Paper P1: Governance, risk and ethics - Study Text 2016

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https://www.facebook.com/chiasetailieuACCA/ACCA APPROVED CONTENT PROVIDER ACCA Approved Study Text Paper P1 Governance, Risk and Ethics Study Text for exams from September 2015 to 31 August 2016 Free access to our Exam Success site Look inside https://www.facebook.com/chiasetailieuACCA/ https://www.facebook.com/chiasetailieuACCA/ ACCA APPROVED CONTENT PROVIDER As the irst accredited publisher of ACCA materials, BPP Learning Media has set the benchmark for producing exceptional study materials for students and tutors alike Our Study Texts, Practice & Revision Kits and i-Passes (for ACCA F1/FIA FAB, ACCA F2/FIA FMA, ACCA F3/ FIA FFA and ACCA F4) are reviewed by the ACCA examining team and are written by our in-house authors with industry and teaching experience who understand what is required for exam success EXAM SUCCESS SITE To help maximise your chances of succeeding in your exams, we’ve put together a suite of exclusive ACCA resources Our Exam Success site provides you with access to a free digital version of this publication, as well as extra resources designed to focus your efforts on exams and study methods To access the Exam Success site, please email learningmedia@bpp.com with the subject line “Access to Exam Success site - eBook”, including your order reference number and the name of the book you’ve bought (ie ACCA F7 Study Text) for your access code Once you have received your code, please follow the instructions below: To access the BPP ACCA Exam Success site for this material please go to: www.bpp.com/ExamSuccessSite n Create a user account if you don’t already have one Make sure you reply to the conirmation email n Log in using your registered username and password Select the paper you wish to access n Enter the code you received when prompted You will only have to this once for each paper you are studying https://www.facebook.com/chiasetailieuACCA/ https://www.facebook.com/chiasetailieuACCA/ S T U D Y PAPER P1 GOVERNANCE, RISK AND ETHICS BPP Learning Media is an ACCA Approved Content Provider This means we work closely with ACCA to ensure this Study Text contains the information you need to pass your exam In this Study Text, which has been reviewed by the ACCA examination team, we:  the  how each chapter links to the syllabus and the study guide      in the syllabus and the lots of you need demonstrating what is expected of you in the exam in regular in in our in our BPP's Practice & Revision Kit products also support this paper https://www.facebook.com/chiasetailieuACCA/ T E X T https://www.facebook.com/chiasetailieuACCA/ First edition 2007 Eighth edition April 2015 ISBN 9781 4727 2679 (Previous ISBN 9781 4727 1085 7) e-ISBN 9781 4727 2757 A catalogue record for this book is available from the British Library 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 or otherwise, without the prior written permission of BPP Learning Media Ltd We are grateful to the Association of Chartered Certified Accountants for permission to reproduce past examination questions The suggested solutions in the practice answer bank have been prepared by BPP Learning Media Ltd, unless otherwise stated BPP Learning Media Ltd BPP House, Aldine Place London W12 8AA www.bpp.com/learningmedia RICOH UK Limited Unit Wells Place Merstham RH1 3LG Your learning materials, published by BPP Learning Media Ltd, are printed on paper obtained from traceable sustainable sources © BPP Learning Media Ltd 2015 ii https://www.facebook.com/chiasetailieuACCA/ https://www.facebook.com/chiasetailieuACCA/ Contents Page Introduction Helping you to pass v Studying P1 vii The exam paper xiv Syllabus and study guide xvii Part A Governance and responsibility Scope of corporate governance Approaches to corporate governance 47 Corporate governance practice and reporting 77 Part B Internal control and risk Internal control systems 137 Risk attitudes and internal environment 157 Risks 189 Risk assessment and response 215 Information, communication and monitoring 251 Part C Professional values and ethics 10 11 Personal ethics 289 Professional ethics 319 Corporate social responsibility 359 Practice question bank 405 Practice answer bank 413 Index .443 Review form https://www.facebook.com/chiasetailieuACCA/ Contents iii https://www.facebook.com/chiasetailieuACCA/ A note about copyright Dear Customer What does the little © mean and why does it matter? 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Please note the e-products are sold on a single user licence basis: we not supply 'unlock' codes to people who have bought them secondhand And what about outside the UK? BPP Learning Media strives to make our materials available at prices students can afford by local printing arrangements, pricing policies and partnerships which are clearly listed on our website A tiny minority ignore this and indulge in criminal activity by illegally photocopying our material or supporting organisations that If they act illegally and unethically in one area, can you really trust them? iv https://www.facebook.com/chiasetailieuACCA/ https://www.facebook.com/chiasetailieuACCA/ Helping you to pass BPP Learning Media – Approved Content Provider As ACCA's Approved Content Provider, BPP Learning Media gives you the opportunity to use study materials reviewed by the ACCA examination team By incorporating the examination team's comments and suggestions regarding the depth and breadth of syllabus coverage, the BPP Learning Media Study Text provides excellent, ACCA-approved support for your studies The PER alert Before you can qualify as an ACCA member, you not only have to pass all your exams but also fulfil a three year practical experience requirement (PER) To help you to recognise areas of the syllabus that you might be able to apply in the workplace to achieve different performance objectives, we have introduced the 'PER alert' feature You will find this feature throughout the Study Text to remind you that what you are learning to pass your ACCA exams is equally useful to the fulfilment of the PER requirement Your achievement of the PER should now be recorded in your online My Experience record Tackling studying Studying can be a daunting prospect, particularly when you have lots of other commitments The different features of the text, the purposes of which are explained fully on the Chapter features page, will help you while studying and improve your chances of exam success Developing exam awareness Our Texts are completely focused on helping you pass your exam Our advice on Studying P1 outlines the content of the paper, the necessary skills you are expected to be able to demonstrate and any brought forward knowledge you are expected to have Exam focus points are included within the chapters to highlight when and how specific topics were examined, or how they might be examined in the future Using the Syllabus and Study Guide You can find the syllabus and Study Guide on pages xvii-xxvii of this Study Text Testing what you can Testing yourself helps you develop the skills you need to pass the exam and also confirms that you can recall what you have learnt We include Questions – lots of them – both within chapters and in the Practice Question Bank, as well as Quick Quizzes at the end of each chapter to test your knowledge of the chapter content https://www.facebook.com/chiasetailieuACCA/ Introduction v https://www.facebook.com/chiasetailieuACCA/ Chapter features Each chapter contains a number of helpful features to guide you through each topic Topic list Topic list Syllabus reference What you will be studying in this chapter and the relevant section numbers, together with ACCA syllabus references Introduction Puts the chapter content in the context of the syllabus as a whole Study Guide Links the chapter content with ACCA guidance Exam Guide Highlights how examinable the chapter content is likely to be and the ways in which it could be examined Knowledge brought forward from earlier studies FAST FORWARD What you are assumed to know from previous studies/exams Summarises the content of main chapter headings, allowing you to preview and review each section easily Examples Demonstrate how to apply key knowledge and techniques Key terms Definitions of important concepts that can often earn you easy marks in exams Exam focus points When and how specific topics were examined, or how they may be examined in the future Formula to learn Formulae that are not given in the exam but which have to be learnt Gives you a useful indication of syllabus areas that closely relate to performance objectives in your Practical Experience Requirement (PER) Question Gives you essential practice of techniques covered in the chapter Case Study Real world examples of theories and techniques Chapter Roundup A full list of the Fast Forwards included in the chapter, providing an easy source of review Quick Quiz A quick test of your knowledge of the main topics in the chapter Practice Question Bank Found at the back of the Study Text with more comprehensive chapter questions Cross referenced for easy navigation vi Introduction https://www.facebook.com/chiasetailieuACCA/ https://www.facebook.com/chiasetailieuACCA/ Studying P1 The P1 Governance, Risk and Ethics syllabus has been written with a different focus from the exams that you have sat so far The exam is not about learning law, accounting standards or complicated calculation techniques Instead it seeks to promote the underlying themes of professionalism and accountability You cannot be professional in one area and unprofessional in another What P1 is about 1.1 Underlying themes The syllabus shows how accounting is underpinned by governance and ethics, and the need for accountants to repay the trust that society puts in them A key element of governance is the concept of accountability, particularly of directors and auditors There is an emphasis on the agency relationship between stakeholders and business managers, including directors and accountants Governance is itself supported by sound internal control systems, internal audit and rigorous risk management Judgement, underpinned by professional competence and ethics, is also a key theme Lastly, students are expected to consider carefully the concept of professionalism, and to discuss how the accountant should contribute to society The paper's main themes should be seen as interconnected: 'Every right implies a responsibility; for each opportunity there is an obligation and all rewards carry related risks.' 1.2 Governance and responsibility Chapter demonstrates the importance of the underlying themes of the syllabus Corporate governance is a central part of the syllabus Instead of going straight into the detailed requirements of the corporate governance reports, it discusses in detail the concepts that underpin good corporate governance, the agency relationship, the constituencies (shareholders and other stakeholders) that corporate governance is designed to serve and the extent of responsibilities towards different stakeholders Chapter deals with the basis of corporate governance legislation and codes, whether they are based on principles or a detailed rulebook and how governance codes incorporate wider ideas of social responsibility Chapter covers governance best practice, drawing on examples from different codes from all over the world 1.3 Internal control and risk We consider Sections B to D of the syllabus together in Section B of this book The syllabus highlights the following issues, as they have proved to be problematic in recent corporate failures    Internal control The identification and assessment of risk Controlling and mitigating risk These issues also play a crucial part in an accountant's responsibility to act in the public interest and 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 control 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 … 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 shareholders.' In Chapter therefore we examine the objectives of control and risk management systems We also look at systems that have been developed internationally, including the COSO enterprise risk management model https://www.facebook.com/chiasetailieuACCA/ Introduction vii https://www.facebook.com/chiasetailieuACCA/ Chapters to are organised around the stages identified in the COSO enterprise risk management model Chapter deals with the underlying factors that affect how a business is controlled and how risk is managed These include how much appetite the business has for risk, and how environmental factors within the business affect control and risk management We also look at the importance of setting business objectives that are consistent with the risk that directors, shareholders and other stakeholders wish the business to bear Chapters and deal with the various stages of risk assessment and management, including internal control procedures that act to reduce risk Chapter brings out two other elements that are vital in control systems These are a two-way flow of appropriate information between the board and managers and staff This should enable the board and managers to carry out effective monitoring of operations, and provide feedback so that systems and controls can be improved The results of business monitoring will also form the basis for external reporting about the company's systems 1.4 Professional values and ethics This section of the syllabus requires you to think carefully about the ethical assumptions that guide individual behaviour and underpin the role of accountants Chapter is a very important chapter in this text, dealing with the ethical stances of individuals and also the factors that determine the ethical decisions individuals take In the exam you may have to argue from a specific ethical position, even if you don't agree with the position In Chapter 10 you need to look critically at the ethical codes accountants follow as well as the codes that businesses operate It is true that you need to have a good knowledge of what the accountancy profession's codes say on ethical threats and conflicts and to be able to use that knowledge in recommending solutions to ethical dilemmas However, you are also expected to question how much help the codes actually are in resolving dilemmas and whether the ethical frameworks are in the best interests of society and the accountancy profession The exam may ask you to question the role of the accountant in protecting shareholder wealth and focusing on the performance of capital investment Does this mean that accountancy is a servant of capital and makes the implicit assumptions about morality that capitalism does? Chapter 11 looks at corporate social responsibility, concentrating on what organisations have done to address issues such as sustainability and the implications for accounting, disclosure, control systems and audit Skills you have to demonstrate 2.1 Knowledge and application Even with exams you've previously taken, you'll remember that passing didn't just mean reproducing knowledge You also had to apply what you knew At Professional level, the balance is tilted much more towards application You will need a sound basis of technical knowledge The exams will detect whether you have the necessary knowledge However, you won't pass if you just spend your time acquiring knowledge Developing application skills is vital 2.2 Application skills What application skills you need? Many P1 questions will include detail in a scenario about a specific organisation The following skills are particularly important when you're dealing with question scenarios (a) Identifying the most important features of the organisation and the organisation's environment Clues to these will be scattered throughout the scenario The technical knowledge that you have should help you this, but you will also need business awareness and imagination There will be a main theme running through most scenarios that you'll need to identify (b) Using analysis techniques will give you more insight into the data that you're given viii Introduction https://www.facebook.com/chiasetailieuACCA/ https://www.facebook.com/chiasetailieuACCA/ Lack of evidence However, internal audit can only reasonably be expected to detect frauds that impact in some way on the business's systems It appears that the drug dealing manager took care to ensure that they covered their tracks, and did not leave any information for the internal auditors to detect Internal auditors can also only be expected to work within their own areas of expertise They are not trained members of the Police Drug Squad Prevention of problems Internal audit should always have a monitoring and detection role To preserve internal audit independence, it should not be responsible for implementing systems that prevent problems occurring If these are fully effective, then there will be nothing for internal audit to detect 11 Loxwood Top tips In (a) observation is likely to be the most useful audit technique, although if staff are being observed, they may behave differently You may have come up with other means for informing staff (b) is good revision of issues that we have discussed throughout this text; the impact of stakeholder views and voluntary principles-based disclosure versus compulsory rules-based disclosure Interestingly in (c) taking the expedient view may lead to Loxwood being more cautious about developing the product than if it took the social contractarian view, if the local community was strongly in favour of action being taken about the sea lions (a) Testing for employee awareness Employee awareness could be measured by observation, questionnaire and interview In a large organisation a sampling approach could be taken Observation could be largely unobtrusive and might provide a useful control on the results of interview, since some staff might make exaggerated claims about their environmental awareness Involvement of employees The techniques of internal marketing could be used to involve employees Internal marketing is the use of marketing techniques that are normally associated with communications flowing out from the organisation, for internal purposes It is a concept associated with change management and therefore may be appropriate here A concerted campaign could be created This could include messages in salary advices, posters, presentations, the formation of discussion groups, and the creation of a suggestion scheme specifically aimed at environmental issues If there are any existing empowerment schemes, such as quality circles, it may be possible to introduce an environmental dimension into them (b) Stakeholder interest Public interest in corporate social responsibility is steadily increasing Although financial statements are primarily intended for investors and their advisers, there is growing recognition that companies actually have a number of different stakeholders These include customers, employees and the general public, all of whom are potentially interested in the way in which a company's operations affect the natural environment and the wider community These stakeholders can have a considerable effect on a company's performance As a result many companies now deliberately attempt to build a reputation for social and environmental responsibility Therefore the disclosure of environmental and social information is essential Regulatory and professional interest Another factor is growing interest by governments and professional bodies Although there are no IFRSs that specifically require environmental and social reporting, it may be required by company legislation There are now a number of awards for environmental and social reports and high quality disclosure in financial statements These provide further encouragement to 438 Practice answer bank https://www.facebook.com/chiasetailieuACCA/ https://www.facebook.com/chiasetailieuACCA/ disclose information Performance impact There is also growing recognition that corporate social responsibility is actually an important part of an entity's overall performance Responsible practice in areas such as reduction of damage to the environment and recruitment increases shareholder value Companies that act responsibly and make social and environmental disclosures are perceived as better investments than those that not Compulsory or voluntary disclosure At present companies are normally able to disclose as much or as little information as they wish in whatever manner that they wish This causes a number of problems Companies tend to disclose information selectively and it is difficult for users of the financial statements to compare the performance of different companies However, there are good arguments for continuing to allow companies a certain amount of freedom to determine the information that they disclose If detailed rules are imposed, companies are likely to adopt a 'checklist' approach and will present information in a very general and standardised way, so that it is of very little use to stakeholders (c) Expedients The expedient's view would be that Loxwood should primarily pursue profit maximisation However, the board has to realise that Loxwood's activities generate, or are seen as generating, some excesses The board therefore needs to accept CSR legislation and moral requirements, if it is broadly in line with Loxwood's economic interests The board has decided that having a more enlightened corporate social responsibility position is in line with Loxwood's interests It may therefore be cautious about developing the sea lion repellent further, even if it is a profitable opportunity Doing so may undermine Loxwood's CSR policy, and cause Loxwood more problems than if it did not have its current focus on CSR Loxwood could be accused of hypocrisy, which could carry a serious reputation risk Social contractarian The social contractarian would see Loxwood's duty as to deliver benefits to the local community from which it derives its power Loxwood effectively has an agreement with the local community as it uses labour from it, and sells boats that impact on the local environment It therefore should act in accordance with the ethical norms of the community However, this viewpoint may not be a very helpful guide for Loxwood, if the local community's view is split Local boat owners may be very happy for the company to develop its sea lion repellent and reduce the risks of their boats being damaged Other members of the community may think it unethical for Loxwood to develop a product that causes animals distress Deep ecologist The deep ecologist position would be that human interests, either as individuals or collectively as a community, should not be prioritised over the interests of other species Even if the community felt that its pleasure was disrupted by having to be careful around sea lions, this is not relevant to the decision The view of the deep ecologists would be that the device should not be developed because of the pain caused to the sea lions The fact that the sea lions would suffer distress must be regarded as more important than the leisure activities of the community https://www.facebook.com/chiasetailieuACCA/ Practice answer bank 439 https://www.facebook.com/chiasetailieuACCA/ 440 Practice answer bank https://www.facebook.com/chiasetailieuACCA/ https://www.facebook.com/chiasetailieuACCA/ Index https://www.facebook.com/chiasetailieuACCA/ 441 https://www.facebook.com/chiasetailieuACCA/ 442 https://www.facebook.com/chiasetailieuACCA/ https://www.facebook.com/chiasetailieuACCA/ Note Key Terms and their page references are given in bold Abbott Laboratories, 363 Absolutism, 294 Accidental damage, 201 Accountability, 9, 12 Accountancy as a value-laden profession, 352 Accountancy profession in society, 351 Accounting controls, 240 Acid test ratio, 221 Acting with sufficient expertise, 343 Active stakeholders, 23 Actual and threatened litigation, 340 Administrative controls, 240 Advantages of proxy voting, 118 Advocacy threat, 338 Age and gender, 298 Agency, 12 Agency costs, 15 Agency problem, 14 Agency relationship, 12 Agency theory, 40 ALARP, 226 Alexon, 190 Alignment of interests, 15 Allders, 190 American Accounting Association (AAA) model, 310 American International Group (AIG), 190 Analysers, 169 Annual general meetings, 117 Annual review of controls, 279 Annual review of internal audit, 272 Any benefit, 14 Application controls, 241 Arithmetical and accounting, 243 Assurance engagement, 332 AstraZeneca, 115 AT&T, 363 Attestation engagement, 332 Attributes of directors, 80 Audit, 61 Audit committee, 65, 66, 273, 340 Auditing standards, 66 Auditors, 57, 66 Authorisation and approval, 243 Authority, 304 Aversch-Johnson effect, 32 Aviva, 116 Badaracco and Webb, 325 Barclays, 115 Basic salary, 110, 112 BCCI, 50 Behavioural studies, 353 Behaviours, 305 Beliefs, 305 Beneficial owners, 118 Benefits in kind, 111 Benefits of internal controls, 246 Benston, 33 Bet your company culture, 170 Blue chip shares, 37, 56 Board, 60, 79, 127, 128 Board committees, 100 Board composition, 41 Board membership, 95 Box-ticking, 53 BP, 112, 227 Branson, Richard, 160 Bribery, 292, 343 Bribery Act 2011, 343 Brundtland report, 378 BS 7750 Environmental Management System, 396 Bureaucracy, 304 Business ethics, 42 Business process controls, 240 Business risks, 191 Business strategy, 181 C adbury, Sir Adrian, 56 Cadbury report, 57, 273 Capital markets, 36, 56 CAPM, 231 Captive, 232 Captive insurer, 232 Carroll, 360 Cash flow ratio, 220 Cash flow risk, 194 Chairman, 95 Chairman and Chief Executive, 127, 128, 129 Changing attitudes, 172 Chief Executive Officer or CEO, 95 Citigroup, 115 Clarkson, 23 Close business relationships, 333 Coalition for Environmentally Responsible Economics, CERES, 391 Coca-Cola, 363 COCO framework, 150 Code of Ethics and Conduct, 327 Code of Ethics for Professional Accountants, 327 Cognitive moral development, 300 Cognitivism, 294 Collectivism, 299 https://www.facebook.com/chiasetailieuACCA/ Index 443 https://www.facebook.com/chiasetailieuACCA/ Combined code, 58, 86, 117 Common sense, 353 Communication, 170, 235 Communication with employees, 258 Company code of conduct, 322 Company secretary, 27 Competence, 327 Computer fraud, 201 Computer literacy, 201 Confidence, 14 Confidentiality, 328 Conflict of interest, 14, 91, 308, 340 Connected stakeholders, 22 Consequentialist ethics, 296 Context-related factors, 304 Contingency planning, 229 Contingent fees, 335 Continuing professional development of board, 87 Control activities, 239 Control environment, 143, 165 Control framework, 143 Control procedures, 143, 148 Conventional, 300 Corporate citizenship, 362 Corporate codes, 321 Corporate controls, 240 Corporate culture, 170, 321 Corporate finance, 338 Corporate governance, Corporate governance a practical guide, 88 Corporate governance arrangements in Germany, 105 Corporate governance arrangements in Japan, 105 Corporate objectives, 179 Corporate philosophy, 394 Corporate responsibility, 66 Corporate social reporting, 71 Corporate social responsibility, 69 Corporate social responsibility and business ethics, 42 Corporate strategy, 181 Correct compartment principle, 354 Correct controls, 241 Correlated risks, 193 Corruption, 343 COSO, 144 Cost and resource wastage risk, 207 Costs of internal controls, 246 Courtesy, 327 Crane and Matten, 365 Creative accounting, 16 Credit risk, 194 Creditors, 164 Cross-directorships, 103 Cultural context, 305 Cultural context of ethics, 298 Culture, 168 Currency risk, 195 Current ratio, 220 Customers, 30, 165 Cybernetic control system, 138 Data and systems integrity risk, 201 Data risk, 201 Deal and Kennedy, 170 Debt providers, 164 Debt ratio, 220 Deep ecologists, 368 Defenders, 169 Denial of service attack, 202 Deontology, 295 Departure from office, 92 Detect controls, 241 DHL, 363 Diageo, 281 Direct controls, 241 Direct reporting engagement, 332 Direct stakeholders, 22 Directors, 14, 27, 57 Directors' duties, 41 Directors' remuneration, 42, 108 Directors' Remuneration Report Regulations, 114 Director-shareholder relationship, 14, 103, 117 Disclosure, 60, 61 Discretionary and non-discretionary controls, 241 Disqualification, 94 Disruption risks, 207 Diversification, 236 Diversity, 81 Division of responsibilities, 97 Divisionalisation, 183 Dow Jones Sustainability Index, 379 Due care, 327 Duty of care, 90 Dynamic environment, 226 Dysfunctional behaviour, 353 Eco-audit, 395 Eco-labelling, 396 Ecological Footprint, 372 Economic responsibilities, 69 Economic risk, 195 Education and employment, 299 Efficient body principle, 354 Egoism, 297 Electronic voting, 119 Embedding risk awareness, 167 444 Index https://www.facebook.com/chiasetailieuACCA/ https://www.facebook.com/chiasetailieuACCA/ Employees, 29, 164 Employment with assurance client, 333 Enclosure principle, 354 Enforcement costs, 32, 39 Enlightened long-term value maximisation, 27 Enron, 65 Enterprise risk management, 147 Entrepreneurial risk, 193 Environmental analysis, 180 Environmental audit, 395 Environmental costs, 374 Environmental footprint, 373 Environmental Impact Assessments (EIAs), 395 Environmental management systems, 390, 392 Environmental policy statement, 391 Environmental problems, 352 Environmental Quality Management (EQM), 395 Environmental reporting, 393 Environmental risk, 202 Environmental surveys, 395 Environmental SWOT analysis, 395 Equivalent view, 362 Ernst & Young, 167, 173 Ethical absolutism, 294 Ethical codes of conduct, 70 Ethical conflict resolution, 330 Ethical Issues in Accounting, 351 Ethical relativism, 292 Ethical responsibilities, 70 Ethical stance, 365 Ethical theory, 292 Ethics, 208 European Union's Eco-Management and Audit Scheme (EMAS), 390 Evans and Freeman, 23 Exception reporting, 256 Executive compensation, 65 Executive Share Option Plans (ESOPs), 15 Expected values, 219 Expedients, 367 Extended view, 362 External audit, 176, 271 External auditors, 31, 42, 65, 275 External social and environmental reporting, 383 External stakeholders, 22 Externality, 383 Extortion, 292 F ailure to innovate, 207 Fairness, Familiarity threat, 339 Family and personal relationships, 334 Feedback from customers, 257 Femininity, 299 Fiduciary duty, 12 Fiduciary responsibilities, 12 Finance providers' risk, 195 Financial controls, 241 Financial interests, 333, 343 Financial reporting, 42, 49, 166 Financial risk management, 236 Financial risks, 193 Financing risks, 193 Fire, 201 Flooding, 201 Focus list, 38 Foreign investors, 49 Forward contracts, 237 Foucault, 353 Fraud, 201 Fraud and error, 203 Fraud risk, 201, 203, 207 FTSE4Good index, 381 Functional boards, 105 Fundamental principles, 327, 343 Fundamental risks, 141 Futures, 237 Gearing, 220 Gearing risk, 194 Geest, 191 Gender diversity, 82 General and application controls, 241 General controls, 241 General meeting, 13 General social audits, 394 Gifts, 292, 334 Glaxo, 190 Global Reporting Initiative, 385 Globalisation, 49 Go errors, 226 Good Governance Standard for Public Services, 257 Good Governance: A Code for the Voluntary and Community Sector, 80 Government, 34 Grease money, 292 Greenbury code, 54 Hackers, 201 Hampel report, 53, 58, 117 Harvey-Jones, Sir John, 102 Hazard, 140 HBOS, 169, 177, 183 Health and safety risk, 202 Hedging, 236 Higgs report, 58, 86, 95, 101 High percentage of fees, 335 High risk cultures, 170 Hobbes, 353 Hold harmless agreements, 234 https://www.facebook.com/chiasetailieuACCA/ Index 445 https://www.facebook.com/chiasetailieuACCA/ Honesty, Hospitality, 334 Human error, 201 Identity and values guidance, 325 IFAC Code of Ethics, 326, 349 Illegitimate stakeholders, 22 Incentives, 172 Independence, 8, 331, 352 Independence of internal audit, 268 Indirect stakeholders, 22 Individual influences, 298 Individualism, 299 Induction of new directors, 86 Industry-specific risks, 208 Influences on ethics, 298 Information and communication, 149 Information asymmetry, 65 Information requirements of directors, 253 Information sources, 255, 258 Infrastructure, 172 Input fraud, 201 Insider dealing, 92 Insider systems, 55 Institute of Internal Auditors, 277 Institutional investors, 36 Institutions, 352 Instrumental view, 21 Insurance companies, 36 Integrated reporting, 387 Integrity, 11, 327 Interest cover, 220 Interest rate risk, 195 Intergovernmental Panel, 372 Internal audit, 176, 264, 275 Internal Audit 2012, 265 Internal audit committee, 100, 273 Internal audit services, 338 Internal Auditing Handbook, 269 Internal control, 67, 138, 147 Internal control framework, 143 Internal control reporting, 66 Internal control system, 42, 139, 143 Internal environment, 148, 165 Internal stakeholders, 22 Internal strategies, 238 International Corporate Governance Network (ICGN), 60, 79 International diversification, 231 International Monetary Fund, 297 Internet, 201 Internet risk, 201 Interrelationship of variances, 257 Intimidation threat, 339 Investigations, 276 Investment trusts, 36 Involuntary stakeholders, 24 Involvement, 171 Involvement in systems design, 269 ISO 14000, 391 ISO 14001, 395 Issue-related factors, 303 IT services, 338 Jensen, 27 Johnson and Scholes, 365 Jones, Thomas, 303 Judgement, 11 Judgemental issues, 351 K ant, 295 Key personnel, 172 King report, 49, 58, 79 Knowledge management risk, 206 Known stakeholders, 24 Kohlberg, 300, 330, 351 L ack of equality, 352 Lam, James, 177 Learning experiences, 172 Legal frameworks, 89 Legal responsibilities, 69, 90 Legal rights, 90 Legal risks, 198, 200 Legal services, 338 Legitimate stakeholders, 22 Liability limitation, 234 Liaison with external auditors, 275 Liberal economic democracy, 352 Lightning and electrical storms, 201 Likelihood/consequences matrix, 221, 225 Limited view, 362 Line managers, 176 Lines of communication, 255 Liquidity risk, 194 Litigation support, 338 Living Planet Index, 372 Loans and guarantees, 334 Locke, 353 Locus of control, 299 London Stock Exchange, 88 Long association of senior personnel with assurance clients, 339 Long-term shareholder interest, 366 Loss control, 230 Loss reduction, 230 Low risk cultures, 170 Lowballing, 335 Macintosh, 354 446 Index https://www.facebook.com/chiasetailieuACCA/ https://www.facebook.com/chiasetailieuACCA/ Man Group, 115 Management, 243 Management audit, 16 Management board, 105 Management buy-in, 15 Management buy-out, 15 Management controls, 240 Management review of internal control, 277 Managers, 14 Managing Risk Across the Enterprise, 167, 173 Mandated controls, 241 Market risk, 197, 231 Marks & Spencer, 374 Masculinity, 299 Maxwell Communications Corporation, 50 Mazda, 223, 235, 244, 263 Mechanistic issues, 351 Mendelow, 24 MG Rover, 190 Miles and Snow, 169 Milton Friedman, 40 Minority protection, 91 Minority shareholders, 55 Mission, 179 Mission statements, 70 Monitoring, 149, 260 Monks and Minnow, 67 Monocratic boards, 105 Monsanto, 377 Moral framing, 303 Moral imagination, 299 Moral intensity, 303 Morris, 175 Morris, Glynis, 202 Multiple stakeholder obligations, 366 Multi-tier boards, 104, 105, 106 Myners report, 118, 121 N arrow stakeholders, 23 National and cultural beliefs, 298 National context, 305 National influences, 161 Nationalisation, 35 News Corporation, 99 News of the World, 99 No conflict of interest, 14 Nomination committee, 85, 100 Non-audit services, 66 Non-cognitivism, 292 Non-discretionary controls, 241 Non-executive directors, 91, 100 Non-financial controls, 242 Normative view, 19, 21 Obedience, 13 Objective risk perception, 222 Objectives of internal audit, 266 Objectivity, 328 OECD, 116 OECD Principles of Corporate Governance 2004, 59 Off balance sheet transactions, 66 Operating and Financial Review (OFR), 121 Operational information, 253 Operational risk, 192 Operational strategy, 182 Options, 237 Organisation, 243 Organisation for Economic Co-operation and Development (OECD), 59 Organisational culture, 305 Organisational field, 304 Organisational influences, 161 Organisational risk, 207 Other general meetings, 117 Other services, 337, 338 Output fraud, 201 Outsider systems, 56 Overdue fees, 335 Overfamiliarity, 269 Ownership and management, 59 Particular risks, 141 Partner on client board, 334 Passive stakeholders, 23 Pensions, 112 Percentage or contingent fees, 335 Performance, 13 Performance measures, 109, 110 Performance of board, 87 Performance of individual directors, 89 Performance Practitioners, 199 Performance related bonuses, 110 Personal integrity, 299 Personal performance, 13 Personnel, 243 Philanthropic responsibilities, 70 Physical, 243 Physical damage risks, 200, 201 Physical risk, 206 Pluralism, 298 Policy boards, 105 Political risk, 200 Polly Peck International, 50 Poor customer service, 207 Post-conventional, 300 Power distance, 299 Prevent controls, 240 Primary stakeholders, 23 Principles-based, 120 Principles-based approach, 51, 53 https://www.facebook.com/chiasetailieuACCA/ Index 447 https://www.facebook.com/chiasetailieuACCA/ Principles-based guidance, 326, 327 Pristine capitalists, 367 Privatisation, 34 Probity risk, 205 Probity/honesty, Process culture, 170 Process risk, 192 Processing fraud, 201 Product risk, 198 Profession, 349 Professional behaviour, 327 Professional codes of ethics, 326 Professional competence, 327 Professionalism, 349 Property risk, 206 Proponents of the social contract, 368 Prospectors, 169 Proxy, 118 Proxy votes, 118 Psychological factors, 299 Public and non-governmental bodies, 42 Public Company Accounting Oversight Board (PCAOB), 65 Public interest, 350 Public interest companies, 336 Public sector organisations, 34 Pure risks, 141 Puxty, 353 QBE Insurance Company, 172 Quality control and internal auditing, 272 Quality control procedures, 66 Quality control review, 333 Quick ratio, 220, 221 Quinn and Jones, 40 Quotas, 83 Radical feminists, 368 Recent service with an assurance client, 336 Recognised stakeholders, 23 Recruitment, 335 Re-election of directors, 93 Regulation, 31 Regulators, 31 Regulators and corporate governance, 33 Regulatory capture, 32, 39 Regulatory frameworks, 89 Related risks, 193, 223 Relationships with stakeholders, 119 Relativism, 292 Removal from office, 94 Remuneration, 61 Remuneration committee, 100, 108 Remuneration disclosures, 114 Remuneration of non-executive directors, 114 Remuneration packages, 110 Remuneration policy, 109, 114, 129 Reporting on corporate governance, 119 Reporting relationships, 270 Reporting requirements, 120 Reports on resolution of weaknesses, 256 Reputation, 10 Reputation risk, 69, 207, 376 Residual risk, 227 Resource wastage risk, 207 Resources of internal audit, 273 Responsibilities as a professional, 330 Responsibility, Retirement age, 93 Retirement by rotation, 93 Review and consultancy, 270 Review of financial statements and systems, 274 Review of internal audit, 275 Review of internal control, 277 Review of risk management, 275 Rights of shareholders, 116 Risk, 140 Risk acceptance, 165, 231 Risk and corporate governance, 142 Risk and the organisation, 159 Risk appetite, 159, 183, 226 Risk assessment, 148, 217 Risk attitude, 159, 172 Risk auditing, 267 Risk avoidance, 165, 228 Risk awareness, 170 Risk capacity, 159 Risk committee, 100, 174 Risk conditions, 211 Risk consolidation, 222 Risk contracts, 234 Risk culture, 168 Risk diversification, 230 Risk identification, 210 Risk management, 42, 61, 245 Risk management function, 178 Risk management responsibilities, 174 Risk manager, 177 Risk policies, 229 Risk policy statement, 173 Risk portfolio management, 225 Risk prioritisation, 221 Risk profiling, 221 Risk quantification, 218 Risk rating, 218 Risk reduction, 165, 228, 229 Risk register, 173 Risk reporting, 280 Risk resourcing, 178 Risk retaining, 231 448 Index https://www.facebook.com/chiasetailieuACCA/ https://www.facebook.com/chiasetailieuACCA/ Risk sharing, 234, 238 Risk specialists, 176 Risk techniques, 229 Risk tolerance, 183 Risk transfer, 165, 234, 239 Risk transferring, 231 Risks of fraud, 201 Rover, 190 RSM Robson Rhodes, 88 Rules-based approach, 52 Safeguards, 328 Sarbanes-Oxley, 282 Sarbanes-Oxley Act 2002, 65 Scottish Power, 364 Second opinions, 340 Secondary stakeholders, 23 Securities and Exchange Commission (SEC), 65 Segments, 182 Segregation of duties, 243 Self-insurance, 232 Self-interest threat, 332 Self-review threat, 336 Sensitivity analysis, 218 Service contracts, 94, 113 Shaper of society, 367 Share option scheme, 16 Share options, 104, 111 Shareholder theory, 20 Shareholders, 14, 57, 61, 62, 116, 117, 160, 164 Shareholders' rights, 42 Shares, 111 Short-term shareholder interest, 366 Short-termism, 37 Singapore code, 273 Singapore Code of Corporate Governance, 58, 79, 115, 120 Situational influences, 303 Skill, 13 Skill, care and diligence, 91 Small investors, 39 Smith report, 58 Social accounts, 71 Social audits, 394 Social ecologists, 368 Social footprint, 375 Social impacts, 375 Social responsibility stances, 367, 395 Social welfare, 352 Socialists, 368 SPAMSOAP, 243 Specific control procedures, 243 Speculative risks, 141 Staff, 176 Staff attitudes, 258 Staff awareness, 258 Stakeholder theory, 20, 40 Stakeholders, 19, 60, 69, 70, 116, 119, 163, 366, 376 Stern report, 372 Stock Exchange requirements, 130 Stock exchanges, 35 Stock lending, 119 Stockholder theory, 20 Stop errors, 225 Strategic information, 253 Strategic risk, 191 Strong sustainability, 383 Structural adjustment programmes, 297 Sub-board management, 29 Subjective risk perception, 216, 222 Supervision, 243 Supervisory board, 105 Supplier audits, 396 Suppliers, 30, 165 Sustainability, 378 Sustainable development, 378 Sustainable value, 60 Swaps, 237 Swiss Cheese model, 234 Systematic risk, 231 Systems integrity, 201 Systems of reward, 304 Tactical information, 253 Taken for granted assumptions, 305 Tax incentives, 34 Taxation services, 338 Taxes, 34 Technical errors, 201 Technological risks, 200 Teleological ethics, 296 Teleological or consequentialist ethics: utilitarianism, 296 Temporary staff cover, 338 Termination payments, 113 Texas Instruments, 363 Time-limited appointments, 93 Tollifson, Gayle, 172 Tough-guy macho culture, 170 Toyota, 198 Trade risk, 207 Trade unions, 30 Trading risks, 206 Traidcraft, 367 Training, 171 Transaction controls, 240 Transaction costs theory, 18 Transaction risk, 195 Translation risk, 195 Transparency, 6, 60, 61, 64 https://www.facebook.com/chiasetailieuACCA/ Index 449 https://www.facebook.com/chiasetailieuACCA/ Treasury function, 236 Trinity Mirror, 116 Tucker's question model, 312 Turnbull committee, 277 Turnbull report, 58, 139, 245, 275 Turner report, 222 UBS, 197 UK Corporate Governance Code, 58 UK Higgs, 104 UK Smith, 273 Uncertainty, 140 Uncertainty avoidance, 299 Unit objectives, 179 Unit trusts, 36 Unitary boards, 106 Unknown stakeholders, 24 Unprofessional behaviour, 309 Unrecognised stakeholders, 23 Unsystematic risk, 231 Utilitarianism, 296 Valuation, 337 Valuation services, 337 Value-laden profession, 352 Values, 305 Variance trend, 256 Virgin, 160 Virgin Galactic, 160 Viruses, 201 Voluntary and mandated controls, 241 Voluntary disclosure, 122 Voluntary stakeholders, 24 Wal-Mart, 345 Water, 201 Weak sustainability, 382 Whistleblowing, 67, 348 Wide stakeholders, 23 William Hill, 116 Work hard, play hard culture, 170 Work roles, 304 World Wildlife Fund, 372 450 Index https://www.facebook.com/chiasetailieuACCA/ https://www.facebook.com/chiasetailieuACCA/ Review Form – Paper P1 Governance, Risk and Ethics (04/15) Please help us to ensure that the ACCA learning materials we produce remain as accurate and user-friendly as possible We cannot promise to answer every submission we receive, but we promise that it will be read and taken into account when we update this Study Text Address: Name: During the past six months you recall seeing/receiving any of the following? 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[3] b) Evaluate the qualities and characteristics of information required in internal control and risk management and monitoring.[3] C IDENTIFYING AND ASSESSING RISK Risk and the risk. .. approaches to ethics and social responsibility Professions and the public interest Professional practice and codes of ethics RATIONALE The syllabus for Paper P1, Governance, Risk and Ethics, acts... measurement of risk D Controlling risk Targeting and monitoring risk Methods of controlling and reducing risk Risk avoidance, retention and modelling E Professional values, ethics and social responsibility