CG CHP 12 PDF

Contemporary Issues in
Business Ethics and

Corporate Governance
Information Technology
IT can play an important role in corporate governance as a

tool to improve the efficiency and effectiveness of
corporate governance.
The CIO or IT manager is responsible for management and

operation of the IT function to support other corporate
governance functions. Compliance with Sections 404 (real-
time disclosures) and 802 (criminal penalties for altering
documents) of SOX necessitates the use of IT solutions for
timely access to secure and complete business
documents.
Electronic Disclosure
The SEC has recently accepted, on a voluntary basis, filing of
financial reports in XBRL format, along with statutory filings
under the Electronic Data Gathering, Analysis, and Retrieval
(EDGAR) system.
Cybercompany Model
The full and effective use of IT may shape and improve
corporate governance functions. Cybercompany may consist
of the following elements:
1. Electronic Communication with Shareholders. Shareholder

voting can be done electronically by using the same
technologies used in local and national elections. it is
expected that in the future, the majority, if not all, of
companies’ communications will be conducted in
electronic form.
2. Electronic Commerce. E-commerce has had profound
implications for corporate governance and raised several
policy, legal, and business issues that need to be
addressed.
3. Electronic financial reporting. (will be discussed in the
next slide)
Electronic Financial Reporting
High-quality financial information can be produced only under
effective accounting and internal control systems guided by
sound accounting practices and audited by competent and
independent auditors.
1. Information infrastructure. Information infrastructure
determines the way financial information is generated,
processed, analyzed, audited, and used in making business
and investment decisions.
2. Internal controls. Timely compliance with provisions of
SOX, particularly Sections 302, 404, 409, and 802, requires
companies to use their IT resources or obtain IT solutions
required to access and process the data.
3. Information security. Although SOX does not explicitly
address information security, Sections 302 and 404, along
with related SEC implementation rules, require
management to assess and document IT controls, including
information security, to ensure the reliability of financial
statements.
Extensible Business Reporting
Language (XBRL)
XBRL is an XML-based (Extensible Markup Language) platform
for the analysis, exchange, and reporting of financial information
with the purpose of integrating business reports and technology
solutions.
The standardized XBRL format allows all market and corporate

governance participants to electronically share financial
information to the extent that investors have access to the same
information as analysts.
The XBRL tags are prepared according to applicable taxonomies

such as GAAP for financial reporting, tax rules for tax purposes,
or specific regulatory definitions for regulatory filings.
XBRL makes it easier to generate, compile,

validate, and analyze business and financial
information
XBRL
Costs and Benefits of XBRL
Adopting XBRL might be a significant investment, but XBRL
provides cost savings through usage. Not only are the primary
users finding benefits through XBRL, but secondary users such
as investors will be able to search and locate information in a
more timely fashion.
XBRL Application
The SEC, in September 2018, proposed a voluntary plan for all
public companies to submit their financial statements using
XBRL beginning with the 2004 calendar year-end report filings.
The first mandatory e-filing using XBRL format is now
implemented under the call report modernization project for
about 8,400 financial institutions.
Future of XBRL
XBRL is expected to substantially reduce manual effort in the
preparation of financial statements, strengthen ICFR, improve
financial statement comparability, and level the playing field for
investors to gain access to real-time, online financial information.
Continuous Auditing
Continuous auditing is defined as “a comprehensive
electronic audit process that enables auditors to provide
some degree of assurance on continuous information
simultaneously with, or shortly after, the disclosure of the
information”.
Continuous auditing enables the following benefits:

1. Reduction of the cost of an audit engagement by
enabling auditors to test a larger sample of client’s
transactions
2. Reduction of the amount of audit resources needed to
manually perform tests of controls and substantive tests
3. Increase in the quality of financial statement audits by
allowing auditors to use the integrated audit approach of
understanding the entity-level control environment
4. Specification of transaction selection criteria to choose
transactions or transaction cycles and perform integrated
audit.
Technology Solutions
Among the recently developed technology solutions is
business assurance analytics software designed by ACL
Services Ltd. to alert company executives when questionable
transactions occur.
Analytics software continuously monitors business activities,

drawing attention to any suspicious or fraudulent activities.
Conclusion
• IT can play an important role in corporate governance as a
tool to improve the efficiency and effectiveness of corporate
governance.
• The cybercompany model presented in this chapter is
characterized by (1) electronic communication with
shareholders, (2) e-commerce, (3) electronic financial
reporting, and (4) electronic continuous auditing.
• E-commerce has become an integral component of
business strategies and has altered the way organizations
conduct their daily operations. The business framework
has transformed from “brick-and-mortar” to a “brick-and-
click” infrastructure.
• XBRL enables business reporting information to be
transferred automatically between different computer
platforms and applications. XBRL allows the selection,
analysis, storage, and exchange of tagged data that can be
automatically displayed in various formats.
Conclusion
• The SEC XBRL program, as of now, is a voluntary program
giving opportunities to public companies to participate in the
program and start, as well as stop, their participation as they
desire. The SEC strongly encourages companies to participate
in the voluntary filing program and submit XBRL documents on
EDGAR.
• XBRL-GL is expected to provide the following advantages:
reporting independence, system independence, consolidation,
and flexibility.
• Continuous auditing can offer the following benefits:
Reduction of the cost of an audit engagement by enabling
auditors to test a larger sample of client’s transactions.
Reduction of the amount of audit resources needed to
manually perform tests of controls and substantive tests
Increase in the quality of financial statement audits.
Specification of transaction selection criteria to choose
transactions or transaction cycles and perform integrated
audits
end of presentation

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Contemporary Issues in

Business Ethics and

IT can play an important role in corporate governance as a

The CIO or IT manager is responsible for management and

1. Electronic Communication with Shareholders. Shareholder

The standardized XBRL format allows all market and corporate

The XBRL tags are prepared according to applicable taxonomies

XBRL makes it easier to generate, compile,

Continuous auditing enables the following benefits:

Analytics software continuously monitors business activities,

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