corporate

governance
CHAPTER 8
 TOPICS COVERED

8.1 Understand the corporate governance

8.1.1 Define corporate governance in general
8.1.2 Explain the needs of good governance.

Table of
8.1.3 Interpret the corporate governance elements as below :
- Accountability
- Transparency

Contents - Regulatory framework

- Business ethics and social responsibility
- Administrative structure.
8.2 Learn about the audit committee
8.2.1 Identify the structure of audit committee
8.2.2 Explain the roles of audit committee
8.2.3 Discuss the advantages of establishing the audit committee.
Understanding
Corporate governance ('CG') can be defined as 'the process and
structure used to direct and manage the business and affairs of
[a] company towards enhancing business prosperity and
corporate accountability with the ultimate objective of realizing
long-term shareholder value, whilst taking into account the
interests of other stakeholders' (Malaysian Code onCorporate
Governance 2000). Corporate governance provides a framework
of control mechanisms that supports the company in achieving its
goals, while preventing any unwanted conflicts.
 Define corporate governance in general
Corporate governance is the system by which companies are
directed and controlled. Boards of directors are responsible for
the governance of their companies. The shareholders’ role in
governance is to appoint the directors and the auditors and to
satisfy themselves that an appropriate governance structure is in
place.
Explain the needs of good
governance.
Malaysian Code on Corporate Governance 2012
Principle 1: Establish clear roles and responsibilities
Principle 2: Strengthen composition
Principle 3: Reinforce independence
Principle 4: Foster commitment
Principle 5: Uphold integrity in financial reporting
Principle 6: Recognize and manage risks
Principle 7: Ensure timely and high-quality disclosure
Principle 8: Strengthen relationship between [a] company and
[its] shareholders
Interpret the corporate
governance elements as
below :
a. Accountability
B. Transparency
c. Regulatory framework
D. Business ethics and social responsibility
E. Administrative structure.
ACCOUNTABILITY
Good board practices basicallyrefers to accountability. Everyperson-in-charge
in an organization has his/her own duty and needs to be fully accountable for
the responsibility. When management staff are accountable towards the BOD,
they are ultimately also being responsible towards shareholders' objectives.

TRANSPARENCY
Disclosure refers to revealing information (having nothing to hide), and
ensuring that the disclosure on all material matters, including financial
situation, performance, ownership and corporate governance, are timely and
accurate. Transparency, on the other hand, ensures that high standards of
accuracy are met, proper audit processes are in place, and compliance with
workplace procedures are fulfilled. It raises the accountability of each party
involved in the audit process, and results in a more accurate audit.
 Regulatory framework
Legal compliance involves regulatory framework. It ensures that consistent
approaches to accounting are adopted nationally. It will minimize the risk
of misstatements in financial records and accounts and help investors to
make decisions based on the information interpreted from those accounts or
financial statements.

Business ethics and social responsibility

Shareholder rights involve the concept of fairness, where the corporate
framework of any organization should protect the rights of their shareholders.
This aim can be achieved by developing effective communicating information.
The framework also recognize the rights of stakeholders, minorities and
foreign shareholders by establishing the law and sustainability of financial
performance.
Administrative structure.
A good control environment is one where the management properly
aligns internal control procedures to monitor finances and performs risk
management assessment. The management also makes it a requirement to
have mandatory yearly independent external audits and to develop an audit
committee.
Learn about the audit
committee
Structure of an audit commitee
CA 2016 requires an appointment of an audit committee members composition must
comprise at least three company directors
• involved in the daily management of the company,
• full-time employees of the company for the past three financial years,
• material suppliers or customers (business relationship), and 10100
• related to anybody who falls within these criteria.

The audit committee must be independent and can consist of as many members
as the company wishes to appoint, but each member must meet the criteria and
must be a director of the company.
Explain the roles of
audit committee
ROLES OF AN AUDIT COMMITTEE
An audit committee is a key part of a company's organizational structure. It is
a special committee formed by the BOD. It should be a group of independent
directors, who have no active day operational role and are a liaison between
the independent auditor and the BOD. The audit committee's role is providing
independent oversight (supervision or direction) into the company's/
organization's accounting and financial reporting, and the internal and external
audits.
Discuss the
advantages and
disadvantages of
establishing the
audit committee.
THE
END