ASSESSED COURSEWORK 2012/13

WRITING THE ASSESSED ESSAY

Name

Institution

Course

Date

Contents

Introduction. 2

The role of corporate social responsibility and ethics in organizations. 3

Corporate governance practices. 4

Principal-Agency problem and corporate responsibility. 6

External and internal user needs which are satisfied by cash flow reporting. 7

Conclusion. 8

Bibliography. 10

Introduction

Corporate governance is the art of balancing the interests of employees, customers, communities and business partners with those of the shareholders. Corporate governance has in the recent times established itself as an instrument of reform in many countries worldwide. Corporate governance provides a framework in which the rights of every stakeholder in the organizational structure, is catered for. Basically corporate governance is an organizational issue and this is seen in the difference depending on the organization. This essay discuses whether directors owe their duties only to the company (the shareholders) or should they take into account other interests and explanation as to why. This essay however, argues that they owe their duties to the company. Directors have responsibilities not interest

Organization leaders are charged with duties and responsibilities of emphasizing on transparency, integrity and honesty in the course of executing operations of management. This is not an interest. The adoption of policies of this nature leads to prosperity while minimizing scandals which may ruin the confidence of stakeholders. The objectives of corporate governance in the organization are the increase in the level of transparency and this is important for organizations. However, the issue of transparency has been controversial. Most people are for the opinion that an extremely high level of transparency may become unambiguously good the health of the organization and so directors should take full duties not interest. From the perspective of corporate governance, the high increase in transparency is associated with costs and also benefits at the same time. This brings about an optimal level above which an extra increase in transparency would culminate to low profits. Transparency plays a very crucial role in risk assessment for organizations. Through positive disclosure together with transparency and the director’s responsibilities, good governance in organizations is achieved. They lead to the demonstration of information quality in addition to reliability of financial and non- financial that the management should provide to the lenders, the shareholders and the general public (Bryce, 2008).

According to empirical evidence, high transparency rates significantly impacts on costs of capital. The supply of information in a reliable and timely manner results to a great level of confidence of important decision makers in the organization. This results to the formulation of good decisions for the interest of the business with a direct effect on the level of profitability and the general growth. The proper supply of needed information also influences decision makers from external of the entity. This means that the investors, the lenders and the shareholders are able to decide the risks that are associated with their ventures. In an organization, the information that is provided is a good indicator to decision makers together with the outside interests of the extent that the organization has been able to comply with the legal requirements. Disclosure is very important to the understanding of the public about the activities of the company, their policies as well as performance in consideration of the environmental as well as the ethical standards in addition to the relationships that they have been able to develop with the communities around where the organization operates (Cruver, 2003).

The role of corporate social responsibility and ethics in organizations

Corporate social responsibility applies to corporations across the board but corporations such as Enron whose businesses forge a naturally close interaction with the community are at an even greater need to form a relationship that builds upon their business. In modern way of doing business, the manner in which the affairs of businesses are run needs to take into consideration the thoughts, perceptions and aspirations of the societies in which they operate. The mage the public gets about a company or how the public perceives a corporation plays a major role in the success of a business because the consumers of the businesses’ products are the people. The politics between people and corporations determine success or failure and for this reason, the corporations need to build an image that makes them appear to be friendly neighbors of the community so to speak. Corporate social responsibility can therefore be defined as the policies or steps that a corporation takes to give back or to improve the communities in which they do business (Dharan & William, 2004).

Corporate governance practices

Corporate governance practices are associated with financial statements that are not transparent and therefore fails to account for the operations as well as the finances in as far as the shareholders and the analysts are concerned. The practices of corporate governance were also marked complex models of business in addition to unethical practices that led to the adoption accounting limitations in an attempt of misrepresenting the earnings together with modification of the balance sheet aimed at portraying performance depictions in a favorable way.

The scandals facing Enron were attributed to the steady accumulation of the values, habits as well as actions that arose way back and then proliferated beyond controllable levels. The primary motivations in the accounting along with the financial transactions at Enron were geared towards keeping of the reported income together with the reported cash flow at high levels, inflating the asset values together with off-booking the liabilities. Most of the problems were perpetuated by the executives of the company.

The compensation structure that was set in Enron together with the system of performance management was designed in a manner that could attract and retain the employees who were quite resourceful to the company. However the system setup also played a significant role in the dysfunctioning of the corporate culture in the organization. The setup had been infatuated with a short term focus of earnings for the purpose of maximizing on bonuses. The employees perceived at deals of high start volume while they disregarded the cash flow and profits quality for the purpose of coming at higher rating in the course of performance overview. Further to this there was an immediate recording of accounting results so that to be at par with the stock prices of the company. The intention of this practice was to cover the deal makers together with the executives who .............