“Whistle Blowing and Financial Reporting”- Key issues and

Challenges.

Sowmya S M.com

Research Scholar-JRF-UGC-DoS in Commerce,

Manasagangotri, University of Mysore,

Mysore-6

sowgowri@yahoo.co.in

9008231522

Under the guidance of

Dr.Rajashekar M.com, Ph.D

Associate Professor, DoS in Commerce,

Manasagangotri, University of Mysore, Mysore-6

rajashekarh1@yahoo.co.in

LETS PROTECT OUR

CAPITAL RATHER MAXINISING THE

RETURNS!!!

Whistle Blowing is a sign of Zero-tolerance attitude by employees against the corruption and fraud taking place with respect to various aspects especially financial dealings by organizations.

The best whistle blowing cases which made world to learn about financial misleading by the global giant corporations were Sherron Watkins of Enron, Coleen Rowley of the FBI and Cynthia Cooper of WorldCom who were recognized and awarded as persons of the year 2012 by Times magazine.

These cases are role model lesson for each and every organizations mainly who have reached and recognized at the global level. These cases are negative role model lesson to organizations and positive role model lesson to employees.

INTRODUCTION

Does whistle bowing of financial crime leads to economic and social consequences. If so what kind of economic and social consequences does organization faces in by external whistle blowing? And what is its impact on the stock market and what is the shareholders reaction?

NEED AND IMPORTANCE OF STUDY

(James S. Ang1993) Do you believe maximizing shareholders' wealth is consistent with ethical behavior? Bingham: Not only is maximizing shareholder wealth consistent with ethical behavior, but maximizing wealth for shareholders in the long-term are only possible by behaving ethically. Unethical behavior is bad business. It incurs costs and damages a company's reputation. Both affect the bottom line.

LITERATURE REVIEW:

(Robert M. Bowen, Andrew C. Call and Shiva Rajgopal 2009) This empirical study revealed that whistle-blowing allegations were characterized by unique firm-specific factors that led employees to expose alleged financial misdeeds. Second, on average, whistle-blowing announcements were associated with a negative 2.8% market-adjusted five-day stock price reaction and this reaction was especially negative for allegations involving earnings management (-7.3%). Third, compared to a control group that exhibits similar characteristics, firms subject to whistle-blowing allegations were associated with further negative consequences including earnings restatements, shareholder lawsuits, and negative future operating and stock return performance. Finally, whistle-blowing targets exposed by the press were more likely to make subsequent improvements in corporate governance.

LITERATURE REVIEW:

To understand the concept of whistle blowing and financial reporting.

To study the objectives and importance of financial reporting as the best corporate governance practice.

To understand the need and importance of whistle blowing as emerging trend in financial reporting.

To identify the key issues and challenges of whistle blowing with respect to financial reporting.

To suggest a model of financial reporting incorporating whistle blowing procedures.

To suggest suitable measures for effective financial reporting for good corporate governance.

OBJECTIVES

Whistle blowing is the act of disclosing or reporting wrong doing.

Whistle blowing is the disclosure by a person, usually an employee in a government agency or private enterprise, to the public or to those in authority, of mismanagement, corruption, illegality, or some other wrongdoing.

CONCEPT OF WHISTLE BLOWING

What is financial reporting ? Who needs it?

The main purpose of financial reporting is to disclose or provide information about the organization’s financial happening and transactions to all the stakeholders which helps them in their decision making process.

Truth and fairness is one of the prime factors to be considered while reporting by corporate sectors.

“LOKASAMASTA SUKINOBHAVANTU – Let all stake holders be Happy”, when this principle has been adopted by the organization in its dealings then such organization can have good corporate governance practice. When truth and fairness factor is not considered in financial reporting then it ultimately trying to cheat the stakeholders.

FINANCIAL REPORTING AS THE BEST CORPORATE GOVERNANCE PRACTICE

Anti-non disclosure is a disclosure by whistle blowing. Anti-non disclosure elements are those elements of financial reporting, where the items to be disclosed but not disclosed are finally alerted or made aware of disclosing by whistle blowing allegations.

The financial statements are prepared according to the Generally Accepted Accounting Principles and are reported according to International Accounting Standards and currently with IFRS (International Financial Reporting Standards).

When the concept of full-disclosure is not considered in financial reporting then such concerns can be raised by the employees for partial disclosure or non-disclosure or improper disclosure of financial aspects.

The employees have a responsibility to report accounting and auditing concerns and suspected fraudulent activities like incorrect financial reporting, alleged earnings management, insider trading, tax fraud, violation of securities regulation, falsification and destruction of business or financial records , misrepresentation or suppression of financial information, non-adherence to internal financial reporting policy and auditor independence concerns etc.,

WHISTLE BLOWING AS EMERGING TREND IN FINANCIAL REPORTING

ConfidentialityProtectionDemographic Influences:External Whistle Blowing:Whistle blowing policy:Whistle blowing rewards:

KEY ISSUES AND CHALLENGES OF WHISTLE BLOWING

MODEL OF FINANCIAL REPORTING INCORPORATING WHISTLE BLOWING PROCEDURES.

FINANCIAL REPORTING

CORRECT DOING

INCORRECT/WRONG DOING (WHISTLE BLOWINGMECHANISM) INTERNAL CONTROL SYSTEM

EXTERNAL WHISTLE BLOWING

RECTIFIED

NOT RECTIFI

ED

SAFE

NOT SAFE

The organizations must have whistle blowing policy and all employees must be made aware of such policy.

The whistle blowing policy must assure for keeping anonymity of whistle blowers and their protection.

Misleading reporters must be penalized and punished.

SUGGESTIONS FOR EFFECTIVE FINANCIAL REPORTING FOR GOOD CORPORATE GOVERNANCE.

An effective internal whistle blowing making strong financial reporting system leads to good corporate governance.

“Not late the best even now the organizations can alert themselves of unethical behavior by having effective whistle blowing mechanism , otherwise their employees will alert the world about the same by whistle blowing. Whistle blowing a dangerous alert: Caution.”-

Sowmya.S

CONCLUSION:

THANKYOU