Internal Control, Corporate Governance, and Financial Legislation

This collection of study materials from Desklib covers topics such as corporate governance, internal control procedures, financial legislation, and key performance indicators. Learn about the most important authoritative bodies in the Australian financial service industry, and discover how to implement and control internal control procedures. Find out about the responsibilities of an accounts manager, the purpose of a balance sheet, and the principles of internal control and auditing.

1. Corporate Governance
This refers to the system of rules, practices, and processes that are geared controlling
and directing a firm. Corporate Governance primarily involves balancing the interests of
different stakeholders of an organization, for instance, shareholders, debt owners,
customers, supplier, and public among others. Different stakeholders have different
interests which differ in intensity and urgency, thus corporate governance tend to
balance such interest to those can be affected by an action taken by the organization. It
involves setting have rules, controls, policies, and resolutions that that dictates the
behavior of an organization.
2. Most important recognized and sanctioned authoritative bodies in the
Australian financial service industry.
Australian financial regulatory framework consists of three agencies each with specific
functional responsibilities. They are
The Australian Prudential Regulation Authority (APRA) which is responsible for deposit
taking organizations, friendly societies life, and general insurance.
The Australian Securities and Investment Commission whose function is to enforce and
administers roles and regulations relating to financial markets, financial products, and
financial sector intermediaries
The Reserve Bank of Australia (RBA), whose functions relates to Monetary Policies and
stabilization of the financial system. It has to deal with threats to the financial stability
that could interfere with the confidence consumers and investors.
3. Internal Control
Refers to procedures and policies put into place to ensure there are Solid accounting
system and continued reliability. Internal control is positioned to ensure the fraud are not
committed and to direct any error before it causes an error.
4. Responsibilities of an Accounts Manager
Although the duties of the Accounts Manager differ from an organization to another, the
common responsibilities include the following:
To foster clients relationship through working with sales and marketing team to prepare
presentations and sales pitches, design marketing strategies and mean of advertising,
receive clients information, manage them, prepare clients report and communicate the
clients' agendas to other members of staff.

Monitoring budgets, spending, and revenue and also explaining the cost of managing
clients
Identifying new potential customers and business opportunities in the market as well as
coming up with the strategies to provide goods and services.
5. Balance Sheet and its Purpose
Balance is a snapshot of organization's accounts at a specific date. It consists of assets,
liabilities and shareholders' equity. It portrays the financial position of an organization at
a particular period.
What the purpose of the balance sheet also called the statement of financial position is
revealing the financial status of an organization at a specific point in time. The
statement shows the assets owned by the business and who finances the assets, that is
shareholders or debt holders.
The current assets are compared with current liabilities to evaluate whether the firm is
capable of meeting short-term obligations.
The long term debts are compared with shareholders' equity to compute the gearing
ratios for creditors to ascertain whether the further extension of credit might result in bad
debts.
6. Stakeholder
A stakeholder refers to a person or an organization that has an interest or a concern in
an organization. Different stakeholders are affected by the organization's policies,
objectives, and actions. Examples of stakeholders in an organization include the
following; shareholders, creditors, management, employees, financial institutions,
customers, etc. The organization does not give the same treatment to all stakeholders,
but it entails to provide fair trading practices. Different stakeholders have a different
interest in an organization.
7. The practical method of Internal Control Procedures
Duty separation- To make employees impossible to commit fraudulent acts, the
organization should separate the responsibilities of auditing, bookkeeping, reporting,
depositing and any other.
This is because each a transaction is passed through different independent before thus
in case fraud is committed, it can be recognized in the course of the process.

8. Policy monitoring procedure
 Identification of baseline policy issues by conducting situation analysis.
 Engagement of stakeholders in developing a common policy agenda.
 Develop policy.
 Official government endorsement of the policy.
 Implementation of policy.
 Evaluation of policy implementation.
9. Corporate Governance Strategy guidelines
Strengthening management and supervisory functions of directors- Should discuss
middle and long term strategies of the organization and draft relevant plan.
Emphasis on the characteristics of the directors but not their number
Increasing the objectivity and systematization of personal attitude towards the
management position
Developing an environment that will facilitate the strengthening of CEOs leadership
10. Key performance indicators
These are measurable values that show how effectively the firm is achieving its key
objectives. They include.
 Profit
 Cost of operations.
 Comparison between projected and actual revenue
 Customer satisfaction and retention
 Sale volume
11. Audit trail for accounting purpose
Refers to all records that document every step made in business transactions. It is used
to detect and analyze any error or fraud done in an organization book of records.

12. Reasons for the improvement of corporate governance
To increase transparency, this is facilitated by having the financial statements audited
by the third party
To avoid market shock because of the insolvency of companies
Decrease the conflict of interest between various stakeholders of an organization.
Shareholders activism - Upon being transparent, this will motivate existing and potential
investors.
13. Considerations and confidentiality for management and keeping of records
and files
 Controlled Access - The records must only be accessed authorized persons.
 Security - Confidential and sensitive record should be stored safely.
 Quality records - Calls for the preservation of quality records.
 Responsibility and accountability - The responsible person of the records
should be clearly stated.
14. Keys features of financial legislation relating to taxable transactions
 It involves in those activities that have resulted in a gain in an organization.
There must be a gain for taxation to be done.
 Sale tax is computed for every transaction to increase the amount of tax.
 Involves set guidelines known and understood across the jurisdiction.
15. Methods of work practices and routines relevant to internal control
 Adequate segregation of duties that is, separating the function of
bookkeeping, authorization, and custody.
 Proper authorization of transactions, and activities with defined policies.
 Adequate documentation of accounting records, and recording of business
transaction and events.
 Physical control over assets and records to prevent physical access of
assets, and also prevent accessing the system.
 Independent check of performance by a third party, who didn't take part in
preparing record or doing the transaction.

16. Guidelines and procedures of
Corporate governance
Strengthening management and supervisory functions of directors- Should discuss
middle and long term strategies of the organization and draft relevant plan.
Emphasis on the characteristics of the directors but not their number
Increasing the objectivity and systematization of personal attitude towards the
management position
Developing an environment that will facilitate the strengthening of CEOs leadership
Financial delegation and accountabilities
Guidelines
 Purpose.
 Scope
 Policy statement.
Procedures
 Maintaining appropriate records.
 Approvals and delegations.
 Preventing frauds and financial management.
 Providing a documented procedure.
17. Principles of internal control and auditing
Responsibilities- an Entity must clearly outline responsibilities and who is responsible
for each to ensure individuals understand their role in maintaining internal control.
Record keeping - to have an accurate history of all transactions
Insurance and bonding of employees against assets in case stolen
Assets records and custody to know who exactly are responsible for a given asset of
the organization.
Technological controls such as electronic keypads, burglar alarms, etc.

Independent review of accounts by a person who has taken part in preparing them
TASK TWO:
How to implement and control internal control procedures, The process starts with
reviewing corporate governance in the following way ;Determining whether the
governance system adds any value or burden to the organization; Addressing specific
issue of the current governance eg the composition of board committee; Alignment of
existing governance and the new strategy; Documentation review that is adoption of
leading practices and policies; Compliance with national and international standards.
Next step is to implement operating procedure which involves: Gathering the team
which will assist in the collection of data, the definition of scope and the process to
make it a single process to avoid confusion due to the interlinking of processes,
documenting the procedure through the use of the checklist, flowchart diagram, process
diagram, etc. Finally listing important information which is not captured in the
documentation for instance methodology of carrying on a process, necessary tool,
health and safety warnings among others.
Finally, it involves the evaluation and monitoring of policy. The is strategy implemented
after ensuring that you have finalized the strategic plan, aligned your budget and annual
goals, produced various versions of program for each group, established your
scorecard for tracking and monitoring the procedure, established the performance
management and reward management systems, rolled out the plan to the entire
organization, build out departmental plans upon entity's plan, set out strategic monthly
meeting to report to monitor progress, set up annual strategic review date. The process
involves communication with employees concerning the plan and progress of the
procedure through: Sending weekly correspondences to all employees in the
organization, creating a conducive environment for employees to air out what is
working, holding town hall meeting with all employees from various branches, putting
yearly conference for Senior officials and answering any employee email within 24
hours.
Also involves training the employees through off the job training, on the job training,
vestibular training among other methods.
After the development of Operating procedure is complete, the employees are trained of
the new control procedure, verify the procedure through regular monitoring, Evaluate it
periodically to ensure it remains current and retire the control/operating procedure as
the need for it change.
QUESTION TWO:
Errors in policies and procedures in BRB
 They lacked to scrutiny the documents well that is why they end up employing
wrong personnel.

 Giving him a lot of responsibilities to undertake that is lack of proper segregation
of job.
 Lack of regular independent check-up of records and books of accounts.
 Lack of proper authorization and approval of transactions and activities. The
fraud committed could have been realized early.
Suitable principles
There is a need to outline to the solid foundation of management and oversight to track
any fraud committed.
This entity should act ethically to give all applicants the chance to compete fairly by not
basing on academics only. BRB looked mainly on academic qualifications.
Remunerate fairly and in a responsible manner. BRB took advantage of paying a lesser
salary to "highly qualified personnel" little did they know it would be better to spend
more to acquire a genuinely qualified employee.
Recognize and manage risk. BRB should have identified the likelihood of risk emanating
from new employees.
Make timely and balanced disclosures. If this principle was put into practice, a lot of
crime could not without being noticed.
Grant Chart
Milestones Week ending
30/03 06/04 13/04 20/04 27/04 04/05 11/05 17/05 24/05
Lay the solid
foundation of
management
and oversight
X X X X X X X X X
Remunerate
fairly and
responsibly.
X X X X X X
Recognize
and manage
risk
X X X X X X X

Make timely
and balanced
disclosure.
X X X X X
Act ethically. X X X X X X X X
Internal Control analysis
Financial delegation and accountabilities of BRB
The internal control is not strong enough as they couldn't track the fraud committed in
time and this led to an adverse effect on the financial status of the company.
Procedure to modify existing financial delegation and accountability system
Identification of baseline policy issues by conducting situation analysis.
 Engagement of stakeholders in developing a common policy agenda.
 Develop policy.
 Official government endorsement of the policy.
 Implementation of policy.
 Evaluation of policy implementation.
Implementation of change
Implementation of change will involve; Gathering the team which will assist in the
collection of data about areas prone to frauds, and definition of the scope of the process
to make it a single process. I will Document the procedure through the use of a
checklist, flowchart diagram, process diagram among others. Finally, I list important
information which is not captured in the documentation for example; methodology of
carrying on a process, the necessary tool, health and safety warnings among others.
References
M Feng, C Li, S McVay, (2009) Journal of Accounting and Economics, Internal control
and management guidance

AM Costello… (2011)- Journal of accounting …, the impact of financial reporting quality
on debt contracting: Evidence from internal control weakness reports