There has been increased focus on director responsibilities since the Enron accounting scandals in the USA (which resulted in the Sarbanes Oxley Act of 2002). In Canada, according to CICA’s Guidance for Directors on Governance Processes for Control, the responsibilities of boards of directors are determined by the legal and administrative framework within which organizations function. In this guidance, the view of board responsibilities is founded on the principle that the directors are stewards of the organization. As such, they have a responsibility to oversee the conduct of the business and to monitor management, endeavouring to ensure that all major issues affecting the business and affairs of the organization are given proper consideration.
The guidance identifies the contributions of the board of directors to internal controls as follows:
• Approving and monitoring mission, vision and strategy.
• Approving and monitoring the organization’s ethical values
• Monitoring management control
• Evaluating senior management
• Overseeing external communications
• Assessing the board’s effectiveness
This has not only improved financial reporting compliance, but compliance in other facets of the organization, which as it turns out, has reduced operational risk. In this way, SOX should also be thought of as a risk management tool.