Overview Of Corporate Governance

Question 1

Compliance with the following systems and processes should provide for effective corporate governance: 4 points

Answer 1

1. An ongoing monitoring system of checks and balances to ensure that there is a balance of power within a company.
2. System of internal control to ensure compliance to all legal and regulatory requirements.
3. A proper risk management system to ensure the sustainability of a company.
4. The development and implementation of practices to keep the company accountable to all stakeholders, particularly the broader society in which it operates.

Question 2

Key Role Players in Corporate Governance (3)

Answer 2

1. Board of Directors
2. Audit Committees
3. Audit Profession

Question 3

What are a several problems between the board and management? (5)

Answer 3

1. Boards usually rely on management to report information to them, providing management with the opportunity to place the desired “spin” on information, or even to conceal or lie about the true state of an organization.
2. The board’s relative unfamiliarity with both the business and their colleagues could make it difficult for board members to competently question management assertions.
3. Directors frequently do not have the time, or even the necessary skills refuted to understand the details of specific businesses, allowing management to obscure problems.
4. CEOs tend to have rather forceful personalities and are often accused of exercising too much influence over the board
5. The above factors may place directors in a position where their reluctance to interrogate submissions (verbal and written) may contribute to a culture of “not rocking the boat” at board meetings.

Question 4

Audit committees should?

Answer 4

1. Oversee the activists of the organization’s management but also required to regulate the activities of both internal and external auditors.
2. Charter should be in place to set out roles and responsibilities of the audit committee.
3. Report to the board of directors.
4. Comprise independent non-executive members with an independent chairperson (not the same as board of directors)
5. Be financially literate and have sufficient understanding of the core business of the entity.

Question 5

The audit profession: (2)

Answer 5

External auditors: examine the accounting systems and controls and test the underlying transactions that inform the figures disclosed in the annual financial statements, in order to express an opinion regarding the fair presentation of the financial statement, aimed primarily at external user.

Internal auditors: examine the same systems and controls, but from the perspective of evaluating whether significant risks, which can derail the organization from achieving its objectives, are adequately mitigated. They provide assurance to board of directors, audit committees and top management.