CIMA F1 Syllabus A. Regulatory Environment Of Financial Reporting - Underpinning Concepts Of Governance - Notes ^{1 / 7}

Corporate means Company

Governance means how it is run.

So Corporate Governance (CG) is basically how a company is run or

CG is the system by which organisations are directed and controlled

Good Corporate Governance principles should ensure the company is run in the best interests of its shareholders (owners) rather than its directors

Let’s look at some of these principles:

1) Fairness

Respecting the rights and views of any groups with a legitimate interest.

• This means a lack of bias.

• This is especially important where personal feelings are involved.

2) Responsibility

• Willingness to accept liability for the outcome of governance decisions.

• Clarity in the definition of roles and responsibilities.

• Conscientious business and personal behaviour.

3) Accountability

Answerable for the consequences of actions.

• Providing clarity in communication channels with internal and external stakeholders.

• Development and maintenance of risk management and control systems.

4) Integrity

• Accountancy relies upon a public perception of competence and integrity (straightforward dealing).

• It underpins the relationships that an accountant has with her clients, auditors and other colleagues.

• Trust is vital in relationships and integrity underpins this.

5) Transparency / Openness

The board of Directors must show clarity, not withhold information unless necessary.
There should be voluntary disclosure of reliable information.

Importance of transparency to a company and its board of Directors:

• Gains trust with investors and authorities.

• Underpins market confidence in the company through truthful and fair reporting.

• Helps manage stakeholder claims.

6) Independence

Not being unduly influenced by a vested interest

• Independence of Non-Executive Directors.

• Independence of the board from operational involvement.

• Independence of directorships from purely personal motivation.

7) Reputation

• Personal reputation for moral virtues.

• Organisation reputation for moral virtues.

• Accountancy profession reputation for moral virtues.

8) Innovation

• ability of company to transfer local knowledge and ideas in the new products/processes that will create value

9) Scepticism

• especially in the meaning of professional scepticism – being challenging, scrutinise management by questioning, not just accepting their explanations

10) Judgment

• taking decisions enhancing organisation’s performance

11) Honesty/Probity

Not simply telling the truth but also not being guilty of issuing misleading statements or presenting information in confusing or distorted way.

• Truthful

• Not misleading