Corporate Governance of Finances in Major Corporations Case Study

Excerpt from Case Study :

Corporate governance of finances in major corporations has been a major controversy during the recent recession. The scandal at Satyam is indicative of problems across the board, from CEOS, to executive boards, to independent auditors and even accounting firms such as Price Waterhouse. In this essay, the author will consider the unique problems presented in a globalised market where faith in the market is essential for international trade to function.

When the CEO assumes the entire responsibility in a corporate governance fiasco absolving everyone else (family members, board of directors, independent directors and other top management people), how should the regulatory authorities and the government proceed against the CEO who has confessed and other people who were absolved by him. Critically evaluate especially from the point-of-view of absolving all the others including the top management, board of directors and the family members, from any of the accumulated corporate wrongdoings.

What puzzles this author is why so infrequently the government and regulatory agencies never investigate accounting firms that give AAA credit ratings to companies like Satyam in the first place. It is possible (although highly improbable) that leaders may be in the dark as to the truth behind scenes, but it must be impossible for accountants who are auditing the books not to know what is going on. There are many calls at the present time for transparency in reporting procedures. However, if the dodgy accounting procedures and creative book keeping that make such crises possible are not reigned in, then one must be cynical that the arrest of the involved family members, board of directors, independent directors and other top management people will have any effect until the accountants are added to the list. For a CEO to get any clemency deal, the accountants have to be included as well or what is wrong with the system can not be fixed.

Certainly, this is a point that Kumar and Sapkota get right (Kumar, Paul, and Sapkota P. 2011 1-2). Truly, when Price Waterhouse in involved, it is not just an Indian financial crisis, but one that adds to the angst that the entire financial system is in. Therefore, regulatory efforts have to be global to be effective. However, to begin with, one needs to concentrate upon the Indian crisis. What the authors in the article make clear is that the accounting procedures at Price Waterhouse and the incompetence of the Board of Directors, the audit committee, and the auditors as a whole were responsible, not just the CEO (ibid. 2). The only way for anyone to know the extent of the crisis would be to offer clemency to the CEO so that all of the other criminals could be brought to justice. It seems that the biggest fraud is outside of Satyam and at Price Waterhouse. Going after them would provide the best reform of the financial system and send a message to future lawbreakers that creative accounting leads to sure punishment. In accordance with standard agency theory which sees problems with oversight by government agencies, Capricio and Levine see large investors (large equity holders and large banks) as being the primary regulators in the United States and Britain. For this to work on a global basis, Bank CEOs must be held to account…

Sources Used in Document:

References

Caprio Jr., J. And Levine, R. (2002). Corporate Governance in Finance: Concepts and Inernational Observations. World Bank, IMF, and Brookings Institution Conference, Building the Pillars of Financial Sector Governance: The Roles of Public and Private Sectors.. pp. 1-44. Available: http://www.siteresources.worldbank.org/DEC/.../corporategover_finance.pdf.

Kumar, G, Paul, P, and Sapkota P. (2011). The Largest Corporate Fraud in India: Satyam Computer Services Limited, Proceedings of the American Accounting Association 2011 Annual Meeting pp. 1-23. Available: http://www.mendeley.com/research/largest-corporate-fraud-india-satyam-computer-services-limited/. Last accessed 24 Dec. 2011.

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