733410
Description
Mind Map by Sara Sefton, updated more than 1 year ago
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Created by Sara Sefton
about 10 years ago
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Corporate Governance
- Aim is to improve the ways in which companies are run and to enhance their
corporate reporting
- Cadbury (1992): corporate
governance is the system by which
companies are directed and
controlled
- Solomon (2007): the
system of checks and
balances both internal and
external to companies which
ensure: companies
discharge their
accountability to all
stakeholders and act in a
socially responsible way in
all areas
- Objectives :
Transparency, rule of law,
participation,
responsiveness, equity,
efficiency & effectiveness,
sustainability,
accountability
- Cadbury (1992): corporate
governance is the system by which
companies are directed and
controlled
- Why was corporate
governance introduced
for listed companies
- Problems
- Lack of internal control at the highest levels, not
relevant to lower level employees, just as relevant
at highest levels
- lack of checks and balances on the individual
authority of directors
- intimidation threats - compromises independence
and ability to report objectively
- Lack of internal control at the highest levels, not
relevant to lower level employees, just as relevant
at highest levels
- Cadbury Committee Report (1992) proposals
for best corporate practice in order to:
- reinforce responsibilities of executive directors
- strengthen the role of non executive directors
- make the case for audit committees
- restate the principle responsibilities of auditors
- reinforce the links between shareholders, boards and auditors
- reinforce responsibilities of executive directors
- Problems
- Corporate governance code requirements
- executive directors run the company day to day
- independent non executive directors provide objective oversight of
executive directors, entity operations and board decisions
- separation of the role of CEO and
chairperson to divide power and authority
- no one person to have complete control over decisions
- open discussion of critical matters by all directors
- sufficient NEDs to ensure no one individual/group is dominating decsions
- NEDs free of business or other relationships which could materially interfere with the exercise
of independent judgement
- Internal controls
- directors required to conduct annual review of the effectiveness
- Internal audit mandatory for all listed and public listed
companies
- directors required to conduct annual review of the effectiveness
- Audit Committee
- at least 3 (2 for small co) non executive
directors, independent of management
- members who have a wide range of
business and professional skills
- members with good understanding of
the business but not from direct
management
- clear written terms of reference
setting out its authority and its
duties
- members prepared to devote significant time
and effort to the committee
- at least one member competent in accounting and/or audit
- at least 3 (2 for small co) non executive
directors, independent of management
- executive directors run the company day to day
- Audit committee
- Financial & internal control functions
- what do they do?
- identify matters needing action or improvement and recommend action to
the board
- monitor & review internal audit function and findings
- appoint head of internal audit department
- review internal financial controls and internal control risk and
management systems
- review significant financial reporting judgements - interim & annual
- monitor integrity of formal announcements relating to financial performance
- monitor integrity of annual & interim financial statements
- identify matters needing action or improvement and recommend action to
the board
- Key Objectives
- increase public confidence in
credibility & objectivity of
financial info
- assist directors in carrying out of financial
reporting duties
- assist directors in ensuring FS show a T&F view
- improve internal management accoutning reports
- maintain the independence of internal audit
function by providing objective oversight of
the financial reporting and other functions
- increase public confidence in
credibility & objectivity of
financial info
- what do they do?
- External Auditors
- What do they do?
- review & monitor external auditors independence and objectivity
- review & monitor the effectiveness of the external auditor in undertaking non audit services
- review communications from external auditors on internal control weaknesses - make
recommendations needed to strengthen
- develop & implement policy on engaging external auditor in undertaking non audit services
- make recommendations to the board on the appointment, reappointment or removal of the external auditor
- approve remuneration and terms of engagement of external auditor
- hold discussions with external auditor regularly without executive directors
- review & monitor compliance with company's code of conduct
- review & monitor compliance with legal & regulatory reuirements
- review & monitor external auditors independence and objectivity
- Key objectives
- increase public confidence in the independence
and objectivity of external auditors
- provide an unbiased audience for external
auditors to report problems & concerns
- provide external auditors with an ally on the board
- act as a buffer between external auditors and executive directors to
reduce directors influence on auditors and their appointment - reducing
intimidation threats
- enable auditors to carry out work without limitations
- assist auditors in stamping out aggressive earnings management in the
preparation of FS - to show a T&F view and increasing confidence in the
credibility & integrity of FS
- increase public confidence in the independence
and objectivity of external auditors
- What do they do?
- Financial & internal control functions
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