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The role of corporate governance
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Recommended: The role of corporate governance
Corporate governance is the responsibility of an organization’s board of directors (BOD). The internal auditor (IA), the external auditor (EA), and the information technology (IT) auditor all play important roles in the process of corporate governance. By using established frameworks established by the Sarbanes-Oxley Act (SOX), the Integrated Framework from the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and the Control Objectives for Information and related Technology (COBIT), organizations can demonstrate their adherence to regulations and legal requirements. Under SOX, these control frameworks have become the law and are no longer voluntary best practices. The audit process itself assists organizations to achieve proper governance. This paper evaluates the auditors’ role in the governance process and explains how auditors ensure that an organization’s governance system is well controlled and auditable. This paper also describes the likely consequences of the improper implementation of good governance.
IT Governance and Control
An organizations’ Board of Directors (BOD) has the direct responsibility for ensuring good corporate governance. One definition of corporate governance is the method of control in businesses in their direction and control (Florea, R. (Radu) & Florea, R. (Ramona), 2013). The Sarbanes-Oxley Act, 2002 (SOX), focuses on the enhancement of corporate governance through improved internal checks and balances. These checks and balances are to strengthen the accountabilities of those responsible for its management (Damianides, 2005). Good corporate governance may improve a company’s performance by assisting the BOD to discharge its legal requirements and its fiduc...
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Florea, R., & Florea, R. (2013). Internal Audit and Corporate Governance. Economy Transdisciplinarity Cognition, 16(1), 79-83.
Holm, C., & Laursen, P. (2007). Risk and Control Developments in Corporate Governance: changing the role of the external auditor? Corporate Governance: An International Review, 15(2), 322-333. doi:10.1111/j.1467-8683.2007.00563.x
Millage, A. (2013). The red book on good governance. Internal Auditor, 70(2), 7.
Schneider, A. (2009). The nature, impact and facilitation of external auditor reliance on internal auditing. Academy of Accounting and Financial Studies Journal, 13(4), 41-53. Retrieved from http://search.proquest.com.proxy1.ncu.edu/docview/213973798?accountid=28180
Senft, S., Gallegos, F., & Davis, A. (2013). Information technology control and audit. (4th ed.). Boca Raton, FL. Auerbach Publications.
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.
Rittenberg, Larry, Bradley Schwieger, and Karla Johnstone. Auditing. 6th ed. Mason: Thomas South-Western, 2005. 10-40.
Recently, IT governance has been a mainly factor for fulfill business need from investing in IT area. In addition, Sarbanes-Oxley Act (SOX) mentioned IT governance issues for enhancing internal contro...
This report gives the brief overview of the concept of corporate governance, its evolution and its significance in the corporate sector. The report highlights various key issues and concerns that are faced by the organizations while effectively implementing and promoting Corporate Governance.
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.
It help an entity accomplish its objectives by bringing a systematic, disciplined approach to evaluate and improve the effectiveness of risk management, control and governance processes”. The agency theory also provides a useful theoretical framework for the study of the internal auditing function. Proposes that agency theory not only helps to explain and predict the existence of internal audit but that it also helps to explain the role and responsibilities assigned to internal auditors by the organization, and that agency theory predicts how the internal audit function is likely to be affected by organizational change. Concludes that agency theory provides a basis for rich research which can benefit both the academic community and the internal auditing
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
Bibliography: Turnbull, S. (1997). Corporate governance: its scope, concerns and theories. Corporate Governance: An International Review, 5 (4), pp. 180--205.
Corporate governance changed drastically after the case of Andersen Auditors, Enron’s auditing service showed that they contributed to the scandal. Andersen was originally founded in 1913, and by taking tough stands against clients, quickly gained a national reputation as a reliable keeper of the people’s trust (Beasley, 2003). Andersen provided auditing statements with a ‘clean’ approval stamp from 1997 to 2001, but was found guilty of obstructing justice by shredding evidence relating to the Enron scandal on the 15th June 2002. It agrees to cease auditing public companies by 31 August (BBC News, 2002).
Organizations that only have top management as the board members are more susceptible to accounting malpractices. Members of the board should preferably own shares in the company to ensure diligence when it comes to the interests of the company. Apart from the Board of Governors, there should also be an audit committee in place to oversee the financial dealings of the bank. Members of the board and the audit committee should have basic financial knowledge. Some of the members should also be experts in finances so that they can detect any anomaly that may take place in terms of financial reporting. An overhaul of the regulatory framework is required to empower authorities to intervene immediately, and make improvements. New technology is required. Manual antiquated processes should be eliminated because this causes greater human error and poor
The oversight responsibilities of the board, the CAE lacking of expertise or broad understanding of financial controls and responsibilities, and the understaffed internal audit functions lacking of independence and direct access to the board of directors contributed to the absence of internal controls. To begin with, the board should be retrained to achieve financial literacy to review financial reporting. Other than attending formal meetings, the board of directors should be more involved with the management. For the Audit Committee, the two members who were recruited as acquaintances to Brennahan need be replaced with experts who are more sufficiently knowledgeable about accounting rules beyond merely “financially literate”. Furthermore, the internal audit functions need to expand with different expertise commensurate with the expanded activities of the organization, testing financial reporting rather than internal controls from an operational perspective. The CAE should be more independent and proactive to execute audit plans, instead of following orders from the CFO, and initiate a direct and efficient communication between internal audit and audit
Solomon, J (2013). Corporate Governance and Accountability. 4th ed. Sussex: John Wiley & Sons Ltd. p.7, p9, p10, p15, p58, p60, p253.
Internal auditing has become an important part of corporate governance. Internal auditors are tasked with protecting an entity’s assets and producing reliable accounting reports used in decision-making processes. However, the most vital role of today’s internal auditor is testing the efficiency and effectiveness of all aspects of an entity’s operations (e.g., financial and nonfinancial; In’airat, 2015). According to In’airat, the components of corporate governance must cooperate with each other to ensure the efficiency of a functioning business. These components of corporate governance include, but are not limited to, the audit committee, internal auditor, executive management, financial management, and external auditors. Of these components,
The evolution of auditing is a complicated history that has always been changing through historical events. Auditing always changed to meet the needs of the business environment of that day. Auditing has been around since the beginning of human civilization, focusing mainly, at first, on finding efraud. As the United States grew, the business world grew, and auditing began to play more important roles. In the late 1800’s and early 1900’s, people began to invest money into large corporations. The Stock Market crash of 1929 and various scandals made auditors realize that their roles in society were very important. Scandals and stock market crashes made auditors aware of deficiencies in auditing, and the auditing community was always quick to fix those deficiencies. The auditors’ job became more difficult as the accounting principles changed, and became easier with the use of internal controls. These controls introduced the need for testing; not an in-depth detailed audit. Auditing jobs would have to change to meet the changing business world. The invention of computers impacted the auditors’ world by making their job at times easier and at times making their job more difficult. Finally, the auditors’ job of certifying and testing companies’ financial statements is the backbone of the business world.
According to Carol Padgett (2012, 1), “companies are important part of our daily lives…in today’s economy, we are bound together through a myriad of relationships with companies”. The board of directors remain the highest echelon of management in any company. It is the “group of executive and non-executive directors which forms corporate strategy and is responsible for monitoring performance on the behalf of shareholders” (Padgett, 2012:1). Boards are clearly critical to the operation of companies and they are endowed with substantial power in the statute (Companies Act, 2014). The board is responsible for directing and steering the company. The board accomplishes this by business planning and risk management through proper corporate governance.