Business Codes: A Financial Reporting Quality Factor or another Compliance Obligation?

Vol. 3 No. 2

Year : 2008

Issue : Sep-Nov

Title  : Business Codes: A Financial Reporting Quality Factor or another Compliance Obligation? 

Author Name  : Michail Bekiaris 

Synopsis  : 

The collapse of a number of high-profile firms (such as Enron, WorldCom, and Parmalat) was shocking news that turned the world's focus upon corporate governance (defined as the total of operations and control of an organization). The Sarbanes-Oxley Act of 2002 constituted a reaction against those events by stressing the significance of corporate controls and auditing. Section 406 of the Sarbanes Oxley Act requires disclosure whether or not an enterprise has adapted or not a code of ethics for its CEO and senior financial officers. Such a disclosure, however, may range from a strictly typical compliance to an enterprise-wide adoption of essential and practical measures that promote and establish a corporate governance mindset.

In this article, we explore the issue of measuring the actual level of enterprise compliance against established corporate governance directives and practices. We first define the realm of business codes, their relationship with financial reporting and their effect on the role of the auditor. Based on these findings, we define and describe a maturity model for measuring compliance to corporate governance. Its parameters are analyzed and relevant recommendations are put forward.