corporate governance
TRANSCRIPT
CORPORATE
GOVERNANCE
Define Corporate Governance
• Is a set of structures, processes, policies and laws
that affecting the way a corporation directed,
administered or controlled to achieve maximum
performance in the interest of all stakeholders
OBJECTIVE
The basic and the foremost objective of Corporate
Governance are to enhance the value of shareholders in
keeping the view of the other stakeholders.
Management deals with daily operations, while
Governance is about the underlying ethics of a corporation.
Poor management can affect governance
Weak governance undermines the financial and operational performance of a corporation
Weak governance affects investors’ faith in the company.
Management vs. Governance
Corporate Governance Parties
• Shareholders – those that own the company
• Directors – Guardians of the Company’s assets for the
Shareholders
• Managers who use the Company’s assets
Needs of good Governancea. Good board practices
b. Control environment
c. Board Commitment
d. Transparent disclosure
e. Well Defined Shareholders
Good Board Practices
• Clearly defined roles and authorities
• Duties and responsibilities of Directors understood
• Board is well structured
• Plan appropriate board procedures
Control Environment
• Risk management framework present
• Disaster recovery system in place
• Safety environment and Media management techniques in use
Board Commitment
• Policies and procedures formalised and distributed to relevant staff
• Create a corporate governance committee
• The board needs sufficient relevant skills and understanding to review and
challenge management performance
Transparent disclosure
• Financial and non financial info disclosed
• Financial prepared according to IFRS
• High-Quality annual report published
• Web-based disclosure
• Companies Registry filings up to date
Well defined shareholders
• Shareholder meeting conducted
• Shareholders rights formalised
• Clearly defined and explicit dividend policy
FIVE ELEMENTS OF CORPORATE
GOVERNANCE
1. ACCOUNTABILITY
2. TRANSPARENCY
3. REGULATORY FRAMEWORK
4. BUSINESS ETHICS AND SOCIAL RESPONSIBILITY
5. ADMINISTRATIVE STRUCTURE
1. accountability
• Plan an good accounting system for its activities in order to prepare an effective financial statement and to
disclose the results in transparent manner.
• The design of reporting should be improved and perfect
2. transparency
• The extent to which a corporation's actions are observable by outsiders
• This is a consequence of regulation, local norms, and the set of information, privacy, and business policies concerning corporate decision making and operations openness to employees, stakeholders, shareholders and the general public.
• Disclosure of material matters concerning the organization should be timely and balanced to ensure that all investors have access to clear, factual information.
3. Regulatory framework
• Ensure the company managers and directors act in the interest of company
and of shareholders.
• The framework of rules and systems within and by which authority is
exercised and controlled in corporations
4. Business ethics and social responsibility
• Drive company strategy, business goals, policies and activities with a good
value and ethics
• Being responsible with regard to environmental and human rights issue
• Try to reduce waste and pollution
5. Administrative Structures
• A good admin structure indicates the information provided by the
corporation is efficient and correct
• Its indicates company probability of success or failure in long term
• Dishonesty between management and shareholders weaken the corporation
governance.
AUDIT COMMITTEE
• An operating committee of a company's board of
directors that is in charge of overseeing financial
reporting and disclosure
Structure of Audit Committee
• From amongst director which fulfill
the following requirement:
Not less than 3 member
Must be independent directors
Chairman – independent non-
executive directors
At least one of member :
Member of MIA
If not MIA, 3 years working
experiences
Passed examination
Member of one associations of
accountants
ROLES OF AUDIT COMMITTEE
• Role in oversight of financial reporting and accounting
• Role in oversight of the external auditor
• Role in oversight of risk management
• Role in monitoring the effectiveness of the internal control
process and of the internal audit
Role in oversight of financial reporting and
accounting
• often discuss complex accounting estimates and judgments made by
management and the implementation of new accounting principles or
regulations
• Audit committees interact regularly with senior financial management that
are in a position to comment on the capabilities of these managers.
• External auditor should report to them if they detect any fraud
Role in oversight of the external auditor
• Changing an external auditor typically also requires audit
committee approval
• Audit committees also help ensure the external auditor is
independent, meaning no conflicts of interest exist that might
interfere with the auditor's ability to issue its opinion on the
financial statements.
Role in oversight of risk management
• Organizations have a variety of functions that perform activities to
understand and address risks that threaten the achievement of the
organization's objectives
• The policies and practices used by the entity to identify, prioritize, and
respond to the risks (or opportunities) are typically discussed with the audit
committee
• Audit committee involvement in non-financial risk topics varies significantly
by entity.
Monitoring internal control and internal
audit
• Internal control includes the policies and practices used to control the
operations, accounting, and regulatory compliance of the entity
• Management and both the internal auditing function and external auditors
provide reporting to the audit committee regarding the effectiveness and
efficiency of internal control.
Advantages of Audit Committee
• Strengthening the role of non-executive directors.
• Strengthening the objectivity and credibility of financial reporting.
• Strengthening the independence of the internal audit function.
• Improving the quality of the accounting and auditing functions.
• Better monitoring of compliance with standards, laws and regulations.
• Improve communication between directors, auditors and management.