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Question		Answer
Factors protecting the independence of internal auditor: 2 start learning		Reporting to audit committee. Independency of executive management. \| Audit committee approve appointment and termination of chief internal auditor (CIA).
Ethic threats: IFA SS start learning		Intimidation \| Familiarity \| Advocacy \| Self-review \| Self-interest
Intimidation threat examples: 2 start learning		Litigation threat \| Dominant personality of client director attempting to influence decisions
Familiarity threat examples: 2 start learning		Long association with a client \| acceptance of gifts or preferential treatment (significant value)
Advocacy threat examples: 2 start learning		Acting as an advocate on behalf of a client \| Promoting shares in a listed audit client
Self-review threat examples: 2 start learning		Auditor in position of reviewing work they have been responsible for (like tax services) \| Recent employment and review own work
Self-interest threat examples: 2 start learning		Undue dependence of fee income from one client. \| Direct financial interest. Close personal or business relationship.
The make-up of the audit committee: 2 start learning		AC consists entirely of NEDs \| one with recent financial experience.
Most of the board objectives relating to internal controls will be delegated to the... start learning		to the audit committee
Who is responsible for oversight of company relation with external auditors? start learning		Audit committee
Ecological footprint start learning		A method of gauging humans’ dependence on natural resources. It calculates how much of the environment is needed to sustain a particular lifestyle. The ecological footprint can be calculated for different populations, including individuals, cities, regions, countries, or the entire planet. You can even calculate your personal ecological footprint.
Risk definition 2 start learning		An unrealised future loss arising from a present action or inaction. \| Risks are the opportunities and threats associated with uncertain future events.
Why companies incur a general risk? 2 start learning		To gain competitive advantage. \| To increase financial return.
Why companies manage a downside and upside risk? 2 start learning		Downside risks managed to identify new risks and changes in existing risks. \| Upside risks identified to make best use of opportunities.
Risk management definition start learning		Process of reducing adverse consequences by reducing likelihood of event or its impact.
Who is responsible for risk management system? start learning		Management
ALARP start learning		As Low as Reasonably Practicable graphics avaiable
As Low as Reasonably Practicable principle: 2 start learning		Express a point at which the cost of additional risk reduction would be grossly disproportionate to the benefits achieved. \| Usually applied to safety critical systems; for example an oil rig.
Strategic risks examples: 2 start learning		Not enhancing old products. \| Producing ‘incorrect’ new products
Operational risks arising from...? start learning		_arising from business operations.
Business risks start learning		Strategic risk that threaten the health and survival of the whole business.
Derivatives risk start learning		Use of financial instruments to improve accounts.
Business probity risk. start learning		Company appears to act incorrectly.
Credit risk. start learning		Inability obtain funds required.
Related risks start learning		Risks that vary because of the presence of another risk or where two risks have a common cause. Risk correlation is a particular example of particular risk.
Risk heat map start learning		A tool used to present the results of a risk assessment process visually and in a meaningful and concise way. \| A common understanding of the risk appetite \| A common language for assigning probabilities and potential impacts.
Main role of the Board in risk management 3 start learning		Considering risk at strategic level \| and defining organisation’s appetite \| and approach to risk.
Risk appetite [Framework for Board consideration of risk] start learning		How much risk the business will accept.
Risk capacity [Framework for Board consideration of risk] start learning		Maximum risk business can accept.
Residual risk [Framework for Board consideration of risk] start learning		Risk that cannot be managed.
Risk manager definition: 2 start learning		Member of risk management committee \| who reports direct to the board.
Primary role of risk manager start learning		Implementation of risk management policies.
Aim of embedding risk management: start learning		To ensure that it is ‘part of the way we do business’. 2 levels: Embedding risk in systems and Embedding risk in culture.
Levels of embedding risk. 2 start learning		In systems \| In culture
Embedding risk in systems: 3 start learning		Ensuring risk management is included within control systems of an organisation. \| Not a separate system – part of overall control system. \| May be statutory requirements (USA) or code of practice.
Process of embedding risk: 4 steps start learning		Identify controls already operating. \| Monitor controls to ensure they work. \| Improve controls as required. \| Document the new controls impact.
Embedding risk in culture outline. 2 start learning		Risk management being considered ‘normal’ for organisation therefore all employees follow risk management policies. \| Risk management culture stars at ‘top of company’ – provides better risk management. Risk awareness is a capability of organisation to be able to recognise risks when they arise, from whatever source they may come
Risk retention start learning		Risk retained within organisation. Acceptance of risk. from TARA
How to reduce risk? Where it works the best? 2 start learning		By diversifying operations (Make different products or invest in different countries). \| Works best where risks are negatively correlated.
Risk monitoring 3 start learning		Risk auditing \| Carried out by internal or external audit teams. \| May be obligatory (e.g. Sarbanes-Oxley Act).
Initial coin offering (ICO) - Software value tokens Type of crowdfounding start learning		The company wanting to raise finance creates its own cryptocurrency (like a personalised Bitcoin). These are then sold to investors, who typically pay in another cryptocurrency. The tokens are not like shares and do not give control or voting rights, but the investors hope that the tokens will appreciate in value if the company prospers and the tokens can then be sold at a profit.
Which tools are used in portfolio analysis? 2 start learning		BCG matrix and BCG public sector matrix. \| Ashridge portfolio display.
Profession 2 start learning		A body of theory and knowledge \| which is used the support the public interest.
Profession characteristic 3 start learning		Body of theory and skills. \| Adherence to common code conduct. \| Acceptance of duty to society.
Professionalism start learning		Taking action to support the public interest. Acting professionally.
Reactive professionalism start learning		Nothing negative aspects of accounting and taking action to remove those aspects e.g. legislation post Enron.
Proactive professionalism start learning		Seeking out new ways to support the public interest, such self-imposed codes of conduct.
Public interest start learning		The welfare or well-being of the general public; commonwealth. As opposed to what serves the interest of individual members of society or specific sectional interest groups.
Accountants in the public interest influence: 3 start learning		Influence on organisations. \| Influence in society. \| Influence on distribution of power and wealth. 1. Services provision. \| 2. Act in public interest. \| 3. Use of specialist.
Ethical codes confirm that that acting against the public interest is? start learning		_is not appropriate for accountant. When considering whether to disclose information or not the accountant will need to evaluate each situation on its merits.
Corporate code of ethics: start learning		Application of ethical values to business behaviour.
How business ethics affect shareholders? start learning		Expect fair and proper return on their investment. Company should provide this return and information on how shareholders' investment managed.
How business ethics affect suppliers? start learning		Suppliers attempt to provide quality goods on time. Company should pay invoices promptly, select suppliers on known criteria, such as ‘fair trade’ principles.
How business ethics affect wider community? start learning		Company affects society as a whole. CSR report explains how company treats wider community.
How ethics affect business values? start learning		Mission statements mention products and services provided financial objectives and also role of business in society.
How business ethics affect employees? start learning		Company recognises employee rights in areas such as working conditions, training, health and safety.
How business ethics affect customer relations? start learning		Company has responsibility to produce quality goods and services at reasonable price.
Ethic Conceptual framework explains how... start learning		how ‘spirit’ of principles applied.
Ethic Application details applied to... start learning		... to specific situations.
Integrity [Fundamental ethical principles] start learning		This means that members should be honest, straightforward. If they see something is amiss, they should say so; they shouldn’t try to conceal it; they shouldn’t ‘turn a blind eye’; they shouldn’t try to be ambiguous, they should state things plainly.
Competence and due care. [Fundamental ethical principles] start learning		They must keep themselves up-to-date with legislation and recent developments. They shouldn’t take on work which they are not qualified for or for which they have no skills. They must be diligent, they must be careful.
Confidentiality. [Fundamental ethical principles] start learning		Members, have access to information which is highly confidential and which is price sensitive. That information must be held confidentially. Members should not disclose confidential information unless they have a legal or professional duty to do so. An example of a legal duty to disclose information can arise if a member thinks that a client or the person they are working for is involved in money laundering.
Professional behaviour [Fundamental ethical principles] 2 start learning		They should comply with the law \| and they should avoid any actions which discredit the profession. So, for example, when they are trying to advertise their services they shouldn’t say that other members are bad or poor. They should confine themselves to promoting what they are good at; they shouldn’t rubbish other professionals.
Objectivity [Fundamental ethical principles] start learning		Members should be influenced by the facts and the facts only. They must avoid bias, conflict of interest and undue influence.
Benefits of corporate and professional code of ethics. 3 start learning		Provide framework for conflict resolution. \| Provides guidelines for similar ethical disputes and methods of resolution. \| Provides boundaries across which it is ethically incorrect to pass.
Drawbacks of corporate and professional code of ethics. 3 start learning		It is only a code – may not fit the precise ethical issue. \| Can be interpreted in different ways which may appear ethically incorrect to two different people. \| May be no clear or effective punishment for breaching the code.
Ethical threat: start learning		Situation where person tempted not to follow code of ethics.
Types of safeguards for ethical threats. Created by... 3 start learning		Profession. \| Work environment. \| Individual
Safeguards for ethical threats created by profession. 4 start learning		Education and training \| CPD \| Monitoring of work. \| Disciplinary proceedings
Safeguards for ethical threats created by work environment: 4 start learning		IC systems. \| Review procedures. \| Codes of ethics. \| Disciplinary procedures.
Safeguards for ethical threats created by Individuals. 4 start learning		Compliance with standards. \| Mentoring. \| Recording contentious issues. \| Assistance from professional body.
Corruption examples: 2 start learning		Excessive ‘hospitality’. \| Facilitation payments.
Corrupting offences by UK Bribery Act (2010). 4 start learning		Offering, promising or giving bribe. \| Requesting agreeing to receive or accepting a bribe. \| Bribing a foreign public official. \| A corporate offence of failing to prevent bribery.
Obtain detail on ethical conflict: 5 start learning		Relevant facts. \| Ethical issues involved. \| Relevant fundamental principles. \| Established internal procedures. \| Alternative courses of action.
Decide action on ethical conflict: 5 start learning		Consider consequences of each course of action. \| Consult with those charged with governance. \| Consult with appropriate persons in firm. \| Advice from professional institute. \| Consider withdraw from assignment.
Ability to make ethical decision depends on: 2 start learning		Issue-related factors. \| Context-related factors. How important decision is to decision-maker – factors affect moral intensity and moral framing. \|\| How factors relating to issue are viewed.
Effect concentration [Factors affecting moral intensity] start learning		How many people affected by action? Fewer people increases moral intensity.
Probability of effect. [Factors affecting moral intensity] start learning		Likelihood harm – benefits occurs. More likelihood increases moral intensity.
Proximity [Factors affecting moral intensity] start learning		Nearness of decision maker to people affected by decision. ‘Closer’ relationship increases moral intensity.
Temporal immediacy [Factors affecting moral intensity] start learning		How soon effects of decision occur? Short time increases moral intensity.
Magnitude of consequence [Factors affecting moral intensity] start learning		Extent of harm caused by poor advice. More harm increases moral intensity.
Social consequences [Factors affecting moral intensity] start learning		Extent of agreement ethics of an action. More agreement increases moral intensity.
Cultural context [Ethical Key contextual factors] start learning		Cultures have different ideas of ‘ethics’.
Occupation roles [Ethical Key contextual factors] start learning		Provides ethical context e.g. accountants normally behave ethically.
Bureaucracy [Ethical Key contextual factors] start learning		Follow rules – not normally consider ethics of decisions made.
Reward system [Ethical Key contextual factors] start learning		Rewards based on achievement may encourage unethical decisions.
Authority [Ethical Key contextual factors] start learning		Senior manager unethical means junior likely to be also.
Group norms [Ethical Key contextual factors] start learning		Follow what peer-group think is ethical.
Temporal immediacy definition start learning		This is the length of time between the present and the onset of the consequences of a moral decision. When the effect is in the near future, it is considered to have a higher degree of moral intensity, and so is more likely to prevent unethical behavior. The length of time that elapses from making a decision to experiencing the consequences of that decision.
Escrow Agreement start learning		Contract that outlines the terms and conditions between parties involved, and the responsibility of each. It generally involve an independent third party, an escrow agent, who holds the asset until the specified conditions of the contract are met. Escrow agreements are commonly used in real estate transactions.
Boundaryless organization. start learning		It is an organization that is not defined by, or limited to, the horizontal, vertical, or external boundaries imposed by a predefined structure. No external barriers between the company and its customers and suppliers.
Interactivity start learning		he ability of a computer to respond to a user's input. E.g. writing a comment on Amazon.
Reporting to shareholders characteristic: 3 start learning		Chair of AC available at AGM for shareholder questions. \| Shareholders right to know if ICs are sufficient to safeguard their investment. \| To provide shareholders with necessary information, Board producing comprehensive annual review on IC systems. comprehensive annual review on IC systems.
Strategic risks identification. Risks arising from consequences of strategic decisions. Identified and assessed at...? start learning		senior management level.
Operational risk are identified at...? start learning		at operational level
Operational risks examples: 2 start learning		include fraud \| quality control
Strategic risks are managed by ...... strategy. start learning		by risk management strategy.
Operational risks are managed by ...... systems.? start learning		by internal control systems.
Three stages of environmental audit. 3 start learning		Establishing the metrics. \| Measuring actual performance against the metrics. \| Reporting the levels of variances.
Rational model components. 2 start learning		Company mission \| and Stakeholders. Mendelow’s matrix - the only one stakeholder model.

SBL 4

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