This can be a good thing, as there is a research gap here which can be exploited. For this, I would use both qualitative and quantitative research. Again, I suggest conducting a survey among family-based companies in the UK to learn more about whether they have a proper corporate governance structure quantitative. Then, you may conduct some interviews qualitative , in order to establish how the management perceives CG in these companies and their understanding of the matter.
The third topic seems the most complex one, and you will have no problem finding materials. I also suggest using a mixed methodology, to add complexity and depth to the study. You can use statistical analysis to determine how CG is implemented in large corporations.
Some can go astray from classical CG and innovate e. I suggest interviewing those who are innovative in implementing CG in their companies, to see how corporate governance implementation is changing.
I could assist you in completing your dissertation. If you want, you may place an order with WritePass and request me as your writer. What Is Corporate Governance? What Are the Current Dissertation Topics? The causes of the global recession in your country and the role of corporate governance in the process. Corporate governance in need of reforms. What areas of the system should be reformed first and how? Dependence of the company profitability on corporate governance.
How are the company profits related to the practices of corporate governance? The efficiency of corporate governance in state-owned enterprises. Analyze and compare statistical data in a range of state-owned enterprises. The impact of the existing corporate governance mechanisms on the internal relations between managers and subordinates within the company.
Improving the corporate performance of a specific company: Reasons for poor corporate governance in financial institutions. Audit committees, internal control and assessment of effectiveness of internal control measures improve the reliability of financial reports. They give more assurance to users of reports regarding the authenticity of financial statements.
However, it is difficult for an outsider to observe the true effectiveness of these measures. Audit committees and internal control systems are two main components of corporate governance structure to give positive assurance to the users of financial information about financial reporting quality. The Sarbanes-Oxley Act of expanded the formal responsibilities of audit committees.
Krishnan lists three measures to determine audit committee quality: Independence of an audit committee minimises the influence of the management in the preparation of financial statements, and therefore gives higher assurance to external stakeholders.
All companies in the UK, the US and Australia have to show whether members of their audit committees are independent or not.
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. PepsiCo described in its annual report the steps taken by it to ensure the effectiveness of the Audit Committee, including the process to ensure that it consists solely of directors who are not salaried employees and free from any relationship that would interfere with the exercise of independent judgment as a committee member PepsiCo, This increases the assurance to investors and lenders.
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. Tesco stated that at least two members of its audit committee had skills to fully review financial statements and other members of the audit committee had an appropriate understanding of financial matters Tesco, 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.
However, it is difficult to assess the effectiveness of audit committee members as Fiolleau et al. The implication of this statement is that members of audit committees are likely to be less effective than expected by external stakeholders. 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.
This behaviour of audit committee reduces assurance of investors and lenders regarding financial reports. Internal controls have gained importance after the failure of firms like Enron. Internal control and risks disclosure increase information of stakeholders regarding earnings in the future. A sound system of internal control in a company depends on a regular evaluation of the business and financial risks Turnbull guidance, Risks are uncertainties which can have a negative impact on profits.
Therefore, risk management can positively influence on profits of the firm. It is argued that the perceived lack in risk management, especially by the financial services firms, resulted in the financial crisis in ASX, This has increased the emphasis on risk management through effective oversight and internal control ASX, The disclosure of risk management processes provide further positive assurance to investors as it shows that the management is taking steps to safeguard their wealth.
A review of the annual reports of companies shows more emphasis on internal control in the recent year. The assessment of internal controls by external auditors is a regulatory requirement in the US. The auditors of PepsiCo defined stated that internal control provides reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes PepsiCo, This gives higher assurance to external stakeholders.
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. The description appears to be customary, but the company discloses the fee structure and roles of governments in determining revenue of the firm in different countries Sonic Healthcare, This is useful for an investor who wants to analyse the impact of government austerity measures on future revenues of the firm.
However, there are inherent limitations in internal controls which imply that they may not prevent or detect financial misstatements. The reporting of the internal control function to the senior management creates doubt about its effectiveness.
External stakeholders will be sceptical about the ability of the internal control function to report frauds being conducted by the management.
Olympus fraud in Japan resulted in heavy losses for investors. The fraud went on for more than a decade before it became public news. This shows that internal control measures were not effective in preventing the management from committing the fraud. 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 audit committee disclosures are useful in increasing assurance regarding the quality and truthfulness of the historic information. The disclosure of internal control and risk reporting gives higher assurance regarding the future earnings of the business. However, there are some limitations in both disclosures, but it is better to have these disclosures than not having them. 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.
A number of recommendations are made to increase transparency and accountability. One of the main observations was the way information was presented in the majority of annual reports. All companies had information as required by their national corporate governance codes. However, in many cases the information seemed to be included in annual reports to meet the obligations of being seen as a good corporate entity rather than being done for the purpose of enhancing transparency.
As an example, all annual reports had information about the Board of Directors in terms of their skills and experience. However, it was only in the case of BHP Billiton that the management had taken extra effort to present the information in a graphical and user-friendly manner. The annual report of BHP Billiton showed pie charts with age, skill and location distribution of its Board of Directors.
This was much easier to grasp than the descriptions seen in the majority of the cases. 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.
Currently, the management of a company is responsible for its internal control over financial reporting. This has both advantages and disadvantages. The advantage is that the internal control function can quickly get in touch with the management if any issue needs to be reported. This may allow the risk or fraud to continue for a longer duration.
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. It is also expected that employees appointed in the internal control function may have been with the company for some time, and therefore may have developed a personal relationship with the senior management. This also makes it difficult to report any violation by the senior management. It is recommended that the annual report of a company should disclose all financial frauds over a certain amount or percentage of equity of the company.
This would increase the knowledge of investors and lenders regarding the state of corporate governance within the company. 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. This would increase the independence of the internal control function without overburdening the audit committee with small frauds.
This step will increase the faith of investors in the financial reports of the company. It is also recommended that companies should make effort to ensure that users of annual reports find it easier to obtain information on risks and internal control measures.
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. Some firms, such as Siemens, provided clear links but others failed to point properly to look for material on risk management. 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.
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.
This will help investors in gaining a better understanding of risks of investing in a business. Annual reports of companies list a number of risk factors which may influence the performance and financial position of the business in the short and long-term. Listing of risks is useful for investors and lenders but again the effort seems to be on meeting the obligatory requirements under the national corporate governance codes of countries. The effectiveness of risk disclosure can be improved by including a risk-ranking matrix in annual reports.
This will allow investors to focus quickly on major risks and look for steps being taken to mitigate them. 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. Firms should design and put into practice strong whistle-blowing systems to ensure that employees with knowledge of frauds within the company can report them to the Board of Directors without the fear of being prosecuted.
In the case of Olympus, the board of the company fired its CEO for questioning suspicious transactions. 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. Protection of employees is important because most external whistle-blowers first blow the whistle internally Kaptein, Thus, developing a system that encourages internal whistle blowing could result in early detection of frauds.
In terms of accountability, there should be more emphasis placed on the accountability of independent and non-executive directors. Currently, accountability rests with the executive board. It is recommended that the non-executive directors are also made more accountable because of the impacts of their actions. In the event of failure of the audit committee, the designated independent director should be approached first and his actions should be reviewed.
This will increase accountability of independent directors and they will take their role more seriously. There is a risk that some experienced people may not wish to take non-executive director roles because of the increased accountability. This has to be weighed in, but the loss of wealth of shareholders in a large company due to fraud is more important. Conclusion The purpose of this report was to analyse and compare corporate governance practices in countries and companies in three main areas: Board of Directors, audit committee, and internal control and risks.
Corporate governance is a useful tool to increase faith in capital markets, especially in the case of firms where owners are different from managers. The corporate governance systems across the world have shown convergence, but there are some differences. The corporate governance developments in four countries were briefly reviewed. The Cadbury Committee played an important role in the development of corporate governance code in the UK. The US code is stricter after the Enron scandal.
The main difference with the German code on corporate governance is that companies in Germany have two-tier boards. Independence of directors is important in all countries and was reflected in individual company analysis also. Size of Board of Directors and diversity skills are also important. Actual independence depends upon actions taken by the Board of Directors and is not possible to analyse with the data in annual reports.
Shareholders use historic data to predict future earnings, so they are interested in risks which may reduce earnings and cash flows in the future. Therefore, they rely on audit committees and internal reporting to assure themselves about the quality of financial reporting. All companies had some members on their audit committees who had financial experience. Some companies disclosed the lead person in audit committees with financial expertise.
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