STRATEGIC LEVEL. SUBJECT P3 Risk Management CIMA OFFICIAL REVISION CARDS

Transcription

1 STRATEGIC LEVEL SUBJECT P3 Risk Management CIMA OFFICIAL REVISION CARDS

2 RISK MANAGEMENT Published by: Kaplan Publishing UK Unit 2 The Business Centre, Molly Millars Lane, Wokingham, Berkshire RG41 2QZ Copyright 2017 Kaplan Financial Limited. All rights reserved. No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means electronic, mechanical, photocopying, recording or otherwise without the prior written permission of the publisher. Acknowledgements The CIMA Publishing trademark is reproduced with kind permission of CIMA. Notice The text in this material and any others made available by any Kaplan Group company does not amount to advice on a particular matter and should not be taken as such. No reliance should be placed on the content as the basis for any investment or other decision or in connection with any advice given to third parties. Please consult your appropriate professional adviser as necessary. Kaplan Publishing Limited and all other Kaplan group companies expressly disclaim all liability to any person in respect of any losses or other claims, whether direct, indirect, incidental, consequential or otherwise arising in relation to the use of such materials. British Library Cataloguing in Publication Data A catalogue record for this book is available from the British Library ISBN Printed and bound in Great Britain 2

3 RISK MANAGEMENT How to use Revision Cards The concept Revision Cards are a new and different way of learning, based upon research into learning styles and effective recall. The cards are in full colour and have text supported by a range of images, making them far more effective for visual learners and easier to remember. Unlike a bound text, Revision Cards can be rearranged and reorganised to appeal to kinaesthetic learners who prefer to learn by doing. Being small enough to carry around means that you can take them anywhere. This gives the opportunity to keep going over what you need to learn and so helps with recall. The content has been reduced down to the most important areas, making it far easier to digest and identify the relationships between key topics. Revision Cards, however you learn, whoever you are, wherever you are... 3

4 RISK MANAGEMENT How to use them Revision Cards are a pack of approximately 52 cards, slightly bigger than traditional playing cards but still very easy to carry and so convenient to use when travelling or moving around. They can be used during the tuition period or at revision. They are broken up into 4 sections. An overview of the entire subject in a mind map form (orange). A mind map of each specific topic (blue). Content for each topic presented so that it is memorable (green). Each one is a different colour, allowing you to sort them in many ways. Perhaps you want to get a more detailed feel for each topic, why not take all the green cards out of the pack and use those. You could create your own mind maps using the blue cards to explore how different topics fit together. If at the revision phase why not take all the purple cards and work through the past questions identified. And if there are some topics that you understand, take those out of the pack, leaving yourself only the ones you need to concentrate on. There are just so many ways you can use them. 4

5 RISK MANAGEMENT Contents 1. Risk (Chapters 1 and 2) 2. Responses to Strategic Risk (Chapters 4, 5, 6, 8 and 9) 3. Internal Controls to Manage Risk (Chapters 3, 7, and 10) 4. Risk Associated with Cash Flows (Chapters 11 13) 5. Risks Associated with Capital Investment Decisions (Chapters 14 and 15) 5

6 RISK MANAGEMENT Exam guidance Your exam will be made up of 60 questions, covering every area of the syllabus. A range of question types will be used. The main types will be: multiple choice, multiple response, number entry, drag and drop, drop down and hot spot. All questions are equally weighted and independent of each other. All elements of a question must be answered correctly for the question to be marked correct. Core areas of the syllabus The syllabus comprises of: A. Identification, classification and evaluation of risk 20% B. Responses to strategic risk 20% C. Internal controls to manage risk 20% D. Risk associated with cash flows 20% E. Risks associated with capital investment decisions 20% The pass mark is 70%. Time allowed: 90 minutes. No extra time is given for reviewing your answers. 6

7 RISK MANAGEMENT Quality and accuracy are of the utmost importance to us so if you spot an error in any of our products, please send an to with full details, or follow the link to the feedback form in MyKaplan. Our Quality Co-ordinator will work with our technical team to verify the error and take action to ensure it is corrected in future editions. 7

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9 overview risk management RevisionCards

10 RISK MANAGEMENT Types and sources Risk management Tools and processes Ethics Governance Risk Responses to risk Risk Management Internal control Control systems Fraud Forex risk Risk associated with cash flows Interest rate risk Risks associated with investments Internal audit Evaluating outcomes Evaluating conflicts Evaluating projects 10

11 risk risk management RevisionCards

12 Enterprise governance Risk management Definition Risk Types and sources of risk Why incur risk? 12

13 Enterprise governance A useful way of looking at the entire Risk Management (P3) syllabus is through the concept of Enterprise Governance. Enterprise Governance Conformance i.e. Corporate Governance Performance i.e. Business Governance Accountability Assurance Value creation Resource utilisation 13

14 Definition of risk Risk in business is the chance that future events or results may not be as expected. Downside risk = bad Upside risk = results may be better than expected 14

15 Why incur risk? Incur risk to Gain competitive advantage Increase financial return 15

16 Types and sources of risk Political, legal and regulatory risk Types and sources of risk International risk Business risk Fraud risk Economic risk Reputation risk Financial risk Environmental risk Technology risk 16

17 Definitions Roles and responsibilities Risk management strategy Risk management Risk management cycle Risk appetite Features Identifying and assessing Response strategy and treatment Monitoring and reporting 17

18 Definitions Risk management is defined as: the process of understanding and managing the risks that the organisation is inevitably subject to in attempting to achieve its corporate objectives CIMA Official Terminology Enterprise Risk Management (ERM) is defined as: a process, effected by an entity s board of directors, management and other personnel, applied in strategy setting and across the enterprise, designed to identify potential events that may affect the entity, and manage risk to be within its risk appetite, to provide reasonable assurance regarding the achievement of entity objectives. (COSO) (2003) 18

19 Risk appetite Business strategy Risk appetite How much risk the business will accept Risk strategy Risk attitude Overall approach to risk Risk capacity Maximum risk business can accept Residual risk Risk that cannot be managed 19

20 Risk management strategy features Key features of a risk management strategy are: ResponSibilities AtTitude PerfoRmance criteria Appetite ObjecTives CulturE G SYstems 20

21 Risk management cycle Establish risk management group and set goals Identify risk areas Business strategy Review and refine process and do it again Information for decision-making Understand and assess scale of risk Implementation and monitoring of controls Implement strategy and allocate responsibilities Development of risk response strategy 21

22 Risk management cycle: Identifying and assessing risks Identifying risk Assessing risk Performed and controlled by risk committee Risks recorded in risk register Variety of methods such as brainstorming, internal audit inspections, external advisors, scenario planning QUANTIFYING Expected values Volatility Value at Risk (VaR) RISK MAPPING Impact/ consequences Probability/ likelihood 22

23 Risk management cycle: Risk response strategy and treatment methods Any risk response strategy aims to ensure that: Exposure to severe risks is minimised Unnecessary risks are avoided Appropriate measures of control are taken The balance between risk and return is appropriate Risk map Impact/Consequence Low High Risk treatments (responses) include: Reduce HEdge DiverSify Pool AvOid TraNsfer Share E CHOICES CHOICES CHOICES Probability/Likelihood High Low Reduce Accept Avoid Transfer 23

24 Risk management cycle: Monitoring and reporting A risk reporting system would include: System review of risk forecast Review of risk strategy and responses to significant risks Monitoring / feedback loop on action taken Early warning system Incorporation of audit work Risk reports show: gross risk = before the controls, transfer or management responses net risk (residual risk) = taking into account the controls, transfer and management responses 24

25 Roles and responsibilities Who? Board of directors Audit committee Risk committee Risk management group (led by Risk Manager) Responsibilities in relation to risk management Ultimate responsibility Define risk appetite Review internal control system Risk management for whole company Operational responsibility for risk management process 25

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