Application of Corporate Governance in Management Accounting

Application of Corporate governance in
management accounting

Executive Summary:
The assignment is a demonstration of the negative impact of the presence of weak corporate
governance within an organization. The discussion demonstrates that in absence of s strong
corporate governance it will be difficult to crosscheck the activities of the management level
employees of an organization who are having the decision making authorities in an organization
and in absence of such cross checking there is every possibility that the wrong or fraudulent
decisions of the managers may lead the company in huge loss. Therefore a strong corporate
governance system must be present in an organization for initiating co-operation between the
managers and owners of the organization.

Table of Contents
Introduction:....................................................................................................................................4
Corporate governance in the context of an organization:................................................................4
Good corporate governance under the different theories................................................................5
Weak corporate governance in the context of organization:...........................................................6
Explanation of understanding of corporate governance and earnings Management:......................7
Conclusion:......................................................................................................................................9
References......................................................................................................................................10

Introduction:
The assignment describes a case study situation where an employee of the accounting
department of a medium sized company is trying to prevent a possible accounting fraud or
financial reporting fraud that is apprehended to be done by the chief executive officer and non-
executive directors of the company for inflating the profit figures of the company with an
intention of misleading the shareholders of the company. The assignment describes the
importance of the presence of strong corporate governance in an organization that is essential for
fair and true representation of the financial position of an organization to the investors as well as
shareholders of the company and to prevent unethical and fraudulent financial reporting. The
case study here demonstrates that accurate financial reporting is a prerequisite for good corporate
governance and bad governance often leads to fraudulent financial reporting (Abdullah &
Valentine, 2009).
Corporate governance in the context of an organization:
The Corporate governance in the context of an organization can be defined as the system that
helps an organization to impose proper control over the different operational activities that are
taking place in the organization including the process of financial reporting which an important
activity of the organization. The structure of corporate governance in an organization describes
that how the rights and accountabilities are being distributed by an organization among the
different stake holders of the company (board of directors, managers and shareholders) and this
process of distribution is of utmost importance as this defines the strength of the corporate
decision making process of the organization. The presence of good corporate governance in an
organization ensures cross check and cooperation among the different corporate bodies at the
event of financial decision making. Good corporate governance ensures a clear distribution of
accountably among all the employees of the organization covering both the bottom, middle and
top level employees of the organization (Larcker & Tayan, 2015).