As a company system, corporate governance refers to the adoption of a package of formal or informal, internal or external system to coordinate with all stakeholders which in order to ensure the scientific nature of corporate decision-making and to safeguard the interests of the Company ultimately (Weian, 2001). Accounting as the language of today's corporate governance structure, mainly reflected the effects and mechanism of corporate governance. Its basic goal is to provide enabling accounting information for its reliable decision-making and the quality level of accounting information come from the company's governance practices.
The quality of accounting information: the cornerstone of corporate governance
From the requirements about corporate governance disclosure, enterprises should provide information that can be divided into three parts: financial and accounting information, audit information and non-financial accounting information. Financial accounting information is listed as the focus on corporate governance disclosure, which is mainly used to evaluate the company's profitability and operating conditions and guess the future business prospects. It is the main method for resolving the asymmetry between the accounting information users and providers of information. The quality level directly determines the extent of capital market and allocative efficiency of social resources. Corporate governance structure is a kind of system to govern and control the business corporation (Anon, 1999). Its direct impact the development of the listed companies and the securities market healthily. High-quality accounting information is the foundation of company internal and external governance mechanisms effective operation. The emergence of the world's first study of a Corporate Governance Report (The Cadbury Report) and corporate governance has a direct links which is that the issues of accounting information quality affect the decision-making of stakeholders. In order to achieve effective corporate governance, the report concludes that a true and fair view of financial accounting information is essential. Practice has also confirmed that the level of accounting information quality is directly related to the success or failure of corporate governance. High-quality accounting information is the strong assurance to monitor the company that the shareholders have the right to vote. Securities mature countries experience has shown that quality of accounting information is a powerful tool to influence corporate behavior and protect the interests of potential investors. High-quality accounting information will help to attract funds to maintain investor confidence in capital markets. Shareholders and potential investors need the regular, reliable, comparable, and sufficiently specific information that enabling them to respond to managers and assess the value of the stock. There is no doubt that high-quality accounting information will also improve the management of the incentive mechanism.Standardized corporate governance is the environment guarantee to ensure high-quality accounting information
The disclosure of accounting information plays an important role in the corporate governance. Similarly, the corporate governance structure also improves accounting information quality of listed companies. Such as Dechow (1996) found that, if inside directors accounted for the higher proportion of all directors or the company chairman and general manager are the same person or company does not have an audit committee, the company will more likely be punished for a result of violations of GAAP by the SEC. In addition, the transparency also requires high-quality financial information disclosure. There are three points which are openness, accounting standards and compliance reports and those can be said for information disclosure. The quality of the information would also constitute a constraint on corporate governance. Not difficult to see from the above analysis, accounting, information systems and corporate governance has a natural contact. Corporate governance mechanisms are effective in order to ensure the reliability of accounting information, while the reliability of accounting information is the basic condition of corporate governance. Corporate governance structure encourages high-quality accounting information and gives the reward to the implementation of such acts subject. The market generally available on the quality of accounting information which should very satisfied. Meanwhile, adequate disclosure and effective mechanisms have good contribute to corporate governance structures. (Liguo and Yin, 2003)
analytical framework of Accounting Information Quality Standards in different modes of corporate governance
Accounting information as an important mechanism in the role of corporate governance is mainly reflected in two aspects: decision-making and lease enforcement. Different modes of corporate governance played a major role in the accounting are different which have different preferences on the qualitative characteristics of accounting information.Anglo-American corporate governance model: the relevance of accounting information quality
Anglo-American corporate governance is a typical external control-oriented model of corporate governance. In this mode, the dispersed shareholders cannot exert effective influence in corporate decision-making which enabling stakeholders outside the company had to make decision-useful financial reporting and try to achieve their decisions through the stock market. They will use various ways to affect accounting standards setting body adversely and they will develop a strong independent audit in order to limit the company's accounting statements prepared residual control. The result is that the decision-making relevance of accounting information quality objectives has to be developed. Such as Improving Business Reporting - focus on the user(Anon, 1996)has raise the point that it should have more emphasis on the relevance of the information and make it as a main theme throughout the whole report. But the reliability of the contents has only two paragraphs. The idea of weight related and light reliability will lead the contractual role to be independent. Such as in Anglo-American countries, tax accounting and financial accounting is separated. On the other hand, dividends have more flexible than profit. Dividend is not necessarily a certain multiplier of profit. The calculation of wages has more complex. In addition to the basic wage, there are share warrant, stock appreciation rights, performance shares and other forms. It makes management personnel difficult to get high paid through the direct manipulation of the profit. It can be seen that the long-term development of Anglo-American corporate governance make relevance of accounting information quality objectives become prominent increasingly.German-Japanese corporate governance model: the reliability of accounting information quality
German and Japanese corporate governance is the internal control-oriented model of corporate governance. In this mode, the banks as the major shareholder take a part in corporate governance through the internal governance structure. Because they are insiders, they do not like the stakeholders outside the company which have to wait until the end of the year to learn about its financial position, operating results and cash flows by annual report. They obtain the required information readily regular board of directors or the internal governance. Therefore, accounting always provides information of fiduciary responsibility of the operator and the decision-making needs of external stakeholders are often not taken seriously. External governance in particular has less independent on accounting information. As the result of the various interests, it is naturally preferred modification of the profit which inevitably reduces the relevance of accounting information and allows the shareholders outside the company cannot use accounting information to corporate governance. Naturally, the characteristics of accounting information has become even more emphasis on the reliability of accounting information, namely, the authenticity and verifiability of information which is reflected with its fiduciary duties and emphasizing reveals managers associated with the past performance. Stressing the reliability of accounting information quality is the result which the stakeholders theory instead of supremacy stakeholder theory. The company's board of directors as the stakeholder contract should be seen the trustees of tangible and intangible assets whose duty is to make the value of the company's assets are protected and continue to growth and equity among the different stakeholders are unevenly distributed. However, the reality requires of accounting information have become an inevitable choice.The convergence of corporate governance brought the integration of characteristics of accounting information
It is worth noting that, there are indications that corporate governance model is different from each other towards convergence since 1980's. Economic globalization and fierce market competition speed up this convergence. In the United States and Britain, the main purpose of accounting information is to satisfy the company's external stakeholders in decision-making needs. Institutional investors are increasingly expanding and stabilizing and make internal governance strengthen to be necessary. The reliability of accounting information has been re-examined.it can be seen that the quality of accounting information under the Anglo-American model is not blindly emphasis on relevance, but on the basic of guarantee reliability down to improve the relevance of the premise. Meanwhile, the external governance of German-Japanese model has gradual strengthening. External information needs began to receive attention and prompting the objective of financial reporting transfer from lease enforcement to the decision-making. Especially, the European Union asked all listed companies within the scope of EU before 2005 have to adopt financial reporting by IAS (International Accounting Standard). It is the policy embodied in useful ideas and emphasizing the relevance of accounting information. Emphasis on reliability is decided by the essence of financial accounting and it give us lessons which the financial fraud cases by the listed companies in China and US in recent years. No-related information are useless, but not for everyone. However, no-reliable information is more dangerous. Because the entire user's decision-making will be misled by it and thus bring the unpredictable risks and losses.Improve corporate governance and innovate accounting reveal
The convergence of relevance and reliability of accounting information is the inevitable choice. Then, how to achieve this integration and coordination of development? There has been much discussion in the accounting, such as the construction of improved accounting standards system and improve the existing financial reporting system. On the other hand, there are some Strengthening measures to achieve the convergence in corporate governance and accounting model.Improve corporate governance from the perspective of stakeholders in governance
The Board of director should be the trustee of all stakeholders and not just the shareholders agent in the sense of unilateral governance. Its responsibility is to protect the value of the capital and to achieve continuous growth. They also should make the business results of the various stakeholders unevenly distributed which make the protection of the interests of stakeholders more effectively. Such as the "common-Determination Act" (German, 1976) explicitly stipulates that the board of supervisors must have a certain proportion of worker representatives and trade unions have the same proportion of the highest authority in the company with shareholders. Japanese company law adopts the operator-led governance structure to balance the interests of the shareholders and the employees and encourage workers to participate. So all stakeholders co-governance requires not only reflected in the company total control, but also reflected in the Enterprise residual claim-sharing. In China, corporate governance structure exists a various problems include of economic, cultural and institutional. So the best way to improve the corporation in china is to introduce the company's stakeholders in the company's co-governance. At this point, it can learn from the main bank system in Japan and some European countries and also learn from the United States through "syndicated" approach to achieve corporate direct, partial and short-term control. When the creditor's position in corporate governance confirmed their legitimate rights and interests are effectively protected, the entire society and capital flows will form a virtuous cycle. Social transaction costs will greatly save and the entire social credit system and will reach a whole new level which is an important environmental conditions of high-quality accounting information.Innovation accounting information reveals
Due to the constraints of traditional accounting, it is difficult to meet the user's individual needs. The reason which the financial accounting has been unable to complete produce market but appeared early, mainly limited to the high market transaction costs and the invention of new technology which can make accounting information to enjoy scale economies did not happen. However, the power of modern information technology has made this limitation will no longer become the excuse of only the minimum amount of information. And modern information technology development and application make the foundation of market-oriented accounting information. In this case, the establishment of a wide range of accounting channels and meet the different needs of users will become a necessity. Accounting information systems adapt new market-oriented reconstruction of the social environment will also become the history choice. The so-called accounting channels, refers the consumer option. Beside the right to choose or not, it also has a new two rights: (1) The requirements, the minimum standard of accounting information rights; (2) the right to choose in a number of media companies. If you say the same attributes of information is difficult to meet the reliability and relevance of the dual quality characteristics, then, it will not have the some difficulties when providing information on two different properties diversified model. The feature of Network Accounting eliminates the isolation between the various enterprise information, while greatly enhanced the timeliness of information. On the other side, it greatly reduced the cost of providing information. The development of information technology provides a solid technical backing to use a variety of measurement modes. It makes the coexistence of different measurement and the coexistence of different treatment methods to process data become possible.
In addition, events accounting can also be used to build the accounting information systems. The task of financial and accounting staff is to provide only a matter of information, and allows users to apply their choice on matters of information (Sauter, 1966). According to its point of view, due to a single historical cost measurement does not reflect the uncertainty and dynamicity of the economic environment and often inconsistent with economic reality, while the coexistence of multiple measurement attributes the lack of comparability and the accounting information through a single financial reporting system is difficult to satisfy the decision-making needs of all the different users, then why not provide the main economic activity of enterprises matters to investors in order to achieve consistency of information processing and use of information and avoid irrelevance and endless accusations about accounting information disclosure. In other words, if companies can pass the basic data and related information of business operation to the investors which can not affect the company trade secrets, it not only inhibited the asymmetric information problem, but also makes the accounting information generation and use according to investor themselves decision-making. It can be a good solution to different investors with different needs of accounting information, so that relevance and reliability can be coordinated developed.
Finally, the high degree of attention to the information disclosure of speculative and forward-looking information is also an important part of the coordination of accounting information relevance and reliability. In fact, with the problems of goodwill, derivative financial instruments and others, the structure of accounting information disclosure must be challenged. Of course, in the provisions of speculative forward-looking information revealed, it must also establish a sound institutional environment-related, such as the establishment of an effective system of financial speculation, improve the normative system, strengthen supervision and management, establish a sound internal financial information to guess the quality security system and give full play role to certified public accountants in ensuring Speculative quality of financial information.
- Anon, 1999, Principles of Corporate Governance, available from: www.oecd.org/dataoecd/32/18/31557724.pdf [Accessed 10 Dec. 2009]
- Anon, 1996, "Improving Business Reporting-A Customer Focus", available from: http://www.aicpa.org/NR/rdonlyres/42B3EFBD-689B-4595-800D-7D4F5848D81C/0/appiii_page3.pdf [Accessed 10 Dec. 2009]
- Liguo L. & Yin D., 2003, "An Empirical Study of the relationship between Corporate Governance and Accounting Information Quality (J)", Accounting Research
- Yunkui Xue, 1999, Network era of financial and accounting: Management Integration and Accounting Channel, Accounting Research
- Weian Li, 2001, Corporate Governance (M), Tianjin, Nankai University Press