FB 2100 How Core Values are integrated in

FB 2100 How Core Values are integrated in FB 2100 Accounting Jointly Presented by FB 2100 Team

Week 1 Introduction Teach students how to analysis ethics cases

Ethics – A Fundamental Business Concept l l Standards by which actions are judged as right or wrong, honest or dishonest, fair or not fair. Steps in analyzing ethics cases 1. 2. 3. 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 Introduction Show relevance of FB core values with Qualities of Public Life and Professional Ethics of Accountants

Faculty of Business Five Core Values n n n Honesty/Integrity Responsibility Fairness Respect Compassion

Seven principles of Public Life l l l l Integrity Honesty Selfishlessness Objectivity Accountability Openness Leadership n Nolan Committee (May 1995)

Core Ethic Values in Professional ethics of accountants personal qualities for good accounting HKSA Members' Handbook

Professional ethics of accountants n Confidentiality n 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 n Independence n n n 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, People. Soft, the software maker Objectivity n Should perform the professional work objectively and ethically

New Topics: Corporate Governance

Corporate Governance n n n 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) n In order to ensure the independence of the boards, it is required to have a minimum of three independent nonexecutive 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)

New Topics: Corporate Governance

Corporate Governance Understand the concept and importance of corporate governance. n

Corporate Governance n n n 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 n n n Openness Integrity Accountability Cadbury Report (report of the committee on the Financial Aspects of Corporate Governance (UK, 1992)

New Topics: Earnings Management

Earnings Management Understand the concept of earnings management and why it occurs. n

Earnings Management n n 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 n n influence stakeholders’ perceptions about the company’s underlying economic performance and/or nce outcomesnthat depend on reported accounting numbers. n

Four Reasons to Manage Earnings • • Meet Internal Targets Meet External Expectations Income Smoothing Window Dressing for an IPO or a Loan $ $

Earnings Management n 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.

Week 8 Accounting Information Systems: Internal Control

Internal Control n n 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

Week 9 Accounting Principles Financial Reporting

Financial Reporting n n 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)

The End