A business of a public company managed under the watch dog of the Board of Directors, delegates the duties to the Chief Executive Officer (CEO) who further delegates the tasks to other senior management the duty to maintain the firm’s reporting. The process establishes consistent financial reporting. A public company can uphold a code of business conduct as well as ethics which is likely to articulate for shareholders, employees, suppliers, and customers. The Board of Directors should acknowledge the responsibility for a code of ethics, its execution by management and its full acceptance by the entire employees. Thus, responsibility is the beginning point for forging the culture of the corporation. The Board needs to task the authority to senior management for the execution of programs for corporate integrity. When people acknowledge the need of having a code, it works best (Young, 2013).
Communication is an integral part of demonstrating accountability and commitment to the Board of Directors. Documented policy of ethics develops anticipations for all employees and highlights precisely the anticipations on topics that include theft, protection of intellectual property as well as proper usage of resources together with fair colleagues’ treatment. Policies as well describe a particular feature a public company may want to represent, for instance, integrity, respect, and honesty. Employees are entitled to obtain a copy of the code of ethics, as well as, sign the form stating that they acknowledge the anticipations. A Board of Directors should expect the Chief Executive Officer to offer both internal and external leadership in the field of ethics. Good leadership thus can develop an ethical environment that needs quality accounting as well as dependable financial reporting for the user and instills certainty and stability.
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Implementing strategies that lead to an ethical environment is essential to high-quality accounting and reporting as well as forecasting. Some of the recommended strategies for the CEO include having an audit committee charter that incorporates the requirements for the audit committee to analysis as well as recommend the replacement or appointment of the principal audit executives. Besides, the charter for internal audit should be companionable with the one audit committee has and which should be periodically approved by the audit committee, for instance, in every two years. The internal audit should provide members of the high-ranking management and audit committee with a self-governing and objective opinion regarding risks and the internal regulations within the company. According to the Institute of Internal Auditors (2014), audit committee charter plays a crucial role in enhancing and promoting transparency around internal control practices, risk management and governance of a public organization. As an oversight and advisory body, the audit committee remains independent although the decision-making process remains the management’s responsibility. The underlying factor for this is that if this committee participates in decision making, then its objectivity will be diminished, thereby adversely affecting its capacity as an independent body.
Moreover, the principal audit executive ought to attend the meetings of the committee on audit, where the committee on audit has to annually certify the plan of internal audit. Furthermore, the chair of the committee on audit should privately hold a meeting with the principal executive on audit before the meetings of the audit committee for mutual trust building needed between them. The process further allows principal executive on audit to give background informally regarding the role alongside its associations with the management that would unlikely be conceivable in an official report. In addition, it allows the audit committee chair to have an understanding of the issues that warrant discussion at the meetings of audit committee but which may unlikely receive high priority (Pompper, 2014).
The principal executive on audit should present the outcomes of key events and major outcomes as well as reports to the committee on audit. This will enable the principal audit committee to come up with only those issues that have a substantial impact on regulations, management of integrity, alongside quality of financial reporting. The principal executive on audit therefore periodically meets with the committee on audit in the absence of the management. Also, the principal executive on audit should have limitless and direct reach to the chairperson of the committee on audit at any given time. Thereafter, the external auditors should be available during the formal presentation of the internal audit to the committee on audit in the absence of sessions of in-camera.
Shareholders are the key stakeholders of the company, and in their absence, the company would not be present. The majority of people argue that the main purpose of the firm is to maximize the wealth of shareholders. Thus, for the corporate management of a company to offer assurance to investors that the performance forecast, as well as anticipated revenues, will be achieved and the volatility of the stock price minimized involves some activities. The governance structure of a corporate company should be formed in a manner that reduces the costs of agency raised from the distinction of ownership alongside control by aligning the management interests with those of the shareholders.
Shareholders should offer capital to the firm in return for continual return on their investment regarding constant dividends and appreciations of the stock price. Dividends payment reduces the amount of open funds accessible to management, and which can be used as a hindrance to opportunistic behavior in management as well as a vehicle for regulating actions of management. Shareholders contribute and shape the structure of corporate governance of the company by exercising their rights on voting to elect members who will compose the Board of Directors. The Board of Directors will be directly tasked with protecting the interest of shareholders and are eventually answerable to them for the business affairs of the company.
Some of the outcomes that a publically operated firm may face when quality within the fiscal accounting as well as reporting is lacking include reported scandals of finances, for instance, the WorldCom, Enron, Adelphia, Global Crossing and Qwest. Thus, there is a need to employ vigilant corporate governance alongside corporate ethical conduct. In addition, the publically traded company should apply the Sarbanes-Oxley Act, 2002 (SOX) to advance corporate governance by enforcing stringent accountability for the corporations and their executives should adopt to the code of ethics requirements (Hosseini and Mahesh, 2016).
Sections 302 to 308 involve provisions of corporate responsibility. Within the highlights of Title III, the whole spectrum regarding financial reporting is discussed, which offers credence to the significance of accurate reporting. Section 302, which is about corporate responsibility for reports of finance, highlights certain requirements for managers as well as the principal executives of the corporations to adhere to SOX, 2002 regulations. One of the necessities is to make sure that the fiscal statement
“ does not contain any untrue statement of a material fact or omit to state a material fact necessary so as to make the statements made, in light of the circumstances under which such statements were made, not misleading ” (Quinn, 2014).
When the financial statement of a company are in order and represented precisely, investors can make decisions that are wise. Moreover, people are more likely to be confident with the company. The following section is similar section 404 of internal control touches on improper influence regarding audits conduct (Growe et al. 2016).
Section 304, which highlights on the forfeiture of specific profits and bonuses, expounds that in the case of an establishment is obliged to reaffirm its statements of finance on the basis of wrongdoing, both the chief executive officer as well as chief financial officer are accountable for paying the costs of the firm. The pieces they are likely to be responsible for in this case of misappropriated fiscal statements would be the additional benefit and other payment awarded during the one-year timeframe after the reporting of fiscal statements or any realized revenues from securities trade throughout the same tenure.
The following section highlighted below the Title III states the consequences that relate to both officers alongside directors when they are inapt to hold office. The penalties incorporate giving “equitable relief” when required so that to benefit investors. In section 306 that highlights on the inside trading at the pension fund blackout time, obligates earlier notice to be communicated to persons who are banned from performing changes in investment, procuring loans, and are getting distribution from plans that are tax-qualified at the blackout period (Growe et al. 2016).
References
Growe, G. A., Qiao, X., & Johansen, T. (2016). Impact of the Sarbanes-Oxley Act on Special Items. SSRN . Retrieved from http://dx.doi.org/10.2139/ssrn.2840554.
Hosseini, S. B., & Mahesh, R. (2016). The Lesson from Enron Case. Journal of Current Research , 8 (08), 37451-37460.
Pompper, D. (2014). The Sarbanes-Oxley Act: Impact, processes, and roles for strategic communication. International Journal of Strategic Communication , 8 (3), 130-145.
Quinn, E. J. (2014). The Complex Relationship between Corporate Management, Stakeholders and Accounting. International Journal of Academic Research in Accounting, Finance and Management Sciences , 4 (3), 80-88.
Young, M. (2013). Cultural Influences on Accounting and Its Practices . Retrieved from http://digitalcommons.liberty.edu/cgi/viewcontent.cgi?article=1396&context=honors.
The Institute of Internal Auditors. (2014). Global Public Sector Insight: Independent Audit Committees in Public Sector Organizations. Retrieved from https://global.theiia.org/standards-guidance/Public%20Documents/Independent-Audit-Committees-in-Public-Sector-Organizations.pdf.
