TOPIC 10: Corporate

Governance,
Accounting and
Finance
By Claudia Alves
 10.3 The internal control
environment
Internal control mechanisms are established internally to comply with financial reporting laws and
regulations.

One way to ensure controls is to utilize a framework advocated by the Committee of Sponsoring Organizations
(COSO).
COSO: A voluntary group of audit and accounting organizations seeking to improve reporting through a
combination of controls and governance standards called the Internal Control-Integrated Framework.
 CONTINUE...
The elements comprising control structure are:

Control environment.
Control environment: Cultural issues such as integrity,
ethical values, competence, philosophy, and operating
style.
Risk assessment.
Control activities.
Information and communications.
Ongoing monitoring.
10.4 Conflicts of interest in accounting
and financial markets
Conflicts of interest extend beyond the board room
to the financial arena—trust and structures that
promote it are integral issues for all involved in the
finance industry.
Real or perceived, conflicts can erode trust and The American Institute of Certified Public
often exist as a result of varying interests of Accountants (AICPA) publishes professional

01 stakeholders.
03 rules to prevent accountants from being put
into conflicts.
GAAP, or generally accepted accounting
Accounting, by its very nature, is a system of principles, established by the Financial
principles applied to present the financial position of Accounting Standards Board stipulates
a business and the results of its operations and cash methods of gathering and reporting
flows. information.

02 It is hoped that adherence to these principles will

result in fair and accurate reporting of this
information in a format that can readily be
Accountants are also governed by the
AICPA's Code of Professional Conduct.

interpreted by others.
Whether an accountant is considered a
watchdog or a greyhound depends on whether
he is hired internally or externally.
 10.5 Executive
Compensation
In theory, compensation packages serve interests in two ways:
They provide an incentive for executive performance.
They serve as rewards for accomplishments.
In practice, reasonable doubts exist for both rationales.
In many cases there is no correlation between compensation and performance.
There is a diminishing rate of return on incentives beyond a certain level.

Another crucial governance issue is the disincentives that compensation packages and reliance on stock
options provide.
Executives have incentive to focus on short-term stock price rather than long-term corporate interests.
A case can be made that stock options may be to blame for the corruption involving managed
earnings.
Excessive compensation can also involve a variety of conflicts of interests and cronyism.
Thank
you!
By Claudia Alves
 INDIVIDUAL TASK
Refer Page 404 (Book - Business Ethics: Decision
making for Personal Integrity & Social
Responsibility)

Please summarise the case study and answer Q1,

Q2 & Q3