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CPA Ethics and Governance Notes
Co-regulation of accounting:
A profession has members who hold each other to account for promoting the good reputation of the profession on which public trust is based. Although, there is a formal regulatory process for the profession, the element of public trust meant historically this process largely involved self-regulation.
Self-regulation: Professional bodies: members are judged by their informed peers. Allows for internal penalties and sanctions, in addition to legal breaches.
CPA: system of accreditation for degrees, membership qualification process, high levels of continuing professional education, code of ethics, disciplinary process to address member misconduct
External authorities: Australian Financial Reporting Council (the AASB reports to the AFRC), regulations in the Corps Act (which give audit and accounting standards the force of law)
Loss of public trust in the profession following corporate failures, and poor conduct by accountants which the profession failed to call to account, has led to a move from purely self-regulation by the profession towards co-regulation. This consists of regulations from external sources in addition to regulation by the profession.
Membership of a profession brings greater responsibility, wealth and status, and a pooling of knowledge than simply having an occupation.
Monopoly control means that the profession’s own licensing rules and regulations form a barrier to new entrants to the profession and its market, and they protect the profession from competition.
|Systematic body of theory and knowledge||Skills and expertise supported by a well-founded body of knowledge
Educational approach one of lifelong learning
Regulated education programs to ensure an equivalent level of knowledge and competence for all members of the profession
In accounting for example, this includes the theory and practice of financial accounting, management accounting, auditing, and accounting/business information systems. It also involves knowledge of elements of the law (such as commercial law, corporate law, taxation law), economics and quantitative methods.
|Extensive education process for its members||Knowledge that is not generally obtained by members of the general public
Ongoing professional development requirement
To become a member of a profession, individuals must go through an extensive period of education, including an examination process. There are probably also requirements for continuing professional education and development after entry to membership.
|Ideal of service to the community
|In exchange for the monopoly power
Power to be used in the public interest
Lack of adherence (erosion of public trust) may lead to reductions of autonomy, authority and reputation
The wellbeing of society: enable the efficient and orderly functioning of business, not for profit and govt enterprises. Support better decision making
Pursuit of excellence: performance of the professional (build skills etc)
Community service: provide time and skills pro bono
A profession presents itself as a body of people who have an ideal of providing a service to the community that focuses on the well-being of society, the pursuit of excellence, and community service, including philanthropy. Professionals take the same degree of care, skill and responsibility in unpaid as paid work. Public trust in a profession is based largely on this service ideal.
|High degree of autonomy and independence
|Self regulation / co-regulation
The extent of autonomy will depend on the consistent demonstration of ethical and professional standards
Because of its competence in a specific area of expertise, a profession is generally still allowed a large amount of autonomy, with small amounts of external regulation, so that the profession is able to establish its own standards of practice. These features historically led to self-regulation in the profession, and a high degree of discipline. Although self-regulation is being replaced with co-regulation following recent scandals, the onus is still on the individual accountant to have a self-principled, ethical and responsible approach.
|Code of ethics for members||Sourced from APESB 2013, various other APES statements, constitution of CPA Australia, relevant legislation.
Global markets have different views of what is ethical (e.g. bribes)
A profession has its own formal code of ethics for members. For example, CPA Australia members must comply with APES 110: Code of Ethics for Professional Accountants.
|Distinctive ethos or culture
|Values, norms and symbols
Members need to become part of the ethos – enables it to grow and evolve over time
A profession also has a distinctive ethos or culture. Doctors have a culture of promoting health and protecting life. Lawyers have an ethos of upholding the law. Accountants have an ethos of integrity in business dealings and acting in the public interest.
|Application of professional judgement
|Key is the ability to diagnose and solve complex, unstructured values-based problems of the kind that arise in professional practice
When exercising judgement, must choose the outcome that professionally best meets the social ideal of professions – rather than merely the best outcome for the client at that moment (ability to make decisions based on values is distinguishing factor)
Based on an awareness of the uncertainty, complexity, instability, uniqueness and value conflict surrounding problems encountered in practice.
Examples of professional judgement
· Making decisions about workflows and staff recruitment needs
· Making staff selection decisions and choosing accounting team member roles
· Advising clients on business decisions
· Advising managers of accounting information relevance for business decisions
· Planning for all types of professional assignments
· Interpreting accounting standards and other professional pronouncements
· Identifying business and audit risks
· Making assumptions in forecasts and estimates
· Placing quantitative assessments on future liabilities for clients and others
· Setting and revising budget parameters
· Exercising judgement on the adequacy of non-financial information to be disclosed
· Developing and assessing costing methods
· Assisting in the strategic direction of clients.
Key judgements required in auditing:
1. Identify ‘those charged with governance’ in organisation
2. Deciding whether reasonable assurance of limited assurance is possible
3. Ensuring the budget for the audit is sufficient
4. Deciding on an audit plan – ensuring ‘sufficient audit evidence’ has been identified
5. Deciding whether the evaluation of results is appropriate and ensuring the conclusions are soundly based.
|Existence of a governing body
|One or more governing body drawn from the membership on a fully democratic basis.
Will speak for the profession as a whole, apply standard setting and oversight, disciplinary sanctions (power to control a member’s activities), ensure high standards of performance
Body must be credible in the eyes of members and the public and regulate behaviour
These notes have saved me so much time. They cover off all the important points in the course, which means you only need to skim the text book. They are set out in a logical way with page numbers which makes it easy to reference in the exam.
I have also purchased the Strategic Mgmt Accounting notes and they are equally good.
Make sure you buy notes from 2016 onwards as the textbook has been updated and old notes don’t have all the new course material.
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