In 2002, Congress passed the Sarbanes-Oxley Act (SOX) to strengthen corporate governance and restore investor confidence. The act’s most important provision, §404, requires management and independent auditors to evaluate annually a firm’s internal financial-reporting controls. In addition, SOX tightens disclosure rules, requires management to certify the firm’s periodic reports, strengthens boards’ independence and financial-literacy requirements, and raises auditor-independence standards.
Corporate Governance is the relationship between the shareholders, directors, and management of a company, as defined by the corporate character, bylaws, formal policies and rule laws. The corporate governance system was designed to help oversee the decisions and best interest of the shareholders. The system should works accordingly: The shareholders elect directors, who in turn hire management to make the daily executive decisions on the owner’s behalf. The company’s board of director’s position is to oversee management and ensure that the shareholders interest is being served. Corporate governance focus is with promoting enterprise, to improve efficiency, and to address disputes of interest which can force upon burdens on the business. Ensuring that the clearness, and truth in a company’s business can make contribution to improving the enterprise standards and public governance.
Corporate Governance has over the past two decades become a pertinent subject in the corporate world owing to the control that rests in the hands of owners/shareholder, directors and senior officers of a corporation in the financial decisions of the said corporation.
The Board of Directors and Senior Management have a fiduciary duty to implement comprehensive monitoring systems, retention of outside consultants, investigate violations, adhere to regulations, and ensure the organization is operating per legal compliance (Bethel, 2016). Ultimately, if the Board of Directors does not do their job properly then they may suffer bad publicity, damage their reputation, and draw proxy attacks (Fraser & Simkins, 2010). Indeed, the Board cannot complete all tasks associated with organizational risk management; therefore, they delegate risk oversight to: the Audit Committee, the Chief Financial Officer (CFO), the Chief Risk Officer (CRO), and the Executive Committee (Bethel, 2016).
Corporate governance often refers to a set of rules and principles by which a company is directed. It provides a guideline for directing a company in order to fulfil its objective, brings added value to the enterprise, and is beneficial to the shareholders in long-term. (1) The rules and principals of corporate governance to an extent might be different in various companies, but some of these rules are similar in all the firms; such as accountability and responsibility towards the shareholders and commitment to conducting business in an ethical manner. (2)
The purpose of internal auditing and the professionals who provide internal auditing services according to the definition created by the Institute of Internal Auditors is to provide “an independent, objective assurance and consulting activity designed to add value and improve an organization’s operations. It helps an organization accomplish its objectives by bringing a systematic, disciplined approach to evaluate and improve the effectiveness of risk management, control, and governance processes.” Several guidelines and processes have been created to aid an internal auditor in providing the objective, value adding services they’re supposed to. The International Professional Practice Framework is the compass that provides internal auditors
Corporate Governance refers to the systems by which a corporation is directed and controlled by its shareholders, directors, and officers. The structure of governance specifies the rights and responsibilities of different participants in the corporation with regard both to one another and outside parties. These laws generally relate to the boards of directors, managers, shareholders, creditors, auditors, regulators, and other stakeholders. Corporate Governance is a specialized mechanism for regulating risk in corporate activities, thereby (hopefully) averting corporate disasters, scandals, and consequential damage or losses to investors, staff, society and the wider world.
The development in corporate governance has been one on the most significant factors that has contributed to the growth of internal auditing over the past few years. Governance frameworks and models vary according to the type of organisation. Corporate governance is South Africa is developing at a rapid rate and due to this; the role of governance needs to be consistently updated.
Owners put a lot of faith in the Board of Directors to Manage the Company on their behalf, and rely on the Board of Directors to make important decisions that benefit the interest of the company and not that of their own.
“A strong internal control system which includes an independent and efficient internal audit function contributes to an efficient and reliable governance”. (Andrei, 2015). Corporate governance is defined as “the ways in which suppliers of finance to corporations assure themselves of getting a return on investment. (Hamza, T., & Mselmi, N.,2017) In an effort to accomplish a stronger system, the Institute of Internal Auditors created a new concept called the “three lines defense model.” (Andrei, 2015) With this model, the first line of defense consists of the management and support functions. The second line of defense is the control function. Finally, the third line of defense is the internal audit function, which “verifies all the other control functions and to give assurance over the internal control system in place.” (Andrei, 2015) The Institute of Internal Auditors or IIA regulate internal auditors with a set of standards called the International Standards for the Professional Practice of Internal Auditing. The IIA does not discriminate against companies who want to utilize outside sources to perform internal audits if it is done efficiently. “The IIA’s Code of Ethics requires internal auditors to evaluate information objectively, while not being unduly influenced by their own interests.” (Stefanick, Houston and Cornell, 2012) On the other hand, “the IIA believes that oversight and responsibility for the
In a broad sense, corporate governance relates to the ways by which corporations and companies are directed and controlled. Therefore, the way corporate governance is done in certain companies can be crucial to the success or failure of the company as a whole. This is primarily due to the fact that proper corporate governance leads to better performance and directly monitors the company’s progress towards reaching its mission, and fulfilling its vision in the long run. Proper corporate governance is achieved through several steps. One of those steps is transparency, which is crucially needed in order for proper monitoring to occur, one of the bases of corporate governance. In
Nottingham Trent University. (2013). Lecture 1 - An Introduction to Corporate Governance. Available: https://now.ntu.ac.uk/d2l/le/content/248250/viewContent/1053845/View. Last accessed 16th Dec 2013.
Auditors’ independence has become a serious issue and an aggressive debate commenced after the big corporate collapses (Enron, WorldCom) in the United States in 2002 (Ahmad et
349). Whereas, Ho (2012) notes the Organization for Economic Cooperation and Development (OECD) defines corporate governance as “a set of relationships between a company’s management, its board, its shareholders, and other stakeholders, as well as the structure through which…the means of attaining corporate objectives and monitoring performance are determined” (p. 464). Corporate governance requires the participation from the board of directors, management, and even shareholders. They are responsible for defining the rules and regulations for decision-making and enforcing those rules (p. 2). Corporate governance is the combination of control functions that work unified in order to control the relations among all of those invested in the company; shareholders, management, and employees (p. 2). Additionally, corporate governance is not just about management and control, it focuses on the moral values, social accountability, worthy occupational practices, and control activities (Minculete & Olar, 2014, p. 97). According to Minculete and Olar, a good corporate governance entails the right “association and combination within the governance of operational terms like internal audit, internal control, external audit, and risk management” (p.
Corporate Governance is “a set of relationships between a company’s management, its board, its shareholders, and other stakeholders. Corporate governance also provides the structure through which the objectives of the company are set, and the means of attaining those objectives and monitoring performance are determined. Good corporate governance should provide proper incentives for the board and management to pursue objectives that are in the interests of the company and shareholders and should facilitate effective monitoring, thereby encouraging firms to use resources more efficiently.” OECD Principles of Corporate Governance.