What is current situation about corporate governance laws

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Reference no: EM132365081 , Length: word count:1400

Corporate Governance and Accounting Conservatism Assignment - Accounting Conservatism and Corporate governance within FTSE100 in the UK

Introduction - Accounting conservatism is a fundamental feature of quality financial reporting as it improves the reliability of financial statements and decreases information asymmetry (Mohammed, Ahmed & Ji, 2010). Conservatism is defined traditionally by Wats (2003) as anticipate no profit but anticipate all loses". This is known as unconditional conservatism. Basu (1997) considered conservatism as the asymmetric timelines of earnings reporting, requiring higher verification in recognising god news as gain than recognising bad news as loses. Basu's (1997) model is the most popular measure of conditional conservatism. Under both definitions, reported earnings under conservative accounting are understated rather than overstated.

Conservatism reduces agency conflict and is beneficial for corporate governance in several ways. First, it constrains management's overpayment to themselves and other parties with timely loss recognition and delaying gain recognition (Wats, 2003). Second, it prevents managers from investing in negative net present value (NPV) projects (Garci´a Lara, Garci´a Osma & Penalva, 2009). Third, managers are more likely to abandon negative NPV projects under conservative accounting because it causes economic loses from these projects to be recognised on a timelier basis (Wats, 2003). These potential benefits of conservatism in corporate governance indicate a positve relationship betwen the strength of governance and conservatism (Duelman, 2006). The extant literature on developed markets has documented that corporate governance mechanisms are related to accounting conservatism (Ahmed & Duelman, 2007; Bekes, Pope & Young, 2004; Lafond & Roychowdhury, 2008).

The rate of accounting scandal cases has been increasing considerably in the past few years. These scandals have led to the sudden decrease in the highly reputed organisations in the ongoing business environment. Etihad Etisalat (Known as Mobily), which is a famous telecommunication company within Saudi Arabia, has been subjected to accounting scandal that resulted in sacking its CEO. Enron in USA is one of such companies that have faced collapse in its operations due to the accounting scandals (Roslinda, 2009). Besides, HIH in Australia is also another example which has been affected severely due to accounting scandals. By acknowledging these repeated and growing numbers of scandals and business collapses, companies have understood the importance of having a sound and comprehensive corporate governance structure. The investors, regulators, academics as well as common public have strongly focused upon developing a sound corporate governance and effective accounting quality (Ahmed and Duellman, 2007). Through the empirical evidences, it could be evaluated that accounting policies and corporate governance has a direct positive relationship (Lavelle, 2002).

Research Problem (300 words) - Why this study is important

Research aim - To explore the role of corporate governance roles on accounting conservatism within Saudi listed companies.

Objectives -

To identify the impact of the changes to the corporate governance rules on the accounting conservatism of listed firms in FTSE100.

To underline the role of board of directors over accounting conservatism policies within the context of in FTSE100.

To measure the role of audit committee over the accounting conservatism policies within the context of in FTSE100.

Background (500 words)

What is the current situation about corporate governance laws (CEO, characteristics of the board of directors, committees) within the UK.

What is the current situation about accounting conservatism within the UK.

Reference no: EM132365081

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len2365081

9/3/2019 12:49:47 AM

Total Word Count: 1400 words. Corporate governance and accounting conservatism - here are two sections need to be written (Introduction about corporate governance and accounting conservatism). Add reference list (Harvard referencing style).

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