articles Flashcards
acca code of ethics
The ACCA Code of Ethics and Conduct outlines five fundamental principles for members:
Integrity: Be honest and straightforward in all professional dealings.
Objectivity: Avoid bias, conflicts of interest, or undue influence.
Professional Competence and
Due Care: Maintain and apply professional knowledge and
skills diligently.
Confidentiality: Respect and protect confidential information unless legally required to disclose.
Professional Behavior: Comply with laws and regulations, avoiding actions that discredit the profession.
what is corporate governance
Corporate governance is the system by which organisations are directed and controlled.
It encompasses the relationship between the board of directors, shareholders and other stakeholders, and the effects on corporate strategy and performance.
Corporate governance is important because it looks at how these decision makers act, how they can or should be monitored, and how they can be held to account for their decisions and actions.
“comply or explain” approach to corporate governnce
Under this approach the regulatory authority issues a set of principles with which company directors of listed companies are expected to comply. In many jurisdictions disclosures are required in the financial statements to demonstrate compliance. Non-compliance is not expected, but in its event, the facts of the non-compliance must be clearly disclosed and explained.
main principles of UK corporate governance code (not in syllabus)
Leadership
Effectiveness
Accountability
Remuneration
Relations with Shareholders
leadership
The board should lead and control the company’s operations.
Roles and responsibilities should be clearly divided to prevent undue concentration of power.
Non-executive directors should challenge and contribute to strategy.
There should be a balance of executive and non-executive directors to prevent dominance by a small group.
effectiveness
The board and its committees should possess a balanced mix of skills, experience, independence, and knowledge.
Formal procedures should govern the appointment of new directors.
Directors should receive induction and continuously update their skills.
Directors should be re-elected periodically based on performance.
accountability
The board should provide a balanced and understandable assessment of the company’s position and prospects.
Sound risk management and internal control systems should be maintained.
Formal arrangements should be in place for corporate reporting, risk management, and relations with auditors.
remuneration
Director remuneration should attract, retain, and motivate high-quality leadership.
Payments should be reasonable and not excessive.
Executive remuneration should link significantly to corporate and individual performance.
relations with stakeholders
Dialogue with shareholders should be based on mutual understanding of objectives.
The board is responsible for ensuring satisfactory communication with shareholders.
Annual General Meetings should be used to engage with investors and encourage their participation
role of audit committee
-Review of Financial Information:
Monitor the integrity of the company’s financial statements and official announcements.
Specifically review significant financial reporting judgements.
Scrutinize and challenge the finance director and external auditors on contentious financial matters.
-Systems and Controls:
Review the company’s internal financial controls and risk management systems.
If there’s an internal audit function, extend monitoring to include its effectiveness.
Recommend to the board annually on the need for an internal audit function.
Provide explanations in the annual report if there’s no internal audit function.
Fraud Prevention and Detection:
Establish whistleblowing arrangements for employees to report concerns about financial improprieties.
Play a role in fraud prevention and detection related to financial reporting matters.
composition of audit committee
The audit committee should consist of at least three independent non-executive directors.
One member should possess recent and relevant financial experience.
audit committee responsibility in regards to external auditor
-recommend the appointment, reappointment and removal of auditor
-approve fees for audit n non audit services
-agree the terms of engagement
in UK, there is a requirement for FTSE 350 companies to put the external audit out to tender every 10 years.
-annually assess independence, ethics and effectiveness of audit
-report this assessment to board and recommend on reappointment
in annual report they shud include:
-assessment of audit process
-tenure of current auditor
-last tender
-any contractual obligations due to which current auditor was chosen.
-if there r potential objectivity threats, get reassurance from auditor
-seek info anually from auditor abt policies in place to ensure independence
what is the audit committee’s role in regards to the annual audit cycle?
STARTING STAGE
-audit committee must be involved in all stages of audit
in start:
ensure proper plans in place
consider materiality level
resources
audit team composition
audit firm shud have meeting with audit committee and discuss plan and strategy, and be able to demonstrate that standards have been adhered to
AUDIT COMMITTEE ROLE IN AUDIT CYCLE
FIELDWORK STAGE
-review findings with external auditor
-discuss major resolved and unresolved issues that rose during audit
-review key accounting and audit judgements
-review errors identified, obtain explanations from management
-review management’s responsiveness to external auditor’s findings and recommendations
audit committee role during end of audit cycle
-review if auditor has met the agreed audit plan, understand any changes, any new risks and work done to address the risks
-evaluate how well auditor’s respond to queries of audit committee and how they handled key accounting and audit judgements
-get auditor’s feedback from key ppl like FD and CIA
-review and monitor management letter, and monitor whether it’s acted upon
-report to board on effectiveness of external audit process
