CPA Ethics and Governance flashcards

32 cards. Read the term and the definition here. The deck at the top of this page is optional.

Ethical relativism

The view that right and wrong depend on cultural or individual norms, so no single universal moral standard applies across different societies or groups.

Teleological ethics

A theory judging the morality of an action by its consequences; utilitarianism is the leading example, seeking the greatest net benefit for the greatest number of people.

Deontological ethics

A duty-based theory holding that certain acts are right or wrong regardless of outcomes; Kant's categorical imperative requires acting only on rules one could will as universal.

Five fundamental principles

Integrity, objectivity, professional competence and due care, confidentiality and professional behaviour are the five ethical principles on which the accounting profession's code of conduct rests.

Public interest

The collective wellbeing of the community a profession serves; professions gain monopoly rights and self-regulation in exchange for prioritising this over self-interest.

Self-interest threat

Arises when a financial or other interest inappropriately influences professional judgement, such as a large fee dependency on one client or a shareholding in an audit client.

Conceptual framework approach

Requires identifying threats to compliance, evaluating their significance using the reasonable and informed third-party test, then eliminating them, applying safeguards or declining the engagement.

Self-review threat

Arises when an accountant evaluates their own previous work, such as auditing figures they prepared, so objective assessment of that work becomes unreliable.

Inducements test

Gifts or hospitality are acceptable only when trivial and inconsequential; otherwise accept only if intent is clearly not to influence and a reasonable third party would not judge integrity compromised.

Moral intensity

Jones's construct in which magnitude of consequences, social consensus, probability of effect, temporal immediacy, proximity and concentration of effect determine how ethically urgent an issue appears.

Rest's four components

Ethical behaviour requires moral sensitivity, moral judgement, moral motivation and moral character in sequence; failure at any one component results in unethical conduct.

Whistleblower protection

Under the Corporations Act, eligible whistleblowers who disclose misconduct to ASIC, auditors or internal channels gain immunity from liability and protection from retaliation, including dismissal.

Agency theory

Because ownership is separated from control, self-interested managers may pursue their own goals; governance mechanisms such as independent boards and equity incentives reduce resulting agency costs.

Agency costs

The combined monitoring costs borne by principals, bonding costs borne by agents, and residual loss occurring when agent behaviour still diverges from the principal's interests.

Stakeholder theory

The firm is accountable to all groups affected by its activities, including employees, customers, suppliers and communities, not solely to shareholders seeking financial returns.

Stewardship theory

Managers are trustworthy stewards motivated by achievement and duty rather than self-interest; this view favours empowering insiders and allowing combined CEO and chair roles.

Legitimacy theory

Organisations seek to appear to operate within the norms and expectations of society, using disclosure and reporting to maintain their social licence to operate.

Resource dependence theory

Boards add value by supplying expertise, legitimacy, advice and access to external networks and resources, so board composition should reflect the resources the entity needs.

Managerial hegemony theory

Asserts that boards are largely symbolic and dominated by management, so formal independence requirements have limited real effect on corporate decision-making and outcomes.

ASX if not, why not

Listed entities must disclose whether they follow each ASX Corporate Governance Council recommendation and, where they do not, explain why and what alternative governance practice is used.

Independent director

A director is independent when free of relationships that could reasonably influence judgement, assessed against materiality thresholds and links such as past employment or advisory fees.

Audit committee composition

ASX recommends at least three members, all non-executive, a majority independent, and a chair who is an independent director other than the board chair.

Chair-CEO separation

ASX recommends the board chair be an independent director and not the chief executive, preventing concentration of power and supporting effective board oversight of management.

Two-tier board

A supervisory board of non-executives oversees a separate management board, separating monitoring from executive functions; common in Germany and parts of Europe.

Business judgement rule

A defence for directors who make informed, rational decisions in good faith without material personal interest; it does not excuse negligence or failure to act diligently.

CEO and CFO declaration

Under section 295A of the Corporations Act, the CEO and CFO must declare in writing that financial records comply with accounting standards and give a true and fair view.

Triple bottom line

A reporting framework evaluating organisational performance across economic, social and environmental dimensions, rather than relying solely on financial results.

Six capitals

The integrated reporting model measuring financial, manufactured, intellectual, human, social and relationship, and natural capital as resources used and affected by the organisation.

Stakeholder salience

Mitchell, Agle and Wood rank stakeholders by power, legitimacy and urgency; possessing all three attributes makes a stakeholder definitive and highest priority for managers.

Carroll's CSR pyramid

Orders corporate responsibilities as economic first, then legal, ethical and philanthropic, with foundational economic and legal duties required before higher-level responsibilities.

Sustainability materiality

Sustainability topics that reflect the organisation's significant economic, environmental and social impacts, or that substantively influence the assessments and decisions of stakeholders.

ISAE 3000

The international standard for assurance engagements other than audits of historical financial information, commonly applied to sustainability reports and non-financial disclosures.