Matakuliah
Tahun
: F0122 – Seminar Akuntansi
: 2009
Corporate Governance
Pertemuan 06
Corporate Governance
Accounting Seminar
Week 6
Prepared by:
Gatot Soepriyanto, SE., Ak., M.Buss (Acc)
The Corporate Governance Environment
• Corporate governance practices signal the
potential for earnings management—permissive
structures indicate that manipulation is more
likely
• The board of directors sets overall policy &
provided oversight for operating activities
• Historically, boards were composed mainly of
owners, managers & other insiders
• It is now clear that a majority of independent
board member is essential for effective oversight
Analyzing Corporate Governance
• Analysis of corporate governance is a qualitative
analysis, based on structures & policies of the board
• The primary source of information is the Proxy
statement, usually issued after the annual report (&
associated with the upcoming annual stockholders’
meeting)
Areas of Corporate Governance Analysis
• The CEO & board of directors—composition,
independence & policies
• Executive compensation—what forms, how
much, relation to performance
• Auditing—the role of the audit committee, the
external auditor, non-audit fees
• Related-party transaction—potential conflicts of
interest
• Insider trading—patterns that suggest abuse
• Investment banking relationships
• Evidence of past abuse such as earnings
restatements
Concerns with the Board of Directors
•
•
•
•
Is the CEO also the chairman of the board?
Evidence of CEO oversight abuse
Are a majority of board members independent?
What are the board committees & is there evidence that
they’re active & effective
• Evaluate board compensation—is it based on
performance & active participation
Concerns with Executive Compensation
• Evaluate the compensation committee for
independence & competence
• Analyze the executive compensation (especially
the CEO) by component: base pay, bonuses,
stock options (& other forms of ownershiprelated compensation) & perks
• Is compensation based on performance?
Evaluate based on earnings & stock price
performance
• Particular concerns are for over-compensation
of CEO for poor performance & impact of
previous accounting-related abuses
Concerns with Auditing
• Evaluate the audit committee for independence,
competence with financial information, how many times
the committee meets & other evidence of diligence
• Review audit procurement practices, including the
external auditor (usually a Big 4 firm), non-audit fees, the
audit opinion & timeliness of reports
Other Concerns
• Are there related-party transactions? If so, do
they signal potential manipulation or a
permissive environment?
• Evaluate insider trading (buying & selling of
corporate stock by senior executives)—are there
patterns that suggest abuse?
• Do investment banking relations exist that
suggest potential abuse?
• Is there evidence of past accounting abuse (e.g.,
earnings restatements) or on-going problems
(such as SEC investigations)
Assignments
Discuss and present the following paper:
• Earnings Management and Corporate Governance in
Asia’s Emerging Markets
– By
Chung-Hua Shen and Hsiang-Lin Chih (Corporate
Governance: An International Review, 2007 - papers.ssrn.com)