Code of Ethics for Professional Accountants Essay

The code provides a conceptual framework approach to the application of the fundamental principles of overlord conduct1. wholenessHonest and trust.Ac itemizeants must(prenominal) non be associated with bulgeputs that contain materially false or mis deuce-aceing statements contain info furnished recklesslyomit or obscure nurture where such would be misleading2. objectivityMust be impartial, honest and free from conflicts of interest Intrinsically conjugated to independence, professional independence is seen to be a subset of integrity and objectivity.3. professional competence and out-of-pocket c argonMaintain professional knowledge and skillApply practical application4. confidentiality5. professional behaviorthe conceptual framework approach adopted in the Code is principles-based, setting forth the principles as well as rules of conduct.ThreatsSelf-interest threatsSelf-review threatsprotagonism threats promoting a position or opinion that compromises objectivity Familiar ity threats a close relationship where one becomes too sympathetic to others Intimidation threats actual or comprehend and is a deterrent from acting objectively An intimidation threat to an accounts objective or competence and due care whitethorn snarf where the accountant ispressured by a client. Normative theories of ethicsNormative theories of ethicsNormative Theories of ethicsTeleological consequentialRight from wrong is determined from results or consequences of a decision or action Identify consequences ( represents and benefits) for each alternative course of action Compare the ratio of costs and benefits (both economically and morally)Make a decisionDeontological non-consequential and rule deontology Consequences are irrelevant The important is the intention to do the remedy thing or the motivation to be earn fittingly flowing from a sense of duty. One dose the right thing simply because it is the right thing to do regardless the consequencesEgoism A right or acceptab le decision is one that maximises net dogmatic benefits to oneself. Can be restricted if self-interest is pursued within the integrity and fair competition Utilitarianism Does non point on oneself A right decision is one that produces the greatest to the greatest number of peopleRights A decision go out only be respectable if its intentions do non often the rights of stakeholders Rights include legal, press outual, special, particular, natural and constitutional rights ProcessIdentify the rights particular to the stakeholderEnsure the decision is accordant with respecting such rightsJustice Focuses on distri only ifive justness which refers to the fair and equal dispersion of benefits and burdens ProcessIdentify the benefits and burdensAssign the benefits and burdens to the various stakeholdersDecide whether the destruction of benefits and burdens is fair and equal Aristotle on justice Equals should be treated equally and unequals should be treated unequally.M 3Types of directorsDirectors Board of directorsNot 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 interdependentNon- unaffiliated directors Can be executive directorsIndependent Directors gratuitous from any influence which would bias the decisions Free from any connections Should not been paid according to accomplishment 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 qualificationsexecutive directors Occupying and hold an office as an executive in the caller Will never be independent Can be paid on carrying out baseNon-independent non-executive directors Should not been paid according to performance achievedDuties of directors (4.62) Avoid conflicts of interest and where these exist, ensure they are appropriately declared and, as required by law, otherwise managed flushly bit in the best interests of the corporation (the nominee director must always act in the best interests of the corporation and use their intellect only for proper purposes when making a decision on shape up to which they abide been appointed as a director) Retain discretionary posts and avoid designate the directors responsibility Exercise provides for proper purposes (act within their power do not abuse their power) do with care, skill, and diligence (the standard of care will be divers(prenominal) for a director with professional qualifications and a non-executive director) Be deposeed approximately the corporations operationsCommittees of the board 3.19Purpose enkindle 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 confli cts of interest It do not reduce the responsibility of the board as a whole and care of necessity to be taken to ensure that all concerned understand their functions The board of directors is still unlimitedly responsible for(p) for decisions made by sub citizens charges The delegation of duties enables examination of issues in great detail and discussion of issues in the absence of counseling Requires written terms of reference for each subcommittee and procedures for subjecting to the full board move out for certain situations where canvas committees are compulsory, it is up to boards to determine whether to have the committees and, if so, which committees are established.Committee lynchpin role(s)MembershipRisk managementEnsure certain risk is assessed, understood and appropriately managed OECDdose not make specific recommendations about committees NominationRecommending the succession procedures within an organization Appropriate to include executive directorsMajority of independent directors ( UK FRC CGC) wagesDeal with net profit-especially for senior executivesPreferable to not include executive directorsFor extensive companies, at to the lowest degree 3 independent non-executive directors (UK FRC VFV) AuditFinancial reporting and size up mattersOversight of intragroup lockOnly non-executive directors, with volume existence independent, independent chair, at to the lowest degree 3 members Only independent directors (Sarbanes-Oxley Act)For larger companies, at to the lowest degree 3 independent non-executive directors and at least one member with recent and relevant monetary experience (UK FRC CGC)Reports on Corporate GovernanceReportKey focusCountryCadbury (1992)Best practice recommendations for board and committee structures comply or explain if a company chose not to comply with a governing body recommendation, the company had to identify the noncompliance and then explain it to shareowners UKGreenbury (1995)Directors net profit Additional recommendations designed to enhance transparency in relation to directors remuneration UKHampel (1998)Replaced the Cadbury and Greenbury worksupercode, adopted into the listing rules on the London Stock Exchange UKHiggs (2003)Non-executives directorsUKSmith (2003)Audit committeeUKCOSO 3.351994 Internal authorization a process designed to provide resonable assumption regarding the achievement of objectivesCalPERS (pension fund investor)Describe the type of boldness it expects to see from companies USSarbanes-Oxley Act (2002)Strengthened audit requirements, increased financial revelations and requires mgmt certification of internal controls USHilmer (1993)Improving board cheek to enhance company performanceAUSBosch (1995)Corporate Practices and Conduct, a report of the committee chaired by Henry Bosch AUSRamsay (2001)Produced by a committee chaired by Ian RamsayExamined the adequacy of Australian legislative and professional requirements regarding the independence of e xternal auditors and made recommendations for changes Did not recommend a ban on the homework of non-audit run to audit clients. Instead, he recommened that the revelation requirements be enhanced. AUSHarris (1997)3.43Four guiding principles that should be employed to achieve more effective governance by boards in the human race sectors. AUSUhrig (2003)3.43Considered the existing governance arrangements for statutory authoritiesfinding a number of opportunities for improvement. The report also found a escape of effective governance for several(prenominal) 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.AUSAudit reformProhibit auditors to perform certain non-audit servicesRotate of audit partners after 5 yearsCorporate functionEach company must establish an audit com mittee 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 loansCertain personal loans by a corporation to its executives are proscribe Annual reports filed with the SEC must state that mgmt is responsible for the internal control structure and procedures for financial reporting, and include mgmts assessment of the effectiveness of those internal control structures and proceduresCalPERSAn 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 rive in order to attract its funds.Public SectorAustralia 2003 ASX CGC Recommendations (revised in 2007 and 2010)If not, why not principle, and requires existence of audit committee in Au stralian top d listed companies. 2004 Corporate Law Economic Reform Program (CLERP) 9Key changes include audit reform and financial reporting. ASX CGC normals 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 and so 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 cookd in mandatory terms minimum 3 members, all non-executive directors, majority to be independent, and independent chair who is NOT Board Chair. PrincipleKey aspectsLay solid foundations for management and oversightRole and responsibilities of board and management should be established and disclosed Structure the board to add appra iseComposition and size of board to discharge its responsibilities and duties Promote ethical and responsible decision-makingEstablishment of a code of conduct and diversity policySafeguard integrity in financial reportingAudit committee to safeguard the integrity of financial reporting by the company Make timely and balanced disclosureDisclosure of all material matters affecting the companyRespect the rights of shareholdersFacilitate the effective exercise of shareholder rightsRecognize and manage risksRisk oversight and management systems internal controlsRemunerate fairly and responsiblyLevel and composition of remuneration link to performance4) International OECD Principles of Corporate GovernanceFeb 2010 OECD commentary noted the brilliance 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 OECDs lack of a ny imperative statements on the issue that chairman and CEO should not be the same person.International perspectives on corporate governanceMarket based system of governanceEmphasises competition and market processesRelationship-based system of governanceEmphasise cooperative relationship and consensusMost established the US and the UK bind great influence on the rest of the worldHistorical strength of the US and UK capital marketsGrowth of their investment institutionsAdopted by Australia and New ZealandRelies on the representation of interests on the board of directorsLong-term large shareholders give the company a degree of protection from both the stockmarket and the threat of takeover Widespread legality 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 far-flung and, often, companies haves close ties to political elitesShareholder interests as the primary focus of company lawAn emphasis on minority shareholder protection in securities law and polity Insider groups supervise management that often acts under their controlStringent disclosure requirementsDisclosure based market since numerous investors depend on opening to reliable and adequate stateation 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 centralCorporations often have arms length relations of equity markets Corporate finance in such countries is extremely 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 art 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 deceive their shares when they are unhappy with the management or board, they become more engaged with companies they are investing in.US MarketThe board of directors is entrusted with an important responsibility to supervise the company on behalf of shareholders. It is reciprocal for the chair of the board and the CEO to be the same person CommitteesPurpose to enhance the oversight function of boards and limit the powers of CEOs. Tasks the remuneration of executive directorsNomination of new board membersKey decisions in respect of auditingMany large investors closely monitoring device the corporate governance practices, however, in practice, shareholder in the US possesses limited power to appoint or remove directorsDifferences among European countriesCompany law is embedded in di fferent and often anomalous 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.Ger galore(postnominal)Relationship-based nature in which all interested stakeholders are able to monitor corporate performanceFranceFrance 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 voluptuous structure of cross and cir cular ownership. In France, half the firms are controlled by one single investor who owns the absolute majority of capital.Asian approaches of relationship-based systemsSignificant 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 unchanging 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, consequently it is difficult to protect the rights of minority shareholders. The boards of directors of companies in Asia often serve a nominal andsometimes superficial role. Disclosure and transparency are often minimal, making it more difficult for regul atory authorities to take action. The lack of institutional shareholders and fund managers reduces the extent of external monitoring by powerful institutions. all told countries concerned are committed to a reform of corporate governance due to the 1997 Asian financial crisis.JapanThe 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 in that respect is a tendency for the size of boards to grow as more manage rs need to be rewarded.Ownership structurekeiretsus 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 denigrate the incidence of hostile takeoversDisadvantage corporate control being restrictedCase studies of governance failureEnronAsset-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.HIHFailure inadequate corporate governance checks and balances lack of financial and managerial diligence and control and a misconceived and complacent strategyWeaknesses apparent in different casesThe 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.UK FRC CGC section A leadA.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 princip les application comply or explainSection B EffectivenessB.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 in that location should be a nominationcommittee 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.7.1Section C AccountabilityC.1 The board should present a balanced and understandable assessment of the companys 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, at that place should be at least tw o 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 mean by which whistleblowing is correctly managed although the term is not use in the code C.3.5 The audit committee should ensure appropriate decisions are made about internal audit functions.Section D RemunerationD.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 carefu lly 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 shareholdersE.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 hazard to vote.M 4Shareholder conceptThe principal focus of our discussion in this module is on the Anglo-American derivative duties app roach to stakeholders. Competitors are treated as stakeholders, stakeholders can also be environment.Agency theory and delegated powersAgency relationship a contract under which one or more persons engage some other 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 theoryAll 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.DelegationDelegation is available unless the corporations 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 rest period loss any loss or cost or under-performance arising from theses decisions or actions by the agent, represents a residual loss of hold dear to the principals.Overconsumption of perks (perquisites or perks are parenthetic 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 buildingDef 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 p rofitability or success.Risk avoidanceDef minimise the downside risk that may affect their continued employment. Effect the organisation may therefore underachieve, with higher returns forgone, representing a loss of jimmy to the shareholders.Differing timehorizonsAny 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. observe CostsIncurred by principals.Compulsory annual reporting and external auditingDiscretionary construct and analyse activities according to a strategic or Balanced bill of fareBonding CostsFully borne by the agent, not the principal.Many costs may be conceptual rather than dollar costs.Restrictions on freedoms are bond costs borne by agents.Remuneration issuesBoth payment for work undertaken and for additional rewards t hat, in agency relationship, ideally will relate to identified superior performance that recognises and encourages goal-congruent behaviour by the agent.Non-executive directorsShould not be paid according to performance achieved.Executive directorsKey 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 pay fortheir 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 transparencyEmployees and ConsumersNew Australian Consumer Law protections against misleading potential employees. Whistleblower laws and rules that are becoming very important internationally Laws that continue 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 ifThey report to the right (listed) people onlyThey are not anonymous andThey are not acting maliciously.Consumers and customersUnconscionable ConductProtect 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-grade Bank of Australia v. Amadio (1983) Relief on the ground of unconscionable conduct will be granted when unconscientiously advantage is taken of an innocent caller 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 conductBargaining powerWere the conditions imposed on the consumer reasonably necessary to protect the legitimate interests of the corporation? Was the consumer able tounderstand any of the documents used? Was any undue influence or pressure exerted on, or were any unfair tactics used against, the consumer? Was the measuring rod 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 partys 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 servicesMergers and acquisitionIn many jurisdictions, regulations are in place that prohibit or limit mergers and acquisitions unless they are formally approved.Abuse of Market powerThe prohibition on convolute of market power is aimed at counteracting powerful entities from taking advantage of that market power for the purpose of disadvantaging weaker org Main principleMarket powerMisuse of that power (used that power to eliminate a competitor or prevent a competitor from entering or properly competing in the market). E.g. pre datory 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 losings of selling below cost. ACCCAgreements between competitors Cartel ConductTests1. Has there been a contract, agreement or understanding2. Has this occurred b/t competitors3. Is the arrangement for the purpose of connivanceCompetitor collusion has a specific term agreement, which including Output restrictionsApply restrictions on output what will cause shortages in markets and thus result in price rises Allocating customers, suppliers or territoriesDividing up markets, customers or regions b/t competitorsBid-riggingCompetitors who are asked to tender or bid for work colludePrice-fixingCompetitors 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 .Intern ational airline pricing cartelUnilateral 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 appliedIt 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 maintenanceA supplier stipulates that the goods it provides must only be resold at orabove a certain minimum price. Two testsHas the supplier specified a minimum price?Has the supplier taken action or attempted to enf orce 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 suppliers products. Proof, penalties and redress Criminal and civilCriminal penalties v Civil penaltiesCriminal 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 confront 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 breachesRed ress 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 nutriment 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.M5CSR REPORTWhy necessitate 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 fulfilledEnlightened self-interest (managerial-based) Economically focused motive to use social and environmental reporting to protect or enhance shareholder valueThe reason an entity choose to report will in turn inform the decision as to whom it will be directedWill seek to send the information need s of a wider range of stakeholders who might be most impacted by the operations of the entityThe 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 reportingAustralias current conceptual framework (AASB framework for the preparation and presentation of financial statements) Embrace a shareholder primacy perspective with a narrow notion of accountabilityThe practice of discounting prox cash flowsEncourage 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 materialDefinition of the elements of FRAsset (must be controlled by the entity)The practice session 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) Expensesestablish on the definition of asset, use of dandy air and water will not be recognized as expenses unless fines are imposed.ExamplesRetrenchments in response to the globular 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 approachIncrease the traffic congestion, and pollutionResultsEnvironmental cost is borne by the community.Provides a disincentive for investment in clean technologies.Issues of reliable measurement and probabilityEnvironmental 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 assumptionRequire 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 proceed Try and convince stakeholders that it is acting with an acceptable level of ethical and moral conviction w hilst pursuing its main objective Legitimacy itself is considered to be a resourcefulness 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 clash the expectations of the community can protect or enhance profitability CSR report could be a central strategy to maintaining corporate authenticityBCA report about the regulation of CSR reportIn favor of no regulation needed for CSR reportAll drivers analysis by the BCA are tied to maximizing the value of business The motivation are tied to managerial reasoning rathe r than border ethical considerations Suggest freely operating markets will lead to the effect of many existing social and environmental problemsPJCCFS 2006 the final report regarding the CSR in 2006Adopted the same position as that promoted by BCAIn favor of not supporting the introduction of legislationWith an interpretation of current legislation, the enlightened self-interest is the best way forward for Australian corporationsThe Brundtland ReportEmpirical evidence consistent with legitimacy theoryPatten (1992if the Alaskan oil spill resulted in a threat to the legitimacy of the petroleum patience, and not just Exxons, then legitimacy theory would suggest that companies operating within that industry would respond by increasing the amount of environmental disclosures by the petroleumcompanies 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 studyPublic 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 disclosuresCurrent regulations for CSR ReportingNational Greenhouse and Energy Reporting Act 2007 (NGER Act)Who are regulateUltimate 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 reportedGreenhouse gas emissionsEnergy productionEnergy consumptionOther info specified under NGER legislationRequirements embodied within the Corporations Act and accounting standards S 299(1)(f) of the Corporations ActRequires that in t he directors report, which must be included in the annual report, directors must give details of the entitys performance in relation to environmental regulations if the entitys operations are subject to any particular and significant environmental regulation under a law of the area or of a State or Territory S 299 A of the Corporations ActListed companies are required to include in the directors 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 financialimpacts. 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 inclu ded 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 InventoryDesigned 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 amountEnergy Efficiency Opportunities Act 2006Encourages large energy-using businesses to improve their energy efficiency by requiring business to identify, evaluate and report publicly on cost-effective energy savings opp