Skip to main content

Overview of Cadbury committee recommendations

 In December 1992, the Cadbury Committee published their Code of Best Practice. The recommendations, which largely reflected perceived best practice at the time, included separating the roles of CEO and chairman, having a minimum of three non‐executive directors on the board and the formulation of audit committees. The Code also advocated that a more active role be taken by institutional investors in the promotion of good practice in corporate governance. This paper discusses how agency problems may be (partially) resolved by corporate governance, reviews the evidence on compliance with the Cadbury Code and examines the relationship between board structure and firm performance, looking for evidence that the Code has enhanced board performance. While there is no empirical evidence of an association between board structure and firm value, there is some evidence that compliance with the Cadbury recommendations enhances board oversight with respect to the manipulation of accounting numbers and the discipline of the top executive.

The Cadbury Committee was set up in May 1991 by the Financial Reporting Council, the London Stock Exchange and the accountancy profession to address the financial aspects of corporate governance.

Its chairman was Sir Adrian Cadbury. The sponsors were concerned at the perceived low level of confidence both in financial reporting and in the ability of auditors to provide the safeguards which the users of company reports sought and expected.

The underlying factors were seen as the absence of a clear framework for ensuring that directors kept under review the controls in their business, together with the looseness of accounting standards and competitive pressures, both on companies and on auditors, which made it difficult for auditors to stand up to demanding boards. These concerns about the working of the corporate system were heightened by some unexpected failures of major companies and by criticisms of the lack of effective board accountability for such matters as directors' pay.

Further evidence of the breadth of feeling that action had to be taken to clarify responsibilities and to raise standards came from a number of reports on different aspects of corporate governance which had either been published or were in preparation at that time.

MAJOR RECOMMENDATION --- https://www.slideshare.net/BandriNikhil/cadbury-report-on-corporate-governance

 

SUMMARY OF RECOMMENDATIONS

  1. The boards of all listed companies should comply with the code of best practice set out by the committee.

  2. As many companies as possible should aim at meeting its requirements.

  3. The listed companies reporting in respect of years ending on or after 31 December, 1992, should make a statement about their compliance with the code in the report and accounts and give reasons for any areas of non-compliance.

  4. Companies should publish their statement of compliance only after they have been the subject of review by the auditors.

  5. The Auditing Practices Board should consider the extent and form that an endorsement by the auditors could take.





Labels:

Comments

Post a Comment

Popular posts from this blog

Banking system of India - Theory

#Reserve Bank of India is the central bank of the country and regulates the banking system of India. The structure of the banking system of India can be broadly divided into scheduled banks, non-scheduled banks and development banks. Banks that are included in the second schedule of the Reserve Bank of India Act, 1934 are considered to be Scheduled banks .  All scheduled banks enjoy the following facilities: Such a bank becomes eligible for debts/loans on bank rate from the RBI Such a bank automatically acquires the membership of a clearing house. All banks which are not included in the second section of the Reserve Bank of India Act, 1934 are Non-scheduled Banks. They are not eligible to borrow from the RBI for normal banking purposes except for emergencies. Scheduled banks are further divided into commercial and cooperative banks. 1.Commercial Banks The institutions that accept deposits from the general public and advance loans with the purpose of earning profits are known as Comme
Post a Comment
Read more

Difference between Vouching , Verification and Valuation

  Difference between Vouching , Verification and Valuation  Vouching Verification Valuation Meaning Vouching is a process of comparing the entries in the books of accounts with the bonafide vouchers Verification is a process which proves the existence, ownership and title to the assets Valuation is a process which certifies the correct value of the assets and liabilities at the date of balance sheet. Subject Matter Vouching is made of the entries recorded in the books of original entry and their posting in the ledger Verification on the other hand is made of assets and liabilities appearing in the balance sheet at the end of the year Valuation is also made of assets and liabilities appearing in the balance sheet at the end of the year By whom Vouching is done by the senior auditor and audit clerks. Verification on the other hand is done by the auditor himself or his associates Verification on the other hand is done by the auditor himself or his associates When Vouching is done after th
Post a Comment
Read more

Basic Principles Governing an Audit

  SA- 200 describes the nine basic principles that govern the procedure of auditing. It lists out the roles and responsibilities of the auditor and his general code of conduct during an audit.  1] Integrity, Independence and Objectivity The auditor has to be honest while auditing, he cannot be favoring the organization. He must remain objective throughout the whole process, his integrity must not allow any malpractice.  Another important principle is independence. So the auditor cannot have any interest in the organization he is auditing, which allows him to be independent and impartial at all times. 2] Confidentiality The auditor has access to a lot of sensitive financial information of the organization. It is important that he respect the confidential nature of such information and documents. He cannot disclose any sensitive information to any third party unless it is a requirement by law. And he must also be very careful with documents, certificates etc. that the organization entrus
Post a Comment
Read more