adminis “the system by which companies are directed and controlled” (Cadbury Committee, 1992).
More specifically it is the framework by which the various stakeholder interests are balanced, or, as the IFC states, “the relationships among the management, board of directors, controlling shareholders, minority shareholders and other stakeholders”.
Therefore any satisfactory definition, to be applicable to a modern, global company, must synthesise best practice from the biggest economic powers into something which can be applied across all major countries.
In essence, we believe that good corporate governance consists of a system of structuring, operating and controlling a company such to achieve the following:
A culture based on a foundation of sound business ethics fulfiling the long-term strategic goal of the owners while taking into account the expectations of all the key stakeholders, and in particular: consider and care for the interests of employees, past, present and future work to maintain excellent relations with both customers and suppliers take account of the needs of the environment and the local community maintaining proper compliance with all the applicable legal and regulatory requirements under which the company is carrying out its activities.
Good corporate governance in the listed market segment is expected and external audit is considered to be an important part of corporate governance.
Good corporate governance in SMEs is equally important for sound decision-making.
Good decision-making in the SME sector will promote successful businesses and contribute to solid economic growth.
However, the attributes of “good corporate governance” in the SME sector must be set in context.
It would not be appropriate to overlay the principles applied to public interest entities onto smaller, non-complex organisations.
Nonetheless, although small business may not be complex, the business environment today is complex and is regulated by both operational and financial reporting regulation.
SMEs need to have appropriate procedures in place to ensure that their businesses grow within the regulatory framework, so that they are not penalised at a later stage for non-compliance.
Around the world businesses of all sizes, including SMEs, are grasping opportunities for trade on an international basis, often with countries with developing economies.
While auditors cannot be expected to have the skills needed to advise on international trade regulations, their broader business experience will enable matters to be brought to the attention of management for follow up action on a timely basis.
However, regulatory oversight over business activity in these developing economies is still being established and consequently the exceptional opportunities may also bring unprecedented risks.
SMEs should anticipate and prepare for these opportunities from a foundation of strong business practices.
While an external audit will not solve every problem, it will provide a robust structure for matters to be identified and resolved before the scale of operations and associated business risk increase significantly.
Simple examples of business risk with financial impacts include the scenario where an SME is importing or exporting for the first time and does not have appropriate procedures in place to recognise and mitigate foreign exchange risk.
At a broader level, an SME which is not familiar with the way VAT apply to its products and service, may be faced with substantial unexpected assessments that have an adverse impact on their incomplete cash flow projections.
Typically in SMEs, owners are involved in the daily management of the business.
Consequently, during the course of an audit, there is opportunity for frequent and open communication between the auditors and the owner/managers.
This means that the auditors become aware of matters of significance to the owner/managers and that many issues otherwise outside the scope of the audit are often brought in and examined within the scope of the audit.
- For more information, visit us at. Baker Tilly Gwatidzo 8 Fletcher Road Mount Pleasant Telephone 369730, 369737, 301598 www.bakertillygwatidzo.co.zw [email protected]
Examples include controls over payroll, retirement fund contributions, indirect taxes, comments on efficiency and effectiveness of business practices.
SMEs typically grow to a point where the owners can no longer make all the operational decisions and are forced to put in management and controls.
This is a particularly vulnerable stage for any business and may carry on for an extended period during the growth phase.
During this period an audit can add considerable value in identifying controls, management and system issues as well providing regulatory oversight.
The current threshold at which audits are mandated in most economies are broadly set at the level where transition to a management structure is likely to have commenced in business.
ABOUT BAKER TILLY INTERNATIONAL
Baker Tilly International is the world’s 8th largest accountancy and business advisory network by combined fee income of its independent members.
It is represented by 147 independent firms in 114 countries with combined fee income of US$3,13billion and 26 000 people worldwide.
Its members are high quality, independent accountancy and business advisory firms, all of whom are committed to providing the best possible service to their clients, both in their own marketplace and across the world.
Baker Tilly Gwatidzo is the representative member firm of Baker Tilly International in Zimbabwe.
For more information, visit us at. Baker Tilly Gwatidzo 8 Fletcher Road Mount Pleasant Telephone 369730, 369737, 301598 www.bakertillygwatidzo.co.zw [email protected]
Online Reporter
daniel chigunwe