Good Corporate Governance

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This is good corporate governance regarding directors responsibilities

Directors Responsibilities

The directors are responsible for implementing a sound system of governance.

(Auditors will have an interest in the standards of corporate governance at a firm because a poor system of governance will make it more likely that material errors exist in the firms’ financial statements)

The Board

Good corporate governance here includes..

  • Chairman and Chief Executive should be different people to prevent unfettered power

  • Half of the board to be Non-Executive Directors (NEDs)

  • There should be a rigorous and transparent nomination process.

  • Directors should submit for re-election regularly

Communication with Shareholders

Board is responsible for ensuring satisfactory dialogue with shareholders.

The AGM should be used to encourage communication with investors

Remuneration

Good corporate governance here includes..

  1. Excessive remuneration should be avoided

  2. Linked to the performance of the corporation.

  3. The directors should not be responsible for setting their own pay.

  4. There should be a transparent procedure for setting directors remuneration

Internal Controls

Good corporate governance here includes..

  1. A sound system of internal controls should be maintained.

  2. An audit committee should be established.

  3. If no internal audit function, the need for one should be considered on an annual basis.

Auditors requirements

  • Explain responsibility of directors for preparing financial statements.

  • Review and report on system of internal control.

  • Has an Audit Committee with at least 3 non-executive directors been set up?

  • Are Audit Committee terms of reference set out in writing and described in report?

  • Is there a whistle-blowing facility?

  • Does Audit Committee review and monitor internal control system.

  • Audit Committee responsible for appointment of external auditor.

Responsibility of Auditors for reporting on Corporate Governance

  • A statement regarding corporate governance must be included in the Annual Report

  • This statement is reviewed by the auditor and any inconsistencies with the information in the annual report highlighted.

  • If the inconsistency highlights an error in the financial statements, the auditor will issue a qualified report if the directors refuse to amend the error.

  • If the error is in the corporate governance statement, the auditor will add an emphasis of matter paragraph to their report.

  • Sarbanes Oxley in the US requires auditors to state an opinion on the system of internal control and whether the company has complied with corporate governance requirements.

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