Large companies are overseen by what's called a board of directors. This is a group of people who have ultimate authority over what happens at the company. A company's CEO will run the organization, but he or she ultimately answers to the board, which can fire the chief executive and hire a new one if they deem it necessary.
Within the board, there might be several sub-committees. One of the most common of these is the audit committee, which has oversight over the routine audits conducted for the company's financial results.
These audits are supposed to be run by outside accountants, independent of the firm's management (remember, the firm's management created the financial statements that are getting audited in the first place).
The audit committee, usually made up of at least three board members (but often more, depending on the overall size of the company), will communicate with the auditors, helping to keep them clear of management influence and helping them maintain their independence. This allows the board to get a clearer picture of the financials and provide a check against what management is reporting. This may seem paranoid, but its considered routine and part of normal corporate governance.
Related or Semi-related Video
Finance: How does a board of directors f...27 Views
Finance a la Shmoop! How does a board of directors function?
All right, well structurally, the Board of Directors has really one function, after
it is elected by a vote, of the common shareholders, of the company. The board of
recruits, then hires the CEO and that's not necessarily easy. Because, most
of the good CEOs, you actually want, are already ensconced in high-paying jobs, [man being offered money]
from which they have to be bought away. Picking the right CEO, is the big
roulette wheel bet, the board makes. Is the CEO good, or bad, or ugly and yeah the
CEO can be all three. After being hired the CEO then hires everyone else, more or
less. In a public company, the board divides into committees, to advise and
oversee many of the little processes. There's audit committee people and
nomination and government committee people and Compensation Committee people.
In large companies there are also, often subcommittees, that focus on narrow
things, like technology, or politics and lobbying and, or the environment. You know, if [oil drill with man and duck]
you work for a big polluter. Well another big element of board value-add, revolves
around, strategy. Are we the high cost, high value company, or are we the low cost,
Walmart desk provider? That is, are we Pirates of the Caribbean, or are we La La
Land? What other strategic issues are we fighting? How do we get into China and [world map]
Russia and get out of Somalia? So yeah, that's strategy. How does the
board cover its primary obligations, in providing a fiduciary duty, to the
shareholders, who elected them? Is the board governing fairly and equitably?
Yeah, how do they do that? Well they just basically pay attention, right? Are
company policies racist, or gender biased, or ageist?
Which is illegal everywhere, except Silicon Valley in Hollywood. Are all the [director and actress]
right controls inspected, like audit, hiring, firing, policies and our
companies casual Fridays, have they gotten to just to casual? Is that a board item?
Yah, alright, next meeting. So yeah, that's the gist, hire the CEO, form
committees and of course they're also in charge of bagel Thursdays. [man in panda suit, bagels falling from sky]
Up Next
What is Adverse Audit Opinion? An adverse audit opinion signals that an auditor has found flaws in a company’s financial statements. Adverse audi...
What is a proxy? Proxy statements are documents that are sent to shareholders of public companies that contain detailed information on agenda subje...
What is non-voting stock? Non voting stock is a class of stock that carries no voting rights on agenda items subject to shareholder vote. While som...
What is Cumulative Voting? When public companies have ballots for shareholders to vote for board members, shareholders have a total number of share...