SBL 2019 WBook Skills Checkpoint 3 PDF

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SKILLS CHECKPOINT 3 Assessing and managing risk and ethical issues g in Ma na

An sw er

g inf or mat ion

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Good t mana g ime em en t

nin an

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Scepticism

iv ct re E f fe d p an

e se w r n t itin at i g on

Exam Success Skills

Communication

Commercial acumen

Analysis

Co rr e c o f t i nt er pr et at ion r eq u ire m en t s

Evaluation

ACCA Professional Skills

Efficien t nu me ric al an alys is

Introduction In Stage 3 you have learned about the importance of assessing and managing risk and ethical issues. However, only 80% of marks are awarded for the application of knowledge. The remaining marks are awarded for good demonstration of the specific ACCA Professional Skills outlined in the requirement. You need to able to: 1.

Identify the ACCA Professional Skill in the requirement. Remember the five: Analysis, Communication, Commercial Acumen, Evaluation and Scepticism

2.

Understand what the skill requires in the context of the question

3.

Consider how to demonstrate the skill(s) as part of your answer planning

The ACCA Professional Skills are assessing your ability to present your answers to a standard which would be expected in the workplace. However, in order to do this effectively in the Strategic Business Leader Exam, you must develop a further series of Exam Success Skills, so you are able to produce your very best solution in the four-hour timeframe. Therefore, success in Strategic Business Leader requires the simultaneous demonstration of syllabus knowledge, ACCA Professional Skills and Exam Success Skills. This Skills Checkpoint specifically targets the development of your skills as you progress through the syllabus. This should provide you with all of the tools that you will need during the Learning phase, so you can focus on these improving at the Revision Stage. The five Skills Checkpoints focus each on one of the five ACCA Professional Skills and provide further guidance on how to develop certain Exam Success Skills, so you can effectively manage questions and meet the expected standard for both knowledge and skills.

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Skills Checkpoint 3: Assessing and managing risk and ethical issues Your role Developing skills requires more than listening and reading, it requires you to try for yourself, use guidance and feedback to consider whether you have met the skills objective, then plan for further improvement. In Strategic Business Leader, you should include a focus on skills development in every question you attempt as part of your normal approach. The Skills Checkpoints will take you through a series of steps where you will attempt aspects of a question and review your progress from a skills perspective.

Focus on ACCA Professional Skill: Scepticism There are three essential elements to scepticism that ACCA have identified for their professional skills. The first is the ability to probe deeply into the underlying reasons for issues and problems, beyond what is immediately apparent from the usual sources and opinions available. It seems sensible to consider scepticism as an enhanced form of professional curiosity where you do not simply take what you are told at face value but instead look beneath the obvious and consider what questions and queries you might have from a given situation. The second is to question facts, opinions and assertions, by seeking justifications and obtaining sufficient evidence for their support and acceptance. Again, this seems logical once you have started to probe something more deeply: are you happy with what you have been told or does it need something else to satisfy you that all is as it should be? The third and final approach to demonstrating scepticism is to challenge information presented or decisions made, where this is clearly justified, in a professional and courteous manner. Assuming you have asked questions and received insufficient or inappropriate responses, the next step for you is to push back and state that you are not satisfied with the response and that you need something else. The skill description continues to set this in context, in the wider professional, ethical, organisational or public interest which is critical when allied to the need for professional behaviour.

Demonstrating Exam Success Skills For this question, we will focus on the following exam success skills: 

Correct interpretation of requirements. You will have heard the advice 'read the question' or 'RTQ' many times as part of your studies so far, and we are not going to change that now! However, some requirements may prove difficult to understand due to long, complex sentences and multiple verbs, which indicate a series of tasks instead of just one. It is therefore critical that you can deconstruct the requirement to isolate each verb and ensure you plan to supply a suitable response in each case.



Answer planning. Once you know what the requirement is looking for, you can start to search for answers to the list of things you need to do. Reading the case with this list in mind will help you quickly isolate the important things and discount the rest. Note that for Roasta Bean Co which follows, we only have one case scenario, but in the real exam there will be the overview and a number of supporting exhibits, so this process is going to require some time (at least 10% of the time allocated to the question). At this stage, you will also aim to work out the number of marks available for each requirement which should allow you to start considering the number of points a good answer should contain to score well.



Effective writing and presentation. Once you have your answer plan, the structure of your answer should have started to take shape: judicious use of expanded bullet points with suitable sub-headings using appropriate language should act as a series of signposts that lead the reader through your answer.

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Skills Checkpoint 3

Skills Activity

STEP 1

Read the following requirement for the question 'Roasta Bean Co', identifying the verbs and the professional skills being examined, and start to set up your answer plan. Remember your skills of 'Correct interpretation of the requirements' as there are two requirements here and they are not straightforward to interpret!

Required Recommend the control mechanisms that should be implemented to reduce the problems associated with the ethical risks. (10 marks) Discuss the extent of the responsibilities of internal audit for ensuring that the ethical problems do not recur. (6 marks) Professional skills marks are available for demonstrating scepticism skills in relation to your recommendations and discussion. (2 marks) (Total = 18 marks) 

There are evidently problems within this organisation, so you need to isolate them first.



You then need to consider the ethical issues associated with these risks – are they connected in any way?



What should be done to try and reduce the impact of these risks for part (a) – again, are there any connected activities or suggestions here?



How much can (and should) internal audit do to help for part (b)?

STEP 2

It appears that the ethical issues have been identified already using these subheadings – this is good news! This is concerning – how have dishonest people been employed in the first place and how have they been able to get away with this in one of RBC's shops? Suggests poor recruitment and poor ethics

You should now read the scenario, considering the ethical issues that may have led to the problems you find, how they can be addressed and how much the internal auditors can do to try and help. The scenario has been annotated to show what sort of things you should be looking for when performing this kind of 'active' reading.

Question – Roasta Bean Co (18 marks) Roasta Bean Co ('RBC') is a chain of coffee shops that operates 75 shops in its home country. A number of ethical problems have recently arisen at RBC, and an emergency meeting of its board has been convened to discuss their implications. Thefts from stores Three employees in one shop have been dismissed for thefts of both produce and cash. These thefts were only identified because one of the employees was foolish enough to steal, and then sell, the bags of coffee beans on the premises of the RBC coffee shop in which they worked. A customer reported the incident to the chief executive of RBC and an investigation of the shop revealed that two other employees had also been involved in the theft.

Why did no employee spot this or report it? Again, poor example being set and no control in shops. Perhaps Internal Audit could monitor this?

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Again, there is nothing stopping this from happening – why? Poor monitoring? No fear of sanctions? There appears to be no sign of any 'moral compass' in RBC

Action needs to be taken at board level that is both swift and transparent to be seen to be helping with restoring RBC's reputation

Drug dealing One of the coffee shop managers was reported by a customer, and subsequently arrested, for selling illegal Class A substances in their RBC coffee shop and allowing drugs to be taken on the site. Police investigations showed that this had been taking place for at least ten months. Fair trade A routine advertising campaign promoting RBC stated, 'RBC is aiming to have all its coffee supplied by Fair Trade suppliers'. However, a former RBC Head Office employee recently stated in the national press that only around 60% of RBC coffee was procured from Fair Trade suppliers. An investigation revealed that the figure was in fact around 80% but the percentage bought from Fair Trade suppliers had fallen by 5% over the past year. RBC's Chief Executive is very concerned about all these issues. He feels that they demonstrate that RBC has a poor ethical culture and could seriously damage the company's reputation. They wish to introduce measures to improve RBC's ethical culture and to use the company's recently appointed internal auditors to ensure that the measures are effective.

STEP 3

If the police are involved, this could lead to prosecution – would RBC need to supply evidence? Could be something that Internal Audit helps out with This sounds like a real problem, but if they are a former employee, can we trust their judgement or are they just trying to make trouble (scepticism)? Internal Audit could help here as well

You are now in a position to create an answer plan.

Guidance in helping you develop your answer plan As the question is worth 18 marks, using two minutes per mark as a guide equates to a total of 36 minutes to attempt the requirement. Working on the basis that you will spend at least five minutes creating your answer plan this leaves 31 minutes to write up your answer. Each point you make could score up to two marks, so for part (a) you are looking at five separate points, while part (b) for six marks would require three separate points. Demonstrating scepticism would be necessary to earn the two professional marks and these seem to relate to probing more deeply into the reasons behind these ethical issues and considering just how much evidence the internal audit team can realistically create if, for example, a prosecution is required into drugs offences. Having already annotated the scenario with the requirements in mind, your answer plan may start to look something like this. 



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How to stop the problems of theft, drug abuse and breaking company policy? -

Recruitment of the right kind of people

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Training in how to behave

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Sanctions for those that do not behave

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Better monitoring and support for employees who may know about these problems but not have an outlet for reporting them

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Culture – is the 'tone from the top' appropriate to encourage suitable ethical behaviour?

What can Internal Audit do about this? -

As much as the board wants them to do

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Greater involvement in systems testing in shops

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Any other evidence that could be used to highlight problems (eg other KPIs such as customer complaints)

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Mystery shopping or surprise visits?

Skills Checkpoint 3

STEP 4

Check the requirements Before you start writing up your answer it is worthwhile reviewing the requirement again to ensure that there is nothing that you have overlooked.

STEP 5



Part (a) requires recommendations, so make them clear and specific, stating what actions should happen and how they would address each ethical issue



Part (b) is a discussion of points that may not all be in harmony with each other, but must state the extent of Internal Audit's involvement to answer the question

Complete your written answer You can now bring your workings together to create a solution, making sure that you use logical headings and short punchy sentences. Drawing together the key points from the scenario with your recommendations and discussions will show the marker that you have dealt with both requirements. A model answer is given below, with comment boxes illustrating where the answer is demonstrating good scepticism skills.

Suggested solution (a) This displays scepticism because you are demonstrating that you can probe into the reasons for poor ethical behaviour – in this case, the lack of ethical leadership by the board

Board example The board should make clear when communicating with staff that they are committed to ethical behaviour and they expect staff to be committed as well. Appointing a board member as ethics champion emphasises board commitment as well as being a contact point for whistleblowing (discussed further below). Code of conduct A code of conduct could be used to remind staff of RBC's objectives of being an ethical business. Staff should be required to commit to the code when they join RBC. This would strengthen the basis for disciplinary action if they transgress. This displays Communication with employees The board needs to ensure that specific ethical objectives are communicated unambiguously to staff. With RBC, although coffee was ideally meant to be sourced 100% from Fair Trade suppliers, it has been impossible recently to attain this target. There may therefore have been confusion, and local managers may have regarded it as acceptable to source from non-Fair Trade suppliers if there were significant cost advantages in doing so. Central policies

scepticism because you are demonstrating that you can probe into the reasons for poor ethical behaviour – in this case, the lack of clear policy on sourcing coffee beans

One way of preventing problems with the use of non-Fair Trade suppliers would be to insist that shops only used suppliers on a centrally approved list. Alternatively, a central purchasing function could be responsible for making purchases for all shops. Recruitment One way of reducing the risk of dishonest acts by staff is to ensure that staff who are recruited do not have records of bad behaviour. References should be required and confirmed for all staff.

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Appraisal Staff should also be regularly appraised and the results of appraisals communicated to senior management. If appraisals indicate staff unhappiness, this may suggest that problems are more likely to occur. Disciplinary procedures There should be clear disciplinary sanctions against staff who are found guilty of dishonesty or unethical behaviour, including dismissal from employment. If necessary, staff accused of dishonesty should be suspended until the accusation is resolved. Manager rotation This displays scepticism because you are demonstrating that you can probe into the reasons for poor ethical behaviour – in this case, the lack of a suitable whistleblowing function at RBC

(b)

Staff may not have reported problems because of misplaced loyalty to, or fear of, management or colleagues. One way of preventing this would be to rotate managers between shops on a regular basis, to prevent a situation where managers allow problems to persist over a long time. Whistleblowing Both the drug dealing and the coffee beans sales were reported by customers and not staff. This suggests a lack of channels for staff to report problems confidentially, and therefore the board needs to make clear who staff should contact if they have concerns. Monitoring procedures Lastly the board should review evidence available from information systems and internal audit work and investigate signs of problems. The shops where there were ethical problems may have been underperforming in other areas. Extent of responsibilities The extent of internal auditors' responsibilities are defined by the board. They can be given wide-ranging duties in relation to fraud, unlike external auditors whose responsibilities are concentrated on frauds that have a material impact on the financial statements. Specific tests Audit tests could be used as a matter of course to pick up certain problems. Here, for example, reviewing shop purchase records and checking whether suppliers used were, or could have been, Fair Trade would have identified that problem. Consideration of other evidence

This displays scepticism because you are demonstrating awareness of the underlying reasons for these behaviours

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Internal audit should be alert for evidence that does not directly indicate fraud, but indicates the general possibility of problems at the shops. These include accounting results that are very much better or worse than other shops and high staff turnover. Inadequate records or unwillingness to respond to auditor enquiries should also put the auditors on alert. These are signs that the shop may be high risk and thus require greater audit work. Recommendations for improvements Internal audit will be responsible for making recommendations to management for improvements in systems that could prevent problems occurring, or make it easier for management to detect them. These include shortcomings in human resource procedures, such as failure to check references properly. They could also include improvements in the reports provided by the information systems. Internal audit feedback could be a very useful source of information when changes in the information systems are being considered.

Skills Checkpoint 3

This displays scepticism because you are demonstrating awareness of how to obtain sufficient evidence This displays scepticism because you are challenging the assumption made by the Chief Executive of RBC that Internal Audit can solve every problem

Audit approach Conducting audits solely by pre-announced visits may limit the assurance the audit gives, since staff at the shops may behave while the auditors are there and cover their tracks beforehand. Surprise visits may identify issues such as shortages of cash or inventory. Lack of evidence However, internal audit can only reasonably be expected to detect frauds that impact in some way on the business's systems. It appears that the drug dealing manager took care to ensure that they covered their tracks, and did not leave any information for the internal auditors to detect. Internal auditors can also only be expected to work within their own areas of expertise. They are not trained members of the Police Drug Squad. Prevention of problems Internal audit should always have a monitoring and detection role. To preserve internal audit independence, ...