Standar Akuntansi dan Tata Kelola
ACCOUNTING &
CORPORATE
GOVERNANCE
How does accounting standards
influence corporate governance
Three Channels through Which Financial
Accounting
Information Affects Economic Performance
Part I
APA, MENGAPA &
BAGAIMANA GCG
What is corporate
governance?
Organization for
Economic Cooperation
and Development
(OECD)
“Corporate governance
is the system by which
companies are directed
and controlled, in the
interest of shareholders
and other stakeholders,
to sustain and enhance
value”.
Cadbury Committee
“It is a system by
which companies
are directed and
controlled”.
Corporate Governance Definition
The system of rules, practices and processes by
which a company is directed and controlled.
Corporate governance essentially involves
balancing the interests of the many stakeholders
in a company - these include its shareholders,
management, customers, suppliers, financiers,
government and the community.
Corporate Governance
Corporate governance
refers to the combination of external and
internal mechanisms implemented to
safeguard the assets of a company and protect
the rights of shareholders
External control mechanisms
Sarbanes-Oxley
Internal control mechanisms
Management and ownership structures
18-6
Impact of good corporate
governance
It is all about having a better organization, a better
socially responsible society and a better financial and
economic system.
On theEnhancing
organization
capital
Protection of
Increasing firm value
Lowering cost of capital
Revitalizing market
economy
Sustainable economic
growth
efficiency
shareholders' rights
On the economic
system
Positive development on
capital market
More globally competitve
Safeguard of stakholders'
interest
Increasing
competitiveness through
fair competition
On the society
More open, transparent society
Corruption prevention
Rule of law: fair and orderly
Promoting ethical wealth creation
Why corporate
governance?
Corporate governance is
a crucial part of financial
institutions and banking
industry as a whole.
Effective corporate
governance is essential
to the safe and sound
functioning of a financial
institution
Banks and financial
institutions play a
significant role in the
economy and they
should adhere to strong
corporate governance
standards to:
ensure stakeholders’
satisfaction; and
confidence in the
banking and financial
system.
Incentives for the financial services
industry
Individual
banks
• Adoption of Internationally accepted governance
standards will help them to achieve their
corporate aims.
Banking
Industry
• By increasing the compliance in the system the
industry can attract depositors, borrowers,
counter parties and the investors.
Shareholders
• To protect their sponsorship against all risks
and ensure that wealth is multiplied.
Regulators
Society
• Strengthen banking sector and discourage
fraud and misrepresentation.
• At large makes sure that social reward is
maximized
Corporate governance models – a
comparison
Anglo-Saxon or
“neo liberal”
approach
The European
model
Islamic corporate
governance
model
• Principal – agent model
• Relationship of managers vs.
shareholders
•
•
Stakeholders’ model
Relationship of managers vs.
stakeholders
•
•
Stakeholders’ model + Shariah
Answerable to Allah Almighty
Part 2
CORPORATE GOVERNANCE IS
EQUITY INVESTMENT
CONTRACT
Summarized in Three
Simple Statements
Equity investment requires good corporate
governance.
Good corporate governance requires
credible disclosure by the issuer.
The absence of credible disclosure by
issuers will have macroeconomic effects:
bank financing and conglomerate internal
capital markets will not support the
development of economically significant
new industries.
Corporate Governance Roundtable
12
Governance is the Equity
Contract
We are all familiar with the debt contract: a
detailed document specifies the interest rate, the
repayment date, the debtor’s covenants, and the
events of default.
What is the equity contract?
The corporate governance system specifies the rights of
an equity holder and the steps available if management
breaches its responsibilities
Gilson’s rule of value: you pay for what you get!
Corporate Governance Roundtable
13
Governance Requires
Credible Disclosure
The corollary to Gilson’s rule of value:
You get what you can measure.
The algebra of governance and disclosure:
You pay for what you get = you get what you can
measure
Canceling yields:
You pay for what [you get] = [you get what] you can
measure:
You pay for what you can measure!
The difference between disclosure and credible
disclosure.
Corporate Governance Roundtable
14
Step Three: The Effect
of a Bad Equity
Contract
A bad equity contract – an issuer’s inability or
unwillingness to make credible disclosure –
makes it difficult for the market to distinguish
good risks from bad.
The increased cost of capital shifts financing
and the capital market toward debt.
Consequences:
Debt is ineffective at financing high risk, high return
early stage investment.
The capital market will not support cutting edge
industries.
Corporate Governance Roundtable
15
Necessary to Support
Credible Disclosure
Legally Mandated Disclosure
Requirements.
Good Accounting Standards.
Independent Auditors.
Effective Enforcement.
Corporate Governance Roundtable
16
Legally Mandated
Disclosure Requirements
Problem:
How do we distinguish between those who
disclose accurately and those who do not?
Absent effective private intermediaries, a
reputation model will not work.
By imposing penalties on false disclosure, a
legal mandate allows honest companies to
distinguish themselves.
Corporate Governance Roundtable
17
Good Accounting
Standards
The critical characteristic is not the particular
standard – the metaphysics of accounting – but
that the form of disclosure allow users to
rearrange the information to their own use.
Good rule of thumb: an accounting system that
has no use for the adjective “hidden.” Examples:
German hidden reserves.
U.S. debate over charging the value of employee stock
options to earnings.
U.S. pooling vs. purchase accounting for acquisitions.
Corporate Governance Roundtable
18
Part 3
CAPITAL MARKET
EFFICIENCY
Capital Market Efficiency
•
When capital markets are efficient,
costs (labor, capital, and natural
resources) are “correct,” which
improves decision making.
•
Market efficiency is often artificially
affected by government policy:
• Currency controls
• Price controls
• Subsidies
Capital Market Efficiency
• Efficient markets protect
against:
• Adverse Selection: One party
in a transaction has an
information advantage, and
uses this advantage to receive
preferential pricing or risk
transfer.
• Moral Hazard: One party does
Capital Market Efficiency
•
Efficient capital markets “discipline”
corporations:
•
•
•
•
•
Poor decisions are punished.
Stock prices decline.
Cost of capital increases.
Risk of bankruptcy or being taken over
increases.
When governments eliminate the risk,
poor governance (and maybe illegal
activity) often follows
Capital Market Efficiency
•
If a country lacks efficient
capital markets, something else
often takes its place:
• Wealthy families
• Large banking institutions
• Other companies
• Governments
Capital Market Efficiency
•
These entities also “discipline”
corporations in order to protect their
investment but, their interests may be
different from those of other
shareholders and stakeholders.
•
Usually, private parties are less
effective at monitoring companies than
capital markets due to vested interests
and lack of enforcement power.
Part 4
ACCOUNTING & THE
MARKET
Sources of Influence on
Accounting*
*Daniels ,Radebaugh, and Sullivan; International Business 14 th Edition; Pearson
Education, Inc
Cultural Differences
in Accounting
A Disclosure/Assessment Matrix for National Accounting Systems
Classifying Accounting
Systems
Weak vs. Strong Equity Markets
and the Influence on Accounting Standards
From Micro-Uniform to
Micro-Based Systems
Macro uniform accounting system
Government influenced
Japan, Germany, China, France
Micro based system
Pragmatic business practices
The U.S., Mexico, Canada, Australia
Strong vs. Weak Equity
Markets
Strong equity markets vs. weak equity
markets
Movement towards strong
Transition towards IFRS
Failure of Corporate
Governance
Regulations have not always been
effective
The Enron’s case (an exemplary board that
failed miserably).
Regulations have been reactive as
opposed to proactive
Examples: The Sarbanes Oxley Act.
Corporate Governance will not stop the
collapse of SME’s
It all starts within the firm itself
Conclusion
High quality checks/balances in the oversight of
Financial Institutions are cornerstone of effective
governance
Remember “one size does not fit all”
We shall take into consideration that institutions will
adopt different approaches to governance based on size,
complexity and nature of their significant activities
It is important that regulators and policy makers
look to corporate failures, to enhance sound
corporate governance practices, and also to
ensure we can continue to rely on the work of
those who provide independent oversight
functions to corporations whose stakeholders rely
on them
Qualities of the
Accountant of the Future
Personal attributes, which include insight, sound
professional judgment, project management skills,
integrity and ethics
Leadership qualities of strategic thinking, planning and a
cross-functional perspective
Broad business perspective, which includes a good
understanding of one’s organization and industry, risk
management and organizational systems and processes
Functional expertise in the traditional technical skills,
including financial management and taxation
Strong communication skills, be well versed in IT, be
committed to life time of learning
Ability to combine technical skills with strategic vision, see
himself as a professional advisor and business partner.
CORPORATE
GOVERNANCE
How does accounting standards
influence corporate governance
Three Channels through Which Financial
Accounting
Information Affects Economic Performance
Part I
APA, MENGAPA &
BAGAIMANA GCG
What is corporate
governance?
Organization for
Economic Cooperation
and Development
(OECD)
“Corporate governance
is the system by which
companies are directed
and controlled, in the
interest of shareholders
and other stakeholders,
to sustain and enhance
value”.
Cadbury Committee
“It is a system by
which companies
are directed and
controlled”.
Corporate Governance Definition
The system of rules, practices and processes by
which a company is directed and controlled.
Corporate governance essentially involves
balancing the interests of the many stakeholders
in a company - these include its shareholders,
management, customers, suppliers, financiers,
government and the community.
Corporate Governance
Corporate governance
refers to the combination of external and
internal mechanisms implemented to
safeguard the assets of a company and protect
the rights of shareholders
External control mechanisms
Sarbanes-Oxley
Internal control mechanisms
Management and ownership structures
18-6
Impact of good corporate
governance
It is all about having a better organization, a better
socially responsible society and a better financial and
economic system.
On theEnhancing
organization
capital
Protection of
Increasing firm value
Lowering cost of capital
Revitalizing market
economy
Sustainable economic
growth
efficiency
shareholders' rights
On the economic
system
Positive development on
capital market
More globally competitve
Safeguard of stakholders'
interest
Increasing
competitiveness through
fair competition
On the society
More open, transparent society
Corruption prevention
Rule of law: fair and orderly
Promoting ethical wealth creation
Why corporate
governance?
Corporate governance is
a crucial part of financial
institutions and banking
industry as a whole.
Effective corporate
governance is essential
to the safe and sound
functioning of a financial
institution
Banks and financial
institutions play a
significant role in the
economy and they
should adhere to strong
corporate governance
standards to:
ensure stakeholders’
satisfaction; and
confidence in the
banking and financial
system.
Incentives for the financial services
industry
Individual
banks
• Adoption of Internationally accepted governance
standards will help them to achieve their
corporate aims.
Banking
Industry
• By increasing the compliance in the system the
industry can attract depositors, borrowers,
counter parties and the investors.
Shareholders
• To protect their sponsorship against all risks
and ensure that wealth is multiplied.
Regulators
Society
• Strengthen banking sector and discourage
fraud and misrepresentation.
• At large makes sure that social reward is
maximized
Corporate governance models – a
comparison
Anglo-Saxon or
“neo liberal”
approach
The European
model
Islamic corporate
governance
model
• Principal – agent model
• Relationship of managers vs.
shareholders
•
•
Stakeholders’ model
Relationship of managers vs.
stakeholders
•
•
Stakeholders’ model + Shariah
Answerable to Allah Almighty
Part 2
CORPORATE GOVERNANCE IS
EQUITY INVESTMENT
CONTRACT
Summarized in Three
Simple Statements
Equity investment requires good corporate
governance.
Good corporate governance requires
credible disclosure by the issuer.
The absence of credible disclosure by
issuers will have macroeconomic effects:
bank financing and conglomerate internal
capital markets will not support the
development of economically significant
new industries.
Corporate Governance Roundtable
12
Governance is the Equity
Contract
We are all familiar with the debt contract: a
detailed document specifies the interest rate, the
repayment date, the debtor’s covenants, and the
events of default.
What is the equity contract?
The corporate governance system specifies the rights of
an equity holder and the steps available if management
breaches its responsibilities
Gilson’s rule of value: you pay for what you get!
Corporate Governance Roundtable
13
Governance Requires
Credible Disclosure
The corollary to Gilson’s rule of value:
You get what you can measure.
The algebra of governance and disclosure:
You pay for what you get = you get what you can
measure
Canceling yields:
You pay for what [you get] = [you get what] you can
measure:
You pay for what you can measure!
The difference between disclosure and credible
disclosure.
Corporate Governance Roundtable
14
Step Three: The Effect
of a Bad Equity
Contract
A bad equity contract – an issuer’s inability or
unwillingness to make credible disclosure –
makes it difficult for the market to distinguish
good risks from bad.
The increased cost of capital shifts financing
and the capital market toward debt.
Consequences:
Debt is ineffective at financing high risk, high return
early stage investment.
The capital market will not support cutting edge
industries.
Corporate Governance Roundtable
15
Necessary to Support
Credible Disclosure
Legally Mandated Disclosure
Requirements.
Good Accounting Standards.
Independent Auditors.
Effective Enforcement.
Corporate Governance Roundtable
16
Legally Mandated
Disclosure Requirements
Problem:
How do we distinguish between those who
disclose accurately and those who do not?
Absent effective private intermediaries, a
reputation model will not work.
By imposing penalties on false disclosure, a
legal mandate allows honest companies to
distinguish themselves.
Corporate Governance Roundtable
17
Good Accounting
Standards
The critical characteristic is not the particular
standard – the metaphysics of accounting – but
that the form of disclosure allow users to
rearrange the information to their own use.
Good rule of thumb: an accounting system that
has no use for the adjective “hidden.” Examples:
German hidden reserves.
U.S. debate over charging the value of employee stock
options to earnings.
U.S. pooling vs. purchase accounting for acquisitions.
Corporate Governance Roundtable
18
Part 3
CAPITAL MARKET
EFFICIENCY
Capital Market Efficiency
•
When capital markets are efficient,
costs (labor, capital, and natural
resources) are “correct,” which
improves decision making.
•
Market efficiency is often artificially
affected by government policy:
• Currency controls
• Price controls
• Subsidies
Capital Market Efficiency
• Efficient markets protect
against:
• Adverse Selection: One party
in a transaction has an
information advantage, and
uses this advantage to receive
preferential pricing or risk
transfer.
• Moral Hazard: One party does
Capital Market Efficiency
•
Efficient capital markets “discipline”
corporations:
•
•
•
•
•
Poor decisions are punished.
Stock prices decline.
Cost of capital increases.
Risk of bankruptcy or being taken over
increases.
When governments eliminate the risk,
poor governance (and maybe illegal
activity) often follows
Capital Market Efficiency
•
If a country lacks efficient
capital markets, something else
often takes its place:
• Wealthy families
• Large banking institutions
• Other companies
• Governments
Capital Market Efficiency
•
These entities also “discipline”
corporations in order to protect their
investment but, their interests may be
different from those of other
shareholders and stakeholders.
•
Usually, private parties are less
effective at monitoring companies than
capital markets due to vested interests
and lack of enforcement power.
Part 4
ACCOUNTING & THE
MARKET
Sources of Influence on
Accounting*
*Daniels ,Radebaugh, and Sullivan; International Business 14 th Edition; Pearson
Education, Inc
Cultural Differences
in Accounting
A Disclosure/Assessment Matrix for National Accounting Systems
Classifying Accounting
Systems
Weak vs. Strong Equity Markets
and the Influence on Accounting Standards
From Micro-Uniform to
Micro-Based Systems
Macro uniform accounting system
Government influenced
Japan, Germany, China, France
Micro based system
Pragmatic business practices
The U.S., Mexico, Canada, Australia
Strong vs. Weak Equity
Markets
Strong equity markets vs. weak equity
markets
Movement towards strong
Transition towards IFRS
Failure of Corporate
Governance
Regulations have not always been
effective
The Enron’s case (an exemplary board that
failed miserably).
Regulations have been reactive as
opposed to proactive
Examples: The Sarbanes Oxley Act.
Corporate Governance will not stop the
collapse of SME’s
It all starts within the firm itself
Conclusion
High quality checks/balances in the oversight of
Financial Institutions are cornerstone of effective
governance
Remember “one size does not fit all”
We shall take into consideration that institutions will
adopt different approaches to governance based on size,
complexity and nature of their significant activities
It is important that regulators and policy makers
look to corporate failures, to enhance sound
corporate governance practices, and also to
ensure we can continue to rely on the work of
those who provide independent oversight
functions to corporations whose stakeholders rely
on them
Qualities of the
Accountant of the Future
Personal attributes, which include insight, sound
professional judgment, project management skills,
integrity and ethics
Leadership qualities of strategic thinking, planning and a
cross-functional perspective
Broad business perspective, which includes a good
understanding of one’s organization and industry, risk
management and organizational systems and processes
Functional expertise in the traditional technical skills,
including financial management and taxation
Strong communication skills, be well versed in IT, be
committed to life time of learning
Ability to combine technical skills with strategic vision, see
himself as a professional advisor and business partner.