This report aims to investigate the role Internal Auditors (IA) plays in certain aspects of corporate governance. The report also aims to investigate what is considered as good corporate governance.
“Corporate governance is the system by which companies are directed and controlled. It deals largely with the relationship between the constituent parts of a company - the directors, the board (and its sub-committees) and the shareholders” (Berr, 2008)
Corporate governance is necessary because of the problems caused by the divorce of ownership and control in modern organisations. In order to protect the stakeholders of an organisation, regulators addressed the problem by introducing corporate governance frameworks that managers had to follow. Below are the Principles of corporate governance:
i. “ The corporate governance framework should protect shareholders’ rights ii. The corporate governance framework should ensure the equitable treatment of all shareholders, including minority and foreign shareholders. All shareholders should have the opportunity to obtain effective redress for violation of their rights. iii. The corporate governance framework should recognise the rights of stakeholders established by law or through mutual agreements and encourage active co-operation between corporations and stakeholders in creating wealth, jobs, and the sustainability of financially sound enterprises. iv. The corporate governance framework should ensure that timely and accurate disclosure is made on all material matters regarding the corporation, including the financial situation, performance, ownership, and governance of the company.
v. The corporate governance framework should ensure the strategic guidance of the company, the effective monitoring of management by the board, and the board’s accountability to the company and the shareholders.”
One component of good corporate governance is to create an effective and efficient internal
References: Berr, (2008) Corporate Governance: http://www.berr.gov.uk/bbf/corp-governance/page15267.html Accessed at 20/2/2008 Gates, S (2006) Incorporating strategic risk into enterprise risk management: A survey of current corporate practices: http://www.swetswise.com/eAccess/searchArticles.do?histSort=R&mode=H&searchMode=B&articleSearchSequenceNumber=12097531&pageNr=0 Accessed at 21/2/2008 KPMG, (2005) Inter audit 2005: A survey of current practises in Ireland: http://www.iia.org.uk/download.cfm?docid=055DABEC-24A8-4734B48114141D3BD68CA Accessed at 21/2/2008 OECD, (2004) OECD principles of corporate governance: http://www.oecd.org/dataoecd/32/18/31557724.pdf Accessed at 20/2/2008 Paape, L, Scheffe, J, Snoep, P (2003) The relationship between internal audit function and corporate governance in the EU – a survey: http://www.swetswise.com/eAccess/searchArticles.do?histSort=R&mode=H&searchMode=B&articleSearchSequenceNumber=12097683&pageNr=0 Accessed at 23/2/2008 Theiia, (2004) The role of internal audit in enterprise risk management: http://www.theiia.org/download.cfm?file=283. Accessed at 22/2/2008