Effects of corporate goverance to prepare the accurate financial statement of retail companies. A case study in Australia

Section One: Research Background

This section presents the introduction of the research to show the justification behind the work and encompasses the background of the research introducing the topic overall view. It also comprises research gap, summary and organization of the study.

Corporate governance is related with the structure, process and power mode that dictates the rights and responsibilities of various groups engaged in the management of an organization. Corporate governance is all about the management of corporations, which may not be a mainly telling statement from a definitive perspective, but it reminds us that corporate governance relates to corporations and also relates to the determination of the practices in which they are fully involved (Brown, Beekes & Verhoeven, 2011). The Cadbury Committee Report (1992) stated that ‘Corporate governance is a type of structure or process by which companies are controlled and monitored. Corporate governance is seen to accurately identify the rights and responsibilities of every one of the firm's stakeholders. Since the perspective of the agency theory, corporate governance refers broadly to a system of matching management desires with that of shareholders or from the legislative point of view as a mechanism of guaranteeing adherence with all relevant legislation, policies, and procedures (Ho & Wong, 2001). Corporate governance is no longer merely a regulatory mechanism, but a strategic business requirement that is critical to corporate sustainability and corporate social responsibility objectives (Rezaee & Kedia, 2012).  Over recent times, a growing trend has been the requirement for widely improving corporate governance and transparency for business organizations. In the light of the last global financial crisis, corporate governance has received significant coverage and is now growing as a core issue for policymakers and publicly traded companies.

Processing dimensions of corporate governance have been the main focus of regulations and recommendations. There are many laws, acts and regulations based on the structure of corporate governance such as the United States Sarbanes-Oxley Act (SOX 2002), the Combined Code on Corporate Governance (Financial Reporting Council 2003) in the United Kingdom (UK), and the Principles of Good Corporate Governance and Best Practice Recommendations (ASX 2003, 2007) in Australia. Reasonable corporate governance, though, includes adjusting adequate reporting levels with good corporate performance (Cadbury 1997). Earlier work shows a link between improved corporate governance structures and greater quality of financial reporting (Christensen, Kent & Stewart, 2010), more accurate reports and price-sensitive information (Beekes and Brown 2006), minimized fraudulent reporting (Beasley 1996), less failures of accounting and reporting standards (Dechow, Sloan & Sweeney 1996), and bad abnormal returns mitigation (Brown, Lee, Owen and Walter 2009). Another study by Larcker et al. (2007) reveals it often hard to prove causal relationships between the performance of governance measures and the company's performance.

This research based on corporate governance is particularly involved with examining the structures that have developed to make the accurate financial statements of retail companies especially in the case of Australia. Financial accounting is one way to giving basic source of needed information of the managers’ performance that is required by the investors and financiers (Sloan, 2001). Nonetheless, some of the key characteristics of financial accounting, including the use of historical costs, the requirement of precision, the concept of realization and the concept of conservatism, are hard to comprehend except if a corporate governance viewpoint is adopted. If governance issues are absent then financial accounting's function would be limited to supplying investors with the risk and return information needed to promote the best decision to assign portfolios.