Chapter3PPT4thedition.pptxInternal Auditing: Assurance & Advisory Services
4th edition
Internal Auditing: Assurance & Advisory Services, 4th Edition © 2017 by the Internal Audit Foundation.
Internal Auditing: Assurance & Advisory Services, 4th Edition © 2017 by the Internal Audit Foundation.
Governance
Chapter 3
Internal Auditing: Assurance & Advisory Services, 4th Edition © 2017 by the Internal Audit Foundation.
Internal Auditing: Assurance & Advisory Services, 4th Edition © 2017 by the Internal Audit Foundation.
Chapter 3: Governance
Learning objectives
Define governance and contrast the different roles and responsibilities within governance.
Articulate the different enterprisewide governance principles.
Describe the changes in regulations and how governance has evolved into its present state.
Describe the role of the internal audit function in the governance process.
Know where to find information about governance codes and regulations from countries around the world.
Internal Auditing: Assurance & Advisory Services, 4th Edition © 2017 by the Internal Audit Foundation.
Internal Auditing: Assurance & Advisory Services, 4th Edition © 2017 by the Internal Audit Foundation.
Chapter 3: Governance
Standards related to governance
Internal Auditing: Assurance & Advisory Services, 4th Edition © 2017 by the Internal Audit Foundation.
Internal Auditing: Assurance & Advisory Services, 4th Edition © 2017 by the Internal Audit Foundation.
Chapter 3: Governance
A governance structure provides direction to those executing the day-to-day activities of managing the risks inherent in an organization’s business model.
Governance structure
Internal Auditing: Assurance & Advisory Services, 4th Edition © 2017 by the Internal Audit Foundation.
Internal Auditing: Assurance & Advisory Services, 4th Edition © 2017 by the Internal Audit Foundation.
Chapter 3: Governance
Definition of corporate governance
Corporate governance involves a set of relationships between a company’s management, its board, its shareholders, and other stakeholders. Corporate governance also provides the structure through which the objectives of the company are set, and the means of attaining those objectives and monitoring performance are determined.1
1 Organization for Economic Co-operation and Development, About the Principles section to the G20/OECD Principles of Corporate Governance, Revised November 2015
Internal Auditing: Assurance & Advisory Services, 4th Edition © 2017 by the Internal Audit Foundation.
Internal Auditing: Assurance & Advisory Services, 4th Edition © 2017 by the Internal Audit Foundation.
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Chapter 3: Governance
Governance roles
Board of directors provides direction to management, empowers them to take action and oversees the results
Board of directors must identify key stakeholders and understand their needs
Day-to-day governance is executed by management, typically through risk management activities
Internal and external auditors provide the board and management with assurance regarding governance activities
Internal Auditing: Assurance & Advisory Services, 4th Edition © 2017 by the Internal Audit Foundation.
Internal Auditing: Assurance & Advisory Services, 4th Edition © 2017 by the Internal Audit Foundation.
Chapter 3: Governance
stakeholders
Direct Stakeholders
Directly involved in the operation of the business
Indirect Stakeholders
Not directly involved but affected by the outcomes of the business
Influencing Stakeholders
Influence aspects of the business and as a result the success of the organization
Internal Auditing: Assurance & Advisory Services, 4th Edition © 2017 by the Internal Audit Foundation.
Internal Auditing: Assurance & Advisory Services, 4th Edition © 2017 by the Internal Audit Foundation.
Chapter 3: Governance
Governance oversight
Internal Auditing: Assurance & Advisory Services, 4th Edition © 2017 by the Internal Audit Foundation.
Internal Auditing: Assurance & Advisory Services, 4th Edition © 2017 by the Internal Audit Foundation.
Chapter 3: Governance
Governance Responsibilities
Board establishes a governance committee (may be done through the audit committee)
Management must understand board expectations and identify and manage risks
Key steps for management
Establish a risk committee
Articulate reporting requirement
Re-evaluate process on a regular basis
Internal Auditing: Assurance & Advisory Services, 4th Edition © 2017 by the Internal Audit Foundation.
Internal Auditing: Assurance & Advisory Services, 4th Edition © 2017 by the Internal Audit Foundation.
Chapter 3: Governance
Governance Responsibilities
Risk Owners
Evaluate design adequacy and operating effectiveness of risk management activities
Assess and report on risk management capabilities
Assurance Activities
Provide independent and objective assurance regarding risk management design adequacy and operating effectiveness
Assess adequacy of risk reporting to management and the board
Internal Auditing: Assurance & Advisory Services, 4th Edition © 2017 by the Internal Audit Foundation.
Internal Auditing: Assurance & Advisory Services, 4th Edition © 2017 by the Internal Audit Foundation.
Chapter 3: Governance
Three Lines of Defense
1st line – Internal control activities
2nd line – Other assurance activities
3rd line – Internal audit
Internal Auditing: Assurance & Advisory Services, 4th Edition © 2017 by the Internal Audit Foundation.
Internal Auditing: Assurance & Advisory Services, 4th Edition © 2017 by the Internal Audit Foundation.
Chapter 3: Governance
Governance Evolution
Governance has evolved, primarily in response to key business events
Governance regulations typically try to restore confidence in the capital markets
Internal Auditing: Assurance & Advisory Services, 4th Edition © 2017 by the Internal Audit Foundation.
Internal Auditing: Assurance & Advisory Services, 4th Edition © 2017 by the Internal Audit Foundation.
Chapter 3: Governance
Internal audit opportunities
Internal Auditing: Assurance & Advisory Services, 4th Edition © 2017 by the Internal Audit Foundation.
Internal Auditing: Assurance & Advisory Services, 4th Edition © 2017 by the Internal Audit Foundation.
Chapter 3: Governance
summary
Governance involves a set of relationships
Board is key in setting direction and establishing boundaries
Management executes risk management activities
Risk owners carry out risk management in their day-to-day activities
Internal audit provides assurance
Internal Auditing: Assurance & Advisory Services, 4th Edition © 2017 by the Internal Audit Foundation.
Internal Auditing: Assurance & Advisory Services, 4th Edition © 2017 by the Internal Audit Foundation.
Internal Auditing: Assurance & Advisory Services, 4th Edition © 2017 by the Internal Audit Foundation.
Internal Auditing: Assurance & Advisory Services, 4th Edition © 2017 by the Internal Audit Foundation.
