3 corporate governance

Exam guide Corporate governance Knowledge-based or application-based May be part of a scenario question on ethics ISA—development and scope

Codes of corporate governance Cadbury Report 1992 Greenbury report 1995 Hampel Committee report 1998 Turnbull Guidelines 1999 (risk management and IC) Higgs report 2002 Smith report 2002

OECD—Principles of Corporate Governance UK—Companies Act (legislation) —Combined Code (voluntary, mandatory elements for listed companies)

Auditors (are required) As for all companies, to recommend annual F/S audit State that information should be disclosed and audited according to high quality standards Imply that shareholders will benefit if other information is subject to checks by auditors As for listed companies, to report compliance with Combined Code

Directors --responsibility & non- executive director The directors of a company should set company policy, including risk policy, and are responsible for the company’s systems and controls. non-executive director/sub-committee of the board

Audit committee Role and function of AC Drawbacks of AC

Internal control effectiveness Importance Director’s responsibilities—design, implement and maintain (report) Assess risk Inherent limitations Internal audit Auditor’s responsibilities

Communicating with those charged with governance Those charged with governance Management Importance of communication Matters to be communicated

Reading materials Exercise3 Exercise4