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ROLE OF DIRECTORS AND

AUDITORS IN CORPORATE
GOVERNANCE

Corporate Governance
Doing right things and doing them in the right way is the

essence of Corporate Governance Anonymous


Corporate governance refers to the relationship that exists

between the different participants and defining the intention


and implementation of a corporate firm.
The bodies like the CEO i.e. the management, the board of

directors, the shareholders and the auditors and audit


committee work together and mutually run an organization
for interest of all the stakeholders.

Board of Directors
A body of elected

or appointed members who jointly


oversee the activities of a company or organization.

In a stock corporation, the board is elected by the

shareholders and is the highest


management of the corporation.
In

authority

in

the

a non-stock corporation with no general voting


membership, the board is the supreme governing body of
the institution, its members are sometimes chosen by the
board itself.

Key roles of BODs


The role of the Board in creating an environment where a

corporation can succeed is the key to future success of the


business.
The board should work to ensure that it builds a united,

cohesive and coordinated team working towards the main


goal of attaining desired corporate performance.
There is need for greater control over corporate entities due

to the increasing concern about corporate failures and the


need for better monitoring.

The key roles of BODs in corporate governance are as follows:


a) Establish vision, mission and values1. Determine the company's vision and mission to guide and
set the pace for its current operations and future
development.
2.

Determine the values to be promoted throughout the


company. Determine and review company goals.

3.

Determine company policies.

b) Set strategy and structure1. Review and evaluate present and future opportunities,
threats and risks in the external environment and current and
future strengths, weaknesses and risks relating to the
company.
2.

Determine strategic options, select those to be pursued, and


decide the means to implement and support them.

3.

Determine the business strategies and plans that underpin


the corporate strategy.

4.

Ensure that the company's organizational structure and


capability are appropriate for implementing the chosen
strategies.

c) Delegate to management1. Delegate authority to management, and monitor and


evaluate the implementation of policies, strategies and
business plans.
2. Determine monitoring criteria to be used by the board.
3. Ensure that internal controls are effective.
4. Communicate with senior management.

d) Exercise accountability to shareholders and be


responsible to relevant stakeholders1. Ensure that communications both to and from shareholders
and relevant stakeholders are effective.
2. Understand

and take into account


shareholders and relevant stakeholders.

the

interests

of

3. Monitor relations with shareholders and relevant stakeholders

by gathering and evaluation of appropriate information.


4. Promote

the goodwill and support of shareholders and


relevant stakeholders.

e) Other roles1. Selecting, compensating, monitoring and, when necessary, replacing


key executives and overseeing succession planning.
2. Aligning key executive and board remuneration with the longer term

interests of the company and its shareholders.


3. Ensuring a formal and transparent board nomination and election

process.
4. Monitoring

and managing potential conflicts of interest of


management, board Members and shareholders, including misuse of
corporate assets and abuse in related party transactions.

5. Overseeing the process of disclosure and communications.


6. Monitoring the effectiveness of the companys governance practices

and making changes as needed.

Where does the auditor


fit in?
The auditor does not have direct corporate governance

responsibility but rather provides a check on the information


aspects of the governance system.

Board of directors

Internal auditor

Audit committee

Management

External auditor

Auditors Role in
Corporate Governance
Corporate

governance
involves
accountability, and monitoring.

decision

making,

1. Decisions require relevant and reliable information.


2. Accountability

involves

measuring,

reporting,

and

transparency.
3. Monitoring involves systems and feedback.
.Auditors primary role is to check whether the financial

information given to investors is reliable.

Objective of an audit
To express an expert opinion on the fairness with which

financial statements present, in all material respects, a


companys financial position, results of operations, and cash
flows.
To be able to express such an opinion, the auditor must

examine the financial statements and supporting records


using sound auditing techniques.

Role of audit committee


Oversight of companies financial reporting process .
To

recommend statutory auditor to Board, their


appointment, re-appointment, substitution or elimination,
terms and amount of audit fees , approval for payment for
any other services rendered by statutory auditors.

To review quarterly and annual financial statement with the

management before put forwarded


sanction.

to the board for

Contd.
To review the statement of uses/ application of funds rose

through any issue and IPO proceedings.


To review performance of statutory and internal auditor and

the adequacy of internal control system and function.


Discussion with the internal auditor and any momentous

conclusion and follow up there on and review finding of any


internal investigations by internal auditors where fraud and
irregularity is suspected.

Relationship between the Board


and the Auditors
To meet its obligations to shareholders, the board must

ensure that it receives relevant and reliable information.


Auditor assists the board in achieving that goal.
There must be open and frank dialogue between the

auditors and the board.


Auditors must express, to the board, their view on the

appropriateness not just the acceptability of the


accounting principles used or proposed to be used, and on
the transparency and completeness of the disclosures.

Relationship between the Audit


Committee and the Auditors
An effective audit committee is a vital component of an

effective corporate governance system.


The Audit Committee and the Auditors need to maintain an

ongoing dialogue independent of management and the rest


of the board

Conclusion
The role of the Board in creating an environment where a

corporation can succeed is the key to future success of the business.


It is incumbent upon the board to ensure that timely, accurate and
complete reports on all relevant aspects of the organization are
issued to all stakeholders.
The role of audit committee and auditors in current scenario has

become very crucial. If a company has an active and strong audit


committee then independent auditors working will be supported.
Auditing committee and auditor should perform their role diligently
and ethically to secure interest of not only company and investors
but all stakeholders.
This is possible when independent directors will have their own

weight and right to ask questions to management, which in turn will


give strength to auditor to be ethical.

Thank you