ALL Wrong Answers Flashcards
who compiled the code published by IFAC
International Ethics Standards Board for Accountants (IESBA)
a separate board within IFAC which just develops ethical code, IFAC is standards as a whole not just ethical
what is the role of the conduct committee
- overseeing the FRC’s Conduct Division that monitors recognised supervisory bodies (such as CIMA)
- audit quality reviews
- corporate reporting reviews
- professional discipline
- the oversight of the regulation of accountants and actuaries
what is someone breaching if they take a report home to do whilst watching something on TV
professional behaviour and due care
what trait is this person showing:
An accountant avoids all situations that they believe could cause a reasonable observer to doubt their objectivity
independence
who is the principal/agent in shareholders and directors
directors = agents
shareholders = principal
who sets out the corporate governance for a plc
board of directors
who does the remuneration committee make the remuneration for
directors and senior managers
what are ethics
personal principles that guide behaviour
what does a rules based approach attempt to do
anticipate every possible ethical dilemma
what is IFACs code based on
compliance principles
who does the accountant have to give information to if requested
regulator
what causes a conflict of interest
- working part time for two rival businesses
- being employed by a close relative
- being offered a valuable gift by a friend who is also a business contact
what kind of stakeholder is the government
financial
external
who do cima members go to first to resolve an issue
themselves
what kind of ethical code is CIMAs
ethical framework
what do ethical codes require of its individuals
to respect the spirit of the law rather than the letter of the law
why are corporate governance codes necessary
to encourage boards of directors to act in the best interests of all stakeholders
benefits of a two tier board approach
- separation of power between those that manage the business and those controlling it for the benefit of shareholders
- more independent thinking as separate board meetings held
common audit benchmarks:
profit before tax
gross profit
revenue
total and net assets
profit after tax
5% of profit before tax.
0.5 to 1% of gross profit.
0.5 to 1% of revenue.
1 to 2% of total assets.
2 to 5% of net assets.
5 to 10% of profit after tax.
3 elements of external audit?
- subject matter
- evaluation
- report
if an agreement is commercial, how is intention seen
If an agreement is of a commercial nature, the parties cannot argue that there was no intention to create legal relations, it is not presumed
do employers have a duty to provide work and provide a reference?
- only duty to provide work is in certain circumstances (where needed to maintain skill)
- no duty to provide reference
data principles
- Data not retained for longer than necessary
- Data only collected for a specific purpose
- Data is processed fairly
powers of a health and safety inspector - what can they issue?
- a criminal prosecution
- a prohibition notice
- an improvement notice
what doesn’t the equality act do
The Equality Act does not outlaw discrimination that is proportionate and legitimate
who does an accountant notify if they suspect money laundering
- The Money Laundering Reporting Officer within their organisation
- The National Crime Agency
what are qualifying disclosures
- A miscarriage of justice is likely to occur
- The environment is likely to be damaged
- A company has deliberately concealed its failure to meet a legal obligation
what are the artificial legal persons
- limited liability partnerships
- corporation sole
do articles of association have to be submitted to the registrar when forming a company
no
what do changes in clauses in AoA require
a special resolution
do private companies need to hold a general meeting to change their articles of association
no
can public companies alter their articles by written resolution
no
when may an alteration be void
if the majority who approve it are not acting bona fide in what they deem to be the interests of the company as a whole
structure of remuneration and audit committee
at least 3 NEDs
what does non compliance with the UK Corp Gov Code result in?
- a civil liability created that directors may be sued for
- directors being liable for wrongful trading
- directors of non compliant companies may be disqualified from acting as a director for up to 5 years
benefits of non executive directors
- Bring experience and knowledge that executive directors may not possess
- Can appreciate wider perspective when executive directors become involved in complex operational issues
- Provide the executive directors someone to confide in regarding any concerns with other board members
what is the senior independent director
the title given to the non executive director to whom shareholders can contact outside of normal channels of communication
who make up the audit and remuneration committees
all NEDs
what needs to happen for a misrepresentation to take place
- To cause a misrepresentation, both parties to the contract must be aware of the misleading statement.
- The misrepresentor will be liable if they know a misleading statement will be passed on to the other party.
- Statements must be complete enough not to mislead.
what are the types of stakeholders
- Internal stakeholders = people inside eg employees and contractors
- Connected stakeholders = people with economic interest in business eg, shareholders, customers, suppliers
- External stakeholders = people outside the organisation eg, government, competitors, local communities
can a revocation of an offer be communicated by a third party
yes
what are the OECDs general principles of corporate social responsibility
- Be respectful of human rights.
- Encourage local capacity.
- Abstain from improper involvement in local political activities.
- Reject exemptions not contemplated in the regulatory framework related to environmental, health, safety, labour, taxation, financial incentives, or other issues.
- Encourage the formation of human capital.
on what bases is a partnership formed
- must consist of at least two partners
- exist to perform some kind of business activity
- The authority and liability of partners is based on agency law
- In an LLP, two members must be designated as responsible for the publicity requirements of the partnership
how is
1) transparency
2) fairness
shown
1) Feeling comfortable about the decision and knowing the resulting actions are justifiable
2) Thinking about what a rational bystander would think about the outcomes
does freedom of contract exist
yes, freedom of contract means that parties may include any contractual terms they like.
which contracts are valid
contracts complete in their terms
which documents do public and private companies need
PUBLIC:
- trading certificate
- certificate of incorporation
- memorandum/articles of association
PRIVATE:
- certificate of incorporation
- memorandum/articles of association
what is the purpose of the oecd principles
- to act as a benchmark to ensure that national codes all comply with generally accepted best practice
- they are not directly binding on business organisations.
who are the parties in an audit engagement letter
- auditors
- managers/directors
- shareholders.
do CSR policies meet legal obligations
CSR involves going beyond legal obligations, not meeting them
purpose of CSR policies?
- attract and retain staff
- differentiate brand
- exceed legal obligations
how are terms incorporated into a contract
- By statute
- By trade practice
- By courts, where the parties agreed the term but failed to express it because it was obvious
what can a company do that an LLP cant
A company may grant floating charges over its assets but an LLP may not
which sub organisation is within the SOX
The Security and Exchange Commission is an American organisation and the Sarbanes-Oxley Act is American legislation regarding corporate governance rules
which types of companies have to comply with corporate governance codes
- Only listed companies must state in their accounts whether or not they complied with the Code
- Non-compliance with the Code is not a criminal or civil offence and will not result in disqualification of directors
- The Code is only applicable to listed companies, although private limited companies may choose to apply it as best practice
- There is no requirement for sole traders and partnerships to apply the Code.
four social responses from Carroll and meaning
Reaction - denying responsibility
Defence - initially fighting responsibility, then do the least required to comply
Accommodation - accepting responsibility, and doing what is demanded of you
Proaction - volunteering to go beyond industry norms.
statutory grounds for lifting the veil
Failing to obtain a trading certificate
Fraudulent or wrongful trading
Forming a company with a similar name to one which is insolvent
cimas suggestions to improve global corp gov
- Including more specific reports in governance in the Chairman’s statement.
- Linking the activities of the board to the key corporate events, using graphics if required to link actions to events.
- Communication and engagement with stakeholders explained via detailed reporting on how the investor relations were managed.
- Demonstrating how the board works as a team.
five areas covered by uk corp gov
- Board leadership and company purpose
- Division of responsibilities
- Composition, succession and evaluation
- Audit, risk and internal control
- Remuneration
International Integrated Reporting Council 7 guiding principles
Strategic focus and future orientation
Connectivity of information
Stakeholder relationships
Materiality
Conciseness
Reliability and completeness
Consistency and comparability
how is the audit committee structured
three NEDs, of which one has recent and relevant financial experience
what are the remedies for wrongful dismissal
Wrongful dismissal is a common law action against an employer for breach of contract and therefore damages are the usual remedy.
The other remedies (reinstatement/re-engagement/compensation) are only available for unfair dismissal.
what is a self review threat
the risk that an accountant may not appropriately re-evaluate their (or a colleague’s) previous work (including judgements made or services performed) when relying on the work while performing a current service.
what does the suggest about AGMs
all board members should attend the AGM
is there any age restriction on unfair dismissal claims
no, they can claim regardless
what is unfair dismissal
a form of employment protection created by legislation
difference between advocacy and familiarity
Advocacy is promoting a position, familiarity is from a close relationship and being too trusting of their representations
what counts as valid consideration
- the creditor must become entitled to something that they are not already entitled to
- signing an agreement is not consideration
- payment on the date isn’t gaining or losing anything
what is the effect of corporate governance
- reduces risk to stakeholders
- improves transparency of how organisation is run
- impose checks and controls on directors
what are the types of risk and their meaning
INHERENT = susceptibility of a transaction or balance to material misstatement
AUDIT = the risk that the auditor gives an incorrect opinion on the financial statements
CONTROL = risk that a control would not have prevented or detected a material misstatement
DETECTION = the risk that the auditor fails to detect a material misstatement
which boards are most common in which countries
- Dual/two tier (management and supervisory) boards = Europe
- UK = single (unitary) board
- Japan = three tier boards
who has to comply with SOX
- all US companies
- directors of subsidiaries of US companies
- auditors of US listed companies
what are the considerations of an accountant when resolving an ethical issue
transparency, effect, fairness
what does the king report require
requires companies to ‘Apply or explain’ rather than ‘Comply or explain’
what are terms of reference
define the scope of the investigation
what is an executive summary
a high-level summary of the report
what is the appendix and what does it contain
supporting analysis and the conclusion and recommendations contains the findings of the report and sets out what should be done next
how much does fraud cost an economy
- organisations may lose up to 7% of annual turnover
- corruption costs $1.5 trillion each year
- only recover a small % of fraud losses
development of uk corporate governance
- cadbury, 1992 = introduced comply or explain
- greenbury, 1995 = director remuneration
- hampel, 1998 = resolving issues in previous reports
- turnbull, 1999 = internal control system review
- higgs, 2003 = focus on NED roles
- tyson, 2003 = developing NEDs
- smith, 2003 = auditors and audit committees
- sir david walker/frc, 2010 = combined code of official corp gov code
what traits does independence of mind require
- integrity
- professional scepticism
what is the cima ethical code used for
as a basis for judging a member’s behaviour against what is expected of them
what helps prevent fraud
- reconciliations
- control accounts
who is the oecd guidance aimed at
to multinational companies on how they should develop policies that take into account countries in which they operate and the views of other stakeholders
are corporate governance and CSR interlinked
not necessarily
are existing duties valid consideration?
- Where a contract already exists, a party may accept performance by a third party and this will be valid consideration because it is not something they were entitled to before.
- Performance of an existing duty is not good consideration as it is no more than one would be expected to do in the circumstances.
- Performance of an act before a promise to pay is past consideration.
if someone is personally injured, contractually what does this mean?
It is not possible to exclude liability for personal injury caused by negligence.
they can claim back if this occurs
responsibilities of remuneration committee
Establishing a pension policy for board members, agreeing compensation for loss of office
what is the board introduced by sarbanes oxley
In SOX, a five-member board called the ‘Public Company Oversight Board’ was established to enforce professional standards in audit and accounting
what does the trade certificate encompass
that it has satisfied the requirement regarding allotted share capital
how is an exclusion clause incorporated
- An exclusion clause must be incorporated into a contract before the contract has been agreed between the parties.
- An exclusion clause in a business-to-business contract may be invalidated by the Unfair Contract Terms Act 1977.
- If a person signs a document containing an exclusion clause they are generally held to have agreed to it, even if they have not read the document.
