The goal is to establish procedures that create reasonable security so that fraud does not occur
In response to financial statement fraud but also to other problems existing in companies, the regulation of corporate governance. As part of these corporate governance policies, those relating to accounting governance or government of the budget. Its objective is to ensure that the financial statements reflect, in a reliable and compliant manner, the real economic and financial situation of the company.
As an example of these practices, there are:
I. Establishment of effective and reliable internal controls and respective lines of defense, including independent audit activity.
II. Preparation of accounting policies relating to the recognition, measurement and disclosure (disclosure) of equity and income components that involve significant judgments by those responsible for preparing financial statements.
III. Construction of a risk matrix, which considers the extent and probability of events, and also a management policy to enable the identification, evaluation, quantification and monitoring of material issues.
IV. Creation of an effective and independent Whistleblower Channel (ombudsman), which allows the reception of episodes of fraud and other illicit acts and which guarantees adequate protection for whistleblowers.
V. Use of the work of specialists external and independent of the company to examine and validate significant events and operations having a material impact on the financial statements, as well as in the preparation of studies and opinions on complex topics to provide advice to managers.
SAW. Supervision of external audit work, including establishing the team, monitoring the annual work plan, discussing significant accounting issues and significant deficiencies in internal control, etc.
VII. Defining the structure and flow of review and approval of financial information disclosed to the capital market involving, for example, management, audit committee, board of directors, tax council, etc.
It should be underlined that budget governance has a procedural nature, with effective implementation, and not just “formal” aspects. Its objective, in fact, is to establish procedures that create reasonable security so that fraud does not occur. In this scenario, this also falls within the scope of the duty of care of the directors (art. 153 LSA) who, ultimately, are responsible for drawing up the financial statements.
Source: Terra
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