This also helps management improve future performances. Budgeting can also help with the evaluation of what-if-scenarios with the aid of technology. Management can also alter completed financial budgets if they do not like what they see. These financial budgets include “financial ratios such as liquidity, activity (turnover), leverage,
Adopting the CSR principles involves costs. These costs might be short term in nature or continuous outflows. These costs might involve the purchase of new environmentally friendly equipment, the change of management structures, or the implementation of stricter quality controls. Since being socially responsible involves costs, it should generate benefits as well in order to be a sustainable business practice. A corporation could not continue a policy that constantly generates negative cash flows.
The measurement of this performance is of course related to the achievement of these targets and how they are achieved (Dekker, 2012) However it is also asserted that ‘professional accountability is not enhanced if the financial reporting standards allow a lot of choices, disparity and analysis, mainly in asset values’. Measurement systems need more transparency but care should be taken that they rely on a more rigid framework. The normative accounting theory is applicable to these systems since it tries to, make a framework or a norm towards which actual standards should strive. It is widely recorded and documented how and why organizations need to align their performance measurement systems with their tactical objectives (Kaplan, 1983). The most prevalent of these is the balanced scorecard which ‘stresses on a balance of the uses of financial and non-financial measures to achieve strategic alignment’ (Kaplan, 1992).
This we call the environment factors. Some components in the business environment are controllable and the others are not. The controllable environment factors are the marketing mix the price, product, place and promotion. Uncontrollable forces are external factors economic, political, legal and regulatory, technological, socio cultural and competitive forces. Broadly speaking analysis of internal and external factors, help the firm identify and capitalise upon opportunities rather than lose out to competitors and can avoid significant cost because of the failure of future strategies.
In further support this finding, data retrieved from Public Company Accounting Oversight Board (PCAOB) on internal control explain segregation of duties in the aspect of separating the authorization of transactions, record-keeping and custody of assets and supervising the operations is a key to strengthen internal control. Adding to that, PCAOB says that segregation of duties also depends on the size or complexity of the business. It is hard to implement segregation of duties in smaller companies due to limited number of workers compared to larger companies. (PCAOB (2009, Jan 23) pg. 26 of
In this paper, we discuss that “moral hazard is more widespread than adverse selection in a company, but tackling moral hazard is one of the major issues in corporate governance (“CG”)”. Moral hazard is based on asymmetric information, and it happens when one party gets more information about the intentions or actions and has an inappropriate tendency to behave from the deviation of another party with less information. More precisely, moral hazard occurs due to one party is not willing to bear the full reactions of its actions, and has a proclivity to act less carefully than it otherwise would, know that any responsibility for the reactions of any loss from its actions would be bearable by another party (insurers). For example, executives
Problem Statement: “Is it always cost effective to detect / prevent collusion between auditors and management?" The aims of my research project: • To find out the ways that how collusion between management and external auditors can be detected. • To find out the potential advantages for the organization if collusion between management and external auditors forms. • To find out the cost savings for the organization when ignoring the collusion between management and external auditors. A brief review of previous research: The phenomenon of detecting or preventing collusion between auditors and management leads to the study of internal controls in the organization or corporate governance.
It is also possible that corporate financing decision is a signal to convey information to investors about the company's business risk and profitability. Jensen and Meckling (1976) show due to equity’s limited liability, shareholders and the managers that act in their interests are encouraged to approve projects that are riskier than the ones initially proposed before the debt was underwritten. Therefore, shareholders of indebted firms can obtain most of the benefits inherent in a risky project when it is successful and can avoid sharing the costs of unsuccessful projects with bondholders thanks to their limited liability. In this case, the debt’s market value would decrease and the bondholders’ loss would be the shareholders’ gain. Bondholders may want the company to reduce the size of investments to protect their own interests.
To make further step, Fama and Jensen (1983) states that the goal of corporate governance research is the issue of separation between ownership and management rights, where the mainly solution for this is how to reduce agency costs. Shleifer and Vishny (1997) recognized that corporate governance deals with the way whether the company's capital suppliers can ensure their return on their investment. The central issue of corporate governance is to ensure the interests of capital suppliers (both shareholders and creditors). Cochran and Wartick (1998) states the corporate governance addresses many specific issues about what senior managers, shareholders, boards, and companies do with the interaction of stakeholders. 3.
This might due to the failure of the top management that causes the problems happens. In order to solve the issues, the involvement of board of directors must be more proactive in playing a leading role in establishing and modifying the errands, goals, strategies and policies, and reducing the failure of top management strategies that lead to inefficiencies. Furthermore, the company can raise the return on assets to a positive number by reducing inventory costs. Excessive inventories may lead to lower capital costs to generate more revenue. Companies can reduce equipment costs by renting or leasing the equipment.