BUSINESS AWARENESS

STUDY TEXT

Qualifications and Credit Framework

Q2022

This Study Text supports study for the following AAT qualifications:
AAT Level 3 Diploma in Accounting
AAT Level 3 Certificate in Bookkeeping
AAT Diploma in Accounting at SCQF Level 7
 BUSINESS AWARENESS

CONTENTS
Page number

Introduction P.7

Progression P.9

Unit guide P.11

The assessment P.30

Study skills P.32

STUDY TEXT

Chapter

1 The business organisation 1

2 The legal framework for companies and partnerships 19

3 Business stakeholders' interactions and needs 41

4 Organisational structure and governance 61

5 The role of the finance function 87

6 Risk and risk management 109

7 External Analysis – the PESTLE model 131

8 The microeconomic environment 155

9 Sustainability 177

10 Professional ethics in accounting and business 197

11 Money laundering 223

12 Technology affecting business and finance 243

13 Data protection, information security and cybersecurity 269

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 BUSINESS AWARENESS

INTRODUCTION
HOW TO USE THESE MATERIALS

These Kaplan Publishing learning materials have been carefully

designed to make your learning experience as easy as possible and to
give you the best chance of success in your AAT assessments.
They contain a number of features to help you in the study process.
The sections on the Unit Guide, the Assessment and Study Skills
should be read before you commence your studies.
They are designed to familiarise you with the nature and content of the
assessment and to give you tips on how best to approach your studies.

STUDY TEXT

This study text has been specially prepared for the revised AAT
qualification introduced in 2022.
It is written in a practical and interactive style:
• key terms and concepts are clearly defined
• all topics are illustrated with practical examples with clearly worked
solutions based on sample tasks provided by the AAT in the new
examining style
• frequent activities throughout the chapters ensure that what you
have learnt is regularly reinforced
• ‘examination tips’ help you avoid commonly made mistakes and to
focus on what is required to perform well in your examination
• ‘Test your understanding’ activities are included within each
chapter to apply your learning and develop your understanding.

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 BUSINESS AWARENESS

ICONS
The study chapters include the following icons throughout.
They are designed to assist you in your studies by identifying key
definitions and the points at which you can test yourself on the
knowledge gained.

Definition
These sections explain important areas of knowledge which must be
understood and reproduced in an assessment.

Example
The illustrative examples can be used to help develop an understanding
of topics before attempting the activity exercises.

Test your understanding

These are exercises which give the opportunity to assess your
understanding of all the assessment areas.

Foundation activities
These are questions to help ground your knowledge and consolidate
your understanding on areas you’re finding tricky.

Extension activities
These questions are for if you’re feeling confident or wish to develop
your higher level skills.

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 BUSINESS AWARENESS

The business organisation

Introduction
In this chapter we will define ‘business organisations’ and explain why they
are formed. We will also describe common features of business
organisations, outline how business organisations differ, list the industrial
and commercial sectors in which business organisations operate, and
identify the different types of business organisation: commercial, not-for-
profit, public sector, non-governmental organisations.

ASSESSMENT CRITERIA CONTENTS

The types of businesses (1.1) 1 Business

organisations and the
reason they are
formed
2 Different types of
organisations
3 Separation of
ownership and control
4 Types of funding used
by businesses

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 The business organisation: Chapter 1

1 Business organisations and the reason they are

formed

1.1 What is a business organisation?

Defining an organisation is challenging. There are many types of
organisations, which are set up to meet a variety of needs, such as clubs,
schools, companies, charities and hospitals.
What they all have in common is summarised in the following definition:

Definition
Organisations are social arrangements for the controlled performance
of collective goals.

Considering the three aspects of this definition in more detail:

(a) ‘Social arrangements’ – someone working alone cannot be classed
as an organisation. Organisations are structured to allow interrelated
individuals to work together towards a common goal. This may
include the creation of divisions to organise teams as part of an
organisational hierarchy. Usually, the larger the organisation, the
more formal its structures.
(b) ‘Controlled performance’ – an organisation will have systems and
procedures in place to ensure that group goals are achieved.
Managers and individuals will be given specific roles and
responsibilities, and held accountable for their performance. For a
company this could involve setting sales targets, or periodically
assessing the performance of staff members.
(c) ‘Collective goals’ – organisations are defined by their goals, so we
need ‘goal congruence’ i.e. everyone working towards the same
goals. For example, the main goal of a school is to educate pupils. It
will therefore be organised differently to a company that aims to
make profits.
It is worth noting that a major similarity between most organisations is that
they are mainly concerned with taking inputs and transforming them into
outputs.
For example, a manufacturing company, this could involve taking raw
materials and transforming them into a finished product that can be sold
onto its customers.
An accountancy training firm will also take inputs (students and
syllabuses) and transform them into outputs (qualified accountants).

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 BUSINESS AWARENESS

Example
A football team can be described as an organisation because:
• It has a number of players who have come together to play a
game.
• The team has an objective (to score more goals than its opponent).
• To do their job properly, the members have to maintain an internal
system of control to get the team to work together. In training, they
work out tactics so that in play they can rely on the ball being
passed to those who can score goals.
• Each member of the team is part of the organisational structure
and is skilled in a different task: the goalkeeper has more
experience in stopping goals being scored than those in the
forward line of the team.
• In addition, there must be team spirit, so that everyone works
together. Players are encouraged to do their best, both on and off
the field.

Test your understanding 1

Which of the following would be considered to be an organisation,
according to the definition presented earlier?
(i) A company owned and managed by one person, with no
employees.
(ii) A tennis club
(iii) A hospital
A (i), (ii) and (iii)
B (i) and (ii) only
C (ii) and (iii) only
D (i) and (iii) only

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 The business organisation: Chapter 1

1.2 Why do we need organisations?

Organisations enable people to:
• Share skills and knowledge – this allows people to perform tasks
that they would be unable to achieve on their own. Knowledge can
be shared between all the people within the organisation.
• Specialise – individual workers can concentrate on a limited set of
tasks. This allows them to build up a greater level of skill and
knowledge than they would have if they attempted to master
everything.
• Pool resources – whether money or time.
This results in synergy where organisations can achieve more than the
individuals could on their own.

Test your understanding 2

Jared is organising a social event.
Which of the following would be benefits of him forming a
committee to manage the planning process and the event itself?
(i) It would help to overcome his limitations, by bringing on board
other people with different skills to him.
(ii) It would save time through the joint efforts of everyone on the
committee.
(iii) It would help to satisfy Jared’s social needs.
(iv) All members of the committee would have to be skilled in all
aspects of managing the social event.
A (i), (ii) and (iii) only
B (i), (iii) and (iv) only
C All of the above
D None of the above

1.3 Common features of business organisations

Different business organisations are defined around their structure, their
processes, as well as the relationships, authority and responsibility of the
individuals that make them up.

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