1. Types of Organisational Structure

Entrepreneurial

• Features: Built around the owner-manager (typical in small businesses).

• ✅ Advantages: Fast decisions, market responsive, goal congruence, good control, close workforce bond.

• ❌ Disadvantages: No career paths, dependent on manager’s skill, poor at handling growth/diversification.

Functional / Departmental

• Features: Groups staff by similar tasks (marketing, finance, HR, etc.).

• ✅ Advantages: Economies of scale, standardisation, career opportunities, specialists comfortable.

• ❌ Disadvantages: Slow decisions, conflict between functions, empire building, poor diversification.

Divisional

• Features: Split by product, geography, or customer type. Each has its own functions.

• ✅ Advantages: Growth potential, clear responsibility, general manager training, top management free for strategy.

• ❌ Disadvantages: Duplication, loss of control, cost allocation issues, lack of goal congruence, specialists isolated.

Matrix

• Features: Combination of functional & divisional. Staff report to two managers (e.g. function + product).

• ✅ Advantages: Flexible, teamwork, customer focus, combines strengths of both structures.

• ❌ Disadvantages: Dual authority → conflict, time-consuming meetings, high admin costs, diluted authority.

2. Span of Control

• Definition: Number of subordinates a manager directly controls.

• Tall structure: Many levels, narrow span. → Clear career path, close supervision, slower decisions.

• Flat structure: Few levels, wide span. → Faster decisions, more autonomy, less promotion opportunities.

• Influenced by: work type, staff skill level, location.

3. Governance

• Definition: Authority structures, rules, and processes guiding decision-making, resource allocation, and priorities.

Governance factors:

• Specialisation (division of roles)

• Standardisation (rules/procedures)

• Formalisation (documented instructions)

• Centralisation (top-heavy decisions)

• Chain of command (levels of hierarchy)

• Span of control (narrow or wide)

4. Centralisation vs Decentralisation

Centralisation

• Decisions kept at the top.

• ✅ Advantages: Goal congruence, reduced training costs, consistency.

• ❌ Disadvantages: Slower responses, demotivating, overload for senior managers.

Decentralisation

• Decisions pushed down to lower levels.

• ✅ Advantages: Quicker decisions, local expertise, staff motivation, frees senior managers.

• ❌ Disadvantages: Loss of control, risk of poor local decisions, duplication, higher costs.

5. Levels of Strategy (Anthony’s Hierarchy)

• Strategic (Corporate): Long-term, whole organisation focus.

• Tactical (Business/Managerial): Medium-term, departmental/division resource use.

• Operational (Functional): Short-term, day-to-day practical tasks.

6. Link Between Structure & Governance

• Entrepreneurial: Low specialisation, low formalisation, highly centralised, flat structure.

• Divisional: High specialisation & formalisation, decentralised, tall structure.

• Matrix: Narrow span, flexible, decentralised, often tall.

✅ Exam Tip:

• Entrepreneurial = small, fast, personal.

• Functional = efficiency, specialists.

• Divisional = growth, duplication.

• Matrix = teamwork, but conflict.

• Tall vs Flat = career path vs quick response.

• Centralisation = control, Decentralisation = flexibility.

1. Authorities & Legislation

• Authorities companies are accountable to:

  • Companies House (UK) – filing requirements.

  • Tax authorities (HMRC) – annual tax returns.

  • Regulators (e.g. FCA, Charities Commission, OFGEM).

• Companies Act 2006 (CA 2006):

  • Requires companies to prepare financial statements that give a true and fair view.

  • “True and fair” → must follow accounting standards, provide enough information, follow accepted practice, no material misstatements.

• Retention of records: usually 7 years.

• Responsibility: Directors are legally responsible for preparing financial statements.

2. Directors

Definition: Anyone fulfilling the role, regardless of title.

• Every company: at least 1 director.

• Public company: at least 2 directors.

• Must be a natural person.

Types of Directors:

• Executive director – full-time, specific role (e.g. Marketing Director).

• Non-executive director – part-time, brings external expertise, monitors executives.

• Managing Director (MD) – runs day-to-day business.

• Chairman – ensures proper procedure in meetings.

• Alternate director – stands in for another director.

• Shadow director – gives instructions directors usually follow (but not just professional advice).

Appointment & Removal:

• Appointed by existing directors or shareholders (ordinary resolution).

• Removed by resolution, disqualification, resignation, retirement, or death.

General Duties (CA 2006):

• Act within powers (company constitution).

• Promote success of the company.

• Exercise independent judgment.

• Exercise reasonable care, skill & diligence.

• Avoid conflicts of interest.

• Not accept benefits from third parties.

• Declare interest in transactions.

Directors’ Powers & Controls:

• Shareholders delegate day-to-day running, but some actions need shareholder approval:

  • Long service contracts (2+ years).

  • Substantial property transactions.

  • Loans to directors.

  • Payments for loss of office.

3. Shareholders

Rights:

• Receive annual accounts & reports.

• Require & attend general meetings.

• Receive dividends.

• Inspect company info & directors’ service contracts.

• Vote on company matters.

• Be issued a share certificate.

Duties:

• Approve constitution changes.

• Approve financial statements.

• Declare dividends.

• Approve winding up of the company.

4. Partnerships (Unlimited Liability Partnerships)

Definition:

• Business run by two or more people with a view to profit.

• Not a separate legal entity → partners are personally liable for debts.

• Liability is “joint and several” (a third party can sue all partners or just one).

Key Features:

• Unlimited liability for debts.

• Don’t need to file accounts publicly.

• Partners can withdraw capital freely.

• Best suited for low insolvency risk businesses.

Partnership Agreement (not legally required but recommended):

• Sets out: profit sharing, partners’ authority, dispute resolution.

• Without it → Partnership Act 1890 applies (profits shared equally).

5. Goodwill in Partnerships

• Definition: Value of reputation, customer base, market position, etc.

• Calculated as fair value of net assets – book value of net assets.

• When new partner joins: goodwill belongs to old partners.

• New partner usually contributes capital; retiring partner withdraws capital + share of goodwill.

6. Changes in Partnership

• New partner: only liable for debts after joining.

• Retiring partner: remains liable for debts before retirement unless:

  • Notice of retirement is given.

  • Novation agreement – third party agrees to transfer liability to remaining partners.

  • Indemnity agreement – continuing partners reimburse retiring partner for claims after retirement.

✅ Exam Tip:

• Companies Act 2006 = true & fair financial statements.

• Directors = duties under CA 2006, powers controlled by shareholder approval.

• Shareholders = rights (info, dividends, meetings) & duties (approve key company changes).

• Partnerships = unlimited liability unless LLP, joint and several liability, goodwill issues when partners change.

1. Data Protection (GDPR)

Principles (GDPR, 2018)

Personal data must be:

• Fair, lawful, transparent

• For specified purposes (purpose limitation)

• Adequate, relevant, limited to what is necessary

• Accurate & up to date

• Kept no longer than necessary (storage limitation)

• Securely handled

• Accountability – organisations must show compliance

Breaches & Penalties

• Report breach to supervisory authority within 72 hrs (where feasible)

• Inform individuals if their rights/freedoms are at risk

• Keep records of all breaches (even if not reported externally)

• Max fines:

  • EU: €20m or 4% of annual global turnover (whichever higher)

  • UK: £17.5m or 4% of annual global turnover

Data Subject Rights

Individuals have the right to:

• Be informed about use of data

• Access personal data

• Correct incorrect data

• Erase data (“right to be forgotten”)

• Restrict processing

• Data portability (transfer data to another provider)

• Object to certain processing

2. Information Security

Protecting data from risks such as:

• Physical risks (e.g. fire, hardware damage)

• Human risks (e.g. error, misuse, theft)

Main risks:

• Physical damage

• Human damage

• Operational problems

• Data corruption

• Data theft

Countermeasures (examples)

• Fire → Off-site back-ups

• Viruses → Anti-virus & firewalls

• Software bugs → Thorough testing

3. Cybersecurity

Definition

Protection of internet-connected systems (hardware, software, data) from cyberattacks.

Common Cyberattack Risks

• Malware: Viruses, worms, trojans – damage or control systems remotely

• Phishing: Fake emails/websites tricking users into giving info or installing malware

• Denial of Service (DoS): Overloading a system with traffic, making it unavailable

• Man in the Middle: Attacker intercepts communication (e.g. fake Wi-Fi login page)

4. Key Takeaways

• GDPR: Protects individuals; serious fines for breaches.

• Information Security: Prevents risks to data; requires safeguards.

• Cybersecurity: Protects systems from online attacks; staff awareness crucial.

• Process of converting criminally obtained money/assets into “clean” money/assets.

• Also covers funding terrorism.

3 Stages of Money Laundering:

1. Placement – Criminal money first enters financial system.

2. Layering – Passing funds through complex transactions to disguise origins.

3. Integration – Reintroducing funds into legitimate economy (“clean”).

Terrorist Financing

• Raising, possessing, or dealing with property, knowing/suspecting it is for terrorism.

• Conviction = up to 14 years prison and/or unlimited fine.

2. Money Laundering Offences

• Acquiring/possessing/using criminal property.

• Concealing/disguising/transferring/removing criminal property.

• Failure to disclose suspicion or knowledge.

• Tipping off (telling a suspect that they are under investigation).

3. Failure to Report

• Must report suspicions to MLRO (Money Laundering Reporting Officer) or directly to FIU/NCA if no MLRO.

• Failure = criminal offence.

• Confidentiality is not a defence.

• Senior staff may be liable if they neglect responsibilities.

4. Money Laundering Regulations (2017)

Firms must have:

• MLRO appointed.

• Internal reporting procedures.

• Suspicious Activity Reports (SARs) to FIU/NCA.

• Staff training on AML rules.

• Independent audit of AML processes.

• Customer Due Diligence (CDD) (normal, enhanced, simplified).

• Record keeping and data protection systems.

5. Suspicious Activity Reports (SARs)

• Must include:

  • Name, address, DOB, nationality of suspect.

  • ID documents/references.

  • Nature of activities raising suspicion.

  • Location of laundered property / other linked parties.

6. Tipping Off

• Telling a suspect that they’re being investigated.

• Penalty: Max 2 years prison and/or unlimited fine.

7. Customer Due Diligence (CDD)

When required:

• New business relationship.

• Occasional transaction ≥ £8,361 (10,000 euros approx).

• Suspicion of ML/terrorist financing.

• Doubts about prior ID.

• Ongoing checks on existing clients.

Types:

• Standard CDD – Verify client’s identity, beneficial owners, business purpose.

• Enhanced CDD – For higher risk clients (extra checks, closer monitoring).

• Simplified CDD – For lower risk clients.

• If CDD not possible → must not act, may need SAR.

8. Whistleblowing

• Disclosure of wrongdoing (e.g. illegality, abuse, risk to public safety).

• Can be internal (within organisation) or external (e.g. press).

• Protected by Public Interest Disclosure Act 1998 (PIDA) – prevents dismissal if acting in good faith.

9. Key Takeaways

• No de minimis: no amount is too small to ignore.

• AML offences are serious criminal offences.

• Accountants must be vigilant – failure to act carries penalties.

• Strong CDD & reporting procedures protect businesses and professionals.

What is External Analysis

• External analysis means looking at the outside environment in which an organisation operates. It helps understand opportunities and threats.

• It’s part of strategic planning so businesses can respond to changes (regulations, market, economy, etc.).

How to Use PESTLE in Practice

• Scanning & Monitoring: Constantly watch for external changes (legislation, economic indicators, social trends).

• Impact & Likelihood: Not all external factors are equally important. Estimate how likely a change is, and what its impact would be.

• Scenario Planning: Think about what might happen under different external conditions (best case, worst case, moderate).

• Strategy & Response: Once you’ve identified key PESTLE factors, develop strategic responses: adapt products, enter/exit markets, adjust pricing, change operations, invest in technology, etc.

Potential Exam / Assessment Areas

• Define PESTLE; list and explain each factor.

• Given a business scenario, identify PESTLE factors affecting it and explain how they are opportunities or threats.

• Compare the effect of different PESTLE factors.

• Use PESTLE analysis to support decision making or recommendations (e.g. should a business expand into a country or change product lines).

Key Definitions to Know

• Opportunity vs Threat (from external environment).

• Legislation / regulation.

• Innovation.

• Consumer trends / demographics.

• Environmental sustainability.

Useful Tips & Common Mistakes

• Don’t confuse legal and political: political is more about government policy and stability; legal is actual laws in force.

• Context matters: PESTLE factors vary by industry and geography. What is a big legal risk in one country might be negligible elsewhere.

• Be specific in examples: instead of “regulation”, specify “UK data protection laws (GDPR)” or “rise in minimum wage”.

• Avoid too many generic points: focus on the most relevant to the business in the scenario.

How Chapter 7 Links with Other Chapters

• Ties into Chapter 8: The microeconomic environment — PESTLE gives the macro view.

• Also relates to Risk and risk management (Chapter 6) — external factors are often sources of risk.

• And Technology / sustainability / legal framework in other chapters can overlap.

Key Concepts & Definitions

• Market: place where buyers and sellers exchange goods or services.

• Demand: the quantity consumers are willing and able to buy at a certain price.

  • Law of demand: as price ↑, demand ↓ (and vice versa).

• Supply: the quantity producers are willing and able to sell at a certain price.

  • Law of supply: as price ↑, supply ↑ (and vice versa).

• Equilibrium price & quantity: where demand = supply (no surplus or shortage).

Factors Causing Shifts in Demand & Supply

Demand Shifters

• Income (↑ income → more demand for normal goods; less for inferior goods).

• Price of substitutes (if substitute ↑ in price, demand shifts to this good).

• Price of complementary goods (if complement ↑, demand falls for this good).

• Consumer tastes, preferences, fashions.

• Population size and demographics.

• Expectations about future prices or availability.

Supply Shifters

• Costs of production (raw materials, wages, energy).

• Technological advances (often increase supply).

• Government policies (taxes reduce supply, subsidies increase it).

• Price/availability of inputs.

• Joint supply (when goods are produced together).

• Producers’ expectations of future prices.

Types of Goods

• Normal goods: demand rises when income rises.

• Inferior goods: demand falls when income rises.

• Necessities: demand remains steady regardless of income.

• Luxuries: demand grows strongly with rising income.

Competition & Market Structures

• Competition level: number of sellers, ease of entry, how products are differentiated.

• Barriers to entry: things that make it hard for new firms to enter (e.g. high costs, patents, strong brands).

• Product differentiation: making goods/services distinct through quality, branding, features, or service.

Price and Output Effects

• Demand ↑ → Price ↑, Quantity ↑

• Demand ↓ → Price ↓, Quantity ↓

• Supply ↑ → Price ↓, Quantity ↑

• Supply ↓ → Price ↑, Quantity ↓

• If both shift at once → outcome depends on which shift is stronger.

Elasticity (if assessed)

• Price elasticity of demand (PED): sensitivity of demand to price changes.

• Income elasticity of demand (YED): sensitivity of demand to income changes.

• Cross-price elasticity (XED): effect on demand for one good when price of another changes.

Why This Matters for Business

• Helps set prices intelligently.

• Forecasts changes in sales and costs.

• Guides production, stock levels, and staffing.

• Identifies profit risks if input prices rise.

• Shapes strategy: whether to enter a market, differentiate products, or adjust costs.

Common Exam/Assessment Areas

• Apply demand/supply shifts to real-life scenarios.

• Identify normal vs inferior goods.

• Analyse the effect of competition and barriers to entry.

• Calculate or interpret elasticity.

• Recommend strategies based on changes in market conditions.

Key Definitions to Know

• Market

• Demand vs Supply

• Equilibrium price/quantity

• Substitutes and complements

• Normal vs Inferior goods

• Necessities vs Luxuries

• Barriers to entry

• Product differentiation

Tips & Common Mistakes

• Distinguish shift of the curve vs movement along the curve.

• Use concrete examples (e.g. petrol, fast fashion, coffee).

• Think about both supply and demand in exam scenarios.

• “Inferior” is context-specific (e.g. instant noodles vs branded pasta).

• Link market forces back to business decisions.

• Meeting the needs of the present without compromising the ability of future generations to meet their own needs.

• Balances economic growth, social responsibility, and environmental protection.

• Increasingly important in business strategy due to regulation, consumer expectations, and long-term survival.

The Three Pillars of Sustainability

1. Economic Sustainability

   • Businesses must remain profitable to survive.

   • Profit should be earned responsibly and reinvested for long-term stability.

   • Focus on efficiency, innovation, and avoiding waste.

2. Social Sustainability

   • Impact on people: employees, customers, communities, and society as a whole.

   • Includes fair pay, safe working conditions, diversity and inclusion, and ethical practices.

   • Also covers wider responsibility (supporting local communities, avoiding exploitation).

3. Environmental Sustainability

   • Reducing the negative impact on the planet.

   • Efficient use of resources, reducing carbon footprint, limiting waste and pollution.

   • Protecting biodiversity and considering climate change risks.

The Triple Bottom Line (TBL)

• Expands business focus from just profit to 3 Ps:

  • Profit – financial performance.

  • People – social responsibility.

  • Planet – environmental responsibility.

• A framework for measuring sustainability performance.

Why Sustainability Matters

• Regulation: growing legal requirements (emissions, recycling, reporting).

• Consumer expectations: customers increasingly prefer ethical, green businesses.

• Cost savings: energy efficiency and waste reduction lower costs.

• Reputation & brand: sustainable companies attract talent, investors, and loyal customers.

• Risk management: reduces exposure to future environmental, legal, or social risks.

• Access to finance: many investors favour ESG (environmental, social, governance) compliant businesses.

Examples of Sustainable Business Practices

• Using renewable energy (solar, wind, hydro).

• Reducing packaging, especially plastics.

• Designing products for durability and recycling.

• Encouraging remote working to cut travel emissions.

• Sourcing raw materials ethically and sustainably.

• Measuring and reporting on carbon footprint.

Sustainability and Business Awareness

• Businesses should set sustainability objectives and report progress.

• Aligns with risk management (environmental and reputational risks).

• Links with PESTLE analysis:

  • Political: green legislation, carbon taxes.

  • Economic: cost savings from efficiency.

  • Social: consumer demand for ethical practices.

  • Technological: innovations in green energy.

  • Legal: compliance with sustainability laws.

  • Environmental: climate change pressures.

Common Exam/Assessment Areas

• Define sustainability and the three pillars.

• Explain the triple bottom line (profit, people, planet).

• Give examples of sustainable practices.

• Analyse why sustainability is important for businesses.

• Apply sustainability issues to case studies (e.g. how a business can improve long-term viability).

Key Terms to Know

• Sustainability

• Triple Bottom Line (TBL)

• Carbon footprint

• ESG (Environmental, Social, Governance)

• Renewable resources

• Corporate Social Responsibility (CSR)

Tips & Common Mistakes

• Don’t confuse profitability with sustainability – a business needs both, but sustainability is broader.

• Remember sustainability is about long-term survival.

• Use practical examples (e.g. supermarkets reducing plastic bags).

• Don’t only focus on the environment – cover economic and social pillars too.

1. What is supply?
   Supply means how much of a product or service a business is willing to sell at different prices.

2. Supply Graph Layout:

   • X-axis (bottom) → Quantity (how many units are supplied).

   • Y-axis (side) → Price (how much it costs).

3. The Supply Curve:

   • Usually slopes upwards (bottom left to top right).

   • This is because when the price is higher, businesses want to sell more (it’s worth their effort).

4. Why supply increases with price:

   • Higher price = more profit → businesses produce more.

   • Lower price = less profit → businesses produce less.

Shifts in the Supply Curve

The curve doesn’t always stay still; it can shift left or right.

• Shift to the right (more supply at every price):
  → E.g. cheaper production costs, better technology, more sellers in the market.

• Shift to the left (less supply at every price):
  → E.g. higher costs, bad weather (for crops), new taxes, fewer sellers.

Key Takeaway

• Supply curve = upward slope.

• Higher price → more supplied.

• Outside factors can shift the curve left (less) or right (more).

✅ Key Learning Outcomes

• Understand what stakeholders are and why they matter.

• Identify internal vs. external stakeholders.

• Recognise different stakeholder objectives.

• Understand potential conflicts of interest between stakeholders.

• Appreciate the importance of balancing stakeholder needs in decision-making.

🔑 Core Concepts

1. What Are Stakeholders?

• Individuals or groups with an interest in, or influence over, a business.

• Can be affected by business decisions.

2. Types of Stakeholders

Internal Stakeholders (within the organisation):

• Owners/Shareholders – want profit, return on investment, business growth.

• Managers – aim for efficiency, career progression, meeting targets.

• Employees – want job security, fair pay, safe working conditions.

External Stakeholders (outside the organisation):

• Customers – want quality products at fair prices.

• Suppliers – want reliable orders and prompt payment.

• Government – seeks tax revenue, regulation compliance, employment.

• Local Community – concerned with jobs, environmental impact.

• Pressure Groups – influence ethical/environmental practices.

• Banks/Investors – seek repayment, stability, low risk.

3. Stakeholder Objectives

• Different stakeholders have different, sometimes competing, objectives.

• Example:

  • Shareholders want higher profits → might mean cutting costs.

  • Employees want higher wages → increases costs.

4. Conflict of Interests

• Common conflicts:

  • Employees vs. Shareholders (wages vs. profit).

  • Customers vs. Managers (low prices vs. higher profit margins).

  • Community vs. Business (jobs vs. environmental impact).

5. Balancing Stakeholder Needs

• Businesses must make trade-offs.

• Strategies:

  • Negotiation – compromise between parties.

  • Corporate Social Responsibility (CSR) – balancing profit with social good.

  • Stakeholder Engagement – communication to reduce conflict.

📝 Exam Tips

• Be ready to list stakeholders and explain their interests.

• Use real-life examples (e.g., Tesco balancing profit with community impact).

• For analysis questions, always show how one stakeholder group is affected vs another.

• Remember: “Conflict” is key – explain why not all needs can be met at once.

✅ Key Learning Outcomes

• Understand how technology influences business models and finance.

• Recognise benefits and risks of technology adoption.

• Explore the role of big data, AI, cloud computing, and automation.

• Understand cybersecurity and ethical implications.

🔑 Core Concepts

1. Technology in Business

• E-commerce – online platforms expand markets, 24/7 availability.

• Digital communication – email, video calls, instant messaging improve efficiency.

• Social media – brand awareness, customer engagement, reputation management.

• Remote working – enabled by cloud and collaboration tools.

2. Technology in Finance

• Accounting software (e.g., Xero, QuickBooks, Sage): automates bookkeeping.

• Enterprise Resource Planning (ERP): integrates finance with operations.

• AI & Machine Learning: fraud detection, predictive analysis.

• Blockchain: secure transactions, cryptocurrencies, audit trails.

• FinTech: mobile payments, digital banking, crowdfunding.

3. Big Data & Analytics

• Businesses collect and analyse large datasets to:

  • Predict consumer behaviour.

  • Improve decision-making.

  • Identify cost-saving opportunities.

• Finance teams use data for budgeting, forecasting, risk management.

4. Automation & Robotics

• Replaces repetitive manual tasks (e.g., invoice processing, payroll).

• Frees staff for higher-value analysis and decision-making.

• Reduces human error but may cause job displacement.

5. Cloud Computing

• Stores data and software online, accessible from anywhere.

• Benefits: scalability, lower costs, collaboration.

• Risks: reliance on internet connection, potential data breaches.

6. Cybersecurity

• Growing threat due to digital dependency.

• Risks: hacking, phishing, data theft.

• Protection: firewalls, encryption, staff training, compliance (e.g., GDPR).

7. Ethical & Social Implications

• Data privacy concerns.

• Responsibility to avoid bias in AI.

• Digital divide (some groups excluded).

• Pressure to balance efficiency with fairness.

📝 Exam Tips

• Use examples (e.g., Tesco using big data for customer loyalty schemes, Monzo as FinTech).

• Be ready to weigh advantages vs. risks.

• Link technology to business performance and finance accuracy.

• Highlight ethical issues when discussing AI, automation, or data use.

🔹 Definition of Ethics

• Ethics = Moral principles that govern behaviour (“doing the right thing”).

• Concerned with morality (right vs wrong) and how to act in given situations.

• Business ethics = applying ethical principles to business problems.

Influences on ethics:

• Regulations & codes of ethics

• Corporate culture

• Social pressure

• Legislation

🔹 Why Ethics Matter

✅ Protects public interest
✅ Avoids fines/discipline
✅ Improves reputation & attracts customers
✅ Creates effective workforce
✅ Reduces risks & costs

❌ May increase sourcing costs
❌ Lost profits from refusing unethical trade
❌ Possible management time “wasted”

🔹 Fundamental Principles (IFAC Code of Ethics)

1. Integrity – be honest, fair, truthful.

2. Objectivity – avoid bias, conflicts of interest, undue influence.

3. Professional competence & due care – maintain up-to-date knowledge & act diligently.

4. Confidentiality – protect information, don’t misuse it.

5. Professional behaviour – follow laws & regulations, avoid discrediting the profession.

🔹 Threats to Ethical Behaviour

1. Self-interest threat – personal/financial conflict (e.g. fear of losing client).

2. Self-review threat – reviewing own past work (e.g. auditing accounts you prepared).

3. Advocacy threat – promoting client’s position too strongly, losing objectivity.

4. Familiarity/trust threat – over-sympathy due to close relationships.

5. Intimidation threat – pressured by threats or dominance.

🔹 Safeguards

• By profession/regulation: CPD, exams, professional standards.

• By workplace: policies on gifts, ethics codes, whistleblowing, internal controls.

🔹 Resolving Ethical Conflicts

Step 1 – Clarify: Gather full facts & documents.
Step 2 – Analyse:

• Laws broken?

• Which principles affected?
  Step 3 – Act:

• Internal escalation first (manager, policies, ethics committee).

• External escalation if unresolved (auditors, AAT, regulators).

• If necessary → resign.

🔹 Example Scenarios

Example 1 – Frankie (misclassification of expenses):

• Internal: challenge FD, check justification.

• External: auditors, AAT, resign if unresolved.

• Wrong action: posting journal just because FD is senior.

Example 2 – Sushil (told to falsify accounts):

• Threat = Intimidation.

• Action = Refuse, explain illegality, escalate if needed.

🔹 Summary Checklist

• Principles: Integrity, Objectivity, Competence, Confidentiality, Behaviour.

• Threats: Self-interest, Self-review, Advocacy, Familiarity, Intimidation.

• Safeguards: Profession-based & workplace-based.

• Process: Clarify → Analyse → Act (internal → external → resign).