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: What is Cumulative Voting?6 Views
Finance, a la shmoop. What is cumulative voting? All right people there are two
flavors of voting in the land of common stock, there's cumulative and statutory. [Two ice cream cones held next to each other]
Cumulative voting just somehow sounds cooler, doesn't it? It allows teams to [Guy points at the ice cream cone and drops it]
join forces and pool their votes cumulatively
for target candidates to get elected that is it allows for the disaggregation,
$5 word there, of board members when voting. That is if a shareholder has one [5 dollar price tag appears]
percent of the common shares outstanding of a company and cumulative voting is [Pie chart showing the small 1% holding]
allowed and there are five candidates being elected, well that shareholder can
vote effectively five percent of their total shares voteable for just one
candidate. Said graphically with blood and guts it looks like this. Cumulative [Table showing shares equalling number of votes per candidate]
voting helps the little guy to have a big presence, with only 1% of the shares [Kid sat at a shareholder meeting]
the little guy can be felt as a 5% holder which makes you know him or her a [Kid jumping to hit a Mario coin box]
relatively major player. It also encourages boards to rotate seats [People swapping seats in the boardroom]
gradually, that is if there were seven seats coming up for election while that
1% could feel like 7% which starts to get dangerous in a contentious board and [The people in the boardroom start fighting]
company situation. You can imagine someone who only owns a small part of
the shares outstanding could elect a whole lot of board. Yeah that'd be a [Wooden boards replace the people in suits]
little scary. Well, score one for the little guy... [Kid laughing will an evil face]
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