The Corporation in Society and Acct

The Firms and Society
Presented by:
Eko Suwardi, M.Sc. Ph.D
Uiversitas Gadjah Mada
Visiting Lecturer at JIBS
Source: BUSINESS AND SOCIETY, Corporate Strategy, Public Policy, Ethics, 7th ed
A range of levels at which to conceptualize
business, government, social relations
Economy/ Politics/
Business Government
Society/
Culture
Broad Conceptual Level

Governments:
Industry in general;
national, foreign,
Industry sectors
state, local
Stakeholders
Intermediate Level
Specific
Corporation
Government
X
Agencies and actors
Primary and
Secondary
stakeholders
Micro (Issues Management) Level

Relations between a business firm
and its primary stakeholders
EMPLOYES
(Unions)
WHOLESALERS; STOCKHOLDERS
RETAILERS
Distribute Sell labor
product
Invest
capital
BUSINESS
Compete FIRMS
(Owners;
COMPETITORS managers) CREDITORS
Sell labor
Buy Sell
product
materials
CUSTOMERS SUPPLIERS
Relations between a business
firm and its secondary stakeholders
LOCAL
CUMMUNITES
FEDERAL,
THE STATE, AND LOCAL
GENERAL PUBLIC Positive, Jobs, GOVERNMENTS
Environment
negative
opinion
Regulation,
taxes
BUSINESS
Advice,
research
FIRMS
BUSINESS (Owners; FOREIGN
SUPPORT managers) Friendly, GOVERNMENTS
GROUPS hostile
Image, Social
publicity
demands
SOCIAL
MEDIA ACTIVIST
GROUPS
Doing a Sustainable Business
(Savitz, Andrew, W., 2006, Triple Bottom Line: how today’s best-run companies are achieving
economic, social and environmental success- and how you can too)
“a sustainable corporation is one that

creates profit for stockholders while
protecting the environment and improving
the lives of those with whom it interacts”
“ Sustainabbility …the art of doing business
in an interdependent world”
Triple Bottom Line
(Savitz, Andrew, W., 2006, Triple Bottom Line: how today’s best-run companies are achieving
economic, social and environmental success- and how you can too)
Economics Environment Social

Sales, profit, ROI Air quality Labor practice
Tax paid Water quality Community
Impact
Monetary flow Energy usage Human right
Job created Waste produced Product

responsibility
Among Eleven Roles of the Firm
(Woot, Phillip de,1982) Toward a societal strategy for the firm: a discussion)
Role Economic Social Political

Profit Maximiser Profit dominates Regarded as an Avoids involvment
(1) impediment to
profit
Defender of free The business of Reacts against Stands up for free
enterprise (3) business is social component enterprises
business
Socially Prime emphasis Interactively Positively involved
progressive (6) on profit engaged in formulation of
industrial policy
Global actor (7) Prime emphasis Interactively Assumes a
on profit engaged responsibility to
foster balance
between national
and inter’l ec.
ACCOUNTING
Presented by:
Eko Suwardi, M.Sc., Ph.D
Universitas Gadjah Mada
Visiting Lecturer at the JIBS
Definition of Accounting
Service activities that provide quantitative
financial information of certain entity to its
stakeholders as a basis for economic
decision makings
Qualitative Characteristics of
Accounting Information
• Usefulness
• Relevant
• Representational faithfulness
• Reliable
• Timelines
• Neutral
• Comparable
• Consistent
The Accountant’s Value Chain
Bointon, W.C and R. Johnson (2006) Modern Auditing:
Assurance Services and the Integrity of Financial Reporting, 8th Edition
Financial Statements
• Balance Sheet
• Income Statement
• Statement of Changing of Equities
(Retained Earning)
• Cash flow Statement
• Note to Financial Statements
The General objectives of Financial
Statements
• Financial position
• Performance of management
• Assessing potential future cash flows
• Changing in financial position
There are special objectives of
Financial Statements
• Tax purposes / tax planning
• Aquiring a Bank Loan
• Other purposes ( namely value added
form)
(Those objectives are must be able to be reconciled)
AUDITING
Auditing Defined
• Systematic process
• Objectively obtaining and evaluating evidence
• Assertions about economic actions and events
• Degree of correspondence
• Established Criteria
• Communicating the results
• Interest users
Audit Relationship
Attestation STAKEHOLDER Accountability
AUDITOR AUDITEE
Audit Function
Ethic in Accounting
and Auditing
Why Ethic in Accounting is Getting
Important?
• Many financial scandals involved
accounting firms and accountants
Enron financial scandal led to bankruptcy

Worldcom scandal also led to bankruptcy
HIH scandal also led to its bankruptcy
Today’s Highlight Transparency
I
n
Accountability v
11 Title of SOA Fairness e
s
Auditor independence Responsibility t
Enron Audit Committee o
WorldCom Internal Audit r
’
s
C
o
n
GCG f
i
d
e
SOA n
c
Financial e
Scandals
The 21st Century Financial Scandals
Massive accounting fraud through
Enron improper off-balance sheet
WorldCom $3.8 billion in overstated earning
Xerox Masked billions of loses through
“creative accounting”.
Tyco Using corporate funds for personal
gain (by CEO)
Parmalat At least 14 billion in fictitious cash
ImClone Systems Massive insider trading based on
advance knowledge of regulatory
ruling
……………………… ……………………………………………………..
General Ethics
Velasquez, Manuel G (2006), Business Ethics Concepts and Cases, 6th Edition
• Something that accords with my religious;

• What my feeling tells me rights;
• Ethics is a principle rule of conduct that
governs individual or group;
• Ethics is a study of morality including
investigating and the results.
• Morality is the standards that indicates
what is right and wrong; good and evil.
Ethical Principles
• Right principles
• Fairness
• Utilitarian
• Justice
Professional Ethical Code
• Purpose of ethic in business is to direct it
to comply with the code,
• Ethical code is supposedly a minimum
level of acceptable behavior
• Ethical professional will keep their
behavior above the minimum level
• Character is needs in implementing the
code.
Professional
Responsibility
Public Interest
Integrity IIA
Objectivity
Compententcv
Ethical Principles
Due Professional Care
Confidentiality
Professional behavior
Technical Standard
IIA
Ethical Rules
100 200 300 400 500 Member

Independency, General Standard Responsibility Peer Responsibility Responsibility General
Integrity Acct Principles Its Clients On other Meeting
Objectivity service
Ethical Principles IIA and Pub Acc

Committee
Ethical Rules Board of GAAS

Internal morality
• Moral / Ethical code of Accountant

• Links with that of Accountant’s
Competency
• Truth and intellectual honesty
• Design useful acct system ( Internal
Control)
External morality
Parts of moral code of design activity that
concern the social responsibility:
• Public interest and welfare of humankind
should take precedence over interests of
employers or client.
• Minimize asymmetry information
• Refuse to obey, or even blow the whistle,
when you ordered to design anything that
is likely to hurt the public interest.
Accountant’s
Responsibility
Why an Accountant has
Responsibilities
Accountant has qualified responsibility
because:
1. Being a accountant is one’s own
choice
2. It inclines other who are not
specialist
3. Society relies / trusts on
accountants.
Further consideration
• Risk admissibility
• Responsibility for mistake
• Responsibility for the way accountant
services are used
Good Corporate Governance
“the process and structure used to direct
and manage the business and affairs of
the company towards enhancing business
prosperity and corporate accountability
with the ultimate objective of realizing long
term shareholder value, whilst taking into
account the interest of other stakeholders”.
(Toronto Stock Exchange, 1999)
Governance System
Economic Governance
Political Governance
Corporate Governance
Administrative Governance
GCG Principles
Accountability Transparancy
Equity Good Responsibility

Corporate
Governance
Independency Fairness
GCG Mechanism
Board of Director Level
• Audit Committee
• Remuneration Committee
• Risk Management Committee
• Independent Members
Management Level
• Internal Audit
• Compliance Director
• Reporting System
• External Auditor
Four cornerstones of GCG
1. The external auditor
2. Management
3. The audit Committee
4. The internal auditor function
The End
MICROSOFT CORPORATION

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The Firms and Society

Broad Conceptual Level

Micro (Issues Management) Level

“a sustainable corporation is one that

Economics Environment Social

Job created Waste produced Product

Role Economic Social Political

Attestation STAKEHOLDER Accountability

Enron financial scandal led to bankruptcy

• Something that accords with my religious;

100 200 300 400 500 Member

Ethical Principles IIA and Pub Acc

Ethical Rules Board of GAAS

• Moral / Ethical code of Accountant

Equity Good Responsibility

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