In simple terms, corporate governance accrues to the technique by which companies are managed and directed. It implies carrying out business as per the interests of customers and stakeholders. Corporate governance is carried out by the board of governors and all concerned committees for the benefits of the stakeholders. It involves creating a balance between individual and community goals as well as social and economic objectives (Steger and Amann, 2008). Corporate governance ensures success and growth. It maintains confidence from investors’ whereby more capital is attained for the growth of a business (Kalbers, Fogarty and Timothy, 1998). Proper governance ensures business management in a manner that fits the concerns of all stakeholders. This is implemented in minimizing losses, wastages, risks, corruption and mismanagement cases.
Monitoring of such a board is critical in effective output of their duties. Such a board requires expertise in financial and accounting matters, proper advice in policies and practices and the formulation of strategies (Spira, 2002). Audit committees assure effective corporate governance. This contributes to effective control of the business both internal and external benefits. Quality governance contributes to the effectiveness of any audit committee. This is because the quality of work from the audit committee is highly dependent on the organization of the governance. The recommendations provided by the audit committee may be useless if compromised by inefficient corporate governance (Colley et al, 2005).
The establishment of audit committees in any organization is aimed at enhancing confidence in integrity of the business. This is in terms of procedures and processes that relate to business reporting in financial matters and internal control measures. The committee acts as an independent reassurance to the corporate board through their duties as overseers and monitors. Among many duties and responsibilities is the audit committee is entrusted by the corporate board in critical areas like financial disclosures, robustness of the procedures and processes and effective anti-fraud measures. The committee members should possess knowledge in financial and accounting controls in order to translate financial and accounting statements. This allows provision of sufficient, correct and credible statements that enhance strategy formulation by the corporate board (Verschoor and Curtis, 1993).
The committee ensures that the business applies compliance systems and strategies that limit non-performance. They oversee all the possible programs and policies that minimize risk in the organization. The key role of corporate governance is building firm systems and policies that minimize loopholes that may lead to loss or collapse in businesses. With the help of audit committees, the governance of a business is ensured. The audit committee researches and determines any weaknesses in the systems of a business that may lead to cases of fraud and lack of confidentiality (Akarak, Ussahawanitchakit and Phapruke, 2010). This ensures that the role of the corporate governance committee in ensuring control is implemented.
The concept of corporate governance relationship to auditing is no longer viewed as a fashion statement in the modern world of business. The concept has been embedded in business statutes, in many countries due to observed corporate failures and the increasing rates of dissatisfaction in their functioning. As a result, the concept of auditing was introduced to implement trust in these corporate (Solomon, 2011). Corporate governance policies are desirable in all business quarter these includes customers, stakeholders, business associates and the employees. The audit committee ensures that the systems and policies that the business operates on are to the benefit of all the stakeholders. This is in consideration of the economic status, inflation, pricing strategies and cutting down of the running costs. The committee ensures that proper laws that govern the operation and accountability of a business are adhered.
Corporate governance involves systems to which a company is controlled and directed towards growth (Kieff and Paredes, 2010). The audit committee serves as a key pivot for a company. The committee facilitates the corporate board in exceptional governance practices that promote the benefits of a company. The committee ensures proper ethics and business conducts under business law. This assists in maintaining discipline amongst all employees, the managers and top leadership. The strength of corporate governance is to oversee adherence to business and employee ethics (Tricker, 2012). The audit committee acts as the supervisor or monitors in ensuring this conduct. The audit committee advices on recruitment processes, improvement in performance, and advices on any misconduct that may compromise the growth of business.
The overall performance of a business depends on corporate measures attached to its policies. The adherence to stipulated laws assists in growth of the business and achieving trust from stakeholders. Including auditing in corporate governance assists in the whole process of business growth; the audit committee reviews the governance process and systems and advices on the best way forward (DeZoort, Salterio and Steven, 2001). The committee acts as a solution to any financial dispute that may arise and also corrects on any errors that may affect the running of a business. This implies that, in any successful organization, corporate governance works together with audit. Auditing allows a smooth flow and adherence in laws and ensures that every stakeholder plays the expected role in the business. The committee ensures that the interest of all the stakeholders are taken care of and this leads effective corporate governance.
Akarak, Ussahawanitchakit, P. & Phapruke. (2010). Audit Committee Effectiveness and Firm Credibility: An Empirical Investigation of Thai-Listed Firms. International Journal of Business Research, Vol. 10(2).
Colley Jr., J., Doyle, J., Logan, G. & Stettinius, W. (2005). What is Corporate Governance? McGraw-Hill: New York.
DeZoort, F., Salterio, T. & Steven, E. (2001). The Effects of Corporate Governance Experience and Financial-Reporting and Audit Knowledge on Audit Committee Members’ Judgment. Auditing: A Journal of Practice & Theory, Vol. 20(2).
Kalbers, Fogarty, L. & Timothy, J. (1998). Organizational and Economic Explanations of Audit Committee Oversight. Journal of Managerial Issues, Vol. 10 (2).
Kieff, F. & Paredes, T. (2010). Perspectives on Corporate Governance. Cambridge University Press: Singapore.
Solomon, J. (2011). Corporate Governance and Accountability. John Wiley & Sons: Hoboken, New Jersey.
Spira, L. (2002). The Audit Committee: Performing Corporate Governance. Springer: New York.
Steger, U. & Amann, W. (2008). Corporate Governance: How to Add Value. John Wiley & Sons: New Jersey.
Tricker, B. (2012). Corporate Governance: Principles, Policies and Practices. Oxford University Press: Canada.
Verschoor & Curtis, C. (1993). Benchmarking the Audit Committee. Journal of Accountancy, Vol. 176(3).