ETHICS IN CORPORATE GOVERNANCE DAVID HALL PRESIDENT IIA JAMAICA SEPTEMBER 30, 2013
AGENDA • Definition of Corporate Governance • Cornerstone of Corporate Governance - Roles and responsibilities of the board - Roles and responsibilities of the Audit Committee - Roles and responsibilities of Executive Management - Roles and responsibilities of the External Auditors - Roles and responsibilities of Internal Auditors • Definition of Ethics • Why should the Board lead in Ethics • Role of the Board specific to Ethics • Auditors responsibilities as it relates to Ethics
AGENDA • Questions for the Board • Questions for management • Audit Checklist
DEFINITION OF CORPORATE GOVERNANCE The combination of processes and structures implemented by the board to inform, direct, manage, and monitor the activities of the Organization towards the achievement of its objectives.
CORNERSTONES OF CORPORATE GOVERNANCE
ROLES AND RESPONSIBILITIES OF THE BOARD • Set strategic values, ethics and direction • Ensure sufficient human and financial resources • Appoint CEO • Set compensation levels and framework • Approve operating, fraud and risk management policies • Review management compliance to policies • Monitor the performance of the company • Public communication and disclosure
The board is responsible for determining, articulating and communicating the values and standards of the business, and for ensuring that the policies, procedures and controls in place act to embed, rather than hinder, ethical values throughout the business. Boards should demonstrate that they are committed to ethical standards and their application by the way they govern and conduct themselves. Members of boards should have personal integrity, as well as being champions of the company’s values.
The continual expression, communication and demonstration of ethical values and practice are essential if a board wishes its organisation to operate in line with its core values, and to enjoy the benefits which doing business ethically can bring. At every opportunity, all directors should be encouraged to communicate the values and the importance of their application to the company. Communication is not just about words: “walking the talk” is important too .
The link has yet to be unequivocally made in corporate governance discourse that what is ethical is very often good for business, or at least that what is unethical generally impacts negatively on business. But for a company to be truly ethical, board members must also ensure that the board itself is governed with ethics in its mindset and at its heart
But new research from the Institute for Business Ethics – A Review of the Ethical Aspects of Corporate Governance Regulation and Guidance in the EU – has found that explicit reference to ethical principles and terminology has generally been absent from corporate governance guidance and regulation both at the EU level and within most member states
ROLES AND RESPONSIBILITIES OF THE AUDIT COMMITTEE The Audit Committee is a sub-committee of the Board The Audit Committee exists to assist the board To maintain the organization‟s overall integrity, financial credibility and long term viability.
ROLE AND RESPONSIBILITIES OF EXECUTIVE MANAGEMENT The Executive Management Team prepares and guides the development of the company‟s processes and business operations and the company‟s common functions. The Executive Management Team handles, in particular, the company's strategy, budget, major procurements and projects, the company‟s structure and organization as well as major policies of administration and the HR policy issues. Implement the Ethics program The Executive Management Team consists of the company's CEO/General Manager/Executive Director and senior management in charge of the functions of the company.
ROLES AND RESPONSIBILITIES OF EXTERNAL AUDITORS The external auditor's responsibility is to provide assurance to the general public regarding the truth and fairness of the information presented in the audit client's financial statements. Since the public relies heavily upon an audit opinion published by a public accounting firm to make investment decisions, it is imperative that they view accounting firms as being independent, objective and free from the influence of the audit client or any other parties.
INTERNAL AUDITING: AN OVERVIEW
THE IIA’S DEFINITION OF INTERNAL AUDITING Internal auditing is an independent, objective assurance and consulting activity designed to add value and improve an organization‟s operations.
THE IIA’S DEFINITION OF INTERNAL AUDITING It helps an organization accomplish its objectives by bringing : a systematic, disciplined approach to evaluate and improve the effectiveness of risk management, control, and governance processes.
TWO GOVERNING BODIES Information Systems Audit & Control Association (ISACA) Institute of Internal Auditors (IIA)
INFORMATION TECHNOLOGY GOVERNANCE • IT governance has been defined by the Information Systems Audit & Control Association ( ISACA ) as: • …the responsibility of executives and the board of directors. It consists of the leadership, organizational structures and processes that ensure that the enterprise’s IT sustains and extends the organisation’s strategies and objectives.
IT Governance : (i) Primarily determines how IT decisions are made, (ii) Who makes the decisions, (iii) Who is held accountable, and (iv) How the results of decisions are measured and monitored
ROLE AND RESPONSIBILITIES OF INTERNAL AUDIT The Institute of Internal Auditors (IIA) International Professional Practices Framework (or known as the „Red Book‟) in its Standards states the following: Standard 2130: Role of the Internal Audit Activity and Internal Auditor in the Ethical Culture of an Organization The internal audit activity should assess and make appropriate recommendations for improving the governance process.
ROLE AND RESPONSIBILITIES OF INTERNAL AUDIT Internal auditors and the internal audit function should take an active role in support of the organization‟s ethical culture. Internal auditors possess a high level of trust and integrity within the organization They have the competence and capacity to appeal to the enterprise‟s leaders, managers, and other employees to comply with the legal, ethical, and societal responsibilities of the organization
DEFINITION OF ETHICS Code of 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
DEFINITION OF ETHICS The Professional Practices Framework
1. Integrity Internal auditors: 1.1. Shall perform their work with honesty, diligence, and responsibility. 1.2. Shall observe the law and make disclosures expected by the law and the profession. 1.3. Shall not knowingly be a party to any illegal activity, or engage in acts that are discreditable to the profession of internal auditing or to the organization. 1.4. Shall respect and contribute to the legitimate and ethical objectives of the organization.
Objectivity Internal auditors 2.1. Shall not participate in any activity or relationship that may impair or be presumed to impair their unbiased assessment. This participation includes those activities or relationships that may be in conflict with the interests of the organization. 2.2. Shall not accept anything that may impair or be presumed to impair their professional judgment. 2.3. Shall disclose all material facts known to them that, if not disclosed, may distort the reporting of activities under review
Confidentiality Internal auditors: 3.1. Shall be prudent in the use and protection of information acquired in the course of their duties. 3.2. Shall not use information for any personal gain or in any manner that would be contrary to the law or detrimental to the legitimate and ethical objectives of the organization.
Competence 4.1. Shall engage only in those services for which they have the necessary knowledge, skills, and experience. 4.2. Shall perform internal audit services in accordance with the International Standards for the Professional Practice of Internal Auditing (Standards) . 4.3. Shall continually improve their proficiency and the effectiveness and quality of their services
Why Companies must set an appropriate tone at the top There was a time when a code of ethics was seen as a “nice to have” rather than a “must have,” that time is past. In today‟s complex business environment, companies must commit to building a culture of ethics and compliance – or risk censure from the market.
“Good corporate governance is predicated on the behaviour and ethics of every staff member,” asserts Jim Goodfellow, vice-chair and senior partner in charge of Deloitte‟s Corporate Governance practice. “While a code of ethics isn‟t mandated, several rulings recognize the necessity of fostering a culture of integrity by requiring that every public company disclose whether it has developed a code of ethics for its principal executives and senior financial officers.”
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