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CIMA S > P3 notes 2 > Flashcards

P3 notes 2 Flashcards

1
Q

Strategic Risk

A

arise from overall strategic position e.g. financial risk. From financing and financial conditions

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2
Q

Operational risk

A

potential losses arising from normal business operations

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3
Q

Downside risk

A

negative

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4
Q

Upside risk

A

benefits

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5
Q

Pure risk

A

loss is only possible outcome

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6
Q

gross risk

A

inherent risk that exists if management take no action

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7
Q

net risk

A

residual risk which still exists given managements actions or current strategies

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8
Q

risks in IS / IT

A

physical threats; virus infection / hacking; technical failure; infrastructure failure; human error; theft of hardware / software; business interruption

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9
Q

Risks of international operations

A

currency; cultural; transit; credit

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10
Q

political risk

A

tax; expropriation; nationalisation; restriction on remittance; insistence on local ownership; riots etc.; reputation damage; discrim against overseas

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11
Q

Strategies for managing political risk

A

outsource country analysis; develop relationships; risk insurance; understand environment; profit sharing with gov; JV or local resources

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12
Q

Risk management cycle

A

1) establish a risk management group and set goals; 2) identify risk areas; 3) understand and assess the scale of risks; 4) develop risk response strategy; 5) implement the strategy and allocate responsibilities; 6) implement and monitor the suggested controls; 7) review and refine the process and do it again

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13
Q

risk response strategy

A

low prob high imp - transfer; high high - avoid; low low - accept; low imp high prob - reduce

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14
Q

COSO 2004 Components

A

internal env; obj setting; event identification; risk assessment; risk response; control activities; info and comms; monitoring

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15
Q

COSO 2004 objectives

A

Strategy; operations; financial reporting; compliance

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16
Q

COSO 2017

A

Gov and cult; strat and obj setting; performance; review and revision; info comms and reporting

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17
Q

obj of corp gov

A

ensure mgmt and reduction of risk and to create clear lines of accountability to all stakeholders

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18
Q

NEDs

A

no exec involvement; provide reassurance to shareholders

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19
Q

NED independence

A

employee in past 5; business relationship in 5; additional remuneration; close family ties with Eds; shares; board more than 10

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20
Q

NED befits

A

objective; external experience; challenge and develop proposals

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21
Q

Audit committee internal audit

A

monitor and review effectiveness of internal audit function; review internal audit plan; review company’s internal control and risk mgmt systems

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22
Q

Audit committee external audit

A

monitor integrity of financial statements; recommend external auditor and approve remuneration; monitor and review auditor; review auditors letter of weakness

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23
Q

UK corp gov code

A

leadership; effectiveness; accountability; directors remuneration; relations with shareholders

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24
Q

CIMA fundamental

A

confidentiality; integrity; prof comp; objectivity; prof behaviours

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25
Q

CIMA ethical conflicts

A

self interest; self-review; advocacy; familiarity; intimidation

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26
Q

Costing systems

A

ABC; standard; target; life-cycle

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27
Q

HRM

A

recruitment policy; contracts; policies and procedures; discipline and reward; performance appraisal and feedback

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28
Q

TP goals

A

goal congruence; divisional autonomy; appraise divisional performance; minimise overall tax liability

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29
Q

approaches to setting TP

A

market price; standard cost; full cost; marginal cost; dual pricing

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30
Q

ROI

A

div profit / TALCL

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31
Q

RI

A

div profit - (div investment x cost of cap)

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32
Q

EVA

A

TBC

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33
Q

Behavioural aspects of trad control mechanisms

A

participation and achievability

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34
Q

NFPIs

A

customer satisfaction; market share; quality; delivery

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35
Q

Performance in not for profit

A

Economy; efficiency; effectiveness

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36
Q

Balanced Scorecard

A

financial; customer; internal; innovation and learning

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37
Q

Modern mgmt. account

A

lean; JIT; TQM

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38
Q

Costs of quality

A

prevention; appraisal; internal failure; external failure

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39
Q

Objectives of internal control

A

reliability of financial reporting; efficiency and effectiveness of operations; compliance with laws and regulations

40
Q

internal control system elements

A

control environment; control procedures

41
Q

Control procedures

A

organisation; authorisation; personnel; supervision; physical; arithmetical and accounting; segregation of duties

42
Q

Types of fraud

A

ghost employees inflated expense claims; misappropriation of assets; collusion with external parties; teeming and lading; pyramid fraud

43
Q

IT strategies

A

IS - long term plan to exploit an entities IS to support bus strat; IT - defines specific systems that are required; IM - method of storage and collection

44
Q

Management information systems

A

Executive information systems; expert systems; decision support systems; strategic enterprise management systs; ERP; transaction processing systems; extranet

45
Q

Costs of information

A

direct data capture; costs of external sources

46
Q

Systems development lifecycle

A

planning; systems analysis; systems design; systems development; implementation; maintenance (post-implementation review)

47
Q

General systems controls

A

password; physical; personnel; environmental; contingency; backups; virus protection; firewalls; spyware

48
Q

application controls

A

data verification; data validation; exception reports

49
Q

Big data 4 vs

A

volume; velocity; variety; veracity

50
Q

big data analytics

A

understand the info; extract knowledge (data mining); identify important data

51
Q

forms of internal audit

A

compliance audit; fraud investigation; value for money audit; management audits; environmental audits; social audits

52
Q

Audit process

A

audit planning and strategy; audit planning - individual assignments; ascertaining and documenting systems / policies / regulations; audit testing; documentation and review

53
Q

audit testing

A

sampling; substantive tests; compliance testing; analytical review; benchmarking

54
Q

Computer assisted audit techniques

A

audit software; test data

55
Q

effective internal audit

A

independent; report findings to audit committee; qualified; appropriate knowledge and understanding; quality control processes; internal audit plan

56
Q

financial risk

A

currency risk; interest rate risk; credit risk

57
Q

currency risk

A

translation risk; economic risk; transaction risk

58
Q

causes of fx rate fluctuations

A

balance of payments; purchasing power parity theory (PPP); interest rate parity theory (IRP)

59
Q

Internal hedging techniques - currency

A

matching receipts; leading and lagging; foreign bank account; invoicing overseas customers in home currency; counter-trading; multilateral netting

60
Q

External hedging techniques - currency

A

forward contracts; money market hedges; options; futures

61
Q

forward contracts - currency

A

premium - deduct the adjustment; discount - add the adjustment

62
Q

forward rate determination - currency

A

interest rates; inflation rates

63
Q

options - currency

A

buy (call); sell (put); fixed amount of currency at a fixed rate on a fixed future date

64
Q

options types - currency

A

over the counter; standard stock exchange options

65
Q

strike price

A

price you end up paying / receiving for the commodity / currency

66
Q

Black-Scholes options pricing model

A

1) intrinsic value of the option (diff between current price and exercise price) 2) time value of the option - depends on: standard deviation in daily value of asset; time period to the expiry of the option; risk free interest rate

67
Q

Futures - currency

A

standardised contract to buy or sell a fixed amount of currency at a fixed rate on a fixed future date

68
Q

IAS39

A

instruments have to be stated at their fair value at year end with movement in fair value going through the P&L account. Fair value is market value

69
Q

Arbitrage

A

trader takes advantage of price differences between two markets

70
Q

Value at risk

A

maximum loss that is acceptable to a company over a given period of time given normal market movements and a given level of prob

71
Q

Value at risk formula

A

value at risk = confidence interval value x standard deviation

72
Q

Interest rate risk

A

loans aren’t reviewed; gearing risk; fixed rate or floating; currency; length and closeness to redemption; key Ts&Cs

73
Q

Internal hedging techniques - interest

A

matching; smoothing; netting

74
Q

External hedging - interest

A

forward rate agreements; futures; interest rate guarantees; interest rate options

75
Q

Forward rate agreements

A

tailored contract to lend or borrow a sum of money in the future at a rate that is fixed today

76
Q

Futures - interest

A

standardised size and traded on organised exchanges

77
Q

Interest rate guarantees

A

OTC and give holder right but not obligation to buy or sell an FRA

78
Q

Exchange traded interest rate options

A

standard size and gives holder right but not obligation to buy or sell a future

79
Q

interest rate swaps

A

exchange of payment obligation to reduce exposure to interest rates

80
Q

Interest rate swaps benefits

A

TBC

81
Q

Accounting rate of retune

A

average annual profits / average investing x 100

82
Q

IRR

A

TBC

83
Q

WACC

A

TBC

84
Q

Dividend growth model

A

TBC

85
Q

Beta factor

A

business risk ( unsystematic - company specific and systematic risk - market specific); financial risk

86
Q

Criticisms of CAPM

A

single period model; assumes no transaction costs for trading securities; calculates beta factors on historic data; risk free rate may change considerably over time; assumes an efficient investment market where it is possible to diversify away risk

87
Q

Adjusted present value

A

TBC

88
Q

Techniques for dealing with risk

A

sensitivity analysis; expected values; certainty equivs; annual equiv cost; decision tree; simulation analysis; payback period; regression analysis; risk adjusted discount rate

89
Q

Certainty equivalent

A

multiply cash flow by factor then get PV and NPV

90
Q

Equivalent annual cost

A

EAC = NPV / annuity factor for the project life

91
Q

Investment real options

A

follow on; delay; abandon

92
Q

goals of public org

A

provide services deemed important by society

93
Q

goals of profit making org

A

maximise wealth of shareholders

94
Q

goals of non-profit making orgs

A

3 Es and value for money

95
Q

Stakeholder types

A

internal; connected; external

96
Q

project stages

A

conceptual; development; construction / manufacturing; control

97
Q

post completion audit

A

TBC

CIMA S (3 decks)

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