IFRS Adoption And Corporate Governance Failures

• International guidelines is a necessity to vast organizations with auxiliaries in various nations by embracing comparable overall models to disentangle bookkeeping systems enabling them to utilize one bookkeeping report dialect all through and get financial specialists and reviewers with a strong perspective of accounts. As indicated by (Hagen and van, 2002) a few explanations behind reception of global money related announcing gauges included;Markets

Adoption of IFRS and its benefits

Markets expenses and contracts was one reason for selection to extend the amount of universal exchanges in the majority of the business sectors investment by general society enterprises.

IFRS adoption had an aim through several channels to improve corporate governance by bringing in managers with information that is precise more accurate to create improvements in decision making.

Decrease in the cost of money to open organizations was a generally and related touted advantage of IFRS making a less dangerous condition prompting a lower come back from contributing.

IFRS additionally had a few procedures on the advantage markets to lie value and obligation showcases by expanding budgetary proclamation straightforwardness for a higher data quality and diminish data dangers to banks and furthermore to the investor

IFRS adoption expanding worldwide had some critical status (Walker, 2010.) which include;

• Allowing greater comparability as businesses had to use similar standards in preparation of financial statements.
• Creation of more flexibility as philosophy based on principles rather than rules was used thus the set of standards having a goal to arrive at a reasonable valuations.
• It turned into a valuable to new and little financial specialists by helping new and little speculators to make standard reports enhancing quality and getting to be plainly less difficult.

Adoption of IFRS also had some challenges during implementation which included;

• High cost necessity as extensive or private companies would feel an effect if a nation receives IFRS. For the most part the little organizations would have less assets to actualize the change.
• Not acknowledged all inclusive having a few nations out like US, having a consistency issue.
• Prone to control as each business utilizes the strategies they wish to create budgetary articulations that demonstrates the coveted outcomes which can prompt benefit control.

Professor Ray Ball is one of the world’s smartest professor in accounting academe. (Hope, Jin and Kang 2006) IFRS has led efficiency in the markets by providing investment strategies when it comes to financial managements. Empirical evaluation in the firms stating financial statements are simple to understand or interpret improving firm resources allocation systems.

More than 100 nations have received or got their own specific manners to show money related revealing models (IRFS) in future. (Haverty, 2006.) The storage room political partners and all the more imperatively the US exchanging accomplices which incorporate Japan, Canada and Mexico chose to surrender their national bookkeeping benchmarks for IFRS abandoning US as one of those created economy without this bookkeeping models framework for household traded on an open market organizations having the SEC dropping its long standing prerequisites for remote issues exchanging US capital markets accommodating their monetary proclamations with US GAAP. For a long time US controllers, standard setters and professionals have been taking a shot at any probability of securities backers supplanting the utilization of US GAAP with IFRS. (Road and Linthicum, 2007) Providing a few connects to permit US multinationals to utilize IFRS for their outside backups has shown a moderate move in appropriation of the IFRS. A few organizations have effectively changed over to IFRS making broad utilization of its focal points where some are laying anticipates how to change over to IFRS framework.Some of the reasons why US did not adopt the IFRS as their financial reporting framework included (Barth, 2008);

• The US Regarded the GAAP as a rule based while IFRS was principle based considering the principle based concept to generate issues that are more complicated for a preparer to defend its position in case of litigation.
• Initially GAAP was principle based but they shifted to rules over time with respect to US legal environment concluding that IFRS would lead to some risks by following the same path.
• The US organization avoided the risk of having the standard setter become less independent on controlling their accounting standards.
• Transition cost and length are regularly presented as a noteworthy obstacle generally in this muddled financial condition. Change trouble and their cost will depend generally upon the consummation of the meeting.Teams’ readiness was a reason as auditors, preparers and users had no skills and knowledge about the IFRS.

Challenges in implementing IFRS

Since financial reporting standards and requirements vary from one country to another there is creation of inconsistencies in financial reporting. It creates a prevalent problem seeking companies to follow accounting standards and financial reporting to provide workable solution to handle the existing conflict (Brown, 2011) confusion and complexity created by inconsistency and of clear accounting standards in financial reporting.  A number of constituents, involving stock markets, corporate management, accounting standards setters, investors and agencies would benefit due to streamlined simpler standards, practices and rules applied to all countries and followed worldwide. Also the investors will tend to acquire some more skills and knowledge through the new internationally accepted standards. Quality of international accounting standards would impact to quality financial reports as their goals and efforts is to achieve a fair, liquid and efficient capital markets.

1.    Making loans and receiving deposits is a license offered to banks as a financial institution. (Mueller, 1976)They provide financial services, such as safe deposit boxes, currency exchange and wealth managements. Focusing on loans services the bank must have a debt contractual promise to prove statements a lender can rely on when deciding to lend. A covenant is a promise in lending articles or debt agreement in a formal manner that states whether certain activities should be carried out or not. In financial matters covenants mostly relates to financial contracting terms including documentation of loan showing the maximum or the minimum the borrower can further lend. (Daley and Vigeland, 1983) They protect themselves by avoiding financial actions detrimental from borrowers’ defaults. Despite having the debt covenant the banks faces some challenges resulting from economy nature, bank managements or the customers. Some of the problems include;

• Regulatory requirements creating much pressure as it continue to increase, requiring the bank to incur some expenditures largely on some parts of their discretionary budget compliant hence coming up with processes and systems to maintain feasible requirements.
• Low returns is also a problem having optimum profit gains objective the banks tend to make low returns on equity than what the shareholders requires.
• Financial technology companies increasing competition as they are based on using software in provision of their financial services hence increasing their popularity which disrupt the normal means in bank operations. A quick adjustments to attain the latest technology always becoming a big challenge when it comes to their bank operations.
• Expectations from the customers urging for easy and accessible means when it comes to loans agreements. This create a lot of pressure to bank lending officers whereby the customers lack information and experience in loan services frameworks.

Accounting financial statements plays a major role when it comes to loans services in the bank. (Chava and Roberts, 2008) Accounting helps lending officers avoid some risks by;

• Lending officers can know the borrowers leverage ratio so that he can identify loan intentions thus the borrower need to observe leverage ratio by paying off their debts or increase their cash borrowing without borrowing.
• Accounting states the debt service coverage ratio assisting the lending officer on how many times you can make loan payments with your net income. The capability to make loans payment through net income increases the chances of getting the loan.
• Accounting also provide loan to value ratio where most lenders require your collateral appraised value to be higher than the loan amount.

1.  Company management been involved in loans transactions are supposed to be guided by several agreements when transacting loan services. (Hertzberg, Liberti and Paravisini, 2010)Debt covenant are agreements which can help the company in the following ways;

• Having a global market standards due to efficiency in loan services as they are guide by well stated agreements creating trust whereby the firm become widely known worldwide.
• They bring in syndication where by the lenders and the agents can form an organization and sell part of their debt to other financial institutions if the loans are drafted based on debt covenants. The process benefits the potential borrower have an easy access to the bank loans.
• Cost reduction is also an advantage to the company through debt covenants as it creates less time and energy during negotiation   which potentially impact the amount a corporate is needed to pay in legal fees and also enabling them to devote more time on commercial aspects of a deal. Financial savings are also created due to efficiency of loan transactions.
• Transparency is also an added advantage whereby the debt covenants provide standards holding financiers to account thus lenders and borrowers negotiates their position on key points.

1. A social contract is an agreement involving mutual benefit between the government or an individual or group or community as whole. James Hardie is well known for having a wide market in Australia in manufacturing building materials such as asbestos which were more susceptible to fire leading to diversification. (Haigh, 2006)However during their production processes the workers were encountered by some diseases such as lung cancer due to dust and other chemicals involved in production lung cancer becoming a huge blow to Australian communities. The government had to come in whereby a social contract between James Hardie and the communities was created. The following are some of the terms implied in the social contract;

• Improvement of the principle deed agreements for provision of long time fund to Australian victims resulting from exposure to materials produced by James Hardie group subsidiaries. (Tilt, 2009)The contract was all about funding agreement under legally set basis to provide fund to the victims. The agreement included compensation to asbestos sufferers by establishing SPF due to claims against James Hardie group subsidiaries. Annual actuarial assessment of expected claims under rolling cash and annual contribution was also met in the contact. Satisfaction of James Hardie with the tax treatment was also a proposed term and also receiving the approval of its lenders and shareholders.

Due to disease outbreaks some negativities were impacted on several stakeholders since James Hardie industry involved a larger number of communities in the country. (Nehme, 2009) The stakeholders who were affected by this cause included;

• The employees and the customers are some of the victims who suffered a lot as they would spend most of their time in operations and making sure the processes were well done exposing them to lung cancer where most of them died due to damaged breathing systems as the asbestos contained harmful dust and emissions.
• The management officials due to the harmful outbreaks a lot of criticism and humiliation from the public created a lot of pressure to the management on how to rectify the problem whereby the executives were penalised seeking them to come to agreements on compensation to the affected communities.
• The government was also affected by James Hardie actions as individuals could aid assistance from the government thus it had to come in and create solutions on the actions.
• Financiers as they had to use a lot of money in compensating the victims of the harmful asbestos substances.

1. Organisational legitimacy is the compatibility an organization demand bringing in social values associated by their activities in the larger social systems with norms of acceptable behaviour. (de Govrik, 2012) James Hardie officers and directors are in ruin having an immense reputation damage. They damaged their reputation by not providing frank and full disclosure to the board and to the stock exchange. Having well laid strategies the officers and directors of James Hardie would have made the right decisions guided by well stated principles. (Nakra, 2000)  Some of the strategies they would use to build up their reputation are;

• Making quality leadership by working with basic regulations with the urge of shaping their industry and social practices in the policy sphere i.e. James Hardie having an immediate identification of the problem in the company would stop the action from taking place by creating safety to the workers.   
• Having a transparency and accountable ways of operation i.e. James Hardie would have a good relation with the stock exchange unions and come up with platforms on the matter.
• Protecting the environment and future generation by producing products which under well controlled measure to avoid any harm to the society i.e. the industry would have provided the correct safety to the workers and also make sure the harmful asbestos substances are eliminated from the products.
• Making their society value friendly i.e., James  Hardie would have treated the workers in a better way as we are told most of the workers in that industry were slaves and it is only in Christmas they were treated by been offered one beer per person.
• The safety, quality and type of the product and services should be delivered consistently i.e. the industry would have made materials free from harmful asbestos substances in order to provide healthy safety in the environment.

1. Corporate governance is where companies are controlled and directed through practices, rules and processes in systematic ways.(Hargovan, 2009) The essentiality of the corporate governance is to balance the interest of the company whereby stakeholders, such as management, customers, suppliers, financiers, community and the government provide a framework toward company’s objectives.

James Hardie corporate administration had a few shortcoming which likewise added to the harm of their notoriety. (Comino, 2014) Having ruptured the partnerships demonstration by putting forth false expression about the therapeutic research and pay establishment they were indicted by the Australian securities and venture commission. James Hardie poor corporate administration drove the organization to at long last face arraignment and open embarrassment. Testing the guidelines of corporate administration techniques in Australia and business morals through common activity James Hardie administration stayed away from its obligations in repaying previous clients and workers who had fallen sick by utilizing their items. The administration additionally stayed away from its asbestos liabilities by exchanging every one of their benefits seaward into a Dutch holding organization. The administration additionally deceived Australian courts by giving out bogus data of having enough supports accessible in the Medical Research and Compensation Foundation to remunerate all grievances about asbestos claims.

The failures of James Hardie corporate governance creates some ethical considerations whereby a company should have effective and transparent external and internal procedures the executives can work with to efficiently control and monitor the actions of the managements. (Baxt, 2005) For credibility to incur there must be clear decision making and management actions as good governance doesn’t necessary create a good company hence company strategies is what matters most. James Hardie executive failure was as a result of inappropriate corporate governance processes and having a board which was ineffective.

1. Some suggestion came up on how to improve James Hardie corporate governance and business ethics which included (Becht,, Bolton and Röell, 2003);

• Board’s role clarification strategy as the board got a key role to play when it comes to   adoption and formulation of   business operations. Strategies raised should be approved by all executives in the board to ensure appropriate development in the firm.
• Organizational performance should be monitored bringing in essentiality functions within the board and also providing a legal compliance. Monitoring will also provide consistency when it comes to decision making setting the firm at optimum level of producing quality products which are harmless to the society. i.e., the executives of James Hardie should have monitored the senior executives while giving the information about the financial status to compensate the victims.
• Always recognize that the governance of risk is a board responsibility as they are required to establish systematic means when it comes to risk oversight and management. i.e. the board of James Hardie failed in their responsibility due to lack of effective risk management to provide better decision making as effective risk management develops a deeper insight toward the common risks all firms come across.
• Building and maintaining an effective governance infrastructure so that specific policies supposed to guide the firm depict reliability. Having develop policies in relation to delegations generates a cohesive responsibility between the management and the board hence encouraging policy development by the board through relation with delegations. Poor communication and poor internal procedures can lead to a poor access to information creating high level of dissatisfaction among directors.
• Also building a skill based board was also a suggestion as it will bring in skilled and experienced labour that will ensure appropriate firm statements are presented to the directors.   

References

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Comino, V., 2014. James Hardie and the problems of the Australian civil penalties regime. UNSWLJ, 37, p.195.

Nakra, P., 2000. Corporate reputation management:” CRM” with a strategic twist?.Public Relations Quarterly, 45(2), p.35.

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Mueller, P., 1976. Credit Doctrine for the lending Officer. New York: Gticorp.

Hertzberg, A., Liberti, J. and Paravisini, D., 2010. Information and incentives inside the firm: Evidence from loan officer rotation. The Journal of Finance, 65(3), pp.795-828.

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de Govrik, T., 2012. The James Hardie case: Risk, reputation and business ethics. Living Ethics: Newsletter of the St. James Ethics Centre, (88), p.3.

Haigh, G., 2006. Asbestos House: the secret history of James Hardie industries. Scribe Publications.

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Hargovan, A., 2009. Australian Securities and Investments Commission v. Macdonald [No. 11]: Corporate Governance Lessons from James Hardie. Melb. UL Rev., 33, p.984.