Corporate Governance Matters: A Closer Look at Organizational Choices and Their Consequences

10. Financial Reporting and External Audit

In this chapter, we examine the process by which the board of directors assesses the integrity of published financial statements. As discussed in previous chapters, the accuracy of financial reporting is important for several reasons. First, this information is critical for the general efficiency of capital markets and the proper valuation of a company’s publicly traded securities. Second, an informed evaluation of a company’s strategy, business model, and risk level depends on the accurate reporting of financial and operating measures. This is true for both internally and externally reported data. Third, the board of directors awards performance-based compensation to management based on the achievement ...