REVIEW OF

GOVERNANCE
CONCEPTS, INTERNAL
CONTROL, AND CODE
OF PROFESSIONAL
ETHICS
LESSON 1
Overview
Corporate governance is the collection of mechanisms, processes and relations used by
various parties to control and to operate a corporation. Governance structures and principles
identify the distribution of rights and responsibilities among different participants in the
corporation and include the rules and procedures for making decisions in corporate affairs.
Internal control, as defined by accounting and auditing, is a process for assuring of an
organization's objectives in operational effectiveness and efficiency, reliable financial
reporting, and compliance with laws, regulations and policies.
A code of ethics is a guide of principles designed to help professionals conduct business
honestly and with integrity.
Lesson Objectives:
After successful completion of this lesson, you should be able to:
1. Define and explain the meaning of and purpose of corporate
governance;
2. Recognize various stakeholders in an organization;
3. Recall the important practices laid down in the IIA’s Code of
Professional Ethics
I. Governance in the Philippine setting
Corporate governance means to steer an organization. Governance comes
from the Latin word “gubanare” which means “to steer.” It is the system
by which businesses are directed and controlled. It is the system of
stewardship and control to guide organizations in fulfilling their long-term
economic, moral, legal and social obligations towards their stakeholders.
Corporate governance is a system of direction, feedback and control using
regulations, performance standards and ethical guidelines to hold the
Board and senior management accountable for ensuring ethical behavior –
reconciling long-term customer satisfaction with shareholder value – to the
benefit of all stakeholders and society.
 G20/OECD Principles
of Corporate Governance
The G20/OECD Principles of Corporate Governance help policy
makers evaluate and improve the legal, regulatory and institutional
framework for corporate governance. They identify the key building
blocks for a sound corporate governance framework and offer
practical guidance for implementation at the national level. The
Principles also provide guidance for stock exchanges, investors,
corporations and others that have a role in developing good corporate
governance.
The six Principles of Corporate Governance recently
adopted by the Group of 20 (G20) and (Organization for
Economic Cooperation and Development) OECD:

1. basis for an effective corporate governance framework;

2. the rights and equitable treatment of shareholders;
3. Institutional investors, stock markets, and other intermediaries;
4. disclosure and transparency;
5. responsibilities of the Board;
6. Sustainability and resilience
 Basis for an Effective Corporate
Governance Framework
The corporate governance framework should
promote transparent and fair markets, and the
efficient allocation of resources. It should be
consistent with the rule of law and support
effective supervision and enforcement.
The Rights and Equitable Treatment
of Shareholders
The corporate governance framework should protect and
facilitate the exercise of shareholders’ rights and ensure the
equitable treatment of all shareholders, including minority and
foreign shareholders.
All shareholders should have the opportunity to obtain
effective redress for violation of their rights at a reasonable
cost and without excessive delay.
Institutional investors, Stock markets,
and other intermediaries
The corporate governance framework should
provide sound incentives throughout the
investment chain and provide for stock markets to
function in a way that contributes to good
corporate governance.
 Disclosure and Transparency
The corporate governance framework should
ensure that timely and accurate disclosure is made
on all material matters regarding the corporation,
including the financial situation, performance,
sustainability, ownership, and governance of the
company.
The Responsibilities of the Board
The corporate governance framework should
ensure the strategic guidance of the company, the
effective monitoring of management by the board,
and the board’s accountability to the company
and the shareholders.
 Sustainability and Resilience
The corporate governance framework should
provide incentives for companies and their
investors to make decisions and manage their
risks, in a way that contributes to the
sustainability and resilience of the corporation.
II. The role of the Board of Directors/
Trustees in an Organization
The Board of Directors is the governing body elected by the
stockholders that exercises the corporate powers of a
corporation, conducts all its business and controls its properties.
The company should be headed by a competent, working board
to foster the long-term success of the corporation, and to sustain
its competitiveness and profitability in a manner consistent with
its corporate objectives and the long-term best interests of its
shareholders and other stakeholders.
The Board’s governance responsibilities include:

1. The company should be headed by a competent, working board to foster the

long-term success of the corporation, and to sustain its competitiveness and
profitability in a manner consistent with its corporate objectives and the long-
term best interests of its shareholders and other stakeholders.
2. The fiduciary roles, responsibilities and accountabilities of the Board as
provided under the law, the company’s articles and by-laws, and other legal
pronouncements and guidelines should be clearly made known to all directors as
well as to stockholders and other stakeholders.
The Board’s governance responsibilities include:

3. Board committees should be set up to the extent possible to support the effective
performance of the Board’s functions, particularly with respect to audit, risk
management, related party transactions, and other key corporate governance concerns,
such as nomination and remuneration. The composition, functions and responsibilities
of all committees established should be contained in a publicly available Committee
Charter.
4. To show full commitment to the company, the directors should devote the time and
attention necessary to properly and effectively perform their duties and responsibilities,
including sufficient time to be familiar with the corporation’s business.
The Board’s governance responsibilities include:

5. The Board should endeavor to exercise objective and independent judgment

on all corporate affairs.
6. The best measure of the Board’s effectiveness is through an assessment
process. The Board should regularly carry out evaluations to appraise its
performance as a body, and assess whether it possesses the right mix of
backgrounds and competencies.
7. Members of the Board are duty-bound to apply high ethical standards, taking
into account the interests of all stakeholders.
II. The role of the Board of Directors/
Trustees in Internal Control
Internal control is a process designed and effected by
the board of directors, senior management, and all
levels of personnel to provide reasonable assurance on
the achievement of objectives through efficient and
effective operations; reliable, complete and timely
financial and management information; and compliance
with applicable laws, regulations, and the organization’s
policies and procedures.
The Board has the primary duty to make sure that the internal controls are in place
to ensure the company’s compliance with the Code of Business Conduct and
Ethics and its internal policies and procedures. Hence, it needs to ensure the
implementation of said internal controls to support, promote and guarantee
compliance. This includes efficient communication channels, which aid and
encourage employees, customers, suppliers and creditors to raise concerns on
potential unethical/unlawful behavior without fear of retribution. A company’s
ethics policy can be made effective and inculcated in the company culture through
a communication and awareness campaign, continuous training to reinforce the
code, strict monitoring and implementation and setting in place proper avenues
where issues may be raised and addressed without fear of retribution.
IV. Code of Professional
Ethics
IV. Code of Professional Ethics
The Code of Ethics states the principles and
expectations governing the behavior of individuals
and organizations in the conduct of internal auditing.
It describes the minimum requirements for conduct,
and behavioral expectations rather than specific
activities.
Internal auditors are expected to apply
and uphold the following principles:
1. Integrity. The integrity of internal auditors establishes trust and thus provides the basis for reliance on
their judgment.

2. Objectivity. Internal auditors exhibit the highest level of professional objectivity in gathering, evaluating,
and communicating information about the activity or process being examined. Internal auditors make a
balanced assessment of all the relevant circumstances and are not unduly influenced by their own interests
or by others in forming judgments.

3. Confidentiality. Internal auditors respect the value and ownership of information they receive and do not
disclose information without appropriate authority unless there is a legal or professional obligation to do so.

4. Competency. Internal auditors apply the knowledge, skills, and experience needed in the performance of
internal audit services.
Activity #1:
1. Select a publicly listed company. Based on their annual report: a. describe
their corporate governance structure and policies; b. identify the stakeholders
and describe their impact to the operations; c. identify the risks and provide
recommendations.
2. Discuss the meaning of corporate governance.
3. Enumerate the stakeholders in an organization.
4. What are the important practices laid down in the IIA’s Code of
Professional Ethics?