Module 5 - Corporate Governance

Divine Word College of Bangued
Bangued, Abra
School of Business Management and Accountancy
Bachelor of Science in Accountancy
Module in Corporate Governance, Business Ethics, Risk Management, & Internal Control
Course Code: AE10

Course Title: Corporate Governance, Business Ethics, Risk Management, &
Internal Control
Unit Credit: 3 units
Contact Hours/Week: 3 hours
Prerequisite: AE 15 (Intermediate Accounting 1)
Course Description:
This course is designed to provide students with the conceptual knowledge about the
Principles of Corporate Governance, framework and practices relating to corporate risk
management, appropriate business policies and practices which is known as business ethics, and
Internal controls which are the mechanisms, rules, and procedures implemented by an
organization to ensure the integrity of financial and accounting information, promote
accountability, and prevent fraud. This course will also cover how the four topics relate and its
importance to the audit process.
Introduction
Corporate governance is the system by which companies are directed and controlled.
Boards of directors are responsible for the governance of their companies. The shareholders’
role in governance is to appoint the directors and the auditors and to satisfy themselves that an
appropriate governance structure is in place.
The responsibilities of the board include setting the company’s strategic aims, providing
the leadership to put them into effect, supervising the management of the business and reporting
to shareholders on their stewardship.
Corporate governance is therefore about what the board of a company does and how it
sets the values of the company, and it is to be distinguished from the day to day operational
management of the company by full-time executives.
Corporate Governance, Business Ethics, Risk Management, & Internal Control 1
This module is a property and is exclusively used by the DWCB College Department. Any duplication and reproduction, storing in any retrieval
system, distribution, posting or uploading online as well as transmitting in any form or means ( photocopying & electronic sharing ) of any part,
without prior written permission from the owner is strictly prohibited.
Bangued, Abra
MODULE FIVE
Corporate Governance
This module will include discussion regarding Corporate Governance, its definition,
purpose, what is its composition all about, and who runs it in a Corporate setting.
It will also cover the bad corporate governance and practices, including some well-
known examples.
Lastly, the module shall also present technicalities regarding the Corporate Governance
in Philippine setting.
General Objective
By the end of this module, the student will be able to know how a Corporate
Governance guide companies or businesses in their operations.
They would also learn its importance especially in protecting every party’s interest
within the organization from the Board of Directors, Management, to its employees, and how it
also affects those outside such as vendors, customers, creditors, and suppliers.
Finally, the students would be able to realize good and bad Corporate Governance
practices in a local and international background.
Lesson 5 Corporate Governance
Specific Objectives:
At the end of the lesson, the students should be able to:
1. Have a strong grasp and understanding what Corporate Governance is about.

2. Obtain knowledge regarding Corporate Governance’s structure
3. Know the pillars of Sustainable Development
4. Juxtapose a good and bad Corporate Governance
5. Appreciate the role of Accounting in Corporate Governance
Topics
1. Understanding Corporate Governance

2. Good and Bad Corporate Governance
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3. Corporate Governance Structures and Sustainable Development

4. Corporate Governance in the Philippines
5. The Role of Accounting in Corporate Governance
Understanding Corporate Governance
Governance refers specifically to the set of rules, controls, policies, and resolutions put in
place to dictate corporate behavior. Proxy advisors and shareholders are important stakeholders
who indirectly affect governance, but these are not examples of governance itself. The board of
directors is pivotal in governance, and it can have major ramifications for equity valuation.
A company’s corporate governance is important to investors since it shows a company's

direction and business integrity. Good corporate governance helps companies build trust with
investors and the community. As a result, corporate governance helps promote financial
viability by creating a long-term investment opportunity for market participants.
Communicating a firm's corporate governance is a key component of community and

investor relations. On Apple Inc.'s investor relations site, for example, the firm outlines its
corporate leadership—its executive team, its board of directors—and its corporate governance,
including its committee charters and governance documents, such as bylaws, stock ownership
guidelines and articles of incorporation.
Most companies strive to have a high level of corporate governance. For many
shareholders, it is not enough for a company to merely be profitable; it also needs to
demonstrate good corporate citizenship through environmental awareness, ethical behavior, and
sound corporate governance practices. Good corporate governance creates a transparent set of
rules and controls in which shareholders, directors, and officers have aligned incentives.
Good and Bad Corporate Governance
A good corporate governance system:
 Ensures that the management of a company considers the best interests of everyone;
 Helps companies deliver long-term corporate success and economic growth;
 Maintains the confidence of investors and as consequence companies raise capital
efficiently and effectively;
 Has a positive impact on the price of shares as it improves the trust in the market;
 Improves control over management and information systems (such as security or risk
management)
 Gives guidance to the owners and managers about what are the goals strategy of the
company;
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 Minimizes wastages, corruption, risks, and mismanagement;

 Helps to create a strong brand reputation;
 Most importantly – it makes companies more resilient.
Bad Corporate Governance
Bad corporate governance can cast doubt on a company's reliability, integrity, or

obligation to shareholders—all of which can have implications on the firm's financial
health. types of bad governance practices include:
 Companies do not cooperate sufficiently with auditors or do not select auditors with the
appropriate scale, resulting in the publication of spurious or noncompliant financial
documents.
 Bad executive compensation packages fail to create an optimal incentive for corporate
officers.
 Poorly structured boards make it too difficult for shareholders to oust ineffective
incumbents.
Corporate Governance Structures and Sustainable Development
Structures
Corporations can have many different structures, but the most typical structure
consists of the shareholders, board of directors, officers and the employees. The structure
of corporate governance determines the distribution of rights and responsibilities
between the different parties in the organization and sets the decision-making rules and
procedures. It is usually up to the management board to decide how the company will
develop. But what does truly influence the structure of a board of directors?
Boards – and directors – are not all the same. In fact, they face different challenges
and their structure is shaped by different factors. A KMPG report synthesized some of
the variables that can affect the foundations of a board:
 The legal and regulatory obligations of the relevant geography – which may
range from a highly regulated environment that dictates board composition and
responsibilities to no applicable laws at all, depending on the country in which
the business is based.
 The company’s ownership structure – which may range from a business closely
held by a few family members who see each other on a daily basis, to one with
numerous, geographically dispersed distant family members, to the inclusion of
other investors, either through private equity investment or publicly traded stock.
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 The expectations and interests of key stakeholders including owners, other

interested family members (such as the owners’ likely heirs), customers, and
insurers.
 The company’s attributes – size, resources, maturity, culture, and level of
complexity.
In the end, companies with a good corporate governance system, together with an
experienced board that has a growth-mindset and sustainability concerns, will be better
positioned to prosper both in the short term and on the long run.
Sustainable Development
First, it is important to clarify what

sustainable development is. And according to
the Brundtland Commission report,
sustainable development is “the one that
satisfies the needs of the present without
jeopardizing the ability of future
generations to meet their needs.” In order to
achieve this long-term corporate
sustainability goal, the sustainable
development concept is built on top of three important “pillars” that must be fulfilled by
companies: economic development, social equity, and environmental protection.
Economic
The economic pillar of sustainable development is the most comprehensive and

best applied by companies. They relate it mainly to production or production costs.
Environment
At the level of a manufacturing enterprise the environmental sustainability refers

to the use of energy and other resources and the footprint, which the company leaves
as a result of its activities.
Sustainable development in the field of environment is often related to waste

reduction, pollution reduction, energy efficiency, reduce the air emissions, reduce the
consumption of hazardous/ toxic materials, reduce the frequency of environmental
accidents etc. Gimenez, Sierra, Rodon, 2012).
Bangued, Abra
Social
Sustainable development in its social element shifts the focus to internal

communities (for example the employees) and the society (Pullman et al., 2009)
Although companies have been working on developing the economic “pillar” that has
to do with production, sales, and profit, it hasn’t always been like this for the
environmental protection and social responsibility pillars that are nowadays getting
inside the companies’ agendas.
Despite the ongoing debate about the meaning and application of sustainable
development in a business context, it is common to assume that if a company can fulfill
these 3 pillars, then it is a socially responsible corporation.
Corporate Governance in the Philippines
Long before the collapse of Enron and WorldCom, the Philippines had its own share of
corporate scandals like BW Resources Corporation, whose share prices hit record highs and
then collapsed in 1999. These scandals brought down the stock market’s image and weakened
private investor confidence. The scandals have their roots in management’s desire to project a
false picture of performance, with the aim of driving up the value of the corporation in a
competitive global market.
Corporate governance is needed to make corporate managements more accountable, and

their auditors more rigorous. But good governance requires fair legal frameworks that should be
enforced impartially. In this country, the Philippine Securities and Exchange Commission
(SEC), a principal player in matters of corporate governance, recently issued Memorandum
Circular 2, Series of 2002, otherwise known as the Code of Corporate Governance, under
resolution no. 135 dated April 4, 2002.
The Code aims to promote corporate governance reforms that will raise investor
confidence, develop the capital market and help achieve high sustained growth for the corporate
sector and the economy.
The code applies to:

 Corporations whose securities are registered or listed.
 Corporations who are grantees of permits/licenses and secondary franchises from the
Commission.
 Public companies and
 Branches or subsidiaries of foreign corporations operating in the Philippines whose
securities are registered or listed.
Bangued, Abra
Report on the Observance of Standards and Codes (ROSC) assessment of corporate

governance in Philippines benchmarks legal and regulatory framework and practice against the
OECD Principles of Corporate Governance, and focuses on listed companies. It is an update of
the assessment that was carried out in 2001.
The regulators have undertaken significant reforms with a view to institutionalizing

good corporate governance in the Philippines. Reform began in 2000 with the passage of
Securities Regulation Code (SRC) or Republic Act (RA) No. 8799, which superseded the
Revised Securities Act of 1982. Among its important new provisions were:
 The institutional strengthening of the SEC.

 The strengthening of its prosecution and enforcement powers.
 The clarification of the scope of insider trading and market manipulation, protection
of minority investors through the requirement of a mandatory tender offer and
 Delegation of certain regulatory powers to self-regulatory organizations (SROs)
such as the Philippines Stock Exchange (PSE).
The Anti-Money Laundering Act (AMLA) of 2001 was another reform that was
enacted to establish and strengthen an anti- money laundering regime in the country. This refers
to the laws, regulations and procedures intended to prevent criminals from disguising illegally
obtained funds as legitimate income. Also affecting the capital market and the practice of
corporate governance is the Revised Accountancy Law, otherwise known as the Philippine
Accountancy Act of 2004 which regulates the practice of accountancy in the Philippines.
The Role of Accounting in Corporate Governance
Corporate governance acts as the foundation through which corporations determine and go after
their goals within the social, legal and market environment. Because the core function of
accounting tasks is to track the company's financial performance, these tasks play an important
role in determining how a company fulfills its corporate governance policies.
Project Planning
Accounting practices are highly effective as an instrument of corporate

governance. Corporations can make advantageous and intelligent decisions about how
to operate, when to expand and how much to invest in a project when management has
accurate accounting data. For instance, accounting projections can show how cutbacks
in employees and equipment can lead to short-term improvement in company profits but
eventually will deplete the firm of much-needed human resources for future projects.
Bangued, Abra
Public Responsibility
Unlike private companies, publicly traded corporations have legal

responsibilities to disclose their business practices to the outside world. Such
corporations must release accurate and honest financial statements every three months,
including the balance sheet, the income statement and statement of shareholders' equity.
Investors use these statements to decide whether to buy shares in the corporation.
Government agencies also require these statements to determine if the company is
disclosing its operations fully. Accounting practices are vital in producing these
important statements.
Shareholder Responsibility
In addition to their responsibilities to the market and the government,

corporations also are required to release detailed financial information to shareholders.
Company decisions influence whether shareholders buy, hold or sell their shares in the
firm's stock. Shareholders rely on the financial statements compiled by the accounting
department to make the most intelligent decisions, both for themselves and for the
company.
Income Management
Nearly every decision a corporation makes depends on the quality and accuracy
of its accounting data. The data help companies manage their assets, prioritize their
projects and make intelligent choices. Managers rely on accounting data to show them
how much income they have, where it comes from and when they can expect to receive
it. This data informs them on when and if they can hire new employees, acquire more
equipment or take on more debt.
Bangued, Abra
Summary:
Corporate governance is the structure of rules, practices, and processes used to direct
and manage a company. A company's board of directors is the primary force influencing
corporate governance.
Bad corporate governance can cast doubt on a company's reliability, integrity, and
transparency, which can impact its financial health while Good corporate governance helps the
company to regulate risk and reduce the opportunity for corruption.
Sustainability can also be defined as the strategy of the sustainable development

process. Corporate Sustainability is seen as the ability of the company, by its management
practices and market presence, to positively affect the ecosystem, the community, and the
economic development. There can be sustainability of the company also when it creates value
for its shareholders by maximizing the positive and minimizing the negative effects on
environmental, social or economic issues.
In the Philippines, the Code of Corporate Governance is applied across corporations and
public companies, and branches or subsidiaries of foreign corporations operating in the
Philippines whose securities are registered or listed.
When a business operates under a corporate umbrella, many of the business basics are
governed by accounting results and practices. Through accounting, corporations can keep track
of their expenditures and income and establish an accurate picture of their overall financial
status. Ultimately, accounting helps corporations run smoothly on a practical, ethical and legal
basis, establishing a foundation for continued growth and success.
Activities:
1. I’ll be sending a quiz via Gmail on October 28, 2021 at 1:45PM after your Prelim
Exams. Please send your answers on the same day on or before 2:30PM. The quiz includes
Multiple Choice Questions and True or False, 10 items each for a total of 20 points.
2. Enhancement activity. Create an essay about your perspective on how Corporate

Governance is implemented in DWCB. Kindly submit on or before November 4, 2021,
Thursday, 2:30PM. It should be composed of a minimum of 200 words. This shall be graded
based on the following rubrics:
Bangued, Abra
Choice of words 20 points

Organization of ideas/thoughts 35 points
Relevance to the topic 45 points
Total 100 points
References
https://youmatter.world/en/definition/corporate-governance-definition-purpose-and-benefits/
http://journals.euser.org/files/articles/ejes_jan_apr_17/Bistra.pdf
https://smallbusiness.chron.com/role-accounting-corporate-governance-73557.html
https://www.tradechakra.com/economy/philippines/corporate-governance-in-philippines-226.php
https://www.vistra.com/insights/importance-good-corporate-governance
https://yourbusiness.azcentral.com/role-accounting-corporate-governance-16067.html

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Divine Word College of Bangued

Course Code: AE10

Corporate Governance, Business Ethics, Risk Management, & Internal Control 1

Lesson 5 Corporate Governance

At the end of the lesson, the students should be able to:

1. Have a strong grasp and understanding what Corporate Governance is about.

1. Understanding Corporate Governance

3. Corporate Governance Structures and Sustainable Development

Understanding Corporate Governance

A company’s corporate governance is important to investors since it shows a company's

Communicating a firm's corporate governance is a key component of community and

Good and Bad Corporate Governance

A good corporate governance system:

 Minimizes wastages, corruption, risks, and mismanagement;

Bad Corporate Governance

Bad corporate governance can cast doubt on a company's reliability, integrity, or

Corporate Governance Structures and Sustainable Development

 The expectations and interests of key stakeholders including owners, other

First, it is important to clarify what

The economic pillar of sustainable development is the most comprehensive and

At the level of a manufacturing enterprise the environmental sustainability refers

Sustainable development in the field of environment is often related to waste

Corporate Governance, Business Ethics, Risk Management, & Internal Control 5

Sustainable development in its social element shifts the focus to internal

Corporate Governance in the Philippines

Corporate governance is needed to make corporate managements more accountable, and

The code applies to:

Corporate Governance, Business Ethics, Risk Management, & Internal Control 6

Report on the Observance of Standards and Codes (ROSC) assessment of corporate

The regulators have undertaken significant reforms with a view to institutionalizing

 The institutional strengthening of the SEC.

The Role of Accounting in Corporate Governance

Accounting practices are highly effective as an instrument of corporate

Corporate Governance, Business Ethics, Risk Management, & Internal Control 7

Unlike private companies, publicly traded corporations have legal

In addition to their responsibilities to the market and the government,

Corporate Governance, Business Ethics, Risk Management, & Internal Control 8

Sustainability can also be defined as the strategy of the sustainable development

2. Enhancement activity. Create an essay about your perspective on how Corporate

Corporate Governance, Business Ethics, Risk Management, & Internal Control 9

Choice of words 20 points

Total 100 points

Corporate Governance, Business Ethics, Risk Management, & Internal Control 10

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