Professional Documents
Culture Documents
5-Chp 5 - Leadership
5-Chp 5 - Leadership
Leadershi
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Leadership
Leadership means leading a group of people in an organization to achieve organizational goals. A leader can
be ‘transformational’ leader or a ‘transactional’ leader.
Leadership Theories
Trait Theories
Focuses on qualities of a good leader
E.g. visionary, energy, communication skills, motivator, etc.
Theory X Manager:
Manager feels that the team lacks expertise and responsibility
Hence the manager dictates what needs to be done and the team is closely monitored
The manager gets heavily involved in routine tasks and minor decision making as well
The team is not accountable as they just follow orders
This approach works for simple repetitive tasks
Theory Y Manager:
Manager feels that the team has the expertise and willing to take responsibility
The manager allows the team to do self-planning and decision making
The manager does not gets involved in routine tasks and minor decision making
The team is accountable as they are responsible for their decision making
This approach works for complex tasks
Intrapreneurship
An employee who promotes innovation and new ideas within his existing organization
Intrapreneurs bears less risk compared to entrepreneurs as investment is made by the Organization
Many organizations are now encouraging Intrapreneurship within the organization as it leads to
innovation by encouraging sharing of new ideas
Integrity: Honest, straight forward, truthfulness, do not conceal any wrong thing, fair dealing
Professional competence and due care: Maintain professional knowledge and skills, up-to-date with all
laws, diligent in work, act with due care
Confidentiality: Should not disclose confidential information unless there is legal or professional duty,
do not use confidential information for personal advantage
Professional behavior: Avoid actions which discredits the profession / members, for e.g. not following
company policies or procedures
Self Interest
Financial interest in the company (e.g. owning shares)
Close business relationship (e.g. high dependency on income from particular client)
Close family or personal relationship
Valuable gifts or hospitality
Loans and terms outside normal course of business
Overdue fees for earlier assignments
Contingent fees (e.g. high fee for good report, low fee for bad report)
Fee based on % age (e.g. % age of profit)
Low-balling (quoting abnormally lower quote affecting the quality of audit)
Familiarity Threat
Long association with the client to the extent which affects objectivity and independence
For e.g. you have known the Finance Director for many years
Intimidation Threat
When the auditor is stopped from acting objectively by threats from directors or employees
E.g. could be blackmail, bad feedback, physical or family treat, litigation, etc.
3. Conceptual framework (explains how ‘spirit’ of principles is applied rather than ‘form’)
4. Detailed application (practical application of the codes, specific situations and examples)
Benefits of a Professional Code of Ethics
Establishes ethical values and guidelines for members
Clear communication to members and stakeholders
Directs and control behaviors of members
Consistent and transparent framework for issue resolution and disciplinary action
Enhances reputation of the profession
Public Interest
Public Interest
Public interest is one of the key themes in professionalism
Public interest means working in the interest and well-being of the society, in addition to serving the
interest of the shareholders
Professionals (including professional accountants) have a duty to protect public interest and have to
demonstrate high social values (integrity, fairness, no corruption, etc.)
Common types of frauds include fictitious employees, collusion with suppliers to inflate prices, fictitious
expense claims, stealing or misusing company assets, manipulation of financial statements, etc.
Organizations can only control the ‘opportunity’ factor in order to prevent fraud.
Prevention
Commitment by top management / governance
Create a right culture
Implement policies and procedures
Risk assessment
Strong internal controls
Segregation of duties
Tight screening at the time employees are recruited
Regular staff rotation
Monitoring
Detection
Surprise checks
Internal audits
Whistle blowing procedures (see below)
Response
Strict disciplinary actions
Legal prosecution
Whistle Blowing
A whistle blower is a person who provides any kind of information to senior management regarding fraud (or
suspected fraud) or illegal activity within an organization. Whistle blower can be internal (e.g. employee) or
can by an outsider (customer or supplier).
Sometimes whistle blowers are scared to highlight any fraud due to fear or later consequences. In UK, whistle
blowers are protected by law if they report something relating to public interest.
Bribery
Bribery is offering, giving, demanding or receiving a financial or other advantage to act or perform an activity
improperly
Why Corruption Exists
Culture or norm
Low pay scale as compared to authority and power
No check and balance / weak internal controls
Weak enforceability of law i.e. no fear or punishment
The Act sets out 6 principles that help organization assess whether adequate procedures and controls
are in place to prevent bribery and corruption:
Commitment by management
Risk assessment (assess the size and nature of risk of bribery and corruption)
Internal - procedures (procedures to be proportionate to the size and nature of risk)
Due diligence (extra cautious with employees who are at greater risk for bribery and
corruption)
Communication (regular training and education of all employees)
Monitoring and review (procedures should be regularly reviewed and improved)
Penalties:
Guilty individual faces imprisonment upto 10 years
Guilty organization is liable to unlimited fine
The above is in addition to any civil claims and reputational loss
Corporate Code of Ethics
Corporate Ethics
‘Ethics’ are moral opinions about right and wrongs.
‘Corporate ethics’ means application of ethical values to business dealings. E.g. of unethical behaviours
includes:
Is it profitable?
Is it legal?
Is it fair to all stakeholders?
Is it right ethically?
Is it sustainable and environmentally friendly?
Practice Questions
P1 - Dec 2013 Q4C: Director Leaving | Technology Risk | Professional Ethics (Lobo
Co)