An analysis of the corporate governance by company’s management


1. The purpose of this paper is to analyze the corporate governance by company's management, the audit profession and the regulatory bodies. Lehman Brother is the beginning or start for financial crisis? Lehman Brother who is considered one of the best investment company of the world. It has a lot of derivative instrument as credit default swap that is an assurance and it shown on the balance sheet. In September 2008, Lehman Brother was bankruptcy suddenly that stock market decline and market crash. At the same time, the credit default swap would decrease the value of zero. As a result, the American International Group (AIG), American International Assurance Co. (AIA) and Merrill Lynch faced to the brink of failure after Lehman Brother was bankruptcy suddenly. Most of the well-known corporate collapses and business failures involved some conduct of the unethical and the practices of unscrupulous by the responsible for the management, such as entities (Marx, 2008:323, p.3).However, AIG and AIA and Merrill Lynch are redeemed by government and other institution.(The Encyclopedia of Virtual Communities in Hong Kong )

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In recently year, the financial crisis was serious, concern to fraud or poor management of corporate governance issuing arising. Financial crisis refer to the government unable to make ends meet of the financial. Financial crisis as accounting scandals, are political and business scandals disclosure by public corporations (Wikipedia2006). In the wake these scandals, many of these companies saw their equity values plummet dramatically and experienced a decline in credit rating of their debt issues, often to junk bond status(Anup Agrawal 2003, p.2) and Browning and Weil (2002, p.372, p2) worries about the counting problems are widely cited as a reason for the stock market. Following the prior search state the financial scandals had in common poor corporate governance practices, creative accounting and fraudulent financial reporting (Marx, 2008 p.2). Corporate governance refer to company is monitored and controlled by the system. Corporate governance can be divided into four categories, such as board composition and disclosure policies. These studies have discussed the framework of the corporate governance.

It is well known (Fama and Jensen, 1983; Loebbecke et al 1989; Bell et al., 1991, p.2) that framework of the corporate governance and histories may impact upon the opportunities for, incentives towards and the control or identification of fraud within organizations. The examinations of corporate governance's deficiencies that lead to fraudulent financial reporting are appeared. There is no theory of fraudulent financial reporting (Cobb (1993), Beasley (1996), Farber (2005) p.1), but fraudulent financial reporting can defined as deliberately make mistake or omission of the financial statement and out of disclosures to deceive the users. According to Martin, Aldhizer, Campbell & Baker (2002, p.3) states the overwhelming majority of fraudulent financial reporting cases studied involved the most senior financial executives in the corporation's responsibilities. And also, the current trends of fraudulent financial reporting are rising (Spathis, Doumpos& Zopounidis, 2002; Rezaee, 2005, p.15).

In prior research has analyzed the corporate governance in reducing fraudulent financial reporting (Beasley, 1996; Dechow et al., 1996; Jiambalvo, 1996, p.242). The study examines the relationship between corporate governance and fraudulent financial reporting (e.g. Beasley, 1996; Dechow et al., 1996; 1999 COSO Report; Beasley et al., 2000, p.1) and studies the negative relationship between effective corporate governance and financial reporting decisions.

Cornett et al. (2008, p.413) examine the corporate governance on firm performance in light of potential earnings management. Good corporate governance practices proposed by different independent bodies (joint committee on corporate governance 2001; SEC2000;BRC1999; Cadbury comittee1992, p.5) do not only reduce the likelihood of fraudulent financial reporting activities and but reduce the likelihood of earnings management .And also, earning management of the listed companies increased the problems at overflow. Therefore, the earning management of the problems that concern with investor. Mulford and Comiskey (2002, p2) defined earning management as the active manipulation of earnings toward a predetermined target. Prior studies examine the relation between corporate governance mechanisms and either earnings management (Klein 2002, p.3). The interaction of earnings management and corporate governance has been examined by Cornett et al. (2008, p.2).

Peasnell et al. (2000, p.242) suggested that earning management is not associated with independent of the board of director and other research finds that the relationship between audit committee and earning management (Chtourou et al., 2001; Xie et al., 2001; Klein, 2002a,p.242). The purpose of this section, it explore the relationship between the fraudulent financial reporting and earning management and impact of different role under the fraudulent financial reporting and earning management.

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Simultaneously, these studies would discuss on the responsibilities of corporate governance that to be important in other contexts. The corporate governance examine are the regulatory bodies, the company's management, such as the independent board of directors (Shleifer and Vishny, 1997p.242), the use of internal audit (Clikeman, 2003 p.242) and the external auditor for their choices (Becker et al., 1998; Francis et al., 1999 p.242).

Final, in important extent of the corporate governance would affect the regulatory bodies, the company's management, internal audit and external auditor. The low level of informed risk arbitrage could lead to poor corporate governance (Durnev, Li, Morck, and Yeung 2004, p.2). These papers examine the rule of the corporate governance that can improve and reduce the fraudulent financial reporting and the risk of company. These corporate governance elements should have the impact on the riskiness of the enterprise. Cheng (2008, p.4) examine the corporate governance features that are ostensibly relevant and study the impact on these on the variability of firm performance. Therefore, the debate on whether corporate governance can affect risk and the good governance can reduce risk by studying a different market than the original study by Cheng (2008, p.4).

The sources and methodology of this paper are provided by online library and journal of the scholars. The remainder of the paper is divided into seven sections. Section 2 a brief review the literature on fraudulent financial reporting. Section3 a brief review the literature on earning management and section 4 is a brief review the literature on corporate governance shown to be important in other contexts. In section 6 conclude by the repost structure by section and section 7 would highlight the limitations and considering an area of the future for research.


In recent years, corporate governance is a hot topic in identifying fraudulent financial reporting. The reported of financial fraud and corporate governance failures has rust investor confidence all of world. (Dan Yang, 2010, p.1) Prior research report states that the relationship between corporate governance and fraudulent financial reporting (Beasley, Dechow et al and Jiambalvo, 1996, p.242). Because easley, Dechow et al and Jiambalvo (1996, p.242) to prove the corporate governance in reducing the fraudulent financial reporting.

According to the 1999 COSO report on fraudulent financial reporting states that …we observed that many frauds allegedly were initiated in a quarterly from 10-Q, with the first manipulation sometimes at relatively small amounts. …the fraud was repeated in subsequently issued quarterly or annual financial statements, with the fraud amount often increasing over time… (Beasley et al. 1999, p.202)

Corporate governance issues became prominent in the nineteenth century when the first limited liability companies were formed in the US and the United Kingdom, and as such separated formally and legally the management and ownership of companies. This resulted in the directors being entrusted with management power, while still being accountable to the owners of the company. Consequently the shareholders wanted to protect their benefits, such as investments against abuse of power by the directors, and as a result the agency theory concept was created and the concept of corporate governance was born (Pullinger, 1995:7; Reynecke, 1996:34; Rossouw, De Koker, Marx & Van der Watt, 2003:3, p.6).

There are many definition of the corporate governance form synthesize. For example, the OCED principles of Corporate Governance (1999, p.1) indicate that "institutionalization of set of relationships between a board of directors, shareholder, stakeholder and the company's management. To sup up, the definition of the Hong Kong Institute of Directors Statement (2003) for corporate governance. It refers to the system of policies and produces established by the board of directors to direct and control the company's performance and behavior in order to achieve sustainable shareholder value. It applies by listed company or private company, etc…

The shareholder's role of the corporate governance is to appoint the auditor and director that to establish the appropriate corporate governance structure. The boards of directors have untimely responsibility of the enterprise. It may affect the integrity and prosperity for the enterprise. The board of director would act to requirement, ordinances and decision in meetings (Hong Kong Institute of Directors Statement, 2003).

The corporate governance practices have evolved from initial structural arrangement aligning the management of companies with the interests of their shareholders to corporate governance concerns subsequently being extended to the interest of other stakeholders and society at large. In this regard Jhaveri (1998, p.7) show that the corporate governance can covers three types of issues, namely" ethical issues, efficiency issues and accountability issues to its shareholders and other stakeholder."

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Corporate governance except avoid fraud and errors, Watts and Zimmerman(1986,p.594) point out that the corporate governance attributes help investors by aligning the interest of managers with the interests of shareholders and by enhancing the reliability of financial information and the integrity of the financial reporting process.

Gregg (2009, p.7) indicate that the frauds and errors as Sarbanes-Oxley legislation could be avoided if implement stringent government interventions. At bottom, good corporate governance can also be financially rewarding. (Ben Marx, 2008) and it is greatly essential because the division of the owner and managers (Wilson, 2010, p.138).

According to King II ,significant shareholder value can be added by companies developing and applying good governance practices and that the creation of a good governance climate can make countries, especially in the emerging markets, a magnet for global capital" (IoD, 2002:13, p.7). And the financial law institute point out, "the effect of good governance on price information is controversial in the sense that it is empirically difficult to prove that good governance has a positive impact on share price. It is much more evident however that „bad‟ governance has a negative impact, undermining the market's confidence in a company" (Financial Law Institute, 2006:6, p.7).

Cornett et al. 2008, p.413) states the interaction of earning management and corporate governance. Anup Agrawal (2003, pp3-4) also notes that the relation between corporate governance and earnings management in two ways. First, unlike earnings management, which most firms might engage in routinely to varying degrees, a misstatement of earning is a rate and serious event in the life of a company. As Palmorose, Richardson and Scholz (2001) point out, a restatement can trigger a Securities and Exchange Commission (SEC) investigation, lead to replacement of top executives, and result in the firm being significantly penalized by investors. Many restating firms subsequently end up in bankruptcy. Second, the measurement of earnings management is an academic construct; there is no 'smoking gun' showing that earnings were indeed manipulated by managers. On the contrary, a misstatement of earnings is essentially a direct admission by managers of past earnings manipulation.


The corporate governance can reduce the likelihood of earning management? According to joint committee on corporate governance (2001); SEC (2000); BRC (1999); Cadbury committee (1992, p.50) proposed that good corporate governance do only reduce the likelihood of fraudulent financial reporting but reduce the likelihood of earnings management. And the prior research indicate the relationship between the corporate governance and earnings management (Klein 2000 and Corntett et al, 2008, p.413)

The corporate governance is monitor and takes action that can reduce the incidence of earnings management when incentives for method vary with context. Millar, Eldomiaty, Choi and Hilton (2005, p.597) states the corporate governance systems into the triad of the shareholder, stakeholder and emerging are driven different systems. The differences between the three system described by Millar et al. (2005, p.597) and determined by the legal systems and protection. It would affect the relationship between corporate governance and earnings management.

There are several different interpretations of earnings management, For examples, Healy and Wahlen (1999, p.412) define that "to window dress financial statement prior to public securities offerings, to increase corporate managers' compensation and job security, to avoid violating lending contracts, or to reduce regulatory costs or increase regulatory benefits." And also, Healy and Wahlen (1999, p.14) provide a best definition of earnings management. It states that earnings management occurs when managers use judgment in financial reporting and in structuring transaction to alter financial reports to either mislead some stakeholders about the underlying economic performance of the company or to influence contractual outcomes that depend on reported accounting numbers. It is very important to state that manager judgment and financial statement must go together and it is very hand to determine actually the line where financial reporting is no fairly.

The objective of earnings management is decrease interference of external. It is because strong protection limits insiders' ability to acquire control benefits, which reduces the insiders to mask firm performance. Leuz et al.(2007, p.597)said that earnings management is expected to decrease in investor protection countries because strong protection limits insiders' ability to acquire private control benefits, which reduces their incentives to mask firm performance.

Form prior research report on the earnings management that recognized about three set of incentives in capital market and regulatory (Healy and Wahlen, 1999, p.161). Ultimate, the earnings management suggests that capital market and regulatory consideration induce managers.

Apart from, the relationship between the earnings management and corporate governance, Davidson III, Jiraporn, Kim and Nemec (2004, p.161) has provided the relationship between earnings management and agency theory. Agency theory is a behavioral assumption that all parties involved in the relationship will act rationally and will attempt to maximize their benefits (Graham W. Cosserat and Neil Rodda, 2009, p43).

There are different measures of earnings management. According to Leuz et al. (2003, p.1000), provide two methods to classify the earnings management that is earnings smoothing and earnings discretion. At the same time, Bhattachary (2003, p.1000) also provide some categories to classify the earnings management as earnings management, loss avoidance and earnings aggressiveness.


Some research have discussed the internal and external factors affecting corporate governance, the general impact of corporate governance on the earnings management and the roles played by the board of directors, internal auditors and by the management. However, it can increase transparency improves the effectiveness of the corporate governance (Hyo Jin Kim, 2008, p.44).

According to fraudulent financial reporting2010, the role and function of the audit committee have developed over the years. Audit committee are created for the objective of appearance rather than to promote stockholders' control if management said by Menon and Williamds (1994, p .318) but Sommer (1991, p.318) indicate that the formation of audit committee is not a guarantee that they will perform effective oversight duties or reform the ineffective financial reporting and practices of auditing. At the same time, explain with the following statement," there is considerable anecdotal evidence that many, if not most, audit committees fall short of doing what generally perceived as being their duties." To overview some literature report indicate that the term of audit committee is not always formally defined, but is often informally described as a part of corporate governance reports and requirements of legislative. From the various audit committee definition form the earliest to the most recent, Marx (2008, p.5) provided that" the audit committee would function as subcommittee of the board of directors of which the majority of members should be independent non-executive directors. The audit committee is tasked with many and diverse responsibilities, but the most important task of the committee remains it is oversight role to ensure accurate and reliable financial reporting. According to, it is imperative that the members are financially literate and necessary financial experience and expertise to perform the oversight function effectively."

Beattie et al. (1999, p., 319) detected that the audit committee that comprise of independence could strengthen auditor independence. Forker (1992, p.47) suggested that the audit committee may improve the internal controls, therefore, the audit committee would be an effective monitoring device for the reducing the earnings management.

Rezaee et al. (2002, p.319) notes that the audit committee provides more effective connection between the external auditor and management. In fact, the audit committee is expected to supervise internal audit functions and the control structure, external audit services, financial reporting and corporate governance. (Rezaww et al. 2003, p.319) It is very important that the audit committee could enhance the connection network between auditor and management, reference from Fearnley and Beattie, 2004; Goodwin-Stewart and Kent, 2006; Stewart and Munro (2007, p.319). The audit committee is expected to provide effectively monitor the financial discretion of management, as well as to encourage a flow of material among some parties, such as the external and internal auditors, management and board of directors said by McMullen and Raghundan( 1996,p.246).

An empirical study, the evidences are proving the potential for the audit committee as a very important mechanism of corporate governance. Because following previous research indicates that the timing traits and corporate governance mechanism financial statement fraud are most apt to have ineffective audit committees which meet infrequently or no audit committee (Beasley, Dechow and McMullen 1996, pp.6-7). For example of several reports, Treadway Commission has addressed the role of audit committee of a part of corporate governance (Dan Yang 2010, p.7).Defond and Jiambalvo (1994,p.7)discovered that non-fraud firms have more active and effect audit committee that fraud firms.

The literature report indicate that audit committee would agree exclusively of non-executive or independent directors (e.g. Menon and Williams, 1994; BRC, 1999; ASX, 2003, p. 246). This is implied by literature report that the relationship between audit committee independence and higher degree of oversight and lower incidence for the financial statement fraud, according to Jiambalvo, McMullen and Raghundan and Wright (1996, p.246).

Klein (2002a, p.246) provide report the negative relation between earning management and majority of audit committee for the independent director, nevertheless finds no meaningful relationship between earning management and the audit committee included solely of the independent directors.

Expect for the audit committees, an enterprise can establish an internal audit function and an external audit function. They can supplement their existing internal corporate governance framework.

Internal audit function as a function provides enterprise with an assurance and service that can improve the effectiveness of their management and corporate governance (IIA, 1999, pp.246-247). After that, Eighme and Cashell (2002,p.247) regard the role of internal audit in detecting earnings management as being a complementary one to that of external audit.

The purpose of the internal audit committee is expected to promote the effective and the operation of the audit committee and closely aligned with financial reporting oversight responsibilities of the committee (Scarbrough et al., 1998; Goodwin and Yeo, 2001; Goodwin, 2003, p.247) the internal audit committees are improving the corporate governance processes (Collier 1993, Goodwin and Kent 2003, p.247) and is endorsed by corporate governance report (NYSE 2002). However, the enterprises also need to focus on earnings management and financial reporting, because the traditionally internal audit function has focused on risk of operational and controls (Eighme and Cashell, 2002; Martin et al., 2002; Rezaee, 2002; Clikeman, 2003; Hala, 2003, p.247).

External audit function is unobservable by the community or by the duration of the auditor, such as the relationship of client (Knapp, 1999, pp.431-432) or is proxied by auditor status and size in commonly (DeAngelo, 1981; Klein and Leffler, 1981, p.431). There are the relationships between the earnings management and auditor status. To compare with the financial scandals that dares the credibility for audit firms, many researches to demonstrate that the auditor networks are conservative in the opinion, such DeFond and Jiambalvo (1993, p.432) discover that the auditor and client conflicts are relating to increasing the accounting practices are likely to occur.

Hyo Jin Kim (2008, p.45) represent that there are no fateful dissimilarity in earnings management, it is practices between the firms that established the audit committee and firms that did not so during the period time.

In additional to audit committee, internal and external auditor can supplement their existing internal corporate governance framework, the management also replenish the framework of the corporate governance.

5. Seamer and Psaros (2000, p.497) provided empirical evidence for the relationship between incidence for the management perpetrated fraud and the independent directors on the corporate board. The board of directors is a main issue of the corporate governance. Correspondingly, Fama and Jensen (1983a, b, and p.244) recognize the board that is most important of the control mechanisms; it is an available because it forms the apex of the enterprise's internal control of governance structure. NYSE (2002, pp.45-46) point out that the effective for the board directors who should monitor the validity for the choices of financial made by management.

Beasley (1996) and Dechow et al (1996, p.244) express that the competence of the board director to act as an effective monitoring mechanism is dependent on the independence from the management. The enterprise can appoint specialized independent directors to improve the management mechanisms for prevention of the fraud (Beasley, 1996; Barnhart and Rosenstein, 1998; Seamer and Psaros, 2000; Sharma, 2004; Uzun et al., 2004; Doidge et al., 2007; Chhaochharia and Grinstein, 2009, p.496).

The board independence refers to the degree to which a board is comprised of non-executive directors, also called to independent directors. The non-executive directors have no relationship with an enterprise beyond the role of the directors (Ryan Davidson et al., 2005, p.244 and Hyo Jin Kim, 2008, p.46). Baysinger and Butler (1985, p.244 and p.46) define the non-executive directors that it is not employed in company's business activities and provide contribution to outsider and oversight to the board of directors. Harahan et al. (2001, p.244) define that the non-executive directors who is not employed in the company's business activities and provide an outsiders' contribution and oversight to the board of directors. Hyo Jin Kim (2008, p.45) express that the board independence mitigates the earnings management and detect that participation extents by the outside directors on the corporate board are related to lower accruals of cost. Beasley and Dechow (1996, p.45) also consistent the result of the earnings management reduced by the board independent.

Beasley (2006, p.245) discover that the existence of independent directors on board less the likelihood in financial statement fraud and at the same time, Dechow et al. (1996, .p.245) recite that a greater proportion for the entry of non-executive directors are less likely to be subject to SEC. Sharma Z(2004,p.6) point out that independent directors on the board also reduce the likelihood of fraud.

Peasnell et al. (2000, .p.245) and Chtourou et al.(2001, p.245) forecast the board independence is probably to be associated with a reduction in earnings management too.

The board of director is supervising management serves the long term interest of stakeholders and shareowners, as well as superintending the responsibilities of the outside and inside directors, referencing from Fama and Jensen( 1983, p.496).

Outside directors is including the both independent of the enterprise and so-called "gray directors" with non-board affiliation to the top of management for the enterprise state by Beasley, (1998,p.496 and Uzun et al., 2004,p.496).

Inside directors define that are not managers who that are executors. The insider directors have abounding information for insider and cooperate with the enterprise to work against the interest for the shareowners (Fama, 1980, Williamson, 1983 and Singh and Harianto, 1989, p.496).

Prior to research reports have assayed the relationship between the board of directors and fraudulent financial reporting (Beasley, 1996; Beasley et al., 1999; Doyle et al., 2007 and Bowen et al., 2008, p.497). However, Beasley (2000, p.497) noted that the nature of corporate governance differs between non-fraudulent and fraudulent enterprise, but the non-fraudulent enterprise have a higher level of outside director on the boards. According to Beasley (1996, p.497) states that the non-fraudulent companies have boards with higher percentage of outside members that the fraudulent companies; nevertheless the attendance of the audit committee does not affect the likelihood of financial statement fraud.

Dunn (2004, p.498) explored the relationship between top management team duality and the decision to release untrue information in financial report. In chorus, Park and Shin (2004, p.499) discover that only when outside directors have expertise of financial are able to deter earnings manipulation.

6. Except for Lehman Brother, Enron and WorldCom also was instance of the financial scandals. As a result of financial scandals was serious, U.S would pass the ordinance to monitor the enterprise about bankruptcies and corporate fraud in American corporations that is the" Sarbanes-Oxley Act" (SOX).

SOX are the abbreviation of Sarbanes-Oxley Act, also called as the Public Company Accounting Reform and Investor Protection Act (Anon, n.d). It is mandatory and issued by the Securities and Exchange Commission (SEC) and establish in 2002. The objective of SOX is improving corporate governance though measures that will reinforce the cost of internal checks and balances and ultimately intensify corporate accountability. Cernusca Lucian (n.d, p.1) represent that the SOX Act is common thread seems to be that the corporate governance matter. Graham, Harvey and Rajgopal (2005, p.509) observe that the Sox may change the preferences of manager for the mix between the real action in accounting to earnings management.

Many companies sight the requirements as opportunities to improve the control, improve the financial reporting and improve the board performance. Ultimately the companies want be more transparent and attractive more investors (Hyo Jin Kim, 2008, p.44). SOX is to protect the shareholders and the public by the fraudulent financial reporting and accounting errors in the company, referencing form Cernusca Lucian, n.d, p.1)

There are benefits of the SOX, Coates (2007, p.1) indicate that investors face a lower risk of losses by fraud and error and the benefit from more reliable financial reporting ,accountability and greater transparency when the costs created by the new ordinances on the internal control.

Many countries in order to prevent the frauds and errors, all of them have passed the legislation, such as the American passed the Sarbanes-Oxley Act (SOX). However, United Kingdom passed the combined code. It is publication on June in 1998 at first and derived from Hampel, Canbury and Greenbury report. Subsequently, Combined code renamed as U.K Corporate Governance Code and applies to reporting periods starting on June in2010 (Wilson, 2011).

The "Combined Code" on corporate governance define that internal audit would be investigating and maintaining internal control systems and contributing to risk management on behalf of the Audit Committee. Because the internal control function is not follow requirement of statutory (Wilson, 2010, p.5)

The U.K Corporate Governance Code points out the standard of better practice in relation board leadership and remuneration accountability and effectiveness and the relationship between with the shareholders, according by Financial Reporting Council (n.d). It is the principal of the corporate governance that is applicable to the listed companies in the UK (Roan o'Sullivan and Ross Manaughtion, 2010, p.4).

7. Conclusion

In this study, it would explore that the corporate governance is important of the world. At the same time, it examines the corporate governance issues, explores the independent of the audit committee and the board of director, facing outside and inside of directors and examines whether the various the corporate governance mechanisms and earnings management (M.M. Cornett et al.(2009, p,427). The prior research report has considered board independence to determine it is effectiveness in the corporate governance of the enterprise (Jayati Sarkar, 2006, p.548).

Since the financial scandals serious in 2002, many enterprises have developed the systematic to improve the accounting transparency, such as the corporate governance practices (Hyo Jin Kim, 2008, p.54). The conventional arguments represent the financial fraud is associated with weakness of corporate governance in western companies (Beasley et al., 2000, p.27). The corporate governance performance is mostly controlled by managers and the corporate governance issues arise by the agency relationship between shareholders and managers, according by Jensen and Mackling (1976) and Jensen (1986, p.27).

Apart from the corporate governance established can protect the shareholders and the public. Corporate governance also reduces the corporate risk of the company. Because Hardjo Koerniadi(2006,p.5) indicate that the governance risk may be minimized by the enterprise that adopts good corporate governance. And also Cheung (2008, p.4) said that the debate on whether corporate governance can affect risk and the good governance can reduce risk by studying a different market that the original syudy.

In addition to the enterprise, the regulatory bodies would be trough the legislation that to monitor the enterprise and protect generally public. For instances, first, the United States would be pass the Sarbanes- Oxley Act in 2002 which suit to general public or company with stocks traded in American. The Sarbanes-Oxley Act restrict required that board of enterprise have the independent director, the board of audit committee consist entirely of independent directors and to restrict the outside auditor provide the types of non-audit service (Anup Agrwal, 2003, pp.23-24).Then, in U.K, the regulatory bodies would publish the U.K Corporate Governance Code. It was important of the corporate governance (Wilson, 2010, p.138).

According to R. Davidson et al. (2005, pp., 262-264), many companies also have implications to strengthen the corporate governance with respect to financial reporting. In especially, it would appear to be objective for the effectiveness of audit committees and making better to use the internal audit such the mechanisms to reduce the earnings management.

The areas of research for future would include the study the effect of the financial scandals on current and developing the ethics of business and corporate governance.