Abstract
The recent scandals and corporate failures in the United States and in Europe have led to a renewed interest in research of corporate governance. The objective of this chapter was to explore the role of internal control in enhancing the corporate governance and supervise the functionality of the implementation of the corporate government principles. The results show that the internal control has a significant role in enhancing the corporate governance pillars in companies, and the successes of corporate governance requires compliance with all elements of internal control.
TopBackground
The etymology of the word ‘control’ comes from the Latin phrase “contra roles”, which means „confronting a duplicate document with the original” (Rankin, Stanton, McGowan, Ferlauto, & Tilling, 2012).
Semantically, control means “a permanent or periodical analysis of an activity, of a situation in order to follow its progress and take measures of improvement” (Elbannan, 2009). At the same time, control means a continuous moral and material supervision, such as the control of an activity, of a situation (Steinthórsdóttir, 2004).
From the point of view of its mission, control is an inherent component of management; it is a specific human activity that serves the management, third party business partners as well as the public authorities and even the population (Young, 2002).
Control has evolved and continues to evolve after the appearance of other patterns of control based on the environment where it is used and is, at its turn, in continuous movement, through the improvement of commercial relations and the permanent evolution of the market economy (Shah, Butt & Saeed, 2011).
This type of organization of the internal control system which is not specific to the planned economy has led managers to believe that the organization of control is benevolent and corroborated with the lack of any management responsibility, in the first years after 1989, it has weakened the effectiveness of the internal control system (Marlin & Geiger, 2012).
Key Terms in this Chapter
Auditing: Systematic process of objectively obtaining and evaluating statements about economic actions and events in order to assess the degree of compliance of these statements with pre-established criteria and to communicate results to interested users.
Financial Performance: Level of performance of a business over a specified period of time, expressed in terms of overall profits and losses during that time.
Corporate Governance: Set of measures taken within the social entity that is an enterprise to favor the economic agents to take part in the productive process, in order to generate some organizational surplus, and to set up a fair distribution between the partners, taking into consideration what they have brought to the organization.
Board of Directors: Group of persons elected by the shareholders of a corporation to govern and manage the affairs of the company.
Stakeholder: Any group or individual who can affect or is affected by the achievement of the organization’s objectives.
Internal Control: Process which providing reasonable certainty regarding the achievement of the objectives of efficiency and effectiveness of operating activities, reliability of accounting information, compliance with laws and regulations.