Corporate Governance and Ethics

Zabihollah Rezaee is the Thompson-Hill Chair of Excellence and Professor of Accountancy at the University of Memphis. He holds CPA, CFE, CMA, CIA, and CGFM certifications. He is the author of Financial Institutions, Valuations, Mergers and Acquisitions and Financial Statement Fraud: Prevention and Detection and has published more than 135 articles in a variety of accounting and business journals.

"This comprehensive overview covers the theoretical and practical aspects of corporate governance and ethics." (Ethical Corporation Magazine, June 2008)

• Part One Private Enterprise and Public Trust 1Chapter 1. The Free Market System and Business 3Introduction 3The Free Enterprise System and Capital Markets 4Public Trust and Investor Confidence 6The Role and Responsibility of Business in Society 7The Role of Financial Information in the Capital Markets 11Introduction to Corporate Governance 16Introduction to Business Ethics 20Classroom Implications of this Book 22Summary 23Key Terms 24Review Questions 24Discussion Questions 25Notes 26Chapter 2. Corporate Governance 28Introduction 28Definition of Corporate Governance 29Aspects of Corporate Governance 30Corporate Governance Structure 34Sources of Corporate Governance 44Corporate Governance Reforms 45Sarbanes-Oxley Act of 2002 46Corporate Governance Rating 49Corporate Governance Reporting 50Global Convergence in Corporate Governance 54Summary 56Key Terms 57Review Questions 58Discussion Questions 58Notes 59Chapter 3. Introduction to Business Ethics 60Introduction 60Ethical Theories 61Ethics in the Workplace 62Business Ethics 64Triangle of Business Ethics 66Ethics Teaching in Business Schools 71Professional Ethics 74Reporting Business Ethics and Conduct 75Financial Reporting Integrity 78Summary 82Key Terms 83Review Questions 83Discussion Questions 83Notes 84Part Two Roles and Responsibilities of Corporate Governance Participants 87Chapter 4. Board of Directors’ Roles and Responsibilities 89Introduction 89Role of the Board of Directors 90Fiduciary Duties of the Board of Directors 93Board Committees 96Board Models 98Board Characteristics 100Board Selection 107Director Education and Evaluation 108Board Accountability 108Effective Corporate Boards 110Director Liability 111Summary 113Key Terms 115Review Questions 115Discussion Questions 115Notes 116Chapter 5. Board Committee Roles and Responsibilities 117Introduction 117Relevance of Board Committees 118Audit Committee 118Compensation Committee 133Corporate Governance Committee 139Nominating Committee 142Other Board Standing Committees 147Summary 147Key Terms 149Review Questions 149Discussion Questions 149Notes 150Chapter 6. Roles and Responsibilities of Management 152Introduction 152Management Responsibilities 153Corporate Officers 155Executive Compensation 159Financial Reporting Requirements 161Financial Reporting Challenges 164Internal Control Reporting and Executive Certifications 176Enterprise Risk Management 182Tax Accounting 185Summary 186Key Terms 187Review Questions 188Discussion Questions 188Notes 189Chapter 7. Regulatory Bodies,Standard Setters, and Best Practices 191Introduction 191Regulations 192The Sarbanes-Oxley Act of 2002 193Securities and Exchange Commission 204Public Company Accounting Oversight Board 208Federal Sentencing Guidelines for Organizations 211American Institute of Certified Public Accountants 211Financial Accounting Standards Board 213Government Accounting Standards Board 214International Federation of Accountants 214Committee of European Securities Regulators 215State Influence on Corporate Governance 215Corporate Governance and Courts 216Corporate Governance and Self-Regulatory Organizations 216Best Practices 219Summary 222Key Terms 223Review Questions 224Discussion Questions 224Notes 224Chapter 8. Internal Auditors’ Roles and Responsibilities 227Introduction 227Internal Auditing Function and Corporate Governance 228Trend and Relevance of Internal Auditors 231Authorities and Responsibilities of Internal Auditors 232Internal Audit Outsourcing 236Audit Committee Relationship with Internal Auditor 236Internal Auditors’ Role in Internal Control 238Institute of Internal Auditors 240Determinants of Effective Internal Audit 243Summary 247Key Terms 248Review Questions 248Discussion Questions 249Notes 250Chapter 9. External Auditors’ Roles and Responsibilities 252Introduction 252External Auditing and Corporate Governance 253External Auditor Responsibilities 255Auditor Competency 256Audit Failures and Audit Quality 257Public Company Accounting Oversight Board 258Audit Committee Oversight of External Auditors 267Auditor Independence 273Consolidation and Competition in Public Accounting Firms 276Integrated Audit Approach 277Audit Strategy 277Audit of Defined Benefit Pensions 279Auditor Liability Limitation Agreements 279Summary 283Key Terms 284Review Questions 284Discussion Questions 285Notes 286Chapter 10. Stakeholders’ Roles and Responsibilities 288Introduction 288Shareholders 289Institutional Investors 295Mutual Funds 298Hedge Funds 300Investor Activists 300Employee Monitoring 300Summary 303Key Terms 304Review Questions 304Discussion Questions 304Notes 305Chapter 11. Roles and Responsibilities of Other Corporate Governance Participants 307Introduction 307Legal Counsel 308Financial Advisors 312Investment Banks 316Summary 318Key Terms 318Review Questions 319Discussion Questions 319Notes 319Part Three Contemporary Issues in Business Ethics and Corporate Governance 321Chapter 12. Technology and Corporate Governance 323Introduction 323Information Technology 324Cybercompany Model 325Extensible Business Reporting Language 327Continuous Auditing 333Summary 336Key Terms 337Review Questions 337Discussion Questions 338Notes 338Chapter 13. Corporate Governance in Private and Not-for-Profit Organizations 340Introduction 340Types of NPOs 341Purpose and Role of NPOs 342Public Trust in NPOs 343Governance of NPOs 345Governance Structure of NPOs 350Oversight Function of NPOs 351Internal Control in NPOs 356Summary 357Key Terms 358Review Questions 358Discussion Questions 358Notes 359Chapter 14. Corporate Governance in Transition 361Introduction 361Historical Perspective of Corporate Governance 362Corporate Governance: A Global Perspective 362Convergence in Corporate Governance 381Corporate Governance in Multinational Corporations 390Summary 391Key Terms 392Review Questions 392Discussion Questions 392Notes 392Chapter 15. Emerging Issues in Corporate Governance 395Introduction 395Investor Confidence and Global Financial Markets 396Accountability: The New Business Imperative 403Social, Environmental, and Ethics Performance 403Shareholder Challenging Issues 406Challenges Facing Directors 409SOX Compliance Challenges 413Financial Reporting Challenges 414Emerging Auditing Issues 425Summary 429Key Terms 430Review Questions 430Discussion Questions 431Notes 431Index 435