Palmer & Harvey: A Case of Governance and Audit Failure

Palmer & Harvey (P&H) is a recent example of a UK corporate failure which raises questions about current corporate governance practice, the quality and integrity of audit reporting, and the “sugar coating” of Annual Reports. P&H is but one example of UK firms currently struggling to survive, or failing. The paper presents some details about the P&H case, and then considers questions about corporate governance practice, and whether it is designed to truly safeguard the interests of stakeholders; it raises questions about conventional audit reporting, and whether it is too limited in its analysis and reporting. The paper recommends a strengthening of corporate governance guidelines and practice within the terms of the current Financial Reporting Council (FRC) review, and a wider adoption of forensic accounting practice and reporting, in part taking account of the impact of behavioural factors in management practice. A wider study is proposed to take this analysis and discussion further

Evaluating the Effect of Top Management Attributes on the Probability of Default

A few studies have focussed on the relationship between the top management team and probability of firm default. This research aims to evaluate the effect of CEO and CFO attributes, as top management, on the firm's probability of default. The research adopts a quantitative research methodology, of 642 companies on the FTSE all Share index. The findings show that as remuneration and tenure increased the probability of default decreased. This research proposes a regression model that ascertains the causal effect of an increase in the tenure and compensation of the Top Management Team on the Probability of default of a firm over a 3-year period. The findings will have a direct implication on management tenure and remuneration for firms to reduce their probability of default. This research can be developed further by undertaking a time series analysis of the data to see how the changes over time would affect the relationships. Keywords: Top Management Team, Probability of Default, CEO, CFO, KM

Trust: The critical factor in theory and practice, from banks to cakes

This paper suggests that due to the incidence of leadership behaviours that are detrimental to many organisational stakeholders', more should be done in terms of corporate governance and auditing to address this. For stakeholders (such as pensioners, staff, and creditors) their relationship with organisational leaders is built on implicit trust. Any damage to that trust can have catastrophic repercussions for many stakeholders, be it emotional through stress or financial. Agency Theory provides a rationale for a basis on which trust can be broken. Rebuilding trust can be a herculean task, so it is important to seek ways in which any potential risk to trust can be avoided. Good governance practice is essential in the quest to maintain trust and protect stakeholders. Tighter guidelines for the content of Annual Reports, more insightful information on the skills, background, and behaviours of organisation leaders, and the use of forensic accounting techniques in the preparation of Audit reports will all facilitate maintaining trust and avoiding risks

Accounting scandals: Beyond corporate governance

Accounting scandals are becoming perpetual in nature. They range from the ancient Mesopotamia, to the South Sea Bubble of 1720, to the famous Enron of 2001, down to Parmalat, Tesco and Toshiba of today. The series of accounting scandals that have occurred in the last two decades calls for a greater concern by the accounting profession. The accounting scandals that have occurred in this 21st century alone have shown that there is a need to look beyond corporate governance in the fight against financial deception. In this paper we argue that even in the face of the Sarbanes Oxley Act of 2002 and other regulations around the world that are targeted towards effective corporate governance, accounting scandals have never ceased to occur. Most of the legislation that has been passed in recent times was targeted at corporate governance, forgetting the crucial role that audit play within the agency relationship. And whenever there is any revelation of fraudulent financial reporting, investors don’t ask who are the directors, but the first question they ask is who are the auditors? Hence, there is a need to improve audit quality by approaching it from a forensic accounting perspective in order, to reduce the incidence of financial statement frauds in this era of information revolution. Thus, restoring investors’ confidence back in the financial reporting process and corporate governance. In this paper, we propose a forensic accounting paradigm as a viable option for reducing accounting scandals, since this will compliment corporate governance systems

Accounting scandals: beyond corporate governance

Accounting scandals are becoming perpetual in nature. They range from the ancient Mesopotamia, to the South Sea Bubble of 1720, to the famous Enron of 2001, down to Parmalat, Tesco, and Toshiba of today. The series of accounting scandals that have occurred in the last two decades calls for a greater concern by the accounting profession. The accounting scandals that have occurred in this 21st century alone have shown that there is a need to look beyond corporate governance in the fight against financial deception. In this paper, we argue that even in the face of the Sarbanes-Oxley Act (SOA) of 2002 and other regulations around the world that are targeted towards effective corporate governance, accounting scandals have never ceased to occur. Most of the legislations that have been passed in recent times were targeted at corporate governance, forgetting the crucial role that audit plays within the agency relationship. And whenever there is any revelation of fraudulent financial reporting, investors do not ask who are the directors, but the first question they ask is who are the auditors? Hence, there is a need to improve audit quality by approaching it from a forensic accounting perspective in order to reduce the incidence of financial statement frauds in this era of information revolution, thus restoring investors’ confidence back in the financial reporting process and corporate governance. In this paper, we propose a forensic accounting paradigm as a viable option for reducing accounting scandals, since this will compliment corporate governance systems

Mergers and acquisitions and the CEO: tenure and outcomes

Tenure is an important component of mergers and acquisitions (M&A) outcomes, as highlighted in this study and recent studies by Zhao (2022) and Bilgili, Calderon, Allen, and Kedia (2017). Research on top management teams (TMTs) has found that a good work relationship between senior managers enhances team cohesiveness, communication, and firm performance. This study explores the impact of the joint tenure of the chairperson and the CEO on M&A outcomes. We utilised the resource-based view (RBV), upper echelon theory, and season of tenure theory as theoretical lenses to explore joint tenure’s potential impact on M&A outcomes. Through a long-event window research methodology, which examines the cumulative abnormal returns to the acquirer’s shareholders for a period of three years following the completion date, this study found that the length of the period of joint tenure of the chairperson and CEO in acquiring firms was significantly positively correlated with the cumulative abnormal return (CAR) to acquiring firm shareholders during the three years following completion of an acquisition (CARB). Although this study has utilised 47 acquisitions in Australia from the period from 1990 up to the global financial crisis, our findings are quite revealing. They have contributed to the limited study on joint tenure

Financial shenanigans: The importance of anti-fraud education

Fraud, financial distress and liquidation, audit failures, hubris and narcissism, are all genuine and serious issues in today’s business environment. Challenges exist for organisations in many different guises as they strive to achieve their goals. This often results in a balancing act between the right course of action and action which could be seen to be ethically immoral or even illegal. Recently many organisations have encountered financial distress for different reasons, at a high cost to employees, pensioners, and other stakeholders. How can organisations ensure that legal and ethical decisions and actions are taken? Through a review of literature, recent case studies, and the incidence of relevant courses in universities, this paper examines the importance of education in the fight against corporate fraud. Evidence indicates that employees can be effective corporate watchdogs in the fight against financial deception and unethical decisions; increasing the number of people in a firm with enhanced fraud awareness and knowledge through education should, therefore, be one of the essential requirements for our future business managers and leaders. We indicate why anti-fraud education is important in the fight against financial shenanigans, and why it should be more widely adopted for the benefit of all stakeholders

Fraud Detection and Prevention: A Review of the Latest Developments in U.K. Audit

Proposed reforms to U.K. audit are reviewed from a fraud detection and prevention perspective. A holistic four-actor model that encompasses: the directors, auditor, shareholders, and the regulator, is used to frame the discussion. Focus is drawn to the mediating role of the Audit and Assurance Policy. The paper argues that the proposed reforms have some potential to reduce the audit expectations gap. However, the problem of agency costs and the advisory nature of shareholder voting on the Audit and Assurance Policy significantly limit the possible effectiveness of the reforms from a fraud detection and prevention perspective. Suggestions for future research are made

Annual Reports: Fact or Fiction? Are there governance implications?

Two recent high-profile announcements of companies going into administration (Palmer & Harvey) and liquidation (Carillion) raise questions about the robustness of statements made in annual reports including the quality and objectivity of audit reporting, and the implications of this on Corporate Governance practice. This discussion coincides with the Financial Reporting Council 'Proposed Revisions to the UK Corporate Governance Code', December 2017. This paper considers some of the behavioural factors which influence performance and, most likely, performance reporting. It also considers some of the potentially fraudulent activity by firms, and the quality and nature of audit reporting in Annual Reports. Contexts of this paper are Agency Theory and Merger and Acquisition (M&A) activity. The next step in this research will be to increase the sample size and explore the scale of the issues being considered, and then develop recommendations for both corporate reporting narratives in Annual Reports, and the adoption of forensic accounting techniques in audit reporting