Provision of Corporate Governance

Question 1

Summary For Corporate Governance

The term corporate governance can be understood as the rules and practices which have been carried out in a business organisation. Such practices are always controlled by a board of directors of the company. It is very important to involve some kind of practices in a business organisation because such practices shall involve proper working and management in the company(Larcker, Tayan, 2015). It is a very well-known fact that a business organisation is a block built by its stakeholders that is the consumers, suppliers, creditors etc. and in order to balance the function governed by them corporate governance plays a very important role. When some kinds of rules and regulations are being applied to a company then it ensures the proper functioning of the company that is proper management shall be formed within the company as well and there are many kinds of other goals which become easy to achieve(Collins, 2012). Corporate governance is taken as the most essential element to the company because with the absence of any kind of rules and regulations, no company shall be able to work or manage its work and management is the key element of a company(ArAs, 2016). Besides that corporate governance enables several kinds of practices to be carried out by an employee. They work as the guideline to the company by which the regulation of work will be carried out in a proper manner. Corporate governance brings internal control to the company. Internal control in the organisation can be defined as a controlled environment which is set in the premises of the company controlling the extra activity of the employee as well as of the organisation. Internal control involves several of things in which risk assessment is the most important factor(Leipziger, 2015). When an internal control is being established in the company, it becomes easy for the business organisation to conduct an assessment of the risk. It will help in enabling how a risk shall be managed and what are the other objectives to be covered in risk. There are various kinds of processes which is used in internal control such as monitoring process which involves monitoring employee and their activity as well as the activity which is being conducted on the whole by the organisation(Governance Publishing & Information Services Ltd, 2017). The basic criteria which is being covered in the internal control is basic planning which will cover all the areas. It shall also cover the objectives which are being decided by the company. Besides internal control, there are other things also which are generated by corporate governance that is there are certain kinds of principle which Are governed by corporate governance. Such a principle shall involve all the rights and the duties of the organisation in context to the employee and the rights of the employee as well against a company(Harford, Mansi, Maxwell, 2012). There are many decisions which have been taken in corporate governance in order to attain the objective of stakeholders as well as there are many kinds of policies which are being generated daily and there are many kinds of plans and actions which a company plans in order to incurred profits of the company to analysis such practice and to regulate the same, corporate governance play a very important as well as crucial role as the main function of this body is to keep monitoring the action, plans, policies, practices which are being generated by the company or the new ideas proposed in terms of business activity(ICAEW, 2017). Such monitoring is necessary for the company as it will bring accountability to the relationship of the company with its stakeholders (Solomon, 2013). There are many situations in which it has been seen that a company was entitled to fraud or misrepresentation by some of the activity. Such happened because there was a lack of corporate governance in the company. The body of corporate governance shall help the business organisation to establish certain rules and regulations for the employee and for the working activities as well so that there shall be no illegal practice carried out by the members of the company(Nini, Smith, Sufi, 2012).

There are numerous kinds of definitions which are present to define corporate governance. This body is narrowly defined as a system governed by law and sound approaches which helps in establishing direction and control of the internal as well as external structure of the company with a motive to monitor all the activities conducted in context to policies, plans, actions decided for including management in the company. Monitoring shall help the company to identify various kinds of risk which are involved in the company. Another definition of corporate governance states that it is the set of conditions which have been put by a firm in order to ensure a proper mechanism in the company(McCahery, Sautner, Starks, 2016). The firm itself is modelled as a governance structure acting through the mechanism of contract. Corporate governance may also involve relation to corporate finance. Therefore it is very important for each and every organisation that is into business to enable corporate governance as it will bring proper management and proper functioning of the work.

Development Of Internal Control In UK And US

Development is the need of any area which is why it is very important to bring changes. Every change shall bring development in the company by which the company will be able to proceed with its work in a more smooth manner. As corporate governance is considered a very important aspect of the company, it is necessary to bring certain changes(Bushee, Carter, Gerakos, 2013). It is the principle by which the company shall be able to bring management into the company. There are different kinds of plans and actions which could be assisted by corporate governance. If changes have not been brought within the corporate governance then it becomes very difficult to introduce change and change is very important in corporate governance because with change stability shall be formed within the company and a strong corporate structure shall be made. There are various kinds of components in which changes can be brought by the company for example.

Control environment

The environment is very important for the corporate organisation if there is no working environment or there shall be no disciplined environment then the company shall not be able to carry out its plans and actions in a proper manner. There shall be a proper environment established for internal control(Walls, Berrone, Phan, 2012). If there shall be no environment that is so set of the standard form of a decision of regulation then a company won't be able to inculcate a good environment by which internal control shall not be established. To create making environment controlled by the hand of the board of directors the company and its employees must be comprised of ethical values and integrity(Prezi Lnc, 2017). There shall be responsibility among the people of the company because every work shall be carried out with responsibility which will include the process of doing any work with attraction and the motive of developing a scenario(McNulty, Zattoni, Douglas, 2013). Such development in the environment shall help in establishing good internal control and good internal control will bring a developed corporate governance such as is done in the UK.

Risk Assessment

Internal control in the organisation can be modified or developed with the measure of risk assessment also(Allayannis, Lel, Miller, 2012). It is very true that there are many kinds of risks are there in a business activity. There are many kinds of internal as well as external risk which is important to assess because if such risk are not being assessed by the company then it shall not be able to take all the precautionary steps regarding it. Besides that when a risk strikes a company then it is the duty of corporate governance to minimize that risk because a risk always shakes internal control. Assessment of risk and taking precautionary measures on the same shall help in developing an internal control better. The risk assessment will involve a report carrying all the necessary changes to be brought by the company in order to establish better and stronger internal control. Such is done in the US(UK Corporate Governance Code, 2017).

Controlling Activities

There are several kinds of activities which is being carried out by the company but is control is not being established on certain activities then the probability of risk arises by which internal control gets weak(Khan, Muttakin, Siddiqui, 2013). It is very important for company to establish good and developed internal control because it is the key principle towards the establishment of corporate governance in order to maintain a good amount of internal control, it is very necessary that certain activities which is to be carried out by the company shall be in control manner(IPE International Publishers Limited, 2002-2016.). Hence it can be seen that there shall always be a developed internal control to establish better corporate governance. Such is done in the UK as well as the US

Implementation Of Internal Control

Internal control is a very important element for establishing corporate governance which is why there are certain measures are to be used within the organisation. Different organisations have different kinds of methods for the implementation of internal control in corporate governance depending upon where the firm is situated and what kind of business is being carried out by the firm(my committee, 2017).

For example, the implementation process of corporate governance in the UK is different from the US. Internal control in the UK is established by the following steps:-

Creating a plan and team:- While the concept of internal control is established in corporate governance in the company of UK there are various kinds of steps to be followed by the company such as creating a plan and team(Bell, Filatotchev, Aguilera, 2014). Whenever a company in the UK implement internal control, a proper plan is being made by the company which will include all the important measures to be taken by the company. In the UK a plan has been made by the company before establishing internal control for corporate governance.

Paying attention to key points:- There are several kinds of principles which need to be considered and a focus is to be created by the company for establishing internal control. All the UK company for establishing internal control pay attention to the key points so that internal control shall be implemented properly in the company

Use of building block approach:- An approach which has been observed in companies of the UK regarding the implementation of internal control for corporate governance. In this kind of approach 5 major components are focused by the company so that implementation of internal control shall be much better for example communication, plans, control environment, monitoring activities, and risk assessment(Agrawal, 2012).

On the other hand, there are various kinds of steps used by the company in the US to establish internal control for corporate governance. Even for the company of US, it is very necessary to have corporate governance because for the company of US also it is important to establish certain plans and actions which will govern the activity of the company as well as it shall bring the management into the work activities carried out by the organisation(Aebi, Sabato, Schmid, 2012). The various steps to be followed in the US are:-

To identify the vulnerabilities that a company may face- for the implementation of internal control, the company must first assess all the risks which are available in a company. For the implementation of internal control, it is very much necessary that risk must be identified because risk in any factor or in any activity shall not able the company to accomplish internal control (AccountingCoach, LLC, 2004-2017)

Use the illustrative tools and internal control over external- there are various kinds of tools which have to be used by the company in order to implement internal control(Michaely, Rubin, Vedrashko, 2014). For example company may use or construct a compendium in which all the ideas regarding the implementation of internal control can be proposed by which it became easy for the company to include internal control for corporate governance.

Practical Applications

Practical application can be explained as the utilisation of resources and the use of certain applications in a practical manner while the work is going on. In the context of corporate governance, the practical application can be explained as the set of principles which is being used in the formation of corporate governance(Michelon, Parbonetti, 2012). Generally, they help in regulating many activities. There are various kinds of factors which is being covered under the practical application of corporate governance for example the legislation which is being implemented by the government for the establishment of corporate governance in a company. The codes which help in maintaining the financial stability of the company and many others. Some of the practical applications are described below.

Corporate governance code

It refers to the set of principles of good corporate governance aimed at companies listed on the London Stock Exchange. It will look for the benefits which are being incurred by the financial authority in the company. There are many content that are included in the code of corporate governance. Section A of the code shall explain leadership.

Every company shall have a leader who will be headed by the board. Such a board shall be held responsible for the long-term success to occur in the company. They shall be divided among all the divisions of the company equally the board and executive(Armstrong, Balakrishnan, Cohen, 2012). No person shall have all the power to regulate the company and its decisions.
Section b of the code shall reflect the effectiveness that is there shall be skills, experience and knowledge within the board of the company so then when corporate governance shall be established in the company it will be effective enough. The procedure to be carried out must be transparent in nature for the appointment of new directors who will construct corporate governance.
Section c will discuss the accountability that the board shall present a balanced and understandable assessment of the company's position and prospects.
Section D will discuss the remuneration of a board that is going to take place which shall be sufficient to attract and motivate directors so that quality shall be provided to run the company.

Legislation

Another practicable application which is to be involved while corporate governance is being established in the company is legislation(Dharmapala, Khanna, 2013). It shall include all the rights and duties which are implemented by the government for a company under certain acts or laws. For example, business law will be considered as legislation for all the employees in a company which will determine the rights and duties of the employee. Such rights and duties will help in governing corporate governance. There are many employment rights which are being established in corporate governance(Larcker, Tayan, 2015). Such rights and duties will protect the interest of the employee which is very important for the company.

Another practical application of corporate governance is the Stock list. A stock list can be defined as the inventory which is being maintained by the company regarding the data collected. The stock list shall consist of all the items of stock at different places. It is very important for the company to maintain an inventory of goods and items which are available on a particular occasion. For establishing good and better corporate governance it is very important that a stock list is to be maintained which will bring discipline in the company and shall help the company manage the work(Nini, Smith, Sufi, 2012).

Conclusion

It shall be concluded from the above project that corporate governance is considered one of the essential elements of the company as it is the set of principles and rules which are essential for the company. It has been further described in the project that internal control is essential for the company. There are different kinds of methods and resources by which a company shall be able to establish internal control. There are various kinds of methods which have been described in the report regarding the establishment of internal control. All the steps are described for the process of implementation of internal control in the US and UK. There are many practical approaches also being described for corporate governance.

References

• Aebi, V., Sabato, G. and Schmid, M., 2012. Risk management, corporate governance, and bank performance in the financial crisis. Journal of Banking & Finance. 36(12). pp.3213-3226.
• Agrawal, A.K., 2012. Corporate governance objectives of labour union shareholders: Evidence from proxy voting. Review of Financial Studies. 25(1). pp.187-226.
• Allayannis, G., Lel, U. and Miller, D.P., 2012. The use of foreign currency derivatives, corporate governance, and firm value around the world. Journal of International Economics. 87(1). pp.65-79.
• ArAs, G., 2016. A handbook of corporate governance and social responsibility. CRC Press.
• Armstrong, C.S., Balakrishnan, K. and Cohen, D., 2012. Corporate governance and the information environment: Evidence from state antitakeover laws. Journal of Accounting and Economics. 53(1). pp.185-204.

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