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CHP 10 - Corporate Governance, Accounting & Finance
CHP 10 - Corporate Governance, Accounting & Finance
Decision Making:
Corporate
Governance,
Accounting, and
Finance
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Chapter Objectives 1
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Chapter Objectives 2
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Ethical Decision Making 1
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Introduction 1
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Introduction 2
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Professional Duties and Conflicts of Interest 1
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Professional Duties and Conflicts of Interest 2
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Figure 10.1: Conflicts of Interest in Public CPA Activity
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Professional Duties and Conflicts of Interest 3
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Professional Duties and Conflicts of Interest 4
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The Sarbanes-Oxley Act of 2002
A string of corporate scandals shook investor confidence.
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The Sarbanes-Oxley Act of 2002 2
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The Sarbanes-Oxley Act of 2002 3
• Section 404.
• Management assessment of internal controls.
• Section 406.
• Required codes of ethics for senior financial officers.
• Section 407.
• Disclosure of audit committee financial expert
• Requires that they actually have an expert.
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The Internal Control Environment 1
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The Internal Control Environment 2
• Control environment.
• Control environment: Cultural issues such as integrity, ethical values,
competence, philosophy, and operating style.
• Risk assessment.
• Control activities.
• Information and communications.
• Ongoing monitoring.
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The Internal Control Environment 3
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The Internal Control Environment 4
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Going Beyond the Law: Ethical Board Members
The corporate failures of recent years would suggest:
• A failure on the part of corporate boards.
• A failure of government to impose high expectations of accountability on
boards of directors.
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Legal Duties of Board Members
U.S. law imposes three clear duties on board members.
• The duty of care is the exercise of reasonable care by ensuring that
executives carry out responsibilities and comply with the law.
• The duty of good faith is one of obedience, requiring faithfulness to the
organization’s mission.
• The duty of loyalty requires faithfulness from board members by giving
undivided allegiance when making decisions affecting the organization.
• Conflicts of interest are always to be resolved in favor of the organization.
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Beyond the Law, There is Ethics 2
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Ethical Decision Making 3
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Conflicts of Interest in Accounting and the Financial Markets 1
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Executive Compensation 1
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Executive Compensation 3
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Executive Compensation 4
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Figure 10.2: Duties of the Board and Senior Executives That May Give
Rise to Conflicts of Interest
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Insider Trading 1
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Insider Trading 2
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Figure 10.1: Conflicts of Interest in Public CPA Activity - Text Alternative
The client’s board of directors work directly with the client and
have a possible conflict with the client’s management team.
The client works with its own management team and hires a CPA
firm and works daily with it.
The client pays the CPA firm and has a vested interest in the
CPA’s report to the public.
The client has a financial obligation to the CPA firm, and the CPA
firm has a contractual obligation to the client.
The CPA firm has a fiduciary and ethical obligation to the public
to truthfully report the client's accounting information.
The CPA firm has a contractual obligation with the client’s
management team.
Return to parent-slide containing images.
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Figure 10.2: Duties of the Board and Senior Executive That May Give
Rise to Conflicts of Interest - Text Alternative
The duties of board members are to ensure executives are fairly
and not excessively paid and to evaluate the executive's
performance.
The duties of senior executives are as follows:
CEO often serves as chair of the board of directors.
Often hand-selects members of the board of directors.
Compensation received by board members is determined by the
chief executive officers.
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