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GOVERNANCE
CORPORATE GOVERNANCE
EXECUTIVE
MANAGEMEN EXTERNAL
T AUDITORS
SHAREHOLDERS
/OWNERS HAVE
OPERATIONAL
MANAGEMEN RESPONSIBILITIES
T REGULATORS
DELEGATES
RESPONSIBILITIES
INTERNAL
SOCIETY AND
AUDITORS
OTHERS
PUBLIC
CORPORATION STAKEHOLDERS
CORPORATE GOVERNANCE
Parties involved and their
responsibilities
1. Stockholders
ΘProvide 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
CORPORATE GOVERNANCE
Parties involved and their
responsibilities
1. Stockholders
Common Corporate Governance Failures
ΘFocused on short-term prices
expectation
ΘFraudulent financial reporting
reporting objectives
ΘCreated an environment of greed, rather
than one of high ethical conduct
CORPORATE GOVERNANCE
Parties involved and their
responsibilities
4. Audit Committee
ΘProvide oversight of the internal and
external audit function and the process
of preparing the annual financial
statements and public reports on
internal control
CORPORATE GOVERNANCE
Parties involved and their responsibilities
4. Audit Committee
Specific activities
ΘSelecting the external audit firm
audit standards
Θ Identified problems but was not granted
management(including operational
management) and audit committees
Θ Evaluating internal controls
CORPORATE GOVERNANCE
Parties involved and their responsibilities
7. Internal Auditors
Common CG failures
Θ Focused efforts on operational audits
and assumed that financial auditing was
addressed by the external auditors
Θ Reported primarily to management with
little reporting to the audit committee
Θ In some instances, did not have access
to the corporate financial accounting
records
CORPORATE GOVERNANCE
Actual Major CG Failures resulting to
Financial Reporting Fraud
1. Enron
2. 2. Workd.com
3. 3. Lucent
4. 4. Parmalat
5. 5. Healthsouth
6. 6. Adecco
7. 7. Dell
CORPORATE GOVERNANCE
Some scrupulous practices and
observations
ΘImproper revenue recognition