Corporate Governance And Earnings Management Accounting Essay

This chapter gives an overview sing to this research by and large. It consists of research background, job statement, research aims, and the part of survey. Basically, this chapter outlines the basic thoughts sing to this research.


Development of Corporate administration in Malaya

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As defined in the Malayan Code on Corporate Administration 2012 ( MCCG 2012 ) , corporate administration is the procedure and construction used to direct and pull off the concern and personal businesss of the company towards heightening concern prosperity and corporate answerability with the ultimate aim of recognizing long-run stockholder value, whilst taking into history the involvements of other stakeholders. After the Asiatic Financial Crisis 1997/98, the economic systems of Thailand, Indonesia, South Korea, Philippines, Singapore and Malaysia have been badly affected and lower down the investor assurance towards those states. The economic crisis has exposed Malaysia to assorted serious failings in corporate administration patterns viz. , weak fiscal construction, over-leveraging by companies, deficiency of transparence, revelation and answerability ( Rashidah and Fairuzana, 2006 ) . Business community began oppugning the effectivity of corporate administration mechanisms within an organisation ( Norman, Takiah, and Mohid, 2005 ) in Malaysia. Hence, the first version of Malayan Code of Corporate Governance was drafted in 1999 and approved in March 2000 by the Ministry of Finance in order to to better the monitoring map of corporate administration mechanism in Malaysia. The Code codified the rules and best patterns of good administration and described optimum corporate administration constructions every bit good as internal procedures ( MCCG 2007 ) . It aimed to rectify and beef up legal and regulative models in the companies. Since so, MCCG 2000 had been developed and replaced by MCCG 2007 by Securities Commission ( SC ) . MCCG 2007 represented the continued collaborative attempts between Government and the industries to further beef up the board of managers and audit commissions, and guaranting that the board of managers and audit commissions discharge their functions and duties efficaciously ( MCCG 2007 ) . In the following decennary, SC would concentrate on heightening the corporate administration ecosystem. Therefore, SC issued the Corporate Governance Blueprint 2011 ( Blueprint ) which figures out the strategic program aimed to reenforcing self and market subject, which MCCG 2012 is the cardinal deliverable of the Blueprint. The development was due to altering in market kineticss, international developments and the demand to continuously recalibrate and heighten the effectivity of the corporate administration model.

Based on The Star intelligence study dated 3 July 2012, Bursa Malaysia will go on to hold a important focal point on corporate administration and revelation to further construct up the market. The Chief executive officer of Bursa Malaysia, Datuk Tajuddin Atan said in the imperativeness that he wants the listed companies to appreciate the greater value that comes in underlining corporate administration patterns into the nucleus of concern operations as that will make good concern sustainability. He added that the corporate administration is a shared duty and it is non the exclusive preserve of the regulators but the duty of all participants to exert greater attention and duty in advancing value creative activity and sustainability through mutually-reinforcing attempts.

We could state that corporate administration issue has become one of the hot subjects in the concern and attracted attending among the professional, faculty members, and functionaries involved in the economic system. The direction degree has gained higher consciousness on the value of holding good corporate administration irrespective little, medium or listed company. Good corporate administration mechanism takes attention of stockholders ‘ public assistance and besides provides the linkage between the stakeholders the company in order to prolong the concern for longer clip. By and large, good corporate administration has to carry through 7 features as listed below, viz. subject, transparence, independency, answerability, duty, equity, and societal duty ( 2nd King study on Corporate Governance, 2002 ) . Harmonizing to Asiatic Corporate Governance Association-CLSA Watch Report 2012, Malaysia was ranked jointly with Japan in the 4th place, after Singapore, Hong Kong and Thailand. The Asiatic Corporate Governance Association ( ACGA ) is an independent, non-profit rank organisation dedicated to working with investors, companies and regulators in the execution of effectual corporate administration patterns throughout Asia. Malaysia ‘s tonss for the corporate administration macro class have improved in 4 out of 5 countries while the overall mark rose 3 per centum points to 55 % in 2012 from 52 % in 2010. It shows that the companies in Malaysia seem to be taking more involvement in bettering corporate administration pattern ( The Star Online, 28 September 2012 ) .

Therefore, we knew that corporate administration has attracted considerable attending from regulators, academicians, and practicians due to the widely held belief that corporate administration enhances investor good will and assurance and boosts the economic wellness of listed companies ( Coleman and Biekpe, 2006 ; Garg, 2007 ) . Therefore, a company must demo high degree of answerability and sustainability in order to make a good repute. In this instance, the direction is perchance motivated to pull strings net incomes due to maximising house ‘s value ( Beneish, 2001 ) , avoid negative net incomes surprises ( Matsumoto, 2002 ) , and avoiding coverage losingss and net incomes diminutions ( Park and Shin, 2004 ) . In Malaysia, every listed company is required to subject audited fiscal statement and one-year study within the clip frame set by Bursa Malaysia ( once known as Kuala Lumpur stock Exchange ) . As fiscal statements supply value-relevant information to the external parties of the organisation, the heavy trust placed on accounting Numberss create powerful inducements for directors to pull strings net incomes to their ain advantage. The inducements for directors to pull strings reported net incomes may be influenced by occupation security, contractual understandings between directors and the external stakeholders, self involvement in the presence of compensation strategies or the demand to accomplish mark net incomes and to run into market outlook ( Healy and Wahlen,1999 ) . As such, net incomes direction, even it is being done non in misdemeanor of the accounting criterions, may take to inaccurate information about the company. Hence, the research workers say that it is important for an organisation to hold an effectual corporate administration mechanism to safeguard the rights of the investors in acquiring the true and just information of the company ( Rashidah and Fairuzana, 2006 ) . Incentive to prosecute in net incomes direction could be mitigated every bit good through effectual corporate administration mechanism ( Fatimah, Hasimah, Sharifah, and Raida, 2009 ) .

In this survey, I will concentrate on audit commission features and analyze how the features mitigate the degree of net incomes direction in the company. Harmonizing to Healy and Wahlen ( 1999 ) , net incomes direction occurs when directors use judgement in fiscal coverage and in structuring minutess to change fiscal studies to either misdirect some stakeholders about the implicit in economic public presentation of the company or to act upon contractual results that depend on reported accounting Numberss. Assorted researches have been done on audit commission ‘s features in Malaysia. The tendency shows that audit commissions play a important function in oversee coverage and internal control, every bit good as bettering the relevancy and dependability of an entity ‘s fiscal coverage presents.

Problem Statement

Malaysia public listed companies have been required by Bursa Malaysia to set up an audit commission since 1 August 1994 ( Rashidah and Fairuzana, 2006 ) . A board of a listed company should set up an audit commission consisting at least three members, the bulk of whom are independent, while all members should be non-executive managers. The effectivity of board can be increased by naming commissions with specialised accomplishments ( Audit commission and corporate administration, Deloitte 2009 ) . Audit commission is one of the of import facets in corporate administration stated in the Code ( Norman, Takiah and Mohid, 2007 ) . Hence, it is important to look into the audit commission features and how it affects the degree of net incomes direction. This inquiry is to be examined in the context of Malaysia public listed companies with regard to the impact the Malayan Code on Corporate administration on the companies every bit good as the extent of net incomes direction.

Research Questions

The research inquiries in this survey are:

Is there any impact of corporate administration mechanism on the net incomes direction?

Is there any relationship between size of audit and net incomes direction?

Is there any relationship between the independency of audit commission with net incomes direction?

Is there any relationship between frequence of audit commission meetings and net incomes direction?

Is there any relationship between the competency of audit commission and net incomes direction?

Research Aims

The research objectives in this survey are:

To analyze the relationship between size of audit commission, independency of audit commission, frequence of audit commission meetings, competency of audit commission with net incomes direction.

To prove whether heightening corporate administration mechanisms is associated with the net incomes direction in the public listed companies.

To analyze whether the execution Malaysian Code of Corporate Governance impacts house ‘s degree of net incomes direction.

To measure the effectivity of audit commission to supervise direction behaviour in extenuating net incomes direction pattern within Malaysia ‘s regulative and concern environments.

Contribution of research

The survey contributes to the apprehension and cognition on the consequence of effectual audit features in extenuating net incomes direction pattern in a underdeveloped state such as Malaysia. Besides the survey besides provide the apprehension of Malaysia Code of Corporate Governance sing net incomes direction towards Malayan regulators, since MCCG 2012 was freshly issued.

In Malaysia, there are rather a figure of researches done on the relationships between board features, ownerships, independent managers and net incomes direction but limited researches have been conducted on audit commission features. Hence, I believe that it will supply a deeper expression on the Malaysia ‘s listed companies ‘ public presentation on corporate administration and their patterns of net incomes direction.


The balance of the proposal is organized in three subdivisions as follows. Following chapter will discourse and reexamine the relevant literature on issues sing the audit commission features and net incomes direction, followed by the development of hypothesis for the research subject. The 3rd chapter will explicate the research methodological analysis used to execute the analysis of independent variables and dependent variable, every bit good as the sample size chosen. The concluding chapter will reason the proposal.


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