Course Code: GOVBUSMAN
Course Title: Corporate Governance, Business
Ethics, Risk Management, and Internal
Control
Instructor: Mrs. Jennivib D. Diamzon
Chapter 1: Corporate Governance,
Responsibilities, and Accountabilities
“There is no simple universal formula for good
governance.”
Organizations are encouraged to give appropriate
attention to the principles and adopt approaches which
are tailored to the specific needs of an organization at a
given point in time.
The essence of any system of good governance is to
allow the board and management the freedom to drive
their organization forward and to exercise that freedom
within a framework of effective accountability.
RELATIONSHIP BETWEEN
SHAREHOLDERS/OWNER(S) AND OTHER
STAKEHOLDERS
Governance starts with the shareholders/owner
delegating responsibilities through an election of BOD
to management and, in turn, to operating units with
oversight and assistance from internal auditors.
The BOD and its audit committee oversee
management and, in that role, are expected to protect
the shareholders’ rights.
Management can influence who sits on the board and
the audit committee as well as other governance
controls that might be put into place.
In return for the responsibilities (and power) given to
management and the board, governance demands
accountability back through the system to the
shareholders
Companies also have responsibilities to
stakeholders
BOD AND MANAGEMENT ACCOUNTABILITY
 Financial performance
 Financial transparency – financial statements
that are clear with full disclosure and that
reflect the underlying economics of the
company.
 Stewardship, including how well the company
protects and manages the resources entrusted to
it.
 Quality of internal control
Composition of the board of directors and the

nature of its activities, including information
on how well management incentive systems are
aligned with the shareholders’ best interests.
MANAGEMENT RESPONSIBILITY ON
FINANCIAL REPORTING
 Choose which accounting principles best
portray the economic substance of company
transactions.
Implement a system of internal control that

assures completeness and accuracy in financial
reporting.
Ensure that the financial statements contain accurate
and complete.
  Broad Role:
1. Shareholders Provide 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.
2.  Board of Broad Role:
Directors  
The major representatives of stockholders
to ensure that the organization is run
according to the organization’s charter and
that there is proper accountability.
 Specific activities include among others:
1.  Overall Operations
Establishing the organizations vision,
mission, values and ethical standards.
Delegating an appropriate level of
authority to 
Management
  Demonstrating leadership
.  Board of Assuming responsibility for the business
Directors relationship with CEO including his or
her appointment, succession,
performance remuneration and
dismissal.
Overseeing aspects of the employment
of the management team including
management remuneration,
performance and succession planning.
Recommending auditors and new
directors to shareholders.
Ensuring effective communicating with
shareholders other stakeholders
Crisis management
Appointment of the CFO and corporate
secretary.
  2.  Performance
other Board of Directors Ensuring the organization’s long term
viability and enhancing the financial
position.
Formulating and overseeing
implementation of corporate strategy.
Approving the plan, budget and
corporate policies.
Agreeing key performance indicators
(KPIs)
Monitoring/assessing assessment,
 performance of the organization, the
board itself, management and major
projects.
Overseeing the risk management
framework and monitoring business
risks.
Monitoring developments in the
industry and the operating
environment.
Oversight of the organization, including
its control and accountability systems.
Approving and monitoring the progress
of major capital expenditure, capital
management and acquisitions and
divestitures.
  Compliance / Legal Conformance
Board of Directors Understanding and protecting the
organization’s financial position.
Requiring and monitoring legal and
regulatory compliance including
compliance with accounting standards,
unfair trading legislations, occupational
health and safety and environmental
standards.
Approving annual financial reports,
annual reports and other public
documents / sensitive reports.
Ensuring an effective system of internal
controls exists and is operating as
expected.
  Broad Role:
3.  Non-Executive or The same as the broad role of the entire
Independent board of directors
Directors Specific activities include among others:
 To understand the organization,
its business, its operating
environment and its financial
position.
 To apply expertise and skills in
the organization’s best interests.
 To assist management to keep
performance objectives at the top
of its agenda.
 To understand that his/her role is
not to act as auditor, nor to act as
a member of the management
team.
 To respect the collective, cabinet
nature of the board’s decisions
 To prepare for and attend board
meetings
 To seek information on a timely
basis to ensure that he/she is in a
position to contribute to the
discussion when a matter comes
before the board, or alert the
chairman in advance to the need
for further information in
relation to a particular matter,
and
 To ask appropriate questions
relative to operations
  Broad Role:
4.  Management Operations and accountability.  Manage
the organization effectively; provide
accurate and timely reports to
shareholders and other stakeholders.
Specific activities include among others:
 Recommend the strategic
direction and translate the
strategic plan into the operations
of the business
 Manage the company’s human,
physical and financial resources
to achieve the organization’s
objectives – run the business.
 Assume day to day responsibility
for the organization’s
conformance with relevant laws
and regulations and its
compliance framework.
 Develop, implement and manage
the organization’s risk
management and internal control
frameworks.
 Develop, implement and update
policies and procedures 
 Be alert to relevant trends in the
industry and the organization’s
operating environment
 Provide information to the board.
 Act as conduit between the board
and the organization
 Developing financial and other
reports that meet public,
stakeholder and regulatory
requirements 
  Broad Role:
5.  Audit Provide oversight of the internal and
Committees of the external audit function and the process
Board of Directors of preparing the annual financial
statements as well as public reports on
internal control
Specific activities include among others:
 Selecting the external audit firm.
 Approving any non-audit work
performed by the audit firm
 Selecting and / or approving
appointment of the Chief Audit
Executive (Internal Auditor)
 Reviewing and approving the
scope and budget of the internal
audit function
 Discussing audit findings with
internal auditor and external
auditor and advising the board
(and management) on specific
actions that should be taken.
6.  Regulators Broad Role:
a. Board of Set accounting and auditing standards
Accountancy dictating underlying financial reporting
and auditing concepts; set the
expectations of audit quality and
accounting quality.
Specific activities include among others:
 Conducting CPA Licensure
Board Examinations
 Approving accounting principles
 Approving auditing standards
 Interpreting previously issued
standards implementing quality
control processes to ensure audit
quality
 Educating members on audit and
accounting requirements
  Broad Role:
b.  Securities and Ensure the accuracy, timeliness and
Exchange fairness of public reporting of financial
Commission and other information for public
companies.
Specific activities include among others:
 Reviewing filings with the SEC
 Interacting with the Financial
Reporting Standards Council in
setting accounting standards
 Specifying independence
standards required of auditors
that report on public financial
statements
 Identify corporate frauds,
investigate causes, and suggest
 remedial actions

7.  External Auditors Broad Roles:

Perform audits of company financial
statements to ensure that the statements
are free of material misstatements
including misstatements that may be
due to fraud.
Specific activities include among others:
 Audit of public company financial
statements
 Audits of non-public company
financial statements
 Other services such as tax or
consulting

8.  Internal Auditors Broad Role:

Perform audits of company for
compliance with company policies and
laws, audits to evaluate the efficiency of
operations and periodic evaluation and
tests of controls.
Specific activities include among others:
 Reporting results and analyses to
management (including
operational management) and
audit committees
 Evaluating internal controls