Ethics, Governance, and Business LaBA4 Terms Flashcards

VOCABULARY flashcards covering Ethics, Corporate Governance, Auditing, Internal Control, Contract Law, and Business Structures based on the provided lecture transcript.

Ethics

The examination, categorisation, justification and recommendation of concepts of right and wrong behaviour, as well as the moral principles governing a person's decisions.

Absolute value theorists

Theorists who assume there is only one set of moral rules that are always true, though each culture has its own truths.

Relative value theorists

Theorists who believe many ethical codes exist, each evolving over time and differing from every other.

Teleology / Utilitarianism / Consequentialism

An ethical school where any action must be viewed in terms of the consequences produced; one should act to produce the greatest good for the greatest number.

Deontology

An ethical school where ethics arise from the rightfulness or wrongfulness of actions themselves.

Virtue ethics

Moral character allowing a person to flourish through a well-lived life, achieved by practising specific virtues.

Public

All users of financial information and decisions.

Interest

The responsibilities that professional accountants have to society.

IFAC

International Federation of Accountants; develops accounting and auditing standards.

IESBA

International Ethical Standards Board of Accountants; develops ethical codes and guidance.

FRC

Financial Reporting Council; promotes good governance and reporting.

Rules based approach

An ethical framework based on specific checks, punishments, sanctions, and checklists employees must sign-off on.

Framework based approach

An approach based on guiding principles that creates a culture promoting ethically sound behaviour and trust in employees to 'do the right thing'.

Lifelong learning

The provision or use of formal and informal learning opportunities throughout life to promote continuous development of skills needed for employment and personal fulfilment.

Integrity

One of CIMA's fundamental principles; being straightforward and honest in all professional and business relationships.

Objectivity

A fundamental principle where professional or business judgements are not compromised by bias, conflict of interest, or undue influence.

Professional competence and due care

Maintaining professional knowledge and skill at a level required to ensure a client or employer receives competent professional service.

Confidentiality

The principle of refraining from disclosing information acquired as a result of professional relationships without proper authority.

Professional behaviour

Complying with relevant laws and regulations and avoiding any action that discredits the profession.

Self-interest threat

A threat to professional ethics involving financial interests, family relationships, or loans from an employer or client.

Self-review threat

A threat occurring when an accountant reviews their own work.

Advocacy threat

A threat where objectivity is compromised by promoting an opinion.

Familiarity threat

A threat to ethics arising from close relationships with clients or employers.

Intimidation threat

A threat to professional ethics involving pressures or bullying.

Professional scepticism

An approach to work involving a questioning mind and being alert to conditions that may indicate possible misstatement.

Corporate governance

The system by which companies are directed and controlled.

Auditing

An independent expert's examination of financial statements to provide an opinion on whether they are true and fair.

OECD Principles of Corporate Governance

A framework designed to promote transparent and fair markets and protect shareholders' rights.

Two-tier boards

A dual board structure consisting of a Supervisory board (elected by shareholders) and a Management board (day-to-day operations).

Supervisory board

In a two-tier system, the board led by a chairman that supervises and advises the management board and makes long-term decisions.

Management board

In a two-tier system, the board led by a CEO that is in charge of day-to-day management and tactical issues.

Unitary boards

A single board consisting of a mix of executive directors (day-to-day) and non-executive directors (advice and warning).

UK Corporate Governance Code

A set of principles designed to facilitate entrepreneurial and prudent management for the long-term success of the company.

Non-executive directors (NEDs)

Independent directors; in large companies, they should make up at least $50\%$ of the board according to the UK Corporate Governance code.

Principle-agent relationship

A relationship where the shareholders (principles) appoint directors (agents) to act in their best interest.

Stewardship

The duty directors have to look after the interests of the shareholders.

Modified audit opinion

An opinion issued when auditors cannot state that the financial statements are true and fair due to material misstatement or lack of evidence.

Qualified opinion

A type of modified opinion issued when a misstatement or lack of evidence is material but can be isolated.

Adverse opinion

A modified opinion issued when misstatements are so severe the financial statements do not show a true and fair view.

Disclaimer

A modified opinion issued when the lack of evidence is so severe that no opinion can be formed.

Internal audit

An independent appraisal activity within an organisation to examine and evaluate the effectiveness of other controls.

Error of omission

An error occurring when an entry is completely missed from the records.

Error of original entry

An error where the right account is used but with the wrong amount recorded.

Error of principle

Recording an entry in the wrong type of account.

Compensating error

Two separate errors that cancel each other out.

Fraud

An intentional act involving deception to gain an unjust or illegal advantage.

Internal control

Management systems established to provide assurance of efficient operation, financial control, and compliance with laws.

Segregation of duties

Splitting up transactions so multiple people have control, reducing the risk of fraud or error.

Triple bottom line

A CSR reporting framework consisting of three sections: financial, social, and environmental.

Contract

An agreement, supported by consideration, made with the intention to create legal relations by parties with capacity.

Capacity

The legal ability to enter a contract, meaning the person is over $18$ years old and of sound mind.

Invitations to treat

A signal by one party that they are ready to receive an offer, as opposed to an actual offer.

Unilateral contracts

Offers made to the world which are difficult to revoke once acted upon.

Postal rule

A rule stating that acceptance of a contract occurs the moment an acceptance letter is posted.

Consideration

The value exchanged in a contract; it must be sufficient but need not be adequate.

Executed consideration

Consideration given at the time the contract is made.

Executory consideration

A promise to provide consideration in the future.

Condition

A fundamental term of a contract; if breached, the contract can be terminated.

Warranty

A term of a contract that, if breached, gives rise to damages but does not end the contract.

Misrepresentation

A false statement of fact or law that induces a party to enter a contract.

Victimisation

Discriminating against a person because they made a complaint about discrimination.

Bribery

Payments made to induce someone to do something they should not do.

Facilitation payments

Payments made to induce someone to do something they should already be doing.

Money laundering

The process of converting proceeds of criminal activity into assets that appear to have a legitimate origin.

Constructive dismissal

A situation where the employer's behaviour entitles the employee to presume they have been dismissed.

Sole trader

A business structure with no legal distinction between the business and owner, who has unlimited liability.

Partnership

A structure where $2+$ people trade together with a view to profit and shared unlimited liability.

Limited company

A legal entity separate from its owners that can own property, sue, and be sued.

Memorandum of Association

A document containing the company name, date of incorporation, and the names of original shareholders.

Articles of Association

Constitutional documents primarily concerned with the internal matters of a company, such as directors' powers and share rights.

Veil of incorporation

The legal distinction between a company and its owners, which can only be 'lifted' in cases of improper behaviour.