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Fundamentals of Ethics,
Corporate Governance and Business Law
2nd Edition (April-2020)
Corporate Governance
and
Business Laws
__________________________________________________________________
Md. Monowar Hossain, FCA, CPA, FCMA
FCS, CIA, CIFRS, FIFC, CIPFA(UK), CGA
Chief Financial Officer (CFO) &
Head of Internal Control and Compliance (ICC)
Agrani Bank Limited
e-Mail: md.monowar@gmail.com
__________________________________________________________________
The contents of this paper may not be transmitted, re-published, modified, reproduced, distributed, copied, or sold without the prior consent of the author.
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Md.Monowar Hossain FCA, CPA, FCS, CGA, CIPFA(UK), FCMA
CFO & Head of ICC, Agrani Bank Limited
eMail: md.monowar@gmail.com

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Md. Monowar Hossain FCA, CPA, FCMA

FCS, CIA, CPFA(UK), CIFRS, FIFC, MBA
Head of Internal Control and Compliance (ICC) and CFO,
Agrani Bank Limited.
Former ‘Consultant (ED), Office of the Chief Accountant,
Bangladesh Securities and Exchange Commission (BSEC).
Former ‘GM (Internal Control and Compliance)’, Rupali Bank Ltd.
Former ‘Head of Corporate Governance & Financial Reporting Compliance
(CGFRC)’, Dhaka Stock Exchange Ltd.
Former ‘Head of Finance & Company Secretary’, Brummer & Partners
AB.
Former ‘Financial Management Consultant’, Institute of Social Studies
(ISS), Netherlands activity at the University of Dhaka, Bangladesh.
Md. Monowar Hossain, a Chartered Accountant, a Management Accountant, a Chartered Secretary,

Certified General Accountant, qualified from the ICAB, ICMAB, ICSB, ICGAB respectively. A qualified
member of all four professional Institutions in Bangladesh. At present, serving as the Head of Internal
Control & Compliance (ICC) and Chief Financial Officer (CFO) at Agrani Bank Limited from 1st
March 2015, a State-Owned Commercial Bank having 960 Branch networking with 14,000 human capital.
In 25years, professional experiences, contributed…

(1) At Agrani Bank:
 General Manager, Head of Internal Control & Compliance (ICC): 01/03/2015 and continuing
 Chief Financial Officer (CFO): 04/07/2019 (MD Circular: 09/19) and continuing
 Head of Agrani Equity Investment Co. Ltd. (Subsidiary of Agrani Bank Limited:
04/07/2019 to 19/09/2019.
 Head of Corporate Branches:
• Purana Palton Corporate Branch: 04/07/2019 to 19/09/2019
• Moulavi Bazar Corporate Branch: 04/07/2019 to 19/09/2019
• Uttara Corporate Branch: 04/07/2019 to 19/09/2019
• Bangabandhu Road Corporate Branch, N. Gang: 04/07/2019 to 19/09/2019.
(2) ‘Bangladesh Securities and Exchange Commission (BSEC)’ as the ‘Consultant of Office of the
Chief Accountant (Executive Director position)’;
(3) ‘General Manager (Internal Control and Compliance, ICC)’ at ‘Rupali Bank Ltd.’, responsible for
managing ICC risk through the Audit & Inspections, Monitoring and overall Compliance in the Bank;
(4) ‘Head of Corporate Governance & Financial Reporting Compliance (CGFRC)’ in ‘Dhaka Stock
Exchange Ltd.’ for 4 years;
(5) ‘Head of Finance & Company Secretary’ for ‘Brummer & Partners AB’, multinational
organization of Sweden, in its Dhaka Office;
(6) ‘SGS Bangladesh Limited’ for 6 years;
(7) ‘Cho Yang Line’ for 2 years;
(8) Worked as the ‘Financial Management Consultant’ at the ‘Institute of Social Studies (ISS)’,
Netherlands’ activities at Dhaka University, Bangladesh for 7 years.
Also, a Member of CIPFA(UK), Fellow Member of the Institute of Financial Consultant, a Fellow Member of
the Institute of Internal Auditor (IIA), USA. Did Masters in ‘Accounting’ and ‘MBA’. Have a long experience
in Regulatory Compliance, IFRS/IAS Compliance, Internal Control and Compliance (ICC), Auditing, Internal
Audit, Finance & Accounts, Taxation and Company Secretarial issues for more than 25 years.
One of the Co-Founder of the ‘Foundation of Chartered Taxation of Bangladesh (FCTB)’. Its objective is to
Increase Tax Payers, Strengthening Tax-net and Increase the Tax Revenue of Bangladesh. FCTB and United
International University (UIU) are jointly offered the ‘Post Graduate Diploma in Tax Management (PGDTM)’,
a specialized value-added qualification in tax management and tax compliance.
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GE05: Fundamentals of Ethics, Corporate Governance and Business Law
Syllabus structure
Topics Study weightings
A Ethics and business 15%
B Ethical conflict 10%
C Corporate governance 10%
D Comparison of English law with alternative legal systems 10%
E The law of contract 20%
F The law of employment 10%
G Company administration and finance 25%
100%
GE05 – A. Ethics and business (15%)

Learning outcomes
On completion of their studies students should be able to: Indicative syllabus content
Lead Component Level
1. demonstrate an (a) apply the values and 3 (1) The importance of ethics.
understanding attitudes that provide (2) Values and attitudes for professional
of the professional accountants accountants.
importance of with a commitment to act in (3) Legal frameworks, regulations and
ethics to the public interest and with standards for business.
business social responsibility; (4) The role of national ‘Professional Oversight
generally and to (b) explain the need for a 2 Boards for Accountancy’ and ‘Auditing
the professional framework of laws, Practices Boards’.
accountant. regulations and standards in (5) The role of international accounting bodies
business and their e.g. IFAC.
application; (6) The nature of ethics and its relevance to
(c) explain the nature of ethics 2 business and the accountancy profession.
and its application to (7) Rules based and framework approaches to
business and the ethics.
accountancy profession; (8) The ‘Seven Principles of Public Life’ –
(d) distinguish between detailed 2 selflessness, integrity, objectivity,
rules based and framework accountability, openness, honesty and
approaches to ethics. leadership.
2. explain the need (a) explain the need for 2 (9) Personal development and lifelong
for CIMA continual personal learning.
members to improvement and lifelong (10) The personal qualities of reliability,
adopt the learning; responsibility, timeliness, courtesy and
highest (b) explain the need to develop 2 respect.
standards of the virtues of reliability, (11) The ethical principles of integrity and
ethical responsibility, timeliness, objectivity.
behaviour. courtesy and respect; (12) Professional competence, due care and
(c) explain the ethical principles 2 confidentiality.
of integrity, objectivity, (13) Disclosure required by law.
professional competence, (14) The concepts of independence, scepticism,
due care and confidentiality; accountability and social responsibility.
(d) identify concepts of 2 (15) The CIMA and IFAC ‘Code of Ethics for
independence, scepticism, Professional Accountants’.
accountability and social
responsibility;
(e) explain the reasons why 2
CIMA and IFAC each have a
‘Code of Ethics for
Professional Accountants’.
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GE05 – B. Ethical conflict (10%)

Learning outcomes
1. explain the (a) explain the relationship between 2 (16) The relationship between ethics and the
various means ethics, governance, the law and law.
of regulating social responsibility; (17) The distinction between ethical codes
ethical (b) describe the consequences of 2 and contracts.
behaviour. unethical behaviour to the (18) Corporate governance and social
individual, the profession and responsibility.
society. (19) Unethical behaviour.
(20) The consequences of unethical
behaviour.
2. explain how (a) identify situations where ethical 2 (21) The nature of ethical dilemmas.
ethical dilemmas dilemmas and conflicts of interest (22) Conflicts of interest and how they
and conflicts of occur; arise.
interest arise (b) explain how ethical dilemmas and 2 (23) Ethical conflict resolution.
and may be conflicts of interest can be (24) The CIMA Code of Ethics for
resolved. resolved. Professional Accountants –
‘Fundamental Principles’.
GE05 – C. Corporate governance (10%)

Learning outcomes
1. explain the (a) define corporate governance; 1 (25) The role and key objectives of
development of (b) explain the interaction of corporate 2 corporate governance.
corporate governance with business ethics and (26) The interaction of corporate
governance to company law; governance, ethics and the law.
meet public (c) describe the history of corporate 2 (27) The development of corporate
concern in governance internationally; governance internationally e.g. in the
relation to the UK, Europe, South Africa and the
management of (d) distinguish between detailed rules 2 USA.
companies. based and principles based approaches (28) Rules and principles-based
to governance. approaches to governance.
2. explain the (a) explain the effects of corporate 2 (29) The impact of corporate governance
impact of governance on directors’ powers and on directors’ powers and duties.
corporate duties; (30) Types of board structures, the role of
governance on (b) describe different board structures, the 2 the board and corporate social
the directors role of the board and corporate social responsibility (CSR).
and responsibility; (31) The role of the board in establishing
management (c) describe the types of policies and 2 corporate governance standards.
structure of procedures that constitute ‘best (32) Corporate governance codes e.g. The
public limited practice’; UK Corporate Governance Code.
companies and (d) explain the regulatory governance 2 (33) Policies and procedures for ‘best
how this framework for companies and benefits practice’ companies.
benefits to stakeholders. (34) The regulatory governance framework
stakeholders. for companies.
(35) Stakeholder benefits.
GE05 – D. Comparison of English law with alternative legal systems (10%)

Learning outcomes
1. explain the (a) explain the manner in which 2 (36) The purpose of the civil and criminal
essential behaviour within society is regulated law.
elements of the by the civil and the criminal law; (37) The sources of English law: custom,
English legal (b) explain the sources of English law; 2 case law, statute, European law and
system and the (c) illustrate the operation of the 2 other sources.
tort of doctrine of precedent by reference to (38) The distinction between the common
negligence. the essential elements of the tort of law and equity.
(39) The system of judicial precedent.
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negligence and its application to (40) The essential elements of the tort of
professional advisers. negligence, including duty, breach
and damage/loss/injury and the
liability of professionals in respect of
negligent advice.
2. describe the (a) describe the characteristics of the 2 (41) Alternative legal systems, including
essential legal systems found in other codified (civil law) systems.
elements of countries; (42) The general characteristics of the
alternative (b) describe elements of Shari’ah law; 2 legal systems of France, Germany,
legal systems. (c) describe the role of international 2 Poland, Italy, Denmark, Greece and
regulations. Cyprus.
(43) The general characteristics of the
legal systems of the USA, Malaysia,
China and Sri Lanka.
(44) Elements of Shari’ah law including
sources of Shari’ah law and the Five
Pillars of Islam.
(45) The benefits of international
regulations for commerce and
professional practice through the
work of key bodies e.g. IFAC, ISO,
FEE.
GE05 – E. The law of contract (20%)
Learning outcomes
Indicative syllabus content
On completion of their studies students should be able to:
1. explain how the (a) identify the essential elements of a 2 (46) The essential elements of a valid
law determines valid simple contract and situations simple contract.
the point at where the law requires the contract to (47) The legal status of statements made
which a contract be in a particular form; by negotiating parties. Offers and
is formed and (b) explain how the law determines 2 acceptances and the application of the
the legal status whether negotiating parties have rules to standard form contracts using
of contractual reached agreement and the role of modern forms of communication.
terms. consideration in making that (48) The principles for establishing that the
agreement enforceable; parties intend their agreement to have
(c) explain when the parties will be 2 contractual force and how a contract is
regarded as intending the agreement affected by a misrepresentation.
to be legally binding and how an (49) Incorporation of express and implied
agreement may be avoided because terms, conditions and warranties.
of misrepresentations; (50) The main provisions of the Sale of
(d) explain how the terms of a contract 2 Goods Act 1979 and the Supply of
are established and their status Goods and Services Act 1982.
determined; (51) Excluding and limiting terms; the
(e) describe the effect of terms implied 2 Unfair Contract Terms Act 1977 and
into contracts by sale of goods and the Unfair Terms in Consumer
supply of goods and services Contracts Regulations.
legislation;
(f) describe how the law controls the use 2
of excluding, limiting and unfair
terms.
2. explain when (a) describe the factors which cause a 2 (52) Discharge of a contract by
the law regards contract to be discharged; performance, agreement and breach.
a contract as (b) explain how the law of frustration 2 (53) The law relating to frustration.
discharged and provides an excuse for non- (54) The law relating to damages.
the remedies performance of the contract; (55) The remedies of specific performance,
available for (c) explain the remedies which are 2 injunction, rescission, and requiring a
breach and available for serious and minor contract party to pay the agreed price.
nonperformance breaches of contract.
.
GE05 – F. The law of employment (10%)
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Learning outcomes
1. explain the (a) explain the differences between 2 (56) The tests used to distinguish an
essential employees and independent employee from an independent
elements of an contractors; contractor.
employment (b) explain how the contents of a contract 2 (57) The express and implied terms of a
contract and of employment are established; contract of employment.
the remedies (c) explain the distinction between unfair 2 (58) The rights and duties of employers and
available and wrongful dismissal. employees.
following (59) Notice and dismissal.
termination of (60) Unfair and wrongful dismissal.
the contract.
2. explain the (a) explain how employers and employees 2 (61) The main rules relating to health and
impact of are affected by health and safety safety at work, sanctions on employers
health and legislation; for non-compliance, and remedies for
safety law on (b) describe the consequences of a failure 2 employees.
employers and to comply with health and safety (62) Social security compensation.
employees. legislation. (63) Civil liability for occupational injuries.
GE05 – G. Company administration and finance (25%)
Learning outcomes
1. explain the (i) describe the essential characteristics of 2 (64) The essential characteristics of sole
nature, legal the different forms of business traderships/practitionerships,
status and organisations and the implications of partnerships, companies limited by
administration corporate personality; shares and corporate personality.
of business (65) ‘Lifting the corporate veil’ both at
organisations. common law and by statute.
(ii) explain the differences between public 2 (66) The distinction between public and
and private companies and establishing private companies.
a company by registration or (67) Company registration and the
purchasing ‘off the shelf’; advantages of purchasing a company ‘off
(iii) explain the purpose and legal status of 2 the shelf’.
the articles of association; (68) The purpose and contents of the articles
(iv) explain the ability of a company to 2 of association.
contract; (69) Corporate capacity to contract.
(v) explain the main advantages and 2 (70) The advantages and disadvantages of
disadvantages of carrying on business the company limited by shares.
through the medium of a company (71) Board meetings: when used and the
limited by shares; procedure at the meeting.
(vi) explain the use and procedure of board 2 (72) General Meetings of shareholders: when
meetings and general meetings of used and the procedure at the meeting.
shareholders; (73) The voting rights of directors and
(vii) explain the voting rights of directors 2 shareholders.
and shareholders; (74) Ordinary, special and written resolutions
(viii) identify the various types of 2 and their uses.
shareholder resolutions.
2. explain the law (a) explain the nature of different types of 2 (75) The rights attaching to different types of
relating to the shares, the procedure for their issue shares.
financing and and acceptable forms of payment; (76) The procedures for issuing shares.
management (b) explain the maintenance of capital 2 (77) The issue of shares for an improper
of companies principle and the reduction of share purpose.
limited by capital; (78) Payment for shares.
shares. (c) explain the ability of a company to 2 (79) The maintenance of capital principle: the
take secured and unsecured loans, the purposes for which shares may be
different types of security and the issued, redeemed or, purchased and the
registration procedure; provision of financial assistance for the
(d) explain the procedure for the 2 purchase of the company’s own shares.
appointment, retirement, (80) The reduction of capital.
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disqualification and removal of (81) The ability of a company to borrow

directors; money and the procedure to be followed.
(e) explain the powers and duties of 2 (82) Unsecured loans, and the nature and
directors when in office; effect of fixed and floating charges.
(f) explain the rules dealing with the 2 (83) The appointment, retirement and
possible imposition of personal liability removal of directors and their powers
upon the directors of insolvent and duties during office.
companies; (84) Fraudulent and wrongful trading,
(g) explain the rights of majority and 2 preferences and transactions at an
minority shareholders; under-value.
(h) explain the division of powers 2 (85) The rights of majority and minority
between the board of a company and shareholders.
the shareholders; (86) The division of powers between the
(i) explain the qualifications, powers and 2 board and the shareholders.
duties of the company secretary. (87) The qualifications, powers and duties of
the company secretary.
Recommended Books:
1. CMA Study Text on Paper IE 01: Principles of Accounting
2. Steven J. Skinner, John M. Ivancevich (2002), Business 21st Century
3. Mallin, Christine, A. 2010. Corporate Governance (3rd edition), Oxford: Oxford
University Press
4. McKendrick, Law of Contract.
5. A Text Book on Law of Contract, under National Law Book Company,
Nilkhet Dhaka, by Md. Haider Ali, 2nd Edition, 2011.
6. A text book on Easy understanding of The Law of Contract (Theory and
Practice) has been published, publisher: Hira Publication, by Syed
Sarfaraj Hamid, 4th Edition,2011.
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Corporate Governance and Business Laws
Module -01 1. The importance of ethics.
2. Values and attitudes for professional accountants.
Ethics and 3. Legal frameworks, regulations and standards for business.
business 4. The role of national ‘Professional Oversight Boards for Accountancy’
(15%) and ‘Auditing Practices Boards’.
5. The role of international accounting bodies e.g. IFAC.
6. The nature of ethics and its relevance to business and the
accountancy profession.
7. Rules based and framework approaches to ethics.
8. The ‘Seven Principles of Public Life’ – selflessness, integrity,
objectivity, accountability, openness, honesty and leadership.
Ethics Ethics refers to human

At its simplest, ethics is a system conduct as to make
of moral principles. They affect judgments between what is
how people make decisions and lead right and what is wrong.
their lives. Ethics is concerned with should have ...
what is good for individuals and  Honesty
society and is also described as  Objectivity
moral philosophy.  Integrity
 Carefulness
The term is derived from the Greek  Confidentiality
word ethos which can mean custom,  Social Responsibility
habit, character or disposition.  Competence
 Legality
Ethics covers the following dilemmas:
• how to live a good life

• our rights and responsibilities
• the language of right and wrong
• moral decisions - what is good and bad?
The basic concepts and

fundamental principles of decent
human conduct. It includes study Our concepts of ethics have been derived from
of universal values such as the religions, philosophies and cultures. They infuse
essential equality of all men and debates on topics like abortion, human rights and
women, human or natural rights, professional conduct.
obedience to the law of land,
concern for health and safety and,
increasingly, also for the natural
environment.
1
Code of Ethics of a Professional Accountant
Fundamental Principles - A Professional Accountant shall comply with the following

fundamental principles:
1
https://www.ifac.org/system/files/publications/files/ifac-code-of-ethics-for.pdf
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a) Integrity – to be straightforward and honest in all professional and business

relationships.
b) Objectivity – to not allow bias, conflict of interest or undue influence of others to
override professional or business judgments.
c) Professional competence and due care – 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 practice, legislation and
techniques and act diligently and in accordance with applicable technical and
professional standards.
d) Confidentiality – to respect the confidentiality of information acquired as a result of

professional and business relationships and, therefore, 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, nor use the information for the personal
advantage of the accountant or third parties.
e) Professional behaviour – to comply with relevant laws and regulations and avoid
any action that discredits the profession.
The importance of ethics
Good Ethics is a fundamental requirement of any profession. It is integral to the

success of the business as well. Ethics is a system of moral principles governing the
appropriate conduct of a person or a group. Maintaining good ethics is being consistent with
the principles of correct moral conduct constantly.
1. Satisfying Basic
Human Needs
2. Creating Credibility
within the
organization
3. Uniting People and
Leadership
4. Improving Decision
Making
5. Able to achieve Long
Term Gains
6. Securing the Society
The importance of ethics in professional life can be evidenced by a number of instances

showing failure of businesses and several scandals. It may be rightly said that the situations
would not have been so worsened had there been observance of ethical standards. Therefore,
maintaining ethical standards is must for the prosperity of an organization as well as the
development of one’s personality. Good ethics will lead us to maintain our honest image. It
will enable us to refrain from such activities that may discredit to our profession. Thus,
adhesion to good ethics is to let our conscience be our guide at all times. Ethics is the activity
of man directed to secure the inner perfection of his own personality.
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Values and attitudes for professional accountants
Values: Important and lasting beliefs or Attitudes: A predisposition or a tendency to

ideals shared by the members of a culture respond positively or negatively towards a
about what is good or bad and desirable or certain idea, object, person, or situation.
undesirable. Values have major influence Attitude influences an individual's choice of
on a person's behavior and attitude and action, and responses to challenges,
serve as broad guidelines in all situations. incentives, and rewards.
Some common business values are Four major components of attitude are
fairness, innovation and community a) Affective: emotions or feelings.
involvement. b) Cognitive: belief or opinions held
consciously.
The monetary worth of something in areas c) Conative: inclination for action.
such as accounting, economics, marketing d) Evaluative: positive or negative
or mathematics. response to
stimuli.
Professional accountants, whether practicing in public or private practice have an
important leadership role in society. Society expects professional accountants to behave and
act in the public interest. Proper ethical behaviour is therefore as important as technical
competence and together forms the basis to the definition of professional behaviour. This is
one of the fundamental principles in the CIMA ‘Code of Ethics’ and is defined as ‘a
professional accountant should comply with relevant laws and regulations and
should avoid any action that discredits the profession’.
An individual’s values and attitudes underpin that person’s behaviour or manner in which they
conduct themselves. Value words such as integrity, honesty and transparency; and attitudes,
such as desire to ‘do the right thing’ will help guide that individual. In professional life, values
and attitudes are codified in a code of ethics which clarifies the behaviour expected of
members of that profession.
Business life, in whatever sector, can throw up many changes and challenges to professional
accountants; throughout which professionals need to demonstrate consistency in their
application of ethical values, attitudes and in their behaviour towards others. It is primarily in
the relationships with others that values and attitudes are demonstrated. Professionals always
need to behave with integrity, to be reliable and work in a timely fashion in his/her dealings
with colleagues, customers, clients, suppliers and all others they come into contact with.
However, against a backdrop of being constant despite change, professionals need to be
aware of the wider expectations of society in order to fulfill their public role.
Society values and expectations do however change from time to time, usually in reaction to
events such as where there has been evidence of corporate failure due to misdemeanour or
fraud. Professional accountants, therefore, need to understand and be sensitised to ethical
issues and pressures, such as ethical implications when taking decisions, to play their role in
protecting against such instances. This is important in helping to build public confidence and
trust in business and the profession directly. If such confidence falters, society through the
democratic process may introduce new laws to curb excessive behaviours. The failure in public
confidence brought about by Enron was the genesis of the introduction of the Sarbanes-Oxley
Act in 2002.
In real life applying values and demonstrating the right attitude of doing the right thing
because it is the right thing to do can be difficult and takes courage.
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Example-1
MUTTAKEEN is a qualified management accountant in a light engineering company. It is a

family-run company but does have a number of minority shareholders owning 15% of the
company’s shares. It is the year-end and the company has been through a difficult time
having lost a key client this year, but a memorandum of understanding has now been signed
with a new customer which bodes well for the future. Whilst future sales seem assured, the
MOU is not legally binding. MUTTAKEEN’s Boss, who is not an accountant and is also married
to the owner’s daughter, asks MUTTAKEEN to book a proportion of future sales into this year’s
accounts, telling him the paperwork will be following by the year-end and the factory is to
begin making the products required.
What should MUTTAKEEN do?
MUTTAKEEN’s options:
1) Do as requested
2) Challenge the request
3) Ask for the request in writing
4) Refuse
5) Bring this to the attention of the owner
6) Seek a second opinion from a fellow professional accountant
7) Start looking for another job.
Given the background to this situation, MUTTAKEEN will need to demonstrate courage in
challenging the request that has been made, until he has seen a written order for the new
customer. To do otherwise would be wrong as the year-end accounts would be false, if the
transactions were booked before orders were received.
MUTTAKEEN would be demonstrating the fundamental principles of integrity (being

straightforward and honest), objectivity (refusing undue influence) and diligence (acting in
accordance with applicable and technical standards).
Example-2
MONYEM Properties is a mendium-sized property development company specialising in buying
up inner city sites and redevel-oping them. They mostly build houses on these sites. They
have recently purchased a large site which was a former town gasworks. The price was very
good and MONYEM has immediately put in for planning permission. They have a certificate
from the vendor regarding the environmental cleanup that was done, which they intend to
rely on in their planning application.
What do you think they should do?
Options:
(a) MONYEM Properties continue to seek planning permission

(b) MONYEM Properties could commission their own environmental survey.
MONYEM Properties, acting responsibly, would need to satisfy themselves that the
environmental certificate was valid and the site had been cleaned up to make it suitable for
housing. To do otherwise would potentially be a risk to their reputation if subsequently the
land was proved to be unsuitable for housing use.
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Legal frameworks, regulations and standards for business
The combination of legal

frameworks, regulations,
guidelines and standards for
business are needed to
provide guidance on
behaviours. They exist for
individuals, and collective
bodies to adhere to, and are
a means of engendering
public trust and integrity in
the profession.
They are administered
through and by a number of
regulatory bodies as decreed
by parliament and the
accountancy profession, in
the case of self-regulatory
guidelines which the
accountancy profession has
collectively set itself.
There are two categories of framework:

(1) The first is legally binding and therefore is mandatory on all governed by them, to
comply.
(2) The second is voluntary in nature, where it is good or best practice to follow the
guidelines/standards and to adhere to them as well.
There are a number of frameworks in existence which govern the accounting profession. With
respect to ethical considerations, in the UK the lead has been taken by the Financial Reporting
Council (FRC). The FRC is the UK’s independent regulator for corporate reporting and
governance, with the aim of promoting confidence in these areas. Two further bodies forming
part of the FRC are the Professional Oversight Board (POB) and the Audit Practices Board
(APB). Each has a number of stated objectives but they include an oversight and review
function on ethical matters.
Financial Reporting Act -2015 (Bangladesh)

The Bangladesh National Parliament passed the Financial Reporting Act -2015 on September
6, 2015.
The Institute of Chartered Accountants of Bangladesh (ICAB) was the one and only governing
body for the country’s-chartered accountants. From now onwards the Financial Reporting
Council (FRC) of 12 members under the act will ensure accountability and performance among
the chartered accountants of Bangladesh. Moreover, the council will be a statutory body with
members from various government bodies, institutions and professional groups.
The FRC will be the watchdog body in order to monitor the function of auditors and ensure
transparency and accountability in accounting and auditing of financial organizations,
including various government, autonomous and non-government institutions.
The act will monitor both chartered accountants and cost and management accountants of
Bangladesh.
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Ethics and 3. Legal frameworks, regulations and standards for business.
business 4. The role of national ‘Professional Oversight Boards for
(15%)- Cont. Accountancy’ and ‘Auditing Practices Boards’.
5. Financial Reporting Council (FRC) Bangladesh.
objectivity, accountability, openness, honesty and leadership.
The role of national ‘Professional Oversight Boards for Accountancy’ and ‘Auditing
Practices Boards’.
The Professional Oversight Board for

Accountancy (UK)
In relation to the regulation of the
accountancy profession, the Board intends
to achieve its aims by: Reviewing the
regulatory activities of the professional
accountancy bodies in relation to their
members, including education, training,
continuing professional development,
standards, ethical matters (except those
which are the responsibility of the APB)
professional conduct and discipline,
registration and monitoring, including
making recommendations on how these
activities might be improved.
2
The Auditing Practices Board (UK)
The Board intends to achieve its aims by:
● Establishing Auditing Standards which set out the basic principles and essential
procedures with which external auditors in the UK and the Republic of Ireland are
required to comply;
● Issuing guidance on the application of Auditing Standards in particular circumstances

and industries and timely guidance on new and emerging issues;
● Establishing Standards and related guidance for accountants providing assurance
services;
● Establishing Ethical Standards in relation to the independence, objectivity and integrity

of external auditors and those providing assurance services;
2
www.frc.org.uk/apb/about/aims.cfm
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● Taking an appropriate role in the development of statutes, regulations and accounting

standards which affect the conduct of auditing and assurance services, both domestically
and internationally;
● Contributing to efforts to advance public understanding of the roles and responsibilities

of external auditors and the providers of assurance services including the sponsorship of
research.
3
The Bangladesh Parliament enacted Financial Reporting ACT (FRA), 2015 on September 9,
2015. FRA requires the establishment of the Financial Reporting Council (FRC) – an
independent oversight body to bring trust, credit worthiness, transparency and accountability
in the audited reports and accounting as financial reporting of the publicly listed companies.
The main purpose of the FRC will be to regulate the financial reporting process followed by
the public interest entities. It will also regulate auditing profession of the country.
The FRC is a 12-members body, comprising of representatives from the government, the
Bangladesh Bank, the BSEC, the FBCCI, the academia, and the professional accounting
bodies.
Mission, Vision and values of FRC:
• Vision- To be a model organization • Mission - To bring corporate

ensuring quality in auditing, accounting confidence in auditing, financial and
and financial and non-financial reporting. non-financial reporting among users
of financial statements.
Objects as per Financial Reporting Act 2015: Domains / area of FRC:

- To promote the provision of high-
quality reporting of financial and non-
* Public Interest Entities
financial information by public interest
entities; * Listed Companies
* State Owned Enterprises
- To promote the highest standards
among licensed auditors; * Regulatory Bodies
* Auditors
- To enhance the credibility of
* Professional Accountants
financial reporting; and
* Government
- To improve the quality of * General Public
accountancy and audit services.
3
https://www.frcbd.org/
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Functions of FRC What FRC will do?

 Setting Standards for • Ensure adherence to International Financial
Financial Reporting, Reporting Standards (IFRS) and International
Auditing, Valuation and Standards of Auditing (ISA);
Actuarial Services
• Ensure compliance with code of corporate
governance
 Licensing of Auditors
• Provision of training/ seminars to facilitate
 Approving Audit Firms implementation of accounting standards
• Encourage feedback from all stakeholders to
 Audit Practice Review
improve quality audit and financial and non-
financial reporting
 Financial / Non-Financial
Reporting Review
• Setting Standards and Implementing them in consideration of the perspective of

socio-economic condition of Bangladesh and after keeping consistency with
internationally accepted and quality financial reporting, auditing standards, valuation
and Actuarial Services;
• Ensuring compliance with internationally accepted quality standards set by the
International Accounting Standards Board (IASB), International Auditing and
Assurance Standards Board (IAASB) or related other international bodies;
• Ensuring Effective compliance, monitoring and enforcement of financial reporting
and auditing standards set by the Council;
• Setting necessary rules, regulations, standard guidelines and codes and ensuring
their enforcement for the purpose of ensuring of qualitative standard of financial
reporting, accounting and auditing;
• Monitoring auditing practice and exercise of auditors for the purpose of
maintaining high standard of professional conduct;
• Giving advice on activities in relation to accounting and auditing and providing
information related services as central information storage;
• Enlisting auditors and maintaining related information in register and
publication thereof;
• Ensuring compliance of reporting requirement prescribed under any other Act;
• Giving recommendations on academic certificates, courses and various teaching,
training, internship, articleship and research activities run by professional accounting
bodies and providing assistance in development;
• Observing professional development activities run by professional accounting
bodies for the fulfillment of the purpose of this Act;
• Encouraging and where applicable, financing research on such a subject by which
the financial report, accounting, auditing and corporate governance system can be
enforced more effectively and efficiently by the council, professional accountancy
bodies or any other entity concerned;
• Making necessary rule or regulations for conducting accounting and auditing
activities properly;
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• Conducting investigation and activities in relation thereto under this Act;

• Taking suitable procedure or scheme and implementing those for achieving the
objectives and performing the functions of Council;
• Engaging or where applicable, executing memorandum of understanding and
agreement, with such local or international institutional initiatives which are related to
the objectives and functions of the Council or helpful thereto it;
• Fixing charge and fee on services provided by the Council;
• Imposing fine under this Act and rules made thereunder;
• Giving recommendation or advice to the Government about financial report,
non-financial report, financial statement, annual report, accounting and auditing or
subjects related thereto; and
• Doing such other activities, which the council deems fit, fit the purpose of
implementing its general objectives and functions for the fulfilment of the purpose of
this Act;
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Ethics and
3. Legal frameworks, regulations and standards for business.
business
4. The role of national ‘Professional Oversight Boards for Accountancy’
(15%)
and ‘Auditing Practices Boards’.
(Contin…) 5. Financial Reporting Council (FRC) Bangladesh.
objectivity, accountability, openness, honesty and
leadership.
The role of international accounting bodies e.g. IFAC. [www.ifac.org]
The International Federation of Accountants

(IFAC) strives to serve the public interest by
establishing and promoting adherence to
international standards, facilitating cooperation
with member bodies, and serving as a
spokesperson for the international profession on
relevant public policy issues.
The worldwide organization for the accountancy profession.
IFAC's boards set international standards in a number of areas including auditing, quality
control, education, public sector accounting and ethics for professional
accountants. While IFAC was founded on October 7, 1977, in Munich, its headquarters
have been located in New York City since its inceptions.
The International Federation of

Accountants (IFAC) reviews the
profession worldwide and published
Code of Ethics.
This Code of Ethics establishes
ethical requirements for
professional accountants.
The framework of laws, regulations
and standards are applied to the
accountancy profession by the
bodies mentioned above, and
through matters brought to their
attention by professional firms.
They test the efficacy of the framework through consultation with interested parties
(professional firms and others) and review the professional accountancy bodies’ practices.
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A further source of guidelines and standards with which the professional accountant must be
aware is the code pertaining to their place of employment.
A majority of large corporate entities and number of smaller companies now have codes of
ethics giving guidance to company personnel as to expected levels of behaviour of their
staff.
The nature of ethics and its relevance to business and the accountancy profession
In business, ethics is defined as the

application of ethical values to
business behaviour. Ethical values
are words such as integrity,
honesty, responsibility,
transparency and fairness amongst
others. It is how the business or
entity brings these values ‘alive’ or
applies them within their organisation
as it transacts its business that is key.
How it conducts its relation-ships with
its employees, its shareholders, its
customers, its suppliers and with those
in the community in which and
wherever it operates. It is therefore
about how the entity does its business
not what it does, so it is not about the
product or service the company
provides.
Ethical values play out through behaviours. They are highly relevant to business and those
operating in it, especially professional people. There is the expectation in the public mind that
professionals within organisations will play a leadership role in ensuring that those entities
will act ethically in transacting their business.
That expectation is rooted in ‘trust’ that businesses know what they are doing and are doing
it in society’s interest, as part of wealth creation for all. This is the ‘trust me’ model. This
model has been eroded as society recognised as it could not trust business to ‘do the right
thing’ particularly in the arena of non-financial focussed activity. So after the 1960s/1980s
when major companies became manager-run and led rather than family-owned and led, the
model evolved to ‘involve me’.
This model has continued to evolve through the stages of ‘show me’, asking companies to
demonstrate how they do their business; to ‘prove to me; where society expects companies
to provide independent verification and assurance of how they do their business. The ultimate
model, if companies do not behave, is to impose law on them to do so: ‘obey me’. The law is
a blunt instrument in curing behaviour because it cannot define or cover all instances of poor
behaviour, and leads to a compliance or tick the box culture rather than one based on ‘doing
the right thing’ naturally.
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Rules based and framework approaches to ethics
There is a different approach to those codes and standards that are compliance based and
those ethics based. This is human nature. The former tends to be tick box and the latter
principle based. These are two different aspects of internal culture which organizations sign
up to: compliance because they have to and ethics because they feel they ought to. In
governance terms they are deemed an important way of engendering trust from others.
This can be demonstrated in the following table contrasting the characteristics of a

compliance-driven framework versus one primarily driven by values, principles and ethics.
Ethics Compliance
Slow burner Constant monitoring
Long time frame Short time frame
Prevention Detection
Principles based Law based
Values driven Fear driven
Implicit Explicit
Spirit of the law Letter of the law
Grey Black and white
Alignment with values Requires obedience
Discretionary Mandatory
More difficult Easier
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An example of applying the different approaches above would be a company which has a
strong rules-based culture where individuals clearly have a sense of what they can and cannot
do (letter of the law, black and white, mandatory, explicit) and what will hap-pen if they do
not (fear-driven, requires obedience, mandatory). However, if an employee is faced with a
situation not covered by the ‘rule book’ they will be required to use their own judgement as
to what to do. In most instances, the decision they take will be the right one but any potential
for the wrong decision being made will be reduced if the employee has guiding values and
principles which will underpin that difficult deci-sion-making. So, an ethical framework of
guidance is likely to be more wide-ranging in its applicability than a fully rules-based
one.
The ‘Seven Principles of Public Life’ – selflessness, integrity, objectivity,

accountability, openness, honesty and leadership.
In the public sector in the UK, employees are governed by ‘The Seven Principles of Public
Life’ issued by the Committee of Standards in Public Life
(1). Selflessness - Holders of public office should act solely in terms of the
public interest.
(2). Integrity - Holders of public office must avoid placing themselves under
any obligation to people or organizations that might try inappropriately to
influence them in their work. They should not act or take decisions in order to
gain financial or other material benefits for themselves, their family, or their
friends. They must declare and resolve any interests and relationships.
(3). Objectivity - Holders of public office must act and take decisions
impartially, fairly and on merit, using the best evidence and without
discrimination or bias.
(4). Accountability - Holders of public office are accountable to the public for
their decisions and actions and must submit themselves to the scrutiny
necessary to ensure this.
(5). Openness - Holders of public office should act and take decisions in an
open and transparent manner. Information should not be withheld from the
public unless there are clear and lawful reasons for so doing.
(6). Honesty - Holders of public office should be truthful.
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(7). Leadership - Holders of public office should exhibit these principles in

their own behaviour. They should actively promote and robustly support the
principles and be willing to challenge poor behaviour wherever it occurs.
Professional accountants need to adhere to all these codes. They also need to be aware
that if they find themselves in situations where they might not be able to comply with the
legal, regulatory or standards frameworks they have a duty to raise these concerns to
themselves and their profession. They need to speak up and be heard.
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Module -04 10.Personal development and lifelong learning.
11.The personal qualities of reliability, responsibility,
Ethics and timeliness, courtesy and respect.
business 12.The ethical principles of integrity and objectivity.
(15%) 13.Professional competence, due care and confidentiality.
(Contin…) 14. Disclosure required by law.
15. The concepts of independence, skepticism, accountability and
social responsibility.
16. The CIMA and IFAC ‘Code of Ethics for Professional Accountants’.
 Personal development and lifelong learning

Every professional person has a duty in
maintaining their role of acting in the public
interest in keeping themselves up to date
professionally that is technically as well
developing their competencies to be better
informed. This has grown in importance as
the pace of change develops and the role of
professional accountant grows more complex.
This is one of the fundamental principles in
the CIMA ‘Code of Ethics’, where the
professional accountant has the duty to
maintain professional knowledge and skill at
the level required to ensure that a client or
employer receives competent professional
service based on current developments in
practice, legislation and techniques.
The concept of competent

professional service is
based not only on attaining
professional competence
but also in maintaining it.
This requires a continuing
awareness of up-to-date
developments in the
profession. This can be met
through continuing
professional development.
CIMA has developed the CIMA
Professional Development
framework which addresses
both the requirements on
members and the institute
regarding CPD, and the ways
in which CIMA is supporting
members in their professional
development.
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For example, the public expectation is that all

accountants are ‘up to speed all the time’
which requires commitment from all those in
the profession. This is because the issues a
professional face do change over time. For instance,
given the rapid advance in technology, returns may
be filed electronically putting greater emphasis on
professional review. In matters of security of
customer/client data where confidential information
is transferred via e-mail, there is always the
potential for that information to be corrupted if the
computer system does not have up-to-date firewall
and virus protection and so forth.
The personal qualities of reliability, responsibility, timeliness, courtesy and

respect.
Members of the profession need, or

need to develop, certain qualities and
virtues in order to meet the
expectations of CMA and the public
served in the wider context. In
upholding the highest standards of
ethical behaviour, members are
contributing to the promotion of the
integrity of CMA’s qualification and
supporting CMA’s purpose.
The particular qualities and virtues sought are reliability, responsibility, timeliness, courtesy
and respect. These are taken from International Education Standard for Accountants,
published by IFAC Values, Ethics & Attitudes.
This is the concept

of being able to be
trusted by others
Reliability and to be
dependable through
the ability to deliver
what and when it
has been agreed
with another.
This is the concept

Responsibility of being accountable
for one’s actions and
decisions.
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This is the concept

of delivering in a
timely manner
Timeliness without delay and
meeting the
expectations of
others.
This is the virtue of

demonstrating
Courtesy politeness and good
manners towards
others.
This is the virtue

demonstrating an
attitude of esteem,
deference, regard or
Respect admiration of others
in dealing with them
especially where
their attitudes might
differ.
The ethical principles of integrity and objectivity
The CIMA ‘Code of Ethics’ identifies five fundamental principles and a professional
accountant is required to comply with the following fundamental principles:
(a) Integrity
A professional accountant should be straightforward and
honest in all professional and business relationships.
(b) Objectivity
A professional accountant should not allow bias, conflict of
interest or undue influence of others to override
professional or business judgements.
(c) Professional competence and due care

A professional accountant has a continuing duty to maintain professional knowledge and
skill at the level required to ensure that a client or employer receives competent
professional service based on current developments in practice, legislation and
techniques. A professional accountant should act diligently and in accordance with
applicable technical and professional standards when providing professional services.
(d) Confidentiality
A professional accountant should 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. Confidential information acquired as a result of
professional and business relation-ships should not be used for the personal advantage of
the professional accountant or third parties.
(e) Professional behaviour
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A professional accountant should comply with relevant laws and regulations and should
avoid any action that discredits the profession.
Integrity
Integrity is a holistic term implying other values

too so in addition to being straightforward and
honest in all professional and business relationships,
this principle implies fair dealing and truthfulness.
It particularly relates to reporting where a false or

misleading statement might be made, or provided
without care or attention, or a report might omit
information, or be obscure and dense such that the
report becomes misleading.
Objectivity
It is important for students and members to avoid
putting themselves in positions where they or their
work could become compromised. This might be
through bias, conflicts of interest of interest or
through the undue influence of others. In these
types of situations an individual’s objectivity may be
impaired.
The sorts of situation that could arise are numerous, from forming an illicit relationship that
may cause embarrassment, to accepting lavish hospitality which is later used to influence
behaviour. It is impracticable to define and prescribe all such situations but students need to
be aware of, and resist, any such potential comprises of their objectivity. If a threat to
objectivity is identified, safeguards should be considered and applied to eliminate or reduce
the threat to an acceptable level. Such safeguards could include with-drawing from the
engagement, introducing more supervision into the process, terminating the relationship
giving rise to the threat, and discussing the issue with higher management and those
reviewing the governance of the client relationship.
Professional competence, due care and confidentiality
Professional competence and due care
Professional competence implies knowledge, skill,

diligent delivery and an awareness of all the relevant
issues in performing tasks. The professional is
expected to maintain the competence through
continuing professional development to maintain
their capabilities to act responsibly at all times.
There is also an expectation of acting diligently

which encompasses acting in accordance with the
requirements of an assignment carefully, thoroughly
and on a timely basis.
Due care covers the wider responsibility the professional accountant has to ensure that those
working under their authority have the necessary skills and capabilities to do so, and in
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particular have the professional capacity and appropriate training and supervision.
In accordance with the other principles and virtues expected of a professional accountant,
they should ensure that clients or employers are aware of limitations inherent in services
being provided to them so as to avoid the misinterpretation of an expression of opinion as an
assertion of fact.
Confidentiality
The professional accountant is bound by

the principle of confidentiality in all that
they do unless required by law,
professional right or duty to disclose.
Such confidentiality covers disclosing
information outside the firm or
employing organization and using
information for personal or third party
gain. Confidentiality extends to
situations in a social environment too
where the professional accountant
should be alert to the possibility of
inadvertent disclosure to a close friend
or family member.
Confidentiality also extends after the end of a relationship between a professional

accountant and a client or employer. The professional accountant may use prior experience
but not prior information gained in a previous role.
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Module -05 10.Personal development and lifelong learning.
11.The personal qualities of reliability, responsibility, timeliness,
Ethics and courtesy and respect.
business 12.The ethical principles of integrity and objectivity.
(15%) 13.Professional competence, due care and confidentiality.
(Contin…) 14.Disclosure required by law.
15.The concepts of independence, skepticism, accountability and
social responsibility.
16.The CIMA and IFAC ‘Code of Ethics for Professional
Accountants’.
Disclosure required by law.
In identifying whether confidential

information can be disclosed it is
necessary to consider whether any
parties would be harmed by such
disclosure, whether all relevant
information is known and
substantiated and the type of
disclosure and to whom it is to be
made.
The following are circumstances

where professional accountants are
or may be required to disclose
confidential information or when
such disclosure may be appropriate:
(a) Disclosure is permitted by law

and is authorized by the client or
the employer;
(b) Disclosure is required by law, for example:
i. Production of documents or other provision of evidence in the course of legal

proceedings; or
ii. Disclosure to the appropriate public authorities of infringements of the law that
come to light; and where required by law or regulations to disclose confidential
information, for example as a result of anti-money laundering or anti-terrorist
legislation, or in connection with legal proceedings involving either themselves or
their employing organization, professional accountants should always disclose that
information in compliance with relevant legal requirements. Professional
accountants should take care when communicating relevant facts to others relating
to known or suspected money laundering or terrorist activities.
(b) There is a professional duty or right to disclose, when not prohibited by law:
(i) To comply with the quality review of a member body or professional body;
(ii) To respond to an inquiry or investigation by a member body or regulatory body;
(iii) To protect the professional interests of a professional accountant in legal

proceedings; or
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(iv) To comply with technical standards and ethics requirements.

A professional accountant may disclose confidential information to third parties,
when not obliged to do so by law or regulations, if the disclosure can be justified in
the public interest and is not contrary to laws and regulations. Before making such
disclosure, professional accountants should obtain legal or professional advice as to their
duties and obligations in the context of their professional and business relationships, and
possible protection under the Law.
* Confidentiality and
privilege is a complex
area.
For example, information
which is confidential may not
be privileged and, therefore,
may be admissible in court
proceedings. Privilege is a
difficult area, quite distinct
from confidentiality, and it is
recommended that further
advice be taken if a
professional accountant is in
doubt as to the action that
should be taken.
The concepts of independence, skepticism, accountability and social responsibility
Independence
It is in the public
interest, and required in
CIMA’s ‘Code of Ethics’
that members of
assurance engagement
teams and their firms
(and when applicable
extended network firms
too) be independent of
the assurance clients.
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There are two key attributes to independence used in connection with the assurance
engagement:
It is required that the professional accountant has a state
of mind that permits a conclusion to be expressed without
1. Of mind being affected by influences that would compromise their
professional judgement. This allows the individual to act
with integrity and exercise objectivity and professional
scepticism.
This is a test reliant on the view that a reasonable and

2. In appearance informed third party would conclude a member of the
assurance team’s integrity, objectivity or professional
skepticism was compromised if significant facts and
circumstances were avoided or overlooked.
It is impossible to
define all situations
where independence
might be
compromised so it is
in the public interest
to prepare a
conceptual
framework requiring
firms and members
of assurance teams
to identify, evaluate
and address threats
to independence.
This can be based on identifying relationships between all the parties. For any threats so
identified safeguards can be introduced to eliminate or significantly reduce them to an
acceptable level.
Accountability
The concept of accountability is
that of the professional accountant
being responsible to someone and
for something or action and being
able to explain those actions. It is
an important aspect of the
profession and of leadership in the
wider business environment.
Accountability is also to every client
and employer too for whom the
professional accountant is providing
services. If that accountability fails
then the client or employer can
seek redress through complaint or
disciplinary procedures.
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Social responsibility
The professional accountant

has a wider role in fulfilling
their public duty which is to
be aware of their social or
corporate responsibility. This
is their role within the
community, be it defined as
their profession, their firm or
place of work, where their
place of work or home is
located or howsoever the
individual cares to define
community.
Typically, this is in relation

to stakeholders listed as
shareholders, employees,
customers, suppliers and the
wider community, to whom
the company pays taxes and
with whom it has a
relationship as part of
society.
In upholding the principles of CMA’s ‘Code of Ethics’ the individual has a social responsibility
to behave with integrity, courtesy, respect and with due care.
The CIMA and IFAC ‘Code of Ethics for Professional Accountants’
Based on IFAC’s Code for

Professional Accountants
reflecting the contribution
CIMA made to the preparation
of the IFAC Code as the CIMA
‘Code of Ethics for Professional
Accountants’. The CIMA Code
reflects the standards CIMA
expects of its members and
students. It is aligned with
global standards across the
profession. CIMA has its own
Code reflecting its status as a
Chartered Institute and as a
basis for any complaints or
cases under CIMA’s
disciplinary procedures.
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The Code itself is split into three parts with a list of definitions at the end:
Part A – General This covers an introduction and the fundamental principles of

Applications of the Code integrity, objectivity, professional competence and due care,
confidentiality and professional behaviour
This covers particular issues identified as being of relevance to

Part B – Professional accountants in public practice such as professional
Accountants in Public appointment, conflicts of interest, second opinions, fees and
Practice other types of remuneration, marketing professional services,
gifts and hospitality, custody of client assets, objectivity in all
services and independence in assurance engagements.
Part C – Professional This covers issues such as potential conflicts, preparation and
Accountants in Business reporting of information, acting with sufficient expertise,
financial interests and inducements.
.
Code of Ethics for Professional Accountants
IFAC published their

Code of Ethics for
Professional
Accountants which
was prepared by the
Ethics Committee of the
International Federation
of Accountants. That
Committee was charged
with developing and
issuing high-quality
ethical standards and
other pronouncements
for professional
accountants around the
world.
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The Code establishes ethical requirements for professional accountants and applies to all
member firms or bodies of IFAC. Any such firm or body may not apply less stringent
standards than those stated in this Code.
There is an override, should any firm or body be prohibited by law or regulation with
complying with any parts of the Code. The expectation is that all parts of IFAC Code will
be complied with otherwise. Professional accountants need to familiarise themselves with
any differences if there are any, but to comply with the more stringent requirements and
guidance unless prohibited.
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Module -06 17.The relationship between ethics and the law.
18.The distinction between ethical codes and contracts.
B. Ethical 19. Corporate governance and social responsibility.
conflict 20. Unethical behaviour.
(10%) 21. The consequences of unethical behaviour.
22. The nature of ethical dilemmas.
23. Conflicts of interest and how they arise.
24. Ethical conflict resolution.
25. The CIMA Code of Ethics for Professional Accountants –
Learning outcomes:
a) Ethics, Laws
b) Relationship between ethics and the law
c) Ethical codes, Contracts
d) Distinction between ethical codes and contracts
e) Professional ethics and codes of conduct
f) Ethical Decision Making
g) Ethical principles
h) Professional codes of conduct provide benefits to-
i) Codes of conduct
The relationship between ethics and the law
Ethics comes from within a person’s moral

sense and desire to preserve his self-respect.
It is not as strict as laws.
Laws are codifications of certain
ethical values meant to help regulate society,
and punishments for breaking them can be
harsh and sometimes even break ethical
standards.
We all know that killing someone is wrong, yet the law punishes people who break
the law with death. With this comes the argument about whether laws are necessary at
all. But it is important to note that without laws people are aware of the chaos that might
reign in society.
Ethics and laws are therefore

necessary to provide guidance and
stability to people and society as a
whole.
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(1) Ethics are

rules of
(2) Ethics
conduct. Laws
comes from
are rules (3) Ethics
people’s
developed by are moral
awareness of (4) Ethics
governments codes which
what is right does not
in order to every person (5) Ethics
and wrong. carry any
provide must conform comes from
Laws are punishment
balance in to. Laws are within a
enforced by to anyone
society and codifications person’s
governments who violates
protection to of ethics moral
to its people. it. The law
its citizens. meant to values.
will punish
regulate Laws are
anyone who
society. made with
happens to
ethics as a
violate it.
guiding
principle.
The distinction between ethical codes and contracts
Ethical codes are adopted by

organizations to assist members
in understanding the difference
between 'right' and 'wrong' and
in applying that understanding to
their decisions.
An ethical code generally implies

documents at three levels:
1. codes of business ethics,

2. codes of conduct for
employees, and
3. codes of professional Ethical code - a system of
practice. principles governing morality and acceptable Conduct
Contracts -
When creating a contract, a negotiator is not only doing so to reach an agreement between
two or more parties, but to create an agreement that is durable; whereby parties of the
contract are legally bound and committed to its promises .
A legally binding contract is defined as an exchange of promises or an agreement between
parties that the law will enforce, and there is an underlying presumption for commercial
agreements that parties intend to be legally bound.
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Professional ethics and codes of conduct
Ethical Decision Making

Professional ethics are principles that govern the behaviour of a person or group in a business
environment. Like values, professional ethics provide rules on how a person should act towards
other people and institutions in such an environment. Unlike values, professional ethics are often
codified as a set of rules, which a particular group of people use.
This means that all those in a particular group will use the same professional ethics, even though
their values may be unique to each person. The Code is an example of a codified set of
professional ethics for those who choose to enter the immigration advice profession.
Ethical principles
Ethical principles may differ depending on the profession;

for example, professional ethics that relate to medical
practitioners will differ from those that relate to lawyers or
real estate agents.
However, there are some universal ethical principles that
apply across all professions, including:
(i) honesty
(ii) trustworthiness
Ethical principles underpin (iii) loyalty
all professional codes of (iv)respect for others
conduct. (v) adherence to the law
(vi)doing good and avoiding harm to others
(vii) accountability.
Professional codes of conduct provide benefits to

 the public, as they build confidence in the profession’s trustworthiness
 clients, as they provide greater transparency and certainty about how their affairs will
be handled
 members of the profession, as they provide a supporting framework for resisting
pressure to act inappropriately, and for making acceptable decisions in what may be
‘grey areas’
 the profession as a whole, as they provide a common understanding of acceptable
practice which builds collegiality and allows for fairer disciplinary procedures
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 others dealing with the profession, as the profession will be seen as more reliable and
easier to deal with.
Codes of conduct
Professional codes of conduct draw on these professional

ethical principles as the basis for prescribing required
standards of behaviour for members of a profession.
They also seek to set out the expectations that the profession
and society have of its members.
The intention of codes of conduct is to provide guidelines for
the minimum standard of appropriate behaviour in a
professional context. Codes of conduct sit alongside the
general law of the land and the personal values of members
of the profession.
The primary value of a professional code of conduct is not as
a checklist for disciplining non-conforming members,
although breaches of a code of conduct usually do carry a
professional disciplinary consequence.
Rather, its primary value is to act as a prompt sheet for the
promotion of ethical decision-making by members of that
profession.
4
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Module -07 17. The relationship between ethics and the law.
18. The distinction between ethical codes and contracts.
B. Ethical 19. Corporate governance and social responsibility.
conflict 20. Unethical behaviour.
(10%) 21. The consequences of unethical behaviour.
Cont.. 22. The nature of ethical dilemmas.
25. The CIMA Code of Ethics for Professional Accountants –
Learning outcomes:
a) Governance
b) Corporate Governance
c) Key elements of corporate governance
d) Corporate governance practices in Bangladesh
e) Corporate Governance Code-2018
f) Summary of Corporate Governance Code-2018
g) Corporate Governance Code (in short)
h) Reporting and Compliance of Corporate Governance.
Corporate governance and social responsibility
Governance
Governance has come to mean the generic way that an organization is run, with particular
emphasis on accountability, integrity and in many instances risk management.
The system of rules,

practices and processes by
which a company is
directed and controlled.
Corporate governance
essentially involves
balancing the interests of
the many stakeholders in a
company - these include Since corporate governance also provides the framework for
its attaining a company's objectives, it encompasses practically every
• shareholders, sphere of management, from action plans and internal controls to
• management, performance measurement and corporate disclosure.
• customers,
• suppliers, Corporate governance is the structure of rules, practices, and
• financiers, processes used to direct and manage a company.
• government and A company's board of directors is the primary force
• the community. influencing corporate governance.
Corporate governance broadly refers to the mechanisms, processes and relations by which
corporations are controlled and directed. Governance structures and principles identify the
distribution of rights and responsibilities among different participants in the corporation (such
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as the board of directors, managers, shareholders, creditors, auditors, regulators, and other
stakeholders) and includes the rules and procedures for making decisions in corporate affairs.
In the UK, Corporate Governance was developed by the Committee on the Financial
Aspects of Corporate Governance in 1992 (the Cadbury Report) with a code of best practice
attached. It was aimed at listed companies but looked especially at standards of corporate
behaviour. It also referred to ethics.
5
Key elements of corporate governance
Elements of Good Governance

 Rule of Law:
Good governance requires fair legal
frameworks that are enforced by an
impartial regulatory body, for the full
protection of stakeholders.
 Transparency.
 Responsiveness.
 Consensus Oriented.
 Equity and Inclusiveness.
 Effectiveness and Efficiency.
 Accountability.
 Participation.
6
Corporate governance practices in Bangladesh
We know, the Corporate governance is the system of rules, regulations, practices, and
processes, by which a company is directed, operated, monitored, controlled and reviewed
with the lens of welfare being of stakeholders.
Corporate governance essentially involves balancing the interests of a company's many
stakeholders such as financiers, shareholders, debenture holders, sponsors, management,
suppliers, consumers, lender, borrowers, creditors, debtor's, political activists, pressure
groups, free rider, CSR, government and the local community.
Companies of Bangladesh is incorporated and governed by the Company Act 1994, Bank
Company Act 1991, Financial Institution Act 1993, Bangladesh Securities and Exchange
Commission Act 1993 (2012 amended) and Bankruptcy Act 1997 which defines the rights and
responsibilities of both majority and minority shareholders.
The act has specific provisions targeted at protecting the interests of minority shareholders
at 10% of the shares. Moreover, the act provides certain supervisory functions to be
undertaken by the shareholders through attending the meeting, appointing and removing
directors and obtaining financial information before approval of the balance sheet.
Shareholders are entitled to participate in the Annual General Meeting (AGM) which must
be held once in a calendar year. Main duties of shareholders are approval of the annual report
and audit accounts of the company. Appointment of auditors and approval of their
honorarium, appointment, re-appointment, and removal of a director, the election of Board
of Director, etc.
5
https://www.researchgate.net/figure/Key-elements-of-corporate-governance_fig2_314153284
6
https://dailyasianage.com/news/200124/corporate-governance-practices-in-bangladesh
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Corporate Governance Guideline (in Bangladesh)

The Bangladesh Securities and Exchange Commission (BSEC) has initiated 'Corporate
Governance' guidelines for the listed companies on 9th February 2006. The guidelines
were not compulsory for the listed companies but the reasons for non-compliance of the
provision of the guidelines had to explain to the Commission.
Bangladesh Securities and Exchange Commission (BSEC) issued its latest CG Guidelines (No.
SEC/ CMRRCD/2006-158/ 134/Admin/ 44) on 07 August 2012 in order to enhance the
corporate governance practices of the companies listed with any stock exchange in
Bangladesh, in the interest of investors and the capital market. This notification supersedes
its earlier Notification No. SEC/ CMRRCD/ 2006-158/ Admin/ 02-08 dated 20 February 2006.
Bangladesh Bank (BB) issued its latest CG Guidelines through BRPD Circular No.11
dated 27 October 2013, and BRPD Circular Letter No. 18 and 19 dated 27 October 2013
respectively which superseded its earlier guidelines issued from time to time. BRPD Circular
No.11 dated 27 October 2013 deals with the provisions regarding formation and
responsibilities of Board of Directors (BoD) of all bank companies registered/ incorporated in
Bangladesh. BRPD Circular Letter No. 18 dated 27 October 2013 incorporates the provisions
relating to appointment and responsibilities of Chief Executive of all banks doing business in
Bangladesh except the specialized banks. BRPD Circular Letter No. 19 dated 27 October 2013
deals with the provisions regarding contractual appointment of Advisor and Consultant of all
banks doing business in Bangladesh.
7
Corporate Governance Code-2018
Bangladesh Securities and

Exchange Commission Notification
No. BSEC / CMRRCD / 2006-158 / 207 /
Admin / 80 on 03 June 2018.
This notification supersedes its earlier

Notification No. SEC / CMRRCD / 2006-
158 / 134 / Admin / 44 on 07 August
2012
7
www.sec.gov.bd › slaws › Corporate_Governance_Cod...
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8
Summary of Corporate Governance Code-2018
The Bangladesh Securities and Exchange Commission (BSEC) issued the 'Codes of Corporate
Governance' in June 2018, and asked the listed companies to comply with those.
ROLES AND RESPONSIBILITIES: The codes require a company to separately spell out detailed
roles, responsibilities and codes of conduct for its chairman, all directors, Managing Director
(MD)/Chief Executive Officer (CEO), Company Secretary (CS), Chief Financial Officer (CFO),
Head of Internal Audit & Compliance (HIAC), Audit Committee (AC) and Nomination and
Remuneration Committee (NRC). All these are to be posted in detail on the company website.
MANAGEMENT DISCUSSIONS: The codes require the companies to add to the annual board
report a Management Discussion and Analysis signed by the MD/CEO, which should include
among other things the following
a) Comparative analysis (including effects of inflation) of financial performance or results
and financial position as well as cash flows for current financial year with immediate
preceding five years, and explaining the reasons thereof;
b) Compare such financial performance or results and financial position as well as cash
flows with the peer industry scenario.
c) Briefly explain the financial and economic scenario of the country and the globe.
d) Risks and concerns related to the financial statements, explaining the company's plan
for mitigating such risks and concerns.
SEPARATION OF TOP EXECUTIVES: It is stipulated in code 1(4)(b) that the Managing

Director (MD) and/or Chief Executive Officer (CEO) of a listed company shall not hold the
same position in another listed company.
COMPLIANCE CHECK-LIST: The directives require a company to obtain a certificate from

any practicing professional regarding compliance of the Codes of Corporate Governance of
the Commission, and such certificate has to be disclosed in the Annual Report. Now, such
certification would obviously require the professionals to conduct thorough audit of compliance
of the codes by the company. A standard report has also been shown in the directive on the
professionals, where it is stated that they obtained all the information and explanations they
required, and after due scrutiny and verification thereof.
CONTENTS IN THE ANNUAL REPORT: Apart from many other usual items, the Annual
Report of a company shall have to include at least the following statements now: Directors'
Profile; Directors' Report; Management Discussions; Certification by the CEO and CFO; Audit
Committee Report; Nomination & Remuneration Committee (NRC) Report; Comparative
financial data; Patterns of shareholding; Compliance check-list; and, Certificate of
Compliance.
The new Codes of Corporate Governance issued by the Bangladesh Securities and Exchange
Commission (BSEC) is definitely an improvement over the earlier one. The most significant
inclusion happens to be the requirement of Nomination and Remuneration Committee (NRC)
for the companies.
8
A K A Muqtadir FCS is a practising Chartered Secretary. akamuqtadir@gmail.com
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Corporate Governance Code

No. BSEC/CMRRCD/2006-158/207/Admin/80: Dated: 3 June 2018
Whereas, the Bangladesh Securities and Exchange Commission (hereinafter referred
to as the “Commission”) deems it fit that the consent already accorded by the
Commission, or deem ed to have been accorded by it, or to be accord ed by it in
future, to the issue of capital by the companies listed with any stock exchange in
Bangladesh, shall be subject to certain further conditions, i.e., Corporate Governance
Code in order to enhance corporate governance in the interest of investors and the
capital market;
Now, therefore, in exercise of the power conferred by section 2CC of the Securities
and Exchange Ordinance, 1969 (XVII of 1969), the Commission hereby repeals its
earlier Notification No. SEC/CMRRCD/2006-158/134/Admin/44, dated 07 August
2012, published in the official gazette on 30 August 2012 and the relevant
Notification(s) on the same matter and, imposes the following further conditions, i.e.,
Corporate Governance Code to the consent already accorded by it, or deemed to have
been accorded by it, or to be accorded by it in future, to the issue of capital by the
companies listed with any stock exchange in Bangladesh:
Provided, however, that these conditions or Code are imposed on ‘comply’ basis; the
companies listed with any stock exchange in Bangladesh shall comply with these
conditions or Code in accordance with the condition No. 9.
The Conditions, i.e., Corporate Governance Code:
1. Board of Directors.
(1) Size of the Board of Directors
The total number of members of a company’s Board of Directors
(hereinafter referred to as “Board”) shall not be less than 5 (five) and
more than 20 (twenty).
(2) Independent Directors
At least one-fifth (1/5) of the total number of directors in
the company’s Board shall be independent directors; any
fraction shall be considered to the next integer or whole
number for calculating number of independent director(s);
(3) Qualification of Independent Director.
(4) Duality of Chairperson of the Board of Directors and
Managing Director or Chief Executive Officer.
(5) The Directors’ Report to Shareholders
(6) Meetings of the Board of Directors
(7) Code of Conduct for the Chairperson, other Board members
and Chief Executive Officer
2. Governance of Board of Directors of Subsidiary Company.
3. Managing Director (MD) or Chief Executive Officer (CEO), Chief
Financial Officer (CFO), Head of Internal Audit and
Compliance (HIAC) and Company Secretary (CS).
(1) Appointment
(2) Requirement to attend Board of Directors’ Meetings
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(3) Duties of Managing Director (MD) or Chief Executive

Officer (CEO) and Chief Financial Officer (CFO)
4. Board of Directors’ Committee.

For ensuring good governance in the company, the Board shall have at
least following sub-committees:
(i) Audit Committee; and
(ii) Nomination and Remuneration Committee.
5. Audit Committee.
(1) Responsibility to the Board of Directors.
(2) Constitution of the Audit Committee
(3) Chairperson of the Audit Committee
(4) Meeting of the Audit Committee
(5) Role of Audit Committee
(6) Reporting of the Audit Committee
(a) Reporting to the Board of Directors
(b) Reporting to the Authorities
(7) Reporting to the Shareholders and General Investors
6. Nomination and Remuneration Committee (NRC). --

(1) Responsibility to the Board of Directors
(2) Constitution of the NRC
(3) Chairperson of the NRC
(4) Meeting of the NRC
(5) Role of the NRC
7. External or Statutory Auditors.

8. Maintaining a website by the Company.
9. Reporting and Compliance of Corporate Governance.
Annexure-A
[As per condition No. 1(5)(xxvi)]
Name of the company ( ……….. Ltd.)
Declaration by CEO and CFO

Date: ……………………….
The Board of Directors

………………….. Limited
Subject: Declaration on Financial Statements for the year ended on….
Dear Sirs,
Pursuant to the condition No. 1(5)(xxvi) imposed vide the Commission’s
Notification No. ………………………. Dated ……… under section 2CC of the Securities
and Exchange Ordinance, 1969, we do hereby declare that:
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(1) The Financial Statements of …………………….. Limited for the year ended on
…………………… have been prepared in compliance with International Accounting
Standards (IAS) or International Financial Reporting Standards (IFRS), as
applicable in the Bangladesh and any departure there from has been adequately
disclosed;
(2) The estimates and judgments related to the financial statements were made on
a prudent and reasonable basis, in order for the financial statements to reveal
a true and fair view;
(3) The form and substance of transactions and the Company’s state of affairs have
been reasonably and fairly presented in its financial statements;
(4) To ensure above, the Company has taken proper and adequate care in
installing a system of internal control and maintenance of accounting records;
(5) Our internal auditors have conducted periodic audits to provide reasonable
assurance that the established policies and procedures of the Company were
consistently followed; and
(6) The management’s use of the going concern basis of accounting in preparing
the financial statements is appropriate and there exists no material uncertainty
related to events or conditions that may cast significant doubt on the
Company’s ability to continue as a going concern.
In this regard, we also certify that:
(i) We have reviewed the financial statements for the year ended on
…………….and that to the best of our knowledge and belief:
(a) these statements do not contain any materially untrue statement or omit
any material fact or contain statements that might be misleading;
(b) these statements collectively present true and fair view of the Company’s
affairs and are in compliance with existing accounting standards and
applicable laws.
(ii) There are, to the best of knowledge and belief, no transactions entered
into by the Company during the year which are fraudulent, illegal or in
violation of the code of conduct for the company’s Board of Directors or its
members.
Sincerely yours,
(Name and Signature with date). (Name and Signature with date)
Chief Executive Officer (CEO). Chief Financial Officer (CFO
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Annexure-B
[Certificate as per condition No. 1(5)(xxvii)]
Report to the Shareholders of ……………………………… Limited on

compliance on the Corporate Governance Code
We have examined the compliance status to the Corporate Governance Code by

…………………. Limited for the year ended on
……………………… This Code relates to the Notification No.
………………………… dated ……………….. of the Bangladesh
Securities and Exchange Commission.
Such compliance with the Corporate Governance Code is the responsibility of the
Company. Our examination was limited to the procedures and implementation
thereof as adopted by the Management in ensuring compliance to the conditions
of the Corporate Governance Code.
This is a scrutiny and verification and an independent audit on compliance of the

conditions of the Corporate Governance Code as well as the provisions of relevant
Bangladesh Secretarial Standards (BSS) as adopted by Institute of Chartered
Secretaries of Bangladesh (ICSB) in so far as those standards are not inconsistent
with any condition of this Corporate Governance Code.
We state that we have obtained all the information and explanations, which we
have required, and after due scrutiny and verification thereof, we report that, in
our opinion:
(a) The Company has complied with the conditions of the Corporate Governance Code
as stipulated in the above mentioned Corporate Governance Code issued by the
Commission or not complied (if not complied, specify non-compliances);
(b) The Company has complied with the provisions of the relevant Bangladesh
Secretarial Standards (BSS) as adopted by the Institute of Chartered Secretaries
of Bangladesh (ICSB) as required by this Code or not complied (if not complied,
specify non-compliances);
(c) Proper books and records have been kept by the company as required under the
Companies Act, 1994, the securities laws and other relevant laws or not complied
(if not complied, specify non-compliances); and
(d) The Governance of the company is highly satisfactory or satisfactory or not

satisfactory.
Place: For….......……….(Name of the firm)

Dated: ------------(Signature with name and designation)
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Annexure-C
[As per condition No. 1(5)(xxvii)]
Status of compliance with the conditions imposed by the Commission’s

Notification No.SEC/CMRRCD/2006-158/207/Admin/80, dated 3 June
2018 issued under section 2CC of the Securities and Exchange
Ordinance, 1969:
(Report under Condition No. 9)
Condition No. Title Compliance Status Remarks
(Put √ in the appropriate (if any)
column)
Complied Not complied
1(1)
1(2) (a)
1(2)(b)(i)
1(2)(b)(ii)
1(2)(b)(iii)
1(2)(b)(iv)
1(2)(b)(v)
1(2)(b)(vi)
1(2)(b)(vii)
1(2)(b)(viii)
1(2)(b)(ix)
1(2)(b)(x)
1(2)(c)
1(2)(d)
1(2)(e)
1(3)(a)
1(3)(b)(i)
1(3)(b)(ii)
1(3)(b)(iii)
1(3)(b)(iv)
1(3)(b)(v)
7(2)
7(3)
8(1)
8(2)
8(3)
9(1)
9(2)
9(3)
This Notification shall be complied within 31 December 2018.

By order of the Bangladesh Securities and Exchange Commission
Dr. M. Khairul Hossain
Chairman.
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Md.Monowar Hossain FCA, CPA, FCS,FCGA, CIPFA(UK), FCMA

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Module-08 B. Ethical conflict (Cont...)
17. The relationship between ethics and the law.
B. Ethical 18. The distinction between ethical codes and contracts.
conflict 19. Corporate governance and social responsibility.
(10%) 20.Unethical behaviour.
Cont... 21.The consequences of unethical behaviour.
25. The CIMA Code of Ethics for Professional Accountants – ‘Fundamental
Principles’.
Learning outcomes:
a) Social Responsibility
b) Corporate Social Responsibility
c) Advantages of CSR
d) Need for CSR
e) Unethical Behavior
f) The Roots of Unethical Behavior
g) Unethical Behavior among individuals
h) Unethical Behavior among Businesses
i) Unethical Behavior by Professionals
j) Unethical Behavior among others
k) The consequences of unethical behaviour
l) Reasons for Unichiral behaviour
Social Responsibility
9
Social responsibility is an ethical theory in which individuals are accountable for fulfilling
their civic duty, and the actions of an individual must benefit the whole of society. In this
way, there must be a balance between economic growth and the welfare of society and the
environment.
10
Social responsibility means that businesses, in addition to maximizing shareholder value,
must act in a manner that benefits society. Social responsibility has become increasingly
important to investors and consumers who seek investments that are not just profitable but
also contribute to the welfare of society and the environment. However, critics argue that the
basic nature of business does not consider society as a stakeholder.
An organisation’s social responsibility
refers to how it manages its relationships
in the wider community. It is accepted
that all organisations generally have
responsibilities beyond their shareholders,
be it a company, or their members, or a
professional body. Their responsibilities
are wide ranging and focusing on these
helps to develop trust in the organisation.
 Social responsibility means that businesses, in addition to maximizing shareholder

value, should act in a manner that benefits society.
 Critics assert that being socially responsible is the opposite of why businesses exist.
9
Wikipedia
10
https://www.investopedia.com/terms/s/socialresponsibility.asp
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Md.Monowar Hossain FCA, CPA, FCS, FCGA, CIPFA(UK), FCMA

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 Socially responsible companies should adopt policies that promote the well-being of
society and the environment while lessening negative impacts on them.
 Companies can act responsibly in many ways, such as promoting volunteering, making
changes that benefit the environment, and engaging in charitable giving.
Corporate Social Responsibility

11
Corporate social responsibility (CSR) is a self-regulating business model that helps a
company be socially accountable—to itself, its stakeholders, and the public. By practicing
corporate social responsibility, also called corporate citizenship, companies can be conscious
of the kind of impact they are having on all aspects of society, including economic, social,
and environmental.
Corporate social responsibility (CSR) refers to a business practice that involves
participating in initiatives that benefit society.
CSR is a management concept whereby
companies integrate social and environmental
concerns in their business operations and
interactions with their stakeholders. CSR is
generally understood as being the way through
which a company achieves a balance of
economic, environmental and social
imperatives, while at the same time
addressing the expectations of shareholders
and stakeholders. In this sense it is important
to draw a distinction between CSR, which can
be a strategic business management concept,
and charity, sponsorships or philanthropy.
Even though the latter can also make a
valuable contribution to poverty reduction, will
directly enhance the reputation of a company
and strengthen its brand, the concept of CSR
clearly goes beyond that.
Corporate social responsibility is a key issue for any organisation aiming for long term
sustainability.
CSR is the term used to describe the way that a business takes into account the financial,
environmental and social impacts of decisions and actions it is involved in. It is an increasingly
important issue in business, as managers, consumers, investors and employees have begun
to understand how economic growth is linked to social and environmental well-being.
11 https://www.investopedia.com/terms/c/corp-social-responsibility.asp
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Developing your understanding of corporate social responsibility and implementing it

into your business now may help you to get a step ahead of your competitors. You can use
it to gain a competitive edge and it provides you with the opportunity to provide benefits to
a wider range of business stakeholders.
 Corporate social responsibility

is important to both consumers
and companies.
 Starbucks is a leader in creating

corporate social responsibility
programs in many aspects of its
business.
 Corporate responsibility progra
ms are a great way to raise morale
in the workplace.
20. Unethical behaviour
What is unethical Behavior?
Ethics can be defined as going The Roots of Unethical Behavior

beyond what is legal and doing
There is no clear-cut reason why managers
what is right, even when no one
behave unethically
is looking. So, when we talk
The causes of unethical behavior are
about unethical behavior in
complex and reflect:
business, we're talking about
• Personal ethics
actions that don't conform to the
• Decision making processes
acceptable standards of business
• Leadership
operations, failing to do what is
• Unrealistic performance expectations
right in every situation.
• Organizational culture; etc.
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In some cases, it may be an individual within a business who is unethical in the

course of his or her job and at other times, we're talking about corporate culture,
where the whole business is corrupt from the top down, with disastrous results for
society.
It's important to realize that what is unethical may not always be illegal (though
sometimes it is both). There are many instances where businesses may act within
the law, but their actions hurt society and are generally considered to be
unethical.
Examples of Unethical Behavior -
Unethical behavior is an action that falls outside of what is considered morally right
or proper for a person, a profession or an industry. Individuals can behave
unethically, as can businesses, professionals and politicians.
Unethical Behavior among Unethical Behavior among Businesses

individuals • Dumping pollutants into the water supply rather
• Taking credit for work you did than cleaning up the pollution properly.
not do. • Releasing toxins into the air in levels above what
• Lying to your spouse about how is permitted by the Environmental Protection
much money you spent. Agency.
• Lying to your parents about • Coercing an injured worker not to report a work
where you were for the evening. injury to workers' compensation by threatening
• Stealing money from the petty him with the loss of a job or benefits.
cash drawer at work. • Refusing to give an employee a final paycheck
• Lying on your resume in order to for hours worked after the employee leaves the
get a job. company.
• Talking about a friend behind his • Not paying an employee for all of the hours
back. worked.
• Cheating on a CMA paper by • Incorrectly classifying an employee as an
copying it off the Internet. independent contractor and not as an employee
• Taking money out of your in order to reduce payroll taxes and avoid
friend's wallet when he is purchasing unemployment and workers'
sleeping. compensation insurance.
• Using your position of power at • Engaging in price fixing to force smaller
work to sexually harass competitors out of business.
someone. • Using bait and switch or false advertising tactics
• Selling a house and not to lure customers in or convince them to buy a
disclosing known defects to the product.
buyers. • Rolling back the odometer on a vehicle that is for
• Selling a car and lying about the sale.
vehicle's accident history. • Refusing to honor a warranty claim on a
defective product.
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Unethical Behavior by Unethical Behavior among others

Professionals • Using the NBR to target groups that
• Chartered Accountant in you do not like by auditing those
practice and serving in a groups or refusing to give them tax
company at the same time. exempt status.
• As an Employee, serving two • Obtaining private tax information
company in different time but about your political opponents from
employers do not know that the NBR and using that information in
you serving another company a campaign.
too. • Knowingly telling lies about your own
• Doctors, dentists and lawyers political position or about the political
dating their clients. position of your opponent just to get
• Not telling a patient his true elected.
diagnosis because the • Accepting excess campaign
physician didn't know the contributions that violate campaign
details of the diagnosis. finance laws.
• A dentist performs • Using money that was donated to
unnecessary procedures on a your campaign for personal, non-
patient in order to receive the approved expenses.
insurance payment. • Using your position of power to coerce
• Using a patient as a teaching lobbyists into buying expensive gifts
tool for students for long for you and for your wife.
periods of time without the • Using your position of power to close
permission of the patient or traffic lanes in order to intentionally
patient's family. create a traffic jam that affects
• A lawyer will not return money residents of a city because residents
or provide a which was being in that city are not likely to vote for
held for a client. you in an election.
• A lawyer represents parties on
both sides of a legal
transaction.
These are just some of the many different examples of unethical behavior that
could occur.
21. The consequences of unethical behaviour
Unethical behaviour has

serious consequences for
both individuals and
organizations. You can lose
your job and reputation,
organizations can lose their
credibility, general morale
and productivity can decline,
or the behaviour can result
in significant fines and/or
financial loss.
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The sad truth is that almost

every company has
individuals that partake in
unethical behaviour for their
personal benefit or
supported by the company.
Unethical behaviour might
be as simple as using
company property and time
for personal benefit to inside
trading and financial fraud.
Many companies sadly make
it part of their operational
policy to cut corners, accept
and give kick-backs in order
to get juicy contracts and
maximize profit.
In today’s business environment, the line between right and wrong is
fade. Workers with high moral standard are helpless against unethical behaviour
they notice in their colleagues, and to make it worse, many unethical conducts
go unpunished because of legal insignificance. An employee working for an
employer or company with unethical, deceptive, and dishonest conduct will be
directly affected physically and mentally, and may even come down with
emotional and health related problems because of it.
Workers involved in unethical practices are almost always directly or indirectly
held accountable for their actions. Even though they may not be found guilty by
any court of law, the physiological impact of immoral acts leads to intense mental
and physical stress. When a company is found guilty of financial improprieties,
the workers undergo a series of questions from investigators and if they were
found to be involved, they may be blacklisted or their professional license
revoked. Many workers involved in immoral behavior may not know the source
of anxiety or other health issues, but the human conscience has a strong effect
on our physical and mental stability.
Unethical behavior in a company can also;

• Harm sales of goods, as customers may boycott goods produced by a
company known for unethical behavior.
• Lead to a drop in stock price. Investors will be unwilling to buy shares from
companies known to transact business dishonestly. Investing in dishonest
firms will result in poor returns.
Immoral dealings amongst individuals or in a company builds a work atmosphere

of malice and mistrust. Workers tend to go further down the drain when they are
surrounded with people who practice the same. This will lead to lower
productivity, promote conflict, and subsequently cripple the company.
Many workers are hesitant to turn in their colleagues involved in unethical

practices. It is up to the company to manage unethical practices by creating
processes that stem the tide. It should be part and parcel of the company’s
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policy, well documented, and new workers should be briefed on the ‘do’s and
don’ts’ in respect to the company’s policy on unethical conduct.
There should be a process that a worker who finds a colleague involved

in unethical activities can follow (this normally involves a list of who the
worker should contact and how to react, and if possible, incentives
should be given to make the process more efficient). The entire process
should focus on the anonymity of the employee who turns in the
unwanted behavior. Employees should also know that there will be
repercussions for their actions and disciplinary measures will always be
taken, no matter what the circumstances, on those guilty of unethical
conduct.
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Module -09 B. Ethical conflict (Cont...)
(10%) 20. Unethical behaviour.
Cont... 21. The consequences of unethical behaviour.
22.The nature of ethical dilemmas.
23.Conflicts of interest and how they arise.
25. The CIMA Code of Ethics for Professional Accountants – ‘Fundamental
Principles’.
Learning outcomes:
a) The nature of Ethical Dilemmas
b) A model of Ethical Dilemmas
c) Identifying Ethical Dilemmas
d) Ethical Dilemma Situations
e) Five Branches of Ethics
f) Resolving Ethical Dilemmas
g) Conflicts of interest and how they arise
h) Elements of Conflict
i) Effects of Conflict
j) When can a conflict of interest happen?
k) When interests conflict
l) Managing conflicts of interest
22. The nature of ethical dilemmas

12
Ethical dilemmas, also known as a moral Ethical dilemmas assume that
dilemma, are situations in which there is a choice to the chooser will abide by societal
be made between two options, neither of which norms, such as codes of law or
resolves the situation in an ethically acceptable religious teachings, in order to
fashion. In such cases, societal and make the choice ethically
personal ethical guidelines can provide no satisfactory impossible.
outcome for the chooser.
An ethical dilemma is a complex situation that often involves an apparent mental conflict
between moral imperatives, in which to obey one would result in transgressing another.
Sometimes called ethical paradoxes in moral philosophy, ethical dilemmas are often invoked
in an attempt to refute an ethical system or moral code, or to improve it so as to resolve the
paradox.
Managers are sometimes faced with business choices
that create tensions between ethics and profits, or
between their private gain and the public good. Any
decision where moral considerations are relevant can
potentially give rise to an ethical dilemma, for example:
(1) A decision that requires a choice between rules
(2) A decision where there is no rule, precedent for
example to follow
(3) A decision that morally requires two or more
It is the imperative to act, courses of action, which are in practice incompatible
combined with the uncertainty with each other.
of which action to take, that (4)A decision that should be taken in one’s self-
causes a dilemma. interest, but which appears to violate a moral principle
that you support.
12
https://examples.yourdictionary.com/ethical-dilemma-examples.html
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The Ethical Decision-Making A model of Ethical Dilemmas

Model at a Glance
1. Identify the problem.
2. Apply the Code of Ethics.
3. Determine the nature and
dimensions of the dilemma.
4. Generate potential courses
of action.
5. Consider the potential
consequences of all
options, choose a course of
action.
6. Evaluate the selected
course of action.
7. Implement the course of
action.
Identifying ethical dilemmas - In identifying ethical dilemmas it is important to understand

how they arise.
The figure of next bellow represents the tensions that can exist between differing sources of
values: society, through the legislative process; individuals, through their personal values,
professional bodies and the norms they set; and companies themselves, which lay down
codes of ethics for their staff to follow.
Individuals will recognise the tensions along the baseline if they are asked to condone
behaviour by their company which they feel to be wrong or inappropriate. If the tension is
too great, they will leave the company. Before doing so, however, they may try to speak up,
to voice their concerns. An example is where an employee is asked to ‘overlook’ improprieties
carried out by their company, which would be counter to their professional code.
Dilemmas arise when the boundaries of

right and wrong are not clear; when an
individual is faced with two options – the
choice between making a better choice,
or the least wrong. The individual must
choose what to do. This is done either
by instinct, simply hoping that she or he
is right, or by reference to the
organisation’s code and in discussion
with colleagues.
Ethical Dilemma Situations
Personal Societal Information Professional Life

Friendships Dilemmas Access Versus Family Life
We can study ethics from both a religious and a philosophical point of view. There are five
branches of ethics:
• Normative Ethics - The largest branch, it deals with how individuals can figure out the
correct moral action that they should take. Philosophers such as Socrates and John
Stuart Mill are included in this branch of ethics.
• Meta-Ethics - This branch seeks to understand the nature of ethical properties and
judgments such as if truth values can be found and the theory behind moral principles.
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• Applied Ethics - This is the study of applying theories from philosophers regarding
ethics in everyday life. For example, this area of ethics asks questions such as "Is it
right to have an abortion?" and "Should you turn in your friend at your workplace for
taking home office supplies?"
• Moral Ethics - This branch questions how individuals develop their morality, why
certain aspects of morality differ between cultures and why certain aspects of morality
are generally universal.
• Descriptive Ethics - This branch is more scientific in its approach and focuses on how
juman beings actually operate in the real world, rather than attempt to theorize about
how they should operate.
Knowing how to best resolve difficult moral and ethical dilemmas is never easy especially
when any choice violates the societal and ethical standards by which we have been taught to
govern our lives.
Resolving ethical dilemmas

A professional accountant may be called upon to resolve a dilemma in the application of the
CIMA Code of Ethics Fundamental Principles.
Ethical dilemmas may be raised with a professional accountant through a number of
routes:
a) directly through an enquiry

b) via an in-house speak-up/help/whistleblower line
c) from an external customer, supplier or other agent to the organisation
d) anonymously.
In each case the same rigorous process should be applied to ensure a consistent approach
and consistent application of CIMA’s Code of Ethics.
A conflict of interest is a situation in which

a person or organization is involved in
multiple interests, financial interest, or otherwise,
one of which could possibly corrupt the motivation
of the individual or organization. A conflict of
interest is a set of circumstances that creates a risk
that professional judgement or actions regarding a
primary interest will be unduly influenced by a
secondary interest.
Elements of Conflict
There are three elements involved in an organizational conflict:
(1) power,
(2) organizational demands, and
(3) self-worth.
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These components must be aptly matched through important organizational processes

and decisions to resolve a conflict.
Effects of Conflict
The existence of conflict in an organization may have both positive and negative
results on the people involved and the general situation. The outcome depends on how
conflict was handled and dealt with by the people involved.
When conflict is efficiently managed, it can diffuse more serious conflicts. An example
of this would be when two groups are in a disagreement over a certain process, they can
be grouped into smaller groups and let the sub-groups do brainstorming, so a larger
dispute will be dispersed and varying opinions will be considered.
Conflict also stimulates a search for new information and tightens or increases unity and
performance in a group. An individual or a group’s ability to use power or conflict
management skill will also be measured.
On the other hand, the existence of conflict may cause a delay in formulating decisions
or resolution especially if it is not managed well. Although it increases group cohesion, it
still becomes a hindrance in the smooth flow of carrying out the job.
A conflict of interest is where someone is compromised when their personal interests or

obligations conflict with the responsibilities of their job or position. It means that their
independence, objectivity or impartiality can be called into question.
A conflict of interest can be:
Actual: where the Potential: where the Perceived: where other people
conflict already exists conflict is about to might reasonably think that a
happen, or could person has been compromised.
happen
A poorly managed ‘perceived’ conflict of interest can be just as damaging as a poorly
managed ‘actual’ conflict of interest. A conflict of interest can also be positive or
negative. You could be seen to favour or benefit someone, or be against them and
disadvantage them. While conflicts of interest should be avoided wherever possible, they
often happen innocently. It’s how they’re managed that counts. In the context of a
procurement activity, a conflict of interest that’s not properly managed could seriously
undermine its integrity and lead to complaints, challenges and, in some cases, an agency’s
decision being overturned. It’s important that everyone in our agency not only behaves
ethically, but is seen to behave ethically.
When can a conflict of interest happen?
A conflict of interest can arise in a number of ways: through a relationship, an activity or

strong personal views.
For example, a person could be compromised if, in carrying out their work duties, they’re
required to deal with:
• a relative or close personal friend
• an organisation, club, society or association of which they’re a member
• a person who’s their community or leader.
• a person or organisation:
- to which they have a professional or legal obligation
- with which they have a business interest or own property
- to whom they owe money
- for whom they’ve previously worked, or currently work (secondary
employment).
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An agency employee could also be compromised if they’re given something from a person
who stands to benefit from their decision. They could, for example accept:
• a gift
• an invitation to lunch, dinner or a sporting event
• free or subsidized travel or accommodation
• any other sort of benefit, including money.
In addition, a conflict can arise if a person holds strong personal views on an issue their
agency is considering, for example political views or religious or cultural beliefs.
When interests conflict

Conflicts of interest are not wrong in
themselves, but they should be properly
identified and effectively and transparently
managed. When a conflict of interest has been
ignored, improperly acted on or influenced
actions or decision making, the conduct (not
the conflict itself) can be seen as misconduct,
abuse of office or even corruption.
Managing conflicts of interest – a declaration

It’s essential that all agency staff involved in a procurement activity complete and sign a
Conflict of Interest Declaration and a Confidentiality Agreement. This includes.
• all members of the procurement team (staff, contractors and consultants)
• all members of the evaluation panel
• any consultant asked to advise the team
• anyone involved in making a recommendation
• anyone involved in approving a recommendation or making an important decision
• anyone making a financial approval for the procurement.
The Declaration requires the person to identify any actual, perceived or potential conflicts of
interest. If they have none, they can take part in the project. The Declaration also needs to
be revisited regularly and checked once the supplier has been chosen. Everyone who has
signed one needs to check whether they have a conflict of interest in relation to the supplier
or any of the named personnel in the supplier’s tender
Managing an identified conflict of interest

Conflicts that are identified must be reported to the manager in charge of the activity.
They – and the process for managing them – must then be recorded in writing. The
options for managing a conflict of interest include:
 restricting: imposing restrictions on the person’s further involvement in the matter
 recruiting: engaging an independent third party to oversee all or part of the process
and verify its integrity
 removing: where the person chooses, or is asked, to be removed completely from the
matter
 relinquishing: where the person relinquishes the private interest that created the
conflict
 resigning: where the person resigns from their position with the agency. (This should
only be considered if the conflict of interest can’t be resolved in any other workable
way.)
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2nd Edition (April‐2020)
Module -10 B. Ethical conflict (Cont...)
(10%) 20. Unethical behaviour.
Cont... 21. The consequences of unethical behaviour.
24.Ethical conflict resolution.
25.The CIMA Code of Ethics for Professional Accountants –
Learning outcomes:
a) Ethical Conflict Resolution
b) How to resolve ethical problems?
c) CIMA Code of Ethics for Professional Accountants – ‘Fundamental Principles’
d) Part A: General application of the code
e) Part B: Professional Accountants in Public Practice
f) Part C: Professional Accountants in Business (CGMAs)
g) Fundamental principles
h) Ethics checklist
i) Threats
j) Safeguards
k) Employing institutions often have safeguards
24. Ethical Conflict Resolution
In evaluating compliance with the fundamental principles, a professional accountant may

be required to resolve a conflict in the application of fundamental principles.
When initiating either a
formal or informal
conflict resolution
process, a professional
accountant should consider
the following, either
individually or together
with others, as part of the
resolution process:
(a) Relevant facts;

(b) Ethical issues
involved;
(c) Fundamental
principles related to
the matter in
question;
(d) Established internal
procedures; and
(e) Alternative courses
of action.
Having considered these issues, a professional accountant should determine the appropriate
course of action that is consistent with the fundamental principles identified. The professional
accountant should also weigh the consequences of each possible course of action. If the
matter remains unresolved, the professional accountant should consult with other appropriate
persons within the firm or employing organisation for help in obtaining resolution.
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Where a matter involves a conflict with, or within, an organisation, a professional accountant

should also consider consulting with those charged with governance of the organisation, such
as the board of directors or the audit committee.
It may be in the best interests of the professional accountant to document the sub-stance
of the issue and details of any discussions held or decisions taken, concerning that issue.
If a significant conflict cannot be resolved, a professional accountant may wish to obtain
professional advice from the relevant professional body or legal advisors, and thereby
obtain guidance on ethical issues without breaching confidentiality. For exam-ple, a
professional accountant may have encountered a fraud, the reporting of which could
breach the professional accountant’s responsibility to respect confidentiality. The
professional accountant should consider obtaining legal advice to determine whether there
is a requirement to report.
If, after exhausting all relevant possibilities, the ethical conflict remains unresolved, a
professional accountant should, where possible, refuse to remain associated with the
matter creating the conflict. The professional accountant may determine that, in the
circumstances, it is appropriate to withdraw from the engagement team or specific
assignment, or to resign altogether from the engagement, the firm or the employing
organisation.
In essence, the resolution process entails several stages of investigation. First, the relevant
facts need to be established and the ethical issues identified. The issue has to be tested
against the Fundamental Principles.
As a practical matter, the resolution process entails several stages of investigation.
o The relevant facts need to be established.
o The ethical issues are identified.
o Test the issue has against the Fundamental Principles and Code of Ethics.
Once the relevant facts have been ascertained, then a course of action will need to be
identified. Options would include:
(a) Do nothing Sometimes it is impossible to ascertain or verify facts, for example,
when there is a dispute over matters discussed in a telephone call
between two parties. In such an instance it may not be possible to
adjudicate, so nothing can be done.
(b) Avoidance Where a dispute has arisen in which both parties are at fault, for
instance, it might be prudent to separate them by introducing an
intermediary through whom they will work thereby avoiding direct
contact between the parties.
(c) Modifying Sometimes it will be necessary to suggest that individuals modify or

behaviours adjust their behaviours towards others. This is often the case where
innocent banter in the office has been misinterpreted by other staff
members.
(d) Arbitration In difficult and complex situations, the professional accountant

might wish to seek the advice or assistance of a professional
mediator. This might happen where the allegations are of a more
serious nature such as bullying and harassment of one colleague
by another but there is no third-party corroboration of it.
In preparation for handling investigations, internal procedures for handling such

dilemmas need to have been established so they can be referred to. During the course
of such investigations, the professional accountant may well need to refer or discuss the
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issue with others within the organisation. All investigations should be documented in
case any subsequent action has to be taken, as should all conversations have held in
connection with the issue.
Where there is a requirement to report, such as in cases of suspected or identified fraud,

the professional accountant should obtain legal advice. In many organisations the
procedures laid down for resolving ethical issues will refer to three initial tests for an
ethical decision.
What are the threats to
How to resolve ethical problems? compliance with the
1) Gather the relevant facts and identify the problems fundamental principles of:
2) Identify the affected parties  Integrity
3) Consider the ethical issues involved  Objectivity
4) Identify which fundamental principles are affected  Professional
5) Refer to the employing organisation's internal procedures competence and due
6) Consider and evaluate alternative courses of action care
7) Implement the course of action and monitor its progress
 Confidentiality
 Professional
25. The CIMA Code of Ethics for Professional Accountants behaviour
– ‘Fundamental Principles’. Have you considered the
following threats?
- Self interest
- Self-review
- Advocacy
- Familiarity
- Intimidation
If so, are the treats to

compliance with the
fundamental principles
clearly insignificant?
CIMA's code of ethics establishes a conceptual framework
that requires a professional accountant to identify, evaluate,
Are there safeguards
and address threats to compliance with the fundamental which can eliminate or
principles. The conceptual framework approach assists reduce the threats to an
professional accountants in complying with the ethical acceptable level?
requirements of this code and meeting their responsibility Safeguards can be created
to act in the public interest. by:
 Profession,
Part A: General application of the code legislation and
regulation
Part A of the code establishes the fundamental principles of  Work
professional ethics for professional accountants. It also provides environment
a conceptual framework that they shall use to identify, evaluate  Individual
and apply safeguards to eliminate threats to compliance with the
fundamental principles.
Part B: Professional Accountants in Public Practice
Part B applies to professional accountants in public practice, and describes how the conceptual
framework applies in certain situations. It provides examples of safeguards that may be
appropriate to address threats to compliance with the fundamental principles. It also
describes situations where safeguards are not available to address the threats, and
consequently, the circumstance or relationship creating the threats shall be avoided.
Professional accountants in public practice may also find Part- C relevant to their particular
circumstances.
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Part C: Professional Accountants in Business

Part C applies to professional accountants in business, and describes how the conceptual
framework applies in certain situations. Part -C of the Code was developed in cooperation
with the American Institute of Certified Public Accountants (AICPA); and, like Parts A and B,
the elements of the updated Part -C which apply to CIMA members and students continue to
reflect IFAC’s fundamental principles and conceptual framework approach.
Fundamental principles
CIMA's code of ethics is made up of five fundamental principles:
The code explains these principles, and gives examples of their use for professional
accountants in practice (Part B) and professional accountants in business (Part C). The code
establishes a conceptual framework that requires a professional accountant to identify,
evaluate, and address threats to compliance with the fundamental principles.
Ethics checklist
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Threats
The code identifies five categories of common threat to the five principles:
 Self-interest threat. Commonly called a 'conflict of interest' which may inappropriately

influence judgement or behaviour.
 Self-review threat. When you are required to evaluate the results of a previous
judgement or service.
 Advocacy threat. Arising if promoting a position or opinion to the point that your
subsequent objectivity is compromised.
 Familiarity threat. When you become so sympathetic to the interests of others as a
result of a close relationship that your professional judgement becomes compromised.
 Intimidation threat. When you are deterred from acting objectively by actual or
perceived pressure or influence.
Safeguards
CIMA code has a 'threats and safeguards' approach to resolving ethical issues. This means
that if you think there is a threat, you should assess whether the threat is significant. Then,
take action to remove or mitigate it.
It offers some defence mechanisms in the form of safeguards:

 educational, training and experience requirements for entry into the profession
 continuing professional developments requirements
 corporate governance regulations
 professional standards
 professional or regulatory monitoring and disciplinary procedures
 external review by a legally empowered third party of the reports, returns,
communications or information produced by a professional accountant.
This list of safeguards is not necessarily exhaustive.
Employing institutions often have safeguards:
Whistleblowing or
grievance procedures.
Safeguards are also
created by the
profession, legislation
or regulation.
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Module -11 C. Corporate governance
(26) The role and key objectives of corporate governance.
C. Corporate (27) The interaction of corporate governance, ethics and the law.
governance (28) The development of corporate governance internationally e.g. in the UK,
Europe, South Africa and the USA.
(10%)
(29) Rules and principles-based approaches to governance.
(30) The impact of corporate governance on directors’ powers and duties.
(31) Types of board structures, the role of the board and corporate social
responsibility (CSR).
(32) The role of the board in establishing corporate governance standards.
(33) Corporate governance codes e.g. The UK Corporate Governance Code.
(34) Policies and procedures for ‘best practice’ companies.
(35) The regulatory governance framework for companies.
Learning outcomes:
(a) What is Corporate Governance?
(b) The role and key objectives of corporate governance
(c) Principles of good corporate governance
(d) Attributes that Contribute to Governance Effectiveness
(e) Golden Rules of best corporate governance practices
(f) Why is Corporate Governance Important?
(g) Corporate Governance as Risk Mitigation
(h) Steps to Improving Corporate Governance
"The system by which organisations are directed and controlled". _ UK Cadbury Committee.
13
What Is Corporate Governance?
Corporate governance is the system of
rules, practices, and processes by which a
firm is directed and controlled. Corporate
governance essentially involves balancing
the interests of a company's many
stakeholders, such as shareholders, senior
management executives, customers,
suppliers, financiers, the government, and 14
the community. Since corporate
“A set of relationships between a company’s
governance also provides the framework
management, its board, its shareholders, and
for attaining a company's objectives, it
other stakeholders. Corporate governance
encompasses practically every sphere of
also provides the structure through which the
management, from action plans and
objectives of the company are set, and the
internal controls to performance
means of attaining those objectives and
measurement and corporate disclosure.
monitoring performance are determined.
Key takeaways Good corporate governance should provide
 Corporate governance is the structure of rules, proper incentives for the board and
practices, and processes used to direct and management to pursue objectives that are in
manage a company.
the interests of the company and its
 A company's board of directors is the primary
shareholders and should facilitate effective
force influencing corporate governance.
 Bad corporate governance can cast doubt on a
monitoring.”
company's reliability, integrity, and transparency, - The Organization for Economic Cooperation
which can impact its financial health.
and Development (OECD)
13
https://www.investopedia.com/terms/c/corporategovernance.asp
14
PwC
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The role and key objectives of

corporate governance
(1) Reducing conflicts of interest,
especially between managers
and stockholders.
(2) Verifying that the firm’s assets
are used efficiently and
productively and, in the
shareholders’, best interest.
(3) Core attributes of an effective
corporate governance system
include:
a. A clear delineation of
shareholder rights.
b. An outline of manager and
director responsibilities to
shareholders.
c. Clearly defined standards
against which performance of
responsibilities can be
measured.
d. Fair and equitable treatment in
relationships between
managers, directors and
shareholders.
e. Accuracy and transparency in
disclosures regarding
operations, performance, risk
and financial position.
Principles of good corporate governance

The principles underlying these rules are:
1. ethical approach - culture, society;
organizational paradigm
2. balanced objectives - congruence of
goals of all interested parties
3. each party plays his part - roles of
key players: owners/directors/staff
4. decision-making process in place -
reflecting the first three principles and
giving due weight to all stakeholders
5. equal concern for all stakeholders -
albeit some have greater weight than
others
6. accountability and transparency -
to all stakeholders
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Attributes that Contribute to Governance Effectiveness

There are four attributes that help assess the board’s performance level and put the
framework into action. A board can use these attributes to help identify its strengths and
opportunities for improvement within each of the governance elements:
Skills and knowledge: What are the

skills that are needed for the board to
effectively execute its responsibilities?
Process: What processes are

necessary for the board to both
understand and properly oversee the
activities of the organization?
Information: Is the information

received by the board adequate to
support effective oversight and
decision-making?
Behavior: Does the board’s behavior

support and reinforce strong oversight?
These very broad questions can help to

start the process of identifying gaps
and opportunities for improvement
within the overall framework.
Once the broad questions have been addressed, the board can get more tactical and drill
down to more analysis of development opportunities within the various elements.
For example, a board may find the quality and timeliness of information provided by
management with respect to performance to be quite adequate, while determining that the
information available related to the strategic planning process needs work. This high-level
prioritization helps to take the broad concepts of board effectiveness and create manageable
activities.
Golden Rules of best corporate governance practices are:

Five Golden Rules of best corporate governance practice - key concepts in
15
embracing good corporate governance
(a) Ethics: a clearly ethical basis to the

business
(b) Align Business Goals: appropriate goals,
arrived at through the creation of a
suitable stakeholder decision making
model
(c) Strategic management: an effective
strategy process which incorporates
stakeholder value
(d) Organization: an organization suitably
structured to effect good corporate
governance
(e) Reporting: reporting systems structured
to provide transparency and accountability
15
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Why is Corporate Governance Important?
Corporate governance is the way a corporation polices itself. In

short, it is a method of governing the company like a sovereign
state, instating its own customs, policies and laws to its
employees from the highest to the lowest levels. Corporate
governance is intended to increase the accountability of your
company and to avoid massive disasters before they occur.
Failed energy giant Enron, and its

bankrupt employees and
shareholders, is a prime
argument for the importance of
solid corporate governance. Well-
executed corporate governance
should be similar to a police
department’s internal affairs unit,
weeding out and eliminating
problems with extreme prejudice.
A company can also hold
meetings with internal members,
such as shareholders and debt-
holders – as well as suppliers,
customers and community
leaders, to address the request
and needs of the affected parties.
Corporate Governance as Risk Mitigation
Corporate governance is of
paramount importance to a
company and is almost as
important as its primary
business plan. When executed
effectively, it can prevent
corporate scandals, fraud and
the civil and criminal liability of
the company. It also enhances
a company’s image in the
public eye as a self-policing
company that is responsible
and worthy of shareholder and
debt-holder capital.
It dictates the shared philosophy, practices and

culture of an organization and its employees.
A corporation without a system of corporate

governance is often regarded as a body without a
soul or conscience.
Corporate governance keeps a company honest
and out of trouble.
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Steps to Improving Corporate Governance
1. Recognizes that good governance is not just about compliance

Boards need to balance conformance (i.e. compliance with legislation, regulation and codes
of practice) with performance aspects of the board’s work (i.e. improving the performance of
the organization through strategy formulation and policy making). As a part of this process,
a board needs to elaborate its position and understanding of the major functions it performs
as opposed to those performed by management. These specifics will vary from board to
board. Knowing the role of the board and who does what in relation to governance goes a
long way towards maintaining a good relationship between the board and management.
2. Clarify the board’s role in strategy

It is generally accepted today that the board has a significant role to play in the formulation
and adoption of the organization's strategic direction. The extent of the board’s contribution
to strategy will range from approval at one end to development at the other. Each board
must determine what role is appropriate for it to undertake and clarify this understanding
with management.
3. Monitor organizational performance

Monitoring organizational performance is an essential board function and ensuring legal
compliance is a major aspect of the board’s monitoring role. It ensures that corporate decision
making is consistent with the strategy of the organization and with owners’ expectations.
This is best done by identifying the organization's key performance drivers and establishing
appropriate measures for determining success. As a board, the directors should establish an
agreed format for the reports they monitor to ensure that all matters that should be reported
are in fact reported.
4. Understand that the board employs the CEO

In most cases, one of the major functions of the board is to appoint, review, work through,
and replace (when necessary), the CEO. The board/CEO relationship is crucial to effective
corporate governance because it is the link between the board’s role in determining the
organization's strategic direction and management’s role in achieving corporate objectives.
5. Recognize that the governance of risk is a board responsibility

Establishing a sound system of risk oversight and management and internal control is another
fundamental role of the board. Effective risk management supports better decision making
because it develops a deeper insight into the risk-reward trade-offs that all organizations
face.
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6. Ensure the directors have the information they need

Better information means better decisions. Regular board papers will provide directors with
information that the CEO or management team has decided they need. But directors do not
all have the same informational requirements, since they differ in their knowledge, skills, and
experience. Briefings, presentations, site visits, individual director development programs,
and so on can all provide directors with additional information. Above all, directors need to
be able to find answers to the questions they have, so an access to independent professional
advice policy is recommended.
7. Build and maintain an effective governance infrastructure

Since the board is ultimately responsible for all the actions and decisions of an organization,
it will need to have in place specific policies to guide organizational behaviour. To ensure that
the line of responsibility between board and management is clearly delineated, it is
particularly important for the board to develop policies in relation to delegations. Also, under
this topic are processes and procedures. Poor internal processes and procedures can lead to
inadequate access to information, poor communication and uninformed decision making,
resulting in a high level of dissatisfaction among directors. Enhancements to board meeting
processes, meeting agendas, board papers and the board’s committee structure can often
make the difference between a mediocre board and a high performing board.
8. Appoint a competent chairperson

Research has shown that board structure and formal governance regulations are less
important in preventing governance breaches and corporate wrongdoing than the culture and
trust created by the chairperson. As the “leader” of the board, the chairperson should
demonstrate strong and acknowledged leadership ability, the ability to establish a sound
relationship with the CEO, and have the capacity to conduct meetings and lead group
decision-making processes.
9. Build a skills-based board

What is important for a board is that it has a good understanding of what skills it has and
those skills it requires. Where possible, a board should seek to ensure that its members
represent an appropriate balance between directors with experience and knowledge of the
organization and directors with specialist expertise or fresh perspective. Directors should also
be considered on the additional qualities they possess, their “behavioural competencies”, as
these qualities will influence the relationships around the boardroom table, between the board
and management, and between directors and key stakeholders.
10. Evaluate board and director performance and pursue opportunities for
improvement
Boards must be aware of their own strengths and weaknesses, if they are to govern
effectively. Board effectiveness can only be gauged if the board regularly assesses its own
performance and that of individual directors. Improvements to come from a board and
director evaluation can include areas as diverse as board processes, director skills,
competencies and motivation, or even boardroom relationships. It is critical that any agreed
actions that come out of an evaluation are implemented and monitored. Boards should
consider addressing weaknesses uncovered in board evaluations through director
development programs and enhancing their governance processes.
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Module -12 C. Corporate governance
C. Corporate (27)The interaction of corporate governance, ethics and the law.
governance (28)The development of corporate governance internationally e.g. in
the UK, Europe, South Africa and the USA.
(10%)
(27) The interaction of corporate governance, ethics and the law
The law and ethics The law and corporate governance

Ethical and moral behaviour is The law provides the structure for the internal regulation
very often codified and of companies, such as the duty of directors to be open about
therefore legally binding. This their dealings and it also provides a mechanism of control,
occurs where the ethical for example the ability of shareholders to dismiss the
position is so important that directors and to exercise control of the company through the
the legislators decide that it articles and meetings.
must be protected by the
The main legal regulations that affect companies are as
force of law.
follows.
For example, society believes Name Contains rules on:
it is ethically wrong for Registering, administering
Companies Act-1994
those who commit crimes and operating companies.
(such as drug smuggling) to Memorandum of
profit from their illegal Association and Articles of Interaction between the
actions. Legislation was Association shareholders and directors.
brought in and now it is now
an offence in the Bangladesh Money Laundering
to launder the proceeds of Prevention Act -2012
Criminal activities such as
crime, in other words making
money laundering and
illegal gains appear legitimate. Anti-Terrorism
insider dealing.
(Amendment) Act- 2013
The rules on insider dealing,
where those who possess Securities and Exchange
‘inside information’ about a Rules-1987 Listing rules such as
company and who gain by the Stock Exchanges admission and disclosure
sale or purchase of its shares Listing Regulations-2015 requirements
whilst using this information,
is another example. Society
‘Corporate Governance
believes it is unfair for those BSEC Notification No.
Code’ for the listed securities
‘lucky’ individuals with inside SEC/CMRRCD/2006-
issued by the Bangladesh
knowledge to take advantage 158/207/Admin/80
Securities and Exchange
of their position at the Dated: 3 June 2018
Commission (BSEC).
expense of others.
Bangladesh Bank issued its
BRPD Circular No.11 dated latest Corporate Governance
27 October 2013 Guidelines for the Banks.
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Ethics, law and corporate governance are all interrelated.
 Ethics are values and principles that society expects companies and individuals to
follow and laws are rules that the legislators have determined that companies and
individuals must follow.
The law is a system of rules that a society or government develops in order to deal
with crime, business agreements, and social relationships. You can also use the law
to refer to the people who work in this system.
 Corporate governance requirements may be viewed as additional rules and
guidance for companies and individuals. They bridge the gap between what the law
requires and what society expects.
The relationship between law, governance, social responsibility and ethics

Corporate Social
Law Ethics
Governance responsibility
*Mandatory rules *Publicly * No regulation.  Values and principles.
that individuals and listed * Individuals and  Individuals and
companies must companies companies have a companies are
follow. only are free choice. expected to follow.
*The minimum regulated. * Some social  Adopting an ethical
level of behaviour *Others are pressure to act in a position is down to free
society allows. encouraged to socially responsible choice.
follow 'best manner.
practice'.
More regulation, less freedom of Less regulation more freedom of choice.
choice.
(28) The development of corporate governance internationally e.g. in the UK,

Europe, South Africa and the USA.
The development of corporate governance in the UK

Three significant government committees (Cadbury,
Greenbury and Hampel), were commissioned during
the 1990s in response to the increased need for good
corporate governance in light of several corporate
scandals including the collapse of Asil Nadir's Polly
Peck, the pension scandal of Robert Maxwell's Mirror
Group and Guinness's illegal share support scheme
involving Ernest Saunders. Other UK corporate
scandals involved Barings Bank and BA.
Corporate collapses such as those mentioned above

not only affect the stakeholders involved – such
scandals reduce overall investor confidence in the
markets, as directors are not being seen to be
effectively controlled.
For a country such as the UK which has a tradition of investment and respected financial
markets, resolving this issue was massively important economically. The recommendations
of the committees were incorporated into the 1998 Combined Code which companies listing
on the London Stock Exchange are required to comply. Since then, three further committees
reported (Turnbull, Higgs and Smith) and their recommendations were incorporated into the
2003 Combined Code. This Code is regularly revised, the latest version being published in
2014.
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Read your study material : Page ‐427
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UK Corporate Governance Code
The UK Corporate
Governance Code
(formerly known as the
Combined Code) sets out
standards of good
practice for listed
companies on board
composition and
development,
remuneration,
shareholder relations,
accountability and audit.
The code is published by
the Financial Reporting
Council (FRC).
On 17 September 2014 the FRC published an updated version of the UK Corporate

Governance Code, as announced in the press release FRC updates UK Corporate Governance
Code. The revised Code was applied to accounting periods beginning on or after 1 October
2014.
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The development of corporate governance in the Europe
The European Commission has taken the

view that corporate governance matters
should be left as a matter for individual
states to deal with and was the subject of
an announcement in 2003.
The Commission did recognize that a

common approach was necessary for
certain fundamental issues (such as
directors' remuneration, disclosure and
access to financial information and the
management of independent non-executive
directors) so it developed a series of
Directives as a basis for all states to follow.
In October 2004 the EU Corporate Governance Forum was established with 15 members
representing various stakeholders from across the EU with the objective of coordinating
corporate governance between all member states.
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The development of corporate governance in the South Africa
The King III Report

Principles of good governance are not only
regulated in terms of legislation and the common
law. Important recommendations are contained in
Codes of Best Practice. The King II Report on
Corporate Governance of 2002 (hereafter referred
to as 'King II') was applicable to South African
enterprises until the end of February 2010.
In view of the anticipated new

Companies Act 2008, it became
necessary to draft a new King
Report on Corporate
Governance. The King III
Committee consisted of 11
subcommittees, namely:
1) boards and directors

2) accounting and auditing
3) risk management
4) internal audit
5) integrated sustainability
reporting
6) compliance and
stakeholder relationships
7) business rescue
8) fundamental and affected
transactions
9) IT governance
10) alternative dispute
resolutions
11) editing.
The King III Report deals with more or less the same issues as dealt with in King II.
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Corporate governance is regulated in South Africa. Most of the companies that had corporate
governance failures did subscribe to principles of good corporate governance and had certain
measures in place.
This raises the question: does the drafting of codes of good governance really make
companies healthier and more sustainable, and will they reduce the likelihood of corporate
collapses? This question is linked to the concept of 'box-ticking', referring to the practice of
ticking off certain areas/boxes to indicate that there was compliance with specific aspects. To
merely tick boxes is clearly not ideal as there must be compliance with the rule and not just
with the form.
The development of corporate governance in the USA
The United States struggles with its

corporate governance framework. The US
corporate governance is made of multiple
facets: legal, securities, and accounting
rules designed to protect the interests of
shareholders in a transparent means. The
overall system lacks rigorous
implementation or at least is perceived as
such.
US corporate governance system is best understood as the set of fiduciary and managerial
responsibilities that binds a company’s management, shareholders, and the board within a
larger, societal context defined by legal, regulatory, competitive, economic, democratic,
ethical, and other societal forces.
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Corporate
governance rules in
the USA have
developed from
relatively little to the
complex Sarbanes-
Oxley Act of 2002.
Three main drivers for

this were:
1) Active management
Increasing
shareholder
activism
from
institutional
investors
and in
particular
fund
managers
brought the
actions and
behaviour
of senior
corporate
managers
to the
public's
attention.
This was driven in part by the increasingly protective practices of
directors in preventing takeovers which some investors thought went
against their best interests.
2) Enron, Arthur Andersen and Worldcom
The collapses of Enron and

Worldcom encouraged the US
government to take action to
restore public confidence and
trust in large corporations.
The Sarbanes-Oxley Act of
2002 introduced measures to
protect investors from further
corporate disasters by
implementing reporting
procedures aimed at
increasing the accuracy of
disclosures and the openness
of corporations.
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While Enron no longer exists, Worldcom did survive and merged with MCI International
following successfully emerging from bankruptcy.
3) Close relationships between auditors and clients

Enron also revealed that far from being independent, auditors often enjoyed very close
relationships with their clients, In Enron's case, its auditor (Arthur Andersen)
undertook lucrative consultancy work. The threat of losing this valuable income
compromised the auditor's ability to give a truly independent report.
Andersen was found guilty of obstructing justice as a result of the investigation into
the scandal (although the decision was subsequently quashed). Andersen still exists
today but it is very small and mainly deals with lawsuits against it.
The Public Company Accounting Oversight Board was created by the Sarbanes-
Oxley Act and was given the role of policing auditors. All auditors of public companies
must be registered and comply with strict rules on ethics and audit procedures.
Restrictions are in place to prevent auditors performing certain audit and non-audit
work for clients and they must disclose audit and non-audit income separately.
16
16
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Module -13 C. Corporate governance (cont...)
(27) The interaction of corporate governance, ethics and the law.
C. Corporate
(28) The development of corporate governance internationally e.g. in the UK, Europe,
governance South Africa and the USA.
(10%) cont. (29)Rules and principles-based approaches to governance.
(30)The impact of corporate governance on directors’ powers and duties.
(31)Types of board structures, the role of the board and corporate social
There is continuing debate over the form corporate governance guidance should take.
Some believe in fundamental principles, others that detailed rules are required.
We have already
seen that the
United Kingdom
has adopted a
principles-based
approach with the
Combined Code.
This was the
preferred option
recommended by
the Hampel
committee when it
reported.
The United States has firmly come down on the side of a prescriptive rules-based
approach. This is most evident from the Sarbanes-Oxley Act that requires a large amount of
compliance work by companies to ensure they meet very detailed rules.
There are many arguments for and against both approaches.
Arguments in favour of a
principles-based approach:
• Companies are highly
regulated already -
further regulation would
stifle their development.
• There is a high cost
involved when complying
with detailed rules.
• It is not practical to apply
an identical set of rules to
individual companies.
• Companies may have valid
reasons for non-
compliance with rules.
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Arguments in favour
with a rules-based
approach:
• General guidance is
of little use to
ensure companies
have robust
procedures in place.
• Disasters are less
likely to strike
companies who are
100% compliant as
they are unlikely to
be satisfied with
mere token
compliance.
• The cost of compliance may be high, but it is likely to be less than the cost of a
major fraud occurring.
• The ‘comply or explain’ requirement of a principles-based approach requires

a high degree of shareholder activism to be a deterrent.
(30) The impact of corporate governance on directors’ powers and duties
Directors' Duty -
1. To act within the
powers conferred;
2. To promote the
success of the
company for the
Directors’ powers - beneﬁt of its
Director- The duty to act in good faith and for members. Directors
proper purposes. must have regard to
A board of directors is a
the long term and
body of elected or appointed Directors are fiduciary agents. As a
wider factors such
members who jointly result, their powers must be exercised
as relationships with
oversee the activities of a not only in the manner required by law
employees,
company or organization. but also bona fide for the benefit of the
suppliers, customers
company as a whole. In general,
A member of the board of a and the impact of
directors may do anything that is legal
company..., or an alternate the company’s
and is allowed by the company’s
director of a company and operations on the
constitution. The directors exercise
includes any person community and
corporate powers. They must
occupying the position of environment;
exercise these powers with good
director or alternate
faith. 3. To exercise
director, by whatever name
The legal powers available to any board independent
designated.
of directors are powers to act on behalf judgement;
A board's activities are of their company. Their powers are not
determined by the powers, independent of the company and as a 4. To exercise
duties, and responsibilities rule they may not carry out, in the reasonable care,
delegated to it or conferred name of the company, any activity that skill and diligence;
on it by an authority outside the company itself is not entitled to
itself. These matters are perform. Consideration of the issue of 5. To avoid conﬂicts
typically detailed in the directors’ powers needs therefore to of interest;
organization's bylaws. take place in the light of the powers of
the company itself.
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Responsibilities of the Board of Directors
The Board of
Directors, acting
directly or through
duly constituted
committees, shall
have the following
responsibilities.
1. Oversee the conduct of the Company’s business and evaluate whether the
business is being properly managed;
2. Review, approve and monitor fundamental business and financial strategies and
major corporate actions;
3. Oversee processes designed to ensure the accuracy and completeness of the
Company’s financial statements;
4. Monitor the effectiveness of the Company’s internal controls;
5. Assess major risks facing the Company and review options for addressing such
risks;
6. Ensure processes are in place for maintaining the integrity of the Company,
including the integrity of its financial statements, the integrity of the Company’s
compliance with law and ethics, and the integrity of its relationships with its
stakeholders;
7. Evaluate and authorize compensation of the Company’s Chief Executive
Officer and review and approve the succession planning of the Company’s Chief
Executive Officer; and
8. Oversee the selection, evaluation, development, compensation and
succession planning of the Chief Executive Officer, the Chief Executive Officers of
the Company’s subsidiaries and other senior managers.
The impact of corporate governance on directors’ powers and duties
Corporate governance is the system by which companies are directed and controlled. For
most companies, those leaders are the directors, who decide the long-term strategy of the
company in order to serve the best interests of the owners (members or shareholders) and,
more broadly, stakeholders, such as customers, suppliers, providers of long-term finance,
the community and regulators.
It is important to recognise that effective corporate governance relies to some extent on
compliance with laws, but being fully compliant does not necessarily mean that a company is
adopting sound corporate governance practices. Principles of Corporate Governance are:
• Rights of shareholders: The corporate governance framework should protect
shareholders and facilitate their rights in the company. Companies should generate
investment returns for the risk capital put up by the shareholders.
• Equitable treatment of shareholders: All shareholders should be treated equitably
(fairly), including those who constitute a minority, individuals and foreign
shareholders. Shareholders should have redress when their rights are contravened or
where an individual shareholder or group of shareholders is oppressed by the majority.
• Stakeholders: The corporate governance framework should recognise the legal rights
of stakeholders and facilitate cooperation with them in order to create wealth,
employment and sustainable enterprises.
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• Disclosure and transparency: Companies should make relevant, timely disclosures

on matters affecting financial performance, management and ownership of the
business.
• Board of directors: The board of directors should set the direction of the company
and monitor management in order that the company will achieve its objectives. The
corporate governance framework should underpin the board’s accountability to the
company and its members. The role of the board of directors -
o to define the purpose of the company

o to define the values by which the company will perform its daily duties
o to identify the stakeholders relevant to the company
o to develop a strategy combining these factors
o to ensure implementation of this strategy.
We can express that there is huge impact of corporate governance on directors’ powers and
duties.
Types of Board structures

• The all executive board
• The majority boards
• The majority outside board
• The two-tier supervisory board
• The advisory board
UK board structures
The choice of board structure in the UK can be split into three options
• All executive directors
• Majority executive directors
• Majority non-executive directors
A fourth option of all non-executive directors is not practical as the board needs input
from those running the day-today operations when making decisions.
Most companies in the UK operate a unitary board system where a singular board is in
control of the organisation.
Companies are free to have as many directors as they feel necessary. Executive
directors must beware of 'two hat' syndrome whereby their roles of management
and governance conflict. A common example occurs during board meetings. These
should be reserved for addressing governance issues, but the risk is that they become
just another management meeting.
German boards
Institutional arrangements in German companies are based on a two-tiered board.
(a) A Supervisory Board consists of 20 members elected by the shareholders. Its
role is to monitor the management of the company and is responsible for
safeguarding stakeholders' interests. A feature of German boards is that
employees are elected and sit as members on them. It is not uncommon for
shareholders to elect two-thirds of the board and employees one-third. Joint stock
(AG) companies with over 2,000 employees divide the votes equally between
shareholders and employees. The Chairman of this board is elected by the
shareholders and has a deciding vote.
(b) A Management Board is responsible for independently running the business
and for adding value to it. The board reports to the Supervisory Board in areas
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such as strategy, profitability, material transactions (on profitability or liquidity)

and general business policy.
The board also:
• Ensures the business meets all its regulatory obligations.
• Prepares resolutions for meetings.
• Provides financial statements for the general meeting.
Members are elected for five year terms by the Supervisory Board who advise them
and are responsible for their supervision and dismissal. The number of directors depends
on the size of the organisation. Small companies have three to five, large companies
five to ten.
French boards
Most French companies use one of the following three board structures.
1. Unitary board with the roles of Chairman and Chief Executive Officer rolled into
one (the President Director General or PDG). Alternatively, the roles may be
separated.
2. Unitary board with the roles of Chairman and Chief Executive Officer separated.
3. A two-tier structure similar to the German model. The Supervisory Board is led
by the Chairman and the Management Committee (Directoire) involves the Chief
Executive Office (Directeur General). Boards consist of between 3 and 18 members
and listed companies must comprise two-thirds non-executive officers.
American boards
Most boards in the USA are unitary with increasing numbers of non-executive directors
as well as directors who are women or from ethnic minorities.
Proposals to introduce two (or more) tier boards have been particularly criticised in
the UK and USA as leading to confusion and a lack of accountability. This has
affected the debate on enhancing the role of non-executive directors, with critics
claiming that moves to increase the involvement of non-executive directors are a step
on the slippery slope towards two-tier boards.
Bangladeshi Boards
Corporate Governance Code

As per the notification No. SEC/CMRRCD/2006-158/207/Admin/80: dated 03 June
2018; By the Bangladesh Securities and Exchange Commission (BSEC):
"Board's Size The number of the board members of the company shall not be less than 5
(five) and more than 20 (twenty): Provided, however, that in case of banks and non-
bank financial institutions, insurance companies and statutory bodies for which separate
primary regulators like Bangladesh Bank, Insurance Development and Regulatory
Authority, etc. exist, the Boards of those companies shall be constituted as may be
prescribed by such primary regulators in so far as those prescriptions are not
inconsistent with the aforesaid condition ".
All companies shall encourage effective representation of independent directors [At

least one fifth (1/5) of the total number of directors in the company’s board shall be
independent directors] on their Board of Directors so that the Board, as a group, includes
core competencies considered relevant in the context of each company.
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The role of the board

Establish vision,  to determine the company's vision and mission to guide and set
mission and the pace for its current operations and future development.
values  to determine the values to be promoted throughout the
company.
 to determine and review company goals.
 to determine company policies.
Set strategy and  to review and evaluate present and future opportunities, threats
structure and risks in the external environment;
 and current and future strengths, weaknesses and risks relating
to the company.
 to determine strategic options, select those to be pursued, and
decide the means to implement and support them.
 to determine the business strategies and plans that underpin the
corporate strategy.
 to ensure that the company's organisational structure and
capability are appropriate for implementing the chosen
strategies.
 Determine the company's appetite for risk.
Delegate to  Delegate authority to management, and monitor and evaluate
management the implementation of policies, strategies and business plans.
 Determine monitoring criteria to be used by the board.
 Ensure that internal controls are effective.
 Communicate with senior management.
Exercise  Ensure that communications both to and from shareholders and
accountability to relevant stakeholders are effective.
shareholders and  Understand and take into account the interests of shareholders
be responsible to and relevant stakeholders.
relevant  Monitor relations with shareholders and relevant stakeholders
stakeholders by the gathering and evaluation of appropriate information.
 Promote the goodwill and support of shareholders and relevant
stakeholders.
Corporate social responsibility (CSR)
Corporate social responsibility (CSR) is a form of corporate self-regulation integrated into a

business model. CSR policy functions as a self-regulatory mechanism whereby a business
monitors and ensures its active compliance with the spirit of the law, ethical standards and
national or international norms.
CSR promotes a vision of business accountability to a wide range of stakeholders, besides

shareholders and investors. Key areas of concern are environmental protection and the
wellbeing of employees, the community and civil society in general, both now and in the
future.
The concept of CSR is underpinned by the idea that corporations can no longer act as
isolated economic entities operating in detachment from broader society. Traditional views
about competitiveness, survival and profitability are being swept away.
Some of the 1. The shrinking role of government

drivers 2. Demands for greater disclosure
pushing 3. Increased customer interest
business 4. Growing investor pressure
towards CSR 5. Competitive labour markets
include: 6. Supplier relations
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Some of the positive outcomes that can arise when businesses adopt a policy of
social responsibility include:
(1) Company  Improved financial performance;

benefits:  Lower operating costs;
 Enhanced brand image and reputation;
 Increased sales and customer loyalty;
 Greater productivity and quality;
 More ability to attract and retain employees;
 Reduced regulatory oversight;
 Access to capital;
 Workforce diversity;
 Product safety and decreased liability.
(2) Benefits to  Charitable contributions;
the  Employee volunteer programmes;
community  Corporate involvement in community education, employment
and the and homelessness programmes;
general  Product safety and quality.
public:
(3)  Greater material recyclability;
Environmental  Better product durability and functionality;
benefits:  Greater use of renewable resources;
 Integration of environmental management tools into business
plans, including life-cycle assessment and costing,
environmental management standards, and eco-labelling.
What the organisation needs is a

‘favourable reputation’ because
this influences stakeholder
perceptions which in turn improve
the stakeholder’s interaction with
the organisation, particularly as
customers or suppliers which has a
demonstrated benefit on the cost
of doing business. But an
organisation cannot arbitrarily
decide what its reputation will be.
Effective CSR is a welcome symptom of an organisation that understands, and cares about
its stakeholders and this type of organisation tends to be more successful than those that
don’t!
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Module -14 C. Corporate governance (cont...)
(27) The interaction of corporate governance, ethics and the law.
C. Corporate
(28) The development of corporate governance internationally e.g. in the UK, Europe,
governance South Africa and the USA.
(10%) cont. (29) Rules and principles-based approaches to governance.
(31) Types of board structures, the role of the board and corporate social responsibility
(CSR).
(32)The role of the board in establishing corporate governance
standards.
(34)Policies and procedures for ‘best practice’ companies.
(35)The regulatory governance framework for companies.
(32) The role of the board in establishing corporate governance standards
The role of the board in establishing

corporate governance standards
through maintain a code of business
conduct and ethics which will articulate
for employees, shareholders, customers
and suppliers the standards of conduct,
including conflicts of interest matters, to
which the Company expects to adhere.
Board should also be required to abide by
the code of conduct.
The Company’s business is managed under
the direction of the Board of Directors. The
Board delegates to the Chief Executive
Officer/Managing Director, and through
that individual to other senior
management, the authority and
responsibility for managing the Company’s
business. The Board’s role is to oversee the
management and governance of the
Company and to monitor senior
management’s performance.
The role of the board in establishing corporate governance standards are to:
 Select individuals for Board

membership and evaluate the
performance of the Board, Board
committees and individual directors.
 Select, monitor, evaluate and
compensate senior management.
 Assure that management
succession planning is adequate.
 Review and approve significant
corporate actions.
 Review and approve the Company’s
annual operating plans and
budgets.
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 Review and
monitor
implementatio
n of
management’s
strategic
plans.
 Monitor
corporate
performance and
evaluate results
compared to the
strategic plans
and other long-
range goals.
 Review the
Company’s
financial
controls and
reporting
systems.
 Review and approve the Company’s financial statements and financial reporting.
 Review the Company’s ethical standards and legal compliance programs and procedures.
 Oversee the Company’s management of enterprise risk.
 Monitor relations with shareholders, employees, and the communities in which the
Company operates.
So, we can say that the role of the board in establishing corporate governance
standards are huge and that described above.
(33) Corporate governance codes e.g. The UK Corporate Governance Code
The first version of the UK Corporate Governance

Code (the Code) was produced in 1992 by the
Cadbury Committee. Its paragraph 2.5 is still the
classic definition of the context
of the Code:
Corporate governance is the system by

which companies are directed and controlled. Boards of directors are responsible for the
governance of their companies. The shareholders’ role in governance is to appoint the
directors and the auditors and to satisfy themselves that an appropriate governance structure
is in place. The responsibilities of the board include setting the company’s strategic aims,
providing the leadership to put them into effect, supervising the management of the business
and reporting to shareholders on their stewardship. The board’s actions are subject to laws,
regulations and the shareholders in general meeting.
The UK regulatory framework
The Combined Code
The main source of corporate governance in the UK at this time is the Combined Code.
It is important to recognise that following the Combined Code is not a legal requirement.
However, the London Stock Exchange requires all listed companies to include in their
annual reports a statement of compliance or non-compliance with the code. All other
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companies are encouraged to follow it as an example of ‘best practice’. Companies may find
pressure from their stakeholders if they do not adopt it.
The principles of the code are designed to

• Encourage all involved in a company to accept their legal obligations. This
includes the board of directors (including non-executive directors), the auditors and
the shareholders.
• Encourage the scrutiny of corporate stewardship.
• Impose certain checks and controls on executive directors but without restricting
the commercial enterprise aspect of governance.
The Combined Code identifies the following policies and procedures as ‘best practice’.
The UK Corporate Governance Code (September 2014)
The Code was most recently amended in September 2014, with these amendments being
effective for periods commencing on or after 1 October 2014.
The Main Principles of the Code
Section A: Leadership
The Code provisions

Every company should be headed by an effective board recommend regular
which is collectively responsible for the long-term board meetings and
success of the company. distinct and
There should be a clear division of responsibilities at the head of separate roles for
the company between the running of the board and the the chairman and
executive responsibility for the running of the company’s chief executive. It
business. No one individual should have unfettered powers of advocates for non-
decision. executives to apply
scepticism in order
The chairman is responsible for leadership of the board and to challenge and
ensuring its effectiveness on all aspects of its role. scrutinise
management
As part of their role as members of a unitary board, non- effectively.
executive directors should constructively challenge and help
develop proposals on strategy.
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Section B: Effectiveness
The board and its committees should have the
appropriate balance of skills, experience,
independence and knowledge of the company to The size, skills,
enable them to discharge their respective duties and experience and balance
responsibilities effectively. of non-executive and
executives directors
There should be a formal, rigorous and transparent should be adequate to
procedure for the appointment of new directors to the deal with the complexity
board. of the business and its
industry. Non-executive
All directors should be able to allocate sufficient time to the directors should be
company to discharge their responsibilities effectively. independent. Board
appointment, evaluation
All directors should receive induction on joining the board and re-selection
and should regularly update and refresh their skills and procedures should be
knowledge. transparent. All
directors, especially non-
The board should be supplied in a timely manner with executive, ought to
information in a form and of a quality appropriate to enable demonstrate
it to discharge its duties. commitment whilst
getting support from
The board should undertake a formal and rigorous annual management to develop
evaluation of its own performance and that of its an understanding of the
committees and individual directors. business and its industry.
All directors should be submitted for re-election at regular

intervals, subject to continued satisfactory performance.
Section C: Accountability
The board should present a fair, The board should present a fair, balanced and
balanced and understandable understandable assessment of the company’s
assessment of the company’s position and prospects in its annual report. The
position and prospects. directors should state in annual and half-yearly
financial statements whether they consider it
The board is responsible for appropriate to adopt the going concern basis of
determining the nature and extent accounting in preparing them, and identify any
of the principal risks it is willing to material uncertainties to the company’s ability to
take in achieving its strategic continue to do so over a period of at least twelve
objectives. The board should months from the date of approval of the financial
maintain sound risk management statements. The narrative reporting at the front
and internal control half of the annual report should be consistent
systems. with the financial statements and corresponding
notes at the back. The board is responsible for
The board should establish formal ensuring sound risk management and internal
and transparent arrangements for control systems are in place whilst also
considering how they should apply maintaining an appropriate relationship with the
the corporate reporting, risk company’s auditors. The audit committee, a sub-
management and internal control committee of the board will look after financial
principles and for maintaining an reporting matters and the workings of both
appropriate relationship with the internal and external auditors. At least one
company’s auditors. member of the audit committee must be a
qualified accountant.
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Section D: Remuneration
The package should be consistent with
Executive directors’ remuneration the calibre of director that the company
should be designed to promote the is wishing to attract, whilst not excessive.
long-term success of the company. A director should not be involved in
Performance-related elements should deciding his or her own remuneration and
be transparent, stretching and all arrangements should be transparent,
rigorously applied. following set procedures. The
remuneration should be set against
There should be a formal and transparent individual and corporate performance
procedure for developing policy on executive with a focus on enhancing long term
remuneration and for fixing the performance of the company which is
remuneration packages of individual important to stem against rapid increases
directors. No director should be involved in which of directors’ reumeration are not
deciding his or her own remuneration. line with the company’s results.
Section E: Relations with shareholders
There should be a dialogue with All directors should be fully aware of

shareholders based on the mutual shareholders’ concerns and opinions even
understanding of objectives. though the chief executive and finance
director will have more direct interaction
The board as a whole has responsibility for with major shareholders. The annual
ensuring that a satisfactory dialogue with general meeting is an effective way of
shareholders takes place. maintaining contact with shareholders
and the directors should encourage
The board should use general meetings to shareholder participation.
communicate with investors and to
encourage their participation.
(34) Policies and procedures for ‘best practice’ companies
The board of a company has the

responsibility to:
(a) approve and ensure there is

monitoring of compliance with all
significant policies and procedures
by which the corporation is
operated;
(b) ensure that policies and procedures

are in place so that the corporation
operates at all times within
applicable laws and regulations, and
to the highest ethical and moral
standards.
There are some recognized best corporate governance practices, recommended by leading
companies, investors and regulators. Here, the most frequently recommended are
highlighted, under the following umbrellas:
 Formalizing governance policies: codes and guidelines

 Functioning of the board of directors and relations with executive management
 Strengthening of shareholder rights
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 Improving the control environment

 Transparency and disclosure of information
 Ensuring the sustainability of the business
Right-sized governance practices will positively impact long-term corporate performance –

but companies must design and implement those that both comply with legal requirements
and meet their particular needs. Here are policies and procedures for ‘best practice’
companies for corporate governance that every Board of Directors can engage – and that
will benefit every company.
i. Build a strong, qualified board of directors and evaluate

performance. Boards should be comprised of directors who are knowledgeable
and have expertise relevant to the business and are qualified and competent, and
have strong ethics and integrity, diverse backgrounds and skill sets, and sufficient
time to commit to their duties.
ii. Define roles and responsibilities. Establish clear lines of accountability among
the Board, Chair, CEO, Executive Officers and management.
iii. Emphasize integrity and ethical dealing. Not only must directors declare
conflicts of interest and refrain from voting on matters in which they have an
interest, but a general culture of integrity in business dealing and of respect and
compliance with laws and policies without fear of recrimination is critical.
iv. Evaluate performance and make principled compensation decisions.

v. Engage in effective risk management. Companies should regularly identify
and assess the risks they face, including financial, operational, reputational,
environmental, industry-related, and legal risks and to mitigate all through
effectively and efficiently.
(35) The regulatory governance framework for companies
Corporate governance
refers to that blend of
law, regulation, and an
appropriate voluntary
private-sector practice
which enables the
corporation to attract
financial and human
capital, perform
efficiently, and thereby
perpetuate itself by
generating long-term
economic value for its
shareholders, while
respecting the interests of
stakeholders and society
as a whole.
Framework
A systematic approach to identify and manage increased oversight responsibilities,

regulations, risks, and stakeholder expectations. A Corporate Governance framework is a:
 Guide for a board to use in defining, developing, and deploying the elements of its
corporate governance infrastructure
 Mechanism for the definition and organization of governance responsibilities between
the board and management
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 Key to sustaining resilience (adaptive capacity of an organization in a complex and

changing environment)
 Board responsibility for governance
 Corporate governance transparency
 Director competency and commitment
 Board accountability and objectivity
 Independent board leadership
 Integrity, ethics, and responsibility
 Attention to information, agenda, and strategy
 Protection against board entrenchment
 Shareholder input in director selection
 Shareholder communications
Framework Components: Framework Characteristics:

‐ Ethics and Integrity ‐ Ownership
‐ Mission, Vision and Strategy ‐ Coordination
‐ Governance structures and Processes ‐ Relevant
‐ Operational, Financial, Risk ‐ Clear and understandable
Management Performance ‐ Concise
‐ Executive Leadership ‐ Easily accessible
‐ Stakeholder Expectations ‐ Laws and regulations
‐ Self-Assessment ‐ Current
‐
How to improve the Corporate Governance framework:
 Establish/adopt a corporate philosophy or mission

 Identify risk profile (risk attitude, appetite, and tolerance levels)
 Define the ethical climate
 Design an assurance methodology for ethical behavior and compliance with laws and
regulations
 Design corporate governance structures, policies, and processes
 Design monitoring processes (Board and committee composition, allocation of
accountability and responsibilities)
 Identify and assign stakeholder management and communication activities
 Implement a board self-assessment process.
(36) Stakeholder benefits
Corporate Governance is the

interaction between various
participants (shareholders, board
of directors, and company’s
management) in shaping
corporation’s performance and
the way it is proceeding towards.
The relationship between the
owners and the managers in an
organization must be healthy
and there should be no conflict
between the two.
The owners must see that
individual’s actual performance
is according to the standard
performance. These dimensions
of corporate governance should
not be overlooked.
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Corporate Governance deals with the manner the providers of finance guarantee
themselves of getting a fair return on their investment. Corporate Governance clearly
distinguishes between the owners and the managers. The managers are the deciding
authority. In modern corporations, the functions/ tasks of owners and managers should be
clearly defined, rather, harmonizing.
Corporate Governance deals with determining ways to take effective strategic
decisions. It gives ultimate authority and complete responsibility to the Board of Directors.
In today’s market- oriented economy, the need for corporate governance arises. Also,
efficiency as well as globalization are significant factors urging corporate governance.
Corporate Governance is essential to develop added value to the stakeholders.
Corporate Governance ensures transparency which ensures strong and balanced

economic development. This also ensures that the interests of all shareholders (majority
as well as minority shareholders) are safeguarded. It ensures that all shareholders fully
exercise their rights and that the organization fully recognizes their rights.
Corporate Governance has a broad scope. It includes both social and institutional
aspects. Corporate Governance encourages a trustworthy, moral, as well as ethical
environment.
Benefits of Stakeholders through Corporate Governance
1. Good corporate governance ensures corporate success and economic growth.

2. Strong corporate governance maintains investors’ confidence, as a result of which,
company can raise capital efficiently and effectively.
3. It lowers the capital cost.
4. There is a positive impact on the share price.
5. It provides proper inducement to the owners as well as managers to achieve
objectives that are in interests of the shareholders and the organization.
6. Good corporate governance also minimizes wastages, corruption, risks and
mismanagement.
7. It helps in brand formation and development.
8. It ensures organization in managed in a manner that fits the best interests of all,
etc.
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Module -15 D. Comparison of English law with alternative legal systems
(37) The purpose of the civil and criminal law.
D. Comparison (38) The sources of English law: custom, case law, statute,
of English law European law and other sources.
with (39) The distinction between the common law and equity.
alternative (40) The system of judicial precedent.
legal systems (41) The essential elements of the tort of negligence, including duty,
(10%) breach and damage/loss/injury and the liability of professionals
in respect of negligent advice.
(42) Alternative legal systems, including codified (civil law) systems.
(43) The general characteristics of the legal systems of France,
Germany, Poland, Italy, Denmark, Greece and Cyprus.
(44) The general characteristics of the legal systems of the USA,
Malaysia, China and Sri Lanka.
(45) Elements of Shari’ah law including sources of Shari’ah law and the
Five Pillars of Islam.
(46) The benefits of international regulations for commerce and
professional practice through the work of key bodies e.g. IFAC,
ISO, FEE.
Law is a system of rules that

are enforced through social
institutions to govern
behaviour. Laws can be
made by a collective
legislature or by a single
legislator, resulting
in statutes, by the executive
through
decrees and regulations, or
by judges through
binding precedent, normally
in common law jurisdictions.
Civil law deals with disputes between private Criminal law, one of two broad
parties, or negligent acts that cause harm to others. categories of law, deals with acts
For example, if individuals or companies disagree of intentional harm to individuals
over the terms of an agreement, or who owns land or but which, in a larger sense, are
buildings, or whether a person was wrongfully offences against us all. It is a
dismissed from their employment, they may file a crime to break into a home
lawsuit asking the courts to decide who is right. As because the act not only violates
well, the failure to exercise the degree of caution that the privacy and safety of the
an ordinarily prudent person would take in any home's occupants - it shatters
situation may result in a negligence claim. Depending the collective sense that we are
on the circumstances, a person may be held secure in our own homes. A
responsible for any damages or injury that occurs as crime is a deliberate or reckless
a result of their negligence. Family law cases act that causes harm to another
involving divorce, parental responsibility for children, person or another person's
spousal support, child support and division of property, and it is also a crime to
property between spouses or common law couples neglect a duty to protect others
represent a large portion of the civil law cases from harm.
presented to the courts.
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Civil law and criminal law are two

broad and separate entities of law with
separate sets of laws and punishments.
The historical interaction of equity and

the common law led to the
development of the first source of law,
case law, which is based upon the
system of judicial precedent. The
second source is legislation – which is
law created by Parliament.
Civil Law Criminal Law
Definition Civil law deals with the disputes Criminal law is the body of law
between individuals, organizations, that deals with crime and the
or between the two, in which legal punishment of criminal
compensation is awarded to the offenses.
victim.
Purpose To deal with the disputes between To maintain the stability of the
individuals, organizations, or state and society by punishing
between the two, in which offenders and deterring them
compensation is awarded to the and others from offending.
victim.
Case filed by Private party Government
Decision Defendant can be found liable or not Defendant is convicted if guilty

liable, the judge decides this. and acquitted if not guilty, the
jury decide this.
Standard of "Preponderance of evidence." "Beyond a reasonable doubt":

proof Claimant must produce evidence
beyond the balance of probabilities.
Burden of Claimant must give proof however, "Innocent until proven guilty":
proof the burden may shift to the The prosecution must prove
defendant in situations of Res Ipsa defendant guilty.
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Civil Law Criminal Law
Loquitur (The thing speaks for

itself).
Type of Compensation (usually financial) for A guilty defendant is subject to

punishment injuries or damages, or an injunction Custodial (imprisonment) or
in nuisance. Non-custodial punishment (fines
or community service). In
exceptional cases, the death
penalty.
Examples Landlord/tenant disputes, divorce Theft, assault, robbery,

proceedings, child custody trafficking in controlled
proceedings, property disputes, substances, murder, etc.
personal injury, etc.
Appeals Either party (claimant or defendant) Only the defendant may appeal a
can appeal a court's decision. court's verdict. The prosecution
is not allowed to appeal.
Jury opinion In cases of civil law, the opinion of In the criminal justice system,
the jury may not have to be the jury must agree unanimously
unanimous. Laws vary by state and before a defendant is convicted.
country.
Commencement State/People/Prosecution by By way of pleadings,

of proceedings summons or indictment Representatives of the state,
Prosecutor, Attorney General.
(38) The sources of English law: custom, case law, statute, European law and
other sources.
Sources of English Law
The principal sources of English law are

legislation, common law, European
Union law and the European Convention
on Human Rights. There is no single
series of documents that contains the
whole of the law of the English. Equity is an
historical
The sources of English law are: source of
 custom/common law; law; the
 equity; others are
 legislation; current
 European law; sources of
 other sources. law.
Common law - The legal system of England and Wales is a common law one, so the
decisions of the senior appellate courts become part of the law.
Legislation - Legislation is law that is created by a legislature. The most important pieces
of legislation are Acts of Parliament.
European Union Law - The UK is a Member State of the European Union (EU), which
means that EU law takes precedence over UK law.
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The European Convention on Human Rights - As a Member State of the Council of

Europe, the UK is a signatory to the European Convention on Human Rights (ECHR). The
Human Rights Act 1998, which came into effect in October 2000, enables all the courts in
the UK to protect the rights identified in the ECHR.
How UK Law is classified?
A distinction is made between public law, which governs the relationship between individual
citizens and the state, and private law, which governs relationships between individuals and
private organisations.
For practical purposes, the most significant distinction is between civil law and criminal law.
Civil law covers such areas as contracts, negligence, family matters, employment, probate
and land law.
Criminal law, which is a branch of public law, defines the boundaries of acceptable
conduct. A person who breaks the criminal law is regarded as having committed an offence
against society as a whole.
(39) The distinction between the common law and equity
Common Law
Common law (also known as case
law or precedent) is law developed
by judges, courts, and similar tribunals,
stated indecisions that nominally decide
individual cases but that in addition have
precedential effect on future cases. A
"common law system" is a legal
system that gives great precedential
weight to common law,[4] so that
consistent principles applied to similar
facts yield similar outcomes.
Equity
A branch of English law which
developed hundreds of years ago when
litigants would go to the King and
complain of harsh or inflexible rules of
common law which prevented "justice"
from prevailing.
Equity is based on a judicial
assessment of fairness as opposed to
the strict and rigid rule of common law.
For centuries, the common law was
referred to as the law, in contrast with
equity.
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(40) The system of judicial precedent
Judicial decisions
When a judge hears a case before them, the following three-stage procedure is used to
come to a decision.
(a) Examine all the facts to determine which are 'material' or most relevant to
the decision
(b) Consider the law relating to the facts
(c) Apply the law to the facts and come to a decision
The application of the law will lead the judge to a decision which may or may not create a
judicial precedent.
A precedent is a previous court decision which another court is bound to follow by deciding
a subsequent case in the same way.
A court's decision is expected to be consistent with previous decisions and to provide an

opinion which can be used to direct future relationships. This is the basis of the system of
judicial precedent.
In any later case to which a principle is relevant, the same principle should (subject to
certain exceptions) be applied. This doctrine of consistency, following precedent, is
expressed in the maxim stare decisis which means 'to stand by a decision'.
Elements of Judicial Precedent : Judicial precedent is based on three elements.

Elements of Judicial Precedent
(i) Reports (ii) Rules (iii) Classification
There must be adequate There must be rules for Precedents must be
and reliable reports of extracting a legal principle classified into those that
earlier decisions. from a previous set of facts are binding and those
and applying which are merely
it to current facts. persuasive.
The doctrine of judicial precedent is based on the view that the function of a judge is to
decide cases in accordance with existing rules. The doctrine of judicial precedent is
designed to provide consistency in the law. Four things must be considered when
examining a precedent before it can be applied to a case.
 A decision must be based on a proposition of law before it can be considered as a
precedent. It may not be a decision on a question of fact.
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 It must form part of the ratio decidendi of the case.

 The material facts of each case must be the same.
 The preceding court must have had a superior (or in some cases, equal) status
to the later court, such that its decisions are binding on the later court.
Ratio decidendi and obiter dicta
In order that judicial precedent provides consistency in law, the ratio decidendi must be
identified. The material facts must be the same. The status of the court which set the
precedent must be such as to bind the present court. Rationes decidendi are the reasons
for the decision being made – they alone are binding. Obiter dicta are comments made by
the deciding judge in passing and are persuasive only.
A judgement will start with a description of the facts of the case and probably a review of
earlier precedents. The judge will then make statements of law applicable to the legal
problems raised by the material facts. It is these statements which form the basis for the
decision (the ratio decidendi ) and are the vital elements which bind future judges.
'The ratio decidendi of a case is any rule of law expressly or impliedly treated by the
judge as a necessary step in reaching his conclusion, having regard to the line of reasoning
adopted by him, or a necessary part of his direction to the jury.'
(Cross: Precedent in English Law.)
Statements made by a judge are ratio decidendi or obiter dicta. There are two types of
obiter dicta (something said 'by the way').
(a) A judge's statements of legal principle that do not form the basis of the
decision.
(b) A judge's statements that are not based on material facts but on hypothetical
facts.
Obiter dicta are words in a judgement which are
said 'by the way'. They do not form part of the
ratio decidendi and are not binding on future
cases but are merely persuasive.
It is not always easy to identify the ratio decidendi.

In decisions of appeal courts, where there are three
or even five separate judgements, the members of
the court may reach the same conclusion but give
different reasons. Many judges indicate in their
speeches which comments are ratio and which are
obiter.
Not every decision made in every court is binding as a judicial precedent. The court's
status has a significant effect on whether its decisions are binding, persuasive or
disregarded.
The House of Lords (Supreme Court for the United Kingdom)

Until October 2009 the House of Lords had two roles – firstly as part of the process of
creating legislation, and secondly as the final appeal court in the English court
structure. However, the Constitutional Reform Act 2005 severed the link between the
legislative and judicial functions of the House of Lords. A Supreme Court for the
United Kingdom was established and opened for business in October 2009. It consists of
12 judges known as 'Justices of the Supreme Court' and its members include a
President and a Deputy President. The Supreme Court’s role is the same as the
previous House of Lords' appellate function and the House of Lords continues with its
existing legislative role.
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The civil court structure
The civil court structure in England and Wales comprises the following.
• Magistrates' courts mostly deal with small domestic matters.
• County courts hear claims in contract and tort, equitable matters and land and
probate disputes among others.
• The Crown Court hears appeals from magistrates' courts.
• The High Court is divided into three specialist divisions; Queen's Bench, Family
and Chancery
• The Court of Appeal hears appeals from the County Court, the High Court, the
Restrictive Practices Court, and the Employment Appeal Tribunal.
• The House of Lords (Supreme Court for the United Kingdom) hears appeals from the
Court of Appeal and the High Court.
The diagram below sets out the English civil court structure.
Appeals can be made from the Country Court and High Court to the Court of Appeal (Civil
Division) and to the House of Lords (Supreme Court for the United Kingdom) if the point of
law is in the public interest. If disputes involve European law, then any court may refer
the case to the European Court of Justice for a 'preliminary ruling' on how the law should
be applied or interpreted.
Note that the Magistrates' court and the Crown Court are of very limited importance
in the civil court system; it is the County Court and the High Court where most cases are
heard. Cases generally start in the Country Court unless the amount of money being
claimed is substantial, such cases start in the High Court.
The High Court is split into the following three divisions, each dealing with a different area
of law:
(a) The Queen's Bench Division (QBD), which mainly deals with contract and tort
cases.
(b) The Chancery Division , which hears with cases involving land, trusts, bankruptcy
and company law.
(c) The Family Division, which deals with matrimonial matters.
The criminal courts
The criminal court structure in England and Wales comprises the following.
• Magistrates' courts hear summary offences and committal proceedings for
indictable offences.
• The Crown Court tries serious criminal (indictable) offences and hears appeals from
Magistrates' courts.
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• The Divisional Court of QBD hears appeals by way of case stated from Magistrates'
courts and the Crown Court.
• The Court of Appeal hears appeals from the Crown Court.
 The House of Lords (Supreme Court for the United Kingdom) hears appeals from the
Court of Appeal or a Divisional Court of QBD
Criminal cases begin at a Magistrates' court and unless they are serious offences the
Magistrate will hear them. If the case is serious, the Magistrate will decide if there is a case
to answer and if so, refer it to the Crown Court where it will be heard by a judge and jury.
Appeals from the Magistrates' and Crown Courts are made by way of 'case stated' to the
Divisional Court of the Queen's Bench Division in the High Court. This appeal is in writing
and sets out the facts of the case and the law applied to them - the object being to
determine whether or not the law has been correctly applied. If it has not, the
Magistrates' or Crown Court must apply the law correctly using an interpretation passed to
them from the Divisional Court. Where the law has been correctly applied, an appeal can
then be made to the Court of Appeal (Criminal Division) and then on to the House of
Lords (Supreme Court for the United Kingdom) if the point of law is of public
interest.
The diagram above sets out the English criminal court structure. The two key courts in the
criminal system are the Crown Court and the Magistrates' court. A court of first
instance is the court where a case is originally heard in full. The appeal court is the court
to which an appeal is made against the ruling or the sentence.
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legal systems (41) The essential elements of the tort of negligence, including
(10%) cont.. duty, breach and damage/loss/injury and the liability of
professionals in respect of negligent advice.
(42) Alternative legal systems, including codified (civil law)
systems.
(44) The general characteristics of the legal systems of the
USA, Malaysia, China and Sri Lanka.
(45) Elements of Shari’ah law including sources of Shari’ah law
and the Five Pillars of Islam.
professional practice through the work of key bodies e.g.
IFAC, ISO, FEE.
(41) The essential elements of the tort of negligence, including duty, breach and
damage/loss/injury and the liability of professionals in respect of negligent
advice.
The Tort of Negligence:
The Tort :
The law gives various rights to persons. When such a right is infringed
the wrongdoer is liable in tort.
Tort is distinguished from other legal wrongs.
(a) It is not a breach of contract, where the obligation which is alleged
to have been breached arose under an agreement between two parties.
(b) It is not a crime, where the object of proceedings is to punish the
offender rather than compensate the victim.
A tort is a civil wrong and the person wronged sues in a civil court for compensation. The
claimant's claim generally is that he has suffered a loss, such as personal injury, at the
hands of the defendant and the defendant should pay damages.
In tort no previous
transaction or contractual
relationship need exist – the
parties may be complete
strangers as when a motorist
knocks down a pedestrian in the
street. The claim in tort is based
on the general law of duties and
rights.
‐
Examples:
‐ A road accident may lead to proceedings for both crime and tort and even in contract
if, say, the driver is a hired chauffeur.
‐ Bad professional advice may give rise to liability both in tort and in contract.
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The tort of negligence
The tort of negligence, the most significant tort of modern times. Tort is an important
branch of the law regulating business conduct.
Negligence is the most important modern

tort. To succeed in an action for negligence the
claimant must prove that:
 The defendant had a duty of care to
avoid causing injury, damage or loss
 There was a breach of that duty by
the defendant
 In consequence the claimant suffered
injury, damage or loss
The tort of negligence can be defined as causing loss by a failure to take reasonable care
when there is a duty to do so.
Negligence law is mainly governed by case law and the subsequent decisions by the courts.
The fact that negligence law is mostly case law means it can sometimes be difficult to
understand and to apply to situations. This has then lead to a number of developments with
regards to the law of negligence that the courts have dealt with.
The essential elements of the tort of negligence
The elements of a cause of action in tort for negligence are: (1) a duty to use ordinary
care; (2) breach of that duty; (3) a proximate causal connection between the negligent
conduct and the resulting injury and (4) resulting damage.
The elements of a cause of

action for negligence are
1) a legal duty to use
due care,
2) a breach of that
duty,
3) a reasonably close
causal connection
between that breach
and the plaintiff’s
resulting injury, and
4) actual loss or
damage to the
plaintiff.
How is negligence determined?
Whether or not negligence has occurred is a matter of satisfying four questions.

 Did the defendant (i.e. the person being sued) owe the plaintiff (i.e. the person
injured) a duty of care?
 Did the defendant breach their duty of care?
 Did the plaintiff suffer an injury or other damage?
 Was the injury or damage caused as a result of the breach of the duty of care?
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All these factors must be satisfied. If even one is not satisfied then the plaintiff will not be
able to establish that the defendant was negligent.
Duty, breach and damage/loss/injury and the liability of professionals in respect

of negligent advice.
 Duty
Duty, obligation of one person to another, flows from millennia of social customs, philosophy,
and religion. Serving as the glue of society, duty is the thread that binds humans to one
another in community. Duty constrains and channels behavior in a socially responsible way
before the fact, and it provides a basis for judging the propriety of behavior thereafter.
 Breach
The second element of the tort of negligence is the misconduct itself, the defendant’s
improper act or omission. Normally referred to as the defendant’s breach of duty, this element
implies the preexistence of a standard of proper behavior to avoid imposing undue risks of
harm to other persons and their property, which circles back to duty.
 Damage or loss
This is the third element of a negligence claim. A claim will not succeed if damage or loss
is not proved.
A person will only be compensated if they suffered actual loss, injury, damage or harm as a
consequence of the defendant’s actions. Examples of such loss may include:
 Personal injury including nervous shock.
 Damage to property
 Financial loss which is directly connected to personal injury, for example, loss of
earnings
 Pure financial loss is rarely recoverable and usually limited to instances where
the defendant is an
identifiable person who acted in a professional capacity for the claimant .
 Injury
Any loss resulting from impairment of legally protected right or interest. The primary purpose
in tort is to compensate injury.
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The liability of professionals in respect of negligent advice
The law on negligent professional advice is influenced strongly by the Caparo case. In
this case, it was held that the auditors of a public limited company did not owe a duty of care
to the public at large who relied upon the audit report when making an investment decision.
This important and controversial case (Caparo case ) made considerable changes to the tort
of negligence as a whole, and the negligence of professionals in particular. It set a precedent
which now forms the foundation for courts to consider when deciding the liability of
professional advisers.
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systems.
IFAC, ISO, FEE.
(42) Alternative legal systems, including codified (civil law) systems
In law, common law is

the body of law derived
from judicial decisions
of courts and similar.
The main alternative to
the common law
system is the civil law
system, which is used in
Continental Europe, and
most of Central and
South America.
Codified (civil law) systems

This is a rules-based approach to law making and is designed to provide a comprehensive
code of laws for the area in question. Most countries around the world use a codified system
as it provides certainty and clarity of law.
Unlike common law codified

systems such as civil law
does not view case
precedents as legally
binding on future cases but
only the rules within the
code itself, however this
does not mean that
previous cases are not
considered and followed.
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As a result of the
codified system judges
cannot set precedents
in case they preside
over and must follow
and apply the rules of
the code exactly. This
is very different from
common law judges
who can effectively
make law by setting
precedents in cases
that they hear.
Many of the European

countries unlike the
UK have codified legal
systems where there
is more reliance on
the creation of rules or
legislation rather than
using case law to
create future laws.
France and Germany
are very good
examples of this.
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(43) The general characteristics of the legal systems of France, Germany, Poland,
Italy, Denmark, Greece and Cyprus.
The general characteristics of the legal systems of France
Most law in France is codified. The Code Civile was

created by the people in 1904 and designed to be easily
accessible by them. Tort is the exception, it is not
codified but is created by the judiciary.
The French system is based on Private and Public law.

Private law is the law of the people and includes criminal
law (the judicial order). Public law is the law applicable
to government and individuals (the administrative
order).
French courts follow a similar structure to England. There is an initial hearing level and
two appeal levels.
(a) Trial level – cases are heard at this level initially. It is split into six divisions
which deal with specific areas such as ordinary and criminal jurisdiction,
employment and commerce.
(b) Appeal level – cases are heard again and consider matters of fact and law.
This level is also split into specialist divisions.
(c) Supreme level – similar to the appeal level, it forms a decision and sends it
back down for the lower court to review. Its decision is final.
All individuals are entitled to legal representation. Cases follow adversarial principles (as
in England) as well as inquisitional principles, where the judge will conduct the
questioning within the court. Individuals are appointed judges when they commence their
legal career, whereas in England they are appointed at the end of a successful legal career.
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The general characteristics of the legal systems of Germany
The German constitution permits Parliament to create

codified law. It is a democratic and social federal state
in which all are equal before the law. A form of
delegated legislation called ordinances or statutory
instruments is also possible. These are created in the
same way as in England (the right to create law is
given by a Parent Act or Enabling Act). Where the
constitution allows, legislation can be written by public
corporations to allow the regulation of their own
affairs.
The German legal system is subdivided in -

 constitutional courts
 ordinary courts, consisting of civil and penal
courts
 social courts
 administration courts
 financial courts and
 labour courts
Customary law plays some part in the German system as the judiciary must also follow
established practices. Courts interpret the law and issue binding judgements on the
parties who are bound to follow the stated action. Judicial precedent is not created but
lower courts will respect the earlier decisions of higher courts to prevent repeated
consequences if similar cases are appealed.
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The general characteristics of the legal systems of Poland

17
Poland is a republic formed on a democratic basis. The Republic of Poland is based on
Montesquieu’s separation of powers principle. The legislative power is vested in the
Parliament consisting of the lower house called the Sejm and the upper house called the
Senate. The executive power is vested in the President of Poland and the Council of Ministers
and the judicial power is vested in courts and tribunals. The Republic of Poland is a unitary
state.
Sources of Polish Law
The sources of Polish law are divided into two categories: universally binding law and internal
law. According to the latest Constitution of 2 April 1997 (with some amendments afterwards),
the sources of universally binding Polish law are:
 the Constitution itself as the supreme law of the land,

 the statute (ustawa),
 ratified international agreement and
 regulation (rozporządzenie)
In addition to these sources, it has to be mentioned as well that the enactments issued in the
course of operation of administrative organs constitute the universally binding law in the
territory of the organ that issued such enactments (local law).
To come into force, statutes, regulations and enactments of local laws have to be published.
The statutes also regulate the conditions for promulgations of ratified international
agreements and other international agreements; however, in general they are published in
the same manner as statutes. The aforementioned acts are published in the Official Journal
of Laws of the Republic of Poland.
Like many European countries,

Poland is a democratic republic
which operates a codified legal
system. Law is created by
Parliament which like England is
made up of two houses, a lower
house, the Sejm and an upper
house, the Senate. Other sources
of law include regulations, which
under the constitution require
authorisation from permitted
bodies as well as international
and local laws.
The Polish system consists of

provincial and district courts
which hear civil and criminal
cases with a supreme court of
appeal. There is also a high
administrative court which is
held in ten districts and deals
with public sector administration.
17
https://www.nyulawglobal.org/globalex/Poland1.html
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The general characteristics of the legal systems of Italy
Another democratic republic. Italian law consists

of state law (created by the state) and laws
developed by its autonomous regions,
municipalities and metropolitan cities. Any
legislation passed in these locations must be
consistent with the constitution, European law
and Italy’s international commitments.
Law is codified at state level and legislation

must pass through two chambers. The House of
Representatives (630 Representatives elected
nationally) and the Senate (315 Senators
elected regionally).
The process of creating law is similar to England
and legislation is subject to committee scrutiny
and debate by both chambers.
The Italian system permits delegated legislation but it is strictly controlled through
criteria being set on the area of law being developed and a strict time limit for its creation.
Courts handle distinct legal areas such as criminal and civil law (for which a hierarchy of
courts exist), and military, taxation, accounting and administrative.
The general characteristics of the legal systems of Denmark
Denmark's legal system has strong German and

Nordic influences and can trace its history back to the
Middle Ages. In 1683 existing provincial laws were
integrated into one system.
There are four sources of Danish law .
(a) Constitutional Acts. These determine the

requirements for creating statutes and also
regulate the relationships between the various
state bodies. It is similar to the English system
involving gaining approval from Parliament and
Royal Assent.
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(b) Acts of Parliament. Comparable to the English system.

(c) Case law. This is created by the courts, but unlike other common law systems, Danish
case law exists to fill in the gaps where legislation has not been made and is therefore
limited in effect.
(d) Custom law. The Danish system does reflect customs, however legislation can be
created that overrides it and the courts may overrule customs which are deemed
unreasonable.
International law such as treaties will be incorporated into Danish law. Denmark may
hold a referendum before significant agreements are made.
Danish law can be classified into Public law, which deals with constitutional,
administrative, international and criminal law, and Civil law that is concerned with
individuals and legal persons such as companies.
Denmark's Judiciary System:
The Danish court system is based on a hierarchy. The lowest courts are city courts, above
them is the High Court and the Supreme Court. Unlike some other European countries, it
does not have a constitutional or administrative court.
The general characteristics of the legal systems of Greece
In 1975, the Greek

presidential republic was
formed. Its codified
laws come from a
number of sources
including French and
Roman traditions and
customs as well as 19th
century continental
codifications. It has a
constitution which is
the supreme law.
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Sources of Greek law include:

(a) Legislation (similar to the English system), but it is published
and is enforceable within ten days of publication.
(b) Codes, including a civil code (and civil procedures), criminal
procedures and statute law contained in the law of tribune
(c) Case law, similar to most European countries.
Greece is a civil law country, and thus jurisprudence is not considered

as a source of law. The Constitution is the supreme law of the land,
although article 28 of the Greek Constitution provides that
international conventions ratified by Greece as well as EU legislation
shall prevail over any other provision of law.
The general characteristics of the legal systems of Cyprus
The law of Cyprus is a legal system which

applies within the Republic of Cyprus.
Although Cypriot law is extensively codified,
it is still heavily based on English common
law in the sense that the fundamental
principle of precedent applies.
Cyprus was a British colony until 1960,
18
when the island became an independent

republic. Until independence the legal
system was based on the English legal
system.
The laws enacted for the colony applied to Cyprus the principles of common law and
equity. Many of those laws are still in force today.
After independence in 1960 the English legal system was largely preserved. The laws
applicable are the following:
o The Constitution of the Republic of Cyprus
o The laws retained in force by virtue of Article 188 of the Constitution
o The principles of Common Law and Equity
o The Laws enacted by the House of Representatives.
Following the accession of The Republic of Cyprus to the European Union in 2004, the
Constitution was amended so that European law has supremacy over the Constitution and
national legislation.
The history of Cyprus has resulted in a legal system which is influenced

by a number of countries. From 1925 to 1959 it was a British colony and
operated the English common law system. It then became an
independent republic with a constitution which is the supreme source of
law. Its system became complicated following the Turkish invasion - the
northern part of the Island is recognised by Turkey as the Republic of
Northern Cyprus. The Republic of Cyprus is a member of the European
Union and is subject to its laws as well.
Therefore, sources of Cypriot law are varied, the most important are, the
constitution, legislation, common law, Sharia law, Greek
Orthodox law, EU law and international law.
18
http://www.supremecourt.gov.cy/judicial/sc.nsf/DMLLegSystem_en/DMLLegSystem_en?OpenDocument
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(44) The general characteristics of the legal systems of the USA, Malaysia,
China and Sri Lanka.
The general characteristics of the legal systems of the USA
The USA operates a federal

system of law. It has a national
constitution which is recognised
as the supreme law and guarantees
its citizens certain rights and
freedoms. The interpretation of
Federal law is undertaken by the
Federal Courts.
The national government through

the United States Congress
introduces federal statutes and
enactment follows broadly the
same (two chamber and
committee) procedure as the
United Kingdom except for the
need for Royal Assent.
19
The Dual Court System | American Government
International treaties and federal statutes have supreme status.
A form of delegated legislation (Executive Orders and Agency Rules) can be created by
administrative bodies if Congress has authorized them.
In addition to Federal law, individual states can also create their own law through
statutes and the operation of common law through the courts. Operation of common law
is the same as in England with each case setting a precedent except in Louisiana. The
United States Supreme Court is the ultimate appeal court. If state law ever conflicts
with Federal law then Federal law will prevail.
19
https://courses.lumenlearning.com/atd‐baycollege‐americangovernment/chapter/the‐dual‐court‐system/
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The general characteristics of the legal systems of the Malaysia
Malaysian law is based upon

English common law
(developed by the courts)
and, legislation (created by
the legislature). Additionally,
other laws such as Sharia will
apply to Muslims and,
traditional laws will also
apply to other Malaysian
people. The Federal
government is responsible for
the administration of justice.
There is a hierarchy of courts which is comparable to that of England. The lower level
‘Subordinate’ courts include Magistrates' and Sessions courts. There are two mid level
‘Superior’ courts: one is for the Malaysian states, Sabah and Sarawak and the other is for
Peninsular Malaysia; both are of equal status. The Federal Court acts as a final appeal court.
A Special Court which hears alleged offences committed by the Monarchical heads of the
various island states was formed in 1993. The constitutional Monarch (a ‘paramount ruler’)
would also appear in this court.
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The general characteristics of the legal systems of the China
The traditional Chinese legal system can

be traced back to at least 500 BC and the
time of the Chinese philosopher,
Confucius. His philosophy was based
upon social relationships, control,
order, justice and sincerity. During this
time, laws evolved to regulate the
behaviour of individuals, but it was
perceived as less important than self-
discipline. Despite being viewed as
poorly developed by the Europeans during
the 18th Century, it is now recognised by
historians as being at least as well
developed as European legal systems of
the same period.
Recent times have seen the Chinese push for modernization and this has been reflected in
changes to the legal system. Since 1979 the system of administering justice has been
replaced and over three hundred new laws have been created.
There is little overall strategy for developing new laws. Very often specific areas of activity
or dealing will identify the need for regulation and therefore law tends to develop on a
piecemeal basis. China has resisted the option of importing laws from other legal systems
and continues to develop in its own way. One feature of the Chinese style of development is
the use of trial periods where new legislation is introduced and then redrafted after a
period of time. This allows the impact and effect of the law to be reviewed and amendments
made, but it has caused contradictions and gaps in the law.
The court system is made up of over 800,000 mediation committees which are found
across the country in rural and urban areas. These committees hear both civil and criminal
cases and are provided free of charge. Partly due to the large number of committees,
most judges do not receive any legal training. These committees are hugely successful,
hearing over 90% of all cases in the country.
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Since the 1990s, China has introduced further law reforms in areas such as criminal law
and human rights, but it is considered to be at least half a century behind most countries.
Interestingly, the previous Portuguese and British colonies of Macau and Hong Kong did not
adopt Chinese law once they returned to Chinese sovereignty and still operate Portuguese
and English legal systems.
20
The law of the People’s Republic of China (PRC) is officially referred to as the “socialist legal
system with Chinese characteristics”. The formation and development of the socialist legal
system with Chinese characteristics are compatible with the basic national conditions in the
primary stage of socialism; the historical process of socialist revolution; the construction,
reform and opening-up of the economy; and are in line with the development of China’s
productive forces and changes in the economic base.
The general characteristics of the legal systems of the Sri Lanka
Sri Lanka operates a Penal Code based on

Indian law. This system replaced the English
legal system when the country gained
independence from Britain in 1948 and became a
republic. Sri Lanka's parliament consists of 168
elected members of whom 49 are ministers,
forming the Prime Minister’s Cabinet.
The courts' system is a typical hierarchy based

on the English system. For example, in the
criminal system cases begin in a Magistrates'
Court and may be appealed to the High Court,
Court of Appeal and finally the Supreme Court.
Court System of Sri Lanka
21
The court structure consists of –
1. A Supreme Court
2. A Court of Appeal
20
http://www.ft.lk/columns/A‐brief‐guide‐to‐the‐legal‐system‐of‐China/4‐657550
21
https://blog.ipleaders.in/courts‐justice‐system‐srilanka/
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3. High Courts
4. Municipal Courts
5. Primary Courts
Additionally, there are numerous tribunals etc. In cases involving criminal law, a
Magistrate’s Court or a High Court is the only court with primary jurisdiction, the respective
legal domains of each are provided in the Code of Criminal Procedure.
Sri Lankan legal system was originally a combination of Roman-Dutch and English Law. The
present system of judicial administration and organization is based on the current
Constitution introduced in 1978 apart from the personal laws in existence.
No changes to the judicial system were made under the recent changes to the Constitution
with the changes of the government towards Good Governance popularly known as
“Yahapapalaya”.
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systems.
IFAC, ISO, FEE.
(45) Elements of Shari’ah law including sources of Shari’ah law and the Five
Pillars of Islam.
Sharia law (see your text book: page-54)
Sharia law is a form of religious law. It is based on Islamic law and the rules are taken
from the Quarn, the Holy Book of Muslims. The Quaran is a divine revelation from Allah
revealed to the Prophet Muhammed (peace be upon him), the last messenger of Allah.
Also meaning "path" in Arabic, sharia guides all aspects of Muslim life, including daily
routines, familial and religious obligations, and financial dealings. It is derived primarily
from the Quran and the Sunna—the sayings, practices, and teachings of the Prophet
Mohammed. Precedents and analogy applied by Muslim scholars are used to address new
issues. The consensus of the Muslim community also plays a role in defining this theological
manual.
Sharia
law is
not just
a legal
system
but a
complet
e set of
instructi
ons as
to how
to
conduct
oneself
in life.
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Sources of Shari’ah law - The primary sources

of Sharia law are the Quran and the Sunnah.
The Quran was revealed in stages to the Prophet Muhammed

(peace be upon him) throughout his life and compiled together
after His death. It is seen as the direct word of the Almighty
Allah given to man and therefore cannot be altered. It is the up
to the judges to interpret the Sharia law as how it should be.
Judges in Sharia law are religious persons known as Imams
rather than non-religious individuals.
The Sunnah are the sayings and interpretations of the Prophet

Muhammed (peace be upon him) and help to fill in the detail
where the Quran has only given broad descriptions or where it
is silent. The Sunnah is also known as the Hadith.
The judges who are practicing Muslims have had great influence in the interpretation of the
law over time and therefore similar to other faith based legal systems.
Sharia law has five distinct areas within it:
(1) Family law.

(2) Financial and commercial transactions, such as the prohibition of earning interest (Riba).
(3) Peace and warfare, such as the basis of a holy war (Iihad).
(4) Penal punishments
(5) Obligations related to food and drink, such as the consumption of blessed foods (halal
foods) only.
Key terms in Sharia law
Taqlid - this is the school of thought that the

law does not need any further interpretation
and adaptation to modern society. The
traditions and original interpretations should
remain unchanged.
Fiqh (Islamic jurisprudence) - this is the

school of thought that the law does need
further intellectual exertions made on re-
interpreting in light of the changing world and
influences from other civilizations.
Ijtihad - this is the process used to assist

Fiqh. It can only be carried out by a qualified
person and connot be used for certain matters
such as the existence of Allah.
Sharia law has been adopted by countries like

Pakistan, Iran and Iraq whilst Saddam Hussien
was in power.
Elements of Sharia Law
Islamic law is known as Sharia Law, and Sharia means the path to follow God's Law. Sharia
Law is holistic or eclectic in its approach to guide the individual in most daily matters.
Sharia Law controls, rules and regulates all public and private behavior. It has regulations
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for personal hygiene, diet, sexual conduct, and elements of child rearing. It also prescribes
specific rules for prayers, fasting, giving to the poor, and many other religious matters. Civil
Law and Common Law primarily focus on public behavior, but both do regulate some
private matters.
Sharia Law can also be used in larger situations than guiding an individual's behavior. It can
be used as guide for how an individual act in society and how one group interacts with
another. The Sharia Law can be used to settle border disputes between nations or within
nations. It can also be used to settle international disputes, conflicts and wars. This Law
does not exclude any knowledge from other sources and is viewed by the Muslim world as a
vehicle to solve all problems civil, criminal and international.
Sharia Law has several sources from which to draw its guiding principles. It does not rely
upon one source for its broad knowledge base.
The first and primary element of Sharia Law is the Quran. It is the final arbitrator and
there is no other appeal.
The second element of Sharia Law is known as the Sunna, the teachings of the
Prophet Mohammed not explicitly found in the Quran. The Sunna are a composite of the
teachings of the prophet and his works. The Sunna contain stories and anecdotes, called
Hadith, to illustrate a concept. The Quran may not have all the information about behavior
and human interaction in detail; the Sunna gives more detailed information than the Quran.
The third element of Sharia Law is known as the Ijma.
The Muslim religion uses the term Ulama as a label for its religious scholars. These Ulamas
are consulted on many matters both personal and political. When the Ulamas reach a
consensus on an issue, it is interpreted as a ijma. The concepts and ideas found in the ijma
are not found explicitly in the Quran or the teachings of the Prophet (Sunna). Islamic
judges are able to examine the ijma for many possible solutions which can be applied in a
modern technical society. They are free to create new and innovative methods to solve
crime and social problems based upon the concepts found in the ijma. These judges have
great discretion in applying the concepts to a specific problem.
The Qiyas are a fourth element of Sharia Law.
The Qiyas are not explicitly found in the Quran, Sunna, or given in the Ijma. The Qiyas are
new cases or case law which may have already been decided by a higher judge. The Sharia
judge can use the legal precedent to decide new case law and its application to a specific
problem. The judge can use a broad legal construct to resolve a very specific issue. For
example, a computer crime or theft of computer time is not found in the Quran or Sunna.
The act of theft as a generic term is prohibited so the judge must rely on logic and reason
to create new case law or Qiyas.
The fifth element of Sharia Law is very broad and "all encompassing." This secondary
body of knowledge may be ideas contained in the other written works. The New Testament
is an example of this area of information, and legal discourses based upon Civil Law or
Common Law may be another example. All information can be examined for logic and
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reason to see if it applies to the current case. It also may be a local custom or norm that
judge may find helpful in applying to the issue before him. The judge may also weigh the
impact of his decision upon how it will affect a person's standing in the community
The Five Pillars of Islam
The Five Pillars of Islam are the basic framework of the Muslim way of life and serve as a
foundation for their faith, their community, and work.
Shahada, the first pillar of Islam, is the acceptance of one Allah and the prophet,
Mohammed.
The first, known as the Shahada, is a formal declaration of faith, where the Muslim
professes there is only one Allah, and that Mohammed was Allah's messenger or prophet.
The statement is usually recited during the daily prayers and is a key part of a person's
formal conversion to the Islamic faith.
The second pillar of Islam is the necessity of prayer - prayer five times each day.
These five times are: dawn before the sun rises, noon, afternoon, evening, and at night.
Muslims must wash themselves before prayer and recite their prayers while facing Mecca.
The prayers are meant to remind Muslims of their submission to Allah's will and also their
reliance on Allah's mercy.
Almsgiving, or charity to those who need it, is the third pillar of Islam. It is
considered to be the personal responsibility of all who have to give to those who have not
and to ease economic hardships, inequality and suffering. If one is wealthy, money can
be given; if not, other deeds and actions can take the place of monetary assistance. Like
other faiths, Islam looks favorably on those who do good deeds and works within the
community.
The fourth pillar of Islam is ritual fasting, where the adherent to Islam denies himself
food and water during certain times of the year and certain times of the day. The fasting
is obligatory during the holy month of Ramadan, where from dawn until dusk, Muslims
may not eat or drink anything. Fasting is meant to focus the mind on matters of spirituality
and on Allah, and the pangs of hunger remind one of the true suffering that goes on in
the world. The fasts are broken each day when the sun goes down, and obligatory fasting
ends after Ramadan is complete
.
The final pillar of Islam is the Hajj, or pilgrimage to Mecca. As was the case during
the life of Mohammed, Mecca remains the holiest city in the Islamic world, and it is the
duty of every devout and able-bodied Muslim to travel to Mecca at least once in their
lifetime. The act of pilgrimage is one of supreme devotion and provides the believer with
a sense of spiritual satisfaction that few rites can.
However, the Five Pillars of Islam are actually the duties that every Muslim is expected to
perform and are:
1) Shahadah – the profession of faith
2) Salat – to pray five times a day
3) Zakat – to give to charity
4) Sawm – to fast during Ramadan
5) Hajj – to take part in a pilgrimage to Mecca
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Bangladesh Legal System
The Law of Bangladesh is primarily in

accordance with the English legal
system although since 1947, the legal scenario
and the laws of Bangladesh have drifted far
from the West owing to differences in socio-
cultural values and religious guidelines.
The People’s Republic of Bangladesh

(গণ জাত ী বাংলােদশ; Gônoprojatontri
Bangladesh), is a sovereign country in South
Asia. The Legal system of the country is a
mixed legal system of mostly English common
law and Islamic law.
However, unlike other common law jurisdictions, Bangladesh’s Supreme Court has the power
to not only interpret laws made by the Parliament, but to also declare them null and void and
to enforce fundamental rights of the citizens. The acts of legislation of Bangladesh take a
statutory form, which are enacted by the legislature branch and interpreted by the higher
courts of the country.
The roots of the Bangladeshi legal system go back to ancient times on the Indian
subcontinent. The system developed gradually, passing through various stages in a
continuous historical process. The process of evolution has been partly indigenous and partly
foreign. The current legalsystem emanates from a “mixed” system in which the structure,
certain legal principles, and specific concepts are modeled on both Indo-Mughal and English
law.
Bangladesh became an independent and sovereign nation on December 16, 1971. In order
to ensure legal continuity, the Laws Continuance Order of 1971, effective as of March 26,
1971, legalized and made effective all the existing laws inherited from Pakistan, subject to
the Proclamation of Independence of 1971. Thereafter, Presidential Order No. 5 of 1972 set
the judiciary of the country in motion with the appointment of the judges of the High Court.
Subsequently, Presidential Order No. 91 of 1972 established the Appellate Division. According
to the Constitution of Bangladesh, the apex of the judiciary is the Supreme Court, which
comprises the Appellate Division and the High Court Division. The Chief Justice of the
Supreme Court,
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who is appointed to the Appellate Division, is constitutionally known as the Chief Justice of
Bangladesh.
Further acts and ordinances were introduced in later years. These include the Ombudsman
Act (Act XV of 1980), the Administrative Tribunals Act (Act VII of 1981), the Income Tax
Ordinance (Ordinance XXV of 1984), the Land Reforms Ordinance (Ordinance X of 1984),
the Family Courts Ordinance (Ordinance XVIII of 1985), and the Companies Act of 1994.
Pursuant to the recommendations of a Law Committee set up in 1976, the Law Reform
Ordinance of 1978 amended civil and criminal procedural laws, laws related to court fees,
and the law on arbitration. At present, a permanent Law Commission in Bangladesh
suggests suitable changes to existing laws, as necessary, so that the national laws can
meet the demands of modern times.
The Bangladeshi court system is based on the British model. The judicial system
consists of a Lower Court and a Supreme Court, both of which hear civil and criminal cases
(Chapters I, II, and III of Part VI, Constitution of Bangladesh). The Lower Court consists of
administrative courts (magistrate courts) and session judges. The Supreme Court’s High
Court Division hears original cases and reviews decisions of the Lower Court, and the
Appellate Division hears and determines appeals of judgments, decrees, orders, and
sentences of the High Court Division. The highest court of appeal is thus the appellate court
of the Supreme Court. At the level of local government, the country is divided into
divisions, districts, sub-districts, unions, and villages.
The Supreme Court serves as the guardian of the constitution and enforces the
fundamental rights of citizens. It consists of a Chief Justice and a number of other
judges, all appointed by the president. A judge can remain in office until the age of sixty-
five. The Chief Justice and the Judges appointed to the Appellate Division sit only in that
Division; other judges sit in the High Court Division. The High Court Division superintends
and controls all subordinate courts (at the administrative levels of district and thana) and
functions as the Appellate Court. In addition, it superintends a number of special courts and
tribunals, such as the Administrative Tribunal, Family Courts, Labor Tribunal, Land,
Commercial, Municipal, and Marine Courts. At the district level, the district court is headed
by a District and Sessions Judge, who is assisted by additional District Judges, subordinate
judges, assistant judges, and Magistrates.
In addition to the constitution—the fundamental law of the land—there are civil and criminal
codes. Civil law in Bangladesh also incorporates certain Islamic and Hindu religious
principles relating to marriage, inheritance, and other social matters. The Bangladeshi
Constitution guarantees a fundamental right to every criminally accused person in
Bangladesh (whether or not a citizen) to have a “speedy and public trial” by an
“independent” and “impartial” judiciary (Article 35(3), Constitution of Bangladesh).
It is worth noting that a landmark decision on Secretary of the Ministry of Finance v Masdar
Hossain (52 DLR (AD) 82 (1999) determined how far the Constitution actually secured the
separation of judiciary from the executive organs of the state, and whether the Parliament
and the executive followed the constitutional path.
In delivering its judgment in the Hossain case, the Supreme Court of Bangladesh tried to
differentiate between the terms “independence” and “impartiality,” saying that it would
subscribe to the view of the Supreme Court of Canada in Walter Valente v Her Majesty the
Queen (2 RCS 673 [1985]). Valente held that “the concepts of ‘independence’ and
‘impartiality,’ although obviously related, are separate distinct values or requirements.
‘Impartiality’ refers to a state of mind or attitude of the tribunal in relation to the issues and
the parties in a particular case. ‘Independence’ reflects or embodies the traditional
constitutional value of judicial independence and connotes not only a state of mind but also
a status or relationship to others … particularly to the executive branch of government …”
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In essence, the case was decided on the issue of how far the independence of judiciary is
guaranteed by the constitution and whether its provisions have been followed in practice. In
that context, the court identified five preconditions for judicial independence:
(a) security of tenure;
(b) security of salary;
(c) institutional independence of subordinate
judiciaries;
(d) judicial appointments made by a separate Judicial
Service Commission; and
(e) administrative independence and financial autonomy.
According to Bangladesh Code of 2007, there are 957 laws in Bangladesh of which 366 are
pre independence laws and 633 have been made after the independence.
According to Bangladesh legislation, law means any Act, Ordinance, Order, Regulation, bye
law, notification or other legal instrument and any custom or usage having the force of law.
Fundamental Rights in Bangladesh
Bangladeshi people have 23 fundamental rights under the Constitution of Bangladesh, Part
3, Articles 26 to 47A. The Fundamental Rights in Bangladesh under below:
1. Laws inconsistent with fundamental rights to be void (Article-26)
2. Equality before law (Article-27)
3. Discrimination on grounds of religion, etc. (Article-28)
4. Equality of opportunity in public employment (Article-29)
5. Prohibition of foreign titles, etc. (Article-30)
6. Right to protection of law (Article-31)
7. Protection of right to life and personal liberty (Article-32)
8. Safeguards as to arrest and detention (Article-33)
9. Prohibition of forced labour (Article-34)
10. Protection in respect of trial and punishment (Article-35)
11. Freedom of movement (Article-36)
12. Freedom of assembly (Article-37)
13. Freedom of association (Article-38)
14. Freedom of thought and conscience, and of speech (Article-39)
15. Freedom of profession or occupation (Article-40)
16. Freedom of religion (Article-41)
17. Rights of property (Article-42)
18. Protection of home and correspondence (Article-43)
19. Enforcement of fundamental rights (Article-44)
20. Modification of rights in respect of disciplinary law (Article-45)
21. Power to provide indemnity (Article-46)
22. Saving for certain laws (Article-47)
23. Inapplicability of certain articles (Article-47A)
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The Judiciary of Bangladesh
The Judiciary of
Bangladesh consists of a
Supreme Court,
subordinate courts and
tribunals.
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(46) The benefits of international regulations for commerce and professional

practice through the work of key bodies e.g. IFAC, ISO, FEE.
International Federation of Accountants (IFAC): [www.ifac.org]
IFAC is the global organization for the

accountancy profession dedicated to
serving the public interest by
strengthening the profession and
contributing to the development of
strong international economies. IFAC is
comprised of over 175 members and
associates in 130 countries and
jurisdictions, representing approximately
2.84 million accountants in public
practice, education, government service,
industry, and commerce.
IFAC is -
 Contributing to the development of high-quality standards and guidance
 Facilitating the adoption and implementation of high-quality standards and guidance
 Contributing to the development of strong professional accountancy organizations and
accounting firms and to high-quality practices by professional accountants, and
promoting the value of professional accountants worldwide
 Speaking out on public interest issues
IFAC is serving for the global accountancy profession be recognized as a valued leader in
the development of strong and sustainable organizations, financial markets, and
economies.
International Organization for Standardization (ISO): [www.iso.org]
Benefits of International Standards
International Standards bring

technological, economic and societal
benefits. They help to harmonize
technical specifications of products and
services making industry more efficient
and breaking down barriers to
international trade. Conformity to
International Standards helps reassure
consumers that products are safe,
efficient and good for the environment.
International Standards are strategic tools and guidelines to help companies tackle some of
the most demanding challenges of modern business. They ensure that business operations
are as efficient as possible, increase productivity and help companies access new markets.
Benefits include:
 Cost savings - International Standards help optimise operations and therefore

improve the bottom line
 Enhanced customer satisfaction - International Standards help improve quality,
enhance customer satisfaction and increase sales
● Access to new markets - International Standards help prevent trade barriers and
open up global markets
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● Increased market share - International Standards help increase productivity and

competitive advantage
● Environmental benefits - International Standards help reduce negative impacts on
the environment
Businesses also benefit from taking part in the standard development process.
FEE (Fédération des Experts-comptables Européens – Federation of European

Accountants) [http://www.fee.be/about-fee]
FEE is the voice of the European accountancy profession toward

the EU institutions and other international organisations.
FEE (Fédération des Experts-

comptables Européens – Federation of
European Accountants) is an
international non-profit organisation
based in Brussels that represents 47
institutes of professional accountants
and auditors from 36 European
countries, including all of the 28 EU
Member States
FEE has a combined membership of more than 800.000 professional accountants, working
in different capacities in public practice, small and large accountancy firms, businesses of all
sizes, government and education, all of whom contribute to a more efficient, transparent
and sustainable European economy.
FEE’s objectives include analysing and contributing to professional, regulatory and public
policy developments of relevance to the profession, ensuring Member Bodies’ timely
information and offering leadership in representing the profession. FEE also promotes
cooperation between its Member Bodies. In representing the European accountancy
profession, FEE recognises the public interest. FEE is also a Regional Organisation of IFAC,
the International Federation of Accountants.
The objectives of FEE

 Advancing the interests of the European accountancy profession, recognising the
public interest in the work of the profession;
 Promoting co-operation among Members, and working towards an enhanced and
consistent practice and regulation of accountancy, statutory audit and financial
reporting in Europe in both the public and private sector;
 Identifying, analysing and contributing to relevant public policy developments and
making representations to the EU Institutions and to international organisations.
In pursuing these objectives, FEE supports the values and freedoms of the European Union.
It is committed to contribute to a more efficient, transparent, and sustainable European
economy. It promotes professional integrity, open and inclusive stakeholders’ dialogue and
good governance.
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Monower Sir's Handbook(New Version)

Principles of taxation (Institute of Cost and Management Accountants of Bangladesh)

Studocu is not sponsored or endorsed by any college or university

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Md. Monowar Hossain FCA, CPA, FCMA

Md. Monowar Hossain, a Chartered Accountant, a Management Accountant, a Chartered Secretary,

In 25years, professional experiences, contributed…

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GE05: Fundamentals of Ethics, Corporate Governance and Business Law

GE05 – A. Ethics and business (15%)

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GE05 – B. Ethical conflict (10%)

GE05 – C. Corporate governance (10%)

GE05 – D. Comparison of English law with alternative legal systems (10%)

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GE05 – E. The law of contract (20%)

GE05 – F. The law of employment (10%)

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GE05 – G. Company administration and finance (25%)

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disqualification and removal of (81) The ability of a company to borrow

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Ethics Ethics refers to human

Ethics covers the following dilemmas:

• how to live a good life

The basic concepts and

Fundamental Principles - A Professional Accountant shall comply with the following

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a) Integrity – to be straightforward and honest in all professional and business

c) Professional competence and due care – to maintain professional knowledge and

d) Confidentiality – to respect the confidentiality of information acquired as a result of

The importance of ethics

Good Ethics is a fundamental requirement of any profession. It is integral to the

The importance of ethics in professional life can be evidenced by a number of instances

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Values and attitudes for professional accountants

Values: Important and lasting beliefs or Attitudes: A predisposition or a tendency to

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MUTTAKEEN is a qualified management accountant in a light engineering company. It is a

MUTTAKEEN would be demonstrating the fundamental principles of integrity (being

What do you think they should do?

(a) MONYEM Properties continue to seek planning permission

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Legal frameworks, regulations and standards for business

The combination of legal

There are two categories of framework:

Financial Reporting Act -2015 (Bangladesh)

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The Professional Oversight Board for

● Issuing guidance on the application of Auditing Standards in particular circumstances

● Establishing Ethical Standards in relation to the independence, objectivity and integrity

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● Taking an appropriate role in the development of statutes, regulations and accounting

● Contributing to efforts to advance public understanding of the roles and responsibilities

Mission, Vision and values of FRC:

• Vision- To be a model organization • Mission - To bring corporate

Objects as per Financial Reporting Act 2015: Domains / area of FRC:

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Functions of FRC What FRC will do?

• Setting Standards and Implementing them in consideration of the perspective of

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• Conducting investigation and activities in relation thereto under this Act;