Risky business

Mar 02, 2020
The new FAE Core subject, Risk Management and Sustainability, might intimidate candidates at first, but they will soon realise that the learning about risk, ethics and strategy comes with many training and career benefits.

WORDS BY JOHN MUNNELLY

There has been significant change in the FAE Core syllabus, most notably the addition of this new subject, Risk Management and Sustainability. Hearing this title might at first lead to some trepidation; however, on learning more, candidates will soon recognise the benefit of having this knowledge and its practical implications for companies. Let us look at what it includes and how it might be examined.

Striking a balance

The current business environment presents many challenges for companies, and with those challenges comes significant risk. Think about any large, successful company. Does it take chances or is it risk-averse? Striking a balance on risk appetite is difficult – one big risk could lead to the ultimate downfall of the company. If you pick up any of the business newspapers, you will see corporate failures and, with that, headlines speculating about the effectiveness of the board and scrutiny over the corporate governance practices in place. 

The Code

In this subject, you will learn about the importance of corporate governance with an in-depth review of the UK Code of Corporate Governance (the Code). At the heart of the Code is a set of principles that emphasise the value of good corporate governance to long-term sustainable success. Successful companies are investing significant resources into creating a healthy corporate culture and many studies have shown that, when done correctly, this provides a source of competitive advantage. Corporate social responsibility is obviously a key part of this and you will learn about the different strategies that are used in this area.

Not all risk is created equal

The concept of risk management is derived from the Code, requiring companies to establish appropriate procedures to manage risk and implement sound internal control systems. You will learn about the process that a board undertakes to discharge this responsibility and how a risk management strategy is developed. You will soon recognise this process involves many stakeholders. 

A company faces many different types of risk, but you will learn that not all risks are created equal and risk is definitely not static. You will also learn the importance of risk evaluation, which is vital for companies in planning and decision-making. 

Get prepared

Risk management is very practical and interesting. It will present an excellent opportunity for the examiner to test your general business awareness, and links in very well with the Strategic Management element of FAE Core. If you do not currently read any of the business newspapers, you should start now; it will help a tremendous amount. 

From an exam perspective, the types of scenarios you could be presented with include:

  • Valuation of corporate governance practices for compliance with the Code, e.g. reviewing the structure of a board of directors;
  • Advising on how a company might implement a risk management strategy;
  • Apply a five-step process for risk management. For example, you may be asked to identify the types of risks facing a company based on case facts and/or advise on appropriate actions to mitigate each risk.

Professional scepticism and ethics

The other core element of this subject is professional scepticism and ethics. As a future Chartered Accountant, it is fundamental that you understand the Institute’s Code of Ethics. In your career, you will inevitably be faced with ethical challenges, so it is important that you know how to respond. The Code of Ethics provides a framework for responding to these challenges, so this will be your reference when dealing with any ethical scenario presented in the exam.