Corporate Governance and Accounting Ethics - Essay Example

Corporate Governance and Accounting Ethics Name: Course: Tutor: Institution: Date: Abstract The essay develops an evaluation of the role of corporate governance and accounting ethics in the development of credibility and integrity on organizational financial statements. In this regard, besides noting the rationale and role of corporate governance and ethics application, the essay notes that increased third party participation, staff empowerment, transparency and accounting efficiency are the key results of corporate governance and ethics in accounting application that in turn promote increased developed statements integrity and credibility. As such, the essay notes that although different, both corporate governance and ethics should be simultaneously applied to increase statements credibility and stakeholders trust on organizational financial policies and systems. Introduction Changes in the global market are causing numerous changes in organizational operations and practices. In this regard, one of the key interest issues in global organizations today is the concept of brand reputation and image, which determines the perception the public, has on an organization, consequently implicating on its marketing and industry competitiveness. One of the practices connecting organizations and their third party external stakeholder is through accounting and financial statements publishing, where the shareholders, investors, the government and consumers rely on such information to position organizations in the market. However, Jorissen and Otley (2010, p.6) argued that in the recent past, increased fraud on financial statement presentation, such as the case of HIH insurance Company that eventually collapsed to the third party surprise, has reduced confidence and integrity of such statements, causing organisations to publicly apply corporate governance and accounting ethics as an integrity boasting initiative (Merkley, Bamber and Christensen, 2013, p.482). This essay evaluates the various ways through which the application of both corporate governance and accounting ethics increases organization published financial statements integrity. Third Party Involvement One of the basic values of corporate governance is the concept of increasing participation in organizational management and decision making process. In this regard, the executive organizational management seeks the input and participation of the third parties in their decision making as well as strategy formulation process. In this context, there is the emergence of change acceptance. With increased consumer groups and shareholders’ representation in the various stages of the financial statement preparation such as profit margins and revenues determination, increases their ownership aspect of the whole accounting process. Consequently, upon the publishing of the accounts, the stakeholders have confidence in the listed accounts, as they feel as part of the statement preparation process. Bhimani (2008, p.139) argued that a key role and function of corporate governance is boosting the stakeholders’ confidence in the adopted practices. In this case, once the stakeholders have confidence in the adopted practices and systems in governing the organization, such as the staff recruitment process as well as employee reward and promotion policies, there is increased opportunity for trust and confidence establishment. In this regard, once the external stakeholders establish that the respective organisations have the relevant employee policies such as a clear promotion and reward system, that is not pegged on the executive decision, rather on individual employee performance, is an illustration of accounting staff independence, thus boasting the prepared statements integrity (Garcia-sanchez, 2010, p.318). A case study on the role of corporate governance in increasing stakeholders trust and attitude towards prepared statements can be cited in the case of the ING Company. In this regard, Bibby (2012) stated that although the organization failure to embrace corporate governance in its management process, led to its decreasing public reputation, brand image and even a declining share value in the stock exchange market, as the consumers’ confidence and trust of the venture management process and practice was in doubt. Consequently, the court registered a $30 million loss through accounting fraud by its executive management under the Rajina leadership. However, upon the realization of the challenge and the eventual incorporation of corporate governance by the management, statistical evaluations illustrated that the consumer base trust index rose exponentially with increasing organizational process trust. Moreover, as investors developed confidence on the organizational practices and operations, its share price value in the market steadily stabilized, thus boasting its market earnings and revenues overall in the long run period (Keulen, 2014). Therefore, this illustration evidences that the application and adoption of corporate governance principles and practices in an organization increases their overall confidence and trust on its financial statements, thus increasing their authenticity and integrity. Accounting Efficiency One of the fundamental merits of the application and adoption of corporate governance values in an organizational management and accounting process is the ultimate development and attainment of accounting efficiency. In this regard, Klimek and Wenell (2011, p.109) stated that the process involves the development of relevant accounting policies as a measure to ensure accounting and financial analysis functions independence. The core value and principle in accounting management corporate governance is the development of an alternative approach through which, although the accounting function remains as an internal organizational function under the organization executive management, it acquires its independent, autonomous status in that the management does not interfere with the operations and departmental functioning, besides ensuring that the set out rules and policies are abided by. Consequently, as Cowton (2009, p.179) stated, this process has the ripple effect on staff empowerment in the department, as they have the mandate to make strategic decisions on finance and accounting without management consent. As such, this has the ultimate effect of increasing the organizational accounting and financial statements preparation efficiency in the market. A case study in his regard can be evaluated in the case of the Price Waterhouse Coopers. Although the organization is fundamentally an auditing firm for other organizations across the globe, it also has its internal accounting function. In this regard, the accounting function was empowered through policies and regulations development, and despite its being an internal function, serves independently free of the management’s interference. As such, this has increased the organizational, financial statements integrity, credibility as well as its overall operational efficiency and consumer market base trust (“PWC”, 2015). Therefore, this analysis evidences that with increased corporate governance in accounting functions, which empowers the staff members, developed financial statements credibility and integrity is enhanced. Reduce Management Interference Cases of unethical business practices such as the Enron Case in Australia demonstrated the effects of executive management interference in the accounting process. In this regard, such management interference as evidenced in both cases resulted in ethics and principles of good management practices violation. For instance, Mr. Williams, the CEO HIH Company at the time of its collapse was charged in South Wales' court with charges of unethical practices in presenting organizational accounting and financial statements (‘USA Today”, 2008). In this regard, the court noted that as the chief executive officer, he repeatedly interfered with the practices and operations of the accounting function, through influencing the preparation of the financial statements and the ultimate false representation in the financial statements. Based on the above case analysis, it is apparent that failure to apply and execute proper financial and accounting ethics increases external and third party manipulations. In this case, as Ozmen Uysal (2010, p.139) stated, the application of accounting ethics is an imperative approach to empowering the accounting function to execute their mandate with minimal external influence and interference. Therefore, through accounting ethics application, there are two key resultant factors namely employee empowerment and consumer base confidence. In this case, there are international accounting regulatory bodies such as IFRS among others that safeguard and protect accounting officers abiding by the set ethical code of conduct, thus insulating them against management interference and intimidation. On the other hand, the subsequent reduction of executive management interference on the accounting function indicates an independence that boosts the probability of the preparation of authentic and reliable financial statements. Moreover, under the application of accounting ethics, auditing both internal and external and core principle requirements. In this regard, once the financial statements are prepared, the internal and external auditors evaluate their credibility. In this regard, the application of corporate governance in the selection of an organization’s external auditor, and their subsequent application of fair and transparent ethical practices increases the prepared financial statements credibility (“University of Greenwich”, 2015). Therefore, based on this analysis, it is apparent that with the increased ethics application, and reduced management interference both in the accounting and auditing, financial statement preparation stages, the credibility and integrity of such statements is invariably increased. Conclusion Based on the above analysis, it is clear that the application of corporate governance increases third party stakeholders’ confidence in an organizational accounting process, while on the other hand ethics application ensures credibility of the accounting and financial statement preparation process. Therefore, this analysis develops the deduction that financial statements integrity and credibility in the market is two-fold. On one hand, in order for an organization to increase its statements integrity in the market, it should influence the perception and develop a positive market and public perception through the development and application of the corporate governance approach. In this regard, the application of corporate governance principle, such as inclusive decision making process boosts third party confidence in the credibility and transparency adopted in all the organizational functions, thus elevating their overall organizational confidence. On the other hand, the actual process is developed and its credibility and integrity, enhanced through the application of accounting ethics. In this regard, the evaluation establishes that the application and adoption of accounting ethics have two strategic implication merits. On one hand, the process ensures staff empowerment, thus enhancing their career development and ability to make independent decisions in the financial statement preparation process. On the other hand, it reduces executive management interference, thus allowing for independence in the accounting and auditing functions, which in turn promote and propagate the development of credible organizational financial statements. References Bhimani, A. 2008, "Making corporate governance count: the fusion of ethics and economic rationality", Journal of Management & Governance, vol. 12, no. 2, pp. 135-147. Bibby, P, February 16, 2012, ING takes a $30m hit in accountancy fraud case, The Sydney Morning Herald. [Online] Available at [Accessed January 15, 2015]. Cowton, C.J. 2009, "Accounting and the ethics challenge: re-membering the professional body", Accounting and Business Research, vol. 39, no. 3, pp. 177-189. Garcia-sanchez, I. 2010, "The effectiveness of corporate governance: board structure and business technical efficiency in Spain", Central European Journal of Operations Research, vol. 18, no. 3, pp. 311-339. Greenwich University, 2015, Management Accounting and Ethics in Organisations, Author. [Online] Available at . [Accessed January 25, 2015]. Jorissen, A. & Otley, D. 2010, "The management of accounting numbers: case study evidence from the 'crash' of an airline", Accounting and Business Research, vol. 40, no. 1, pp. 3-38. Keulen, P., August 19, 2014, Royal Imtech: A 'Squeezed Lemon' That Is Unlikely To Recover, Seeking Alpha. [Online] Available at [Accessed January 15, 2015]. Klimek, J. & Wenell, K. 2011, "Ethics In Accounting: an Indispensable Course?", Academy of Educational Leadership Journal, vol. 15, no. 4, pp. 107-118. Merkley, K.J., Bamber, L.S. & Christensen, T.E. 2013, "Detailed management earnings forecasts: do analysts listen?", Review of Accounting Studies, vol. 18, no. 2, pp. 479-521. Ozmen Uysal, Ö., 2010, "Business Ethics Research with an Accounting Focus: A Bibliometric Analysis from 1988 to 2007", Journal of Business Ethics, vol. 93, no. 1, pp. 137-160 PWC, 2015, Audit committee resources, Author, [Online] Available at [Accessed January 15, 2015]. USA Today, January 13, 2008, Disgraced Australian CEO leaves jail, Author, [Online] Available at [Accessed January 15, 2015]. Read More