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Principles of
Business
Introduction to Finance –
seminar 7
Overview
2
• Why do corporate failures happen?
• Why do accounting scandals happen?
• Financial risk management
Exercise 1
3
• What is the role of an organisation in business? (Group
discussion)
• In pairs, discuss why (ie. the motivation that explains) why
fraud and accounting scandals can occur.
How did it happen?
“Tobashi” – shifting losses
4
(Based on information from Dutta, Caplan,
Marcinko, 2014)
Olympus
(Scope of
Financial
Reporting)
LGT Bank
Shell
company
Investment
shell co
Investments
1. Collateral: Japanese Gov’t bonds
2. Loan
3. Used loan
To buy junk
investments
5. Purchase at
artificial premium
4. Buy at Market price
6. Investment shell co
repays loan to bank.
Bank releases Japanese
Gov’t bonds back to
Olympus
Overview
5
1. What was unethical about the Olympus case study and why?
2. Why do you think this fraud was able to happen?
3. How could such a situation be prevented from happening again at Olympus?
What is corporate governance
L1 Financial Frameworks 1 6
• The system of control and direction in a company that helps to ensure that
they are well run.
Company
Shareholders
Directors: Non
executive and
Executive Auditors and
regulators
L1 Financial Frameworks 1 7
Corporate governance in practice
• Board size, structure and balance
• Chairmen and CEO roles
• Sub committees
• Remuneration committees
• Internal controls
• Minority shareholder rights
• Financial reporting
Exercise 3
8
In pairs, pick a FTSE 100 company and use corporate
information in the investor relations section of their
website to assess corporate governance practices in
that organisation.

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POB Week 2 Finance Seminar 7

  • 2. Overview 2 • Why do corporate failures happen? • Why do accounting scandals happen? • Financial risk management
  • 3. Exercise 1 3 • What is the role of an organisation in business? (Group discussion) • In pairs, discuss why (ie. the motivation that explains) why fraud and accounting scandals can occur.
  • 4. How did it happen? “Tobashi” – shifting losses 4 (Based on information from Dutta, Caplan, Marcinko, 2014) Olympus (Scope of Financial Reporting) LGT Bank Shell company Investment shell co Investments 1. Collateral: Japanese Gov’t bonds 2. Loan 3. Used loan To buy junk investments 5. Purchase at artificial premium 4. Buy at Market price 6. Investment shell co repays loan to bank. Bank releases Japanese Gov’t bonds back to Olympus
  • 5. Overview 5 1. What was unethical about the Olympus case study and why? 2. Why do you think this fraud was able to happen? 3. How could such a situation be prevented from happening again at Olympus?
  • 6. What is corporate governance L1 Financial Frameworks 1 6 • The system of control and direction in a company that helps to ensure that they are well run. Company Shareholders Directors: Non executive and Executive Auditors and regulators
  • 7. L1 Financial Frameworks 1 7 Corporate governance in practice • Board size, structure and balance • Chairmen and CEO roles • Sub committees • Remuneration committees • Internal controls • Minority shareholder rights • Financial reporting
  • 8. Exercise 3 8 In pairs, pick a FTSE 100 company and use corporate information in the investor relations section of their website to assess corporate governance practices in that organisation.

Editor's Notes

  1. “Tobashi” was the Japanese practice of shifting losses off a company’s books to a subsidiary or outside funds, which led to reforms such as consolidation accounting and marking to market for securities investments. Saurav K. Dutta, Dennis H. Caplan, and David J. Marcinko (2014), “Blurred Vision, Perilous Future: Management Fraud at Olympus”, ISSUES IN ACCOUNTING EDUCATION , AAA