Thursday, December 10, 2009

Objectives of Corporate Governance in an SAP Environment

Governance is a buzzword that has both technical (IT) and business (Corporate) implications. Suffice to say that it is intended to provide direction and add value to a business while leveraging technological possibilities. Corporate Governance can be defined as the management approach, processes and procedures that are in place to ensure that a business is managed profitably. IT Governance on the other side seeks to align IT with the business needs by providing appropriate directions and conducive environment aimed at optimizing the business environment with applications and systems. The SAP ERP system supports corporate governance via the provisioning of functionalities for strategic management, audit information system, business consolidation, management of internal control and performance management among others.

The objectives of corporate governance can be discussed under the following subject areas:

1. Transparency: Transparency is key in gaining shareholders and investor’s confidence in a business. The SAP system allows for online real-time access to information that can be used for decision making. Before transactions are posted into the system, it is important to ensure that processes leading to the transaction are very transparent. Corporate governance encourages organizations to make sufficient disclosures about their financial statement. Internationl Financial Reporting Standards (IFRS) is very strong in this regard, especially as it requires more disclosures when compared to local standards.

2. Efficiency: Corporate governance seeks to bring effectiveness and efficiency to processes and operations of an entity. Continually, processes should be reviewed to ensure that they are effective and in line with corporate objective and strategy. This is what corporate governance aims to achieve. Processes such as period end closing, stock taking, modification are expected to be carried out in an effective and efficient manner.

3. Monitoring: Continuous monitoring and compliance with regulations and pronouncements is an important objective of corporate governance. On a defined basis, an entity must make sure that new regulations are adopted as at when due to avoid the attendant implications – jail term, loss of brand and image etc.

Central to achieving these objectives are appropriate tools – technology and systems. Hence, to effectively enforce corporate governance, IT governance is Key!

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