ACCA考试P1-P3模拟题及解析13

　　以下是高顿网校小编为学员整理的：ACCA P1-P3模拟题及解析。
 

　　John Louse, the recently retired chief executive of Zogs Company, a major listed company, was giving a speech reflecting on his career and some of the aspects of governance he supported and others of which he was critical. In particular, he believed that board committees were mainly ineffective. A lot of the ineffectiveness, he said, was due to the lack of independence of many non-executive directors (NEDs). He believed that it was not enough just to have the required number of non-executive directors; they must also be ‘truly independent’ of the executive board. It was his opinion that it was not enough to have no material financial connection with a company for independence: he believed that in order to be truly independent, NEDs should come from outside the industry and have no previous contact with any of the current executive directors.

　　In relation to risk committees, he said that in his experience, the company’s risk committee had never stopped any risk affecting the company and because of this, he questioned its value. He said that the risk committee was ‘always asking for more information, which was inconvenient’ and had such a ‘gloomy and pessimistic’ approach to its task.

　　He asked, ‘why can’t risk committees just get on with stopping risk, and also stop making inconvenient demands on company management? Do they think middle managers have nothing else to do?’ He viewed all material risks as external risks and so the risk committee should be looking outwards and not inwards.

　　Since retiring from Zogs, Mr Louse had taken up a non-executive directorship of SmallCo, a smaller private company in his town. In a meeting with Alan Ng, the new chief executive of Zogs, Mr Ng said that whilst risk management systems were vital in large companies like Zogs, fewer risk controls were needed in smaller companies like SmallCo.
 

　　(a) Define ‘independence’ in the context of corporate governance and critically evaluate Mr Louse’s comment that greater independence of non-executive directors is important in increasing the effectiveness of board committees. (8 marks)

　　(b) Describe the roles of a risk committee and criticise Mr Louse’s understanding of the risk committee in Zogs Company. (9 marks)

　　(c) Assess whether risk committees and risk mitigation systems are more important in larger companies, like Zogs, than in smaller companies like SmallCo. (8 marks)

　　(25 marks)
 

　　(a) Independence and NEDs.

　　Define independence

　　Independence is a quality possessed by individuals and refers to the avoidance of being unduly influenced by a vested interest. This freedom enables a more objective position to be taken on issues compared to those who consider vested interests or other loyalties.

　　Independence can be threatened by over-familiarity with the executive board, which is why many corporate governance codes have measures in place to prevent this. These include restrictions on share option schemes for NEDs, time-limited appointments and bans on cross-directorships. Other restrictions, depending on jurisdiction and code, include salaries being set at an appropriate level for NEDs, a compulsory number of years after retirement from a company before being eligible for a NED role (if ever), and no close personal relationships between executives and non-executives.

　　Benefits of greater independence

　　In the case of the independence of non-executive directors, Mr Louse is arguing that those with no previous contact with the other members of the board and who come from outside the industry that Zogs is in, will be more independent than those who may have some form of vested interest. In this he is only partly accurate: whilst succession to a NED role from an executive position in the same company is likely to threaten independence, appointments to NED positions from other companies within the same sector are quite common and still provide industry knowledge to a board.

　　The first benefit of greater independence is that independent people brought in as NEDs are less likely to have prior vested interests in terms of material business relationships that might influence judgments or opinions. Such vested interests may involve friendships with other board members or past professional relationships. Past or current equity holdings in companies within the industry may encourage unhelpful loyalties (many CG codes restrict NEDs from holding shares or share options in companies they are on the boards of).

　　Second, they are likely to have fewer prejudices for or against certain policies or individuals as working relationships will not have been built up over a number of years. Accordingly, they are likely to start from the ‘ground up’ in seeking clarifications and explanations for each area of discussion. Previous rivalries, alliances or embedded ideas would not frustrate discussions and this may allow for more objective discussions.

　　Third, independent non-executive directors are more likely to challenge the established beliefs of less independent people (such as executive directors). This is a more effective way of scrutinising the work of board committees and of increasing their effectiveness. This has the advantage of challenging orthodoxy and bringing fresh perspectives to committee discussions.

　　Disadvantages of greater independence

　　Some NEDs are appointed because of their connections with the existing board, either through prior industry involvement,prior executive membership or prior service on another board with one or more other directors. These are considered by Mr Louse to be less independent.

　　There are, however, a number of advantages when NEDs have some familiarity with a company and board they are joining.

　　A key non-executive role, including in board committees, is providing strategic advice. This can often arise from a thorough knowledge of the strategic issues in a company or industry. Retired executive directors, like Mr Louse, sometimes serve as NEDs in the same company and are thus able to bring their experience of that industry and company to bear on committee discussions (although in some countries, there are time restrictions on executives becoming NEDs in the same company).

　　Some level of prior connection is advantageous when some level of technical knowledge is required. Therefore, Mr Louse’s comments about independence depending upon NEDs’ needing to be from a different industry background or sector is not quite appropriate. When serving on an appointments committee, for example, knowledge of the industry and the technical aspects of a company’s operations will increase effectiveness. This might apply in electronics, chemicals, accounting services and financial services, for example. When serving on a risk committee in, for example, a bank, a technical knowledge of key risks specific to that particular industry can be very important.

　　The contacts and personal networks that a NED with industry experience can bring may be of advantage, especially for informal discussions when serving on a nominations committee, for example.
 

　　(b) Risk committee and criticise Mr Louse’s understanding.

　　Roles

　　There are five general roles of a risk committee. The first is agreeing and approving the organisation’s risk management strategy, including strategies for strategic risks. This is likely to be drawn up in discussion with other parts of the organisation,including the main board.

　　Second, the risk committee reviews reports on key risks prepared by departments on operational risks. These might be reports from operations (e.g. production), finance or technical departments on risks that specifically may affect them.

　　Third, it monitors overall risk exposure and ensures it remains within the limits established by the main board. Exposure is generally defined as the totality of losses that could occur and the acceptable exposure will vary according to the risk strategy.

　　Some organisations accept a higher exposure than others because of their varying risk appetites.

　　Fourth, the risk committee assesses the effectiveness of risk management systems and policies. This is usually based on past data, where a risk has materialised, or ‘stress testing’ of systems where the risk has not yet materialised.

　　Fifth, the risk committee approves and agrees any statements or disclosures made to internal or external audiences, such as risk reporting to analysts or in the annual report. Shareholders have the right to expect accurate and relevant reports on the risks in their investments, and so any reports issued outside the company need to be approved by the risk committee.

　　Criticise Mr Louse’s understanding

　　Mr Louse has a weak understanding of the roles and purposes of a risk committee.

　　First, ‘stopping risks affecting’ companies is not within the remit of a risk committee. Some risks affect everybody including businesses; others apply because of industry membership, geographical location, business activity, strategic positioning or business strategy. The role of a risk committee is to identify, review and construct a strategy for managing those risks.

　　Second, he complained that the risk committee was ‘always asking for more information, which was inconvenient’. Gathering information is a crucial part of a risk committee’s role and it is in the company’s overall interest to ensure that information supplied to the risk committee is accurate, current and complete.

　　Third, he misunderstands the nature of the committee’s role if he perceives it to be ‘gloomy and pessimistic’. This is an understandable but unfair criticism. Risks are, by their nature, things that might go wrong or potential liabilities, but the reason why risks need to be understood is to ensure the ongoing success and prosperity of Zogs Company, and that is a very positive thing.

　　Finally, he wrongly believed that all material risks were external risks and so the risk committee should be looking outwards and not inwards. Risks can be internal or external to the company and many internal risks can be highly material such as financial risks, liquidity risks, operational risks, etc.
 

　　(c) Risk monitoring more important in larger companies than in smaller companies?

　　Small companies exist in different strategic environments to large companies and because of this, a number of differences apply when it comes to corporate governance systems. There are a number of compliance issues, for example, where large companies are required to comply with provisions that smaller companies are not. Some of the differences in regulation and shareholder expectations are driven by differences in the legal status of the organisation (e.g. whether incorporated, whether listed, where domiciled, etc).

　　In the case of risk management systems in smaller companies, there will be a lower overall (aggregate) loss to shareholders than in a large company in the event of a major risk being realised. In larger companies, especially listed companies, a major event can affect markets around the world and this can affect the value of many funds including pension funds, etc. This is unlikely to be the case in any given smaller company.

　　Many smaller companies, including SmallCo, are privately owned and they are therefore not subject to listing rules and, in some cases, other legal regulations. In many smaller companies, any loss of value when a risk is realised is a personal loss to owners and does not affect a high number of relatively ‘disconnected’ shareholders as would be the case in a large public company.

　　Risk probability and impact is often correlated with size. Smaller companies have fewer risks because of their lower profiles,fewer stakeholders and less complex systems than larger organisations. Accordingly, the elaborate risk management systems are less necessary in smaller companies and could be a disproportionate use of funds. This is not to say that smaller companies do not face risks, of course, but that the impacts, say to shareholders or society, are less with a smaller rather than a larger company because of the totality of the losses incurred.

　　The costs of risk monitoring and control may often outweigh the impacts of losses being incurred from risks, if not in a single financial period then maybe over a period of years. There are substantial set-up fixed costs in establishing some risk management systems and, in some cases, variable costs also (e.g. linked to production output). With fewer total risks, there could be less value for money in having risk controls.

　　In summary, risk committees and risk mitigation systems are more important in larger companies than in smaller companies.

　　However it is good practice for all companies, however small, to carry out some form of risk monitoring in order to remain competitive in their environment.
 

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