Introduction

Accountants are considered to be the gatekeepers of governance and financial reporting in organizations. Corporate governance refers to the system of rules used by institutions for directing decisions and justifying their actions. It acts as a fundamental basis through which corporations establish and execute their goals within the social, legal and market environment. The primary role of accounting tasks is tracking the financial performance of a company. These tasks play a crucial role in determining the manner in which a company fulfills its corporate governance policies (Ekanayake & Perera, 2014).  Corporate governance protects the interest of stakeholders by exercising control over corporate managers and provide overall direction. It enables an organization to operate more responsibly and profitability as well as enhancing relations between stakeholders and the society at large. Corporate governance improves the quality of executive and non-executive directors by satisfying the information needs of a firm and facilitating long-term thinking. It ensures proper monitoring of executive management in the interest of shareholders (Brickley & Zimmerman, 2010).  Accountants play a vital role in the setting by maintaining an appropriate balance between the various components of the system. An accountant is responsible for ensuring that auditing and accounting tools play useful governance roles. Accounting component ascertains that pillars of proper governance procedures are well placed.

The Relationship between Accounting and Corporate Governance

Accounting practices have emerged to be useful tools of corporate governance. As a result, accountants play a significant role in ensuring that corporations can make intelligent decisions on various aspects such as operations, expansion, and investment in the project by availing accurate accounting data. Accounting projects can be used to show how cutbacks in employees and equipment can be used in realizing short-term improvement in the profits of a company (Ward, 2012). Companies that operate under the corporate umbrella governs most of their business basics using accounting results and practices. Corporations are capable of keeping track of their expenditures and income as well as establishing the accurate depiction of the overall financial status through proper accounting practices. Accounting assist firms to operate smoothly on an ethical, legal and practical basis thereby instituting the foundation for continued growth and success (Ekanayake & Perera, 2014).

Accountants are capable of effective planning in organizations. Accounting act as a tool for corporate governance on a practical level. Corporations can only make better decisions on various aspects such as investment, growth, and operations through honest accounting. Accounting provides useful information that determines an appropriate venture that a company should invest in based on the degree of profitability. Accountants provide data that are used by corporate decision makers to draft new plans and take corrective action. Accountants assist managers to focus on expanding on programs that yield results and eliminate those that act as an impediment of success (Ward, 2012).

Companies that trade publicly have the legal mandate to disclose their business practices to the public. They are required to release accurate and financial statements on a regular basis such as every three months. The information includes the balance sheet, income statement and shareholder’s equity. Investors use these statements in making decisions on whether to buy shares in a particular corporation. Government agencies also use the reports in determining whether a company is fully disclosing its operations. Accounting practices play a crucial role in producing these essential statements (Ekanayake & Perera, 2014).   Accountants have the mandate of ensuring that corporations fulfill their responsibilities to the market and government. There are various ways in which corporations are accountable to the public. Proper accounting assists corporations in meeting their obligations that include paying taxes. Accounting reports assist the public on whether or not to invest in a corporation. Investors rely on proper accounting in ensuring that a company does not engage in unsavory practices that dent value of the investment. Accountants facilitate corporate governance by giving consumers the power to demands and force management to put their need into consideration in decision making (Ward, 2012).

Accountants have an essential role in corporate governance by ensuring that shareholders fulfill their obligations responsibly through the provision of detailed financial information. Decisions of a company influence the determination of whether shareholders should buy, hold or sell their share. Shareholders depend on the financial statements compiled by accountants to make the most intelligent choices. The quality and accuracy and accounting data influence decisions made by the corporation. The data is critical in assisting companies in managing their assets, make intelligent choices and prioritize projects. Accounting data help managers to know the amount of income being generated, where the revenue is coming from and when it is expected to be received. The data is critical in informing them on when they need to hire new employees, take more debts and acquire more equipment. Accountants enable cash flow management. Apart from aiding long-term corporate planning, accounting is also vital for making short-term decisions. Accountants assist corporate executives in managing money, prioritizing and taking concrete financial action (Ward, 2012). Accountants assist corporations in maintaining lines of credit and taking stock of all the short-term financial resources thereby help in avoiding unnecessary debt.

The Role of Accountants in Corporate Strategic Planning

Accounting includes many functions, and management accountants play a crucial role in supporting the strategic planning activities of a company. Accountants speak to several audiences including external stakeholders such as government agencies, and internal agencies like corporate executives. Accountants are skilled in managerial and cost accounting and are often required to assist in generating strategic roadmaps, policies, high-level plans based on information derived from the financial data of a company.  Managerial accountants are often referred to as strategic business partners due to their significant role in corporate governance (Ekanayake & Perera, 2014).   Accountants support corporate planning efforts in several ways that include setting profitability goals, creating an acquisition strategy, promoting risk management and controls.

Accountants provide financial information that supports decisions that assist a company to attain high-level goals. Managerial accountants gather the right type of data, analyze it and translate it into information that can be used by decision-makers in the establishment of long-range profitability goals. The financial information, which is issued to the board of management by the accountant, assists in reevaluating pricing strategies, and in the assessment of agreements among their distribution channel partners with the aim of optimizing profits. Financial information assists in creating acquisition strategies which as useful in identifying ways to cut costs. An acquisition strategy may focus on purchasing a competing business to penetrate a market. The plan may also focus on eliminating excess capacity issues through consolidation of manufacturing efforts. Corporate executives have to consult managerial accountants before deciding to move forward with an acquisition strategy. Accountants provide critical information to the board of executives to assist in determining whether the long-term outcome of their actions is capable of producing desired performance improvements.

Accountants establish risk management processes and control mechanisms that assist businesses to monitor the status and health of their operations. The risks management functions would be primarily be based on subjective data without the involvement of managerial accountants. Accountants provide financial information that assists corporate leaders in quantifying risk management objective to make then relevant and measurable. The accounting department offers financial information, which assists key decision makers in executing corporate strategies that are critical in improving performance, cutting cost and adding value to a company (Cohen, Krishnamoorthy & Wright, 2010).

The Role of Different Accounting Roles in Shaping the Corporate Governance Process

The audit function is critical in assuring the truth, fairness, and compliance with legal requirements and accounting standards. It is divided into an external audit and internal audit function. A large public corporation has to appoint an external auditor to perform an external audit function. An external auditor is an independent and qualified accounting professional who performs external auditing. The internal audit focuses on internal controls and compliance requirements for a company with the aim of assuring the integrity of its operations and affairs. The internal auditor might be an organizational employee or may be appointed externally (Ekanayake & Perera, 2014).

Internal auditing refers to an independent appraisal function conducted by various institutions, companies, and governments. Internal auditors can be distinct from government auditors and public accountants by the fact that they are employed by the same company that they audit. They have allegiance to their organization and not an external entity. The role played by external auditors varies significantly from one organization to another. The functions of external auditing have been structured based on differing perceptions and objectives of managers, owners, and directors of corporations (Prawitt, Smith & Wood, 2009).  The enactment of the Sarbanes-Oxley Act of 2002 has made internal auditing an essential aspect in publicly held corporations. Four factors determine the structure of internal auditing in a company. They include size, type of business, the philosophy of the management group, and the level of interest that the board of directors and chief executive place on auditing. The owner-manager usually performs the role of internal auditing in small business by continuously monitoring business activities (Cohen, Krishnamoorthy & Wright, 2010). The employees that fulfill internal auditing in large companies are known by various titles such as system analyst, control analyst, internal consultants, business analysts, evaluators, and operational analyst.

External auditors work independently and are appointed by corporate shareholders with the aim of examining the validity of the financial organization of a company. External auditing entails determining whether a company follows the Generally Accepted Accounting Principles (GAAP). Although both internal and external auditors are responsible for audit operations, they have different focus and objectives. Internal auditors focus on the whole activities concerning five critical goals of internal controls and not just the financial aspects. The main focus of external auditors is the financial control system that has a direct effect on the figures of the financial statement. Internal auditors play a crucial role in shaping corporate governance by highlighting incidents of fraud, waste, and abuse symptoms that characterize operational issues. External auditors are never concerned with small events that do not have a significant effect on financial statements (Cohen, Krishnamoorthy & Wright, 2010).

Chief Financial Officer (CFO) plays a crucial role in large companies by working directly with the board and management and management teams to bring about changes in an organization. CFO is responsible for assessing and managing the financial risks of an organization by highlighting their current and future financial compliance and opportunities for growth. They provide oversight for accounting, taxation and other regulatory compliance issues. CFOs are forward thinkers who take part in operations, contract negotiations, sales and marketing, research and development, and human resources (Brickley & Zimmerman, 2010).  The primary responsibilities of CFO in a company are to plan, implement, manage, and run all the financial activities of a company. The commercial activities include business planning, forecasting and negotiations, and budgeting. The CFOs provide leadership, direction, and management to the finance and accounting department.

Ethical Challenges Facing Accountants in Corporate Governance

The management of risk requires strong corporate governance that can only be established by an effective accounting structure. Organizations are currently under intense pressure to identify all the social, ethical and environmental risks that they encounter as well as financial and operational risks. They are required to explain how they manage the risks to an acceptable level. Internal auditing has been recognized as a useful tool in the management of risks. Accountants have the privileged of handling a wide range of sensitive data. They work with numbers that affect bonuses and stock prices. Consequently, they frequently face ethical issues (Cohen, Krishnamoorthy & Wright, 2010). The moral dilemmas that accountants may encounter in their line of duty include illegal or fraudulent activities, conflict of interest, requests for manipulation of financial statements by clients, payroll confidentiality, and pressure to inflate earnings of the management team.

Accountants should focus on making difficult yet principled decisions when confronted with ethical dilemmas. Several steps should be taken by accountants when faced with ethical issues. They include identifying the potential legal concerns, considering outsiders’ views, identifying the affected parties, and getting professional advice. The identification process entails exploring whether the issue is governed by law or policy. Accountants have an international ethics standards board that is responsible for redefining the roles of auditors, CFOs and other professional accountants when they encounter, witness or suspect illegal acts. Taking the view of outside can help an accountant to see an issue in a different light by separating it from personal and professional feelings (Cohen, Krishnamoorthy & Wright, 2010). The decision to take or not take action on ethical issues can affect people, companies or stakeholders. The failure to report fraud can have a detrimental effect on an individual, a company and its stakeholders. Seeking legal counsel in-house or from an independent firm can assist in addressing ethical issues in corporate accounting. Accountants have the professional ethics that govern them. Corporations should have a well-defined code of ethics and standards that act as a guide for decision-making during a situation of ethical dilemmas.

Conclusion

In short, auditors, CFOs, and several other accounting professionals have a critical role to play in shaping corporate governance. Accountants provide information that is used by board members to make sound decisions. Accounting is recognized as a useful organizational governance tool. The four accounting areas that facilitate corporate governance include internal auditing, external auditing, managerial accounting, and external reporting. Internal auditing improves the reliability of decision made by management. External auditing provides an external and objective check on the manner in which financial statements are prepared and presented to stakeholders. Management accounting is responsible for generating information to be used internally by the board of directors and to facilitate monitoring. External reporting assist in minimizing information asymmetry between internal and external parties. Corporate governance can be enhanced through the effective utilization of the four broad accounting areas.

References

Cohen, J., Krishnamoorthy, G., & Wright, A. (2010). Corporate governance in the post‐Sarbanes‐Oxley era: Auditors’ experiences. Contemporary Accounting Research, 27(3), 751-786.

Ekanayake, A., & Perera, S. (2014). The role of accounting in corporate governance in a developing country: institutional political economy perspective. International Journal of Accounting, Auditing and Performance Evaluation, 10(2), 109-132.

Brickley, J. A., & Zimmerman, J. L. (2010). Corporate governance myths: comments on Armstrong, Guay, and Weber. Journal of Accounting and Economics, 50(2-3), 235-245.

Prawitt, D. F., Smith, J. L., & Wood, D. A. (2009). Internal audit quality and earnings management. The Accounting Review, 84(4), 1255-1280.

Ward, K. (2012). Strategic management accounting. Routledge.

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