Successfully reported this slideshow.
We use your LinkedIn profile and activity data to personalize ads and to show you more relevant ads. You can change your ad preferences anytime.

Global Corporate Governance Rules

This powerpoint presentation is prepared by reviewing the article entitled "A Case for Global Corporate Governance Rules : An Auditor’s Perspective" by Robert S Roussey. This is presented in a seminar on corporate governance at School of Management, Tribhuvan University.

  • Be the first to comment

Global Corporate Governance Rules

  1. 1. A CASE FOR GLOBAL CORPORATE GOVERNANCE RULES : AN AUDITOR’S PERSPECTIVE Robert S Roussey University of Southern California,USA Presented By Mukund Prasad Joshi MFC 2nd Semester SOMTU
  2. 2. Abstract  The articles emphasizes on need of global corporate governance rules  The paper considers the importance of Corporate Governance and auditor’s involvement in it  The paper also considers the new initiatives of OECD and World Bank for development and implementation of global CG rules  The paper describes the use of Global Shares by global enterprises and how it compels to a movement for global rules  Finally, the paper recommends International securities Regulators to seriously consider the formation and implementation of global CG rules Mukund Prasad Joshi | MFC 2nd Semester | SOMTU
  3. 3. Introduction “Once a business entity lists its shares outside of its national boundary, it should be subject to a set of global corporate governance rules” - Roussey  Corporate governance has been practiced since a long time  But, CG has been practiced mostly on a nation by nation basis  Globalization and the changing scenario of corporate structure create imperatives regarding the need of global CG rules Mukund Prasad Joshi | MFC 2nd Semester | SOMTU
  4. 4.  Financial statement frauds, rampant corruption and expanding money laundering has increased the need of corporate governance  CG plays important role to protect global capital markets Mukund Prasad Joshi | MFC 2nd Semester | SOMTU
  5. 5. What is CORPORATE GOVERNANCE?  Governance in the private sector is generally referred to as “Corporate Governance”  The ethical corporate behavior by directors or others charged with governance in the creation of wealth for all stakeholders  It is how stewardship is provided over business of an entity to o achieve corporate objectives, o balance such activities with expectation of society ; & o provide appropriate accountability to stakeholders Mukund Prasad Joshi | MFC 2nd Semester | SOMTU
  6. 6. Why CORPORATE GOVERNANCE?  Shareholders are being away from the management and control of enterprise  Large companies employee professional managers who may involve in mismanagement or financial statement fraud  There are many ways to control over professional operating management  The most important way is to hire the directors who o Accept stewardship responsibilities o Oversee the actions of professional managers Mukund Prasad Joshi | MFC 2nd Semester | SOMTU
  7. 7. Why CORPORATE GOVERNANCE?  CG responsibilities are focused more on non executive directors since they are true representatives of the stakeholders  They are independent from o the day to day operations of the entities o the actions of the professional managers  They have interests of stakeholders Mukund Prasad Joshi | MFC 2nd Semester | SOMTU
  8. 8. Contd…  Studies showed that firms having outside directors have less financial statement fraud  A study, sponsored by COSO (Committee of Sponsoring Organizations of theTreadway Commissions), focused on fraudulent financial reporting.As related to governance, the study found that 1.Top management was usually involved 2. Boards and Audit committees were weak Mukund Prasad Joshi | MFC 2nd Semester | SOMTU
  9. 9. Contd… 1.Top management was usually involved oThe CEO was named in 72% of cases oThe CFO was named in 43% of cases o Either CEO or CFO were associated in fraud in 83% of cases Mukund Prasad Joshi | MFC 2nd Semester | SOMTU
  10. 10. Contd… 2. Boards and Audit committees were weak o25% of companies had no audit committee oThe median number of meeting each year was just 1 (where audit committee existed) o65% of audit committees had no accounting or financing expertise  60% of directors were insiders or ‘gray’ directors (outsiders with ties to the company or management)  39% of boards had no directors that had served as an outside or gray director on another company’s board, suggesting they had little board experience Mukund Prasad Joshi | MFC 2nd Semester | SOMTU
  11. 11. Who are the stakeholders ? Some of the stakeholders of a typical business entity are  Shareholders : who make an equity investment in an enterprise and who expect share investment growth and dividend distributions  Banks : who provide loans and who expect to be repaid  Executive management and employees : who provide services to an entity and who expect to be paid for the services and to receive various employee benefits Mukund Prasad Joshi | MFC 2nd Semester | SOMTU
  12. 12. Who are the stakeholders ?  Suppliers : who provide goods and services and who expect to be paid from them  Other companies : who have cross-holding interests, who have a vested interest in the entity and who can significantly influence the corporate behavior of the company  National and Local governments : who provides services to the entity and the society and who need to receive revenue through taxation Mukund Prasad Joshi | MFC 2nd Semester | SOMTU
  13. 13. Do we need CG always ?  We might not need CG, o If all the companies has the most outstanding business managers as the executive management who truly had the stakeholders interest foremost o If we did not have fraud and corruption in the world There is need not only for representatives to assists overall strategies and development of business enterprises but also to eliminate these illegal acts Mukund Prasad Joshi | MFC 2nd Semester | SOMTU
  14. 14. Governance activities relates to o Entity strategy development and implementation o Economic development , including mergers and acquisitions o Appointment of professional operating management executives o Compensation of these executives o Formation of adequate accounting systems and related internal controls over financial reporting, operations and compliance with laws and regulations o Engaging independent auditors Mukund Prasad Joshi | MFC 2nd Semester | SOMTU
  15. 15. Role of Auditor…  To be effective corporate governance, principles have to be applied in good faith, consistently, ethically and with skills needed to apply the principles  This is when the auditor can play an important role in the governance process Mukund Prasad Joshi | MFC 2nd Semester | SOMTU
  16. 16. The Auditor’s Involvement in Governance Process  An auditor primarily focuses on an entity’s financial reporting process  Encourage executive management to adopt appropriate accounting systems and internal controls  But, auditors have not any power to direct executive management Mukund Prasad Joshi | MFC 2nd Semester | SOMTU
  17. 17. What is the effect of CG ? “If governance responsibilities are taken seriously and performed with intelligence, competence and due regard for the stakeholders, society stands a better chance of being protected from financial statement fraud, money laundering, and other ills embedded in some entities” Mukund Prasad Joshi | MFC 2nd Semester | SOMTU
  18. 18. Global CG rules – WHY ?  A task force of ICMG (International Capital Markets Group) studied international corporate governance in 1994-95  It concluded that ‘it was not appropriate to prescribe an international standard for CG  But, during the year 1995-2000 the global market capitalization has increased by $18 trillion and the need for global governance rules was felt Mukund Prasad Joshi | MFC 2nd Semester | SOMTU
  19. 19. Why global CG Rules ?  There is no doubt that CG has to be implemented at the national level  But, global investors and other stakeholders would be better protected if all countries required, at least initially, a prescribed set of corporate governance principles for an entity desiring to list its shares in a country outside of its national securities jurisdiction Mukund Prasad Joshi | MFC 2nd Semester | SOMTU
  20. 20. Any Progress on global CG ?  There are several new initiatives that may further the development of governance rules on a global basis A new initiative of IAPC (International Auditing Practice Committee) of the IFA (International Federation of Accountants) A new initiative of the OECD and theWorld Bank Mukund Prasad Joshi | MFC 2nd Semester | SOMTU
  21. 21. The initiative of IAPC  IAPC considered the role of auditors with respect to governance  communication between the audit team and the people who accepted the governance responsibilities  The IAPC developed an exposure draft of an International Standard on Auditing (ISA) and finalized it on 1999 Mukund Prasad Joshi | MFC 2nd Semester | SOMTU
  22. 22. What does ISA tell ???  Auditor should communicate audit matters arising from the audit of financial statements  The auditor has to communicate these matters in all audit situations and not just in audits of publicly traded entities Mukund Prasad Joshi | MFC 2nd Semester | SOMTU
  23. 23. What if governance people are not identified ?  The auditor has to use judgment in this determination, taking into account such matters as The governance structure of an entity (for e.g. in entities with supervisory boards or with audit committees, the relevant person may be those bodies) The circumstances of the audit committees (for e.g. owner-managed entities) Relevant legislation; and (for e.g. that defines certain aspects of governance communications) The legal responsibilities of those persons Mukund Prasad Joshi | MFC 2nd Semester | SOMTU
  24. 24. The matters to be communicated  The general approach and the overall scope of the audit  The selection of, or changes in, significant accounting policies and practices  The potential effect on the financial statements of any significant risks and exposures that are required to be disclosed in the financial statements;  Audit adjustments, if any Mukund Prasad Joshi | MFC 2nd Semester | SOMTU
  25. 25. The matters to be communicated  Material uncertainties that may cast significant doubt on the entity’s ability to continue as a going concern;  Disagreements with management  Expected modifications to the auditor’s report;  Other matters warranting attention by those charged with governance; and  Any other matters agreed upon in the terms of the audit engagement Mukund Prasad Joshi | MFC 2nd Semester | SOMTU
  26. 26. The initiative of OECD and the World Bank  An important agreement was reached between OECD and theWorld Bank on 21 June 1999  Agreement for new initiatives to co-operate and improve CG  The initiatives include holding an annual Global Corporate Governance Forum and a series of Policy Dialogue and Development RoundTables Mukund Prasad Joshi | MFC 2nd Semester | SOMTU
  27. 27. GCGF and PDDRT  Objective of Global Corporate Governance Forum will be ‘to provide a framework for international cooperation and create synergies for the design and implementation of joint or individual projects by participating countries and institutions’  The Policy Dialogue and Development Round Tables will be run on a regional and, where appropriate, national basis to “provide the framework for continuing policy dialogue and a multilateral process of exchange of experience” Mukund Prasad Joshi | MFC 2nd Semester | SOMTU
  28. 28. Key points of the agreement…  The agreement also includes the establishment of a senior Private Sector Advisory Group (PSAG)  PSAG will be part of obtaining support and input from the private sector  The agreement intends new set of CG principles that has recently been issued by the OECD  The principles focus primarily on public traded entities, but may be of use to other entities and government owned enterprises Mukund Prasad Joshi | MFC 2nd Semester | SOMTU
  29. 29. What does OECD document cover? FIVE AREAS, FOLLOWED BY SUPPORTING RECOMMENDATIONS 1. The rights of shareholders; 2. The equitable treatment of shareholders; 3. The role of stakeholders; 4. Disclosure and transparency; and 5. The responsibilities of the board Mukund Prasad Joshi | MFC 2nd Semester | SOMTU
  30. 30. Global Shares  Organizations following a global business model are starting to use global shares, i. e. using the same form of shares for listing in a home country and in non-home country capital markets  Global Shares enable virtually seamless cross-border trading allowing non-U.S. companies to increase liquidity and pricing efficiency in the U.S. market while permitting U.S. investors access to the home market shares on the same terms as local investors - NYSE (July 2, 2000) Mukund Prasad Joshi | MFC 2nd Semester | SOMTU
  31. 31. What are global shares…???  According to NYSE, Global shares  Are actual shares of a company that trade and transfer freely across borders;  May be used to raise capital or as currency for U.S. acquisitions.The same shares may be listed and traded on stock exchanges around the world;  Are quoted, traded and settled in U.S. dollars Mukund Prasad Joshi | MFC 2nd Semester | SOMTU
  32. 32. Conclusion  Global corporate governance rules should be developed and implemented, at a minimum, for business entities whose shares are listed in international capital markets Mukund Prasad Joshi | MFC 2nd Semester | SOMTU
  33. 33. I liked it… “Good corporate governance matters” !!!  It matters to business because it contributes to sustainable long-term success.  It matters to shareholders – and others interested in the company – because it ensures them a transparent and productive relationship with the enterprise concerned” - Byeres Mukund Prasad Joshi | MFC 2nd Semester | SOMTU
  34. 34. Any Queries … ???
  35. 35. Thank You !!!

    Be the first to comment

    Login to see the comments

  • ank2391

    Jun. 5, 2016
  • LuckyDeepu

    Apr. 8, 2017
  • AamirAnsari32

    Jun. 18, 2019

This powerpoint presentation is prepared by reviewing the article entitled "A Case for Global Corporate Governance Rules : An Auditor’s Perspective" by Robert S Roussey. This is presented in a seminar on corporate governance at School of Management, Tribhuvan University.

Views

Total views

1,569

On Slideshare

0

From embeds

0

Number of embeds

3

Actions

Downloads

40

Shares

0

Comments

0

Likes

3

×