ACCA P1 EXAM NOTES

Part 1: Framework Chapter 1: Introduction of C !Corporate o"ernance#

Se're'ation of the owner&hip and contro( -$% re%olders re t%e o&ner of t%e co'p ny -Control (s( lly deleg ted to director -)nterest of s% re%olders nd directors ' y conflict -Directors ' y not ct in t%e *est interest of t%e s% re%older

Corporate o"ernance 3 rgely concerned &it% go2erning t%e rel tions%ip *et&een s% re%olders nd directors

)efinition: + syste' *y &%ic% org ni, tions re directed nd controlled

Purpo&e and o-.ecti"e&: -Monitor t%ose &%o control t%e ssets o&ned *y in2estors -Contri*(te to i'pro2ed corpor te perfor' nce nd cco(nt *ility in cre ting long ter' s% re%older 2 l(e

Impact on or'ani*ation: -D(ties of directors nd f(nction of t%e *o rd -Co'position nd * l nce of t%e *o rd nd *o rd co''ittee --eli *ility of fin nci l reporting nd e.tern l (diting -Directors/ re'(ner tion nd re& rds --is0 ' n ge'ent nd intern l control syste' --ig%t nd responsi*ilities of s% re%olders

Stakeho(der+ Interna(: -Directors -Co'p ny secret ry -M n gers -1'ployee -1'ployee represent ti2e E,terna(: -+(ditor --eg(l tor -$% re%older -$toc0 e.c% nge -Go2ern'ent

I&&ue& and &cope of 'o"ernance on pu-(ic/ pri"ate and N O &ector& -)nfl(enced *y t%e si,e4 o&ners%ip4 'odel nd o*!ecti2es of org ni, tion

$e% point&: 1. 2. 3. Definition of CG- B 49&F 4 Underlying concepts of CG- B 49&F 7 M !or re s of CG- B "7-7# & F1#-11

Chapter 0: A'enc% re(ation&hip and theorie&

+gency rel tions%ip nd t%eories

+gency t%eory

7r ns ction costs nd st 0e%older t%eories nd econo'ic t%eory

)efinition: 1. 'ine d(ties nd conflict t% t occ(r *et&een p rties &%o % 2e n gency

1e(ation&hip with C : 9ey f(nction of CG to protect t%e princip l gent rel tions%ip *et&een s% re%older nd director

A'ent Accounta-i(it%: *y (ndert 0ing to perfor' t s0 on t%eir *e% lf4 gents *eco'e cco(nt *le to t%e princip l

$e% concept: +gent 8rincip l +gency +gency cost +cco(nt *ility Fid(ci ry -esponsi*ility $% re%older

$e% point&: 1. 2. 3. +gency t%eory5 B 62&F 26 F27-F29 7r ns ction t%eory5 B66&F3# F31 $t 0e%older t%eory5 B66&F32

Chapter 2: 3oard of director&/ 3oard of Committee 4 1emuneration

3oard of director&: Bo rd of directors

Unit ry

Bo rd str(ct(re

$ingle *o rd

7&o *o rds

1D

:1D

M n ge'ent *o rd

$(per2isory *o rd

1D

:1D

1o(e& and re&pon&i-i(itie&: -+ct in good f it% in t%e interests of t%e co'p ny s &%ole -Displ y cert in 'o(nt of s0ills nd e.ercise re son *le c re -1ns(re co'p ny ' int ins f(ll nd cc(r te cco(nting records -8rod(ce nd present nn( l cco(nts

Characteri&tic and compo&ition: -B l nce of 1D nd :1D -:ot *e do'in ted *y single po&erf(l indi2id( l --ole of c% ir' n nd t%e C1; s%o(ld *e sep r ted

Induction pro'ram: Gi2es inco'ing director5 -+n (nderst nding of n t(re of t%e co'p ny4 its *(siness nd t%e ' r0et in &%ic% it oper tes -+ lin0 &it% co'p ny/s people -Underst nding of co'p ny/s ' in rel tions%ip

5e'a( and re'u(ator% framework: +ppoint'ent nd retire'ent $er2ice contr ct -e'o2 l Dis<( lific tion Conflicts of interest )nsider de ling

Chairman: --(ns t%e *o rd -1ns(res t% t t%e *o rd sets nd i'ple'ents t%e co'p ny/s direction nd str tegy effecti2ely -+cts s co'p ny/s le d represent ti2e

CP): Co'p nies need to pro2ide reso(rces for de2eloping nd refres%ing t%e 0no&ledge nd s0ill of director

E,ecuti"e )irector !E)#: -Me'*ers of *o rd of directors &%o re lso senior ' n gers of t%e co'p ny -Us( lly p id s f(ll ti'e e'ployee for t%eir &or0

Non E,ecuti"e )irector !NE)#: -Me'*ers of *o rd of directors &%o do not for' p rt of t%e e.ec(ti2e ' n ge'ent te ' -:ot f(ll ti'e e'ployee of t%e co'p ny or t%ey ct in ny ot%er & y

CEO: --(ns t%e co'p ny -7 0e t%e responsi*ility for t%e perfor' nce of t%e co'p ny s deter'ined *y t%e *o rd/s str tegy --eport to c% ir' n 3

Independence: --e<(ire cert in det c%'ent fro' t%e co'p ny -$%o(ld *e independent in !(dg'ent $e% point&: 1. 2. -ole of *o rd5 81#4 &F 6= Bo rd str(ct(re5 +d2 nt ges nd dis d2 nt ges of (nit ry *o rd nd t&o-tier *o rd B119-12# & F "#-"1 3. Co'position of t%e *o rd

Com-ined code re6uirement: F72 -Bo rd s%o(ld 'eet reg(l rly nd t%e res(lts of t%e 'eeting incl(ded in t%e nn( l report s %ig% le2el st te'ent of t%e oper tion. -7%e nn( l report s%o(ld identify ttend nce nd n 'e of c% ir' n4 C1;4 senior independent4 ot%ers nd co''ittee n t(re nd 'e'*ers%ip. -7%e c% ir' n s%o(ld %old sep r te 'eeting &it% :1D nd :1D s%o(ld 'eet to disc(ss c% ir' n/s perfor' nce. -+ny (nresol2ed 'eeting concerns s%o(ld *e recorded in *o rd 'eetings. )f :1D resigns t%ey '(st notify c% ir' n of concerns. -7%e co'p ny s%o(ld rr nge ppropri te ins(r nce co2er in respect of leg l ction g inst directors. 4. F(nctions of :1D B 116-117&F "6-"" 6. 7%re ts to independence of t%e :1D B 117-B11= &F "7 )ndependence c n *e !(dged s5 -:ot *eing n e'ployee of t%e co'p ny &it%in l st 6 ye rs -:ot % 2ing ' teri l *(siness rel tions%ip &it% t%e co'p ny in l st 3 ye rs -:ot recei2ing ny re'(ner tion e.cept director/s fee >incl(ding s% re option? -:ot % 2ing ny f 'ily ties &it% t%e fir' -:ot %olding cross directors%ips &it% ot%er director -:ot *eing n signific nt s% re%older -:ot % 2ing ser2ed on t%e *o rd for o2er nine ye rs -7%e *o rd s%o(ld consist of % lf independent e.cl(ding t%e c% ir -;ne :1D s%o(ld *e t%e senior independent director &%o is directly 2 il *le to s% re%olders if t%ey % 2e concerns &%ic% c nnot *e de lt &it% t%ro(g% t%e ppropri te c% nnel of c% ir' n4 C1; or fin nce director. ". -ole of c% ir' n nd C1; B112-114F "9-7# 7. Directors ind(ction nd C8D B1#"& F73-76 =. 3eg l d(ty B1#9-111& F 7=-=3 --etire'ent -$er2ice contr ct --e'o2 l

-Dis<( lific tion -Conflicts of interest -)nsider de ling Bo rd co''ittee

+(dit co''ittee

-e'(ner tion co''ittee

:o'in tion co''ittee

-is0 co''ittee

1##@ :1D

1##@ :1D M !ority :1D M !ority :1D

8 y & Benefits of 1D

$tr(ct(re of *o rd

Co'p ny ris0 e.pos(re

$e% point&: 1. 2. -ole nd responsi*ilities of different co''ittees B116&F93-F97 -e'(ner tion5 B123-B124 & F1##-81#2

Chapter 8: )ifferent approache& to corporate 'o"ernance

C d*(ry

Green*(ry

A 'pel

M(ltiple !(risdictions -;1CD principle -)CG: principle

Aiggs Co'*ined code $'it% 7(rn*(ll

Auditor independence +(ditors re restricted in t%e ddition l ser2ice t%ey c n pro2ide to t%e client

Audit committee Co'p ny '(st % 2e n (dit co''ittee-&ill *e dis llo&ed fro' tr ding if it does not % 2e one

9S &tock e,chan'e re'u(ation& -e<(ired (nder t%e +ct-2ery si'il r to U9 reg(l tion

$;B

Audit committee +nn( l report '(st incl(de st te'ents concerning t%e intern l control syste' in t%e co'p ny

Increa&ed financia( di&c(o&ure& Fin nci l report to det il off * l nce s%eet fin ncing 6

$e% point&: 1. De2elop'ent of t%e code5 B =1-=6 & F4#-42 2. $;B5 B==-=9 & F46

Chapter :: Corporate 'o"ernance/ &ocia( re&pon&i-i(it% and di&c(o&ure

C is %o& n org ni, tion is go2erned in p(rs(it of its o*!ecti2e nd incl(des5 -%o& it *e% 2es in rel tion to its en2iron'ent -%o& it interests its s% re%older

CS1 !Corporate &ocia( re&pon&i-i(it%# )s %o& n org ni, tion ' n ges t%e i'p ct of t%eir oper tions on t%e &ider en2iron'ent4 incl(ding consider tion for st 0e%older gro(p

Stakeho(der& ;f n org ni, tion % 2e different o*!ecti2es &%ic% need to *e ' n ged in ter's of org ni, tion l str tegy. $% re%olders re p rtic(l rly i'port nt st 0e%olders to t%e co'p ny.

Shareho(der +re co'p ny o&ners nd entitled to infor' tion fro' t%e directors. Us( lly in t%e for' of -+nn( l report -Gener l 'eeting 1eportin' and di&c(o&ure -Col(nt ry -M nd tory

3e&t practice G(id nce pro2ided *y t%e co'*ined code

enera( meetin'

Pro,% "otin'

$e% point&: 1. C$-5 B9#-91 & F116-11" 2. M nd tory nd 2ol(nt ry disclos(re5 B127-129 & F12=-13# 3. Gener l 'eeting5 B126 & F134

"

4. 8ro.y 2oting5 B12" & F136

Chapter 7: Mana'ement contro( &%&tem& in corporate 'o"ernance

Interna( mana'ement contro( 9ey process concerned &it% ' n ge'ent of ris0s nd c%ie2e'ent of o*!ecti2e

1o(e& and re&pon&i-i(it% -Bo rd of directors -1.ec(ti2e ' n ge'ent

Interna( contro( &%&tem

1e(e"ance to corporate 'o"ernance -)ntern l control nd ris0 ' n ge'ent re f(nd 'ent l co'ponents of good corpor te go2ern nce -CG % s 0ey lin0s to ris0s nd intern l control

O-.ecti"e& and function& -1ns(re go ls nd o*!ecti2es of t%e org ni, tion re 'et -1ns(re reli *le fin nci l nd ' n ge'ent reporting -1ns(re co'pli nce &it% l &s -8rotect org ni, tion/s rep(t tion

Interna( contro( )ndi2id( l co'ponents of n intern l control syste'

E(ement&: ;-is0 ssess'ent -Control en2iron'ent -)nfor' tion nd co''(nic tion -Monitoring -Control cti2ities

$e% point&: 1. 2. 3. Definition of )C5 B13"&F14# ;*!ecti2e of )C5 BF146 1le'ents of )C5 B13"&F166

Interna( contro( Method F16=-1"1 $ $egreg tion of d(ties 8 8%ysic l + +(t%ori, tion nd ppro2 l ; ;rg ni, tion

+ +rit%'etic nd cc(r cy 8 8ersonnel $ $egreg tion of d(ties Most tr ns ctions c n *e *ro0en do&n into t%ree sep r te d(ties5 1. +(t%ori, tion 2. A ndling of t%e sset 3. -ecording of t%e tr ns ction For e. 'ple5 ' 0ing t%e p(rc% se4 ' 0ing t%e p y'ent nd recoding t%e p(rc% se nd p y'ent in t%e cco(nts 8 8%ysic l )t i's to protect p%ysic l ssets g inst t%eft nd (n (t%ori,ed ccess nd (se. 7%ey incl(de5 1. 2. 3. 4. 6. (sing s fe to %old c s% nd 2 l( *le doc('ent (sing sec(re entry syste' to *(ildings nd re s of *(ilding d( l c(stody of 2 l( *le ssets periodic in2entory c%ec0s %iring sec(rity g( rds nd (sing closed circ(it 7C>CC7C?

+ +(t%ori, tion nd ppro2 l For spending ite's4 n org ni, tion needs est *lis% (t%ori, tion li'its. ; ;rg ni, tion )t refers to t%e controls pro2ided *y t%e org ni, tion/s str(ct(re4 s(c% s5 1. 2. 3. 4. t%e sep r tion of n org ni, tion/s cti2ities nd oper tions into dep rt'ent or responsi*ility center4 &it% cle r di2ision responsi*ility deleg ting t%e (t%ority est *lis%ing t%e reporting line coordin ting t%e cti2ities of different dep rt'ents

+ +rit%'etic nd cc(r cy Controls re pro2ided *y5 1. 2. 3. -ecording tr ns ctions properly in t%e cco(nting syste' Being *le to tr ce e c% tr ns ction t%ro(g% t%e cco(nting records Do(*le c%ec0ing

8 8ersonnel 1. $(it *le indi2id( ls re ppointed 2. $(it *le ind(ction nd tr ining

Chapter <: Interna( contro(/ audit comp(iance and reportin' in C

Interna( contro( -Monitoring4 testing nd reporting on t%e effecti2eness of control

Interna( audit -8erfor' n i'port nt f(nction in testing nd reporting on intern l control

E,terna( audit 8erfor's st t(tory f(nction

Function and importance --e2ie& of cco(nting nd intern l control syste' -Det iled testing --e2ie& of oper tions --e2ie& of i'ple'ent tion of corpor te policy

Audit committee A 2e responsi*ility for re2ie& nd 'onitoring of intern l controls nd (dit

1eportin' to &hareho(der& )s i'port nt CG re<(ire'ent

Interna( Audit 8erfor' n i'port nt f(nction in testing nd reporting on intern l controls

7%re ts to independence $elf interest $elf re2ie& +d2oc cy )nti'id tion F 'ili rity

)'port nce )f (ditors re not independent4 &or0 ' y *e *i sed nd t%erefore not reli *le

$e% point&: 1. 2. 3. 4. 6. F(nction nd i'port nce of t%e intern l (dit B 162-163&F1""-1"7 8erfor' nce st nd rd for )+5 B16=-169 & F172-173 7%re ts to independence of (ditors B166-16" &F176-179 +(dit co''ittee nd intern l control B1"3 B1"6& F 1=1-1=6 +(dit co''ittee nd intern l (dit & e.tern l (dit B1"4 &F1=7 F1=9

Chapter =: 1i&k mana'ement/ a&&e&&ment and ri&k mana'ement

1i&k

Mana'ement perception of ri&k

Cate'ori*ation ri&k

of

Mea&urement of ri&k

Contro((in' ri&k

$e% point&: 1. 2. 3. 4. 6. ". 7. -is0 c tegory5 B177-1=7 & F22#-222 F22"-227 -is0 n lysis5 B192-196 F217 )'p ct on t%e st 0e%olders5 B19"-297&F22=-229 -ole of *o rd5 B19= B224 & F234 -ole of ris0 ' n ge'ent co''ittee B224-226&F26# -ole of ris0 ' n ger B22= -ed(ction of ris05 B231-234& F269-2"2

Chapter > Ethic theorie& and profe&&iona( ethic

Code& of ethic&

Ethic theor% -9o%l*erg t%eory -7(c0er/s 'odel

Corporate ethic +pplic tion of 2 l(es to *(siness *e% 2iors

Profe&&iona( Ethic Code&

ACCA Code -)ntegrity -;*!ecti2ity -8rofession l co'petence -Confidenti lity -8rofession l *e% 2ior

Threat& to the auditor?& independence -$elf interest -$elf re2ie& -F 'ili rity -)nti'id tion

1#

Conf(ict& of intere&t

1. 9o%l*erg t%eory5 B2"3-2"4&F2=#-2=3 2. 7(c0er/s 'odel5 B292

-8rofit *le -3eg l -F ir --ig%t -$(st in *le

3. +CC+ codes5 B29#&F331-332 4. Conflicts of interest5 B3#2-3#3 & F334-336 6. 7%re ts to independence5 B294-3#2 & F337-343
II@ Aow to or'ani*e %our an&wer Ade6uac% of an&wer p(an Structured an&wer Inc(u&ion of &i'nificant fact& Information 'i"en not repeated 1e(e"ant content Inference& made Commercia( awarene&& Ai'her &ki((& demon&trated Profe&&iona( commentar%

III Samp(e 6ue&tion and an&wer: 3u&ine&& ri&k and ri&k mana'ement

1. +,(re4 li'ited li *ility co'p ny4 & s incorpor ted in $epi n on 1 +pril 2##4. )n M y4 t%e co'p ny e.ercised n e.cl(si2e rig%t gr nted *y t%e go2ern'ent of 8e&t to pro2ide t&ice &ee0ly direct flig%ts *et&een 3y'e4 t%e c pit l of 8e&t 4 nd D r0e4 t%e c pit l of $epi n . 7%e introd(ction of t%is ser2ice % s *een &ell d2ertised s Defficient nd ti'ely/ in n tion l ne&sp pers. 7%e !o(rney ti'e *et&een $epi n nd 8e&t is e.pected to *e signific ntly red(ced4 so enco(r ging to(ris' nd *(siness de2elop'ent opport(nities in $epi n . +,(re oper tes ref(r*is%ed 36-ye r-old ircr ft &%ic% is le sed fro' n intern tion l irline nd registered &it%

t%e 8e&t n +2i tion +d'inistr tion >t%e 8++?. 7%e 8++ re<(ires t% t engines *e o2er% (led e2ery t&o ye rs. 1ngine o2er% (ls re e.pected to p(t t%e ircr ft o(t of co''ission for se2er l &ee0s. 7%e ircr ft is config(red to c rry 16 First Cl ss4 6# B(siness Cl ss nd 7" 1cono'y Cl ss p ssengers. 7%e

11

ircr ft % s genero(s %old c p city for $epi n /s n('ero(s %ortic(lt(r l gro&ers >e.g. of coco 4 te gener l c rgo. 7%e si. %o(r !o(rney offers n in-flig%t 'o2ie4 prep red in 3y'e (nder

nd fr(it? nd

'e l4 %ot nd cold drin0s nd t .-free s%opping. +ll 'e ls re

contr ct &it% n irport c tering co'p ny. 8 ssengers re in2ited to co'plete

s tisf ction/ <(estionn ire &%ic% is incl(ded &it% t%e in-flig%t entert in'ent nd s%opping g(ide. -esponses recei2ed s%o& t% t p ssengers re gener lly le st s tisfied &it% t%e <( lity of t%e food E especi lly on t%e D r0e to 3y'e flig%t. +,(re e'ploys 1# f(ll-ti'e c *in cre& ttend nts &%o re tr ined in ir-ste& rds%ip incl(ding p ssenger s fety in t%e e2ent of ccident nd illness. Flig%t personnel >t%e c pt in nd co-pilots? re pro2ided (nder contr ct &it% t%e intern tion l irline fro' &%ic% t%e ircr ft is le sed. +t t%e end of e c% flig%t t%e c pt in co'pletes det iling t%e cre& nd ct( l flig%t ti'e. 7ic0et s les re ' de *y +,(re nd tr 2el gents in $epi n nd 8e&t . ;n n('*er of occ sions 1cono'y se ting % s *een o2er-*oo0ed. C(sto'ers &%o % 2e *een ffected *y t%is % 2e *een cco''od ted in B(siness Cl ss s t%ere is '(c% less de' nd for t%is4 nd e2en less for First Cl ss. 7ic0et prices for e c% cl ss depend on ' ny f ctors4 for e. 'ple4 &%et%er t%e tic0ets re ref(nd *leFnon-ref(nd *le4 e.c% nge *leFnon-e.c% nge *le4 single or ret(rn4 'id-&ee0 or &ee0end4 nd t%e ti'e of *oo0ing. +,(re/s ins(r nce co2er incl(des p ssenger li *ility4 freig%tF* gg ge nd co'pens tion ins(r nce. 8re'i('s for p ssenger li *ility ins(r nce re deter'ined on t%e * sis of p ssenger 'iles flo&n. -e<(ired5 > ? )dentify nd e.pl in t%e *(siness ris0s f cing +,(re. >*? Descri*e %o& t%e ris0s identified in > ? co(ld *e ' n ged nd ' int ined t n ccept *le le2el *y +,(re. !a# 3u&ine&& ri&k& -ig%ts to oper te +ccept t t%e present le2el > s one t% t % s to *e *orne? *(t *e r in 'ind >e.g. &%en ' 0ing str tegic decisions? t%e i'p ct t% t ' n ge'ent/s ctions co(ld M y *e g(r nteed 'ini'(' 7er's nd conditions tt c%ed to t%e rig%ts ' y t%re ten +,(re/s oper tion l e.istence if4 for e. 'ple4 t%ere re ny circ('st nces (nder &%ic% t%e rig%ts co(ld *e &it%dr &n. For e. 'ple4 if t%e st nd rd of ser2ice f lls *elo& 'ini'(' specified le2el. Co'petition +lt%o(g% t t%e 'o'ent t%ere ppe rs to *e none > s -Monitor t%e progress of pplic tions for flig%ts to % 2e on ny rene& l of t%e rig%ts. -ele2 nt ter's nd conditions s%o(ld *e co''(nic ted to ll st ff so t%ey re cle r *o(t t%e i'port nce of t%eir re s of responsi*ility. !-# Proce&&e& for mana'in' ti'es%eet

12

t%e rig%ts re e.cl(si2e?4 ny co'petition in t%e f(t(re co(ld red(ce profit *ility >e.g. if t%e rig%t & s to *eco'e non-e.cl(si2e or n indirect ser2ice *et&een $epi n nd 3y'e s%o(ld *e est *lis%ed?.

destin tions &%ic% co(ld pro2ide tr nsit to 3y'e. --ed(ce t%e ris0 *y incre sing t%e reli *ility >e.g. *y incre sing leg roo' nd pro2iding ir-conditioned lo(nges?. nd rep(t tion of +,(re/s ser2ice4 i'pro2ing co'fort etc

+ge of ircr ft 7%e ge of t%e ircr ft >36 ye rs? is li0ely to % 2e *e ring on f(el cons('ption rep irs nd ' inten nce?. 1ngine o2er% (l )f t%e le se is fin nce le se it is li0ely t% t +,(re &ill +s *o2e4 +,(re s%o(ld *(dget its fin nci l reso(rces to 'eet t%e costs of t%e o2er% (l4 t%e ti'ing of &%ic% c n *e pl nned for. 7%e le se gree'ent &it% t%e irline s%o(ld pro2ide t% t n e<(i2 lent ircr ft *e 2 il *le. ltern ti2e is % 2e to *e r t%e costs of t%e o2er% (l E &%ic% ' y % 2e detri'ent l effect on c s% flo&s. 7%e ser2ice &o(ld need to *e s(spended &%ile t%e engine is *eing o2er% (led (nless pl nned for. 3e sed sset +,(re oper tes &it% !(st one le sed sset &%ic% ' y *e &it%dr &n fro' ser2ice5 in t%e interests of p ssenger s fety >e.g. in t%e e2ent of 'ec% nic l f il(re?G for ' !or o2er% (lG if +,(re def (lts on t%e le se p y'ents. -+,(re s%o(ld enter into le se? for contr ct( l rr nge'ent >e.g. ' y *e incl(ded &it%in t%e ter's of n oper ting repl ce'ent ircr ft in t%e e2ent t% t t%e de<( te ins(r nce co2er for pro2iding co'pens tion to ircr ft *e gro(nded. -+,(re s%o(ld c rry re'edying ndFor n nd ot%er costs >e.g. +,(re s%o(ld ' n ge its c s% flo&s nd *orro&ing c p *ility >e.g. * n0 lo n f cility? to c rry o(t ongoing oper ting rep irs s nd &%en needed.

c(sto'ers for signific nt disr(ptions to t%e sc%ed(led ser2ice. F(el prices )ncre ses in f(el prices > ' !or oper tion l cost? &ill red(ce profit *ility. -F(el s(rc% rges s%o(ld *e incl(ded in t%e flig%ts price str(ct(re so t% t signific nt incre ses c n *e p ssed on to t%e c(sto'ers. -Aedging g inst t%e effect of energy price > nd e.c% nge r te? ris0s t%ro(g% for& rd contr cts. He t%er He t%er conditions ' y del y or c ncel flig%ts. M n ge t%e i'p ct of t%e ris0F'odify t%e *(siness cti2ity. For e. 'ple4 s ny for' of tr 2el ' y *e % , rdo(s if &e t%er conditions re so * d s to irdisr(pt t%e flig%t sc%ed(le 7%ere s%o(ld *e *efore t%eir !o(rney. Aortic(lt(r l c rgo Cert in prod(ce ' y *e pro%i*ited fro' i'port >e.g. d(e to t%e ris0 of spre d of dise se?. -Contr cts &it% gro&ers s%o(ld cle rly st te ite's -+,(res oper tion l controls s%o(ld incl(de

conditioned f cilities in &%ic% tr 2elers c n rel .

13

2erific tion c%ec0s on prod(ce c rried. Gro&ers ' y see0 to %old +,(re li *le for5 prod(ce &%ic% peris%es >e.g. if s(ccessi2e flig%ts re c ncelled?G i'po(nded goods. 1cono'y Hit% signific ntly less de' nd for B(siness Cl ss t% n for 1cono'y >&%ic% gets o2er-*oo0ed? nd re2ie& nd respond to t%e e.cess of s(pply o2er e2en less for First Cl ss4 t%e ser2ice is oper ting t de' nd for 1cono'y se ting > nd de' nd &ell *elo& c p city >econo'y is only 64@ of se ting c p city? +,(re ' y not *e reco(ping fi.ed oper ting costs in t%e long r(n E ' 0ing t%e ser2ice (necono'ic l. 9eep de' nd for t%e cl sses of tic0ets (nder re2ie& nd respond to t%e e.cess of s(pply o2er de' nd for 1cono'y se ting. For e. 'ple5 c% rge %ig%er prices for econo'y on pe 0 flig%tsG offer l rger disco(nts for d2 nce *oo0ings on First nd B(siness Cl ss se tsG introd(ce (pgr des. $er2ice le2els +,(res sc%ed(le is descri*ed s efficient nd ti'ely/. )f t%e le2el of ser2ice deli2ered does not 'eet e.pect tions it is (nli0ely t% t &ill *e est *lis%ed. ;n-*o rd ser2ices 8 ssengers re e.pressing diss tisf ction &it% 'e ls pro2ided4 especi lly on t%e Dret(rn/ flig%t fro' D r0e. 7%e food prep red in 3y'e ' y *e st le or cont 'in ted *y t%e ti'e it is ser2ed. 8 ssengers ' y *e deterred fro' (sing t%is flig%t t%e <( lity of 'e ls for long-% (l flig%ts. if t%ey re s(*!ect to t%e ris0 of illness. 8 ssenger s fety 8en lties for non-co'pli nce &it% s fety reg(l tions >e.g. ' inten nce c%ec0s on life s fety drill proced(res >e.g. in e2 c( tion ! c0ets4 etc? ' y *e inc(rred if inspection logs re not 0ept. +,(re ' y f ce l &s(it for person l in!(ry nd illness $ fety proced(res '(st *e de'onstr ted *efore +,(re ' y f ce l &s(its for person l in!(ry or t 0e-off on e2ery flig%t nd p ssengers referred to illness >e.g. deep 2ein t%ro'*osis E Dd2t/?4 s fety infor' tion4 $t ff tr ining s%o(ld *e on-going &it% reg(l r s fety drill proced(res. +,(re s%o(ld consider5 E c% nging c terer in 3y'eG E contr ct &it% c terer in D r0eG E e.pert d2ice >e.g. of c%ef? on preser2ing reg(l r c(sto'er * se +,(re s%o(ld *enc%' r0 t%e ti'eliness of its ser2ice4 g inst co'p r *le irline ser2ice oper ting (nder si'il r &e t%er conditions. loy lty sc%e'e for fre<(ent (sers &%ic% offers Dpreferred c(sto'er/ se t +,(re s%o(ld % 2e de<( te ins(r nce co2er g inst cl i's for d ' gedFlost c rgo.

14

incl(ding %o& to red(ce t%e ris04 pro2ided &it% e c% se t. +ir ste& rdsFC *in cre& s fety +,(re &ill % 2e diffic(lty recr(iting nd ' int ining t%e ser2ices of ppropri tely <( lified c *in cre& if it does not % 2e s(fficient reg rd for t%eir %e lt% nd s fety. 1'ergency + serio(s ccident >e.g. fire?4 collision or *re 0do&n ' y t%re ten oper tions in *ot% s%ort nd longer-ter'. +ccept t t%e present le2el4 *(t t 0ing ll pr ctic *le s fety c%ec0s no& i'ple'ented in t%e irline ind(stry to ens(re t% t +,(re is not e.posed to pre2ent *le ris0s. For e. 'ple5 .-r y screening of c%ec0ed-in * gg geG sec(rity screening of c *in * gg ge nd p ssengers4 etc. Flig%t personnel +,(re ' y not *e *le to ser2ice t%e flig%t in t%e e2ent of non-s(pply of flig%t personnel *y t%e intern tion l irline >e.g. d(e to stri0e ction?. 7%e gree'ent &it% t%e irline s%o(ld inde'nify +,(re for ll costs nd losses inc(rred if flig%ts re c ncelled or disr(pted d(e to non- 2 il *ility of flig%t personnel. Flig%t tic0ets 7ic0ets re sold *y 'ore t% n one p rty >+,(re nd tr 2el gents? nd t 'ore t% n one loc tion. lso4 pricing is co'ple.4 &it% r nge of t riffs depending on ' ny f ctors. 7%is incre ses t%e ris0 t% t re2en(e ' y *e lost if p ssengers re (nderc% rged or tic0et s les (nrecordedG nd flig%ts ' y *e o2er-*oo0ed4 &it% conse<(ent loss of c(sto'er good&ill. 7%e config(r tion of t%e ircr ft does not c(rrently 'eet t%e c(rrent de' nd profile of p ssengers (nder t%e ter's c% nge *le. nd n oper ting le se ' y not *e Co''ence negoti tions &it% t%e intern tion l irline for n 'end'ent to t%e c(rrent le se nd ter's llo&ing fle.i*ility in t%e se ting rr nge'ents. $trict controls '(st *e e.ercised o2er5 (n(sed tic0etsG tic0et pricingG re l-ti'e reser2 tions tic0et ref(nd nd e.c% nge tr ns ctions. Flig%t personnel rot s s%o(ld ens(re4 for e. 'ple4 E pilots t 0e Dgro(nd le 2e/ *et&een flig%tsG t%eir %e lt% nd s fety. E t%ere is de<( te Dco2er/ &%en cre& re sic0 or t 0ing le 2e.

16

2. Aydr sports4 li'ited li *ility co'p ny nd n tion l leis(re gro(p4 % s si.teen centres ro(nd t%e co(ntry nd %e d office. F cilities t e c% centre re of st nd rd design &%ic% incorpor tes %e ted s&i''ing pool4 s (n 4 ir-conditioned gy' nd fitness st(dio &it% s(per2ised c%ildc re. 1 c% centre is ' n ged on d y-to-d y * sis4 *y centre ' n ger4 in ccord nce &it% co'p ny policies. 7%e centre ' n ger is lso responsi*le for prep ring nd s(*'itting 'ont%ly cco(nting ret(rns to %e d office. 1 c% centre is re<(ired to % 2e licence fro' t%e loc l (t%ority to oper te. 3icences re gr nted for periods

*et&een t&o nd fi2e ye rs nd re rene& *le s(*!ect to s tisf ctory reports fro' loc l (t%ority inspectors. 7%e 2er ge nn( l cost of licence is I9##. Me'*ers p y I1## !oining fee4 pl(s eit%er I6# per 'ont% for Dpe 0/ 'e'*ers%ip or I3# per 'ont% for Doff-

pe 0/4 p y *le <( rterly in d2 nce. +ll fees re st ted to *e non-ref(nd *le. 7%e centre t Cerne & s closed fro' J(ly to $epte'*er 2##3 fter f cilities *e s(spended (ntil f(rt%er notice. )n response to co'pl ints to t%e loc l (t%orities *o(t its c%ildc re f cilities4 Aydr sports % s iss(ed centre ' n gers &it% re2ised g(idelines for 'ini'(' le2els of s(per2ision. Centre ' n gers re finding it diffic(lt to 'eet t%e ne& g(idelines nd % 2e s(ggested t% t c%ildc re f cilities s%o(ld *e &it%dr &n. $t ff l teness is rec(rring pro*le' nd ' !or c (se of De rly *ird/ c(sto'er diss tisf ction &it% sessions &%ic% re sc%ed(led to st rt t #7.##. :e& e'ployees re gener lly ttr cted to t%e ind(stry in t%e s%ort-ter' for its nonc s% *enefits4 incl(ding free (se of t%e f cilities E *(t le 2e &%en t%ey re<(ire incre sed fin nci l re& rds. 7r ining st ff to *e <( lified life-g( rds is costly nd ti'e-cons('ing nd retention r tes re poor. 7(rno2er of centre ' n gers is lso %ig%4 d(e to t%e constr ints i'posed on t%e' *y co'p ny policy. 7%ree of t%e centres re e.pected to % 2e r(n t 'e'*ers%ip. Aydr sports % s in2ested %e 2ily in loss for t%e ye r to 31 Dece'*er 2##3 d(e to f lling %ydrot%er py pool t one of t%ese centres4 &it% t%e i' of c%e'ic l spill in t%e s (n c (sed serio(s

ccident. +lt%o(g% t%e centre & s re-opened4 Aydr sports % s reco''ended to ll centre ' n gers t% t s (n

ttr cting retired 'e'*ers &it% 'ore leis(re ti'e. 7%e *(ilding contr ctor % s lre dy *illed t&ice s '(c% nd t 0en t%ree ti'es s long s *(dgeted for t%e &or0. 7%e pool is no& e.pected to open in Fe*r( ry 2##4. C s% flo& diffic(lties in t%e c(rrent ye r % 2e p(t * c0 t%e pl nned repl ce'ent of gy' e<(ip'ent for 'ost of t%e centres. )ns(r nce pre'i('s for li *ility to e'ployees nd t%e p(*lic % 2e incre sed *y ne rly 46@. Aydr sports % s 'et t%e ddition l e.pense *y red(cing its ins(r nce co2er on its pl nt nd e<(ip'ent fro' repl ce'ent cost * sis to net re lis *le 2 l(e * sis.

1"

-e<(ired5 >i? )dentify nd e.pl in t%e *(siness ris0s &%ic% s%o(ld *e ssessed *y t%e ' n ge'ent of Aydr sports. >ii? 1.pl in %o& e c% of t%e *(siness ris0s identified in >i? ' y *e lin0ed to fin nci l st te'ent ris0. An&wer: >i? B(siness ris0s 7%e st nd rd design of f cilities incre ses oper tion l ris0 s ny diffic(lties enco(ntered in one f cility &ill *e co'po(nded *y t%e n('*er of ot%er f cilities >potenti lly ll? &%ic% re si'il rly ffected. 7%is is ill(str ted *y t%e in (se clos(re of t%e s (n s. Centr lised control t%ro(g% co'p ny policy is res(lting in inefficient nd ineffecti2e oper tions s ' n gers c nnot respond on needs. B(siness reporting ris0 is li0ely to *e incre sed *y centre ' n gers prep ring 'ont%ly cco(nting ret(rns. ;per tion l ris0 ' y *e incre sed if centre ' n gers c nnot f(lfil t%eir d y-to-d y responsi*ilities >e.g. rel ting centre ' n gers. to c(sto'er s tisf ction4 %(' n reso(rces4 %e lt% nd s fety?. +d2 nced p y'ents contri*(te to *(siness reporting nd fin nci l >c s% flo&? ris0. C s% recei2ed '(st *e 2 il *le to 'eet t%e costs of pro2iding f(t(re ser2ices. ti'ely * sis to loc l M n ge'ent circ('2ention or o2erride of control proced(res l id do&n *y %e d office ' y res(lt in syste' &e 0nesses. )f errors rising re not detected nd corrected t%e ris0 of 'isst te'ent in t%e fin nci l st te'ents is incre sed. -)nfor' tion processing ris0 is incre sed s cco(nting infor' tion flo&ing into t%e fin nci l st te'ents ' y not *e properly c pt(red4 inp(t4 processed or o(tp(t *y t%e centre ' n gers. - )n%erent ris04 of errors rising4 in 'ont%ly *r nc% ret(rns is %ig%. --e2en(e ' y *e o2erst ted if n cc(r te c(toff is not c%ie2ed. )n p rtic(l r4 t%ere is n esti' te ris0 in deter'ining t%e * l nce s%eet d te. - +n error of principle ' y lso rise if Aydr sports re2en(e recognition policy does not co'ply &it% )+$ 1= -e2en(e/. 'o(nt of deferred inco'e t t%e >ii? Fin nci l st te'ent ris0 7%e c rrying 'o(nt of t%e ssoci ted non-c(rrent ssets >i.e. e<(ip'ent4 fi.t(res nd fittings? is li0ely to *e o2erst ted s t%ey re li0ely to *e i'p ired if t%ey re not in (se.

Aydr sports c nnot oper te f iling

centre if

licence is

+n error of principle

rises if licences

re not

s(spended4 &it%dr &n or not rene&ed >e.g. t%ro(g% loc l (t%ority inspection or f iling to pply for rene& l?. Clos(re ' y res(lt in c(sto'ers finding ltern ti2e f cilities &it% per' nent loss of fee re2en(e. 1 rly *ird c(sto'ers dis tisf ction si'il rly incre ses oper tion l ris0.

c pit lised s int ngi*le ssets >*(t inste d &ritten off s e.penses &%en inc(rred?. F il(re ris0 >i.e. t% t Aydr sports &ill not contin(e to oper te s going concern? is incre sed. 7%is cre tes disclos(re ris0 if t%e disclos(res rel ting to going concern s t%e * sis of cco(nting do not

17

'eet t%e re<(ire'ents of )+$ 1 D8resent tion of Fin nci l $t te'ents/. $erio(s ccidents ' y pro'pt in2estig tion *y loc l (t%ority E res(lting in pen lties4 fines &it%dr & l of licence to oper te. ndFor -)f licences re &it%dr &n4 t%e int ngi*le sset > 'o(nts prep id? s%o(ld *e &ritten off to t%e e.tent t% t 'onies re not ref(nd *le. - 7%e li0eli%ood of contingent >if not ct( l? li *ilities incre ses disclos(re ris0. +lt%o(g% fees re non-ref(nd *le4 s(spension of 8ro2isions ' y *e (nderst ted t 31 Dece'*er 2##3 if Aydr sports % s leg l o*lig tion to ref(nd fees &%ere it % s f iled to pro2ide ser2ices. f cility >e.g. s (n ? ' y res(lt in c(sto'ers s0ing for p rti l ref(nd. )n p rtic(l r Aydr sports ' y % 2e n o*lig tion to ref(nd fees p id in d2 nce &%en centres re closed >e.g. t%e Cerne centre fro' J(lyE$epte'*er 2##3?. 8er' nent loss of c(sto'ers re<(iring c%ildc re f cilities incre ses oper ting ris0. Co'pli nce ris0 is incre sed if t%e ne& g(idelines re not 'et. $i'il rly4 in *ility to ret in lifeg( rds incre ses oper tion l ris0 t% t pools c nnot open >d(e to %e lt% nd s fety reg(l tions?. Co'pli nce ris0 is incre sed *y t%e possi*ility t% t pools ' y *e oper ted &it%o(t lifeg( rd *eing on d(ty. Aig% st ff t(rno2er indic tes incre sed oper tion l ris0 >poor %(' n reso(rce ' n ge'ent4 inefficiency in &or0ing pr ctices4 red(ced c p city4 etc?. 3i'it tions on centre ' n gers le2els of (t%ority ' y not *e co''ens(r te &it% t%eir responsi*ilities. 1'po&er'ent ris0 rises if ' n gers re not properly led > nd if t%ey4 in t(rn4 do not properly le d t%eir centre st ff?. More centres ' y *eco'e loss-' 0ing if t%e re sons for f lling 'e'*ers%ip re not ddressed. 7%e %ydrot%er py pool c nnot oper te (ntil constr(ction is co'pleted nd co'pletion ' y *e +ny l c0 of integrity ' y incre se t%e ris0 of ' n ge'ent ndFor e'ployee fr (d4 illeg l cts nd (n (t%orised (se of co'p ny ssets. )n p rtic(l r t%e ssertion of e.istence of >res(lting in o2erst te'ent?. 3oss-' 0ing centres s%o(ld *e tested for i'p ir'ent s c s%-gener ting (nits. 7%e 2 l(e of t%e sset in constr(ction s%o(ld *e &ritten do&n if it is i'p ired >e2en t%o(g% it % s not yet *een *ro(g%t into (se?. $ee *o2e reference to going concern nd disclos(re ris0. ;*solete gy' e<(ip'ent incre ses oper tion l ris0 s c(sto'er s tisf ction decre ses nd %e lt% nd s fety ris0s re incre sed. -Depreci tion ' y *e o2erst ted if Aydr sports contin(es to c lc(l te depreci tion on f(llydepreci ted ssets. - Disclos(res for c pit l co''it'ents >e.g. to repl ce e<(ip'ent? in t%e fin nci l st te'ents ' y *e in ppropri te if Aydr sports does not % 2e f(nds to fin nce s(c% co''it'ents. ssets ' y *e t ris0 $t ff costs ' y *e o2erst ted s t%e ris0 t% t p y'ents ' y *e ' de to le 2ers is incre sed. Disclos(re ris0 is > g in? incre sed if finesFpen lties rising re ' teri l nd not disclosed.

t%re tened *y c s% flo& diffic(lties. C s% flo& diffic(lties incre se li<(idityFfin nci l ris0.

1=

- $ee *o2e reference to going concern nd disclos(re ris0. 7%e red(ction in ins(r nce co2er red(ces t%e reco2er *le lostFd ' ged *o2e?. ;per tion l ris0 is incre sed if t%e s(*st nti l incre se in li *ility ins(r nce pre'i('s is reflection of n incre se in t%e le2el of cl i's *eing ' de. 3. 7%e princip l cti2ity of B tele(r Koo G rdens >BKG? is t%e conser2 tion of ni' ls. +ppro.i' tely =#@ of t%e ,oo/s inco'e co'es fro' d'ission fees4 'oney spent in t%e food nd ret il o(tlets nd ni' l sponsors%ip. 7%e re' inder co'prises don tions nd in2est'ent inco'e. +d'ission fees incl(de d y 2isitor entr nce fees >Dg te/? nd nn( l 'e'*ers%ip fees. D y tic0ets ' y *e pre*oo0ed *y credit c rd (sing telep%one *oo0ing D%otline/ nd 2i t%e ,oo/s &e*site. -ed(ced fees re 2 il *le >e.g. to st(dents4 senior citi,ens nd f 'ilies?. +ni' l sponsors%ips4 &%ic% l st for one ye r4 ' 0e sponsored ni' l/s enclos(re. BKG/s ' n ge'ent % s identified t%e follo&ing pplic *le ris0s t% t re<(ire f(rt%er consider tion nd re to *e cti2ely ' n ged5 >i? -ed(ction in d'ission inco'e t%ro(g% f il(re to in2est in ne& e.%i*its nd *reeding progr 's to ttr ct 2isitorsG >ii? +ni' l sponsors%ips ' y not *e in2oiced d(e to inco'plete d t tr nsfer *et&een t%e sponsoring nd in2oicing dep rt'entsG >iii? Corpor te sponsors%ips ' y not *e c% rged for t ppro2ed r tes E eit%er in error or d(e to rr nge'ents &it% t%e co'p nies. )n p rtic(l r4 t%e sponsoring dep rt'ent ' y not notify t%e in2oicing dep rt'ent of reciproc l rr nge'ents4 &%ere*y sponsoring co'p nies pro2ide BKG &it% d2ertising >e.g. in co'p ny ' g ,ines nd nn( l reports?G >i2? C s% recei2ed t t%e entr nce g te tic0et offices >D0ios0s/? ' y not *e p ssed to c s%iers in t%e cco(nts dep rt'ent >e.g. t%ro(g% t%eft?G >2? 7%e tic0et *oo0ing nd iss(ing syste' ' y not *e 2 il *leG >2i? Don tions of ni' ls to t%e collection >e.g. fro' C(sto's nd 1.cise sei,(res nd r re *reeds ent%(si sts? ' y not *e recorded. -e<(ired5 signific nt contri*(tion to t%e cost of speci list diets4 Disclos(re ris0 is incre sed in rel tion to contingent ssets >for rei'*(rse'ent (nder ins(r nce policies?. 'o(nt of ssets in t%e e2ent of loss t%ro(g% fire >for e. 'ple?. )n *ility to repl ce ssets incre ses oper tion l ris0 >see o*solete gy' e<(ip'ent $ee *o2e reference to going concern nd disclos(re ris0.

enclos(re ' inten nce nd 2eterin ry c re. +ni' l sponsors *enefit fro' t%e d2ertise'ent of t%eir n 'es t t%e

19

> ? Descri*e s(it *le intern l controls to ' n ge e c% of t%e pplic *le ris0s identified. >*? 1.pl in t%e fin nci l st te'ent ris0s rising fro' t%e pplic *le ris0s.

An&wer: >i? 3 c0 of in2est'ent Mont%ly re2ie& nd 'onitoring of5 d'ission feesG n('*er of d y 2isitorsG nn( l 'e'*ers%ips t 0en o(t > n lysed *et&een ne& nd rene&ed?G l psed 'e'*ers%ipG sponsors%ip & iting lists > ni' ls &it%o(t sponsors nd sponsors & iting for s(it *le ni' ls?. +ppro2 l of nn( l *(dgets &%ic% pl n for de<( te in2est'ent to ttr ct 2isitors. Mont%ly co'p rison of ct( l e.pendit(re on ne& e.%i*its nd *reeding progr 's g inst *(dget E to see t%e e.tent to &%ic% t%e e.pected le2el of in2est'ent in de2elop'ent is *eing ' de. >ii? )nco'plete d t tr nsfer Mont%ly reconcili tions of ct( l >in2oiced? sponsors%ip inco'e to t% t e.pected >* sed on n('*er of sponsors%ips4 *y type4 per sponsor dep rt'ent records? nd in2estig tion of s%ortf lls. Monitoring of inst nces of inco'pleteFin cc(r te d t tr nsfer E %o& identified4 re son for occ(rrence4 'o(nts in2ol2ed4 %o& rectified. >iii? :on-c% rges Monitoring of sponsors%ip inco'e gener ted >i.e. ct( l? to t% t 2 il *le >e.g. pro!ected?4 *y cl ss of ni' l4 nd in2estig tion of s%ortf lls. Co'p rison of BKG/s d2ertising e.pendit(re g inst *(dget >to identify potenti l for (nrecorded costs?. >i2? Mis ppropri ted c s% 7&o people co(ld D' n/ e c% tic0et 0ios0 t ll ti'es. + d(ty log s%o(ld *e 0ept >d te4 ti'e4 st ff 'e'*er?. 7%e 0ios0s '(st not *e left (n ttended &%ile c s% is %eld t%ere. +ll c s% recei2ed fro' 2isitors s%o(ld *e co(nted nd recorded nd receipt gi2en. C s% nd copy of t%e receipts s%o(ld *e tr nsferred4 sec(rely4 to c s%iers. 7%e e.istence of CC7C t t%e 0ios0s s%o(ld *e ' de e2ident4 to ct s deterrent. D ily reconcili tion of c s% t 0ings to Dg te/ >i.e. n('*er of d y 2isitors? nd in2estig tion of ny pp rent s%ortf ll. + sep r te d'ission g te fter t%e 0ios0 c%ec0s t% t entr nts % 2e *een iss(ed tic0et. +n (dit *le c s% register syste' to control c s% dr &ers t tic0et *oot%s. 7r ns ctions '(st *e tr ce *le in '(ltiple for's of tender >c s%4 credit c rd?. M(ltiple c s% dr &er inserts en *ling <(ic0 nd e sy s%ift c% nges. +n (to' ted (dit tr il of ll 'o2e'ents in nd o(t of e c% dr &er.

2#

>2? $yste's not 2 il *le B c0 (pFreco2eryFcontingency pl ns '(st *e in pl ce to ens(re t% t BKG c n t 0e *oo0ings nd iss(e tic0ets e2en &%en t%e electronic syste' is not 2 il *le. )n p rtic(l r4 t%e * c0 (p syste' s%o(ld *e tested periodic lly to ens(re t% t credit c rd *oo0ings c n *e t 0en nd correct disco(nts processed for concession ry tic0ets nd gro(p *oo0ings. 8re2enti2e rr nge'ents to ens(re t% t ny Ddo&n ti'e/ is 0ept to reli *le syste's co'ponents nd fre<(ent %o(se0eepingF' inten nce. >2i? Unrecorded don tions 8eriodic inspection of ni' ls nd co'p rison &it% *oo0 records >e.g. fi.ed sset register for l rger species nd in2entory records for s' ller species?. Co'p ring ne& ni' ls identified *y 2eterin ry records to dditions to in2entory records >or sset register?. >*? Fin nci l st te'ent ris0s >i? + going concern >Df il(re/? ris0 rises fro' l c0 of in2est'ent. +ny signific nt do(*ts *o(t going concern '(st *e s(it *ly disclosed in t%e notes to t%e fin nci l st te'ents. Disclos(re ris0 rises if t%e re<(ire'ents of )+$ 1 D8resent tion of Fin nci l $t te'ents/ re not 'et. >i? + red(ction in d'ission inco'e ' y res(lt in sset i'p ir'ent. BKG/s ' n ge'ent s%o(ld perfor' i'p ir'ent tests on t%e c rrying 'o(nt of t%e l rger e.%i*its4 in ccord nce &it% )+$ 3" D)'p ir'ent of +ssets/. )nco'e ' y *e ' teri lly (nderst ted d(e to5 >ii? inco'plete d t tr nsfer res(lting in in2oices not *eing r isedG >iii? (nrecorded sponsors%ips rising fro' d2ertising rr nge'ents. 7(tori l note5 )t is (nli0ely t% t inco'e &o(ld *e o2erst ted s co'p nies &o(ld disp(te t%e r tes if t%ey &ere o2erc% rged for sponsors%ips. >iii? BKG/s d2ertising costs &ill *e (nderst ted if t%eir * rter for sponsors%ips is not recorded. )f ' teri l4 t%ere is ris0 of non-co'pli nce &it% fin nci l reporting re<(ire'ents >$)C 31 D-e2en(e E B rter 7r ns ctions )n2ol2ing +d2ertising $er2ices/?. >i2? C s% ssetF d'ission inco'e &ill *e (nderst ted in respect of c s% &%ic% does not re c% t%e cco(nts dep rt'ent. )f so'e of t%is c s% is not stolen *(t r t%er ppropri ted for (se in t%e *(siness >e.g. in 'eeting d y-tod y c s% e.penses? t%en costs &o(ld *e (nderst ted lso. 7%e fin nci l st te'ent ris0 is gre ter if inco'e is Dlost/ t%ro(g% (ntic0eted entry > s it &ill *e 'ore diffic(lt to <( ntify t% n if 'is ppropri tion occ(rs fter tic0ets % 2e *een iss(ed?. >2? 7%ere ' y *e no fin nci l st te'ent ris0. For e. 'ple4 if BKG &ere to d'it people for free t%ere &o(ld *e no d'ission fees to *e recorded for t% t d y. +ltern ti2ely4 in t%e *sence of n de<( te * c0 (p syste'4 t%e ris0 of (nrecorded c s%Finco'e identified in >i2? ' y *e e. cer* ted. >2i? +ssets > nd reser2es? &ill *e (nderst ted if don ted ni' ls re not initi lly recognised t f ir 2 l(e >)+$ 1" D8roperty4 8l nt nd 1<(ip'ent/?. Profe&&iona( and ethica( i&&ue Samp(e 6ue&tion and an&wer: 1.Lo( re tr ining ' n ger in A &0 +ssoci tes4 fir' of C% rtered Certified +cco(nt nts. 7%e fir' % s s(ffered red(ction in fee inco'e d(e to incre sing restrictions on t%e pro2ision of non- (dit ser2ices to (dit clients. 7%e follo&ing propos ls for o*t ining profession l &or0 re to *e disc(ssed t fort%co'ing in-%o(se se'in r5 'ini'('. For e. 'ple4 c<(iring %ig%ly

21

> ? Cold c lling/ >i.e. ppro c%ing directly to see0 ne& *(siness? t%e c%ief e.ec(ti2e officers of loc l *(sinesses nd offering t%e' free second opinions. >*? 8l cing n d2ertise'ent in n tion l cco(nt ncy ' g ,ine t% t incl(des t%e follo&ing5 )f yo( % 2e n sset on &%ic% l rge c% rge *le g in is e.pected to rise &%en yo( dispose of it4yo( s%o(ld *e

interested in t%e *est t . pl nning d2ice. Ao&e2er yo(r g ins 'ig%t rise4 t%ere re tec%ni<(es yo( c n pply. A &0 +ssoci tes c n ens(re t% t yo( consider ll t%e ltern ti2e f ct present tions so t% t yo( 'ini'ise t%e 'o(nt of t . yo( 'ig%t % 2e to p y. :o t . s 2ing E no feeM/ >c? Displ ying *(siness c rds longside t%ose of loc l tr des'en nd ser2ice pro2iders in s(per' r0ets nd li*r ries. 7%e c rds &o(ld re d5 A &0 +CC+ +ssoci tes For 8-;F1$$);:+3 +cco(nt ncy4 +(dit4 B(siness Cons(lt ncy nd 7 . tion $er2ices Co'petiti2e r tes. Money * c0 g( r ntees./ -e<(ired5 Co''ent on t%e s(it *ility of e c% of t%e *o2e propos ls in ter's of t%e et%ic l nd ot%er profession l iss(es t% t t%ey r ise. An&wer: > ? Cold c lling/ 7(tori l note5 -ecognising t% t t%ere re t%ree iss(es to ddress >i.e. Dcold c lling/4 Dfree/ nd Dsecond opinions/? is li0ely to e rn 'ore ' r0s t% n foc(sing on !(st one. Until rel ti2ely recently Dcold c lling/ % s *een l rgely pro%i*ited t%ro(g%o(t t%e profession > nd still is in so'e co(ntries e.g. Aong 9ong?. 7%erefore t%e Ddirect/ ppro c% ' y not *e s(it *le. H%ere Dcold-c lling/ restrictions % 2e *een rel .ed it ' y still only *e per'itted for e.isting *(siness clients >i.e. to offer t%e' ddition l ser2ices?4 t%e direct ppro c% to non-*(siness clients *eing pro%i*ited. 7%is in%i*its co'petition. +lt%o(g% t%e pr ctice ' y *e 2ie&ed s D *it gr(**y nd co''erci l/ it is no& gener lly reg rded s n ccepted 'odern *(siness pr ctice. +long &it% ot%er profession l *odies4 +CC+ re'o2ed its pro%i*ition on Dcold c lling/ in 2##2. H%ilst A &0 is per'itted to Dcold c ll/4 t%e f(nd 'ent l et%ic l principles '(st *e d%ered to. H%ilst solicit tion &%ic% is decent4 %onest nd tr(t%f(l ' y *e ccept *le4 cold c lling &%ic% 'o(nts to % r ss'ent is not. ;ffering ser2ice for Dfree/ is not pro%i*ited pro2ided t% t t%e client is not 'isled *o(t f(t(re le2els of fees. 7%ere re strict et%ic l r(les reg rding Dsecond opinions/ >on cco(nting tre t'ents?. 8r ctitioners re d2ised :;7 to pro2ide second opinions4 &%en re<(ested4 &it%o(t follo&ing pr ctice is to *e disco(r ged. >*? 7 . pl nning proced(re of cont cting t%e inc('*ent (ditorF cco(nt nt. 7%erefore to *e offering second opinions cle rly goes g inst et%ic l g(idelines E s t%e

22

 +d2ertising is gener lly llo&ed s(*!ect to t%e o*ser2 nce of t%e f(nd 'ent l principles of et%ic l codes >e.g. )F+C/s Code of 1t%ics for 8rofession l +cco(nt nts/4 +CC+/s D-(les of 8rofession l Cond(ct/?. +lt%o(g% direct d2ertising >i.e. on tele2ision4 r dio4 cine' ? is pro%i*ited in ' ny !(risdictions >e.g. Aong 9ong?4 n d2ertise'ent in n tion l cco(nt ncy ' g ,ine is gener lly per'itted. H%ere d2ertising is per'itted4 t%e 'ini'(' re<(ire'ents re t% t it *e decent4 %onest4 tr(t%f(l nd in good t ste. 7%ese criteri ' y not *e 'et in t%is propos l s5 e.pect tions of f 2o(r *le res(lts >lo&er t . li *ilities? ' y *e (n!(stifi *le >or cre ted decepti2ely?G tec%ni<(es yo( c n pply/ ' y i'ply n *ility to infl(ence t . tion (t%oritiesG t%e *est/ is li0ely to *e self-l (d tory st te'ent nd not * sed on 2erifi *le f ctsG t%e *est/ ' y lso *e ' 0ing n (n!(stifi *le co'p rison &it% ot%er profession l cco(nt nts in p(*lic pr cticeG t%e *est t . pl nning d2ice/ ' y *e n (n!(stifi *le cl i' of e.pertise or speci lis' in t%e field of t .. C n ens(re N/ nd t%e ssertion of D ll/ ' y not *e s(pport *le cl i's4 t%erefore t%e d2ertise'ent is not %onest in t%ese respects. 7%ere is Dfine line/ *et&een t . 2oid nce nd t . e2 sion nd Dtec%ni<(es yo( c n pply/ nd D ltern ti2e f ct present tions/ ' y le n to& rd t%e l tter nd so not *e in 0eeping &it% t%e integrity of t%e profession. 7%e ssertion of *eing *le to D'ini'ise t%e 'o(nt of t ./ ' y e.pose A &0 +ssoci tes to litig tion. 7%e eng ge'ent ris0 ssoci ted &it% t 0ing on t%is &or0 &o(ld *e %ig% nd so s%o(ld c rry co''ens(r tely %ig% fees. 7%e Dno t . s 2ing E no fee/ offer does not co'pens te for t%e ris0 ssoci ted &it% (ndert 0ing t%e &or0 d2ertised. Contingency fees4 &%ere*y no fee &ill *e c% rged (nless >(nless ot%er&ise per'itted *y st t(te of 'e'*er *ody?. >c? B(siness c rds B(siness c rds ' y *e considered for' of st tionery nd s%o(ld *e of n ccept *le profession l st nd rd nd co'ply &it% leg l nd 'e'*er *ody re<(ire'ents concerning n 'es of p rtners4 princip ls4 profession l t rget (dience 'ig%t re son *ly *e e.pected to e.ist >e.g. in n descriptions4 design tory letters4 etc. H%ilst pl cing s(c% n d2ertise'ent &%ere st t(s of profession l cco(nt nts. +n d2ertise'ent t%e si,e of li'ited sp ce for infor' tion. Ao&e2er4 t%e tone of t%e d2ertise'ent ' y discredit t%e +CC+ n 'e. )t is lso (ns(it *le t% t it see0s to t 0e (nf ir d2 nt ge of t%e +CC+ n 'e. +lt%o(g% t%e +CC+ ' r0 c n *e (sed *y A &0 +ssoci tes on letter%e ds nd st tionery >for e. 'ple? it c nnot *e (sed in ny & y &%ic% conf(ses it &it% t%e fir'. 7%e e'p% sis on Dprofession l/ ' y *e (ns(it *le s it co(ld s(ggest t% t t%ere re ot%er t% n profession l cco(nting4 (dit >etc? ser2ices to *e % d. ;ffering r nge of non- (dit ser2ices in t%e s 'e sentence s D (dit/ ' y 'isle d interested persons pic0ing (p t%e c rd into t%in0ing t% t A &0 c n pro2ide t%e' toget%er. 7%is conflicts &it% t%e f ct t% t A &0 is restricted in pro2iding non- (dit ser2ices to (dit clients. 7%ere is no * sis for sserting Dco'petiti2e r tes/. )t is (nli0ely t% t ny profession l &o(ld offer D'oney * c0/. )n t%e e2ent of disp(te >e.g. o2er fees?4 t%e ' tter &o(ld *e t 0en to r*itr tion >&it% t%eir 'e'*er *ody? if s tisf ctory rr nge'ent co(ld not *e re c%ed &it% t%e client. *(siness c rd &o(ld *e s(fficient to pro2ide n 'e nd cont ct det ils nd in t%is respect is s(it *le. Ao&e2er4 t%e d nger of gi2ing 'isle ding i'pression is prono(nced &%en t%ere is s(c% )nstit(te of Directors or B(siness Men/s Cl(*?4 displ ying it longside Dloc l tr des'en/ ' y ppe r to *elittle t%e specific res(lt is o*t ined4 re pro%i*ited *y )F+C

23

 + tr des' n ' y g( r ntee t%e <( lity of %is &or0 E nd t% t it c n *e ' de good in t%e e2ent t% t t%e c(sto'er is not s tisfied. Ao&e2er4 n (ditor c nnot g( r ntee p rtic(l r o(tco'e for t%e &or0 (ndert 0en >e.g. reported profit or t . p y *le?. Most cert inly n (ditor c nnot g( r ntee t%e tr(t% nd f irness of t%e fin nci l st te'ents in gi2ing n (dit opinion.

2. Lo( re n (dit ' n ger of 9loser4 fin l (dit of )st%'(s4 t%e follo&ing ' tters5 >1? )st%'(s % s recently iss(ed

fir' of C% rtered Certified +cco(nt nts. Lo( re ssigning st ff to t%e stoc0 e.c% nge4 for t%e ye r to 31 Dece'*er 2##2. Lo( re & re of

co'p ny listed on

profits & rning. 7%e co'p ny % s nno(nced t% t t%e signific nt synergies for'er co'petitor co'p ny4 % 2e not ' teri lised. Moreo2er4 it % s

e.pected fro' t%e c<(isition of C n 0 4

e'erged t% t cert in of C n 0 /s ssets re signific ntly i'p ired. Lo(r fir'/s corpor te fin nce dep rt'ent4 ssisted *y t&o (dit tr inees4 c rried o(t d(e diligence &or0 on *e% lf of )st%'(s *efore t%e p(rc% se of C n 0 & s co'pleted in Dece'*er 2##1. >2? Mercedes4 t%e ssist nt ' n ger ssigned to t%e interi' (dit of )st%'(s4 % s since in%erited 64### I1 s% res in )st%'(s. Mercedes % s told yo( t% t s%e % s no intention of selling t%e s% res (ntil t%e s% re price reco2ers fro' t%e f ll to I1O96 &%ic% follo&ed t%e profit & rning. >3? +nt%ony4 n (dit senior4 % s *een ssigned to t%e (dits of )st%'(s since !oining t%e fir' ne rly t%ree ye rs go. Ae % s confided to yo( t% t %is f t%er o&ned 14##1 s% res in )st%'(s *(t sold t%e' only d ys *efore t%e profits & rning t s% re price of I7O96. Lo( re ss(red t% t +nt%ony did not pre2io(sly 0no& t% t %is f t%er % d t%e s% res. -e<(ired5 Co''ent on t%e et%ic l nd ot%er profession l iss(es r ised *y t%e *o2e ' tters nd t%eir i'plic tions4 if ny4 for st ffing t%e fin l (dit of )st%'(s for t%e ye r to 31 Dece'*er 2##2. >1? 8rofits & rning 1t%ic l nd profession l iss(es 7%e profit & rning incre ses t%e in%erent ris0 of t%is ssign'ent. +s 'ore &or0 ' y *e needed t% n for t%e prior ye r >e.g. on C n 0 /s i'p ired ssets?4 ddition l st ff ' y need to *e ssigned to t%e (dit. +n D d2oc cy t%re t/ ' y occ(r if 9loser s%o(ld (ndert 0e profit & rning. + Dself-re2ie& t%re t/ ' y rise in t% t t%e prior ye r-end (dit4 &%ic% follo&ed t%e p(rc% se4 ' y % 2e l c0ed o*!ecti2ity. For e. 'ple4 t%e in2ol2e'ent of t%e corpor te fin nce dep rt'ent in d(e diligence ' y % 2e res(lted disp(te >potenti l leg l ction? rises *et&een )st%'(s nd 9loser. For e. 'ple4 if t%e d(e diligence &or0 s%o(ld % 2e recognised t%e signific nt i'p ir'ents. re2ie& of t%e d(e diligence &or0 nd (dit for t%e ye r-ended 31 Dece'*er 2##1 to ens(re t%ere &ere no findings &%ic% s%o(ld % 2e lerted t%e' to t%e pro*le's in C n 0 &%ic% precipit ted t%e

24

in less (dit &or0 *eing c rried o(t on C n 0 /s ssets nd oper ting res(lts t% n &o(ld ot%er&ise % 2e *een perfor'ed. )f 9loser & s negligent in (ndert 0ing t%e d(e diligence &or0 >e.g. *ec (se ssets &ere i'p ired t t%e ti'e of c<(isition ndFor t%e ss('ptions (nderlying t%e e.pected synergies &ere (nre listicF%ypot%etic l?4 to &%o' &ill 9loser *e li *leP 7o &%o' & s t%e d(e diligence &or0 reportedP >)st%'(s4 )st%'(s/s s% re%olders4 pro2iders of fin nce for t%e c<(isitionP? 7(tori l note5 7o ill(str te t% t t%ese D'odel/ ns&ers re not e.% (sti2e consider4 for e. 'ple4 t% t credit & s gi2en to c ndid tes &%o rg(ed t% t t%e tr inees/ in2ol2e'ent in t%e (dit &o(ld *e *enefici l >to 9loser ndFor )st%'(s?. )'plic tions for st ffing +s s feg( rd for t%e pro2ision of t%e ot%er ser2ice >d(e diligence? t%e (dit personnel seconded to t%e corpor te

fin nce dep rt'ent ' y not % 2e p rticip ted in t%e (dit for t%e ye r ended 31 Dece'*er 2##1. +ny s(c% D* r/ s%o(ld contin(e. )f t%e secondees re in2ol2ed in t%e (dit4 ppropri te s feg( rds &o(ld incl(de not ssigningt%e' to t%e (dit re s 'ost closely ssoci ted &it% d(e diligence nd close 'onitoring nd re2ie& of t%eir &or0. More seniorF*etter <( lityFe.perienced st ff s%o(ld *e ssigned to t%e (dit >t% n &o(ld % 2e *een necess ry % d t%e profit & rning not *een iss(ed?. >2? $% res in%erited 1t%ic l nd profession l iss(es + Dself-interest t%re t/ % s risen s Mercedes % s direct fin nci l interest in )st%'(s >i.e. s%e controls t%e position to o2erloo0 s% res?. )n p rtic(l r4 in &is%ing t%e s% re price to incre se Mercedes 'ig%t *e in (nrecorded li *ilities nd losses disco2ered d(ring t%e cond(ct of t%e (dit >s y?. 12en t%o(g% Mercedes ' y % 2e independence of 'ind nd *e 0no&n to ct &it% t%e (t'ost integrity4 s%e c nnot % 2e independence in ppe r nce. 7%is in d2ertent 2iol tion >i.e. t%ro(g% in%erit nce? of independence of 9loser or t%e (dit te ' pro2iding5 9loser/s est *lis%ed policies nd proced(res % 2e res(lted in Mercedes % 2ing reported pro'ptly %er in%erit nce of t%e s% resG 9loser pro'ptly d2ises Mercedes t% t t%e s% res s%o(ld *e disposed ofG nd t%e dispos l occ(rs t t%e e rliest pr ctic l d te4 or s%e is re'o2ed. Mercedes does not intend to dispose of t%e s% res <(ic0ly s s%e is & iting for t%e s% re price to reco2er. )t is (nli0ely t% t 9loser &o(ld consider offering %er de<( te co'pens tion for n e rlier dispos l >t%e loss in s% re 2 l(e since t%e f ll *eing 64### Q >I7O96 E I1O96? R I3#4###?. +lt%o(g% )F+C/s )ndependence st te'ent re<(ires Mercedes/ re'o2 l fro' t%e (dit te '4 9loser ' y re<(ire stricter s feg( rds nd pro%i*it ll profession l st ff fro' %olding direct fin nci l interests. Mercedes ' y t%erefore *e s0ed to c%oose *et&een st ying &it% t%e fir' or disposing of t%e s% res t t%e e rliest pr ctic l d te. )f ny &or0 % s *een done *y Mercedes on t%e (dit of )st%'(s since s%e in%erited t%e s% res >e.g. in re2ie&ing interi' (dit &or0 or pl nning t%e ye r-end or fin l (dit 2isits? t% t &or0 s%o(ld *e re-re2ie&ed *y not%er n independence principle does not i'p ir t%e

26

profession l cco(nt nt. )'plic tions for st ffing 7%is t%re t is so signific nt t% t Mercedes s%o(ld *e re'o2ed fro' t%e (dit te ' (nless s%e disposes of t%e s% res *efore s%e (ndert 0es ny f(rt%er t s0s rel ting to t%e (dit of )st%'(s. 3? De ling in s% res 1t%ic l nd profession l iss(es + self-interest t%re t &o(ld % 2e risen only if +nt%ony % d 0no&n t% t close f 'ily 'e'*er > p rent? % d cri'in l ct s% res in )st%'(s >*(t %e did not?. + self-interest t%re t c nnot no& rise s %is f t%er % s disposed of t%e s% res. 8ro2iding +nt%ony did not 0no&ingly pro'pt %is f t%er to sell t%e s% res4 %e % s not co''itted >e.g. of insider de ling?. 7(tori l note5 )f %e co''itted s(c% n ct %e s%o(ld *e inst ntly dis'issed *y t%e fir' nd ny profession l *ody (nder &%ic% %e is registered >e.g. +CC+? notified for disciplin ry ction. Ao&e2er4 if %e in so'e & y co''(nic ted >e.g. in c reless re' r0? so'et%ing t% t pro'pted %is f t%er to sell t%e s% res4 %e ' y *e in *re c% of %is d(ty of confidenti lity. 7%is s%o(ld *e in2estig ted nd ppropri te ction t 0en >e.g. %e ' y *e c (tioned or gi2en &ritten & rning?. )f %e (n0no&ingly g 2e %is f t%er price sensiti2e infor' tion4 t%en %is f t%er ' y *e g(ilty of insider de ling >or si'il r? for % 2ing cted on it. )'plic tions for st ffing Unless t%ere is ny re son to s(ppose t% t +nt%ony % s cted i'properly >e.g. if %e % s del yed disclosing t%e ' tter? t%ere is no re son &%y %e s%o(ld not contin(e %is position in t%e (dit te '. Ao&e2er4 if %is f t%er &ere to co'e (nder s(spicion of insider de ling t%en +nt%ony s%o(ld *e &it%dr &n fro' t%is ssign'ent. ;2er ll Gi2en t%e %ig% profile tt c%ing to t%is listed client it &o(ld *e ti'ely to % 2e ll 'e'*ers ssigned to t%e (dit te ' rene& t%eir &ritten decl r tions of independence nd confidenti lity.

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