Governance - refers to a process whereby

elements in society wield power, authority, Relationship between Shareholders and

Corporate Governance – is the system of Executive Order No. 220, June 23, 2003 –
rules, practices, and processes by which a Code of Good Governance by Gloria
company is directed and controlled. Macapagal Arroyo.
- aims to provide transparency and full
disclosure to stakeholders, increase both the Business Ethics – come from the Greek
accountability and wealth of shareholders word “ethos” meaning character, refers to
while ensuring their equitable treatment and credibility. (Character does not change in any
fair self-evaluation. given situation. Personality changes
It identifies: depending on the person you are interacting
 Who has power? with.) (According to Aristotle “One must
 Who is accountable? appear both knowledgeable about one’s
 Who makes decisions? subject and benevolent.” or a good leader
Is characterized by: should be knowledgeable and benevolent.)
1. Participation - concerned with the understanding right
2. Rule of Law and wrong and how conduct should be
3. Transparency judged as good or bad.
4. Responsiveness - set of moral principles or values that
5. Consensus oriented govern actions and decisions of an
6. Accountability individual or group.
7. Effectiveness & Efficiency Characteristics and Values associated
8. Equity & Inclusiveness with Ethical Behavior
1. Integrity - it has something to do with
Basic Principles of Corporate Governance your values and morals that you stick
to your values and morals even if you
are put in tough situations.
2. Honesty - According to Warren Buffett,
honesty is a very expensive gift, and
you should not expect it from someone
Transparency and Full Disclosure – is the cheap.
board telling us what is going on? 3. Trustworthiness & Promise – keeping
Accountability – is the board taking – “Palabra de Honor” or “Word of
responsibility? Honor” means to always keep your
Good and Effective Governance promises to build trust over time and
Corporate Control – is the board doing the build credibility in your words.
right thing? 4. Loyalty, Fidelity, & Confidentiality –
Loyalty has something to do with
Shareholders vs Stakeholders association or affinity with someone or
Shareholders – have a vested interest in the a group of people. Fidelity has
success of the organization or project. something to do with your duty as
Stakeholders – are partial owners of the someone in a relationship.
organization or project and are focused on Confidentiality is keeping important
ROI. things confidential.
 5. Fairness and Openness – Openness  Respect for the rights of others
has something to do with transparency.  Concern for the rights of others
Organization should be transparent in  Concern for the well-being or
terms of their operations to see if they welfare of others
are being fair to customers,  Benevolence, trustworthiness,
employees, share/stakeholders. and honesty
6. Caring for others – good leader is  Compliance with the law
characterized by caring for others. 2. Professional Ethics
7. Respect for others – Respect should  Integrity, impartiality, objectivity
be given by default (depends on the  Professional competence
action of a person, if they gain more or  Confidentiality
lose the respect)  Professional behavior
8. Responsible citizenship – as a citizen,  Avoidance of potential or
we should follow rules and regulations. apparent conflicts of interest
9. Pursuit of Excellence – excellence as 3. Business Ethics
accountant is continuing challenging  Fair competition
yourself.  Global as well as domestic
10. Accountability – BOD should be justice
accountable for their decision;  Social Responsibility
employees should be accountable for
their own actions. Code of Ethics for Professional
Accountants – prepared by the International
What happens when there is NO Ethics? Ethics Standards Board for Accountants
There will be chaos & sues, for their will be (IESBA), an independent standard-setting
no guide in the society. body within the International Federation of
Accountants (IFAC). The IESBA develops and
Why is Ethical Behavior necessary? issues in the public interest high-quality ethics
1. Necessary for society to function in an standards and other pronouncements for
orderly fashion professional accountants for use around the
2. Glue that holds a society together world. It encourages member bodies to adopt
3. It promotes trust and confidence of high standards of ethics for their members
employees, investors, and and promotes good ethical practices globally.
shareholders as well as the general
public. 1. General Application
 Integrity
Why do people act Unethically?  Objectivity
1. The person’s ethical standards are  Professional Competence and
different from those of society as a Due Care
whole.  Confidentiality
2. The person chooses to act  Professional Behavior
selfishly/greedily.
2. In Public Practice
How unethical behavior spread  Professional Appointment
Ethical fading – wherein we try to rationalize  Conflicts of Interest
our unethical behavior. We distance  Second Opinions
ourselves from ethical behavior by using  Fees and other type of
tactical terms. Remuneration
 Marketing Professional Services
Categories of Ethical Principles  Gifts and Hospitality
1. Personal Ethics  Custody of Client Assets
 Basic justice and fairness  Objectivity – All Services
  Independence – Audit and conditions. (We have commonly
Review Engagement no control over them)
 Independence – Other  Internal Risk – exposure that
Assurance Engagements derive from decision-making and
the use of internal and external
3. In Private Practice resources, including the firm's
 Potential Conflicts operations and its objectives.
 Preparation and Reporting of 3. Measure Risk
Information 4. Evaluate and Rank the Risk
 Acting with Sufficient Expertise 5. Mitigate the Risk
 Financial Interests 6. Monitor and Review the Risk
 Inducements
Elements of Risk Management
Ethical Dilemma - Process
Ethical Scandal - Integration
- Culture
Risk Management – focus on the negative - Infrastructure
weaknesses and threats rather than the
strengths and opportunities of the Type of Risk
organization. (Weaknesses are risk within our - Financial Risk – has something to do
organization and threats are found outside of with the profitability and financials of
the organization). business.
- Deals with the prevention and contingency - Non-Financial Risk – nothing to do
plan of the organization when dealing on with financials of business, can be
events that may and can affect the environmental risk, reputational risk,
organization. etc., but they still have indirect effects
in the financial performance of the
Risk – it is the probability that some future organization.
event could adversely impact the - Business Risk – all businesses carry
organization. some types of risks.
- is measured in terms of probability - Liquidity Risk – organization’s
(likelihood that the event will happen) and inability to pay its maturing obligations.
impact (magnitude or gravity of the effect of - Default Risk - organization’s inability
the event in the organization). to pay its liabilities.
- is exposure of the organization and its - Interest Rate Risk – an external risk
particular assets to the possibility of loss, - Management Risk – internal risk that
injury or other adverse (negative) event. This came from the management.
is inherent in every business. - Purchasing Power Risk - external
- Entrepreneurs (all individuals trying to gain risk, domestic currency’s performance
something) need to be willing to take risks, as versus the US dollar.
without there can be no meaningful gain.
Risk Treatments – used to mitigate the risks.
Process of Risk Management
1. Identify the Risk
2. Find the Source of Risk
 External Risk – exposure that
result from environmental
conditions that the firm
commonly cannot influence,
such as the regulatory
environment and market
 management of risks pertaining to the
preparation of financial statements. It
arises from:
 Changes in operating
environment
 New Personnel
 New or revamped information
system
 Rapid Growth
 New Technology
 New Business models, products
SEC Requirement Relative to Enterprise or activities
Risk Management for Publicly-Listed  Corporate restructuring
Companies – Code of Good Governance.  Expanded Foreign Operations
 New Accounting
Internal Control – It is a process designed Pronouncements
and affected by Those Charged with
Governance (TCWG) management and other  Control Activities - Are the policies
personnel to provide reasonable assurance and procedures that help ensure that
about the achievement of the entity's management directives are carried
objectives. out. Major Categories of Control
Procedures
ENTITY’S OBJECTIVES  Performance Review
1. Reliability of Financial Reporting  Information Processing Controls
2. Effectiveness & Efficiency of Operations  Physical Controls
3. Compliance with Laws and Regulations
 Information System - Consists of
Components of Internal Control System infrastructure (physical and hardware
CRIME from COSO (Committee of components), software, people,
Sponsoring Organizations) Framework procedures, and data. Information
systems encompasses methods and
 The Control Environment - Overall records that:
attitude, awareness and actions of 1. Identify and record all valid
directors and management regarding transactions.
the Internal Control System. Includes: 2. Describe on a timely basis the
1. Communication and transactions in sufficient detail to
Enforcement of integrity and permit proper classification of
ethical values. transactions for financial reporting.
2. Commitment to competence 3. Measure the value of transactions
3. Participation by Those Charged in a manner that permits recording
With Governance (TCWG) their proper monetary value in the
4. Management’s Philosophy and financial statements.
Operating Style 4. Determine the time period in which
5. Organizational Structure trend transactions occur to permit
6. Assignment of Authority & recording of transactions in the
Responsibilities proper accounting period.
7. Human Resources Policies and 5. Present properly the transactions
Procedures and related disclosures in the
financial statements.
 Entity’s Risk Assessment Process –
is the identification, analysis, and
 Monitoring Controls – a process that
an entity uses to assess the quality of
internal control overtime. Includes:
 Evaluating the design and
operation of internal control
 Communicating information about
strength and weaknesses
 Recommendation of actions to
improve internal control.