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ACCA Professional Accountant Paper P1 Practice & Revision Notes ACP1RNO9(D)

ACCA Professional Accountant

Paper P1 Practice & Revision Notes

ACP1RNO9(D)

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INTRODUCTION

Analysis of past papers

Below provides an overview of the syllabus and details of when each element has have been examined. Further details are included in the relevant chapter of the knowledge bank.

 

Dec

June

Dec

June

Pilot

2007

2008

2008

2009

Governance and Responsibility

         

The scope of governance

 

Agency relationships and theories

 

 

The board of directors

 

Board committees

 

 

Directors’ remuneration

   

Different approaches to corporate governance

   

Corporate governance and corporate social responsibility

 

 

 

Governance reporting and disclosure

     

 

Internal control and review

Management control systems in corporate governance

 

Internal control, audit and compliance in corporate governance

 

 

Internal control and reporting

   

Management information in audit and internal control

         

Identifying and assessing risk

Risk and risk management process

     

Categories of risk

   

 

Identification assessment and measurement of risk

   

Controlling risk

Targeting and monitoring risk

       

Methods of controlling and reducing risk

 

 

 

Risk avoidance, retention and modelling

         

Professional values and ethics

Ethical theories

Different approaches to ethics and responsibility

 

 

 

Professions and the public interest

     

Professional practice and codes of ethics

   

 

Conflicts of interest and the consequences of unethical behaviour

     

 

Ethical characteristics of professionalism

   

 

Social and environmental issues in the conduct of business and of ethical behaviour

 

 

of business and of ethical behaviour    

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Knowledge

bank

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21
21

The scope of corporate governance

The scope of corporate governance How have the syllabus learning outcomes been examined?   How syllabus

How have the syllabus learning outcomes been examined?

 

How syllabus

Exam question reference in P&R kit

outcomes are

Syllabus learning outcomes

examined

Define and explain the meaning of corporate governance

Relevant 1 mark point in:

 

Pilot Paper Q1a

Q42 ChemCo

December 2007 Q1d, Q2b, Q3b, Q4c

Q43

Analyse the purposes and objectives of corporate governance

Relevant 1 mark point in:

 

December 2007 Q3b

Q8

Explain, and apply in the context of corporate governance, the key underpinning concepts of fairness, openness/transparency, independence, probity/honesty, responsibility, accountability, reputation, judgment and integrity

Integrity - Pilot Paper Q3b (7 marks)

Q34 Professor

Cheung

Transparency - December

Q43

2007

Q1a (10 marks)

 

Accountability - December

 

2007

Q3b (4 marks)

Q8

Transparency – June

Q44

2008

Q1d (6 marks)

Explain, and analyse the issues raised by, the development of the joint stock company as the dominant form of business organisation and the separation of ownership and control over business activity

Relevant 1 mark point in:

 

Pilot Paper Q1a

Q42 ChemCo

December 2007 Q1a

Q43

Define agency theory

June 2008 Q3a (2 marks)

Q9

Define agency theory June 2008 Q3a (2 marks) Q9

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How syllabus

Exam question reference in P&R kit

outcomes are

Syllabus learning outcomes

examined

Define and explain the key concepts in agency theory: agents, principals, agency itself, agency costs, accountability, fiduciary responsibilities and stakeholders

Relevant 2 mark point in:

Q6 Sentosa House (Examiner Question)

December 2007 Q1a,

Q3b

Q43

 

Definition of stakeholders – December 2007 Q4a (2 marks)

Q35

Discussion of fiduciary duty – December 2007 Q4c (7 marks)

Explain and explore the nature of the principal agent relationship in the context of corporate governance

Relevant 1 mark point in:

December 2007 Q1a,

 

Q4c

Q43, Q35

Analyse and critically evaluate the nature of agency accountability in agency relationships

Relevant 2 mark point in:

December 2007 Q3b

Explain and analyse how transaction cost theory and stakeholder theory is used to explain aspects of the agency relationship.

Stakeholder analysis was explored in

Q33 JH Graphics (Examiner Question)

Q35

December 2007 Q4a (8 marks)

Stakeholder claims: June 2008 Q1a (10 marks)

Explain and assess the major areas of organisational life affected by issues in corporate governance.

Compare and distinguish between public, private and non- governmental organisations (NGO) sectors, with regard to the issues raised by, and scope of governance

Explain and evaluate the roles, interests and claims of internal parties involved in corporate governance.

Explain and evaluate the roles, interests and claims of, the external parties involved in corporate governance.

Analyse and discuss the role, and influence of institutional investors in corporate governance systems and structures, for example the roves and influences of pension funds, insurance companies and mutual funds.

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The scope of corporate governance

  The scope of corporate governance Definition of Corporate Governance The structures, processes and relationships

Definition of Corporate Governance

The structures, processes and relationships fundamental to a company’s objectives

and relationships fundamental to a company’s objectives Principles     Best Decisions    

Principles

   

Best Decisions

   
 

Integrity

 

Theories

Fairness

Stakeholder

 

Judgement

Models

Independence

• Internal / Connected / External • Active v Passive • Normative v Instrumental •
• Internal /
Connected /
External
• Active v Passive
• Normative v
Instrumental
• Mendelow
Ignore
Inform
Satisfy
Key

Agency Theory

Principal v Agent

Honest Disclosure

Information Asymmetry

Openness

Monitor & Control

Probity

Agency Costs

Responsibility

Transaction Cost Theory

Accountability

Theory of the firm

 

Reputation

 

Major issues in corporate governance

Directors’ fiduciary duties

Directors’ remuneration

Board structure and balance

Reliability of financial reporting

Risk management

Internal control

Shareholders responsibilities

Business ethics

Corporate social responsibility

Compulsory v voluntary

Corporate social responsibility • Compulsory v voluntary

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Approaches to corporate governance

2
2

How have the syllabus learning outcomes been examined?

 

How syllabus

outcomes are

Exam question reference in P&R kit

Syllabus learning outcomes

examined

Describe and compare the essentials of rules - and principles-based approaches to corporate governance

June 2008 Q4a rules- based (3 marks)

Q6 Sentosa House (Examiner Question);

Describe and critically evaluate the reasons behind the development and use of codes of practice in corporate governance (acknowledging national differences and convergence)

December 2007 Q3c tested national variation of codes (8 marks)

Q8

Explain and briefly explore the development of corporate governance codes in principles-based jurisdictions

June 2008 Q4a advantages of principles- based (10 marks)

Q10

Explain and explore the Sarbanes-Oxley Act as an example of a rules-based approach to corporate governance

Describe and explore the objectives, content and limitations of corporate governance codes intended to apply to multiple national jurisdictions (OECD, ICGN)

December 2007 Q3c tested national variation of codes (8 marks)

Q8

Discuss and critically assess the concept of stakeholders and stakeholding in organisations and how this can affect strategy and corporate governance

December 2007 Q4a tested the importance of identifying stakeholders (8 marks)

Q33 JH Graphics (Examiner Question)

Q35

 

Mock 3 Q1

December 2008 Q1 required business cases for the stockholder and stakeholder perspectives

Analyse and evaluate issues of ownership, property and the responsibilities of shareholders

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Approaches to corporate governance

Approaches to corporate governance

Approaches to corporate governance

Corporate ownership

Principles v Rules

Family/ Insider Firms

Rules-based

(eg block shareholding in Japan)

Principles-based

Reduced agency problem

approach

approaches

Poor protection of minorities

Hard to divest

Focus on the objectives of good corporate governance

Emphasis on achievements not underling factors and control systems

Institutional Investors

Emphasises areas of corporate governance to which rules cannot easily be applied

Applies across different legal jurisdictions, which makes the governance of a multinational business more effective

Comply or explain basis

Dialogue

No leeway or deviation

Evaluating disclosures

Unambiguous, easily evidenced

Voting

Enforcement can be difficult for situations not covered explicitly

Favoured in legal jurisdictions emphasising obedience to the letter of the law

Major corporate scandals

Major corporate scandals

BCCI

WorldCom

Mirror Group

Enron

Barings

Barings

UK Combined Code of Corporate Governance

US Sarbanes-Oxley Act, 2002

Global influences

OECD Principals

Encourage global investment

Five areas

Shareholder participation

Equitable treatment of shareholders

Role of stakeholders

Disclosure & transparency

Board responsibilities

Rules based

Companies listed in USA

Key Provisions

Public Oversight Board

Auditing standards

Non-Audit services

Quality Control Procedures

Audit Committee

CEO/CFO certify

Off-balance sheet transactions

Internal Control Reports

Whistleblowers

• Internal Control Reports • Whistleblowers

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Corporate governance practice and reporting

2
2

How have the syllabus learning outcomes been examined?

 

How syllabus

Exam question

outcomes are

reference in

Syllabus learning outcomes

examined

P&R kit

Explain and evaluate the roles and responsibilities of boards of directors

Relevant 1 or 2 mark point in:

Pilot Paper Q1a

Q42 ChemCo

December 2007 Q1d

Q43

Describe, distinguish between and evaluate the cases for and against unitary and two-tier structures

Pilot Paper Q1c (10 marks)

Q42 ChemCo

Describe the characteristics, board composition and types of directors

Relevant 1 or 2 mark point in:

December 2007 Q1c

Q43

Describe and assess the purposes, roles and responsibilities of non-executive directors

Roles of NEDs

Pilot Paper Q1d (7 marks)

Q42 ChemCo

 

December 2007 Q1c (8 marks)

Q43

June 2008 Q3a (relevant 4 marks)

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How syllabus

Exam question

outcomes are

reference in

Syllabus learning outcomes

examined

P&R kit

Describe and analyse the general principles of the legal frameworks within which directors operate on boards

Legal status of NEDs relevant for 1 mark

 

Pilot Paper Q1d

Q42 ChemCo

December 2007 Q1c

Retirement by rotation June 2008 Q3c (5 marks)

Q43

Define, explore and compare the roles of the chief executive and company chairman

December 2007 Q3a & b (13 marks)

Q8

June 2008 Q3a (relevant

2

marks)

Describe and assess the importance and execution of induction and CPD of directors on boards of directors

Explain and analyse the frameworks for assessing the performance of boards and individual directors on boards

Explain and assess the importance, roles and accountabilities of board committees in corporate governance

Remuneration committee and cross directorships Pilot Paper Q2a (12 marks)

Q7 Frank Finn

June 2008 Q3a (relevant

2

marks)

Explain and evaluate the role and purpose of the main committees in effective corporate governance

Remuneration committee and cross directorships Pilot Paper Q2a (12 marks)

Q7 Frank Finn

Nominations committee June 2008 Q3b (8 marks)

Assess the structure and composition of a risk committee

December 2008 Q2

Mock 3 Q2

Describe and assess the general principles of remuneration

Pilot Paper Q2b (8 marks)

Q7 Frank Finn

Explain and assess the effect of various components of remuneration packages on directors’ behaviour

Pilot Paper Q2b (8 marks)

Q7 Frank Finn

PRP December 2007 Q2c (8 marks)

Q20

 

Pilot Paper Q2b (8 marks)

Q7 Frank Finn

Explain and analyse the legal, ethical, competitive and regulatory issues associated with directors’ remuneration

issues associated with directors’ remuneration

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How syllabus

Exam question

outcomes are

reference in

Syllabus learning outcomes

examined

P&R kit

Explain and assess the general principles of disclosure and communication with shareholder

June 2008 Q3a (relevant 2 marks)

Q9

Explain and analyse best practice corporate governance disclosure requirements, eg UK Combined Codes

Define and distinguish between mandatory and voluntary disclosure of corporate information in the normal reporting cycle

December 08 Q1

Mock 3 Q1

Explain and explore the nature of voluntary disclosure in a principles-based reporting environment

Explain and analyse the purposes of the AGM and EGM

Describe and assess the role of proxy voting in corporate governance

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Corporate governance Structure Practice Reporting • Unitary • Multi-tier Governance disclosures The role of the
Corporate governance
Structure
Practice
Reporting
• Unitary
• Multi-tier
Governance disclosures
The role of the board
Information about directors
• Directing and supervising the
company’s affairs
Operating and financial review
• Provide entrepreneurial leadership
Reports from committees
• Risk management and effective control
Detail of relations with auditors
• Devise and deliver strategy
Example of CG best
practice – CC06
CC06 C - Accountability & Audit
CC06 A – Directors
• Financial Reporting
Sustainability reporting
• Effective Board
• Internal Control
• Chairman v CEO
• Audit Committee & Auditors
• Balance + independence
• Appointments
CC06 D - Relations with Shareholders
• Information + Development
• Evaluation
• Dialogue with Institutional Investors
• Re-election
• Constructive use of the AGM
CC06 B – Remuneration
CC06 E - Institutional Shareholders
• Level & makeup
• Dialogue with the (investee)
• Policy & individuals
company
• Attract, retain & motivate
• Evaluation of Governance
Disclosures
• Shareholder Voting
Non-executive directors
Committees

A statement that the directors have reviewed the effectiveness of internal controls

A statement on relations and dialogue with shareholders

A statement that the company is a going concern

Independent – no executive power

Challenge & contribute to strategy

Scrutinise performance & reports

Validate risk management and control

People – remuneration, nominations

Audit

Nominations

Remuneration

nominations • Audit • Nominations • Remuneration

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Internal control systems

Internal control systems How have the syllabus learning outcomes been examined? Syllabus learning outcomes How syllabus

How have the syllabus learning outcomes been examined?

Syllabus learning outcomes

How syllabus outcomes are examined

Exam question reference in P&R kit

Define and explain internal management control

Relevant 1 or 2 mark point in:

 

December 2007 Q1d

Q43

Explain and explore the importance of internal control and risk management in corporate governance

December 2007 Q1d (6 marks)

Q43

Describe the objectives of internal control systems

December 2007 Q1d (6 marks)

Q43

December 2008 Q3

Mock 3 Q3

 

Q15 FF Co

Identify and assess the importance of elements or components of internal control systems

Turnbull “sound” system Pilot Paper Q4a (10 marks)

Define and explain risk in the context of corporate governance

Describe and evaluate a framework for board level consideration of risk

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Internal control systems Frameworks Examples • CC06/Turnbull • SOX/COSO Objectives • Safeguard investment /

Internal control systems

Frameworks

Examples

CC06/Turnbull

SOX/COSO

Objectives

Safeguard investment / assets

Respond to significant risks

Efficient + effective business operations

Reporting

Compliance

Elements

COSO cube

operations • Reporting • Compliance Elements COSO cube
operations • Reporting • Compliance Elements COSO cube

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Risk attitude

Risk attitude How have the syllabus learning outcomes been examined? Syllabus learning outcomes How syllabus outcomes

How have the syllabus learning outcomes been examined?

Syllabus learning outcomes

How syllabus outcomes are examined

Exam question reference in P&R kit

Identify, and assess the impact upon, the stakeholders involved in business risk

1 or 2 marks for a relevant point in:

 

December 2007 Q2a

Q20

Explain the importance of risk awareness at all levels in an organisation

1

or 2 marks for a relevant point in:

December 2007 Q2b

Q20

Describe and analyse the concept of embedding risk in an organisation’s systems and procedures

 

December 2007 Q2b (5 marks)

Q20

Describe and evaluate the concept of embedding risk in an organisation’s culture and values

Explain and evaluate the different attitudes towards risk and how these can affect strategy

Explain and assess the necessity of incurring risk as part of competitively managing a business organisation

Explain and assess attitudes towards risk and the ways in which risk varies in relation to the size, structure and development of an organisation

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Risk attitude

Control Environment

Risk attitude Control Environment • Corporate culture • Management style • Organisational structure • Methods

Corporate culture

Management style

Organisational structure

Methods of imposing control

Ethical values

• Methods of imposing control • Ethical values Risk Appetite • Personal views • Shareholder
Risk Appetite • Personal views • Shareholder demands • Organisational factors • National / business

Risk Appetite

Personal views

Shareholder demands

Organisational factors

National / business culture

Shareholders (Risk v return)

Customers (continuity)

Suppliers (payment)

Lenders (repayment)

Government

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Sound System

Embedded / cultural

Responsive

Report Weaknesses

Shareholder Attitude Embedding Risk Awareness • Top-down communications • Clear risk philosophy • COSO

Shareholder Attitude

Shareholder Attitude Embedding Risk Awareness • Top-down communications • Clear risk philosophy • COSO

Embedding Risk Awareness

Top-down communications

Clear risk philosophy

COSO framework

– Training for all employees

– Ownership of risks results in a more considered view of risk management

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– Part of everyone's job description

Business risks

Business risks How have the syllabus learning outcomes been examined? Syllabus learning outcomes How syllabus outcomes

How have the syllabus learning outcomes been examined?

Syllabus learning outcomes

How syllabus outcomes are examined

Exam question reference in P&R kit

Define and compare (distinguish between) strategic and operational risks

Define and explain the sources and impacts of common business risks

Identify risks Pilot Paper Q1b (6 marks); Reputation risk Pilot Paper Q4b (8 marks)

Q42 ChemCo

Q13 FF Co

 

Q42 ChemCo

Recognise and analyse the sector or industry specific nature of many business risks

Identify risks Pilot Paper Q1b (6 marks)

Define market risk December 08 Q3

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Business risks

Part of COSO

Business risks Part of COSO Events • External / internal event • Trend and root causes
Business risks Part of COSO Events • External / internal event • Trend and root causes

Events

External / internal event

Trend and root causes

Escalation triggers

Event interdependencies

Categorising Risk

triggers • Event interdependencies Categorising Risk Scope Strategic v Operational External / Long term Internal

Scope

Strategic v Operational
Strategic v Operational

External / Long term

Internal / Short term / Narrow focus

Function

Financial

Legal

IT / Technological

Fraud

Environmental

Reputation

• Fraud • Environmental • Reputation

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Risk response

Risk response How have the syllabus learning outcomes been examined? Syllabus learning outcomes How syllabus outcomes

How have the syllabus learning outcomes been examined?

Syllabus learning outcomes

How syllabus outcomes are examined

Exam question reference in P&R kit

Explore and evaluate the effectiveness of internal control systems

Suggest improvements December 2007 Q1d (6 marks)

Q43

Internal controls and sub-contractors June 2008 Q1e (4 marks)

Q44

Explain and analyse the concepts of assessing the severity and probability of risk events

TARA December 2007 Q2a (12 marks); Part of the risk process Pilot Paper Q1b (10 marks)

Q20

Q42

 

Risk assessment June 2008 Q1b (6 marks) and Q1c (9 marks)

Q44

TARA December 2008 Q2

Mock 3 Q2

Explain and analyse the concepts of spreading and diversifying risk and when this would be appropriate

December 2007 Q2a (6 marks)

Q20

 

December 2007 Q2a (3 marks)

Q20

Define the terms ‘risk avoidance’ and ‘risk aversion’

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Risk response

Risk response Risk assessment Risk quantification • Assess – Likelihood (risk probability) – Impact (consequences)

Risk assessment

Risk quantification

Risk response Risk assessment Risk quantification • Assess – Likelihood (risk probability) – Impact (consequences)

Assess

– Likelihood (risk probability)

– Impact (consequences)

Average or expected result or loss

Largest predictable loss

Risk profiling • Map Accept Transfer Reduce Avoid Control Procedures • Corporate controls • Management
Risk profiling
Map
Accept
Transfer
Reduce
Avoid
Control Procedures
Corporate controls
Management controls,
encompassing planning
and performance
monitoring
Risk consolidation
Business process controls

Transaction controls

SOAPSPAM

Risk review

Portfolio management

Prioritisation

Risk review • Portfolio management • Prioritisation

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Monitoring and review

Monitoring and review How have the syllabus learning outcomes been examined?   How syllabus outcomes are

How have the syllabus learning outcomes been examined?

 

How syllabus

outcomes are

Exam question reference in P&R kit

Syllabus learning outcomes

examined

Describe the function and importance of internal audit

December 2008

Q25 Franks & Fisher (Examiner Question)

(Factors to consider when setting up IA)

Mock 3 Q3

Explain, and discuss the importance of, auditor independence in all client audit situations (including internal audit)

June 2008 Q2a (9 marks)

Q25 Franks & Fisher (Examiner Question)

Explain, and assess the nature and sources of risks to, auditor independence. Assess the hazard of auditor capture

June 2008 Q2a (9 marks)

Q25 Franks & Fisher (Examiner Question)

Explain and evaluate the importance of compliance and the role of the internal audit committee in internal control

Describe and analyse the work of the internal audit committee in overseeing the internal audit function

December 2008 Q3

Mock 3 Q3

Explain, and explore the importance and characteristics of, the audit committee’s relationship with external auditors

Describe and assess the role of internal or external risk auditing in monitoring risk

Define and describe management responsibilities in risk management

Identify, explain and evaluate the corporate governance and executive management roles in risk management

Explain and assess the role of a risk manager in identifying and monitoring risk

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How syllabus

outcomes are

Exam question reference in P&R kit

Syllabus learning outcomes

examined

Explain and evaluate the role of the risk committee in identifying and monitoring risk

Q6 Sentosa House (Examiner Question)

Describe and assess the need to report on internal controls to shareholders

June 2008 Q4c (4 marks)

Q10

Describe the content of a report on internal control and audit

June 2008 Q4b (8 marks)

Q10

Explain and assess the need for adequate information flows to management for the purposes of the management of internal control and risk

1 or 2 marks for a relevant point in:

Q35

December 2007 Q4d

Evaluate the qualities and characteristics of information required in internal control and risk management and monitoring

Describe the process of externally reporting on internal control and risk

of externally reporting on internal control and risk

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Monitoring and review Roles Management Board • Responsible for IC system • Report to shareholders
Monitoring and review Roles Management Board • Responsible for IC system • Report to shareholders
Monitoring and review Roles Management Board • Responsible for IC system • Report to shareholders
Monitoring and review Roles Management Board • Responsible for IC system • Report to shareholders

Monitoring and review

Roles

Management

Board

Responsible for IC system

Report to shareholders

Determine policy

Implement policies

Operate & monitor IC

Identify & assess risks

Audit committee Risk committee External reporting Independent NEDs (one with financial experience) Sets policies on
Audit committee Risk committee External reporting Independent NEDs (one with financial experience) Sets policies on
Audit committee
Risk committee
External reporting
Independent NEDs (one with financial
experience)
Sets policies on
Turnbull
SOX
• Extent of acceptable risk
• Liaise with External Audit
• Categories of acceptable risk
• Existence of
• Effective
• Supervise Internal Audit
process for
controls over
managing risk
FR
• Review FS
• How the board
• Statement of
• Review IC
has reviewed the
management
• Review of risk management
process
responsibility
• Compliance with
• IC / Risk
SOX
Turnbull
framework
used
• Mandatory
• Acknowledge
responsibility for
• Material
• Approve sanctioned non-audit work
IC
weaknesses
• Whistleblowers
• Manages rather
• Statement of
than eliminates
attestation from
risk
External
Auditors
• Summary of
review process
• Material
weaknesses
Role of internal audit
Risk manager
Review of internal control
of internal audit Risk manager Review of internal control • Review of internal control systems •
of internal audit Risk manager Review of internal control • Review of internal control systems •

Review of internal control systems

Technical expert

Review risk management strategy

Strategic role – develop policies

Ensure compliance

Leadership role

Value for money assessment

Training role

Financial and operational reviews

Operational detail – deal with insurance

Special investigations

companies

… anything else management require to be audited

Risks

Effectiveness of IC

Adequacy of monitoring

Annual Review

Changes since last review

Scope & quality of regular monitoring

Significant controls failings

Effectiveness of public reporting

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Ethics and the public interest

Ethics and the public interest How have the syllabus learning outcomes been examined?   How syllabus

How have the syllabus learning outcomes been examined?

 

How syllabus

Exam question reference in P&R kit

outcomes are

Syllabus learning outcomes

examined

Explain and distinguish between the ethical theories of relativism and absolutism

June 2008 Q2c (6 marks)

Q36

Explain, in an accounting and governance context, Kohlberg’s stages of human moral development

Q33 JH Graphics (Examiner Question)

 

December 2007 Q1b (12 marks)

Q43

Describe and distinguish between deontological and teleological/consequentialist approaches to ethics

Pilot Paper Q3c (7 marks)

Q34 Professor Cheung

December 2008

Mock 3 Q4

Q4(c)

Apply commonly used ethical decision-making models in accounting and professional contexts: American Accounting Association model, Tucker’s 5-question model

December 08 Q1

Mock 3 Q1

Explain and analyse the content and nature of ethical decision making using content from Kohlberg’s framework as appropriate

1 or 2 marks for relevant points in:

Q33 JH Graphics (Examiner’s Question)

December 2007

Q35

Q4c

(Examiner’s Question) December 2007 Q35 Q4c

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Ethics and the public interest Ethics • Concerned with right and wrong • Acceptable standards

Ethics and the public interest

Ethics

Concerned with right and wrong

Acceptable standards of behaviour

Relevant to all forms of human activity, including business

Relevant to all forms of human activity, including business Kohlberg's stages of human moral development Level

Kohlberg's stages of human moral development

Level 1: Pre-conventional

1 Obedience and punishment

2 Individualism instrumentalism, and exchange

Level 2: Conventional

3 Peer pressure

4 Laws & rules

Level 3: Post-conventional

5 Social contract / welfare

6 Principled conscience

Ethical theories Relativism v Absolutism Decision Action Result Deontological (action) v Teleological (result)
Ethical theories
Relativism
v
Absolutism
Decision Action
Result
Deontological (action)
v
Teleological (result)
Utilitarianism
v
Egoism

Models of ethical conflict resolution

American Accounting

Association

Relevant Facts

Ethical Issues

Norms / Principles / Values

Alternative courses of action

Best course consistent with norms

Consequences of each action

Decision

Tucker’s 5 Questions

Profitable?

Legal?

Fair & equitable?

Right?

Sustainable / environmentally sound?

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Ethics and professional practice

Ethics and professional practice How have the syllabus learning outcomes been examined?   How syllabus Exam

How have the syllabus learning outcomes been examined?

 

How syllabus

Exam question reference in P&R kit

outcomes are

Syllabus learning outcomes

examined

Explain and explore the nature of a profession and professionalism

1 or 2 marks for a relevant point in:

Pilot Paper Q3a

Q34 Professor Cheung

Describe and assess what is meant by the public interest

Pilot Paper Q4c (4 marks)

Q13 FF Co

Describe the role of, and assess the influence of, accounting as a profession in the organisational context

Analyse the role of accounting as a profession in society

Recognise accounting’s role as a value-laden profession capable of influencing the distribution of power and wealth in society

Describe and critically evaluate issues surrounding accounting and acting against the public interest

Describe and explore and areas covered by corporate codes of ethics

December 2008 Q4

Describe, assess the content of, and principles behind, professional codes of ethics

Describe and assess the codes of ethics relevant to accounting professionals such as IFAC or professional body codes, eg ACCA

Pilot Paper Q3a (11 marks); Pilot Paper Q4c (4 marks)

Q34 Professor Cheung Q13 FF Co

Describe and evaluate issues associated with conflicts of interest and ethical conflict resolution

Explain and evaluate the nature of impacts of ethical threats and safeguards

Explain and explore how threats to independence can affect ethical behaviour

Explain and analyse issues related to the application of ethical behaviour in a professional context

June 2008 Q2b (10 marks)

Q36

Describe and discuss rules-based and principles-based approaches to resolving ethical dilemmas encountered in professional accounting

1 or 2 marks for a relevant point in:

Pilot Paper Q3a

Q34 Professor Cheung

point in: Pilot Paper Q3a Q34 Professor Cheung

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  Ethics and professional practice Accountants and the public interest (IFAC) Profession = duty to
 

Ethics and professional practice

  Ethics and professional practice Accountants and the public interest (IFAC) Profession = duty to the

Accountants and the public interest (IFAC)

Profession = duty to the public interest

Accountant affect wealth distribution

Key influences

Financial accounting

– Mechanistic issues

– Judgemental issues

Audit / Management accounting / Consulting /Taxation

• Audit / Management accounting / Consulting /Taxation
• Audit / Management accounting / Consulting /Taxation Professional codes of ethics   Corporate codes of
• Audit / Management accounting / Consulting /Taxation Professional codes of ethics   Corporate codes of

Professional codes of ethics

 

Corporate codes of ethics

 

Require:

Commitment of the board

IFAC ethical code

ACCA “The Rule Book”

Clearly communicated to all staff

Fundamental Principals

Integrity

Objectivity

Competence

Confidentiality

Behaviour

Consistent with the IFAC code

Fundamental principals OPPTIC

ACCA members subject to more

than one code must follow the

strictest rules.

Measures to discourage previous behaviours that conflict with the spirit and detail of the code

It is in both the organisation's and employees best interests to change behaviour, and become committed to the same ideals

change behaviour, and become committed to the same ideals Threats of professional independence • Self interest
change behaviour, and become committed to the same ideals Threats of professional independence • Self interest
change behaviour, and become committed to the same ideals Threats of professional independence • Self interest

Threats of professional independence

Self interest

Self review

Advocacy

Familiarity

Intimidation

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Social and environmental issues

Social and environmental issues How have the syllabus learning outcomes been examined? Syllabus learning outcomes How

How have the syllabus learning outcomes been examined?

Syllabus learning outcomes

How syllabus outcomes are examined

Exam question reference in P&R kit

Describe and evaluate Gray, Owen and Adams, seven positions on social responsibility

December 2007 Q4b (8 marks)

Q35

December 2008 Q1

Mock 3 Q1

Describe and evaluate other constructions of the corporate and personal ethical stance

or 2 marks for a relevant point in:

1

December 2007 Q4c

 

Q35

Describe and analyse the variables determining the cultural context of ethics and corporate social responsibility

Explain and explore social responsibility in the context of corporate governance

or 2 marks for a relevant point in:

1

December 2007 Q4c

 

Q35

Explain the concept of the organisation as a corporate citizen of society with rights and responsibilities

Describe and assess the social and environmental effects that economic activity can have (in terms of social and environmental footprints)

Pilot Paper Q1e (2 marks)

or 2 marks for a relevant point in:

1

Q42 ChemCo

Q35

December 2007 Q4b

June 2008 Q1d (8 marks)

Pilot Paper Q1e (4 marks)

Q42

Explain and assess the concept of sustainability and evaluate the issues concerning accounting for sustainability (including the contribution of full cost accounting)

June 2008 Q1d (3 marks)

of full cost accounting) June 2008 Q1d (3 marks)

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Syllabus learning outcomes

How syllabus outcomes are examined

Exam question reference in P&R kit

Describe the main features of internal management systems for underpinning environmental accounting such as EMAS and ISO 14000

Explain the nature of social and environmental audit and evaluate the contribution it can make to the development of environmental accounting

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Corporate Social

 

Responsibility

CSR

Corporate

 

CSR Stances

CSR Viewpoints

Citizenship

 

Economic

Limited View

Short-term

Gray, Owen & Adams

Legal

CC

= philanthropy

shareholder interest

Pristine capitalists /

Ethical

Equivalent View

Long-term

shareholder interest

Expedients

Philanthropic

CC

= CSR

The legitimacy of the

Proponents of the

Extended View

expectations and/or

CC

= political rights

claims of

Socialists / Radical feminists /Deep

ecologists

and

responsibilities

stakeholders

 

Shaper of society

 

Social and environmental issues

 

social contract /Social ecologists

Social issues Social footprint • Infrastructure • Communities • Individuals Social audit •

Social issues

Social footprint

Infrastructure

Communities

Individuals

Social audit

Establishing a rationale for engaging in socially responsible activity

Identifying that all current environment programmes are congruent with the mission of the company

Assessing objectives and priorities related to these programmes

Evaluating company involvement in such programmes past, present and future

Sustainability

– Can replace natural capital with man-made capital

Weak view

Strong view

– Maintain natural capital

Global Reporting Initiative (GR)

Generational equity

EMAS

Eco labelling

ISA 14001

Environmental auditing

Environmental reporting

Generational equity • EMAS • Eco labelling • ISA 14001 • Environmental auditing • Environmental reporting

Environmental issues

Environmental footprint

Depletion of natural resources

Noise and aesthetic impacts

Residual air and water emissions

Long-term waste disposal

Uncompensated health effects

Change in the local quality of life

Environmental costs

Waste management

Remediation costs

Compliance costs

Permit fees (eg carbon trading)

Legal costs

Fines for non-compliance

Environmental certification and labelling

Full cost accounting

Tier 0: usual costs (direct costs)

Tier 1: hidden costs (indirect costs)

Tier 2: liability costs (contingencies)

Tier 3: less tangible costs (reputation)

Tier 4: environmental focussed costs

Environmental management systems

Environmental quality management

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Appendices 报名地址:杨浦区国定路651号/闸北区汉中路158号汉中广场613办公室

Appendices

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53
53

Appendix A: Relevant articles

Appendix A: Relevant articles 报名地址:杨浦区国定路651号/闸北区汉中路158号汉中广场613办公室
Appendix A: Relevant articles 报名地址:杨浦区国定路651号/闸北区汉中路158号汉中广场613办公室
Appendix A: Relevant articles 报名地址:杨浦区国定路651号/闸北区汉中路158号汉中广场613办公室

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报名地址:杨浦区国定路651号/闸北区汉中路158号汉中广场613办公室

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报名地址:杨浦区国定路651号/闸北区汉中路158号汉中广场613办公室 报名电话:021-6353 5316 /
报名地址:杨浦区国定路651号/闸北区汉中路158号汉中广场613办公室 报名电话:021-6353 5316 /

报名地址:杨浦区国定路651号/闸北区汉中路158号汉中广场613办公室

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报名地址:杨浦区国定路651号/闸北区汉中路158号汉中广场613办公室

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报名地址:杨浦区国定路651号/闸北区汉中路158号汉中广场613办公室 报名电话:021-6353 5316 /
报名地址:杨浦区国定路651号/闸北区汉中路158号汉中广场613办公室 报名电话:021-6353 5316 /

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Examiner's approach to Paper P1

by David Campbell

22 Feb 2007

Paper P1, Professional Accountant is a new compulsory paper in the Essentials module at the Professional level of the ACCA Qualification. It is an exciting, challenging, and innovative paper that aims to enrich students’ understanding of a number of important issues as they prepare to take their place as members of the professional accounting community.

Following in-depth consultation on the development of the new ACCA Qualification and guidance on ethics and governance teaching from IFAC and others, it was decided to create a new paper – Professional Accountant – to examine a number of areas relevant to the broad themes of professionalism, responsibility, accountability, and ethics. In terms of syllabus content, these themes are handled in the context of corporate governance, internal control, risk, and professional and business ethics. These areas form the basis of the new Paper P1 syllabus.

Content from a number of other parts of the new ACCA Qualification is relevant to the Paper P1 syllabus (refer to the ‘linked papers’ diagram in the Syllabus). Most obviously, it forms a prominent part of the qualification’s emphasis on ethics. Professionalism and ethics are both at the heart of the new ACCA Qualification. They are covered in 11 of the 16 exam papers – including all papers at Professional level – and three of the Essentials performance objectives as part of the practical experience requirement. Underpinning the syllabus and the practical experience is the Professional Ethics module. The aim of the Professional Ethics module is to give students exposure to a range of ethical perspectives and can be completed once eligible to take Paper P1. Ideally, the Professional Ethics module should be taken at the same time as – or soon after – completing Paper P1. In addition, the Paper P1 syllabus builds on and develops content studied previously in Paper F1, Accountant in Business and Paper F8, Audit and Assurance.

It is important to study an ACCA-approved textbook for Paper P1. They are written especially for the syllabus, and are reviewed by the examiner, making them invaluable in terms of coverage and insight into what is examinable. The syllabus for Paper P1, possibly more than any of the other papers, is eclectic in nature and draws on material from a number of different disciplines. Students are strongly encouraged to read around the subject area, especially those students new to the content of the syllabus. A number of recommended books are listed at the end of the Study Guide.

Syllabus and relational diagram Although the syllabus contains five areas (refer to the ‘relational diagram’ in the Syllabus), it is important to understand that all of these, taken together, comprise a logical ‘whole’. All areas are interconnected and, in total, the syllabus represents a set of issues essential to the understanding of how accounting – especially in a business context – contributes to, and is underpinned by, governance and ethics. Although these have always been important to the accountancy profession, a number of well-publicised recent corporate failures and scandals have highlighted the need for sound governance and ethical behaviour. Society invests a great deal of trust in its professions and it is crucial that accounting professionals repay that trust and maintain the level of respect and regard in which they have been traditionally held. Accordingly, accountants need to be aware of their responsibilities to investors, to society, and to the highest standards of professional probity and competence. The content of the Paper P1 syllabus will help students explore and develop these themes. Part A of the syllabus focuses of corporate governance, responsibility, and accountability. This means exploring aspects of, for example, the agency relationship between directors and shareholders, the meaning of governance, the role and types of directors, issues of responsibility, and the meaning and limits of accountability. It aims to introduce these important themes while also encouraging students to think about the ethical assumptions made by accountants collectively as a profession.

The next three parts of the syllabus – B, C and D – focus specifically on issues that have, in recent corporate failures, been the most problematic. These include internal control, the identification and assessment of risk, and controlling and mitigating risk. The Paper P1 syllabus singles these out for separate consideration because,

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although they are integral to corporate governance as a whole, they play a crucial part in an accountant’s responsibility to act in the public interest and in the interests of shareholders.

Sound systems of internal analysis, control, and audit underpin all effective corporate governance systems. Effective management at the strategic level rests on the assumption that internal activities can be controlled, verified, and reported on internally. If management loses control of internal systems and procedures, any claim of sound governance is lost – as was the case at Baring’s Bank, when a single uncontrolled trader lost large amounts of money on derivatives markets. The same is true of risk. Being aware of all possible risks, understanding their potential impact, as well as the probability of occurrence, are important safeguards for investors and other stakeholders.

All of these preceding sections are underpinned by Paper P1’s important consideration of both professional and business ethics – Part E of the syllabus. Ethical assumptions underpin and ‘surround’ any profession and system of governance. The accountancy profession, just as in medicine or law, is governed by certain ethical frameworks that inform practice and guide practitioners. This part of the Paper P1 syllabus explores some of these assumptions, while also looking at some of the ethical theories that help to explain them. This part of the syllabus will always be assessed to some degree in the compulsory section of the exam but not necessarily exclusively in that section.

Study Guide and intellectual levels The Study Guide, which breaks the syllabus down into separate sections, is on the ACCA website. The superscript numbers at the end of each objective in the Study Guide indicate the level at which students should understand a particular subject or topic area. These levels of understanding, known as cognitive levels, are important as they indicate the depth to which each part of the syllabus may be examined.

Because Paper P1 is at the Professional level, the higher cognitive challenges – represented by the number 3 – are prominent. This means that this paper is more likely to use higher levels of questioning; whereas level 1 tasks might concern knowledge and comprehension (such as ‘list’, ‘define’, ‘identify’, ‘calculate’), levels 2 and 3 are more challenging. Level 2 tasks concern application and analysis (‘contrast’, ‘explain’, ‘discuss’, and so on), and level 3 tasks concern synthesis and evaluation. Level 3 requirements might therefore include ‘construct’, ‘evaluate’, ‘assess’, ‘formulate’, or ‘advise’.

It is likely that each Paper P1 exam will contain several questions at levels 2 and 3, and the Study Guide reflects

this emphasis on higher cognitive levels. It is important to realise that if Study Guide sections require learning at levels 2 or 3, then it is possible that the exam will test that area at that cognitive level. The marking scheme will reflect this, and answers that do not attempt to answer at the higher cognitive level will be rewarded accordingly. If, therefore, a question asks a candidate to ‘assess’ or ‘evaluate’ an argument or a statement, answers that merely ‘describe’ will not be well rewarded.

Ethical and governance codes Paper P1 covers two areas that, in some countries, are underpinned by ‘codes’ or ‘guidelines’ that attempt to regulate practice. In the light of recent corporate governance failures, governments and professional bodies have introduced these codes so as to reduce the ‘freedom of movement’ for managers, and to make their duties and responsibilities unambiguous in certain circumstances. The UK was among the first to introduce such initiatives, with the Cadbury Code back in 1992, but the intervening years have seen many other codes springing up in different parts of the world. Some apply to single jurisdictions, such as in Singapore, the UK, and the US, while other codes are intended to apply internationally. IFAC’s and ACCA’s Codes of Ethics are examples of ethical codes, while the Organisation for Economic Co-operation and Development (OECD) and International Corporate Governance Network (ICGN) both have international codes of corporate governance.

In the Paper P1 Study Guide, I have highlighted the fact that whereas a general knowledge of codes is important, line-by-line detail is not required. While the UK codes (such as the Combined Code, first published in 2003) provide a good summary of provisions in corporate governance, other countries and agencies have also produced equivalent guidelines. Students may be required to demonstrate familiarity with a code when answering

a question, but it will be acceptable to refer to a local code if more appropriate, or to one of the international codes. ACCA’s Code of Ethics applies broadly, and IFAC’s Code of Ethics applies to all professional accountants

Code of Ethics applies to all professional accountants

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whose professional bodies are members of IFAC (such as ACCA). If students live in a jurisdiction with its own code of ethics (such as the ICPAS code in Singapore), it will be acceptable to refer to that code where appropriate.

Explicit reference is made in the Study Guide to Sarbanes–Oxley, which is the legal underpinning of corporate governance in the US. Sarbanes–Oxley is the most influential corporate governance instrument of recent times and has changed practice globally, mainly because of the international dominance of US business.

Exam format The exam will contain two sections. Section A will contain Question 1, which will be worth a total of 50 marks and which will be compulsory. It will be based on a case study scenario of several hundred words. The requirements will include several distinct tasks (listed as (a), (b), (c), etc) and will sample the syllabus quite broadly. Question 1 might contain elements of governance, risk, internal control, and will include some aspect of ethics.

One of the features of the Professional level exam papers is the awarding of ‘professional marks’. These are marks allocated not for the content of an answer, but for the degree of professionalism with which certain parts of the answer are presented. They will usually be awarded in Section A (the compulsory part of the exam paper) and will total 4 to 6 marks.

It may be, for example, that one requirement asks you to present your answer in the form of, say, a letter, a presentation, a memo, a report, briefing notes, or similar. Some marks may be awarded for the form of the answer in addition to the content of the answer. This might be for the structure, content, style and layout, or the logical flow of arguments in your answer. You should assume that if the question asks for a specific format of answer that some marks may be awarded for an effective presentation of that format.

Section B will contain three questions (Questions 2, 3 and 4) and students will be invited to attempt two from the three questions set. Each question in Section B will, accordingly, be worth a total of 25 marks. In contrast to Question 1, it is likely that the questions in Section B will explore one part of the syllabus in a little more depth. Students should not assume, however, that each question in Section 2 would examine only one part of the syllabus. It is more likely that each will contain an emphasis on one part of the syllabus, while including content from other parts as well. All of the three questions in Section B will be based on a short scenario.

The Pilot Paper, which is on the ACCA website, is an illustration of the way the future papers will look and feel. In addition to the Pilot Paper – which students will want to study in some depth and eventually attempt – additional pilot questions will also be published.

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Appendix B: Combined Code of Corporate governance and Sarbanes-Oxley – Overviews

1

Combined Code of Corporate Governance - overview

1.1

The Financial Reporting Council issued the revised Combined Code of Corporate Governance in July 2003. Although it only applies to fully listed companies, a number of AIM, OFEX and larger private companies may adopt it, in whole or in part, on a voluntary basis.

1.2

Where a company does not comply with the Code, a reasoned explanation should be provided.

1.3

The Code contains 17 main principles and 48 provisions divided into five main areas; the main points you need to know are summarised below:

A - Directors

Every company should be headed by an effective board

There should be a clear division between the running of the board and that of the business

The chairman and chief executive should be different people

No individual or group should dominate a board

At least half the board, excluding the chairman, should be independent non-executives (previously one third).

B - Remuneration

Remuneration should be linked to performance

Non-executives should not receive share options

Executive contracts should have a maximum notice of 12 months

Remuneration committees encouraged to reduce/eliminate payments on termination, especially relating to poor performance

Three independent non-executives should sit on the remuneration committee (two for smaller, sub-FTSE350 companies).

C - Accountability and audit

Annual report to discuss internal controls and risk management

Audit committee to include three independent non-executive directors (two for smaller companies), including one with relevant financial experience

D - Relations with shareholders

Dialogue with shareholders responsibility of the whole board, though most contact will be with chief executive and FD

Chairman and other directors should understand shareholder concerns and issues.

Annual report to contain commentary on the above.

E - Institutional shareholders

Institutional investors should review corporate governance disclosures

They should also attend AGMs and make use of their votes.

They should also attend AGMs and make use of their votes.

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2

Sarbanes-Oxley Act, 2002 - overview

2.1 All US registered companies face the task of ensuring their accounting operations are in compliance with the Sarbanes Oxley Act. A comprehensive external audit is undertaken by a Sarbanes-Oxley compliance specialist performed to identify areas of risk. Then, specialized software is installed that provides the "electronic paper trails" necessary to ensure Sarbanes-Oxley compliance.

2.2 The summary below highlights of the most important Sarbanes-Oxley sections for compliance.

SOX Section 302 - Corporate Responsibility for Financial Reports

(a)

CEO and CFO must review all financial reports.

(b)

Financial report does not contain any misrepresentations.

(c)

Information in the financial report is "fairly presented".

(d)

CEO and CFO are responsible for the internal accounting controls.

(e)

CEO and CFO must report any deficiencies in internal accounting controls, or any fraud involving the management of the audit committee.

(f)

CEO and CFO must indicate any material changes in internal accounting controls.

SOX Section 404: Management Assessment of Internal Controls

All annual financial reports must include an Internal Control Report stating that management is responsible for an "adequate" internal control structure, and an assessment by management of the effectiveness of the control structure. Any shortcomings in these controls must also be reported. In addition, registered external auditors must attest to the accuracy of the company management’s assertion that internal accounting controls are in place, operational and effective.

SOX Section 409 - Real Time Issuer Disclosures

Companies are required to disclose on a almost real-time basis information concerning material changes in its financial condition or operations.

SOX Section 902 - Attempts & Conspiracies to Commit Fraud Offences

It is a crime for any person to corruptly alter, destroy, mutilate, or conceal any document with the intent to impair the object's integrity or availability for use in official proceedings.

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Appendix C: June 2009 Exam Questions and Answers

Appendix C: June 2009 Exam Questions and Answers
Appendix C: June 2009 Exam Questions and Answers

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