs or high sales revenue will always be CSFs.
D the success of the team or work group in controlling its costs
Economy is measured by the success of the team or work group in controlling its costs (D). The
amount of resources used for the tasks that have been achieved (A) would be a measure of
efficiency. Effectiveness would be measured by the organisation’s performance in achieving its goals
and targets (B). Team member satisfaction and the motivational climate cannot be used to measure
economy (C).
Liquidity, not risk and return, is the main concern for the entity’s suppliers.
Risk and return, not solvency, are the main concern of the entity’s shareholders.
Treasury management involves preparing and monitoring cash balances, managing working capital,
managing financing decisions and investments and managing foreign exchange.

Both statements correctly identify aspects reported on under the respective sections of a
sustainability report produced under the GRI standards.
A 1 and 2 only
Finance business partnering typically includes members of the finance team becoming more
involved in strategy formulation and implementation, and in commercial decision making.
The provision of accurate accounting information will continue to be important for the finance
function, but this has always been a key part of its role; this is not something which increases
specifically as a result of business partnering.
C Global Reporting Initiative (GRI) standards
E The Triple Bottom Line approach
The IASB focus is on providing useful financial information, but it does not deal with environmental or
social reporting.
The TCFD focuses on the financial impact of climate change, but not financial and social information.
The CDSB focus is on natural capital, not the economic and social impact of a business.
The GRI standards and the Triple Bottom line both try to provide a holistic view of the business’s
performance in respect of its economic, social and environmental impact.
C Policy and legal
The categories are included in The Task Force on Climate-related Financial Disclosures.
Policy and legal risk is the risk related to changes in laws that may bring about additional expenses or
an adverse financial impact. This is what the finance director is concerned about.
Physical risk is the risk of extreme weather causing damage, such as floods.
Technology risk is the risk that a business’s products or services are replaced by more economically
friendly substitutes (eg, replacing power from coal generators to power from wind and solar energy).
Market risk relates to the changing cost of raw materials or changing customer behaviour.
C tactical information
Tactical information (C) helps staff deal with short-term issues and opportunities. Planning
information specifically helps staff involved in the planning process (A). Operational information (B) is
concerned with day-to-day issues. Strategic information (D) has longer-term concerns than both
tactical and operational information.
D environment
An information system sits within its environment from which it accepts inputs and to which it delivers
outputs.

A structured decisions
Structured decisions can be reduced to a series of rules which, if followed, will lead to the correct
decision being made. Providing managers with the right information to make structured decisions is
what management information systems specialise in.
B accuracy only
A range check can give some assurance that a value is accurate (for example, months in a date
should be from 1 to 12). A range check can give no assurance that all transactions have been
completely accounted for.
A pre-established control total will reconcile if data is subsequently entered inaccurately or not all
data is entered. The control total, therefore, addresses both completeness and accuracy.
B data integrity
The manager’s comments are a definition of the ACIANA quality of data integrity. It is achieved by
preventing accidental or deliberate but unauthorised insertion, modification or destruction of data in
the database.
A prevention
B detection
C deterrence
The log should help to prevent (A) unauthorised processing as processing privileges are defined by
the log-in details. Because any transaction can be traced to the perpetrator, the log will aid detection
(B) and deterrence (C). The log can do little about correction, completeness or accuracy of what the
user enters.
D A transaction processing system is likely to be the foundation of a management information
system.
A management information system concentrates on producing useful reports from internal data.
Much of the internal data will arise from transactions that have been recorded by the transaction
processing system.
A often based on estimates
Strategic information is used by an organisation’s senior managers to plan its long-term future.
Therefore, much use is made of estimates (A) about future sales, costs etc. Because strategic
planning is undertaken at a level removed from day-to-day operations the information is not likely to
be very detailed (B). Characteristics C and D are associated with operational information.

D comparability
Comparability from one year to the next is helped by companies choosing a particular accounting
policy and remaining with it.
D relevant
When financial information influences the decisions of users it is said to be relevant.
D authorisation
Authorisation, in this context, is the fact that changes can only be made by accountable individuals. It
is one of the ACIANA qualities of a secure system (availability; confidentiality; integrity; authenticity;
non-repudiation; authorisation).
C non-repudiation
Non-repudiation refers to the fact that information should not be open to being rejected by its
recipients on the grounds of faults in the information system. It is one of the ACIANA qualities of a
secure system.
C Issues 1 and 3 only
To be effective, information processing should meet the CATIVA criteria – completeness, accuracy,
timeliness, inalterability, verifiability and assessability. Non-repudiation is one of the ACIANA qualities
of information systems security.
B Financial reporting provides information to managers and people outside the company, such as
investors.
External users do not have access to management accounting information (A) and (C). Financial
reporting does provide information to both managers and people outside the company, such as
investors (B) but it is not confidential (D).
B Relevance
C Faithfulness of representation
These are the fundamental qualitative characteristics. The enhancing qualitative characteristics are
understandability, comparability, verifiability and timeliness. If financial statements demonstrate at
least the fundamental characteristics then investors will be able to rely on them in making their
decisions; this reliance is enhanced if the further characteristics are also displayed.
D Financial statements are used by investors, payables (creditors) and management.
General purpose financial statements are used by investors, payables (creditors) and management.

B Data stored in the system is the same as its sources and has not been altered or corrupted
The integrity of a system ensures that the data captured and stored in the system is the same as in its
sources, and it has not been accidentally or deliberately reduced, altered or destroyed.
The fact that data can be accessed as and when required, by authorised people reflects the quality of
availability; data being obtained from reliable and verifiable sources reflects authenticity; and the fact
that data cannot be accessed by anyone who does not have the right to see it reflects confidentiality.

Chapter 7: Business finance
C Factoring
Short-term funds are those used to cover normal operations and can be taken to mean finance
available for up to one year. An example is debt factoring (C). Bank loans and mortgages are debt
finance provided for more than one year, while share capital is equity finance that is also provided for
more than one year.
Statements (1) and (3) accurately describe the fiduciary and the bailor/bailee relationships
respectively. Statement (2) is inaccurate as it states that the charge is over the customer’s liabilities,
when in fact it would be over the customer’s assets.
C a primary capital market
The capital markets consist of primary markets and secondary markets. New securities are issued on
primary markets (C) whilst secondary markets (B) allow investors to buy existing securities or sell
securities that they hold. Futures markets (A) provide standardised futures contracts to buy or sell a
particular commodity or financial instrument at a pre-determined price in the future. Money markets
(D) provide short-term debt financing and investment.
Venture capitalists often will want a place on the board to secure their investment, so Statement (2) is
false. They are very likely however to realise their investment by selling their shares following flotation
on the stock exchange (1), and they would normally expect a company’s existing owners to bear a
substantial part of the risk (3).
D Money market
Money market. AIM and the London Stock Exchange are both examples of capital markets.
D A unit trust
A unit trust is an institutional investor, along with pension funds and insurance companies for
example. The Bank of England (A) is the UK central bank, and the Financial Reporting Council (B) and
Financial Conduct Authority (C) are regulators.
C Renovation of a production facility
Venture capital is generally most appropriate for new investments with above average risk.
Renovation of an existing facility is a part of the ongoing activity of the business and is unlikely to
have much impact on the overall level of returns. It is therefore unlikely to be appropriate for a
venture capital investment.

D Rights issue
Although a rights issue (D) should not need underwriting in theory, since all the shares are being
offered to existing shareholders, in practice it will usually be underwritten. This is to ensure that
sufficient funds are raised from the issue, even if the rights are not fully exercised. No new shares are
issued in an introduction (A) and so there is no need to underwrite. An offer for sale by tender (B)
would not normally need underwriting since the issue price reflects the value of the shares as
perceived by the market. Underwriting would only be necessary if there is a risk that there will be
under-subscription even at the minimum price. It is unnecessary to underwrite a placing (C) since a
purchaser for the shares is arranged in the issue process.
C Methods 1, 2 and 4 only
A rights issue is the only one of these methods which cannot be used to obtain a new stock
exchange listing.
D Prudential control of financial institutions
Prudential control (D) refers to the regulation and monitoring of banks and other financial institutions
by the Bank of England, the Treasury etc. It is financial intermediaries, not regulators, which provide
advice and information to investors on available financial opportunities and their associated risks and
returns (A). Intermediaries reduce investment risks (B) for individuals by creating an investment
portfolio. Maturity transformation (C) overcomes the problem of matching the time periods for which
a company or individual needs funds with the time periods over which investors wish to invest.
C shares become more readily marketable
Shares become more readily marketable when they are listed. Listed companies face increased
disclosure requirements (A), not reduced ones. The size of dividend does not depend on whether a
company is listed (B). Not all plcs are listed companies (D).
C medium-term finance
The four types of finance and what they should be used for are as follows:
Immediate finance: to pay wages and day-to-day expenses
Short-term finance: to pay for goods/services bought on credit (payables)
Medium-term finance: to pay for an increase in inventory and receivables as the business grows, and
to pay tax on profits earned
Long-term finance: to pay for non-current assets required in the long term such as machinery,
vehicles and buildings
A cash generated from retained earnings
Cash generated from retained earnings (A) is the source of finance that the majority of companies
prefer traditionally. This is because it is simple, no recourse has to be made to the shareholders, and
the control structure of the company is unaffected. New share issues (B) are expensive and risky. They
are normally only undertaken when large amounts of new capital are required. Rights issues (C) are

cheaper and easier to arrange than new share issues. However, they must be priced attractively to
ensure that enough shareholders will exercise their rights to make the issue a success. Bank
borrowings (D) are a major source of finance since debt finance is generally cheaper and easier to
arrange than equity, but it lacks the simplicity of using cash from retained earnings.
C The lessee owns the asset outright from the time of purchase.
With a lease, ownership of the asset remains with the lessor, at least until all lease payments have
been made. The other options are correct statements about leases.
C Venture capital can be appropriate for a management buyout.
Venture capital can be appropriate for a management buyout. Venture capital is high risk (A), and is
not normally available to listed companies (B). It normally takes the form of equity finance, although it
may take the form of debt finance (D).
D Mortgage on property
A property mortgage (D) is generally for a term longer than five years, and this is therefore a long-
term source of finance.
D Letter of credit
This is a letter of credit. A bill of exchange (A) is drawn by one party on another (not necessarily by a
bank). An export guarantee (B) is insurance against defaults on exports. A payment gateway is used
to authorise online payments.
C Deciding what credit limits the client should give customers
Deciding what credit limits the client should give customers.
A Investment in equities
Short-term cash surpluses will not normally be invested in equities owing to the risks associated with
achieving a return over a short period.
C Bailor/bailee
The bailor/bailee element of the relationship concerns the bank accepting the customer’s property
for storage in its safe deposit.
D Crowdfunding
Crowdfunding is a means of financing a new business or a new project for an existing business by
raising a specific sum of money from individuals, usually via the internet.

C money market
Financial instruments with maturities of less than one year are traded in the money market.
D 2 and 4 only
The bond can be sold in a capital market and a secondary market.
A normally higher
The long-term interest rate is normally but not always higher than the short-term rate.
C Financial Policy Committee
The Bank of England’s Financial Policy Committee seeks to take action to remove or reduce systemic
risks in the UK financial system as a whole. The Financial Conduct Authority (A), which is independent
of the Bank of England, is part of the ‘twin peaks’ regulatory regime for the financial services industry,
the other part being The Bank of England’s Prudential Regulation Authority (D). The Bank’s Monetary
Policy Committee (B) aims to influence the quantity and price of money in the UK economy.
B Credit risk
Credit risk is the term given to the risk of payment default by the customer.
C Receivables insurance
The payment of a premium in return for the payment of customer debt if it becomes irrecoverable
indicates receivables insurance.
D It is a bond which is redeemed at a £500 discount.
The interest rate is fixed so therefore the loan stock cannot be a floating rate note. Because the
redemption value is less than the par value of £10,000, redemption is at a discount.
A It should be stated in the legal documentation that the proceeds of issuing the bond will be
used for projects that should provide clear environmental benefits.
D The proceeds from the issue of the bond should be kept in a separate account or tracked by the
issuer.
The Green Bond Principles specifically state that:
Items A and D are two of the four components of the Green Bond Principles.

The finance can be used for a climate change mitigation, climate change adaption, natural resource
conservation, biodiversity conservation and pollution prevention, so item B is not correct as it is too
narrow.
There is no requirement for an external review, although a review is encouraged, so item C is not
correct.
The Green Bond Principles do not specify which market the bonds should be traded on.
C Defensive
Only 41.3% (19,000 ÷ 46,000) of the company’s current assets are financed by current liabilities. The
rest are financed by long term finance. This is a defensive approach as the company is not relying on
current liabilities to finance its fluctuating current assets.

Chapter 8: The accountancy profession
B measurement, disclosure or provision of assurance about financial information that helps
managers, investors, tax authorities and other decision makers make resource allocation
decisions
The accountancy profession is concerned with providing measurement, disclosure or provision of
assurance about financial information that helps managers, investors, tax authorities and other
decision makers make resource allocation decisions.
Option A relates to financial reporting; C to management accounting; and D to financial
management.
D The profession’s rules and regulations are established solely by government legislation
Professions are permitted to set their own rules and regulations (meaning they are not regulated
solely by government legislation, but instead have a high degree of autonomy). For example, the
Financial Reporting Council (FRC) plays a key role in regulation of the accountancy industry, while in
turn, ICAEW regulates its own members.
A profession will require a high level of skills and competences, which is why chartered accountants
have to pass professional exams before they are admitted to full membership!
A Professional values
A profession’s code of ethics or conduct is an example of its professional values. Self-regulation is
where professionals judge each other, and hold each other to account, for not meeting these values.
A Insolvency
C Investment business
F Statutory audit
Some areas of public practice are ‘reserved’ and so there are specific additional requirements for
professional accountants engaged in them. Three of these areas are statutory audit, investment
business and insolvency work. ICAEW is also the recognised regulator for probate work.
D Paula can offer any accountancy services except those in the reserved areas.
The term ‘accountant’ has no special position in English law (A). There is no legal requirement for an
accountant to be a paid-up member of ICAEW (or any of the CCAB bodies) (B). Paula can call herself
an accountant and because she is registered for supervision under the money laundering
regulations, she can offer any accountancy services except those in the reserved areas where specific
levels of competence and regulation are required (C, D).
A Regulation of the auditing profession
In areas other than the regulation of audit, such as options B, C and D, the FRC does not have
statutory powers.

D Protect taxpayers’ money
Accountants working in the public sector have a duty to protect taxpayers’ money. The other options
apply to all accountants.
B (2) and (3) only
Anyone is free to advertise as an ‘accountant’ and offer the full range of accountancy No
ICAEW members are open to competition from anyone, whether professionally Yes
There is no legal requirement for an accountant to be a paid-up member of one of the Yes
CCAB bodies.
The first statement is incorrect because although anyone is free to advertise as an accountant, there
are four ‘reserved’ areas of business (insolvency, investment business, probate and statutory audit)
where statute demands specific levels of competence and regulation. To offer accountancy services
the provider must be supervised for money laundering purposes.
Regulation of professions should protect the public from being misled or from suffering True
from abuse of power through knowledge or monopoly.
Regulation of professions should protect the profession’s vested interests from False
competition in order to maintain public trust.
Regulation of professions should specifically not protect the profession’s vested interests from
competition.
D The Financial Reporting Council
The FRC, via the Conduct Committee’s Financial Reporting Review Panel, investigates departures
from relevant accounting standards and Companies Act 2006 requirements by large companies such
as those listed on the London Stock Exchange.
The ICAEW is responsible for eligibility to practise and discipline for ICAEW members only.
B The ICAEW
The ICAEW is one of 22 anti-money laundering supervisory bodies in the UK, and it supervises all
member firms of the ICAEW.
The FCA and HMRC are also recognised as anti-money laundering supervisory bodies, but do not
supervise members of the ICAEW.

The Office of Professional Body AML Supervision (OPBAS) is responsible for overseeing the activities
of the anti-money laundering supervisory bodies.
B 2 and 3 only
Accountants are not expected to be campaigners, which is what role (1) implies. They are expected
to support organisations in their approach to meeting the challenges of climate change, such as risk
management and performance measurement.
B Green finance strategies such as green bonds
Taxes, grants and mandatory reporting all fall within the category of solutions based on regulation.
Green finance is a response by the market for finance that meets the needs of investors who wish to
invest in sustainable or green projects.

Chapter 9: Governance and ethics
B comparatively less close relationships between banks and businesses than in a bank-based
system
Options A, C and D are all characteristics of bank-based financial systems.
A a market-based system
Household preference for equity (more risk) rather than bank deposits (less risk) means that equity
finance in a market-based system is likely to dominate the financing of businesses.
D the company’s shareholders
The reporting responsibility is to shareholders (D), not to other directors (A) nor to employees (C).
Under a unitary board structure there would not be a supervisory board (B).
B shareholders as a body
The separation of ownership and control creates a situation where directors act as the agents of
owners (shareholders), who are, therefore, collectively the principal.
D Statement (1) does not match; Statement (2) matches
Corporate governance comprises the practices and procedures for ensuring Does not match
that a company is run in such a way that it achieves its objectives.
Corporate governance is a set of relationships between a company’s Matches

management, its board, its shareholders and other stakeholders.
Statement (1) fails to specify that corporate governance also covers how objectives are set.
B Intermediaries
C Securities
D Markets
Options B, C and D all relate to a generic financial system. Governance structures and regulators may
or may not exist within a particular system, but they are by no means basic elements of it.
B exceed the minimum obligations it owes to stakeholders
Rather than simply doing the minimum required, the company will want to exceed it, in relation to all
stakeholders and not merely shareholders.

A Investors
D Managers
The separation of ownership and control refers to the classic ‘agency problem’, in which investors
(shareholders) who own the company delegate responsibility for running the business to managers
(as agents) for the ultimate benefit of the owners. Corporate governance is fundamentally concerned
with ensuring that the managers act as the owners would want them to.
A to act at all times in the best interests of the company
The stewardship approach requires that directors should act at all times in the company’s best
interests, not in their own interests. This resolves the agency problem. Allowing shareholders to see
detailed accounting records on request, holding monthly meetings to answer shareholders’ queries
and consulting shareholders over difficult management decisions are not required by the
stewardship approach, though a company can choose to follow such procedures.
C Demonstrate leadership by encouraging Lake plc’s chief executive to be more open
Lake plc’s Chief Executive has failed to show a key attribute of an ethical leader, which is openness:
being open minded and willing to learn. Boards have a responsibility to act where leaders do not
deliver on ethical leadership, so Lake plc’s board should demonstrate leadership by encouraging the
Chief Executive to be more open. While drafting a corporate code of ethics, rewriting policies and
talking to shareholders can also help to build an ethical corporate culture, it is addressing unethical
leadership that is the key way to improve it.
D All of the above
Domination by a small group: key figures are related
Short-term view: directors’ bonuses are based on annual profits
Lack of supervision: the sales force can tie the company into contracts that represent a credit risk
C Board of directors, senior management, shareholders, external auditors, internal auditors
Board of directors, senior management, shareholders, external auditors, internal auditors are the key
elements of good corporate governance.
B Supervisory board
A dual board system consists of a supervisory board and a management board.
C Statement 1 = False; Statement 2 = True
The high ‘power distance’ score in Erewhon means there is a greater acceptance in Erewhon that
power is concentrated among a small number of people. Therefore it is more likely that Erewhon’s
code will allow a single person to be both CEO and chair than Wenland’s code will. Therefore
Statement 1 is False. Having a higher proportion of independent NEDs on the board will help to

keep the power of the executive directors in check, so it is likely that Wenland’s code will require a
higher proportion than Erewhon’s. Therefore Statement 2 is True.
B 1 only
Statement 1 correctly defines whistle-blowing.
One way organisations often encourage employees to report unethical behaviour is through a
helpline. A helpline can be particularly useful if the employee’s concerns relate to the behaviour of
their line manager, meaning that the employee needs to report their concerns to someone other
than their manager (so Statement 2 is False).
A Good corporate citizenship
C Leadership
D Sustainability
The core aspects of the King Report are leadership, sustainability and good corporate citizenship.
D Marketing
The issue clearly relates to advertising which comes under the area of marketing.
A Board composition
C Director responsibilities
The Wates Principles are:
1. Purpose and leadership
2. Board composition
3. Director Responsibilities
4. Opportunity and Risk
5. Remuneration
6. Stakeholder Relationships and Engagement
B They use a “apply or explain” approach.
C The code requires the board to establish oversight for the identification and mitigation of risks.
The Wates Principles are a voluntary code for large private companies. A is therefore not true.
B is true – if there are good reasons why a particular principle has not been followed, then the
company should state that it has deviated from the principle and explain the reason.
C is true – principle 4, opportunity and risk, requires this.
There are six principles, not five so D is incorrect.
E is incorrect. Companies with a premium listing must apply the UK corporate governance code.
D 1, 2 and 3

These are the three overall aims of the Goals.

Chapter 10: Corporate governance
C 1 and 3
Appointing and removing executive directors Responsible
Reporting on the performance of the company Not responsible
Holding executive directors to account for their performance Responsible
Developing and implementing internal controls Not responsible
As set out in Provision 13.

Management is responsible for reporting on the performance of the company, and
developing/implementing internal controls, not the non-executive directors.
D five years ago
As Jumpers plc has a premium listing, the False

Listing Rules mean that the Code applies so the The Code applies to all premium listed
company must never depart from any of its companies. However, while they are expected
requirements. to comply with the main principles of the code
(‘the spirit of the code’), they do not have to
comply with all the provisions, provided any
non-compliance is properly explained (‘comply
or explain’).
If Jumpers plc had joined the FTSE 100, False

compliance with the Code would be a statutory There is no statutory requirement that states
requirement. particular companies must apply the Code.
B the chair and chief executive are different individuals in order to prevent one person having too
much power within the company
A company should seek to improve corporate governance by ensuring that the chair and chief
executive are different individuals. This prevents one person from having unfettered powers of
decision, as set out in Provision 9.
A 1 and 2 only
Only basic salary should be pensionable True


Directors should not be rewarded for poor True
performance As set out in Provision 39.
Obtain the auditor’s approval of the False

remuneration set The auditors are not required to approve the
directors’ remuneration though they should
ensure that there is appropriate disclosure in
the financial statements
C The chair of the board may be a member but cannot chair the remuneration committee.
As set out in Provision 32. The chair of the board can be a member of the remuneration committee,
but only if they were independent on appointment, and they cannot chair the committee.
B In annual and half-yearly financial statements, the board should state whether it considers it is
appropriate to adopt the going concern basis of accounting.
Non-executive directors of premium listed False

companies, once appointed, only need to be Non-executive directors must be submitted for
submitted for re-election every three years. annual re-election just like executive directors as
set out in Provision 18.
In annual and half-yearly financial statements, True

the board should state whether it considers it is As set out in Provision 30.
appropriate to adopt the going concern basis
of accounting. XE “Financial reporting”
Directors’ notice or service contracts should not False

exceed three years. The Code recommends that service contracts or
notice periods should not exceed one year
(Provision 39).
The annual report should state the company’s False

business model but its strategy for delivering The Code makes no such recommendation. The
the objectives of the company may remain directors should consider that the annual report
confidential. provides the information necessary for
shareholders to assess a company’s position,
performance, business model and strategy
(Provision 27), but this doesn’t mean the
company has to state its business model.
B Two
As set out in Provision 24. The main provision is that a company’s audit committee should comprise
three independent, non-executive directors. However, for smaller listed companies (defined as
companies outside the FTSE 350), the minimum membership is two.

C can be flexible in how it applies the UK Corporate Governance Code
The Code is applicable to all companies with a premium listing, so the company must usually comply
with the Code, but can opt not to apply some aspects if appropriate and it explains why (‘comply or
explain’).
A the going concern status of the company
The directors have to state that the financial statements are prepared on the going concern basis, if
this is the case. They must also state whether there are any material uncertainties about the
company’s ability to continue as a going concern for at least 12 months from the date of approval of
the financial statements.
B independent non-executive directors with at least one who has recent and relevant financial
experience
As set out in Provision 24. The audit committee should comprise independent non-executive
directors, and the board should be satisfied that at least one member of the committee has recent
and relevant financial experience.
C The entire board of directors
The entire board is responsible as set out in Provision 29.
A Megan will be allowed to accept the offer
As a full-time executive director, Megan is permitted to take on one non-executive directorship as set
out in Provision 15. Therefore, as she does not currently hold any non-executive directorships she will
be allowed to accept the offer.
C The board of directors
The audit committee makes recommendations to the board in respect of auditor appointment as set
out in Provision 25. However, the appointment is the responsibility of the board.
C Her remuneration should reflect her time commitment and responsibilities
D 50% or over
As set out in Provision 11: at least half the board, excluding the chair, should benon-executive
directors whom the board considers to be independent.

One of the specific roles and responsibilities given to the audit committee by the Code is the
development and implementation of policy on engaging the external auditor to supply non-audit
services. This is set out in Provision 25.
A shareholders
It is the shareholders who actually vote to appoint the external auditors (A), although this is usually on
the recommendation of the audit committee (B) and the board (C). The finance director (D) may be
heavily involved in the conduct of the audit but should not be actively involved in appointment
except as a member of the board.
A independence of the internal auditors
An effective internal audit function has, as a fundamental requirement, to maintain its independence
at all times.
B Vidal should not assume both roles concurrently nor go on to be the company’s Chair
The roles of the Chair and chief executive should not be exercised by the same individual and the
chief executive should not go on to be the Chair of the same company. This is set out in Provision 9.
D at every AGM
Directors are appointed by the board and then elected by shareholders at the next AGM. They also
face re-election every year after that as set out in Provision 18.
C The company’s compliance with the UK Corporate Governance Code
In addition to the ‘true and fair view’ of the financial statements, an external auditor of a listed
company also reports on the company’s compliance with the UK Corporate Governance Code and
the directors’ remuneration report.
B sustainability
This is the definition of sustainability as set out in the Brundtland report.
A The design expertise of its employees
D Its reputation in the community
Stationery, raw materials and property are all examples of tangible resources. By contrast, intangible
assets are those which have no physical form. Reputation and employee expertise are examples of
intangible resources.

Chapter 11: The economic environment of
business and finance
A are normal goods
With normal goods, a rise in incomes will be accompanied by a rise in demand for them as opposed
to a fall in demand for inferior goods. The existence of complements and substitutes have no effect
in this context.
A an increase in demand for potatoes
If potatoes are a Giffen good, then an increase in the price of potatoes will cause an increase in
demand for potatoes.
D decrease the demand for both Y and X
If X is a complement of Y then they tend to be consumed together, so if demand for Y falls as a result
of the increase in its price then demand for X will also fall.
Demand for an inferior good will fall with rises in income as consumers shift to better quality goods
that they can now afford with their higher incomes. Demand for the inferior product could exist
because of its price and the level of incomes, not just because of advertising.
B low marginal costs
With a natural monopoly, fixed costs will be high, marginal costs will be low (B) and economies of
scale (rather than scope) provide an effective barrier to entry.
D unrelated
Zero cross-elasticity means the goods are unrelated.
B excess demand for the product
A price below the market equilibrium price will attract demand but deter suppliers.
A perfectly inelastic
A vertical straight line implies that the supply of the Ledo is fixed whatever price is offered.
A a contraction in demand and supply
When factor costs rise demand contracts (moves along the demand curve) since the price goes up,
and the supply curve shifts to the left (contracts).
A monopolistic competition
The key differentiator here is the large number of competing sellers. The earlier issues identified in
the question are shared by both monopolistic competition and oligopoly, but it is the large number
of sellers in the market that defines this market specifically as monopolistic competition.
B Suppliers earn ‘normal’ profits
C Consumers lack influence over market price
E A single selling price
Suppliers are price-takers meaning that they can sell as much as they supply but only if they sell at
the market-determined equilibrium price (E). Differentiated products (D) are a market imperfection
creating imperfect rather than perfect competition.
B growing, so enabling the economies of scale to be achieved
External economies of scale arise by virtue of the market for the product growing, enabling greater
levels of business across which to spread the company’s costs.
B –2.40
Proportional change in quantity demanded = 40/150×100 = –26.6%
Proportional change in price = 1/9×100 = 11.1%
PED = –26.6/11.1 = –2.40
A Demand for the good will fall; supply of the good will rise
Suppliers will be encouraged to supply at that price so supply will increase, whilst at a price above
the market equilibrium price demand will fall.
A are normal goods
With normal goods, if incomes rise demand for the product will rise and this will be the case
regardless of the existence of either substitutes or complements.
D allocating scarce resources
The basic economic problem is one of allocating scarce resources and economics is the study of how
those scarce resources are or should be used.

B Enterprise
Enterprise is one of the four factors of production, along with labour (including management), land
and capital.
B Bulk buying
The ability to obtain discounts because of the size of orders (bulk buying, B) is a direct result of larger
scale operations. Technical improvements (D) could apply at any scale of operations, as well as the
employment of skills (C) and the introduction of a new product (A).
D the relationship between changes in income and changes in consumption
The relationship between changes in income and changes in consumption.
A Boom, Recession, Depression, Recovery
When an economy booms, it reaches a turning point and goes into recession. The recession deepens
into a depression. Eventually, there is another turning point in the economy, and the business cycle
goes into recovery and then back into boom, and so on.
A a rise in the rate of inflation
Recession and declining demand go together. Inflation and declining demand do not. The trade
balance is likely to improve due to a decrease in demand for imports.
A reducing interest rates
Lower interest rates (A) is likely to result in higher consumer borrowing and even stronger demand-
pull inflation. B, C and D will all be measures which reduce the demand for goods and services.
Higher value added tax (B) could increase total spending on goods and services inclusive of the tax,
but spending net of tax will fall, and this should result in a reduction in demand-pull inflation. Bank
lending (C) is largely used for spending on goods and services by the people who borrow the
money. Public expenditure (D) represents the government’s own demand.
D High consumer expenditure such that aggregate demand exceeds aggregate supply
Aggregate demand exceeding aggregate supply is an example of demand-pull inflation.
B 1 and 2 only
Low interest rates will encourage spending rather than saving. Investment will be encouraged
because the opportunity cost of investing is reduced.
D To alter rates of taxation
Fiscal policy is concerned with the government’s tax income, expenditure and borrowing (to make up
the difference between income and expenditure).
C the behaviour of the aggregate supply curve in connection with the levels of prices, incomes and
employment
It is aggregate supply in the economy which is at issue.
D social security payments
Higher social security payments (D) will give consumers more cash to spend. Higher taxation (A and
B) will tend to reduce consumer spending. Higher import tariffs (C) might result in greater consumer
expenditure on imports inclusive of tariffs, but the volume and the net-of-tariff value of imports
purchased will fall.
A a shift to the right in the supply curve
If supply conditions (such as the cost of making a product) alter, a different supply curve is created.
When there is a fall in costs, suppliers will be willing to increase supply for a given selling price and
the supply curve will shift to the right.
A Negative
If products are complements, a rise in the price of one will decrease demand for that good and
therefore also for the complementary good. Therefore the cross elasticity of demand between them
is negative.
B Price rises because of persistent excess of demand over supply in the economy as a whole.
Demand pull inflation causes price rises in the economy and is the result of persistent excess of
demand over supply in the economy as a whole.
C buying government bonds from the private sector to increase liquidity
Quantitative easing involves buying government bonds from the private sector by the Bank of
England, which issues new electronic money (not notes and coins) to pay for them.
C interest rates are low and liquidity in the system is low
Quantitative easing is generally used as an alternative to cutting interest rates as a form of monetary
policy where interest rates are already very low, so further cuts are not feasible. Quantitative easing

aims to increase liquidity in the system when liquidity is low, so is unlikely to be needed when
liquidity is high.
B low inflation combined with a neutral fiscal policy
The government monetary policy is to keep inflation low. This is managed by the Bank of England,
who use interest rates to control inflation. Fiscal policy has been to keep taxes relatively unchanged
while containing government spending.
Chapter 12: External regulation of business
D externalities
An externality is an adverse social consequence which the private producer has no incentive to
minimise.
A innovation
Innovation in this context is where regulation serves to trigger the discovery and introduction of new
procedures and technologies – the ‘innovation effect’, as a basis for competitive advantage in an
industry.
A up to 10% of annual worldwide revenues
Collusion can lead to a fine of up to 10% of annual worldwide revenues.
B the market mechanism has failed to allow for externalities
Government intervention in a market economy can lead to an increase in economic welfare if the
market mechanism has failed to allow for externalities. The government setting a minimum or
maximum price above the equilibrium price would be ineffective. Demand for inferior goods falls as
incomes rise.
D both UK and French suppliers enjoying a higher price
Restricting supply (via quota) will cause the price to rise.
A market imperfection
Monopoly is the opposite of perfect competition and is, therefore, a market imperfection.
B Limiting production markets or technical developments to the prejudice of consumers
C Applying different trading conditions to equivalent transactions, thereby placing certain parties
at a competitive disadvantage
D Attaching unrelated supplementary conditions to contracts
Imposing unfair purchase or selling prices would be considered as an abuse where the business is in
a dominant position, but transfer pricing (A) refers to the pricing of goods and services within a multi-
divisional organisation, particularly in regard to cross-border transactions.
D A market with few producers and an undifferentiated product

A cartel is most likely where there are few producers in the market, each of them producing a similar
product.
B it deters firms from engaging in collusion, price-fixing and deceptive advertising
The main effect of anti-monopoly enforcement is deterrence – there is little innovation effect (A).
B increased competition
Tending towards a perfect market through increased competition should lead to allocative efficiency
and lower prices.
D Option 4
The first and third statements are false, but the second statement is true – anti-monopoly legislation
promotes competition but, where competition is not possible, market regulation is used to
compensate for the lack of competition.
C lack of equity
Redistribution of wealth is an attempt to address lack of equity.
C market power
Collusion is an example of market power exerted by a few suppliers.
Market manipulation is committed where a person deals in shares when they have access to inside
information that would affect the share price and which is not known generally. This is not the case in
this scenario. A person may be disqualified from acting as director or manager of companies for a
wide range of reasons under the Company Directors Disqualification Act 1986. These include making
loans from company funds that were unlikely to be repaid.
B influencing the demand for and supply of mobile data
By regulating prices, the government has influenced demand and supply in the market. If the
maximum price was above the market price there would be no impact, but this is not the case here.
B Paying subsidies to fruit and vegetable producers
Paying subsidies will encourage producers to supply more fruit and vegetables. Setting maximum
prices for fruit and vegetables or persuading producers to reduce their prices will reduce supply, as
producers see the price they receive fall. Indirect taxes won’t increase supply because although they
affect the price the consumer pays, the amount the producer receives stays the same.

Chapter 13: Data analysis
A good quality of data, but poor quality of information
The data is both accurate and complete, so as data it must be classed as good data. However, the
report is completely inappropriate for the sales director – too much detail, no aggregation, not
particularly relevant – so it fails the ACCURATE requirements of being easy to use, user-targeted,
relevant or cost-beneficial.
B Exploratory data analysis
Exploratory data analysis aims to identify relationships between different variables in a set of data.
C Assessing the information critically, being alert to possible misstatements due to error and fraud.
Items A and D are too extreme. Professional scepticism does not mean assuming everything is
wrong, but rather being aware that data could be wrong. The fact that a forecast is optimistic does
not mean that it is wrong, so B is incorrect.
C observer bias
Observer bias may occur when collection of data involves observing and recording results, which is
the case in this example, as the inspector is observing lessons and recording the results (how good
the teacher is) so C is correct. Cognitive bias also relates to human perception but is associated with
interpretation of presented data rather than the collection of data, so B is not correct. Survivorship
bias and self-selection bias relate to how items are selected for a sample, rather than how data is
interpreted, so are not relevant here.
B a type II error
A type II error is associated with hypothesis testing and means that a hypothesis is accepted when it
is wrong. This is the case with the external auditors who have accepted a hypothesis that the rate of
errors was 2% when in fact it was 4%.
A type I error means rejecting a hypothesis when it is in fact correct.
Omitted variable bias and selection bias relate to problems with the sample. There is no indication
here that there was any problem with the selection of the sample by the external auditor. Sample
means will not always be the same as population means and follow a distribution, so the fact that the
auditors sample gave a mean of 3% does not necessarily indicate a problem with sample selection.
B The data in the sample may suffer from selection bias so it should be recognised that the
Customers who do not pay with credit cards have no chance of being included within the sample of
customers used in the analysis. The sample therefore suffers from selection bias. The conclusions
drawn may not therefore reflect the spending and number of visits of people who pay using other
methods, such as cash, and these groups may well spend lower amounts at the stores. A is therefore
not correct, because the fact that 10% of card users were used does not compensate for the fact that
non card users had no chance of being selected. B is correct.

C implies that the analysis of samples is always likely to lead to wrong conclusions. This is not true -
statistical analysis is often based on samples, and inferences made about a population based on the
samples. While it is recognised that samples provide estimates, if the sample is representative of the
population, those estimates will usually be reliable indicators of the population as a whole.
Omitted variable bias relates to exploratory data analysis, which aims to identify relationships within
the data. The analysis being performed by the analyst here is descriptive statistics, so omitted
variable analysis is not relevant here. D is therefore incorrect.
D A line chart
Line charts are the most useful way of identifying trends. Since the directors want only an overview of
sales, a line chart would easily accommodate sales of the three product lines over ten years. The line
chart would be the preferred method.
A clustered bar chart and a component bar chart could be used, with a different coloured bar (or
component) representing each of the three sales groups, and a bar for each of the past 10 years for
each product. However, such charts could become cluttered, given the number of bars that would be
used. Trends are also less easily identified than they would be in a line chart.
A pie chart could only provide an analysis of the components making up sales for one particular year,
so it would be necessary to have one pie chart for each year. This would certainly lose impact, and
would not highlight trends.
B big data
A company which uses big data for competitive advantage streams in huge quantities from a variety
of internal and external sources, and applies data analytics to obtain as much value from the data as
possible.
C Velocity
Velocity concerns the speed of data and is therefore connected to the ability to stream large
amounts of data into an organisation’s systems in real time. If velocity was not quick enough, the data
would be subject to a time-lag.
A Veracity
Veracity concerns the trustworthiness or accuracy of big data. All data sets have inaccuracies, bias,
anomalies and ‘noise’ in them, and it is important that as much is possible is done to clean up this
‘dirty data’ so that it can be relied upon.
D Email communications between a customer and the marketing department
Structured data refers to any data that is contained within a field in a data record or file. This includes
data contained in databases and spreadsheets. Unstructured data is data that is not easily contained
within structured data fields, including the content of pictures, videos, webpages, emails etc.

Data science deals with all aspects of data, including how it is collected and how value can be
extracted from it.
D Compiled big data
Compiled big data is collected by a third party (such as Finax plc) and accessed by a business (such
as Vertex Ltd).
Open data refers to the release of large amounts of primarily public sector data, such as geo-spatial
data, transport data, government financial data and public service data. Human-sourced data is from
social networks, blogs, emails, text messages and internet searches.
D relevance
Good quality information must be accurate (A) and timely (C), and valuable information must be
accessible (B), but to be both good quality and valuable it must be relevant (D).
C Data dependency
The business became dependent on the data which put it at risk of data errors and errors in
interpreting the data.
C 1 and 3 only
There may be errors in the formulas used in a spreadsheet, so they do not ensure that there are no
errors in the calculations. (2) is therefore incorrect. The other 2 items are correct.
B To reduce the amount of time wasted by poor spreadsheet design
The aim of the principles is to help reduce the amount of time wasted by poor spreadsheet design
and reduce the number of errors caused, so answer (B) is correct.
The principles provide a framework rather than providing detailed advice about spreadsheet design,
therefore answers (A), (C) and (D) are not correct.
A 1 and 2 only
(1) and (2) are principles. (3) is incorrect – principle 15 states that calculations should be performed
once only, as this avoids having inconsistent calculations.
B 2 and 3 only

The main issue with inheriting spreadsheets is that the user may be unaware of the implications of
making changes to the spreadsheet because they do not understand its design. (2) and (3 ) would
help mitigate this. Building in checks, controls and alerts is designed to identify errors when the
spreadsheet is created rather than helping new users when the spreadsheet is handed over to them.
C A sample that reflects characteristics of the population as a whole
A representative sample is a sample that reflects the characteristics of the population as a whole (C).
A rule of thumb is that a sample size should be greater than 30 items, but that alone does not
guarantee that the sample will be representative, so (A) is incorrect. Similarly, if the sample is
selected randomly, so that all items in the population have a chance of being selected, then the
sample is more likely to avoid bias but again, that does not guarantee that the sample is
representative, so (D) is incorrect. A sample may contain data from all sub classes, but still be
unrepresentative – for example, if some sub classes are under or over-represented in the sample.
D Systematic sampling
(D) is the correct answer as the scenario describes systematic sampling. Stratified sampling is where
the population is broken into different sub populations, and samples taken from each sub
population. Cluster sampling is where the population is divided into groups and samples taken from
each group. Under simple random sampling, all items in the sample are selected randomly, not just
the first.

Chapter 14: Developments in technology
Self-verifying smart contracts do invoke automatic execution of defined rules to securely hold and
transfer legal title to an asset, including how to account for it so the same cost and revenue are
recognised by the two parties to a transaction. Distributed ledger technology and triple entry
bookkeeping both mean that every accounting transaction recorded by an entity is also posted to a
public ledger.
B Keylogging
Keylogging is where criminals record what the user types onto their keyboard.
C Phishing
The use of emails to obtain bank information such as this is known as phishing.
Cyber risks encompass: deliberate and unauthorised breaches of security to gain access to
information systems for the purposes of espionage, extortion or embarrassment (Statement (1));
unintentional or accidental breaches of security, which nevertheless may still constitute an exposure
that needs to be addressed (Statement (2)). Cyber risk also encompasses operational IT risks due to
poor systems integrity or other factors.
D Actions 1, 2 and 3
Along with malware protection and secure configuration, all three actions are included in the Cyber
Essentials list of actions developed by the UK government and others.
A Distributed denial of service attack
Distributed denial of service (DDoS) attacks are used to bring down a business’ website by
overwhelming it with vast amounts of internet traffic.
Hacking involves using specialist software to gain unauthorised access to systems. Phishing involves
using bogus emails to obtain security information and personal details. Keylogging involves cyber
criminals recording what users type into their keyboards.
B Install updates to software and operating systems regularly
D Use two factor authentication methods at log in
Encouraging staff to use one password is not recommended, the NCA suggests the opposite.
Updates to software and hardware are issued regularly by software providers and fix bugs in the
software, including security vulnerabilities.

Password management apps are recommended, as they will suggest more secure passwords, and
then remember them.
Two factor authentication is a more reliable way of verifying the identity of the person logging into
the system and is recommended by the NCA.
The use of data analytics to identify unusual transactions could be used to identify the presence of
hackers. However, this is not one of the steps recommended by the National Crime Agency.
A customer buying patterns
In terms of transparency, data analytics creates insights into issues affecting the business that may not
have previously been fully understood, such as customer buying patterns (A) or market price
fluctuations.
The other options are insights provided by other uses of data analytics:
Customer needs (B) are in connection with market segmentation and customisation.
New products and services are in connection with innovation.
Risk identification is in connection with risk management.
B machine learning
This is an example of machine learning, where the accounting system learns from past data where
the bank transactions should be recorded, so B is correct. Automation implies that a machine can
perform a repetitive task, but does not ‘learn’, so C is incorrect. Data analytics and audit analytics
involve analysis of data (for example finding trends).
D The small business relies completely on the security and backup measures of the provider of the
cloud accounting software.
In cloud accounting, the accounting software is stored in the cloud and accessed by the user through
the internet. Security, including file backups, is provided by the service provider. The other options
are disadvantages of traditional accounting software.
The fact that the information can be accessed and added to from anywhere does open up the
opportunity for home working, and staff can access accounting information to get quick answers to
questions.
Distributed ledger technology allows people who do not know each other to trust a shared record of
events.
The internet of things is a system of interrelated computing devices, mechanical and digital
machines or objects with the ability to transfer data over a network without requiring human-to-

human or human-to-computer interaction. Tech Ltd has developed a device that allows the transfer
of data from a smartphone to a temperature controller so this is an example of the internet of things.
Whilst it is true to say the rate of technological change is very fast, it just means that audit regulations
must adapt quickly to them. Automation in advanced accounting software means that auditors can
place more reliance on systems, reducing the need to audit all transactions and verify the ownership
of assets. Some systems allow 100% automatic checking of transactions.
D Fintech
Fintech refers to organisations that use technology to challenge the business models of the financial
services industry, so D is the correct answer. Cognitive technologies is an umbrella term that covers
intelligent systems such as artificial intelligence and machine learning, and this has many
applications, not just financial services, so A is incorrect. The internet of things refers to the smart
devices that send information over the internet. They are not primarily used by the financial services
industry, so B is incorrect. Crypto currencies are online tokens. While they can be used as a means of
payment, they are only one example of technology that used in financial services, so C is incorrect.
A Machine learning
This is Machine learning, as the machine is ‘learning’ from the data and improving the algorithms
used in making predictions without human involvement. Robotic process automation means taking
over processes that can be automated, rather than making predictions, so B is not correct. An expert
system has to be programmed and cannot learn from the data, so C is not correct. Blockchain is a
technology used in distributed ledger systems to ensure that only valid transactions are recorded so
D is not correct.

Chapter 15: Practice exam
B Social arrangement
C Collective goals
E Controlled performance
An organisation is a social arrangement that: pursues collective goals; controls its own performance;
has a boundary separating it from its environment. The other options are all ways that enable an
organisation to increase productivity.
A vision
The primary objective (C) is the provision of medical services, whilst doing this efficiently would be
an example of a secondary objective (D). Vision (A) concerns how the charity sees itself at some
future time, whilst mission (B) expresses its underlying purpose and function.
D Trade unions
Trade unions are the stakeholders most likely to press for employee representation in the company’s
affairs.
B All the different business functions should blend to achieve customer satisfaction.
A general understanding of the marketing philosophy is essential for any business manager. Within a
truly marketing-oriented organisation, everyone has a role to play and a contribution to make to the
organisation’s marketing success (B). The principal function of a company (A) is a reference to its
mission, which is a much broader concept than marketing. If all staff are customer-oriented, then it is
quite possible to practise marketing without a formal marketing department (C). Advertising (D) is
just one aspect of promotion, which in turn is just one of the four marketing mix variables.
B status/ego needs
Status and ego needs (B) can be met by giving praise and promotion. Self-actualisation needs (A) are
the individual’s needs for realising his or her own potential, for continued self-development and
creativity in its broadest sense. It is the need for a feeling of accomplishment and of being satisfied
with oneself. Social needs (C) are the need to be part of a group. Safety (or security) needs (D) refer
to the need for protection in all its senses.
B People
E Processes
G Physical evidence
Because Juan is reviewing the customer service that the restaurant provides during a meal, the
additional aspects of the marketing mix that he will consider are people (this will cover staff
interaction with customers), processes (which will influence whether the meal was produced in a
timely manner) and physical evidence (restaurant layout and design).

Place, Promotion, Price and Product are aspects of the ‘traditional’ marketing mix, which are then
supplemented by the other three to form the ‘service’ marketing mix.
A Subordinates carry out very similar tasks
If employees are all carrying out the same or similar tasks (A), a supervisor will be more able to look
after many subordinates (a wider span of control) as they can all be handled in similar ways and will
face similar problems. A high geographical dispersion of employees (B) requires more effort to
supervise which, along with frequent time-consuming problems (C), suggests a narrow span of
control would be more appropriate. Where the manager is engaged in large amounts of non-
supervisory work (D), the narrower the span of control is likely to be.
C strategic alliance
A strategic alliance (C) is an informal or weak contractual agreement between companies. A licensing
agreement (A) would be more formal in nature (based on a legally binding contract to ensure
adherence to agreements), whilst a joint venture (B) would nearly always involve the formation of a
separate company, with the investing companies taking a financial stake as shareholders and with
management being provided as agreed. A group structure (D) would imply the establishment of a
new company that would be controlled by one of the two companies.
D The operating core
Aiysha is managed by Delia. Delia works at the middle line because she conveys the goals set by the
strategic apex (the directors), therefore Aiysha works at the operating core because her work is
controlled by Delia.
C Waterfall plc has access to funds of £23 million but the reservoir will cost £40 million
Option A relates to the suitability of the option and its level of risk. Options B and D relate to its
acceptability to stakeholders (shareholders and local community groups). Option C is the only one
that is concerned with the feasibility of the option (whether it can in fact be implemented). It appears
that Waterfall plc does not have access to enough funds to pay for the new reservoir and may not be
able to access more given its high level of gearing.
D A laid-back competitor
Hightech Ltd does not react to the moves of its competitors and therefore it can be described as
‘laid-back’.
B As an operational risk
Cyber risk is a type of operational risk: the risk that something will just go wrong. Strategy risk (A) is
the risk that the business’s objectives will not be achieved because it chooses the wrong corporate,
business, functional or IT strategy or fails to keep up with technological developments. Financial risk
(C) arises in part from how the business is financed and in part from changes in the financial markets
such as to interest rates and exchange rates. Enterprise risk (D) is the chance that a strategy will
succeed or fail, and therefore the chance that the business should not have undertaken it in the first
place.

B Recording financial transactions
Stewardship (ensuring that resources are properly controlled) is part of the finance function’s task of
recording financial transactions.
A Measurement of actual performance and comparison against targets
C Establishment of standards or targets to express planned performance
D Follow-up action to correct adverse results or to exploit favourable variances
Any control system should have these three major components. However, while identification of
deviations from the plan (B) is part of the control process, where there are deviations from plan a
decision has to be made as to whether to adjust the plan (eg, it was not achievable) or the
performance (eg, it was sub-standard) so this stage is part of the follow-up. Measuring an ideal level
of performance (E) is useful but becomes valuable information only when it is used to identify the
planned performance. Devising a plan (F) is where the whole exercise begins but any plan needs
targets and standards to act as performance indicators.
B Economic, social, environmental
The triple bottom line measures an organisation’s performance in terms of its achievement of
sustainability goals relating to social, economic and environmental factors.
A Information and communication
B Control environment
E Monitoring activities
The five COSO internal control components are:
Information and communication, control environment, control activities, risk assessment and
monitoring activities.
Both statements refer to issues measured under the social aspect of the triple bottom line.
D a financial intermediary
Financial intermediary is the general term for anyone who carries out this function. Business angels,
investment bankers and venture capitalists may all act as financial intermediaries.
B Statements (2), (3) and (4) only
Interest is only paid on the amount borrowed, not on the full facility.

B Liquidity risk
Liquidity risk is the inability to finance the credit given to customers.
A The mean age is less than 55 years.
In a left skewed distribution, the mean is less than the median and the mode.
B coefficient of variation
The coefficient of variation is the standard deviation divided by the mean. It is the most useful for
comparing the variation of data in data sets where the relative size of the data differs, since it
measures the variations as a percentage of the distribution mean. The standard deviation and
variance are partly influenced by the size of the data in a set, so comparisons of different data sets
are not valid.
C professional scepticism
In relation to information, estimates and explanations received, professional scepticism involves the
professional accountant in assessing them critically with a questioning mind, being alert to the
possibility of misstatement in financial statements due to error or fraud.
B asymmetric information
Financial intermediation overcomes the problem of asymmetric information associated with direct
financing.
B (2) and (3) only
Anyone is free to advertise as an ‘accountant’ and offer the full range of accountancy No
ICAEW members are open to competition from anyone, whether professionally Yes
There is no legal requirement for an accountant to be a paid-up member of one of the Yes
CCAB bodies.
The first statement is incorrect because although anyone is free to advertise as an accountant, there
are four ‘reserved’ areas of business (insolvency, investment business, probate and statutory audit)
where statute demands specific levels of competence and regulation. To offer accountancy services
the provider must be supervised for money laundering purposes.
A the expectations of society
Corporate ethics are principally affected by society’s expectations.

B support the rights of shareholders
Principle IV covers supporting the rights of stakeholders in corporate governance (Option B),
including the importance of creating sustainable and financially sound companies that in turn create
wealth and jobs. Option A should read ‘transparent and fair markets and the efficient allocation of
resources’ (Principle I), not efficient financial reporting. Option C should read ‘all shareholders’, not
just major shareholders (Principle II). Option D should read ‘timely’ rather than real time (Principle V).
B Information asymmetry
C Transaction costs
E Insider dealing
The lack of codes of practice and regulation contributes to rather than restricts the efficiency of
financial markets in resource allocation.
A FRC
The OECD (B) produced its Principles of Corporate Governance, but it does not have UK
responsibility for the promotion of high standards of corporate governance. The UK Corporate
Governance Code is produced by the FRC. The CCAB (C) and the Bank of England (D) have no such
responsibility.
C demonstrate leadership by encouraging Lake plc’s chief executive to be more open
Lake plc’s Chief Executive has failed to show a key attribute of an ethical leader, which is openness:
being open minded and willing to learn. Boards have a responsibility to act where leaders do not
deliver on ethical leadership, so Lake plc’s board should demonstrate leadership by encouraging the
Chief Executive to be more open. While drafting a corporate code of ethics, rewriting policies and
talking to shareholders can also help to build an ethical corporate culture, it is addressing unethical
leadership that is the key way to improve it.
C five
Provision 11 of the code states that at least half the board, excluding the chair, should be NEDs
whom the board considers to be independent. Excluding the chair, there are 9 directors. At least half
of these should be NEDs, therefore five.
B They must apply the principles and explain how they have applied them. They do not need to
follow the guidance.
The principles must be applied, and companies must explain how they have applied them. They are
designed to be flexible so that they can be applied in a manner that is appropriate for a particular
company rather than adopting a tick box approach. The guidance is not mandatory, but is designed
to help companies adopt the principles.
C the substitution effect

The effect of a price rise in one good is to make the prices of other goods relatively cheaper. The
resultant shift in demand towards the relatively cheaper goods is an example of the substitution
effect.
C French fries and tomato sauce
Complements are goods that tend to be bought and used together, so that an increase in demand
for one is likely to cause an increase in demand for the other. Options A, B and D are substitutes
rather than complements.
C A shift in the demand curve to the left, a fall in market price and a fall in quantity supplied
A normal good which has become increasingly unfashionable will see its demand curve shift to the
left, a fall in market price and a fall in quantity supplied.
C The taxation of goods with negative externalities
Negative externalities (C) are an example of market failure because they represent situations where
the private costs of an activity differ from the social costs of the activity. Economic booms (A) and
Giffen goods (D) are not market failures. No market failure is apparent in (B).
A –1.625
+0.065/–0.04 = –1.625
A Rising levels of demand being met by increased production
All of the other options are features of a ‘boom’ phase.
A The tax on cigarettes may not raise as much additional revenue as anticipated because the
demand for cigarettes is likely to become more elastic over time.
The tax on cigarettes may not raise as much revenue as anticipated in the years to come because the
demand for cigarettes is likely to become more elastic over time. Price elasticity nearly always
increases over time and will limit an additional tax revenue. People can change their behaviour given
enough time.
B Activity 2 only
Limiting production markets – No (this is an abuse of a dominant position, covered by Chapter II of
the Act)
Agreeing with another organisation to limit competition – Yes
Restricting technical developments – No (this again is an abuse of a dominant position)

D Botnets
Botnets are used to create the wave of internet traffic in DDoS attacks.
D Patch management
The key issue identified in the scenario here is that the hospital was using old versions of software
which increased their vulnerability to attack. Therefore, the most directly relevant control in this
circumstance will be ensuring that devices and software are up to date, and this could be achieved
through patch management–ensuring the latest versions of software are installed.
Its lack of timeliness undermines usefulness.
The high level of regulation does not undermine usefulness.
The high level of aggregation it contains undermines usefulness.
By definition financial statements are produced some months after a company’s financial year end so
the information they contain is not timely; lack of timeliness undermines relevance, even though
figures may thereby be a more faithful representation. The level of aggregation in the figures can
obscure important details and so undermine usefulness. The level of regulation, however, adds to
faithful representation and comparability, both of which add to rather than detract from their
usefulness.
B a decision support system
An information system which combines data and analytical models to help with semi-structured and
unstructured problem solving and decision making in an operational context is a decision support
system (B). An expert support system (A) is a sophisticated database that pools data from internal
and external sources and makes information available to senior managers in an easy-to-use form so
they can make strategic, unstructured decisions. A knowledge work system (C) facilitates the creation
and integration of new knowledge into an organisation while an office automation system (D)
increases the productivity of data and information workers.
C Velocity
Big data is typically streamed into the business at great speed or velocity (C). Big data shares the
characteristics of volume (A) and variety (B) with operations management; visibility (D) is also a
feature of operations management, not of big data.
A Risk management
B Innovation
E Performance improvement
Consultants McKinsey found that data analytics of big data can create value for a business in relation
to: transparency, performance improvement, market segmentation and customisation, decision
making, innovation and risk management.

The security of digital assets can be protected by encoding, encryption or watermarks. If a user
obtains a licence to use a digital asset then they can only use it in accordance with the terms of the
licence, because they do not own the asset itself. Licences usually restrict users to use the asset
themselves and must not distribute it to others.
B Faster processing of high volume, routine transactions
An organisation is most likely to be able to increase the speed at which it processes high volume,
routine transactions through automation, rather than the use of analytics.
Organisations can use big data and analytics to gain insights, and to help predict future trends in
order to help managers make better decisions.
D Internet of Things
The internet of things uses sensors to create and communicate data, which is what the RFID
technology is doing for Vifpost.
Artificial Intelligence (AI) and expert systems both involve computers using cognitive functions
(sensing, reasoning etc,) to help make decisions and solve problems. If the technology also planned
a route for Vifpost’s delivery drivers (based on where parcels need to be delivered to, current traffic
conditions etc,) this could involve AI or expert systems, but the scenario here only relates to tracking
the packages.
Big data and big data analytics typically involve collecting and examining large volumes of data from
a range of sources to inform decision making and improve performance, for example by identifying
relationships or building predictive models (but there is no indication Vifpost is doing this in this
scenario).

Appendix
Mock Exam guidance notes
Suggested structure for Mock Exams in 2023
Exam standard
The Mock Exam should be set at the same level of difficulty as that represented by the 2023 sample
exam.
Exam format
The Mock Exam should consist of 50 questions worth two marks each.
Style of exam questions

(a) Each question should conform to the style used in the sample exam ie:
– Multiple Choice Question (MCQ) (1 from 4); or
– Multiple Response Question (MRQ) (more than 1 from 4 or more).
Exam coverage and balance

A Mock Exam should have approximately the syllabus coverage and balance set out in the table
below.
Syllabus area Weighting Number of questions

%
1 Business objectives and functions 10 5
2 Business and organisational structures 10 5
3 The role of finance and the finance

25 12–13
function
4 Key issues for the accountancy

20 10
profession and business
5 The external environment of business 15 7–8
6 Technology and data analysis 20 10
Total 100 50
The following matrix contains two sets of questions, selected from within this Question Bank.
Each one contains an appropriate balance of questions which form a ‘sample exam’ for you to
attempt. Note that the question topics listed here are only examples of the nature of questions which
may be included – the actual exam questions may be on different topics. Compiled versions of
Sample exam 1 and Sample exam 2 are accessible in the ACA student exam resources section on the
ICAEW website.
Question Sample exam 1 Sample exam 2
1 Ch 1; Q 10 Ch 1; Q 7
2 Ch 1; Q 12 Ch 1; Q 11
3 Ch 2; Q 5 Ch 2; Q 6
4 Ch 3; Q 2 Ch 3; Q 3
5 Ch 3; Q 5 Ch 3, Q 8
ICAEW 2023 Appendix 181

6 Ch 3; Q 7 Ch 3; Q 11
7 Ch 3; Q 15 Ch 3; Q 16
8 Ch 3; Q 18 Ch 3; Q 21
9 Ch 4; Q 8 Ch 4; Q 9
10 Ch 5; Q 7 Ch 5; Q 14
11 Ch 5; Q 28 Ch 5; Q 30
12 Ch 5; Q 21 Ch 5; Q 10
13 Ch 5; Q 14 Ch 5; Q 20
14 Ch 5; Q 24 Ch 5; Q 27
15 Ch 6; Q 13 Ch 6; Q 14
16 Ch 6 Q 16 Ch 6; Q 17
17 Ch 6; Q 18 Ch 6; Q 21
18 Ch 6; Q 22 Ch 6; Q 25
19 Ch 7; Q 2 Ch 7; Q 4
20 Ch 7; Q 7 Ch 7; Q 8
21 Ch 7; Q 16 Ch 6; Q 17
22 Ch 7; Q 19 Ch 7; Q 20
23 Ch 7; Q 23 Ch 7; Q 24
24 Ch 8; Q 2 Ch 8; Q 6
25 Ch 8; Q 7 Ch 7; Q 12
26 Ch 8; Q 11 Ch 8; Q 10
27 Ch 9; Q 2 Ch 9; Q 6
28 Ch 9; Q 10 Ch 9; Q 12
29 Ch 9; Q 16 Ch 9; Q 18
30 Ch 9; Q 11 Ch 9; Q 17
31 Ch 10; Q 9 Ch 10; Q 2
32 Ch 10; Q 18 Ch 10; Q 16
33 Ch 10; Q 21 Ch 10; Q 25
34 Ch 11; Q 5 Ch 11; Q 4
35 Ch 11; Q 10 Ch 11; Q 7
36 Ch 11; Q 13 Ch 11; Q 9
37 Ch 11; Q 15 Ch 11; Q 12
38 Ch 11; Q 26 Ch 11; Q 27
39 Ch 12; Q 5 Ch 12; Q 2

40 Ch 12; Q 13 Ch 12; Q 12
41 Ch 13; Q 2 Ch 13; Q 5
42 Ch 13; Q 6 Ch 13; Q 9
43 Ch 13; Q 7 Ch 13; Q 12
44 Ch 13; Q 14 Ch 13; Q 16
45 Ch 13; Q 11 Ch 13; Q 8
46 Ch 14; Q 1 Ch 14; Q 3
47 Ch 14; Q 7 Ch 14; Q 10
48 Ch 14; Q 14 Ch 14; Q 15
49 Ch 14; Q 16 Ch 14; Q 4
50 Ch 14; Q 5 Ch 14; Q 12
ICAEW 2023 Appendix 183


ICAEW BTF Question Bank 2023

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The Institute of Chartered Accountants in England and Wales

1 Introduction to business 1 105

2 Managing a business 7 109

3 Organisational and business structures 13 113

4 Introduction to business strategy 19 119

5 Introduction to risk management 25 123

6 The ﬁnance function and ﬁnancial information 35 129

7 Business ﬁnance 43 135

8 The accountancy profession 51 141

9 Governance and ethics 55 145

10 Corporate governance 61 149

11 The economic environment of business and ﬁnance 67 153

12 External regulation of business 75 159

13 Data analysis 79 163

14 Developments in technology 85 167

15 Practice exam 91 171

Appendix: Mock Exam guidance notes 181

ICAEW 2023 Contents iii

iv Business, Technology and Finance ICAEW 2023

Professional skills focus: Assimilating and using information

Professional skills focus: Applying judgement

Professional skills focus: Concluding, recommending and communicating

ICAEW 2023 Introduction v

Option Proﬁt-oriented organisation Non-proﬁt oriented organisation

1 Output of goods/services Minimise costs

2 Output of goods/services Provision of goods/services

3 Maximisation of wealth Minimise costs

4 Maximisation of wealth Provision of goods/services

ICAEW 2023 1: Introduction to business 1

6 To establish whether a particular organisation should be classiﬁed as a business or not, it is necessary

9 A major airline, FlotAir plc, has been drawing up a mission statement.

2 Business, Technology and Finance ICAEW 2023

ICAEW 2023 1: Introduction to business 3

15 To what does the term ‘triple bottom line’ refer?

4 Business, Technology and Finance ICAEW 2023

ICAEW 2023 1: Introduction to business 5

ICAEW 2023 2: Managing a business 7

6 Which of the following managers is operating as a functional manager?

8 Business, Technology and Finance ICAEW 2023

ICAEW 2023 2: Managing a business 9

17 The main inﬂuences on a business’s pricing are:

20 What are the four elements of the procurement mix?

10 Business, Technology and Finance ICAEW 2023

ICAEW 2023 2: Managing a business 11

ICAEW 2023 3: Organisational and business structures 13

8 In terms of structure, Platlet plc is a wide, ﬂat organisation.

14 Business, Technology and Finance ICAEW 2023

10 Which three of the following are characteristics of limited companies?

ICAEW 2023 3: Organisational and business structures 15

16 Business, Technology and Finance ICAEW 2023

ICAEW 2023 3: Organisational and business structures 17

18 Business, Technology and Finance ICAEW 2023

ICAEW 2023 4: Introduction to business strategy 19

Option Encourages new entrants Erects a barrier to new entrants

1 High competition Low capital costs

2 A monopoly supplier of a vital High competition

3 One large customer A monopoly supplier of a vital

4 Low competition High capital costs

20 Business, Technology and Finance ICAEW 2023

ICAEW 2023 4: Introduction to business strategy 21