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- The introduction of International Financial Reporting Standards (IFRS) towards the private sectors organizations throughout all countries in the world is a genius measurement of accounting standard and international relation of global language for the use of communication and interaction in term of accounting and business affairs between developing countries across international boundaries. The International Financial Reporting Standards (IFRS) have been designed to create accounting information understandable, comparable, relevant and reliable and can be used and referred all over the world without any boundaries or limitations as all countries followed the same common standards. The advantages of implementing internalization of accounting standards are allowing companies and organizations throughout the world especially in the private sector to potentially improve and develop the comparability and precision of financial accounts and information which leads to a decrease in financial statement preparation costs (Brown, 2011). Furthermore, the high standard given and applied according to the implementation of International Financial Reporting Standards (IFRS) ensure that capital market participants of the plan will possess higher quality knowledge on financial and enhancing their ability of decision-making in business affairs, efficiency in the allocation of funds and also their organizations may achieve lower capital cost. Besides, the internalization of accounting standards are expected to improve the quality of financial reporting while promoting a new dimension of market integration across boundaries and internationally and further enhancing the development and progression of national capital market (Brown, 2011). Other than that, the implementation of International Financial Reporting Standards (IFRS) create a change in the history of accounting as many countries and substantial numbers of organizations coming together, interact with one another and utilizing a common standards of accounting thus allowing more benefits in generating and improving organization’s capital markets, increase in equity value, lower cost of capital and changes of market liquidity (Daske et al., 2008).
- The significance of high quality financial reporting standards that have been applied in the private sector can be considered successfully established and the current economic crisis that occurred giving us signals that it is required for public sector to implement good quality financial reporting standards (Heiling, 2011). The economic crisis cause a huge stir and consequences such as the major shift of financial risks in a lot of countries from the private to the public sector therefore, Malaysian governments should implement International Financial Reporting Standards (IFRS) in the public sector to uphold and sustain the quality of accounting and reporting coordination that enable Malaysia to precisely reflect financial risks and improve international trading. The implementation and adoption of International Financial Reporting Standards (IFRS) into the public sector of Malaysian organizations will improve the efficiency of the organizations and provide definitely more precise analysis and identification of the cost of services, cost control, raise productivity of the organizations, improved pricing policies, intergenerational equity, superior accountability, provide restriction and limitation over government indebtedness and also better financial performance comparability. Moreover, it is proven in other country such as Australia and New Zealand that the adoption of International Financial Reporting Standards (IFRS) into public sector will only increase assets and liability of the country and reduce the overall equity of the organizations and better up the image and quality standard of the organizations following the global trend in accounting. This adoption will also allow changes and improvements in many organizational units as the financial report will be more understandable, comparable, verified and high quality attracting more investors and reducing financial risk that may occur to the organizational unit. The representation of the accounting reports will be more accurate, cost-efficient, continuous consistency of information and will be compliance and fair according to the guideline by the International Financial Reporting Standards (IFRS).
- The implementation of the same reporting standards and the adoption of the International Financial Reporting Standards (IFRS) for both public and private sectors should be conducted as both sectors will achieved much more financial and accounting benefits and that communication and business interaction between sectors can be made possible and effective. Thus, the fairness and transparency of a high quality financial report can be utilized for comparative information of assets, liability, equity, revenues and expenses and sharing of capital concepts to better up both public and private sectors. The implementation of the same reporting standards for both public and private sectors allow local companies with investment or international trading to reduce the conversion cost of account therefore better up their corporate efficiency. Other than that, the utilization of a set of reporting standards provide and increase efficacy of domestic financial standards or accounting standards further advance their image and position internationally, increase competitiveness of capital market in a global scale and may improve the global ranking of the organizations. Furthermore, the adoption of International Financial Reporting Standards (IFRS) enhanced impact on private and public sectors organizations, improved the financial reporting qualities and improved the economic settings extensively. According to Daske et al. (2008) public and private organizations that adopt International Financial Reporting Standards (IFRS) in the year of compulsory adoption experience large boosts in market liquidity and improved the cost of equity in the European Union countries. Besides that, countries that adopt International Financial Reporting Standards (IFRS) with strong legal enforcement experience major reductions in the cost of capital in the years of compulsory adoption (Li, 2010). Therefore, public and private sector should apprehend with the implementation of same reporting standards for the advancement of financial information.
Accountability within an organizational is the most vital principal to achieve success and prosperity for the organization and accountability describe the responsibility and the act of just towards the shareholders, suppliers, employees and customers which are the stakeholders of the organizations. They take into account the environmental and social responsibility expected by the stakeholders and the public reflecting the ethic of an organization. The act of accountability offer visibility of results to the leadership of the organization, the parliament, the government, and the community and following the pertinent governmental and policy requirements along with public beliefs of transparency, openness and integrity. The act of accountability that can be seen within this organization involves allocation of authority, meeting legislative and other requirements through audit, policy implementation, financial management in term of processing and planning, management of human resources and potential risk as well as equal opportunity, occupational health and safety, ethical and record keeping obligations.
In general, the definition of transparency in term of public sector governance is the openness of an organization including their actions, operations, information accuracy, clarity and disclosure of the organization, policies, and activities that can be observe by the outsiders such as the general public, employees, shareholders and all stakeholders of the organization. Thus, the organization can be considered trustable and allow more investors and other business body to be involved with the organizations due to the transparency and image shown by the organization.
The definition of integrity in term of public corporate governance is whether an organization or corporation adheres by the code of ethics and the appropriate laws and allocation of responsibility established for that purposes. Integrity formed some sort of guidance towards the system, behaviors and practices of the organization creating a full potential working environment. For example, in an organization or corporation, the role and task of the shareholders and the managers are undivided and that the foundational value is the fuel to achieve the goals of the corporation.
The principle of stewardship in the public sector governance is to ensure that the operational process of an organization and the policies established for the organizations are reliable and robust along with ensuring a clear vision and goals for the organization, effective structure of plan and management allocation to prosper the organization. Organizations that adapt this good corporate governance principle are tend to have more transparent approach, displaying integrity and good ethic in their practice ensure a strong long term respected performance for the corporation.
Leadership can be define as the ability of a leader or the management of an organization to make a good and fair decision, showing respected values and clear vision to better up the corporation and a leader that can inspire the whole members of the corporation with good working etiquettes. An intellectual leadership or leader can comprehend with various levels of competencies within the organizations including human resources, strategic planning and business aspects thus ensuring high quality and stable performance of the corporation.
In general, efficiency can be described as a level of performance in a process of creating outcomes in which the amount of input should be low to produce a great amount of output thus the whole process or operation can be rated as efficient. In terms of corporate governance, although the human resources or employees, time, materials and funds are conserved and limited, with strategic planning and thorough plan, it is expected to maintain the acceptable level of outcome and performance of the corporation thus showing efficiency of that particular organization.
One of the example of organization to implement the corporate governance is manufacturing company that have the input from raw material through several process and creating the highest quality of product to serve up to customer expectations. For example is electronic industries in Sarawak such as Taiyo Yuden Sarawak. It is important that a wide perspective is taken in consideration to deliver the product based on what requested by the customer. This include a good management practices, clear organizational objectives, effective risk management, discipline through effectiveness of corporate policies, transparency to help unify organization and also social responsibilities. These practices are not only reefer as internal matter of organization with fellow employee, but also involve external parties whichever related on development of corporation such as customer, suppliers, third party process and etc. Further detail on how to implement corporate governance would be explain further each of the subject that associate toward quality corporate governance in manufacturing company.
The first important part on quality organization is to have great quality of management practices. A good management started from top management and come down to those related parties to ensure the stability of process. For example, when designing a new product to customer, the top management shall provide a definitive plan ever before the product is started as mass production. When making electronic parts, parties related that should be involved are fellow engineer, designer, Quality Control (QC), and also Customer Representative. The top management need to have leadership to plan, control and lead the team. The planning that shall be conducted by company also need to oblige with corporate policies, states legal and also accordance what is desired by the customer. Therefore a good quality of management surely lead to effectiveness of the organizations.
The second part is having clear organizational objectives. An organization of manufacturing company should have a clear objectives on what the product specification are required and the quality that need to be delivered to the customer. An organization without clear objective would have their product being produced but not acceptable by customer that will lead to downside of the organization itself. The objective shall related to what is required by customer and also strengthen the company in the process. In order to implement a clear objectives, several aspect need to take into consideration. For example, an automotive industries product need to have safety aspect and higher quality than normal product. Involvement a standards related such as ISO9001, ISO14001 and TS16949 are vital to ensure specification aimed at development of quality product are achieved. The management also should involve in determining performance capability of the product. This is to ensure the product delivered to customer are given in highest quality as preferable on what specification required by the customer.
Another aspect related to good corporate governance is discipline. Corporate policies can only be effective if the implementation of the organization are concerned with the level of discipline. This is not only involve throughout employee that work for the organization but also involve with supervisory and management level. The lack of discipline could affect the marketing of names and product that is caused by organization that unable to mobilize the required workforce to ensure the flow of the process is gone smoothly. A fail initiation due to lack of planning and control could also lead to failure of organization. Thus a good corporate governance requires having the discipline and commitment to implement policies, resolutions and strategies. One of the example is giving special allowance, promotions to employee or social organization campaign which could ensure the employee have high morality to work and increasing the level of discipline. Through these example, the organization involve would have highest commitment and dedication toward increasing the level of the company standards.
The forth aspect on implementing a high standard of corporate governance is the level of transparency shown by organization towards customer or any related parties that involve in the process. The top management shall have high transparency level which helps unify an organization. The transparency involve shall be shown to customer to ensure the employee and customer understand the management’s strategies. The employee in organization also need to be allowed to monitor the company’s financial performance and understanding each of their roles on the company involved. Transparency is also vital to customer and the public to ensure they know the base of the organization. For example is stating objectives and detail organization background inside the company websites. The supplier part and third party sub process also need to have clear transparency to prevent any defective action thus affecting the quality of the product being produce the consumer. The organization also need to clarify clear date record if requested by and also need to be easily accessible to track the organizational performance.
The fifth aspect toward better corporate governance is having social responsibilities internally and externally of the organization. The consumer expect companies to have good community members. The organization need to have definitive way to promote a healthy lifestyle, having concern on environmental aspect to reduce waste and pollution. For example, the Japanese manufacturing company are highly concern with smoothness of process flow which they implement the 5S standard toward better productivity. Another example is Zero Waste which implement by Toyota Company. These social responsibilities are vital in current stages as the consumer expected the product have Green Technology value which promote towards better future to people and also environment. The implementation of these criteria should involve high management value and the discipline of the company to ensure the action are taken into practices through daily monitoring and periodical checking. Another part are through internal auditing and risk assessing to ensure the company are kept in check and self-evaluate for a better performance in the future.
In conclusion, a high quality corporate governance inside manufacturing company should have high quality of top management and achieving the goal and objectives in delivering product to the consumers. The delivering goals and discipline shall be conducted in ethical manner to ensure the employee and any related have a clear objectives on what need to be done for the organization. It is important that a wide perspective is taken when considering associate corporate governance inside manufacturing which supplier provide the raw material, the organization involve the processing of the product and lastly the consumer which expected a high value of product delivered by the organization. Through all the example number of corporate governance, the organization shall have common goals and coherent strategy to archive target and high level of organizational effectiveness when delivering customer expectation.
Brown, P. (2011). International Financial Reporting Standards: How real are the benefits?. Accounting and Business Research, 41(3): 269-285.
Daske, H., Hail, L., Leuz, C. & Verdi, R. S. (2008). Mandatory IFRS reporting around the world: Early evidence on the economic consequences. Journal of Accounting Research, 46(5): 1085-1142.
Heiling, J. (2011). The importance of research in the field of governmental accounting-views from a practitioner. Comparative International Governmental Accounting Research Newsletter, 2(2): 2.
Li, S. (2010). Does mandatory adoption of international financial reporting standards in the European Union reduce the cost of equity capital?. The Accounting Review, 85: 607-636.