EECS 1019 Lecture Notes - Lecture 12: Agency Cost, Financial Statement, Mci Inc.

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EECS 1019 Lecture 12 Notes
Introduction
Management Structure of an MNC
How SOX Improved Corporate Governance of MNCs One limitation of the corporate
otrol proess is that iestors rely o reports y the fir’s o aagers 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 systes ade it easier for a fir’s oard eers to oitor the fiaial
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 agitude of agey osts a ary ith the MNC’s aageet style.
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EECS 1019 Full Course Notes
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