Recent extensive study of internal control in business has led to the development of a definition capturing both positive and negative aspects of the issue. While the structure of modern organizations often undermines this control, it has become recognized as an essential component of successful enterprise. Effective governance consists of competent management; implementation of standard policies and processes; maintenance of an appropriate audit program and internal control environment and effective risk monitoring and management information systems. The integrity and reliability of the internal control systems are achieved through clear policies and procedures, process automation, careful selection, training and development of employees and an organization structure that segregates responsibilities. An effective internal control system has inherent limitations no matter how well designed, and therefore, may mitigate but cannot eliminate risks. In addition, there are areas of the Group’s business where it is necessary to take risks to achieve a satisfactory return for shareholders, such as investment in development of new products or acquisition of businesses. Without vulnerability to the risk of opportunism, there is no need to trust. Trust decreases monitoring costs as a result of each party’s confidence in the other’s performance, even though short-term incentives may favour opportunism. Trust and risk are subjective concepts embedded in a web of social relationships. The organizational culture is an important determinant at the collective level that can shape organizational predispositions. There is strong need for voluntary action. Social capital can facilitate collective action and access to resources; it can stimulate trusting relationships and a culture of confidence between the executive and workforce. Stakeholder relationships minimise shareholder risk, promote innovation, enhance reputation. Trust, a cooperative spirit and shared understanding between a company and its stakeholders creates coherence of action, better knowledge sharing, lower transaction costs, lower turnover rates and organisational stability, all leading to increased business value. This work discusses the systems of corporate governance and the way they affect control, including a breakdown by relevant factors such as technological advances, sizes and areas of industry and the role of social capital in enhancing trust relations. Trends in definition, practice and application of control are presented with reference to increasing dependence on technology and changes. The interplay of internal control and social capital is explained to highlight internal control’s role in risk reduction. A detailed exposition of the effects that relationships between various levels of stakeholders have on control reveals the unique challenges posed to management accountants.
The Systems of Corporate Governance: Social Capital Influence on Internal and External Control
D'ORIO, Giovanni;LOMBARDO, Rosetta
2006-01-01
Abstract
Recent extensive study of internal control in business has led to the development of a definition capturing both positive and negative aspects of the issue. While the structure of modern organizations often undermines this control, it has become recognized as an essential component of successful enterprise. Effective governance consists of competent management; implementation of standard policies and processes; maintenance of an appropriate audit program and internal control environment and effective risk monitoring and management information systems. The integrity and reliability of the internal control systems are achieved through clear policies and procedures, process automation, careful selection, training and development of employees and an organization structure that segregates responsibilities. An effective internal control system has inherent limitations no matter how well designed, and therefore, may mitigate but cannot eliminate risks. In addition, there are areas of the Group’s business where it is necessary to take risks to achieve a satisfactory return for shareholders, such as investment in development of new products or acquisition of businesses. Without vulnerability to the risk of opportunism, there is no need to trust. Trust decreases monitoring costs as a result of each party’s confidence in the other’s performance, even though short-term incentives may favour opportunism. Trust and risk are subjective concepts embedded in a web of social relationships. The organizational culture is an important determinant at the collective level that can shape organizational predispositions. There is strong need for voluntary action. Social capital can facilitate collective action and access to resources; it can stimulate trusting relationships and a culture of confidence between the executive and workforce. Stakeholder relationships minimise shareholder risk, promote innovation, enhance reputation. Trust, a cooperative spirit and shared understanding between a company and its stakeholders creates coherence of action, better knowledge sharing, lower transaction costs, lower turnover rates and organisational stability, all leading to increased business value. This work discusses the systems of corporate governance and the way they affect control, including a breakdown by relevant factors such as technological advances, sizes and areas of industry and the role of social capital in enhancing trust relations. Trends in definition, practice and application of control are presented with reference to increasing dependence on technology and changes. The interplay of internal control and social capital is explained to highlight internal control’s role in risk reduction. A detailed exposition of the effects that relationships between various levels of stakeholders have on control reveals the unique challenges posed to management accountants.I documenti in IRIS sono protetti da copyright e tutti i diritti sono riservati, salvo diversa indicazione.
