Icaew Corporate Reporting Pdf Writer

Icaew corporate reporting pdf writer

Specifically, the Study Guide refers to the separation of ownership and control, the role of non-executive directors and two of the standing committees commonly established by public companies. This article provides an introduction to corporate governance and some of the basic concepts that underpin it, and explains the roles of the board, the different types of company director and standing committees. The simplest and most concise definition of corporate governance was provided by the Cadbury Report in , which stated: Corporate governance is the system by which companies are directed and controlled.

Though simplistic, this definition provides an understanding of the nature of corporate governance and the vital role that leaders of organisations have to play in establishing effective practices. For most companies, those leaders are the directors, who decide the long-term strategy of the company in order to serve the best interests of the owners members or shareholders and, more broadly, stakeholders, such as customers, suppliers, providers of long-term finance, the community and regulators.

It is important to recognise that effective corporate governance relies to some extent on compliance with laws, but being fully compliant does not necessarily mean that a company is adopting sound corporate governance practices. Significantly, the Cadbury Report was published in the UK shortly after the collapse of Maxwell Communications plc, a large publishing company.

Icaew corporate reporting pdf writer

Many of the actions that brought about the collapse, such as the concentration of power in the hands of one individual and the company borrowing from its pension fund in order to achieve leveraged growth, were legal at the time. These are:.

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Corporate governance is important in all but the smallest organisations. Limited companies have a primary duty to their shareholders, but also to other stakeholders as described above. Not-for-profit organisations must also be directed and controlled appropriately, as the decisions and actions of a few individuals can affect many individuals, groups and organisations that have little or no influence over them.

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Public sector organisations have a duty to serve the State but must act in a manner that treats stakeholders fairly. Most of the attention given to corporate governance is directed towards public limited companies whose securities are traded in recognised capital markets.

The reason for this is that such organisations have hundreds or even thousands of shareholders whose wealth and income can be enhanced or compromised by the decisions of senior management. This is often referred to as the agency problem. Potential and existing shareholders take investment decisions based on information that is historical and subjective, usually with little knowledge of the direction that the company will take in the future.

They therefore place trust in those who take decisions to achieve the right balance between return and risk, to put appropriate systems of control in place, to provide timely and accurate information, to manage risk wisely, and to act ethically at all times.

The agency problem becomes most evident when companies fail. In order to make profits, it is necessary to take risks, and sometimes risks that are taken with the best intentions — and are supported by the most robust business plans — result in loss or even the demise of the company.

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Sometimes corporate failure is brought about by inappropriate behaviours of directors and other senior managers. As already mentioned, in the UK, corporate governance first came into the spotlight with the publication of the Cadbury Report, shortly after two large companies Maxwell Communications plc and Polly Peck International plc collapsed.

All of these cases involved companies that had been highly successful and run by a few very powerful individuals, and all involved some degree of criminal activity on their part. The recent credit crisis has brought about renewed concern about corporate governance, specifically in the financial sector.

Although the roots of the crisis were mainly financial and originated with adverse conditions in the wholesale money markets, subsequent investigations and reports have called into question the policies, processes and prevailing cultures in many banking and finance-related organisations.

How to pass the ACA Corporate Reporting (CR) exam: Question 2

Most countries adopt a principles-based approach to corporate governance. This involves establishing a comprehensive set of best practices to which listed companies should adhere. If it is considered to be in the best interests of the company not to follow one or more of these standards, the company should disclose this to its shareholders, along with the reasons for not doing so. Some countries prefer a rules-based approach through which the desired corporate governance standards are enshrined in law and are therefore mandatory.

The best example of this is the US, where the Sarbanes-Oxley Act lays down detailed legal requirements.

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Nearly all companies are managed by a board of directors, appointed or elected by the shareholders to run the company on their behalf. In most countries, the directors are subject to periodic often annual re-election by the shareholders.

This would appear to give the shareholders ultimate power, but in most sectors it is recognised that performance can only be judged over the medium to long-term. Shareholders therefore have to place trust in those who act on their behalf. It is rare but not unknown for shareholders to lose patience with the board and remove its members en masse. The role of the board of directors was summarised by the King Report a South African report on corporate governance as:.

The purpose and values of a company are often set down in its constitutional documents, reflecting the objectives of its founders. However, it is sometimes appropriate for the board to consider whether it is in the best interests of those served by the company to modify this or even change it completely. As cash registers would quickly become obsolete with the emergence of microchip technology, the company had to adapt very rapidly.

Whitbread plc originated as a brewer in the 18th century in the UK, but in the s redefined its mission and objectives completely.

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It is now a hospitality and leisure provider its brands include Premier Inn and Costa coffee and has abandoned brewing completely. The directors must take a long-term perspective of the road that the company must travel. Tesco plc, a large multinational supermarket company, has 13 directors.

Swire Pacific Limited, a large Hong Kong conglomerate, has 18 directors. Smaller listed companies generally have fewer directors, typically six to eight persons.

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The board of directors is made up of executive directors and non-executive directors. Executive directors are full-time employees of the company and, therefore, have two relationships and sets of duties.

They work for the company in a senior capacity, usually concerned with policy matters or functional business areas of major strategic importance. Executive directors are usually recruited by the board of directors.

They are the highest earners in the company, with remuneration packages made up partly of basic pay and fringe benefits and partly performance-related pay.

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Most large companies now engage their executive directors under fixed term contracts, often rolling over every 12 months. The chief executive officer CEO and the finance director in the US, chief financial officer are nearly always executive directors.

Non-executive directors NEDs are not employees of the company and are not involved in its day-to-day running.

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They usually have full-time jobs elsewhere, or may sometimes be prominent individuals from public life. The non-executive directors usually receive a flat fee for their services, and are engaged under a contract for service civil contract, similar to that used to hire a consultant. NEDs should provide a balancing influence and help to minimise conflicts of interest.

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The Higgs Report, published in , summarised their role as:. The majority of non-executive directors should be independent. Factors to be considered in assessing their independence include their business, financial and other commitments, other shareholdings and directorships and involvement in businesses connected to the company.

However, holding shares in the company does not necessarily compromise independence. Non-executive directors should have high ethical standards and act with integrity and probity. They should support the executive team and monitor its conduct, demonstrating a willingness to listen, question, debate and challenge.

It is now recognised as best practice that a public company should have more non-executive directors than executive directors.

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In Tesco plc, there are five executive directors and eight independent non-executive directors. Swire Pacific Ltd has eight executive directors and 10 non-executive directors, of which six are independent non-executive directors. An individual may be accountable in law as a shadow director. A shadow director is a person who controls the activities of a company, or of one or more of its actual directors, indirectly. For example, if a person who is unconnected with a company gives instructions to a person who is a director of the company, then the second person is an actual director while the first person is a shadow director.

In some jurisdictions, shadow directors are recognised as being as accountable in law as actual directors. In many countries in continental Europe, companies adopt a two-tier structure. This separates those responsible for supervision from those responsible for operations.

Icaew corporate reporting pdf writer

The supervisory board generally oversees the operating board. Paper FAB, Accountant in Business , focuses mainly on the unitary board system, though knowledge of both models is required for subsequent studies for Paper P1, Governance, Risk and Ethics.

The chairman of the company is the leader of the board of directors. The chairman should, for example, promote regular attendance and full involvement in discussions. The chairman decides the scope of each meeting and is responsible for time management of board meetings, ensuring all matters are discussed fully, but without spending limitless time on individual agenda items. In most companies the chairman is a non-executive director. The chief executive officer CEO is the leader of the executive team and is responsible for the day-to-day management of the organisation.

Icaew corporate reporting pdf writer

As such, this individual is nearly always an executive director. As well as attending board meetings in his or her capacity as a director, the CEO will usually chair the management committee or executive committee. The secretary is the chief administrative officer of the company. The secretary provides the agenda and supporting papers for board meetings, and often for executive committee meetings also.

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He or she takes minutes of meetings and provides advice on procedural matters, such as terms of reference. The secretary usually has responsibilities for liaison with shareholders and the government registration body. As such, the notice of general meetings will be signed by the secretary on behalf of the board of directors. The secretary may be a member of the board of directors, though some smaller companies use this position as a means of involving a high potential individual at board level prior to being appointed as a director.

Icaew corporate reporting pdf writer

It is generally recognised that the CEO should not hold the position of chairman, as the activities of each role are quite distinctive from one another. The secretary should not also be the chairman of the company. As the secretary has a key role in liaising with the government registration body, having the same person occupying both roles could compromise the flow of information between this body and the board of directors.

In the context of corporate governance, it refers to committees made up of members of the board with specified sets of duties. The four committees most often appointed by public companies are the audit committee, the remuneration committee, the nominations committee and the risk committee.

These are the audit committee and the remuneration committee. This committee should be made up of independent non-executive directors, with at least one individual having expertise in financial management.

It is responsible for:.

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Sometimes the committee may carry out investigations and may deal with matters reported by whistleblowers. This committee decides on the remuneration of executive directors, and sometimes other senior executives.

It is responsible for formulating a written remuneration policy that should have the aim of attracting and retaining appropriate talent, and for deciding the forms that remuneration should take. This committee should also be made up entirely of independent non-executive directors, consistent with the principle that executives should not be in a position to decide their own remuneration. It is generally recognised that executive remuneration packages should be structured in a manner that will motivate them to achieve the long-term objectives of the company.