Assignment 2

Tinashe Grace Tembo

A2103D12001405
Ethics and Corporate Governance
52538
10th September 2023

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Exercise 1

A Chief Financial Officer (CFO) is the highest-ranking financial professional in an organization and
is responsible for the fiscal health of the business. As a member of senior management the CFO is
usually responsible for both the accounting and treasury functions and as such they play an important
role in a company’s strategic planning, investment and budgeting procedures and planning and
analysis of financial statements. Though they are the highest ranking financial professional, they
report to the Chief Executive Officer (CEO). During their course of their work scope, they work
hand in hand with the CEO. According to (Fabozzi, Frank J, 2007, The Complete CFO Handbook:
From Accounting to Accountability) the CFO, on top of his other duties, must be familiar with the
following laws and regulations:

1. Securities and Exchange Commission reporting requirements and regulations.

2. Compliance with Sarbanes-Oxley Act of 2002.
3. U.S. and international generally accepted accounting principles (GAAP).
4. Internal Revenue Service reporting requirements and regulations.
5. Compliance with U.S. Foreign Corrupt Practices Act (FCPA).

Though the CFO has a large scope of responsibilities, I shall evaluate, with examples 10 roles/
responsibilities that they have and provide specific examples. The roles/responsibilities I shall be
evaluating will be those provided in Week 3 –Ethics and Corporate Governance. pdf, UNICAF
University. I shall further expand on their descriptions, citing relevant examples that relate to the
role/responsibility in question. The first role/ responsibility empowering employees. This can be
achieved by linking an employee performance to rewards, bonuses and/ or promotions. If an
employee notes that those that are working hard are given bonuses, promotions with more financial
benefits and incentives, an employee may be motivated to “pull up their socks” and work harder in
order to qualify for these benefits. For example, if a company sets a goal for an employee the debt
collecting department, that should they be able to retrieve a certain percentage of the debtors
outstanding, they would qualify for a bonus, the said employee would be motivated to ensure that
their target is always met, which in turn would ensure that the company’s cash flow is not affected as
debtors will be reduced to an acceptable level that ensures that the company continues to operate and
is able to meet its short term liabilities.

The second role/responsibility I will evaluate is the Implementation of goal congruence concept
(Week 3 –Ethics and Corporate Governance. pdf, UNICAF University). This goes hand in hand with
the first role I evaluated in that it promotes teamwork mentality. This can be achieved by linking
individual employee goals with those of a department/ division. By doing so, this eliminates or
minimizes inter departmental competing or conflicting goals as the success of one employee is linked
to the success of the whole department and vice versa. Individual goals can to a degree promote
individual work performance improvements but it may also cause competition between employees.
This may at times have an adverse effect on the overall performance of the company as some
employees may result in sabotage their workmates to ensure that they come out victorious. As such
by implementing a departmental incentive program, the employees are motivated to work hand in
hand to achieve set goals.

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The third role/ responsibility I will evaluate is the building of standardized, transparent and
repeatable finance-service processes so as to provide the stable, consistent and quality services that
internal customers expect (Week 3 –Ethics and Corporate Governance. pdf, UNICAF University).
By having standardized processes, this allows for easier understanding of the finance services
processes by both the employees and customers, and as such it enforces transparency as everyone is
able to review the processes, and understand them as such are able to evaluate if the processes are
being adhered to or not. This also assists in minimizing the probability of fraud as it minimizes the
opportunity for employees to collude.

The fourth role/responsibility I will evaluate is eliminating non-value-added activities in the finance
services provided so as to reduce waste and lower costs (Week 3 –Ethics and Corporate Governance.
pdf, UNICAF University). It is essential that any company ensures that it reduces and manages it
waste well. Be it waste in labor costs/ efficiency or material waste. A lot of companies lose out on
meeting their profit margin targets due to non-efficient management of their costs. As such it
essential to ensure that labor and material usage is closely monitored to ensure that optimal usage
efficiency is achieved. Meaning wastage is minimized or overall eliminated, labor is optimally
utilized with idle time at a minimal. In doing so the overall overheads are better managed and
expenses are reduced to an acceptable level.

The fifth role/responsibility I will evaluate is lowering manufacturing costs, administrative costs,
marketing costs and selling costs (Week 3 –Ethics and Corporate Governance. pdf, UNICAF
University). This role goes hand in hand with the fourth role I evaluated which is eliminating non-
value-added activities. As is in some cases, time management may not always be achieved well, as
such costs may be incurred that may have been avoided due to poor planning. As such it is essential
that optimal efficiency in material and labor usage is achieved and that any given company ensures
that it has critically reviewed all of its finance processes and as such has reduced/ eliminated non-
value added activities which in turn reduce that company’s overheads and by default increases its
profit margins.

The sixth role/ responsibility I shall look at maximizing shareholders value, through increasing
revenues, decreasing costs and increasing profits in a legitimate and ethical manner (Week 3 –Ethics
and Corporate Governance. pdf, UNICAF University). It is easy for any finance department
employee to be tempted to forge data in order to assure that their quotas are met. As such it is
important for the CFO to ensure that the company not only meets it financial goals, but that it does so
legally. Maximizing shareholder’s wealth, is primarily one of the main goals of any organization. As
such it essential that it be prioritized. By setting realistic goals and targets, it reduces the probability
of fraud but the CFO needs to ensure that its set targets are also competitive so as to ensure that the
company maintains its market share.

The Seventh role/ responsibility I shall evaluate is focusing more on value-added activities in finance
services (Week 3 –Ethics and Corporate Governance. pdf, UNICAF University). It is sometimes that
case that an organization may prioritize non-value-adding activities, which in the long run could end
up costing the company more than they expected to incur. By focusing on value-adding activities, the
probability of increased revue and profit is also increased. There are different types of value-added
activities. For example, with a publicly trading company, the company can focus on its image, as

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much as it does its bottom line. In such a case, it is just as important to keep a good public image, as
it is to make profits, as a bad reputation could cost share prices to drop as such lose its value as a
company.

The Eighth role/responsibility I will evaluate is Integrating accounting, treasury and finance
activities for maximum efficiency and effectiveness (Week 3 –Ethics and Corporate Governance.
pdf, UNICAF University). This can be used by ensuring that an efficient accounting system is put in
place. By having an effective accounting system in place, this allows for all finance activities to be
centralized and easier to access and review. An effective accounting system will have safe guards in
place to assure that only authorized personnel have access to confidential information, at the same
time allowing for a more efficient record keeping.

The ninth role/ responsibility I shall evaluate is building solid working relationships with executives
and management (Week 3 –Ethics and Corporate Governance. pdf, UNICAF University). As all
departments will have financial goals in place, the CFO would need to assure that these are met. One
of the key components in achieving this would be to have solid and good working relationships, with
top executives and management in the various departments. As this would ease the pressure of
having to follow up on reports. It is easier to get results from someone you work well with as
opposed to someone who you have conflicts with as they may be inclined to seek revenge through
sabotage or fraud to name a few.

And finally I will evaluate that the CFO needs to understand that increasing sales velocity increase
inventory velocity. And subsequently these increases also increase production and service velocity,
finance velocity, human capacity velocity and systems velocity (Week 3 –Ethics and Corporate
Governance. pdf, UNICAF University). Everything in an organization has a domino effect. When
one part of the company is doing well, it reflects in the rest of the company and vice versa. As such it
is crucial for the CFO to understand and synchronize these velocities in a cohesive manner that
allows for maximization of profit and minimizes costs.

In conclusion, the CFO has quite a lot of responsibilities, and it is very essential to assure that the
position is filled by not only a qualified individual but also and ethically moral one as there are some
roles and responsibilities whose outcomes can be shaped by the morality and ethical behavior of the
chosen candidate.

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Exercise 2

“Ethics is that part of philosophy which is concerned with living well, being a good person, doing the
right thing, getting along with other people and wanting the right things in life. Ethics is essential to
living in society, any society, with its various traditions, practices and institutions. Of course, those
traditions, practices and institutions can and must themselves be assessed according to ethical
standards, but they themselves determine many of the rules and expectations that define the ethical
outlook of the people living within them.” (Week 1 –Ethics and Corporate Governance. pdf,
UNICAF University

According to Zimmerli et al. (2007), this point of this little scenario is to capture the day-to-day
nature of ethics. Even a simple situation involves conflicting interests, profound moral principles and
the nagging voice of conscience, culminating in a quiet but nevertheless telling conclusion
concerning the sort of person you are.

When we look at ethics in the accounting profession, ethics refers to the principles and values that
govern the behavior of accountants in their professional practice. These values are what separates
accountants in the professional field. They differentiate between those that would be willing to “bend
a few rules” in order to achieve their main objective and those that would not even consider it as an
option. Ethical principles in accounting include integrity, objectivity, confidentiality, and
professional competence. The scope of one’s being cannot be fully surmised without taking into
consideration their ethical behavior.

When we look at the ethics of a person in accounting we look at the following:

1. Integrity. When we look at the integrity of a professional accountant, we mean that the
accountant should be straightforward and honest in all professional and business
relationships. They should not indulge in falsification of documents, or manipulation of any
aspect of any of the financial reports that they produce.
2. Objectivity. All professional accountant should not allow bias; conflict of interest or undue
influence of others determine their course of actions. As this would lead into dangerous
territory in such a sense that, the accountant may be tempted to steal, forge documentation or
“cook financial books”.
3. Confidentiality. All professional accountants are expected to respect the confidentiality of
information acquired as a result of professional and business relationships and should not
disclose any such information to third parties without proper and specific authority unless
there is a legal or professional right or duty to disclose. It is essential to remember that as a
professional accountant, we are preview to highly classified and confidential documents, that
should they fall in the wrong hands, could destroy an organizations fiscal projections and
objectives. As such any confidential information acquired as a result of professional and
business relationships should not be used for the personal advantage of the professional
accountant or third parties.
4. Professional competence and due care. Professional accountants have a continued duty to
maintain professional knowledge and skill at the level required to ensure that a client or
employer receives competent professional services based on current developments in

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 practice, legislation and techniques. Hence professional accountants are required to “turn the
other cheek” in circumstances where their ethics are tested. They are expected to act
diligently and in accordance with applicable technical and professional standards when
providing professional services, at all times.
5. Professional behavior. A professional accountant should at all times be compliant to all the
relevant laws and regulations and at all costs should avoid any action that discredits the
accounting profession.

With the scope at which ethics is considered in accounting, I can conclude that ethics are very
important in accounting as they could be termed as onee of the corner stones of the profession as
they help to shape the industry to assure that the services that have been provided are within the
permitted scope of work and that the quality of works and services provided are within acceptable
ranges across the board.

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Exercise 3

Return of Investment =

𝑅𝑝 = (𝐷𝑝 + 𝛥𝑉𝑝 )/𝑉𝑝

Where:

𝐷𝑝 = dividends received

Δ 𝑉𝑝 = change in portfolio value during the interval (Capital Gains)

𝑉𝑝 = market value of the portfolio at the beginning of the period

Rp (2013) = (3.5+(36.50-35))/35 x 100

= (3.5+1.5)/35*100

= 14.2857143

= 14.3%

Rp (2014) = (3.5+(34.50-36.5))/36.5 x 100

= (3.5-2.0)/36.5*100

= 4.10958904

= 4.1%

Rp (2015) = (4.0+(35-34.50))/34.5 x 100

= (4.0+0.5)/34.5*100

= 13.0434783

= 13.0%

Average return = (14.3 + 4.1 + 13.0) / 3

= 10.4999997

= 10.5%

Standard deviation of returns =

Mean Beginning Stock Price = (35+36.5+34.5)/3 = 35.33333333 = $35.33

Mean End Stock Price = (36.5+34.5+35)/3 = 35.33333333 = $35.33

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Mean dividend paid = (3.5+3.5+4)/3 = 3.66666667 = $3.67

Begginning End Stock Dividend

Stock Price Price Paid

Means = 35.33 35.33 3.67

∣x−μ∣ = 0.11 1.36 0.03

1.36 0.69 0.03

0.69 0.11 0.11

2.17 2.17 0.17

Step 4 = 2.17 2.17 0.17

3 3 3

= 0.72 0.72 0.06

0.84852813 0.84852813 0.24494897

Standard Deviation = 7 7 4
(Square root of answers in
step 4)
= 0.85 0.85 0.24

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Exercise 4

A range is the area of variation between upper and lower limits on a particular set of data points. To
calculate the range, you need to find the largest observed value of a variable (the maximum) and
subtract the smallest observed value (the minimum). While finding a large range means high
variability, finding a small range means low variability in a distribution.

Below is the calculations for the range for Assets A and B. This is achieved, as explained above, by
subtracting the lowest limit from the highest limit.

Asset A Asset B
$ $
Initial investment 10,000.00 10,000.00
Annual rate of
Return
Pessimistic 13% 7%
Most Likely 15% 15%
Optimistic 17% 23%
Range 4% 16%

Gitman and Zutter (2014) explain that in most important business decisions there are two key
financial considerations: risk and return. The most common idea and principal in finance is that as
the risk of an investment or product increases, the expected return increases as well. The reason for
that is that the investors require a higher return to take a riskier decision.

Risk aversion is the tendency to avoid risk. As calculated above the range for product A is 4% while
the range of product B is 16%. Based on the data calculated, I can ascertain that a risk averse
decision maker would opt for product A as opposed to product B as product A’s range is 4 times less
than that s product B. The lower the range, the lower the risk involved in the investment.

As per the calculations above, it shows that Asset A has 4 times less risk associated to it as compared
to Asset B as such a risk averse decision maker would opt for Asset A. As the variability of outcome
in Asset B is significantly higher than that of Asset A it is safe to assume that any risk averse
decision would stay clear of asset B and opt for Asset A. Though the risk for Asset B is higher, and
as such it’s reward is also higher, a risk averse decision maker would never willing incur additional
risk, as such they risk losing out on the extra potential earning as they are unwilling to carry the
higher risk as such they often opt for lower reward investments. As is most cases, in order to receive
higher earnings, one must be willing to risk more. The higher the risk factor, the higher the return.

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References

 Fabozzi, Frank J., et al. The Complete CFO Handbook: From Accounting to Accountability,
John Wiley & Sons, Incorporated, 2007.
 Gitman, L.J. and Zutter, C.J., 2014. Principles of Managerial Finance. edited by D. Battista.
Harlow: Pearson.
 Campbell, J.Y., 1996. Understanding risk and return. Journal of Political economy, 104(2),
pp.298- 345.
 Dhankar, R.S., 2019. Risk-Return Relationship and Portfolio Management. Springer India.
 Modigliani, F. and Pogue, G.A., 1973. An introduction to risk and return concepts and
evidence.
 Todorovic, Z., 2018 Application of Ethics in the accounting Profession with an Overview of
the Banking sector. Journal of Central Banking Theory and Practice, 7(3), pp. 139-158.
 Zimmerli, W.C., Richter, K. and Holzinger, M., 2007. Corporate ethics and corporate
governance. Springer.
 Vallabhaneni. S.R. 2008. Corporate management, governance, and ethics best practices. John
Wiley & Sons.
 Week 1 –Ethics and Corporate Governance. pdf, UNICAF University
 Week 3 –Ethics and Corporate Governance. pdf, UNICAF University.
 Week 4 – Ethics and Corporate Governance.pdf, UNICAF University.

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