Auditing &

Investigations I
Corporate Governance
Key issues

1. Corporate Governance – What is it?.

2. Codes of Corporate Governance

3. Audit Committees.

4. Internal Controls Effectiveness

5. Communication with those charges with

corporate governance
1. Corporate Governance – What is it:

 Corporate governance is defined as the system

by which companies are directed and
controlled.

 Good corporate governance is important

because the owners of a company and the
people who manage the company are not
always the same.

 Corporate governance is important because it

ensures that stakeholders with a relevant
interest in the company's business are fully
taken into account.
2. Codes of Corporate Governance

2.1. National Code on Corporate Governance in

Zimbabwe (ZIMCODE)

 Principles and learning based approach

 Carries similar provision like King III

 Developed by ZIMlef, IODZ and SAZ

 Focuses on Board structure, Committee,

Information disclosure, Risk Management Etc.
2.Code of Corporate Governance
2.2. OECD Principles of Corporate Governance

set out the rights of shareholders, the

importance of disclosure and transparency and
the responsibilities of the board of directors.

I. transparent and efficient markets,

II. protection and facilitate the exercise
of shareholders‘ rights.
III. the equitable treatment of all
shareholders, including minority and
foreign shareholders.
…Continued
 the rights of stakeholders
established by law or through
mutual agreements and encourage
active co-operation between
corporations and stakeholders.
 timely and accurate disclosure is
made on all material matters.
 strategic guidance of the company,
the effective monitoring of
management by the board, and the
board's accountability to the
company.
 2.3. Code of Corporate Governance
2.3. UK Code of Corporate Governance
Key Principles

 Leadership – Effective Board

 Effectiveness – Balance of skills and committees

 Accountability – Transparent arrangements

 Remuneration – Appropriate level of remuneration to

attract skills.

 Relations with shareholders – dialogue with shareholders

on shared objectives
 3. Audit Committees
An audit committee can help a company maintain
objectivity with regard to financial reporting and
the audit of financial statements.
 An audit committee is a sub-committee of the
board of directors, usually containing a number
of nonexecutive directors.

 The role and function of the audit committee

should be set out in written terms of reference
and the extract from the Corporate Governance
Code.

 Relationship with the board varies from

organisation to organisation.
3.1. Audit Committees - Advantages
 Improve the quality of financial reporting,
by reviewing the financial statements on
behalf of the board
 Create a climate of discipline and control
which will reduce the opportunity for fraud
 Enable the non-executive directors to
contribute an independent judgement and
play a positive role
 Help the finance director, by providing a
forum in which they can raise issues of
concern and which they can use to get
things done which might otherwise be
difficult
3. 1. Audit Committees – Advantages (Cont.)

 Strengthen the position of the external

auditor by providing a channel of
communication and forum for issues of
concern
 Provide a framework within which the
external auditor can assert their
independence in the event of a dispute
with management
 Strengthen the position of the internal
audit function, by providing a greater
degree of independence from
management
3.2. Audit Committee - Challenges
 The executive directors may not understand
the purpose of an audit committee and may
perceive that it detracts from their authority.
 There may be difficulty selecting sufficient
non-executive directors with the necessary
competence in auditing matters for the
committee to be really effective.
 The establishment of such a formalised
reporting procedure may dissuade the
auditors from raising matters of judgement
and limit them to reporting only on matters of
fact.
 Costs may be increased.
4. Internal Control Effectiveness
The directors of a company are responsible
for ensuring that a company's risk
management and internal controls systems
are effective.
Internal controls contribute to:

 Safeguarding the company's assets

 Helping to prevent and detect fraud

 Safeguarding the shareholders' investment

The auditors should review the statements made concerning

internal control in the annual report to ensure that they appear
true and are not in conflict with the audited financial statements.
5. Communication with those charges
with corporate governance
 Auditors shall communicate specific matters
to those charged with governance and ISA
260 provides guidance for auditors in this
area.

 ISA 260 Communication with those charged

with governance sets out guidance for
auditors on the communication of audit
matters arising from the audit of the
financial statements of an entity with those
charged with governance.
5. Definitions

 Those charged with governance‘ - 'the

person(s) or organisation(s) with
responsibility for overseeing the
strategic direction of the entity and
obligations related to the
accountability of the entity'.

 'Management' is defined by ISA 260 as

'the person(s) with executive
responsibility for the conduct of the
entity's operations'.
5. Matters to be communicated

 The auditor's responsibilities in

relation to the financial statement
audit

 Planned scope and timing of the

audit

 Significant findings from the audit

 Auditor independence
6. Tutorial Questions

a) Does corporate governance of a

client company matter to the
auditors?

b) At what stage should the auditor

consider corporate governance in
the audit process?

c) Is there as link between corporate

governance and auditing?
 End

Thank for your

attention