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Comptronix

In: Business and Management

Submitted By jasperjune11
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The board of directors, and its audit committee, can be an effective [4] corporate governance mechanism. [a] Discuss the pros and cons of allowing inside directors to serve on the board. Describe typical responsibilities of audit committees.
Professional standards note that the board of directors and its audit committee are an important component of an entity’s control environment. Those standards (e.g., see
Appendix B in AU Section 314) note that “an entity’s control consciousness is influenced significantly by the entity’s board of directors or audit committee.” Frequently, the board of directors is viewed as the top internal control mechanism responsible for overseeing the actions of top management on behalf of the shareholders.
Because shareholders are generally not able to monitor management on a day-to-day basis, they delegate that responsibility to the board of directors. The board is responsible for raising and pursuing difficult questions with top management. Because the board is responsible for monitoring entity activities, it is important to include insiders on the board to ensure that the board has the necessary information about company transactions and activities to make decisions that are in the best interests of shareholders. Thus, most company boards of directors include several members from the company’s top executive team as full members of the board. Those members help provide necessary information to the board as it makes key decisions. However, there are risks of including too many top executives on the board. To help prevent the board from becoming an instrument of top management that could be manipulated to management’s versus the shareholders’ best interests, it is important that outsiders (i.e., individuals who are not employed by the company) be included on the board as directors. Representation of outsiders helps...

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