| This article has two main aims. The first is to explain the change in the Paper 2.6 Study Guide in 2005. This is regarding the movement of corporate governance from Paper 3.1 to Paper 2.6 and provide guidance on the type of exam questions that can be expected. The second is to introduce myself as the new examiner
and outline my approach to examining Paper 2.6.
My approach is similar to that of the previous examiner, Katharine Bagshaw. Visit the Paper 2.6 section of the ACCA website at www.accaglobal.com to read my approach article. I will continue to ensure that the paper reflects auditing as a practical rather than theoretical occupation.
Study guide change
The Study Guide for the 2005 Paper 2.6 exam includes a new section on the regulatory environment. The overall
content of the regulatory environment has already been explained in some detail in
the article by Namasiku Liandu entitled Corporate governance in the 21st
century, published in the September
2002 issue of student accountant. Students should read this article (available at www.accaglobal.com) to gain general background knowledge on corporate governance. The theory of governance is not explained in this article.
The main reason for moving the regulatory environment to Paper 2.6 is the importance of understanding corporate governance for both internal and external auditors. As Paper 3.1 is an option paper, it was previously possible to complete the Professional Scheme exams without studying this important area - this will no longer be the case.
Overall principles
For the UK stream paper, the Study Guide is focused on the Combined Code on Corporate Governance, most recently updated in 2004. For the International stream paper, the principles of corporate governance as
outlined by the Organisation for Economic
Co-operation and Development (OECD) are important. These also follow the overall principles outlined in the UK guidance. The main areas that students must understand from the Study Guide, whichever stream is taken, include the:
- overall reason for corporate governance, including whether corporate governance regulations should be voluntary or prescribed by legislation
- basic provisions of the code of best practice outlined (eg the Cadbury, Smith and similar reports in the UK)
- need for and the work carried out by audit committees, including the advantages and disadvantages of having a committee
- work of internal audit in checking the internal control system in an organisation and subsequent reporting of findings to the audit committee
- responsibilities of management and auditors for good corporate governance.
Exam questions
Paper 2.6 exam questions are focused on two key learning points:
- Whether the knowledge for a subject area has been understood and that candidates can reiterate this in the exam room. For example, Question 2(c) on the June 2004 paper asked for the contents of an engagement letter. To obtain a pass, candidates had to list the contents of the letter, adding a small amount of explanation.
- Whether knowledge can be applied to a specific situation to show that candidates can determine exactly what knowledge is needed, and how that knowledge can be used. For example, in Questions 2(a) and (b) of the June 2004 paper, candidates had to apply knowledge to the issue of whether or not to accept appointment of a new audit client. This question effectively checked that candidates understood the ethical issues of accepting a client and that those issues could be applied to the scenario provided. This question required application of knowledge - a higher skill than simply listing knowledge as in the first type of question mentioned above.
The Paper 2.6 exam will continue to include both types of questions - so in this respect the examiner's approach has not changed. The only difference in approach will be an increased emphasis on application of knowledge, rather than simply listing facts that have been learnt.
The regulatory environment
Given that two types of questions can be expected in Paper 2.6, how are these reflected in the corporate governance
section of the Study Guide? The quick answer is that questions are more likely
to be knowledge-based rather than application-based. The main reasons for
this are that:
- corporate governance involves setting up and maintaining a variety of checks and procedures implying that these areas must be learnt
- the decisions and implementation of corporate governance within an organisation will normally be restricted to more senior staff. It is therefore unlikely that students will have practical experience in this area.
Knowledge-based questions that could be asked within the context of corporate governance include:
- discussing whether a system of corporate governance is required and explaining the benefits of this in your specific jurisdiction (Section 4(a)(ii) of the Study Guide)
- explaining how the code affects auditors (internal and external) (Section 4(b)(i) of the Study Guide)
- explaining the work of an audit committee (Section 4(c) of the Study Guide).
Application questions, as noted above, are less likely to be examined. Questions are more likely to focus on explanation of concepts to specific people, rather than detailed work being performed. For example:
- explaining how the internal audit department works (including responsibilities for corporate governance) to a new director (Section 4(d) of the Study Guide)
- a scenario setting up a specific situation such as the directors establishing the control system and then a question explaining what is required by corporate governance regulations (for internal and external auditors) (Section 4(d)(ii) of the Study Guide).
In other words, application questions will still be based on theory. The application takes the form of specific information being provided to particular groups of people. Students will need to be aware of the knowledge and be able to state clearly what knowledge is needed by which people when an application question is asked. Therefore, knowledge of corporate governance will be needed for the Paper 2.6 examination. However, due to the nature of this area of the Study Guide, questions will tend to focus on explaining corporate governance theory rather than applying that theory to specific situations.
Conclusions
My approach for Paper 2.6 is broadly the same as the previous examiner. I would like to stress the importance of 'application questions' as auditing is a practical subject. The regulatory environment has been moved from Paper 3.1 to Paper 2.6 to ensure it is examined in a compulsory paper. Exam questions on the regulatory environment will tend to be knowledge-based rather than application-based.
Alan Lewin is the new examiner for
Paper 2.6
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