Importance of internal controls, financial reporting and audit to corporate governance of public listed company.
The concept of governance is referred to as the process of governing which is being carried out bu government, market or network with the assistance of laws, norms, power as well as language (Tricker, 2015). It is associated with the process of interacting and decision making among the people involved within the collection issues that results in creation, reinforcement or reproducing of social norms as well as institutions. The present essay entails to understand the meaning and significance of internal controls, financial reporting and audit to corporate governance of public listed company (Austin, 2016). Further it makes analysis of all in terms of their importance of the organization. The organization that is being selected for the present essay is Next Plc. The company is British multinational clothing, footwear and home products retailer that has headquarter in England, UK. Firm possess approximately 700 stores out of which 502 are in UK and Ireland. Next Plc is the largest clothing retailer by sales in United Kingdom. Thus there is greater role of internal controls, financial reporting and audit to corporate governance of public listed company such as Next Plc.
Financial reporting is considered as an essential element of corporate governance. It can be defined as disclosing of financial information to the management as well as public. This is in relation with the manner in which Next Plc is performing over a particular time period. Financial reports are being issued on the basis of quarterly and annual basis (Bebbington, Unerman and O'Dwyer, 2014). There is certain purpose behind carrying out financial reporting. This includes assisting the management to involve in effective decision making relating with firm's objectives and overall strategies. With the data disclosed an insight can be drawn regarding strengths, weakness and financial health of Next Plc. Further the role of financial reporting is effective in offering crucial information regarding financial health and activities and activities of organization to its stakeholders. This includes shareholders, potential investors, consumers and government regulators. With the increasing number of scandals it has become important to gain knowledge regarding the role of corporate governance in the process of financial reporting. There are certain professional organizations such as conference board, NYSE who has issued standards and guidelines relating with corporate governance in order to build the trust of public within organization (Boussebaa, 2015). Just complying with such measures might not be enough in building confidence among the investors. Thus it becomes important for Next plc to bring improvement bin their structure of corporate governance. Financial reporting is governed by the means of common and statutory law. Further it needs to be done in accordance with the ethical standards. It has been examined that in certain cases financial reporting falls short of both ethical and legal standards. The requirement for accounting and financial reporting change due to reasons such as Scandals and complexity that reflects ineffective in governance by the organization.
The concept of audit is referred to as the examination as well as verification of the books of accounts of the organization like Next Plc in systematic manner. It also includes analysis of the transaction records and other relevant documents by the qualified accountant. Such is in order to reveal that whether the business has presented its financial statement in true and fair manner or not (Veldman and Willmott, 2016). It attempts to makes sure that books of accounts are maintained in proper way or not. With audits third part can be offered with assurance that several stakeholders which are subject matter are free from any sort of material misstatement. The role of financial audits is being carried out for the purpose of ascertaining validity as well as reliability of the information. Further it offers assessment regarding internal control of system. This assist in representing the extent to which the organization possess the quality of corporate governance. The term corporate governance can be referred to as the oversight of business policies, procedures and practices. Such acts as an aid in ensuring that firm is operating in the best interests of the corporation and its shareholders (Soin and Collier, 2013). The firm like Next Plc employs auditors staff for the purpose of testing and monitoring internal controls. One of the most essential task relating with internal auditor is the detection of fraud. This is because it can result in causing loss to firm and can influence the image of the company to a greater extent.
Another major aspect relates with internal control. It is referred as the procedure of assuring the achievements of the business objectives within operational effectiveness as well as efficiency (Carnegie and O’Connell, 2014). Further it also includes reliability of financial reporting and compliance with laws, policies and regulations. It has been assessed that internal control is the technique that is put in place by the firm in order to ensure the integrity of financial and accounting information. This is in order to meet operational as well as profitability targets and transmit policies of management throughout the business. There is greater role of internal control in the corporate governance systems. With control business can make preparation of accurate and complete financial statements at the last of every month (Westphal and Zajac, 2013). Through the implementation of functional control business can hedge, protect against the operating risk. Such risk can relate with the manufacturing activities as well as technological processes of