Meaning
Formal reviews of the internal procedures and board records of an organization identify gaps in legal or regulatory compliance. A corporate governance audit examines the history of resolutions, authorizations and filings to ensure the company has followed its own rules. This process stops at the boundary of financial accounting and focuses instead on the decision making record.
Process Oversight
Auditors check that every major action was approved by the correct people according to the bylaws. During a corporate governance audit, the reviewer verifies that board meetings were properly called and that minutes were accurately recorded. This ensures that the authority of the officers is legally sound.
Risk Identification
Finding an undocumented share issuance or an unauthorized contract early allows the company to fix the problem before it becomes a liability. A corporate governance audit often uncovers informal decisions that were never translated into formal board resolutions. These errors can invalidate a future sale or investment if they are not corrected through a ratification process.
Identifying the lack of a proper quorum for an important vote is a typical finding. Detailed reports show where the administration of the company has fallen behind the legal requirements.
Record Integrity
Maintaining a high standard for internal records protects the founders from personal liability and professional disputes. The results of a corporate governance audit provide a roadmap for improving the transparency and legality of the firm’s operations. Reliable records are the basis for trust between the board and the shareholders.
