The Role Of Corporate Governance In Accounting: Essay And Case Study Using ASX Listed Companies
Part A: Case Study Using ASX Listed Companies
Condition 1
JB HI-FI and Wesfarmers have published their strategies with regards to corporate governance, practices and policies in a private section in the annual report called the “Overview of Corporate Governance” and Statement of Corporate Governance respectively. The work for these organizations is to give out to the stakeholder specific and important information. The information regarding the function and responsibilities of the associates of the board, strategies related to risk management, board composition, auditor’s freedom and the compensation of the directors have even disclosed in the annual report published by the organization (jbhifi.com.au, 2019).
Condition 2
- According to the Wesfarmers’s annual report, the organization presently has nine directors (wesfarmers.com.au, 2019). The annual report of JB HI-FI Limited for the year 2018 reveals that there are 7 directors (com.au, 2019).
- Eight of them are non-executive directors. The percentage has been found to be 88.89% (wesfarmers.com.au, 2019) for the non-executive directors. In JB HI-FI, 6 of them are non-executive directors and percentile is found to be to 85.71%.
- According to 2018 annual report for Wesfarmers, all the non-executive directors are independent and the percentage comes to 88.89%.
According to Annual Report of JB HI-FI for 2018, all the directors are independent and percentage comes to 100%.
- According to the Annual Report of Wesfarmers for 2018, Michael Chaney AO is thechairman of the organization (com.au, 2019). The company has taken some of the hard decisions for the betterment of the company in 2018. The profit recorded was from the continuing operation otherwise over all the company witnessed fall in the net profit of 2018. The company is following the strategies of feasible (wesfarmers.com.au, 2019).
According to the Annual Report of JB HI-FI for the year 2018, Richard Murray and Greg Richards are known to be the chairman and group Chief Executive officer of the organization. The increment sale, gross profit and also net profit has been registered in 2018. Along it the company has taken some of the crucial decision for the company in 2018 (jbhifi.com.au, 2019).
- In 2018 the company of Wesfarmers issued a share of 2342000 shares in which the director holds 4180000 shares. The percentage is 17.85% (wesfarmers.com.au, 2019).
In Annual report of JB HI-FI, directors holds a share total 461969 the percentage comes to 0.40% (jbhifi.com.au, 2019).
- Two of the company has not provided the information on the barred holders.
Condition 3
It is concluded that the percentile of directors who are independent in JB HI-FI is higher than that of Wesfarmers (wesfarmers.com.au, 2019). Two of the organizations have non-executive directors and both follows the corporate governance principles of Australian corporate frame work. Both the company has provided all adequate important knowledge about the necessary aspects of the organisational corporate governance (jbhifi.com.au, 2019). The company is also following the corporate regulations to adhere to the rules and regulation of the governance. Both the company is well adherence to the corporate governance. This will help them to work smoothly without any hindrance from the Australian government. It can therefore be inferred that both the organizations have sufficiently published the essential information with regards to corporate governance.
Introduction
To assist the governing of the company Corporate Governance lays the system, principles and processes. The corporate governance structure of an organization has an effective role to play with the help of which the essential guidelines are provided to the organizations with respect to which they control and direct their business activities with the help of which the organizational goals can be attained. To achieve organisational goal Corporate Governance have a fundamental function in laying the essential guidelines to the organizations. It directs and controls the business activities (Dahan, Hadani & Schuler, 2013). It is seen that financial and accounting practices have an essential role to play in the development of the organizations. But, there are chances where significant level of manipulations are done within practices of accounting of the companies in order to attain certain gains in the business. Sometime illegal practise happen in companies due to manipulation of the financial data leading to fraud. To avoid frauds and manipulation implementation of effective corporate governance strategies needs to be practised (Darrat et al., 2016). The manipulation happens due to the non-adherence of the laws which leads to a bad management and bad reputation of the company in the eyes of the stakeholder. The goal of this report is to investigate the important function of corporate governance in the field of accounting by considering essential aspects.
Part B: Essay – Written Assignment
Ineffective corporate governance impacts a very negative impact on the proper functioning of company. For instance, the absence of sufficient amount of directors from outside increases the chances of corporate failure due to the trust that insider directors are not adequately independent from the company management (Grayson & Jane, 2017). Dual role performed by the CEO can increase the chances of corporate failure. Lack of corporate governance can lead to failure of the company’s proper payment to the directors due to the facts that the directors can be paid more than fixed amount. This explains that the unavailability of corporate governance is associated firmly with the probability of the failure of corporate governance (Mayer, 2013). For this factor the organizations are required to make sure that the availability of corporate governance process within the companies are maintained.
Two specific corporate governance approaches can lead to company’s proper mechanism. They follow the rule based and principle based approaches in corporate governance. To abide by the law the rule based corporate governance is based on the view that there is a need for a certain law bases obligation. This is to ensure that the company is not under any negative impact and the stakeholder is confidence about it. Thus company follows al the related law (Delaney, 2015).
Whereas the doctrine based approach of the corporate governance is regarded and a substitute of rules dependent approach as is specifies that certain rules is not good for the organizations to modify the adequate framework of corporate (De Graaf & Stoelhorst, 2013). Australia needs the company to follow the standard of corporate governance if listed on ASX. Australian securities and investment commission plays important roles. In all the aspects of corporate governance is explained as follows:
ASIC says that corporate governance plays a very crucial role for an excellent presentation in the organizations. ASIC has their view on various prospect of corporate governance which is included some of the important regulations and guidelines which was issued to ensure that it was followed in the Australian companies. It also combines important information of the Directors obligation along with instructions which contains major interest for the stakeholders such as risk management. To understand the issue the ASIC undertakes commitment to the key stakeholders of the company. Principles like conflict management, risk management, shareholder engagement, oversight of the directors, executive remuneration, culture and others are issued by ASIC (Singh & Rose, 2018).
Discussion
CLERP 9 is used to assure the different corporate disclosures akin to corporate governance with goal to strengthen the frame work for financial reporting. This consist of new reforms like ascertaining repeated revelation of the vital aspects similar to corporate governance, essential changes that makes the auditing and financial reporting of annual report, management debate and evaluations. Furthermore, licensing is required for the purpose of providing financial services in order to handle the interest conflicts and the revision related to the raising of funds. It also needs executive remuneration and ensuring the combination of the stakeholders. The implementation of the corporate governance in Australia has been both in ASIC and CLERP 9 (Rashid, 2018).
The importance of independent director is required in the organizations to have thriving corporate governance. It is seen that the independent directors are the non-executive directors who have less association with the firm so that they can pass the decisions independently. The directors who are independent are like guide for the organizations as their role ensures the improvement in corporate creditability with corporate governance. They also plays the important role of risk mitigation. The directors also form different kind of communities within the organisations to ensure effectiveness of the governance. The independent directors work as watchdogs who ensures the effective use of corporate governance in the organizations (Armstrong, Core & Guay, 2014).
Corporate governance laws in the organisation majorly work on the prudence for the senior manager of the organizations. That’s why the company management have to undertake decisions based on the prosperity and ethics (Wheldon & Webley, 2013). Unethical means used by the senior management is aborted by this major and happens that it helps to curve the risk for the organisation. Along with this corporate governances bring transparency and accountability in the organisation (Wieland, 2014). This also helps in strengthening the corporation.
There associates a direct correlation among integrated reporting and corporate governance. This establishes a trust between among the stakeholders with respect to the establishment of feeling of trust among the upper management (Jacoby, 2018). It is essential to mention that integrated reporting is based on working of corporate governance. The connection between financial and non-financial knowledge implanted in integrated reporting can be enhanced of corporate governance. Corporate governance leads to better decision and also action and also allocation of the important resources aiming to sustainability of the values (Krüger, 2015).
Considering the aspect in the international scope it needs to be taken care that many countries along with Australia adopted the rules of corporate governance. It depends on the unique needs that the company need to formulate the corporate governance. Along with United States, United Kingdom, Japan and other European countries put a lot of emphasis on stakeholder’s interest with capital market players like suppliers, employees and public. However government of all countries aims to enhance the belief as well as confidence through proper implementation of the corporate governance ((Krüger, 2015)).
Conclusion
An active corporate governance mechanism always brings transparency as well as effectiveness in the business organisation. To avoid corporate failure company needs to follow corporate governance. The company can accept rules based approach and also principle coined on the process of corporate governance. It is seen that in Australia, it is required for the organizations to ensure towards the implementation of the principles and standards of CLERP 9 and ASIC for efficient corporate governance mechanism. Therefore, in order to make sure that efficient techniques and processes for corporate governance have been followed by the companies, this report has been constructed. This report has even disclosed whether the companies have followed the ethics related to integrate reporting in order to attain efficient corporate governance.
References
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