Discuss about the Corporate Governance and Ethical Structure.
Corporate governance and ethical structure is essentially a policy of the corporation itself that can increase the overall accountability of the business corporation and help in averting massive disasters before occurrence. The present case study mentions about the operations of the corporation Cocoa Ltd., a large departmental store that utilizes straight line mechanism of depreciation since the period of its inception. The case study also mentions that the corporation has registered high profit and it is anticipated that the profit would carry on to for the next two years that is 2016 and 2017. The economists also anticipated occurrence of an overall economic decline during the period 2018 and 2019 that in turn might lead to decline in the profit of the business concern Cocoa Ltd. Again, the manager of the corporation Cocoa Ltd. has suggested for the establishment of a strategy for maintenance of consistent profit in the upcoming period and instillation of confidence among the shareholders regarding the organization. The present paper intends to critically analyse and expound in detail the ethical practices, governance as well as stakeholders together with alterations in the mechanisms of depreciation.
The current segment intends to investigate the above case study with respect to the alterations in the methods of depreciation together with greater emphasis on the research ethics and governance of the business concern. The analysis of the case also reveals the fact that the corporation Cocoa Ltd, also tries to meet the interests by maintaining a consistent profit figure and developing a good reputation in the entire market. Again, the company, Cocoa Ltd., which maintains a steady profit also has anticipations regarding maintenance of high level of profit in the upcoming period. On the contrary, the economists projected a slowdown in the overall economy during the year 2018 as well as 2019. Accordingly, the economic slowdown can direct towards decline in the profit of the business concern that can dampen the market reputation and can dampen the interests of the stakeholders to make further investments in the business corporation.
Analysis of present case study explains the fact that the general manager of the corporation Max Cocoa inquired the accountant, Andrea Andy regarding the reduction of the profit of the subsequent two years so that there can be constant distribution of profit during the period of economic slowdown. As per the case study, it can be hereby ascertained that the general manager of the business corporation intends to initiate this particular process in order to enhance the value of the wealth of the stakeholders of the corporation (Elliott and Elliott 2013).
The accountant consequently, decided to alter the calculations for enumeration of depreciation using the straight line method to particularly the sum-of-years digits mechanism. By altering the method of depreciation, the management of the business concern can decrease the profit of the corporation. This in turn can lead to decline in the profit of the firm essential for the distribution of the profit in the following period. As per the case study, it can also be observed that Andrea did not divulge the alterations made in the financial declarations of the business concern as she apprehended that the new method for calculation of depreciation of the business concern might not gratify the stakeholders of the corporation and might perhaps not present a decent impression. The analysis of the present case also helps in understanding the fact that corporate governance as well as ethics plays a significant role in the overall operations of the industry (Henderson et al. 2013). However, the philosophy of ethics as well as corporate governance of a particular industry determine the way they carry on functions and helps in ascertainment of the value of the stakeholders of the firm. Detailed evaluation of the current case study also helps in establishing the fact that both ethics as well as governance can be considered important components of the overall skill and competence base of the professional accountants in the contemporary world. Essentially, the accountants are the significant decision makers as they need to be proficient in regulatory regimes, governance mechanisms as well as compliance (Deegan 2012). Further, the accountants need to have proper understanding regarding ethics as well as framework of corporate governance as well as techniques that in turn can mix up with variety of accountabilities as well as roles reflected in the accounting mechanisms (Palepu and Healy 2010). From the viewpoint of Andrea, the concepts of ethics as well as structure of corporate governance offers the decision making as well as analytical ability together with knowledge to resolve and recognize with the ethical as well as professional concerns. Again, Andrea performs the identical thing by taking note of the Max even when she felt that the accountant was not acceptable. Again, the ethical business practices also take into consideration fulfilment of the interests of the stakeholders that remain at the centre of the business (Hoggett et al. 2012).
Evaluation of the operations of the business concern also helps in understanding the fact that it is extremely important for the accountant Andrea to realize diverse matters of governance as well as ethics. This is because this knowledge regarding the business concern can help in functioning efficiently in a dynamic as well as universal framework of business. Horngren et al. (2012) opine that the structured procedure can help in the process of development through enhancement of professional ethics, ethical code of conduct, attitudes and behaviours as well as values among all the members of the staff especially, the managers as well as accountants operating globally in this particular case. It is also important for the accountant Andrea to implement and properly execute vital duties of a particular accountant by considering the viewpoints of specific members of the CPA in Australia. The AASB 116 plant property and equipment mentions the accounting standard for depreciation method, amount as well as period (Pratt 2013). The accountant needs to be well versed with the applicable standards for maintenance of compliance with the appropriate accounting standards. However, the standard AASB 116 under the paragraph 73 bears mention regarding the disclosure. This standard reflects the fact that the financial declarations of corporations need to disclose for different classes of “plant, property as well as equipment” (Johnwiley.com.au 2017). Paragraph 73 of the AASB 116 also presents the need for divulging the guiding principles and directives for the measurement bases that can be utilized for determination of the overall gross amount of carrying, utilized mechanism of depreciation, useful lives as well as rates of depreciation (Tricker 2015). In addition to this, the gross carrying amount as well as the accumulated depreciation, reconciliation of different carrying amount both at the beginning as well as at the end of the period. Thus, it can be hereby ascertained that the current practicing of not mentioning the altered method of depreciation in the financial statements of the firm does not adhere to the regulations of the accounting standard. The proper disclosures in financial statements of the firm as per the guidelines of the AASB 116 Plant, Property as well as Equipment can help in maintenance of transparency (Ferrell et al.2015). The maintenance of proper transparency again sticks to the principles lain down under the APES 110 Code of Ethics for Professional Accountants (Aasb.gov.au 2017).
As rightly mentioned by Phillips et al. (2012), the concepts of governance refers to the process of examination of the overall framework of the governance. This process comprises of taking into account the relationship between all the stakeholders, managers along with different members of the staff of the business corporation. Therefore, the management of the corporation Cocoa Ltd also need to recognize the stakeholders of the fir, the interests of the stakeholders along with different members of the staff of the corporation. In addition to this, it is also important to disclose different methods adopted and anticipated useful lives or else rates of depreciation to the users of financial information. The theory also explains vital directives as well as codes of governance that Cocoa Ltd have observed in nations such as Australia (Weil et al. 2013). This can be regarded as the crucial role that affects the entire process of differentiation in the entire cultural methods as regards the corporate governance. The procedure also intends to end with conversations as regards failure of the governance. The concerns are essentially baseless reasons of Max that might arise in the future period and thus recommendations for enhancement of business practices can be taken into consideration.
Wild et al. (2013) mentions that governance as well as ethical codes involved in the business is imperative for understanding the leadership, strategic as well as international concerns that in turn affects the accountants. This can be observed in case of the accountant Andrea and the way these factors have affected the accountant. Diverse ethical compliance as well as regimes as stated under the APES 110, AASB 1054 as well as the Code of Ethics for Professional Accountants describes different roles, nature as well as significance of the CSR that incorporates different processes of sustainable development (Shying and Subramanian 2013). The module of particular ethical code of conduct essentially presents an overview of the ethical approach that can assist Andrea in addressing different identified problems of ethical dilemmas. In this case, this dilemma can be noticed in the unjustified explanation provided by the general manager of the corporation Max that was again entirely baseless and unjustified. As per the present scenario, it is necessary for Andrea to comprehend the ethical behaviour as regards corporate governance in organizations that particularly requires analysis in two different levels. Different levels of analysis include internal concerns of the corporate agency as well as the growth effects on the overall welfare of the community or else the associated stakeholders of the corporation.
As per the case study, it can be hereby ascertained that the overall corporate governance of the business concern is founded on the proposition that the managers as well as the members of the staff of the organization need to act in a way that can meet the requirements of both the stakeholders as well as owners. There are several factors that strictly control the thoughts as well as interests of the managers whilst going over with the stakeholders. In addition to this, there are several ways by which different agents can assist themselves in diverse ways. The second section refers to the fact that the stakeholders do not possess requisite skills as well as knowledge that essentially the management of the corporation have. Therefore, this can lead to the establishment of the dynamism that might help the accountants such as Andrea to follow “short termism”. The short termism leads to betterment of the worth as well as fulfilments of the interests of the stakeholders of the firm by performing accordingly that looks at the stakeholders. Andrea also acted accordingly by not divulging the alterations in the mechanisms of depreciation in the financial declarations of the firm. Nevertheless, this process destabilize the procedure of value creation over a period of time that in turn can decrease the overall profit of the corporation. Again, greater transparency, oversight as well as remunerative mechanisms has developed and are still developing for appropriate enhancement as well as restriction of the agency cost.
Conclusion
The above mentioned study helps in understanding the fact that the corporation Cocoa Ltd can encounter a decline in the profit due to economic slowdown despite the profit earnings for the past few years. In addition to this, the manager of the business concern also inquired as regards the initiation of the procedure for reduction of the profit of the firm for the present period in order to ensure steady profit during the period of economic slowdown. However, the concepts as well as thoughts of ethical business practices as well as corporate governance as regards the stakeholders can is important as it is obliging for accountants such as Andrea to understand vitality of the stakeholders. In addition to this, the current paper also reflects the ethical as well as structure of the corporate governance that again helped to make financial decisions regarding alterations of the mechanisms of depreciation. However, the alterations in the process of calculation of the depreciation and the lack of disclosures in the financial declarations can help in retaining the image or else impression of the corporation and comprehending the unjustified decision of the particular general manager to be operative and taking the decisions.
References
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