Corporate governance

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Corporate governance

  1. 1. CORPORATE GOVERNANCE
  2. 2. 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
  3. 3. 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.
  4. 4. 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
  5. 5. 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
  6. 6. Needs of good Governance a. Good board practices b. Control environment c. Board Commitment d. Transparent disclosure e. Well Defined Shareholders
  7. 7. Good Board Practices • Clearly defined roles and authorities • Duties and responsibilities of Directors understood • Board is well structured • Plan appropriate board procedures
  8. 8. Control Environment • Risk management framework present • Disaster recovery system in place • Safety environment and Media management techniques in use
  9. 9. 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
  10. 10. 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
  11. 11. Well defined shareholders • Shareholder meeting conducted • Shareholders rights formalised • Clearly defined and explicit dividend policy
  12. 12. FIVE ELEMENTS OF CORPORATE GOVERNANCE 1. ACCOUNTABILITY 2. TRANSPARENCY 3. REGULATORY FRAMEWORK 4. BUSINESS ETHICS AND SOCIAL RESPONSIBILITY 5. ADMINISTRATIVE STRUCTURE
  13. 13. 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
  14. 14. 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.
  15. 15. 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
  16. 16. 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
  17. 17. 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.
  18. 18. AUDIT COMMITTEE • An operating committee of a company's board of directors that is in charge of overseeing financial reporting and disclosure
  19. 19. 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
  20. 20. 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
  21. 21. 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
  22. 22. 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.
  23. 23. 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.
  24. 24. 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.
  25. 25. 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.

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