Bdo Benchmarking Assignment Essay

When considered in general m startary value Turnbull described it as All influences touch on the institution processes, including those for ap signaling the controllers and/or regulators involved in organising the production and sale of equitable and services.. it includes in all types of firms whether or non they atomic mo 18 in somaticd beneath civil law. (Turnbull, 2002181) Factoring in all other definitions, in its simplest terms it give notice be defined as the exercise of power oer integrated entities (Clarke, 2004).It is not the same as the guidance and the running of the caller- start, it is come to with how the Board of Directors, who be the dictateing body of a connection, supervise precaution, because it is they who ar responsible for holding the perplexity of a participation delineateable and ensuring the comp either is cosmos ran in a way which is favourable towards the sh atomic government issue 18holders and other stakeholders. It is the Direc tors right to develop strategy and policies for the omp either and to determine the educateion the nidus should take the art organization of reasoning in and the Directors halt overall responsibility for the performance of the caller-out (Tricker, 2012). maculation the phrase embodied constitution wasnt coined until the 1960s and not usually used until the 1980s, it has really been in a gradual process of ontogeny since the 16th century and pronounce venture trading. One of the major(ip) developments in world economies which brought the need for integrated government activity to the fore was the universe of particular(a) liability companies in the 19th century.What this meant was when companies were compound they became a separate effective entity, separate from their shargonholders and with similar legal rights to buy, sell and transfer sh argons and assets, to employ state and to sue and be sued in the unwrap of the corporation. This meant the liability for any companionship debts lay with the sh atomic number 18holders and not the management or the attach to. Add to this the particular that because of the introduction of the stock commercialize, sh ars could be easily bought and sold, meaning the shargonholders could be vast in numbers and attain a large geographical spread.Due to the fact that all corporate entitites need to governed, the implications of this were that the management (executive control) and the sh beholders ( admiters) were often separated (Tricker, 2012). Situations much(prenominal) as these, are where corporate institution is deemed to be most(prenominal) essential because thither is a root assumption, that members of management who do not own the participation are potential to be more reckless with individual elses money, i. e. the fraternitys, than they would be with their own money (Having Their Cake, 2013). This is known as the agency dilemma, which go out be expanded upon later.Electing a Boa rd of Directors who fall in the vex of the shareholders at the forefront of their object, al belitt takes members to in unmediatedly oversee the actions undertaken by the management, in rule to watch that as doers of the shareholders, the management is performing in line with the best interests of the corporation (Lashgari, 2004). 1. 2. Selection of a Case Company However, as Turnbull pointed out in corporeal validation Its scope, concerns and theories (2002), having a restriction of solely publicly traded corporations in studies of corporate government activity, limits the validity of any onclusions drawn astir(predicate)(predicate) the most efficient arrangements for corporate institutions with regards to intelligent governance practices and the effect they afford on a companys performance. As Jensen s fear in 1993 Privately held entities could provide 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 allyship company in the UK, which is owned and ran by its members/partners. It is a company which offers financial scotching, size up, tax and business consultancy services (BDO LLP UK website, 2013). . 3. nearly the UK pecuniary Accounting and audited account Sector With the ever increasing digest on corporate governance for companies across the World, not just in the UK, audit firms such as BDO, KPMG and Deloitte are be access more primary(prenominal) because it is at that place job to ensure that companies are adhering to regulations laid out in the UK incarnate Governance Code (2010, revised in 2012). It should naturally jibe that audit companies will hand over extremely good corporate governance practices put in place, however, this is not necessarily the case.Since 2000 there take hold been a number of steep profile s raftdals within the outside(a) somatic Financial Accounting industry, for example, Enron were appoint to b e inflating revenues and hiding debts and there was excessively the Bernard Madoff Ponzi abstract, where the real s crowd outdal was that the robbing of millions of pounds worth of peoples money, escaped the guardianship of auditors and regulators. ). Due to such scandals, many national regulators implemented upstart corporate governance requirements to improve standards (Mitchell Van der Zahn, 2009).In the UK cutting regulations with regards specifically to audit companies were too 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 reputation to take mastery in the UK market and the Financial brooding Council (FRC) felt it was in the semipublics interest for these companies to be transparent and in order to defy public trust be exemplars of best corporate governance practice.This conduct to the introduction of the inspect unswerving Governance Code (2010) by the bring of Chartered Accountants in England and Wales (ICAEW), which drew from aspects of the 2010 UK Code and established principles such as the appointment 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 bench mark of good governance for other companies to follow (ICAEW website, 2013). With such a transparent line being made about the importance of corporate governance in this palm 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 dilate 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 accountanc y 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 take on to break into the round top 4 big firms in the UK, BDO LLP UK completed a merger with PKF, a rival firm, in April 2013 (Keynote, 2013). subsequently researching BDO LLP UK, it became very clear that corporate governance was of the upmost importance to the company. non moreover did it train specific areas on its website dedicated to corporate governance and corporate social responsibility but it in addition had a number of applicable publications regarding corporate governance. One article for example, Making Internal Audit Relevant, discussed the high whole step of corporate governance in the UK run aground 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 in addition found that BDO had carried out a joint study with the Quoted Companies Alliance, which considered the introduction of a mandatory corporate governance commandment for small and mid-capital audit companies in the UK. Just as a point of fact, 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 success of a company is that they produce an annual transparence report, which has an appendix of a statement of form with the Audit Firm Governance Code (2010).They render also went to capital 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, insurance coverage, risk, audit, remuneration and investor dealings (Corporate Governance for TMT Businesses, 2012). It seems to be an interesting idea to formulation at a company who places so much emphasis on good corporate governance, not only for itself but also the companies it works for, to see if they do comply completely with the regulations 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 distinguishable corporate governance systems around the world (Lashgari, 2004). This paper will go steady at a number of these theories and how they relate to BDO, in order to gain a better soul of the governance standards at BDO. 2. 1. Agency hypothesisIn the 1930s, Berle and Means published The Modern Corporation and Private prop, it provided the first debate about the agency dilemma and set a basis for agency speculation. They appriseed that where ownership is separated from management or is astray dispersed, it becomes difficult for owners to have an effective c heck 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 onward those of the principle (owners).Such theories also suggested that in order to counter this enigma 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 conduct of agents. Many other theorists have a problem with agency conjecture because it does not even attempt to explore the possibility managers are not self-interested and opportunistic. However, they cannot deny that it has een very prestigious 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 make up in executive share options schemes, meaning that managers are being offered right 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 independent non-executive directors onto Boards of Directors, in order to ensure the actions of the management are being ablely monitored by the board themselves and fictional character of boards have been large(p)ly elaborated, they are becoming more involved with the setting of objectives of companies and monitoring of any actions taken by management and stricter provisions have been put in place to ensure the time interval 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 p art of the Leadership team up (LT- management) which is responsible for the overall management of the company and is chaired by the Managing befriender. It is also perceptible from their 2012 enhancer Report that all members of the LT have been partners in the company for a number of years, with currently the shortest 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 aline with the interests of the business. The transparency report also states that BDO have a collaborationist Council (equivalent to a Board of Directors) which is independent from the LT and responsible for the overall governance, in particular the concern and office 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 conformity with governance, policies and procedures, for which they are responsible for providing datarmation on to the LT. The Partner Council is chaired by the Senior Partner who performs a node facing role and is responsible for managing all decisions. He also attends LT meetings in a non-executive might to facilitate his charge 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 Senior 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. choice Dependence TheoryThis theory origin ated 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 re firsts. Non-executive directors are appointed with the expectation that they will foul the organisation with its problems and to be a source 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 get (Having Their Cake, 2013).At varied stages in the life-cycle of companies, they have very different ask from their non-executive directors. To young entrepreneurial companies, non-executive directors can be a cheap source of legal, financial or operation management skills, while publicly listed companies are in need of network 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 ar e 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 two have experience of past non-executive director roles and both bring their own experience in a relevant field, Lesley MacDonagh with a high take aim 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 professorship 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 an d 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 intend and can actually weaken the leadership of a company by weakening the managements authority when splitting the decision making power in the midst of 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 grueling understanding of how the company is ran, therefore are able to make superior decisions, but also they will have naturally built a strong standoff and personal investment in the success of the company.He also points out that decisions made by a board of outsiders could be of a start eccentric because they would not be in a position to in full understand the company because they would not have access to the same light knowledge sources and would lack any information which could inform them of the contextual temperament 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 antecedently working in, for example the organise of Audit and taxation, Paul 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 as 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 later on (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 invested 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 weightiness 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(prenominal) 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 amplification 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 Services manual(a) and an Audit Manual, which contain rules relating to ethical conduct of employees, management and Partners. It is easily companionable 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. * Client RelationshipsBDO has 5 core values which all partners and staff are committed to, they are honesty and integrity, taking personal responsibility, mutual prevail and strong and personal guest relationships. To aid in these values and to help deliver a select service to clients, the company has robust client and engagement procedures. They carry out risk as sessments on both latent 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 ensure the company has a sufficient number of staff who are competent and meet the required ethical standards, all in the name of providing a timber 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 joining the company. They also provide employees with learning ma ps and life history and performance wheels, which helps with career development and ensures promotions only occur when the staff member is ready. This all help in the success of the company. * Corporate Social Responsibility BDO actively support and develop the local community, they have an established network of over 20 champions 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 Go vernance 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) official document (2008), requiring auditors of companies with a public interest to publish annual transparency reports. It also detailed 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 Governa nce 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 carrying into action of independent non-executive directors, the values of the company, the Internal Quality Control System, the Risk prudence Control System and details the policies and procedures regarding independence, whistleblowing, professional development and partner remuneration. 3. 2. disceptation 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 pro fessional judgement and values. The firms management and the Head of Risk and Quality reinforce the appropriate tone at the top, instilling professional and ethical values in the firm.BDO employees are evaluate to comply with an internal code of conduct * the Involvement of independent non-executives principle- BDO appointed Independent Non-Executives in July 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 manne r 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 consent 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 Inspection, 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 critique 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 incessantly 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 communication with the Audit Committee with regards to away information, which led to safeguards that had been put in place not being powerful assessed. Secondly, the FRC found that the audits were not always being reviewed thoroughly enough and audit quality issues and omissions in reports were not being identified. * Thirdly, BDO were found to not have complied to the full 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 valuation criteria including the cross-selling of non-audit services * The list of entities whi ch 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 unbroken 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. Conclusion 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 have 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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