Explain the roles, duties, and responsibilities of managers and governing boards of reporting entities

Answer 1

Firms receive funds from owners with the expectation that managers will use the funds to increase the market value of the firm. From a legal perspective, managers are agents of the shareholders and have responsibility for safeguarding and properly using the firm's resources. Managers establish internal control procedures to ensure the proper recording of transactions and the appropriate measurement and reporting of the results of those transactions. Shareholders elect a governing board, sometimes called a board of directors, which is responsible for selecting, compensating, and overseeing managers; for setting the firm's dividend policy; and for making decisions on major issues such as acquisitions of other firms and divestitures of lines of business. Some governing boards, including all boards of publicly traded U.S. firms, have a special committee charged with oversight of financial reporting.

Under the oversight of governing boards, managers have responsibility for preparing the firm's financial reports. If the firm's shares trade publicly, laws and regulations may specify the accounting system the firm must follow (for example, U.S. GAAP or IFRS). Management has responsibility for understanding the transactions, events, and arrangements that it reports in the firm's financial statements and for properly applying accounting requirements.