In this paper I will focus on the case study of Royal Ahold and the large accounting fraud that took place within the company. The shareholder approach focuses mainly on creating shareholder value by maximising profits, with a lot of pressure on short term financial performance. Stakeholder theory on the other hand also takes into account the interests of parties other than the shareholder, e.
All aspects of the company are dependent on which of these approaches it follows. Transparency is a key element to successful corporate governance. Internal control functions provide central monitoring roles in corporate governance and I will show that weaknesses within these mechanisms, contributed significantly to the fraud scandal at Ahold.
Royal ahold an analysis first of all introducing the agency theory, I will examine why such internal forms of control is necessary at all within a company. The reason why companies need such extensive monitoring of management could be argued to be rooted in agency theory.
Agency theory is rooted in the separation of ownership and control.
The agent is believed to be purely self-interested and will act opportunistically. The actions of the agents the managers need to be monitored in order to protect the interest of the principals the owners.
Internal and external governance mechanisms are used in order to decrease managerial opportunism Solomon, The agency theory thus examines potential conflicts that may arise between management and shareholders. The manipulation of the control mechanism, the auditing function, can Royal ahold an analysis explored in order to get a better understanding of the disclosure and transparency weaknesses in Ahold.
We shall see that the lack of transparency contributed to increasing and not decreasing the agency problem.
|Ahold - Wikipedia||In this paper I will focus on the case study of Royal Ahold and the large accounting fraud that took place within the company.|
|Case Study Analysis of Royal Ahold Scandal||The grocery chain expanded through the first half of the 20th century, and went public in The company also influenced culinary development in the country, popularizing products such as wine, sherry and kiwi fruit, contributing to the introduction of the refrigerator in Dutch households and introducing convenience items, such as ready meals and frozen pizzas, to Dutch consumers.|
|Royal Ahold Company Profile - SWOT Analysis||
|Annual Reports | Ahold Delhaize||
Disclosure of information is a critical function in reducing agency problems. Disclosure refers to different forms of information produced by companies. It also includes voluntary communications such as management forecasts, analyst presentations, press releases, corporate websites and many more Solomon, The voluntary information disclosed by Ahold was also affected by its fraudulent activity.
Market analysts could for example not analyse the company according to its real potential, seeing that the information disclosed was not living up to reality. Financial reporting is one way of reducing information asymmetry, as it helps investors to make better informed decisions Solomon, I will now take a bit more detailed look at how Ahold was able to disclose the wrong information, leading to a serious lack in transparency in the firm.
US Foodservices USF received a large number of promotional allowances, if it purchased a large volume of merchandise. The problem was that managers systematically manipulated the books in order to compensate for any shortfall in their predicted earnings. They managed these fraudulent activities in several ways.
They coaxed suppliers to confirm their false promotional allowances, by threatening them through their powerful market dominance. They furthermore manipulated their accounting entries by for example incorporating discounts into the accounts before the actual sale was made or into the wrong time period.
This was also done despite shareholders agreements that provided joint control for Ahold and its joint ventures. Once again, this was done by Ahold in order to consolidate their revenues and earnings from their subsidiaries.
Both the accounting irregularities exhibited by Ahold, as well as the fraudulent activities in the alleged joint ventures, is examples of managements interests not being aligned with that of the shareholders. Managers acted in an opportunistic manner, when they saw a way to cover the shortfalls in their budgeted earnings.
They did not take into account the long term welfare of the company, or its stakeholders but instead focused on achieving hort term profit and acting in their own interest here and now.
Management should have adhered to the accounting principle of matching concerning the recognition of rebates. However, through prematurely and incorrectly recognising these promotional allowances, they inflated their profits for some million Euros.
Even though corporate governance attempts to reduce the agency problem through accounting, the problem was in fact increased in the case of Ahold. The actions by management increased the information asymmetry, forcing the owners to make decisions on the basis of false information.
The increased information asymmetry in turn made the firm much less transparent, showing a weak system of corporate governance. We ultimately lack information, to do any real analysis concerning the role the external auditor, Deloitte, played in the fraud scandal.
We can only acknowledge that the role of external auditors is to add an extra control mechanism to regulate the activities of directors.
Unfortunately, it is often the case that external auditors are involved in fraudulent activities. Perhaps in the case of Deloitte, the external auditor had to be more critical toward its client, by scrupulously inspecting all suspicious activities, at all times.
Another form of control within a company is the role of the board. One might think that the Dutch two-tier board model, with separated responsibilities for executives and non-executives, might have some advantages concerning the independence of monitoring.Royal Ahold NV Case Solution,Royal Ahold NV Case Analysis, Royal Ahold NV Case Study Solution, Royal Ahold NV Case Solution This instance is an introduction to monetary threat monitoring.
An analysis of the weaknesses of Ahold’s approach to transparency and disclosure. In this first section I would like to examine Ahold’s approach to transparency and disclosure. About Royal Ahold: Royal Ahold is a food retail and supermarket operations chain headquartered in Zaandam, Netherlands, founded by Albert Heijn in Read Ahold Delhaize's annual report and the past annual reports of Ahold and Delhaize.
Lego Case Study Analysis Pallav Mathur Q 1.
What led the LEGO group to the edge of bankruptcy by ? By the end of Lego was already facing crisis owing to dipping profits and declining market pool for toys.