principle of corporate_governance

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1.1 Introduction

The ultimate objective of companies is to keep maximising profitability given the

rules and regulations implemented by the government and accounting practices i.e.

(GAAP). The owners of an entity (shareholders) appoint the appropriate people,

(directors) who are responsible to report back to them on performance.

The directors in turn take the responsibilities to delegate day to day decision making

activities to line managers who are involve in the business operations. It is also the

Directors are also responsibility to implement systems, processes and control

measures to ensure proper accountability and transparency in its operations with the

view to safeguard stakeholders and increase value for shareholders. (Corporate

Governance)

On the other hand shareholders have the right to remove and replace directors if they

feel for example financial targets are not been achieved. This gives directors a very

thin line to strike the balance between concentrating on achieving financial targets to

satisfy shareholders without detailed analysis reporting practices or to be more

focused on practices and regulations, which in turn may give lower figures.

In a theoretical perspective there is no obvious answer therefore in this research we

ask an empirical question, is there any significant relationship between corporate

performance and reporting practices?

We start with brief overview and background of Corporate Governance then proceed

to explain reporting practices and also identify some important issues relating to

corporate governance.

1.2 What is Corporate Governance?

This is one of the most talked about topics in finance it is systems and processes put

in place to ensure proper accountability, probity and openness in the conduct of an

organisation’s business. In other words corporate governance studies how decisions

are made in companies, how mangers are monitored by the stock market or large

Corporate Governance is concerned with holding the balance between economic and

social goals and between individual and communal goals. The corporate governance

framework is there to encourage the efficient use of resources and equally to require

accountability for the stewardship of those resources.

“The aim is to align as nearly as possible the interests of individuals, corporations and

society” (Sir Adrian Cadbury in ‘Global Corporate Governance Forum, World Bank,

2000)

The main focus of corporate governance is based on the following:

 Effectiveness and efficiency of business operations

 Reliability of financial reporting

 Compliance with laws and regulations

 Safeguarding of assets

Corporate governance is believed to have emerged in the 19th century due to the

separation of ownership and control following the formation of joint stock companies.

The owners or shareholders of these companies, who were not involved in day to day

operational issues, required assurances that those put in control of the company, the

directors and managers, were safeguarding their investments and accurately reporting

the financial outcome of their business activities. Thus, shareholders were the original

focus of corporate governance however, current thinking recognises a corporation’s

obligations to society generally in the form of stakeholders.

1.2 The Audit Committee oversees financial reporting process, selects

independent auditors and supervises the relationship with the independent auditors.

The Audit Committee is responsible for the pre-approval of all audits and permitted

non-audit services to be provided. Additionally, the Committee reviews and discusses

with management and the General Counsel legal, regulatory, and compliance matters

that may have a material impact on financial statements.

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1.1 Introduction The ultimate objective of companies is to keep maximising profitability given the rules and regulations implemented by the government and accounting practices i.e. (GAAP). The owners of an entity (shareholders) appoint the appropriate people, (directors) who are responsible to report back to them on performance. The directors in turn take the responsibilities to delegate day to day decision making activities to line managers who are involve in the business operations. It is also the Directors are also responsibility to implement systems, processes and control measures to ensure proper accountability and transparency in its operations with the view to safeguard stakeholders and increase value for shareholders. (Corporate Governance) On the other hand shareholders have the right to remove and replace directors if they feel for example financial targets are not been achieved. This gives directors a very thin line to strike the balance between concentrating on achieving financial targets to satisfy shareholders without detailed analysis reporting practices or to be more focused on practices and regulations, which in turn may give lower figures. In a theoretical perspective there is no obvious answer therefore in this research we ask an empirical question, is there any significant relationship between corporate performance and reporting practices? We start with brief overview and background of Corporate Governance then proceed to explain reporting practi ...
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