(ii) Explain the ethical tensions between these roles that Anne is now experiencing. (4 marks)
第1题:
(c) Critically discuss FOUR principal roles of non-executive directors and explain the potential tensions between
these roles that WM’s non-executive directors may experience in advising on the disclosure of the
overestimation of the mallerite reserve. (12 marks)
第2题:
(b) Distinguish between strategic and operational risks, and explain why the secrecy option would be a source
of strategic risk. (10 marks)
第3题:
(ii) Explain why the disclosure of voluntary information in annual reports can enhance the company’s
accountability to equity investors. (4 marks)
第4题:
(b) Anne is experiencing some tension due to the conflict between her duties and responsibilities as an employee of
Fillmore Pierce and as a qualified professional accountant.
Required:
(i) Compare and contrast her duties and responsibilities in the two roles of employee and professional
accountant. (6 marks)
第5题:
(b) Explain the roles of a nominations committee and assess the potential usefulness of a nominations committee
to the board of Rosh and Company. (8 marks)
第6题:
(ii) Explain how the existing product range and the actions per Note (3) would feature in Ansoff’s
product-market matrix. (7 marks)
第7题:
(b) Comment on the need for ethical guidance for accountants on money laundering. (4 marks)
第8题:
In relation to the law of contract, distinguish between and explain the effect of:
(a) a term and a mere representation; (3 marks)
(b) express and implied terms, paying particular regard to the circumstances under which terms may be implied in contracts. (7 marks)
This question requires candidates to consider the law relating to terms in contracts. It specifically requires the candidates to distinguish between terms and mere representations and then to establish the difference between express and implied terms in contracts.
(a) As the parties to a contract will be bound to perform. any promise they have contracted to undertake, it is important to distinguish between such statements that will be considered part of the contract, i.e. terms, and those other pre-contractual statements which are not considered to be part of the contract, i.e. mere representations. The reason for distinguishing between them is that there are different legal remedies available if either statement turns out to be incorrect.
A representation is a statement that induces a contract but does not become a term of the contract. In practice it is sometimes difficult to distinguish between the two, but in attempting to do so the courts will focus on when the statement was made in relation to the eventual contract, the importance of the statement in relation to the contract and whether or not the party making the statement had specialist knowledge on which the other party relied (Oscar Chess v Williams (1957) and Dick
Bentley v Arnold Smith Motors (1965)).
(b) Express terms are statements actually made by one of the parties with the intention that they become part of the contract and
thus binding and enforceable through court action if necessary. It is this intention that distinguishes the contractual term from
the mere representation, which, although it may induce the contractual agreement, does not become a term of the contract.
Failure to comply with the former gives rise to an action for breach of contract, whilst failure to comply with the latter only gives rise to an action for misrepresentation.
Such express statements may be made by word of mouth or in writing as long as they are sufficiently clear for them to be enforceable. Thus in Scammel v Ouston (1941) Ouston had ordered a van from the claimant on the understanding that the balance of the purchase price was to be paid ‘on hire purchase terms over two years’. When Scammel failed to deliver the van Ouston sued for breach of contract without success, the court holding that the supposed terms of the contract were too
uncertain to be enforceable. There was no doubt that Ouston wanted the van on hire purchase but his difficulty was that
Scammel operated a range of hire purchase terms and the precise conditions of his proposed hire purchase agreement were
never sufficiently determined.
Implied terms, however, are not actually stated or expressly included in the contract, but are introduced into the contract by implication. In other words the exact meaning and thus the terms of the contract are inferred from its context. Implied terms can be divided into three types.
Terms implied by statute
In this instance a particular piece of legislation states that certain terms have to be taken as constituting part of an agreement, even where the contractual agreement between the parties is itself silent as to that particular provision. For example, under s.5 of the Partnership Act 1890, every member of an ordinary partnership has the implied power to bind the partnership in a contract within its usual sphere of business. That particular implied power can be removed or reduced by the partnership agreement and any such removal or reduction of authority would be effective as long as the other party was aware of it. Some implied terms, however, are completely prescriptive and cannot be removed.
Terms implied by custom or usage
An agreement may be subject to terms that are customarily found in such contracts within a particular market, trade or locality. Once again this is the case even where it is not actually specified by the parties. For example, in Hutton v Warren (1836), it was held that customary usage permitted a farm tenant to claim an allowance for seed and labour on quitting his tenancy. It should be noted, however, that custom cannot override the express terms of an agreement (Les Affreteurs Reunnis SA v Walford (1919)).
Terms implied by the courts Generally, it is a matter for the parties concerned to decide the terms of a contract, but on occasion the court will presume that the parties intended to include a term which is not expressly stated. They will do so where it is necessary to give business efficacy to the contract.
Whether a term may be implied can be decided on the basis of the officious bystander test. Imagine two parties, A and B, negotiating a contract, when a third party, C, interrupts to suggest a particular provision. A and B reply that that particular term is understood. In just such a way, the court will decide that a term should be implied into a contract.
In The Moorcock (1889), the appellants, owners of a wharf, contracted with the respondents to permit them to discharge their ship at the wharf. It was apparent to both parties that when the tide was out the ship would rest on the riverbed. When the tide was out, the ship sustained damage by settling on a ridge. It was held that there was an implied warranty in the contract that the place of anchorage should be safe for the ship. As a consequence, the ship owner was entitled to damages for breach of that term.
Alternatively the courts will imply certain terms into unspecific contracts where the parties have not reduced the general agreement into specific details. Thus in contracts of employment the courts have asserted the existence of implied terms to impose duties on both employers and employees, although such implied terms can be overridden by express contractual provision to the contrary.
第9题:
6 Certain practices have developed that threaten to damage the integrity and objectivity of professional accountants and
the reputation of the accounting profession.
Required:
Explain the following practices and associated ethical risks and discuss whether current ethical guidance is
sufficient:
(a) ‘lowballing’; (5 marks)
第10题:
(b) With reference to CF Co, explain the ethical and other professional issues raised. (9 marks)
第11题:
(ii) Identify and explain the potential financial statement risks caused by the breach of planning regulations
discussed in the press cutting. (6 marks)
第12题:
(a) List and explain FOUR methods of selecting a sample of items to test from a population in accordance with ISA 530 (Redrafted) Audit Sampling and Other Means of Testing. (4 marks)
(b) List and explain FOUR assertions from ISA 500 Audit Evidence that relate to the recording of classes of
transactions. (4 marks)
(c) In terms of audit reports, explain the term ‘modified’. (2 marks)
第13题:
(b) Assess the benefits of the separation of the roles of chief executive and chairman that Alliya Yongvanich
argued for and explain her belief that ‘accountability to shareholders’ is increased by the separation of these
roles. (12 marks)
第14题:
(c) Mr Cobar, the chief executive of SHC, has decided to draft two alternative statements to explain both possible
outcomes of the secrecy/licensing decision to shareholders. Once the board has decided which one to pursue,
the relevant draft will be included in a voluntary section of the next corporate annual report.
Required:
(i) Draft a statement in the event that the board chooses the secrecy option. It should make a convincing
business case and put forward ethical arguments for the secrecy option. The ethical arguments should
be made from the stockholder (or pristine capitalist) perspective. (8 marks)
(ii) Draft a statement in the event that the board chooses the licensing option. It should make a convincing
business case and put forward ethical arguments for the licensing option. The ethical arguments should
be made from the wider stakeholder perspective. (8 marks)
(iii) Professional marks for the persuasiveness and logical flow of arguments: two marks per statement.
(4 marks)
(c) (i) For the secrecy option
Important developments at SHC
This is an exciting time for the management and shareholders of Swan Hill Company. The research and development
staff at SHC have made a groundbreaking discovery (called the ‘sink method’) that will enable your company to produce
its major product at lower cost, in higher volumes and at a much higher quality than our competitors will be able to
using, as they do, the existing production technology. The sink process also produces at a lower rate of environmental
emissions which, as I’m sure shareholders will agree, is a very welcome development.
When considering the options following the discovery, your board decided that we should press ahead with the
investment needed to transform. the production facilities without offering the use of the technology to competitors under
a licensing arrangement. This means that once the new sink production comes on stream, SHC shareholders can, your
board believes, look forward to a significant strengthening of our competitive position.
The business case for this option is overwhelming. By pushing ahead with the investment needed to implement the sink
method, the possibility exists to gain a substantial competitive advantage over all of SHC’s competitors. It will place SHC
in a near monopolist position in the short term and in a dominant position long term. This will, in turn, give the company
pricing power in the industry and the likelihood of superior profits for many years to come. We would expect SHC to
experience substantial ‘overnight’ growth and the returns from this will reward shareholders’ loyalty and significantly
increase the value of the company. Existing shareholders can reasonably expect a significant increase in the value of
their holdings over the very short term and also over the longer term.
Ethical implications of the secrecy option
In addition to the overwhelming business case, however, there is a strong ethical case for the secrecy option. SHC
recognises that it is the moral purpose of SHC to make profits in order to reward those who have risked their own money
to support it over many years. Whilst some companies pursue costly programmes intended to serve multiple stakeholder
interests, SHC recognises that it is required to comply with the demands of its legal owners, its shareholders, and not
to dilute those demands with other concerns that will reduce shareholder returns. This is an important part of the agency
relationship: the SHC board will always serve the best economic interests of its shareholders: its legal owners. The SHC
board believes that any action taken that renders shareholder returns suboptimal is a threat to shareholder value and an
abuse of the agency position. Your board will always seek to maximise shareholder wealth; hence our decision to pursue
the secrecy option in this case. The secrecy option offers the possibility of optimal shareholder value and because
shareholders invest in SHC to maximise returns, that is the only ethical action for the board to pursue. Happily, this
option will also protect the employees’ welfare in SHC’s hometown of Swan Hill and demonstrate its commitment to the
locality. This, in turn, will help to manage two of the key value-adding resources in the company, its employees and its
reputation. This will help in local recruitment and staff retention in future years.
(ii) For the licensing option
Important developments at SHC
Your board was recently faced with a very difficult business and ethical decision. After the discovery by SHC scientists
of the groundbreaking sink production method, we had a choice of keeping the new production technology secret or
sharing the breakthrough under a licensing arrangement with our competitors. After a lengthy discussion, your board
decided that we should pursue the licensing option and I would like to explain our reasons for this on both business and
ethical grounds.
In terms of the business case for licensing, I would like shareholders to understand that although the secrecy option may
have offered SHC the possibility of an unassailable competitive advantage, in reality, it would have incurred a number
of risks. Because of the speed with which we would have needed to have acted, it would have necessitated a large
increase in our borrowing, bringing about a substantial change in our financial structure. This would, in turn, increase
liquidity pressures and make us more vulnerable to rising interest rates. A second risk with the secrecy option would
involve the security of the sink technology ‘secret’. If the sink process was leaked or discovered by competitors and
subsequently copied, our lack of a legally binding patent would mean we would have no legal way to stop them
proceeding with their own version of the sink process.
As well as avoiding the risks, however, the licensing option offers a number of specific business advantages. The royalties
from the licences granted to competitors are expected to be very large indeed. These will be used over the coming years
to extend our existing competitive advantage in the future. Finally, the ‘improvement sharing’ clause in the licensing
contract will ensure that the sink process will be improved and perfected with several manufacturers using the
technology at the same time. SHC’s sink production may, in consequence, improve at a faster rate than would have
been the case were we to have pursued the secrecy option.
Ethical implications of the licensing option
In addition to the business case, there is also a powerful ethical case for the decision we have taken. As a good,
responsible corporate citizen, Swan Hill Company acknowledges its many stakeholders and recognises the impacts that
a business decision has on others. Your board recognises that in addition to external stakeholders having influence over
our operations, our decisions can also affect others. In this case, we have carefully considered the likelihood that keeping
the new technology a secret from our competitors would radically reshape the industry. The superior environmental
performance of the sink process over existing methods will also mean that when fully adopted, the environmental
emissions of the entire industry will be reduced. SHC is very proud of this contribution to this reduction in overall
environmental impact.
There seems little doubt that the secrecy option would have had far-reaching and unfortunate effects upon our industry
and our competitors. The licensing option will allow competitors, and their employees and shareholders, to survive. It
is a compassionate act on our part and shows mercy to the other competitors in the industry. It recognises the number
of impacts that a business decision has and would be the fairest (and most just) option given the number of people
affected.
第15题:
(ii) Explain the organisational factors that determine the need for internal audit in public listed companies.
(5 marks)
第16题:
(c) Explain how absolutist (dogmatic) and relativist (pragmatic) ethical assumptions would affect the outcome
of Anne’s decision. (6 marks)
第17题:
(ii) Explain THREE strategies that might be adopted in order to improve the future prospects of Diverse
Holdings Plc. (6 marks)
第18题:
(ii) Briefly explain the extent to which the application of sensitivity analysis might be useful in deciding
which refrigeration system to purchase and discuss the limitations inherent in its use. (3 marks)
第19题:
In relation to the courts’ powers to interpret legislation, explain and differentiate between:
(a) the literal approach, including the golden rule; and (5 marks)
(b) the purposive approach, including the mischief rule. (5 marks)
Tutorial note:
In order to apply any piece of legislation, judges have to determine its meaning. In other words they are required to interpret the
statute before them in order to give it meaning. The diffi culty, however, is that the words in statutes do not speak for themselves and
interpretation is an active process, and at least potentially a subjective one depending on the situation of the person who is doing
the interpreting.
Judges have considerable power in deciding the actual meaning of statutes, especially when they are able to deploy a number of
competing, not to say contradictory, mechanisms for deciding the meaning of the statute before them. There are, essentially, two
contrasting views as to how judges should go about determining the meaning of a statute – the restrictive, literal approach and the
more permissive, purposive approach.
(a) The literal approach
The literal approach is dominant in the English legal system, although it is not without critics, and devices do exist for
circumventing it when it is seen as too restrictive. This view of judicial interpretation holds that the judge should look primarily
to the words of the legislation in order to construe its meaning and, except in the very limited circumstances considered below,
should not look outside of, or behind, the legislation in an attempt to fi nd its meaning.
Within the context of the literal approach there are two distinct rules:
(i) The literal rule
Under this rule, the judge is required to consider what the legislation actually says rather than considering what it might
mean. In order to achieve this end, the judge should give words in legislation their literal meaning, that is, their plain,
ordinary, everyday meaning, even if the effect of this is to produce what might be considered an otherwise unjust or
undesirable outcome (Fisher v Bell (1961)) in which the court chose to follow the contract law literal interpretation of
the meaning of offer in the Act in question and declined to consider the usual non-legal literal interpretation of the word
(offer).
(ii) The golden rule
This rule is applied in circumstances where the application of the literal rule is likely to result in what appears to the court
to be an obviously absurd result. It should be emphasised, however, that the court is not at liberty to ignore, or replace,
legislative provisions simply on the basis that it considers them absurd; it must fi nd genuine diffi culties before it declines
to use the literal rule in favour of the golden one. As examples, there may be two apparently contradictory meanings to a
particular word used in the statute, or the provision may simply be ambiguous in its effect. In such situations, the golden
rule operates to ensure that preference is given to the meaning that does not result in the provision being an absurdity.
Thus in Adler v George (1964) the defendant was found guilty, under the Offi cial Secrets Act 1920, with obstruction
‘in the vicinity’ of a prohibited area, although she had actually carried out the obstruction ‘inside’ the area.
(b) The purposive approach
The purposive approach rejects the limitation of the judges’ search for meaning to a literal construction of the words of
legislation itself. It suggests that the interpretative role of the judge should include, where necessary, the power to look beyond
the words of statute in pursuit of the reason for its enactment, and that meaning should be construed in the light of that purpose
and so as to give it effect. This purposive approach is typical of civil law systems. In these jurisdictions, legislation tends to set
out general principles and leaves the fi ne details to be fi lled in later by the judges who are expected to make decisions in the
furtherance of those general principles.
European Community (EC) legislation tends to be drafted in the continental manner. Its detailed effect, therefore, can only be
determined on the basis of a purposive approach to its interpretation. This requirement, however, runs counter to the literal
approach that is the dominant approach in the English system. The need to interpret such legislation, however, has forced
a change in that approach in relation to Community legislation and even with respect to domestic legislation designed to
implement Community legislation. Thus, in Pickstone v Freemans plc (1988), the House of Lords held that it was permissible,
and indeed necessary, for the court to read words into inadequate domestic legislation in order to give effect to Community
law in relation to provisions relating to equal pay for work of equal value. (For a similar approach, see also the House of Lords’
decision in Litster v Forth Dry Dock (1989) and the decision in Three Rivers DC v Bank of England (No 2) (1996).) However,
it has to recognise that the purposive rule is not particularly modern and has its precursor in a long established rule of statutory
interpretation, namely the mischief rule.
The mischief rule
This rule permits the court to go behind the actual wording of a statute in order to consider the problem that the statute is
supposed to remedy.
In its traditional expression it is limited by being restricted to using previous common law rules in order to decide the operation
of contemporary legislation. Thus in Heydon’s case (1584) it was stated that in making use of the mischief rule the court
should consider what the mischief in the law was which the common law did not adequately deal with and which statute law
had intervened to remedy. Use of the mischief rule may be seen in Corkery v Carpenter (1950), in which a man was found
guilty of being drunk in charge of a carriage although he was in fact only in charge of a bicycle.
第20题:
(ii) Briefly explain the implications of Parr & Co’s audit opinion for your audit opinion on the consolidated
financial statements of Cleeves Co for the year ended 30 September 2006. (3 marks)
第21题:
4 (a) ISA 701 Modifications to The Independent Auditor’s Report includes ‘suggested wording of modifying phrases
for use when issuing modified reports’.
Required:
Explain and distinguish between each of the following terms:
(i) ‘qualified opinion’;
(ii) ‘disclaimer of opinion’;
(iii) ‘emphasis of matter paragraph’. (6 marks)
第22题:
(ii) Identify and explain the principal audit procedures to be performed on the valuation of the investment
properties. (6 marks)
第23题:
(ii) From the information provided above, recommend the matters which should be included as ‘findings
from the audit’ in your report to those charged with governance, and explain the reason for their
inclusion. (7 marks)