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A GOVERNANCE AND RESPONSIBILITY
1. The scope of governance
a) Define and explain the meaning of corporate governance.
Definition of corporate governance
- Corporate governance is a set of relationships between a company's directors, its
shareholders and other stakeholders. It is the system by which organizations are directed and
controlled, in the interests of shareholders and stakeholders.
- It also provides structure through which the objectives of the company are set, and the
means of obtaining these objectives and monitoring performance are determined.

Explain the meaning of governance:
- Governance is the leadership and direction given to a company so that it achieves the
objectives of its existence.
- Management is about making business decisions: governance is about monitoring and
controlling decisions.
- Governance is not about formulating business strategy for the company. However, the
responsibility of the board and senior managers for deciding strategy is an aspect of
governance.
Benefits to having GOOD corporate governance processes:
- The company will have improved risk management system.
- There will be clear accountability for executive decision making.
- It focuses management attention on introducing appropriate systems ofinternal control.
- It encourages ethical behavior and a CSR (Corporate Social Responsibility) perspective.
- It can help safeguard the organization from the misuse of assets and possible fraud.
- It can help to attract new investment into a company.
- Seeks to put limits on excessive director remuneration.

Downside to governance:
- It could develop an excessively risk adverse culture amongst mangers.
- There could be too much reporting and not enough time to seek and pursue profit making
activities.
- It could damper entrepreneurial activities.
- There could be too much excessive supervision, red tape and bureaucracy.
- The cost of operating internal controls exceeds any possible benefits.
- There is the possibility that the focus on meeting different stakeholder expectations will
confuse management as to their corporate responsibilities.

b) Explain, and analyse the issues raised by the development of the joint stock company as
the dominant form of business organisation and the separation of ownership and control
over business activity.
Joint stock companies have multiple shareholders. The shareholders own the company but
generally do not run the company. There is a separation of ownership and control. In order to
maintain control over the company, shareholders elect a board of directors who have oversight
authority. The board then hires the CEO who is then responsible for putting together the
management team to run the company.
Since management does not have a vested interest in the company, they might not care as
much whether the objectives of the company are met.

c) Analyse the purposes and objectives of corporate governance.
The purpose of corporate governance is to facilitate the effective, entrepreneurial and prudent
management that can deliver the long-term success of the company.

Good corporate governance should contribute to better company performance by helping a board
discharge its duties in the best interest of the shareholders. If it is ignored, the consequences may
well be vulnerability or poor performance. Good governance should facilitate efficient, effective
and entrepreneurial management that can deliver shareholder value over the longer term.

Purpose of corporate governance
- Set best practice guidelines, provide a framework for an organization to pursue its strategy in
an ethical and effective way.
- Operate and adequate and appropriate system of control for risk management.
- Attract new investment and safeguard resources owned by investors in a company
- Improve corporate performance and accountability, increase shareholders value.

d) Explain, and apply in context of corporate governance, the key underpinning concepts of:
Note: A good way to remember the key concepts of corporate governance is to think of the
mnemonic HAIRDRIFT
i) Honestly/probity Be honest that statements about the company are truthful. Not putting a spin
on the facts.
ii) Accountability The emphasis is the managers accountability to the shareholders, but also
accountable to other possible stakeholders.
iii) Independence The emphasis is making sure that there are truly non-executive directors on the
board who are free to critique the job performance of management. Independence is not having a
conflict of interest issue.
iv) Responsibility The board has a responsibility to oversee the work onmanagement. The board
should also retain responsibility for certain key decisions, such as setting strategic objectives and
approving critical capital investments.
v) Decision making / judgment All directors are expected to have sound judgment and to
be objective in making their judgments. The OECD says the board should be able to exercise
judgment on corporate affairs independent, in particular, from management.
vi) Reputation A companys reputation, if good, is built on success andmanagement competence.
However, it might take years for a company to gain its reputation and only a day for it to get
ruined. Companies that are badly governed can be at risk of losing goodwill from investors,
employees and customers.
vii) Integrity This is similar to honestly, but it also means behaving in accordance with high
standards of behavior and a strict moral or ethical code of conduct. This means doing the right
thing. Being a straight shooter.
viii) FairnessThis means that all shareholders should receive fair treatmentfrom the directors (one
share one vote). This also means taking into account the other stakeholders of the company,
such as suppliers, creditors, employees, local community, etc.
ix) Transparency / openness This means not hiding anything. Transparency means clarity. This
involves full disclosure of material matters which could influence the decisions of stakeholders
decisions, such as setting strategic objectives and approving critical capital investments.






e) Explain and assess the major areas of organisational life affected by issues in corporate
governance.

i) Duties of directors and functions of the board (including performance measurement)
Directors have a fiduciary duty to act in the best interest of the company. They need to use their
powers for proper purpose, avoid conflicts of interest and exercise a duty of care
ii) The composition and balance of the board (and board committees) Boards must be
balanced in terms of skill and talents from several specialisms relevant to the organizations
situation and also in terms of age (to ensure senior directors are brining on newer ones to help
succession planning).
iii) Reliability of financial reporting and external auditing The reliability of the financial reports
is crucial to ensuring that management is held accountable. External auditors need to make sure
that they are getting the right information in order to verify the reliability of the financial reports.
External auditors cannot be fearful of asking awkward questions because of fear of losing the
audit.
iv) Directors remuneration and rewards . Directors remuneration has to be seen as being fair.
Excessive salaries and bonuses has been seen as one of the major corporate abuses for
a number of years.
v) Responsibility of the board for risk management systems and internal control Boards
should meet regularly as to provide proper oversight for risk management and internal control
systems. Without proper oversight, the organization may have inadequate systems in place for
measuring and reporting on risks.
vi) The rights and responsibilities of shareholders, including institutional investors
Shareholders should have the right to receive all material information that may affect the value of
their investment and to vote on measures affecting the organizations governance
vii) Corporate social responsibility and business ethics Corporate social responsibility and
business ethics is an important part of the corporate governance debate. At this point, there is not
any real consensus about these issues. The South African King report commented that The
relationship between a company and its stakeholders should be mutually beneficial. This
inclusive approach is the way to create sustained business success and steady long-term growth
in corporate value.However, the Hampel report emphasized responsibility towards shareholders
and states that it is impractical for boards to be given lots of responsibilities towards the wider
stakeholder community


f) Compare, and distinguish between public, private and non-governmental organizations
(NGO) sectors with regard to the issues raised by, and scope of, governance.
THESE ANSWERS MIGHT NEED EXPANDING
Public Sector Governance requirements stress the need for assessing the effectiveness of
policy and arrangements for dialogue with users of services.

Private The private sector is concerned with the continued existence of the company.
Therefore, having good governance processes is of vital importance.

NGOs Non-governmental organizations provide services which are not normally provided by
either public or private organizations. Therefore, they need governance processes which can
ensure that they are providing the best service possible.









g) Explain and evaluate the roles, interests and claims of, the internal parties involved in
corporate governance.

Directors Have an operational role in running the company, developing strategies, etc.
Concerning corporate governance, directors have the role toact responsibly; to act with honesty;
be accountable, etc. (HAIRDRIFT).
Company Secretaries Company secretaries are an officer of the company and as such they
have an operational role in the company. For example, company secretaries might sign some
contracts, or declare some relevant matters to the proper authorities. They also have role to play
in corporate governance by making sure that the directors are complying with corporate
governance. Some of the functions / responsibilities of the company secretary are listed below:
- Should be responsible for providing relevant, reliable and timely information to all
directors, so that they are able to make well-informed judgments in contributing to decision-
making by the board.
- Should be an expert on the regulations and corporate governance, so that he can advise the
board on any matters in which a governance issue should be considered.
- Although the chairman should be responsible for induction of new directors and continuing
professional development of established directors, the company secretary is likely to be given
the responsibility for organizing induction and, where appropriate, CPD for directors.
- The chairman is also responsible for the performance appraisal of the board, board
committees and individual directors.
- The company secretary should be the first point of contact for any NED wanting assistance or
information from the company.

Sub-board management If a manager is not on the board, then he or she is considered to be
part of sub-board management. This person might be the purchasing agent, human resource
manager, etc. Concerning operational roles, directors develop strategies to achieve some
objective, and it will be the sub-board managers who have to take the strategy and develop the
tactics to achieve the objectives of the organization.

Employees Employees have an operational role to carry out the tactical plans of the sub-board
management. As far as corporate governance, the employees have the responsibility to comply
with the corporate governance systems in place and adopt appropriate culture. They need to
implement the risk management and control procedures and to report back if controls are not
working as they should.

Unions Unions have a responsibility to protect the interest of theemployees. As such, the ability
of management to alter its working practices, for example, may depend on obtaining the
cooperation and support of the trade unions.

h) Explain and evaluate the roles, interests and claims of, the external parties involved in
corporate governance.

Shareholders (including shareholders rights and responsibilities) The role of governance is to
protect the rights of all shareholders, including the right to vote for board members, etc.
External Auditors Auditors try to influence to the company to present reliable and accurate
financial statements. Auditors can also influence by recommending ways to improve the strength
of internal controls within the company. They can also provide other audit services such as social
and environmental audits. They can also highlight governance and reporting issues of concern to
investors.
Regulators Regulators (i.e., SEC, etc.) have a role of making sure that public companies
financial information is transparent, reliable and accurate. Regulation can be defined as any form
of interference with the operation of the free market. This could involve regulating supply, price,
profit, quantity, entry, exit, information, technology, or any other aspect of production and
consumption in the market.
Government Like regulators, the government has a role to make sure that regulators are doing
their job in making sure that public companies are a biding by the laws and regulators of the
country
Stock exchanges Public companies list their shares on regulated stock exchanges, such as
New York Stock Exchange, NASDAQ, American Stock Exchange, London Stock Exchange, and
many others. Stock exchanges are privately owned and thus they need to protect their reputation.
Stock exchanges are regulated and thus require listed companies to abide by governmental
regulations. Stock exchanges are important because they provide regulatory frameworks in
principles-based jurisdictions. Stock exchange regulation can therefore have a significant impact
on the wary corporate governance is implemented and companies report.
Small investors (and minority rights) The role of governance is to protect the interest of the
minority shareholders; to make sure that their voices are heard and that they are treated equally
Institutional investors - (Analyze and discuss the role and influence of institutional investors in
corporate governance systems and structures, for example, the roles and influences of pension
funds, insurance companies and mutual funds) - Institutional investors manage funds of
individual investors. They are organizations which pool large sums of money and invest those
sums in security, real property and other investment assets. They can also include operating
companies which decide to invest its profits to some degree in these types of assets.
Major institutional investors are:
- Pension funds.
- Insurance companies.
- Investment and unit trusts.
- Venture capitalist organizations.

Institutional investors will have a lot of influence in the management of corporations because they
will be entitled to exercise the voting rights in a company. They can actively engage in corporate
governance. Furthermore, because institutional investors have the freedom to buy and sell
shares, they can play a large part in which companies stay solvent, and which go under.
Influencing the conduct of listed companies, and providing them with capital are all part of the job
of investment management.

Intervention by institutional shareholders:
Under extreme circumstances, the institutional shareholders may intervene more actively, by, for
example, calling a company meeting in an attempt to unseat the board. Reasons why institutional
investors might intervene:

- Concern about the strategy in terms of product, markets and investments.
- Poor operational performance.
- Management is dominated by a small group of executive directors, with NEDs failing to hold
them accountable.
- Major failure of internal controls, particularly in the area such as health and safety, pollution
or quality
- Failure to comply with laws and regulations or governance codes.
- Excessive levels of directors remunerations.
- Poor attitudes towards corporate social responsibility.

i) Analyse and discuss the role and influence of institutional investors in corporate
governance systems and structures, for example the roles and influences of pension
funds, insurance companies and mutual funds.




2. Agency relationships and theories
a) Define and explore agency theory.
Agency theory is a theory of the relationship between the principal and an agent.

In limited companies, the directors and senior managers act as agents of the shareholders, who
own the company.

Agency theory is based on the view that when an agent represents a principal, the self-interest of
the agent is different from the interests of the principal. Without suitable controls and incentives,
the agent will make decisions and actions that are in his or her own interest rather than those of
the principal.

Agency theory is relevant to corporate governance because many of the measures
recommended for good governance are concerned with controls and incentives that will persuade
agents to act in the shareholders best interest. For example, controls are applied through
accountability and incentives are given in remuneration packages.

b) Define and explain the key concepts in agency theory.
i) Agents The agents are the directors and senior management of thecompany. They
are selected and hired to run the company in the best interestof the shareholders.

i i ) Principals The principals are the shareholders. They elect the board andthe board
hire the CEO who is in charge of putting the management teamtogether.

iii) Agency An agency relationship arises when one or more persons (theprincipals)
engage another person (the agent) to perform some service ontheir behalf that involves
delegating some decision making authority to theagent (Jensen and Meckling )

iv) Agency costs Agency costs are the costs of having an agent make decisions are
behalf of a principal. Applying this to corporate governance, agency costs are the costs
that the shareholders incur by having managers run the company instead of running the
company themselves. There are threecosts associated with agency costs:
a) Cost of monitoring The owners of the company have to establishsystems to
monitor the actions and performance of management, to tryto ensure the
management is acting in the best interest of the company.
b) Bonding costs These are costs to provide incentives to managers toact in the
best interest of the company
c) Residual loss Costs to the shareholders of management decisionsthat are not
in the best interest of the shareholders (but in the interest ofthe managers
themselves).
Agency costs = monitoring costs + bonding costs + residual costs.

v) Accountability Agents should be held accountable for their decisions andactions.
Accountability means:
- Having to report back to the principal to give an account of what hasbeen achieved.
- Having to answer questions from the principals about the performanceand
achievements.
- Having the power to reward or punish the agent for good or badperformance.

Greater accountability should reduce agency problems because it providesmanagement
with an incentive to achieve performance which is in the bestinterest of the shareholders.
However, incentives should not be excessivewhere the cost of the incentive is greater
than the benefit that the monitoringprovides.

vi) Fiduciary responsibilities - Fiduciary duty is a duty of the agent to act forthe good of
the company. A person with fiduciary duty is in a position of trust.

However, the existence of fiduciary duty is not sufficient to insure thatthere is good
corporate governance.
Evan and Freeman argued that management bears a fiduciaryrelationship to
stakeholders and to the corporation as an abstract entity.It must act in the interests of the
corporation to ensure the survival ofthe firm, safeguarding the long-term stakes of each
group.

The main fiduciary duties of directors are:
- Act in the best interest of the company
- Avoiding conflict of interest
- Using powers of proper purpose
- Having a duty of care

vii) Stakeholders Stakeholders are parties (both internal and external) whohave an interest
in well-being of the company. The different stakeholdersinclude: management,
shareholders, vendors, creditors, board of directors,employees, regulators, pressure
groups (like PETA, Green Peace, etc.),auditors, and the local community.

c) Explain and explore the nature of the principal- agent relationship in the context of
corporate governance.

- Jensen and Meckling defined the agency relationship as a form of contract between the
companys owners and its managers, where the owners appoint an agent to manage the
company on their behalf.

- The owners expect the agents to act in the best interest of the owners. Ideally, the contract
between the owners and managers should be sure that he managers always act in the
between interest of the owners. However, it is impossible to arrange the perfect contract,
because decisions by the managers affect their own personal welfare as well as the interest
of the owners.

- This raises a fundamental question. How can managers, as agents of their company, be
induced or persuaded to act in the best interests of the shareholders?


d) Analyse and critically evaluate the nature of agency accountability in agency relationships.
In the context of agency, accountability means that the agent is answerable under his
contract to his principal and must account for the resources of his principal and the money he
has gained working on his principals behalf.
Two issues with the idea of agents being held accountable:
1) How does the principal enforce this accountability?
2) What if the agent is accountable to parties other than his/her principal? How does he/she
reconcile possible conflicting duties











e) Explain and analyse the following other theories used to explain aspects of the agency
relationship.

i) Transaction costs theory
Transaction cost theory was developed by Coase and Williamson is an economic theory. Is
based on the idea that companies have to decide which activities are needed to be performed
in house and which activities it can buy from external sources. It attempts to provide an
explanation of the actions and decisions of managers that are not consistent with rationality
and profit maximization. Williamson argued that the actions and decisions of managers are
based on a combination of bounded rationality and opportunism.

Bounded rationality means that the manager will have limited understanding of alternatives.
This may imply that they will play it safe and concentrate only on safe markets.

Opportunism means that managers make decisions based on their own personal interest

Conclusion: Managers should be controlled to prevent them from acting in their own interests
rather than in the best interest of the shareholders. This theory is consistent with agency
theory and provides a theoretical justification for the need for rules or principles of good
corporate governance. Need to make sure that the objectives of management and the
shareholders are congruent

ii) Stakeholder theory

Companies provide not only wealth to the shareholders, but they provide jobs to a employees and
contribute the national and local economies.

Companies are corporate citizens and thus they have a responsibility to society
There is a close link between stakeholder theory and CSR.

In addition to providing returns to shareholders, companies have a responsibility to its employees,
customers, governments, communities, suppliers, lenders and the general public.

Accountability is an important aspect of responsibility. This means that companies not only should
report to its shareholders, but also provide information to its stakeholders, either by producing
more reports or by including more information in its annual reports. This might explain the
publication by some companies of an annual sustainability report and employee reports for the
benefit of the companys employees.

Mendelows power/interest matrix

Interest is horizontal, and power is vertical.

Four quadrants Ignore, Keep informed, Keep satisfied, and Key Players

Ignore quadrant Stakeholders who are in this category can be ignored by the company. In this
quadrant might be the government, or some shareholders, or employees who really dont have any power
or interest. However, this does not take into account any moral or ethical considerations. It is simply the
stance to take if strategic positioning is the most important objective.
Keep Informed Most shareholders would fall into this quadrant. You need to keep shareholders
informed of whats going on (e.g., annual report), but they dont exert much power. However,
stakeholders in this quadrant can increase their overall influence by forming coalitions with other
stakeholders in order to exert a greater pressure and thereby make themselves more powerful.
Keep Satisfied In this quadrant the stakeholder doesnt have much interest but does have strong
power over the company. All these stakeholders need to do to become influential is to re-awaken their
interest. This will move them across to the right and into the high influence sector, and so the
management strategy for these stakeholders is to keep satisfied.
Key players Key players are those who have the greatest influence on the company. This question
here is how many competing stakeholders reside in that quadrant of the map. If there is only one (e.g.,
management) then there is unlikely to be any conflict in a given decision-making situation. If there are
several, then there are likely to be difficulties in decision-making and ambiguity over strategic direction.

Different categories of Stakeholders: As far as stakeholders, have to understand the differences on
how to categorize stakeholders. Including:

Internal and external stakeholders. This is probably the easiest distinction between stakeholders.
Internal stakeholders will typically include employees and management.
- External stakeholders will include customers, competitors, suppliers, and so on

Some stakeholders might be more difficult to categorize, such as trade unions that may have elements of
both.
Narrow and wide (Evans and Freeman).
- Narrow are those that are most affected by the org. policies and will usually include shareholders,
management, employees, suppliers, and customers who are dependent upon the organizations
output.

- Wide are those not so much affected, including government, less-dependable customers, the
wider community, etc.
The Evans and Freeman model may lead some to conclude that an organization has a higher degree of
responsibility and accountability to its narrower stakeholders.

Primary vs. secondary (Clarkson)
- A primary stakeholder is one without whose continuous participate on the corporation cannot
survive as a going concern. So primary are those that do influence the company and those that
do not (i.e. shareholders, customers, suppliers and government (tax and legislation)).

- Secondary are those that the org. does not directly depend upon for its immediate survival (e.g.
broad communities and perhaps management, since management can be replaced.

Active and passive stakeholders (Mahoney)
Active stakeholders are those who seek to participate in the organizations activities. These
stakeholders may or may not be part of the formal structure. Management and employees obviously fall in
to this active category, but so may some parties from outside an organization, such as regulators,
environmental pressure groups, and possibly large investors (i.e. institutional investors)



3. The board of directors
a) Explain and evaluate the roles and responsibilities of boards of directors.
b) Describe, distinguish between and evaluate the cases for and against, unitary and two-tier board
structures.
c) Describe the characteristics, board composition and types of, directors (including defining executive
and non-executive directors (NED).
d) Describe and assess the purposes, roles and responsibilities of NEDs.
e) Describe and analyse the general principles of legal and regulatory frameworks within which directors
operate on corporate boards:
i) legal rights and responsibilities,
ii) time-limited appointments
iii) retirement by rotation,
iv) service contracts,
v) removal,
vi) disqualification
vii) conflict and disclosure of interests
viii)insider dealing/trading
f) Define, explore and compare the roles of the chief executive officer and company chairman.
g) Describe and assess the importance and execution of, induction and continuing professional
development of directors on boards of directors.
h) Explain and analyse the frameworks for assessing the performance of boards and individual directors
(including NEDs) on boards.

i) Explain the meanings of diversity and critically evaluate issues of diversity on boards of directors.


4. Board committees
a) Explain and assess the importance, roles and accountabilities of, board committees in corporate
governance.
b) Explain and evaluate the role and purpose of the following committees in effective corporate
governance:
i) Remuneration committees
ii) Nominations committees
iii) Risk committees.
iv) Audit committees
5. Directors remuneration
a) Describe and assess the general principles of
remuneration.
i) purposes
ii) components
iii) links to strategy
iv) links to labour market conditions.
b) Explain and assess the effect of various components of remuneration packages on directors behaviour.
i) basic salary
ii) performance related
iii) shares and share options
iv) loyalty bonuses
v) benefits in kind
vi) pension benefits
c) Explain and analyse the legal, ethical, competitive and regulatory issues associated with directors
remuneration.
6. Different approaches to corporate governance
a) Describe and compare the essentials of rules and principles based approaches to corporate
governance. Includes discussion of comply or explain.
b) Describe and analyse the different models of business ownership that influence different governance
regimes (e.g. family firms versus joint stock company-based models).
c) Describe and critically evaluate the reasons behind the development and use of codes of practice in
corporate governance (acknowledging national differences and convergence).
d) Explain and briefly explore the development of corporate governance codes in principles-based
jurisdictions.
i) impetus and background
ii) major corporate governance codes
iii) effects of
e) Explain and explore the Sarbanes-Oxley Act (2002) as an example of a rules-based
approach to corporate governance.
i) impetus and background
ii) main provisions/contents
iii) effects of
f) Describe and explore the objectives, content and limitations of, corporate governance codes intended
to apply to multiple national jurisdictions.
i) Organisation for economic cooperation and development (OECD) Report (2004)
ii) International corporate governance network (ICGN) Report (2005)
7. Corporate governance and corporate social responsibility
a) Explain and explore social responsibility in the context of corporate governance.
b) Discuss and critically assess the concept of stakeholders and stakeholding in organisations and how
this can affect strategy and corporate governance.
c) Analyse and evaluate issues of ownership, property and the responsibilities of ownership in the
context of shareholding.
d) Explain the concept of the organisation as a corporate citizen of society with rights and responsibilities.
8. Governance: reporting and disclosure
a) Explain and assess the general principles of disclosure and communication with shareholders.
b) Explain and analyse best practice corporate governance disclosure requirements.
c) Define and distinguish between mandatory and voluntary disclosure
c) Define and distinguish between mandatory and voluntary disclosure of corporate information in the
normal reporting cycle.
d) Explain and explore the nature of, and reasons and motivations for, voluntary disclosure in a principles-
based reporting environment (compared to, for example, the reporting regime in the USA).
e) Explain and analyse the purposes of the annual
general meeting and extraordinary general
meetings for information exchange between
board and shareholders.
f) Describe and assess the role of proxy voting in corporate governance..
B INTERNAL CONTROL AND REVIEW
1. Management control systems in corporate governance
a) Define and explain internal management control.
b) Explain and explore the importance of internal control and risk management in corporate governance.
c) Describe the objectives of internal control systems.
d) Identify, explain and evaluate the corporate governance and executive management roles in risk
management (in particular the separation between responsibilities for ensuring that adequate risk
management systems are in place and the application of risk management systems and practices in the
organisation).
e) Identify and assess the importance of the elements or components of internal control systems.
2. Internal control, audit and compliance in corporate governance
a) Describe the function and importance of internal audit.
b) Explain, and discuss the importance of, auditor independence in all client-auditor situations (including
internal audit).
c) Explain, and assess the nature and sources of risks to, auditor independence. Assess the hazard of
auditor capture.
d) Explain and evaluate the importance of compliance and the role of the internal audit function in internal
control.
e) Explore and evaluate the effectiveness of internal control systems.
f) Describe and analyse the work of the internal audit committee in overseeing the internal audit function.
g) Explain and explore the importance and characteristics of, the audit committees relationship with
external auditors.
3. Internal control and reporting
a) Describe and assess the need to report on internal controls to shareholders.
b) Describe the content of a report on internal control and audit.
c) Explain and assess how internal controls underpin and provide information for accurate financial
reporting..
4. Management information in audit and internal control
a) Explain and assess the need for adequate information flows to management for the purposes of the
management of internal control and risk.
b) Evaluate the qualities and characteristics of information required in internal control and risk
management and monitoring.
C IDENTIFYING AND ASSESSING RISK
1. Risk and the risk management process
a) Define and explain risk in the context of corporate governance.
b) Define and describe management responsibilities in risk management.
c) Explain the dynamic nature of risk assessment.
d) Explain the importance and nature of management responses to changing risk assessments.
e) Explain risk appetite and how this affects risk policy.
2. Categories of risk
a) Define and compare (distinguish between) strategic and operational risks.
b) Define and explain the sources and impacts of common business risks.
i) market
ii) credit
iii) liquidity
iv) technological
v) legal
vi) health, safety and environmental
vii) reputation
viii)business probity
ix) derivatives
c) Describe and evaluate the nature and importance of business and financial risks.
d) Recognise and analyse the sector or industry specific nature of many business risks.
3. Identification, assessment and measurement of risk
a) Identify, and assess the impact upon, the stakeholders involved in business risk.
b) Explain and analyse the concepts of assessing the severity and probability of risk events.
c) Describe and evaluate a framework for board level consideration of risk.
d) Describe the process of and importance of, externally reporting on internal control and risk.
e) Explain the sources, and assess the importance of, accurate information for risk management.
f) Explain and assess the ALARP (as low as reasonably practicable) principle in risk assessment and how
this relates to severity and probability.
g) Evaluate the difficulties of risk perception including the concepts of objective and subjective risk
perception.
h) Explain and evaluate the concepts of related and correlated risk factors.
D CONTROLLING AND MANAGING RISK
1. Targeting and monitoring of risk
a) Explain and assess the role of a risk manager in identifying and monitoring risk.
b) Explain and evaluate the role of the risk committee in identifying and monitoring risk.
c) Describe and assess the role of internal or external risk auditing in monitoring risk.
2. Methods of controlling and reducing risk
a) Explain the importance of risk awareness at all levels in an organisation.
b) Describe and analyse the concept of embedding risk in an organisations systems and procedures.
c) Describe and evaluate the concept of embedding risk in an organisations culture and values.
d) Explain and analyse the concepts of spreading and diversifying risk and when this would be
appropriate.
e) Identify and assess how business organizations use policies and techniques to mitigate various types
of business and financial risks.
3. Risk avoidance, retention and modelling
a) Explain, and assess the importance of, risk transference, avoidance, reduction and acceptance.
b) Explain and evaluate the different attitudes to risk and how these can affect strategy.
c) Explain and assess the necessity of incurring risk as part of competitively managing a business
organisation.
d) Explain and assess attitudes towards risk and the ways in which risk varies in relation to the size,
structure and development of an organisation
E PROFESSIONAL VALUES AND ETHICS
1. Ethical theories
a) Explain and distinguish between the ethical theories of relativism and absolutism.
b) Explain, in an accounting and governance context, Kohlbergs stages of human moral development.
c) Describe and distinguish between deontological and teleological/consequentialist approaches to ethics.
d) Apply commonly used ethical decision-making models in accounting and professional contexts
i) American Accounting Association model
ii) Tuckers 5-question model
2. Different approaches to ethics and social responsibility.
a) Describe and evaluate Gray, Owen & Adams (1996) seven positions on social responsibility.
b) Describe and evaluate other constructions of corporate and personal ethical stance:
i) short-term shareholder interests
ii) long-term shareholder interests
iii) multiple stakeholder obligations
iv) shaper of society
c) Describe and analyse the variables determining the cultural context of ethics and corporate social
responsibility (CSR).
3. Professions and the public interest
a) Explain and explore the nature of a profession and professionalism.
b) Describe and assess what is meant by the public interest.
c) Describe the role of, and assess the widespread influence of, accounting as a profession in the
organisational context.
d) Analyse the role of accounting as a profession in society.
e) Recognise accountings role as a value-laden profession capable of influencing the distribution of
power and wealth in society.
f) Describe and critically evaluate issues surrounding accounting and acting against the public interest.
4. Professional practice and codes of ethics
a) Describe and explore the areas of behaviour covered by corporate codes of ethics.
b) Describe and assess the content of, and principles behind, professional codes of ethics.
c) Describe and assess the codes of ethics relevant to accounting professionals such as the IESBA (IFAC)
or professional body codes.
5. Conflicts of interest and the consequences of unethical behaviour
a) Describe and evaluate issues associated with conflicts of interest and ethical conflict resolution.
b) Explain and evaluate the nature and impacts of ethical threats and safeguards.
c) Explain and explore how threats to independence can affect ethical behaviour.
d) Explain and explore 'bribery' and 'corruption' in the context of corporate governance, and assess how
these can undermine confidence and trust.
e) Describe and assess best practice measures for reducing and combating bribery and corruption, and
the barriers to implementing such measures.
6. Ethical characteristics of professionalism
a) Explain and analyse the content and nature of ethical decision-making using content from Kohlbergs
framework as appropriate.
b) Explain and analyse issues related to the application of ethical behaviour in a professional context.
c) Describe and discuss rules based and principles based approaches to resolving ethical dilemmas
encountered in professional accounting.
7. Social and environmental issues in the conduct of business and ethical behaviour
a) Describe and assess the social and environmental effects that economic activity can have (in terms of
social and environmental footprints and environmental reporting)).
b) Explain and assess the concept of sustainability and evaluate the issues concerning accounting for
sustainability (including the contribution of full cost accounting).
c) Describe the main features of internal management systems for underpinning environmental
accounting such as EMAS and ISO 14000.
d) Explain and assess the typical contents of a social and environmental report, and discuss the
usefulness of this information to stakeholders.
e) Explain the nature of social and environmental audit and evaluate the contribution it can make to the
development of environmental accounting.