3 Establish compliance programs Firms must establish corporate compliance

3 establish compliance programs firms must establish

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3. Establish compliance programs. Firms must establish corporate compliance programs that ensure that they comply with important federal and state regulations. For example, a compliance program would document whether a firm’s truck drivers complied with all federal and state truck and driver safety regulations, such as the number of hours one can drive during the day and the gross highway weight of the truck. 4. Establish an ethics program. Firms must establish ethics programs that monitor the ethical conduct of employees and executives through a compliance hotline, which must include a whistleblower protection provision. The intent is to create an ethical work environment so that employees will know what is expected of them and their relationships with customers, suppliers, and other stakeholders 5. Expand the audit committee’s oversight powers. The external auditor, the internal auditor, and the compliance/ethics officer owe their ultimate legal responsibilities to the audit committee, not to the fi rm. In addition, the audit committee has the unconditional power to probe and question any person in the firm, including the CEO, regarding any matter that might materially impact the firm or its financial statements
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___________________________________________________________________________________________________________________ Page 17 of 19 IPK COLLEGE 1664, JALAN KULIM, 14202 BUKIT MERTAJAM, PENANG TEL : 012-5203212 / 0125113212 / 04-5512588 Subject: Financial Management (DFM1) Prepared by: Susan Lim Email : [email protected] Part 6: The Importance of Ethics in Business (1) Types of Ethical Conflicts in Business: a) Agency Costs Agents can be bound both legally and ethically to act in the interest of the principal. Financial managers have agency obligations to act honestly and to see that subordinates act honestly with respect to financial transactions. Financial managers, when they are guilty of misconduct, present a serious danger to stockholder wealth. A product recall or environmental offense may cause temporary declines in stock prices. However, revelations of dishonesty, deception, and fraud in financial matters can have a huge impact on the stock price. If the dishonesty is flagrant, the firm may go bankrupt, as we saw with the bankruptcies of Enron and WorldCom b) Conflicts of Interest Conflicts of interest oft en arise in agency relationships. A conflict of interest in such a situation can arise when the agent’s interests are different from those of the principal For example, suppose you’re interested in buying a house and a local real estate agent is helping you find the home of your dreams. As it turns out, the dream house is one for which your agent is also the listing agent. Your agent has a conflict of interest because her professional obligation to help you find the right house at a fair price conflicts with her professional obligation to get the highest price possible for the client whose house she has listed.
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