Governance Risk & Forensic Accounting Assignment Sample

Explore governance, risk assessment, and forensic accounting in this comprehensive assignment.

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Introduction Of Governance Risk & Forensic Accounting Assignment

This report includes an overall overview of the corporate governance in the business. Corporate governance is very important in every business field as it helps the company to give the company's people accountability and also streamline the process(Jurakulovna, and Bahodirovich, 2021). Somehow this term also helps the company in the decision-making process. Main work of corporate governance in the company is to clearly define the responsibilities and duties to the board, stakeholders, and shareholders to effectively achieve the company's goal on time. One of the significances of corporate governance is, it aids the accountability of people within an organization to make their decisions related to their work and post, which increases the stability of people and the effective survival of a company in the market.

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This effect in several reviews in both Corporate audit and Governance, climaxing in the Department of Business Energy and Industrial Strategy (BEIS) putting out a White Paper on March 18, 2021, looking for views by July8, 2021, on suggestions to reinforce the UK’s supervisory framework for key firms and the mode they are inspected, in the attempt label such disputes (MacKinnon, et. al. 2020). Belief in corporate audit and Governance has been seriously worn over the current years due to many commercial failings containing, for example, however not restricted to Wirecard in 2020, BHS in 2016,Patisserie Valerie in 2018, and Carilion in 2018. Since then, many irrigated down offers are being reserved forward to be executed within the Parliament leading to many conversations as to whether these will be adequate. Similar subjects relating to the deficiencies at these corporations have arisen, like questions over the superiority of exterior audit work, worries over the efficiency of a board and committees of the board, fake and wrong behaviour, poor risk management, and interior control deficiencies.

The importance of corporate governance in the current environment

Good corporate governance is pretty simple knowing what the key members of a company are supposed to do which prevents conflicts in a business as everyone knows their work and the boundaries to perform that work in an organization.

Furthermore, points are described to reflect the importance of corporate governance:-

  • Lowering Risk- Corporate governance helps the company to avoid or prevent criminal liability, scandals, and fraud with a proper plan of delegating accountability to the company's participators. It reduces or mitigates the amount of risk that is involved in various levels of a company.
  • Public Acceptance- Company is extensively accepted by the public if it adopts corporate governance in the operations of its business. Because it provides transparency of the work of an organization's people, the general public has more faith in the business operations and the company itself.
  • Public Image- Through corporate governance, the company remains its clean image in the market and the mind of the public also(Cazzolato, et. al. 2021). As corporate governance makes sure that the company is aware of ethical behaviour and the general public's wants, it creates a graceful image of a company in the market.
  • Having a Successful Business- It is not compulsory for the business to adopt corporate governance but to become successful in the competitive market the company have to follow all rules of corporate governance.

The consequences of corporate & audit failures

Corporate failures are attributed to many factors that are categorized into two parts one is exogenous and another is endogenous (Morris, 2018). The components which are uncontrollable by the company itself are lies under exogenous factors that include the change in demand of the public, competition, the globalization threat, action of a business circle, and excessive regulations. Along with this corporate governance also inform the rights of all participators within an organization. Corporate governance is just a small part of a big organization. Corporate governance follows different principles by which all participators of the company get affected, which are treating shareholders equally, ethical behaviour, keeping an interest of the stakeholders in mind, transparency, and recognising roles of the board of directors. On the other hand, endogenous factors have a direct impact on the company that is under the control of a business. The causes of endogenous factors contain mismanagement, income smoothing, excessive expenses, fraud and embezzlement, inadequate revenue, excessive floating debt, over-capitalization, and unwise dividend policy.

Weak corporate governance leads a company towards the pathway of failure in the market as the company will not be able to commit to ensuring that all participator's interests of the company are protected(Nordberg, 2020). Lack of accountability in the company’s operations and performance will create problems in accounting procedures, and unstable internal control with insufficient security of the documents. An inability of the audit reports that deliver an early caution signal to the regulatory bodies and owners has extremely influenced so many companies, and also questioned adequacy and integrity of the audit work in general.

Company gets negative results when it faces failure in the corporate and audit works. The audit failure will lead to detecting and deterring any fraudulent activities in the company. Along with this, the company faces an issue of qualified audit reports of the failed concern when the company's auditors failed (Honigsberg, 2019). The failure of corporate works may create endorsement of wrong profit figures for a company. One of the most affected consequences of corporate and audit failure is the development of distress concerns while issuing a clean report to the general public.

Examples of scandals above have resulted in significant consequences in 2018 with cascade failure through auditing in the countries like UK and US where the issues arises from the reforms which imposed diminishing returns. From the said consequences auditors understand the quality of the services offered for the strategies making while investing in new technologies. The audit failure will lead to detecting and deterring any fraudulent activities in the company. Along with this, the company faces an issue of qualified audit reports of the failed concern when the company's auditors failed (Honigsberg, 2019). The failure of corporate works may create endorsement of wrong profit figures for a company from which many employees loss their job. One of the most affected consequences of corporate and audit failure is the development of distress concerns while issuing a clean report to the general public influencing loss of jobs.

Company’s corporate social responsibility (CSR)

Corporate social responsibility (CSR) states the strategies that businesses put into an action as part of corporate governance which is intended to make sure that organization’s operations remain ethical or beneficial for the society(Fatima, and Elbanna, 2022). Though CSR is a wide concept that is implemented differently and understood by each firm, the basic idea of CSR is to work in environmentally sustainable, social, and economic way. A socially responsible investment movement establishing a positive relationship between corporate social performance (CSP) and corporate financial performance (CFP) has been a long-standing pursuit of researchers. This endeavour has been described as a “30-year quest for an empirical relationship between a corporation’s social initiatives and its financial performance.” One comprehensive review and assessment of studies exploring the CSP-CFP relationship concludes that there is a positive relationship between CSP and CFP.

Usually, CSR initiatives are characterized as follows:

Environmental obligation- These obligation initiatives focus on decreasing greenhouse gas emissions and pollution along with a maintainable use of natural resources.

  • Human rights accountability- The initiatives accountability of human rights includes disavowing child labor, fair trade practices, and delivered fair labour (e.g., identical pay for identical work)(Karp, 2020).
  • Philanthropic responsibility- This type of responsibility can contain things like supporting community beautification projects, funding educational programs, donating to causes, and supporting health initiatives(Hwang, et. al. 2020).
  • Economic liability- The economic initiatives' liability includes upgrading the company’s business process while participating in the sustainable practices, for instance using new manufacturing processes to reduce wastage.

Critical evaluation of the key corporate governance

The system through which organizations are controlled and governed under the defined principles and rules is called 'Corporate Governance. A system of corporate governance become famed after the company failures in the UK, hence it is need of that time to evolve and execute the system that regulates an organization's affairs and administer their action to protect the investors’ interest. In this manner, the code of conduct is settled at the Government level for securing the interests of stakeholders and other investors(Cucari, 2019). A company Right Move PLC enforces the concept ofCorporate Governance in such a way that it pillars a circular for the stakeholders that a particular company is going for corporate restructuring.

Every company that is located in the UK has to compulsorily comply with and implement all the rules and regulations of the United Kingdom Corporate Governance Code (UKCGC). All the companies must follow the documentation needs as well as all financial complaisance following the audit committee(Aguilera, et. al. 2019). It is said by corporate governance that the auditors are completely separated from the organization as they are not legally considered as a part of a company, except the internal ones. The audit and tax requirement is necessary to be fulfilled. All the judgments even if it is on a strategic level that is related to any acquisition need to converse with the stakeholders of an organizationas they invest a big stake of their money in a company.The annual records and financial statements of a company should be delivered on an annual base so that all stakeholders get aware of the performance of a company and also where it is going. The commencement of the process of an economic transition in Eastern Europe appeared to be a unique opinion of what a former economy requests to do to developa successful market economy.

CSR is met Critical evaluation

The consequences of loss in employment through the auditing failures occasionally result in businesses missing out on a great opportunity. A select few businesses have been successful in assembling a multidisciplinary, global team to develop a CSR strategy. There are companies that are more locally focused that have created a CSR network to assist in hiring staff members in service that is concentrated on both the community and the corporation's CSR aims. These are not the only justifications for why most industries should support CSR. In truth, businesses get preoccupied with CSR for a variety of reasons and in consequence of these in lack of interest which causes loss in employment also. In response to this empirical evidence, in the last decade the investment community, in particular, has witnessed the growth of a cadre of socially responsible investment funds (SRI), whose dedicated investment strategy is focused on businesses with a solid track record of CSR-oriented initiatives. Today, the debate on the business case for CSR is clearly influenced by these new market trends: to raise capital, these players promote the belief of a strong correlation between social and financial performance.

Corporate failures that resulted in such corporate scandals

Corporate governance is not just a structure instead it comprises the different obligations, rights, and duties that direct and control the corporation (Bhagat, and Bolton, 2019). The governance in a corporation properly allocates the responsibilities to those persons who are participators in a business such as stakeholders, regulators, board of directors, creditors, and managers. Corporate governance results in various corporate scandals in different businesses (McLaughlin, et. al. 2021). A corporate scandal can arise at any time, there is an indication of unethical behavior, abandonment, or third-party intervention that influences a firm’s reputation.

The biggest corporate scandals are:

  • BP scandal- In April 2010, the Deepwater Horizon oil crisis occur, which saw BP's share price decrease dramatically. The effects were overwhelming for the local ecology, locals, and wildlife, and the company has been enforced to pay billions of dollars in reimbursement since that crisis. In July, around 4.9 million tubs of oil leaked into the ocean, creating the nastiest unintentional oil spill of all time.
  • Apple scandal- A largest disgrace to knock out Apple in current years is certainly the ‘batterygate’ in December 2017. CEO Tim Cook delivered, declaration on this problem a week when the news came in the public gossip, corroborating that the software was intended to regulate presentation but demanding that intent was only to stop unanticipated closures, that could impact devices with older batteries(Mccarthy, 2018). Apple provides a discount on the battery substitutes as sign of goodwill for those influences.
  • Facebook disgrace- In March 2018, Facebook’s largest scandal hit, when New York Times and the Guardian stated that the company entitled Global Science Research had harvested data from the millions of a Facebook consumers in 2013, without their clear consent. It permitted Global Science Research to collect info about 87 million Facebook consumers however only nearly 30,000 people had truly used the Facebook App. These facts were later sold to the Cambridge Analytica, who recycled them to make high directed ads to inspire consumers to vote for the Brexitand Trump.

Guidelines for ethical behaviour standards

Ethical behaviour standards effectively define the essential set of ethical principles. Usually, the ethical standards are implemented by the executing members of an organization to assist the judicious conveyance of underlying didactic views(Remišová, et. al. 2019). An ethical code of conduct is illustrated effectively by the given firm, as they provide their employees a decided framework while concluding any decision for a company.

The basic ethical standards in the perspective of the company are defined as follows:

  • Obeying the law- All the employees of a company have to follow all laws under an organization's terms and conditions. Each employee should perform minimum ethical requirements at the workplace to maintain work proficiency. It should be considered that there will be no class-caste differentiation violation in the company.
  • Knowing the ethical requirements for a company- Companies originate to circulate the ethical codes that they assume from their employees. Singular firms to companies operating in the public sector, each have pre-defined practices of ethical standards that they are looking for.
  • Remaining alert to the changing of norms- Ethical standards always experience some changes in businesses. Therefore, it becomes crucial for workforces to keep their ears and eyes open to the changes in an organization’s ethical standards.This will help the employees in boosting themselves to complete the path of success and judiciousness.
  • Be reasonable- Smiling while shaking hands or wishing each other a good morning leads to the route of forming a good impression.

The common codes of conduct of ethical standards are:

  • Code of business ethics- It draws on different privacy and beliefs terms which are efficiently upheld by the given firm. The code of conduct’s usefulness mainly depends on how rigid the business can impose them in the work domain.
  • Code of conduct for employees- This specific code aids stipulate the several steps that workers are estimated to keep in mind when dealing with ethical situations.
  • Code of practice- The code of practice delivers a step-by-step escort to the workforce regarding the predictable codes of conduct of an organization.

Whether forensic accounting could assist in strengthening corporate governance further and the Causes of these recent corporate failings

Forensic accountants are those experienced investigators who are hired to look into the potentiality of fraudulent activities in the financial and legal parts of the company. Forensic accountants play a vital role to enhance corporate governance in the business(Honigsberg, 2020). They confirm that there is a corporation “code of ethics” for management and employees. A Forensic Accountant aids accounting authorities to have an efficient control structure and accounting system which confirms a proper recording, classification, and reporting of all related transactions(Rehman, and Hashim, 2018).These accountants verify the honesty of financial reports by actively examining for fraud, recognizing areas of risk and linked fraud signs, following each irregularity aggressively, and investigating into finest particulars of financial and accounting anomalies.

The causes of recent corporate failings

  • Risk blindness- Risk blindness denotes that glitchesare ignored and gives them a period to grow. The key reason panels often fail is the inability to involve with risk in a similar way they involverewards and opportunity.
  • Technological disruption- Business leaders who fail to pull new tech to stay competitive repeatedly see thewhole organization collapse because of complacency.
  • Not enough working capital- If the company is undercapitalized, it maybe fails. Undercapitalized organizations cannot buy appropriate fixed assets or finance income in producing assets, leading to underutilization of capability and eventually failure.

Further measures may be needed to strengthen the UK’s regulatory framework for companies

The regulatory framework in the UK for the social housing is made up of:

  • Regulatory necessities – This requires what listed providers of a social-housing want to submit with.
  • Code of practice – This can amplify the monetary standard to help listed workers in understanding how acquiescence might be achieved.
  • Regulatory guidance – This offers further illustrative information on regulatory requirements and contains how the controller will carry out their role of requirements regulating.

Has progressed to Parliament and concerns over the watering down of many of these proposals

The UK is already known as having the leading worldwide reputation for corporate governance (J?drzejowska-Schiffauer, et. al. 2019). The UK parliament considers different points to well-establish corporate governance in the UK located companies.

  • The sale of businesses in distress-The offers seek to confirm fair consequences when key companies get into problems but to escape putting fences in the mode of reliable business-saving efforts.
  • Investigation in the actions of directors of dissolved companies-There is complications caused when the businesses are dissolved with unsettled allegations or debts of director misbehaviour, which an insolvency provision does not presently have the necessary authorities to inspect.
  • Strengthening corporate governance in pre-insolvency situations-Whether stages should be occupied to recover governance, internal controls,and accountability within the complex corporation group assemblies.

Along with the above points, the UK parliament also pays attention to further points such as the reversal of value extraction schemes, strengthening the role of shareholders in the company, and many more.

Conclusion

A corporate governance framework of the UK is underpinned by the combination of major statutory legislation, governance codes, capital markets regulation, best practice guidance, and investor expectations(Allam, 2018). The primary legislation of all UK companies is The Companies Act 2006. The premium listed companies in the UK set a higher standard of corporate governance after complying with the listing principle and rules that enhance continue obligations for corporations who exceed EU-based minimum requirements. The financial reporting council (FRC) maintain a governance principles of a non-statutory code of best operation, under the UK Corporate Governance Code (CG Code) 2018.

It is also concluded that each company has to perform CSR activity as it is an external responsibility of being a good corporate citizen in an economy, and along with this it has to follow all corporate governance guidelines to maintain the company internally. It can be said that corporate governance and CSR are the two phases of the same coin(Gangi, et. al. 2019). These two terms are not directly related to each other but are indirectly influenced by each other. The inference here is that if a company practices good governance, then they are improbable to have social integrity, and therefore the 1st step towards CSR is through working on the art of operative corporate governance. There is a mass developing of kinds that is trendy with the public at great waking-up to require for businesses to be socially and ethically conscious and responsible (Pekovic, and Vogt, 2021). Therefore, no company can afford to disregard the tell-tale signs of stakeholders and consumers while focusing on these phases.

References

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Allam, B.S., 2018. The impact of board characteristics and ownership identity on agency costs and firm performance: UK evidence. Corporate Governance: The International Journal of Business in Society.

Bhagat, S. and Bolton, B., 2019. Corporate governance and firm performance: The sequel. Journal of Corporate Finance, 58, pp.142-168.

Cazzolato, M.T., Scabora, L.D.C., Zabot, G.F., Gutierrez, M.A., Traina Junior, C. and Traina, A.J.M., 2021. FeatSet: A compilation of visual features extracted from public image datasets. Anais.

Cucari, N., 2019. Qualitative comparative analysis in corporate governance research: a systematic literature review of applications. Corporate Governance: The International Journal of Business in Society.

Fatima, T. and Elbanna, S., 2022. Corporate social responsibility (CSR) implementation: a review and a research agenda towards an integrative framework. Journal of Business Ethics, pp.1-17.

Gangi, F., Salerno, D., Meles, A. and Daniele, L.M., 2019. Do corporate social responsibility and corporate governance influence intellectual capital efficiency?. Sustainability, 11(7), p.1899.

Honigsberg, C., 2019. The case for individual audit partner accountability. Vand. L. Rev., 72, p.1871.

Honigsberg, C., 2020. Forensic accounting. Annual Review of Law and Social Science, 16, pp.147-164.

Hwang, J., Kim, J.J. and Lee, S., 2020. The importance of philanthropic corporate social responsibility and its impact on attitude and behavioral intentions: The moderating role of the barista disability status. Sustainability, 12(15), p.6235.

J?drzejowska-Schiffauer, I., Schiffauer, P. and Thalassinos, I.E., 2019. EU Regulatory Measures Following the Crises: What Impact on Corporate Governance of Financial Institutions. European Research Studies Journal, 22(3), pp.432-456.

Jurakulovna, J.G. and Bahodirovich, R.U., 2021. Improving the Theoretical Framework of Internal Audit in the Corporate Governance System. Middle European Scientific Bulletin, 19, pp.345-348.

Karp, D.J., 2020. What is the responsibility to respect human rights? Reconsidering the ‘respect, protect, and fulfill’framework. International Theory, 12(1), pp.83-108.

MacKinnon, D., Pike, A., Kempton, L. and Champion, T., 2020. Response to the Business, Energy and Industrial Strategy Committee sub-inquiry on Levelling up: local and regional.

Mccarthy, S., 2018. Zuckerberg tells staff to use Android after Apple feud. UWIRE Text, pp.1-1.

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Morris, R., 2018. Early Warning Indicators of Corporate Failure: A critical review of previous research and further empirical evidence. Routledge.

Nordberg, D., 2020. Successes in Corporate Governance—Or Failures?. In The Cadbury Code and Recurrent Crisis (pp. 1-14). Palgrave Macmillan, Cham.

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Rehman, A. and Hashim, F., 2018, January. Forensic accounting on corporate governance maturity mediated by internal audit: A conceptual overview. In 1st Economics and Business International Conference 2017 (EBIC 2017) (pp. 161-168). Atlantis Press.

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Yuan, Y., Lu, L.Y., Tian, G. and Yu, Y., 2020. Business strategy and corporate social responsibility. Journal of Business Ethics, 162(2), pp.359-377.

 

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