CIMA E1 Syllabus A. Role of the finance function - Features of poor corporate governance - Notes ^{5 / 8}

Features of poor corporate governance

1. Domination by a single individual

   Sometimes the single individual may bypass the board to action their own interests.

   The presence of NON-EXECUTIVE directors on the board if felt to be an important safeguard against domination by a single individual.

2. Lack of involvement of board

   Boards that meet irregularly or fail to consider systematically the organisation's risks are weak.

3. Ineffective internal audit function

   For example no internal audit, or a lack of adequate technical knowledge in key roles, or a rapid turnover of staff involved in accounting and control.

4. Lack of supervision

   Employees who are not properly supervised can create large losses for the organisation through incompetence, negligence or fraudulent activity.

5. Lack of independent scrutiny

   External auditors may not carry out the necessary questioning of senior management because of fear of losing the audit.

6. Emphasis on short-term profitability

   Emphasis on short-term results can lead to the concealment of problems or errors or manipulation of accounts to achieve desired results.

7. Lack of contact with shareholders

8. Misleading financial statements and information