FINANCIAL REPORTING

The Impact of Management Style on Financial Reporting

The Impact of Management Style on Financial Reporting

Introduction

The control environment has a generalized effect on the activities of the organization, which influences the control activities, information systems, communication, and monitoring. Obviously, the organizational culture influences the control environment. The fundamental basis of the control environment is determined by the staff and their level of awareness on it, which is why organizations strive to have competent resources and instill a sense of integrity and control. Organizations meet this objective by establishing policies and procedures, and often with a written code of conduct. However, it is not necessary that an organizational culture or policies will prevent a management style, which may be unethical and against the integrity of the management. As a result, this issue gives rise to a serious concern of financial reporting, which involves corporate governance and transparency issues.

Discussion

Integrity and ethical values

The objectives of an organization and how to achieve them are based on different priorities, value judgments and management styles, which establish the norms of behavior. The public always expects more from an organization, which is why the rules of behavior go beyond law enforcement (Staubus, 2005). Integrity and ethical values ??are essential to control the environment and affect the design, administration and oversight of all elements of internal control. An ethical climate within the organization, at all levels is essential for their welfare, and influences the effectiveness of policies and control systems (Corvino, 2002).

It should be noted that it is very difficult to establish a body that creates a balance of various interests (business, employees, suppliers, customers, competitors and the general public), because they often find themselves facing each other. Ethical behavior and integrity are the products of an organizational culture. While policies specify what a management expects, corporate culture determines what actually happens and the rules that are obeyed, modified or ignored (Griffin, 1997).

Incentives and temptations

Some factors may affect the realization of fraud and of course also affect ethical behavior. It is much easier for individuals to commit fraudulent or unethical acts if the organization they work for incites or entices them, such as complying with stringent or difficult policies, and bonuses subject to significant short-term results. There are other situations or factors that create an environment or make the way for the realization of unethical or fraudulent actions, such as (Ghoshal, 2005):

Weak or ineffective controls.

High degree of decentralization that reduces the likelihood of detecting fraud.

Insignificant sanctions, which lose the chilling effect of unethical practices.

The elimination of incentives and temptations facilitate or help prevent unwanted behavior by the organization. However, the idea is not to eliminate incentives such performance or result oriented. Another factor in the realization of fraud is "ignorance" (Cushner, 1996). Sometimes, a person who makes a fraudulent act is not aware of the situation or believes his actions to be correct (Barnett, 1992). This may be due to lack of proper orientation (Ferraro, 2005). In addition, it may set a wrong example ...