Corporate Governance: Next Plc - Internal Controls, Reporting, Audit

This essay examines the critical roles of internal controls, financial reporting, and audits in corporate governance, focusing on the public listed company Next Plc, a British multinational retailer. It defines corporate governance and its significance, emphasizing how financial reporting provides crucial information to stakeholders and how audits ensure the accuracy of financial statements. The essay details the importance of internal controls in ensuring operational efficiency and the integrity of financial information. It also explores the principles of good corporate governance, including shareholder recognition, stakeholder interests, and ethical behavior. The analysis concludes that robust internal controls, transparent financial reporting, and independent audits are essential for preventing corporate misconduct, enhancing brand image, and ensuring the long-term success of companies like Next Plc.

Professional Accountant and
Governance
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ESSAY
Importance of internal controls, financial reporting and audit to corporate governance of
public listed company.
The concept of governance is referred to as the process of governing which is being
carried out bu government, market or network with the assistance of laws, norms, power as well
as language (Tricker, 2015). It is associated with the process of interacting and decision making
among the people involved within the collection issues that results in creation, reinforcement or
reproducing of social norms as well as institutions. The present essay entails to understand the
meaning and significance of internal controls, financial reporting and audit to corporate
governance of public listed company (Austin, 2016). Further it makes analysis of all in terms of
their importance of the organization. The organization that is being selected for the present essay
is Next Plc. The company is British multinational clothing, footwear and home products retailer
that has headquarter in England, UK. Firm possess approximately 700 stores out of which 502
are in UK and Ireland. Next Plc is the largest clothing retailer by sales in United Kingdom. Thus
there is greater role of internal controls, financial reporting and audit to corporate governance of
public listed company such as Next Plc.
Financial reporting is considered as an essential element of corporate governance. It can
be defined as disclosing of financial information to the management as well as public. This is in
relation with the manner in which Next Plc is performing over a particular time period. Financial
reports are being issued on the basis of quarterly and annual basis (Bebbington, Unerman and
O'Dwyer, 2014). There is certain purpose behind carrying out financial reporting. This includes
assisting the management to involve in effective decision making relating with firm's objectives
and overall strategies. With the data disclosed an insight can be drawn regarding strengths,
weakness and financial health of Next Plc. Further the role of financial reporting is effective in
offering crucial information regarding financial health and activities and activities of
organization to its stakeholders. This includes shareholders, potential investors, consumers and
government regulators. With the increasing number of scandals it has become important to gain
knowledge regarding the role of corporate governance in the process of financial reporting.
There are certain professional organizations such as conference board, NYSE who has issued
standards and guidelines relating with corporate governance in order to build the trust of public
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within organization (Boussebaa, 2015). Just complying with such measures might not be enough
in building confidence among the investors. Thus it becomes important for Next plc to bring
improvement bin their structure of corporate governance. Financial reporting is governed by the
means of common and statutory law. Further it needs to be done in accordance with the ethical
standards. It has been examined that in certain cases financial reporting falls short of both ethical
and legal standards. The requirement for accounting and financial reporting change due to
reasons such as Scandals and complexity that reflects ineffective in governance by the
organization.
The concept of audit is referred to as the examination as well as verification of the books
of accounts of the organization like Next Plc in systematic manner. It also includes analysis of
the transaction records and other relevant documents by the qualified accountant. Such is in
order to reveal that whether the business has presented its financial statement in true and fair
manner or not (Veldman and Willmott, 2016). It attempts to makes sure that books of accounts
are maintained in proper way or not. With audits third part can be offered with assurance that
several stakeholders which are subject matter are free from any sort of material misstatement.
The role of financial audits is being carried out for the purpose of ascertaining validity as well as
reliability of the information. Further it offers assessment regarding internal control of system.
This assist in representing the extent to which the organization possess the quality of corporate
governance. The term corporate governance can be referred to as the oversight of business
policies, procedures and practices. Such acts as an aid in ensuring that firm is operating in the
best interests of the corporation and its shareholders (Soin and Collier, 2013). The firm like Next
Plc employs auditors staff for the purpose of testing and monitoring internal controls. One of the
most essential task relating with internal auditor is the detection of fraud. This is because it can
result in causing loss to firm and can influence the image of the company to a greater extent.
Another major aspect relates with internal control. It is referred as the procedure of
assuring the achievements of the business objectives within operational effectiveness as well as
efficiency (Carnegie and O’Connell, 2014). Further it also includes reliability of financial
reporting and compliance with laws, policies and regulations. It has been assessed that internal
control is the technique that is put in place by the firm in order to ensure the integrity of financial
and accounting information. This is in order to meet operational as well as profitability targets
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and transmit policies of management throughout the business. There is greater role of internal
control in the corporate governance systems. With control business can make preparation of
accurate and complete financial statements at the last of every month (Westphal and Zajac,
2013). Through the implementation of functional control business can hedge, protect against the
operating risk. Such risk can relate with the manufacturing activities as well as technological
processes of Next Plc.
It has been assessed that the concept of governance relates with establishing the policies
and monitoring their implementation by the governing body members existing within the firm
such as Next Plc. It involves the mechanism that is needed for balancing the powers of the
members. In addition to this their primary duty relates with being improvement in the prosperity
and viability of the enterprise to a greater extent (Owen, 2013). It has been examined that
governance is regarded as the decision making process and the procedure through which it is
being applied. Analysis of governance pay attention towards informal and formal parties
involved in decision making and implementing the decisions that have been developed.
Government is considered one of the important actors in the corporate governance. Other parties
that are engaged within government may vary to a significant level. In case of rural areas the
actors includes influential landlords, association of peasant farmers, NGOs, cooperatives,
research institutes, political parties, finance institution as well as military etc. However in
situation of urban areas the condition is more complex. Sound governance possess several
characteristics (Nini, Smith and Sufi, 2012). This includes accountable, consensus oriented,
participatory, transparent, responsive, follows the rule of law as well as equitable. Corporate
governance is the manner in which organization policies itself. In other words it is regarded as
the technique of governing the organization such as sovereign state, instating its own customs,
policies as well as laws to the employees from the highest to lowest level. Governance has
greater importance in increasing the accountability of the organization and avoid massive
disasters before they emerge.
There is presence of several principles that are attached with corporate governance. These
are in relation with recognition of shareholder. This is regarded as key principle that assists in
maintaining the stock price of the organization. Effectiveness in corporate governance makes
sure that all the shareholders gain voice at general meeting and are allowed to participate.
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Another major principle relates with interest of the stakeholder. Such is being recognized with
the assistance of corporate governance. Further in order to ensure good governance there is
greater importance towards outlining the responsibilities of the board (Nahar, Jubb and Azim,
2016). It is important to demonstrate the duty of the board in an effective manner. The entire
board share similar vision in relation to the organization for future course of time. Sound
corporate governance includes factors such as ethical behavior. It is important to develop code of
conduct in relation to ethical decision for all the members of the board. Underpaying as well as
abusing the employees who have been outsourced results in affecting the organization to a
greater extent. Transparency within the firm is the key for promoting shareholders trust.
Financial records, earning reports as and guidance needs to be stated with clarity (Clatworthy
and Peel, 2013). There is huge significance of governance to the organization like Next Plc. In
situation when it is being implemented with effectiveness it results in preventing corporate
scandals, fraud, civil as well as criminal liability of the firm. It also lead to enhancing the brand
image of the company before the public. A firm without presence of corporate government is
considered as the body without soul or conscience. There is significance of corporate governance
is keeping the firm honest and free from trouble. This results in increasing the efficiency of the
business to significant level. Along with this it helps in increasing the goodwill of the firm to a
greater extent. This affects the brand image of the business in the market place.
Good governance is important due to reason that it lies at the heart of the successful firm
as well as institution. Further with the assistance of sound governance the firm is protected
against poor decisions as well as exposure to dangerous risks (Montesinos and Vela, 2013).
Importance of good governance can be viewed towards transforming the business performance
such as Next Plc from to to bottom. However there is presence of several organizations who have
ignored the importance of good governance and due to this they have to make payment of price
for their failure. This has resulted in affecting the goodwill of the company to a greater extent.
Further this has affected the trust of the society in the organization. It has been examined that
poor governance can lead to exposure of individual board members, chief executives, other
directors as well as company secretaries to the threat of loss of reputation as well as personal
liability (Evans, Juchau and Wilson, 2014). Poor governance can resulted in adversely affecting
the existence of the business in future course of time. In the present era, there is presence of
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higher allegations in relation with corporate misconduct, fraud as well as bribery. Thus corporate
accountability has become major high profile issue. Due to presence of such the role of corporate
governance has increase significantly. This is effective in improving the work processes within
Next Plc. Moreover it acts as an aid in improving the image of the company in the market for
long run. Further it assist in enhancing the survival of the company in the market for greater
amount of time. It is essential that good governance possess fair legal frameworks that can be
enforced impartially. This need protection of the human right in complete manner. Impartial
enforcement of the law need an independent judiciary as well as an incorruptible police force
(Larcker and Tayan, 2015). There is greater need the sound governance has to possess
institutions as well as processes that can effectively serve the shareholders within reasonable
time frame. Good governance is considered as the process as well as institution that acts as an aid
in meeting the needs of the society while making sound usage of the resources to a greater
extent.
It can be concluded from the essay that there is huge importance of internal controls,
financial reporting and audit to corporate governance of public listed company such as Next Plc.
In addition to this it is significant for the company to demonstrate transparency in financial
records so as to ensure effectiveness within business operations. This would assist the firm in
disclosing different aspects relating with accounting before the stakeholders in an effective
manner. Along with this the role of corporate governance is important in reducing the number of
defaults within the organization. As such it has greater impact on the goodwill of the business. It
has been inferred from the essay that sound corporate governance includes factors such as ethical
behavior. It is important to develop code of conduct in relation to ethical decision for all the
members of the board.
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REFERENCES
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collapse, accounting failure and governance change in Australia: Early 1890s to early 2000s.
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characteristics on accounting errors in private companies. Journal of Accounting and public
policy. 32(3). pp.1-25.
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Westphal, J. D. and Zajac, E. J., 2013. A behavioral theory of corporate governance: Explicating
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Online
Austin, L., 2016. Role of internal auditing in corporate governance. [Online]. Available through:
<http://smallbusiness.chron.com/role-internal-auditing-corporate-governance-65711.html>.
[Accessed on 29th March 2016].
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