Professional
Qualification - Strategic level
Management
Accounting Risk and Control Strategy
First examined in May 2005
Syllabus outline
The syllabus comprises:
Topic |
Study
weighting |
| A |
Management
Control Systems |
15% |
| B |
Risk and
Internal Control |
20% |
| C |
Review and
Audit of Control Systems |
15% |
| D |
Management
of Financial Risk |
30% |
| E |
Risk and
Control in Information Systems |
20% |
Learning Aims
Students should be able to:
- evaluate and advise on management
and internal control systems for a range of risks,
- plan a review process, including
an internal audit, of such systems,
- evaluate alternatives and
advise on the management of financial risks,
- advise on the development
of information systems that support the risk control environment.
Assessment Strategy
There will be a written examination
paper of three hours, with the following sections.
- Section A - 50 marks
A maximum of four compulsory questions, totalling 50 marks,
all relating to a single scenario.
- Section B – 50 marks
Two questions, from a choice of four, each worth 25 marks.
Short scenarios will be given, to which some or all questions
relate.
Learning Outcomes and Syllabus
Content
A - Management Control Systems
- 15%
Learning outcomes
On completion of their studies
students should be able to:
- evaluate and recommend appropriate
control systems for the management of organisations;
- evaluate the control of
activities and resources within the organisation;
- recommend ways in which
the problems associated with control systems can be avoided
or solved;
- evaluate the appropriateness
of an organisation’s management accounting control systems
and make recommendations for improvements.
Syllabus content
- The ways in which systems
are used to achieve control within the framework of the
organisation (e.g. contracts of employment, policies and
procedures, discipline and reward, reporting structures,
performance appraisal and feedback).
- The application of control
systems and related theory to the design of management accounting
control systems and information systems in general (i.e.
control system components, primary and secondary feedback,
positive and negative feedback, open- and closed-loop control).
- Structure and operation
of management accounting control systems (e.g. identification
of appropriate responsibility and control centres within
the organisation, performance target setting, avoiding unintended
behavioural consequences of using management accounting
controls);
- Variation in control needs
and systems dependent on organisational structure (e.g.
extent of centralisation versus divisionalisation, management
through strategic business units).
- Assessing how lean the management
accounting system is (e.g. extent of the need for detailed
costing, overhead allocation and budgeting, identification
of non-value adding activities in the accounting function).
- Cost of quality applied
to the management accounting function and "getting
things right first time".
B - Risk and Internal Control
- 20%
Learning outcomes
On completion of their studies
students should be able to:
- define and identify risks
facing an organisation;
- explain ways of measuring
and assessing risks facing an organisation, including the
organisation’s ability to bear such risks;
- discuss the purposes and
importance of internal control and risk management for an
organisation;
- evaluate risk management
strategies;
- evaluate the essential features
of internal control systems for identifying, assessing and
managing risks;
- evaluate the costs and benefits
of a particular internal control system;
- discuss the principles of
good corporate governance for listed companies, particularly
as regards the need for internal controls.
Syllabus content
- Types and sources of risk
for business organisations: financial, commodity price,
business (e.g. fraud, employee malfeasance, loss of product
reputation), technological, external (e.g. economic and
political), and corporate reputation (e.g. from environmental
and social performance) risks.
- Risks associated with international
operations (e.g. from cultural variations and litigation
risk, to loss of goods in transit and enhanced credit risk).
(Note: No specific real country will be tested).
- Quantification of risk exposures
(impact if an adverse event occurs) and their expected values,
taking account of likelihood.
- Minimising the risk of fraud
(e.g. fraud policy statements, effective recruitment policies
and good internal controls, such as approval procedures
and separation of functions, especially over procurement
and cash).
- Fraud related to sources
of finance (e.g. advance fee fraud and pyramid schemes).
- Minimising political risk
(e.g. by gaining government funding, joint ventures, local
finance).
- The principle of diversifying
risk. (Note: Numerical questions will not be set.)
- Purposes of internal control
(e.g. safeguarding of shareholders’ investment and company
assets, facilitation of operational effectiveness and efficiency,
contribution to the reliability of reporting).
- Issues to be addressed in
defining management’s risk policy.
- Elements in internal control
systems (e.g. control activities, information and communication
processes, processes for ensuring continued effectiveness
etc.).
- Operational features of
internal control systems (e.g. embedding in company’s operations,
responsiveness to evolving risks, timely reporting to management).
- The pervasive nature of
internal control and the need for employee training.
- Costs and benefits of maintaining
the internal control system.
- The principles of good corporate
governance for listed companies (the Combined Code) (e.g.
separation of chairman and CEO roles, appointment of non-executive
directors, transparency of directors’ remuneration policy,
relations with shareholders, the audit committee). Examples
of recommended good practice may include The King Report
on Corporate Governance for South Africa, Sarbanes-Oxley
Act in the USA, The Smith and Higgs Reports in the UK, etc).
- Recommendations for internal
control (e.g. The Turnbull Report).
C - Review and Audit of Control
Systems - 15%
Learning outcomes
On completion of their studies
students should be able to:
- explain the importance of
management review of controls;
- evaluate the process of
internal audit;
- produce a plan for the audit
of various organisational activities including management,
accounting and information systems;
- analyse problems associated
with the audit of activities and systems, and recommend
action to avoid or solve those problems;
- recommend action to improve
the efficiency, effectiveness and control of activities;
- discuss the principles of
good corporate governance for listed companies, for conducting
reviews of internal controls and reporting on compliance;
- discuss the importance of
exercising ethical principles in conducting and reporting
on internal reviews.
Syllabus content
- The process of review (e.g.
regular reporting to management on the effectiveness of
internal controls over significant risks) and audit of internal
controls.
- Major tools available to
assist with such a process (e.g. audit planning, documenting
systems, internal control questionnaires, sampling and testing).
- Detection and investigation
of fraud.
- Role of the internal auditor
and relationship of the internal audit to the external audit.
- Operation of internal audit,
the assessment of audit risk and the process of analytical
review, including different types of benchmarking, their
use and limitations.
- The principles of good corporate
governance for listed companies, for the review of the internal
control system and reporting on compliance.
- Relationship of the above
to other forms of audit (e.g. value-for-money audit, management
audit, social and environmental audit).
- Particular relevance of
the fundamental principles in CIMA’s Ethical Guidelines
to the conduct of an impartial and effective review of internal
controls.
- Application of CIMA’s Ethical
Guidelines on the resolution of ethical conflicts in the
context of discoveries made in the course of internal review.
D - Management of Financial
Risk - 30%
Learning outcomes
On completion of their studies
students should be able to:
- identify and evaluate financial
risks facing an organisation;
- identify and evaluate appropriate
methods for managing financial risks;
- evaluate the effects of
alternative methods of risk management and make recommendations
accordingly;
- calculate the impact of
differential inflation rates on forecast exchange rates;
- explain exchange rate theory;
- recommend currency risk
management strategies.
Syllabus content
- Sources of financial risk,
including those associated with international operations
(e.g. hedging of foreign investment value) and trading (e.g.
purchase prices and sales values).
- Transaction, translation,
economic and political risk.
- Minimising political risk
(e.g. gaining government funding, joint ventures, obtaining
local finance).
- Quantification of risk exposures
and their expected values.
- Operation and features of
the more common instruments for managing interest rate risk:
swaps, forward rate agreements, futures and options. (Note:
Numerical questions will not be set involving FRA’s, futures
or options. See the note below relating to the Black Scholes
model.)
- Illustration and interpretation
of simple graphs depicting cap, collar and floor interest
rate options.
- Theory and forecasting of
exchange rates (e.g. interest rate parity, purchasing power
parity and the Fisher effect).
- Operation and features of
the more common instruments for managing currency risk:
swaps, forward contracts, money market hedges, futures and
options. (Note: The Black Scholes option pricing model will
not be tested numerically, however, an understanding of
the variables which will influence the value of an option
should be appreciated.)
- Principles of valuation
of financial instruments for management and financial reporting
purposes (IAS 39), and controls to ensure that the appropriate
accounting method is applied to a given instrument.
- Internal hedging techniques
(e.g. netting and matching).
E - Risk and Control in Information
Systems - 20%
Learning outcomes
On completion of their studies
students should be able to:
- evaluate and advise managers
on the development of IM, IS and IT strategies that support
management and internal control requirements;
- identify and evaluate IS/IT
systems appropriate to an organisation’s needs for operational
and control information;
- evaluate benefits and risks
in the structuring and organisation of the IS/IT function
and its integration with the rest of the business;
- evaluate and recommend improvements
to the control of information systems;
- evaluate specific problems
and opportunities associated with the audit and control
of systems which use information technology.
Syllabus content
- The importance and characteristics
of information for organisations and the use of cost-benefit
analysis to assess its value.
- The purpose and content
of IM, IS and IT strategies, and their role in performance
management and internal control.
- Data collection and IT systems
that deliver information to different levels in the organisation
(e.g. transaction processing, decision support and executive
informative systems).
- The potential ways of organising
the IT function (e.g. the use of steering committees, support
centres for advice and help desk facilities, end user participation).
- The arguments for and against
outsourcing.
- The criteria for selecting
outsourcing/Facilities Management partners and for managing
ongoing relationships, service level agreements, discontinuation/change
of supplier, hand-over considerations.
- Methods for securing systems
and data back-up in case of systems failure and/or data
loss.
- Minimising the risk of computer-based
fraud (e.g., access restriction, password protection, access
logging and automatic generation of audit trail).
- Risks in IS/IT systems:
erroneous input, unauthorised usage, imported virus infection,
unlicensed use of software, theft, corruption of software.
- Risks and benefits of Internet
and Intranet use by an organisation.
- Controls which can be designed
into an information system, particularly one using information
technology (e.g. security, integrity and contingency controls).
- Control and audit of systems
development and implementation.
- Techniques available to
assist audit in a computerised environment (computer-assisted
audit techniques e.g. audit interrogation software).
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