CIMA Learning System Fundamentals of Ethics, Corporate Governance and Business Law: New syllabus (CIMA Certificate Level 2008)

545 Pages·2006·2.72 MB·English

by  Larry Mead

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CIMA’S Official Learning System
CIMA Certificate in Business Accounting,
2006 Syllabus
Certificate Level
Fundamentals of
Ethics, Corporate
Governance and
Business law
David Sagar
Larry Mead
Philippa Foster Back
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CIMA Publishing is an imprint of Elsevier
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First edition 2006
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Contents
The CIMA Learning System xi
Acknowledgements xi
How to use your CIMA Learning System xi
Guide to the Icons used within this Text xiii
Study technique xiii
Fundamentals of ethics, corporate governance and business law syllabus xvi
Learning outcomes and indicative syllabus content xvii
1 Comparison of English Law with Alternative
Legal System 3
Learning Outcomes 3
1.1 Law: criminal and civil 3
1.2 The sources of English law 5
1.2.1 Custom/common law 5
1.2.2 Equity 5
1.2.3 Legislation 5
1.2.4 European Union law 6
1.2.5 Other sources 8
1.3 Judicial precedent and the tort of negligence 8
1.3.1 Judicial precedent 9
1.3.2 The tort of negligence 13
1.3.3 Duty to take care 14
1.3.4 Breach of duty 15
1.3.5 Damage caused by negligence 15
1.3.6 Contributory negligence 16
1.3.7 Negligence and professional advisers 16
1.4 English Legal System 26
1.4.1 European Union and Member States 27
1.4.2 Legal Systems around the world 31
1.4.3 Sharia Law (Islamic Law) 33
1.4.4 International Legal Relations 36
1.5 Summary 44
Revision Questions 45
Solutions to Revision Questions 49
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iv FUNDAMENTALS OF ETHICS, CORPORATE GOVERNANCE AND BUSINESS LAW C5
TS 2 The Law of Contract 55
N
E Learning Outcomes 55
T
N
O 2.1 Contractual obligations 55
C
2.1.1 The essential elements of a valid 56
simple contract
2.1.2 Form 56
2.1.3 Transactions where a deed is required 57
2.2 Agreement 57
2.2.1 Offer 60
2.2.2 Acceptance 61
2.2.3 Consideration 64
2.3 Intention that the agreement should be 66
legally binding
2.3.1 Misrepresentation 69
2.4 The contents of the contract – the agreement 82
and incorporation of terms
2.4.1 Express terms 88
2.4.2 Implied terms 88
2.5 The status of contractual terms 91
2.5.1 The repercussions of a breach of contract 91
2.5.2 Conditions 91
2.5.3 Warranties 92
2.5.4 How to determine the status of 92
contractual terms
2.6 Unfair contract terms 93
2.6.1 Exemption clauses and the courts 94
2.6.2 The Unfair Contract Terms Act 1977 95
2.6.3 Other Acts which restrict unfair terms 95
2.6.4 The Unfair Terms in Consumer Contracts 96
Regulations 1994
2.7 Performance of the contract and reasons 97
for non-performance
2.7.1 Performance 97
2.7.2 Valid reasons for non-performance 99
2.8 Types of breach 101
2.9 Remedies for breach of contract 105
2.9.1 Discharge for breach 105
2.9.2 Other non-monetary remedies 107
2.9.3 Remedies in sale of goods contracts 108
2.9.4 Requiring payment of the price 108
2.9.5 Damages for breach 109
2.9.6 Limitation of actions 115
2.10 Summary 116
Revision Questions 119
Solutions to Revision Questions 127
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FUNDAMENTALS OF ETHICS, CORPORATE GOVERNANCE AND BUSINESS LAW C5 v
3 The Law of Employment 135 C
O
Learning Outcomes 135 N
T
E
3.1 The employment relationship 135 N
T
3.1.1 Employees and contractors 136 S
3.1.2 The terms of employment 137
3.1.3 Wages 137
3.1.4 Other duties of employers 138
3.1.5 Statutory rights of employees 139
3.1.6 Implied duties of employees 141
3.2 Notice and dismissal 142
3.2.1 Termination by notice 142
3.2.2 Summary dismissal and wrongful dismissal 143
3.2.3 Unfair dismissal 146
3.2.4 Which remedy? 148
3.3 Occupational safety 148
3.3.1 Legislative controls 148
3.3.2 Civil liability for occupational injuries 150
3.3.3 Social security compensation 151
3.4 Summary 158
Revision Questions 159
Solutions to Revision Questions 163
4 Company Administration 167
Learning Outcomes 167
4.1 Introduction 167
4.1.1 Individual traders/practitioners 168
4.1.2 Partnerships (and some comparisons with companies) 169
4.1.3 Limited liability partnerships (‘LLPs’) 177
4.2 Corporations 181
4.2.1 The concept of incorporation 181
4.2.2 Some features of corporate personality 182
4.2.3 Different types of companies 183
4.2.4 ‘Lifting the veil’ of incorporation 187
4.3 Company registration 196
4.3.1 Promoters 196
4.3.2 Registration 197
4.3.3 ‘Off-the-shelf’ companies 201
4.3.4 The company’s ‘constitution’ 202
4.4 Corporate capacity to contract 211
4.4.1 Pre-incorporation contracts 211
4.4.2 The ultra vires doctrine: the company’s capacity 212
4.4.3 Changing the objects 214
4.5 Advantages and disadvantages of companies limited by shares 214
4.5.1 Advantages 214
4.5.2 Disadvantages 215
4.5.3 Other features of companies 216
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vi FUNDAMENTALS OF ETHICS, CORPORATE GOVERNANCE AND BUSINESS LAW C5
S 4.6 The use and procedure of board meetings and general meetings 217
T
N
of shareholders
E
T
N 4.6.1 Board meetings 217
O
C 4.6.2 Meetings of members 218
4.7 Resolutions 220
4.8 Calling a meeting 221
4.8.1 Conduct of meetings 222
4.8.2 Minutes and registration 223
4.8.3 Shareholders’ rights and duties 227
4.9 Summary 228
Revision Questions 231
Solutions to Revision Questions 235
5 Company Finance and Management 241
Learning Outcomes 241
5.1 Shares and share capital 241
5.1.1 The nature of shares 241
5.1.2 Terminology: meaning of ‘share capital’ 242
5.1.3 Types of shares 242
5.2 Issuing shares 245
5.2.1 Authority to issue shares 245
5.2.2 Finding buyers 246
5.2.3 Factors to take into account when issuing shares 249
5.2.4 Payment for and value of shares 249
5.2.5 The issue of shares for an improper purpose 250
5.3 Variation and maintenance of share capital 251
5.3.1 Variation 251
5.3.2 Maintenance of capital 251
5.3.3 A company acquiring its own shares 252
5.3.4 The reduction of capital – CA 1985, s.135 255
5.3.5 Provision by a company of financial assistance 255
for the purchase of its own shares
5.3.6 A company holding its own shares 256
5.4 Loan capital 257
5.4.1 Whether to borrow 257
5.4.2 Power to borrow 257
5.4.3 Debentures 258
5.4.4 Registration of charges 262
5.4.5 Priority of charges 263
5.4.6 Debentures and debenture stock 264
5.4.7 Rights of debenture holders on default by the company 265
5.4.8 Shares and debentures compared 265
5.5 Corporate Management – Directors 266
5.5.1 General requirement 266
5.5.2 Appointment 267
5.5.3 Retirement 268
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FUNDAMENTALS OF ETHICS, CORPORATE GOVERNANCE AND BUSINESS LAW C5 vii
5.5.4 Disqualification of directors 269 C
O
5.5.5 Removal 270 N
T
5.5.6 Registers and information concerning directors 271 E
N
5.6 Powers and duties of directors 272 TS
5.6.1 Powers of directors 272
5.6.2 Limits and controls over the powers of directors 272
5.6.3 Duties of directors to the company 273
5.6.4 Directors and employees 275
5.6.5 Liability of directors to shareholders 275
5.7 Liability of directors to the company’s creditors 283
5.8 Division of powers between directors and shareholders 285
5.8.1 Duty of the board to report to a general meeting 285
5.8.2 Exemption clauses for directors 286
5.8.3 Majority rule, default, breach of duty or trust, is void; 286
similarly with any provision which tries to indemnify him
5.8.4 ‘Derivative’ actions 287
5.8.5 Wrongs to members personally 288
5.8.6 Unfairly prejudicial conduct: Companies Act 1985, s.459 288
5.8.7 Winding up on the just and equitable ground: 289
Insolvency Act 1986, s.122(g)
5.8.8 Other statutory rights and remedies 289
5.9 The company secretary 289
5.9.1 Appointment 289
5.9.2 Register of directors 290
5.9.3 Qualifications 290
5.9.4 Functions and status 290
5.9.5 Removal 290
5.10 Company Law Reform 291
5.11 Summary 300
Revision Questions 303
Solutions to Revision Questions 307
6 Ethics and Business 313
Learning Outcomes 313
6.1 Values and attitudes for professional accountants 313
6.2 Legal frameworks, regulations and standards for business 315
6.3 Ethics and its relevance to business and the accountancy profession 318
6.3.1 Rules-based and framework approaches to ethics 319
6.4 Personal development and life-long learning 321
6.4.1 Personal qualities 321
6.5 Ethical principles 322
6.5.1 Integrity 322
6.5.2 Objectivity 323
6.5.3 Professional competence and due care 323
6.5.4 Confidentiality 323
6.5.5 Professional behaviour 324
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viii FUNDAMENTALS OF ETHICS, CORPORATE GOVERNANCE AND BUSINESS LAW C5
S 6.6 Concepts of independence, accountability 324
T
N
and responsibility
E
T
N 6.6.1 Independence 324
O
C 6.6.2 Accountability 325
6.6.3 Social responsibility 325
6.7 The CIMA and IFAC ‘Codes of Ethics for 326
Professional Accountants’
Revision Questions 327
Solutions to Revision Questions 329
7 Ethical Conflict 333
Learning Outcomes 333
7.1 Relationship between ethics, governance, the law 333
and social responsibility
7.1.1 Introduction 333
7.1.2 Ethics 333
7.1.3 Governance 334
7.1.4 The Law 334
7.1.5 Social Responsibility 334
7.1.6 Inter-relationship 335
7.2 Unethical behaviour 336
7.3 Ethical dilemmas and conflicts of interest 336
7.3.1 Introduction 336
7.3.2 Identifying ethical dilemmas 337
7.3.3 Conflicts of interest 338
7.3.4 Resolving ethical dilemmas 339
Revision Questions 343
Solutions to Revision Questions 345
8 Corporate Governance 349
Learning Outcomes 349
8.1 Introduction 349
8.2 What is corporate governance? 350
8.3 Governance, ethics and company law 350
8.4 The history of corporate governance internationally 352
8.5 The effect of corporate governance on directors’ behaviour 357
and their duties of care and skill
8.6 Board structures 359
8.7 Best Practice – policies and procedure 361
8.8 The Regulatory Governance Framework for UK companies 362
8.9 Summary 363
Revision Questions 365
Solutions to Revision Questions 367
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FUNDAMENTALS OF ETHICS, CORPORATE GOVERNANCE AND BUSINESS LAW C5 ix
Appendix 1 CIMA Code of Ethics for Professional C
O
Accountants 371 N
T
E
N
T
S
Preparing for the Assessment 453
Revision technique 453
Planning 453
Getting down to work 453
Tips for the final revision phase 454
Format of the assessment 454
Structure of the paper 454
Allocation of time 454
Weighting of subjects 455
Revision Questions 457
Solution to Revision Questions 479
Mock Assessment 495
Index 515
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