Assignment on forensic accounting

INTRODUCTION

Corporate governance means the system of structures, rights, duties, and obligations by which corporations are directed and controlled. (Bowen, William G. 1994) On the other hand Corporate Social Responsibility means a process which is aimed to hold responsibility for the company's actions and encourage a positive impact from first to last its activities on the environment, consumers, employees, communities, stakeholders and all other members of the public sphere.

1(a) Critically evaluate Quintag’s board and committees, recommending any changes you consider appropriate to meet generally accepted standards of good corporate governance.

Evaluation of board and committee, recommending changes considering appropriate to meet generally accepted standards of good Corporate Governance: From the information of Quintag Company I can learn that the company has not yet listed in security and exchange commission, so they have to be listed their company. Here I present some information to the board and committee to perform good corporate governance in the company.

1.      Board of director’s function, regulation and structure: The Board of Directors is the supreme governing body of the company. It have to create the Articles of Incorporation, must be decided by the General Shareholders Meeting. The effective supervision of all corporate activities is vested in the Board. The Board will work out its functions in the best benefit of the company, in terms of viability and maximizing the long-term value of the company in rightful interests concerned, either of a public or private nature, and in particular taking into account other interest groups of the company: employees, customers, business partners and society in general.

2.      The chairman and the managing director/chief executive officers: In the effective government and control of the Company no personal should have unrestrained decision-making abilities. Moreover, the work out of such abilities should be subject to control. furthermore, the roles of Chair and Handling Director/Chief Executive Officer should be organized by different individuals.

-        The position of Chairperson should not be of professional individuality.

-        A clear, show, published and accepted separating be supposed to are available between the features, projects and required the Board’s Non-Executive Director and those of the Handling Director/Chief Executive Officer as the business's top executive.

3.      Composition of the board: The Committee shall be created up of Administrators which, as a combined entire body, have the necessary information, judgment and come across to execute their projects effectively. The Committee must be created up of internal/Executive Administrators and external/Non-Executive Administrators.

·         Non-Executive Administrators (NEDs) should complete at least once a season without the Chairman and the Professional Administrators.

·         The Yearly Corporate Governance appraisal will history the conferences organized by the Non-Executive Directors during the season.

4.      proposal, appointment, re-election, and removal of directors:

·         The profile of Directors must be suited to the requirements and demands set out in the Board Regulations.

·         An official and transparent process must subsist for the proposal, appointment, re-election and removal of Directors. Such process must be included in the Board Regulations and in the Annual Corporate Governance Report.

5.      Nominations committee: 

·         There must be a Nominations Committee created up completely of external Directors and with a greater part of split exterior Administrators. The Non-Executive Officer may be a participant of the Committee but he/she should not seat its conferences. Should there be a Senior Independent Director, it is recommended that he/she should lead this Committee. (Daines, Robert, and Michael Klausner 2008 )

·         The Committee must have an itemized control accepted by the Board and released, in which referrals must be created to the abilities vested in such Committee by the Committee, its features, obligations and obligations, as well as its techniques and guidelines of process.

·         The Committee is accountable for analyzing if the needed knowledge and meet confirms in the Committee, and of using such evaluation to be able to assign new Administrators.

·         The Committee will circulate its suggestions concerning the consultation, re-election and elimination of Administrators to the Committee for assessment, approval and where appropriate, distribution to the Common discussion for final recognition and/or approval. (Daines, Robert, and Michael Klausner 2008 )

·         All suggestions regarding applicants to the Committee must be set on to this Committee which shall be accountable for their assessment pursuant to the procedure accepted by the Committee. The Committee is authorized to hire external company solutions as it believes necessary to be able to search for candidates or to assess them.

6.      Remuneration committee: 

·         A Remunerations Committee must be designed which will not consist of the Executive Administrators. This Committee will recommend to the Committee, and the Board shall publish to the general Meeting’s acceptance, the remuneration policies (including without restriction, retirement living techniques, expenses in cash and in type, and discuss options) for Professional Administrators and other Directors and the person remuneration program of each director.

·         Furthermore the Remunerations Committee must make suggestions on pension schemes, expenses in money and in type, discuss choice techniques, and remuneration programs for Mature Control authorities, inter alia, before to submitting them to the Committee and must be advised of the remuneration policies and the person remuneration regarding authorities, as well as the normal remuneration strategy of the Organization. (Kytle, Beth 2005)

7.      Remuneration of directors:

·         The remuneration program for Administrators must be sufficient to compensate their commitment and liability and to entice, maintain and motivate adequately certified Administrators, preventing spending more than is necessary to meet this purpose, guaranteeing that their freedom is not affected.

·          An official and clear procedure must are available for the implementation of remuneration guidelines and to be able to figure out a particular remuneration, in particular with respect to Professional Administrators. No director will take part in the decision-making procedure concerning his/her own remuneration.

·         The Yearly Business Government Review must indicate the remuneration policy implemented and shall set out the person remuneration paid to each director.

8.  Audit committee:

·         A Review Committee must be designed and Professional Administrators may not attend or be hired associates of same. The Review Committee, when so needed, may demand the attendance of Professional Administrators, the Chief Executive Officer or any key worker of the Organization. The Committee shall involve a greater part of separate Administrators and shall be chaired by one such director. Chairmanship of this Committee must be restored (or reelected) consistently.

·         Members that belong to this Committee must be singularly/particularly qualified, especially the Chairman, and they should stick to the rule "not to accept what you do not comprehend and what you are unable to describe to other Directors". The Chairman must also be a professional in financial issues. (Branco, M.C. Rodrigues 2007)

Analyzing the above information, the board consists of six executive and six non- executive directors (NEDs), with the roles of CEO and chairman being carried out by two different people. NEDs are appointed for a maximum of six years. There are audit, nominations and remuneration committees which all comprise wholly of non-executive directors. A senior independent director has been appointed (SID) who maintains close contact with the chairman to obtain a better understanding of the business. In this regard audit, nomination and remuneration committee have to comprise wholly of Executive Directors. 

1(b) Discuss how the Chief Executive Officer (CEO) and the non-executive directors (NEDs) of Quintag should be appraised, explaining any limitations relevant to the Quintag.

Appraisal of CEO and NEDs

Chief Executive Officer and Non- Executive Directors have to reach a decision, from the information of Quintag it shows that all the directors have to take the following steps;

The company has a limitation of Remuneration the executive directors is a mixture of basic salary, annual bonus and performance related pay (PRP) along with regular pension contributions and a company car.

Basic salary continues to be determined by reference to the average salaries paid in Quintag’s country of operation. The bonus payments are linked partly to guaranteed elements, taking into account the risky nature of Quintag’s business and the amount of net profit made. The performance element of remuneration is linked to the change in Quintag’s share price; the total amount of PRP consists of 25% of remuneration to again recognize the risky nature of Quintag’s business. Directors are also provided with share options, normally exercisable after five years.

In this situation the CEO and NEDs have to perform the following duties,

·         PRP remuneration should be increased

·         PRP should be given separately with regular pension

·         Car facility can be closed for a short period 

·         bonus payments are taking partly

The committee is to be accountable for guaranteeing that the organization has reliable remuneration guidelines and methods which are reliable with recruiting goals and which enable the organization to entice and maintain executives and directors who will create value. 

·         oversight of the establishment of Remuneration proposals;

·         consider of all remuneration decisions, such as the CEO, CFO, NED etc;

·         Recommendations as to appropriate incentive schemes.

The above mention terms can be appraised by the CEO and NED.

1(c) Describe the role of NEDs. Explain how Non-Executive Directors (NEDs) can enhance the standing of board sub committees. 

Role of Non-Executive Director: In business Non-Executive Directors play an important role. Now the explanation is given by which system NEDs can enhance the standing of board sub-committee. The directors are generally empowered by the Articles to form sub-committees and delegate certain of their powers to these committees. The directors may even delegate certain powers to a committee of one. In order for the members to have formal terms of reference to determine the scope of their powers, and the responsibilities they bear. In addition, the Report provides model terms of reference for a sub-committee. These terms of reference would generally encompass the following:

·         The composition of the committee.

·          The objectives, purpose and activities

·         The powers that have been delegated

·         Any authorization to make recommendations to the Board

·         The duration of the committee

·          How the committee reports to the Board

1.       Strategy: Non-Executive Directors should successfully task and help create suggestions on strategy.

2. Performance: Non-Executive Directors should examine the performance of management in meeting agreed goals and objectives and supervise the reporting of performance.
3. Risk: Non-Executive Directors should please themselves on the integrity of financial information and that financial controls and systems of risk management are strong and secure. (Branco, M.C. Rodrigues 2007)

4.       People: Non-Executive Directors are responsible for determining appropriate levels of remuneration of executive directors, and have a key role in appointing, and where necessary removing, executive directors and in succession planning.

5.        The Nomination Committee: The role of the nomination committee is to review, on a regular basis, the composition of the full Board, and where it appears that the Board is lacking in skills or experience in a certain area, to identify how best to rectify the situation. This may involve identifying skills that are required, and those individuals’ best suited to bring these to the Board.

6.       Time Commitment: All directors must be capable to assign ample time to the Company to perform their responsibilities effectively.  Non-Executive Directors will be required to: 

·         undertake that they will be able to allocate sufficient time to meet the expectations of the role, as set out in their letter of appointment, or as agreed from time to time;

·         reveal their other significant commitments to the Board before appointment, with a broad sign of the time involved; and

·         Inform the Board of any consequent changes. 

7.       Independent advice: The committee should have particular respect to whether they ought to have the benefits of guidance from independent experts. Committee associates will often advantage from guidance from independent and knowledgeable experts who appreciate what is engaged and can recommend the committee. Sometimes the tracking part of the committee will mean this guidance should be absolutely outside of any association with control, and separate experts should be maintained to individually recommend the committee. The experts should be offering the committee with published guidance. (Shleifer, Andrei, Robert W. Vishny1997)

8.       Relationship to the board: Lastly, it’s value remembering that the committee is a subcommittee of the board. It would be unusual for any committee to act independently of the board. (Daines, Robert, and Michael Klausner 2008 ) In other words, the committee should present issues on which the board will vote. However, the increasing complexities of dealing with committee materials will likely cause the overall board to place greater reliance upon the committee with respect to technical and oversight issues. From the committee perspective, it is important that there is an understanding with the board about what the committee responsibilities will be. The committee does not want its actual or roundabout responsibilities to be too broad, or for there to be a misunderstanding about what those duties are for this reason it is imperative that each committee have a charter that clearly sets these matters out and limits unreasonable expectations. (Williamson, Oliver E. 2002)

9.       Relationship with management: It is management’s responsibility to offer the administrators with all appropriate information that they need to make an advised choice as to the economical and functional matters of the organization.

10.    The Risk Management Committee: Risk management is an often misinterpreted self-discipline within a company. Too often the liability for guaranteeing that the important threats are effectively handled is not recognized, or is unnecessarily assigned to the review committee.

Relationship with internal audit: The internal audit activities offers the Board an objective review of the internal control systems within the company.  (Bowen, William G. 1994) The function should be staffed with appropriate individuals who are well respected within the organization. Given information should be followed;

·         Ensure that the internal controls of the company are operating efficiently and effectively.

·         Review and report on the risk management processes in place at the company. (Bowen, William G. 1994)

·         Provide a reasonable level of assurance on the information being provided to the Board by management.

11.    Avoiding conflicts of interest: If panel associates wish to acquire themselves of the business verdict concept they will need to be consistently cautious to recognize conditions of inconsistent passions, that is, conditions where they have a content personal attention in the issue before the panel. (Daines, Robert, and Michael Klausner 2008 )

 From above discussion the role of NEDs is mentioned above. The NEDs can enhance the standing of board subcommittee before evaluating above items.

1 (d) Prepare a briefing paper, from the remuneration committee to the board of directors of Quintag, in preparation for the management meeting providing a description of how the components of executive directors’ remuneration could be determined, and a discussion as to whether this has been correctly carried out in Quintag.

Briefing paper from the remuneration committee to the board of directors of Quintag

Introduction to Remuneration Committee:

The remuneration of a company’s directors is one of the most sensitive and relevant issues facing the Board of Directors today. It is as a result measured a vital element of good corporate governance to establish a committee whose lonely focus it is to consider and recommend the stage and form of the directors’ remuneration. The committee should consist of at least three non-executive directors. Again it is preferable for the directors to be mainly independent. The nature of the committee would make it entirely unsuitable for any executives to sit on the committee.

                                           Figure: Remuneration Committee

The Committee will create recommendations for Board sanction of all aspects of Total Remuneration for the CEO of the Company, including, but not limited to:

• A review of corporate and individual goals and objectives relevant to CEO Total Remuneration, an evaluation of the CEO's performance relative to those goals and objectives, and a offer for the CEO's Total Remuneration level based on this evaluation. 
• In making an offer for the value of long-term incentive Remuneration given to CEO's at similar companies, and the awards given to the CEO in past years. 

Senior Executive Remuneration: The Committee will evaluate and advise on proposals by the CEO with regard to the Total remuneration of Senior Executives of the Company.

Incentive Plans: The Committee will make recommendations to the Board with respect to incentive Remuneration and equity-based incentive plans that require shareholder approval, and will act as a preparatory body for the Board in the management of the Company's shareholder-approved award and options, such as performance related pay (PRP) along with regular pension contributions and a company car.

Review of Policies and Procedures: The Committee will review and evaluate on a regular basis the Company’s Corporate Governance policies and procedures, including 

• Policies embodied in the Company’s Code of Conduct 
• Rules of method for the Board and applicable Corporate Governance Guidelines
• Information on the Company’s website 
• Will advise any proposed changes to the Board for sanction. 

Other Responsibilities:

• The Committee will assist with the annual evaluation of the Board, its committees and the Company’s management.
• Other duties and responsibilities as may be assigned to the Committee, from time to time, by the Board. (Shleifer, Andrei, Robert W. Vishny1997) 

Meetings: The Committee shall meet as often as it seems appropriate and necessary. Meetings are called by the committee chairperson, or by two members, or when requested by the chairperson of the Board, or the CEO.  The committee chairperson and one member shall constitute a quorum.

Reports: The Committee shall prepare minutes to the Board on a regular basis. The report to the Board shall contain recommendations for Board action and decision when suitable.

Appoint new Auditor: The Committee shall ready for an auditor for its company and fix the remuneration of external auditor.

A Remunerations Committee must be designed which will not consist of the Executive Administrators.

2 (a) Define corporate social responsibility (CSR) and assess the benefits of voluntary disclosure of CSR information to a company.

Corporate Social Responsibility (CSR): Corporate Social Responsibility (CSR) is a management concept whereby companies integrate social and environmental concerns in their business operations and interactions with their stakeholders.  (Goergen, Marc, 2012)  CSR is generally understood as being the way through which a company achieves a balance of economic, environmental and social imperatives, while fulfilling the expectations of shareholders and stakeholders. Other definition of CSR is "The social responsibility of business covers the economic, legal, ethical and flexible expectations that a society has of organizations at a given point in time." (Carroll, 1979; 2008, 500)

   According to The World Business Council for Sustainable Development "Corporate Social Responsibility is the continuing commitment by business to behave ethically and contribute to economic development while improving the quality of life of the workforce and their families as well as of the local community and society at large"

   EU Definition of CSR "A concept whereby companies integrate social and environmental concerns in their business operations and in their interaction with their stakeholders on a voluntary basis." 

 

Figure: Social Responsibility (CSR)

From above information we can say;

1.      Social responsibility becomes a fundamental element of the achievement stories process - which if handled appropriately should improve the competition of business and increase the value of success stories to society. 

2.      When periods get complicated, there is the incentive to work out CSR more and better - if it is a philanthropic work out which is marginal to the primary company, it will always be the vital factor to go when force comes to leave. 

   CSR can be a strategic business management concept, charity sponsorship or philanthropy and poverty reduction. It enhances the reputation of a company and strengthens its brand. 

 Assessment of the benefits of voluntary disclosure of CSR information to a company: The impact on CSR has on market value for a short time while instead on non-reflex disclosure concept. Voluntary disclosure concept is a relatively new idea that efforts to estimate that maximum disclosure choice should generate an overall net advantage for investors and that such net advantage should loss of public information accessibility.

·         Companies' market values increased: Voluntary Disclosure Company receives an aggregated market value and boost up their profit.

·         Voluntary disclosure produce positive returns to shareholders: As predicted, share holders receive extra benefit.

·         Small companies tend to benefit more: Shareholders of smaller companies with limited public information availability benefit the most from voluntary disclosure.

·         Social improvement: When CSR is followed by a company it has a positive impact on the society, such as in poor and developing countries CSR has a real impact on tree plantation, child education, global warming etc.

·         Brand loyalty: If any organization works for CSR then CSR then we can find that every company works for CSR. A company gets international affiliation when it engaged with CSR.

·         Enriched organizational structure: Company’s organizational structure should be enriched when CSR would be followed.

·         Goodwill: when company’s practices CSR its goodwill would be increased.

As per above information we can say that there are more benefits of voluntary disclosure of CSR.

 2 (b) Describe Carroll’s four-part models of CSR, and using this as a framework to youranswer, advise the board of Aggris on closure of the branch.

Description Carroll’s four-part model of CSR: When Corporate Social Responsibility (CSR) has been around since the 1950s, its importance and practice took hold much later. The basis of what we consider to be the modern definition of CSR is rooted in Archie Carroll’s. In this model a corporation has four types of responsibilities. 

 

Economic Responsibilities: The first and most obvious is the economic responsibility to be profitable. A company can do others additional social activities when it makes a reasonable or estimated profit over a period of time. (Goergen, Marc, 2012)

Legal Responsibilities: The second is the legal responsibility to obey the laws set forth by society. Company should not do anything which is prohibited by the law, each and every steps of an organization undertake before measuring it from the angle of law.  

Ethical Responsibilities: The third, which is carefully connected to the second, is the moral liability. It implies that doing fair, do what is right even when company is not forced to do so by law. An organization ought to practice ethics in business. They should not do any fraud to its customers such as not mixing any harmful elements in the goods, not to give less than that the customers paid, making early payment of creditors.

Philanthropic Responsibilities: The fourth is the philanthropic responsibility. Also called the optional responsibility, it is best described by the resources contributed by corporations toward social, educational, recreational and/or cultural purposes. 

Advice for the board of Aggris on closure of the branch

From the case study we can realize that the Aggris manufacturing company doesn’t make the expected income, according to Carroll’s four-part models first part (Economic Responsibilities) we can learn that company should be able to make profit. From this point of view as the company can’t earn profit my advice for the board to closure in short term.

In this question we found the word ‘adverse publicity’ it is affected by the Legal Responsibilities

of Carroll’s four part model.                                                                           

The company doesn’t perform its activity ethically. It is a sensitive issue, where the customer, government and other third parties evaluate this in prose and coin. If the company doesn’t perform it ethically it will be closed. It is nearer to legal responsibilities.

In sense of ‘Philanthropic Responsibilities’ of Carroll’s four part model it implies that an organization perform its activities for the betterment of the world and country. In this case study I found that Aggris Company wants to closure a branch which located in poor region, in this case Carroll’s ‘Philanthropic Responsibilities’ model tell us to do well for country so, Aggris Company should not close the branch because there are many workers engaged with the company.

            Finally my advise to the board not to close the company; legal and ethical problem will be eradicated by taking necessary steps.

CONCLUSION

After a broad discussion we have found two important components, Corporate Governance and Corporate Social Responsibility (CSR). Corporate Governance is the yard stick of an organization to run effectively and Corporate Social Responsibility (CSR) is organizations societal element which works for the betterment for the society, country, world as well as organization. The impact of corporate activities on environment and society has established growing awareness recently, as a consequence of the effects on environmental damage and social issues. The stress exerted by different stakeholders has grateful companies to apply CSR practices and report on them.

References

1.      Sifuna, Anazett Pacy (2012). "Disclose or Abstain: The Prohibition of Insider Trading on Trial". Journal of International Banking Law and Regulation

2.      Goergen, Marc, International Corporate Governance, (Prentice Hall 2012) 

3.      Cadbury, Adrian, Report of the Committee on the Financial Aspects of Corporate Governance, Gee, London, December, 1992

4.       Bowen, William G., Inside the Boardroom: Governance by Directors and Trustees, John Wiley & Sons, 1994

5.      Daines, Robert, and Michael Klausner, 2008 "corporate law, economic analysis of," The New Palgrave Dictionary of Economics, 2nd Edition.

6.       Shleifer, Andrei, and Robert W. Vishny (1997). "A Survey of Corporate Governance," Journal of Finance,

7.       Williamson, Oliver E. (2002). "The Theory of the Firm as Governance Structure: From Choice to Contract," Journal of Economic Perspectives, 

8.      Catalyst Consortium (2002). "What is Corporate Social Responsibility?”

9.      Kytle, Beth; paramveer singh (2005). "Corporate Social Responsibility as Risk Management: A Model for Multinationals"

10.  O’Laughlin, Bridget (November 2008). "Governing Capital? Corporate Social Responsibility and the Limits of Regulation".

11.  Lozano, Josef (2000). Corporate Social Responsibility and Human Rights

12.  Branco, M.C.; Rodrigues, L.L. (2007). "Positioning stakeholder theory within the debate on corporate social responsibility"