MyCIMA

P3 exam - what did you think of it?

Replies : 67
Keywords: P3, risk, risk management

Any thoughts on today's paper. I reckon that the paper was mind boggling and the questions were open to a lot of interpretaion. Not sure what was supposed to be written without much of supporting content & data in pre-seen and un-seen. The

How did people find Q1 A. Identifying risks. There were a lot of risks, i thought it was better to classify them under 5 categories and then write. i classified them under

financial: exchange rate/inflation etc

business: control risk with information systems, fraud etc...

reputational: related to disposal of toxic wastes.

political:  related to african country's rigid policies with respect to foreign investment, exchange controls, transfer pricing etc

Economic:

I evaluated the risks by drawing a likelihood/impact matrix.

Am confused now if it was the right way to classify risks under 5 headings?

what did people right on mitigating forex risks?

matching? leading lagging? invoice in home currency, use derivatives. Am not sure what would have been the accounting implications except for derivatives which have to be reflected at fair market value in the fin. statements.

Doubts on Q3

was the forward contract beneficial? in my case it was since the actual rate in 3 months time was higher than the forward rate and the company would have received more pounds. thoughts ?

P3

I did the same with the risk, classified them under 5 headings. All my headings were the same except I think I had technological instead of reputation. I didn't draw a mtrix but commented on how likely they were and the effects.

 On Q3 I had the same result. The FC exchange after adding on the discount was 1.63? and the upside from doing it was twenty something thousand pounds?

p3

got mixed views on this paper.  didnt like parts of it.  chose to do q2 and q4.  didnt do the forward contracts as wasnt too confident and was expecting swops.  what thoughts on q4.....  external audit question

P3

Isabelle - I got 1.63 too and that it was favourable to use the forward contract.

Q4 - I attempted and immediately regretted.  I know I messed up the risk assessment part and I completely waffled through part b, stuff about reputation risks...

 Apart from Q4 I thought the paper was ok. Not sure I will have passed though.

p3

not sure i was right on auditor part.  talked about systems having data protection, audit trail, supporting documentation and the other part was risks and controls, so just mentioned having second person to authorise account closures etc

P3

Interested to hear what approach fellow candidates took to the Q2 question on B Bank...

The part A evaluation of the Governor's comment I was stuggling to match to a given set of theory...did anyone apply a certain theory?  I approached with risk versus reward and the remuneration comm should set pay per free market principles...not sure it will score heavily!!!  10 marks too!

And part B?  What did others apply here!?

P3

Sounds about right to me, not what I've done for part a but I know I have messed that up - I realised half way through that they wanted the kind of stuff you have mentioned like audit trails and proper documentation. I think I might have managed a couple of marks from part a as I did try to get in stuff about that towards the end.

Part B was risks from the complaints and how to alleviate them?? I couldn't think of many risks from the complaints apart from reputation, legal? And then I wrote about having access controls, data encryption, firewalls blah blah blah.

Oh well whats done is done. 

P3

Can't say I liked this paper, it felt a bit of a mish-mash to me, and similar to a previous poster, left a lot open to interpretation/assumptions.

 I qouted risks for Q1 in relation to supply of component/raw materials, govt.-backed JV dictating terms, product range (similar to Europe), compliance, and reputational.

 For the forward contract I got a rate of 1.63 and it worked out favouable to have taken the contract out.

A bit more on corp. gov., or 'internal' audit would have been nice.

P3

Totally agree Robert, I went through so many past questions of Corporate Gov and IA...argh!

I have nearly the same risks as you for Q1a - I guess there was quite a few and as long as you exlained them well enough that was an easy 15marks. 

What did people say re: the Management Info systems, adv + disadvantages? I think it was part b or c.

I think it was a 9marker...I only got one advantage and 2 disadvantages...I think they were a bit weak though. 

Q1

The final part in Q1, about employees manilpulating results. Any one else apply the COSO framework? I think I was way off here..........

time

Very time pressured. No idea how it went really. I followed the methods which scored me marks on the question based day but they seem to differ from the ones here.

Really very little interaction with the preseen.

 

also was a bit confused as to why external audit would do a risk assessment- i hope that wasn't the point of the question, to point out they shouldn't do it. hmmm.

Final part Q1

I talked about segregation of duties, matching orders to invoices etc.

Q3

what did people put for q3 part b about the evaluating the current risk management strategy for B Bank?  I couldn't see one in the question.  So i said they didn't have one and started going through the risk management cycle steps on what they should do.  What this the right thing to do?

 

p03

Ashley Robinson wrote:
I talked about segregation of duties, matching orders to invoices etc.

 

this is what I did.  Went through SPAMSOAP and applied to scenario

On B Bank I talked about Corp Gov with respect to Remuneration Committee.  Having proportional package, based on performance.  And used real life examples with the banks having massive bonuses and the negative media it has.  Hope that right.

much better than E3

I think this was much better than E3. The worst question was the adv and dis-adv on the information system there was nothing in the case to go on so i just mentioned the failings in the capital rationing process and made it seem as is their information systems were giving them the poor data. But the estimates for the factory came from the dodgy surveyor so I know that my answer is based on complete fallacy.Would be interested to know what other people wrote????

I think I messed up the audit question as I kept thinking the auditors only care about about misstatement in the financial statement and the reliabilitly of general ledger numbers so I was trying to relate IT risks to completeness of the sales ledger and customers with bad credit history to the recoverabilty to of debtor balances and potential write offs to the P&L. Half way through I realised this was a bad strategy but it was too late to do soemthing else. aaaarrrggghhh

For the directors bonus I said it was a compromise of their independence , contravenes corporate governance guidelines on directors pay, their perceived non independence would make IA, potential whistle blowers reluctant to raise concerns an they would show a bias for risk seeking startegies at the expense of risk management.

Good luck for tomorrow everyone can't wait for this to be over :)

 

p03

Big Dave wrote:

what did people put for q3 part b about the evaluating the current risk management strategy for B Bank?  I couldn't see one in the question.  So i said they didn't have one and started going through the risk management cycle steps on what they should do.  What this the right thing to do?

 

I was unsure on this. so talked a bit about features of a risk management strategy and then produced a risk assessment and went through each of the risks and controls. similar to going through the RMP

Q3

I did not understand where the answer to Q3 section B was supposed to come from (evaluating current risk strategy) they didn't seem to have one which I supposed was part of the answer - I also went through risk management cycle steps here pretty much saying that they were not doing it and needed to for each one - There was nothing to go on and I don't think now that it was the right way to do it.....  Any other thoughts??

My hopes of not failing all 3 are now on F3...

P3

Hannah Whitman wrote:

I did not understand where the answer to Q3 section B was supposed to come from (evaluating current risk strategy) they didn't seem to have one which I supposed was part of the answer - I also went through risk management cycle steps here pretty much saying that they were not doing it and needed to for each one - There was nothing to go on and I don't think now that it was the right way to do it.....  Any other thoughts??

My hopes of not failing all 3 are now on F3...

This is what I did, read the scenerio too many times trying to find mention on risk management but couldn't see anything.

 

I hope that's right cos I totally messed up my other section b, section a was alright...i think.

P3

Thought the paper was horrible, on first read of the questions nothing sprung to mind regarding an answer.

 

Q1 I think my risks were exchange risk from trading with other African countries, product risk due to sales being low and the range being that of Europes, physical risk of damage and stolen goods due to distance to travel, political risk of African government imposing even stricter policies eg limits on repatriation of cashflows, then I was grasping at straws so went for crredit risk due to unfamiliar market and customers.

 For the unethical transactions I said that there needed to be dishonesty, motive and opportunity, how to counter these, and also included controls using the SPAM SOAP acronym.

 

Q3 I also got a forward rate of 1.63, and that the forward was beneficial. The last part of that Q threw me, so 9 marks gone already!

 

Q2 was tricky. Part A I focused on the possible short term attitude that directors could take on due to bonuses.

 

...

Hannah Whitman wrote:

I did not understand where the answer to Q3 section B was supposed to come from (evaluating current risk strategy) they didn't seem to have one which I supposed was part of the answer - I also went through risk management cycle steps here pretty much saying that they were not doing it and needed to for each one - There was nothing to go on and I don't think now that it was the right way to do it.....  Any other thoughts??

My hopes of not failing all 3 are now on F3...

Ah!  So did I!  I think we must gain some credit for this.  Surely that's what the bank needed putting in place and was our duty to explain!?  What did you write for part A though?

Q3

Nicholas Leak wrote:
Hannah Whitman wrote:

I did not understand where the answer to Q3 section B was supposed to come from (evaluating current risk strategy) they didn't seem to have one which I supposed was part of the answer - I also went through risk management cycle steps here pretty much saying that they were not doing it and needed to for each one - There was nothing to go on and I don't think now that it was the right way to do it.....  Any other thoughts??

My hopes of not failing all 3 are now on F3...

Ah!  So did I!  I think we must gain some credit for this.  Surely that's what the bank needed putting in place and was our duty to explain!?  What did you write for part A though?

Was that evaluating the proposal for directors? I took the 3 main headings from the proposal - Directors fees, remuneration commitee and can't remember the  last one, and then just made some comments on why they could be good or bad for the banks - I'm not sure whether that was what they wanted and I def did not write 10 marks worth!! How did you interpret A?

 

Nicholas...

Nicholas Leak wrote:

Interested to hear what approach fellow candidates took to the Q2 question on B Bank...

The part A evaluation of the Governor's comment I was stuggling to match to a given set of theory...did anyone apply a certain theory?  I approached with risk versus reward and the remuneration comm should set pay per free market principles...not sure it will score heavily!!!  10 marks too!

And part B?  What did others apply here!?

 On question 2:

I wrote that the linking remuneration to profits is an acceptable approach which is used by companies world wide and it should definetly motivate the directors to perform better and enhance shareholder value. However on the downside, the directors may resort to creative accounting, gaming  techniques to  increase profits. They might sacrifice long term goals in favor of short term goals. An effective measure would link remuneration to long term goals and non financial performance metrics like customer share, market value.

 Not sure if this was good enough

On the bank's strategy i wrote that, it was aggressive. The functioning gave an impression that there was a risk culture in the organization which promoted risk taking. Wrote that the portfolio of the bank was inclined towards risky products

Gave suggestions to diversify into other lending produtcs....since an increase in interest rates might result in downfall of the housing sector and consequently on the banks business.

I guess this q was related to the subprime crisis which happened in US in 2008-09

On question 1D: safeguards

i talked about sound internal control systems primarily application controls in this respect. application controls on input, processing, outputs like matching invoice to order etc....and outputs reports like transaction and exceptions.

Also wrote that in this case there was an opportunity to commit a fraud..... gave a qualitative viewpoint that there should be  an anti fraud culture in the organization, with means for whistleblowing etc....

 O

what did people write on advantage/disadvantages of forward contracts:

 

Customizable?

no premium?

little liquidity?

high counterparty risk?

forward contract

Isabelle wrote:

I did the same with the risk, classified them under 5 headings. All my headings were the same except I think I had technological instead of reputation. I didn't draw a mtrix but commented on how likely they were and the effects.

 On Q3 I had the same result. The FC exchange after adding on the discount was 1.63? and the upside from doing it was twenty something thousand pounds?

 

i got 1.63 too....easy 4 marks i guess.....

...

Hannah Whitman wrote:
Nicholas Leak wrote:
Hannah Whitman wrote:

I did not understand where the answer to Q3 section B was supposed to come from (evaluating current risk strategy) they didn't seem to have one which I supposed was part of the answer - I also went through risk management cycle steps here pretty much saying that they were not doing it and needed to for each one - There was nothing to go on and I don't think now that it was the right way to do it.....  Any other thoughts??

My hopes of not failing all 3 are now on F3...

Ah!  So did I!  I think we must gain some credit for this.  Surely that's what the bank needed putting in place and was our duty to explain!?  What did you write for part A though?

Was that evaluating the proposal for directors? I took the 3 main headings from the proposal - Directors fees, remuneration commitee and can't remember the  last one, and then just made some comments on why they could be good or bad for the banks - I'm not sure whether that was what they wanted and I def did not write 10 marks worth!! How did you interpret A?

 

Sounds good to me.  I went for a smiliar approach for part B too--i.e. risk mgt framework.

For A I mentioned the risk capacity, attitude and appetite considerations of the bank and that the remuneration committe should decide the pay of directors in accordance with thier own internal risk policies and not those laid down centrally by the governator (unless they were enacted into law)...

 Didn't do too much detail on how a risk committee is made up though...

P3

I didn't like that paper one bit and one of the main reasons for that was the way most of the questions were worded, they were left open to interpretation and so your never sure if your answering what they want! Although I answered all the questions I needed to I didn't have the same conviction in my answers as I do on other papers.

I found it time pressured compared to E3 but I think that was due to the lack of clarity in how to answer the question, unlike in E3 where models spring to mind to help you structure your answer 

Secondly, I think the introduction of a pre-seen on this level is pointless if it doesn't get used in any way! what a waste of time lol

 Anyway, whats done is done and now we have to get through F3 and keep fingers crossed!

 

Good Luck to everyone 

Q2B: Risk strategy

Refer to this link....Q 2B was something similar:

 

http://en.wikipedia.org/wiki/Subprime_mortgage_crisis

Hmm

I think it went ok but I agree completely open to interpretation. Thought 2 of the section B questions were awful - I picked the forward contract one & the music retailer.

 The music retailer one was ok I thought. My brain is so mushed now I cannot remember the vast majority of the questions now.

My risks were more specific like inventory risk, or fraud risk in terms of section A. I picked 5 risks, explained why they were risks, if they had a severe impact & how frequently they might occur & then suggested a method to combat each risk. Surely that is enough for 3 marks per risk?

 It is open to interpretation but I don't see how I can't get any credit if I have actually answered the question. It said identify 5 risks & evaluate them so I definitely answered the question they set!

p3

Nicholas Leak wrote:
Hannah Whitman wrote:
Nicholas Leak wrote:
Hannah Whitman wrote:

I did not understand where the answer to Q3 section B was supposed to come from (evaluating current risk strategy) they didn't seem to have one which I supposed was part of the answer - I also went through risk management cycle steps here pretty much saying that they were not doing it and needed to for each one - There was nothing to go on and I don't think now that it was the right way to do it.....  Any other thoughts??

My hopes of not failing all 3 are now on F3...

Ah!  So did I!  I think we must gain some credit for this.  Surely that's what the bank needed putting in place and was our duty to explain!?  What did you write for part A though?

Was that evaluating the proposal for directors? I took the 3 main headings from the proposal - Directors fees, remuneration commitee and can't remember the  last one, and then just made some comments on why they could be good or bad for the banks - I'm not sure whether that was what they wanted and I def did not write 10 marks worth!! How did you interpret A?

 

Sounds good to me.  I went for a smiliar approach for part B too--i.e. risk mgt framework.

For A I mentioned the risk capacity, attitude and appetite considerations of the bank and that the remuneration committe should decide the pay of directors in accordance with thier own internal risk policies and not those laid down centrally by the governator (unless they were enacted into law)...

Didn't do too much detail on how a risk committee is made up though...

a) just talked about the governors comments and how they wouldnt really reduce the excessive bonuses, letting the banks decide on fixed fee wouldnt work and how it would probably be easier to implement a bonus cap rather than a fixed fee.

for b) I went down the route of talking about their appetite to risk, taking on more high risk mortgages, borrowing from short term finance and the appetite of their new shareholders - more profit quicker.  Put a few recommendations on how they should only give out 95% loans, involve the non exec's more and use longer fixed rate finance...struggled to write enough to for 15 marks though.

Banking Question

I have to say it looked horrific. Even though my knowledge of forward contracts etc wasn't the best I figured I could potentially get 10 marks or so on that one. With the bank question I'd have been lucky to even score 5 marks. I just didn't get what it was asking for at all so quickly moved on!!

 

Anyone remember what the last question of the forward contract one was? It was a 10 marker & was extremely difficult!

p3

Isabelle wrote:
The final part in Q1, about employees manilpulating results. Any one else apply the COSO framework? I think I was way off here..........

Started off talking about COSO, control activities, control assessment, information, monitoring and environment.....just about finished writing that and had a change of heart and wrote about contract of employment, rewards, policies, organisation structure...messed up my timing but think it was enough for half marks!!

Banking Q

Caz - it was explain why it was difficult to quantify the economic risk in terms of exchange risk!

 

Very difficult indeed - I had no idea so mentioned things about how markets reacting to shocks copared to normal trends, I also through in there something about inflation rates and Purchasing power.

I also said it was difficult to quantify because you knew the spot rate now but seen as you didnt know what the spot rate was going to be how could you quantify the risk....if you know what I mean.