ICAP Strategic Case Study cheat sheet

PESTLE scans the macro-environment (Political, Economic, Social, Technological, Legal, Environmental); Porter's Five Forces analyses the industry itself, so the two tools answer different questions.

Porter's Five Forces: competitive rivalry, threat of new entrants, threat of substitutes, buyer bargaining power, supplier bargaining power; the stronger the combined forces, the lower the sustainable profitability of the industry.

Mendelow's power/interest matrix: high power and high interest = key players (manage closely); high power, low interest = keep satisfied; low power, high interest = keep informed; low/low = minimal effort.

BCG matrix: x-axis relative market share, y-axis market growth; stars (high/high), cash cows (high share, low growth), question marks (low share, high growth), dogs (low/low).

Ansoff matrix orders options by risk: market penetration (lowest) < product development and market development < diversification (new product into new market, highest risk).

VRIN test for sustainable advantage: a resource must be Valuable, Rare, Inimitable and Non-substitutable; failing any criterion gives at best temporary advantage.

Industry life cycle stages are introduction, growth, maturity and decline; rivalry usually intensifies in maturity as growth slows and firms compete for existing share.

Porter's value chain: primary activities are inbound logistics, operations, outbound logistics, marketing and sales, and service; support activities are firm infrastructure, human resource management, technology development and procurement.

The SAF framework evaluates options on Suitability (does it address the strategic position and close the gap?), Acceptability (risk, return, stakeholder reaction) and Feasibility (resources, competences, finance).

Porter's generic strategies are cost leadership, differentiation and focus (cost focus or differentiation focus); a firm that achieves none of these is 'stuck in the middle' and earns below-average returns.

McKinsey 7S - strategy, structure, systems, style, staff, skills, shared values - tests internal alignment: changing one element requires the others to move with it.

Lewin's change model: unfreeze, move (change), refreeze; force field analysis weighs driving forces against restraining forces before implementation.

Kaplan and Norton's balanced scorecard measures four perspectives: financial, customer, internal business process, and learning and growth, each linked to objectives, targets and initiatives.

Kotter's eight-step model opens with creating a sense of urgency and forming a guiding coalition, and closes with consolidating gains and anchoring new approaches in the culture.

Greiner's growth model: successive evolutionary phases of growth end in revolutions described as crises of leadership, autonomy, control and red tape.

Mintzberg separates deliberate strategy (intended and realised) from emergent strategy (pattern emerging from actions); realised strategy = deliberate strategy + emergent strategy.

IFRS 15 five-step model: identify the contract; identify separate performance obligations; determine the transaction price; allocate it to the obligations; recognise revenue when (or as) each obligation is satisfied.

IAS 36: recoverable amount is the higher of fair value less costs of disposal and value in use; impairment arises when carrying amount exceeds recoverable amount.

IFRS 16 lessee accounting: recognise a right-of-use asset and a lease liability at the present value of lease payments, then charge depreciation separately from interest.

IAS 37: recognise a provision only where there is a present obligation from a past event, a probable outflow of resources and a reliable estimate; a possible obligation is a contingent liability, disclosed but not recognised.

IAS 38: research expenditure is expensed; development expenditure is capitalised only if technical feasibility, intention and ability to complete, probable economic benefits, adequate resources and reliable measurement are all demonstrated.

IAS 12: differences between accounting carrying amounts and tax bases are temporary differences giving rise to deferred tax; deferred tax assets are recognised only to the extent that recovery is probable.

IFRS 3 acquisition method: goodwill = consideration transferred + non-controlling interest + previously held interests − fair value of identifiable net assets acquired.

IAS 10: adjusting events provide evidence of conditions existing at the reporting date and require adjustment; non-adjusting events are disclosed only if material.

WACC = (E/V × Ke) + (D/V × Kd × (1 − t)), with V = E + D, market-value weights, and the cost of debt taken after tax.

CAPM: Ke = Rf + beta × (Rm − Rf); only systematic risk is priced because unsystematic risk can be diversified away.

Gordon growth model: P0 = D1 / (Ke − g), and sustainable growth g = b × r, where b is the retention ratio and r the return earned on reinvested funds.

NPV decision rule: accept projects with a positive NPV; accept under IRR only when IRR exceeds the cost of capital; NPV is preferred because it measures absolute value added and avoids multiple-IRR problems.

Pecking order theory: internal funds first, then debt, with new equity issued only as a last resort - the reverse of the static trade-off ordering.

Cash conversion cycle = inventory days + trade receivable days − trade payable days; shortening the cycle releases cash for other uses.

Modigliani–Miller with corporate tax: firm value increases with debt by the present value of the tax shield (t × D) in the absence of financial distress and agency costs.

Adjusted present value = base-case NPV discounted at the all-equity rate + present value of financing side effects such as the interest tax shield and issue costs.

Audit risk = risk of material misstatement (inherent risk × control risk) × detection risk; detection risk is the only component the auditor controls, by varying the nature, timing and extent of procedures.

ISA 315 requires the auditor to understand the entity, its environment and its system of internal control in order to identify and assess risks of material misstatement.

Performance materiality is set below overall materiality to reduce to an appropriately low level the probability that aggregate uncorrected and undetected misstatements exceed materiality.

ISA 705 modifications: qualified opinion for material but not pervasive misstatement or scope limitation; adverse for material and pervasive misstatement; disclaimer where evidence is pervasively unavailable.

COSO internal control framework components: control environment, risk assessment, control activities, information and communication, and monitoring activities.

Risk response options: treat (reduce), transfer, tolerate (accept) and terminate (avoid); residual risk is the exposure remaining after controls are applied.

Fraud triangle conditions are incentive/pressure, opportunity and rationalisation; ISA 240 requires professional scepticism and presumed revenue recognition fraud risk.

Three lines model: management as the first line, risk and compliance functions as the second, and internal audit as the independent third line reporting assurance to the board or audit committee.

In Pakistan the Companies Act 2017 governs incorporation, directors' duties, financial reporting, audit and statutory filing, administered by the Securities and Exchange Commission of Pakistan (SECP).

ICAP is constituted under the Chartered Accountants Ordinance 1961 and regulates the accountancy profession, including admission, examination and disciplinary powers.

Tax depreciation (capital allowances) generally differs from accounting depreciation, creating a temporary difference recognised as deferred tax under IAS 12.

Sales tax mechanics: a registered person charges output tax on taxable supplies and deducts input tax on purchases, remitting the net amount to the authority.

Withholding tax is deducted at source by a withholding agent, who must deposit it with the revenue authority and is personally liable for failure to collect or deposit.

Transfer pricing rules apply the arm's length principle to transactions between associated enterprises and normally require contemporaneous documentation of the pricing method used.

Thin capitalisation rules restrict the deductibility of interest on foreign debt where the debt exceeds a permitted multiple of equity, treating the excess as non-deductible.

Business losses are generally carried forward for a limited number of tax years, and the benefit is typically restricted where there is a substantial change in ownership of the entity.

Agency theory: separation of ownership (principals/shareholders) from control (agents/directors) creates agency costs - monitoring costs, bonding costs and residual loss.

IESBA five fundamental principles: integrity, objectivity, professional competence and due care, confidentiality, and professional behaviour.

Ethics code threat categories: self-interest, self-review, advocacy, familiarity and intimidation; each threat must be eliminated or reduced to an acceptable level by safeguards.

Corporate governance principles cover shareholder rights, equitable treatment of shareholders, the role of stakeholders, disclosure and transparency, and board responsibilities.

Board committees commonly comprise audit, remuneration, nomination and risk committees, chaired by and composed mainly of independent non-executive directors.

Ethical theories: utilitarianism judges actions by their consequences (greatest good), deontology by duties and rules, and virtue ethics by the character of the decision-maker.

The triple bottom line reports people, planet and profit; integrated reporting connects the six capitals (financial, manufactured, intellectual, human, social and relationship, natural) to value creation.

Whistleblowing is defensible where the wrongdoing is serious, internal channels have been exhausted and disclosure is proportionate; confidentiality may be breached only where required by law or permitted by the professional code.