Fuzzy Governance Model

Enriqueta Mancilla-Rendón,Enrique Torres-Esteva,Carmen Lozano

doi:10.3390/math9050481

Enriqueta Mancilla-Rendón, Enrique Torres-Esteva + Show 1 more

Open Access

https://doi.org/10.3390/math9050481

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Journal: Mathematics	Publication Date: Feb 26, 2021
Citations: 1	License type: CC BY 4.0

Affiliation: Universidad La Salle

Abstract

This article aims to analyze the functions of corporate governance agents as a key part of the study and evaluation of the internal control by the independent auditor to propose a governance fuzzy model based on legality. This is a descriptive–hermeneutical study based on mercantile-securities law, the code of best practice of corporate governance, and auditing standards. The research design is cross-sectional and uses fuzzy logic theory as an alternative tool in contrast to classical mathematical models. The results suggest that corporate governance agents strongly influence the application of a management system. Evidence is given regarding the positive relationship between the functions of corporate governance agents as a management system. Additionally, the importance of an internal control management system as an inherent mechanism for governance is proven. The scientific value of this work lies in showing how the interaction between the application of mathematical models based on fuzzy set theory and the qualitative attributes of internal control policies and practices. It is a tool to evaluate governance as a management system for decision making. This work emphasizes that a model based on fuzzy sets is useful to evaluate a management system of internal control policies and procedures necessary to improve corporate governance.

Highlights

Corporate collapses and scandals, recognized as the financial catastrophes of the late twentieth and the early twenty-first century, were models of business failures [1]
The breach and application of an internal control system leads corporations to issue unreliable financial reports and make wrong decisions that could trigger financial disasters, technical bankruptcy, and eventually, the dissolution of a company. This denotes the absence of internal controls and raises questions as: Is corporate governance a management system for internal control? Do corporate governance agents exercise a sound control system management? Does internal control compliance guarantee reliable accounting reports? Is fuzzy logic an evaluation system for internal control policies and procedures as an agent of corporate governance?
Fuzzy logic emerges as the ideal tool for modeling complex situations since it allows for making decisions considering qualitative attributes of a dynamic complex system

Summary

Introduction

Corporate collapses and scandals, recognized as the financial catastrophes of the late twentieth and the early twenty-first century, were models of business failures [1] They were caused by a deficient or absent supervision of the internal control policies and procedures. Several companies make up the amounts of the trial balance and tend to mislead investors, customers, and suppliers [2] They include fictitious sales to obtain incentives or credits and omit commitments to show low indebtedness. They overvalue some assets through the capitalization of operating expenses, which changes the profits at the end of the year and, the stockholders’ equity. This denotes the absence of internal controls and raises questions as: Is corporate governance a management system for internal control? Do corporate governance agents exercise a sound control system management? Does internal control compliance guarantee reliable accounting reports? Is fuzzy logic an evaluation system for internal control policies and procedures as an agent of corporate governance?

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