Publishing 2013 ACCA P1 Professional Accountant Study Text emilewoolfpublishing.com ACCA Paper P1 Governance, risk and ethics Welcome to Emile Woolf‘s study text for Paper P1 Professional Accountant which is: Written by tutors Comprehensive but concise In simple English Used around the world by Emile Woolf Colleges including China, Russia and the UK Publishing Sixth edition published by Emile Woolf Publishing Limited Crowthorne Enterprise Centre, Crowthorne Business Estate, Old Wokingham Road, Crowthorne, Berkshire RG45 6AW Email: info@ewiglobal.com www.emilewoolfpublishing.com © Emile Woolf Publishing Limited, January 2013 All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, scanning or otherwise, without the prior permission in writing of Emile Woolf Publishing Limited, or as expressly permitted by law, or under the terms agreed with the appropriate reprographics rights organisation. You must not circulate this book in any other binding or cover and you must impose the same condition on any acquirer. Notice Emile Woolf Publishing Limited has made every effort to ensure that at the time of writing the contents of this study text are accurate, but neither Emile Woolf Publishing Limited nor its directors or employees shall be under any liability whatsoever for any inaccurate or misleading information this work could contain. British Library Cataloguing in Publications Data A catalogue record for this book is available from the British Library. ISBN: 978-1-84843-300-7 Printed and bound in Great Britain Acknowledgements The syllabus and study guide are reproduced by kind permission of the Association of Chartered Certified Accountants. The UK Combined Code on Corporate Governance is © Financial Reporting Council (FRC). Adapted and reproduced with the kind permission of the Financial Reporting Council. All rights reserved. ii © Emile Woolf Publishing Limited Paper P1 Governance, risk and ethics c Contents Page Syllabus and study guide Chapter 1: The scope of governance 17 Chapter 2: Agency relationships and theories 41 Chapter 3: The board of directors 59 Chapter 4: Board committees 91 Chapter 5: Directors’ remuneration 115 Chapter 6: Different approaches to corporate governance 133 Chapter 7: Governance: reporting and disclosure 155 Chapter 8: Internal control systems 177 Chapter 9: Internal control, audit and compliance 193 Chapter 10: Identifying and assessing risk 221 Chapter 11: Controlling risk 251 Chapter 12: Ethical theories 269 Chapter 13: Ethics and social responsibility 291 Chapter 14: Professional practice and codes of ethics 303 Chapter 15: Conflicts of interest and ethical conflict resolution 325 Chapter 16: Social and environmental issues in ethics and business 347 Practice questions 369 Answers to practice questions 385 Appendix: The UK Combined Code on Corporate Governance 435 Index 463 © Emile Woolf Publishing Limited iii iv © Emile Woolf Publishing Limited Paper P1 Professional Accountant S Syllabus and study guide The syllabus for Professional Accountant (P1) has been called the ‘gateway syllabus’ for the professional level of the ACCA examinations It is concerned with the cultural environment within which the professional accountant works Without getting into the detail of financial methods and techniques, or strategic decision-making, it looks at the ‘proper way’ to run a business entity or not-for-profit entity There are several aspects to this Corporate governance This is the way that companies are governed, mainly by their directors Similar concepts apply to non-corporate entities There is ‘good’ and ‘bad’ corporate governance, and the professional accountant needs to understand the issues involved Internal control and risk management Well-managed entities should have a culture of risk awareness Business is not just about making profits: it is also concerned with risk management and control The general concepts of risk management apply to much of the work of the professional accountant – in financial reporting, auditing, financial management and performance management Professional ethics Accountancy is a profession, and accountants are required to apply professional values and ethical standards to the work that they Business ethics Accountants should also understand the nature of ethics in business There are differing views about how business entities should ‘behave’ For example, to what extent should companies be responsible for the general well-being of society and for the protection of the environment? © Emile Woolf Publishing Limited Paper P1: Professional accountant Aim To apply relevant knowledge, skills and exercise professional judgement in carrying out the role of the accountant relating to governance, internal control, compliance and the management of risk within an organisation, in the context of an overall ethical framework Main capabilities On successful completion of this paper, candidates should be able to: A Define governance and explain its function in the effective management and control of organisations and of the resources for which they are accountable B Evaluate the professional accountant’s role in internal control, review and compliance C Explain the role of the accountant in identifying and assessing risk D Explain and evaluate the role of the accountant in controlling and mitigating risk E Demonstrate the application of professional values and judgement through an ethical framework that is in the best interests of society and the profession, in compliance with relevant professional codes, laws and regulations Rationale The syllabus for Paper P1, Professional Accountant, acts as the gateway syllabus into the professional level It sets the other Essentials and Options papers into a wider professional, organisational, and societal context The syllabus assumes essential technical skills and knowledge acquired at the Fundamentals level where the core technical capabilities will have been acquired, and where ethics, corporate governance, internal audit, control, and risk will have been introduced in a subject-specific context The PA syllabus begins by examining the whole area of governance within organisations in the broad context of the agency relationship This aspect of the syllabus focuses on the respective roles and responsibilities of directors and officers to organisational stakeholders and of accounting and auditing as support and control functions The syllabus then explores internal review, control, and feedback to implement and support effective governance, including compliance issues related to decisionmaking and decision-support functions The syllabus also examines the whole area of identifying, assessing, and controlling risk as a key aspect of responsible management Finally, the syllabus covers personal and professional ethics, ethical frameworks – and professional values – as applied in the context of the accountant’s duties and as a guide to appropriate professional behaviour and conduct in a variety of situations © Emile Woolf Publishing Limited Syllabus and study guide Syllabus A B C D E 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 the 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 social 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 © Emile Woolf Publishing Limited Paper P1: Professional accountant Social and environmental issues in the conduct of business and of ethical behaviour Approach to examining the syllabus The syllabus will be assessed by a three-hour paper-based examination The examination paper will be structured in two sections Section A will be based on a case study style question comprising a compulsory 50 mark question, with requirements based on several parts with all parts relating to the same case information The case study will usually assess a range of subject areas across the syllabus and will require the candidate to demonstrate high level capabilities to evaluate, relate and apply the information in the case study to several of the requirements Section B comprises three questions of 25 marks each, of which candidates must answer two These questions will be more likely to assess a range of discrete subject areas from the main syllabus section headings, but may require application, evaluation and the synthesis of information contained within short scenarios in which some requirements may need to be contextualised Number of marks Section A Section B Compulsory case study Choice of from questions, 25 marks each 50 50 100 © Emile Woolf Publishing Limited THE UK CORPORATE GOVERNANCE CODE Listing Rules Listing Rules 9.8.6 R (for UK incorporated companies) and 9.8.7 R (for overseas incorporated companies) state that in the case of a company that has a Premium listing of equity shares, the following items must be included in its annual report and accounts: • a statement of how the listed company has applied the Main Principles set out in the UK Corporate Governance Code, in a manner that would enable shareholders to evaluate how the principles have been applied; • a statement as to whether the listed company has: ¾ complied throughout the accounting period with all relevant provisions set out in the UK Corporate Governance Code; or ¾ not complied throughout the accounting period with all relevant provisions set out in the UK Corporate Governance Code, and if so, setting out: i those provisions, if any, it has not complied with; ii in the case of provisions whose requirements are of a continuing nature, the period within which, if any, it did not comply with some or all of those provisions; and iii the company’s reasons for non-compliance The UK Corporate Governance Code In addition to the ‘comply or explain’ requirement in the Listing Rules, the Code includes specific requirements for disclosure which must be provided in order to comply These are summarised below The annual report should include: • a statement of how the board operates, including a high level statement of which types of decisions are to be taken by the board and which are to be delegated to management (A.1.1); • the names of the chairman, the deputy chairman (where there is one), the chief executive, the senior independent director and the chairmen and members of the board committees (A.1.2); • the number of meetings of the board and those committees and individual attendance by directors (A.1.2); • where a chief executive is appointed chairman, the reasons for their appointment (this only needs to be done in the annual report following the appointment) (A.3.1); • the names of the non-executive directors whom the board determines to be independent, with reasons where necessary (B.1.1); • a separate section describing the work of the nomination committee, including the process it has used in relation to board appointments and an explanation if neither external search consultancy nor open advertising has been used in the appointment of a chairman or a non-executive director (B.2.4); • any changes to the other significant commitments of the chairman during the year (B.3.1); © Emile Woolf Publishing Limited 457 Paper P1: Governance, risk and ethics • a statement of how performance evaluation of the board, its committees and its directors has been conducted (B.6.1); • an explanation from the directors of their responsibility for preparing the accounts and a statement by the auditors about their reporting responsibilities (C.1.1); • an explanation from the directors of the basis on which the company generates or preserves value over the longer term (the business model) and the strategy for delivering the objectives of the company (C.1.2); • a statement from the directors that the business is a going concern, with supporting assumptions or qualifications as necessary (C.1.3); • a report that the board has conducted a review of the effectiveness of the company’s risk management and internal controls systems (C.2.1); • a separate section describing the work of the audit committee in discharging its responsibilities (C.3.3); • where there is no internal audit function, the reasons for the absence of such a function (C.3.5); • where the board does not accept the audit committee’s recommendation on the appointment, reappointment or removal of an external auditor, a statement from the audit committee explaining the recommendation and the reasons why the board has taken a different position (C.3.6); • an explanation of how, if the auditor provides non-audit services, auditor objectivity and independence is safeguarded (C.3.7); • a description of the work of the remuneration committee as required under the Large and Medium-Sized Companies and Groups (Accounts and Reports) Regulations 2008 including, where an executive director serves as a nonexecutive director elsewhere, whether or not the director will retain such earnings and, if so, what the remuneration is (D.1.2); • the steps the board has taken to ensure that members of the board, in particular the non-executive directors, develop an understanding of the views of major shareholders about their company (E.1.2) The following information should be made available (which may be met by placing the information on a website that is maintained by or on behalf of the company): 458 • the terms of reference of the nomination, audit and remuneration committees, explaining their role and the authority delegated to them by the board (B.2.1, C.3.3 and D.2.1); • the terms and conditions of appointment of non-executive directors (B.3.2) (see footnote 9); • where performance evaluation has been externally facilitated, a statement of whether the facilitator has any other connection with the company (B.6.2); and • where remuneration consultants are appointed, a statement of whether they have any other connection with the company (D.2.1) © Emile Woolf Publishing Limited THE UK CORPORATE GOVERNANCE CODE The board should set out to shareholders in the papers accompanying a resolution to elect or re-elect directors: • sufficient biographical details to enable shareholders to take an informed decision on their election or re-election (B.7.1); • why they believe an individual should be elected to a non-executive role (B.7.2); and • on re-election of a non-executive director, confirmation from the chairman that, following formal performance evaluation, the individual’s performance continues to be effective and to demonstrate commitment to the role (B.7.2) • The board should set out to shareholders in the papers recommending appointment or reappointment of an external auditor: • if the board does not accept the audit committee’s recommendation, a statement from the audit committee explaining the recommendation and from the board setting out reasons why they have taken a different position (C.3.6) Additional guidance The Turnbull Guidance and FRC Guidance on Audit Committees contain further suggestions as to information that might usefully be disclosed in the internal control statement and the report of the audit committee respectively Both sets of guidance are available on http://www.frc.org.uk/corporate/ukcgcode.cfm © Emile Woolf Publishing Limited the FRC website at: 459 Paper P1: Governance, risk and ethics APPENDIX: OVERLAP BETWEEN THE DISCLOSURE AND TRANSPARENCY RULES (DTR) AND THE UK CORPORATE GOVERNANCE CODE DTR D.T.R 7.1.1 R Sets out minimum requirements on composition of the audit committee or equivalent body D.T.R 7.1.3 R Sets out minimum functions of the audit committee or equivalent body D.T.R 7.1.5 R The composition and function of the audit committee or equivalent body must be disclosed in the annual report UK CORPORATE GOVERNANCE CODE Provision C.3.1 Sets out recommended composition of the audit committee Provision C.3.2 Sets out the recommended minimum terms of reference for the audit committee Provision A.1.2 The annual report should identify members of the board committees Provision C.3.3 DTR 7.1.7 R states that compliance with Code The annual report should describe the work the audit committee Further provisions A.1.2, C.3.1, C.3.2 and C.3.3 will of result in compliance with DTR 7.1.1 R to DTR recommendations on the content of the audit committee report are set out in the FRC 7.1.5 R Guidance on Audit Committees Provision C.2.1 D.T.R 7.2.5 R The corporate governance statement must The Board must report that a review of the include a description of the main features of effectiveness of the risk management and the company’s internal control and risk internal control systems has been carried out management systems in relation to the Further recommendations on the content of the internal control statement are set out in financial reporting process the Turnbull Guidance While this requirement differs from the requirement in the UK Corporate Governance Code, it is envisaged that both could be met by a single internal control statement This requirement overlaps with a number of DTR 7.2.7 R The corporate governance statement must different provisions of the Code: include a description of the composition and A.1.1: the annual report should include a operation of the administrative, management statement of how the board operates and supervisory bodies and their A.1.2: the annual report should identify committees members of the board and board committees DTR 7.2.8 R states that compliance with Code provisions A.1.1, A.1.2, A.4.6, B.2.1 and C.3.3 B.2.4: the annual report should describe the work of the nomination committee will result in compliance with DTR 7.2.7 R C.3.3: the annual report should describe the work of the audit committee D.2.1: a description of the work of the remuneration committee should be made available [Note: in order to comply with DTR 7.2.7 R this information will need to be included in the corporate governance statement] 460 © Emile Woolf Publishing Limited THE UK CORPORATE GOVERNANCE CODE SCHEDULE C ENGAGEMENT PRINCIPLES FOR INSTITUTIONAL SHAREHOLDERS27 Principle 1: Dialogue with companies Main Principle Institutional shareholders28 should enter into a dialogue with companies based on the mutual understanding of objectives Supporting Principles Institutional shareholders should apply the principles set out in the Institutional Shareholders’ Committee’s ‘‘Code On The Responsibilities Of Institutional Investors’’, which should be reflected in fund manager contracts Principle 2: Evaluation of Governance Disclosures Main Principle When evaluating companies’ governance arrangements, particularly those relating to board structure and composition, institutional shareholders should give due weight to all relevant factors drawn to their attention Supporting Principle Institutional shareholders should consider carefully explanations given for departure from the UK Corporate Governance Code and make reasoned judgements in each case They should give an explanation to the company, in writing where appropriate, and be prepared to enter a dialogue if they not accept the company’s position They should avoid a box-ticking approach to assessing a company’s corporate governance They should bear in mind, in particular, the size and complexity of the company and the nature of the risks and challenges it faces Principle 3: Shareholder Voting Main Principle Institutional shareholders have a responsibility to make considered use of their votes Supporting Principles Institutional shareholders should take steps to ensure their voting intentions are being translated into practice Institutional shareholders should, on request, make available to their clients information on the proportion of resolutions on which votes were cast and non-discretionary proxies lodged Major shareholders should attend AGMs where appropriate and practicable Companies and registrars should facilitate this © FRC 2010 and adapted and reproduced with the kind permission of the Financial Reporting Council All rights reserved 27 This schedule has been superseded by the Stewardship Code for institutional investor Agents such as investment managers, or voting services, are frequently appointed by institutional shareholders to act on their behalf and these principles should accordingly be read as applying where appropriate to the agents of institutional shareholders 28 © Emile Woolf Publishing Limited 461 Paper P1: Governance, risk and ethics 462 © Emile Woolf Publishing Limited Paper P1 Governance, risk and ethics i Index A B Accountability 28 Absolutism 273 ACCA Code of Ethics and Conduct 305, 319 Accountability 48 Accountancy profession: public expectations 307 Active stakeholders 34 Advocacy threat 203, 327 Agency conflicts 44 Agency costs 45 Agency law 43 Agency realationships – An overview 50 Agency relationship 43 Charities 50 Public sector 49 Agency theory 42 Agents: accountability 48 ALARP 249 American Accounting Association model of ethical decision-making 286 Annual general meeting (AGM) 167 Appointments to the board 107 Association of British Insurers (ABI) 39 Audit committee 94 composition 99 responsibility for financial controls 112 Audit committee and the external auditors 200 Audit committee: role and functions 97 Audit plan 206 Audit: internal 194 Audit: social and ebvironmental 365 Auditor independence and non-audit work 205 Auditors: external 200 Balanced scorecard 356 Benchmarks 105 Best practice disclosures 159 Board balance 69 Board committees 92 Board of directors: composition 66 disqualification 82 duties and legal obligations 79 executive and non-executive 66 governance responsibility for risk management 180 induction 85 powers and rights 78 role 60 share dealings 81 Size 66 training and professional development 86 two-tier boards 63 unitary boards 63 Board responsibilities for the internal control system 112 Board: appointments 107 Bounded rationality 52 Bribery Act 2010 345 Bribery and corporate governance 343 Bribery and corruption 343 Bribery: measures to combat 345 Bribery:; societal impact 344 Burritt et al 362 Business probity risk 232 Business review 162 © Emile Woolf Publishing Limited 463 Paper P1: Professional accountant Business risk 178, 223 Business risks in different business sectors 235 C Cadbury Code 142 Cadbury Report 18, 111 Carbon neutrality 349 Categorical imperative 281 Chairman: role 71, 72 Chief executive officer (CEO): role 71 Claims of stakeholders 32 Codes of ethics for accountants 318 Combined Code 98, 145 internal audit 199 revised 147 Combined Code on corporate governance 39 Committees: audit 94 board 93 nominations 107 remuneration 101 risk 110 Compliance controls 184 Compliance risk 178 Compliance: box-ticking approach 184 Comply or explain 140 Confidentiality 321 Conflicts of interest 80, 327 Control environment 187 Conventional level of morality 276 Corporate code of ethics: content 313 Corporate codes of ethics 312 Corporate governance 18 Corporate governance and financial reporting 94 Corporate governance and investor confidence 39 Corporate governance codes: reasons for development 134 Corporate governance in the UK: history 142 Corporate governance: codes 60 international codes and principles 149 issues 22 law and guidelines 20 principles-based approach 134, 139 rules-based approach 134, 136 464 stakeholder approach 56 the need for transparency and disclosure 156 Corporate social responsibility (CSR) 172, 299 COSO Framework 186 Credit risk 229 Critical theory: ethics and accountants 308 Cromme Code 64 CSR policy 174 CSR reporting 174 Culture 299 D Davis report – Women on boards 70 Delegation of power: within a company 60 Deontological approach to ethics 281 Deontology (Kant) 281 Derivatives risk 232 Descriptive ethical relativism 273 Direct stakeholder claims 32 Directors and the law 78 Directors' remuneration: shareholder attitutes 132 Directors: appointment, election and removal 79 basic salary 118 fiduciary duty 43 independence 67 pensions 121 Directors’ remuneration 101, 116 ethical issues 130 reporting 127 Disclosure of interests 80 Disclosure: best practice 159 general principles 156 mandatory and voluntary 161 Diversification 259 E Eco-Management and Audit Scheme (EMAS) Electronic voting Embedding risk Environmental activity-based accounting 361 170 256 363 © Emile Woolf Publishing Limited Index Environmental audits 366 Environmental footprint (ecological footprint) 348 Environmental footprint’ for individual companies 354 Environmental life cycle costing 364 Environmental management accounting (EMA) 361 Environmental management systems 359 Equity incentive schemes 126 Ethical conflicts: resolving 335 Ethical decision-making: American Accounting Association model 286 models 284 Tucker’s question model 285 Ethical dilemmas: rules-based approach 326 rules-principles-based approach 326 Ethical issues: remuneration 130 Ethical safeguards 331 Ethical stance: personal and corporate 294 Ethical theories: absolutism 273 relativism 273 Ethical threats 327 Ethical threats and safeguards 326 Ethics 270, 292 corporate codes 312 cultural context 299 deontological approach 281 teleological 282 Ethics and accountants: critical theory 308 Ethics and agency theory 49 Ethics codes: principles based 319 rules based 319 Executive directors 67 External audit process 206 External auditors: appointment 202 independence 96, 203 terms of appointment and remuneration 202 External stakeholders 36 Extraordinary general meeting (EGM) 167 © Emile Woolf Publishing Limited F Familiarity threat Fiduciary duty Financial controls Financial risks Fixed-term contracts Footprints: social and environmental Full-cost accounting (FCA) Fundamental principles 203, 327 43, 80 183 178 79 348 356 319 G General meetings AGM EGM Global Reporting Initiative (GRI) Good governance fairness honesty and integrity independence judgment openness/transparency reputation responsibility and accoutability Governance Gray, Owen and Adams Greenbury Report 165 167 167 175 24 26 27 27 29 26 29 28 18, 292 296 144 H Hampel Report Hedging risks Heinz dilemma Higgs Report 144 261 278 73, 98, 146 I ICGN Corporate Risk Oversight Guidelines ICGN Principles ICSA Guidance Note on matters reserved for the board 225 150 62 465 Paper P1: Professional accountant IFAC Code (Code of Ethics for Professional Accountants) 318 Illegitimate stakeholders 35 Incentive schemes: performance related 122 Independent Commission for Good Governance in Public Service 24 Independent director 67 Independent non-executive directors 48 Indirect stakeholder claims 32 Induction of new directors 85 Influence = Power ´ Interest 33 Input-output analysis 363 Institutional investors 38 Insurance companies 38 Integrity 320 Interim management statements (IMSs) 163 Internal audit 194 function and importance 194 independence, objectivity and status 196 role of the audit committee 198 Internal control 182, 186 annual review 208 effectiveness 208 establishing and maintaining a system 190 evaluating 208 failure 185 information systems and technology 218 maintaining a sound system 216 reporting to shareholders 213 risk 178 transparency and disclosure 190 Internal control system: monitoring 189 Internal stakeholders 36 Intimidation threat 203, 327 ISO 14000 359 Known stakeholders Kohlberg (moral development) criticisms 35 275 280 L Legal risk Legitimate stakeholders Liquidity risk Long-term incentives: share plans Loss of office: compensation 230 35 229 119 129 M Managing risk: A framework Market risk Mendelow framework Metrics for environmental audits Mirror test for resolving ethical issues Model Code Moral absolutism Moral development (Kohlberg) Moral development of accountants Moral dilemmas Moral philosophy Morality: conventional level post-conventional level pre-conventional level Mutual funds Myners Report 264 229 33 367 337 82 273 275 309 270 271 276 277 276 38 169 N J Jensen and Meckling (agency theory) Johnson and Scholes the cultural web 44 293 300 K Kant (deontology) Key risk indicators (KRIs) 466 281 266 Narrative reports: business reviews and interim management statements Narrow stakeholders National Association of Pension Funds (NAPF) NEDs: criticisms Nolan’s Seven Principles of Public Life Nominations committee composition duties 162 34 39 76 29 107 109 108 © Emile Woolf Publishing Limited Index Nominations committee and appointment of a new chairman Non-executive directors appointment role Normative ethical relativism 109 67 75 74 273 O Objectivity 320 OECD Principles 149 Open-Ended Investment Companies (OEICs) 39 Operational controls 183 Operational risk 178, 223 Opportunism 53 Ownership: separation from control 19 P Passive stakeholders 35 Pension funds 38 Performance evaluation 87 Performance targets 124 Performance: assessments 88 Performance-related incentive schemes 122 Performance-related schemes: UK Corporate Governance Code (Combined Code) 123 Post-conventional level of morality 277 Pre-conventional level of morality 276 Primary stakeholder 34 Principles-based approach to ethical dilemmas 327 Principles-based ethics codes 319 Professional 304 Professional competence and due care 320 Professional: acting professionally 305 Proxy voting 169 Public interest 306, 310 Pure risk (downside risk) 222 R Re-election of directors Relativism © Emile Woolf Publishing Limited 83 273 Remuneration: executive and non-executive directors 116 Remuneration and shareholder attitudes 131 Remuneration committee 101 composition 104 duties 104 Remuneration of executive directors: problems 105 Remuneration package components 116 purpose 117 structures 118 Reputation risk 231 Residual risk 238, 266 Resolving ethical conflicts 335 Restricted stock awards 125 Review process 209 Rewards for failure 102 Risk 222 Risk appetite 239, 262 Risk assessment 188, 266 dynamic nature 238, 245 Risk auditing: role 254 Risk avoidance 261 Risk awareness 256 Risk capabilities 266 Risk committee 110 role 253 Risk dashboard 247 Risk identification 241 Risk management 178, 222, 224 concepts 237 responsibility 225 system 226 Risk management and internal control 180 Risk management and risk control: responsibility of the board 110 Risk management as a corporate governance issue 110 Risk manager: role 252 Risk assessing 245 board policy 239 business 178 business probity 232 categories 228 control methods 259 credit 229 derivatives 232 467 Paper P1: Professional accountant embedding exposure hedging identification impact on stakeholders internal control legal liquidity mapping market measuring monitoring prioritising profiling pure retention sharing transfer residual role of the board of directors in identifying risk speculative technological Risk-based approach Rotation of audit partners Rotation: retiring by Rules-based ethics codes 256 237 261 241 242 178 230 229 266 229 246 252 247 245, 266 222 261 261 260 238 248 222 230 239 96 83 319 S Sarbanes-Oxley Act 2002 20, 137, 181 Schein: three levels of culture 300 Secondary stakeholder 34 Self-interest threat 203, 327 Self-review threat 203, 327 Senior independent director (SID) 74, 166 Service contracts 78 Shaper of society 293 Share dealings by directors 81 stock market restrictions 82 Share option schemes 125 Share options 119 under water 120 Share plans and performance targets 121 Shareholder activism 166 Shareholder activism and voting rights 168 Shareholder theory 292 468 Shareholders: voting 167 Short-term incentives: bonus 119 Singapore Code of Corporate Governance 99 on performance evaluation 88 Smith Report 98, 147, 201 Social and environmental audit 365 Social and environmental effects: measurement 351 Social and environmental reporting 364 Social contract theory 293 Social ecology 350 Social footprint 350 Social responsibility 292, 296 Social responsibility: 7-level classification by Gray, Owen and Adams 296 Speculative risk (two-way risk) 222 Stakeholder theory 56, 292 agency theory 57 definition 56 Stakeholders 31 external 37 impact of risk 242 internal 37 shareholders and directors 36 Strategic risk 223 Succession planning 107 Sustainability 352 Sustainability Assessment Model (SAM) 356 Sustainable development 353 Sustainable development: reporting by companies 353 Systems audit 195 T TARA framework for risk management Technological risk Teleological approach (consequentialist approach) to ethics Transaction cost economics (TCE) comparison with agency theory theory variables Transparency Triple bottom line reporting Tucker’s question model of ethical decision-making Turnbull Report 263 230 282 52 55 51 53 156 354 285 145 © Emile Woolf Publishing Limited Index Turnbull Report Two-tier boards 179, 186, 208 63 Value for money (VFM) audits Voting: electronic proxy U UK Corporate Governance Code UK Stewardship Code Unitary boards Unitary boards and two-tier boards: comparison Unknown stakeholders Utilitarianism © Emile Woolf Publishing Limited V 21, 28, 39 39, 170 63 64 35 282 195 170 169 W Walker Report Whistle blowing Whistleblowing procedures Wide stakeholders 21 218 315 34 469 Paper P1: Professional accountant 470 © Emile Woolf Publishing Limited 2013 ACCA P1 Professional Accountant A well-written and focused text, which will prepare you for the examination and which does not contain unnecessary information • Comprehensive but concise coverage of the examination syllabus • • • • Simple English with clear and attractive layout A large bank of practice questions which test knowledge and application for each chapter A full index The text is written by Emile Woolf International’s Publishing division (EWIP) The only publishing company focused purely on the ACCA examinations • EWIP’s highly experienced tutors / writers produce study materials for the professional examinations of the ACCA • EWIP’s books are reliable and up-to-date with a user-friendly style and focused on what students need to know to pass the ACCA examinations • EWIP’s association with the world renowned Emile Woolf Colleges means it has incorporated student feedback from around the world including China, Russia and the UK emilewoolfpublishing.com ... Limited Paper P1 Professional Accountant S Syllabus and study guide The syllabus for Professional Accountant (P1) has been called the ‘gateway syllabus’ for the professional level of the ACCA examinations... Crowthorne Enterprise Centre, Crowthorne Business Estate, Old Wokingham Road, Crowthorne, Berkshire RG45 6AW Email: info@ewiglobal.com www.emilewoolfpublishing.com © Emile Woolf Publishing Limited, January 2013 All rights reserved. No part of this publication may be reproduced, stored in a retrieval ... ACCA Paper P1 Governance, risk and ethics Welcome to Emile Woolf‘s study text for Paper P1 Professional Accountant which is: Written by tutors