EECS 1019 Lecture Notes - Lecture 12: Agency Cost, Financial Statement, Mci Inc.
EECS 1019 Lecture 12 Notes
Introduction
Management Structure of an MNC
• How SOX Improved Corporate Governance of MNCs One limitation of the corporate
otrol proess is that iestors rely o reports y the fir’s o aagers for
information.
• If managers are serving themselves rather than the investors, they may exaggerate their
performance.
• There are many well-known examples (such as Enron and WorldCom) in which large
MNCs were able to alter their financial reporting and hide problems from investors.
• Enacted in 2002, the Sarbanes-Oxley Act (SOX) ensures a more transparent process for
managers to report on the productivity and financial condition of their firm.
• It requires firms to implement an internal reporting process that can be easily
monitored by executives and the board of directors.
• Some of the common methods used by MNCs to improve their internal control process
• Establishing a centralized database of information
• Ensuring that all data are reported consistently among subsidiaries
• Implementing a system that automatically checks data for unusual discrepancies relative
to norms
• Speeding the process by which all departments and subsidiaries access needed data
• Making executives more accountable for financial statements by personally verifying
their accuracy
• These systes ade it easier for a fir’s oard eers to oitor the fiaial
reporting process.
• In this way, SOX reduced the likelihood that managers of a firm can manipulate the
reporting process and therefore improved the accuracy of financial information for
existing and prospective investors.
• The agitude of agey osts a ary ith the MNC’s aageet style.
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EECS 1019 Full Course Notes
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