live soft skills

Managing risk There are many techniques available to manage risk. Some look to manage overall risk, whilst others target specific risks. Avoiding risk Some risks can be totally avoided. If a business has identified that opening a subsidiary in Austria appears high risk, then not opening the subsidiary solves the problem! However, to totally avoid a business opportunity is often a rather extreme reaction – and if no risks are taken, the chance of returns being earned is small! Reducing risk Overall Risk Reduction Risk is the uncertainty caused by variable returns. One way to deal with uncertainty is to By operating in many different sectors, it is likely that when one sector is performing badly, another will be doing well, leading to a diversify . smoothing of profits. Advantages of Diversification ● Smoothing of profits, making forward planning easier ● May be economies of scale between some sectors, however diverse those sectors are. Disadvantages of Diversification ● Spreading r...

 Risk types Financial Risk The risk that a company will not be able to survive as a going concern. This risk has a number of elements: Credit Risk The risk that customers fail to pay their bills on time (or at all!) Market Risk The risk of changes in the value of a company’s financial assets (e.g. shares, bonds) Liquidity Risk The risk of running out of cash because inflows are not arriving in time to pay outflows! Currency Risk The risk of changing foreign exchange rates in the future. This could lead to: ● ● ● Transaction Risk – change in the value of a future receivable or payable Translation Risk – change in the value of the company’s Balance Sheet if year-end exchange rates have changed Economic Risk – change in the competitiveness of the company due to longer term changes in exchange rates Interest Rate Risk The change in the value of investments and loans as a result of changing interest rates. This is the risk of breaching laws and regulations and being fined (or eve...

FAMILY DOMINATED COMPANIES In family companies, it is often the case that: ● family members have special voting rights ● family members have guaranteed seats on the board. This can lead to both positive and negative governance issues. Positive ● with the family name at stake, there is likely to be a greater feeling of "ownership" on the Board, which may reduce the risk of unethical behaviour ● to continue the family name, a longer term view of management may occur. Negative ● a less independent board ● the board may have a dominant person / group of family members ● with board members often coming from a single family, there may be a lack of variety in ideas, and an unwillingness to change previous decisions ● family problems may become business problems ● there may be unsuitable people on the board, who were elected purely because of their membership of the family.

STAKEHOLDER ACCOUNTABILITY If we believe that stakeholders are important, and if we believe that stakeholders may also have some responsibility for company behaviour, we need to ensure that companies are reporting adequate information to these stakeholders. Over recent years, company Annual Reports have grown massively in size, and part of this growth has been in non-financial reporting . Triple Bottom Line But this raises additional issues: reporting refers to the growth in Social and Environmental disclosures alongside financial disclosures. o Are there any "rules" on what should be reported? o Will there therefore be any comparability year on year, or within industries? o Will information reported be balanced ... or will it inevitably be more positive than negative? o There have been developments in these areas in recent years. Environmental accounting and audit frameworks (such as EMAS and ISO14000) have been developed to provide some guidance. Auditing information i...

CORPORATE SOCIAL RESPONSIBILITY Much of the above analysis helps to split stakeholders into different types, but does not spend long looking at the moral aspect. As companies have grown into multinational organisations, their ability to affect the world and how society operates has grown as well: ● Companies can change the way society works Should companies consider stakeholders at all, and if so, which ones? o Mobile phones o Email o ● Companies pollute the environment, and big companies can have a noticeable effect on their local community ● A big company in a community will be a major employer – decisions it takes could be the main influence on the prosperity of the community ● Companies who use low cost countries for supplies and services could be seen to be keeping those countries low cost … which could mean they are keeping wages down to what might be viewed as unacceptably low levels Facebook So how much responsibility do these companies have for their actions? Should we ...

Agency theory and stakeholder theory Shareholders ( There is a risk that the directors do not run the company in the best interests of the shareholders … and this is the potential The question is, is this necessarily a problem at all… Earlier in the course, we defined corporate governance as "running the company in the best interests of shareholders ● Who are these other stakeholders? ● To what extent should / could / must the Board take them into consideration? ● What if what is good for one stakeholder is bad for another stakeholder? ● What if what is good for shareholders might be viewed as principals ) employ directors ( agents ) to run the company for them. agency problem . and other stakeholders ". This raises a number of questions: unethical behaviour ? Types of stakeholder Later in the chapter, we will look at the extent to which organisations might want to deal with different stakeholders. But before we do this, we need to consider It may be the case that di...

The overall authority of ISAs and how ISAs are applied in individual countries ISAs are designed to be applied in the audit of financial statements and may be applied to the audit of other historical financial information. Each ISA contains the basic principles and procedures to apply to that ISA (identified by bold type in the ISA itself). Other text in the ISA provides guidance on the implementation of the principles. In other words, to apply the ISA, the whole of the text, not simply the parts in bold type, must be read and understood. ISAs are not designed to override the requirements for the audit of entities in individual countries. So if our country did not require an audit of specific entities, then the ISAs would not overrule that requirement. Regarding the detailed requirements of an audit, such as the nature of testing or the issuing of an engagement letter, where our country requirements meet those of the ISA, then the ISA will be used. It is therefore unlikely that our co...