CHAPTER 2

corporate governance
responsibilities
and accountabilities
Introduction organizations large and small, in
both the private and the public
Many of the characteristics of sectors. The table provides a
good governance described in useful structure for any company
Chapter 1 are relevant to both to consider its own approach to
SME's and large listed public corporate governance and the
companies. As an organization matters which may assist it to
grows in size and influence, achieve its strategic objectives.
these issues become increasingly
important. Many of the matters listed may
not be directly relevant in all
However, it is also important to situations and some may not, in
recognize that good corporate particular circumstances, be
governance is based on within the board's control, but it
principles underpinned by provides a useful context in
consensus and continually which any organization can
developing notions of good consider its governance needs so
practice. There are no absolute that they might be most
rules which must be adopted by appropriately addressed.
all organizations. "There is no
simple universal formula for good The essence of any system of
governance" Instead emphasis is good corporate governance is to
many localities, has been to allow the board and
encourage organizations to give management the freedom to
appropriate attention to the drive their organization forward
principles and adopt approaches and to exercise that freedom
which are tailored to the specific within a framework of effective
needs of an organization at a accountability.
given point in time.
Relationship between
When corporate governance is shareholders/owner(s) and
discussed, it is often spoken of in other stakeholders
terms of a company's corporate
governance framework. The key The relationship between the
elements within an effective shareholders/owners,
governance framework, and the management and other
issues relating to each element,
stakeholders in a corporation is
are set out on the following
pages and are relevant to shown below:
 be anyone who is influenced,
whether directly or indirectly, by
the actions of a company.
Management and the board have
responsibilities to act within the
laws of society and to meet
various requirements of
Governance starts with the creditors, employees and the
shareholders/owners delegating stakeholders.
responsibilities through an
elected board of directors to A broad group of
management and, in turn, to stakeholders has an interest in
operating units with oversight the quality of corporate
and assistance from internal governance because it has a
auditors. The board of directors relationship to economic
and its audit committee oversee performance and the quality of
management and, in that role, financial reporting. For example,
are expected to protect the it is likely that many employees
shareholders' rights. However, it have significant funds invested in
is important to recognize that pension plans. Those pension
management is part of the plans are designed to protect the
governance framework; financial interests of those
management can influence who employees in their retirement.
sits on the board and the audit We use the word society in the
committee as well as other diagram to indicate those broad
governance controls that might interests. In a similar fashion,
be put into place. employees and creditors have a
vested interest in the
organization and how it is
governed. Regulators are a
In return for the
response to society's wishes to
responsibilities (and power) given
ensure that organizations, in
to management and the board,
their pursuit of returns for their
governance demands
owners, act responsibly and
accountability back through the
operate in compliance with
system to the shareholders.
relevant laws.
However, the accountabilities do
not extend only to the While shareholders /
shareholders. Companies also owners delegate responsibilities
have responsibilities to other to various parties within the
stakeholders. Stakeholders can corporation, they also require
 CHAPTER 2
corporate governance
responsibilities
and accountabilities
accountability as to how well the internal control effectiveness.
resources that have been Management has always had the
entrusted to management and primary responsibility for the
the board have been used. For accuracy and completeness of an
example, the owners want organization's financial
accountability on such things as: statements. From a financial
reporting perspective, it is
 Financial performance
management's responsibility to:
 Financial transparency —
financial statements that  Choose which accounting
are clear with full principles best portray the
disclosure and that reflect economic substance of
the underlying economics company transactions.
of the company.  Implement a system of
 Stewardship, including how internal control that
well the company protects assures completeness and
and manages the resources accuracy in financial
entrusted to it. reporting.
 Quality of internal control  Ensure that the financial
 Composition of the board of statements contain
directors and the nature of accurate and complete
its activities, including disclosure.
information on how well
management incentive
systems are aligned with
the shareholders' best
interests.

The owners want

disclosures from management
that are accurate and objectively
verifiable. For instance, Parties involved in corporate
management has a responsibility governance: their respective broad
role and specific responsibilities
to provide financial reports, and
in some cases, reports on
Corporate governance and  Assuming responsibility for
financial reporting reliability are the business relationship
receiving considerable attention with CEO including his oner
from a number of parties
appointment, succession,
including regulators, standard
setting bodies, the accounting performance remuneration
profession, lawmakers and and dismissal.
financial statement users.  Overseeing aspects of the
employment of the
Shareholders
management team
Overview of Responsibilities: including management
Provide effective oversight remuneration, performance
through election of board and succession planning.
members. approval of major  Recommending auditors
initiatives such as buying or and new directors to
selling stock, annual reports on shareholders.
management compensation,  Ensuring effective
from the board communication with ,
shareholders other
Board of Directors stakeholders.
Overview of Responsibilities:  Crisis management.
 Appointment of the CFO
The major representative of and corporate secretary.
stockholders to ensure that the
organization is run according to 2.) Performance
the organization's charter and
 Ensuring the organization's
that there is proper
long term viability and
accountability.
enhancing the financial
Specific activities include position.
among others:  Formulating and
overseeing implementation
1.) Overall Operations of corporate strategy.
 Establishing the  Approving the plan, budget
organization's vision, and corporate policies.
mission, values and ethical  Agreeing key performance
standards. indicators (KP/s)
 Delegating an appropriate  Monitoring / assessing
level of authority to assessment, performance
management. of the organization, the
 Demonstrating leadership board itself, management
and major projects.
 CHAPTER 2
corporate governance
responsibilities
and accountabilities
 Overseeing the risk  Approving annual financial
management framework reports, annual reports and
and monitoring business other public documents /
risks sensitive reports.
 Monitoring developments  Ensuring an effective
in the industry and the system of internal controls
operating environment. exists and is operating as
 Oversight of the and expected.
organization, including its
Non-Executive or Independent
control and accountability Directors
systems.
Overview of Responsibilities:
 Approving and monitoring
the progress of major The same as the broad role of
capital expenditure, capital the entire board of directors
management and
Specific activities include
acquisitions and
among others:
divestitures.
 to understand the
3.) Compliance / Legal organization, its business,
Conformance its operating environment
and its financial position,
 Understanding and  To apply expertise and
protecting the skills in the organization's
organization's financial best interests,
position.  to assist management to
 Requiring and monitoring keep performance
objectives at the top of its
legal and regulatory
agenda,
compliance including  to understand that his/her
compliance with role is not to act as auditor,
accounting standards, nor to act as a member of
unfair trading legislations, the management team,
occupational health and  to respect the collective,
cabinet nature of the
safety and environmental
board's decisions,
standards.  to prepare for and attend
board meetings
  to seek information on a organization’s operating
timely basis to ensure that environment
he/she is in a position to  provide information to the
contribute to the discussion board
when a matter comes  act as conduit between the
before the board, or alert board and the
the chairman in advance to organizations
the need for further  developing financial and
information in relation to a other reports that meet
particular matter, and public, stakeholder and
 to ask appropriate regulatory requirements.
questions relative to
Audit Committees of the Board of
operations
Directors
Management
Overview of Responsibilities:
Overview of Responsibilities:
Provide oversight of the internal
Operations and accountability. and external audit function and
Manage the organization the process of preparing the
effectively: provide accurate and annual financial statements as
timely reports to shareholders well as public reports on internal
and other stakeholders. control.

Specific activities include Specific activities include

among others: among others:

 recommend the strategic  Selecting the external audit

direction and translate the firm
strategic plan into the  Approving any non-audit
operations of the business work performed by the
 manage the company's audit
human, physical and  Selecting and / or
financial resources to approving the appointment
achieve the organization's of the Chief Audit Executive
objectives - run the (Internal Auditor)
business  Reviewing and approving
 assume day to day the scope and budget of
responsibility for the the internal audit function
organization's conformance  Discussing audit findings
with relevant laws and with internal auditor and
regulations and its external auditor and
complete framework advising the board (and
 develop, implement and management) on specific
update policies and actions that should be
procedures taken
 be alert to relevant trends
Regulators
in the industry and the
 CHAPTER 2
corporate governance
responsibilities
and accountabilities
A. Board of Accountancy Ensure the accuracy, timeliness
and fairness of public reporting of
Overview of Responsibilities: financial and other information
for public companies.
Set accounting and auditing
standards dictating underlying Specific activities include
financial reporting and auditing among others:
concepts; set the expectations of  Reviewing filings with the
audit quality and accounting SEC
quality.  Interacting with the
Financial Reporting
Specific activities include Standards Council in
among others: setting accounting
standards
 Conducting CPA Licensure  Specifying independence
Board Examinations standards required of
 Approving accounting auditors that report on
principles public financial statements
 Approving auditing  Identify corporate frauds,
investigate causes, and
standards
suggest remedial action
 Interpreting previously
issued standards External Auditors
implementing quality Overview of Responsibilities:
control processes to ensure
audit quality Perform audits of company
financial statements to ensure
 Educating members on that the statements are free of
audit and accounting material misstatements including
requirements misstatements that may be due
to fraud

Specific activities include

A. Securities and among others:
Exchange Commission  Audit of public company
Overview of Responsibilities: financial statements
  Audits of nonpublic management has the primary
company financial responsibility for creating a
statements culture of performance with
 Other services such as tax
integrity and ethical behavior.
or consulting
Effective corporate governance
should be integrated with the
company's business strategy and
not viewed as simply a
compliance obligation.
Internal Auditors

Overview of Responsibilities: Transparency is a critical element

of effective corporate
Perform audits of companies for governance, and companies
compliance with company should make regular efforts to
policies and laws, audits to
ensure that they have sound
evaluate the efficiency of
operations, and periodic disclosure policies and practices.
evaluation and tests of controls.
Independence and objectivity are
Specific activities include necessary attributes of board
among others: members; however, companies
must also strike the right balance
 Reporting results and
analyses to management in the appointment of
including operational independent and non-
management) and audit independent directors to ensure
committees an appropriate range and mix of
 Evaluating internal controls expertise, diversity, and
Summary of the key principles of knowledge on the board.
effective corporate governance
Corporate Governance and Its
In summary, the key/core Relationship to External Audit
governance principles related to
Board and Management include: Effective governance is
important to the conduct of an
The board's fundamental audit for one very simple reason:
objective should be to build long- companies with effective
term sustainable growth in corporate governance are less
shareholder value for the likely to experience fraud and are
corporation. therefore less risky to audit. For
that reason, most audit firms are
Successful corporate governance
not willing to accept potential
depends upon successful
audit client unless the clients
management of the company, as
demonstrate a strong
 CHAPTER 2
corporate governance
responsibilities
and accountabilities
commitment to effective
corporate governance. The
auditor is in a much better
position to provide a quality audit
when governance mechanisms,
such as the board and the audit
committee, adhere to and
embrace fundamental principles
of effective governance.

At those types of
organizations, the auditor can
serve as an independent party
working with other governance
parties such as management, the
board, and the audit committee,
to help ensure reliable financial
reporting