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CIMA Performance Pillar Management Control Systems

CIMA Performance Pillar Management Control Systems

CIMA Performance Pillar Management Control Systems : Two key issues underpin Paper P3 – what risks does the organisation face and how can those risks be managed and controlled? The scope of the paper includes both financial and non-financial risks. The management strategies covered extend to the use of financial instruments, and more general strategies of risk identify cation and management, involving establishing and monitoring appropriate systems of internal control. With the growing importance of ‘new’ sources of risk, the paper pays particular attention to risks arising from governance, ethical and social/environmental issues.

CIMA Performance Pillar Management Control Systems

CIMA Performance Pillar Management Control Systems : The syllabus comprises the following topics and study weightings:

Topics and Study Weighting

(A) Management Control Systems- 10%

(B) Risk and Internal Control-25%

(C) Review and Audit of Control Systems- 15%

(D) Management of Financial Risk -35%

(E) Risk and Control in Information Systems -15%

Management Control Systems (10%)

Lead

Evaluate control systems for organisational activities and resources.

Component

(a) Evaluate and recommend appropriate control systems for the management of an organisation

(b) Evaluate the appropriateness of an organisation’s management accounting control systems

(c) Evaluate the control of activities and resources within an organisation

(d) Recommend ways in which identifi ed weaknesses or problems associated with control systems can be avoided or solved

Indicative Syllabus Content

● The ways in which systems are used to achieve control within the framework of an organisation (e.g. contracts of employment, policies and procedures, discipline and reward, reporting structures, performance appraisal and feedback).

● The application of control systems and related theory to the design of management accounting control systems and information systems in general (i.e. control system components, primary and secondary feedback, positive and negative feedback, open- and closed-loop control).

● Structure and operation of management accounting control systems (e.g. identifi cation of appropriate responsibility and control centres within the organisation, performance target setting, avoiding unintended behavioural consequences of using management accounting controls).

● Variation in control needs and systems dependent on organisational structure (e.g. extent of centralisation versus divisionalisation, management through strategic business units).

● Assessing how lean the management accounting system is (e.g. extent of the need for detailed costing, overhead allocation and budgeting, identifi cation of non-value adding activities in the accounting function).

● Cost of quality applied to the management accounting function and ‘getting things right fi rst time’.

CIMA Performance Pillar Management Control Systems : Risk and Control in Information Systems (15%)

Lead

Evaluate the benefi ts and risks associated with information- related systems

Component

(a) Evaluate and advise managers on the development of information management (IM), information systems (IS) and information technology (IT) strategies that support management and internal control requirements

(b) Identify and evaluate IS/IT systems appropriate to an organisation’s needs for operational and control information

(c) Evaluate benefi ts and risks in the structuring and organisation of the IS/IT function and its integration with the rest of the business

(d) Evaluate and recommend improvements to the control of IS

(e) Evaluate specifi c problems and opportunities associated with the audit and control of systems which use IT.

Indicative Syllabus Content

● The importance and characteristics of information for organisations and the use of cost-benefi t analysis to assess its value. (A, B)

● The purpose and content of IM, IS and IT strategies, and their role in performance management and internal control. (A, B)

● Data collection and IT systems that deliver information to different levels in the organisation (e.g. transaction processing, decision support and executive informative systems). (A, B)

● The potential ways of organising the IT function (e.g. the use of steering committees, support centres for advice and help desk facilities, end user participation). (B, C, D)

● The arguments for and against outsourcing. (B, C, D)

● Methods for securing systems and data back-up in case of systems failure and/or data loss. (B, C, D)

● Minimising the risk of computer-based fraud (e.g., access restriction, password protection, access logging and automatic generation of audit trail). (B, C, D)

● Risks in IS/IT systems: erroneous input, unauthorised usage, imported virus infection, unlicensed use of software, theft, corruption of software, etc. (B, C, D)

● Risks and benefi ts of Internet and Intranet use by an organisation. (B, C, D)

● The criteria for selecting outsourcing/facilities management partners and for managing ongoing relationships, service level agreements, discontinuation/change of supplier, hand-over considerations. (C, D)

● Controls which can be designed into an information system, particularly one using information technology IT (e.g. security, integrity and contingency controls). (D)

● Control and audit of systems development and implementation. (E)

● Techniques available to assist audit in a computerised environment (computer-assisted audit techniques e.g. audit interrogation software). (E)

CIMA Performance Pillar Management Control Systems : Assessment strategy

There will be a written examination paper of 3 hours, plus 20 minutes of preexamination question paper reading time. The examination paper will have the following sections:

Section A – 50 marks A maximum of four compulsory questions, totalling 50 marks, all relating to a pre-seen case study and further new unseen case material provided within the examination. (Note: The pre-seen case study is common to all three of the Strategic level papers at each examination sitting i.e. paper E3, P3 and F3.)

Section B – 50 marks Two questions, from a choice of three, each worth 25 marks. Short scenarios will be given, to which some or all questions relate.

CIMA Performance Pillar Management Control Systems : Management of Financial Risk (35%)

Lead

Identify and evaluate fi nancial risks facing an organisation.

Component

Identify fi nancial risks facing an organisation :  Evaluate fi nancial risks facing an organisation.

Indicative Syllabus Content

● Sources of fi nancial risk, including those associated with international operations (e.g. hedging of foreign investment value) and trading (e.g. purchase prices and sales values).

 ● Transaction, translation, economic and political risk.

● Quantifi cation of risk exposures, their sensitivities to changes in external conditions and their expected values.

CIMA Performance Pillar Management Control Systems : Review and Audit of Control Systems (15%)

Lead

Discuss the importance of management review of controls.

Component

Discuss the importance of management review of controls.

Indicative Syllabus Content

● The process of review (e.g. regular reporting to management on the effectiveness of internal controls over signifi cant risks) and audit of internal controls.

● Major tools available to assist with a review and audit process (e.g. audit planning, documenting systems, internal control questionnaires, sampling and testing).

CIMA Performance Pillar Management Control Systems :  Risk and Internal Control (25%)

Lead

Identify and discuss evaluate types of risk facing an organisation

Component

Identify risks facing an organisation:

(a) Discuss ways of identifying, measuring and assessing the types of risk facing an organisation, including the organisation’s ability to bear such risks

(b) Produce a report on evaluate risks facing an organisation, including appropriate representations of risk exposure (e.g. a risk map).

Indicative Syllabus Content

● Types and sources of risk for business organisations: fi nancial, commodity price, business (e.g. from fraud, employee malfeasance, litigation, contractual inadequacy, loss of product reputation), technological, external (e.g. economic and political), and corporate reputation (e.g. from environmental and social performance or health and safety) risks.

 ● Fraud related to sources of fi nance (e.g. advance fee fraud and pyramid schemes).

 ● Risks associated with international operations (e.g. from cultural variations and litigation risk, to loss of goods in transit and enhanced credit risk). (Note: No specifi c real country will be tested).

 ● Quantification of risk exposures (impact if an adverse event occurs) and their expected values, taking account of likelihood.

 ● Information required to fully report on risk exposures.

 ● Risk map representation of risk exposures as a basis for reporting and analysing risks.

CIMA Performance Pillar Management Control Systems : Management Control Systems (10%)

Lead

Evaluate control systems for organisational activities and resources.

Component

(a) Evaluate and recommend appropriate control systems for the management of an organisation

(b) Evaluate the appropriateness of an organisation’s management accounting control systems

(c) Evaluate the control of activities and resources within an organisation

(d) Recommend ways in which identifi ed weaknesses or problems associated with control systems can be avoided or solved

Indicative Syllabus Content

● The ways in which systems are used to achieve control within the framework of an organisation (e.g. contracts of employment, policies and procedures, discipline and reward, reporting structures, performance appraisal and feedback).

● The application of control systems and related theory to the design of management accounting control systems and information systems in general (i.e. control system components, primary and secondary feedback, positive and negative feedback, open- and closed-loop control).

● Structure and operation of management accounting control systems (e.g. identifi cation of appropriate responsibility and control centres within the organisation, performance target setting, avoiding unintended behavioural consequences of using management accounting controls).

● Variation in control needs and systems dependent on organisational structure (e.g. extent of centralisation versus divisionalisation, management through strategic business units).

● Assessing how lean the management accounting system is (e.g. extent of the need for detailed costing, overhead allocation and budgeting, identifi cation of non-value adding activities in the accounting function).

● Cost of quality applied to the management accounting function and ‘getting things right fi rst time’.

CIMA Performance Pillar Management Control Systems :

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