p1 by Sir Fawad Mujahid

8/6/2019 p1 by Sir Fawad Mujahid

http://slidepdf.com/reader/full/p1-by-sir-fawad-mujahid 1/11

P1 PROFESSIONAL ACCOUNTANT BY SIR FAWAD MUJAHID 2010

www.fawadmujahid.com Page 1

P1“PROFESSIONAL

ACCOUNTANT”

By:

FAWAD MUJAHID, ACCA

Reference Note





CORPORATE GOVERNANCE

Definitions of Corporate Governance

“Corporate Governance is the system by which companies are

directed and controlled…” Cadbury Report (UK), 1992

“Corporate governance involves a set of relationships between a

company’s management, its board, its shareholders and other

stakeholders also the structure through which objectives of the

company are set, and the means of attaining those objectives

and monitoring performance are determined.” Preamble to the

OECD Principles of Corporate Governance, 2004





Issues - Corporate Governance

Irregularity of power Irregularity of information Interests of shareholders as outstanding owners Role of owner management Assumption of separation of powers Division among stakeholders

Why Good Corporate Governance is

required?

Good governance leads to good

performance

It creates an open and

transparent system

It improves communication and

breaks down systematic barriers to

flow of information

Good governance allows

decision making based on data. It

reduces risk

Good governance helps in

creating a brand and creates comfort for all stakeholders and

society





Key Components of Corporate Governance

Fairness Holds into account all Stakeholders

Transparency Open to all public via disclosures, press release

Independence Non-Executive Directors monitoring

Probity Truth – Don’t mislead

Responsibility M’gmt responsible for Organization

Accountability Directors are accountable for their actions

Reputation If poor Corporate Governance is Practiced

Judgment Judging Decisions that contributes to Firm

Integrity Fair dealing with others & architect of FS

Agency Relationship: Owners and Managers

Accountability Responsibilities

Agent is accountable & answerable for his actions to his

principal.

Issues

How to implement the accountability system?

What if the Agent is accountable to other parties than his

principal?





Fiduciary Responsibilities:

Directors owe a Fiduciary Duty to the company to exercise their

powers bona fide where they are bound to first respect theInterest of the company & then secondary to the General

Shareholders

Performance – Contractual Obligation to perform

Confidence – Information must be kept in confidence

Skill – Maintain the standard of Skill

Conflict of Interest – Avoid conflict of Interest

Other Benefits – Retain with permission

Joint Stock Company

These are companies limited by

shares.

Issues:

Principals (owners): Do not run

the Business’ they are the Investors.

Agents (directors): They run

the Business on the behalf of the

Principals.





Agency Theory Problem & Solution

The agency problem occurs when:

the desires or goals of the principal and agent

conflict and it is difficult or expensive for the

principal to verify that the agent has behaved

inappropriately

Solution:

principals engage “in incentive-based performance

contracts” monitoring mechanisms “ such as the board of

directors”

Other Important Agency Relationships

Shareholders – Auditors Relationship

Shareholder = Principal , Auditors = Agent

Audit Report = Key Communication





Stockholder & Corporate Governance

Stockholder Theory

It focuses on the interests of Shareholders where it claims that

Shareholders have a legal right to influence the company.

Shareholders purchase the Shares of the Company and in return

expect their interest to be protected.

Stakeholder Theory

It focuses on the corporate accountability to a broad range of

Stakeholders.

Stakeholder wants will vary and this will depend on your point

of view whether certain group should be considered as a

Stakeholder.





Two Motivations theory for Organizations responding stakeholder

concerns:

Instrumental View of Stakeholders The organization is using its Stakeholders as an Instrument to

achieve its Economic & Legal objectives.

A business cannot survive alone it needs different Stakeholders

& therefore it is desirable to respond to stakeholders concerns.

Normative View of Stakeholders

This View gives importance to the Ethical & generous

responsibilities towards the different Stakeholders.

It is the moral duty of the Organization to take account of the

opinions & concerns of others.





STAKEHOLDERS:

Internal Stakeholders: M’gmt, Employees.

Connected Stakeholders : Shareholders, suppliers, customers,lenders, competitors.

External Stakeholders : The Government, Public, NGO’s,

Legitimate Stakeholders: Those who have legal right upon the

Organization.

Illegitimate Stakeholders : Those who don’t have a legal claim

upon the Organization.

Direct Stakeholders: Those who can be affected or affect the

Organization.

Indirect Stakeholders : Those who cannot directly affect the

Organization.

Recognized Stakeholders : Those whose views are considered b/f

deciding strategies

Unrecognized Stakeholders : Those whose views are not

considered

Narrow Stakeholders : Those who are Most affected by the

Organizations Strategies

Wide Stakeholders : Those who are least affected by the

Organizations Strategies

Primary Stakeholders : Those who are the most important

Stakeholders





Secondary Stakeholders : Those who are not very important to

the Organization

Active Stakeholders : Those who take an interest in participatingin activities

Passive Stakeholders : Those who do not seek to participate in

policy making

Voluntary Stakeholders : Those who engage with activities

Voluntarily

Involuntary Stakeholders : Those who engage with activities

Involuntarily

Known Stakeholders : Those whose existence is known to the

Organization

Unknown Stakeholders : Those whose existence is not known

Stakeholders in Corporate Governance

Directors

Powers are defined in the Articles

Executive Director

Who are involved in Full – Time managing the Company





Non – Executive Director

Who are involved with the Monitoring of the Company

Company Secretary

Assembling meetings of the Board of Directors

Maintenance of Documents & Registers

Administrative Duties

ICSA, UK Institute of Chartered

Secretaries& Administrators

Best Practice

Is responsible to the Board

If other Administrative or

Executive Duties exists then

should be reported to Chief

Executive

Salary Package should be

settled by the Board or

Remuneration Committee on

the recommendation of

Chairman or Chief Executive

Date post:	08-Apr-2018
Category:	Documents
Upload:	vikram-nenwani
View:	224 times
Download:	0 times