Governance Regulations Among Australia, South Africa, and United Kingdom

Corporate governance in itself has no single definition but common principles which it should follow. For example in 1994 the most agreed term for corporate governance was “the process of supervision and control intended to ensure that the company’s management acts in accordance with the interest of shareholders” (Parkinson, 1994)1. Corporate governance code is not a direct set of rules but a self-regulated framework which businesses choose to follow. This code has continued to change in the past 20 years in accordance with what is happening in the business world. For example the Enron scandal caused reform in corporate governance with the Higgs Report which corrected the issues which were necessary. Although it does not quickly fix problems, it gives a better framework to

It is an important function of any organisation to regulate the external financial reporting. The legislation that governs the external financial reporting is Financial reporting act 2013 (FRA) and The companies act 1993 (Deegan & Samkin, 2013). The Regulation is required to safeguard the interests of those using the financial information but do not directly participate in the business. These users may be both primary and secondary. The information provided by the financial statements are used for making economic decisions by its users (NZASB, 2016a). The regulation of external financial reporting does not only help the external users

Phenomenal growth of interest in corporate governance has emerged in recent years. The body of literature on the subject has grown markedly in response to successive waves of large corporate failures. Furthermore, there have been numerous attempts to define what constitutes ‘good corporate governance’ and to provide guidelines in order to enhance the quality of corporate governance.

There are many rules companies must follow whenever documenting financial information or any other data which is gather during any business transactions. In order for said companies to report financial information internal controls have to be put in place as companies have to adhere to certain laws and regulations. Internal controls can be defined as a process which companies follow in order to ensure all financial reporting is done in a reliable and lawful manner. Some think of it as a system which works within a system as it plays a major role on the success of a company’s accounting system. At the organizational level, internal control objectives relate to the reliability of financial

Auditors have the responsibilities as well as management to report internal controls. The auditors must examine closely management’s claim of effectiveness and also physically test the controls. After the examination, the auditors should express their opinion and any recommendations to fix any internal control weaknesses.

This report is written as a response to the monograph in which the ICAEW published on how financial accounting disclosures can be improved. The aim of this report is to critically discuss and evaluate the worthwhileness of the recommendations made from a financial investor’s perspective. It is done by reviewing recommendations put forward by the ICAEW and analysing if each of the disclosure recommended is worth the effort while putting in perspective what effects these recommendations have on professional investors who are one of the primary users and consumers of financial statements. The report contains information mainly from the ICAEW report and the CFA institute report

The act endorses companies to change the practice and regulations of accounting and auditing. It required them to maintain good financial recorded which were different than the past. The management team is held personally liable for the reliability and accuracy of the financial statements. All publically listed companies must establish a system of internal controls which must be evaluated by management at least quarterly and external auditors are required to conduct independent assessments of company’s in –house internal controls as well as report any fault or fraudulent acts they observe.

The importance of audit committees increased through the years and especially from pre-Sarbanes – Oxley to post-Sarbanes – Oxley. Although, what are the responsibilities of the audit committee members? How does a Chief Audit Executive (CAE) more effectively serve their audit committee members? How do auditors communicate with audit committees? What are the requirements for audit committees? Most of these questions are inherited from what the audit committee’s best practices are.

According to WebFinance, Inc., the definition of disclosure, in relation to accounting practices, regards “Statutory or good faith revelation of a material fact (or an item of information that is not generally known) on a financial statement or in the accompanying notes (footnotes)” (2015). Furthermore, as per the Financial Accounting Standards Board [FASB], “The purpose of the notes to financial statements is to supplement or further explain the information on the face of the financial statements by providing information relevant to existing and potential investors, lenders, and other creditors . . .” (2013, p. 1). Publicly traded companies fall under regulations that are set forth by governing authorities to assist in bringing concise information to external users. The Starbucks Corporation [SBUX] implements the disclosing of pertinent information in its annual report by expanding within the section named “Notes to Consolidated Financial Statements” (SBUX, 2014, p. 51). The company’s cash and its equivalents, receivables, and inventories are further explained according to data as provided by SBUX.

Alongside this regulatory response in the United-States, in the United-Kingdom rules of good practice and principles for good corporate governance have emerged in the form of Reports and Codes (even before the Enron crisis occurs). Similarly, the international economic actors also codified rules and principles for a good corporate governance.

The final responsibility for the integrity of an SEC registrant’s internal controls lies on the management team. U.S. companies need to refer to a comprehensive framework of internal control when assessing the quality of financial reporting to determine that financial statements are being presented under General Accepted Accounting Principles, GAAP. The widely used framework is referred as COSO, Committee of Sponsoring Organizations of the Treadway Commission, sponsored by the following organizations American Accounting Association, the American Institute of CPA’s, Financial Executives International, the Institute of Internal Auditors, and the Institute of Management Accountants. COSO’s defines internal control as:

Does the Board or audit committee understands and exercises oversight responsibility over financial reporting and internal control?

Section 404 requires public companies to establish internal controls and report annually on their effectiveness over financial reporting. The CFO and CEO are held personally responsible for the internal controls via the requirement to sign a statement certifying the adequacy of the internal control system (Moffett and Grant, 2011, p. 3). Additionally, the company’s independent auditor must issue an attestation regarding management’s assessment of the internal structure as part of the company’s annual report (Bloch, 2003, p. 68).

Companies better understand how good corporate governance contributes to their competitiveness. Investors – especially collective investment institutions and pension funds acting in a fiduciary capacity – realise they have a role to play in ensuring good corporate governance practices, thereby underpinning the value of their investments. In today’s economies, interest in corporate governance goes beyond that of shareholders in the performance of individual companies. As companies play a pivotal role in our economies and we rely increasingly on private sector institutions to manage personal savings and secure retirement incomes, good corporate governance is important to broad and growing segments of the population. The review of the Principles was undertaken by the OECD Steering Group on Corporate Governance under a mandate from OECD Ministers in 2002. The review was supported by a comprehensive survey of how member countries addressed the different corporate governance challenges they faced. It also drew on experiences in economies outside the OECD area where the OECD, in co-operation with the World Bank and other sponsors,

This paper critically analyses the independence of the internal audit function through its relationship with management and the audit committee. Given the growing role of internal auditing in contemporary corporate governance and independence has gained renewed attention.