(a) What is meant by corporate governance
Corporate governance refers to the system of rules, policies, and practices by which a company is directed and controlled. It involves balancing the interests of stakeholders, such as shareholders, management, customers, and the community, to ensure accountability, transparency, and ethical behavior. It encompasses mechanisms to monitor performance, manage risks, and comply with legal and regulatory requirements, promoting sustainable business practices.

(b) How the following fit into the workings of corporate governance

(i) The directors
Directors are responsible for setting the company’s strategic direction, overseeing management, and ensuring accountability to shareholders. They establish policies, approve major decisions, and monitor performance to align with corporate objectives. The board, including independent non-executive directors, ensures ethical conduct, risk management, and compliance with governance codes, safeguarding stakeholder interests.

(ii) The external auditor
The external auditor provides independent assurance on the truth and fairness of the company’s financial statements. By conducting audits in accordance with standards (e.g., ISAs), they enhance the reliability of financial reporting, which is critical for stakeholder trust. They report to shareholders and the audit committee, highlighting any material misstatements or control weaknesses, supporting transparency.

(iii) The internal auditor
The internal auditor evaluates and improves the effectiveness of the company’s risk management, internal controls, and governance processes. Reporting to the audit committee, they provide independent, objective assessments of operations, identifying weaknesses and recommending improvements. Their work supports the board’s oversight and ensures operational efficiency and compliance.

(iv) The audit committee
The audit committee, typically composed of independent non-executive directors, oversees financial reporting, internal controls, and audit processes. It appoints and monitors the external auditor, reviews audit findings, and ensures the integrity of financial statements. It also oversees the internal audit function and risk management, acting as a key governance mechanism to protect shareholder interests.