MARY THE QUEEN COLLEGE PAMPANGA, INC.

Guagua, Pampanga

INSTITUTE OF ACCOUNTANCY
GOVERNANCE, BUSINESS ETHICS, RISK MANAGEMENT AND INTERNAL CONTROL

Course Code – Title:

GBRMIC-Governance, Business Ethics, Risk Management and Internal Control

Course Description:

Governance, Business Ethics, Risk Management and Internal Control Accounting

aims to equip accountancy students the basic knowledge, skills and perspective that
are necessary in facing the challenge in the continuously changing business
environment whether it be in the public practice sector, accounting practice, internal
audit or accounting information system management.

Module No – Title : MO2 – Corporate Governance Responsibilities and

Accountabilities
Time Frame : 1 week – 3 hrs

Overview

Many of the characteristics of good governance described in Module 1 are

relevant to both SME’s and large listed public companies. As an organization
grows in size and influence, these issues become increasingly important.

However, it is also important to recognize that good corporate governance is

based on principles underpinned by consensus and continually developing
notions of good practice. There are no absolute rules which must be adopted
by all organizations. “There is no simple universal formula for good
governance.” Instead emphasis in many localities, has been to encourage
organizations 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.

Content/Discussion

CHAPTER 2 CORPORATE GOVERNANCE RESPONSIBILITIES AND

ACCOUNTABILITIES

The relationship between the shareholders/owners, management and other

stakeholders in a corporation is shown below.
 MARY THE QUEEN COLLEGE PAMPANGA, INC.
Guagua, Pampanga

INSTITUTE OF ACCOUNTANCY
GOVERNANCE, BUSINESS ETHICS, RISK MANAGEMENT AND INTERNAL CONTROL

PUBLIC CORPORATION STAKEHOLDERS

Shareholders/
Board of Owners
Directors
External
Executive Auditors
Delegate Manageme Have
nt
Shareholde
rs/ Owners
Accountabilitie Regulators
Operational
Responsibiliti s
Manageme
es nt
Internal Society and
Auditors Others

Governance starts with the shareholders/owners delegating responsibilities

through an elected board of directors to management and, in turn, to
operating units with oversight and assistance from internal auditors. The
board of directors and its audit committee oversee management and, in that
role, are expected to protect the shareholder’s rights. However, it is important
to recognized that management is part of the governance framework;
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. However, the accountabilities do not extend only to the
shareholders. Companies also have responsibilities to other stakeholders.
Stakeholders can be anyone who is influenced, whether directly or indirectly,
by the actions of a company. Management and the board have responsibilities
to act within the laws of society and to meet various requirements of creditors,
employees and the stakeholders.

While shareholders/owners delegate responsibilities to various parties within

the corporation, they also require accountability as to how well the resources
that have been entrusted to management and the board have been used. For
example, the owners want accountability on such things as:

• Financial performance
• Financial transparency
 MARY THE QUEEN COLLEGE PAMPANGA, INC.
Guagua, Pampanga

INSTITUTE OF ACCOUNTANCY
GOVERNANCE, BUSINESS ETHICS, RISK MANAGEMENT AND INTERNAL CONTROL

• Stewardship
• Quality of internal control
• Composition of the board of directors and the nature of its activities

The owners want disclosures from management that are accurate and
objectively verifiable. For instance, management has a responsibility to
provide financial reports, and in some cases, reports on internal control
effectiveness. Management has always had the primary responsibility for the
accuracy and completeness of an organization’s financial statements. From a
financial reporting perspective, it is management’s responsibility to:

• 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
disclosure.

PARTIES INVOLVED IN CORPORATE GOVERNANCE:

THEIR RESPECTIVE BROAD ROLE AND SPECIFIC RESPONSIBILITIES

Corporate governance and financial reporting reliability are receiving

considerable attention from a number of parties including regulators, standard
setting bodies, the accounting profession, lawmakers and financial statement
users.

PARTY OVERVIEW OF RESPONSIBILITIES

1. Shareholders Broad role:
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 Directors Broad role:

The major representative 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:
• Overall operations
• Performance
 MARY THE QUEEN COLLEGE PAMPANGA, INC.
Guagua, Pampanga

INSTITUTE OF ACCOUNTANCY
GOVERNANCE, BUSINESS ETHICS, RISK MANAGEMENT AND INTERNAL CONTROL

• Compliance/Legal Conformance

3. Non-executive or Broad role:

Independent Directors The same as the broad role of the
entire board of 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 prepare for and attend board
meetings.

4. Management Broad role:

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
• Develop, implement and
manage the organization’s risk
management and internal
control
 MARY THE QUEEN COLLEGE PAMPANGA, INC.
Guagua, Pampanga

INSTITUTE OF ACCOUNTANCY
GOVERNANCE, BUSINESS ETHICS, RISK MANAGEMENT AND INTERNAL CONTROL

5. Audit Committees of the Broad role:

Board of Directors Provide oversight of the internal and
external audit function and the process
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
• Reviewing and approving the
scope and budget of the internal
audit function

6. Regulators: Broad role:

a. Board of Accountancy Set accounting and auditing standards
dictating underlying financial reporting
and auditing concepts; set the
expectations of audit quality and
accounting quality.

b. Securities and Exchange Broad role:

Commission Ensure the accuracy, timeliness and
fairness of public reporting of financial
and other information for public
companies.

7. External Auditors Broad role:

Perform audits of company financial
statements to ensure that the
statements are free of material
misstatements including misstatements
that may be due to fraud.

8. Internal Auditors Broad role:

Perform audits of companies for
compliance with company policies and
laws, audits to evaluate efficiency of
operations, and periodic evaluation
and tests of controls.
 MARY THE QUEEN COLLEGE PAMPANGA, INC.
Guagua, Pampanga

INSTITUTE OF ACCOUNTANCY
GOVERNANCE, BUSINESS ETHICS, RISK MANAGEMENT AND INTERNAL CONTROL

Essay Questions:
1. Do you agree that small business enterprises do not need good
governance? Why or why not?
2. What is management’s responsibility as far as financial reporting is
concerned?
3. To whom is the board of directors accountable? Why are they
accountable?
Evaluation
Multiple Choice Questions:
1. Approving annual financial reports and other public documents are specific
responsibilites of
a. Management
b. Board of Directors
c. Shareholders
d. Employees
2. Providing oversight of the internal and external audit function, the process of
preparing the annual financial statements and public reports on internal
control are the responsibility of
a. Board of directors
b. Chief executive officer
c. Chief financial officer
d. Audit committee of the board of directors
3. Who is responsible for ensuring the accuracy, timeliness of public reporting of
financial and other information for public companies?
a. External auditors
b. Securities and exchange commission
c. Shareholders
d. Board of Accountancy
4. Who performs audit of companies for compliance with company policies and
laws, audits efficiency of operations and periodic evaluation and test of
controls?
a. External auditors
b. Internal auditors
c. Commission on Audit
d. Chief accountant
5. An independent director is expected to
a. Apply expertise and skills in the corporations best interest
b. Asset management to keep performance objectives at the top of its
agenda
c. Respect the collective, cabinet nature of the board’s decision
d. Act as conduit between the board and the organization

References:

Corporate Governance, Business Ethics, Risk Management and Internal Control

2019-2020 Edition by Ma. Elenita Balatbat Cabrera, Gilbert Anthony B. Cabrera