CHAPTER 2 – ACTIVITY 2 (CAE01)

Direction: Explain the following statements/question in not less than 5 sentences.

Below is the summary of the SEC corporate governance requirements of

companies publicly-listed in the stock exchange. For each requirement, state how it
is intended to help to address the risk of fraud in publicly traded organizations.

a. Boards need to consist of at least 3 independent directors or 1/3 of the

board which is higher.
 The Board shall have at least 3 independent directors or such number of
independent directors, because it is to ensure the exercise of independent
judgment on corporate affairs and proper oversight of managerial performance,
including prevention of risks or fraud. The independent directors must carry out
their responsibilities and functions with caution. It is also to ensure that the
company's interests are not endangered. The existence of independent directors
on the Board also ensures the exercise of independent judgment on corporate
matters as well as adequate control of managerial performance. It includes the
avoidance of conflicts of interest and the balances of competing corporate
demands.
b. Boards must have a corporate governance committee composed at least 3
of independent directors.
 The Boards must have a corporate governance committee composed at least 3
of independent directors, because it will increase management's accountability
to the company, and the result in improved performance and corporate
governance and a lower chance of fraud. Independent directors are the ones
who have to give unbiased insights about what needs to be improved in the
organization. It also assesses the effectiveness of the Board's processes and
procedures in the election or replacement of directors, to review and evaluate
the qualifications of all persons nominated to the Board. Such other
appointments that require Board approval, and to review and evaluate the
qualifications of all persons nominated to the Board. This is also necessary
because monitoring who claims the position must be carefully evaluated to
avoid risks.
c. The corporate governance committee must have written charters that
address the committee’s purpose and responsibilities, and there must be
annual performance evaluation of the committee.
 The corporate governance committee must have written charters that address
the committees purpose and responsibilities and there must be annual
performance evaluation of the committee charter outlines all of the tasks that
the committee must follow. The evaluation of the performance is essentially an
assessment of how the Board has performed on all these parameters.
This is critical because without it, the company will not function properly and
will not be able to achieve its objectives. It helps committees deliver and uphold
effective governance. Similar to a code of internal procedures, it defines the
roles and responsibilities, as well as the mission, composition, responsibilities,
and standard protocols of a committee.
d. Boards must have an audit committee with a minimum of three
independent members.
 The Boards must have an audit committee with a minimum of 3 independent
members or more, because it will ensure that the company is secured and that
no actions are taken that is destructive to the company's interests. The audit
committee has a charter that addresses fraud issues as well as assisting the audit
firm in the review of financial statements and annual reports. They are tasked
with providing oversight to management as it executes the company's strategic
plans, in particular focusing efforts on areas that involve managing risks. An
effective audit committee isn't simply one which checks that it is compliant
with relevant codes and regulations. It is one which is focused upon
organisational risk, upon the assurance meets organisational need, and
challenging both the reports of management and auditors to ensure that
assurance is valid.