731462251-ICAEW-BTF-Question-Bank-2023

The Institute of Chartered Accountants in England and Wales
Business, Technology and

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

Exam
This exam will consist of 50 questions with equal marks, adding up to 100 marks.
The questions are of the following types:
• Multiple-choice – select 1 from 4 options A, B, C or D (see Chapter 1 Q2)
• Multiple-response – select 2 or more responses from 4 or more options (see Chapter 1 Q7) In this Question
Bank you will select only one option per question unless told otherwise.
Our website has the latest information, guidance and exclusive resources to help you prepare for this exam. Find
everything you need, from exam webinars, sample exams, errata sheets and the syllabus to examiner- and tutor-
written articles at icaew.com/examresources if you are studying the ACA and icaew.com/cfabstudents if you are
studying ICAEW CFAB.
iv Business, Technology and Finance ICAEW 2023
Professional skills
Professional skills are essential to accountancy and your development of them is embedded throughout the ACA
qualification. The level of competency in each of the professional skills areas required to pass each module
exam increases as ACA trainees progress upwards through each Level of the ACA qualification.
The professional skills embedded throughout this Question Bank provide the opportunity to develop the
knowledge and professional skills required to successfully pass the exam for this module.
During your question practice, remain mindful that you should be demonstrating each of the four professional
skills within your answers. You are advised to familiarise yourself with the full ACA professional skills
development grids which can be found at icaew.com/examresources.
The following advice will help you demonstrate each of the professional skills when completing your answers to
questions in this Question Bank.
Questions in the Business, Technology and Finance module are rapid fire, plus they can be complex and test the
syllabus in a non-sequential order, so each one requires a good skillset to answer correctly. Below are the key
skills required in the Business, Technology and Finance exam that you will need to master.
Professional skills focus: Assimilating and using information
The Business, Technology and Finance exam requires you to attempt 50 questions in 90 minutes, meaning you
have 108 seconds for each question. Being disciplined, reading both the scenario and the requirement carefully
and keeping track of time will mean that you work effectively within time constraints which should offer you the
best chance of passing.
Some questions will ask you which models should be used for a particular purpose. Others may require you to
apply the models you have learned to a mini scenario – for example, stating which of the quadrants in the
Boston Consulting Group matrix a product belongs to, or what type of authority a manager is displaying. It is
important therefore to know the models in your study text well.
Professional skills focus: Applying judgement
You may need to use judgement in some questions - for example, deciding on how great the impact of a
particular risk is, so practising questions is the key to passing these types of questions. Questions may also test
your awareness of ethical, public interest and regulatory issues, so it is important to know the parts of the
syllabus that deal with these, particularly those relating to the professional accountant and ethics.
Professional skills focus: Concluding, recommending and communicating
Some questions may require you to determine the best option, or course of action in a particular case. Such
questions will test your technical knowledge, so it is important to ensure that this is sound.
ICAEW 2023 Introduction v vi Business, Technology and Finance ICAEW 2023
Question Bank
viii Business, Technology and Finance ICAEW 2023
Chapter 1: Introduction to business
1 What are the primary objectives of profit-oriented and non-profit oriented organisations?
Option Profit-oriented organisation Non-profit oriented organisation
1 Output of goods/services Minimise costs
2 Output of goods/services Provision of goods/services
3 Maximisation of wealth Minimise costs
4 Maximisation of wealth Provision of goods/services
A Option 1
B Option 2
C Option 3
D Option 4
LO 1a
2 A t the Annual General Meeting (AGM) of Vortex plc, a major shareholder claimed that the company was suffering
from the symptoms of ‘satisficing’. In the context of corporate objectives, ‘satisficing’ means that:
A managers seek to make satisfactory profits rather than maximise wealth
B managers seek to keep all stakeholders satisfied
C owners seek to meet a satisfactory level of corporate responsibility obligations
D owners seek to make satisfactory profits
LO 1a
3 J oe, the Managing Director of Gargoyle Ltd, has set a primary objective of growth in profits for the company. He
aims to concentrate on product development to support this objective. Identify whether the following will be
suitable secondary objectives to achieve the growth in profits via product development. (1) Bringing in
new products
(2) Reducing labour turnover
(3) Investing in research and development
A 1 and 2 only
B 2 and 3 only
C 1 and 3 only
D 1, 2 and 3
LO 1a
4 Maximising the wealth of its shareholders is the stated goal of Avernanche plc. The company’s objectives have
been expressed as a hierarchy of primary and secondary objectives. Identify which of the following is most likely
to be Avernanche plc’s primary business objective. A T o increase the annual profit after tax by 125% in the next
10 years
B T o introduce an average of two new products each year for the next six years
C T o double the share price within the next 10 years
D T o become the market leader in four market segments within the next 10 years
LO 1a
ICAEW 2023 1: Introduction to business 1

5 A major shareholder has stated that for three years the directors of Barrington plc have run the company in a
manner designed solely to increase their prestige in the business community. According to William Baumol, this is
most likely to be shown in the directors’ aim to:
A maximise wealth
B maximise sales revenue
C minimise costs
D minimise social impact
LO 1a
6 T o establish whether a particular organisation should be classified as a business or not, it is necessary to enquire
about the nature of its:
A primary objective
B mission
C vision
D secondary objective
LO 1a, 1b
7 The primary objective of ABC Car Rental Ltd is as follows: “We aim to be the fastest growing company with the
highest profit margin in the global vehicle rental and leasing business.”
One of its secondary objectives is: “To increase our market share for global family car rentals to 20% within a
reasonable time.”
Requirement
W hich three components of the SMART acronym are present in the company’s secondary objective?
A S
B M
C A
D R
E T
LO 1a
8 For a business, which two of the following would be classified as secondary objectives?
A T he business’s market share target for next year
B T he business’s productivity improvement target for next year
C T he business’s mission statement
D T he business’s financial objective of shareholder wealth maximisation
E T he business’s vision
LO 1a, 1b
9 A major airline, FlotAir plc, has been drawing up a mission statement.

Requirement
W hich three of the following items could be expected in it?
A W e will double profits in three years
B W e will encourage diversity in the workplace
2 Business, Technology and Finance ICAEW 2023
C W e intend to be the best airline in the world
D W e aim to give excellent customer service
E W e intend to take over XYZ airlines
F W e intend to have a 30% market share on the London to New York route
LO 1a, 1b
10 T wo of Sunshine Tours plc’s stakeholder groups are putting the company under pressure to improve its return
on investment.
Requirement
T hese are most likely to comprise which two of the following groups?
A Shareholders
B Customers
C Bankers
D Suppliers
E Employees
LO 1a, 4d
11 Mandrake plc processes waste for local authorities. It has stated that it seeks to provide “our shareholders with
increased value, our customers with value for money, our employees with secure and interesting jobs and the
public with safe and sustainable waste disposal.”
Requirement
T his is analysed below into four statements. Identify which is Mandrake plc’s primary business objective.
A T o provide our shareholders with increased value
B T o provide our customers with value for money
C T o provide our employees with secure and interesting jobs
D T o provide the public with safe and environmentally sustainable waste disposal
LO 1a
12 Daycare is a charity that funds nursery places for children whose parents are both unemployed. On its website,
the organisation states that it continually needs to raise funds that can be reinvested to produce an on-going
income to fund its activities. It also seeks to provide daycare for all families who need its support and that it will
never turn a family in need away.
A business adviser has made two statements:
Statement (1): The primary objective of Daycare is to maximise profit.
Statement (2): The secondary objective of Daycare is the funding of nursery places.
Requirement
Identify whether each statement is accurate.
A Statement (1) accurate; Statement (2) inaccurate
B Statement (1) inaccurate; Statement (2) inaccurate
C Statement (1) accurate; Statement (2) accurate
D Statement (1) inaccurate; Statement (2) accurate
LO 1a, 1b

13 A t its recent AGM, the shareholders of Boron plc voted by a small majority to accept a small dividend. At the
meeting many shareholders said that they accepted the dividend because the company’s profits were low, but
were very unhappy with the return because the company’s financial statements showed a large increase in
revenue.
Requirement
W hich of the following describes what is most likely to be happening at Boron plc?
A Revenue maximising
B Profit satisficing
C Profit maximising
D Revenue satisficing
LO 1a, 1b
14 W hich of the following statements relating to Environmental, Social and Governance (ESG) objectives is true:
A If businesses are only interested in maximising the wealth of shareholders, they should ignore ESG objectives
B Businesses should only adopt ESG objectives if the costs are less than the fines of poor ESG behaviour
C Even where shareholders are only interested in maximising their wealth, the value of a business over the
longer term is enhanced by good ESG practices
D ESG is likely to reduce the wealth of shareholders due to higher costs, but the owners have a moral obligation
to embrace good ESG performance
LO 1a, 1b
15 T o what does the term ‘triple bottom line’ refer?

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

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

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

A A human resources manager suggesting aptitude tests for managers to use when recruiting
B A n IT manager setting out rules for internet and email use
C A manager setting targets for the workforce
D A product manager asking IT and marketing staff to help with a big product launch
LO 1d
7 A ndrew is a Manager in Fortwarren plc. He has to re-arrange a staff rota after a staff member fell ill. According
to Henry Mintzberg, this forms part of Andrew’s:
A decisional role
B interpersonal role
C disseminator role
D informational role
LO 1d
8 Charlize is a Manager at Tordos Ltd. She complains to a friend that all she does is attend meetings along with
other managers in the company, and represent her team at conferences. In terms of Henry Mintzberg’s
managerial roles, Charlize is describing her:
A decisional role
B interpersonal role
C disseminator role
D informational role
LO 1d
9 T ristam plc has recently established a new project team. The team agreed clear objectives and performance
measures for the project in hand at a meeting last week. At today’s weekly progress meeting there were many
arguments about which roles would be undertaken by which members of staff. From this, it is clear that the
project team is at which stage of group development?
A Forming
B Storming
C Norming
D Performing
LO 1d
10 A management consultant has identified that Samp plc’s organisational culture is outward-looking but
controlling. Samp plc is, therefore:
A an internal process culture
B a rational goal culture
C an open systems culture
D a human relations culture
LO 1d
ICAEW 2023 2: Managing a business 7

11 Malcolm is a Marketing Manager with Stone plc. The Marketing Director has primary responsibility for the
company’s overall marketing strategies, but Malcolm has day-to-day responsibility for all aspects of the
company’s marketing mix. This means that Malcolm will be responsible for:
A a set of variables that he manages in order to achieve a desired response from the company’s various
target markets
B budgets setting out the volumes to be sold to the company’s various target markets
C the sets of different features and benefits that are present in the company’s range of products
D the types of advertising used by a firm to reach and influence its various target markets
LO 1c
12 In terms of authority, which of the following is the best description of a staff function?
A A situation where a person is entitled to command another
B A function that is carried out only at head office
C A situation where a person can give advice and guidance to another
D A function that is carried out locally only
LO 1d
13 In terms of the organisational iceberg, which three of the following are classified as covert variables affecting
organisational behaviour in a company?
A Formal goals
B A ttitudes
C Underlying competencies and skills
D Organisation design
E Communication patterns
LO 1d
14 Hamid is the managing director of Welldean Ltd, a small company selling aromatherapy products. He has read
about the benefits of market segmentation with regard to both competitive strategy and resource allocation.
Adoption of market segmentation by Welldean Ltd would mean that:
A the company would sell to only one section of the market
B the market is broken down into several different sections
C the company sees the aromatherapy market as homogeneous
D the competitive scope of the company would be narrow
LO 1c
15 Manton plc has decided to support the launch of its latest product by means of a major television advertising
campaign. This is an example of:
A pull promotion
B push promotion
C a combination of pull and push promotion
D personal selling
LO 1c
16 T he process of dividing a market into homogeneous groups of potential customers who may be treated
similarly for marketing purposes is called:
A market research
B mass marketing
C marketing mix
D market segmentation
LO 1d
17 T he main influences on a business’s pricing are:

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

A Price, product, place, promotion
B Quantity, quality, price, lead time
C V olume, variety, variation in demand and visibility
D Costs, competitors, customers and corporate objectives
LO 1d
21 W esley is a General Manager with Chain Ltd. The company is restructuring and Wesley will have a larger team
of staff reporting to him. Wesley is trying to persuade the Managing Director that he does not want to delegate
more of his work but the Managing Director has responded by telling Wesley about the advantages of
delegating.
Requirement
W hich of the following is an advantage for Wesley of delegating?
ICAEW 2023 2: Managing a business 9

A W esley can give more focus to those tasks that require his management experience
B W esley can ask other people to do the tasks that he finds boring
C W esley can spend less time supervising
D W esley’s team will enjoy having more work to do
LO 1d
22 T he HD5000 is a state of the art TV and audio system. The makers of the HD5000 have decided against
advertising the system and instead the marketing team has focussed its efforts on negotiating with shops and
online retailers to stock the product, by persuading them that consumers would be attracted to their store if
they sold it.
Requirement
W hich of the following techniques is the marketing team using?
A Pull marketing technique
B Digital marketing technique
C Push marketing technique
D Direct marketing technique
LO 1c, 1d
23 T rews Ltd manufactures clothes, which it then sells to a number of major retailers as well as directly to
consumers (through its own website).
Requirement
W hich of the following is part of Trews Ltd’s upstream supply chain?
A Orders received from retailers
B Deliveries of raw materials used to make the clothes
C T rews Ltd’s online advertising and marketing campaigns
D Distribution of clothes from Trews Ltd’s warehouse to the retailers
LO 1c
24 T he Managing Director of Birdot is concerned about the company’s procurement function, because production
of Birdot’s product recently had to be halted because it had run out of a key component used in the production
process.
Requirement
Birdot’s problems are most likely to be the result of it failing to achieve which two of the following ‘rights’ of
procurement?
(1) Right quality
(2) Right time
(3) Right quantity
(4) Right price
A 1 and 2
B 1 and 3
C 2 and 3
D 2 and 4
LO 1c
Chapter 3: Organisational and business structures
1 Identify which of the following statements about an organisation chart for Ginger plc are true.
(1) T he chart will show the degree of decentralisation in Ginger plc
(2) T he chart will show the span of control in Ginger plc
(3) T he chart will show the scalar chain in Ginger plc
A 1 and 2 only
B 2 and 3 only
C 1 and 3 only
D 1, 2 and 3
LO 2b
2 Lan plc trains bankers. It has been established for over 30 years. Lan plc has a large operating core which
consists of all the well-qualified lecturing staff. They need to keep their teaching material constantly updated to
reflect current issues in the complex banking industry, and to ensure that the company’s courses remain
competitive. The lecturers are supported by a large administrative team which follows procedures to ensure the
smooth delivery of courses.
Requirement
W hich of the following organisational structures does Lan plc have?
A Entrepreneurial
B Machine bureaucracy
C Professional bureaucracy
D Divisionalised
LO 2b
3 Identify which three of the following are Henry Mintzberg’s building blocks of an organisation.
A Support staff
B Middle line
C Functional division
D Scalar chain
E Ideology
F Matrix structure
LO 2b
4 J ane’s job description at Glue Pot plc states that her role is part of the company’s technostructure. According to
Henry Mintzberg, a technostructure:
A ensures that an organisation follows its mission
B provides ancillary services
C standardises work processes
D controls the work of the operating core
LO 2b
5 Benton plc is a machine bureaucracy. Which of the following characteristics is the company most likely to
exhibit?
ICAEW 2023 3: Organisational and business structures 11

A T he technostructure exerts a pull towards standardised processes
B T he operating core exerts a pull towards standardised skills
C T he middle line exerts a pull towards fragmentation
D T he support staff exert a pull towards collaboration
LO 2b
6 J ustin works for Edwinstone plc. He is part of a project team developing a large construction site. The team has
a matrix structure with employees from many different departments working on this project.
Requirement
W hich of the following basic principles of organisational structure is necessarily contravened by this type of
structure?
A A uthority and responsibility
B Subordination of individual interests
C Unity of command
D Division of work
LO 1d, 2b
7 T he Chief Executive of Acton plc has identified problems caused by the centralised nature of the company’s
decision-making processes. These have led to accusations from staff and some customers that the company is
increasingly slow and unresponsive. The Chief Executive wants to increase the amount of decentralised
decision-making over the next year.
Requirement
W hich three of the following characteristics of Acton plc are likely to increase the amount of decentralisation that
is possible?
A T he authoritarian style of its management
B Its well-skilled workforce
C Its large size
D T he slow pace of technological change in its markets
E T he effectiveness of communication across the company
LO 1d, 2b
8 In terms of structure, Platlet plc is a wide, flat organisation.

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

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

A Perpetual succession
B Separate legal personality
C Financial statements can remain private
D Simple withdrawal of capital
E T he company’s liability is limited
F Regulation under the Companies Act 2006
LO 2a
11 T om Burns and G M Stalker classified organisations as ‘mechanistic’ or ‘organic’. Which of the following is an
appropriate description of a mechanistic organisation?
A Commitment to organisation’s mission
B Network structure of control
C Relatively flexible job descriptions
D Suitable for slow moving environments
LO 1d, 2b
12 Protin plc has a modern manufacturing operation. It uses components manufactured by suppliers and sub-
contractors all over the world to assemble finished goods to customer specifications in its assembly plant.
Operations managers are technically competent and their competence within the area of their expertise is
rarely questioned. There is a high degree of specialisation of labour. Procedures ensure that, whoever carries
out tasks, they are executed in the same way each time.
Requirement
From this description of Protin plc, identify which of the following statements about the company are likely to
be true.
(1) Innovation is suppressed.
(2) Employees are concerned with completing the task efficiently, rather than with how the task can be
improved upon for the benefit of the organisation.
(3) Everyone in the organisation finds it easy to learn from their mistakes.
A Statements 1 and 2
B Statements 2 and 3
C Statements 1 and 3
D Statements 1, 2 and 3
LO 1c, 2b
13 Imperiax Ltd wishes to expand abroad. It has agreed with a foreign manufacturer of a complementary product
to market both products jointly in both countries. What method of expansion has Imperiax Ltd adopted?
A A group structure
B A joint venture

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

This will require at least 60 working hours each week. It will be extremely profitable if he can acquire the
necessary equipment.
Requirement
W hich of the following statements about his sole trader status is true?
A It prevents him from employing staff to help with the contract.
B It gives him personal liability for any failure of his in relation to the hospital IT system.
C It prevents him from obtaining a loan to obtain the equipment.
D It allows him to issue shares in his business to friends and family.
LO 2a
18 Pliar Ltd is considering a number of business structures to market a new product with Secateur Ltd’s help. Which
of the following business structures is a joint venture?
A Buy Secateur Ltd and market the product through that company
B Form a project team with employees of both Secateur Ltd and Pliar Ltd and market the product through
that team
C W ith Secateur Ltd as equal partner, form Plicateur Ltd and market the product through that company
D Sell Secateur Ltd the right to market the product in return for a percentage of the revenues
LO 2a
19 J acinta works in the Human Resources department of Huff plc. She is preparing a job description for a new
vacancy for an accounts payable assistant in the finance function.
Requirement
W hich three of the following items would be included in the job description that Jacinta is preparing?
A Duties and responsibilities of the role
B J ob title
C Organisation chart showing all positions within Huff plc
D Huff plc’s health and safety policy
E Pay grade
LO 1d
20 T he organisational structure for Grenestede Ltd is flat compared to many businesses. There are only three
levels in its hierarchy, directors, managers and workers.
Requirement
W hich of the following is an advantage of this type of organisational structure to Grenestede Ltd?
A Greater opportunity to delegate
B Narrower spans of control
C More participation in decision making
D Improved management training
LO 2b
21 W hich of the following business structures necessarily has a legal identity separate from that of its owner(s)?
A a joint venture between two limited liability companies
B a general partnership

C a limited liability partnership
D a strategic alliance
LO 2a

Chapter 4: Introduction to business strategy
1 In the home computer market, laptop computers are an example of a:
A product form B brand
C product class
D generic product
LO 1c, 1e
2 Nevin works for Dorchester plc. Nevin’s manager has asked him to undertake an internal analysis of the
company as part of a strategic planning review.
Requirement
W hich three of the following analytical techniques will be useful in this context?
A V alue chain analysis
B Porter’s five forces analysis
C T he BCG Matrix
D PESTEL analysis
E A nalysis of distinctive competencies
F A nsoff’s Matrix
LO 1e
3 Sharma is carrying out a PESTEL analysis for her employer, Decron plc. During her research Sharma has realised
the ageing of the UK’s population is a potentially important strategic issue for the company. In which section of
her analysis should Sharma record this matter?
A PBSCT
D L
LO 1e
4 T he Marketing Director of Birstall plc is formulating whether one of the company’s products, which is aimed at a
small niche market, should be differentiated from its close competitors. At this stage she is unsure how such
differentiation would be achieved in practice. The decision on whether to differentiate or not is a decision
concerning the company’s:
A functional strategy
B business strategy
C competitive strategy
D product/market strategy
LO 1e
5 Cassion plc has entered a market and achieved a reasonably dominant position in just under a year. Cassion plc
is pleased that the threat of new entrants into the market seems to be relatively low.
Requirement
W hich of the following factors is most likely to have contributed towards this situation?
A Low initial capital costs
B A customer base consisting of a few large customers
ICAEW 2023 4: Introduction to business strategy 17

C A highly competitive supplier market
D T he market is for services rather than manufacturing
LO 1e
6
Option Encourages new entrants Erects a barrier to new entrants
1 High competition Low capital costs

2 High competition
A monopoly supplier of a vital component
3 One large customer

A monopoly supplier of a vital component
4 Low competition High capital costs
W ith regard to Porter’s Five Forces Analysis and new entrants into a market, which of the following pairs of
statements is correct?
A 1
B 2
C 3
D 4
LO 1e
7 In the past a major stakeholder in Justin plc has exerted considerable influence over the environmental impact
of the company’s manufacturing operations. Specifically, a production facility was temporarily closed down for
three weeks as a result of one recent campaign orchestrated by this stakeholder. The stakeholder writes
regularly to the company’s chairman about a range of environmental issues involving the company.
Requirement
In terms of Mendelow’s matrix which of the following strategies should Justin plc pursue for this stakeholder?
A Keep this stakeholder informed at all times about the company
B Keep this stakeholder satisfied with regard to the company and its strategies
C T ake minimum effort with regard to this stakeholder as he always complains
D T reat this stakeholder as a key player when formulating future strategies
LO 1e, 5e
8 Seago plc provides exclusive scuba-diving holidays for people over 60 years of age. In terms of Michael Porter’s
generic competitive strategies, this represents a strategy of:
A differentiation
B cost leadership
C cost focus
D differentiation focus
LO 1e
9 Martin is a Product Manager with Mangrove plc. He is preparing an assessment for the company’s directors of
each of the company’s product lines. In preparing his assessment, Martin is making use of the BCG matrix. He
has classified one particular product, the Pluton, as having a low market share in a high growth market. Martin

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

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

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

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

Chapter 5: Introduction to risk management
1 In terms of financial risk, credit risk is:
A economic loss due to the default of a customer
B risk of choosing the wrong strategy
C risk that customers do not buy the company’s products in the expected quantities
D exposure to economic loss due to changes in market prices or rates
LO 1f
2 A highly geared company’s financial risk is most likely to increase when it increases its:
A operations
B geographical reach
C borrowings
D share capital
LO 1f
3 T he strategy director of Milton plc is assessing a project that he may recommend to the board of directors. He is
concerned about the risk-averse attitude of the board to similar projects in the past. In terms of risk, risk aversion is
a measurement of:
A the probability of risk arising
B project uncertainty
C the impact of risk
D appetite for risk
LO 1f
4 T he following statements have been made in relation to risk and uncertainty.

Statement (1): Risk is the variation in an outcome.
Statement (2): Uncertainty denotes the inability to predict an outcome.
Requirement
Identify whether each statement is true or false.
A Statement (1) true; Statement (2) false
B Statement (1) false; Statement (2) false
C Statement (1) true; Statement (2) true
D Statement (1) false; Statement (2) true
LO 1f
5 Norman Ltd developed a new product for use in the home improvement market. Tests on the product proved
successful although in extreme conditions the product was very flammable. The company decided not to launch the
product. In response to the risks highlighted in the product tests, this decision is an example of managing risk
through:
A risk avoidance
B risk reduction
C risk transfer
D risk acceptance
ICAEW 2023 5: Introduction to risk management 23

LO 1f
6 T he following statements have been made about risk attitudes.

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

W hich two of the four investments will the investor possibly choose?

Risk
+ Investment 1
+ Investment 2
+ Investment 3
+ Investment 4
Return
A Investments 2 and 4
B Investments 1 and 4
C Investments 2 and 3
D Investments 3 and 4
LO 1f
11 W hich of the following is the best definition of the risk concept of ‘exposure’?
A How the factor to which a company is exposed is likely to alter
B T he amount of the loss if the undesired outcome occurs
C T he measure of the way in which a business is faced by risks
D T he likelihood that the undesirable outcome occurs
LO 1f
12 W hich of the following sequences represents the order in which an organisation should respond to risk?
A Reduction, avoidance, sharing (or transfer), acceptance (or retention) B A voidance, reduction, sharing
(or transfer), acceptance (or retention)
C Reduction, sharing (or transfer), avoidance, acceptance (or retention)
D A voidance, sharing (or transfer), reduction, acceptance (or retention)
LO 1f
13 Briggs plc analysed a risk faced by its Scarborough division on a risk map. It concluded that the matter has a low
impact but there is a high probability of its occurrence. Which of the following risk responses is most appropriate?
A Risk avoidance
B Risk reduction
C Risk transfer
D Risk acceptance
LO 1f
14 A n organisation responds to an identified risk by restructuring. Which category of control has it used?
A Physical controls
B System controls

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

20 In which order should the following aspects of the risk management process take place?
1 Risk response and control
2 Risk analysis and measurement
3 Risk awareness and identification
4 Risk monitoring and reporting
A 1, 2, 4, 3
B 3, 2, 1, 4
C 2, 3, 1, 4
D 4, 2, 1, 3
LO 1f
21 Candle plc is concerned about the risk management of its information systems function. Its systems director has
suggested wholly outsourcing information systems management to a third-party provider. This action would be a
form of:
A risk reduction
B risk transfer
C risk avoidance
D risk retention
LO 1f
22 W hich of the following risks faced by Lump plc should be classified as business risk?
A Product risk
B Event risk
C Process risk
D Financial risk
LO 1f
23 Hammer plc makes a range of agricultural machines and other agricultural equipment for sale in its home market.
Hammer plc has a large share of this market, but it has several competitors who sell similar machinery.
Requirement
W hich of the following would normally be classified as an operational risk for Hammer plc?
A T he risk that the Production Director will be recruited by Tiller plc, a key competitor
B T he risk that a new type of irrigation system will fail to find a large enough market
C T he risk of competitors moving their production overseas and being able to cut costs
D T he risk of resource depletion, meaning that new sources of metal will have to be found
LO 1f
24 St Stephen’s Hospital has an electricity generator on standby at all times. The purpose of the generator is to provide
an electricity supply to the hospital’s operating theatres and life support machines in the event of a power cut.
Requirement
T he electricity generator forms part of St Stephen’s Hospital’s:
A crisis management

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

B Investment 1 and Investment 3
C Investment 2 and Investment 4
D Investment 3 and Investment 4
LO 1f
27 A ccording to the report produced by ICSA Solutions – Building a resilient organisation – which of the following are
potential problems to successfully building a resilient organisation?
(1) Directors delegate delivery of resilience policies and procedures to operational managers
(2) Business functions focus specifically on resilience programmes for their own areas
A Neither of them
B 1 only
C 2 only
D Both 1 and 2
LO 1g
28 A bdullah owns a clothes shop in a busy town centre. The shop is open six days per week. Last week, Abdullah’s
sales were as follows:

£
Monday 2,500
Tuesday 2,700
Wednesday 3,000
Thursday 3,500
Friday 3,500
Saturday 4,000
Requirement
W hat was the median value of Abdullah’s daily sales last week?
A £3,000
B £3,200
C £3,250
D £3,500
LO 3f
29 W hich two of the following statements is true of the median?

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

A it is widely understood
B it is not distorted by outliers
C it takes into account the values of all items in the data set
D it always takes a value that is the same as an actual value in the data set
LO 3f
32 T he marketing department has estimated the following sales volume for a new product for the following year:
Probability Sales volume
Worst case 0.2 2,200

Most likely 0.5 2.600
Best case 0.3 2,700
Requirement
W hat is the expected value of sales volume?
A 2,450
B 2,500
C 2,550
D 2,600
LO 3f
33 T he management accountant has recorded daily production in the factory for the last year. She has calculated that
the mean daily production was 10,000 units, with a variance of 400 units.
Requirement
W hat was the coefficient of variation?
A 0.2%
B 4%
C 20 units
D 400 units
LO 3f
34 T he board of Theta Ltd has to choose which of two new products to launch next year, as they only have sufficient
production capacity to launch one. Projected daily contribution of the two products, are as follows:
Product A Product B
Mean contribution £6,000 £5,000

Standard deviation £100 £90
Coefficient of variation 1.67% 1.80%
Requirement
W hich of the following statements is correct?
A product B should be launched as it has a lower risk
B product A should be launched as it has a higher return in spite of the higher risk
C product A should be launched as it has a higher return and a lower risk
D it is not clear which product should be launched without more detail about the risk preferences of Theta Ltd
LO 3f
35 A n investor has been offered two possible investments – Investment A and Investment B. Details of the historic
average returns and standard deviation of each investment are as follows:
Investment A Investment B
Average return 5% 20%

Coefficient of variation 0% 5%
T he investor has selected Investment B.

Requirement
T he investor has selected Investment B.
W hich of the following approaches to risk could the investor be said to have demonstrated?
(1) A risk averse
(2) A risk neutral approach
(3) A risk seeking approach
A 1 only
B 2 only
C 3 only
D (2) and (3)
LO 3f
36 T he risk committee has identified a new risk relating to the potential damage that would be suffered in a
catastrophic event. The calculation of the gross risk is as follows:
Impact Probability Gross risk
A £1,000,000 1% £ 10,000 A loss of more than £500,000 would seriously threaten the
survival of the company.
Requirement
W hich of the following would be the most appropriate way to deal with the risk?
A A ccept it as the gross risk is quite low
B Insure the risk as the potential impact is high
C A void the activities that create the risk as the potential impact is high
D T ake actions that could reduce the probability of the event occurring
LO 1f
37 W hich two of the following statements about the normal distribution are correct?
A the mean is less than the median, which is less than the mode
B the distribution is a continuous distribution
C the closer a range of values is to the mean, the higher is the probability of that range of values occurring
D 99% of values lie within one standard deviation above and one standard deviation below the mean
LO 3f
38 A distribution is left skewed (negatively skewed). Which statement is correct?

A T he mean is lower than the median, which is lower than the mode.
B T he mean is higher than the median, which is higher than the mode.
C T he median is lower than the mean, which is lower than the mode.
D T he median is higher than the mean, which is higher than the mode.
LO 3f
39 A manufacturing company identifies health and safety risks in all of its operational sites. If the cost of reducing
those risks further is considered to be reasonable, then action is taken to reduce them. If the cost of reducing the
risks is disproportionate given the reduction of risk that would be achieved, then the action is not taken.

Requirement
W hat is this approach to risk management referred to as?
A A LARP
B A voidance
C T ransfer
D A ccept
LO 1f

Chapter 6: The finance function and financial
information
1 Collinson plc is a medium-sized group operating at four locations in the UK. It operates a centralised finance
function and is concerned that the function as a whole is not performing well. Centralisation of this finance
function is least likely to be effective in:
A external reporting to shareholders
B recording financial transactions
C managing cash
D internal reporting to operational managers
LO 3a, 3b
2 Maureen is employed in the finance function of Gralam plc. Her duties are to ensure that the company always
has sufficient funds available to meet both its short-term and long-term financial requirements. It is clear that
Maureen is employed by Gralam plc in its:
A financial reporting section
B management accounting section
C treasury management section
D transaction processing section
LO 3a, 3e
3 W hich three of the following are characteristics of management accounting information rather than financial
reporting information?
A It is both forward looking and historical
B It is governed by statute
C It is primarily used by shareholders
D It is likely to include a statement of cash flows
E It is likely to include a cash flow forecast
F It is likely to include budgetary information
LO 3a
4 Harold is an accountant with Farnworth plc. He was asked to join a project team examining the company’s
compliance with both FRC and IASB standards. It appears, therefore, that Harold has been recruited into this
project team to exploit his expertise in:
A financial reporting
B performance measurement
C corporate governance
D information systems
LO 3a
5 Novel plc is establishing its accounting and finance function. The company has been told there are two purposes
of published, audited financial statements. These are to help users assess how effectively managers are running
a business, and to make judgements about the likely levels of risk and return in the future.
Requirement
ICAEW 2023 6: The finance function and financial information 33

W hich of the following user groups of Novel plc’s published, audited financial statements is most likely to use
accounting information for these purposes?
A Community representatives
B Employees
C Shareholders
D Managers
LO 3a, 3b
6 W hen a company’s finance function prepares financial statements in accordance with legal rules and
accounting standards, it is engaged in the support activity of:
A record-keeping and stewardship
B planning and control
C external reporting
D internal reporting
LO 3a
7 Mainstream Ltd’s finance director is establishing an effective system in the finance function for producing
management accounting reports. Which issue should be the finance director’s primary consideration?
A T he information needs of the company’s managers
B T he need for effective internal control mechanisms
C T he need for cost-effectiveness
D T he need for effective information security
LO 3a, 3e
8 T ram plc’s finance function must provide information to management on the company’s balanced scorecard.
This role is undertaken as part of Tram plc’s:
A statutory audit requirement
B financial reporting function
C treasury management process
D performance measurement system
LO 3a, 3d
9 ‘Effectiveness’, ‘economy’ and ‘efficiency’ are often mentioned with reference to resource use. Match these
terms with the definitions below: (1) A reduction or containment of costs
(2) A chieving maximum output at minimum cost
(3) T he measure of achievement by reference to objectives
A 1 = effectiveness; 2 = economy; 3 = efficiency
B 1 = economy; 2 = efficiency; 3 = effectiveness
C 1 = efficiency; 2 = effectiveness; 3 = economy
D 1 = economy; 2 = effectiveness; 3 = efficiency
LO 3d
10 W hich statement about critical success factors (CSFs) for a business is true?
A Low costs will always be a CSF; high sales revenue will always be a CSF.

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

LO 3d
15 Historically, the role of the finance function at Delbin plc has been viewed primarily in terms of reporting and
control. However, the senior management team at Delbin plc are keen for the finance function to have more of
a role as a business partner.
Requirement
In which of the following should members of the finance function expect to become increasingly involved as a
result of the business partnering role?
(1) Formulating strategies
(2) Commercial decision making and negotiations
(3) Provision of accurate accounting information.
A 1 and 2 only
B 1 and 3 only
C 2 and 3 only
D 1, 2 and 3
LO 3a
16 W hich two of the following encourage organisations to improve reporting of their economic, environmental
and social impact?
A T he International Accounting Standards Board (IASB)
B T he Task Force on Climate-related Financial Disclosures (TCFD)
C Global Reporting Initiative (GRI) standards
D T he Climate Disclosure Standards Board framework (CDSB)
E T he Triple Bottom Line approach
LO 3d, 3e
17 A factory emits greenhouse gasses which are currently within government limits. The finance director is
concerned that changes in legislation may be introduced soon that would reduce the amount of greenhouse
gasses that the company is allowed to emit, leading to a requirement to invest in new machinery or reducing
production to reduce pollution.
Requirement
In terms of the Task Force on Climate-related Financial Disclosure categories of risk from climate change, what
is the risk that the finance director is concerned about an example of?
A Physical
B Market
C Policy and legal
D T echnology
LO 3d, 3f
18 Moreton plc produces monthly variance reports for all its production managers. These show the extent and
cause of all variances from the company’s production plans. The reports enable managers to take corrective
action during the following month. In terms of financial information, these reports can be classified as:

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

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

B data integrity
C data authenticity
D data completeness
LO 3c
24 Zing plc’s information system automatically maintains a log of user activity. This log contains details of identity,
log-on and log-off times and details of processing carried out and access attempts made. All transactions are
tagged to identify the person responsible for that processing. The log-on details of the user determine
processing access.
Requirement
W hich three of the following control objectives does this system effectively address?
A prevention
B detection
C deterrence
D correction
E accuracy
F completeness
LO 3c
25 W hich of the following statements concerning management information systems and transaction processing
systems is correct?
A A management information system is likely to be the foundation of a transaction processing system.
B Management information systems and transaction processing systems are usually independent.
C Management information systems and transaction processing systems are synonymous.
D A transaction processing system is likely to be the foundation of a management information system.
LO 3c
26 W hich of the following characteristics relates to strategic information as opposed to operational information?
A often based on estimates
B often very detailed
C mostly very accurate
D usually routine
LO 3a, 3c
27 T he depreciation policies adopted by Plumtree Ltd have not changed for the past five years. According to the
IFRS Conceptual Framework, this supports the qualitative characteristic for its financial information of:
A understandability
B relevance
C timeliness
D comparability
LO 3a, 3c

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

A External users evaluate the performance of a company’s management using management accounting.
B Financial reporting provides information to managers and people outside the company, such as investors.
C Management accounting provides information to managers and people outside the company, such as
investors.
D Financial reporting generates confidential information for internal decision makers such as executives and
management.
LO 3a

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

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

Statement (1): Venture capitalists may realise their investment by selling their shares following flotation on the
stock exchange.
Statement (2): Venture capitalists never sit on the board of a company.
Statement (3): Venture capitalists normally expect a company’s existing owners to bear a substantial part of the
risk.
Requirement
W hich of the statements are true?
ICAEW 2023 7: Business finance 41

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

‘A short-term wholesale market for securities maturing in one year, such as certificates of deposit, treasury bills
and commercial paper.’
A Capital market
B T he London Stock Exchange
C A IM (Alternative Investment Market)
D Money market
LO 3h, 3i
6 W hich of the following is an example of an institutional investor?

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

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

A T he provision of financial advice and information to businesses
B Reduction of risk for clients via aggregation of funds
C Maturity transformation
D Prudential control of financial institutions
LO 3h, 3i
11 W hich of the following is an advantage to the shareholders of a company that is obtaining a listing on the
London Stock Exchange? A disclosure requirements are reduced
B larger dividends can be paid
C shares become more readily marketable
D the company becomes entitled to put ‘plc’ (public limited company) after its name
LO 3h, 3i
12 W hich type of finance should be used to fund an increase in inventory?

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

A V enture capital is a low risk and low return form of finance.
B Companies listed on major stock exchanges normally use venture capital to raise new finance.

C V enture capital can be appropriate for a management buyout.
D V enture capital normally takes the form of debt finance.
LO 3h, 3i
16 W hich of the following is a source of long-term finance?

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

‘A document issued by a bank on behalf of a customer, authorising a person to draw money to a specified
amount from its branches or correspondents, usually in another country, when the conditions set out in the
document have been met.’
A Bill of exchange
B Export guarantee
C Payment gateway
D Letter of credit
LO 3j
18 W hich of the following services is least likely to be offered by a factoring company to its client?
A Provision of finance by advancing 80% of invoice value immediately, and the remainder on settlement of
the debt by the client’s customer
B T aking over responsibility for administration of the client’s sales ledger
C Deciding what credit limits the client should give customers
D T aking over responsibility for irrecoverable debts
LO 3h, 3i
19 Ken plc’s new building programme is likely to start within the next 90 days, but the precise start date and timing
of the cash flows are still uncertain. The company has £150,000 available in cash in anticipation of the
investment. Which of the following is the least appropriate use of the funds in the interim period?
A Investment in equities
B T reasury bills
C Bank deposits
D Local authority deposits
LO 3h, 3i
20 W hich of the following contractual relationships between a bank and a customer concerns the bank accepting
customer property for storage in its safe deposit?
A Receivables/payables
B Principal/agent
C Bailor/bailee

D Mortgagor/mortgagee
LO 3g
21 W hich of the following sources of finance involves the business requesting a specific sum of money from
individuals, usually via the internet?
A A lternative investment market
B Business angels
C V enture capital
D Crowdfunding
LO 3h
22 Financial instruments with maturities of less than one year are traded in the:
A equity market
B capital market
C money market
D fixed-income market
LO 3h, 3i
23 A consultant has stated that a 30-year Treasury bond issued in the last year can be sold in four different
categories of market.
(1) T he money market
(2) T he capital market
(3) T he primary market
(4) T he secondary market
Requirement
W hich of these markets are available for the sale?
A 1 and 3 only
B 1 and 4 only
C 2 and 3 only
D 2 and 4 only
LO 3h, 3i
24 Sunita Ltd has the choice of two investments carrying similar levels of risk. One is short-term and the other is a
long-term bond. Sunita Ltd should expect the interest on the longer-term bond to be: A normally higher
B lower
C normally the same
D impossible to tell
LO 3f, 3h
25 W hich part of the Bank of England is responsible for the stability and resilience of the UK’s financial system as a
whole?
A Financial Conduct Authority
B Monetary Policy Committee

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

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

Chapter 8: The accountancy profession

1 T he objective of the accountancy profession can best be described as:
A providing financial information about an entity to external users, which is useful to them in making economic
decisions and for assessing the stewardship of the entity’s management
B measurement, disclosure or provision of assurance about financial information that helps managers, investors,
tax authorities and other decision makers make resource allocation decisions
C identifying, measuring, accumulating, analysing, preparing, interpreting and communicating information used
by management to plan, evaluate and control an entity and to assure appropriate use of and accountability for
its resources
D managing all the processes associated with the raising and use of financial resources in a business
LO 4a
2 W hich of the following element is least likely to characterise a profession?

A Restrictions on membership to ensure the skill and competence of members
B A high degree of autonomy and independence
C Core values are established which members are expected to maintain
D T he profession’s rules and regulations are established solely by government legislation
LO 4a
3 Professions often set out codes of ethics and conduct. These are an example of which common attribute of
professions?
A Professional values
B Self-regulation
C Co-regulation
D Formal regulatory process
LO 4a
4 Legislation requires certain activities to be carried out by members of bodies that are ‘recognised professional
regulators’.
Requirement
W hich three of the following activities are included in such requirements?
A Insolvency
B Management consultancy
C Investment business
D T axation
E Payroll
F Statutory audit
LO 4b
5 Paula recently established her own accountancy practice from small retail premises in Hightown. She operates as a
sole trader. Paula passed the last of her ICAEW examinations last month although she is not yet permitted to offer
statutory audit, insolvency, investment business or probate services. She has already been successful in attracting
several clients to her new practice. She has not yet become
8: The accountancy profession
a member of ICAEW but she is registered with an approved body for supervision under the money laundering
regulations.
W hich of the following statements is correct?
Requirement
A Paula cannot call herself an accountant.
B ICAEW can legally stop Paula from practising as a sole trader.
C Paula can offer any accountancy services she considers appropriate.
D Paula can offer any accountancy services except those in the reserved areas.
LO 4b
6 In relation to which of the following does the Financial Reporting Council have statutory powers?
A Regulation of the auditing profession
B Professional discipline of accountants
C Registration of students into the accountancy profession
D Continuing professional education and development
LO 4b
7 Upholding professional ethics is a key part of being a professional accountant. Which of the following duties of an
accountant only applies to those employed in the public sector?
A Protect the public interest
B A pply laws and regulations
C Protect the profession’s reputation and standing
D Protect taxpayers’ money
LO 4b
8 Chris runs his own printing company. He is experiencing financial difficulties and some of his credit suppliers are
threatening to take him to court. He needs some advice and has seen an advertisement in his local paper for an
accountancy service that is much cheaper than he expected. He calls the accountant to check that the price is not a
misprint and is surprised at some of the answers he is given to his questions.
T he accountant made the following statements to Chris.
Statement (1): Anyone is free to advertise as an ‘accountant’ and offer the full range of accountancy services, with
no exceptions.
Statement (2): ICAEW members are open to competition from anyone, whether professionally qualified or not,
who chooses to enter the market.
Statement (3): There is no legal requirement for an accountant to be a paid-up member of one of the CCAB bodies.
W hich of the following statements are true?
Requirement
A (1) and (2) only
B (2) and (3) only
C (1) and (3) only
D (1), (2) and (3)
LO 4b
9 T he following statements have been made about the purpose of regulating professions.
ICAEW 2023 49
Statement (1): Regulation of professions should protect the public from being misled or from suffering from abuse
of power through knowledge or monopoly.
Statement (2): Regulation of professions should protect the profession’s vested interests from
competition in order to maintain public trust. Identify whether each statement is true or false.
Requirement
LO 4a, 4b
10 T he financial statements of Anson plc, a listed company, depart from relevant accounting standards and the
provisions of the Companies Act 2006. The company is likely to be referred to which of the following regulatory
bodies?
A T he Prudential Regulation Authority
B T he Financial Conduct Authority
C ICAEW
D T he Financial Reporting Council
LO 4b
11 T he following statements concern the role of the ICAEW.

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

Requirement
W hich of the following actions might accountants be expected to play?
A 1 and 2 only
B 2 and 3 only
C 1 and 3 only
D 1, 2 and 3
LO 4h
14 Solutions to sustainability can be divided into solutions based on regulation and solutions based on market forces.
Requirement
W hich one of the following is an example of a solution based on market forces?
A T axes and tariffs such as pollution taxes
B Green finance strategies such as green bonds
C Grants to help organisations reduce their carbon emissions
D A udits of sustainability reports to meet mandatory reporting requirements
LO 4h
ICAEW 2023 51
Chapter 9: Governance and ethics
1 In a market-based financial system, the financial system will be characterised by:
A comparatively more government regulation than a bank-based system
B comparatively less close relationships between banks and businesses than in a bank-based system
C comparatively more risk averse households than in a bank-based system
D households with less access to investment in physical assets than in a bank-based system
LO 4f
2 In the country of Zanadu, the population has a risk seeking attitude towards financial matters. Zanadu’s financial
system is likely to be:
A a market-based system
B a stakeholder system C a bank-based system
D a public policy system
LO 4f
3 Under a unitary board structure, a company’s board of directors is responsible for both management of the
business and reporting to:
A the non-executive directors
B the supervisory board
C the company’s employees
D the company’s shareholders
LO 4e
4 T he agency problem is behind the need for sound corporate governance. The ‘principal’ in this agency relationship
is:
A customers as a body
B shareholders as a body
C managers as a body
D directors as a body
LO 4c
5 A consultant has made the following statements, which he maintains are drawn from the definition of corporate
governance in the OECD’s Principles of Corporate Governance .
Statement (1): Corporate governance comprises the practices and procedures for ensuring that a company is run in
such a way that it achieves its objectives.
Statement (2): Corporate governance is a set of relationships between a company’s management, its board, its
shareholders and other stakeholders.
Requirement
W hich two of the following are principles in the Wates Principles?
A Statement (1) matches; Statement (2) does not match
B Statement (1) does not match; Statement (2) does not match
C Statement (1) matches; Statement (2) matches

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

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

A to act at all times in the best interests of the company
B to allow shareholders to see detailed accounting records on request
C to hold regular monthly meetings to answer shareholders’ questions
D to consult the shareholders over difficult management decisions
LO 4g
10 T he board of directors of Lake plc is concerned that the current chief executive’s actions are undermining the
ethical culture at the company. She fails to listen to the concerns of managers about unfair treatment of suppliers,
and she has failed to learn from a recent scandal in which the company was fined for data protection breaches.
Requirement
T o improve the ethical culture at Lake plc, which of the following is the most important action for the board to
take?
A Draft a corporate code of ethics for Lake plc’s employees
B Rewrite Lake plc’s policies regarding suppliers and customers
ICAEW 2023 9: Governance and ethics 53

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

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

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

A Board composition
B Board committees
C Director responsibilities
D Protection of minority shareholders
ICAEW 2023 9: Governance and ethics 55

E Reporting and transparency
LO 4f
19 W hich two statements about the Wates Principles are true?

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

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

Chapter 10: Corporate governance

1 J acob has just been appointed as a Non-executive Director of Pulsemania plc, a premium listed company. A
consultant told him that under the UK Corporate Governance Code he has the following responsibilities as a non-
executive director.
Responsibility 1: Appointing and removing executive directors
Responsibility 2: Reporting on the performance of the company
Responsibility 3: Holding executive directors to account for their performance Responsibility 4:
Developing and implementing internal controls
W hich of the points listed by the consultant correctly identify Jacob’s responsibilities as a nonexecutive director?
Requirement
A 1 and 2
B 2 and 3
C 1 and 3
D 2 and 4
LO 4e, 4g
2 T he chair of Raygold plc, a premium listed company, is considering which of the company’s nonexecutive directors
can be classified as independent. Even if a non-executive director has worked as an employee for the company in
the past, they may still be classified as independent if the period of employment finished at least:
A two years ago
B three years ago
C four years ago
D five years ago
LO 4e, 4g
3 J umpers plc has just obtained a premium listing on the London Stock Exchange. A consultant has made the
following two statements about the company and the UK Corporate Governance Code.
Statement (1): As Jumpers plc has a premium listing, the Listing Rules mean that the Code applies so the company
must never depart from any of its requirements.
Statement (2): If Jumpers plc had joined the FTSE 100, compliance with the Code would be a statutory
requirement.
Requirement
LO 4e
4 A ccording to the UK Corporate Governance Code, a company should seek to improve corporate governance by
ensuring that:
A the chair and chief executive are the same individual in order to avoid confusion over who has responsibility
for running the company
B the chair and chief executive are different individuals in order to prevent one person having too much power
within the company
C the chair and chief executive are different individuals in case one dies or becomes incapacitated by ill health
D the company chairman does not take up outside directorships
LO 4e
5 T he UK Corporate Governance Code contains principles for the level and make-up of directors’ remuneration. A
consultant has listed the following as being among these principles.
Principle 1: Only basic salary should be pensionable
Principle 2: Directors should not be rewarded for poor performance Principle 3: Obtain
the auditor’s approval of the remuneration set
W hich of the points listed by the consultant correctly reflect the principles and provisions of the UK Corporate
Governance Code?
Requirement
A 1 and 2 only
B 2 and 3 only
C 1 and 3 only
D 1, 2 and 3
LO 4e
6 T he board of directors of Kempton plc, a premium listed company, is considering the membership of its
remuneration committee. In this regard, which statement is true?
A T he chair of the board must be one of the members of the remuneration committee.
B T he chair of the board may be both a member and chair of the remuneration committee.
C T he chair of the board may be a member but cannot chair the remuneration committee.
D T he chair of the board cannot be a member of the remuneration committee.
LO 4e
7 W hich statement about the requirements of the UK Corporate Governance Code is true?
A Non-executive directors of premium listed companies, once appointed, only need to be submitted for re-
election every three years.
B In annual and half-yearly financial statements, the board should state whether it considers it is appropriate to
adopt the going concern basis of accounting.
C Directors’ notice or service contracts should not exceed three years.
D T he annual report should state the company’s business model but its strategy for delivering the objectives of
the company may remain confidential.
LO 4e
8 Flange plc is a small premium listed company. As a minimum, how many directors are required for its audit
committee?
A One
B T wo
C Three
D Four
LO 4e

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

A must comply with all the requirements of the UK Corporate Governance Code
B is governed by other corporate governance regulations than the UK Corporate Governance Code
C can be flexible in how it applies the UK Corporate Governance Code
D is not affected by the requirements of the UK Corporate Governance Code
LO 4e
11 In relation to the fundamental accounting principles directors are expected to report in the company’s annual
financial statements on: A the going concern status of the company
B the materiality of specific company transactions
C the accruals approach to accounting in the company
D the consistency of treatment of particular items or transactions by the company
LO 4e, 4g
12 Hilditch plc is currently creating a list of potential members of its audit committee. Under the UK Corporate
Governance Code, the list must comprise only:
A independent non-executive directors who all have recent and relevant financial experience
B independent non-executive directors with at least one who has recent and relevant financial experience
C non-executive directors with recent and relevant financial experience
D executive directors with at least one who has recent and relevant financial experience
LO 4e, 4g
13 Under the requirements of the UK Corporate Governance Code, who is responsible for monitoring a company’s risk
management and internal control systems?
A T he executive directors only
B T he non-executive directors only
C T he entire board of directors
D T he audit committee
LO 5c, 5e, 5f
14 Megan is a full-time Executive Director of Rifkind plc, a premium listed company. She does not currently hold any
non-executive directorships in any other companies. The executive directors of Carnforth plc, another premium
listed company, have asked Megan to become a non-executive director of Carnforth plc in addition to her existing
role with Rifkind plc. The guidance provided by the UK Corporate Governance Code means that: A Megan will be
allowed to accept the offer
B Megan will not be allowed to accept the offer
ICAEW 2023 10: Corporate governance 59
C Megan will only be allowed to accept the offer if she buys shares in both companies
D Megan will only be allowed to accept the offer if the non-executive directors of both companies agree
LO 4e
15 Cheshunt plc is considering the re-appointment of its external (statutory) auditors. Which of the following is
responsible for appointing the external auditors?
A T he nomination committee
C T he board of directors
D T he audit committee
LO 4e
16 Sheila is a non-executive director Forton plc, a premium listed company. According to the UK Corporate
Governance Code, which of the following statements about her remuneration is correct?
A Her remuneration should reflect her expertise
B Sheila should decide her remuneration in conjunction with the remuneration committee
C Her remuneration should reflect her time commitment and responsibilities
D Her remuneration is negotiated with the remuneration committee and may include performance related
elements and share options
LO 4e
17 W ith regard to the board of directors of a premium listed company (excluding the chairman), the UK Corporate
Governance Code requires that the proportion who are independent non-executive directors should be:
A between 10% and 24%
B between 25% and 39%
C between 40% and 49%
D 50% or over
LO 4e
18 Fox plc, a premium listed company, has engaged its external (statutory) auditors to provide the company with
consultancy services. Which entity would usually be expected to examine the implications of this engagement? A T
he board of directors
C T he audit committee
D T he non-executive directors
LO 4g
19 T he appointment of suitably qualified, independent external (statutory) auditors is the decision of a listed
company’s:
A shareholders
B audit committee
C board of directors
D finance director
LO 4g

20 Sumatra plc operates its own internal audit function. It chooses not to make use of an external supplier for these
services. It is therefore vital that the company has arrangements to ensure that there is no compromise of the:
A independence of the internal auditors
B integrity of information security systems
C stewardship of directors
D rigour of financial reporting processes
LO 4g
21 V idal is the Chief Executive of Plainton plc, a premium listed company. His fellow directors want him to replace the
company’s existing Chair, who is due to retire shortly. They also want him to stay as Chief Executive for the first
year of his chairship, while a new Chief Executive is sought.
T he guidance in the UK Corporate Governance Code recommends that:
Requirement
A V idal should assume both roles concurrently subject to consultation with major shareholders B V idal should
not assume both roles concurrently nor go on to be the company’s Chair
C V idal can assume both roles concurrently subject to the board setting out their reasons at the time of
appointment and in the next annual report
D V idal can only assume both roles concurrently if the non-executive directors of the company agree
LO 4e, 4g
22 Shona has just been appointed as a Director of Impala plc. Following her appointment, she will be subject to
election by shareholders:
A at the first AGM after her appointment and then at intervals of no more than three years after that
B at the first AGM after her appointment and then at intervals of no more than two years after that
C only at the first AGM after her appointment
D at every AGM
LO 4e
23 Zyntec plc is a listed company that has recently had an external audit. As well as whether the financial statements
give a ‘true and fair view’ of the company’s performance and financial position, which of the following will the
external auditors have reported on?
A T he experience and ability of the chief finance officer
B W hether the staff in the finance function are compliant with CPD requirements
C T he company’s compliance with the UK Corporate Governance Code
D T he standard of the work performed by the internal audit function
LO 4g
24 T he ability to meet the needs of the present without compromising the ability of future generations to meet their
own needs is best described as:
A corporate responsibility
B sustainability
C business ethics
D natural capital
LO 4h
ICAEW 2023 10: Corporate governance 61

25 Sustainability is about the long-term use of both tangible and intangible resources. Green plc manufactures
customised furniture for customers from recycled materials.
Requirement
W hich two of the following represent intangible resources of Green plc?
A T he design expertise of its employees
B Stationery supplies to the factory office
C Recycled timber received from suppliers
D Its reputation in the community
E Its head office premises
LO 4h

Chapter 11: The economic environment of business
and finance
1 A nu manufactures pieces of classic furniture. Anu predicts that ‘if people’s incomes rise next year, then the
demand for my furniture will increase’.
Requirement
T he accuracy of Anu’s prediction depends on whether the pieces of furniture he produces:
A are normal goods
B have few substitutes
C have many complements
D have few complements
LO 5a
2 Potatoes are a Giffen good. An increase in the price of potatoes will cause:
A an increase in demand for potatoes
B a decrease in demand for substitutes for potatoes
C a decrease in demand for potatoes
D an increase in demand for substitutes for potatoes
LO 5a
3 Y is a complement of X in consumption. An increase in the price of Y will:

A increase the demand for Y and decrease the demand for X
B decrease the demand for Y and increase the demand for Y
C increase the demand for both Y and X
D decrease the demand for both Y and X
LO 6a
4 A brand of cheese is an inferior good. A consultant has made two statements about the cheese.
Statement (1): Demand for the cheese will rise as incomes rise.
Statement (2): Demand for the cheese only exists because of the effects of advertising.
Requirement
LO 5a
5 T he market for a product is a natural monopoly. Production of the product must be associated with:
A high marginal costs
B low marginal costs
ICAEW 2023 11: The economic environment of business and finance 63

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

C perfect competition
D monopoly
LO 5b
11 W hich three of the following are associated with conditions of perfect competition?
A Suppliers are price-makers
B Suppliers earn ‘normal’ profits
C Consumers lack influence over market price
D Differentiated products
E A single selling price
LO 5b
12 Gromet plc has been able to achieve significant external economies of scale. This indicates that the market for
the company’s only product has been:
A static, so forcing the company to achieve economies of scale in production
B growing, so enabling the economies of scale to be achieved
C contracting, so enabling the company to cut costs in distribution
D volatile, meaning that internal economies of scale were unattainable
LO 5b
13 If the price of a particular product is £9.00 per unit, on average 150 units of the product are sold per month. At a
price of £10.00 per unit, on average 110 units per month are sold. The price elasticity of demand for the product
is:
A –0.42
B –2.40
C –0.27
D –0.11
LO 5a
14 T he minimum price for a good is set by the government above the current free market equilibrium price.
Requirement
W hat will be the effect (if any) on demand for and supply of the good in the short term?
A Demand for the good will fall; supply of the good will rise
B Demand for the good will rise; supply of the good will fall
C Both demand for and supply of the good will rise
D T here will be no effect on either demand for or supply of the good
LO 5a, 5b
15 Bench Ltd produces chairs. An economist predicts that, if average incomes rise next year, demand for the chairs
will increase in direct proportion to the rise in incomes (assuming all other factors remain unchanged).
Requirement
T he accuracy of the economist’s prediction depends on whether the chairs:
A are normal goods

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

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

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

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

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

A Boom, Recession, Depression, Recovery
B Recession, Recovery, Boom, Depression
C Boom, Recovery, Recession, Depression
D Recovery, Recession, Depression, Boom
LO 5c
21 T he recession phase of the business cycle will normally be accompanied by all of the following except:

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

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

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

A T o raise short-term interest rates in the money markets
B T o support the exchange rate for the country’s currency
C T o control growth in the money supply
D T o alter rates of taxation
LO 5c
26 ‘Supply side’ economics concerns:

A the behaviour of the microeconomic supply curve
B the supply of factors of production in response to changing levels of factor rewards
C the behaviour of the aggregate supply curve in connection with the levels of prices, incomes and
employment

D the effect that an increase in the supply of money has on inflation
LO 5c
27 If the government wishes to increase consumer spending, it should increase the rate of:
A income tax
B corporation tax
C import duties
D social security payments
LO 5c
28 Changes in the supply of a product which arise due to reduced costs of its manufacture will be represented on
the product’s supply curve by:
A a shift to the right in the supply curve
B a shift to the left in the supply curve
C movements along the supply curve
D none of these
LO 5a
29 Pinewood Ltd produces two complementary products, the Buggle and the Chine.
Requirement
W hich of the following describes the cross elasticity of demand between the two products?
A Negative
B Indeterminate
C Z ero
D Positive
LO 5a
30 T he government of Zeeland is concerned about demand pull inflation.

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

A increasing quotas for the imports of certain products
B increasing government borrowing and increasing government spending
C buying government bonds from the private sector to increase liquidity
D issuing more bank notes and coins into the economy to increase the money supply
LO 5c

32 Under what circumstances is quantitative easing most likely to be used?
A interest rates are high and liquidity in the system is low
B interest rates are high and liquidity in the system is high
C interest rates are low and liquidity in the system is low
D interest rates are low and liquidity in the system is high
LO 5c
33 W hich statement best reflects recent government policy in the UK over the past decade?
A low inflation combined with an expansionary fiscal policy
B low inflation combined with a neutral fiscal policy
C high inflation combined with an expansionary fiscal policy
D high inflation combined with a neutral fiscal policy
LO 5c

Chapter 12: External regulation of business

1 T he government has intervened to impose a limit on businesses’ carbon emissions. This is an example of regulation
designed to address market failure caused by:
A asymmetric information
B equity
C market imperfection
D externalities
LO 5b, 5d
2 T he government has passed regulations to change how car hire companies check whether hirers are licensed to
drive in the UK. Speedy Hire plc is a major player in the UK car hire business. In anticipation of the new regulations
the company implemented procedures which exceeded the requirements of the regulations. Speedy Hire plc’s
response to the new regulations was:
A innovation
B entrenchment
C mere compliance
D full compliance
LO 5d
3 Ferndale plc is a multinational company. It has been charged with collusive behaviour in its UK operations. If found
guilty, the company could, amongst other sanctions, receive a fine of:
A up to 10% of annual worldwide revenues
B up to 10% of annual UK revenues
C up to 20% of annual worldwide revenues
D up to 20% of annual UK revenues
LO 5d
4 Government intervention in a market economy can lead to an increase in economic welfare if:
A it sets a good’s maximum price above its equilibrium price
B the market mechanism has failed to allow for externalities
C it sets a good’s minimum price above its equilibrium price
D the demand for inferior goods rises as incomes increase
LO 5b, 5d
5 T he Fenno product is manufactured in the UK but is also imported into the UK from France. The UK government
has recently decided to apply an import quota on imports of the product from France. The quota is below the
current level of imports. This action will have the effect of:
A only French suppliers suffering a lower price
B both UK and French suppliers suffering a lower price
C only UK suppliers enjoying a higher price
D both UK and French suppliers enjoying a higher price
LO 5d
12: External regulation of business
6 A nti-monopoly legislation is an example of government intervention to address market failure caused by:
A market imperfection
B externality
C asymmetric information
D inequity
LO 5b, 5d
7 Competition legislation prohibits conduct that damages competition, including abuse by a business of its dominant
position. Which three of the following are types of conduct that will be considered as an abuse if the business is in
a dominant position?
A Imposing transfer pricing
B Limiting production markets or technical developments to the prejudice of consumers
C A pplying different trading conditions to equivalent transactions, thereby placing certain parties at a
competitive disadvantage
D A ttaching unrelated supplementary conditions to contracts
E Providing public goods on behalf of the government
LO 5b, 5d
8 In which of the following circumstances would a cartel be most likely to operate?

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

A it encourages firms to engage in research, which leads to new products being produced
B it deters firms from engaging in collusion, price-fixing and deceptive advertising
C it forces firms to produce efficiently
D the revenue from fines can be used for socially worthwhile causes
LO 5b, 5d
10 A nti-monopoly laws are based on the proposition that the best way to achieve efficiency and avoid excessive prices
is through:
A regulation
B increased competition
C public ownership
D oligopoly
LO 5b, 5d
11 T he following statements have been made about anti-monopoly legislation and market regulation.
Statement (1): Anti-monopoly legislation compensates for lack of competition, and market regulation promotes
competition.
ICAEW 2023 71
Statement (2): Anti-monopoly legislation promotes competition and market regulation compensates for lack of
competition.
Statement (3) Anti-monopoly legislation and market regulation promote competition.
A re these statements true or false?
Option Statement (1) Statement (2) Statement (3)
1 True False True
2 True False False
3 False True True
4 False True False
Requirement
A Option 1
B Option 2
C Option 3
D Option 4
LO 5b, 5d
12 Measures taken by government to redistribute wealth are a form of intervention aimed at addressing problems
concerned with: A asymmetric information
B market imperfection
C lack of equity
D externalities
LO 5b, 5d
13 T wo large listed companies recently colluded with each other to fix the price of a product they both sell in the UK
market. Collusion of this type is an example of market failure due to:
A inequality of resources
B external costs
C market power
D resource immobility
LO 5b, 5d
14 J erome is a director of Newport plc, a listed company. During the year he made a loan to his sister Jane, out of
company funds that has not yet been repaid. When asked by the external auditors about this, Jerome said that it is
unlikely that Jane can repay the money because she has been experiencing financial difficulties for several years.
Statement (1): Jerome has committed the offence of market manipulation under the Financial Services Act 2012.
Statement (2): Jerome could be disqualified as a director under the Company Directors Disqualification Act 1986.
Requirement
Statement (1) false; Statement (2) true

15 T he government of Myland was unhappy with the prices charged to customers for mobile data by mobile phone
operators and recently conducted a review into the industry. The review recommended that prices should be
regulated and capped at a maximum daily price that is below the market price.
T he impact of this pricing rule on market failure is best described as:
Requirement
A failing to address market failure because there is no impact on the price charged
B influencing the demand for and supply of mobile data
C persuading mobile phone operators to reduce their prices
D taking control of the mobile phone industry
LO 5d
16 T he government of Dryland wishes to encourage more people to eat fruit and vegetables. Currently, the price of
fruit and vegetables are high in comparison to people’s incomes and so the government is seeking ways of
increasing supply from producers to lower the price people pay.
W hich of the following methods should the government use to increase supply of fruit and vegetables?
Requirement
A Increasing indirect taxation on fruit and vegetables
B Paying subsidies to fruit and vegetable producers
C Persuading producers to lower their prices
D Set a maximum price for fruit and vegetables
LO 5a, 5d
ICAEW 2023 73
Chapter 13: Data analysis
1 A company correctly records and analyses all its sales transactions. At the end of each month, a report is
produced for the sales director listing details of every sales transaction: customer, products, quantities and
prices. Which of the following describes the quality of the report’s data and information?
A good quality of data, but poor quality of information
B good quality of both data and information
C poor quality of data, but good quality of information
D poor quality of both data and information
LO 6a
2 Big Dave Ltd collects data about customers and what they buy as well as certain items of personal information.
It analyses this data to identify relationships between the different variables, such as what products appeal most
to people of certain age groups.
Requirement
W hat type of analysis is this an example of?
A Descriptive statistics
B Exploratory data analysis
C Confirmatory data analysis
D Relativity analysis
LO 6a
3 W hich of the following is the best description of professional scepticism?

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

The auditor has formulated a hypothesis that errors occur in 2% of invoices. A sample of 30 invoices
was taken, and errors occurred in 3% of these. This was not considered to be significantly different from the
hypothesis, and the auditor concluded that errors occur in 2% of invoices.
Subsequently, the internal auditors checked all of the invoices entered into the system for the previous year
and identified an error rate of 4%.
Requirement
W hat type of error did the external auditor make in concluding that the error rate was 2%?
A a type I error
B a type II error
C omitted variable bias
D selection bias
LO 6c
6 A data analyst at a major retail chain has performed some analysis in which he has calculated the mean
monthly expenditure, and the average number of visits per month by the chain’s customers.
T he information was prepared by using details of credit and debit card payments to enable the analyst to track
all purchases made by a particular customer. Approximately 60% of purchases in the stores are made using
credit and debit cards, and the analyst claims to have tracked the purchases of 10% of card users.
Requirement
In evaluating the statistics produced by the analyst, which of the following conclusion would you reach?
A Given that 10% of the card users were used in the sample, the statistics are likely to be representative of
the population.
B T he data in the sample may suffer from selection bias so it should be recognised that the statistics may not
be an accurate reflection of the whole population.
C Since only a sample of customers was used, the data analysis is likely to be wrong and should therefore be
ignored.
D T he data in the sample suffers from omitted variable bias so it should be recognised that the statistics may
not be an accurate reflection of the whole population.
LO 6b
7 T he directors of a business have asked you to prepare a presentation in which you provide an overview of the
trends in sales over the last 10 years. The company has three main product lines.
Requirement
W hich type of chart would be most useful for providing a good overview of the trends in sales over the last 10
years?
A A clustered bar chart
B A component bar chart
C A pie chart
D A line chart
LO 6b
8 A rkwright Ltd analyses huge quantities of data about a wide variety of issues from a wide variety of sources.
Arkwright Ltd is seeking competitive advantage from:
A its transaction processing system
B big data
ICAEW 2023 13: Data analysis 75

C cybersecurity
D its strategic planning process
LO 6a, 6e
9 T he ability to stream big data into an organisation’s systems in real time is an example of which feature of big
data?
A V olume
B V eracity
C V elocity
D V ariety
LO 6e
10 W hich of the following features of big data concerns the fact that data sets contain anomalies and errors?
A V eracity
B V ariety
C V olume
D V elocity
LO 6e
11 Big Data analytics typically involves the analysis of unstructured data. Which of the following is an example of
unstructured data for a company that operates a chain of coffee shops?
A Spreadsheet analysis of the purchase of new chairs for store refurbishments
B Data tables showing monthly sales figures at each store
C A table of supplier names and addresses
D Email communications between a customer and the marketing department
LO 6a
12 Data science has great importance to big data and data analytics.
Statement (1) Data science deals with analysing and interpreting data rather than how it is collected.
Statement (2) One objective of data science is to extract value from data.
Requirement
LO 6f
13 Finax plc is a credit referencing organisation. It collects data on the credit transactions of millions of people and
commercial organisations worldwide. Vertex Ltd has an arrangement with Finax plc to access its store of big
data so that it can make decisions on whether to extend credit to new customers.
Requirement
W hich type of big data does Finax plc supply?

A Created big data
B Provoked big data
C T ransacted big data
D Compiled big data
LO 6a
14 T here are several sources of big data available to business organisations.

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

Requirement
W hich of the statements above are correct?
A 1 and 2 only
B 2 and 3 only
C 1 and 3 only
D 1, 2 and 3
LO 6d
18 T he ICAEW has issued a guidance document ‘Principles of good spreadsheet practice’.

Requirement
W hich of the following is an aim of the ICAEW principles of good spreadsheet practice?
A T o provide detailed guidance about spreadsheet design
B T o reduce the amount of time wasted by poor spreadsheet design
C T o provide detailed guidance on the use of formulae in spreadsheets
D T o provide detailed guidance on formatting spreadsheets
LO 6d
19 T he following statements about spreadsheet practice have been made

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

(1) Build in checks, controls and alerts from the outset
(2) Include an ‘About’ or ‘Welcome’ sheet to document the spreadsheet
(3) Separate and clearly identify inputs, workings and outputs
Requirement
W hich of the principles above can reduce the problems that occur when a spreadsheet is inherited by a new
user? A 1 and 2 only
B 2 and 3 only
C 1 and 3 only
D 1, 2 and 3
LO 6d

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

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

LO 6g
5 A cyber security consultant has listed the following actions that a small to medium-sized business can take to
reduce the risk of cyber-attack: A ction 1: Implement access controls
A ction 2: Install internet gateways
A ction 3: Use patch management software
Requirement
W hich of these actions are included in the UK government’s Cyber Essentials scheme?
A A ctions 1 and 2 only
B A ctions 2 and 3 only
C A ctions 1 and 3 only
D A ctions 1, 2 and 3
LO 6g
6 Hannon Ltd in an online retailer. The company has recently suffered a cyber-attack which resulted in the company’s
website being overwhelmed with vast amounts of traffic which caused it to crash.
Requirement
W hich of the following best describes the type of attack Hannon Ltd has suffered? A
Distributed denial of service attack
B Hacking
C Phishing
D Keylogging
LO 6g
7 W hich two of the following are suggested by the National Crime Agency to reduce the risk of cyberattacks?
A Encourage staff to use the same password for different systems to ensure they do not forget their passwords
B Install updates to software and operating systems regularly
C A void using password management apps
D Use two factor authentication methods at log in
E Monitor unusual activities on the system using data analytics
LO 6g
8 Rees Ltd uses data analytics to enhance transparency. Insights into which of the following are provided for Rees Ltd
by using data analytics in this way?
A customer buying patterns
B customer needs
C new products and services
D risk identification
LO 6a, 6f
ICAEW 2023 14: Developments in technology 81

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

LO 6h
13 T ech Ltd has invented a device that allows the temperature controller of the user’s home to be adjusted
automatically by an app on their smartphone, using data about the weather.
Requirement
Of which of the following types of technology is this an example?
B cloud computing
D data analytics
LO 6h
14 Distributed ledger technology and advanced accounting systems may have impacts on the work of the auditor.
Statement (1): The rate of technological change, such as with distributed ledger technology, is so fast that auditing
regulations in regards to the audit of transactions are now irrelevant.
Statement (2): The use of advanced accounting software reduces the need for auditors to audit transactions and
verify the ownership of assets.
Requirement
LO 6h, 6i
15 Software and other modern technologies used by businesses that provide automated and improved financial
services is referred to as what?
A Cognitive technologies
B Internet of things
C Crypto currencies
D Fintech
LO 6h
16 A retail company has developed a sophisticated analytics system to predict what products will become more and
more popular. The system involves a computer model that learns from the data, identifying new relationships
between different variables used in making predictions, so that the predictions are becoming more and more
accurate.
Requirement
W hat type of technology is the company using?
A Machine learning
B Robotic process automation
C A n expert system
D Blockchain
ICAEW 2023 14: Developments in technology 83

LO 6h, 6i

Chapter 15: Practice exam

1 Organisations can be defined or described in various ways.
Requirement
W hich three of the following are the key characteristics that are shared by all organisations?
A Synergy
B Social arrangement
C Collective goals
D Specialisation
E Controlled performance
F Exchange of goods and services
LO 1a
2 Cruciform is a charity providing medical services in South America. The Chief Executive is preparing a brochure
which outlines the services provided by the charity. In the brochure, the Chief Executive states that the charity
wants to be the largest global provider of charitable medical services by 20X5.
Requirement
By highlighting this, the Chief Executive is stressing the charity’s:
A vision
B mission
C primary objective
D secondary objective
LO 1a, 1b
3 T he directors of Gordon Ltd have recently appointed two members of its unionised workforce to an internal
committee. The committee makes suggestions to the company’s main board of directors about all aspects of the
company’s strategies and policies.
Requirement
T hese appointments illustrate the company’s concern for which stakeholder?
A Lenders
B Suppliers
C Customers
D T rade unions
LO 1a. 5e
4 Karen is a General Manager with Websellers Ltd. The company is restructuring. Karen is trying to persuade the
Managing Director to set up a separate marketing department within the new structure.
Requirement
W hich of the following statements that she has made is true?
A Marketing is the principal function of the company.

B A ll the different business functions should blend to achieve customer satisfaction.
C A company cannot practise marketing without a marketing department.
D ‘Advertising’ is synonymous with ‘marketing’.
LO 1c
5 A lain is a Manager with Glasnow Ltd. He always looks for opportunities to praise his subordinates and takes great
pleasure in promoting staff who perform well.
Requirement
A s far as his subordinates are concerned, Alain’s actions meet their:
A self-actualisation needs
B status/ego needs
C social needs
D safety needs
LO 1d
6 Humberts is a restaurant that specialises in Mediterranean cuisine with a modern style. It has recently employed
Juan, a marketing consultant, to review the service customers receive when they have a meal.
Requirement
W hich three aspects of the marketing mix will Juan consider when reviewing the restaurant’s service to
customers, and which would he not consider when reviewing the marketing mix for a product? A Place
B People
C Promotion
D Price
E Processes
F Product
G Physical evidence
LO 1c
7 Martina is a Human Resources Manager with Wardman Ltd. She is working on a project to increase the spans of
control of managers in the company’s largest subsidiary. She needs to identify any factors about the subsidiary that
indicate increases in spans of control are possible.
Requirement
W hich of the following factors identified by Martina suggests that increased spans of control are possible?
A Subordinates carry out very similar tasks
B Subordinates are geographically dispersed
C Frequent, time-consuming problems arise
D Managers are engaged in large amounts of non-supervisory work
LO 2b
8 Romulus Ltd and Remus Ltd have recently agreed to cooperate to exploit the possibilities that both companies have
in a particular overseas market. No separate company has been established for this purpose because the
companies’ Chief Executives, who have known each other for many years, have agreed matters informally.
Requirement
T his arrangement is an example of a:
A licensing agreement
B joint venture

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

A A s a strategy risk
B A s an operational risk
C A s a financial risk
D A s an enterprise risk
LO 1f
13 Stewardship of the organisation’s financial resources is part of which of its finance function’s tasks?
ICAEW 2023 Chapter 15: Practice exam 87
A Financial reporting
B Recording financial transactions
C T reasury management
D Management accounting
LO 3a, 3b
14 T he finance director of Boiled Sweets plc wants to specify the levels of performance that underpin the company’s
control system.
Requirement
W hich three of the following are the main components of the company’s control system?
A Measurement of actual performance and comparison against targets
B Identification of deviations from the plan
C Establishment of standards or targets to express planned performance
D Follow-up action to correct adverse results or to exploit favourable variances
E Measurement of ideal performance
F Devising the plan
LO 3b
15 W hich aspects of an organisation’s performance with respect to sustainability are measured using ‘triple bottom
line’ measures?
A Economy, effectiveness, efficiency
B Economic, social, environmental
C Profitability, liquidity, investment
D Productivity, activity, profitability
LO 3d, 4i
16 W hich three of the following are components of the COSO internal control framework?
A Information and communication
B Control environment
C Internal audit
D Project management
E Monitoring activities
LO 3b
17 GoodGreen plc prides itself on the environmentally friendly nature of its operations. It applies the triple bottom line
approach to the reporting of its performance.
Statement (1): The social aspect of the triple bottom line measures issues such as diversity and equality in respect
of the company’s workers.
Statement (2): The economic aspect to the triple bottom line measures issues such as the eradication of bribery,
fraud and money laundering.
Requirement

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

Statement (1): Interest is paid on the full facility.
Statement (2): Legal documentation is minimal in comparison with other types of loan.
Statement (3): The facility is repayable on demand.
Statement (4): Assets are not normally required as security.
Requirement
W hich of these statements are true?
A Statements (1), (2) and (3) only
B Statements (2), (3) and (4) only
C Statements (1), (2) and (4) only
D Statements (1), (3) and (4) only
LO 3h
20 W hich of the following trading risks faced by a business is the inability to finance the credit given to customers? A
Physical risk
B Liquidity risk
C T rade risk
D Credit risk
LO 1f
21 T he age of the population of Westland is negatively skewed. The median age is 55 years, while the mode is 62
years. Which of the following statements about the mean age of the population is correct?
A T he mean age is less than 55 years.
B T he mean age is between 55 and 62 years.
C T he mean age is greater than 62 years.
D T he mean could be within any of the ranges specified in A to C.
LO 3f
22 W hich of the following measures of spread is most useful when comparing the risk of two data sets, where the
values of the data in the first set are much smaller than the values of the data in the second set?
A range
B coefficient of variation
C standard deviation
ICAEW 2023 Chapter 15: Practice exam 89
D variance
LO 3f
23 Having a questioning mind, and being alert to the possibility of misstatement in financial statements due to error or
fraud, are features of a professional accountant’s:
A professional ethics
B professional behaviour
C professional scepticism
D professional competence
LO 4a, 6a
24 In both bank-based and market-based financial systems, financial intermediation is of increased importance
because of its ability to address the market imperfection of:
A monopoly
B asymmetric information
C trade barriers
D tariffs and quotas
LO 5b, 5d
25 Chris runs his own printing company. He is experiencing financial difficulties and some of his credit suppliers are
threatening to take him to court. He needs some advice and has seen an advertisement in his local paper for an
accountancy service that is much cheaper than he expected. He calls the accountant to check that the price is not a
misprint and is surprised at some of the answers he is given to his questions.
T he accountant made the following statements to Chris.
Statement (1): Anyone is free to advertise as an ‘accountant’ and offer the full range of accountancy services, with
no exceptions.
Statement (2): ICAEW members are open to competition from anyone, whether professionally qualified or not,
Statement (3): There is no legal requirement for an accountant to be a paid-up member of one of the CCAB bodies.
W hich of the following statements are true?
Requirement
A (1) and (2) only
B (2) and (3) only
C (1) and (3) only
D (1), (2) and (3)
LO 4b

26 T he principal factor affecting the nature of business ethics over time is:
A the expectations of society
B the values of senior management
C company policies
D government regulation
LO 4h
27 W hich of the following is one of the five OECD Principles of Corporate Governance?
A promote transparent and fair financial reporting
B support the rights of shareholders
C treat major shareholders equitably
D ensure real time, accurate disclosure and transparency
LO 4c, 4f
28 T he ability of markets to allocate resources efficiently within a financial system is often restricted by market
imperfections.
Requirement
W hich three of the following are market imperfections associated with financial markets?
A Lack of codes of practice
B Information asymmetry
C T ransaction costs
D Lack of regulation
E Insider dealing
LO 5b
29 T he body responsible for promoting high standards of corporate governance in the UK is the:
A FRC
B OECD
C CCAB
D Bank of England
LO 4b, 4e
30 T he board of directors of Lake plc is concerned that the current chief executive’s actions are undermining the
ethical culture at the company. She fails to listen to the concerns of managers about unfair treatment of
suppliers, and she has failed to learn from a recent scandal in which the company was fined for data protection
breaches.
Requirement
T o improve the ethical culture at Lake plc, which of the following is the most important action for the board to
take?
A draft a corporate code of ethics for Lake plc’s employees
B rewrite Lake plc’s policies regarding suppliers and customers
C demonstrate leadership by encouraging Lake plc’s chief executive to be more open
D brief shareholders more fully about Lake plc’s incentive scheme for managers
ICAEW 2023 91
LO 4c, 4d, 4g
31 J emson plc, a premium listed company, wishes to comply with the principles and provisions of the UK
Corporate governance code. The company has 10 directors, including the chair. The chair is a non-executive
director.
Requirement
In order to comply with the provisions of the UK corporate governance code, how many nonexecutive directors
(excluding the chair) must Jemson plc have?
A three
B four
C five
D six
LO 4d, 4e
32 T he Wates Principles include six principles and provide guidance for each principle
Requirement
W hich of the following statements is true of companies that adopt the Wates principles?
A T hey must apply the principles and explain any departure from the guidance.
B T hey must apply the principles and explain how they have applied them. They do not need to follow the
guidance .
C T hey must apply the principles or explain any departure from them. They do not need to follow the
guidance.
D T hey must apply the principles and explain how they have applied them. They must explain any departure
from the guidance.
LO 4c, 4e
33 A market trader has noticed that when the price of cakes rises, consumers tend to buy more biscuits instead.
Requirement
T he effect operating here is:
A the income effect
B the diminishing marginal utility effect
C the substitution effect
D the price elasticity of demand
LO 5a
34 W hich of the following are examples of complementary goods?

A Milk and orange juice
B Pepsi and Coca-Cola
C French fries and tomato sauce
D Lamb and beef
LO 5a
35 Redium is a normal good which has become increasingly unfashionable during the past year.

Requirement
W hat changes to supply, demand and market price will this change in tastes have created? A
No impact on the demand curve, but a fall in market price and a fall in quantity supplied B A shift in
the demand curve to the right, a fall in market price and a fall in quantity supplied
C A shift in the demand curve to the left, a fall in market price and a fall in quantity supplied
D No impact on the demand curve, no impact on the supply curve but a fall in market price
LO 5a
36 W hich of the following is an example of government intervention to correct a market failure?

A A n increase in corporation tax during an economic boom
B A n increase in the rate of value added tax (VAT) on all goods and services
C T he taxation of goods with negative externalities
D T he taxation of Giffen goods
LO 5b, 5d
37 T he price of Yellands has fallen by 4%. Over the same period demand for Dellows, where there has been no
price change, has risen by 6.5%.
Requirement
T he cross elasticity of demand between the two products is:
A –1.625
B –0.620
C 1.625
D 0.620
LO 5a
38 Economists in Zedland believe that the country’s economy is entering a recovery phase.
Requirement
W hich of the following features of the Zedland economy would support this view?
A Rising levels of demand being met by increased production
B Rising levels of demand being met by price increases
C Capacity and labour being fully utilised
D Bottlenecks occurring in industries which are unable to meet demand
LO 5c
39 T he government may place an additional tax on cigarettes to raise revenue for healthcare spending. The
demand for cigarettes is price inelastic.
Requirement
W hich of the following statements is true?
A T he tax on cigarettes may not raise as much additional revenue as anticipated because the demand for
cigarettes is likely to become more elastic over time.
B T he tax will not raise much additional revenue in the short term or the long term because demand is price
inelastic.
ICAEW 2023 93
C No additional tax revenue will be raised because sellers of cigarettes will lower their price by the amount of
the tax so the price of cigarettes to consumers will not change.
D T his will raise additional revenue in the short term and the long term because there are no substitutes for
cigarettes.
LO 5d
40 W ebcraft plc has a dominant position in its markets. It has received notice that it is being investigated under
Chapter 1 of the Competition Act 1998.
T he following activities have been colluded in by Webcraft plc.
A ctivity 1: Limiting production markets
A ctivity 2: Agreeing with another organisation to limit competition
A ctivity 3: Restricting technical developments
Requirement
W hich of the activities may, individually, have given rise to such a notice?
A A ctivity 1 only
B A ctivity 2 only
C A ctivity 3 only
D A ctivities 1, 2 and 3
LO 5b, 5d
41 Distributed denial of service (DDoS) attacks are used to bring down a business’ website by overwhelming it with
a wave of internet traffic.
Requirement
W hich of the following are used to create the wave of internet traffic in such an attack?
A Netbots
B Netdrops
C Botdrops
D Botnets
LO 6g
42 A hospital has recently been the victim of a cyber-attack. While investigating the causes and consequences of
the attack, the hospital’s board identified that old versions of software were being used in its administrative
systems, which made them more vulnerable to attack.
Requirement
W hich of the following would have been most effective in helping the hospital protect itself from the attack in
this scenario?
A Firewalls
B A ccess control
C Encryption
D Patch management
LO 6g

43 T he chief executive of Table plc is not convinced about the usefulness of much of the information in the
company’s financial statements. He makes three statements about the specific characteristics of the
information that he believes may undermine its usefulness.
Statement (1): It lacks timeliness
Statement (2): A high level of regulation applies to it
Statement (3): It contains a high level of aggregation
Requirement
W hich of these statements identify characteristics that are likely to undermine the information’s usefulness?
LO 3a
44 A n information system combines data and analytical models to help with semi-structured and unstructured
problem solving of an operational nature.
Requirement
T his is called:
A an expert support system
B a decision support system
C a knowledge work system
D an office automation system
LO 3c, 6a
45 Compared with operations management, which of the following is a characteristic that is unique to big data?
A V olume
B V ariety
C V elocity
D V isibility
LO 6e
46 W hich three of the following are ways in which data analytics of big data can create value for a business?
A Risk management
B Innovation
C Development of corporate mission
D Change management
E Performance improvement
F Creation of HR policies
LO 6e, 6f
47 Modern businesses may create digital assets and earn revenue by licensing other organisations to use them.
Statement (1): Watermarks can be used to protect the security of digital assets.
ICAEW 2023 95
Statement (2): Once a user has obtained a licence to use a digital asset they are free to use or distribute the
asset as they wish.
Requirement

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

Answer Bank
Chapter 1: Introduction to business

1 Correct answer(s):
D Option 4
Profit-oriented organisations should aim to maximise shareholder wealth. Non-profit oriented organisations, such
as charities, should aim to provide goods and/or services.
A managers seek to make satisfactory profits rather than maximise wealth
Satisficing is when managers are not maximising wealth for owners (which they should in fact be doing) but are
merely making enough profits to keep owners satisfied. Beyond that they simply choose to pursue their own
management objectives. This is the classic agency problem caused by the separation of ownership and control.
C 1 and 3 only
Listed under the broad heading of product development, Joe might choose to: bring in new products; develop a
product range; invest in research and development; provide products of a certain quality at a certain price level. If
he was concentrating on employees and management to support his primary objective, then he might aim to
reduce labour turnover.
C To double the share price within the next 10 years
Doubling the share price within the next 10 years is most likely to be the primary business objective. The other
three options would be typical secondary objectives for Avernanche plc in pursuit of the primary objective.
B maximise sales revenue
W illiam Baumol argued that businesses act to maximise sales revenue if managers are rewarded on the basis of the
size of the organisation rather than its profitability or relative performance.
A primary objective
Organisations whose primary objective is to make profits for their owners are classified as businesses.
A S
B M
D R
S = specific; M = measurable; A = achievable; R = relevant; T = time-bound
T he secondary objective is: specific (market share is a manageable feature of the company); measurable (20% is a
quantifiable yardstick of attainment). All of this is relevant to the business. The objective is not time-bound
because ‘a reasonable time’ does not set a specific time frame. Had it
1: Introduction to business
said that the objective should be met within, say, three years then it would have been. There is no information
about whether the secondary objective is achievable.
A The business’s market share target for next year
B The business’s productivity improvement target for next year
T he mission statement and vision are general expressions of the business’s basic function and planned future
status. Shareholder wealth maximisation would rank as the primary objective of any organisation classified as a
business.
B We will encourage diversity in the workplace
C We intend to be the best airline in the world D We aim to give excellent
customer service
A mission statement should answer the following fundamental questions: What is our business? What is our
value to the customer? What do we want our business to become? What should our business be? A and F are
numerical targets and more likely to be secondary objectives; E is a detailed tactic.
A Shareholders C Bankers
T he two groups most likely to put the company under pressure to improve its return on investment are
shareholders and bankers. Customers want products of a certain quality at a reasonable price; suppliers are
interested in regular orders in return for reliable delivery and good service; and employees’ objectives include job
security, good conditions of work and job satisfaction.
A To provide our shareholders with increased value
T he primary business objective of a profit-seeking company is the maximisation of shareholder wealth (A). The
other statements are secondary objectives that will be pursued in support of this primary objective.
Daycare is clearly a charity, therefore the funding of nursery places is its primary objective. As a nonprofit making
organisation it does not seek to maximise profit.
A Revenue maximising
Revenue maximisation is where a business acts to maximise revenue (not necessarily profit or wealth) in order to
maintain or increase its market share, ensure survival, and discourage competition. Having a large increase in
revenue but low profit indicates that the business is maximising revenue at the expense of profit. There is no
satisficing because the shareholders are unhappy with the return.
ICAEW 2023 99
C Even where shareholders are only interested in maximising their wealth, the value of a business over the
longer term is enhanced by good ESG practices
W hile ESG may involve additional costs to businesses, many investors now avoid businesses with a poor ESG
record. Having a good ESG record therefore may increase the value of a company over the longer term as it will
lead to higher share prices, even though there may be higher costs. Thus even if shareholders are only interested in
maximising their wealth, they adopt good ESG practices. (C) is therefore correct.
B Profits, Planet, People
T he triple bottom line was one of the first attempts to develop a reporting framework that focused on a wider
range of issues than simply profit. The three bottom lines are Profits, Planet and People.
B Sportylook has a responsibility for the behaviour of its suppliers, and should require suppliers to comply with
its own social standards
Big companies such as Sportylook have considerable influence over their suppliers and should therefore require its
suppliers to behave to the same standards as is considered acceptable by Sportylook itself. Turning a blind eye to
the activities of suppliers would not only be morally unacceptable, but it would also harm Sportylook’s own
reputation.
17 Correct answer(s): D 1, 2 and 3

A ll the statements are correct.
B Reuse
T he bottles are reused.
1: Introduction to business
Chapter 2: Managing a business

B Referent power
Referent power (B) is individual power based on identification with, admiration of or respect for the individual. This
can be summed up as power based on force of personality. Legitimate power (A) is based on agreement and
commonly held values which allow one person to have power over another person. It normally arises from position
and derives from our cultural system of rights, obligations and duties in which a ‘position’ is accepted by people as
being legitimate. Coercive power (C) enables a person to mediate punishments for others: for example, to dismiss,
suspend or reprimand them, or make them carry out unpleasant tasks. Expert power (D) is based upon one person
perceiving that the other person has expert knowledge of a given subject (often based on possession of formal
qualifications) and is a recognised authority in a given situation.
C Legitimate power
T he company’s procedures allow the manager to authorise lending up to £1 million. This is legitimate power (C) –
power given by her position and bank procedures. Referent power (A) – sometimes called personal power – is
capable of influencing the behaviour of others. Trust, respect, charm and enthusiasm are all attributes that allow us
to influence people without apparently imposing on them. Expert power (B) is the power that belongs to an
individual because of his/her expertise. Reward power is power to grant promotion or pay increases (D).
B power without authority
A uthority is the exercise of power for the proper purpose. Booking the business class seat is not within Cerise’s
authority, but she has had the power to persuade Malcolm nevertheless to book the seat. Delegation of
authority (C) occurs where superior gives to a subordinate the discretion to make decisions within a certain
sphere of influence.
C responsibility and authority
A ccountability cannot be delegated so B and D are incorrect. Some power must be transferred by delegation if
the person is to be able to accomplish the task for which they have been given authority and responsibility.
Delegation embraces both authority and responsibility. Authority can be delegated readily, but many problems of
delegation stem from failure to provide the necessary information and resources in order to achieve expected
results, or from failure to delegate sufficient power for subordinates to fulfil their responsibilities.
A over a subordinate down the chain of command
Line authority refers to the relationship that exists between a manager and his/her direct staff, and occurs in most
organisations. This line runs in an uninterrupted series of steps and is based on the scalar chain principle of
hierarchy in which there is a clear line of authority from the top of the organisation to the bottom. Essentially, the
scalar chain is used to implement decision making and the issue of instructions.
ICAEW 2023 101

2: Managing a business
B An IT manager setting out rules for internet and email use
A functional relationship means that a manager has authority in certain areas over another department. The IT
manager could have functional authority over all other departments when defining rules for internet and
email use. C is a line manager; D is a project manager; and A is a staff manager.
A decisional role
Mintzberg’s managerial roles are interpersonal, informational and decisional. This is a simple decision (A) for
Andrew. The disseminator role (C) would form part of the informational role (D) and involves distributing
information to staff, either as fact or as information involving some interpretation and integration. The
interpersonal role (B) relates to such matters as listening to employees or giving feedback.
8 Correct answer(s): B interpersonal role

Charlize is describing her interpersonal role (B) as a manager – representing her team in her capacity as their
leader as well as interacting with managers of other teams within the company.
9 Correct answer(s): B Storming

T he forming stage (A) is associated primarily with seeking to define the purpose of the group (achieved at last
week’s meeting), but the storming stage (B) is where conflict first arises, particularly concerning competition for
chosen roles. Once such conflicts have been addressed, the group will norm (C) and then, hopefully, perform (D).
B a rational goal culture
A ccording to Robert E Quinn, when an organisational culture is outward-looking and high on control, it is
termed a ‘rational goal’ culture (B). An internal process culture (A) is one in which the business looks inwards,
aiming to make its internal environment stable and controlled. Goals are known and unchanging, and there
are defined methods, rules and procedures governing all activities. Security, stability and order motivate staff.
In an open systems culture (C) the external environment is a source of energy and opportunity, but it is ever-
changing and unpredictable. The business must be highly flexible and open to new ideas, so is very adaptable
in structure. Staff are motivated by growth, creativity and variety. In a human relations culture (D) the business
looks inwards, aiming to maintain its existence and the well-being of staff. Staff are motivated by a sense of
belonging.
A a set of variables that he manages in order to achieve a desired response from the company’s various target
markets
T he marketing mix comprises four variables (A): product, price, promotion and place. The marketing mix is not the
same as the sales mix (B) nor is it the same as the communications mix (D). It is also a broader concept than mere
product features and benefits (C).
C A situation where a person can give advice and guidance to another
A staff function is one in which authority arises in giving specialist advice to another manager or department
over which you have no line authority (C) and, therefore, no authority to make or influence decisions in that
other department.
ICAEW 2023 103

B Attitudes
C Underlying competencies and skills E Communication patterns
A ttitudes, underlying competencies and skills, as well as communication patterns, are all classified as covert
variables in the model. Formal goals (A) and organisation design (D) are overt variables.
B the market is broken down into several different sections
Market segmentation means that the market can be broken down into several sections (B) using segmentation
bases such as age and gender. You can practice market segmentation and then target all the segments of the
market (A) with a broad competitive scope (D). Markets are segmented into homogenous (ie, distinct) groups of
customers, each of them likely to react differently to a particular marketing mix. The fact that there are
homogeneous sections within the total market, implies that the total market is heterogeneous rather than
homogenous (C).
A pull promotion
T V advertising is addressed to consumers to ‘pull’ them in and encourage them to demand the goods (A). A push
promotion (B) involves convincing trade intermediary channel members to ‘push’ the product through the
distribution channels to the ultimate consumer via promotions and personal selling efforts. The company promotes
the product through a reseller who in turn promotes it to yet another reseller or the final consumer. Trade
promotion objectives are to persuade retailers or wholesalers to carry a brand, give a brand shelf space, promote a
brand in advertising, and/or push a brand to final consumers. Car dealers often provide a good example of a
combination of pull and push promotions (C). If you pay attention to car dealers’ advertising, you will often hear
them speak of cash-back offers and dealer incentives. Personal selling (D) involves the use of a sales force to
support a push strategy (encouraging intermediaries to buy the product) or a pull strategy (where the role of the
sales force may be limited to supporting retailers and providing after-sales service).
D market segmentation
Dividing a market into homogeneous groups of potential customers who may be treated similarly for marketing
purposes is the process of market segmentation (D). The marketing mix comprises the 4 or the 7 Ps, while mass
marketing means not dividing the market up at all. Market research is the process of finding out more about a
particular market or market segment.
C costs, competitors, customers and corporate objectives
T he main influences are costs, competitors, customers and corporate objectives (C). The concepts in (A) and (D) are
those of the marketing mix, while those in (B) relate to operations management.
B high volume and low unit costs
2: Managing a business
High volume lends itself to Harris plc’s capital-intensive operation, with specialisation of work and well-established
systems for getting the work done. Unit costs should therefore be low (B).

C applied research
Research into products which have obvious commercial or practical use is called applied research (C). Market
research (A) is into the market itself, not the product, while process research (D) is into processes rather than
products. The aim of pure research (B) is to obtain new scientific or technical knowledge or understanding. There is
no obvious commercial or practical end in view.
B Quantity, quality, price, lead time
T he four elements of the procurement mix are quantity, quality, price and lead time (B). Price, product, place and
promotion (A) are the four elements of the product marketing mix, while volume, variety, variation in demand and
visibility (C) are the four Vs of operations management. Costs, competitors, customers and corporate objectives (D)
are the four Cs of pricing.
A Wesley can give more focus to those tasks that require his management experience
W esley will be able to devote more time to managerial tasks. Even though it may be true that he can delegate the
‘boring’ tasks, this is unlikely to be a real advantage as it may lead to a demotivated team if staff are given what
they perceive as the undesirable tasks. Having a larger team to delegate to may mean that Wesley does more
supervising, not less. It is not necessarily true that Wesley’s team will enjoy having more work to do – it is the
nature of the work that they are given that will make the delegation effective for Wesley in improving their job
satisfaction and motivation.
C Push marketing technique
T he marketing team is ‘pushing’ the HD5000 onto retailers by persuading them to sell it.
B Deliveries of raw materials used to make the clothes
T he upstream supply chain relates to an organisation’s suppliers (and, in turn, their suppliers), to provide the
materials and other inputs required for the production process.
A ctivities relating to customers and the marketing and distribution of finished products comprise the
downstream supply chain, rather than the upstream.
24 Correct answer(s): C 2 and 3

T he fact that Birdot ran out of a key component suggests it had failed to order sufficient quantities of the component,
and/or that it had not ordered them in time for them to be available when required.
Problems with quality and price would not directly affect the availability of the component in this way.
ICAEW 2023 105

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

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

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

Angela has unlimited liability (B) and with the increasing financial commitments of the business it might be better
for her personally to seek limited liability, though the business will still have unlimited liability for its own debts (C).
As a sole trader, the business’s liability is not distinct from her own. Filing financial statements with the Registrar of
Companies (D), and the rules that apply to the business’s constitution (E), do not apply to Angela as she is not
operating as a company.
C Periodic management accounts
Sales management is part of both marketing and operations, so would be handled by Rumbert Insurance itself, not
by the Regional Office. Financial reporting, and research and development, are centralised at Head Office so again
would not be provided by the Regional Office. Periodic management accounts would be provided by the Regional
Office as they are neither marketing/operations, nor are they related to strategic direction, R&D or consolidated
financial reporting.

A strategic alliance – No separate legal identity
A limited liability partnership – Separate legal identity
A registered company – Separate legal identity
A strategic alliance is an informal or weak contractual agreement between parties or a minority crossshareholding
arrangement, neither of which imply a separate legal identity from the owners. Both companies and limited liability
partnerships are separate legal entities.
B It gives him personal liability for any failure of his in relation to the hospital IT system.
It prevents him from employing staff False
It gives him personal liability for any failure True
It prevents him from obtaining a loan False
It allows him to issue shares in his business to friends and family False
A s a sole trader he can raise loans and employ staff so neither of these statements is true. He cannot issue
shares to anyone as there is no limited company, so this statement is false. As a sole trader he does have the
disadvantage of personal liability.
C With Secateur Ltd as equal partner, form Plicateur Ltd and market the product through that company
Buy Secateur Ltd – Group structure
Form a project team – Strategic alliance
W ith Secateur Ltd as equal partner – Joint venture
Sell Secateur Ltd the rights to market – Licensing agreement
Purchasing the company will make it part of a group; forming a project team is a form of strategic alliance, while
selling Secateur the marketing rights in return for a fee is a licensing agreement. Plicateur Ltd would be a separate
legal entity owned 50:50 by the two companies and this is the most usual form of joint venture. A strategic alliance
is more informal.

A Duties and responsibilities of the role
B Job title
E Pay grade
T he organisation chart of Huff plc, and its health and safety policy, will not be included in a job description for a
particular role but are more likely to be included in the company’s organisation manual or staff handbook.
A Greater opportunity to delegate
B, C and D are advantages of a tall organisational structure. These have smaller groups which aid participative
decision making. They provide more stages in the career ladder for employees to work through which improves
training. In a tall hierarchy, the span of control is narrowed for managers. In a flat structure, the span of control for
managers is wider which increases the number of staff they can delegate work to. SAMPLE EXAM 2
C a limited liability partnership
Only the limited liability partnership (C) necessarily exists as an entity separate from its owners. A general
partnership (B) is not a separate legal entity from the partners. A joint venture between two limited liability
companies (A) is usually a limited company but does not necessarily have to be established in that way. A strategic
alliance (D) is an informal contractual or minority cross shareholding arrangement. Normally no separate company
is formed.

Chapter 4: Introduction to business strategy

A product form
Laptop or desktop computers are both examples of product form (A). Home computers would be referred to as
either a product class or a generic product (C and D) since those two terms can be used interchangeably. A
particular manufacturer’s brand version of a home computer would be B.
A Value chain analysis
C The BCG Matrix
E Analysis of distinctive competencies
Options B and D are methods of analysing the company’s external environment – B analyses the task (or market)
environment, whilst D analyses the macro environment. F is a means of assessing potential growth strategies of the
company.
B S
A ge is a demographic factor that falls under the Social aspect of PESTEL analysis (B). P = political, T =
technological, L = legal.
C competitive strategy
Competitive strategy (C) is concerned with how the business will compete in terms of source of competitive
advantage (cost or differentiation) and extent of competitive scope (broad or narrow). A functional strategy (A)
would be concerned with the role of the marketing function itself within the company. Business strategy (B) is
concerned in particular with how the marketing mix would be adjusted in due course if a competitive strategy of
differentiation was decided upon. Product/market strategy (D) is concerned with how the business will grow
(Ansoff’s Matrix).
B A customer base consisting of a few large customers
T he relatively concentrated customer base (B) means that existing players have a distinct advantage, and it also
gives the customers higher bargaining power, so makes the sector less attractive to new entrants. Low initial capital
costs (A) reduce risk in a project by decreasing the break-even point, allowing time to build up a large customer
base. This can encourage new entrants. C may increase rivalry but it does not affect new entrants; D has no effect.
D 4
Low levels of competition in an industry make it more attractive for new entrants. High capital costs involve risk
and fund raising challenges which can act as a barrier to new entrants.
D Treat this stakeholder as a key player when formulating future strategies
4: Introduction to business strategy
In terms of Mendelow’s matrix, this stakeholder clearly possesses both a high level of interest in the company’s
affairs and a high level of power (influence) over them. In such circumstances, the recommended strategy is one of
treating the stakeholder concerned as a key player.
D differentiation focus
T he exclusivity of the holidays indicates an emphasis on generating competitive advantage through differentiation
rather than low cost, whilst their specialist nature and precise target market (age 60+) indicate a focus strategy
rather than a broad competitive scope.
C either a build or a harvest strategy
W ith a low market share of a high growth market, the Pluton would be classified as a Question mark within the
BCG matrix, for which the possible recommended strategies are Build or Harvest. Option A relates to a Dog, option
B to a Cash Cow and option D to a Star.
C product development
T he company is introducing a new product but clearly targeted at the same market as its existing products, hence
growth by means of product development.
B An acceptability test
C A suitability test D A feasibility test
Gerry Johnson and Kevan Scholes recommend evaluating strategies against the following criteria:
Suitability – does the strategy fit the strengths, objectives and image of the company?
Feasibility – does the company have the necessary resources to pursue the strategy effectively?
A cceptability – is the strategy acceptable to the company’s stakeholders?
12 Correct answer(s): B Harvest

W ith a high market share in a low/no growth market, the Zulon is clearly a Cash Cow. The two strategy options are
Hold (which implies continuing to support the product financially to maintain its position) or Harvest (which implies
running down investment in the product and just managing the product for cash flow during its final years). The
product manager appears to rule out the Hold strategy (withdraw investment), hence Harvest is the key (B).
C Profits are normally highest during the maturity phase
T he maturity phase is the phase during which profits from the product are usually maximised (C). The decline
phase starts after the maturity phase ends, but the diagram will not predict when that will be (A). Sales growth is
never guaranteed – the introduction could be a flop (B). There is a vast range of mature phase lengths and it cannot
be said that they are usually 10 years (D).

B a tiger
Millward Ltd is consistently aggressive in its responses to competitor actions – a ‘tiger’ reaction profile (B).
C Improved product features and benefits
D Promotion of the Portex brand
E Use of higher quality materials in the manufacturing process
Differentiation means distinguishing your products and services from competitors’ offerings in ways that target
customers will value. Therefore, better products using superior component parts (E), distinctive branding (D) and
improved features and benefits (C) can all help. Options A and B would most likely underpin a competitive strategy
based on low cost rather than differentiation.
C generic competitors
T he companies offer distinctly different products that satisfy different needs but which are highly likely to be
competing for the same disposable income. They are, therefore, generic competitors (C).
A Inbound logistics
D Marketing and sales
E Service
B and C are both support activities in the value chain model.
18 Correct answer(s): A Option 1

A business plan sets out the market(s) to be served, how they will be served and the finance required, so
Definition 1 is accurate. A strategic plan sets out the business’s overall objectives and how to achieve them,
but it is the operational plan which specifies what is expected of each function in a business, so Definition 2 is
inaccurate.
C It will act as a detailed checklist to assist in understanding the different influences in Simian plc’s environment
A PESTEL analysis (C) reveals the key influences in the organisation’s macro-environment (rather than its market
or task environment). Strengths and weaknesses (A) would be revealed by a SWOT analysis; the structure of an
industry would be revealed by a Five Forces Analysis (B); and helping to identify the relative levels of interest
and power (D) refers to stakeholder mapping.
A Strategy (1): A corporate strategy; Strategy (2): Not a corporate strategy
T raining store staff is very much an operational issue that does not constitute a corporate strategy, but offering its
capability to other supermarkets is a fundamental long-term ‘directional’ decision which commits the company’s
resources.
ICAEW 2023 113

4: Introduction to business strategy

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

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

T his is a regulatory (or legal) risk, which is a form of event risk.
9 Correct answer(s): B risk only

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

A both changes (machinery and borrowing) increase the company’s financial risk
Both changes (machinery and borrowing) increase the company’s liquidity risk, a type of financial risk, as they
increase the amounts (fixed overheads and interest) that have to be paid however much revenue is achieved.
They both mean that the company is more exposed if there is a downturn in demand for its products.
19 Correct answer(s): D event risk

T he failure of a participant in the business’s supply chain to honour their contractual obligations is classified as
systemic risk which is a specific type of event risk.
B 3, 2, 1, 4
Following risk awareness and identification (3), the risk manager analyses and measures the risk (2) and
assesses how it can be responded to and controlled (1). The risk is then monitored and reported
(4).
B risk transfer
T he risk is transferred to the outsource provider (B). Outsourcing does not necessarily reduce the probability or
impact (A), and the risk still exists, so it is not avoided (C). Clearly the company is not retaining the risk by
outsourcing (D).
A Product risk
Business risk arises from the nature of the business, its operations and the conditions it operates in; this
includes strategy, enterprise and product risks. Financial risk and operational risk, which includes event and
process risks, are separate types of risk.
A The risk that the Production Director will be recruited by Tiller plc, a key competitor
T he risk of the Production Director moving to a competitor is the only example here of operational risk. The
other options relate to strategic risk.
A crisis management
A power cut would cause a major breakdown in the running of the hospital and could cause loss of life if life
support machines or operating theatres lose power. Therefore it is a crisis. Crisis management concerns
identifying a crisis, planning a response to the crisis and confronting and resolving the crisis. The generator
shows that the hospital has identified a crisis (lack of electricity) and has planned, confronted and provided a
resolution to the crisis (the generator). This means that the generator is part of the hospital’s crisis
management.

A disaster (such as a power cut) is a major crisis or event which causes a breakdown in the organisation’s
operations. The generator cannot prevent the power cut but helps the hospital deal with and manage the
impact of it.
25 Correct answer(s): D Market risk

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

T he mode is the most frequently occurring data value. It can be applied to qualitative data such as the most
popular colour. The standard deviation is not a measure of central tendency, but is a measure of dispersion.
31 Correct answer(s): A it is widely understood

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

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

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

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

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

A n information system sits within its environment from which it accepts inputs and to which it delivers outputs.
A structured decisions

Structured decisions can be reduced to a series of rules which, if followed, will lead to the correct decision
being made. Providing managers with the right information to make structured decisions is what management
information systems specialise in.
21 Correct answer(s): B accuracy only

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

28 Correct answer(s): D relevant
W hen financial information influences the decisions of users it is said to be relevant.
D authorisation
A uthorisation, in this context, is the fact that changes can only be made by accountable individuals. It is one of
the ACIANA qualities of a secure system (availability; confidentiality; integrity; authenticity; non-repudiation;
authorisation).
C non-repudiation
Non-repudiation refers to the fact that information should not be open to being rejected by its recipients on
the grounds of faults in the information system. It is one of the ACIANA qualities of a secure system.
C Issues 1 and 3 only
To be effective, information processing should meet the CATIVA criteria – completeness, accuracy, timeliness,
inalterability, verifiability and assessability. Non-repudiation is one of the ACIANA qualities of information
systems security.
B Financial reporting provides information to managers and people outside the company, such as investors.
External users do not have access to management accounting information (A) and (C). Financial reporting does
provide information to both managers and people outside the company, such as investors (B) but it is not
confidential (D).
B Relevance
C Faithfulness of representation
These are the fundamental qualitative characteristics. The enhancing qualitative characteristics are
understandability, comparability, verifiability and timeliness. If financial statements demonstrate at least the
fundamental characteristics then investors will be able to rely on them in making their decisions; this reliance
is enhanced if the further characteristics are also displayed.
D Financial statements are used by investors, payables (creditors) and management.
General purpose financial statements are used by investors, payables (creditors) and management.
B Data stored in the system is the same as its sources and has not been altered or corrupted
The integrity of a system ensures that the data captured and stored in the system is the same as in its sources,
and it has not been accidentally or deliberately reduced, altered or destroyed.

T he fact that data can be accessed as and when required, by authorised people reflects the quality of availability;
data being obtained from reliable and verifiable sources reflects authenticity; and the fact that data cannot be
accessed by anyone who does not have the right to see it reflects confidentiality.

Chapter 7: Business finance
C Factoring
Short-term funds are those used to cover normal operations and can be taken to mean finance available for up to
one year. An example is debt factoring (C). Bank loans and mortgages are debt finance provided for more than one
year, while share capital is equity finance that is also provided for more than one year.
Statements (1) and (3) accurately describe the fiduciary and the bailor/bailee relationships respectively. Statement
(2) is inaccurate as it states that the charge is over the customer’s liabilities, when in fact it would be over the
customer’s assets.
C a primary capital market
T he capital markets consist of primary markets and secondary markets. New securities are issued on primary
markets (C) whilst secondary markets (B) allow investors to buy existing securities or sell securities that they hold.
Futures markets (A) provide standardised futures contracts to buy or sell a particular commodity or financial
instrument at a pre-determined price in the future. Money markets (D) provide short-term debt financing and
investment.
V enture capitalists often will want a place on the board to secure their investment, so Statement (2) is false. They
are very likely however to realise their investment by selling their shares following flotation on the stock exchange
(1), and they would normally expect a company’s existing owners to bear a substantial part of the risk (3).
D Money market
Money market. AIM and the London Stock Exchange are both examples of capital markets.
D A unit trust
A unit trust is an institutional investor, along with pension funds and insurance companies for example. The Bank of
England (A) is the UK central bank, and the Financial Reporting Council (B) and Financial Conduct Authority (C) are
regulators.
C Renovation of a production facility
V enture capital is generally most appropriate for new investments with above average risk. Renovation of an
existing facility is a part of the ongoing activity of the business and is unlikely to have much impact on the overall
level of returns. It is therefore unlikely to be appropriate for a venture capital investment.

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

make the issue a success. Bank borrowings (D) are a major source of finance since debt finance is generally cheaper
and easier to arrange than equity, but it lacks the simplicity of using cash from retained earnings.
C The lessee owns the asset outright from the time of purchase.
W ith a lease, ownership of the asset remains with the lessor, at least until all lease payments have been made. The
other options are correct statements about leases.
C Venture capital can be appropriate for a management buyout.
V enture capital can be appropriate for a management buyout. Venture capital is high risk (A), and is not normally
available to listed companies (B). It normally takes the form of equity finance, although it may take the form of debt
finance (D).
D Mortgage on property
A property mortgage (D) is generally for a term longer than five years, and this is therefore a longterm source of
finance.
D Letter of credit
T his is a letter of credit. A bill of exchange (A) is drawn by one party on another (not necessarily by a bank). An
export guarantee (B) is insurance against defaults on exports. A payment gateway is used to authorise online
payments.
C Deciding what credit limits the client should give customers Deciding what credit limits the client should give
customers.
A Investment in equities
Short-term cash surpluses will not normally be invested in equities owing to the risks associated with achieving a
return over a short period.
C Bailor/bailee
T he bailor/bailee element of the relationship concerns the bank accepting the customer’s property for storage in
its safe deposit.
D Crowdfunding

Crowdfunding is a means of financing a new business or a new project for an existing business by raising a specific
sum of money from individuals, usually via the internet.
C money market
Financial instruments with maturities of less than one year are traded in the money market.
23 Correct answer(s): D 2 and 4 only

T he bond can be sold in a capital market and a secondary market.
A normally higher
T he long-term interest rate is normally but not always higher than the short-term rate.
C Financial Policy Committee
T he Bank of England’s Financial Policy Committee seeks to take action to remove or reduce systemic risks in the UK
financial system as a whole. The Financial Conduct Authority (A), which is independent of the Bank of England, is
part of the ‘twin peaks’ regulatory regime for the financial services industry, the other part being The Bank of
England’s Prudential Regulation Authority (D). The Bank’s Monetary Policy Committee (B) aims to influence the
quantity and price of money in the UK economy.
26 Correct answer(s): B Credit risk

Credit risk is the term given to the risk of payment default by the customer.
C Receivables insurance
T he payment of a premium in return for the payment of customer debt if it becomes irrecoverable indicates
receivables insurance.
D It is a bond which is redeemed at a £500 discount.
T he interest rate is fixed so therefore the loan stock cannot be a floating rate note. Because the redemption value
is less than the par value of £10,000, redemption is at a discount.
A It should be stated in the legal documentation that the proceeds of issuing the bond will be used for projects
that should provide clear environmental benefits.
D The proceeds from the issue of the bond should be kept in a separate account or tracked by the issuer.
T he Green Bond Principles specifically state that:
Items A and D are two of the four components of the Green Bond Principles.

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

Chapter 8: The accountancy profession

B measurement, disclosure or provision of assurance about financial information that helps managers, investors,
tax authorities and other decision makers make resource allocation decisions
The accountancy profession is concerned with providing measurement, disclosure or provision of assurance about
financial information that helps managers, investors, tax authorities and other decision makers make resource
allocation decisions.
Option A relates to financial reporting; C to management accounting; and D to financial management.
D The profession’s rules and regulations are established solely by government legislation
Professions are permitted to set their own rules and regulations (meaning they are not regulated solely by
government legislation, but instead have a high degree of autonomy). For example, the Financial Reporting Council
(FRC) plays a key role in regulation of the accountancy industry, while in turn, ICAEW regulates its own members.
A profession will require a high level of skills and competences, which is why chartered accountants have to pass
professional exams before they are admitted to full membership!
A Professional values
A profession’s code of ethics or conduct is an example of its professional values. Self-regulation is where
professionals judge each other, and hold each other to account, for not meeting these values.
A Insolvency
C Investment business
F Statutory audit
Some areas of public practice are ‘reserved’ and so there are specific additional requirements for professional
accountants engaged in them. Three of these areas are statutory audit, investment business and insolvency work.
ICAEW is also the recognised regulator for probate work.
D Paula can offer any accountancy services except those in the reserved areas.
The term ‘accountant’ has no special position in English law (A). There is no legal requirement for an accountant to
be a paid-up member of ICAEW (or any of the CCAB bodies) (B). Paula can call herself an accountant and because
she is registered for supervision under the money laundering regulations, she can offer any accountancy services
except those in the reserved areas where specific levels of competence and regulation are required (C, D).
A Regulation of the auditing profession
In areas other than the regulation of audit, such as options B, C and D, the FRC does not have statutory powers.
D Protect taxpayers’ money
A ccountants working in the public sector have a duty to protect taxpayers’ money. The other options apply to all
accountants.
B (2) and (3) only
Anyone is free to advertise as an ‘accountant’ and offer the full range of accountancy services, No
with no exceptions.
ICAEW members are open to competition from anyone, whether professionally qualified or not, Yes
There is no legal requirement for an accountant to be a paid-up member of one of the CCAB Yes
bodies.
The first statement is incorrect because although anyone is free to advertise as an accountant, there are four
‘reserved’ areas of business (insolvency, investment business, probate and statutory audit) where statute
demands specific levels of competence and regulation. To offer accountancy services the provider must be
supervised for money laundering purposes.
Regulation of professions should protect the public from being misled or from suffering from True
abuse of power through knowledge or monopoly.
Regulation of professions should protect the profession’s vested interests from competition in False
order to maintain public trust.
Regulation of professions should specifically not protect the profession’s vested interests from competition.
D The Financial Reporting Council
The FRC, via the Conduct Committee’s Financial Reporting Review Panel, investigates departures from relevant
accounting standards and Companies Act 2006 requirements by large companies such as those listed on the
London Stock Exchange.
The ICAEW is responsible for eligibility to practise and discipline for ICAEW members only.
B The ICAEW
The ICAEW is one of 22 anti-money laundering supervisory bodies in the UK, and it supervises all member firms of
the ICAEW.
ICAEW 2023 133

T he FCA and HMRC are also recognised as anti-money laundering supervisory bodies, but do not supervise
members of the ICAEW.
T he Office of Professional Body AML Supervision (OPBAS) is responsible for overseeing the activities of the anti-
money laundering supervisory bodies.

A ccountants are not expected to be campaigners, which is what role (1) implies. They are expected to support
organisations in their approach to meeting the challenges of climate change, such as risk management and
performance measurement.
B Green finance strategies such as green bonds
Taxes, grants and mandatory reporting all fall within the category of solutions based on regulation. Green finance is
a response by the market for finance that meets the needs of investors who wish to invest in sustainable or green
projects.
Chapter 9: Governance and ethics

B comparatively less close relationships between banks and businesses than in a bank-based system
Options A, C and D are all characteristics of bank-based financial systems.
A a market-based system
Household preference for equity (more risk) rather than bank deposits (less risk) means that equity finance in a
market-based system is likely to dominate the financing of businesses.
D the company’s shareholders
The reporting responsibility is to shareholders (D), not to other directors (A) nor to employees (C). Under a unitary
board structure there would not be a supervisory board (B).
B shareholders as a body
The separation of ownership and control creates a situation where directors act as the agents of owners
(shareholders), who are, therefore, collectively the principal.
D Statement (1) does not match; Statement (2) matches
Corporate governance comprises the practices and procedures for ensuring that a Does not match
company is run in such a way that it achieves its objectives.
Corporate governance is a set of relationships between a company’s management, its Matches
board, its shareholders and other stakeholders.
Statement (1) fails to specify that corporate governance also covers how objectives are set.
B Intermediaries
C Securities
D Markets
Options B, C and D all relate to a generic financial system. Governance structures and regulators may or may not
exist within a particular system, but they are by no means basic elements of it.
B exceed the minimum obligations it owes to stakeholders
Rather than simply doing the minimum required, the company will want to exceed it, in relation to all stakeholders
and not merely shareholders.
ICAEW 2023 135
9: Governance and ethics
A Investors
D Managers
The separation of ownership and control refers to the classic ‘agency problem’, in which investors
(shareholders) who own the company delegate responsibility for running the business to managers (as agents) for
the ultimate benefit of the owners. Corporate governance is fundamentally concerned with ensuring that the
managers act as the owners would want them to.
A to act at all times in the best interests of the company
The stewardship approach requires that directors should act at all times in the company’s best interests, not in their
own interests. This resolves the agency problem. Allowing shareholders to see detailed accounting records on
request, holding monthly meetings to answer shareholders’ queries and consulting shareholders over difficult
management decisions are not required by the stewardship approach, though a company can choose to follow
such procedures.
C Demonstrate leadership by encouraging Lake plc’s chief executive to be more open
Lake plc’s Chief Executive has failed to show a key attribute of an ethical leader, which is openness: being open
minded and willing to learn. Boards have a responsibility to act where leaders do not deliver on ethical leadership,
so Lake plc’s board should demonstrate leadership by encouraging the Chief Executive to be more open. While
drafting a corporate code of ethics, rewriting policies and talking to shareholders can also help to build an ethical
corporate culture, it is addressing unethical leadership that is the key way to improve it.
D All of the above
Domination by a small group: key figures are related
Short-term view: directors’ bonuses are based on annual profits
Lack of supervision: the sales force can tie the company into contracts that represent a credit risk
C Board of directors, senior management, shareholders, external auditors, internal auditors
Board of directors, senior management, shareholders, external auditors, internal auditors are the key elements of
good corporate governance.
B Supervisory board
A dual board system consists of a supervisory board and a management board.
C Statement 1 = False; Statement 2 = True
The high ‘power distance’ score in Erewhon means there is a greater acceptance in Erewhon that power is
concentrated among a small number of people. Therefore it is more likely that Erewhon’s code will allow a single
person to be both CEO and chair than Wenland’s code will. Therefore Statement 1 is False. Having a higher
proportion of independent NEDs on the board will help to keep the power of the executive directors in check, so it
is likely that Wenland’s code will require a higher proportion than Erewhon’s. Therefore Statement 2 is True.
ICAEW 2023 137

15 Correct answer(s): B 1 only
Statement 1 correctly defines whistle-blowing.
One way organisations often encourage employees to report unethical behaviour is through a helpline. A helpline
can be particularly useful if the employee’s concerns relate to the behaviour of their line manager, meaning that
the employee needs to report their concerns to someone other than their manager (so Statement 2 is False).
A Good corporate citizenship
C Leadership
D Sustainability
The core aspects of the King Report are leadership, sustainability and good corporate citizenship.
17 Correct answer(s): D Marketing

The issue clearly relates to advertising which comes under the area of marketing.
A Board composition
C Director responsibilities T he
Wates Principles are:
1. Purpose and leadership
2. Board composition
3. Director Responsibilities
4. Opportunity and Risk
5. Remuneration
6. Stakeholder Relationships and Engagement
B They use a “apply or explain” approach.
C The code requires the board to establish oversight for the identification and mitigation of risks.
The Wates Principles are a voluntary code for large private companies. A is therefore not true.
B is true – if there are good reasons why a particular principle has not been followed, then the company should
state that it has deviated from the principle and explain the reason.
C is true – principle 4, opportunity and risk, requires this.
T here are six principles, not five so D is incorrect.
E is incorrect. Companies with a premium listing must apply the UK corporate governance code.
D 1, 2 and 3
9: Governance and ethics
T hese are the three overall aims of the Goals.

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

Management is responsible for reporting on the performance of the company, and developing/implementing
internal controls, not the non-executive directors.
2 Correct answer(s): D five years ago

As Jumpers plc has a premium listing, the Listing False
Rules mean that the Code applies so the company
The Code applies to all premium listed companies.
must never depart from any of its requirements.
However, while they are expected to comply with
the main principles of the code (‘the spirit of the
code’), they do not have to comply with all the
provisions, provided any non-compliance is properly
explained (‘comply or explain’).
False
If Jumpers plc had joined the FTSE 100, compliance
There is no statutory requirement that states
with the Code would be a statutory requirement.
particular companies must apply the Code.
B the chair and chief executive are different individuals in order to prevent one person having too much power
within the company
A company should seek to improve corporate governance by ensuring that the chair and chief executive are
different individuals. This prevents one person from having unfettered powers of decision, as set out in
Provision 9.
A 1 and 2 only
Only basic salary should be pensionable True
As set out in Provision 38.
10: Corporate governance
True
Directors should not be rewarded for poor
ICAEW 2023 139
performance As set out in Provision 39.
Obtain the auditor’s approval of the remuneration False
set The auditors are not required to approve the
directors’ remuneration though they should ensure
that there is appropriate disclosure in the financial
statements
C The chair of the board may be a member but cannot chair the remuneration committee.
A s set out in Provision 32. The chair of the board can be a member of the remuneration committee, but only if
they were independent on appointment, and they cannot chair the committee.
B In annual and half-yearly financial statements, the board should state whether it considers it is appropriate to
adopt the going concern basis of accounting.
Non-executive directors of premium listed False
companies, once appointed, only need to be Non-executive directors must be submitted for annual
submitted for re-election every three years. re-election just like executive directors as set out in
Provision 18.
In annual and half-yearly financial statements, the True
board should state whether it considers it is As set out in Provision 30.
appropriate to adopt the going concern basis of
accounting. XE “Financial reporting”
Directors’ notice or service contracts should not
False
exceed three years.
The Code recommends that service contracts or notice
periods should not exceed one year (Provision 39).
The annual report should state the company’s False

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

C can be flexible in how it applies the UK Corporate Governance Code
T he Code is applicable to all companies with a premium listing, so the company must usually comply with the Code,
but can opt not to apply some aspects if appropriate and it explains why (‘comply or explain’).
A the going concern status of the company
T he directors have to state that the financial statements are prepared on the going concern basis, if this is the case.
They must also state whether there are any material uncertainties about the company’s ability to continue as a
going concern for at least 12 months from the date of approval of the financial statements.
B independent non-executive directors with at least one who has recent and relevant financial experience
A s set out in Provision 24. The audit committee should comprise independent non-executive directors, and the
board should be satisfied that at least one member of the committee has recent and relevant financial
experience.
C The entire board of directors
T he entire board is responsible as set out in Provision 29.
A Megan will be allowed to accept the offer
A s a full-time executive director, Megan is permitted to take on one non-executive directorship as set out in
Provision 15. Therefore, as she does not currently hold any non-executive directorships she will be allowed to
accept the offer.
C The board of directors
T he audit committee makes recommendations to the board in respect of auditor appointment as set out in
Provision 25. However, the appointment is the responsibility of the board.
C Her remuneration should reflect her time commitment and responsibilities As set out in
Provision 34.
17 Correct answer(s): D 50% or over

A s set out in Provision 11: at least half the board, excluding the chair, should benon-executive directors whom
the board considers to be independent.
10: Corporate governance
ICAEW 2023 141

C The audit committee
One of the specific roles and responsibilities given to the audit committee by the Code is the development and
implementation of policy on engaging the external auditor to supply non-audit services. This is set out in Provision
25.
A shareholders
It is the shareholders who actually vote to appoint the external auditors (A), although this is usually on the
recommendation of the audit committee (B) and the board (C). The finance director (D) may be heavily involved in
the conduct of the audit but should not be actively involved in appointment except as a member of the board.
A independence of the internal auditors
A n effective internal audit function has, as a fundamental requirement, to maintain its independence at all times.
B Vidal should not assume both roles concurrently nor go on to be the company’s Chair
T he roles of the Chair and chief executive should not be exercised by the same individual and the chief executive
should not go on to be the Chair of the same company. This is set out in Provision 9.
D at every AGM
Directors are appointed by the board and then elected by shareholders at the next AGM. They also face re-election
every year after that as set out in Provision 18.
C The company’s compliance with the UK Corporate Governance Code
In addition to the ‘true and fair view’ of the financial statements, an external auditor of a listed company also
reports on the company’s compliance with the UK Corporate Governance Code and the directors’ remuneration
report.
24 Correct answer(s): B sustainability

T his is the definition of sustainability as set out in the Brundtland report.
A The design expertise of its employees
D Its reputation in the community
Stationery, raw materials and property are all examples of tangible resources. By contrast, intangible assets are
those which have no physical form. Reputation and employee expertise are examples of intangible resources.

Chapter 11: The economic environment of business
and finance
A are normal goods
W ith normal goods, a rise in incomes will be accompanied by a rise in demand for them as opposed to a fall in
demand for inferior goods. The existence of complements and substitutes have no effect in this context.
A an increase in demand for potatoes
If potatoes are a Giffen good, then an increase in the price of potatoes will cause an increase in demand for
potatoes.
D decrease the demand for both Y and X
If X is a complement of Y then they tend to be consumed together, so if demand for Y falls as a result of the
increase in its price then demand for X will also fall.
Demand for an inferior good will fall with rises in income as consumers shift to better quality goods that they can
now afford with their higher incomes. Demand for the inferior product could exist because of its price and the level
of incomes, not just because of advertising.
B low marginal costs
W ith a natural monopoly, fixed costs will be high, marginal costs will be low (B) and economies of scale (rather
than scope ) provide an effective barrier to entry.
6 Correct answer(s): D unrelated

Zero cross-elasticity means the goods are unrelated.
B excess demand for the product
A price below the market equilibrium price will attract demand but deter suppliers.
A perfectly inelastic
A vertical straight line implies that the supply of the Ledo is fixed whatever price is offered.
A a contraction in demand and supply
W hen factor costs rise demand contracts (moves along the demand curve) since the price goes up, and the supply
curve shifts to the left (contracts).
A monopolistic competition
T he key differentiator here is the large number of competing sellers. The earlier issues identified in the question
are shared by both monopolistic competition and oligopoly, but it is the large number of sellers in the market that
defines this market specifically as monopolistic competition.
B Suppliers earn ‘normal’ profits
C Consumers lack influence over market price
E A single selling price
Suppliers are price-takers meaning that they can sell as much as they supply but only if they sell at the market-
determined equilibrium price (E). Differentiated products (D) are a market imperfection creating imperfect rather
than perfect competition.
B growing, so enabling the economies of scale to be achieved
External economies of scale arise by virtue of the market for the product growing, enabling greater levels of
business across which to spread the company’s costs.
B –2.40
Proportional change in quantity demanded = 40/150×100 = –26.6%
Proportional change in price = 1/9×100 = 11.1% PED = –
26.6/11.1 = –2.40
A Demand for the good will fall; supply of the good will rise
Suppliers will be encouraged to supply at that price so supply will increase, whilst at a price above the market
equilibrium price demand will fall.
A are normal goods
W ith normal goods, if incomes rise demand for the product will rise and this will be the case regardless of the
existence of either substitutes or complements.
D allocating scarce resources

T he basic economic problem is one of allocating scarce resources and economics is the study of how those scarce
resources are or should be used.
B Enterprise
Enterprise is one of the four factors of production, along with labour (including management), land and capital.
18 Correct answer(s): B Bulk buying

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

Quantitative easing is generally used as an alternative to cutting interest rates as a form of monetary policy where
interest rates are already very low, so further cuts are not feasible. Quantitative easing aims to increase liquidity in
the system when liquidity is low, so is unlikely to be needed when liquidity is high.
B low inflation combined with a neutral fiscal policy
T he government monetary policy is to keep inflation low. This is managed by the Bank of England, who use interest
rates to control inflation. Fiscal policy has been to keep taxes relatively unchanged while containing government
spending.
Chapter 12: External regulation of business

D externalities
A n externality is an adverse social consequence which the private producer has no incentive to minimise.
A innovation
Innovation in this context is where regulation serves to trigger the discovery and introduction of new procedures
and technologies – the ‘innovation effect’, as a basis for competitive advantage in an industry.
A up to 10% of annual worldwide revenues
Collusion can lead to a fine of up to 10% of annual worldwide revenues.
B the market mechanism has failed to allow for externalities
Government intervention in a market economy can lead to an increase in economic welfare if the market
mechanism has failed to allow for externalities. The government setting a minimum or maximum price above the
equilibrium price would be ineffective. Demand for inferior goods falls as incomes rise.
D both UK and French suppliers enjoying a higher price Restricting supply (via
quota) will cause the price to rise.
A market imperfection
Monopoly is the opposite of perfect competition and is, therefore, a market imperfection.
B Limiting production markets or technical developments to the prejudice of consumers
C Applying different trading conditions to equivalent transactions, thereby placing certain parties at a
competitive disadvantage
D Attaching unrelated supplementary conditions to contracts
Imposing unfair purchase or selling prices would be considered as an abuse where the business is in a dominant
position, but transfer pricing (A) refers to the pricing of goods and services within a multidivisional organisation,
particularly in regard to cross-border transactions.
D A market with few producers and an undifferentiated product
A cartel is most likely where there are few producers in the market, each of them producing a similar product.
B it deters firms from engaging in collusion, price-fixing and deceptive advertising
T he main effect of anti-monopoly enforcement is deterrence – there is little innovation effect (A).
B increased competition
T ending towards a perfect market through increased competition should lead to allocative efficiency and lower
prices.
11 Correct answer(s): D Option 4

T he first and third statements are false, but the second statement is true – anti-monopoly legislation promotes
competition but, where competition is not possible, market regulation is used to compensate for the lack of
competition.
12 Correct answer(s): C lack of equity

Redistribution of wealth is an attempt to address lack of equity.
C market power
Collusion is an example of market power exerted by a few suppliers.
Market manipulation is committed where a person deals in shares when they have access to inside information
that would affect the share price and which is not known generally. This is not the case in this scenario. A person
may be disqualified from acting as director or manager of companies for a wide range of reasons under the
Company Directors Disqualification Act 1986. These include making loans from company funds that were unlikely to
be repaid.
B influencing the demand for and supply of mobile data
By regulating prices, the government has influenced demand and supply in the market. If the maximum price was
above the market price there would be no impact, but this is not the case here.
B Paying subsidies to fruit and vegetable producers
Paying subsidies will encourage producers to supply more fruit and vegetables. Setting maximum prices for fruit
and vegetables or persuading producers to reduce their prices will reduce supply, as producers see the price they
receive fall. Indirect taxes won’t increase supply because although they affect the price the consumer pays, the
amount the producer receives stays the same.
ICAEW 2023 149

12: External regulation of business 162 Business, Technology and Finance ICAEW 2023
Chapter 13: Data analysis

A good quality of data, but poor quality of information
T he data is both accurate and complete, so as data it must be classed as good data. However, the report is
completely inappropriate for the sales director – too much detail, no aggregation, not particularly relevant – so it
fails the ACCURATE requirements of being easy to use, user-targeted, relevant or cost-beneficial.
B Exploratory data analysis
Exploratory data analysis aims to identify relationships between different variables in a set of data.
C Assessing the information critically, being alert to possible misstatements due to error and fraud.
Items A and D are too extreme. Professional scepticism does not mean assuming everything is wrong, but rather
being aware that data could be wrong. The fact that a forecast is optimistic does not mean that it is wrong, so B is
incorrect.
C observer bias
Observer bias may occur when collection of data involves observing and recording results, which is the case in this
example, as the inspector is observing lessons and recording the results (how good the teacher is) so C is correct.
Cognitive bias also relates to human perception but is associated with interpretation of presented data rather than
the collection of data, so B is not correct. Survivorship bias and self-selection bias relate to how items are selected
for a sample, rather than how data is interpreted, so are not relevant here.
B a type II error
A type II error is associated with hypothesis testing and means that a hypothesis is accepted when it is wrong. This
is the case with the external auditors who have accepted a hypothesis that the rate of errors was 2% when in fact it
was 4%.
A type I error means rejecting a hypothesis when it is in fact correct.
Omitted variable bias and selection bias relate to problems with the sample. There is no indication here that there
was any problem with the selection of the sample by the external auditor. Sample means will not always be the
same as population means and follow a distribution, so the fact that the auditors sample gave a mean of 3% does
not necessarily indicate a problem with sample selection.
B The data in the sample may suffer from selection bias so it should be recognised that the statistics may not be
an accurate reflection of the whole population.
Customers who do not pay with credit cards have no chance of being included within the sample of customers
used in the analysis. The sample therefore suffers from selection bias. The conclusions drawn may not therefore
reflect the spending and number of visits of people who pay using other methods, such as cash, and these groups
may well spend lower amounts at the stores. A is therefore not correct, because the fact that 10% of card users
were used does not compensate for the fact that non card users had no chance of being selected. B is correct.
13: Data analysis
ICAEW 2023 151

C implies that the analysis of samples is always likely to lead to wrong conclusions. This is not true - statistical
analysis is often based on samples, and inferences made about a population based on the samples. While it
is recognised that samples provide estimates, if the sample is representative of the population, those
estimates will usually be reliable indicators of the population as a whole.
Omitted variable bias relates to exploratory data analysis, which aims to identify relationships within the data.
The analysis being performed by the analyst here is descriptive statistics, so omitted variable analysis is not
relevant here. D is therefore incorrect.
D A line chart
Line charts are the most useful way of identifying trends. Since the directors want only an overview of sales, a
line chart would easily accommodate sales of the three product lines over ten years. The line chart would be the
preferred method.
A clustered bar chart and a component bar chart could be used, with a different coloured bar (or component)
representing each of the three sales groups, and a bar for each of the past 10 years for each product. However,
such charts could become cluttered, given the number of bars that would be used. Trends are also less easily
identified than they would be in a line chart.
A pie chart could only provide an analysis of the components making up sales for one particular year, so it
would be necessary to have one pie chart for each year. This would certainly lose impact, and would not
highlight trends.
8 Correct answer(s): B big data

A company which uses big data for competitive advantage streams in huge quantities from a variety of internal
and external sources, and applies data analytics to obtain as much value from the data as possible.
9 Correct answer(s): C Velocity

V elocity concerns the speed of data and is therefore connected to the ability to stream large amounts of data
into an organisation’s systems in real time. If velocity was not quick enough, the data would be subject to a
time-lag.
10 Correct answer(s): A Veracity

V eracity concerns the trustworthiness or accuracy of big data. All data sets have inaccuracies, bias, anomalies
and ‘noise’ in them, and it is important that as much is possible is done to clean up this ‘dirty data’ so that it can
be relied upon.
D Email communications between a customer and the marketing department
Structured data refers to any data that is contained within a field in a data record or file. This includes data
contained in databases and spreadsheets. Unstructured data is data that is not easily contained within
structured data fields, including the content of pictures, videos, webpages, emails etc.
Data science deals with all aspects of data, including how it is collected and how value can be extracted from it.
D Compiled big data
Compiled big data is collected by a third party (such as Finax plc) and accessed by a business (such as Vertex
Ltd).
Open data refers to the release of large amounts of primarily public sector data, such as geo-spatial data,
transport data, government financial data and public service data. Human-sourced data is from social networks,
blogs, emails, text messages and internet searches.
D relevance
Good quality information must be accurate (A) and timely (C), and valuable information must be accessible (B),
but to be both good quality and valuable it must be relevant (D).
C Data dependency
T he business became dependent on the data which put it at risk of data errors and errors in interpreting the
data.
17 Correct answer(s): C 1 and 3 only

T here may be errors in the formulas used in a spreadsheet, so they do not ensure that there are no errors in
the calculations. (2) is therefore incorrect. The other 2 items are correct.
B To reduce the amount of time wasted by poor spreadsheet design
T he aim of the principles is to help reduce the amount of time wasted by poor spreadsheet design and reduce
the number of errors caused, so answer (B) is correct.
T he principles provide a framework rather than providing detailed advice about spreadsheet design, therefore
answers (A), (C) and (D) are not correct.
19 Correct answer(s): A 1 and 2 only

(1) and (2) are principles. (3) is incorrect – principle 15 states that calculations should be performed once only,
as this avoids having inconsistent calculations.
B 2 and 3 only
13: Data analysis
T he main issue with inheriting spreadsheets is that the user may be unaware of the implications of making
changes to the spreadsheet because they do not understand its design. (2) and (3 ) would help mitigate this.
Building in checks, controls and alerts is designed to identify errors when the spreadsheet is created rather than
helping new users when the spreadsheet is handed over to them.
ICAEW 2023 153

C A sample that reflects characteristics of the population as a whole
A representative sample is a sample that reflects the characteristics of the population as a whole (C). A rule of
thumb is that a sample size should be greater than 30 items, but that alone does not guarantee that the sample
will be representative, so (A) is incorrect. Similarly, if the sample is selected randomly, so that all items in the
population have a chance of being selected, then the sample is more likely to avoid bias but again, that does not
guarantee that the sample is representative, so (D) is incorrect. A sample may contain data from all sub classes,
but still be unrepresentative – for example, if some sub classes are under or over-represented in the sample.
D Systematic sampling
(D) is the correct answer as the scenario describes systematic sampling. Stratified sampling is where the
population is broken into different sub populations, and samples taken from each sub population. Cluster
sampling is where the population is divided into groups and samples taken from each group. Under simple
random sampling, all items in the sample are selected randomly, not just the first.

Chapter 14: Developments in technology
Self-verifying smart contracts do invoke automatic execution of defined rules to securely hold and transfer legal
title to an asset, including how to account for it so the same cost and revenue are recognised by the two parties
to a transaction. Distributed ledger technology and triple entry bookkeeping both mean that every accounting
transaction recorded by an entity is also posted to a public ledger.
2 Correct answer(s): B Keylogging

Keylogging is where criminals record what the user types onto their keyboard.
3 Correct answer(s): C Phishing

The use of emails to obtain bank information such as this is known as phishing.
Cyber risks encompass: deliberate and unauthorised breaches of security to gain access to information systems
for the purposes of espionage, extortion or embarrassment (Statement (1)); unintentional or accidental
breaches of security, which nevertheless may still constitute an exposure that needs to be addressed
(Statement (2)). Cyber risk also encompasses operational IT risks due to poor systems integrity or other factors.
D Actions 1, 2 and 3
A long with malware protection and secure configuration, all three actions are included in the Cyber Essentials
list of actions developed by the UK government and others.
A Distributed denial of service attack
Distributed denial of service (DDoS) attacks are used to bring down a business’ website by overwhelming it with
vast amounts of internet traffic.
Hacking involves using specialist software to gain unauthorised access to systems. Phishing involves using bogus
emails to obtain security information and personal details. Keylogging involves cyber criminals recording what
users type into their keyboards.
B Install updates to software and operating systems regularly
D Use two factor authentication methods at log in
Encouraging staff to use one password is not recommended, the NCA suggests the opposite.
Updates to software and hardware are issued regularly by software providers and fix bugs in the software,
including security vulnerabilities.
14: Developments in technology
ICAEW 2023 155

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

W hilst it is true to say the rate of technological change is very fast, it just means that audit regulations must
adapt quickly to them. Automation in advanced accounting software means that auditors can place more
reliance on systems, reducing the need to audit all transactions and verify the ownership of assets. Some
systems allow 100% automatic checking of transactions.
D Fintech
Fintech refers to organisations that use technology to challenge the business models of the financial services
industry, so D is the correct answer. Cognitive technologies is an umbrella term that covers intelligent systems
such as artificial intelligence and machine learning, and this has many applications, not just financial services, so
A is incorrect. The internet of things refers to the smart devices that send information over the internet. They
are not primarily used by the financial services industry, so B is incorrect. Crypto currencies are online tokens.
While they can be used as a means of payment, they are only one example of technology that used in financial
services, so C is incorrect.
A Machine learning
This is Machine learning, as the machine is ‘learning’ from the data and improving the algorithms used in
making predictions without human involvement. Robotic process automation means taking over processes
that can be automated, rather than making predictions, so B is not correct. An expert system has to be
programmed and cannot learn from the data, so C is not correct. Blockchain is a technology used in distributed
ledger systems to ensure that only valid transactions are recorded so D is not correct.
ICAEW 2023 157

14: Developments in technology

Chapter 15: Practice exam

B Social arrangement
C Collective goals
E Controlled performance
A n organisation is a social arrangement that: pursues collective goals; controls its own performance; has a
boundary separating it from its environment. The other options are all ways that enable an organisation to
increase productivity.
2 Correct answer(s): A vision

T he primary objective (C) is the provision of medical services, whilst doing this efficiently would be an example of a
secondary objective (D). Vision (A) concerns how the charity sees itself at some future time, whilst mission (B)
expresses its underlying purpose and function.
3 Correct answer(s): D Trade unions

T rade unions are the stakeholders most likely to press for employee representation in the company’s affairs.
B All the different business functions should blend to achieve customer satisfaction.
A general understanding of the marketing philosophy is essential for any business manager. Within a truly
marketing-oriented organisation, everyone has a role to play and a contribution to make to the organisation’s
marketing success (B). The principal function of a company (A) is a reference to its mission, which is a much
broader concept than marketing. If all staff are customer-oriented, then it is quite possible to practise
marketing without a formal marketing department (C). Advertising (D) is just one aspect of promotion, which
in turn is just one of the four marketing mix variables.
B status/ego needs
Status and ego needs (B) can be met by giving praise and promotion. Self-actualisation needs (A) are the
individual’s needs for realising his or her own potential, for continued self-development and creativity in its
broadest sense. It is the need for a feeling of accomplishment and of being satisfied with oneself. Social needs (C)
are the need to be part of a group. Safety (or security) needs (D) refer to the need for protection in all its senses.
B People
E Processes
G Physical evidence
Because Juan is reviewing the customer service that the restaurant provides during a meal, the additional aspects
of the marketing mix that he will consider are people (this will cover staff interaction with customers), processes
(which will influence whether the meal was produced in a timely manner) and physical evidence (restaurant layout
and design).
Place, Promotion, Price and Product are aspects of the ‘traditional’ marketing mix, which are then supplemented
by the other three to form the ‘service’ marketing mix.
A Subordinates carry out very similar tasks
If employees are all carrying out the same or similar tasks (A), a supervisor will be more able to look after many
subordinates (a wider span of control) as they can all be handled in similar ways and will face similar problems. A
high geographical dispersion of employees (B) requires more effort to supervise which, along with frequent time-
consuming problems (C), suggests a narrow span of control would be more appropriate. Where the manager is
engaged in large amounts of nonsupervisory work (D), the narrower the span of control is likely to be.
C strategic alliance
A strategic alliance (C) is an informal or weak contractual agreement between companies. A licensing agreement
(A) would be more formal in nature (based on a legally binding contract to ensure adherence to agreements),
whilst a joint venture (B) would nearly always involve the formation of a separate company, with the investing
companies taking a financial stake as shareholders and with management being provided as agreed. A group
structure (D) would imply the establishment of a new company that would be controlled by one of the two
companies.
D The operating core
A iysha is managed by Delia. Delia works at the middle line because she conveys the goals set by the strategic
apex (the directors), therefore Aiysha works at the operating core because her work is controlled by Delia.
C Waterfall plc has access to funds of £23 million but the reservoir will cost £40 million
Option A relates to the suitability of the option and its level of risk. Options B and D relate to its acceptability to
stakeholders (shareholders and local community groups). Option C is the only one that is concerned with the
feasibility of the option (whether it can in fact be implemented). It appears that Waterfall plc does not have access
to enough funds to pay for the new reservoir and may not be able to access more given its high level of gearing.
D A laid-back competitor
Hightech Ltd does not react to the moves of its competitors and therefore it can be described as ‘laid-back’.
12 Correct answer(s): B As an operational risk

Cyber risk is a type of operational risk: the risk that something will just go wrong. Strategy risk (A) is the risk that
the business’s objectives will not be achieved because it chooses the wrong corporate, business, functional or IT
strategy or fails to keep up with technological developments. Financial risk (C) arises in part from how the
business is financed and in part from changes in the financial markets such as to interest rates and exchange rates.
Enterprise risk (D) is the chance that a strategy will succeed or fail, and therefore the chance that the business
should not have undertaken it in the first place.
B Recording financial transactions
Stewardship (ensuring that resources are properly controlled) is part of the finance function’s task of recording
financial transactions.

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

Liquidity risk is the inability to finance the credit given to customers.
A The mean age is less than 55 years.
In a left skewed distribution, the mean is less than the median and the mode.
ICAEW 2023 161

B coefficient of variation
T he coefficient of variation is the standard deviation divided by the mean. It is the most useful for comparing the
variation of data in data sets where the relative size of the data differs, since it measures the variations as a
percentage of the distribution mean. The standard deviation and variance are partly influenced by the size of the
data in a set, so comparisons of different data sets are not valid.
C professional scepticism
In relation to information, estimates and explanations received, professional scepticism involves the professional
accountant in assessing them critically with a questioning mind, being alert to the possibility of misstatement in
financial statements due to error or fraud.
B asymmetric information
Financial intermediation overcomes the problem of asymmetric information associated with direct financing.
B (2) and (3) only
Anyone is free to advertise as an ‘accountant’ and offer the full range of accountancy services, No
with no exceptions.
ICAEW members are open to competition from anyone, whether professionally qualified or not, Yes
There is no legal requirement for an accountant to be a paid-up member of one of the CCAB Yes
bodies.
T he first statement is incorrect because although anyone is free to advertise as an accountant, there are four
‘reserved’ areas of business (insolvency, investment business, probate and statutory audit) where statute demands
specific levels of competence and regulation. To offer accountancy services the provider must be supervised for
money laundering purposes.
A the expectations of society
Corporate ethics are principally affected by society’s expectations.
B support the rights of shareholders
Principle IV covers supporting the rights of stakeholders in corporate governance (Option B), including the
importance of creating sustainable and financially sound companies that in turn create wealth and jobs. Option A
should read ‘transparent and fair markets and the efficient allocation of resources’ (Principle I), not efficient
financial reporting. Option C should read ‘all shareholders’, not just major shareholders (Principle II). Option D
should read ‘timely’ rather than real time (Principle V).
B Information asymmetry
C Transaction costs E Insider dealing

T he lack of codes of practice and regulation contributes to rather than restricts the efficiency of financial markets
in resource allocation.
A FRC
T he OECD (B) produced its Principles of Corporate Governance, but it does not have UK responsibility for the
promotion of high standards of corporate governance. The UK Corporate Governance Code is produced by the FRC.
The CCAB (C) and the Bank of England (D) have no such responsibility.
C demonstrate leadership by encouraging Lake plc’s chief executive to be more open
Lake plc’s Chief Executive has failed to show a key attribute of an ethical leader, which is openness: being open
minded and willing to learn. Boards have a responsibility to act where leaders do not deliver on ethical leadership,
so Lake plc’s board should demonstrate leadership by encouraging the Chief Executive to be more open. While
drafting a corporate code of ethics, rewriting policies and talking to shareholders can also help to build an ethical
corporate culture, it is addressing unethical leadership that is the key way to improve it.
C five
Provision 11 of the code states that at least half the board, excluding the chair, should be NEDs whom the board
considers to be independent. Excluding the chair, there are 9 directors. At least half of these should be NEDs,
therefore five.
B They must apply the principles and explain how they have applied them. They do not need to follow the
guidance.
T he principles must be applied, and companies must explain how they have applied them. They are designed to be
flexible so that they can be applied in a manner that is appropriate for a particular company rather than adopting a
tick box approach. The guidance is not mandatory, but is designed to help companies adopt the principles.
C the substitution effect
T he effect of a price rise in one good is to make the prices of other goods relatively cheaper. The resultant shift in
demand towards the relatively cheaper goods is an example of the substitution effect.
C French fries and tomato sauce
Complements are goods that tend to be bought and used together, so that an increase in demand for one is likely
to cause an increase in demand for the other. Options A, B and D are substitutes rather than complements.
C A shift in the demand curve to the left, a fall in market price and a fall in quantity supplied
A normal good which has become increasingly unfashionable will see its demand curve shift to the left, a fall in
market price and a fall in quantity supplied.
ICAEW 2023 163

C The taxation of goods with negative externalities
Negative externalities (C) are an example of market failure because they represent situations where the private
costs of an activity differ from the social costs of the activity. Economic booms (A) and Giffen goods (D) are not
market failures. No market failure is apparent in (B).
A –1.625
+0.065/–0.04 = –1.625
A Rising levels of demand being met by increased production A ll of the other options are features of a ‘boom’
phase.
A The tax on cigarettes may not raise as much additional revenue as anticipated because the demand for
cigarettes is likely to become more elastic over time.
T he tax on cigarettes may not raise as much revenue as anticipated in the years to come because the demand for
cigarettes is likely to become more elastic over time. Price elasticity nearly always increases over time and will limit
an additional tax revenue. People can change their behaviour given enough time.
B Activity 2 only
Limiting production markets – No (this is an abuse of a dominant position, covered by Chapter II of the Act)
A greeing with another organisation to limit competition – Yes
Restricting technical developments – No (this again is an abuse of a dominant position)
D Botnets
Botnets are used to create the wave of internet traffic in DDoS attacks.
D Patch management
T he key issue identified in the scenario here is that the hospital was using old versions of software which increased
their vulnerability to attack. Therefore, the most directly relevant control in this circumstance will be ensuring that
devices and software are up to date, and this could be achieved through patch management–ensuring the latest
versions of software are installed.
Its lack of timeliness undermines usefulness.
T he high level of regulation does not undermine usefulness.
T he high level of aggregation it contains undermines usefulness.

By definition financial statements are produced some months after a company’s financial year end so the
information they contain is not timely; lack of timeliness undermines relevance, even though figures may thereby
be a more faithful representation. The level of aggregation in the figures can obscure important details and so
undermine usefulness. The level of regulation, however, adds to faithful representation and comparability, both of
which add to rather than detract from their usefulness.
B a decision support system
A n information system which combines data and analytical models to help with semi-structured and
unstructured problem solving and decision making in an operational context is a decision support system (B).
An expert support system (A) is a sophisticated database that pools data from internal and external sources
and makes information available to senior managers in an easy-to-use form so they can make strategic,
unstructured decisions. A knowledge work system (C) facilitates the creation and integration of new
knowledge into an organisation while an office automation system (D) increases the productivity of data and
information workers.
C Velocity
Big data is typically streamed into the business at great speed or velocity (C). Big data shares the characteristics of
volume (A) and variety (B) with operations management; visibility (D) is also a feature of operations management,
not of big data.
A Risk management
B Innovation
E Performance improvement
Consultants McKinsey found that data analytics of big data can create value for a business in relation to:
transparency, performance improvement, market segmentation and customisation, decision making, innovation
and risk management.
T he security of digital assets can be protected by encoding, encryption or watermarks. If a user obtains a licence to
use a digital asset then they can only use it in accordance with the terms of the licence, because they do not own
the asset itself. Licences usually restrict users to use the asset themselves and must not distribute it to others.
B Faster processing of high volume, routine transactions
A n organisation is most likely to be able to increase the speed at which it processes high volume, routine
transactions through automation, rather than the use of analytics.
Organisations can use big data and analytics to gain insights, and to help predict future trends in order to help
managers make better decisions.
D Internet of Things
ICAEW 2023 165

T he internet of things uses sensors to create and communicate data, which is what the RFID technology is doing
for Vifpost.
A rtificial Intelligence (AI) and expert systems both involve computers using cognitive functions (sensing,
reasoning etc,) to help make decisions and solve problems. If the technology also planned a route for Vifpost’s
delivery drivers (based on where parcels need to be delivered to, current traffic conditions etc,) this could
involve AI or expert systems, but the scenario here only relates to tracking the packages.
Big data and big data analytics typically involve collecting and examining large volumes of data from a range of
sources to inform decision making and improve performance, for example by identifying relationships or building
predictive models (but there is no indication Vifpost is doing this in this scenario).

Appendix
Mock Exam guidance notes

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

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

A Mock Exam should have approximately the syllabus coverage and balance set out in the table below.
Syllabus area Weighting Number of questions
%
1 Business objectives and functions 10 5
2 Business and organisational structures 10 5
3 The role of finance and the finance function 25 12–13
4 Key issues for the accountancy profession and

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

6 Ch 3; Q 7 Ch 3; Q 11
7 Ch 3; Q 15 Ch 3; Q 16
8 Ch 3; Q 18 Ch 3; Q 21
9 Ch 4; Q 8 Ch 4; Q 9
10 Ch 5; Q 7 Ch 5; Q 14
11 Ch 5; Q 28 Ch 5; Q 30
12 Ch 5; Q 21 Ch 5; Q 10
13 Ch 5; Q 14 Ch 5; Q 20
14 Ch 5; Q 24 Ch 5; Q 27
15 Ch 6; Q 13 Ch 6; Q 14
16 Ch 6 Q 16 Ch 6; Q 17
17 Ch 6; Q 18 Ch 6; Q 21
18 Ch 6; Q 22 Ch 6; Q 25
19 Ch 7; Q 2 Ch 7; Q 4
20 Ch 7; Q 7 Ch 7; Q 8
21 Ch 7; Q 16 Ch 6; Q 17
22 Ch 7; Q 19 Ch 7; Q 20
23 Ch 7; Q 23 Ch 7; Q 24
24 Ch 8; Q 2 Ch 8; Q 6
25 Ch 8; Q 7 Ch 7; Q 12
26 Ch 8; Q 11 Ch 8; Q 10
27 Ch 9; Q 2 Ch 9; Q 6
28 Ch 9; Q 10 Ch 9; Q 12
29 Ch 9; Q 16 Ch 9; Q 18
30 Ch 9; Q 11 Ch 9; Q 17
31 Ch 10; Q 9 Ch 10; Q 2
32 Ch 10; Q 18 Ch 10; Q 16
33 Ch 10; Q 21 Ch 10; Q 25
34 Ch 11; Q 5 Ch 11; Q 4
35 Ch 11; Q 10 Ch 11; Q 7
36 Ch 11; Q 13 Ch 11; Q 9
37 Ch 11; Q 15 Ch 11; Q 12
38 Ch 11; Q 26 Ch 11; Q 27
39 Ch 12; Q 5 Ch 12; Q 2
40 Ch 12; Q 13 Ch 12; Q 12
41 Ch 13; Q 2 Ch 13; Q 5
42 Ch 13; Q 6 Ch 13; Q 9
43 Ch 13; Q 7 Ch 13; Q 12
44 Ch 13; Q 14 Ch 13; Q 16
45 Ch 13; Q 11 Ch 13; Q 8
46 Ch 14; Q 1 Ch 14; Q 3
47 Ch 14; Q 7 Ch 14; Q 10
48 Ch 14; Q 14 Ch 14; Q 15
49 Ch 14; Q 16 Ch 14; Q 4
50 Ch 14; Q 5 Ch 14; Q 12
ICAEW 2023 Appendix 183 184 Business, Technology and Finance ICAEW 2023

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The Institute of Chartered Accountants in England and Wales

Business, Technology and

1 Introduction to business 1 105

2 Managing a business 7 109

3 Organisational and business structures 13 113

4 Introduction to business strategy 19 119

5 Introduction to risk management 25 123

6 The finance function and financial information 35 129

7 Business finance 43 135

8 The accountancy profession 51 141

9 Governance and ethics 55 145

10 Corporate governance 61 149

11 The economic environment of business and finance 67 153

12 External regulation of business 75 159

13 Data analysis 79 163

14 Developments in technology 85 167

15 Practice exam 91 171

Appendix: Mock Exam guidance notes 181

ICAEW 2023 Contents iii

Professional skills focus: Assimilating and using information

Professional skills focus: Applying judgement

Professional skills focus: Concluding, recommending and communicating

1 Output of goods/services Minimise costs

2 Output of goods/services Provision of goods/services

3 Maximisation of wealth Minimise costs

4 Maximisation of wealth Provision of goods/services

ICAEW 2023 1: Introduction to business 1

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

ICAEW 2023 1: Introduction to business 3

15 T o what does the term ‘triple bottom line’ refer?

4 Business, Technology and Finance ICAEW 2023

ICAEW 2023 1: Introduction to business 5

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

ICAEW 2023 2: Managing a business 7

17 T he main influences on a business’s pricing are:

20 W hat are the four elements of the procurement mix?

ICAEW 2023 2: Managing a business 9

10 Business, Technology and Finance ICAEW 2023

ICAEW 2023 3: Organisational and business structures 11

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

12 Business, Technology and Finance ICAEW 2023

10 W hich three of the following are characteristics of limited companies?

ICAEW 2023 3: Organisational and business structures 13

14 Business, Technology and Finance ICAEW 2023

ICAEW 2023 3: Organisational and business structures 15

16 Business, Technology and Finance ICAEW 2023

ICAEW 2023 4: Introduction to business strategy 17

1 High competition Low capital costs

3 One large customer

4 Low competition High capital costs

18 Business, Technology and Finance ICAEW 2023

ICAEW 2023 4: Introduction to business strategy 19

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ICAEW 2023 4: Introduction to business strategy 21

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4 T he following statements have been made in relation to risk and uncertainty.

ICAEW 2023 5: Introduction to risk management 23

6 T he following statements have been made about risk attitudes.

10 A risk-minimising investor has the following four investment opportunities.

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