Bdo Benchmarking Assignment Essay Example for Free

Bdo Benchmarking Assignment Es severalizeWhen considered in general terms Turnbull described it as entirely influences affecting the institution processes, including those for ap notwithstandinging the controllers and/or regulators involved in organising the production and sale of untroubled and services.. it includes all types of firms whether or not they argon in corporeald infra civil law. (Turnbull, 2002181) Factoring in all otherwise definitions, in its simplest terms it heap be defined as the exercise of power over corporeal entities (Clarke, 2004).It is not the same as the caution and the running of the caller, it is concerned with how the Board of Directors, who are the governing body of a alliance, supervise management, because it is they who are responsible for memory the management of a company accountable and ensuring the company is being ran in a way which is favourable towards the shareholders and other stakeholders. It is the Directors responsibility to develop strategy and policies for the ompany and to learn the direction the management should take the business in and the Directors contrive overall responsibility for the per influenceance of the company (Tricker, 2012). While the phrase bodied brass section wasnt coined until the 1960s and not comm exactly used until the 1980s, it has really been in a gradual process of evolution since the 16th century and joint venture trading. 1 of the major developments in world economies which brought the need for collective face to the fore was the introduction of limited liability companies in the 19th century.What this meant was when companies were incorporated they became a evidence legal entity, separate from their shareholders and with similar legal rights to buy, sell and transfer shares and assets, to employ people and to sue and be sued in the name of the company. This meant the liability for any company debts lay with the shareholders and not the management or the company . Add to this the fact that because of the introduction of the stock merchandise, shares could be easily bought and sold, meaning the shareholders could be vast in poem and have a large geographical spread. repayable to the fact that all corporate entitites need to governed, the implications of this were that the management (executive control) and the shareholders ( owners) were often separated (Tricker, 2012). Situations such as these, are where corporate governance is deemed to be closely necessary because on that point is a root assumption, that members of management who do not own the company are in all probability to be more reckless with someone elses money, i. e. the companys, than they would be with their own money (Having Their Cake, 2013). This is known as the mental representation quandary, which pull up stakes be grow upon later.Electing a Board of Directors who have the by-line of the shareholders at the forefront of their mind, allows members to indirectly ove rsee the actions undertaken by the management, in rules of order to ensure that as agents of the shareholders, the management is do in line with the best interests of the corporation (Lashgari, 2004). 1. 2. Selection of a Case Company However, as Turnbull pointed out(a) in Corporate brass section Its scope, concerns and theories (2002), having a bar of only publicly traded corporations in studies of corporate governance, limits the validity of any onclusions drawn about the most efficient arrangements for corporate institutions with regards to good governance practices and the effect they have on a companys performance. As Jensen said in 1993 Privately held entities could fork out the most form of enterprise. (Jensen, 1993, cited in Turnbull, 2002). It was with this in mind that I chose BDO LLP UK (BDO), which is an incorporated partnership company in the UK, which is owned and ran by its members/partners. It is a company which offers financial accounting, audit, tax and busin ess consultancy services (BDO LLP UK website, 2013). . 3. About the UK Financial news report and Audit Sector With the ever increasing focus on corporate governance for companies across the World, not just in the UK, audit firms such as BDO, KPMG and Deloitte are becoming more important because it is there job to ensure that companies are adhering to regulations laid out in the UK Corporate administration formula (2010, revise in 2012). It should naturally follow that audit companies will have extremely good corporate governance practices edit in place, however, this is not necessarily the case.Since 2000 there have been a number of high profile s bottom of the inningdals within the outside(a) Corporate Financial Accounting industry, for example, Enron were found to be inflating revenues and hiding debts and there was in addition the Bernard Madoff Ponzi Scheme, where the real scandal was that the robbing of millions of pounds worth of peoples money, escaped the attention of auditors and regulators. ). Due to such scandals, many national regulators implemented new corporate governance requirements to improve measures (Mitchell Van der Zahn, 2009).In the UK new regulations with regards unique(predicate)ally to audit companies were excessively introduced, targeted directly at a certain group of companies. As of January 2010, 95% of the auditing work in the UK was being carried out by 8 firms, BDO being one of them. It was deemed that such companies had built upon their re put ination to gain dominance in the UK market and the Financial Reporting Council (FRC) felt it was in the Publics interest for these companies to be transparent and in order to maintain public trust be exemplars of best corporate governance practice.This led to the introduction of the Audit Firm Governance legislation (2010) by the Institute of Chartered Accountants in England and Wales (ICAEW), which drew from aspects of the 2010 UK Code and established principles such as the appoi ntment of independent non-executives within the governance structure of their company. While such rules did not apply outside of the targeted companies, it was the hope of the ICAEW that it would provide a benchmark of good governance for other companies to follow (ICAEW website, 2013). With such a bold statement being made about the importance of corporate governance in this field of work, it seemed to me to be an obvious choice to choose one of the 8 companies on the ICAEWs list for my case-study. 1. 4. About BDO LLP UK As detail earlier BDO LLP UK is an incorporated partnership company in the UK, which is owned and ran by its members/partners and it provides financial accounting, audit, tax and business consultancy services.It is the 6th largest accountancy firm in the UK and is a member of the BDO International Network, which itself is the 5th largest accounting organisation in the World. In an attempt to break into the top 4 big firms in the UK, BDO LLP UK completed a merger w ith PKF, a rival firm, in April 2013 (Keynote, 2013). After researching BDO LLP UK, it became very easy that corporate governance was of the upmost importance to the company.Not only did it have specific areas on its website dedicated to corporate governance and corporate social responsibility but it as well had a number of relevant publications regarding corporate governance. One clause for example, Making inner(a) Audit Relevant, discussed the high lumber of corporate governance in the UK found by studies carried out by the FRC, it went on to say that this was underpinned by the UK Corporate Governance Code and that it was vital in maintaining the attractiveness of the UK market, to encourage new investment (BDO LLP UK website, 2013).My research also found that BDO had carried out a joint study with the Quoted Companies Alliance, which considered the introduction of a mandatory corporate governance code for small and mid-capital audit companies in the UK. Just as a point of f act, this was a proposition that 92% of such companies agreed with. One of the major indications that BDO think corporate governance is vital to the victor of a company is that they garden truck an annual transparency report, which has an appendix of a statement of compliance with the Audit Firm Governance Code (2010).They have also went to great lengths to create a summary report in 2012 for businesses which they audit, detailing any changes to corporate governance regulations and focusing on leadership and effectiveness, report, risk, audit, remuneration and investor relations (Corporate Governance for TMT Businesses, 2012). It seems to be an interest idea to look at a company who places so much emphasis on good corporate governance, not only for itself but also the companies it whole works for, to see if they do comply completely with the codes and if they are in fact exemplars of good practice. . Theories of Corporate Governance thither are various theories and philosophies with regards to corporate governance, all of which, as a collective, have laid a foundation for the development of antithetic corporate governance systems around the world (Lashgari, 2004). This paper will look at a number of these theories and how they relate to BDO, in order to gain a better intelligence of the governance standards at BDO. 2. 1. Agency openingIn the 1930s, Berle and Means published The Modern Corporation and Private Property, it provided the first debate about the means dilemma and set a base for means theory. They suggested that where ownership is separated from management or is widely dispersed, it be commences difficult for owners to have an effective check on the autonomy of corporate managers. The agency dilemma was further refined in the 1970s, when theories were brought to the fore suggesting agents (managers) are likely to be self-interested and will serve their own interest before those of the principle (owners).Such theories also suggested that in order to counter this problem companies have to incur agency costs, for example, to create incentives to align the interest of the agent with the company and the cost of monitoring the deal of agents. Many other theorists have a problem with agency theory because it does not even attempt to explore the possibility managers are not self-interested and opportunistic. However, they cannot pass up that it has een very influential in developing market-based governance mechanisms and board-based governance mechanisms. Due to BDO being an incorporated partnership and their shares not being publicly traded, we will only look at the board-based mechanisms (Having Their Cake, 2013). Agency theory has caused internal reform of boards, there has been an sum up in executive share options schemes, meaning that managers are being offered fair play in the company they will manage, in order to align their interest (Having Their Cake, 2013).Agency theory has also led to the introduction of indep endent non-executive directors onto Boards of Directors, in order to ensure the actions of the management are being sufficiently monitored by the board themselves and billet of boards have been greatly elaborated, they are becoming more involved with the saddle horse of objectives of companies and monitoring of any actions taken by management and stricter provisions have been put in place to ensure the separation of the roles of chairmen and chief executive (Cadbury Committee, 1999).When applying agency theory to BDO, it is easy to see that there is a situation of agency and principle, with the fact that there are 193 partners in the firm and only 5 partners who are part of the Leadership Team (LT- management) which is responsible for the overall management of the company and is chaired by the Managing participator. It is also noticeable from their 2012 Transparency Report that all members of the LT have been partners in the company for a number of years, with currently the shorte st term being 12 years.This could be considered good governance by BDO because in an effort to avoid the agency dilemma, they ensure their management team is made up of partners, whose interest is already aligned with the interests of the business. The transparency report also states that BDO have a Partner Council (equivalent to a Board of Directors) which is independent from the LT and responsible for the overall governance, in particular the oversight and accountability of the LT. They are also responsible for choosing members of the LT and for electing independent non-executive directors, for which there are 2 at BDO.These independent non-executive directors sit on the LT and report to the partner council of any issues of compliance with governance, policies and procedures, for which they are responsible for providing selective informationrmation on to the LT. The Partner Council is chaired by the older Partner who performs a client facing role and is responsible for managing all endings. He also attends LT meetings in a non-executive capacity to facilitate his oversight role of the governance of the company (Transparency Report, 2012).As we can see the management team is subject to a lot of oversight and monitoring by the Partner Council and the roles of the old Partner and Managing Partner are completely separate, this is all a way of ensuring the company has a high standard of governance and to also ensure the management is acting in the best interest of the all the owners. BDO goes to a big effort in organising their governance structure in order to avoid the problems arising from the agency dilemma. 2. 2. Resource Dependence TheoryThis theory originated from studies performed by Pfeffer and Salancik (1978), they suggest that board members and non-executive directors can provide a firm with a vital set of resources. Non-executive directors are appointed with the expectation that they will support the organisation with its problems and to be a sourc e of expertise which executives can draw upon for skills and advice and they can also be a source of contacts and information which they have gained through their past experience (Having Their Cake, 2013).At different stages in the life-cycle of companies, they have very different needs from their non-executive directors. To young entrepreneurial companies, non-executive directors can be a cheap source of legal, financial or operation management skills, succession publicly listed companies are in need of intercommunicate connections such directors can provide, for example, sources of finance.They can also provide the benefit of attaching a good reputation to their company. Mature businesses, with which we are most concerned because BDO falls into that category, can use non-executive directors for their relevant market or managerial experience and from the consumer confidence which can be gained from that persons good reputation being interact to their company (Having Their Cake, 2013).Applying this theory to the independent non-executive directors of BDO, we can clearly see from the Transparency Report (2012) that both have experience of past non-executive director roles and both shoot their own experience in a relevant field, Lesley MacDonagh with a high level of experience of law and business management which she gained from being a Managing Partner at Law firm Lovells and Lord David Currie having experience of business management from eing a Dean of Cass Business School and a past Chairman of OFCOM and he also has sound knowledge of the legal system from being a member of the House of Lords. This places them perfectly for their positions of overseeing the governance of and business management of BDO. 2. 3. Stewardship Theory This theory, which originated from the works of Donaldson (1990), suggests that directors can have motives which are pro-organizational and counters the assumption by agency theorists that management aims are based in self-interest and are not aligned with those of the shareholders.Donaldson even goes as far as to suggest that negative investor assumptions of the management will have the opposite effect to what was intended and can actually weaken the leadership of a company by weakening the managements authority when splitting the decision making power between the board and the management.Donaldson also put forward the theory that inside managers and directors have possibly spent their lives working for the company they govern and because of this not only have a virile sense of how the company is ran, therefore are able to make superior decisions, but also they will have naturally built a buckram standstill and personalised investment in the success of the company.He also points out that decisions made by a board of outsiders could be of a lower timbre because they would not be in a position to fully understand the company because they would not have access to the same informal knowledge sources and wou ld overleap any information which could inform them of the contextual nature of any business situations. All this in turn could lead to low firm performance (Nicholson and Kiel, 2007). As was stated earlier, BDO has a LT which is made up of partners who have been working for the company in a particular field and have been a partner for a number of years.The field they are responsible for as part of the LT is relevant to the field they have been previously working in, for example the Head of Audit and Tax, capital of Minnesota Eagland has been a Tax Partner for 17 years. This ensures that any decisions that are being made are informed with the necessary knowledge to make the correct decision for the company. Also, as has been stated previously working for the company has long has built a strong affiliation to the company and its success.With regards to the non-executive director element of the board, it is made up of both independent members who come from outside the company (such a s mentioned previously) and Directors such as the Senior Partner who has been with the company for a number of years, this allows for any gaps in the knowledge of the directors to be covered because there is an overlap between the meetings of the LT and the Partner Council when the Senior Partner sits in on LT meetings as an affiliated non-executive director.This ensures that the company is practicing good governance and that the board cannot be misled by the management as to how the company is being ran and if the interests of the other Partners are being looked after (Transparency Report, 2012). 2. 4. Stakeholder Theory Freeman (1980s) put forward a whole new idea in terms of corporate governance theories, he argued that it should not simply be just the shareholders or partners interests which should be considered when making business decisions, he suggested that companies should be ran with the interests of all stakeholders in mind.Other stakeholders include employees, who have i nvested their time and skills in the company and have an invested interest in the companys success, in order for them to ensure job security. This, Freeman classes as a direct interest in the success of the company, other direct stakeholders include customers and suppliers. What Freeman classed as having an indirect interest in the performance of the company includes the community as a whole and the environment (Having Their Cake, 2013).There is a major problem with this theory, which is that it is hard to operationalize because it is difficult to decide the weight that should be given to different stakeholders but accepting this difficulty, some theorists have suggested that while ultimately they are accountable to the shareholders, they must take into account the interests of other stakeholders when making decisions.This demand for stakeholder value is legitimised through a number of examples, take globalisation the spread of business and corporations across the world has led to environmental damage, an increase in corporate corruption and excessive executive pay has been, for example with RBS, to come hand-in-hand with company downsizing which has a direct impact on employees.In the name of good corporate governance, the increase in the value of stakeholder interests has led to an increase in business ethic codes and heightened corporate practice visibility and corporate reports of social responsibility and environmental matters (Having Their Cake, 2013). According to BDOs website and their Transparency Report (2012), the company takes the interests of various stakeholders into account when making decisions about how the business is run, in a number of different ways, through policies and procedures * Ethical RequirementsThe company has a Professional serve Manual and an Audit Manual, which contain rules relating to ethical conduct of employees, management and Partners. It is easily accessible on the company intranet and is supplemented with training and is designed to comply with International and UK ethical motive Standards. The Partners and staff sign annual declarations as to their compliance to the code and the company has an Ethics Partner who is tasked with providing guidance as to correct ethics and also with maintaining compliance. * knob RelationshipsBDO has 5 core values which all partners and staff are committed to, they are honesty and integrity, taking personal responsibility, mutual support and strong and personal client relationships. To aid in these values and to help deliver a quality service to clients, the company has robust client and engagement procedures. They carry out risk assessments on every potential client, before signing a contract and this helps to ensure that not only is the company secure but also that they provide the client with the sufficient standard and amount of staff they are in need of.The HR department also has clear policies and procedures when it comes to recruitment in training, to ensur e the company has a sufficient number of staff who are competent and meet the required ethical standards, all in the name of providing a quality service to clients. * Employee Relationships BDO have an inclusive culture when it comes to recruitment and training and development, it provides every staff member with the same opportunities to progress regardless of differences. They have strong policies and procedures regarding regular reviews, which are performed bi-annually.They also seek to adopt the most relevant recruitment selection tools, in order to ensure the fit and quality of those join the company. They also provide employees with learning maps and career and performance wheels, which helps with career development and ensures promotions only occur when the staff member is ready. This all aids in the success of the company. * Corporate Social Responsibility BDO actively support and develop the topical anesthetic community, they have an established network of over 20 champio ns in the UK, tasked with stimulating local ideas and initiatives to help developing the community.They have a Community Volunteering Policy, allowing employees to take 6 days a year to volunteer, and they are not restricted to volunteer at certain organisations. It can be whatever is important to them. BDO ensure the negative impact their business has on the environment is minimised and have an Environmental Policy which can be accessed at the follow address http//www. bdo. uk. com/about-us/corporate-social-responsibility/environment. Considering this, it could be said that with regards to stakeholder value BDO practices good corporate governance. . BDO Governance in Practice 3. 1. Transparency Report Due to the EUs 8th Directive on transparency reporting being adopted, in April 2008 the Professional Oversight Board published the Statutory Auditors (Transparency) pecker (2008), requiring auditors of companies with a public interest to publish annual transparency reports. It also d etailed requirements that such reports must meet, including systems of quality control, independence practices and procedures and information about the company, i. e. he structure and the management. The BDO Transparency Report (2012) is available at http//static. bdo. uk. com/assets/documents/2012/09/Transparency_Report_for_the_52_weeks_ended_29_June_2012. pdf . Transparency reports are used to demonstrate the quality of audit processes and practices of a company and are also used to encourage a high level of confidence and trust from stakeholders and the business community. BDO also provided a statement of compliance with the Audit Firm Governance Code (2010), which can be seen in Appendix A.The transparency includes details of the Governance Structure of the UK Firm, including the management and implementation of independent non-executive directors, the values of the company, the Internal note Control System, the Risk Management Control System and details the policies and proced ures regarding independence, whistleblowing, schoolmaster development and partner remuneration. 3. 2. Statement of Compliance with the Audit Firm Governance Code One of the most important aspects of the Transparency Report is the Statement of Compliance with the Audit Firm Governance Code.Some of the key aspects of which include compliance with * the owner accountability principle- the Partnership Council reviews decisions made by the Leadership Team, the management * the management principle- strategic and operational leadership is provided by the LT * the professionalism principle- the whole firm is committed to quality work and professional judgement and values. The firms management and the Head of Risk and Quality reinforce the appropriate tone at the top, lend professional and ethical values in the firm.BDO employees are expected to comply with an internal code of conduct * the Involvement of independent non-executives principle- BDO appointed Independent Non-Executives in Ju ly 2008, comply with the same independence requirements as our partners and employees and they have sufficient experience and expertise to command the respect of the partners * the Compliance Principle- BDO have policies and procedures to ensure they comply with professional standards and applicable legal and regulatory requirements * the whistleblowing policy- all actions arising out of incidents of whistleblowing, are reported to the Head of Risk and Quality who will make an annual report the Internal Reporting Principle- LT, Partnership Council, Audit Committee and Risk Committee are supplied with information in a timely manner and in a form and of a quality which enables them to discharge their duties * the Financial Statements Principle- BDO publish annual audited financial statements in accordance with UK GAAP While BDO provide a very clear statement about how compliant they are with regards to the Audit Firm Governance Code, we must look at the FRCs BDO LLP- Audit Quality Ins pection, 2013 which considered the corporate governance compliance of BDO in order to get a true understanding of their standard of corporate governance compliance. 3. 3. FRC Annual Review of BDOThe FRC found that in most areas there were appropriate policies and procedures in place for its size and client base and they found that all the statements that were made in the Transparency Report were consistent with their understanding of BDOs policies and procedures of the firm. However, when the FRC reviewed the audits BDO carried out themselves on other companies, they found that a number of governance codes were not being adhered to * Firstly, they were not always providing a high standard of quality auditing, failing to challenge explanations and inputs from managers, they did not always report the disclosure deficiencies which were identified to the Audit Committee and there was a lack of adequate chat with the Audit Committee with regards to inaccurate information, which led to s afeguards that had been put in place not being properly assessed. Secondly, the FRC found that the audits were not always being reviewed exhaustively enough and audit quality issues and omissions in reports were not being identified. * Thirdly, BDO were found to not have complied fully with ethical standards in a number of different ways * The business plan inferred that fees should be set lower if non-audit fees are likely to be earned, this goes against their own required ethical standards and their own * Performance military rating criteria including the cross-selling of non-audit services * The list of entities which partners held shares and could generate a conflict of interests was not up to date. A more robust set of procedures was suggested to ensure that this list was kept up to date in future Lastly, the Internal Quality Review was not of a high enough standard, it did not provide a sufficient level of detail and clarity of explanations of significant findings. 4. Conclus ion We can see that BDO go to great lengths to try and ensure that they are fully compliant with corporate governance codes and regulations, not only with their policies and procedures and the way the company is managed but also with governance structure of the company and the values and focus of the aims and objectives of the company. They also have a strong focus on transparency and ethics within in their business and this is linked to their value of providing great customer client relationships with professionalism, honesty and integrity.They also go to great lengths to aid the companies with which they work, in complying with corporate governance codes, again this is all in the name of developing excellent quality and trustworthy client relationships, in order to maintain and improve the success of their business. However, as we can see from the FRC review, there are gaps in their governance compliance, in particular with internal reporting and ethical standards, but it will hav e to be seen in the coming years of reviews if the increase in transparency and an even greater focus on corporate governance will lead to BDO closing such gaps. 5. 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