Importance of Corporate Governance in Business Organizations

This report highlights the importance of corporate governance in business organizations, focusing on the roles and responsibilities of directors, criteria for selecting auditors, and the function of audit committees. It includes a case study of ABC International Ltd. Subject: Corporate Governance

Corporate Governance

EXECUTIVE SUMMERY
Every business entity requires an effective policy to maintain their position in market.
Strategies which help them to build trust and pastier market image in market. To fulfil objective
of social responsibility, mangers need to use corporate governance policies. This defines the
systematic way of formulating plans without violating any rules. This report is define the
importance of corporate fiancé by giving relevant information regarding ethical concept o
selecting, director. Their roles, criteria, responsibility, and function of auditor committee. It
defines all the essential information about ABC international Ltd, their working policy, criteria
of selecting auditor, working process and responsibilities of audit committee. This report is
prepared to solve the issue of Mr. Y.K Chan. For this purpose ABC International Ltd has been
taken. The organization is situated in Hong Kong and run business of manufacturing and selling
electronic and telecommunication part in target market area. This report help in identifying the
importance of every element of corporate governance which is essential for business
organization to provides guideline. This contain all the relevant detail regarding working of
independent director and ethical way. It is require for every individual to work in an organization
in legal and ethical manner to maintain positive environment within the organization. To spread
target market he organization is become partner of joint venture of Australian group. There will
many shareholders invested in this corporation in which Gold bard and Transect were major
shareholders This also considered the value shareholders and requirement of corporate
governance policy to protect inter of shareholder and enhance growth of the organization.

Contents
EXECUTIVE SUMMERY..............................................................................................................2
INTRODUCTION...........................................................................................................................3
CASE STUDY.................................................................................................................................4
Duties, rights and competencies of director ................................................................................4
Committee work ..........................................................................................................................5
Board structure of company.........................................................................................................7
Transparency and accountability_...............................................................................................8
CONCLUSION................................................................................................................................9
REFRENCES.................................................................................................................................10

INTRODUCTION
Corporate governance is effective policy in which manager set rules on the basis of
compliance and fulfilment of social responsibility. In every organization directors are the
personal that represent shareholders perception as they appointed by them.. There will many
shareholders invested in this corporation in which Gold bard and Transelec were major
shareholders. This report has been defined all the relevant criteria responsibility, duty of
independent director. Relation of independent director as an auditor with other parties and how
audits committee work in systematic way. It also consider importance of corporate governance
regarding running business organization in effective way by providing solution of Mr. Y.K Chan
problem to take decision regarding appoint as independent director of ABC Ltd.
CASE STUDY
Duties, rights and competencies of director
Director is a person who belongs from senior position in company. Someone who has the right to
conduct corporation and take decision according to their own way. Every organization has been
set rules and provide essential information regarding appointment, remuneration, rights and
duties of director.
Mr. Y.K Chan wants to serve as an independent director in ABC international limited Bing as an
independent director they need to serve following responsibilities towards the organization
Being as an independent director, Mr. Y.K Chan need to give advice and suggestion without
taking any partiality decision regarding their financial statement. Mr. Y.K Chan need to attend
meeting and take participation in committees which is build for better growth of organization.
As an independent director Mr. Y.K Chan has duties to solve unethical and not solving issue of
corporation. They need to take fair judgement provides affair value of the financial position of
company in directors meeting.
Being as independent director they are confidential regarding information of the organization.

Manage risk of corporation by controlling unethical trade practices inside corporation.
Build remuneration structure to other director on the basis of their performance.
As independent director Mr. Y.K Chan need to have essential information about her
organization’s working atmosphere (Chi, Hung, Cheng and Lieu, 2015).
Rights of Mr. Y.K Chan as an independent director
An independent director is a person who is not connected with corporation in any way, whatever
its peculiar or Monterey relations. Being as non executive director they able to participate in
meeting and give their vote and suggestion regarding appointment of auditors other personnel the
company.
 Right to scrutinizing and supervising performance of the organization.
 Right to take decision which are beneficial for the company.
 Mr. Y.K Chan has right to change policies regarding corporate governance of Mr. Y.K
Chan.
 Independent director play essential part in board meeting of the organization as they are
appointed for the purpose of taking fair judgement (Schmidt and Fahlenbrach, 2017).
Thus to appoint as an independent director some specific qualification has been required
as well as companies act fixed certain criteria which every company need to follow
before appointing individual as an independent director. Following competencies Mr.
Y.K Chan require appointing as independent director in ABC international limited
 An independent director is a person who is not appointed as managing or any other
alternative director of the company.
 An independent director must have all the relent knowledge and expertise skills regarding
their position.
Mr. Y.K Chan is working in Dim Sum Ltd which is Food Corporation, he want to work in ABC
Ltd as independent director. He is appointed in this organization as finance director as they have
relevant qualities of being a financial director. But he did not have working knowledge of ABC
limited as it is a manufacturing company, but he has relevant knowledge of accounting and
finance filed. He wants to invest in ABC limited and his wife and relatives already have share in
this organization (Wang, 2015).
Mr. Y.K Chan has not been fulfilled relevant condition or qualities to appoint as independent
director of the organization as his wife and relatives invest in ABC limited and Mr. Y.K Chan

met the director of ABC limited , he also not have any kind of experience which is essential for
being appointed as independence director of any organization . IF Mr. Y.K Chan want to being
appointed as member of audit committee they need to take back shareholding of their relatives in
the organization.
Committee work
Committees are very essential part of every business organization as theses will help in taking
decision regarding future business activities. ABC limited establishes audit as well as
corporate governance committee.
Audit committee is a group of directors or embers to determine and review financial statement of
organization to about that all the financial accounts made without breaching any law of account
standard. This committee is made up to review all the procedure and functions done by company.
This committee help in appoint auditors on the basis of their qualification. As an audit committee
member, they over all relevant data and review all the major issue regarding financial issue of
the company. They comply tax policies as well as they also fulfil all the relevant criteria
regarding tax obligations.
They also find risk element and review al the statements in order to determine the cause of error
filarial statement as well as they finding about many relevant issue. They supervise work of
internal auditor and took decision which is favourable to shareholders.
Role of auditors: In audit committee all independent auditors which have no connection with the
organization has been appointed to done their work n true and fair basis. Following are the role
of auditor as a member of the committee (Bajra and Čadež, 2018).
 Provide suggestion on fairly basis.
 Analysis all financial position and all the material data of company
 Check tax compliance policies
 Check data a documents
 Identify all the work companies according to about standard.
 Analysis audit evidence.
 Supervise audit planning report and documentation of audit.
 Work on the basis of following GAAP standard of accounting.
 To work in audit committee Mr. Y.K Chan needs to contact with CFO of the company
they give data of their finding to them.

Audit committee focus o investing essential issue of the corporation. For this purpose they need
to take help from internal as well as external auditors hire by corporation. Internal auditors
provide those data regarding internal structure and accounting policies of the organization on the
other hand audit committee take essential information and data from external auditors.
It is the duties of external auditors to proved all the relevant report to audit committee and share
their view an idea. They also concern regarding main issue of the company’s financial structure.
Find out main error problems, internal controlling procedure. External auditors play important
role while review audit by the committee as external auditor provide source of information of
study the auditors (Velte, 2018).
On their basis of information communicated by auditors , committee submit relevant notes and
letter to directors of the organization. External auditor also give them data regarding working of
any non audit serve by corporation in order to identify the system and structure of payment
remuneration to the personal of the company. They also discuss on issue of planning and dispute
arises in the corporation.
Being as auditor it become responsibility of Mr. Y.K Chan to done their work on fairly basis will
the help of external auditor of ABC limited.
Board structure of company
Board structure of corporation is showcase the hierarchy presentation of directors appointed on
the basis of their qualification and requirement This structure is basically represent all the
relevant persons who belongs and represent shareholders perception. They have the right to amke
policies and owners of the corporation. They take decision by conducting board meetings.
This structure show all the relevant responsibilities and number of directors have on the basis of
their position in the structure. Director has the right to conduct board meeting, inspect and
supervise accounts, take decision for future business policies. They also have rights to take
decision regarding distribution of dividend, and appointment of other manger or company.
There are various kinds of director has been appoint by company’s chairperson which includes,
additional director, independent director. Every director has different procedure of appointment
and they have unique right s duties in running corporation (Naciti, 2019).
ABC international Limited is a private sector organization which has spreading their target
market, in China, America as well as in Australia. The organization has elected 8 members as
their board of directors.

President: Alan KM. Yau is the president of the organization. They have the right and power to
conduct and supervise all the function of the corporation. This organization also have vice
president. They appoint Peter, V.M as their vice president who help in supervising and gilding
the director of the company. Only those personal appoint as independent director who have not
any share in organization or not related with any high authority personal of the company. It is
also required that their relative also not have any kind of relation and sharing or investment in
company. They chose Charles as director of all the functions and operations of the organization.
Johnny is appointed as director of finance . Being as financial director they have the
responsibility to control all the relevant activities of financial department of the company. They
also appoint personal direct the main focus of Rebecca as human resource department direct is to
insure all the recruitment and activities done in effected and legal way without conducting any
violence issue .They also work on personal development and motivation of employees of the
company as the organization really need tot and influence their employees.
Abraham P.K Lau is appointed at the position of independent director of the organization who
give fairly review and suggest to the company’s working activities. The organization is now
appointed independence director who work for audit committee to them fair recommendation
regarding audit procedure of the corporation.

Transparency and accountability_
Board of directors of the ABC International Limited has formulated their policies and
procedure which compliance with all the general rules and procedure of the legal standard. They
build rules which do not harm interest of their shareholders and customers. Thus they appoint
Deloitte which is world’s most famous audit corporation. The company follow all the rules and
also contributed towards social corporate responsibility committee. Directors regulate functions
which compiled all the relevant functions and policies of corporate governance. It will help in
building trust among shareholders as well as their final consumers. To comply all the functions
ad protect interest of shareholders organization work in eticla manner and also organize many
plans to reduce conflicts and developed personal growth of employees for their motivation. Tus
the rate of employees turnover has been reduce in this year (Chen and Komal, 2018).
Gold bard the organization which is situated in Bermuda is the major shareholder of ABC . It
shares more than 39 % of the total share capital.
Trancelike, organization established in Australia is also invested in this company. They share 15
% of total capital. On the other side many public institution also invest their money in ABC
limited. Various institution investor share 8 % belongings of shares to the organization. Share
price of the organization has also been raise even though their profit ratio has been decrease in
this year. The price of share was 63.5 P which is more than 11 % of previous year share price.
ABC organization is work for build strong positioning world market for this objected they make
effect policies. To attract their customer they proved them servicer and facilities also they focus
on supplying best manufacturing part of telecommunicating networks of the organization. To
maintain trust in the company they apply effective promotional as well as communication tool
for marketing strategies (Alzeban and Sawan, 2015).
ABC is accountable and purely responsible for their work which they done and also concern for
the first of their shareholders. Thus they focusing on provide dividend and other kind of bonus
facilities if they gain profit in any year. To work as an independent direction and member of
audit committee this organization provides various opportunities to Mr. Y.K Chan. Working in
ABC limited help in increasing working experience as well as persona growth and development
of Mr. Y.K Chan. Being as independent director they are confidential regarding information of

the organization. It is duty of an independent director to have suggestion in a way which help
corporation to work in legal manner and reduce issue regarding unfair trade practices.
CONCLUSION
From the above analysis it has been founded that every business corporation needs an effective
structure of board of directors and committees in order to run their organization legal way
without breaking any rules and standard establish by GAAP. Director is a personal which has
responsibility to take decision and powers to appoint other members of corporation. They decide
the structure and pathway of achieve goal of the organization by fulfilling responsibilities of
corporate governance. Mr. Y.K Chan was director in food corporation even though they have
qualification of being as financial director of and organization, but they are not able to appointed
by ABC Ltd as independent director as they are not fulfil the criteria of independent director and
member of audit committee because they share interest in the organization and their relative have
peculiar relation. Mr. Y.K Chan also not has experience which is essential for being appointed as
independent auditor or director in company.

REFRENCES
Books and journals
Dou, Y., Sahgal, S. and Zhang, E .J., 2015. Should independent directors have term limits? The
role of experience in corporate governance. Financial Management, 44(3), pp.583-621.
Naciti, V., 2019. Corporate governance and board of directors: The effect of a board composition
on firm sustainability performance. Journal of Cleaner Production, 237, p.117727.
Chi, C. W., Hung, K., Cheng, H. W. and Lieu, P. T., 2015. Family firms and earnings
management in Taiwan: Influence of corporate governance. International Review of
Economics & Finance, 36, pp.88-98.
Schmidt, C. and Fahlenbrach, R., 2017. Do exogenous changes in passive institutional ownership
affect corporate governance and firm value?. Journal of Financial Economics, 124(2),
pp.285-306.
Wang, L., 2015. Protection or expropriation: Politically connected independent directors in
China. Journal of Banking & Finance, 55, pp.92-106. Detthamrong, U., Chancharat, N.
and Vithessonthi, C., 2017. Corporate governance, capital structure and firm

performance: Evidence from Thailand. Research in International Business and
Finance, 42, pp.689-709.
Bajra, U. and Čadež, S., 2018. Audit committees and financial reporting quality: The 8th EU
Company Law Directive perspective. Economic Systems, 42(1), pp.151-163.
Velte, P., 2018. Does gender diversity in the audit committee influence key audit matters'
readability in the audit report? UK evidence. Corporate social responsibility and
environmental management, 25(5), pp.748-755.
Chen, S. and Komal, B., 2018. Audit committee financial expertise and earnings quality: A meta-
analysis. Journal of Business Research, 84, pp.253-270.
Alzeban, A. and Sawan, N., 2015. The impact of audit committee characteristics on the
implementation of internal audit recommendations. Journal of International Accounting,
Auditing and Taxation, 24, pp.61-71.