ACCA P7 Advanced Audit and assurance notes

ACCA P7 Advanced Audit and assurance notes

A GOVERNANCE AND RESPONSIBILITY

1. The scope of governance

a) Define and explain the meaning of corporate governance.

b) 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.

c) Analyse the purposes and objectives of corporate governance in the public and private sectors.

d) Explain, and apply in context of corporate governance, the key underpinning concepts of:

i) fairness

ii) openness/transparency

iii) innovation

iv) scepticism

iii) independence

iv) probity/honesty

v) responsibility

vi) accountability

vii) reputation

viii)judgment

ix) integrity

ACCA P7 Advanced Audit and assurance notes

DOWNLOAD – ACCA P7 Governance Risk and Ethics (P1) notes,STUDY GUIDE

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

i) duties of directors and functions of the board (including setting a responsible ‘tone’ from the top and being accountable for the performance and impacts of the organisation)

ii) the composition and balance of the board (and board committees)

iii) relevance and reliabilityof corporate reporting and external auditing

iv) directors’ remuneration and rewards

v) responsibility of the board for risk management systems and internal control

vi) the rights and responsibilities of shareholders, including institutional investors

vii) corporate social responsibility and business ethics.

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

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

i) Directors

ii) Company secretaries

iii) Sub-board management

iv) Employee representatives (e.g. trade unions)

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

i) Shareholders (including shareholders’ rights and responsibilities)

ii) Auditors

iii) Regulators

iv) Government

v) Stock exchanges

vi) Small investors (and minority rights)

vii) Institutional investors (see also next point)

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

2. Agency relationships and theories

a) Define and explore agency theory.

b) Define and explain the key concepts in agency theory.

i) Agents

ii) Principals

iii) Agency

iv) Agency costs

v) Accountability

vi) Fiduciary responsibilities

vii) Stakeholders

c) Explain and explore the nature of the principalagent relationship in the context of corporate governance.

d) Analyse and critically evaluate the nature of agency accountability in agency relationships.

e) Explain and analyse the following other theories used to explain aspects of the agency relationship.

i) Transaction costs theory

ii) Stakeholder theory

3. The board of directors

a) Explain and evaluate the roles and responsibilities of boards of directors.

b) Describe, distinguish between and evaluate the cases for and against, unitary and two-tier board structures.

c) Describe the characteristics, board composition and types of, directors (including defining executive and non-executive directors (NED).

d) Describe and assess the purposes, roles and responsibilities of NEDs.

e) Describe and analyse the general principles of legal and regulatory frameworks within which directors operate on corporate boards:

i) legal rights and responsibilities,

ii) time-limited appointments

iii) retirement by rotation,

iv) service contracts,

v) removal,

vi) disqualification

vii) conflict and disclosure of interests

viii)insider dealing/trading

f) Define, explore and compare the roles of the chief executive officer and company chairman.

g) Describe and assess the importance and execution of, induction and continuing professional development of directors on boards of directors.

h) Explain and analyse the frameworks for assessing the performance of boards and individual directors (including NEDs) on boards.

i) Explain the meanings of ‘diversity’ and critically evaluate issues of diversity on boards of directors.

ACCA P7 Advanced Audit and assurance notes

4. Board committees

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

b) Explain and evaluate the role and purpose of the following committees in effective corporate governance:

i) Remuneration committees

ii) Nominations committees

iii) Risk committees.

iv) Audit committees 5. Directors’ remuneration

a) Describe and assess the general principles of remuneration.

i) purposes

ii) components

iii) links to strategy

iv) links to labour market conditions.

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

i) basic salary

ii) performance related

iii) shares and share options

iv) loyalty bonuses

v) benefits in kind

vi) pension benefits

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

6. Different approaches to corporate governance

a) Describe and compare the essentials of ‘rules’ and ‘principles’ based approaches to corporate governance. Includes discussion of ‘comply or explain’.

b) Describe and analyse the different models of business ownership that influence different governance regimes (e.g. family firms versus joint stock company-based models).

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

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

i) impetus and background

ii) major corporate governance codes

iii) effects of

e) Explain and explore the Sarbanes-Oxley Act (2002) as an example of a rules-based approach to corporate governance.

i) impetus and background

ii) main provisions/contents

iii) effects of

f) Describe and explore the objectives, content and limitations of, corporate governance codes intended to apply to multiple national jurisdictions.

i) Organisation for economic cooperation and development (OECD) Report (2004)

ii) International corporate governance network (ICGN) Report (2005)

7. Corporate governance and corporate social responsibility

a) Explain and explore social responsibility in the context of corporate governance.

b) Discuss and critically assess the concept of stakeholder power and interest using the Mendelow model and how this can affect strategy and corporate governance.

c) Analyse and evaluate issues of ‘ownership,’ ‘property’ and the responsibilities of ownership in the context of shareholding.

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

ACCA P7 Advanced Audit and assurance notes

8. Governance: reporting and disclosure

a) Explain and assess the general principles of disclosure and communication with shareholders.

b) Explain and analyse ‘best practice’ corporate governance disclosure requirements.

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

d) Explain and explore the nature of, and reasons and motivations for, voluntary disclosure in a principles-based reporting environment (compared to, for example, the reporting regime in the USA).

e) Explain and analyse the purposes of the annual general meeting and extraordinary general meetings for information exchange between board and shareholders.

f) Describe and assess the role of proxy voting in corporate governance. .

9. Public sector governance

a) Describe, compare and contrast public sector, private sector, charitable status and nongovernmental (NGO and quasi-NGOs) forms of organisation, including purposes and objectives, performance, ownership and stakeholders (including lobby groups)

b) Describe, compare and contrast the different types of public sector organisations at subnational, national and supranational level

c) Assess and evaluate the strategic objectives, leadership and governance arrangements specific to public sector organisations as contrasted with private sector .

d) Discuss and assess the nature of democratic control, political influence and policy implementation in public sector organisations including the contestable nature of public sector policy .

e) Discuss obligations of the public sector organisations to meet the economy, effectiveness, efficiency (3 E’s) criteria and promote public value .

ACCA P7 Advanced Audit and assurance notes

B INTERNAL CONTROL AND REVIEW

1. Management control systems in corporate governance

a) Define and explain internal management control.

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

c) Describe the objectives of internal control systems and how they can help prevent fraud and error.

d) Identify, explain and evaluate the corporate governance and executive management roles in risk management (in particular the separation between responsibility for ensuring that adequate risk management systems are in place and the application of risk management systems and practices in the organisation).

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

2. Internal control, audit and compliance in corporate governance

a) Describe the function and importance of internal audit.

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

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

d) Explain and evaluate the importance of compliance and the role of the internal audit function in internal control.

e) Explore and evaluate the effectiveness of internal control systems.

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

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

ACCA P7 Advanced Audit and assurance notes

3. Internal control and reporting

a) Describe and assess the need to report on internal controls to shareholders.

b) Describe the content of a report on internal control and audit.

c) Explain and assess how internal controls underpin and provide information for accurate financial reporting.

4. Management information in audit and internal control

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

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

ACCA P7 Advanced Audit and assurance notes

C IDENTIFYING AND ASSESSING RISK

1. Risk and the risk management process

a) Define and explain risk in the context of corporate governance.

b) Define and describe management responsibilities in risk management.

c) Explain the dynamic nature of risk assessment.

d) Explain the importance and nature of management responses to changing risk assessments.

e) Explain risk appetite and how this affects risk policy.

2. Categories of risk

a) Define and compare (distinguish between) strategic and operational risks.

b) Define and explain the sources and impacts of common business risks.

i) market

ii) credit

iii) liquidity

iv) technological

v) legal

vi) health, safety and environmental

vii) reputation

viii)business probity

ix) derivatives

c) Describe and evaluate the nature and importance of business and financial risks.

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

ACCA P7 Advanced Audit and assurance notes

3. Identification, assessment and measurement of risk

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

b) Explain and analyse the concepts of assessing the severity and probability of risk events.

c) Describe and evaluate a framework for board level consideration of risk.

d) Describe the process of and importance of, externally reporting on internal control and risk.

e) Explain the sources, and assess the importance of, accurate information for risk management.

f) Explain and assess the ALARP (as low as reasonably practicable) principle in risk assessment and how this relates to severity and probability.

g) Evaluate the difficulties of risk perception including the concepts of objective and subjective risk perception.

h) Explain and evaluate the concepts of related and correlated risk factors.

ACCA P7 Advanced Audit and assurance notes

D CONTROLLING AND MANAGING RISK

1. Targeting and monitoring of risk

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

b) Explain and evaluate the role of the risk committee in identifying and monitoring risk.

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

2. Methods of controlling and reducing risk

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

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

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

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

e) Identify and assess how business organisations use policies and techniques to mitigate various types of business and financial risks.

3. Risk avoidance, retention and modelling

a) Explain, and assess the importance of, risk transference, avoidance, reduction and acceptance.

b) Explain and evaluate the different attitudes to risk and how these can affect strategy.

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

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

ACCA P7 Advanced Audit and assurance notes

E PROFESSIONAL VALUES, ETHICS AND SOCIAL RESPONSIBILITY

1. Ethical theories

a) Explain and distinguish between the ethical theories of relativism and absolutism.

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

c) Describe and distinguish between deontological and teleological/consequentialist approaches to ethics.

d) Apply commonly used ethical decision-making models in accounting and professional contexts

i) American Accounting Association model

ii) Tucker’s 5-question model

2. Different approaches to ethics and social responsibility.

a) Describe and evaluate Gray, Owen & Adams (1996) seven positions on social responsibility.

b) ]Describe and evaluate other constructions of corporate and personal ethical stance:

i) short-term shareholder interests

ii) long-term shareholder interests

iii) multiple stakeholder obligations

iv) shaper of society

c) Describe and analyse the variables determining the cultural context of ethics and corporate social responsibility (CSR).

d) Explain and evaluate the concepts of ‘CSR strategy’ and ‘strategic CSR’ .

3. Professions and the public interest

a) Explain and explore the nature of a ‘profession’ and ‘professionalism’.

b) Describe and assess what is meant by ‘the public interest’.

c) Describe the role of, and assess the widespread influence of, accounting as a profession in the organisational context.

d) Analyse the role of accounting as a profession in society.

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

ACCA P7 Advanced Audit and assurance notes

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

4. Professional practice and codes of ethics

a) Describe and explore the areas of behaviour covered by corporate codes of ethics.

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

c) Describe and assess the codes of ethics relevant to accounting professionals such as the IESBA (IFAC) or professional body codes.

5. Conflicts of interest and the consequences of unethical behaviour

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

b) Explain and evaluate the nature and impacts of ethical threats and safeguards.

c) Explain and explore how threats to independence can affect ethical behaviour.

d) Explain and explore ‘bribery’ and ‘corruption’ in the context of corporate governance, and assess how these can undermine confidence and trust.

e) Describe and assess best practice measures for reducing and combating bribery and corruption, and the barriers to implementing such measures.

6. Ethical characteristics of professionalism

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

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

c) Describe and discuss ‘rules based’ and ‘principles based’ approaches to resolving ethical dilemmas encountered in professional accounting.

7. Integrated reporting and sustainability issues in the conduct of business

a) Explain and assess the concept of integrated reporting and evaluate the issues concerning accounting for sustainability (including the alternative definitions of capital:.

(i) Financial

(ii) Manufactured

(iii) Intellectual

(iv) Human

(v) Social and relationship

(vi) Natural

b) Describe and assess the social and environmental impacts that economic activity can have (in terms of social and environmental ‘footprints’ and environmental reporting)).

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

d) Explain and assess the typical content elements and guiding principles of an integrated report, and discuss the usefulness of this information to stakeholders.

e) Explain the nature of social and environmental audit and evaluate the contribution it can make to the assurance of integrated reports.

ACCA P7 Advanced Audit and assurance notes

• ACCA level 1 syllabus
• ACCA subjects
• ACCA exam changes
• ACCA study manual

ACCA P7 Advanced Audit and assurance notes

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