Republic of the Philippines
Laguna State Polytechnic University
ISO 9001:2015 Certified
Level I Institutionally Accredited
Province of Laguna
LSPU Self-Paced Learning Module (SLM)
Course
Governance, Business Ethics, Risk Management, and Internal Control
Sem/AY
First Semester/2023-2024
Module No.
Lesson Title
Week
Duration
Date
Description
of the
Lesson
2
Module 2: Corporate Governance Responsibilities and Accountabilities
1
This lesson will discuss what is the relationship between shareholders/owner(s) and other
stakeholders, and parties involved in corporate governance with their respective broad role
and specific responsibilities.
Learning Outcomes
Intended
Learning
Outcomes
Targets/
Objectives
Students should be able to meet the following intended learning outcomes:
 Identify and discuss the parties involved in Corporate Governance
 Discuss the relationship between shareholders or owners and other
stakeholders
At the end of the lesson, students should be able to:
 Explain the relevance of good governance to both large publicly-listed
companies and SMEs
 Discuss the respective broad rate and specific responsibilities of the different
parties in a corporate setting.
Student Learning Strategies
Online Activities
(Synchronous/
Asynchronous)
A. Online Discussion via Google Meet/Classroom or Messenger (Meeting
Room or GC)
Students will be directed to attend in a minimum of one-hour class
discussion on government accounting. To have access to the Online
Discussion, students will be directed to a google classroom/messenger
GC.
The online discussion will happen on the Third day of each week based
on the schedule provided by the College.
Further instructions, can be provided in the Group Chat or common
LSPU SELF-PACED LEARNING MODULE: Governance, Business Ethics, Risk Management, and Internal Control
Republic of the Philippines
Laguna State Polytechnic University
ISO 9001:2015 Certified
Level I Institutionally Accredited
Offline Activities
(e-Learning/SelfPaced)
Province of Laguna
email created specifically for the group.
Lecture Guide
a. Modules, activity sheet, learning materials stored in a hard drive, sent to the
common email created for the specifically for the group.
b. developing document, spreadsheet, presentation file outputs
Lecture Guide
Many of the characteristics of good governance described and explained in Chapter 1 are
relevant to both SMEs and large listed public companies. As an organization grows in size
and influence, these issues become increasingly important.
It is also important to recognize that good corporate governance is based on principles
underpinned by consensus and continually developing notions of good practice. There
are no absolute rules which must be adopted by all organizations. “There is no simple
universal formula for good governance”. Instead emphasis is many localities, has been
encourage organizations to give appropriate attention to the principles and adopt
approaches which are tailored to the specific needs of an organization at a given point in
time.
When discussing corporate governance, it is often spoken of in terms of a company’s
corporate governance framework. The key elements within an effective governance
framework, and the issues relating to each element, are set out on the following pages
and are relevant to organizations large and small, in both the private and the public
sectors. The table provides a useful structure for any company to consider its own
approach to corporate governance and the matters which may assist to achieve its
strategic objectives.
Many of the matters listed may nit be directly relevant in all situations and some may
not, in particular circumstances, be within the board’s control, but it provides a useful
context in which any organization can be consider its governance needs so that they
might be most appropriately addressed.
The essence of any system of good corporate governance is to allow the board and
management the freedom to drive their organization forward and to exercise that
freedom within a framework of effective accountability
LSPU SELF-PACED LEARNING MODULE: Governance, Business Ethics, Risk Management, and Internal Control
Republic of the Philippines
Laguna State Polytechnic University
ISO 9001:2015 Certified
Level I Institutionally Accredited
RELATIONSHIP
STAKEHOLDERS.
BETWEEN
Province of Laguna
SHAREHOLDERS/OWNER(S)
AND
OTHER
Governance starts with the shareholders/owners delegating responsibilities through an
elected board of directors to management and, in turn, to operating units with oversight
and assistance from internal auditors. The board of directors and its audit committee
oversee management and, in that role, are expected to protect shareholders’ rights.
However, it is important to recognize that management is part of the governance
framework; management can influence who sits on the board and the audit committee as
well as other governance controls that might be put into place.
In return for the responsibilities and power given to management and the board,
governance demands accountability back through the system to the shareholders.
However, the accountabilities do not extend only to the shareholders. Companies also
have responsibilities to other stakeholders. Stakeholders can be anyone who is
influenced, whether directly or indirectly, by the actions of a company. Management and
the board have responsibilities o act within the laws of society and to meet various
requirements of creditors, employees, and the stakeholders.
A broad group of stakeholders has an interest in the quality of corporate governance
because it has a relationship to economic performance and the quality of financial
reporting. For example, it is likely that many employees have significant funds invested
in pension plans. Those pension plans are designed to protect the financial interests of
those employees in their retirement. We use the word society in the diagram to indicate
those broad interests. In a similar fashion, employees and creditors have a vested
interest in the organization and how it is governed. Regulators are a response to society’s
wishes to ensure that organizations, in their pursuit of returns for their owners, act
responsibly and operate in compliance with relevant laws.
While shareholders/owners delegate responsibilities to various parties within the
corporation, they also require accountability as to how well the resources that have been
entrusted to management and the board have been used. For example, the owners want
accountability on such thing as:
1. Financial performance
2. Financial transparency – financial statements that are clear with full disclosure
and that reflect the underlying economics of the company.
3. Stewardship, including how well the company protects and manages the
resources entrusted to it
4. Quality of internal control
5. Composition of the board of directors and the nature of its activities, including
information on how well management incentive systems are aligned with the
shareholders’ best interests.
LSPU SELF-PACED LEARNING MODULE: Governance, Business Ethics, Risk Management, and Internal Control
Republic of the Philippines
Laguna State Polytechnic University
ISO 9001:2015 Certified
Level I Institutionally Accredited
Province of Laguna
The owners want disclosures from management that are accurate and objectively
verifiable. For instance, management has a responsibility to provide financial reports,
and in some cases, reports on inter control effectiveness. Management has always had
the primary responsibility for the accuracy and completeness of an organization’s
financial statements. From a financial reporting perspective, it is management’s
responsibility to:
1. Choose which accounting principles best portray the economic substance of the
company transactions
2. Implement a system of internal control that assures completeness and accuracy in
financial reporting
3. Ensure that the financial statements contain accurate and complete disclosure
PARTIES INVOLVED IN CORPORATE GOVERNANCE: THEIR RESPECTIVE BROAD ROLE
AND SPECIFIC RESPONSIBILITIES
Corporate governance and financial reporting reliability are receiving considerable
attention from a number of parties including regulators, standard setting bodies, the
accounting profession, lawmakers, and financial statement users.
1. Shareholder –
Broad Role - Provide effective oversight through election of board members,
approval of major initiatives such as buying or selling stock, annual reports on
management compensation from the board.
2. Board of directors – refers to the collegial body that exercise the corporate
powers of all corporations formed under the Corporation Code. It conducts all
business and control or holds all the assets of such corporations. This body is
formed by the stock/shareholders and they will act as the governing body of the
corporation.
-The BOD will be headed by the chairman of the board who is considered as the
most influential person in the corporation. The board’s activities are determined
by the powers, duties and responsibilities delegated to it or conferred on it by an
authority
Specific activities include among others:
A. Overall Operations:
 Establishing the organization’s vision, mission, values, and ethics
 Delegating an appropriate level of authority to management
 Demonstrating leadership
 Assuming responsibility for the business relationship with CEO
including his or her appointment, succession, performance,
LSPU SELF-PACED LEARNING MODULE: Governance, Business Ethics, Risk Management, and Internal Control
Republic of the Philippines
Laguna State Polytechnic University
ISO 9001:2015 Certified
Level I Institutionally Accredited
Province of Laguna
renumeration, and disposal
 Overseeing aspects of the employment of the management team
including management renumeration, performance, and succession
planning
 Recommending auditors and new directors to shareholders
 Ensuring effective communication with shareholders other
stakeholders
 Crisis management
 Appointment of the CFO and corporate secretary
B. Performance
 Ensuring the organization’s long-term viability and enhancing the
financial plan
 Formulating and overseeing implementation of corporate strategy
 Approving the plan, budget, and corporate policies
 Agreeing key performance indicators
 Monitoring/assessing assessment, performance of the organization,
the board itself, management, and major projects
 Overseeing the risk management framework and monitoring
business risks
 Monitoring developments in the industry and the operating
environment
 Oversight of the organization, including its control and
accountability systems.
 Approving and monitoring the progress of major capital
expenditure, capital management and acquisitions and divestitures
C. Compliance / Legal Conformance
 Understanding and protecting the organization’s financial position
 Requiring and monitoring legal and regulatory compliance
including compliance with accounting standards, unfair trading
legislations, occupational health and safety and environmental
standards.
 Approving annual financial reports, annual reports and other public
documents/ sensitive reports.
 Ensuring an effective system of internal controls exists and is
operating as expected.
3. Non-executive or Independent Directors- a non-executive director is a member of
the board of directors of a company who does not take part in the executive
function of the management team. This director is not an employee of the
company or connected with it in any other way. He is separate from the inside
directors who are members of the board who also serve or previously served as
executive managers of the company.
Specific activities include among others:
 To understand the organization, its business, its operating environment
LSPU SELF-PACED LEARNING MODULE: Governance, Business Ethics, Risk Management, and Internal Control
Republic of the Philippines
Laguna State Polytechnic University
ISO 9001:2015 Certified
Level I Institutionally Accredited
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Province of Laguna
and its financial position
To apply expertise and skills in the organization’s best interests
To assist management to keep performance objectives at the top of its
agenda
To understand that his/her role is not to act as auditor, nor to act as a
member of the management team
To respect the collective, cabinet nature of the board’s direction
To prepare for and attend board meetings
To seek information on a timely basis to ensure that he/she is in a position
to contribute to the discussion when a matter comes before the board or
alert the chairman in advance to the need for further information in
relation to a particular matter
To ask appropriate questions relative to operations
4. Management – This refers to the party given the authority to implement the
policies as determine by the Board in directing the course/business activities of
the corporation. This is the group of people running the day to day activities of the
corporation.
Operations and accountability. Manage the organization effectively, provide
accurate and timely reports to shareholders and other stakeholders
Specific activities include among others
 Recommend the strategic direction translate the strategic plan into the
operations of the business
 Manage the company’s human, physical and financial resources to achieve
the organization’s objectives – run the business
 Assume day to day responsibility for the organization’s conformance with
relevant laws and regulations and its compliance framework
 Develop, implement and manage the organization’s risk management and
internal control frameworks
 Develop, implement and update policies and procedures
 Be alert to relevant trends in the industry and the organization’s operating
environment
 Provide information to the board
 Act as conduit between the board and organization
 Developing financial and other reports that meet public, stakeholder and
regulatory requirements
5. Audit committee of the Board of Directors – Provide oversight of the internal and
external audit function and the process of preparing the annual financial
statements as well as public reports on internal contro.
Specific objectives:
 Selecting the external audit firm
LSPU SELF-PACED LEARNING MODULE: Governance, Business Ethics, Risk Management, and Internal Control
Republic of the Philippines
Laguna State Polytechnic University
ISO 9001:2015 Certified
Level I Institutionally Accredited

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
Province of Laguna
Approving any non-audit work performed by the audit firm
Selecting and / or approving the appointment of the Chief Audit Executive
(Internal Auditor)
Reviewing and approving the scope and budget of the internal audit
function
Discussing audit findings with internal auditor and external auditor and
advising the board (and management) on specific actions that should be
taken
6. Regulators
a. Board of accountancy – Set accounting and auditing standards dictating
underlying financial reporting and auditing concepts; set the expectations
of audit quality and accounting quality.
Specific activities include among others:
 Conducting CPA Licensure Board Examinations
 Approving accounting principles
 Approving auditing standards
 Interpreting previously issued standards implementing quality
control processes to ensure audit quality
 Educating members on audit and accounting requirements
b. Securities and Exchange Commission – Ensure the accuracy, timeliness and
fairness of public reporting of financial and other information for public
companies.
Specific activities include among others:
 Reviewing filings with SEC
 Interacting with the Financial Reporting Standards Council in
setting accounting standards
 Specifying independence standards required of auditors that report
on public financial statements
 Identify corporate frauds, investigate causes and suggest remedial
actions
7. External auditors – perform audits of company financial statements to ensure that
the statements are free of material misstatements including misstatements that
may be due to fraud
Specific activities include among others:
 Audit of public company financial statements
 Audits of nonpublic company financial statements
 Other services such as tax or consulting
LSPU SELF-PACED LEARNING MODULE: Governance, Business Ethics, Risk Management, and Internal Control
Republic of the Philippines
Laguna State Polytechnic University
ISO 9001:2015 Certified
Level I Institutionally Accredited
Province of Laguna
8. Internal Auditors – Perform audits of companies for compliance with company
policies and laws, audits to evaluate the efficiency of operations, and periodic
evaluation and test of controls
Specific activities include among others:
 Reporting results and analyses to management (including operations
management) and audit committees
 Evaluating internal controls
Performance Tasks
1. Does good governance require absolute rules that must be adopted by all organization?
2. What is management’s responsibility as far as financial reporting is concerned
3. What is the essence of any system of corporate governance
Understanding Directed Assess
Do you agree? Explain.
“Small business enterprises do not need good governance”
Learning Resources
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Corporate Governance, Business ethics, Risk Management, and Internal Control 2019 – 2020
edition, Cabrera, Ma. Elenita B., Cabrera, Gilbert Anthony B., GIC Enterprise and Co., Inc, Manila
Good Governance and Social Responsibility 2017 1st edition, Biore, C., Gonzales, R., Caparas, JL.,
Burgos, N., Ballada, W., Made Easy Books., Sampaloc, Manila.
https://www.youtube.com/watch?v=2li3HwEB5A8
https://www.investopedia.com/terms/c/corporategovernance.asp
https://www.icaew.com/technical/corporate-governance/principles/principles-articles/doescorporate-governance-matter
LSPU SELF-PACED LEARNING MODULE: Governance, Business Ethics, Risk Management, and Internal Control