CONTEMPORARY

BUSINESS ISSUES
FREQUENTLY ASKED QUESTIONS

Module 1 The accountant as strategic business advisor

1. Do external accountants have different advisory roles from internal accountants?
(Topic heading: Providing strategic advice Page 31)
External accountants are public practitioners whereas internal accountants are employed accountants (by the
organisation).
The focus of external and internal accountants is different, but in relation to the same issue, the advice may be the
same.
No two accountants think alike due to subjective judgments. The final outcome is that it does not matter whether
the accountant is internal or external, the focus and advice given should be for the betterment of the organisation
and for society in general.

2. Can you explain the Cynefin framework approaches? (Topic heading: Working with
complexity Page 68)
The Cynefin framework is first mentioned in the text as a tool for identifying complexity. There are examples of
each of the four domains given in the description of the framework. If the Cynefin model does identify a situation as
complex, then the framework suggests some tools to use for managing the situation, described further in the next
section.
Under the heading of managing complexity, there are four subsections dealing with different aspects of managing
complexity. These are not necessarily each tied to specific types of complex situation; they are just different
approaches to complexity, developed by different people. Some may be more relevant in some situations than
others.

1. The Cynefin framework offers a number of tools for dealing with any type of complex situation. The most
important feature of this approach is the "safe-to-fail" concept. This means that any of these tools should be tried,
and if the desired results are achieved, the approach should continue. If the results are not as desired, then
something else should be tried. As stated in the earlier description of the framework, examples of complexity as
understood in the Cynefin framework include raising a child to adulthood, or any business situations that depends
on rich interactions between people. Any organic situation that is in a constant state of change is complex in
nature.
2. Dysfunctional Autonomy is about one very specific situation in large organisations where individual business
units
operate independently of corporate goals. The suggested approach to this type of complexity is to ensure that key
corporate goals are reinforced across all parts of the business. This can potentially happen in any large or multinational organisation.
3. The Complexity Value Matrix is a tool used by a company to market specific services to customers with complex
problems. This may take place where a consultancy company offers expertise to simplify processes within the
client organisation.
Outsourcing may be another situation where this may apply.
3. The Sensemaking approach is another tool for approaching more general complex situations, and could be
applied in many scenarios. It takes a step-by-step approach to understanding the way that humans respond to
complex situations. An example given in the cited source (Weick, Sutcliffe & Obstfeld) describes a nurse
responding to an uncommon medical condition in a child patient.

Module 2 Global business context

1. What is the relationship with offshoring and outsourcing? (Topic heading: Part D:
Offshoring Page 156)
Offshoring is also known as offshore outsourcing. Outsourcing is allocating part or whole of an operation to a third
party. Offshoring may or may not be allocated to a third party. For example, offshoring could be just moving
operations to another country (within the same company). Outsourcing can either be in the same country or a
different country.

Module 3 Business crime: Investigation, detection and

prevention
There are no FAQs for this module.

Module 4 Financial reporting and beyond

1. Can you explain how Basel II contributed to the GFC? What is capital weight? (Topic
headings: Basel III reforms Page 299)
In essence, Basel II encouraged banks to go from a credit based organisation to an equity based organisation
where share prices and profits were the focus (whereas in a credit based organisation, the focus would arguably be
community lending).
So, due to this, banks took more risks such as off-balance sheet mortgage securitisations through the means of
complex financial instruments. This led to some of the actual risks not being very clear cut, which resulted in the
GFC.
The capital weight refers to the risk weight given to an asset; 0% being the safest and 100% being the riskiest.
Basel II allowed mortgages to be weighted at 35%, down from 50% (i.e. moved from higher risk to lower risk). Due
to this, banks were able to generate higher income for lesser cost (i.e. higher the risk, higher the cost of capital).
So, this allowed banks to increase the return on capital.

Module 5 Innovation and risk

1. Can you explain what the relative poverty rates of 40%, 50% and 60% mean in Figure
5.8? (Topic heading: Microfinance Understanding the need Page 437)
Each of these figures refers to different degrees of poverty within each country. For instance, in Denmark (DNK),
around 12 per cent of the population has an effective income of less than 60 per cent of the median income for the
country; around 5 per cent earn less than 50 per cent of the median; and around 2 per cent (the poorest) earn less
than 40 per cent.

2. Can you explain how microfinance can distort markets? (Topic heading: Microfinance
in the developing world Page 439)
Micro-financing is a legitimate business and is about capacity building and providing funds to start up a business.
The main distinction of microfinance providers is that they provide small loans, and that they are designed to be
easily accessible to poorer people for starting their own businesses. They are also offered on an ethical basis, and
are aimed at specific social goals.
The reference to distortion of markets refers to the sources of funding for microfinance. Most microfinance
initiatives are funded by donors. The funds are at a very cheap rate or in some cases absolutely free.
By capturing more market share, micro-financiers are changing the market. Often, as the loans provided by
microfinance providers are more accessible, they may be seen to be competing on an unfair basis with traditional
lenders unable to offer loans of this type.

Module 6 Communication and technology

There are no FAQs for this module.