P1 RevisionNotes - Unlocked

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 2007 June 2008 Dec 2008 June 2009
Pilot
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 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9
Knowledge bank
21
The scope of corporate governance
How have the syllabus learning outcomes been examined?

How syllabus outcomes are examined Relevant 1 mark point in: Pilot Paper Q1a December 2007 Q1d, Q2b, Q3b, Q4c Analyse the purposes and objectives of corporate governance 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 Relevant 1 mark point in: December 2007 Q3b Integrity - Pilot Paper Q3b (7 marks) Transparency - December 2007 Q1a (10 marks) Accountability - December 2007 Q3b (4 marks) Transparency June 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 Define agency theory Relevant 1 mark point in: Pilot Paper Q1a December 2007 Q1a June 2008 Q3a (2 marks) Q42 ChemCo Q43 Q9 Q8 Q34 Professor Cheung Q43 Q42 ChemCo Q43 Exam question reference in P&R kit
Syllabus learning outcomes Define and explain the meaning of corporate governance
Q8 Q44
Syllabus learning outcomes Define and explain the key concepts in agency theory: agents, principals, agency itself, agency costs, accountability, fiduciary responsibilities and stakeholders
How syllabus outcomes are examined Relevant 2 mark point in: December 2007 Q1a, Q3b Definition of stakeholders December 2007 Q4a (2 marks) Discussion of fiduciary duty December 2007 Q4c (7 marks)
Exam question reference in P&R kit Q6 Sentosa House (Examiner Question) Q43 Q35
Explain and explore the nature of the principal agent relationship in the context of corporate governance Analyse and critically evaluate the nature of agency accountability in agency relationships Explain and analyse how transaction cost theory and stakeholder theory is used to explain aspects of the agency relationship.
Relevant 1 mark point in: December 2007 Q1a, Q4c Relevant 2 mark point in: December 2007 Q3b Stakeholder analysis was explored in December 2007 Q4a (8 marks) Stakeholder claims: June 2008 Q1a (10 marks) Q33 JH Graphics (Examiner Question) Q35 Q43, Q35
Explain and assess the major areas of organisational life affected by issues in corporate governance. Compare and distinguish between public, private and nongovernmental 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.
The scope of corporate governance
Definition of Corporate Governance

The structures, processes and relationships fundamental to a companys objectives
Principles
Best Decisions Integrity
Theories
Fairness Judgement Independence Honest Disclosure Openness Probity Responsibility Accountability Reputation
Stakeholder Models
Internal / Connected / External Active v Passive Normative v Instrumental Mendelow
Ignore Satisfy Inform Key
Agency Theory Principal v Agent Information Asymmetry Monitor & Control Agency Costs Transaction Cost Theory Theory of the firm
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
Approaches to corporate governance

How syllabus outcomes are examined June 2008 Q4a rulesbased (3 marks) December 2007 Q3c tested national variation of codes (8 marks) June 2008 Q4a advantages of principlesbased (10 marks) Exam question reference in P&R kit Q6 Sentosa House (Examiner Question); Q8
Syllabus learning outcomes Describe and compare the essentials of rules - and principles-based approaches to corporate governance Describe and critically evaluate the reasons behind the development and use of codes of practice in corporate governance (acknowledging national differences and convergence) Explain and briefly explore the development of corporate governance codes in principles-based jurisdictions 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) Discuss and critically assess the concept of stakeholders and stakeholding in organisations and how this can affect strategy and corporate governance
Q10
December 2007 Q3c tested national variation of codes (8 marks) December 2007 Q4a tested the importance of identifying stakeholders (8 marks) December 2008 Q1 required business cases for the stockholder and stakeholder perspectives
Q8
Q33 JH Graphics (Examiner Question) Q35 Mock 3 Q1
Analyse and evaluate issues of ownership, property and the responsibilities of shareholders
Approaches to corporate governance
Corporate ownership
Family/ Insider Firms (eg block shareholding in Japan) Reduced agency problem Poor protection of minorities Hard to divest Institutional Investors Dialogue Evaluating disclosures Voting
Principles v Rules
Principles-based approach
Focus on the objectives of good corporate governance 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
Rules-based approaches
Emphasis on achievements not underling factors and control systems No leeway or deviation Unambiguous, easily evidenced Enforcement can be difficult for situations not covered explicitly Favoured in legal jurisdictions emphasising obedience to the letter of the law
Major corporate scandals

BCCI Mirror Group Barings
Major corporate scandals

WorldCom Enron
UK Combined Code of Corporate Governance Global influences

OECD Principals Encourage global investment Five areas Shareholder participation Equitable treatment of shareholders Role of stakeholders Disclosure & transparency Board responsibilities
US Sarbanes-Oxley Act, 2002
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
Corporate governance practice and reporting

How syllabus outcomes are examined Relevant 1 or 2 mark point in: Pilot Paper Q1a December 2007 Q1d Describe, distinguish between and evaluate the cases for and against unitary and two-tier structures Describe the characteristics, board composition and types of directors Describe and assess the purposes, roles and responsibilities of non-executive directors Pilot Paper Q1c (10 marks) Relevant 1 or 2 mark point in: December 2007 Q1c Roles of NEDs Pilot Paper Q1d (7 marks) December 2007 Q1c (8 marks) June 2008 Q3a (relevant 4 marks) Q42 ChemCo Q43 Q43 Q42 ChemCo Q43 Q42 ChemCo Exam question reference in P&R kit
Syllabus learning outcomes Explain and evaluate the roles and responsibilities of boards of directors
Syllabus learning outcomes Describe and analyse the general principles of the legal frameworks within which directors operate on boards
How syllabus outcomes are examined Legal status of NEDs relevant for 1 mark Pilot Paper Q1d December 2007 Q1c Retirement by rotation June 2008 Q3c (5 marks)
Exam question reference in P&R kit
Q42 ChemCo Q43 Q8
Define, explore and compare the roles of the chief executive and company chairman
December 2007 Q3a & b (13 marks) 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) 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) Nominations committee June 2008 Q3b (8 marks) Assess the structure and composition of a risk committee Describe and assess the general principles of remuneration Explain and assess the effect of various components of remuneration packages on directors behaviour Explain and analyse the legal, ethical, competitive and regulatory issues associated with directors remuneration December 2008 Q2 Pilot Paper Q2b (8 marks) Pilot Paper Q2b (8 marks) PRP December 2007 Q2c (8 marks) Pilot Paper Q2b (8 marks) Mock 3 Q2 Q7 Frank Finn Q7 Frank Finn Q20 Q7 Frank Finn
Q7 Frank Finn
Q7 Frank Finn
Syllabus learning outcomes Explain and assess the general principles of disclosure and communication with shareholder 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 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
How syllabus outcomes are examined June 2008 Q3a (relevant 2 marks)
Exam question reference in P&R kit Q9
December 08 Q1
Mock 3 Q1
Corporate governance
Practice
Structure
Unitary Multi-tier
Reporting
The role of the board

Directing and supervising the companys affairs Provide entrepreneurial leadership Risk management and effective control Devise and deliver strategy
Governance disclosures
Information about directors Operating and financial review Reports from committees Detail of relations with auditors A statement that the directors have reviewed the effectiveness of internal controls A statement on relations and dialogue with shareholders CC06 C - Accountability & Audit Financial Reporting Internal Control Audit Committee & Auditors A statement that the company is a going concern Sustainability reporting
Example of CG best practice CC06

CC06 A Directors Effective Board Chairman v CEO Balance + independence Appointments Information + Development Evaluation Re-election
CC06 D - Relations with Shareholders Dialogue with Institutional Investors Constructive use of the AGM
CC06 B Remuneration Level & makeup Policy & individuals Attract, retain & motivate
CC06 E - Institutional Shareholders Dialogue with the (investee) company Evaluation of Governance Disclosures Shareholder Voting
Non-executive directors
Independent no executive power Challenge & contribute to strategy Scrutinise performance & reports Validate risk management and control People remuneration, nominations
Committees
Audit Nominations Remuneration
Internal control systems

Syllabus learning outcomes Define and explain internal management control Explain and explore the importance of internal control and risk management in corporate governance Describe the objectives of internal control systems Identify and assess the importance of elements or components of internal control systems Define and explain risk in the context of corporate governance Describe and evaluate a framework for board level consideration of risk How syllabus outcomes are examined Relevant 1 or 2 mark point in: December 2007 Q1d December 2007 Q1d (6 marks) Q43 Q43 Exam question reference in P&R kit
December 2007 Q1d (6 marks) December 2008 Q3 Turnbull sound system Pilot Paper Q4a (10 marks)
Q43 Mock 3 Q3 Q15 FF Co
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
Risk attitude

Syllabus learning outcomes Identify, and assess the impact upon, the stakeholders involved in business risk Explain the importance of risk awareness at all levels in an organisation Describe and analyse the concept of embedding risk in an organisations systems and procedures Describe and evaluate the concept of embedding risk in an organisations 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 December 2007 Q2b (5 marks) Q20 How syllabus outcomes are examined 1 or 2 marks for a relevant point in: December 2007 Q2a 1 or 2 marks for a relevant point in: December 2007 Q2b Q20 Q20 Exam question reference in P&R kit
Risk attitude
Control Environment
Corporate culture Management style Organisational structure Methods of imposing control Ethical values
Risk Appetite
Personal views Shareholder demands Organisational factors National / business culture
Sound System
Embedded / cultural Responsive Report Weaknesses
Shareholder Attitude
Shareholders (Risk v return) Customers (continuity) Suppliers (payment) Lenders (repayment) Government
Embedding Risk Awareness

Top-down communications Clear risk philosophy COSO framework Part of everyone's job description Training for all employees Ownership of risks results in a more considered view of risk management
Business risks

Syllabus learning outcomes Define and compare (distinguish between) strategic and operational risks Define and explain the sources and impacts of common business risks Recognise and analyse the sector or industry specific nature of many business risks Identify risks Pilot Paper Q1b (6 marks); Reputation risk Pilot Paper Q4b (8 marks) Identify risks Pilot Paper Q1b (6 marks) Define market risk December 08 Q3 Q42 ChemCo Q13 FF Co Q42 ChemCo How syllabus outcomes are examined Exam question reference in P&R kit
Business risks
Part of COSO
Events
External / internal event Trend and root causes Escalation triggers Event interdependencies
Categorising Risk
Scope
Strategic v Operational
External / Long term Internal / Short term / Narrow focus
Function
Financial Legal IT / Technological Fraud Environmental Reputation
Risk response

Syllabus learning outcomes Explore and evaluate the effectiveness of internal control systems Explain and analyse the concepts of assessing the severity and probability of risk events How syllabus outcomes are examined Suggest improvements December 2007 Q1d (6 marks) Internal controls and sub-contractors June 2008 Q1e (4 marks) TARA December 2007 Q2a (12 marks); Part of the risk process Pilot Paper Q1b (10 marks) Risk assessment June 2008 Q1b (6 marks) and Q1c (9 marks) TARA December 2008 Q2 Explain and analyse the concepts of spreading and diversifying risk and when this would be appropriate Define the terms risk avoidance and risk aversion December 2007 Q2a (6 marks) Exam question reference in P&R kit Q43 Q44 Q20 Q42 Q44 Mock 3 Q2 Q20
December 2007 Q2a (3 marks)
Q20
Risk response
Risk assessment
Assess Likelihood (risk probability) Impact (consequences)
Risk quantification
Average or expected result or loss Largest predictable loss
Risk profiling
Map
Accept Reduce Transfer Avoid
Control Procedures
Corporate controls Management controls, encompassing planning and performance monitoring Business process controls Transaction controls SOAPSPAM Risk review Portfolio management Prioritisation
Risk consolidation
Monitoring and review

How syllabus outcomes are examined December 2008 (Factors to consider when setting up IA) Explain, and discuss the importance of, auditor independence in all client audit situations (including internal audit) Explain, and assess the nature and sources of risks to, auditor independence. Assess the hazard of auditor capture 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 Explain, and explore the importance and characteristics of, the audit committees 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 December 2008 Q3 Mock 3 Q3 June 2008 Q2a (9 marks) June 2008 Q2a (9 marks) Exam question reference in P&R kit Q25 Franks & Fisher (Examiner Question) Mock 3 Q3 Q25 Franks & Fisher (Examiner Question) Q25 Franks & Fisher (Examiner Question)
Syllabus learning outcomes Describe the function and importance of internal audit
Syllabus learning outcomes Explain and evaluate the role of the risk committee in identifying and monitoring risk Describe and assess the need to report on internal controls to shareholders Describe the content of a report on internal control and audit Explain and assess the need for adequate information flows to management for the purposes of the management of internal control and risk 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
How syllabus outcomes are examined
Exam question reference in P&R kit Q6 Sentosa House (Examiner Question)
June 2008 Q4c (4 marks) June 2008 Q4b (8 marks) 1 or 2 marks for a relevant point in: December 2007 Q4d
Q10 Q10
Q35
Monitoring and review
Roles
Board Responsible for IC system Report to shareholders Determine policy Management Implement policies Operate & monitor IC Identify & assess risks
Audit committee
Independent NEDs (one with financial experience) Liaise with External Audit Supervise Internal Audit Review FS Review IC Review of risk management SOX Mandatory Approve sanctioned non-audit work Whistleblowers
Risk committee
Sets policies on Extent of acceptable risk Categories of acceptable risk
External reporting Turnbull

Existence of process for managing risk How the board has reviewed the process Compliance with Turnbull Acknowledge responsibility for IC Manages rather than eliminates risk Summary of review process Material weaknesses
SOX
Effective controls over FR Statement of management responsibility IC / Risk framework used Material weaknesses Statement of attestation from External Auditors
Role of internal audit

Review of internal control systems Review risk management strategy Ensure compliance Value for money assessment Financial and operational reviews Special investigations anything else management require to be audited
Risk manager
Technical expert Strategic role develop policies Leadership role Training role Operational detail deal with insurance companies
Review of internal control

Risks Effectiveness of IC Adequacy of monitoring Changes since last review Scope & quality of regular monitoring Significant controls failings Effectiveness of public reporting
Annual Review
Ethics and the public interest

How syllabus outcomes are examined June 2008 Q2c (6 marks) Exam question reference in P&R kit Q36 Q33 JH Graphics (Examiner Question) December 2007 Q1b (12 marks) Describe and distinguish between deontological and teleological/consequentialist approaches to ethics Pilot Paper Q3c (7 marks) December 2008 Q4(c) Apply commonly used ethical decision-making models in accounting and professional contexts: American Accounting Association model, Tuckers 5-question model Explain and analyse the content and nature of ethical decision making using content from Kohlbergs framework as appropriate December 08 Q1 Q43 Q34 Professor Cheung Mock 3 Q4 Mock 3 Q1
Syllabus learning outcomes Explain and distinguish between the ethical theories of relativism and absolutism Explain, in an accounting and governance context, Kohlbergs stages of human moral development
1 or 2 marks for relevant points in: December 2007 Q4c
Q33 JH Graphics (Examiners Question) Q35
Ethics and the public interest
Ethics
Concerned with right and wrong
Ethical theories
Acceptable standards of behaviour Relevant to all forms of human activity, including business
Kohlberg's stages of human moral development

Level 1: Pre-conventional
Relativism v Absolutism
1 2
Obedience and punishment Individualism instrumentalism, and exchange Peer pressure Laws & rules Social contract / welfare Principled conscience
Decision Action Result

Deontological (action) v Teleological (result) Utilitarianism v Egoism
Level 2: Conventional 3 4 5 6
Level 3: Post-conventional
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 Tuckers 5 Questions Profitable? Legal? Fair & equitable? Right? Sustainable / environmentally sound?
Ethics and professional practice

How syllabus outcomes are examined 1 or 2 marks for a relevant point in: Pilot Paper Q3a Describe and assess what is meant by the public interest 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 accountings 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 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 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 Describe and discuss rules-based and principles-based approaches to resolving ethical dilemmas encountered in professional accounting December 2008 Q4 Pilot Paper Q4c (4 marks) Q34 Professor Cheung Q13 FF Co Exam question reference in P&R kit
Syllabus learning outcomes Explain and explore the nature of a profession and professionalism
Pilot Paper Q3a (11 marks); Pilot Paper Q4c (4 marks)
Q34 Professor Cheung Q13 FF Co
June 2008 Q2b (10 marks) 1 or 2 marks for a relevant point in: Pilot Paper Q3a
Q36
Q34 Professor Cheung
Ethics and professional practice
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
Professional codes of ethics
Corporate codes of ethics

Require: Commitment of the board Clearly communicated to all staff 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
IFAC ethical code

Fundamental Principals Integrity Objectivity Competence Confidentiality Behaviour
ACCA The Rule Book

Consistent with the IFAC code Fundamental principals OPPTIC ACCA members subject to more than one code must follow the strictest rules.
Threats of professional independence

Self interest Self review Advocacy Familiarity Intimidation
Social and environmental issues

Syllabus learning outcomes Describe and evaluate Gray, Owen and Adams, seven positions on social responsibility Describe and evaluate other constructions of the corporate and personal ethical stance How syllabus outcomes are examined December 2007 Q4b (8 marks) December 2008 Q1 1 or 2 marks for a relevant point in: 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 1 or 2 marks for a relevant point in: 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) 1 or 2 marks for a relevant point in: December 2007 Q4b June 2008 Q1d (8 marks) Explain and assess the concept of sustainability and evaluate the issues concerning accounting for sustainability (including the contribution of full cost accounting) Pilot Paper Q1e (4 marks) June 2008 Q1d (3 marks) Q42 Q42 ChemCo Q35 Exam question reference in P&R kit Q35 Mock 3 Q1
Syllabus learning outcomes 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
How syllabus outcomes are examined
Exam question reference in P&R kit
Corporate Social Responsibility CSR

Economic Legal Ethical Philanthropic
Corporate Citizenship
Limited View CC = philanthropy Equivalent View CC = CSR Extended View CC = political rights and responsibilities
CSR Stances
Short-term shareholder interest Long-term shareholder interest The legitimacy of the expectations and/or claims of stakeholders Shaper of society
CSR Viewpoints
Gray, Owen & Adams Pristine capitalists / Expedients Proponents of the social contract /Social ecologists Socialists / Radical feminists /Deep ecologists
Social and environmental issues Social issues

Social footprint Infrastructure Communities Individuals
Sustainability
Weak view Can replace natural capital with man-made capital Strong view Maintain natural capital Global Reporting Initiative (GR) Generational equity
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
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
Environmental management systems

EMAS Environmental quality management Eco labelling ISA 14001 Environmental auditing Environmental reporting
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
Appendices
53
Appendix A: Relevant articles
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 qualifications 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,
although they are integral to corporate governance as a whole, they play a crucial part in an accountants 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 Barings 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 P1s 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. IFACs and ACCAs 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. ACCAs Code of Ethics applies broadly, and IFACs Code of Ethics applies to all professional accountants
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 SarbanesOxley, which is the legal underpinning of corporate governance in the US. SarbanesOxley 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.
Appendix B: Combined Code of Corporate governance and Sarbanes-Oxley Overviews

1
1.1
Combined Code of Corporate Governance - overview

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. Where a company does not comply with the Code, a reasoned explanation should be provided. The Code contains 17 main principles and 48 provisions divided into five main areas; the main points you need to know are summarised below:
1.2 1.3
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.
2
2.1
Sarbanes-Oxley Act, 2002 - overview

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. The summary below highlights of the most important Sarbanes-Oxley sections for compliance. SOX Section 302 - Corporate Responsibility for Financial Reports (a) (b) (c) (d) (e) (f) CEO and CFO must review all financial reports. Financial report does not contain any misrepresentations. Information in the financial report is "fairly presented". CEO and CFO are responsible for the internal accounting controls. CEO and CFO must report any deficiencies in internal accounting controls, or any fraud involving the management of the audit committee. CEO and CFO must indicate any material changes in internal accounting controls.
2.2
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 managements 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.
Appendix C: June 2009 Exam Questions and Answers

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ACCA Professional Accountant

Paper P1 Practice & Revision Notes ACP1RNO9(D)

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Analysis of past papers

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The scope of corporate governance

How have the syllabus learning outcomes been examined?

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The scope of corporate governance

Definition of Corporate Governance

Major issues in corporate governance

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Approaches to corporate governance

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Q33 JH Graphics (Examiner Question) Q35 Mock 3 Q1

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Approaches to corporate governance

Major corporate scandals

Major corporate scandals

UK Combined Code of Corporate Governance Global influences

US Sarbanes-Oxley Act, 2002

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Corporate governance practice and reporting

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Exam question reference in P&R kit

Q42 ChemCo Q43 Q8

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Exam question reference in P&R kit Q9

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The role of the board

Example of CG best practice CC06

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Internal control systems

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Q43 Mock 3 Q3 Q15 FF Co

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Internal control systems

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Embedding Risk Awareness

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How have the syllabus learning outcomes been examined?

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How have the syllabus learning outcomes been examined?

December 2007 Q2a (3 marks)

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Monitoring and review

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How syllabus outcomes are examined

Exam question reference in P&R kit Q6 Sentosa House (Examiner Question)

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Monitoring and review

External reporting Turnbull

Role of internal audit

Review of internal control

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Ethics and the public interest