Fundamentals of Corporate Finance: Governance Report

This report delves into the critical aspects of corporate governance and its profound impact on financial reporting. It begins by defining corporate governance as a set of rules and guidelines designed to harmonize the interests of stakeholders, including shareholders, employees, and creditors. The analysis highlights the increasing emphasis on corporate governance due to accounting scandals and unethical practices, such as the Enron and WorldCom scandals, which led to significant financial losses and regulatory changes like the Sarbanes-Oxley Act. The report emphasizes the importance of regulatory measures, disclosure requirements, and social and sustainable accounting in improving reporting quality and protecting investors' interests. The conclusion underscores the necessity of corporate governance for organizational growth and sustainability, providing reliability and authenticity to financial statements, and ensuring that businesses adhere to ethical and legal standards. The references include various sources that support the analysis of corporate governance and its importance.

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By student name
Professor
University
Date: 25 April 2018.
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Contents
Introduction.................................................................................................................................................3
Analysis........................................................................................................................................................3
Conclusion...................................................................................................................................................4
References...................................................................................................................................................5
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Introduction
In the ever growing accounting world, the changes are coming with every moment in terms of
reporting and accounting. One such prominent issue over the past couple of years has been
corporate governance which has gained momentum and is being practiced by most of the
companies today (Alexander, 2016). It is nothing but a set of rules, procedures and guidelines by
which the companies are controlled and directed. It aims at harmonising the interests of all th
stakeholders including shareholders, government, employees, debtors, creditors, banks, financial
institutions, etc.
Analysis
Overtime, companies have started a separate disclosure of corporate governance and how the
same is being practiced in the organization because of the wide deal of accountability and
responsibility that the company holds in respect of the stakeholders. Regulatory measures have
come up, disclosure requirements have increased, there is an increased focus on the social and
sustainable accounting, etc, all focused to get the improvement in quality of reporting and
accounting so that the investors’ interest are being taken care of and that they are well informed
(Choy, 2018).
All this came into existence as a lesson when some of the large multinationals and corporations
collapsed as a result of the major accounting scandals and unethical practices in accounting.
Enron scandal is one of them where the directors and employees of the company concealed the
losses that can be foreseen and did not disclose the true status of the debt in the financial
statements, which was disclosed as a result of the whistle blowing by one of the employees and
then the share prices fell dramatically and investors lost all together $ 74 billion (Dichev, 2017).
The auditors as well as the management of the company was heavily penalised and imprisoned.
One another major scandal was Worldcom, a telecommunication giant in the market which had
inflated its assets in the balance sheet by $ 11 Bn which was primarily attributable to internal
audit discrepanicies, inflating revenues by fake accounting entries and under-reporting of the
expenses, capitalisation of the expenses, etc. Like that there have been numerous other
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companies which went into wrong practices to show better financial position because of which
Surbanes Oxley Act and thereby corporate governance was introduced (Bizfluent, 2017). This
not ensures that the best accounting practices are being followed but improves the reputation of
business increases investor confidence in business, reduces the quantum of fines, penalties and
lawsuits, decreased conflicts and corporate frauds, etc. It also ensures continuity of business,
lower capital cost, economic growth , positive impact on the share prices of the company, brand
value formation and development of the company as a whole (Chron, 2017).
Conclusion
From the above discussion and analysis, it can be concluded that corporate governance has
become inevitable for the growth, survival and sustainability of the organizations off late. It
gives the required reliability and authenticity to the financial statements that the stakeholders
require to believe on the same and take the decisions based on the same. It gives reasonable
assurance that the financials are showing the true and fair view of the business as it is backed by
the law and several regulatory measures.
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References
Alexander, F. (2016). The Changing Face of Accountability. The Journal of Higher Education, 71(4), 411-
431.
Bizfluent. (2017). Advantages & Disadvantages of Internal Control. Retrieved december 07, 2017, from
https://bizfluent.com/info-8064250-advantages-disadvantages-internal-control.html
Choy, Y. K. (2018). Cost-benefit Analysis, Values, Wellbeing and Ethics: An Indigenous Worldview
Analysis. Ecological Economics, 145. Retrieved from
https://doi.org/10.1016/j.ecolecon.2017.08.005
Chron. (2017). five-common-features-internal-control-system-business. Retrieved december 07, 2017,
from http://smallbusiness.chron.com/five-common-features-internal-control-system-business-
430.html
Dichev, I. (2017). On the conceptual foundations of financial reporting. Accounting and Business
Research, 47(6), 617-632. Retrieved from https://doi.org/10.1080/00014788.2017.1299620
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