This can be succeeded by encouraging ethical principles inside the financial organizations. They introduced the concept of normative ethics as a tool for managers and accountants during their decision making proces... ... middle of paper ... ...he ethical choice. Next they quote the case of Adelphia fraud. They focus only on this company to make clearer to the readers the subject of the ethical framework inside the organizations. They follow step by step every illegal activity and try to examine alternative actions, if the participants (owners and auditors) were aware of the proposed ethical framework.
Excessive Business Risk Taking and Lack of Risk Control To taking higher business risk, investors are expected higher rewards to compensate. Sometimes the director of companies might take decision planned. Profits and dividends should be expected to go up if company makes decision that increases the scale of the risk it faces. Ethical Issues and Corporate Governance Corporate governance only can provide a system or guidelines that is seen to be ethical, true and fair to shareholders. Important company to be aware of the need to maintain a culture of good corporate ethics and the perception of ethical issues by external pressure groups can affect the reputation of the company.
There are several drivers of governance such as increasing globalisation and internationalisation, uniformity of treatment between domestic and foreign investors, financial reporting and high profile corporate scandals. According to King III, there are four values of good governance that organisations should make clear in their ethics code of conduct (Specialists, 2012): • Responsibility • Accountability • Fairness • Transparency Three difference perspectives on governance exist (Media, 2013, pp. 71-72): • The Agency Theory- managements act in an agency capacity, service their own interests instead of maximising shareholders’ wealth. • The Stewardship Theory- managers will act as responsible stewards of assets they control. This theory is the alternative view to the Agency theory as certain mechanisms are used to reduce agency loss.
The New Book of Knowledge. Retrieved November 12, 2013, from Grolier Online http://nbk.grolier.com/ncpage?tn=/encyc/article.html&id=a2025050- h&type=0ta (Copper, 2013). Raphael (1483–1520). (2013). (S. J. Freedberg, Rev.).
The Sarbanes-Oxley Act or SOX is considered one of the most important laws to be passed in recent decades because this Act forces publicly traded corporations to monitor and maintain a proper system of controls over the accuracy of the financial statements. After the passing of the SOX corporations are held liable for the misrepresentation of their financial statements and can be fined or representatives of the company overseeing the controls of the financials can be imprisoned if found to be maliciously misrepresenting the company’s financial numbers. Although corporations put forth great effort to abide by SOX there may be times when the division of responsibilities set in place to follow the principles of internal controls are unable to be followed. This could be due to a loss of employees, creating a deficiency in manpower where one person would be responsible for numerous related activities increasing th... ... middle of paper ... ...ssist in the accuracy and reduce irregularities in the safeguards designed to verify the accounting information. An example of independent verification is reconciling a company’s bank statements with the company’s cash balance recorded on the accounting ledger.
Internal Controls Internal controls are measures that are an essential part of the business and financial procedures and policies of a company. These controls help to enhance the accuracy of accounting records, reliable financial reporting, compliance with the applicable laws and regulations, and efficient operations by reducing the risk of unintentional mistakes, intentional mistakes, and misrepresentations (Weygandt, Kimmel, & Kieso, 2008). Internal controls also assist with safeguarding the assets of a company from employee unauthorized use, theft, and robbery. The 2002 Sarbanes-Oxley Act changed the way companies do business. This act put in place guidelines to help strengthen the weaknesses in the internal controls of companies (Weygandt, Kimmel, & Kieso, 2008).
This additional pressure on companies can be largely attributed to a change in the neoclassical view of a company as only needing to take care of stockholder interests by creating profits (Wines & Hamilton III, 2009). Today, people view the organization as a complex unit made of up many different groups that must be considered. This new definition of an “ethical corporation” requires not only compliance with the law, but also consideration of the ethical implications of all actions (Epstein & Hanson, 2006; Thornton, 2009). “Ethics are a system of moral principles and behavioral norms intended to express and support an underlying set of values” (Post, Lee, & Sachs, 2002). Following the meanings given by several professional sources, business ethics is defined as the study of moral standards in the context of all business situations (Columbia University, 2008; Knapp, 2001; Crane & Matten, 2007).
The Organisation for Economic Cooperation and Development (... ... middle of paper ... ...porate governance can affect corporate performance. A board filled with an atmosphere of change and readiness to learn from past mistakes and a sound risk management system would enhance financial value of banks. Yet, no single model of good corporate governance fits all companies. There are some principles initiated by the OECD, the Basel committee on banking supervision, the Walker report, and others. These principles cover the following areas: rights of shareholders; equitable treatment of shareholders; the role of stakeholders; disclosure and transparency; and responsibilities of the board.
The Malaysian economic downturn exposed the consequences of poor corporate governance and prompted the formation of a high level Finance Committee on Corporate Governance (FCCG). The main focus of FCCG is to review and reform corporate governance in Malaysia comprehensively. In order to make a reformation, FCCG has played their role by sets out the principles of good corporate governance for Malaysia as a guideline and also proposes the code of best practice for companies. All of the recommendations of these principles are to strengthen laws, enhance disclosure and transparency, promote effective enforcement and emphasis on training of directors. Malaysian Code emerged from an urgent demand for businesses to exhibit greater transparency and accountability as it is largely modeled after the UK Codes.
(Sox, 2006) The Sarbanes-Oxley Act of 2002 made publicly traded United States companies create internal controls. The SOX act is mandatory, all companies must comply. These controls maybe costly, but they have indentified areas within companies that need to be protected. It also showed some companies areas that had unnecessary repeated practices. It has given investors a sense of confidence in companies that have complied with the SOX act.