Corporate governance defines the means and mechanisms through which businesses are controlled and operated. Governance structures identify areas such as responsibilities and distribution of rights among distinctive participants in the organization. Two of the corporate governance principles include accountability and transparency. Companies that apply these principles tend to outperform competitors. These two principles intertwine with recent legislation stipulated to resolve ethical challenges. Accountability per say relates the responsibility and obligation or explanation given as result of the company’s conduct. Transparency, on the other hand, refers to the availability of information to the stakeholders regarding the company’s activities, plans for the future and the willingness to avail financial reports that are accurate and honest (Olson, 2007).
In Corporate governance, there are Generally Accepted Auditing Standards (GAAS), which can be categorized into three main parts. These include General Standards, Standards of Fieldwork and Standards of Reporting. General standards address the qualifications you require to become an auditor in addition to the minimum standards of the final work product. Activities include adequate training and sharpening your ethics. Standards of fieldwork refer to the GAAS that governs how you execute your job. Examples of activities include planning your work and supervising your assistants. Standards of reporting have to do with information that you consider before submitting your audit report. Examples of activities in this category are stating whether financial reports are prepared to sue generally accepted accounting principles (GAAP) and including your professional opinion on financial statements.
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In relation to the above-stated standards, the audit committee is a faction of a corporate’s directors that is responsible for selection of the independent auditor. It is fundamental in corporate governance as it plays a core role in company’s direction, accountability, and control. It is involved in the company’s external and internal audits, regulatory compliance, financial reporting and risk management. Independent directors play the role of guiding the company, playing the watchdog and boosting company’s credibility. All publicly listed and traded companies must comprise of an audit committee and independent directors. To enhance good governance, they may have an active role in various committees. The primary role of the audit committee is to oversee financial reporting, audit, internal controls and compliance to stipulated regulations. The oversight roles are those that are not standard across board for example, whether or not to participate in the appointment of key financial personnel. As governance monitor, the audit committee is mandated to feed the public with complete, accurate and reliable information and shun all loopholes for uniformed hilarious expectations and predictions (The Economic Times., n.d).
Enacted in July 2002, the public accounting reform and investor are also known as the Sarbanes- Oxley act impacts the auditing profession. Its inception mothered what has come to be known as the Public Company Accounting Oversight Board (PCAOB). After a lengthy period of scandals from various corporates, the Sarbanes-Oxley Act (SOX) was enacted to restore sanity and increase investor confidence in financial markets. This act had a direct impact on corporate governance as it mandated public companies to institute audit committees and conduct internal controls, hold directors and officers accountable for the accuracy of financial reports. It also entailed stricter penalties for crime related to how public accounting organizations operate. Let’s now look at the role of the PCAOB (The Economic Times, n.d).
The fundamental role of the Public Company Accounting Oversight Board is to supervise the auditors of public firms, protecting investor’s interests and further preparation of accurate, independent and informative audit reports. It achieves this by conducting inspections, doing outreach programs, enforcement, and standards-setting. The PCAOB operates very intimately with the Securities and Exchange Commission. It is undeniable the tremendous effect PCAOB has already brought into the auditing profession. As a vote of confidence I would say that PCAOB has partially achieved its mandate due to the roles it’s been playing since its inception. However, there is still room for stricter measures to be enacted and reduce fraud occurrences to minimalistic levels (Pearse, 2014).
One of the areas I would suggest being indulged in the PCAOB is an investigative branch with legal as well as accounting knowledge. This is for the purposes of catching up with clever financial cartels that masquerade in company deals and overcharge services then toy with balance sheets. They should also partner with experienced security organizations such as the CIA or the FBI to make sure that culprits escalating across borders don’t make away with crime. It is fundamental for any financial fraudsters squandering funds in public firms to be brought to book. Finally, PCAOB should not only be mandated to verse the auditors but also to make impromptu visits to any public firm they suspect is engaging in dirty deals and monkey business (Solomon, nd).
In conclusion, bad corporate governance, which is the opposite of good corporate governance can negatively affect the organization’s reliability, obligation to stakeholders and integrity. The government’s interest in the topic waxes and wanes from time to time. However, when corporate malfeasance happens, it resuscitates interest in the topic.
References
Olson, M. (Feb, 2007). Global Risk and Regulation: The Role of the PCAOB . Retrieved on 21 st November, 2019 from
https://pcaobus.org/News/Speech/Pages/02022007_OlsonTaxPolicyPracticeSymposium.aspx
Pearse Trust. (Feb, 2014). The Core Principle of Good Corporate Governance . Retrieved on 21 st November, 2019 from
https://www.pearse-trust.ie/blog/bid/108866/the-core-principles-of-good-corporate-governance
Solomon, Jill. (n.d). Corporate Governance and Accountability . Hoboken: Wiley & Sons.
The Economic Times. (n.d). W ho are Independent Directors and the Role they Play . Retrieved on 21 st November, 2019 from
https://economictimes.indiatimes.com/corporate-industry/who-are-independent-directors-and-what-role-they-play/slideshow/17853907.cms
