Publishing 2013 ACCA P1 - GCA Consultants

477 Pages·2012·2.26 MB·English

by  Emile Woolf Publishing

Publishing
2013
ACCA P1
Professional
Accountant
Study Text
emilewoolfpublishing.com

Paper
A

C
P1
C

A

Governance, risk and
ethics

Welcome to Emile Woolf‘s study text for

Paper P1 Professional Accountant which is:

(cid:132) Written by tutors
(cid:132) Comprehensive but concise

(cid:132) In simple English

(cid:132) Used around the world by Emile Woolf Colleges
including China, Russia and the UK

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Sixth edition published by   
Emile Woolf Publishing Limited 
Crowthorne Enterprise Centre, Crowthorne Business Estate, Old Wokingham Road,  
Crowthorne, Berkshire   RG45 6AW 
Email: [email protected] 
www.emilewoolfpublishing.com  

© Emile Woolf Publishing Limited, January 2013 

All rights reserved. No part of this publication may be reproduced, stored in a retrieval 
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Notice 
Emile Woolf Publishing Limited has made every effort to ensure that at the time of 
writing the contents of this study text are accurate, but neither Emile Woolf Publishing 
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British Library Cataloguing in Publications Data 
A catalogue record for this book is available from the British Library. 

ISBN: 978-1-84843-300-7 

Printed and bound in Great Britain 

Acknowledgements 
The syllabus and study guide are reproduced by kind permission of the Association of 
Chartered Certified Accountants. 

The UK Combined Code on Corporate Governance is © Financial Reporting Council (FRC). 
Adapted and reproduced with the kind permission of the Financial Reporting Council. All 
rights reserved. 

ii © Emile Woolf Publishing Limited
Paper P1

Governance, risk and ethics
c

Contents

Page
Syllabus and study guide 1
Chapter 1: The scope of governance 17
Chapter 2: Agency relationships and theories 41
Chapter 3: The board of directors 59
Chapter 4: Board committees 91
Chapter 5: Directors’ remuneration 115
Chapter 6: Different approaches to corporate governance 133
Chapter 7: Governance: reporting and disclosure 155
Chapter 8: Internal control systems 177
Chapter 9: Internal control, audit and compliance 193
Chapter 10: Identifying and assessing risk 221
Chapter 11: Controlling risk 251
Chapter 12: Ethical theories 269
Chapter 13: Ethics and social responsibility 291
Chapter 14: Professional practice and codes of ethics 303
Chapter 15: Conflicts of interest and ethical conflict resolution 325
Chapter 16: Social and environmental issues in ethics and business 347
Practice questions 369
Answers to practice questions 385
Appendix: The UK Combined Code on Corporate Governance 435
Index 463
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iv © Emile Woolf Publishing Limited
Paper P1

Professional Accountant
S

Syllabus and study guide

The syllabus for Professional Accountant (P1) has been called the ‘gateway syllabus’
for the professional level of the ACCA examinations.

It is concerned with the cultural environment within which the professional
accountant works. Without getting into the detail of financial methods and
techniques, or strategic decision-making, it looks at the ‘proper way’ to run a
business entity or not-for-profit entity. There are several aspects to this.

(cid:132) Corporate governance. This is the way that companies are governed, mainly by
their directors. Similar concepts apply to non-corporate entities. There is ‘good’
and ‘bad’ corporate governance, and the professional accountant needs to
understand the issues involved.
(cid:132) Internal control and risk management. Well-managed entities should have a
culture of risk awareness. Business is not just about making profits: it is also
concerned with risk management and control. The general concepts of risk
management apply to much of the work of the professional accountant – in
financial reporting, auditing, financial management and performance
management.
(cid:132) Professional ethics. Accountancy is a profession, and accountants are required
to apply professional values and ethical standards to the work that they do.
(cid:132) Business ethics. Accountants should also understand the nature of ethics in
business. There are differing views about how business entities should ‘behave’.
For example, to what extent should companies be responsible for the general
well-being of society and for the protection of the environment?
© Emile Woolf Publishing Limited 1
Paper P1: Professional accountant
Aim
To apply relevant knowledge, skills and exercise professional judgement in carrying
out the role of the accountant relating to governance, internal control, compliance
and the management of risk within an organisation, in the context of an overall
ethical framework.
Main capabilities
On successful completion of this paper, candidates should be able to:
A Define governance and explain its function in the effective management and
control of organisations and of the resources for which they are accountable
B Evaluate the professional accountant’s role in internal control, review and
compliance
C Explain the role of the accountant in identifying and assessing risk
D Explain and evaluate the role of the accountant in controlling and mitigating
risk
E Demonstrate the application of professional values and judgement through an
ethical framework that is in the best interests of society and the profession, in
compliance with relevant professional codes, laws and regulations.
Rationale
The syllabus for Paper P1, Professional Accountant, acts as the gateway syllabus into
the professional level. It sets the other Essentials and Options papers into a wider
professional, organisational, and societal context.
The syllabus assumes essential technical skills and knowledge acquired at the
Fundamentals level where the core technical capabilities will have been acquired,
and where ethics, corporate governance, internal audit, control, and risk will have
been introduced in a subject-specific context.
The PA syllabus begins by examining the whole area of governance within
organisations in the broad context of the agency relationship. This aspect of the
syllabus focuses on the respective roles and responsibilities of directors and officers
to organisational stakeholders and of accounting and auditing as support and
control functions.
The syllabus then explores internal review, control, and feedback to implement and
support effective governance, including compliance issues related to decision-
making and decision-support functions. The syllabus also examines the whole area
of identifying, assessing, and controlling risk as a key aspect of responsible
management.
Finally, the syllabus covers personal and professional ethics, ethical frameworks –
and professional values – as applied in the context of the accountant’s duties and as
a guide to appropriate professional behaviour and conduct in a variety of situations.
2 © Emile Woolf Publishing Limited
Syllabus and study guide
Syllabus
A Governance and responsibility
1 The scope of governance
2 Agency relationships and theories
3 The board of directors
4 Board committees
5 Directors’ remuneration
6 Different approaches to corporate governance
7 Corporate governance and corporate social responsibility
8 Governance: reporting and disclosure
B Internal control and review
1 Management control systems in corporate governance
2 Internal control, audit and compliance in corporate governance
3 Internal control and reporting
4 Management information in audit and internal control
C Identifying and assessing risk
1 Risk and the risk management process
2 Categories of risk
3 Identification, assessment and measurement of risk
D Controlling risk
1 Targeting and monitoring risk
2 Methods of controlling and reducing risk
3 Risk avoidance, retention and modelling
E Professional values and ethics
1 Ethical theories
2 Different approaches to ethics and social responsibility
3 Professions and the public interest
4 Professional practice and codes of ethics
5 Conflicts of interest and the consequences of unethical behaviour
6 Ethical characteristics of professionalism
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Paper P1: Professional accountant
7 Social and environmental issues in the conduct of business and of ethical
behaviour
Approach to examining the syllabus
The syllabus will be assessed by a three-hour paper-based examination. The
examination paper will be structured in two sections. Section A will be based on a
case study style question comprising a compulsory 50 mark question, with
requirements based on several parts with all parts relating to the same case
information. The case study will usually assess a range of subject areas across the
syllabus and will require the candidate to demonstrate high level capabilities to
evaluate, relate and apply the information in the case study to several of the
requirements.

Section B comprises three questions of 25 marks each, of which candidates must
answer two. These questions will be more likely to assess a range of discrete subject
areas from the main syllabus section headings, but may require application,
evaluation and the synthesis of information contained within short scenarios in
which some requirements may need to be contextualised.

Number of marks
Section A Compulsory case study 50
Section B Choice of 2 from 3 questions, 25 marks each 50
100

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