Fundamentals of Ethics, Corporate Governance & Business Law (C05) Syllabus
This syllabus broadly covers the legal framework for business and how it underpins commercial activity through employment law, contract law, financing, administration and management of organisations. The introduction of alternative legal systems as well as the English legal system addresses the globalisation of business.
Professional negligence is examined by way of judicial precedent as well as the importance of the highest professional standards being applied at all times. Ethics and ethical conflict also plays an important part within the syllabus as well as how corporate governance can impact the management of organisations.
CIMA Fundamentals of Ethics Syllabus
The C05 syllabus is divided into seven areas with different study weightings as follows:
A. Ethics and business 15%
B. Ethical conﬂict 10%
C. Corporate governance 10%
D. Comparison of English law with alternative legal systems 10%
E. The law of contract 20%
F. The law of employment 10%
G. Company administration and ﬁnance 25%
Fundamentals of Ethics, Corporate Governance and Business Law, Detailed Syllabus
A. Ethics and business
• The importance of ethics.
• Values and attitudes for professional accountants.
• Legal frameworks, regulations and standards for business.
• The role of national ‘Professional Oversight Boards for Accountancy’ and ‘Auditing Practices Boards’.
• The role of international accounting bodies e.g. IFAC.
• The nature of ethics and its relevance to business and the accountancy profession.
• Rules based and framework approaches to ethics.
• The ‘Seven Principles of Public Life’ – selﬂessness, integrity, objectivity, accountability, openness, honesty and leadership.
• Personal development and lifelong learning.
• The personal qualities of reliability, responsibility, timeliness, courtesy and respect.
• The ethical principles of integrity and objectivity.
• Professional competence, due care and conﬁdentiality.
• Disclosure required by law.
• The concepts of independence, scepticism, accountability and social responsibility.
• The CIMA and IFAC ‘Code of Ethics for Professional Accountants’.
B. Ethical conflict
• The relationship between ethics and the law.
• The distinction between ethical codes and contracts.
• Corporate governance and social responsibility.
• Unethical behaviour.
• The consequences of unethical behaviour.
• The nature of ethical dilemmas.
• Conﬂicts of interest and how they arise.
• Ethical conﬂict resolution.
• The CIMA Code of Ethics for Professional Accountants – ‘Fundamental Principles’.
C. Corporate governance
• The role and key objectives of corporate governance.
• The interaction of corporate governance, ethics and the law.
• The development of corporate governance internationally e.g. in the UK, Europe, South Africa and the USA.
• Rules and principles based approaches to governance.
• The impact of corporate governance on directors’ powers and duties.
• Types of board structures, the role of the board and corporate social responsibility (CSR).
• The role of the board in establishing corporate governance standards.
• Corporate governance codes e.g. The UK Corporate Governance Code.
• Policies and procedures for ‘best practice’ companies.
• The regulatory governance framework for companies.
• Stakeholder beneﬁts.
D. Comparison of English law with alternative legal systems
• The purpose of the civil and criminal law.
• The sources of English law: custom, case law, statute, European law and other sources.
• The distinction between the common law and equity.
• The system of judicial precedent.
• The essential elements of the tort of negligence, including duty, breach and damage/loss/injury and the liability of professionals in respect of negligent advice.
• Alternative legal systems, including codiﬁed (civil law) systems.
• The general characteristics of the legal systems of France, Germany, Poland, Italy, Denmark, Greece and Cyprus.
• The general characteristics of the legal systems of the USA, Malaysia, China and Sri Lanka.
• Elements of Shari’ah law including sources of Shari’ah law and the Five Pillars of Islam.
• The beneﬁts of international regulations for commerce and professional practice through the work of key bodies e.g. IFAC, ISO, FEE.
E. The law of contract
• The essential elements of a valid simple contract.
• The legal status of statements made by negotiating parties. Offers and acceptances and the application of the rules to standard form contracts using modern forms of communication.
• The principles for establishing that the parties intend their agreement to have contractual force and how a contract is affected by a misrepresentation.
• Incorporation of express and implied terms, conditions and warranties.
• The main provisions of the Sale of Goods Act 1979 and the Supply of Goods and Services Act 1982.
• Excluding and limiting terms; the Unfair Contract Terms Act 1977 and the Unfair Terms in Consumer Contracts Regulations.
• Discharge of a contract by performance, agreement and breach.
• The law relating to frustration.
• The law relating to damages.
• The remedies of speciﬁc performance, injunction, rescission, and requiring a contract party to pay the agreed price.
F. The law of employment
• The tests used to distinguish an employee from an independent contractor.
• The express and implied terms of a contract of employment.
• The rights and duties of employers and employees.
• Notice and dismissal.
• Unfair and wrongful dismissal.
• The main rules relating to health and safety at work, sanctions on employers for non-compliance, and remedies for employees.
• Social security compensation.
• Civil liability for occupational injuries.
G. Company administration and ﬁnance
• The essential characteristics of sole traderships/practitionerships, partnerships, companies limited by shares and corporate personality.
• ‘Lifting the corporate veil’ both at common law and by statute.
• The distinction between public and private companies.
• Company registration and the advantages of purchasing a company ‘off the shelf’.
• The purpose and contents of the articles of association.
• Corporate capacity to contract.
• The advantages and disadvantages of the company limited by shares.
• Board meetings: when used and the procedure at the meeting.
• General Meetings of shareholders: when used and the procedure at the meeting.
• The voting rights of directors and shareholders.
• Ordinary, special and written resolutions and their uses.
• The rights attaching to different types of shares.
• The procedures for issuing shares.
• The issue of shares for an improper purpose.
• Payment for shares.
• The maintenance of capital principle: the purposes for which shares may be issued, redeemed or, purchased and the provision of ﬁnancial assistance for the purchase of the company’s own shares.
• The reduction of capital.
• The ability of a company to borrow money and the procedure to be followed.
• Unsecured loans, and the nature and effect of ﬁxed and ﬂoating charges.
• The appointment, retirement and removal of directors and their powers and duties during ofﬁce.
• Fraudulent and wrongful trading, preferences and transactions at an under-value.
• The rights of majority and minority shareholders.
• The division of powers between the board and the shareholders.
• The qualiﬁcations, powers and duties of the company secretary.
CIMA Fundamentals of Ethics, Corporate Governance and Business Law Past Papers
(a) Identify and explain the sources of English Law.
(b) Bee plc owned 5% of the shares in Cee plc and was considering making a take-over bid for the shares in Cee plc. In December 2000, Bee plc wrote to Cee plc's auditors, A & Co, asking if their audit report could be relied upon as representing an accurate review of the financial position of Cee plc. Tom, the senior partner of A & Co, replied in writing that Bee plc could indeed rely on the accuracy of their report. As a result, Bee plc submitted a take-over bid and gained control of the entire share capital of Cee plc. Bee plc has now discovered that Cee plc's assets are worth far less than stated by A & Co in their audit report. Bee plc considers this to have been caused by A & Co carelessly overvaluing Cee plc's assets. This resulted in Bee plc. paying more for the shares than it would have done had the truth been known.
As the Finance Director of Bee plc, write an internal memorandum to the board explaining whether Bee plc. appears to be entitled to receive any compensation from A & Co.
(Total = 25 marks)
(a) By reference to examples, explain:
(I) the remedies available to the innocent party in the event of a breach of a condition or a warranty. (12 marks)
(II) how the law determines whether a contractual term is a condition or a warranty.
(b) Charlotte is a self-employed Business Consultant. She contracted with Zed plc to carry out a thorough review of the company's operations. The review was to last 8 weeks and to commence on 5 February 2001. The contract included the following terms:
Clause 1: "It shall be a term of this contract that Charlotte will attend the board meeting of Zed plc to be held on 5 February 2001."
Clause 2: "A breach of Clause 1 of this agreement shall entitle Zed plc to terminate the contract." Charlotte was ill on 5 February 2001 and her secretary sent a fax to Zed plc apologising for the fact that she would not be able to start until 9 February 2001. Charlotte has now been advised that Zed plc has terminated her contract.
Explain whether Charlotte is entitled to any compensation in respect of Zed plc's actions. (5 marks)
(Total = 25 marks)