To discuss: The characteristic of corporations which make the need for a system to check on manager behavior.
Introduction:
Corporate is a particular legal entity that separates from its owners. In this form of business, the owners specifies certain governing rules to undertake the business in a contract knows as the articles of incorporation. The board of director of a corporate consists of three members which are as follows:
- Gray directors
- outside directors
- Independent directors
Explanation of Solution
The corporation is a legal entity who separates the ownership and management responsibilities of an enterprise. Here, the people who control the management operations and one who have invested/spent money in the corporation are not the same people. This separation between the management and investors of a corporation can create conflict between them. As a result of the conflict between the investors and managers, there is a need that arises for the investors to develop a system mainly for checking the behavior of managers. This system is corporate governance system.
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Chapter 29 Solutions
EBK CORPORATE FINANCE
- Which of the following are affected by the quality of an organization’s internal controls? a. Reliability of financial data. b. Ability of management to make informed business decisions. c. Ability of the organization to remain ¡n business. d. All of the above. e. Only a and c.arrow_forwardWhich of the following does not describe a management control system? A. establishes a companys strategic goals B. implements a companys strategic goals C. monitors a companys strategic goals D. a system that only measures profitabilityarrow_forwardWhy are internal accounting controls important to a business? What are advantages vs. the disadvantages? Is there a cost to the business for these internal controls? Who requires the controls?arrow_forward
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