I received many complains, why the next post is so slow? Why answer is simple, I am too busy too tired and of course lazy.
Well no excuse as I have promised to do so. Let continue to the journey of June 2009 examination. However I may skip the internal control apart as promised earlier and go on to another important area namely financial statement assertion. We shall do it in a layman way, MY WAY!
What is financial statement assertion? This is an area where students always misunderstand. Financial Statement assertions are assertion where company must observed when recording a business transaction into the Financial Statement.
In your student text there are seven assertions namely:
Existence
An asset or liabilities exist at given date
Right and obligation
An asset or liabilities pertain to the entity at a given date
Occurrence
A transaction or events took place which pertain to the entity during the relevant period
Completeness
There are unrecorded assets, liabilities or events or disclosure items
Valuation
An asset or liabilities is recorded at an appropriate carrying value
Measurement
A transaction or events is recorded in the proper amount and revenue or expenses is allocated to the proper periods
Disclosure
An items is disclosed, classified and describe in accordance with the applicable reporting framework
However usually we will summarized it into 5 category namely
Completeness
ownership/obligation
valuation
existence
disclosure
So how to make it relevant in exam?
When a Company records a business transaction (BT) in the financial statement the need to ensure that:
1. The Company need to ensure that the BT is properly recorded in the Financial statement to ensure completeness or
2. To ensure completeness the company needs to ensure that BT is properly record in the financial statements.
3. To ensure ownership or obligation, the company need to ensure that they own or obliged toa business transaction.
4. To ensure valuation, the Company need to ensure that the BT has the right valuation when recorded into the financial statement
5. The ensure existence, company need to ensure that the BT actually exist
6. To ensure proper disclosure, company need to ensure that all BT are properly disclosed in the financial statements
Practice Can you provide example for the above?
Stay tune with layman
Sunday, March 29, 2009
Letter to Miss S
I have read your answer and I must say that the answer is not wrong but not up to standards.
Definitely with this level of writing and interpretation in examination, no examiner can pass you.
You need to get more in-depth to the answer writing. You must write in a way where you assume that the examiner or the marker does not know anything about audit. You must write in a way to convince and explain what is the subject about.
It is like a Children asking for their parent to buy a toy. The Child if shout and scream that he want a toy like “I want the toy, I want the toy…………………..” it does not convince the parent the need for the toy. However if a reason being given like, like the child telling the parent by buying the toy it mark a very important memory in his childhood, will the parent be touched?
It is like watching a movie. Who wants to go into the cinema watching a movie where from beginning to the end, you need to guess what the movie is talking about? Or till the end of the movie you also not sure what the movie is talking about. How can a movie does not express an objective and do not express a contents that viewer willing to see.
Going for the exam is just like making a movie, you can take 1 year to film it but usually you have only 3 hrs to present it. You might take a year to complete a subject but at each time you only have 3 hrs to proof you worth.
You now need to build up the quality of your contents. How to make it? Practice Practice Practice
Best wishes
Layman
Definitely with this level of writing and interpretation in examination, no examiner can pass you.
You need to get more in-depth to the answer writing. You must write in a way where you assume that the examiner or the marker does not know anything about audit. You must write in a way to convince and explain what is the subject about.
It is like a Children asking for their parent to buy a toy. The Child if shout and scream that he want a toy like “I want the toy, I want the toy…………………..” it does not convince the parent the need for the toy. However if a reason being given like, like the child telling the parent by buying the toy it mark a very important memory in his childhood, will the parent be touched?
It is like watching a movie. Who wants to go into the cinema watching a movie where from beginning to the end, you need to guess what the movie is talking about? Or till the end of the movie you also not sure what the movie is talking about. How can a movie does not express an objective and do not express a contents that viewer willing to see.
Going for the exam is just like making a movie, you can take 1 year to film it but usually you have only 3 hrs to present it. You might take a year to complete a subject but at each time you only have 3 hrs to proof you worth.
You now need to build up the quality of your contents. How to make it? Practice Practice Practice
Best wishes
Layman
Saturday, March 14, 2009
Exam focus- June 2009 ACCA F8 (2)
I am tired with work and life, time to divert to write a posting for you. I really hope you did your own revision before following this guide. Bear in mind that this is not a full lecture as I can’t conduct a lecture through blog but at least I can give you a simple guide and show you the hidden part of the examination to help you pass your examination.
Last posting we talk about “Control Elements”. This as far as I am concern is a very important area for examination as understanding the control elements can help you answer many “types” of examination question involving internal control system.
How?
A favorite exam question; what is the “control objective” of “internal control” system. I am not surprise that lot of students still confuse with this area. So let look this part of the exam favorite.
An objective mean what you wanted to achieve; control objective mean what type of control you wanted to achieve. Well in common in order to implement control into a system we aimed to achieve the following:
Objective of having internal control system.
The financial records are accurate and complete
Fraud does not occur
The company is efficiently managed
Business in conducted in orderly and efficient
Timely preparation of information for decision making purposes.
However if a student were to take the above as their answer, something is still lacking which I regards as the lacking of audit reasons. How to fill the gap and have an answer with substance? Well bring in the control elements as the element is indirectly your objective or purpose in implementing control.
For example a bank and cash system:- What is the objectives or purpose of having such control?
I will always standardized the answer by using the word reasonable assurance or ensure as a start.
For example: to obtain reasonable assurance or to ensure………………………………………………..
The Answer: - sample
The control objectives or purposes are
1. To obtain reasonable assurance that there are proper physical security measure in cash
handling system so that asset of the company is not lost due to lack of safeguarding
2. To obtain reasonable assurance that proper authorization procedure on cash or bank payment to avoid fraud
3. To obtain reasonable assurance that operation of bank and cash are efficient through proper supervisory
4. To obtain reasonable assurance that there is no arithmetical mistake to avoid inaccuracy in financial records
From the above I am using very simple illustrations to give answers to your examiner and the answer is surrounding two parts: the control elements and the general objectives to internal control. Understanding of control elements could actually help more in the internal control system questions.
You might want to practice further or probably refer back to the past year question for some practice you will find that the above topic is common in exam and the answer might not be so complicated.
In the next post we shall discuss further on internal control system and your foundation on control elements is important as that will be our base for further discussion for your 2009 examination.
Layman will be back to work and my dear buddy stay tune with layman
Last posting we talk about “Control Elements”. This as far as I am concern is a very important area for examination as understanding the control elements can help you answer many “types” of examination question involving internal control system.
How?
A favorite exam question; what is the “control objective” of “internal control” system. I am not surprise that lot of students still confuse with this area. So let look this part of the exam favorite.
An objective mean what you wanted to achieve; control objective mean what type of control you wanted to achieve. Well in common in order to implement control into a system we aimed to achieve the following:
Objective of having internal control system.
The financial records are accurate and complete
Fraud does not occur
The company is efficiently managed
Business in conducted in orderly and efficient
Timely preparation of information for decision making purposes.
However if a student were to take the above as their answer, something is still lacking which I regards as the lacking of audit reasons. How to fill the gap and have an answer with substance? Well bring in the control elements as the element is indirectly your objective or purpose in implementing control.
For example a bank and cash system:- What is the objectives or purpose of having such control?
I will always standardized the answer by using the word reasonable assurance or ensure as a start.
For example: to obtain reasonable assurance or to ensure………………………………………………..
The Answer: - sample
The control objectives or purposes are
1. To obtain reasonable assurance that there are proper physical security measure in cash
handling system so that asset of the company is not lost due to lack of safeguarding
2. To obtain reasonable assurance that proper authorization procedure on cash or bank payment to avoid fraud
3. To obtain reasonable assurance that operation of bank and cash are efficient through proper supervisory
4. To obtain reasonable assurance that there is no arithmetical mistake to avoid inaccuracy in financial records
From the above I am using very simple illustrations to give answers to your examiner and the answer is surrounding two parts: the control elements and the general objectives to internal control. Understanding of control elements could actually help more in the internal control system questions.
You might want to practice further or probably refer back to the past year question for some practice you will find that the above topic is common in exam and the answer might not be so complicated.
In the next post we shall discuss further on internal control system and your foundation on control elements is important as that will be our base for further discussion for your 2009 examination.
Layman will be back to work and my dear buddy stay tune with layman
Thursday, March 12, 2009
Exam Focus – June 2009 – ACC F8 (1)
Ok let start out the first posting of our exam focuses series.
Under your examination syllabus, the following areas are considered as part of the internal control system, namely:
1. Revenue and receivables,
2. Purchases and payable,
3. Inventory,
4. Revenue and capital expenditure,
5. Payroll,
6. Bank and cash.
Under audit, you are not required to set up an internal control system. However you are required to check on the internal control system whether it is reliable or it is not reliable. On examining whether the internal control system is reliable or not it depend on the following three key factors namely:
1. Control environment
2. Control Procedure and
3. Control elements
Control Environment
Means the overall attitude, awareness and actions of directors and management regarding the internal control system and its importance to the entity. It encompasses management style, corporate culture, values, philosophy and operating style, the organizational structure, personnel policies and procedures.
Personnel policies and procedure, for example, would include those covering recruitment, retention and dismissal. The organizational structure should have clear lines of reporting responsibility, and the maintenance of an internal control function and audit committee demonstrates a commitment to high-level of control.
The control environment provides a background to detailed control procedures. It does not of itself, of course, ensure the effectiveness of the internal control system as a whole.
Control Procedures
Control procedures are those established to achieve the entity’s specific objectives. In an accounting context these objectives include the proper authorization, timely and accurate recording of transactions in the correct period, the safeguarding of assets and ensuring the existence of assets recorded. They include particular procedures to prevent, detect and correct errors. They differ from entity to entity and are affected by the size of the entity
(You are required to read further on the above topics)
Now the most critical part to understand is the control elements. Control elements mean the “control action” that should exist within the internal control system. Without such control elements in the system, the control will not be effective.
In short these control elements are PAPAMOSS_PR
1. Physical security
2. Arithmetic
3. Personnel
4. Authorisation
5. Management
6. Organization
7. Supervisory
8. Segregation of duties
9. Pre-numbered documents
10. Recording
(You are required to read further above control environment and control procedure)
The most common use elements are physical security, arithmetic, authorization, supervisory, segregation of duties, pre-numbered documents and recording.
For example:
Cash control system: if there is no physical security control on cash, the cash will easily be stolen
urchase control system: if there is no proper authorization procedure item purchase might be improper
Arithmetic: if the figure calculated is wrong how to we ensure earnest of the recording?
Therefore students must understand each and every control elements before going further on the topics of internal control system. Get yourself familiar and revise with it.
Stay tune with LAYMAN
Under your examination syllabus, the following areas are considered as part of the internal control system, namely:
1. Revenue and receivables,
2. Purchases and payable,
3. Inventory,
4. Revenue and capital expenditure,
5. Payroll,
6. Bank and cash.
Under audit, you are not required to set up an internal control system. However you are required to check on the internal control system whether it is reliable or it is not reliable. On examining whether the internal control system is reliable or not it depend on the following three key factors namely:
1. Control environment
2. Control Procedure and
3. Control elements
Control Environment
Means the overall attitude, awareness and actions of directors and management regarding the internal control system and its importance to the entity. It encompasses management style, corporate culture, values, philosophy and operating style, the organizational structure, personnel policies and procedures.
Personnel policies and procedure, for example, would include those covering recruitment, retention and dismissal. The organizational structure should have clear lines of reporting responsibility, and the maintenance of an internal control function and audit committee demonstrates a commitment to high-level of control.
The control environment provides a background to detailed control procedures. It does not of itself, of course, ensure the effectiveness of the internal control system as a whole.
Control Procedures
Control procedures are those established to achieve the entity’s specific objectives. In an accounting context these objectives include the proper authorization, timely and accurate recording of transactions in the correct period, the safeguarding of assets and ensuring the existence of assets recorded. They include particular procedures to prevent, detect and correct errors. They differ from entity to entity and are affected by the size of the entity
(You are required to read further on the above topics)
Now the most critical part to understand is the control elements. Control elements mean the “control action” that should exist within the internal control system. Without such control elements in the system, the control will not be effective.
In short these control elements are PAPAMOSS_PR
1. Physical security
2. Arithmetic
3. Personnel
4. Authorisation
5. Management
6. Organization
7. Supervisory
8. Segregation of duties
9. Pre-numbered documents
10. Recording
(You are required to read further above control environment and control procedure)
The most common use elements are physical security, arithmetic, authorization, supervisory, segregation of duties, pre-numbered documents and recording.
For example:
Cash control system: if there is no physical security control on cash, the cash will easily be stolen
urchase control system: if there is no proper authorization procedure item purchase might be improper
Arithmetic: if the figure calculated is wrong how to we ensure earnest of the recording?
Therefore students must understand each and every control elements before going further on the topics of internal control system. Get yourself familiar and revise with it.
Stay tune with LAYMAN
Tuesday, March 10, 2009
Exam focus-June 2009 – ACCA F8
On your request, I will start this exam focus series for all of you with the focus to tackle on the key spotted areas for June 2009 sittings. This series will be helpful for those repeaters and for the first timer you might find it useful after you have completed the syllabus.
Any one of you is welcome to send questions to me via my laymankt@gmail.com
As for me there are three key areas in your examination, namely:
1. Test of control/Compliance test for internal control system
2. Substantive testing for financial transaction and
3. The internal audit and control
For your examination purpose please makes sure you know the above area CORRECTLY.
Why do I stress the word correctly? Well I always felt that students understand wrongly on the above area which cost them the 50 marks they suppose to have. Therefore the first area I will focus on.
Examiners regardless of which sitting, new or old syllabus test of on the above. Many of you out there claim that the question style is different, hard to remember all the different scenario, exam scenario often changes. Well let address all these all at one go under this series.
You should now clear your mind and re-learn about these topics. My commitment to you to solve the queries and at the same time be open to accept the explanation on the next posts.
For those of you who are reading this now go revise the above topics and we shall see all action in the next post.
Stay with layman…………………………..
Any one of you is welcome to send questions to me via my laymankt@gmail.com
As for me there are three key areas in your examination, namely:
1. Test of control/Compliance test for internal control system
2. Substantive testing for financial transaction and
3. The internal audit and control
For your examination purpose please makes sure you know the above area CORRECTLY.
Why do I stress the word correctly? Well I always felt that students understand wrongly on the above area which cost them the 50 marks they suppose to have. Therefore the first area I will focus on.
Examiners regardless of which sitting, new or old syllabus test of on the above. Many of you out there claim that the question style is different, hard to remember all the different scenario, exam scenario often changes. Well let address all these all at one go under this series.
You should now clear your mind and re-learn about these topics. My commitment to you to solve the queries and at the same time be open to accept the explanation on the next posts.
For those of you who are reading this now go revise the above topics and we shall see all action in the next post.
Stay with layman…………………………..
Sunday, March 8, 2009
Choosing 2
Generation back, may be my great grandfather time or my grandfather time; they might not have this problem. Why I remember my grandmother told me this that my great grandfather was a barber then he opens up a sundry shop till he passed away.
His life was simple and brought up three Children. Grand father has a more exciting life but also I don’t think he also face much problem of choosing. So we at this generation especially those who born after the 70s what is the issues then? I would say the social issues?
Those who born after 70s are considered as the lucky group as they do not face any big crisis war and etc. They were born in the new age and the world has since develop from the 70s. no food crisis, they have food, more and more entertainment coming and more choices so that is the reason they have the choice and need to choose.
However my dear friend out there, don’t be too short sighted. Let me share this with you. Almost 10 years back I have to make a choice. A choice which I believe is so important and determines who I am now. A 3.5K monthly income which I need to work only a few days in a week or I should say not more than 15 hours a week. The other one is to give up the 3.5k job which you work only 15 hrs a week and work for a monthly income of 1.8k for almost 25 days a month 18 hrs a day.
Well I then choose to be an auditor rather than a lecturer. Why long term career plan rather than short term benefits. Further in my working life, I do lecture part time and earn extra income. However if I insist of my 3.5k income then, I might still be a lecturer now and forgo all the exciting moments and I won’t be going to Bangkok and now in Beijing looking at the beautiful scenery on Chao Yang Park.
Just chat with a student and he also facing a dilemma whether to gave up his part time job (he got 4 part time jobs) or slow down on his ACCA study. He needs to choose. Well my advice is simple, what do you like? He is worried about economic crisis and thinks a lot on things that yet to happen (which I believe all of us have gone through).
Let not be so short sighted, for you the priority is to get your ACCA done then you can bargain out there. Unless you are financially not stable, then you have no choice. However he has a choice and he can choose either way. His situation makes me think of another student of mine, whom thinks that finding money is more important than getting ACCA. I advised him the same as did today many years back. However the short term profit he looks on back then makes him suffer now. Yes for sure he has yet to complete his ACCA and yet the big money is still not his!
You can refer to my other article under “my thought and memory lane” to find other inspiration that I might give you. Short term windfall will not make you rich and successful. I have seen enough of this example for the past 10 years. Earning 3.5k at the age of 20 doesn’t mean you can earn 35k when you reach 30s (may be 35K Thai baht). Despite getting such high pay at that age will bring your ego to a greater height and increase your greediness on spending especially on luxury item. You might not be able to hold back when ego and greediness take over you. I have really seen this , live example.So choose for your future and life simple. Stay tune with layman.
His life was simple and brought up three Children. Grand father has a more exciting life but also I don’t think he also face much problem of choosing. So we at this generation especially those who born after the 70s what is the issues then? I would say the social issues?
Those who born after 70s are considered as the lucky group as they do not face any big crisis war and etc. They were born in the new age and the world has since develop from the 70s. no food crisis, they have food, more and more entertainment coming and more choices so that is the reason they have the choice and need to choose.
However my dear friend out there, don’t be too short sighted. Let me share this with you. Almost 10 years back I have to make a choice. A choice which I believe is so important and determines who I am now. A 3.5K monthly income which I need to work only a few days in a week or I should say not more than 15 hours a week. The other one is to give up the 3.5k job which you work only 15 hrs a week and work for a monthly income of 1.8k for almost 25 days a month 18 hrs a day.
Well I then choose to be an auditor rather than a lecturer. Why long term career plan rather than short term benefits. Further in my working life, I do lecture part time and earn extra income. However if I insist of my 3.5k income then, I might still be a lecturer now and forgo all the exciting moments and I won’t be going to Bangkok and now in Beijing looking at the beautiful scenery on Chao Yang Park.
Just chat with a student and he also facing a dilemma whether to gave up his part time job (he got 4 part time jobs) or slow down on his ACCA study. He needs to choose. Well my advice is simple, what do you like? He is worried about economic crisis and thinks a lot on things that yet to happen (which I believe all of us have gone through).
Let not be so short sighted, for you the priority is to get your ACCA done then you can bargain out there. Unless you are financially not stable, then you have no choice. However he has a choice and he can choose either way. His situation makes me think of another student of mine, whom thinks that finding money is more important than getting ACCA. I advised him the same as did today many years back. However the short term profit he looks on back then makes him suffer now. Yes for sure he has yet to complete his ACCA and yet the big money is still not his!
You can refer to my other article under “my thought and memory lane” to find other inspiration that I might give you. Short term windfall will not make you rich and successful. I have seen enough of this example for the past 10 years. Earning 3.5k at the age of 20 doesn’t mean you can earn 35k when you reach 30s (may be 35K Thai baht). Despite getting such high pay at that age will bring your ego to a greater height and increase your greediness on spending especially on luxury item. You might not be able to hold back when ego and greediness take over you. I have really seen this , live example.So choose for your future and life simple. Stay tune with layman.
Capital Employed
This time I shall put up a new column on “Corporate Finance” and let discuss about capital employed as this is a key topic under such economic situation.
So what is capital employed? In simple it is the capital you used to fund the operation of the Company.. well it made up of two simple elements which is the capital that you invest and the financing you obtain to run the business. To be academic for your understanding, it is your capital financing and your debt financing or in another way to explain is the Shareholder equity plus your long term liability.
The word finance can easily mean the cash you need to fund the business. So from your financial data how are you going to examine it? My advice is you do it step by step. First of all prepare your budgeted profit and loss account and check out three important item in you profit and loss account. First you sales; secondly your profit and thirdly any extraordinary item.
With that in mind prepare a pro-forma balance sheet based on your budgeted profit and loss account. In your pro-forma balance sheet include your capital expenditure for the coming year. Look for a company to continue operation, it is impossible to take out CAPEX but to reduce or manage CAPEX. Then you will find a gap in the pro-forma balance sheet as the balance sheet will not balance as something will be missing.
Split your pro-forma balance sheet into 5 parts which is
1. Non Current Asset
2. Current Asset - taking away deposit, prepayment and other non monetary item.
3. Current Liability- taking away non monetary item.
Add the three items above and less the following:
Long term liabilities and the shareholder equity
If the balance is positive mean you need to more funds injected and if the balance is negative then it is fine as the capital employed is sufficient.
Well the next thing you need to have a close examination is your short term liquidity by looking at you working capital cycle by calculating your stock turnover days add debtor turnover days and less your creditor days. You could also evaluate it by value. This help to view the healthiness of your working capital and bear in mind this evaluation does not include your CAPEX evaluation.
Try it will give you a good indication on your cash requirement.
So what is capital employed? In simple it is the capital you used to fund the operation of the Company.. well it made up of two simple elements which is the capital that you invest and the financing you obtain to run the business. To be academic for your understanding, it is your capital financing and your debt financing or in another way to explain is the Shareholder equity plus your long term liability.
The word finance can easily mean the cash you need to fund the business. So from your financial data how are you going to examine it? My advice is you do it step by step. First of all prepare your budgeted profit and loss account and check out three important item in you profit and loss account. First you sales; secondly your profit and thirdly any extraordinary item.
With that in mind prepare a pro-forma balance sheet based on your budgeted profit and loss account. In your pro-forma balance sheet include your capital expenditure for the coming year. Look for a company to continue operation, it is impossible to take out CAPEX but to reduce or manage CAPEX. Then you will find a gap in the pro-forma balance sheet as the balance sheet will not balance as something will be missing.
Split your pro-forma balance sheet into 5 parts which is
1. Non Current Asset
2. Current Asset - taking away deposit, prepayment and other non monetary item.
3. Current Liability- taking away non monetary item.
Add the three items above and less the following:
Long term liabilities and the shareholder equity
If the balance is positive mean you need to more funds injected and if the balance is negative then it is fine as the capital employed is sufficient.
Well the next thing you need to have a close examination is your short term liquidity by looking at you working capital cycle by calculating your stock turnover days add debtor turnover days and less your creditor days. You could also evaluate it by value. This help to view the healthiness of your working capital and bear in mind this evaluation does not include your CAPEX evaluation.
Try it will give you a good indication on your cash requirement.
Sunday, March 1, 2009
Chairman retired. Can CEO replace the position on a temporary basis?
Well now a day student can really think especially when it comes to imaginative question like the above.
If you know my style, the answer is always Yes or No !
When a Chairman retired or before the chairman retired the Company must have a succession plan. The Nomination Committee should plan for this as this is one of the functions of Nomination committee as the governing committee for nomination of Directors and Chairman.
Before a CEO is nominated to replace the Chairman on temporary or permanent basis, the nomination committee of the Board should evaluate whether there are other more suitable candidate.
For example, there is a senior independent Director in the Company, he/she should be the first choice to hold the position of Chairman on a temporary basis prior to the appointment of new Chairman. Don’t forget that the Senior independent director is also a very important position for a Company. He/She is seen to be the communication channel between the Board and the Shareholder and he is the main representative for all the minority shareholder in the Company.
Therefore in my view, the Senior Independent director should be the first choice for the succession on temporary or permanent basis. If the Company does not have the Senior independent director, well the next should be the independent director. We should encourage an independent director to be the chairman instead of the CEO.
Well in simple unless you don’t have any choice as the above (which I think is impossible ) then you appoint the CEO, why it is because of the spirit of CG.
If you know my style, the answer is always Yes or No !
When a Chairman retired or before the chairman retired the Company must have a succession plan. The Nomination Committee should plan for this as this is one of the functions of Nomination committee as the governing committee for nomination of Directors and Chairman.
Before a CEO is nominated to replace the Chairman on temporary or permanent basis, the nomination committee of the Board should evaluate whether there are other more suitable candidate.
For example, there is a senior independent Director in the Company, he/she should be the first choice to hold the position of Chairman on a temporary basis prior to the appointment of new Chairman. Don’t forget that the Senior independent director is also a very important position for a Company. He/She is seen to be the communication channel between the Board and the Shareholder and he is the main representative for all the minority shareholder in the Company.
Therefore in my view, the Senior Independent director should be the first choice for the succession on temporary or permanent basis. If the Company does not have the Senior independent director, well the next should be the independent director. We should encourage an independent director to be the chairman instead of the CEO.
Well in simple unless you don’t have any choice as the above (which I think is impossible ) then you appoint the CEO, why it is because of the spirit of CG.
let kick start with corporate governance
so after result announce it is time for all of you to buck up again let start with the followi:
What is Corporate Governance?
Corporate governance is the system by which companies are directed and controlled. Boards of directors are responsible for the governance of their companies. The shareholders’ role in governance is to appoint the directors and the auditors and to satisfy themselves that appropriate governance structure in place.
The responsibilities of the board include setting the company’s strategic aims, providing the leadership to put them into effect, supervising the management of the business and reporting to shareholders on their stewardship. The board’s actions are subject to laws, regulation and the shareholders in general meeting.
The directors have the free drive to bring their companies forward, but exercise that freedom within a framework of effective accountability. This is the essence of any system of good corporate governance.
In a more complicated explanation why we need corporate governance?
There are three type of business vehicles that is commonly available namely
1. Sole proprietor
2. Partnership
3. Incorporation (Limited Company)
All three types of business vehicles have their own characteristics
Sole proprietor
Sole proprietor is the earliest type of business vehicles set up to conduct business. The key characteristic of a sole proprietor is that the owner of the vehicle is also the worker of the company. The business is conduct on a small capital base and in a smaller scale.
Partnership
Partnership is known as the expansion of the sole trader. Where sole trader is operating in a one owner one runner scale, the partnership is running on more than one owner and more than one operator. The capital requirement for the business is higher and do require more than one operator.
Incorporation
This is what we commonly known as a “Company”. In the operation of a Company, there are two separate parties that exist, namely: Shareholder and the Director. Unlike the other business vehicle mentioned, the ownership and the operator of the Company will be separated.
The Owner of the Company is the shareholder whereas the operator of the Company is the director. The running of the Company will then be regulated by the Companies Act. In simple, the shareholder will invest in the Company and at the same time they also appoint the operator of the Company, the Director to run.
Therefore the Director will be accountable to the Shareholder on the operation of the Company. This also led to the Company being run by Director or manager who is distinct from the owners.
Governance issues do not appear to be serious under the sole proprietor and partnership model. It is when the incorporation model begins to become a force of business entity and due to the collapse and fraud case of several big corporations during the 20th century that lead to the governance issues. At that time, various interest group is concern over the governance issue hence give birth to the concept of corporate governance.
What is Corporate Governance?
Corporate governance is the system by which companies are directed and controlled. Boards of directors are responsible for the governance of their companies. The shareholders’ role in governance is to appoint the directors and the auditors and to satisfy themselves that appropriate governance structure in place.
The responsibilities of the board include setting the company’s strategic aims, providing the leadership to put them into effect, supervising the management of the business and reporting to shareholders on their stewardship. The board’s actions are subject to laws, regulation and the shareholders in general meeting.
The directors have the free drive to bring their companies forward, but exercise that freedom within a framework of effective accountability. This is the essence of any system of good corporate governance.
In a more complicated explanation why we need corporate governance?
There are three type of business vehicles that is commonly available namely
1. Sole proprietor
2. Partnership
3. Incorporation (Limited Company)
All three types of business vehicles have their own characteristics
Sole proprietor
Sole proprietor is the earliest type of business vehicles set up to conduct business. The key characteristic of a sole proprietor is that the owner of the vehicle is also the worker of the company. The business is conduct on a small capital base and in a smaller scale.
Partnership
Partnership is known as the expansion of the sole trader. Where sole trader is operating in a one owner one runner scale, the partnership is running on more than one owner and more than one operator. The capital requirement for the business is higher and do require more than one operator.
Incorporation
This is what we commonly known as a “Company”. In the operation of a Company, there are two separate parties that exist, namely: Shareholder and the Director. Unlike the other business vehicle mentioned, the ownership and the operator of the Company will be separated.
The Owner of the Company is the shareholder whereas the operator of the Company is the director. The running of the Company will then be regulated by the Companies Act. In simple, the shareholder will invest in the Company and at the same time they also appoint the operator of the Company, the Director to run.
Therefore the Director will be accountable to the Shareholder on the operation of the Company. This also led to the Company being run by Director or manager who is distinct from the owners.
Governance issues do not appear to be serious under the sole proprietor and partnership model. It is when the incorporation model begins to become a force of business entity and due to the collapse and fraud case of several big corporations during the 20th century that lead to the governance issues. At that time, various interest group is concern over the governance issue hence give birth to the concept of corporate governance.
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