Session 4

[Vivienne]

QUESTION


1. Define 'Transparency' and evaluate its importance as the underlying principle in Corporate Governance and in relevant and reliable financial reporting.

2. Critically discuss four principle roles of non executive directors

[danial hussain]

1. Define 'Transparency' and evaluate its importance as the underlying principle in Corporate Governance (CG) and in relevant and reliable financial reporting.

Transparency and Disclosure are at the heart of CG. Transparency means to clearly disclose all the policies the company has adopted. It is important to evaluate the transparency of a company as to see how and what the company operates and produces. The things that should be disclosed are:

1-Financial and operating results
2-Company objectives
3-Ownership and control structure
4-Board and executive information and recommendation
5-Foreseeable risk factors
6-Stakeholder information
7-Governance information
8-Independent audit and high quality dissemination channels (i copied these points :wink: )

2. Critically discuss four principle roles of non executive directors (NEDs)

1. To provide a critical assessment on the work performed by executive directors.
2. Staff the committees
3. To monitor the reporting framework of performance and financial controls on risk management systems.
4. To make sure that financial information is accurate. (This has to be more detailed i just pointed out the matter that should be discussed)


I am studying P1 and im not an expert on this yet so i would appreciate if someone would correct me whr im wrong. Thanks for ur input! U guys r doing an amazing job here!..keep up the good work!!! :cool:

[Marvellous]

1. Define 'Transparency' and evaluate its importance as the underlying principle in Corporate Governance and in relevant and reliable financial reporting

In response to recent corporate governance scandals, governments have responded by adpoting a number of regulatory changes. One being increased disclosure requirements.
Transparency involves full disclosure of material matters which could influence the decisions of stakeholders. It requires opennes in reporting of financial statements.
This transparency relationship reduces agency costs.

Importance
Transparency is important to underpin the market confidence and it helps remove all suspicion because they have access to truthful information. It also enables investors to have trust in the company.
It also has made financial markets more efficient and made management more effective as well.
Almost unnoticed, good financial disclosure has become a corporate governance tool of the first order, effective, timely, cheap and (legally, at least) all but self-executing.

2. Critically discuss four principle roles of non executive directors

a. Strategy role
NEDs should contribute to development of strategy of the company, challenge strategy produced by executive directors and offer advice with the use of their wider business experience.

b. Scrutinising Role
They should review the performance of management and hold them accountable for decisions taken and results obtained.

c. Risk Role
They should ensure the company has adequate system of internal controls and system of risk management in place

d. People role
They should ensure the appointment, remuneration,appraisals of senior management and succession planning of the board.

[Vivienne]

P1 underpins on 4 different concepts that is

1.Proffesianal ethics
2.Internal control and review
3.Risk management
4.Corporate Governance

this is according to my gathering.i believe if we are able to grasp these 4 areas then we should be able to getthrough.

We seem to have dwelt much on CG.lets move to another area which is Ethics.Lets do a few questions on Ethics then move to Internal controls.

it seems we are just 3 for the mean time.

it would be better if we rotate in asking the questions.
Marvellous you can go aheard and post session 5 questions on Ethics.thereafter Danial will post session 6 until we exaust this topic.

I will post session 4 answers soonest.so Mavellous its over to you.

am making a suggestion can we make sure we post questions twice weekly that is Tuesdays and Fridays.there isnt enough time left.

[Marvellous]

All right I will post one on Friday this week and another on Tuesday next week. Yes, I think we are rather slow. Let us pick up the pace

[Vivienne]

Question 1

Transparency means not hiding or concealing anything.in other words it means doing everything in the open and clearly disclosing any relevant information to shareholders and stakeholders.it also means having open discussions and not concealing information that may affect decisions.

The disclosures means including information in the financial statements not just the notes but also narratives such as directors reports.

Disclosures may also mean voluntary disclosures to be made such as enviromental or social reports.Although enviromental reports are not so much required they are making those that submit them to win the confidence of the users and the general public that such companies are enviromentally friendly.

In the context of CG ,Transparency borders on the fact that managers(agents) have more information than the owners of the companies(principal).disclosure of relevant information underpins stock market confidence as the way it is handled may influence stock market prices.

A lack of transparency in the accounts led to the Enron scandal as most transactions were kept off balance sheet(statement of financial position).they also inflated revenues,massaging quaterly figures and evading tax.


QUESTION 2

The UK Combined codes recommends that a board for a listed company should have at least half of the directors as Non executive directors(NEDS).The NEDS have a critical role to play.
1.They serve on various committes of the board these are nominations,remunerations and Audit committes.For Audit committes it is recomended that its composition should only be of NEDS.
2.stratergic
they participate in ensuring that a copany's developmental stratergy is met.
3.Scrutiny
the NEDS scrutinise management's performance towards meeting its set goals and objectives.
4.They have to satisfy themselves that the financial controls and risk management that have been put in place remain strong and appropriate.