CIMA'S Official Learning System

Transcription

1 cima CIMA'S Official Learning System Strategic Level Paul M. Collier Sam Agyei-Ampomah ELSEVIER AMSTERDAM BOSTON HEIDELBERG LONDON NEW YORK OXFORD PARIS SAN DIEGO SAN FRANCISCO SINGAPORE SYDNEY TOKYO

2 Contents The CIMA Learning System Acknowledgements How to use the CIMA Learning System Guide to the Icons used within this Text Study technique Management Accounting - Risk and Control Strategy Syllabus xv xv xv xvi xvii xx 1 Introduction to Risk and Control 1 Learning Outcomes Introduction The emergence of risk, governance and control What is corporate governance?, What is risk management? What is internal control? What is audit? A model of governance, risk and control Fraud, information systems and financial risk Summary 7 2 Management Control Theory 9 Learning Outcomes Introduction Organisation theory Systems theory Environmental change Open and closed systems Organisational control Target-setting Operations Control Corrective action Feedback Feedforward Standards for control Management control Anthony's theory of control Otley and Berry's model of control Simon's strategy, control and learning The example of low cost airlines 19 in

3 iv MANAGEMENT ACCOUNTING - RISK AND CONTROL STRATEGY h Organisational structure 19 ^ Functional structure 20 Q Divisionalised structure 20 u Matrix structures Network structures Responsibility centres Divisional performance management Controllability Shareholder value and value-based management Alternative perspectives on management control The economic-rational perspective Natural and non-rational perspectives The interpretive perspective and socially constructed reality Radical or critical perspective Pluralist approaches to alternative perspectives Alternative perspectives applied to CIMA students Summary 27 Revision Questions 31 Solutions to Revision Questions 35 3 Accounting Control and Behavioural Consequences Learning Outcomes Introduction Accounting controls Standard costing Capital investment appraisal Overhead allocation Transfer pricing Budgeting Beyond Budgeting Budgetary control and variance analysis New manufacturing methods and the management accounting response Just in Time Total Quality Management Cost of quality Emerging management accounting techniques Strategic management accounting Life cycle costing Target costing Kaizen Lean management accounting The impact of changes in business practices on accounting controls Non-financial performance measurement

4 MANAGEMENT ACCOUNTING - RISK AND CONTROL STRATEGY 3.7 Consequences of accounting control and dysfunctional behaviour Dysfunctional consequences of budgeting Dysfunctional consequences of non-financial performance measures The example of TNA Summary 59 Revision Questions 63 Solutions to Revision Questions 67 n O z Corporate Governance and the Audit Committee 71 Learning Outcomes Introduction Models of corporate governance Governance, risk management and internal control 7'4 4.4 Historical perspective Corporate governance developments in the UK Review of the Combined Code International developments The United States South Africa Other international developments Basel Committee Corporate governance Principles of corporate governance Directors Remuneration Accountability and audit Relations with shareholders Institutional shareholders Disclosure Board effectiveness Roles of Chairman and Chief Executive Non-executive directors Remuneration committee Nomination committee Audit committees and the Combined Code Smith Guidance Review of Turnbull Guidance Role of audit committee Audit committees and internal control Audit committees and the external auditor Reviewing the effectiveness of internal control Board responsibility Board annual assessment Checklist for Audit Committee's Assessment of Internal Control 92

5 vi MANAGEMENT ACCOUNTING - RISK AND CONTROL STRATEGY h Benefits of good corporate governance 93 j±! 4.16 Enterprise governance 93 O 4.17 Summary 94 Revision Questions 99 Solutions to Revision Questions Risk and Risk Management 105 Learning Outcomes Introduction Risk Types of risk Business or operational risk Financial risk Environmental risk Reputation risk International risk Economic risk Political risk, Threat, uncertainty and opportunity Risk as hazard or threat Risk as uncertainty Risk as opportunity Risk:.from threat to opportunity Drivers of value and risk A wider view of risk Managers and risk Risk and organisational culture Risk and national culture Risk and society Implications for risk management Risk appetite Risk culture Risk thermostat Risk management Enterprise risk management Risk management and shareholder value Risk management in the public sector Benefits of risk management Risk management strategy Risk management roles and responsibilities Risk management cycle Risk management process An approach to managing risk Risk assessment Risk identification Methods of identifying risk Risk description 125

6 MANAGEMENT ACCOUNTING - RISK AND CONTROL STRATEGY vii Risk estimation Methods of estimating risk Critique of methods Risk mapping: the likelihood/consequences matrix The Risk Register Risk evaluation 5.15 Risk reporting 5.16 Risk treatment (or risk response) Risk mapping and risk response Portfolio Insurance Derivatives and hedging Disclosure 5.17 Residual risk reporting 5.18 Summary Appendix A: The case of Northen Rock a failure of risk management Appendix B: How risks are reported in annual reports: Three international examples Revision Questions Solutions to Revision Questions Internal Control Learning Outcomes 6.1 Introduction 6.2 Internal control 6.3 Internal control system 6.4 COSO model of internal control 6.5 Internal control and the Combined Code Internal control and Sarbanes-Oxley 6.6 Role of the board in relation to internal control 6.7 Classification of controls Financial controls Non-financial quantitative controls Non-financial qualitative controls 6.8 The changing role of management accountants 6.9 Accounting controls Cash Debtors Inventory Investments and intangibles Fixed assets Creditors Loans Income and expenses Payroll controls Personnel-related expenses n O m z

7 viii MANAGEMENT ACCOUNTING - RISK AND CONTROL STRATEGY 6.10 H u Limitations of internal control Cost-benefit of internal control Summary Revision Questions Solutions to Revision Questions Internal Audit and the Auditing Process Learning Outcomes Introduction Audit Types of audit Internal auditing Need for internal audit Scope of internal audit Head of internal audit Systems-based auditing Risk-based internal auditing Internal audit and enterprise-wide risk management Different types of risk in auditing Risk assessment in auditing Intuitive or judgemental risk assessment Risk assessment matrix Risk ranking Risk management in auditing Audit planning Audit testing and statistical sampling Analytic review Ratio analysis Benchmarking Other methods of internal audit Internal control questionnaires Evaluation of audit findings Audit working papers Internal audit reporting Professional ethics Fundamental principles Conceptual framework Resolution of ethical conflicts Case study: Ethics and CIMA The effectiveness of internal audit Summary Appendix: Risk, control and internal audit: A case study of ABC Revision Questions , Solutions to Revision Questions

8 MANAGEMENT ACCOUNTING - RISK AND CONTROL STRATEGY ix 8 Information Systems and Systems Development Learning Outcomes 229 p^j 8.1 Introduction Information and information systems Information strategies Information systems strategy Information technology strategy Information management strategy Linking information strategies Cost-benefit of information Methods of data collection Methods of presenting management information Periodic reports Briefing book Types of IS Transaction processing systems Management information systems Enterprise resource planning system Strategic enterprise management Decision support systems Executive information systems Expert systems Information and the web Internet, Intranets and extranets E-commerce IS outsourcing and facilities management IT and shared services centres IS development Systems design and approval Systems development controls Systems development auditing Systems implementation Post-implementation review IT structure and support services Information Technology Infrastructure Library Summary 243 Revision Questions 245 Solutions to Revision Questions Information Systems Control and Auditing 253 Learning Outcomes Introduction Information security Internal controls in an IT environment CobiT SAC and esac 258

9 x MANAGEMENT ACCOUNTING - RISK AND CONTROL STRATEGY Comparing the models 258 \±d IT control objectives 259 O 9.4 Control strategies and classifications 260 u 9.5 General controls Personnel controls Logical access controls Facility controls Business continuity Application controls Input controls Processing controls Output controls Software control and software piracy Network controls Firewalls Data encryption Authorisation Virus protection Prevention and detection of hacking Auditing in an information systems environment Auditing computer systems Computer assisted audit techniques Techniques used to review system controls Test data Embedded audit facilities Techniques used to review actual data Audit interrogation software Resident audit software Integrated audit monitors Simulation Control self-assessment Auditing system's maintenance Summary 270 Revision Questions 273 Solutions to Revision Questions Fraud 277 Learning Outcomes Introduction Fraud The opportunity for fraud Indicators of fraud risk Fraud risk management strategy Fraud prevention Anti-fraud culture Risk awareness 284

10 MANAGEMENT ACCOUNTING - RISK AND CONTROL STRATEGY x i Whistle blowing 284 Q Sound internal control systems Identifying fraud Responding to fraud Fraud using computer systems Management fraud Other types of fraud Summary 287 Revision Questions 289 Solutions to Revision Questions Introduction to Risk Management and Derivatives 293 Learning Outcomes Introduction Recent developments infinancialmarkets The treasury function Cost centre or profit centre Overview offinancialriskmanagement Why do companies manage financial risk? Thefinancialrisk management process Introduction to derivatives Forward contracts Futures contracts Swaps Options Uses of derivatives Derivatives and financial reporting Summary 314 Revision Questions Interest Rate Management 317 Learning Outcomes Introduction Sources of interest-rate risk Fixed versus floating interest rates Internal hedging techniques Derivatives (external) hedging techniques Interest-rate swaps Forward-rate agreements Interest-rate futures Interest-rate options Swaptions Selecting a hedging method 331

11 xii z LU h- o u MANAGEMENT ACCOUNTING - RISK AND CONTROL STRATEGY 12.6 Summary 334 Revision Questions 335 Solutions to Revision Questions Foreign Exchange: Relationships and Risks Learning Outcomes Introduction The foreign exchange market Exchange rates The meaning of spot and forward rates Theoretical foreign exchange relationships Interest-rate parity Purchasing power parity The Fisher effect The international Fisher effect Expectations theory Implications of these theories Foreign exchange risk exposure Transaction risk Economic risk Translation risk Attitudes to risk Political risk Managing political risk Summary Revision Questions Solutions to Revision Questions Foreign Exchange Risk Management Learning Outcomes Introduction Hedging exchange-rate risk Internal hedging techniques Invoicing in the home currency Bilateral and multilateral netting Leading and lagging Matching Restructuring External hedging techniques Forward markets Money market hedge Futures Options Selecting a hedging method Currency swaps Cross-currency hedging

12 MANAGEMENT ACCOUNTING - RISK AND CONTROL STRATEGY xiii 14.8 Summary 396 g Revision Questions 397? Solutions to Revision Questions 405 Zn Guidance on Examination Preparation 421 Revision Questions 429 Solutions to Revision Questions 447 November 2007 Examinations 485 Index 519