The Principal Players And Influencers Within Corporations That Monitor, And Control The Financial And Operational Activities That Shape

1. Financial Publics: The Company’s Board of Directors, which is elected by the stockholders, is the ultimate decision-making body of the Company, except with respect to matters reserved to the stockholders. The Board selects the Chief Executive Officer and other senior executives of the Company, who are charged with directing the Company’s business. The primary function of the Board is oversight—defining and enforcing standards of accountability that enable executive management to execute their responsibilities fully and

There are a number of people that are critical to the corporate process. These include the directors of corporations, officers, and shareholders. The primary role of the directors is that of oversight (Loewenstein, 1998). The directors are hired by the shareholders, and their duty is to oversee the actions of the corporate executive. The directors hire the CEO and set his/her salary and benefits. The directors also play a role in oversight of the strategy and operations - this tells them about the merits of the executive that they have hired. Since Sarbanes-Oxley (SOX) was enacted, directors have seen their oversight role expanded (Skinner, 2006). There must be within the director group some financial experience to provide explicit financial oversight of the firm. The law prescribes certain committees as well, including audit and compensation committees, and SOX has also increased the liability that director's face, while expanding the role that directors play in the firm.

Common stockholders are the basic owners of a corporation, but few stockholders of large corporations take an active role in management. Instead, they elect the corporation’s board of directors to represent their interests. Board members seldom get involved in the day-to-day management of the company. They establish the basic mission and goals of the corporation and appoint

The study conducted by Hardjo and Alireza (2012, p. 4) represented that the independent directors have a few understandings of the company’s circumstances, and make decisions depends on what the management provides (Hardjo & Alireza, 2012, p. 4). Although Gallagher and Bennie (2015, p. 20) contended that the independent directors are likely to express their individual opinions and focus on the interest of the company. Thus, the formation of the directors’ board with a significant number of independent directors might not prevent DSE from the downfall due to reliance on filter information which is not adequate to make decisions (Rankin et al., 2012, p.

In large corporations the success or failure of the company is the responsibility of the board of directors. According to Richard DeGeorge, “The members of the board are responsible to the shareholders for the selection of honest, effective managers, and especially for the selection for the CEO and of the president of the corporation.” (p. 202). The board members have a moral responsibility to ensure the corporation is run honestly, in respect to its major policies, and to ensure the interests of the shareholders are satisfied. The next responsibility within a corporation is the responsibility management has to its board of directors. DeGeorge writes, “It must inform the board of its actions, the decisions it makes or the decisions to be made, the financial condition of the firm, its successes and failures, and the like.” (p. 202). The management of the corporation is morally obligated to

The Board of Directors is defined as “a group of elected individuals who serve as representatives of an organizations’ stockholders” (Root). They are the decision-making power over management related policies and fiduciary duties of the organization. They make decisions to fire or hire the executive leaders, conduct performance evaluations on the company’s leading executives, and ultimately decide the executive’s compensation, as well as dividends to be distributed to the shareholders. The Board of Directors determine the organization’s strategic direction, and make sure the company is operating under the principles of the law to ensure the organization is conducting itself ethically, legally, and with social and environmental responsibility (Bateman 267).

This paper will reviews the extent to which corporate governance acts as efficient tool to protect investors against corporate fraud, thus contributing to summarize the literatures on role of corporate governance on preventing occurrence of corporate fraud. In a more recent study, corporate fraud is part of earnings manipulation done outside the law and standards. Whereas, the activities covered by the terms earnings management (such as income smoothing and big bath) and creative accounting (or window dressing) normally remain within the regulations. In this regard, corporate governance mechanism, particularly effective boards,

Over the past few decades the term ‘corporate governance’ has become quite commonplace, with considerable debate arising as to the intersection between ‘corporate governance’ and ‘regulation. The scope and content of corporate governance in and of itself is quite wide, capturing ‘the structures, processes and systems, both formal and informal, by which power is exercised, constrained, monitored and accounted for in the management of a corporation’.

Although it may be a simple solution, there are costs involved. Berk and DeMarzo (2011:922) state that as no one shareholder has an incentive to bear these costs, as the benefits are then divided between all shareholders, they instead elect a board of directors to monitor the managers on their behalf. The directors’ duties include hiring the executive team, approving major investments and acquisitions, and dismissing executives if necessary (Berk and DeMarzo, 2011: 922). The level of monitoring required differs across firms and is ‘based on the magnitude of the incentive gap between principal and agent’ (Beatty and Zajac, 1994, cited in Westphal and Zajac, 1994:125). However, the main factor affecting the level of monitoring provided is the cost, otherwise ‘all rational firms would monitor maximally, irrespective of the strength of incentive compensation contracts or other factors’ (Westphal and Zajac, 1994:125). Although the board of directors are hired to keep a close eye on top management, the agency problem may still exist. This will occur when the director’s duties in monitoring have been compromised as they have connections with management. A way of overcoming this problem is to hire directors who are independent to the company, as they are deemed to be better monitors of managerial effort. As Mehran (1995:166) states, outside directors are ‘more independent of top management and thus better represent the interests of shareholders than do inside

Based on prior studies, there are other corporate governance features which are considered important for the monitoring mechanism. Besides, there are other motivational and conditional factors that are perceived to be able to affect board of director composition. Hence, controls variables identified from Persons (2005) and Beasley (1996) will be included in this study to investigate the relationship between board composition and the likelihood of corporate fraud.

A Board of directors should be act independent from the management team. The directors should not be managing the company. The board should “act solely in the interest of the firm”(Larcker 4). “Board members should act on a fully informed basis, in good faith, with due diligence and care, and in the best interest of the company and the shareholders” (OECD 24). The board will work to treat all shareholders fairly. Board members are “required to disclose to the board whether they, directly,

Since traditional agency conflicts are characteristic in large management operated corporations, the necessity of a statutory rotation is solely related to this group of companies. Shareholders in small and medium-size companies are to exert greater influence on the management than an average private shareholder in a public company. This dichotomy in auditing standards has recently been contemplated by the Ministry of Corporate Affairs in their regulation draft. Burton and Roberts (1967) present a fundamental approach to the economic impact of auditor changes. Although, considering the assistant role of an auditor in a stock corporation, a long-term contract between board and auditor seems sensible, the independence in appearance might be limited due to a special trust relationship between management and auditor in a long-term assignment. They suggest that personal relationships between auditor and management, the combination of auditing and consulting, as well as the auditor’s goal of maintaining the assignment are determining factors towards reducing audit quality.

Definitions of corporate governance are many. According to Organization for Economic Co-operation and Development (OECD), “Procedures and processes according to which an organization is directed and controlled. The corporate governance structure specifies the distribution of rights and responsibilities among the different participants in the organization – such as the board, managers, shareholders and other stakeholders – and lays down the rules and procedures for decision-making.”(Reference)

Research in regards to the best practices of corporate governance and the impact of the accounting profession in the corporate governance process within the UK public companies was carried out. The methods used to carry out research for this report were, e-journals, books, government/corporate reports and the Internet. The vast majority of these research methods were obtained from the University of Wolverhampton’s Learning Centre as well as their online cataloguing system. Information in relation to corporate governance in the UK Public Companies was also acquired from lecture notes provided by the lecturer on WOLF.

The purpose of this paper is to highlight the role of external auditing in promoting good corporate governance. The role of auditors has been emphasized after the pass of the Sarbanes-Oxley Act as a response to the accounting scandal of Enron. Even though auditors are hired and paid by the company, their role is not to represent or act in favor of the company, but to watch and investigate the company’s financials to protect the public from any material misstatements that can affect their decisions. As part of this role, the auditors assess the level of the company’s adherence to its own code of ethics.