ACCA P1 Governance, Risk and Ethics - 2010 - Study text - Emile Woolf Publishing
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The combined code on corporate governance
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• a separate section describing the work of the audit committee in discharging
its responsibilities (C.3.3);
• where there is no internal audit function, the reasons for the absence of such a
function (C.3.5);
• where the board does not accept the audit committee’s recommendation on
the appointment, reappointment or removal of an external auditor, a
statement from the audit committee explaining the recommendation and the
reasons why the board has taken a different position (C.3.6); and
• an explanation of how, if the auditor provides non-audit services, auditor
objectivity and independence is safeguarded (C.3.7).
The following information should be made available (which may be met by placing
the information on a website that is maintained by or on behalf of the company):
• the terms of reference of the nomination, remuneration and audit committees,
explaining their role and the authority delegated to them by the board (A.4.1,
B.2.1 and C.3.3);
• the terms and conditions of appointment of non-executive directors (A.4.4)
(see footnote 8 on page 10); and
• where remuneration consultants are appointed, a statement of whether they
have any other connection with the company (B.2.1).
The board should set out to shareholders in the papers accompanying a resolution
to elect or re-elect directors:
• sufficient biographical details to enable shareholders to take an informed
decision on their election or re-election (A.7.1);
• why they believe an individual should be elected to a non-executive role
(A.7.2); and
• on re-election of a non-executive director, confirmation from the chairman
that, following formal performance evaluation, the individual’s performance
continues to be effective and to demonstrate commitment to the role,
including commitment of time for board and committee meetings and any
other duties (A.7.2).
The board should set out to shareholders in the papers recommending appointment
or reappointment of an external auditor:
• if the board does not accept the audit committee’s recommendation, a
statement from the audit committee explaining the recommendation and from
the board setting out reasons why they have taken a different position (C.3.6).
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Index
A
Accountability 24, 44
Absolutism 257
ACCA Code of Ethics and Conduct 289, 303
Accountancy profession:
public expectations 291
Active stakeholders 30
Advocacy threat 195, 311
Agency
conflicts 40
costs 41
law 39
relationship 39
theory 38
Agents: accountability 44
American Accounting Association model of
ethical decision-making 270
Annual general meeting (AGM) 159
Appointments to the board 103
Association of British Insurers (ABI) 35
Audit
internal 186
social and environmental 345
Audit committee 90
composition 95
responsibility for financial controls 108
role and functions 93
Audit committee and the external auditors 192
Audit plan 198
Auditor independence and non-audit work 197
Auditors: external 192
B
Balanced scorecard 336
Benchmarks 101
Best practice disclosures 151
Board balance 65
Board committees 88
Board of directors
composition 62
governance responsibility for risk
management 172
role 56
size 62
two-tier boards 59
unitary boards 59
Board responsibilities for the internal control
system 108
Board: appointments 103
Bounded rationality 47
Burritt et al 342
Business probity risk 223
Business review 154
Business risk 170, 215
Business risks in different business sectors 224
C
Cadbury Code 136
Cadbury Report 16, 107
Carbon neutrality 329
Categorical imperative 265
Chairman: role 67, 68
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Chief executive officer (CEO): role 67
Claims of stakeholders 28
Codes of ethics for accountants 302
Combined Code 94, 139
internal audit 191
revised 141
Combined Code on corporate governance 35
Committees
audit 90
board 89
nominations 103
remuneration 97
risk 106
Compliance controls 176
Compliance risk 170
Compliance: box-ticking approach 176
Comply or explain 134
Confidentiality 305
Conflicts of interest 76, 311
Control environment 179
Conventional level of morality 260
Corporate code of ethics: content 297
Corporate codes of ethics 296
Corporate governance 16
codes 56
international codes and principles 142
issues 19
law and guidelines 18
principles-based approach 128, 133
rules-based approach 128, 130
stakeholder approach 51
the need for transparency and disclosure 148
Corporate governance and financial
reporting 90
Corporate governance and investor
confidence 35
Corporate governance codes:
reasons for development 128
Corporate governance in the UK:
history 136
Corporate social responsibility (CSR) 163, 283
COSO Framework 178
Credit risk 220
Critical theory: ethics and accountants 292
Cromme Code 60
CSR policy 165
CSR reporting 165
Culture 283
D
Delegation of power: within a company 56
Deontological approach to ethics 265
Deontology (Kant) 265
Derivatives risk 223
Descriptive ethical relativism 257
Direct stakeholder claims 28
Directors and the law 74
Directors' remuneration:
shareholder attitutes 126
Directors
appointment, election and removal 75
basic salary 112
disqualification 78
duties and legal obligations 75
executive and non-executive 62
fiduciary duty 38
independence 63
induction 81
pensions 115
powers and rights 74
share dealings 77
training and professional development 82
Directors’ remuneration 97, 110
ethical issues 124
reporting 121
Disclosure of interests 76
Disclosure
best practice 151
general principles 148
mandatory and voluntary 153
Diversification 247
E
Eco-Management and Audit Scheme
(EMAS) 341
Electronic voting 161
Embedding risk 244
Environmental activity-based accounting 344
Environmental audits 347
Environmental footprint
(ecological footprint) 328
Environmental footprint’ for individual
companies 334
Environmental life cycle costing 344
Index
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Environmental management
accounting (EMA) 341
Environmental management systems 339
Equity incentive schemes 120
Ethical conflicts: resolving 319
Ethical decision-making models 268
Ethical decision-making:
American Accounting
Association model 270
Tucker’s 5 question model 269
Ethical dilemmas
rules-based approach 310
rules-principles-based approach 310
Ethical issues: remuneration 124
Ethical safeguards 315
Ethical stance: personal and corporate 278
Ethical theories
absolutism 257
relativism 257
Ethical threats 311
Ethical threats and safeguards 310
Ethics 254, 276
Ethics and accountants: critical theory 292
Ethics and agency theory 45
Ethics codes
principles based 303
rules based 303
Ethics
corporate codes 296
cultural context 283
deontological approach 265
teleological 266
Executive directors 63
External audit process 198
External auditors
appointment 194
independence 92
independence 195
terms of appointment and remuneration 194
External stakeholders 32
Extraordinary general meeting (EGM) 159
F
Familiarity threat 195, 311
Fiduciary duty 38, 76
Financial controls 175
Financial risks 170
Fixed-term contracts 75
Footprints: social and environmental 328
Full-cost accounting (FCA) 336
Fundamental principles 303
G
General meetings 157
AGM 159
EGM 159
Global Reporting Initiative (GRI) 166
Good governance 21
fairness 22
honesty and integrity 23
independence 23
judgment 25
openness/transparency 22
reputation 25
responsibility and accoutability 24
Governance 16, 276
Governance issues in public sector entities 21
Gray, Owen and Adams 280
Greenbury Report 138
H
Hampel Report 138
Hedging risks 249
Heinz dilemma 262
Higgs Report 69, 94, 140
I
ICGN Principles 143
ICSA Guidance Note on matters reserved for
the board 58
IFAC Code (Code of Ethics for Professional
Accountants) 302
Illegitimate stakeholders 31
Incentive schemes: performance related 116
Independent Commission for Good
Governance in Public Service 21
Independent director 63
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Independent non-executive directors 44
Indirect stakeholder claims 28
Induction of new directors 81
Influence = Power Interest 29
Input-output analysis 344
Institutional investors 34
Insurance companies 34
Integrity 304
Interim management statements (IMSs) 155
Internal audit 186
function and importance 186
Internal audit and the role of the audit
committee 190
Internal auditors: independence,
objectivity and status 188
Internal control 174, 178
annual review 200
effectiveness 200
establishing and maintaining a system 182
evaluating 200
failure 177
information systems and technology 210
maintaining a sound system 208
reporting to shareholders 205
risk 170
system: monitoring 181
transparency and disclosure 182
Internal stakeholders 32
Intimidation threat 195, 311
ISO 14000 339
J
Jensen and Meckling (agency theory) 39
Johnson and Scholes 277
the cultural web 284
K
Kant (deontology) 265
Known stakeholders 31
Kohlberg (moral development) 259
Kohlberg: criticisms 264
L
Legal risk 221
Legitimate stakeholders 31
Liquidity risk 220
Long-term incentives: share plans 113
Loss of office: compensation 123
M
Market risk 220
Mendelow framework 29
Metrics for environmental audits 347
Mirror test for resolving ethical issues 321
Model Code 78
Moral
absolutism 257
development (Kohlberg) 259
development of accountants 293
dilemmas 254
philosophy 255
Morality
conventional level 260
post-conventional level 261
pre-conventional level 260
Mutual funds 34
Myners Report 161
N
Narrative reports: business reviews
and interim management statements 154
Narrow stakeholders 30
National Association of Pension
Funds (NAPF) 34
NEDs: criticisms 72
Nolan’s Seven Principles of Public Life 25
Nominations committee 103
composition 105
duties 104
Nominations committee and
appointment of a new chairman 105
Non-executive directors 63
appointment 71
role 70
Index
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Normative ethical relativism 257
O
Objectivity 304
OECD Principles 142
Open-Ended Investment Companies (OEICs) 34
Operational controls 175
Operational risk 170, 215
Opportunism 48
Ownership: separation from control 17
P
Passive stakeholders 31
Pension funds 34
Performance evaluation 83
Performance targets 118
Performance: assessments 84
Performance-related incentive schemes 116
Performance-related schemes:
UK Combined Code 117
Post-conventional level of morality 261
Pre-conventional level of morality 260
Primary stakeholder 30
Principles-based approach to ethical
dilemmas 311
Principles-based ethics codes 303
Professional 288
acting professionally 289
Professional competence and due care 304
Proxy voting 161
Public interest 290, 294
Pure risk (downside risk) 214
R
Re-election of directors 79
Relativism 257
Remuneration and shareholder attitudes 125
Remuneration committee 97
composition 101
duties 100
Remuneration of executive directors:
problems 101
Remuneration package structures 112
Remuneration package
components 110
purpose 111
Remuneration: executive and
non-executive directors 110
Reputation risk 222
Residual risk 228
Resolving ethical conflicts 319
Restricted stock awards 119
Review process 201
Rewards for failure 98
Risk 214
appetite 228, 250
assessing 234
assessment 180
auditing: role 242
avoidance 249
awareness 244
board policy 228
business 170
business probity 223
categories 219
committee 106
committees: role 241
control methods 247
credit 220
dashboard 235
derivatives 223
embedding 244
exposure 227
hedging 249
identification 230
impact on stakeholders 231
internal control 170
legal 221
liquidity 220
management 170, 214, 216
management and internal control 172
management system 217
management: concepts 227
management: responsibility 217
manager: role 240
market 220
measuring 235
monitoring 240
prioritising 235
profiling 234
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pure 214
residual 228
retention 249
role of the board of directors in
identifying risk 236
sharing 249
speculative 214
technological 221
transfer 248
Risk management and risk control:
responsibility of the board 106
Risk management as a corporate governance
issue 106
Risk-based approach 229
Rotation of audit partners 92
Rotation: retiring by 79
Rules-based ethics codes 303
S
Sarbanes-Oxley Act 2002 18, 131, 173
Schein: three levels of culture 284
Secondary stakeholder 30
Self-interest threat 195, 311
Self-review threat 195, 311
Senior independent director (SID) 70, 158
Service contracts 74
Shaper of society 277
Share dealings by directors 77
stock market restrictions 78
Share option schemes 119
Share options 113
under water 114
Share plans and performance targets 115
Shareholder activism 158
Shareholder activism and voting rights 160
Shareholder theory 276
Shareholders: voting 159
Short-term incentives: bonus 113
Singapore Code of Corporate Governance 95
Singapore Code of Corporate Governance on
performance evaluation 84
Smith Report 94, 141, 193
Social and environmental audit 345
Social and environmental effects:
measurement 331
Social and environmental reporting 345
Social contract theory 277
Social ecology 330
Social footprint 330
Social responsibility 276, 280
Social responsibility: 7-level classification by
Gray, Owen and Adams 280
Speculative risk (two-way risk) 214
Stakeholder theory 51, 276
definition 51
Stakeholder theory and agency theory 52
Stakeholders 27
external 33
impact of risk 231
internal 33
shareholders and directors 32
Strategic risk 215
Succession planning 103
Sustainability 332
Sustainability Assessment Model (SAM) 336
Sustainable development 333
Sustainable development: reporting
by companies 333
Systems audit 187
T
TARA framework for risk management 251
Technological risk 221
Teleological approach
(consequentialist approach) to ethics 266
Transaction cost economics (TCE) 47
comparison with agency theory 50
variables 48
Transaction cost economics theory 46
Transparency 148
Triple bottom line reporting 334
Tucker’s 5 question model of ethical
decision-making 269
Turnbull Report 139, 171, 178, 200
Two-tier boards 59
U
UK Combined Code 172
UK Combined Code on performance
evaluation 83
Unitary boards 59
Index
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Unitary boards and two-tier boards:
comparison 60
Unknown stakeholders 31
Utilitarianism 266
V
Value for money (VFM) audits 187
Voting
electronic 161
proxy 161
W
Whistle blowing 210
Whistleblowing procedures 299
Wide stakeholders 30
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