Written Communications- BEC

15 points- 3 written communications task

40-45 mins on this testlet (15 mins on each of the written communication requirements)
Technical content- using subject matter involved with
Written skills
Information that is helpful to the reader
You can pull the information and repeat it in the actual response
Development/Organization/ Expression of ideas in appropriate response
Memo- no abbreviations, no bullet points, SPELL CHECK
Check spelling of items- spell check feature is embedded in the software
Scenario- provide content- assign a role: public accounting, private industry, internal auditor, consultant,
CFO, controller, manager, CFO< controller, Manager
Recipient: address to that person
Close: Indicating who YOU are
Remember to do these items
Accuracy of content knowledge is not assessed but your response must address the topic
Leases: must talk around the concept of leases. A lot of the information is useful in the question to pullback into the answer. Use fundamental basic information.
You are the engagement manager- develop key word outline
On topic- use spell check- do not use bullet points or abbreviations
Address the user- who are you writing the memo to?
Purpose- why are we writing this memo?
Provide definition of IFRS- providing an example
Provide specifics- benefits (implied cost and time savings to persuade the controller of value)- tell them
what the benefits are (eliminates XYZ). Explain why this is.
Conclusion: I would be happy to discuss additional questions you may have regarding implementation of
IFRS at your earliest convenience
Analyzing: Your role, your audience, your subject, purpose
What do you want your audience to think and do as a result of the communication you are
about to write?
Organization implied by situation: Describe the benefits
Development: assert benefit of the company and explain- eliminate redundancy/ access to capitalhelpful and relevant in persuading the controller as to the benefit of IFRS
Expression: standard business language/ technical terms

Do they want email/letter/ memo- format

Identify the roles- who are you and who are you addressing it to
What do you want the reader to think and do based on the communication? What point of view?
Explain, tell them not to do something etc

Identify technical requirements not fully described in the situation

Organization points
write logical statements- even if it appears to obvious
use general statements- not absolutes- generally/ usually
don't abbreviate- able to do Net Present Value (NPV)
To:
From:
To:
RE:
The purpose of this memo to present you with the different benefits of taking x online and how it can
keep secure
Middle paragraph 1- you are wise to think of web based. Benefit (1- 2-3) States relevant benefits and
examples. what is it- why it would be an advantage
2nd paragraph- Risks. Why we need encryption. Data must need to be encrypted
What is encryption. Why is it useful? How will it be used. What are techniques? What are your options
for data security? State the obvious facts of what is available.
Digital signatures- 2nd option. What does it do. Why is it beneficial. State obvious facts. How will this
affect the business. What are the benefits?
Closing- I would be delighted to discuss these issues with you in greater detail with you at your earliest
convenience.

3rd Example- Peer manager- COSO (Committee on Sponsoring Organization)- ERM- Enterprise Risk
Management.
Describe 2 key aspects- Memo
Motivate- learn about ERM concepts
COSO- is the foundation of ERM
Presented clearly- memo
Internal environment is the foundation of ERM/ Ethics/ Organizational structure
State the obvious
No abbreviations unless you first define them
ERM- identify- is a comprehensive organizational approach to evaluate and accept risk and it all starts
with internal environment and setting the tone of the organization.
2nd paragraph- our commitment to integrity and ethical values. Ethical commitment of management
team.
Code of Ethics and Code of conduct- commitment influences decision to accept responsible risk
and compliance with laws and in a manner that represents mutual respect and fairness
3rd paragraph- commitment to ethical behavior is our comm to these individuals who are most
qualified.
Conclusion: I look forward to contributing to this effort with you and encourage you to meet
with me in person on this issue.

To: Staff manager

From: Accounting Manager
Abbreviations must be identified. Answer how...and why?
Content is not what they are looking for- they are looking for writing skills
Corporate Governance
3 multiple choice - 85 points and 4th testlet is 15 points - each is 40-45 mins
Corporate governance 16-20%
Economic concepts- 16-20%
Financial Management- 19-23% Cost and Managerial Accounting
Information Session and Communication- 15-19% of the exam
Strategic Planning 10-14%
Operation Management 12-16%
Corporate Governance
Board of Directors- role and responsibility: no individual authority. Not individual agents- act in groupquorum- majority of the board (ie 15 members, need 8)- board members have power as a group.
Primary role: safeguard company's assets- make sure its used to generate revenue for the company and
maximize shareholder return
electing/removing/supervising officers of company
Discretion to declare dividends
Officers/Directors- owe a fiduciary duty to the company
1. Right to Rely
Act in the best interest of the company
Do not guarantee success- may agree to a merger or consolidation but they are not reliable to
the company as long as they made it in good faith
Business judgment rule- will not get into trouble
Make informed decisions- able to rely on opinions/reports- right to rely on corporate officers/
employees/ legal counsel/ accountants
2. Unlawful distribution- dividend- cant pay debt as they become due.
Renders the company bankrupt.
3. Duty of Loyalty: act in the best interest of the corporation- can't compete with the corporation
Can have conflicts of interest- officer of company A and serve on board of Company B and they might
decide to do business together. You must make full disclosure that there is a conflict of interest. If you
don't disclose the conflict and the deal is unfair to the corporation if you are a board member, you can
be liable for damages and abstain from voting.
Corporate opportunity doctrine- presented with a business opportunity, can't buy something personally
and then sell it to the corporation. Business opportunity that might be of interest to the company, you
can't steal the opportunity for yourself.
Indemnify- company can agree to indemnify expenses for any lawsuit brought against them in their
corporate security.
Limitation on director liability- bad faith- unethical

financial benefits received by director to wh/ director was not entitled

intentional harm inflicted on corporation or the shareholders
unlawful distributions authorized by the directors
intentional violations of criminal law
breaches of duty of loyalty
Manage Principal Agent Conflict- manage shareholders vs people who own the business (management)
directors want to make sure CEO/CFO are managing the company to maximize shareholder value.
Directors must supervise officers that management does that act in a matter that impact firm value.
What you do is in the best interest of stockholders.
B. Officers: unlike Directors- they act as individual agents- can act alone.
Who selects/ supervisors/ removes officers- role of the director
Officers can be removed with or without cause by the Directors- hire them and terminate them
2 types of authorityactual- oral/written instruction- given to them by the board
Apparent authority- title- CEO/CFO- that apparent authority comes because a title
When an officer enters into a contract on behalf of the corporation- have actual/apparent authoritycorporation is liable- enter into contracts in the ordinary course of business.
Directors individually cannot enter into contracts- only have power when they act as duly constituted
board- must be a majority of the board members to do anything.
Officers can be indemnified- owe a fiduciary duty- just like directors
If bad faith- don't have to indemnify/ unethical
Officer and director- SURE! board members are going to be part of executive management. CEO/CFOneed input on the board but GOOD CORPORATE GOVERNANCE- majority of the board should be
independent.
Board- supervise officer. Sure that board is not stacked with officers but majority should be
independent.
No- not required to be a shareholder to be an officer.
But many times officers are granted stock options.
SOX 2002:
1. corporate responsibility
2. enhanced financial disclosures
3. Fraud
profound effect on financial reporting requirements of public companies: expanded disclosures.
A. Title III- Corporate responsibility- SOX- 2 groups
1. audit committee
2. CEO/CFO representations
selecting/ supervising/ compensating- DIRECTLY RESPONSIBLE of CPA firm
Accounting firm does not report to board/management- report directly to audit
committee
Resolve disputes- between auditor/ management

3. Audit committee- are to be members of the issuer's board of directors but are otherwise
independent - should not be an officer/ consultant/ employee/ no other relationship with the
company other than sitting on the board- cant be accountant/ lawyer/ underwriter- MUST BE
INDEPENDENT
4. Must create procedures to accept reports of complaints regarding audits, accounting, internal
control
a. good procedures- confidential, anonymous report by employees of issuer
B. Corporate Responsibility for Financial Reports1. CEO and CFO must sign reviewed all the reports
2. contain no untrue statements or omissions of material facts- civilly and criminally must sign
3. SEE COSO- designed to ensure material information has been made available. testing for
effectiveness as of a date 90 days prior to the report and conclusions- is it working the way it was
designed- conclusions regarding effectiveness of internal controls based upon their evaluation.
4. CEO and CFO signing report assert that they have made the following disclosures to the
issuer's auditor's and audit committee
5. Disclosures- to both auditor and audit committee- all significant deficiencies in the design or
operation of internal controls which might adversely affect the FS.
deficiency in internal control- there will be a material misstatement or material
omission of fact
any fraud- regardless of materiality- involves management or any other
employee with a significant role in internal controls
6. The CEO and CFO signing report must also represent whether there have been any significant
changes to internal controls
C. No improper influence on the conduct of audits: no officer/director/ any person acting under the
direction thereof- may take any action that would fraudulently influence/ coerce/ mislead or manipulate
the auditor in a manner that would make the FS materially misleading
D. Forfeiture of bonuses and profits--CEO / CFO pay for restatement
if- there was an omission material fact or material misstatement- restate financials- any bonus
or incentive based compensation will be taken away and given back to the company. Or if they sold
stock and got a gain on the sale- restate financials due to material noncompliance- bonus or incentive
based compensation must be returned to company or sold stock and had a gain on sale- must reimburse
company if there is a mistake
E. Title IV- Enhanced financial disclosures: internal controls and audit committee
certain disclosures must be made about internal controls and audit committee- in periodic
reports- quarterly or annually even though quarterly report is unaudited- cannot make fraud.
Disclosures in periodic reports- annual (10K) or quarterly (10Q)
Quarterly report is unaudited- make these disclosures whether in quarterly or annual report.
Why? Intended to insure that the company is applying GAAP- in accordance with GAAP
Certain transactions are transparent to the reader- all material correcting adjustments
identified by the auditor should be reflected in the FS.
more correcting adjusting entries the auditors find increases risks that not all were
caught.

All material off balance sheet transactions- better assess the risk of investing into the
company (outsiders) - DISCLOSED- operating leases, contingent obligations (lawsuits),
relationships with unconsolidated subsidiaries (related parties) and special purpose
entities
Conflict of Interest Provisions- The corporation (issuer) generally prohibited from
making personal loans to directors or executive officers (use money to generate
revenue not to give loans to directors)
Exception: in the ordinary course of business - no special discount rate
Related party: disclosure of transactions involving management and principal stockholdersmanagement + stockholder (executive management)- and a principal stockholder
Principal stockholder-anything more than 10% of any class of any equity security
4. SEE COSO: Management Assessment of Internal Controls- Section 404
Section 404: every annual report must contain a report that contains:
1. management is responsible for establishing and maintaining and testing IC not the auditor.
2. management must assess the effectiveness- test the internal controls
(created fine but testing the effectiveness)
3. The auditor: issues the opinion- attest- if management is fairly stated.
Certain Exemptions: Investment companies are exempted from this act
5. Code of Ethics for Senior Officers: Tone at the top- Disclosure whether or not the issuer
has adopted a code of conduct for senior officers (CEO, CFO, controller, chief accountant)must adhere to- senior management
NO CODE- disclose why. There should be!
6. Disclosure of Audit committee Financial Expert: they select the auditor, they settle
disputes (auditor vs management)- must be a board member, but you should be otherwise
independent and one member on that committee must meet the requirements of being a
financial expert.
a. Must resolve disputes between management and auditor
b. Must be familiar with accounting requirements
c. If you do not have one- why not?
d. What makes you an expert- PhD, experience, CPA, liberal, understanding of audit
committee functions.
7. Enhanced Review of Periodic Disclosures by Issuers by SEC- PUBLIC
a. not testing for accuracy- that is the job of the auditor for an opinion on fairly stated
b. test for completeness- are you providing the investing public
c. regular and systematic basis- for deciding which company are red flagged because
there is increased risk- when scheduling reviews- there has to be a logic
issuers that have issued material restatements of Financial results- increased risk
Issuer experience significant volatility in stock price- increase motivation to
fraudulently misstate financials
Issuers with largest market capitalization- large- material to the market
emerging companies with disparities in Price to Earnings- unusually high multiple
Material or significantly affect sector of the economy- large banks/ insurance

8. SOX: Addresses FRAUD- Title VIII- Corporate and Criminal Fraud Accountability- Civil liability,
corporate liability (paying fines) and personal liability (criminal- jail).
a. up to 10 or 20 yrs in jail- significant criminal penalties if you violate the act
b. criminal penalties for altering documents- destroy/ alter/impede/ obstruct justicestop investigation- up to 20 yrs in jail
c. Auditors must keep audit and review work papers for at least 7 yrs- or else 10 yrs in
jail
d. Statute of Limitations- 2 and 5 years - no later than the earlier of 2 yrs after the
discovery of facts constituting the violation or 5 yrs after the violation
e. Whistle- Blower Protection: any employee who lawfully provides evidence of fraud
may not be discharged, demoted, suspended, threatened- not absolute duty of loyalty- restate
you, compensate for damages
f. Criminal penalties for securities fraud-- fined, imprisoned for not more than 25 yrs
(knowingly or attempts to execute)
9. Title IX- White Collar Crime Penalty Enhancements- any attempt to conspire to commit
securities fraud is a white collar offense- or ERISA (employee retirement income securities act)unethical with pension funds.
1. Sentencing guidelines: sentencing commission- can review or amend what those
sentencing guidelines are- look for trends in offenses.
2. trend- make it harsher than it was before.
3. Aggravating or mitigating circumstances: could justify an exception to the existing
sentencing ranges
3. Failure of Corporate Officers to Certify Financial reports- CEO and CFO
a. refuse to do so: penalties- CEO or CFO- sign off knowing that it doesn't satisfy all the
requirements- know that the internal controls are deficient and dont report it, FS are misstated- up t 10
yrs in jail
b. wilfully- intentionally deceive the investing public- 20 yrs in jail
4. Title XI- Corporate Fraud Accountability
a. tampering with record or impeding an official proceeding- not more than 20 yr prison
b. Temporary freeze authority for the SEC- likely that the issuer will be required to make penalty
payments- freeze assets escrow the payments in an interest bearing account for 45 days
c. authority of the SEC to prohibit persons from serving as officers or directors- if that individual
has violated securities rules and regulations.
d. Retaliation against informants: if you try to retaliate against someone who blew the whistle10 yrs in jail- whistle blower protection
III- Internal Control- COSO- avoid financial reporting "CRIME"
The committee sponsoring organization COSO - independent private sector initiative. Was
initially established in the mid 1980s to study factors that lead to fraudulent financial reporting. The
private Factors that lead to financial reporting fraud. 1992- best practices- what is the standard for best
reporting standards? What is adequate?
a. Internal Control- Integrated Framework (Framework) on internal control
effectiveness- into 17 principles and 5 major internal control components. COSO framework is widely
regarded as an appropriate and comprehensive basis to document the assessment of IC over financial
reporting. Good internal controls helps to do other things besides just adequate financial reporting.

A. Introduction to COSO Framework- used by management/board and the stockholders (owners

of business)
a. Useful for management: what constitutes an effective system of internal controlwhen are they properly designed, working effectively
b. Help stockholders: better determine if company they invested in has a system of
internal controls to help the company to achieve their objectives, including accurate financial reporting.
PASSKEY: an effective system of internal controls requires more than adherence to principles and
procedures to management, the board of directors and the internal auditors. It requires the use of
judgment in determining the sufficiency of controls, in applying the proper controls, and in assessing the
effectiveness of the system of internal controls. The principles based approach of the framework
supports the emphasis on the importance of management judgment.
NOT RULES BASED- its PRINCIPLE BASED
use judgment in applying the controls and assessing the effectiveness of a particular
industry/company
Not about following a set of black and white rules- thus not rules based. Tailored, given the
particular risk of a particular company in a particular industry
1. Application to Management and Board:
a. Effectively applying IC w/in the overall organization
b. Determining the requirements of an effective system of IC
c. Apply judgment- rules not principles based.
d. Identify and analyze risks- that financials may be misstated- mitigate and minimize these risks
e. Eliminate redundant, ineffective or inefficient controls
f. Extending IC application beyond an organization's financial reporting- beyond just the
objective of having accurate financial reporting. Reasonable assurance that the company will be
running efficiently and effectively operated and Compliance with laws.
2. Application to Stakeholders:
a. understanding of what to expect- what is effective IC
b. confidence- eliminate ineffective, redundant or inefficient IC
c. confidence- board has effective oversight of organization's IC
d. confidence- organization will achieve its stated objectives and capable of identifying,
analyzing, responding to risks affecting the organization
B. Definition of IC: process designed and implemented by an organization's mgmt, board of directors,
and other employees to provide reasonable assurance that it will achieve its compliance, operating and
reporting objectives.
C. Framework Objectives: 3 categories of objectives w/in COSO
1. Operations Objectives: effective and efficiency of entity's operations. Adequately safeguarded
assets against potential losses.
2. Reporting Objectives: reliability, timeliness, and transparency of entity's external and internal
financial/nonfinancial reporting- FOCUS OF COSO- accurate timely financial reporting
3. Compliance Objectives: ensure entity is adhering to all applicable laws and regulations
COSO: ORC Operations objectives- efficient/effective
Reporting Objectives - MAIN FOCUS- reliability, timeliness and transparency
Compliance Objectives- laws and regs

D. 5 components of IC CRIME: all integrated components of IC- these components are needed to
achieve the 3 objectives of IC- ORC
CONTROL ENIRONMENT (C)= RIME
Risk Assessment by Management
Information and Communication Systems
Monitoring
Existing Control activities
Applies to all 3 categories of entity objectives ORC1. Control Environment- tone at the top- ethics
2. Risk assessment- risk that FS are misstated or has fraud- emphasis of COSO
3. Information and Communication- internally/ externally fair, accurate, complete, timely- FACT
4. Monitoring- efficiencies of IC, report deficiencies- test the IC
5. E- Existing Control Activities- policies and procedures to mitigate risks
5 components apply to 3 objectives- our focus in COSO is how it relates to accurate financial reporting.
Effectiveness- test IC and report deficiencies and correct it.
1. Control Environment: CRIME- EBOCA- tone at the top- the process, structure, and standards that
provide the foundation for an entity to establish a system of IC.
a. Commitment to Ethics and Integrity
b. Board Independence and Oversight
c. Organizational Structure
d. Commitment to Competence
e. Accountability
Ethics
Board Indepe