CHAPTER 16Auditing and corporate governance.ppt

CHAPTER 16Auditing and corporate governance Contents Corporate governance Independent directors Chairman of the board and chief executive officer Institutional shareholders Statutory audit Issues in international audit Audit independence Internal control and risk management Audit committee Corporate governance Agency problem: the owners of a business (principals) need means to ensure that those whom they appointed to run the business (agents) do so in a way that matches with shareholders’ needs Agency problem has been broadened out into the concept of corporate governance Corporate governance (cont.) Increased emphasis on the effectiveness and accountability of corporate boards of directors Extending the shareholder perspective to wider stakeholder concerns Corporate governance regimes Governance regimes are heavily influenced by the institutional environment Stakeholder model (Continental Europe) versus shareholder model (Anglo-Saxon environment) of corporate governance Tendency towards convergence on the issue of effectiveness and accountability of corporate boards Reporting on internal control An effective system of internal control is seen as crucial for good goverance Reporting on the effectiveness of internal control as a governance requirement COSO Framework is considered to offer an established set of control criteria to assess the effectiveness of internal control US Sarbanes-Oxley Act of 2002 US Sarbanes-Oxley Act Each annual report filed with the SEC has to include an internal control report Management’s responsibility for establishing adequate internal control over financial reporting Management’s assessment of its effectiveness The independent auditors must attest to and report on the assessments made by company management Independent directors Independent directors are non-executive directors who attend board meetings on a regular basis and monitor corporate behaviour A (unitary) board should include a significant portion of independent directo