TERMS NOTES REFERENCE

1.1 PUBLIC INTEREST OR SELF-INTEREST?

economies and society need information to function effectively - accountants support that by ensuring people have access to accurate
information
how professional
accountants contribute • by creating and distributing information that conveys a clear and accurate picture of an entity's financial performance, financial position
to the public interest and other relevant issues (critical for decision making about allocation of resources)
• providing objective, accurate and appropriate financial and accounting-related advice that is free from bias and based on expertise

altruism positive actions that bring no benefits to an individual

3
accountants are not altruistic - but instead self-interested - using the profession to make money/personal gain. Perhaps a more reasonable
other arguments
theory is 'enlightened self-interest' rather than altruism
accountants make decisions within a systematic framework of principles. The best decisions are made where governance, corporate
accountability and ethics intersects
responsible decision • Governance framework of professional: skill and knowledge exercised within framework (code of behaviour)
making • Corporate governance/accountability: within the relevant corporate governance framework (instruments and articles of association)
and policies and strategies formally approved by the Board. Adherence to regulatory framework (such as disclosure requirements)
• Ethical conduct: commitment to integrity and honesty in the pursuit of professional purposes and client interests

key accounting boards

bodies, organisations
and legislations
1.2 ENLIGHTENED SELF-INTEREST

it is possible to be committed to the public interest yet possess a degree of self-interest 'doing well by doing good'

enlightened self-interest 7
protecting the public interest in a self-interested way
i.e. creating efficiency benefits from an organised body of accounting knowledge, in exchange for the monopoly position of the profession.

1.3 IDEALS OF ACCOUNTING — ENTREPRENEURIALISM AND PROFESSIONALISM

• some argue that professions never really had a public interest or service deal (Abbott; Johnson)
existence of public
• focus may be on 'partner of business' which may be a more lucrative role (Saravanamuthu)
interest
• focus may be the 'four E's' of the accounting profession (Carnegie and Napier): education, ethics, expertise and entrepreneurship

important to not focus too much on entrepreneurship at the expense of other ideals - which results in a 'de-professionalisation' of 8
de-professionalisation of
accounting. This happens when the pursuit of commercial opportunities turns the accountant away from important ethics like integrity,
accounting
objectivity and professional behaviour.

where accountants may pursue profits over ethics - this has contributed to major corporate collapses in history (e.g. Lehman Brothers in
ethics vs profits dilemma
the GFC)
1.4 WHAT IS A PROFESSION?

based on a high level of competence or skills in a given area, which are learnt through specialised training and maintained by continuing
profession
professional development. Members are expected to behave ethically and in the best interests of society.

an almost universal
process of established professional associations/bodies with codes of conduct and training, education and quality standards required
professionalism
1. systematic body of theory and knowledge
2. extensive education process for its members
3. ideal of service to the community
attributes suggesting the 4. high degree of autonomy and independence
existence of profession 5. code of ethics for its members 9
6. distinctive ethos or culture
7. application of professional judgement
8. existence of governing body

there is no clear distinction, and instead, it is about assessing the degree to which these attributes are present

profession vs occupation typically, a profession will:

• achieve greater wealth or status - due to specialised skills and level of monopoly control. Monopoly control is where the profession can
control who is allowed to work in the industry by establishing licensing rules and regulations (creates protection against competition)
• adopt the 'service ideal' - that the profession exists to serve society and members should act in the public interest.

• regulations provide the ability to provide a service to the public - after which a profession will have a substantial amount of atonomy,
and often regulate themselves.
• autonomy - allows members, with potentially more knowledge than regulators, to enforce standards.
self-regulation 11
• this approach enables professionals to be judged by their peers and set a code of conduct that is appropriate for the industry
• professions also have an extra-legal role - which means they can impose a code of conduct or by laws that require more from members
than what is required at law.

self-regulation: professional bodies: members are judged by their informed peers. Allows for internal penalties and sanctions, in addition
to legal breaches
co-regulation: where regulation is shared between the profession and external sources
11
For accountants:
• self-regulation: CPA will manage the accreditation, qualification, professional education, code of ethics and disciplinary matters; and
• external authorities: Australian Financial Reporting Council (the AASB reports to the AFRC), regulations in the Corps Act (which give
audit and accounting standards the force of law); Tax Practitioners Board for tax professionals.

from self-regulating to a
co-regulatory process

11

1.5. WHAT IS A PROFESSIONAL?

1. significant level of training and a high level of competence/skills in a specific area of knowledge
key attributes of a
2. behave in an ethical manner 12
professional
3. apply skills and judgement in areas of importance
1.6. THE ACCOUNTING PROFESSION - THE 'TRADITIONAL' VIEW AND THE 'MARKET CONTROL' VIEW
focused on serving society. The professional accountant acts for the public interest, rather than self-interest, and can demonstrate skill
12
and judgement in their area of expertise (ideal view)

important attributes of the profession include:

accounting profession - 1. a systematic body of knowledge
traditional view 2. an extensive education process
12
3. a code of ethics
4. a ethos or cuture, and
5. a governing body

accounting profession - suggests that professional accountants are self-interested (own career) and not concerned about broader public interest. Focus has been
12
market control view on building a monopoly on accounting services.
1.7. TRUST AND PROFESSIONS

• public trust regarding any profession is vital.

• loss of public trust in the profession following corporate failures (Enron, WorldCom and HIH), and poor conduct by accountants which
public trust toward the profession failed to account, has led to a move from purely self-regulation by the profession toward co-regulation. This consists of
13
professions regulations from external sources in addition to regulation by the profession.
• membership of a profession brings greater responsibility, wealth and status, and a pooling of knowledge than simply having an
occupation

1.8 ATTRIBUTES OF A PROFESSION

• skills and expertise supported by a well-founded body of knowledge
• educational approach one of lifelong learning
systematic body of • regulated education programs to ensure an equivalent level of knowledge and competence for all members of the profession
13
theory and knowledge • in accounting for example, this includes the theory and practice of financial accounting, management accounting, auditing, and
accounting/business information systems. It also involves knowledge of elements of the law (such as commercial law, corporate law,
taxation law), economics, and quantitative methods.

• knowledge that is not generally obtained by members of the general public

extensive education • ongoing professional development requirement
14
process for its members • to become a member of a profession, individuals must go through an extensive period of education, including an examination process.
There are probably also requirements for continuing professional education and development after entry to membership.

• in exchange for the monopoly power, power to be used in the public interest (Buckley)
• lack of adherence (erosion of public trust) may lead to reductions of the autonomy, authority and reputation
• The wellbeing of society: enable the efficient and orderly functioning of business, not for profit and government enterprises. Support
better decision making
ideal of service to the
• Pursuit of excellence: performance of the professional (build skills etc.) 14
community
• Community service: provide time and skills pro bono
A profession presents itself as a body of people who have an ideal of providing a service to the community that focuses on the well-being
of the society, the pursuit of excellence, and community service, including philanthropy. Professionals take the same degree of care, skill
and responsibility in unpaid as paid work. Public trust in a profession is based largely on this service deal.

• self-regulation/co-regulation
• the extent of autonomy will depend on the consistent demonstration of ethical and professional standards
high degree of
• because of its competence in a specific area of expertise, a profession is generally still allowed a large amount of autonomy, with small
autonomy and 15
amounts of external regulation, so that the profession is able to establish its own standards of practice. These features historically led to
independence
self-regulation in the profession, and a high degree of discipline. Although self-regulation is being replaced with co-regulation following
recent scandals, the onus (responsibility) is still on the individual accountant to have a self-principled, ethical and responsible approach.

• sourced from APESB 2013, various other APES statements, constitution of CPA Australia, relevant legislation.
code of ethics for • global markets have different views of what is ethical (e.g. bribes)
17
members • a profession has its own formal code of ethics for members. For example, CPA Australia members must comply with Compiled APES 110:
Code of Ethics for Professional Accountants.
• values, norms and symbols
distinctive ethos or • members need to become part of the ethos - enables it to grow/evolve over time
17
culture • a profession also has a distinctive ethos or culture. Doctors have a culture of promoting health and protecting life. Lawyers have an
ethos of upholding the law. Accountants have an ethos of integrity in business dealings and acting in the public interest
 • key is the ability to diagnose and solve complex, unstructured values-based problems of the kind that arise in professional practice
(Becker)
• when exercising judgement, must choose the outcome that professionally best meets the social ideal of professions - rather than merely
the best outcome for the client at that moment (ability to make decisions based on values is distinguishing factor)
• based on an awareness of the uncertainty, complexity, instability, uniqueness and value conflict surrounding problems encountered in
practice.
• examples of professional judgement:
- making decisions about workflows and staff recruitment needs.
- making staff selection decisions
- advising clients on business decisions
- advising managers of accounting information relevance for business decisions
- planning for all types of professional assignments
application of - interpreting accounting standards and other professional pronouncements
18
professional judgement - identifying business and audit risks
- making assumptions in forecasts and estimates
- placing quantiative assessments on future liabilities for clients and others
- setting and revising budget parameters
- exercising judgement on the adequacy of non-financial information to be disclosed
- developing and assessong costing methods
- assisting in the strategic direction of clients
• key judgements required in auditing:
1. identify 'those charged with governance' in organisation
2. deciding whether reasonable assurance of limited assurance is possible
3. ensuring the budget for the audit is sufficient
4. deciding on an audit plan - ensuring 'sufficient audit evidence' has been identified
5. deciding whether the evaluation of results is appropriate and ensuring the conclusions are soundly based.

• one or more governing body drawn from the membership on a fully democratic basis
existence of a governing • will speak for the profession as a whole, apply standard setting and oversight, disciplinary sanctions (power to control a member's
19
body activities), ensure high standards of performance.
• body must be credible in the eyes of members and the public and regulate behaviour.
1.9. THE PROFESSION'S REGULATORY PROCESS

accounting professional
and ethical standards 19
board

• reviewing professional and ethical standards on a yearly cycle, and monitoring the needs of the accounting profession and the public for
areas requiring new or updated professional or ethical standards.
• reviewing the implementation of new and amended professional and ethical standards within six months of issue
APESB fulfils its role by 19
• referring matters to the secretariat for research, direction and amendment
• seeking comments on exposure drafts for proposed standards from the public, the professional bodies and their members.
• monitoring the effectiveness of professional and ethical standards

the quality assurance to help assure the quality outputs, the profession and regulators have developed a multi-level regulatory framework that encompasses
20
process many of the activities of private and public sector organisations.

[Link] setting responsibility for standard setting is with FRC (oversight responsibility) for the AASB & AUASB 20
APES 205 and APES 210 are two other, complementary standards.
• APES 205 Conformity with Accounting Standards requires accounting standards to be applied in relation to the preparation of general-
b. ensuring comformity
purpose financial statements 20
with standards
• APES 210 Conformity with Auditing and Assurance Standards requires auditing and assurance standards to be applied to auditing and
assurance engagements
reviewers appointed by CPA Australia visit public accounting firms and meeting with partners. These reviews occur on a 3, 5, or 7 year
c. practice reviews 20
basis, depending on the complexity of the members' practice
 • APES 320 establishes the basic principles of and provides guidance for a system of quality control that provides reasonable assurance
that a firm and its personnel comply with professional and regulatory requirements.
• APES 320 Quality Management for Firms that provide Non-Assurance Services - policies and procedures addressing the following:
1. Governance & leadership: develop internal culture focused on quality
2. Professional standards: to provide reasonable confidence that management and staff adhere to ethical requirements
3. Acceptance and continuance of client relationships and specific engagements: assessment of the integrity of the client and its ability
d. accounting firm
to perform the management 21
regulation
4. Resources: ensure there is sufficient human, technology, intellectual resources and service providers to perform engagements.
5. Engagement performance: assurance engagements are performed in accordance with professional standards and regulatory/legal
requirements
6. Information & communication: systems in place to ensure constant flow of communication and feedback on how engagements have
been conducted
7. Monitoring & remediation: ongoing evaluation of the firm's system of quality control, including periodic inspections

application of quality
management standards 22
by firms

• obligations on a CPA are set out in CPA Australia's Constitution and By-Laws, the Code of Professional Conduct and applicable
regulations. There is a formal investigative process where members do not uphold these standards.
professional discipline 22
• investigations and disciplinary processes are guided by the principles of procedural fairness (the right for a member to put forward their
case), confidentiality, independence and the right to appeal.
 the specific procedures for regulation are identified in:
• clauses 36-40 in the Constitution of CPA Australia Ltd (effective 11 May 2022)
• part 5 of the By-Laws of CPA Australia Ltd (effective 1 October 2023)

a complaint can be raised by any person including members of the public, members of CPA or the General Manager Professional Conduct
(GMPC) etc.

involvement in an adverse event may lead to disciplinary action being taken against a member

a. regulation of member adverse events can include:

• obtaining admission or renewing membership as a Member by improper means 24
conduct
• breaching the Constitution, By-laws or Code of Professional Conduct
• engaged in dishonourable practice or conduct that is derogatory to CPA members
• failing to observe a proper standard of professional care, skill or competence
• ceased to hold the necessary qualifications
• becoming insolvent
• pleaded guilty to or was found guilty of any offence
• being found to have acted dishonestly in any civil proceedings
• failing to comply with any reasonable and lawful direction of the Board
• being closely aligned with a practice entity which has become insolvent or relate to the above

(1) Initial Resolution Attempt: The complainant should first try to resolve the issue directly with the CPA Australia member.

(2) Formal Complaint: If the matter is not resolved, the complainant must submit a written complaint with full details and documentary
evidence.

(3) Review by GMPC: The complaint will be reviewed by the GMPC to determine its relevance. If deemed relevant, an investigation file
will be opened.

(4) Investigation by PCO: A Professional Conduct Officer (PCO) will be assigned to contact the member, provide details of the issue, and
process of dealing with
request an explanation. 24
complaints
(5) GMPC’s Recommendation: Once the investigation is completed, the PCO submits a report to the GMPC. The GMPC will then decide
whether there is a case to answer and make a recommendation to the CEO.

(6) CEO’s Decision: The CEO, based on the GMPC’s recommendation and any external advice, will determine if the member has a case to
answer. If so, the complaint will be referred to either a Disciplinary Tribunal or One Person Tribunal (OPT).

(7) Hearing and Outcome: The GMPC will notify both the member and the complainant of the referral, and an investigating case manager
(ICM) will prepare the case for hearing. After the hearing, a decision will be made, and both parties will be informed of the outcome

• forfeiture of membership
• suspension for up to 5 years
• a fine
• admonishment
b. penalties and appeals • severe reprimand 25
• lowering of status or removing special designation
• restricting member's use of CPA designation
• requiring hours of professional development to be completed
• direction to undertake quality assurance
PART B: INTERACTION WITH SOCIETY

Accountants create value by supporting high-quality decisions with relevant information, earning professional status and privileges in
introduction return. Society monitors their conduct, leading to regulation when necessary. To maintain professionalism, accountants must combine 28
technical and soft skills, including communication and leadership, and engage in continuous professional development.

an accountant's role is impacted by their key professional relationships:

• employers
• employees
relationships and roles 28
• clients
• peers
• regulations

accounting work
29
environments
sub-types of
29
environment and roles

the sole practitioner is practicing and providing services to SME and it would thus be considered a public practice. If the accountant was
sole practitioner an employee of the SME and did not have his/her own practice, then the accountant would be considered to be practicing in the private 29
sector

The findings revealed that 84% of SMP respondents offered business or consulting services to clients. The most common services
provided were:
IFAC Research (2016) • Tax Planning – 52% of SMPs offered tax planning services. 31
• Corporate Advisory Services – 45% provided advisory services, which included transaction support, due diligence, and financing advice.
• Management Accounting – 41% focused on management accounting, which involved planning and risk management.

entities considered to be of a SME size by reference to quantitative (i.e. assets turnover/employees) and/or qualitative characteristics (i.e.
32
concentration of ownership and management on a small number of individuals)
Professional Accountant
• in small SMEs, there may not be accountants on staff - which means they rely on public accounting firms to perform accounting
in Business (PAIB)
functions.
employed in SMEs
• in addition to accounting functions - CPAs have real value to add through profit-oriented business advice 32
• accountant in SME may have wider coverage (with a lower level of complexity) than in a large business environment. There will be less
staff, which may mean there will be a need to do more detailed work in the role

• PAIB Committee of IFAC focuses on accountants who work in commerce, industry, financial services, education and the public and not-
for-profit sector.
• PAIB can bring value if they acquire knowledge in the following areas:
Professional Accountant
- organisation's operating environment and business model
in Business (PAIB)
- strategic and operational planning, budgeting and forecasting 33
employed in IFAC
- lean operational management
Research
- finance fundamentals including core processes, systems and technology
- integrated thinking and reporting
- organisational management including culture, change and behaviour

• public sector - government and regulatory bodies (federal, state and local level)
• governments providing for-profit services:
Public Sector - GBE: Government Business Enterprises
33
Environment - SOEs: State Owned Enterprises
• accounting roles are very similar to the private sector - with a focus on financial reporting, internal audit, risk management and strategic
management accounting

• accountants may provide advice to high net worth individuals, businesses or other entities (i.e. trusts or foundations)
Financial Advice
• additional regulatory and educational obligations have been imposed on accounting professionals engaged in the provision of financial 34
Environment
advice through the imposition of education standards - sit a financial adviser exam administered by ASIC since January 2022

• Not-for-profit entities (NFPs): legal or social entities formed for the purpose of producing goods or services. Not seeking to make a
profit or financial gain for individuals involved.
Not-for-profit Sector
• In Australia, this segment is diverse and growing quickly. Approximately 60,000 charities registered in 2023. 34
Environment
• There is increasing complexity in the accounting space for NFP requires increasingly qualified staff to enhance efficiency and
effectiveness.
1.11. SOCIAL IMPACT OF ACCOUNTING
• accounting has a positive social impact (active rather than passive)
• the traditional vibe is that accounting is a 'neutral', beginning process, and managers may use accounting information objectively for the
benefit of the organisation in making business decisions.
• in reality, accounting is a social practice as well as a technical practice. Information provided by accountants is not always 'objective'
but maybe used to influence the way in which managers and other users of accounts think and behave . These decisions have significant
social consequences.
• reporting, which is reactive with respect to events, is the active foundation for a variety of outcomes and these outcomes actively
change social circumstances and entire societies. Reporting also supports future decision making by management, facilitating and
supporting change.
impact of accounting 35

• make information about the companies availble to the public

ASIC's role and • promote confidence by investors in the financial systems
36
responsibilities • review financial statements on an annual basis and raise concerns with the company if issues arise
• has an Audit Inspection Program, under which it looks at a selection of audits of the financial reports of public interest entities
1.12. CREDITIBILITY OF THE PROFESSION
• the creditibility of the profession has been damaged and there has been some loss of public trust in the integrity of accountants and the
reliability of the work they do
• accountants and auditors who have not performed their roles effectively are seen as responsible for the failures and inaccuracies that
37
have led to the decline in credibility
• the view is that the accounting profession did not fulfill its service ideal role as it did not prevent these situations by giving appropriate
advice to managers and/or making appropriate disclosures

• earnings management: use of techniques to manipulate the final profit and earnings figures - consider depreciation below - and the use
of 'estimates' to achieve particular outcomes
• creative accounting: using the choices available to present information in ways that do not clearly represent reality
key issues causing
• poor audit quality: perceived inability of auditors to identify a company in distress prior to collapse 38
reduced creditibility
• lack of auditor independence: where conflicted auditors do not act in the public interest
• financial accounting distortions: accounting has played a role in triggering financial distress, especially with mark-to-market techniques
that reduce asset values, which may lead to a breach of banking covenants.

earnings management - depreciation example: the corporation can choose policies on depreciation methods and estimated residual
values, which means there is scope to manipulate several measures to achieve higher bonuses
higher levels of depreciation:
• short-term: lower profits and lower asset levels
• long-term: rise in profits with lower asset levels
- may lead to a lower measurement base for a manager for LTIs. Lenders may be nervous due to lower profit levles and asset levels used as
example 39
security. Owners with short term approach may be frustrated by lower profits.
lower levels of depreciation:
• short-term: higher profits and higher asset levels
• long-term: lenders and owners have greater confidence in the organisation
- may reduce investments in assets in future, as assets assumed to have a longer lifespan that is actually the case. Written down values
may be higher than asset values at end of life
• payment of incentives that encourage the manipulation or misstatement of information
• lack of actual or perceived auditor independence
critical matters • lack of audit effectiveness both through lack of skill or deliberate action
identified in the IFAC • too much flexibility and loopholes on reporting practices 40
study
each of these issues are examples of accountants acting in a self-interested way, that ignores the public service ideal. It may also suggest
an absence of the level of technical skill expected by the public

strategies aimed at reducing the likelihood and severity of corporate failures

• establishment of the FRC: The Financial Reporting Council has responsibility for oversight of the process for setting accounting
standards (AASB) and auditing standards (AUASB) and monitoring the effectiveness of auditor independence
• accounting standards are backed by law : created and enforced by regulations. Responds to the issue of creative accounting - there are
penalties imposed by law
• auditors must apply the code of ethics: compiled APES 110 Code of Ethics for Professional Accountants has legislative application to
restoring creditibility to
auditors 40
accounting
• FRC responsbile for auditor independence: reduction in the autonomy of the accounting profession likely to meet community
expectations
• ehanced regulation: developed globablly, including Sarbanes-Oxley Act, COSO and CLERP 9 in Australia
• adoption of international standards: many countries utilise the same standards (i.e. IFRS)
• the reduction of profession's autonomy: loss of public trust helps to explain why some autonomy has been taken away from the
profession, and external regulation increased to co-regulation
1.13. CAPABILITY CONSIDERATIONS
• requires vision, energy and drive
business leadership
• desire to be strategic and be a key contributor to improvement and strategic growth of an organisation 41
capabilities
• requires the steady accumulation of skills, knowledge and experience
• financial reporting
• taxation
technical skills,
• financial accounting
knowledge and 41
• management accounting
experience (TSKE)
• relevant IT and technical communications knowledge
• an understanding of regulations, laws and company structures
• listen
• understand complex and difficult issues and their role in the decisions of others
• communicate effectively
soft skills, knowledge • discuss and debate without hostility
41
and experience (SSKE) • manage time
• meet deadlines
• build and improve capabilities
• assertiveness (if there are equally qualified candidates, soft skills will be used to differentiate yourself compared to others)

• CPA recognises both TSKE and SSKE activities as satisfying CPD requirements
TSKE & SSKE - career
• Blanthorne, Bhamornsiri and Guinn found that early in an accountant's career, TSKE skills were most valued by employers. In later stages 42
perspectives
of the accountant's career, SSKE skills are most valuable, and will often be the basis of advancement to partnership.