The Role Of Transparency In Corporate Governance: A Discussion

Corporate Risk Disclosure and the Turnbull Report

Questions:

1. Discuss the importance to shareholders of the conceptual framework for corporate risk disclosure that is made explicit in the Turnbull report.

2. Explain the extents to which UK listed companies are complying with the recommendations of the Turnbull report in spirit.

3. To what extent do you think that the Smith report has produced recommendations that will improve the objectivity and independence of the external auditors?

4. Choose a company listed in London Stock Exchange (preferably one in top 350). Download the latest annual report for this company from the internet. Examine the information provided in the report on internal control, risk management and compliance with Turnbull. Evaluate the extent to which you consider the recommendation of Turnbull is being complied with the substance as well as form.   

5. Do you think there are real reasons why institutional investors should be concerned about the independence and genuine effectiveness of the audit function?

6. Debate the abolition of the mandatory OFR. What impact on the introduction of more forward-looking narrative disclosure do you think its replacement with the business review will have?

7. Do you think that current governance disclosure in UK Company annual reports are lacking?

The report will discuss in detail about the role of transparency in corporate governance. The report will discuss many matters and issues related to it like conceptual framework for corporate risk disclosure. Turnbull report and its recommendations were also discussed. Internal management and risk management is also discussed in many companies in detail. Audit function and its importance will also be discussed in detail and abolition of mandatory OFR will also be elaborated. 

1. There is a certain extent of risks that can either be inherited in a contemporary fashion and which is also required for the present business environment for a lot of scholars, standard setters, many accounting organisation, varied investors and many other stakeholders from many across the country (Zaman et al, 2011). Some of the features are responsible for the people who advocate the concept and also include many scandals which perpetrated by many corporate managers, many irregularities from the side of accounting and global crisis that have brought serious worries in the business world. These types of incidences can cause the lot of collapses in many companies across the world and also at the same times it is also claimed that many lives and properties of many stakeholders specifically shareholders and many creditors (Kirkham et al, 2013). These types of obstacles have also tempered with the investor’s confidences in the world. However, there are many practices currently where companies external reporting of matters are considered as insufficient because there is a lack of adequate disclosure on corporate risk and uncertainties. This is why it is needed for the companies in the world to regulate and also address the disclosure which is demanded (Kirkham et al, 2013).

2. There always was a huge range of diversity as far as arrangements are concerned and some companies have specifically dedicated internal audit functions on this however, there are many companies the main function is always combined with risk management, proper process review and many other similar activities (Zaman et al, 2011). There are few auditors who have always acknowledged a traditional compliance which also help in checking the role (Carretta et al, 2010). However, there was a widespread view that ensures timely monitoring of much other compliance which was the main function that must be made responsible of the proper line management (Kirkham et al, 2013). Outsourcing is one of the internal audit functions which can be rarely found in the companies and which can also be examined from time to time through many co-sourcing arrangements and where external providers are there to supply expert advice in many area like IT which has become a common practice (Lapsley & Lonsdale, 2010).

Companies in UK also follow outsourcing practice specifically for internal audit which means that many significant educational and development advantages of many internal audits and also the view which generally can be expressed that help in providing the outsourced services neither understand the business practices which they are auditing and nor were they are completely committed to it (Friedman et al, 2011). 

The internal audit was a great way to understand the outcome of the company and it also help in identifying risk management and complete assessment processes in many other companies. At the same time there are many other factors as well which UK companies consider like rotation of coverage and also due priorities are given to the board or the audit committee which affect the complete design of the programme (Friedman et al, 2011).

Internal Management and Risk Management

3. The Smith report says that audit committee must consist of at least three independent which are non-executive directors or even two for companies which are outside the FTSE 350 (Friedman et al, 2011). These chairman of a comparatively smaller company may be or can be a an additional member of the committee which help in providing what was regarded as more independent when that chairmen is appointed but at the same time, that person must not chair the committee.  The code of Smith committee also says that the board which is in a position to satisfy itself and at least one member of the whole committee has the most recent and relevant financial experience (Friedman et al, 2011). The complete code is not very specific and it also constitute of many relevant experiences at the same time Smith also mentioned that it also means a professional qualification from one of the bodies present in accounting (Friedman et al, 2011). Also failure to satisfy the requirement is one of the most common disclosures in the whole company.  Also very often, there are many experts who will retire from finance director and are from another company or they may be a former partner of an accountancy organisation (Freeman et al, 2010).

4. The company which is taken here to discuss their internal control, risk management and compliance with Turnbull is Imprint Group PLC. The board of the company has confirmed in an on-going process in order to identify, evaluate and also manage many significant business risks which are faced by the company (Freeman et al, 2010). This also includes those risks which are related to the social, environmental and ethical matter (Huang & Attoh-Okine, 2010). This whole process was at place throughout the whole year especially under the review and also up to date approval of this specific reports and accords with the revised guidance for directors on the matter of internal control. It is also formally termed as Turnbull Guidance (Freeman et al, 2010).

Some of silent features of risk management are that the internal risk committee for every business is responsible for overall monitoring of the nature and also the extent of the risks which is present across the business world and it also conducts a half-yearly risk assessment which is especially based on some recognised business goals and objectives (Freeman et al, 2010). Also the risk identified across the world are timely consolidated, refined and also calibrated for each specific area for the business with the help from the head of internal audit (Yahya, & Mahzan, 2012).

For internal control also the group has established a framework for the internal controls which help in covering both financial and non-financial controls. The board specifically should be hold responsible for the overall strategic direction and also the fair management of the company (Freeman et al, 2010). There is an approval committee, which certainly compromise specifically the group of chief executive and chief financial officer especially for the commercial functions which any relevant member of the executive management has the complete authority of the board in order to approve the day to day matters with the limits decided by the financials (Freeman et al, 2010).

The Importance of the Audit Function

5. An effective auditing function is very crucial for promoting number of factors like strengthening governance by materially enhancing the ability of the citizens to hold their entity accountable (Deakin, 2010). There are auditors who perform a very important and crucial function in many aspects of governance that are not just crucial for promoting the credibility but it also includes factors like equity and right attitude of public sector officials (Deakin, 2010). This is why it is important to audit the activities which can be configured in the right manner and also have a board which has mandate in order to achieve the company objectives (Deakin, 2010).

6. CBI’s annual conference recently it was announced that the abolition of the mandatory requirement for the many quoted organisation have to prepare an operating and financial review (Jaafar et al, 2010). This rule or obligation was enacted much time in the year 2004 and it was also claimed that the U turn by many government is a prove that the abolition on OFR is a move towards lighter touch regulation for many business and there is part of the wider clamp down specifically on Whitehall gold plating of EU regulations (Jaafar et al, 2010). It was also reported in the press and the whole reaction towards this move was in form of support for the committee decision and also many leading companies already worked on producing some similar information on voluntary basis.

7. Corporate governance or CG has always been a dominant factor on the issue in many developed market economies for more than a decade now (Slade et al, 2011). CG can also be defined as a combination of many methods, process and structures which can be conducted by the board of directors in order to authorise, direct and also oversee management towards the achievement of the objectives of the organisation (Kengne et al, 2010). There is a party in the organisation that would be the first oversight group which specifically includes board and committees of the board in the organisation (Mendez & Bachtler, 2011). Current governance disclosure is lacking in many UK based companies annual reports. In a school of thought which describes CG as an on-going process of overall management, controlling and assessing the business affairs in order to create shareholders values and also protect the interest of many stakeholders (Farrell et al,. 2012).

Conclusion

The report has covered a lot of issues existing in the corporate governance and its transparency in many governance matters. The report has discussed in detail about importance of shareholders for corporate risk disclosure. The report also discussed about Turnbull Report and Smith report. Company’s internal matter and risk management issues were also discussed in detail.

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