123

AAT LEVEL 3

Diploma in Accounting
Business Awareness (BUAW)

Mock assessment 1
Guided mock
In this guided mock we will give you a briefing before each task to tell you what you are going to be
assessed on in that task. This briefing will remind you of some of the key points that you should
have seen in your studies and help you to have a confident attempt at the example task.
Time allowed: In the real assessment you will have a total of 2.5 hours to complete all seven tasks.
For this guided mock do not worry if you take longer than that as your speed will improve with
practice.
124 Business Awareness
 Mock assessment 1 – Guided mock 125

Mark allocation
The AAT specifies how many marks are available for each task in the assessment which is useful for
helping to decide how long you can spend on each task.
Task Details Maximum marks
available
1 Organisations and ethics for accountants 20
2 Analysing the external environment 18
3 Technology, cyber risk and data security 17
4 Ethical and legal compliance 10
5 The microeconomic environment and sustainability 10
6 Communication and visualisation 13
7 Risk and big data 12

In total there are 100 marks available in this assessment. Since you have 2.5 hours (150 minutes) to
complete the assessment this gives 1.5 minute per mark to attempt each task.

Assessment instructions
When your assessment begins, you must ensure that you read the assessment instructions
carefully. These instructions will give you important details such as the level of rounding of
numbers and how to display negative numbers.
Read every task carefully and ensure that you do precisely what is asked for in the task. Remember
that this is a practical skills exam and if you were given instructions in the workplace, you would be
expected to follow them, checking that you are doing the correct thing throughout the task.
You MUST ensure that you complete all tasks in your assessment, using the correct formats
required. If you are unsure of a task, you can ‘flag’ it to return to later in your assessment. As you
work through tasks, there is an indicator of the tasks completed and you can see your time
remaining and percentage of the assessment complete. Ensure that you manage your time
effectively and that you allow yourself enough time to attempt all tasks.
Task-specific instructions are often given. Make sure that you read, in full, all instructions given for
each individual task. There may be format instructions for dates and numbers and these will
override general instructions given at the start of the assessment.
126 Business Awareness

Task 1
Task 1 deals with organisations and ethics for accountants. This task is the longest task, it is worth
20 marks which gives you 30 minutes to complete it.

Task briefing
The types of business
Here, you must be familiar with the different organisation types and their key characteristics.
Sole trader - a single individual who is carrying out the business activities.
Partnership - two or more people coming together with a view to making a profit.
Private limited company - a separate legal entity that is recognised in law. The company is distinct
from its owners (called shareholders) and its managers (called directors.)
Public limited company - companies that are listed on a stock exchange will be public companies.
Not-for-profit organisation - exist to bringing benefits to society.
The type of business will impact on the structure of governance and the degree of separation
between the ownership and management of the business.

Business stakeholders’ interactions and needs

Stakeholders –are individuals, groups or organisations with an interest in the business and can
either affect or be affected by the business.
There are different type of stakeholders and for each one you need to be able to identify:
– their objectives and requirements from the business,
– their contributions to and impact on the business,
– and the relative significance of stakeholders to the business including attitudes to risk.
Here are a few examples:

Stakeholder Examples of requirements from Contributions and impact

the business examples
Customers Good or services or expected Price paid for good or services;
quality; Feedback;
Value for the price paid; Reviews on social media;
Fulfil warranty obligations; Recommendations to others;
Continued supply. Continued custom.
Suppliers Prompt payment; Quality and service provided;
Feedback on goods or service; On time deliveries;
Continued custom. After sales service;
May provide a unique
opportunity for competitive
advantage.
 Mock assessment 1 – Guided mock 127

Finance providers On-time repayments; Provide funding;

Security of capital repayment; Raise further funding as
Financial and performance required;
information, past, current and Support/advice.
future.
Owners A return on their investment; Funding;
Meet personal objectives and Expertise and support;
needs; Contribute to decision making
Information about performance and future business direction.
and future expectations.
Government Information for tax purposes. Regulatory controls and
Payment of taxes; guidance;
Specific industry information Grants and subsidies.
(statistics).
Employees Job security; Working hours and potentially
Career progression flexibility to meet business
opportunities; needs;
Training; Expertise – knowledge and
Wage (appropriate for role and experience;
experiences); May bring reputation
Health and safety. enhancement for the business.

Regulatory/professional bodies Information and reporting; Regulatory framework;

Compliance. Training;
Support and guidance;
Licence/approval.
The general public Quality expected for price paid; Provide feedback;
Goods or services to meet the Provide support for new
needs it states it will; developments and for research.
Fulfil warranty/after sales
obligations/requirements;
Continued future purchase
needs;
Meet health and safety;
Contributions to tax;
Contributions to local
community.
128 Business Awareness

Organisational structure and governance

You need to be aware of the different organisational structures; functional, divisional and matrix,
also the impact that the span of control has on the organisational structure. Here is a brief reminder:
Functional: this structure is based around the idea of grouping together people who do similar
tasks.
Divisional: this type of structure divides the business into different regions, products or services.
Matrix: this is a ‘hybrid’ organisation. It combines both the idea of a functional organisation with a
product/customer/project organisation.
Span of control: this refers to the number of subordinates that each manager has under their
control.
Scalar chain: the number of layers of management from the top to the bottom of the organisation.
Governance means: the system by which an organisation is controlled and operates. The way in
which the organisation and the people in it are held to account.
How the structure and size will impact on organisational governance: the size of the business will
determine the divide between the business owners and those who are making the decision at a
strategic level and on a day to day basis. A larger business will require more systems and processes
in place to ensure effective governance takes place.
Centralised control: this means the authority and decision making processes are concentrated in
the bard/leader/head office of the business.
Decentralised control: this is when more responsibility and authority for decision making is given
to the departmental or functional managers.

The ethical code for accountants

You may be examined here on the ethical principles and the threats to ethical principles. Remember
a principle based approached is provided by AAT for ethics.

Principle Threat
Integrity – being straightforward and honest when Intimidation/self-interest threats to present
doing work. misleading information to users of financial
statements.
Objectivity - be fair and neutral in what you do. Intimidation, self-review, advocacy, self-interest,
familiarity threats resulting in bias.
Professional competence and due care - a duty to Keeping knowledge up to date, pressure in working
maintain your professional knowledge. role, self-interest, self-review, familiarity threats. Up
to date technical knowledge can be critical and the
consequences of not maintaining CPD.
Confidentiality - respect all information given to Recognise when confidential information: can or
you by clients or employers as confidential. must be disclosed, when it must not be disclosed,
and when situations pose a threat to
confidentiality.
Professional behaviour - act in a manner which Recognise when professional scepticism should
is consistent with the good reputation the be applied and the action to be taken.
profession.

For each threat you should be able to identify which safeguards may be appropriate.
 Mock assessment 1 – Guided mock 129

Ethical conflicts
Conflicts of interest can exist for accountants in practice when taking on clients. Assuming both
clients do not mind you acting for both of them then safeguards should be put in place.
Accepting gifts or hospitality from work colleagues, clients (if in practice) or any party connected
to your firm (e.g. customers or suppliers) could be seen as a threat to objectivity.

Reporting unethical behaviour

Where a member finds there is a material error or omission in a tax return, or a failure to send in a
tax return, the member should immediately advise the client of this and recommend to the client
that full disclosure is made to HMRC. If the client refuses to inform HMRC then the member should
cease to act for them.

Disclosure of money laundering

Informing HMRC:

There is an obligation for disclosure if a person knows or suspects (or has reasonable grounds for
doing so) that another person is engaged in money laundering.
– An offence is committed under Proceeds of Crime Act if a person fails to disclose this
knowledge or suspicion as soon as possible.
– This will not breach the duty to the client of confidentiality.
– Disclosure should be made to your MLRO or if there is not one directly to NCA.
130 Business Awareness

Here’s an example task to practise

(a)
(i) Which TWO of the follow statements regarding Private Limited Companies are true? (2 marks)

(2)
The Directors of Private Limited Company are always the owners

The Directors manage the Private Limited Company on behalf of the

shareholders
The shareholders of a Private Limited Company are not personally responsible
for the debts of that business
The shares of Private Limited Companies are traded on the stock exchange

Cobble Limited’s business is broken down based on the types of products and services they
produce. Staff are grouped according to what product or service they work on. Each element is
autonomous and has control of its own profit and loss account and capital investment.
(ii) Which ONE of the following structures best describes the set up in Cobble Limited? (1 mark)

(1)
Functional

Divisional

Matrix

(iii) Are the following statements true or false for an organisation with a flat organisational
structure? (3 marks)

True False
 
There are relatively few managers
Managers have a narrow span of control
Decision making tends to be slower than in a tall
organisational structure

Railtrail Co is a public sector rail company and is governed by a committee known as Railtrail Co
Trust Board. The Board is responsible, reporting to the Ministry of Transport, for ensuring that
Railtrail Co board of directors make the best use of public money.
The industry is very highly regulated due, in the main, to the public interest and the emphasis on
health and safety.
Railtrail Co are currently looking at several different options for replacing their old fleet of trains.
The Board or Railtrail Co is made up of Executive and Non-executive directors.
 Mock assessment 1 – Guided mock 131

(b)
(i) Identify the ONE principal goal of Railtrail Co from the list below. (1 mark)

(1)
Maximisation of profit

To provide services that are deemed important by society

To maximise the return for the key stakeholders

To minimise the amount that the spend on Health and safety

(ii) Identify which ONE of the following best describes the role of a non-executive director?
(1 mark)

(1)
Non-executive directors are involved in the day-to-day business operations

Non-executive directors are managed by the Executive directors

Non-executive directors are independent and therefore offer more objectivity

in their scrutiny of the company affairs
Non-executive directors always have an accounting qualification

(iii) Identify which ONE of the following stakeholders has the greatest influence over the decision
to replace the old fleet of trains? (1 mark)

(1)
The Railtrail Co Trust Board

The public

The train staff

The Executive directors

(iv) Identify which ONE of the following best describes how we consider performance of a public
sector not for profit organisations. (1 mark)

(1)
We measure how well they use the public funds to source resources, how
efficiently they use these funds and whether they are achieving the organisational
objectives effectively.
We measure how well they are using the public funds to minimise their costs and
increase the profit generated.
We measure how well they are achieving their desired output with minimal cost
and as quickly as possible to ensure they use the least funds possible.
132 Business Awareness

Shazia is an accountant in practice. She has been asked to prepare the financial statements from
source records and be heavily involved in the year end audit of Duker Limited.
(c)
(i) Identify how Shazia’s principles are threatened by completing the following statement.
(2 marks)

This is Gap 1 threat to Gap 2

Picklist Gap 1: An intimidation, a self-review, an advocacy.

Picklist Gap 2: Objectivity, integrity, confidentiality.

Shazia has been asked by a friend to supply a character reference for one of their relatives which
indicates that they have a strong financial acumen. The family member is unknown to Shazia, and
she has also heard that they are currently facing financial difficulty.
(ii) If Shazia were to sign the document which ONE of the following principles would be breached?
(1 mark)

(1)
Integrity

Professional competence and due care

Confidentiality

Professional behaviour

In the UK we have adopted a principles-based approach to ethics.

(iii) Are the following statements true or false with a principles-based approach to ethics?
(2 marks)

True False
 
People will always refer to a rule book and
not consider the specific situation
Course of action is always obvious

Many organisations introduce a code of conduct for their staff.

(d) (i) Identify which THREE of the following are an advantage of implementing a code of conduct?
(3 marks)

(3)
Business behaviour is more ethical and therefore this reduces reputational risk

It allows the business to remove staff as it supersedes the legal rights of the
employee
Employee behaviour becomes more standardised and consistent

The risk of unethical behaviour is reduced

 Mock assessment 1 – Guided mock 133

An audit firm has been approached by the National Crime Agency (NCA) regarding one of their
clients’ financial affairs. It has been highlighted that the client may be involved in money
laundering.
(ii) Should the audit firm provide the NCA with the information they have requested? (2 marks)

Yes No
 
134 Business Awareness

Task 2
Task 2 deals with analysing the external environment. This task is worth 18 marks which gives you
27 minutes to complete it.

Task briefing
Company legislation
 Who owns the organisation - the shareholders.
 Who runs the organisation - the directors.

The rights and roles of shareholders

Shareholders can influence:
 Investing more money in the company.
 Voting on key decisions at shareholder meetings.
Shareholders are entitled to:
 Receive annual accounts and reports.
 Require the directors to call a meeting.
 Attend meetings or send a proxy.
 Vote, depending on the class of share held.
 Appoint/remove directors.
 Appoint/remove auditors.

The roles and duties of directors

Executive directors (EDs) are involved in the day-to-day running of the company, they are usually
full- time employees and paid a salary.
Non-executive directors (NEDs) are independent, part-time directors who scrutinise the company’s
affairs.
Duties:
 To act within their powers
 To promote the success of the company
 To exercise independent judgement
 To exercise independent judgement
 To avoid conflicts of interest
 Not to accept benefits from third parties that could give rise to a conflict of interest

Company formation
 Registrar of Companies
 Certificate of Incorporation

Company reporting
 Annual accounts
 Accounting records
 Confirmation statement
 Mock assessment 1 – Guided mock 135

Unlimited liability partnerships

Partnership Act 1890 as: The relation which subsists between two or more persons carrying on a
business in common with a view of profit

The partnership agreement

Partnership agreements will typically contain details of the following:
 How profits and losses will be shared between the partners, including:
- Salaries and commissions
- Interest on capital/ drawings
- Profit sharing ratios.
 Management of the partnership – how will decisions be made? Majority vote?
 Appointment of new partners – do all existing partners need to agree?
 Capital – how much money is each partner required to contribute to the partnership?
 Removal of partners – under what circumstances can a partner be expelled?

Partnership goodwill
Goodwill is the amount by which the business’s total value exceeds the value of its separately
identifiable net assets.
Sales price of business x
Less: value of net assets on SFP (x)
Goodwill x

Changing partners
Admission of a new partner
Pay a fair share for the goodwill of the business.
Retirement of a partner
When a partner retires, they are entitled to share in the profits up until the date that they leave the
partnership.

The use of the PESTLE model for analysing the external environment
Here you will use the six areas to help you analyse the impact of the business’s macro environment.
Here is a reminder of the six distinct areas:

Category Description Factors

Political These relate to the distribution of power locally, - government policy
nationally and internationally - taxation
- imports and exports
- public spending
Economic These play a large part in deciding how a company - interest rates
makes its decisions, especially financial ones. - exchange rates
- changes in disposable income
- business cycles
- demand-pull and cost-push
inflation
Social These are influences that affect and define lifestyle, - demographic changes
elements such as family, community, socio- - trends
economic status and religion. - unemployment
136 Business Awareness

Technological These may be of particular interest to businesses. - changes in technology

Advances in technological processes may provide - impact on structure
many opportunities, innovations in
processes can improve productivity and efficiency
that will reduce costs and improve profit margins.
Legal These are external factors which refer to how the law - trade regulations
affects the way businesses operate and customers - changes in law and regulations
behave.
Environmental These affect every company in every country. - environmental changes
Environmental factors include environmental - sustainability.
changes and sustainability.

Technology impact
Outsourcing
Outsourcing is an agreement between parties where one company hires another to take over and
be responsible for part of an existing activity, a specialist company is used to take over the supply
of the product or service. Technology has made it easier to be able to communicate and manage
these relationships.

Offshoring
Offshoring involves the transfer of an activity or part of a business to a foreign country. It is often
done to take advantage of lower wage levels but may also be done to take advantage of raw
materials or tax breaks. Technology has enabled the integration of systems and processes which
are situated overseas.

The effect of automation

1. Automation speeds up processes that previously required employees. More time can be spent
analysing and decision-making rather than preparing data and information.
2. Automation reduces human error, so information is more reliable and accurate.
3. Replacing the human workforce. Automation speeds up processes that were previously
completed by human hours. There is a reduction in the need for labour hours so redundancies
may be made, and this reduces staff morale.
Examples of finance tasks that can be completed through process automation:
 Processing credit notes
 Sending customer statements
 Performing supplier statement reconciliations
 Basic tax returns

Automation Machine learning Artificial intelligence

 Mock assessment 1 – Guided mock 137

Artificial intelligence
Artificial intelligence (AI) is technology that can be used to make decisions, to carry out
tasks that have historically required human intelligence.

 Forecasting – Artificial Intelligence systems may recognise and interpret past

patterns to create better budgets and projections for the future.
 Accounting entries - Artificial Intelligence systems may enable better ‘coding’ of
transactions for accounting purposes, reducing coding errors and financial
misstatements (for example, revenue or capital expenditure).
 Fraud detection - Artificial Intelligence systems may recognise the patterns of
‘normal’ transactions and ‘fraudulent’ transactions better than humans do.
138 Business Awareness

Here’s an example task to practise

Happy Rental is a business operating in the car rental industry. They operate their vehicles from
many different locations in the UK. Several of the sites are at the major airports and others are
close to the major cities.
Happy Rental has a diverse customer base with several corporate agreements in place with the
major airlines and hotel chains.
They also have relationships with third parties. Vehicles can be booked as part of a package when
a customer books and flight or a hotel. These have lower margins due to the third-party
commission.
Happy Rental has not upgraded their own in-house booking system and therefore customers will
either call the sites directly or will book through third parties. The number of customers booking
through third party sites has doubled in the last 12-months.
Increasingly Happy Rental are getting questions from customers about their sustainability.
Currently only 5% of their large fleet of vehicles are electric and many have larger diesel engines.

(a)

(i) For each of the specified PESTLE categories identify ONE threat facing Happy Rental. (3 marks)
(ii) Explain one action Happy Rental could take to reduce the threats under each category.
(6 marks)

Threat Action to reduce threat

Technological

Economic

Environmental

(iii) Identify ONE of the remaining PESTLE categories. (1 mark)

 Mock assessment 1 – Guided mock 139

(b)
(i) Identify which FOUR of the following are advantages of embracing developing technologies?
(4 marks)

(4)
Speeds up processes that previously required employees

Reduces the opportunity for human error

Investment is not expensive

Speeds up the decision-making process

Streamlines information so removes excess data

Less data and therefore security requirements are reduced

(ii) Identify which TWO of the following statements are true regarding a sole trader? (2 marks)

(2)
Sole traders have separate legal status from the business in which they
operate
Sole traders require a partnership agreement

Sole traders do not have limited liability

The preparation of the financial statements is the responsibility of the sole

trader

(iii) Match the explanation with the definition. (2 marks)

An agreement between parties

that involves one company hiring
Offshoring in a specialist company to take
over the supply of a product or
service

An agreement between parties in

different countries to try and take
Outsourcing
advantage of lower costs and tax
breaks
140 Business Awareness

Task 3
Task 3 deals with the types of funding used by businesses, common features of business
organisations, understanding the impact of new technologies in accounting, and the risks
associated with data security, information security and cybersecurity.
This task is worth 17 marks giving you approximately 25 minutes to complete it.

Task briefing
Types of funding used by businesses.
New capital introduced (equity finance – share capital) – Share capital is money raised through
the sale of shares to potential investors
Retained Profit – Retained profit is profit that has been made by a business and accumulates year
on year, this is held in the capital section of the balance sheet and called ‘Retained/Accumulated
profit’.
Borrowing – The business may approach a bank with a business plan and request a bank loan.
Managing working capital - Working capital management ensures liquidity by monitoring trade
receivables, trade payables, stock management and debt management. It can be defined as the
current assets and the current liabilities, so we are looking at short term assets and liabilities of a
business.

Common features of business organisations

Interrelated individuals – The structure of the organisation will be determined by groups of
interrelated individuals who work together.
Goal congruence – ‘Everyone working together towards a common objective.’
All departments with an organisation will strive to meet the overall strategy of the business hence
goal congruence. This is an important term to remember for your studies.
Co-operative relationships – An organisation is a deliberately structured and co-ordinated activity
system with co-operative relationships.
Responsibility - refers to the obligation an individual has to fulfil a task that they have been given.
In an organisation the responsibilities will be defined in the organisational structure and the job
roles.
Authority - may be defined as the right to do something, or to ask someone else to do it and expect
it to be done. This will be determined by how the organisation is structured, the roles people have
and the organisational policies.
A Team comprises people linked in a common purpose. This could be a team within one business
function or a team working together on a particular project.
Division of work – Tasks are assigned to and completed by a group of workers in order to increase
efficiency. For example, the roles and responsibilities will be split between different people or
different teams to utilise expertise and capacity efficiently.
 Mock assessment 1 – Guided mock 141

Manufacturing v service business

Manufacturing Service
• Inventory • Hours worked
• Production • Feedback from
information customers
• Work in progress
• Physical checks

Technologies in accounting
There are two broad categories we need to be aware of here: Technology and then data protection,
information security and cybersecurity.
Technology – Here we must be familiar with emerging and developing technologies, technology
developments such as outsourcing and offshoring and cloud accounting.
 Cloud computing is the use of the internet to carry out processes that were
traditionally done on localised hardware in an office environment.
 Cloud accounting is the practice of using an accounting system that is accessed
through the internet.
You must be familiar with the impact of these developing technologies and trends.

Automation of processes – for example invoicing, transaction processing, payroll etc

AI and machine learning - AI is technology that can be used to make decisions, to carry out tasks that
have historically required human intelligence and machine learning is an application of artificial
intelligence.
Blockchain - The idea of using blockchain is to let people, in particular people who do not trust each
other, share valuable data in a secure, tamperproof way.
Electronic filing of documents – documents stored and submitted for example to HMRC.
Electronic signing of documents - Electronic signatures come in many forms, including typewritten,
scanned, an electronic representation of a handwritten signature, a unique representation of
characters, a digital representation of characteristics (for example, fingerprint or retina scan)
Data analytics - The use of data analytics can add value to the finance function as it can enable the
finance function to 1) Provide information to its stakeholders which is more timely and more accurate
and 2) Help to improve business performance by combining financial and non-financial data.
142 Business Awareness

Risks associated with data security

Data protection, information security and cybersecurity
(i) An individual's privacy relates to their right to control how their personal information
is held and used by others.
(ii) In the UK, the relevant legislation is The Data Protection Act (2018) and this is the UK’s
implementation of the General Data Protection Regulation (GDPR).
(iii) Data protection legislation aims to protect the individual.
Keeping data secure:
 Information must be processed lawfully, fairly and in a transparent manner
 Used for the declared purpose only
 Limited to the data needed for the declared purpose
 Accurate and up to date
 Not kept for longer than necessary
 Held securely
 Accountability - the Data Controller is accountable for compliance

Information Security
Physical security – access controls
Information security – access levels, firewalls, integrity controls (input and processing and output)
Cyber security
 System security – the security of the organisation’s systems and network
 Data security – ensuring that any data held is secure using appropriate controls
 Online security – the security of anything the business does online, for example
websites, online services, the use of online ordering or processing

Cyber risks - any risk associated with financial loss, disruption or damage to the reputation of an
organisation from failure, unauthorised or erroneous use of its information systems.
 Mock assessment 1 – Guided mock 143

Here’s an example task to practise

(a) Identify which FOUR of the following are features of cloud accounting? (4 marks)

(4)
Availability of real time data for decision making and to improve controls

The creation of a block of digital information

Automation capabilities for posting transactions and generating information

Remote data storage which can reduce the hardware storage costs

It is ‘learning machine’ that can make decisions

Improved interaction with stakeholder groups through easier sharing of

information

(b) Identify which ONE of the following is a benefit of Blockchain. (1 mark)

(1)
It involves a significant amount of double checking which leads to more
reliable information
It is not permanent, and transactions can be removed easily

It is transparent which can add value to the reliability of information

(c) Identify which TWO of the following are given by the Information Commissioners Office (ICO)
as examples of what may occur due to data breaches? (2 marks)

(2)
Targeting of individuals by fraudsters

Tax evasion

Identity fraud

Incomplete financial information

(d) Identify which ONE of the following is a risk to business operations posed by cyber-attacks?

(1 mark)

(1)
Process reengineering

Failure of the IT systems

Issues with working capital

144 Business Awareness

(e) Identify which TWO of the following are the key principles of data protection? (2 marks)

(2)
Personal data should be kept indefinitely

Personal data should only be collected if it is lawful, fair, and transparent

Personal data can be freely disclosed and shared

Personal data should be limited to the data needed for the declared purpose

(f) Complete the statement below. (1 mark)

One example of a data breach could be .

Picklist: Unauthorised third-party access, Alteration of personal data with permission, Removal of
personal data at the request of the individual

(g) Match the sources of finance with the characteristics that best describe it. (4 marks)
Source of long-term funding, no
interest is charged, and the
Loan
provider of this finance will have
ownership of the business

Careful management is required

Share Capital so the business can control their
cash position

Interest is charged and

Capital introduced repayments are made in line with
the agreement

Source of long-term funding, no

interest is charged however the
Working capital
holder may receive dividends
they also have limited liability

(h) Identify which TWO of the following are characteristics of a service? (2 marks)

(2)
Variability – it is not always the same and can vary by customer.

Separability – the service and the business can be identified separately from each
other.
Inseparability – the service and the business cannot be identified separately from
each other.
Tangibility – it is something with a physical form which can be assessed and
appraised.
 Mock assessment 1 – Guided mock 145

Task 4
Task 4 deals with ethical and legal compliance. This may include ethical conflicts and reporting
unethical behaviour, and also money laundering.
This task is worth 10 marks giving you 15 minutes to complete it.

Task briefing
Ethical conflicts and reporting unethical behaviour
Ethics are the moral principles based on the idea of “right” and “wrong”.
Professional accountants consequences of breaching ethical standards:
Internal disciplinary procedures,
Breach of contract,
Professional negligence,
Disciplinary action by professional accountancy bodies.
Reporting unethical behaviour:
Reporting unethical behaviour:

When to report
a breach

External Internal
whistleblowing - whistleblowing
seeking advice / Speaking out

Protection
Seeking advice
when
internally
whistleblowing
146 Business Awareness

Organisational ethical values

Being transparent with customers and suppliers

Reporting financial and regulatory information clearly and on time

Whether to accept and give gifts and hospitality

Paying suppliers a fair price and on time

Providing fair treatment, decent wages and good working conditions to employees

Use of social media is appropriate and fair

Money laundering
Money laundering - the process by which the proceeds of crime, and the true ownership of those
proceeds, are changed so that the proceeds appear to come from a legitimate source.

Placement – (Input) this is where the criminal proceeds are initially entered into the
system and made to look like they have come from a legitimate source (putting the "dirty money"
into the legitimate financial system.)

Layering – (Processing) this is where the cash is transferred from business to business or
from one country to another, concealing the source of the money through a series of transactions.

Integration – (Output) this is where the money is now withdrawn from companies in the
form of salaries, dividends etc to make it look like the earnings are legitimate and not related to
criminal activities.
Other offences
Tipping off
This is where someone informs a person or people, who are, or are suspected of being, involved in
money laundering, in such a way as to reduce the likelihood of their being investigated or
prejudicing an investigation.
Prejudicing an investigation
Another secondary money laundering offence which may be committed by an accountant or other
person who is aware that a money laundering investigation is being carried out or about to be
carried out is that of prejudicing an investigation.
 Mock assessment 1 – Guided mock 147

Failure to disclose
One of the three principal offences above – concealing, arranging, or acquisition.
There is an obligation to report knowledge of any suspicious activity to the internal money
laundering reporting officer (MLRO) by completing an internal report.
The MLRO has a duty to consider all such internal reports and if the MLRO also suspects Money
Laundering & Terrorist Financing, an external Suspicious Activity Report must be made to the
National Crime Agency (NCA). Only sole practitioners, who employ no relevant employees, have a
duty to submit SARs straight to the NCA.
A SAR (suspicious activity report) must be filed within 30 days of the date of the initial
determination for the necessity of filing the report. An extension of 30 days can be obtained if the
identity of the person conducting the suspicious activity is not known. At no time,
however, should the filing of an SAR be delayed longer than 60 days.
148 Business Awareness

Here’s an example task to practise

(a) In the event of ethical conflict in the workplace what would be considered the appropriate
order of the course of action? (2 marks)

Order
Formal internal process

Resign

Informal discussion

Picklist: 1,2,3

(b) AAT members must adhere to ethical standards. Identify which TWO of the following are
examples of contravention of loyalty to the profession? (2 marks)

(2)
Act in line with the code of ethics

Issue a report which materially misrepresents the facts

Act in line with law and regulation

Be party to or facilitate unethical earnings

You receive the following email from a new member of staff at your accounts practice.

EMAIL
To: A.N.Accountant
From: A.N. Other
Date: Today
Subject: Money Laundering
Hi,
Hope all is well. I am a little concerned about one of my new clients. They are a nail technician
studio in the town centre.
I am concerned that the turnover looks extremely high however I know that they don’t really have
a great reputation and they never seem that busy.
Please could you provide some advice on the following:
- A brief explanation of the term money laundering (2 marks)
- An explanation of the three steps involved in money laundering (4 marks)
Cheers,
A.N. Other
 Mock assessment 1 – Guided mock 149

(c) Respond to the request for advice on these TWO areas.

150 Business Awareness

Task 5
Task 5 deals with the microeconomic environment and the importance of sustainability.
This task is worth 10 marks giving you 9 minutes to complete it.

Task briefing
The micro-economic environment
Here you must understand the concept of supply and demand.
Supply - this describes the total amount of a specific good or service that is available to consumers
to purchase.
Demand - for products or services is created by potential buyers. There may be a consumer’s desire
to purchase goods or services and there will be a willingness to pay a price for these specific goods
or services.
Supply and demand affect price changes and this is called the price mechanism. It is the price
mechanism that determines what should be produced and who should get it, in this way it can be
said to act as a regulator of demand and an allocator of resources.
Market forces are external to the organisation and cannot be influenced, they change demand for
products and/or services – that is, either move the demand line to the right where demand
increases, or to the left where demand decreases.
You may also be tested on the impact of price changes on volumes, revenues, costs and profitability.
You must understand how the levels of competition in the micro-environment are influenced by
product features, the number of buyers and sellers, barriers to entry, location and the availability
of information.
Normal Good - an increase in income leads to an increase in demand
Necessity Good – an increase in income may lead to some increase in demand but not as steeply
as for a normal good.
Inferior Good - an increase in income leads to a decrease in demand

Competition
 Product features - quality, product evolution, substitutes, direct competitors
 Number of sellers and buyers – their influence and prices
 Barriers to entry, i.e. Licences and regulatory controls, cost to set up, expertise
 Location – access to resources, market and ease of buying and selling
 Availability of information – competitors quality, costing, processes, customer
service, USPs etc

The importance of sustainability

There are two important definitions you must learn for the exam:
Sustainability – the requirement for firms to adhere to the principles of sustainable development,
and:
Sustainable development - development that ‘meets the needs of the present generation without
compromising the ability of future generations to meet their own needs.’
 Mock assessment 1 – Guided mock 151

There are three aspects of sustainable performance, and these are:

Environmental/ecological: this includes environmental

policies and the aim of ‘reduce, reuse, recycle.’

Economic/financial: this considers:

Pricing policies – to ensure all products are at a sustainable
level
Investment – to encourage long term focus of a business
Reputation – investment for business growth

Social - this is how a business manages its Corporate Social

Responsibility. CSR is the extent to which a company makes
a positive, beneficial impact on the community and
environment in which it operates, whether locally or on a
global scale
152 Business Awareness

Here’s an example task to practise

(a) (i) Identify which TWO of the following would be considered complementary goods in
economics? (2 marks)

(2)
Coffee and tea

Bread and butter

Pizza and burgers

Hot dogs and rolls

(ii) Identify which ONE of the following events would cause inward shift (increase) in the demand
curve of a normal good. (1 mark)

(1)
The price of a substitute increases

The price of a complimentary product increases

The price of a substitute decreases

(iii) Identify which TWO of the following could be considered a barrier to entry when considering
moving into a new market? (2 marks)

(2)
Few competitors and a relatively new market

High initial set up costs

Low initial set up costs

Saturated market with little opportunity of growth

(b) (i) Identify which TWO of the following would be considered a benefit of a sustainable
strategy? (2 marks)

(2)
Improve your brand reputation and public relations

Reduce your energy costs

Increase your overall costs

Decrease customer satisfaction and loyalty

 Mock assessment 1 – Guided mock 153

(ii) Link up the following activities to the type of sustainability. (3 marks)

Sponsorship of the local school

Social
football team

Setting a standard return on any

Environmental investment that it should
payback within a 4-year period

Measuring and offsetting carbon

Financial
emissions
154 Business Awareness

Task 6
Task 6 deals with visualising information and communicating information. With this task, the focus
will be on understanding data that is presented to us and communicating these findings to various
stakeholders.
This task is worth 13 marks giving you 19 minutes to complete it.

Task briefing
Visualising information
For the exam you will need to visualise information in different formats; this may be a chart, table
graph, an image, or a diagram.
You may be asked to discover patterns or significant anomalies within data, you will need to
interpret information to indicate relationships and trends.
Factors to consider:

Timing

Audience

Required
Interactivity
outcome

Audience – who will be analysing and using the data, what level of detail do they require and what
technical knowledge do they have.
Timing – for information to be useful it must be presented in a timely manner.
Interactivity – what format is required and do we need to drill down into the data.
Required outcome – what do we want to achieve, by when and how will the data support this.
Data visualisation is an output of big data as it is a way of presenting large sets of data in a way that
is understandable, for example in the following formats:
 Images
 Charts
 Diagrams
 Tables
 Matrices
 Graphs
Accounting software packages use dashboards to communicate to non-technical stakeholders, we
may be presented with a dashboard in the exam and be asked to discover relationships and trends.
 Mock assessment 1 – Guided mock 155

 Data used should be quality in nature and with enough volume. Remember that
finance professionals should exercise professional scepticism when using data. If
incorrect/unreliable data is input, then this is processed and delivered as output.
 DATA + MEANING = INFORMATION
 Information presented should be user-targeted and aid decision making
 Information provided should be up to date so timely decisions can be made
 Integration with other systems

Communicating information
For the exam you must understand the principles used to determine the appropriate method of
communication to use both internally and externally by the business.
It is also important to understand the characteristics of professional communication; We must be
able to meet different stakeholder requirements, use appropriate communication medium for the
desired outcome, communicate valid information and understand the importance of
confidentiality.
When deciding on the most appropriate method, you will consider the following questions:
• To whom are you writing?
• Is this to be formal or informal?
• Is written documentation required?
• Is a response or feedback needed?
• How quickly does the information need to be communicated and feedback received?
• Is a personal approach needed?
• Are there one or more recipients?
• Is this to be internal or external?

Message content
Once we have decided on our method of communication, we need to make sure the message we send
contains the required information.

Valid information
The information you will be communicating will be used perhaps for plans or decisions of the
business. It may be very sensitive to the accuracy and timing of the information you provide;
therefore you need to ensure that messages sent are technically correct and valid as there could
be a decision made based on the content.

Confidentiality
Some content may need protecting from disclosure to others. Electronic documents can be
password protected to ensure the content remains secure. On written communications, we may
mark them as ‘Private and confidential’. There is still a danger of breach of confidentiality.

Understandability
 Avoid jargon and abbreviations
 Plan the content of your communication as to its purpose
 Recognise your audience (knowledge and understanding)
 Think about the structure and style which is most appropriate
156 Business Awareness

Keep it simple and keep it short

You should make sure you get your point across to your recipient.
• Use headings
• Short paragraphs
• Well-spaced and presented
• Reference to other information, additional pages or numerical details
• Clear language
• Use a standardised format when possible

Tone – formal/polite
Presentation – format/style/type (letter, report, email, memo etc)
Use of correct grammar – think about how you could check this

Business language
It often depends on several things:
 The style and culture within your organisation
 Which lines of the organisation structure the communication is intended
 If the information is being provided internally or externally
 If formal record of the communication is to be retained
 Tone should be polite and friendly, but not overly familiar or too personal.
 Mock assessment 1 – Guided mock 157

Here’s an example task for you to practise

Today’s date is the 8 April 20X9. You work for Squeezy Cheese, a business selling different types of
cheeses from around the world.
• Squeezy Cheese is a sole trader business owned by Taylor Lewis.
• The client base is expanding through their online sales although they have seen a reduction in
sales from their retail units.
• Most of the sales are on a cash basis at the point of sale however they have recently. started to
consider working with third party organisations who would sell their products on their behalf.
• The market has seen an increase in competition recently due to changes in customer tastes.
Sales data has been provided in appendix 1 for the six months to 31 March 20X9.
The finance manager is responsible for analysing results however due to annual leave has asked
that you step in to support the analysis.
Taylor Lewis would like to know about:
• the performance of the business over the six months to 31 March 20X9
• the expected performance of the business for the three months to 30 June 20X9
As part of the analysis Taylor Lewis is keen to understand the implications of seasonality and the
impact of new competitors entering the market.

Appendix 1
Unit sales per product
Product October November December January February March
Cheddar 120 140 170 120 120 120
Lancashire 35 50 70 50 60 70
Brie 25 70 80 35 35 35
Manchego 60 80 90 70 80 90
Gouda 30 90 100 30 50 70
Total 270 430 510 305 345 385
158 Business Awareness

Revenue per product per month

600

500

400

300

200

100

0
October November December January February March

Cheddar Lancashire Brie Manchego Gouda Total

Total revenue per month

October November December January February March

 Mock assessment 1 – Guided mock 159

Competitor analysis
600

500

400

300

200

100

0
October Novemeber December January February March
Sloppy Cheese Squidgy Cheese Squeezy Cheese

(a) Prepare a response for Taylor Lewis in which you:

(i) DISCUSS the performance of the business over the six months to 31 March 20X9 AND the
expected performance of the business for the three months to 30 June 20X9 ensuring the specific
issues are addressed. (11 marks)
(ii) Identify TWO additional pieces of information that might help with your analysis explaining
HOW these might help support your analysis. (2 marks)
160 Business Awareness
 Mock assessment 1 – Guided mock 161

Task 7
Task 7 deals with information requirements in a business organisation, the role of the finance
function, and the concept of risk and risk management.
This task is worth 12 marks meaning that you have 18 minutes to complete it.

Task briefing
Information requirements in a business organisation
Characteristic of the information requirements will differ at each level.

Strategic /Corporate

Managerial

Operational

The attributes of good quality information can be remembered using the mnemonic ‘ACCURATE’

•Accurate
A •Fair and free from bias, no errors.

•Complete
C •nothing missing or hidden

•Cost-beneficial
C •the benefit of collecting, storing, and analysing should outweigh the cost of obtaining it

•User-targeted
U •appropriate methods of communication are used (also see chapter 11), style, format and complexity

•Relevant
R •communicated to the correct person

•Authoritative
A •information should be from a reliable source

•Timely
T •communicate in a timely manner so action is appropriate

•Easy to use
E •consider who will be using the information, use appropriate style, jargon and structure
162 Business Awareness

Within an organisation there are different information requirements, these will vary according to
the level they are: operational, managerial or strategic. You need to be familiar with the type of
information, the purpose and the characteristics of such information.
Big Data – this is a term given to collections of data that are so large that traditional methods of
data collection are insufficient.
You need to be aware of the benefits and limitations of the use of big data, the sources of internal
and external big data, the need to apply professional scepticism in relation to big data and
understand the use of data analytics from external sources.
The characteristics of big data are:

Volume Velocity Variety Veracity Value

The role of the finance function

Here you need to understand the role of the finance function in contributing towards the operation
of the other business functions and the organisation’s plans and decision making. The business
functions you will need to be familiar with are operations/production, sales and marketing, human
resources, information technology, and distribution and logistics.
Risk and risk management
Risk - the variation in outcome from what is expected - the chance an outcome or investments
actual return will differ from the expected outcome or return.
There is no standard classification for risks, however it is common to split risks into:
The level of risk – Strategic or Operational
The type of risk – Business, Financial, Cyber, Reputational etc.
Strategic risk – risks that arise from the overall strategic positioning of the business in its
environment.
Operational risk - the variability of returns as a result of how the business is run on a day to day
basis.
Business risk - the exposure a company has to factors that will lower its profits or lead it to fail. It
is the variability of returns arising as a result of how a business trades or operates
Financial risk - A risk that arises from how a business is funded.
 Mock assessment 1 – Guided mock 163

There are strategies that businesses can adopt to manage risk, these are summarised below:

Transfer Avoid

Accept Reduce
164 Business Awareness

Here’s an example task to practise

(a) Identify an appropriate strategy to deal with each of the following risks. (4 marks)

Transfer Accept Reduce Avoid

   
The business environment has a
high risk of personal injury for the
workforce and therefore a risk of
being sued.
There is an opportunity to drill for
oil in an area of outstanding
natural beauty. There would
significant penalties if the
extraction did not go as planned
and this would adversely affect the
ability for the business to continue
as a going concern.
A project is currently underway
surrounding the credit control
function. There are no major
implications if the project were to
overrun.
As a business we are reliant on
good quality materials. We have
currently got two suppliers but
there are many numbers of
alternative suppliers available.

(b)
(i) Identify the big data characteristic that underlies the statements described below. (4 marks)

Volume Velocity Variety Veracity

   
Big data comprises of data from
many different sources in many
different formats
Big data is available at the touch of
a button
Big data comes from structured
and unstructured sources some of
which the facts are questionable
Big data is made up of numerous
data sets
 Mock assessment 1 – Guided mock 165

(ii) Identify whether the following statements about big data are true or false. (2 marks)

True False
 
Big data will help us to tailor our
marketing strategy to individual
consumers needs and wants
Big data will help to improve the
efficiency of the logistics of delivery to
our customers

(c) Identify which TWO of the following be a strategic risk. (2 marks)

(2)
We are unable to complete an order for a customer and therefore this will be
delayed by one week
We are looking to expand rapidly over the next three years and are currently
in the process of trying to access funding
The business is currently going through a period of product diversification and
are struggling to ascertain the pricing strategy for our new product
There are current staff issues at one of our sites and staff are threatening to
strike
166 Business Awareness

Next steps
You should now thoroughly review the model solutions to this mock to check where you are making
any mistakes. Once you are happy with how the answer to each task works you should attempt
Mock Assessment 2 under strict timed conditions without referring to your study material.
 167

AAT LEVEL 3

Diploma in Accounting
Business Awareness (BUAW)

Mock assessment 1
Solutions
Take the time to work through this set of solutions carefully comparing your answers to the correct
version.
For any tasks where you did not get the correct answer you can go back to the original syllabus
material using your Course Notes and the online lectures to improve your understanding.
Alternatively, you can always contact your tutor to go through anything that you are finding hard
to get to grips with.
168 Business Awareness
 Mock assessment 1 - solutions 169

Task 1 (20 marks)

(a)
(i) Which TWO of the follow statements regarding Private Limited Companies are true? (2 marks)

(2)
The Directors of Private Limited Company are always the owners – the
Directors manage the business on behalf of the Shareholders who are the
owners.
The Directors manage the Private Limited Company on behalf of the 
shareholders
The shareholders of a Private Limited Company are not personally responsible 
for the debts of that business
The shares of Private Limited Companies are traded on the stock exchange –
it is Public Limited Companies who trade their shares on the stock exchange,
Private Limited Companies are not able to do this.

(ii) Which ONE of the following structures best describes the set up in Cobble Limited? (1 mark)

(1)
Functional – this business will be set up based around the function that they
operated rather than what they produce and sell, for example IT, Marketing,
Accounting, HR.
Divisional 

Matrix – these businesses are cross functional and appropriate for business
that are dynamic, and project based using specialists across many functions
as and when required.

(iii) Are the following statements true or false for an organisation with a flat organisational
structure? (3 marks)

True False
 
There are relatively few managers 
Managers have a narrow span of control – there are 
few managers and therefore they have a large span
of control.
Decision making tends to be slower than in a tall 
organisational structure – there are fewer levels of
management for decisions to pass through, meaning
decisions are made faster than in a tall structure.
170 Business Awareness

(b) (i) Identify what the principal goal of Railtrail Co is from the list below. (1 mark)

(1)
Maximisation of profit – Public Sector organisations tend not to be profit
orientated and this would not be a measure normally used to assess
performance, it is more relevant to the Private sector
To provide services that are deemed important by society 

To maximise the return for the key stakeholders – return is not a key factor,
and the main emphasis is on the delivery of a service to society
To minimise the amount that the spend on Health and safety – this would
most certainly not be the case for a business of this type – society would
expect high levels of H and S management

(ii) Identify which ONE of the following best describes the role of a non-executive director?
(1 mark)

(1)
Non-executive directors are involved in the day-to-day business operations –
NEDs are not involved in the day-to-day operations and are involved in the
strategic direction
Non-executive directors are managed by the Executive directors - NEDs sit
alongside the Executive directors and are there to challenge, they are not
managed by the Executive directors
Non-executive directors are independent and therefore offer more objectivity 
in their scrutiny of the company affairs
Non-executive directors always have an accounting qualification – NEDs would
be expected to have commercial acumen however an accounting
qualification is not a pre-requisite

(iii) Identify which ONE of the following stakeholders has the greatest influence over the decision
to replace the old fleet of trains? (1 mark)

(1)
The Railtrail Co Trust Board – they ultimately sign off on the decisions of the 
Board.
The public – although the public are the primary consumers of the service,
they do not need to formally sign off decision.
The train staff – although they will be interested in relation to their job, they
do not have ultimate sign off.
The Executive directors – they will propose the strategy however the ultimate
Trust Board will sign off.
 Mock assessment 1 - solutions 171

(iv) Identify which ONE of the following best describes how we consider performance of a public
sector not for profit organisations. (1 mark)

(1)
 We measure how well they use the public funds to source resources, how
efficiently they use these funds and whether they are achieving the organisational
objectives effectively. Good performance is meeting the desired objectives by
making the best use of resources within the funding constraints.
We measure how well they are using the public funds to minimise their costs and
increase the profit generated.
We measure how well they are achieving their desired output with minimal cost
and as quickly as possible to ensure they use the least funds possible.
(c)
(i) Identify how Shazia’s principles are threatened by completing the following statement.
(2 marks)

This is Self-review threat to Objectivity

Picklist Gap 1:
An intimidation – there does not appear to be any intimidation
a self-review, an advocacy – Shazia is not promoting an individual

Picklist Gap 2:
integrity – no indication that integrity is threatened however is Shazia was aware of this and
continued to do the testing without highlighting this could be considered an issue as Shazia would
not be using her integrity
confidentiality – no breach of confidentiality is highlighted
(ii) If Shazia were to sign the document which of the following principles would be breached?
(1 mark)

(1)
Integrity – this is not the main one however it would be questionable if she
did sign the document.
Professional competence and due care – no indication that this is due to her
lack of knowledge.
Confidentiality – no breach of confidentiality highlighted.

Professional behaviour – this could bring into question the profession as this 
goes against the code.
172 Business Awareness

(iii) Are the following true or false with a principles-based approach to ethics? (2 marks)

True False
 
People will always refer to a rule book and 
not consider the specific situation
Course of action is always obvious 

(d) (i) Identify which THREE of the following are an advantage of implementing a code of conduct?
(3 marks)

(3)
Business behaviour is more ethical and therefore this reduces reputational risk 

It allows the business to remove staff as it supersedes the legal rights of the
employee – the legal rights of staff are still applicable, and a code does not
supersede these
Employee behaviour becomes more standardised and consistent 

The risk of unethical behaviour is reduced 

(ii) Should the audit firm provide the NCA with the information they have requested? (2 marks)

Yes No
 

 Mock assessment 1 - solutions 173

Task 2 (18 marks)

(a)

(i) For each of the specified PESTLE categories identify ONE threat facing Happy Rental. (3 marks)
(ii) Explain one action Happy Rental could take to reduce the threats under each category.
(6 marks)

Threat Action to reduce threat

(1 mark each)
Technological They currently do not Implement a robust online booking system that will
have online booking. allow customers of Happy Rental to make their
This could mean that booking at their convenience. (1 mark) This also will
they are missing out provide the ability for Happy Rental to capture more
on bookings as big data that can be used to enhance decision making.
competitors have this (1 mark)
facility.
Alternatively – this
could lead to more
third-party bookings
which have lower
margins.
Economic Third party sites offer The implementation of their own on-line booking
lower margins – this is system will ensure that they are directed to Happy
now commonplace Rentals site rather than the third-party sites. (1 mark)
and customers now This will improve margins. (1 mark)
expect this facility.
Lower margins will eat
into the profitability
of Happy Rental.

Environmental Consumers are When Happy Rental replace their fleet, they need to
booking more aware consider electric/hybrid vehicles. This will meet the
of their impact on the demands of their customers and therefore ensure
environment and are that they remain competitive. (1 mark) This could
therefore demanding also have benefits on the longer terms running costs
more environmentally which will be reduced. However, the initial
friendly vehicles. investment may be significant. (1 mark) Diesel
Happy Rental vehicles are eventually going to be phased out and
currently have a very therefore Happy Rental needs to ensure they do not
small fleet of what get left behind. (1 mark)
would be deemed
environmentally
friendly vehicles.
174 Business Awareness

(iii) Identify one of the remaining PESTLE categories. (1 mark)

Political, Social, Legal Only one required for one mark.
(b)
(i) Identify which FOUR of the following are advantages of embracing developing technologies?
(4 marks)

(4)
Speeds up processes that previously required employees 

Reduces the opportunity for human error 

Investment is not expensive – investment up front and the ongoing running

costs are expensive.
Speeds up the decision-making process 

Streamlines information so removes excess data 

Less data and therefore security requirements are reduced – there is more
data and therefore this increases the risk.

(ii) Which two of the following statements are true regarding a sole trader? (2 marks)

(2)
Sole traders have separate legal status from the business in which they
operate – although this is the way we produce the financial statements
legally this is not the case, and the sole trader is subject to the debts of the
business and therefore are personally liable
Sole traders require a partnership agreement – they are sole traders and not
partnerships and therefore this is irrelevant, for a partnership an agreement
in place is considered best practice
Sole traders do not have limited liability 

The preparation of the financial statements is the responsibility of the sole 

trader
(iii) Match the explanation with the definition. (2 marks)
An agreement between parties
that involves one company hiring
Offshoring in a specialist company to take
over the supply of a product or
service

An agreement between parties in

different countries to try and take
Outsourcing
advantage of lower costs and tax
breaks
 Mock assessment 1 - solutions 175

Task 3 (17 marks)

(a) Identify which FOUR of the following are features of cloud accounting? (4 marks)

(4)
Availability of real time data for decision making and to improve controls 

The creation of a block of digital information – this would be a characteristic

of Blockchain
Automation capabilities for posting transactions and generating information 

Remote data storage which can reduce the hardware storage costs 

It is ‘learning machine’ that can make decisions – this would be a characteristic

of Artificial Intelligence
Improved interaction with stakeholder groups through easier sharing of 
information

(b) Identify which ONE of the following is a benefit of Blockchain. (1 mark)

(1)
It involves a significant amount of double checking which leads to more
reliable information – the checking is reduced.
It is not permanent, and transactions can be removed easily – a key feature of
Block chain is that it is permanent and cannot be removed.
It is transparent which can add value to the reliability of information 

(c) Identify which TWO of the following are given by the Information Commissioners Office (ICO)
as examples of what may occur due to data breaches? (2 marks)

(2)
Targeting of individuals by fraudsters 

Tax evasion – this is governed by separate laws.

Identity fraud 

Incomplete financial information – this could possibly happen however the

others are most appropriate.
176 Business Awareness

(d) Identify which ONE of the following is a risk to business operations posed by cyber-attacks?
(1 mark)

(1)
Process reengineering – this is not a risk; this is a strategic plan that
businesses choose to do to improve efficiency.
Failure of the IT systems 

Issues with working capital – this could be an indirect impact however the IT
failure is the most obvious.

(e) Identify which TWO of the following are the key principles of data protection? (2 marks)

(2)
Personal data should be kept indefinitely – there are restrictions on the
amount of time that personal data can be stored
Personal data should only be collected if it is lawful, fair, and transparent 

Personal data can be freely disclosed and shared – information cannot be

shared; this is how individuals and businesses are protected
Personal data should be limited to the data needed for the declared purpose 

(f) Complete the statement below. (1 mark)

One example of a data breach could be Unauthorised third-party access

Picklist:
Alteration of personal data with permission – with permission is allowed however specific
processes need to be followed
Removal of personal data at the request of the individual – at the request of the individual this
must be completed
 Mock assessment 1 - solutions 177

(g) Match the sources of finance with the characteristics that best describe it. (4 marks)

Loan Source of long-term funding, no

interest is charged, and the
provider of this finance will have
ownership of the business

Careful management is required

Share Capital so the business can control their
cash position

Interest is charged and

Capital introduced repayments are made in line with
the agreement

Source of long-term funding, no

interest is charged however the
Working capital
holder may receive dividends
they also have limited liability

(h) Identify which TWO of the following are characteristics of a service? (2 marks)


 Variability

Separability – the service and the business are not separable.

 Inseparability

Tangibility – services are considered intangible.

178 Business Awareness

Task 4 (10 marks)

(a) In the event of ethical conflict in the workplace what would be considered the appropriate
order of action? (2 marks)

Order
2 Formal internal process

3 Resign

1 Informal discussion

(b) AAT members must adhere to ethical standards. Identify which TWO of the following are
examples of contravention of loyalty to the profession? (2 marks)

Act in line with the code of ethics – this would be following the code

Issue a report which materially misrepresents the facts 

Act in line with law and regulation – this is appropriate action

Be party to or facilitate unethical earnings 

(c) Suggested answer

Money laundering – the concealment of the origins of illegally obtained money, (1 mark) typically
by means of transfers with legitimate businesses to make the cash appear to be legal. (1 mark)

Placement – ‘dirty’ money is placed into the legal, financial system. (1 mark) After getting hold of
illegally acquired funds through theft, bribery, corruption, and other illegal means. This is where
illegal cash is ‘washed’ and disguised by being placed into a legitimate financial system. (1 mark)

Layering – This involves a complex web of transactions to move money into the financial system.
(1 mark) The complexity makes it very difficult for the authorities to follow the audit trail of the
fraudulent bookkeeping. (1 mark)

Integration – The ‘dirty’ money is now absorbed into the economy – for example this could be
through the acquisition of assets. (1 mark) This money is now reunited with the original criminal.
(1 mark)
 Mock assessment 1 - solutions 179

Task 5 (10 marks)

(a) (i) Identify which TWO of the following would be considered complementary goods in
economics? (2 marks)

(2)
Coffee and tea
Bread and butter – usually consumed together, so changes in demand for 
one is likely to have an impact on demand for the other
Pizza and burgers
Hot dogs and rolls – usually consumed together, so changes in demand for 
one is likely to have an impact on demand for the other

(ii) Identify which ONE of the following events would cause inward shift in the demand curve of
a normal good. (1 mark)

(1)
 The price of a substitute increases – the product becomes more attractive and
demand increases.
The price of a complimentary product increases – this would create a shift
outward as the products as a combination would become more expensive and
therefore demand would be less.
The price of a substitute decreases – this would mean we are more expensive
and therefore demand would be less.

(iii) Identify which TWO of the following could be considered a barrier to entry when considering
moving into a new market? (2 marks)

(2)
Few competitors and a relatively new market – direct opposite of a barrier,
we would consider joining this market.
High initial set up costs 

Low initial set up costs – direct opposite of a barrier, we would consider

joining this market.
Saturated market with little opportunity of growth 
180 Business Awareness

(b) (i) Identify which TWO of the following would be considered a benefit of a sustainable
strategy? (2 marks)

(2)
Improve your brand reputation and public relations 

Reduce your energy costs 

Increase your overall costs – it is likely that costs will decrease

Decrease customer satisfaction and loyalty – as consumers become more

aware of sustainability the opposite is likely to happen

(ii) Link up the following activities to the type of sustainability. (3 marks)

Sponsorship of the local school

Social
football team

Setting a standard return on any

Environmental investment that it should
payback within a 4-year period

Measuring and offsetting carbon

Financial
emissions

Task 6 (13 marks)

(a) Prepare a response for Taylor Lewis in which you:
(i) Discuss the performance of the business over the six months to 31 March 20X9 AND the
expected performance of the business for the three months to 30 June 20X9 ensuring the specific
issues are addressed. (11 marks)
(ii) Identify two additional pieces of information that might help with your analysis explaining
how these might help support your analysis. (2 marks)

Suggested answer:
(i) Overall Squeezy Cheese appear to have performed well over the last six months with a positive
trajectory in all their product ranges. (1 mark)

The data is somewhat skewed by the impact of the holiday season through November and
December as it is highly likely that there is some seasonality over our products. (1 mark)

Although consumers will purchase cheese throughout the year it is likely that more will be
acquired for the Christmas season (1 mark) with consumers purchasing more and in different
varieties than they would though out the year.
 Mock assessment 1 - solutions 181

It does appear that consumer tastes have changed in that Cheddar has not increased as
significantly as the cheeses from overseas. (1 mark) Possibly the increase in international
holidays has led to people’s needs and wants at home also changing to get the same experience.
(1 mark) We must ensure that we keep in line with our consumers and regularly check through
market research that our products are fit for purpose. (1 mark)

If they continue this trajectory, it looks like they will continue to be successful in developing their
consumer base. (1 mark) However careful attention needs to be made to strip out the impact of
these seasonal variations to ensure that they do not over budget performance and are more
realistic as to the impact of the holiday period. (1 mark)

One other area of concern is that the competitors joining the market also appear to be
performing well and we can see that they are also achieving a period of growth. (1 mark) We
therefore need to ensure that we can maintain our competitive advantage and can establish
what our unique selling points are to stay ahead of our competitors. (1 mark)

The market itself has indicated growth in this specialist sector with consumer demanding
something different. (1 mark) This could be a positive thing for Squeezy Cheese as an increase in
the size of the market could mean that we can not only increase our sales but also our market
share. (1 mark)

Any increase would allow us to take advantage of economies of scale and therefore reduce our
margins. (1 mark) Again, we must ensure we keep our competitive edge during this time.

The opportunity to work with third parties is an interesting proposition and does open several
opportunities to get our products in front of an audience that we may not on our own be able to
target. (1 mark) Using third parties will however have its challenges in that they will expect a
commission for the sale, and this will therefore eat into our margins. This if managed correctly
could be counter balanced with the volume of sales that this proposition could generate. (1
mark)

We must also consider the impact on our brand and ensure that the third parties are placing our
product correctly. (1 mark)

(ii) Two additional pieces of information:

P and L account for the last six months – would be interesting to see the margins and whether
these are maintainable (1 mark)
Cashflow statement – to ascertain whether they are currently able to maintain there working
capital (1 mark)
Stock reports – these products are perishable and therefore it would be interesting to see the
wastage and how this could be reduced (1 mark)
Copies of any proposed contracts with third parties (1 mark)
Market growth information and projections from relevant associations (1 mark)
Budget information for the next 12 months with to see whether the current model is
maintainable (1 mark)
182 Business Awareness

Task 7 (12 marks)

(a) Identify an appropriate strategy to deal with each of the following risks. (4 marks)

Transfer Accept Reduce Avoid

   
The business environment has a 
high risk of personal injury for the The risks here
workforce and therefore a risk of are far too
being sued high and
therefore this
is a strategy
that we would
avoid
There is an opportunity to drill for 
oil in an area of outstanding We would
natural beauty. There would look to get
significant penalties if the insurance to
extraction did not go as planned protect
and this would adversely affect the against
ability for the business to continue penalties
as a going concern
A project is currently underway 
surrounding the credit control Risks are
function. There are no major considered
implications if the project were to low and
overrun therefore we
would accept
As a business we are reliant on 
good quality materials. We have We would
currently got two suppliers but look to ensure
there are many numbers of that we have
alternative suppliers available other
suppliers that
we could work
with in the
event of a
supply issue
 Mock assessment 1 - solutions 183

(b) (i) Identify the big data characteristic that underlies the statements described below. (4 marks)

Volume Velocity Variety Veracity

   
Big data comprises of data from 
many different sources in many
different formats
Big data is available at the touch of 
a button
Big data comes from structured 
and unstructured sources some of
which the facts are questionable
Big data is made up of numerous 
data sets

(ii) Identify whether the following statements about big data true or false. (2 marks)

True False
 
Big data will help us to tailor our 
marketing strategy to individual
consumers needs and wants
Big data will help to improve the 
efficiency of the logistics of delivery to our
customers

(c) Identify which TWO of the following would be a strategic risk. (2 marks)

We are unable to complete an order for a customer and therefore this will be
delayed by one week – this relates to the day-to-day operations
We are looking to expand rapidly over the next three years and are currently 
in the process of trying to access funding
The business is currently going through a period of product diversification and 
are struggling to ascertain the pricing strategy for our new product
There are current staff issues at one of our sites and staff are threatening to
strike – this relates to the short and medium term so operational and tactical
184 Business Awareness

Next steps
Once you have thoroughly reviewed the solutions to this mock you should go back to any topics
that you have identified as weak areas and practise a few more questions. Remember that you can
access the online lectures as many times as you want and don’t be afraid to get in touch with your
course tutor if you want to go through any specific tasks with them.
You should then attempt Mock Assessment 2 which is designed to be done as a timed mock,
completed with no assistance.