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FB2100. How Core Values are integrated in FB2100 Accounting. Jointly Presented by FB2100 Team. Week 1 Introduction Teach students how to analysis ethics cases. Ethics – A Fundamental Business Concept.
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FB2100 How Core Values are integrated in FB2100 Accounting Jointly Presented by FB2100 Team
Week 1 Introduction Teach students how to analysis ethics cases
Ethics – A Fundamental Business Concept • Standards by which actions are judged as right or wrong, honest or dishonest, fair or not fair. • Steps in analyzing ethics cases • Recognize an ethical situation and the ethical issues involved. • Identify and analyze the principal elements in the situation. • Identify the alternatives, and weigh the impact of each alternatives on various stakeholders.
Week 1 IntroductionShow relevance of FB core values with Qualities of Public Life and Professional Ethics of Accountants
Faculty of BusinessFive Core Values • Honesty/Integrity • Responsibility • Fairness • Respect • Compassion
Seven principles of Public Life • Integrity • Honesty • Selfishlessness • Objectivity • Accountability • Openness • Leadership • Nolan Committee (May 1995)
Core Ethic Values in ProfessionProfessional ethics of accountants personal qualities for good accounting HKSA Members' Handbook
Professional ethics of accountants • Confidentiality • Information acquired should be kept confidentially and not be disclosed except where consent has been obtained from client, or where there is public interest to disclose, or where there is legal or professional duty to disclose
Professional ethics of accountants • Independence • Should avoid conflicts of interest and ensure independence in each assurance engagements • US Securities and Exchange Commission banned Ernst & Young from signing new clients for half year because it could not maintain independence in auditing one of its clients, PeopleSoft, the software maker • Objectivity • Should perform the professional work objectively and ethically
Corporate Governance • Many listed companies in Hong Kong are family owned • Need to respect and protect the rights of minority shareholders • Enron Case - Arthur Andersen closed its business after its conviction for obstructing a federal investigation
Corporate Governance (Example) • In order to ensure the independence of the boards, it is required to have a minimum of three independent non-executive directors, and it should be raise the limit to one-third of the board Sarbanes-Oxley Act of 2002 The newly released publication by HKICPA: Corporate Governance for Public Bodies - A Basic Framework (2004)
Corporate Governance • Understand the concept and importance of corporate governance.
Corporate Governance • Processes, and the related organisational structures, by which organisations are directed, controlled and held to account. • “Involves a set of relationships between management, its board, its shareholders and other stakeholders • CG provides the structure through which the objectives of the organisation are set, and the means of attaining those objectives and monitoring performance are determined” OECD’s Principles of Corporate Governance
Fundamental Principles of CG • Openness • Integrity • Accountability Cadbury Report (report of the committee on the Financial Aspects of Corporate Governance (UK,1992)
Earnings Management • Understand the concept of earnings management and why it occurs.
Earnings Management • Management can influence and manipulate earnings because accounting earnings is a function of management’s estimates and assumptions. • It occurs when judgment is used to alter financial reports to • influence stakeholders’ perceptions about the • company’s underlying economic performanceand/or • influence outcomes that depend on reported accounting numbers.
Four Reasons to Manage Earnings • Meet Internal Targets • Meet External Expectations • Income Smoothing • Window Dressing for an IPO or a Loan $ $
Earnings Management • The practice of earnings management may potentially affect the transparency of the underlying economic reality of a company’s financial performance or position to such an extent that decisions with respect to the allocation of resources may change in the absence of such a practice.
Internal Control • Internal control would be used to provide reasonable assurance about the achievements of entity’s objectives with regard to effectiveness and efficiency of operations and compliance with applicable laws and regulations. • Proper procedure for authorization and adequate segregation of duties would reduce the opportunity of manipulation • The quality of internal control should be reviewed and monitored regularly • Example: DBS: Destruction of Safe Boxes
Financial Reporting • Should give a true and fair view in preparing the financial statements • Integrity: Avoid manipulation of reported earnings/Discretionary accruals • Openness: Voluntary disclosure; Should refrain from hiding any information that is useful to the users in decision making • Fairness and Respect: Should be responsible for all users of the financial statements, not only the management or the shareholders (fairness)
