Documentos de Académico
Documentos de Profesional
Documentos de Cultura
INTRODUCTION
Pilot
Governance and Responsibility The scope of governance Agency relationships and theories The board of directors Board committees Directors remuneration Different approaches to corporate governance Corporate governance and corporate social responsibility Governance reporting and disclosure Internal control and review Management control systems in corporate governance Internal control, audit and compliance in corporate governance Internal control and reporting Management information in audit and internal control Identifying and assessing risk Risk and risk management process Categories of risk Identification assessment and measurement of risk Controlling risk Targeting and monitoring risk Methods of controlling and reducing risk Risk avoidance, retention and modelling Professional values and ethics Ethical theories Different approaches to ethics and responsibility Professions and the public interest Professional practice and codes of ethics Conflicts of interest and the consequences of unethical behaviour Ethical characteristics of professionalism Social and environmental issues in the conduct of business and of ethical behaviour 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9
Knowledge bank
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Syllabus learning outcomes Define and explain the meaning of corporate governance
Q8 Q44
Syllabus learning outcomes Define and explain the key concepts in agency theory: agents, principals, agency itself, agency costs, accountability, fiduciary responsibilities and stakeholders
How syllabus outcomes are examined Relevant 2 mark point in: December 2007 Q1a, Q3b Definition of stakeholders December 2007 Q4a (2 marks) Discussion of fiduciary duty December 2007 Q4c (7 marks)
Exam question reference in P&R kit Q6 Sentosa House (Examiner Question) Q43 Q35
Explain and explore the nature of the principal agent relationship in the context of corporate governance Analyse and critically evaluate the nature of agency accountability in agency relationships Explain and analyse how transaction cost theory and stakeholder theory is used to explain aspects of the agency relationship.
Relevant 1 mark point in: December 2007 Q1a, Q4c Relevant 2 mark point in: December 2007 Q3b Stakeholder analysis was explored in December 2007 Q4a (8 marks) Stakeholder claims: June 2008 Q1a (10 marks) Q33 JH Graphics (Examiner Question) Q35 Q43, Q35
Explain and assess the major areas of organisational life affected by issues in corporate governance. Compare and distinguish between public, private and nongovernmental organisations (NGO) sectors, with regard to the issues raised by, and scope of governance Explain and evaluate the roles, interests and claims of internal parties involved in corporate governance. Explain and evaluate the roles, interests and claims of, the external parties involved in corporate governance. Analyse and discuss the role, and influence of institutional investors in corporate governance systems and structures, for example the roves and influences of pension funds, insurance companies and mutual funds.
Principles
Best Decisions Integrity
Theories
Fairness Judgement Independence Honest Disclosure Openness Probity Responsibility Accountability Reputation
Stakeholder Models
Internal / Connected / External Active v Passive Normative v Instrumental Mendelow
Ignore Satisfy Inform Key
Agency Theory Principal v Agent Information Asymmetry Monitor & Control Agency Costs Transaction Cost Theory Theory of the firm
Syllabus learning outcomes Describe and compare the essentials of rules - and principles-based approaches to corporate governance Describe and critically evaluate the reasons behind the development and use of codes of practice in corporate governance (acknowledging national differences and convergence) Explain and briefly explore the development of corporate governance codes in principles-based jurisdictions Explain and explore the Sarbanes-Oxley Act as an example of a rules-based approach to corporate governance Describe and explore the objectives, content and limitations of corporate governance codes intended to apply to multiple national jurisdictions (OECD, ICGN) Discuss and critically assess the concept of stakeholders and stakeholding in organisations and how this can affect strategy and corporate governance
Q10
December 2007 Q3c tested national variation of codes (8 marks) December 2007 Q4a tested the importance of identifying stakeholders (8 marks) December 2008 Q1 required business cases for the stockholder and stakeholder perspectives
Q8
Analyse and evaluate issues of ownership, property and the responsibilities of shareholders
Corporate ownership
Family/ Insider Firms (eg block shareholding in Japan) Reduced agency problem Poor protection of minorities Hard to divest Institutional Investors Dialogue Evaluating disclosures Voting
Principles v Rules
Principles-based approach
Focus on the objectives of good corporate governance Emphasises areas of corporate governance to which rules cannot easily be applied Applies across different legal jurisdictions, which makes the governance of a multinational business more effective Comply or explain basis
Rules-based approaches
Emphasis on achievements not underling factors and control systems No leeway or deviation Unambiguous, easily evidenced Enforcement can be difficult for situations not covered explicitly Favoured in legal jurisdictions emphasising obedience to the letter of the law
Rules based Companies listed in USA Key Provisions Public Oversight Board Auditing standards Non-Audit services Quality Control Procedures Audit Committee CEO/CFO certify Off-balance sheet transactions Internal Control Reports Whistleblowers
Syllabus learning outcomes Explain and evaluate the roles and responsibilities of boards of directors
Syllabus learning outcomes Describe and analyse the general principles of the legal frameworks within which directors operate on boards
How syllabus outcomes are examined Legal status of NEDs relevant for 1 mark Pilot Paper Q1d December 2007 Q1c Retirement by rotation June 2008 Q3c (5 marks)
Define, explore and compare the roles of the chief executive and company chairman
December 2007 Q3a & b (13 marks) June 2008 Q3a (relevant 2 marks)
Describe and assess the importance and execution of induction and CPD of directors on boards of directors Explain and analyse the frameworks for assessing the performance of boards and individual directors on boards Explain and assess the importance, roles and accountabilities of board committees in corporate governance Remuneration committee and cross directorships Pilot Paper Q2a (12 marks) June 2008 Q3a (relevant 2 marks) Explain and evaluate the role and purpose of the main committees in effective corporate governance Remuneration committee and cross directorships Pilot Paper Q2a (12 marks) Nominations committee June 2008 Q3b (8 marks) Assess the structure and composition of a risk committee Describe and assess the general principles of remuneration Explain and assess the effect of various components of remuneration packages on directors behaviour Explain and analyse the legal, ethical, competitive and regulatory issues associated with directors remuneration December 2008 Q2 Pilot Paper Q2b (8 marks) Pilot Paper Q2b (8 marks) PRP December 2007 Q2c (8 marks) Pilot Paper Q2b (8 marks) Mock 3 Q2 Q7 Frank Finn Q7 Frank Finn Q20 Q7 Frank Finn
Q7 Frank Finn
Q7 Frank Finn
Syllabus learning outcomes Explain and assess the general principles of disclosure and communication with shareholder Explain and analyse best practice corporate governance disclosure requirements, eg UK Combined Codes Define and distinguish between mandatory and voluntary disclosure of corporate information in the normal reporting cycle Explain and explore the nature of voluntary disclosure in a principles-based reporting environment Explain and analyse the purposes of the AGM and EGM Describe and assess the role of proxy voting in corporate governance
How syllabus outcomes are examined June 2008 Q3a (relevant 2 marks)
December 08 Q1
Mock 3 Q1
Corporate governance
Practice
Structure
Unitary Multi-tier
Reporting
Governance disclosures
Information about directors Operating and financial review Reports from committees Detail of relations with auditors A statement that the directors have reviewed the effectiveness of internal controls A statement on relations and dialogue with shareholders CC06 C - Accountability & Audit Financial Reporting Internal Control Audit Committee & Auditors A statement that the company is a going concern Sustainability reporting
CC06 D - Relations with Shareholders Dialogue with Institutional Investors Constructive use of the AGM
CC06 B Remuneration Level & makeup Policy & individuals Attract, retain & motivate
CC06 E - Institutional Shareholders Dialogue with the (investee) company Evaluation of Governance Disclosures Shareholder Voting
Non-executive directors
Independent no executive power Challenge & contribute to strategy Scrutinise performance & reports Validate risk management and control People remuneration, nominations
Committees
Audit Nominations Remuneration
December 2007 Q1d (6 marks) December 2008 Q3 Turnbull sound system Pilot Paper Q4a (10 marks)
Frameworks
Examples CC06/Turnbull SOX/COSO
Objectives
Safeguard investment / assets Respond to significant risks Efficient + effective business operations Reporting Compliance
Elements
COSO cube
Risk attitude
Risk attitude
Control Environment
Corporate culture Management style Organisational structure Methods of imposing control Ethical values
Risk Appetite
Personal views Shareholder demands Organisational factors National / business culture
Sound System
Embedded / cultural Responsive Report Weaknesses
Shareholder Attitude
Shareholders (Risk v return) Customers (continuity) Suppliers (payment) Lenders (repayment) Government
Business risks
Business risks
Part of COSO
Events
External / internal event Trend and root causes Escalation triggers Event interdependencies
Categorising Risk
Scope
Strategic v Operational
External / Long term Internal / Short term / Narrow focus
Function
Financial Legal IT / Technological Fraud Environmental Reputation
Risk response
Q20
Risk response
Risk assessment
Assess Likelihood (risk probability) Impact (consequences)
Risk quantification
Average or expected result or loss Largest predictable loss
Risk profiling
Map
Accept Reduce Transfer Avoid
Control Procedures
Corporate controls Management controls, encompassing planning and performance monitoring Business process controls Transaction controls SOAPSPAM Risk review Portfolio management Prioritisation
Risk consolidation
Syllabus learning outcomes Describe the function and importance of internal audit
Syllabus learning outcomes Explain and evaluate the role of the risk committee in identifying and monitoring risk Describe and assess the need to report on internal controls to shareholders Describe the content of a report on internal control and audit Explain and assess the need for adequate information flows to management for the purposes of the management of internal control and risk Evaluate the qualities and characteristics of information required in internal control and risk management and monitoring Describe the process of externally reporting on internal control and risk
June 2008 Q4c (4 marks) June 2008 Q4b (8 marks) 1 or 2 marks for a relevant point in: December 2007 Q4d
Q10 Q10
Q35
Roles
Board Responsible for IC system Report to shareholders Determine policy Management Implement policies Operate & monitor IC Identify & assess risks
Audit committee
Independent NEDs (one with financial experience) Liaise with External Audit Supervise Internal Audit Review FS Review IC Review of risk management SOX Mandatory Approve sanctioned non-audit work Whistleblowers
Risk committee
Sets policies on Extent of acceptable risk Categories of acceptable risk
SOX
Effective controls over FR Statement of management responsibility IC / Risk framework used Material weaknesses Statement of attestation from External Auditors
Risk manager
Technical expert Strategic role develop policies Leadership role Training role Operational detail deal with insurance companies
Annual Review
Syllabus learning outcomes Explain and distinguish between the ethical theories of relativism and absolutism Explain, in an accounting and governance context, Kohlbergs stages of human moral development
Ethics
Concerned with right and wrong
Ethical theories
Acceptable standards of behaviour Relevant to all forms of human activity, including business
Relativism v Absolutism
1 2
Obedience and punishment Individualism instrumentalism, and exchange Peer pressure Laws & rules Social contract / welfare Principled conscience
Level 2: Conventional 3 4 5 6
Level 3: Post-conventional
Syllabus learning outcomes Explain and explore the nature of a profession and professionalism
June 2008 Q2b (10 marks) 1 or 2 marks for a relevant point in: Pilot Paper Q3a
Q36
Syllabus learning outcomes Describe the main features of internal management systems for underpinning environmental accounting such as EMAS and ISO 14000 Explain the nature of social and environmental audit and evaluate the contribution it can make to the development of environmental accounting
Corporate Citizenship
Limited View CC = philanthropy Equivalent View CC = CSR Extended View CC = political rights and responsibilities
CSR Stances
Short-term shareholder interest Long-term shareholder interest The legitimacy of the expectations and/or claims of stakeholders Shaper of society
CSR Viewpoints
Gray, Owen & Adams Pristine capitalists / Expedients Proponents of the social contract /Social ecologists Socialists / Radical feminists /Deep ecologists
Sustainability
Weak view Can replace natural capital with man-made capital Strong view Maintain natural capital Global Reporting Initiative (GR) Generational equity
Environmental issues
Environmental footprint Depletion of natural resources Noise and aesthetic impacts Residual air and water emissions Long-term waste disposal Uncompensated health effects Change in the local quality of life
Social audit
Establishing a rationale for engaging in socially responsible activity Identifying that all current environment programmes are congruent with the mission of the company Assessing objectives and priorities related to these programmes Evaluating company involvement in such programmes past, present and future
Environmental costs
Waste management Remediation costs Compliance costs Permit fees (eg carbon trading) Legal costs Fines for non-compliance Environmental certification and labelling
Appendices
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although they are integral to corporate governance as a whole, they play a crucial part in an accountants responsibility to act in the public interest and in the interests of shareholders. Sound systems of internal analysis, control, and audit underpin all effective corporate governance systems. Effective management at the strategic level rests on the assumption that internal activities can be controlled, verified, and reported on internally. If management loses control of internal systems and procedures, any claim of sound governance is lost as was the case at Barings Bank, when a single uncontrolled trader lost large amounts of money on derivatives markets. The same is true of risk. Being aware of all possible risks, understanding their potential impact, as well as the probability of occurrence, are important safeguards for investors and other stakeholders. All of these preceding sections are underpinned by Paper P1s important consideration of both professional and business ethics Part E of the syllabus. Ethical assumptions underpin and surround any profession and system of governance. The accountancy profession, just as in medicine or law, is governed by certain ethical frameworks that inform practice and guide practitioners. This part of the Paper P1 syllabus explores some of these assumptions, while also looking at some of the ethical theories that help to explain them. This part of the syllabus will always be assessed to some degree in the compulsory section of the exam but not necessarily exclusively in that section. Study Guide and intellectual levels The Study Guide, which breaks the syllabus down into separate sections, is on the ACCA website. The superscript numbers at the end of each objective in the Study Guide indicate the level at which students should understand a particular subject or topic area. These levels of understanding, known as cognitive levels, are important as they indicate the depth to which each part of the syllabus may be examined. Because Paper P1 is at the Professional level, the higher cognitive challenges represented by the number 3 are prominent. This means that this paper is more likely to use higher levels of questioning; whereas level 1 tasks might concern knowledge and comprehension (such as list, define, identify, calculate), levels 2 and 3 are more challenging. Level 2 tasks concern application and analysis (contrast, explain, discuss, and so on), and level 3 tasks concern synthesis and evaluation. Level 3 requirements might therefore include construct, evaluate, assess, formulate, or advise. It is likely that each Paper P1 exam will contain several questions at levels 2 and 3, and the Study Guide reflects this emphasis on higher cognitive levels. It is important to realise that if Study Guide sections require learning at levels 2 or 3, then it is possible that the exam will test that area at that cognitive level. The marking scheme will reflect this, and answers that do not attempt to answer at the higher cognitive level will be rewarded accordingly. If, therefore, a question asks a candidate to assess or evaluate an argument or a statement, answers that merely describe will not be well rewarded. Ethical and governance codes Paper P1 covers two areas that, in some countries, are underpinned by codes or guidelines that attempt to regulate practice. In the light of recent corporate governance failures, governments and professional bodies have introduced these codes so as to reduce the freedom of movement for managers, and to make their duties and responsibilities unambiguous in certain circumstances. The UK was among the first to introduce such initiatives, with the Cadbury Code back in 1992, but the intervening years have seen many other codes springing up in different parts of the world. Some apply to single jurisdictions, such as in Singapore, the UK, and the US, while other codes are intended to apply internationally. IFACs and ACCAs Codes of Ethics are examples of ethical codes, while the Organisation for Economic Co-operation and Development (OECD) and International Corporate Governance Network (ICGN) both have international codes of corporate governance. In the Paper P1 Study Guide, I have highlighted the fact that whereas a general knowledge of codes is important, line-by-line detail is not required. While the UK codes (such as the Combined Code, first published in 2003) provide a good summary of provisions in corporate governance, other countries and agencies have also produced equivalent guidelines. Students may be required to demonstrate familiarity with a code when answering a question, but it will be acceptable to refer to a local code if more appropriate, or to one of the international codes. ACCAs Code of Ethics applies broadly, and IFACs Code of Ethics applies to all professional accountants
whose professional bodies are members of IFAC (such as ACCA). If students live in a jurisdiction with its own code of ethics (such as the ICPAS code in Singapore), it will be acceptable to refer to that code where appropriate. Explicit reference is made in the Study Guide to SarbanesOxley, which is the legal underpinning of corporate governance in the US. SarbanesOxley is the most influential corporate governance instrument of recent times and has changed practice globally, mainly because of the international dominance of US business. Exam format The exam will contain two sections. Section A will contain Question 1, which will be worth a total of 50 marks and which will be compulsory. It will be based on a case study scenario of several hundred words. The requirements will include several distinct tasks (listed as (a), (b), (c), etc) and will sample the syllabus quite broadly. Question 1 might contain elements of governance, risk, internal control, and will include some aspect of ethics. One of the features of the Professional level exam papers is the awarding of professional marks. These are marks allocated not for the content of an answer, but for the degree of professionalism with which certain parts of the answer are presented. They will usually be awarded in Section A (the compulsory part of the exam paper) and will total 4 to 6 marks. It may be, for example, that one requirement asks you to present your answer in the form of, say, a letter, a presentation, a memo, a report, briefing notes, or similar. Some marks may be awarded for the form of the answer in addition to the content of the answer. This might be for the structure, content, style and layout, or the logical flow of arguments in your answer. You should assume that if the question asks for a specific format of answer that some marks may be awarded for an effective presentation of that format. Section B will contain three questions (Questions 2, 3 and 4) and students will be invited to attempt two from the three questions set. Each question in Section B will, accordingly, be worth a total of 25 marks. In contrast to Question 1, it is likely that the questions in Section B will explore one part of the syllabus in a little more depth. Students should not assume, however, that each question in Section 2 would examine only one part of the syllabus. It is more likely that each will contain an emphasis on one part of the syllabus, while including content from other parts as well. All of the three questions in Section B will be based on a short scenario. The Pilot Paper, which is on the ACCA website, is an illustration of the way the future papers will look and feel. In addition to the Pilot Paper which students will want to study in some depth and eventually attempt additional pilot questions will also be published.
1.2 1.3
A - Directors Every company should be headed by an effective board There should be a clear division between the running of the board and that of the business The chairman and chief executive should be different people No individual or group should dominate a board At least half the board, excluding the chairman, should be independent non-executives (previously one third). B - Remuneration Remuneration should be linked to performance Non-executives should not receive share options Executive contracts should have a maximum notice of 12 months Remuneration committees encouraged to reduce/eliminate payments on termination, especially relating to poor performance Three independent non-executives should sit on the remuneration committee (two for smaller, sub-FTSE350 companies). C - Accountability and audit Annual report to discuss internal controls and risk management Audit committee to include three independent non-executive directors (two for smaller companies), including one with relevant financial experience D - Relations with shareholders Dialogue with shareholders responsibility of the whole board, though most contact will be with chief executive and FD Chairman and other directors should understand shareholder concerns and issues. Annual report to contain commentary on the above. E - Institutional shareholders Institutional investors should review corporate governance disclosures They should also attend AGMs and make use of their votes.
2
2.1
2.2
SOX Section 404: Management Assessment of Internal Controls All annual financial reports must include an Internal Control Report stating that management is responsible for an "adequate" internal control structure, and an assessment by management of the effectiveness of the control structure. Any shortcomings in these controls must also be reported. In addition, registered external auditors must attest to the accuracy of the company managements assertion that internal accounting controls are in place, operational and effective. SOX Section 409 - Real Time Issuer Disclosures Companies are required to disclose on a almost real-time basis information concerning material changes in its financial condition or operations. SOX Section 902 - Attempts & Conspiracies to Commit Fraud Offences It is a crime for any person to corruptly alter, destroy, mutilate, or conceal any document with the intent to impair the object's integrity or availability for use in official proceedings.