Question

-What is the Prudent Man Rule? Is it still acceptable? How has it changed?

-What is the Business judgement rule?

-What are the Nolan Principles?

-What is The Treadway Commission? COSO? Who are the sponsors? What is their purpose?

Answer 1

Prudent Man Rule: Prodent person rule is legal maximun restriction thats allowed to managing the accounts of clients related to type of investments thats investors seeks to earn reasonable income and maintain the own capital accounts for buying & selling. This rule protect the investors by providing the service as investment advisor from the shady,risky and otherwise investment.

Prudent Man rule is less relevent for morden era and prudent rule lastly revised in 1959 thats brings the large number of investment product in main stream and investor are became more sophisticated. The prudent rule in fudiciary possition wants to perform enough due diligence to ensure thats compny meets the investors needs, this including discussing with company management,vendors and customers as well as proper evaluation of any risk factor.

Business judgement rule: Business judgement rule protect the corporation board of directors from misleading allegations about the way of its conducts business. Unless it is apparent thats BOD intentionally voilated the some business rules of conducts .

This rule acknowledge that daily busness operation can be risky or contraversial, therefor BOD should allowed to make business decision without any fear of prosecution. Business judgement rule assume thats its is unfair to expect from BOD to make perfect decision in all time.

Nolan Principles: Nolan Principles refers to the seven principle of public life as difine by the committee of standard in public life.these principle are given as follows

Selflessness – This principle make sure that public officers should act solely for public interest. They should not do any act for taken unlawfull gain for themselves or their family or friends.

Integrity – Holders of public office should not place themselves under any financial or other obligation to outside individuals or organisations that might seek to influence them in the performance of their official duties.

Objectivity – In carrying out public business, including making public appointments, awarding contracts, or recommending individuals for rewards and benefits, holders of public office should make choices on merit.

Accountability – Public officers are take full responsiblity & accountablity for theie busness decision taken for public interst.

Openness – Holders of public office should be as open as possible about all the decisions and actions they take. They should give reasons for their decisions and restrict information only when the wider public interest clearly demands.

Honesty – Holders of public office have a duty to declare any private interests relating to their public duties and to take steps to resolve any conflicts arising in a way that protects the public interest.

Leadership – Holders of public office should promote and support these principles by leadership.

The Treadway Commission COSO: The Committe of sponsoring organisation of treadway commission thats difine a model for evaluating the internal control of the organisation. COSO is generally accepted framework for internal control thats evluated the efficiency & effectiveness of internal control system.

Internal Control system is a process effected by the entity,s board of directors, management, and other personnel designed to provide the reasonable assurance of achivements of the objective by maintaining the efficiency & effectiveness in busness operation & reliabilty of fianancial reporting & compilance with applicable rules & regulations

sponsors of COSO

COSO is a private sector initiative, jointly sponsored by

American Accounting Association (AAA)

American Institute of Certified Public Accountants (AICPA)

Financial Executives International (FEI)

Institute of Management Accountants (IMA)

The Institute of Internal Auditors (IIA)