b.Audit Committee The data collected regarding with respect to audit committees was converted into a score for each aspect and then added to arrive at a score for each company (Refer Appendix II for converting data into scores). Finally, the report discusses some recommendations about current disclosures to assist stakeholders in assessing the transparency and accountability of companies. Corporate governance essay conclusion >>> CLICK HERE TO CONTINUE Essay about love in action Ppsc syllabus civil judges cum judicial magistrat the written examination shall comprise eight compulsory subjects 2 precis writing, use of idioms and an essay … Apple scored low because of the smaller size of the Board of Directors, poor description of skills of directors, and smaller number of sub-committees. Some of the lower score in Germany is because of less information, which means that disclosure is relatively poor even though actual practice may not be. It is the manner or a specific set of ways in which the objectives of an organization are achieved. My family my strength essay for class 4 governance essay Corporate sample. Shareholders use historic data to predict future earnings, so they are interested in risks which may reduce earnings and cash flows in the future. Size of Board of Directors and diversity (skills) are also important. The Financial Reporting Council is the UK’s independent regulator responsible for promoting corporate governance. Contents INTRODUCTION 1 CORPORATE GOVERNANCE AND ROLE OF MANAGERS 1 STAKEHOLDERS AND THEIR NEEDS 2 LEADERSHIP AND MANAGEMENT PROCESS 3 DIFFERENT CORPORATE GOVERNANCE MODEL AND STRATEGIES 4 CONCLUSION 6 REFERENCES 6 INTRODUCTION This assignment is aiming to identify and critically evaluate the role of institutional … Companies in Australia also scored lower in the number of audit committee meetings in a year. The main corporate governance disclosures regarding the board of directors of a company are shown in Table 1. German firms were the lowest scorer, mainly due to their two-tier board structure. The reporting of the internal control function to the senior management creates doubt about its effectiveness. Annual report 2013. Conclusion on corporate governance essay. External stakeholders will be sceptical about the ability of the internal control function to report frauds being conducted by the management. [Online] Available at: [Accessed 9 April 2014] Banks, E. (2004). My pet dog essay 300 words dissertation topics for mechanical engineering. A number of committees, such as Turnbull Report, Myners report and Higgs Report, have refined the corporate governance practices in the UK since the Cadbury Committee report in the early 1990s (Tricker, 2012). Using collateral to secure loans. This disclosure increases the reliability of information in financial reports to the users, and suggests that financial statements of the company are useful for decision making. In the case of Olympus, the board of the company fired its CEO for questioning suspicious transactions. This will increase accountability of independent directors and they will take their role more seriously. The experience and skills of the Board of Directors is also useful in analysing whether audit committee members have right skills in assessing financial reports. Corporate governance is an inevitable problem to a company. The annual report of BHP Billiton showed pie charts with age, skill and location distribution of its Board of Directors. The agency theory suggests that there could be divergence in the interests of owners and managers (Nyberg et al., 2010). Current and prospective employees use financial reports to determine whether the business would be a going concern in the short and medium term. The website is funded by adverts which cover the cost of our hosting and domain renewal. The score of Germany was 5, which is because of the composition of its Board of Directors. They are intended to provide a reference point for companies about their corporate governance structures and practices. It is also recommended that each company should establish a guideline which should state that if a corporate fraud is more than a certain amount or percentage of its equity, then the internal control function would report to the audit committee with regards to investigation of that fraud. Types of claims in an essay, essay on my favorite cartoon character pokemon governance Conclusion on corporate essay, essay on one thing i would change in the world, essay about social behavior. This behaviour of audit committee reduces assurance of investors and lenders regarding financial reports. The review of non-audit fees is more important in the US because of the regulatory requirement under the Sarbanes-Oxley Act. This is useful for an investor who wants to analyse the impact of government austerity measures on future revenues of the firm. The maximum possible score was 15. This was much easier to grasp than the descriptions seen in the majority of the cases. This would increase the independence of the internal control function and reduce the potential of financial statement frauds by the management. Type of paper: Essay Topic: Corporation, Government, Information, Finance, Board, Governance, Accounting, Committee Furthermore because of the hierarchal nature of corporate governance it becomes evident that good leadership is equally essential. Similar requirement is also observed in the three other countries, which illustrates the importance of financial knowledge and experience in detecting and preventing financial statement frauds. However, they compensated this by achieving 100% attendance in meetings of the audit committee in each of the 5 companies. ??V. ...(download the rest of the essay above). Hence it can be recommended that the company should have an effective corporate governance structure with the inclusion of Governance Code provisions an… This also makes it difficult to report any violation by the senior management. Evaluation of disclosures by companies This section compares corporate governance disclosures by 5 companies in each of the 4 countries. (2007). The management of the company is more involved in assessing external auditors, whereas the audit committee serves as a witness to management’s procedures and approves management’s selection decisions (Fiolleau et al., 2012). Essay Sauce is the free student essay website for college and university students. Shareholders review financial statements to see trends in past performance to form an opinion about the future earnings of the company. This has to be weighed in, but the loss of wealth of shareholders in a large company due to fraud is more important. From inaction to external whistleblowing: The influence of the ethical culture of organizations on employee responses to observed wrongdoing.? Annual report 2013. EssaySauce.com is a completely free resource for students. The disclosure of internal control and risk reporting gives higher assurance regarding the future earnings of the business. VII. Government agencies typically use the historic data in financial reports to determine tax obligations of a company, and whether the business is solvent. The inclusion of names and skills of all directors of Supervisory Board in companies based in Germany is not going to have same information impact on stakeholders. This is because the Sarbanes-Oxley Act of 2002 requires companies listed in the US stock exchanges to obtain an attestation from external auditor on management’s assessment of internal control. The disclosure requirements in 5 companies in each of the 4 countries are also evaluated to notice similarities and differences in their emphasis on good corporate governance. There was no mention of the maximum non-audit fees, either as an absolute number or as a percentage of audit fees. The difference in the coverage to risks and controls is also because of the variation in size and risks faced by businesses. Actual independence depends upon actions taken by the Board of Directors and is not possible to analyse with the data in annual reports. The fact that bank failures have to a large degree been concentrated in Anglo-Saxon countries also suggests that no one corporate governance system is superior, despite the widely accepted view in the academic literature claiming that investor protection is higher in common law countries (such as the UK and the US) than in civil law countries (such as France and Germany). Figure 1: UK ‘ Board of Directors Companies in the US scored lower than in the UK since their average score was 12 (Figure 2). No information regarding the directors of the Supervisory Board also makes it difficult to give any score on independence of directors. Annual report 2013. Figure 11: Australia ‘ Reporting on internal control and risks The score of each company in Germany was also 4 (Figure 12). It was difficult to observe skills in the case of German companies, as they did not disclose individual audit committee members in their annual reports. The brightest students know that the best way to learn is by example! The main corporate governance disclosures regarding the audit committee are shown in Table 2. Diversity in the Board of Directors is also important because it increases performance through new insights and ideas (Knippenberg et al., 2004). [Online] Available at: [Accessed 9 April 2014] German Corporate Governance Code (2013). The content on risk and internal control can be overwhelming for investors, especially individual investors who wish to know about the future prospects of a company but find it too time consuming to go through all content in an annual report. There is a risk that some experienced people may not wish to take non-executive director roles because of the increased accountability. This increases accountability. Wal-Mart (2013). Therefore, they rely on audit committees and internal reporting to assure themselves about the quality of financial reporting. A company’s internal control procedures includes policies that (1) pertain to the maintenance of records of transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements; and (3) provide assurance regarding prevention or timely detection of unauthorised acquisition, use, or disposition of the company’s assets (Apple, 2013). Conclusion Successful corporate governance can be achieved by adopting a set of principles that depends upon, honesty, generosity, justice and the manner in which companies conduct their affairs. [Online] Available at: [Accessed 12 April 2014] Siemens (2014). Buffalo case study immune system essay about worst inventions how to write an essay on how i spent my easter holiday. [Online] Available at: [Accessed 10 April 2014] Henkel (2014). Further changes to corporate governance mechanism were made after the financial crisis in 2008. The Making of a Democratic Economy: How to Build Prosperity for the Many, Not the Few by Marjorie Kelly, Ted Howard, Naomi Klein (Foreword). There was no data regarding the attendance in the audit committee; a score of 1 was awarded to each of the 5 companies. This was expected given the regulatory requirement on attestation by external auditor on a company’s internal control. It will also help users of annual reports to see if the management of the firm is prioritising more on areas that need greater attention. Annual report 2013. d.Germany The corporate governance system in Germany is significantly different from the Anglo-American model (Solomon, 2007). Schedule 14A. Rezaee et al. (a) Introduction Effective corporate governance mechanism, professional and ethical board of directors and senior management, proper internal control system and sound legal system and regulatory framework are the conditions leading to a successful capital market. The maximum possible score was 5. The above analysis shows that audit committee and internal reporting on control and risks increase assurance regarding the quality of financial reports to external stakeholders. The public listed companies are required to either comply with the UK Corporate Governance Code or explain non-compliance in their annual reports. As a concluding statement, it has been observed that Tesco PLC has been known for its misstatement of profits in accounting books to grab the attention and investments of the shareholders to increase profits. However, it is difficult for users to comprehend the actual steps being taken. Figure 10: US ‘ Reporting on internal control and risks Scores were similar and 4 each in the case of 4 companies in Australia; only Sonic Healthcare had a lower score of 3 (Figure 11). A review of the annual reports of companies shows more emphasis on internal control in the recent year. The information in annual reports is used by many stakeholders to make economic decisions. The disadvantage of this reporting structure is that the internal control may find it difficult to highlight an issue if the senior management engages in financial frauds. My baby brother essay. Schedule 14A information. The extent of qualitative information about fraud detection, and internal control and risks is important for stakeholders because of the large scale losses suffered by many of them from corporate frauds in firms like Enron and WorldCom. Table 2: Audit committee disclosure norms Again, scores of the UK, the US and Australia were same and 7 out of 7. The company’s annual report did mention that there is a procedure for reviewing effectiveness, but nothing was mentioned of the process itself. Figure 9: UK ‘ Reporting on internal control and risks The score of all 5 companies in the US was 5 (Figure 10). This does not mean that corporate governance, with regards to board of directors, is substantially low in Germany. This may allow the risk or fraud to continue for a longer duration. Corporate governance is an internal mechanism to minimise this divergence. Bayer (2014). The objective of the internal control audit by an external auditor is to assess the risk that a material weakness exists within the functions of an organisation, which can have a negative impact on its valuation. From the 1980s America is making […] Conclusion. They give more assurance to users of reports regarding the authenticity of financial statements. Academia.edu is a platform for academics to share research papers. This page of the essay has 7720 words. However, there are some limitations in both disclosures, but it is better to have these disclosures than not having them. It is a way of indicating that management’s own assessment is not sufficient as exemplified by corporate frauds in large companies. Germany scored only 7 out of 11. The UK, Australia and Germany scored 3 out of 4, while the US had a score of 4. Example Of Corporate Governance Essay. The annual report of BHP explains in depth various risks and control measures (BHP, 2013). Ender's game compare and contrast essay? If you are authenticated and think you should have access to this title, please contact your librarian. The practice of good corporate governance helps to differentiate one organisation from others. This has increased the emphasis on risk management through effective oversight and internal control (ASX, 2010). Since risk has a material impact on the future earnings and cash flows, it is recommended that major risk elements and controls in place to mitigate them should be presented in a bulleted summary somewhere (ideally in early chapters) in an annual report. Some countries, such as the UK, allow variation in the minimum number of audit committee members on the basis of the size of the company. We've got thousands of real essay examples for you to use as inspiration for your own work, all free to access and download. The requirement to attest is a regulatory requirement in the US under the Sarbanes-Oxley Act of 2002. Corporate governance best practices. The matrix may not be a complex one ‘ a simple three-tier ranks of high, medium and low ‘ would be sufficient to help users of annual reports. Conclusion Corporate governance is a process which is concerned about how corporations are managed, how managers are governed, what questions face by boards of directors and the accountability a corporation has to shareholders. These principles are guidelines only for firms to follow, that is, firms have the choice either to implement those principles or state reasons for deviations in annual reports in the case of a failure to achieve full compliance (GLG, 2010). This nomination process reflects the nature of management-worker relationship in Germany. Schedule 14A. Annual report 2012-2013. c.Australia The Corporate Governance Council of the Australian Stock Exchange (ASX) has a guide titled ‘Corporate Governance Principles and Recommendations’ which lists corporate governance guidelines for a public listed firm (ASX, 2010). Responsibility of having a pet essay. Public listed companies are also required to follow additional governance standards stipulated by stock exchanges in the country. The recent events have included UK banks, such as HBOS, being rescued by banks (such as the Spanish Santander Group) based in countries with corporate law... You are not authenticated to view the full text of this chapter or article. Buy the book.As Naomi Klein notes in the Forward, We need to know what we are for as well as what we’re against…It’s not enough to imagine that another world is possible; we need to be able to picture it, experience it in miniature, feel and taste it. Failure in corporate governance is a serious risk to the opportunities of all companies or firms. Disclosure requirements This section of the report reviews the disclosure requirements in four countries with regards to board of directors, audit committee and internal controls and risks. Introduction Corporate governance is a system of policies, regulations, procedures which are meant to openly define the responsibilities, duties and accountabilities in an organization, firms or business unit. However, the amount of description of risk assessment and controls varies in annual reports. One of the challenges faced by both scholars of corporate governance and by organizations that intend to provide enabling frameworks for good corporate governance is the complexity of the relationships that exist between companies on one side and their shareholders, stakeholders and gatekeepers on the other side. The company must be able to align carefully their corporate governance approach with its organizational objectives. If this was the treatment given to the CEO, employees at lower level could not have thought of reporting the fraud without being severely reprimanded. Corporate governance means the idea of ensuring proper management of companies through the institutions and mechanisms available to the shareholder. None of the company scored in the category on attestation by external auditor on management’s assessment of the company’s internal control. Understanding corporate governance in the United States. A brief review of corporate governance development and regulations in each of the four countries is given below before the evaluation of their practices. [Online] Available at: [Accessed 10 April 2014] Tesco (2013). Secondly, the annual report should disclose all financial frauds over a certain amount or percentage of equity of the company. In the event of failure of the audit committee, the designated independent director should be approached first and his actions should be reviewed. The major objective of corporate governance is to ensure that the interests of stakeholders, managers are met and this will eventually lead to the elimination of possible […] The ASX principles make corporate governance more efficient and business more transparent, and improve investors confident. Therefore, the reporting on internal control and risks should be viewed in light of the risks faced by a business. Corporate governance is an internal mechanism to minimise this divergence. Figure 3: Australia ‘ Board of Directors German companies had the lowest average score of 9 (Figure 4). References Adidas (2013). Users of annual reports would find it much easier to look at these graphics for analysing the diversity and experience of the Board of Directors, and therefore it is recommended that companies should adopt similar presentation formats. c. Reporting on internal control and risk A company’s internal control plays an important role in the management of risks. Conclusion. The Cadbury Committee played an important role in the development of corporate governance code in the UK. Shareholders are interested in capital gains and dividend income, and therefore they are interested in prospective earnings and risks. They want the company to be profitable to have assurances about their job prospects, but are less concerned than shareholders about the level of profits and returns. Therefore, it is important to analyse and compare corporate governance practices among countries and firms. This is useful in giving assurance to investors since the skills of the audit committee members would be useful in detecting and preventing financial statement frauds. Elgar Online: The online content platform for Edward Elgar Publishing, Encyclopedia of Private International Law, Encyclopedia of Law and Economics, 2nd Edition, Elgar Encyclopedia of International Economic Law, Corporate Governance and Complexity Theory, UK legislation, European legislation and table of cases, Chapter 2: An Introduction to Complexity Theory – Some Insights, Chapter 4: Corporate Governance and Corporate Performance, Chapter 5: Complexity and Corporate Governance, https://doi.org/10.4337/9781849808002.00011. Audit committees are formed to improve external auditor independence by reducing the influence of the management on auditors. If you use part of this page in your own work, you need to provide a citation, as follows: Essay Sauce, Corporate governance. Recommendations This section of the report discusses how current disclosures can be made more informative to assist in assessing the transparency and accountability of corporations. Corporate Governance What is Corporate Governance? The assessment of internal controls by external auditors is a regulatory requirement in the US. Internal control and risks disclosure increase information of stakeholders regarding earnings in the future. Hoboken: John Wiley & Sons. Corporate governance is considered as an important means for paying heed to investors’ grievances. UK – Data UK – Score US – Data US ‘ Score Australia ‘ Data Australia ‘ Score Germany ‘ Data Germany ‘ Score Appendix II ‘ Audit committees: Companies data and scores Scores (scores in brackets) Independent of not: Yes (1); No (0) Size of the committee: 5 or more (2); 3-4 (1); Less than 3 (0) Number of experienced members in the committee: 3 or more (2); 2 (1); 1 or less (0) Number of meetings in a year: 6 or more (2); 3-5 (1); Less than 3 (0) Attendance in meetings: More than 90% (2); Between 75-90% (1); Less than 75% (0) Consideration of non-audit fees: Yes (1); No (0) Responsible for external audit review/selection: Yes (1); No (0) UK – Data & Score US – Data & Score   Australia – Data & Score Germany – Data & Score   Appendix III ‘ Reporting on internal control and risks Scores (scores in brackets) Summary of policies for the management of business risks: Yes (1); No (0) Management to report the effectiveness of the company’s management of its material business risks: Yes (1); No (0) Review of effectiveness of internal audit review/control functions: Yes (1); No (0) Attestation by external auditor on management’s assessment of the company’s internal control: Yes (1); No (0) Summary of process used in reviewing effectiveness: Yes (1); No (0) UK -Data& Score US – Data & Score Australia – Data & Score Germany – Data & Score. Investors and lenders use are interested in all financial reports, whereas government agencies are less likely to review reports unless a company declares or is close to bankruptcy. Protection of employees is important because most external whistle-blowers first blow the whistle internally (Kaptein, 2011). It is related to the life of a company. Risk is an important topic in the majority of annual reports, but information on risk is not typically available in one place in annual reports. for students : all the ingredients of a good essay, Home » Business essays » Corporate governance. Annual report 2013. Corporate governance is important because of the separation of the ownership from management (Tricker, 2012). Figure 8: Germany ‘ Audit Committee The scores of companies in the UK and the US were similar, while average score of companies in Australia and Germany were lower. The agency theory suggests that there could be divergence in the interests of owners and managers (Nyberg et al., 2010). This is difficult to test in real cases but field experiments regarding the procedure adopted by companies for selecting auditors have found limited involvement of the audit committee in the auditor selection decision (Fiolleau et al., 2012). The above analysis shows that various stakeholders use financial reports for economic decision making, but some use it more often than others. This will allow investors to focus quickly on major risks and look for steps being taken to mitigate them. All companies state that they have procedures for risk assessment and measuring effectiveness of internal control, but some corporations devote substantial part of their annual report on describing risks and controls. Also, this is just a measure of independence of directors. 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