Corporate Governance Flashcards
What are the objectives of Corporate Governance?
The overall aim is to ensure that companies are run well in the interests of their shareholders, Employees and other key stakeholders.
Good Corporate governance reducing risk of directors abusing their power, and also provides the following advantages:
- Greater transparency
- Greater accountability
- Efficiency of Operations
- Better able to respond to risks
- Less likely to be mismanaged.
Why is corporate Governance relevant to External audit?
Companies with good corporate governance are likely to have:
- Stronger internal controls
- Reduced risk of material misstatement.
- Better communication between audit committee and External audit.
What area’s does the UK Corporate governance code provide guidance on?
- Board Leadership and company purpose.
- Division of responsibilities
- Composition, Succession and evaluation.
- Remuneration
- Audit, Risk and internal control.
What are the main principles for Board Leadership and company purpose?
- Each company should have an effective board who take collective responsibility for the long term success of the company.
- The board should ensure resources are in place to meet objectives.
- Board should establish a frame work of effective controls.
- Encourage participation of shareholders and stakeholders.
- Workforce should be able to raise matters of concern.
What are the main principles covered under “Division of Responsibilities”?
- The Chair leads the board and is responsible for its overall effectiveness. - Should be independent on appointment.
- The chair should ensure effective contribution of all board members.
- TC should ensure all directors receive clear, accurate and timely information.
- The board should be balances so no individual or group can dominate decisions.
- NED’s should have sufficient time to meet their board responsibilities and should hold management to account.
- The board should ensure it has the policies, Processes, Information, time and resources it needs to function effectively and efficiently.
What are the main principles covered under composition, succession and evaluation.
- Appointments to the board should be subject to a formal, rigorous and transparent procedure.
- An effective succession plan should be maintained for board and senior management.
- Appointments and succession should be based on merit and objective criteria and should promote diversity.
- The board and it’s committees should have a combination of skills, experience and knowledge.
- Annual evaluation of the board should consider its composition, diversity and how effectively members work together to achieve objectives.
What are the main principles covered under remuneration?
- Remuneration should be designed to promote the long term sustainable success of the company.
- Executive remuneration should be aligned to the company purpose, values and long term strategy.
- The board should establish formal and transparent procedures for developing the policy for ED’s remuneration.
- No director should be involved in setting their own pay.
What are the main principles covered under Audit, risk and internal control?
- The board should establish formal and transparent policies and procedures to ensure the independence and effectiveness of internal and external audit functions and satisfy its self on the integrity of financial and narrative statements.
- The board should present a fair, balanced and understandable assessment of the companies position and prospects.
- The board should establish procedures to manage risk, oversee the internal control framework and determine the nature and extent of the principles risks the company is willing to take in order to achieve it’s long term strategic objectives.
How should an audit committee be comprised, what are it’s objectives and how should it function?
Composition
Min. 3 independent Non Executive directors.
At least one with financial expertise
Independent of operational management
Objectives
Increase public confidence.
Provide financial awareness.
Strengthen independence.
Function
Monitor financial statements.
Review controls
Monitor and review internal audit
Monitor the independence of the external auditor
