64 Accounting: Business Reporting for Decision Making
Over the past decade, major corporate collapses, the global financial crisis, and environmental and
social concerns have focused a spotlight on the governance of business entities. Investors, governments
and other stakeholder groups are all looking for greater transparency and accountability in regard to the
management of an entity’s assets by boards of directors. This has led to a review of corporate gover-
nance laws, guidelines and practices, in an attempt to promote good governance and improve the quality
of financial reporting and decision making.
2.4 Corporate governance principles, guidelines
and practices
LEARNING OBJECTIVE 2.4 Outline corporate governance guidelines and practices.
There are a number of guidelines for directors outlining good corporate governance principles and
practices. Generally, these guidelines cover such items as the functions and structure of the board of
directors; the conduct of directors; the role of shareholders; the compensation of senior officers and direc-
tors; the roles of company accountants, auditors and audit committees; and customer and supplier
relations. The G20/OECD Principles of corporate governance was reissued in September 2015. Like-
wise, the ASX Corporate Governance Council reviewed and reissued Corporate governance principles
and recommendations, 3rd edition, in 2014. This document (available at http://www.asx.com.au)) outlines the
eight principles underlying the best practice guidelines. The principles are summarised in figure 2.4.
A company should:- Lay solid foundations for management and oversight. Establish and disclose the respective roles and
responsibilities of board and management and how their performance is monitored and evaluated. - Structure the board to add value. Have a board of an effective composition, size and commitment to
adequately discharge its responsibilities and duties. - Act ethically and responsibly.
- Safeguard integrity in corporate reporting. Have formal and rigorous processes that independently
verify and safeguard the integrity of its corporate reporting. - Make timely and balanced disclosure. Make timely and balanced disclosure of all matters concerning
it that a reasonable person would expect to have a material effect on the price or value of its
securities. - Respect the rights of shareholders. Respect the rights of its security holders by providing them with
appropriate information and facilities to allow them to exercise those rights effectively. - Recognise and manage risk. Establish a sound risk management framework and periodically review
the effectiveness of that framework. - Remunerate fairly and responsibly. Pay director remuneration sufficient to attract and retain high
quality directors and design its executive remuneration to attract, retain and to align their interest with
the creation of value for security holders.
FIGURE 2.4 ASXCGC Corporate governance principlesSource: ASX Corporate Governance Council 2014, Corporate governance principles and recommendations 3rd edition,
ASX Corporate Governance Council, Sydney, http://www.asx.com.au.
The code of ethics for accountants presented later in this chapter has similar themes to that of the ASX
guidelines for corporations presented above. Both require consideration of the public interest, both list the
minimum standards expected (technical and professional standards for individuals, and best practice stan-
dards for corporations), and both stipulate a need for transparency and accountability. Important personal
attributes for managers and directors referred to in the guidelines, and for accountants in the professional
code of ethics, include competence, integrity and objectivity. Related to these attributes is independence.
Independence is an important element in the provision of professional accounting services. It contributes
enormously to the trust the public has in accountants and is included in the code of professional ethics. It