An appropriate extension to this word would be the interests of shareholders and how those stakeholders would be in relation to the company. Corporate governance is the system by which companies are directed and controlled
So, what is the sole purpose of corporate governance?
In short, the purpose of corporate governance is to monitor parties within a company who control the liabilities, resources, and assets belonging to the owners.
The primary objective of corporate governance is to contribute to enhance & improve corporate performance and accountability in creating long term shareholder value.
Look at it like this – if the stock market mechanism is to move forward and succeed, then there needs to be a system that ensures publicly owned companies are operated in the interests of the shareholders and that provides equal and adequate accountability of the people managing those companies.
The basic elements of sound corporate governance include:
- fair financial reporting
- oversight of management by nonexecutive directors
- effective systems of internal control
- constructive relationships with shareholders.
- effective management
- fair appraisal of director performance
- fair remuneration of directors
In order for the stakeholders to be accountable for the business, the company’s directors are in charge of preparing and curating the various needed documents and reports. One of the most important reports is the financial statements. These provide a brief summary of the financial performance and position of the business. This information is crucial for the shareholders in particular, who need to be able to assess the success of the business during the financial period and the effect this has had on their own personal wealth.
Due to the increasingly global nature of investment and business operation there has been a move towards the ‘internationalisation’ of financial reporting. This ‘harmonisation’ was considered necessary to provide consistent and comparable information to an increasingly global audience.
If companies use different methods of accounting then before any decisions can be made about different entities the accounts would have to be re written so that the accounting concepts and principles applied are the same; only then relevant comparisons are made.