Written by a fully qualified CPA (Aust.) professional, these updated study notes represent the author's materials that were used to blast through the CPA Australia Professional Exams in one year with 4 high distinctions and 2 distinctions while working full time without any tuition support. In the...
High Distinction
CPA Ethics and Governance Study Notes
(Version 16a)
Contents
Module 1 - Accounting and society ........................................................................................................ 4
Part A: Accounting as members of a profession ................................................................................. 4
Public Interest or Self Interest ........................................................................................................ 4
Profession and Professional ............................................................................................................ 6
Profession's Regulatory Process ..................................................................................................... 8
Part B: Interaction with society .......................................................................................................... 9
Relationships ................................................................................................................................... 9
Work Environments ........................................................................................................................ 9
Social impacts of accounting ......................................................................................................... 11
Credibility of the profession.......................................................................................................... 12
Capability Considerations ............................................................................................................. 13
Module 2 - Ethics .................................................................................................................................. 14
Part A: Professional ethics ................................................................................................................ 14
Part B Ethical theories ....................................................................................................................... 16
Normative Theories ...................................................................................................................... 16
Teleological Theories .................................................................................................................... 16
Deontological Theories ................................................................................................................. 17
Virtue ethics .................................................................................................................................. 17
Part C: Compiled APES 110 Code of Ethics for Professional Accountants. ....................................... 19
Part A of Code - general application of the code .......................................................................... 20
Part B of the Code - members in public practice .......................................................................... 22
Part C of the Code -members in business ..................................................................................... 25
Part D: Ethical decision-making ........................................................................................................ 27
Module 3 - Governance concepts ......................................................................................................... 29
Part A: Overview of corporate governance ...................................................................................... 29
Part B: International perspectives on corporate governance........................................................... 35
Part C: Codes and guidance .............................................................................................................. 36
1
, Part D: Non-corporates and governance .......................................................................................... 39
Part E: Governance failures and improvements ............................................................................... 40
Module 4 - Governance in practice....................................................................................................... 41
Board Appointment and cessation ................................................................................................... 41
Board diversity .................................................................................................................................. 44
Remuneration and performance ...................................................................................................... 45
Operational issues............................................................................................................................. 47
The legal system................................................................................................................................ 48
Competition ...................................................................................................................................... 50
Compliance and whistleblowing ....................................................................................................... 53
Financial markets .............................................................................................................................. 55
Module 5 - Corporate accountability .................................................................................................... 59
Corporate Social Responsibility (CSR) ............................................................................................... 59
Ethical theories about CSR ................................................................................................................ 64
CSR Reporting ................................................................................................................................... 66
Limitations of traditional financial reporting .................................................................................... 68
Reporting of CSR ............................................................................................................................... 69
International initiative on climate change ........................................................................................ 72
Current developments ...................................................................................................................... 73
About the Author
The author is an international best seller for CPA Australia study notes, helping candidates across the
world taking the CPA Australia exam achieve success.
After scoring a perfect accounting score at high school, the author studied a BCom at Melbourne
University and won a maximum of three Deans Honours List which eventuated in being bestowed
the BCom undergraduate medal, awarded to the best graduating commerce scholar over their three
years of study. The author proceeded to study a masters in the field of accounting while working full
time in the corporate world and graduated on the Melbourne Business School Deans Honours List.
Having a combination of professional experience and academic success, the author blasted through
six CPA exams in one year without the aid of any external tuition and scored high distinctions for
Ethics and Governance, Strategic Management Accounting, Financial Reporting and Advanced Audit
and Assurance and distinctions for Global Strategies and Leadership and Advanced Taxation.
Now a fully qualified CPA, the author has since updated the notes to incorporate student feedback
for further refinements.
Disclaimer
2
,The materials represent the author's study notes to achieve a High Distinction.
The materials are not, and not intended to be professional advice. These materials may not reflect
the most recent developments and judgement befalls on the reader to examine the suitability of the
materials for their own purposes, having full regard for any inaccuracies or omissions that may arise
in the materials. The author of the material expressly exclude themselves from any contractual,
tortuous or any other form of liability on whatever basis to any person, whether a participant in this
subject or not, for any loss or damage sustained or for any consequences which may be thought to
arise either directly or indirectly from reliance on statements made in these materials.
Any opinions expressed in these materials are from the point of view of a student preparing for an
examination and not necessarily those of any qualified professional, affiliated organisations or
members.
The materials are sold for the exclusive use of the purchaser and the author continues to reserve all
rights. No part may be reproduced, hired out, loaned, given out, resold, stored or transmitted in any
form or by any means without the written permission of the author.
3
,Module 1 - Accounting and society
Module 1 - Accounting and society
Part A: Accounting as members of a profession
Public Interest or Self Interest
How do accountants serve the public interest? [p19]
Accountants serve the public interest by creating and distributing information that conveys a
clear and accurate picture of an entity's financial performance, financial position and other
relevant issues. This serves the public interest as economies and societies require the free
flow of accurate information to function efficiently and the efficiency of market economies is
particularly dependent upon disclosure of accurate financial information.
Accountants serve the public interest by providing objective, accurate and appropriate
financial and accounting-related advice that is free from bias and based on expertise.
What is altruism and how does it related to professional accountants [p19]
Altruism describes action that brings no benefit to an individual and may even be at their
own expense.
This aligns closely with professional accountants acting in public interest where they need to
behave with integrity, objectivity and without bias.
What is enlightened self-interest and how does it relate to accountants? [p22]
Enlightened self-interest means both committed to public interest and yet possess a degree
of self-interest; protecting the public interest in a self-interested way.
The accounting profession provides efficiency benefits for society as a whole through the
creation of reliable information (public interest), but by doing so, they have created a
monopoly position where they have exclusive right to practise particular accountancy and
auditing functions (self-interest).
Consequences of self-interest and not acting in the public interest.
Loss of public trust about the profession and loss of moral claim to professional status.
[p25,28]
Losing self-regulation and introduction of co-regulatory process or governmental
intervention. [p25] Examples
o Previously: Australian Accounting Standards Board (AASB) and Auditing and
Assurance Standards Board (AUASB) created and controlled by the professional
accounting bodies in Australia.
o Now: AASB AUASB report to the Australian Financial Reporting Council (FRC) which
is a government body.
4
,Module 1 - Accounting and society
How do accountants make decisions? [p20]
Accountants make decisions within a system framework of principles relying on skill and
knowledge of an accountant and within a framework of responsible decision-making that
includes governance, corporate accountability and ethics; they do not make decisions based
on personal preferences.
Governance stipulates the certain codes of behaviour including the instruments and articles
of association, policies and strategies formally approved by board of directors.
Corporate accountability means meeting the requirements of regulatory authorities and
with the appropriate disclosure to shareholders and other stakeholders.
Ethical conduct is based on a commitment to integrity and honesty in the pursuit of
professional purposes and client interests.
The ideals of accounting as expressed by Carnegie and Napier (4 Es) and how does
entrepreneurship cause the de-profesionalisation of accounting [p22]
1. Education
2. Ethics
3. Expertise
4. Entrepreneurship
By placing too much emphasis on entrepreneurship, it may de-emphasise the other ideals.
Further, the pursuit of commercial opportunities may involve moving away from integrity,
objectivity, professional behaviour and public interest in order to achieve commercial
success or personal wealth.
5
, Module 1 - Accounting and society
Profession and Professional
What are the Traditional/ Functional attributes of a profession as described by Greenwood? [p24]
1. Systematic body of theory and knowledge [p27]: whole range of skills and expertise should
relate to and by supported by a well-founded body of knowledge. In accounting, important
topics include
a. financial and management accounting theories and practices
b. auditing theories and practices
c. accounting or business information systems
d. aspects of law (commercial/corporate/taxation)
e. economics and quantitative methods.
2. Extensive educational programs [p28] focused on the development of intellectual skills,
knowledge and experience (theory and practice) with an emphasis on lifelong updates (CPD)
through mentoring, professional development and continuing education programs.
a. awareness that is a misrepresentation and unethical to accept work if one lacks the
requisite skills to undertake the work competently.
3. Ideal of service to the community [p28]/Act in the public interest/serve society/service
ideal. The services is for the social good and to benefit society rather than just the
profession's self-interest.
a. The well-being of society: Accountants contribute to the well-being of society by
preparing information that ensures the efficient, orderly functioning and facilitates
better decision making for of business, not-for-profit and government enterprises.
b. The pursuit of excellence/excellent service: Accountants accepts responsibility for
maintaining and updating his/her knowledge and skills, and applying such skills and
competence with due professional care in the best interests of society
c. Community services - pro bono work (for the public good at no fee) completed with
the same care and skill as paid work.
d. reasonable pricing (rather than monopoly pricing)
e. act as a moral agent - capable of making moral judgements on behalf of others
Note: even a CPA who becomes a manager must continue to maintain the service ideal and
comply with the professional ethical requirements.
4. High degree of autonomy and independence [p30]
a. membership and membership rules, education requirements, professional ethical
standards and disciplinary process (which can be in addition to legal processes) [p24]
b. Self-regulation and professional discipline - judged by their informed peers rather
than by regulators whose knowledge is inevitably more limited and may have a bias
resulting from less experience. Internal sanctions for matters that a legal process
might ignore or not be able to identify (eg ethical breaches that are not legal
breaches) [p25]
c. Professional judgement [p30] is free from the direction or influence of others and
detached from the risk of financial gain (or loss) as a result of the advice provided; it
is governed by the professional rules and laws and not influenced by inappropriate
outside interests.
5. Code of ethics for its members [p31]] to establish expected standards of behaviour, the
need for members to act in the public interest, disciplinary framework.
6
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