LO 2: Understand the Control of Performance Management and Internal Control Environment for Risk Control – Get Answers

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[FRM] Financial Risk Manager Assignment Questions with Answers

 

LO 2

In many smaller, unincorporated businesses such as sole traders and unlimited partnerships, the responsibility for internal controls often lies with the owners themselves. In most cases, the owners are fully engaged in the business itself, and if employees are engaged, it is usually within the capability of the owners to remain fully aware of transactions and the overall state of the business.

As organizations grow, the need for internal controls increases, as the degree of specialization increases and it becomes impossible to remain fully aware of what is going on in every part of the business.

In a limited company, the board of directors is responsible for ensuring that appropriate internal controls are in place. Their accountability is to the shareholders, as the directors act as their agents. In turn, the directors may consider it prudent to establish a dedicated internal control function. The point at which this decision is taken will depend on the extent to which the benefits of function will outweigh the costs.

The directors must pay due attention to the control environment. If internal controls are to be effective, it is necessary to create an appropriate culture and embed a commitment to robust controls throughout the organization.

 

Question 2: Answer the following questions.

a] In reference to the above given opinion, explain in your chosen organization,  what are/could be the various factors that impact responsibility centers to clearly bring out the type of responsibility each of these centers have. Also analyze the performance measures established as controls which you believe would be appropriate to monitor and evaluate the performance of each of these responsibility centers.

b] Describe the business of your chosen organization.  Briefly explain the various types of    internal controls mechanism put in place to control the operational risks in your organization.

c] Explain the role and importance of Audits in your chosen organization. Also mention the different type of Audits that exist while describing the role of Internal Audit department towards assessing adequacy of accounting systems.

[Total-20 marks]

 

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