2016 CBI Study Guide - Questions and Answers - 16a

Study Guide
Questions and Answers

CONTEMPORARY BUSINESS ISSUES
Version 16a
ii | CONTEMPORARY BUSINESS ISSUES
Contents
Question 1.1 1
Question 1.2 2
Question 1.3 3
Question 1.4 4
Question 1.5 5
Question 1.6 6
Question 1.7 7
Question 1.8 8
Question 1.9 10
Question 1.10 11
Question 1.11 12
Question 2.1 14
Question 2.2 15
Question 2.3 16
Question 2.4 17
Question 2.5 18
Question 2.6 19
Question 2.7 20
Question 2.8 21
Question 2.9 23
Question 2.10 24
Question 2.11 25
Question 2.12 26
Question 2.13 27
Question 3.1 28
Question 3.2 30
Question 3.3 31
Question 3.4 32
Question 3.5 33
Question 3.6 34
Question 3.7 35
Question 3.8 36
Question 3.9 37
Question 3.10 39
Question 4.1 40
Question 4.2 41
Question 4.3 42
Question 4.4 43
Question 4.5 44
Question 4.6 45
Question 4.7 46
Question 4.8 47
Question 4.9 48
Question 4.10 49
Question 4.11 50
CONTENTS | iii
Question 4.12 51
Question 4.13 52
Question 4.14 53
Question 4.15 54
Question 4.16 55
Question 4.17 56
Question 4.18 58
Question 4.19 59
Question 5.1 60
Question 5.2 61
Question 5.3 63
Question 5.4 64
Question 5.5 65
Question 5.6 66
Question 5.7 67
Question 5.8 68
Question 5.9 69
Question 5.10 70
Question 6.1 71
Question 6.2 72
Question 6.3 73
Question 6.4 74
Question 6.5 75
Study Guide Questions and Answers | 1
Question 1.1
What types of assistance or advice could a professional accountant provide to improve productivity
for an organisation?
Professional accountants can provide assistance and advice for improving productivity, including:
Data capture Of both physical and monetary flows, to enable an accurate view of
current operations
Analysis Of both financial and non-financial information, to enable identification of

activity drivers
Performance measurement Includes establishing benchmarks and measuring progress towards goals
and targets
Process redesign By applying process improvement tools to identify inefficiencies and

bottlenecks, and reconfiguring activities
Resource control Through budgeting and forecasting, as well as by designing and

implementing internal controls
2 | CONTEMPORARY BUSINESS ISSUES
Question 1.2
For each of the characteristics listed in Table 1.1 (i.e. organisation, strategy, customer/community,
financial, governance, work force and IT processes), list one example of the type of strategic
advice that professional accountants may be able to provide.
There is a wide range of business advisory services that professional accountants may be able
to provide, including:
Organisation
• Legal structure (sole trader, partnership, trust, company)
• Succession planning
Strategy
• Business planning process, including linking budgets to organisational objectives
• External environment information and analysis
• Specific growth strategies (acquisition, joint venture, partnership)
• Performance measurement systems design, evaluation and implementation
Customer/Community
• Customer profitability and segmentation
• Sustainability improvements and reporting
Financial
• Capital structures and sources of funding
• Wealth maximisation strategies (dividends, buy-backs, reinvestment)
• Finance function (budgeting, payroll, accounts payable/receivable, inventory,
taxation, reporting)
• Costing and pricing, and leasing versus purchasing of assets
Governance
• Governance structures (board composition, committees)
• Independent director role
• Risk management and internal controls
Work force
• Organisational structures (in-house, outsource)
• Performance measures and links to remuneration
IT processes
• Management information systems (reviews, scoping, implementation, testing)
• Project management services
Question 1.3
Outline why professional accountants are well placed to provide strategic advisory services (outside
the traditional areas of cost accounting, financial accounting and taxation) to organisations.
Professional accountants, both internal and external to organisations, are well placed to provide
strategic advisory services to organisations for a number of reasons, including the following:
• The professional approach of the accountant—such as having a service ideal, honesty,
integrity and not acting in their own self-interest.
• The technical abilities of accountants are based on a systematic body of theory and
knowledge. They have gone through rigorous education and training, which provides a
base level of knowledge that leads to competence in delivery of services.
• Many technical skills are transferable—for example, the technical requirements of an
audit (including setting the scope, determining the approach to sampling, and obtaining
and reviewing data) are often similar, despite the reviewed data being of a different nature
(i.e. physical measures instead of financial measures).
• Accountants are often exposed to the whole of an organisation—finance, sales,
marketing, human resources, IT, legal, production, logistics and after-sales services.
This knowledge is invaluable when assessing the impact of potential decisions across
different parts of an organisation, as well as its industry supply chain.
• Accountants are often exposed to several industries, and similar problems that arise
in different organisations. The ability to transfer their knowledge of how similar problems
have been resolved elsewhere provides a valuable resource to clients who may have never
experienced such problems.
Question 1.4
‘The business advisory industry thrives during periods of business change and hardship’
(IFAC 2008, p. 26). Explain why this may be the case.
In periods of change and hardship, many organisations realise that they cannot continue
operating as they have done previously. Business models that worked in the good times
may not be relevant when times are tougher. Many organisations find that, in difficult times,
there are additional pressures from:
• shareholders—to continue generating sufficient returns;
• employees—to provide tolerable working conditions and guarantee security of work;
• suppliers—to increase/maintain orders and margins; and
• customers—who are buying less, and on reduced margins.
In addition, regulatory changes (e.g. new licensing regimes or new taxes) and changes in
community expectations (e.g. relating to the environment) can have a significant impact
on organisations.
Organisations may not have sufficient resources or expertise to solve the underlying issues,
or make the required changes, and so typically they request assistance from external sources.
By obtaining that expertise externally, both the adviser and the organisation should benefit.
Question 1.5
(a) Soft skills, especially communication skills, networking and the ability to manage relationships,
are extremely important to progress to senior roles in accounting and finance.
At the CFO level, how important do you think it is to be technically competent, compared
to having competence in managing the finance function? Explain your reasoning.
(b) A contemporary business and social issue is maintaining work–life balance. What risks does
an accountant providing strategic advice face in this area?
(c) In the CFO role, how important do you think it is to:
– know the organisation and the products/services it offers?
– be passionate about the products/services the organisation offers?
Explain your reasoning.
(a) There are two main ways of perceiving the CFO role. One is that it is a management role,
which oversees a technical function. The key skills involved would focus on managing a team
of people and difficult deadlines, making significant financial decisions and being able to
interact with internal and external stakeholders, including banks, regulators, shareholders,
consumers and employees. People and project management skills could be seen as being
equally important as technical competence.
However, the second (and more appropriate) view is that, in most situations, it is likely that
the CFO needs to be technically qualified. While the technical specialists within the function
would provide the technical skill, there is still a need for the CFO to be knowledgeable
and competent. A technical understanding of what is being performed by subordinates is
essential to managing the function properly. If you do not know what is expected of your
team in terms of technical requirements, time, and regulations, then it will be difficult for
you to understand and manage the area properly.
(b) Along with the benefits of acting in an advisory role, there are some potential pitfalls.
Hitting tight deadlines for important issues (and possibly across multiple clients) can lead
to difficulties in finding time and balance with non-work activities. Such deadlines were
traditionally compliance-based and reflected the end-of-month/year processes. Being locked
in well in advance, and being somewhat repetitive, plans could be made for these activities.
However, strategic advisory services can take place at any time through the course of the
year, and the volume or extent of the workload may not be as easily planned. Important areas
for consideration to maintain work–life balance include:
–– planning and booking leave in advance;
–– planning work schedules and work pipelines into the future;
–– maintaining a time log and reviewing hours worked to monitor fatigue;
–– not overcommitting (either with the number of clients or the number/size of
engagements); and
–– having access to temporary support services and backup personnel as needed.
(c) The CFO has a dual role of being a manager with technical expertise. The purely technical
role of ensuring the correct recording, reporting and communicating of results must be
combined with the broader manager role. Where the CFO is providing strategic advice as to
products, services, prices, organisational structure, business planning and overall strategy,
it is important for the CFO to be knowledgeable about the inner workings of the organisation
and be a proud supporter of the product offering. What may be more important than passion
for a specific product or service is that the needs of the customer are properly satisfied and
that the financial position of the organisation is strong and under control.
Question 1.6
(a) Refer back to Table 1.1. Outline four types of strategic advice that a professional accountant
could give to an enterprise in relation to its customers.
(b) Explain how that advice might differ depending on whether an accountant was advising a
small, medium or large enterprise.
(a) Potential opportunities for strategic advice in relation to customers include the following:
–– Customer profitability analysis—Using activity-based analysis to determine the full cost
of each customer (including cost of goods sold, sales time, customer service, delivery,
logistics and after-sales service). This can determine the real profit that is generated
by each customer, which can allow customers to be segmented into groups according
to profitability, and on how demanding they are on organisational resources (e.g. sales
personnel and after-sales service). The least-profitable customers can then be highlighted
and strategies for dealing with them can be created. These strategies may include
educating the customer on the costs incurred to service them and charging them for
the services provided (menu-based pricing).
–– Customer performance ratings and satisfaction—Developing reporting systems
that capture important measurements (such as delivery in full and on-time statistics),
which should help to influence customer satisfaction levels. Where ratings are not
satisfactory, strategies may be implemented to make improvements.
–– Customer pricing analysis—Advice may be provided based on analysis from tools
such as cost-volume-profit analysis and sales-mix analysis, which may be used to identify
the most suitable pricing structures and profitable mix of sales offering.
–– Customer needs analysis—Advice on providing products and services that customers
actually need or desire. This may involve survey generation, the use of focus groups,
or the use of social media to canvass customer feedback. It also links into other customer-
related areas of satisfaction and pricing analysis, such that product/service features can
be reviewed and priced appropriately to satisfy customers and so generate maximum
value for the organisation.
(b) The advice will probably vary, depending on the size of the organisation, for several reasons.
Table 1.1 identified the following stereotypical characteristics of different sized organisations.
Small enterprise Mid-sized enterprise Large enterprise
Customer/ • Few customers • Growth of customer • Large, international

community account for large part base customer base
of turnover • Moving away from • Success or failure of
• Close to their the direct proximity of the enterprise is felt
customers and their clients through the whole
customers’ business supply chain, the
plans employee base and
the wider community
Source: International Federation of Accountants (IFAC) 2008,

‘The crucial roles of professional accountants in business in mid-sized organisations’, IFAC Professional
Accountants in Business Committee, New York, September, pp. 52–4.
A smaller organisation may not have the computer systems, records or personnel to conduct
a detailed customer profitability analysis, performance measurement or scenario testing
using pricing and sales-mix tools. The advice may include support in setting up the systems
and putting processes into place to conduct this type of work.

Medium to larger-sized organisations are more likely to have accounting staff and systems
in place, so efforts may be more focused on fine-tuning systems, advising on current best
practice, and providing an independent review and verification of current methods.
Question 1.7
‘A business cannot achieve sustainability and profitability at the same time—one must always be
sacrificed for the other.’ Do you agree or disagree? Explain your answer.
The underlying suggestions in the question are:

• being sustainable incurs costs that reduce profitability; or
• a profit focus prevents attention from being given to matters outside cost minimisation and
profit maximisation; or
• at best, by pursuing both goals they will cancel each other out to deliver what is called a
zero‑sum game result—no improved profit and no improved sustainability.
However, this is not necessarily the case. For example, sustainable actions can grow profits,
especially as externalities become internal (e.g. carbon prices and Environment Protection
Agency (EPA) controls). Competitive advantage can be gained. Some customers only want to
buy from ethical/sustainable organisations and are often prepared to pay more for what they
see as a superior or ethical product. Similarly, some suppliers only want to deal with sustainable/
ethical purchasers, and some investors only want to invest with organisations that they perceive
as being more ethical, with the consequent possibility for reducing the costs of capital (this is
discussed in more detail in Module 4).
If you are interested in reading more about profit and sustainability, please read the story about
Ray Anderson and his experience with Interface (a carpet manufacturer):
http://www.greenbiz.com/blog/2009/10/05/ray-anderson-radical-industrialist.
Or, you could access his book entitled ‘Confessions of a radical industrialist’:
http://us.macmillan.com/confessionsofaradicalindustrialist/raycanderson.
Question 1.8
‘The IT snag’ (adapted from Sexton 2010).
In the face of a recent economic downturn, the board has requested that you, as the CFO, together
with the chief information officer (CIO), produce a business case for outsourcing the organisation’s
IT operations offshore. The CIO sees this as an opportunity to reduce costs significantly within
his business unit, which will help him to achieve his substantial end-of-year bonus. As the CFO,
you acknowledge that there is a possibility to reduce overheads associated with the IT operations
and, as a consequence, to increase profitability.
What ethical issues need to be considered in this situation?
(Adapted from Sexton 2010.)
There are many valid reasons to outsource business activities, including risk mitigation,
improved cost efficiency and access to technology and skilled staff that are not available in
your own organisation. Yet while outsourcing IT may reduce certain risks—such as continued
reliance on legacy systems—there are risks associated with having a third party provide the
services. These risks include failure to offer services to an appropriate standard (which could harm
the reputation of your business), possible breaches in security or an inability to comply with legal
and regulatory requirements. There are additional risks associated with the loss of control over
the information source and its security.
Apart from undertaking due diligence to ensure that any identified risks are addressed, it is
necessary to determine that the outsource provider has the appropriate experience and
expertise to handle your IT operations, that it is a viable and financially secure organisation
with good governance, and that the outsourcing arrangements are appropriate to your
business strategy. It is also important to ensure that you are engaging with an ethical service
provider whom you are able to trust with your organisation’s sensitive and confidential data.
It is essential that the board fully understands the corporation’s ethical obligations before any
decision is made to outsource IT offshore. As well, any decision needs to be in accordance with
stated corporate social responsibility policies and obligations.
As CFO and a member of a professional accounting body, you also have personal ethical
obligations as outlined in the Code. Although the Code does not specifically address
outsourcing, it does contain some fundamental ethical principles relevant to this situation.
Foremost is the principle of confidentiality. This requires members to refrain from disclosing
the organisation’s confidential information acquired as a result of professional and business
relationships to outsiders, without proper and specific authority from the client or employer.
This extends to refraining from using confidential information to your personal advantage or
to the advantage of third parties.
You need to ensure that the board specifically addresses the confidentiality issues that arise from
any outsourcing arrangement and that it formally documents its consideration of these issues,
together with the authority for any disclosure of confidential information.
The conceptual framework in the Code can also be applied in this situation:
(a) Identify threats to compliance with the fundamental principles: As the CIO has his annual
bonus hinging on this decision, there is an appearance that his objectivity is compromised.
This situation would therefore create a self-interest threat—that is, a ‘threat that a financial
or other interest will inappropriately influence the member‘s judgment or behaviour’
(APESB 2013b).
(b) Evaluate the significance of the threats identified: The CIO has the potential to earn a
‘substantial’ end-of-year bonus. Being in a decision-making position for the organisation,
and being a direct benefactor of the decision to outsource (as an individual employee),
suggests that the significance of the threat is high.
(c) Apply safeguards, when necessary, to eliminate the threats or reduce them to an
acceptable level: As the CIO has a conflict of interest in the outsourcing decision, it would
be prudent to seek external independent advice on the outsourcing option. This advice may
require an analysis of the outsourcing arrangement (the functionality of IT systems, pricing,
support, etc.), as well as any proposals received from other outsourcing providers.
It is important that the ethical dimension of any outsourcing decision is given the same weighting
as any financial considerations and that it is not obscured by perceived increases in profitability.
Question 1.9
‘Fair dealings’ (adapted from Sexton 2009).
As CFO you have been asked to develop a business plan to support a major restructure of your
organisation. The board is hesitant to approve such a major restructure, so you decide to conceal
the key assumptions contained in the business plan, as this would only confuse the board in its
decision-making. At the next board meeting, you intend to present your business plan. You are
hoping that no director questions you on the assumptions or limitations of the business plan,
and that the decision to restructure is approved.
If you proceed with this course of action, which fundamental ethical principle would you be most
likely to breach?
(Adapted from Sexton 2009.)
As CFO you have an obligation to act with integrity and therefore to being straightforward
and honest in professional and business relationships. Integrity also implies fair dealing and
truthfulness. Further, paragraph 110.2 of the Code requires that a member of CPA Australia:
shall not knowingly be associated with reports, returns, communications or other information
where they believe that the information:
a Contains a materially false or misleading statement;
b Contains statements or information furnished recklessly; or
c Omits or obscures information required to be included where such omission or obscurity
would be misleading.
It is therefore important that you fully disclose to the board any key assumptions and how they
were assessed, as well as highlighting any limitations in the business plan.
As a member in the business, you hold a senior position within your organisation. The more
senior the position, the greater will be the ability and opportunity to influence events, practices
and attitudes. It is therefore expected that you have a role in encouraging an ethics-based culture
in your organisation that emphasises the importance that senior management places on ethical
behaviour. Accordingly, you should not proceed with your planned actions and you will need to
consider your ethical obligations fully.
It is important for members always to act with integrity and to make sure that any report
or communication does not omit or obscure information which could render the report or
communication misleading.
Reports presented to the board by management, particularly those which accompany the
approval of significant transactions, should clearly state the scope of any expert opinions
used to support or reject a board decision, the underlying assumptions and any material risks
and limitations.
Note that the fundamental principles of ‘professional competence and due care’ and ‘professional
behaviour’ are likely to be breached in this scenario. However, the specific threat to the principle
of ‘integrity’ is more prevalent.
Question 1.10
Assume that you are a senior accountant in a construction organisation that undertakes large-
scale projects. In your role to date, you have learned a lot about the project management
staff. You know that they are predominantly highly professional engineers, who work quite
autonomously, and show a strong work ethic and a dedication to their job role.
Your organisation has recently deployed a knowledge sharing system and a telecommunications
infrastructure that can effectively support teleworking. The project managers have demonstrated
a strong commitment to the knowledge sharing system, and it has become a key part of their
collaborative working.
Your organisation is now considering the introduction of teleworking for project management
staff. You have been asked to provide advice on the likely costs, risks and benefits of this proposal.
What would be your main considerations?
Your advice should include that for the initiative to be successful, the technology used must cater
for the work that the project managers need to do. This will require an understanding of what
business systems they need to access to perform their work. As the project managers are using
the knowledge sharing system, this is a primary consideration.
You should advise that studies have demonstrated that telework promotes increased productivity
and work quality. Also, as the project managers have already demonstrated autonomy and a
strong work ethic, there is a low risk of any loss of efficiency with the introduction of teleworking
to this group.
With the introduction of teleworking, your organisation will be able to build and retain the trust
and confidence of its project managers, therefore improving staff engagement and retention.
To ensure delivery of the benefits of this service, management support will be critical. The staff
concerned should also be informed about monitoring their work–life balance, so as to avoid any
risk of burn out.
The costs of providing the relevant technology will include the provision of internet access and
communication tools such as mobile phones and email applications. The cost of the provision of
these services in remote locations must be included in the estimations.
Question 1.11
What alternative approaches would complexity theory suggest that may lead to a more effective
result in the case of QNH Ltd?
Possible approaches in the case of QNH Ltd include the following.
Approach Commentary
Encourage discussion Develop an environment to encourage more discussion between sales and
product staff. Strengthening internal relationships can have a marked effect
on business performance, and harnessing these relationships will develop
corporate social capital. This could be done by setting up meetings in an
informal environment where sales staff can ask direct questions of product
management. This may also provide an environment in which sales staff
may bring customers’ questions and feedback to the product managers.
Rewards and recognition Modify the remuneration schemes to reward sales staff for spending time
learning about products, and communicating customer feedback to product
staff, and reward product staff for communicating more effectively with sales
staff. This is one element of building a more innovative business culture.
Engage the product Engage both the product and sales staff in helping to develop solutions
and sales staff to the situation. This will lead to having staff who are more engaged.
More engaged staff will mean more engaged customers, and this can be
assessed using human sigma measuring and monitoring.
Use narrative techniques Narrative techniques can be used to uncover more details of the underlying
issues effectively. Sense-making can be used to develop shared understanding
and methods to resolve the issues.
Use the ‘most significant As solutions are developed, a tool such as the ‘most significant change’
change’ technique technique could be used to provide feedback on which techniques are
proving to be the most effective. This can be used to propagate success
stories back through the organisation to augment the successful change.
Reinforce corporate The disparity in goals between product and sales may lead to a situation
values of dysfunctional autonomy. To mitigate this, corporate values need to be
reinforced within both teams. It is expected that there will be a corporate
goal of earning revenue in order to gain profit and to maintain shareholder
value. To this end, the product team needs to develop products that sales can
sell; and sales need to sell products that will earn value. Involving both teams
in discussions on shared goals and values could improve the shared focus.
Try ‘safe to fail’ Rather than embarking on a costly major IT development to replace the legacy
experiments information system, you could try a number of safe-to-fail experiments for
alternative ways of getting new information out to sales. These may include:
• informal training sessions, facilitated by people with knowledge of both
the sales and technology fields;
• developing communities across sales and product for staff with similar
interests to promote informal questions and discussions; or
• using easily developed intranet sites or social media tools such
as blogging.
All of these low-cost solutions are quick to develop and to add to if they are
successful, and they can easily be closed down without major cost if they
are unsuccessful.
Approach Commentary
Bring in sales staff • Bring in sales staff who have an interest in improving the situation to work
with the product team for a fixed time, and to help to develop product
information in their own style of language. This feedback can be used
to develop templates for new product information documents. In the
same way, some product people may be able to spend time working
with sales staff or directly with customers, so that they can understand
the environment better and provide more relevant information.
Source: CPA Australia 2015.
There may be many more solutions. You might inspire innovative solutions from sales and product
staff by using the corporate equivalent of throwing a football or lighting the barbecue (see the
video ‘How to organise a children’s party’ referred to in the study guide). By working together,
they may come up with solutions that are unimaginable to the more senior staff who are removed
from the situation and who apply only traditional, ordered-systems thinking.
Question 2.1
What trends can be identified when comparing developed countries with the leading developing
countries (Brazil, Russia, India, China—often called BRIC)?
The BRIC countries all show significant growth in consumption over the last decade, with Russia
the lowest at 23.7 per cent and China the highest at 86.4 per cent. Brazil and India have had
significant growth rates in consumption (both around 50%).
Meanwhile, many developed countries have shown declines over the last decade. The United States
has reduced daily consumption by 5.7 per cent, with Germany and France reducing consumption
by 10.0 and 13.8 per cent respectively. The declines may be a result of lower growth due to
slow recovery from the GFC as well as the eurozone sovereign debt crisis, but they also reflect a
move away from oil to other fossil fuels, renewable energies and more energy-efficient activities.
Australia’s strong growth in consumption during the period (20.1%) was against the trend for
developed countries, and may be reflective of it remaining out of recession during the GFC.
Another interesting observation is that the US share of global consumption has fallen from
25 per cent in 2003 to 20 per cent in 2013. At the same time, China’s share has increased from
7 per cent to 12 per cent. This growth is reflective of both China’s massive population and its
growth in GDP over the corresponding period. It is also reflective of the United States’ shift
towards alternative fuels (e.g. natural gas).
Question 2.2
How might peak oil affect an accountant in business?
In a peak oil environment, an accountant would be expected to analyse the financial, operational
and environmental impacts on the business and proactively work to ensure the sustainable
future of the business.
For example, peak oil is of concern to an accountant in preparing forecasts of fuel expenditures
for staff cars, raw material input costs, production and manufacturing costs, and for distribution
of the organisation’s products. If the organisation’s products or services rely on oil, and supplies
become limited, this could severely restrict the ability of the organisation to operate. With limited
supply, the price of oil would be expected to rise, potentially causing the organisation to
become unprofitable.
In addition to forecasting, the accountant’s role would be to help prepare and position
the organisation to continue as a sustainable operation. This may include analysis and
recommendations on new energy-efficient investments, alternative energy sources or even
the development of new product/service lines.
Question 2.3
Do you think a nation’s agricultural industry should be protected from foreign competitors?
There is no correct answer to this question, but it is important to consider the merits of
the alternatives.
The pure economic argument of letting markets determine supply and demand would suggest
that if cheap produce can be obtained from more efficient and less costly markets, then this
should be permitted, and protection via tariffs, quotas and other trade barriers should not
be used. The main benefit is that consumers are provided with greater choice at lower cost.
They are then able to buy more goods and services with a certain level of disposable income.
However, this ignores several issues including ‘dumping’ of products (i.e. selling below cost,
or at artificially low prices due to foreign government support). When dumping occurs, local
industry can be permanently harmed as a result of distorted market behaviour at the source of
production. Another issue that must be carefully considered is food security. This is the need
for a nation to have enough infrastructure and farming capability to produce enough food
for its population in times of difficulty. Difficulties may include global drought, global price
increases that the local population cannot afford, and even disrupted supplies due to war.
Domestic producers are often powerful groups within countries and can use their political
power to lobby those in power to protect their incomes by ensuring foreign competitors face
greater barriers to entry.
Question 2.4
Do you think it is ethical for countries to outsource food production? In your answer, consider how
the property rights of minority interest groups should be dealt with.
From a purely commercial point of view there does not seem to be an ethical dilemma involved
in outsourcing food production. Some countries have very little land available for agriculture,
or their climate does not support efficient production. The ability to outsource food production
to low-cost nations that have greater areas of arable land appears sensible.
However, it is important to consider how negotiations are conducted, and who they are conducted
between. In many instances, governments negotiate directly with each other. Some governments
are very powerful and are willing to exert this power to extract deals that are very beneficial to
themselves, and can be quite detrimental to the other party. Corruption also creates a significant
risk. Governments have been known to sell or lease land that was held by minority groups without
any consultation. This may also lead to forced relocation, or forced labour without compensation.
Companies that are aware of these issues need to acknowledge the ethical implications of their
decisions with regards to the effect on local communities, as well as the commercial side of
the decision.
Question 2.5
Water stress refers to situations where there is not enough water to meet demand.
Read ‘Water: Facts and trends’, from the World Business Council for Sustainable Development
(WBCSD) (2009) at: http://www.wbcsd.org/Pages/EDocument/EDocumentDetails.aspx?ID=137.
Identify three things that organisations can do to alleviate water stress.
According to the World Business Council for Sustainable Development (2009), things organisations
can do to alleviate water stress include:
• measure and monitor water use to develop an understanding of consumption;
• recycle and reuse water to minimise consumption;
• reduce the pollutants and chemicals that enter the water supply, thereby lowering toxic
and other contaminants;
• engage with suppliers and customers to adopt best practices;
• develop new water treatment technologies; and
• enter into partnerships with local government and the scientific community
(WBCSD 2009, p. 13).
Question 2.6
Review Figure 2.5 and consider the following questions:
(a) What are the potential reasons for the small increase in domestic water use between low- and
middle-income countries and high-income countries?
(b) What are the causes of the vast differences in agricultural use?
(a) In Figure 2.5 we find that world domestic water use is 8 per cent, which increases to 11 per cent
for high-income countries. However, it is important to remember that this is just the percentage
comparison and does not reflect the total amount of water consumed by each person in
the high-income countries. The 11 per cent domestic use still represents a significantly
higher level of physical water consumption. However, because of the significant levels of
industrial and agricultural usage, the overall percentage has remained low. In high income
countries, the domestic use volume (and percentage) is likely to be higher due to better water
infrastructure, higher disposable incomes and less frugal use (e.g. watering gardens).
(b) The industries for low- and middle-income countries are still primarily agriculture-based.
Incomes tend to rise as countries move towards greater levels of industrialisation. It follows
that agricultural water use falls (as a percentage of total water use), while industrial water
use rises.
Question 2.7
How is biodiversity relevant to the financial services sector, in particular accounting firms, law firms,
financial planning firms and insurance firms? Outline the possible impacts.
Historically, the financial services sector has been seen as having a ‘low environmental impact’
given that it has little direct environmental impact—primarily, energy, water and paper for office
workers. As such, understanding the relevance of biodiversity, what it is and how it can affect the
sector, is often difficult.
However, indirectly, biodiversity is often of real relevance to the transactions or investments that
the sector is offering or advising on. Lenders, investment managers, insurers and advisory services
must understand biodiversity-related risks that might increase project costs and liabilities as well
as affect ability to secure a licence to operate in the future. Over the last decade or so, many of
these advisory services have included using scientific specialists as part of the service team or joint
venture arrangements to access the appropriate experts. These experts undertake an evaluation
of the transaction/investment and highlight compliance, reputation and environmental risks.
They then quantify these impacts financially and include them in the transaction (the figures are
generally not entirely accurate, as many impacts can only be estimated).
Since 1996, not-for-profit organisations and civil advocates have also become involved in
monitoring the activities of the finance sector and in particular the funding of large projects with
adverse social and environmental effects. In 2003 the Equator Principles were established by
the International Finance Corporation. The principles are a set of voluntary standards designed
to help banks identify and manage the social and environmental risks associated with directly
financing large infrastructure projects like dams, mining and pipelines. Eighty financial institutions
around the world have adopted the principles, covering over 70 per cent of global project
finance debt in emerging markets.
Since then, BankTrack (http://www.banktrack.org), a global network of civil society organisations

and individuals, has emerged. It tracks the operations of the private financial sector (commercial
banks, investors, insurance companies, pension funds) and publishes reports and campaigns
on what they consider unsustainable investments. In 2007, BankTrack listed the Australian
Gunns Pulp mill proposal for Tasmania on the grounds that it:
• resulted in the destruction of old growth forests and their ecosystem;
• posed possible health impacts to those living in the region; and
• resulted in a violation of human rights and because of its impacts on Aboriginal culture
and heritage.
BankTrack launched a global campaign against ANZ as the bank considered funding the
development. In May 2008, ANZ publicly announced that it would not fund the mill for
undisclosed reasons. Since then, the project has failed to secure funding. Although ANZ
did not disclose why it chose to not pursue the project, most certainly reputation and
biodiversity impacts played a significant role in the reduced financial viability of the transaction.
Since then, ANZ (n.d.) has publicly disclosed how it considers social and environmental
business lending decisions.
A more recent development is the Natural Capital Declaration (NCD), which is a finance sector
initiative to incorporate natural capital elements into decision-making. This includes applying
natural capital risks to the cost of capital of relevant projects and operations (‘natural capital’ is
discussed further in Module 4).
This analysis reveals the relevance and complexity of biodiversity issues within the financial
sector—whether for a bank directly funding a project, a superannuation fund investing in
the company undertaking the project or a legal firm advising on the transaction. Immediate
ecological impacts need to be considered, as well as community perceptions and possible
future political and regulatory changes.
Question 2.8
What is the current regulatory position of the government in your country regarding measures
for operating in a carbon-constrained economy?
Governments can respond with a carbon tax or ETS (also known as ‘cap and-trade’). The following
is a summary of the current position of some countries (at the time of writing):
• Australia. Effective 1 July 2012, the Australian Government introduced a carbon tax for
entities emitting over 25 000 tonnes of carbon dioxide equivalent greenhouse gases
(although the transport and agriculture industries were exempt). The carbon tax had an
initial fixed price of $23 per tonne, rising to $24.15 for the following financial year, and it was
then planned to transition into an ETS for the 2015 financial year. However, with a change
of government in 2013, the carbon pricing scheme was out of favour and the carbon tax
legislation was repealed with effect from 1 July 2014.
• Canada. At a federal level, a carbon tax was proposed in 2008. This proposal was to be a
revenue-neutral measure, with increased taxation on carbon being balanced by tax cuts for
individual citizens. The proposal is unlikely to be put to the vote due to a lack of support at
the national level. At the province level, British Columbia and Québec each have a carbon
tax. In 2008, Québec and Ontario agreed to collaborate on an inter-provincial cap-and-trade
system, although no such system has currently been launched.
• European Union. A proposal in the 1990s to initiate a carbon/energy tax was discarded after
strong industrial pressure. However, several countries took the initiative to apply a carbon
tax. For example, Denmark, Finland, Norway, Italy, the Netherlands and Slovenia applied a
household carbon tax that increases the cost of heating and electricity use. Other countries
with a carbon tax include Germany, Ireland, Italy, Switzerland and the United Kingdom,
although the various carbon tax schemes are not uniform across all sectors. In 2005,
the European Union Emissions Trading System was launched, providing a binding carbon
trading system on EU member states (with Norway, Iceland and Liechtenstein since joining).
The scheme sets a cap on the amount of certain greenhouse gases that can be emitted and
allows companies to trade allowances (e.g. to offset any emissions over the cap).
• New Zealand. Originally, New Zealand proposed a carbon tax, but due to a lack of
support the proposal was discarded in 2005. This proposal has since been replaced by
the Climate Change Response (Emissions Trading) Amendment Bill, and the Electricity
(Renewable Preference) Amendment Bill, which were passed into law on September 2008.
The legislation establishes the framework for the New Zealand Emissions Trading Scheme.
Further amendments to the legislation were made in 2009 and 2012.
• United States. The federal government has a long history of trying to pass laws related to
climate change. The first attempt was in 1993, when President Clinton proposed a tax on all
fuel sources, except for alternative-energy sources (e.g. wind, solar, geothermal). Some states,
such as California, are considering the imposition of carbon taxes. In 2009, the House of
Representatives voted to reduce carbon emissions by 17 per cent from 2005 levels in 2020
and 83 per cent in 2050, and to begin a national cap-and-trade scheme. Other measures
approved by the house will require power companies to produce 15 per cent of their
electricity from wind and solar energy. The White House views these energy reforms as part
of a job-creation program. In 2009, the Senate passed the Clean Energy Jobs and American
Powers Act. Some cities and counties in the United States have carbon taxes. For example,
Boulder, Colorado, passed the first municipal carbon tax in 2006 and renewed it in 2012.
Boulder residents can receive deductions on their energy bill for using renewable electricity
sources. Maryland’s Montgomery County and California’s Bay Area also have carbon taxes.
• Rest of the world. There are very limited efforts in other regions of the world. India has a
carbon tax. There are carbon tax proposals in some Asian countries, most notably Taiwan.
There are no carbon taxes proposed or in place in the Middle East, and no likelihood of any
movement in that direction in the near future. The only Central or South American country
with a carbon tax is Costa Rica, and only for hydrocarbon fuels.
Question 2.9
What would be some of the likely effects on business enterprises transitioning to and operating
in a carbon-constrained economy?
Most firms will have an initial transition cost to operate in a carbon-constrained business
environment. However, where an ETS or carbon tax is in place, costs are often offset by
bottom-line savings related to reducing GHG emissions, with the major savings being from
a drop in energy consumption. The savings will likely be compounded by rising energy
prices. Hence, carbon-constrained economy measures are likely to lower waste and increase
operational efficiency, raising long-term economic growth.
Proactive businesses that implement GHG-emissions measures early will gain a competitive
advantage through product differentiation, thereby increasing market share, reducing operating
costs and increasing profit margins. It is estimated that by 2050, markets for low-carbon
technologies could be worth at least USD 500 billion. Hence, a carbon-constrained economic
environment may provide an opportunity for innovative firms.
It is important to acknowledge that measures will certainly have a disproportionate effect on

certain individuals, firms and industries. For example, a carbon tax imposes a tariff at a fixed rate
independent of income. This would mean that low-income earners (firms or individuals) are taxed
at the same rate as high-income earners. A carbon tax may also be excessive for some social
groups, particularly rural residents and the elderly. Environmental and social campaigners argue
that whatever type of method is applied, it must have regard for:
• equity considerations;
• individual and household welfare;
• the transition of labour from high- to low-emissions industries; and
• the guarantee of energy security.
Substantial government funding is needed to sustain research, growth and the economic
exploitation of carbon-reducing technology, plant and equipment.
All firms will be exposed to increased supply chain pressure for low-emissions products and
services, which initially could be more costly. There is likely to be a substantial increase in
business input costs (e.g. electricity, water, gas, diesel, transport, waste services, packaging).
There is also likely to be consumer pressure for low-emission goods and services, resulting in
disparity between supply and demand. There will be a need to incorporate carbon accounting
into business planning and operational process.
Question 2.10
(a) How can reporting environmental performance be helpful to firms?
(b) Why use environmental KPIs?
(c) What are the three key principles in defining KPIs?
(a) Reporting on environmental performance will aid firms in several key ways.
• It provides firms with management information to help them exploit cost savings that
good environmental performance typically generates.
• It gives firms the opportunity to set out what they consider to be significant in their firm’s
environmental performance.
• It helps firms prepare for the future as they understand their costs.
(b) The KPIs are a measurement tool to help firms communicate and manage the links between
environmental and financial performance. Environmental KPIs are based on quantifiable
metrics that reflect the environmental performance of a business in the context of reaching
its wider goals and objectives. KPIs help firms implement strategies by linking various
levels of a firm (e.g. business units, departments, individuals) with clearly defined aims
and benchmarks.
Poor management of energy, natural resources or waste can harm performance. Hence,
failure to plan for a future in which environmental factors are likely to be significant may risk
the long-term value and potential of a business.
KPIs focus on ‘key’ measures. They provide the most important data for understanding the
factors that drive a business forward. Hence, KPIs lessen the need for lengthy reports on
a wide range of measures that may be less relevant.
(c) In addition to the general reporting principles, there are three key KPI principles.
1. KPIs should be measurable to facilitate action. ‘[F]or example, targets can be set to
reduce a particular emission if it is expressed in a quantitative term’.
2. A KPI must be relevant; that is, it should have a general narrative, explaining its aim and
impact. Each KPI is to explain the process undertaken, ‘the calculation methods and …
relevant assumptions’. Moreover, data linking environmental to financial performance
should be discussed.
3. The final KPI-specific principle is comparability. Firms are ‘to report data in a comparable
format, so [that] users of reports can assess the performance of a single company over
time and relative to its competitors … [KPIs] should be expressed in absolute terms
that cover the entire business for each period of reporting, and related to a normalising
factor’. Typical ‘normalising factors are turnover and production output’, but others
may be relevant—for instance, ‘companies with offices may normalise to floor space …
This allows stakeholders to know how much environmental impact firms have relative to
a given amount of goods and/or services produced’ (DEFRA 2006, pp. 16–17).
Question 2.11
What challenges does an age-diverse workforce present?
There are many potential challenges that an age-diverse workforce may present. They relate to
all age groups—from older workers feeling threatened by younger, potentially better educated
workers, to younger ones who feel resentment at older workers who ‘take up’ the positions to
which they aspire.
Age is just one aspect of diversity and often intersects with others. For example, age and gender
are often related issues for women, who may be perceived to have a lack of commitment to work
during their childbearing years (e.g. employers might fear that, having spent years training
female employees, they might leave to have children). This perception can restrict access to
promotion and opportunities. Despite decades of initiatives, women continue to earn less than
men and continue to be under-represented in senior positions. Flexible conditions to assist with
childcare can also create resentment from a variety of sources (e.g. from those who missed out
on such support and those who see it as favouring one group).
Question 2.12
Why might some employees have a negative perception about a corporate offshoring plan?
There are many reasons why an employee might have a negative perception about a corporate
offshore outsourcing plan. As mentioned in the study guide, CPA Australia members who judged
their offshoring to be successful noted that the support from internal employees in the finance
and accounting areas is deemed critical. This means addressing issues such as individuals being
anxious about a change in their or their fellow employees’ responsibilities as well as the security
of their jobs.
For reasons of security, patriotism or other, an employee may feel uncomfortable taking an
activity that was traditionally performed at ‘home’ and sending it overseas. An employee may
also have negative feelings about offshore outsourcing based on something they read in the
media or heard from someone in another organisation. For example, the most recent statistics,
from the National Secretary of the Finance Union in Australia, suggest that 6000 finance sector
jobs have been lost in Australia (Carter 2012).
There is a flip side to this in that negative perceptions may be held of Australia as a recipient of
offshore outsourcing plans. As also noted in the study guide, a number of Australian industry
bodies, including Invest Australia and the Australia Financial Centre Forum, have promoted
Australia as a location for the offshoring of analytics capabilities. Axiss Australia’s (2006) report
Australia as a Hub for Analytics Offshoring laid out the case for making Australia an analytics
hub for activities such as equity research, corporate finance, mergers and acquisitions,
corporate credit, structured finance, project finance, retail banking, strategic functions and
actuarial services.
Question 2.13
What potential costs are associated with the benefit of labour consolidation?
Labour consolidation is considered a primary benefit of offshore outsourcing, although there are
several associated costs of attempting to do the same thing in the same place. These costs include:
• making individuals redundant (e.g. pay, benefits);
• transitioning to a new location (e.g. rent, sales, set-up);
• transferring knowledge to new employees (e.g. through tacit and explicit knowledge
management processes); and
• creating the change (e.g. establishing and communicating new systems and processes).
Question 3.1
Review the ACFE’s (2014) report (http://www.acfe.com/rttn/docs/2014-report-to-nations.pdf)
and make brief notes in relation to the following questions. (Note: See the suggested figures in
the report for each question.)
(a) What is the effect on the loss ultimately suffered by the victim organisation of failing to
detect fraud early? (Figure 9)
(b) What proportion of detected frauds are detected by the external audit process? (Figure 11)
(c) What are the three most common means of fraud detection in your region? (Figure 16)
(d) What sectors suffered the highest rates of fraud? (Figure 22)
(e) What are the most common fraud types in your sector? (Figure 24)
(f) What initiatives do organisations rely on to prevent fraud? (Figure 26)
(g) How would you describe the ‘typical fraudster’? (Figures 40–76)
(h) What role does gender play in workplace fraud? (Figures 57–62 and 74)
You can also access an archive of the ‘Report to the Nations’ to gain a historical view of how fraud has
changed since 1996 (see: http://www.acfe.com/rttn-archive.aspx).
(a) Failing to detect fraud early has a dramatic impact on the total loss for organisations.
The longer the fraud continues, the greater the loss, as shown in Figure 9 in the ACFE report.
The implication of this is that a perpetrator of workplace fraud will continue to offend until
they are caught. For example (looking at Figure 9), the median fraud loss from incidents
picked up in less than seven months was only $50 000, while the median loss from incidents
picked up in 61 months or more was $965 000. It is interesting to note the linear progression
of the median loss between those extremes. As the report notes, ‘the longer frauds were
able to go undetected, the more costly they become’ (ACFE 2014, p. 16).
(b) External audit was involved in detecting only 3 per cent of detected fraud cases (i.e. not 3%
of cases that actuall y occur). This compares with 3.3 per cent in 2012 and 4.6 per cent in
2010. This contrasts with the expectation of some people in business that an external audit
will be effective in detecting fraud.
(c)
Table SA 3.1: Most common means of fraud detection in a selection of regions
Country/region Means of fraud detection
United States Tip, management review, internal audit
Sub-Saharan Africa Tip, management review, internal audit
Asia–Pacific Tip, management review, internal audit
Western Europe Tip, management review, internal audit
Eastern Europe and Western Central Asia Tip, management review, internal audit
Canada Tip, management review, accident/account reconciliation
Latin America and the Caribbean Tip, management review, internal audit
Southern Asia Tip, management review, internal audit
Middle East and North Africa Tip, management review, internal audit
It is interesting to note that, consistently across the world, the most commonly reported
means by which workplace fraud is detected is via ‘tips’.
(d) The sectors with the highest rate of detected internal fraud are banking and financial
services (17% of the total number of cases reported) followed by government and public
administration (10.3%). It is unsurprising that banking and financial services have a higher
rate of internally instigated fraud given the volume and accessibility of funds in that sector
relative to other sectors.
(e) You should consider the data applicable to your own industry sector; however, data for a
selection of sectors is provided in Table SA 3.2.
Table SA 3.2: Most common types of fraud in a selection of sectors
Sector Two most common types of fraud
Banking and Financial Services Corruption, cash on hand
Government and Public Administration Corruption, billing
Health Care Corruption, billing
Education Corruption, billing
Insurance Corruption, skimming
(f) The report found that organisations rely heavily on an external audit of financial statements
to identify fraud, with 81.4 per cent of organisations saying that this is one of their fraud
detection strategies. This is in contrast to the very low rate of fraud detection by the external
audit process. Other fraud detection strategies include having a code of conduct (77.4%) and
having an internal audit department. From Figure 26 in the ACFE report, it is clear that many
organisations have multiple strategies in place aimed at detecting workplace fraud.
(g) The survey does not provide the profile of a typical fraudster but we are able to build our own
profile based on the highest frequency of each of the available parameters, which shows:
–– male (66.8%);
–– aged 41 to 45 years (frequency rather than value) (18.1%);
–– employed in the accounting department (17.4%);
–– non-management employee (frequency) (42%);
–– 12 months to detect the fraud (for non-management employee);
–– acting alone (54.9%);
–– involved in corruption of billing (false invoicing) schemes (around 22% each);
–– in role for between one and five years (40.7%);
–– no prior criminal history (86.6%); and
–– exhibiting signs of living beyond their means (43.3%).
(h) Males are more commonly associated with workplace fraud incidents according to the
survey, with 66.8 per cent of offenders being male (this is consistent with the other Report
to the Nations surveys published in recent years). Representation of males in fraud cases
varies across different regions. Males also are responsible for a higher median value of loss,
which is in part due to a higher proportion of males who commit fraud being in management
or owner/executive positions. Males also exhibit different behavioural red flags than females,
with fewer males than females committing fraud because of financial difficulties.
Question 3.2
Please access the Australian Institute of Criminology report, Australian Crime: Facts &
Figures: 2013 (AIC 2014), available online at: http://aic.gov.au/publications/current%20series/
facts/1-20/2013.html.
Go to the section ‘Fraud and deception-related crime’ in Chapter 2 (located after Figure 27).
(a) Review Table 5. Has the reported rate of fraud been increasing or decreasing in the last
10 years?
(b) What factors do you think might be effecting a change in reporting rates?
(c) What proportion of detected fraud cases are reported to the police?
(a) The Australian Institute of Criminology table shows a steady decline in the rates of reported
fraud over the last 10 years, but for the first time since 2004–05, there was an increase in
reported rates in 2011–12. The survey notes that the increase in 2011–2012 may be due to
‘changes to counting rules rather than an increase in reported offences’ (AIC 2014, p. 35).
This decline over the last 10 years (other than 2011–12) is at odds with recent estimates and
surveys, which all talk about an increase in fraud not a decrease. It is arguable that the decline
in reporting rates is just that—a decline in the rate of fraud reported rather than a decline in
the number of cases.
(b) Depending on the jurisdiction, reporting fraud to the police or other law enforcement
agencies may not be mandatory. That leaves open the question of whether business is less
inclined to report such matters to law enforcement than it once was. Some of the reasons
why business crime victims may be inclined not to report business crimes to law enforcement
agencies are as follows:
–– a wish to avoid negative publicity;
–– a sense that the organisation has nothing to gain;
–– fears that the investigation will involve the organisation unduly in a protracted legal
proceeding; and
–– fears that criminal action against the perpetrator will adversely affect any civil
proceedings taken by the victim.
(c) The report notes that ‘Fraud is believed to be one of the most under-reported offences,
with fewer than 50 percent of incidents being reported to police or other authorities’
(AIC 2014, p. 34). This is similar to the data set out in the Report to the Nations on
Occupational Fraud and Abuse (ACFE 2014).
Question 3.3
What do you think the role of the forensic accountant would be in investigating bribery and
corruption in cases like AWB, Rio Tinto, Siemens and Securency?
The forensic accountant investigating a business crime, such as bribery and corruption,
is focused on capturing and analysing evidence. This will involve:
• searching for and capturing relevant evidence;
• identifying witnesses to interview;
• interviewing witnesses;
• analysing bank records (both in terms of potential payer and potential receivers
of bribe payments);
• reviewing electronic communications;
• reviewing social media to look for relationships between the various parties;
• preparing relationship charts;
• analysing all evidence (including the oral evidence of witnesses); and
• reporting.
Question 3.4
What controls or other initiatives could a business implement to reduce the risk of its staff or
agents becoming involved in corruption?
There are a number of controls and initiatives that organisations can take to counter the risks of
corruption:
• develop and implement a corruption control plan;
• develop and implement a communication program;
• enhance probity and contracting procedures;
• install a program of alternative avenues for reporting suspicions of corruption; and
• open channels of communication with customers, vendors and other third parties.
In relation to enhanced probity and contracting procedures, organisations should ensure that
they have a policy of rotation so that their personnel do not establish an improper association
with a supplier, customer or other business partner through an association that has continued for
too long.
Question 3.5
(a) What is the objective of money laundering?
(b) What sources of evidence would you consider in an investigation of money laundering activity?
(a) The objective of money laundering is to enable people with a beneficial interest in the
proceeds of criminal activity to enjoy the fruits of their criminal conduct while at the same
time satisfactorily accounting for the source of those funds to government investigation and
regulatory bodies. Without money laundering, the proceeds of large criminal activity would
not be available to the criminals who generated it as they would not be able to demonstrate
the legitimacy of the income.
(b) Investigations could include:

–– examining the bank records of the subject of the investigation;
–– examining the bank records of a business entity used as a vehicle to launder criminal
proceeds;
–– considering legitimate sources of income of the subject of the investigation; and
–– preparing an asset betterment statement (see later in this module) aimed at identifying
an increase in assets that cannot be accounted for by income from legitimate sources.
Question 3.6
You have been engaged by a company to investigate an alleged workplace fraud. The allegation
is that a member of staff has been diverting payments from a client to their own personal bank
account rather than depositing them into the company bank account.
(a) What documents would you request?
(b) What, if any, other sources of evidence would you seek to obtain?
(a) There would be a chain of records and documents held by the company, and which are the
property of the company, that can be sourced for analysis. These would include:
–– accounting records disclosing the services rendered and the subsequent billing history
of the company to the client(s); and
–– accounting records of payments received from the client company, including bank
statements of the company.
These internal company records can be analysed to find out, by careful reconciliation,
the correct level of billing to the client and the correct level of payments received—allowing
for an accurate calculation of any difference.
Assuming the client company is willing to assist in the investigation, that entity should
be able to provide copies of their records showing receipt of bills and their payments.
Matching these records would disclose funds:
–– yet to be paid;
–– paid and received; and
–– paid and not received by your client.
These records would normally be made available to the investigator on request.
It then may be necessary to seek a court order to obtain the banking records of the
employee. This may be possible in a situation where you are able to gather sufficient
evidence to present to a court.
(b) Other sources of evidence you may seek could be:

–– information gained through interviews with the staff member and other employees;
–– computer-based data from computers operated by the employee at your client company;
–– computer-based data from the computer of the employee (subject to a court order); and
–– telephone records held by the company for telephones used by the employee.
Question 3.7
Go to: http://www-03.ibm.com/software/products/en/analysts-notebook for further information
about the capability of the Analyst’s Notebook.
How do you think Analyst’s Notebook would assist in preparing a forensic accountant’s report
in a business crime investigation?
The Analyst’s Notebook software program would assist in preparing a forensic accountant’s
report in a business crime investigation by showing:
• relationships between individuals, corporations and other parties;
• timelines of events; and
• movement of funds between various relevant parties.
Question 3.8
Payroll fraud (involving the payment of salary and wages to a fictitious employee) will present a
different range of accounting anomalies to accounts payable fraud.
List three accounting anomalies that may be associated with payroll fraud.
Payroll fraud presents accounting anomalies such as:

• casual staff who have not worked for some time suddenly being included on the payroll;
• salary and wages for more than one employee being paid into a common account;
• alterations to time sheets or other payroll records to show more hours worked;
• alterations to hourly rates; and
• unusual claims for higher-duties allowances.
Horizontal analysis Vertical analysis
% Industry Diff. Ind. Diff. Ind.
Year 1 Year 2 Change Change average Av. Year 1 Av. Year 2
Profit and loss
Sales 250 000 100% 450 000 100% 200 000 80% 100% 0% 0%
Cost of goods sold 125 000 50% 300 000 67% 175 000 140% 42% 8% 25%
Gross margin 125 000 50% 150 000 33% 25 000 20% 58% –8% –25%
Operating expenses
Question 3.9
Selling expenses 50 000 20% 75 000 17% 25 000 50% 12% 8% 5%

Administration expenses 60 000 24% 100 000 22% 40 000 67% 18% 6% 4%
Net income 15 000 6% –25 000 –6% –40 000 –267% –28% –22% –34%
Balance sheet
Assets
Current assets
Cash 45 000 14% 15 000 4% –30 000 –67%
Accounts receivable 150 000 45% 200 000 47% 50 000 33%
Inventory 75 000 23% 150 000 35% 75 000 100%
Fixed assets (net) 60 000 18% 60 000 14% — 0%
Total 330 000 100% 425 000 100% 95 000 29%
Liabilities
Current liabilities
Accounts payable 95 000 29% 215 000 51% 120 000 126%
Non-current liabilities
Long-term debt 60 000 18% 60 000 14% — 0%
Equity
techniques, identify indicators of possible fraudulent activity for further investigation.
Issued capital—class A 25 000 8% 25 000 6% — 0%

Issued capital—class B 75 000 23% 75 000 18% — 0%
Retained earnings 75 000 23% 50 000 12% –25 000 –33%
Review the example data in the following table. Using both horizontal and vertical data analysis
Total 330 000 100% 425 000 100% 95 000 29%
Permission conveyed through Copyright Clearance Center, Inc.

and detection by Wells, Joseph T. 4th ed. 2013, Wiley & Sons, Hoboken, New Jersey, p. 379.
Source: Republished with permission of Wiley & Sons, from; Corporate fraud handbook: prevention
Study Guide Questions and Answers |
37
Horizontal analysis
• In Year 2 there has been an 80 per cent increase in sales—this would seem to be a dramatic
increase in sales volume in one year.
• At the same time, the cost of goods sold (COGS) has increased by 140 per cent—it would be
worthwhile making inquiries about why the increase in COGS is out of step with the increase
in sales (you would expect them to be similar).
This could indicate:

• understated sales volume;
• overstated sales volume;
• theft of inventory; or
• false invoicing (payment for inventory not received).
However, it could also be due to other non-integrity related matters—for example, a price
reduction in order to compete in the market or obsolete inventory being written off.
Vertical analysis
• Cost of goods as a ratio of sales volume is very high in this business for both Year 1
and Year 2 (50% and 67% respectively relative to an industry average of 42% of sales)—
this variation would need to be investigated and accounted for.
• Selling and administration expenses appear to be quite high relative to the industry average.
Vertical analysis shows unusual variations in COGS, which are worthy of further investigation.
The potential fraud types are the same as for the horizontal analysis. Higher than expected
selling and administration expenses as a proportion of sales could indicate manipulation,
such as false invoices for services associated with these functions. But again, there may be
other legitimate reasons for the apparent anomalies.
Question 3.10
Consider the procurement/accounts payable system of an organisation that you have dealt with.
List at least three fraud risks associated with that system.
Accounts payable/procurement fraud (otherwise referred to as false invoicing) is a commonly

encountered workplace fraud. It is important to consider the risks in all their variations to ensure
that an accurate assessment of the risks confronting the business can be achieved. So, for example,
when conducting a fraud risk assessment, the risk would not be limited to a generic ‘accounts
payable fraud’—it would need to include as many of the variations as listed below that apply to
the business under review.
• False invoicing—in collusion with a genuine supplier—generating an invoice for:

–– inventory not provided;
–– non-inventory goods or services not provided.
• False invoicing—someone masquerading as a genuine supplier—generating an invoice for:
• False invoicing—bogus supplier—generating an invoice for:
• Fraudulent undersupply of ordered inventory by the supplier.
• Corrupt relationship with suppliers:
–– inventory; and
–– non-inventory.
Question 4.1
Explain the issues with accounting for state-owned assets on a historical cash basis (which is often
done using a cash system rather than an accrual system).
Currently, accounting for state-owned asset sees many governments recognising these assets
at historical cost. Further, many governments make do with cash accounting rather than
accrual accounting.
Accounting for state-owned assets at historical cost has implications for the decision usefulness
of the balance sheet. This is because the historical cost of assets is merely a historical record of
the financial sacrifice made to acquire them. The historical cost, particularly if incurred long ago,
is not a relevant measure of the future economic benefits expected to be derived from using the
asset. In addition, it may not require the recognition of other assets controlled by governments—
for example, land under roads or mineral resources.
Using historical cost for state-owned assets may reduce the comparability of financial statements
where the statements include costs relating to assets acquired at different points in time.
Also, ratios would be distorted by the comparison of current income with a historical cost,
in light of changes in the purchasing power. In this regard, historical cost has been criticised on
the grounds that it aggregates costs incurred at different times as though they are equivalent
in economic terms. However, allowing for the time value of money, the presumption is open
to criticism.
The impact of cash accounting is that obligations are only accounted for when the bill is received
rather than when the obligation is incurred. This helps to disguise weak finances and also has
implications for the decision usefulness of the financial statements.
Question 4.2
(a) What are special purpose entities (SPEs)?
(b) How could an unconsolidated SPE be used to hide a fall in the value of investments?
(c) How might the application of IFRS 10 Consolidated Financial Statements change how SPEs
are accounted for?
Note: You are not required to have or to apply a detailed knowledge of IFRS 10 in answering
this question.
(a) Special purpose entities (SPEs) are legal or accounting entities that are treated as
separate from the reporting entity. For example, if a company establishes a limited
partnership to conduct part of its business and accounts for the partnership separately
from the company, then the partnership is an SPE. The business conducted through an
SPE usually has a different nature from the business of the main company. It is usually
narrow in focus. For example, a company might use a partnership to own an asset and
borrow money against that asset.
(b) If the assets and liabilities of the SPE are not included in the company’s consolidated
financial statements, it is ‘off-balance sheet’. If the assets owned by the SPE fell in value,
the decline would not be disclosed in the company’s financial statements. This lack of
disclosure is one advantage of SPEs for those who do not want others to know about a
fall in asset values or the existence of a liability.
(c) IFRS 10 Consolidated Financial Statements has a revised definition of control. Applying
the new definition requires significantly more judgment to determine whether an entity
should be consolidated. An entity needs to consider whether control exists, particularly
when the ownership interest is less than 50 per cent.
Further, it needs to assess whether the investor has the power to direct the activities of
the investee company in a way that significantly affects the financial returns generated.
Under the previous IAS 27 Consolidated and Separate Financial Statements the primary
test was whether the investor had the power to govern the financial and operating
policies of the investee.
The new requirements create a greater need to consider the entity’s holdings and rights
and other shareholders’ holdings and rights to determine whether the entity has the
necessary control.
Question 4.3
What gives rise to liquidity risk in the banking system?
A mismatch between the duration of deposits and loans gives rise to liquidity risk.
A substantial proportion of customer deposits are ‘at call’, which means that depositors may
withdraw their funds at any time without penalty. Loans are provided for a much longer duration;
for example, a mortgage may be advanced for 25 years or longer.
Liquidity risk is inherent in the banking business model, and managing this risk well is central to
the business of banking.
Question 4.4
What are the two main ways that a bank can manage liquidity risk?
There are a number of possible techniques for managing the liquidity risk, but the most
important two are:
• maintaining the trust that depositors have in the banking system in general and in
a given bank, so as to minimise the probability of a ‘bank run’ occurring. This requires
prudent management; and
• maintaining a sufficient base of available liquid funds to meet the daily obligations of the
bank. This level will vary, and banks estimate the level of reserve funds required based on
their particular circumstances.
Question 4.5
What were the key causes of the 2008 liquidity crisis?
There were several key causes of the liquidity crisis in 2008, which, in hindsight, can be identified
as building up during the preceding decade. These causes can be broadly grouped into the
following categories:
1. Dramatic loan growth beyond available core deposit funding, making the banking
system more vulnerable to shocks, that resulted from the following processes:
–– There was significant growth in demand for lending products, including among US
sub‑prime borrowers.
–– A significant proportion of bank funding was sourced via ‘nervous’ wholesale funding.
–– Banks engaged in the trade of complex structured products, which allowed them to
further expand their balance sheets and take on higher risks.
–– The perception existed that banks’ assets, such as securitised mortgages, were liquid
and that high-quality assets were reinforced by robust credit ratings (which later proved
to be overly optimistic).
2. Financial institutions holding insufficient capital and inadequate liquidity buffers:

–– This became apparent with the benefit of hindsight.
3. Inadequate risk management practices:

–– Corporate governance, market transparency and quality of supervision were found to be
lacking, in hindsight.
–– In particular, the focus of risk management had been firm-specific, and there was a lack of
appreciation of how a system-wide shock would play out under stress.
Question 4.6
What were the causes of the eurozone sovereign debt crisis?
The eurozone sovereign debt crisis was caused by significant ongoing budget deficits and a
build-up of very high debt levels by a number of governments in the eurozone.
The average level of debt as a percentage of GDP in the eurozone reached 79 per cent in 2009.
Even before the Global Financial Crisis, debt levels were already high, with the average level of
debt as a percentage of GDP in the eurozone at 68 per cent, which is 8 per cent higher than the
maximum level of 60 per cent stipulated by the EU agreement.
No actions were taken against EU member states that breached agreed debt ceilings, and a
number of EU member states took advantage of this to finance their ongoing expenditure with
debt, which was relatively cheap at the time.
The build-up of high debt levels was caused by consistent budget deficits (the difference
between a government’s tax receipts and its spending). This meant that should a government
lose access to cheap debt, it would need to take drastic measures to cut its expenditure,
or increase taxes, to be able to balance its budget.
A number of EU members became very vulnerable to financial shocks. The high debt levels
and high budget deficits meant that a sudden increase in interest costs would place significant
additional burden on those countries, and loss of access to reasonably priced debt would
expose governments to bankruptcy risk (i.e. an inability to meet their payment obligations).
This is what happened to Greece and a number of other countries in the eurozone.
Question 4.7
Why did the revision of the Greek budget deficit trigger the sovereign debt crisis?
While there is no one correct answer to this question, the following is a reasonable hypothesis:
• Greece was the EU country most vulnerable to financial shocks, as it had the highest
level of debt as a percentage of GDP and consistently ran very high current account and
budget deficits.
• When Greece revised its budget deficit estimate for 2009 from 6 per cent to 12.7 per cent,
it undermined the credibility of Greek economic forecasting and reduced investor confidence
in the Greek economy. Investors started to question whether Greece’s budget deficit was
likely to be revised up again later, whether Greece’s debt-funding model was sustainable
and whether other countries would also revise their budget deficits and experience debt
refinancing issues.
• Risk premiums on Greek and other European government bonds increased, increasing the
likelihood of Greece and a number of other EU members defaulting on their debt and
creating a vicious cycle.
Question 4.8
What is ‘contagion’ in the context of the eurozone sovereign debt crisis?
‘Contagion’ in the context of the eurozone sovereign debt crisis refers to the financial shocks that
initially affected Greece and then proceeded to affect other economies in one or more of the
following ways:
• increase in the perceived likelihood of a financial crisis
• correlated increase in asset-price volatility
• correlations in asset-price movements that were not driven by fundamentals, but rather by
perception of risk and changes in risk.
Question 4.9
How could stronger regulations in banking and accounting lead to increased international
protectionism?
Regulations relating to banking and accounting could disadvantage less-developed countries

because their financial institutions and companies are less able to meet the international
standards. For example, less-developed countries could have smaller economies as well as
a smaller proportion of their economies run by large businesses. Smaller businesses are less
likely to issue shares to the public, and therefore, share markets are smaller and less developed.
In addition, less developed countries are unlikely to have laws that offer much protection
for investors if a company in which they invested does not abide by the disclosure rules in
accounting standards.
In addition, economies in less-developed countries could be more adversely affected when

companies in other countries take action to meet the new regulations (e.g. by selling assets
in the poorer countries or withdrawing their investments from companies in those countries).
Question 4.10
It is claimed that Islamic finance is an ethical alternative to traditional finance practices. Reflect on
the nature of this alternative and discuss how it differs from other ethical alternatives.
Ethical finance refers to any financing structure that is based upon non-financial criteria that
incorporate a social or a religious dimension. Conventional ethical finance mainly focuses
on excluding investments in ‘harmful’ industries (e.g. tobacco, weapons and environment-
polluting industries). It also promotes the proactive search for welfare-enhancing investments.
(See, for example: https://www.australianethical.com.au/what-is-ethical-investment/.) As a matter
of principle, Islam also bans investment in industries that might harm a society, as discussed in
‘A ban on investing in harmful business activities’ in the ‘What is Islamic banking?’ section.
This is where Islamic finance shares space with other ethical finance. Islamic finance, however,
differs from other ethical alternatives in that:
(i) Islam’s universe of banned industries is relatively larger than other forms of ethical finance;
it includes industries, such as the entertainment industry, that might not be considered
harmful by other ethical alternatives; and
(ii) Islam’s ethical concerns extend to contractual relationships underlying business exchanges,
as evident from the prohibition of riba and gharar (as discussed in ‘What is Islamic banking?’).
Question 4.11
(a) What are some of the disadvantages of operating leases and how could they be overcome
in a sharia-compliant manner?
(b) Conventional accounting practices mostly rely on interest-based financing. Islamic finance
shifts the focus to asset-based financing. Do you think Islamic finance products require a
different accounting treatment to interest-based products?
(a) The ownership of the asset in an operating lease remains with the lessor (bank), and at the
end of the lease period the bank may then lease the asset to another customer or sell it in a
secondary market. It might be difficult to do so when the asset is not in good shape or when
there is no active secondary market for certain specialised equipment. One way to deal with
the problem is to set the lease period equal to the economic life of the asset. The asset
in this case is given to the lessee as a gift or sold at a minimal price at maturity, as in the
contract of ijara muntahia bitamleek or AITAB. Another sharia-compliant alternative is to use
the diminishing musharaka structure where the lessee gradually purchases units of the assets
until she or he completely owns the asset.
(b) Asset-based financing is by nature different from interest or debt-based financing, as it

underlies a different risk structure. This obviously implies that, from an accounting point of
view, assets and liabilities need to be treated differently. Islamic banks, for example, do not
guarantee safe return of the principal amount, as holders of these accounts share in the profit
or loss. Conventional banks on the other hand guarantee the principal amount along with
interest payment. Similarly, conventional home financing is simply an interest-based loan,
whereas Islamic home financing on a diminishing partnership basis, for example, represents
diminishing ownership in the asset, which is subject to price risk. These differences in risk
structures therefore require different accounting treatments.
There is agreement among advocates and practitioners of Islamic finance that it is not
appropriate to use accounting standards and guidelines issued by conventional bodies,
such as the IASB, for Islamic finance products without appropriate adjustments. This is seen as
an important step towards adequate comparability and transparency of financial statements,
and proper presentation and disclosure to reflect the true nature of how Islamic financial
institutions (IFIs) operate. These adjustments are done by the Accounting and Auditing
Organisation for Islamic Financial Institutions (AAOIFI), which was established in 1991 with a
mandate to issue sharia accounting and auditing standards that are voluntarily adopted by IFIs.
Question 4.12
Describe how the disclosures in an integrated report show the flow and transformation of capitals
through the organisation.
Disclosures in the integrated report show the flow and transformation of capitals through the
organisation. Every organisation requires one or more of the capitals as inputs to its business
model. These capitals are then consumed or transformed by activities that produce a range
of outputs. Whether these outputs create or destroy value depends upon the outcomes they
generate. For instance, manufacturing a product that appeals to customers will create demand
and generate revenue; whether that demand is profitable depends on the market price that
the product can command and the cost structure in the entire supply chain. In the longer term,
factors such as customer satisfaction, innovation, organisational reputation, ethical business
activities and environmental impact are all likely to affect aspects such as brand loyalty and the
value-creating proposition of the organisation.
Question 4.13
What is the difference between a sustainability report and an integrated report?
The difference between sustainability reports and integrated reports is their scope. An integrated
report attempts to link an organisation’s sustainability report with its financial report and,
therefore, has a greater scope than a sustainability report.
Some organisations publish only financial reports (as required by the relevant regulations in their
jurisdiction), while others publish a financial report plus a sustainability report. Sustainability
reports show an organisation’s economic, environmental and social impacts.
Sustainability reports can be prepared by organisations according to any set of principles

because there are no mandated standards such as those that govern financial reporting.
However, sustainability reports based on the GRI reporting framework (the most commonly
used reporting framework for sustainability reports) disclose outcomes and results according to
a set of principles governing the content of the report.
A third way of reporting adopted by some organisations is to integrate both the financial
and sustainability reports through the organisation’s business strategy and model. This helps
organisations more fully explain the risks and opportunities they face and how they are planning to
deal with those risks and opportunities. The IIRC’s IR framework (discussed in this module) provides
details on some of the pathways that an organisation can use to prepare integrated reports.
Question 4.14
How could higher credibility on sustainability issues affect a business’s relations with staff
and customers?
It is argued that a business’s credibility on sustainability issues increases its ability to win and
retain customers. In addition to any direct effect of marketing a business’s green performance,
it is possible that a focus on sustainability could help a business increase its competitive
advantage through better risk identification and by recognising opportunities associated with
innovation and new environmentally friendly products. Although such product development
could be costly, increasing sales is also likely to increase profits. In turn, increasing profits could
help the business borrow at cheaper rates.
It is also possible that the business’s efforts to improve its sustainability performance will help it
to attract, motivate and retain staff.
Assessing risks and opportunities associated with sustainability issues could further lead to better
cost control through operational efficiencies and by avoiding waste, travel and regulatory costs.
Question 4.15
Why does the GRI believe that the GFC could have been averted, or less severe, with better
reporting?
The GRI believes that the causes of the GFC related to poor reporting by corporations.
The existing reporting system at the time was not transparent, which meant that external
stakeholders were unable to get a full and fair picture of a corporation’s performance beyond
that reported according to financial accounting rules. For example, the financial profit did not
give a full account of the organisation’s impact on the environment or society.
In addition, financial reports did not have a long-term perspective. Financial reports were
(and still are) based on historical performance. Although financial reports are usually
supplemented with a management discussion of the results, including some guide as to the
organisation’s future plans, this review is limited in scope and does not explain the expected
long-term impact on key indicators. As a result, financial reports were not seen to discharge
the organisation’s accountability to a broad group of stakeholders (beyond shareholders).
In addition, the GRI believes that the current system of voluntary sustainability reporting is not
sufficient because some of the organisations with the greatest impacts choose not to issue
sustainability reports. The GRI has called for integration of sustainability reporting with the global
financial regulatory framework, as evidenced by its support for the integrated reporting initiative.
Question 4.16
(a) What is a supply chain?
(b) Why would a company be interested in environmental information for other parties in its
supply chain?
(a) A supply chain extends from a natural resource, through its extraction and activities of all
suppliers, various phases of production and combination (including assembly) and through
storage in various geographical locations. It ends when the product or service is in the hands
of the consumer.
(b) Supply chains naturally connect different organisations that are involved at different phases
of the journey from raw material to consumer. The different organisations are connected
through the supply chain, but all are seeking to maximise their own performance and not
expose themselves to unnecessary risks. Organisations at the various phases of the supply
chain place demands upon one another and, therefore, seek information about each other’s
performance as it affects the relevant supply chain. If one organisation has the potential
to expose another organisation to environmental risks, the first organisation will seek
information about the other’s environmental performance. For example, if a miner is involved
in the extraction of the raw material used by a processor, the processor will be concerned
about any disruption to supply caused by changing legislation, environmental protests
or variable weather conditions. The processor could seek information about the miner’s
compliance with relevant legislation covering waste, for example. Further along the supply
chain, a retailer could be concerned about environmental information about food production.
Question 4.17
(a) Who will issue water reports under the water accounting standards?
(b) Who will use water reports and for what types of decisions?
(c) Is auditing of water reports necessary? If so, who will audit water reports?
(a) Water reports will be issued by water reporting entities. In particular the Statement of
Water Accounting Concept (SWAC) 1, para. 20, states that water reporting entities ‘may be
individuals, physical entities, organisations, or an organisation that has management
responsibility for a physical entity (e.g. a catchment water authority whose responsibility is
for the physical catchment)’. See also the discussion in paragraph 11 of SWAC 1.
(b) AWAS 1 states that water accounting should assist informed decision-making about the
allocation of resources. According to the Bureau of Meteorology.
The reports [GPWAR] will usually be prepared by water managers and will address the general
information needs of water users, water market investors, traders and brokers, environmental
organisations, auditors, financiers, local governments, researchers, planners and policy
formulators—who cannot normally gain this information directly from the organisations that
hold it.
GPWAR are designed to:
• provide information that is relevant, reliable, comparable and understandable
• inform users about how water resources have been sourced, managed, shared and used
during the reporting period
• enhance users’ confidence in their water-related investment decisions (Bureau of
Meteorology 2011a, p. 3).
Benefits to GPWAR preparers include:
• the opportunity to demonstrate stewardship of a public good
• meeting several reporting obligations in a single report
• potential to share reliable, assured information on water resources with stakeholders
(Bureau of Meteorology 2011a, p. 3).
Benefits to users of GPWAR include:
• access to information important to core business such as water rights, other claims to water
and obligations against that water
• enhanced relevance and comparability of information, through use of a standard
• reliability of information underpinned by an assurance process (Bureau of Meteorology
2011a, p. 3).
Therefore, users will use the information about water assets and liabilities, as well as inflows and
outflows, to assess water availability and the reliability of future supply for the following reasons:
–– to provide input to water trading models;
–– to judge the stewardship of water managers;
–– to monitor water resources and to formulate public policy or plan action to lobby
for change;
–– to study the effects of climate change; and
–– to inform government actions.
(c) Assurance of the water accounting reports is designed to add credibility to the reports and
give confidence to users. The Australian Auditing and Assurance Standards Board (AUASB)
and the WASB jointly issued the standards for assurance of water reports in 2014 (ISAE 3610/
AWAS 2).
It is possible for assurance engagements on GPWAR to be undertaken by practitioners from the
following backgrounds:
(a) There are professional accountants with specialist knowledge, training and experience in
assurance practices, particularly those who undertake financial report audits, who are capable
of performing engagements dealing with subject matters other than historical financial
information (such as engagements to provide assurance on GPWAR). When necessary,
professional accountants specialising in assurance can engage subject matter experts to assist
in parts of an engagement—, for example, to assist in verifying the appropriate application and
results of models. Standards exist to govern the use of experts by assurance practitioners.
(b) Alternatively, there are subject matter experts, including scientists, engineers, hydrologists
and professionals from backgrounds other than financial reporting, auditing and assurance,
who have expertise in the quantification of water volumes and water accounting. These
professionals could then, if necessary, acquire knowledge, skills and experience in assurance
processes, and engage appropriately skilled experts, to enable them to perform assurance
engagements on GPWAR.
Whatever their background, the lead assurance practitioners for engagements on GPWAR will
require skills in both assurance and water quantification and accounting or have access to expert
assistance, where necessary (AWAS 2, para. 17).
Question 4.18
Access the GRI G4 Sustainability Reporting Guidelines at: https://www.globalreporting.org/
resourcelibrary/GRIG4-Part1-Reporting-Principles-and-Standard-Disclosures.pdf.
List at least four natural capital elements that are provided for in the guidelines.
Under the environmental sustainability category of GRI G4, there are guidelines for the reporting
of the following items that relate to natural capital:
• materials;
• energy;
• water;
• biodiversity;
• emissions; and
• effluents and waste.
(It is also arguable that other items under the environmental sustainability category of the GRI G4
guidelines can be included, but the ones listed here are the most direct.)
Question 4.19
Based on the green accounting video interviews, consider the following questions.
(a) Compare current green accounting opportunities for the accounting profession with those
in the financial services area 10 years ago.
(b) How can understanding a product’s or business’s carbon footprint help management?
(c) In what way is green accounting a multidisciplinary service?
(d) Is green accounting a business or environmental issue?
(e) What skills and attributes are required for success in green accounting?
(a) The practitioners in the green accounting video interviews compare the current green
accounting opportunities to those facing the accounting profession 10 years ago, in the area
of financial services. They suggest that, 10 years ago, accountants failed to act in a timely
manner to ensure that financial services remained an exclusive service area for members
of the profession. In the current environment, there appears to be other professionals
(and non-professionals) who wish to enter the area of providing advice and assurance in
green accounting. Both reporting and assurance are traditional accounting functions in
which accountants have expertise and credibility. However, if the profession again reacts
slowly, accountants will see opportunities being taken by others. Not only will this mean
less business for accountants, but it could lead to a lower level of service. (For example,
witness the difficulties in the financial services area as unscrupulous billing practices and a
failure to provide impartial advice have dragged down the reputation of financial advisers.)
Accountants need to skill up to meet the demand for their services at the necessary level of
quality. Client retention is improved if accountants can provide these new services.
(b) Accountants should help clients understand their carbon footprint so they can see
opportunities to reduce waste and costs and to improve revenue. It could be argued that
in the future most businesses will have to account for their carbon in some way, regardless
of present legal obligations. Individually, accountants can help businesses reduce their
carbon footprint, as well as their fear and apathy about acting now. If people do not fully
understand their business and its costs, they cannot maximise profits.
(c) It is important to have the right people in a carbon assurance team, as well as auditors.
The audit team should include people who understand the greenhouse gas (GHG) emission
reporting regime and the industrial processes that generate emissions and consume energy.
Engineers and scientists, as well as legal expertise, are required. Difficult questions might
include whether reporting needs to be done on an entity or site basis. There is a need to
include more outside experts than for a usual financial engagement.
(d) Green accounting is not just an environmental issue—it has a business impact. Accountants
can help their clients understand how environmental issues will affect their business, deal with
the accompanying threats and grow their business. There are major strategic challenges.
(e) Required skills and attributes for green accounting include knowledge of the client’s business
and industry and knowledge of legislation and its impact on each client. Clients are looking
for services in carbon accounting, costing, carbon footprint calculation, systems to capture
and record emissions data, and verification. Engagement is usually run most successfully as
a collaborative approach between client management and auditors. Success is more likely
if a senior person in the practice is very interested in green accounting and auditing, and is
willing to drive the systems. The skill set in the practice must include audit experience,
including sampling and materiality, understanding of the nature of procedures required to
gain assurance and expertise in greenhouse gas emissions. Someone wanting to work in this
area should consider a course in carbon or green accounting.
Question 5.1
A non-executive director of Rio, an Australian company, was unhappy with a proposed deal
being considered by the board. After a majority of the board decided to adopt the proposal,
the director decided to resign from the board. Shareholders had previously been expecting him
to be elected chairman in the near future. As a result of his resignation, the company announced
to the Australian Securities Exchange merely that the director had ‘resigned from the board with
immediate effect and will therefore not take up the post of chairman of the board … as previously
planned’ (Main 2009).
Is this announcement appropriate in this case? How would you advise the board to announce
this resignation?
This was the text of the announcement made by Rio, an Australian company, on the resignation
of the director from the board on 9 February 2009. Main reported that the brevity of this
announcement left shareholders in a state of doubt and uncertainty:
In corporate terms, investors were standing outside the library and heard a loud bang and a thud.
They didn’t see the revolver. They knew who was in there and they knew the outcome but they
didn’t get any formal explanation (Main 2009).
This type of uncertainty can harm a company’s share price and reputation, because it conceals
what was going on in the boardroom at the time of the resignation.
In this case, the director made his own brief announcement shortly after the board
announcement, and two days later—after media speculation on the situation—the board
further announced that the departure was the result of a proposed takeover by Chinalco,
the Aluminium Corporation of China.
Rio could have saved these days of shareholder uncertainty by making a more complete
announcement in the first place, thus preventing potential loss to shareholders and damage to
the company’s reputation. It is incumbent on company directors to represent the interests of
shareholders. By not fully revealing the situation initially, the board may have lost the trust of
shareholders, which could cause continuing damage to their reputation and have a longer-term
impact on the value of the company.
Question 5.2
Consider the scenarios in Examples 5.2, 5.3 and 5.4. Which reputation drivers were triggered?
Which of these drivers do you believe had the most significant impact on corporate reputation
and why?
Example 5.2
The combination of reduced product quality, public statements critical of customers, and then
apologies perceived as insincere had a direct impact on reputation, and damaged sales and
company value.
Financial performance and profitability

Financial performance is not given as a driver for the loss of reputation—however, the resulting
11 per cent drop in company value would have further damaged the company’s reputation after
the initial damage.
Corporate governance and quality of management

The CEO stepping down, followed by the resignation of the founder, leaves stakeholders with an
impression of poor management quality. The recurrence of product quality problems also implies
that the original issues had not been adequately addressed by management.
Marketing, innovation and customer relations

One of the key drivers of the reputational damage was the poor customer relations situation.
The public announcement by the founder criticising customers was a major trigger point for the
loss of reputation. The delay in apologising further exacerbated this damage.
Transparency and trust

The product quality issues were an initial driver, as this reduced trust in the company. The company
was insufficiently transparent about these issues. The delay in making the apology to customers
could also be interpreted by stakeholders as a lack of transparency, and as violating customer trust.
Communications and crisis management, including social media

The overall poor communication was another key driver. The criticism of customers was a
grave error in communication, and the delay in the making the apology was also damaging.
The criticism created a crisis, and the response to this crisis was inadequate. A prompt apology,
followed by clear and consistent communication, could have reduced the impact of the
original event.
Top drivers
The top drivers triggered initially were transparency and trust, customer relations, communication
and crisis management.
Example 5.3
The initial luggage loss affected only one customer (from the information given), but the overall
impact on reputation was from the resulting social media activity.

A major driver here is in customer relations. If the customer problem was handled correctly and
promptly, the resultant issues may not have arisen.

The delay in response tends to imply a lack of transparency, and can also violate the trust in the
company on the part of any of the observers on Twitter.

The key driver was the poor management of the activity on Twitter. As stated in the text, a
prompt and helpful response may have avoided the reputational damage before it became a
major problem.
Top drivers
The top drivers triggered were customer relations, transparency and trust and crisis management.
Example 5.4
In this case, major reputational damage was averted by a prompt response.

The customer relations were well handled in this case. Potential major reputational damage
was averted.

The initial network failure could have initially caused some loss of trust. However, the prompt
response contained this.

The critical posts on Twitter could have created a negative public image (as in Example 5.3),
but, as discussed, the prompt response reflected good crisis management.
Employees and culture

The humorous tweets posted by staff in response to the critical and abusive tweets showed a very
positive culture in the company. This reflected an appropriate management style of trusting and
supporting the individual staff in responding in a personal way.
Top drivers
The potential top drivers here were trust, communications and crisis management, but good
crisis management prevented major reputational damage.
Question 5.3
Review the brand and tangible asset values in Table 5.1. In which industries are brand values the
highest relative to tangible assets? Why do you think that this is so?
Technology companies (Apple, Google, IBM, Microsoft, Samsung and Intel) dominate the list.
The organisations that control the top 10 brands in the world also control a significant level of
tangible assets. Some organisations, such as McDonald’s and Coca-Cola, have brand values that
exceed their tangible assets, although most organisations have brand values that are less than
their tangible assets. Of note are the brand values of General Electric and Toyota, which are less
than 10 per cent of their tangible asset values.
It is worth remembering that the brand values are based on a net present value calculation of the
future revenues, based on the strength of the brand. This means that they will not be recorded
as assets because they cannot be measured in a sufficiently reliable manner. These corporations
therefore have a very large amount of assets that are not formally reported, but that must still be
carefully managed and protected.
Question 5.4
(a) Identify three products that are protected by geographical indications of source.
(b) What is common in these products?
(a) Examples of products protected by geographical indications of source are:
Name Geographical location Type of product
Tequila Mexico Alcoholic spirits
Jaffa Israel Oranges
Bordeaux France Wines
Roquefort France Cheese
Parma Italy Ham
Noix de Grenoble France Nuts
(b) What all of these products have in common is that they are food and beverage products that
are named after the regions in which they were first developed. The geographical indication
of source helps to protect the growers and producers in these regions from competition from
other similar products that are made elsewhere in the world.
Question 5.5
Identify at least five franchise companies with which you are familiar. In which industries do they
operate? Why do you think franchising is more popular in some industries than in others?
Industry Example companies
Food service McDonald’s, Donut King,

Boost Juice, KFC, Baker’s
Delight, Wendys, Domino’s
Pizza, Ya Kun Kaya Toast,
PappaRich
Home maintenance and Jim’s Mowing, Jim’s

cleaning Cleaning, Poolwerx, VIP
Home services
Convenience stores 7-Eleven, United Petroleum
Hair and beauty Ella Baché, Hairhouse

Warehouse, Clara
International, Snips
Real estate RE/MAX, LJ Hooker, Greg

Hocking, Ray White, Elders
Real Estate
Financial services H&R Block, First Class

Capital, RAMS Home Loans
Franchises are popular in industries where the franchisees can be trained to do the work easily
(e.g. take-away food, home maintenance).
Other franchises are developed around franchisees who have a skill set but use the franchisor
to kick start their business by giving them customers, leads and systems to run the business,
for example, accounting or real-estate franchises.
Seek Commercial has a comprehensive listing of franchises and franchise categories that you can view
at: http://www.seekcommercial.com.au/franchises-licensing-distribution.
Question 5.6
Under what conditions is patent protection actually possible? Is it worth the time and effort?
Whether patent protection is possible or worth the time and effort will depend on the
circumstances. The ability to defend and enforce your rights successfully will be the key
determinant in making your decision. Other factors include the financial cost of protecting
and enforcing rights, and whether any moral obligations may compel an owner to seek justice.
The more planning that goes into identifying, recognising and protecting your organisation’s IP,
the more likely it is that you will be successfully protecting it and leveraging it in the future.
Question 5.7
How should David Belaga develop his idea of exporting The Right Stuff to Australia?
Candidates may present varying opinions on whether David Belaga should consider the
Australian market for The Right Stuff, all of which could be considered correct, depending on
how true the assumptions behind them are. However, there are some general pros and cons
regarding the Australian market.
Supporting the ‘yes’ perspective, the case highlights that the Australian market is in a different
hemisphere to the United States. The sports drink market is fairly cyclical, with the highest sales
in the summer months (in the United States, June to August) and the lowest sales in the winter
months (in the United States, December to February). Belaga could counter this low sales period
in the United States by seeking sales in Australia (and potentially other southern hemisphere
markets such as New Zealand and South Africa). Furthermore, the case highlights that Australians
have a generally high level of interest in sports, and those who have lived or travelled to Australia
will recognise that this is in spectatorship and in participation. Another reason to consider a
new market in Australia strongly is the shared language (English, although with some minor
differences) and openness in business culture.
Regarding the ‘no’ perspective, certainly one caveat that should be considered is that Australia’s
most popular sports are a little different from those with which Belaga is familiar in the US market.
Although not presented in the short vignette, in the United States, Belaga’s highest sales are in
(American) football, baseball, basketball, hockey and soccer. These sports are not as popular
in Australia, where cricket, Australian Rules Football, rugby union and rugby league dominate.
Thus, Belaga cannot depend on the same contacts and networks as in the United States
(e.g. with the major professional athletic teams) to translate to Australia. Furthermore,
there may be very few linkages across Australian and US teams at universities, sports clubs and
high schools. There are also few specialty sporting goods stores that operate in both the United
States and Australia; in both countries, this retail sector is dominated by small, independent
shops. And with respect to the third market of first responders (e.g. military, fire, emergency
medical services and police), again, these markets are fairly country specific.
Considering the potential for overall demand, certainly in view of Australia’s generally warm
(and sometimes very hot) weather, there is definitely a need for Australian-based athletes to stay
hydrated. Furthermore, Australians seem to have a willingness to try new products, including
those that are technology based.
On the downside, there are potential hurdles with respect to identifying a good manufacturer
and distributor, but these are not insurmountable. They would certainly require some
investigation of referrals, and development of processes to overcome the vast geographic
distance between the two countries.
Question 5.8
A client who wants to start his own app development business comes to you for advice on how
to fund it. What sources of financing would you advise your client to choose? Why?
While each entrepreneur may have unique circumstances affecting their decisions regarding
debt and equity financing, there are some general guidelines.
Questions you should ask the entrepreneur include:

• How much start-up capital is needed for the business?
• How much of their own cash do they have to invest in the business?
• What is the shortfall?
Strategically, the entrepreneur’s strategy should be to test their idea for the app in the market
as cheaply as possible to confirm that there is market demand for their idea before investing a lot
of time or money in building it.
Equity funding options

Because app development requires relatively low start-up capital and is risky until the
entrepreneur has proven that the app will sell, it will not be of interest to angel investors and
venture capitalists and is certainly not suitable for an IPO. The client may be able to find a friend
or family member who is willing to invest in the business and you should point out to them the
following considerations:
• they will give up ownership of a part of the business and therefore part of the profits;
• they should have a proper contractual agreement drawn up if they choose to use this funding
source; and
• partnerships of this type can cause problems in their relationship with the investor, and they
should manage the relationship carefully.
The cheapest source of equity funding for the entrepreneur is to use their own capital as much
as possible.
Debt funding options

Sources of debt funding available to the entrepreneur include:
• trade credit;
• hire purchase;
• bank loan against assets—for example, redraw from a housing loan;
• credit cards; and
• the entrepreneur may be eligible for a business loan.
You should make the client aware:

• that their cash flow will need to be sufficient to cover repayments, therefore they should
have done their due diligence to ensure they can meet these; and
• of the potential consequences of defaulting on repayments.
Question 5.9
Thinking back to the rat trap case previously discussed, in what ways can we measure the
value created?
The new trap provides a better quality of life to Irula rat catcher people on multiple fronts.
First, in terms of health, this hand-operated trap eliminates burns and there are no issues with
smoke inhalation. As the new trap is twice as efficient as the old trap, the catchers are successful
for about 95 per cent of the time, and thus they also double their income. This increased income
provides money for children’s schooling and family healthcare. Non-Irula people may then gain
greater respect for the Irula. Furthermore, as the new trap is easy to use, older men and widowed
or destitute women can also catch rats. The steel trap is impossible to break, thus saving on the
50 cent cost of a new pot purchase. The Irula take pride in their trap and work with greater ease,
comfort and happiness. The new trap is just $25 and thus very affordable.
As the rat trap case illustrates, there are multiple means of measuring value creation by social
ventures—and this can be financial and social—hence a double bottom line. At the financial
level, social ventures can be measured by the extent to which they are self-sustaining with respect
to profitability. The venture’s value should also be considered with respect to the degree to which
the target clients are served.
In the case of CDDP, the clients are the Irula people. And at an individual level for the
Irula people, there are improvements to health, economic position, education, happiness,
social status, technology access and other aspects of quality of life. In all cases, performance
can be measured on a continuum (e.g. with a precise scale, such as number of people served),
via a rating scale (e.g. ask people to rate the effectiveness of outcomes on a five-point scale) or a
binary scale (e.g. answers on a yes or no scale).
One example of social value calculation is the SROI developed by the REDF. SROI calculates the
blended value based on the enterprise value and the social purpose value:
Enterprise value (Value of sales – Cost of goods and services sold – Operating expenses) +
Social purpose value (Grants and gifts – Fundraising and grant writing costs + Social cost savings –
Social operating costs – Increases in taxes) – Debt carried by social enterprise
Question 5.10
In the last few years, the Grameen Bank has been established in the United States. Do you think
that the Grameen model will work well in a developed economy? What do you think are the
possible limitations?
Since 2008, Grameen America has assisted 1700 borrowers in New York City. Grameen America
has tried to replicate the model developed in Bangladesh, based on the following principles:
• a focus on supporting a microenterprise only, not personal finance;
• partnerships between local businesses that raise seed capital (minimum of $2 million) and a
bank that will host low-cost savings accounts for borrowers;
• all borrowers need to save as well as concurrently borrowing funds from Grameen America;
• Grameen America’s Basic Loan has a term of six months or one year. The interest rate is
15 per cent on a declining basis. There are no other fees. No collateral is required; and
• Grameen America requires prospective borrowers to form or join a group of five members
who meet weekly. These groups are organised into centres, with three to six groups to a
centre. Centres meet weekly in borrowers’ homes or at a local community centre.
Source: http://grameenamerica.org/faq.
Limitations
• Within US culture, not everyone will be comfortable about sharing their financial
circumstances with others.
• Only business loans are considered—not all low-income people have the capacity to
consider a business.
• Significant start-up funds are required.
Question 6.1
Describe the importance of non-verbal cues in the Cosminco communication initiative in
Example 6.1.
This communication program includes emails, a printed poster, a video and a phone service
for questions.
Because the management and the communications team are in Australia and the staff are located
around the world, the national cultures will vary across the company. Therefore, different cultural
styles and languages need to be taken into account.
In this case, the non-verbal communication effects will be as follows.
Kinesics
This may affect the video. The facial expressions and body movements of people in the video
will be visible. It may be necessary to restrict kinesics to those that can be universally interpreted
(e.g. a smile). Alternatively, different speakers could be used (preferably from a similar cultural
background) for countries where there may be a risk of misinterpretation. As another option,
the use of vision of people talking could be minimised.
This cultural cue will usually have less impact on any of the other media used, although it might
be relevant for images of people used in the poster.
Vocal qualities
Similar allowances could be made for vocal qualities on the video as those made for kinesics.
Again, this will not be as relevant to other media. The people answering any questions phoned
in may need to make some allowances in their conversations.
Proxemics
This will not apply, as no face-to-face communication is included in the plan.
Object language
This is also less relevant, although it might affect the display of cultural or ritual symbolism or
artefacts in the images in the video or the poster.
Time
This will not apply in this case.
Context
The script for the video may need to be more direct for some cultures and more implicit for
others. Accordingly, it may be best to film different versions of the video for some cultural
groups. More direct messages can be used in predominantly western cultures (such as
Germany and Switzerland), whereas less direct messages would be preferable in Eastern
cultures (including Asia and the Middle East).
Question 6.2
A company associated with Cosminco, the Inter-Oil Company of Germany, has discovered oil just
off the coast of China within Chinese maritime boundaries. In order to exploit this discovery,
Inter-Oil has formed a joint venture with the Chang Oil Cooperative of China. Both companies
have employees conversant in Chinese and German.
A knowledge-sharing community will be established comprising staff from both companies to
ensure that maximum benefits are gained from the knowledge and experience of each partner.
Briefly describe the cultural issues involved in this venture and explain whether they will positively or
negatively affect the knowledge sharing initiative.
This involves a joint venture between a German (individualist) culture and a Chinese (collectivist)
culture. Consequently, where individual staff conform to their national cultural ‘type’, there is the
potential for significant difficulties to occur:
• The individualist Germans may have difficulty transferring knowledge to the Chinese staff as
their cultural type tends to hoard knowledge rather than share it.
• Another cultural trait that may limit the Germans sharing knowledge is that their cultural
group more naturally tends to be competitive, whereas the Chinese are more likely to
sacrifice individual advantage for the benefit of the group. However, whether this collectivist
cultural trait leads the Chinese group to share knowledge will depend on who they consider
being part of the ‘group’—they may consider their own local office to be the group or they
may consider the company as a whole to be the group.
• The Germans also prefer to work with explicit knowledge, which may be easier to share,
but this is not the format that the Chinese culture prefers. On the other hand, the Chinese
culture is better at sharing tacit knowledge, but the German culture is less likely to accept
the preferred story-telling techniques that suit this style.
• The Germans also prefer theoretical analysis and an academic approach, which may cause
a barrier to the Chinese, who may take a more practical approach.
Question 6.3
You have commenced a new job working as a senior accountant in Cosminco, the global mining
services company introduced in Example 6.1.
There is a planned change to financial procedures, which will require project managers to revise
their approach to calculating project budgets. You have been put in charge of explaining the new
process to the project managers globally. The project managers are highly qualified engineers,
but have little training in accounting. They mostly work in remote areas around the world, but are
all fluent in English.
The communications team has been asked to assist you, but the team is currently short-staffed,
and the only internal communications team member in your office has been temporarily seconded
to another department to help with preparing the annual report.
You will need to plan the communication and develop some written material that will explain
the new procedures. To ensure that the message is fully understood, you realise that you need
to develop an understanding of your target audiences and ensure that the message is worded
and delivered in a way that each audience will understand and act on.
What are some actions you could take to achieve this?
Some actions you could take are as follows:

• Talk to one or more of the project managers by phone and ask questions about their job
roles—find out how they normally go about their own personal development in their area of
expertise and ascertain how they normally prefer to receive information.
• Ask one or more of the project managers to explain their current budget procedures to you.
This will provide clues about the language they are familiar with in their work.
• Look for copies of material written by project managers, preferably dealing with their current
project budgeting or any other financial aspects of their work. This will also give clues about
the language they are familiar with.
• One ideal way to familiarise yourself with the project managers’ work environment would
be to spend some time with a project manager in his or her normal day-to-day work.
An alternative approach would be to arrange for a project manager to spend some time
with you at the head office, should any of them be planning trips there.
• Another means of understanding their work environment may be to conduct regular video
conferences with some of the project managers over a few days. An alternative may be
to arrange for a project manager to carry around a video camera or voice recorder and keep
a log of their activity over a number of days.
• Find out from the relevant local management or human resources department what
form of key performance indicators or rewards and recognition programs may apply to
the project managers. This will assist in how you pitch the message and determine any
potential linkages to these programs to encourage take-up of the message.
Other considerations when composing the message include:

• Arrange for a pilot group of project managers to read and edit the message before
transmission to ensure that it is worded in a way that will communicate clearly to the
whole audience.
• Check on the forms of media normally used to communicate with this audience and their
effectiveness, and choose the most appropriate.
• It will be appropriate for the communication to be written in English as you have already
been advised that this is the predominant language of this group.
• As you have no existing relationship with the group, you could locate an appropriate
authority figure in the organisation that the group already knows and respects to sign off
your message or present it to the group.
Question 6.4
Continuing with your senior accounting role at Cosminco, a brief regular monthly communication
program is to be developed to keep the global project managers up to date on further changes
to project financing over the next six to nine months. The communications team has decided that
this would be an appropriate opportunity to pilot the use of social media within the company.
Which of the forms of social media discussed so far may be suitable for this purpose and why?
A suitable tool to use would be podcasting or vodcasting (videocasting). These are ideal for a
global audience as the participants can access the sessions at times that suit their local time zones
and work shifts. Videocasting would provide the benefit of allowing the use of visuals, which would
be an advantage over audio podcasts, where details about how to fill out on-screen forms or other
activities associated with the tasks being explained may need to be provided.
As company-specific financial details may be discussed, an open public forum such as YouTube
would not be suitable—an internal or secure external platform would be more appropriate.
The project managers could be alerted by email when new episodes are made available; however,
as the sessions may be critical to business operation, a more direct form of notification might be
preferred, such as mobile phone SMS messages (for sites located within mobile coverage areas).
It would also be desirable to provide project management staff with the means to contact the
finance team to ask questions or clarify issues. Due to time zone differences, this might not always
be done in real time. A blog could be used for this purpose in conjunction with podcasting or
videocasting to allow for both questions and answers to be posted directly online.
An additional tool such as microblogging or an online community could be used for this function,
but this may add unnecessary complication and the cost may not be justified if the tool is only
going to be used for a limited time period.
Question 6.5
The offices of Cosminco around the world operate somewhat independently of one another,
with rather ad hoc arrangements for transferring information. A proposal has been put forward
to establish an intranet for the company, with provision for a knowledge sharing system.
A Cosminco project manager with some IT experience in a previous job role has started work
on researching the technology that could be used. You have been asked to put together some
costings for the proposal.
What would be some of your main considerations for this project and what suggestions might
you make to the project manager for optimising the investment required for the intranet?
A wide area network (WAN) will need to be established between the sites, with local area
networks (LANs) within each site (if not already existing). Some of the considerations for the
project would be as follows:
• Establish appropriate internet connectivity for staff to access public internet services.
This would also include allowances for any relevant security technology.
• A determination would need to be made of the bandwidth needed for each network
connection, based on the expected traffic requirements. These requirements would vary,
depending on the use of email, file transfer, voice, video or other network services.
• Allowances would need to be made for any extranet connections to external parties such
as suppliers, business partners or customers, with relevant security systems.
• Remote access through VPNs should also be considered, in particular where staff may be
working in the field or while travelling. This will need appropriate security and may require
particular provisions where these staff need to access the knowledge-sharing system.
This should also support access from mobile devices.
• Consider the main functions for the intranet. Will it be used for content only or will it include
communication, collaboration and activity?
• Determine how much of the required functionality can be provided by ‘cloud computing’.
Balance cost savings and flexibility against any criticality of the function and additional
service management and governance requirements. Compare the total cost of ownership
(TCO) of an equivalent in-house infrastructure.
• Determine relevant solutions for the knowledge-sharing system, taking into account the
culture and needs of the staff that will be using it. Include all potential stakeholders in
the process of developing and implementing the solution.

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Questions and Answers

Analysis Of both financial and non-financial information, to enable identification of

Process redesign By applying process improvement tools to identify inefficiencies and

Resource control Through budgeting and forecasting, as well as by designing and

Small enterprise Mid-sized enterprise Large enterprise

Customer/ • Few customers • Growth of customer • Large, international

Source: International Federation of Accountants (IFAC) 2008,

The underlying suggestions in the question are:

(Adapted from Sexton 2010.)

(Adapted from Sexton 2009.)

Possible approaches in the case of QNH Ltd include the following.

Source: CPA Australia 2015.

Since then, BankTrack (http://www.banktrack.org), a global network of civil society organisations

It is important to acknowledge that measures will certainly have a disproportionate effect on

Country/region Means of fraud detection

United States Tip, management review, internal audit

Sub-Saharan Africa Tip, management review, internal audit

Asia–Pacific Tip, management review, internal audit

Western Europe Tip, management review, internal audit

Canada Tip, management review, accident/account reconciliation

Southern Asia Tip, management review, internal audit

Table SA 3.2: Most common types of fraud in a selection of sectors

Sector Two most common types of fraud

Banking and Financial Services Corruption, cash on hand

Government and Public Administration Corruption, billing

Health Care Corruption, billing

Education Corruption, billing

Insurance Corruption, skimming

(b) Investigations could include:

These records would normally be made available to the investigator on request.

(b) Other sources of evidence you may seek could be:

Payroll fraud presents accounting anomalies such as:

Selling expenses 50 000 20% 75 000 17% 25 000 50% 12% 8% 5%

Total 330 000 100% 425 000 100% 95 000 29%

Issued capital—class A 25 000 8% 25 000 6% — 0%

Total 330 000 100% 425 000 100% 95 000 29%

Permission conveyed through Copyright Clearance Center, Inc.

This could indicate:

Accounts payable/procurement fraud (otherwise referred to as false invoicing) is a commonly

• False invoicing—in collusion with a genuine supplier—generating an invoice for:

2. Financial institutions holding insufficient capital and inadequate liquidity buffers:

3. Inadequate risk management practices:

Regulations relating to banking and accounting could disadvantage less-developed countries

In addition, economies in less-developed countries could be more adversely affected when

(b) Asset-based financing is by nature different from interest or debt-based financing, as it

Sustainability reports can be prepared by organisations according to any set of principles

Financial performance and profitability

Corporate governance and quality of management

Marketing, innovation and customer relations

Transparency and trust

Communications and crisis management, including social media

Marketing, innovation and customer relations

Transparency and trust

Communications and crisis management, including social media

Marketing, innovation and customer relations

Transparency and trust

Communications and crisis management, including social media

Employees and culture