Corporate Governance

1. Corporate Governance

2.1. Introduction to Corporate Governance

Cadbury (1992) defined corporate governance in which companies are being controlled and directed by the board of directors. The role of shareholders in governance is to choose the auditors and directors and to fulfill themselves that proper governance structures have been set up. The duty of the board comprises of setting up the company’s tactical aims, providing the governance to put them into effect, monitoring the corporate management and reporting to the shareholders on their stewardship. The actions taken by the boards are exposed to laws, rules and regulations and the shareholders in the meeting. Within the overall structure, the detailed financial features of corporate governance are based on financial rules that the boards have set and how the boards implement the rules, including the use of financial restrictions and the process of reporting to the shareholders about the activities and progress that were carried out in the organization.

The job function of auditors is to present the shareholders with an outward and unbiased check on the directors’ financial statement which shape the foundation of the reporting system. Although the report of the directors are mainly delivered to only the shareholders, they are also important to a large range of audiences, including the employees whose interest boards have a legislative obligation to be taken into account. The main objective of the audit committee is to help lift up the standards of the corporate governance and the confidence level in financial reporting and auditing by stating out distinctly what is the respective job functions of those who are involved and what is anticipated from them.

2.2. The importance of Corporate Governance

The importance of corporate governance to financing, valuation and performance are recognized in quite a few countries. Improved corporate governance will have a higher return on equity...