Corporate Legal Services - Accuprosys

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Corporate Governance and Auditing
Their Importance to Enterprises
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Introduction
Corporate governance is a hot topic now, owing to
many popular corporate failures. The downfall of
giant corporations such Parmalat in Italy and
Enron in USA have brought the importance of good
corporate governance to the fore. This is also
exemplified from the demand for corporate legal
services related to corporate governance audits.
While earlier, corporate governance was thought
of as a system that makes sure that an
enterprises manager does not exploit the
business or the shareholders wealth for private
gains, it now has a much broader meaning. Now, it
is believed to be a system that makes sure that
resources are utilized most effectively in order
to benefit shareholders while meeting the
expectations of society at the same time.
Enterprise risk management, CSR and strategy
audits for instance are important aspects of
corporate governance.
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Introduction
Audit reports on these aspects are of immense
importance to investors and analysts and they
base their perception of the enterprises
accordingly. It is therefore essential to have
strategic corporate governance audits in place if
an enterprise wishes to survive the intricacies
of the corporate world. Realizing this
importance, many companies seek external help
from corporate legal services to ensure they are
on the right track.
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Basics of Corporate Governance
Corporate governance is defined in many ways.
According to the International Standard on
Auditing (ISA) 260, it is defined as
communications of audit matters with those
charged with governance. It is the way in which
an authority is practiced in a corporate
establishment for maximizing the usefulness of
corporate properties in order to hold the
interest of shareholders and to justify the
stated core values of the organization. Ask any
corporate legal services provider and hell tell
you that corporate governance is more about
promoting fair and transparent administration of
the corporation in order to meet its objectives
and for achieving control with the aim of
fulfilling strategic goals that not only satisfy
financiers and investors, but also customers,
owners, suppliers and the society. Impartiality
is the key factor in any internal audit function.
Corporate governance is the responsibility of a
companys board of directors, audit committee and
other supervisory committees depending on the
jurisdiction of the enterprise.
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Corporate Governance is not 100 Fail Proof
It is impossible for any governance system, no
matter how well monitored, designed and
implemented it is, to fully prevent the
exploitation of a company from the personal
interests of some dishonest and greedy
authorities. However, fraud can be prevented to a
certain extent if strategic steps are taken to
improve corporate governance. Corporate legal
services usually come to the rescue in these
matters.
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Corporate Governance Theories
A large number of theories have been proposed for
best practice in corporate governance. Of these,
the stakeholder theory and the shareholder theory
are the most popular. The shareholder theory was
proposed by Milton Friedman. According to this
theory, the sole responsibility of an enterprise
is to increase its profits. This theory describes
that the management is an agent of the
shareholders and that its aim is to run the
company for the benefit of these shareholders.
Thus, the management is morally as well as
legally responsible for serving the interests of
the shareholders. While maintaining conformity
to the basic rules of the society, both those
embodied in law and those embodied in ethical
custom, the company needs to make as much money
as possible. This theory however has its
disadvantages. It pressurizes the management to
focus on greater risk taking and short term
strategy so they can increase returns to the
shareholders.
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Corporate Governance Theories
The downfall of Worldcomm and Enron are examples
of how focusing on the interests of shareholders
alone can bring about the downfall of thriving
companies. Managers of these two companies
manipulated company accounts to show increased
returns to shareholders due to the pressure of
keeping shareholders satisfied. According to the
stakeholder theory proposed by Edward Freeman, a
business owes responsibility to stakeholders as
well, not just the shareholders. A stakeholder
could be any person or a group who will be
affected by the actions of the business. These
include customers, employees, suppliers, the
community and the competitors as well. This
theory is an important element of the concept of
CSR (Corporate Social Responsibility). In light
of this theory, companies have to take not only
the legal and economic aspects of their business
but also the philanthropic and ethical aspects
into consideration. On the flipside however, some
companies exploit their CSR as PR strategies.
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Auditors and Key Players in Corporate Governance
An auditors role is to check and make sure the
financial information given by companies to
investors is correct and reliable. He does not
have direct responsibility of corporate
governance but rather monitors the information
aspects of the corporate governance system.
Auditors could be external and internal. A cost
audit is performed to obtain credible data on
cost and revenue on which decisions can be based.
Corporate legal services can offer valuable
inputs to companies on how they can manage their
audit functions and also perform them. Cost
audits are a source of important analytical
information that can be used by the board of
directors to oversee the affairs of the company.
Auditors are required to provide their expert
opinion on financial statements and all other
materials related to the financial position, cash
flow and operations of a company. They need to
examine financial statements and other company
records using auditing tools.
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Auditors and Key Players in Corporate Governance
The key players in corporate governance of a
company include the auditing groups, the
management, secretaries, the management team and
other such parties. The responsibility of the
board of directors is however in a much broader
sense than the auditor. It has to focus on
protecting the rights of key stakeholders
including the shareholders, customers, employees,
suppliers and the society. It sets up the
strategic aims of the company, leads and
supervises its management. Corporate legal
services help companies with relevant documents
pertaining to these factors.
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Audit Responsibilities
In light of popular corporate governance
failures, there have been many proposals
regarding the powers and responsibilities of
audit committees. The primary role of these
committees is to ensure smooth functioning of the
directors who are within their mandate and to
check the data in financial records thoroughly.
They need to be able to explain the personnel
structure used for investigating the authenticity
of the company operations. Various strategy tools
are used for internal and external auditing.
These include Environment Scanning PEST, TOWS,
experience curve, competitive analysis etc. for
external audit and SWOT, value chain analysis,
strategic risk analysis, performance analysis,
financial models and portfolio models for
internal audits. Failure of accounting and
corporate governance results in immense costs for
companies. The companies and their auditors have
to face widespread skepticism from stakeholders
and the community they have to face litigations,
etc. Such failures often lead to the downfall of
once thriving companies. Companies therefore need
to make sure their corporate governance audit
systems are correctly in place. They can also go
the extra mile and seek corporate legal services
or advisory servicesif need be.
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Summary
Corporate governance is a hot topic now, owing to
many popular corporate failures. The downfall of
giant corporations such Parmalat in Italy and
Enron in USA have brought the importance of good
corporate governance to the fore
http//www.accuprosys.com/corporate-legal-services
/
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Accuprosys Best Corporate Legal Services
Providers in India. We will offer the services
like Company Law Consultancy that deals with
regulation and creation etc.
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