A.

Leadership
Role of leader in change management and
strategy
 If you want to
make everyone
happy,
don’t be a leader
– sell ice cream
Leadership
• The process by which an individual influences others. A leader should
have both power (the ability to influence) and authority (the right to
influence).

• Power can arise from:

- Rational-legal. A manager exerts power because of the title

‘manager’ and subordinates are supposed to carry out lawful
instructions.
- Charismatic. Where the person has great charm and force or
personality
- Reward power. Where the promise of pay increases or promotion
are used.
Leadership
• Power can arise from:

– Knowledge. Where withholding and releasing knowledge

selectively exerts power.
– Coercion. Through physical power. This is rarely seen in
civilised organisations.

• Authority arises from a person’s position in an organisational

hierarchy, authority limits and the operation of the law.
Role of leader in change management and strategy

Characteristics of a good leader

• Honesty
• Competency
• Forward-looking
• Inspirational
• Intelligent
• Broad-mindedness
• Courageous
• Imaginative
• Straightforward
Role of leader in change management and strategy

• Leadership Barriers

– Time management
– Reluctant to take risks
– Non inclusion of visionary leaders in the formulation and
implementation of strategy
– Lack of knowledge
– Micro management
– Reluctant nature of employees for change
– Lack of awareness about change in leadership style
– Lack of flexibility
The concepts of entrepreneurship and
‘intrapreneurship’
Entrepreneurship versus Intrapreneurship
• An entrepreneur is a person who establishes a new business with an
innovative idea or concept. An employee of the organisation who
is authorised to undertake innovations in product, service, process,
system, etc. is known as intrapreneur.
• An entrepreneur is intuitive in nature, whereas an intrapreneur is
restorative in nature.
• An entrepreneur uses his own resources, i.e. man, machine, money,
etc. while an intrapreneur uses resources that are provided by the
company.
• An entrepreneur raises capital himself. Conversely, the fund needed by
an intrapreneur is provided by the company.
• An entrepreneur works in a newly established company whereas an
intrapreneur is a part of an existing organisation.
Entrepreneurship versus Intrapreneurship
• An entrepreneur is his own boss and so is independent to take
decisions. In contrast, an intrapreneur works for the organisation, he
cannot take independent decisions.
• An entrepreneur is capable of bearing risks and uncertainties of the
business. As for intrapreneur, the company bears all the risks.
• The entrepreneur works hard to enter the market successfully and
create a place subsequently. Intrapreneur works for organization-wide
change to bring innovation, creativity and productivity.
• Intrapreneurship is responsible for a lot of product innovation around
the world today. At Lockheed Martin, intrapreneurs developed a
number of famous aircraft designs. At 3M, they came up with Post-It
Notes and at Google, they came up with AdSense and Gmail.
Ethical and professional values underpinning
governance
 Innovation Skepticism

Openness Judgement

Ethical and
Reputation Honesty
professional
values
underpinning
Fairness governance Transparency

Responsibility Independence
Accountability
Openness

Demonstrated by Board Willingness to:

• disclose information timely to the shareholders
• accept constructive criticism from parties who are
playing the monitoring role

Honesty
Requires the Board to exercise the duty of loyalty by
NOT:
• rewarding themselves with excessive
remuneration
• involving in earning management to deceive the
shareholders
Transparency

This concept is characterised by:

• timely disclosure which are above the requirement
• the presence of systems and procedures to govern
decision making which can curb malpractices
Independence

Applies to both auditor and non-executive directors

who are playing the monitoring role in Corporate
Governance.
They are considered independent when they can be
expected to express their honest and professional
opinion in the best interest of the company.
Thus, their opinion should avoid:
• Biasness
• Conflict of interest
• Influence by others
Accountability

Requires the parties concerned to:

• discharge their respective responsibilities in accordance to
the role they hold in corporate governance
• be held responsible for the outcome of their decision
There is no accountability if one does not acknowledge his or
hers responsibility towards another party.

Responsibility

This concept is closely related to the accountability

concept above. Key issue is to decide who should have
responsibility.
Fairness

Requires all shareholders to be accorded equal consideration

which means minority shareholders should be treated in the
same way as majority shareholders.

Reputation

Company’s reputational risk is measured by the general

deterioration of public perception of:
• the company and
• the products or services it sells
Good Corporate Governance emphasises on safeguarding a
company’s reputation which is akin to safeguarding the
interest of shareholders.
Innovation

The process of translating an idea or invention into a good or

service that creates value or for which customers will pay.
Relevant for organizations that create revolutionary products
or technologies because they create new markets.

Skepticism

To be sceptical means having great doubt about whether

something is true or useful. Similar to independence, this
concept is of particular relevance to both the non-executive
directors and auditor who play the monitoring role in an
organization.
Style of leadership to manage strategic change
Leadership Theories
• Great Man Theory

– Assumes that the traits of leadership are intrinsic

– Leaders are thus born not made
– Believes that great leaders will rise when confronted with the
appropriate situation
– Disputed by some that that these heroes are simply the product of
their times and their actions the results of social conditions.
Leadership Theories
• Traits Theory
– Believes that people are either born or are made with certain qualities
that will make them excel in leadership roles.
– Focuses on analysing:
• Physical:
– Drive, Energy, Appearance
• Personality
– Enthusiasm, Adaptability, Self-confidence
• Social
– Tact, Courtesy, Co-operative
– Brought the behavioural approach to the study of leadership
Leadership Theories

Justin Trudeau
Leadership Theories

Leadership Theories

Rodrigo Duterte
Leadership Theories
Leadership Theories
• Styles Theory
– Maintains that many of the traits or styles can be taught. Your answers
to the following questions can reveal a great deal about your personal
leadership style.
• You are in charge of a certain project, what do you do first?
– do you develop a time line and start assigning tasks or
– do you think about who would prefer to do what and try to
schedule around their needs?
• When the planning starts to fall behind schedule, what is your first
reaction?
– do you chase everyone to get back on track or
– do you ease off a bit recognizing that everyone is busy just
doing his/her job, let alone the extra tasks you have assigned?
Leadership Theories
(a) Blake and Mouton's Managerial Grid
• Leaders can be made
• Concern for Task and/or People
– Impoverished (1,1)
– Task-oriented (9,1)
– Country Club (1,9)
– Middle Road (5,5)
– Team (9,9)
 The Managerial Grid

High (1,9) Country Club (9,9) Team

Concern for people

(5,5) Middle Road

(1,1) Impoverished (9,1) Task

Low Concern for tasks High

Leadership Theories
• The Impoverished
– These leaders have minimal concern for people and production.
– Preserving their employment, position as well as their seniority is
what drives their elusive and evading behaviours.
– Lacking in any of the traits that can be attributed to successful and
effective leaders.
• The Country Club
– These leaders will go above and beyond to ensure that the needs
and desires of his employees are met.
– Assumes that their staff will yield maximum results if they are self-
motivated when being led in such environment.
– Have behaviours that will yield and comply with the needs of their
staff but productivity of the group may suffer from the lack of
attention on tasks.
Leadership Theories
• The Middle Road
– These leaders balance out the needs of their staff with those of the
organization, while not adequately achieving either.
– Dedicate minimal efforts towards facilitating the achievements of
their staff or the production results in average or below average
levels.
• The Task
– These leaders focus all of their attention to production-related
matters and very little towards the needs of their employees.
– Holds the belief that efficiency gains can only be achieved through
rigid disciplines.
– Employees are considered expendable resources which made high
rate of attrition unavoidable.
– The dictatorial style is inspired by the McGregor X theory.
Leadership Theories
• The Team
– These leaders are committed, can motivate and are motivated by
the belief that trust, respect, commitment and employee
empowerment are essential for fostering a team environment
where maximum employee satisfaction as well as the most efficient
productivity are achieved.
– This leadership style is inspired by the McGregor Y theory.
Leadership Theories
(b) Likert‘s four management leadership style

Centralised
Exploitative Autocratic decision making

Benevolent Authoritative

Participative

Democratic High degree of

delegation
Leadership Theories
Style-1: Exploitative-Autocratic Leadership Style

The manager has no confidence or trust in subordinates resulting in the latter

having no freedom to discuss things about their job with their superior. Also,
their ideas and opinions are not sought in solving job problems.

Style-2: Benevolent-Authoritative Leadership Style

The manager has condescending confidence and trust in subordinates,

motivates them with rewards and some punishments, permits some upward
communication, solicits some ideas and opinions from subordinates and
allows some delegation of decision making but with close control.
Leadership Theories

Style-3: Consultative Leadership Style

The manager has substantial but not complete confidence and trust in the
subordinates who are free to discuss issues involving their job with them.

Style-4: Democratic Leadership Style

The manager has complete confidence and trust in the subordinates

characterised by direct and equal participation in decision making. The
latter’s ideas and opinions are always sought for betterment in the
management of the company.
Leadership Theories
(c) Contingency Theory
– Argues that there is no single way of leading and that every
leadership style should be based on certain situations

(i) Hersey-Blanchard Situational Theory

• This theory has two pillars: leadership style and the maturity
level of those being led.

• Imagine this:
You've just finished training the newest member of your team.
You have given him the data he needs to enter into the
company's database, and you hurry off to a meeting.
Leadership Theories
• Imagine this (cont’d):
When you return later that afternoon, you find that he hasn't
done anything. He didn't know what to do, and he didn't have
the confidence to ask for help. As a result, hours have been lost,
and you have to rush to enter the data on time. Although you
may want to blame the worker, the truth is that you're as much
to blame as he is.

How can you avoid situations like this?

– Failure happens because leaders don't match their style of

leadership to the maturity of the people they're leading.

– Successful leaders should change their leadership styles

based on the maturity of the people they're leading and the
details of the task.
Leadership Theories
• There are four main leadership styles in Hersey-Blanchard
Situational Theory:
– Telling/Directing (S1) – Leaders tell their people what to do
and how to do it.
– Selling/Coaching (S2) – Leaders provide information and
direction, but there's more communication with followers.
Leaders "sell" their message to get people on board.
– Participating/Consulting (S3) – Leaders focus more on the
relationship and less on direction. The leader works with the
team, and shares decision-making responsibilities.
– Delegating (S4) – Leaders pass most of the responsibility
onto the follower or group. The leaders still monitor
progress, but they're less involved in decisions.
Styles S1 and S2 are focused on getting the task done. Styles S3
and S4 are more concerned with developing team members'
abilities to work independently.
Leadership Theories
• Maturity can be broken down into four different levels:

M1 – People at this level lack the knowledge, skills, or

confidence to work on their own, and they often need to be
pushed to take the task on.

M2 – At this level, followers might be willing to work on the task,

but they still don't have the skills to complete it successfully.

M3 – Here, followers have more skills than the M2 group, but

they're still not confident in their abilities.

M4 – These followers are able to work on their own. They have

high confidence and strong skills, and they're committed to the
task.
Leadership Theories
• The Hersey-Blanchard model maps each leadership style to each
maturity level, as shown below.

Maturity Level Most Appropriate Leadership

Style
M1: Low maturity S1: Telling/directing

M2: Medium maturity, S2: Selling/coaching

limited skills

M3: Medium maturity, higher S3: Participating/supporting

skills but lacking confidence

M4: High maturity S4: Delegating

Leadership Theories
(ii) Charles Handy's Best-fit Model
• Maintains that there is no such thing as the "right" style of
leadership, but that leadership will be most effective when the
requirements of the leader, the subordinates and the task fit
together.
• This fit can be measured on a scale that runs from "tight" to
"flexible".
Leadership Theories

(ii) Charles Handy's Best-fit Model

• All works well only if the three elements line up: a strict boss,
telling passive subordinates to get on with their repetitive tasks.

• Should there be a mismatch, things will go wrong. For example, an

authoritarian manager in charge of talented, intelligent, well-
qualified people who are told to carry out dull repetitive tasks.

• In the short-term, the leader must attempt to adjust his or her

style, but a permanent solution needs more than that, and will
certainly involve job redesign.
Leadership Theories
• Transactional Leadership
– Focuses on the short term, controlling, maintaining and improving
the current situation, planning, organising, defending the existing
culture.
– Rely on rational/legal power to command the cooperation of the
subordinates.
– Concentrate on ‘doing things right’.
– Useful to deal with the day-to-day running of the organisation.
• Transformational Leadership
– Concentrate on a long term vision and on re-engineering to
change the organisation radically,.
– Motivate their staff through a climate of trust, empowerment,
change culture, and charisma.
– Concentrate on ‘doing the right things’.
The style of leadership
appropriate to manage strategic change
Leadership Styles
• Participative

– Also known as democratic style

– Encourages staff to be a part of the decision-making
– Keeps staff informed about everything that affects their work and
shares decision making and problem solving responsibilities
– Most successful when used with highly skilled or experienced staff or
when implementing operational changes or resolving individual or
group problems
Leadership Styles
• Participative

– should not be used when:

(i) Not enough time to get everyone’s input
(ii) Easier and more cost-effective for the manager to make the
decision
(iii) Can’t afford mistakes
(iv) Manager feels threatened by this type of leadership
(v) Staff safety is a critical concern
Leadership Styles
• Autocratic

– The classical approach

– Manager retains as much power and decision-making authority as
possible
– Does not consult staff, nor allowed to give any input
– Staff expected to obey orders without receiving any explanations
– Structured set of rewards and punishments
Leadership Styles
• Bureaucratic

– Manages “by the book¨

– Everything done according to procedure or policy
– If not covered by the book, referred to the next level above
– Most effective when:
(i) Staff performing routine tasks over and over
(ii) Staff need to understand certain standards or procedures.
(iii) Safety or security training conducted
(iv) Staff performing tasks that require handling cash
Leadership Styles
• Laissez-Faire

– Also known as the “hands-off¨ style

– The manager provides little or no direction and gives staff as much
freedom as possible
– All authority or power given to the staff and they determine goals,
make decisions, and resolve problems on their own
– An effective style to use when:
(i) Staff highly skilled, experienced, and educated
(ii) Staff have pride in their work and the drive to do it successfully
on their own
(iii) Outside experts, such as staff specialists or consultants used
(iv) Staff trustworthy and experienced
The impact of culture on
organisational purpose and strategy
Organisation Culture
• Definition
– Collective programming of the mind or
– shared norms of behaviour,
– values and assumptions
– shared by all employees.
It is essentially ‘the way we do things around here’.
• Impact of culture on organization
– Culture need to be integrated with strategy for its successful
implementation
– For strategies to be effectively implemented, behavioural values must
be considered
– Culture influences formulation of strategies
Organisation Culture
• Factors that influence culture

– Founders / Leadership

The way that an organization’s leadership team runs the business

affects the policies, procedures and rules set for employees. Their
values and philosophies tend to trickle down to employees to deliver
end results for the organization.

Howard Schultz, the executive chairman and former CEO of

Starbucks, is a leader that has a simple leadership philosophy: treat
people with dignity and respect. This one philosophy appears time
after time in the Starbucks organizational culture, and can be
measured in the quality of service a customer experiences.
Organisation Culture
• Factors that influence culture

– Nature of the business

The purpose, market and operations of an organization have an impact

on employees’ behavior. Should the organization make a meaningful
difference through the products and services in the lives of its clients
and customers, it would have a direct impact on the organizational
culture and how the employees feel about working for it.

– Recruitment and Selection

The type of employees hired by an organization has the largest effect

on its culture – especially when a company is in high growth mode and
is rapidly adding new employees.
Organisation Culture
• Factors that influence culture

– Clients and External Parties

The clients that the company serves are an often overlooked factor
that affects organizational culture. If a customer is upset and takes it
out on an employee, that employee’s behavior directly impacts those
around them. If a client has a big success and thanks the employee for
a job well done, that employee can uplift their whole team.

– Company’s Values, Policies and Work Ambiance

Company values guide an organisation’s policies and behaviors to help

promote an organizational culture that everyone want to be a part of.
Organisation Culture
• Factors that influence culture

– Organisation's industry

Fast paced industries like advertising, event management companies

expect the employees to be attentive, aggressive and hyper active.

– The management and its style of handling the employees

Organisations that allow the employees to take their own decisions

and participate in strategy making are likely to command their loyalty
and a more long term association with the organization instead of a
culture where the employees just work for money and nothing else.
Organisation Culture
• Schein’s determinants of organisational culture

Schein’s model looks at culture from the standpoint of the observer and
describes organisational culture at three levels:

– Artefacts
These are the influences on culture that can be seen. For example,
how employees dress, the layout of the office, the way in which people
behave.

– Espoused values
These are the strategies, goals and objectives of the organisation. For
example, an emphasis on low cost or an emphasis on excellent service.
Organisation Culture
• Schein’s determinants of organisational culture

- Basic assumptions and values

These are the taken-for granted beliefs. They can be called a
‘paradigm’, which is a set of assumptions held in common.
Organisation Culture
• Charles Handy’s Four Cultural Stereotypes

– Power culture

i. Akin to a spider’s web with the all-important spider sitting in

the centre.
ii. Can respond quickly to events but are heavily dependent for their
continued success on the abilities of the people at the centre;
succession is a critical issue.
iii. Attract people who are power orientated and politically minded.
iv. Size is a problem because of the demands on their time and ability.
v. Against corporate governance practises of spreading power and
reducing risks.
Organisation Culture
• Charles Handy’s Four Cultural Stereotypes

– Role culture

i. Characterised by strong functional or specialised areas coordinated

by a narrow band of senior management at the top and a high
degree of formalisation and standardisation.
ii. Likely to be successful in a stable environment, where the market is
steady, predictable or controllable, or where the product’s life cycle
is long.
iii. Difficult to adapt to change.
iv. Offers employees security and the opportunity to acquire specialist
expertise but is frustrating for ambitious people who are power
orientated, want control over their work or are more interested in
results than method.
Organisation Culture
• Charles Handy’s Four Cultural Stereotypes

– Task culture

i. The emphasis is on getting the job done.

ii. Seeks to bring together the appropriate resources and the right
people at the right level in order to assemble the relevant
resources for the completion of a particular project.
iii. Depends on teamwork to produce results and so influence is more
widely dispersed than in other cultures.
iv. Appropriate when flexibility and sensitivity to the market or
environment are important, where the market is competitive,
where the life of a product is short and/or where the speed of
reaction is critical.
Organisation Culture
• Charles Handy’s Four Cultural Stereotypes

v. Has a tendency to change to a role or power culture when

resources are limited or when the whole organisation is
unsuccessful that necessitates senior managers to control
methods as well as results.
Organisation Culture
• Charles Handy’s Four Cultural Stereotypes

– Person culture

i. The individual is the focal point with the organisation exists to

serve and assist the individuals within it to further their own
interests without any overriding objective.
ii. An unusual culture as organisations tend to have some form of
corporate objective over and above the personal objectives of
those who comprise them.
iii. Specialists in organisations, such as computer people in a business
organisation, consultants in a hospital, architects in local
government and university teachers often have this person
orientation.
The cultural web of an organisation
Cultural Web

• The Cultural Web can be defined as a representation of the paradigm of an

organisation and how it is manifested in terms of day-to-day behaviour. It
is essentially the assumptions that are core to a company’s culture.

• By analyzing the factors in each, the bigger picture of organisational

culture: what is working, what isn't working, and what needs to be
changed will be shown. The six elements are:
Cultural Web

Symbols

Control
Stories
systems

Paradigm

Organisational Rituals and

structure routines

Power
structure
Cultural Web

• Symbols

The visual representations of the company including logos, how plush the
offices are, and the formal or informal dress codes. Questions that can
arise by an assessment of this area are:
– Are there symbols that signify the organisation?
– What are the status symbols in the organisation (e.g. corner office,
luxury company car)?
– What is the jargon used by the employees when talking to each other
and to third parties?
Cultural Web
• Stories

The past events and people talked about inside and outside the company.
Stories are an important element to determine what is considered
important in an organisation. Questions that can arise by an assessment
of this area are:
– What core beliefs do these stories reflect?
– Do the stories focus on successes? Failures? Leaders? Villains?
– Who are the leaders? And the villains?
– If members deviate from norms, what are the norms that they have
deviated from?
Cultural Web
• Rituals and Routines

The daily behavior and actions of people that signal acceptable behavior.
This determines what is expected to happen in given situations, and what
is valued by management. Questions that can arise by an assessment of
this area are:
– Which routines are emphasised?
– If one or more routines were changed what would look peculiar?
– What behaviours are encouraged by routines?
– What are the crucial rituals?
– What are the core beliefs routine and ritual reflect?
– How easy are routines and rituals to change?
Cultural Web
• Organizational Structure

This includes both the structure defined by the organization chart, and the
unwritten lines of power and influence that indicate whose contributions
are most valued. Questions that can arise by an assessment of this area
are:
– How flat/hierarchical are the structures?
– Do structures encourage teamwork or competition?
Cultural Web
• Control Systems

The ways that the organization is controlled. These include financial

systems, quality systems, and rewards (including the way they are
measured and distributed within the organization). For example if a
company adopts a bonus scheme that is based on selling high volumes,
the individual may find it difficult to shift to a culture that is aimed at
promoting teamwork and that puts an emphasis on quality rather than
quantity. Questions that can arise by an assessment of this area are:
– What are the elements that are most closely monitored?
– Are there many or few controls?
Cultural Web
• Power Structures

They influence the core assumptions within organisations. This may

involve one or two key senior executives, a whole group of executives,
or even a department. The key is that these people have the greatest
amount of influence on decisions, operations, and strategic direction.
Questions that can arise by an assessment of this area are:
– How is the power distributed in the organisation?
– What are the core beliefs of the leadership?
– How strongly are these beliefs held?
Cultural Web
• It is a more detailed list than Schein’s artifacts, espoused values, and
basic assumptions and values. An approximate correlation between
the two approaches is:
Cultural web Schein

Symbols For example, how people dress and how they are
addressed
Power structure For example, autocratic or participative
Artefacts
Organisational For example, tall-narrow or wide-flat
structure
Control system For example, highly centralised or decentralised

Rituals and routines For example, a regular start-of-week meeting

Espoused values
Stories For example, a story about when the organisation
won an important client
Organisation For example, that the organisation exists to fulfil Basic
assumption charitable objectives assumptions and
values
Social responsibility of accountants acting
in the public interest
Accountant as professional

Professional status is accorded to professional accountant for

possessing a high level of technical knowledge in a given area of
expertise.

The body of knowledge is gained through passing examinations

and accumulation of practical experience over time.

This status imposed on the professional accountant the

obligation to observe ethical principles.
Professionalism

IFAC’s code of ethics defines professionalism in terms of

professional behaviour.

Imposes an obligation on professional accountants to comply with

relevant laws and regulations and avoid any action that might bring
discredit to the profession.
Accountant’s role in influencing the distribution of power
and wealth in society

Financial accounting helps the self-interested decision makers in

making informed decision leading to the maximisation of their
personal wealth and the efficiency of the capital market.

Capitals are moved in response to accounting information which help

ensure that finance, labour, know-how, physical capital and materials
are put to the ‘best’ economic uses.

Efficiency in allocating resources maximise economic growth and thus

maximise social welfare through higher tax collections by government.
Public interest

➢ Public interest concerns the overall welfare of society as well as

the sectional interest of the shareholders in a particular
company.
➢ Professional accountants should always uphold the interests of
society and the best interests of clients instead of pursuing
personal interests only.
➢ In auditing and assurance, the working of capital markets and
hence the value of tax revenues, pensions and investment rests
upon accountants’ behaviour.
➢ The stability of business organisations and hence the security
of jobs and the supply of important products also depends on
the professional behaviour of accountants.
Code of ethics relevant to accounting
professionals
Code of ethics relevant to accountants

Code of ethics ➢ Advantages

for business ➢ Contents
conduct ➢ Limitations

Code of ethics ➢ Fundamental principles

for accounting ➢ Threats to independence
profession ➢ Safeguards that mitigate the threats to
independence
Code of ethics for
business conduct

An authoritative statement of values and principles

designed to set a minimum standard of acceptable
behaviour and guide organisational members in resolving
ethical conflicts

Advantages

✓ Provide a common value system for all divisions to adopt.

✓ Serves as a moral minimum that helps provide guidance in
dealing with anomalies in local customs.
✓ Helps boost investors’ confidence in the company.
Code of ethics for Contents
business conduct

• Values of the business

• Senior management’s commitment to doing business
ethically
• Responsibilities of the respective parties in making the
company ethical
• Key stakeholders of the company and the company’s
commitments towards them
• Whistle-blowing arrangement within the company
• Means to obtain advice, awareness raising examples (FAQ)
and training programmes for all staff
Code of ethics for
business conduct
Limitations

❖ No code of business conduct and ethics can replace the

thoughtful behaviour of an ethical director, officer or
employee.

❖ Corporate code is most effective when the values and

decisions of senior management support the goals in the
code.

❖ Unethical behaviour can still flourish when senior managers

exhibit inconsistent or inappropriate behaviour or fail to
discourage employee behaviour that is in conflict with the
code.
Code of ethics for
accounting profession

The IFAC Code adopts a conceptual framework approach to

complying with the fundamental principles of ethics that requires
the professional accountants to identify, evaluate and respond to
threats to compliance with those principles.

Professional
Integrity Fundamental behaviour
Principle

Objectivity Confidentiality
Professional
competence
and due care
 Fundamental
Principle

Integrity

❑ Requires professional accountant to be straightforward (fair

dealing) and honest (truthfulness) in all professional and business
relationship.

❑ Should not be associated with reports, returns, communication or

other information where they believe that the information:
(i) contains a materially false or misleading statement;
(ii) contains statement of information furnished recklessly; or
(iii) omits or obscure information required to be included.
Objectivity

Professional accountant should not allow prejudice or bias,

conflict of interest or undue influence of others to override
professional or business judgments.

Professional competence and due care

Professional accountants are obliged:

✓ to maintain professional knowledge and skill at the level that a client
or employer will receive the advantage of competent professional
service based on current developments in practice, legislation and
techniques; and
✓ to act diligently in accordance with applicable technical and
professional standards in all professional and business relationship.
Confidentiality

• Professional accountants 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.
• The need to comply with the principle of confidentiality
continues even after the end of relationships between a
professional accountant and a client or employer.
 Disclosure is required by law:

• Production of documents or other provision of evidence

in the course of legal proceedings; or
• Disclosure to the appropriate public authorities of
infringements of the law that comes to light.

Disclosure is required by professional duty or right::

• to comply with the quality review of a member body or professional

body;
• to respond to an inquiry or investigation by a member body or
regulatory body;
• to protect the professional interests of a professional accountant in
legal proceedings; or
• to comply with technical standards and ethics requirements.
Professional behaviour

A professional accountant should comply with relevant laws

and regulations and should avoid any action that discredits the
profession.
Ethical threats and recommended safeguards
Familiarity
Intimidation

Threats to
Independence

Advocacy
Self-review
Self-
interest
Threats to independence
Threat Definition Examples
Familiarity Occurs when, by • a member of the assurance team having an
virtue of a close immediate family member or close family
relationship with member who is a director or officer of the
an assurance assurance client
client, its
• a member of the assurance team having an
directors,
immediate member or close family member
officers or
who is an employee of the assurance client, is in
employees, a
a position to exert direct and significant
firm or a
influence over the subject matter of the
member of the
assurance engagement
assurance team
become too • a former partner of the firm being a director,
sympathetic to officer of the assurance client or an employee in
the client’s a position to exert direct and significant
interests influence over the subject matter of the
assurance engagement
Threat Definition Examples

Familiarity • long association of a senior member of

the assurance team with the assurance
client
• acceptance of gifts or hospitality, unless
the value is clearly insignificant, from
the assurance client, its directors,
officers or employees

Advocacy Occurs when a firm, or a • dealing in, or being a promoter of

member of the assurance shares or other securities in an
team, promotes, or may be assurance client
perceived to promote, an
• acting as an advocate on behalf of an
assurance client’s position or
assurance client in litigation or in
opinion to the point that
resolving disputes with third parties
subsequent objectivity may
be compromised
Threat Definition Examples
Self- Occurs when the firm or • a direct financial interest, or material
interest member of the assurance indirect financial interest, in an
team could benefit from a assurance client
financial interest in, or
• a loan or guarantee to or from an
other self-interest conflict
assurance client, or any of its
with, an assurance client.
directors or officers
• undue dependence on total fees
from an assurance client
• concern about the possibility of
losing the engagement
• having a close business relationship
with an assurance client
Threat Definition Examples
Self- • potential employment with an
interest assurance client
• contingent fees relating to assurance
engagements

Self-review Occurs when: • a member of the assurance team being,

• any product or judgment of or having recently been, a director or
a previous engagement officer of the assurance client
needs to be re-evaluated in
• a member of the assurance team being,
reaching conclusions on the
or having recently been, an employee of
assurance engagement; or
the assurance client in a position to
exert direct and significant influence
over the subject matter of the
assurance engagement
Threat Definition Examples
Self-review • a member of the assurance • performance of services for an
team was previously a assurance client that directly affect the
director or officer of the subject matter of the assurance
assurance client or was an engagement
employee in position to
• the preparation of original data used to
exert direct and significant
generate a financial report or
influence over the subject
preparation of other records that are
matter of the assurance
the subject matter of the assurance
engagement
engagement
Threat Definition Examples
Intimidation Occurs when a member of • threat of replacement over a
the assurance team may be disagreement with the application of
deterred from acting an accounting principle
objectively and exercising
• pressure to reduce inappropriately the
professional scepticism by
extent of work performed in order to
threats, actual or perceived,
reduce fees
from the directors, officers
or employees of an
assurance client
Safeguards that mitigate the threats to independence

Safeguards created by the profession,

legislation or regulation

Safeguards within the assurance client

Type of
Safeguards
Safeguards within the firm’s own 1. Firm-wide
systems and procedures safeguards
2. Engagement-
specific
safeguards
Safeguards created by the profession,
legislation or regulation

Types of safeguards
• educational, training and experience requirements for entry into the
profession
• continuing educational requirements
• professional standards and monitoring, and disciplinary process
• external review of a firm’s quality control system
• legislation governing the independence requirements of the firm
Safeguards within the assurance client

Types of safeguards
• when the assurance client’s management appoints the firm, persons
other than management ratify or approve the appointment
• the assurance client has employees competent to make managerial
decision
• policies and procedures that emphasize the assurance client’s
commitment to fair financial reporting
• internal procedures that ensure objective choices in commissioning
non-assurance engagements
• a corporate governance structure, such as an audit committee, that
provides appropriate oversight and communications regarding a firm’s
services.
Safeguards within the firm’s own systems and procedures

1. Firm-wide safeguards
• firm leadership that stresses the importance of independence and
the expectation that members of assurance teams will act in the
public interest
• policies and procedures to implement and monitor quality control of
assurance engagements
• documented independence policies regarding the identification of
threats, the evaluation of the significance of these threats and the
identification and application of safeguards to eliminate or reduce
the threats, other than those that are clearly insignificant, to an
acceptable level
Safeguards within the firm’s own systems and procedures

1. Firm-wide safeguards
• internal policies and procedures to monitor compliance with firm’s
policies and procedures as they relate to independence
• policies and procedures that will enable the identification of
interests or relationships between the firm or members of the
assurance team and assurance clients
• policies and procedures to monitor and, if necessary, manage the
reliance on revenue received from a single assurance client
• using different partners and teams with separate reporting lines for
the provision of non-assurance services to an assurance client
Safeguards within the firm’s own systems and procedures

1. Firm-wide safeguards
• policies and procedures to prohibit individuals who are not
members of the assurance team from influencing the outcome of
the assurance engagement
• timely communication of a firm’s policies and procedures, and any
changes thereto, to all partners and professional staff, including
appropriate training and education thereon
• designating a member of senior management as responsible for
overseeing the adequate functioning of the safeguarding system
• means of advising partners and professional staff of those
assurance clients and related entities from which they must be
independent
Safeguards within the firm’s own systems and procedures

1. Firm-wide safeguards
• a disciplinary mechanism to promote compliance with policies and
procedures
• policies and procedures to empower staff to communicate, to senior
levels within the firm, any issue of independence and objectivity
that concerns them; this includes informing staff of the procedures
open to them
Safeguards within the firm’s own systems and procedures

2. Engagement-specific safeguards
• involving an additional professional accountant to review the work
done or otherwise advise as necessary
• consulting a third party, such as a committee of independent
directors, a professional regulatory body or another professional
accountant
• rotation of senior personnel
• discussing independence issues with the audit committee or others
charged with governance
• disclosing to the audit committee, or others charged with
governance, the nature of services provided and extent of fees
charged
Safeguards within the firm’s own systems and procedures

2. Engagement-specific safeguards
• policies and procedures to ensure members of the assurance team
do not make, or assume responsibility for, management decisions
for the assurance clients
• involving another firm to perform or re-perform part of the
assurance engagement
• involving another firm to perform the non-assurance services to the
extent necessary to enable it to take responsibility for that service
• removing an individual from the assurance team when that
individual’s financial interest or relationship create a threat to
independence
Conflicts of interest and their resolution
Conflicts of
Types of conflicts
interest

• Self-interest threat to objectivity may arise when professional

accountants:
➢ compete directly with a client or have joint ventures or similar
arrangements with major competitors of that client; and
➢ perform services for clients whose interests are in conflict with
each other in relation to the matter or transaction in question.
• Accepting or continuing a new client relationship or specific
engagement where the professional accountants have relationship
with clients or third parties that could give rise to threats.
Conflict resolutions

Safeguards will ordinarily include professional accountants:

Notifying all relevant parties

Notifying all relevant
that they are acting for two or
parties that they have
more parties in respect of a
relationships with clients
matter where their respective
or third parties that could
interests are in conflict, and
give rise to conflicts of
obtaining their consent that
interest.
they may so act.
Conflict resolutions

Additional safeguards include:

✓ The use of separate engagement teams, with separate
internal reporting lines.
✓ Procedures to prevent access to information (e.g. strict
physical separation of such teams, confidential and secure
data filing).
✓ Clear guidelines for engagement personnel on issues of
security and confidentiality.
✓ Regular review of the application of safeguards by a senior
individual not involved with either client engagement.
Conflict resolutions

Additional safeguards include:

✓ Policies and procedures for dealing with conflicts of
interest.
Where a threat cannot be eliminated or reduced to an
acceptable level through the application of safeguards,
professional accountants should conclude that it is not
appropriate to accept a specific engagement or that they
should resign from one or more conflicting engagements
Best practice for reducing and combating fraud,
bribery and corruption
Global Corruption Barometer 2013
Corruption and Bribery

What is corruption?

“The abuse of entrusted power for private gain”

What is bribery?

“The offering, promising, giving, accepting or soliciting of an advantage as an

inducement for an action which is illegal, unethical or a breach of trust.”

112
Types of corruption
• Administrative corruption
– Alters the implication of policies such as getting license even if
one doesn’t qualify for it.

• Political corruption
– Influences the formulation of laws, regulation and polices such
as reworking all licenses and gaining the sole right to operate
the gas station monopoly.

• Grand corruption
– Involve substantial amount of money and usually high level
officials such as 1 MDB.

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Types of corruption
• Petty corruption
– Involve a smaller sums and typically more junior officials
– Found typically in a low level business

• Public corruption
– Public office is misused for private gain such as police receive money
for personal gain and drop any criminal offence

114
What Causes Corruption?
Most studies of corruption focus on institutional factors:

• Need stronger and more effective institutions (Malaysian Anti-Corruption

Commission)

• Lack of democracy

• Ineffective judiciary

• Unfair elections

• Lack of free media

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Risks
• Legal
– Prosecution
– Fines and imprisonment
– Large legal and compliance costs.
• Organisational
– Loss of focus – takes up management time
– Huge internal disruption
• Reputational
– Loss of face
– Brand reputation damage
– Loss of Key Customers
– Decrease in morale

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Impact of corruption
• Hinders social and economic development and increases poverty by
diverting domestic and foreign investment away from where it is most
needed

• Weakens education and health systems, depriving people of the basic

building blocks of a decent life

• Undermines democracy by distorting electoral processes and undermining

government institutions, which can lead to political instability

• Exacerbates inequality and injustice by perverting the rule of law and

punishing victims of crime through corrupt rulings

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Solving the problem
Organisations must have…

• an active corruption risk assessment process

• full support of top leadership

• detailed policies and procedures

• a genuine approach to whistleblowers

• serious monitoring & review at Board level

• vigorous punishments

• awareness and campaigns through training