Corporate Failures, Corporate Governance and Triple Bottom Line Reporting
Recent corporate failures are due to the use of special-purpose entities to hide debt. the incorrect recognition of revenue, the incorrect classification of expenditure as assets instead of expenses and an underestimation of liabilties. As a result, there has been a review of corporate governance requirements in many countries. In the U.S. the practise of establishing estimate of next quarter's profit creates pressure to meet targets or face a fall in share price. This in turn creates an incentive for fraud.
Corporate governance is the mechanisms that exist to provide some assurance to absentee owners that the management of the company is accountable for its actions. The board is a governance mechanism with a role to represent shareholders and create value for shareholders. Typical issues raised include the number of independent directors on the board, duality of leadership, size of the board, qualifications of directors, number of board memberships for directors, length of service.
The audit committe is a subcomittee of the board of directors which reviewsthe financial statements and recommends them to the board, oversees the appointment and relationship with the auditor, reviews compliance iwith regulations and standards, reviews internal controls, oversees risk management practises.
Triple-bottom accounting refers to the publication of economic, environmental and social information within an integrated report. TBL benefits a company's reputation, moral, legitimacy of operations, transparency, and promotion of strategies. Disadvantages include costs versus benefits, creation of potential future liabilities, lack of sales improvements, advantage to competitors who don't prepare one and the existence of other ways of communicating such information. The Global Reporting Initiative (GRI) was established in the Netherlands through the United Nations Environmental Program with the objective of enhancing the quality, rigour and utility of sustainability reporting. It is the most widely cited benchmark in determination of what should be included in a TBL report.