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Budgetary Planning and Control Cycle Assessment Answer

Workbook 1

Tasks for submission via Turnitin (maximum 1000 Words)

  1. Consider the corporate governance failure of parmalat described by Solomon (pp. 38-40) and list the 3 major corporate governance failings identified.
  2. What mechanisms, if in place that at that time, may have assisted in avoiding the parmalat failure
  3. Do you think that the roles of non-executive directors, auditors, the internal audit committee and the board of directors are all equally important as mechanisms of ‘Good’ corporate governance? If not, which mechanism do you consider the most important? Discuss your answers.

Answer

BUDGETARY PLANNING AND CONTROL CYCLE


1. Consider the corporate governance failure of Parmalat described by Solomon and list the three major corporate governance failings identified.

There are many aspects which resulted to the failure of the corporate supremacy regarding Parmalat Scandal. To start listing down some major factors for the breakdown, the initial one has to considered to be main aspect that the Parmalat does not make sure that the entire non-executives leader are self-determining (Su, Baird & Schoch, 2015). It has been observed that effective managers were involved in Parmalat. The presence of self-governing non-executive directors in the corporation cannot develop only the financial and economic results, but on the other side it can even handle the roles and performance of board members and is supportive in making a proper decision for management, which the Parmalat does not do. 

The main duties of the CEO and Chairman related to same person in Parmalat. This was proved to be the most important factors of governance that have determined the main breakdown of the corporations. A research analysed in the UK by Siegel et al., (2016) determined that organisations require the chairman along with CEO in a separate way to analyse the balances and checks and to avoid actions that might focus on the personal interest that results to downfall of the corporate sector.  

 The most effective reason to show id there are any crucial failures as they did not go through the recommendation provided by the Preda code that suggests the few executives need to be liable and responsible of managing the shareholders in the corporation. In the words of Berente et al., (2016), the availability of independent executive is important in organisations. Therefore, the external responsible executives enable a sufficient action with the administration and make sure that the decisions are taken with the benefits of the corporations. Due to these initial reasons, the commercial supremacy of Parmalat leads to disappointment. 

2. What mechanisms, if in place that at that time, may have assisted in avoiding the Parmalat failure

The crisis of Parmalat is defined as the top most crucial the failures of corporate governance in the history of Europe. The major downfall was sourced by the massive management, disrespect within a proper balance, fraudulence and checks. In the words of Chenhall & Moers, (2015), the massive corporate failure of governance was defined as “Europe Enron”. There are other different factors the organisation may have analysed to prevent, such as devastation. To start with, they need to make sure that the entire non-executive directors were assumed to be self-governing, that they did not. Non-executive directors those who are not employed by the organisations can provide management decisions and non-bias opinions of the organisations. 

The non-executive leaders do not comprise of personal interest with the corporations, so the duties can develop information along with the intensity of the corporations. They comprise of crucial role in plan, interactions with the shareholders, annual controlling, and controlling the close communications with the executives, along with the shareholders (Kivilä, Martinsuoc & Vuorinen, 2017). Another vital improvement Parmalat has to prevent the failures was to comprise some auditors through the government. Internal auditors are the initial key to control the internal management, control structure regarding the study of the risks, and controlling the annual information. In the words of Chenhall & Moers, (2015), the performance operations of the commercial domination are developed as there is an internal auditor can promote the strength in annual internal controls, reporting and management regarding risks, ethics, external auditing, taxes and whistle-blowing. With the help of inner auditing, Parmalat has prohibited the business fraudulence along with the hazard of the failures (Marty, Sweeney & Curtis, 2016). 

3. Do you think that the roles of non-executive directors, auditors, the internal audit committee and the board of directors are all equally important as mechanisms of ‘Good’ corporate governance? If not, which mechanism do you consider the most important? Discuss your answers.

In the words of GuentherEndrikat & Guenther, (2016) the governance of the corporate is liable for dynamically controlling the main interest of the shareholders. Along with this, it also reduces ill acts of personal interest, and develops the actions that develop the activities that develop the factor related to the corporation. The board of directors, along with the audit committee, is crucially important to develop good and corporate governance. To acquire a vitalness of the entire system, it is important to analyse the roles of every auditor.  They need to provide decisions for various factors, control the annual presentation, and make crucial decisions for the corporations.  As per the study, it has been analysed that there is some positive and beneficial outcome in the annual disclosure along with the efficiency of the business when the non-executive executives are performing in the company (Su, Baird & Schoch, 2015). 

An efficient team is vital for improving and maintaining the major excellence of annual reporting, but it reduces the risks of financial, operational and compliance issues. Audit committees are liable for reporting the weakness of the internet and also serve a proper assessment regarding the management. External auditors are not considered as the employees of the organisations. There are recruited directly to focus on the annual reports and also provide the organisations with their efficient estimation of the internal system. 

On the other side, internal auditors play a vital role as being as a consultant for the organisations when they assess and identify the major risks related to the corporations. They perform internally to focus on the different sectors that require further development and where the amount can be served. In the words of Chenhall & Moers, (2015) they also control the activities of the company and also ensure that they are determined by different regulations and laws. By following this efficient way, an internal auditor plays a vital role in ensuring that the corporation is not focusing on any frauds. In the case of Parmalat, because of the lack of internal auditor along with conflict of interest improve within managing the shareholders along with the alternative of shareholders (Kivilä, Martinsuoc & Vuorinen, 2017).

Every mechanism is crucial and important at the other. They have their responsibilities and roles to play to control the good governance corporate. When the directors perform together, it generates a appropriate system of balances and checks and avoids interest within the shareholders. 

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