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Ethical Principles in Finance & Accounting - Coggle Diagram

- - - - applicable laws, rules, and regulations
        
        In case of conflict or
        Multiple regulation or law
        
        Applied the stricter/strictest regulation or law
        TO EACH ACTIVITY
        
        of any government,
        regulatory organization,
        licensing agency
        Professional association
        
        governing their professional activities
    - - from any VIOLATIONS of such
        laws, rules or regulations
      - Dissociate step requirement
        
        Escalate
        
        Notifying supervisor or manager
        
        Dissociate
        
        Removing name from written reports or recommendation
        
        Refusing accept a new client
        
        Resigning from employment
    - - Lecture 2 - slide 13
  - - - They should always act in the best interest of their clients and avoid any conflicts of interest.
    - - Receiving anything that could influence their judgment or decisions is prohibited
    - - They must avoid situations that could create the impression of bias or favoritism.
  - - - Be honest
        
        about your professional
        
        firm perfomance
        
        any involved risk
        
        Source or marerial
- - - - Fairness, biased to insiders
      - • Distort prices (volatility/risk is the outcome that investors are seeking to avoid)
      - • Impact on market participants including international investors (Australia – 2.4% of world market capitalization)
    - - Non Public Material Information
        
        Non public information
        
        information before dissemination or available to the marketplace
        
        Selective disclosure information
        
        available to a certain group only
        
        Material
        
        Information that it disclosures could likely have impact on price of security
        
        Example
        
        Earnings updates
        
        • Mergers, acquisition, tender offer or joint ventures
        
        • Changes in assets or asset quality
        
        • Innovative products, processes or discoveries
        
        • Changes in management
        
        • Bankruptcies
        
        • Information classified as material can extend beyond that specifically related to a company, to that of broader economic / government-controlled information
        
        Assessment
        
        Specificity
        
        relevance to the actual firm, not just industry or country
        
        1 more item...
        
        Nature
        
        Uniqueness
        
        1 more item...
        
        Reliability
        
        The more reliable, the more material
        
        Materiality
        
        according to CFA standard - any price movement
      - Disclosure
        
        Flowchart
        
        TOPIC 3 PAGE 20 and 21
        
        ASX - Rule 3.1 and 3.1a
        
        Once an entity is or becomes aware of any information concerning it that a reasonable person would expect to have a material effect on the price or value of the entity’s securities, the entity must immediately tell the ASX that information
      - Mosaic Theory
        
        Financial analyst could USE Public information and Non public - NON MATERIAL information when provide service
        
        Members and candidates may seek insight from individuals who have specialized expertise in an industry. However, they may not act or cause others to act on any material non-public information obtained from these experts until that information has been publicly disseminated
        
        When gathering information from the internet or social media sources, members and candidates need to be aware that not all of it is considered public information. Members and candidates should confirm that any material information they receive from these sources is also available from public sources, such as company press releases or regulatory filings
      - PROCEDURE FOR COMPLIANCE
        
        firewall
        
        boundary/constraint on the person/people that needs to KNOW or NOT know the information
  - - - Information based manipulation
      - Transaction based manipulation
- - - - Identify [CLIENT]
      - Gift/reward
        
        Members must also ensure that;
        a) any potential benefits arising to them / their employer (such as cash, soft-dollar (non cash) benefits in the form of say holidays, gifts etc.)
        
        which results from the actions of the client (for example, to invest in a particular investment such as a managed fund),
        
        should be disclosed to / ratified by, the client or they should seek to direct the benefit to the client –rather than themselves.
        
        Direct brokerage
        
        Directed brokerage is a common practice in the financial advisory industry where fund managers or brokers provide incentives to investment advisors to recommend their products. These incentives can take the form of cash or non-cash benefits.
        
        The issue with directed brokerage is that clients are ultimately paying for these incentives through higher fees. Investment advisors must disclose these potential benefits to clients and seek to direct them to the client rather than themselves.
        
        Soft commission
        
        Personal benefit=> Violation: If an investment manager uses soft dollars to personally benefit themselves, without disclosing this to their clients, it is considered a violation of their fiduciary duties. This is because the manager is using the client's money for their own gain.
        
        Client Benefit:
        =>
        No Violation: If the manager directs soft dollar payments to benefit their clients (e.g., purchasing research reports or trading software), it is generally not considered a violation. This is because the manager is using the client's money to improve the services they provide.
    - - requires investment professionals to exercise reasonable care in their dealings with clients. This means acting with the same level of prudence, judgment, and care that they would use in managing their own finances or those of their family.
        
        Prudence: Investment professionals must act with caution and discretion.
        
        Reasonable care: They must act with the same care, skill, and diligence as a reasonable person in a similar position would.
        
        Client vulnerability: Due to their expertise, investment professionals have a responsibility to protect their clients' interests.
        
        Disclosure: Investment professionals must disclose any potential conflicts of interest or benefits they may receive.
      - Assessment of reasonableness would relate to what is realistic and suitable to the client’s circumstances and that the risks involved are appropriate in most circumstances, recommended investment strategies should generally relate to the medium to long-term objectives and circumstances of the client.
        
        • In addition, any guidelines/requirements set by their clients for the management of their assets should be followed.
  - - - Investment recommendations:
      - Investment action (management)
    - - Limiting the number of staff with information regarding client investment recommendations
      - Developing and documenting trade allocation procedures.
        
        Fairness to advisory clients, both in priority of execution of orders and in the allocation of the price obtained in the execution of block orders or trades.
        
        Timeliness and efficiency in the execution of orders.
        
        Accuracy of the records of trade orders and client account
      - Limit
        
        FAIRLY but NOT EQUALLY
        
        could not possibly reach all clients at exactly the same time whether by printed mail, telephone, computer.
        
        each client has unique needs, investment criteria, and investment objectives, so not all investment opportunities are suitable for all clients.
        
        adviser may provide more personal, specialized, or in- depth service to clients who are willing to pay for such “premium” services
        
        Different service levels should be disclosed to clients and prospective clients and should be available to everyone:
        
        Different service levels should not be offered selectively
        
        Practical consideration as to whether clients can afford fees attached to such service levels is not relevant to this issue and in general acts as the main point of differentiation between clients.
        University of Adelaide 31
  - - - May include assessment of
        
        client risk profile
        
        Financial position vs risk profile
    - - Page 39 TOPIC 4
- - - - Evaluation threat
      - Addressing Threat
      - Identify threat
        
        Self review threat
        
        Advocate threat
        
        Familiarity Threat
        
        Intimidation threat
        
        Self interest threat
    - - Section 110: Integrity
      - • Section 120: Objectivity
      - • Section 130: Professional Competence and Due Care
      - • Section 140: Confidentiality
      - • Section 150: Professional behaviour
    - - Safeguards are actions or other measures that may eliminate threats or reduce them to an acceptable level.
      - • Safeguards created by the profession, legislation or regulation:
        
        Ø Education, training and experience requirements for entry into the profession
        
        Ø Corporate governance
        
        Ø External review
      - • Safeguards in the work environment:
        
        Ø Explicitly stated duty to report breaches of ethical requirements
        
        Ø Effective, well-publicised complaint systems
    - - In resolving conflict (to remove or reduce the likelihood of one or more threats arising), a member should refer to the following issues when undertaking this process
        
        • Relevant facts
        
        • Ethical issues involved
        
        • Fundamental principles related to the matter in question
        
        • Established internal procedures
        
        • Alternative courses of action