CORPORATE

GOVERNANCE
 Internal control framework: sets out vision of control;
roadmap regarding control environment, relationship
& communication between people, corporate
structures, & governance processes
 Risk mgt.: process for identifying, assessing &
managing risk
 Internal controls: seek to mitigate unacceptable risk
levels
 Corporate strategies & review: strategy for risk mgt.
& effective controls is incorporated into overall
strategy driving org. towards achievement of its
objectives

LINK TO RISK MGT. & INTERNAL

CONTROL
Institute of Internal Auditors:
Governance is the system by which
organizations are directed & controlled. It
includes the rules & procedures for making
decisions on corporate affairs to ensure
success while maintaining the right balance
with the stakeholders’ interest.

DEFINITION
Org. for Economic Cooperation &
Development:
Corporate governance involves a set of
relationships between a company’s
management, its board, its shareholders, and
other stakeholders. Corporate governance also
provides the structure through w/c the
objectives of the company are set, and the
means of attaining those objectives and
monitoring performance are determined.

DEFINITION
 More than 2 out of 3 say that everyone
lies to their boss on occasion
 Less than half consider people at the top
to be strong ethical role models
 Only 1 in 5 were prepared to say that
charging personal entertainment to
expenses was totally unacceptable

GOVERNANCE & ETHICS:

SOME BELIEFS & PRACTICES
Enron
- Multinational trading co. ($ 60 billion worth)
- Engaged in complicated trading activities &
financial manipulation (kept huge debts off
f/s)
- Collapsed when credit rating firms prepared
to lower their assessments of co’s debt
- Knock-on effect: collapse of auditor Arthur
Andersen

GOVERNANCE & SCANDALS

WorldCom
- One of largest telecom cos.: $180 billion
value
- Internal auditor discovered corp. expenses
being treated as capital investments
- Resulted in inflation of profits & share value
- Coordinated 1 of biggest acctg. frauds in
history
- Lead to 30,000 lost jobs and $180 billion in
losses for investors.

GOVERNANCE & SCANDALS

1. Governance begins with the board of
directors & its committees.
2. The board must understand & focus on
the needs of key stakeholders.
3. Day-to-day governance is executed by
the management of the org.
4. Internal & external auditors provide mgt.
& the board with assurance regarding
the effectiveness of governance
activities.

KEY POINTS ON GOVERNANCE

1. Ensure properly organized & functioning
board.
2. Ensure board members possess appropriate
qualifications & experience, understand
their role in governance, know org.
operations, & are independent/objective.
3. Ensure board has sufficient authority,
funding & resources to conduct independent
inquiries.
4. Maintain understanding by executive mgt. &
board of org’s operating structure, including
structures that impede transparency.

COMMONLY IDENTIFIED
GOVERNANCE PRINCIPLES (IIA)
5. Articulate an org. strategy against w/c
the success of the overall enterprise &
individual contributions are measured.
6. Create org. structure that supports the
enterprise in achieving its strategy.
7. Establish a governing policy for the
operation of key activities of the org.
8. Set & enforce clear lines of responsibility
& accountability throughout the org.

COMMONLY IDENTIFIED
GOVERNANCE PRINCIPLES (IIA)
9. Ensure effective interaction among the
board, mgt., external & internal auditors,
and any other assurance provider.
10. Secure appropriate oversight by mgt.
including establishment & maintenance of a
strong set of internal controls.

COMMONLY IDENTIFIED
GOVERNANCE PRINCIPLES (IIA)
 Audit committee must provide oversight of
financial reporting, risk mgt., internal control,
compliance, ethics, mgt., internal auditors, &
external audit
 Detailed responsibilities:
1. Ensuring f/s are understandable,
transparent & reliable.
2. Ensuring risk mgt. process is
comprehensive & ongoing, rather than
partial & periodic.
3. Helping achieve an org.-wide commitment
to strong & effective internal controls.

THE ROLE OF THE AUDIT

COMMITTEE
4. Reviewing corp. policies on compliance w/
laws & regulations, ethics, conflicts of interest,
& investigation of misconduct & fraud.
5. Reviewing corp.-governance related
litigation/regulatory proceedings
6. Continually communicating w/ senior mgt.
re status, progress, new developments,
problems
7. Ensuring internal auditors’ access to audit
committee

THE ROLE OF THE AUDIT

COMMITTEE
8. Reviewing internal audit plans, reports,
& significant findings
9. Establishing a direct reporting
relationship with external auditors

THE ROLE OF THE AUDIT

COMMITTEE
 Internal audit activity must assess:
◦ Design, implementation & effectiveness of org’s
ethics-related objectives, programs, activities
◦ Whether information technology governance of
org. supports the org’s strategies & objectives

INTERNAL AUDIT ROLE

 Audit objectives related to corp.
governance:
◦ Promoting appropriate ethics & values within
the org.
◦ Ensuring effective org. performance mgt. &
accountability
◦ Communicating risk & control information to
appropriate areas of the org.
◦ Coordinating the activities of & communicating
info among the board, external & internal
auditors, & mgt.

INTERNAL AUDIT ROLE

CORPORATE GOVERNANCE
RISK
Corporate governance MANAGEMENT
codes

Corporate Internal
structures Control
Framework
Disclosure
arrangements INTERNAL
CONTROLS

Corporate strategies & review

LINK TO RISK MGT. & INTERNAL CONTROL

 Corp. governance codes: set of org. rules,
policies, guides, regulations & standards
 Corp. structures: arrangements to ensure
compliance w/ governance codes (boardrm
arrangements, audits, etc.)
 Disclosure arrangements: matters included in
annual report, compliance w/ governance codes,
risk mgt. arrangements, statement on internal
control

LINK TO RISK MGT. & INTERNAL

CONTROL