Chapter 10, 11, 12 Flashcards
CCAB
Consists of five major accounting bodies. Discussion forum and representative of profession.
IFAC
International organisation to promote high ideas of standards, ethics and accounting issues worldwide
what are the types of Regulation in the accountancy profession
Direct gouvernement regulation via legislation
Separate governed agency
Self regulation by industry itself
Combination of above
ICAEW Disciplinary procedures
- Complaint to PSD
- Conciliation possible?
- Investigation by the investigation committee
- Disciplinary procedures by Disciplinary committee
Make up investigation committee
Made up of 19 people with at least 25% not charted accountant
Outcomes of the investigation committee
- No case to answer so matter is closed
- Complaint is valid + accountant thinks its valid
- Complaint is Valid but member disagrees
Make up of Disciplinary committee
Made up of 3 people, 2 charted accountants and one non accountant
FRC’s Oversight mechanism roles
Non statutory
Statutory regulation
Independent monitoring
FRC’s accountancy scheme handles…
Important cases which can impact on the public interest
Financial conduct authority
An independent body regulating and supervising the financial services industry not covered by the FRC
Roles of the FCA
Promote effective competition
Ensuring the markets function well
Regulating the conduct of all financial service firms
Make up of a disciplinary tribunal
3 person - chairman is a lawyer, one layperson and one accountant
5 person - chairman is a lawyer, two laypersons and two accountants
Role of the executive council of FRC
Responsible for making preliminary enquiries into significant referrals and deciding if a full investigation is required
What is Governance
System by which organisations are directed and controlled
Corporate governance
set of relationships between a company’s management, its board, its shareholders and other stakeholders that provides the structure through which the objectives of the company are set, attained and monitored
Impacts of poor governance
falling share price
Corporate failure
criticism of accountants or auditors
Agency problem
Occurs when the managers pursue their own objectives rather than those of the shareholders
4 perspectives on corporate governance
Public policy perspective
Stakeholder perspective
Corporate perspective
Stewardship perspective
Public policy perspective
Meeting the interests of shareholders, other stakeholders and the public
Stakeholder perspective
Meeting the interests of shareholders plus parties with a different stake in the company
Corporate perspective
Aiming to achieve long term sustained value for shareholders
Stewardship perspective
Fulfilling the legal duty to act in the best interest of the company
Types of financial system
Bank based
Market based
Bank based financial system
Volatile stock markets, more gov regulation of markets, households bear little risk so money held on deposit
Market based financial system
Stable stock markets, unregulated markets, households bear more risk so are more likely to hold equity investments
Hofstede model
Highlights the key dimensions upon which national culture varies.
- Power distance
- Uncertainty avoidance
- Individualism and collectivism
- Masculinity/femininity
- Long term orientation
- Indulgence versus restraint
Power distance
High power distance means more concentration of power
Uncertainty avoidance
High uncertainty avoidance means more rules, structure and clarity to reduce uncertainty and risk
Individualism and collectivism
concerns whether a country priorities the performance of individuals or teams. countries valuing individualism will have diverse personnel
Masculinity/femininity
Masculine is fact based and aggressive. Feminine is consultative and intuitive and prioritise work life balance.
Long term orientation
How they view planning and performance measurement. A short term view would focus on bonuses where as a long term view would focus on share options exercisable in a few years.
Indulgence versus restraint
Considers attitude toward personal gratification and fun
Governance structure
set of legal or regulatory methods put in place in order to ensure effective corporate governance
Principles based approach to governance
influenced by a desire to adhere to the principles of good corporate governance set out by the OCED
OCED’s Principles of corporate governance
Promoting transparent and efficient financial markets
Equitable treatment of all shareholders
Relationships with institutional investors, stock markets and intermdeiaries
Rights of stakeholders in corporate governance
Accurate and timely disclosure and transparency of financial performance
Responsiblities of the board and accountability of shareholders.
Shareholder led approach to governance
places more emphasis on the role of shareholders.
Potential consequences of poor business ethics
Negative publicity
Loss of customers
Failure to retain employees
Falling share prices
Nolan principles of business values
Integrity Objectivity accountability openness honesty
The institute of business ethics business values
respect transparency fairness openness trust
Social responsibility
How far a company exceeds the minimum obligation it owes to stakeholders and society.
Core aspects of the king report
leadership
sustainability
good corporate citizenship
Uk Corporate governance code
Code of practice embodying a shareholder led approach to corporate governance
5 Sections of the UK corporate governance code
Board leadership Division of responsibilities Composition succession and evaluation Audit, risk and internal control Remuneration
Board leadership
The board should meet regularly enough to discharge their duties effectively with a formal agenda
Responsibilities of the board
Setting companies strategic aims
making resources available
encourage participation and effective management
Set company values
Responsibilities of the chair
leadership of the board and ensuring its effectiveness in all aspects of its role
Responsibilities of NEDs
Reviewing financial controls and risk management
Appoint, remove and remuneration of Eds
Scrutinise management performance
Duties of company secretary
Ensuring good flow of information
advising chair on all matters of governess
Ensuring board procedures are complied with
Reasons why a NED may not be independent
Have been an employee within the last 5 years
Had a material business relationship in last 3 years
Served on the board for more than 9 years
Represent a significant shareholder
Have close family ties with the company
Nominations committee
Should lead process for board appointments.
In the annual report directors should
Confirm their responsibility for preparing the annual report and accounts
state that they consider these to present a true and fair view
Confirm whether going concern has been adopted
report material uncertainties
confirm they have carried out a robust assessment of principle risks
What should the Audit committee be made up of
at least 3 NEDs for premium listed
at least 2 NEDs for smaller listed
Responsibilities of Audit committee
Financial statements
Financial controls
External audit
Whistle blowing
Stewardship
Is the accountability of management for the resources entrusted to them as agents of the companies owners
