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

THE HISTORY OF CORPORATE GOVERNANCE (STUDY OBJECTIVE 4)

Corporate governance has changed over the years as the focus of the business world has changed. In addition, since compliance is such an important function within the corporate governance process, changes in legislation have had a big impact on corporate governance. The pace of change has been fast in recent years, especially since the turn of the century. This section presents a chronology of significant developments that have influenced corporate governance.

The origin of the corporate governance concept in the United States coincides with the establishment of the SEC and enactment of the securities laws, in response to pressure from investors following the stock market crash of 1929 and the Great Depression of the 1930s. Investors wanted greater protection against misleading accounting and reporting practices. The Securities Act of 1933 requires full disclosure of financial information through the filing of registration statements before securities can be sold in the financial markets. The Securities Exchange Act of 1934 requires ongoing disclosures for registered companies, as well as regulation of stock exchanges, brokers, and dealers.

In the subsequent decades, as companies were rebuilding and recovering from the Great Depression, more emphasis was placed on the accounting function. Until the 1970s, sharp focus was on materiality, as companies and their auditors concentrated on the transactions and accounts that were ...