Essay On Generally Accepted Accounting Principles

Directors and officers are the representatives and intermediary officials between stakeholders and management of a company. Sarbanes-Oxley Act 2002 has awakened corporate governance for transparency and accountability and also in making the jobs of CFO, CEO and directors more demanding which means that both directors and officers have to share equal interest in compliance of SEC and also in maintaining an honest relationship with investors. Some of the highlights of SOX Act 2002 are:

  • Proforma in acceptance with Generally Accepted Accounting Principles.
  • A complete financial disclosure.
  • Expanded disclosure of internal controls both financial and non-financial matters.
  • Expanded responsibilities of Audit committee.
  • SEC regulation of financial information through filing of 10-K/10-Q and Form-8 which reveals code of ethics in corporates.

SOX Act 2002 has placed heavy responsibilities on directors and officers which necessitates D&Os to acquire a complete knowledge of SEC standards of compliance and reporting requirements. D&Os cannot plead ignorance of rules and regulations that are detailed in SOX Act.

The directors are elected by shareholders of a company and officers are recruited by directors. While directors work for the prospects and growth of company apart from protecting the interests of shareholders, officers control and monitor the internal operations of company that pertain to day-to-day activities of a company. D&Os have to exercise an integrated role in the affairs of a company placing a high ethics of code in conduct as trust, loyalty and giving no scope for personal interests in the area of corporate sector.

Directors and officers are expected to be highly moralistic and carry a professional attitude and approach in every gesture of activity in corporate management. This heavy responsibility shouldered on D&Os in no way offers a way out of being guilty or for judicial enquiry as the role and position of D&Os are interconnected with litigations, liabilities and lots of risks in terms of dealing with financial, human capital and legal obligations of corporate sector.

To a large extent, D&Os are held responsible for any malfeasance or misappropriation of funds and invite even at times criminal prosecution for misrepresentation of facts and figures and also even for violating code of ethics and also compliance of SEC rules and regulations. In the recent times of internet, there emerged a few professional companies such as Woodruff & Sawyer (Corpex) which provide training for maintaining corporate dignity which is at the behest of D&Os in the matters of directors liability, fiduciary liability, employment practices liability, errors and omissions liability.

Corpex provides risk management solutions for D&Os in the matters of litigations, insurance or for any breaches of duty. Before appointing any individual as director of a company, certain requirements or pre-requisites for appointment of a director are as follows:

  1. Integrity: Individual must be highly moral in character and an integrated person who values and appreciates the qualities in others in terms of work as well in character.
  2. Absence of conflict of interest: There should be not a conflict between self-interest that overrides the judgment which should be exercised in the good prospects of shareholders and for the growth of company.
  3. Fair and equal representation: There must not be any scope for prejudicial interests and must give equal and fair representation to all the shareholders.
  4. Achievements: Individuals must have a record of achievements in the fields of business, government rules, communal, scientific and education.
  5. A thorough knowledge of theory and practice of management and ways and means of considering the issues by oversight and ability to demonstrate a sense of keen judgment.
  6. Business understanding of government policies, global economy, competition concepts of corporate finance and regulations of public issue.
  7. Devote time: Individuals must be capable of devoting time and energy in attending board meetings, committee meetings and annual general meetings to discuss about important issues that arise within a company from time to time.
  8. Additional qualifications: A more qualified individual coupled with experience in corporate and professional attitude is always preferred and referred by shareholders as it holds good for the prospects of a company and also in corporate management. The appointment of a director must be disclosed in accordance with the rules of SEC. The appointed director with immediate effect invokes duties, responsibilities and liabilities that are to be discharged en passant.

Duties & responsibilities

The violation of duties and responsibilities of D&Os are divided into two categories which invite different and varied penal provisions under respective promulgations of Acts of corporate sector which means that ultra vires acts amounts to non-compliances of rules of corporate sector and illegal acts invite court and criminal proceedings of district, state or international court of justice as the case may be. The general duties of D&Os can be exercised by abiding corporate policies and conduct corporate activities whereas D&Os must always discharge responsibilities in good faith and with interest in corporate management.

Some of the important responsibilities of directors are financial, strategical plans for business expansion and in monitoring the activities of day-to-day operations of company which gives out a fact that directors are in a fiduciary position to fulfill the obligations of company and shareholders by exercise the duty of loyalty and duty of care. Duty of loyalty must never come in conflict with personal interest of a director and duty of care demands a director to demonstrate excessive care like an ordinary prudent person.

Officers are also in a similar position with directors whereas officers have to provide a complete information about company’s activities to directors as a part of duty of loyalty and duty of care. There should not be any activity for personal advantage or for making secret profits which is a serious violation of duty of loyalty. Farella Braun + Martel LLP represents a professional approach to find solution for all sorts of litigations that occur in corporate sector.

FBM trial lawyers are highly regarded for dealing with matters of business litigation, copy rights, issues pertaining to securities and even white-collar crimes. Many multinationals seek the guidance and advice of FBM lawyers for successful planning of loan workouts, securitization, insolvency, tax and wealth planning and even large-scale project development. What is important for appointed D&Os is to gain a thorough knowledge of operations of a company as well the financial structure, profits of company and an overall view of future predictions about the growth of company.

It is also important for D&Os to keep and maintain efficient employees and a professionally managed organizational behavior in order to speed the activities and day-to-day operations of a company to carry on the work of progress without any hassles and with efficient management practices. It is one of the important duties of directors and officers to delegate duties and works to the employees to execute the works according to the system of company which in turn reflects the professional management of directors and officers.

Employees do not possess any decision making powers and merely work on do-what-is-told basis and therefore the responsibility of a job of an employee ends with completion of job whereas D&Os responsibility never ends until achievements and results are apparently progressive and positive in company’s operations. D&Os liability is extensive and can never be ignored during the tenure of holding directorship or as an officer. Therefore, it holds good for D&Os to discharge the duties and responsibilities in accordance with the provisions of law and corporate management.

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