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TOPCIMA - Risk and Control Strategy
Paper 3
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Syllabus summary Review and Audit of Control Systems Information
Risk and Internal Control Review and Audit of Control Systems Financial Risk Information Systems Management Control Systems Notes ref: p2
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Risk strategy process Measure and Assess Risk Identify Risk
Evaluate Risk Strategy Notes ref: p9
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Types of Risk Types of Risk Political, Legal and Regulatory Economic
Environmental Risk Financial Risk Technology Risk Business Risk Reputation Risk International Risk Fraud Notes ref: p10 Notes ref: p10
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Measuring and Assessing Risks
Identifying Measuring Prioritising PEST/SWOT External advisors Interviews/ Questionnaires Internal audit Brainstorming Expected values Volatility Risk mapping Notes ref: p13-15
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Risk Mapping Impact/Consequences Probability/ Likelihood Low High High
Notes ref:p15
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Management of Risks Avoid risk Transfer risk Pool risks
Diversification Risk reduction Hedging risks Risk sharing Notes ref:p17-18
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Systems and control Systems Theory Control Theory Management Control
Feedback Feed forward Management Control Structure Contracts Policies and procedures Rewards/discipline Performance appraisal Management Accounting Control Systems Responsibility and performance appraisal Problems of systems Notes ref: p21
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Systems Theory Input Process Output Sub Systems Interaction Objective
Control Types Notes ref: p
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Feedback Input Process Output Control Action Comparison Measure
Standard Notes ref: p24
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Feedforward Input Process Output Implementation of Action
Predictive Model of Process Measure of Output Determination of cause of deviation. Generation and evaluation of alternative corrective actions. Objective Notes ref: p25
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Control Methods Organisation structure Contracts of employment
Policies Discipline and reward system Performance appraisal and feedback Notes ref: p26
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Management Accounting Control Systems
Areas of Control Performance Targets Responsibility Financial and Non-Financial Please animate: areas.. Responsibility Performance Financial.. Notes ref: 27-30
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The Balanced Scorecard
Financial Customer Internal Innovation and Learning Notes ref: 29
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Management Accounting Control System
Areas of Control Performance Targets Problems Responsibility Financial and Non-Financial Behavioural Factors Please animate: areas.+ responibility+performance+financial = all together Problems behavioural Notes ref: 27-30
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Features of Internal Control Systems
What are They? Features of Internal Control Systems Costs vs Benefits Can we make the shape round “internal control” just an oval, not a star ! Notes ref: p31
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COSO Elements Control environment Risk assessment Control activities
Information and communication Monitoring Notes ref: p33-35
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Fraud Fraud What is it? Risk Indicators Fraud Risk Management
Notes ref: p37
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Opportunity for Fraud Dishonesty Opportunity Motive Animate one by one
Notes ref: p38-39
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Fraud Risk Management Strategy
Prevention Identifying a Fraud Responding to a Fraud Anti fraud culture Risk awareness Whistle blowing Internal controls Regular checks Warning signals Whistleblowers Notes ref: p40-42
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Corporate governance – Principles of the Combined Code
Directors Director’s remuneration Relations with shareholder Accountability and audit Institutional investors Notes ref: p48-49
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Fundamental Principles of CIMA Ethics
Integrity Objectivity Professional care and due competence Confidentiality Professional and technical standards Notes ref: 54
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Management Review of Controls
Session Content Management Review of Controls Internal Audit Structure Types of Audit Scope Animate: Management review.. Internal audit Struccture+scope+external+standard Types of External Auditors Standard of Work Notes ref: p57
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Types of Audit Work Social and Management Environmental Economy
Value for Money Social and Environmental Management Economy Efficiency Effectiveness Animate: Value for money Economy + eff + eff Social management Notes ref: p61-63
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Session Content Audit Process Risk-Based Approach Planning Testing
Systems Investigation Control Assessment Analytical Review Testing Sampling Analytical Review Reporting Recommend Actions Risk-Based Approach Notes ref: p65
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Audit Process Planning Testing Agree the Objectives of the Audit
Plan the Audit Find Out About Systems and Controls Planning Confirm the Operation of the System Assess if Controls are Adequate Test Compliance with Controls Testing Test Application of Controls Review, Report and Recommend Notes ref: p66
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Audit Process Cont. Reporting and Testing Recommendations Planning
Risk based approach Systems investigation ICQs and ICEQs Assessing controls Substantive vs compliance Sampling Analytical review Audit report Recommendations Notes ref: p 67-74
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Types of Financial Risk
Session Content Definition of Financial Risk Types of Financial Risk Credit Risk Interest Risk Currency Risk Political Risk Animate: Definition Types Credit Interest etc Notes ref: p83
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Interest Risk Fixed rate Floating rate Refinancing Notes ref: p86-7
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Currency Risk Types Translation risk Transaction risk Economic risk
Notes ref: p88-89
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Transaction Risk Management
Internal Home Currency Leading/Lagging Matching/Netting External Forward Contracts Money Market Hedges Currency Futures Currency Options Currency/Interest/Inflation Links Between Notes ref: p91
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External Hedging Techniques
Forward Money Market Hedge Future Options Fixed date Fixed rate Tailor made Contractual obligation Fix the rate Bring forward conversion of currency to today Create matching asset/ liability Standardised contract Tradable Range of future dates Effectively fix the rate Insurance Downside risk covered by option Standardised contract Tradable Notes ref: p95-103
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Predicting Future Spot Rates
Predicting Long Term Future Spot Rates PPP IRP 1 + if 1 + ih 1 + ints f 1+ ints h Spot to x Spot to x Notes ref: p
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Interest rate risk management
Internal Smoothing Matching Netting External FRAs IRGs Futures Options Swaps Animate: Interest rate risk mgt Internal + bullets all together External + all together Notes ref: p111
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Summary of Interest Rate Risk Instruments
Exchange Traded Instruments OTC Instruments Forward rate agreements (FRAs) or swaps for longer term hedge ‘Fixing’ instruments Interest rate futures ‘Insurance’ instruments Interest rate guarantees (IRG’s), sometimes called caps/floors or options or swaptions for longer term hedge Interest rate options Notes ref: p112
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Development of Information Strategy
Information systems IS Development of Information Strategy IT IM EIS DSS MIS TPS Notes ref: p125
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Earls Three Levels of Strategy
IS Strategy Division/SBU/Function based Demand Orientated Business Focussed Applications IM Strategy Organisation Based Relationship Orientated Management Focused IT Strategy Management Activity Based Supply Orientated Technology Focused Delivery Notes ref: p126
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Strategic Planning Model
Corporate Strategy Information Needs Information Systems Strategy Information and Data Architecture Applications Architecture IT Architecture Notes ref: p127
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Critical Success Factors
Mission Statement Business Objectives Critical Success Factors Information to Measure Performance Proposals for New Systems or Modifications Notes ref: p128
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Anthony’s Triangle Planning Activities Strategic Board Level Tactical
Levels of Control Anthony’s Triangle Planning Activities Strategic Board Level Tactical Middle Level Control Lower Levels Operational Activities Notes ref: p130
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Risks with IT systems Employees Hacker Hardware Faults Virus Security:
Data Mistakes Notes ref: p148
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Controls General controls Application controls Software controls
Network controls Notes ref: p148
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General Controls Personnel controls Access controls Security: Physical
System Software Business continuity Notes ref: p
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