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TOPIC 2 DEBRIEFING

TOPIC 2 DEBRIEFING. LEARNING OUTCOMES: CAN EXPLAIN WHAT CORPORATE GOVERNANCE IS CAN DISCUSS CODE OF CORPORATE GOVERNANCE BEST PRACTICE CAN EXPLAIN HOW GOOD GOVERNANCE IS RELATED TO FINANCIAL REPORTING. Empirical findings.

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TOPIC 2 DEBRIEFING

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  1. TOPIC 2 DEBRIEFING • LEARNING OUTCOMES: • CAN EXPLAIN WHAT CORPORATE GOVERNANCE IS • CAN DISCUSS CODE OF CORPORATE GOVERNANCE BEST PRACTICE • CAN EXPLAIN HOW GOOD GOVERNANCE IS RELATED TO FINANCIAL REPORTING

  2. Empirical findings • Are more independent boards effective? Beasley (1966) less fraudulent reporting • Share price reaction more positive to independent boards

  3. MANGENA AND PIKE 2005 • AUDIT COMMITTEES AND LEVEL OF DISCLOSURE IN INTERIM REPORTS • INDEPENDENCE (-), • FINANCIAL EXPERTISE (+) • SIZE NS • CREDIBILITY OF FINANCIAL REPORTS AND CG CONTROL MECHANISMS

  4. SARBANES OXLEY ACT (SOX) • REQUIRES HIGHER GOVERNANCE FROM DIRECTORS,EMPHASIZES BOARD INDEPENDENCE

  5. WHAT IS CORPORATE GOVERNANCE • A PROCESS BY WHICH OWNERS AND CREDITORS OF AN ORGANIZATION EXERT CONTROL AND REQUIRE ACCOUNTABILITY FOR THE RESOURCES ENTRUSTED TO THE ORGANIZATION. THE OWNERS ELECT A BOD TO PROVIDE OVERSIGHT OF THE ORGANIZATION’S ACTIVITIES

  6. NON-EXECUTIVE DIRECTORS • MONITOR MANAGERIAL PERFORMANCE • ENSURE QUALITY REPORTING • BOARD DOMINATED BY INSIDERS WEAKER MONITORING • HOW MANY TYPES

  7. CG • MANY PARTIES INVOLVED • GOVERNANCE STARTS WITH OWNERS WHO ELECT BOD • BOD EMPOWER MANAGEMENT • MANAGEMENT ENGAGES OPERATING MANAGEMENT. • FLOW OF ACCOUNTABILITY UPWARDS

  8. PARTIES IN CG • SHAREHOLDERS • BOD • AUDIT COMMITTEES • MANAGEMENT • SELF REGULATORY BODIES • OTHER REGULATORY AGENCIES • AUDITORS – EXTERNAL AND INTERNAL

  9. RESPONSIBILITIES • EACH GROUP • EACH FAILED

  10. CODE OF CG • PRINCIPLES AND BEST PRACTICE • PN 9 COMPLY OR EXPLAIN WHY NOT

  11. FINANCIAL REPORTING • AS A BASIS FOR RESOURCE ALLOCATION OF SOCIETIES • RESOURCE ALLOCATION MADE BY INVESTORS • EARNINGS FIGURES ARE RELIABLE

  12. WHO ARE CONCERNCED WITH CG • REGULATORS - CMMP • PN 9 • AUDITORS - AUDIT COMMITTEE • MICG • INVESTORS –FOREIGN, INSTITUTIONAL

  13. GOVERNANCE QUALITY • CLSA • DEMINOR • GOMPER AND ISHI

  14. CG AND ACCOUNTING • FRAUDULENT REPORTING • MORE TRANSPARENT • MORE TIMELY • GREATER COMPLIANCE • LESS EARNINGS MANAGEMENT • LESS CREATIVE ACCOUNTING • MORE CORPORATE RESPONSIBILITY • MORE VOLUNTARY DISCLOSURE

  15. CG AND ACCOUNTING • LESS FORECAST ERRORS • MORE APPRORIATE CHOICE OF ACCOUNTING POLICIES • BETTER INTERNAL CONTROL

  16. WHY BETTER QUALITY FINANCIAL REPORTING? • MORE EXPERT AUDIT COMMITTEE • MORE INDEPENDENT DIRECTORS • FORCE OF LAW INTERNATIONAL ACCOUNTING STANDARDS • WATCHDOG BODY • CODE OF ETHICS FOR DIRECTORS

  17. CORPORATE GOVERNANCE AND PERFORMANCE • PROCESS, STRUCTURE, OUTCOMES • BETTER CG BETTER OUTCOMES? • IMPROVED CG IMPROVED QUALITY OF FINANCIAL REPORTING • DO COMPANIES SHORT LISTED FOR NACRA AWARD HAVE BETTER GOVERNANCE COMPARED TO THOSE NOT SHORT LISTED?

  18. LAMBER AND SPONEM 2005 • BLAME ADOPTION OF UK CG IDEAS FOR INCREASED PROFIT MANIPULATION IN FRANCE

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