Financial Resources Management - Coursework Example

Financial Resource Management Financial Resource Management Part A Introduction As globalization takesits roots in world economies, firms continue to engage fiercely with their competitors in a market driven race that often when unchecked results in a host of firms carting out practices that fall short in ethical principles. The need to stay relevant to shareholders and prospective investors implies that managements are pressed to reveal financial results that portray their firms as strong institutions. However, exogenous factors such as unforeseen events such as the Malaysia Airlines disasters and the global financial crisis of 2008 render their efforts quite difficult (Erkens et al., 2012). Nevertheless, the investors demand that the firms reveal accurate financial data that will inform them accordingly on their prospective investments (The Economist, 2014). In some cases, managers such as those from Starbucks engage in transfer pricing to ensure that their books remain relevant to investors in their UK subsidiaries (Hurley, 2012). Based on this, it is critical for firms in the UK to ensure that they publish accurate financial statements that would aid their investors. With this in mind, two key factors come into play, systems of audit and corporate governance. The ensuing discussion seeks to analyze the effectiveness of the system of audit and corporate governance in the UK. Before embarking on the discussion, it is important to note that the systems of audit adopted by firms are an integral part of the company philosophy; hence, corporate governance. This is so as one of the tenants of corporate governance makes mention of the rights of the shareholders. For the purposes of providing an open field of understanding, the discussion discusses these two factors separately by first outlining a brief overview of their features before moving to make an analysis. Corporate Governance Shailer (2004) defines corporate governance as a system of mechanisms, processes, and relations that are used in the control and administration of firms. When it comes to structures of governance, it infers to the manner in which rights and responsibilities are distributed amongst the stakeholders (shareholders, managers, board of directors, creditors, auditors, shareholders and regulators). In addition, this also encompasses the rules or procedures used to arriving at corporate decisions; from the objectives of the firm to the day-to-day decisions. Key to note is that the policies are formulated within the context of the prevailing regulatory, social and market environment. However, with the increasing exogenous events in the global economy, these corporate governance practices are influenced by the prevailing needs and demands of the shareholders. Firms had been formerly operating freely without a designated set of code of ethics. The main reason behind their emergence as a global concern was at the wake of recent practices by a number of companies that left the shareholders robbed off their investments through poor decision making by the management. In other cases, the firms saw their image tarnished after the revelation of their activities. Examples of such firms include Enron, WorldCom, and Lehman Brothers in the USA, which collapsed after improper financial reporting methods (Kroft, 2012). The Starbucks subsidiary in the UK received public criticism after reports of her excessive transfer pricing strategy saw the British coffers denied revenue. Tesco is the most recent examples of a company that admittedly cooked their books to reflect a stronger financial position so as to appease its shareholders. The realization of such scandals brought the business world to question the efficacy of corporate governance to the extent that reforms were undertaken to restore investor confidence. For example, in the USA was the Sarbenes-Oxley Act of 2002, Cadbury Report of 1992 in the UK and the CLERP 9 Reforms in Australia (Lee J. & Shailer G., 2008). Before taking a look at the key aspects of corporate governance in the UK, it important to first indicate the general principles of corporate governance as appreciated at the global level and more importantly, under the OECD protocols. There are five key elements under the OCED Principles of Corporate Governance. Firstly, firms ought to respect and aid shareholders in their rights to the firm by ensuring that they have ample access to information and participation in company events and data (OECD, 2004). Secondly, firms ought to ensure and safeguard the interests of shareholders from a legal and social level. They also have market focused responsibilities to non-shareholders. Thirdly, the roles and duties of the board of directors need to be clearly stipulated under the assumption that the board is fully equipped with skills that can make informed decisions on the operation of the firm in the industry. Another important code is that of integrity and ethical behavior. Lastly, disclosure and transparency are elements that ought to remind the firm of the need to clarify information to the public on any issue touching the firm and its stakeholders (Mark, 2003). In light of these, companies need to develop frameworks that ensure that the financial reporting standards are free from errors in such a manner that the firm seeks the assistance of an independent audit to verify as much. Having examined the above, one can posit that the UK corporate governance tenants are based on four key principles. Firstly, it provides that the board ought be effective enough to offer leadership collectively through prescribed roles based on skills that allow for transparency and evaluation of performance (FRC, 2010). Secondly, the code calls for accountability whereby the board presents a balanced assessment of financial positions and outlines the risk management strategies based on sound transparent procedures. Cognizant of the wave of excessive rewards that boards have been accustomed to, the third code calls for a formal and transparent means through which executive remunerations are determined, most of which must be based on performance. Lastly, the code makes mention of the relationships that the board ought to have with shareholders especially where they hold separate resolutions on substantive issues. From the above examination of the current code of practice of corporate governance in the UK, it may be noted that the principles are so far effective in stemming malpractices from the UK board of directors. The reason behind the success is partly due to the responsibility placed on the chairpersons to ensure that they respond to any concerns that their shareholders might have. The further codification of the directors’ duties within the Companies Act has ensured that the directors assume full accountability on any issues to do with financial reporting. For example, the directors at Tesco resulted in suspending four senior executives over their adulteration of the financial statements for FY 2014 to make it appear that the firm performed exceedingly well (Poulter, 2014). Furthermore, the introduction of Non-Executive Directors (NED) has ensured that the board acts in the shareholders’ best interest by ensuring that they are more than half the board and thus prevent the entry of any private agenda to the objectives of the firm. Systems of Audit From the discussion on the issues related to corporate governance, the aspect of transparency is very apparent. In particular, the code calls for the use of an external auditor who then performs checks and balances to ascertain the credibility of the internal audit. In this regard, suffice to say that the emphasis on effectiveness shifts from the hands of the external auditors to that of the internal auditors. In other words, the discussion is concerned with checking on the effectiveness of the systems of audit (internal) in UK based firms. The reason for the focus stems from the fact that most the cases are as a result of an external auditor realizing that the internal auditing procedures were breached. Nevertheless, it is important to take note of the fact that the UK has had a rather small share of reported accounting scandals unlike the case of the USA. In the UK, the most notable scandals were with Barlow Clowes in 1988 (Reece, 2004), Polly Peck in 1990 (Wearing, 2005) and the Bank of Credit and Commerce International in 1991 (Cellan-Jones, 2005). With the above in mind, it then becomes important to take a look at why the UK has had a rather good record of accounting standards in her firms. Firstly, firms here sought to rely on the process-based approach suggested in the ISO 9001 in their internal audits that in turn checked to access the effectiveness in the policies used (Strouse, 2009). In addition to this, the country placed a premium in employing internal auditors and ensuring that they perform their roles and thus increase the effectiveness of the entire process (Strouse, 2009). Another important reason for the success is that UK firms have strict timelines for the completion of internal audits and thus ensures that the internal audit process is swift and has adequate time to squeeze in on any irregularity without allowing for misdemeanors to go unnoticed (Strouse, 2009). Part B The MSc in Financial Resources Management is designed to enable a learner to decipher the issues and challenges faced by managers responsible for financial management in firms. As such, the learner is offered a theoretical overview of the world finance to equip them with the relevant tools necessary to ensure that they can deal with any emerging issues from their work. The learner is expected to exude a heightened degree of conceptual understanding of financial management. Evidently, this implies that the learner ought to have an interest in mathematics, economics and finance so that the transition in the program may be as smooth as possible for their understanding. For the purposes of building a cohesive financial background to the learner, the module is spread out for twelve weeks. During this period, the learner is exposed to intense lessons in the above-prescribed areas. The method of instruction is lectures, group discussions, problem based learning, presentations, assignments and mini research projects. Moreover, there are a series of assessments in the form of coursework assignments and sit-in assessment. During this period, learners are expected to ensure that they take every opportunity to participate in the activity so as to ensure that they build on their soft skills as future managers. Ordinarily, all university regulations pertaining to the partaking and submission of assignments are to be adhered to. As a reminder, plagiarism is a serious offence that may lead to one’s discontinuation from the program. In addition to that, one should take note that any unethical practices during assessments may face similar consequences. When submitting assignments, it is important to take note of all the instructions, follow all rules and adhere to set deadlines. Moreover, the minimum word count for all assignments must be met with an allowance of +/-10% of the total word count. However, the program places emphasis on quality over quantity and as such meeting the word count is by no means a guarantee of success. For the purposes of meeting the demands of the module, the program seeks to ensure coverage and conceptual understanding of concepts spread out over twelve weeks with each week covering a new concept. To begin learners are introduced to financial statements whereby they are familiarized with techniques and principles used in the calculation in financial statements. In this case, care and emphasis needs to be placed on the leaner to ensure that they appreciate the concepts instructed herein as the unit forms the basis of the entire module. Moreover, the unit requires learners to utilize the core reading texts. With this in mind, the learner proceeds to understand more complex financial concepts in the form of financial diagnostics performed using ratio analysis. Besides the numerous class exercises that are offered, the leaners are expected to ensure that they extend their practice in covering ratios of real-life companies preferably for the ones they have an interest in. The beginning of the third week sees the students introduced to company valuation that will be another unit filled with theories and calculations requiring the student to rely on the core reading textbook. The subsequent week sees the learner spend another week by themselves in research and learning about regulations, audits, and corporate governance. The key method of instruction comes in the form of a research paper that follows a lecture on the same. With the abundance of knowledge acquired, learners are then exposed to a unit dealing with the prediction of corporate health and failure. Besides the classroom interactions, the learners are expected to make extensive private study on the same to build their competence on the subject matter. With the buildup of concepts, the learners are accorded time, whereby, they may undertake an effective learning of all the concepts covered in the module. The subsequent seventh week sees the learners engaged in concepts around external and internal audit for risk and assurance. Here the learners are expected to ensure that they may condense the information gathered from the fourth week. As the module arrives at its peak in the learning, the learners are then introduced to a unit dealing with investment capital in construction projects. The unit acts as an important case study in understanding the application of the numerous concepts that have so far been instructed. Moreover, the unit sees the learners tasked with a key assignment that requires them to pay attention to details. The following ninth and tenth week sees the learners then introduced to investment appraisal and financial decisions. Here, they are exposed to numerous concepts touching on investment appraisal techniques and how firms arrive at financial decisions. One of the key suggested books for reading is by Lumby and Jones. Emphasis needs to placed on the ability of the learner to conceptually understand the techniques as they form the core of the module. Suffice to say that the final sit-in assessment focuses on such. Another important unit for instruction is that on shareholder value offered in the eleventh week. As the topic name suggests, the learner is exposed to issues regarding shareholder value. Finally, the module concludes with the unit, “Economics for Manager” where the instructor offers parting shorts and points for consideration for the would be managers on economics. In conclusion, the module seeks to ensure that the caliber of financial managers in the global economy exudes both confidence and competence that are important attributes for such managers especially during turbulent economic periods. References Cellan-Jones, R., 2005. The End of an Epic. [Online]. Available at: [Accesssed January 31, 2015]. Davies M. & Aston J., 2011. Auditing Fundamentals, New York: FT Prentice Hall. Erkens D., Hung M. and Matos P., 2012. “Corporate governance in the 2007- –2008 financial crisis: Evidence from financial institutions worldwide.” Journal of Corporate Finance , vol.18 no. 1, pp. 389-411. Financial Reporting Council (FRC), 2010. The UK Approach to Corporate Governance, London: Financial Reporting Council. Hurley, J., 2012. Starbucks First to Cave in over Tax Row. [Online]. Available at: [Accesssed January 31, 2015]. Kroft, S., 2012. The case against Lehman Brothers. [Online]. Available at: [Accesssed January 31, 2015]. Lee J. & Shailer G., 2008. “The effect of board-related reforms on investors confidence.” Australian Accounting Review , vol.18 no. 45, pp.123-134. Mark, Y., 2003. “Corporate governance and voluntary disclosure.” Journal of Accounting and Public Policy vol. 22 no.4, pp. 325-345. Organizsation for Economic Co-operation and Development (OECD), 2004. Oorganizsation for Economic Co-operation and Development Principles of Corporate Governance, New York: Oorganizsation for Economic Co-operation and Development. Poulter, S., 2014. Shaming of Tesco: Retail Giant Suspends Four Top Managers Who Cooked Books to Hide Slump in Profits as £2billion is Wiped off its Market Value. [Online]. Available at: [Accesssed January 31, 2015]. Reece, D., 2004. Deloittes John Connolly faces call to resign over Barlow Clowes Link. [Online]. Available at: [Accesssed January 31, 2015]. Shailer, G., 2004. An Introduction to Corporate Governance in Australia, Sydney : Pearson Education Australia. Strouse, R., 2009. Improving the Effectiveness of Internal Auditing. [Online]. Available at: http://www.qualitydigest.com/inside/standards-article/improving-effectiveness-internal-auditing.html [Accesssed January 31, 2015]. The Economist, 2014. Accounting scandals: The dozy watchdogs. [Online]. Available at: < http://www.economist.com/news/briefing/21635978-some-13-years-after-enron-auditors-still-cant-stop-managers-cooking-books-time-some> [Accesssed January 31, 2015]. Wearing, R., 2005. Cases in Corporate Governance, New York: SAGE Publications. Read More