Session 1- Scope of Governance I-updated

8/11/2019 Session 1- Scope of Governance I-updated

1/73

WELCOME TO

P1 GOVERNANCE, RISKS & ETHICS

ABBD5054 Corporate Governance &Ethics

~khor seng cheong


2/73

ACCA email to: [email protected] Facebook: ACCA Malaysia

ACCA Connect at 1800 88 5051----------------------------------------------

My handphone: 017-4999056 My email: [email protected] Facebook: ACCAP1khorsengcheong.tarpenang TARC ACCA FB: acca@tarpenang
mailto:[email protected]:[email protected]:[email protected]:[email protected]


3/73


4/73

Level 1: Knowledge and comprehension

Level 2: Application and analysis

Level 3: Synthesis and evaluation


5/73

PA (P1)

AB (F1)

AA (F8)ONLINE ETHIC

MODULE

PROFESSIONAL

PAPERS


6/73

He is professor inaccounting &

corporategovernance ofNewcastleUniversity


7/73

. A- Governance & Responsibility

E-Professional Value & Ethics

B-Internal

Control &

Review

C & D-Identify,

Assess, &

Control

risks


8/73

Part A- Focus on

corporate governance,responsibility andaccountability. eg.Agency relationship,

governance, roles ofdirectors, issues ofresponsibility, limits ofaccountability


9/73

Part B, C & D- Internal control, identifying &assessing risk, controlling and mitigating risks

Part E- Ethical assumption and ethicalframework & ethic theory. Ethic is alsoassessed in Part A is subsection.


10/73

Section A (50%)

Q1- Compulsory

Section B (25% x 2)Choose 2 out of 3 questions.


11/73

Question 1-Case Study.It Involves corporate governance, risk,

internal control & ethics.4-6 marks are allocated for professionalmarks- eg. format used, structure, layout.

Question 2, 3 &4 are short scenario questions


12/73

DEFINE (L1) Give the meaning of

EXPLAIN (L1) Make clear

IDENTIFY (L1) Recognize/select

DESCRIBE (L1) Give the key features

CONTRAST (L2) Make a comparison

ANALYZE (L2) Give reasons for current situation or what has

happened

ASSESS (L3) Determine the strengths/weakness/ importance

/ability to contribute

DISCUSS (L3) Examine in detail by using arguments for &

against

CONSTRUCT THE CASE (L3) Present the arguments in favor & supported by

evidence

EVALUATE (L3) Determine the value of..

RECOMMEND (L3) Advise the appropriate actions to pursue


13/73

Scope of Governance I


14/73

Define (key words) and explain (CRE) the meaning ofcorporate governance

Analyze (Detailed causes of .....+ impacts) the purposeand objective of corporate governance

Explain and analyse the issues raised by the developmentof thejoint stock companyand the separation ofownership and control over business

Explain and apply the key conceptsunderpinningcorporate governance

Explain and assess the major areas of organizational lifeaffected by issues in CG.


15/73

A) Define and explain the meaning of corporate governance.


16/73

"Corporate governanceis a set ofpolicies and proceduresby whichbusiness corporations are

directed, administered

and controlled (DAC).

The corporate governance structurespecifies the distribution of rights and

responsibilities among differentparticipants in the corporation, such as,the board, managers, shareholders andother stakeholders, and spells out therules and procedures for makingdecisions on corporate affairs. "


17/73

The term corporate governancehas come to mean 2 things.

I) the processes by which how

the companies are directedand controlled.

II) the processes by which those

direct and control thecorporation (here means theboard of directors) aremonitored and supervised.


18/73

The corporate governancestructure spells out the rulesand proceduresfor making

decisions on corporate affairs.

It also provides the structurethrough which the company

objectivesare set, as well asthe means of attaining andmonitoring the performanceof those objectives


19/73

MECHANISM 1

Corporation is directed and

controlled

MECHANISM 2

Those who direct & control

the corporation aremonitored and supervised


20/73

DIRECTORS ARE RESPONSIBLEFOR

1. Proper controls for the

achievement of goals2. All the operations oforganization are carriedout in accordance withset policies and

procedures

METHODS OF MONITORING &CONTROLLING

1. Internal audits2.

Inclusion of non executivedirectors in the board3. Incorporation of audit

committee.4. External auditor


21/73

It supports the development of strategicprocesses, risk management processes and

controlsthat give reasonable assurancethatorganizational objectives will be met.

It prevents any single individual fromhaving too much power and influence


22/73


23/73

Increase shareholders confidence Reduce the risks of manipulation in the FS

Increase chances of obtaining credit facilitiesat the lower cost of borrowing Increase good reputation Obtain favorable treatment from the

regulator


24/73

B)

B) Purpose and objectives

corporate governance


25/73

Purpose- The basic purpose of CG is tomonitor those parties within a companywhich control the resources owned byinvestors.

Objective- The objective of CG is tocontribute to improved corporateperformance and accountability in

creating long term shareholder value.


26/73

Development of

Joint Stock

Company


27/73

A joint stock company is a company form of business entity.It is a voluntary association of persons who generallycontribute capital to carry on a type of business, which

established by law and can be dissolved by law.

This form of business entity has a legal existence separatefrom its members. This form of business organizationsgenerally requires huge capital investment, which is

contributed by its members.


28/73


29/73

The owners (shareholders) andrunners (directors) of the company areseparate parties

The dispersed shareholders(individual/institutional/local/foreigners) entrustthe management of company to its

board of directors


30/73

The board of directors , in turn, delegates the power andauthority to professional managers to handle daily runningof business.

The directors act as agentsof the shareholders

The directors are required to act the best interestsofshareholders, employees, investors, suppliers, customers

etc.


31/73

They can collect a large amount of capitalthrough public offering

They are limited liabilities. They are normally run by professionals and

experts They could achieve operational competitive

advantages


32/73

They are difficult and expensive to form They could be controlled by the government

The decision making in joint stock company isslow because they need to conduct manydiscussions and voting

Joint stock company is suitable for only thosebusiness that has high volume of businessand requires huge financial resources.


33/73

33

9 Key Sub-Concept ofCorporate Governance


34/73


35/73


36/73

Voluntary corporate disclosure to stakeholders enables to

increase the trust and confidence of stakeholders

in the company affairs.

Timely and accurate disclosure on all material matters beingviewed as good corporate governance practice.

36


37/73

IndependenceIndependence is the state that exists when

there is no conflict of interest.

It is an important concept in CG particularly

concerning the Independent Non ExecutiveDirectorswho are in the position to monitorthe performance of executive directors andpromote the interest of stakeholders.


38/73

2 types

Type 1- Independent NEDs=Hire thembecause want their independent views.

Type 2-Non Independent NEDs=Hire them

because of their knowledge, skills &competence.


39/73

Probity/honesty

Honesty in business dealing is

important in buildingstakeholders confidence thattheir interests are protected.

For example, presenting the trueand not misleading information tostakeholders is a must.


40/73

Responsibility Directors are responsible to protect the

stakeholders interests. They are responsiblefor the companys strategies, internalcontrols and risk management process.


41/73

Accountability Directors who make decisions and take actions

need to be accountable for the results of the

action. Corporate accountability refers towhether an organization or its directors areanswerablein some way for the consequences oftheir duties.

Reward for the failure- If the companysperformance is poor, the directors are stillrewarded with the bonuses.


42/73

Reputation Reputation is the opinion of the public

towards a person or organization.

Reputation reflects the organizationsculture. (Well known for the good practice of

corporate governance. Reputation is builtthrough practice of ethical standards. Goodcorporate governance requires practicingethical standards.


43/73

Judgment A judgment is a balanced evaluation of the

information necessary to make a decision.For example, making decision is only aftertaking a broad knowledge and itsenvironment.


44/73

Judgment A judgment is a balanced evaluation of the

information necessary to make a decision.For example, making decision is only aftertaking a broad knowledge and itsenvironment.


45/73


46/73

Openness/Transparency

AccountabilityResponsibilities

ReputationIndependence


47/73


48/73

C) Operational areas affected by issuesin corporate governance (Exam Focus)


49/73


50/73

Board of directors (Executive Directorsand Non Executive Directors)

Sub-board committee (remunerationcommittee, nomination committee, riskcommittee, audit committee )

Management

Shareholders (institutional investors,minority shareholders)

Employees (trade unions) Auditors (internal and external auditors)

Government (tax authority, regulators,stock exchange)


51/73

The board should meet regularly todischarge its duties effectively.

The board should always be informed on

the situation Directors to be suitably trained Clear list of responsibilities for the board

should be in place and decisions that theboard should take.


52/73

Formal procedures should be in place forappointments to the board

The chairman should decide on a process

of performance evaluation for the board ofdirectors and for individual directors.

Directors should submit themselves for re-

election at regular intervals. Key and strategic decisions must be

reserved for the board.


53/73

Directors should not have excessivepowers

The board should include a balance

of Executive Directors (EDs) andindependent Non ExecutiveDirectors (NEDs) so no group candominate the decision making.

At least half of the board members,excluding the chair, should be NEDs.


54/73

The Chair and the CEO should be a separate

person

Board committees should be set up such asaudit committee, risk committee,remuneration committee, nominationcommittee, finance committee.


55/73

NEDs should make up of the remunerationand audit committee, and the majority of thenomination committee.

Time availability of directors, personalcompetence of directors, quality of

information gathered and boardroom

culture should be taken into considerationwhen considering the effectiveness of board.


56/73


57/73


58/73

Directors should disclose theirresponsibilities, going concernassessment, application of CG andjustification of departure from best

practice in the annual report

Auditors should present a statementabout their auditing responsibilities in

annual report.


59/73

Remuneration should be linked to

company performance. Rewards forfailure should be minimized.

Remuneration should be sufficientto attract and retain directors.


60/73

Formal procedures for developingremuneration policy should be in

place including the appointment ofa remuneration committee

No director should be involved in

deciding own remuneration.


61/73

The board should maintain aneffective internal control system tosafeguard shareholders assets.

The board should review theeffectiveness of internal controlsystem and report to shareholdersat least once a year. The areas to

cover are: financial control,compliance controls & risk controls.


62/73


63/73

Shareholders are entitled to receiveannual report from the company.

The company should provide allshareholders with statutory notice of

meetings and copies of annual report toensure good communication

The company should have

regular dialoguewithinstitutional investors


64/73


65/73

CSR encourages firms to consider theinterests of society in all aspect of theiroperations. The firms take responsibilities forthe impact of their activities on customers,employees, shareholders, the public andenvironment.


66/73

Business ethics involves examining ethicalprinciples and moral or ethical dilemma thatarise in doing business.


67/73

SUMMARY

Summary


68/73

1..............................................., the systemby which organizations are directed andcontrolled, is based on a number of concepts

including transparency, independence andintegrity.

2. Directors and managers need to be awareof the interests of............................... ingovernance, however their responsibilitytowards them is judged.


69/73

3. Key issues in corporate governance reportshave included the :

(I) role of ..........................., (ii) the .................. of financial reporting and

auditing, (iii) directors..............................., (iv)...............management (v)

corporate......................................................


70/73

4.............................. means open and clear disclosureof relevant information to shareholders and otherstakeholders, also no concealing information when itmay affect decisions.

5. Corporate................................... refers to whetheran organization and its directors are answerable insome way for the consequences of their actions.

6............................... is a duty imposed upon certainpersons because of the position of trust andconfidence in which they stand in relation to others.


71/73

1.Corporate governance 2.Stakeholders 3.board of directors, quality, remuneration,

risk and social responsibility. 4.Transparency 5.accountability. 6.fiduciary duty


72/73

1. Corporate governance of Public, private & nongovernment organizations (NGO) sectors

2. The roles, interest and claims of, the internal &

external parties such as directors, employees,regulators etc

3. The role & influence of institutional investors incorporate governance systems and structures.

4. Corporate Governance and Agency Theory(Issues Arise From Agency Theory)


73/73

Thank You

Session 1- Scope of Governance I-updated

Documents

Transcript of Session 1- Scope of Governance I-updated