CHAPTER 1 Governance, Ethics, and Managerial Decision Making. © 2009 Cengage Learning. Introduction. Companies need strong corporate governance and sound ethical practices : Scandals cause the public to lose faith in the company
CHAPTER 1 Governance, Ethics, and Managerial Decision Making
© 2009 Cengage Learning
Companies need strong corporate governance and sound ethical practices:
Embodied in the processes that companies use to promote:
Corporate governance systems are used by a company to promote fairness, complete and accurate financial reporting, and accountability.
Internal Control: The policies and procedures that
provide reasonable assurance that a company’s
goals and objectives will be achieved.
Comprised of five elements:
The control environment.
Information and communication
The Control Environment
Risks in a Technology- Intensive Environment
Threats by current employees
credit card information,
Sabotage by former
posing as legitimate
Unauthorized access to data
The interaction of personal morals with the processes and objectives of business
Establishing an ethical business environment encourages employees to act with integrity and conduct business in a manner that is just and fair to other stakeholders.
A stakeholder analysis approach is useful for identifying stakeholders and the social, legal, ethical, and economic responsibilities to those stakeholders.
Ethics programs include:
Three types of ethics codes
Lays out specific rules or standards of behavior
Describes the vision of a company and frequently asserts a commitment to key stakeholders
An broad outline of the company’s principles
Three common types of codes of ethics include codes of conduct, mission statements, and corporate philosophy statements.
Fraud costs businesses and consumers billions of dollars each year. Accordingly, its prevention is of paramount importance.
Defined as a
Knowingly false representation of a material fact made by a party
With the intent to deceive and induce another party to justifiably rely on the representation to his or her detriment
Management fraud is typically the result of pressure on management to report good operating results. Commonly involves:
There are two types of fraud: fraudulent financial reporting and misappropriation of assets.
Fraud involving upper management can be very difficult if not impossible to detect.
impact the financial statements.
People engage in fraudulent activity as a result of an interaction of forces within an individual and the external environment.
Combinations of pressure, opportunity, and attitude are likely to lead to fraud
The Fraud Triangle
Three forces typically contribute to fraud: situational pressures and incentives, opportunities, and personal characteristics and attitudes.