IntroductionDue to the rising corporate scandals, accounting misreporting, disproportionate executive compensation, mismanagement and massive accounting frauds in the public sector especially relating to companies that have listed in the stock exchange markets. Large corporations have collapsed living thousands of investors and shareholders without investments and in debt and at worse with no penny to their name as billions of dollars in share value are destroyed. Among known accounting and corporate scandals in the United States of America includes the Enron, World Com, Global Crossing, Kmart, Elan, Adelphia, Altran Technologies, Comroad, and Tyco among others as cited by Ford (2008).
European corporations have not been spared either. Solomon (2007) notes that these depictions indicate a wanting corporate governing systems in order to effectively and efficiently shield investors and shareholders from the risks and the effects of accounting malpractices and misconduct among corporate management. A common element witnessed among the major global corporate and accounting frauds and scandals is the significance of failure in corporate governance illustrated by the readiness of corporate managers to inflate financial status of their companies. Through exaggerating revenues and in other instances understating costs and diverting corporate funds into personal accounts or using them for personal reasons (Agrawal, et al. , 1996).
This has resulted in falling investor confidence in the trustworthiness and quality of present corporate governance when it comes to financial reporting. The misconduct and accounting malpractices within public companies expose deficiency in rules pertaining corporate governance and insufficiency in accounting standards (Farrar, 2008). As a new Chief Executive Officer, Mary McDonald needs to understand corporate governance governing public companies in the United Kingdom. Both the United States and Europe have rules governing corporate governance which are meant to guide corporations, accountants and auditors in executing their roles especially in regards to presenting and offering financial information to existing and potential investors and shareholders (Ford, 2008).
This forms the basis of this report, which seeks to analyze the approach taken in corporate governance among public companies in the United States and in the United Kingdom. The principle-based corporate governance in the United KingdomThe type of corporate governance applied in the United Kingdom is referred to as principle based corporate governance which is different from corporate governance in the United States which is described as rule-based corporate governance as noted by Quintyn (2012).
The Financial Services Authority, which is the regulatory supervisor in the UK, shifted to an inclusive principles-based approach in the year 2003. Under the principle- based approach, companies ought to reveal the extent of their compliance with the set standards and best practices and if a company infringes or contradicts the set best practice guidelines, they are supposed to explain procedures applied to meet the aim of corporate governance hence, the element of comply or explain among listed companies (Clarke, 2007).
Unlike the UK’s principle based corporate governance, the rule based corporate governance adopted in the United States is geared towards compulsory adherence to legislation and requirements of stock exchange with increased focus on regulatory enforcement than voluntary acquiescence as noted by Rezaee (2007). Due to the variance in regulatory approach in UK and in the US, there are considerable variances in the corporate governance practices adopted by either.