While control processes are an important component of the overall control environment, our experience suggests that there is a missing piece in the control jigsaw: the corporate culture.
This paper looks at the factors that can have an impact on the culture of the board, the finance department and the organisation, and the importance of a strong culture in creating a good control environment. It looks at what more can be done to assess and report on the tone and culture of an organisation.
A complete understanding of controls processes in an organisation must include insight into the organisation's culture - PwC believes that although the processes of control in an organisation are key to the control environment, they present only half the picture.
There are three main influences on behaviour - leadership, organisational values and emotional influences on decision making. There is a complex dynamic between these three influences on behaviour.
The leadership is responsible for setting the tone from the top through its actions, behaviours and performance. Values are often stated but will be worthless if they are not lived. Emotional influences or incentives can be a double-edged sword: they can drive the right behaviours, but equally misaligned targets can pull a business off course or, at worse, drive actions that puts the enterprise at risk.
All participants of the capital markets have a role to play in moving the agenda forward - analysts and investors must determine the information they need. Regulators should consider the need for better assessment of the control culture and boards and non-executives can improve their reporting to provide greater comfort on the quality of the board, its leadership and its ability to perform.
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