Core Concepts of Accounting – Numbers and People, week (1-6) All Quiz Answers with Assignments.


 Core Concepts of Accounting – Numbers and People

Week 6 Assignment :


Why is accounting important in the VUCA (Volatility, Uncertainty, Complexity, and Ambiguity) world – my ideas, impressions, and experience.

Why is Accounting Important in VUCA Where does the term VUCA come from? VUCA is an acronym (artificial word), first used in 1987 and based on the leadership theories of Warren Bennis and Burt Nanus, and stands for Volatility, Uncertainty, Complexity and Ambiguity. It was the response of the US Army War College to the collapse of the USSR in the early 1990s. Suddenly, there was no longer the only enemy, resulting in new ways of seeing and reacting. The world of today Neither an organisation’s leadership nor its strategies are spared in today’s VUCA world. Experiences, dogmas and paradigms must all come under scrutiny; it is no longer a case of finding the one way or the management tool: standards give way to individuality. You as a leader As a manager, you are responsible for the lion’s share of the decisions about the parameters that define how your organisation can operate. The increase in volatility, uncertainty, complexity, and ambiguity means that you and your business must seek new orientations and take a fresh approach to management. Only then can you guarantee positive results in changed circumstances. The VUCA world challenges you to find your own way. You will need to understand the psycho-logic and develop empathic behaviour – in short, to be more concerned with humans and their needs. Meaning and purpose take a central role in business activities. Financial Challenges in a VUCA world Given the economic challenges of today, it is obvious that our businesses need to be more agile. This is not something that can happen overnight and in many cases will demand a cultural shift. I believe we now live in precarious times and we can’t rule out another crash. This will be marked by acute Volatility, Uncertainty, Complexity, and Ambiguity within the financial markets. This demands greater technical and behavioral insight. A report by Deloitte, Global Human Capital Trends 2016 found that of 7000 executives surveyed, 92 percent believed that leadership was a critical priority1. Furthermore, 56 percent stated that their companies were not ready to meet the leadership challenges presented by today’s market economy2. What to do? We need to build adaptive leaders and teams that will bend and not break. To me, VUCA is the new norm. Outlined below are the key points from my webinar Stick or Shift. For each point, there are huge leadership implications. Volatility Volatility across financial markets and between economies has been heightened since the early 1990s. The IMF recently examined the correlation between various market indices and identified two distinct periods of correlation of returns: prior to 2008, 0.45 and post 2008, 0.73. As a consequence, the increasing ease of trading across various jurisdictions and the heightened correlations has created the conditions for shock across financial markets. This interdependence, in part, lies behind the higher volatility facing financial markets. This effect is mirrored by the performance of the real economy. Trade linkages have mushroomed with the rapid growth in emerging market economies. China is a classic example: the EU now accounts for almost 20% of China’s exports and over 40% of the UK’s. A sluggish recovery in the Eurozone will impact the export performance of both China and the UK. Volatile external forces in a company’s target markets will negatively impact a business and affect its earnings stream. These forces are not directly controllable. Uncertainty Predicting market behavior is becoming increasingly difficult. What odds would I have been given in 2006 on Lehman’s going bust or Merrill Lynch being taken over? Equally, who would have contemplated that a software company focused on video streaming and only founded in 2005 would be bought for $1.6billion in 2006? These events were not really forecastable and demonstrate how easily we can be overtaken by a course of events. This uncertainty is prevalent in the economy today. There is no concrete idea as to when interest rates will rise or fall. This is macroeconomic uncertainty. Complexity Financial markets are not only increasingly fragmented but compared to 20 years ago there has been a significant increase in the range of financial instruments available. To put this in perspective, a paper by the Bank of England states that for an investor to be fully informed about a structured bond called a Collateralised Debt Obligation or CDO2 , the investor would have needed to have read over a billion pages4! 2 This is an extreme example but consider the number of trading relationships the UK has with other countries across numerous product and service sectors. The daily global turnover in the foreign exchange market is in excess of $5 trillion per day and London’s share of this is over 40%5. From this consider the ramifications of the UK leaving the EU. Ambiguity This is writ large at the moment in terms of negative interest rates. It doesn’t mean retail or commercial banks are going to be charging their customers to keep cash at the bank. It means the commercial bank will be charged for keeping cash at their respective Central Bank. The impact of this policy is ambiguous. There is the potential for pressure to be placed on a commercial bank’s margins and as a consequence increase the rate charged on loans; an action which in turn would reduce borrowing by consumers and businesses. It may also increase borrowing and boost aggregate demand thus achieving its primary objective – but that increased borrowing may also make the balance sheet of households and firms more susceptible to an external shock.

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