Financial management is an essential aspect of organization management that is concerned with planning, controlling, monitoring, and organizing an organization financial resources with the aim of achieving the set goals and objectives. Financial resources are the most critical component of any organization because they are used to acquire the factors of production and most of the organization activities require financial investment with the expectation of business process efficiency, profitability and competitive advantage (Sofat & Preeti, 2011). The financial manager has a significant role in managing this critical and unique resource that is always in scarce despite its essential in the overall success of an organization. The primary purpose of a financial manager is to increase the shareholder wealth by investing their capital in investment options that have the potential of bringing high returns and also ensuring that shareholders do not lose their invested capital in the process. This paper will assess the roles and responsibilities of a financial manager within an organization and the different investment options that are available for businesses in the financial market.

Roles and Responsibilities for Compliance

Financial Managers Decision Making Alignment to their Primary Objective

To be able to achieve their core objective of maximizing shareholder wealth the financial managers have to comply with different regulations that are established to ensure ethical practices in financial management and prevent malpractices such as fraud which can have negative implications to a business in the market which will affect the overall business outcomes (Sofat & Preeti, 2011). Decision making by the financial managers ensures that business organizations can comply with the financial reporting rules and other financial regulations that are in place to prevent financial deceit such as failure to pay taxes and also to deceive shareholders on the dividends and share interests. Therefore, it is essential for a financial manager to comply with the existing regulations and practices established by and an organization to achieve their financial goals (Sofat & Preeti, 2011). The financial manager is responsible for analyzing investment options available, the creation of the dividend policy, establish sources of funds and the risk and returns of any business undertaking (Sofat & Preeti, 2011). All these decisions add up to the shareholder’s wealth maximization which is the primary objective of the managers within an organization set up.

Ethical Issues Facing Financial Managers

Ethics refers to the operational principles that guide people to do the right thing and can be from a corporate or individual moral creation that governs financial decision making. A financial manager represents the entire organization and should be more than honest by establishing professional conduct (Melé, Rosanas, & Fontrodona, 2017). The following are some of the ethical issues affecting financial managers. There are different legal regulations in the financial management that the financial managers have to abide within the course of their practice. Different laws regulate derivative, commercial banking, investment management, and capital markets. The financial law is part of the commercial law and monitors financial transactions, and the financial manager has to ensure that all the financial transactions are well recorded to facilitate proper accountability of shareholders capital and also provide tax compliance (Melé et al., 2017). As such, unethical practices such as failing to remit taxes and omitting some financial transactions are unethical. Besides, another key ethical issue facing the financial managers is the problem of remaining objective and truthful to the shareholders by providing timely information to the shareholders on their investment status and future financial projections.

When faced by such ethical issues in financial decision making it is essential for the financial managers to apply moral principles such as the Generally Accepted Accounting Principles, high competence, objectivity, and confidentiality. Generally accepted accounting principles are vital in ensuring financial managers can abide by the operating standards such as maintaining up-to-date accounting records and financial statements in accordance to the rules of the FASB which ensure uniformity (Melé et al., 2017). Maintaining financial records following the FASB rules minimizes the possibility of malpractice and financial errors. Competence and objectivity are essential in financial managers to be able to keep professionalism and prevent malpractices. As such, competence involves the ability to be aware of financial practices such as GAAP, honesty, and integrity in handling an organization finances. A good financial manager should be able to be objective to the organization financial goals and dedicated to increasing the wealth of the shareholders instead of trying to achieve personal goals that deviate from the goals of the organization (Melé et al., 2017). Therefore, ethical financial management practice requires the financial manager to operate by the organization financial reporting and decision-making rules and also by the regulations of the government by respecting existing financial laws.

Federal Safeguards That Are In Place to Reduce Financial Reporting Abuse

Two main federal safeguards that prevent financial reporting abuse include the Sarbanes-Oxley Act of 2002 and the Chief Financial Officers Act of 1990. Both federal policies have significantly shaped financial reporting in the United States of America and reduced financial malpractices by financial managers.  The Sarbanes-Oxley Act aimed at protecting investors from fraudulent financial reporting practices by corporations whereas the Chief Financial Officers Act led to the creation of financial reporting standards, strengthened the internal control, and continuous improvement of the financial management practices (Lee, Johnson, & Joyce, 2008). For SOX, its primary role as a federal safeguard is aimed at supplementing the existing laws by creating new protections for the investors, instituting criminal punishment, regulation of accounting and involvement of organizations to maintain proper financial reporting through corporate responsibility. According to the SOX Act, the senior corporate financial management officers are liable in writing financial statements and are liable to criminal penalties and serving prison times in case of malpractices (Lee et al., 2008). Both the CFO Act and the SOX Act play a significant role in streamlining financial management leadership by ensuring that financial managers are responsible for overseeing all financial reporting activities. However, the Sarbanes-Oxley made sure that financial managers are liable of their organization financial reporting with criminal penalties and imprisonment being imposed on those that fail to ensure proper financial reporting under their watch (Lee et al., 2008).

Investment Options

Private Company Going Public

A private company going public is a significant opportunity for the company to increase its capital base which can help an organization to expand gradually. Unlike private companies, public companies can sell their shares to the public which allows them to raise more capital to carry out more expanded operations (Seng, Yang, & Yang, 2017). A private company can go public through a public offering in which a private company sells its equity shares to raise funds for further investment or business expansion. The Initial Public Offering is the first time that a private organization issues its stock to the public and requires an organization to compile all its financial statements for official audit (Seng et al., 2017). The potential disadvantage of going public is that the management loses control because decisions are not made autonomously for public companies and there is increased public oversight, liability, reporting requirements as well as increased cost of compliance (Seng et al., 2017).

Largest U.S. Stock Markets

The New York Stock Exchange and NASDAQ are the largest stock markets in the United States. Collectively, the Nasdaq and NYSE are worth $32trillion in terms of market capitalization which makes a significant portion of the global equity market (Huang & Stoll, 1994). The difference between Nasdaq and NYSE can be found in terms of the market type in which the NYSE is an auction market where individuals buy and sell shares between themselves with the highest bid price being matched with the lowest asking price. On the other hand, the NASDAQ stock market is a dealer type of stock market where participants require dealers to buy and sell their shares, and it takes place electronically. For a private investment option, Nasdaq is more suited for a private investment because it has a low entry fee of between $50,000 and $75,000 compared to NYSE entry fee of $500,000 which is only suitable for public companies which can raise more capital compared to the private investors (Huang & Stoll, 1994). Besides, Nasdaq is a dealer market which means that an individual can delegate the investment decision to a dealer with more understanding of the market trends and safe investment opportunities in real time.

Investment Products

There are many investment products, but the stocks and bonds are the primary investment products with high returns and security (Fukuda, Kan, & Sugihara, 2013). Stocks refer to the share in the ownership of a company and represents a claim on a company’s earnings and shares. Stocks are sold in stock markets on behalf of companies that list their shares with them. On the other hand, a bond refers to a loan that an investor give to an organization in exchange of an interest-based payment over a specified period in addition to the payment of the principal amount when the bond matures. Bonds are sold by bond brokers who act as intermediaries between the buyers and the sellers in exchange for a commission (Fukuda et al., 2013). The difference between bonds and stocks is that whereas stocks are shares the bonds are debt and the stocks are paid in the form of dividends whereas the bonds are paid in the form of interest and the principal amount is assured (Fukuda et al., 2013). Therefore, bonds are safer compared to shares in that even when an organization does not perform debts have to be paid.

References

Fukuda, Y., Kan, K., & Sugihara, Y. (2013). Banks’ Stockholdings and the Correlation between Bonds and Stocks: A Portfolio Theoretic Approach (No. 13-E-6). Bank of Japan. Retrieved from https://www.boj.or.jp/en/research/wps_rev/wps_2013/data/wp13e06.pdf

Huang, R. D., & Stoll, H. R. (1994). Market microstructure and stock return predictions. The Review of Financial Studies, 7(1), 179-213. Retrieved from http://www.eecs.harvard.edu/~cat/cs/crypto-market/papers/mmicrostructure-stoll.pdf

Lee, R. D., Johnson, R. W., & Joyce, P. G. (2008). Public budgeting systems. Boston: Jones and Bartlett Publishers.

Melé, D., Rosanas, J. M., & Fontrodona, J. (2017). Ethics in finance and accounting: Editorial introduction. Journal of Business Ethics, 140(4), 609-613. Retrieved from https://link.springer.com/article/10.1007/s10551-016-3328-y

Seng, J. L., Yang, P. H., & Yang, H. F. (2017). Initial public offering and financial news. Journal of Information and Telecommunication, 1(3), 259-272. Retrieved from https://www.tandfonline.com/doi/full/10.1080/24751839.2017.1347762

Sofat, R., & Preeti, H. (2011). Strategic financial management. New Delhi: Prentice Hall of             India.