Examination Guide

P92 Insurance business and finance

Diploma in Insurance

April 2012 Examination Guide

SPECIAL NOTICE
Candidates entered for the October 2012 examination should study this Examination Guide carefully in order to prepare themselves for the examination. Practice in answering the questions is highly desirable and should be considered a critical part of a properly planned programme of examination preparation.

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P92 Insurance business and finance

Contents
Important guidance for candidates Examiner comments Question paper Test Specification Model answers 3 6 9 15 16

Published August 2012

Telephone: Fax: Email:

020 8989 8464 020 8530 3052 customer.serv@cii.co.uk

2012 The Chartered Insurance Institute

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IMPORTANT GUIDANCE FOR CANDIDATES

Introduction
The purpose of this Examination Guide is to help you understand how examiners seek to assess the knowledge and skill of candidates. You can then use this understanding to help you demonstrate to the examiners that you meet the required levels of knowledge and skill to merit a pass in this unit. During your preparation for the examination it should be your aim not only to ensure that you are technically able to answer the questions but also that you can do justice to your abilities under examination conditions.

Before the examination

Read the current Diploma in Insurance Information for Candidates
Details of administrative arrangements and the regulations which form the basis of your examination entry are to be found in the current Diploma in Insurance Information for Candidates brochure, which is essential reading for all candidates. It is available online at www.cii.co.uk or from Customer Service.

Study the syllabus carefully

It is crucial that you study the relevant syllabus carefully, which is available online at www.cii.co.uk or from Customer Service. All the questions in the examination are based directly on the syllabus. You will be tested on the syllabus alone, so it is vital that you are familiar with it.

Read widely
It is vital that your knowledge is widened beyond the scope of one book. It is quite unrealistic to expect that the study of a single coursebook will be sufficient to meet all your requirements. While books specifically produced to support your studies will provide coverage of all the syllabus areas, you should be prepared to read around the subject. This is important, particularly if you feel that further information is required to fully understand a topic or an alternative viewpoint is sought. The reading list which can be found with the syllabus provides valuable suggestions.

Make full use of the Examination Guide

The best way to understand what the examiners require is to study the CII Examination Guides. You can purchase copies of Examination Guides online at www.cii.co.uk. CII members can download free copies of past Examination Guides online at www.cii.co.uk/knowledge. You can use this guide as a mock examination paper, attempting it under examination conditions as far as possible and then compare your answers to the model ones. The examiners comments on candidates actual performance in each question should be noted carefully.

Understand the nature of assessment

This Examination Guide contains a full examination paper and model answers. The model answers show the types of responses the examiners are looking for and which would achieve maximum marks. However, you should note that there are alternative answers to some question parts which would also gain high marks. For the sake of clarity and brevity not all of these alternative answers are shown.

Know the structure of the examination

Familiarise yourself with the structure of the examination paper and the time allowed to complete it. This information can be found on the question paper included within this Examination Guide.

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In the examination
Assuming you have prepared adequately, you will only do justice to yourself in the examination if you follow two crucial common sense rules: 1.
Spend your time in accordance with the allocation of marks as indicated on the paper. The maximum marks allocated to each question and its constituent parts are given on the paper; the number of marks allocated is the best indication of how much time you should spend on each question. If a question has just two marks allocated, there are likely to be only one or two points for which the examiner is looking, so a long answer is a waste of time. Conversely, if a question has 12 marks allocated, a couple of lines will not be an adequate answer. Always remember that if the paper is not completed, your chances of passing will be reduced considerably. Do not spend excessive time on any one question; if the time allocation for that question has been used up, leave some space, go on to the next question and only return to the incomplete question after you have completed the rest of the paper, if you have time. Take great care to answer the precise question set. The model answers provided in this Examination Guide are quite focused and precise; alternative answers will only be acceptable if they still answer the question. However brilliantly a candidate writes on a particular topic, if it does not provide a satisfactory answer to the precise question as set, the candidate will not achieve the marks allocated. Many candidates leave the examination room confident that they have written a good paper, only to be mystified when they receive a disappointing result. Often, the explanation for this lies in a failure to think carefully about what the examiner requires before putting pen to paper.

2.

Order of tackling questions

Tackle the questions in whatever order feels most comfortable. Generally, it is better to leave any questions which are felt to be very challenging until the more familiar questions have been attempted, but remember not to spend excessive time on the questions you are most confident about.

Answering different question parts

Always read all parts of a question before starting to answer it, otherwise, you may find that after answering part (a), the answer you have given is really more appropriate to part (b) and it would be necessary to duplicate much of what has already been written. The examiners will normally only give credit for an answer if it is contained within its correct question part.

Handwriting
Provided handwriting is legible, candidates will not lose marks if it is untidy. We strongly recommend that candidates do not write in block capitals, because they will be slowed down so much by doing so.

Answer format
Unless the question requires you to produce an answer in a particular format, such as a letter or a report, you should use bullet points or short paragraphs, since this allows you to communicate your thoughts in the most effective way in the least time. The model answers indicate what is acceptable for the different types of question.

Calculators
If you bring a calculator into the examination room, it must be a silent battery or solar-powered non-programmable calculator. The use of electronic equipment capable of being programmed to hold alphabetical or numerical data and/or formulae is prohibited. You may use a financial or scientific calculator, provided it meets these requirements. It is important to show all the steps of your calculation in your answer. The examination is testing your ability to carry out all the appropriate steps in calculating a value. A proficient mathematician is someone who follows the correct method, i.e. carries out the appropriate steps. The majority of the marks will be allocated for demonstrating the correct method of calculation.

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After the examination

All examiners who mark Diploma in Insurance answer books are either active practitioners in the insurance industry or are experts on the subject. They have been specially trained to mark papers using a detailed marking scheme; the model answers in examination guides are based on those marking schemes. The marking of each Examiner is closely monitored by the Senior Examiner throughout the marking period and all marked answer books are carefully checked. This process means all answers books are marked to the same standard. After all the answer books have been marked, a moderation meeting is held, at which all available statistical information is considered, together with the views of the Senior Examiner and other assessment experts. At the meeting a pass mark is set which should ensure that the standard of knowledge and skills required to pass the paper is comparable with that of previous papers. All candidates at or above the agreed mark will pass: the CII does not operate a quota system whereby only a fixed percentage of candidates can pass a paper.

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EXAMINER COMMENTS
Question 1 Part (a) of this question was answered well by the majority of candidates, with a good understanding of the marketing mix components. Part (b) was not so well answered. Candidates needed to focus more on the customer and how each area of the marketing mix affects them. For instance, with regard to price, any organisation would need to establish how much the customer can afford. Question 2 This question presented candidates with the opportunity to get maximum marks through a variety of answers available. The stronger candidates showed an understanding of how mergers or acquisitions helped the company in a variety of ways and were able to demonstrate each answer with an explanation. Strong answers included knowledge of how mergers and acquisitions can help control the supply chain, give companies economies of scales and allow access to new markets. Question 3 This question had mixed answers from candidates and was either answered very well or not so well. The answers required were very specific, with the principles of treating customers fairly being clearly stated. An example of one of the principles is that all consumers are provided with clear information and are kept appropriately informed before, during and after the point of sale. Question 4 This question was answered to a high standard; part (b) in particular had a wide variety of very good answers. Part (a) was well answered by candidates, with the stronger candidates understanding and demonstrating how actuaries would be involved in the calculation of claims reserves and risk based capital requirements. Question 5 Many candidates did not answer this question at all, and those candidates that did attempt it did not perform well. To gain marks, candidates needed to show how all jobs need to be directed towards the same goal, with each manager having targeted performance that derives from the overall company goals. Question 6 A mixed response for this question, with the stronger candidates identify that the framework for Standard and Poors includes competitive position, capital adequacy and liquidity. Question 7 The majority of candidates answered this question to a high standard; with the stronger candidates being able to understand that to ensure you get a percentage as your final answer; you need to multiply the equation for each by 100. Marks were not awarded to candidates who failed to carry the calculation through and ensure a percentage was the final answer. Question 8 Many candidates understood and answered part (a) of this question well, with clear demonstration of what incurred but not reported (IBNR) claims are. Part (b) answers were not so well answered. The stronger candidates understood how the claims numbers are calculated and multiplied by average cost of claims to get an estimate of IBNR claims.

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Question 9 Part (a) was answered by the majority of candidates, with a good understanding. However, some candidates duplicated their answer and as a result did not gain any further marks for duplication. Part (b) was well answered, although many candidates miss-understood the question and just repeated part (a). Marks could have been gained for mentioning, that in addition to recruitment, other areas that could be affected are redundancies or selection for training. Question 10 This question had mixed answers with some candidates knowing how to construct a balance sheet with the appropriate headings and ensuring that the overall balanced. Making sure that the correct entries are under the correct headings is paramount and will ensure that the overall balances. Candidates should always remember to give a balance sheet a heading and date. Question 11 Many candidates understood the three main areas to be operating, financing and investment activities. The candidates who gave clear explanations and relevant examples achieved higher marks. Question 12 This question was not answered well, demonstrating the concerns of conversion. Candidates should have included answers such as management time, cost and adverse impact on tax. Question 13 Many candidates were able to clearly identify the five categories of general financial ratio. However, candidates needed to ensure that they identified general ratios and not insurance ratios. The five categories included profitability, productivity, liquidity, activity and gearing. Candidates gained the additional marks from being able to show the names of a ratio for each category. It was also important to make sure that they were in the correct category. Question 14 A mixed response to this question from candidates. Candidates either clearly understood the difference between each of the four requirements or had no understanding at all. The stronger candidates were able to show clearly how each of these four areas link together. Question 15 This question was well answered by the majority of candidates. The stronger answers included an understanding of how and when sales and revenue grew in line with each stage of the life cycle. Question 16 Candidates did not perform well on this question in part (a) or part (b). In part (a), good answers included an explanation of how risk is identified in a company and that companies need to know what they would find acceptable to bear. In part (b), candidates could have included an explanation of how audit committees should recommend an external audit to the board and monitor their independence. Question 17 In part (a), many candidates were able to identify those ratios that are used for comparison purposes and gained marks in this part of the question. Part (b) had variable answers from candidates. The stronger candidates showed how issues, such as one off events, could affect ratio analysis. Question 18 This question was well answered by the majority of candidates, with a clear explanation of the differences between management and financial accounts being given. Question 19 Many candidates answered this question well and gave good examples of each of the two types of reward available. However, some candidates mixed the two up which caused some confusion.

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Question 20 Part (a) of this question was well answered by candidates, with many achieving maximum marks. Answers included notifying relevant people of a forthcoming annual general meeting, maintaining the statutory registers. The stronger candidates were aware that company secretaries are officers of the company and therefore criminally liable for omitting change to directors and company secretarys details. Part (b) had a mixed response, candidates were either able to identify all five registers or got confused with annual returns.

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THE CHARTERED INSURANCE INSTITUTE

P92
Diploma in Insurance
Unit P92 Insurance business and finance
April 2012 examination

Instructions
Three hours are allowed for this paper. Do not begin writing until the invigilator instructs you to. Read the instructions on page 3 carefully before answering any questions. Provide the information requested on the answer book and form B. You are allowed to write on the inside pages of this question paper, but you must NOT write your name, candidate number, PIN or any other identification anywhere on this question paper. The answer book and this question paper must both be handed in personally by you to the invigilator before you leave the examination room. Failure to comply with this regulation will result in your paper not being marked and you may be prevented from entering this examination in the future.

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Unit P92 Insurance business and finance

Instructions to candidates
Read the instructions below before answering any questions
Three hours are allowed for this paper, which contains 20 compulsory questions and carries a total of 200 marks. Read carefully all questions and information provided before starting to answer. Your answer will be marked strictly in accordance with the question set. The number of marks allocated to each question part is given next to the question and you should spend your time in accordance with that allocation. You may find it helpful in some places to make rough notes in the answer booklet. If you do this, you should cross through these notes before you hand in the booklet. It is important to show each step in any calculation, even if you have used a calculator. If you bring a calculator into the examination room, it must be a silent battery or solar-powered non-programmable calculator. The use of electronic equipment capable of being programmed to hold alphabetic or numerical data and/or formulae is prohibited. You may use a financial or scientific calculator, provided it meets these requirements. Answer each question on a new page. If a question has more than one part, leave six lines blank after each part.

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Answer ALL questions Note form is acceptable where this conveys all the necessary information

1.

(a) (b)

List the six Ps of the marketing mix. In marketing a product, the marketing mix is dependent on the particular product. Describe briefly four specific examples of such dependency.

(6)

(4)

2.

Explain briefly five reasons for a merger or acquisition other than growth.

(10)

3.

Treating Customers Fairly is a central theme of the Financial Services Authority (FSA) regulation. As a result, the FSA aims to achieve six outcomes with regard to the general insurance philosophy. Describe briefly five of these consumer outcomes. (10)

4.

In an insurance company: (a) (b) state four areas that a chief actuary may be responsible for; list six other senior executive roles, besides that of a chief actuary. (4) (6)

5.

Within Peter Druckers Management by objectives approach, one factor is management of performance targets. State three further factors and provide an example of each. (9)

6.

Standard and Poors rating agency use a common analytical framework of inter-connected aspects. One of these is economic and industry risk. State six other aspects. (6)

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7.

(a)

State the formulae and calculate, showing all your workings: (i) (ii) (iii) the claims ratio; the expenses ratio; the commissions ratio; (3) (3) (3)

where: claims paid net of reinsurance = 4,000 acquisition costs = 355 earned premium net of reinsurance = 6,250 administrative expenses = 320 (b) Using the information in (a) above, state the formula and calculate, showing all your workings, the combined ratio and explain the meaning of the answer you have calculated.

(4)

8.

(a) (b)

Explain what incurred but not reported (IBNR) is. Explain what the IBNR calculation is based on.

(2) (8)

9.

(a)

The Equality Act 2010 covers the same groups that were protected under previous similar Acts. One of these groups is age. List five other groups. (5)

(b)

State five specific instances, within the employment process, when managers should pay particular attention to prevent discrimination from happening.

(5)

10.

Using the entries below, construct a balance sheet for MG Holdings Ltd under the following headings. Non-current assets Capital employed Long-term liabilities Current assets Current liabilities ,000 450 1,350 1,800 900 900 2,250 450 3,600 4,500 Questions continue over the page

(12)

Entries: Cash Profit and loss reserve Corporation tax Land Ordinary shares Stock Long-term loan Trade creditors Debtors

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11.

Cash flow statements are analysed into three main areas. State and explain each of these areas.

(12)

12.

Where companies are permitted to use either International Financial Reporting Standards or UK Generally Accepted Accounting Principles (UK GAAP), outline why UK GAAP may continue to be used.

(10)

13.

State the five main categories of general financial ratios and give a name of a ratio within each category. You are not required to provide the formula of any ratios.

(10)

14.

Provide a brief explanation of the following. Minimum Capital Requirement. Enhanced Capital Requirement. Individual Capital Assessment. Individual Capital Guidance. (2) (2) (3) (3)

15.

Name and describe briefly the five stages of the product life cycle. You do not need to draw a diagram.

(10)

16.

Explain four of the main recommendations on UK corporate governance covered in the following separate areas of guidance. (a) (b) The Turnbull Guidance on internal control. The Financial Reporting Council (formerly the Smith Guidance) on audit committees. (4)

(4)

17.

(a) (b)

Describe why financial ratios are used in assessing insurance company results. Explain briefly the limitations associated with ratios.

(4) (6)

18.

Explain briefly five ways that financial accounting differs from management accounting.

(10)

19.

Identify and explain the two basic types of reward for employees, providing two examples for each type.

(10)

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20.

(a) (b)

Explain briefly what duties you would expect a company secretary to undertake. State the five main statutory registers that a company is required to maintain.

(5) (5)

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TEST SPECIFICATION
Question 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 April 2012 Examination P92 Insurance business and finance Syllabus learning outcome(s) examined 4 Understand other common functions within insurance organisations 1 Understand the structure of the insurance business 1 Understand the structure of the insurance business 2 Understand the management of insurance businesses 2 Understand the management of insurance businesses 8 Understand the financial strength of insurance companies 7 Understand the use of financial ratios to assess businesses 6 Understand the main practices of insurance company accounts 4 Understand other common functions within insurance organisations 5 Understand the main accounting principles and practices 5 Understand the main accounting principles and practices 6 Understand the main practices of insurance company accounts 7 Understand the use of financial ratios to assess businesses 8 Understand the financial strength of insurance companies 4 Understand other common functions within insurance organisations 3 Understand the main aspects of corporate governance 7 Understand the use of financial ratios to assess businesses 5 Understand the main accounting principles and practices 4 Understand other common functions within insurance organisations 3 Understand the main aspects of corporate governance

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NOTE ON MODEL ANSWERS The model answers given are those which would achieve maximum marks. However, there are alternative answers to some question parts which would also gain high marks. For the sake of clarity and brevity not all of these alternative answers are shown. An oblique (/) indicates an equally acceptable alternative answer.

Model answer for Question 1 (a) (b) Product, price, promotion, place, people and process. Any four of the following: The marketing mix is dependent on the particular product as it will need to take into account who the customer is, how much they can afford, where they can be reached e.g. sporting event, how they can be reached e.g. newspaper, servicing, warranties and other aspects of the package.

Model answer for Question 2 Any five of the following: Increases shareholder value increases critical mass to compete successfully within a global market. Economies of scope synergy of processes (removes duplication, improves efficiency and performance). Economies of scale by lowering unit costs. IT resources overcoming the ever increasing costs of IT by sharing IT resources and choosing the best platform for the business. Investment opportunities it can provide this if the company has spare capital. Spread risk two companies joining together can spread the risk and therefore reduce the risk of catastrophe exposure. Enhance knowledge and skills buy in the skills to enter a new market without having to develop the knowledge internally. Brand or patent enables the acquisition of a particular brand or patent that is strong in the market, and allows you access to it. Greater supply of the supply chain by acquiring or merging, you can have more leverage with the supply chain, due to volume of business transacted. Allows you to enter new market E.g. a new geographical location. Removes competition and increases barriers to entry by acquiring or merging with a competitor you therefore remove them from the marketplace.

Model answer for Question 3 Any five of the following: Consumers can be confident that they are dealing with firms where the fair treatment of customers is central to the culture of the business. Products and services marketed and sold in the retail market are designed to meet the needs of identified consumer groups and are targeted accordingly. Consumers are provided with clear information and are kept appropriately informed before, during and after the point of sale. Where consumers receive advice, the advice is suitable and takes account of their circumstances. Consumers are provided with products/services that perform as firms have led them to expect. Consumers do not face unreasonable post sale barriers imposed by firms to change product, switch provider, submit a claim or make a complaint.

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Model answer for Question 4 (a) Any four of the following: Technical pricing/pricing of new products. Calculation of claims reserves. Calculation of risk based capital requirements Assessment of investment risk for funds supporting technical reserves. Valuation of the life fund. Compiling/selecting mortality tables. Declaration of bonuses. Determining aggregate exposures. Attitude to risk/risk control/risk management. Any six of the following: CEO/MD. Company Secretary. Chief Risk Officer. Underwriting Director. Claims Director. Marketing Director. HR Director. IT Director. Compliance Director. Head of Audit. Strategy Director. Finance Director. Chief Operating Officer.

(b)

Model answer for Question 5 Any three of the following: Each job is directed towards the same goal, each managerial job should be focussed on the success of the business as a whole and not just one part of it e.g. IT director is charged with ensuring all printers are in good order, this would link to customer delivery overall and therefore achievement of revenue goals. Each managers targeted performance must be derived from targets of achievement for the organisation as a whole e.g. claims directors targets should link back to the overall company target to achieve less than 10% claims leakage. A managers results must be measured in terms of their contribution to the business as a whole e.g. a sales director of a particular specialism should have objectives that are measurable and link to overall goals, i.e. ensure delivery of 2 million gross written premiums in new schemes where the company has a target to grow by 2 million. A managers line manager/superior must know what to demand from the manager and how to judge their performance e.g. measurable objectives should be in place with clear visibility of achievement of these.

Model answer for Question 6 Any six of the following: Competitive position, management and corporate strategy, enterprise risk management, operating performance, investments, capital adequacy, liquidity and financial flexibility.

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Model answer for Question 7 (a) (i) claims paid -------------earned premium 4,000 -----6,250 320 -----6,250 355 ------6,250

x 100 = 64%

(ii)

administrative expenses ----------------------------- = earned premium acquisition costs -------------------earned premium

x 100 = 5.12%

(iii)

x 100 = 5.68%

(b)

claims + administrative expenses + acquisition costs 4,000 + 320 + 355 --------------------------------------------------------------------- = ----------------------earned premium 6,250 (Or the sum of the answers above.)

x 100 = 74.8%

This would indicate that the company made a healthy underwriting profit as the combined ratio is less than 100%.

Model answer for Question 8 (a) Incurred but not reported (IBNR) relates to insurance claims which have happened but have not yet been reported or notified to the company. The IBNR calculation is based on an extrapolation of the pattern of claims reported in prior years and up to the balance sheet date. The prior year patterns are used to estimate the number of claims expected to be reported after the balance sheet date with incident dates prior to the balance sheet date. The total value of IBNR is calculated from multiplying the number of such claims by the average cost of claims.

(b)

Model answer for Question 9 (a) Any five of the following: Disability. Gender reassignment. Race. Religion or belief. Sex. Sexual orientation. Marriage and civil partnerships. Pregnancy and maternity. Any five of the following: Recruitment and selection. Writing job descriptions. Appraisals. Selection of staff for training. Promotion. Redundancy. Retirement. Disciplinary. Succession planning.

(b)

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Model answer for Question 10 Balance sheet for MG Holdings Ltd as at 18/04/2012. ,000 Non-current assets Land 900 ----900 ==== 2,250 4,500 450 -----7,200 ==== 8,100 ------Current liabilities [Trade creditors] [Corporation tax] 3,600 1,800 -----5,400 ==== 450 ----450 ===== 5,850 -----2,250 ==== Capital employed [Ordinary shares] [Profit and loss reserve] 900 1,350 -----2,250 ==== 2,250 ====

Current assets [Stock] [Debtors] [Cash]

Long-term liabilities Long-term loan

Model answer for Question 11 Cash flows from operating activities All businesses generate cash flows from their trading activities, this area of the cash flow statement deals with how much cash the business has managed to generate as a direct result of their trading activities including tax paid, interest received and paid and dividends received. Cash flows from investment activities This area shows cash inflows and outflows created by investing activities. Inflows will include the proceeds of sales of investments and outflows will include investments made. Cash flow from financing activities This area specifically looks at changes to loan and share capital and payment of dividends to shareholders. This can be either cash inflows (e.g. raising cash through new loans) or cash outflows (e.g. buying back some of its share capital).

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Model answer for Question 12 Many companies, who do not have to change to the International Financial Reporting Standards (IFRS), are reluctant to change following concerns over the implications of conversion from UK Generally Accepted Accounting Principles (UK GAAP) to IFRS. This is mainly in terms of management time skills available, training requirements, system changes, cost and resources. There are also adverse impacts on tax, distributable profits, regulatory solvency and debt covenants. Unable to compare to previous years if changed.

Model answer for Question 13 Profitability ratios Any one of the following: E.g. gross profit percentage, net profit percentage, return on capital employed. Productivity ratios Any one of the following: E.g. debtors collection period, creditors payments period, stock turnover period. Liquidity ratios E.g. current ratio or quick ratio. Activity (or turnover) ratios Any one of the following: E.g. stock turnover, debtor turnover or creditor turnover. Gearing ratios E.g. gearing/debt.

Model answer for Question 14 Minimum Capital Requirement (MCR) this is the higher of a flat figure Euro amount and an amount calculated using business metrics. Enhanced Capital Requirement (ECR) this is a risk based regulatory requirement based on specific rules and is supposed to be at least twice MCR. Individual Capital Assessment (ICA) this is the companys assessment of the amount and quality of capital deemed to be adequate for the company considering its size and nature. Individual Capital Guidance (ICG) the Financial Services Authority will review companys ECRs and ICAs and where appropriate it will provide ICG to ensure the company has a capital requirement different from ECR.

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Model answer for Question 15 Development this is when company money is invested in researching, developing and testing the product, no income is generated in this phase. Introduction this is when the product is introduced to the market, sales are low whilst buyers become aware of the product. Growth buyers are now aware of the product, so sales increase in this area. Improved distribution will help this stage. Maturity sales plateau as competition introduces similar products. Decline sales fall in this stage as newer products, or substitutes, are introduced in the market.

Model answer for Question 16 (a) The guidance states that the Board should consider, the nature and extent of the risks facing the company/evaluate internal risk management, the categories of risk which are acceptable for the company to bear, the likelihood of risks happening, the companys ability to reduce the impact, to costs of operating controls to manage the risk. A committee of at least three should be established, and the responsibilities of the audit committee should include, monitoring the integrity of financial statements, reviewing the companys internal financial controls, monitoring and reviewing the internal audit function, recommendations for external audit to the board, monitoring external audits independence and developing and implementing policy on the engagement of the external auditor.

(b)

Model answer for Question 17 (a) To analyse the performance of a company, to compare the performance of a company over time and to compare the performances of a number of businesses, giving a picture of what performance can be expected. Often issues with the quality of the financial information available, the information available to the public is often out of date, comparative information is essential for meaningful analysis; accounting ratios are based on income statements etc and these are subject to the limitations of historical cost accounting. Inflation can cause differing bases for analysis over time; past company performance is not necessarily the best indicator of future performance. Different accounting standards, quantitative as opposed to qualitative and no allowance for one-off events.

(b)

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Model answer for Question 18 Any five of the following: Structure Financial accounting is highly structured (in a legal prescribed format) whilst management accounting can be formulated in different ways. Format Financial account records the financial impact of events on the whole organisation, whilst management accounting concentrates on processes or departments. Legal requirements Financial accounts are legally required under the Companies Act legislation, whilst no legal requirement for management accounts. Time periods Financial accounts are historic, whilst management accounts focuses on the current transactions and can be used to forecast for the future transactions. Regulation constraints Financial statements are prepared using agreed accounting standards, whilst management accounts have no external regulator. Audience Financial accounts mainly used by external stakeholders and management accounts mainly used internally. Source of information Financial accounting uses only financial data whereas management uses information from a wide variety of sources. Audit requirements Financial accounts have to be audited by external auditors whilst management accounts do not.

Model answer for Question 19 Intrinsic rewards and extrinsic rewards. Intrinsic rewards are derived from the pleasure an individual associates with doing the job. Any two of the following: Examples include using personal skills; dealing with problems, achieving targets and working with like minded people. Intrinsic rewards tend to be more motivational than extrinsic. Extrinsic rewards are given to the employee by the organisation and do not emerge from doing the job itself. Any two of the following: Examples include salary, performance bonuses, overtime, holiday pay and pension contributions. Both intrinsic and extrinsic rewards can be aimed both at individuals or teams/groups.

Model answer for Question 20 (a) Maintaining the statutory register giving notice of an annual general meeting. Notifying the register of companies of special or extraordinary resolutions. Supplying every member with a copy of annual accounts. Keeping minutes of directors and general meetings. Making accounts and documents available for inspection. The company secretary is usually authorised by the Board to sign administrative matters on their behalf. The secretary will ensure that the documents a company must send to Companies House are accurate and sent on time. Company secretaries are officers of the company and are therefore criminally liable for omitting to file changes in directors and company secretarys details in the companys annual return in the time allowed. Register of shareholders (members), register of directors and secretary(s), register of directors interests, register of charges and register of interests in shares (for public limited companies).

(b)

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