fia paper fab.sessions6-8

8/12/2019 FIA Paper FAB.sessions6-8

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Syllabus Heading B

Sessions 6-8

Business Organisation Structure,Functions and Governance


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Informal Organisations

Informal organisations exist alongside the formalstructures and systems previously discussed.

The informal organisation is loosely structured,

very flexible and spontaneous embracingpractices and mechanism such as:

Social groupings e.g. cliques

Grapevines and informal communications

Alternative behaviours to the formal structures Power and influence structures outside the formal

command chains


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Informal Organisations

While management of the formal organisation may allow theinformal organisation to develop, and may even interactwith it, they must never allow it to take over the formalorganisation or the authority and control it possesses.

They should ensure that the informal organisation does notalter the goal direction of the formal organisation.

Informal organisations may provide somebenefits:

Cooperation

Speed

Sharing of knowledge

Employee commitment

Responsiveness


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Session #6

Organisational Structure


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Considering Structure

Why is structure necessary?

To create a controllable networkof individuals, groupsand teams;

To allow greater coordination & monitoringoforganisation activities and functions;

To allocate authority and create a framework fordelegation, accountabilityand responsibility;

To enable a useful flow of work, resources and informationthrough communicationfollowing clear reporting lines;


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What influences structure?

Organisational goals and objectivesas an entire unit andas departmental units;

Specific task and activitiesof the organisation;

Organisational size, complexityand formalisation;

Skills, abilities and expectationsof organisational humanresources;

Internal organisational principles, culture andenvironment.


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Organisational Layers

Managerial hierarchy and activity has beenproposed by Anthony (a management writer) hasbeing classified: Strategic level managementmost senior directors and

management, handling the policy making, and providing

guidance and direction on a global level;

Tactical level managementmiddle management andtechnical staff, concerned with determining how to get thejob done, through resource allocation, innovation andcreation of detailed plans;

Operational level managementline supervisors and thework operatives ensuring the routine activity of providingthe good or service is achieved based on the tactical plansand guidance provided by middle management.


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Organisational Hierarchy - strategic

Strategic level managementconcerns itself with theglobal picture for the organisation, devising corporategoals and strategies.

Goals and objective answer the question: where do wewant to be and when?optional directions forcompany

Strategies answer the question: how are we going to

get there?alternative approaches to achieving goals

Strategic level management must assess these questionsand select the most appropriate options.


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Organisational Hierarchy - tactical

Tactical level management and staff, analyse theselected strategies and assess what the inputs,resources and timelines must be for achievementof stated goals, based on the strategic guidancegiven

They answer the question what do we requireand when?in order to move the business step bystep closer to where it needs to be

Its focus will be developing detailed operationalplans and forecasting resource needs, while beingresponsible for the control functionof the

organisation.


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Organisational Hierarchy - operational

Operational level management and staff, carry thedaily tasks of getting the job done through effectiveand efficient implementation of the tactical plans.

Their functions and responsibilities provide theanswer to - are we there yet? Are we facing anychallenges or problems? what can we or mustwe do different?all the while providing feedback

and guidance to the tactical team in terms ofcontrolling performance.

This level is very task oriented.


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Organisation Theories - Fayol Traditional and classical organisation structure was

linked to the principles of division of labour andhierarchy of authority:

Division of work; Authority & responsibility;

Scalar chain;

Unity of command;

Unity of direction;

Subordination of individual interests


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Organisation Theories - Mintzberg

One of the many prolific writers on the structuringof organisations was Mintzberg. see diagram

In his writings and theories he suggested that everyorganisation could be seen as having 5 distinctcomponents with reference to their structure: Strategic apexensures goal achievement and provide

direct management and direction in relating to theenvironment;

Middle Linecreated tactics for achieving strategic

intentions, converting them into work flows for operations; Operating Coreconvert inputs to outputs do the work!;

Techno structureprofessional staff and analyticalsupport; assist middle line with planning and execution;

Support Staffall other ancillary services required for

functionality;


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Basic Concepts of Structuring

Spans of Control Span of control refers to the number of

subordinates under the control of a manager, andreporting directly to the specific manager.

These spans of control may be:

Wide: a span of control where a manager has several

subordinates under his control;

Narrow: a span of control where the manager only has afew subordinates under is control;


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Spans of Control contd The following must be considered in terms of the

desired span of control:

Capability and ability of manager;

Managers workload;

Geographical dispersion;

Level of subordinates work;

Allowance and level of subordinate interaction; Supervisory support levels;


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Tall & Flat Organisations The scalar chain of an organisation indicates the

length of the command chain from most senior tomost junior position.

The length of the scalar chain will determine if theorganisation is referred to as a:

Tall organisation

Flat organisation


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Tall & Flat Organisations contd Tall organisations: an organisation which in terms

of its size has several levels of managementhierarchy, thereby resulting in narrow spans ofcontrol.

Flat organisations: an organisation which in termsof size has a small number management levels,thus creating wide spans of control.

Organisations may engage in delayering in aneffort to reduce the number of management levelsand boost efficiency and effectiveness.


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Organisation Structure

Depending on their purpose, objective and othercharacteristics will structured in varying ways:

Entrepreneurial

Functional

Geographic Product / brand

Divisional

Matrix

Several writers have written theories on thevarious options for structuring organisationstowards effectiveness and efficiency, in theirareas of operation.


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Structuring Organisations

Entrepreneurial Also referred to as a simple structure possesses the

following characteristics:

Exhibited within small, young organisations; Senior management retains direct control over the

operations and staff and dominate the organisation;

Staff usually operational, no need based on size fortechnical or other support staff;

Coordination by direct supervision;

Prone to succession crises who will carry on business;

Little standardisation or formalisation of behaviour;

Activities and operations centralised around management


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Geographical area The organisation is structured according to

separation by the territories or jurisdictions withinwhich it operates. The structure however, requiresa centralised head office that will at least retainsome authority over operations, though managedby territory.

Local decision making and management is made more

relevant; Often cheaper and more effective to have a presence

within each market area;

Some duplication and inconsistency may arise eachlocation may have functional or product structures


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Product / Brand The organisations departmentation or segmentation

is based on products being produced or servicesbeing offered, with common departments inexistence for the support services or functions such

as admin, HR, finance.

Each product will have its own marketing,production, sales and distribution areas/functions:

Accountability and performance is based on productperformance;

Greater coordination may be achieved;

Allows for effective brand awareness, recognition,differentiation and loyalty;

More complex structures result


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Divisional A business is divided into autonomous regions or

product businesses, each with its own source ofrevenues, expenses, asset purchases. As a result

they are responsible for a segment of thebusinesses profit or loss.

A division may be:

A subsidiary of a group; Profit or investment centre of a company;

A strategic business unit


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MAKING DIVISIONAL STRUCTURES WORK..........

Proper and effectively delegated authority is required;

Each divisional unit must be able to support themanagement it requires, without need to rely on headoffice;

Each unit is expected to have potential for sales growthand business expansion;

Related party transactions should be managed effectively

and transparently to ensure success.


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Centralisation vs. Decentralisation

Centralisationrefers to concentration ofmajoraspects of control, management and authorityinone location over the resources of an organisation,with a view to enhancing effectiveness andcoordination.

Centralisation is usually achieved on geographicbasis or on the basis of authority. (see pg 89-90)

Decentralisationprovides more flexibility,through a spreading of responsibilities for control,management and coordination throughout theorganisation.


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Departmental Roles & Functions

Each department within an organisation will becharged with the performance or responsibility forspecific task, functions and roles towards

achievement of the overall goals and objective.

These many roles and functions may be separatedwithin an organisation as follows, and provide the

following support or activities:


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Research and development: this function willengage in pure and applied research anddevelopment. Pure research: original research to obtain new scientific and

technical knowledge, with no clear commercial or practicalapplications;

Applied research: original research similar to pure research, butwith a practical application or use already known or being used;

Development: using the scientific and technical knowledgegained through research to produce new and improvedproducts or systems with a view to commercial application oruse.

R & D activities will focus on: Product research: activity to create new products and

improvement of existing products;

Process research: activity to improve and revise the way ourcurrent and future products are made and services delivered.


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Purchasing: the process of procurement andacquisition of materials resources, services andinputs for the facilitation of the organisationsactivities. The function is key to the production

process.

The best purchasing mix must be achieved by thefunction in terms of:

Quantity Quality

Price

Delivery / lead time


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Production: this function oversees and managesthe creation and output of the organisations goodsand services. It plans, directs and controls theassociated activities.

All other organisational functions must support,integrate and filter their outputs into this functionin terms of: Finance

Human resource

Research

Sales


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Service operations: any activity or benefit that onearea can provide to another, that is of an intangiblenature, not resulting in ownership of anything.

Services tend to be: Intangible

Inseparable

Variable

Services must be managed in terms of: Complexity

Price

Quality


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Administration: responsible for daily operationaland support issues in the provision of theorganisations products and services.

These activities carry varying importance andwork levels depending in the existence of acentralised or decentralised structure.


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Finance: responsible for finance and treasurymanagement, and accounting functions withinthe organisation with specific responsibilities for: Raising money

Recording and controlling

Information provision Stakeholder reporting

The function must has several roles in planningand control: Ensuring financial resources are available;

Integration of strategy into budget preparation;

Establishment of performance measures based onbudgets;

Management of the financial resource; Creatin financial controls


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Departmental Roles & Functions Financial management:responsible for:

Investment decisions Financing decisions

Dividend policy

Treasury management:plans and control thesource and use of funds for the organisationthrough several techniques: Cash budgeting

Banking facilities

Foreign currency management Cash flow management and control

Financial accounting:recording and reportingthe financial effect of transactions financialposition, performance and cash flows.


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Management accounting:provision of usefulinformation for the planning, control and decisionmaking functions.


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Human resource management: concerned with theeffective use of the human resource of anorganisation. It deals with:

Recruitment and selection

Staffing levels

Motivation

Employee relations

Employee services

HRM evaluates and organisations human resourceneeds, finding the right mix of people andachieving the best outputs from this resource.


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The function has the following objectives: Development of effective human component, that can

respond effectively to change;

Recruitment, selection, development and motivation of asuitable human resource;

Creation and maintenance of a cooperative environmentfor human relationships;

Meeting the social and legal responsibilties relating tohuman resource

The function is important to: Increase in productivity;

Enhancement of group learning;

Reduction and control of staff turnover;

Encourage initiative;


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Departmental Roles & Functions Marketing: the process that identifies, anticipates

and satisfies customer needs in the mostprofitable manner.

Marketing activities will include: Sales supporttele-marketing and sales, customer

management; Marketing communicationsbrochures, catalogues, ad

promos and campaigns;

Operational marketingmarket research, brand mgt,product development, marketing programmes;

Strategic marketingcreation of new competitivestrategy

Organisations will spend time creating marketingstrategies through: Marketing audits


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The marketing strategy will create a marketing

orientationfor the organisation:

Production orientation:assumes that customers will buywhatever we produce- therefore produce as many aspossible demand will exceed supply;

Sales orientation: assumes resistant customers, so activeand aggressive promotion is required to persuade customersales;

Product orientation: assumes that by adding features toexisting products, that demand will increase.

Marketing orientation: unlike the other orientations,assumes that the needs and wants of customers must be

ascertained in order to deliver more suitable products andtherefore eliminate the effects of com etition.


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Marketing mix:a set of controllable variables andtheir levels that an organisation uses to influencethe target.

The variables in the mix are: Product:addresses product characteristics

Price: considers pricing objectives

Place: addresses how the product will be conveyed to the

customer Promotion: development of marketing communication and

promotion


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Product variable: considers product or servicecharacteristics like design, features, quality, safety,image etc.

Products will possess core benefits or uses alongwith augmented or additional features and uses.

The following distinctions are also possible:

Class

Form:

Brand or make


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Price variable: must determine most suitable andappropriate pricing for the product based on itsuse and expected profitability.

Demand will tend to influence pricing. Several

pricing strategies exist: Penetration pricing

Market skimming

Pricing also assists in creating an image for theproduct in the market.

Pricing is also the key tool in competitive wars

between organisations and their products.


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Place variable: addresses two aspects in terms ofdistribution of the organisations products andservices.

Outlets: branches, locations and points from wherethe products may be sold;

Logistics: use of intermediaries, creation and

management of a distribution network,warehousing, storage and transportation


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Management Functions: Planning, Control

& Decision Making

Planning: essentially involves the determination of adirection for an organisation over a defined period oftime, and is achieved through the following steps:

Setting Objectives: this answers the question - where do we

want to be - and tells the organisation clearly whatmanagement seeks to achieve and in what timeframe.

Choice of Strategy: answers the question - how will we getthere and seeks to determine what methods or options areavailable for management to choose in order to achieve thestated objectives.


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& Decision Making

Objectives: articulate what a business seeks to achieveover a specified period of time.

Strategy: involves the formulation of objectives and

goals for the organisation and the articulation of adirection for the organisation. It clearly indicates at ahigh level, where the organisation currently is andhow will get to where it wishes to be, through theefficient use of the available resources.

Planningis therefore is the overall process ofdeveloping strategy, tactics and implementingoperations to achieve them


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& Decision Making contd

Control: this phase begins followingsuccessful determination andimplementation of an organisational plan atall levels. The control phase involves two

main aspects: Comparisonthe actual results and performance of the

organisation need to be compared to the original plan(budget/standard), in order to determine if any varianceshave occurred;

Corrective Action where variances have occurred andare significant, some actions must be taken in order tobring performance back in line with the expected orplanned performance.


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Organisational Planning & Control

Organisations are usually split into several levels,that correspond to various levels of seniority,management, roles and tasks.

These levels are:

Strategic Level board of directors, senior mgt, CEO etc.

Tactical Level middle mgt, operational and divisionalmgrs

Operational Level line supervisors, operatives etc.

Each level will be involved in their specific aspects of theoverall corporate planning activity.


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Strategic, Tactical & Operational Planning

Strategic planning has been identified as theprocess of deciding objectives for the organisation,changes to these objectives, the resources requiredto attain these objectives and the associated policiesthat should govern acquisition and utilisation of

these resources.

This aspect of planning takes a global view of theentire organisation and where it needs to be within

a set timeframe, and is carried out by strategic levelmanagement.


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Strategic, Tactical & Operational Planning

Tactical planning is dealt with by a range ofmiddle management staff including divisionalheads and technical staff. It addresses primarily theresource acquisition and allocation of theorganisation, as it relates directly to achieving thestated goals and objectives.

Tactical planning or management control, istherefore concerned with effectiveness, efficiencyand economy of the organisations operations.

Additionally, comparative and corrective actionsare vital.


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Planning Information & Tools

All levels of management will require useful andmeaningful information that allows them toadequately carry out the specific planningfunctions outlined above.

Management and cost accountants will be chargedwith providing this management information on atimely basis and in a manner suitable to its

intended uses.


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Planning Information & Tools - contd

Strategic information:

Originates from internal and external sources

High level summaries Provides a long term view

Provides a holistic, global organisation outlook

Qualitative and quantitative elements

Will include several forecasts and assumptions


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Tactical information:

Internally generated information

Lower level summaries Provides a short to medium term view

Provides a detailed analysis by activity, function, productetc.

Available frequently and follows routine preparation

Largely quantitative in nature


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Operational information:

Fully derives from internal sources

Highly detailed, as it usually includes raw data andlimited processed information

Provides a daily view and is very immediate in its outlook

Very task specific

Ongoing preparation each day

Provide a very initial and basic trends of activity to befurther analysed.


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Each level of management will employ variousmethodologies, tools and resources in an effort toexecute their planning functions:

Strategicexecutive decision systems; forecasting andplanning models; project management software;

Tacticalbudgets, cash forecasts, action plans andprogrammes;

Operationalperformance reports, customer service

measures, resource usage and requirements;


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Planning Timeframes

The planning phases of an entity coverthree distinct timeframes:

Long term planning: also referred to as corporateplanning, it addresses a strategic plan covering a five to

fifteen year time period. Will involve assessment, objectiveand evaluation stages;

Short & Medium term planning: the overall longterm strategic or corporate plan can only be achievedthrough the implementation of smaller scale plans andprogrammes, outlining direcction for the immediateoperational future (12 months).


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Session #7

Organisational Culture


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The Concept of Culture

Culture refers to the behaviours and understandingamong a group of people as to how things are donewithin the group or organisation.

This group could be a nation, gender, population,profession or organisation.

Our focus is on the culture of organisations and howit or influences structure of the organisation.


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Organisational Culture

The culture of an organisation may bedemonstrated through:

Organisational structure

Communication styles Office layout

Symbols, legends and myths

Management style

Attitudes to quality, risk, customers and technology


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Shaping a Culture

The culture of an organisation is typically shapedby the following factors:

The founder of the organisation: founders oforganisations will set a foundation for cultural values andbehaviours that will be typically hard to change, evenwhen the founder no longer exists;

The history of the organisation: the period of time in

which the organisation was formed, giving considerationto what was readily accepted in terms of norms during theperiod will influence the culture that exists and remains;


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Shaping a Culture

The culture of an organisation is typically shapedby the following factors:

Leadership & management style: managers and leadersare chosen that will promote and perpetuate the existingnorms and behaviours and ways of doing business;

The environment: behaviours and norms of theenvironment will influence internal organisational culture.

The environment will include: countries, regions,professions etc.


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Theories on Culture

Several writers have proposed theories andconcepts of culture and how it influences structureand operations.

Three key theories were articulated by:

Sheindeterminants of culture

Handy cultural stereotypes

Hofstedeinternational perspectives


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Sheins Theory

Shein defined culture as a set of shared andimplicit assumptions that are held by a group,determining how it perceives, thinks and reacts.

He suggested that the effect of the foundersimpression on culture was significant and becameembedded in the organisation for life.

He saw culture as hardest attribute of anorganisation to change and listed threedeterminants of culture:


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Sheins Theory

Observable behaviour: the evident behaviours,norms, artefacts and attitudes within theorganisation;

Underlying values and beliefs: these give thespecial meaning to the behaviours and tend to becommunicated through mission statements, brandsand slogans;

Hidden assumptions: unspoken rules andprinciples that influence the beliefs and behaviours


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Handys Theory

Handy gave greek names and his owninterpretation to the 4 types of cultural stereotypesdeveloped by Harrison:

Power (Zeus) culture Role (Apollo) culture

Task (Athena) culture

Person (Dionysus) culture


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Handys Theory

Role/Apollo: signifies a more bureaucraticapproach to culture and assumes logic and rationalbehaviours exist.

Organisations with such a culture will have aformal structure, adhering to formal rules andprocedures.

Individuals are expected to fulfil their roles

without overstepping their authority.

The culture works well in a stable environment of alarge entity


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Handys Theory

Task/Athena: management in this culture is seenas ensuring the completion of projects, tasks oractivities.

Performance will therefore be assessed on results,and their will be a greater demand for experts andspecialists to achieve the desired results.

The principal objective is getting the job done.


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Handys Theory

Person/Dionysus: these cultures serve the interestof those making up the organisation.

Management within these cultures is lower in

status and less important than the personsensuring organisational success - the professionals.

Organisational success depends on the talent of

individuals, with management based on agreementwith individuals.


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Hofstedes Theory His theory suggests 4 dimensions which impact

culture: Power distancethe extent of unequal distribution of power

being accepted;

Uncertainty avoidanceextent to which security, control,

risk taking and change are viewed and embraced;

Individualismdo people prefer to work together orseparately;

Masculinityhow does gender influence roles and culture In each of these cultures there could be a high or low

degree of each dimension, which determinesorganisational culture.


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Session #8

Corporate Governance and Social Responsibility


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Defining Corporate Governance

The system of ethics, accountability, transparency,control and rules by which a corporate entity isdirected and controlled by its management andsenior officers.

Corporate governance has a number of elements:

The reduction of corporate risks to all stakeholders;

A set of best practices enhance overall performance throughgood supervision and management;

An ethical framework exists for the pursuit of corporategoals and objectives;

The spirit and the letter of the law should be applied;

Accountability


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Principles of Governance

Good governance systems will give consideration to:

Minimisation of risk;

Ensuring adherence to and satisfaction of strategicobjectives;

Fulfilling responsibilities to stakeholders, while minimising

potential conflicts of interest; Establishment of clear accountability guidelines for

management;

Maintenance of independence for those who have the dutyto review, monitor and scrutinise;

Provision of accurate and timely reporting of financial andoperating data that meet all relevant criteria;

Encouragement of more proactive involvement of ownersand members in the management process;

Promotion of integrity in business dealings


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Perspectives on Governance The concept of governance is founded on three main

views of the relationship between the ownership andmanagement of the organisation:

Stewardship theory: management are essentially stewards ofthe organisations assets, charged with their effective and

efficient deployment; other stakeholders usually take nointerest;

Agency theory: management acts in an agency capacity,attempting to service their own interests, and encouragingperformance only where it meets these self interests;

Stakeholder theory: management has a duty of care,responsibility and accountability not only to owners, but also

to all of its other stakeholder and interest groups.


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Forces on Governance Development

Increasing globalisation;

Differential treatment of domestic and foreign

investors;

Financial reporting requirements and issues;

Influences of jurisdictions and countries;

The effect of corporate scandals and failures.


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Corporate Governance in the UK

Corporate governance frameworks and best practiceshave been developed through several reports anddevelopment of accepted codes by various writersand contributors.

Cadbury Report:

Issued in 1992, was a report on accepted best practices for thegovernance of corporate entities;

Greenbury Committee Report:

Issued in 1995, this report focused on governance issues interms of the levels of directors remuneration


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Corporate Governance in the UK

Hampel Report: Issued in 1996, was yet another report on accepted best

practices for the governance of corporate entities;

The Combined Code: Issued in 1998, this report essentially combined the

provisions of the Cadbury, Greenbury and Hampel reportsinto a single enforceable code, articulating the principles ofgood governance and a prescribed code of best practice.

Turnbull Committee Report: Issued in 1999, this report assessed governance in light of

managements responsibilities for the internal controls andrisk management of any corporate entity


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Identifying Poor Governance

Poor corporate governance practices are oftenevident where there is:

Domination of a single individual;

No proper involvement of the board of directors;

No proper internal audit or internal control systems;

Lack of supervision;

Lack of independent review on an objective basis;

Lack of contact, communication and interaction with

shareholders;

Emphasis on quick return and short term profitability;

Misleading accounts and information


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Dealing with Poor Governance

Poor corporate governance practices increase therisks that an organisation, its owners, members andother stakeholders are exposed to.

High profile corporate scandals have created a newfocus on the governance of corporations worldwide,resulting in new measures and regulations beingenforced on companies especially with respect to

reporting practices and requirements: New regulations

New standards

New and stiffer penalties


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Dealing with Poor Governance

The concept of governance has to be one clearlylinked to the core values, beliefs and ethicalprinciples of the senior management and boards ofdirectors of companies personal and professionalqualities.

The main recommendations on best practice oforganisations and the roles of specific groups inperpetuating these practices should be noted.


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Stakeholders in Governance

The proponents of strong governance have outlinedthe various roles and tasks that specific groups in theorganisation should have in terms of responsibilityand accountability.

These groups are:

Boards of directors

Non-executive directors

Remuneration committees

Audit and internal review committees

Public oversight


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Boards of Directors: have responsibility to provideand define purpose for the company and set thevalues by which this purpose will be pursued, onbehalf of the stakeholders noted. The board should:

Have a schedule of matters for decision;

Monitor the CEO/MD;

Oversee strategy;

Monitor risks and control;

Monitor human capital issues;

Ensure effective communication;


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BODs should comprise a mix of experience, ability andknowledge and should include a balance of executive and non-executive directors.

The board has a personal reponsibility to ensure that it is

satisfied that it has been furnished with all relevant informationrequired for the decision making process saying I didntknow is not acceptable. There should also be a division ofresponsibilities.

The performance of the board, its Chairman and CEO shouldbe appraised independently and by owners.

S k h ld i G


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Non-executive directors: possess no dailymanagerial functions in the organisation, butprovide a useful mechanism for keeping thegovernance of the entity in check. One of their keyroles should be in reducing conflicts of interestsbetween executive directors and other interests.

Their key roles should be:

Contribution to strategy formulation;

Performance review of management;

Ensure risk reduction especially in corporate reporting;

Setting direction and management remuneration

S k h ld i G


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Non-executives should bring their externalexperience to bear on the operations of the entity,providing perspective, comfort and independence tothe role of the board.

There should be an adequate number sitting on eachboard to ensure the weight of their views can be ofsignificant influence.

Non executive directors should have no financial orbusiness connection with the entity, no shareownership, be appointed for specific terms.

S k h ld i G


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Remuneration committees: these committees willconsist of independent non executive directors. Theyplay a key role in the establishment of policies onremuneration packages for directors and seniormanagement.

Criteria in developing this policy may be:

Setting of the policy by independent personnel;

Linking the policy and remuneration to measurableperformance or growth in shareholder value;

Full transparency in directors remunerations and thedisclosure of it.

S k h ld i G


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Internal Control & Audit committees: thesecommittees will again consist of independent nonexecutive directors. They role is the independentreview and liaising with external auditors on issuesof internal audit and review, supervision and

financial accounting function, management andadvise on internal controls and supervision of theexternal audit process.

The Cadbury report addresses benefits of auditcommittees see pg 16.

St k h ld i G


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The main duties of the committee will be:

Review of financial statements and systems:

Liaison with external auditors: Appointment and removal of auditors;

Consider threats to independence;

Determining the audit scope;

Ensuring provision and access to information; Being available for meetings and consultation;

Addressing any reservations of the external audit team;

St k h ld i G


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Review of internal audit: Setting of standards

Detailing scope

Allocating resources

Reporting methods and arrangements

Audit work plan

Link to external audit work

results

Review of risk management:

The potential risks faced by the entity based on its adoptedstrategies and policies must be analysed appropriately

St k h ld i G


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Review of internal control: Monitor adequacy of controls

Set codes of conduct and ethics for compliance

Address risk of fraud

Review and test the controls, analyse reports

Recommend to auditors suggested risk areas

Review high risk and other transaction samples

Investigations:

The committee should request and implement investigationsand detailed reviews of accounting practice and internalcontrol compliance as deemed necessary to ensure properadherence and transparency in reporting.

C t S i l R ibilit


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Corporate Social Responsibility

The concept requires businesses to ensure thattheir business practice provide benefits t thesociety at large and do not only serve their internalinterests or those of a minority of the stakeholders.

It is an assumed responsibility to take actions, thatare not required but are undertaken in the bestinterest of all stakeholder groups, showing theentity to be a morally and socially aware citizen.


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Reporting Governance and Social


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Responsibility

Companies are required to disclose their in theirannual reports and financial statements theprinciples adopted and applied to ensure goodcorporate governance in accordance with thecombined code and any other rules or regulationssetting standards on governance.

Any relevant costs and information has issued orprepared by the stakeholders of governance shouldalso be adequately disclosed.

Ethics Go ernance & Responsibilit


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Ethics, Governance & Responsibility

Their must be clear interaction between the rulesand principles of ethics, governance and corporateresponsibility as they relate to the safeguarding of

stakeholder interests.

The effects of all sources should be clearly evidentin the behaviours and operations of any corporate

entity, at all levels of staff and management

fia paper fab.sessions6-8

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