CIMA Fundamentals of Ethics, Corporate Governance and Business Law: Study Text

Book Cover
Title
Copyright
Contents
Introduction
The BPP Learning Media Study Text
Aims of this Study Text
Learning to Learn Accountancy
The BPP Learning Media Effective Study Package
Help yourself study for your CIMA assessment
The right approach
Developing your personal Study Plan
Suggested study sequence
Short of time: Skim study technique?
Moving on...
Learning outcomes and Syllabus
Syllabus structure
Assessment strategy
Learning outcomes and syllabus content
The assessment
Format of computer-based assessment (CBA)
Tackling multiple choice questions
Tackling objective test questions
What is an objective test question?
OT questions in CIMA assessment
Part A Comparison of English law with alternative legal systems
Chapter 1 Introduction to English Law
Introduction
1 Criminal and civil liability
1.1 Two types of liability
1.2 Criminal law
1.3 Civil law
1.4 Distinction between criminal and civil cases
2 Features and sources of English law
2.1 Sources of law
2.2 Historical development of common law and equity
3 Case law and judicial precedent
3.1 Judicial decisions
3.2 Judicial precedent
3.3 Ratio decidendi and obiter dicta
3.4 The House of Lords and the Supreme Court
3.5 The civil court structure
3.6 The criminal courts
3.7 The hierarchy of the courts
3.8 Court of Appeal exception
3.9 Persuasive precedents
3.10 Avoidance of a binding precedent
3.11 The advantages and disadvantages of precedent
3.12 Other sources of case law and precedent
4 Legislation
4.1 Statute law
4.2 Parliamentary procedure
4.3 Statutory interpretation
4.4 Rules of language
4.5 Other rules
4.6 Presumptions (cannons) of statutory interpretation
4.7 Other interpretation aids
4.8 Delegated legislation
4.9 Control over delegated legislation
5 European Union law
5.1 Sources of European Union Law
5.2 Direct applicability and direct effect
5.3 Regulations
5.4 Directives
5.5 Decisions
5.6 Recommendations
5.7 Legislative procedure
5.8 The Human Rights Act 1998
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Chapter 2 The Tort of Negligence
Introduction
1 Tort and other wrongs
1.1 Tort
1.2 Examples
1.3 Wrong and damage
1.4 Cause and effect
2 The tort of negligence
2.1 Definition
3 Duty of care
3.1 Development of the doctrine
4 Breach of duty of care
4.1 The basic rule
4.2 Res ipsa loquitur
4.3 Example
5 Causation
5.1 Damage or loss
5.2 Defences
6 Professional advice
6.1 Development
6.2 The special relationship
6.3 The Caparo decision
6.4 Non-audit role
6.5 The law since Caparo
6.6 Limitation of liability
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Chapter 3 Alternative legal systems and sources of law
Introduction
1 The purpose of legal systems
2 Types of legal system
2.1 Common law systems
2.2 Codified (civil) law systems
2.3 Sharia law
3 Categories of law
3.1 Private law
3.2 Public law
3.3 Procedural law
3.4 International law
4 Legal systems around the world
4.1 Legal systems within the European Union
4.2 Legal systems outside the European Union
5 Sharia law
5.1 Development of Sharia law
5.2 Areas of Sharia law
5.3 Principles of Sharia law
5.4 Sources of Sharia law
5.5 The role of judges in Sharia law
6 International law
6.1 Types of international law
6.2 Public international law
6.3 Private international law
6.4 Who creates public international law?
7 Organisations that create international regulations for commerce and professional practice
7.1 International Federation of Accountants (IFAC)
7.2 International Standardisation Organisation (ISO)
7.3 Federation de Experts Comptable Europeen (FEE)
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Part B Law of Contract
Chapter 4 Establishing contractual obligations
Introduction
1 Contract basics
1.1 Definition
1.2 The essentials of a contract
1.3 Vitiating factors
1.4 Factors affecting the modern contract
1.5 Example
1.6 Consumer protection
2 The form of a contract
2.1 Form of a contract
2.2 Example
2.3 When is form important?
2.4 Contracts by deed
2.5 Contracts in writing
2.6 Contracts evidenced in writing
2.7 Simple contracts and specialty contracts
3 Agreement
3.1 Offer
3.2 An invitation to treat
3.3 Termination of offer
3.4 Acceptance
3.5 Communication of acceptance
3.6 The postal rule
4 Consideration
4.1 Definition
4.2 Valid consideration
4.3 Adequacy and sufficiency
4.4 Performance of existing contractual duties
4.5 Promise of additional reward
4.6 Performance of existing contractual duty to a third party
4.7 Waiver of existing rights
4.8 Promissory estoppel
4.9 Privity of contract
5 Intention
5.1 The basic presumptions
5.2 Domestic arrangements
5.3 Commercial agreements
5.4 Transactions binding in honour only
6 Misrepresentation
6.1 Consent
6.2 Types of misrepresentation
6.3 Remedies for misrepresentation
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Chapter 5 Performing the contract
Introduction
1 Contract terms
1.1 Terms and representations
2 Express terms and implied terms
2.1 Express terms
2.2 Example
2.3 Implied terms
3 Conditions and warranties
3.1 The distinction
3.2 Innominate terms
4 Sale of goods and supply of services legislation
4.1 Sale of Goods Act 1979
4.2 Consumer
4.3 Terms implied by the Sale of Goods Act
4.4 Acceptance of goods by the buyer
4.5 The Supply of Goods and Services Act 1982
5 Exclusion clauses
5.1 The use of exclusion clauses
5.2 Incorporation of exclusion clauses
5.3 Interpretation of exclusion clauses
5.4 The 'main purpose' rule
5.5 Fundamental breach
6 Unfair contract terms regulations
6.1 The Unfair Contract Terms Act 1977
6.2 The Unfair Terms in Consumer Contracts Regulations 1999
6.3 Other statutory protection
7 Performance of the contract
7.1 Discharge by performance
7.2 Substantial performance
7.3 Partial performance
7.4 Prevention of performance
7.5 Time of performance
7.6 Severable contracts
7.7 Sale of Goods Act 1979
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Chapter 6 Discharge of contract
Introduction
1 Agreement
2 Frustration
2.1 Definitions
2.2 Destruction of the subject matter
2.3 Personal incapacity to perform a contract of personal service
2.4 Government intervention
2.5 Supervening illegality
2.6 Non-occurrence of an event if it is the sole purpose of the contract
2.7 Exceptions
2.8 The Law Reform (Frustrated Contracts) Act 1943
3 Breach of contract
3.1 What is breach?
3.2 Anticipatory breach
3.3 Termination for repudiatory breach
3.4 Affirmation after repudiatory breach
4 Damages
4.1 Remoteness of damage
4.2 Measure of damages
4.3 Mitigation of loss
4.4 Contributory negligence
4.5 Liquidated damages and penalty clauses
4.6 Sales of goods
5 Other common law remedies
5.1 Action for the price
5.2 Quantum meruit
6 Equitable remedies
6.1 Specific performance
6.2 Injunction
6.3 Rescission
7 Limitation to actions for breach
7.1 The Limitation Act 1980
7.2 Extension of the limitation period
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Part C Law of Employment
Chapter 7 Employment contract
Introduction
1 What is an employee?
1.1 The control test
1.2 The integration test
1.3 The multiple (economic reality) test
1.4 Agency workers
1.5 Relevant factors
2 Why does it matter?
3 Employment contract: basic issues
3.1 Implied terms
3.2 Requirement for written particulars
4 Common law duties
4.1 Employee's duties
4.2 Restraint of trade
4.3 Employer's duties
5 Statutory duties
5.1 Pay
5.2 Time off work
5.3 Maternity rights and the 'work-life balance'
5.4 Health and safety
5.5 Working time
5.6 Immigration duty
6 Varying the terms of an employment contract
6.1 Varying terms without changing the contract
6.2 Changing the existing contract
6.3 Signing a new contract
7 Vicarious liability
7.1 Introduction
7.2 Relationship of employer and employee
7.3 Torts committed in the course of employment
7.4 Independent contractors
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Chapter 8 Employment protection
Introduction
1 Continuity of service
1.1 The importance of continuity of service
1.2 Transfer of undertaking
2 Discrimination at work
2.1 Introduction
2.2 Sex discrimination
2.3 Developments in sex discrimination legislation
2.4 Race discrimination
2.5 Disability discrimination
2.6 Discrimination on grounds of religion or belief
2.7 Discrimination on grounds of sexual orientation
2.8 Age discrimination
2.9 Trade unions
2.10 Remedies for discrimination
2.11 The Equality and Human Rights Commission
3 Health and safety
3.1 The Health and Safety at Work Act 1974
3.2 Recent regulations
3.3 Enforcement of health and safety conditions
3.4 Employment protection
3.5 Employers' liability
3.6 Social security
4 Dismissal
4.1 Termination by notice
4.2 Termination by dismissal
5 Wrongful dismissal
5.1 Introduction
5.2 Justification of dismissal
5.3 Remedies for wrongful dismissal
6 Unfair dismissal
6.1 Introduction
6.2 Scope
6.3 Making a claim
6.4 What is dismissal?
6.5 The reason for dismissal
6.6 Potentially fair reasons for dismissal
6.7 Automatically fair reasons for dismissal
6.8 Automatically unfair reasons for dismissal
6.9 Disciplinary process
6.10 Reasonableness of employer
6.11 Remedies for unfair dismissal
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Part D Company formation
Chapter 9 Organisations and corporate personality
Introduction
1 Sole traders
1.1 Introduction
1.2 Legal status of the sole trader
2 Partnerships
2.1 Definition of partnership
2.2 Consequences of the definition
2.3 Liability of the partners
2.4 Forming a partnership
2.5 Termination of partnership
2.6 Authority of partners
2.7 Liability of partners in an unlimited liability partnership
2.8 Supervision and regulation
2.9 Property
3 Limited liability partnerships
3.1 Definition of limited liability partnership
3.2 Formation
3.3 Internal regulation
3.4 External relationships
3.5 Dissolution
3.6 Limited partnership
4 A company's legal identity
4.1 Definition of a company
4.2 Legal personality
5 Limited liability of members
5.1 Protection for members against creditors
5.2 Protection from business failure
5.3 Members asked to contribute identifiable amounts
5.4 Liability of the company for tort and crime
6 Types of company
6.1 Limited companies
6.2 Unlimited liability companies
6.3 Public and private companies
6.4 Conditions for being a public company
6.5 Private companies
6.6 Differences between private and public companies
7 Additional classifications
7.1 Parent (holding) and subsidiary companies
7.2 Quoted companies
7.3 Small companies regime
7.4 Multinational companies
7.5 European companies
8 Effect of legal personality
8.1 Veil of incorporation
9 Ignoring separate personality
9.1 Lifting the veil by statute to enforce the law
9.2 Lifting the veil to prevent evasion of obligations
9.3 Lifting the veil in group situations
9.4 Summary of situations in which the veil can be lifted
9.5 Lifting the veil and limited liability
10 Comparison of companies and partnerships
10.1 The differences
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Chapter 10 Company formation
Introduction
1 Promoters and pre-incorporation contracts
1.1 Duties of promoters
2 Pre-incorporation expenses and contracts
2.1 Pre-incorporation expenses
2.2 Pre-incorporation contracts
2.3 Liability of promoters for pre-incorporation contracts
2.4 Avoiding liability as a promoter for pre-incorporation contracts
3 Registration procedures
3.1 Documents to be delivered to the Registrar
3.2 Certificate of incorporation
3.3 Companies 'off the shelf'
3.4 Commencement of business rules
4 Statutory books and records
4.1 The requirement for public accountability
4.2 The Registrar of Companies
4.3 Statutory books
4.4 Register of members
4.5 Register of charges
4.6 Register of directors
4.7 Records of directors' service contracts
4.8 Register of debentureholders
4.9 Accounting records
4.10 Annual accounts
5 Statutory returns
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Chapter 11 A company’s constitution
Introduction
1 Memorandum of association
2 A company's constitution
2.1 Resolutions and agreements
2.2 Articles of Association
3 Company objects
3.1 The objects
3.2 Contractual capacity and ultra vires
3.3 Transactions with directors
4 The constitution as a contract
4.1 Effect
4.2 Constitution as a contract between members
4.3 Constitution as a supplement to contracts
4.4 Shareholder agreements
5 Company name and registered office
5.1 Statutory rules on the choice of company name
5.2 Omission of the word 'limited'
5.3 Change of name
5.4 Passing-off action
5.5 Appeal to the Company Names Adjudicator
5.6 Publication of the company's name
5.7 Business names other than the corporate name
5.8 Registered office
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Part E Corporate administration and management
Chapter 12 Meetings and resolutions
Introduction
1 The importance of meetings
1.1 Control over directors
1.2 Resolution of differences
2 Board meetings
2.1 Introduction
2.2 Content of the notice
2.3 Quorum for a board meeting
2.4 The chairman
2.5 Agenda for a board meeting
2.6 Conduct of board meetings
2.7 Sole director and board meetings
3 General meetings
3.1 Annual general meeting (AGM)
3.2 General meetings
4 Types of resolution
4.1 Differences between ordinary and special resolutions
4.2 Special resolutions
4.3 Written resolutions
5 Calling a meeting
5.1 Electronic communication
5.2 Timing of notices
5.3 Special notice of a resolution
5.4 Members requisitioning a resolution
5.5 Content of notices
6 Proceedings at meetings
6.1 How a meeting proceeds
6.2 The chairman
6.3 Quorum
6.4 Voting and polls
6.5 Minutes of company meetings
6.6 The assent principle
7 Class meetings
7.1 Types of class meeting
7.2 Quorum for a class meeting
8 Single member private companies
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Chapter 13 Directors and secretaries
Introduction
1 The role of directors
1.1 Shadow directors
1.2 Alternate directors
1.3 Executive directors
1.4 Non-executive directors
1.5 The managing director
1.6 Number of directors
1.7 The board of directors
2 Appointment of directors
2.1 Appointment of first directors
2.2 Appointment of subsequent directors
2.3 Publicity
2.4 Age limit
3 Remuneration of directors
3.1 Directors' expenses
3.2 Compensation for loss of office
3.3 Directors' remuneration report
3.4 Inspection of directors' service agreements
4 Vacation of office
4.1 Retirement and re-election of directors
4.2 Removal of directors
5 Disqualification of directors
5.1 Disqualification under statute
5.2 Grounds for disqualification of directors
5.3 Disqualification periods
5.4 Procedures for disqualification
6 Powers of directors
6.1 Restrictions on directors' powers
7 Powers of the managing director
7.1 Agency and the managing director
8 Powers of an individual director
9 Duties of directors
9.1 Who are the duties owed to?
9.2 Who are the duties owed by?
9.3 The duties and the articles
9.4 The duties of directors
9.5 Consequences of breach of duty
9.6 Declaration of an interest in an existing transaction or arrangement (s 182)
9.7 Other controls over directors
9.8 Examples of remedies against directors
9.9 Directors' liability for acts of other directors
9.10 Directors' personal liability
10 The company secretary
10.1 Appointment of a company secretary
10.2 Duties of a company secretary
10.3 Powers and authority of a company secretary
11 The company auditor
11.1 Appointment
11.2 Auditor remuneration
11.3 Exemption from audit
11.4 Duties of auditors
11.5 Rights of auditors
11.6 Auditors' liability
11.7 Termination of auditors' appointment
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Chapter 14 Majority control and minority protection
Introduction
1 The rule of the majority
1.1 Majority control
2 Statutory protection for the minority
2.1 Unfairly prejudicial conduct: S 994
2.2 Examples of conduct that has been held to be unfairly prejudicial
2.3 Court orders
2.4 Derivative claims
2.5 S122 Insolvency Act 1986
2.6 Government investigations
3 Other protection for the minority
3.1 Non-statutory protection
3.2 Illegal decisions
3.3 Fraud on the company
3.4 Enforcement of individual rights of membership
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Part F Corporate finance
Chapter 15 Share capital and capital maintenance
Introduction
1 Members
1.1 Becoming a member
1.2 Subscriber shares
1.3 Ceasing to be a member
1.4 The number of members
2 The nature of shares and capital
2.1 Shares
2.2 Types of capital
2.3 Market value
3 Types of share
3.1 Ordinary shares (equity)
3.2 Class rights
3.3 Preference shares
3.4 Variation of class rights
3.5 Redeemable shares
3.6 Treasury shares
3.7 Deferred shares
3.8 Statement of capital
4 Allotment of shares
4.1 Definition
4.2 Public company allotment of shares
4.3 Allotment procedure
4.4 Private company allotment of shares
4.5 Directors' powers to allot shares
4.6 Pre-emption rights: s 561
4.7 Rights issues
4.8 Issues for an improper purpose
4.9 Bonus issues
5 Capital maintenance
5.1 Controls
5.2 Dividends
5.3 Loss of capital in a plc
6 Reduction of share capital
6.1 Solvency statement
6.2 Why reduce share capital?
6.3 Role of the court in reduction of share capital
7 Issuing shares at a premium or at a discount
7.1 Private companies
7.2 Public companies
7.3 Allotment of shares at a premium
7.4 Uses of the share premium account
8 Redemption and purchase by a company of its own shares
8.1 The basic rule
8.2 Redeemable shares
8.3 Purchase of own shares
8.4 Payment for shares out of capital – private companies only
8.5 Subsidiary not to be a member of its holding company
9 Financial assistance for the purchase of shares
9.1 The rule against financial assistance
9.2 Group companies
9.3 Other exceptions from the financial assistance rules
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Chapter 16 Borrowing and loan capital
Introduction
1 Borrowing
2 Debentures and loan capital
2.1 Loan capital
2.2 Debentures
2.3 Types of debenture
2.4 Debenture trust deed
2.5 Register of debentureholders
2.6 Rights of debentureholders
3 Charges
3.1 Definition
3.2 Fixed charges
3.3 Floating charges
3.4 Identification of charges as fixed or floating
3.5 Creating a floating charge
3.6 Crystallisation of a floating charge
3.7 Comparison of fixed and floating charges
3.8 Priority of charges
4 Registration of charges
4.1 The registration process
4.2 Rectification of register of changes
4.3 Failure to deliver particulars
4.4 Register of charges
5 Debentureholders' remedies
5.1 Rights of unsecured debentureholders
5.2 Rights of secured debentureholders
6 Transactions at an undervalue and preferences
6.1 Introduction
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Part G Ethics and business
Chapter 17 The importance of ethics
Introduction
1 A framework of rules
1.1 Developments of society
1.2 A need for rules
1.3 How do the rules fit together?
2 What are ethics?
2.1 Businesses and ethics
3 Accountants and ethics
3.1 Approaches to accountancy ethics
3.2 The Seven Principles of Public Life
3.3 Codes of conduct
3.4 Codes of conduct for business organisations
3.5 Why develop an ethical code?
4 A code of ethics for accountants
5 CIMA's ethical guidelines
5.1 Fundamental principles
5.2 Threats and safeguards
5.3 Rules
6 Qualities of an accountant
6.1 Personal qualities expected of an accountant
6.2 Professional qualities expected of an accountant
7 Personal development and lifelong learning
7.1 Why is professional development necessary?
7.2 CIMA's professional development cycle
7.3 Other approaches to professional development
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Chapter 18 Ethical conflict
Introduction
1 Consequences of unethical behaviour
1.1 You as an accountant
1.2 The accountancy profession
1.3 Society as a whole
2 Ethical conflicts
2.1 Ethical conflicts and conflicts of interest
2.2 Situations where ethical conflicts and conflicts of interest occur
2.3 Spotting an ethical dilemma
3 Resolution of ethical conflicts
3.1 Raising and dealing with ethical dilemmas
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Part H Corporate governance
Chapter 19 Corporate governance
Introduction
1 What is corporate governance?
2 Causes of poor corporate governance
2.1 The agency problem
2.2 Shareholder activism
3 The need for greater corporate governance
4 Corporate governance development in the USA, South
4 Corporate governance development in the USA, South Africa, UK and Europe
4.1 USA
4.2 South Africa
4.3 UK
4.4 Europe
5 Symptoms of poor corporate governance
5.1 Domination by a single individual
5.2 Lack of involvement of board
5.3 Lack of adequate control function
5.4 Lack of supervision
5.5 Lack of independent scrutiny
5.6 Lack of contact with shareholders
5.7 Emphasis on short-term profitability
5.8 Misleading accounts and information
6 The UK regulatory framework
6.1 The UK Corporate Governance Code
6.2 Stakeholder benefits
6.3 Detail of the UK Corporate Governance Code
6.4 Leadership: the role of the board (main principle A1)
6.5 Leadership: division of responsibilities (main principle A2)
6.6 Leadership: the Chairman (main principle A3)
6.7 Leadership: non-executive directors (main principle A4)
6.8 Effectiveness: the composition of the board (main principle B1)
6.9 Effectiveness: appointments to the board (main principle B2)
6.10 Effectiveness: commitment (main principle B3)
6.11 Effectiveness: development (main principle B4)
6.12 Effectiveness: information and support (main principle B5)
6.13 Effectiveness: evaluation (main principle B6)
6.14 Effectiveness: re-election (main principle B7)
6.15 Accountability: financial and business reporting (main principle C1)
6.16 Accountability: risk management and internal control (main principle C2)
6.17 Accountability: audit committee and auditors (main principle C3)
6.18 Remuneration: level and components of remuneration (main principle D1)
6.19 Remuneration: procedure (main principle D2)
6.20 Relations with shareholders: dialogue with shareholders (main principle E1)
6.21 Relations with shareholders: constructive use of the AGM (main principle E2)
6.22 Compliance with the Code
7 Principles vs rules
8 Role of the board
8.1 Scope of role
8.2 Attributes of directors
8.3 Possession of necessary information
8.4 Performance of board
8.5 UK board structures
8.6 German, French and American board structures
8.7 Directors’ duties under corporate governance rules
8.8 Directors’ behaviour
9 Ethics, law and governance
9.1 A brief recap
9.2 Interaction of ethics, law and corporate governance
9.3 Levels of regulation
9.4 Effect on corporate behaviour
9.5 Offences in relation to running a business
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Question bank
Answer Bank
List of cases
Index