Corporate governance is the combination of people, policies, procedures, and processes that help ensure that an entity effectively and efficiently directs its activities toward meeting the objectives of its stakeholders.
Corporate Governance can be influenced by external (eg. SEC requirements) or internal (eg. corporate charters and bylaws)
Stakeholders – are persons or other entities who are affected by the activities of the entity (eg. employees, suppliers, customers, etc)
Board – Board plays an oversight role and makes or approves all major corporate decisions. All major corporate decisions are made or approved by the board.
Management is responsible for directly managing the day-to-day operations. The corporation’s officers are responsible for the entity’s day-to-day operations.
Board (and officers) owe a fiduciary duty to act primarily for the benefit of the corporation. The fiduciary duty is generally divided into the duty of care and the duty of loyalty.
The audit committee is a subset of the board of directors. The Sarbanes-Oxley Act of 2002 (SOX) strengthened the independence and authority of the audit committee.
The PCAOB is the Public Company Accounting Oversight Board, established by SOX as a private-sector body to regulate the accounting profession.
Public accounting firms that act as independent auditors must register with the PCAOB.
Internal auditing is an independent, objective assurance and consulting activity designed to add value and improve an organization’s operations.
Internal audit function should assess and make appropriate recommendations to improve the organization’s governance processes for:
- Making strategic and operational decisions
- Overseeing risk management and control
- Promoting appropriate ethics and values within organization
- Ensuring effective organizational performance management and accountability
- Coordinating the activities of, and communicating information among, the board, external and internal auditors, other assurance providers, and management
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