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ACCA P1

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									Professional Accountant

    ACCA Paper P1
                             Format of the Paper

    Section A: 50 marks
    • A number of questions relating to a single
      scenario


    Section B: 50 marks
    • Two out of three 25 mark questions




2
                          Core Areas of Syllabus

    •   Governance and responsibility           35%

    •   Internal control and review             20%

    •   Identifying, assessing & controlling risk 25%

    •   Professional values and ethics          20%



3
                          Syllabus Summary

          Governance & responsibility



    Internal control &
                           Risk management
          review



          Professional values & ethics


4
    Chapter   1   Theory of governance




5
    Session Content




6
    Company ownership and
                  control




7
                      Definition of corporate
                                 governance
     “ the system by which companies are
            directed and controlled “
    “ the system by which companies are
     directed and controlled in the interests
    of shareholders and other stakeholders”




8
                                  Key concepts
    •   Fairness
    •   Openness / transparency
    •   Independence
    •   Probity / honesty
    •   Responsibility
    •   Accountability
    •   Reputation
    •   Judgement
    •   Integrity

9
     Operational areas affected by
            corporate governance




10
     Agency theory




11
     Agency theory and corporate
                     governance




12
               Key concepts of agency theory
     •   Agent employed by principal
     •   Agency = relationship
     •   Agency costs
     •   Accountability
     •   Fiduciary responsibility
     •   Stakeholders
     •   Objectives


13
                 Cost of agency relationships
     Examples include:
     • Incentive schemes for directors
     • Providing and reviewing data
     • Meetings
     • Accepting higher risks
     • Monitoring behaviour
     • Residual loss


14
                     Agency problem resolution
                                    measures
     •   Meeting – Principal/key investors
     •   Voting at AGM
     •   Resolutions at AGM
     •   Accepting takeovers
     •   Divestment of shares




15
                         Agency accountability
     • Act in shareholders‟ interests

     • Provide good information

     • Operate within legal structure




16
     Transaction cost theory –
         external transactions




17
     Transaction costs can be
             further impacted




18
     Stakeholder theory




19
     Chapter   2   Development of corporate governance




20
     Session Content




21
     Development of corporate
           governance codes




22
                            UK Combined Code
     •   Directors
     •   Director‟s remuneration
     •   Relations with shareholders
     •   Accountability and audit
     •   Institutional investors




23
     UK Combined Code cont.




24
                        Reasons for developing a
                              governance code
     •   Reduce fraud / corruption
     •   Poor governance = poor performance
     •   Investors will pay a premium
     •   Decision factor for institutional investors
     •   Reduces risk




25
                     Practical problems with a
                             governance code
     • Reactionary process
     • Impact varies
     • Restricts individual decision-making
       power
     • Bureaucracy
     • Harms competitiveness
     • Cannot stop fraud


26
     Chapter   3   The board of directors




27
                           Session Content




     Essential text: p52
28
                Development of governance
                regarding board of directors
     • Cadbury Report (1992)
     • Higgs Report (2003)
     • Tyson Report (2003)




29
     Board structures




30
                Advantages of two-tier board
     • Clear separation
     • Implicit shareholder involvement
     • Wider stakeholder involvement
     • Independence of thought, discussion &
       decision
     • Direct power over management




31
                   Problems with two-tier board
     •   Dilution of power
     •   Isolation of supervisory board
     •   Agency problems between boards
     •   Bureaucracy
     •   Reliant upon relationship between
         chairman & CEO




32
     Roles of NEDS




33
     Threats to independence




34
                       NEDs on the board
     Advantages:
     • Monitoring
     • Expertise
     • Perception
     • Communication
     • Discipline

     Disadvantages:
     • Unity
     • Quality
     • Liability

35
     Chairman & CEO




36
                   Splitting role of Chairman &
                                           CEO
     Reasons for:
     • Representation
     • Accountability
     • Temptation

     Reasons against:
     • Unity
     • Ability
     • Human nature

37
     Induction and CPD




38
     Legal and regulatory framework




39
     Conflict of interest




40
     Performance evaluation




41
     Board committees




42
     Chapter   4   Directors‟ remuneration




43
     Session Content




44
     Components of directors‟
       remuneration package




45
     Directors‟ remuneration – other
                             issues




46
     Chapter   5   Relations with
                   shareholders and
                   disclosure




47
     Session Content




48
                            Institutional investors
     • Types
     • Importance
     • Potential problems




49
     Potential problems




50
                             Institutional investors
     •   Types
     •   Importance
     •   Potential problems
     •   Solution: shareholder activism
     •   Institutional shareholder intervention




51
                        Institutional shareholder
                          intervention conditions
     •   Strategy
     •   Operational performance
     •   Acquisitions and disposals
     •   Remuneration policy
     •   Internal controls
     •   Succession planning
     •   Social responsibility
     •   Failure to comply with relevant codes
52
     Disclosure – general principles




53
     Disclosure: best practice




54
     Mandatory vs voluntary
                 disclosure




55
     Voluntary disclosure




56
     Chapter   6   Corporate governance
                   approaches




57
     Session Content




58
     Approaches to corporate
                governance




59
                         In favour of rules-based
                                         approach
     Organisation‟s perspective:
     • Clarity of requirements
     • Standardisation for all companies
     • Binding requirements

     Wider stakeholder perspective:
     • Standardisation across all companies
     • Sanction
     • Greater confidence in compliance

60
                Against a rules-based approach
     Organisation‟s perspective:
     • Exploitation of loopholes
     • Underlying belief
     • Flexibility is lost
     • Checklist approach

     Wider stakeholder perspective:
     • „Regulation overload‟
     • Legal costs
     • Limits
     • „Box-ticking‟

61
     SOX / Sarbox




62
                Family structure(vs joint stock)
     Benefits:
     • Fewer agency costs
     • Ethics
     • Fewer short-term decisions

     Problems:
     • Gene pool
     • Feuds
     • Separation

63
                  Insider-dominated structure(vs
                            outsider-dominated)
     Benefits:
     • Fewer agency problems & costs
     • Lower cost of capital
     • Greater access to capital
     • Less short-termism
     • Greater input to decisions
     Problems:
     • Lack of minority shareholder protection
     • Opaque operations
     • Misuse of power
     • Market does not decide or govern

64
     International convergence




65
     Chapter   7   Corporate social
                   responsibility and
                   corporate governance




66
     Session Content




67
     Corporate social responsibility
                            (CSR)




68
                                 Nature of CSR
     Carroll defined CSR as including 4 points:
     • Economic responsibility
     • Legal responsibility
     • Ethical responsibility
     • Philanthropic responsibility




69
                         Social responsiveness
     •   Reaction
     •   Defence
     •   Accommodation
     •   Proaction




70
                      Stakeholder classifications
     •   Internal & external
     •   Narrow & wide
     •   Primary & secondary
     •   Active & passive
     •   Voluntary & involuntary
     •   Legitimate & illegitimate



71
                        Stakeholder mapping:
                                  Mendelow
             Low       Level of interest      High
       Low


             Minimal effort     Keep informed
     Power


             Keep satisfied     Key players

      High



72
                    Organisational motivations
                       regarding stakeholders
     Instrumental view:
     • To not do so would have an impact on
       primary objectives of organisation
     • Devoid of any moral obligation

     Normative view:
     • Moral duty towards others
     • Act in general sense of what is right

73
     Chapter   8   Internal control systems




74
     Session Content




75
               Objectives of an internal control
                                        system
      To ensure as far as practicable:
     - Orderly and efficient conduct, including
       adherence to internal policies
     - Safeguarding assets
     - Prevention / detection of fraud & error
     - Accuracy and completeness of records
     - Timely preparation of financial information




76
     Sound control systems




77
     Roles




78
              Elements of an effective internal
                               control system
     •   Control environment
     •   Risk assessment
     •   Control activities
     •   Information and communication
     •   Monitoring




79
     Management levels




80
     Chapter   9   Audit and compliance




81
     Session Content




82
     Internal audit




83
                    Factors affecting need for
                                 internal audit
     • Scale, diversity and complexity of
       company‟s activities
     • Number of employees
     • Cost / benefit
     • Changes in organisational structures
     • Changes in key risks
     • Problems with existing internal control
       systems
     • Recent „events‟
84
     Risks if auditors are not
                 independent




85
     Threats to independence




86
     Audit committee roles




87
                         Audit committee: internal
                                           control
     •   Review the company‟s internal financial
         controls
     •   Review all the company‟s internal control
         and risk management systems
     •   Give approval to internal control and risk
         management statements in annual report
     •   Receive reports from management about
         effectiveness of control systems
     •   Receive reports on tests carried out on
         controls by internal auditors

88
     Audit committee: internal audit




89
               Audit committee duties: external
                                          audit
     •   Recommendation on appointment, re-
         appointment and removal of auditors
     •   Oversee selection process
     •   Approve terms of engagement and
         remuneration
     •   Ensure independence and objectivity
     •   Review scope of audit
     •   Ensure appropriate plans at start of audit
     •   Carry out post-completion audit review

90
     Chapter   10   Risk and the risk
                    management process




91
     Session content




92
     Why incur risk ?




93
     Risk management process




94
     Enterprise risk management




95
     Strategic and operational risk




96
                     Risks facing a business (ACCA‟s)

     •                             Risks



                                                 Health &      Technological
 Market           Credit       Liquidity         Safety /
                                               Environmental




                                           Business
          Legal       Reputation                          Derivatives
                                            probity




97
     Sector-specific risks




98
     Impact on stakeholders




99
      Analysing risks




100
      Risk mapping




101
      Role of the board




104
      Risk attitudes




105
      Risk committee




106
      The risk manager




107
      Risk awareness




108
      Embedding risk in systems




109
      Embedding risk in culture




110
      Risk management strategies -
                            TARA




111
      Risk avoidance and retention




112
      Diversifying / spreading risk




113
      Types of diversification




114
      Risk auditing




115
      Stages of a risk audit




116
      External reporting




117
      Chapter   12   Ethical theories




118
      Session content




119
                          Approaches to ethics
      • Absolutism vs relativism

      • Dogmatic vs pragmatic




120
      Approaches to ethics




121
                                    Kohlberg‟s CMD
      3. Post-conventional
        3.2 Universal ethical principles
        3.1 Social contract and individual rights
      2. Conventional
        2.2 Social accord and system maintenance
        2.1 Interpersonal accord and conformity
      1. Pre-conventional
        1.2 Instrumental purpose and exchange
        1.1 Obedience and punishment
122
      Gray, Owen and Adam‟s: Seven
      positions on social responsibility




123
      Variables determining cultural
                            context




124
      Ethical stances




125
      Chapter   13   Professional and
                     corporate ethics




126
      Session content




127
      Profession vs professionalism




128
      Profession




129
      Accountants‟ role and influence




130
                             Limits on influence of
                                        accounting
      •   Extent of organisational reporting
      •   Conflicts of interest in selling services
      •   Long-term relationship with clients
      •   Overall size of accountancy firms
      •   Focus on growth and profit




131
      Influence




132
      Corporate ethics




133
      Professional practice and codes
                              of ethics




134
                   ACCA professional code of
                                      ethics
      •   Integrity
      •   Objectivity
      •   Professional competence
      •   Confidentiality
      •   Professional behaviour




135
      Conflicts of interest and ethical
                               threats




136
      Approaches to conflict
                 resolution




137
                           Ethical conflict resolution
      1.   Gather facts
      2.   Establish ethical issues
      3.   Refer to fundamental principles
      4.   Flow internal procedures
      5.   Investigate alternative courses of action
      6.   Consult within firm
      7.   Obtain advice from institute
      8.   Withdraw from role


138
      Chapter   14   Ethical decision making




139
      Session content




140
      Applying ethical decision
                        making




141
                                 American Accounting
                                   Association Model
      7 questions in the model:
      1. What are the facts of the case ?
      2. What are the ethical issues of the case ?
      3. What are the norms, principles and values related to
         the case?
      4. What are the alternative courses of action ?
      5. What is the best course of action that is consistent
         with the norms, principles and values identified in
         step 3 ?
      6. What are the consequences of each possible course
         of action ?
      7. What is the decision ?
142
                    Tuckers 5 question model
      The decision should be:
      • Profitable
      • Legal
      • Fair
      • Right
      • Sustainable or environmentally sound



143
      Ethical decision making




144
      Ethical behaviour




145
                Factors affecting moral intensity

      •   Concentration of effort
      •   Proximity
      •   Temporal immediacy
      •   Magnitude of consequence
      •   Social consensus
      •   Probability of effect



146
      Chapter   15   Social and environmental
                     issues




147
      Session content




148
      Sustainability




149
                                         Definitions
      • Sustainable development is
        development that meets the needs of
        the present without compromising the
        ability of future generations to meet their
        own needs
      • Sustainability is an attempt to provide
        the best outcomes for the human and
        natural environments both now and into
        the indefinite future

150
      Accounting for sustainability




151
                                   Footprints
      • Environmental footprint:
        – Resource consumption
        – Pollution emissions
        – Measurement


      • Social footprint:
        – Social capital
        – Human capital
        – Constructed capital

152
      Management systems




153
      Social and environmental audit




154
      Elements of a social audit




155

								
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