Corporate Governance Impacts on Management Monitoring - Literature review Example

Corporate Governance Impacts on Management Monitoring Name: Corporate Governance Impacts on Management Monitoring Course: Tutor: Institution: Date: Introduction Increased global competition on businesses has increased the overall need for organizations to re-evaluate their internal management systems and operations in a bid to increase such systems competitiveness. In this regard, organizations resulted to the application of corporate governance. This can be argued as a management system through which all stakeholders inclusion and involvement is a considered virtual. As such, the inclusion of corporate governance has over the years served as a critical organizational management approach across areas such as accounting. For instance, a study developed by Baber, Liang and Zhu (2012, p.220) evaluated the relationships between the application of both internal and external corporate governance in organizations to financial reporting. In this case, the study evaluation established that corporate governance inclusion had a, direct impact on the nature, approaches and practices applied by the respective organizational accounting functions (Baber, Liang and Zhu (2012, p.230). These study findings emanate the debate of evaluating exactly which areas doe’s corporate governance influence accounting and financial reporting in organisations and markets. As such, the proposed literature review bases its argument on this analysis to evaluate the role and implications of corporate governance on accounting in organisations. Among the critically examined areas include in planning, cash flow management and auditing and the implications of each of these variables changes to the concept of management monitoring.. Accounts Planning One of the strategic areas in which corporate governance has implicated on accounting and financial is in planning. In this case, the accounting function across sectors both in the private and publics sectors are entrusted with financial planning. Through this planning function, the accounting function ensures the allocation of resources to the areas and functionalities that deserve them. Traditionally, this function was often misused. Soobaroyen and Raja (2007, p.275) conducted a study evaluating the nature and the relationship through which accounts planning was conducted in the traditional management set up. In this case, the study focuses in the particular aspects of developing and evaluating the actual factors that the organisations accounting functions considered. In its analysis, the study established that among the key focus issues in traditional accounting was the need for organisations to make profits. Therefore, the element of profits and returns on investments were the key consideration variables. However, since the introduction of corporate governance in accounting, Lin (2001, p.33) evaluated the incorporation of corporate governance principles in the management and development of the Chinese economy. As such, the study evaluated the extent to which the use of corporate governance in the nation’s public sector accounting influenced its accounts planning. In its evaluation, the study establishes that the accounting process incorporated transparency as well as increased public participation. In this case, the increased transparency has over the years enhanced the profiling and re-evaluation of the economy’s development agendas. In this case, besides the evaluation and ultimate consideration of the profit and capital gains, the economic accounts planning incorporate the element of social society needs in the market. Therefore, through this approach, the economy acquired increased economic as well as equally growing societal aspects in the long run. Therefore, based on this literature review arguments it is apparent that while as traditional accounting was geared and channelled towards the development and acquisition of profits, the new age accounts and financial planning, under the corporate governance management principles is geared to achieving not only profit gains in planning but also the overall non financial societal gains in the market. Therefore, this offers the external stakeholders a management monitoring opportunity in that it not only ensures the inclusion of the society benefits, the planning ensures the inclusion of the external stakeholders in financial planning. Public Accountability Besides accounts planning, an additional factor in the management of accounting and financial planning is the concept of public accountability. In this case, this is corporate governance that requires organisations and markets to not only disclose information reportedly, but also act in prudence in that the interests of the public are behest. Such public in this context include the society as well as investors. Failure to apply public accountability in the real estate and housing industry in the USA is lauded as one of the larges and pertinent causes of the global financial crisis in 2008. However, despite this challenge, the industry has re-emerged in the global market to attract an increasing number of investors. In this regard, Nwogugu (2004, p.55) conducted a study evaluating the changed management practices by the industry players. In this regard, the evaluation narrowed down to the Jack-in the box inc. USA real estate trader. The evaluation established that the corporation has gained increased investor confidence and attraction despite the GFC of 2008. In its analysis, the review argued that one of the pertinent causes and reasons for this development is the incorporation of corporate governance practices in its reporting and accounting functions. As such, this includes disclosing all vital information to the public and the existing and potential investors. A similar argument and merit for the inclusion of corporate governance principles to enhance public accountability can be referred by the case study developed by Subramaniam, Stewart and Shulman (2013, p.975) on the Australian market. In this case, the case study sought to establish the driving factors for increased economy development. One of the key findings was increased transparency and appropriate resources utilization. As such, the study established and argued that through increased adoption and incorporation of corporate governance in the public sector accounting management, the Australian public finance management acquired increased public accountability. Consequently, this attracted increased investors into the market. The study concluded that with increasing public accountability by the society, there was increased confidence on investors as well as a significant reduction in risks and indirect costs of conducting business in Australia making it an ideal foreign investments destination. Public accountability and increased transparency as argued in the above studies increase the probability and likelihood of the external stakeholders to monitor management performance and execution of duties. In this case, it offers the external stakeholders increased information on the execution of duties as well as financial spending by managers. Consequently, with ample information provision, they can establish and point out faults and funds misuse by the management, thus promoting monitoring. Cash Flow Management Organizational and business accounting functions are mandated with the tasks of evaluating and establishing the appropriate and most rational and advantageous projects in an organization. As such, corporations seek to establish projects that facilitate maximum organizational gains. Traditionally, this included the executing and funding of organizational projects that presented the highest possible profit gains in the industry. As such, accounting financing function was based on the evaluation of return on investment rations of projects and activities. However, this tradition has changed. With increased global competition as well as increasing society and market base knowledge, organisations seek to finance and execute projects deriving both financial and non financial gains. This argument s evidenced by the empirical study as developed by Sánchez, Domínguez and Álvarez (2011, p.483). In this case, the study evaluated the implications of corporate governance on organizational strategic accounts management in Spain. In this regard, basing its evaluation on the availability of projects and potential financing of the organizational projects on the internet, the study established that through increased corporate governance application in project execution and management, organisations increased their cash flows management success. As such, regular reviews on financed project as well as status evaluations led to increased cash flow regulation through increased transparency allowing for proactive measures on projects delving of course. An additional case study on the role of corporate governance in allowing for increased accounting cash flow management efficiency can be discussed under the evaluation developed by Whitley (2005, p.22). This study evaluation established that corporate governance increased internal accounting and management systems control. In this regard, it argued that through increased transparency in accounting and financing of projects, the possibilities of proactive corrective measures and finances appropriation efficiencies increases. Therefore, citing the example of the international accounting standards board objective of establishing internal management control systems, the study concluded that organisations applying corporate governance principles in their internal management systems considerably reduced their operational risks. Therefore, in other words, the study concluded that the application of corporate governance principles serves as an accounting risk management tactic for reducing overall investment risks for the possibility of loss occurrences in the market. The evaluation and establishment of appropriate cash flow management as well as risk evaluation is a major internal management control and monitoring approach. In this case, it offers organisational managements the opportunities to internally evaluate the performance and success of existing process. Therefore, based on this analysis, it is apparent that increased corporate governance application enhances enhanced management monitoring through offering strategic decision making vital information in the market. Auditing Practices One of the areas’ most implicated upon by the introduction of corporate governance application in accounting and financial reporting is auditing. In this regard, auditing is classified into both internal and external auditing. While as internal auditing is done courtesy of the organizational employees, the external auditing is conducted by independent third parties to an organization, often believed and perceived as impartial and highly objective. The introduction of corporate governance led to the introduction of two strategic institutions namely the external auditors and auditing committees. On one hand, an evaluation of the role of external auditing committees can be evidenced through the evaluation of the study developed by Filipovic, Davor and Filipovic (2008, p.1094) who developed a case study to evaluate the role of auditing committees in organisations and the public sector. Through the development and use of these committees, the study established that this has increased public representation and involvement in accounting and financial management. Therefore, this has subsequently led to increased public and investors’ confidence in the market Moreover, a review by Okab (2013, p.183) a case study of Jordan based organisations on external auditing is a further illustration. The evaluation argued that external auditing practices are essentially based on the principles of corporate governance. In this case, the principles and practice offers the shareholders and other market stakeholders the opportunity to participate in the evaluation and verification of developed organizational accounting and financial reports. As such, through the verification and affirmation for the accuracy and validity of the records, increases confidence among the publics. Moreover, a study developed by Abu-Musa (2004, p.34) on the merits of auditing practices in organisations affirmed that it enhances increased transparency and accountability as organizational managers who serve under the agency theory are subjected to scrutiny in which they are to respond to any variances and challenges in the market. This has direct implications on management control aspects. In this regard, both internal and external auditing practices increase the overall ability by the management to establish accounting and financing challenges. As such, external organisational stakeholders acquire increased management control as a result of corporate governance application in accounting as they can proactively establish existing challenges and misrepresentation of financial data by the management. Thus, they can consequently apply proactive corrective measures. Despite the evaluated literature, the review notes increased deficiency of empirical studies on the concept of the relationship between corporate governance principles application and the overall accounting process costs. In this regard, the literature review argues that this is an existing literature gap that could be bridged into the future. As such, it develops an argument that future studies on the evaluation of corporate governance effects on accounting should focus on this unreserched on topic. References Abu-Musa, A. 2004, "Auditing E-Business: New Challenges for External Auditors", Journal of American Academy of Business, Cambridge, vol. 4, no. 1, pp. 28-41. Baber, W.R., Liang, L. & Zhu, Z. 2012, "Associations between Internal and External Corporate Governance Characteristics: Implications for Investigating Financial Accounting Restatements", Accounting Horizons, vol. 26, no. 2, pp. 219-237. Filipovic, Davor,mag oec univ spec oec & Filipovic, I.,Ph D. 2008, "External Auditing And Audit Committee As Mechanisms In Corporate Governance", University of Zagreb, Faculty of Economics and Business, Zagreb, Jun, pp. 1094. Isabel-María García Sánchez, Luis Rodríguez Domínguez & Isabel Gallego Álvarez 2011, "Corporate governance and strategic information on the internet", Accounting, Auditing & Accountability Journal, vol. 24, no. 4, pp. 471-501 Lin, C. 2001, "Corporatization and Corporate Governance in China's Economic Transition", Economics of Planning, vol. 34, no. 1-2, pp. 5-35. Nwogugu, M. 2004, "Corporate Governance, Real Estate and Corporations Law: The Case of Jack-in-the-box Inc", Managerial Law, vol. 46, no. 6, pp. 53-85 Okab, R. 2013, "Electronic Audit Role in Achieving Competitive Advantages and Support the Strategy of the External Audit in Auditing Offices in the Hashemite Kingdom of Jordan", International Business Research, vol. 6, no. 6, pp. 181-195. Soobaroyen, T. & Raja, V.S. 2007, "An exploratory study of financial priorities, financial planning and control practices in voluntary organisations", Journal of Accounting & Organizational Change, vol. 3, no. 3, pp. 270-301. Subramaniam, N., Stewart, J., Ng, C. & Shulman, A. 2013, "Understanding corporate governance in the Australian public sector", Accounting, Auditing & Accountability Journal, vol. 26, no. 6, pp. 946-977. Whitley, J. 2005, "Internal Auditing's Role in Corporate Governance", The Internal Auditor, vol. 62, no. 5, pp. 21-22. Read More