Accounting Information Systems: The Processes and Controls, 2nd Edition

AN OVERVIEW OF CORPORATE GOVERNANCE (STUDY OBJECTIVE 1)

Corporate governance is a concept that has recently received increased attention and is evolving. The purpose of corporate governance is to encourage the efficient use of resources and to require accountability for those resources. The aim is to balance the interests of individuals, corporations, and the community. Individuals such as shareholders desire high return on their investment, while the community desires responsible corporate behavior that benefits the community. At the same time, the corporation and those within it desire long-term preservation of the corporation. Often, the needs of these various groups conflict with each other. Good corporate governance properly balances the needs and desires of these groups.

Corporate governance is generally recognized as involving many diverse aspects of business. Thus, a different definition of corporate governance exists to cover each different aspect of interest. For instance, when economists define corporate governance, they recognize factors affecting the supply and demand of corporate leaders and tend to emphasize the importance of motivating leaders through the use of incentive programs. On the other hand, financiers tend to emphasize the role of corporate leaders to provide a good rate of return, while accountants focus on the responsibility of corporate leaders to provide effective internal controls, accurate records, and required disclosures. If forced to provide a ...