Code of Ethics for Professional Accountants

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29 February 2016

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The code provides a conceptual framework approach to the application of the fundamental principles of professional conduct:

1. integrity
Honest and trust.
Accountants must not be associated with outputs that: contain materially false or misleading statements contain info furnished recklessly
omit or obscure information where such would be misleading

2. objectivity
Must be impartial, honest and free from conflicts of interest Intrinsically linked to independence, professional independence is seen to be a subset of integrity and objectivity.

3. professional competence and due care

Maintain professional knowledge and skill
Apply diligence
4. confidentiality
5. professional behavior
the conceptual framework approach adopted in the Code is principles-based, setting forth the principles as well as rules of conduct.

Self-interest threats
Self-review threats
Advocacy threats – promoting a position or opinion that compromises objectivity Familiarity threats: a close relationship where one becomes too sympathetic to others Intimidation threats : actual or perceived and is a deterrent from acting objectively An intimidation threat to an account’s objective or competence and due care may arise where the accountant is pressured by a client. Normative theories of ethics

Normative theories of ethics

Normative Theories of ethics

Teleological consequential

Right from wrong is determined from results or consequences of a decision or action Identify consequences (costs and benefits) for each alternative course of action Compare the ratio of costs and benefits (both economically and morally)

Make a decision

Deontological non-consequential and rule deontology
• Consequences are irrelevant
• The important is the intention to do the right thing or the motivation to behave appropriately flowing from a sense of duty. One dose the right thing simply because it is the right thing to do regardless the consequences

• A right or acceptable decision is one that maximises net positive benefits to oneself. • Can be restricted if self-interest is pursued within the law and fair competition •

• Does not focus on oneself
• A right decision is one that produces the greatest to the greatest number of people

• A decision will only be ethical if its intentions do not often the rights of stakeholders • Rights include legal, contractual, special, particular, natural and constitutional rights • Process:
Identify the rights particular to the stakeholder
Ensure the decision is consistent with respecting such rights

• Focuses on distributive justice which refers to the fair and equal
distribution of benefits and burdens • Process:
Identify the benefits and burdens
Assign the benefits and burdens to the various stakeholders
Decide whether the destruction of benefits and burdens is fair and equal Aristotle on justice – “Equals should be treated equally and unequal’s should be treated unequally.”

M 3
Types of directors

• Board of directors:
Not involved in day-to-day decision-making (AWA ltd v Daniels) Must ensure procedures are in place to ensure major operational issues are brought to its attention,

Directors -dependent
Non-independent directors
• Can be executive directors

Independent Directors
• Free from any influence which would bias the decisions
• Free from any connections
• Should not been paid according to performance achieved
• Not involved in the business on a day-to-day basis
• Still required to demonstrate a duty of care, however may not equal to an executive director with professional qualifications

Executive directors
• Occupying and hold an office as an executive in the company • Will never be independent
• Can be paid on performance base

Non-independent non-executive directors
• Should not been paid according to performance achieved

Duties of directors (4.62)
• Avoid conflicts of interest and where these exist, ensure they are appropriately declared and, as required by law, otherwise managed correctly • Act in the best interests of the corporation (the nominee director must always act in the best interests of the corporation and use their power only for proper purposes when making a decision on board to which they have been appointed as a director)  • Retain discretionary powers and avoid delegating the director’s responsibility  • Exercise powers for proper purposes (act within their power; do not abuse their power)  • Act with care, skill, and diligence (the standard of care will be different for a director with professional qualifications and a non-executive director)  • Be informed about the corporation’s operations

Committees of the board 3.19
Purpose: Enhance the effectiveness of the board, and particularly of non-executive directors. Enable the distribution of workload to allow a more detailed consideration to be given to important matters Provide an independent perspective in relation to issues which involve conflicts of interest It do not reduce the responsibility of the board as a whole and care needs to be taken to ensure that all concerned understand their functions The board of directors is still unlimitedly responsible for decisions made by subcommittees The delegation of duties enables examination of issues in greater detail and discussion of issues in the absence of management Requires written terms of reference for each subcommittee and procedures for reporting to the full board Except for certain situations where audit committees are compulsory, it is up to boards to determine whether to have the committees and, if so, which committees are established.

Key role(s)
Risk management
Ensure certain risk is assessed, understood and appropriately managed OECD
dose not make specific recommendations about committees Nomination
Recommending the succession procedures within an organization Appropriate to include executive directors
Majority of independent directors ( UK FRC CGC)
Deal with remuneration-especially for senior executives
Preferable to not include executive directors
For large companies, at least 3 independent non-executive directors (UK FRC VFV) Audit
Financial reporting and audit matters
Oversight of internal control
Only non-executive directors, with majority being independent, independent chair, at least 3 members Only independent directors (Sarbanes-Oxley Act)
For larger companies, at least 3 independent non-executive directors and at least one member with recent and relevant financial experience (UK FRC CGC)
Reports on Corporate Governance

Key focus
Cadbury (1992)
Best practice recommendations for board and committee structures “comply or explain”: if a company chose not to comply with a governance recommendation, the company had to identify the noncompliance and then explain it to shareholders UK

Greenbury (1995)
Directors’ remuneration
Additional recommendations designed to enhance transparency in relation to directors’ remuneration UK
Hampel (1998)
Replaced the Cadbury and Greenbury work
“supercode”, adopted into the listing rules on the London Stock Exchange UK
Higgs (2003)
Non-executives directors
Smith (2003)
Audit committee
COSO 3.35

1994 Internal control: a process designed to provide resonable assurance regarding the achievement of objectives

CalPERS (pension fund investor)
Describe the type of governance it expects to see from companies US
Sarbanes-Oxley Act (2002)
Strengthened audit requirements, increased financial disclosures and requires mgmt certification of internal controls US Hilmer (1993)
Improving board governance to enhance company performance
Bosch (1995)
Corporate Practices and Conduct, a report of the committee chaired by Henry Bosch AUS
Ramsay (2001)
Produced by a committee chaired by Ian Ramsay
Examined the adequacy of Australian legislative and professional requirements regarding the independence of external auditors and made recommendations for changes Did not recommend a ban on the provision of non-audit services to audit clients. Instead, he recommened that the disclosure requirements be enhanced. AUS

Harris (1997)
Four guiding principles that should be employed to achieve more effective governance by boards in the public sectors. AUS
Uhrig (2003)
Considered the existing governance arrangements for statutory authorities
finding a number of opportunities for improvement. The report also found a lack of effective governance for several of the authorities due to a range of factors.’ Lack of board experience and expertise, together with the potential for conflicts of interests, are impediments to good performance. Limited powers of the board to a statutory body when compared to the private sector.


Audit reform:
Prohibit auditors to perform certain non-audit services
Rotate of audit partners after 5 years
Corporate Accountability
Each company must establish an audit committee drawn from members of the board of directors. The members of the audit committee must be independent. CEOs and CFOs must certify that the financial reports filed with the SEC do not contain untrue statements or material omissions Financial disclosures and loans:

Certain personal loans by a corporation to its executives are prohibited Annual reports filed with the SEC must state that mgmt is responsible for the internal control structure and procedures for financial reporting, and include mgmt’s assessment of the effectiveness of those internal control structures and procedures

An institutional investor which uses its considerable power as a provider of capital to force corporate governance improvements as it deems appropriate. Minimum standard to which markets throughout the workd should adhere in order to attract its funds.

Public Sector

– 2003 ASX CGC Recommendations (revised in 2007 and 2010)
“If not, why not” principle, and requires existence of audit committee in Australian top 500 listed companies. – 2004 Corporate Law Economic Reform Program (CLERP) 9
Key changes include audit reform and financial reporting.
– ASX CGC Principles and Recommendations 2010 (“If not, why not” principle) In 2003 ASX produced a list of “best practice” principles and recommendations on corporate governance and updated them in 2007 (when the term “best practice” was removed from the title) and 2010. ASX CGC 2007 recommends audit, remuneration and nomination committees. These are therefore subject to the “if not why not” rule. Audit committee is mandatory for top 500 companies in Australia. For top 300 companies, composition of audit committee is also defined in mandatory terms – minimum 3 members, all non-executive directors, majority to be independent, and independent chair who is NOT Board Chair. Principle

Key aspects
Lay solid foundations for management and oversight
Role and responsibilities of board and management should be established and disclosed Structure the board to add value
Composition and size of board to discharge its responsibilities and duties Promote ethical and responsible decision-making
Establishment of a code of conduct and diversity policy
Safeguard integrity in financial reporting
Audit committee to safeguard the integrity of financial reporting by the company Make timely and balanced disclosure
Disclosure of all material matters affecting the company
Respect the rights of shareholders
Facilitate the effective exercise of shareholder rights
Recognize and manage risks
Risk oversight and management systems; internal controls
Remunerate fairly and responsibly
Level and composition of remuneration; link to performance

4) International
– OECD Principles of Corporate Governance
Feb 2010 OECD commentary noted the importance on issues of remuneration, risk management, board practices and exercise of shareholder rights, given the catastrophic performance observed from GFC. BRT 2010 Principles and the US practice are perhaps part of the reason for OECD’s lack of any imperative statements on the issue that chairman and CEO should not be the same person.

International perspectives on corporate governance

Market based system of governance

Emphasises competition and market processes
Relationship-based system of governance

Emphasise cooperative relationship and consensus
Most established: the US and the UK
Have great influence on the rest of the world
Historical strength of the US and UK capital markets
Growth of their investment institutions
Adopted by Australia and New Zealand
Relies on the representation of interests on the board of directors
Long-term large shareholders give the company a degree of protection from both the stockmarket and the threat of takeover Widespread equity ownership among individuals and institutional investors, with institutions often having large shareholdings Institutions including insurance companies, pension funds, and mutual funds. A supervisory board for the oversight of management, where banks play an active role, inter-corporate shareholdings are widespread and, often, companies haves close ties to political elites
Shareholder interests as the primary focus of company law

An emphasis on minority shareholder protection in securities law and regulation Insider groups monitor management that often acts under their control

Stringent disclosure requirements
Disclosure based market since numerous investors depend on access to reliable and adequate information flows to make informed investment decisions. The agency problem of the market-based system is much less of a problem in the relation-based control The role of the banks is less central

Corporations often have arm’s length relations of equity markets Corporate finance in such countries is highly dependent upon banks, with companies having high debt to equity ratios Banks often have complex and long-standing relationships with corporations (can be debtors and shareholders at the same time) The market-based system assumes full disclosure of information, strict adherence to trading rules and a liquid stock market. The insider system is based on a deeper but more selective exchange of information among insiders It is hard for institutional investors to sell their shares when they are unhappy with the management or board, they become more engaged with companies they are investing in.

US Market

The board of directors is entrusted with an important responsibility – to monitor the company on behalf of shareholders. It is common for the chair of the board and the CEO to be the same person Committees:

Purpose: to enhance the oversight function of boards and limit the powers of CEOs. Tasks: the remuneration of executive directors
Nomination of new board members
Key decisions in respect of auditing
Many large investors closely monitor the corporate governance practices, however, in practice, shareholder in the US possesses limited power to appoint or remove directors

Differences among European countries

Company law is embedded in different and often unique political cultural and social traditions. Different groups of people have the right to elect the members of the supervisory board. Articulate the purpose of corporate governance in different ways. Laws and regulations relating ti the equitable treatment of shareholders including minority rights in takeovers and other transactions, vary significantly among countries. Different corporate board structures exist.

Variations in disclosure requirements and the resulting differences in information provided to investors are a potential impediment to a single European equity market.

Relationship-based nature in which all interested stakeholders are able to monitor corporate performance

France and Italy are the European countries with the smallest ownership of company shares by financial institutions. The majority of shares traditionally have been owned by non-financial enterprises, which reflect and elaborate structure of cross and circular ownership. In France, half the firms are controlled by one single investor who owns the absolute majority of capital.

Asian approaches of relationship-based systems

Significant national differences in corporate governance policy and practice, and many countries are still engaged in a process of institutional development Government-controlled organisations: perform roles that are consistent with the broad social aims of the government, and their governance structure and processes reflect heavy government influence and control. Most companies in Asia either have a majority shareholder or a cohesive group of minority shareholders who act together to control the company. Companies with widely dispersed ownership are rare in Asia, therefore it is difficult to protect the rights of minority shareholders. The boards of directors of companies in Asia often serve a nominal and
sometimes superficial role. Disclosure and transparency are often minimal, making it more difficult for regulatory authorities to take action. The lack of institutional shareholders and fund managers reduces the extent of external monitoring by powerful institutions. All countries concerned are committed to a reform of corporate governance due to the 1997 Asian financial crisis.


The formal legal features of the Japanese corporate governance system resemble those in most other advanced industrial countries (Corporate law in Japan was modelled on the German System). In Japan, the board plays a more strategic and decision-making role, and is drawn from the ranks of management who are employed by the company. Thus, in the West, the board members are outsiders representing the shareholders; in Japan, the board members are insiders leading management. As a result, the role of Japanese boards may be considered superficial both in supervising the executive management and in responsibility for the company. Problem: there is a tendency for the size of boards to grow as more managers need to be rewarded.

Ownership structure:

“keiretsus”: essentially sets of companies with interlocking business relationships and shareholdings. The major keiretsus are centred on one bank. Each bank has significant control over the companies in the keiretsus and acts as a monitoring entity and as an emergency bail-out entity. Advantage: minimise the incidence of hostile takeovers

Disadvantage: corporate control being restricted
Case studies of governance failure

Asset-lite companies: unencumbered by physical assets and heavily dependent on their intangible assets. SPEs: allow the main Enron business to apparently expand without incurring increasing on-balance sheet debt.

Failure: inadequate corporate governance checks and balances; lack of financial and managerial diligence and control; and a misconceived and complacent strategy

Weaknesses apparent in different cases:
The risk management systems have failed in many cases due to corporate governance procedures rather than the inadequacy of computer models alone. Boards had approved strategy but then did not establish suitable metrics to monitor its implementation. Company disclosures about foreseeable risk factors and about the systems in place for monitoring and managing risk have also left a lot to be desired. Accounting standards and regulatory requirements have also proved insufficient in some areas leading the relevant standard setters to undertake a review. Remuneration systems have in a number of cases not been closely related to the strategy and risk appetite of the company and its longer term interests.

Section A: Leadership

A.1.1 The board should meet sufficiently regularly to discharge its duties effectively. A.1.2 The annual report should identify the chairman, the deputy chairman, the chief executive, the senior independent director and the chairman and members of the board committees. A.2.1 operationalises the A.2 principles by stating that the CEO and chair should not be the same person.

Main principles application: comply or explain

Section B: Effectiveness
B.1.2 Except for smaller companies, at least half the board, excluding the chairman, should comprise non-executive directors determined by the board to be independent. A smaller company should have at least two independent non-executive directors. B.2.1 states that there should be a nomination
committee which should lead the process for board appointments and make recommendations to the board. This committee should have a majority of independent directors, and it apparent that executive directors may be on this committee. The committee should be chaired by an independent director or the board Chair. B.2.3 identifies that non-executive directors should be considered carefully after they have completed six years’ service on the board. B.3 Directors should be able to spend enough time to do the job properly and that appointment procedures should identify the expected commitment. B.4 Directors are appropriately informed upon joining the board through a proper induction program and by provision of appropriate ongoing training. B.5 Directors who make decisions without adequate information are in breach of their duties. (Company Secretary and the Chair, as well as all directors) B.6 The board is responsible fro evaluating its own performance and the performance of the committees. B.7 Controversially, regular re-election to the board for all directors should, in large companies, be conducted as frequently as annually according to B.7.1

Section C: Accountability
C.1 The board should present a balanced and understandable assessment of the company’s position and prospects. C.2 The board must select and define the “risk appetite” of the company, and it must plan strategies and operations accordingly. C.3.1 An audit committee should be formed and that its membership should meet the requirements. 1. members should be independent no-executive directors 2. for smaller companies, there should be at least two and, for larger companies, at least three, independent directors on the audit committee. 3. in smaller companies, the board chair may be on the audit committee but may not chair the committee. 4. At least one member of the audit committee should have recent and relevant financial experience. C.3.2 The main role and responsibilities of the audit committee should be set our in written terms of reference. C.3.4 Audit committee is the means by which “whistleblowing” is correctly managed – although the term is not used in the code C.3.5 The audit committee should ensure appropriate decisions are made about internal audit functions.

Section D: Remuneration
D.1 Remuneration should be sufficient to attract the right people to be directors but should not be excessive. Recommendations regarding the remuneration directors, and especially the performance-related remuneration of executive directors, is key work to be undertaken by the remuneration committee. D.1.4 Remuneration committee should carefully consider remuneration commitments related to early termination and poor performance. D.2.1 The board should establish a remuneration committee comprised of independent non-executive directors. Must comprised of at least two persons fro smaller companies and at least three for larger companies. D.2.4 Shareholders should be invited to approve new executive incentive schemes and changes to existing schemes D.2.3 Non-executive remuneration should be determined by the board or by the shareholders. If permitted by the company constitution, the board may delegate this work to a committee which might include the CEO.

Section E: Relations with shareholders
E.1 Dialogue should lead to mutual understanding of objectives. E.2 Boards need to make sure that all shareholders are informaed about annual general meetings and have proper information and the proper opportunity to vote.

M 4
Shareholder concept

The principal focus of our discussion in this module is on the Anglo-American derivative duties approach to stakeholders. Competitors are treated as stakeholders, stakeholders can also be environment.

Agency theory and delegated powers

Agency relationship: a contract under which one or more persons engage another person to perform some service on their behalf which involves delegating some decision making authority to the agent. If both parties to the relationship are utility maximisers, there is good reason to believe that the agent will not always act in the best interest of the principal.

Assumptions underlying agency theory:

All individuals will act in their own self-interest. With potential conflict of interest between the principal and the agent, the agent will tend to act first in ways that will maximise their own personal circumstances Agents are in a position that allows them to further their own interests including at the expense of the principals, as a result of the decision-making power they have been granted and the fact that agents have better access to and control of the information.


Delegation is available unless the corporation’s constitution provides otherwise. It is common practice for boards to delegate day-to-day operational powers to the CEO but not extensive strategic decision-making powers.

Agency theory costs

Residual loss: any loss or cost or under-performance arising from theses decisions or actions by the agent, represents a residual loss of value to the principals.
Overconsumption of ‘perks’ (perquisites or perks are incidental benefits gained in addition to income) Def: the use of such benefits in ways that exceeds expected levels. Effect: reduce both profitability and cash flow available for distribution to shareholders.

Empire building

Def: acts by management to increase their power and influence in a company for reasons associated with personal satisfaction, including, but not limited to, large financial rewards for having a “bigger job”. Effect: such personal aggrandisement may have little or no congruence with company profitability or success.

Risk avoidance

Def: minimise the downside risk that may affect their continued employment. Effect: the organisation may therefore underachieve, with higher returns forgone, representing a loss of value to the shareholders.

Differing time horizons

Any management approach that is inconsistent with shareholders’ interest will demonstrate a lack of interest alignment or goal congruence. It can be caused by managers’ self-interest (only current year performance or performance during fix duration), or misunderstand between shareholders and managers.

Monitoring Costs
Incurred by principals.
Compulsory: annual reporting and external auditing
Discretionary: construct and analyse activities according to a strategic or Balanced Scorecard
Bonding Costs
Fully borne by the agent, not the principal.
Many costs may be conceptual rather than dollar costs.
Restrictions on freedoms are bonding costs borne by agents.

Remuneration issues

Both payment for work undertaken and for additional rewards that, in agency relationship, ideally will relate to identified superior performance that recognises and encourages goal-congruent behaviour by the agent.

Non-executive directors

Should not be paid according to performance achieved.
Executive directors:
Key focus of the non-executive directors who form the remuneration committee New regulation came into place after the Global financial crisis to ensure that remuneration committees should not have executives as members.

Has an important role in ensuring that agents are correctly remunerated for
their performance and to motivate them to achieve goal congruence. Remuneration structure should not be designed so that self-seeking executives could damage corporations Executives should receive performance payments that are carefully structured. Disclosure and transparency

Employees and Consumers
New Australian Consumer Law protections against “misleading potential employees. Whistleblower laws and rules that are becoming very important internationally Laws that prevent legal and other damage to employees (and others) who appropriately del with suspicions of wrongdoing inside organizations Precise rules must be followed if protection is to apply to the whistleblowers.

In Aus, the Corporations Act protects an employee if:

They report to the right (listed) people only;
They are not anonymous; and
They are not acting maliciously.
Consumers and customers
Unconscionable Conduct
Protect customers and business consumers where powerful parties to a contract use that power in ways that are sufficiently unfair as to be recognized as unconscionable. Parol evidence: additional words between the parties could not change the clear meaning of a written and signed contract. Dowsett v. Reid (1925) 15 CLR 695: the parol evidence should not apply because of the overall unfairness in the case. Commercial Bank of Australia v. Amadio (1983) : Relief on the ground of unconscionable conduct will be granted when unconscientiously advantage is taken of an innocent party whose will is overborne so that it is not independent and voluntary, just as it will also be granted when such advantage is taken of an innocent party who though not deprived of an independent and voluntary will, is unable to make a worthwhile judgment as to what is in his best interests. Tests for unconscionable conduct:

Bargaining power
Were the conditions imposed on the consumer reasonably necessary to protect the legitimate interests of the corporation? Was the consumer able to
understand any of the documents used? Was any undue influence or pressure exerted on, or were any unfair tactics used against, the consumer? Was the amount paid for the goods or services higher, or were the circumstances under which they could be acquired more onerous, when compared to the terms offered by other suppliers?

Where a person uses inside information for their own or a related party’s benefit and/or discloses inside information to somebody whom they ought to have foreseen may use the information inappropriately. Identifying whether the information has been disclosed in such a way that it is available to investors in relevant market Identifying whether a person who understands markets would buy or sell a security were they to know that information. A person who possesses inside information must not use it or disclose it, as such use or disclosure is what actually comprises insider trading. Competition and protecting markets for goods and services

Mergers and acquisition
In many jurisdictions, regulations are in place that prohibit or limit mergers and acquisitions unless they are formally approved.

Abuse of Market power
The prohibition on misuse of market power is aimed at preventing powerful entities from taking advantage of that market power for the purpose of disadvantaging weaker org Main principle:
Market power
Misuse of that power (used that power to eliminate a competitor or prevent a competitor from entering or properly competing in the market). E.g.: predatory pricing, the supply of goods or services below cost over a period of time. It is prohibited because the likely real ambition is for the company to eliminate competitors who cannot sustain the ongoing losses of selling below cost. ACCC

Agreements between competitors – Cartel Conduct

1. Has there been a contract, agreement or understanding
2. Has this occurred b/t competitors
3. Is the arrangement for the purpose of collusion
Competitor collusion has a specific term: cartel, which including: Output restrictions
Apply restrictions on output what will cause shortages in markets and thus result in price rises Allocating customers, suppliers or territories
Dividing up markets, customers or regions b/t competitors
Competitors who are asked to tender or bid for work collude
Competitors collude to create common prices (parallel conduct and price-following are legal) Midland Brick case 4.36 Both company and a seinor manager are order to pay civil penalties .International airline pricing cartel

Unilateral restrictions on supply (exclusive dealing)
A single corporation decides to deal only with certain customers or geographic regions. This type of conduct is generally permitted, but prohibitions may exist if it is shown to lessen competition substantially. 3 characteristics that applied:

It is not cartel conduct.
The unilateral refusal to deal will be unlawful if there is a “substantial lessening of competition in a market”. Third-line forcing: a supplier forces a customer to also purchase another item from a third-party. Case: Ku-ring0gai Cooperative building society ltd (1978) 36 FLR An attempt by a building society to force a would-be borrower to take out mortgage insurance with a nominated insurer was in breach of the law.

Resale price maintenance
A supplier stipulates that the goods it provides must only be resold at or
above a certain minimum price. Two tests:
Has the supplier specified a minimum price?
Has the supplier taken action or attempted to enforce this minimum price? If a reseller sell the product below cost, it is legal for supplier to withhold supply in order to prevent the reseller from ‘losing leading’ with a supplier’s products. Proof, penalties and redress – Criminal and civil

Criminal penalties v Civil penalties
Criminal cases are always carried out by agencies of the state and never by individuals or corporations. Any aggrieved party can bring an action for a civil case. For civil case, the standard applied is a proof based on the balance of probabilities rather than proof beyond reasonable doubt as in criminal cases Neither parties will be punished by jail or fines in a civil case, as these apply only in criminal cases. The court may award damages to the injured party may apply injections and make other orders such as rescission of contracts in civil cases. Even third party dropped the case, ACCC can still proceed against wrongdoers on civil or criminal grounds.

Redress and penalties for anti-competitive breaches
Redress is the ways in which wrongdoers can be required to correct the harm they have caused. Penalties are different from remedies as they are meant to punish a wrongdoer, thus, penalties goes beyond simply redressing wrongs. In Aus, criminal breach of cartel provisions may lead to individuals being fined hundreds of thousands of dollars, and up to 10 years’ jail. Fines for corporations can be as high as $10 million.


Why choose to provide specific information about CSR-related information (Voluntary process)

Ethically motivation (Accountability-based)
• Organization owns an accountability to various stakeholders • Driven by concerns that stakeholders’ rights to know are being fulfilled

Enlightened self-interest (managerial-based)
• Economically focused motive to use social and environmental reporting to protect or enhance shareholder value

The reason an entity choose to report will in turn inform the decision as to whom it will be directed

Will seek to address the information needs of a wider range of stakeholders who might be most impacted by the operations of the entity

The target recipients of reports will in turn inform what information will be disclosed and what issue the social and environmental reporting should report

• Information to demonstrate accountability for those aspects of the operations for which they are deemed to be accountable, such disclosures would arguably be more objective • Normative theory: prescriptions or shoulds, ideals

• Such disclosures will lead to community support and potentially positive financial implications • Stakeholders who are regarded as more important or with more influence will attract additional effort and attention from managers (reporting information to inform the powerful stakeholders) (details in 5.23) Limitations of traditional financial reporting

Australia’s current conceptual framework (AASB framework for the preparation and presentation of financial statements) Embrace a shareholder primacy perspective with a narrow notion of accountability

The practice of discounting future cash flows
Encourage us to shift problems of an environmental nature onto future generations. If we discount future obligations, then, in the current period,
they may not be considered to be material
Definition of the elements of FR
Asset (must be controlled by the entity)
The usage of assets which are not controlled by the entity will not be recognized as expenses (usage of public goods which are not exchanged in market transactions) Expenses
Based on the definition of asset, use of clean air and water will not be recognized as expenses unless fines are imposed.

Retrenchments in response to the global financial crisis (did not count the expenses of people who lose their jobs) Reserve Bank of Australia increase the interest rate in 2010 to increase profit (did not count the plight of those people who lose their homes) Just-in-time approach

Increase the traffic congestion, and pollution
Environmental cost is borne by the community.
Provides a disincentive for investment in clean technologies.

Issues of reliable measurement and probability
Environmental cost can not been measure as normal liability since because of the probability issue Many companies used the issue of “measurability” in number of situations as a rationale for non-disclosure, for provisions.

Thus, the related parties would not know the true extent of the organisations’ environment-related obligations.
The entity assumption
Require the entity to be treated as an entity distinct from its owners, other org and other stakeholders. Externalities caused by reporting entities will typically be ignored Performance measures are incomplete from a broader societal perspective.

Key point of import reports (Module 5)
Legitimacy Theory (BHP WESTPAC)
An organization will take action to manage community perceptions in order to survive Try and convince stakeholders that it is acting with an acceptable level of ethical and moral conviction whilst pursuing its main objective Legitimacy itself is considered to be a resource on which an org is dependent for survival The theory relies on the notion that there is a social contract b/t the org and the society in which it operates Org must appear to consider the rights of the public at large, not merely those of its investors Legitimacy is assumed to be influenced by community perceptions (which can be influenced by disclosures of information), and not simply by (undisclosed) changes in corporate actions Org will be penalized if they do not operate in a manner consistent with community expectations Meeting the expectations of the community can protect or enhance profitability CSR report could be a central strategy to maintaining corporate legitimacy

BCA report about the regulation of CSR report
In favor of no regulation needed for CSR report
All drivers analysis by the BCA are tied to maximizing the value of business The motivation are tied to managerial reasoning rather than border ethical considerations’ Suggest freely operating markets will lead to the resolution of many existing social and environmental problems

PJCCFS 2006 the final report regarding the CSR in 2006
Adopted the same position as that promoted by BCA
In favor of not supporting the introduction of legislation
With an interpretation of current legislation, the enlightened self-interest is the best way forward for Australian corporations

The Brundtland Report

Empirical evidence consistent with legitimacy theory
Patten (1992
if the Alaskan oil spill resulted in a threat to the legitimacy of the petroleum industry, and not just Exxon’s, then legitimacy theory would suggest that companies operating within that industry would respond by increasing the amount of environmental disclosures by the petroleum companies for the post 1989 periods, consistent with a legitimization perspective. This disclosure reaction actually took place across the oil industry Deegan and Rankin (1996) Australia study

Public disclosure of proven environmental prosecutions has an impact on the disclosure policies of the firms involved Deegan, Rankin & Tobin (2002)
Positive correlations b/t negative media attention for certain social and environmental issues and the volume of disclosures on these issues Islam and Deegan (2010)
For industry-related social and environmental issues attracting the greatest amount of negative media attention, corporations react by providing positive social and environmental disclosures

Current regulations for CSR Reporting

National Greenhouse and Energy Reporting Act 2007 (NGER Act)

Who are regulated:
Ultimate Australian holding company of a corporate group is required to apply if its exceeds one or more of the four thresholds (5.42) What need to be reported:
Greenhouse gas emissions
Energy production
Energy consumption
Other info specified under NGER legislation

Requirements embodied within the Corporations Act and accounting standards S 299(1)(f) of the Corporations Act
Requires that in the directors’ report, which must be included in the annual report, directors must give details of the entity’s performance in relation to environmental regulations “if the entity’s operations are subject to any particular and significant environmental regulation under a law of the Commonwealth or of a State or Territory” S 299 A of the Corporations Act

Listed companies are required to include in the director’s report any information that shareholders would reasonably required. (operations, financial position, and business strategies and prospects for future financial years) However, no specific requirement to disclose financial impacts. Obligations relating to environmental performance could be considered to be included in either “provisions” or “contingent liabilities”, depending on the circumstances. However, many entities choose not to disclose such information due to the probability and reliable measurement issues. Contamination to land caused by the construction of particular plant shall be included as part of the total cost of the property, plant and equipment, with an equivalent amount being included in the liability provisions of the entity National Pollutant Inventory

Designed to generate political and economic incentives for industry to move towards cleaner productions Requires industrial facilities operating in Australia to estimate emissions of 93 substances exceeding a specified threshold amount

Energy Efficiency Opportunities Act 2006
Encourages large energy-using businesses to improve their energy efficiency by requiring business to identify, evaluate and report publicly on cost-effective energy savings opp

Cite this page

Code of Ethics for Professional Accountants. (29 February 2016). Retrieved from

"Code of Ethics for Professional Accountants" StudyScroll, 29 February 2016,

StudyScroll. (2016). Code of Ethics for Professional Accountants [Online]. Available at: [Accessed: 30 September, 2023]

"Code of Ethics for Professional Accountants" StudyScroll, Feb 29, 2016. Accessed Sep 30, 2023.

"Code of Ethics for Professional Accountants" StudyScroll, Feb 29, 2016.

"Code of Ethics for Professional Accountants" StudyScroll, 29-Feb-2016. [Online]. Available: [Accessed: 30-Sep-2023]

StudyScroll. (2016). Code of Ethics for Professional Accountants. [Online]. Available at: [Accessed: 30-Sep-2023]

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