CPA Ethics & Governance (E&G) High Distinction Study Notes
Subject: Ethics & Governance (E&G)
Grade: High Distinction (HD)
Period: Semester 2, 2024
Details: Detailed Study notes with page references for the official CPA Australia Study Guide.
Study Guide Edition: CPA Ethics & Governa...
CPA Ethics and Governance (E&G) HD Keyword Index for Semester 2, 2024
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Module 1 - Accounting and Society
Part A: Accountants as members of a profession (p.3)
Public interest or self-interest? (p.3)
• Altruism: Actions that bring no benefit to an individual and may even be at their own
expense
• Enlightened self-interest: Professionals are motivated by maintaining monopolies and
extracting unwarranted wealth and influence from being in that position
Responsible Decision-Making (p.3):
• An accountant’s decision is made within a systemic framework of principles which include:
1. Governance
a. The skill and knowledge of an accountant must be exercised within the
governance framework of their profession, which stipulates certain codes of
behaviour
b. Decision-making must be within the relevant corporate governance framework
of the entity, in terms of the instruments and articles of association as well as
the policies and strategies approved by the board of directors
2. Accountability
a. Accounting work and decision-making must comply with the requirements of
regulatory authorities with the appropriate disclosure to all stakeholders
3. Ethics
a. Any decision-making must be done within an ethical framework which is based
on a commitment to integrity and honesty in the pursuit of professional
purposes and client interests
Enlightened self-interest (p.6)
• An accountant must never let the economic self-interest of his behaviour to outweigh the
primary commitment to serving the public interest
• Lee (1995) described the enlightened self-interest as protecting the public interest in a self-
interested way (E.g. Volunteering at a charity to gain favour with your boss who runs it)
Ideals of Accounting – Entrepreneurialism and Professionalism (p.6)
• Carnegie and Napier (2010) identify the ideals of accounting professionalism as:
1. Education
2. Ethics
3. Expertise
4. Entrepreneurship (Conflict with objectivity)
,What is a profession? (p.8)
• A Profession is based on a high level of competence and skills in a given area, which are
learnt through specialised training, being ethical and in the best interests of society as well
as maintained by continuing professional development
• Professionalisation: The process of establishing professional bodies and codes of conduct
aimed at raising the standards of the occupation, and to invest in training, education and
respecting quality standards
• The 8 key attributes of a profession developed by Greenwood (1957):
1. Systematic body of theory and knowledge
§ Theory construction, body of knowledge and systematic research
2. Extensive education process for its members
§ Education process = Theory (University) + Practice (Internship) + CPD (CPA)
3. Ideal of service to the community
§ Social contract to help society (E.g. Helping charities)
§ 3 aspects: Wellbeing of society, pursuit of excellence and community service
4. High degree of autonomy and independence
§ Co-regulation = Accounting profession + Government
5. Code of ethics for its members
§ 5 principles: Integrity, Objectivity, Professional Competence and Due Care,
Professional Behaviour and Confidentiality (How we should behave)
6. Distinctive ethos or culture
§ Use of values and norms enhances belonging (E.g. Symbols and images)
7. Application of professional judgement
§ Professional judgement = Diagnose + Solve unstructured problems
• Application of knowledge and skills
8. Existence of a governing body
§ Professional accounting bodies set minimum requirements, monitor
members and their professional development (E.g. CPA Australia)
, • Monopoly control: The situation where members of the profession control who is allowed to
work in the industry by establishing licensing rules and regulations which creates protection
against competition (E.g. Exclusivity requirement for auditors under the Corporations Act)
• Service Ideal: Professionals should both serve society and act in the public interest
Self-regulation:
• Professions are typically allowed to provide services to the public through regulatory
processes (e.g. Doctors are allowed by law to prescribe specific drugs to patients)
• Once given permission, the professions are allowed a level of independence/autonomy,
which means that they have a greater level of authority to set their own rules and
regulations and have less detailed government intervention
• Professional bodies set the educational requirements, professional ethical standards and
disciplinary/legal processes for members of their profession
• Autonomy enables members of the profession to be judged by their informed peers, rather
than by regulators who have limited knowledge and greater bias due to less experience
• Autonomy also enables internal penalties/sanctions for matters that a legal process might
not be able to identify (E.g. Ethical breaches of a professional code of conduct)
From self-regulation to a co-regulatory process:
• There can be a negative outcome from this autonomy if the profession fails to demonstrate
self-control and self-regulation and doesn’t hold its members to account when they act
inappropriately
• If this is allowed to continue through lack of self-regulation, trust in the profession will be
eroded and the value and the status of the profession will be damaged
• Regulations from external sources are in place leading to co-regulation with regulatory
bodies (E.g. Australian Financial Reporting Council which has been given auditing and
accounting standards and the force of law)
Professions – The traditional view and the ‘market control’ view (p.11)
There are 2 contrasting views of the accounting profession
1. Traditional (Ideal) view:
a. The accounting profession is seen as demonstrating a range of attributes that are
focused on serving society
b. Attributes: Systematic body of knowledge, extensive education process, code of
ethics, culture and a governing body
2. Market control view:
a. Professional accountants are self-interested and less concerned with the broader
public interest, than with their own careers (Monopoly creation)
b. The accounting profession has created a “monopoly” in order to ensure that on
certain people (“members of the profession”) can work in this field (E.g. Collapse of
Arthur Andersen)
c. Outcomes: Generates greater financial returns as well as better status and prestige
in the community
Trust and professions (p.11)
, • Society expects individual capability and the application of professional ethics from
professionals as they make judgements that affect individuals, societies and economies
• The way the public regards a certain profession will control the rights granted to the
profession and the professionals working within it and thus public trust is vital or else there
will be severe consequences (E.g. GFC)
8 Attributes of the accounting profession (p.12)
1. A systematic body of theory and knowledge
• A professional requires the entire range of skills and expertise founded on a well-founded
body of knowledge
• The educational process for accountants is of lifelong learning that must adhere to the
international standards which outline the core competencies that accountants must satisfy
to be recognised as a member of the profession and professional body
• These standards are to ensure a standardised level of competence and knowledge for all
members of the accounting profession, which covers technical knowledge, soft skills and
professional competence
2. An extensive education process:
• Membership of a profession requires that professionals’ knowledge and skills are further
enhanced by the accumulation of knowledge and experience through mentoring, ongoing
professional development and continuing education programs
3. An ideal of service to the community:
• Wilensky (1964) believed the “service ideal” to be “the pivot around which the moral claim
to professional status revolves” and if “any profession that abandons the service ideal will
quickly lose the moral claim to professional status”
• APES 110 Code of Ethics for Professional Accountants (APESB 2018) specifies the
fundamental principles of acceptable professional conduct for professional accountants
• The service ideal has 3 key perspectives:
1. The well-being of society
a. Accountants contribute to the well-being of society by preparing and attesting
information that ensures the efficient functioning and decision making of
business, and not-for-profit and government enterprises
2. The pursuit of excellence
a. The individual accountant accepts responsibility for maintaining and updating
their knowledge and skills, and applying such skills and competence with due
professional care in the best interests of society
3. Community service
a. Pro bono: Latin meaning “for the good”, which indicates the provision of unpaid
work for the public good (E.g. Treasurer for charities)
4. A high degree of autonomy and independence:
• Self-regulatory: Professions are allowed a substantial degree of autonomy and
independence from government interaction and control
• The co-regulatory situation of the accounting profession is dependent upon the level of
autonomy afforded to them through consistent demonstration of professional and ethical
standards by the profession and members of it (E.g. Government and Accounting Profession)
,• Because of corporate failures arising from the poor conduct of accounting professionals, the
profession now co-regulates with external authorities
• E.g. The Australian Accounting Standards Board (AASB) and Auditing and Assurance
Standards Board (AUASB) now reports directly to the Australian Financial Reporting Council
(FRC) instead of the professional accounting bodies (CPA, CAANZ and IPA)
• Individual member autonomy is closely related to the concepts of professional judgement,
adherence to a code of professional conduct and professional independence
• The member must be able to use their professional judgement free from the influence of
others, and detached from the risk of financial gain because of the advice provided
• For accountants, independence becomes important in relation to the concepts of objectivity
and integrity (E.g. An accountant may be torn between meeting the requirement of the
client to report in a certain way and maintaining their own ethical and professional
obligations)
Co-regulation and professional discipline
• The regulatory structure of CPA Australia includes:
o a system of accreditation for accounting degree programs to ensure that the
relevant body of knowledge is acquired by future members
o a membership qualification process by way of examination and required practical
experience
o a requirement for high levels of continuing professional education
o a code of ethics
o a disciplinary process to address member misconduct
5. A code of ethics for members
• The APES 110, other APES statements and the Constitution of CPA Australia, relevant
legislation (E.g. Corporate law and accounting standards regulation) provide a guidance and
discipline framework for the members of CPA Australia
• As working in a global market, we find that in different cultures and countries, different
behaviours are seen as acceptable or unacceptable but this can be challenging for
professionals as there is no standardised global ethical guideline
• E.g. The payment of bribes is seen as unethical and corrupt in Australia; however, in some
parts of the world, it is seen as a necessary evil of business dealings
, 6. A distinctive ethos or culture
• The ethos or culture of a profession consists of 3 key characteristics
1. Values
a. Formed by the culture and ethos of the members of the professional
organisation (E.g. CPA Australia has “integrity” at its foundation)
2. Norms
a. Comprises of both formal and informal characteristics
b. Creating a culture and a sense of belonging are key to maintaining a professional
organisation that is kept vital by new and interested members
3. Symbols
a. Includes insignia, emblems, certifications and titles (E.g. ASA, CPA or FCPA)
b. Culture and ethos stem from formal history, significant milestones, jargon,
stereotypes and folklore
7. Application of professional judgement
• Becker (1982) argues that professional judgement (E.g. Being able to diagnose and solve
complex, unstructured values-based problems gained through practical experience) is the
single most important attribute that distinguishes professionals from non-professionals
• Professionals must choose outcomes that best meet the social ideal of the profession and
not simply the best outcome for the client
• A cause of concern for professionals is the distinction between a judgement made in error
(E.g. A mistake) and a negligently formed judgment, particularly during an audit
• Some of the key judgements that auditors must make include:
o Identifying “those charged with governance” in a reporting entity
o Deciding whether reasonable assurance or limited assurance is possible
o Ensuring that the budget for the audit is sufficient
o Deciding on an audit plan (E.g. Deciding whether “sufficient appropriate audit
evidence” has been identified and whether any additional procedures are required)
o Deciding whether the evaluation of the results is appropriate and ensuring that the
conclusions are soundly based on the evidence examined and the appropriate action
has been taken (E.g. Must consider whether the appropriate level of management
has been informed and an appropriate opinion expressed to the relevant authority,
or if a modified audit report is needed)
8. The existence of a governing body
• A profession must have a governing body that has been drawn from the membership on a
fully democratic basis and must be credible and effective in the eyes of both the members
and the public
• The governing body of a profession should:
o Speak for the profession, particularly on those matters of public policy that may
adversely affect the profession’s independence and autonomy
o ensure that those who enter the profession have the requisite standard of education
and that those practitioners already within the profession continue to keep
themselves up to date with developments in accounting theory and practice
o encourage the setting and monitoring of high standards of professional conduct
o apply disciplinary sanctions if standards of professional conduct are not observed.
Any breach of professional conduct is judged and acted on by professional peers
, without public interference, although members who may have acted illegally may
face public prosecution in the courts
o Ensure high standards of performance and conformance by the professional body
itself— including establishing policies and strategies and appropriate codes of
conduct within the organisation
The profession’s regulatory process (p.18)
Background on Accounting Professional and Ethical Standards Board (APESB) (p.18)
• The APESB is an independent body established in 2005 that sets the professional standards
for accountants and was the result of an initiative of CPA Australia and CAANZ
• Regarding the auditing standards, the CLERP 9 legislation (Corporate Law Economic Reform
Program (Audit Reform and Corporate Disclosure) Act 2004 (Cwlth)) reconstituted the
AUASB as a body under the ASIC Act 2001 (Cwlth)
• Auditing standards have the force of law under the Corporations Act, which means
registered auditors have a legal duty to comply with auditing standards and ethical
requirements issued by the AUASB
• The profession seeks to increase public confidence in it by opening the professional
standard-setting process to greater public scrutiny by an independent board and that any
notion of self-interest should be removed
• The APESB comprises of a technical board of 8 members, including 2 from CPA Australia, and
a secretariat. The other members are from the public sector, corporate sector, audit firms,
academia and the public
• The APESB fulfils its role by:
o reviewing the professional and ethical standards on a yearly cycle, and monitoring
the needs of the accounting profession and the public for areas requiring new or
updated professional and ethical standards
o reviewing the implementation of new and amended professional and ethical
standards within 6 months of issue
o referring matters to the secretariat for research, direction and amendment
o seeking comment on exposure drafts for proposed standards from the public, the
professional bodies and their members
o monitoring the effectiveness of professional and ethical standards
The quality assurance process (p.19):
• To help assure quality outputs, the profession and the regulators have developed a multi-
level regulatory framework that encompasses many of the activities of private and public
sector organisations
• These assurance activities are as follows:
1. Standard setting:
§ Involves the FRC with oversight responsibility for the AASB, which deals with
standard setting in the private and public sector, and the AUASB, which
deals with the setting of auditing standards
2. Conformity with standards:
i. Issued by the APESB, APES 205 Conformity with Accounting Standards
and APES 210 Conformity with Auditing and Assurance Standards are
mandatory statements of responsibilities for members involved in the
preparation, presentation or audit of financial reports
, 3. Practice reviews:
i. To hold a Certificate of Public Practice, members must demonstrate
compliance with quality control standards by annually providing a signed
assurance that the established quality control requirements are being
met and by undergoing a practice review.
ii. Reviewers from CPA Australia meet with CPAs of firms on a 5 yearly
basis and if their conduct is unsatisfactory, then the CPA must take
remedial action and could result in disciplinary action
4. Accounting firm regulation:
• Policies and procedures that provide reasonable assurance that engagements
are performed in accordance with standards and regulatory and legal
requirements
• APES 320 Quality Control for Firms
a. Establishes the basic principles and provides guidance for a system of quality
control that provides reasonable assurance that a firm and its personnel comply
with professional and regulatory requirements.
i. Elements of a system of quality control include:
Ø Leadership responsibilities for quality within the firm: Policies and
procedures to promote an internal culture that recognises quality is
essential in performing engagements
Ø Ethical requirements: Policies and procedures to provide reasonable
assurance that the firm and its personnel comply with relevant
ethical requirements as contained in the profession’s code of ethics
Ø Acceptance and continuance of client relationships and specific
engagements: Policies and procedures to ensure that it will only
undertake or continue with engagements where it has considered
the integrity of the client, is competent to perform the engagement
and can comply with the ethical requirements
Ø Human resources: Policies and procedures to ensure there are
enough personnel with the capabilities, competence and
commitment to the ethical principles needed to perform
engagements in accordance with professional standards and
regulatory and legal requirements
Ø Engagement performance: Policies and procedures to provide
reasonable assurance that engagements are performed in
accordance with professional standards and regulatory and legal
requirements
Ø Monitoring: Policies and procedures necessary for ongoing
evaluation of the firm’s system of quality control, including a
periodic inspection of completed engagements and documentation
Professional discipline (p.20):
• Members often face personal, financial and other pressures that threaten their integrity and
test their judgment as such, some members prioritise self-gain and overlook their duty to
protect the interests of third parties and the trust bestowed upon members by the public
, • Joining CPA Australia means committing to upholding the reputation of the CPA designation
by adhering to the obligations spelt out in CPA Australia’s Constitution and By-Laws, the
Code of Professional Conduct and applicable regulations.
• To ensure all members uphold these standards, CPA Australia has a formal process that
enables complaints about members to be heard and evaluated and, where appropriate,
disciplinary actions to be taken
• Investigations and disciplinary processes are guided by the principles of procedural fairness
(the right for a member to put forward their case), confidentiality, independence and the
right to appeal
Regulation of member conduct (p.20):
• Types of complaint identified in the Constitution of CPA Australia (clause 39) include:
o Obtaining admission as a Member by improper means
o Breaching the Constitution, By-Laws or Code of Professional Conduct
o Dishonourable practice or conduct that is derogatory to CPA members
o Failing to observe a proper standard of professional care, skill or competence
o Becoming insolvent
o Being found to have acted dishonestly in any civil proceedings
• Resolving a complaint:
1. Attempt to resolve the matter directly with the CPA Australia member
2. If unsuccessful, the complainant must lodge a written complaint providing all necessary
details, supported by documentation
3. The complaint is reviewed by CPA Australia’s General Manager Professional Conduct
(MPC) who will determine whether the complaint is relevant and if so, a file will be
opened and the case will be assigned to a Professional Conduct Officer (PCO)
4. The PCO will investigate the complaint by compiling a report which will enable them to
give a recommendation to the CEO of CPA Australia regarding the case
5. The CEO must determine, based on the MPC’s recommendation, if there is a case and
then must refer the complaint to either the Disciplinary Tribunal or to a One Person
Tribunal (OPT)
6. The member and complainant will be notified by the MPC that there is a case and they
will assign an Investigating Case Manager (ICM) who will prepare written details of the
case and present them at the hearing
7. After the hearing of the case, a decision will be made and the member and complainant
will be advised of the result
Penalties and appeals (p.20):
• The decisions of the Disciplinary Committee are published on CPA Australia’s website
• The Constitution of CPA Australia (clause 39(b)) specifies that penalties can include:
o Forfeiture of membership
o Suspension of membership for five years or less
, o Fines
o Severe reprimand
o Cancellation or suspension of any certificate, privilege, right or benefit available to
the member
o Restricting the member from using the CPA designation and/or ordering the
member to remove any CPA Australia signage and the designation from advertising
materials and office premises
o Lowering the member’s status and/or removing any specialist designation
o Directing the member to undertake additional hours of professional development
o Direction to undertake such quality assurance as may be prescribed
Part B: Interaction with Society (p.24)
Accounting roles, activities and relationships (p.24)
Relationships and roles (p.24)
• Factors that influence how an individual behaves at work:
o Culture
o Standards
o Ethical evaluations
o Personal moral development
o Family influences and personal relations, such as those at work
o The organisational level (Business structure and relationships with colleagues)
o Laws and regulations
o Professional aspects (E.g. Expectations and ethics)
Accounting work environments (p.25)
Public practice accounting (p.25)
• Public practice: Professional accountants who offer accounting services to businesses and
the public
• Grouped into 3 types of firms/practices:
1. Big 4 accounting firms:
a. The 4 largest international professional public practice firms that offer services
in accountancy and professional services to the majority of public and private
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