CORPORATE

GOVERNANCE,
RESPONSIBILITIES &
ACCOUNTABILITY
Chapter 2
 Introduction

CONTENT OF Shareholders/owners &

THE REPORT other stakeholders

Parties involved in
corporate governance
 INTRODUCTION

• Many of the characteristics of good governance described in

Chapter 1 relevant to both SME's and large listed public
companies.
• It is important to recognize that good corporate governance is
based on principles underpinned by consensus and continually
developing notions of good practice.
• There are no absolute rules which must be adopted by all
organizations.
• "There is no simple universal formula for good governance"
 INTRODUCTION

• When corporate governance is discussed, it is often spoken of in

terms of a company's corporate governance framework.
• The key elements within an effective governance framework, and
the issues relating to each element and are relevant to
organizations large and small, in both the private and the public
sectors.
• Many of the matters listed may not be directly relevant in all
situations and some may not, in particular circumstances, be within
the board's control, but it provides a useful context in which any
organization can consider its governance needs so that they might
be most appropriately addressed.
RELATIONSHIP BETWEEN
SHAREHOLDERS/OWNERS
& OTHER
STAKEHOLDERS.

Chapter 2
 PUBLIC CORPORATION STAKEHOLDERS

SHAREHOLDERS/
BOARD OF OWNERS
DIRECTORS

EXECUTIVE EXTERNAL AUDITORS

MANAGEMENT
DELEGATE HAVE
Shareholders/
owners
RESPONSIBLITIES ACCOUNTABILITIES
REGULATORS
OPERATIONAL
MANAGEMENT

INTERNAL SOCIETY & OTHERS

AUDTIORS
 SHAREHOLDERS & STAKEHOLDERS

• Governance starts with the shareholders/owners delegating

responsibilities through an elected board of directors to
management and, in turn, to operating units with oversight and
assistance from internal auditors.
• The board of directors and its audit committee oversee
management and, in that role, are expected to protect the
shareholders' rights.
• However, it is important to recognize that management is part of
the governance framework; management can influence who sits on
the board and the audit committee as well as other governance
controls that might be put into place.
 SHAREHOLDERS & STAKEHOLDERS

• In return for the responsibilities (and power) given to management

and the board, governance demands accountability back through
the system to the shareholders.
• However, the accountabilities do not extend only to the
shareholders. Companies also have responsibilities to other
stakeholders.
• Stakeholders can be anyone who is influenced, whether directly or
indirectly, by the actions of a company.
• Management and the board have responsibilities to act within the
laws of society and to meet various requirements of creditors,
employees and the stakeholders.
 SHAREHOLDERS & STAKEHOLDERS

• A broad group of stakeholders has an interest in the

governance because it has a relationship to economic
performance and the quality of financial reporting.
• For example, it is likely that many employees have significant
funds invested in pension plans. Those pension plans are
designed to protect the financial interests of those
employees in their retirement.
• Regulators are a response to society's wishes organizations,
in their pursuit of returns for their owners, act responsively
and operate in compliance with relevant laws.
 SHAREHOLDERS & STAKEHOLDERS

• Owners want accountability on such things as:

• Financial performance
• Financial transparency – financial statements that are clear with full
disclosure and that reflect the underlying economics of the company.
• Stewardship, including how well the company protects and manages
the resources entrusted to it.
• Quality of internal control
• Composition of the board of directors and the nature of its
activities, including information on how well management incentive
systems are aligned with the shareholders' best interests.
 SHAREHOLDERS & STAKEHOLDERS

• The owners want disclosures from management that are accurate

and objectively verifiable. Management has always had the primary
responsibility for the accuracy and completeness of an
organization's financial statements. From a financial reporting
perspective, it is management's responsibility to:
• Choose which accounting principles best portray the economic
substance of company transactions.
• Implement a system of internal control that assures completeness and
accuracy in financial reporting.
• Ensure that the financial statements contain accurate and complete
disclosure.
RELATED PARTIES
INVOLVED IN
CORPORATE
GOVERNANCE
Chapter 2
 RELATED PARTIES IN CG

• Governance and financial reporting reliability are receiving

considerable attention from a number of parties including
regulators, standard setting bodies, the accounting
profession, lawmakers and financial statement.
OVERVIEW OF RESPONSIBILITIES
1. SHAREHOLDERS
 1. SHAREHOLDERS

Broad Role:
• Provide effective oversight through election of board
members, approval of major initiatives.
• such as buying or selling stock, annual reports on
management compensation, from the board.
2. BOARD OF DIRECTORS
 2. BOARD OF DIRECTORS

Broad Role:
• The major representative of stockholders to ensure that
the organization is run according to the organization's
charter and that there is proper accountability.
 2. BOARD OF DIRECTORS

Specific activities include among others:

1. Overall Operations
a) Establishing the organization's vision, mission values and ethical standards.
b) Delegating an appropriate level of authority to management.
c) Demonstrating leadership.
d) Assuming responsibility for the business relationship with CEO including his or her
appointment, succession, performance remuneration and dismissal.
e) Overseeing aspects of the employment of the management team.
f) Recommending auditors and new directors to shareholders.
g) Ensuring effective communication with shareholders other stakeholders.
h) Crisis management.
i) Appointment of the CFO and corporate secretary.
 2. BOARD OF DIRECTORS

2. Performance
a) Ensuring the organization's long term viability and enhancing the financial position.
Formulating and overseeing implementation of corporate strategy.
b) Approving the plan, budget and corporate policies.
c) Agreeing key performance indicators (KPIS).
d) Monitoring / assessing assessment, performance of the organization, the board itself,
management and major projects.
e) Overseeing the risk management framework and monitoring business risks.
f) Monitoring developments in the industry and the operating environment.
g) Oversight of the and organization, including its control and accountability systems.
h) Approving and monitoring the progress of major capital expenditure, capital management
and acquisitions and divestitures.
 2. BOARD OF DIRECTORS

3. Compliance / Legal Conformance

a) Understanding and protecting the organization's financial position.

b) Requiring and monitoring legal and regulatory compliance including compliance
with accounting standards, unfair trading legislations, occupational health and
safety and environmental standards.
c) Approving annual financial reports, annual reports and other public documents /
sensitive reports.
d) Ensuring an effective system of internal controls exists and is operating as
expected.
 3. NON-EXECUTIVE OR
INDEPENDENT DIRECTORS
 3. NON-EXECUTIVE OR INDEPENDENT
DIRECTORS

Broad Role:
The same as the broad role of the entire board of directors
 3. NON-EXECUTIVE OR INDEPENDENT
DIRECTORS
Specific activities include among others.
a) To understand the organization, its business, its operating environment and its financial
position.
b) To apply expertise and skills in the organization's best interests.
c) To assist management to keep performance objectives at the top of its agenda,
d) To understand that his/her role is not to act as auditor, nor to act as a manager.
e) To respect the collective, cabinet nature of the board's decisions.
f) To prepare for and attend board meetings.
g) To seek information on a timely basis.
h) To ensure that he/she is in a position to contribute to the discussion when a matter comes
before the board, or alert the chairman in advance to the need for further information.
i) To ask appropriate questions relative to operations,
4. MANAGEMENT
 4. MANAGEMENT

Broad Role:
A. Operations and accountability.
B. Manage the organization effectively provide accurate and timely
reports to shareholders and other stakeholders
 4. MANAGEMENT

Specific activities include among others.

a) Recommend the strategic direction and translate the strategic plan into the operations of the
business.
b) Manage the company's human, physical and financial resources to achieve the organization's objectives
- run the business.
c) Assume day to day responsibility for the organization's conformance with relevant laws and
regulations and its compliance framework.
d) Develop, implement and manage the organization's risk management and internal control
frameworks.
e) Develop, implement and update policies and procedures.
f) Be alert to relevant trends in the industry and the organization's operating environment.
g) Provide information to the board.
h) Act as conduit between the board and the organization.
i) Developing financial and other reports that meet public, stakeholder and regulatory requirements.
5. AUDIT COMMITTEES OF THE
BOARD OF DIRECTORS
 5. AUDIT COMMITTEES OF THE
BOARD OF DIRECTORS

Broad Role:
Provide oversight of the internal and external audit function and
the process of preparing the annual financial statements as well
as public reports on internal control.
 5. AUDIT COMMITTEES OF THE
BOARD OF DIRECTORS

Specific activities include among others.

a) Selecting the external audit firm.
b) Approving any non-audit work performed by the audit firm.
c) Selecting and / or approving the appointment of the Chief Audit Executive
(Internal Auditor).
d) Reviewing and approving the scope and budget of the internal audit function.
e) Discussing audit findings with internal auditor and external auditor and advising
the board (and management) on specific actions that should be taken.
 6. REGULATORS

A. A. BOARD OF ACCOUNTANCY
B. B. SECURITIES AND EXCHANGE COMMISSION
 A. BOARD OF ACCOUNTANCY

Broad Role:
Set accounting and auditing standards dictating underlying
financial reporting and auditing concepts, set the expectations
of audit quality and accounting quality.
 A. BOARD OF ACCOUNTANCY

Specific activities include among others.

a) Conducting CPA Licensure Board Examinations.
b) Approving accounting principles.
c) Approving auditing standards.
d) Interpreting previously issued standards implementing quality
control processes to ensure audit quality.
e) Educating members on audit and accounting requirements.
 B. SECURITIES AND EXCHANGE
COMMISSION

Broad Role:
Ensure the accuracy, timeliness and fairness of public
reporting of financial and other information for public
companies.
 B. SECURITIES AND EXCHANGE
COMMISSION

Specific activities include among others.

a) Reviewing filings with the SEC.
b) Interacting with the Financial Reporting Standards Council in
setting accounting standards.
c) Specifying independence standards required of auditors that
report on public financial statements.
d) Identify corporate frauds, investigate causes, and suggest
remedial actions
7. EXTERNAL AUDITORS
 7. EXTERNAL AUDITORS

Broad Role:
• Perform audits of company financial statements to ensure
that the statements are free of material misstatements
including misstatements that may be due to fraud.
 7. EXTERNAL AUDITORS

Specific activities include among others.

• Audit of public company financial statements.
• Audits of nonpublic company financial statements.
• Other services such as tax or consulting
8. INTERNAL AUDITORS
 8. INTERNAL AUDITORS

Broad Role:
• Perform audits of companies for compliance with company
policies and laws, audits to evaluate the efficiency of
operations, and periodic evaluation and tests of controls.
 8. INTERNAL AUDITORS

Specific activities include among others.

• Reporting results and analyses to management
(including operational management) and audit
committees.
• Evaluating internal controls.
 THANK YOU

Reporters:
Bulosan, Reggie Nicole
Mastura, Ayman Mikael
Pantia, Patrik Oliver