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F1 > Regulatory Environment and Co-orporate Governance > Flashcards

Regulatory Environment and Co-orporate Governance Flashcards

1
Q

What are the two principal purposes of Regulatory Framework?

A
  1. Central source of reference for GAAP
  2. System of enforcement of GAAP
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2
Q

What is meant by GAAP?

A

Generally Accepted Accounting Principles
Company Law+ Accounting Standards+ Other Guidance + Stock market requirements

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3
Q

What is IFRS

A

International Financial Reporting Standards
Previously called (IAS) International Accounting standards

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4
Q

What is IASB

A

International Accounting Standards Board

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5
Q

What is a principle based approach?

A

Accounting standards written based on the definitions of elements of financial statments, recognition principles set out in the Conceptual Framework for financial reporting eg. IFRS

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6
Q

What is rules based approach

A

Accounting standards written out with specific rules for each scenario- detailed guidelines for all eventualities eg. US GAAP

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7
Q

What are 3 advantages and disadvantages of Principle based approach of accounting standards?

A
  • Ensures Consistency of standards
  • Prevents ‘Box-ticking’
  • Reduces need for excessive details in the standards
  • Flexible but also subject to manipulation
  • Principles can become out of date
  • Principles require judegement which may be subjective
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8
Q

What is an advantage and 3 disadvantages of Rules based approach of accounting standards

A
  • Less chance of manipulation of information
  • Loopholes can still often be found
  • Unlikely to be stipulated for every situation
  • Reduces need for exercising judegement which is subjective
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9
Q

What groups in the structure of the regulatory system

A

IFRS Foundation Trustees
International Accounting Standards Board(IASB)
International Sustainability Standards Board (ISSB)
IFRS Advisor Council
IFRS Interpretations Committee

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10
Q

What are the goals of the IFRS Foundation

A
  • Ensure investors and market participants have quality information for informed economic and investment decisions
    -Develop high quality, global standards to achieve provision of coporate information
  • Serve public interest by fostering trust, growth and transparency
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11
Q

What are the two standards the IFRS foundation issues?

A

IFRS Accounting standards- issued by the International Accounting Standards Board (IASB)

IFRS Sustainability Standards - issued by the International Sustainability Standards Board

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12
Q

What does the IFRS Foundation Trustees do?

A
  • Funding
  • Elect the committee for IASB and ISSB
  • Oversee IASB and ISSB
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13
Q

What is the IASB responsible for?

A
  • IFRS Accounting Standards & Conceptual Framework
  • Development and publication of IFRS Accounting standards
  • Approving interpretations of the IFRS interpretations committee
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14
Q

What is the responsibility of the Interpretations Committee?

A
  • Members appointed by the Trustees of IFRS foundation
  • Interpretations of IFRS accounting standards with technical expertise for application
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15
Q

What are the four key objectives of ISSB?

A
  • To develop standards for a global baseline of sustainbility disclosures
  • To meet the information needs of investors
  • To enable companies to provide comprehensive sustainable information to global in capital markets
  • To facilitate interoperatability with disclosures that are jurisdiction-specific and/or aimed at broader stakeholder groups
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16
Q

What are the two Sustainability disclosures for ISSB

A
  1. IFRS S1: General requirements for disclosure of sustainability-related financial information : sustainability related risks and opportunities
  2. IFRS S2: Climate related disclosures- climate related risks and opportunities
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17
Q

What is the role of the IFRS Advisory Council

A

Formal advisory board to the IASB and Trustees

18
Q

What is IOSCO

A

International Organisation of the Securities Commissions

19
Q

What is the role of IOSCO

A
  • Regulations for entities listed on Stock Market
  • World’s security regulators
  • Promoting transparency within capital accounts
20
Q

Describe the standard setting process

A
  1. Advisory Committee established
  2. Issues paper prepared
  3. Discussion paper published for public comment
  4. Comments reviewed and Exposure Draft published for comments
    5.Comments recieved and IFRS released
21
Q

What are the five fundamental principles in the CIMA code of ethics?

A
  1. Professional Competence and Due Care
  2. Integrity
  3. Professional Behaviour
  4. Confidentiality
  5. Objectivity
22
Q

Explain the Fundamental Principle of Professional competence and due care

A

Professional Accountant should have correct knowledge and skills required, be up to date with technical standards and relevant legislation

23
Q

Explain the principles of Integrity and Objectivity

A

Integrity: Straightforward, honest
Objectivity: Act without bias, conflict of interest or undue influence of others to compromise judegements

24
Q

Explain the principle of Professional behaviour

A

Professional accountant should comply with all laws and regulations and avoid actions which might discredit profession

25
Q

Explain the principle of Confidentiality

A

Professional Accountant should not disclose any information to third parties, unless there is a legal or professional duty to disclose.
Confidential information should not be used for personal gain

26
Q

What are the Five Categories of threats to the fundamental principles of the CIMA Code of Ethics?

A
  1. Self Interest: personal financial gain may influence judgement
  2. Self Review: evaluating one’s work may not be able to identify errors
  3. Advocacy: promoting a client’s position so that objectivity is compromised
  4. Familiarity: long or close relationships
  5. Intimidation: influencing decisions by using power or position
27
Q

What are the safeguards placed by the professions in place to minimise the risk of the threats to the fundamental principles?

A
  1. Corporate governance requirements
  2. Educational training requirements
  3. Effective complaint systems
  4. Explicility stated duty to report breaches of ethics
  5. Professional or regulatory monitoring and disciplining procedures
28
Q

What are safeguards placed by employers to minimise the risk of the threats to the fundamental principles?

A
  1. Leadership which stresses good ethics
  2. Policies to empower and encourage employees to communicate ethical issues
  3. Policies and procedures to monitor performance
  4. Systems of corporate oversight
29
Q

What procedure is a professional likely to adopt at risk of an ethical breach?

A

raise matters with audit committees or internal organisations, or seek advice from the CIMA ethics helpline
Last resort: resign from a position

30
Q

Define Corporate Governance

A

The internal systems or means by which companies are directed and controlled - by the board of directors using a framework of rules and practices
Encourages accountability, fairness and transparency

31
Q

What does OECD stand for

A

Organisation for Economics Co-operation and Development
- Each country develops its own corporate governance code based on the OECD

32
Q

What are the principles of the OECD

A
  • The responsibility of the board
  • Effective corporate governance framework
  • Disclosure and transparency
  • Protect the rights of shareholders
  • Equal treatment of shareholders
  • Encourage disclosure and transparency
33
Q

What is meant by the principle-based governance approach and rules-based governance approach?

A

Principle-based: broad principles, Comply or explain basis, investors can decide whether departure from code is appropriate

Rules-based: detailed and rigid code, non-compliance cannot be justified, investors rely of a third party to penalise for non-compliance

34
Q

What are the benefits of principle-based governance?

A
  • Greater flexibility
  • Applies across different jurisdictions (good for multinational companies)
    -Forces boards and shareholders to think about the consequences
35
Q

What are the benefits of Rule-based governance?

A
  • Easier Compliance with rules as they are unambiguous
  • Consistent minimum standard of governance for investor confidence
36
Q

What are the disadvantages of principles-based governance?

A

-Broad
- Inconsistency in approach
-Incorrectly viewed as voluntary

37
Q

What are the disadvantages of rules-based governance?

A
  • Allows no deviations even if the situation is not relevant
  • Enforcement can be hard
38
Q

Where would you expect to find principles-based governance as opposed to rules-based?

A

Principle- legal jurisdictions where governing bodies of stock markets set standards for companies eg. UK corporate governance code

Rules- legal jurisdictions which have an emphasis on obeying the letter of law rather than spirit eg. US Sarbanes-Oxley Act

39
Q

UK Corporate Governance Code

A
  • Board Leadership and Company purpose should be defined
  • Division of Responsibilities-chair should lead
  • Composition, Succession and - Evaluation:annual board evaluation
  • Audit Risk and Internal Control
  • Remunerations
40
Q

US Sarbones-Oaxley Act(SOx)

A
  • establishment of public accounting board for review
    Auditors should review internal control systems
  • Rotation of lead audit partners every five years
  • Auditors are prohibited from doing non-audit services
  • Audit committees -independent with af leats one financial expert
    -cfo needs to clarify statement is correct
41
Q

Whichnon-audit services are external auditors specifically prohibited from carrying out for audit clients under the Sarbanes-Oxley legislation?

Which can be carried out

A

cannot be:
Internal audit
Actuarial services
Bookkeeping

can be
Taxation advice

F1 (14 decks)

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