Governance - Specifies the structure through which

- process whereby elements in society rights and responsibilities are distributed

wield power, authority, and influence and among participants in the corporation;
enact policies and decisions concerning that spells out the rules and procedures
public life and social upliftment for making decisions in corporate affairs
- process of decision-making and the
process by which decisions are Purpose of corporate governance
implemented through the exercise of 1. Enhance shareholder value
power or authority be leaders of the 2. Protect the interest of other
country and/or organizations stakeholders
3. Provide oversight as to what the board
Characteristics of good governance does and how it sets the values of the
Participation corporate entity
- Key to good governance
- Needs to be informed and organized Objectives of Corporate Governance
- Active and equal participation of civil 1. FAIR AND EQUITABLE TREATMENT
society OF SHAREHOLDERS
- Quality and effectiveness of a policy 2. SELF-ASSESSMENT
depends on the involvement of all - Corporate governance enables
stakeholders in decision-making firms to assess their behavior
- 4 levels (informing, counseling, and actions before they are
inclusion, partnership) scrutinized by regulatory
agencies
Rule of law 3. INCREASE SHAREHOLDERS VALUE
- fair legal frameworks that are enforced - Good corporate governance has
impartially been linked to higher valuation
- good laws, institutions and processes of shares by businessmen
- governments give business and society 4. TRANSPARENCY AND FULL
the stability of knowing that all rights are DISCLOSURE
respected and protected
- Strong rule of law (1) Clearly written and
easily accessible laws (certainty and
enforceability); (2) Independent and
impartial judiciary (fairness, transparent,
timely and predictable resolution of
disputes); (3) Effective and efficient
public institutions (empower business
and individuals to make a positive
contribution)

Transparency
- decisions that are taken and their
enforcement are done in a manner that
follows rules and regulations
- information is freely available and
accessible
- 2 types (proactive and reactive)

Responsiveness
- Institutions and processes try to serve
the needs of all stakeholders within
reasonable time frame

Consensus-oriented
- There has to be a mediation of the
different interests in society to reach a
broad consensus on what is in the best
interest of the whole community and
how this can be achieved

Overview of Corporate Governance

- systems of rules, practices and
processes by which business
corporations are directed and controlled
Revised code of corporate governance
June 18, 2009, approved the promulgation of
this Revised Code of Corporate Governance
(the “Code”) which shall apply to registered
corporations and to branches or subsidiaries of
foreign corporations operating in the Philippines
that
a. sell equity and/or debt securities to the
public that are required to be registered
with the Commission,
b. have assets in excess of Fifty Million
Pesos and at least two hundred (200)
stockholders who own at least one
hundred (100) shares each of equity
securities
c. whose equity securities are listed on an
Exchange;
d. Are grantees of secondary licenses from
the Commission.
Definition of Terms
Corporate Governance
- framework of rules, systems and
processes in the corporation that
governs the performance by the Board
of Directors and Management
Board of Directors
- the governing body elected by the
stockholders that exercises the
corporate powers of a corporation
Exchange
- an organized market place or facility
Management
- the body given the authority by the
Board of Directors to implement the
policies
Independent director
- a person who, apart from his fees and
shareholdings, is independent of
management and free from any
business or other relationship
Executive director
- a director who is also the head of a
department or unit of the corporation
Non-executive director
- a director who is not the head of a
department or
Non-audit work
- the other services offered by an external
auditor to a corporation)
Internal control
- the system established by the Board of
Directors and Management for the
accomplishment of the corporation’s
objectives
Internal control system
- the framework under which internal
controls are developed and
implemented
Internal audit
- an independent and objective assurance
activity designed to add value to and
improve the corporation’s operations
Internal audit department
- provide independent and objective
assurance services
Internal Auditor
- the highest position in the corporation
responsible for internal audit activities. If
internal audit activities are performed by
outside service providers, he is the
person responsible for overseeing the
service
Rules of Interpretation
a. All references to the masculine gender
in the salient provisions of this Code
shall likewise cover the feminine gender
Article 3: Board Governance
- The Board of Directors (the “Board”) is
primarily responsible for the governance
of the corporation
Composition of the Board
- The Board shall be composed of at least
five (5), but not more than fifteen (15),
members who are elected by the
stockholders.
- All companies covered by this Code
shall have at least two (2) independent
directors or such number of independent
directors that constitutes 20% of the
members of the Board, whichever is
lesser, but in no case less than two (2)
- The membership of the Board may be a
combination of executive and
non-executive directors
Multiple Board Seats
- the capacity of the directors to diligently
and efficiently perform their duties and
responsibilities to the boards they serve
should not be compromised
The Chair and Chief Executive Officer
- the roles of Chair and CEO should, be
separate
- A clear delineation of functions should
be made between the Chair and CEO
upon their election
*The duties and responsibilities of the Chair in
relation to the Board may include, among others,
the following:
 - Ensure that the meetings of the Board
are held in accordance with the by-laws
or as the Chair may deem necessary;
- Supervise the preparation of the agenda
of the meeting
- Maintain qualitative and timely lines of
communication and information
between the Board and Management
Qualifications of Directors
- College education or equivalent
academic degree;
- Practical understanding of the business
of the corporation;
- Membership in good standing in
relevant industry, business or
professional organizations; and
- Previous business experience
Disqualification of Directors
Permanent Disqualification
- any person convicted by final judgment
or order by a competent judicial or
administrative body of any crime that (a)
involves the purchase or sale of
securities; (b) arises out of the person’s
conduct as an underwriter, broker,
dealer, investment adviser, principal,
distributor, mutual fund dealer, futures
commission merchant, commodity
trading advisor, or floor broker or (c)
arises out of his fiduciary relationship
- Any person who, after hearing, is
permanently enjoined by a final
judgment or order jurisdiction; if such
person is currently the subject of an
order
- Any person earlier elected as
independent director who becomes an
officer, employee or consultant of the
same corporation
- Any person judicially declared as
insolvent
- Conviction by final judgment of an
offense punishable by imprisonment for
more than six (6) years, or a violation of
the Corporation Code committed within
five (5) years prior to the date of his
election or appointment
or its subsidiaries and affiliates exceeds
two percent of its subscribed capital
stock
- If any of the judgments or orders cited in
the grounds for permanent
disqualification has not yet become final
Responsibilities, Duties and Functions of the
Board
1. General Responsibility
- The Board should formulate the
corporation’s vision, mission, strategic
objectives, policies and procedures
2. Duties and Functions
- Provide sound strategic policies and
guidelines to the corporation on major
capital expenditures
- Periodically evaluate and monitor the
implementation of such policies and
strategies
- Adopt a system of check and balance
within the Board
- Identify key risk areas and performance
indicators
- Meet at such times or frequency as may
be needed. The minutes of such
meetings should be duly recorded.
- Appoint a Compliance Officer who shall
have the rank of at least vice president.
In the absence of such appointment, the
Corporate Secretary, preferably a
lawyer, shall act as Compliance Officer
G) Specific Duties and Responsibilities of a
Director
- A director’s office is one of trust and
confidence

Temporary disqualification
- Refusal to comply with the disclosure
requirements of the Securities
Regulation Code and its Implementing
Rules and Regulations
- Absence in more than fifty (50) percent
of all regular and special meetings of the
Board during his incumbency, or any
twelve (12) month period
- Dismissal or termination for cause as
director of any corporation covered by
this Code
- If the beneficial equity ownership of an
independent director in the corporation
Principle 1: Board role and responsibilities
- The board should act on an informed
basis and in the best long-term interests
of the company
Principle 2: Leadership and independence
- Board leadership calls for clarity and
balance in board and executive roles
Principle 3: Composition and appointment
- There should be a sufficient mix of
directors with relevant knowledge,
independence, competence, industry
experience and diversity of perspectives
Principle 4: Corporate culture
- The board should adopt high standards
of business ethics, ensuring that its
vision, mission and objectives are
sound and demonstrative of its values
Principle 5: Risk oversight
- The board should proactively oversee,
review and approve the approach to risk
management regularly
Principle 6: Remuneration
- Remuneration should be designed to
effectively align the interests of the CEO
and executive officers
Principle 7: Reporting and audit
- Boards should oversee timely and high
quality company disclosures for
investors and other stakeholders
Principle 8: Shareholder rights
- Rights of all shareholders should be
equal and must be protected
Business ethics defined and why study
business ethics
MORALS
- person’s personal philosophies about
what is right or wrong
- when one speaks of morals, it is
personal or singular
PRINCIPLES
- specific and pervasive boundaries for
behavior that should not be violated
VALUES
- enduring beliefs and ideals that are
socially enforced.
- Several desirable or ethical values for
business are teamwork, trust,
and integrity
ETHICS
- Behavior or decisions made within a
group’s values
Corporate culture
- Rules and regulations written and
unwritten that determine what decisions
employees consider right or wrong
- Evaluations are judgments by the
organization and are defined as its
ethics
Specific issues
- Misuse of company resources, abusive
behavior, harassment, accounting fraud,
conflicts of interest, defective products,
bribery, product knockoffs, and
employee theft
- General ethics plays an important role in
the public sector
- In government, several politicians and
high-ranking officials have experienced
significant negative publicity, and some
resigned in disgrace over ethical
indiscretions
Reasons for studying business ethics
- Organizations are culturally diverse and
personal morals must be respected,
- Making decisions about product quality,
advertising, pricing, sales techniques,
hiring practices, and pollution control.
- Family, religion, and school may not
provide specific guidelines for these
complex business decisions.
Managerial responsibility and ethical leadership
for the conduct of others requires knowledge of
ethics and compliance processes and systems.
Ethical decision-making process and about ways
to promote ethical behavior within your
organization.
Understand how to cope with conflicts between
your own personal values and those of the
organization in which you work.
The development of business ethics
Before 1960
1920: Living Wage- income sufficient for
education, recreation, health,and retirement.
1930: New Deal- blamed business for
the country’s economic woes.
1950: President Harry S. Truman’s Fair
Deal- a program that defined such matters as
civil rights and environmental responsibility as
ethical issues that businesses had to address.
1937: First book on business ethics-
written by Frank Chapman Sharp and Philip G.
Fox. The authors separated their book into four
sections: fair service, fair treatment of
competitors, fair price, and moral progress in the
business world.
The 1960s, THE RISE OF SOCIAL ISSUES IN
BUSINESS
1960: development of an anti-business
trend military–industrial complex and
consumerism
1962: Consumers’ Bill of Rights,
President John F. Kennedy delivered a “Special
Message on Protecting the Consumer Interest”
that outlined four basic consumer rights: the
right to safety, the right to be informed, the right
to choose, and the right to be heard
1965: modern consumer movement
began with the publication of Ralph Nader’s
Unsafe at Any Speed President Lyndon B.
Johnson and the “Great Society- a series of
programs that extended national capitalism and
told the business community the U.S.
government’s responsibility was to provide all
citizens with some degree of economic stability,
equality, and social justice.
The 1970s, Business Ethics as an Emerging
Field
- Business ethics began to develop as a
field of study
- Corporate social responsibility- an
organization’s obligation to maximize its
positive impact on stakeholders and
minimize its negative impact.
- Nixon administration’s Watergate
scandal- focused public interest on the
importance of ethics in government.
- President Jimmy Carter- Foreign
Corrupt Practices Act was passed
during his administration, making it
illegal for U.S. businesses to bribe
government officials of other countries.
The 1980s, consolidation
- Business academics and practitioners
acknowledged business ethics as a field
of study.
- R. Edward Freeman – one of the first
scholars to pioneer the concept of
stakeholders as a foundational theory
for business ethics decisions.
*stakeholders - any group or individual who can
affect or is affected by the achievement of the
organization’s objectives
Defense Industry Initiative on Business Ethics
and Conduct (DII)
1. DII supports codes of conduct and their
widespread distribution.
2. Member companies are expected to
provide ethics training for their
employees as well as continuous
support between training periods.
3. Defense contractors must create an
open atmosphere in which employees
feel comfortable reporting violations
without fear of retribution.
4. Companies need to perform extensive
internal audits and develop effective
internal reporting and voluntary
disclosure plans.
5. Insists that member companies
preserve the integrity of the defense
industry.
6. Member companies must adopt a
philosophy of public accountability
The 1990s—Institutionalization of Business
Ethics
- President Bill Clinton- continued in
supporting self-regulation and free
trade.
- November 1991- approved by Federal
Sentencing Guidelines for Organizations
(FSGO)- The guidelines, which were
based on the six principles of the DII,27
broke new ground by codifying into law
incentives to reward organizations for
taking action to prevent misconduct,
such as developing effective internal
legal and ethical compliance programs.
Provisions in the guidelines mitigate
penalties for businesses striving to root
out misconduct and establish high
ethical and legal standards.
- carrot-and-stick approach- by taking
preventive action against misconduct, a
company may avoid onerous penalties
should a violation occur
the Twenty-First Century of Business Ethics
- Accounting scandals, especially
falsifying financial reports, became part
of the culture of many companies.
- Sarbanes–Oxley Act- in 2002. law made
securities fraud a criminal offense and
stiffened penalties for corporate fraud. It
also created an accounting oversight
board that requires corporations to
establish codes of ethics for financial
reporting and to develop greater
transparency in financial reports to
investors and other interested parties.
- 2009- President Obama led the passage
of legislation to provide a stimulus for
recovery. His legislation to improve
health care and provide more protection
for consumers focused on social
concerns.
- Dodd–Frank Wall Street Reform and
Consumer Protection Act- This complex
law required regulators to create
hundreds of rules to promote financial
stability, improve accountability and
transparency, and protect consumers
from abusive financial practices.
Developing an organizational and global
ethical culture and the benefits of business
ethics
Ethical culture
- Component of corporate culture that
captures the values and norms an
organization defines and is compared to
by its industry as appropriate conduct
Benefits (profit)
- Employee commitment and trust
- Investor loyalty and trust
- Customer satisfaction and trust
Ethics contributes to employee commitment
- Employees’ perceptions that their firm
has an ethical culture lead to
performance enhancing outcomes within
the organization
- strong ethical values and positive
business practices has been found to
increase group creativity and job
satisfaction and decrease turnover
Ethics contributes to investor loyalty
- shareholder loyalty and contributes to
success that supports even broader
social causes and concerns
- Investors also recognize that an ethical
culture provides a foundation for
efficiency, productivity, and profits
Ethics contributes to customer satisfaction
- The perceived ethicality of a firm is
positively related to brand trust,
emotional identification, and brand
loyalty
- Focuses on the core value of placing
customers’ interest first
Emerging business ethics
Recognizing an ethical issue and
foundational values for identifying ethical
issues
- first step toward understanding business
ethics is to develop ETHICAL ISSUE
AWARENESS
- Failure to acknowledge or be aware of
ethical issues is a great danger in any
organization
- Business decisions, like personal
decisions, may involve a dilemma.
- In a dilemma, all of the alternatives have
negative consequences, so a less
harmful choice is made
- Any type of manipulation or deceit – or
even just the absence of transparency in
decision making – can create harm to
others.
- Collusion – a secret agreement between
two or more parties for a fraudulent,
illegal, or deceitful purpose.
- violates the general business value of
honesty
Foundational Values for Identifying Ethical
Issues
1. Honesty
- refers to truthfulness and
trustworthiness
- to tell the truth to the best of
your knowledge without hiding
anything
- Confucius defined an honest
person as junzi, or one who has
the virtue ren.
- Ren – can be loosely defined as
one who has humanity
- Yi – another honesty component
and is related to what we should
do according to our
relationships with other
- Li – relates to honesty but refers
to the virtue of good manners or
respect
- Zhi – represents whether a
person knows what to say and
what to do as it relates to
honesty
- Issues related to honesty also
arise because business is
sometimes regarded as a game
governed by its own rules rather
than those of society as a
whole.
Several books have also compared business to
warfare.
- The Guerrilla Marketing Handbook and
Sun Tsu: The Art of War for Managers
- The common theme is that surprise
attacks, guerrilla warfare, and other
warlike tactics are necessary to win the
battle for consumer dollars.
- Business-as-war mentality can help a
company remain competitive, but it
could also foster the idea that honesty is
unnecessary in business.
Dishonesty
- opposite of honesty
- lack or absence of integrity, incomplete
disclosure, and an unwillingness to tell
the truth
- lying, cheating, and stealing are actions
usually associated with dishonest
conduct
Lying can be defined as:
● untruthful statements that result in
damage or harm
● “white lies” – do not cause damage but
function as excuses or means to benefit
others
● statements obviously meant to engage
or entertain without malice
2. Integrity
- refers to being whole, sound,
and in an unimpaired condition
 - relates to product quality, open
communication, transparency,
and relationships
- a foundational value for
managers to build an ethical
internal organizational culture
- in an organization, it means
uncompromising adherence to a
set or group of values
3. Fairness
- refers to the quality of being just,
equitable, and impartial
- there are three fundamental elements
that motivate people to be fair:
1. Equality - is about the
distribution of business and
resources
2. Reciprocity - an interchange of
giving and receiving in social
relationships
3. Optimization - the trade-off
between equity (equality) and
efficiency (maximum
productivity)
Ethical issues and dilemmas in business
ETHICAL ISSUE
- a problem, situation, or opportunity that
requires an individual, group, or
organization to choose among several
actions that must be evaluated as right
or wrong, ethical or unethical
ETHICAL DILEMMA
- negative outcomes
- not a right or ethical choice in a
dilemma, only less unethical or illegal
choices as perceived by any and all
stakeholders
MISUSE OF COMPANY TIME AND
RESOURCES
- can range from unauthorized equipment
usage to misuse of financial resources.
TIME THEFT
ABUSIVE OR INTIMIDATING BEHAVIOR
- terms refer to many things—physical
threats, false accusations, being
annoying, profanity, insults, yelling,
harshness, ignoring someone, and
unreasonableness—and their meaning
differs from person to person.
Wage Theft - employees are increasingly
claiming that companies are failing to pay them
overtime for working extra hours.
Bullying - associated with a hostile workplace
where someone or group considered a target is
threatened, harassed, belittled, verbally abused
or overly criticized.
ACTIONS ASSOCIATED WITH BULLIES
1. spreading rumors to damage others
2. Blocking others’ communication in the
workplace
3. Flaunting status or authority to take
advantage of others
4. Discrediting others’ ideas and opinions
5. Use of emails to demean others
6. Failing to communicate or return
communication
7. Insults, yelling, and shouting
8. Using terminology to discriminate by
gender, race, or age
9. Using eye or body language to hurt
others or their reputations
10. Taking credit for others’ work or ideas
Steps to minimize workplace bullying:
1. Create policies that place reprimand
letters and/or dismissal for such
behavior.
2. Emphasize mutual respect in the
employee handbook.
3. Encourage employees who feel
bullied to report the conduct via hotlines
or other means.
LYING -distorting the truth
Commission lying - is creating a perception or
belief by words that intentionally deceive the
receiver of the message
Omission lying - is intentionally not informing
others of any differences, problems, safety
warnings, or negative issues relating to the
product or company that significantly affect
awareness, intention, or behavior
CONFLICT OF INTEREST -exists when an
individual must choose whether to advance his
or her own interests, those of the organization,
or those of some other group
Bribery
- the practice of offering something (often
money) in order to gain an illicit
advantage from someone in authority
ETHICS OF BRIBERY
- Active Bribery – the person who
promises or gives the bribe commits the
offense.
- Passive Bribery – an offense committed
by the official who receives the bribe.
Facilitation Payments
➢ U.S. Companies do not constitute bribery
payments.
➢ United Kingdom considers bribery as illegal.
Corporate intelligence
- the collection and analysis of
information on markets, technologies,
 customers, and competitors, as well as
on socioeconomic and external political
trends
Three distinct types of intelligence models:
1. Passive monitoring system for early
warning
2. Tactical field support
3. Support dedicated to top-management
strategy
Ways To Steal Corporate Trade Secrets
- Hacking - Breaking into a computer
network to steal information.
- Social Engineering - Tricking individuals
into revealing their passwords.
- Dumpster Diving - Digging through trash
to find trade secrets.
- Whacking - Using wireless hacking to
break into a network.
- Phone Eavesdropping - Using a digital
recording device to monitor and record a
fax line
Discrimination
- on the basis of race, color, religion, sex,
marital status, sexual orientation, public
assistance status, disability, age,
national origin, or veteran status
Equal Employment Opportunity Commission
(EEOC)
- Nearly 89,000 charges of discrimination
filed in 2
Age Discrimination in Employment Act
- specifically, outlaws hiring practices of
employees
Affirmative Action Programs
- action that helps build workforces that
reflect the customer base.
To ensure affirmative action programs are fair,
Supreme Courts provide standards such as:
1. There must be a strong reason for
developing an affirmative action
program.
2. Affirmative action programs must apply
only to qualified candidates.
3. Affirmative action programs must be
limited and temporary
Sexual Harassment
- Any repeated and unwanted behavior of
a sexual nature perpetrated upon one
individual by another
- may be verbal, visual, written, or
physical and can occur between people
of different genders or those of the same
gender
HOSTILE WORK ENVIRONMENT
Three Criteria Must Be Met:
1. The conduct was unwelcomed.
2. The conduct was severe, pervasive, and
regarded by the claimant as so hostile
or offensive as to alter his or her
conditions of employment.
3. The conduct was such that a reasonable
person would find it hostile or offensive
Key Ethical Issue on Sexual Harassment
Dual Relationship - personal, loving, and/or
sexual relationship with someone with whom
you share professional responsibilities
To avoid sexual misconduct or harassment
charges, company should
1. Establish a statement of policy
2. Establish a definition of sexual
harassment
3. Establish specific procedures for
prevention
4. Establish, enforce, and encourage
5. Establish a reporting procedure.
6. Make sure the company has timely
reporting requirements to the proper
authorities
Fraud
- any purposeful communication that
deceives, manipulates, or conceal facts
in order to harm others
Accounting fraud
- involves a corporation’s financial
reports, on which companies provide
important information on which investors
and others base their decision
- if the documents contain inaccurate
information, intentional or not, lawsuit
and criminal penalties may result
Ethical issues for accountant
1. Time
2. Reduce fees
3. Client request to alter opinion
concerning financial condition
4. Increase competition
5. Compliance with complex rules and
regulation
6. Data overload
7. Contingent fees
8. Commissions
Marketing fraud
- The process of dishonesty creating,
disturbing, promoting and pricing
products is another business area that
generates potential ethical issues.
- false and deceptive advertising is a key
issue in marketing communication.
Category of misleading advertisement
PUFFERY - exaggerated advertising, blustering
and boasting
IMPLIED FALSITY - message that has a
tendency to mislead, confuse or deceive the
public.
LITERALLY FALSE -
Test Prove - advertisement that cites or
tests that establish the claim.
Bald Assertion - advertisements make a
claim that cannot be substantiated. Like
commercials that state a certain product is
superior to others in the market.
LABELING ISSUE - murkier
advertisement and direct sales communication
that can mislead consumers by concealing the
facts within the message
Consumer fraud
It occurs when the consumers attempt to
deceive business for their own gain.
TYPES OF CONSUMER FRAUD
Friendly Fraud - making a big purchase
with a credit card and then filing a fraud claim
with the credit card company.
Price Arbitrage - substituting different
price but similar item for a higher return.
Return Fund - replacing an item with
something different and returning it for a full
refund
Wardrobing- wearing an expensive item
once for an event and then returning it for a full
refund.
Returning Stolen Goods- receiving a full
refund on goods that have been stolen
Financial misconduct
- The failure to understand and manage
ethical risks played a significant role in
the financial crisis.
- Any material losses through criminal
conduct, unauthorized, irregular,
fruitless and wasteful expenditure.
(PSC)
Situation of financial misconduct
- the top executives or CEOs are
ultimately responsible for the
repercussions of their employees’
decisions
- many leaders step down after a
misconduct disaster at a firm
Financial reform
- The Dodd–Frank Wall Street Reform
and Consumer Protection Act was
passed in 2010 to increase
accountability and transparency in the
financial industry and protect consumers
from deceptive financial practices. The
act established a Consumer Financial
Protection Bureau (CFPB) to protect
consumers from unsafe financial
products.
- Large financial firms must retain at least
half of top executives’ bonuses for at
least three years. The goal is to tie
compensation to the outcomes of the
executives’ decisions over time
Insider trading
Insider
- any officer, director, or owner of 10
percent or more of a class of a
company’s securities.
- Anyone who has an access to
non-public material information
Insider Trading
- the dealings in the securities or stocks
of the company by an Insider who has
material “inside” information which is not
known to the general public
Two types of insider trading
ILLEGAL INSIDER TRADING LEGAL INSIDER TRADING
The buying or selling of Involves legally buying and
stocks by insiders who selling stock in an insider’s
possess information that is own company. 
not yet public.   Example:
Example: ● A CEO of a corporation
● suppose the CEO of a buys 1,000 shares of
publicly traded firm stock in the corporation.
inadvertently discloses The trade is reported to
their company's the Securities and
quarterly earnings while Exchange Commission
getting a haircut. If the within 2 days.
hairdresser takes this ● An employee of a
information and trades corporation exercises
on it, that is considered his stock options and
illegal insider trading, buys 500 shares of
and the SEC may take stock in the company
action. that he works for.
● “Tipping” an outsider  
Dirk test
- personal benefits test.
- standard used by the SEC to determine
whether someone who receives and
acts on insider information (a tippee) is
guilty of insider trading
2 criteria of dirk test
1. Whether the individual breached the
company's trust (broke rules of
confidentiality by disclosing material
nonpublic information)
2. Whether the individual did so knowingly
Restrictions
- To deter Insider trading, insiders are
prevented from buying and selling their
company stock within a six-month
period, thereby encouraging insiders to
 buy stock only when they feel the
company will perform well over the long
term
Why they engage in Insider Trading
- Insiders with nonpublic information
would be able to avoid losses and
benefit from gains.
- is often done in a secretive manner by
an individual who seeks to take
advantage of an opportunity to make
quick gains in the market
Intellectual property rights
- the rights given to persons over the
creations of their minds
- give the creator an exclusive right over
the use of his/her creation for a certain
period of time
- involve the legal protection of intellectual
property such as music, books, and
movies
ETHICAL ISSUES IN INTELLECTUAL
PROPERTY RIGHTS
1. Illegally downloaded or uploaded music,
movies, and television shows
2. Using popular brands as logo reference
in order to boost sales
EFFECTS OF INTELLECTUAL PROPERTY
RIGHTS’ INFRINGEMENT
1. Threat to companies that risk losing
profits and reputation
Example: Customers would opt to
purchase copied goods over genuine products
which would reduce earnings for the original
brand.
2. threaten the health and well-being of
consumers.
Example: illegally produced
medications, when consumed by unknowing
consumers, can cause sickness and even death
Privacy issues
PRIVACY ISSUES OF CONSUMER
- Consumer advocates continue to warn
consumers about new threats to their
privacy
- As the number of people using the
Internet increases, the areas of concern
related to its use increase as well
PURPOSE OF BUSINESS FOR CONSUMERS’
INFORMATION
- gives companies the ability to more
effectively target their most valuable
customers, customize their offers to
meet specific demands, raise customer
satisfaction and retention levels, and
Identify opportunities for new goods or
services
2 dimensions of consumer privacy
1. consumer awareness of information
collection
2. a growing lack of consumer control over
how companies use the personal
information they collect
Privacy issues of employees
- For the “normal course of employment,”
it is agreed that employers have the
right to monitor company email
- Employee consent also removes
protection. From computer monitoring
and telephone taping to video
surveillance and GPS satellite tracking,
employers are using technology to
manage their productivity and protect
their resources. The ability to gather and
use data about employee behavior
creates an ethical issue related to trust
and responsibility.
- Companies track everything from phone
calls and Internet history to keystrokes
and the time employees spend at their
desks
PURPOSE OF BUSINESS FOR EMPLOYEES’
INFORMATION
- Electronic monitoring allows a company
to determine whether productivity is
being reduced
- enables the company to take steps to
remedy the situation
The challenge in determining an ethical
issues in business
Stakeholders
- Upon raising concern about an event,
activity, or result of a business decision
Mass media
- Generates a discussion about the
ethical nature of a decision
Individuals in the business
- Simply asking these individuals to
determine in a specific situation has an
ethical component
Moral philosophies
- refers to the set of principles or rules
people use to decide what is right or
wrong
- provide guidelines for resolving conflicts
and for optimizing the mutual benefit of
people living in groups
- Business people are guided by moral
philosophies as they formulate business
strategies and resolve specific ethical
issues, even if they may not realize it
Teleology
- an act is considered morally right or
acceptable if it produces some desired
result, such as pleasure, knowledge,
career growth, the realization of
self-interest, utility, wealth, or even fame
- from the Greek word for “end” or
“purpose”
Teleological philosophies
- assess the moral worth of a behavior by
looking at its consequences
- moral philosophers today often refer to
these theories as consequentialism
- Two important teleological philosophies
that guide decision making in individual
business decisions are (a) egoism and
(b) utilitarianism
Egoism
- Defines right or acceptable behavior in
terms of the consequences for the
individual
- an egoist chooses the alternative that
contributes most to his or her own
self-interest
- Egoism can be further divided into
hedonism and enlightened egoism
Hedonism
- the idea that pleasure is the
ultimate good, or the best moral
end involves the greatest
balance of pleasure over pain
- Defines right or acceptable
behavior as that which
maximizes personal pleasure
Enlightened egoists
- take a long-range perspective
and allow for the well-being of
others although their own
self-interest remains paramount
- may abide by professional
codes of ethics, control
pollution, avoid cheating on
taxes, help create jobs, and
support community projects not
because these actions benefit
others but because they help
achieve some ultimate individual
goal, such as advancement
within their firms
Utilitarianism
- concerned with maximizing total utility,
or providing the greatest benefit for the
greatest number of people
- utilitarians often conduct cost–benefit
analyses that consider the costs and
benefits to all affected parties
Rule utilitarians
- determine behavior on the basis
of rules designed to promote the
greatest utility rather than by
examining particular situations
Act utilitarians
- examine the action itself rather
than the rules governing the
action, to determine if it results
in the greatest utility
Deontology
- Deontological, or nonconsequentialist,
philosophies focus on the rights of
individuals and the intentions behind an
individual’s particular behavior rather
than its consequences
- from the Greek word for “ethics”)
- Deontologists regard the nature of moral
principles as permanent and stable and
believe compliance with these principles
defines ethical behavior; believe
individuals have certain absolute rights
that must be respected
Rule deontologists
- Believing conformity to general
moral principles determines
ethical behavior
Act deontologists
- hold that actions are the proper
basis to judge morality or
ethicalness and that rules serve
only as guidelines
Relativist perspective
- Relativists use themselves or the people
around them as their basis for defining
ethical standards
Forms of relativism
1. Descriptive - observations of other
cultures
2. Meta-ethical - people naturally see
situations from their own perspectives,
and there is no objective way of
resolving ethical disputes between
different value systems and individuals
3. Normative - assume one person’s
opinion is as good as another’s
Virtue ethics
- ethical behavior involves not only
adhering to conventional moral
standards but also considering what a
mature person with a “good” moral
character would deem appropriate in a
given situation
Virtue ethics approach to business
1. Good corporate ethics programs
encourage individual virtue and integrity
2. By the employee’s role in the community
(organization), these virtues form a good
person
3. An individual’s ultimate purpose is to
serve society’s demands and the public
good and be rewarded in his or her
career
4. The well-being of the community goes
hand in hand with individual excellence
Virtues That Support Business Transactions
a. Trust
b. Truthfulness
c. Self-control
d. Learning
e. Empathy
f. Gratitude
g. Fairness
h. Civility
i. Moral leadership
Justice
- Fair treatment and due reward in
accordance with ethical or legal
standards, including the disposition to
deal with perceived injustices of others
Types of justice
1. Distributive - evaluation of the outcomes
or results of a business relationship
2. Procedural - processes and activities
that produce a particular outcome
3. Interactional - relationships and the
treatment of others
Applying Moral Philosophy to Ethical Decision
Making
- Individuals use different moral
philosophies depending on whether they
make a personal decision or
work-related decision.
There are two things that may explain this:
1. In the business arena some goals and
pressure for success differ from the goal
and pressure in a person's life outside
the work. An employee might view a
specific action as good in the business
sector but unacceptable outside the
work environment. Business contains
one variable that is absent from other
situations: Profit Motive. The comment
“it’s not personal, it’s business”
demonstrates the conflict that business
people can experience when their
personal values do not align with
utilitarian or profit oriented decisions.
2. Rules, personalities, and precedents
exert pressure on the employee to
conform to the firm's culture.The
individual's moral philosophy may
change to become compatible with the
work environment. Some reasons why
unethical behavior occurs: -Dishonesty
become norm, Moral Development,
Incentives, When negotiating,
Justification- “i was just following
instruction”
Cognitive Moral Development and its Problems
Lawrence Kohlberg
- develop the CMD theory to explain the
different reasoning processes that
individuals would use to make ethical
judgments as they mature
- developed a six-stage model of
cognitive development that refers to the
different levels of reasoning that are
individual can apply to ethical issues
and problems
3 levels of CMD
Pre-convetiponal
1. The stage of punishment and obedience
- Individuals define right and
wrong according to expected
rewards and punishments from
authority figures
- Usually associated with children
- business people take decisions
based on the reward and
punishment they think they will
get for an act
2. The stage of individual instrumental
purpose and exchange
- concerned with their own
immediate interests and define
right according to whether there
is fairness in the exchanges or
deals they make to achieve
those interests
Conventional
3. The stage of mutual interpersonal
expectations, relationships, and
conformity
- Individuals live up to what is
expected of the by their
immediate peers and those
close to them
- Doing something because
everyone is doing it
4. The stage of social system and
conscience maintenance
- Individuals' consideration of the
expectations of others broadens
to social accord more generally,
 rather than just the specific
people around them.
- Acting according to what others
think are standard
Post-conventional
5. The stage of prior rights, social contract,
or utility
- Individuals go beyond
identifying with others'
expectations , and assess right
and wrong according to the
upholding of basic rights,
values, and contracts of society.
- Thinks about what is better for
others
6. The stage of universal ethical principles
- make decisions autonomously
based on self-chosen universal
ethical principle which they have
believe everyone should follow
- Think of yourself without any
outside influence
Problem with CMD: The Strikes Theory
Strike 1
- When Kohlberg transferred Piaget’s
theory to adults he did not take into
account the full functioning and
development of the adult brain
Strike 2
- One moral development is linear and is
ordered hierarchy
- Contradicts basic moral philosophy
because there is no hierarchy. Each
moral philosophy should be equal to the
others
Strike 3
- CMD has a high reliability but not
validity
White-collar crime
- nonviolent criminal act involving deceit,
concealment, subterfuge and other
fraudulent activity (US DOJ)
Examples of White-Collar Crimes
1. Corporate fraud
- Falsification of financial
information
- Self-dealing by corporate
insiders
6. Intellectual property theft/piracy
INDIVIDUAL FACTORS IN BUSINESS ETHICS
- Individual values are not only the main
driver of ethical behavior in business.
- The rewards for meeting performance
goals and the corporate culture in
general have been found to be the most
important drivers of ethical decision
making.
- The development of strong abilities in
ethical reasoning will probably lead to
more ethical business decisions in the
future.
Organizational culture
- shared values, norms, and artifacts that
influence employees and determine
behavior, including ways of solving
problems that members of an
organization share
Corporate culture
- shared beliefs top managers in a
company have about how they should
manage themselves and other
employees, and how they should
conduct their business
- exhibited through the behavioral
patterns, concepts, documents such as
codes of ethics, and rituals that emerge
in an organization
- Values, beliefs, customs, rules, and
ceremonies that are accepted, shared,
and circulated throughout an
organization represent its culture
- A company’s history and unwritten rules
are a part of its culture
- leaders are responsible for the actions
of their subordinates and corporations
should have ethical corporate cultures
Formal corporate culture
- through statements of values, beliefs,
and customs
- comes from upper management
- memos, codes, manuals, forms,
ceremonies
Informal corporate culture
- indirect comments conveying
management’s wishes
- Dress codes, promotions, extracurricular
activities

2. Money laundering Ethical culture is measured in the following

- Hide and accumulate wealth ways:
- Fund further criminal activity
- Avoid prosecution and taxes 1. Management and the board
- Increase profits through demonstrate their commitment to
reinvestment integrity, core values, and ethics codes
through their communications and
3. Securities and commodities fraud actions.
4. Financial institution fraud
5. Mortgage fraud
 2. Every employee is encouraged and
required to have hands-on involvement
in compliance
3. Ethical leadership should start with the
tone at the top.
4. Employees are expected to receive
communication through resolutions and
corrective actions related to ethical
issues.
5. Employees have the ability to report
policy exceptions anonymously to any
member of the organization
Common elements of culture
a. Culture is shared
b. Formed over a relative period of time
c. Relatively stable
The Role of Corporate Culture in Ethical
Decision Making
1. Many catastrophic events stem from
ethical deficiencies resulting in a lack of
human value judgments and actions
influenced by different corporate
cultures.
2. When organizational leaders involve
lower-level employees in a meaningful
role in shaping and maintaining an
ethical culture, they are more likely to
perceive the culture as strong and view
it similarly to the way leaders view it
Ethical Frameworks and Evaluations of
Corporate Culture
1. Apathetic - shows minimal concern for
either people or performance
2. Caring - exhibits high concern for people
but minimal concern for performance
issues
3. Exacting - shows little concern for
people but a high concern for
performance
4. Integrative - combines a high concern
for people and performance
Ethics as a Component of Corporate Culture
- An unethical action of an employee
means a defective corporate culture of
the whole corporation
- Ethical value together with Corporate
social responsibility helps the
corporation to maintain positive
relationships with employees and
enhance job satisfaction while gaining a
good image
Compliance culture
- The accounting professional model of
rules created a compliance culture
organized around risk.
- Use laws and regulatory rules to create
codes and requirements. Codes of
conduct are established with compliance
as their focus, with rules and policies
enforced by management.
- The compliance approach is good in the
short term because it helps
management, stakeholders, and legal
agencies ensure laws, rules, and the
intent of compliance are fulfilled
Pros: beneficial in the short term since it aids
management, stakeholders, and legal
organizations in ensuring that laws, regulations,
and the compliance's intended outcomes are
met
Cons: lack of long-term focus on values and
integrity. In addition, it does not teach employees
to navigate ethical gray areas
Values-Based Ethics Culture
- Relies on a mission statement that
defines the core values of the firm and
how customers and employees should
be treated.
- Focus on values, not laws
- Top-down integrity is critical
Differential Association
- people learn ethical or unethical
behavior while interacting with people
who are part of their intimate personal
groups
Whistle-blowing
- Exposing employer’s wrongdoing to
outsiders
- THE CORPORATE AND CRIMINAL
FRAUD ACCOUNTABILITY ACT
(CCFA) protects employees of publicly
traded firms
- Dodd-Frank wall Street Reform and
Consumer Protection Act gave
additional incentives for whistleblowers
- MARVIN WINDOWS – encourage
reporting misconduct internally. System
is anonymous and allows reporting in
employee’s native languages
LEADERSHIP INFLUENCE and POWER
SHAPE CORPORATE CULTURE
- Organizational leaders can shape and
influence corporate culture, resulting in
ethical or unethical leadership.
- Status and power of leaders is directly
correlated to the amount of pressure
they exert on employees to get them to
conform to expectations
5 POWER BASES FROM WHICH ONE
PERSON MAY INFLUENCE ANOTHER
1. Reward power
2. Legitimate power
3. Coercive power
4. Export power
5. Referent power
Motivating Ethical Behaviors
Motivation
- a force within the individual that focuses
his or her behavior towards a goal
Job Performance
- considered to be a function of ability and
motivation and can be represented in
the equation (job performance = ability x
motivation)
Motivation incentives should not create
ambiguous opportunities for misconduct
Relatedness Needs
- satisfied by social and interpersonal
relationships
Growth Needs
- satisfied by creative or productive
activities
Organizational Structures
Centralized Organization
- making authority is designated on the
hands of top level managers, and little
authority is delegated to lower levels
Decentralized Organization
- decision-making authority is delegated
as far down the chain of command as
possible
Types of groups
1. Formal group - defined as an assembly
of individuals with an organized
structure that is explicitly accepted by
the group
a. Committee - a formal group of
individuals assigned to a
specific task
b. Work groups - used to subdivide
duties within specific functional
areas of a company
c. Teams - bring together the
expertise of employees from
several different areas of the
organization on a single project
2. Informal group - defined as two or more
individuals with a common interest but
without an explicit organizational
structure
Group norms
- standard behavior group expect of their
members
- ethical and unethical behavior done by a
particular group
- the power to enforce a strong conformity
among group members
- conflict with the values and rules
prescribed by the organization's culture
International Code of Ethics for Professional
Accountants
Introduction
- a professional accountant's
responsibility is not exclusively to satisfy
an individual client's or employer's
needs. In acting in the public interest
- should observe and comply with the
Code of ethics
- Members should consider the ethical
requirements as the basic principles
they should follow in performing their
work
The Code is divided into four parts:
1. Complying with the Code, Fundamental
Principles and Conceptual Framework
- In case of conflict between the
provisions of the code and laws
and regulations, the latter shall
prevail
Breaches of the Code
- shall evaluate the significance of the
breach and its impact on the
accountant’s ability to comply with the
fundamental principles.
The accountant shall also:
- Take whatever actions might be
available as soon as possible.
- Determine whether to report the breach
to relevant parties
The fundamental principles
● Integrity - straightforward and honest
● Objectivity - Avoid bias, conflicts of
interest, and undue influence
● Professional competence and due care -
Current developments. Legislation and
techniques
● Confidentiality - Should not disclose
information unless a legal or
professional right or duty
● Professional behavior - to comply with
the laws and avoid any action that
discredits
CONCEPTUAL FRAMEWORK
- Dedicated provisions that apply to all
professional accountants, in all
circumstances, when dealing with ethics
and independence issues
- establishing an exhaustive list of facts
and circumstance that might trigger
ethics and independence issues is
impracticable
a. Identify threats - Threats to compliance
with the fundamental principles
(Exercise professional judgment)
b. Evaluate threats - acceptable level
(Remain alert for new information and to
changes in facts and circumstances)
 c. Address threats - eliminate or reduce
(Use the reasonable and informed third
party test)
Identified threats that are not an acceptable level
must be addressed in one or three ways:
a. Eliminating the circumstances, including
interests or relationships, that are
creating the threats;
b. Applying safeguards, where available
and capable of being applied, to reduce
the threats to an acceptable level; or
c. Declining or ending the specific
professional activity.
Threats to fundamental principles
a. Self-interest threat
- financial or other interest will
inappropriately influence a ● Those charged with governance
professional accountant’s
judgment or behavior
b. Self-review threat
- professional accountant will not
appropriately evaluate the
results of a previous judgment
made; or an activity performed,
on which the accountant will rely
when forming a judgment as
part of performing a current
activity
c. Advocacy threat
- promote a client’s or employing
organization’s position to the
point that the accountant’s
objectivity is compromised
d. Familiarity threat
- threat that due to a long or close
relationship with a client or
employer, a professional
accountant will be too
sympathetic to their interests or
too accepting of their work
e. Intimidation threat
- deterred from acting objectively
because of actual or perceived
pressures, including attempts to
exercise undue influence over
the accountant
REASONABLE AND INFORMED THIRD
PARTY TEST
- made from the perspective of a
reasonable and informed third party,
who weighs all the relevant facts and
circumstances that the accountant
knows, or could reasonably be expected
to know, at the time the conclusions are
made
- does not need to be an accountant, but
would possess the relevant knowledge
and experience to understand and
evaluate the appropriateness of the
accountant’s conclusions in an impartial
manner
Safeugards
- actions, individually or in combination,
that the firm takes that effectively reduce
threats to independence to an
acceptable level
Acceptable level
- level at which a professional accountant
using the reasonable and informed third
party test would likely conclude that the
accountant complies with the
fundamental principles
General conceptual framework
Consulting with the following in case of conflicts
in complying with the Fundamental Principles:
● Others within the firm or employing
organization
● A professional body
● A regulatory body
● Legal counsel
2. Professional Accountants in Business
3. Professional Accountants in Public
Practice, and
4. International Independence Standards
a. Independence for Audit and
Review Engagements and
b. Independence for Assurance
Engagements Other than Audit
and Review Engagements
Independence for Audit and Review
Engagements
Section 400:
Applying the Conceptual Framework to
Independence for Audit and Review
Engagements
Independence is linked to the principles of
objectivity and integrity. It comprises:
a. Independence of mind – the state of
mind that permits the expression of a
conclusion without being affected by
influences that compromise professional
judgment
b. Independence in appearance – the
avoidance of facts and circumstances
that are so significant.
*references to an individual or firm being
“independent” mean that the individual or firm
has complied with the provisions
Sets out specific requirements and application
material on how to apply the conceptual
framework to maintain independence when
performing such engagements.
This part describes:
- Facts and circumstances (professional
activities, interests and relationships)
that create or might create threats to
independence;
- Potential actions (safeguards) that might
be appropriate to address any such
threats; and
- Some situations where the threats
cannot be eliminated or there can be no
safeguards to reduce them to an
acceptable level
Public interest entities
- encouraged to determine whether to
treat additional entities, or certain
categories of entities, as public interest
entities because they have a large
number and wide range of stakeholders.
Factors to be considered include:
- The nature of the business, such as the
holding of assets in a fiduciary capacity
for a large number of stakeholders.
- Size.
- Number of employees
Requirements and Application Material
- A firm performing an audit engagement
shall be independent
- shall apply the conceptual framework to
identify, evaluate and address threats to
independence in relation to an audit
engagement
Period During which Independence is Required
- The engagement period; and
- The period covered by the financial
statements
communication with those Charged with
Governance
- Regular communication is encouraged
between a firm and those charged with
governance of the client regarding
relationships and other matters that
might, in the firm’s opinion, reasonably
bear on independence
Such communication enables those charged
with governance to:
● Consider the firm’s judgments in
identifying and evaluating threats;
● Consider how threats have been
addressed (appropriateness of
safeguards) when they are available
and capable of being applied; and
● Take appropriate action.
Such an approach can be particularly helpful
with respect to intimidation and familiarity
threats.
Network firms
- form larger structures with other firms
and entities to enhance their ability to
provide professional services.
- shall be independent of the audit clients
of the other firms within the network as
required by this Part.
- The independence requirements that
apply to a network firm apply to any
entity that meets the definition of a
network firm
When associated with a larger structure of other
firms and entities, a firm shall:
- Exercise professional judgment to
determine whether a network is created
by such a larger structure;
- Consider whether a reasonable and
informed third party would be likely to
conclude that the other firms and
entities in the larger structure are
associated in such a way that a network
exists; and
- Apply such judgment consistently
throughout such a larger structure
General Documentation of Independence for
Audit and Review Engagements
- document conclusions regarding
compliance with this Part, and the
substance of any relevant discussions
that support those conclusions.
In particular:
● When safeguards are applied to
address a threat, the firm shall
document the nature of the threat and
the safeguards in place or applied.
● When a threat requires significant
analysis and the firm concludes that the
threat was already at an acceptable
level, the firm shall document the nature
of the threat and the rationale for the
conclusion.
*Documentation provides evidence of the firm’s
judgments in forming conclusions regarding
compliance
Breach of an Independence Provision for Audit
and Review Engagements
when a Firm Identifies a Breach
a. End, suspend or eliminate the interest or
relationship that created the breach and
address the consequences of the
breach;
b. Consider whether any legal or
regulatory requirements apply to the
breach and, if so:
● Comply with those requirements
● Consider reporting the breach to
a professional or regulatory
body or oversight authority if
such reporting is common
 practice or expected in the
relevant jurisdiction
c. Promptly communicate the breach in
accordance with its policies and
procedures to:
● The engagement partner
● Those with responsibility for the
policies and procedures relating
to independence
● Other relevant personnel in the
firm and, where appropriate, the
network
● Those subject to the
independence requirements in
Part 4A who need to take
appropriate action
d. Evaluate the significance of the breach
and its impact on the firm’s objectivity
and ability to issue an audit report
Section 410: Fees
Fees - relative size
All Audit Clients
Factors that are relevant in evaluating the level
of such threats include:
● The operating structure of the firm.
● Whether the firm is well established or
new
● The significance of the client
qualitatively and/or quantitatively to the
partner or office.
● The extent to which the compensation of
the partner, or the partners in the office,
is dependent upon the fees generated
from the client.
AUDIT CLIENTS THAT ARE PUBLIC
INTEREST ENTITIES
- Where an audit client is a public interest
entity and, for two consecutive years,
the total fees from the client and its
related entities represent more than
15% of the total fees received by the
firm expressing the opinion on the
financial statements of the client.
- When the total fees described in the
previous paragraph significantly exceed
15%, the firm shall determine whether
the level of the threat is such that a
post-issuance review would not reduce
the threat to an acceptable level. If so,
the firm shall have a pre-issuance
review performed.
Fees overdue
- self-interest threat might be created if a
significant part of fees is not paid before
the audit report for the following year is
issued. It is generally expected that the
firm will require payment of such fees
before such audit report is issued
Contingent fees
- fees calculated on a predetermined
basis relating to the outcome of a
transaction or the result of the services
performed
Factors that are relevant in evaluating the level
of such a threat include:
● The range of possible fee amounts.
● Whether an appropriate authority
determines the outcome on which the
contingent fee depends.
● Disclosure to intended users of the work
performed by the firm and the basis of
remuneration.
● The nature of the service.
● The effect of the event or transaction on
the financial statements
Section 411: compensation and evaluation
policies
Requirements and Application Material
General
a. What proportion of the compensation or
evaluation is based on the sale of such
services;
b. The role of the individual on the audit
team; and
c. Whether the sale of such non-assurance
services influences promotion decisions.
Section 420: gifts and hospitality
- A firm, network firm or an audit team
member shall not accept gifts and
hospitality from an audit client, unless
the value is trivial and inconsequential
SECTION 430: ACTUAL OR THREATENED
LITIGATION
Application Material
Factors that are relevant in evaluating the level
of such threats include:
● The materiality of the litigation.
● Whether the litigation relates to a prior
audit engagement.
*If the litigation involves an audit team member,
an example of an action that might eliminate
such self-interest and intimidation threats is
removing that individual from the audit team