Question

Explain Internal Controls and Corporate Governance.

Answer 1

Internal Control is generally defined as " the process designed , implemented and maintained by those charged with governance ,management to provide reasonable assurance with regard to the financial reporting ,effectiveness and efficiency of operations ,protection of assets and compliance with prevalent laws and regulations.

Objectives of Internal Control :

(i) To ensure that the financial transactions are preformed within the general or specific authorisation limits set by the management of the company

(ii) The accounting transactions are properly recorded with regards to correct amounts, as per applicable financial reporting framework, in the right accounting period and per accounting policies and principles

(iii) Assets are safeguarded against unauthorised use, disposition and physically protected against damage

Corporate Governance :

Corporate governance is defined as " the system by which an enterprise is directed and controlled to achieve the objective of increasing the shareholders value by enhancing economic performance." Corporate governance typically involves relationship among the board of directors, controlling shareholders and other stakeholders of the company. Issues that corporate governance ideally deals with issues which include roles of the CEO and board of directors, controls assurance and risk management. Corporate governance is a key aspect to enhance shareholders value, drive the enterprise to do best business and achieve the company's objectives. Corporate governance also serves as an mechanism to oversee the company's performance in financial and operational terms. The Sarbanes Oxley Act 2002 provides various sections and clauses for an effective working of the Corporate Governance in US companies.