CORPORATE GOVERNANCE IN REVENUE PROCESSES (STUDY OBJECTIVE 10)

Chapter 5 identified four primary functions of the corporate governance process: management oversight, internal controls and compliance, financial stewardship, and ethical conduct.

The systems, processes, and internal controls described in this chapter are part of the corporate governance structure. When management designs and implements processes for sales, sales returns, and cash collections, they assign responsibility for executing those functions to various managers and employees. As management assigns and oversees these revenue processes, it is carrying out the corporate governance function of proper management oversight.

As described in this chapter, management should also establish appropriate internal controls for revenue processes to accomplish the objectives of safeguarding assets within those processes and ensuring the accuracy and completeness of the data produced by the processes. These internal controls are also part of the corporate governance structure.

When management has designed and implemented processes and internal controls and then continually manages them, it is helping to ensure proper stewardship of the company's assets. Corporate governance requires proper financial stewardship. The processes, internal controls, and feedback data from these systems help management report to owners and other stakeholders about proper stewardship of assets within the revenue processes. These assets would include inventory, cash, receivables, and operating assets.

Finally, good corporate governance requires ethical conduct. This chapter described some of the ethical issues that management must consider and address within the revenue processes. When top management acts ethically and encourages ethical behavior throughout the organization, stronger corporate governance is the result. There are usually fewer cases of frauds, errors, or ethical problems in an organization when top management behaves ethically and encourages ethical behavior.

Perhaps it would be easier to understand the way this chapter's topics fit into corporate governance if you think of it from a negative perspective. For example, if management of a particular organization did not establish sound processes, good internal controls, and ethical policies, it would lack good corporate governance. In that organization, revenue processes would be poorly executed and weakly controlled. Management would not be exercising proper financial stewardship. Therefore, stakeholders such as investors, creditors, and owners would have little or no trust in the resulting financial statements. The organization would not represent the type of organization in which we would wish to invest our own money. On the other hand, when an organization has good corporate governance, the stakeholders can correctly have more confidence that proper stewardship is occurring. Establishing proper processes, internal controls, and ethical guidelines leads to better corporate governance and, therefore, good financial stewardship.