Fundamentals of Management Accounting

Other pages in this section

| Fundamentals of Management Accounting | Fundamentals of Financial
Accounting | Fundamentals of Business Mathematics | Fundamentals of Business
Economics | Fundamentals of Ethics, Corporate Governance and Business Law |

Syllabus outline
The syllabus comprises:
Topic and Study Weighting
A - Cost Determination 25%
B - Cost Behaviour and Break-even Analysis 10%
C - Standard Costing 15%
D - Cost and Accounting Systems 30%
E - Financial Planning and Control 20%
Learning aims
This syllabus aims to test student’s ability to:

• explain and use concepts and processes to determine product and service costs;
• explain direct, marginal and absorption costs and their use in pricing;
• apply cost-volume-profit (CVP) analysis and interpret the results;
• apply a range of costing and accounting systems;
• explain the role of budgets and standard costing within organisations;
• prepare and interpret budgets, standard costs and variance statements.

Assessment strategy
There will be a computer-based assessment of 2 hours duration, comprising 50 compulsory
questions, each with one or more parts.
A variety of objective test question types and styles will be used within the assessment.
Learning outcomes and indicative syllabus content
A Cost Determination – 25%
Learning outcomes
On completion of their studies students should be able to:
(i) explain why organisations need to know how much products, processes and services cost and
why they need costing systems;
(ii) explain the idea of a ‘cost object’;
(iii) explain the concept of a direct cost and an indirect cost;
(iv) explain why the concept of “cost” needs to be qualified as direct, full, marginal etc, in order to
be meaningful;
(v) distinguish between the historical cost of an asset and the economic value of an asset to an
organisation;
(vi) apply first-in-first-out (FIFO), last-in-first-out (LIFO) and average cost (AVCO) methods of
accounting for stock, calculating stock values and related gross profit;
(vii) explain why FIFO is essentially a historical cost method, while LIFO approximates economic
cost;
(viii) prepare cost statements for allocation and apportionment of overheads, including between
reciprocal service departments;
(ix) calculate direct, variable and full costs of products, services and activities using overhead
absorption rates to trace indirect costs to cost units;
(x) explain the use of cost information in pricing decisions, including marginal cost pricing and the
calculation of “full cost” based prices to generate a specified return on sales or investment.
Indicative syllabus content
 • Classification of costs and the treatment of direct costs (specifically attributable to a cost
object) and indirect costs (not specifically attributable) in ascertaining the cost of a “cost
object” e.g. a product, service, activity, customer.
• Cost measurement: historical versus economic costs.
• Accounting for the value of materials on FIFO, LIFO and AVCO bases.
• Overhead costs: allocation, apportionment, re-apportionment and absorption of overhead
costs. Note: The repeated distribution method only will be examined for reciprocal service
department costs.
• Marginal cost pricing and full cost pricing to achieve specified return on sales or return on
investment.

Note: Students are not expected to have a detailed knowledge of activity based costing (ABC).
B Cost Behaviour and Break-even Analysis – 10%
Learning outcomes
On completion of their studies students should be able to:
(i) explain how costs behave as product, service or activity levels increase or decrease;
(ii) distinguish between fixed, variable and semi-variable costs;
(iii) explain step costs and the importance of time-scales in their treatment as either variable or
fixed;
(iv) compute the fixed and variable elements of a semi-variable cost using the high-low method and
“line of best fit” method;
(v) explain the concept of contribution and its use in cost-volume-profit (CVP) analysis;
(vi) calculate and interpret the breakeven point, profit target, margin of safety and profit/volume
ratio for a single product or service;
(vii) prepare break-even charts and profit/volume graphs for a single product or service;
(viii) calculate the profit maximising sales mix for a multi-product company that has limited demand
for each product and one other constraint or limiting factor.
Indicative syllabus content

• Fixed, variable and semi-variable costs.

• Step costs and the importance of time-scale in analysing cost behaviour.
• High-low and graphical methods to establish fixed and variable elements of a semi-variable
cost. Note: regression analysis is not required.
• Contribution concept and CVP analysis.
• Breakeven charts, profit volume graphs, breakeven point, profit target, margin of safety,
contribution/sales ratio.
• Limiting factor analysis.

C Standard Costing – 15%

Learning outcomes
On completion of their studies students should be able to:
(i) explain the difference between ascertaining costs after the event and planning by establishing
standard costs in advance;
(ii) explain why planned standard costs, prices and volumes are useful in setting a benchmark for
comparison and so allowing managers’ attention to be directed to areas of the business that are
performing below or above expectation;
(iii) calculate standard costs for the material, labour and variable overhead elements of cost of a
product or service;
(iv) calculate variances for materials, labour, variable overhead, sales prices and sales volumes;
(v) prepare a statement that reconciles budgeted contribution with actual contribution;
(vi) interpret statements of variances for variable costs, sales prices and sales volumes including
possible inter-relations between cost variances, sales price and volume variances, and cost and
sales variances;
(vii) discuss the possible use of standard labour costs in designing incentive schemes for factory and
office workers.
Indicative syllabus content

• Principles of standard costing.

• Preparation of standards for the variable elements of cost: material, labour, variable
overhead.
• Variances: materials - total, price and usage; labour - total, rate and efficiency; variable
overhead - total, expenditure and efficiency; sales - sales price and sales volume
contribution. Note: Students will be expected to calculate the sales volume
contribution variance.
• Reconciliation of budgeted and actual contribution.
• Piecework and the principles of incentive schemes based on standard hours versus actual
hours taken. Note: the details of a specific incentive scheme will be provided in the
examination.

D Costing and Accounting Systems – 30%

Learning outcomes
On completion of their studies students should be able to:
(i) explain the principles of manufacturing accounts and the integration of the cost accounts with
the financial accounting system;
(ii) prepare a set of integrated accounts, given opening balances and appropriate transactional
information, and show standard cost variances;
(iii) compare and contrast job, batch, contract and process costing;
(iv) prepare ledger accounts for job, batch and process costing systems;
(v) prepare ledger accounts for contract costs;
(vi) explain the difference between subjective and objective classifications of expenditure and the
importance of tracing costs both to products/services and to responsibility centres;
(vii) construct coding systems that facilitate both subjective and objective classification of costs;
(viii) prepare financial statements that inform management;
(ix) explain why gross revenue, value-added, contribution, gross margin, marketing expense,
general and administration expense, etc. might be highlighted in management reporting;
(x) compare and contrast management reports in a range of organisations including commercial
enterprises, charities and public sector undertakings.
Indicative syllabus content

• Manufacturing accounts including raw material, work-in-progress, finished goods and

manufacturing overhead control accounts.
• Integrated ledgers including accounting for over and under absorption of production
overhead.
• The treatment of variances as period entries in integrated ledger systems.
• Job, batch, process and contract costing. Note: Only the average cost method will be
examined for process costing but students must be able to deal with differing degrees of
completion of opening and closing stocks, normal gains and abnormal gains and losses, and
the treatment of scrap value.
• Subjective, objective and responsibility classifications of expenditure and the design of
coding systems to facilitate these analyses.
 • Cost accounting statements for management information in production and service
companies and not-for-profit organisations.

E Financial Planning and Control - 20%

Learning outcomes
On completion of their studies students should be able to:
(i) explain why organisations set out financial plans in the form of budgets, typically for a financial
year;
(ii) prepare functional budgets for material usage and purchase, labour and overheads, including
budgets for capital expenditure and depreciation;
(iii) prepare a master budget: income statement, balance sheet and cash flow statement, based on
the functional budgets;
(iv) interpret budget statements and advise managers on financing projected cash shortfalls and/or
investing projected cash surpluses;
(v) prepare a flexed budget based on the actual levels of sales and production and calculate
appropriate variances;
(vi) compare and contrast fixed and flexed budgets;
(vii) explain the use of budgets in designing reward strategies for managers.
Indicative syllabus content

• Budgeting for planning and control.

• Budget preparation, interpretation and use of the master budget.
• Reporting of actual against budget.
• Fixed and flexible budgeting.
• Budget variances.
• Interpretation and use of budget statements and budget variances

Fundamentals of Financial Accounting

Other pages in this section
| Fundamentals of Management Accounting | Fundamentals of Financial
Accounting | Fundamentals of Business Mathematics | Fundamentals of Business
Economics | Fundamentals of Ethics, Corporate Governance and Business Law |

Syllabus outline
The syllabus comprises:
Topic and Study Weighting
A - Conceptual and Regulatory Framework 20%
B - Accounting Systems 20%
C - Control of Accounting Systems 15%
D - Preparation of Accounts for Single Entities 45%
Learning aims
This syllabus aims to test the student’s ability to:

• explain the conceptual and regulatory framework of accounting;

• explain the nature of accounting systems and understand the control of such systems;
• prepare and interpret accounts for a single entity;
• calculate and interpret simple ratios.

Note:
This syllabus deals with the recording of accounting transactions and the preparation of accounting
statements for single entities. Students will be required to be aware of the format and content of
published accounts but are not required to prepare them. No knowledge of any specific accounting
treatment contained in the International Financial Reporting Standards (IFRSs) - including the
International Accounting Standards (IASs), - is necessary, except in terms of how they influence the
presentation of financial statements. IAS 1 and IAS 7 formats will form the basis of those
statements. The terminology used for all entities will be that seen in the International Finanical
Reporting Standards. This will enable students to use a consistent set of accounting terms
throughout their studies.
Assessment strategy
There will be a computer-based assessment of 2 hours duration, comprising 50 compulsory
questions, each with one or more parts.
A variety of objective test question types and styles will be used within the assessment.
Learning outcomes and indicative syllabus content
A Conceptual and Regulatory Framework – 20%
Learning outcomes
On completion of their studies students should be able to:
(i) identify the various user groups which need accounting information and the qualitative
characteristics of financial statements;
(ii) explain the function of and differences between financial and management accounting systems;
(iii) identify the underlying assumptions, policies and changes in accounting estimates;
(iv) explain and distinguish capital and revenue, cash and profit, income and expenditure, assets
and liabilities;
(v) identify the difference between tangible and intangible assets;
(vi) explain the historical cost convention;
(vii) identify the basic methods of valuing assets on current cost, fair value and value in use bases,
and their impact on profit measures and balance sheet values;
(viii) explain the influence of legislation (e.g. Companies Acts, EC directives) and accounting
standards on the production of published accounting information for organisations.
Indicative syllabus content

• Users of accounts and the objectives and the qualitative characteristics of financial
statements; functions of financial and management accounts; purpose of accounting
statements; stewardship; the accounting equation.
• Underlying assumptions; policies; changes in accounting estimates; capital and revenue;
cash and profit; income, expenditure, assets and liabilities.
• Tangible and intangible assets.
• Historical cost convention.
• Methods of asset valuation and their implications for profit measurement and the balance
sheet.
• The regulatory influence of company law and accounting standards; items in formats for
published accounts.

B Accounting Systems – 20%

Learning outcomes
On completion of their studies students should be able to:
(i) explain the purpose of accounting records and their role in the accounting system;
(ii) prepare cash and bank accounts, and bank reconciliation statements;
(iii) prepare petty cash statements under an imprest system;
(iv) prepare accounts for sales and purchases, including personal accounts and control accounts;
(v) explain the necessity for financial accounting codes and construct a simple coding system;
(vi) prepare nominal ledger accounts, journal entries and a trial balance;
(vii) prepare accounts for indirect taxes;
(viii) prepare accounts for payroll.
Indicative syllabus content

• The accounting system and accounting records.

 • Ledger accounts; double-entry bookkeeping.
• Preparation of accounts for cash and bank, bank reconciliations, imprest system for petty
cash.
• Accounting for sales and purchases, including personal accounts and control accounts.
• Financial accounting codes and their uses.
• Nominal ledger accounting, journal entries.
• Trial balance.
• Accounting for indirect taxes e.g. value added tax (VAT).
• Accounting for payroll.

C Control of Accounting Systems – 15%

Learning outcomes
On completion of their studies students should be able to:
(i) identify the requirements for external audit and the basic processes undertaken;
(ii) explain the purpose and basic procedures of internal audit;
(iii) explain the meaning of fair presentation;
(iv) explain the need for financial controls;
(v) explain the purpose of audit checks and audit trails;
(vi) explain the nature of errors, and be able to make accounting entries for them;
(vii) explain the nature of fraud and basic methods of fraud prevention.
Indicative syllabus content

• External audit and the meaning of fair presentation.

• Internal audit.
• Financial controls, audit checks on financial controls, audit trails.
• Errors and fraud.

D Preparation of Accounts for Single Entities – 45%

Learning outcomes
On completion of their studies students should be able to:
(i) prepare accounts using accruals and prepayments;
(ii) explain the difference between bad debts and allowances for receivables;
(iii) prepare accounts for bad debts and allowances for receivables;
(iv) calculate depreciation;
(v) prepare accounts using each method of depreciation and for impairment values;
(vi) prepare a non-current asset register;
(vii) prepare accounts for inventories;
(viii) prepare income statements, statement of changes in equity and balance sheets from trial
balance;
(ix) prepare manufacturing accounts;
(x) prepare income and expenditure accounts;
(xi) prepare accounts from incomplete records;
(xii) interpret basic ratios;
(xiii) prepare cash-flow statements.
Indicative syllabus content

• Adjustments to the trial balance; accruals and prepayments.

• Bad debts and allowances for receivables.
• Accounting treatment for depreciation (straight line, reducing balance and revaluation
methods) and impairment.
• Non-current asset register.
 • Accounting for inventories (excluding construction contracts); methods of inventory
valuation (FIFO, LIFO and average cost).
• Income statements and balance sheets from trial balance; statement of changes in equity.
• Manufacturing accounts.
• Income and expenditure accounts.
• Production of accounting statements from incomplete data.
• Ratios: return on capital employed; gross and net profit margins; asset turnover; trade
receivables collection period and trade payables payment period; current and quick ratios;
inventory turnover; gearing.
• Cash-flow statements.

Fundamentals of Business Mathematics

Other pages in this section
| Fundamentals of Management Accounting | Fundamentals of Financial
Accounting | Fundamentals of Business Mathematics | Fundamentals of Business
Economics | Fundamentals of Ethics, Corporate Governance and Business Law |

Syllabus outline
The syllabus comprises:
Topic and Study Weighting
A - Basic Mathematics 15%
B - Probability 15%
C - Summarising and Analysing Data 15%
D - Inter-relationships between Variables 15%
E - Forecasting 15%
F - Financial Mathematics 15%
G - Spreadsheets 10%
Learning aims
This syllabus aims to test the student’s ability to:

• demonstrate the use of basic mathematics, including formulae and ratios;

• identify reasonableness in the calculation of answers;
• demonstrate the use of probability where risk and uncertainty exist;
• apply techniques for summarising and analysing data;
• calculate correlation coefficients for bivariate data and apply the technique of simple
regression analysis;
• demonstrate techniques used for forecasting;
• apply financial mathematical techniques;
• apply spreadsheets to facilitate the presentation of data, analysis of univariate and bivariate
data and use of formulae.

Assessment strategy
There will be a computer based assessment of 2 hours duration, comprising 45 compulsory
questions, each with one or more parts.
A variety of objective test question styles and types will be used within the assessment.
Learning outcomes and indicative syllabus content
A Basic Mathematics - 15%
Learning outcomes
On completion of their studies students should be able to:
(i) demonstrate the order of operations in formulae, including brackets, powers and roots;
(ii) calculate percentages and proportions;
(iii) calculate answers to an appropriate number of decimal places or significant figures;
(iv) solve simple equations, including two variable simultaneous equations and quadratic equations;
(v) prepare graphs of linear and quadratic equations.
Indicative syllabus content

• Use of formulae, including negative powers as in the formula for the learning curve.
• Percentages and ratios.
• Rounding of numbers.
• Basic algebraic techniques and solution of equations, including simultaneous equations and
quadratic equations.
• Manipulation of inequalities

B Probability - 15%
Learning outcomes
On completion of their studies students should be able to:
(i) calculate a simple probability;
(ii) demonstrate the addition and multiplication rules of probability;
(iii) calculate a simple conditional probability;
(iv) calculate an expected value;
(v) demonstrate the use of expected value tables in decision making;
(vi) explain the limitations of expected values;
(vii) explain the concepts of risk and uncertainty.
Indicative syllabus content

• The relationship between probability, proportion and percent.

• Addition and multiplication rules in probability theory.
• Venn diagrams.
• Expected values and expected value tables.
• Risk and uncertainty.

C Summarising and Analysing Data - 15%

Learning outcomes
On completion of their studies students should be able to:
(i) explain the difference between data and information;
(ii) identify the characteristics of good information;
(iii) tabulate data and prepare histograms;
(iv) calculate for both ungrouped and grouped data: arithmetic mean, median, mode, range,
variance, standard deviation and coefficient of variation;
(v) explain the concept of a frequency distribution;
(vi) prepare graphs/diagrams of normal distribution, explain its properties and use tables of normal
distribution;
(vii) apply the Pareto distribution and the ‘80:20 rule’.
(viii) explain how and why indices are used;
(ix) calculate indices using either base or current weights;
(x) apply indices to deflate a series.
Indicative syllabus content

• Data and information.

• Tabulation of data.
• Graphs and diagrams: scatter diagrams, histograms, bar charts and ogives.
 • Summary measures of central tendency and dispersion for both grouped and ungrouped
data.
• Frequency distributions.
• Normal distribution, the Pareto distribution and ‘80:20 rule’.
• Index numbers

D Inter-relationships between Variables - 15%

Learning outcomes
On completion of their studies students should be able to:
(i) prepare a scatter diagram;
(ii) calculate the correlation coefficient and the coefficient of determination between two variables;
(iii) calculate the regression equation between two variables;
(iv) apply the regression equation to predict the dependent variable, given a value of the
independent variable.
Indicative syllabus content

• Scatter diagrams and the correlation coefficient.

• Simple linear regression.

E Forecasting - 15%
Learning outcomes
On completion of their studies students should be able to:
(i) prepare a time series graph;
(ii) identify trends and patterns using an appropriate moving average;
(iii) identify the components of a time series model;
(iv) prepare a trend equation using either graphical means or regression analysis;
(v) calculate seasonal factors for both additive and multiplicative models and explain when each is
appropriate;
(vi) calculate predicted values given a time series model;
(vii)identify the limitations of forecasting models.
Indicative syllabus content

• Time series analysis – graphical analysis.

• Trends in time series – graphs, moving averages and linear regression.
• Seasonal variations using both additive and multiplicative models.
• Forecasting and its limitations.

F Financial Mathematics - 15%

Learning outcomes
On completion of their studies students should be able to:
(i) calculate future values of an investment using both simple and compound interest;
(ii) calculate an annual percentage rate of interest given a monthly or quarterly rate;
(iii) calculate the present value of a future cash sum using formula and CIMA Tables;
(iv) calculate the present value of an annuity and a perpetuity using formula and CIMA Tables;
(v) calculate loan/mortgage repayments and the value of the loan/mortgage outstanding;
(vi) calculate the future value of regular savings and/or the regular investment needed to generate
a required future sum using the formula for the sum of a geometric progression;
(vii) calculate the net present value (NPV) and internal rate of return (IRR) of a project and explain
whether and why it should be accepted;
Indicative syllabus content

• Simple and compound interest.

• Annuities and perpetuities.
 • Loans and mortgages.
• Sinking funds and savings funds.
• Discounting to find NPV and IRR and interpretation of NPV and IRR.

G Spreadsheets - 10%
Learning outcomes
On completion of their studies students should be able to:
(i) explain the features and functions of spreadsheet software;
(ii) explain the use and limitations of spreadsheet software in business;
(iii) apply spreadsheet software to the normal work of a Chartered Management Accountant.
Indicative syllabus content

• Features and functions of commonly-used spreadsheet software: workbook, worksheet,

rows, columns, cells, data, text, formulae, formatting, printing, graphics and macros. Note:
Knowledge of Microsoft Excel type spreadsheet vocabulary/formulae syntax is required.
Formulae tested will be that which is constructed by users rather than pre-programmed
formulae.
• Advantages and disadvantages of spreadsheet software, when compared to manual
analysis and other types of software application packages.
• Use of spreadsheet software in the day-to-day work of the Chartered Management
Accountant: budgeting, forecasting, reporting performance, variance analysis, what-if
analysis, discounted cashflow calculations.

Fundamentals of Business Economics

Other pages in this section
| Fundamentals of Management Accounting | Fundamentals of Financial Accounting | Fundamentals
of Business Mathematics | Fundamentals of Business Economics | Fundamentals of Ethics,
Corporate Governance and Business Law |

Syllabus outline
The syllabus comprises:
Topic and Study Weighting
A - The Goals and Decisions of Organisations 20%
B - The Market System and the Competitive Process 30%
C - The Financial System 20%
D - The Macroeconomic Context of Business 30%
Learning aims
This syllabus aims to test student’s ability to:

• Distinguish the differing goals of organisations and identify how these differing goals affect
the decisions made by managers;
• Illustrate how market economies function and identify the reasons for and impacts of
government involvement in economic activities;
• Identify the role of financial institutions and markets in the provision of short and long term
finance to individuals, businesses and governmental organisations;
• Identify how macroeconomic variables and government economic policies affect the
organisation.
Assessment strategy
There will be a computer based assessment of 2 hours duration, comprising 75 compulsory
questions, each with one or more parts.
A variety of objective test question styles and types will be used within the assessment.
Learning outcomes and indicative syllabus content
A. The Goals and Decisions of Organisations – 20%
Learning outcomes
On completion of their studies students should be able to:
(i) distinguish the goals of profit seeking organisations, not-for-profit organisations and
governmental organisations;
(ii) compute the point of profit maximisation for a single product firm in the short run;
(iii) distinguish the likely behaviour of a firm’s unit costs in the short run and long run;
(iv) illustrate the effects of long run cost behaviour on prices, the size of the organisation and the
number of competitors in the industry;
(v) explain shareholder wealth, the variables affecting shareholder wealth, and its application in
management decision making;
(vi) identify stakeholders and their likely impact on the goals of not-for-profit organisations and the
decisions of the management of not-for-profit organisations;
(vii) distinguish between the potential objectives of management and those of shareholders, and the
effects of this principal-agent problem on decisions concerning price, output and growth of the firm.
(viii) describe the main mechanisms to improve corporate governance in profit seeking
organisations.
Indicative syllabus content

• The forms of ownership of organisations by which we mean public, private and mutual, and
their goals.
• Graphical treatment of short run cost and revenue behaviour as output increases (total
revenue and total cost curves) and identification of point of short-run profit maximisation
using graphical techniques and from data.
• Long run cost behaviour and the impact of economies and diseconomies of scale.
• Concept of returns to shareholder investment in the short run (ROCE and EPS) and long run
(NPV of free cash flows) leading to the need for firms to provide rates of return to
shareholders at least equal to the firm’s cost of capital.
• Calculation of impact on the value of shares of a change to a company’s forecast cash flows
or required rate. Note: Calculations required will be either perpetual annuity valuations with
constant annual free cash flows, or NPV calculations with variable cash flows over three
years.
• Types of not-for-profit organisations (NPOs) and the status of economic considerations as
constraints rather than primary objectives in the long run.
• Role of stakeholders in setting goals and influencing decisions in not-for-profit organisations
(NPOs) and potential ways of resolving differing stakeholder demands.
• The principal-agent problem, its likely effect on decision-making in profit seeking and not-
for-profit organisations (NPOs), and the concepts of scrutiny and corporate governance.

B. The Market System and the Competitive Process – 30%

Learning outcomes
On completion of their studies students should be able to:
(i) identify the equilibrium price in a product or factor markets likely to result from specified
changes in conditions of demand or supply;
(ii) calculate the price elasticity of demand and the price elasticity of supply;
(iii) identify the effects of price elasticity of demand on a firm’s revenues following a change in
prices;
(iv) explain market concentration and the factors giving rise to differing levels of concentration
between markets;
(v) explain market failures, their effects on prices, efficiency of market operation and economic
welfare, and the likely responses of government to these;
(vi) distinguish the nature of competition in different market structures;
(vii) identify the impacts of the different forms of competition on prices and profitability.
Indicative syllabus content

• The price mechanism: determinants of supply and demand and their interaction to form and
change equilibrium price.
• The price elasticity of demand and its effect on firms’ revenues and pricing decisions.
• The price elasticity of supply and its impact on prices, supply and buyers’ expenditure.
• Business integration: mergers, vertical integration and conglomerates.
• Calculation of market concentration and its impact on efficiency, innovation and competitive
behaviour.
• Impact of monopolies and collusive practices on prices and output and role of competition
policy in regulating this.
• Factors causing instability of prices in primary goods markets (i.e. periodic and short run
inelasticity of supply, the cobweb or hog cycle) and the implications of this for producer
incomes, industry stability and supply and government policies to combat this (e.g.
deficiency payments, set-aside, subsidies).
• Impact of minimum price (minimum wages) and maximum price policies in goods and
factor markets.
• Positive and negative externalities in goods markets and government policies to deal with
these (including indirect taxes, subsidies, polluter pays policies and regulation).
• Public assurance of access to public goods, healthcare, education and housing.
• Public versus private provision of services (nationalisation, privatisation, contracting out,
public private partnerships).

C. The Financial System – 20%

Learning outcomes
On completion of their studies students should be able to:
(i) identify the factors leading to liquidity surpluses and deficits in the short, medium and long run
in households, firms and governments;
(ii) explain the role of various financial assets, markets and institutions in assisting organisations to
manage their liquidity position and to provide an economic return to holders of liquidity;
(iii) explain the role of insurance markets in the facilitation of the economic transfer and bearing of
risk for households, firms and governments;
(iv) explain the role of the foreign exchange market and the factors influencing it, in setting
exchange rates and in helping organisations finance international trade and investment;
(v) explain the role of national and international governmental organisations in regulating and
influencing the financial system, and the likely impact of their policy instruments on businesses.
Indicative syllabus content

• The causes of short-term, medium term and long term lack of synchronisation between
payments and receipts in households (i.e. month to month cash flow, short-term saving
and borrowing, and longer term property purchases and pensions provision).
 • The causes of short-term, medium term and long term lack of synchronisation between
payments and receipts in firms (i.e. month to month cash flow management, finance of
working capital and short-term assets and long term permanent capital).
• The causes of short-term, medium term and long term lack of synchronisation between
payments and receipts in governmental organisations (i.e. month to month cash flow
management, finance of public projects and long term management of the national debt).
• The principal contracts and assets issued by financial institutions and borrowers to attract
liquidity in the short, medium and long term (e.g. credit agreements, mortgages, bills of
exchange, bonds, certificates of deposit and equities).
• The roles and functions of financial intermediaries and the principal institutions and markets
in the financial system.
• The influence of commercial banks on the supply of liquidity to the financial system through
their activities in credit creation.
• Yield on financial instruments (i.e. bill rate, running yield on bonds, net dividend yield on
equity), relation between rates, role of risk, the yield curve.
• Influence of central banks on yield rates through market activity and as providers of
liquidity to the financial system.
• Principal insurance contracts available and basic operation of insurance markets including
terminology (e.g. broking, underwriting, reinsurance).
• The role of foreign exchange markets in facilitating international trade and in determining
the exchange rate.
• Effect of exchange rates on the international competitiveness of firms, including elementary
foreign exchange translation calculations.
• Credit and foreign exchange risks of international trading firms and the use of letters of
credit, export credit guarantees and exchange rate hedging to manage these risks.
• Influences on exchange rates: interest rates, inflation rates, trade balance, currency
speculation.
• Governmental and international policies on exchange rates (i.e. exchange rate
management, fixed and floating rate systems, single currency zones) and the implications
of these policies for international business.

D. The Macroeconomic Context of Business – 30%

Learning outcomes
On completion of their studies students should be able to:
(i) explain macroeconomic phenomena, including growth, inflation, unemployment, demand
management and supply-side policies;
(ii) explain the main measures and indicators of a country’s economic performance and the
problems of using these to assess the wealth and commercial potential of a country;
(iii) explain the stages of the trade cycle, its causes and consequences, and discuss the business
impacts of potential policy responses of government to each stage;
(iv) explain the main principles of public finance (i.e. deficit financing, forms of taxation) and
macroeconomic policy;
(v) explain the concept of the balance of payments and its implications for business and for
government policy;
(vi) identify the main elements of national policy with respect to trade, including protectionism,
trade agreements and trading blocks;
(vii) identify the conditions and policies necessary for economic growth in traditional, industrial and
post-industrial societies, and the potential consequences of such growth;
(viii) explain the concept and consequences of globalisation for businesses and national economies;
(ix) identify the major institutions promoting global trade and development, and their respective
roles.
Indicative syllabus content

• National Income Accounting identity and the three approaches to calculation and
presentation of national income (Output, Expenditure and Income).
• Interpretation of national income accounting information for purposes of time series or
cross sectional evaluation of economic performance.
• The circular flow of income and the main injections and withdrawals.
• Illustration of changes to equilibrium level of national income using aggregate demand and
supply analysis.
• Government macroeconomic policy goals (low unemployment, inflation, external equilibrium
and growth) and the effects on business of the government’s pursuit of these.
• Types and consequences of unemployment, inflation and balance of payments deficits.
• The trade cycle and the implications for unemployment, inflation and trade balance of each
stage (recession, depression, recovery, boom).
• Government policy for each stage of the business cycle and the implications of each policy
for business.
• The central government budget and forms of direct and indirect taxation. Incidence of
taxation (progressive, regressive) and potential impact of high taxation on incentives and
avoidance.
• Fiscal, monetary and supply side policies, including relative merits of each.
• Layout of balance of payments accounts and the causes and effects of fundamental
imbalances in the balance of payments.
• Arguments for and against free trade and policies to encourage free trade (e.g. bi-lateral
trade agreements, multi-lateral agreements, free trade areas, economic communities and
economic unions), and protectionist instruments (tariffs, quotas, administrative controls,
embargoes)
• Principal institutions encouraging international trade (e.g. WTO/GATT, EU, G8)
• Nature of globalisation and factors driving it (e.g. improved communications, political
realignments, growth of global industries and institutions, cost differentials).
• Impacts of globalisation (e.g. industrial relocation, emergence of growth markets, enhanced
competition, cross-national business alliances and mergers, widening economic divisions
between countries)
• Role of major institutions (e.g. World Bank, International Monetary Fund, European Bank)
in fostering international development and economic stabilisation.

Fundamentals of Ethics, Corporate Governance and

Business Law
Other pages in this section
| Fundamentals of Management Accounting | Fundamentals of Financial Accounting | Fundamentals
of Business Mathematics | Fundamentals of Business Economics | Fundamentals of Ethics,
Corporate Governance and Business Law |
Syllabus outline:
The syllabus comprises:
Topic and Study Weighting
A - Ethics and Business 15%
B - Ethical Conflict 10%
C - Corporate Governance 10%
D - Comparison of English Law with Alternative Legal Systems 10%
E - The Law of Contract 20%
F - The Law of Employment 10%
G - Company Administration and Finance 25%
Learning aims
Students should be able to:

• discuss the framework of professional values, ethics and attitudes for exercising
professional judgement and acting in an ethical manner, that is in the best interests of
society and the profession;
• explain the need to comply with the CIMA and IFAC ‘Codes of Ethics for Professional
Accountants’;
• explain the importance of good corporate governance and the evolution of good practice;
• explain fundamental aspects of the organisation and operation of the English legal system
and compare and contrast it with other legal systems;
• explain the elements of the tort of negligence and the manner in which the tort impacts
upon professional advisers;
• explain the essential elements of a simple contract, what is regarded as adequate
performance of the simple contract, and the remedies available to the innocent party in the
event of a breach;
• explain the essential differences between sole traderships, partnerships and companies
limited by shares;
• explain the way in which companies are administered, financed and managed;
• apply legal knowledge to solve business problems.

Note: Unless specifically mentioned, the English legal system will be the context for those parts of
this syllabus that relate to the study of business law.
Assessment strategy
There will be a computer based assessment of two hours duration, comprising 75 compulsory
questions, each with one or more parts.
A variety of objective test question styles and types will be used within the assessment.
Learning outcomes and indicative syllabus content
A. Ethics and Business – 15%
Learning outcomes
On completion of their studies students should be able to:
(i) apply the values and attitudes that provide professional accountants with a commitment to act in
the public interest and with social responsibility;
(ii) explain the need for a framework of laws, regulations and standards in business and their
application;
(iii) explain the nature of ethics and its application to business and the accountancy profession;
(iv) identify the difference between detailed rules-based and framework approaches to ethics;
(v) explain the need for continual personal improvement and life long learning;
(vi) explain the need to develop the virtues of reliability, responsibility, timeliness, courtesy and
respect;
(vii) explain the ethical principles of integrity, objectivity, professional competence, due care and
confidentiality;
(viii) identify concepts of independence, scepticism, accountability and social responsibility;
(ix) explain the reasons why CIMA and IFAC each have a ‘Code of Ethics for Professional
Accountants’.
Indicative syllabus content

• Values and attitudes for professional accountants.

• Legal frameworks, regulations and standards for business.
• Nature of ethics and its relevance to business and the accountancy profession.
• Rules-based and framework approaches to ethics.
• Personal development and lifelong learning.
• Personal qualities of reliability, responsibility, timeliness, courtesy and respect.
• Ethical principles of integrity, objectivity, professional competence, due care and
confidentiality.
• Concepts of independence, scepticism, accountability and social responsibility.
• The CIMA and IFAC ‘Codes of Ethics for Professional Accountants’.

B. Ethical Conflict – 10%

Learning outcomes
On completion of their studies students should be able to:
(i) explain the relationship between ethics, governance, the law and social responsibility;
(ii) describe the consequences of unethical behaviour to the individual, the profession and society;
(iii) identify situations where ethical dilemmas and conflicts of interest occur;
(iv) explain how ethical dilemmas and conflicts of interest can be resolved.
Indicative syllabus content

• Relationship between ethics, governance, the law and social responsibility.

• Unethical behaviour.
• Ethical dilemmas and conflicts of interest.

C. Corporate Governance – 10%

Learning outcomes
On completion of their studies students should be able to:
(i) define corporate governance;
(ii) explain the interaction of corporate governance with business ethics and company law;
(iii) describe the history of corporate governance internationally;
(iv) explain the effects of corporate governance on directors’ behaviour and their duties of skill and
care;
(v) explain different board structures, the role of the board and corporate governance issues;
(vi) describe the types of policies and procedures that best practice companies introduce;
(vii) explain the regulatory governance framework for companies.
Indicative syllabus content

• The role and key objectives of corporate governance in relation to ethics and the law.
• Development of corporate governance internationally.
• The behaviour of directors in relation to corporate governance and duty of care towards
their stakeholders.
• The role of the board in establishing corporate governance standards.
• Types of board structures and corporate governance issues.
• Policies and procedures for ‘best practice’ companies.
• Rules and principles based approaches to governance.
• The regulatory governance framework.
D. Comparison of English Law with Alternative Legal Systems - 10%
Learning outcomes
On completion of their studies students should be able to:
(i) explain the manner in which behaviour within society is regulated by the civil and the criminal
law;
(ii) identify and explain the sources of English law;
(iii) illustrate the operation of the doctrine of precedent by reference to the essential elements of
the tort of negligence and its application to professional advisers;
(iv) compare and contast the elements of alternative legal systems, Sharia Law and the role of
international legal regulations.
Indicative syllabus content

• The sources of English law.

• The system of judicial precedent.
• The essential elements of the tort of negligence, including duty, breach and
damage/loss/injury and the liability of professionals in respect of negligent advice.
• Alternative legal systems, including codified (civil law) systems, Sharia Law and
international legal regulations

E. The Law of Contract - 20%

Learning outcomes
On completion of their studies students should be able to:
(i) identify the essential elements of a valid simple contract and situations where the law requires
the contract to be in a particular form;
(ii) explain how the law determines whether negotiating parties have reached agreement and the
role of consideration in making that agreement enforceable;
(iii) explain when the parties will be regarded as intending the agreement to be legally binding and
how an agreement may be avoided because of misrepresentations;
(iv) explain how the contents and the terms of a contract are established and the possible
repercussions of non-performance;
(v) explain how the law controls the use of unfair terms in respect of both consumer and non-
consumer business agreements;
(vi) explain what the law regards as performance of the contract, and valid and invalid reasons for
non-performance;
(vii) explain the type of breach necessary to cause contractual breakdown and the remedies which
are available for serious and minor breaches of contract.
Indicative syllabus content

• The essential elements of a valid simple contract.

• The legal status of statements made by negotiating parties. Enforceable offers and
acceptances, and the application of the rules to standard form contracts using modern
forms of communication and the role of consideration.
• The principles for establishing that the parties intend their agreement to have contractual
force and how a contract is affected by a misrepresentation.
• Incorporation of express and implied terms, conditions and warranties.
• The main provisions of sale of goods and supply of services legislation.
• The manner in which the law controls the use of exclusion clauses and unfair terms in
consumer and non-consumer transactions.
• The level of performance sufficient to discharge contractual obligations.
• Valid reasons for non-performance by way of agreement, breach by the other party and
frustration.
 • The remedies of specific performance, injunction, rescission, and requiring a contract party
to pay the agreed price.
• Causation and remoteness of damages, and their quantification.

F. The Law of Employment - 10%

Learning outcomes
On completion of their studies students should be able to:
(i) explain the difference between employees and independent contractors and how the contents of
a contract of employment are established;
(ii) explain the distinction between unfair and wrongful dismissal;
(iii) demonstrate an awareness of how employers and employees are affected by health and safety
legislation, including the consequences of a failure to comply.
Indicative syllabus content

• The tests used to distinguish an employee from an independent contractor.

• The express and implied terms of a contract of employment.
• Unfair and wrongful dismissal.
• An outline of the main rules relating to health and safety at work, sanctions on employers
for non-compliance, and remedies for employees.

G. Company Administration and Finance - 25%

Learning outcomes
On completion of their studies students should be able to:
(i) explain the essential characteristics of the different forms of business organisations and the
implications of corporate personality;
(ii) explain the differences between public and private companies and establishing a company by
registration or purchasing “off the shelf”;
(iii) explain the purpose and legal status of the memorandum and articles of association;
(iv) explain the ability of a company to contract;
(v) explain the main advantages and disadvantages of carrying on business through the medium of
a company limited by shares.
(vi) explain the use and procedure of board meetings and general meetings of shareholders;
(vii) explain the voting rights of directors and shareholders and identify the various types of
shareholder resolutions;
(viii) explain the nature of different types of share, the procedure for the issue of shares, and
acceptable forms of payment;
(ix) explain the maintenance of capital principle and the procedure to increase and reduce share
capital, including the repercussions of issuing shares for an improper purpose;
(x) explain the ability of a company to take secured and unsecured loans, the different types of
security and the registration procedure.
(xi) explain the procedure for the appointment, retirement, disqualification and removal of directors
and their powers and duties during office;
(xii) explain the rules dealing with the possible imposition of personal liability upon the directors of
insolvent companies;
(xiii) identify and contrast the rights of shareholders with the board of a company;
(xiv) explain the qualifications, powers and duties of the company secretary.
Indicative syllabus content

• The essential characteristics of sole traderships/practitionerships, partnerships, companies

limited by shares and corporate personality.
• “Lifting the corporate veil” both at common law and by statute.
• The distinction between public and private companies.
• The procedure for registering a company, the advantages of purchasing a company “off the
shelf”, and the purpose and contents of the memorandum and articles of association.
• Corporate capacity to contract.
• Board meetings: when used and the procedure at the meeting.
• Annual and Extraordinary General Meetings: when used and the procedure at the meeting
including company resolutions and the uses of each type of resolution;
• The rights attaching to the different types of shares and the purposes and procedures for
issuing shares.
• The maintenance of capital principle, the purposes and rules for which shares may be
issued, redeemed or, purchased and the provision of financial assistance for the purchase of
its own shares.
• The ability of a company to borrow money and the procedure to be followed.
• Unsecured loans, and the nature and effect of fixed and floating charges.
• The appointment, retirement and removal of directors and their powers and duties during
office.
• Fraudulent and wrongful trading, preferences and transactions at an under-value.
• The division of powers between the board and the shareholders.
• The rights of majority and minority shareholders.
• The qualifications, powers and duties of the company secretary.