As technology has allowed for the ability of the public and governing agencies to track the operations of corporations, the topic of corporate governance has become a major consideration while conducting business. The failure in the past few decades has demonstrated the need for transparency, including the practices of the company accountants. In fact, some such cases have held the accounting department as liable for lack of good corporate governance (Shil, 2008). The processes of corporate accounting have the ability for interpretations that require management by the financial department heads because accounting has the power to establish corporate governance. Gathering information and presenting it in a manner that allows effectively evaluation of corporate practices is both an internal and external responsibility of accountants. The goal of accountants is to increase the amount of proper information accessible to parties inside and outside the company. The effective accountant understand that his practices are based in details and deciding how to present important transactions. This paper discusses the relationship between the accountants in a company and good corporate governance.
The evaluation of good corporate governance (GCG) promotes the protection of the rights of stakeholders on all levels while functioning in a legal, ethical, and sustainable manner. As a consequence, corporations work to create a work environment that encourages employees to perform their duties in a way that increases productivity and profitability. When a corporation is viewed as a superior workplace, the best talent is attracted to it and the value of the company increases. In addition, society, investors, business partners, and vendors are inclined to form partnerships with a business that operates to optimum efficiency. When there is confidence in the public for a corporation, the cost of investment capital decreases; the McKinsey study (2002) stated that 60 percent of investors view the governance practices of a company as a key consideration in their selection.
Accountants work within the parameters of their duties in order to assist corporate committees, boards, and administrative leaders to make important decisions regarding planning, investments, and growth. The rules and methods of accounting within a company are important and therefore managers view them as such; the regard given corporate accountants has a strong effect on governance. Results of financial reports have the power to raise or lower stock prices, create incentives, influence tax benefits, and represent corporate value (Walker, 2007). Business contracts and other corporate functions depend significantly on reported earnings supplied by accountants in the financial statement. While the rules are not mandatory, accountants generally operate on a standard called the generally accepted accounting principle (GAAP). These standards influence share prices and corporate behavior.
The Board of Directors appoints an Audit and Risk Committee to monitor the financial reporting of the corporation, the internal accounting controls, efficiency of internal auditing processes, and legal compliance to regulations. The Sarbanes-Oxley Act in 2002 (soxlaw.com, 2016) gave auditing committees the role of being a watch dog for corporate governance and ethical financial practices. Auditing committees are supposed to be independent, but many work closely with the chief financial officer (CFO) and external auditors. According to the Sarbanes-Oxley Act, at least one member must be a “financial expert”. While the company accountants have more knowledge of the requirements of their department, the Audit Committee functions as an overseer rather than a consultant. Therefore, the company accountants work indirectly with the Board of Directors through approvals from the Audit and Risk Committee.
The relationship between the CFO and the corporate accountants varies in different companies. The CFO is considered to be the supervisor during financial report preparation and responsible for high quality in the report (Feng, Ge, Luo & Shevlin, 2011). Unfortunately, there have been instances of accounting manipulations by CFOs of matched firms through selection of inappropriate accounting methods, methods of structuring transactions, and even creating journal entries with false information. Due to lack of financial incentive and possible legal action for the CFO, it would appear this type of behavior is more at the instigation of the chief executive office than the CFO personally. However, a study by Orlitzky, Schmidt and Rynes (2003) found that accountants view the ethical practices of a company as an indicator of corporate sustainability; when a business has a strong statement of responsibility to society and its stakeholders, the overall effect is long-term profitability for the company. For this reason, the accountants operating under a CFO have the ability to exercise observance of proper corporate governance by monitoring his actions as closely as he monitors theirs. By reviewing subsequent final reports submitted to corporate boards, staff accountants look for discrepancies from their calculations and conclusions.
There are a number of other ways accountants impact GCG. The information tabulated by accounting departments is used in the generation of contracts for executive compensation; evaluation of manager performance based on productivity is also drawn from financial reports. Manager bonuses, raises, or even terminations may hinge on the reports of the accounting department. In addition, the reports may have the effect of drawing attention to managerial behavior that is not in compliance with the standards of good governance goals of the corporation. Next, new products are evaluated for cost and potential corporate profitability for discussion by executives in decision-making. The recommendations of the accountants have the power to impact business decisions on granting contracts and creating job positions; these types of activities hold potential for poor business practices in order to push through cost advantages at the expense of GCG. Also, changes in business climate concerning competitors place pressure on managers to perform and other mechanisms where corporate behavior may be compromised. In addition, positive published corporate financial statements reflect successful business practices and attract top employees. The quality of employees, managers, and board members are demonstrated in the business practices that show good corporate governance. Finally, accounting information has the ability to promote venture capitalist financing, which also frequently closely monitors corporate behavior.
The development and maintenance of good corporate governance is crucial for the ability of a company to operate productively in the complicated and dynamic world of global commerce. The failures of companies such as Enron and Tyco are examples of the consequences of poor governance that result in the loss of the trust of the public. Long-term growth is promoted through the attraction of top-quality employees and business relationships, increased sources of capital, decreased operating costs, and other benefits. The importance of the accounts in the company’s good governance is seen when either disappointing or even good financials are not presented accurately. By working effectively with the chief financial officer, the internal auditing committee, and other corporate boards, accountants have the responsibility of promoting good corporate governance and therefore the success of the company.
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