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CIMA S > P3 notes 2 > Flashcards

P3 notes 2 Flashcards

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1
Q

Strategic Risk

A

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

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2
Q

Operational risk

A

potential losses arising from normal business operations

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3
Q

Downside risk

A

negative

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4
Q

Upside risk

A

benefits

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5
Q

Pure risk

A

loss is only possible outcome

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6
Q

gross risk

A

inherent risk that exists if management take no action

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7
Q

net risk

A

residual risk which still exists given managements actions or current strategies

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8
Q

risks in IS / IT

A

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

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9
Q

Risks of international operations

A

currency; cultural; transit; credit

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10
Q

political risk

A

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

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11
Q

Strategies for managing political risk

A

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

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12
Q

Risk management cycle

A

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

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13
Q

risk response strategy

A

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

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14
Q

COSO 2004 Components

A

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

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15
Q

COSO 2004 objectives

A

Strategy; operations; financial reporting; compliance

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16
Q

COSO 2017

A

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

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17
Q

obj of corp gov

A

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

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18
Q

NEDs

A

no exec involvement; provide reassurance to shareholders

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19
Q

NED independence

A

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

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20
Q

NED befits

A

objective; external experience; challenge and develop proposals

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21
Q

Audit committee internal audit

A

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

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22
Q

Audit committee external audit

A

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

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23
Q

UK corp gov code

A

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

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24
Q

CIMA fundamental

A

confidentiality; integrity; prof comp; objectivity; prof behaviours

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25
CIMA ethical conflicts
self interest; self-review; advocacy; familiarity; intimidation
26
Costing systems
ABC; standard; target; life-cycle
27
HRM
recruitment policy; contracts; policies and procedures; discipline and reward; performance appraisal and feedback
28
TP goals
goal congruence; divisional autonomy; appraise divisional performance; minimise overall tax liability
29
approaches to setting TP
market price; standard cost; full cost; marginal cost; dual pricing
30
ROI
div profit / TALCL
31
RI
div profit - (div investment x cost of cap)
32
EVA
TBC
33
Behavioural aspects of trad control mechanisms
participation and achievability
34
NFPIs
customer satisfaction; market share; quality; delivery
35
Performance in not for profit
Economy; efficiency; effectiveness
36
Balanced Scorecard
financial; customer; internal; innovation and learning
37
Modern mgmt. account
lean; JIT; TQM
38
Costs of quality
prevention; appraisal; internal failure; external failure
39
Objectives of internal control
reliability of financial reporting; efficiency and effectiveness of operations; compliance with laws and regulations
40
internal control system elements
control environment; control procedures
41
Control procedures
organisation; authorisation; personnel; supervision; physical; arithmetical and accounting; segregation of duties
42
Types of fraud
ghost employees inflated expense claims; misappropriation of assets; collusion with external parties; teeming and lading; pyramid fraud
43
IT strategies
IS - long term plan to exploit an entities IS to support bus strat; IT - defines specific systems that are required; IM - method of storage and collection
44
Management information systems
Executive information systems; expert systems; decision support systems; strategic enterprise management systs; ERP; transaction processing systems; extranet
45
Costs of information
direct data capture; costs of external sources
46
Systems development lifecycle
planning; systems analysis; systems design; systems development; implementation; maintenance (post-implementation review)
47
General systems controls
password; physical; personnel; environmental; contingency; backups; virus protection; firewalls; spyware
48
application controls
data verification; data validation; exception reports
49
Big data 4 vs
volume; velocity; variety; veracity
50
big data analytics
understand the info; extract knowledge (data mining); identify important data
51
forms of internal audit
compliance audit; fraud investigation; value for money audit; management audits; environmental audits; social audits
52
Audit process
audit planning and strategy; audit planning - individual assignments; ascertaining and documenting systems / policies / regulations; audit testing; documentation and review
53
audit testing
sampling; substantive tests; compliance testing; analytical review; benchmarking
54
Computer assisted audit techniques
audit software; test data
55
effective internal audit
independent; report findings to audit committee; qualified; appropriate knowledge and understanding; quality control processes; internal audit plan
56
financial risk
currency risk; interest rate risk; credit risk
57
currency risk
translation risk; economic risk; transaction risk
58
causes of fx rate fluctuations
balance of payments; purchasing power parity theory (PPP); interest rate parity theory (IRP)
59
Internal hedging techniques - currency
matching receipts; leading and lagging; foreign bank account; invoicing overseas customers in home currency; counter-trading; multilateral netting
60
External hedging techniques - currency
forward contracts; money market hedges; options; futures
61
forward contracts - currency
premium - deduct the adjustment; discount - add the adjustment
62
forward rate determination - currency
interest rates; inflation rates
63
options - currency
buy (call); sell (put); fixed amount of currency at a fixed rate on a fixed future date
64
options types - currency
over the counter; standard stock exchange options
65
strike price
price you end up paying / receiving for the commodity / currency
66
Black-Scholes options pricing model
1) intrinsic value of the option (diff between current price and exercise price) 2) time value of the option - depends on: standard deviation in daily value of asset; time period to the expiry of the option; risk free interest rate
67
Futures - currency
standardised contract to buy or sell a fixed amount of currency at a fixed rate on a fixed future date
68
IAS39
instruments have to be stated at their fair value at year end with movement in fair value going through the P&L account. Fair value is market value
69
Arbitrage
trader takes advantage of price differences between two markets
70
Value at risk
maximum loss that is acceptable to a company over a given period of time given normal market movements and a given level of prob
71
Value at risk formula
value at risk = confidence interval value x standard deviation
72
Interest rate risk
loans aren't reviewed; gearing risk; fixed rate or floating; currency; length and closeness to redemption; key Ts&Cs
73
Internal hedging techniques - interest
matching; smoothing; netting
74
External hedging - interest
forward rate agreements; futures; interest rate guarantees; interest rate options
75
Forward rate agreements
tailored contract to lend or borrow a sum of money in the future at a rate that is fixed today
76
Futures - interest
standardised size and traded on organised exchanges
77
Interest rate guarantees
OTC and give holder right but not obligation to buy or sell an FRA
78
Exchange traded interest rate options
standard size and gives holder right but not obligation to buy or sell a future
79
interest rate swaps
exchange of payment obligation to reduce exposure to interest rates
80
Interest rate swaps benefits
TBC
81
Accounting rate of retune
average annual profits / average investing x 100
82
IRR
TBC
83
WACC
TBC
84
Dividend growth model
TBC
85
Beta factor
business risk ( unsystematic - company specific and systematic risk - market specific); financial risk
86
Criticisms of CAPM
single period model; assumes no transaction costs for trading securities; calculates beta factors on historic data; risk free rate may change considerably over time; assumes an efficient investment market where it is possible to diversify away risk
87
Adjusted present value
TBC
88
Techniques for dealing with risk
sensitivity analysis; expected values; certainty equivs; annual equiv cost; decision tree; simulation analysis; payback period; regression analysis; risk adjusted discount rate
89
Certainty equivalent
multiply cash flow by factor then get PV and NPV
90
Equivalent annual cost
EAC = NPV / annuity factor for the project life
91
Investment real options
follow on; delay; abandon
92
goals of public org
provide services deemed important by society
93
goals of profit making org
maximise wealth of shareholders
94
goals of non-profit making orgs
3 Es and value for money
95
Stakeholder types
internal; connected; external
96
project stages
conceptual; development; construction / manufacturing; control
97
post completion audit
TBC

CIMA S (3 decks)

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