What is a Corporate Governance Audit?

A corporate governance audit is a process often known as a process of systematic curiosity. An organization’s board of directors or executive management will review their firm’s operating activities to ensure everything is in good working order. Similar to a medical checkup, the corporate governance audit allows owners, board members, and managers to correct business problems before they do excessive harm to the company, make business decisions that improve the company, and create a set of repeatable procedures for maintaining a sustainable business environment.

Companies may not go through the corporate governance audit process very often. Like most audits, taking copious amounts of time to review corporate governance may result in executives who do not focus properly on their normal tasks. Most times, the company will utilize their corporate lawyers, upper-level accounting staff, or an outside firm to handle this task. Government agencies may require these audits as a part of the company’s regular audits. This allows publicly held companies to remain in compliance with the requirements for selling stocks on a national stock exchange.

The corporate governance audit can review factors internal or external to the firm. Internal factors involve looking at the actions of the company’s chief executive officer, how well the company insulates itself from unexpected crises, what the major goals of the company are and whether the company adequately defends itself from takeover bids. External factors within the audit include reviewing what stock analysts may be saying about the company, services received from accounting firms and auditing groups, and the amount of liability or other insurance the company has to cover losses or other business issues.

Another important issue found in the corporate governance audit is the review of each board member. In most cases, the board of directors should remain independent of the company’s management group. The board of directors should act with the fiduciary responsibility of the shareholders. Failing to do so can violate the independence of board members and result in the question of their actions, whether they act for themselves or the shareholders. Audits help bring issues to light that can quickly be corrected, avoiding any negative press and further complications from the governance process.

Companies should create a plane for auditing their governance on a regular basis. Executive managers, owners, and board members may also sign agreements to properly engage in the audit and have actions reviewed as necessary. This creates an open and transparent environment within the firm. Setting this tone can also help future governance audits go more smoothly, and potentially cost less money. The organization may also be able to squelch rumors or other issues by presenting information from the audit to outside stakeholders.