Chapter 1: The roles of the finance function in

organisation
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●​ E1: How the finance function is
organized

Introduction
Paper E1: Managing
Finance in a digital world
The CIMA Profession
Qualification

The CIMA Professional Qualification

aims to equip individuals with the skills
needed to be confident and competent
management accountants in an era of
constant change. This qualification is
particularly relevant in the context of
the "4th Industrial Revolution,"
characterized by rapid technological Paper E1 is divided into five
advancements that are transforming interconnected areas:
the business landscape and the skillset ●​ E1A: Role of the Finance
required of management accountants. Function: Examines the roles
finance plays, the activities
performed, and its foundational
importance.
●​ E1B: Technology in a Digital
The Operating Level World: Focuses on technologies
shaping the digital world and
The Operational Level, where E1 their impact on finance.
resides, focuses on: ●​ E1C: Data and Information in a
●​ P1: What the finance function Digital World: Explores how
does. finance uses data to create and
●​ F1: What the finance function preserve value, and the
does and its implications. required competencies.
Chapter 1: The roles of the finance function in
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●​ E1D: Shape and Structure of the
Finance Function: Details how
the finance function is organized
and shaped by digital Change: The new
advancements.
●​ E1E: Finance Interacting with the norm
Organisation: Describes how
Organizations operate in increasingly
finance collaborates with other
disruptive and unpredictable
organizational functions to
environments due to:
achieve objectives
●​ Shifting competition levels.
●​ Evolving customer expectations.
●​ Global political outlook changes.
The roles of the finance ●​ Rapid technological
advancements, particularly the
function in organisations increasing automation of routine
This chapter covers syllabus area A1, tasks. This rapid evolution
‘explain the roles of the finance necessitates organizations to
function in organisations’. By the end of adapt their business models and
this chapter you should understand how has significantly impacted the
the finance function enables, shapes roles and skillset of the finance
and narrates value creation through its function.
roles of:
●​ planning
●​ forecasting
●​ resource allocation Introduction to the
●​ performance management and
control and
finance function
●​ financial (corporate) reporting.
These roles are changing due to the
continuous change that is impacting all
organisations and so before Different types of
introducing the roles of the finance
organisation
function we will begin our discussion of
this syllabus area by briefly looking at
change.
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●​ Profit-seeking organisations
(businesses): Aim to maximize
Enables Value creation and
owner wealth (e.g., companies,
partnerships, sole traders).
preservation
●​ Not-for-profit organisations This role is achieved through:
(NFPOs): Do not prioritize profit. ●​ Planning: Assisting the
Their main objective is to organization in achieving its
maximize benefit to objectives and formulating
beneficiaries (e.g., public sector strategies, often through
organizations like schools and budgeting at the operational
hospitals, private sector level.
organizations like charities and ●​ Forecasting: Preparing
clubs) predictions of future events,
such as sales, material prices,
etc.
●​ Resource Allocation:
Functions of an Determining the resources
Organisation (labor, material, machinery,
finance) required to achieve
Typical functions within a business
objectives.
include:
This role is encompassed within the
●​ Operations
Enterprise pillar of the CIMA
●​ Sales and Marketing
Professional Qualifications.
●​ Human Resources (HR)
●​ IT
●​ Finance
Shapes value creation and
preservation
The roles of finance This role is achieved through:
●​ Performance Management:
function in organisations
Managing performance and the
The finance function plays 3 key achievement of plans and
roles(Enables, shapes how, Narrates budgets. This includes preparing
how) internal management
information, such as
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performance measures
(quantitative or qualitative), to
monitor organizational The role of ethics in
performance.
●​ Control: Comparing actual the role of the
performance against planned finance function
performance to identify and
analyze differences (e.g.,
variance analysis). This can lead
to the reassessment or
amendment of plans, strategies, The ethical
or budgets. responsibilities of the
The role is encompassed within the
organisation and
Performance pillar of the CIMA
Professional Qualification
individuals
●​ Ethics: The system of moral
principles that examines right
Narrates Value Creation and wrong.
●​ Business Ethics: The application
This role is achieved through: of ethical values to business
●​ Financial (Corporate) behavior.
Reporting: Preparing ●​ Ethical Dilemma: A situation
comprehensive reports for where a decision-maker must
shareholders and other choose between what is
interested parties about the perceived as 'right' or 'wrong'.
organization's activities and Ethical dilemmas can arise in
performance over a period. accounting, production, sales
This role is encompassed within the and marketing, and HR.
Financial pillar of the CIMA ●​ Accounting issues
Professional Qualification. ○​ Creative accounting to
boost or suppress
reported profits.
○​ Directors’ pay
arrangements – should
directors continue to
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receive large pay packets and illegal or may be more
even if the company is subtle.
performing poorly? ○​ Is it ethical to target
○​ Should bribes be paid to advertising at children,
facilitate contracts, for example for fast food
especially in countries or for expensive toys at
where such payments are Christmas?
commonplace? ○​ Should products be
○​ Insider trading, where for advertised by junk mail or
example directors may be spam email?
tempted to buy shares in ●​ Personnel (HRM) issues
their company knowing ○​ Employees should not be
that a favourable favoured or discriminated
announcement about to against on the basis of
be made should boost the gender, race, religion,
share price. age, disability, etc.
●​ Production issues ○​ The contract of
○​ Should the company employment must offer a
produce certain products fair balance of power
at all, for example guns, between employee and
pornography, tobacco, employer.
alcoholic drinks aimed at ○​ The workplace must be a
teenagers? safe and healthy place to
○​ Should the company be operate in
concerned about the
effects on the
environment of its
production processes? CIMA ethical guidelines
○​ Should the company test
CIMA members are expected to
its products on animals?
adhere to the highest standards of
●​ Sales and marketing issues
conduct and integrity, based on the
○​ Price fixing and
International Federation of
anti-competitive
Accountants (IFAC) five fundamental
behaviour may be overt
principles:
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●​ Integrity: Being straightforward, ●​ Societal Expectation: Businesses
honest, and truthful in all are part of society and are
professional and business expected to operate to certain
relationships. standards.
●​ Objectivity: Not allowing bias, ●​ Stakeholder Favorability:
conflicts of interest, or the Ethical behavior attracts
influence of others to override customers (higher sales),
professional judgment. employees (attraction/retention,
●​ Professional Competence and productivity), and business
Due Care: Maintaining collaborators (profitable
professional knowledge and skill projects).
to provide competent service, ●​ Risk Reduction: Ethical behavior
and completing work carefully, can lead to access to cheaper
thoroughly, and diligently funds, increasing project
according to technical and profitability.
professional standards. ●​ Reputation Management:
●​ Confidentiality: Respecting the Unethical behavior can damage
confidential nature of reputation and lead to legal
information acquired through charges.
professional relationships and
not disclosing it without
permission or legal/professional
duty, nor using it for personal Corporate Codes of
advantage. Ethics
●​ Professional Behaviour:
Complying with relevant laws Many companies, especially larger
and regulations, and avoiding ones, establish written codes of ethics
any action that could negatively (internal policies) to guide employee
affect the reputation of the behavior. These can be broad
profession statements or specific rules. Ethics
Officers may be appointed to monitor
adherence.

Why business ethics are

important
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Corporate social
responsibility

Stakeholders
A stakeholder is any group or individual Corporate Social
who has an interest in or expectation Responsibility(CSR)
of the organization. Key stakeholder
CSR is the idea that a company should
groups include:
be sensitive to the needs and wants of
●​ Internal: Employees,
all its stakeholders, not just
managers/directors.
shareholders. It encompasses ethical
●​ Connected: Shareholders,
behavior and consideration of:
customers, suppliers, finance
●​ Environmental impact.
providers.
●​ Health impacts of products.
●​ External: Community,
●​ Fair treatment of employees.
environmental groups,
●​ Animal testing practices.
government, trade unions.
●​ Product and process safety.
Mendelow's power-interest matrix can
The modern view is that aligning
be used to identify dominant
company values with societal values
stakeholders ("key players") who
can:
require the most attention.
●​ Differentiate the firm.
●​ Attract and retain high-calibre
staff.
●​ Strengthen the brand. Lower
costs (e.g., through resource
efficiency).
●​ Identify new market
opportunities.
●​ Ultimately increase long-term
profitability
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stakeholders. Symptoms of poor
corporate governance include board
Corporate domination, lack of board involvement,
inadequate control functions, and
governance emphasis on short-term profitability
leading to financial statement
manipulation.

Why Corporate
Principles of corporate
Governance
Governance
Corporate governance addresses the
Corporate governance regulation can
"separation of ownership and control"
be:
in organizations, where shareholders
●​ Principles-based: Focuses on
(owners) may not be the same people
adhering to the spirit of the law
who run the company (directors). This
(e.g., UK Corporate Governance
separation can lead to the "agency
Code).
problem," where directors might act in
●​ Rules-based: Involves strict legal
their own interests rather than those
requirements and penalties (e.g.,
of shareholders and other
US Sarbanes-Oxley Act 2002 -
stakeholders. Scandals and financial
SOX)
crises have highlighted the need for
robust governance.

Features of the UK
Meaning of Corporate Corporate Governance
Governance Code
Corporate governance is the system of Key features include:
processes and policies by which a ●​ The Board of Directors:
company is directed, administered, and Emphasis on an effective board
controlled. It defines the roles of the with a balance of skills,
board of directors and auditors and experience, independence, and
ensures that the company's objectives knowledge. The board is
are achieved acceptably by all
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responsible for workforce for setting executive director
policies and culture. remuneration to attract, retain,
●​ Chairman and CEO Separation: and motivate. A significant
These roles should be distinct to portion should be performance
prevent concentration of power. related. Remuneration should
The Chairman should be align with strategy and
independent upon appointment. workforce pay. NEDs should be
●​ Non-Executive Directors (NEDs): remunerated with fees
Directors who are not involved reflecting their time and
in day-to-day management. They responsibility, not share options.
should be independent to ●​ Audit Committees: Composed
effectively oversee the solely of independent NEDs,
company. Independence can be responsible for monitoring f
compromised by recent inancial controls and the
employment, material business integrity of financial statements.
interests, participation in share They review internal and
schemes, close family ties, long external auditors' work and
service, or cross-directorships. independence, and act as an
○​ At least half of the board interface between the board
(excluding the chairman) and auditors
should comprise
independent NEDs.
○​ A senior independent
director should be
appointed to handle
shareholder concerns.
●​ Nomination Committees:
Responsible for board
appointments, ensuring merit,
suitability, and board balance.
Over 50% of the committee
should be NEDs. Succession
planning and diversity are key.
●​ Remuneration Committees:
Composed of NEDs, responsible