According to ACCA (2014) “Corporate governance is the system by which companies are directed and controlled”, also the corporate governance definition in the ACCA (2014) and Financial Times (2015) are quite different but similar at the same time, “How a company is managed, in terms of the institutional systems and protocols meant to ensure accountability and sound ethics. The concept encompasses a variety of issues, including disclosure of information to shareholders and board members, remuneration of senior executives, potential conflicts of interest among managers and directors, supervisory structures, etc.”
The two definitions above explain the term corporate governance but in my opinion I personally I feel that Financial Times(2015) definition is an extended version of ACCA(2014) definition and from a readers perspective gives a more of an understanding of the term corporate governance.
A lot of the accounting scandals throughout modern history have common themes which include:
Audit Failure
Misuse of Authority
Unethical Behavior Fig 1.
As demonstrated in the image above we can see that fraud within a company can come from the management or employee, with reference to management I include the CEO, chairman and the CFO, the type of fraud they involve themselves in are described above. Also on a lower scale we can see that employees endeavour into fraudulent behaviour.
Audit Failure
A definition of an audit is that it “states the objective of a financial report audit is for the auditor in opinion about whether the financial report is prepared in all material respects in accordance with a financial reporting framework” (Philomena Leung, 2011). Audit failings tie in with the WorldCom accounting scandal where the company was capitalizing its costs than making them expenses. This was deemed an audit failure because of audit procedures not been able to recognise the fraud. So why did so many companies like WorldCom
Bibliography: ACCA. (2014). Audit and Assurance. London: BPP Learning Media Ltd. Diageo. (2014). Diageo Annual Report. Financial Times. (2015, February 5). Definition of Corporate Governance. Retrieved from Lexicon.ft: http://lexicon.ft.com/Term?term=corporate-governance Fraedrich, J. P. (1992). Business Forum. Signs and Signals of Unethical Behavior . Francesca Gino, L. P. (2009). Organizational behavior and human decision processes. Organizational behavior and human decision processes. Gokhale, J. (2002). Speaking of accounting scandals... Federal Reserve Bank of Cleveland. Economic Commentary. Grant, M. V. (2006). The Strategic Background to Corporate Accounting Scandals. Long Range Planning, 361-383. Philomena Leung, P. C. (2011). Modern Auditing & Assurance Services. John Wiley & Sons Australia, Ltd.